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For 20 years, developers Rory Costelloe and his business partner Tony Johnson were the standard-bearers for housing developments on Melbourne’s fast-growing fringe.
Together, they oversaw Villawood Properties, a group that currently has on foot 20 sprawling housing estates dotting the city’s outer edges, from Cranbourne to Tarneit, Armstrong Creek to Wallan and back to Clyde.
Villawood’s promise of a slice of the great Australian dream at knock-down prices – retold on repeat on commercial radio – has made it incredibly successful. It is the second-largest residential developer in the state, behind national group Stockland.
Yet when Johnson hung up his hard hat last year, there was little fanfare from his long-time business partner Costelloe, who merely confirmed to trade press that he and Johnson had parted ways.
Behind the departure is a blistering business dispute that ended with Villawood accusing Johnson in the Federal Court of breaching his duties, deceit and, later, contempt of court. Johnson is fighting back, vigorously defending the cases.
Relations would become so bad between the parties that Villawood would move to sever Johnson’s part ownership of the group and a related company by enforcing a notice that would compulsorily transfer his shares – a step that Johnson is also fighting in court.
Villawood, either directly or through a related company, is suing Johnson and his private companies over deals relating to three separate projects on some of Melbourne’s most developable land.
Johnson has responded by launching his own claims against the group he helped to build alleging Villawood and its partner, Sandhurst Capital, sought to unfairly strip him of his shares. He also alleges Villawood and its related companies concocted allegations that he had enriched himself at his business partners’ expense.
All up, there are seven claims and counter claims being heard before Justice David O’Callaghan that relate to the fallout between the once-close business partners.
At stake is tens of millions of dollars of property and shares.
The dispute has been quietly playing out for nearly two years, with Villawood making no public comments on the case that has ripped apart the long-standing business relationship between Costelloe, a lover of patterned business shirts and glitter-dusted dinner suits, and Johnson, a self-confessed petrol head.
At the centre of the dispute are deals involving Villawood’s estates in Lyndhurst, Cranbourne, Wallan, and in Wollert.
Wallan worries
Villawood alleges that in the case of the Wallan property, on the edge of the city’s farflung northern boundary, it had an agreement to develop the land into a housing estate in return for set development fees.
The developer alleges that Johnson instead pocketed the fees for his family company instead of passing them to Villawood, as per the agreement.
The Johnson parties claim that in a 2010 meeting, it was determined that he would pursue the acquisition of the Wallan project as a speculative investment outside Villawood.
Johnson has also alleged that he managed the property for more than 15 years, while receiving no fees for his work.
To support his claim, Johnson provided the court with a document signed in 2012, outlining an agreement where he would receive fees for developing the project.
However, production of that one document has caused its own sideshow in the legal battle.
Despite insisting that the document was from 2012, the court this week heard Johnson’s lawyers had since discovered it had actually been created in 2023.
There has been no suggestion that Johnson’s lawyers knew of the mistake; instead, it has been made clear in court that they were relying on their client’s instructions.
Johnson’s actions regarding the document have led to Villawood bringing contempt of court charges against him and other parties, alleging they deliberately misled the court about the date of the document’s origin.
The court has also heard allegations that Johnson failed to provide 17 key documents to Villawood parties on request and that some had been deleted from his computer systems.
Johnson has argued that a staff member accidentally varied some documents and mistakenly deleted others without his knowledge.
He insists he has always been helpful and forthcoming with information in the case and that contempt of court charges are unnecessary and unfair.
Villawood parties spent a day in court last week trying to convince O’Callaghan that the matter ought to be referred to the Australian Federal Police – a move resisted by Johnson’s legal team.
The court is yet to decide on either the substantive case regarding the fees, the contempt of court allegations or the AFP referral.
Lyndhurst lament
Some of the documents allegedly not provided to the court related to another property deal – this time on Melbourne’s eastern fringe in Lyndhurst.
Villawood’s estate at Lyndhurst, Marriott Waters, is one of the jewels in its crown – the award-winning development on the city-side of Cranbourne is sold out and includes a large shopping centre.
The new estate gets its name from the original landowner, market gardener Graeme Marriott, who years ago struck a development deal with Villawood to turn his agricultural holding into a new neighbourhood.
In this dispute, Villawood alleges Johnson breached his obligations to the company’s other shareholders and directors by varying key documents relating to the development.
This included allegedly changing an agreement with Marriott so that a portion of his land was no longer included in the project and instead sold to Tjay Developments, a company associated with Johnson.
The court heard that Johnson owns 50 per cent of Tjay Developments through his private company. The other 50 per cent is owned by colourful development advisor John Woodman.
Woodman worked with some of property’s biggest land developers in Victoria, providing advice on master planned communities to clients like Villawood, Stockland, Australand and AV Jennings, as well as some of Melbourne’s richest private families.
But he is now fighting charges over more than $1.1 million in alleged secret payments, following a long-running IBAC corruption investigation into the Casey City Council.
The Tjay deal was struck more than a decade before there were any questions about Woodman’s conduct, and there is no suggestion the Marriott Waters transaction was involved in the IBAC probe.
One more time with feeling
If you think Villawood and Johnson had reached the end of their grievances with each other, you’d be wrong.
A third transaction is also in dispute, this time relating to a prime piece of land in Wollert, estimated to be worth $295 million.
That prime stretch of development land sits close to Villawood’s Rathdowne estate in the northern suburb that was acquired by Villawood’s partner Sandhurst Capital in 2020 for $65 million.
Elements of the case were recently outlined in a judgment by O’Callaghan regarding small changes to how the case had been put to the court.
Here, Villawood alleges Johnson acquired 10 per cent of the shares in the company that owns the Wollert property without properly informing the company.
Johnson has shot back, claiming there was an oral agreement for him to lay claim to the increased share of the property and his company had contributed close to $3 million as part of the development, while Sandhurst had paid $24.5 million.
According to the judgment, both sides agree that Johnson discussed his desire to increase his share of the project before any transaction took place, including with Sandhurst director and billionaire Dino Strano.
Johnson went ahead and acquired 10.65 per cent of the shares in the company that owned the property in 2021.
Sandhurst alleges it did not know about the change until 2024 and when it discovered Johnson had issued the shares it rescinded the offer and asked him to return the shares.
Despite having much to say about each other in court, both sides declined to comment when contacted by this masthead because litigation was ongoing.
All the cases – seven of them – continue.
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