Ace Project Group Pty Limited v Ginger Development Enterprises Pty Limited

[2007] NSWSC 1229

CITATION:	ACE Project Group Pty Limited & Anor v Ginger Development Enterprises Pty Limited and Ors [2007] NSWSC 1229
HEARING DATE(S):	27/04/07, 28/05/07, 01/06/07, 03/08/07
JUDGMENT DATE :	7 November 2007
JURISDICTION:	EQUITY DIVISION
JUDGMENT OF:	Lloyd AJ
DECISION:	Parties directed to bring in short minutes of order to give effect to judgment.
CATCHWORDS:	JOINT VENTURE AGREEMENT:- agreement to purchase and develop properties - agreement to divide profits - unilateral termination of agreement - accounts show that there has no profit - share of loss - advance for anticipated profit - joint account - correct method of calculating the loss - interest - costs
LEGISLATION CITED:	Civil Procedure Act 2005, s 22, s 90(1) Supreme Court Act 1970, s 63 Uniform Civil Procedure Rules 2005, r 36.1
CASES CITED:	ACE Project Group Pty Limited v Ginger Development Enterprises Pty Limited [2005] NSWSC 1379 ACE Project Group Pty Limited v Ginger Development Enterprises Pty Limited [2006] NSWSC 962 Hamer v Giles (1879) 11 Ch D 942 Queensland Trustees Ltd v Fawckner [1964] Qd R 153 Smith v Smith [1987] 2 Qd R 807
PARTIES:	Ace Project Group Pty Limited - First plaintiff Shan Ruan - Second plaintiff Ginger Development Enterprises Pty Limited - First defendant Yau Fong Yuen and Yuk Mui Kum - Second defendants
FILE NUMBER(S):	SC 5702/02
COUNSEL:	Mr A Ogborne - Plaintiffs Mr J B Whittle SC with Mrs J E Stuckey-Clarke - Defendants
SOLICITORS:	Raymond Lee & Co - Plaintiffs Dennis Wong Lawyers - Defendants

- 9 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

LLOYD AJ

Wednesday, 7 November 2007

SC 5702/02 ACE PROJECT GROUP PTY LIMITED & ANOR V GINGER DEVELOPMENT ENTERPRISES PTY LIMITED & ORS

JUDGMENT

1 HIS HONOUR: This litigation has a long history. It goes back to events that occurred in 1998. It is time that the matter be finalised. The basic facts have been set out in my two previous judgments of 7 October 2005 (ACE Project Group Pty Limited v Ginger Development Enterprises Pty Limited [2005] NSWSC 1379) and 4 October 2006 (ACE Project Group Pty Limited v Ginger Development Enterprises Pty Limited [2006] NSWSC 962).

2 Essentially, the dispute arises out of an agreement made in April 1998 between the second plaintiff, Ms Shan Ruan, and the second and third defendants, Mr Yau Fong Yuen and Ms Yuk Mui Kum. They agreed to purchase and develop two properties, one at Arden Street Coogee and the other at Crown Street, Surry Hills. The first plaintiff, Ace Project Group Pty Ltd, was established by Ms Ruan to provide the services mentioned in the previous judgment. The first defendant, Ginger Development Enterprises Pty Ltd was established as the vehicle by which the projects were to be developed.

3 The parties agreed to divide the profits as 49 per cent to Ms Ruan or her company and 51 per cent to Mr Yuen and Ms Kum. They agreed upon the method of calculating the profits and they agreed on what items of expenditure the plaintiffs would be borne by the plaintiffs.

4 The agreement was unilaterally terminated by the plaintiffs on or about 6 June 2001. At that time, as I understand it, the Arden Street project had been completed, the Crown Street property had been purchased, and some preparatory works had been done to develop the Crown Street property. The latter property has been sold by order of McDougall J on 27 October 2003 and by further order of Austin J on 15 March 2004, but a sum of $500,000 from that sale was placed into an account in the joint names of the parties’ solicitors until further order of the Court.

5 Final or settled accounts have now been prepared in accordance with the terms of the parties’ agreement. The accounts show that no profit has been earned on the sale of the development constructed on the Arden Street land and the sale of the Crown Street land. On the contrary, there has been an overall loss of $388,741. If the loss is borne by the parties in the same proportion by which they had agreed to share in the profits, then the loss should be borne 49 per cent by the plaintiffs and 51 per cent by the defendants, so that the plaintiffs share of the loss would be $190,483.09.

6 There is a dispute, however, as to how to deal with a sum of $150,000 which was paid by Ginger to Ms Ruan by way of an advance for anticipated profits. The defendants say that this overpayment should be added to the amount owing by the plaintiffs, making a total sum to be borne by the plaintiffs of $340,483 as their proportion of the loss.

7 Mr A J L Ogborne, appearing for the plaintiffs, says, however, that there was a similar advance of anticipated profits made by Ginger to Mr Yuen and Ms Kum and this payment must be taken into account. Mr Ogborne submits that both parties would have to put back in the $150,000 overpayment which was made to each of them.

8 Mr J B Whittle SC, appearing with Ms J Stuckey-Clarke for the defendants, accepts that the two payments of $150,000 should be repaid to Ginger, as it was the borrower of the money used for the purpose of carrying out the projects. I accept that, since the parties are bound to do equity, both parties must return these overpayments. It is not clear to me, however, upon a reading of the accounts, whether the overpayment of $150,000 to Mr Yuen and Ms Kum has been dealt with in the same way as the overpayment to Ms Ruan and what effect, if any, this has on the final calculation of the loss.

The claim pursuant to the first plaintiff’s undertaking as to damage

9 It is clear that the injunction granted by Austin J on 15 March 2004 should now be dissolved and the sum in the joint account be paid to the first defendant, which purchased the Crown Street property as agent for the parties. I note that the plaintiffs agree that this should occur. There is a dispute, however, as to the correct method of calculating the loss. There is a dispute between the parties as to the loss of interest on this sum. When in March 2004 Austin J granted the injunction restraining the first defendant from dealing with $500,000 of the net proceeds of the Crown Street land until further order, the first plaintiff gave the usual undertaking as to damages. That sum was invested in the joint solicitors’ term deposited account at an annual interest rate of four per cent. The first defendant continued to be liable to its lenders on the sum of $500,000 at ten per cent, and now claims, pursuant to the first plaintiff’s undertaking as to damages, the difference between interest at that rate and the interest under the deposit pursuant to the first plaintiff’s undertaking as to damages. As at 12 April 2007 the difference in interest was $87,000 and was accruing at $82.19 each day.

10 As noted in par [9] above, this claim is to the interest differential between the cost to the first defendant of borrowing $500,000 at ten per cent per annum and the interest earned in the joint account at four per cent per annum. In giving the usual undertaking as to damages, the party giving the undertaking agrees to submit to such order, if any, as the Court may consider just for the payment of compensation, to be assessed by the Court, to any person effected by the order or undertaking.

11 In the present case the first defendant was deprived of $500,000, being part of the proceeds of the sale of the Crown Street property, from 15 March 2004 and was thereby unable to repay its borrowers, continuing to incur annual interest liability of ten per cent. The difference between the cost of borrowing the money at ten per cent and the actual interest earned on that deposit of four per cent is a cost which the first defendant would not have incurred but for the injunction granted by Austin J. It is clearly payable pursuant to the undertaking.

Whether the plaintiffs should pay their proportion of the loss

12 Mr Ogborne submits that since there is no cross-claim there cannot be an order for the payment of money to the defendants. He also submits that the parties’ agreement was a profit-sharing agreement, which determined how the profits are to be shared: the agreement makes no mention of losses or how they are to be shared. In his submission, the losses lie where they fall. If this had been a partnership, then the accounting in the winding up would be binding, but here the defendants have denied the existence of a partnership.

13 The first submission can be immediately rejected. Section 63 of the Supreme Court Act 1970 permits the Court to grant any relief to which a party may be entitled even though no specific claim has been formally made in the proceedings. That section states:

The Court shall grant, either absolutely or on terms, all such remedies as any party may appear to be entitled to in respect of any legal or equitable claim brought forward in the proceedings so that, as far as possible, all matters in controversy between the parties may be completely and finally determined, and all multiplicity of legal proceedings concerning any of those matters avoided.

14 Moreover, s 22 of the Civil Procedure Act 2005 states:

22 Defendant’s right to cross-claim

(1) Subject to subsection (2), the court may grant to the defendant in any proceedings ( the first proceedings ) such relief against any person (whether or not a plaintiff in the proceedings) as the court might grant against that person in separate proceedings commenced by the defendant for that purpose.

15 Subsection (2) states that the Court may not, under this section, grant relief not relating to or connected with the subject of the proceedings.

16 Section 90(1) of the Civil Procedure Act 2005 states:

90 Judgments generally

(1) The court is, at or after trial or otherwise as the nature of the case requires, to give such judgment or make such order as the nature of the case requires .

17 Finally, r 36.1 of the Uniform Civil Procedure Rules 2005 states:

At any stage of proceedings, the court may give such judgment, or make such order, as the nature of the case requires, whether or not a claim for relief extending to that judgment or order is included in any originating process or notice of motion.

The rule calls for the resolution of all matters in dispute between the parties and allows a determination in favour of a defendant’s claim even though a cross-claim has not been filed.

18 It follows from these provisions that if the defendants are otherwise entitled, then the Court has jurisdiction to make an order in their favour.

19 Mr Whittle SC submits that the only cross-claim that would have been formally brought was for an account, which has now occurred. There is thus no need for a formal cross-claim. Irrespective of whether the parties had entered into a partnership, a joint venture agreement, or a profit-sharing agreement, it would have led to an accounting exercise which would determine the parties’ rights.

20 I find the defendants’ submission compelling. Obviously no one expected a loss. It is only the result of the accounting exercise which had demonstrated a loss. If a loss had been anticipated than, no doubt, a cross-claim would have been filed. The taking of an account is for the very purpose of ascertaining what is the position between the parties: Smith v Smith [1987] 2 Qd R 807 at 810, Queensland Trustees Ltd v Fawckner [1964] Qd R 153 at 156.

21 The Supreme Court in its equitable jurisdiction inherited the old equitable jurisdiction of the Court of Chancery to take accounts. In the taking of an account in equity, a party seeking equity must do equity. If on the taking of an account a balance is due from one party to another, then the court can grant the appropriate relief and, moreover, should do so in the light of the statutory provisions to which I have referred above. In the present case money was paid for a purpose that has failed. It failed without any apparent fault on either side. It is against conscience for the plaintiffs to retain a greater benefit than the defendants.

22 Mr Ogborne described the parties’ arrangement as a profit-sharing agreement. I prefer to describe it as a joint venture agreement. If in the final accounting there is found to be a sum due from one party to another, as is the case here, then the appropriate order is that there should be judgment for the amount so found.

Costs

23 The parties agree that the cost of the preparation of the accounts should not be the subject of an order for costs. That is, they agree that they should bear their own costs of such accounts. The accounts were directed by the Court to be prepared on 7 October 2005. The parties are in dispute as to the costs incurred prior to that date and the costs of the final hearing. I note that separate costs orders have already been made at some interlocutory stages.

24 Counsel drew my attention to Hamer v Giles (1879) 11 Ch D 942, in which Jessel MR held that the rule as to costs in a partnership action is the same as in any other administration action; that is, they are payable out of the assets and if the assets are insufficient for payment of the costs of the action, then such costs must be borne by the partners in proportion to their shares of the profits. Since the parties agreed, without admission, to the taking of the accounts on a partnership basis, I agree that it is appropriate that they meet their own costs of that exercise.

25 In the present case the plaintiffs were successful in obtaining an order for an account. They were successful in that it was not until 7 October 2005, when the hearing commenced before me, that the defendants agreed to an accounting exercise. The defendants were also successful, however, in that the plaintiffs claimed they were owned money, which they have not only failed to establish, but, on the contrary, owe money to the defendants.

26 The plaintiffs have unsuccessfully submitted that the losses fall where they are and that the plaintiffs are not liable to meet any such losses. I have found, however, that they are liable for 49 per cent of the loss.

27 The substantial issue in the proceedings before me has been whether the plaintiffs are liable to meet their proportion of the loss incurred by the joint venture. If the plaintiffs had accepted their liability to meet their proportion of the loss, then it might have been appropriate for there to be no order as to the overall costs. Since the plaintiffs have unsuccessfully resisted any liability for their proportion of the loss, it is fair and reasonable that they pay the defendant’s costs, other than the costs of the preparation of the accounts.

Orders

28 Subject to being satisfied that the overpayment of $150,000 to Mr Yuen and Ms Kum has been appropriately dealt with in the accounts in the same way as the overpayment of $150,000 to Ms Ruan, I am prepared to make an order that there be judgment in favour of the first defendant in a sum which represents 49 per cent of the total loss. In this respect the defendants seek an order that there be judgment in the sum of $340,483.09 and an order that Ms Ruan repay to the first defendant the sum representing the overpayment of $150,000 made to her. As noted in paragraphs [5] and [6] above, it seems to me, however, that the overpayment is already included in the sum of $340,483.09, so that there is a doubling of the $150,000 overpayment. That is, the verdict should be for either the total sum of $340,483.09, or alternatively $190,483.09 plus $150,000.

29 It also seems that there should be orders discharging the injunction granted by Austin J in March 2004, and for the payment to the first defendant of $87,000 plus $82.19 for each day since 12 April 2007 pursuant to the undertaking as to damages and for consequential orders to give effect to the release of the amount held in the joint names of the solicitors for the parties.

30 Finally, there should be an order for the payment of the defendants’ costs, including reserved costs, except for the preparation of the accounts directed by the Court on 7 October 2007, to the effect that the parties bear their respective costs for the preparation of such accounts.

31 I direct the parties to bring in short minutes of order to give effect to this judgment at 9.30am on Wednesday, 14 November 2007.

I hereby certify that the preceding 31 paragraphs are a true copy of the reasons for judgment herein of the Honourable Mr Justice D H Lloyd.

Associate

Dated: 7 November 2007

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