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Kew Cottages Coalition Reg # A0044698

2011 Ted Baillieu and
                                  Lang Walker 2012 The Developer's Contract
Lang Walker, Kew Development Corporation  & Ted Baillieu, Premier of Victoria

It is January 2012.

It is still not too late to achieve a better outcome at Kew Cottages, because the Government still owns the land.

BUT, and it is a big but... Baillieu's Government does not yet appear to be up to the challenge.

espite all their huffing and puffing about ending spin and secrecy while in Opposition, many of Baillieu's relevant Ministers seem to be remarkably slow in  coming to grips with the Developer's Contract now that they are in Government.

A clear public understanding of what is in the 
Baillieu Walker Contract  is important because the Ministers including Andrew McIntosh, David Davis, Mary Wooldridge, and Matthew Guy all continue to blame the Contract for their failure to implement their Kew Cottages Election Pledge.

So are the terms and conditions of the Developer's Contract really so onerous on the State of Victoria ?

Is the Contract really to blame for the Baillieu Government paralysis ?

Or do Baillieu's Minister's just need a bit of help to address the long standing questions about the Kew Cottages Developer's Contract,
and to take up the challenge for change that they promised ?

For example:

1. Why are the 'Secret Arrangements' still Secret ?

By January 2011, after three years complaining about what they called 'secret arrangements' in the Brumby Walker Contract any of Baillieu's new Ministers who wanted to find out precisely what those secrets were,  had only to cite Clause A28.3(d) on p.62 ... Permitted
                                        disclosure The parties will not
                                        be in breach of their
                                        Obligations pursuant to this
                                        clause A28 if the Information is
                                        disclosed: d) to any Minister of
                                        the Crown;of the Contract which at face value guarantees Ministers access to all the Contract information that they require.

Similarly, those Minister's such as the former Chair of the Public Land Development Inquiry, David Davis, who had fought hard for public scrutiny of the Developer's Contract in opposition would also have been pleased to be able to tell their colleagues that Clause A28.6 A28.6
                                        Publication by State (a) The
                                        Developer consents to the State
                                        publishing on the Victorian
                                        Government contract publishing
                                        system the terms and conditions
                                        of this Agreement. (b) Nothing
                                        in this clause A28 operates to
                                        restrict the State or any
                                        Minister making any public
                                        announcement or press release
                                        relating to this Agreement or
                                        the Project.of the Contract confirmed that the Government also had all the power it needed to publish the Contract  in full
online on the Victorian Contracts Publishing System (CPS).

Indeed, the Developer's Contract
on p.3 of Schedule 14, not only acknowledges that the Government as 'Vendor' of the Kew Cottages Public Land is legally obliged to publish the full text of all contracts worth over $10m on the CPS, but that the Government is also obliged to record all the related contracts (including the Main Drive Kew House/Land sale contracts) over $100k on the CPS.

Twelve months down the track, however, in January 2012, the public is still waiting.

The Baillieu Government has disclosed nothing new about its Kew Cottages contracts, despite its obligation
to do so. (See Ombudsman's Recommendation 11)

What the Brumby Government kept secret from the public, remains secret.

2. Why is the Baillieu Government still the "Owner, Developer, and Planning Authority" ?

At the Kew Cottages Public Meeting at the Kew Civic Centre in February 2011, Andrew McIntosh,  the Local Member for Kew, and Baillieu's Minister responsible for the establishment of an anti-corruption commission, spoke very strongly of his objection to what he termed:

 "the abomination" of the State Government being both the owner. the developer, and the planning authority at Kew Cottages.

Indeed the Minister went on to say that for the Government to continue to be

 "the owner, planning authority, and ultimately the developer is a recipe for disaster" !

The Mayor of Boroondara Council, Nicholas Traegas agreed, and told the Public Meeting he had already requested Baillieu's Planning Minister, Matthew Guy,  to return Planning Authority to Boroondara Council.

However, 12 months later, in February 2012 nothing has changed, the 
Baillieu Government is still the Kew Cottages "Owner, Developer, and Planning Authority" !

It would seem to be stretching a long bow to blame the Developer's Contract for this delay. On the contrary the Contract appears neutral on the matter, and on page 16 simply says that:

 " Planning Authority means (as applicable):

(a) the Minister for Planning as the responsible authority for the Site under the Planning Scheme; and
(b) the authority under the Planning Scheme responsible for certification of any Plan of Subdivision.

So, at face value, as the certification authority is already Boroondara Council, the cause of the Baillieu Government's delay in responding to the local member's and Boroondara Council's long standing concerns would not appear to be found in the Developer's Contract.

3. Why is DHS apparently still trying to hide the costs of the Development ?

The publicly available text of the Developer's Contract contains extensive detail on both the nature and form of financial reporting required by the Government, and the need for the Developer to obtain prior Government approval for all proposed contract works, planning permit applications, variations  etc.

It is most strange, therefore, that after protesting so much at their lack of access to this information while in opposition, Baillieu Government Ministers appear to have made little effort to scrutinise the Development  data available to them now that they are in power.

The Department of Human Services also appears to have been strangely reluctant to scrutinise the costs involved.

The Victorian Ombudsman considered the financial reporting problem and found in June 2010 that:

There is uncertainty on the final financial outcome for the State Government. The revenue from the proceeds of the Kew site will possibly fall short of the capital and project management outlay. In this regard, I consider that the Department of Human Services should track the overall expenditure to ascertain the final cost to the State Government.

It is even more strange, then to find
that over 18 months later in January 2012,  there appears to be no mention of this finding by the Ombudsman in the DHS 2011 Annual Report.

The Department of Human Services appears to have either simply ignored or forgotten to report on the specific recommendation (R.10) from the Ombudsman that DHS  "report on the financial return to the State Government from the Kew Residential Services project in it Annual Report."

4. Why have
$300,000 of hidden cuts in the new Hamer Centre Budget not been restored ?

Baillieu's Ministers appear to have shown little interest in trying to amend the Developers Contract despite their Election Promise regarding the rebuilding of the Hamer Recreation Centre.

 A brief reading of the publicly available part of the Contract, however,  would give them all the evidence they need to show that the Developer's Contract  is, at face value just like any other agreement, open to amendment and variation if the Government and the Developer so choose.

Indeed the original October 2006 Principal Agreement has already been  amended once (in August 2009). As was said at the time in the preface
"in order to resolve a number of outstanding issues which have arisen under the Principal Agreement".

Looking back at Baillieu's pledge to rectify the Developer's demolition of the 'Hamer Recreation Centre'*  the public had a right to expect some quick answers once they elected him . Namely:

- How did the Developer justify demolishing the Hamer Centre immediately after the bushfires in 2009, when demolition was in clear breach of Clause B15 of the Principal Agreement ?  and

- How did the Developer with only the stroke of a pen in August 2009,   appear to suddenly cut $300,000  from the Contract Development Budget for rebuilding the Hamer Centre ?

Subject to the still 'secret arrangements' as referred to above, the evidence that $300,000 has mysteriously been cut from the Development Budget without proper explanation appears clear. Clause B15.3 Cost Allowances (p.14)  in the Deed of Variation (2009) states:

(a) The Developer has included in its Development Budget an
allowance of $3,000,000 (plus GST) for the construction of the
Recreation Centre and an allowance of $3,000,000 (plus GST)
for the design, site preparation and building costs associated
with the repair of the Heritage Buildings.

However, this 'revised' 2009 budget for the Recreation Centre (above) is actually  $300,000 less than the 2006 budget in Clause B15(d) of the Principal Agreement which clearly showed an allocation of  $3,300,000 for the Recreation Centre ie:

(d) That the Developer has included an allowance of $3,300,000 (plus GST)
for construction of the Centre in its Development Budget
This does not include the allowance of $3,000,000 for the restoration of the
 Heritage Buildings which may also be used if the Recreation Centre is
located wholly or partly in the Heritage Buildings..

5. Why has Mary Wooldridge as the Responsible Minister, failed to investigate appropriate Terms and Conditions for Terminating the Developer's Contract ?

The February 2011 Public Meeting called on the Baillieu Government to terminate the Developer's Contract.

Government Ministers including Andrew McIntosh, Matthew Guy, and Mary Wooldridge, responded by saying that termination was simply not possible because of what they termed 'Sovereign Risk'.

However, the Ministers do not appear to have at any stage defined precisely what they mean by 'Sovereign Risk' in the unusual context of Kew Cottages.

The dictionary defines 'sovereign' in normal business context as meaning beyond external control' for example

'The risk of owning the security of an issuer in a country other than the one in which the investor lives. For example, an investor residing in the United States incurs sovereign risk in purchasing a bond issued by the government of Brazil. This risk stems from the fact that a foreign country may nationalize its private businesses, stop paying interest, or repudiate its debt."

The normal usage of 'Sovereign Risk', therefore, obviously does not apply to the Kew Cottages Developer's Contract which is subject to State and Commonwealth law in Australia in the normal manner.

Nor do Baillieu's Ministers appear, despite our repeated requests, to have investigated at what point, on what terms, and at what cost termination of the Kew Cottages Developer's Contract would be the best outcome for the State of Victoria.

The Developer's Contract is helpful in addressing the Ministers' vagueness.  Clause A22 'Termination"explains precisely the terms, conditions, and consequences that apply when the State terminates the contract. It would appear to be a relatively simple task, therefore, for the Baillieu Government to provide the public with an appropriately detailed independent assessment of the cost to the Government of terminating the Developer's Contract in accord with Clause A22 Compensation to Developer
                                          If this Agreement is
                                          terminated in accordance with
                                          this clause A22, the State
                                          must compensate the Developer
                                          for the Project Expenditure
                                          incurred by the Developer in
                                          carrying out any Construction
                                          Works which are completed as
                                          audited in accordance with
                                          Clause D3, after deduction of
                                          any loss or damages incurred
                                          by the State..

following questions raised by the Victoria Ombudsman's Report into the probity of the Kew Cottages Development, the Baillieu Government would appear to be in a strong position in negotiating reasonable terms for termination in accord with Clause A22.

For example, our readers will be aware of the furore that commenced following The Age's front page March 2007 story by Royce Millar revealing the backstage lobbying over Kew by former Senator Graham Richardson "on behalf of one or both of the Sydney based developers Walker Corporation and Mirvac".  That story led to the Select Committee on Public Land Development Inquiry, which in turn led to a further inquiry by the Victorian Ombudsman. The Ombudsman reported on the matter to Parliament in June 2010.

The Ombudsman examined Walker's 2006 request to transfer the development to Mirvac, and revealed in his Report (p.42) that the Developer Contract
defines as a 'Termination Event" a Developer breach of clause A18.1 , and that:

Clause A18.1
Assignment (a) states:

Prior to completion of Stage 1 and Stage 2, the Developer shall not assign, novate or transfer all or any part of its Rights or Obligations relating to the Project under this Agreement without the prior written consent of the State which consent may be granted or withheld in the State's absolute discretion. (p.22 emphasis added)

The Ombudsman concluded that:

... Mr Richardson was unable to convince Mr Theophanous  to consent to the transfer and on 11 May 2007, Major Projects Victoria wrote to Walker and Mirvac to advise of the State Government’s position. The letter stated:

In accordance with its rights under the project Development Agreement the State has determined that it will not consent to an assignment [from Walker to Mirvac] until both Stage 1 and 2 have been completed. Accordingly, the State hereby gives you notice that it does not consent to any proposed assignment of the Project Development Corporation Pty Ltd to Mirvac prior to Stages 1 and 2 being completed.

The Major Project's letter noted by the Ombudsman makes all the more intriguing not only a statement 7 days later on
18 May 2007 to The Age by Mirvac managing director Greg Paramour, that he expected the Government to approve his company taking over the later stages of the housing project, but also a subsequent Mirvac release to the Australian Stock Exchange some 3 months later on 21st August 2007 where Mirvac clearly listed among its acquisitions  301 Kew Residential lots (at Kew Cottages), apparently without any qualifications whatsoever regarding the Victorian Government's position on the lots.

It appears at face value, therefore, that the important question of whether the Developer may at any stage already have triggered a 'Termination Event' by breaching Clause A.18.1 of the Developer's Contract still remains to be answered.

The Developer's Contract
Major Projects Victoria Contract - 3669
Lang Walker, Developer,
                                            and Ted Baillieu, Premier of
Kew Residential Services Development Agreement

1.     Part 1 Deed of Variation signed 28 August 2009 .pdf     (5210 KB, PDF)
2.     Part 2 Deed of Variation signed 28 August 2009.pdf     (4074 KB, PDF)
3.     Part 3 Deed of Variation signed 28 August 2009.pdf     (5483 KB, PDF)
4.     Part 4 Deed of Variation signed 28 August 2009.pdf     (4329 KB, PDF)
5.     Section 1.pdf     (4500 KB, PDF)
6.     Section 2.pdf     (4895 KB, PDF)
7.     Section 3.pdf     (6109 KB, PDF)
8.     Section 4.pdf     (5235 KB, PDF)
9.     Section 5.pdf     (3709 KB, PDF)
10.   Section 6.pdf     (1809 KB, PDF)

Public Land Development Committee Recommendations 2008
Victorian Ombudsman's
Recommendations 2010

Video Interviews
Baillieu's Ministers:

* The Hamer Centre was named after former Victorian Liberal Premier Sir Rupert Hamer, who together with  Graham Perkin, Editor of  The Age Newspaper implemented the innovative "dollar for dollar" funding model associated with the Kew Cottages Minus Childrens Public Appeal in 1975.

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