John Nelson Developments Pty Ltd v Focus National Developments Pty Ltd

[2010] NSWSC 150

CITATION:	John Nelson Developments Pty Limited v Focus National Developments Pty Limited [2010] NSWSC 150
HEARING DATE(S):	8, 9, 10 and 11 December 2009
JUDGMENT DATE :	5 March 2010
JURISDICTION:	Equity Division
JUDGMENT OF:	Ward J
DECISION:	1. A declaration that the first defendant is entitled to restitution in respect of the contributions it made pursuant to the Joint Venture Agreement with the plaintiff towards the costs of their failed joint venture project, those contributions amounting to $90,086.22 excluding GST. 2. An order that the second defendant pay to the first defendant the controlled monies held in its trust account referable to the proceeds of sale of the property the subject of the joint venture and any interest which has accrued thereon. 3. An order that any shortfall between the moneys held by the second defendant and the amount of $90,086.22 be paid by the plaintiff to the first defendant. 4. An order that the first defendant pay interest on the amount of the judgment debt from the date on which the sale proceeds were placed in the second defendant’s trust account at court rates. 5 The plaintiff’s statement of claim be dismissed with costs.
CATCHWORDS:	CONTRACT – joint venture agreement – expert determinations under terms of contract – whether expert determinations binding on the parties – whether expert has an obligation to accord procedural fairness– effect of mistake on the part of the expert –– scope of guarantee under the contract – EQUITY – declaration as a discretionary remedy – RESTITUTION – total failure of consideration – recovery of contributions to a joint venture where joint venture agreement does not contemplate events which have occurred
CATEGORY:	Principal judgment
CASES CITED:	AGL Victoria Pty Limited v SPI Networks (Gas) Pty Limited [2006] VSCA 173 Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 Andrews v Queensland Racing Limited [2009] QSC 364 Baltic Shipping Co v Dillon (The Mikhail Lermontov) (1993) 176 CLR 344; [1993] HCA 45 Baumgartner v Barmgartner (1987) 164 CLR 137 Capricorn Inks Pty Limited v Lawter International (Australasia) Pty Limited [1989] 1 Qd R 8 Carbotech-Australia Pty Limited v Yates [2008] NSWSC 540 Enron Australia Finance Pty Limited (in liq) v Integral Energy Australia [2002] NSWSC 753 Fletcher Construction Australia Limited v MPN Group Pty Limited (unreported 14 July 1997), Rolfe J Hogan v Baseden (1997) 8 BPR 15723 Holt v Cox (1997) 23 ASCR 590 Kanivah Holdings Pty Limited v Holdsworth Properties Pty Limited [2001] NSWSC 405 Kioa v West (1985) 159 CLR 550 Knox v Knox (16 December 1994, unreported, Young J) Kriezis v Kriezis [2004] NSWSC 167 Legal & General Life of Australia Limited v A Hudson Pty Limited (1985) 1 NSWLR 314 Liquor National Wholesale Pty Limited v The Redrock Pty Limited [2007] NSWSC 392 L'Office Cherifien des Phosphates v Yamashita-Shinnihon Steamship Co Ltd [1994] 1 AC 486 Lumbers v W Cook Builders Pty Ltd (in liquidation) [2008] HCA 27 Malsbury v Malsbury [1982] 1 NSWLR 226 McKay & anor v McKay [2008] NSWSC 177 Mercury Communications Limited v Director General of Telecommunications [1996] 1 WLR 48 Morris v Morris [1982] 1 NSWLR 61 Muschinski v Dodds [1985] HCA 78; (1985) 160 CLR 583 Paal Wilson & Co A/S v Partenreederei Hannah Blumenthal, The Hannah Blumenthal [1983] 1 All ER 34, [1983] 1 AC 854 Pan Ocean Shipping Co Ltd v Creditcorp Ltd [1994] 1 WLR 161 at 166; [1994] 1 All ER 470 at 475 Re Carus-Wilson and Greene (1886) 18 QBD 7 Rivers v Bondi Junction Waverley RSL Sub-Branch Limited (1986) 5 NSWLR 362 Sirtes v Pryer [2005] NSWSC 1082 Steele v Tardiani; (1946) 72 CLR 386; [1946] HCA 21 The Heart Research Institute Limited v Psiron Limited [2002] NSWSC 646 Triarno Pty Limited v Tridon Contractors Limited NSWSC (unreported 22 July 1992) Xuereb v Viola (1989) 18 NSWLR 453
TEXTS CITED:	Meagher, Gummow & Lehane, Equity Doctrines & Remedies
PARTIES:	John Nelson Development Pty Limited (Plaintiff/First Cross-Defendant) John William Nelson (Second Cross-Defendant) Focus National Developments Pty Limited (First Defendant/First Cross-Claimant) Gerrard Lester Toltz (Second Defendant) Anthony Paul Adamo Anthon
FILE NUMBER(S):	SC 2008/281336
COUNSEL:	C Wilson (Plaintiff/Cross-Defendants) S Reuben (First and Third Defendants/Cross-Claimant) Submitting Appearance (Second Defendant)
SOLICITORS:	Griffith Nicholson Lawyers (Plaintiff/Cross-Defendants) CCS Legal (First and Third Defendants/Cross-Claimant) Toltz Lawyers (Second Defendant)

- 112 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

WARD J

FRIDAY 5 MARCH 2010

2008/281336 JOHN NELSON DEVELOPMENTS PTY LIMITED v FOCUS NATIONAL DEVELOPMENTS PTY LIMITED & ORS

JUDGMENT

1 These proceedings involve a dispute between the parties to a failed property development joint venture in Port Macquarie. The parties have already (unsuccessfully) invoked the dispute resolution provisions of their joint venture agreement in an attempt to resolve their dispute and in so doing further disputes have arisen. The disputes now before me concern whether the two separate expert determinations made during the course of that dispute resolution process are binding and whether, irrespective of the force of those expert determinations, the first defendant (Focus) is entitled to recover the contributions it made to the failed joint venture or otherwise to share in the proceeds of sale of the property the subject of that joint venture.

2 The plaintiff (JND), invoking the joint venture agreement (in which the parties agreed to share equally the costs and liabilities of the project) and relying on each of the expert determinations, claims that the sum of $142,529 is owing to it by Focus. JND seeks an order for payment of that amount both from Focus and its director, Mr Anthony Adamo, who was a party to and gave a guarantee under the joint venture agreement.

3 The second defendant, Mr Toltz, is the solicitor who acted for the parties in relation to the joint venture. By agreement between the parties, he holds the sum of $82,744, plus interest, in his firm’s controlled monies trust account, that being part of the proceeds from the sale of the property which was to be developed as part of the joint venture. Both parties assert a claim to those trust account moneys. Mr Toltz has filed a submitting appearance and has taken no part (other than giving some evidence) in these proceedings. (Where I refer in these reasons collectively to ‘the defendants’, I refer only to Focus and Mr Adamo.)

4 Focus has cross-claimed seeking, inter alia, a declaration that it is entitled to restitution of, and that there is a resulting trust over, the contributions it made to the project costs pursuant to the joint venture agreement (which it seems to be accepted amounted to $90,086.22), on the basis that there has been a total failure of consideration for the said contributions. Focus seeks an order for the payment of those moneys as moneys had and received by JND. Alternatively, Focus seeks an order for the payment of an amount out of the proceeds of sale from the project (which, as I understand it, are said by Focus for the purposes at least of this alternative claim to include the sale of the property in question).

5 As indicated earlier, the parties have twice invoked the expert determination procedure provided for under their joint venture agreement. That procedure distinguishes between the determination of disputes in relation to legal issues under clause 15.3.1 (which are to be referred to a practising solicitor or barrister on the nomination of the President of the Law Society) and disputes in relation to financial or accounting issues under clause 15.3.3 (which are to be referred to a practising accountant on the nomination of the President of the Institute of Chartered Accountants).

6 As a prelude to its reliance on the said expert determinations, JND seeks declarations as to their binding force. The defendants, for their part, deny that either of the determinations is binding. They do so on two bases. First, that the respective experts did not determine a “dispute” as to matters falling within the relevant clauses of the joint venture agreement and, secondly, that what they did was not compliant with the contractual description of what they were required to determine. It is said, in both cases, that the resultant determination was ‘beyond the realm of contractual contemplation’ and, in any event, the result of reviewable legal error. In relation to the second of the expert determinations, it is further said that the expert failed to afford Focus procedural fairness (by entertaining certain communications with JND’s then director, Mr John Nelson, without the knowledge of Mr Adamo and without affording Focus an opportunity, prior to the issue of the determination, to respond thereto).

7 The defendants contend that, as a matter of discretion, even if the determinations are binding as a matter of contract, the court should not grant a declaration to that effect in circumstances where there would be no utility to such a declaration (or, in the case of the first determination, where it is said that it is manifestly wrong as a matter of construction of the joint venture agreement).

8 The defendants further submit that, whatever the status of the determinations, this is a case in which there has been a total failure of consideration for the contributions made by Focus to the project costs and that Focus should have restitution in full of those amounts, relying upon the principle espoused in Muschinski v Dodds [1985] HCA 78; (1985) 160 CLR 583 per Deane J.

9 Insofar as the claim made against Mr Adamo is concerned, Mr Adamo contends that the only guarantee that he agreed to give (other than that in respect of the initial land loan facility) was one which related to the provision of additional capital to the project (the precondition to which was not satisfied), or alternatively was limited to the financial obligations of Focus under the loan arrangements contemplated by the joint venture agreement, and thus does not extend to the liability now sought to be enforced against Focus in these proceedings.

Issues

10 The issues for determination are as follows:

(i) Is the expert determination made by Mr Graham Molloy on 17 March 2008 (the Molloy determination), as to the proper construction of various clauses of the joint venture agreement, binding on the parties?

(ii) Is the expert determination made by Mr Raymond Tolcher on 27 October 2008 (the Tolcher determination), as to the amount owing by Focus to JND as its half share of the project costs ($142,529), binding on the parties? (This requires consideration, inter alia, as to whether Mr Tolcher was obliged to accord procedural fairness to the parties and, if so, whether he failed to do so.)

(iii) If either determination is binding as a matter of contract, should the court, as a matter of discretion, make any declaration to that effect?

(iv) Does the guarantee given by Mr Adamo extend to the claimed liability of JND the subject of these proceedings?

(v) Was there a total failure of consideration in respect of the project contributions made by Focus such that Focus is entitled to restitution of those contributions in full or there is a resulting trust in respect of the said contributions?

(vi) Alternatively, is Focus otherwise entitled to share in the proceeds of sale of the property which was to be developed as part of the joint venture?

Summary

11 For the reasons set out below I am of the view that:

(i) Binding nature of Molloy determination

12 The Molloy determination is binding on the parties as a matter of contract but does no more than to bind them to a particular construction of the said clauses on the face of the joint venture agreement insofar as that construction may be relevant to an issue between the parties (and in isolation from any particular factual scenario which might arise or have arisen).

13 The Molloy determination, to a large extent, construed the respective clauses in a vacuum, in the sense that Mr Molloy did not consider the operation of those clauses having regard to the manner in which the joint venture had come to an end nor did he address the validity of claims to restitution or otherwise of the kind brought in the current cross-claim.

14 Although Mr Molloy, in his reasoning, found that clause 3.1 continued to operate after the termination of the joint venture agreement, he did not have regard to the position if the joint venture underlying that agreement had been frustrated. (If I am wrong in that regard and the Molloy determination, properly read, did determine that clause 3.1 applies in the current circumstances to preclude recovery by Focus of its contributions, then I would decline to enforce it as a matter of discretion, as I consider it would be incorrect as a matter of law.)

15 In my view, the construction placed on the clauses reviewed by Mr Molloy does not determine the issues raised on the claim by Focus for restitution of the contributions made by it in the event that there has been a total failure of consideration for those contributions. I consider that a declaration as to the binding nature of the Molloy determination (on what I might call the pure construction of the parties’ agreement) will have no utility in circumstances where, as a result of what has transpired, the agreement will have no ongoing operation.

(ii) Binding nature of Tolcher determination

16 The Tolcher determination is not binding on the parties except, perhaps, insofar as it determines whether particular costs claimed to be project costs should be treated as such for the purpose of calculating each party’s actual contribution to the project costs (and even then there is some uncertainty as to what precisely has been determined in that regard).

17 As to the quantification of the parties’ respective project costs, it seems to me that Mr Tolcher has not made any final determination as an expert, as contemplated by the agreement, because, in its terms, the determination does no more than proceed on the stated assumption that the figures provided to the expert by Mr Nelson as to the parties’ contributions to costs are correct (thus seemingly eschewing any attempt to make a final determination in that regard). (Mr Tolcher expressly reserved the right to amend the determination in that respect.)

18 Insofar as the Tolcher determination purports to find that Focus is liable to JND for a half share of the project costs (as opposed simply to determining a half share of the project costs and then calculating the shortfall between that amount and the amount of Focus’ actual contributions – assessed by Mr Tolcher at $142,529), it is not binding on the parties because the issue of legal liability is not a matter within the scope of an expert determination under clause 15.3.3 of the joint venture agreement.

19 While I do not find that (absent any contractual duty) Mr Tolcher would have had a duty, acting as an expert, to accord procedural fairness to the parties (in that he was not performing a quasi-judicial function), and I am not satisfied that he otherwise assumed any such obligation (beyond an obligation to consider the parties’ submissions and given them an opportunity to respond), it seems to me that there is a very real risk that he proceeded to make his determination on the misapprehension (induced, whether intentionally or otherwise, by Mr Nelson’s communications in October 2008) that a revised spreadsheet setting out the parties’ contributions to project costs had been agreed as between Focus and JND (whereas it had not been the subject of any such agreement). Had the Tolcher determination otherwise been binding in respect of the quantification of contributions to project costs, I would have exercised my discretion not to make a declaration to that effect.

(iii) Declaratory relief in light of above findings

20 As to the Molloy determination (which I consider the parties have contractually bound themselves to accept), I am not convinced of the utility of the declaration sought and I am concerned that such a declaration would give rise to ongoing uncertainty and dispute between the parties. In particular, I cannot see utility in a declaration, in effect, as to the binding force of Mr Molloy’s construction, in a vacuum, of various clauses in a joint venture agreement which makes no provision for what is to happen if, as is the case, the parties’ joint venture is abandoned by them prior to the point at which the property the subject of the joint venture is acquired by the joint venture company.

21 As to the Tolcher determination, the only declaratory relief which might have been available, in my view, would be a declaration that any determination as to what cost items are to be treated as project costs is binding on the parties. Given the uncertainty as to precisely what that would entail (having regard to the fact that the determination itself expressly addresses only particular categories of disputed costs), I do not consider that there is any utility in the making of such a declaration.

(iv) Guarantee

22 I find that the guarantee given by Mr Adamo extends to all of the obligations of Focus under the joint venture agreement. Therefore, had I found that Focus was liable, under the joint venture agreement, to pay to JND an amount by way of reimbursement of project costs, then I would have held that this was a liability falling within the ambit of the guarantee.

(v) Claim for restitution

23 The decision of the parties to sell the property the subject of the joint venture agreement effectively brought the project to an end and removed the underlying substratum of the parties’ agreement. The project thus failed without the fault of either party, both parties recognising that it was impossible for it to be carried further into effect.

24 The joint venture agreement, on its proper construction, did not make provision for what was to happen in those circumstances. In particular, it did not make provision for the allocation or apportionment of project profits or losses on the premature termination of the joint venture (other than if that occurred at an earlier stage than has here happened, ie as a result of a failure of the parties to obtain approval for the land loan facility) or indeed on any termination which did not involve the sale of the property (or, more precisely, the sale of something “from the project”).

25 I find that there was a total failure of consideration in respect of the project contributions made by Focus. I consider that this is a case in which the principles espoused by Deane J in Muschinski v Dodds apply and that Focus is entitled to recover in full from JND the contributions it made towards the failed project. Those contributions (comprising interest payments on the land loan facility from 15 July 2006 as capital contributions to the joint venture (quantified at $61,141.72) and costs of $28,944.50) were ultimately conceded by JND (T 30) at $90,086.22.

(vi) Claim to proceeds of sale

26 In light of the above findings, this question does not arise.

27 There might have been a respectable argument that what was contemplated was that once the project got under way any proceeds of sale out of or from the project were to include the property that was to be developed as part of the joint venture even if the project had not reached the stage where the property had actually been acquired by the joint venture company in accord with the agreement. That would be consistent with the way Mr Adamo played a role in arranging the eventual sale of the property, without demur from Mr Nelson as to his involvement in that process (as opposed to the complaints made as to how Mr Adamo was arranging the proposed sale). However, such a conclusion would, as was acknowledged by Counsel for Focus, potentially afford a windfall gain to Focus. (Further, no claim for rectification of the agreement or based on estoppel to sustain such a claim was pleaded.)

28 On this issue, Mr Molloy’s determination would seem to be binding on the parties, turning as it does purely on the construction of the relevant clauses of the agreement. Therefore had this issue been necessary to determine I would have found that Focus was bound to accept Mr Molloy’s determination that it was not entitled to a share of the proceeds of sale of the property.

Background facts

29 JND was, at the time the parties entered into their joint venture agreement, the registered proprietor of a property in Port Macquarie. The property had been purchased in 2004 as vacant land, with a view to the development of a number of apartments on the land.

Initial discussions

30 At some stage in either late 2004 or mid 2005 (the parties’ recollections differing on this point), discussions took place between the respective directors of JND and Focus as to the development of the land in Port Macquarie. According to the then sole director of JND, Mr Nelson, the initial discussion was in about November 2004; according to Mr Adamo, it took place in June 2005.

31 Broadly, Mr Nelson says that at that time he was looking to sell the land (T 21.49) (although it had not been put on the market as such), or to find someone to come into a joint venture development with him (affidavit June 2009) and that does not seem to be disputed. Mr Nelson accepts that Mr Adamo told him that he was not in a position to acquire the land and would not contribute any money to the cash flow for its development (T 22.30) but would be prepared to guarantee a loan for that purpose. His June 2009 affidavit quotes Mr Adamo as saying that this is what he would bring to the table. This is consistent with the contemporaneous documents.

32 Mr Nelson appears to base his recollection of the timing of this conversation on the date of a document which he says he sent the day after the meeting with Mr Adamo to his solicitor, Mr Victor Berger, setting out details of the proposed joint venture (Exhibit A). That letter bears a typewritten date but with what appears to be a handwritten ‘4’ over the last (typed) digit of the year.

33 Mr Nelson could not explain why it was that the typewritten number appeared to have been overwritten in handwriting. However, insofar as it seemed to be suggested in the cross-examination of Mr Nelson that this evinced an attempt by Mr Nelson to backdate the letter, this does not make sense (since the month, as typed, on the letter was November and it is clear that by November 2005 the parties had already entered into their written joint venture agreement). No copy of this letter bearing any unamended typed date was produced. There is, therefore, no ready explanation for the overwritten numeral. Mr Berger, who might have been able to shed light on the date of the letter by reference to when the communication from Mr Nelson was received by him, assuming he retained a record of this on his file, was not called to give evidence.

34 Nevertheless, Mr Adamo’s recollection of the date of his initial discussion with Mr Nelson, on the other hand, similarly seems to be based on the date of a document (in Mr Adamo’s case, this being a letter he had sent in July 2005 with a proposal for consideration by Mr Nelson) which Mr Adamo placed as being sent shortly after his first meeting with Mr Nelson.

35 If, in fact, the initial discussion took place in late 2004 (as Mr Nelson suggests), then there would seem to have been a rather lengthy delay between the initial discussion and the formulation by Mr Adamo of a proposal for a joint venture in relation to the land. In the absence of evidence as to discussions or communications in the interim, this might suggest that it is more likely that the meeting took place in mid 2005 than late 2004 (since it seems somewhat unlikely that Mr Nelson would have waited some six months after the initial conversation without either putting some proposal to Mr Adamo or pressing for some formulation of any proposal by Mr Adamo for the development of the land or moving to place the land on the market for sale). Nevertheless, other than the haste with which the land loan facility was completed in late 2005, there is no evidence of any particular urgency on Mr Nelson’s part, during the period late 2004 to mid 2005, in looking to put in place arrangements in relation to the sale or development of the land (which might have lent support to his recollection of the timing of his first discussion with Mr Adamo).

36 In any event, it was conceded that nothing turns on the time at which the initial discussion took place. At most, this might be something which would go to the credit of the respective witnesses. However, as there is no issue in the proceedings to which the divergence in the parties’ recollections in this regard is relevant, and as both Mr Nelson and Mr Adamo seem to be basing their respective recollections on no more than a reconstruction of events by reference to particular written communications, I do not think any adverse inference should be drawn on either side as to this divergence in the evidence.

How the deal was to be structured

37 What Mr Nelson’s initial correspondence (purportedly of November 2004) contemplated was the sale (to Focus) of 50% of the shares in JND and for JND then to borrow 65% of what Mr Nelson considered to be the current valuation of the land (namely $2.1 million), that being $1.365 million. The funds so borrowed were then proposed to be treated in the following way - $2 million was to represent the “agreed sale value”; $1.215 million of the funds was to be banked by Mr Nelson on exchange; $635,000 was to be treated as JND’s “investment” in the project; and the balance of $150,000 was to be paid by JND (as to $100,000 as capitalised interest and $50,000 for stamp duty).

38 Thus, it was initially proposed by Mr Nelson that JND’s investment in the project was to be $785,000 (the land itself being given a notional value for the purposes of the joint venture of $2 million) and that (out of the overall proceeds) JND would be entitled to notional interest on the $785,000 (at a proposed rate of 7.5%). No further funds were to be provided by JND in relation to the construction of the apartments in the development (those funds apparently to be borne by Focus). JND was to have a half share of all the profits from the project. (Ironically, had the joint venture proceeded in this way there would have been no question now as to whether Focus had any entitlement, through its shareholding of the company, to a share of the proceedings of sale of the property.)

39 In the witness box (T 23.7), Mr Nelson seems to have generalised the effect of the proposal. He was adamant that the “project was 50/50” but saw this as being achieved in the following way: “I would take out a loan and lend Adamo half, I would pay for it and he was to pay me back”. (Mr Adamo denies that Mr Nelson had said that half the money from the land loan facility was effectively to be a loan from him to Adamo. In his affidavit, Mr Adamo asserted that interest paid on the loan was only to be a project expense if the conditions precedent for the development were met and Focus was thus to partake in the proceeds of sale – see his affidavit of 18 August 2009.)

40 Mr Nelson appears to have regarded the arrangement as one in which, as it was JND’s land which was to secure the borrowing, the borrowing was to be “JND’s” but that Focus would assume liability in due course for half of those borrowings and account would later be taken (on the ultimate profit share) of JND’s contribution of the land to the project. JND’s half of the borrowings was to fund the initial project expenses up to the point of construction. However, and relevantly in light of the way the project in due course proceeded, Focus was not to be responsible itself for funding the initial project expenses – that was to be a matter for adjustment in due course.

41 The project, as envisaged in Mr Nelson’s letter to Mr Berger, did not proceed. What was agreed (as to the way in which the project was to proceed) was different in a significant aspect – namely that there was no upfront sale to Focus of any shares in JND (or of an interest in the land itself). This is consistent with Mr Adamo’s account of a discussion with Mr Nelson in which the latter said to him words to the effect “this is my land and until such time as development finance is available at which the joint venture can purchase the land, the land stays with me.”. That also accords with the tenor of Mr Nelson’s responses in the witness box as to his understanding of the position.

42 There was by this point a clear move by Mr Nelson away from his initial proposal that the ownership of the land be transferred (indirectly through the acquisition of shares in JND or directly by sale of land) to Focus at the start of the project.

43 Further, the documents, as executed, make it clear that the initial borrowing (rather than being one under which Mr Nelson or JND borrowed the funds and loaned half to Focus by way of its half contribution to the project) was one taken out jointly between the parties and for which Focus was equally liable.

44 There was also some confusion as to the way in which the advance of capitalised interest payments were to be treated. Mr Nelson’s position was that, because they came from the initial borrowings on his land (T 20), they represented a payment by him (or JND). In fact, the initial borrowings were jointly obtained through the land loan facility and thus a payment out of those borrowings could only be seen as being a payment by Mr Nelson (or JND) alone if it were adopted as such by the parties.

45 Mr Adamo’s proposal of 15 July 2005 (put forward for “discussion” by Mr Nelson) accepted that the profit would be shared 50/50 and contemplated that the interest on the initial loan would be treated as a project expense. That letter noted that there were two ways in which Focus would be interested in purchasing the site: an outright sale for $1.8 million or less (Focus being described as a “not overly willing purchaser in a depressed market”) or a “joint venture with limitations”, broadly described as encompassing, among other things, an agreed land value of $2 million and entry into a “co-venture agreement” on a 50/50 basis, with each co-venturer having 50% of the shares issued in the landowner company.

46 The letter contemplated refinancing the land at $1.4 million including $130,000 capitalised interest for 12 months (with Focus to be jointly liable for the loan) and said this would give Mr Nelson “say $420,000” with the balance of the money to be treated as a loan to the project. Mr Adamo referred to a deferred interest charge payable on completion of the project and offset against any unit JND might wish to purchase out of the development. On that letter was an annotation (in Mr Adamo’s handwriting) to the effect that the Vendor (JND/Mr Nelson) did not want to issue shares in “his” company but rather wanted a joint venture between his company and Mr Adamo’s company.

47 According to Focus, each party was thus to bring something to the joint venture – JND, its land; Focus, its financial support in relation to the borrowings to enable JND by refinancing the property to free funds out of the property for JND’s own benefit and to enable interest payments to be made on the refinanced loan for the initial period in which steps were taken to get the project to the stage where development and construction finance would be able to be obtained. This broadly accords with the thrust of the arrangement provided for in the JVA.

48 On that basis, Mr Adamo seems to have seen his assistance (at least initially) as confined to the giving of a guarantee to facilitate the refinancing of the then existing loan by way of the land loan facility. Consistently with Mr Nelson’s recollection of the initial discussions, Mr Adamo says that that was all he told Mr Nelson he could bring to the table at the time (T 116).

49 It was put to Mr Nelson that Mr Adamo had never suggested that he would guarantee the whole of the payment of the project costs (T 36). Mr Nelson did not agree. He did not, however, refer to any conversation in which Mr Adamo had agreed to do more than bring to the table his guarantee of the loan (whichever loan that may have been) (T 37).

50 This evidence was emphasised in the context of the current dispute as to the scope of the guarantee. However, given that back in late 2004 or early 2005 the parties were only at the stage of negotiation of their arrangements, I find it difficult to place any weight on the initial statements by Mr Adamo as to the guarantee he could bring to the table, when construing the final written agreement containing the guarantee which he ultimately gave. It is the objective intention of the parties, as ascertained by the court, which is relevant in construing an agreement such as this and I note that at least in one respect, which is not disputed, Mr Adamo was apparently prepared to give a guarantee going beyond the initial land loan facility (clause 7.2.1(b)), which indicates that his position was not fixed in terms of the early negotiations.

Joint Venture

51 On 21 October 2005, JND (described as “Investor”) and Focus (described as “Developer”) entered into a formal Joint Venture Agreement (JVA). Mr John Nelson, then JND’s sole director, signed the JVA on behalf of JND and also in his personal capacity as guarantor of JND’s obligations under the JVA. Mr Adamo, as Focus’ sole director, in turn signed the JVA on its behalf and also in his personal capacity as guarantor of Focus’ obligations under the JVA. (I turn later to the scope of the said guarantee.)

52 In essence, the joint venture was for the redevelopment of the property into 22 lots, subject to the necessary development finance being obtained (that being separate from and later than the initial land loan facility which was intended to pay out the existing National Australia Bank loan and to enable the joint venture parties to fund the first $150,000 in interest and other expenses). The JVA contemplated that, once development finance was obtained and certain other conditions were satisfied (such as the s 96 modification – T33/34), the property would be acquired by a special purpose joint venture company. (Seemingly, that joint venture company was intended to be Focus, although this was not specified in the JVA.)

53 At the time of entry into the JVA, the land was subject to a mortgage to the National Australia Bank securing an amount of at least $825,000 (the ultimate pay-out figure for that loan being in the order of $852,000). The land already had the benefit of a development approval from the Port Macquarie-Hastings Council. There was subsequently a s 96 modification to modify the existing DA approval for 22 units. Mr Nelson stressed that it was Focus’ opinion, but not the opinion of the architect, that until the s 96 modifications were done the plans could not be drawn up for sale (T 38.36). That may or may not have been the case. In any event, there is no dispute that after the commencement (and as part) of the joint venture, Focus arranged for such an application to be made (and that, when eventually sold, the purchaser had the benefit of that approval).

54 It is not disputed that the joint venture on which the parties embarked was comprised of a number of stages, the sequence of which was as set out in the JVA. Counsel for JND, Mr Wilson, submits that there were in essence only two stages in the joint venture: the first, being the obtaining of the land loan facility (to pay out the existing mortgage and to deal with the initial costs/funding of the joint venture) and the second being the development phase after the development finance was achieved and the other conditions satisfied. Mr Nelson (largely unprompted) explained in cross-examination his understanding of the various stages of the joint venture, there being at least three in his eyes: “Yes that was part of the development finance, the s 96 application and presales, the second stage. The first stage, I think to me, was securing the land loan. Then, we had the stage where we were going to see if it was viable to be sold. There is another stage after that, I would say, which would be obtaining the construction finance.” (T 34.30)

55 Whether, broadly grouped, there were two or more stages in the project does not seem to me to matter. The relevant fact is that until the project reached the point at which the preconditions to acquisition of the property by the joint venture company were satisfied, the property remained in the ownership of JND. (This was to become significant when the joint venture failed, since the contention of JND (ultimately accepted by Mr Molloy) was that the proceeds of the subsequent sale of the property formed no part of any overall calculation or “wash-up” of the profits/losses of the project as between the two joint venturers because the property was never brought into the ‘project’, as such.)

56 In any event, it does not seem to be disputed that what was contemplated by the agreed project (as it went forward) was (first of all) that the parties were to seek approval for a land loan facility to discharge the existing debts and that the second main step was the modification of the development approval and the obtaining of development finance; with the final stage being the obtaining of construction finance (and construction of the units in accordance with the development approval). The JVA envisaged that there might be a sale of the property before the physical redevelopment of the land had taken place.

JV Agreement

57 Clause 3.1 of the JVA, which was expressed to be subject to clause 3.2, provided that JND and Focus would share the project liabilities in equal proportions. I set out these clauses in full later in my reasons. (Mr Adamo contended that what clause 3.2 meant was that he would be reimbursed in full provided that there was enough realised out of the property for that to happen.)

58 Clause 5 of the JVA contained a put and call option whereby, on satisfaction of the specified conditions precedent, the joint venturers would nominate the “company” as the purchaser of the property. (Clause 12 set out those conditions precedent, they being, relevantly, the obtaining of a construction certificate; approval for the development facility; and a minimum number of pre-sales.)

59 Clause 6.1 of the JVA provided for the parties to obtain a land loan facility to refinance the property owned by JND. The amount which the JVA contemplated would be obtained from such a facility was $1.365 million. (For that purpose, on about 23 December 2005, JND and Focus (together as borrower) entered into a Deed of Loan with Provident Capital Limited (as lender). However, the sum eventually advanced pursuant to that Deed was the lesser sum of $1,323,000.)

60 Clause 6.1.3, headed “Interest on Land Debt”, provided that the venturers (JND and Focus) “as part of their obligations in 3.2” were to fund half the interest on the land loan, subject to clause 7.

61 Clause 6.15 noted that the joint venturers would provide guarantees (and Mr Adamo accepts that he did so in relation to the land loan facility).

62 Clause 7.1.1 provided that Focus was to pay all costs for approvals (which were to form part of the project costs). Clause 7.1.2 provided that Focus was to pay interest on the land loan facility after the amount of $100,000 (which was also to form part of the project costs).

Land Loan Facility (or initial debt refinance)

63 In early December 2005, Mr Adamo advised Mr Nelson as to what he considered would be the prospective project costs and financing. He wrote, by letter of 8 December 2005 (Exhibit 2, Tab 22), saying “You will require the following funds [$300,000] in order to obtain construction certificate and commence marketing”. The letter referred to the assumption that 65% of the current land value would be borrowed ($1.35 million) and that the interest provision for 12 months should be $100,000. It went on to state that “As agreed and in consideration that [a related company to Focus] is granted the building contract Focus will be a joint guarantor to the revised facility”. (Presumably that was a reference to the initial land loan facility.)

64 The land loan facility was obtained, as noted above, in December 2005 by way of Deed of Loan with Provident Capital. The finalisation of the loan transaction seems to have taken place with some haste. By letter dated 21 December 2005, Bersten Pain, acting for the lender, wrote to Mr Toltz enclosing documents and noting that settlement was proposed for 12 January 2006. In fact, settlement took place on 23 December 2005, the very day on which the mortgagee’s solicitors had certified that the transaction could proceed to settle – that certification seems to have been given early in the morning on that day (or at least the fax confirming this was sent to Gerrard Toltz at 9.25 am on 23 December 2005 - see fax header, Exhibit 2, Tab 24) with completion then scheduled at 3.30pm that afternoon. The reason for the apparent haste was not explained. (Mr Adamo, in his 27 May 2009 affidavit deposed to a conversation with Mr Nelson to the effect that his mortgagee was pressing him to refinance. However, Mr Nelson denied that this was the case.)

65 The actual advance was, however, $1.32 million (not the $1.35 million Mr Adamo had assumed would be required in early December 2005, nor the $1.365 million). The proceeds of that facility were disbursed (as confirmed in a letter dated 12 January 2006 from Mr Toltz) first to pay out the existing National Australia Bank mortgage (by then the payout figure being a sum of $851,720). Of the balance, a sum of $326,787.55 was paid to JND for its own purposes, with smaller amounts ($74,214.86 and $22,000) used or put into an account to fund, respectively, the payment of interest in advance on the loan facility and on account of working capital for the project.

66 Focus (though it seems to have raised no such complaint at the time) has subsequently argued that the shortfall in the amount of the land loan facility (and, more particularly, the shortfall in the amount utilised out of the proceeds to fund the advance interest payments and the initial working capital) prejudiced the project (and hence that the payment out to JND of the sum of $326,780.55 was at the expense of maintaining what had been proposed to be retained out of the facility to fund a greater amount of up-front interest payments and for working capital). The shortfall in question was $53,783.14. (Paragraph 31 of the cross-claim pleads that this amount was overpaid to JND out of the moneys to be used as working capital and interest payments. However, a claim for this amount was not pressed in argument before me.)

67 Mr Nelson says that the reason for the proportionate reduction in the amounts used to fund interest payments and working capital was that less than the loan amount as originally contemplated under the JVA (ie less than $1.365 million) had been obtained from Provident (and he asserts that Mr Adamo had agreed to the reduction).

68 There was a conflict of evidence as to the circumstances in which this happened. Mr Nelson said that, at a meeting in December 2005 with the solicitor acting on the joint venture (Mr Toltz), it was Mr Adamo who suggested the reduced payments. Mr Adamo denies that he agreed to the reduction of the amounts to be retained out of the land loan facility proceeds for the interest payments and working capital and says that he first became aware that this was to happen when he attended on settlement, by which time it was too late and he had no choice but to accept the position (T 123). (He did not raise this thereafter, apparently in an endeavour not to ‘rock the boat’.) Mr Adamo thus says that the reduction in the amount made available for interest and working capital was put to him as a fait accompli.

69 Mr Nelson says that the “only instructions [he gave] were that the residue of the money of my land that was engaged would go into my account, that is the only instruction I had. I had no idea of the other figures. It was agreed, not instructed“ (T 41.37) (my emphasis). However, by the time that the Bersten Pain letter of 23 December 2005 had been written, setting out the payment details, the mortgagee must have been given directions as to how the loan money was to be paid out and it would be surprising if this had been done by Mr Toltz without any instructions. Mr Toltz gave evidence that normally he would issue a cheque direction to the lender but he did not do so in this matter. “It all happened very quickly. But there is no doubt that I authorised them to draw those cheques.” (T 107.42). He could not recall who had instructed him to do so or when those instructions were given.

70 Mr Nelson, in cross-examination, suggested that Mr Toltz could be asked to confirm that at the December 2005 meeting the parties had agreed to modify their agreement (“Maybe someone could ring Mr Toltz and ask” - T 45; T 105) but when that suggestion was adopted, and Mr Toltz gave evidence as to the meeting, Mr Toltz had no recollection of the conversation attributed to him in paragraph 76 of Mr Nelson’s 26 June 2008 affidavit (in which Mr Nelson deposed to a conversation in which he says Mr Adamo made the suggestion as to the reduction in the amounts drawn down for particular items). Mr Toltz’ evidence largely supports Mr Adamo’s account of events, at least to the extent that Mr Toltz says that if he had understood there to have been an agreement to vary the JVA in this regard then he would have made a note to do so. However, in circumstances where it may not have been necessary formally to record any such agreement to vary the disbursement of funds from the land loan facility, it seems to me that little can be drawn from the lack of a written note to this effect.

71 As with various of the factual disputes between the parties, ultimately I do not think anything turns on who it was that proposed the proportionate reduction or its effect on the success of the project.

72 Mr Nelson initially suggested in the witness box that he or his company had received less than $326,780 out of the land loan facility proceeds (even though receipt of this amount was admitted in the pleadings), but it seems he did so on the basis that he says he in fact used this amount for project costs (T 30). As to the shortfall, he said “But I put up $150,000 and there was $120,000 taken out to start with plus the other expenses. But there is $120,477 of my money put out” (T 43). Mr Nelson accepted that he could have put the moneys representing the shortfall in amounts for interest/working capital into the joint venture - “I could have yes I agree I could have. But we agreed not to” (T 44.20).

73 Mr Nelson, in his evidence in these proceedings, made it clear that he regarded the $100,000 advance interest payments which were to be paid out of the borrowings as being a payment by him for the purposes of the joint venture (though coming out of joint borrowings) (T 48) and says the second lot of interest after that time was for Adamo to meet - “I paid my first 6 months”.

74 Focus guaranteed the borrowings under the land loan facility and it is not disputed that it also made financial contributions to the project. Focus has quantified those contributions at $90,086.22) (an amount which both the Tolcher determination and Mr Nelson, himself, have accepted) comprised of payments of interest on the land loan facility (totalling $61,141.72) and other project costs ($28,944.50)). Mr Nelson was critical of Focus’ performance of its obligations in relation to the contribution to project costs but does not dispute that there was a financial contribution of about that amount by Focus to the project. Mr Adamo, for his part, accepted that, if the project succeeded, he would expect to have made a profit both as developer and as builder (T 119). (This seems to be suggested by JND to be of relevance in that there was a potential benefit for Mr Adamo’s interest in the project over and above any share of the proceeds of sale of the property. However, that benefit was never realised.)

Failure of the project

75 Following the JVA, a s 96 application was lodged for the modification of the Development Approval and in due course this was approved.

76 By mid to late 2006, the feasibility of the project was placed in doubt. It is not suggested that this was due to any fault of the parties (other than to the extent that it is apparently Focus’ present belief that the allocation of lesser amounts for the advance interest payments and the working capital exacerbated the financial difficulties subsequently encountered in relation to the project). Both parties accepted that the inability to secure a sufficient level (or indeed any) pre-sales for the project meant that construction finance could not be obtained and the project could not proceed.

77 Mr Nelson said in paragraph 32 of his affidavit that in mid 2006 he had a conversation with Mr Adamo in which it was agreed that, as presales had not been obtained and finance could not be secured, the property should be sold so as to minimise “our losses” (thus suggesting that the proceeds of sale of the property would be a matter relevant to take into account in ascertaining the overall losses of the project).

78 On 23 June 2006, a further Deed of Loan was signed in order to roll over the parties’ loan obligations for a further period of 12 months, following the expiry of the period provided for under the initial Deed of Loan.

79 By email on 15 September 2006, Mr Adamo wrote to Mr Nelson, referring to the fact that he had scheduled payments from the joint venture account and through his company totalling $72,000 and stating that payments of interest or to anyone else thereafter would have to be shared as he did not have enough funds. He said that a property trust had in principle agreed to purchase the land for $2 million and that he was going to talk to Colliers to market the site for sale (thereby demonstrating a belief, whether that be warranted or not, that he had a right to provide input (and an interest) in relation to what was to happen with the land as part of the further steps to be taken in relation to the project).

80 Mr Adamo set out in that communication the options as he saw them at that stage in relation to the project (Exhibit 2 Tab 33) – namely that development finance might be obtained; that there might be continuing finance; that the property might be sold to the property trust (which had expressed interest); and that Colliers might be approached to market the property for sale. (The tenor of this letter supports the view that Focus saw the property (and what was to be done with the property) as part of the project in which the parties were then still involved.)

81 Mr Nelson, in the witness box, did not recall the third of those options but, when pressed, he agreed that an option agreement had been signed in relation to the property and that a fee had been paid to a Mr McLean in relation to that option (T 49). That fee (originally sought in the sum of $50,000 and then reduced to $30,000) was a matter of contention between the parties at the time but not in issue before me. (There was also a dispute between Mr Nelson and Mr Adamo as to whether Mr Adamo should be noted as the vendor’s agent on the contract for sale of the property which was prepared in course (T 52) (something Mr Adamo said had been done on their solicitor’s advice) but again nothing turns on this.)

Sale of property

82 The Port Macquarie property was sold in June 2007, with the benefit of the development application, as modified. The manner in which the purchase funds were distributed is the genesis of the present dispute.

83 By letter dated 1 May 2007 (prior to the sale), Focus wrote to JND in an apparent attempt to reach a resolution for the amicable distribution of the “net proceeds”. The letter referred to many attempts to obtain project refinance (something not apparently disputed by JND) but said that, without presales, that project refinance could not be secured. It noted that the property could not be purchased by the joint venturers and went on to explain Focus’ view, which was that the obligation of each joint venture partner ceased with the sale of the land and that all capital over and above the budgeted amounts should form the project costs. It referred to the deficiency in funding by reason of the shortfall from the project at the time the land loan facility was taken out ($53,786), which it was said had caused the parties to have to inject funds at an earlier time. It noted that the parties had agreed to sell the property and suggested a distribution of the net proceeds such that JND would receive $82,088 and Focus $30,744 after the payment of $30,000 to Focus (as a contra for the disputed broker’s fee, that being, as I understand the evidence, a sum which Mr Adamo said was owing to him by the broker on another property deal) and after repayment of the land loan facility to the financier.

84 On 14 June 2007, a contract was signed for the sale of the property by JND to a third party for the sum of $1.9 million. The defendants admit that the sale was with their consent (paragraph 9 defence). As noted earlier, out of the sale proceeds, the sum of $82,744 was put into a controlled monies account held by the second defendant, pending resolution of what was described as the disagreement between the parties as to how the losses incurred in relation to the project were to be borne. The fundamental point of disagreement between the parties at that stage seemed to be whether the sale proceeds were to be taken into account in ascertaining the “losses” of the joint venture (by reference to clause 3.1 of the JVA, which provided that the parties were to be liable for project costs and to share liabilities in respect of the project in equal proportions).

85 Mr Nelson accepts that he (or his company JND) received $98,305 from the proceeds of sale plus a $10,000 fee and the balance of the deposit, being a total net sum of $286,397. Taking into account the sum obtained when the property was refinanced ($326,780) this meant a return to JND/Mr Nelson of some $721,482. Mr Nelson agreed that this was what he had obtained from the sale – “Yes it was my equity in the land yes” (T 58.37).

86 Mr Nelson confirmed in the witness box that it was (and remains) his opinion that the land was his and that the profits from sale were not to be shared, though he did not recall having said that to Mr Adamo (T 56.2 and 56.24). He agrees that Mr Adamo wanted his money back. He agrees that the position he has adopted is one which has had the effect that Mr Adamo had to contribute to the costs but could not get anything out of the land (T 57). Mr Nelson’s general response to such a proposition is to say “I think we both had lost a lot of money” (T 50.32).

87 Mr Nelson acknowledged that dispute in his affidavit of 19 January 2009, when he says that one of the disputes was in relation to the appointment of the proceeds of sale. However, for some reason not clear to me, paragraph 8 of the Statement of Claim is not admitted (namely, the allegation that in May 2007 the parties “fell into a dispute” concerning the interpretation of some of the terms of the JVA).

88 The defendants contend that the sale of the property, with their consent, had a number of consequences: it prevented the project from proceeding (which was clearly the case); it terminated the obligations of the parties to the joint venture by mutual consent, as well as the obligations of Mr Adamo as guarantor (something not conceded by JND); and it caused the project to be abandoned or alternatively frustrated (thus seemingly distinguishing between the termination of the parties’ contractual obligations and the frustration of the project) (para 11 Defence).

89 In paragraph 13 of the Cross Claim, the defendants similarly plead that there was a consensual discharge of the joint venture and that the JVA was abandoned or terminated, as a consequence of which (para 14) it is alleged that there was a total failure of consideration for Focus. (It is not contended that the JVA itself has been frustrated, as the decision not to proceed with the project was a consensual one.)

90 Counsel for Focus (Mr Reuben) submits that, the joint venture having terminated without fault on the part of either party (not contending for this purpose that the conduct of JND hastened the demise of the project), this amounted to a total failure of consideration entitling the defendants to restitution of their contributions to the project. It is in this sense that Mr Reuben says this dispute is not a question of the sharing of losses.

Dispute resolution process

91 First, the parties unsuccessfully participated in a mediation of their dispute, following which JND invoked the dispute resolution provisions in clause 15.3 of the JVA.

Legal determination

92 Clause 15.3.1 of the JVA provides that “any dispute relating to legal issues will be determined by [a] practising Barrister or Solicitor selected by the parties or if they cannot agree, then nominated by the President of the Law Society of NSW”.

93 Clause 15.5 provides that the decision of the expert is to be final and binding on the parties. Clause 15.6 expressly provides that the expert does not act as an arbitrator.

94 To invoke the provisions of clause 15.3.1, JND wrote to the President of the Law Society, by letter dated 27 August 2007 (tab 69), informing him that the parties were in dispute regarding the “interpretation or intent of the contract, clause 3 entitlement and liability”.

95 The ‘dispute relating to legal issues’, for the purposes of clause 15.3.1, was thus first articulated by JND as a dispute as to the proper construction of clause 3 of the JVA.

96 Mr Nelson noted in his letter to the Law Society that at that stage neither he nor Mr Adamo wished to have legal representation and they felt that the expert’s determination of the intent of the contract clause 3 (entitlement and liability) was what they needed. “Does the intent of our contract mean that we as joint venture partners are meant to share equally the profit from the project and do we also as joint venture partners have an obligation to share equally the costs and liabilities of the project?”

97 Mr Molloy was in due course nominated by the President of the Law Society, by letter dated 16 September 2007, as the expert to determine that ‘dispute’.

98 The defendants now say that there was no ‘dispute’ relating to the construction of the JVA, as such; rather that they had, in effect, jointly sought an opinion as to the legal construction to be placed on various clauses of the agreement (see para 14 of the defence). They submit that at the time of Mr Molloy’s nomination the parties were not in dispute in relation to any legal issues arising from the JVA (simply wanting to have an expert construe clause 3) and that there was no agreement between them as to the precise nature of their dispute (see para 4.3 of the defendants’ Outline of Principal Contentions of Fact and Law dated 3 December 2009).

99 It nevertheless seems fair to say that at that stage JND was asserting that Focus (and/or Mr Adamo) was liable to contribute further sums to cover a one-half share of the project losses (calculated without reference to the proceeds of sale of the property) and Focus was asserting that it was either entitled to the return of its project contributions or the proceeds of sale of the property had to be taken into account when calculating project losses.

100 Although neither party had the benefit of legal representation in the process of expert determination conducted by Mr Molloy, it seems clear from the submissions made to him in due course by Focus (which expressly referred to and relied upon Muschinski v Dodds), that during the course of the process Focus had the benefit of some legal advice (and this was accepted in the witness box by Mr Adamo).

101 A preliminary conference was convened by Mr Molloy and held in his chambers on 12 December 2007. It was attended by each of Mr Nelson and Mr Adamo. At that preliminary conference, according to Mr Molloy’s later reasons for determination, the parties invited him to “embark upon a financial analysis to determine which party owed what to whom”. He declined to do so. Rather, during the course of what Mr Molloy considered to be a relatively lengthy preliminary conference, the parties apparently agreed to identify the task to be performed by Mr Molloy as the task of construing a considerable number of terms of the JVA.

102 The draft agenda/minutes of the 12 December 2007 meeting record that there was no representation for either party; note that the parties agreed that the “determinist” had been properly appointed; and described the general nature of the claims as “Construction of clauses 3.1, 3.2 [and many others]”. The parties apparently also agreed at that meeting (para (f)) that Mr Molloy could determine any question that arises during the determination by reference and according to considerations of general justice and fairness, rather than according to law. The parties did not agree to any technical or legal advice being obtained and (rather surprisingly, given that the issue for determination was solely the construction of particular clauses) answered “No” to the question as to whether any issue of law was likely to arise. They agreed to the provision of written submissions and noted that the parties were to comply with s 37 of the Commercial Arbitration Act 1984 as if the determination was an arbitration pursuant to that Act.

103 Mr Reuben submits that if there was a dispute between the parties which was before Mr Molloy for determination it was “which party owed what to the other in the events that had happened arising from the premature termination of the Joint Venture” (para 4.6, Outline of Principal Contentions) and that Mr Molloy had misinterpreted his task. Mr Reuben says that what Mr Molloy was being asked to do (rather than determining a financial dispute in relation to the minutiae of contributions, as the Molloy determination suggests) was to determine whether, in the events that had happened, the terms of clause 3 of the JVA had application or whether the law of restitution should apply. (I interpose to note that it is by no means clear that as at the date of the preliminary conference any question as to the applicability of restitutionary principles had yet been raised, this seeming to emerge for the first time in the submissions provided to Mr Molloy by Focus in January 2008.)

104 Insofar as Mr Reuben suggests that there was no dispute as to the construction, as a matter of law, of the particular clauses (the parties’ correspondence not having expressly asserted differing views as to the construction of the contract at that stage), this seems to disregard the fact that there was a live dispute between the parties at least as to the interpretation and intent (and hence as to the potential operation) of the contractual provisions. In order to assist in determining that dispute, the parties had agreed, apparently at Mr Molloy’s suggestion or instigation, that the task to be carried out by Mr Molloy should be for him to express a considered opinion on various clauses of the contract.

105 As I understand it, Mr Reuben submits that, in those circumstances, whatever it was that the parties were in fact agreeing that Mr Molloy should do, what they were not doing was following the procedure contemplated by clause 15.3.1 and hence that any determination by Mr Molloy is not a determination within clause 15.3.1 (and not one which is rendered binding by clause 15.5). I consider this submission later in these reasons. However, when outlining the factual background to the present dispute, I should note that it seems to me that the circumstances in which Mr Molloy was retained on 12 December 2007 by the parties (on the nomination of the President of the Law Society), to make a determination as to the proper construction of various clauses of the JVA, were such as to evince an agreement (or acceptance, however reluctantly that might have been on the part of Mr Adamo) by both sides that Mr Molloy’s determination (whether or not strictly of a ‘dispute’ relating to legal issues within the meaning of that phrase in clause 15.3.1) should be treated as a determination pursuant to clause 15.3.1 and, hence, a determination to which clause 15.5 would in the ordinary course apply.

106 Therefore, whether or not there was any ‘dispute’ as to legal issues (and if so what it was) as at the time Mr Molloy was nominated to be the expert, it is clear that what the parties subsequently agreed when they met with Mr Molloy was not that he would make any determination as to who owed what to whom (or as to their legal liability inter se) but that he would be appointed as an expert to determine the proper legal construction of particular clauses in the document they had both signed.

107 Mr Reuben, quite fairly, says that the exercise carried out by Mr Molloy was basically that of the expression of an opinion, as a practising lawyer, as to the construction of various clauses of the JVA. (I might add that Mr Molloy seems to have been asked to do so (and largely to have done so) without reference to the actual events which had transpired.)

108 Nevertheless, I do not think it is open to Focus and Mr Adamo, having participated in a process which was formally commenced under clause 15.3.1 and having agreed the “issue” which Mr Molloy was to determine, without at any stage prior to the determination suggesting that the way in which the issues had been identified with Mr Molloy would render this a determination outside the scope of clause 15, now to deny the binding force of the Molloy determination solely on the basis that there was no “dispute” as such.

Submissions

109 Both parties provided written submissions to Mr Molloy. Focus did so by letter dated 14 January 2008 which specifically invoked the principles espoused in Muschinski v Dodds.

Molloy determination

110 The Molloy determination was issued on 17 March 2008.

111 Mr Molloy referred in his determination to the length of time which had been required for the preliminary conference (which he regarded as unusual) and indicated that although the parties had wanted him to express an expert opinion on more than simply clause 3 of the JVA, he had not been prepared to do so. Mr Molloy expressly noted that both parties had urged him to embark on a financial analysis to determine which party owed what to whom but stated that he had declined at that point of time to “travel down that path”.

112 In paragraph 11, Mr Molloy stated “... the issue as to who owes what to whom is not before me. The only issue before me is the construction of the various clauses of the Agreement”. He then noted that he was very much aware of what had been said by Einstein J in TheHeart Research Institute Limited v Psiron Limited [2002] NSWSC 646 (by which I can only assume that he was referring to the need recognised by his Honour for parties to ensure that the expert acts within the scope of the agreement by which the expert is appointed – which seems to me is implicit in the observation by his Honour in that judgment that the seminal question in challenging a determination remains whether or not the expert has acted outside the scope of that agreement [at 23]).

113 Mr Molloy then turned to a consideration of the JVA, observing that this was not an easy contract upon which one could quickly obtain a firm grasp, there being a number of internal inconsistencies, references to missing documents and significant blanks (of which he gave some illustrations).

114 Broadly summarising the relevant findings, Mr Molloy determined that clause 3.2 of the JVA (which dealt with the determination of the proceeds of sale from the project) did not apply in circumstances where the project had not proceeded to finality (and thus where the proceeds from sale of the property did not form part of the joint venture in those circumstances) but that clause 3.1 did apply in those circumstances.

115 The defendants contend that what Mr Molloy should have determined was that neither clause applied – ie, that the agreement to meet project costs in equal shares only applied, and such liability would only arise, if there were proceeds of sale from the project out of which the project costs could be met.

116 As a matter of the construction, separately, of each of clauses 3.1 and 3.2 (ie in summary, Mr Molloy’s finding that clause 3.1 contains an agreement on the part of the co-venturers to share liabilities equally and that clause 3.2 does not apply if the project is terminated before the property is transferred to the joint venture company), I do not consider that Mr Molloy’s conclusion is manifestly incorrect (though I have noted earlier that an argument might have been made as to the scope of the words “from the project” in clause 3.2 to support a different finding as to the applicability of clause 3.1). The only criticism that I think could be made of the Molloy determination in this regard is that it does not expressly address what is meant by the words “subject to clause 3.2”. However, it may be that this was an unstated part of Mr Molloy’s reasoning and in any event, if (as they have) the parties have agreed, as part of their contract, to accept as binding the determination by a legal expert, then any failure to address or place weight on those words is a result each would ordinarily have to accept.

117 Strictly speaking, however, that does not necessarily determine the present dispute (even leaving aside the issue of quantum) because the question would be whether (or how) in the circumstances that have transpired, clause 3.1 itself has any operation.

118 On an analysis of the Molloy determination, it seems to me that Mr Molloy’s reasoning included the conclusion that clause 3.1 continued to operate after termination of the agreement, though without addressing questions of frustration of the underlying joint venture or the like. That might raise the issue whether Mr Molloy, in so doing, went beyond what he had been asked to determine – namely, a question of construction of various clauses simpliciter. However, it seems to me that the expression of his opinion as to the ongoing operation of clause 3.1 was within the task Mr Molloy was asked to perform, particularly since any construction of individual clauses would have to have reference to the contract provisions as a whole.

119 Reviewing the process of Mr Molloy’s reasoning in relation to the findings he made, Mr Molloy noted that the sequence of events to give effect to the project was set out in clause 4.1, commencing with the steps set out in clauses 4.1(a) to (e). Insofar as 4.1(c) was the securing of project finance by the development finance facility – defined as finance obtained to fund the project following the conditions precedent – he considered this to be illogical in that one of the conditions precedent was the requirement for the obtaining of contracts for presales (which itself could not take place, he said, without the property first having been purchased by the joint venture company – that, however, being subject to satisfaction of the conditions precedent). The next step in the sequence was the purchase of the property (that defined as being the land “with approvals”).

120 Mr Molloy considered that the scheme of the project could work only if the development finance was in place prior to the purchase of the property and prior to the exchange of contracts for presales. He considered this to be circular, being of the view that the project finance could not logically be obtained without the satisfaction of conditions precedent, which themselves could not take place until after the purchase of the property by the company (which in turn could not take place until the project finance was obtained). Thus, he considered that the development finance facility was predicated on conditions precedent being satisfied, one of which was the approval of the development finance facility which could not occur until the conditions precedent were satisfied.

121 Mr Molloy made it clear that he had not taken into account the financial documents or any financial consequences that might flow from his determination.

122 What Mr Molloy was determining, therefore, was the construction of particular clauses in an agreement without reference to the particular factual circumstances which had led to the project not proceeding.

123 In that regard, Mr Molloy was of the view that there was “precious little in the Agreement that deals with the situation where the conditions precedent were not met and the project simply did not proceed, notwithstanding the contributions made by the parties.” (I agree. I would go further to say that there was nothing in the contract dealing with that situation.) He nevertheless concluded (at para 35) that the terms of the financial contributions/obligations of the parties were governed by the Agreement notwithstanding that the project did not proceed to finality. (That conclusion, I note, does not take into account the particular circumstances in which the project did not proceed to finality in this case.)

124 With that background in mind, Mr Molloy had regard to clause 3.1. He did not refer to the opening words which made it subject to clause 3.2. He considered clause 3.2 to be “not terribly helpful” because it was predicated on the basis that the project would proceed to completion. His conclusion was that “as I read the Agreement, each party/joint venturer is obligated to contribute equally to the Project costs (as defined in Schedule 1)” including all costs/liabilities in connection with the financing of the project. (As a statement in isolation this is uncontroversial.) He noted that there was no provision in the agreement for the parties ultimately to contribute unequally to the project costs, although he recognised that there were clauses which required one or other party to make payments subject to the ultimate setting off of their respective contributions (thus there could be unequal contributions during the term of the venture).

125 Mr Molloy noted that the possibility that the project might not proceed to fruition was recognised in clauses 4.1.2, 6.1.4, 6.1.6(a) (i) and (ii) and 13. In paragraph 36, he expressed the view that the words “otherwise as provided in this Agreement” in clause 4.3.3 (dealing with termination of the project) were satisfied and met in circumstances where 4.1.2(a) was not met and/or clause 12 was not satisfied.

126 Importantly, in the present context, Mr Molloy stated his opinion that if the project did not proceed because one (or more) of those provisions was not satisfied then in those circumstances clause 3.1 required the parties to contribute equally to the project costs and liabilities in respect of but limited to the project – support for which he gleaned from clause 6.1.4 (see para 37).

127 He then said that in his view clause 3.2 did not apply and had no bearing upon the rights of the parties in the event that the project did not proceed to finality because (as was the case here) clauses 4.1(a)-(e) had not been met and thus clause 12 applied (see para 41).

128 In paragraph 43, Mr Molloy stated that the agreement continued until the project is completed by sale of the property prior to development or the sale of the units and payment of all liabilities as required by the termination of accounts. Secondly, he said that the agreement continued until the liabilities of the parties are satisfied each to the other within the terms of clause 3.1 even in circumstances where the project does not proceed to finality because one or more of the conditions precedent were not met.

129 He considered that clause 6.1.3 supported his construction of clause 3.1 as it obliged each party to bear half of the interest on the land loan facility such that Mr Adamo had the obligation to pay interest on the facility (after the initial $100,000 interest payment) and then could recover those payments of interest as part of the project costs, subject to any contribution on a net final accounting necessary to satisfy the equal contribution of parties under clause 3.1.

130 Mr Molloy further noted that clause 6.1.6(a)(i), which gave the claimant the option of discharging loans on the property by refinancing, assumed that the property would remain in the hands of JND at that stage.

131 Whether or not (with the benefit, perhaps, of legal advice at the time the issues for determination were agreed with Mr Molloy), the “dispute” for determination or the “legal issue” to which it related could more felicitously have been expressed, I find it impossible to conclude that Mr Molloy had misinterpreted the task allotted to him, when the document signed by each of the parties made it very clear what that he was being asked to express an opinion on the proper construction of particular clauses of the JVA (without specifying that he should do so by reference to what had in fact occurred).

132 However, to the extent that Mr Molloy’s opinion as to the continued operation of clause 3.1 after termination of the project (see paras 36-41) is said to apply in the particular circumstances at hand (rather than simply operating as a determination that clause 3.1 has room for operation after the joint venture had been terminated) it seems to me that the failure to take into account the fact that there had been a total failure of consideration would render such a conclusion unsupportable.

Events after Molloy determination

133 After receipt of the Molloy determination, Focus took issue with the opinion expressed by Mr Molloy and sought to have him re-consider various matters. Mr Molloy’s response, by letter of 16 April 2008, (in its terms suggesting that he regarded his appointment as having some official capacity) was to note that his task had been completed and that he was ‘functus officio’ and to state that, without consent, his file was and would remain “complete and closed” (a matter the subject of further complaint by Mr Adamo, when he learnt that Mr Molloy had later acted inconsistently with the view he had there so firmly expressed and had proceeded to re-open his file and to express a further opinion without any such consent).

Financial dispute

134 JND then referred the matter to the Institute for the nomination of a person to determine the costs incurred in relation to the project and the parties’ respective contributions thereto. JND did so by letter dated 27 March 2008, in which Mr Nelson wrote: “I am a partner in a joint venture development enterprise; it has been decided by an expert per clause 15.3.1 of our agreement that on finalising our partnership my partner owes me a considerable amount of money” (something, I interpose to note, that Mr Molloy had not in terms done in his determination – this seemingly being no more than Mr Nelson’s expectation of what Mr Molloy’s legal construction of the agreement would produce). Mr Nelson went on to say “Under our agreement clause 15.3.2 the exact amount payable to me has to be confirmed by an independent accountant as described above” and he requested the nomination of an expert for that purpose. Mr Tolcher was duly nominated for that purpose. (The actual referral of the matter to Mr Tolcher was not in evidence. It appears that there were one or more telephone conversations with Mr Tolcher in which he was requested to act as an expert – see Exhibit 2 Tab 79.)

135 According to his letter of 2 July 2008, (Exhibit 2 Tab 79) Mr Tolcher understood that he had been nominated “to determine a financial dispute which has arisen”, which he noted “will involve the calculation of each Party’s costs in respect of the Joint Venture.” Mr Tolcher noted that he had not been provided with a copy of the JVA but had been provided with “a spreadsheet entitled ‘Disbursement of Project Costs’ which we are advised by Mr Nelson was prepared from the financial records of the Joint Venture Project”. The letter further noted Mr Tolcher’s understanding that an audit of the records and financial information was not required and that he was entitled to regard the records provided to him as accurate and correct. It also noted that he had requested the financial statements of the joint venture, as prepared by the joint venture accountant, and the legal determination referred to in clause 15.3.1 of the agreement (which documents he said had not yet been received by him).

309 Such a declaration would not, for the reasons considered below, preclude Focus from raising a claim for restitutionary or other relief consequent upon the failure of the joint venture. Nor would it necessarily result in a finding that Focus/Mr Adamo pay a certain amount to JND.

310 JND claims that the defendants are indebted to it by reason of a combination of the respective determinations. However, the basis of the liability must be sourced in some contractual or other obligation and cannot be found simply in an accounting expert carrying out an arithmetical calculation (even if this had been binding on them). Mr Tolcher was not qualified, nor was he appointed, to determine legal issues relating to liability. How then is the liability said to arise? The claim was not pleaded as one for a debt arising under clause 3.1 of the JVA or as a claim for damages for breach of a contractual obligation to make payment of project costs at some stage prior to the joint venture was brought to an end. (If the latter, then there would have been insufficient evidence for me to determine whether there was a default in payments by Focus, as JND contends, or not – or, for that matter, what damage would have been sustained as a result.)

311 Mr Reuben submits that these proceedings are an attempt to enforce a claim under a contract which has long since been brought to an end. Whether or not the JVA is at an end (or remains on foot until the final wash up between the parties), and hence whether what the court is now asked to do is to enforce the JVA or simply a claim for damages for breach of the JVA, it is submitted by Mr Reuben that it is for JND to prove its case (it bearing the onus of proof) and that it cannot do so simply by reliance on either or both of the expert determinations.

312 Put another way, Mr Molloy declined to accept appointment as an expert to determine the question of legal liability as to who owed what to whom; he simply construed various clauses of the agreement and did so without addressing (or being in his retainer agreement asked to address) Focus’ claim for restitution of payments made by it by way of contribution to the project. Mr Tolcher, whose determination I have found not to be binding on the parties, in any event, did no more than quantify the liability that he assumed had arisen in accordance with the interpretation of the contract by Mr Molloy. There has at no time been a determination as to the legal liability of Focus/Mr Adamo to JND as a result of the expert determination process or otherwise, nor does their agreement to abide by an expert determination of the dispute as to legal liability assist JND (since that particular dispute was not referred to anyone).

313 Mr Wilson submits that there were continuing obligations owed by each of the parties to the other when the joint venture came to an end in October 2006. He submits that the parties were required to finalise their obligations by working out ‘who owed what to whom’, citing Chan v Zacharia (1983) 154 CLR 178 at 183. Insofar as this suggests that what JND is now seeking is a winding up or accounts to be taken of a partnership constituted by the joint venture, a claim for relief of this kind was not pleaded (and the question whether there was a partnership between the joint venturers when one was expressly disclaimed in the JVA was not argued before me). However, I accept that in the absence of the doctrine of frustration, it is open to JND to contend that the JVA could still operate to determine the parties’ liabilities on the termination of their joint venture. The difficulty is that the contract makes no provision for what is to occur in these circumstances, a matter I consider in the context of issue (v) below.

314 In light of the above issues, I do not consider that a declaration as to the binding nature of the Molloy determination either would have utility or should now be made.

315 As to the Tolcher determination, for the reasons outlined earlier, I consider that it was binding only to a limited extent (and that there is uncertainty as to precisely what is that extent).

316 On one view there might be utility in a declaration as to the quantum of the parties’ respective contributions, that utility being in the ultimate resolution of the matters raised by the cross-claim (ie as to what contributions should be treated as having been made by Focus to the project). However, in light of the findings I make on the restitution claim it seems to me it is not necessary to grant specific declaratory relief in relation to the only part of the determination which is in my view capable of being binding on the parties (as opposed to that part which is not a determination in accordance with the contract, being predicated on an assumption or purporting to determine issues of legal liability).

(iv) Does the guarantee given by Focus cover liability of the kind claimed in these proceedings?

317 JND relies upon a guarantee given by Mr Adamo under clause 7.2.1(b) of the JVA which provided that:

The Second Guarantor [Mr Adamo] hereby guarantees the due and punctual performance by the Developer [Focus] of all its obligations under this Agreement

318 In its terms, therefore, one need simply ascertain that there was an obligation under the JVA on the part of Focus to make a particular payment and Mr Adamo could be said to have guaranteed that payment. The provision of a guarantee of the obligations of Focus was contemplated in the recitals to the JVA (recital 3) and Focus was expressly obliged under clause 6.1.5 to provide a guarantee from Mr Adamo (though that guarantee might reasonably be read as relating to the land loan facility only).

319 Mr Reuben submits that the guarantee provided by Mr Adamo under clause 7.2.1(b) is not one which extends to all obligations of Focus under the agreement (notwithstanding the express terms of clause 7) but, rather, is limited to the guarantee of the land loan facility and costs associated with that. Reliance is placed on the heading to clause 6 to that effect. Clause 6 itself is clearly related only to the land loan facility. However, clause 7 is more generally headed “Capital Obligations and Guarantee”.

320 Mr Wilson contends that the reference in clauses 7.2.1(a) and (b) to the guarantors’ respective obligations as being more fully set out therein indicates the overarching nature of the guarantee and that it is not to be narrowly construed.

321 The set out of clause 7 is somewhat confusing in this regard. Each of clauses 7.1.1, 7.1.2 and 7.1.3 has its own sub-heading. Clause 7.1.3, which immediately precedes 7.2.1(a) and (b), is headed “Refinance Option”. However, I do not think clauses 7.2.1(a) though to 7.2.8 are easily read as being limited to the situation in which there is a refinancing of the project in order to meet a requirement for additional capital. Rather clauses 7.2.1-8 appear to be best described as part of an unheaded clause dealing with the “Guarantee” referred to in the header to clause 7 (that being as, it would seem, an additional (though seemingly related) topic to the parties’ “Capital Obligations”).

322 In my view there is no basis to read down the broad words of clause 7. The fact that Mr Adamo initially indicated a willingness to proffer a guarantee only as to the land loan facility takes the matter no further, particularly in circumstances where what was ultimately provided went beyond that and extended to any development finance obtained. I find that the guarantee given by Mr Adamo extends to any obligation of Focus under the JVA. If, therefore, Focus has an obligation under the JVA to pay any amounts to JND then that would be covered by the guarantee.

323 Is there any such obligation? Clause 3.1, in its terms, contains an agreement that the losses of the project will be shared 50/50. Mr Reuben submits that this litigation is the pursuit of a claim for loss and/or damage arising out of entry into the joint venture and that, for the guarantee to cover such a claim, it would be necessary for there to be express words in the guarantee for such an indemnity. The effect of the clause may well be to provide an indemnity for half of the losses of the project but any primary obligation for those losses can only arise under clause 3.1 of the JVA. That is an obligation of Focus and it is an obligation which I consider to be covered by the guarantee. Accordingly, if JND is able to establish that Focus is in breach of an obligation to pay its share of the project costs to it, then the claim against Mr Adamo should in principle succeed.

324 Whether Focus (and hence Mr Adamo) is liable in the circumstances to pay any further amount by way of its share of project costs (in the circumstances which have transpired) is something I consider in the context of issue (v). (I note that it is submitted that there has been a total failure of consideration in respect of the guarantee as well as in respect of the liability to pay project costs.)

(v) Has there been a total failure of consideration and, if so, what flows therefrom?

325 From as early as the submissions he put forward to Mr Molloy in January 2008, Mr Adamo on behalf of Focus has asserted that this was a situation in which Muschinski v Dodds applies and that there has been a total failure of consideration for the contributions made by Focus. JND contends that there was no failure of consideration; rather this is simply a case where the project lost money, both parties having carried out various tasks and expended monies towards a failed project and, in effect, the losses should not simply lie where they fall – rather, Focus should be required to account (on a final wash up) for the moneys for which it would have been liable on a final adjustment had the project proceeded to finality (or at least had proceeded to a sale of the property out of the joint venture).

326 Where a joint venture fails for no fault of the parties, the parties may be entitled to recover their initial contributions to the venture, or to take a share in the remaining pool of assets in proportion to their contributions. In Muschinski v Dodds Deane J at pp 618-620 said:

Both the common law and equity recognise that, where money or other property is paid or applied on the basis of some consensual joint relationship or endeavour which fails without attributable blame, it will often be inappropriate simply to draw a line leaving assets and liabilities to be owned and borne according to where they may prime facie lie, as a matter of law, at the time of the failure. Where there are express or implied contractual provisions specially dealing with the consequences of failure of the joint relationship or endeavour, they will ordinarily apply in law and equity to regulate the rights and duties of the parties between themselves and the prima facie legal position will accordingly prevail. Where, however, there are no applicable contractual provisions or the only applicable provisions were not framed to meet the contingency of premature failure of the enterprise or relationship, other rules or principles will commonly be called into play. If, in the last-mentioned case, the relevant relationship is merely contractual and the contract has been frustrated without fault on either side, the present tendency of the common law is that contributions made should be refunded at least if there has been a complete failure of consideration in performance: cf. Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe Barbour Ltd. [1942] UKHL 4; (1943) AC 32; Denny, Mort and Dickson Ltd. v. James B. Fraser and Co. Ltd. [1944] UKHL 3; [1944] AC 265, at p 275; and, generally, Treitel, The Law of Contract, 6th ed. (1983), pp.695ff. … If the relevant relationship is not a partnership but takes the form of a contractual joint venture for the pursuit of some commercial advantage, a similar prima facie rule of equity applies in the event of the premature collapse of the joint venture and the consequent preclusion of the attainment of the commercial advantage, namely, that, to the extent that the joint funds allow, the joint venturers are entitled to the proportionate repayment of their capital contributions to the abortive joint venture. This is so notwithstanding that it was the common understanding or agreement that the funds advanced were to be applied for the purposes of the joint venture and that the return from them would take the form, not of a repayment of capital contributed but of a share in the proceeds of the joint venture when it was carried to fruition: cf., e.g., Allen v. Kent (1957) 136 A (2d) 540, at p 541; Ewen v. Gerofsky (1976) 382 NYS (2d) 651, at p 653; Legum Furniture Corporation v. Levine (1977) 232 S E (2d) 782, at pp 785-786, and cf., generally, "Joint Ventures", Corpus Juris Secundum, vol.48A, pp 452-453, 463. (my emphasis)
The prima facie rules respectively entitling a fixed term partner to a proportionate repayment of his or her premium and a contractual joint venturer to a proportionate repayment of his or her capital contribution on the premature dissolution of the partnership or collapse of the joint venture are properly to be seen as instances of a more general principle of equity. That more general principle of equity can also be readily related to the general equitable notions which find expression in the common law count for money had and received (cf. Moses v. Macferlan (1760) EngR 713; (1760) 2 Burr 1005, at p 1012 [1760] EngR 713; (97 ER 676, at pp 680-681); J. & S. Holdings Pty. Ltd. v. N.R.M.A Insurance Ltd. [1982] FCA 78; (1982) 61 FLR 108, at p 120) and to the rationale of the particular rule of contract law to which reference has been made (cf. Fibrosa, at pp.61ff. and esp. at p.72). Like most of the traditional doctrines of equity, it operates upon legal entitlement to prevent a person from asserting or exercising a legal right in circumstances where the particular assertion or exercise of it would constitute unconscionable conduct (cf. Story, Commentaries on Equity Jurisprudence, l2th ed. (1877: Perry), vol. 2, par. 1316; Legione v. Hateley (1983) 152 CLR at p 444). The circumstances giving rise to the operation of the principle were broadly identified by Lord Cairns L.C., speaking for the Court of Appeal in Chancery, in Atwood v. Maude (1863) LR 3 Ch App, at p 375: where "the case is one in which, using the words of Lord Cottenham in Hirst v. Tolson (1850) 2 Mac. & G. 134 [1850] Eng R 313; (42 ER 52), a payment has been made by anticipation of something afterwards to be enjoyed (and) where ... circumstances arise so that future enjoyment is denied". Those circumstances can be more precisely defined by saying that the principle operates in a case where the substratum of a joint relationship or endeavour is removed without attributable blame and where the benefit of money or other property contributed by one party on the basis and for the purposes of the relationship or endeavour would otherwise be enjoyed by the other party in circumstances in which it was not specifically intended or specially provided that that other party should so enjoy it. The content of the principle is that, in such a case, equity will not permit that other party to assert or retain the benefit of the relevant property to the extent that it would be unconscionable for him so to do: cf. Atwood v. Maude, at pp 374-375 and per Jessel M.R., Lyon v. Tweddell (1881) 17 ChD 529, at p 531.

327 The reasoning in Muschinski v Dodds has been applied by courts in situations where a joint venture has failed without attributable blame to either party and (often due to the dissimilarity and inequity in capital contributions at the time of the failure of the joint venture) it would otherwise be considered unconscionable for one party to the joint venture to assert his or her strict legal rights over the joint venture property (Baumgartner v Barmgartner (1987) 164 CLR 137; Malsbury v Malsbury [1982] 1 NSWLR 226; Morris v Morris [1982] 1 NSWLR 61; Kriezis v Kriezis [2004] NSWSC 167; Sirtes v Pryer [2005] NSWSC 1082; Knox v Knox (16 December 1994, unreported, Young J); Hogan v Baseden (1997) 8 BPR 15723; McKay & anor v McKay [2008] NSWSC 177).

328 Brereton J in McKay & anor v McKay, noted at [30] that “the fundamental principle in this area of discourse is the restoration of contributions upon failure of the substratum of a joint venture”. His Honour considered that to allow one party to retain the benefit of the other’s contribution in return for paying out the other, would be “inconsistent with the basal concept of a return of the contributions on failure of the joint venture”.

329 In Liquor National Wholesale Pty Limited v The Redrock Pty Limited [2007] NSWSC 392 at [42], Brereton J recognised that the principle explained by Deane J in Muschinski v Dodds at 618-620 has potential application in commercial joint ventures:

Nor has it been suggested that there was a true partnership or contractual joint venture between the parties. The case has been approached and argued on the basis that they were not partners and that the overall arrangement between them, while consensual, was a non-contractual one. That does not mean, however, that particular rules applicable to regulate the rights and duties of the parties to a failed partnership or contractual joint venture might not be relevant in the search for some more general or analogous principle applicable in the circumstances of the collapse of the consensual commercial venture and personal relationship in the present case.

and citing from Deane J’s judgment (in the extract quoted above) as to the prima facie rules entitling partners/joint venturers to a proportionate refund of premium or capital contribution on the premature dissolution of the partnership or collapse of the joint venture.

330 It is of course necessary first to establish whether the joint venture agreement between the parties has otherwise dealt with the situation where the joint venture fails as observed by Deane J in Muschinski v Dodds.

331 The fact that the contractual obligations under the JVA may not have been frustrated for the purposes of the common law doctrine of frustration does not preclude the operation of the principle in Muschinski v Dodds. That the contract has not been frustrated is, however, relevant to any restitutionary claim, insofar as such a claim would not be available where it would overturn an existing allocation of risk or limitation of liability previously established by the parties’ contract (Lumbers v W Cook Builders Pty Ltd (in liquidation) [2008] HCA 27, at [79] and [126]; Steele v Tardiani; (1946) 72 CLR 386; [1946] HCA 21; Pan Ocean Shipping Co Ltd v Creditcorp Ltd [1994] 1 WLR 161 at 166; [1994] 1 All ER 470 at 475).

332 Here, however, in my view the existing contractual provisions (which I have considered above) do not apply to determine how the parties’ rights and obligations are to be determined in the present circumstances.

333 I am of the view that it is clear that there has been a total failure of consideration for the promises given by Focus and Mr Adamo, respectively.

334 In Baltic Shipping Co v Dillon (The Mikhail Lermontov) (1993) 176 CLR 344; [1993] HCA 45, Deane and Dawson JJ recognised that a payment made, expressly or impliedly, in contemplation of a particular return may be recovered if the agreed return does not materialise; the notion of what constitutes a total failure of consideration looks to the benefit bargained for rather than any benefit which might have been obtained in fact. Their Honours said at p378:

The critical question on this aspect of the present case is whether the consideration for which Mrs Dillon paid the stipulated fare to Baltic wholly failed. That consideration was not, for the purposes of her action in unjust enrichment, the contractual promise which she received from Baltic . Technically, it can be argued that Baltic's bare promise to provide the pleasure cruise itself represented some consideration for Mrs Dillon's fare and that, that being so, it is wrong to say that the consideration for the prepayment wholly failed. As has been said, however, the law of unjust enrichment is concerned with substance rather than technical form. If a bare promise to provide consideration were regarded as the provision of consideration, "there could never be any recovery of money, for failure of consideration, by the payer of the money in return for a promise of future performance, yet there are endless examples which show that money can be recovered, as for a complete failure of consideration, in cases where the promise was given but could not be fulfilled". Prima facie, where a simple promise of future performance is involved, the law of unjust enrichment looks to the future performance and not the bare promise as the relevant consideration . Thus, the consideration for which Mrs Dillon paid the fare was the substance of Baltic's contractual promise, namely, the actual provision of the components of the promised fourteen-day pleasure cruise upon the "Mikhail Lermontov". If all that Mrs Dillon had relevantly received had been Baltic's bare promise, unperformed and unenforced, the consideration for the whole of the fare would have wholly failed. (my emphasis)

335 There is no dispute that Focus/Mr Adamo have made substantial contributions to a joint venture, the consideration for which has wholly failed. They anticipated (and bargained for) a benefit in terms of a share of the proceeds of sale of the land which was to be developed (and potentially in any profit from construction costs). The sale of the property in 2007 made such a benefit wholly unobtainable. It seems to me unconscionable for JND to seek to retain the whole of the contributions made by Focus to the project in circumstances where it otherwise retains the whole of the proceeds of sale of the land.

336 Mr Adamo’s affidavit of 30 November 2009 attached documents in relation to his calculation of the contributions made by Focus of $90,086.22 to the joint venture. Mr Adamo was not challenged on that material. The costs were accepted by JND (and by Mr Nelson in the witness box). On an application of the principles in Muschinski v Dodds they are recoverable from JND.

(vi) Is Focus entitled to any share of the proceeds of sale of the Port Macquarie property

337 The final issue is whether, in the alternative to the claim for restitution, Focus is entitled to participate in the proceeds of sale from the joint venture project at least to the extent of recovering the contributions made by it towards the project costs from the proceeds of sale. (I have considered above the possibility that the proceeds of sale from the project might (contrary to the Molloy determination) extend to the proceeds of sale of the property in the hands of JND.)

338 There would be no such contractual entitlement to share in the sale of the property the subject of the project, as at the time the project was terminated, unless “proceeds of sale from the project” included sale of the property not yet transferred to the joint venture company. Mr Molloy determined that this was not the case and the parties agreed to accept his determination as binding.

339 In the circumstances it is unnecessary for me to determine this issue given the finding I have made in (v) above. Had it been necessary, I would have said the parties were bound by the Molloy determination in this respect.

Conclusion

340 On JND’s claim, I find that the Molloy determination is binding as a matter of contract between the parties insofar as it construes particular clauses (in isolation of the events which occurred) but not otherwise. It does not determine the ultimate issue of liability in relation to JND’s claim for monies in respect of project costs or Focus’ claim for recovery of its contributions to the project costs.

341 If the reasoning underlying Mr Molloy’s determination suggests that clause 3.1 of the JVA operates in the present circumstances (an issue which it does not appear Mr Molloy addressed and which it seems he was not asked to address) then I would with respect find that to be in error and, in circumstances where this is an attempt by JND to enforce Mr Molloy’s determination, I consider that in equity it would be open to me to decline to enforce the determination for that reason.

342 I find that the Tolcher determination is not binding insofar as it purports to determine a liability on the part of Focus to pay moneys to JND (and, in any event, is not binding insofar as it amounts to no more than an adoption of figures on the stated assumption that those figures correctly record the parties’ respective contributions to project costs).

343 I find that JND has not established that Focus is liable for the amount it claims, in circumstances where the agreement to bear project costs equally was one which operated during the course of the project but the agreement made no provision for what was to happen when the project came to a premature end and was abandoned by the parties.

344 I dismiss JND’s claim.

345 On the cross-claim by Focus I am satisfied that the project was treated by both parties as having come to an end with the sale of the property. Once the property was sold it was impossible for the project to proceed and in that sense the purpose of the JVA (though not the contract itself) was clearly frustrated. The JVA has no provision which deals with determining how the parties’ rights and liabilities were to be adjusted following termination of the joint venture in these circumstances. The parties in their agreement dealt with what was to happen if the project failed at an earlier stage, but seem not to have contemplated the situation where the project failed after the land loan facility was obtained but before satisfaction of the condition precedent necessary for exercise of the put and call option.

346 I find that Focus is entitled to recovery of the amounts paid by it towards the project costs, in circumstances where the underlying substratum of the joint venture has failed without fault by either party, there has been a total failure of consideration for the making of those contributions and it would be unconscionable for JND to retain those contributions.

347 JND has accepted that those contributions total $90,086.22 excluding GST (and Mr Tolcher has confirmed the arithmetic accuracy of such a calculation). Accordingly, there should be an order for recovery of that amount.

Orders

348 I make the following orders:

1. A declaration that the first defendant is entitled to restitution in respect of the contributions it made pursuant to the Joint Venture Agreement with the plaintiff towards the costs of their failed joint venture project, those contributions amounting to $90,086.22 excluding GST.

2. An order that the second defendant pay to the first defendant the controlled monies held in its trust account referable to the proceeds of sale of the property the subject of the joint venture and any interest which has accrued thereon.

3. An order that any shortfall between the moneys held by the second defendant and the amount of $90,086.22 be paid by the plaintiff to the first defendant.

4. An order that the first defendant pay interest on the amount of the judgment debt from the date on which the sale proceeds were placed in the second defendant’s trust account at court rates.

5 The plaintiff’s statement of claim be dismissed with costs.

349 I propose to order costs in favour of the first defendant on its cross-claim. I will hear any submissions as to the appropriate form of the orders and as to costs.

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