JUDGMENT OF GZELL J
13 In November 2005, issues other than specified quantum issues were heard by Gzell J. His Honour delivered judgment in December 2005: Thompson v White & Anor; ACDC v Thompson [2005] NSWSC 1257. His Honour noted at [1] that White and Libut alleged that they and Thompson entered into a joint venture agreement whereby they would purchase the Seaforth property, construct the house, sell it and share the profits equally. Thompson, on the other hand, alleged that there was no such joint venture, the house was to be the residence of his wife and him, ACDC was retained by him to build the house, and he financed the acquisition of the land and the construction of the house.
14 Gzell J's findings included the following:
76 In the absence of contemporary documents supporting the existence of a joint venture on the one hand or an individual investment through loan funds on the other, the nature of the relationship between the parties depends, as I have said, on the oral evidence of the parties involved.
77 The consistent evidence of those who heard the conversations about the Seaforth property in the presence of Mr Thompson that the relationship between parties was described by them as a joint venture, leads me to reject the evidence of Mr Thompson that no such venture existed.
78 In my view, Messrs Thompson, White and Libut agreed, shortly after Mr Thompson was employed by ACDC, that they would form a joint venture company in which each held a one third interest and they would purchase, develop and sell suitable properties with a combination of third party finance and profits generated in ACDC.
79 I accept the evidence that Mr Thompson was to cause $285,000.00 to be contributed to the purchase of the Seaforth property in order that it became the parties' first joint venture. I accept the evidence that Mr Thompson required the property to be registered in his name as he was to contribute, or cause Mrs Thompson to contribute, the only initial funds. Nonetheless, the property was to be developed as a joint venture with Mr Thompson, Mr White and Mr Libut to share the profits equally.
80 That relationship was varied at the Dee Why hotel in September 2000 with Mr Thompson to have 50% of the profit up to $500,000.00, but any profit over and above that figure was to be shared equally by the three participants.
81 It was submitted that the loans made by ACDC and by Mr White to Mr Thompson belied such a relationship. On the contrary, the draft agreements of August 2000 indicate that the contributions of each were to be treated as interest bearing loans that were to be repaid before the profit on the venture was calculated.
82 It was submitted that the arrangement was too vague to be enforced because there had been no mention of how losses, if any, might be treated. It is true that the sharing of losses was not discussed by the parties. But the inescapable inference is that, in the event of a loss, each of the parties would bear an equal share.
83 It was submitted that the arrangement should not be enforced because there was no indemnification or guarantee given by Messrs White and Libut to Mr Thompson who, as registered proprietor of the land, and the person to whom all loans were made, bore all risks with respect to the purchase of the land and the performance of the construction works.
84 That is a submission allied to the former one. If a liability was incurred by Mr Thompson that could not be discharged when the property was sold, or could not be discharged by further mortgaging the property, because the parties were obliged to share any losses equally, Mr Thompson would have been entitled to contribution from each of Mr White and Mr Libut.
85 It was submitted that the relationship could not be as I have described it because neither Mr White nor Mr Libut made any direct contribution to the purchase price of the land or the cost of construction of the house. That is not so. Mr White and his wife advanced in access [sic] of $300,000.00 to the project. The fact that those funds were advanced to Mr Thompson by way of loan does not exclude them as a contribution to the joint venture. Its structure required funds to be provided by way of loan, to be discharged from the proceeds of sale of the Seaforth property before the profit of the venture was calculated.
86 As counsel for ACDC and Mr Libut put it in final submission, once I have determined the basis upon which Messrs Thompson, White and Libut had an interest, if any, in the Seaforth property: the Court's work will be completed .
87 Subject to my formalising what I have said by way of declaration and once I have settled the questions to be referred and to whom they should be referred, I agree with that submission.
88 I will hear the parties on the appropriate terms of those declarations and the reference or references. I will hear the parties on costs. I direct the parties to bring in short minutes of orders reflecting these reasons.
15 Gzell J made declarations, of which the third and fourth were as follows:
(3) That the land known as 65 Ellery Parade, Seaforth, being all of the land contained in folio identifier 276/4889 ( the land ), was purchased in the plaintiff's name with the intention that it would be a joint venture asset.
(4) Declares that [Thompson], [White and Libut] agreed in September 2000, that:
(a) [Thompson] would receive 50 percent of the profits from the sale of the land up to $500,000 and [White] and [Libut] would share 50 percent of the profits from the sale of the land up to $500,000 between them;
(b) [Thompson], [White] and [Libut] would share equally the profits from the sale of the land in excess of $500,000.
THE APPEAL TO THE COURT OF APPEAL
16 An appeal by Thompson was unsuccessful insofar as it concerned those two declarations, although other declarations made by Gzell J were set aside: Thompson v White and Ors [2006] NSWCA 350. The Court of Appeal upheld the primary judge's conclusion that a joint venture agreement creating legal relations had been established with respect to the acquisition, development and sale of the Seaforth property: at [151]. Tobias JA (Ipp and McColl JJA agreeing) held:
101 …I would draw the following conclusions from the findings of the primary judge:
(a) Although in or about February 1997 conversations took place between Messrs Thompson, White and Libut to the effect that they should, through a joint venture company in which they would be equal shareholders, acquire properties and develop them by way of outside finance and then share the net profits equally, unless and until a particular property was found which would be suitable for the purpose, in all probability the parties did not intend contractual relations between them to have been created. However, once the Seaforth property was located, the parties agreed that it would be acquired for the purpose of its development and sale and that the profits earned would be shared equally. This agreement was one in respect of which they intended to be contractually bound.
(b) I interpolate that although his Honour found (in [78]) that the parties had agreed that they would form a joint venture company in which each held a one third interest and that they would purchase, develop and sell suitable properties with contribution of third party finance and profits generated in ACDC, an agreement reflected in the first and second declarations made by his Honour, in my opinion no binding agreement intended to thereupon create binding legal relations came into existence at that time. Therefore, those declarations ought not to have been made. They have no practical utility in any event.
(c) Because none of the parties, apart from Mrs Thompson, had any funds, she agreed to provide to her husband the sum of $285,000 as his capital contribution towards the purchase of the Seaforth property. The parties then agreed that the balance of the purchase price and the costs of the development would be provided by way of loans. Furthermore, they agreed that ACDC would construct the development at a reasonable price.
(d) At the time that ACDC was able to proceed with the construction of the development on a full-time basis, it was to receive approximately $280,000 to $300,000. It was further agreed that each of Messrs. White, Thompson and Libut would contribute their wages as employees of ACDC as loans to the Seaforth project and that ACDC would record all materials and contractors paid by it in a loan account from ACDC to the venture subject to the addition of a 10% margin on wage and material costs to cover overheads.
(e) A further term of the agreement was that the Seaforth property would be purchased in the name of Thompson given that only he, through his wife, was contributing capital but that he would hold the property for the purpose of the joint undertaking of its development and ultimate sale for profit.
(f) The agreement between the parties was varied on 29 September 2000 with respect to the split of profits in favour of Thompson who was to receive 50% of the profit up to $500,000 but any profit above that figure was to be shared equally between the three participants.
102 In the foregoing circumstances, in my opinion his Honour was correct to find that the parties entered into a joint venture arrangement pursuant to which they were to be contractually bound to acquire and develop the Seaforth property for the purpose of mutual commercial gain. They had agreed on the manner in which the property was to be acquired, that Thompson was to contribute capital whereas the balance of the purchase price and the construction costs were to be financed by way of loans, that the construction would be carried out by ACDC and that when the property was sold, any profit would be shared initially equally and later upon the basis agreed at the meeting of 29 September 2000. In other words, they had agreed upon the essential or fundamental terms which were to govern their relationship.
103 Although Thompson submitted that there was no agreement as to how the profit was to be calculated or how losses were to be shared, there could be little doubt that in what was a reasonably straight forward transaction, it should be inferred that the profit on sale was to be ascertained by deducting from the gross sale price all expenses incurred in the acquisition of the property, the construction of the development, the repayment to Thompson of the capital contributed by him and the repayment to any lenders of their loans together with interest: cf Vroon BV v Foster's Brewing Group Ltd at 69-70. So far as losses were concerned, which were not anticipated, as his Honour found they were to be borne equally as were the profits.
104 It was further submitted that Mr and Mrs White had advanced in excess of $300,000 by way of loan to the project, which told against it being a joint venture as those funds were not contributed as capital. In my view, his Honour correctly (at [85]) determined that the fact that those funds were advanced to Thompson by way of loan did not exclude them as a contribution to the joint venture. As his Honour observed, the joint venture structure required funds to be provided by way of loans and to be discharged from the gross proceeds of sale of the Seaforth property before the profit of the venture was calculated. This is consistent with the observation in the passage from the joint judgment of United Dominions which I have recorded in [90] above that each participant in a joint venture usually, but not necessarily, contributes money, property or skill. There is no reason in principle why the contribution of money must be by way of capital rather than by way of loan.
105 Accordingly, in my opinion, the first category of challenge to his Honour's conclusions should be rejected.
106 It follows from the foregoing that I would also reject Thompson's submission that no concluded agreement came into existence between the parties in the absence of agreement with respect to each and every item to which I have referred in [97] above. In any event, most of those matters were agreed in one form or another. Thus, the form of the arrangement was not intended as a partnership or a trading entity but simply the undertaking of a development project by the acquisition of the Seaforth property, the construction of a substantial dwelling house thereon and the sale of the property for the purpose of mutual profit: a typical joint venture undertaking. Again, there was agreement as to the keeping and maintenance of accounts and records in that ACDC was to maintain a loan account (see [97(d)] and otherwise the records of the purchase, the making of loans and the payment of interest were all the subject of documentation.
107 After the conclusion of the hearing and with the leave of the Court, both Thompson and White provided the Court with documents which had been tendered before the primary judge and, in particular, which had been exhibited to affidavits of Thompson and which included in the latter's statement of account with St George Bank Ltd. Other exhibits to Thompson's affidavits included his loan agreement with Royal Guardian Mortgage Corporation Pty Ltd as well as the various statements of account between he and that lender over the period of the loan. It was not suggested that the money borrowed from Royal Guardian was used otherwise than for the purpose of the construction of the development of the Seaforth property.
108 As White submitted, it is apparent that the parties agreed that Thompson's account with St George Bank Ltd should be utilised for the purpose of the joint venture in that loan monies would be credited to that account and monies paid from the account for the purpose of meeting interest payments as well as construction costs. This is not surprising given that the title to the Seaforth property was solely in Thompson's name.
109 Thompson also provided to the Court additional documents to those provided by White which were also before the primary judge and which, so it was submitted, demonstrated that payments with respect to the expenditure and performance of the works upon the Seaforth property were made from sources other than Thompson's loan account. It was also submitted that his loan account statements with the St George Bank did not of themselves establish that all monies received or spent related solely to the Seaforth property project.
110 White conceded that Thompson had made personal deductions from his loan accounts with the St George Bank inferring that those deductions occurred without his or Libut's authority. He submitted that the purpose of the reference by his Honour to the referee was to enable a reconciliation of those accounts for the purpose of determining precisely which receipts or payments did not relate to the project.
111 However, it is clear that Thompson did not rely upon these factors in the issue tendered before the primary judge for his decision, namely, whether or not there was a concluded joint venture agreement. Nevertheless, it is apparent that the parties had agreed to what they considered to be a form of account and record keeping which was sufficient for present purposes and it matters not that, during the course of the project, one or other of the parties may have departed from what had been agreed.
…
141 Although being a joint venture Thompson may have owed fiduciary duties to White and Libut not to use the property otherwise than for the purpose for which the joint venture was created, the effect of the joint venture agreement in terms of the acquisition, development and sale of the property did not call for, and therefore did not purport to immediately create, any legal or equitable interest in the property in favour of White or Libut. There was no express finding by the primary judge to suggest that the agreement immediately created any such interest; nor was the creation of any such interest or any declaration of trust necessary to give effect to the undertaking upon which the parties had agreed. Neither the expression interest in land or declaration of trust appears in the language adopted by the primary judge and, in my opinion, rightly so.
142 Thompson did not point to any evidence on the part of White which would have justified or supported a finding that the agreement which his Honour found to have been concluded, was intended to create a legal or equitable interest in the property in favour of White and Libut or otherwise that Thompson agreed to hold the land in trust for his co-participants in the venture. The simple fact was that the language of trust was not employed.
…
149 Accordingly, in the present case, if the agreement as found by the primary judge had purported to constitute an express declaration of trust by Thompson that he held the Seaforth property for the benefit of himself and the other two parties, the legal effect of s.23C would be that that declaration of trust was ineffective to create an equitable estate or interest in the property in favour of White and Libut. However, that consequence would not render the agreement ineffective or unenforceable insofar as it constituted an agreement to purchase, develop and sell the Seaforth property for mutual profit. White and Libut would still be entitled to the third and fourth declarations made by the primary judge together with an account of the profits earned from the sale and an entitlement to their agreed share thereof.
THE REMAINING QUANTUM ISSUES
17 At the commencement of the hearing before Gzell J, his Honour considered that as a central issue in the proceedings was the determination of what was the agreement, if any, between the parties with respect to the Seaforth property, issues of quantification of claims depended upon that determination. Accordingly, his Honour made an order pursuant to the Uniform Civil Procedure Rules 2005 (UCPR) r 28.2 that issues other than the following quantum issues specified by his Honour in [3] of his judgment be heard and determined:
a) What was the total amount spent on the construction of the house at Seaforth by ACDC?
b) What was the total amount spent on the construction by Mr Thompson?
c) Was the amount spent on the construction by ACDC reasonable?
d) Was the amount spent on the construction by Mr Thompson reasonable?
e) What was the value of the work undertaken on the construction by Mr Libut?
f) What was the net purchase price of the property?
g) What was the net profit, or loss, made from the purchase, development and sale of the property?
h) What amount is payable to ACDC for the work undertaken by it on the construction?
i) What amount is payable to Mr Thompson for the work undertaken by him on the construction?
j) What amount is payable to Mr Libut for the work undertaken by him on the construction?
k) What loans:
(i) were advanced by Mr Thompson?
(ii) Were advanced by Mr White?
(iii) Were advanced by Mr Libut?
(iv) Were advanced by ACDC?
l) What was the net sale price of the property?
m) What are the respective shares of any profit, or loss, from the purchase, development and sale of the property due to Messrs Thompson, White and Libut?
n) What is the amount of any profit, or loss, made from the purchase, development and sale of the property due to Messrs Thompson, White and Libut?
18 Those remaining quantum issues, which were refined before me, are accounting issues. Gzell J made an order pursuant to UCPR r 20.14(5) referring those issues to an expert referee, however the order was later vacated. There has been no expert accounting evidence.
19 The joint venture ended on completion of the sale of the Seaforth property on 15 May 2003. It is common ground that the profit of the joint venture should be determined as at that date.
20 The disputes and agreements between the parties in relation to all quantum items were crystallised during the hearing in a draft joint venture profit and loss account, balance sheet and statements of entitlements of parties and related entities as at 15 May 2003 (collectively "the draft accounts") prepared at my request during the hearing. The draft accounts (omitting the parties' notes thereto) are annexed to this judgment.