Supreme Court New South Wales Medium Neutral Citation: Anjoul v Anjoul (No 3) [2022] NSWSC 1456 Hearing dates: 19 September 2022 Decision date: 27 October 2022 Jurisdiction: Equity Before: Robb J Decision: See [62] - [65] below Catchwords: EQUITY — general principles and maxims — they who seek equity must do equity — defendant provisionally successful in defending enforcement of deed on grounds of unconscionable conduct and Contracts Review Act 1980 (NSW), s 7 — Court finds that defendant ought to pay plaintiff compensation as condition to making order declaring deed void — parties granted leave to adduce certain evidence on issue of quantum of compensation payable to plaintiff — assessment of compensation — competing expert reports — over-capitalisation in renovating residential property — plaintiff entitled to $400,000 in compensation Legislation Cited: Contracts Review Act 1980 (NSW), ss 7, 8, Sch 1 cl 1 Home Building Act 1989 (NSW) Cases Cited: Anjoul v Anjoul [2021] NSWSC 592 Anjoul v Anjoul (No 2) [2021] NSWSC 1511 Category: Consequential orders Parties: Jerry Anjoul (Plaintiff) Ashley Anjoul (Defendant) Representation: Counsel: G P McNally SC (Plaintiff) P Newton SC & M Collins (Defendant) Solicitors: Edwards Kirby Lawyers (Plaintiff) JD Law Group (Defendant) File Number(s): 2018/383865 JUDGMENT 1. This is the third judgment in these proceedings between the plaintiff, Jerry Anjoul, and the defendant, Ashley Anjoul. Ashley Anjoul is the former wife of Anthony Anjoul, who is the brother of Jerry Anjoul. 2. As the parties did, and without meaning any disrespect, I will refer to the parties and Anthony by their first names. 3. The principal judgment was delivered on 25 May 2021: Anjoul v Anjoul [2021] NSWSC 592 ("J1"). I will assume that the reader has knowledge of the principal judgment. It dealt with an application by Jerry to enforce a deed dated 14 November 2013 to which Jerry and Ashley were parties. The deed required Ashley to pay Jerry $700,000 with CPI increases for the cost allegedly incurred by Jerry in carrying out a substantial renovation of a home in Winston Hills that was solely in Ashley's name. In the alternative, Jerry sought a declaration that Ashley held her interest in the property subject to a constructive trust in favour of Jerry in proportion to Jerry's contributions to the renovation of the property. Finally, Jerry sought an order that Ashley make restitution to Jerry in the sum of $743,353.45. 4. Ashley responded to Jerry's claim by seeking an order that the deed be set aside on the ground that it had been procured by unconscionable conduct on the part of Jerry. She also sought an order declaring the deed to be void under s 7 of the Contracts Review Act 1980 (NSW). Finally, Ashley sought a declaration to the effect that Jerry was not entitled to enforce against her any right to payment for the renovation work because of the operation of the Home Building Act 1989 (NSW). 5. Ashley provisionally succeeded on the first two of these responses but failed on the third. I say 'provisionally' because I found at J1 [353] that Ashley should not enjoy the whole benefit of the renovation works for nothing, and that Jerry ought to be paid some reasonable amount of compensation for his expenditure and efforts. Similarly, I found at J1 [317] that, under s 8 and Schedule 1 cl 1(b) of the Contracts Review Act, the Court had power to make an order that Ashley pay Jerry compensation as a condition to the Court making an order declaring the deed to be void. 6. This outcome of the principal judgment created a problem in that there was not a ready basis on the evidence for determining the amount of compensation that Ashley should be ordered to pay to Jerry as a condition of the setting aside of the deed. The principal reason for this situation was that Jerry had failed to tender adequate evidence to establish his alternative claim for reasonable remuneration for undertaking the renovation works. The inadequacy of Jerry's evidence was explained at J1 [68]-[84]. In essence, the evidence led by Jerry was largely a matter of assertion and was incomplete, and some of the assertions were inconsistent with parts of the evidence. 7. Importantly, at J1 [69], I set out a table tendered by Jerry that has come to be called the schedule of payments. The schedule was prepared by Jerry and lists the costs against all the trades and professions necessary to carry out the renovation, as well as in most cases the alleged suppliers of the relevant materials and services. 8. For reasons that I set out at J1 [355]-[369], I was not prepared to make final orders given the circumstances of the proceedings at the time of my judgment. I was not prepared to give Ashley the whole benefit of the renovation without Jerry receiving some reasonable compensation. But I could not on the available evidence rationally determine what the amount of the compensation should be. 9. On 20 October 2021, Jerry filed a notice of motion in which he sought the following relief: The plaintiff be granted leave to: a. adduce evidence relating to any conditions that may be imposed on the relief to set aside the deed between the plaintiff and the defendant, such evidence to relate to the value of the benefit received by the defendant by reason of the works carried out on [the Winston Hills property]; and/or b. re-open his case for the purpose of adducing evidence in relation to the value of the benefit received by the defendant by reason of the works carried out on [the Winston Hills property]. 1. Previously, by order made on 6 October 2021, Jerry had been required to prepare and serve upon Ashley the evidence that he would seek the leave of the Court to lead. That order was made because I would not entertain an application by Jerry for an open-ended order permitting him to lead whatever new evidence he wished to lead, without Ashley being given notice of the substance of that evidence in advance of the hearing of the notice of motion. 2. The notice of motion was heard on 15 November 2021, and on 23 November 2021 I delivered the second judgment in these proceedings: Anjoul v Anjoul (No 2) [2021] NSWSC 1511 ("J2"). On 15 December 2021, I made the following orders: 1. ORDER that without prejudice to the defendant's/cross claimant's right to make objections in relation to the admissibility of the following, the plaintiff is granted leave to adduce evidence in the following form in relation to the conditions which should be imposed on the cross claimant in relation to the setting aside of the Deed dated 14 November 2013 (Conditions Issue): (a) QS Building Economics report by Mark Seeto dated 19 October 2021 together with the emails attached to the affidavit of Frederick Laws affirmed 28 October [20]21; and (b) John Virtue Valuers report by Grant Phillips and Barry Coad dated 12 October 2021. 2. ORDER the defendant/cross claimant file and serve any evidence upon which she intends to rely on in relation to the Conditions Issue by 4 February 2021. 3. ORDER the plaintiff/cross defendant is to file and serve any evidence in reply in relation to the Conditions Issue by 25 February 2022. 1. Mr Seeto is a quantity surveyor whose report provided opinions concerning the reasonable cost of the renovation works on a number of different assumptions. Mr Phillips' and Mr Coad's report provided valuations of the Winston Hills property on certain assumptions as of 2009 when the renovation work was done and 2021. 2. Ashley did not serve expert quantity surveyor evidence in response to Mr Seeto's report. Ashley served a report dated 3 March 2022 by Richard Perry, a valuer, in response to the report of Mr Phillips and Mr Coad. 3. Jerry served a supplementary report of Mr Phillips and Mr Coad that replied to the report of Mr Perry. Positions of the parties 1. It will be convenient at this point to record the positions taken by the parties at the final hearing that took place on 19 September 2022. 2. Jerry's position was that Ashley should be ordered to pay him compensation of $500,000 as a condition to the making of a final order setting aside the deed. 3. That position was largely founded on Mr Seeto's report. It is only necessary to record that one basis upon which Mr Seeto had determined the reasonable costs of the renovation works, which he called Alternative 2, was as set out in his report: 8.1. I have made the below assumptions with regards to the "reasonable value" of the Works if they had been carried out, subject to either cash payments or contra deals, so that no services are calculated at arm's length market prices. In other words, the work was not done at arm's length. 8.1.1 That the Scope of Works was for the whole of the building including the architectural and engineering design. This is detailed in Appendix D1. I have assumed that Jerry paid for the whole of the work without any contribution from Ashley. I assume that Jerry was responsible for the whole of the works and either paid cash or supplied his services in contra deals with others, who carried out work on the premises to enable the renovation to be completed and assume that Ashley made no financial contribution to the carrying out of the works. … 1. I will provide a brief explanation below as to why Mr Seeto adopted this methodology for Alternative 2. It is not necessary to refer to the other two methodologies employed by Mr Seeto in his report, as both parties agreed that, if any methodology was appropriate, it was Alternative 2. 2. Mr Seeto's conclusion for Alternative 2 was that the reasonable value of the works was $566,405.97, including GST of $51,527.82. As the parties agreed that Jerry would not be required to bear the cost of the GST, because he would be entitled to input credits, the reasonable value determined by Mr Seeto was therefore reduced to $515,278.16 (as stated in the report, although arithmetically the correct figure is $514,878.15). 3. Jerry acknowledged the observation made by the Court at J2 [54] that Mr Seeto's report may only be a starting point, and that it may be necessary that a discount be applied to reflect the unsatisfactory nature of the evidence at the hearing. Jerry said that, in principle, he did not cavil with that statement. 4. However, Jerry gave two reasons as to why compensation of $500,000 remained a reasonable and fair outcome. First, he noted that if pre-judgment interest at the Court's rate was added to the $500,000 for the 12 years from 1 September 2010 to the date of the hearing, the amount of the interest would be $280,391.47. Compensation of $500,000 would therefore represent a 36% discount for the reasonable costs of the renovation work if an interest component were added. Secondly, Jerry submitted that, with the benefit of Mr Seeto's report, a considerable amount of the 'guesswork' that would have been required if the evidence had remained the same as at the end of the first hearing had been removed. 5. Ashley's position was as recorded in a letter dated 8 December 2021 from her solicitor to Jerry's solicitor, which included proposed short minutes of order in the following terms: Without admissions the defendant/cross claimant consents to the following orders being made: 1. ORDER declaring the Deed between the plaintiff and the Defendant dated 3 October 2013 (Deed) void in whole. 2. ORDER that the Deed be set aside. 3. ORDER that the defendant pay the plaintiff the sum of $310,000 upon obtaining finance or from the net proceeds of sale of the Property at [address and title references omitted] (Property). 4. ORDER that order 3 be stayed subject to compliance with order 5. 5. ORDER that: (a) the defendant take all reasonable steps to obtain finance to pay the plaintiff $310,000 in satisfaction of order 3 and, if this cannot be achieved within 4 months from the date of these orders being made; (b) the defendant take all reasonable steps to sell the Property and upon the sale of the Property, the defendant pay out of the net proceeds of sale in the following order of priority: (i) any statutory duties or charges, including any council rates, water rates and land tax; (ii) Real estate agent's commission and charges (iii) Legal costs associated with the sale of the Property; (iv) The amount required to secure discharge of mortgage number [number omitted]; (v) The sum of $310,000 to the plaintiff in full and final satisfaction of order 3. 6. ORDER that the plaintiff withdraw Caveat [number omitted]. 7. ORDER that until order 3 is satisfied, the defendant be restrained from further encumbering, charging or diminishing the equity in the Property. 8. ORDER that the notice of motion filed 20 October 2021 be dismissed. 9. ORDER that the Amended Statement of Claim be dismissed. 10. ORDER that the Cross Claim otherwise be dismissed. 11. ORDER that any costs orders made in these proceedings be vacated and order that there be no order as to the costs in relation not [sic] these proceedings after the date of these Proposed Short Minutes of Order, with the intention that each party bear their own costs relating to these proceedings up to the date of these Proposed Short Minutes of Order. 12. GRANT the parties liberty to apply for costs incurred in these proceedings after the date of these Proposed Short Minutes of Order. 1. It will be convenient to note that, at the most recent hearing, Jerry agreed that Ashley should be given time to raise the money to pay him compensation but disagreed as to the length of time that was appropriate. When I make final orders, I will do so in accordance with the timeframe proposed by Ashley. Jerry also submitted that he should be granted a charge over the property to secure Ashley's obligation to pay him the compensation ordered by the Court. I am satisfied in the circumstances that the injunction in proposed order 7 should provide adequate security to Jerry. 2. The covering letter for the proposed short minutes of order stated that it was an open offer, was not made 'without prejudice' and did not constitute a communication with an attempt to negotiate a settlement of the proceedings. The offer was made without admissions, and reasons were stated as to why the offer was a better outcome than Jerry could hope to obtain from a continuation of the proceedings. 3. The letter stated that Ashley's costs to the date of the offer were in excess of $250,000. It asserted that, as Jerry had failed to prove his case at the first hearing, and as, in particular, he had failed to prove the amount he claims he paid or contributed for the renovation works, Ashley was entitled to an order that Jerry pay her costs of the proceedings. The effect was that, as Ashley would forgo her costs incurred up to 8 December 2021, the value of the offer to Jerry was at least $550,000. 4. Ashley supported her assertion as to the amount of her legal costs by reading at the latest hearing an affidavit of her solicitor sworn on 14 December 2021 that stated that Ashley's costs up to 8 December 2021 were $251,736.60. 5. The Court has not yet made an order concerning the costs of these proceedings. Some submissions were made by the parties on this issue at the recent hearing. It seems likely that Ashley will apply to the Court for an order that Jerry pay her costs from 8 December 2021 on the indemnity basis if the Court makes an order for the payment of compensation to Jerry than is less favourable than Ashley's 8 December 2021 open offer. It is not clear what the parties' position as to costs will be if the outcome for Jerry is more favourable than that which he would have received by accepting the open offer. 6. Although the Court has received some submissions from the parties on the issue of costs, I am not satisfied that the submissions that have been made to date are adequate to enable the Court to decide all issues of costs in this judgment. Jerry's claim in these proceedings was to enforce the deed, which, as at the 2 April 2019 date of the statement of claim, would have required Ashley to pay $743,353.45. That claim failed. However, Ashley staunchly resisted any order that she pay a reasonable compensation to Jerry: see J1 [354]. Until the open offer of 8 December 2021, Ashley resisted doing equity in return for the making of an order setting aside the deed. As a separate matter, Ashley failed in her claim under the Home Building Act. At the recent hearing, Ashley submitted that the Home Building Act claim was not in any real way a separate part of her defence, and was only one of three reasons why the enforcement of the deed would be unconscionable. I doubt that it is correct to treat the Home Building Act defence in that way, and there is a basis for concluding that it was a separate part of the case on which Ashley failed. More significantly, however, while it may have appeared in a general way following the delivery of the principal judgment that Jerry's claim had failed, the effect of the orders that will be made as a result of this judgment will be that Jerry's claim will not have failed. Jerry's claim provisionally failed as found in the principal judgment, but the ultimate result will be that he will achieve some success in the proceedings, being the amount of the compensation that Ashley is ordered to pay to him in return for the order setting aside the deed. 7. It follows from these considerations that the question of what costs orders should be made in these proceedings is not straightforward. On the one hand, it may not be at all appropriate at the end of the proceedings to treat Jerry as being the successful party. That would ignore the fact that he did not provide adequate proof of the cost of the renovation at the first hearing, which made the next two hearings necessary. On the other hand, Ashley totally resisted the requirement that she pay any compensation to Jerry until 8 December 2021. 8. The result is that the only proper course is for the Court to determine the issue of the amount of the compensation that should be paid, and then to deal separately with the issue of costs in the light of the Court's reasons concerning that issue. 9. The following parts of the principal judgment are of particular relevance to the determination of the compensation issue: [210] In fact, Jerry entered into a family arrangement that I find was made with both Ashley and Anthony. The objective of that arrangement was that a substantial renovation of the existing house on the property would be undertaken and that the costs of the renovation would be minimised by Jerry and other persons known to the family within the community to which the family belonged providing their services at cost or reduced fees, and that in some instances the price of services and materials would be paid by contra deals performed by Jerry and his companies. [211] The arrangement should not be characterised as being a joint endeavour between Jerry and Ashley and Anthony, or either of them, in the sense in which that term is used in the context of the creation of constructive trusts when a joint endeavour ends and the benefit of the endeavour is distributed between the participants in an inequitable manner. The arrangement was not in any real sense joint as it was always intended by the parties that Ashley, and through her Anthony, would remain the sole beneficiary of the arrangement. Jerry would not gain any interest in the property, nor would he profit from the arrangement. His interest was to be reimbursed for his effort and expenditure by mutual arrangement with Ashley and Anthony. [212] It was not part of the arrangement that Jerry and his companies would provide their services, either in the renovation of the property or in contra deals, without any payment or reimbursement from Ashley and Anthony. It was not part of the arrangement that Ashley and Anthony would enjoy the renovation of the property for free. [213] It was equally not part of the arrangement that Ashley and Anthony would be expected to pay a market or retail price for the renovation work. Although the parties did not explore in the evidence the commercial implications of the contra deals, it is probable that the objective of those deals was that the beneficiaries would obtain the benefit of the services or materials supplied at cost, which would have implications for the profits made from the arrangements and the taxes payable. The result is that the actual cost of the renovation of the property was probably a substantial markdown on the price that would have been payable under a building contract with an unrelated commercial builder. [214] I find it to be more probable than not that, in an inchoate way, a term of the arrangement was that Ashley and Anthony would either from their own resources or from borrowing further finance contribute funds to the renovation as it went along, but for reasons not explored, they did not or were unable to do so. It is probable that Ashley and Anthony persuaded Jerry at the outset that they would be able to contribute funds, and that, when they did not do so, Jerry was faced with the choice of ceasing the renovation or finding ways to muddle through by contributing his own funds and the services of himself and his companies. Out of family loyalty, Jerry chose the latter course. [215] Ashley made no attempt to prove that she or Anthony had actually contributed any of their own funds towards the cost of the renovation. As noted, Ashley said that she understood that the renovation was being entirely funded by Anthony. On the other hand, Jerry provided no objective evidence of any payments that he made towards the cost of the renovation. I find this to be a strange outcome, as a substantial portion of the cost of a renovation of the magnitude of that which was undertaken in respect of the property should, I would think, have been for the cost of materials provided by independent suppliers such as Boral and Hy-Tec Concrete. It is more probable than not that a substantial proportion of the cost of the renovation was required to be paid to independent suppliers of materials in cash. 1. As a result of that inchoate arrangement, Jerry undertook a substantial and well-executed renovation of the property: J2 [7]. 2. However, the issue of determining a proper amount of compensation is bedevilled by the following considerations, as recorded in the principal judgment: [205] As I have explained above, the parties have propounded diametrically inconsistent cases on most issues in these proceedings. The principal result of Jerry having portrayed Ashley as the project manager for the renovation of the property, and Ashley having portrayed Jerry as the building contractor who conducted the works without any significant reference to Ashley, is that there is a fundamental lacuna in the evidence. There is very little evidence about how the works were actually undertaken, who managed them, which contractors did the work, and whether the price for work done and materials supplied was paid in cash or kind. In particular, there was little evidence concerning the detail required in order to determine how the Home Building Act applied to the circumstances of the renovation. I refer in particular to the requirements under the Act for written contracts, contractors to have relevant licences, and for requisite insurances to be obtained and certificates of insurance provided. [206] I add that there was a myriad of inconsistencies between the evidence given by the primary witnesses that cannot effectively be resolved by undertaking a complex analysis of the evidence. On many issues, the available evidence does not permit the Court to find the existence of facts contended for by the parties, as the fact-finding exercise would require an impermissible degree of speculation in the absence of satisfactory objective corroboration. 1. The rock upon which Jerry now seeks to build his claim for compensation is Mr Seeto's report. However, that rock is, on closer examination, less substantial than Jerry appears to claim. 2. An appropriate place to start is to note that the findings in the principal judgment were not specific on the critical issue of how the arrangement required Jerry to be compensated for the work that he did and the costs that he incurred. At J1 [212], I found in effect that the arrangement did not require Jerry to provide his services "without any payment or reimbursement" and that Ashley and Anthony were not entitled to "enjoy the renovation of the property for free." That is not a finding as to when and how Jerry was to be compensated. I found at J1 [213] that the arrangement did not require reimbursement at a market or retail price. Services and materials were to be supplied at cost. Of particular importance, no finding could be made concerning what materials and services were paid for by Jerry, and what materials and services were reimbursed by Jerry by performing contra work. There was no evidence at all concerning the cost to Jerry of performing contra services, and no evidence in any case as to what those services were. That remains the case on the present state of the evidence. 3. As I recorded at J1 [215], Ashley made no attempt to prove that she or Anthony had actually contributed any of their own funds towards the cost of the renovation. Ashley said that she understood that the renovation was being entirely funded by Anthony. On the other hand, Jerry provided no objective evidence of any payments that he made towards the cost of the renovation. I concluded: [216] On this issue, I am concerned about the fact that Ashley said she believed Anthony was paying for the renovations, and Jerry said that he paid but has not provided any proof of payment. There is also a lacuna in the evidence as to whether Anthony made any payments, or whether his eventual bankruptcy had any connection with debts incurred in relation to the renovation of the property. 1. A substantial cost must at least have been incurred for the acquisition of materials (although there was even some evidence that materials were acquired on a contra basis: see J1 [74]-[76]). A considerable sum of money must have been paid, in aggregate, in order to carry out the renovation work. Although Jerry gave evidence that he had made substantial payments, there was no objective proof that any payments were made by him. I have faced the profound difficulty that, while Ashley said that she understood Anthony was paying for the renovation, Anthony gave evidence in Jerry's case, and supported Jerry's claim that Anthony did not make any payments. I do not trust Anthony's evidence. There is no evidentiary basis for a finding that Anthony did make any payments, or as to the amount of payments made, but Jerry did not lead any evidence of his financial position at the time that may have persuaded the Court that Jerry had the financial ability to pay a substantial amount for the cost of the renovation while still being able to operate his plumbing business and support himself. The lacuna in the evidence is fundamental. 2. At the recent hearing, when I raised my suspicion that Anthony may have had access to funds that enabled him to contribute to the cost of the renovation, Jerry's senior counsel responded by submitting that the Court could not act based on mere suspicion. That is no doubt correct, but it must be remembered that the issue arises in the context of Jerry's need to prove the amount of compensation that it would be reasonable for the Court to order Ashley to pay to him. Legitimate suspicion may justify the Court in not accepting or discounting the proof offered by Jerry. 3. The ultimate position is that the evidence establishes that Jerry caused the renovation of the property to be undertaken, and the photographs of the renovated property show that it was substantial and well-executed, as I have recorded above. The renovation must have required substantial payments in cash or kind. Ashley did not make any payments. Jerry must have done so. The Court must do what it can to find a rational basis for assessing a fair and reasonable amount of compensation. Consideration 1. I propose to start by dealing with the valuation evidence, as that evidence provides some objective framework for the task of determining a fair and reasonable compensation. 2. The parties' respective valuation experts adopted the comparable sales methodology in forming their valuation opinions. They reached somewhat different results. They were not called to give evidence and were not cross-examined. It is notoriously difficult for the Court to make a finding as to the valuation of a property where expert valuers differ on the basis of their assessment of what they consider to be comparable sales. It is not possible at all when the expert witnesses are not cross-examined. While it may generally not be a proper judicial process to simply 'split the difference' between opinions as to value expressed by different expert valuation witnesses, that is a course that I consider is reasonable in the present case. That is because the experts have adopted the same methodology, although their processes of reasoning differed. The valuations they have adopted are not so different as to make a finding of valuation that splits the difference irrational. Finally, the valuation expert evidence only forms a background framework for the process of determining a fair and reasonable compensation. 3. It will only be necessary to set out the following table containing the results of the expert valuation evidence: 2009 Jerry's valuer Ashley's valuers Average Renovated $725,000 $660,000 $692,500 Unrenovated $490,000 $490,000 $490,000 Value added $235,000 $170,000 $202,500 2021 Renovated $1,875,000 $1,450,000 $1,662,500 Unrenovated $1,250,000 $1,250,000 $1,250,000 Value added $625,000 $200,000 $412,500 1. The most obvious conclusion to draw from this evidence is that, if the cost of the renovation work, even on a non-commercial basis, was in the order of $500,000, that represented a significant over-capitalisation of the property as of 2009, and possibly even as of 2021. There is some objective support in the evidence that an over-capitalisation was intended, at least when the substantial excavation works necessary to install a swimming pool and the list of inclusions in the scope of works are considered. 2. I think the Court is justified, however, in inferring that Jerry, and probably also Ashley and Anthony, would have kept an eye on the extent to which the cost of the renovation work was likely to over-capitalise the property. That inference does not assist the Court in making any quantitative findings concerning the cost of the renovations, but it assists in the Court concluding that Jerry would have been relatively strict in monitoring the costs, particularly where they had to be incurred on the basis of the provision by him of work by himself or his company under contra arrangements. The result is that I think the Court is justified in proceeding upon the basis of discounting estimates of costs made by Mr Seeto in proportion to those estimates tending to increase the over-capitalisation of the property. 3. The second conclusion that is justified by the valuation evidence is that it appears that, even as of 2021, the renovation work has not increased the value of the property by more than the claimed $500,000 cost of the renovation. At least, Ashley has not enjoyed an increase in the value of the property above the amount of $500,000 that has kept pace with the addition of interest at the Court's rate to the alleged cost of the work. That fact diminishes the force of Jerry's submission that the compensation that he should be paid should contain a notional uplift for interest. 4. Another factor relevant to whether the compensation should include a notional uplift for interest is that Jerry did not give evidence that he provided proof of the costs that he incurred to Ashley and Anthony during the renovation. There was no evidence that Jerry kept a reliable account. Jerry did not provide to Ashley evidence to support the $700,000 figure in the deed, which was one of the reasons why the Court found that the deed ought to be set aside. Jerry did not provide satisfactory evidence of the costs that he incurred at the first hearing. Jerry has still not provided such evidence, and it has become necessary for the Court to estimate a fair and reasonable amount of compensation by means of the reasoning in this judgment. Although Ashley resisted the need to pay any compensation to Jerry up to 8 December 2021, her stance was reasonably justified until the time when she received Mr Seeto's report. Even then, she was not reasonably required simply to accept the conclusions reached by Mr Seeto. A party who seeks compensation from another but fails to provide reasonable substantiation of the amount of the claim should not be entitled to a full amount of interest when years after the event the Court determines the amount of compensation that should be paid by the inexact exercise the Court has been required to undertake in this case. 5. I will now turn to consider the evidence in Mr Seeto's report in more detail. Mr Seeto's report starts with a detailed scope of works apparently prepared by Jerry and given to Mr Seeto as part of the assumptions that he was asked to make for the purpose of preparing his report. There was no evidence as to how the scope of works was prepared. Ashley did not, however, object to the Court receiving Mr Seeto's report into evidence on the basis that a critical assumption that he had been asked to make was not proved. 6. The scope of works looks comprehensive and appropriate to the property and, at least in respect of many of the line items in it, it would be obvious to Ashley if the work had not been carried out. Ashley did not lead any evidence to cast doubt on the accuracy of the scope of works. The accuracy of the scope of works is supported to some extent by Mr Seeto's evidence that he inspected the property to confirm the scope of works. As Mr Seeto is an expert quantity surveyor, it is likely that he would be able to confirm the accuracy of the scope of works, at least to a considerable extent. 7. To my mind, the most obvious feature of the scope of works is its detail and precision. It was prepared by Jerry about 12 years after the renovation of the property was carried out. Jerry would have had some documentary evidence to assist him in preparing the scope of works. I infer that he would have had to rely upon his memory to a substantial extent. 8. A comparison between the scope of works and the schedule of payments prepared by Jerry for the original hearing is instructive. Jerry has not explained why he was able to prepare the scope of works in detail, but he could not accurately remember who provided all the materials and services for the renovation of the property, and what the nature and costs of the contra services that he provided were. 9. In Mr Seeto's schedule of costs for Alternative 2, he stated in the "Comments" column the basis upon which he estimated the costs. In a small number of cases Mr Seeto assessed no costs or no discount. The other comments fell into a small number of categories. One category was: "As per letter of instructions I assume contra deal was done". This comment was only made for line items under the heading "Professional Fees" and some items under the heading "Preliminaries". A second comment was: "Discount for labour. Assume work by Jerry or employee of Jerry." This comment was only made for a small number of line items under the heading "Preliminaries", and for line items under "Demolition" and "Excavation". The comments for almost all the other line items were: "Assuming 30% discount on labour and 5% on materials." 10. It is not clear why Mr Seeto concluded that such a high proportion of line items involved actual payments by Jerry and so few involved Jerry providing services on a contra basis. Although there was no clear evidence at the hearing as to what the true division was between payments and contra arrangements, the sense that I got was that there must have been a much higher proportion of contra arrangements than Mr Seeto has concluded. I note that there was evidence in relation to the provision of materials in the form of concrete, bricks, and steel that those materials were at least in part provided on a contra basis: see J1 [74]-[76]. There was evidence that the services of an electrician were provided on a contra basis: see J1 [77]-[80]. The same was true for tiling: see J1 [81]. Mr Seeto treated all of these items as having been paid for on the basis of a 30% discount on labour and 5% on materials. 11. In his report, Mr Seeto explained the basis on which he made discounts as follows: 8.2 For labour rates I have used the rates I believe were applicable in 2009 for cash jobs without the statutory loadings and tax. From my experience, these were the applicable rates I used when cash payments were made. These rates were around 30% less than the Rawlinsons hourly rates for 2009. There is no hard and fast rate for cash payments. The rate of discount depends on several factors, including how much tax the contractor was paying, how desperate the contractor wanted the job, how the contractor's cash flow was at the time and whether a payment now rather than in 30 days, or longer time, is more desirable. … … 8.3 As a rule of thumb, it is generally accepted in the building industry that overall costs are split between 55% labour and 45% materials and plant. … I currently have an account with Bunnings which gives me a 5% discount on materials purchased. I currently have a Hardware and General account which gives me a 10% discount at some times. I currently have a Barrenjoey Timber account where the discount varies depending upon the material purchased. I have made assumptions that Jerry is able to obtain a 10% discount with the Architect and Engineer as he knows them. The 30% is allowed where I believe Jerry did the work himself or with his own workers. … 1. The schedule in Mr Seeto's report has a column called "Mark down for payments made in cash or under contra deals." The entries under that column make it clear that Mr Seeto assumed the same discounts for materials and services provided in return for payments of cash and contra arrangements. 2. I have the following concerns about the validity of the opinions expressed by Mr Seeto in his report. First, Mr Seeto has not adequately explained his division of reimbursement for the provision of materials and services as between payments at discounted rates and the provision by Jerry of services on a contra basis. Even given the paucity of the evidence, my assessment is that reimbursement was provided on a contra basis in a higher proportion of cases than Mr Seeto has allowed. 3. Secondly, Mr Seeto has not explained why the cost of Jerry providing services on a contra basis should be treated as equivalent to where Jerry paid for materials and services on a discounted basis. 4. Thirdly, notwithstanding the paucity of the evidence, it did appear that Jerry dealt with suppliers of materials and services who formed part of the same community as did Jerry, Ashley and Anthony. Mr Seeto's report appears to equate the cost of contra arrangements with discounted cash payments on the basis that the arrangements are at arms' length, albeit that the parties have some incentive to operate at less than commercial rates in order to avoid incurring taxation and regulatory costs. This assumption does not adequately take into account that suppliers within a particular community may assist other members of the community by engaging in arrangements that are largely outside the commercial sphere. People may, for instance, be prepared to work for marginal remuneration on days when they would not otherwise be employed. 5. The sense that I got from the limited evidence was that arrangements of this nature were employed in the present case. For example, the architect, Mr Barakat, gave evidence that he did not issue an invoice for the work that he did because Jerry carried out plumbing and drainage works at his request on Mr Barakat's parent's house, where he was living at the time: J1 [72]. The person who supplied concrete, steel and bricks, Mr Challita, said that Jerry said to him: "We can sort out an offset when I finish the job I am doing for you": J1 [74]. There was no evidence as to what the offset was. The licensed electrician who did the electrical work, Mr Daou, said no more than: "… Jerry and I have over the years done work for each other on a bartering system, where we wrote off expenses against the work the other had done. I do not recall if the work at the property was the first occasion, but I did not render an invoice to Jerry or Ashley, because Jerry had already or would in the future be doing plumbing and drainage works for me. …" J1 [78]. The tiler, Mr Khoury, did not render an invoice because Jerry had done work for him at the tiler's place: J1 [81]. 6. The fact is that Jerry has not at any of the hearings provided any objective evidence to prove the amount of discounts that he achieved when he paid for materials and services, and, more importantly, he has provided virtually no evidence of actual services provided by him as part of contra arrangements, or the cost to him of those services. In those circumstances, it would be wrong for the Court to accept and to act upon the assumptions made by Mr Seeto. While those assumptions are plausible, they are not based upon evidence or proved assumptions that satisfy me were based upon the real circumstances in which the renovation of the property took place. 7. There is also some force in the submissions made on behalf of Ashley that some of the costs estimated by Mr Seeto were inconsistent with the costs for equivalent items in Jerry's original schedule of costs. 8. I have noted above Mr Seeto's evidence that construction costs are generally split in the proportions of 55% as to labour and 45% as to materials and plant. I think it is justifiable for the Court to find that it is likely that Jerry was required to reimburse suppliers of materials and plant at a high proportion of cost, whether by payments or the provision of contra services, than for services. I consider that it is probable that Jerry was able to achieve relatively much more significant discounts when he was able to barter the provision of services through contra arrangements. Furthermore, the continuing paucity of evidence justifies the Court in applying a significant discount to the conclusions reached by Mr Seeto. 9. In the circumstances I have taken Mr Seeto's total estimate of $515,000 and assumed 45% of that amount is attributable to materials and plant. I have discounted the amount of $231,750 by a further 15% to give $196,987.50. I have discounted the remaining $283,250 for labour by 30% to give $198,275. I have adopted the greater discount because of my belief that overall Jerry would have achieved greater discounts by barter arrangements in relation to the provision of services than Jerry would have been able to achieve for materials and plant. The total comes to $395,262.50, say $400,000. This expenditure would have involved an over-capitalisation of about $197,500 in 2009, if the average of the value added determined by the parties' valuers is adopted. There would have been an over-capitalisation of $165,000 even if Jerry's valuer's conclusion is accepted. I have not provided for an uplift for notional interest because the delay in receiving compensation will largely be a result of Jerry never having been able to prove the amount of compensation that he should be paid with any reasonable precision. 10. I have not accepted Ashley's submission that the amount of the compensation should be further discounted on the ground that Anthony was jointly liable to pay compensation to Jerry. The proceedings have not been conducted on the basis that Ashley's liability should be reduced to accommodate joint liability by Anthony, and it is now too late for a discount to be made on that basis without any of the underlying issues in that respect having been addressed in the proceedings. 11. Although I will order Ashley to pay $400,000 in compensation to Jerry substantially on the terms in Ashley's 8 December 2021 proposed short minutes of order (except for the order for costs in order 11) it will be necessary for the Court to receive further submissions from the parties on the costs issue before final orders are made. I will not order Ashley to pay compensation to Jerry so long as there is a possibility that Jerry will be ordered to pay all or some part of Ashley's costs. Ashley should not be required to pay compensation to Jerry and then seek to recover her costs from Jerry later. It appears that it will be necessary for the Court to decide the issue of costs and make an appropriate gross sum costs order so that the final orders dispose of all remaining issues in the proceedings, and the orders specify the total amount that Ashley will be required to pay to Jerry. 12. The parties should confer and, if they are able to do so, they should provide my Associate with short minutes of order containing case management orders to deal with the costs issue. That issue should be dealt with as cost-efficiently as possible. ********** 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: 27 October 2022