Sathiasothilingeswaran Tharmakulaseelarajan v Sivapragasam Shanmugathaas

[2019] NSWSC 357

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:	Sathiasothilingeswaran Tharmakulaseelarajan v Sivapragasam Shanmugathaas [2019] NSWSC 357
Hearing dates:	1 April 2019
Decision date:	01 April 2019
Jurisdiction:	Equity - Commercial List
Before:	Hammerschlag J
Decision:	Judgment for the plaintiffs against the defendants for the sum of $88,808. The plaintiffs are entitled to pre-judgment interest from 5th December 2014. Summons and Cross-Claims otherwise dismissed. Plaintiffs are entitled to two-thirds of their costs, excluding the costs incurred with respect to the entering into the Consent Orders on 8th December 2017 and the implementation of those orders. Their recoverable costs are capped at $90,000
Catchwords:	EQUITY – joint venture – taking of accounts between joint venturers
Category:	Principal judgment
Parties:	Sathiasothilingeswaran Tharmakulaseelarajan - First Plaintiff Tharshika Sathiasothilingeswaran - Second Plaintiff Sivapragasam Shanmugathaas - First Defendant Suganthiny Shanmugathaas - Second Defendant
Representation:	Counsel: Plaintiffs - Self-Represented Defendants - Self-Represented
File Number(s):	2017/269580

EX TEMPORE Judgment

1. It is unusual in this list for one side to be unrepresented at trial. It is almost unique for both sides to be unrepresented, as is the case here. This caused no small degree of difficulty in the conduct of the hearing. I have endeavoured to articulate as best I can what the parties sought to argue.

2. The plaintiffs, who are husband and wife, and the defendants, who are husband and wife, entered into a written joint venture agreement (the agreement), on 14 October 2013, for the development of land at 59A Targo Rd, Pendle Hill, NSW. The joint venture was completed. The land was developed by the construction of a duplex which was rented for a short time and then sold. Income of $802,700 was yielded.

3. The entirety of the net proceeds went to the defendants. Nothing out of the proceeds was paid to the plaintiffs.

4. This dispute concerns the final accounting between the plaintiffs and the defendants. In effect, the hearing was the taking of accounts without the benefit of the traditional statement of surcharges and falsifications but with the benefit of an audit report.

5. The plaintiffs (referred to as Party 1 in the agreement) owned the land and contributed it to the venture.

6. The defendants (referred to as Party 2 in the agreement), contributed funding and project management for the construction.

7. Significantly, for reasons which will be more apparent below, both the defendants are chartered accountants.

8. Clause 17 of the agreement provides that as consideration for the agreement, Party 1 would provide funding and project management, in exchange for which Party 2 would pay 10% of the Total Development Costs as set forth in clause 23.

9. Clause 18 of the agreement provides

Monthly Interest Payment for Construction Funding: PARTY 2 will contribute $1,000.00 every month towards the interest partial costs incurred in bank repayment by PARTY 1 in relation to the development; PARTY 1 agrees to cover the shortfall amount due to the bank beginning from November 2013.

10. Clause 23 is entitled “Development Costs”. It commences with the words “Including without limitation such costs will be the following expenses of the Development Project including:” and it continues by describing various costs. They include “any other costs and expenses related to the Development Project and its funding” and the project management fee of 10% “of total construction costs payable by Party 1 to Party 2.

11. Clause 24 is entitled “Accounts”. It provides that Party 1 will keep adequate books and records setting forth a true and accurate account of all transactions arising out of and in connection with the joint venture. As will appear later, they did not meet this obligation. The clause further provides that, if required, Party 2 shall engage an independent accountant to prepare accounts for the project and audit the project costs.

12. The parties fell into dispute about what costs were incurred by each of them and as to how costs said to be incurred should be accounted for.

13. The plaintiffs commenced these proceedings by Summons issued on 5 September 2017, seeking an accounting and ancillary relief.

14. The defendants cross-claimed seeking, amongst others, the appointment of an auditor under Clause 23 of the agreement, to audit the accounts of both parties, and to determine each party’s entitlements under the joint venture.

15. On 8 December 2017, the parties, then legally represented, came to an agreement which was embodied in short minutes of order, which I made, that the plaintiffs would, pursuant to Clause 24 of the agreement, engage an independent accountant to prepare accounts for the project and audit the project costs. The orders provided that each party was at liberty supply the auditor with any information they considered necessary, and that each was permitted to make submissions to the auditor.

16. The plaintiff then engaged Mr Matthew John Gwynne CA of PKF Chartered Accountants. Mr Gwynne provided a well constructed report on 21 June 2018. Each party provided him with information as to the costs asserted by them to have been paid. Both parties put the report into evidence.

17. Remarkably, one might think, a significant part of the costs allegedly incurred by the defendants could not be verified. This was because, amongst others, they engaged in unrecorded cash transactions with contractors. This is a matter of serious concern, not least of all because the persons engaging in such conduct are chartered accountants. I propose to refer this judgment to appropriate bodies.

18. Mr Gwynne reported that:

• the total proceeds were $802,700;

• the defendants’ verified expenses were $638,160;

• the plaintiffs’ verified expenses were $72,236;

• there were other expenses incurred and verified of $46,927;

• the total costs incurred and verified were $757,323.

19. 10% of the entire project costs is $75,732. This, added to the defendants’ expenditure, as verified, makes $713,892. The total received was $802,700. The plaintiffs’ entitlement out of that amount is thus $88,808.

20. The defendants placed before the Court no evidence of verification which would induce the Court to go behind the accountant’s findings of no verification. This, in circumstances where they are both chartered accountants and where they had an obligation to keep full and accurate records of the project transactions, I propose to adopt Mr Gwynne’s findings accordingly.

21. The plaintiffs argued that they are entitled to be paid the costs of retaining the accountant. No evidence of payment to them was produced. I was informed from the Bar table that the cost was approximately $28,000. The only potential source of such an entitlement is the agreement. Clause 24 gives the plaintiffs the entitlement to engage an independent accountant, which they did. Nothing in the agreement entitles them to reimbursement from the defendants for that cost. The counter balance is the defendants’ obligation to keep proper accounts.

22. The plaintiffs also claimed amounts which they paid an adjoining land owner to obtain a drainage easement, which they excavated without permission. The adjoining land owner brought legal proceedings against them (2016/101659), which they settled. Before me they argued that they trespassed at the insistence of the defendants and that they should be entitled to recover what they paid the aggrieved neighbour out of the joint venture proceeds. The evidence does not satisfy me that the plaintiffs were not aware that they were trespassing, although there is evidence that the defendants instructed the excavators and took an unjustifiably robust view of their entitlement to invade the neighbour’s property, on the grounds that some development consent had been given by the local council for the easement.

23. If the plaintiffs did trespass in circumstances where there was some redress against the defendants, (a matter in respect of which I have significant doubt), this was a matter that they should have raised by cross-claim against the defendants in the trespass proceedings. It is not a matter which falls properly for determination in an accounting exercise between joint venturers, but even if it was, there is no evidence by which the Court could be satisfied that the settlement which the plaintiffs reached with the landowner was reasonable. The same can be said of their legal costs, which are unassessed.

24. When the easement was being dug, a gas line was damaged and the gas supplier made a claim which was paid by the defendants. The defendants claim this as a reimbursement out of the joint venture proceeds. The accountant did not decide whether this should be taken account of, and suggested that the parties determine who is responsible in mediation or that it be determined by the Court. The evidence does not satisfy me that this damage was caused by anything other than the defendants’ own instruction to the excavator to dig. If there was any redress, it should have been sought against the excavator. I do not consider that the defendants have established that this amount is for the plaintiffs’ account or is to be shared by coming out of the joint venture proceeds.

25. Next, the defendants argued that the agreement was varied by the plaintiffs agreeing to pay them, in addition to 10% of the development costs, an amount equivalent to the tax payable by them on their entitlement. This claim is untenable. Clause 35 of the agreement provides that it may only be varied in writing. This arrangement, if it was made, was not in writing.

26. Next, the defendants argued that the development expenses on which their 10% is to be calculated should include the value of the land contributed to the joint venture by the plaintiffs and the interest payable by the plaintiffs on the mortgage which they gave to a lending institution. I reject this argument. The plaintiffs’ contribution to the joint venture was the land. This is not a development expense, and neither was the amount of interest payable by them to facilitate making that contribution. This construction of the agreement is supported by that part of Clause 23 which refers to the project management fee of 10% of the total construction costs.

27. Next, the defendants argued that the plaintiffs did not pay the monthly amount provided for in Clause 18 for the entire duration of the development, but only for seven months. The plaintiffs’ response was that they met various amounts which the defendants were to pay over the course of the project and were as a consequence, not in a position to meet this payment. I reject the defendants’ claim. The evidence does not establish what interest partial costs were incurred by the defendants in bank repayment. Additionally, these were to be payments on account. The final accounting will have the effect of reimbursing the parties to the extent of their legal entitlements. Even if the defendants now could establish interest payments by them (for which these instalments were to be on account of reimbursement), the most that could be said is that they lost the value of the interest they would have received on the monthly amount. The claim was, however, not made on this basis, and the evidence would not permit satisfactory calculation in any event.

28. Next, the defendants themselves paid the accountant $1500, and sought reimbursement of this from the plaintiffs. I reject this claim. The defendants have no contractual entitlement to reimbursement under the agreement.

29. Next, the defendants say that they made a cash payment to the plaintiffs of $10,000. This amount was not verified by the accountant and the evidence does not satisfy me that it should properly be the subject of an accounting between these parties, especially in the absence of proper records which the defendants were obliged to, but did not, keep.

30. Finally, the accountant was unable to audit finance charges presented by the defendants prior to preparing his report. He did an alternative calculation based on the material given to him at the time. Apparently, the defendants wrote to him subsequently about these calculations providing further information. The accountant’s reasonably taken position was that if the parties agreed or the Court orders that a new calculation be made, instructions should be provided to him jointly. I do not propose to refer the matter back to the accountant. The parties had every opportunity to place all information before him and, once again, it is to be remembered that the defendants are chartered accountants. These proceedings have been on foot for nearly two years. They concern a joint venture agreement that had been fully performed five years ago. These proceedings should now to be brought to finality.

31. There will be judgment for the plaintiffs against the defendants for the sum of $88,808. The plaintiffs are entitled to pre-judgment interest on this amount at the Court Rate from the date that the proceeds of sale of 59A Targo Road, Pendle Hill, were received by the defendants, that is from 5 December 2014.

32. Although these proceedings are properly in this Court, the amount of the verdict to which the plaintiffs are entitled is relatively modest.

33. The general rule is that costs follow the event and the Court does not divide costs according to issues when coming to consider costs, unless the Court thinks that it is appropriate to do so.

34. This is a case where I think it is appropriate to do so. The plaintiffs made a number of claims. They succeeded on the one accounting claim to an amount of $88,808. The easement claim, to which a substantial part of their affidavit evidence was devoted, failed as did their claim for reimbursement of payment for the accountant’s report.

35. In my opinion the plaintiffs should have two-thirds of their costs. Those costs are to exclude all costs from and including the making of the orders on 8 December 2017 on the footing that that was merely the implementation of the joint venture agreement. Where the plaintiffs have obtained a verdict of only $88,808, proportionality requires that the amount of the recovered costs be capped so that the costs do not exceed the amount of the verdict. Assuming that interest will bring the amount up to approximately $90,000 I cap the plaintiffs’ costs at that figure.

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Amendments

03 April 2019 - Parties amended on cover sheet

03 April 2019 - spelling amendment para 33

03 April 2019 - Parties amended on cover sheet

Decision last updated: 03 April 2019