Ausbuild Constructions Pty Ltd v DNC Securities (Ruling No 1)
[2010] VSC 491
•29 October 2010
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
PRACTICE COURT
COMMERCIAL AND EQUITY DIVISION
S CI 2009 7606
| AUSBUILD CONSTRUCTIONS PTY LTD (ACN 102 008 220) | Plaintiff |
| v | |
| DNC SECURITIES PTY LTD (ACN 128 353 220) | First Defendant |
| and | |
| DOUGLAS JOHN MATTHEW HARLE | Second Defendant |
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JUDGE: | WILLIAMS J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 27 October 2010 | |
DATE OF JUDGMENT: | 29 October 2010 | |
CASE MAY BE CITED AS: | Ausbuild Constructions Pty Ltd v DNC Securities & Anor (Ruling No 1) | |
MEDIUM NEUTRAL CITATION: | [2010] VSC 491 | |
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PRACTICE AND PROCEDURE – Appeal from decision of Associate Justice - Joinder of additional defendant to counterclaim – Claim for debt under loan agreement -Alleged joint venture involving proposed additional defendant.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr S R Grahame | Henderson & Ball |
| For the First and Second Defendants | Mr N Wallace | Watkins Boag O’Connor & Dunne |
HER HONOUR:
DNC Securities Pty Ltd and Mr Harle applied to an Associate Justice for leave to join Pugwall Pty Ltd as a defendant to their counterclaim in this proceeding. The Associate Justice refused their application and they have appealed from that decision.
I am persuaded that they should be granted that leave under r 9.06 of the Supreme Court (General Civil Procedure) Rules 2005 because Pugwall is a necessary party to ensure that all questions in the proceeding are effectually and completely determined and adjudicated upon and because there are questions arising out of the claims in the proceeding which should be justly and conveniently decided with Pugwall as a party.
The pleadings and proposed amended counterclaim
The plaintiff, Ausbuild Constructions Pty Ltd, claims payment of an alleged debt of $286,335.02 under a loan agreement between it and DNC. It alleges that Mr Harle guaranteed repayment of the loan.
In its amended statement of claim filed on 15 July 2009, Ausbuild alleges that DNC is the registered proprietor of a one half share in properties at 211-212 Nepean Highway, Seaford. It alleges that, by a written loan contract dated 24 September 2008, it agreed to lend what it describes as ‘the principal sum’ of $107,697.28, plus further agreed advances to DNC. The loan was to be for a period of six months from the date of execution of the loan agreement and, under its terms, DNC agreed to charge its interest in the Seaford properties to support caveats lodged by Ausbuild. Ausbuild also claims that it lent a total amount of $176,159.00 ‘being the principal sum plus further advances’.
Ausbuild gave particulars of its alleged loan of $176,159.00 in the amended statement of claim Those particulars start by alleging an advance of $95,042.78 on 13 July 2008 and described as ‘Original Loan Amount’ in an attached schedule. They then list advances totalling $31,318.58, all allegedly made before 24 September 2008. Together with the alleged ‘original loan amount’ of $95,042.78, they total more than the alleged principal sum of $107,697.28. There are then more advances which in total are alleged to amount to $176,159.00.
In its amended statement of claim, Ausbuild seeks a declaration that it is entitled to an equitable charge over DNC’s interest in the Seaford Properties. It seeks the appointment of a receiver to that interest and requests orders including ones permitting the receiver to sell DNC’s interest and to apply any proceeds as if they were those from a mortgagee’s sale under the Transfer of Land Act 1958.
Ausbuild gave further particulars of its amended statement of claim in response to a joint request from the defendants. The particulars state that the principal sum of $107,697.28 was calculated under the terms of the written loan agreement.
Significantly, Ausbuild provided the following particulars of the ‘further advances agreed to between the parties’ which it alleges were made:
(b)The advances reflect 50% of various expenses relating to the joint venture between [Ausbuild] and [DNC] and or [Mr Harle] to various creditors of the joint venture. Copies of the said invoices and receipts for the joint venture related expenses and copies of the NAB Internet Banking Statements of the joint venture account 211-212 Developments/ 083-125 82-216-1102 (‘the joint venture account’) may be inspected at the offices of [Ausbuild’s] lawyer by appointment. A description of the purpose of each advance is also set out in the Table annexed to the Amended Statement of Claim.
In their joint defence to the amended statement of claim, the defendants admit ‘entering into an agreement dated 24 September 2008 containing certain terms and conditions regulating part of the joint venture business arrangement between [Ausbuild] and [DNC]’. They otherwise deny Ausbuild’s allegation that it agreed to lend the principal sum of $107,697.28 by a written loan agreement of 24 September 2008.
The defendants allege that the loan component of the agreement was initially for six months, but was varied by an agreement evidenced by conduct. In further particulars dated 30 March 2010, they particularise the variation as oral and made in conversations between the only director of Ausbuild, Mr Martin Clarke, and Mr Harle and to be implied from Ausbuild’s acquiescence to the request and failure to take action to recover the debt.
The defendants also admit that Ausbuild has from time to time advanced monies ‘for the benefit of itself and [DNC] in respect of the acquisition and development of the [Seaford] properties’. They state that full particulars of the advances will be provided following discovery and an accounting.
The defendants then counterclaim for an accounting on the basis of an allegation that Ausbuild has failed to account for receipts of rents and profits received in relation to the Seaford properties. In addition they seek damages for Ausbuild’s alleged dealing with the Seaford properties without their consent or knowledge and to their detriment. They provide particulars of Ausbuild agreeing with ‘other parties’ to amend the Town Planning application to reduce, from 20 to 19, the number of units which could be built on the properties, thereby reducing their value.
Ausbuild’s reply and defence to the counterclaim denies that the term of the loan was varied and otherwise joins issue with the defence. As to the counterclaim: it denies that it failed to account for receipts of rents and profits and states that no request for accounting has been made. It also denies the allegations that it has dealt with the Seaford properties to the detriment of Ausbuild as alleged.
The defendants now wish to amend their counterclaim to allege that DNC and Pugwall agreed that Pugwall would maintain the financial records of the development and keep a bank account in their joint names into which all receipts relating to the development would be deposited and from which its expenses would be paid. DNC now wishes to plead that Ausbuild, or alternatively Pugwall, failed to account for receipts of rents and profits relating to the Seaford properties and to seek an accounting from it as well as from Ausbuild. It also wishes to make against Pugwall, in the alternative, the allegations it has levelled at Ausbuild about dealings with the Seaford properties to its detriment. DNC wants to claim damages from Pugwall as well.
Mr Clark’s outline of evidence
On 6 July 2010, the Associate Justice ordered the parties to exchange outlines of evidence.
Mr Martin Clarke’s outline states that:
· he is and was at relevant times the sole director of Ausbuild and of Pugwall;
· Mr Harle is and was the sole director of DNC;
· after meeting in early 2008, Mr Harle approached Mr Clarke telling him that he had a development site and asking if Mr Harle would participate in its development on a 50/50 basis;
· the property had been purchased by the wife of a friend of Mr Clark who was unable to settle the purchase;
· in February 2008, Mr Clarke lent DNC $25,000 through his company, Cockram Group Pty Ltd, on terms that principal would be repaid within a month and that interest calculated at 5% per calendar month would be payable;
· in about late March 2008, Mr Clark and Mr Harle agreed that they would enter into a joint venture for the development of the property on the basis that profits, losses and expenses being shared equally;
· in about April 2008, Mr Clarke established a joint venture account with the National Australia Bank for the financing of the proposed development;
· in May 2008, under the terms of the joint venture agreement, Pugwall, representing Mr Clark’s interests, and DNC, representing those of Mr Harle, were substituted as purchasers of the Seaford properties;
· the purchasers paid the deposit of $152,500.00 in relation to a total purchase price was $1,525,000.00;
· $1,385,812.51 was needed to settle the purchase and it was to be funded by a NAB loan for $1,296,000.00 to be provided through a loan facility in the names of Ausbuild, Pugwall and DNC and by equal contributions from DNC and Pugwall as to any shortfall;
· there were bank fees of $91,244.34
· two days before settlement, Mr Harle advised that DNC could not fund its shortfall contribution and Mr Clark agreed to fund it, provided DNC had the ability to pay;
· Mr Harle stated that he could provide the funds from other sources;
· on 14 July 2008, $187,000.00 was transferred from Pugwall to the joint venture account to cover bank fees;
· a subsequent amount of $176,056.85 was debited to the joint venture account on the same day to cover the shortfall in the bank cheques for settlement;
· between July and September 2008, Mr Clark and Mr Harle negotiated the terms of the loan from Ausbuild which was to supply ‘the funds’ to DNC; (it is not clear whether ‘the funds’ were to be those required to pay DNC’s half share of the shortfall in the purchase monies or for its share of the costs and expenses associated with the development);
· in September 2008, Ausbuild and DNC agreed to enter into an arrangement (on the same terms and the February 2008 loan by the Cockram Group Pty Ltd to DNC) for a loan of $107,697.28, plus further advances from Ausbuild to DNC with interest calculated at the rate of 5% per month on the balance owing from time to time;
· Mr Harle agreed to guarantee DNC’s performance of the agreement; and
· Between 7 August 2008 and 27 August 2010 (the date of the outline) Ausbuild advanced $121,518.00 to DNC.
Mr Clark’s outline of evidence states that Ausbuild is not a party to the joint venture agreement and denies that it collects rents and profits from the two residences currently located on the Seaford properties. He asserts that all rental payments received by Pugwall have been deposited in the joint venture account.
There are NAB internet banking transaction history records for the joint venture account exhibited to a 6 October 2010 affidavit sworn by Ausbuild’s solicitor, Mr Burgess. It shows some deposits described as rental, but does not resolve the issue as to whether all rent and profits received have been accounted for.
Mr Clark also alleges that Ausbuild has from time to time made payments directly on behalf of the joint venture, in circumstances where the joint venture account had insufficient funds for the joint venture to make such payments. He maintains that those payments are in the nature of loans to Pugwall and further advances under the loan agreement to DNC by Ausbuild.
Mr Clark asserts that, despite lengthy negotiations between Pugwall on behalf of the joint venture and Frankston City Council, no planning approval has been received for the development of the Seaford properties. He alleges that Pugwall and DNC submitted an application on about 11 July 2008 for a planning permit for their development to Frankston City Council. They originally sought approval for 24 units but reduced the number by negotiation with the Council as Pugwall was told that the Council would not support the application. The Council refused the application and advised its refusal by letter dated 26 February 2010. Pugwall and DNC have applied to VCAT for review of the Council’s decision.
Mr Clarke asserts that it is incorrect to say that Ausbuild, or even Pugwall, had agreed to amend the town planning application to reduce the units from 20 to 19.
Affidavits of documents
In two affidavits of documents sworn by Mr Clark, as the director of Ausbuild, there are listed documents which appear from their descriptions to be invoices related to the development of the Seaford properties directed to Mr Clark and Ausbuild. For example, item 8 in the first schedule to Mr Clark’s 4 November 2009 affidavit is a tax invoice to him and Ausbuild from Warren J Forester Architects dated 26 February 2008. Annexure A to Mr Clark’s outline of evidence lists what he alleges are the advances made to DNC by Ausbuild. There are several advances described as ‘payment to architect 50% share’ and followed by an invoice number.
The defendants argue that the references to Ausbuild in the discovered documents indicate its involvement as a party to the joint venture agreement. They refer in particular to invoices apparently related to the development directed to Ausbuild, of which there are a number.
The NAB internet banking history records also show what appear to be the amounts claimed to have been advanced by Ausbuild to DNC under the loan agreement and are listed in the annexure to the amended statement of claim. The recorded amounts are in each case double those allegedly advanced on the dates specified in the annexure. The transferors are variously described as ‘Pugwal Cock Ram Grp’ , ‘Pugwal Cockram Blds’ and ‘Clark Prop Clark Propty’.
Submissions and discussion
The defendants argue the issue of their liability in relation to the loan is intertwined with the issue as to whether Ausbuild has failed to account to DNC for rents and profits and has breached the joint venture agreement by changing the size of the development without permission.
The defendants contend that there is a clear relationship between Ausbuild, DNC and Pugwall apparent from the material in respect of the Seaford properties development. They rely upon:
· the references in the annexure to the amended statement of claim to DNC’s 50% share of joint venture expenses (and argue that the other 50% share of responsibility must be that of either Ausbuild or Pugwall);
· the admission in the particulars of the amended statement of claim of a joint venture involving at least Ausbuild and DNC;
· Pugwall and DNC owning the Seaford properties;
· Mr Clark’s position as the director of Ausbuild and Pugwall;
· the funding for the development having been provided by a facility in the names of Ausbuild, Pugwall and DNC, according to Mr Clark’s outline of evidence;
· the NAB internet banking history indicating the relationship between the three entities; and
· the discovered documents lists which list joint venture documents referring to both Ausbuild and Pugwall.
The defendants argue that the criteria for joinder under r 9.06 have been met. They say that there are issues which concern Pugwall and should be dealt with when it is a party because it is just and convenient to do so. They include:
(a)whether Ausbuild or Pugwall or both are parties to the joint venture;
(b)if they are, whether they breached the joint venture agreement;
(c)what damages have been suffered;
(d)who made the alleged loan: Ausbuild or Pugwall; and
(e)when any loan was to be repaid: 6 months from the date of any particular advance or at the end of the development.
The defendants submit that Pugwall’s pivotal role in relation to issues raised in the proceeding only became apparent when Ausbuild made discovery in April and June 2010. There was a mediation on 15 June 2010 after which the defendants’ solicitors sought agreement to the amendment of the pleadings to include their claims against Pugwall. The issue was raised before the Associate Justice on 31 August 2010.
They contend that there is a clear commonality of issues and no prejudice or unfairness to Ausbuild by the adding of another party. It is in the interests of justice to do so to avoid the waste of resources involved in any separate litigation.
Despite the concession in the particulars it has provided, Ausbuild submits that the joint venture was between DNC and Pugwall and not with it; its claim is simply for repayment of a debt under a loan agreement and has nothing to do with DNC’s complaints against Pugwall.
In the course of its submissions it makes a number of assertions about what the defendants maintain. Suffice it to say that those assertions have not been completely borne out by the submissions made in this application and appear to be somewhat inconsistent with the way the defendants’ case is now put and is sought to be put.
The defendants contend that the loan forms part of a broader relationship between Ausbuild, DNC and Pugwall arising out of the joint venture for the development of the Seaford properties. In order to determine whether and what money is owing, by whom and to whom it is owing, at least some of the questions they have identified need to be addressed.
It is not sufficient for Ausbuild to have pointed to material from the NAB which might militate against the argument that Ausbuild or Pugwall failed to properly account during a particular period for all rental and other profits received in relation to the Seaford properties. The materials appear to indicate at least that Ausbuild and Pugwall had some involvement in the implementation of whatever arrangement was in place for the development of the properties by Mr Clark and Mr Harle and any corporate entities they used for that purpose.
Whilst much of the detail of the proposed allegations against Pugwall and those already made against Ausbuild is apparently yet to be disclosed, the proposed allegations against Pugwall should be dealt with together with those made against Mr Clark’s other company, Ausbuild, for the reasons given by the defendants.
In reaching the conclusion that leave should be given to add Pugwall as a party, I note, in particular, Ausbuild’s concession in particulars of the amended statement of claim that it was a party to the joint venture. I also note Mr Clark’s sworn reference to a ‘Joint Venture between Pugwall Pty Ltd and [DNC] in relation to the real properties at 211-212 Nepean Highway, Seaford’[1] and compare that with the outline of his evidence which refers to him agreeing in about late March 2008 to enter a joint venture with Mr Harle for the development of the Seaford properties site.[2] Mr Clark’s outline also states that he will say that the balance of purchase monies for the properties was to be funded in part by a facility to be provided by the NAB ‘in the names of ‘ Pugwall, Ausbuild and DNC.[3]
[1]Affidavit of Martin John Clark sworn on 13 October 2010 [3].
[2]Outline of Evidence of Martin Clark dated 27 August 2010 [12].
[3]Ibid [19].
Orders
The appeal will be allowed and I will hear the parties in relation to the terms of any orders and on the question of costs.
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