Cappello & Anor v Scrivener & Anor

Is Mr Scrivener personally liable to pay equitable compensation?

1. During the trial, the focus of the dispute was whether the agreement made by Mr Cappello and Mr Scrivener in their conversation on 20 August 2013 was subject to the Sunset Condition.
2. Now that a dispute has arisen as to whether Mr Scrivener, as well as Tuscany, is to pay equitable compensation to the plaintiffs, it is necessary that I decide which of the alternative cases propounded by Mr Cappello should be accepted. That is, was the partnership between Mr Capello and Mr Scrivener personally, or was it between their corporate entities, Tuscany and Shaka Holdings, or both? And, if the partnership was between the companies, is Mr Scrivener nonetheless liable for Tuscany's failure to account for the profit made from the venture?
3. As Mr Pritchard SC, who appears with Mr Rayment for the plaintiffs, submitted in their Amended Commercial List Statement, the plaintiffs' pleadings were cast broadly to allow for the possibility that the Court would find that the partnership was between the companies, rather than the two men personally.
4. Thus, in the List Statement, the plaintiffs alleged: "On or about 21 August 2013, Cappello and Scrivener entered into an agreement whereby it was agreed that Cappello and Scrivener on behalf of themselves and/or in the alternative, their corporate nominees (Tuscany in the case of Scrivener and a company to be later nominated by Cappello) would as partners, attempt to exploit for mutual gain the commercial opportunity Cappello had obtained in relation to 88 Rouse Road and 96 Cudgegong Road by securing the ability to offer a prospective developer to purchase the said properties together. … At the time the agreement was made, Cappello and Scrivener agreed to use Scrivener's company, Tuscany, as a corporate vehicle to acquire and to hold the rights to control, develop and sell the two properties on trust for Cappello's and Scrivener's joint undertaking. … In the premises of the matters pleaded in paragraphs 9 to 11 above, the agreement was between: (a) as to one part, Scrivener and/or, in the alternative, his corporate nominee Tuscany; and (b) as to the other part, Cappello and/or, in the alternative, Cappello as agent for a corporate entity to be later nominated by him on terms that: (c) Tuscany would hold the assets of the joint undertaking (in particular the rights to control, develop and sell the properties) on trust for the parties to the agreement. … Between late August 2013 and mid January 2014 and in accordance with the agreement pleaded in paragraphs 9 to 13 above, Capello informed Scrivener that he wished to nominate Shaka Holdings as the corporate vehicle to hold his interest in the joint undertaking and in which to receive his share of any profits from it." (My emphasis)
5. Mr Cappello's account of the 20 August 2013 conversation [2] included that: 1. he said to Mr Scrivener: "I propose a 50:50 partnership between us. We share all of the expenses 50:50 and whatever we end up making from the properties we share equally"; 1. Mr Scrivener responded: 2. "I agree"; 3. The men then shook hands; 4. Mr Cappello then added: "I also think it might be a good idea to leave my name off things at this stage as I have met Mrs Boon [the prospective vendor of one of the three properties] before"; 1. Mr Scrivener responded: "OK, we can use Tuscany as the company for our partnership and then we can add your entity at a later date"; and 1. Mr Cappello responded: "I agree, Vince [Aboud, the parties' accountant] can sort it out later".
6. In Mr Scrivener's account of the conversation, he made no mention of Tuscany or of any corporate entity that Mr Cappello might later use. [3]
7. Mr Pritchard and Mr Rayment submitted that Mr Cappello's statement, that it "might be a good idea to leave [his] name off things", was a comment made "after the agreement had been reached". That is not how I understood Mr Cappello's evidence. Although the men had shaken hands at the point set out above, a fair reading of Mr Cappello's account of the conversation is that leaving his name "off things" was part of the agreement.
8. At [113], I found one aspect of the parties' post-contractual conduct was: " … that Mr Cappello and Mr Scrivener agreed to use Tuscany as the corporate vehicle for the project. Mr Cappello said that he said "it might be a good idea to leave my name off things at this stage" and that Mr Scrivener suggested using Tuscany "as the company for our partnership". Mr Scrivener denies these words were said but, almost immediately after 20 August 2013, caused Tuscany to enter the Due Diligence Deeds with Mrs Boon and Mrs Votano."
9. Mr Pritchard and Mr Rayment submitted that: "This is a finding that Tuscany would be holding the assets of the partnership as a trustee for the partnership".
10. I do not agree. I was merely recording that despite having denied suggesting on 20 August 2013 that Tuscany be used "as the company for our partnership" (as Mr Cappello had deposed), as a matter of fact, Mr Scrivener caused Tuscany to enter into the Due Diligence Deeds referred to. That suggested that Mr Cappello's recollection of what was said about this on 20 August 2013 was correct.
11. At [219]-[232], I made findings about the Information Memorandum that Mr Cappello caused to be prepared and which included the statement: "Tuscany Corporation currently has control of the site via Due Diligence and Put and Call Option Deeds. Directors of Tuscany Corporation are John Scrivener and Gail Scrivener. Shaka Holdings is a joint venture partner in the site with Tuscany Corporation. Sole director of Shaka Holdings is John Cappello."
12. I found that Mr Scrivener's evident acceptance of the accuracy of that statement to be a factor, among many others, pointing to the conclusion that the alleged Sunset Condition was not a part of the 20 August 2013 agreement. [4]
13. But those matters, when coupled with: 1. Mr Capello's evidence that on 20 August 2013 he told Mr Scrivener that he wished to leave his name "off things"; and 2. Mr Scrivener's responsive suggestion, with which Mr Cappello said he agreed, that "we use Tuscany as the company for our partnership" and that "we can add your entity at a later date", point strongly to the conclusion that both men understood that the parties to the partnership or joint venture, established on 20 August 2013, were their corporate entities: Tuscany for Mr Scrivener and Shaka Holdings for Mr Cappello.
14. But, assuming this is correct, and that it is Tuscany that is primarily liable to pay equitable compensation, the fact remains that it was Mr Scrivener who caused Tuscany not to honour Tuscany's obligations.
15. The defendants admit in their Commercial List Response that: "Tuscany's conduct in: (a) using for its own benefit the rights to control, acquire and market the Properties to potential developers; and (b) not accounting to the plaintiffs for a share of the Proceeds were the result of decisions made for and on its behalf by its director and controlling mind, Scrivener." [5]
16. The plaintiffs pleaded, and developed submissions to the effect that, assuming the partnership was between the two corporate entities, Mr Scrivener was accessorily liable; whether by reason of his involvement in Tuscany's breach of fiduciary duty, or breach of trust.
17. In those circumstances, Mr Pritchard and Mr Rayment submitted: "If the position was that Tuscany was a partner and Mr Scrivener was not (which is disputed), Mr Scrivener was nevertheless knowingly involved in Tuscany's breach of fiduciary duty for the same reasons as identified above. The plaintiffs' claim includes an alternative claim against Mr Scrivener on the basis of knowing involvement in Tuscany's breach of fiduciary duty (on the supposition that Tuscany and not Mr Scrivener was the other partner). That claim seeks an order for equitable compensation against Mr Scrivener at ACLS [C53] and relevantly alleges: (a) that Tuscany's failure to account to its partner for a share of the proceeds was a breach of the fiduciary duties not to make a personal profit and not to put itself in a position of conflict between its duty and personal interest: at ACLS [C52] and [C13]; and (b) that this conduct by Tuscany was 'the result of decisions made for and on its behalf by its director and controlling mind, Scrivener: ACLS [C48]. Accordingly, even if Mr Scrivener was not partner in his own right (which is disputed), and as admitted on the pleadings, Mr Scrivener was directly responsible for Tuscany's refusal to account for a share of the proceeds to Mr Cappello. Whether as a partner or as a person knowingly involved in Tuscany's breaches, Mr Scrivener should be ordered to pay equitable compensation."
18. Mr Studdy SC, who appeared for the defendants, did not on this application respond to those submissions save to submit that: 1. I had not made findings in my 7 December 2020 judgment about accessorial liability; and 2. were I to conclude that the partnership or joint venture was between Tuscany and Shaka Holdings, it would follow that the award of equitable compensation should be made in favour of Shaka Holdings, rather than Mr Cappello.
19. It is true that I did not make findings about accessorial liability in the main judgment. That is one of the matters reserved for further consideration [6] and is being dealt with in these reasons. In that regard, I accept Mr Pritchard's and Mr Rayment's submissions.
20. Mr Pritchard accepted that the submission at [28(b)] was correct.
21. It follows that Shaka Holdings, but not Mr Cappello, is entitled to judgment against both defendants for the relevant amount.

Quantum

1. It follows from my findings that the defendants are liable to pay Shaka Holdings 50% of the proceeds received by Tuscany from the sale of the three sites by 88 Rouse Land Pty Ltd.
2. It is common ground that Shaka Holdings thus must receive half of: 1. $550,000 released deposit paid to Tuscany on 11 June 2015; 2. $8.5 million paid to Tuscany on settlement on 17 July 2015; and 3. $92,245 of interest paid under the Boon option fee.
3. The remaining dispute concerns a further amount of $2,276,586.52 paid to 88 Rouse Land on completion.
4. Mr Cappello referred to this sum in his affidavit of 18 October 2018. He said at [371]: "My half share of that sum [being the sum estimated in the table] is $4,827,636.00 and of that sum nothing has been paid. That does not take into account any further distribution of funds that were made to Tuscany from the $2,276,586.52 cheque that was drawn in favour of 88 Rouse Land Pty Ltd on completion of the sale of the Development Sites to Tian Tong (Australia) Pty Ltd. If that sum were divided between Tuscany and Oracle so [sic] that Tuscany received 45.52%, [the] total take would have been another $1,036,302.18…"
5. Mr Studdy did not challenge this evidence in cross examination. Mr Scrivener did not refer to the sum in his affidavit evidence. He gave no evidence in chief concerning the funds received by Tuscany from the project. Indeed, the defendants served no evidence on quantum.
6. Mr Pritchard took the matter up with Mr Scrivener in cross examination. The following exchange occurred: "Q. …There's another entry for 88 Rouse Land Pty Limited. Do you see that - A. Yes. Q. - for 2.2-odd million? A. Yes. Q. And Tuscany was a half shareholder by this time in 88 Rouse Land, wasn't it? A. Yes, it was. Q. And do you remember what share Tuscany got on that $2.2 million as a shareholder of 88 Rouse? A. No, I don't. Q. Is it fair to assume that it got, as a 50% shareholder of 88 Rouse it got half of $2.2 million? A. No, I don't believe so. It may have been connected with that $550,000. I'm not sure."
7. Mr Pritchard and Mr Rayment referred to the matter in their final submissions: "Further, as the 50% shareholder of 88 Rouse Land Pty Ltd, Tuscany would also have been entitled to a dividend from that company of half of the $2,276,586.52 paid to it on settlement. Mr Scrivener's evidence about this question in cross-examination was vague, saying that he was not sure but the $550,000 released to Tuscany may have come from the $2,276,586.52. That could not be because the $550,000 came from the deposit not the balance. In the absence of any evidence having been adduced by the defendants to the contrary, the Court should proceed on the basis that as the 50% shareholder of 88 Rouse Lane Pty Ltd was paid a dividend of half that sum in the amount of $1,138,293.26."
8. At [428], I said: "88 Rouse Land Pty Ltd received $2,276,586.52 on completion. Tuscany was a 50% shareholder in 88 Rouse Land Pty Ltd. My attention was not drawn to evidence showing what benefit Tuscany has received from this payment. On the face of it, it would appear Tuscany would be entitled to half."
9. The question is whether I should find Tuscany did, in fact, receive half of that $2,276,586.52, namely, $1,138,299.26, such that the amount of equitable compensation the defendants should now pay to the plaintiffs should include an amount equal to half of that figure, namely $569,146.63.
10. The defendants now seek to tender documents produced on subpoena by Oracle Estates Pty Ltd and Oracle Rouse Hill Pty Ltd between August 2019 and February 2020. The subpoenas were issued at the request of the plaintiffs.
11. The defendants wish to submit that those documents contradict my tentative finding that Tuscany was entitled to half of the $2,276,586.52 and show that, in fact, Tuscany only received $385,072.04 of the $2,276,586.52; of which the Shaka Holdings' share would be $192,536.02.
12. Mr Studdy accepted that the defendants needed leave to reopen their case in order to tender the documents.
13. The documents that the defendants seek to tender are: 1. a document called 88 Rouse Land Unit Trust, which is said to be a "distributions spreadsheet"; 2. a document called 88 Rouse Land Unit Trust "Bank Register" and "Partner Distributions"; and 3. the financial reports for the 88 Rouse Land Unit Trust for the year ended 30 June 2016 signed by Mr Scrivener and another as directors of 88 Rouse Land Unit Trust Pty Limited.
14. Although the documents in question were produced to the Court in response to subpoenas issued by the plaintiffs, they were available to be tendered by either of the parties. Save for whatever may be inferred from the statement by the defendants' solicitor, Mr Balasubramanian, set out below, [7] there is no evidence before me as to if and when the documents came to the attention of the parties or their legal advisers.
15. The principles upon which the Court acts when faced with an application to reopen are settled. Those principles are that: 1. the overriding question is whether the interests of justice are better served by allowing or refusing the application; [8] 2. the power to grant leave should be exercised with great caution having regard to the public interest in maintaining the finality of litigation and, generally speaking, should not be exercised unless the applicant can show that by accident without fault on his or her part, he or she has not been heard; [9] 3. classes of cases in which leave may be granted include, but are not limited to where: 1. fresh evidence, unavailable or not reasonably discoverable before, becomes known and available; 2. there has been inadvertent error; 3. there has been a mistake in the apprehension of the facts; and 4. there has been a mistaken apprehension of the law. [10] 1. the jurisdiction is not to be exercised for the purpose of reagitating arguments already considered by the Court. [11] 2. nor is leave to be granted "simply because the party seeking a rehearing has failed to present the argument in all its aspects or as well as it might have been put"; [12] 3. what must be shown is that the Court has "apparently proceeded according to some misapprehension of the facts or the relevant law and that that this misapprehension cannot be attributed solely to the neglect or default of the party seeking the rehearing"; [13] and 4. where, as here, the case has been closed, and judgment reserved and delivered, exceptional circumstances must be shown. [14]
16. It is implicit in all the cases considering this question, that some explanation must be offered as to why the evidence sought to be deployed was not tendered at the appropriate time.
17. The explanation offered on behalf of the defendants as to why the documents were not tendered during the hearing is contained in an affidavit sworn by Mr Balasubramanian, referred to at [45] above, as follows: "Had the Defendants been made aware prior to the Plaintiffs [sic] closing submissions that they were contending for an entitlement to more than a one half share of $9.05m [15] (as had been set out in their opening outline of submissions and a number of affidavits of [the Plaintiff's solicitor]), the Defendants would have tendered the abovementioned business records which had been discovered [sic] prior to the commencement of the hearing."
18. I find it hard to accept this explanation for a number of reasons.
19. First, the plaintiff's opening submissions (prepared as long ago as 17 February 2020 in anticipation of an earlier hearing date) stated that "Tuscany appears to have received at least $9,262,937.95 from the venture" making clear that the parties were "contending for an entitlement to more than a one half share of $9.05m".
20. Second, Mr Cappello's affidavit evidence referred to at [35] above and Mr Pritchard's cross examination of Mr Scrivener referred to at [37] must have made clear to the defendant that the plaintiffs were contending for a share of the $2,276,586.52.
21. Mr Balasubramanian's somewhat opaque assertion that the defendants "would have tendered" the documents suggests that those advising the defendants had access to the documents during the hearing, gave consideration to tendering the them but decided not to do so because of an apprehension as to the amount the plaintiffs were seeking.
22. As I have said, the defendants adduced no evidence on quantum. The defendants were very well represented at the hearing before me and I must assume that if, as appears implicit in Mr Balasubramanian's explanation, consideration was given to the tender, the decision not to tender was taken deliberately, and after careful consideration.
23. In oral submissions, Mr Studdy pressed only very faintly the explanation proffered by Mr Balasubramanian but submitted, rather, that it was for the plaintiffs to prove the quantum of their claim, that the documents were equally available to the plaintiffs and available to be deployed by Mr Pritchard during the passage of cross examination set out above.
24. So much may be accepted. But it is also true that Mr Scrivener, as the sole director of Tuscany and one of the signatories to the 88 Rouse Land Unit Trust financial reports, must know what amount Tuscany received and could have deposed to the true position.
25. However, the documents sought to be tendered are few in number and in my opinion clearly show that Tuscany did not receive half of the $2,276,586.52 but, rather received only $385,072.04 from that sum.
26. That is made clear from the "Bank Register" which shows that: 1. the 88 Rouse Land Unit Trust received the $2,276,586.52 on 17 July 2015 as "Tian Tong Sale - balance on settlement"; 2. funds were paid from that sum between 21 July 2015 and 2 November 2015, leaving a nil balance at 30 November 2015; 3. the only "profit distributions" made occurred on 2 November 2015, being $385,072.04 to Tuscany and $386,390.99 to Oracle Insight Pty Limited; and 4. all other payments were on account of interest to an outside lender, and principal and interest repayments to Tuscany and Oracle Insight.
27. The "Partner Distributions" document shows that the total amount received by Tuscany was $9,286,132.04, calculated as follows: 17/07/2015 Tian Tong sale - cheque at settlement $8,500,000.00 31/07/2015 Adjustment for repaid DM Fees $121,000.00 31/07/2015 Adjustment for repaid Acquisition Fees $280,060.00 2/11/2015 Payment upon bank account closure $385,072.04 BALANCE $9,286,132.04

1. Consistent with this, the 88 Rouse Land Unit Trust Financial Statements state that the "beneficiaries distribution" was to Oracle Rouse Hill Pty Ltd as to $11,115,671 and to Tuscany as to $9,286,132. The notes to the accounts state that Tuscany's "share of profit" and "drawings" are the same amount.
2. These documents show that the tentative conclusion that I reached at [428] of the judgment, [16] was not correct. Tuscany received only $385,072.04 from the $2,276,586.52 that 88 Rouse Land Pty Ltd received on completion.
3. Despite the concerns I have about the explanation given for the defendants' failure to tender the documents at the hearing, it would be, in my opinion, an affront to justice for me to order that Tuscany and Mr Scrivener pay Shaka Holdings more than half of the amount that Tuscany actually received at the completion of the venture. To do so would be to proceed in the face of the facts as they are now shown to be.
4. Accordingly, I grant the defendants leave to reopen to tender the documents.
5. The amount of equitable compensation payable by the defendants to Shaka Holdings should be calculated on that basis.

Indemnity Costs?

1. The defendants accept that they must pay the plaintiffs' costs of the proceedings.
2. The plaintiffs sought an order for indemnity costs from 28 November 2019 based upon an offer of compromise served by email that day from the defendants' then solicitor, Mr Grant Butterfield. Mr Butterfield has since died.
3. There was a debate as to whether the plaintiffs had proved that this offer of compromise had been received by Mr Butterfield; although it was agreed that a latter offer in the same amount had been received.
4. However, as I have concluded that the order for equitable compensation should be made in favour of Shaka Holdings only, and as the offer of compromise was made by both plaintiffs, that is, Mr Cappello and Shaka Holdings, the provisions of Uniform Civil Procedure Rule 42.14(1) are not engaged. [17]
5. Mr Pritchard accepted this, in terms [18] . Accordingly, the plaintiffs cannot show an entitlement to indemnity costs for the purposes of Uniform Civil Procedure Rule 42.14(2)(b).

Conclusion

1. The parties should now confer and agree on the orders necessary to dispose of these proceedings.

Endnotes

1. Cappello & Anor v Scrivener & Anor [2020] NSWSC 1748.
2. At [59] and [60] of the judgment.
3. Judgment at [61].
4. At [448(i)].
5. In their Commercial List Response, the defendants denied the existence of any obligation to account to the plaintiffs, but admitted the allegations in that paragraph.
6. See [6] above.
7. See [48] below.
8. Urban Transport Authority of NSW v Nweiser (1991) 28 NSWLR 471 at 478 (Clarke JA, with whom Mahoney and Meagher JJA agreed); Spotlight Pty Ltd v NCON Australia Ltd [2012] VSCA 232 at [25] - [26] (Harper and Tate JJA and Beach AJA).
9. Wentworth v Woollahra Municipal Council (No 2) (1982) 149 CLR 672; HCA 41 at 684 (Mason ACJ, Wilson and Brennan JJ).
10. Eg Inspector-General in Bankruptcy v Bradshaw [2006] FCA 22 at 24 (Kenny J); Goodman Fielder Consumer Foods Pty Ltd v Graincorp Foods Australia Pty Ltd [2020] NSWSC 706 at [44] (Henry J); Movie Network Channels Pty Ltd v Optus Vision Pty Ltd [2009] NSWSC 132 at [4]-[6] (Einstein J); Gaskin v Ollerenshaw [2010] NSWSC 788 at [22] (Garling J); NM Rural Enterprises Pty Ltd v Rimanui Farms Ltd [2011] NSWSC 1561 at [26] (Harrison J).
11. Autodesk Inc v Dyason (No 2) (1993) 176 CLR 300 at 303 (Mason CJ).
12. Ibid.
13. Ibid.
14. Marriner v Australian Super Developments Pty Ltd [2016] VSCA 141 at [185] (Tate ACJ, Kyrou and Ferguson JJA).
15. Being the sum of the figures at [33 (a) and (b)] above.
16. See [39] above.
17. See Sahade v Bischoff (No 2) [2016] NSWCA 45 at [19] - [22] (Gleeson JA; Basten JA and Beach-Jones J agreeing).
18. T38.38. 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: 02 March 2021