27 Norton Street Pty Ltd v Famularo

Judgment 1John Famularo, the cross-claimant in the first cross-claim, made a number of payments to Garth Paterson, the second cross-defendant. Mr Famularo said the payments were his contributions to a joint venture to develop a building at 27 Norton Street, Randwick in New South Wales with residential dual occupancy. Mr Paterson maintained that the moneys were part payments for a share in 27 Norton Street Pty Ltd, the plaintiff and owner of the property, granting sole occupancy rights to one of the houses. 2Mr Famularo said he was approached by Mr Paterson at various times to become involved in various development projects that Mr Paterson was undertaking. Mr Paterson acknowledged that he had, on a number of occasions, had general discussions with Mr Famularo about various developments he had undertaken and the profits generated by them. But he denied ever asking Mr Famularo to become a joint venture partner or other type of investor with him and he denied offering Mr Famularo any share in the profits of those developments. 3I do not think it necessary for me to resolve this conflict in the evidence because it is the terms of the conversation with respect to the development of 27 Norton Street that is critical. Much evidence was adduced that had little to do with the issues to be decided by the court. This led to the matter being stood over from September 2011 to March 2012. 4Mr Paterson suggested that Mr Famularo look at 27 Norton Street. He did and on 27 November 2007 he sent Mr Paterson a text message as follows: "If you want to go halves in the cost and development of Norton Street I am in. I can give you $750K now. Please think about it, if it works for you." 5It was submitted that Mr Paterson in an affidavit selectively quoted from this message and deliberately omitted the first sentence. It was submitted that I should not accept his evidence that he did not have access to a copy of the message when he prepared his affidavit. 6Again, I do not think that much turns on this because the entire message was before the court. 7Neither Mr Paterson nor Mr Famularo were satisfactory witnesses. Mr Famularo said that his motivation for getting into the deal was to learn project management. He was offered none but did not complain to Mr Paterson. He noticed that Mr Paterson had made changes to the internal layout of the units but he made no complaint to Mr Paterson about that either. 8Mr Paterson was referred to an over-statement of acquisition costs half of which Mr Famularo was to pay of $17,494.00 being GST upon which Mr Paterson claimed an input tax credit. He said that over lunch that day he had found three invoices that accounted for the difference. They did not. He then, opportunistically, said it might be interest on a mortgage. 9I approach this judgment by reference to the contemporary documentary evidence and oral evidence in which both Mr Paterson and Mr Famularo agree. 10On 15 January 2008, Mr Famularo and Mr Paterson met at Mr Paterson's house. They agree that Mr Paterson referred to plans for a single development and said words to the effect of: "now you are on board I'll change it back to a dual occupancy development". Mr Famularo said that Mr Paterson continued: "because I want to help you and let you become involved". Mr Paterson said he continued: "because I want to help you to buy a house to live in." 11It was agreed that Mr Paterson said: "it is company title. I hope to be able to subdivide it and get Torrens title down the track." 12Mr Famularo said that Mr Paterson also said that Mr Famularo would initially pay a deposit of 10% of half the purchase costs and then, later, half the cost of building the two houses. In cross-examination Mr Paterson agreed that he had said this. 13Mr Paterson said he added: "you also pay me 50% of the difference between the cost to build your house and what mine sold for and that will be the price for your house". Mr Famularo denied this part of the conversation. 14When cross-examined about the 50% differential, Mr Paterson volunteered that Mr Famularo had said that Mr Paterson should keep 90% of the profit on sale of his house but he told Mr Famularo that he would only keep 50%. There was no mention of this in his affidavits. Mr Famularo denied any mention of 50% during their discussion in January 2008. 15Mr Paterson and Mr Famularo met again on 15 February 2008. Mr Famularo was told that half the cost to date was $828,195.00. Mr Famularo wrote a cheque for $82,819.50 as a 10% deposit. Mr Famularo also agreed to perform glazing work for 27 Norton Street at cost. 16Mr Paterson was criticised for overstating the costs by the GST component. There was also the criticism that the cost of preparing plans was not $34,403.80 but, rather, $16,413.64. These are matters to be considered by an Associate Judge if Mr Famularo is entitled to an account of profits. 17On 1 March 2008, Mr Paterson sent an email to Mr Famularo stating: "just a quick email as discussed, to confirm the payment from you of $82,819.50 as a deposit on the property that we will be developing at 27 Norton Street." 18It was submitted that this email confirmed a joint venture development at 27 Norton Street as it was inconsistent with the purchase of a share in a company titled property. I do not agree. The land at 27 Norton Street was held on company title. The email was equally open to the interpretation that the development at 27 Norton Street to which Mr Famularo was to contribute would give rise to the two shares in the company giving occupancy rights to the two houses. 19On 3 April 2008, Mr Paterson requested a further payment and Mr Famularo paid him $300,000.00. A further $100,000.00 was paid to Mr Paterson on 6 August 2008. In the cheque stub Mr Famularo described the payment as "house purchase". That suggests the arrangement was the purchase of a share in a company title development rather than a joint venture in the development of 27 Norton Street. Mr Famularo's explanation was that he gave that description so that his accountant would not treat it as an expense of his glazing business. 20In August 2008, Mr Famularo told Mr Paterson that he was not able to contribute the full half cost of $828,195.00. He suggested, and he said Mr Paterson agreed, that the development costs be funded by the bank against the property. 21That is what happened. The company took out a $1.2 million non-amortising, non-revolving, rolling 30-day bank bill facility from the National Australia Bank. 22When Mr Famularo informed Mr Paterson that he was not able to fund his share of the development costs, Mr Famularo claimed that Mr Paterson said: "OK we'll have to talk about this later." 23Mr Paterson said he did not agree to a variation to the arrangement with Mr Famularo to relieve him from paying half the construction costs. Because Mr Famularo had indicated that he could not pay his share of the construction costs, Mr Paterson was forced to raise the funds elsewhere. 24On 25 August 2008, Mr Paterson wrote to Mr Famularo in the following terms: "Just a quick note regarding our arrangement at 27 Norton Street, Randwick. The agreement we have is for you to purchase one half of the development site at 27 Norton St, Randwick, including all costs associated with the purchase and development application. After that is completed we will begin the development. It is agreed that you will fund half of the cost of the development. Upon completion of the development I will sell my half, and whatever the difference between my sale price and your overall cost, you will contribute 50% of that difference to me. The approximate costs associated with this development are: The purchase of half the development site, architectural plans, D.A. etc: approx $820,000.00 The cost of half the development: approx $600,000 I would expect a sales result of at minimum $1.85 million from the sale of my half of the development, which would result in an approx profit on cost of $430,000.00. As of today's date I have received $482,819.50 from you towards the purchase of half the development site." 25Mr Famularo said he did not read the letter when he received it. He said, further, that when he did read it he did not raise any discrepancy with Mr Paterson because he was not going to be able to pay much more to him. 26If the letter is to be accepted as Mr Paterson's understanding of the arrangement then it supports his contention that the arrangement was for the purchase by Mr Famularo of one of the houses at 27 Norton Street by purchase of the share giving him sole occupancy rights. 27I find it inherently improbable that Mr Famularo did not read the letter when he received it. That he did not refute its terms also supports Mr Paterson's case that the letter correctly reflected the agreement. 28On 9 September 2008, Mr Famularo told Mr Paterson that he was unable to pay the balance of $345,000.00 of his half share of the acquisition costs. He was $100,000.00 short. 29Mr Famularo's version of the conversation was that Mr Paterson said that if Mr Famularo gave him $245,000.00 he would give him an IOU for the remaining $100,000.00. Mr Paterson denied any discussion of the short payment or IOU. 30Mr Famularo told Mr Paterson that he needed some sort of security and asked for the share in the company. He said that Mr Paterson agreed to that course. Mr Paterson said he responded: "I cannot give you something you haven't paid for." 31That night Mr Famularo sent Mr Paterson an email in the following terms: "When we spoke this morning, and I asked you for something such as the share in the company, as security for the money I am giving you. I have thought more about it and have come up with, I think, a better idea. When I give you another $240,000 towards the land purchase, why can't we treat the total amount as a loan to you, subject to a rate of interest and to be paid back in 12 months (or earlier). You mentioned that you would need to put a caveat on the property to protect your additional financing of the development costs. Instead of that, can you put a caveat that provides for the sale of the property only, after repayments of the 'loan'. This arrangement between the two of us is simpler for you, and gives me some security, don't you think? As far as a share of the profit goes ...I leave that up to you. That is not my motivation for doing this project with you." 32The email confirms the request by Mr Famularo for security, puts forward an alternative arrangement of loan and leaves it to Mr Paterson to determine what share of profit Mr Famularo should take. The last paragraph supports Mr Famularo's claim that the arrangement was a joint venture. 33The parties met again on 12 September 2008. Mr Famularo paid $245,375.50 which left exactly $100,000.00 owing as half of the construction costs. 34Mr Famularo said he signed an IOU for $100,000.00. Mr Paterson denied that any IOU was considered at the meeting. 35Mr Paterson said that Mr Famularo refused to pay any more moneys unless he obtained security in the form of the share in the company. 36A share transfer was executed by Mr Paterson as transferor and Mr Famularo as transferee. It was backdated to 15 January 2008 to accord with the commencement of their arrangement. It was expressed to be in consideration of $828,195.00, half of the acquisition costs Mr Famularo had agreed to pay. 37The share transfer was accompanied by a hand written document signed by Mr Famularo and Mr Paterson in these terms: "I Garth Paterson do hereby agree to transfer one of my two shares (the only shares issued in the company known as 27 Norton Street Pty Ltd), to John Famularo I have undertaken this transfer as a matter of "good faith" as Mr Famularo has not yet paid me the amount stated on the transfer. Mr Famularo agrees that the share referred to above (copy attached) is not entirely owned by him until such time as all moneys expended on the project known as "27 Norton Street Pty Ltd", have been paid in full (half share of the overall costs) to Mr Paterson." 38Mr Paterson said that he told Mr Famularo at the meeting on 12 September 2008 that he did not agree to changing the agreement to a loan and he wanted payment of the full amount of the outstanding half share of the costs. 39The terms of the document signed at the meeting supports this contention. It made no reference to a loan and insisted upon payment by Mr Famularo of half the acquisition costs. 40Construction work began in January 2009. There were no further contributions by Mr Famularo. The company financed the costs through its bill facility. 41Mr Paterson said he attempted to contact Mr Famularo regarding the construction costs but Mr Famularo did not take his calls or return his messages. He said that in January or February 2009 he demanded the return of the share certificate to which Mr Famularo agreed but requested some form of new agreement regarding the moneys he had already paid to Mr Paterson. Mr Famularo agreed with this version of the facts but said it was Mr Paterson who had said they had to sort out a new agreement. But no new agreement was ever reached. 42Mr Famularo said that his obligation to contribute to the construction costs was upon further requests for payment by Mr Paterson and he made none. Mr Paterson said that the agreement was for Mr Famularo to pay him half the construction costs as they were incurred. This appeared to be Mr Famularo's evidence as well. 43After the conversation about working something out Mr Paterson concluded that the agreement he had with Mr Famularo no longer existed. 44On 25 May 2010 Mr Paterson asked Mr Famularo to sign a document in the following terms: "Just a quick update regarding our arrangement at 27 Norton Street, Randwick 2031. As per our original agreement, dated 25 August 2008 (copy attached), you were to: