Groz Investments Pty Ltd v Ronro Pty Ltd
[2013] NSWSC 794
•12 June 2013
Supreme Court
New South Wales
Case Title: Groz Investments Pty Ltd v Ronro Pty Ltd Medium Neutral Citation: [2013] NSWSC 794 Hearing Date(s): 27 May and 28 May 2013 Decision Date: 12 June 2013 Jurisdiction: Equity Division Before: Rein J Decision: Orders that Ronro owes Groz $44, 264.78 subject to offset of $34, 097.62 and any amount to which Ronro is entitled to credit under two of the four joint ventures.
Catchwords: COMMERCIAL LAW - whether one joint venturer owes another joint venturer money from the finalisation of the joint venture - whether letters and minutes from a meeting constituted a binding agreement and if so, its effect Cases Cited: Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; 219 CLR 165; 79 ALJR 129; 211 ALR 342
Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451, (2004) 208 ALR 213; (2004) 78 ALJR 1045; [2004] HCA 35Category: Principal judgment Parties: Groz Investments Pty Ltd (plaintiff)
Ronro Pty Ltd (first defendant)
Masterbuilt Pty Ltd (second defendant)Representation - Counsel: Counsel: Mr G. L. Raffell (plaintiff)
Mr P. Folino-Gallo (first defendant)- Solicitors: Solicitors: Forum Law (plaintiff)
Australian Business Advice (first defendant)File Number(s): 2010/363898
JUDGMENT
REIN J: These proceedings relate to four joint ventures in which Groz Investments Pty Ltd ("Groz") and Ronro Pty Ltd ("Ronro Pty Ltd") were involved. Mr Cains is the manager and company secretary of Groz (and the shares in the company are held by his wife, her sister and his wife's parents). Mr Winter, a solicitor, is the sole director and shareholder of Ronro.
The first joint venture concerned land at Pymble and a third party Masterbuilt Pty Ltd ("Masterbuilt"), a company controlled by a Mr Long, an accountant, also became involved in the joint venture ("the Pymble joint venture").
The second joint venture between the same three parties concerned land at Dural ("the Dural joint venture").
The third joint venture between Groz and Ronro and Rookie Pty Ltd ("Rookie") concerned two parcels of land at Burradoo, 2 Bedford Place and No 1 St James Close.
The fourth joint venture concerned another block of land at Burradoo at 559 Moss Vale Road Burradoo. I shall refer to the third and fourth joint ventures collectively as the Burradoo joint ventures.
The shares in Rookie are owned by Mr Cains and his wife. Although joined as a defendant, no relief is sought against it and it has filed a submitting appearance. Masterbuilt has not appeared in the matter and Groz seeks no relief against it. The matter proceeded on the basis that Rookie's position and that of Masterbuilt do not need to be considered separately from Groz.
The Pymble joint venture is governed by a deed (found at Exhibit B, pp 1-5,). The Dural joint venture, it is agreed, is governed by the same terms, although a deed for that joint venture was never executed.
It seems to be accepted that the Burradoo joint venture was entered into on similar terms as Pymble and Dural joint ventures, although no documents have been produced.
The Pymble and Dural Joint Venture
In relation to the Pymble and Dural joint ventures, Groz claims that Ronro owes it $44K. The joint venture agreements call for Masterbuilt to prepare final joint venture accounts on the completion of the venture, which are then to be commented by Groz and Ronro, and then signed by each of the parties. However, that process has either not been commenced, or if commenced, not completed. Masterbuilt has, very late in the piece, prepared annual accounts in accordance with clause 5.1 and provided them to both Groz and Ronro but does not appear to have prepared financial accounts in accordance with clause 5.2. Even if what has been produced is a final account, only Groz has provided its comments on the document and Masterbuilt has not, in accordance with clause 5.2, indicated whether it accepts or rejects those amendments. Ronro has not supplied any comments. According to the accounts Masterbuilt has prepared, Ronro owes approximately $12K to Groz.
Groz seeks an accounting of the Pymble and Dural joint ventures. It does have a right to insist that Masterbuilt carry this out but it does not seek such an order, which would not resolve the dispute in any event
As the case has developed it became clear that the items which Groz claims were paid by it and wrongly omitted from Mr Long's accounts were not taken into account by Mr Long as they should have been. There is no real dispute that the amounts in question were in fact paid by Groz in connection with the two joint ventures. Indeed, Mr Winter relies on these omissions as the basis for his concern that similar errors may have been made by Mr Long in relation to items paid by Ronro so that, he believes, on closer analysis an amount may be found to offset the present $44K claim by Groz against Ronro.
Ronro, unlike Groz, has not to date advanced any items which it says it has paid and which have not been taken into account.
Mr Folino-Gallo, counsel for Ronro, pointed out that:
(1)The adjustment which Groz claims need to be made all relate to the period between the years 2002 and 2003,
(2)Ronro only received Mr Long's account in June 2012,
(3)Mr Cains, in his evidence, said that he did receive accounts from Mr Long on an annual basis and whereas Ronro not receive such accounts,
and he submitted that it is unfair to place upon Ronro the burden of now closely examining documents after such a long period with the consequence that Groz ought be precluded from making such claims after such a long period. Mr Folino-Gallo also asserted that Groz was really seeking a liquidation sum in the figure of a claim for accounts, but Mr Raffell made it clear that his client accepts that there may need to be adjustment.
In relation to [13](3), for reasons, which I shall articulate, I do not have any confidence in Mr Cains' reliability and, given Mr Winter's evidence that Ronro has not received any accounts before 2012 (which I accept) I think it is unlikely that Groz did receive accounts from Masterbuilt before 2012.
All the joint venturers have been dilatory in ensuring the joint venture was properly finalised but I am not persuaded that Groz should, by reason of delay, be shut out from obtaining the adjustment. It is true that there has been a considerable delay in relation to the finalisation of the accounts particularly since the joint venturers had in 2004 decided not to purchase the Dural property, on which they had expended effort, but there remained until June 2009 the possibility of development and until March 2011 Groz considered that there was some prospect of recovery of monies from the registered proprietors of the Dural property. These proceedings were commenced in 2010. I am of the view, however, that Ronro should have the opportunity to identify what items it says have not been allowed in its favour and hence should be offset. I will set out a regime for this to occur.
The Burradoo Joint Venture
At the outset of the hearing the matter in issue seemed to be whether, as a result of an exchange of correspondence between Ronro and Groz, Groz was required to pay Ronro the amount of $34K or whether that figure was simply an estimate to be adjusted later. As the case developed there appeared to arise an antecedent question, which was whether the documents in question constituted a binding agreement between Groz and Ronro. The documents to be considered are the letter of 7 June 2004 from Mr Winter on behalf of Ronro to Mr Saunders, the solicitor who was at the time acting for Groz (see Exhibit B, p 44), the reply of the 16 September from Mr Saunders (see Exhibit B, p 77) and the provision of the minutes of a meeting of Groz held on 8 November 2004 supplied by Groz to Mr Winter (see p 106 of Exhibit B).
Ronro's case is that the agreement in question was to the effect that:
(4)Groz (and Rookie) would take over 559 Moss Vale Road and 1 St James Close for themselves.
(5)Ronro would take over 1 Bedford Place for itself.
(6)Groz would pay Ronro $34K.
(7)The Burradoo joint ventures would be terminated.
The minutes of Groz of 8 November 2004 relevantly contained the following:
Ronro's proposal re Beford Place Burradoo to be accepted immediately
Ron Winter's proposal for Ronro P/L to take over Bedford Place exclusively and to cease any equity interest in 599 Moss Vale Road and St James Close Burradoo to be accepted. Joseph Groz to supply formal confirmation of this to Ron Winter in the form of a copy of the signed minutes of this meeting. The Ronro proposal will be activated after Clive McManus confirms that the loan accounts are in order and that appropriate deeds of release are signed by Groz and Ronro.Groz's position initially had these elements:
(1)That 17(1) and (2) were agreed.
(2)That the $34K mentioned in Mr Winter's letter of 7 June 2004 was not a sum which Groz agreed to pay to Ronro in consideration of it (and Rookie) receiving two of the Burradoo properties and Ronro retaining Bedford Place, but rather just an estimate at the time - there being a need for an accounting to be undertaken.
(3)That the joint venture did come to an end.
(4)That, quite apart from the agreement reached in November 2004, Ronro had subsequently in March 2005 agreed to repay the interest to Groz that Groz had paid on a loan for Bedford Place.
In cross examination Mr Cains asserted that the words:
The Ronro proposal will be activated after Clive McManus confirms that the loan accounts are in order.
were a reference to the accounting exercise which was yet to be undertaken (T110).
The contention referred to in [20] seemed to link up to a position that Mr Cains adopted, namely that, by reason of the absence of the McManus investigation and the absence of a deed of release, the termination agreement had never come into effect.
I therefore need to determine three questions:
(1)Was there a binding agreement between Ronro and Groz as Ronro contends?
(2)If so, did that agreement require Groz to pay Ronro $34K?
(3)Did Ronro, by a separate enforceable agreement, agree to pay to Groz interest at 8% per annum on the money Groz said was borrowed by it in respect of Bedford Place?
Strictly what the parties understood the agreement to be is not relevant - the Court is required to determine objectively whether the exchange of correspondence amounts to a binding contract and, if so, what it means: see Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; 219 CLR 165; 79 ALJR 129; 211 ALR 342 and Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451, 461-462, [22].
Mr Cains' view, and for that matter Mr Winter's view, of the correspondence is therefore irrelevant in determining the answer to the first two questions and, accordingly, so is their credit but their credit is relevant to the third question. I am unable to accept Mr Cains as a credible witness and for these reasons:
(1)He frequently failed to answer questions asked of him.
(2)He asserted that he had sent and resent repeatedly a fax to Mr Winter but did not produce a copy of it.
(3)Emails that would, if his evidence was truthful, be likely to have been sent are absent from his affidavit.
(4)He claims that the reference to checking loan accounts in Groz's minutes was intended to be a reference to the joint venture loan account and yet,
(a)The letter from Mr Saunders made it clear that what was required was a checking of Mr Cains' loan account with Groz. This incidentally arose out of the fact that at the time Mr and Mrs Cains had separated and Mrs Cains was endeavouring to ensure that her parents' interest in Groz was protected from Mr Cains' actions.
(b)Mr McManus was Groz's accountant.
(c)Mr Long was the accountant for the joint venture.
(d)There is no evidence that Mr McManus undertook, or was asked to undertake, any examination of the joint venture accounts.
(5)Mr Cains, in an endeavour to deal with his implausible evidence on the topic of (4), then claimed that Mr McManus was waiting on information from Mr Winter yet there is not a shred of evidence that Mr Cains requested Mr Winter to supply Mr McManus with anything or queried why he had failed to do so.
(6)Mr Cains was glib and unpersuasive in his manner.
(7)The interest conversation claimed to have been held in March 2005, and in the terms described below, is implausible.
(8)The parties acted from 2004 until 2007 in a manner consistent only with the joint venture having been terminated.
It is clear from the correspondence that Groz accepted that it was inappropriate for Ronro to have to deal with a joint venture that was fractured by the marital dispute of Mr and Mrs Cains.
It is also clear that against that background Ronro wanted, and Groz (and Rookie) accepted, that the joint venture should be brought to an end and each party was to go its own way and take its own chance on the project of which it was left in sole control.
Having regard to the correspondence and against the matrix to which I have just referred, I think that the agreement reflected in the correspondence was a binding agreement on the basis set out in [17] above. The statement that the agreement would be "activated" on the occurrence of Mr McManus checking Mr Cains' loan account with Groz and a deed of release between Groz and Ronro does not undercut the unqualified acceptance recorded in the first part of the minutes. I think that "activated" is to be read as an indication of the time from when the agreement would be put into effect. In my view, it is clear from the letter of 18 September 2004 from Mr Saunders that the checking, which it was contemplated Mr McManus would perform, was of Mr Cains' loan account with Groz. It seems likely that that Mr McManus did not undertake any such check perhaps because of the reconciliation between Mr and Mrs Cains but, in any event, those words do not objectively import a requirement for the joint venture accounts to be examined by Mr McManus nor was any examination by Mr McManus of Mr Cain's loan account with Groz or the deed of release a condition precedent for the agreement coming into effect. I suspect that the minutes erroneously transposed the Cains' deed of release into a release between Groz and Ronro. Support for that can be found in Exhibit B, p 85 in which Mr Cains says that his recollection is that Mr Joseph Groz signed a release and that he (Mr Cains) did as well but the minutes are clear in their reference to a deed of release between Groz and Ronro so I proceed on the basis that the release required was one between Groz and Ronro.
It is clear that the parties from November 2004 until the properties were sold proceeded on the basis that Groz had no interest in Bedford Place and Ronro had no interest in Moss Vale road or St James Close: see T112 and T121. It was only in January 2007 (Exhibit B, p 91) that Groz wrote to Ronro seeking an adjustment. Given the absence of any attempt by either party to request or require the deed of release the parties must have chosen not to enforce the requirement for a deed of release. For similar reasons, in my view, Groz must be taken to have waived as a condition for commencement of the agreement any requirement for Mr McManus to check Mr Cains' account with Groz.
In my view, Ronro was, by Mr Winter's letter of 7 June 2004, offering to accept $34K payment to it as an assignment for the agreement that Groz (and Rookie) would obtain two of the Burradoo properties and Ronro would obtain one of them. The 7 June 2004 letter made clear how Mr Winter had arrived at the figure of $34K. It also makes clear that there was a degree of estimation involved but I do not accept that it was, by the exchange of correspondence agreed that the amount mentioned was to be adjusted, or that the agreement required the taking of accounts as to what each joint venturer had actually spent on the properties in question. No mechanism for such adjustments was mentioned and that is consistent with the fact that the joint venturers were parting company and taking specific assets. If Groz thought that it should be compensated for the amount of interest it had earlier incurred on Bedford place it would have been necessary for it to qualify the acceptance of the offer by reference to that interest yet its acceptance was unqualified. The $34K was payable within one year but it is clear that Ronro decided not to pursue that debt. That, however, does not mean that it is not able to rely on the debt as a set off to any amount due by it to Groz.
In relation to the contention that Ronro had, through Mr Winter, agreed to pay interest to Groz Mr Raffell (at T130.45-48) conceded that that:
...the evidence about verbal discussions in which Mr Winter is alleged to have a greed to have allowed interest is really too diffused to allow your Honour to make new [semble now], a confident decision [sic]
Mrs Cains gave evidence in relation to having heard her husband say to Mr Cains at the same meeting in March 2005, referred to in [23](7):
When we finalise the accounts for the Burradoo joint venture we have to take account the additional contributions of Groz and its additional exposure
and that Mr Winter said:
All three properties were loss makers. I won't agree to any additional adjustments
(para 16 of her affidavit dated 26 April 2012)Mr Cains gave evidence to a similar effect.
Mr Winter denies having had a conversation to that effect (see para 18 of his affidavit for his version of the conversation) and indeed as his counsel points out the properties in question were not sold until late 2006 and early 2007. As at March 2005, the properties were not loss makers. Mrs Cains had difficulty explaining how Mr Winter could have said the words she attributed to him and said (see T198.13) after a very long pause:
I probably should've said "are going to be loss makers"
I am not persuaded that Mr and Mrs Cains' evidence in relation to their conversation should be accepted. Even if it were accepted it does not advance Groz's case on this point because Mr Winter did not, in the conversation alleged, accept that any adjustment for interest was appropriate. At most, if accepted, it supports Groz's claim that an accounting of the joint venture was contemplated by Mr Cains.
For reasons indicated, I have no confidence in Mr Cains' veracity. I have no reason to doubt Mr Winter's veracity (and none was suggested). I accept Mr Winter's evidence that he did not agree on behalf of Ronro in March 2005 or at any time to pay interest to Groz on the money borrowed by it for Bedford Place. There is also a document which reinforces the unlikelihood of him having done so (see Mr Cains' letter of 21 May 2007) since it proposes that Ronro pay interest on various amounts and does not make reference to any earlier agreement, which proposal Ronro rejected. There is an email from Mr Cains dated 13 December 2003 (Exhibit B, p 30) in which Groz seeks reimbursement of interest but the email on the topic of interest does not assert some previous agreement. In any event if Groz is relying on an agreement in 2003 that predated the offer of 7 June 2004 (and it is quite unclear that it is) its acceptance of the Ronro offer in November 2004, made no reference to any adjustment required by virtue of an earlier agreement. I am unable to accept Mr Raffell's submission that I should conclude that there was an agreement for interest "on the face of the documents" and because Mr Winter agreed that the proposition "If one of the partners put in their own money they should get interest it is an expense of the venture" (see para 6 of Mr Cain's affidavit of 26 April 2012) was a reasonable proposition: T125.45-49. The documents do not establish an agreement and nor does Mr Winter's concession
Conclusion on Burradoo Joint Venture
It follows that Ronro is owed $34, 097.62 by Groz, which it can offset against the amount claimed by Groz against it.
Further Orders
I will direct Ronro to provide details of any amounts it submits have not been taken into account by Mr Long in its favour to the plaintiff's solicitor within 6 weeks of today's date. If it does not provide such details then Groz will be entitled to $44, 264.78 less $34, 097.62. If it does provide details of amounts, I direct the parties to confer, in an endeavour to ascertain whether the adjustments sought by Ronro are accepted.
If the parties are not able to reach agreement on the amount due to Groz, then Mr Winter should file and serve an affidavit setting out the claims and his basis for them. I will relist the matter for directions in July 2013 and decide then whether the matter will need to be referred out or not, particularly having regard to the fact that the differential amount involved is $10K.
Costs
In my view, the appropriate order is that each party to the proceedings should pay its own costs.
**********
0
3
0