Thompson v White
[2008] NSWSC 1
•15 January 2008
CITATION: Thompson v White [2008] NSWSC 1
This decision has been amended. Please see the end of the judgment for a list of the amendments.HEARING DATE(S): 21-23/11/07, 10/12/07, 13/12/07, 20/12/07
JUDGMENT DATE :
15 January 2008JURISDICTION: Equity JUDGMENT OF: Biscoe AJ DECISION: Joint venture accounts settled. Money judgment for plaintiff in proceedings 5929/03. CATCHWORDS: JOINT VENTURE - accounts - calculation of shares of profits LEGISLATION CITED: Uniform Civil Procedure Rules 2005 rr 20.14(5) , 28.2 CATEGORY: Principal judgment CASES CITED: Thompson v White & Anor; ACDC v Thompson [2005] NSWSC 1257
Thompson v White and Ors [2006] NSWCA 350TEXTS CITED: ... PARTIES: Byron Ward Thompson (Plaintiff 2685/03)
Julian John White (First Defendant 2685/03)
Romeo Medina Libut (Second Defendant 2685/03)
Aerated Concrete Design & Construction Pty Ltd ACN 070 297 291 (Plaintiff 5929/03)
Byron Ward Thompson (Defendant 5929/03)FILE NUMBER(S): SC 2685/03; 5929/03 COUNSEL: Mr N A Cotman SC (Plaintiff 2685/03; Defendant 5929/03)
Mr G P George (Second Defendant 2685/03; Plaintiff 5929/03)SOLICITORS: Brown & Partners (Plaintiff 2685/03; Defendant 5929/03)
Julian John White in person (First Defendant) 2685/03)
Forsters (Second Defendant 2685/03; Plaintiff 5929/03)
IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
BISCOE AJ
15 January 2008
2685/03 BYRON WARD THOMPSON v JULIAN JOHN WHITE & ROMEO MEDINA LIBUT
5929/03 AERATED CONCRETE DESIGN & CONSTRUCTION PTY LTD ACN 070 297 291 v BYRON WARD THOMPSON
JUDGMENT
1 HIS HONOUR: The issues before the Court concern the quantum of claims in these two proceedings that have been heard together. Issues other than specified quantum issues have previously been determined as preliminary issues.
BACKGROUND
2 At all material times Byron Ward Thompson was an employee of Aerated Concrete Design and Construction Pty Ltd (ACDC) whose directors and shareholders were Julian John White and Romeo Medina Libut and their wives. It is convenient, without intending any disrespect, to refer to these men by their surnames.
3 In May 1997, Thompson purchased in his name vacant land known as 65 Ellery Parade, Seaforth for $495,000. His wife, Jennifer Thompson, provided $285,000 as his capital contribution to the purchase price.
4 The land was purchased in Thompson’s name with the intention that it would be a joint venture asset between Thompson, White and Libut and would be developed and sold. Originally they had contemplated that the vehicle for their joint venture would be a company in which they would be equal shareholders to be named Australian Hebel House Pty Ltd. That did not eventuate although that company was established in September 1997 with an issued capital of $30,000 to which Libut and White each contributed $10,000 and shared a further contribution of $10,000 on behalf of Mr and Mrs Thompson.
5 At various times White, Libut and Thompson agreed that: (a) the balance of the purchase price would be provided by way of loans; (b) related party loans would bear simple interest at 10% per annum; (c) ACDC would carry out the development and charge the venture for materials and labour costs plus a 10 percent margin to cover overheads; (d) Thompson’s bank account should be utilised for the purpose of the venture in that loan monies would be credited to that account and monies paid from it to meet interest and construction costs; (e) they would split profits as to the first $500,000 50% to Mr Thompson and 25% each to White and Libut with any profit above that figure to be shared equally.
6 Over a period of some years, a substantial dwelling-house was erected on the land. It was financed by external and related party loans.
7 During 1999 some preliminary work was undertaken at the site by ACDC but it was not until February 2000 that ACDC commenced full-time work on construction of the house. Relationships between the parties became strained and ACDC and White performed no further work on the property after October 2001. By then the house had reached lock-up stage. From that time Thompson oversaw the house’s completion. In or about April or May 2002, Libut worked on a swimming pool being constructed on the property.
8 Thompson and his wife occupied the house from 3 September 2001, when the house reached lock-up stage, until completion of its sale in May 2003. There is an issue as to whether or not he agreed to pay an occupation fee of $600 per week.
9 On 24 April 2003, Thompson contracted to sell the Seaforth property for $3,100,000. On completion of the contract on 15 May 2003, (a) all external loans amounting to just over $1 million were repaid and (b) $150,000 of the sale price was withheld by the purchaser in relation to alleged rectification or incomplete items, of which $50,000 was later released to Thompson. Thompson used $774,647 of the proceeds of sale towards the purchase of a house at Somersby in his wife’s name. Related party loans were not repaid and remain outstanding.
10 Earlier in 2003, Thompson, in order to allow the Seaforth property to be sold, commenced proceedings (2685 of 2003) against White and Libut to remove caveats claiming a constructive trust which they had lodged over the title. In their caveats, White claimed that he had contributed $305,500 and Libut claimed that he had contributed $191,760 towards the joint venture and that the monies had been used to build a house and improvements on the property. These proceedings later became the vehicle for cross-claims by White and Libut that (inter alia) there was a joint venture and for an account.
11 On 9 May 2003 the Court ordered that (a) the caveats be withdrawn to allow the property to be sold; (b) Thompson pay $800,000 from the proceeds of sale of the Seaforth property site into a controlled money account in the joint names of the solicitors for Thompson and Libut; and (c) Thompson pay $100,000 from the proceeds of sale of the Seaforth property to White and Libut. On 13 May 2003 the Court ordered Thompson to pay a further $200,000 from the proceeds of sale of the Seaforth property into the controlled money account and restrained Thompson from selling or disposing of any interest in the Somersby property until further order. The Court ordered on the following dates that the following amounts be paid from the controlled money account:
- (a) on 22 October 2007, $100,000 to Thompson’s solicitors;
(b) on 6 December 2007, $150,000 being $50,000 each to Thompson’s solicitors, Libut’s solicitors and White;
(c) on 20 December 2007, $200,000 to White.
12 Also in 2003, ACDC commenced proceedings (5929 of 2003) against Thompson claiming $448,573.95 for materials and labour provided by ACDC to Thompson to construct the house on the Seaforth land, plus interest at 10% per annum from 15 May 2003. Thompson cross-claimed for damages against ACDC and White for, inter alia, misleading and deceptive conduct.
JUDGMENT OF GZELL J
13 In November 2005, issues other than specified quantum issues were heard by Gzell J. His Honour delivered judgment in December 2005: Thompson v White & Anor; ACDC v Thompson [2005] NSWSC 1257. His Honour noted at [1] that White and Libut alleged that they and Thompson entered into a joint venture agreement whereby they would purchase the Seaforth property, construct the house, sell it and share the profits equally. Thompson, on the other hand, alleged that there was no such joint venture, the house was to be the residence of his wife and him, ACDC was retained by him to build the house, and he financed the acquisition of the land and the construction of the house.
14 Gzell J’s findings included the following:
- 76 In the absence of contemporary documents supporting the existence of a joint venture on the one hand or an individual investment through loan funds on the other, the nature of the relationship between the parties depends, as I have said, on the oral evidence of the parties involved.
77 The consistent evidence of those who heard the conversations about the Seaforth property in the presence of Mr Thompson that the relationship between parties was described by them as a joint venture, leads me to reject the evidence of Mr Thompson that no such venture existed.
78 In my view, Messrs Thompson, White and Libut agreed, shortly after Mr Thompson was employed by ACDC, that they would form a joint venture company in which each held a one third interest and they would purchase, develop and sell suitable properties with a combination of third party finance and profits generated in ACDC.
79 I accept the evidence that Mr Thompson was to cause $285,000.00 to be contributed to the purchase of the Seaforth property in order that it became the parties’ first joint venture. I accept the evidence that Mr Thompson required the property to be registered in his name as he was to contribute, or cause Mrs Thompson to contribute, the only initial funds. Nonetheless, the property was to be developed as a joint venture with Mr Thompson, Mr White and Mr Libut to share the profits equally.
80 That relationship was varied at the Dee Why hotel in September 2000 with Mr Thompson to have 50% of the profit up to $500,000.00, but any profit over and above that figure was to be shared equally by the three participants.
81 It was submitted that the loans made by ACDC and by Mr White to Mr Thompson belied such a relationship. On the contrary, the draft agreements of August 2000 indicate that the contributions of each were to be treated as interest bearing loans that were to be repaid before the profit on the venture was calculated.
82 It was submitted that the arrangement was too vague to be enforced because there had been no mention of how losses, if any, might be treated. It is true that the sharing of losses was not discussed by the parties. But the inescapable inference is that, in the event of a loss, each of the parties would bear an equal share.
83 It was submitted that the arrangement should not be enforced because there was no indemnification or guarantee given by Messrs White and Libut to Mr Thompson who, as registered proprietor of the land, and the person to whom all loans were made, bore all risks with respect to the purchase of the land and the performance of the construction works.
84 That is a submission allied to the former one. If a liability was incurred by Mr Thompson that could not be discharged when the property was sold, or could not be discharged by further mortgaging the property, because the parties were obliged to share any losses equally, Mr Thompson would have been entitled to contribution from each of Mr White and Mr Libut.
85 It was submitted that the relationship could not be as I have described it because neither Mr White nor Mr Libut made any direct contribution to the purchase price of the land or the cost of construction of the house. That is not so. Mr White and his wife advanced in access [sic] of $300,000.00 to the project. The fact that those funds were advanced to Mr Thompson by way of loan does not exclude them as a contribution to the joint venture. Its structure required funds to be provided by way of loan, to be discharged from the proceeds of sale of the Seaforth property before the profit of the venture was calculated.
86 As counsel for ACDC and Mr Libut put it in final submission, once I have determined the basis upon which Messrs Thompson, White and Libut had an interest, if any, in the Seaforth property: the Court’s work will be completed .
87 Subject to my formalising what I have said by way of declaration and once I have settled the questions to be referred and to whom they should be referred, I agree with that submission.
88 I will hear the parties on the appropriate terms of those declarations and the reference or references. I will hear the parties on costs. I direct the parties to bring in short minutes of orders reflecting these reasons.
15 Gzell J made declarations, of which the third and fourth were as follows:
- (3) That the land known as 65 Ellery Parade, Seaforth, being all of the land contained in folio identifier 276/4889 ( the land ), was purchased in the plaintiff’s name with the intention that it would be a joint venture asset.
(4) Declares that [Thompson], [White and Libut] agreed in September 2000, that:
- (a) [Thompson] would receive 50 percent of the profits from the sale of the land up to $500,000 and [White] and [Libut] would share 50 percent of the profits from the sale of the land up to $500,000 between them;
(b) [Thompson], [White] and [Libut] would share equally the profits from the sale of the land in excess of $500,000.
16 An appeal by Thompson was unsuccessful insofar as it concerned those two declarations, although other declarations made by Gzell J were set aside: Thompson v White and Ors [2006] NSWCA 350. The Court of Appeal upheld the primary judge’s conclusion that a joint venture agreement creating legal relations had been established with respect to the acquisition, development and sale of the Seaforth property: at [151]. Tobias JA (Ipp and McColl JJA agreeing) held:
- 101 …I would draw the following conclusions from the findings of the primary judge:
- (a) Although in or about February 1997 conversations took place between Messrs Thompson, White and Libut to the effect that they should, through a joint venture company in which they would be equal shareholders, acquire properties and develop them by way of outside finance and then share the net profits equally, unless and until a particular property was found which would be suitable for the purpose, in all probability the parties did not intend contractual relations between them to have been created. However, once the Seaforth property was located, the parties agreed that it would be acquired for the purpose of its development and sale and that the profits earned would be shared equally. This agreement was one in respect of which they intended to be contractually bound.
(b) I interpolate that although his Honour found (in [78]) that the parties had agreed that they would form a joint venture company in which each held a one third interest and that they would purchase, develop and sell suitable properties with contribution of third party finance and profits generated in ACDC, an agreement reflected in the first and second declarations made by his Honour, in my opinion no binding agreement intended to thereupon create binding legal relations came into existence at that time. Therefore, those declarations ought not to have been made. They have no practical utility in any event.
(c) Because none of the parties, apart from Mrs Thompson, had any funds, she agreed to provide to her husband the sum of $285,000 as his capital contribution towards the purchase of the Seaforth property. The parties then agreed that the balance of the purchase price and the costs of the development would be provided by way of loans. Furthermore, they agreed that ACDC would construct the development at a reasonable price.
(d) At the time that ACDC was able to proceed with the construction of the development on a full-time basis, it was to receive approximately $280,000 to $300,000. It was further agreed that each of Messrs. White, Thompson and Libut would contribute their wages as employees of ACDC as loans to the Seaforth project and that ACDC would record all materials and contractors paid by it in a loan account from ACDC to the venture subject to the addition of a 10% margin on wage and material costs to cover overheads.
(e) A further term of the agreement was that the Seaforth property would be purchased in the name of Thompson given that only he, through his wife, was contributing capital but that he would hold the property for the purpose of the joint undertaking of its development and ultimate sale for profit.
(f) The agreement between the parties was varied on 29 September 2000 with respect to the split of profits in favour of Thompson who was to receive 50% of the profit up to $500,000 but any profit above that figure was to be shared equally between the three participants.
103 Although Thompson submitted that there was no agreement as to how the profit was to be calculated or how losses were to be shared, there could be little doubt that in what was a reasonably straight forward transaction, it should be inferred that the profit on sale was to be ascertained by deducting from the gross sale price all expenses incurred in the acquisition of the property, the construction of the development, the repayment to Thompson of the capital contributed by him and the repayment to any lenders of their loans together with interest: cf Vroon BV v Foster’s Brewing Group Ltd at 69–70. So far as losses were concerned, which were not anticipated, as his Honour found they were to be borne equally as were the profits.
104 It was further submitted that Mr and Mrs White had advanced in excess of $300,000 by way of loan to the project, which told against it being a joint venture as those funds were not contributed as capital. In my view, his Honour correctly (at [85]) determined that the fact that those funds were advanced to Thompson by way of loan did not exclude them as a contribution to the joint venture. As his Honour observed, the joint venture structure required funds to be provided by way of loans and to be discharged from the gross proceeds of sale of the Seaforth property before the profit of the venture was calculated. This is consistent with the observation in the passage from the joint judgment of United Dominions which I have recorded in [90] above that each participant in a joint venture usually, but not necessarily, contributes money, property or skill. There is no reason in principle why the contribution of money must be by way of capital rather than by way of loan.
105 Accordingly, in my opinion, the first category of challenge to his Honour’s conclusions should be rejected.
106 It follows from the foregoing that I would also reject Thompson’s submission that no concluded agreement came into existence between the parties in the absence of agreement with respect to each and every item to which I have referred in [97] above. In any event, most of those matters were agreed in one form or another. Thus, the form of the arrangement was not intended as a partnership or a trading entity but simply the undertaking of a development project by the acquisition of the Seaforth property, the construction of a substantial dwelling house thereon and the sale of the property for the purpose of mutual profit: a typical joint venture undertaking. Again, there was agreement as to the keeping and maintenance of accounts and records in that ACDC was to maintain a loan account (see [97(d)] and otherwise the records of the purchase, the making of loans and the payment of interest were all the subject of documentation.
107 After the conclusion of the hearing and with the leave of the Court, both Thompson and White provided the Court with documents which had been tendered before the primary judge and, in particular, which had been exhibited to affidavits of Thompson and which included in the latter’s statement of account with St George Bank Ltd. Other exhibits to Thompson’s affidavits included his loan agreement with Royal Guardian Mortgage Corporation Pty Ltd as well as the various statements of account between he and that lender over the period of the loan. It was not suggested that the money borrowed from Royal Guardian was used otherwise than for the purpose of the construction of the development of the Seaforth property.
108 As White submitted, it is apparent that the parties agreed that Thompson’s account with St George Bank Ltd should be utilised for the purpose of the joint venture in that loan monies would be credited to that account and monies paid from the account for the purpose of meeting interest payments as well as construction costs. This is not surprising given that the title to the Seaforth property was solely in Thompson’s name.
109 Thompson also provided to the Court additional documents to those provided by White which were also before the primary judge and which, so it was submitted, demonstrated that payments with respect to the expenditure and performance of the works upon the Seaforth property were made from sources other than Thompson’s loan account. It was also submitted that his loan account statements with the St George Bank did not of themselves establish that all monies received or spent related solely to the Seaforth property project.
110 White conceded that Thompson had made personal deductions from his loan accounts with the St George Bank inferring that those deductions occurred without his or Libut’s authority. He submitted that the purpose of the reference by his Honour to the referee was to enable a reconciliation of those accounts for the purpose of determining precisely which receipts or payments did not relate to the project.
111 However, it is clear that Thompson did not rely upon these factors in the issue tendered before the primary judge for his decision, namely, whether or not there was a concluded joint venture agreement. Nevertheless, it is apparent that the parties had agreed to what they considered to be a form of account and record keeping which was sufficient for present purposes and it matters not that, during the course of the project, one or other of the parties may have departed from what had been agreed.
…
141 Although being a joint venture Thompson may have owed fiduciary duties to White and Libut not to use the property otherwise than for the purpose for which the joint venture was created, the effect of the joint venture agreement in terms of the acquisition, development and sale of the property did not call for, and therefore did not purport to immediately create, any legal or equitable interest in the property in favour of White or Libut. There was no express finding by the primary judge to suggest that the agreement immediately created any such interest; nor was the creation of any such interest or any declaration of trust necessary to give effect to the undertaking upon which the parties had agreed. Neither the expression interest in land or declaration of trust appears in the language adopted by the primary judge and, in my opinion, rightly so.
142 Thompson did not point to any evidence on the part of White which would have justified or supported a finding that the agreement which his Honour found to have been concluded, was intended to create a legal or equitable interest in the property in favour of White and Libut or otherwise that Thompson agreed to hold the land in trust for his co-participants in the venture. The simple fact was that the language of trust was not employed.
…
149 Accordingly, in the present case, if the agreement as found by the primary judge had purported to constitute an express declaration of trust by Thompson that he held the Seaforth property for the benefit of himself and the other two parties, the legal effect of s.23C would be that that declaration of trust was ineffective to create an equitable estate or interest in the property in favour of White and Libut. However, that consequence would not render the agreement ineffective or unenforceable insofar as it constituted an agreement to purchase, develop and sell the Seaforth property for mutual profit. White and Libut would still be entitled to the third and fourth declarations made by the primary judge together with an account of the profits earned from the sale and an entitlement to their agreed share thereof.
17 At the commencement of the hearing before Gzell J, his Honour considered that as a central issue in the proceedings was the determination of what was the agreement, if any, between the parties with respect to the Seaforth property, issues of quantification of claims depended upon that determination. Accordingly, his Honour made an order pursuant to the Uniform Civil Procedure Rules 2005 (UCPR) r 28.2 that issues other than the following quantum issues specified by his Honour in [3] of his judgment be heard and determined:
- a) What was the total amount spent on the construction of the house at Seaforth by ACDC?
b) What was the total amount spent on the construction by Mr Thompson?
c) Was the amount spent on the construction by ACDC reasonable?
d) Was the amount spent on the construction by Mr Thompson reasonable?
e) What was the value of the work undertaken on the construction by Mr Libut?
f) What was the net purchase price of the property?
g) What was the net profit, or loss, made from the purchase, development and sale of the property?
h) What amount is payable to ACDC for the work undertaken by it on the construction?
i) What amount is payable to Mr Thompson for the work undertaken by him on the construction?
j) What amount is payable to Mr Libut for the work undertaken by him on the construction?
k) What loans:
- (i) were advanced by Mr Thompson?
(ii) Were advanced by Mr White?
(iii) Were advanced by Mr Libut?
(iv) Were advanced by ACDC?
m) What are the respective shares of any profit, or loss, from the purchase, development and sale of the property due to Messrs Thompson, White and Libut?
n) What is the amount of any profit, or loss, made from the purchase, development and sale of the property due to Messrs Thompson, White and Libut?
18 Those remaining quantum issues, which were refined before me, are accounting issues. Gzell J made an order pursuant to UCPR r 20.14(5) referring those issues to an expert referee, however the order was later vacated. There has been no expert accounting evidence.
19 The joint venture ended on completion of the sale of the Seaforth property on 15 May 2003. It is common ground that the profit of the joint venture should be determined as at that date.
20 The disputes and agreements between the parties in relation to all quantum items were crystallised during the hearing in a draft joint venture profit and loss account, balance sheet and statements of entitlements of parties and related entities as at 15 May 2003 (collectively “the draft accounts”) prepared at my request during the hearing. The draft accounts (omitting the parties’ notes thereto) are annexed to this judgment.
21 My decision and reasons in relation to all contentious quantum items are set out below. The White/Libut contentions in the draft accounts are identical even though White was self-represented. There was one additional contention made by White (but not Libut) in final submissions and not noted in the draft accounts. It was that Thompson has spent an additional $98,000 on personal expenses from joint venture loan funds.
Credit
22 The credit of all witnesses was satisfactory except for that of Thompson. His credit was damaged to the extent that generally I do not accept his contested evidence unless it is supported by independent, credible evidence.
23 The main reasons for this assessment of Thompson’s credit are as follows:
(a) his credit was rejected in these proceedings by Gzell J in relation to the fundamental issue of whether a joint venture existed. His Honour noted that the nature of the relationship between the parties depended on the oral evidence and rejected the evidence of Thompson that no such venture existed: at [76], [27]. The Court of Appeal noted that the primary judge’s determination of the central issue of agreement or no agreement was credit based to a very significant extent: at [10], [11];
(b) in the contract of sale of the Seaforth property, Thompson warranted in cl 45: “ 45.1.1 That construction of the improvements was completed prior to 5 May 2002 except for work having a value of less than $5,000 and the car stacker and landscaping which were not included in the building contract with Australian Hebel House Pty Ltd and were subsequently undertaken; 45.1.2. That Australian Hebel House Pty Ltd carried out construction of the improvements on the property except as stated in clause 45.1.1 ”. In cross examination, Mr Thompson conceded that this warranty was false because the amount of work that had to be completed was much greater than $5,000. The reason that he made the false warranty, he said, was because the house had to be sold. He agreed he knew that he was making a false promise to the purchaser;
(d) I formed a poor impression of Thompson when he gave oral evidence. For example, he appeared evasive and uncharacteristically lacking in recollection when being questioned about not declaring income in his tax returns.(c) Thompson admitted in cross-examination that he did not declare large amounts of income in his 2000 and 2001 income tax returns. He also said he had not done income tax returns for 2002 and 2003. He conceded that he had not declared over $100,000 of income for the 2000 financial year. He had no explanation. He then said it may have been an oversight. He could not recall being cross-examined on that matter at the earlier hearing before Gzell J in 2005. Since then, he said, he had taken no steps to bring the matter to the Taxation Commissioner’s attention. He admitted that income from contracting of over $65,000 was not included in his 2001 tax return. He said it was another oversight. Again he could not recall being cross-examined about it at the earlier hearing. I do not accept that the omission of income from these taxation returns was an oversight;
Sale price (P & L account)
24 The first contentious item in the profit and loss account is the net sale price. The contract sale price of the Seaforth property was $3,100,000. Of that sum, $150,000 was retained by the purchaser pending rectification work being carried out by the vendor, Thompson, in accordance with cl 44 of the sale contract. Clause 44 provided that: “Prior to completion the vendor must complete the following work to the property in a proper and workmanlike manner and give not less than 2 business days notice to the Purchaser or her solicitor, and permit the work to be inspected by a qualified builder or building consultant or valuer engaged by the Purchaser”. There followed a long list of incomplete or defective works. The purchaser later released to Thompson $50,000 of the retained sum. Thompson submits that the sale price should be reduced by $100,000 in the venture’s profit and loss account to reflect the net retention of $100,000. Libut/White submit to the contrary that the sum of $100,000 should appear as an asset in the joint venture’s balance sheet and should be debited to Thompson.
25 There was correspondence between the solicitors for the vendor and the solicitors for the purchaser concerning the retained sum of $150,000. According to a letter from the purchaser’s solicitors dated 10 July 2003, the sum of $85,000 had been paid by the purchaser to the purchaser’s builder in respect of rectification works which were not yet completed and the purchaser expected to receive further invoices from the builders. A letter from the purchaser’s solicitor of 21 July 2005 indicated that any proceedings by the vendor to recover the $100,000 would be vigorously defended and that they were instructed to cross-claim for damages for breaches of contract, including failure to complete building works on time, faulty workmanship and failure to rectify when given an opportunity to do so. The letter said that it was anticipated that the cross-claim would exceed the claim.
26 Libut/White submit that the $100,000 should not be deducted when calculating profit and should be debited to Thompson’s account on the basis that he bears personal liability for the rectification works. I do not accept the submission. The price which the purchaser was prepared to pay was $100,000 less than the gross contract sale price. Prima facie, White and Libut should shoulder equal responsibility with Thompson for rectification works. They left to him from October 2001 the task of completing the work. In relation to the sum of $100,000, the evidence is insufficient to pass judgment as to whether Thompson is liable to the joint venture (or White/Libut) or as to whether the purchaser is liable to Thompson for the benefit of the joint venture,.
27 For present purposes, in my view, the net sale price of the property was effectively $3,000,000, that is, $100,000 less than the contract sale price because of the sum retained on account of rectification works. It is simpler to deduct the sum of $100,000 from the contract sale price when calculating profit at 15 May 2003. The sum of $50,000 released to Thompson is an asset of the joint venture and is owed by Thompson to the joint venture.
ACDC materials claim against Thompson (P & L account)
28 ACDC’s claim against Thompson for materials (which includes a few items that are not, strictly, materials) is for $350,115 (Ex 17). A schedule was tendered which listed all items in dispute totalling $56,372.78 (Ex 3). There is evidence that they relate to the Seaforth project. In cross-examination, Thompson indicated that he disputed these items because they were “excessive” and that some items “possibly” related to other projects. Subsequently, Thompson tendered a document which conceded a total of $323,856 (Ex M), ie all of ACDC’s claim except for $26,259, but without explanation as to which of the items in Ex 3 this represented. In the end, this does not matter because there are only three items in Exhibit 3 which I propose to disallow and they total only $2,641.82.
29 The items in Exhibit 3 are as follows:
Anthony Tomazin Petty Cash Fred Aban - Drawings Dept Fair Trading - AHH Builders Lic Banbury Engineering AA Operator Training School NJ Auto Electrical Jag Machinery Royal Plywood Randall’s Concrete NRMA Hardware & General Hardware & General Banbury Engineering Petty cash Hardware & General Petty Cash Boral Concrete Boral Concrete STP Services Truck Rego Lovell Engineering Hardware & General NRMA Insurance Hardware & General
30 I disallow the following three items in this list because I am not satisfied that they relate to the Seaforth project or are not attributable to overheads (overheads being covered by the agreed 10 %overheads margin), namely:
- 13 30 June 1997 petty cash 521.82
131 19 May 2000 petty cash 1,120.00
142 30 May 2000 petty cash 1,000.00
2,641.82
31 There should be added the agreed overheads margin of 10%. The total is $2,906.
32 The evidence of Mr White, which I accept, is that the joint venturers agreed in around April 2000 that ACDC would supply plant and equipment and the joint venture would pay “for all associated machinery costs, repairs, everything”. On that basis I allow items 55, 57, 64, 75, 102, 121, 193, 197, 207 and 230. I also understand item 230 to have been conceded by Thompson.
33 There is evidence, which I accept, that the remaining items all related entirely to the Seaforth project. Mr Thompson in cross-examination conceded, at least, items 3 and 15.
34 In the result ACDC’s materials claim will be reduced by $2,906 to $347,209.
ACDC’S labour claim against Thompson (P & L account)
35 At the end of the hearing ACDC’S labour claim against Thompson was agreed at $280,500, including 10% for overheads.
36 Thompson’s claim for materials and labour is $1,269,667. As indicated in the profit and loss account, this is broken down as follows:
(a) materials for the period to September 2001 (when ACDC ceased work and Thompson took over) in the sum of $201,112. This sum is agreed. The constituent items are supported by invoices. White/ACDC were on site throughout this period and therefore are able to reconcile this sum. The items are listed in schedules prepared by Thompson for the purpose of the proceedings called BT1, BT3, BT5, BT7 and BT9;
(c) labour from October 2001 to May 2003 in the sum of $233,100. This labour claim is particularised in a schedule called BT12 prepared by Thompson for the purpose of these proceedings. This schedule relates mainly to Thompson’s own labour but also includes a sum for labour allegedly contributed by his wife and for a labourer or labourers allegedly paid for by Thompson. It indicates (as he accepted in cross-examination) that he worked 40 to 48 hours per week almost every week on the Seaforth project. He claims at the rate of $50 per hour. If his claims were to be assessed in the way that he advances (which I reject below), I would accept that a rate of $50 per hour would be a reasonable rate to apply notwithstanding that prior to October 2001 ACDC paid him $25 per hour, because from October 2001 he had a far greater level of responsibility and, I accept, $50 per hour was the rate he could have commanded on the open market for similar work.(b) materials from October 2001 to May 2003 in the sum of $231,099. The constituent items are listed in the same schedules. They are only partly supported by invoices, which total $132,089. To the extent that they are supported by invoices, White/Libut are prepared to accept them. All claimed items appear to have been paid, but to the extent that they are not supported by invoices White/Libut dispute that they relate to the Seaforth project, submitting that Thompson’s credit is so poor that they should not be accepted, at least in the absence of invoices;
37 Libut/White submit that Thompson’s materials and labour claims from October 2001 (ie (b) and (c) above) should be assessed at $249,514. This is based on the expert evidence of Terrence Dessaix, a consultant inspector and builder, who inspected the site and determined the value of the works and services said by Thompson to require completion as at September 2001. Mr Dessaix’s written evidence as amended and supplemented by his oral evidence is tabulated in Exhibit 20 which includes an analysis of his evidence by Libut’s counsel. Mr Dessaix’s evidence and the analysis establish that:
(a) the total cost to complete the Seaforth project from October 2001 was, or ought to have been, $249,514 after an allowance for a margin of 20%;
(b) the cost for labour to complete the Seaforth project was, or ought to have been, $97,278 after an allowance for a margin of 20%;
(c) the cost of materials to complete the Seaforth project was, or ought to have been, $152,237 after an allowance for a margin of 20%.
38 I propose to adopt Mr Dessaix’s estimate as analysed. My reasons are as follows:
(a) I regard Mr Dessaix’s evidence as the only reliable evidence from a witness of the cost of completing the works from October 2001. I regard Mr Thompson’s evidence as unreliable for reasons I gave earlier when assessing his credit.
(b) Thompson’s materials claim from October 2001 is unsupported by invoices except to the extent of $132,089, which White/Libut concede.
(c) Mr Dessaix’s estimate is similar to estimates given or agreed by Thompson in 2001. According to Thompson’s own affidavit evidence, on 2 November 2001 he gave the other venturers an estimate of between $200,000 and $300,000 to complete the Seaforth project. He agreed in cross-examination that he was a good estimator, organiser and completer and that he has been a builder for 30 years. More specific evidence, which I accept, of Thompson’s 2001 estimates was given by White and acknowledged by Thompson in cross-examination as follows. At a meeting between the venturers in November 2001, they agreed on an estimate to complete of $223,650 which was recorded in a typed document (Ex 14 pp 3 & 4). Further, at a meeting between the venturers in about September 2001 they agreed on an estimate to complete of $231,350 which was also recorded in a document (Ex 14 pp 5 and 6). I note that Thompson’s claim in the proceedings grossly exceed these estimates which, however, are roughly comparable with Dessaix’s estimate.
(d) Insofar as Thompson paid for building materials from October 2001 for which no invoices are now produced or which exceed Mr Dessaix’s estimate, it is possible that they relate to other projects on which he worked during that period. Thompson denied in cross-examination that this was so, but my assessment of his credit is such that I have no confidence in his denial. No copies of these other contracts, or documents evidencing them, were forthcoming from Thompson (despite a notice to produce them).
(f) Thompson’s labour claim includes a meagrely particularised and uncorroborated claim of a little over $19,000 for labour allegedly contributed by his wife. If she contributed anything, it is absorbed in Mr Dessaix’s estimate. I accept that Thompson paid something for a labourer or labourers. However the likely source of that money was joint venture funds, and therefore to allow the claim would be double counting. It is in any case absorbed in Mr Dessaix’s estimate.(e) Thompson’s labour claim is to the effect that from October 2001 he was working on the project 40 to 48 hours per week almost every week. According to Thompson in cross-examination, at times he was working for periods in the order of 20 hours per day. During the period from October 2001, Thompson says that he earned substantial income from other projects. He said in cross-examination that he worked on these other projects on weekends and at night and worked on the Seaforth project during the day. However Lynette Boggs, his housewife neighbour at 66 Ellery Parade, gave evidence, which I accept, including evidence to the effect that she saw little of him at the subject property during the day from October 2001. Taking into account my assessment of Thompson’s credit, I am not satisfied that he spent anything like the time he claims on the Seaforth project.
- (g) Mr Dessaix’s figures are based on a 20% mark-up for overheads. The venturers agreed to only a 10% mark-up. This might suggest that Dessaix’s estimate should be adjusted downwards. However I would take into account as a broad offset that the Seaforth project incurred some disruption after October 2001 such as having to duplicate some pool excavation and painting work as a result of rain. A precise mathematical calculation of such considerations is not possible on the evidence and a broad brush approach is necessary.
Interest on ACDC running account (P & L account)
39 The next contentious item in the profit and loss account is the amount of interest on the ACDC running account. The balance of this account and the interest thereon is consequential upon my decision in relation to other relevant contentious items. It is not contentious that ACDC operated a running account and that the balance bears simple interest at 10% per annum. The balance takes account of all payments made by Thompson to ACDC, payments by ACDC to Thompson, and payments for materials and labour made by ACDC. White/Libut contend that the interest thereon totals $74,316. The items resulting in this sum appear in Ex 17 pp 93 to 113 which I accept except insofar as I have specifically not accepted any such items elsewhere in this judgment.
40 As White/Libut contend, the agreed amounts of the loans by ACDC to Thompson, White and Libut (in lieu of wages) of $29,333 each should be taken into account in the ACDC running account.
Interest on related party loans: White (P & L Account)
Loans payable to White (Balance Sheet)
41 White/Libut calculate the loans payable to White at $290,500 and interest thereon owing to White at $85,022 (total $375,522) which is supported by a schedule (Ex 17 p 85). On behalf of Thompson it was said in final submissions that he can only account for $300,000 received from White of which $30,000 was repaid. Thus he contends for a White loan payable of $270,000 and interest thereon of $80,586 (total $350,586). I accept the White/Libut calculation.
Other income: interest on monies used by Thompson for private purposes (P & L account)
Monies drawn by Thompson for personal expenses (interest included) (balance sheet)
42 The next contentious item, in the profit and loss account and balance sheet, is Libut/White’s claim of $28,098 for interest on monies used by Thompson for private purposes. The items in dispute are interest of $6,041.10 on a payment of $25,000 by Thompson to Leo Muriniti, a solicitor, which is contested in the balance sheet in the assets item “Monies drawn by Thompson for personal expenses (interest included)”. Simple interest is calculated for 882 days (Ex 17 p 88). It is common ground that it was personal expenditure. The issue is whether Thompson paid that sum of $25,000 from joint venture funds. Thompson in cross-examination said it came from his income from other projects and this was not challenged. Libut/White were unable to draw my attention to any evidence that the source was joint venture funds.
43 I am not satisfied, on the evidence before me, that the source was joint venture funds. Consequently, the interest expense of $6,041.10 should be deleted from the profit and loss account. The capital sum of $25,000 should be deleted from the joint venture assets in the balance sheet in relation to Thompson’s liability.
Other income: the occupation fee claim against Thompson (P & L account)
Monies payable by Thompson for occupation fees (balance sheet)
44 The next contentious item, in the profit and loss account and in the balance sheet, is the occupation fee claim against Thompson. Thompson and his wife lived in the Seaforth property from September 2001 until it was sold, a period of 83 weeks. Libut/White claim that he agreed to pay an occupation fee of $600 per week while in occupation. Thompson denies the agreement. The occupation fee claim against him is $49,800 ($600 per week x 83 weeks).
45 Gzell J noted in his judgment in these proceedings:
45 By September 2000, neither Mr Thompson, nor Mr White, nor Mr Libut nor ACDC had any further funds and work at Seaforth ceased. According to Mr White, Mr Thompson informed him that he had spoken with Mrs Thompson, they had rented for a long time and they thought they should be reimbursed from the venture for that and they thought the profit share arrangement should be changed so that they received 50%. Mr White said that a meeting was held at the Dee Why hotel on 29 September 2000 between Mr Thompson, Mr White and Mr Libut and to discuss this issue .38 Around February 2000, Mr White said that Mr Thompson spoke to him and Mr Libut about the fact that he and Mrs Thompson had been renting for some time and it was costing $600.00 a week and they had hoped to occupy the house and pay rent towards the venture. Mr White said that was a good idea and when they moved in he suggested they pay $500.00 per week. Mr Libut agreed. Mr Thompson agreed. It was agreed that Mr Thompson and Mr Libut would work on site and Mr White would be involved in office management and general coordination .
…
…
- 49 Mr White said that in July or August 2001, he suggested to Mr Thompson that rent payable by Mr and Mrs Thompson when they went into occupation of the house at Seaforth should be $600.00 per week rather than the $500.00 earlier agreed. He said that Mr Thompson agreed that the new figure was fair .
46 In the Court of Appeal Tobias J, who delivered the leading judgment, said:
- 30 Around February 2000 Thompson informed White that he and his wife had been renting for some time and that they hoped to occupy the Seaforth house and pay rent towards the venture. It was alleged that White agreed that when they moved in they should pay rent of $500 per week, to which Thompson and Libut agreed.
42 During 2001, approximately $190,000 was drawn from the ACDC Superannuation Fund (the company having ceased trading through lack of funds in the meantime) in order to enable the house to be brought to lockup stage which, as I have indicated, was reached in September 2001. Mr and Mrs Thompson then occupied the house from October 2001 until its sale in May 2003. According to White, Thompson agreed to pay rent of $600 per week in respect of the occupation of the house by he and his wife, which would be brought to account when the property was sold .
47 Before me the evidence included the evidence referred to above. The evidence of Libut and White, which I accept, was that at a meeting between the venturers in about August 2001, Thompson expressly agreed to pay rent of $600 per week. A draft written agreement subsequently submitted by White to Thompson included a clause that the Thompsons agreed to pay rent of $600 per week. Although Thompson did not execute this document, that clause is consistent with Libut and White’s evidence. There appears to be no contrary evidence and none was identified in submissions. I uphold the occupation fee claim against Thompson.
Loans payable to AHH superannuation fund or to White and Libut (balance sheet)
48 It is not contentious that the AHH Superannuation Fund made a loan of $112,700 to the joint venture and that, with interest, this amounted to $134,705 as at 15 May 2003. Of that amount lent, $52,000 was earlier advanced by White and Libut, $26,000 each, to Mrs Thompson so that she could pay the money to the AHH Superannuation Fund to enable it to on-lend the funds to the joint venture. White and Libut submit that their loans to Mrs Thompson should be recognised in this judgment in the form of a liability by the joint venture to each of them in the sum of $26,000 and interest. Although that is attractive in terms of bringing finality to all related financial relationships in these proceedings, in my view I have to treat this amount as a liability of the joint venture to the AHH Superannuation Fund unless the trustee of that Fund and Mrs Thompson consent to the course proposed by White and Libut. They may be prepared to consent in order to achieve finality. I will give the parties the opportunity to provide evidence of their consent before I make final orders.
Loans payable to Thompson (balance sheet)
49 As regards loans payable to Thompson in the balance sheet, there is a relatively small difference between the amount for which White/Libut contend of $457,913 and the amount for which Thompson contends of $459,514. The figure that is supported by the White/Libut analysis in Exhibit 17 p 84, which I propose to adopt, is $456,312.
Payable to Thompson for labour (balance sheet)
50 A joint venture balance sheet liability for which Thompson contends is for his labour in the sum of $207,803 ($195,100 plus interest of $12,703). White/Libut would allow nothing. Libut submits that Thompson had access to funds far in excess of what he spent on the Seaforth project. This unparticularised submission bears some comparison with White’s more detailed submission referred to below at [51] – [53]. I do not think it rises above the level of suspicion on the evidence and submissions before me. Consistently with my decision to adopt Mr Dessaix’s estimate for Thompson’s materials and labour post September 2001, I propose to allow Thompson’s labour claim in the sum of $97,278, which is the labour component in accordance with the analysis in Exhibit 20, and will allow interest thereon at the agreed rate of 10% per annum.
Monies drawn by Thompson for personal expenses: a further $98,000?
51 Although not reflected in the item for “Monies drawn by Thompson for personal expenses” in the draft balance sheet jointly proffered by Libut and White, in final submissions White (but not Libut) submitted that Thompson drew a further $98,0000 from funds lent to the joint venture and paid into his account and that this amount therefore is an asset of the joint venture which he owes.
52 Proceeds of joint venture loans totalling $400,000 were paid to Thompson’s account post September 2001. White stated in submissions that the last of the loans was for $98,000 in February 2003 but I was not referred to any evidence to support that contention. That is the sum, as I understand it, which White submits was used by Thompson for personal expenditure.
53 White’s reasoning, as I understand it, is that if I accept Mr Dessaix’s estimate of the value of the work to be completed post September 2001 in the sum of about $250,000 (which I do), then the difference between that sum and the post September 2001 loans of $400,000 is $150,000, from which $84,000 was expended by Thompson in joint venture loan repayments. That leaves, White submits, a sum of $66,000 unaccounted for which Thompson must have spent on personal expenses. White contrasts Thompson’s evidence before me as to large income from other sources with Thompson’s evidence in cross-examination before Gzell J which generally indicated that his financial condition was poor. In that regard, in the Court of Appeal Tobias JA noted “his parlous financial condition at all material times”: at [79]. White submits that Thompson’s evidence before me as to large income from other sources was designed to mask the fact that he was spending joint venture loan monies on personal expenses. If that be right, it is unclear to me why the sum of $66,000 should be increased to $98,000.
54 Although there is logic in White’s general reasoning process as far as it goes, complete details of the application of post September 2001 loan funds (including possible refinancing of earlier loans) were not the subject of evidence or submissions. Further, notice of this allegation (in effect of misappropriation of the proceeds of the alleged February 2003 loan) does not appear to have been given to Thompson prior to it being raised in White’s final submissions. While there is cause for suspicion, I am not satisfied to the requisite degree, on the evidence and submissions, that White’s allegation should be upheld.
Interest after 15 May 2003 to judgment
55 It is common ground that the parties agreed to pay simple interest at 10% per annum on related party loans. White/Libut submit that this rate of interest ought to be payable up until judgment on amounts outstanding. They also submit that it should be paid by Thompson because his actions have been the cause of the proceedings and therefore he should be responsible for interest. Thompson submits that (a) the 10% interest agreement expired on 15 May 2003 on completion of the sale of the Seaforth property; and (b) statutory pre-judgment interest is not payable either. In my view, the parties’ agreed rate of simple interest of 10% per annum was intended to continue until liabilities of the joint venture were paid. Accordingly, I propose to allow interest at 10% per annum until judgment. Given that the parties or entities owing the various monies have had the benefit of them while these proceedings have been finalised, I do not accept that Thompson, rather than they, should pay the interest thereon.
56 The parties are to bring in short minutes of orders to reflect my decision. I propose that there should be judgment for ACDC in a sum which takes into account the total of the amounts referred to in [34] and [35] above plus interest. I propose that there should be a declaration that the accounts of the joint venture as at 15 May 2003 are as stated in the accounts attached to the orders. Those accounts may be in the form annexed to this judgment, but deleting the parties’ respective contentions and substituting the final figures as agreed or as decided by me. Subject to hearing the parties on costs, my preliminary view is that Thompson has been substantially unsuccessful and should pay the other parties’ costs. I make the following directions:
- (a) White and ACDC are to submit proposed short minutes of order to Thompson by 18 January 2008.
(b) Thompson is to indicate whether he agrees or, alternatively, is to submit his competing short minutes of order to Libut, White and ACDC by 23 January 2008.
(c) In the event of any disagreement, the parties are to confer by 1 pm on 25 January 2008 with a view to reaching agreement.
(d) Agreed or competing short minutes of orders are to be delivered electronically and in hard copy to my chambers by 5 pm on 25 January 2008.
(e) The matter will be listed before me at 4.00 pm on 29 January 2008 for the making of final orders (including as to costs) if the matter is short, otherwise for mention.
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