Shanmugathaas & Anor v Paramanirupan & Anor

Supreme Court of NSW|2019-09-24|Before: Meagher J, Slattery J

Judgment

The subject matter and unfortunate history of these proceedings are described in this Court's recent judgment dealing with the court appointed receivers' application for the approval of fees (incurred as well as proposed) of up to $197,000, in circumstances where the Court previously had allowed fees to a maximum of $30,000 plus GST and disbursements: Shanmugathaas & Anor v Paramanirupan & Ors [2019] NSWSC 1219 at [11] - [77].

The joint venture between the parties

The plaintiffs and defendants, two couples, agreed in about October 2013 to redevelop a property in Hill Street, Wentworthville which was owned by the defendants. That development involved the construction of a duplex house consisting of two units. In general terms the defendants agreed to contribute the property, the plaintiffs agreeing to finance the construction of the duplex and to manage and oversee the building work. Upon its completion the defendants were to retain and live in Unit 2. Unit 1 was to be sold to repay the monies contributed by the plaintiffs and enable them to receive their share of the contemplated profit. The parties eventually executed a Joint Venture Agreement, which although dated 6 October 2013, was not signed until October 2014. That agreement was drafted by the first plaintiff, Mr Shanmugathaas, and signed without either party obtaining legal advice as to its contents. It provided for the net profit or loss from the redevelopment to be shared or borne in the ratio 55 per cent to the plaintiffs and 45 per cent to the defendants. The construction certificate permitting the commencement of work was obtained in about October 2014. The building work was completed by the end of 2015 and a final occupation certificate issued in January 2016. On about 14 October 2015 the defendants contracted to sell Unit 1. The deposit, $111,500 was released to the plaintiffs at that time, however that sale did not proceed. The sale of Unit 1 under a second contract for sale was completed in May 2017.

The present proceedings

These proceedings were commenced in October 2016, the plaintiffs seeking orders compelling the defendants to sell both units and to pay the proceeds into a jointly controlled account or into Court for the purpose of having accounts taken to determine the amount due to the plaintiffs. In December 2016 the parties executed a Deed of Settlement and Release which provided for the sale of Unit 1 and the "notional purchase" by the defendants of Unit 2 at a price to be determined by an expert valuer. That deed also provided for the distribution of the balance of the expected proceeds of the first contract for sale of Unit 1, which at that time had not been abandoned. At the same time, an accounting firm, William Buck Business Recovery Services Pty Ltd (William Buck) was approached to determine the parties' final entitlements on the winding up of the joint venture, acting as an expert in doing so.
However the parties were unable to reach agreement as to the scope of the retainer of that firm and in early July 2018 the matter came before Parker J on the application of the plaintiffs for orders enforcing the Deed of Settlement. On 10 July 2018 orders were made for the dissolution of the joint venture, treating it as constituting a partnership, and the appointment of Messrs Sean Wengel and Robert Whitton of William Buck as receivers "to wind up the partnership": Shanmugathaas & Anor v Paramanirupan & Ors [2018] NSWSC 1232. The other orders made by consent on 10 July 2018 included: 5 The receivers are directed: (a) to prepare accounts (including tax returns) for the partnership in accordance with the applicable Australian accounting standard; (b) to lodge any tax returns of the partnership which may be required; … (d) following the Court's determination and the obtaining of the valuation referred to (c): … (iii) to report to the Court on what are the parties' entitlements by way of income and by way of share of the partnership property on realisation; (e) for the purposes of producing the report referred to in order 5(d)(iii), to afford to the parties an opportunity to make submissions, the form and timing of such submissions to be determined by the receiver subject to any application which may be made to the Court.

The receivers' report dated 25 March 2019

The receivers' report made pursuant to that order is dated 25 March 2019. Relevantly to the matters presently before the Court, the report advised that the receivers had not prepared accounts including tax returns for the partnership, and suggested, in view of the likely additional costs of the receivers' doing so (estimated to exceed $120,000), that the parties might consider releasing the receivers from that obligation. The plaintiffs oppose the receivers being released from that obligation and the defendants support them being released.
When the proceedings were mentioned before Ward CJ in Eq on 26 March 2019 directions were made requiring the parties (1) to put in writing any complaints they had about the receivers' report, and (2) to decide whether they wanted the receivers to proceed with the preparation of accounts and tax returns. On 8 April 2019 the receivers produced a First Addendum to their report which included alterations, but none that had been urged by either of the parties. The proceedings were next before the Court on 9 April 2019 when Ward CJ in Eq made orders including the following: 5. Direct that any application by either party for orders, for the acceptance or rejection, in whole or in part, of the William Buck's report, as amended on 8 April 219, be filed and served by 14 May 2019 with supporting affidavits, such application to be returnable for directions on 21 May 2019.
The receivers issued a Second Addendum to their report dated 24 May 2019. By the time the matter came before Ward CJ in Eq on 16 July 2019 in response to order 5 made on 9 April the plaintiffs had filed an amended notice of motion on 27 May 2019 and the defendants had filed a notice of motion on 30 May 2019. On 16 July the following directions were made in relation to those motions: 2. Any amended notices of motion seeking declaratory relief be filed and served on or before 4pm on 23 July 2019. 3. Any further evidence in chief by any party be filed and served on or before 4pm on 30 July 2019. 4. Any further evidence in reply by any party to evidence served in compliance with order 3 be filed and served on or before 4pm on 27 August 2019. 5. The parties not be permitted to rely on any further evidence filed or served after 27 August 2019 without the leave of the court. 6. The plaintiffs and defendant's motions be listed for hearing … on 23-24 September 2019 with an estimate of 2 days.

The motion presently before the Court

Pursuant to the leave granted by order 2 above, the plaintiffs filed an amended notice of motion on 23 July 2019. The additional orders sought included: 4. A declaration that the Plaintiffs' contributions to the construction and/or development of the property was in the sum of $919,525.
On 20 September 2019 the defendants' solicitors advised the plaintiffs that their clients no longer wished to move on their motion filed on 30 May 2019, but that they would continue to oppose the orders sought by the plaintiffs.
The remaining relief sought by the plaintiffs' amended notice of motion addresses two matters.
The first is whether the receiver should continue to be required to prepare accounts and tax returns in accordance with orders 5(a) and (b) made on 10 July 2018. In my view those orders should be vacated in circumstances where the estimated cost of the receivers preparing those accounts and returns exceeds $120,000.
The second matter raises four issues between the parties with respect to the calculation of their entitlements under the joint venture. Those issues and the paragraphs of the motion which raise them are: 1. Whether the costs associated with the construction of the duplex incurred by the plaintiffs, to be taken into account as Development Costs when determining the profit or loss from the joint venture, are capped at $750,000 in the absence of further agreement between the parties (paras 3, 6(iv), (v)). 2. Whether the amounts of $111,500 and $52,067 paid to the plaintiffs are to be treated as distributions from the partnership to the plaintiffs (paras 5, 6(i), (ii), (iii)). 3. Whether the defendants are liable to pay rent to the joint venture or the plaintiffs for their occupation of Unit 2 (30A Hill St) from 1 July 2016 to 22 May 2017 (paras 7, 8). 4. Whether the effect of cl 19(l) of the Joint Venture Agreement is that the defendants are liable to pay to the plaintiffs their "legal costs incurred prior to the commencement of these proceedings" (para 9).
For the reasons which follow the first and second of these issues should be determined as contended for by the plaintiffs, and the third and fourth determined as contended for by the defendants.

Whether the plaintiffs' construction contributions were capped at $750,000

In the Joint Venture Agreement, PARTY 2 refers to the defendants and PARTY 1 to the plaintiffs. That agreement relevantly provided: 4. PARTY 2 accepts that there may be cash contributions required for payments of principal, interest and loan expenses and payments for work to be done or expenses incurred in relation to the Development Project Expenses during the terms of this Agreement (the "Continuing Contributions") and these payments and expenses shall be made by the PARTY 1 as and when they are payable and shall constitute a capital contribution by the PARTY 1 to the Development. 5. PARTY 1 agrees to contribute funds for the construction of the duplex under the owner builder license of PARTY 2 (held in the name of MR. SATHYANPARAMATHEVA PARAMANIRUPAN) at the said land to the maximum of $750,000. Any additional amount of money required can be mutually discussed and agreed. 6. Both parties agree that any funds required for the development of the property will be financed by PARTY 1 at a finance costs to the Development Project. … 13. It is mutually agreed that PARTY 1 will finance the construction of the duplex and co-ordinate with the Tradesmen/ Sub-contractors. … 15 [this clause provides for a project management fee of $20,000 to the plaintiffs and to the defendants and that the net profit or loss be shared in the proportions of 55% to the plaintiffs and 45% to the defendants] … 19. DEVELOPMENT COSTS Including and without limitation, the following expenses (incurred by PARTY 1 & 2) will form part of the Development Project including: All the land purchases costs including cost of finance. All the costs associated with the construction of Duplex … h) Outgoings for the property, including council rates and charges, water rates and charges and land tax (if any). … m) Any other costs and expenses related to the Development Project and its funding. n) Project Management fee payable to PARTY 1 and PARTY 2 as stipulated above in clause 15.
The issue between the parties may be stated shortly. The Joint Venture Agreement proposes that at the conclusion of the development the net profit or loss be shared or borne between them in the proportions stated in cl 15. That profit or loss was to be calculated by subtracting from the value of the two units at the conclusion of the project the Development Costs incurred by the parties. Those costs described in cl 19 include "All the costs associated with the construction of Duplex" (emphasis added), as well as the project management fees provided for in cl 15. The receivers prepared their Original Report on the basis that in the absence of agreement the amount which the plaintiffs could contribute to the construction costs of the development and recover before the determination of the profit or loss was capped by cl 5 at $750,000. In the result, notwithstanding that the costs claimed as incurred by the plaintiffs were $919,525 (Table 6), the receivers concluded that the plaintiffs were only entitled to recover $750,000 on account of those costs before calculation of the profit or loss from the project.
The plaintiffs submit that cl 5 does not impose a cap on the amount of the Development Costs which they might incur and recover. Furthermore they submit that if there is such a cap, it is restricted by the words of cl 5 to funds "for the construction of the Duplex" and does not include any "other costs and expenses related to the Development Project" (cl 19(m)). It is contended that costs answering this description were incurred and include their costs of acquiring easement rights, design consultant's fees, development application fees, costs incurred in removing asbestos from the site and demolition costs.
The legal meaning of the provisions of the Joint Venture Agreement is that which would be conveyed to a reasonable person in the position of the parties at the time the agreement was made. That requires consideration of the language used in the document, the surrounding circumstances, the nature and subject matter of the agreement and the purposes or objects sought to be secured by it: Electricity Generation Corporation v Woodside Energy Limited & Ors (2014) 251 CLR 640; [2014] HCA 7 at [35].
Here the object of the parties' agreement was to develop and construct a duplex on land owned by the defendants, where their principal contribution to the project was that land (cl 2) and the plaintiffs were to contribute funds for the construction of the duplex, as well as coordinate that construction work (cll 5, 13). In addition, the agreement recognised that the plaintiffs may make contributions towards the cost of purchasing the land, as well as for work to be done or expenses incurred in relation to the project (cll 3, 4). Specifically it was acknowledged by cl 4 that any such payments and expenses should "constitute a capital contribution" by the plaintiffs (cl 4).
In this context cl 5 fixes at $750,000 the maximum amount that the plaintiffs could be required to contribute "for the construction of the duplex". As well as fixing that amount cl 5 provided an assurance to the defendant that the plaintiffs could be required to contribute up to that amount. The clause does not however, fix the amount which the plaintiffs are permitted to contribute in the event that further payments are necessary to enable completion of the duplex. In that respect the closing words of cl 5 contemplate that additional monies may be "required" and provides for mutual discussion and agreement in that event.
Clause 19 describes the "expenses" that "will form part of the Development Project", in turn defined as the joint venture. In this context expenses can only sensibly "form part of" the development if they are to be taken into account when working out the entitlements and obligations of the parties. Relevantly those expenses include "All the costs associated with the construction", as well as any "other costs and expenses" related to the project and its funding. These descriptions of those expenses are not qualified by reference to any cap or limit.
That being the position is not inconsistent with the operation of cl 5 taken with cl 13 being to fix the maximum amount which one party could require the other to contribute. Accordingly cl 19 should be construed as meaning what it says, and without qualification.
It follows that the receivers did not act in accordance with the terms of the Joint Venture Agreement in fixing the plaintiffs' construction costs contribution to the Development Costs at $750,000 for the purpose of working out any profit or loss. In their first report (Table 6) the receivers recorded that the plaintiffs claim $919,525 as their relevant contribution to those costs. The evidence of the first plaintiff was that he had incurred construction related costs totalling $938,111 as recorded in a Microsoft Excel spread-sheet provided to the receivers after their appointment in July 2018. A breakdown of that amount is set out in Table 13 of the receivers' Original Report. It includes amounts of $11,626.43, $3,477, $340.50 and $440 which are separately provided for in Table 19, and not the subject of dispute. The remaining item, leaving construction costs of $919,525 (after adding $120), is funding expenses of $11,895 which the receivers rejected. Accordingly the starting point for the plaintiffs' revised construction costs claim is the amount of $919,525. Whether that amount should be allowed is considered below.
On the basis of their view that cl 5 imposed a limit on the amount of Development Costs that could be recovered and should be taken into account, the receivers also excluded from their final calculation an amount of $67,897 claimed as contributed by the defendants. In their report the receivers included that amount as a contribution by the defendants to Development Costs, and also included an amount of $2,831.28 as interest due in relation to that funding (Table 19). In the First Addendum the receivers continued to include these amounts when calculating the defendants' entitlements (Table 19). In the Second Addendum the receivers excluded the amount of $67,897 and any allowance for interest because there was no "express written agreement that additional construction costs above the limit of $750,000" were allowed. Subject to my being satisfied that this amount represented Development Costs incurred by the defendants, it should be taken into account together with an allowance for interest in determining the parties' final entitlements.

Whether payments of $111,500 and $52,067 to the plaintiffs are to be treated as distributions of partnership funds

The Deed of Settlement dated 23 December 2016 by cl 1.8 provided for the sale of Unit 1 (also referred to as Unit 30B, Hill Street) and the distribution of funds as follows: Disbursement of Funds from the Joint Trust Account 1.8 Immediately upon the deposit of the balance proceeds from the sale of Unit 30B into the Joint Trust Account occurring, the parties agree that sums will be withdrawn in the following order: (a) the sum of $750,000 will immediately payable to Party 1 and the solicitors holding the Joint Trust Account are irrevocably authorised (and the execution of this deed constitutes that irrevocable authorisation) to pay that amount to Party 1; (b) the sum of $52,067.00 will immediately payable to Party 1 and the solicitors holding the Joint Trust Account are irrevocably authorised (and the execution of this deed constitutes that irrevocable authorisation) to pay that amount to Party 1; (c) the Deposit will immediately payable to Party 2 and the solicitors holding the Joint Trust Account are irrevocably authorised (and the execution of this deed constitutes that irrevocable authorisation) to pay that amount to Party 2.
At the time that deed was executed the first contract for sale of Unit 1 had not been abandoned. In Table 25 in the Second Addendum the receivers describe the distributions from the partnership to the parties as being $913,567 to the plaintiffs and nil to the defendants. The amount of $913,567 comprised $111,500 paid to the plaintiffs on about 27 October 2015, and the "distribution per the Deed of Settlement totalling $802,067", being the amounts of $750,000 and $52,067 referred to in cll 1.8(a) and (b) above which were paid on about 22 May 2017, when the second contract for sale of Unit 1 was completed.
The amount of $111,500 was the deposit paid under the earlier contract for sale, which did not proceed. As at December 2016 the position between the parties was that in relation to loans made outside the joint venture there was a balance of $52,067 due from the defendants to the plaintiffs. That was confirmed by an email from the defendants to the plaintiffs dated 19 March 2016 (Ex P1). By that time the plaintiffs had received the deposit released under the first contract, presumably on the basis that under cl 10 of the Joint Venture Agreement that deposit was to be applied towards the payment of monies due to them for Development Costs. In the Deed of Settlement provision was then made for the payment of the amount of that outstanding balance on the loan account. In the circumstances that payment, made in satisfaction of an amount due from the defendants to the plaintiffs outside the joint venture, should be treated as a distribution of partnership funds to the defendants which was paid by direction to the plaintiffs. It follows that an adjustment must be made in Table 25 of the Second Addendum to reduce the plaintiffs' distribution amount by $52,067, and to include as a distribution to the defendants an amount of $52,067.

Whether defendants are liable to pay rent to plaintiffs or joint venture for their occupation of Unit 2

It is accepted that the Joint Venture Agreement does not contain any express clause with respect to the payment of rent by the defendants for any occupation of Unit 2 (also referred to as Unit 30A).
Clauses 10 and 11 of the Joint Venture Agreement provided in relation to the sale of Unit 1 and the payment of monies due to the plaintiffs: 10. The parties mutually agree that the Unit 1 shall be sold immediately after obtaining the subdivision certificate and PARTY2 will settle all the dues to PARTY1. In any event; if Unit 1 is not sold after completion of the construction, Party 2 will transfer the ownership and rental income to PARTY1. 11. If the net sales proceeds from Unit 1 are insufficient to settle the total payable to PARTY1, the PARTY2 will settle the dues either by borrowing from the Bank or by selling Unit 2 at the same time.
The plaintiffs submit that cl 10 should be construed as "including the situation where Unit 2 remains unsold while amounts due to the plaintiffs remain unpaid, with the consequence that the defendants are liable to pay rent for the occupation of [that unit] to the plaintiffs". That submission is rejected. Clause 10 addresses the position in relation to Unit 1 and provides for it to be sold to settle "all the dues to" the plaintiffs, and in the event that it is not sold there is an agreement that it be transferred to the plaintiffs. This clause says nothing about Unit 2, let alone any obligation of the defendants to pay rent in respect of their occupation of that unit.
Clause 11, which does address the position of Unit 2, provides that in the event the proceeds of sale of Unit 1 are insufficient to settle the amount payable to the plaintiffs, the defendants will either borrow that amount or sell Unit 2. This clause recognises, as was the fact, that the defendants were the owners of Unit 2, and accordingly entitled to occupy that unit until such time as it was sold. In these circumstances there is no obligation under the Joint Venture Agreement for the defendants to pay rent, or to account for the value of their occupation of that unit either to the joint venture or the plaintiffs.

Does clause 19(l) support an order for payment of legal costs incurred prior to proceedings

Clause 19 is set out above. In reliance on cl 19(l) the plaintiffs, by their amended notice of motion, seek the following order: 9. The defendants pay to the plaintiffs its legal costs prior to the commencement of these proceedings in accordance with cl 19(l) of the Joint Venture Agreement dated 18 October 2014.
Clause 19 including the chapeau and paras (k) and (l) provides: 19. DEVELOPMENT COSTS Including and without limitation, the following expenses (incurred by PARTY 1 & 2) will form part of the Development Project including: … k) Legal costs in relation to the preparation and entry into the Agreement, and any liability for stamp duty upon this Agreement and creation of Caveat will be a Development expense. l) Attorney Fees. In the event either party requires the assistance of legal counsel to assist in the negotiation, arbitration, or litigation of, or involving, this Agreement, the prevailing party shall be entitled to its costs and reasonable attorney's fees.
The plaintiffs' written and oral submissions do not identify at all the costs "incurred prior to the commencement of these proceedings" which are said to fall within cl 19(l). What nevertheless remains clear is that this provision is not relied on to justify the inclusion of any such costs as Development Costs incurred by the plaintiffs. Accordingly, in rejecting this claim, it is unnecessary to do more than note that however the clause is to be understood it remains only a description of an expense which might form part of the Development Project; that it is not relied on for that purpose; and that there is no amount of expenses which it is suggested should have been included in the receivers' calculation of Development Costs other than those dealt with above.

The amount to be allowed as the plaintiffs' contribution to costs associated with construction

The basis on which this question is addressed

The receivers were directed to report to the Court on "the parties' entitlements by way of income and by way of share of the partnership property on realisation" and subsequent directions contemplated that orders might be made "for the acceptance or rejection" in whole or in part of that report. There was not however any order appointing the receivers or a receiver as a referee, in order to engage the provisions of Uniform Civil Procedure Rules 2005 (NSW), Pt 20 Div 3.
Having heard the argument in relation to the four issues referred to above the Court proceeded to hear the plaintiffs' claim for the determination of the amount of their contribution to construction costs. At the conclusion of that argument the parties addressed on any other amendments sought to their entitlements to distribution as dealt with by the receivers.
Each argument took as its starting point the Second Addendum, each party contending for the respects in which they sought amendments to the tables in ss 6.3 and 10.1 of that addendum. Those arguments were dealt with as raising questions of fact or law requiring determination by the Court. The receivers' report was admitted into evidence and its principal author, Mr Wengel, gave evidence and was cross-examined. The first plaintiff also gave evidence and was cross-examined. Thus the hearing did not proceed as one for the adoption or variation of the receivers' report and its addenda under UCPR r 20.23.
Although the defendants initially resisted this course they did not ultimately do so, assured that they were not shut out from contesting the plaintiffs' costs contribution claim, including by reading affidavit evidence served before 27 August 2019, and cross-examining the receiver, and Mr Shanmugathaas (Tcpt: 23/09/29 p65).
The balance of the matter then proceeded. The receivers' report and the two addenda were admitted in evidence without limitation. Mr Wengel's affidavit of 15 July 2019 was read without objection. Parts of Mr Shanmugathaas' affidavits of 9 August 2019 and of 18 October 2016 were read. Affidavit evidence of Mr Paramanirupan was sought to be read and rejected. There was then cross-examination of Mr Wengel and Mr Shanmugathaas, each of whom gave further evidence in chief.

Consideration of the evidence

By September 2015, the parties were in dispute, the defendants claiming that the amount of money being spent by the plaintiffs on the development was excessive. At the end of December 2015, Mr Shanmugathaas provided a ten page spread-sheet to Mr Paramanirupan which was said to record expenses incurred to that time in relation to the joint venture (Ex D1). Those expenses totalled $941,330. Mr Shanmugathaas' evidence was that this schedule had been prepared, partly by his wife, and provided together with two "black folders" comprising costings, "job sheets and other loose documentation". In its headers the spread-sheet identifies "service providers", contains a description of the work or service provided and identifies either an invoice or a "time record" or other document identifier for each amount listed. The people or entities for which time records are noted include "Thushy", "Lotus Construction Pty Ltd" and other names or nicknames of labourers or workers. In cross-examination Mr Shanmugathaas said that these time records were taken from entries in a site diary kept on the building site and filled in by labourers and others who worked there. That diary was not in evidence, and does not appear to have been provided to or sought by the receivers, although still apparently remaining in the possession of Mr Shanmugathaas.
The receivers were appointed in July 2018. In September or October 2018 they were provided with the plaintiffs' revised Excel spread-sheet setting out particulars of their claim for construction expenses. A version of that spread-sheet was attached to Mr Shanmugathaas' affidavit of 9 August 2019. It was accompanied by copies of the invoices relied upon in support of each item. Those accompanying invoices were in the receivers' possession for about four months before they were apparently lost. In that period Mr Wengel reviewed the spread-sheet and accompanying invoices and chose a sample of the payment claims which he proposed to "test". For that purpose the invoices relating to those payments were scanned, and the results of that "testing" are summarised in Appendix I to the receivers' report. That testing did not involve making inquiries of any third party service providers to confirm that the invoices were genuine, recorded work undertaken on the development and had been paid. Attempts were made, however to verify in other ways the incurring of the claimed expenses and fact of their payment. The sample which was "tested" represented 29 per cent of the total value of the plaintiffs' claim. Significantly, it included invoices issued by Poomi Developers Pty Ltd (Poomi), Lotus Construction Pty Ltd (Lotus) and a Mr Thushyanthan Mahendran, the "Thushy" referred to in the December 2015 spread-sheet, and referred to hereafter without meaning any disrespect as Mahendran.
Mr Wengel's evidence was that he was satisfied that the plaintiffs had incurred the $919,525 expenses claimed. He reached that conclusion after checking whether in relation to the "sample" claims whether: there was an invoice; the invoice in some way identified the development project site; there was evidence of payment; and that the date of the invoice and work described reasonably matched the stage the works had reached at the time of the invoice. The information as to the key stages of the development was provided by the first plaintiff. Mr Wengel also took account of the defendants' submissions concerning those costs which included that: where cash payments were made to the supplier there was no evidence of payment; there were some fraudulent invoices (these are not identified in the report); there was limited supporting evidence for labour costs; there were questions as to the reasonableness of invoices issued by Poomi; and there were miscellaneous materials, equipment and tools purchased which were not used for the development.
With the exception of the Poomi and Mahendran claims, only five of the remaining supplier claims in the tested sample could not be verified as having been paid. The most significant of those was a payment to Lotus of $44,000. Two of the remaining four supplier claims were the subject of Mr Shanmugathaas' oral evidence. In relation to both Poomi and Mahendran, Mr Wengel eventually accepted in his oral evidence that he was not able to be satisfied that any of the payments listed was in fact made.
Mr Shanmugathaas addressed the payment of the Lotus, Mahendran and Poomi invoices in his oral evidence. That evidence was not entirely satisfactory. In relation to Lotus, he said that he withdrew money from various accounts operated with Westpac and between 6 November 2014 and 4 May 2015 made five cash payments totalling $44,000. That evidence could not be confirmed by reference to any contemporaneous records of Lotus or the witness which identified the payee. It corresponded with the total amount claimed in the revised spread-sheet, but was not consistent with the time when payment was claimed to have been made. There were also entries for Lotus in the December 2015 spread-sheet for work undertaken in the periods from 9 to 24 November 2014 and 1 to 22 March 2015. Those entries include time records, presumably sourced to the site diary, and total $44,000. With the benefit of this last evidence I am satisfied that the work claimed was undertaken, and a liability to Lotus incurred, and paid, in that amount.
The position in relation to the Poomi and Mahendran invoices is more complex and not easily resolved. Dealing with Mahendran first, the time records referred to in the December 2015 spread-sheet indicate that Mahendran or "Thushy" worked as a labourer at the site between October 2014 and December 2015; and that during this period the amount payable to him totalled $50,285. In the shorter period from August to December 2015, to which the invoiced claims relate, the amount due to him according to those time records is $22,400.
Those invoices, as described in the spread-sheet, bear dates between 31 August and 28 December 2015 and state that in each case payment was made on the date of the invoice. The total of those 25 invoices is $49,800. In cross-examination Mr Shanmugathaas accepted that payments were not made separately for each invoice or on the dates suggested by his spread-sheet. In those respects the spread-sheet was wrong. In relation to those payments, his evidence was that he made withdrawals totalling $49,800 from bank accounts controlled by him and made three cash payments before 18 February 2016 totalling $15,750, and two further payments in October 2016, totalling $34,050. Again there were no contemporaneous records produced which identified the recipient of the cash withdrawn as Mahendran. Mr Shanmugathaas' evidence was that there were such records - in the form of writing on yellow "stickies" - which he had retained but which were not in evidence.
At the conclusion of his cross-examination there was tendered without objection Mahendran's tax returns for the years ended 30 June 2016 and 30 June 2017, the former declaring income of $15,750 and describing his occupation as labourer, and the latter declaring income of $35,000 from a business described as "handyman services".
Overall the evidence establishes that Mahendran was a labourer; that he provided labour services to the project for a period beyond that described in the invoices purportedly issued by him to the plaintiffs; and that the amount due to him for those labour services during the period covered by those invoices was $22,400 and not $49,800 as claimed. That evidence also establishes that for the whole of his period of work Mahendran was entitled to payments totalling about $50,000; and that such payments were usually made by Mr Shanmugathaas in cash, and not always within a short time of the services being provided.
The Poomi invoices are dated between September 2014 and January 2016 and total $64,634. There is no mention of Poomi as a "service provider" in the December 2015 spread-sheet. As noted above, the later spread-sheet records that the Poomi invoices were paid on the dates they were issued. In cross-examination Mr Shanmugathaas accepted that this was not correct. His evidence was that on receipt of the amount of $750,000 on about 22 May 2017 (from the proceeds of sale of Unit 1) he paid that amount into an account with Westpac and on 26 May 2017 he transferred an amount of $100,000 to a Poomi account with the Commonwealth Bank. He maintained that $64,634 of that payment was applied in satisfaction of "overdue receivables for the invoices No 421 to No 440 on account of 30 Hill St J V Project" as recorded in a receipt issued by Poomi and dated 29 May 2017 (Ex P6). That reference to invoices numbers 421 to 440 is not to any invoices issued by Poomi, but rather to the sequential numbers given to those invoices in the spread-sheet provided to the receivers in about October 2018, and after the date that receipt bears. The evidence does not indicate whether there were earlier spread-sheets prepared which contained the same numbering.
Mr Shanmugathaas also gave evidence that he paid casual employees or labourers for work done on the site which was later the subject of the invoices issued by Poomi. Accordingly it is probable that at the time that work was done the labourers or other casual employees were hired by Mr Shanmugathaas; that subsequently Poomi invoiced the plaintiffs on the basis that it had provided their services to the project; and that the plaintiffs then paid Poomi the amounts of its invoices. In answer to the cross-examiner's question as to why the plaintiffs would pay Poomi for the work of labourers who had already been paid by the plaintiffs, Mr Shanmugathaas responded (Tcpt 24/9/19 p 174): There are accounting reasons to book it in, so Poomi has provided the services by obtaining the services from a number of people, so it has been charged to the joint venture. So therefore, there is an in-and-out in an accounting terms as a cost as for lesser revenue and that cost is a recovery for there is no profit or anything has been booked in.
That answer, treating it charitably, does not satisfactorily explain what work was ultimately charged for by Poomi or what amounts were paid or promised to be paid to the casual employees or labourers who undertook that work, no doubt at the request of Mr Shanmugathaas. Nor does it explain the relationship, if any, that existed between Poomi and Mr Shanmugathaas in relation to the provision of their services at the time that occurred. What is apparent is that some of the work subsequently charged for by Poomi was undertaken by Mahendran. For example in February and March 2015 he charged for "labour for Dincell walls" in an amount totalling $5,850; and by its purported invoice dated 8 February 2015 Poomi charged the plaintiffs $9,438 for "dincell walls construction (reinforcement, formwork and concreting) for basement walls - labour".
Finally, Mr Shanmugathaas' evidence was that some of the work charged for by the Poomi invoices was undertaken by him, some involving labour, and some supervision of labourers.
In these circumstances I am not prepared to allow the full amounts claimed in relation to Mahendran and Poomi. Mahendran's invoice claims exceed by $27,885 the amounts recorded as due to him in the site diary records for the same period. It may be that he provided other services of value, but the evidence does not justify a finding to that effect. In relation to Poomi it is not possible to assess the amount which was paid in cash to the relevant labourers and casual employees who undertook the work which was subsequently the subject of that company's invoices totalling $64,634. However that work would appear to have included work undertaken by Mahendran outside the period for which his separate invoices were issued. The amount due in respect of that work, according to the December 2015 spread-sheet, was $27,885. That spread-sheet contains other entries for labour charges incurred which are likely to have been the subject of the work charged for by the Poomi invoices. I make some allowance for those entries, there being no evidence which clearly ties any of them to the later Poomi invoices. I consider that a total amount of $45,000 (including $27,885 for Mahendran) should be allowed for the work claimed by Poomi.
In all an amount of $67,400 should be allowed for Mahendran and Poomi - $22,400 for Mahendran and $45,000 for Poomi - instead of the invoice amounts claimed which total $114,434. Accordingly the amount which I find should be allowed for the plaintiffs' contribution to construction costs is $872,491 being $919,525 less $47,034.

Conclusions as to entitlements

The receivers' conclusions as to the entitlements of the parties to distributions and the basis on which those entitlements have been calculated are set out in the Second Addendum. I accept the receivers' evidence justifies the numbers adopted in the tables in that Addendum, except in the respects described below. That makes it necessary that I specifically address tables 19, 25, 26, 27 and 28 of that Addendum. As will become apparent it is not possible to complete all of those tables whilst there remain outstanding issues concerning the receivers' claims for further fees (from 15 May 2019 to date) and disbursements (from 15 August 2019 to date). In the tables that follow the numbers I consider should be altered are crossed out and the numbers to be included appear below the crossing-out.
As to Table 19: for the reasons given above, the costs associated with the construction of the duplex allowed for the plaintiffs (Party 1) should be $872,491 and the costs allowed for the defendants (Party 2) for that item should be $67,897. In relation to that last number I accept the receivers' evidence that these liabilities constituted Development Costs and were incurred and paid by the defendants (see Original Report s 6.2.4 and Annexure J).
It is next necessary to consider whether any amendments should be made to the amounts allowed for the financing of funding. The receivers previously allowed the plaintiffs $39,112.61. That amount of interest on funding was calculated with respect to the capped amount of $750,000, and in that respect understated the interest to which the plaintiffs would have been entitled. It was also calculated by reference to information in the plaintiffs' spread-sheets which misstated the dates on which payments were made and to that extent overstated the interest to which they were entitled. In the circumstances, I propose to make no change to the amount of $39,112.61 allowed to the plaintiffs. Neither party directed any submissions to the adjustment which would need to be made to take account of the matters referred to above. It is likely that leaving that amount unchanged will slightly favour the defendants, but only in circumstances where the uncertainties which arise are primarily due to the unsatisfactory state of the evidence in relation to the plaintiffs' claimed construction costs. With respect to the construction costs contributed by the defendants, an amount of interest of $2,831.28 should be allowed as calculated by the receivers (see Original Report s 6.2.4).
Finally, it is common ground that the amount allowed to the defendants for outgoings in s 6.2.8 of the Original Report should be increased by $2,232.32 to reflect their entitlement to claim for electricity and gas usage as Development Costs (see Joint Venture Agreement cl 19(h)).
Accordingly, Table 19 is adjusted as follows: Table 19 - Summary of Receivers' Determination Development Cost Ref. Party 1 Party 2 TOTAL Land purchase costs including cost of finance 6.2.1 7,529.00 749,981.74 Costs associated with construction of duplex 6.2.2 750,000.00 N/A 872,491.00 67,897.00 Legal costs, agent's commission, advertising, marketing and other expenses for tenants or purchasers for the Property 6.2.3 11,626.43 N/A Cost of finance on funding of the development 6.2.4 39,112.61 N/A 2,831.28 Interest cost of the funding calculated at date of payment at weighted average bank borrowing cost 6.2.5 N/A N/A Legal fees, loan fees, account review fees and other fees & expenses of bank funding facility 6.2.6 11,895.00 N/A Premiums for the insurance policies for Unit 1 & 2 6.2.7 3,477.00 613.13 Outgoing for the Original Property 6.2.8 N/A 8,226.16 10,458.48 Expenses of pursuing an insurance claim for repairs or reinstatement of improvements 6.2.9 N/A N/A Construction and reinstatement of improvements upon the property 6.2.10 N/A N/A Legal costs in relation to the preparation and entry into the JVA 6.2.11 340.5 N/A Attorney fees 6.2.12 440 N/A Any other costs and expenses related to the development project and its funding 6.2.13 N/A N/A Project management fee payable to Party 1 and Party 2 as stipulated in the JVA 6.2.14 20,000.00 20,000.00 Subtotal 844,420.54 778,821.03 966,911.54 851,781.63 Total Development Costs 1,623,241.57 1,818,693.17

As to Table 25: Having regard to my conclusion in relation to the previous distributions to the parties, the amount stated for the plaintiffs has to be reduced by $52,067 and an amount of $52,067 must be included for the defendants. Accordingly, Table 25 is adjusted as follows: Table 25 - Reconciliation of Proceeds from Sale of Unit 1 Party 1 Party 2 TOTAL Net Proceeds from Sale of Unit 1 1,138,579.90 Previous Distributions to Parties* (913,567.00) (52,067.00) (913,567.00) (861,500.00) Balance Held on Trust with Solicitor 225,012.90

Cash at Bank Recovered by Receivers Upon Appointment 225,012.90

As to Table 26: This table is to be amended to take account of the orders made by Slattery J on 19 September 2019 and cannot be completed until the receivers' claims to further fees and disbursements have been determined. The adjustments below are intended to take account of the orders of 19 September 2019: Table 26 - Receivership Costs as at 19 September 2019 Party 1 Party 2 TOTAL ($) (incl. GST) Receipts Net Interest Accrued During Receivership 2,287.55 Payments Receivers' Remuneration (as per Court orders) (110,271.00) Legal Costs of the receivers' motion (per Court orders) (33,423.10) Expected Future Payments* Receivers' Remuneration (above Court ordered limit) - from 15/05/19 to date Receivers' disbursements (above Court ordered limit) - from 15/08/19 to date

As to Table 27: This table sets out the profit share calculation and must be amended to include the revised Development Costs amounts in Table 19. The resulting revised net profit then has to be split between the parties in the agreed proportions. Accordingly Table 27 is adjusted as follows: Table 27 - Profit Share Calculation Party 1 Party 2 TOTAL Unit 1 1,138,579.90 Unit 2 1,170,000.00 Total Partnership Income 2,308,579.90 Development Costs (844,420.54) (778,821.03) (1,623,241.57) (966,911.54) (851,781.63) (1,818,693.17) Net Profit 685,338.33 489,886.73

Profit Share (Party 1 55% / Party 2 45%) 376,936.08 308,402.25 685,338.33 269,437.70 220,449.03 489,886.73

Finally, as to Table 28: This table requires amendment to allow for the different numbers for Development Costs, profit share and previous distributions. It cannot be completed until the numbers to be included in Table 26 concerning receivership costs are determined. Table 28 - Parties Entitlement to Distribution Party 1 Party 2 TOTAL Reimbursement of Development Costs 844,420.54 778,821.03 1,623,241.57 966,911.54 851,781.63 1,818,693.17 Profit Share 376,936.08 308,402.25 685,338.33 269,437.70 220,449.03 489,886.73 Total Entitlements 1,221,356.62 1,087,223.28 2,308,579.90 1,236,349.24 1,072,230.66 Previous Distributions (913,567.00) - (913,567.00) (861,500.00) (52,067.00) Parties' share of Receivership Costs (50%) (115,058.30) (115,058.30) (230,116.60) Balance of Entitlements Due 192,731.32 972,164.98 1,164,896.30

Proposed orders

As cl 11 of the Joint Venture Agreement proposes, the defendants should be given the opportunity to pay the amount of the plaintiffs' entitlement as stated in Table 28 in order to settle the amount due between them on the winding up of the joint venture. The defendants should have 21 days in which to decide whether or not to pay that amount. In the event that it is not paid within that time the plaintiffs should have leave to approach the Court to appoint a receiver for the sale of Unit 2. The net proceeds of that sale would then be divided between the parties in accordance with their entitlements.
However as I have already noted the final adjustments to those entitlements cannot be made until the receivers' outstanding claims to costs and disbursements have been determined. When that has occurred the parties should prepare final short minutes of order to the following effect: 1. Set aside orders 5(a) and (b) made by Parker J on 10 July 2018. 2. Declare that the entitlements of the parties under the terms of the Joint Venture Agreement to a distribution of the profits of that venture are as recorded in Tables 25, 26, 27 and 28 attached to these short minutes of order. 3. Grant leave to the plaintiffs to apply for the appointment of a receiver to sell the property at 30A Hill Street, Wentworthville NSW should the defendants not pay to the plaintiffs within 21 days of the making of these orders the amount of $[_______] in Table 28. 4. Direct that the proceedings be listed before Slattery J for the purpose of determining any remaining orders as to the costs of the proceedings.
Accordingly the only orders that I now make are: 1. Direct that these proceedings be listed before Slattery J to enable the determination of the receivers' claims to further fees and disbursements. 2. Direct that within 3 working days of that determination, the parties forward to Meagher JA's associate short minutes of order to the effect described above to which are attached the final form of Tables 19, 25, 26, 27 and 28.

Amendments 27 September 2019 - Minor typographical and other errors corrected in [6], [17], [30], [34], [38], [40], [41], [45] and [47] 30 September 2019 - Minor typographical errors corrected in the coversheet. Order (2) corrected under UCPR r 36.17 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: 30 September 2019

At a glance

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Judgment (21 paragraphs)

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