Bauskis & Anor v Liew

Background 12Mr Liew carries on the business of an accountant. At some point he was the accountant for Mr Bauskis and Gusfact. 13It is common ground that in or about October 2006 Mr Bauskis approached Mr Liew seeking finance to assist him to fund the development of the property in Canley Vale. At that time the registered proprietor was Mr Bauskis' daughter, Laura Bauskis. In his affidavit Mr Bauskis asserted that she owned the property in trust for him. This is consistent with the terms of the Deed which are set out below. 14The next event is also common ground. On or about 31 October 2006 a contract for the sale of that land was entered into between Laura Bauskis and Mr Liew. The purchase price was stated in the contract to be $350,000. The evidence is silent as to how an approach from Mr Bauskis seeking finance led to the sale of the land. It seems to me most likely, and I so find, that it was understood that for Mr Liew to finance the development he would need to become the registered proprietor of the property. This would enable him to use the property as security for finance. 15A settlement sheet indicates that the sale settled on 23 November 2006. The settlement sheet records a pay-out to Bankstown Credit Union of $185,738.95. This was the proceeds of a mortgage taken out in the name of Laura Bauskis over the property. The settlement sheet also refers to a deposit of $35,000.00 being paid and a cheque being drawn to "LT Bauskis" for $128,986.05. It is not disputed that the mortgage to the credit union was in fact paid out. Mr Bauskis and Laura Bauskis deny that they received any amount for the deposit or balance of the purchase price. Mr Liew agrees that they were not paid that amount. The source of the settlement statement was not explained. There is a dispute about what was agreed would occur with the balance of the purchase price and what was the true purchase price. I address that below. 16On 15 March 2007, Mr Bauskis and Mr Liew signed a Deed of Agreement. The relevant parts of the Deed were as follows: "RECITALS A. Laura Teresa Bauskis was the owner of property comprised in Certificate of Title Folio Identifier B/367456 and known as [address] Canley Vale in the said State (called "the Property"). B. The Property was at all times held by Laura Teresa Bauskis on trust for the benefit of her father, Bauskis. C. By mutual agreement Liew purchased the Property by contract dated 31 October 2006 with the intention of redeveloping the Property into two separate residential properties for eventual sale (hereinafter called "the Development") because Bauskis was unable in his own right to raise the required finance to carry out the Development. D. The parties have agreed to certain terms and conditions regarding the Development as set forth herein. OPERATIVE PART

1. Bauskis will have the principal management and supervision of the construction of the Development to its completion.
2. The parties agree to sell the Development after its completion subject to mutual agreement as to sale prices and to share equally the net profits of such sales after payment of all construction costs, moneys borrowed for the Development, agent's commissions and legal expenses.
3. If before completion of the sale of the Development Liew should predecease Bauskis then Liew's personal legal representative or Executor will transfer the Property to Bauskis or to whom he may direct in writing and Bauskis will borrow sufficient funds to pay out all outstanding loans which may be secured over the Development. ..." 17Two kit homes were purchased for erection on the property. It is not disputed that Mr Liew financed the purchase of those homes. In his affidavit of 6 March 2012 at [4], Mr Bauskis referred to the terms of the Deed and stated that as per the Deed he "managed and supervised the development from 31 October 2006 to 4 November 2011" and that, in addition, he physically built the two dwellings. By reference to the manual for the erection of the homes, he described the work he undertook in building them. It appears to have involved substantial effort on his part. 18All of the financial risk of the development was borne by Mr Liew. In his affidavits he describes the various loan facilities that he obtained from the National Australia Bank ("NAB") which were secured over the property. This exposure increased as the time taken to pursue the development marched on and the homes were not sold. At some point Mr Bauskis started residing on one of the lots. 19From at least February 2007 to 17 March 2011, Gusfact billed Mr Liew for various expenses associated with the building project. They totalled $75,208.00 including GST. Of those amounts, $22,500.00 was paid from the proceeds of sale of one of the properties on 6 May 2011. I infer that the balance of these bills was paid from the various loan facilities taken out by Mr Liew over the property. It is unclear from the terms of the invoices rendered by Gusfact whether they included a separate labour component for Mr Bauskis' time or whether they were simply seeking reimbursement of expenses paid to third party contractors and suppliers. In his affidavit sworn 23 February 2012 verifying his reply to Mr Liew's cross claim (at [18]) Mr Bauskis provides a description of what those invoices represented. The description suggests that they did not involve any charge for his labour. 20On 6 May 2011, the sale of lot 79A was completed. The sale price was $493,000.00. Leaving aside a deposit of $24,650.00, the net proceeds of sale after adjustment, rates, duty and solicitors' fees was $464,362.16. Out of that sum, $22,000.00 was paid to Gusfact in discharge of the last of the invoices to which I have just referred. The remaining $442,362.16 was paid in reduction of Mr Liew's finance facilities with NAB. Out of the deposit of $24,650.00, $14,790.00 was paid on 16 May 2011 to reduce one of the loan facilities in the name of Mr Liew. I infer that the balance was used to pay agents commission. 21On 24 August 2011, contracts were exchanged to sell lot 79. The purchase price was $457,200.00. The deposit was $45,720.00. 22Mr Liew stated that on 26 October 2011 Mr Bauskis approached him seeking $300,000.00 to purchase a farm in France. He states that he told Mr Bauskis that he was entitled to half of the net proceeds from the sale of the two separate lots after deductions in accordance with the Deed, and that he offered to engage the services of an independent accountant to verify the expenses. He said that Mr Bauskis initially accepted the offer but later refused. Mr Bauskis agreed that he told Mr Liew that he wanted to emigrate to France. He said that he may have telephoned him on 26 October 2011 but that he did not recall "mentioning anything about buying a farm in France". This dispute was not taken up with Mr Bauskis in cross examination. It is not necessary for me to make any finding in respect of it. 23On 9 November 2011, Mr Bauskis sent a letter to Mr Liew on Gusfact letterhead. The letter stated as follow: "This is a Statement and Invoice for work carried out at [address] Canley Vale NSW 2166, in accordance with the Deed of Agreement dated 15 March 2007. The total amount for the management, the supervision, my labour and the out-of-pocket expenses incurred by me, relative to the above development from 31 October 2006 to 4 November 2011, is $300,000.00 (three hundred thousand Australian dollars). Please find enclosed an itemised accounting to this effect in the attached separate sheet. Please settle this outstanding amount within 30 days of receipt of this letter." 24Enclosed is an invoice on Gusfact letterhead for $300,000.00 ("the Gusfact invoice"). I address the Gusfact invoice below. It was described by Mr Bauskis as the foundation for his case. 25On 30 November 2011, Mr Bauskis filed a statement of claim. He sought an order that Mr Liew pay him $300,000.00 for what was described as "services rendered by the plaintiff in relation to the develop [sic] of the defendant's properties" at the address at Canley Vale "in accordance with the Deed of Agreement dated 15 March 2007". The pleading referred to the entry into of the Deed, the issue of the invoice and asserted that the proceedings were a "simple debt recovery proceedings". 26On the same day, he lodged a caveat over lot 79, the sale of which had not yet settled. A lapsing notice was served. Mr Bauskis applied to extend the caveat. He did not obtain that order. However on 23 December 2011 Rein J made an ex parte order which had the effect of restraining Mr Liew from lodging any documents in the Land Titles Office concerning the settlement of the sale. 27On 5 January 2012, McDougall J discharged that order. His Honour directed Mr Liew's solicitor to provide Mr Bauskis with a copy of a draft settlement statement showing amounts proposed to be paid on settlement and a copy of the final settlement statement. His Honour noted an undertaking by Mr Liew that he would pay into Court the net proceeds of the completion of the sale of lot 79. 28On 9 January 2012, an amended statement of claim was filed which joined Gusfact, it being the entity that issued the invoice. Other than the presence of Gusfact, the substance of the statement of claim did not alter. It still referred to the Deed. 29On 14 February 2012 an amount of $170,165.34 was paid into Court. On 29 February 2012 a further amount of $33,998.55 was paid into Court. It is likely that this latter amount represented the net balance of the deposit. As at 30 June 2012, the total amount paid into Court, together with interest, capable of being distributed to the parties was $206,555.77, with interest continuing to accrue. 30Attached to Mr Bauskis' affidavit of 6 March 2012 is a settlement statement concerning lot 79. It refers to a settlement having occurred on 9 February 2012. It is unclear to me whether this represents a draft or final settlement statement. It refers to a sale price of $457,200.00, less a deposit of $10,000.00. It indicates that, after adjustments and payment of the usual expenses on the sale, an amount of $275,000.00 was paid to the National Australia Bank in respect of which, I infer, were liabilities of Mr Liew, and that $170,165.34 was paid to the Supreme Court of New South Wales Trust Account. 31There are two aspects of this statement that are unclear. First, as I have stated the deposit indicated on the contract was $45,720.00, being ten percent of the purchase price, whereas the settlement statement refers to a deposit of $10,000.00. As I have said, the payment into Court of an amount of $33,998.55 on 29 February 2012 appears to be the balance of the deposit. This is consistent with the contract figure but inconsistent with the settlement statement. 32Second, the total indicated by the settlement statement as being made available for payment into Court is $170,165.34, whereas in fact $204,163.89 has been paid into Court. 33To the extent that any of these discrepancies bear upon the orders I need to make to finally resolve the proceedings, then I will enable the parties to make further submissions concerning them.

The parties' legal relationship 34As I have stated, the amended statement of claim refers to the Deed in a number of places. However, the claim as formulated by Mr Bauskis at the hearing before me is completely inconsistent with the Deed. Gusfact is not a party to the Deed and has no entitlement to pursue rights under it yet it issued the Gusfact invoice. The Deed does not contemplate the payment of any amount by way of a "debt" due to any of the parties but, rather, an apportionment of net profits after adjustments for the costs incurred. 35Up until the time that he ceased to participate in the hearing, Mr Bauskis asserted that the Deed was an "illegal document" and thus presumably did not operate to govern the parties' legal relationship. Beyond pouring pejoratives on the Deed, Mr Bauskis did not plead any matter that would impugn the Deed, nor did he lead any evidence to do so. In his evidence he agreed that he signed it, and said that he did so because he "trusted Nick" (i.e. Mr Liew). However, he did not state whether or not he had read it or understood its terms, and he did not suggest that any improper conduct, such as a misrepresentation or duress, induced him to enter into it. 36The contention that it was "illegal" was only expanded upon in one of the affidavits which I rejected but indicated that I would treat as a submission. The affidavit listed what was said to be the common law requirements for the creation of a contract, namely "(a) offer; (b) acceptance; (c) sufficient consideration; (d) intention to enter legal relations; (e) capacity to contract; (f) legality of purpose; (g) genuine consent; and (h) certainty of terms". Accepting this as a list of the essential elements of a contract, then they were all satisfied by the Deed. The Deed embodies the outcome of a process of an offer and an acceptance. It need not be shown where and how they were made. Even though a Deed does not necessarily require consideration, there was clearly consideration necessary to found a contract. The Deed records mutual obligations assumed and promises given by the parties. In the case of Mr Bauskis he promised to manage and supervise the construction of the development to its completion. Mr Liew made the property available and, at least implicitly, agreed to finance it. 37Both Mr Bauskis and Mr Liew were literate adults. They both had the capacity to contract and give genuine consent. There is no reason to doubt their respective intentions to create legal relations. In terms of its legality the development of residential property has not been declared illegal in New South Wales. As for certainty of terms, to the extent that the terms are uncertain the Court can, by the traditional methods, determine their true meaning. It follows that there is no foundation for Mr Bauskis' contention that the Deed is "illegal". 38To the extent that it is necessary to do so, I reject Mr Bauskis' evidence to the extent that he asserted that he did not have an appreciation from 15 March 2007 that he was entering into some form of joint venture with Mr Liew to develop the property at Canley Vale. The transaction recorded by the Deed is completely consistent with the commercial background that I have described. It was common ground that Mr Bauskis approached Mr Liew in order to finance the development. If that were to occur then Mr Liew would have to obtain finance and he would need to provide security over the land being developed. Mr Bauskis' case necessarily involves a scenario whereby he approached Mr Liew seeking finance for the development of his property but that became a transaction whereby Mr Liew became the sole owner and developer, and Mr Bauskis the contracted builder. According to Mr Bauskis this is said to have occurred in circumstances where no written building contract was entered into and there was no specified time frame for the completion of the development. I consider that scenario to be inherently unlikely. 39Leaving aside the Deed, Mr Bauskis did not prove any matter which was capable of giving rise to a debtor/creditor relationship between either Gusfact or himself on the one hand and Mr Liew on the other. When cross examined, he agreed that there was no written agreement between the parties other than the Deed. He was asked about the existence of any other form of agreement and answered as follows: "The only agreement we had was the original agreement, verbally, that when Nick offered to finance me and I pay him back at the end of the thing whatever it was, out of pocket expenses and that was it. There was never a mention of sharing profits and things because at that time I owned the property or Laura my daughter owned the property because I didn't have it in my name. It was in her name, right? And he was going to finance me out of the goodness of his heart and basically that it. And a gentleman's agreement is supposed to be a gentleman's agreement. Then Nick bought this out six months later to cover himself most probably and at the same time he stopped doing my tax, the whole lot." 40In this answer, Mr Bauskis was referring to a conversation he asserted he had with Mr Liew six months or so prior to the entry into the Deed, i.e. in September 2006. He recounts a verbal agreement between himself and Mr Liew pursuant to which Mr Liew agreed to finance him to develop the property. This agreement is fundamentally inconsistent with any entitle-ment on either Mr Bauskis or Gusfact's part to invoice Mr Liew for the work undertaken in erecting the houses. To the contrary this conversation is entirely consistent with the pursuit of a development whereby Mr Liew agreed to provide finance which he raised by providing security over the property. 41Leaving aside a separate agreement concerning the payment of rent, the only evidence I have of any matter establishing a legal relationship between the parties which governed the development of the property is the Deed. No valid reason has been put forward to impugn the Deed. I am obliged to give effect to its terms.

The Parties' Pleaded Cases and the Remaining Issues 42It follows that Mr Bauskis' statement of claim must be dismissed. For the reasons I have explained, it is premised upon a misconceived notion of the legal relations between the parties. Mr Bauskis still has some entitlements under clause 2 of the Deed. They are addressed below. 43A further matter that follows from the conclusion in [41] is that no basis has been demonstrated for Mr Bauskis or Gusfact to recover any form of management fee or the cost of his labour. To the extent that he managed and supervised the construction of the development to its completion he was performing his obligations under clause 1 of the Deed. I do not necessarily accept that his work in erecting the kit homes went beyond the performance of that obligation. However, even if it did he has not pointed to any legal basis upon which either he or Gusfact is entitled to recover an amount for his time and labour in doing so. 44There still remains that part of Gusfact's invoice which purported to seek reimbursement of payments that were said to have been made to third party suppliers. If such payments were made then under clause 2 of the Deed they would need to be deducted from the sale proceeds before the amount of the "net profits" are determined and distributed. 45Mr Liew's amended cross claim sought orders for the payment out of Court of an amount representing a GST liability he contends he incurred in selling the two lots and then a division of the remaining proceeds of sale that had been paid into Court. In addition he seeks an adjustment representing the rent that Mr Bauskis agreed he owed Mr Liew. At the hearing I raised a matter concerning the reimbursement to Mr Bauskis of the balance of the purchase price relating to the sale of the property in late 2006. 46Neither of the parties sought an order for the taking of accounts or any other form of relief that would enable all the costs of the development to be scrutinised. Mr Bauskis was the obvious party with an interest in doing so. However in his affidavit sworn 24 April 2012 he disclaimed any desire to scrutinise the costs and interest Mr Liew said he had incurred in pursuing the development: "... I am not longer interested in 'All documents relevant to the costs of the development of the two properties at [Canley Vale]' because they are not relevant to my simple demand for payment of my invoice. In other words, those "documents relevant to the cost of the development (etc)" are Nick's business as the owner of the estate and I am only the builder and supervisor of same." 47In these circumstances I do not propose to undertake a reconciliation of all of the costs said to be attributable to the development. Instead I will resolve the issues that I have identified in [44] and [45] above and make an order for further submissions from the parties as to the forms of order necessary to give effect to my findings and as to whether any consequential findings need to be made before such orders can be made.

The Gusfact invoice 48The Gusfact invoice was enclosed with Mr Bauskis' letter dated 9 November 2011. As I have stated, it sought payment of an amount of $300,000.00. It stated as follows: "Summary of labour and expenses for 79 & 79A [address] From 31st October 2006 to 4th November 2011. There is still about a weeks work to do to completely finish. Some painting of doors, linen cupboard shelves to paint (2 coats) TV antenna To mount and wire, some finishing of in the bathroom, one roller blind to install (Brackets need to be bought) unsuited door shaved and painted. Brick cleaning 1500.00 Purchase and installation of 2 central vacuum cleaners 2500.00 With all associated piping Purchase and installation of 2 TV antenna plus brackets 800.00 Water tank and associated piping 1250.00 Braking [sic] up of concrete and hire of skiff for removal of same For front house garage. 2100.00 Braking [sic] up of concrete and hire of skiff for removal of same For rear house carport. 1600.00 Shower screen front house 800.00 Colourbond fence between 79 & 79A 1960.00 Payment of inspections of certificates for concrete inspection, Pest control, engineers certificate, fire alarm certificate 1100.00 2 extra smoke alarms, hard wired 250.00 Energy efficiency report, @740.00 each house. 1500.00 FCC final inspection certificate 350.00 4 off, bathroom and unsuited mirrors framed. 1600.00 2 lights over vanities 400.00 Plumbers reinspection fees 370.00 Plumber supply and install 2 mixers on hot water 400.00 Piping and brackets for water tank plus 1000 Lt. Water tank. 1250.00 Buy and install pavers for water tank 1600.00 Buy 2 loads of wood chips for front garden 250.00 Rear house carport concrete supply and install 1900.00 Computer cable and 32mm conduit for Telstra and Optus For both houses 2900.00 2 steel posts for electricity and install 1200.00 300 m x 16 mm mains cable 1100.00 Bought extra bricks, paid Brickie to build front fence 2100.00 Front fence and electric gate 7500.00 Surveyor 3300.00 Construction management fee 258420.00 Total 300000.00

49I have already rejected so much of the plaintiffs' claim as seeks recovery of the so-called construction management fee component of the Gusfact invoice, being the amount of $258,420.00. The recovery of that amount was premised on an incorrect basis as to the legal relations between the parties. The balance of the invoice seeks payment of $41,580.00 broken up into various components and apparently referable to expenses paid or payable to third parties. If the plaintiffs can demonstrate that they have incurred expenses to third parties in the pursuit of the development for which they have not been reimbursed, then they can be brought to account pursuant to clause 2 of the Deed. For present purposes, I pass over any distinction about whether they were incurred by Mr Bauskis or Gusfact. 50There are a number of difficulties, however, with so much of the plaintiffs' claim as seeks the recovery of these expenses. The first entry in the invoice is for brick cleaning. On 22 September 2010, Gusfact delivered an invoice to Mr Liew for an amount of $3,000.00 which was said to include "acid cleaning of bricks". Further, the Gusfact invoice has two separate entries in respect of costs associated with a water tank: "water tank and associated piping" and "piping (for water tank plus 1,000 litre water tank)". On its face it seeks double payment for expenses associated with installation of a water tank. In addition, the invoice dated 22 September 2010 also sought a payment in respect of "supply and install one x 1,000 Lt water tank". Thus, it appears that recovery of an amount for this was sought three times over. 51Not surprisingly, Mr Liew sought to ascertain whether there was any supporting documentation that could justify these parts of the Gusfact invoice. Mr Bauskis did not attach any such documents to his affidavit nor provide them to Mr Liew in advance of the trial. Towards the end of the first day of the proceedings Mr Bauskis was cross examined about the entry in the Gusfact invoice concerning the purchase and installation of two central vacuum cleaners. He referred to the vacuum cleaners as having "long hoses" or "piping". He was then asked: "Q. And how much does it cost for the long pipe that you referred to? A. The two of them? One for each vacuum? I don't know off the top of my head what it is. I have to look at my invoice. ... Q. So you have no idea what the piping cost is, is that correct? A. Not off my head, but I have it at home. Q. When you referred to these invoices, what are they all at home too? A. Yeah, why? Where should they be? Q. Sir, you were asked were you not, to produce documents in relation to your invoice [i.e. the Gusfact invoice], is that correct, the sort of thing that would substantiate what you've charged for? A. Hey, I've applied to Nick to do the same thing but he hasn't done anything at all. I have not received no information. ... Q. Would you agree with me that you've been asked to produce documents to substantiate what's in the [Gusfact] invoice, is that right or not? A. Yes. Q. And you haven't produced any, have you? A. Yes, I have. ... Q. Where have you produced them to, sir? A. I haven't produced any invoices, as you say ..." (emphasis added) 52In other parts of his evidence Mr Bauskis stated that many of the expenses recorded in the Gusfact invoice concerned cash purchases from suppliers. However in these passages he clearly indicated that he had at his home at least some supporting invoices for the expenses listed in the Gusfact invoice. At the conclusion of the proceedings on the first day I indicated to Mr Bauskis that he might want to consider obtaining those invoices overnight and bringing them the next day. 53When the matter resumed the next day and before the cross examination of Mr Bauskis continued, he made an application for an adjournment and for me to disqualify myself (see [6]). After they were refused his cross examination continued. The cross examiner sought to remind Mr Bauskis of the evidence he had given the previous day as to the existence of "documents" supporting the Gusfact invoice. It appears that the cross examiner and Mr Bauskis were at cross purposes and that Mr Bauskis did not necessarily understand that "document" in that context meant invoices. Eventually, he accepted that he had referred on the previous day to "receipts". The questioning continued: "Q. And I take it - A. I don't think documents, you're saying - you - you - you wanted me to bring in receipts? Q. Yes, receipts? A. Yes. Q. Yes, well, they're documents, aren't they? A. That's what you're calling document, is it. Well, all right, yeah. Q. So did you bring in any receipts with you today? A. No. Q. Are they still at home? A. Yes, most probably, yes. Q. Why didn't you bring them in? A. Why do I need to bring anything in?" 54Mr Bauskis was asked again: "Q. Why didn't you bring them along? A. Because I don't need to bring them along. My word is law, bond. I swore an oath that these are correct and that's it ..." 55Mr Bauskis assertion that his word was "law, bond" sits uneasily with the answers he gave when he was later pressed as to whether he had any justification for the figures included in the invoice: "Q. Can I suggest it's astounding that all of these things, plus your construction management fee, adds up to a round dollar figure of 300,000? What do you say to that? A. Well, what have I got to say about it? Q. I am suggesting to you, sir, it's a made up figure? A. Yes, of course it is. Q. It is a made up figure? A. Yes, Nick knows about it. Q. So when you are suggesting that these various items are expenses that you have actually incurred, they're really just made up figures, is that right? A. You could say that, if you want to, I don't care." ... "Q. And you made up these figures [in the Gusfact invoice] to justify an amount of $300,000, is that correct? A. Yes, most probably." ... "Q. Regarding any of the items on this page, do you have any documents to substantiate that you paid for anything? A. Nope." 56The discrepancy concerning what appeared to be an attempt to seek payment for the water tank three times over was brought to Mr Bauskis' attention: "Q. Is it the case Mr Liew having paid for that in apparently September 2010 you have included that twice in this invoice of November 2011? A. Looks that way, doesn't it? Q. That's false? A. What? Q. You can't suggest Mr Liew owes you two lots of $1,250 for the water tank on top of the amount already paid to you, can you? A. You are missing the whole point here. You are arguing about each separate item when the whole bill is supposed to come to around about 50,000 and as I said it is condensed and maybe I made a mistake there, so you know." 57The plaintiffs have not satisfied me that they or either of them have incurred any of the expenditure listed in the Gusfact invoice being the items listed above the entry for "construction management fee". Despite a number of opportunities to do so they did not bring forward any documentary evidence to support those entries. 58The only evidence that supports those entries is the assertions and evidence of Mr Bauskis. I do not accept his evidence on this topic and reject his assertions that those entries represent expenses incurred in pursuing the development. In the extract from his evidence set out at [51] he asserted that he had some invoices (or "receipts") that could support these parts of the Gusfact invoice. His refusal to provide them and his attempt to justify why he did not provide them leads me to conclude that they do not exist. The third set of answers I have extracted at [55] supports that. The first two sets of answers I have extracted at [55] involved him accepting or at least coming close to accepting that he had simply made up the figures in the invoice to justify his recovering the figure of $300,000.00. That he did so is supported by the discrepancies I noted at [50] concerning the brick cleaning and the water tank. 59I find that neither of the plaintiffs have any entitlement to recover any of the amounts listed in the Gusfact invoice.

Rent 60Mr Liew claims an adjustment on the basis that he and Mr Bauskis agreed that Mr Bauskis would pay rent in respect of his occupation of one of the dwellings from 2007 to 2010 in the amount of $23,850.00. Mr Bauskis stated that he was "perfectly willing to deduct" that amount from the "final judgment awarded" although he contemplated that a judgment would be awarded in his favour. Accordingly, Mr Liew is entitled to an adjustment in this amount.

Initial contributions 61The settlement statements for the sale of the two lots indicate that the bulk of the proceeds of the sale of the two lots was used to discharge Mr Liew's indebtedness to the NAB. Paragraphs 5 and 7 and Annexure D to the document entitled "Statement of Cross Claim" verified on affidavit by Mr Liew, confirm that the facilities that were paid out at least in part were used by Mr Liew to finance the $186,013.95 he used to pay out Laura Bauskis' mortgage on the Canley Vale property at the time that he purchased it. Presumably, the proceeds of the sale were also used to pay the interest on that amount (as well as interest on various other expenses). Given the terms of the Deed and the commercial background, the monies that Mr Liew borrowed to pay out Laura Bauskis' mortgage would appear to answer the description "monies borrowed for the development" in clause 2 of the Deed. 62However, the question arises as to how the balance of the purchase price on the sale from Laura Bauskis to Mr Liew should be accounted for. In submissions I raised with counsel for Mr Liew whether there should be an adjustment in Mr Bauskis' favour by reason of the difference in the amount used to pay out Laura Bauskis' mortgage and the balance of the purchase price, bearing in mind the Deed records the Canley Vale property as having been beneficially owned by Mr Bauskis. It was conceded on behalf of Mr Liew that an allowance for this amount should be made in favour of Mr Bauskis. As I understand this concession, it was accepted that if there was to be a recoupment from the sale proceeds of Mr Liew's contribution to the joint venture in terms of land represented by the amount he borrowed to pay out Laura Bauskis' mortgage then there should be a corresponding recoupment in favour of Mr Bauskis of the land component that he contributed represented by the difference between the purchase price and the amount paid out on his daughter's behalf. These amounts need to be recouped before the "net profits" can be calculated for the purposes of clause 2 of the Deed. 63The figure nominated on the part of Mr Liew which would be adjusted in Mr Bauskis' favour was $71,794.10. This amount was the balance of the purchase price that he asserted was the true purchase price, namely, $260,000.00, after deduction of various miscellaneous expenses and the amount necessary to discharge Laura Bauskis' mortgage of $186,013.95 (see paragraphs 4 and 5 of Mr Liew's cross claim as verified by his affidavit). 64Mr Bauskis disputed that was the true purchase price for the land. Mr Bauskis contended that it was the $350,000.00 stated on the contract and in the settlement sheet that I have referred to. As I have stated, Mr Liew was not cross examined, and this issue was not taken up with Mr Bauskis in cross examination either. Nevertheless, notwithstanding these limitations, and having regard to the view I have formed as to Mr Bauskis' credibility, I accept Mr Liew's version as to what was agreed in respect of the purchase price. This conclusion is reinforced by my assessment that, notwithstanding the price stated on the contract, Mr Liew's version is the more likely version of the events given the origins of the transaction. Mr Liew stated that he raised an initial loan of $260,000.00 on the Canley Vale property. It seems to me inherently unlikely that, having been approached to finance the development, he would agree to simply pay out approximately $170,000.00 to Mr Bauskis' daughter after discharging her mortgage. Instead it is more likely that he would have agreed to contribute only the finance that he raised on the Canley Vale property. 65I find that the agreed purchase price for the Canley Vale property was $260,000.00 and that it was agreed between Mr Bauskis and Mr Liew that it would be treated in the manner described by Mr Liew. 66Accordingly there will be an allowance to be made in Mr Bauskis' favour in the amount $71,794.10.

GST 67Mr Liew seeks a further adjustment of the net proceeds by reference to a GST liability incurred upon the sale of the two lots. Although no argument was directed to this, it seems to me that GST incurred on the sale of the property would need to be deducted before one could determine what the "net profits of such sales" are for the purposes of clause 2 of the Deed. 68Mr Liew tendered advice he received from a firm of accountants advising that GST is payable under the "margin scheme" in respect of the two sales in amount of $54,563.62. He seeks an adjustment in his favour of that amount, as well as for the costs of obtaining that advice. Although this material was admitted without objection, I would not act on that material as evidence in that the accountant is only providing an opinion as to the operation of the tax legislation upon certain facts. It is only of assistance as an aide memoir. 69The relevant tax legislation that established the "margin scheme" is Div 75 of Chapter 4 of A New Tax System (Goods and Services Tax) Act 1999 (Cth). The operation of those provisions was described by the Full Court of the Federal Court in Sterling Guardian Pty Ltd v Commissioner of Taxation [2006] FCAFC 12; (2006) 149 FCR 255 at [16] as follows: "However, the drafters of the Act [A New Tax System (Goods and Services Tax) Act 1999 (Cth)] recognised that this system might operate unfairly on some forms of business activity. Thus special rules were provided in Ch 4 of the Act. The special rule with which the present case is concerned was directed towards developers. Very commonly developers acquire land from private owners. Those owners are not liable for GST on the supply of land to the developer because the supply is not made in the course of furtherance of an enterprise and the owners are not registered or required to be registered under the Act. Because the owners are not liable for GST on their supply, application of the general scheme of the Act would mean that the developer, as acquirer, would not be entitled to any input tax credit on the acquisition of the land. The developer would have to pay GST on the whole value of the developed property that it supplied to the ultimate purchasers. (In the present case no input tax credits would have been available for another reason: the supply was before 1 July 2000.) Hence Div 75 provided an optional basis for taxpayers supplying real estate of a kind referred to in s 75-5(1)(a),(b) or (c). They can elect to pay GST on the 'margin' as defined in s 75-10(2). Of course the margin scheme would not be appropriate for all land transactions. If A sells his factory to B, A would be liable to GST on the value of that supply and B would be entitled to an input tax credit." 70In this case the factual foundation that gives rise to the GST liability has been established. As I have stated, Mr Liew acquired the land from Laura Bauskis for the purpose of development. As contemplated by this passage from Sterling Guardian, she appears to have been a private owner and it is not suggested that she was registered for GST. The cover sheet for the contract for sale indicated that it was not a taxable supply and did not list the margin scheme as being applicable. The cover sheets for the contracts for sale pursuant to which Mr Liew later sold the two lots both stated that it was a taxable supply and that the margin scheme would be used. It is clear from the circumstances in which Mr Liew acquired the land and then sold it that, if he was not registered for GST purposes, he at least should have been. 71The next question that arises is as to the quantification of the GST liability. The calculations put forward by Mr Liew's advisors appear to have undertaken it in a manner consistent with the above extract from Sterling Guardian, that is, by determining one-eleventh of the margin between Mr Liew's acquisition cost and the sale price. The only difficulty is that those calculations assume that the acquisition cost was $350,000.00, stated in the contract for sale with Laura Bauskis, whereas Mr Liew states, and I have found, that it was $260,000.00. It is not clear to me whether that makes any difference or not. 72This is a matter that I will grant the parties leave to address me on after the publication of this judgment. I will also hear the parties as to whether some form of undertaking should be proffered by Mr Liew as a condition of his receiving an adjustment of the amount to be paid out reflecting this cost. 73I do not propose to make any adjustment for the cost of seeking advice in relation to GST. The advice was obtained well after proceedings commenced and is only reimbursable if properly allowable as a disbursement by a costs assessor.

Further disposition 74In summary, I have found that: (i)The plaintiffs have failed to prove any entitlement to recover any amount set out in the Gusfact invoice. (ii)An adjustment in favour of Mr Liew in the amount of $23,850.00 for rent is to be made prior to the apportionment of any balance. (iii)An adjustment in favour of Mr Bauskis of $71,794.10 is to be made prior to the apportionment of any balance. (iv)An adjustment is to be made in favour of Mr Liew in respect of GST payable or paid on the sale of the two lots prior to any balance. However the amount to be allowed will have to be determined after I have heard further brief submissions on the point raised at [71] above; and (v)No adjustment is to be made in favour of Mr Liew for the cost of obtaining advice on the GST implications of the sale. 75In light of the conclusions I have reached, it will be necessary for the parties to provide supplementary submissions. They should address: (i) the calculation of the appropriate adjustment to be made in respect of GST; (ii) whether any further findings are necessary to determine that; (iii) whether Mr Liew should be required to provide some form of undertaking in relation to the payment of GST and, if so, the form of that undertaking; (iv) the final form of orders that I should make; (v) to the extent it may be relevant to those orders, the matters I have raised in [31] and [32] above; and (vi) costs. 76These submissions should be filed and served within fourteen days. The parties should indicate in their submissions their available dates in the period 15 August 2012 to 19 September 2012 for oral submissions on these issues, which are not to exceed half a day. Upon receipt of those submissions, I will fix an appropriate time and notify the parties. 77Accordingly the Court orders that: (i)on or before 10 August 2012 the parties file and serve written submissions on the topics identified in [75] of this judgment; and (ii)the proceedings be adjourned to a date to be fixed by Beech-Jones J.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 26 July 2012