Booth v Cerreto

A procedural conundrum

1. A substantial part of the hearing was subject to what might be called, using neutral terms, a procedural conundrum. Unfortunately, to explain the conundrum, it will be necessary to set out aspects of the formal history of these proceedings in some detail. So that the reader of these reasons may understand the relevance of what follows, it is convenient to begin by setting out the Court's overall conclusions about the conundrum: 1. The final hearing of these proceedings before Pembroke J in June 2019 was vacated because the parties persuaded his Honour that the proceedings were likely to be resolved by an accounting of their respective contributions to the Venture which would be undertaken by an expert, Mr Troy Peisley followed by a judicial sale of the Properties. 2. There was no suggestion by any party before Pembroke J that the plaintiffs would continue to press their claim for contractual damages. 3. Mr Peisley was instructed to prepare his report by reference to an agreed statement of facts (ASF). 4. Pembroke J was not invited to, and did not, make any orders disposing of so much of the plaintiffs' claim that did not depend upon the accounting. Nor did he make any findings of fact or law. 5. Mr Peisley delivered his report on the parties' contributions to the Venture in October 2020. 6. At the hearing before me, the plaintiffs pressed their claim for contractual damages, notwithstanding the accounting that had been undertaken by Mr Peisley. Mr Cheshire SC for the defendants, correctly in my respectful view, accepted that no order had been made that would prevent the plaintiffs doing so. 7. There was, nevertheless, a vigorous dispute before me as to whether the ASF had been agreed between the parties to apply for all purposes, such that it set out the contractual terms of the Venture for the purposes of determining the plaintiffs' claim for contractual damages. The plaintiffs said it did. The defendants said it did not, and that they were holding the plaintiffs to their pleaded case. 8. The Court has come to the view that the ASF was not intended to apply to anything other than Mr Peisley's accounting, but that the plaintiffs' claim in contract nevertheless fails even if the ASF was agreed to be of general application to the proceedings. This is because, either by reference to the ASF or as an independent finding of fact in these proceedings, it was a term of the contract between the parties that the purpose of the Venture was to build 12 (or approximately 12) dwellings on the Properties. It is now common ground that 12 dwellings (or a similar number) could not be built on the Properties, but that three dwellings would have been permissible having regard to the applicable planning guidelines. The Court has therefore concluded that no damage has been caused to the plaintiffs by reason of the defendants' contractual breaches in failing to complete the Venture.
2. It is necessary to set out in detail the procedural history which informs the conclusions summarised in the preceding paragraph.
3. Over the course of two hearing days (25 and 28 June 2019) the parties addressed Pembroke J in relation to their proposal that the dispute between them would be resolved by the appointment of an expert to enquire into their respective contributions to the Venture. They had reached agreement (as remained the case before me) that there should be orders for a judicial sale of the Properties.
4. At the conclusion of the second day his Honour delivered a short judgment recorded in the transcript but never separately published (Tcpt, 28 June 2019, 25(4)-26(17)) (emphasis added): "I'll just give these brief reasons so it's clear what's happening. The parties have agreed on the desirability of the appointment of an expert to resolve the central questions of accounting which arise in this case. It is entirely possible, even likely, that the resolution of those accounting questions will leave no other matters of substance for determination. It has already been conceded by the defendants that a number of the prayers for relief in the statement of claim should be made. It is obvious that there may well be commercial and other factors influencing the course which this litigation has taken and the resolution which the parties have sensibly arrived at. The agreement by the defendants to certain relief sought by the plaintiffs and the agreement by the parties to the appointment of an expert, without there having been any hearing, does not allow me to conclude that either party is more responsible than the other party for the events which have transpired. All that is apparent is that the parties have cooperated sensibly and responsibly with the assistance of experienced legal advisers and have arrived at a method of disposing of the litigation which avoids the need for a court hearing, subject to any matters that may arise after receipt of the expert's report. For those reasons, although it is agreed that the amendment cross-claim should be dismissed, it is not appropriate at this interlocutory stage without me having heard any evidence whatsoever in the proceedings to make an order that the defendants pay the costs of that cross-claim, let alone that those costs be paid forthwith. The costs of the cross-claim should be reserved and should be determined when the outcome of the entire litigation is known. That is all the more so because the cross-claim, I was told, is, in a material sense, bound up with the defence and, although the defendants have consented to certain relief sought by the plaintiffs, the accounting issues remain to be resolved. The other issue that arises is whether the costs of the expert should be shared equally between the parties or whether, in the first instance, the defendant should pay for those costs. The plaintiffs say that I should order the defendants to pay for those costs in the first instance because of a long history of failed attempts before Slattery J to achieve some form of accounting. It is said that there was fault on the part of the defendants and that, therefore, requiring the defendants to pay the costs of the expert appointed by me in the first instance is some compensation for that fault. I have been provided with 21 pages of records of proceedings before Slattery J. I know almost nothing about what happened before his Honour and I have not been taken in any detail to those 21 pages. What I do know is that the accounting ordered by Slattery J was of an entirely different dimension to the accounting which I have suggested and the parties have agreed to undertake now. I do not think that ii is fair to impose a costs burden on the plaintiffs in relation to the expert that they have agreed to appoint simply because of what is said to be the failed attempts to achieve an accounting in a long series of appearances before Slattery J. It may well be that at the end of the day and when the import of the expert is available and submissions and evidence have been heard that a judge, whoever that may be, concludes that fault lies with the defendants and the plaintiffs should be compensated for costs as a result. It is hard to know. That judge, I should say, may not be me, given the time involved in the ongoing process of this litigation and given my future commitments and movements. However, I have heard no evidence, seen no witness. I have case managed this litigation. I do not regard myself as part heard. Even though the hearing was listed before me initially, no hearing took place. For those reasons I will make final orders dealing with all outstanding questions, hopefully by consent, on 12 July when the parties have agreed on the appointment of an expert. Failing their agreement, I will choose an appropriate expert. I direct that draft consent orders be provided to my associate on or before 10 July."
5. Conformably with his Honour's reasons, on 12 July 2019 Pembroke J made orders including: "1. An order under Rule 31.46 of the Uniform Civil Procedure Rules (UCPR) for the appointment of an expert for inquiry and report by the expert on the matters set out in Annexure "A", having regard to the agreed facts set out in Annexure "B". 2. (a) Order that the expert for the purpose of order 1 be such person as may be nominated by the President of the Law Society of NSW, subject to that person's consent. (b) Direct the parties to approach the President of the Law Society for the purpose of requesting the nomination of an expert. (c) If the person nominated by the President of the Law Society consents to the appointment, the parties should notify my Associate and I will make an order in chambers for the appointment of that person. 3. An order under Rule 31.53 of the UCPR that the plaintiffs on the one hand and the first, second, third and fourth defendants on the other hand share equally in the expert's remuneration, without prejudice to the plaintiffs' right to recover their contribution to the expert's remuneration as part of their claim to the costs of the proceedings. 4. The court notes that the parties have agreed that an order for judicial sale be made by the court following the provision of a report by an expert in accordance with order 1. 5. The amended cross claim be dismissed. 6. Costs of the proceedings including costs of the amended cross claim be reserved. 7. The court appointed expert should provide his or her report to the registrar and the parties in accordance with Rule 31.49 of the UCPR on or before 15 October 2019, subject to any appropriate extension of time that may be granted. …"
6. Annexure "A" to those orders was : "Matters for Determination by Expert 1. An account of all moneys: i. Paid, advanced, contributed or incurred in respect of; and/or ii. Charged against the adjacent lots of land at Ryde being, XX XXXXX Street (Folio Identifier X/XXXXX) and XX XXXXX Street (Folio Identifier X/XXXXX) (Property) by or on behalf of: i. each of the Plaintiffs; ii. the First, Second, Third and Fourth Defendants, and iii. Salcorp Facility Management P/L (in liq); in the period September 2011 to date. 2. The account in (1) should record, vouch and verify each transaction concerning the Property and record: i. the date, the payer, payee and amount of each payment, advance or contribution; ii. the dale, amount, and name of each creditor providing, with or without security over the Property together with any available statement of purpose for which such moneys were obtained; iii. all interest charges paid, capitalised or unpaid, in a monthly table in respect of each of or on behalf of: (a) the Third Defendant: (b) Salcorp Facility Management P/l (in liq); and (c) the Fourth Defendant; iv. any other transaction not included in (i) - (iii) above. 3. The account should record, vouch and verifying rent paid by or on behalf of the Defendants to or for the benefit of the Plaintiffs from 16 September 2011. 4. The account should include an analysis and review of the above transactions and a report classifying the amounts of such transactions into: i Moneys properly incurred for the purposes of the JV Agreement, as defined in the Statement of Agreed Facts up to and including 17 February 2016 (being the date of termination of the JV Agreement): ii Moneys not properly incurred for the purposes of the JV Agreement as defined in the Statement of Agreed Facts up to and including 17 February 2016 (being the date of termination of the JV Agreement); and iii. Moneys properly spent or incurred after 17 February 2016 (being the date of termination of the JV Agreement): a) In respect expenses properly attributable to the Property, including but not limited to rates, taxes and interest on loans secured against the Property; but b) Not including such expenses arising from the moneys identified in 4(ii)."
7. Importantly for the present purposes, the ASF was Annexure "B" to his Honour's orders: "BOOTH v CERRETO STATEMENT OF AGREED FACTS 1. Mrs Dominello, the Third Plaintiff, was prior to 16 September 2011, the registered proprietor of adjacent lots of land at Ryde being, XX XXXXX Street (Folio Identifier X/XXXXX) and XX XXXXX Street (Folio Identifier X/XXXXX) (together "Property"). 2. The Property was subject to mortgages granted by Mrs Dominello and mortgage payments were in arrears and Mrs Dominello was having difficulties in bringing her accounts up to date. 3. On 16 September 2011, Mrs Booth (Mrs Dominello's daughter) - the First Plaintiff, her husband Grant Booth - the Second Plaintiff and Mrs Dominello entered into an oral joint venture agreement ("JV Agreement") with Norm Cerreto (the First Defendant) and Antonio Salerno (the Second Defendant) for the purpose of developing the Property by subdividing it, building an estimated 12 residential units upon the lots and thereafter for an equal distribution redeveloped lots between the Plaintiffs, on the one part, and the First and Second Defendant of the other part. 4. The JV Agreement contemplated: (i) That the JV would commenced within a reasonable period of time and proceed until completed or terminated; (ii) That Mrs Dominello would transfer the Property to the JV and her net equity in the Property would represent the Plaintiffs contribution to the JV; (iii) That the contribution of Messrs Cerreto and Salerno to the JV would be, the repayment of Mrs Dominello's mortgages, the financing and undertaking of the land subdivision and the development of the residences and the provision of alternative accommodation to the Plaintiffs during the term of the JV. 5. A company Arthur Street Developments P/L was incorporated on 16 September 2011. 6. Commencing in about October 2011 alternative accommodation was provided to Mrs Booth and her family at Olive Street Ryde and ,Mr Cerreto asserts that he paid (or caused to be paid) the rent on that accommodation. 7. On or about 4 May 2012 Norm Cerreto pays or arranges payment of $43,375.94 in part payment of Mrs Dominello's outstanding debt to Bluestone Mortgages (Permanent Custodians). 8. On or about 14 September 2012 the Property was transferred as to number XX XXXXXX Street to Arthur Street Facility Management P/L, the Third Defendant, and as to number XX XXXXXXX Street to Salcorp Facility Management P/L (in liq) and Mrs Dominello's mortgages to Bendigo and Adelaide Bank Ltd ($419,188.38), Australian Mortgage Options ($400) and Permanent Custodians ($873,968.76) totaling $1,293,557.14 were discharged. 9. On or after settlement of the Property Norm Cerreto pays or arranges payment of Stamp Duty in the amount of $61,410.00 (XX XXXXXX Street) and $20,015.00 (XX XXXXXXX Street). 10. The Defendants obtained advice from some architects and town planners in respect of the JV Agreement. 11. No works were otherwise undertaken under the JV Agreement. 12. Mrs Dominello continues in occupation of the Property. 13. Mrs Dominello has not paid any rent on the Property since 14 September 2012. 14. In about July 2014 Mr Salerno caused the transfer of XX XXXXXX Street from Salcorp Financial Services P/L to Arthur Street Build Group P/L (Fourth Defendant) for his own reasons. 15. Salcorp Financial Services P/L was subsequently wound up. 16. The JV Agreement was terminated by the Plaintiffs by letter dated 17 February 2016."
8. Pausing there, I have closely read the transcript of what occurred before Pemroke J, together with his Honour's reasons and the formal orders. It is beyond contest the parties were representing to his Honour that, subject to any issues that arose from Mr Peisley's report, the litigation between them would be resolved by the outcome of that report. It is clear that is what his Honour thought was happening. There was no mention by anybody before his Honour of a continuation of so much of the plaintiffs' case as depended upon their claim in contract.
9. The parties and the Court were focussed on an accounting of contributions seen in cases of failed partnerships or other joint endeavours. That is perhaps explicable because it was the defendants' abandonment of a cross-claim asserting a different form of contract from that alleged by the plaintiffs which was the catalyst for what to all intents and purposes was presented to the Court as the resolution of the proceedings. Nevertheless, Pembroke J was not invited to, and did not, make orders that would have had the effect of formally disposing of so much of the plaintiffs' claim as was unrelated to the accounting exercise to be undertaken by Mr Peisley. Furthermore, as I have already observed (see [12(4)] above), Pembroke J made no findings of fact or law.
10. The case before me proceeded by reference to a Further Amended Statement of Claim filed on 6 February 2023. This pleaded the contractual form of the Venture to be: "10. Between mid 2011 and 16 September 2011 there were a number of meetings between the First and Second Plaintiffs and the First and Second Defendant concerning the possibility of the subdivision of the Property into 12 lots and the development of residences upon the lots and an equal distribution of the re-developed lots between the Plaintiffs and the First and Second Defendants. 11. On or about 16 September 2011 the Plaintiffs and the First and Second Defendants agreed to become Joint Venturers for the purpose of developing the Property by subdividing it, building residential dwellings on it, and sharing equally as between the Plaintiffs, of the first part and the First and Second Defendants of the second part the said residential dwellings (the JV Agreement) and covenanted and agreed, inter alia, as follows: (i) that they became Joint Venturers for the subdivision, building and distribution of the residential dwellings on the Property Land and that the Joint Venture should commence forthwith and continue until completed or terminated; (ii) that they would not deal with the Property in any manner inconsistent with the JV Agreement; (iii) that the First and Second Plaintiffs would cause the Third Plaintiff to transfer the Property to the joint venture, and the net equity in the Property (after the mortgage indebtedness) would represent the Plaintiffs contribution to the joint venture; (iv) that the First and Second Defendants would contribute to the joint venture: (a) by causing to be repaid the mortgage indebtedness secured against the Property; (b) by financing and undertaking the subdivision, the development and construction of residences upon the Property; and (c) by providing alternative accommodation to the Plaintiffs during the term of the joint venture. (v) that upon completion of the building of the residences the Plaintiffs of the first part and the First and Second Defendant of the second part would be entitled to each share half of the number of residences built and to determine among each party the allocation and transfer of title to the residences; (vi) that title to the said half share of the residences to which the Plaintiffs would be entitled would be unencumbered of any mortgage indebtedness; (vii) that each of the Plaintiffs and the First and Second Defendants should act in the utmost good faith and furtherance of the objects of the JV Agreement and each should do all such acts, things and execute such documents and other instruments and otherwise conduct themselves in such a manner as to enable them to meet their respective obligations under the JV Agreement; (viii) that neither of the Plaintiffs nor the First and Second Defendants should be entitled to assign or transfer the whole or any part of his or her interest in the JV Agreement ; Particulars The JV Agreement was oral and was concluded in a meeting at Del Italia Cafe, the business premises of the First Defendant at 144 Coxs Road North Ryde on or about 16 September 2011. Certain of the terms of the JV Agreement were implied by law alternatively in fact as a term necessary to give the JV Agreement business efficacy."
11. It will be noted that while paragraph 10 refers to 12 lots, the pleading in paragraph 11 - presumably advisedly and, in my view, somewhat artificially - refers to "residential dwellings" either with or without the definite article, but not alleging any particular number.
12. The defence to these paragraphs pleaded: "10. As to paragraph 10 of the Further Amended Statement of Claim the first, second, third and fourth defendants: (a) admit that there were preliminary discussions about building possible villas and/or residences on the properties at XX XXXXX Street and XX XXXXX Street (properties) but that building 12 villas was and is unrealistic due to rights of easement and carriageway burdening XX XXXXX Street and the failure of the properties to comply with DCP and LEP of the City of Ryde regarding the constructions of villas, which continue to remain on the title. (b) Say that these preliminary discussions were general discussions about developing the properties at some time in the future and were not legally binding. (c) Otherwise deny the allegations in the paragraph 11. As to paragraph 11 of the Further Amended Statement of Claim the first, second, third and fourth defendants say that (a) On 16 September 2011 the First Plaintiff, the Second Plaintiff and the late Mrs Dominello entered into an oral joint venture agreement with the First Defendant and the Second Defendant for the purpose of developing the properties by subdividing them, building an estimated 12 residential units upon the lots and thereafter for an equal distribution redeveloped Jots between the Plaintiffs, on the one part, and the First and Second Defendant of the other part; and (b) The said agreement contemplated: i. That development would commence within a reasonable period of time and proceed until completed or terminated; ii. That the late Mrs Dominello would transfer the properties to the joint venture parties and her net equity in the properties wou!d represent the Plaintiffs' contribution to the joint venture; iii. That the contribution of First and Second Defendant to the joint venture would be, the repayment of Mrs Dominello's mortgages, the financing and undertaking of the land subdivision and the development of the residences and the provision of alternative accommodation to the Plaintiffs during the term of the development. (c) Otherwise do not admit the allegations in the paragraph."
13. Again, presumably advisedly, it is notable that the defence pleads back the relevant terms of the ASF, but otherwise does not admit the terms alleged by the plaintiffs.
14. In the course of a case management hearing (and at that point thinking for my part that all that remained for determination were issues arising from Mr Peisley's report), I directed the parties to prepare an agreed statement of issues. The parties agreed on this list of issues (issue 1A being proposed by the defendants and referring to "the terms referred to in paragraphs 3 and 4 of" the ASF): "Agreed List of Issues to be determined 1A. Whether the terms of the JV Agreement (referred to in the Statement of Agreed Facts annexed to the Court orders made on 12 July 2019) (JV Agreement) included, in addition to the terms referred to in paragraphs 3 and 4 of the Statement of Agreed Facts, the terms alleged in subparagraphs 11(ii) and (vii) of the Further Amended Statement of Claim. 1. Whether the First Defendant and Second Defendants breached the JV Agreement: (a) by failing to undertake the land subdivision and development of residences on the Property; (b) by causing or permitting title of XX XXXXX Street to be transferred from Salcorp Facility Management Pty Limited to the Fourth Defendant; (c) by causing or permitting the titles to the Property to be encumbered by mortgages without applying the proceeds of the mortgages to the subdivision, development and construction of residences on the Property. 2. Whether Mrs Dominello refused to vacate XX XXXXX Street and, if so, whether the consequence was that the proposed development of the Property could not be effected. 3. Whether any breach of the JV Agreement by the First and Second Defendants amounted to a repudiation. 4. Whether the termination of the JV Agreement by the Plaintiffs by letter dated 17 February 2016 amounted to acceptance of the First and Second Defendants' repudiation of the JV Agreement. 5. Whether the Plaintiffs are entitled to damages for the First and Second Defendants' breaches and/or repudiation of the JV Agreement, and the quantum of those damages. 6. Whether the First and Second Defendants owed fiduciary duties to the Plaintiffs in the terms alleged. 7. Whether the First Defendant and Second Defendants breached fiduciary duties owed to the Plaintiffs: (a) by causing or permitting title of XX XXXXXX Street to be transferred from Salcorp Facility Management Pty Limited to the Fourth Defendant; (b) by causing or permitting the titles to the Property to be encumbered by mortgages without applying the proceeds of the mortgages to the subdivision, development and construction of residences on the Property and without otherwise accounting for the said proceeds. 8. Whether the Court should order the First Defendant and Second Defendants to pay equitable compensation to the Plaintiffs and if so the quantum of that compensation. 9. Whether the Plaintiffs made the contributions to the JV agreed to be made by them in the JV Agreement and the quantum of those contributions. 10. Whether the First and Second Defendants made the contributions to the JV agreed to be made by them in the JV Agreement and the quantum of those contributions. 11. Whether the Third and Fourth Defendants hold their respective legal interests in the Property on a common intention or other constructive trust. 12. Whether the Plaintiffs became subrogated to the rights of the Fifth Defendant (ANZ) under Mortgage XXXXXXXXX in respect of the payment of $625,000 made on or about 18 May 2022. 13. The appropriate orders relating to judicial sale of the Property and the distribution of the sale proceeds, having regard to the Court's determination of issues 1A to 12 above. 14. What costs order should be made in respect of the Amended Cross Claim which was dismissed on 12 July 2019 with costs reserved."
15. I should record at this point that, notwithstanding the list of issues, at the hearing before me the proceedings resolved into two issues: the plaintiff's claim in contract and determining the remaining disputes between the parties arising from Mr Peisley's report as to how the final accounting should be done between them.
16. Given that contractual damages are intended to put the innocent party, as far as money can do it, in the position they would have been in had the contract been performed, in the course of argument I sought to elicit from Mr Kidd SC what, if any, contractual term the plaintiffs contended for on the question of how many residences were to be built: for example, a reasonable number, the maximum number permissible, or that number which represented the highest and best use of the Property. Mr Kidd SC submitted that the agreement was to build "residences", which meant at least two, but otherwise contained no obligation as to number.
17. In a further endeavour to bring some clarity to the question, during the course of the hearing I directed the plaintiffs to provide the Court with a definitive statement of the contractual terms for which they contended. The document which was provided relied on some, but not all of what is set out in paragraphs 3 and 4 of the ASF, and referred to "residences" without the definite article or any number: "Terms of the joint venture agreement between the Plaintiffs and Messrs Cerreto and Salerno (contended for by the Plaintiffs) 1. The joint venture will commence within a reasonable period of time and proceed until completed or terminated [Agreed Fact 4(i)]. 2. Mrs Dominello will transfer No XX XXXXXX Street and No XX XXXXXXX Street (the "Property") to the joint venture and her net equity in the Property will represent the Plaintiffs' contribution to the joint venture [Agreed Fact 4(ii)]. 3. Messrs Cerreto and Salerno will (i) repay Mrs Dominello's mortgages (ii) finance and undertake the land subdivision and development of residences on the Property, and (iii) provide alternative accommodation to the Plaintiffs during the term of the joint venture [Agreed Fact 4(iii)]. 4. The redeveloped lots will be distributed equally between the Plaintiffs on the one part and Messrs Cerreto and Salerno on the other part [Agreed Fact 3]. 5. The parties must not deal with the Property in any manner that is inconsistent with the JV Agreement [FASC paragraph 11(ii). Implied term.] 6. The parties must act in good faith in performing their obligations under the JV Agreement [FASC paragraph 11(vii). Implied term.]"

The case in contract

1. The plaintiffs made clear that their case was for expectation damages based on the breach of the defendants' obligation to build "residences" on the Property. There was no doubt that they had not build any. The case was not one seeking compensation for loss of a chance.
2. The plaintiffs submitted that because the defendants' obligation was to build "residences", damages should be assessed by the Court making a reasonable estimate, based upon such evidence as the Court had, of the number of residences that it is likely would have been developed had the Venture been performed.
3. The assessment of damages in contract can only proceed when the term which is said to have been breached is identified with precision. In this case, the starting point to identify that term is to consider the status of the ASF.
4. Assuming it may have been admissible, the Court had no evidence, for example, from the then legal representatives about what the parties thought or agreed was the status of the ASF. For the reasons set out in [19] above, the Court has no doubt that the ASF had no status beyond forming part of the agreed instructions to Mr Peisley. It is very unlikely that well advised parties (which these clearly were) would have produced a document like the ASF if their intent was to agree and record definitively the contractual terms of Venture. The fact that the plaintiffs pleaded those terms in the way they did in paragraphs 11 and 12 of the Further Amended Statement of Claim fortifies me in the conclusion that they (or, perhaps more relevantly, their legal advisers) did not regard the ASF as a binding and definitive statement of the contractual terms of the Venture for the purposes of the case for contractual damages.
5. In the absence of the ASF, it is necessary for the Court to find what was the relevant contractual term of the Venture. This must be by reference to the evidence. The defendants did not go into evidence. The only evidence before the Court as to the terms of the Venture (which were said to be oral) was these unchallenged paragraphs of an affidavit sworn by Mrs Booth (in which "Mum" refers to Mrs Dominello): "11. I subsequently again met both Mr Cerreto at the shops and there was a conversation: Me: "We have a good piece of land but we are having difficulties with the mortgages. We would llke to save the land." Cerreto: "Why don't we look at a joint venture? I do developments with a partner Tony Salerno. I will arrange a meeting". 12. A meeting was later arranged at Mr Cerreto's office above the Cox's Road shops on or about 16 September 2.011. Also present were my husband, Mr Cerreto and Mr Salerno and Stefano LaFace a solicitor who acted for Mr Cerreto and who had an office within Mr Cerreto's office. I had known Mr Laface over a couple of years, not well, but from his acquaintance with Mr Cerreto and as part of the local Italian community and the other local campaigns and associations of the area. 13. At the meeting Mr Cerreto said: "Let's go into a joint venture with your land. We can build 12 villas and you will save the land and end up with half of the villas." Me: "I will speak to my solicitor, Paul Mattick." Cerreto: "You won't need to speak to him. Stefano (LaFace) will act for you and I will be using Logan Fox." 14. Mr Cerreto continued: "We can complete the project within a year. We will move your family in to a house in Olive Street, a friend of mine, Michael owns. Your mother will have her own area downstairs. We will pay out the mortgage on the Property and pay your rent on Olive Street. We will set up a company to carry out the project. You and Grant (my husband) and Tony (Salerno) and I will all be the shareholders and directors. l don't want your mother or any of the rest of your family involved." I replied: "Let's go ahead. I know Mum will be happy with it." I later returned home and confirmed Mum's agreement to the proposal."
6. The Court finds based on that evidence that it was a term of the Venture that the defendants would build, or cause to be built, 12 residences on the Property. The Court accepts Mr Cheshire SC's submission to that effect. Although not a dispositive consideration, I am fortified in this conclusion because it accords with common sense. While the Venture was conceived in an informal, perhaps even (with no disrespect intended) amateur, way, as a matter of common sense one would expect the number of residences to be an important matter for the parties to have agreed. With respect, the contention advanced on behalf of the plaintiffs that the agreement was for the building of "residences" with no attention to the number of residences struck me as being uncommercial and unrealistic, and which the Court would only find with the benefit of the clearest evidence.
7. However, practically the same result follows even if (contrary to the conclusion in the preceding paragraph) the ASF was the agreed, definitive statement of the contractual terms of the Venture. For convenience, I again set out paragraphs 3 and 4 of the ASF: "3 On 16 September 2011, Mrs Booth (Mrs Dominello's daughter) - the First Plaintiff, her husband Grant Booth - the Second Plaintiff and Mrs Dominello entered into an oral joint venture agreement ("JV Agreement") with Norm Cerreto (the First Defendant) and Antonio Salerno (the Second Defendant) for the purpose of developing the Property by subdividing it, building an estimated 12 residential units upon the lots and thereafter for an equal distribution redeveloped lots between the Plaintiffs, on the one part, and the First and Second Defendant of the other part. 4. The JV Agreement contemplated: (i) That the JV would commenced within a reasonable period of time and proceed until completed or terminated; (ii) That Mrs Dominello would transfer the Property to the JV and her net equity in the Property would represent the Plaintiffs contribution to the JV; (iii) That the contribution of Messrs Cerreto and Salerno to the JV would be, the repayment of Mrs Dominello's mortgages, the financing and undertaking of the land subdivision and the development of the residences and the provision of alternative accommodation to the Plaintiffs during the term of the JV."
8. In this context, I have not overlooked Mr Kidd SC's submission that by agreeing to question 1A in the list of agreed issues (see [25] above), the defendants had "admitted" that paragraphs 3 and 4 of the ASF contained the contractual terms of the Venture. While I do not accept that submission, the answer does not matter because, even if it did constitute such an admission, the Court must then resolve whether the contractual terms included the reference to the "estimated 12 residential units".
9. With perseverance and ingenuity, Mr Kidd SC sought to persuade me that while other parts of paragraphs 3 and 4 were contractual terms, the reference to "an estimated 12 residential units" was not. I accept Mr Cheshire SC's submissions as to why that approach is untenable, which I express as follows.
10. First, it may be accepted for the sake of the argument that paragraph 4 contains contractual terms. However, that paragraph says nothing about how the redeveloped lots were to be divided, which is dealt with in paragraph 3. Therefore, paragraph 3 must also contain contractual terms.
11. Second, and further and alternatively to the previous paragraph, "the residences" in paragraph 4(iii) must be understood as a reference to the "estimated 12 residential units" in paragraph 3. In other words, the answer to the question "what are 'the residences' referred to in paragraph 4(iii)?" must be "the estimated 12 residential units referred to in paragraph 3".
12. Third, even if the previous paragraph is wrong, the natural and ordinary reading of everything after "for the purpose of" in paragraph 3 is that all of those words (including the reference to the estimated number of units) are contractual terms. It is for this reason that I do not accept Mr Kidd SC's submission that the agreed fact concerned the purpose for which the parties had entered into the Venture, and did not set out contractual terms. "For the purpose of" is, in my respectful opinion, synonymous with saying the parties entered into the Venture to do the specified things (develop by subdividing, building and distributing). Furthermore, because the final section of paragraph 3 is the only reference to the distribution of the developed lots, Mr Kidd SC's submission would compel the unnatural reading that "for the purpose of" governed all the words up to "and thereafter" but not the balance of the sentence.
13. Fourth, I do not accept Mr Kidd SC's submission that the terms would not, properly construed, including something as uncertain as an estimate. There is no reason of principle or practicality why parties could not agree on producing an "estimated 12 residential units", although there may uncertainty about what number would fall outside the range of the estimate. There was no dispute that if the estimate was a contractual term, to build only three residential units would be a breach of an obligation to build an "estimated 12 residential units".
14. Whether the term was (as I have found in [34] above) for the construction of 12 residential units, or for an "estimated 12 residential units", the plaintiffs claim for contractual damages must fail, even though there is no doubt the defendants breached such a term however expressed. This is because it was common ground, based on the expert town planning evidence, that the effect of the applicable planning laws and regulations was that no more than three residences could have been built on the Properties. Twelve (or an estimated 12) residences could never have been built on the Properties, so the plaintiffs have suffered no compensable loss by reason of the breach.
15. The plaintiffs did not resist that conclusion. Because there was no contest as to this outcome if the Court came to the view that the Venture required the construction of 12 or an "estimated 12" residences, the parties did not devote any attention to the legal analysis underpinning that result. For completeness, I note that it could have been reached by reference to principles of causation, or that the impossibility to obtain approval for that number of residences would have given the defendants a good defence to a claim for breach of the obligation (Cricklewood Property and Investment Trust Ltd v Leighton's Investment Trust Ltd [1945] AC 221 at 243-244), or because the Venture would have been frustrated because it was impossible to obtain the necessary development approval (Dalmia Dairy Industries Ltd v National Bank of Pakistan [1978] 2 Lloyd's Rep 223 at 253).

Accounting issues

1. There were three disputes arising from Mr Peisley's report and how the proceeds of sale from the judicial sale of the Properties would be applied. The parties helpfully produced schedules and forms of order which enabled the Court to understand what the remaining issues in dispute were. I will deal with each of these in turn.

Accounting - Discharge of the plaintiffs' loans

1. In determining how much should be allowed to the defendants as a contribution to the Venture, there was a significant difference between the parties as to how the defendants' discharge of Mrs Dominello's mortgages over the Properties should be treated.
2. The defendants relied on Mr Peisley's finding that they had contributed $1,305,654 in paying out Mrs Dominello's loans over the Properties. They then contended that they were entitled to interest at court rates on that amount, which was $820,075 calculated up to 3 October 2023. Mr Cheshire SC submitted that, as Mr Peisley had correctly done, the question of contributions was determined on a cash basis. The defendants had in fact paid out Mrs Dominello's loans to the value of $1,305,654.
3. For the purposes of the defendants' calculations, they then said that the borrowings from Westpac and ANZ which the defendants had made to finance the Venture, including to pay out Mrs Dominello's loans, should be treated as personal borrowings, such that the primary amounts of those loans and the interest paid on those loans were matters for which the defendants should not receive a credit.
4. The plaintiffs submitted that because the defendants had funded the payment out of Mrs Dominello's loans from the loans which the defendants had taken out over the Properties and which would be repaid upon their judicial sale, the defendants' contributions to the Venture were relevantly limited to the interest payments referrable to the Venture on the loans, together with interest on that amount. Having regard to Mr Peisley's report, as subsequently adjusted by him during the giving of oral evidence, the interest relevantly paid by the defendants on the loans that they had used to pay out Mrs Dominello's loans was $355,071, with further interest thereon of $138,547.
5. Mr Kidd SC submitted that the Court should take the same approach as that adopted by Parker J in Makaritis v Makaritis (No 3) [2023] NSWSC 409, a similar case of a failed joint venture in which his Honour had to determine the parties' respective contributions. In that case, his Honour said (emphases added): "[27] The starting point for HPH's contributions would ordinarily be the amount paid by HPH to Bill to acquire the property, together with any fees associated with the purchase and any fees associated with establishing the loan (since the borrowing of money was an integral part of the joint endeavour). But nearly all of this expenditure was covered by the loan from Prime Capital (later refinanced with Pepper Money: see J2 [46]) which is to be repaid out of the proceeds of sale. Similarly, most, if not all, of HPH's contribution to the construction of the granny flat appears to have come from monies provided by Prime/Pepper. [28] HPH's contributions for present purposes are therefore limited to capital repayments and interest paid to Prime/Pepper, and any other expenses of the joint endeavour paid directly by HPH out of its own monies (including monies borrowed from Bill or Luke). Recurrent expenditure by HPH will need to be applied against any rental income received by HPH from third parties; it is the net amount which represents HPH's contribution. If income exceeded expenditure, it would be necessary to allow for tax, but I was informed by counsel for the defendants that, owing to the high rate of interest charged on the borrowings, this will not arise."
6. I accept Mr Kidd SC's submission. In my respectful view, the reasoning which commended itself to Parker J in Makaritis is equally applicable to this case. In assessing contributions, the Court must look at what actually left a party's "pocket" as it were, as opposed to including amounts which will be paid back to secured lenders upon judicial sale.
7. It was common ground that the relevant loans were interest only and that the defendants had not made any capital repayments to the lenders. I agree with Parker J that for the purposes of determining contributions in a failed joint venture, the contribution is the interest the defendants paid on the loans, insofar as they were referrable to the Venture (it being accepted, and taken into account by Mr Peisley, that insofar as the defendants had borrowed money and paid interest not referrable to the Venture, these were not matters for which they could claim credit upon an accounting of the Venture or otherwise visit on the plaintiffs).
8. Finally on this issue, to the extent it may be relevant, I do not accept Mr Kidd SC's argument that the defendants were contractually prohibited from borrowing on the Properties to pay out Mrs Dominello's loans (as opposed to developing the Properties). I am unable to discern any such term (express or implied) by reference to any of the versions of the contractual terms of the Venture advanced by the plaintiffs which I have set out above in considering their claim in contract.

Accounting - some holding costs

1. The plaintiffs sought to exclude all or half of council rates and land tax claimed by the defendants as contributions insofar as they related to one of the Properties, because Mr Salerno had transferred that property to the fourth defendant for his own reasons unrelated to the Venture. As Mr Kidd SC put it, nothing was done by the fourth defendant for the purposes of the Venture and therefore why should land tax and council rates paid by the fourth defendant in respect of that property be credited to the defendants as a contribution to the Venture?
2. I do not accept that submission. I prefer Mr Cheshire SC's argument that someone had to pay those holdings costs pending sale of the Properties, and all parties were to benefit from those costs being paid by reason of the judicial sale of the Properties. The Court finds that the whole of those amounts are properly characterised as contributions of the defendants to the Venture. For ease of identification, those amounts are $12,635, $13,769 and $35,038, together with the interest calculated thereon.

Accounting - "Benefit" of borrowings over the Properties to the defendants

1. In their calculation, the plaintiffs further sought to reduce the defendants' contribution by deducting an amount of $1,435,346 which was said to represent the current balance of the defendants' borrowings against the Properties less what they had borrowed to repay Mrs Dominello's mortgages. Mr Kidd SC submitted that by using the Properties to borrow funds for their own purposes unrelated to the Venture, the defendants had "effectively taken away from [the Venture] by granting the mortgages to Westpac and ANZ for the purposes of loan moneys used for their purposes" (Tcpt, 3 October 2023, 143(32)-(34)). Mr Kidd SC went on to submit (Tcpt, 3 October 2023, 143(38)-(47)): "KIDD: In effect, what they've done is they've is - we say why would one ignore the borrowings that they unlawfully caused to be obtained by them and charged over the land, when characterising the contributions that they made to this joint venture? Sure, they've spent some money, outlays, but they've also used the property and received money, the loan proceeds, which they've had the benefit of for years, and charged the joint venture asset with what presently is the $2.7 million odd amount of debt, of which, obviously, a large proportion relates to their own commercial purposes. When one does the numbers, the net effect of what they've done is to take the joint venture for their own purposes."
2. The effect of the plaintiffs' proposed deduction was to produce a "total net contribution" by the defendants to the Venture in a negative amount.
3. Mr Cheshire SC submitted that to seek to bring to account the borrowings against the Properties in so far as they were unrelated to the Venture was not to compare like with like. Those borrowings had no negative effect upon the Venture, the defendants paid the interest on the amount and the calculations of both parties for the purposes of the accounting exercise excluded as between the parties the effect of repayment of those loans upon judicial sale of those amounts unrelated to the Venture.
4. The Court accepts Mr Cheshire SC's submission. The deduction proposed by the plaintiffs is in respect of amounts irrelevant to the present accounting exercise. In no legally cognisable way can it be said that the defendants "took the joint venture for their own purposes" so as to give rise to a right to compensation of some kind (including by deduction) from the defendants.

Accounting - Summary in Relation to the Defendants' Contributions

1. The Court finds that the parties' contributions are as set out in the defendants' schedule attached to their outline of closing submissions dated 29 September 2023 subject to these adjustments to reflect the conclusions in [45] to [58] above: 1. Cell 2 concerning the discharge of the plaintiffs' loans, the amounts should be $355,071, together with interest of $138,547; 2. Cells 12 and 13 in relation to the abandoned claim in respect of Mrs Dominello's accommodation should be deleted; and 3. The total of the defendants' contributions and the parties' respective percentage contributions (to the extent they may be relevant) should be recalculated to reflect sub-paragraph (1) above.
2. Schedule A Schedule A (143420, pdf) to these reasons is a working out of the adjustments referred to in the preceding paragraph. The Court finds the parties' financial contributions to the Venture to be as set out in Schedule A. The interest calculations will need to be updated at the time final judgment is entered.

Division of any surplus

1. The parties were in dispute about how any surplus proceeds of sale of the Properties remaining after payment out of all other amounts (including the parties' contributions) should be divided.
2. Mr Cheshire SC submitted that any surplus should be divided in accordance with the parties' percentage contributions to the Venture. The evidence did not support any inference of a common intention that if the Venture was not completed, each would benefit from any surplus equally. The parties simply had not turned their minds to it. Furthermore, while it was agreed that the result of the Venture would be to give each side half the residences that would have been built, that was a very different thing to the present exercise, which was concerned with returning the parties' contributions and imposing a just solution as to any surplus. An entitlement to half the residences could not be converted into an entitlement to half the surplus. The just solution was to divide any surplus in accordance with the parties' respective contributions.
3. Mr Kidd SC submitted that precisely because the parties had not turned their minds to the situation with which they were now confronted, equity was equality in relation to any surplus. He referred to Parker J's approach to a similar question in Makaritis: "[54] It is true that in Baumgartner (and in Togias), the declaration ultimately made provided for the property to be shared in defined percentages, and did not deal separately with the contributions and the surplus. I discussed this in Woods at [262]-[270]. I pointed out that the difference between return of contributions and equal division of the surplus, on the one hand, and a percentage division of the whole proceeds, on the other, will not necessarily be of great practical significance, depending on the amount of the surplus and the percentages adopted. I also pointed out that that although Baumgartner post-dated the decision in Muschinski, it was not suggested that the form of order suggested by Deane J in Muschinski had been inappropriate to the circumstances in that case. [55] At [275] of Woods, I concluded: "To my mind, an order in the Muschinski form best reflects the rationale for equity's involvement, namely to deal with a capricious outcome of the breakdown of the relationship between the parties, being an outcome which they did not anticipate in their earlier agreement. In the present case, the parties did not, on my findings, consider how the equity in the Telopea property, if there was to be any, would be shared. In my opinion the fairest way to deal with this is, subject to a point I will make in a moment, to split the equity equally." The qualification which I made in this passage concerned indexation, which I have already discussed. [56] It may be significant that Baumgartner was a case involving non-financial contributions, which of their nature were not capable of being valued (as was Togias). Whether that is so or not, all of the authorities in this area emphasise the that the court has a wide discretion in formulating its orders, to tailor them so as to achieve justice in the individual circumstances of the case. Counsel for the defendants did not invite me to reconsider my reasoning in Woods. [57] In Woods, there was a substantial percentage increase in the value of the property in question between when the joint venture was entered into and the time the Court came to consider the form of the orders to be made. It appears that the same may be so in the present case. In my view, justice will best be done by returning to Bill and HPH their contributions (as indexed) and then dividing the surplus equally. There will be no unfairness to HPH. It will be fully recompensed for its contributions to the joint endeavour. It can hardly complain about having to share a profit which it would never have achieved outside that venture."
4. Mr Kidd SC also drew attention to Parker J's decision in Woods v McKinlay (No 2) [2021] NSWSC 1510. His Honour said: "[271] But the present case is an example at the other extreme. On the current market value of the property, it contains equity which, in nominal terms, is three or four times the amount that was actually expended on buying the property. This equity has been built up as a result of the huge increase in property values in Sydney over the last twenty years, and bears little or no relation to the contributions made to the purchase price and the repayment of the mortgage principal. [272] In my view, a division of the equity based on contributions to the loan repayments would ignore an important aspect of the relationship between the parties. At the beginning, over ninety-nine per cent of the total acquisition cost represented monies borrowed in the names of Orlene and David. I do not find it necessary to decide whether David in fact gave up an opportunity to travel to the United Kingdom. On any view, taking on the Wizard loan involved a significant opportunity cost and a significant risk, without which the benefit of the later increase in the property's value could never have been obtained. In fact, during the first year or so Orlene and David were required to put in extra contributions because Antoinette was unable to. Although their contribution may be small when compared with Antoinette's total contribution over twenty years, it came at a crucial time. [273] Furthermore, Baumgartner was a de facto relationship case where the parties had pooled their assets and used pooled funds to make contributions in the form of the loan repayments. The agreed contribution ratio also included an allowance in favour of Mrs Baumgartner for non-financial contributions (although calculated in terms of lost earnings). The element of domestic sharing is entirely lacking in the present case, where there was no cohabition between the parties. [274] Although the Court in Baumgartner adopted a form of constructive trust which was different from that adopted in Muschinski, there was no suggestion that the form adopted in the earlier case had been inappropriate. The cases in this area frequently refer to it being one where equity is at its most flexible. [275] To my mind, an order in the Muschinkski form best reflects the rationale for equity's involvement, namely to deal with a capricious outcome of the breakdown of the relationship between the parties, being an outcome which they did not anticipate in their earlier agreement. In the present case, the parties did not, on my findings, consider how the equity in the Telopea property, if there was to be any, would be shared. In my opinion the fairest way to deal with this is, subject to a point I will make in a moment, to split the equity equally."
5. I accept there is force in the contention that any surplus should be divided in the same proportions as the parties' contributions. As a result of the readjustment referred to in [59] above, on my calculations the contributions of the parties are 42.77% as to the plaintiffs and 57.23% as to the defendants. Nevertheless, on reflection, in my respectful opinion the better approach is that adopted by Parker J in the two cited cases, and that the just outcome is therefore that any surplus should be divided equally between the parties for these reasons: 1. The parties never turned their minds to how their interests might be divided in the present situation where the Venture was terminated without a sod being turned; 2. There is no suggestion that any increase in value of the Properties is attributed to anything done by the defendants (or, for that matter, the plaintiffs); 3. The defendants having done almost nothing to advance the Venture, the Court infers that any surplus is the product of rising property prices that cannot be attributed to either party; and 4. The plaintiffs fulfilled their side of the bargain. The defendants plainly did not. It would be unjust for the defendants, in those circumstances, to be entitled to a greater share of the surplus because of the accident of their contributions (which were incomplete) exceeding the value of the plaintiffs' contribution (which was complete).

Orders and Costs

1. The orders for judicial sale of the Properties should generally be in the form proposed at the conclusion of the hearing by the defendants and refined in the course of argument. I will circulate a draft to the parties for their consideration upon publication of these reasons.
2. It was not entirely clear if there was a dispute between the parties as to the treatment of capital gains tax. For the avoidance of doubt, I accept the approach proposed by the defendants in their draft orders that capital gains tax on the sale of the Properties was to be deducted before payment to the parties of their contributions and any surplus. I accept Mr Cheshire SC's submission that the parties had contemplated an arrangement, upon which they had in fact embarked, that would inevitably have led to a liability for capital gains tax in the companies to which the Properties were transferred by Mrs Dominello upon any transfer back of the completed residences. In other words, the parties contemplated that capital gains tax would be shared or, putting the matter colloquially, "come off the top".
3. The Court will give directions in relation to submissions as to costs to the extent the parties are unable to resolve that issue.

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: 15 December 2023