Scrivener v Cappello

[2021] NSWCA 330

Court of Appeal

Supreme Court

New South Wales

• Summary available

Medium Neutral Citation:

Scrivener v Cappello [2021] NSWCA 330

Hearing dates:

28 October 2021

Decision date:

21 December 2021

Before:

Bathurst CJ at [1];
Bell P at [78];
Macfarlan JA at [79]

Decision:

(1)   Appeal dismissed.

(2)   Cross-appeal allowed.

(3)   Set aside Order 1 of the orders made by the primary judge and in lieu make the following declaration:

The Court declares that there was a partnership between the first plaintiff and the first defendant that acquired the rights to control and sell the three contiguous properties situated at 88 Rouse Road, 104 Rouse Road and 96 Cudgegong Road, Rouse Hill and that the second defendant held the said rights in trust for the said partnership.

(4)   Vary Order 2 of the orders made by the primary judge to provide as follows:

(a)   The first and second defendants are liable to pay to the first plaintiff equitable compensation in an amount of $6,203,689.48 inclusive of interest.

(b)   The second defendant is liable to pay the second plaintiff equitable compensation in an amount of $6,203,689.48 inclusive of interest.

(c)   Any payment made by the first or second defendants pursuant to Order 4(a) shall result in a pro tanto reduction of the second defendant’s liability under Order 4(b).

(d)   Any payment made by the second defendant under Order 4(b) shall result in a pro tanto reduction of the liability of the first and second defendants under Order 4(a).

(5)   Order the appellant pay 80 per cent of the respondents’ costs of the appeal and cross-appeal.

Catchwords:

PARTNERSHIPS AND JOINT VENTURES – rights and duties between partners – fiduciary relationship – obligations – whether the appellant was an accessory to breaches of fiduciary obligations owed to the respondents – where the appellant caused the third respondent to fail to account to the second respondent for one half of the profits derived from the acquisition and subsequent sale of three contiguous parcels of land – where primary judge did not refer to two essential matters to establish accessorial liability under the second limb of Barnes v Addy – where the appellant knew of facts and circumstances which would indicate the fact of the breach on the part of a fiduciary to an honest and reasonable person

PARTNERSHIPS AND JOINT VENTURES – rights and duties between partners – fiduciary relationship – obligations – whether the appellant was liable to the first respondent or the second respondent

PARTNERSHIPS AND JOINT VENTURES – rights and duties between partners – interpretation of agreement – oral agreement – where there was an agreement to enter into a partnership to acquire and resell three contiguous parcels of land and share expenses and profits equally – whether the agreement was subject to a sunset condition – where the first respondent’s evidence of oral agreement accepted – where the third respondent was a vehicle entrusted to hold assets on behalf of the partnership

Legislation Cited:

Supreme Court Act 1970 (NSW)

Cases Cited:

Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd (2018) 265 CLR 1; [2018] HCA 43

Barnes v Addy (1874) LR 9 Ch App 244

Birtchnell v Equity Trustees, Executors and Agency Co Ltd (1929) 42 CLR 384; [1929] HCA 24

Canny Gabriel Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd (1974) 131 CLR 321; [1974] HCA 22

Cappello v Scrivener [2020] NSWSC 1748

Cappello v Scrivener (No 2) [2021] NSWSC 168

Chan v Zacharia (1984) 154 CLR 178; [1984] HCA 36

Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; [2007] HCA 22

Friend v Brooker (2009) 239 CLR 129; [2009] HCA 21

Hasler v Singtel Optus Pty Ltd (2014) 87 NSWLR 609; [2014] NSWCA 266

Hillig v Battaglia [2018] NSWCA 67; (2018) 125 ACSR 171

Pateman v Higgin (1957) 97 CLR 521; [1957] HCA 62

Pittmore Pty Ltd v Chan (2020) 104 NSWLR 62; [2020] NSWCCA 344

United Dominions Corporation Ltd v Brian Proprietary Ltd (1985) 157 CLR 1; [1985] HCA 49

Texts Cited:

Nil

Category:

Principal judgment

Parties:

John Sidney Scrivener (Appellant/First Cross Respondent)
John Cappello (First Respondent/First Cross Appellant)
Shaka Holdings Pty Ltd (Second Respondent/Second Cross Appellant)
Tuscany Corporation Pty Ltd (Third Respondent/Second Cross Respondent)

Representation:

Counsel:
C Birch SC with B DeBuse (Appellant/First Cross Respondent)
D R Pritchard SC with D W Rayment (First Respondent/First Cross Appellant and Second Respondent/Second Cross Appellant)

Solicitors:
Marsdens Law Group (Appellant/First Cross Respondent and Third Respondent/Second Cross Respondent)
RJI Legal (First Respondent/First Cross Appellant and Second Respondent/Second Cross Appellant)

File Number(s):

2021/76890

Publication restriction:

Nil

 Decision under appeal 

Court or tribunal:

Supreme Court

Jurisdiction:

Equity

Citation:

[2020] NSWSC 1748

Date of Decision:

7 December 2020

Before:

Stevenson J

File Number(s):

2018/129029

HEADNOTE

[This headnote is not to be read as part of the judgment]

The appellant, Mr John Sidney Scrivener, appealed from a decision of a judge of the Equity Division of the Court finding that he was an accessory to breaches of fiduciary obligations owed to the respondents, Mr John Cappello and Shaka Holdings Pty Ltd (Shaka Holdings), by causing Tuscany Corporation Pty Ltd (Tuscany) to fail to account to Shaka Holdings for one half of the profits derived from the acquisition and subsequent sale of three contiguous parcels of land at Rouse Hill, namely, 88 Rouse Road, 104 Rouse Road and 96 Cudgegong Road (collectively, the Rouse Hill properties). The primary judge found that Shaka Holdings was entitled to equitable compensation in an amount representing half of the profits obtained by Tuscany on sale and entered judgment against Mr Scrivener and Tuscany in favour of Shaka Holdings in the sum of $6,203,689.48.

Mr Cappello and Mr Scrivener entered into an oral agreement on 20 August 2013 to acquire the Rouse Hill properties, sell them at a profit, pay costs and expenses equally and share equally in any profits. Mr Cappello and Mr Scrivener ultimately acquired the Rouse Hill properties and on 27 March 2015, a contract for the sale of the properties to a company was entered into. On completion of the contract, Tuscany received $9,141,937.95 while 88 Rouse Land Pty Ltd, a company in which Tuscany was a 50 per cent shareholder, received $2,276,586.52, out of which Tuscany ultimately received $385,072.04. When Mr Cappello approached Mr Scrivener on 21 May 2015 to inquire about his share of the profit from the sale of the Rouse Hill properties, Mr Scrivener told Mr Cappello that he was not entitled to any profit, emphasising that their agreement was not in writing.

In the court below, Mr Cappello claimed that during their conversation on 20 August 2013, he and Mr Scrivener agreed to enter into a “50:50 partnership” and share equally all expenses and profits from the venture. Mr Scrivener, however, claimed that he and Mr Cappello had agreed that Mr Cappello’s interest in the venture was subject to a buyer being obtained by 28 February 2014, that being the expiry date of the due diligence period for 88 Rouse Road (the Sunset Condition).

After a detailed consideration of the events which occurred between the dates of 20 August 2013 and 21 May 2015, the primary judge summarised a total of 26 matters which supported his conclusion that Mr Scrivener did not impose the Sunset Condition, such that Shaka Holdings was entitled to equitable compensation in an amount representing half of the profits obtained by Tuscany on sale of the Rouse Hill properties.

Mr Scrivener appealed the primary judge’s decision on three grounds, which may be summarised as follows:

1. The primary judge failed to give reasons for concluding that Mr Scrivener was liable as an accessory to Tuscany’s breach of fiduciary obligations and failed to make any specific determination of fact to support that conclusion;

2. There was insufficient evidence to support a finding of accessorial liability under the second limb of Barnes v Addy (1874) LR 9 Ch App 244; and

3. The primary judge failed to give adequate reasons for his conclusion.

By cross-appeal, Mr Cappello and Shaka Holdings contended that the partnership to acquire and sell the Rouse Hill properties was one between Mr Cappello and Shaka Holdings on the one hand and Mr Scrivener and Tuscany on the other or, alternatively, a partnership between Mr Cappello and Mr Scrivener with Tuscany holding its rights to the proceeds of sale of the properties on trust for the partners. Accordingly, it was contended that Mr Scrivener as partner owed fiduciary duties to the other parties to the partnership.

The partnership issue

1. The agreement properly construed was an agreement between Mr Scrivener and Mr Cappello to enter into a partnership to acquire, to the extent necessary develop, and then resell the Rouse Hill properties, with profits to be shared equally between them: [55] (Bathurst CJ); [78] (Bell P); [79] (Macfarlan JA).

Canny Gabriel Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd (1974) 131 CLR 321; [1974] HCA 22, referred to.

1. A partnership can relate to a single venture: [55] (Bathurst CJ); [78] (Bell P); [79] (Macfarlan JA).

Chan v Zacharia (1984) 154 CLR 178; [1984] HCA 36; United Dominions Corporation Ltd v Brian Proprietary Ltd (1985) 157 CLR 1; [1985] HCA 49, referred to.

1. Tuscany was, in effect, a vehicle which was entrusted to hold the assets on behalf of the partnership: [56] (Bathurst CJ); [78] (Bell P); [79] (Macfarlan JA).

Friend v Brooker (2009) 239 CLR 129; [2009] HCA 21, distinguished.

1. Mr Scrivener was liable to Mr Cappello, not Shaka Holdings. The orders made by the primary judge should be varied to reflect this: [58]-[59] (Bathurst CJ); [78] (Bell P); [79] (Macfarlan JA).

Chan v Zacharia (1984) 154 CLR 178; [1984] HCA 36; Birtchnell v Equity Trustees, Executors and Agency Co Ltd (1929) 42 CLR 384; [1929] HCA 24; United Dominions Corporation Ltd v Brian Proprietary Ltd (1985) 157 CLR 1; [1985] HCA 49, referred to.

The issues raised on appeal

1. The primary judge did not refer to two matters essential to establish liability under the second limb of Barnes v Addy: first, whether there was a dishonest and fraudulent design on the part of the fiduciary and second, whether Mr Scrivener knowingly participated in the breach: [64] (Bathurst CJ); [78] (Bell P); [79] (Macfarlan JA).

Barnes v Addy (1874) LR 9 Ch App 244, referred to.

1. The requisite element of dishonesty under the second limb of Barnes v Addy is met where the conduct which constitutes the breach transgresses the ordinary standards of honest behaviour: [65] (Bathurst CJ); [78] (Bell P); [79] (Macfarlan JA).

Barnes v Addy (1874) LR 9 Ch App 244; Hasler v Singtel Optus Pty Ltd (2014) 87 NSWLR 609; [2014] NSWCA 266; Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd (2018) 265 CLR 1; [2018] HCA 43, referred to.

1. It is sufficient for accessorial liability under the second limb of Barnes v Addy that the accessory knew of facts and circumstances which would indicate the fact of the breach on the part of a fiduciary to an honest and reasonable person: [69] (Bathurst CJ); [78] (Bell P); [79] (Macfarlan JA);

Barnes v Addy (1874) LR 9 Ch App 244; Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; [2007] HCA 22; Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd (2018) 265 CLR 1; [2018] HCA 43; Pittmore Pty Ltd v Chan (2020) 104 NSWLR 62; [2020] NSWCCA 344, referred to.

The operation of s 75A of the Supreme Court Act 1970(NSW)

1. While s 75A of the Supreme Court Act provides that any appeal shall be a rehearing and empowers the Court to draw inferences and findings of fact, there will be cases where a proper exercise of the appellate jurisdiction requires the matter to be remitted for further hearing: [67] (Bathurst CJ); [78] (Bell P); [79] (Macfarlan JA).

2. The failure by a primary judge to make a finding of fact as to an element of a cause of action, particularly one involving the assessment of a person’s state of mind, is generally a matter which would result in an order for a new trial rather than the Court exercising its power under s 75A of the Supreme Court Act to draw its own conclusion: [68] (Bathurst CJ); [78] (Bell P); [79] (Macfarlan JA).

3. A general order for a retrial should not be made in a case where more injustice would be done by setting the matter at large again: [71] (Bathurst CJ); [78] (Bell P); [79] (Macfarlan JA).

Pateman v Higgin (1957) 97 CLR 521; [1957] HCA 62; Hillig v Battaglia [2018] NSWCA 67; (2018) 125 ACSR 171; Croucher v Cachia [2016] NSWCA 132; Trustees of the Roman Catholic Church for the Diocese of Sydney v Hogan (2001) 53 NSWLR 343; [2001] NSWCA 381; Shimokawa v Lewis [2009] NSWCA 266; CSR Ltd v Della Maddalena (2006) 80 ALJR 458; [2006] HCA 1, referred to.

Judgment

1. BATHURST CJ: The appellant, John Sidney Scrivener (Mr Scrivener), appeals from a decision of a judge of the Equity Division of the Court finding that he was an accessory to breaches of fiduciary obligations owed to the respondents, Mr John Cappello (Mr Cappello) and Shaka Holdings Pty Limited (Shaka Holdings), by causing Tuscany Corporation Pty Ltd (Tuscany) to fail to account to Shaka Holdings for one half of the profits derived from the acquisition and subsequent sale of three contiguous parcels of land at Rouse Hill, namely, 88 Rouse Road, 104 Rouse Road and 96 Cudgegong Road (collectively, the Rouse Hill properties). The primary judge found that Shaka Holdings was entitled to equitable compensation in an amount representing half the profits obtained by Tuscany on sale and entered judgment against Mr Scrivener and Tuscany in favour of Shaka Holdings in the sum of $6,203,689.48.

2. Tuscany has not appealed from the judgment against it. Mr Scrivener has appealed on three grounds which may be summarised as follows: first, that the primary judge in concluding that Mr Scrivener was liable as an accessory to Tuscany’s breach of fiduciary obligations, failed to give reasons for that conclusion and failed to make any specific determination of fact that could support it; second, that there was insufficient evidence to support a finding of accessorial liability under the second limb of Barnes v Addy (1874) LR 9 Ch App 244; and third, that the primary judge failed to give adequate reasons for his conclusion.

3. By cross-appeal Mr Cappello and Shaka Holdings have contended that the partnership to acquire and sell the Rouse Hill properties was one between Mr Cappello and Shaka Holdings on the one hand and Mr Scrivener and Tuscany on the other or, alternatively, a partnership between Mr Cappello and Mr Scrivener with Tuscany holding its rights to the proceeds of sale of the properties on trust for the partners. Accordingly, it was contended that Mr Scrivener as partner owed fiduciary duties to the other parties to the partnership.

Factual background and the findings of the primary judge

4. The primary judge set out the facts and the conclusions which he drew from them with admirable clarity. Because none of the facts his Honour found or the inferences he drew from them are disputed on the appeal, they can be set out relatively briefly.

5. The critical finding made by the primary judge was his acceptance of the evidence of Mr Cappello of the terms of a conversation between him and Mr Scrivener, which took place on 20 August 2013, as accurately setting out the agreement reached between them in relation to the acquisition and subsequent resale of the Rouse Hill properties. Mr Cappello’s evidence of what occurred at that meeting was in the following terms (see Cappello v Scrivener [2020] NSWSC 1748 (the first judgment) at [59]-[60]):

“Cappello: As indicated earlier, I want to revisit with you the potential of acquiring 88 Rouse Road, Rouse Hill and 96 Cudgegong Road, Rouse Hill. Land value in Schofields is in excess of $1 million per acre for similarly zoned land. It is only a matter of time before Rouse Hill catches up. I want to partner with you on the properties I have identified. You will be able to assist through your contacts with people able to lend money for a share of the profits.

…

Scrivener: What are the terms and prices you have negotiated on the two properties?

Cappello: I have negotiated 88 Rouse Road for $4,300,000 with a 5% deposit and 12 month settlement. I think I can get 96 Cudgegong for $4,100,000 on the same terms, with an exclusive 3 months due diligence period for $5,000 for each property.

…

Scrivener: What do you propose?

Cappello: I propose a 50:50 partnership between us. We share all of the expenses 50:50 and whatever we end up making from the properties we share equally.

Scrivener: I agree.

…

Cappello: We need to act quickly now John. Sue Lobsey is under pressure to get the sales advices out.

…

Cappello: I also think it might be a good idea to leave my name off things at this stage as I have met Mrs Boon before.

…

Scrivener: OK, we can use Tuscany as the company for our partnership and then we can add your entity at a later date.

Cappello: I agree, Vince can sort it out later.”

6. It should be noted that “Vince” was a Mr Vince Aboud, the accountant for both Mr Cappello and Mr Scrivener.

7. The primary judge rejected Mr Scrivener’s version of the conversation which he recorded as follows (see the first judgment at [61]):

“Scrivener: The meeting with Mrs Boon went really well. So well in fact that we’re going to enter into a heads of agreement with Mrs Boon that allows for a 3 month DD (due diligence) period and a further 12 months’ settlement.

Cappello: I am surprised that you got her to agree to anything!

Scrivener: I am not surprised. With respect John, you couldn’t have gotten that deal done. She told us that there are agents and developers contacting her daily. You can just about see their tracks to her door. I am going to speak to Jim Marsden to get this going as I think the other two will join in as well.

Cappello: The market in Kellyville is picking up there are plenty of buyers out there. In fact, I already have buyers for a combined site. We can flick it on before the due diligence period is up.

Scrivener: Yes but that will only work if I can get the 2 adjoining sites to sell as a combined site.

Cappello: OK, well I have the buyers lined up so going forward, how about I pay half of all of your costs and we can split the profit?

Scrivener: Look John, if we get to that Vince can sort it out. As long as you have a buyer it is worth a try. You know that there will need to be a deal in place prior to the expiry of the DD period, otherwise I’m out.

Cappello: OK.”

8. The primary judge in reaching his conclusion noted first that each of Mr Cappello and Mr Scrivener agreed that they had made a legally binding agreement on 20 August 2013. Second, they each acknowledged that they agreed to endeavour to secure the Rouse Hill properties, sell them at a profit, pay costs and expenses equally and share equally in any profit. His Honour noted that the issue between them was whether in fact it was part of the agreement that there needed to be a deal in place prior to the expiry of the due diligence period, as stated by Mr Scrivener (the Sunset Condition).

9. It may be noted at this stage that all the matters agreed upon, subject to the sunset condition, would appear to meet the indicia of a partnership between the two men. Indeed, that seems to be the express finding made by the primary judge at the conclusion of his first judgment (the first judgment at [465]).

10. The primary judge accepted that the proposed mode of acquisition was what was described as “Due Diligence Deeds” and that Mr Cappello was to have the responsibility of finding a purchaser (see the first judgment at [7]).

11. Following the meeting on 20 August 2013, Tuscany entered into various arrangements with the vendors of the Rouse Hill properties. In respect of 88 Rouse Road, a Due Diligence Deed was entered into on 6 September 2013. The Due Diligence Deed expired on 20 December 2013. On that date, the owner of the property and Tuscany entered into a Put and Call Option Deed expiring on 20 January 2015, with a right to rescind if a drainage condition was not satisfied. The right to rescind expired on 28 February 2014 at which time the Put and Call Option became unconditional. The date that the right to rescind expired was the date which Mr Scrivener claimed was the expiration date of the Sunset Condition in his agreement with Mr Cappello (the Sunset Date). The Option was exercised on 19 January 2015 and the transaction settled on 27 February 2015.

8. A Due Diligence Deed containing an option to purchase the property was entered into between the owner of the 104 Rouse Road property and Tuscany on 15 November 2013. The due diligence period expired on 15 March 2014. On 14 March 2014 a Put and Call Option Deed was entered into between the owner of the property and another company controlled by Mr Scrivener, namely 104 Rouse Land Pty Ltd (104 Rouse Land). The Option was exercised on 13 March 2015 and the transaction settled on 16 April 2015.

9. Similarly, a Due Diligence Deed was entered into by Tuscany with the owners of 96 Cudgegong Road. The due diligence period expired on 16 March 2014. On 14 March 2014, a Put and Call Option Deed was entered into between the owners and another company controlled by Mr Scrivener, namely 96 Cudgegong Land Pty Ltd (96 Cudgegong Land). The Option was exercised on 12 February 2015 and the transaction was settled on 2 April 2015. It should be noted that the ultimate purchaser of each property following the exercise of the Put and Call Options was another company controlled by Mr Scrivener and a company associated with Oracle Estates Pty Ltd (Oracle), namely 88 Rouse Land Pty Ltd (88 Rouse Land).

10. In the period leading up to the expiration of the due diligence period in respect of 88 Rouse Road, Mr Cappello endeavoured to secure a purchaser for the property.

11. On 14 March 2014, 96 Cudgegong Land and 104 Rouse Land entered into a loan agreement with a company associated with Oracle, in which Oracle agreed to lend those companies $417,500, being the option fees payable under the Put and Call Option Deeds in respect of 96 Cudgegong Road and 104 Rouse Road. The loan was guaranteed by Mr Scrivener and Tuscany.

12. After the Put and Call Option Deeds were entered into, Mr Cappello continued to seek to sell the properties, including entering into negotiations with Sunland Group Ltd (Sunland) which concluded unsuccessfully in May 2014.

13. On 6 August 2014, Tuscany, 96 Cudgegong Land, 104 Rouse Land, 88 Rouse Land and Oracle entered into a Development Management Agreement by which it was agreed the “Project” was to acquire the properties the subject of the Put and Call Options and develop them by way of subdivision and sale. By that Deed, an associated company of Oracle agreed to provide finance for the Project in an amount of $8 million being $2.5 million initial finance and a further loan of up to $5.5 million. The Agreement provided for the division of the proceeds of sale and by a Variation Agreement dated 10 June 2015 it was agreed that after repayment of the Project financier, the Project loans provided by the associated company of Oracle, and any unpaid development management fees, the balance would be split as to 45.52 per cent to Tuscany and 54.48 per cent to Oracle. Oracle paid an acquisition fee to Tuscany of $280,060, half of which was paid to Mr Cappello.

14. On 20 January 2015, Mr Scrivener forwarded to Mr Cappello an email he had received from a Mr Wong stating that the options were exercised, that contracts were dated 19 January 2015, and that settlement would be 27 February 2015. Mr Wong was a solicitor form Marsdens Law Group, the solicitors acting for 88 Rouse Land on the conveyancing transaction.

15. On 17 February 2015, the Commonwealth Bank of Australia extended finance for the Project in an amount of $11,982,500.

16. On 27 March 2015, a contract for the sale of the properties to a company, Tian Tong Pty Ltd was entered into. The sale price was $37 million. The contract was apparently completed on about 20 July 2015. The primary judge found, and it was not disputed, that on completion Tuscany received $9,141,937.95 while 88 Rouse Land, a company in which Tuscany was a 50 per cent shareholder, received $2,276,586.52. In a second judgment in the proceedings (Cappello v Scrivener (No 2) [2021] NSWSC 168 (the second judgment)), the primary judge found that Tuscany only received $385,072.04 of the money paid to 88 Rouse Land. This was taken into account in calculating half of the proceeds of the venture for which Tuscany and Mr Scrivener were required to account to Shaka Holdings.

17. The primary judge recorded that Mr Cappello learnt from a Mr Kucic at Oracle that the properties were to be sold to a Chinese developer. His Honour accepted Mr Cappello’s evidence that when he raised this with Mr Scrivener, Mr Scrivener told him that Oracle would not honour its written agreement with Tuscany and he had been trying to keep it out of the Supreme Court. In that context the primary judge made the following finding (the first judgment at [415]):

“[415]   There is no suggestion in the evidence that anyone from Oracle said that Oracle would not ‘honour’ its ‘written agreement’. Indeed, Mr Scrivener agreed that it would not have been true to say that Oracle would not honour its written agreement. That suggests, as Mr Pritchard submitted, that Mr Scrivener was prepared to tell Mr Cappello things that were not true to dissuade him from asserting an interest in the project.”

22. The primary judge also referred to a conversation between Mr Scrivener and Mr Cappello which took place in the presence of Mr Cappello’s brother, Mr William Cappello, on 21 May 2015. The primary judge accepted Mr William Cappello’s recollection of the conversation which was to the following effect (see the first judgment at [418]):

“After almost 5 years I cannot recall the precise words used, but the gist of the discussion was words in or to the effect of the following:

[Cappello]: When can we meet to talk about my share of the profit from Rouse Hill?

Scrivener: What do you mean?

[Cappello]: I am entitled to 50% of what Tuscany made.

Scrivener: No you are not, you made $250,000 in commission from Sue Lobsey.

[Cappello]: I’ve taken nothing from Sue Lobsey. What I’m entitled to is half of what Tuscany made.

Scrivener: You’ve got nothing in writing.

[Cappello]: That doesn’t matter.

Scrivener: Good luck if you want to try and get anything in court.”

23. As I indicated, the primary judge recognised that the critical question was whether Mr Cappello’s interest in the venture was subject to a buyer being obtained by the Sunset Date. The primary judge said that he needed to be cautious about the recollection of each of Mr Cappello and Mr Scrivener as to what was said. The primary judge reached his conclusion on this issue after a detailed consideration of the events which occurred between the date of the conversation and May 2015. After considering them, his Honour summarised the matters which supported his conclusion in the following terms (the first judgment [448]):

“[448]   The following features of Mr Scrivener’s conduct after 20 August 2013 persuades me that, probably, he did not [impose the Sunset Condition]:

(a)   Mr Scrivener’s 28 August 2013 enquiry of Mr Cappello as to his ‘thoughts’ concerning the proposed Due Diligence Deed for 88 Rouse Road;

(b)   Mr Cappello’s involvement with Mr Scrivener in the strategy concerning Mr and Mrs Bannerman’s property in September 2013;

(c)   Mr Scrivener’s ultimate acceptance that, at the meeting at the El Phoenician restaurant in October or November 2013 that, without demur from Mr Scrivener, Mr Cappello described Mr Scrivener to Mr Aboud as his joint venture partner;

(d)   Mr Scrivener’s 16 November 2013 ‘fish and chips are on the stove’ email to Mr Cappello where Mr Scrivener said to Mr Cappello that he ‘now got 17 months to make sure I make it all happen’;

(e)   Mr Scrivener’s 18 November 2013 email to Mr Kucic, copied to Mr Cappello, in which Mr Scrivener said that Mr Cappello could not get a ‘conjunction or referral’ because ‘he is involved in [the] purchase’;

(f)   Mr Scrivener’s 9 December 2013 email to Mr Marsden in which he referred to his ‘joint venture partners’;

(g)   Mr Scrivener’s 20 December 2013 email to Mr Marsden referring to Mr Cappello as ‘my J/V partner’ (in the context of Mr Cappello having ‘stuffed up’ finding funds to provide the option fee for Mrs Boon’s Put and Call Option Deed);

(h)   Mr Scrivener’s 6 January 2014 email to Mr Cappello referring to ‘our site’”;

(i)   Mr Scrivener’s evident acceptance of the accuracy of the statement in the January 2014 Information Memorandum prepared by Mr Cappello in relation to the proposed sale to Sunland Group of Shaka Holdings as being ‘a joint venture partner in the site with Tuscany Corporation’;

(j)   Mr Scrivener’s 21 January 2014 email to Mr Cappello saying that ‘we’ should update all of ‘our’ vendors;

(k)   Mr Scrivener’s 4 February 2014 email to Mr Cappello explaining ‘how it works’;

(l)   Mr Scrivener’s failure to assert, in his critical email of 27 February 2014 to Mr Aboud, the existence of any Sunset Condition despite expressing anxiety about Tuscany having ‘to go unconditional’ the next day;

(m)   Mr Scrivener’s failure to assert the existence of the Sunset Condition on the Sunset Date itself in his email to Mr Cappello that day in which he said ‘Bannermans all sorted’ and ‘thank you for your help’;

(n)   Mr Scrivener’s failure at any time after the Sunset Date of 28 February 2014 to assert the existence of the Sunset Condition;

(o)   Mr Scrivener’s 11 March 2014 statement to Mr Cappello that they were ‘moving in the right direction so far’ despite the passing of the Sunset Date;

(p)   Mr Scrivener’s 14 March 2014 SMS to Mr Cappello, sent on the day that Mr Scrivener’s companies entered into the Put and Call Option Deeds in respect of 96 Cudgegong Road and 104 Rouse Road and on which Tuscany entered into the Loan Agreement with Oracle, ‘congratulations we own a site’;

(q)   Mr Scrivener’s emails to Mr Cappello keeping him informed of developments throughout April 2014;

(r)   Mr Scrivener’s suggestion that Mr Cappello meet the prospective purchaser, Mr Stanley Lei, from Anteus Group;

(s)   Mr Cappello’s involvement, to Mr Scrivener’s knowledge, in negotiations in May 2014 to interest Sunland in purchasing the sites leading to the 7 May 2014 email exchange in which Mr Cappello suggests that ‘we can move on’ and Mr Scrivener replied that ‘we are wasting our time’;

(t)   Mr Scrivener’s acceptance of Mr Cappello’s statement in Mr Edgerton’s presence that if Oracle committed to the deal ‘we will split 50:50’ and that ‘we’ll also split the profit from the acquisition of the sites 50:50’, which evidence finds objective confirmation in Mr Edgerton’s file note showing ‘50% to JS and JC (Tuscany)’;

(u)   the 26 May 2014 email exchange between Mr Scrivener and Mr Cappello concerning contributions to costs;

(v)   the provision by Mr Scrivener to Mr Cappello in July 2014 of his handwritten note concerning the likely gross realisations of the developed site;

(w)   Mr Scrivener’s evident acceptance of Mr Cappello’s 11 August 2014 statement that ‘Oracle deal is great for us anyway’;

(x)   Mr Scrivener’s disingenuous response to Mr Cappello’s challenge concerning what Mr Cappello had heard about the sale of the development to a Chinese developer;

(y)   Mr Scrivener’s 21 May 2015 response to Mr Cappello’s assertion of an entitlement to ‘50% of the Tuscany share’ which was not to assert the existence of the Sunset Condition and the lack of satisfaction of it but rather to say ‘you’ve got nothing in writing’ and (ironically) ‘good luck if you want to try and get anything in court’;

(z)   finally, Mr Cappello’s account of his agreement with Mr Scrivener to the officers of Oracle on 11 June 2015.”

24. Because none of these factual findings were disputed it is unnecessary to deal with them all in detail. However, having regard to one of the issues raised on behalf of Mr Scrivener, namely, that he was labouring under a mistake as to the true nature of the agreement, it is necessary to refer to the primary judge’s reasons in relation to a number of them.

25. So far as the matters referred to in [448](a) were concerned, the primary judge rejected Mr Scrivener’s evidence that he asked for Mr Cappello’s thoughts concerning the Due Diligence Deed for 88 Rouse Road “out of courtesy” (the first judgment at [123]).

26. In relation to [448](b), the primary judge stated that Mr Scrivener’s evidence on this topic suggested an inclination on his part to deny in cross-examination matters previously undisputed that he regarded as unhelpful to his case (the first judgment at [143]).

27. In relation to [448](c), the primary judge accepted the evidence of Mr Cappello and his and Mr Scrivener’s accountant, Mr Aboud, on this issue. Because it demonstrates Mr Cappello’s involvement in the transaction at the time that Oracle was introduced, it is helpful to set out Mr Cappello’s evidence which was to the following effect (see the first judgment at [146]):

“Cappello: Vince, you are aware that John and I have formed a joint venture partnership over some sites at Rouse Hill.

Aboud: Yes I am.

Cappello: John Scrivener wants to continue to represent both of us with the guys at Oracle without me being on any paperwork for my share. What are your thoughts?

Aboud: I have no problem with that. I think the less people and personalities at the corporate table during negotiations to form a deal the better. John Scrivener already has the relationship with the guys at Oracle.

Cappello: OK Vince, if you are OK with it, so am I. We can add me, or my company, later.”

28. Mr Aboud’s account was as follows (see the first judgment at [147]):

“Cappello: I have formed a joint venture partnership with John over some development sites at Rouse Hill.

Aboud: Yes.

Cappello: We are looking for investment funds from Oracle. John will represent both of us with [sic] without my name being on any paperwork for my share. What do you think.

Aboud: I think the less people involved in negotiations the better. John already has a relationship with Oracle.”

29. The primary judge noted (at [149]-[150]) that Mr Scrivener denied this account of the conversation, whilst in cross-examination he admitted that Mr Cappello may have said something along the lines of “joint venture”. His Honour stated (at [153])that this passage of evidence suggested to him that “Mr Scrivener was in his affidavit prepared to deny matters he knew to be true if those matters were inconsistent with his understanding of the case he should seek to establish”.

30. So far as the reference at [448](i) to Shaka Holdings being a joint venture partner in the Information Memorandum was concerned, the primary judge made the following remarks (the first judgment at [232]):

“[232]   Although Mr Scrivener in cross-examination spoke somewhat dismissively of the Information Memorandum as a ‘marketing document’, it clearly stated that Mr Cappello’s company, Shaka Holdings, was Tuscany’s ‘joint venture partner’. Mr Scrivener’s responses to the Information Memorandum show that he paid it careful attention. He must have seen the reference to Shaka Holdings being Tuscany’s ‘joint venture partner’. The fact the [sic] he made no comment about it in his communications with Mr Cappello about the Information Memorandum suggests to me that he agreed the description was accurate.”

31. In relation to the matters referred to in the first judgment at [448](m), the primary judge commented at [268] that if, as Mr Scrivener contended, the deal was over for Mr Cappello by that time, it was surprising, if not extraordinary, that Mr Scrivener did not mention that in the email sent on the Sunset Date.

32. His Honour’s conclusion on the matter referred to in [448](p) was in the following terms:

“[289]   In my opinion, the proper inference is that Mr Scrivener was, by this SMS, seeking to do more than let Mr Cappello know that he, Mr Scrivener, had managed to secure the site. I conclude that Mr Scrivener’s use of the first person plural, “we”, was intended by Mr Scrivener to convey to a person he still regarded as his joint venture partner that they, as joint venturers, had secured the site.”

33. In relation to the involvement of Mr Cappello in endeavouring to sell the site to Sunland after the Sunset Date (at [448](s)), the primary judge made the following comment:

“[332]   The degree of involvement of Mr Cappello, well after the Sunset Date, in what appears to be the parties’ last effort to sell the sites to Sunland, is inconsistent with Mr Cappello being, at that stage, a mere investor. It is also inconsistent with, indeed impossible to reconcile with Mr Cappello’s ‘journey’ being ‘over’ by reason of not having introduced a purchaser by the Sunset Date. Mr Cappello’s involvement appears to be that which would ordinarily be expected of a motivated joint venture partner.”

34. In dealing with the meeting with Mr Edgerton the subject of the first judgment at [448](t), the primary judge referred to Mr Scrivener’s denial that Mr Edgerton had asked why Mr Cappello’s name was not on any of the documents and Mr Cappello’s response, “[w]e set this up as a verbal agreement between myself and John. I trust him”. The primary judge noted that Mr Scrivener had not denied this in his affidavit evidence but did so in cross-examination. The primary judge stated (at [365]) that that suggested to him that “Mr Scrivener was endeavouring to deal with the cross-examination by saying whatever he thought might assist his case”.

35. Mr Edgerton prepared a file note of that meeting. The following extracts from that note are of particular relevance:

“      prior x’mas.

John S. approached ^ Nick Kennedy & Justin Kucic & Rouse Hill Boy

head guy Bruce (?) Macdonald

ORACLE ESTATES

Oracle was to do a JV

Provide all the money

Us to get 2.5% finders fee &

Refund of our outlays

John S would get M'ment Fee

Oracle a finding fee

Stuffed around so

J.S & J.C stumped up 250K for No. 88

Others due to commit

We decided to sell - offered to Sunland 16.5m

in Feb 14

Sunland called me in (Sahil Abedian)

upset about going from 15m to 16.5m

agreed on 15.3m (Profit 2.3)

gave them docs

they came back & stuffed around

us running out of time

In interim JS spoke to Oracle again

They repeated the stuff around.

Oracle agreed to lend Tuscany $417000

(ie JS.)   @ 20%

…

Used the $417K & released for the 5% deposit

3 or 4 weeks ago went back to Sunland

They said No

1 week later he calls me & interested

@ the 15.3m

…

Sols (Pike Viricus)

Deadline given thursday 9^th May

Abedian - got his nose out of joint

& tried to drop the price

Fell over

Now doing a deal with Oracle

x 125k back to JC

x 2.2% acquisition fee = 250K for JS/JC

x Super lot it to de risk it

x 50% to JS & JC (Tuscany) if not have

to settle and

x if have to settle

All splits are less

20% interest to Bruce (Oracle) on any loans

Accountancy M'ent fee for funds

JS Project M'ment fee

D A costs” (emphasis in original.)

36. In relation to the 26 May 2014 email exchange concerning the contribution to costs the subject of the first judgment at [448](u), the primary judge drew the following conclusions:

“[381]   … If, as Mr Scrivener contends, Mr Cappello was now ‘out of the deal’ and was only a ‘minor investor’ there is no reason why Mr Scrivener would be communicating with Mr Cappello in this way. These communications suggest that Mr Scrivener understood that his business relationship with Mr Cappello was ongoing and that there needed to be a reconciliation of the manner in which they had shared expenses to date. These exchanges also show that, as both Mr Cappello and Mr Scrivener accept they agreed on 20 August 2013, expenses were to be, and were being, shared equally.”

37. The primary judge also commented (at [383]) that he found the evidence of Mr Scrivener on this topic “impossible to reconcile” with the email exchange which occurred on 26 May 2014.

38. I have already referred to the conclusion of the primary judge in relation to the matters referred to in the first judgment at [448](x) (see at [21] above).

39. The primary judge drew the following conclusions from this evidence:

“[449]   The cumulative effect of these matters leads me to have an actual persuasion of the mind that Mr Scrivener did not, as he claims, refer to the Sunset Condition in the discussion with Mr Cappello on 20 August 2013 and that, accordingly, the Sunset Condition was not a term of the agreement between Mr Cappello and him.

…

[451]   Further, and critically, after the Sunset Date, and when on Mr Scrivener’s account of it Mr Cappello was no longer his joint venture partner and that the ‘journey’ for Mr Cappello was ‘over’, Mr Scrivener behaved in a manner that cannot be reconciled with him truly believing that the Sunset Condition was part of their agreement.

…

[453]   Mr Scrivener was either giving evidence he knew to be false or else, perhaps more likely, he has now come to believe that what he said was true because, litigation has intervened and that the processes of Mr Scrivener’s memories have become overlaid, perhaps subconsciously, ‘by perceptions of self interest as well as conscious consideration of what should have been said or could have been said.” (Footnotes omitted.)

40. In these circumstances the primary judge reached the conclusion to which I referred at [9] above. The primary judge concluded at [465] that there was a partnership between Mr Cappello and Mr Scrivener of the kind for which Mr Cappello contended. His Honour stated (at [467]) that he proposed to make a declaration that there was a partnership between Mr Cappello and Mr Scrivener and/or their corporate nominees, Tuscany and a company to be nominated by Mr Cappello, which acquired the rights to control and sell the Rouse Hill properties.

41. However, the primary judge did not make orders at that stage but listed the matter for further submissions.

The second judgment

42. In the second judgment the primary judge noted that a dispute had arisen as to whether Mr Scrivener, as well as Tuscany, was liable to pay equitable compensation to Mr Cappello or Shaka Holdings. His Honour accepted (at [13]) that the pleadings were “cast broadly to allow for the possibility the Court would find the partnership was between the companies, rather than the two men personally”.

43. In dealing with this issue the primary judge (at [15]) referred to Mr Cappello’s statement in the 20 August 2013 conversation that it might be a good idea to leave his name off things and Mr Scrivener’s reply, “OK, we can use Tuscany as the company for our partnership and then we can add your entity at a later date”. His Honour stated that those remarks formed part of the agreement.

44. The primary judge also referred to the following comments in the Information Memorandum (the second judgment at [21]):

“Tuscany Corporation currently has control of the site via Due Diligence and Put and Call Option Deeds.

Directors of Tuscany Corporation are John Scrivener and Gail Scrivener.

Shaka Holdings is a joint venture partner in the site with Tuscany Corporation.

Sole director of Shaka Holdings is John Cappello.”

45. The primary judge stated these remarks pointed strongly to the conclusion that the parties to the partnership or joint venture were the corporate entities, Tuscany for Mr Scrivener and Shaka Holdings for Mr Cappello.

46. The primary judge then noted (at [27]) the following submissions by senior counsel for Mr Cappello (and Shaka Holdings):

“If the position was that Tuscany was a partner and Mr Scrivener was not (which is disputed), Mr Scrivener was nevertheless knowingly involved in Tuscany’s breach of fiduciary duty for the same reasons as identified above.

The plaintiffs’ claim includes an alternative claim against Mr Scrivener on the basis of knowing involvement in Tuscany’s breach of fiduciary duty (on the supposition that Tuscany and not Mr Scrivener was the other partner). That claim seeks an order for equitable compensation against Mr Scrivener at ACLS [C53] and relevantly alleges:

(a) that Tuscany’s failure to account to its partner for a share of the proceeds was a breach of the fiduciary duties not to make a personal profit and not to put itself in a position of conflict between its duty and personal interest: at ACLS [C52] and [C13]; and

(b) that this conduct by Tuscany was ‘the result of decisions made for and on its behalf by its director and controlling mind, Scrivener: ACLS [C48].

Accordingly, even if Mr Scrivener was not partner in his own right (which is disputed), and as admitted on the pleadings, Mr Scrivener was directly responsible for Tuscany’s refusal to account for a share of the proceeds to Mr Cappello.

Whether as a partner or as a person knowingly involved in Tuscany’s breaches, Mr Scrivener should be ordered to pay equitable compensation.”

47. His Honour then made the following remarks:

“[28]   Mr Studdy SC, who appeared for the defendants, did not on this application respond to those submissions save to submit that:

(a)   I had not made findings in my 7 December 2020 judgment about accessorial liability; and

(b)   were I to conclude that the partnership or joint venture was between Tuscany and Shaka Holdings, it would follow that the award of equitable compensation should be made in favour of Shaka Holdings, rather than Mr Cappello.

[29]   It is true that I did not make findings about accessorial liability in the main judgment. That is one of the matters reserved for further consideration and is being dealt with in these reasons. In that regard, I accept Mr Pritchard’s and Mr Rayment’s submissions.

[30]   Mr Pritchard accepted that the submission at [28(b)] was correct.

[31]   It follows that Shaka Holdings, but not Mr Cappello, is entitled to judgment against both defendants for the relevant amount.” (Footnotes omitted.)

The appeal

48. I have set out the issues raised in the appeal and cross-appeal at [2] and [3] above. The cross-appeal raises the issue that his Honour erred in holding that Mr Scrivener and Mr Cappello were not partners in a venture which ultimately produced the profit the subject of the proceedings. Senior counsel for Mr Scrivener conceded that if it was found that Mr Scrivener was in partnership with Mr Cappello, then he owed him fiduciary obligations which he breached in causing his company, Tuscany, to retain the whole of the profits the subject of the venture rather than accounting for half of them to Mr Cappello or his nominee, Shaka Holdings. In those circumstances it is convenient to deal with this issue at the outset.

The submissions on the partnership issue

49. Mr Cappello in his cross-appeal contended in effect that the agreement reached on 20 August 2013, properly construed, was an agreement between him and Mr Scrivener to act as partners or joint venturers in an undertaking to develop the properties. It was submitted that Tuscany was the vehicle in which the assets of the partnership would be held and the fact that Shaka Holdings ultimately was nominated as the vehicle which would receive Mr Cappello’s interests did not affect the underlying position.

50. In written submissions filed on behalf of Mr Cappello, six matters were said to support the conclusion that Mr Cappello and Mr Scrivener were partners in the development of the Rouse Hill properties. The first was the manner in which a reasonable person would interpret the agreement. Second it was submitted that a reasonable person would not take the words “I think it might be a good idea to leave my name off things at this stage” as meaning that Mr Cappello was not to be a party at all, as distinct from not having his name associated with the purchasing entity.

51. The third matter was that the primary judge erred in not construing the words “OK, we can use Tuscany as the company for our partnership” as a suggestion that they use Mr Scrivener’s company as an expedient and have an entity to acquire control of the Rouse Hill properties whilst keeping Mr Cappello’s name off the documents until they no longer had dealings with Ms Boon, the owner of 88 Rouse Road. The fourth matter was that the primary judge erred in failing to hold that Tuscany held the assets as a bare trustee for Mr Scrivener and Mr Cappello in circumstances where Mr Cappello had no interest in Tuscany.

52. The fifth matter was that Mr Scrivener’s words “and then we can add your entity at a later date” involved working out an appropriate structure concerning Mr Cappello’s corporate nominee. It was suggested that this was clear from Mr Cappello’s response “I agree, Vince [Aboud, the parties’ accountant] can sort it out later”. The sixth matter was that the parties did not get around to working out the structure and notwithstanding the reference in the Information Memorandum to Tuscany and Shaka Holdings being joint venturers, Tuscany continued to hold the assets as trustee.

53. In written submissions filed on behalf of Mr Scrivener it was submitted that the first three matters relied upon by Mr Cappello were inconsistent with the agreement viewed as a whole. So far as the fourth matter was concerned, it was submitted that the reasons of the primary judge should not be taken as rejecting “all contentions” that at the time Tuscany was trustee, as distinct from rejecting the proposition that it was trustee for Mr Cappello and Mr Scrivener. It was submitted that the fifth and sixth matters relied upon were inconsistent with what was contained in the Information Memorandum and in the manner in which the case was pleaded.

54. Senior counsel for Mr Scrivener submitted that one of the matters which contributed to the primary judge’s views concerning the creditworthiness of Mr Cappello, as opposed to that of Mr Scrivener, was the fact that the Information Memorandum referred to the joint venture between the two companies. He submitted that had the issue the subject of the cross-appeal been raised, it would have resulted in an attack being launched on the credit of Mr Cappello. He subsequently accepted that it was raised but stated that it was not raised as strongly as on the appeal. There seems to me little doubt it was squarely in issue having regard to the findings of the primary judge in the first judgment at [467].

Consideration

55. In my opinion the agreement properly construed was an agreement between Mr Scrivener and Mr Cappello to enter into a partnership to acquire, to the extent necessary develop and then resell the Rouse Hill properties. Mr Cappello had identified the site and Mr Scrivener was to identify an entity who would be prepared to lend money for a share of the Rouse Hill properties. To adopt what was said by the High Court in Canny Gabriel Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd (1974) 131 CLR 321; [1974] HCA 22 at 326-327, “[t]he parties became joint venturers in a commercial enterprise with a view to profit” and “[p]rofits were to be shared” between them. Unlike that case, the agreement in the present case expressly described the parties as partners and expressly provided for the sharing of expenses. Further, it is clear that a partnership can relate to a single venture: Chan v Zacharia (1984) 154 CLR 178; [1984] HCA 36 at 196; United Dominions Corporation Ltd v Brian Proprietary Ltd (1985) 157 CLR 1; [1985] HCA 49 at 15.

56. The insertion of Tuscany into the venture does not alter my views. This is not a case such as Friend v Brooker (2009) 239 CLR 129; [2009] HCA 21 where the parties had agreed to carry on business in a company in which each were directors and had an interest. Tuscany was the company controlled at least at the outset by Mr Scrivener, and one in which Mr Cappello was neither a director nor a shareholder. It was, in effect, a vehicle which was entrusted to hold the assets on behalf of the partnership.

57. Nor do I think the introduction of Shaka Holdings affected the position. Although there was reference in the 20 August 2013 conversation to an entity of Mr Cappello’s being inserted at a later date, apart from the reference to Shaka Holdings in the Information Memorandum, it played no role in the venture. In particular, Mr Cappello personally paid his share of the option fee in respect of 88 Rouse Road, whilst the option fee for the other properties was provided by an advance of $417,500 by Oracle. Further, payment of one half of the acquisition fee paid by Oracle to Tuscany was paid to Mr Cappello, not Shaka Holdings.

58. There is also no suggestion in the evidence that the agreement was ever varied to one solely between Tuscany and Shaka Holdings, as distinct from the original partners, particularly in such a fashion as to release Mr Scrivener from his fiduciary obligations. This was particularly the case in circumstances where Mr Scrivener was responsible for the financial management of the venture. His obligations were of the nature of those referred to by Deane J in Chan v Zacharia at 196, quoting Dixon J in Birtchnell v Equity Trustees, Executors and Agency Co Ltd (1929) 42 CLR 384; [1929] HCA 24 at 407-408:

"Indeed, it has been said that a stronger case of fiduciary relationship cannot be conceived than that which exists between partners. ... The relation is based, in some degree, upon a mutual confidence that the partners will engage in some particular kind of activity or transaction for the joint advantage only. In some degree it arises from the very fact that they are associated for such a common end and are agents for one another in its accomplishment. ... The subject-matter over which the fiduciary obligations extend is determined by the character of the venture or undertaking for which the partnership exists, and this is to be ascertained, not merely from the express agreement of the parties, whether embodied in written instrument or not, but also from the course of dealing actually pursued by the firm."

See also United Dominions Corporation Ltd v Brian Proprietary Ltd at 11.

59. As I indicated, it was not disputed that if Mr Cappello and Mr Scrivener were in partnership in respect of the venture then Mr Scrivener breached the fiduciary obligations owed by him to Mr Cappello by taking improper advantage of his position in failing to cause Tuscany to account to Mr Cappello for his share of the proceeds. His liability was to Mr Cappello, not Shaka Holdings. The orders made by the primary judge should be varied to reflect this position.

The issues raised by the appeal

60. Having regard to my conclusion on the partnership issue, the issues raised on the appeal can be dealt with relatively briefly.

61. As I indicated, the first complaint was that the primary judge failed to give reasons for his conclusion that Mr Scrivener was liable as an accessory for Tuscany’s breach of fiduciary obligations and failed to make specific determination of facts which could support that conclusion.

62. The primary judge’s brief reasons for his conclusion on the question of accessorial liability are set out at [46]-[47] above. The submission which the primary judge relied on was contained in [35]-[37] of the respondent’s written submissions in the Court below on the appropriate orders to be made.

63. It must be remembered that the remarks made by the primary judge were made in the context of the detailed findings of fact he had made in the first judgment and in particular, his ultimate conclusions which I have set out at [39] above. It is understandable that the primary judge dealt with the matter shortly, particularly when senior counsel for the appellant in the Court below did not substantially respond to the submission.

64. Nevertheless, the primary judge did not refer to two matters essential to establish liability under the so-called second limb of Barnes v Addy: first, whether there was a dishonest and fraudulent design on the part of the fiduciary and second, whether Mr Scrivener knowingly participated in the breach.

65. The first matter may be dealt with shortly. The breach was in effect the retention of a large sum of money to which Mr Cappello or his nominee was entitled. The requisite element of dishonesty is met where the conduct which constitutes the breach transgresses the ordinary standards of honest behaviour: Hasler v Singtel Optus Pty Ltd (2014) 87 NSWLR 609; [2014] NSWCA 266 at [124]; Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd (2018) 265 CLR 1; [2018] HCA 43 (“Lifeplan”) at [71]. Tuscany’s failure to account clearly falls within that category.

66. The more difficult question is whether it is open to this Court to make a finding of knowing participation. Senior counsel for Mr Scrivener submitted that it would be inappropriate to do so. He referred in particular to the conclusion reached by the primary judge in the first judgment at [453], submitting that that demonstrated that Mr Scrivener may have acted on the mistaken belief that Mr Cappello had no interest in the venture, particularly in circumstances where he had taken responsibility for finding the financier and he and Tuscany, rather than Mr Cappello, had incurred the potential liability to Oracle as financier of the project.

67. Section 75A of the Supreme Court Act 1970 (NSW) provides that any appeal shall be a rehearing and empowers the Court to draw inferences and make findings of fact. However, there will be cases where a proper exercise of the appellate jurisdiction requires the matter to be remitted for further hearing.

68. In many, perhaps most cases the failure by a primary judge to make a finding of fact as to an element of a cause of action, particularly one involving the assessment of a person’s state of mind, is a matter which would result in an order for a new trial rather than the Court exercising its power under s 75A to draw its own conclusion.

69. It is certainly arguable that this is a case where the Court should substitute its own decision. First, none of the findings of fact or the inferences drawn by the primary judge have been challenged. Second, the primary judge rejected the sole basis upon which Mr Scrivener claimed that Mr Cappello or his company were not entitled to half the proceeds, namely the existence of the sunset clause. In reaching this conclusion, his Honour noted that on a considerable number of occasions Mr Scrivener acted quite inconsistently with his claimed belief and indeed, on a number of occasions, made credit findings against him. As the primary judge noted in the first judgment at [451], Mr Scrivener’s conduct could not be reconciled with him truly believing that the Sunset Condition was part of the agreement. Further, it is sufficient for accessorial liability under the second limb of Barnes v Addy that the accessory knew of facts and circumstances which would indicate the fact of the breach on the part of a fiduciary to an honest and reasonable person: Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; [2007] HCA 22 at [174]-[179]; Lifeplan at [71]; Pittmore Pty Ltd v Chan (2020) 104 NSWLR 62; [2020] NSWCCA 344 at [191]-[193].

70. Notwithstanding these considerations, had it been necessary to do so I would have ordered a new trial on this issue or at least ordered that the matter be remitted to the primary judge for consideration of Mr Scrivener’s liability on the basis of his knowing participation in Tuscany’s breach of fiduciary obligation or for procuring or inducing Tuscany’s breach. This is because notwithstanding the undisputed findings of the primary judge, his Honour failed to determine what was an essential element of the case. This coupled with the doubt as to Mr Scrivener’s state of mind arising from the primary judge’s ultimate assessment of his evidence at [453] of the first judgment makes it inappropriate for this Court to deal with the matter.

71. It is unnecessary to formulate the precise form of orders which would have been made. However, it would not have been a general order for a retrial as this is the case where, in my view, more injustice would be done by setting the matter at large again: Pateman v Higgin (1957) 97 CLR 521; [1957] HCA 62 at 525; see also Hillig v Battaglia [2018] NSWCA 67; (2018) 125 ACSR 171 at [117]-[118] and the cases there cited.

Conclusion

72. The declaration sought by Mr Cappello in (2)(b) of the cross-appeal should be made in lieu of the declaration in Order 1 made by the primary judge in his orders of 4 March 2021.

73. Order 2 made by the primary judge should be varied to provide that the liability of Mr Scrivener to pay equitable compensation be made solely in favour of Mr Cappello (the second alternative proposed in (2) of the cross-appeal).

72. Because there was no appeal by Tuscany, the order that it is liable to both Mr Cappello and Shaka Holdings should remain. However, it should be added that any payment made pursuant to this order should result in a pro tanto discharge of the liability of Mr Scrivener in respect to the orders made against him.

73. The order for costs made in the Court below should remain.

74. As to the costs of the appeal Mr Scrivener has failed to obtain the order sought by him, namely, that the judgment entered against him to pay equitable compensation to both Mr Cappello and Shaka Holdings be set aside. The variation limiting his liability to Mr Cappello has no real commercial effect. It is true that he was successful in establishing that the primary judge in finding accessorial liability had not dealt with an essential element necessary for such a finding, but that did not affect his liability to Mr Cappello. Further, even if considered in isolation that finding would not have resulted in the orders sought by him, but only a limited new trial or a remitter of the question of accessorial liability to the primary judge. In these circumstances Mr Scrivener should pay 80 per cent of the costs of the appeal and cross-appeal.

75. In the result I would make the following orders:

1. Appeal dismissed.

2. Cross-appeal allowed.

3. Set aside Order 1 of the orders made by the primary judge and in lieu make the following declaration:

The Court declares that there was a partnership between the first plaintiff and the first defendant that acquired the rights to control and sell the three contiguous properties situated at 88 Rouse Road, 104 Rouse Road and 96 Cudgegong Road, Rouse Hill and that the second defendant held the said rights in trust for the said partnership.

4. Vary Order 2 of the orders made by the primary judge to provide as follows:

1. The first and second defendants are liable to pay to the first plaintiff equitable compensation in an amount of $6,203,689.48 inclusive of interest.

2. The second defendant is liable to pay the second plaintiff equitable compensation in an amount of $6,203,689.48 inclusive of interest.

3. Any payment made by the first or second defendants pursuant to Order 4(a) shall result in a pro tanto reduction of the second defendant’s liability under Order 4(b).

4. Any payment made by the second defendant under Order 4(b) shall result in a pro tanto reduction of the liability of the first and second defendants under Order 4(a).

5. Order the appellant pay 80 per cent of the respondents’ costs of the appeal and cross-appeal.

78. BELL P: I agree with the reasons of the Chief Justice.

79. MACFARLAN JA: I agree with Bathurst CJ.

**********

Decision last updated: 21 December 2021