Pennimpede v Pennimpede - [2009] NSWSC 85

No judgment structure available for this case.

CITATION: Pennimpede v Gerard Pennimpede & 2 Ors [2009] NSWSC 85
This decision has been amended. Please see the end of the judgment for a list of the amendments.

HEARING DATE(S): 17-26th November 2008

JUDGMENT DATE :
27 February 2009

JUDGMENT OF: Bryson AJ

DECISION: At paragraph [186]
Orders:
On the Amended Statement of Claim of Vito Pennimpede:
(1) Give judgment for the defendants
(2) Order that the plaintiff pay the costs of the proceedings of the First and Second Defendants.
On the Second Amended First Cross-Claim of Pasquale Pennimpede:
(3) Order that an inquiry be conducted to ascertain and certify what sums ought to be paid by the Cross Defendants to the Cross Claimant and by the Cross Claimant to the Cross Defendants in relation to the land in folio 3/SP47101 and dealings and claims relating to that land since 25 October 2004; that $560.00 be charged against Pasquale Pennimpede in respect of dealings before 1 July 2003; that credits be allowed to Gerard Pennimpede and Rita Pennimpede for such amounts if any as may be justly allowable to them or either of them against Pasquale Pennimpede for:
(i) Payments as guarantor of debts secured on Mrs. Caterina Pennimpede’s house;
(ii) Dealings with Mr. Scavarelli;
(iii) Any other repairs and expenditure relating to the land;
that all necessary accounts be taken for the purposes of the inquiry, and that judgment be entered for recovery by the party entitled to the balance if any of the sums certified.
(4) Direct that within 28 days Gerard Pennimpede and Rita Pennimpede file and serve accounts and Points of Claim: that within 56 days Pasquale Pennimpede file and serve Points of Defence showing which items are disputed and the grounds of dispute.
(5) Appoint Friday 1 May 2009 at 9.30am before me for a directions hearing on the Inquiry.
(6) Reserve costs of the First Cross Claim
(7) Save as aforesaid dismiss the Cross Claim
Upon the Second Cross Claim of Gerard Pennimpede and Rita Pennimpede:
(8) Order pursuant to section 66G of the Conveyancing Act 1919 that Clayton David Childs and Murray Charles Reid be appointed trustees of the property known as 155-157 Five Islands Road, Unanderra (sometimes described as at Cringila), in the State of New South Wales, being the land comprised in Certificate of Title folio identifier 3/SP47101.
(9) Order that the said land do vest in the said trustees subject to any incumbrances affecting the entirety of the said lands, but free from incumbrances (if any) affecting any undivided share or shares therein, to be held by the said trustees upon the statutory trust for sale under Division 6 of Part IV of the Conveyancing Act 1919.
(10) Order pursuant to section 66I of the Conveyancing Act 1919 that each of the cross-claimants and the first cross defendant herein shall be at liberty to purchase the land whether at auction or by private treaty, upon such terms as the said trustees may think fit as to seeing off or accounting for the purchase money or any part thereof instead of paying the same.
(11) Order that the cross-defendants pay the cross-claimant’s costs of the Second Cross-claim.

CATCHWORDS: MORTGAGES – claim that informal arrangements among brothers gave purchase of 50% interest in land by one brother (Gerard) and wife the character of a mortgage which the other brothers could redeem – on extended consideration of the facts, the transaction was a purchase by Gerard and wife of 50% share as beneficial owners – further disputes of fact relating to character of later disposition and transfer by owner of 25% (Vito) to Gerard and wife and whether Vito could require reconveyance – found he could not. Factual disputes relating to accounting for proceeds of rent. Consideration of liability of a co-owner to account.

LEGISLATION CITED: Conveyancing Act 1919, s 66G
Limitation Act 1969

CATEGORY: Principal judgment

CASES CITED: Australian Securities and Investments Commission v Rich (2005) NSWCA 152
Croton v The Queen (1969) 117 CLR 326
Forgeard v Shanahan (1994) 35 NSWLR 206
Hurt v Freeman (2002) NSWSC 264
Jones v Dunkel (1950) 101 CLR 298
Louth v Diprose (1992) 175 CLR 621
Makita v Sproules (2001) 52 NSWLR 705
Muschinski v Dodds (1985) 160 CLR 583
Ryan v Dries (2002) NSWCA 3
Watson v Foxman & Ors (1995) 49 NSWLR 315

PARTIES: Vito Pennimpede (Plaintiff)
Gerard Pennimpede (First Defendant)
Rita Pennimpede (Second Defendant)
Pascale Pennimpede (Third Defendant/Cross Claimant)

FILE NUMBER(S): SC 1372/04

COUNSEL: Michael Brookes Evans (Plaintiff)
David Smallbone (First and Second Defendants)
David Raphael (Third Defendant/Cross Claimant)

SOLICITORS: Kells The Lawyers (Plaintiff)
Russell McLelland Brown (First & Second Defendants)
Autore & Associates (Third Defendant)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

BRYSON AJ

Friday 27 February 2009

1372/2004 VITO PENNIMPEDE V GERARD PENNIMPEDE & 2 ORS

JUDGMENT

1 HIS HONOUR: This complicated litigation relates to the beneficial ownership of a factory in Cringila (or Unanderra) on land in Folio 3/SP 47101. The parties are all related and I will respectfully use their forenames for ease of reference. Vito and Pasquale were the principals of a steel fabrication business carried on by Rainbow Constructions Pty Limited. They were the only directors and shareholders. Rainbow Constructions bought Lot 10, Five Islands Road Cringila in about March 1992 for $500,000 and obtained an advance of about $400,000 from Household Financial Services Pty Ltd. Rainbow Constructions carried on business earlier in other premises. Lot 10 was a lot in a Strata Plan. Rainbow Constructions subdivided Lot 10 into two lots and sold the land in Folio 3/SP47101 to all four of the parties to these proceedings in 1993. To enable that purchase, Gerard and Rita lent about $100,000 to Rainbow Constructions, Vito and Pasquale; and they borrowed $100,000 from Westpac Bank to enable them to do so.

2 On 26 April 1993 Rainbow Constructions as vendor entered into a contract to sell the land to the present parties, and in accordance with the contract they took title 50% to Gerard and Rita, 25% to Vito and 25% to Pasquale when the contract was completed on 11 June 1993. The price expressed in the contract and transfer was $280,000. This price was supported by a valuation which was obtained about that time. Vito and Pasquale’s cases are to the effect that the beneficial interests which arose on completion of the sale were not the same as the interests that appeared on the register. All four joined in borrowing $202,000 from National Australia Bank, secured to NAB by a mortgage on completion of the sale on 11 June 1993. All four were mortgagors, and all four incurred liability to NAB. However Vito and Pasquale were the ones who benefited from this borrowing, because they applied almost all of it to pay debts of their company. After later dealings Gerard and Rita (who are husband and wife) are now registered proprietors of a three-quarters share as tenants in common with Pasquale as the registered proprietor of a one-quarter share.

3 Rainbow Constructions sold the back lot in the subdivision to Mr Scavarelli on 29 October 1992. It does not clearly appear when this was settled, but this probably happened about 11 June 1993 so the proceeds of sale or most of them could be paid to Household Finance, producing a large reduction in the mortgage debt. Mr Scavarelli needed a road, and he was given a guarantee, by a Deed executed on 11 June 1993 in which Vito, Pasquale, Gerard and Rita were guarantors, relating to works on the road. Gerard and Rita never owned the back lot and did not sell anything to Mr Scavarelli.

4 Vito and Pasquale claim that debts were owing to Gerard and Rita then under these arrangements, that the debts were repaid by many transactions over many years, that there is no longer any secured debt, and that Gerard and Rita should transfer the 50% share to Vito and Pasquale in equal shares. Gerard and Rita's case is to the completely different effect that the true arrangements were that they purchased a half share in the property, forewent $140,000 of debt and in this way paid $140,000 as purchase money, and they are the beneficial owners of the 50% interest. They deny that there was any arrangement to hold their interest only as security. Vito was a registered proprietor from 1993 until he transferred his 25% share to Gerard and Rita in 1996. Vito claims that the 25% share which he transferred in 1996 is held on trust for him. Vito and Pasquale each claim that he is entitled to be beneficial co-owner of a 50% share, and that the 50% share acquired by Gerard and Rita when the property was acquired in 1993 is held on trust for Vito and Pasquale in equal shares.

5 If the true arrangement was as Vito and Pasquale allege there would be other issues to consider as there is no memorandum in writing of the security arrangement, and Gerard and Rita have pleaded complicated assertions of estoppel and other defences. There is a large mass of affidavits and oral evidence about whether or not there was such an agreement, and what were its terms, and Vito and Pasquale bear the onus of proof.

6 The proceedings were commenced by Vito’s Summons on 6 February 2004. The Amended Statement of Claim claimed a declaration that Gerard and Rita hold title to the land on trust for Vito as to a 50% share, alternatively a 25% share. It also claims (claim 3) an account of rents and profits received or made by Gerard and Rita in their use trusteeship and possession of the land, and (4) that an account be taken of profits made by Gerard and Rita with respect to the lease. There are ancillary claims, including a claim for equitable damages or compensation.

7 The Amended Statement of Claim (para 2) alleges that Gerard and Rita advanced funds to Rainbow Constructions for the purpose of the company meeting its day to day operation requirements in about 1992, continued to do so from time to time and advanced $40,000 in total. The Amended Statement of Claim also alleges (para 5) that Gerard and Rita agreed to lend to Rainbow Constructions, Vito and Pasquale approximately $100,000 as the remainder of the purchase price after an advance of about $400,000 from Household Financial Services. Particulars of para 5 allege terms of an oral agreement for the advance of $100,000. This is referred to as the first agreement. Gerard and Rita would obtain a loan of about $100,000 from Westpac Bank and provide that sum to Rainbow Constructions to complete the purchase. Vito claims that there was then an agreement that Rainbow Constructions, Vito and Pasquale would repay all principal moneys on that loan, and also on a loan of $40,000 which Gerard and Rita had made to Rainbow Constructions, after 12 months, with all costs and expenses, and that Rainbow Constructions, Vito and Pasquale would indemnify Gerard and Rita against any costs associated with interest on the loan to them from Westpac Bank. When the 12 months expired, Rainbow Constructions, Vito and Pasquale were unable to meet these obligations and Vito alleges that there was a varying agreement, shortly to the effect that the term of the loan would be extended, Vito and Pasquale would continue to pay all costs and expenses and bank interest and that Gerard and Rita would be named as registered title holders as security, and would transfer that security to Vito on repayment of the loans and reasonable demand.

8 It is then alleged (paras 7 and 8) that in March 1993 Rainbow Constructions, Vito and Pasquale were unable to discharge these obligations and to repay the loans and a further agreement was made to the effect that the term would be extended and that Rita and Gerard would be named as registered title holders to provide security, and would transfer their security upon repayment of the loans and on reasonable demand. It is alleged (para 10) that in advance of preparation of the contract for sale Vito and Pasquale arranged for valuers to value the land which was valued at $280,000.

9 It is then alleged (para 11A) that no moneys were in fact paid for transfer of the land by Rainbow Constructions; that while the contract for sale and the transfer recited consideration of $280,000 no moneys were in fact paid for the transfer, and no moneys were paid by Gerard and Rita. It is then alleged (paras 11B, 11C and 11D) that Gerard and Rita held title to the land as security for repayment of moneys and were obliged to retransfer the land on repayment in full of the moneys secured; and that the moneys had been repaid in full, so that Rita and Gerard hold their 50% title on a constructive trust for Vito and Pasquale.

10 It is then alleged (para 13) that between about 1993 to 1996 Vito and Pasquale utilised loans advanced by National Australia Bank and secured on the land by a mortgage which showed Gerard and Rita as joint mortgagors. It is alleged (para 13A) that from August 1994 to April 1995 Vito and Pasquale acquired components, used and modified them and constructed a factory on the land at total costs of over $200,000; with the knowledge and approval of Gerard and Rita. These costs comprised payment of $70,000 and forbearance of drawing salary and provision of labour and material to a total of $230,000.

11 It is then alleged (paras 14-20) that Vito, Pasquale, Gerard and Rita leased the land to Balderstone Hornibrook Asset Management Pty Ltd for five years from 1 July 1996 and

and that the First and Second Defendants would be paid and would receive such rent as repayment of the moneys owing to them under the first loan and under the second loan

12 It is then alleged that Gerard and Rita received or retained all rent payments without giving an account to Vito, retained payments in excess of $140,000 and refused to pay rent to Vito.

13 A further claim referred to as the Second Agreement (paras 21-25) is to the effect that (para 21) Gerard and Rita agreed with Vito to accept a transfer of Vito’s 25% share on terms that they would hold the title on behalf of Vito. Vito’s 25% share was transferred without consideration, and Gerard and Rita hold the title on a constructive trust for Vito. It is alleged (para 24) that Vito has repaid the sum of $80,000 to Gerard and Rita and (para 25) that they have refused to comply with demands for reconveyance.

14 In their Defence Gerard and Rita deal with many matters some of which are matters of detail which need not be summarised. They allege that the amounts advanced in about 1992 exceeded $40,000, in addition to the $100,000 advance. They deny there was an agreement that they would be named as registered title holders in order to provide them with security for $140,000. They allege that it was agreed among Rainbow Constructions, Vito, Pasquale, Gerard and Rita that the debt then owed by Rainbow Constructions would be discharged and that the discharge would be treated as payment of Gerard and Rita’s share of the purchase price. This was an oral agreement made by Vito, Pasquale, and by Gerard on behalf of himself and Rita. They claim that this agreement was acted on, that they incurred a number of detriments in respect of it, and that Vito and Pasquale are estopped from alleging that they did not pay any consideration, or that they are not the beneficial owners of one half share. The detrimental actions which they allege include undertaking obligations under the contract, paying stamp duty, incurring the liabilities of proprietors of land, borrowing money from National Australia Bank and mortgaging the land, not requiring repayment of the earlier loans of $140,000 or of interest on them and giving a guarantee to Mr Scavarelli.

15 Gerard and Rita also plead the absence of any note or memorandum in writing relating to the various agreements alleged.

16 Paragraph 9 of the Defence deals with a number of advances by National Australia Bank secured by a mortgage which all four parties granted to National Australia Bank at or about the time of the transfer of title. $202,000 was advanced on the transfer of title to the land on 11 June 1993. $4,594.12 of this was repaid to Gerard to repay Vito and Pasquale’s share of the stamp duty on the contract of sale, which had been paid by Gerard and Rita.

17 Gerard and Rita allege that the remaining $197,405.88 was applied at the request of Vito and Pasquale to discharge liabilities of Rainbow Constructions and that this satisfied Vito and Pasquale’s share of the purchase price. What Gerard and Rita allege about the application of $197, 405.88 to pay creditors of Rainbow Constructions is completely clear and undisputable. Out of the NAB advance of $202,000, $116,915.05 was applied on settlement to repaying Household Finance and obtaining a release of that company’s mortgage; directly in the interest of Rainbow Constructions. Apart from the payment of $4,594.12 to Gerard relating to Stamp Duty the other payments were to creditors of Rainbow Constructions. A further NAB advance of $8,000 at about the same time was paid by Vito and Pasquale for the benefit of Rainbow Constructions. A later NAB advance of $40,000 was used to acquire the workshop building which was later erected on the premises. A further advance of $90,000 was used to discharge expenses relating to erection and fit out of the workshop building. A further NAB advance of $60,000 was used to acquire a mobile crane for Rainbow Constructions; and Rainbow Constructions subsequently repaid that advance.

18 Gerard and Rita then allege (para 9.8) that the NAB borrowings and interest expenses were incurred to the use of all four in equal shares. They then allege (para 9.10) that the loan then owed to NAB was discharged on 8 October 1996, discharging Vito from liability in respect of the borrowings and advance.

19 In effect the positions that Gerard and Rita take are that they were the purchasers as beneficial owners of a half share in the land, and paid for their $140,000 share of the purchase price of $280,000 by forgoing $140,000 of debt then owed to them by Vito and Pasquale and Rainbow Constructions; that there was no arrangement for them to take their half share in the land as security only; that $210,000 of the advances from NAB were paid out at the direction or for the benefit of Vito and Pasquale; so that Vito and Pasquale were the borrowers of that $210,000 in substance and Gerard and Rita are entitled to indemnity for those advances. The other advances by NAB were for the benefit of all four owners of the land and Gerard and Rita should bear half of the other advances.

20 Upon Vito’s claim relating to the 25% share transferred on 24 September 1996 Gerard and Rita allege that Vito agreed by deed to transfer his share and was discharged by that deed from further obligations, including obligations to NAB, and that on about 8 October 1996 a discharge was obtained from NAB. They then allege (para 13) that Vito is estopped by that deed and by the transfer from denying their beneficial ownership; and they also allege estoppel in pais and a number of detriments relating to their reliance on the 1996 transaction. They also plead the absence of any note or memorandum in writing signed by them.

21 Gerard and Rita allege (paras 14 to 19) that they have made numerous informal offers to transfer the 25% share back on discharge of the liability to NAB and repayment of advances they made for Vito, that these offers were not accepted, that no agreement emerged from them and that Vito did not act on them within a reasonable time and they were withdrawn in 1999 or 2000. They then allege (paras 20 to 27) circumstances in which they claim that they ought to be allowed credit for advances and moneys paid to or for the benefit of Vito.

22 In paragraphs 29 to 31 they allege laches and acquiescence of Vito and allege a number of elements of prejudice. They also rely by analogy on the Limitation Act 1969 against the claims for accounts, equitable damages and compensation.

23 In their Second Cross-claim, filed on 14 December 2007, Gerard and Rita ask the Court to order sale of the property under s 66G of the Conveyancing Act 1919 which will bring about division of the proceeds among the persons interested in the property. Their Cross-claim requires the Court to ascertain what interests in the property exist, and to make orders dealing with caveats.

24 Pasquale is the third defendant. By his Second Amended Statement Of Cross-Claim filed on 21 November 2008 Pasquale claims a declaration that Gerard and Rita hold title on trust for him as to a 25% share, an account of profits made by them in their trusteeship, an account of profits in respect of the lease of the land, equitable damages and compensation and consequential orders. His allegations are similar to Vito’s Amended Statement of Claim. According to those allegations in dealings in 1992 and 1993 Gerard and Rita advanced funds to Rainbow Constructions for the purpose of meeting its day-to-day operational requirements, to a total of $40,000, and in March 1992 advanced approximately $100,000 for the purchase of the property as a loan to Rainbow Constructions, Pasquale and Vito. Pasquale alleges (para 7) that in March 1993 Rainbow Constructions, Pasquale and Vito were unable to discharge these loans and (para 8) there was an agreement to extend the term of the loans on terms which included that in order to provide security for the loans (totalling $140,000) Gerard and Rita would be named as registered title holders; that their ownership interest always was and remained a mortgage; that the equity of redemption was not barred and has been satisfied. Pasquale alleges (para 8) that Gerard and Rita agreed that they would transfer title to Pasquale on repayment of the loans and on reasonable demand. Pasquale alleges that Gerard and Rita arranged for the valuer to carry out the valuation. He alleges (para 11) that the transfer to Gerard and Rita was a consequence of the oral agreement about going on title as security. He alleges that it was known and acknowledged that Pasquale and Vito were bad security risks so far as any bank was concerned and accordingly it was agreed that Gerard and Rita would become registered proprietors so that borrowing funds from the bank was made easy. Pasquale relies on several alternative bases for entitlement to Gerard and Rita's registered interest in the land, under the law of mortgages, and as a resulting trust being a common intention trust.

25 Pasquale makes allegations similar to those made by Vito relating to improving the property and leasing it out, and to entitlements under the lease. He alleges that Gerard and Rita have received all rental payments without giving any account and have collected in excess of $140,000.

26 Gerard and Rita’s Defence to this Cross-claim generally follow their Defence to Vito’s claim.

27 This is very unfortunate litigation among brothers relating to family affairs and none of the family members seemed objective when giving evidence. Their involvement in conflict was obviously intense and deeply personal and has continued over many years. There have been instances of savage threats and even personal violence. I do not have much confidence in the evidence of the brothers. Observations in Watson v Foxman& Ors (1995) 49 NSWLR 315 at 318-319 by McLelland CJ in Eq on problems of proof of oral representations apply well to this case. What his Honour said about proof of misleading conduct consisting of spoken words applies also where it is claimed that oral agreements or arrangements deal with property of significant value in a way different to what appears on the title register or in any written record made at the time.

28 McLelland CJ in Eq said:

Where the conduct is the speaking of words in the course of a conversation, it is necessary that the words spoken be proved with a degree of precision sufficient to enable the court to be reasonably satisfied that they were in fact misleading in the proved circumstances. In many cases (but not all) the question whether spoken words were misleading may depend upon what, if examined at the time, may have been seen to be relatively subtle nuances flowing from the use of one word, phrase or grammatical construction rather than another, or the presence or absence of some qualifying word or phrase, or condition. Furthermore, human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience.

Helton v Allen

29 Considerations of these kinds pose serious difficulties of proof for a party relying upon spoken words as a foundation of a cause of action in the absence of some reliable contemporaneous record or other satisfactory corroboration. In this case there is no contemporaneous document which supports the claim that the true arrangement was only a loan on mortgage, not a purchase, and there is no satisfactory corroboration. McLelland CJ in Eq’s observations apply with only slight changes to the present case. A great deal of what I was told related to conversations which were alleged to have occurred well over 10 years before I heard the evidence. Most of what I was told about the conversations seemed to me to be little more than impressions, accompanied by plausible details which were very unlikely to be based and were not based on actual memory. These impressions came to me through a filter (perhaps an osmotic barrier) of years of conflict, argument and strong feeling.

30 There are a number of objective circumstances which appear important for decision on the facts. The arrangement was not recorded in writing in any way, whether by a mortgage document, a covering agreement or any note however informal. A solicitor acted for all the purchasers, but there is no indication that he was in any way involved in the security arrangement and as I later find he was not told of it. If a solicitor who acted for all parties had known of such an arrangement it is likely that some record of the arrangement would have emerged, probably in the form of a second mortgage, registered or unregistered, or if not, in some other written acknowledgement. It would have been obvious to a solicitor that the interests of Vito and Pasquale needed to be protected by a written acknowledgement signed by Gerard and Rita, at the very least.

31 No explanation was given to me in evidence for the absence of involvement of the solicitor in recording the arrangements, and no explanation was given to me for the absence of any written record of the arrangements at all. In an arrangement among brothers a high degree of informality is less surprising and less improbable than in other circumstances, but valuable land and significant amounts of money were involved. The transaction should, if the affairs of Rainbow Constructions had been conducted regularly, have been recorded in its accounts and its directors’ Minutes; but it is unlikely that the company’s records were kept in a regular way by its directors Vito and Pasquale, and the company went into liquidation in March 1997.

32 The transaction does not accord with any ordinary businesslike arrangement for security of land under the Torrens system. It seems strange that a security interest should only extend to a 50% share; if the security were enforced, it could only be enforced against a 50% share, restricting sale or other remedies markedly because the other two co-owners would remain. Security interests usually extend to the whole of the property under security, even if they are second mortgages.

33 Gerard and Rita paid all the stamp duty on the contract of purchase. They were repaid $4,594.12 out of the $202,000 advanced by NAB, and I find that this related to stamp duty. It is an anomaly for their case that they got more than half the stamp duty back but a far greater anomaly for Vito's case that they had to bear any of the stamp duty at all; if they were interested only as mortgagees the ordinary and reasonable outcome would be that all the stamp duty would be borne by the mortgagors. No further payment was made and Vito and Pasquale did not ever attempt to pay any more and did not acknowledge liability to do so. Bearing almost half the stamp duty suggests that Rita and Gerard shared in the beneficial ownership.

34 In my judgment it is overall improbable that Gerard and Rita acted only as benefactors for Vito and Pasquale, providing their efforts, their credit and money, mortgaging their property to Westpac and signing mortgages to NAB, bearing financial risks, without being entitled to any ultimate advantage. The overall probabilities favour their positions.

Vito’s Evidence about 1993

35 In his first affidavit of 26 May 2004 Vito did not give admissible evidence of anything in the nature of a security arrangement, although he referred to it in a passage which was inadmissible and was not read.

36 In his second affidavit of 11 September 2007 (para 9) Vito said “I was aware at the time of the transfer in April 1993 that Rainbow was transferring registered ownership to myself, my brothers and Rita but I did not know why the 50% share which was not being transferred to Gerard as security was being transferred out of the company. I trusted my brothers and did not question the way in which the land was transferred.”

37 Vito said (para 35), in the context of discussion in March 1993 “I do recall on one occasion Gerard came to collect me from the office at Rainbow and I travelled with him in his car to South Beach Wollongong at the car park near the lighthouse. I recall that Gerard said to me words to the following effect: ‘My marriage is in trouble. Rita found out about the monies I’ve lent to Rainbow. One way to fix her concerns would be to transfer half of the property into our names.’ I said ‘Okay you take 50% of the land as security and when we pay you back you can transfer it back.’ Gerard said ‘Okay.’ I believed what Gerard said and I wanted to do what he asked to solve the problem he was explaining to me. We did owe him money and I trusted him so I did not question that he wanted a transfer.” Vito’s account of this conversation was challenged in cross-examination and he adhered to it.

38 Vito made an affidavit on 14 November 2008 immediately before the hearing and gave an account of events (paras 8-12). He attributes the events to "in or about July 1993" but he must have been speaking about several months earlier. He gave evidence of a conversation which Vito, Gerard and Pasquale were present about 12 months after Gerard provided Vito and Pasquale with the loan (meaning $100,000). He gives the terms of the conversation in which Gerard asked and pressed for repayment and was told by Pasquale "You know we don't have it". Then or shortly afterwards Vito was present with Gerard and Pasquale at a conversation where Pasquale said that the money could not be repaid at that time and Gerard said "Well I want you to put me on the title of the property." Pasquale agreed and Gerard said he would arrange for the property to be valued, and would try to make the valuation equal to the debt owed. It was arranged that Gerard would obtain a valuation and then arrange for Harrison and Associates, solicitors, to prepare the necessary papers. Later the valuation was received, and Gerard told Vito and Pasquale that he had the valuation at approximately $280,000 and "We will calculate the loan owed and I will take that [value] as share in the property." Vito agreed, the debt was calculated and it was found that the amount owed was approximately $140,000 or 50% of the figure in the valuation. Vito was not further involved in instructing Harrison & Associates to have Gerard and Rita on the title of the property.

39 In cross-examination Vito was shown this passage and directed to para 10 of the affidavit (which refers to Gerard saying that he would take the value of what he was owed as share in the property). Vito denied (t.84) that $140,000 of debt ceased to exist, that Gerard and Rita swapped $140,000 worth of debt in effect for a half share in the land, and that he understood that at the time. Cross-examination returned to this (at t.97, 98) and his answers did nothing to show that either taking land as security or a possible reconveyance was referred to in the conversation.

40 Vito’s evidence in this affidavit does not confirm the pleaded allegations of a security arrangement. Its meaning is to the contrary, that Gerard said that the amount he was owed would be calculated and he would take that value as a share in the property.

41 Vito said (t.84.15) that after the conversation last quoted from his affidavits he had a further discussion with Gerard and struck an agreement that $140,000 was owed to Gerard and Rita and that would go against their shares of the purchase price, but he denied that Gerard and Rita swapped their $140,000 worth of debt in effect for a half share in the land.

42 Vito knew that about $4500 of the money borrowed from NAB was paid to Gerard as part of the stamp duty, that Gerard had paid the whole of the stamp duty and was being reimbursed. (t.85) He said that this was not because Gerard was a genuine purchaser of the land as to a 50% share, and that Gerard was paying part of the stamp duty with his own money because “we were in financial difficulty at the time.” (t.80)

43 Vito embarked on another statement of the view that Gerard and Rita’s 50% share was a security in a non-responsive answer (t.86). He accepted, or explained that the company was not paid for his 25% share: “It really didn’t get paid but my 25 per cent share along with my brother’s 25 per cent share took over the debt of the company. That was already there at the National Australia Bank” (t.92). At one point (t.91) he appeared to agree that the 50% share of the land to Gerard and Rita was paid for by $140,000 pre-existing debts owed to them, but immediately stated the contrary; there may have been a misunderstanding.

44 As to the 50% share which he and Pasquale owned Vito said, when asked how it had been paid for “We paid this in the form of taking over the debt of the company “(t.93). This was an inadequate explanation, as on no view was as much as $280,000 available from the National Australia Bank or anywhere else to take over the debts of the company. He dealt with this by saying “The way how I look at it is we own the company, that’s how it was looked upon” (t.93). At no point did Vito’s evidence explain how $280,000 in value passed from Vito and Pasquale to Rainbow Constructions for the transfer. Even if it is accepted that payment of debts out of the advance from National Australia Bank (other than the payment to Gerard for stamp duty) should be treated as payment for the benefit of the company (as in my opinion it should be, although Vito did not appear to accept this clearly), there is still a large part of the consideration which his evidence does not explain.

45 Vito said he did not recall whether there was any mention of a trust at the meeting with Mr Harrison at which the contract was signed, and he did not recall any mention of any security being given to Gerard and Rita (t.96).

46 Vito made a number of acknowledgements of the difficulty of recalling conversations precisely, but adhered to his case. There are marked inconsistencies in his evidence. He can be quoted in support of either case.

47 Vito made a written statement, dated 31 July 1998 and witnessed by Mr Lagopodis, solicitor, which deals with the purchase transaction of 1993. He said in evidence that he signed the statement, that it was prepared by Gerard and revised in Vito’s presence in the office of Mr Lagopodis and he signed the final revised version; he said it was a true statement and that he did not know the purpose of it (t.140). In it Vito said:

In March, 1992 my brother Pasquale Pennimpede and I, Directors of Rainbow Constructions, borrowed money from our other brother, Gerard Pennimpede and his wife in the amount of $100,000.00. It was agreed that we were to pay all associated costs including interest as this loan was for our benefit. At this stage they had already loaned us other monies.

2. The loan was to be for a period of twelve (12) months. In June 1993 when we sold the back portion of the land to J. Scavarelli we still did not have money to pay back Gerard and his wife. Pasquale and I decided that repayment of the loan could not be done in the foreseeable future. After some discussion with Gerard it was agreed that he would accept part of the land in repayment of the loan.

3. A valuation carried out by Martin Morris & Jones valued the land at $280,000.00. As Gerard and his wife had loaned us approximately $140,000.00 including interest we transferred 50% of the property to them.

4. Rental was discussed between, Pasquale, Gerard and I for the amount to be paid by Rainbow Constructions Pty Ltd. Gerard arranged for the lease to be prepared but he brought it back to our office for it to be signed. Pasquale was to take care of this but to my knowledge the lease was not signed.

48 This statement supports Gerard and Rita’s case in that it states that it was agreed that Gerard would accept part of the land in repayment of the loan of $100,000, and that as Gerard and Rita had lent “us” approximately $140,000 including interest “we transferred 50% of the property to them.” The statement, made far closer to the events of 1993 than the evidence given before me, outweighs anything in his affidavit or oral evidence about conversations in those times.

Pasquale’s evidence about 1993

49 In Pasquale’s first affidavit of 27 April 2006 he refers to loans of $100,000 and advances from time to time to a total of $40,000, and says (para 18) that after a discussion with Gerard about Gerard getting repaid the money, he made an oral agreement with Gerard thus:

Vito and I will pay all the costs, expenses and the bank interest.

Why don’t you get the property be put in my name?

Fine … that’s okay with me and when you get your money back you release the property. As long as we have the money, we will pay you even on a weekly basis.

50 Pasquale said (para 19) that Gerard told him: “Okay, Michael Bradley the Manager of the National Australia Bank… will approve the loan for as long as Rita and I become guarantors. Rita has to be a guarantor because our assets are under our names.” Pasquale says he told Gerard “Talk to George Harrison to organise the paperwork and Vito and I will sign them when we are ready.”

51 Pasquale also gave evidence (para 23) of a meeting in Mr Harrison’s office in April 1993 when all four parties were present. Mr Harrison said “Do you understand what you’re doing?” Pasquale replied “Yes, Gerard and Rita are going guarantor. Vito and I are transferring half of the land into Gerard and Rita’s name. The terms are that when the loan is paid to the bank, Gerard and Rita’s guarantee will no longer be needed, and they will release the land back to us”.

52 In what Pasquale says he told Mr Harrison, the bank loan on the repayment of which the land was to be released was the loan for which Gerard and Rita were to be guarantors, which can only refer to the loan which was to be obtained from National Australia Bank; it cannot refer to the loan of 1992 in which there were no guarantors and Gerard and Rita were the only borrowers from Westpac Bank. Pasquale also said (para 25) “There were no monies paid by Gerard or Rita to the Company for the Transfer of the land nor was it agreed that the total of the loans owing to Gerard and Rita were to be discharged by applying the outstanding indebtedness as consideration for the transfer of the legal and equitable interest to Gerard and Rita.” He said (para 28) “On 11 June 1993 the National Australia Bank loaned the sum of $202,000 to Vito, Gerard, Rita and myself. Those funds were applied to clear the debts of the Company. An amount of $4,594.12 was paid to Gerard.”

53 When cross-examined Pasquale denied Gerard’s account of the arrangements which led to the transfer of a 50% interest to Gerard and Rita and repeated his evidence that Gerard requested transfer of the property into his name for reassurance of the money which Gerard had lent, and that it was never discussed that by putting the land into Gerard’s name that would offset the loan. He said (t.229) that Rainbow Constructions had to be paid the 50% share but it was not paid by discharging $140,000 liability. Pasquale said that Pasquale did not pay any money for his 25% share and said “there was no exchange of money. There was a simple transaction from Rainbow Constructions to the individual director.” (t.229) Pasquale found it difficult to deal directly with questions about events in Mr Harrison’s office on the occasion of the transfer (t.230-1). Pasquale said that he told Mr Harrison “… We understand we are transferring the property to Gerard and Rita for their reassurance as guarantor to the bank.” (t.232) This cannot be a reference to the $100,000 or the $40,000 debts, because Gerard and Rita were not guarantors for those; the only bank debt for which they could be thought of as guarantors, on Pasquale’s case, was the advance that NAB was about to make to all four parties. The word “trustee” was not used (t.232). Mr Harrison was not asked to prepare a deed of trust and did not say that he was going to prepare a mortgage; Pasquale did not ask him to (t.232-3).

54 While still dealing with events in the interview with Mr Harrison Pasquale was asked (t.234, l 44):

Q. You were present when he was told that the consideration for the 50 per cent share passing to Gerard and Rita was money already on loan by them to the company?
A. That is correct.

55 The first answer I have quoted appears to confirm that money already on loan by Gerard and Rita was to be the consideration of the 50% share. `However his evidence taken as a whole did not confirm this anywhere else, in many references. Within a few minutes he said to the contrary (t.235). Pasquale said (t.237) that he himself was not getting 25% because he had paid anything – “No. We did not pay anything.” His evidence was that he did not know what the payment of $4,794.12 was for and (t.238) “This was never expressed to me that this money was money to him for stamp duty.” He agreed that he as a company director was just taking the company’s assets for nothing and said that it was Gerard’s idea (t.238) and (t.239) "From my understanding at the time, being a director, we had, we could, transfer."

56 I do not find it possible that Pasquale is sincere in his evidence on these subjects; it is not reasonably possible that he did not understand that by paying debts of the company out of the NAB advance he was providing value to the company. He said to the effect that he gave Mr Harrison paperwork for creditors who were to be paid out of the bank advance. (t.239-40)

57 There is conflict with his present position in a statutory declaration which Pasquale made in May 1998 for the information of a liquidator of Rainbow Constructions (Ex 18). In that statutory declaration he said:

6. I did not pay any money to Rainbow Constructions Pty limited to receive the 25% equity in the property that I am now listed as owning.

7. As a director of Rainbow Constructions Pty limited I am not aware of any consideration paid by anyone to receive a transfer of the land from Rainbow Constructions Pty limited.

8. I believe that the 25% equity I hold in the property is held in trust on behalf of Rainbow Constructions Pty Limited.

9. To the best of my knowledge I believe that the other people registered as owners of the property also hold that property on trust for Rainbow Constructions Pty Limited.

58 These passages, and also other passages in the statutory declaration relating to the transaction, are entirely inconsistent with his claim that he and Vito are the beneficial owners, and inconsistent with a contention that he and Vito were in a position to give security to Gerard and Rita. The fact that Pasquale was prepared to make this Statutory Declaration for the information of the liquidator is severely adverse to his credibility, particularly in relation to the true ownership of the land. This is no less so because the liquidator did not make any claim or bring any litigation on the basis of what Pasquale there said.

59 Pasquale was referred to a letter written on his behalf by Mr Harrison’s firm to Gerard and Rita on 28 February 1997 in which he called on them to transfer to him their share in the property, by that time a three-quarter share, on payment of $200,000 plus a payout to NAB of approximately $350,000. This demand was accompanied by a form of transfer in which the amount of consideration did not appear. He said “I requested Mr Harrison to write a letter to Gerard to put a proposition to him with $200,000 to see what his outcome, result, response was going to be” and “It was not a genuine offer." (t.241)

60 The letter is anomalous with Pasquale's position overall, because it does not refer to paying $140,000 or any debt to Gerard and Rita, or to redeeming any security, and because Pasquale’s position generally is that he was entitled to his registered 25% and also to 25% or one third of the 75% then held by Gerard and Rita, and that Vito was entitled to the other two thirds of that 75%. If the letter was genuinely intended as an offer, and also if it was not genuinely intended, the letter was inconsistent with Pasquale's position in the present litigation.

61 Pasquale said (t.209) that before the company was closed down he was in dispute with Vito and Gerard. I have a very poor impression of Pasquale and his evidence, based on what he said, a general lack of overall consistency, the overall improbability of his account of the facts, and a strong adverse view of his demeanour when giving his evidence. On many occasions Pasquale did not answer questions directly, intruded other subjects in his answers or spoke only of other subjects than what he had been asked about. It appeared to me that his mind was directed to advocating his case, and not to giving evidence he was asked to deal with. I regard Pasquale as a witness who should not be relied on.

62 In his case Vito tendered, and Pasquale’s counsel supported a report by Mr Ian Sellers, chartered accountant, with the object of showing that in a long series of payments and transactions over many years payments to Gerard and Rita have greatly exceeded the amount required to protect them against the National Australian Bank debt, with the result that there are money claims against them. I will deal elsewhere with Mr Seller’s reports and reasoning; it is enough to say at this point that in my opinion his attempt to reconstruct the financial dealings and to show who is indebted to whom on balance was entirely unsuccessful. There has been a great mess or maze of transactions, advances by Gerard and Rita or payments by them on account of one or both of Vito and Pasquale, further advance or National Australia Bank, and many years of payments to NAB. Rainbow Constructions went into liquidation and the accounts said to emanate from the company were reconstructed by the liquidator years after the events. There is no reliable way of reconstructing any accounts or establishing who is liable to whom or for how much, and Vito and Pasquale’s claims for balances of money can only be decided adversely; they cannot discharge their onus of proof.

Gerard’s evidence about 1993

63 Gerard’s evidence shows that before Vito and Pasquale caused Rainbow Constructions to purchase the land there was discussion in which Vito asked Gerard to join in and purchase a one third share in the land and the company; and Gerard declined. Gerard lent $12,000 to pay wages and bills on 1 November 1991. The arrangements were quite informal and oral and it is difficult to say whether the borrowers were Vito and Pasquale or Rainbow Constructions was the borrower or whether all were. After Rainbow Constructions agreed to buy the land for $500,101 in March 1992, (with interest $36,847.48 on the purchase price from October 1991), one or both Vito and Pasquale asked Gerard to lend another $100,000 to enable settlement to take place; and said that he would be repaid within 12 months. After some discussion within the family Gerard agreed, and he and Rita borrowed $100,000 from Westpac Bank secured on an investment property which they owned; Gerard gave a bank cheque for $100,000 to the solicitor acting on the purchase, Mr Harrison, about 20 March 1992. The settlement took place on 27 May 1992 and Rainbow Constructions obtained first mortgage finance of $375,000 from Household Finance. During the period of a year or so after the loan of $100,000 there were other loan and similar transactions in various circumstances, a striking instance being an occasion when Gerard and Rita raised $10,000 on very short notice to make a payment to stop the Sheriff evicting Mrs Caterina Pennimpede, the mother of the three brothers, from her home which she had mortgaged to support bank finance for a shop named Ciao Bella, another enterprise of Vito and Pasquale. Gerard first learned of this transaction and the security Mrs Caterina Pennimpede had given over her house to support Vito and Pasquale’s enterprise when he was asked to provide money to prevent eviction by the Sheriff.

64 There were other relatively small loan transactions in this period in which Gerard provided Vito or Rainbow Constructions with finance. Some of these were repaid and some were not. No party has produced an account or record dating from the time of these events showing what moneys were advanced, what moneys were repaid or the amount of the liabilities from time to time, it is plain that no such records can be produced and probably none were ever made. In particular, no accounting records of Rainbow Constructions dating from that time and showing the company’s dealings in a systematic way have been produced; I infer that no party is able to produce such records and the probability is that there never were any. By March 1993 the $100,000 which Gerard and Rita had borrowed from Westpac Bank and lent on had not been repaid to them, and it was accepted that at least another $40,000 was due to Gerard or to Gerard and Rita from money borrowed by or for Rainbow Constructions. Scraps of information from uncertain records on cheque butts from this period, and also from later periods, are of no value in reconstructing the state of accounts and obligations from time to time. Whatever the transactions were in detail, I regard it as clearly established that by June 1993 Gerard and Rita were entitled to receive at least $140,000.

65 Gerard said that in the first part of 1993 (the actual time was October 1992) Rainbow Constructions agreed to sell part of the land, referred to as the back portion, to Mr Scavarelli, a tenant who conducted business as Krop Industries, and proceeds of this sale were paid to the financier Household Finance. After there had been discussions about repayment, and about Rainbow Constructions’ difficulties in repaying obligations, Gerard’s evidence in his first affidavit was that he proposed to Pasquale in March 1993 (para 50): “Why don’t I take part of the land in exchange for money. The company cannot pay me back”. He then says (para 51) “within the next week there was a discussion between Pasquale, Vito and myself that took place at Rainbow Constructions’ office. Pasquale said in the presence of Vito and me words to the effect ‘The company will transfer 50% of the land to your and Rita to come off the money that Rainbow owes you and Rita. Vito and I will transfer 25% to each of us.’ Pasquale did not say that the 50% was to extinguish the whole debt. I did not say that it would extinguish the whole debt." Gerard goes on to deny evidence of Pasquale that Pasquale said "When you get your money back, you release the property." According to Gerard’s evidence, after further discussion the sale went ahead on the basis discussed and instructions were given to Mr Harrison, the solicitor who acted for all concerned on the sale, according to that arrangement. Gerard’s evidence is to the effect that it was not said to him and there was no arrangement for him to release the property when he got money back, and there was no arrangement for the debts owed to him (referred to as $140,000) to be repaid.

66 At Gerard’s attendance at Mr Harrison’s office, the first occasion and the only occasion when he dealt with Mr Harrison in relation to the transaction, Mr Harrison went through the contract and explained it to all four at one sitting, and there was no discussion to the effect that Gerard and Rita were not going to be the beneficial owners of their 50% interest or that they would or might have to return it or that they would get $140,000 back. There were no references to their acting as guarantors, or to their taking their interests as mortgagees. This is in conflict with evidence of Pasquale, but I regard it as strongly supported by Mr Harrison's letter to the liquidator, which I will refer to later. Vito does not deal with the subject in a clear way. I disbelieve Pasquale’s evidence on this, and I accept Gerard’s evidence about what Mr Harrison was told.

67 A claim (Ex 24) which Gerard gave to the liquidator, headed "Claim from Rainbow Constructions Pty limited" included the following paragraph:

1. Loan to Rainbow Construction June 1993 By way of using land as security ($2000) This claim $100,000 Being 50% see attached National Australia letter for details.

68 Gerard attached this claim to a formal proof of debt dated 16 January 2002 which he gave to the liquidator, making claims totalling $186,100, of which the $100,000 was part. Gerard’s evidence was that he sent the claim itself to the liquidator some years earlier than 2002. The claim in paragraph 1 is completely wrong and quite inconsistent with anything which evidence of Gerard or anyone else would support. There was no loan to Rainbow Constructions in June 1993, of $200,000 or any other sum, on any possible view. There was a loan of $202,000, but that was a loan to all four parties by NAB, not a loan to Rainbow Constructions. The land was a security, but it was a security in favour of NAB, and there was no basis for claiming that Rainbow Constructions was lent half of it. What Gerard said in this paragraph does not in any way tend to confirm that his interest in the land was a security interest given by Vito and Pasquale. On the view most favourable by Gerard the claim was profoundly confused; it is also open to the view that it was consciously false claim. It was incorrect and Gerard acknowledged this. It is not confirmatory of either Vito’s or Pasquale's claim against him.

69 When Gerard was challenged as to the basis of the transfer of a 50% share in June 1993 he said "Their half I don't know, my part I am 100% certain (t.293)." Gerard did not retreat from his case that he wanted his money back, demanded it back and received land in exchange. (See t.310, l. 31)

70 Cross-examination of Gerard on there not being any reference in the contract of sale to setting off part of the price was conducted on the basis that absence of that provision tended to make it improbable that there was such an arrangement. The contract (Ex 10) provides in Printed Clause 16.4.1 for payment of the balance of the price on completion. This provision is almost invariably found in contracts for sale of land. Its presence has no real tendency to make it improbable that there was also an arrangement that part of the price would be paid by setting off a release of some debts. When I set about weighing probabilities and improbabilities, it is far more improbable that Gerard and Rita were not involved in the sale as purchasers and beneficial owners, which is what all contemporary documents indicate, but held as mortgagees under a security arrangement which is unrecorded.

71 In cross-examination the facts as given on affidavit by Gerard were challenged, repeatedly and in various forms, and he adhered firmly to his account in which he participated in the purchase as a beneficial owner of a half share jointly with Rita. Rita was also challenged; her evidence shows that she knew little and did not understand much about the transaction, and relied on Gerard, but it also shows that she did not know of any security arrangement and saw herself and her husband as taking an interest in the property.

72 As Rainbow Constructions no longer owned the land Gerard sought to have the company sign a lease and pay rent to the four proprietors. However he was never able to get such a lease executed by Rainbow Constructions, and no rent was collected while Rainbow Constructions remained in possession. Payments to National Australia Bank were paid by Rainbow Constructions; or in some other way Vito and Pasquale saw to payment. There was no arrangement for these payments to take the place of rent. The debt to NAB increased over the years from 1993 to 1996.

73 Pasquale says that after two or three months Gerard produced “documentation claiming that he owned half of the land. The new documentation consisted of a lease to be signed by Vito and myself, that the company had to pay rent to him. I refused to sign the lease that Gerard had prepared himself.” (t.316) Gerard’s affidavit evidence (85 and 86) that Pasquale agreed to sign the lease was challenged. Gerard adhered to his evidence and said that Pasquale told him "I will attend to it later." Cross-examination of Gerard obtained no concession qualifying his account of the transaction.

74 It was suggested in cross-examination of Gerard, but not otherwise supported by any evidence, that Rainbow Constructions was not in occupation of the land after its purchase, except for carrying out the building operations. This suggestion is contrary to the position which appears quite clearly from the evidence of Pasquale and of Vito that Rainbow Constructions’ business operations continued, were still taking place at the end of 1995 when conflict arose between Vito and Pasquale, and continued thereafter. The building operations took a significant part of the period, but not as much as half the time, and the premises continued to be available for Rainbow Constructions to use for its steel fabrication business. The suggestion was put forward in the context of suggestions that there was no arrangement for rent to be paid, or for anything in the nature of rent to be charged, and no occasion for there to be such an arrangement because Rainbow Constructions had contracted to give vacant possession on completion and was no longer in occupation, except to do building work for the new proprietors. This suggestion is quite groundless. It is a marked anomaly of Vito and Pasquale's behaviour that no rent, occupation fee or other payment for Rainbow Constructions’ occupation and use of the premises was made or allowed for. This reflects adversely on their readiness to perform obvious obligations; it does not constitute a significant improbability against accepting Gerard and Rita's case. The cross-examination was conducted on the basis, obviously wrong, that if no lease document was executed, no rent was payable. In my finding the obvious and fair basis on which Rainbow Constructions continued to occupy the premises after selling the land was that it would pay for doing so: and I find that Pasquale agreed to sign a lease on behalf of Rainbow Constructions but fobbed Gerard off over actually signing it. The need to pay something as rent was successfully evaded.

75 Vito’s counsel challenged Gerard in cross-examination (t.265) for having made no attempt to have Pasquale's caveat removed. Gerard said (t.269) “I didn’t pursue it because there is probably half a dozen caveats on the property, one more made no difference.” In my opinion the fact that Gerard did not attempt to remove this caveat or any of the number of other caveats is not adverse to his position in any way.

76 The view of the transaction put by Gerard in his evidence is consistent in a broad way (and not with perfect symmetry) with Gerard and Rita paying half the purchase price of $280,000 referred to in the Memorandum of Transfer by foregoing any further claim for existing debts, taken to be $140,000, and by Vito and Pasquale being thought of as paying Rainbow Constructions half the purchase price (and indeed more) by causing $197,405.88 of the $202,000 bank advance to be applied to paying off Rainbow Constructions’ existing first mortgage and otherwise to its creditors. Only in this way did Vito and Pasquale pay anything for the transfer; they did not contribute any money themselves. However Vito and Pasquale were not the only people who borrowed the $202,000 from NAB; Gerard and Rita also joined in mortgaging the land and in incurring the burden to NAB. Rita and Gerard regarded themselves as sharing responsibility for seeing that NAB was repaid the $202,000 advance.

77 The transaction according to Gerard and Rita appears disadvantageous to them on any view. They still had the burden of owing Westpac the $100,000 which they had borrowed and had secured on their other commercial property. They had traded away their right to get the $100,000 back from Rainbow Constructions, and they had received a half interest in a property sold for $280,000; and they shared the liability to National Australia Bank for $202,000. Overall this looks like a bad bargain for them, on the value attributed to the land in 1993. Bad though this is, the transaction according to Vito and Pasquale looks like a far worse bargain for Gerard and Rita; they were not the beneficial owners of any land, and held their interest in land only to secure repayment to them of $140,000 owed by Rainbow Constructions and to secure compliance by Vito and Pasquale with their obligation to see that the NAB secured debt was paid. A half share in land recently valued at $280,000 and sold for that amount and mortgaged for $202,000 was to secure them for $342,000. It is highly improbable, even among closely related persons, that this was the true transaction.

Mr Harrison’s Statement about 1993

78 Exhibit 7 GP 2 includes correspondence and statements by Mr Harrison, apparently prepared for the information of a liquidator some years after 1993. These documents were admitted in evidence without qualification, and no one called affidavit or oral evidence from Mr Harrison or explained his absence. Mr Harrison cannot be regarded as in the camp of any party, so that there is no room for criticism on the bases indicated in Jones v Dunkel (1950) 101 CLR 298; any party could have called his evidence. Mr Harrison’s statements are probably reliable; they were made years after the events, but much closer to the events than the evidence given before me, and he had no interest to protect. The material he produced does not include a settlement statement, so I do not know how in Mr Harrison's understanding the purchase money was paid or treated as paid when the transfer and bank advance were completed on 11 June 1993.

79 Mr Harrison stated some relevant facts in correspondence with the liquidator (Ex 7, GP3, pp 76 and 77 in answer to the liquidator's letter at page 72.) Mr Harrison's letter says among other things that he was instructed by the purchasers

The 50% share passing to Gerard Pennimpede and Rita Angela Pennimpede was in consideration for moneys lent by them to the company.

The writer was informed that as the three male purchasers were brothers, they would deal with the financial aspects among themselves.

At no time was the situation of a Trust discussed between the parties and the writer. If the transfer of a 50% share in the property to Gerard & Rita Pennimpede was a trust situation and if it were raised at the time of the transfer, then appropriate Trust Deeds would have been prepared by us.

80 It is extremely improbable that the transaction and the documents would have taken the form they did if Mr Harrison had been told that Gerard and Rita were not intended to be the beneficial owners. His statement confirms that he would have prepared other documents if he had been told this.

81 Some other relevant matters are stated in Mr Harrison's letter. The deposit of $20,000 was received into the Trust Account on 26 March 1993. On 2 April 1993 this amount was forwarded to Household Commercial Finance. The valuation was arranged by the purchasers. The contract was collected from Mr Harrison's office and stamping was attended to by them. Mr Harrison's firm does not hold and has not sighted a copy of the valuation

82 Many details of this transaction are not clearly proved or are proved in ways which leave anomalies. When attempts are made to prove in detail events in a transaction which happened in 1993 this is not surprising. In his letter of 1 April 1993 Mr Harrison speaks of a deposit of $20,000 in terms which suggest that contracts had already been exchanged and the deposit had already been paid. No evidence explains the source of this payment. Another statement by Mr Harrison says that it was paid on to Household Finance apparently soon after he received it. This suggests that a balance of $260,000 was payable to Rainbow Constructions on completion.

83 In his letter of 1 April 1993 Mr Harrison spoke of the contract as having already been exchanged on 26 March ; yet Exhibit 10, the contract which was stamped and put in evidence, bears date 26 April 1993. This is strange, but there is no explanation for it. There may have been two contracts; one may have been discarded; I cannot know. There is no basis for treating the date on Exhibit 10 as adverse to Gerard or his credit.

84 Mr Harrison's letter of 1 April 1993 refers to dealings with the mortgagee as if they were then well advanced. The letter does not say who the mortgagee was, and a statement made some years later by an officer of NAB shows that that bank’s approval was given on 19 April. It has not been established who obtained the valuation for the purpose of assessing stamp duty; Mr Harrison's letter of 1 April 1993 speaks in terms as if the valuation was still to be obtained; however he also says that the contract had already been exchanged, showing that the price of $280,000 had already been established. Gerard gave evidence that he possibly may have obtained the valuation but he did not recall. It remains unknown and unknowable who obtained the valuation or when, although there is no doubt that it valued the property at $280,000.

85 Nor has it been established how in detail stamp duty was paid on the contract: who picked the contract up from Mr Harrison's office, took it to the Stamp Duties Office and had the stamp put on it. It has been established that Gerard and Rita paid the stamp duty of $8,290. Gerard and Rita were also taxed in cross-examination with the circumstances that the contract of sale contains no statement about an arrangement for the price or part of the price to be set off against any debt owing by Rainbow Constructions to them. Such a provision could well have been put into the contract but it is in no way strange or surprising that it was not, and its absence has no tendency to disprove that there was such an arrangement. The circumstance that the stamp was placed on the copy signed by the purchasers not the copy signed by the vendor is unusual; the practice is to stamp the copy signed by the vendor. However both were then liable to stamp duty, and placing the stamp on the copy signed by the purchasers is not a circumstance adverse to Gerard, nor to anybody else.

86 The terms of Mr Harrison's letter of 1 April 1993 show, by the absence of any reference, that Mr Harrison had not been told by 1 April 1993 of any arrangement for the interest of Gerard and Rita to be taken only as mortgagees, or only as a security interest. If Mr Harrison or any solicitor had been told those things by 1 April 1993 it is very unlikely that, in a letter which gave advice on a number of mundane matters connected with the sale, he would have omitted to give advice about making the arrangement in some different form, in which there was a mortgage or other written acknowledgement of the security interest, and about transferring the whole registered proprietorship to the intended owners and not making the intended mortgagees registered proprietors of a half interest. No competent lawyer would think that the security interest arrangement made any sense, or should be allowed to pass without proffering some advice to those involved in the transaction, who were all his clients. If Mr Harrison heard of that arrangement at any later stage until settlement he is also likely to have intervened. In his statement to the liquidator he said to the effect that he was not told of any such arrangement.

More considerations pro and con

87 There is no explanation in the evidence anywhere of why the transaction should have taken a form completely different from a security interest. No reason has been offered why it would be kept secret or would not be recorded, or why Mr Harrison was not told about it. There is no rhyme or reason in this part of the case.

88 There is no objective confirmation of Gerard and Rita's claim that instead of their paying $140,000, half the purchase money, it was arranged by Gerard with Pasquale and Vito, and as they were its only principals with Rainbow Constructions as well, that Gerard and Rita would forego rights to $140,000, or about $140,000 of debt which Pasquale and Vito and Rainbow Constructions had borrowed from Gerard and Rita. Mr. Harrisons’s letter to the liquidator may tend to confirm this, but does not do so exactly. There is no explanation of what Mr Harrison regarded as the arrangement for payment on completion. The evidence does not refer to any written record of the arrangement anywhere. It is remarkable that Gerard did not obtain some written acknowledgement from Pasquale and Vito on behalf of themselves and Rainbow Constructions. However this is not the only instance where obtaining written acknowledgement or confirmation from them, even for the most obvious propositions, was not possible or was unreasonably difficult. There ought to be written confirmation, or records the absence of entries in which would be relevant, in the accounts which by law it was the duty of Rainbow Constructions and its directors to keep. No such accounts were produced, and their absence from evidence is not explained. Their proceedings were so irregular that there probably were no such accounts, notwithstanding their duty as directors. If there are accounts which show how debts owed by Rainbow Constructions to Gerard or Gerard and Rita were treated by the company, and if those accounts tend to show that there was no such arrangement, it would be natural to look to Vito and Pasquale to produce them in evidence. Of course they did not do so.

89 Mortgagees do not usually pay the stamp duty on purchase of their security; if they do it is added to the debt. Neither Pasquale nor Gerard, nor so far as evidence shows Rainbow Constructions, acknowledged any obligation with respect to the unpaid part of the stamp duty, or did anything to pay it, and they did not proffer any undertaking or proposal to pay it as a term of the equitable relief they claim. The same is true, with even more marked force, of the $140,000; no offer and no realistic proposal was made to pay that loan or interest as a term of the claims for relief; yet the logic of their claims suggests that Vito and Pasquale have always been liable for this repayment, should have made repayment long ago and should wish to pay those sums to get the clear title which they claim. The absence of any attempt, at any time, by either of Pasquale and Vito to pay the $100,000 or the $40,000 favours acceptance of Gerard and Rita's case. Neither Vito nor Pasquale disputed in evidence that the whole $100,000 was an obligation of themselves personally. The underlying theory of their cases required them to tender all the secured debt as a condition of relief; and neither did so.

90 Cross examination of Gerard suggested that there may be some attack on the $40,000 element, but it was accepted that that some part of it was been owing in 1993 by both Pasquale and Vito in their evidence. The pleadings seem to show that it was undisputed that $140,000 was owing, so this cross-examination came as a surprise to me.

91 Not only is there no trace anywhere in the evidence of any payment or attempt to make payment of or on account of the amounts of $40,000 and $100,000 which Vito and Pasquale’s pleadings establish were owing to Rita and Gerard until June 1993, and maintain were still owing after that. Neither has there been any acknowledgement or acceptance that there should be an allowance of credit for either of those two amounts anywhere in the conduct of either Vito or Pasquale throughout the events. The cross-examination of Gerard which appeared to challenge his evidence that $40,000 and more was owing was a remarkable position for the cross-examiner to take, in view of their own pleadings. Imprecision is a characteristic of communications and also evidence of communications throughout the whole narration, but in so far as references to obligations of Vito and Pasquale can be understood they do not appear to me ever to have treated $100,000 or $140,000 as part of their obligations after June 1993. It is markedly adverse to their claims that the true nature of the transaction of June 1993 was a security for $140,000 that they did nothing to pay, or attempt to do so, or to acknowledge it during the period of more than 10 years until these proceedings were commenced.

92 It is only on the basis of Gerard and Rita's case that there is any available view that the whole of the purchase money was in fact paid to Rainbow Constructions. On Gerard's case, Rainbow Constructions was paid for the land, indeed overpaid. On Vito and Pasquale's case Rainbow Constructions only received about $198,000, or, if (as Pasquale's counsel at one point suggested) Rainbow Constructions itself paid the $20,000 deposit, Rainbow Constructions only received $178,000. Rainbow Constructions got the benefit of the $20,000 deposit, wherever that came from, and $197,405 part of the NAB advance on 11 June 1993, leaving $62,594.12 which, on the logic of Vito and Pasquale’s case, was never paid at all. Probability supports its having been treated as paid in some way, not simply left unpaid. If it was not paid at all, that would leave the company with entitlement to the payment. It would not leave Vito and Pasquale with any rights.

Events 1993 to 1996

93 Gerard and Rita shared in liability to NAB in a series of financing transactions. These were:

Approvals on 19 April 1993 totalling $210,000, $202,000 of which was drawn on settlement 11 June 1993.

On 9 May 1994 there was a refinancing and $250,000 was advanced; this was advanced to pay out the previous debt, and to purchase a shed for $40,000 and to provide a bank guarantee for $6,170.

There was also a temporary increase of $60,000 for purchase of a mobile crane; this was outstanding only for a few months until the crane was sold.

On 20 February 1995 there was an advance of $340,000 out of which the previous debts were paid; and costs of building a factory on the land were paid.

After many years of further transactions all liabilities to the National Australia Bank were cleared early in 2007.

94 There were further loans by Gerard or Gerard and Rita to Rainbow Constructions or Vito and Pasquale, usually for assistance with payment of wages, and repayments, after settlement on 11 June 1993. For this period too there is no reliable accounting. Gerard prepared a list (Annexure L to his affidavit) explaining these and other transactions, but it is not possible to have any confidence in it. Pasquale produced an array of cheque butts, and these are of no value and only show that he does not have any real accounts or written records.

95 It seems plain that Rainbow Constructions was never prosperous. Vito and Pasquale had a fight, involving personal violence or threats of violence, in late 1995. At some stage by 20 June 1996 industrial activities in the factory had ended, because all four proprietors entered into a lease with Balderstone Hornibrook Asset Management Pty Ltd on that day, leasing the property out for five years from 1 July 1996 at $98,500 per annum. When the lease expired, Balderstone Hornibrook took a new lease for four years to 30 June 2005, but vacated the premises about 30 November 2003. The premises were then leased to a tenant referred to as AMP Control, at a reduced rental.

96 By the middle of 1996, and probably earlier, Pasquale and Vito were thoroughly estranged and in conflict; relations between Gerard and Vito were relatively good. About August or September 1996, in a conversation at their mother’s house Pasquale told Gerard “Vito has ripped me off $300,000. I want you to give me your 50% of the land and get your money back from Vito.” This was a strange request and it signals a point after which all dealings involving Pasquale have been guarded.

97 From September 1996 onwards, the rent from Balderstone Hornibrook and from a later tenant was paid into a bank account with NAB in which Gerard, Rita and Pasquale were and are the customers. Before then the rent was paid to Rainbow Constructions. Gerard drew money out of that account for many years, and used it to pay off NAB's refinancing debt of $350,000 of September 1996. He also paid off or paid towards another debt owed by Vito and Pasquale but secured on Mrs Caterina Pennimpede’s house. He also paid expenses and outgoings of the leased premises. He also paid moneys out of this account for the benefit of himself and Rita, and after some years he paid $19,535 to Pasquale in March 2002, which Gerard calculated and regarded as appropriate as Pasquale’s share of rent. After many years these dealings brought about clearance of the NAB debt, for the benefit of Pasquale, Gerard and Rita.

Findings on Gerard and Rita’s 50%

98 My findings based on the considerations, facts and events I have reviewed at length, are that there was no security arrangement, there was no trust of the 50% interest which Gerard and Rita obtained on settlement of the purchase from Rainbow Constructions, and that they paid full value for it by foregoing at least $140,000, probably more, of debt owed to them by Rainbow Constructions (and also by Vito and Pasquale). They have been beneficial owners of that 50% interest from first to last.

Vito’s transfer of 25% in 1996

99 The true terms of the transaction in which Vito transferred his 25% interest are very contentious; the only completely clear events are that by Transfer dated 24 September 1996 Vito transferred his 25% share in the land to Gerard and Rita for an expressed consideration of $1; when the transfer was registered soon after they became registered proprietors of three of four equal shares, and Vito was no longer the registered proprietor of any interest. A stamp duty receipt on the Transfer shows that $5,052.50 stamp duty was paid on 24 September 1996. Then within one week afterwards the NAB financing was rearranged. On 30 September 1996 new bank financing was given to Gerard, Rita and Pasquale and secured by mortgage to NAB: the new advance was used to pay off the old bank debt and the former securities were discharged. Vito no longer had any obligations to NAB. As a consequence he no longer had any obligations to Gerard and Rita relating to the earlier NAB finance: they gave the bank new loan documents in which Vito was not included.

146 Vito tendered affidavits and reports of Mr Ian Sellers a chartered accountant. The tender was supported by counsel for Pasquale, and was opposed by counsel for Gerard and Rita. Mr Sellers' report puts forward Mr Sellers' view of the amount for which Gerard and Rita are accountable to Vito, and I take it also to Pasquale, with supporting reasons and sheets of calculations, and very extensive documentation showing the facts assumed by Mr Sellers when forming his opinions and making his reports.

147 On the strict view of the law of evidence expounded by Heydon JA in Makita v Sproules (2001) 52 NSWLR 705 this material is not admissible without proof of the facts assumed. Notwithstanding objection I admitted the evidence, seeking to follow the practice which I have long followed and appears to be supported by the Court of Appeal in Australian Securities and Investments Commission v Rich (2005) NSWCA 152 (see Spigelman CJ at [134]-[136]). I had in view that the significance of the evidence could be considered after all evidence relating to the facts assumed had been admitted. In view of the complexity of Mr Sellers' report and the underlying material I am unable to see that it would have been practical to proceed in any other way.

148 There was little further reference to Mr Sellers' evidence during the hearing, it was not referred to in the closing addresses, except perhaps in a most passing way. Vito's counsel contemplated that the matters with which Mr Sellers dealt would be examined in detail by an Associate Judge or a Referee.

149 Two matters basal to Mr Seller's consideration were assumptions that Gerard and Rita were not purchasers of an interest in the land from Rainbow Constructions but were involved only as mortgagees, and that Vito was entitled to be credited with 25% of the rent from September 1996 onwards. Both of these are contrary to my conclusions. Mr Sellers' reports in their present form could not be useful if any inquiry or reference were to be undertaken but would have to be extensively reconsidered if they were to be used at all. Many of the assumed facts are reasonably open to contention. It appears to me that Mr Sellers has conflated several series of transactions among the Pennimpede brothers, Gerard and Rita and Rainbow Constructions, liquidators and among the parties after the liquidation, as if they were one connected series of transactions. I find it hard to suppose that there could be any justification for this. In doing so, he made no address to the implications of the passage of time and time bars under the Limitation Act. Mr Sellers brought into account interest at the rates allowed on judgments of this Court on balances which he concluded that Gerard and Rita were obliged to account for: I am unable to see this was justified, as allowance of interest is a discretionary matter for the Court. Mr Sellers based very significant parts of his conclusions not on accounts or records of Rainbow Constructions, but on accounts constructed or reconstructed by one of the liquidators after the company went into liquidation: these are not business records of the company's transactions but are reconstructions compiled some years later, and they are not an available source of evidence.

150 Any real or useful attempt to establish the amount (if any) for which Gerard is accountable would have to deal with and fully expose the facts relating to liabilities towards which Gerard made payments for which Vito, Pasquale or both shared liability: or were principally liable while Gerard was involved only as their guarantor. There were incidental references in the evidence, not fully explored, to further advances and other dealings by Gerard for Vito's benefit after September 1996, to payments by Gerard to relieve the mortgage liability of Mrs Caterina Pennimpede for debts of Vito, or perhaps of Vito and Pasquale: to repairs, renovations or similar liabilities incurred by Gerard in connection with the leased property and to dealings by him with obligations relating to road access to the land which Mr Scavarelli purchased in 1993, and to continuing obligations of Vito and Pasquale which Gerard had guaranteed. Mr Sellers seems to have been told little or nothing about these transactions and payments although most information bearing on them is more likely to be accessible to Vito or Pasquale than to Gerard. An effect of acting on Mr Sellers' report would have been to leave Gerard to fight his way out of a poorly considered claim, without the benefit of frank acknowledgments and disclosures which Vito and Pasquale ought to have made.

151 Mr Sellers' reports do not deal with the advances totalling $210,000 made by NAB on settlement of the purchase in 1993. This advance is basal to any understanding of the relationship among the parties, as accounting has to be clearly based on one or other of the positions that Gerard and Rita joined as purchasers or were only guarantors and mortgagees. This affects the characterisation of many later dealings. Mr Sellers, apparently adopting some view taken by a liquidator, charged against Gerard and Rita one half of each of a series of payments of $5,000 made to NAB on account of this loan: making the charges without also dealing with the advance appears incoherent. In Gerald and Rita's case, which I have upheld, the bank advance was applied for the benefit of Vito and Pasquale. On neither case can there be any reasonable ground for charging Gerard in the account with half of an instalment paid to the bank. Counsel for Gerard and Rita when opposing admission of Mr Sellers' evidence presented a number of striking critiques of Mr Sellers' report and opinions which I did not rule on, but which appear to me to require careful consideration because they may have great force. The report appears to me to have more of a character of an ambit claim than a claim put forward in a spirit of reason, or with moderation. The principal effect of Mr Sellers' evidence on my mind has been that it shows that any exercise of taking accounts would probably be extremely complex, and there would be a great deal in contention.

Gerard's authority to deal with the bank account and liability to account

152 Gerard and Rita deny in their pleadings that they are liable to account for the rent and deny that there have been demands to account for the rent.

153 After September 1996 there were years of communication, discussion and conflict among the brothers. Contentions that there should be a reconveyance to Vito did not emerge for about three years, but there was much else to discuss. There were financial transactions unrelated to the land at Five Islands Road, and these were not clearly recorded, and were not proved in detail. The debt to NAB, refinanced in October 1996, was not the only obligation which Gerard or perhaps Gerard and Rita had to face as a result of dealings with Vito and Pasquale. In some way which has not been clearly established, Vito and Pasquale continued to have a debt to a bank which was not related to Rainbow Constructions, and the home of the mother of the three brothers, Mrs Caterina Pennimpede, was still mortgaged to secure that debt. It will be recalled that in 1992 or 1993 the need had suddenly arisen for Gerard and Rita to find $10,000 so that the Sheriff would not eject Mrs Caterina Pennimpede from her home. That did not put an end to debts owed by Vito or Pasquale or both, secured on her home; such debt or debts still existed in the period 1996 to 1999. As guarantors, or in some other way which is not clearly shown, it came to be the responsibility or to be thought of by Gerard as the responsibility of Gerard and Rita to find money to pay off this debt, and secure Mrs Caterina Pennimpede in occupation of her home. Statements which Gerard sent to Pasquale show that Gerard used money derived from rent for payments on account of this debt, as well as for other purposes. Vito repaid Gerard and Rita some money they had paid off that loan. At one time Vito sued Gerard, or a business conducted by Gerard, in the Local Court to recover one of these payments, claiming that Gerard had misapplied a cheque payable to Vito, but did not go on with the proceedings when he learnt that he himself had endorsed the cheque to Gerard, showing that the cheque had not been misapplied. There were strong feelings and harsh expressions about these transactions.

154 Vito gave evidence (t.118-119) about these transactions, in a passage which is not at all clear, because it does not relate to any clear narration elsewhere of what the transactions were. Vito said (t.118) to the effect that it was agreed that another debt that Vito had incurred which was secured on his mother’s house would be serviced by his share of the rental. I am unable to follow this, because Vito was not entitled to any share of the rental. Vito also said to the effect that he felt that he was entitled to demand that Gerard and Rita should give back land held as security, although he also agreed that they should not do so while there were outstanding obligations. That is to say, the position that he took was not clear, or was not clearly expressed.

155 After the first three months (when Vito’s evidence shows that the rent was collected by Rainbow Constructions) the lessee paid the rent into the bank account opened by Gerard, Rita and Pasquale with National Australia Bank in September 1996 on the refinancing and new advance of $350,000. Gerard made many drawings from that account, of which he was only one of three co-owners. To be exact, the money that Gerard drew out of the account and dealt with was not rent. It was money from a co-owned bank account. In Croton v The Queen (1969) 117 CLR 326 there are observations by Barwick CJ at 334 and Menzies J at 340 about entitlement of one of several co-owners of a bank account to money drawn out of it. As with co-owners of property generally, each co-owner is entitled at Common Law to exercise ownership rights without being accountable to other co-owners. This position at Common Law was altered by legislation, but that legislation was repealed. Where co-ownership is an aspect of some fiduciary relationship among co-owners an equitable obligation to account for dealings with the co-owned property, whether a bank account or other property, is discerned readily, and there is probably such an obligation where an express or implied contractual arrangement establishes the purposes to which one co-owner is to apply moneys drawn out of the account.

156 Accountability among co-owners of property has an elaborate history. The history and the rules were considered at length in the judgment of Meagher JA in Forgeard v Shanahan (1994) 35 NSWLR 206. Much of the case law relates to co-owned real property: one co-owner did no injury to the right of other co-owners if he occupied and enjoyed the property, and was not accountable for his occupation or liable to pay anything in the nature of rent or occupation fee unless he had actively excluded a co-owner. For a long time a co-owner of real property was accountable to other co-owners by statute “for receiving more than comes to his just share or proportion” of proceeds of co-owned real property, under an Act of Queen Anne which operated in New South Wales until it was repealed in 1970. See Meagher JA at 221F-222G. (Meagher JA’s exposition of the law and its history is valuable; his animadversions against the members of the Law Reform Commission, who were known to me, are not). In Equity, however, co-owners were liable to account for profits if there was some relationship such as agency which gave rise to liability to account: liability was imposed readily in Equity; see discussion in Ryan v Dries (2002) NSWCA 3 at [56]-[75] (Hodgson JA). What does appear from Meagher JA's exposition is that, while there are a number of exceptions, the basic rule unless some exception is shown to apply is that co-owners are not liable to account to other co-owners for enjoying the advantages of ownership. A co-owner who claimed an equitable remedy would be required to give credit for advantages as a term of that remedy. Gerard is not claiming contribution from Pasquale towards the payments Gerard has made toward the secured debt to the National Australia Bank: he looked after himself by making sure that that debt was paid. No clear or well-established basis for liability to account in equity applies as between Pasquale and Gerard.

157 Vito said in evidence, “It was discussed that [Gerard] would receive the rent moneys until the debt is fully paid back". Vito made a further reference to what he said was an agreement for Gerard to collect the rent and keep all the rent (t.117, line 5) when he said to the effect that neither Pasquale nor Vito himself would collect or receive any money. I can well accept that Gerard told Vito he was going to keep the rent money and use it to pay the National Australia Bank debt. In his own interest, no one should have thought that he would do any less than that. However if Gerard made a statement like that, his statement could not be promoted into an agreement between Gerard and Vito about what Gerard would do with the rent money. As Vito had transferred his interest in the land to Gerard and Rita in September 1996, he was not a party to the bank account and was not entitled to rent. What happened to the rent and what Gerard did with it was none of Vito’s business. Vito is not entitled to any accounting for dealings with money in the account. Even if he were, application by analogy of the Limitation Act 1969 would mean that the account would not be carried back more than six years before Vito commenced proceedings in February 2004.

158 Neither Vito nor Pasquale has referred in evidence to any systematic records which could show what the dealings of the parties have been in a complicated array of debts, obligations and payments over many years. What they had to say about obligations of Gerard and Rita, and about dealings over the years, was presented in a highly combative way, but without useful details. A particularly plain demonstration of this is found in passages in written and oral evidence of Pasquale, where he sought to support evidence about payments by producing cheque butts, with no more than scraps of information written on the cheque butts, obviously an incomplete record of whatever it was that took place and of no value for showing the position overall. It can plainly be inferred that he did not have any better records. Vito did even less.

159 I infer that neither Pasquale nor Vito have business-like records or accounts dating from either the period when Rainbow Constructions was in business and had the obligation imposed by law on companies to keep proper records, or from later periods: if they had such documents, they would have produced them, and their accounting expert Mr Sellers would have been able to work by reference to them. It can be inferred confidently that they do not. The attempt to show through the evidence of Mr Sellers, who made a series of reports, that Gerard and Rita are accountable for a large sum was an entire failure. If the Court ordered accounts to be taken, it should reasonably be expected that a further exercise like those undertaken by Mr Sellers would be put forward in an attempt to charge Gerard and Rita with poorly defined claims on misconceived principles.

160 There has been a considerable degree of hardihood in the way in which Vito and Pasquale’s cases have been put forward, a particularly striking instance being that it was maintained on behalf of Pasquale that there was no ground on which Rainbow Constructions should have entered into a lease or accepted a liability in the nature of rent for its occupation and use of the land after it was sold to the parties. I take this as an indication of the quality of the contentions which would be put forward if accounts were ordered. Accounts would involve examining closely and attempting to establish in detail what has happened and what various parties' rights were in a number of complex intercurrent transactions. I see no reasonable ground to hope that reliable conclusions could be reached. The outcomes of what may have been further obligations incurred by Vito to Gerard after the transactions in September 1996 were already sufficiently confused by the year 2000 for Vito to bring misconceived proceedings against Gerard's firm in the Local Court, on the basis of an alleged misapplication of a payment which Vito came to accept he had made himself, on account of a debt, by endorsing a cheque.

161 Any accounting exercise is likely to bear much more heavily on Gerard, who has taken the active part, than on either Vito or Pasquale, whose contributions to events have been chaotic and, unlike those of Gerard, who has conducted a real estate business, are not reliably recorded. Any accounting exercise would soon become a detailed examination and critique of Gerard's dealings and records by persons who had no contribution to make themselves, and have nothing useful to expose to consideration, although they have shown themselves to be ready with criticism. Any accounting exercise would turn into an attack on all dealings by Gerard with money drawn from that bank account. In so far as there is a discretionary element in the decision whether or not to order an account to be taken, there are strong discretionary considerations against so ordering. The matters I have referred to give grounds for fearing that Vito or Pasquale or both would not participate in the exercise on a proper basis and that it would be contentious to an oppressive degree. If an accounting of dealings by the parties were ordered I am satisfied that it would not be a fair process.

162 Pasquale was one of the three customers of the bank account into which, from the time it was opened in 1996 onwards, all rents were paid. Gerard was in the practical position of controlling the disposition of moneys out of the account from the time it was established. Although this was not explained by evidence, he must have been in this position because of authority to operate the bank account conferred on him by Pasquale (and also by Rita). No arrangement or agreement between Gerard and Pasquale conferring management authority on Gerard has been proved. The ground put forward in Pasquale's case was that Gerard and Rita are liable to account in the character of mortgagees, and it has been established that this is incorrect. It was open to Pasquale, if he wished to do so, to countermand the authority given to the bank for Gerard to operate the account on his own. Obviously he did not do so, but he allowed Gerard to make drawings from the account at all times, indeed so far as appears, up to the present.

163 Gerard in fact acted as owner of the property in dealings with successive tenants, with Mr Scavarelli and with other persons relevant to repair and management. His doing this is attributable to his position and entitlement as one of the co-owners, not to agency authority, which he did not need because he was a co-owner, and his doing this is not attributable to a fiduciary relationship. Gerard in fact gave information about his dealings to Pasquale, by sending documents headed "Rental Statement", which show how Gerard dealt with money drawn from the account. The statements which Gerard from time to time gave to Pasquale were no more than statements of expenditure, and were not and do not purport to be accounts for all Gerard's dealings with money drawn from the bank account: plainly he applied much of it for his own benefit, as well as applying much of it towards payment of debts. For years Gerard made no distributions to Pasquale. Gerard decided how much was to be paid to NAB and charged 39.5% of what he paid NAB against Pasquale and 60.5% against himself. He credited Pasquale with 25% of the gross rent and charged Pasquale 25% of the outgoings other than payments to NAB. In any one year there could be no money left over to be paid or credited to Pasquale because Gerard had decided to pay as much as he could to NAB. This was something Gerard was entitled to do, and it tended to free him from the bank debt sooner rather than later. Eventually in 2002, Gerard gave Pasquale $19,535, calculated on the basis which Gerard then put forward. A claim by Pasquale for the Court to order an account for periods during which Gerard acted in this way is a marked departure from the state of affairs which existed in those years, in which Gerard continued to make drawings and dispose of the proceeds of the bank account in the way he thought right, and told Pasquale about it from time to time, and Pasquale did not intervene in the way in which he was entitled to intervene to change what was taking place.

164 It is important that Gerard acted in this way as one of the co-owners of the money in the bank account. Gerard was not given agency authority on behalf of all three co-owners to draw money out of the account and to use it towards payment of their shared obligations by any arrangement with Pasquale. The money in the bank was his money just as it was the money of the other co-owners, and when he had drawn it out it was his to dispose of. He was not acting as the manager of affairs relating to the lease, or as an agent to look after Pasquale's affairs. He directed money towards payment of debts for which others shared responsibility with him, and in his own interest. There was no relationship which made Gerard an agent, a trustee, a fiduciary or in other way responsible to Pasquale for what he drew out of the account. The only event which brought this state of affairs to an end was the commencement by Pasquale of his cross-claim on 25 October 2004, and his claim for taking accounts: and in my judgment, any accounts to be taken should deal only with dealings with the proceeds of the bank account from that time on. That is to say, I treat making the Cross-claim as having brought to an end Pasquale's participation in or acquiescence in Gerard's exercise of his ownership rights in the money in the bank account in his own interest solely. If Gerard had any liability to account before then I would have limited the process before ordering that accounts be taken. It would have been appropriate to impose stringent terms on the party entitled to an account requiring admissions and disclosures: it may have been appropriate to assess the remedy awarded by less detailed and precise means. An unreasonably contentious accounting can defeat justice, not attain it.

165 As Gerard acted as if he were obliged to account to Pasquale, and purported to do so, I regard it as appropriate to review his Rental Statements and correct obvious errors in them, having regard to his conduct and apparent acceptance of that responsibility although the ground on which he is liable to account is not clear.

166 If I had ordered accounts against Gerard they should be limited to obligations arising on or after 25 October 1998, six years before the commencement of Pasquale's Cross-claim on 25 October 2004.

Gerard's explanations and Rental Statements

167 On behalf of Pasquale, dissatisfaction with the first four years Rental Statements (to 30 June 2000) was expressed in a letter from Messrs Higgins & Dyson Solicitors on behalf of Pasquale to Messrs AR Yates & Co acting for Gerard dated 4 September 2000 (Gerard's affidavit at 109). The letter asserted that Gerard had collected rent as agent for the parties. This is clearly incorrect: Gerard did not collect the rent, which the tenants paid into the co-owned bank account, and Gerard was not an agent for Pasquale: they were co-owners. This letter demanded payment to Pasquale of a one quarter share of the net rent due and payable and made contentions about how much that was.

168 One contention which can be disposed of at once relates to the amount of gross rent received in the year to 30 June 1997. Gerard's statement, (affidavit p 123) shows the gross rent received to be $76,282.53 which was less than $98,500 the rent for that year according to the lease. The bank account was not opened until September 1996 and rent for the early months of the lease was not paid into the account.

169 Enclosed with Messrs Higgins Dyson's letter was an account which should be understood as a counterstatement to rental statements which Gerard had produced. Applying a limitation period of 6 years to Pasquale’s Cross-claim, I need not consider any liability for dealings before 25 October 1998.

170 The Rental Statements are annexed to his principal affidavit (at pages 123-130), one for 1 July 1996 to 30 June 1997 and then for each year to 30 June 2003. Another one deals with part of the year to 30 June 2002, but it can be disregarded. To illustrate what follows I set out Gerard's Rental Statements for the years ending 30 June 1998 and 30 June 1999.

1/155-157 Five Islands Rd Unanderra

25% Ownership Pasquale Pennimpede	75% Ownership G & R Pennimpede	TOTAL
Gross Rent Received	25399.63	76198.90	101598.53
Less Expenses
G & R Pennimpede	38950.00	38950.00
Wollongong City Council	1481.00	4443.00	5924.00
Sydney Water	140.97	422.91	563.88
Insurances	269.52	808.56	1078.08
NAB House Loan	11161.00	11161.00
NAB Charges	138.74	212.51	351.25
NAB Interest	17186.55	26323.72	43510.27
19216.78	82321.70	101538.48
Excess of Payments	6122.80
Shortfall in Payments	(6122.85)
ACCOUNT CLOSING BALANCE	60.05CR

171 For the year to 30 June 1999 Messrs Higgins Dyson differed from Gerard's statement in these respects:

(a) The amount charged as rent receivable was $100,486.55 (whereas Gerard stated that the gross rent received was $101,598.53).

(b) Pasquale's statement brought into account outgoings to Wollongong City Council, Sydney Water, Blackbutt Insurance Brokers, and NAB for bank charges interest totalling $51,427.57 (and these also appeared as expenses in Gerard's Rental Statement). However Pasquale did not give Gerard credit for these items in Gerard's Statement:

(i) G and R Pennimpede $38,950

172 The main reason for different outcomes relates to the allocation of NAB charges and NAB interest. In Messrs Higgins Dyson's calculations these are allocated one quarter against Pasquale and three quarters against Gerard. However, Gerard allocates them 39.5% against Pasquale and 60.5% against Gerard. In Pasquale's calculations, Pasquale was entitled to $12,264.74 on account of the rent for this year, and on Gerard's calculations Pasquale was entitled to $6,122.85, which he had not been paid.

Allocating 25% or 39.5% to Pasquale

173 Gerard's position with respect to choosing 39.5% as the appropriate allocation of liabilities relating to the bank loan was explained by him by reference to a sheet of calculations Annexure L (affidavit p115) and further explained by passages in his evidence. His sheet of calculations is extremely difficult to understand. I will restate what is involved.

174 Gerard's position is to this effect. The debt to NAB of $350,000 secured by the mortgage of October 1996 represented $202,000 advanced on 10 June 1993 and applied for the purposes of Pasquale and Vito. For this part of the debt Gerard was a guarantor in dealings between him and Pasquale and Vito, although he was a principal debtor in dealings between him and the bank. The bank debt was increased by further advances until by September 1996 it was in the order of $324,000 or $325,000, and it was then increased to $350,000 to pay unpaid rates and other outgoings on the land. For the $350,000 borrowed by Gerard, Rita and Pasquale in the refinancing, Gerard and Rita continued to have the character of sureties of $202,000 and of principal debtors for the remaining $148,000. Gerard and Rita were responsible for 50% of the $148,000, that is, $74,000, while Pasquale and Vito were responsible for the other 50% of $148,000; Pasquale and Vito were also responsible for $202,000 which had been borrowed for their benefit: a total of $276,000. However, Gerard and Rita had taken over Vito's position, being the responsibility for $138,000, while Pasquale continued to have responsibility for the other half of $276,000, that is, $138,000. $138,000 is 39.5% of $350,000.

175 Pasquale’s position is to the effect that he was owner of a one-quarter share when the $350,000 financing was obtained in September 1996 and only one quarter of the capital and interest payments should be charged to him, in accounting between him and Gerard and Rita.

176 In my opinion Pasquale’s position is wrong because it treats him as having escaped from the character of principal debtor for $210,000 of the $350,000: but the advance of $210,000 was clearly traceable through all refinancings as an element of what became the debt of $350,000. (Gerard’s calculations speak only of $202,000, not $210,000). Gerard’s position is wrong because it treats Gerard and Rita as having taken over responsibility for half of $202,000, but there is no reason why Pasquale’s liability for all the $202,000 (or all the $210,000) would have been reduced by the transaction with Vito. However Gerard has dealt with affairs for many years on the 39.5% to 60.5% basis and he makes no claim for accounts: I will not reopen this, but I will apply the basis Gerard has long adopted.

177 For these reasons I accept that Pasquale’s just proportion of the money drawn from the bank account for the year to 30 June 1999 is $6122.85 as shown in Gerard’s Rental Statement.

178 Higgins Dyson put Pasquale's claimed entitlement for the year to 30 June 2000 at $14,575.16, and in Gerard's calculation Pasquale's entitlement for that year was negative - ($1,603.57). Pasquale's calculation again understated the rent as Gerard showed the gross rent at $107,689.54. Pasquale's calculations did not state the correct bank charges but merely repeated the bank charges for the previous year, understating them. The only difference in substance was the proportions in which NAB charges and interest should be allocated against Pasquale. I accept Gerard's calculations for the year to 30 June 2000.

179 Messrs Higgins Dyson's contentions went on to deal with later rental statements for the years to 30 June 2001, 30 June 2002 and 30 June 2003. The amounts of outgoings and payments to NAB are not reasonably open to contention, and the same difference in principle relating to the allocation of payments to NAB affects the calculated entitlement of Pasquale for those years.

180 For the year to 30 June 2001, on Gerard's calculation Pasquale's entitlement was negative ($6,263.72) but on Pasquale's reasoning he would be entitled to $4,566.70. I accept Gerard’s calculations for the year to 30 June 2001.

181 Gerard's statement for the full year to 30 June 2002 is at his affidavit p 129. The statement for part of the year at p 128 should be disregarded. As with the previous year, the different approach to allocation of repayments to the bank produces different results. Repayments to NAB were $63,913.08 so when Gerard allocated 39.5% or $25,245.66 of this against Pasquale he calculated Pasquale's entitlement as negative ($1,457.83). On Pasquale's approach, the amount allocated against him should have been $15,978.27 which would increase his entitlement by $9,267.39 to $7,810.36. I accept Gerard’s calculations for the year to 30 June 2002.

182 The Rental Statement for the year to 30 June 2003 (affidavit p 130) presents the same problems and a further problem. The further problem is that Gerard charged Pasquale with $19,535 which Gerard paid to Pasquale in March 2002 in respect of what Gerard calculated were his entitlements to rents for 1997 to 2002. The payment of $19,535 has no place in the calculation of Pasquale's entitlement for a share of the rents for the year to 30 June 2003. If the rental statement is adjusted in this obviously necessary way it shows an entitlement of Pasquale to $897.77 and not a negative ($18,637.23). I accept Gerard’s calculations for the year to 30 June 2003, with this obviously necessary correction.

183 In my opinion this consideration of Gerard’s Rental Statements on the basis of the criticism of them put forward by Messrs Higgins Dyson has dealt sufficiently with any claim Pasquale has for accounts for that period. There is not sufficient substance in any disputed matter relating to drawings traceable to rents to 30 June 2003 to warrant further inquiry. In my opinion there is no further requirement or entitlement to reopen or further examine Gerard’s accounts to 30 June 2003. Pasquale was entitled to a negative ($1457.83) in the year to 30 June 2002 and to $897.77 in the year to 30 June 2003: a negative balance ($560.00). This should be charged against Pasquale when accounts are taken.

184 It is appropriate to order that accounts be taken between Gerard and Pasquale with respect to rents collected and dealings related to the property from 25 October 2004 until the date of the order appointing trustees for sale. Gerard’s Rental Statements and evidence end at 30 June 2003. He can begin his accounts at 1 July 2003 if he wants to. There may be some other matters of account which are not dealt with in Gerard's rental statements. These include any credit to which Gerard may be entitled against Pasquale in respect of:

185 This is plainly a case for the appointment of trustees for sale under s 66G of the Conveyancing Act 1919 (NSW), as Gerard and Rita ask. I will proceed to order accordingly.

186 Orders:

On the Amended Statement of Claim of Vito Pennimpede:

(1) Give judgment for the defendants

(2) Order that the plaintiff pay the costs of the proceedings of the First and Second Defendants.

On the Second Amended First Cross-Claim of Pasquale Pennimpede:

(i) Payments as guarantor of debts secured on Mrs. Caterina Pennimpede’s house;

(ii) Dealings with Mr. Scavarelli;

(iii) Any other repairs and expenditure relating to the land;

that all necessary accounts be taken for the purposes of the inquiry, and that judgment be entered for recovery by the party entitled to the balance if any of the sums certified.

(4) Direct that within 28 days Gerard Pennimpede and Rita Pennimpede file and serve accounts and Points of Claim: that within 56 days Pasquale Pennimpede file and serve Points of Defence showing which items are disputed and the grounds of dispute.

(5) Appoint Friday 1 May 2009 at 9.30am before me for a directions hearing on the Inquiry.

(6) Reserve costs of the First Cross Claim

(7) Save as aforesaid dismiss the Cross Claim

Upon the Second Cross Claim of Gerard Pennimpede and Rita Pennimpede:

(8) Order pursuant to section 66G of the Conveyancing Act 1919 that Clayton David Childs and Murray Charles Reid be appointed trustees of the property known as 155-157 Five Islands Road, Unanderra (sometimes described as at Cringila), in the State of New South Wales, being the land comprised in Certificate of Title folio identifier 3/SP47101.

(9) Order that the said land do vest in the said trustees subject to any incumbrances affecting the entirety of the said lands, but free from incumbrances (if any) affecting any undivided share or shares therein, to be held by the said trustees upon the statutory trust for sale under Division 6 of Part IV of the Conveyancing Act 1919.

(10) Order pursuant to section 66I of the Conveyancing Act 1919 that each of the cross-claimants and the first cross defendant herein shall be at liberty to purchase the land whether at auction or by private treaty, upon such terms as the said trustees may think fit as to seeing off or accounting for the purchase money or any part thereof instead of paying the same.

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15/06/2009 - This is on the internet under V for Vitor, and should be P for Pennimpede. - Paragraph(s) In catchwords

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Pennimpede v Pennimpede [2009] NSWSC 85

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CITATION:	Pennimpede v Gerard Pennimpede & 2 Ors [2009] NSWSC 85 This decision has been amended. Please see the end of the judgment for a list of the amendments.
HEARING DATE(S):	17-26th November 2008
JUDGMENT DATE :	27 February 2009
JUDGMENT OF:	Bryson AJ
DECISION:	At paragraph [186] Orders: On the Amended Statement of Claim of Vito Pennimpede: (1) Give judgment for the defendants (2) Order that the plaintiff pay the costs of the proceedings of the First and Second Defendants. On the Second Amended First Cross-Claim of Pasquale Pennimpede: (3) Order that an inquiry be conducted to ascertain and certify what sums ought to be paid by the Cross Defendants to the Cross Claimant and by the Cross Claimant to the Cross Defendants in relation to the land in folio 3/SP47101 and dealings and claims relating to that land since 25 October 2004; that $560.00 be charged against Pasquale Pennimpede in respect of dealings before 1 July 2003; that credits be allowed to Gerard Pennimpede and Rita Pennimpede for such amounts if any as may be justly allowable to them or either of them against Pasquale Pennimpede for: (i) Payments as guarantor of debts secured on Mrs. Caterina Pennimpede’s house; (ii) Dealings with Mr. Scavarelli; (iii) Any other repairs and expenditure relating to the land; that all necessary accounts be taken for the purposes of the inquiry, and that judgment be entered for recovery by the party entitled to the balance if any of the sums certified. (4) Direct that within 28 days Gerard Pennimpede and Rita Pennimpede file and serve accounts and Points of Claim: that within 56 days Pasquale Pennimpede file and serve Points of Defence showing which items are disputed and the grounds of dispute. (5) Appoint Friday 1 May 2009 at 9.30am before me for a directions hearing on the Inquiry. (6) Reserve costs of the First Cross Claim (7) Save as aforesaid dismiss the Cross Claim Upon the Second Cross Claim of Gerard Pennimpede and Rita Pennimpede: (8) Order pursuant to section 66G of the Conveyancing Act 1919 that Clayton David Childs and Murray Charles Reid be appointed trustees of the property known as 155-157 Five Islands Road, Unanderra (sometimes described as at Cringila), in the State of New South Wales, being the land comprised in Certificate of Title folio identifier 3/SP47101. (9) Order that the said land do vest in the said trustees subject to any incumbrances affecting the entirety of the said lands, but free from incumbrances (if any) affecting any undivided share or shares therein, to be held by the said trustees upon the statutory trust for sale under Division 6 of Part IV of the Conveyancing Act 1919. (10) Order pursuant to section 66I of the Conveyancing Act 1919 that each of the cross-claimants and the first cross defendant herein shall be at liberty to purchase the land whether at auction or by private treaty, upon such terms as the said trustees may think fit as to seeing off or accounting for the purchase money or any part thereof instead of paying the same. (11) Order that the cross-defendants pay the cross-claimant’s costs of the Second Cross-claim.
CATCHWORDS:	MORTGAGES – claim that informal arrangements among brothers gave purchase of 50% interest in land by one brother (Gerard) and wife the character of a mortgage which the other brothers could redeem – on extended consideration of the facts, the transaction was a purchase by Gerard and wife of 50% share as beneficial owners – further disputes of fact relating to character of later disposition and transfer by owner of 25% (Vito) to Gerard and wife and whether Vito could require reconveyance – found he could not. Factual disputes relating to accounting for proceeds of rent. Consideration of liability of a co-owner to account.
LEGISLATION CITED:	Conveyancing Act 1919, s 66G Limitation Act 1969
CATEGORY:	Principal judgment
CASES CITED:	Australian Securities and Investments Commission v Rich (2005) NSWCA 152 Croton v The Queen (1969) 117 CLR 326 Forgeard v Shanahan (1994) 35 NSWLR 206 Hurt v Freeman (2002) NSWSC 264 Jones v Dunkel (1950) 101 CLR 298 Louth v Diprose (1992) 175 CLR 621 Makita v Sproules (2001) 52 NSWLR 705 Muschinski v Dodds (1985) 160 CLR 583 Ryan v Dries (2002) NSWCA 3 Watson v Foxman & Ors (1995) 49 NSWLR 315
PARTIES:	Vito Pennimpede (Plaintiff) Gerard Pennimpede (First Defendant) Rita Pennimpede (Second Defendant) Pascale Pennimpede (Third Defendant/Cross Claimant)
FILE NUMBER(S):	SC 1372/04
COUNSEL:	Michael Brookes Evans (Plaintiff) David Smallbone (First and Second Defendants) David Raphael (Third Defendant/Cross Claimant)
SOLICITORS:	Kells The Lawyers (Plaintiff) Russell McLelland Brown (First & Second Defendants) Autore & Associates (Third Defendant)