Jun International Property Pty Ltd v Australian Brothers Group Pty Ltd

[2022] NSWSC 701

Supreme Court

New South Wales

Medium Neutral Citation:

Jun International Property Pty Ltd v Australian Brothers Group Pty Ltd [2022] NSWSC 701

Hearing dates:

10 December 2021; 21 February 2022

Date of orders:

30 May 2022

Decision date:

30 May 2022

Jurisdiction:

Equity

Before:

Parker J

Decision:

See [52]

Catchwords:

PARTNERSHIPS AND JOINT VENTURES – joint venture agreement to develop commercial property – part of proceeds of sale held in trust account – contract provides for expert determination of dispute – expert determination leaves final balance of account undetermined – second expert determination sought after proceedings commenced – parties’ proprietary interest in sale proceeds prior to final determination of amount due – amendment of summons – costs

Legislation Cited:

Building and Construction Industry Security of Payment Act 1999

Partnership Act 1892, s 39

Cases Cited:

Eden King Lawyers Pty Ltd v Makari [2022] NSWSC 296

Milevski v Paltos [2022] NSWSC 261

Category:

Procedural rulings

Parties:

Motion filed 23 September 2021
Australian Brothers Group Pty Limited (First Applicant)
ABG Group Pty Limited (Second Applicant)
Jun International Property Pty Limited (Respondent)

Motion filed 16 November 2021
Jun International Property Pty Limited (Applicant)
Australian Brothers Group Pty Limited (First Respondent)
ABG Group Pty Limited (Second Respondent)

Motion filed 10 February 2022
Jun International Property Pty Limited (Applicant)
Australian Brothers Group Pty Limited (First Respondent)
ABG Group Pty Limited (Second Respondent)

Representation:

Motion filed 23 September 2021
Counsel:
C Harris SC (First and Second Applicant)
J Simpkins (Respondent)

Solicitors:
CKSD Lawyers (First and Second Applicant)
Floraison Legal (Respondent)

Motion filed 16 November 2021
Counsel:
J Simpkins (Applicant)
C Harris SC (First and Second Respondent)

Solicitors:
Floraison Legal (Applicant)
CKSD Lawyers (First and Second Respondent)

Motion filed 10 February 2022
Counsel:
J Simpkins (Applicant)
C Harris SC (First and Second Respondent)

Solicitors:
Floraison Legal (Applicant)
CKSD Lawyers (First and Second Respondent)

File Number(s):

2020/121633

Publication restriction:

Nil

Judgment

1. These proceedings arise out of a property development joint venture. The development has been completed and the property sold. Pursuant to orders made by the Court, a sum of $450,000, part of the proceeds of sale, is held by the defendants’ solicitors in a trust account. The basic dispute between the parties is how that money is to be divided between them.

2. The joint venture participants were the plaintiff, Jun International Property Pty Limited (“JIP”), as to 35 per cent, and the first defendant, Australian Brothers Group Pty Limited (“ABG”), as to 65 per cent. The second defendant, ABG Group Pty Limited, was the manager of the joint venture. It was a party to the joint venture agreement but appears to have had no relevant financial interest in the joint venture itself. For convenience I will ignore it in the rest of this judgment.

3. There has already been an expert determination on some of the accounting issues between the parties. The determination was delivered in June last year.

4. There are competing applications by the parties before the Court. Initially the contest was about the effect of the expert determination on the parties’ entitlements to the money held in trust. A notice of motion was filed on behalf of ABG seeking for $144,000 to be paid out to JIP and the balance to ABG, with the proceedings being dismissed. The response was a notice of motion filed on behalf of JIP seeking payment of $264,000. That notice of motion has effectively been superseded by a second notice of motion filed for JIP in January this year. The second motion is for leave to amend JIP’s summons and for the $450,000 to remain in trust pending a further expert determination.

Background and procedural history

5. The joint venture agreement (“JVA”) between the parties is a written contract dated 30 October 2015. It provided for the redevelopment of a property at Canterbury into a residential home unit block consisting of thirty-six units.

6. The property was registered in the name of ABG. The parties agreed to contribute monies on account of the costs of the development. They were to be repaid out of the proceeds of sale, together with their share of the profit (or deduction of their share of the loss) (cl 12). The JVA provided in the usual way for accounts for the joint venture to be kept and audited if that was required.

7. Clause 20 provided a non-curial procedure for resolving disputes between the parties arising under the JVA. A notice of dispute was to be served, which obliged the parties to negotiate with each other in good faith to resolve the dispute. Failing agreement, the issue was to be determined by expert determination which was to be final and binding on the parties in the absence of manifest error. The clause applied to any dispute “in relation to any matter relating to the construction or implementation of this Agreement”.

8. The development works were completed, and in June 2019 the strata plan was lodged for subdivision of the property into thirty-six strata title units. In August, Ms Irene Wang was appointed to conduct an audit of the joint venture accounts pursuant to the JVA. By this stage it was clear that the development had been financially unsuccessful and ABG would be required to repay amounts which had been contributed by JIP. Caveats were lodged over the unsold properties by JIP on 12 November. The parties then agreed on a partial repayment plan on 27 November.

9. Ms Wang’s report was delivered on 2 December. It covered the joint venture accounts up to 25 September. By that date not all the units had been sold. The figures in the accounts included estimates for the prices to be achieved on the unsold units.

10. On behalf of JIP, an expert was retained to review Ms Wang’s audit report. That expert provided his own report a few weeks later. He raised questions about whether some of the expenses claimed by ABG were allowable deductions for the purposes of the joint venture. A few weeks later Ms Wang produced a further report in response to JIP’s expert. This was in early January 2020.

11. The parties remained at issue about certain expenses claimed by ABG. On 11 March, JIP’s solicitors wrote to ABG’s solicitors asserting that about $1.45 million of the expenses claimed by ABG were not allowable. This resulted in a claim by JIP for payment of 35 per cent of that amount, totalling $366,544.

12. ABG’s solicitors replied on 17 March, enclosing a cheque for payment of the final amount in the agreed payment schedule. The solicitors stated their understanding that the claim made for $367,000 constituted the only claim by JIP. On behalf of ABG, they rejected JIP’s claim. But they offered to hold the proceeds of the sale of unit 36, which was shortly to complete pending determination of the dispute between the parties. The proceeds were expected to be $515,000 which was significantly more than JIP’s claim. On this basis, ABG’s solicitors stated that there was no justification for JIP to retain the caveats over the other unsold properties. Unless JIP agreed to the proposal they would take steps to have the caveats lapsed.

13. This offer was not accepted by JIP. On about 3 April, the solicitors for ABG served lapsing notices against the caveats which had been lodged on the unsold units.

14. JIP’s response was to issue a notice of dispute and commence these proceedings. The notice of dispute was dated 22 April 2020. It recounted the background which I have summarised above and identified JIP as claiming the sum of $393,691 ($366,544 plus GST). The notice also stated that ABG held its interest in the unsold units in trust for JIP to the extent of $393,691, “or such amount as is found owing”.

15. JIP’s initiating summons was filed the following day, 23 April. The prayers for relief sought:

1. a declaration that on the true construction of the joint venture agreement ABG held its interest in the unsold units in the proportion 35 per cent for JIP and 65 per cent for ABG;

2. orders extending the caveat or, if the interest was not properly described in the caveat, orders permitting the caveats to be amended or to be lodged;

3. “further or other orders”.

16. The summons was accompanied by a notice of motion also dated 23 April. The motion sought the extension of the caveats until further order; an order for payment of the sum of $450,000 into court; and a restraint on ABG encumbering the unsold units.

17. The proceedings were brought before the Court in a Duty List on an urgent basis. On 24 April, the day after the summons and notice of motion were filed, the parties agreed to consent orders. Those orders provided that until further order ABG’s solicitors were to retain in a trust account the sum of $450,000 from the sale of unit 36 “pending resolution of the dispute notice dated 22 April 2020”. No further orders were made concerning the other units and I assume that the caveats either lapsed or were removed with JIP’s consent.

18. Agreement was not reached on the issue raised in the notice of dispute. Eventually, the matter was referred to Mr Troy Peisley for expert determination. The proceedings appear to have remained dormant in the meantime.

19. Mr Peisley’s report was delivered in June last year, fourteen months after the commencement of the proceedings. Mr Peisley found that, of the expenses challenged by JIP, approximately $680,000 had been wrongly included. He determined that $239,271 (exclusive of GST), which represented 35 per cent of this figure, was payable to JIP.

20. There is no challenge to Mr Peisley’s findings on the quantum of the disputed expenses which were the subject of his expert determination. But it will be recalled that the audit which gave rise to Mr Peisley’s expert determination only covered the period up to September 2019. After that date some of the units were sold for less than the estimated figures. ABG therefore claims a credit of 35 per cent of that amount. Mr Peisley referred in his report to this point but did not resolve it, at least expressly.

21. In September last year, the first of the notices of motion with which I am concerned was filed. It was filed on behalf of ABG. The motion sought to have the amount found due as a result of Mr Peisley’s determination, less a credit for a 35 per cent share of the shortfall in sale proceeds, paid out of the trust monies to JIP, with the balance being paid out to ABG. The proceedings were otherwise to be dismissed and JIP was to pay the costs of the proceedings, including the costs of the motion.

22. JIP’s counter-notice of motion was filed in November last year. The motion sought orders for the full amount specified in Mr Peisley’s determination ($263,198 including GST) to be paid out of the trust monies to JIP; for the proceedings to be dismissed; and for ABG to pay JIP’s costs. The motion did not expressly refer to the remainder of the $450,000 held on trust, but on the face of it JIP made no claim to those monies and ABG’s solicitors would have been entitled to pay them out to their client.

23. The two motions came before me for hearing on 10 December last year. Counsel for JIP indicated that so far as JIP was concerned Mr Peisley’s determination had not resolved all of the outstanding accounting issues. For his part, counsel for ABG, while protesting that further issues were being raised so late, did not dispute that JIP was entitled to do so, at least to the extent that the further issues related to the period after 25 September 2019. On no view had the accounts for that period been the subject of audit or expert determination.

24. In the end it was agreed that the proceedings should be stood over to allow JIP an opportunity to formulate its proposed amendment to the summons and the monies should be held in trust until that had been done. But there was a slight complication.

25. The April 2020 order pursuant to which the monies were being held had been made on the usual undertaking for damages. I raised with the parties the desirability of avoiding any dispute about quantifying what those damages would be, and of ensuring that both parties should be at risk to the extent that they failed to sustain their claims to monies locked up pursuant to orders of the Court. As a result consent orders were made for the $450,000 to remain in trust on the parties giving cross-undertakings. Each party undertook to pay interest from 10 December onwards, at the statutory rate for unsatisfied judgments, on any part of the $450,000 to which that party was ultimately found not to be entitled.

26. On 31 January this year, a second notice of dispute was served on behalf of JIP. The notice stated that the parties were in dispute over the updating of the estimates, both for income and expenditure, in the accounts up to 25 September 2019. It also stated that there was a dispute about the substantiation of costs other than those which had been the subject of the earlier dispute and the determination by Mr Peisley. The notice stated that JIP was entitled to have unverified amounts audited, and the final payment entitlement determined by an expert.

27. The notice of dispute was followed by a proposed amended summons dated 3 February. The amendments abandoned any claims to do with the previous caveats. As amended, the relief sought was a declaration that the $450,000, or such other amount as might be determined to be owing by way of expert determination, was held on trust for JIP; and an order that the defendants pay that amount to the plaintiff together with interest.

28. The directions had provided that the amended summons should be served on ABG’s legal representatives to allow them an opportunity to decide whether to oppose the amendments. But by mistake the summons was formally filed and received into the Court’s electronic filing system.

29. The proceedings came before me on 4 February. ABG would not consent to the proposed amendments to the summons. Counsel protested that they took the case in an “entirely new direction”. Counsel submitted that this was inappropriate and the proceedings should instead be dismissed. If JIP wished to raise some further issue arising out of the second expert determination, it should do so by way of separate proceedings in due course.

30. Eventually it was agreed that the proceedings should be stood over to allow JIP to make a formal application to regularise the amendments. As a result, on 10 February a second notice of motion was filed for JIP. That notice of motion sought leave, nunc pro tunc, to amend the summons, and orders that the defendants pay $450,000 into court. Subsequently, written submissions were filed by both parties and the proceedings came before me on 21 February for concluding oral submissions.

Cross-applications for release of monies held in trust

31. Where, in the course of proceedings, monies are paid into court (or, as here, ordered to be held on trust until further order), an order that monies be paid out to one or other of the parties may at first glance appear to be a substantive one. But I think that, generally speaking, is not strictly correct. The order for payment out merely reflects the parties’ substantive rights.

32. In the usual case, those substantive rights are determined by the Court in the proceedings themselves. But the determination may be made by some other legal procedure. For instance, in Eden King Lawyers Pty Ltd v Makari [2022] NSWSC 296, monies were paid into court on account of fees claimed by a solicitor and the amount due was fixed by way of a separate assessment.

33. In the present case, the determination of the amount due likewise has not been, and will not be, undertaken by the Court. The effect of cl 20 of the JVA is that it is not open for the Court to do so; the amount owing must be fixed by agreement between the parties or by expert determination.

34. The critical question in the present case is therefore what the parties’ rights are under the JVA, including any expert determination which has taken place in accordance with the terms of the JVA. It was common ground that cl 12 of the JVA requires an account to be taken, supplemented, in the case of dispute, with any necessary expert determination. Such an account takes into consideration the amounts already contributed by the parties and, in the usual way, results in a single amount either payable from JIP to ABG, or from ABG to JIP.

35. In the present case this final figure has not yet been determined for the purpose of cl 12. It is contended expressly on behalf of JIP that further accounting must be undertaken, both for the periods before and after 25 September 2019. ABG’s position is that it is not open to JIP to go into transactions occurring before 25 September 2019, which were the subject of the audit. ABG’s contention is that the determination prevents those matters from being reopened, whether expressly decided by Mr Peisley or not. But ABG’s own case is that the figure resulting from Mr Peisley’s determination requires adjustment to take account of sale proceeds shortfalls after 25 September 2019.

36. Thus on both parties’ cases, Mr Peisley’s determination is not a final determination of the amount owned under cl 12. It is not necessary to consider whether it is a final determination for transactions up to that date, and, whether if so, one or the other party could be required to make a payment based on the figure struck as at that date (cf Milevski v Paltos [2022] NSWSC 261 at [219]-[220]). Neither party invited me to consider that possibility.

37. The fact that the parties’ ultimate entitlement or liability is determined as a single figure on the completion of all accounting processes does not, of course, mean that the parties cannot stipulate for payment of a sum of money to be paid on account. If they do so stipulate then the obligation will be enforceable, and the payment will then be taken into account in determining the amount ultimately due. This procedure is, of course, a familiar one in building contracts and is the foundation for the statutory procedure laid down in the Building and Construction Industry Security of Payment Act 1999. But neither party in the present case suggested that any provision of the JVA now requires any payment on account to be made by the other party, or that there has been any ad hoc agreement to this effect.

38. In the absence of agreement between the parties, this presented a difficulty for each of them in pursuing their applications to have monies paid out. The parties’ final entitlements have not been determined. It is therefore not open to the Court to make orders for payment reflecting those entitlements.

39. In some cases it may be sufficiently clear that, even though the parties’ final entitlements have not been determined, there is a sum of money to which one or other of the parties has no viable claim. Or the balance of convenience may dictate that monies be released to one of the parties despite the existence of a competing claim by the other party. But that was not suggested in this case. In the end each party contended that the whole sum should be retained in court, and appropriate undertakings have now been given for the payment of interest which will protect the parties to the extent that they are ultimately found to be entitled to the trust monies. In these circumstances, there is no good reason to make any order for payment out of any sum at this stage.

Amendment of summons

40. Counsel for ABG contended that the application to amend the summons should be refused. Counsel relied on sub-cl 20 of the JVA, which provides:

A party must not commence or maintain any action, either legal or by arbitration, in relation to any dispute which arises in relation to this agreement unless that dispute has first been referred for determination under this clause 20.

41. The effect of cl 20(j) was, in counsel’s submission, that fresh proceedings could not be brought until a determination had been made. The existing proceedings were spent. They should be dismissed.

42. As I have already stated, it was common ground between the parties that there was no entitlement to payment under cl 12 until the account was completed. To that extent, it would obviously not be open to the plaintiff to bring proceedings by way of enforcement of any expert determination until the determination had taken place. But it does not follow that there are no rights at all which are justiciable in the Court until a final figure is reached under cl 12.

43. The JVA does not expressly confer on JIP any right of security over the property which was the subject of the development. But a joint venture agreement is analogous with a partnership agreement. In equity, upon the termination of a partnership each partner retains a right to require the partnership property to be applied in satisfaction of the partnership liabilities. This right is now found in s 39 of the Partnership Act 1892 but that Act merely codified the pre-existing state of the law.

44. It seems to me that, by analogy, a joint venturer must have an equivalent right attaching to the joint venture property upon completion of the business of the joint venture, which lasts until the winding up of the joint venture (including any necessary accounting) has been completed. Neither counsel in the present case contended to the contrary. That right now attaches to the $450,000 as the traceable product of the realisation of unit 36.

45. It is not necessary for present purposes to determine whether that proprietary right is a caveatable one. In my view, even if it is not caveatable, it is sufficient to justify the continuation of the order for the $450,000 to be held in trust until the parties’ final entitlements under cl 12 have been determined. That order is effectively an interlocutory injunction and the Court’s power to make the order initially was never questioned.

46. Counsel for ABG may be correct in submitting that the claims raised on 10 December by counsel for JIP were belated. But there is no point in refusing the amendment and dismissing the proceedings if that will only result in JIP bringing fresh proceedings and making a fresh application to have ABG’s solicitors continue to hold the $450,000 in trust until the parties’ rights are finally determined. Clearly the preferable course is to permit the amendment and address the complaint by counsel for ABG about belatedness under the heading of costs, to which I now turn.

Costs

47. Counsel for JIP opposed any order as to costs. Counsel submitted that JIP, although not completely successful in the expert determination by Mr Peisley, nevertheless established an entitlement to a significant sum of money. Counsel submitted that JIP should have its costs; alternatively, costs should be determined at the end of the proceedings.

48. I have already concluded that JIP had an interest in the property the subject of the joint venture which JIP was entitled to protect by way of interlocutory injunction pending the determination of the amount ultimately due. That interest existed in April 2020 when the proceedings were commenced, and it continues to exist.

49. But the difficulty for JIP is the offer made by ABG’s solicitors before the proceedings were commenced. Had that offer been accepted, JIP would have obtained the setting aside of the proceeds of unit 36 until the dispute between the parties was resolved. Although the parties’ dispute is actually wider than that which was the subject of debate in March 2020, that has only been discovered subsequently. At the time the solicitors for JIP apparently accepted that the only dispute between the parties concerned the sum of $367,000 which was the subject of their letter of 11 March.

50. It is true that in the summons JIP sought further relief extending to the other unsold units. But that was not pressed and no such relief has been obtained. In substance, JIP obtained nothing more from the proceedings, at least up until the second notice of dispute was filed, which had not previously been offered by ABG’s solicitors in their letter of 17 March.

51. For these reasons, I uphold ABG’s claim for costs. I will order JIP to pay ABG’s costs of the proceedings up to the service of the second notice of dispute on 31 January this year. Those costs will be assessable and payable forthwith to reflect the fact that the claim under the second notice of dispute is quite separate from the claim originally pursued by JIP. Costs incurred after 31 January will be the parties’ costs in the continued proceedings on the amended summons.

Orders

52. The orders of the Court are:

1. order that the defendants’ notice of motion filed 23 September 2021 be dismissed.

2. order that the plaintiff’s notice of motion filed 16 November 2021 be dismissed.

3. Order, nunc pro tunc, that the plaintiff have leave to amend its summons in accordance with the amended summons dated 3 February 2022 and filed with the Court in error on that day.

4. Order that the plaintiff pay the defendants’ costs of the proceedings, including the proceedings on the defendants’ notice of motion filed 23 September 2021 and the plaintiff’s notice of motion filed 16 November 2021, up to 31 January 2022, and that those costs be assessable and payable forthwith.

5. Order that the proceedings be listed for directions before the Registrar in Equity on a date to be arranged by the parties with my Associate.

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Decision last updated: 30 May 2022