R K Property Holdings Pty Ltd v BCOOL Pty Ltd
[2014] VSC 548
•28 October 2014
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
S CI 2012 02682
| R K PROPERTY HOLDINGS PTY LTD (ACN 120 088 959) | Plaintiff |
| v | |
| BCOOL PTY LTD (ACN 077 803 162) | Defendant |
and
| BCOOL PTY LTD (ACN 077 803 162) | Plaintiff by Counterclaim |
| v | |
| R K PROPERTY HOLDINGS PTY LTD (ACN 120 088 959) | First Defendant by Counterclaim |
| and | |
| ROBERT KUKAS | Second Defendant by Counterclaim |
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JUDGE: | ALMOND J |
WHERE HELD: | Melbourne |
DATES OF HEARING: | 25, 26, 27, 28 August, 1, 2, 8 September 2014 |
DATE OF JUDGMENT: | 28 October 2014 |
CASE MAY BE CITED AS: | R K Property Holdings Pty Ltd v BCOOL Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2014] VSC 548 |
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JOINT VENTURE – Property developments – No written agreement – Whether parties in breach of joint venture agreement – Determination of parties’ entitlement to the balance of joint venture proceeds – Whether agreement on project management fees – Determination of fair and reasonable fee – Whether the parties agreed that the apartments allocated personally would be of equal value – Whether joint venture liable for costs in excess of agreed construction costs – Whether parties to joint venture obliged to equally share payment of tax liability.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr A P Dickenson | Johnston Construction Lawyers |
| For the Defendant | Mr W G Gillies | RB Legal Pty Ltd |
HIS HONOUR:
This proceeding concerns a dispute between joint venturers who developed properties in Toorak and South Yarra in Melbourne, Victoria.
The plaintiff, R K Property Holdings Pty Ltd, is the corporate entity of Mr Robert Kukas, a builder and property developer. The defendant, BCOOL Pty Ltd, is the corporate entity of Mr Khali Khouri, who owned a furniture business called Poliform.
Mr Kukas and Mr Khouri became acquainted in the course of running their respective businesses and decided to develop property together. Over a four-year period from November 2005 to November 2009, they successfully developed property including a three-level residence at 5 Ultimo Court, Toorak (‘Ultimo project’) and five residential apartments at 9 Shipley Street, South Yarra (‘Shipley project’).
There was no written joint venture agreement. The arrangement was simple, each party would contribute according to their profit share. In the case of the Ultimo project, the percentage split was 60 per cent for the Kukas interests and 40 per cent for the Khouri interests. In the case of the Shipley project, the percentage split was 50/50.
Both Mr Kukas and Mr Khouri had some involvement at the design stage of the respective projects, however, Mr Kukas had the predominant role in their execution. He was directly involved in planning, design, construction, and project management. Mr Khouri’s role was predominantly as an investor. There are no issues in dispute in this proceeding concerning the structure, object and purpose of the Ultimo and Shipley projects or (broadly) their implementation. Each project was carried through to completion.
The parties to the proceeding each allege that the other is in breach of the joint venture agreement and seek orders including compensation and the taking of accounts.
The parties agree upon their respective contributions and drawings but cannot agree upon discrete matters, which has meant that a reconciliation of the entitlements to the balance of the proceeds of the joint venture cannot occur. The balance of the proceeds of the joint venture is represented by an amount of money in a solicitors trust account (approximately $250,000), and the net equity in apartment 3 of the Shipley project.
The issues remaining in dispute may be summarised in the following questions:
(1)Were there any Goods and Services Tax (‘GST’) input credits for the joint venture projects credited to the RK Property Holdings Pty Ltd account but not transferred into the joint venture account?
(2)Did the parties agree that the plaintiff would be paid any project management fees for the Ultimo project and if so, what amount?
(3)Did the parties agree that the plaintiff would be paid a fee based on an hourly rate for project management of the Shipley project? If yes, what was the agreed rate? Alternatively, what is a fair and reasonable fee?
(4)Was there an agreement that the apartments, which were allocated personally to Mr Kukas and Mr Khouri in the Shipley project, would be of equal value?
(5)Are the parties to the joint venture liable for project costs in excess of the agreed construction costs of the Ultimo and Shipley projects?
(6)Are the parties to the joint venture obliged to share equally the General Interest Charge of $65,319.57 for late payment of GST?
(1)Were there any GST input credits for the joint venture projects credited to the RK Property Holdings Pty Ltd account but not transferred into the joint venture account?
On this issue, Mr Kukas gave evidence that: he opened a National Australia Bank Cash Maximiser Account in the name of RK Property Holdings Pty Ltd (as trustee for the Robert Kukas Family Trust) for the purpose of depositing GST relating to the Shipley project; GST credits from the Australian Taxation Office were subsequently deposited into the account by the Australian Taxation Office;[1] and that those tax credits were transferred to the joint venture account for the Shipley project (‘Shipley account’). Mr Kukas said that all GST credits which were related to the Shipley project were transferred to the Shipley account and that to the best of his knowledge neither he nor any company he controlled held any GST refunds in relation to the Ultimo or Shipley projects.
[1]RK Property Holdings Pty Ltd bank account statements, bank deposits made on 16 September 2008, 31 October 2008 and 20 January 2009, Court Book (‘CB’) 3462, 3465, 3468.
This evidence was substantially corroborated by contemporaneous bank statement entries[2] and was not challenged in cross-examination; nor was any contrary evidence led for the defendant. I have no reason to doubt the evidence of Mr Kukas on this issue. Although GST credits were in the first instance credited to an account associated solely with Mr Kukas, contemporaneous bank records demonstrate that corresponding amounts were transferred to the Shipley account in a timely fashion. There is no evidence that any GST input credits for the Ultimo project were credited to the RK Property Holdings Pty Ltd account.
[2]Bank statements, CB 3462–3501.
Accordingly, the answer to Question 1 is no.
(2)Did the parties agree that the plaintiff would be paid any project management fees for the Ultimo project and if so, what amount?
During final submissions, counsel for the defendant conceded that the plaintiff was entitled to project management fees of $144,896 in relation to the project management of the Ultimo project. Accordingly, it is unnecessary to answer this question.
(3)Did the parties agree that the plaintiff would be paid a fee for project management of the Shipley project? If yes, what was the agreed rate? Alternatively, what is a reasonable fee?
Mr Kukas gave evidence that he and Mr Khouri agreed to pay the plaintiff a project management fee based on an hourly rate for the time spent on each project. According to Mr Kukas, the rate charged per hour for the Ultimo project was $45, which he increased to $55 an hour when the Shipley project commenced. Mr Kukas said that Mr Khouri was unable to pay Mr Kukas the project management fees at the time so the parties arranged that Mr Khouri could borrow from the project and it was agreed that ‘the project would lend him the money in order to pay for that wage and that would all be put under his column, his responsibility’.[3] Mr Kukas agreed that he (Mr Kukas) was in effect charging his time out at the rate of $110 per hour. When he did a reconciliation, he simply charged the defendant $55 an hour, which reflected half the fee of $110 an hour.
[3]Transcript 196:27–31
Mr Kukas denied that he and Mr Khouri had only ever agreed to an hourly rate of $35 an hour; rather that it was always $45 an hour which was increased to $55 an hour when the Shipley project commenced.
No invoices were provided to the defendant for project management fees. The only record of the time spent on the project was in a diary, in which Mr Kukas kept a record of time spent on project management. Mr Kukas gave evidence that he no longer had the diary in which the record was kept. According to Mr Kukas, there had been much documentation which passed between Mr Khouri and himself relating to project management fees, in spreadsheets provided from time to time. Mr Kukas said the project management fee was clearly outlined and there was no complaint by Mr Khouri about his hours or how he was to charge for them, until 2009 when costs started escalating, at which point Mr Khouri started questioning the project management fee and tried to cap it.
Mr Kukas said he spent approximately 27 months building the Shipley project apartments and agreed it would be fair to say that he worked for approximately 108 weeks. According to Mr Kukas: he worked a minimum of 12 hours per day six to seven days a week; the site was open a minimum of six days a week and probably a minimum of two Sundays a month and sometimes all Sundays; and he did not know what that equated to but he charged a fair rate on the basis of the hours that he worked on the project, which varied from month to month. He agreed that during the 27 month period he took overseas holidays to visit his daughter who lived in America, and that he would visit two to three times a year for 10 days or up to 2½ weeks. Mr Kukas also agreed that during the course of the two years of the project he took skiing holidays at domestic ski resorts. No evidence was given as to the duration of these holidays. Although in the circumstances it is difficult to be accurate, I am satisfied that Mr Kukas spent eight weeks a year on holidays or a total of 16 weeks during the 108 week period that he project-managed the Shipley project.
Mr Kukas gave evidence that a figure of $35 per hour was discussed (half of $70 per hour). Mr Kukas said:
I disagreed with the $70 an hour, seeing that we were paying our plumbers and roofing contractors between $75 and $95 an hour and that’s when I suggested that $90 would be fair and half of the $90 – this is pre-Ultimo, and that was agreed…He acknowledged it. He acknowledged with a nod and hands in his pocket and said yes.
That’s to the $90---Yes, of which he would pay half and I would pay the other half.[4]
[4]Transcript, 232:24–28, 233:9–13.
Conversely, Mr Khouri gave evidence that the rate agreed in relation to the Ultimo project was $70 an hour, and that the rate was agreed upon in about 2007 at the time the parties decided to move the proceeds of the Ultimo project into the Shipley project. According to Mr Khouri, he would contribute 50 per cent (i.e. $35 per hour) from his profit share and that Mr Kukas would contribute ($35 per hour) in kind as the project manager.
Mr Khouri said he became concerned about the amount of money that Mr Kukas was withdrawing, and that there were emails exchanged where Mr Khouri was trying to establish where the fee was heading as he was concerned about the total amount that was withdrawn. He suggested that the fee for the Shipley project be capped at $250,000. Mr Khouri gave evidence to the effect that he was given no details of hours worked, and although he was aware of how much Mr Kukas was withdrawing, there were no calculations showing how the amount was derived. He said he understood that Mr Kukas was busy on the project and he never mistrusted him as they were good friends.
Mr Khouri said although there were discussions back and forward on the issue of the hourly rate there was no firm agreement reached for a project management fee higher than $35 an hour (being 50 per cent of the hourly rate of $70).
In cross-examination, Mr Khouri agreed that Mr Kukas was entitled to a project management fee of $250,000 for the Shipley project. His dispute on this issue related to the amount paid in excess of $250,000.
Resolution
During the course of the trial, it became common ground that Mr Kukas was entitled to a fee for project management on the Shipley project. It is evident that the parties took a very casual approach to the joint venture arrangements. This is perhaps unsurprising, as there was a mutual trust and respect between them as friends. The only document referred to at trial which refers to any agreement about an hourly rate was an email exchange between Mr Khouri and Mr Kukas at the end of December 2008 where the rate of $45 per hour and the notion of capping the fee on Shipley to $250,000 was mentioned. In the exchange Mr Kukas refers to charging $45 an hour for the Ultimo project, asserting that it was an appropriate fee given the size of the project but for the Shipley project the rate was $55 an hour, which Mr Kukas asserted was a very reasonable fee, given the size and complexity of the project.[5] Essentially, this email exchange does no more than set out the parties’ respective positions on what would be an appropriate hourly rate for the Shipley project. Mr Khouri adhered to the view that $45 per hour was an appropriate rate but that it should be capped at $250,000. Mr Kukas adhered to the view that a reasonable rate was $55 per hour uncapped.
[5]Email exchange between Robert Kukas and Khali Khouri, 22 December 2008–12 January 2009, CB 1845–1849.
It seems to me that this email exchange is the best evidence that the parties ultimately did not reach final agreement on:
(a)increasing the hourly rate of $45 which had been charged on the Ultimo project;
(b)whether the amount for the Shipley project management fees should be capped; and
(c)what would be a fair and reasonable rate for project management for the Shipley project.
In order to arrive at a reasonable rate in the circumstances of this case it is necessary to appreciate that Mr Kukas worked in two capacities: he fulfilled roles as construction manager and project manager on each project. Mr David Stewart, quantity surveyor of WT Partnership, gave evidence as to the nature of the respective roles. In relation to construction management, Mr Stewart said:
“[C]onstruction management” to myself and to my firm implies the day-to-day management of the subcontractors on site. It’s often provided by a head contractor but on a project where you would be doing it as yourself, as I understand it, opening up the site, cleaning the site, day-to-day liaising on the site and I may use this a number of times but it is an intermediate level role. So it means open the gates and liaising with the subcontractors, making sure materials are ordered and all that sort of stuff and that the site remains clean. So that’s a construction management role.[6]
[6]Transcript, 147:5–17.
In relation to project management, Mr Stewart said:
A project management role is a role where you would be taking on behalf of an owner full control of the site. In other words, it is a senior role and it requires from months before the builder gets there liaising with the land sales, government agencies, planning. You would take it right the way through to dealing with tendering processes with the head contractor, right the way through construction, liaising with financiers, agents, et cetera, right to the end and then listening with owners’ corporations for tax and handovers, effectively, for a year after completion. So the project manager role is a fairly significant role which will be carried out for a specific project.[7]
[7]Transcript, 147:17-30.
Mr Stewart said it would be reasonable to have a project manager for a project such as the Shipley project, and that a reasonable fee for an appropriately experienced project manager on such a project would require payment of ‘no less than $150,000 a year….So between $150,000, $200,000 would be my estimate of what a good project manager which is engaged by the developer would be paid’.[8] Mr Stewart’s evidence on this point was not challenged by the defendant and I propose to rely upon it as a guideline for ascertaining a reasonable fee.
[8]Transcript, 150:25–31.
In this case, the builder engaged on the Shipley project was the same entity as the project manager. In practical terms, Mr Kukas, as project manager, was managing himself (in his capacity as builder), and for and on behalf of himself (in his capacity as a half-owner). Although the project was of some complexity, this would have simplified the task of project management to some extent.
In the circumstances, I propose to select a remuneration rate at mid-point of the range suggested by Mr Stewart, namely $175,000 per annum or $3,365 per week.
In my view, it is not appropriate to attempt a calculation on the basis of an hourly rate multiplied by the number of hours worked on site in the absence of any documentary records supporting the hours worked. The only document which contains such a record, namely Mr Kukas’s diary, has been mislaid.
Mr Kukas gave an estimate of the hours he worked each week. Although I accept his estimate was based on a genuinely held view of the hours spent on project management, I do not accept that it is a reliable estimate in the absence of any objective corroborative material. It must be borne in mind that from June 2006 until (approximately) December 2007, Mr Kukas was simultaneously managing the Ultimo and Shipley projects. I have no doubt that he worked very hard on both projects, but I do not accept that he can have been working 10 hours a day six or seven days a week project-managing the Shipley project at the same time as he project-managed the Ultimo project. Given the absence of any documentary record of hours worked, it is preferable in my view to approach the matter on the basis of a reasonable annual fee for a suitably experienced project manager for a project of this type.
I find that Mr Kukas worked as a project manager on the Shipley project for a total of 92 weeks (being 108 weeks less 16 weeks while he was absent on holidays). Applying the rate of $3,365 per week produces a total of $309,580. In my view, that is a fair and reasonable project management fee in the circumstances of this case.
Accordingly, the answer to Question 3 is that the parties did not agree on the fee for project management of the Shipley project. A fair and reasonable fee for project management of the Shipley project is $309,580.
(4) Was there an agreement that the apartments, which were allocated personally to Mr Kukas and Mr Khouri in the Shipley project, would be of equal value?
In substance, Mr Khouri’s position is that there was an agreement that the value of the apartments in the Shipley project, which were allocated personally to Mr Kukas (apartment 5), and to Khouri (apartment 2), would be of equal value.
Mr Kukas says there was no such agreement and referred to the historical search statement of Land Victoria, which sets out that Mr Kukas and his wife became tenants-in-common as to 255 of the total of 1,000 equal undivided shares and Mr Khouri became a tenant-in-common as to 203 of a total of 1,000 equal undivided shares.[9] Mr Kukas said, in effect, that the shareholdings were proportionate to the floor areas of each apartment and were derived from town planning drawings and that 255 undivided shares relates to a floor area of 255 square metres for apartment 5, and that 203 undivided shares relates to the floor area of 203 square metres for apartment 2. It was not disputed that apartment 5, registered to Mr Kukas’s interests, was about 50 square metres larger than apartment 2, which was registered to Mr Khouri. Mr Kukas said that as the Shipley project incurred costs, they were proportionally allocated to each apartment by reference to the relevant floor area of the apartment. As apartment 5 is bigger than apartment 2, it follows that more costs were allocated to apartment 5.
[9]Historical search statement from Land Victoria, CB 3424.
Mr Kukas gave evidence that extra things for apartment 2 such as a pool and barbeque area and internal items such as a glass door and a barbeque were paid for by Mr Khouri. No contribution was sought for these costs at the time. Several years after the project had been completed, Mr Khouri asked to be reimbursed from the project in respect of a pool permit and the barbeque.
On the subject of discussions about the ownership of apartment 2 and apartment 5, Mr Khouri said:
The first time we discussed it was when the plans were presented from, I think it was Michael Factor at the time, who was the architect and Rob had already basically suggested that he was going to take apartment 5 and I then, because of the garden – I then selected apartment 2. Having said that, I think it’s important that it was never just about those two apartments, it was always those two apartments but then we had three other apartments that we were sharing in, that I believed that we were sharing for 50/50.[10]
[10]Transcript, 254:1–10.
Mr Khouri accepted that the shareholdings were calculated by reference to the area of the respective apartments. Mr Khouri said that when he agreed to go on title and take apartment 2 he wanted to move to Melbourne and intended to live in Melbourne. Mr Khouri accepted the proposition that had he chosen to he could have stayed in Melbourne living in apartment 2 indefinitely.
In my view, there are many objective factors which tell against the notion that the parties agreed that the apartments would be of equal value.
First, it does not make practical sense. The apartments have different floor areas and are located in different parts of the apartment complex. Apartment 2 is on the ground floor. Apartment 5 is on the upper level.
Secondly, the costs of the development of apartment 2 and apartment 5 were allocated proportionally by reference to their respective floor areas; thus, more costs were allocated to apartment 5 than to apartment 2 and the owner of apartment 5 (Kukas interests) became liable for and paid proportionally more of the total development costs than the owner of apartment 2 (Mr Khouri).
Thirdly, each owner was free to sell, renovate[11] or retain their apartments indefinitely. Both Mr Kukas and Mr Khouri personally financed their respective apartments, and their borrowings were secured over their apartments and not over the apartment complex as a whole. When Mr Kukas and Mr Khouri sold their apartments (a year apart) they paid out their mortgages and kept the balance of the proceeds of sale without complaint from the other.
[11]Mr Khouri planned to install a pool and obtained permits for this purpose.
Finally, there is no documentation of this alleged agreement as to equal value, nor were there any documents admitted in evidence during the trial from which it could be inferred that there was an agreement to this effect.
Considered in combination, these factors in my view strongly tell against finding an objective intention that the apartments would be of equal value. It seems to me that the arrangement was to the effect that both Mr Kukas and Mr Khouri had the right to select their own apartment, with the cost of their chosen apartment being debited to their personal accounts and the cost of the remaining three apartments being debited to the joint venture. I infer from the conduct of the parties and the documentary evidence an objective intention that the apartments that were allocated personally were to become personal assets and were to be treated separately from the joint venture.
Accordingly, the answer to Question 4 is no.
(5) Are the parties to the joint venture liable for project costs in excess of the agreed construction costs of the Ultimo and Shipley projects?
Ultimo project
By a report dated 27 August 2014, W T Partnership, Quantity Surveyors, estimated the cost of construction of the Ultimo project (as at March 2006) at $1,241,000 (exclusive of GST) which equates to $1,365,100 (inclusive of GST). Mr Stewart gave evidence that the estimate is based on drawings and from visiting the site. The estimate is adjusted for the fact that the costs are not present day costs but are costs as at March 2006, which was when construction on the Ultimo project began. According to Mr Stewart, the estimate is only on the ‘builder’s side’, allowing for preliminaries and construction management but not for costs on the ‘client’s side’ such as project management fees. Among other things, ‘Consultant Fees, Authority Fees, Charges and Head works’ were specifically excluded.[12]
[12]W T Partnership Verification Estimate No 1, 5 Ultimo Court, Toorak, dated 27 August 2014, Exhibit P3 (‘W T Partnership Ultimo Project Report’), 2.
Mr Kukas gave evidence that the cost of construction of the Ultimo project was $1,406,092.61 inclusive of GST, but for the purposes of the trial the plaintiff concedes that the cost of construction is as per the estimate in the W T Partnership Ultimo Project report. The plaintiff’s concession on this issue is limited to construction costs and does not cover project costs. The plaintiff submits that additional costs of $236,720.43 were incurred in relation to the Ultimo project.
Mr Kukas gave evidence that every cost relating to the Ultimo project was entered into a spreadsheet. The spreadsheet was a direct reconciliation of the plaintiff’s bank account in that every cost would go through the bank account, which Mr Kukas would document with an explanation of the nature of the cost. He said that each week Mr Khouri would be provided with updated spreadsheets and costs were discussed regularly at site meetings, which Mr Khouri attended at a minimum twice a month and at a maximum once a week.[13]
[13]Ultimo Project Spreadsheets, CB 2402–2411.
Mr Kukas compiled a document summarising and categorising these expenses, and gave evidence that all of the amounts in the summary were paid.
For convenience, this document is reproduced (in part) as follows: [14]
[14]Summary of Expenses on Ultimo project, CB 2401.
Code
Particulars
Sub-Totals
A
Consultants
$ 55,474.95
B
Headwork/Council Fees
$ 4,827.67
C
Insurance
$ 8,053.35
D
Office
$ 30,191.44
E
Bank Fees
$ 390.00
F
Motor Vehicle
$ -----
G
Tax
$ 1,866.67
H
Interest/Finance expense
$ 129,916.35
I
Furnishings
$ 6,000.00
J
Real Estate Costs
$ 30,000.00
K
Body Corp Fees
$ -----
L
Loans
$ -----
M
Superannuation
$ -----
$266,720.43
The plaintiff initially claimed $266,720.43, but during the trial conceded that the real estate costs (Code J) were not costs of the joint venture. The claim for costs of the project in addition to costs of construction was therefore reduced to $236,720.43.
For the defendant, Mr Khouri agreed that the interest and finance costs did not include the construction costs. When asked about the claimed amount of $129,916.35 (Code H), Mr Khouri did not agree that this figure was the interest and finance expenses that were incurred in relation to the Ultimo project but said he did not know and that he would have to go to actual statements to know. He did agree that the figure seemed about right, having regard to the fact that the draw down facility was in the order of $1.7 million. Specifically, he said:
It would be about right, I would say so. I am just saying without necessarily having the statements available – but it doesn’t seem unreasonable.
Q.There was financing so there must have been a finance interest cost?---
A.100 per cent.[15]
Mr Khouri agreed that he was not able to dispute Mr Kukas’s evidence as to the claimed Interest/Finance expense.
[15]Transcript, 276:17–21.
On the issue of consultant’s fees on the Ultimo project, the following exchange took place between counsel and Mr Khouri:
Q.…You agree that those consultants are an essential part of the Ultimo project?---There’s consultants all through the project. That’s what I understand to be the situation. There was an arborist in Shipley, there’s a consultant for the car stackers, there’s consultants all along, but their fees are normally incorporated in part of the construction cost. I mean, where do you draw the line which consultants and which consultants are out? I would assume that W T Partnership would have incorporated all those costs in their construction costs.
Q.Leaving aside that question, do you agree that engineers, architects and the like are all required?---100%, yes.
Q.Do you dispute that the cost of those consultants was as per page 2401, which Mr Kukas has given evidence is a cost of $55,474.95?---…I am saying I don’t know what consultants that $55 refers to, number 1; and I would suggest that probably the number should be greater but it’s incorporated in the cost of construction. I understand that.[16]
[16]Transcript, 278:29–279:22.
Mr Khouri was asked to state his position on the consultant’s fees. Mr Khouri responded:
My position is that the consultants’ fees are in the costs of construction, as part of the cost of construction. They are not separate to the construction costs; they are incorporated as part of the construction costs which is in the W T Partnership report.[17]
[17]Transcript, 280:2–7.
Mr Khouri’s evidence on this point is self-evidently incorrect. The Ultimo Project Report specifically excludes consultants fees in the costing estimate.[18] Mr Khouri did not give any evidence in relation to the other smaller amounts.
[18]W T Partnership Ultimo Project Report, 2, [6].
I am satisfied that the items for Headwork/Council fees ($4,827.67), Insurance ($8,053.35), Office ($30,191.44) Bank fees ($390.00), Tax ($1,866.67) and Furnishings ($6,000), together with the claims for Consultants and Interest and Finance expenses, were all incurred in relation to the Ultimo project and are properly characterised as project costs. In particular, I am satisfied that there is no overlap between any of these items and the construction costs as assessed by W T Partnerhip Quantity Surveyors. In my view, the parties to the joint venture are liable for project costs of $236,720.43, in excess of the agreed construction costs of the Ultimo project.
Shipley project
Mr Kukas gave evidence that he prepared a similar summary of expenses in relation to the Shipley project, derived from more detailed spreadsheets which recorded all of the costs. These costs were, in turn, derived from a dedicated bank account for the Shipley project. Only Shipley project costs went through the Shipley joint bank account, and both parties would receive bank statements on this account. During the trial, the cost of construction of the Shipley project was agreed at $3,705,000, being the estimated fair value of works by W T Partnership.[19] Mr Kukas compiled a document summarising and categorising these expenses. For convenience, this document is reproduced (in part) as follows:[20]
[19]W T Partnership Expert Report, 9 Shipley Street, South Yarra, dated 26 August 2014, Exhibit P4 (‘W T Partnership Shipley Project Report’).
[20]Summary of Expenses on Shipley project, CB 2362–2363.
Code Particulars Sub-Totals A Consultants $ 327,318.47 B Headwork/Council Fees $ 175,910.00 C Insurance $ 39,799.63 D Office $ 37,635.69 E Bank Fees $ 19,256.67 F Motor Vehicle $ 2,960.00 G Tax $ 27,385.00 H Interest/Finance expense $ 141,642.61 I Furnishings $ 29,125.00 J Real Estate Costs $ 15,000.00 K Body Corp Fees $ 7,502.45 L Loans $ ----- M Superannuation $ 19,755.67 $ $843,291.19
Mr Kukas gave evidence that these expenses are not included in the cost of construction. On the interest and finance expenses on the Shipley project, Mr Khouri was asked:
Q.Mr Kukas’s evidence is that the interest finance expense recorded in that document was incurred by the project on the Shipley project. Are you able to dispute that proposition?---No.[21]
[21]Transcript, 282:24–27.
Mr Kukas was then referred generally to the expenses claimed items at Codes A to M, and the following exchange took place between counsel and Mr Khouri:
Q.Mr Kukas’s evidence is that those expenses were all incurred in relation to the Shipley project. Are you able to dispute his evidence, that those expenses were all incurred in relation to the Shipley project?---I’m just trying to find a total for the consultants, I’m just trying to arrive at a total number.
…
Q.The consultants would be that top figure of $327,318.47?---As compared to $55,000 for the Ultimo? Yes.
Q.Are you able to give any evidence about that figure?---No.
Q.You’ve had access to this material for a long time?---Again, I suggest the only question I might have is it seems disproportional for the – I mean, we have $55,000 for a project, for a big residence and $327,000 for five apartments I don’t know if it’s consistent. It seems awfully high compared to the other…I would think, consultants’ fees compared to one compared to the other seem a little big high. That’s my only comment based on these numbers, but that could be right.[22]
[22]Transcript, 283:11–284:11.
Mr Khouri gave no evidence to dispute the items at Code A to M of the summary of expenses for the Shipley project, but through his counsel maintained that the defendant should not be liable for costs exceeding the costs of construction as set out in the W T Partnership Shipley Project Report of $3,705,000.
The W T Partnership estimate of $3,705,000 does not purport to include fees for Headworks/Council, Insurance, Office, Bank Fees, Motor Vehicle Tax, Interest and Finance expenses, Furnishings, Real Estate, Body Corporate or Superannuation, though none of these categories are expressly excluded.[23] Mr Stewart said such estimates would not typically involve project management fees. He was not cross-examined about whether any of these other items were part of the estimate of cost of construction. I am satisfied from Mr Kukas’s evidence, which is corroborated by detailed spreadsheets[24] that each of the items set out in the above summary of expenses on the Shipley project were expenses which were incurred on the Shipley project and exceed the costs of construction. In my view, the parties to the joint venture are liable for project costs in excess of the agreed construction costs of the Shipley project.
[23]W T Partnership Shipley Project Report, Exhibit P4, Item 5.
[24]Shipley project spread sheets, CB 2364–2400A.
Accordingly, the answer to Question 5 is yes.
(6) Are the parties to the joint venture obliged to share equally the General Interest Charge of $65,319.57 for late payment of GST?
It is common ground that R K Property Developments Pty Ltd, a company associated with Mr Kukas, incurred the liability. The joint venture was not registered for GST purposes but RK Property Developments Pty Ltd was registered. It is common ground that the amount that was claimed by way of a General Interest Charge of $65,319.57 was charged in relation to the late payment of GST.[25] The charges were levied in respect of the period 1 July 2009 to 25 November 2011, well after the Ultimo project had been completed. Mr Kukas accepted that the General Interest Charge was levied on the late payment of GST. He agreed it was a taxation liability incurred by R K Property Developments Pty Ltd. He gave evidence that the liability related to the Shipley project.
[25]Summary of General Interest Charge, Exhibit D4.
As to the reason why the GST was not paid in a timely fashion, Mr Kukas said:
[W]e had put aside $35,000 out of a $290,000 loan, we had set aside $350,000 that was to pay for the GST that was incurred. We knew we were still going to be short. Khali had telephoned me and said, “Robert, what are you doing with that 350?” and I said, “Well, I am holding on to it to pay for the GST” and he said, “Can I please borrow $175,000?”, which I forwarded to him, under the condition that it be returned in three or four weeks. He said – the defendant said that he has a property settlement coming through “and I will pay that within three or four weeks time”. A year went by and he stopped calling me. There was very limited communication, probably a couple of texts and so on. But the reason why we were late was because the defendant promised – I gave him the 175, which was supposed to be attributed to the GST and he never returned and it’s clearly documented through bank statements, through the drawings, contributions and so on.[26]
[26]Transcript, 227:7–25.
Later in his evidence, Mr Kukas said:
It was half of the GST allocation, and as I said, when I did forward it to him, he promised me it was going to be given back to the project within three or four weeks. It was not forwarded until years (later). That’s exactly why I had to issue proceedings.[27]
[27]Transcript, 229:23–28.
Mr Khouri did not refer to the General Interest Charge in his evidence-in-chief. In cross-examination, the following exchange took place between counsel for the plaintiff and Mr Khouri:
Q.Do you agree that you are obliged to pay GST on the project?---Yes. I believed that we had money to deal with that issue. We borrowed $920,000 from NAB.
Q. When you borrowed that money---?---Yes, that was for the GST.
Q.Isn’t it the case that you then took some of that money because you were short of cash?---Of course, yes – no, I wasn’t short. It was Rob offered to distribute that money.
Q.How much did you take?---175 each that Rob issued because he said that we had sufficient funds to deal with the GST.
Q.Then when that turned out not to be the case, you refused to pay a share of the GST?---I didn’t believe – it was only a couple of months later. He wouldn’t have given the money and then asked for it two months later back if we didn’t have the money then. He wouldn’t have distributed the money why didn’t he pay the GST straight from the moneys? It was there available. The GST was already – the invoice for the GST was – we already knew about the GST so he distributed the money post that.[28]
[28]Transcript, 267:18–268:7.
I am satisfied from the evidence of Mr Kukas that the General Interest Charge relates to GST payable with respect to the Shipley project. Whilst the evidence of Mr Kukas and Mr Khouri suggests some mis-communication on the issue one thing is clear, and that is that GST was incurred and was paid late. Mr Khouri’s evidence to the effect that there was a distribution of $175,000 to each joint venturer is corroborated by an agreed summary of contributions and drawings.[29] Each joint venturer therefore had the benefit of the use of that money, even though in hindsight it may have been better to have paid the GST to avoid the General Interest Charge. In my view, the parties to the joint venture are obliged to share equally the general interest charge for late payment of the GST. Accordingly, the answer to Question 6 is yes.
[29]Exhibit P2.
Conclusion
In this matter, I have decided that:
(a)there were no GST input credits for the joint venture project which were not transferred to the joint venture account;
(b)the plaintiff is entitled to a fee of $309,580.00 for project management of the Shipley project;
(c)there was no agreement that the value of the apartments in the Shipley project, which were allocated personally to the joint venturers, would be of equal value;
(d)the parties to the joint venture are liable for project costs in excess of the agreed construction costs of the Ultimo and Shipley projects; and
(e)the parties are obliged to share equally the General Interest Charge of $65,319.57 for late payment of the GST.
It is unnecessary to decide whether the plaintiff would be paid project management fees for the Ultimo project as this matter was resolved by the parties.
As a consequence of my findings, adjustments should be made to reflect the amounts conceded by the parties during the course of the trial and the issues which have been determined.
I will ask counsel to formulate orders which will give effect to these reasons.
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