ACE Project Group v Ginger Development

5702/02 ACE PROJECT GROUP PTY LTD V GINGER DEVELOPMENT ENTERPRISES PTY LTD & ANOR JUDGMENT 1 HIS HONOUR: The plaintiff ("ACE") is an architectural company the principal of which is Ms Shan Ruan. The present proceeding was commenced by a summons filed on behalf of ACE on 27 November 2002. In the summons ACE sought interlocutory and final orders with respect to two development properties, one at Arden Street Clovelly and the other at Crown Street Surry Hills, which it claims to be partnership property. ACE sought, inter alia, an interlocutory order to restrain the first defendant ("Ginger") from dealing with any proceeds of the sale of the Crown Street land, under a contract between Ginger as vendor and Crown Developments Australia Pty Ltd ("Crown Developments") as purchaser dated 15 February 2002. On 28 November 2002 Ginger undertook to the Court not to complete that contract of sale, and not to enter into any other contract of the sale of the Crown Street land, without giving 14 days prior written notice to ACE. 2 On 27 March 2003 ACE filed a statement of claim. By that pleading ACE makes the following contentions: In about July 1996 the second defendants (Mr Yuen and Ms Kum), and Ms Shan Ruan and Mr Ming Tao Chen, agreed that they would commence and carry on a property development business in partnership. Ms Ruan and Mr Chen arranged for the incorporation of Ginger, with Mr Yuen and Ms Kum as shareholders, Ms Ruan as director and Mr Chen as secretary. Mr Yuen provided capital of $380,000 to Ginger in July 1996. Ms Ruan and Mr Chen investigated potential development sites and prepared marketing and feasibility studies until September 1996, without remuneration but on the basis that they would obtain a share of the profits of any development.

Ginger purchased the property at Arden Street Clovelly in September 1996, as agent for the partnership, or as agent for Mr Yuen and Ms Kum as partners in the partnership, as part of the stock in trade of the partnership. Ms Ruan and Mr Chen prepared plans for developing the Arden Street land, and submitted applications to Council, again without remuneration on the basis that they would obtain a share of the profits.

Similar pleadings are made with respect to the purchase by Ginger of the Crown Street land, except that the marketing and feasibility studies are said to have taken place from about September 1996 to about September 1997, when the Crown Street property was purchased. ACE contends that the arrangements with respect to the Arden Street and Crown Street properties have the result that Ginger acquired them on resulting trust for the partnership.

ACE contends that these arrangements constituted a partnership at will, a term of which was that the partners would account for the profit or loss of the partnership within a reasonable time of the sale of any land that was being developed.

In about April 1998 Mr Yuen, Ms Kum, Ms Ruan, Mr Chen and ACE agreed that Mr Chen and Ms Ruan would retire as partners in the partnership and be discharged from liabilities, and that ACE would be admitted as a partner. Ms Ruan incorporated ACE and Mr Chen took no further part in the affairs of the partnership. ACE prepared plans for the development and made applications to the Council, and supervised construction developments at the Arden Street and Crown Street properties, and supervised the marketing and sale of the dwellings being constructed on those properties, without being paid remuneration on the basis that it would obtain a share of the profits of the development.

It was agreed at that time that Mr Yuen and Ms Kum would be entitled to 51% of the profits of the partnership from the sale of the Arden Street property or development on it, and 51% of the profits of the partnership from the sale of the Crown Street property or development on that property, and that ACE would be entitled to 49% of the profits of the partnership from those respective sources. Agreement was reached as to the way in which the profits of the partnership in respect of each of the properties would be calculated; in particular, as to the costs that would be deducted in the calculation of partnership profits, and the costs that would be borne by the plaintiff from its share of profits.

After this agreement was reached, ACE prepared development plans and submitted applications to the Council in respect of the Crown Street property, and engaged builders and supervised construction of the developments on the two properties and their marketing and sale. The developments constructed on the Arden Street property were sold in the period from October 1990 to December 1999, with settlement in about June 2000. But in breach of their agreement, Mr Yuen and Ms Kum refused to account for the profits on those sales within a reasonable time. The partnership was dissolved on 27 November 2002, when ACE's summons was filed. At that date, no sale of any of the Crown Street development had been completed, although Ginger had contracted to sell the property to Crown Developments. 3 ACE claims declaratory orders that: · on and from 5 April 1998, ACE and Mr Yuen and Ms Kum conducted a property development business in partnership at will; · Ginger held its interests in the properties at Arden Street and Crown Street on trust for the partnership; · the profits from sales relating to the Arden Street property were gained for the benefit of ACE as to 49% and for the benefit of Mr Yuen and Ms Kum as to 51%, such profits to be calculated by deducting certain listed and specified expenses from the proceeds of sale; · ACE is obliged to bear other listed and specified expenses from its 49% share of the profits of the partnership from sales relating to the Arden Street property; · Mr Yuen and Ms Kum were obliged to account to ACE for the profits of the partnership from sales in respect of the Arden Street property on 31 July 2000 (and ACE seeks an order that Mr Yuen and Ms Kum pay it interest on its 49% share from that date); · a declaration that the profits from any sale of the Crown Street land will be gained for the benefit of ACE as to 49% and for the benefit of Mr Yuen and Ms Kum as to 51%, such profits to be calculated by deducting certain listed and specified expenses from the proceeds of sale; · ACE is obliged to bear other listed and specified expenses from its 49% share of the profits of the partnership from sales relating to the Crown Street property; · the partnership between ACE and Mr Yuen and Ms Kum was dissolved on 27 November 2002. 4 The statement of claim seeks orders that the partnership business be wound up, that a receiver and manager be appointed to it, that Ginger and Mr Yuen and Ms Kum deliver up assets of the partnership in their custody, and that a Master in Equity take accounts and conduct an inquiry into dealings, assets and liabilities, and the interests of the partners. 5 By its notice of grounds of defence filed on 20 May 2003, Ginger denies the alleged partnership agreement and its alleged variation in April 1998. It admits having purchased the Arden Street and Crown Street properties but denies that it did so as agent or that the land was purchased as stock in trade of the alleged partnership. It denies that the properties are held by it in trust. It will be seen that the issues in dispute include whether there was ever any agreement constituting a partnership as alleged by ACE, and if there was, whether it was amended in April 1998 in the manner alleged. 6 I have mentioned that the summons sought an interlocutory order to restrain Ginger from dealing with the proceeds of sale of the Crown Street property to Crown Developments, under a contract dated 15 February 2002. In another proceeding in this Court, commenced on 11 December 2002 and prosecuted with urgency, Crown Developments sued Ginger for specific performance of that contract. By its defence, Ginger alleged that the contract was validly rescinded by it, by a 14-day notice of intention to terminate dated 27 November 2002 and a notice of termination dated 11 December 2002. Ginger relied on special condition 30 of the contract of sale, which gave either party the right to rescind the contract in the event that "the caveats" were not discharged by 23 October 2002. 7 The evidence was that Ms Ruan and ACE lodged caveats both before and after the date of the contract. The caveat by Ms Ruan lodged before 15 February 2002 referred to money owing by Ginger to her pursuant to a written agreement, and made reference to a 49% share in profits to be derived from development of the land. The caveat by ACE lodged before the date of the contract merely asserted that Ginger owed it money pursuant to a written agreement. Those caveats lapsed before 15 February 2002. More caveats were lodged by Ms Ruan and ACE after the date of the contract, asserting an interest as cestui que trust as to half of the profits to be derived from the development of the land, pursuant to a written joint venture agreement. Various caveats lapsed, and were replaced by caveats in almost identical terms. On 23 October 2002 the only caveat that had not lapsed was in identical terms to one which had. As at 27 November 2002, the day on which Ginger gave notice of its intention to rescind, the Registrar General had advised Ginger's solicitors that a caveat purportedly lodged by ACE on 23 October had been rejected, and so there was no extant caveat. 8 Palmer J (Crown Developments Australia Pty Ltd v Ginger Development Enterprises Pty Ltd [2003] NSWSC 593, 1 July 2003) held that the reference in clause 30 to "the caveats" was a reference to "any caveats", bearing in mind that at the time of the contract there were no caveats on the title, the earlier caveats having lapsed (at [46]). Noting that some of the subsequent caveats, which were in substantially the same terms as caveats that had lapsed, had no effect by virtue of s 74O of the Real Property Act (at [48]), he found that there was no effective caveat as at 23 October, and (on the proper construction of special condition 30) it followed that the Ginger had no right of rescission. He rejected a submission that the word "caveat" in the special condition extended to anything purporting to be a caveat, even if it were of no effect because of s 74O (at [52]). He also rejected a submission that special condition 30 gave a right of rescission if the caveat were to be lodged after 23 October but before completion (at [56]). 9 The Court of Appeal (Ginger Development Enterprises Pty Ltd v Crown Developments Australia Pty Ltd [2003] NSWCA 296, 16 October 2003) agreed with Palmer J's conclusion that Ginger's purported decision was ineffective, but for different reasons. Davies AJA (with whom Mason P and Sheller JA agreed) disagreed with Palmer J's view that the words "the caveats" in special condition 30 meant "any caveats". He held that the words "the caveats" directed attention to caveats that had been pointed out or identified, and as there were no current caveats at the date of the contract, special condition 30 had no operation and neither party had a right of rescission under its provisions (at [18], [23]-[24]). 10 By notice of motion filed on 3 March 2004, Ginger now seeks an order granting it leave under Part 6 of the Supreme Court Rules to file and serve a cross-claim, in the terms of the draft provided in support of the application. The draft cross-claim is brought by Ginger as cross-claimant, against ACE and Ms Ruan as cross-defendants. It pleads the terms of the contract of sale of the Crown Street property dated 15 February 2002, and contends that Ginger served notices to complete on 29 April 2002 and again on 6 November 2002. It recites the various caveats lodged by ACE and Ms Ruan after the date of the contract, and their fate in terms of lapsing or withdrawal. It claims that the earliest caveat, by ACE, prevented it from complying with the notice to complete on 23 May 2002. It alleges that the later caveats claimed the same interest as the earlier ones that had lapsed. It sets out the 14 days' notice of intention to rescind given on 27 November 2002 and notes that before Ginger purported to rescind on 11 December 2002, the remaining caveats had in one case been withdrawn, and in another, rejected by the Land and Property Information Office. 11 The draft cross-claim says that by reason of s 74O, each of the caveats lodged after 5 June 2002, being in respect of the same estate or interest or purporting to be based on the same facts claimed in the first post-contract caveat that had lapsed, were no effect. It pleads that those later caveats were lodged without reasonable cause for the purposes of s 74P of the Real Property Act, and that Ginger was unable to discharge its obligation under s 57(2)(d) of the Conveyancing Act to remove the caveats. It says that, by reason of "the matters above" (presumably referring, in particular, to the caveats which interfered with its compliance with the notices to complete), Ginger was unable to make good title respect of the Crown Street property as vendor under the contract, and to complete the contract, and to obtain the balance of the purchase monies in the sum of $2,150,000. (I was informed from the bar table, though this is hardly clear from the drafting of the cross-claim, that this refers to a period prior to the purported but ineffective rescission of the contract by Ginger on 11 December 2002.) Consequently, the pleading continues, by reason of the conduct of ACE and Ms Ruan, Ginger was deprived of the use of the balance of the purchase money in the period from 29 April to 29 November 2002 and is entitled to compensation for its pecuniary loss. 12 I have referred at some length to the statement of claim and notice of grounds of defence in the present proceeding, and the draft cross-claim, because the principal issue for me to decide is whether the issues of fact and law arising in the present proceeding overlap with the issues of fact or law to be raised in the draft cross-claim, that their common determination would promote the just, quick and cheap resolution of the entire dispute between the parties. 13 In my opinion, once the pleadings are explored in detail, it becomes plain that the area of overlapping its slight. The principal issues in the proceeding are whether there was a any relevant time a partnership between ACE/Ms Ruan and Mr Yuen and Ms Kum, and if so, how it provided for the payment of expenses, and whether the Arden Street and Crown Street properties were acquired as partnership property. The cross-claim raises the issue whether the caveats were lodged without reasonable cause within the meaning of s 74P of the Real Property Act. Findings that a partnership existed as alleged in the proceeding, and that the Crown Street property was acquired as partnership property, would be relevant to the question raised by s 74P, but would go considerably further than would be necessary for a determination under s 74P: see Butt, Woodman & Nettle: The Torrens System in NSW (looseleaf), Lawbook Co at 13296-13297. Moreover, the basis for the assertion in the cross-claim that the caveats were lodged without reasonable cause appears to be that the caveats lodged on 5 June 2002 and thereafter were ineffective under s 74O. The answer to that question does not require any evaluation of the validity of the claim, but only an assessment whether the various caveats make substantially the same claim. 14 It appears to me that the proceeding and the draft cross-claim have little else in common, apart from the parties and some uncontested factual matters. The question whether any of the caveats prevented Ginger from making good title, completing and obtaining the balance of purchase monies at any particular time is not a question raised by the statement of claim. Nor is the question whether, by reason of the conduct of ACE and Ms Ruan, Ginger was deprived of the use of the balance of the purchase monies in the period from 29 April to 29 November 2002. There may well be substantial overlapping, at least with respect to facts, between these matters and the proceeding resolved by the judgment of the Court of Appeal. Indeed, counsel for ACE submitted that there was an Anshun estoppel (Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589) against Ginger, a submission that I find it unnecessary to determine. But there is much less overlapping between the draft cross-claim and the issues raised by the pleadings in the principal proceeding. 15 It therefore appears to me that the case (in terms of the just, efficient and cheap disposition of the dispute) for allowing Ginger to make its claim as a cross-claim in the present proceeding, rather than by a separate proceeding, has not been made out. On the contrary, there are some good reasons for refusing Ginger's application to make its claim as a cross-claim. The evidence before me indicates that the proceeding is ready to be set down for hearing, apart from the defendants' evidence. The proposed cross-claim would necessitate requests the particulars, preparation of defences, further discovery, the probability of subpoenas to third parties such as Crown Development and the Land and Property Information Office, the gathering of evidence and preparation of further affidavits. That would be likely to delay the hearing of ACE's claim in the proceeding, notwithstanding that ACE is ready. 16 The prospect of further delay is reinforced by the history of the litigation to date. In his affidavit of 12 March 2004, Leng How Phan, the employed solicitor who has the day-to-day carriage of the proceeding on behalf of ACE, has given evidence of a catalogue of breaches by the defendants of various directions made by the Court in its efforts to manage the litigation and prepare it for hearing. Ginger is hardly in a position to say, with any persuasive force, that it will mend its ways and comply strictly with directions concerning the cross-claim, so as to avoid further delay. 17 During argument, techniques were explored for minimising the detrimental effect of further delay arising out of the cross-claim. Counsel for ACE submitted, as a fall-back position, that if the Court were to grant leave for the cross-claim to be filed, orders should be made to ensure that the cross-claim proceeds to hearing separately from and behind the main proceeding, with liberty to Ginger as cross-claimant to apply to bring forward the hearing of the cross-claim to the date of hearing of the proceeding, if the cross-claim can be progressed in time. That might have been an appropriate way forward if there were otherwise a persuasive case for allowing the cross-claim to be brought in the present proceeding. My firm conclusion, having studied the pleadings, is that such a case has not been made out. Therefore Ginger's application for leave to file its cross-claim should be dismissed. **********

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