Supreme Court New South Wales Medium Neutral Citation: Russo & Ors v Russo & Ors [2015] NSWSC 17 Hearing dates: 28 August 2014, 8, 9, 10, 11 & 12 September and 26 November 2014 Decision date: 02 February 2015 Jurisdiction: Equity Division Before: Slattery J Decision: Account in common form ordered. Catchwords: EQUITY – claim for an account in common form – alleged joint venture in land development – whether the parties to these proceedings were joint venturers – whether plaintiffs have already provided adequate accounts to the plaintiffs. LIMITATION OF ACTION – what is the limitation period for a claim for an account in common form – when does the limitation period for an account in common form commence – whether proceedings commenced more than six years after expiry of the relevant limitation period. Legislation Cited: Limitation Act 1969 ss 14(1)(a), 15, 23, 63 and 64. Cases Cited: Akcan v Cross [2013] NSWSC 802 Air Tahiti Nui Pty Limited v McKenzie [2009] NSWCA 429 Cassegrain & Co Pty Ltd v Cassegrain [2011] NSWSC 1156 Doss v Doss (1843) 18 ER 464 Faitrouni v El Omar [1999] NSWSC 84 Feiglin v Ainsworth [2011] VSC 454 Frinty v Landmax Developments [2010] NSWSC 734 Grace v Grace [2012] NSWSC 796 Juul v Northey [2010] NSWCA 211 Lang v Simon (1952) 53 SR (NSW) 508 Marcolongo v Mattuissi [2000] NSWSC 834 Re Cyril Sharp and Ors [1992] FCA 616 Southern Equity Pty Ltd v Timevale Pty Ltd [2012] NSWSC 15 United Dominions Corp Ltd v Brian Pty Ltd (1985)157 CLR 1 Warman International Limited v Dwyer (1995) 182 CLR 544 Texts Cited: On Equity, Croft, Smith and Young, Thompson Law book Co, at [16.1340] Category: Principal judgment Parties: First plaintiff: Angelo Phillip Russo Second plaintiff: Rosemary Russo Third plaintiff: Anros Consulting Pty Ltd First defendant: Joseph John Russo Second defendant: Suzanne Russo Third defendant: John Russo Fourth defendant: Barbara Murphy Representation: Counsel: Plaintiffs: M.A. Ashhurst SC; L. Corbett Defendants: P.W. Bates Solicitors: Plaintiffs: David Matthew Farrar, Farrar Lawyers Defendants: Anthony Steven Margiotta, Margiottta Solicitors & Attorneys File Number(s): 2011/280915 Publication restriction: No Judgment 1. Joseph and John Russo are property developers. Between 1999 and 2005 their cousin, Angelo Russo, caused monies to be invested in three real estate development projects Joseph and John undertook in suburban Sydney, known respectively as the "Parramatta", "Killarney Street" and "Esther Road" projects. 2. Interests associated with Angelo invested a total of $355,801.95 into these three projects. Angelo, his wife Rosemary (the first and second plaintiffs) and their superannuation fund, Anros Consulting Pty Limited, "Anros", (the third plaintiff), now seek an account in equity (in common form) in respect of the monies so invested. Joseph and John (the first and third defendants) and Joseph's wife Suzanne (the second defendant) resist the claim for an account on two main grounds. 3. First, the defendants contend that no relationship exists between Angelo, Rosemary, Joseph, Suzanne and John that would found any right to claim an account in common form. The defendants admit there was a joint venture in respect of these three property projects but say that the joint venture was between Anros and two other companies controlled by the defendants, Grazia Holding Pty Ltd ("Grazia") and Russo Nominees Pty Ltd ("Nominees"). The defendants contend that if any right to an account in common form exists it is a right maintainable only by Anros against Grazia and Nominees, not a right subsisting against the present defendants. It is not in contest that if there were a joint venture among Angelo, Rosemary, Joseph and John that Angelo and Rosemary would have a right to an account against Joseph, Suzanne and John. 4. Moreover, the defendants contend in the alternative that if there were a joint venture among Joseph John, Angelo and Rosemary that the defendants have already given an account to the plaintiffs sufficient to discharge any accounting obligations they might have had in equity, by their provision to the plaintiffs of balance sheets and profit and loss statements created by Mangraviti Pty Ltd and claimed to be for the three projects. The plaintiffs say these are not proper and sufficient accounts. 5. One alleged joint venturer has not yet been mentioned. John was married to Barbara Murphy (Barbara) at the time of the alleged joint ventures. She and John have been divorced since. The plaintiffs joined her as the fourth defendant to the proceedings, not to seek any relief against her but rather to ensure that all participants in the alleged joint venture had been joined as parties, so as to defeat any contention that the proceedings were embarrassing for want of parties. At a directions hearing before trial the first, second and third defendants acknowledged that if the plaintiffs discontinued against Barbara that they would not take any point that the proceedings were not properly constituted. In the result the plaintiffs discontinued against Barbara and the issue of costs between them was reserved until the end of the trial. 6. Barbara gave evidence in these proceedings, but only on accounting issues. Neither she nor Suzanne took part in any of the discussions by which the joint ventures were allegedly formed. Suzanne did not give evidence. 7. Thus there are two main issues. Was there a joint venture agreement among the defendants and Angelo and Rosemary Russo, or was there a joint venture agreement between the companies, Grazia, Nominee and Anros? And if there were a joint venture among the four natural persons, have the defendants already provided an adequate account to the plaintiffs for the three joint venture projects? 8. As these proceedings are a contest among members of the one family the Court shall, without intending disrespect to any of them, refer to the parties by their first names, as they did in the course of the proceedings. 9. Mr Ashhurst SC and Mr Corbett appeared for the plaintiffs and Mr Bates appeared for the defendants. Credibility Issues 1. The witnesses in this case made clear credit impressions on the Court. Angelo and Rosemary Russo were both excellent witnesses. Both were witnesses of substantial truth, who were reasonably precise and who spontaneously provided additional consistent detail to supplement their evidence. Neither of their accounts of their recollections was discredited in cross-examination. They both impressed the Court as well-motivated people who were at all times trying to give a true account of the facts as they remembered them. 2. But their evidence was not always accurate. For example, Mrs Rosemary Russo denied her signature was placed on a mortgage of a unit in an earlier development the parties mutually undertook at Miranda. This denial is probably not correct. The signature looks like hers, and probably is hers. But given she was looking at a photocopy, her mistake was understandable and did not impair her overall credibility. She appeared to the Court to be a prudent and sensible woman who was doing her best to tell the truth to the Court. 3. The plaintiffs called two other witnesses, Mr John Rahme, a builder, and Mr Filomena Kyricou, an accountant. 4. Mr Rahme was a blunt and direct witness who gave a convincing account of his personal involvement as builder for Angelo and Rosemary at their home in Jindabyne Crescent, Peakhurst. His credibility was not damaged in cross-examination. He proved to the Court to be a very reliable witness with a sound grasp and memory of the detail of his building work at Jindabyne Crescent. 5. Ms Kyricou presented as a highly competent and professional accountant who gave reliable evidence and took obvious care with her clients' financial affairs. But a different picture was presented on the defendant's side. 6. John Russo was a poor witness. He was evasive, very slow to answer inconvenient questions, had a poor memory for facts he feared might emerge to his disadvantage and at times he stubbornly adhered to improbable versions of events. He had difficulty in seeing any points of view other than his own. He was prepared to use fine distinctions and a shield of vagueness to avoid answering questions. Examples of all of these defects appear in the Court's findings below. John was not a witness whose evidence the Court would accept other than when supported by admitted or objectively demonstrable facts. 7. I accept Barbara Murphy, John's ex-wife, was a reasonably reliable witness. Her recall of her bookkeeping activities for the joint ventures was not strong. But she could quite well identify the documents she created through her bookkeeping. She was being asked to recall events in which she took only a minor part. So, her lack of ready recall was perhaps not surprising. 8. Joseph Russo was an intelligent and self-confident but argumentative witness. On the first day of his evidence he had to be reminded to answer questions, directly because of his propensity to use his answers as a platform to advance whatever he wanted the Court to hear in his favour. He could not be relied on to answer questions based upon his memory of the true facts, rather than on his perception of his self-interest. But on the second day of his evidence upon being pressed in cross-examination, he began to make admissions against interest that improved his overall credibility slightly. 9. Robert Russo, another family member but one who was not part of any alleged joint venture, was a witness of little assistance to the Court. He could remember very little of the events the subject of the proceedings. Counsel for the plaintiffs submitted that he was being deliberately evasive. The submission had real foundation. He used the answer in substance "I don't recall", 25 times in only 20 minutes of cross-examination. Was he being deliberately evasive? He was being asked about 12 year old events. But a man really trying to remember would not have scored quite so badly. Russo Family Property Developments – 1999 to 2005 1. A narrative of the Court's findings on all questions of fact follows. The narrative sets out the uncontested facts and makes findings on the facts in contest. An Investment and Four Projects – 1999 to 2006 1. It is common ground that the proceeds of the Parramatta project were invested into the Killarney Street project and its proceeds were in turn reinvested into the Esther Road project. But the contest among these parties extends beyond these three projects. The parties' dispute starts with a disagreement about what the plaintiffs invested into the first of these three projects, the Parramatta project. The resolution of that question depends on contests about two earlier commercial ventures between the parties: (1) an investment in a commercial tourism venture, Sydney Skytour Pty Limited ("Skytour"); and the other venture, a property development in the Sydney suburb of Miranda ("the Miranda Project"). 2. The parties take starkly different positions about their respective commitments to the Skytour and the Miranda Project ventures. The plaintiffs allege they invested money in each venture and that substantial funds were due to them from both. The defendants contend that the plaintiff invested nothing in Skytour and that there were no proceeds available to the plaintiffs from the Miranda Project for investment into the Parramatta project, because the plaintiffs had accepted their full entitlement from the Miranda Project in specie in the form of an apartment within that development. 3. In a claim for an account the Court may order that account be taken without determining the matter on a final basis, provided that the Court can determine the party required to account will be liable if anything is found to be due: Doss v Doss (1843) 18 ER 464, Lang v Simon (1952) 53 SR (NSW) 508 and Juul v Northey [2010] NSWCA 211 at [194]. It is necessary in this case at least to resolve the threshold question of whether the defendants will be found liable, if anything is found to be due. That in turn requires analysis of the parties' respective entitlements from and initial contributions to the Parramatta Project. Thus, before analysing the contest about the Parramatta, Killarney Street and Esther Road Projects the Court must examine the parties' contests about the Skytour investment and the Miranda Project. 4. John, Joseph and Angelo were close until early 2006. John and Joseph are brothers and are both first cousins of Angelo. The three men grew up together. Joseph and John's father was Angelo's father's brother. But there are other close family links. Joseph and John's mother was Angelo's mother's sister. Unsurprisingly with brother and sister marrying brother and sister the two families were exceptionally close. I accept Angelo's evidence that this was so. 5. Moreover, Angelo was the same age as Joseph, making them natural companions. Their fathers were in partnership all their lives in a fruit shop in Marrickville and held a number of investment properties together. Both families lived together in Illawarra Road, Marrickville during the first decade of Joseph and Angelo's life. Joseph and Angelo attended school together. 6. I accept Angelo's evidence that he regarded his relationship with Joseph and John as one more brotherly than a relationship of cousins and that he totally trusted them, until the revelations the subject of these proceedings. The close bond between Angelo and his first cousins is an important key to understanding their relevant conduct between 1999 and 2006. 7. Both Angelo and his wife Rosemary are accountants. Prior to 1999 Angelo's life experience was far less entrepreneurial than either Joseph or John's, who for over thirty years had been involved in property development. Angelo did not have equivalent property development experience. 8. But by the mid-1990s Angelo was motivated to dabble in something slightly riskier than his accounting practice. I accept Angelo's evidence that in 1996 and 1997 he assisted Joseph and John to negotiate the purchase of a development site in Manly on an unpaid basis. John and Joseph's apparent gratitude for this became the platform for them to offer him an investment in Skytour in late 1998. Skytour - 1999 1. The plaintiffs allege that they invested $50,000 in Skytour through which they doubled their money; money which was then ploughed back into the Miranda Project. The defendants contest this, alleging that although a $50,000 Skytour investment was discussed the plaintiffs never made the investment and were therefore never in a position to direct investment proceeds of $100,000 into the Miranda Project. As the more detailed analysis in this section shows, the Court prefers the plaintiffs' version, and concludes that the plaintiffs did make the Skytour investment. 2. I accept Angelo's evidence that when Joseph and John were at his and Rosemary's home at Jindabyne Crescent, Peakhurst in late 1998 he expressed an interest in becoming involved in their future development projects. During this discussion Joseph suggested to Angelo an investment that a Michael Moss from Ashe Morgan Winthrope the investment firm was then promoting. I accept Angelo's account that conversation then proceeded to the following effect, about the proposed investment: "Joseph: 'It's in the Centrepoint Tower. We're buying shares in a company called Sydney Skytour Limited. With the Olympics coming, Sydney expects over a million tourists. We'll all make some good money, and then we could bring you into the next development project. Do you have any money?' Angelo: 'Yes, I've got some money from my redundancy package. What is the return on the investments if I invest say $50,000?' Joseph: 'If you were to invest $50,000 you should expect to double your money. You should get $100,000 back'. Angelo: 'OK, how do I invest in this deal?' Joseph: 'Ange [Joseph's nickname for Angelo], if you give me a cheque to Harton (a company Angelo knew was associated with John Russo) we will invest it with our money'. Angelo: 'OK'". 1. I accept that shortly after this conversation Angelo provided a cheque for $50,000 to John payable to Harton Pty Limited ("Harton"). In the meantime Angelo was giving informal assistance to John and Joseph, including in attempting to resolve a dispute they had with a partner in one of their projects in Maroubra, a Mr Adrian Mattiusi. The dispute between John and Joseph and Mr Mattiusi ultimately developed into litigation as these reasons later explain. The detail of that dispute is not material to the issues in these proceedings. But Angelo knew enough of this dispute to become alert to some external disquiet about John's accounting practices in business ventures. Angelo decided he would make some further enquiries about the Skytour investment he had made. 2. In early to mid-2000 I accept Angelo's evidence that he met with Joseph to discuss progress of the Skytour investment. At this meeting Joseph did not contest that Angelo had given him and John $50,000 on the basis that they "had invested it in shares in the Centrepoint Tower Project (Skytour)". Angelo was curious as to why he had not received any share certificate for his investment. But Joseph reassured him, saying "your share certificate will be with ours", and "you should get a return of $100,000", and that Angelo would be getting his money back "very soon". Subsequently John confirmed to Angelo that the investment on behalf of Angelo in Skytour had actually been made through a company that John and Joseph controlled equally, Russo Nominees Pty Limited ("Russo Nominees"). 3. But Angelo was an auditor. His auditing mind prompted him to ask for some evidence of his investment, at this stage not so much because he mistrusted John or Joseph, but just to set his mind at rest. 4. I further accept Angelo's evidence that as a consequence of this conversation, a few days later John showed Angelo a bank statement which disclosed that on 15 December 1999 Angelo had invested $50,000 with Skytour. The Russo Nominees Westpac bank statement (account 658 [only the three last digits of bank account numbers are used to identify bank accounts in these reasons]) shows a credit of $50,000 to Russo Nominees account on 15 December 1999 and a debit in the same amount on the same day showing that the money had apparently gone out into the claimed investment into Skytyour. Whilst this was not the share certificate Angelo had requested it satisfied him that John accepted that Angelo's money had been received and gave some substance in his mind to John's assertion that the money would be returned together with a handsome 100 per cent profit. I accept that Angelo kept a photocopy of the Russo Nominees Westpac bank statement for account 658 because it was some assurance of the integrity of the investment he had made. 5. John's account of the Skytour investment is quite different. The Court rejects John's version where it is inconsistent with Angelo's version. But there are some indications in John's version that point to the correctness of Angelo's version. 6. John contends that he and Joseph were using Russo Nominees, as the corporate vehicle for the Skytour project. John denies Angelo proposed to put any funds into Skytour through Russo Nominees. John claims that Angelo's proposed investment in Skytour was a completely separate idea from his and Joseph's involvement in the same project through Russo Nominees. 7. John's evidence can be accepted to some extent. He did conceptualise Angelo's investment in Skytour as distinct from his and Joseph's investment through Russo Nominees. But that approach is not inconsistent with John using Russo Nominees to channel Angelo's investment into Skytour. And John did use Russo Nominees' bank statement to persuade Angelo that Angelo's investment had gone into Skytour. 8. But John concedes that Angelo explained to him a desire to put funds into Skytour "from one off redundancy monies I [Angelo] am expecting to receive". And I accept that Angelo did source the funds, as he explained from redundancy monies due to him. 9. John contends that the source of the $50,000 paid into the Russo Nominees Westpac account 658 on 15 December 1999 was a funds transfer from another Westpac account in Harton's name, account 596, which shows a debit on 15 December of $50,000. It can be accepted that the natural inference from these two bank statements is that $50,000 was transferred from Harton's account 596 to Russo Nominees account 658 on 15 December 1999. But this bank statement evidence does not contradict Angelo's story. His account, which I accept, is that he was asked to make out the Skytour investment cheque for $50,000 in the name of "Harton", which he did. The Harton bank statement for account 596 is insufficiently complete for John or Joseph to be able to show that Angelo could not have been the source of the funds in Harton's account 596, that was then used to pay the $50,000 into the Russo Nominees account 658. The evidence does not enable the Court to infer that Angelo's version is wrong. But the Court accepts Angelo's evidence. And the fact that John showed Angelo the Russo Nominees bank statement and declared it to be evidence of receipt of a sum of money that corresponded exactly with the investment that Angelo alleges he made, supports Angelo's version. 10. Objective contemporaneous evidence also supports Angelo's version. On 13 March 2000 John Russo sent a facsimile to Mr Paul Rabie at Skytour, summarising certain investor contributions to Skytour in the following terms: "Paul, Further to today's telephone conversation we advise of investor contributions as follows: Date Amount Investor 010299 $50,000 Anros Consulting P/L (ACN 055 192 366) as trustee for the Russo Superannuation Fund. 010299 $150,000 Russo Nominees P/L (ACN 0-71 174 046) 151299 $50,000 Russo Nominees P/L (ACN 071 174 046) Regards, John" 1. The $50,000 from "Anros Consulting P/L" appears to support Angelo having made an investment in this amount through Anros. 2. John was the author of this document, which appears to confirm the making of investment contributions to Skytour earlier than the date it bears of 13 March 2000. It records contributions being made on 1 February 1999 and 15 December 1999. But John stubbornly adhered to the improbable position that he was not telling Mr Rabie that Anros and Russo Nominees had made past contributions before the dates indicated in this facsimile. His evidence on this subject had an air of the surreal. He was prepared to concede that Russo Nominees had invested $200,000 in Skytour prior to March 2000, consistent with this document, but not that Anros had made a similar investment. He was not making a false declaration to Mr Rabie. I reject John's account that he did not receive $50,000 from Angelo for the Skytour investment. 3. But Angelo could not adduce evidence of the $50,000 actually being debited from any bank account he controlled in 1999. Nor did he seek objectively to prove the value of his redundancy payment for the New South Wales Department of Fair Trading in 1997 – 1998. But the nature of these parties' family relationships largely explains this deficiency in Angelo's case. Although Angelo began to mistrust John and Joseph after an explosive conversation in January 2006 in which he was not satisfied by their explanations for failure to return his investment in the three projects, he remained quite reluctant to commence legal proceedings against his fellow family members for another five years and only did so in 2011, as the relevant limitation periods were threatening to expire. This case ultimately came on for hearing more than 14 years after these Skytour documents were created. I accept Angelo's account that he did not look for objective evidence to support his story and I infer that he did not undertake that search because he did not think there was much point so long after the event. Angelo did give a cheque for $50,000 to John for an investment in Skytour in 1999 and I reject John's inconsistent account. I equally reject Joseph's inconsistent evidence on this topic. Although I accept some of Joseph's evidence, where he admits that Angelo had discussed with him Angelo's "money that has been returned from the Skytours investment". 4. But John's account goes further. John also denies that he told Angelo that Angelo would get a return of $100,000 from the Skytour investment. Moreover he denies that Angelo was told any funds resulting from the Skytour investment could be used as Angelo's contribution to subsequent development projects. But on these matters I prefer Angelo's account over John's. Joseph does not really support John on the issue. And there is evidence which I accept to support the inference that John accepted that the sum of $100,000 was being invested into the next project, the Miranda Project, from Angelo. The Miranda Project – 1999 to 2002 1. The parties' competing accounts about the Miranda Project are so different that they barely touch one another. The Court accepts Angelo and Rosemary's version because both of their superior credibility as witnesses and the greater support of their version in the objective materials. This account starts with their version. 2. During 1999 John and Joseph were looking at purchasing a site on the Kingsway at Miranda with a view to its development. John and Joseph had formed a development syndicate with their wives and two other persons, a tiler and bricklayer. Joseph asked Angelo whether he had "any funds you were able to lend us?" The conversation then continued: "Angelo: 'We have talked about me being involved in your development projects. Would this one be good for me to invest in?' Joseph: Ange [Joseph's nickname for Angelo], it may be too late for this project. We have already fixed the partners in relation to Miranda. It would be difficult for us to get you involved now. We were just hoping to borrow the money from you'. Angelo: 'Joe, Rose (the second plaintiff) has a settlement cheque from the sale of her Merrylands property. She has about $108,500.00. We could lend you that. What interest rate can you pay?' Joseph: 'It will be the commercial interest rate plus a little bit more. I will talk to John and let you know'. Angelo: 'No problem. I'll talk to Rose'." 1. The sum of $108,466.17 was deposited in the trust account of the solicitors, Willis and Bowring on 14 September 1999. The records give the description to the transaction "Westpac Banking Corporation balance funds Russo" and nominating the form of payment as a bank cheque. The deposit was recorded in an account ledger for Harton. This entry is consistent with Angelo and Rosemary's case that they advanced loan funds to Harton. It is not consistent with the case that John and Joseph sought to make that the money was being deposited for the purchase of a unit in the Miranda Project development. 2. Both Joseph and John say they had conversations with Rosemary and Angelo to the effect that Rosemary wanted to purchase a unit in the Miranda development. Joseph says that Rosemary purchased an "off the plan" unit in the project. John recalls that he was told of Rosemary's interest in such a purchase by Joseph and that he (John) explained to Angelo "the development company for the Miranda project is a company called Harton Pty Limited. Rosemary can buy an off the plan unit in the development" to which they say that Angelo is alleged to have replied "OK". 3. Both John and Joseph's evidence on the issue of a purchase of a unit in the Miranda Project is highly improbable. I do not accept it partly because of the Court's strong preference for Angelo and Rosemary's evidence over that of John and Joseph and partly because such objective documents as exist tend to support Angelo and Rosemary's version about this subject. And John's evidence on the subject was vague in contrast to the more detailed account that both Angelo and Rosemary provided. 4. John's version of this conversation on its face makes little sense. "Joe told me that Angelo had told Joe that: 'Rosemary sold a property at Merrylands and she decided to invest surplus funds which has left over from the sale into a new investment. She wants to invest her moneys that she made from the sale of her Merrylands Property to buy an 'off the plan' unit in the Miranda Project, so that when the project finishes, she can sell it and make a profit for herself'" 1. According to John this conversation took place in 1999. It is difficult to understand how that could possibly have been so. Rosemary did have an investment property in the Sydney suburb of Merrylands but she only sold this investment property in 2001, not 1999. She could not have been speaking to John in the past tense in 1999 about the sale of that unit. The Court prefers Angelo and Rosemary's evidence over that of the others on this issue. 2. Rosemary is also an accountant. She was plainly a financially prudent person who was not inclined to take financial risks. She was quite adamant that she would never have purchased any property "off the plan", as that is not the kind of thing she would do. I accept that evidence as entirely consistent with her character. 3. Even the defendants recorded (what appears to be an advance in almost the same amount as the $108,466.17 in question here) as a "loan" being repaid to Angelo's interests, rather than as a funds transfer on account of a purchase. Barbara Murphy (Barbara), John's former wife, created a contemporaneous handwritten accounting journal for the Miranda Project. I infer that Barbara created the journal from a combination of her then husband John's verbal instructions to her and other primary accounting documents to which she then had access. She recorded a debit amount of $105,608 as Russo Nominees loan (R Russo loan repayment)". This entry is consistent with the Miranda Project repaying that amount to Rosemary Russo in discharge of a loan obligation. 4. The defendants' later draft profit/loss statement for the Miranda joint venture also supports the same inference of a loan. It records a liability for the payment of interest of $27,000 as "interest R. Russo". John criticised this Excel spreadsheet document as only being "a draft". But the metadata in the properties file of this spreadsheet document shows that its author was John Russo and that it was created and worked on in February 2002, close to events to, which these reasons will shortly come. Even if it were a draft it is difficult to understand why John would create a document, even in draft, that was entirely inconsistent with his contention that Rosemary did not make a loan to the Miranda Project but merely purchased a unit within it. 5. John and Joseph's contention of a "purchase off the plan" of a unit in the Miranda Project made very little sense and was not consistent with any reasonable view of the conduct of Rosemary and Angelo who are both professionally qualified accountants and who the Court assessed as both reasonable people. John and Joseph both said that the figure of a little over $108,000 was an advance payment on the deposit on a unit in the Miranda Project. The maximum asking price of the units in the Miranda Project was $400,000 - $450,000. A ten per cent deposit on such a purchase would be a maximum of $40,000 to $45,000. John and Joseph only ever contended that Rosemary was interested in a single unit in the development. It is more than difficult to understand why she would provide well over twice the maximum deposit that could have been required to buy that unit. Neither Joseph nor John could give any credible explanation as to why she would do something as uncommercial as this. They could not remember, on their version of events, her even asking on what account she was paying them the portion of the approximately $108,466.17, in excess of what might be accounted for as a 10 per cent deposit to purchase a single apartment in the Miranda Project. What was the extra money for? They had no idea. Rosemary was the kind of person who would have asked that question. The defendants' floundering responses to this line of questioning revealed the purchase off the plan story as an ill thought out fabrication. 6. But Rosemary did ultimately buy a unit in the Miranda Project. Angelo says, and I accept, that Joseph contacted him about the purchase of the Miranda unit in September 2001. Both Angelo and Rosemary say that this contact was the first time that Joseph or John ever discussed with either of them the acquisition of a unit in the Miranda Project. I accept that evidence. 7. In September 2001 Joseph explained to Angelo that as a result of an unsuccessful Supreme Court hearing in a dispute with the former business partner Adrian Mattiusi, Joseph and John settled the proceedings by agreeing to pay Adrian and Jennifer Mattuisi a sum of money. But Joseph said "but all of the money has been put into the Parramatta Project. John and I were wondering whether you or Rosemary were interested in purchasing a unit in the Miranda Project at cost price? We need to raise some money fast to pay out Mattuisi". Angelo seemed interested. He said "We don't need a unit in Miranda but if we can purchase it at cost price we might be interested". Joseph mentioned that, depending on the unit, the cost price of the apartments were about $280,000. 8. Angelo spoke to Rosemary and arranged for Joseph to show Rosemary some of the apartments for sale in the Miranda Project. Rosemary was quite clear that as a result of her inspection with Joseph she was only ever interested in one unit in the complex, the one she ultimately purchased, unit 32. John and Joseph's later account that she was indecisive between two units is not to be accepted. 9. After Rosemary's inspection John and Joseph spoke to Angelo who conveyed Rosemary's interest in "the corner unit on the second floor". I accept Angelo's evidence that he had already discussed the cost price of this unit with John and said to them both "according to John's calculation the cost price of that unit to the development is $288,000 and that is how much we would be prepared to pay. The unit would be purchased in Rose's name". John and Joseph then accepted that purchase price. 10. But John and Joseph had another problem. They were still short of funds to complete the Mattuisi settlement. So Joseph proposed to Angelo "Once Rose's purchased the unit would she be prepared to let us mortgage the unit so as to raise further funds". John and Joseph estimated the market value of the unit at over $350,000, substantially more than the cost price of $288,000 to which it was being sold to Rose. I accept Angelo's evidence that Joseph explained to him that Joseph could arrange a valuation, put the valuation amount on the contract, and arrange a loan after the unit had been transferred to Rosemary. Angelo was generally agreeable with this proposal, explaining "Rose and I are happy to help you guys out, but if you want to borrow money it is your responsibility". They then agreed that John and Joseph would meet all the borrowing costs, stamp duty and other costs associated with taking out this mortgage. John assured Angelo that repayment of the mortgage "won't be long" and that it would be paid out when the last of the units in the Miranda Project was sold, which was expected to be in about three to six months. 11. But then an obstacle to this neat scheme occurred to Angelo. Rosemary was proposing to negatively gear the property for tax purposes. John and Joseph using the unit once sold to fund the Mattiusi settlement would be inconsistent with Rosemary's financial objectives. So John, Joseph and Angelo solved the problem the following way. "Angelo: 'Rose was going to borrow some money from the bank to fund the purchase. If you guys are going to raise money yourselves against the Miranda unit, Rose can't use it as security to fund the purchase. It's just not going to work'. Joseph: 'Ange, we need as much money as we can raise. We would rather use the unit as security. We can raise a little extra that way. We need as much money as we can get to pay Mattiusi'. Angelo: 'What we will do is this. Rose and I have advanced a lot of money to you in the past. We will simply take the purchase price of $288,000.00 off the money you owe us. Those monies have been rolled into the Parramatta Project in any event. As long as you guys cover all of the borrowing costs and interest, we will be happy to go ahead'. Joseph: 'I'm happy'. John: 'Thanks Ange. That really helps us out'". 1. Contract documentation was then put in place for the purchase of the Miranda unit. The transfer recording consideration of $380,000 was dated 30 October 2001 and was registered after payment of stamp duty at a dutiable amount of that consideration. The same day Rosemary Russo mortgaged the property to Permanent Custodians Limited. This transfer also supports Rosemary and Angelo's version of events. Although there is no evidence of a contract for sale, only a transfer, it was brought into existence only in October 2001, at about the time when Rosemary and Angelo say that Joseph and John were in need of funds to meet the Mattiusi settlement. If Rosemary had made an earlier deposit on a Miranda unit in 1999 it could be expected that this obviously astute woman would have seen to ensuring that there was some of her documentation recording part of the approximately $108,000 as a deposit. But there is none. 2. John and Joseph have an explanation as to why she did not do that. They say that she was undecided about which unit she would buy, so she could not put a deposit down on any particular unit. I do not accept that version of events. Although there was a high degree of trust between Angelo and John and Joseph, there were already tell-tale signs of trouble in Joseph's and John's property development enterprises. There were complaints about John's accounting. There had been a falling out with Mattiusi resulting in a Supreme Court action. Rosemary had every reason to want to hold John and Joseph firmly to a contract for the cost price of a unit rather than its market price. If that was the arrangement then that it was highly likely that she would have sought to have it documented. 3. But there is yet another problem with the defendants' story. The defendants concede that Rosemary could purchase the unit "at cost". In 1999 the cost price of the unit off the plan was an unknown. I do not accept that Rosemary would have committed to buy "at cost" in 1999 when the cost was uncertain. 4. Once the Miranda unit was purchased John and Joseph made some of the earlier mortgage payments to Permanent Custodians on the mortgage over it, (which in these reasons is called "the Miranda Project") as follows: 1. 21 October 2003 - $6,689.71 2. 19 November 2003 - $3,344.86 3. 22 December 2003 - $3,344.86 1. Rosemary and Angelo caused all the other interest payments to be made on the Miranda mortgage until it was finally repaid on the sale of the Esther Road property on 29 July 2005, when the outstanding balance of $293,986.33 was paid to Permanent Custodians. 2. The Parramatta Project was already underway before these discussions about the purchase of the Miranda unit. Probably because the Parramatta Project emerged before Miranda was complete the discussions initiating the Parramatta Project did not deal very precisely with the reinvestment of the expected proceeds of the Miranda Project but began as a concept independent of the earlier project. Although they were mentioned. The Parramatta Project – 2000 to 2002 1. The first land development project that Joseph invited Angelo to join was one that he and John were planning in early 2000 in O'Connell Street in Parramatta ("the Parramatta Project") for the construction of 12 apartments. Angelo's account of Joseph's invitation to him to participate in the Parramatta Project is clear and I accept it. "Joseph: 'Sam has found a development site at Parramatta, and I was wondering whether you wanted to be part of the project'. Angelo: 'Joe, as you know, I've wanted to do a project with you for some time. How much money would I need for what sort of share?' Joseph: 'We would be happy to give you a 20% interest. You'd need about 75 grand plus we'll roll over the money you've already lent us for Miranda and invested in Skytours'. Angelo: 'Who else is involved?' Joseph: 'As I said, we'll roll over the profits from the Miranda property into Parramatta. We are paying out Adrian and A.J. who will not be involved in Parramatta'. Angelo: 'So it's Sam, you and Sue (the first and second defendants), John and Barbara (the second and third defendants) and Rose and me (the plaintiffs)'. Joseph: 'Yeah, that's right'. Angelo: 'In what entity will we be purchasing the site?' Joseph: 'We'll form a new company and purchase the site in the company'. Angelo: 'OK, I'm happy to be involved. We must get a 20% interest in the company. If we get that, Rose and I are in'. Joseph: 'I'm getting John to set up the company'." 1. John did set up a company to hold the land for the Parramatta Project. He incorporated Grazia Holdings Pty Limited ("Grazia") on 23 February 2000. Neither Angelo nor Rosemary ever became shareholders of Grazia. But the effect of this conversation was that it was agreed that Angelo would contribute $75,000 to the Parramatta Project as well as re-investing their return from the Skytour investment. And a further term was that Angelo would roll over into the Parramatta Project the loan he had made for the Miranda Project. 2. Joe has a very different version of the discussion with Angelo about the Parramatta Project. Explaining that the development would involve renovating 8 units and that they may nevertheless be able to achieve approval for an additional 4 units on the property. Joseph says that Angelo replied: "That's great. How much can my investment company or superannuation fund be in for?' I told him that Russo Nominees was in for 60%, Sam (Bathroom Dynamics) was in for 20%. He said 'that means my superfund (Angelo Russo's superfund) is in for 20%'. Angelo's superannuation fund invested and contributed money. Angelo was not a participant in his own capacity". 1. Joseph claims there was also discussion in the following terms with Angelo that Touchstone would be charging building fees and project management fees to the Project: "We had a further discussion at Angelo's home to discuss the Parramatta project. I said to Angelo 'The building company (Touchstone Building Pty Limited) would charge a 15% building fee and a 2% project management fee'. Angelo said 'What is that fee was for?' I said to him, 'The Builder received a fee for works, because the builder takes on risk which included warranties and liabilities. The project management fee is for things such as liaising with council, managing engineers and architects, dealing with real estate agents and general overview of the business side of the project'. Angelo said: 'I understand'." 1. Joseph rather improbably claims he explained the nature of the parties' investment in the Parramatta Project in terms of corporate interests not personal investments. And he says that he only contemplated giving Angelo's corporate interest 20 per cent of the venture: "Joseph: 'Sam has found a development site at Parramatta. Do you want to be part of the project through your investment company or superannuation fund?' Angelo: 'I wanted to do a project with you for some time. What share will my investment company or super fund have?' Joseph: 'We will give your investment company 20%'". 1. Grazia purchased the site for the Parramatta Project on 31 May 2000 for $1,030,000. I accept Angelo's evidence that between April and June 2000 he and Rosemary advanced at John or Joseph's request approximately $74,000 towards the expenses of the Parramatta Project by means of the following five payments: 1. 1 April 2000 - $9,013.07 2. 10 May 2000 - $144.00 3. 2 June 2000 - $21,942.93 4. 30 June 2000 - $7,315.00 5. 13 July 2000 - $20,000.00 1. John and Joseph the exact amount of these payments Angelo trusted them to ask only for his correct fair share to 20 per cent of contribute to the Parramatta Project. Typically John would say to Angelo "We need a contribution from you for Parramatta" and would specify an amount which was required. John requested Angelo to draw cheques in particular amounts. It is clear from the nature of these exchanges that both John and Angelo subjectively understood, and it is objectively to be inferred from their language, that the contributions Angelo was making on his and Rosemary's behalf were for their own personal investment of money into the Parramatta Project. There is objective evidence for some of these payments. For example, the bank statements for Grazia's Westpac bank account (account no. 583) show a deposit of $21,942.93 on 2 June 2000. 2. Neither Angelo nor Rosemary questioned either John or Joseph about the detail of the finances of the Parramatta Project. The lack of information of this character, either sought or given, would be remarkable if this were a commercial venture. But Rosemary and Angelo's behaviour is well explained by the level of trust Angelo had in his first cousins. He never asked for a clear explanation of the purpose of the various amounts paid from April to June 2000 into the Parramatta Project. He and Rosemary had a general understanding that when the Parramatta Project site was purchased that money had been borrowed to assist in the purchase. But neither Angelo nor Rosemary knew the exact amount of borrowing or the identity of the lender. Angelo acquired that information only after these proceedings were commenced. 3. Although it was not expressly stated between John and Angelo, when these additional monies were requested, I infer from the circumstances of the request that John was asking Angelo for money to reflect Angelo and Rosemary's contribution towards their agreed 20 per cent interest in the Parramatta Project. Their original estimate was that in addition to the loan monies for Miranda and the investment in Skytour approximately a further $75,000 would be needed. The first three payments came close to $75,000. The last two payments in June and July, amounting to an additional $27,000, are to be explained the same way: as further sums paid to supplement the Miranda loan monies and the investment in Skytour. Angelo certainly interpreted them as requests for further contributions beyond the initial $75,000. In my view it is reasonable to so interpret them. That is how John meant the requests to be interpreted. 4. A few months into the Parramatta Project the side issue of Joseph and John's litigation with Mattiusi began to impact on joint venture finances. It strained the Parramatta Project just as it had the Miranda Project. Joseph explained to Angelo in July 2000 that because of the Mattiusi litigation he and John were "short of money for the developments". When Angelo disclosed to Joseph that he had "a spare $90,000". Joseph took the opportunity to ask "could we borrow it?" 5. Angelo was reasonably content to lend these further funds to John and Joseph. But he was starting to become a little frustrated with the lack of documentation coming back from his cousins. So the final investment of funds into the Parramatta Project was sealed Angelo initiating the following conversation with Joseph, a conversation in which Angelo recorded his dissatisfaction with the financial mist surrounding his and Rosemary's investments: "Angelo: 'Joe, including the Centrepoint [Skytour] investment, if I was to give you another $90,000 it would mean you would have about $350,000 of our funds. Despite all the promises John has given, he has never provided me with a piece of paper stating that I have any money with you guys. I don't even have anything to say that I have an interest in the company.' Joseph: 'Ange, don't worry about that. I can get it fixed up.' Angelo: 'When will I get the money back?' Joseph: 'When we finish with Miranda, we will roll your money into the next project and you will have a larger share'. Angelo: 'OK, I would be prepared to lend it to you, but I want to be paid interest at the rate of 10%'. Joseph: 'That's OK'." 1. On 1 August 2000 Angelo drew a cheque payable to Harton in an amount of $89,000. The cheque butt describes the cheque "atf superfund, Angelo Russo". 2. Joseph did not make any more requests to Angelo for money for the Parramatta Project for another 6 months. But in April 2001 Joseph again approached Angelo for money. Angelo protested that the original budget of $75,000 had now been well exceeded. He said to Joseph "I seem to be always paying money". I accept that Joseph said in response "Ange, this project will be profitable. These deals always cost more than you budget. Trust me, everything will be ok". And Angelo found it hard not to trust his cousins. 3. In the following months on several occasions Joseph contacted Angelo saying "We need another contribution for Parramatta" and nominating a particular payment for which a cheque was then required. As a result Angelo made the following further payments: 1. 19 April 2001 - $24,531.99 2. 31 May 2001 - $14,523.82 1. The making of these payments is supported by Grazia's Westpac bank statement for account 583. 2. By July 2001 Joseph and John were short of funds once more, so they turned to Angelo and Rosemary. Joseph explained the litigation with Adrian and Jennifer Mattiusi was "dragging on" and "we are starting to have problems with finances". Another explanation Joseph gave for the cash drought was that other project partners needed to take money out of the Parramatta Project. Angelo was persuaded. He agreed to put in another $100,000. He deposited this sum into Harton's bank account on 10 July 2001, as Joseph directed. The making of the deposit on 10 July is recorded in Harton's Westpac bank account 365. 3. But Joseph was back again a month later. In August 2001 he telephoned Angelo. Ratcheting up the level of conveyed anxiety he said "Ange, we are still desperately short of money on the Parramatta Project". Not surprisingly Angelo reacted this time, "Joe, what's going on? I just gave you $100,000. How could we be short of money again?" 4. Joseph explained that the problem was caused because they were still running behind on the Miranda Project and the proceeds of Miranda needed to be rolled into the Parramatta Project. Once that rollover occurred Joseph explained that there would be plenty of money to move forward with the Parramatta Project. The delays with Miranda, plus the litigation with the Mattiusis were allegedly causing the cash flow crisis. They probably were. By that stage Angelo did not have any more spare money himself. Others might have walked away at this point. But Angelo was owed $100,000 by a creditor. He had a strong sense of commitment both to the project and to his cousins. So he offered to Joseph to investigate whether the repayment by that creditor could allow further funds be deployed into the Parramatta Project. 5. Angelo went and spoke to his creditor, who was in a position to repay the funds. But John and Joseph wanted these payments to go direct to certain creditors of theirs. That is what happened. Angelo's debtor Renzo Cacciotti drew the following cheques at Angelo's request which were in turn paid at John and Joseph's request as follows: 1. $55,000 to John (by cheque: 15 August 2001) 2. $25,000 to Bathroom Dynamics (by cheque: 15 August 2001) 3. $18,000 to Barbara Murphy (direct deposit bank transfer: 10 September 2001) 1. But despite this history of the Parramatta Project up to August 2001, in late 2001 and early 2002 Angelo and Rosemary put in excess of a further $50,000 into the Project. They made two payments, one of $20,000 on 7 August 2001 and the other of $2,544.21 on 27 February 2002, both made into Grazia's Westpac bank account number 583. 2. The scenario leading up to the making of these two further deposits was by now part of quite an established pattern. Joseph telephoned Angelo to give him an update about the progress of the Parramatta Project and completed the update by saying "Ange, we need to make another contribution". Again without demanding documentation and trusting that Joseph and John were making similar contributions, Angelo went along with the request and made the requested deposit. 3. In a further project update in early 2002 Joseph reiterated the good progress of the Parramatta Project but declared once again "we are short of money". Angelo expressed reservations about some of the monies that John was transferring out of Grazia. Ms Kyriacou had given Angelo a list of Grazia's outgoing transfers, which seemed to Angelo to include transfers to private interests associated with John. And Joseph could not explain these, so he referred Angelo to John for a more detailed explanation. But Angelo had already asked John and not received a satisfactory explanation. 4. Despite this context Joseph felt free to urge upon Angelo the need for one last contribution to the Parramatta Project, saying "we are really short of money at present. Have you got anything you could put in, just to keep us going?" Angelo revealed he had "about $30,000 left". He agreed to provide Joseph with a cheque in the sum of $32,544.21, which he gave to Joseph personally on 27 February 2002. The deposit of this amount into Grazia's bank account is objectively established through Grazia's Westpac bank statement for account 583. The Killarney Street Project – 2003 to 2005 1. Most of the 12 units in the Parramatta Project were sold between June and September 2002. But even before the Parramatta Project was finalised through those sales Joseph was already proposing the next project to Angelo. 2. In early April 2002 Joseph met with Angelo to discuss another possible development site in Killarney Street, Mosman. Joseph described a proposal in which a property comprising two existing strata units could be converted into three strata units. Joseph offered the view that the development "could be quite profitable". But Angelo expressed doubts about being involved with the pair again because John was continuing to transfer money out of the past projects and had continually failed to set up a transparent record of his transactions so that Angelo could inspect it and then calculate his and Rosemary's entitlements. 3. I accept Angelo's evidence that after Joseph proposed the Killarney Street development conversation continued in the following terms: "Angelo: 'Joe, I'm interested, but as I've said for the last couple of years, I'm extremely concerned about the way John (John Russo) continues to transfer money. He hasn't set up the transfer book that I asked for, and I'm starting to wonder where the money is all going. I've done some figures on the Parramatta Project, and I estimate that we will net profits of between $1 million and $1.2 million dollars'. Joseph: 'I agree with that. On my rough accounting I think the profit is about $1.1 million'. Angelo: 'Joe, I'm interested into going into the Mosman Project [the Killarney Street Project], but I need more control over the finance. In relation to the Parramatta Project, John was supposed to transfer a shareholding into the names of myself and Rose in the development vehicle. That never happened. If we do the Mosman Project, we'll do it in my name. We can purchase the Mosman site in the names of myself and Rose'. Joseph: 'I don't have a problem with that. I'm happy to talk to John'. Angelo: 'Joe, Rose and I would now have about 30%, if not more, equity coming across from the Parramatta Project. I don't know what John is doing with your money, but large amounts of your money have been taken out of the project already. If we go into the Mosman Project, I would have at least 30% interest'. Joseph: 'OK. I know you've put in additional capital, and you are therefore entitled to a greater share. You've really helped us out throughout the whole project'. Angelo: 'I want a one-third interest for myself and Rose. Further, I need more figures from John. At this stage I am content, if you agree, that myself and Rose will have a one-third interest in the Mosman Project'. Joseph: 'I have no problem with you having a one-third share in the Mosman Project. I will let John know that is what we have agreed. He'll have no problem with that'." 1. I infer that Joseph conveyed the effect of this conversation to John, who did not dissent from it. I find that the parties agreed as a result of this conversation that Angelo and Rosemary would have a 30% interest in the Killarney Street project in their own names, after Angelo and Rosemary rolled over their profits from the Parramatta Project into the Killarney Street Project. 2. Joseph generally denies the statements that Angelo claims were made to him about investment in the Killarney Street Project. But I wholly prefer Angelo's version, where they are inconsistent. Angelo says, for example, that it was agreed that he and Rosemary could have a 30 per cent interest in the Project. But Joseph's version was that it was only a 25 per cent interest and to be held through a corporate vehicle. Joseph says the conversation was to the following effect: "Joseph: 'Your company or superannuation fund can have 25% interest in the development'." 1. John and Joseph's contention that "your company or superannuation fund" was discussed in relation to this project is not persuasive. Why Joseph should even be motivated to insist Rosemary and Angelo's investment come from that particular source was never adequately explained. Joseph's own language indicates that he was insufficiently familiar with the vehicle that Angelo was proposing to use that he could not name it, or even identify whether it was a superannuation or some other form of investment vehicle. 2. Joseph and Angelo went on to discuss whether another party known as "Sam", a tradesman doing work on the previous projects, may also have an interest in the Parramatta Project. Neither side in these proceedings contends that he did. The issue can be put aside. But then Angelo and Joseph returned to the thorny subject of John's project record keeping, in the following terms: "Joseph: 'Ange, I'm also concerned about John's records'. Angelo: 'I've looked at the bank accounts and you can't see or follow where the money has gone. John appears to have transferred money in all directions'. Joseph: 'He's been dealing with this bloke Gaytano. They talk about doing big deals all over the world. I hope no money has gone to him'. Angelo: 'Joe, I don't know who this guy is. But if he's given money to him out of the Parramatta Project, it's out of his share'. Joseph: 'John's a bit gullible when it comes to Gaytano'." 1. Angelo does not allege he had direct dealings with John about the Killarney Street Project before committing to it. But the project proceeded with John's full co-operation. I infer that John and Joseph discussed the project and Angelo and Rosemary's involvement in it based on what Joseph had discussed with Angelo. John must be taken to have accepted that Joseph could deal with Angelo on his (John's) behalf. By 26 April 2002 the two existing units at Killarney Street Mosman were purchased by Rosemary (unit 1 for $625,000) and by Angelo (unit 2 for $925,000). To facilitate the exchange of these two contracts Rosemary and Angelo between them drew cheques for $77,500. 2. The firm of solicitors, Matthews, Dooley & Gibson acted for Angelo and Rosemary in respect of the purchase of units 1 and 2 in the Killarney Street Project, although their letter of retainer on the purchase was addressed to John "care of Harton Pty Ltd", Joseph and John's corporate vehicle for the Miranda Project. John arranged the finance for the purchase of the two Killarney Street units through AMP, although the loan finance was approved in Angelo and Rosemary's names. John liaised between AMP (and the finance brokers, Ashe Morgan Winthrope) on the one hand and Angelo and Rosemary on the other to obtain all the necessary documents for the loan finance to proceed. And John gave instructions relating to the purchase of the two properties to Matthews Dooley & Gibson right up to completion of the purchase on 2 August 2002. 3. The Parramatta Project completed shortly after the purchase of the Killarney Street units. Completion of the Parramatta Project – June to September 2002 1. The 12 units in the Parramatta Project development were marketed by mid-2002. They each sold generating total gross sale proceeds for the project of $3,322,000. Once the total sales revenue was ascertained Joseph and Angelo did and discussed some rough calculations of their expected financial return. These conversations throw light on their mutual understanding of the true nature of their joint venture. "Joseph: 'Ange do you have the final figures on the Parramatta job. I've asked John for the figures, but he said that he and Barbara (Barbara Murphy) are still working on them'. Angelo: 'I've done the figures myself, but I'm still waiting on some further information. On my calculation, we have made over $1,000,000.00 in Parramatta. I've prepared a spread sheet in respect of the Parramatta Project, which is based on information given to me by John (John Russo)'." 1. Although this conversation was only working out the details of possible profit distribution, it was typical of so many of such subsidiary conversations between Joseph and Angelo in which no reference was made to company the joint venturers being companies. Joseph for John and himself always spoke to Angelo naturally as though they were all the joint venturers as individuals along with their wives, and not that any companies were involved. 2. In late 2002 Angelo spoke to Joseph after experiencing some frustration with John's failure to provide figures concerning the Parramatta job. The conversation was in the following terms: "Angelo: 'Joe, if you look at the spread sheet you will see that we have made a net profit of $1,044,498.' Joseph: 'That figure coincides with my rough calculations. We need to wait and see what John and Barbara come up with.' Angelo: 'Joe, I agree with Adrian (Adrian Mattiusi). John will never give us a figure. That's how he works. Based upon what I've put into the projects, I've an interest of 38.31%.' Joseph: 'What about the money that we rolled over from the Miranda job?' Angelo: 'That's interesting Joe. John has told me that you made no money out of the Miranda job. I asked Sam how much he put into Parramatta and he has told me that he put in no cash to that project. He said his capital is based upon money that you and Joe owe him. I understand that you borrowed most of the money to do the Miranda job. I've seen some of the figures on the Miranda job, but it doesn't look like you guys put in much money at all. Did you guys put any money into that project?' Joseph: 'Of course we had money.' Angelo: 'Joe, you know that I trust you like my brother, but I'm worried about John.'" 1. Before this conversation Angelo had prepared a spread sheet to show Joseph. The detail of the spread sheet (CB495) is set out later in these reasons. It showed a 'back of the envelope' calculation of profit of all the joint venturers of in excess of $1,000,000 for the Parramatta Project through it. 2. Angelo's doubts about John's willingness to share information continued right up until the hearing of these proceedings. They were exacerbated by the evidence that emerged before the Court. Angelo was prepared to continue to trust Joseph. But even that trust was eroded during the administration of their next mutual project, another land development in the Mosman/Balmoral area, the Esther Road Project. The Esther Road Project – 2003 to 2005 1. In early 2003 Joseph informed Angelo that Joseph and John had found another property in the Mosman/Balmoral area, in Esther Road, Balmoral. Joseph suggested that Angelo and Rosemary may also wish to be involved financially in this project. 2. A preliminary issue discussed before the Esther Road Project was the projected profits for the Killarney Street Project. Angelo offered the view that "I think we will yield a profit of about $800,000" to which John responded "We will be lucky to break even". Joseph expressed his agreement with Angelo that the profit should be about $700,000 to $800,000". The discussion at least shows expectations on both Joseph and Angelo's part of a reasonable return from the Killarney Street Project based on what they then knew. 3. The conversation then moved to the possibility of the parties committing to another project in Esther Road, Balmoral. This part of the conversation started with Angelo declaring that he and Rosemary were involved in an unrelated development project and were "going to need some money for that project". Joseph then revealed "We [he and John] have located another property in Balmoral near Mosman. It is in Esther Street". Joseph further explained "the existing house will have to be demolished. A famous architect has designed a house that we can build. We estimate we will make about $1 million on the project". After Joseph explained that the Esther Road house would cost about $2.5 million to purchase, Joseph, Angelo and John discussed reinvesting profits realised from the Parramatta and Killarney Street Projects into Esther Road. 4. Strangely, at this point they did not then do what might have been thought obvious: attempt to settle on an agreed distribution from the existing projects before embarking on another. But the explanation for this omission is close at hand. John, not Joseph, had control of the primary accounting records for all these projects. Neither Angelo nor Joseph seemed prepared then to have the confrontation with John that would have been required to wrest control of these documents to reach agreement on their profit shares. Instead they buried their uncertainty and just continued with their existing arrangements by just rolling their investment into the Esther Road Project. Joseph, John and Angelo discussed the entering the Esther Road Project in the following terms: "Angelo: 'Well, given the profit share in Parramatta and Mosman, together with the capital we've put in, we should be able to purchase the house without borrowing'. John: 'No, I don't think we'll have sufficient funds, because we haven't settled on the last unit. We will have to get a bridging loan'. Angelo: 'Fine, who will we get that through?' Joseph: 'We can get bridging finance through Ash Morgan'. Angelo: 'I don't really want to do another project because Rose and I are involved in a development in Caloundra'. John: 'Ange, this is a really good project. Once we've completed it, we can each take our share'. Angelo: 'I would really just rather finish the Mosman project'. John: 'I thought that we were in these projects together. If you don't go ahead Joe and I will struggle and I'll need to look for another partner. We'll probably end up missing out on the deal'. Angelo: 'All right, we'll be involved in this project, but it's the last one. How do you want to purchase the property?' John: 'I'm happy to purchase the property in my name, but you and Rose (Rosemary Russo) will need to join in the finance'. Angelo: 'OK. But who's involved in this project. I want to make it clear. You told me Sam was in the Parramatta Project and that he had invested a 20% share. I now find out that he never invested any funds, and you two guys are now in a dispute with Sam. I just want to make it perfectly clear, after we do the final figures on Mosman, are we recalculating the shareholding? I've spoken with Ida and she tells me money has gone everywhere. She has asked you for details, and you haven't provided them to her yet. Rose and I had more than 33% share in the Mosman job, and you guys had the balance. From the figures I've seen, it looks like John, you have been taking out money'. John: 'That's not true. I will speak to Ida and see what the problem is'. Angelo: 'OK in this project we have you and Barbara (the third and fourth defendants) Joe and Sue (the first and second defendants) and myself and Rose. If there are any disputes with Sam from previous projects, they are your problem and not ours'. Joseph: 'I'm happy to deal with Sam'. Angelo: 'I just want to make it perfectly clear that all the funds Rose and I put into Mosman are going to be rolled into Balmoral. If Rose and I are to be borrowers, we want to keep the finances as low as possible. If this is our last project, no one should take out any money until the end. That way, we can make any adjustments in respect of prior projects. Once we finish this project we can work out our contributions and respective shares in the proceeds of sale'. Joseph: 'I agree with that. That sounds fine to me'. John: I agree'. Angelo: 'John, there can be no more transfers out of the account. You need to sit down with Ida and identify all of the transfers that you've done in relation to Parramatta. Do you agree to that John?' John: 'Yes, I agree. All of the money will go to the Balmoral job'." 1. Following this meeting in March 2003 it was accepted on all sides that Angelo and Rosemary were rolling their existing 30% joint venture investment into the Esther Road Project. Based on the authority conferred upon him by this conversation John exchanged contracts in his own name for the purchase of the Esther Road property for a price of $2,250,000. 2. Joseph's version of the conversation leading into the Esther Road Project were vague in the extreme. When pressed in cross-examination he could not give an adequate account of what was said on the subject. Indeed his evidence in chief was couched in a high level of generality in indirect speech as follows: "The percentages [of the Esther Road Project] remained the same 25% for Sam, 25% for Angelo's investment company/superannuation fund, and 50% for Russo Nominees and a building fee (for Touchstone Building Pty Limited) remained the same at 15% (plus project management fee of 2% and all parties agreed. The moneys from the Mosman project were rolled into the Balmoral development". 1. Joseph claims that he remarked to Angelo in the course of the Esther Road Project discussion that the Killarney Street Project would "be lucky to return a profit". He maintains indeed that it ran at a loss. Had anything like this been said it would have confounded what I find were Angelo's existing high expectations of the profit from the Killarney Street Project. That no doubt would have generated a lively discussion. But curiously Joseph does not record any reaction on Angelo's part. Nor does he remember any. Instructions on Completion of the Killarney Street Project - August 2003 1. The development work on the Killarney Street Project began to wind up in about mid-2003. Contracts were exchanged for the sale of units 1 and 2 of the three units, in June 2003 for sale prices of $1,050,000 and $1,250,000 respectively. Contracts were exchanged for the sale of unit 3 in October 2003 for a consideration of $925,000, giving total gross realisations of $3,225,000. 2. Matthews Dooley & Gibson solicitors were retained in respect of the sale of all three Killarney Street units, which had been purchased in Angelo and Rosemary's name. Angelo's initial evidence was that neither he nor his wife Rosemary gave direct instructions to Matthews Dooley & Gibson about the sales of these units when completed. Rather, John and Joseph were said to have given all those instructions to the solicitors. 3. Whether or not Angelo and Rosemary gave these instructions became points of major disagreement and of competing credit submissions. John and Joseph alleged that Angelo and Rosemary did at least give instructions as vendors as to the application of the proceeds of sale and that they authorised those proceeds to be paid to John. As the evidence finally came out, the Court concludes that Angelo and Rosemary must be mistaken in this aspect of their evidence. They were at the very least aware of that the sale proceeds from the Killarney Street Project would be paid to John. This is consistent with what all parties understood at the time: that the proceeds from Killarney Street Project would be rolled into the Esther Road Project. But it is not at all clear on the evidence that Angelo and Rosemary knew very much more than these simple facts. And contrary to John and Joseph's submissions this mistake did no damage to Angelo and Rosemary's credibility, in my assessment of them. 4. Neither Angelo nor Rosemary was given direct formal notice of the pre-settlement requirements to complete sale of the three units of the Killarney Street Project. Matthews Dooley & Gibson forwarded the relevant information about these prospective sales to post office box addresses that John and Joseph maintained. John and Joseph did not pass the information on to Angelo or Rosemary. The sale settlement sheets reveal monies payable to Angelo and Rosemary. 5. Dealing with Killarney Street units 1 and 2 first, John and Joseph reinvested proceeds from these two units into the Esther Road Project. The settlement sheet for unit 1 shows that from the proceeds of sale due to the vendor of $946,015.27 a bank cheque in the sum of $148,672.37 was made payable to "R & A Russo". Angelo and Rosemary's initial evidence was that they were not told at the time that this amount was being made payable to them and nor did they know at the time how John or Joseph proposed to deal with that cheque. 6. At settlement of unit 2, from sale proceeds of $1,126,508.67, a bank cheque was made payable to "R & A Russo" for $186,114.31. Rosemary and Angelo also initially said that John applied this cheque without explanation to them and without their knowledge. These two cheques were in fact deposited into the trust account of Matthews Dooley & Gibson and seem to have been applied towards the Esther Road Project. Although the Court does not presently have to determine whether they were so applied wholly or in part. 7. But Rosemary and Angelo's oral evidence about the proceeds of units one and two was contradicted by a "Direction to Pay" dated 11 August 2003 which they had both apparently signed authorising Matthews Dooley and Gibson "to pay the balance of settlement proceeds for the above named units [units 1 and 2] to JOHN ROBERT RUSSO". John's bank account details then appeared in the Direction to Pay. If Rosemary and Angelo's signatures on this document were genuine, then their denial of knowledge of the application of the proceeds of units 1 and 2 could not be right. But Angelo and Rosemary did firmly deny that the signatures on this August 2003 Direction to Pay were theirs. As the analysis below in these reasons shows, that denial was incorrect. I infer from the Direction to Pay that they knew the proceeds of sale those two units were to be applied in John's favour. But before the contest about the Direction to Pay for units 1 and 2 is examined more closely, the sale proceeds of unit 3, for which there was no Direction to Pay, come into focus. 8. I accept Angelo's evidence that neither he nor Rosemary provided express instructions to Matthew Dooley & Gibson to apply the proceeds of sale of Killarney Street unit 3 in the sum of $171,157.03 to John. Although they certainly signed the transfer to effect the settlement of that unit. From the balance of $832,864.88 due to the vendor on settlement of the sale of unit 3 a bank cheque was made payable to "J. R. Russo" in the sum of $171,157.03. This sum was not made payable in the names of Angelo and Rosemary Russo, so no Direction to Pay was needed. I accept Angelo's evidence that neither he nor Rosemary gave express instructions to Mathew Dooley & Gibson to pay the proceeds of sale of unit 3. 9. Angelo assumes that that sum was paid to John to be utilised for the Esther Road Project in accordance with the agreement that he, Joseph and John had reached to that effect. This assumption was well warranted. Such an agreement had been reached by the time the sale of Killarney Street unit 3 settled. 10. But am not prepared to infer that Rosemary or Angelo new anything more about the sale of units 1, 2 or 3 than may be inferred from their bare signatures on the respective Direction to Pay and Transfer: namely that they were aware of those documents and their general legal effect. I accept their denials of any detailed knowledge of these transactions except where their signatures indicate that they must have participated in the transactions in some formal way. I so conclude because of their superior credibility to that of John and Joseph and John and Joseph's general predisposition to deny them information. 11. But because of its importance to the credit issues in the proceedings, the contest about August 2003 Direction to Pay needs closer attention. The August 2003 Direction to Pay 1. John and Joseph's claim that Angelo and Rosemary executed the Direction to Pay to Matthew Dooley & Gibson on 11 August 2003 for the benefit of John, as described above, was ultimately established by the expert handwriting evidence of Mr Dubedat, the expert from whom John and Joseph adduced evidence. 2. This expert evidence was only adduced after the main hearing in September 2014 had concluded. Angelo and Rosemary denied under cross-examination for the first time during that hearing that the signatures appearing on the Direction to Pay were genuine signatures of theirs. This led to counsel for Angelo and Rosemary putting a final submission, based on proper material (namely their denials), that their signatures had been forged on the Direction to Pay. Counsel for John and Joseph justly complained that he had no prior notice of this allegation and that it should either not be permitted to be relied upon or John and Joseph should have an opportunity to produce expert evidence to contradict such a serious contention. The Court took the course of allowing expert evidence to be obtained and adduced and temporarily leaving some of the parties' evidence on the voir dire. The main hearing concluded on 12 September 2014 when this issue was agitated in submissions. After the expert handwriting evidence was adduced pursuant to the Court's directions a supplementary final hearing took place on 26 November 2014. It is not necessary to dwell further upon the positions of the parties took on 12 September 2014, except to the extent that they may bear upon credit. 3. By the time Mr Dubedat's evidence was available on 26 November 2014 the parties agreed that Rosemary and Angelo's signatures on the Direction to Pay were not forged. The analysis that Mr Dubedat conducted for his report dated 19 September 2014 was undertaken on the original Direction to Pay rather than photocopies of that document. Mr Dubedat's analysis compared certain specimen signatures of what were acknowledged to be Angelo's genuine handwriting, with the questioned signature on the Direction to Pay. Before Mr Dubedat's report was available Angelo had been cross-examined on the basis of copies of the Direction to Pay, not from the original. Mr Dubedat's report concluded that there was no evidence to support the conclusion that the questioned signature on the original Direction to Pay was written by a writer other than the writer of the specimen signatures. 4. As a result of this evidence Angelo and Rosemary accepted that their signatures were on the original Direction to Pay. They further accepted that there was no evidence to support a finding that John sent or used the Direction to Pay knowing that it contained forged signatures. Any allegation as to John's credit based upon his involvement in a forgery was withdrawn. Counsel for John and Joseph asked for their credibility to be assessed on the basis of this withdrawal and the Court has done so. But notwithstanding that, the Court has made the credit assessment of both of them that appears earlier in these reasons 5. Mr Bates on behalf of John and Joseph put a strong final submission that Angelo was deliberately lying to the Court when he denied that the Direction to Pay contained his signature and that he always knew it was his signature despite his denials. John and Joseph submitted that the Court should find that Angelo signed his wife's name on the Direction to Pay. 6. But the Court will not draw these inferences. Although Mr Ashurst SC handed up a slightly better photocopy of the Direction to Pay at the first September hearing, which added an additional copy of the document to the court book, neither copy in the court book presented a particularly clear signature to the reader. In my view Angelo should be accepted as giving truthful evidence when first cross-examined in September 2014 on the photocopies of the Direction to Pay document: he said that the signature was not his. Moreover the Court accepts as truthful Angelo's evidence given under cross-examination in November 2014 that he remained unconvinced that the signature on the original document was his and had no recollection of signing it, even though Mr Dubedat's evidence had by then the made clear that it was most unlikely to be a forgery. It is not to be forgotten that Angelo was being cross-examined in September and November 2014 about a document apparently executed just over 11 years earlier, in August 2003. 7. I infer that John gave the Direction to Pay to Angelo for his and Rosemary's signature. There was contested evidence about how limited were the opportunities that John and Rosemary actually had to execute this Direction to Pay. But the evidence is too old and uncertain to draw any firm conclusions about this and I do not accept that Angelo forged Rosemary's signature on the document. 8. But surprisingly despite the anxious credit debate about the Direction to Pay, the Court's present findings do little harm to Angelo and Rosemary's case. A valid Direction to Pay would authorise Matthew Dooley & Gibson to apply the proceeds of cheques approximating $320,000 otherwise due to Angelo and Rosemary from the sale of Killarney Street units 1 and 2 to John for use in the Esther Road Project. After all, the plaintiffs' case, which the Court accepts, is there was an agreement between John, Joseph, Angelo and Rosemary that the proceeds of the Killarney Street Project would be reinvested in the Esther Road Project. 9. And the Direction to Pay is expressed to authorise sale proceeds that would otherwise be payable to Rosemary and Angelo to be paid instead to John, in whose name the Esther Road Project was being conducted. There is no mention in the document of any of the companies that John and Joseph contend were the true joint venturers. It is a further basis for the court to conclude that the natural persons rather than the companies were the joint venturers among these parties will. Completion of the Esther Road Project 1. As they had with previous projects, Angelo and Rosemary left the entire management of the Esther Road Project to John and Joseph. Neither of them was involved in day to day management of that project or its building works. I accept Angelo's evidence that he was not responsible for the receipt of revenues, the payment of expenses on the management of the accounts, for that project. Rather that was the responsibility of Joseph and John. This allocation of responsibility is what led Angelo to question John and Joseph later about the accounts for the project. 2. But John and Joseph rather surprisingly claimed in the midst of their case that Angelo, rather than they, had responsibility for managing the finances and accounts for the Esther Road Project. This spontaneous and adventurous claim is wholly unpersuasive. It was not supported by any corroborating material that one would expect to exist such as would give it any credence: the issue was raised neither in the defendants' defences nor in their affidavit evidence; the defendants did not claim for relief in the form of an account against Angelo and Rosemary despite having put on a cross claim; and, the defendants were unable to produce a single pre-trial documentary demand to Angelo or Rosemary for the production of accounts. Neither John nor Joseph could give any rational explanation for these gaps in their account. Conduct of the Esther Road Project 1. Perhaps it was because of John's continuing slowness in providing accounting accounts to Angelo or perhaps it was just that John and Joseph were closer, but most of Angelo's contact about the Esther Road Project was with Joseph rather than John. This contact was maintained right throughout 2003 - 2004 and early 2005. In one of those discussions about the Esther Road Project in March 2005 Joseph raised with Angelo the familiar subject of money shortages, "Ange, we are running short of money for the [Esther Road] project. We each need to make a contribution, could you put in $25,000". The conversation continued. "Angelo: 'As long and you and the others are putting in the same amount and the project is on track, I don't have a problem. How do you want me to make the payment?' Joseph: 'Ange, we are all contributing equally, as agreed. John and I will put in our shares. Could you transfer funds to Touchtone'." 1. Angelo transferred two amounts totalling $25,000, one of $15,000 and the other of $10,000 on 22 and 23 March 2005. The transfer of these funds is recorded in the bank statements Angelo and Rosemary jointly maintained with the NAB (Account number 323). 2. In the following month Joseph made another request in similar terms. "Joseph: 'It won't be long till the Balmoral property will be completed and ready for sale. We just need to make a further contribution. Not as much as last time, but we all need to put in 10 grand. Can you arrange for 10 grand to be transferred to Touchtone?'" 1. Angelo agreed to co-operate again. He arranged for $10,000 to be transferred to Touchstone Building, the project builder, on 27 April 2005. An account Rosemary and Angelo maintained with NAB, account number 323 records the transfer of those funds. Settlement of the Esther Road Project – July 2005 1. The Esther Road Project was completed by mid-2005. The whole project was sold for $4.2 million. But what happened to the proceeds became no less mysterious than the fate the proceeds of the earlier projects. 2. Matthews Dooley & Gibson prepared a settlement sheet to record the cash flows upon settlement of the Esther Road project. The project settlement sheet showed that a balance of $759,692.09 would be paid from the Esther Road Project into the Matthews Dooley Gibson trust account after payment out of the mortgagees and other expenses. It was the failure of John and Joseph between July 2005 and January 2006 to account for what happened to this sum that ultimately led to the breakdown of relationships between Angelo and Rosemary on the one side and John and Joseph on the other. Little mention is made of Susanne here. Although she was a partner in these projects she took no active part in the discussions in the joint ventures. 3. One of the issues among the parties was whether there was one or were three joint ventures. The Parramatta project was succeeded by Killarney Street, which in turn was succeeded by Esther Road. Some of the discussions at the finalisation of Esther Road Project, throws light upon whether the parties regarded their ventures as one or three. 4. Shortly after completion of the Esther Road Project Angelo and Joseph discussed finalising the accounts. Angelo declared to Joseph that he wanted to "get together with John to finalise the accounts on the various projects" including the Esther Road Project. But Joseph gave a response to Angelo that already lacked serious credibility: "John is still working on the accounts". Resigned to this outcome to a degree Angelo said he was at least happy to go through the figures on the completed Parramatta and Killarney Street projects. 5. Although John and Joseph maintained in these proceedings that there were three separate joint ventures not one, Joseph responded at this time to Angelo's request "Ange, I think it's better that we do them altogether". Angelo continued to express concern that "we have not done the accounts and finalised the projects". But Joseph reassured him "Ange, there is nothing to worry about. The funds are sitting in Anthony's [Anthony Margiotta's] trust account". Both Joseph and Angelo were well aware at the time of this conversation that the solicitor at Matthews Dooley & Gibson acting on behalf of the parties was Mr Anthony Margiotta. They both understood that "Anthony's trust account" in their exchange was a reference Mr Margiotta's trust account at Matthews Dooley & Gibson. Mr Margiotta was another cousin of Joseph, John and Angelo. I accept that Angelo was immediately reassured by the statements made to him. He expected as a result of what Joseph had said that this money were in and would be left in the Matthews Dooley & Gibson trust account until a full accounting had taken place. Unfortunately that is not what occurred. The loss of trust between the cousins arising out of John's dealing with this sum ultimately lead to this litigation through the following steps. Finalising Accounts for the Projects – August 2005 to January 2006 1. Angelo raised with Joseph and John on a number of occasions in late 2005 the need to complete the accounts for the projects. He received various answers from them to assure him that account delivery would not be much longer: "we are still working on the final figures and accounting for the projects" and "don't worry Ange, the funds are in Anthony [Margiotta's] trust account". 2. But by late 2005 accounts for the projects had still not been produced. So in order finally to bring the accounting issue to a head Angelo arranged a meeting with Joseph and John at the offices of Wentworth Williams Chartered Accountants, where he works. 3. Angelo's frustration was evident at this late 2005 meeting. He opened by saying "John, you've been working on the accounts for years without providing any figures". The three then exchanged a series of profit estimates: "Angelo: John, you've been working on the accounts for years. You have not provided any figures for any of the developments which we have done so far. I have provided you with my estimates for Parramatta and Mosman. When I started asking you for information regarding the transfers and expenses, you took the book-keeping job away from Ida. I have no figures on the Balmoral job at all. I realise we had a few problems, but we should have made money. Joseph: 'I estimate that we made between $200,000.00 to $300,000.00'. John: 'No, we made a loss. Barbara (Barbara Murphy) and I have been working on the figures and we definitely made a loss'." 1. Angelo would not accept this. He accused John and Barbara of "fooling around for years". At this John apologised and said "Ange I am sorry, but I will get them to you next week". 2. John's taking of responsibility at this moment to provide the accounts further confirms that John had long accepted primary responsibility for providing the project accounts. Such an admission of accounting responsibility is quite inconsistent with the contrary position the John and Joseph took in cross-examination: that this was Angelo's job. 3. Angelo estimated that at the conclusion of the Esther Road Project there should have been about $2.5 million in the Matthew Dooley & Gibson trust account. Angelo's view is based upon a broad brush calculation that about $1 million had been invested in Parramatta, which in turn had made $1 million profit and a further profit of $800,000 had been derived from Killarney Street. So Angelo concluded at least $2.5 million should be left, with the Esther Road Project. 4. Instead John admitted there was $550,000 left, much less than Angelo and Rosemary had expected. What was said next in this late 2005 meeting about this remaining $550,000 was strongly contested. I wholly accept Angelo's version which had this conversation continuing in the following colourful terms: "John: We have about $550,0000.00 left'. Angelo: 'You blokes are fucking thieves. Where has the money gone?'. John: 'I've invested the money with Gaytano. We are expecting to get back $33 million US'. Angelo: 'John, I've told you before. I'm not interests in any investment. I just want my money. You guys owe me just under $1 million and it needs to be paid'. Joseph: 'The $550,000.00 in Anthony's trust account belongs to you'. John: 'I agree. The $550,000.00 is yours'. Angelo: 'And what about the balance?' John: 'If you take that money, you won't get your share in the $33 million. As long as you understand that, I don't have a problem'. Angelo: 'John I hope you enjoy your $33 million. All I want is the balance of my money'." 1. These revelations added urgency to Angelo's requests. Gaytano was a promoter of offshore investment schemes. Angelo said to John to "get the figures", because "this really needs to be sorted out". Angelo demanded "the $550,000 must stay in the trust account until this is sorted out", because "I am entitled to more than $550,000". 2. Angelo does not recall John making any response to these statements. But all the circumstances of this conversation indicate that John appeared to accept Angelo's request. Angelo was entitled to assume that John well understood that the $550,000 would remain in the Matthew Dooley & Gibson trust account until the accounting for the projects was completed and accepted on all sides. 3. Having been told there was $550,000 in the Matthew Dooley & Gibson trust account, Angelo contacted Mr Anthony Margiotta, to request that funds be transferred to him. Mr Margiotta made clear to Angelo that the money was currently held "in John's name", as all Esther Road project assets were held in John's name, and that Angelo should therefore secure John and Joseph's authority if he wanted the money released. 4. So Angelo contacted Joseph seeking authority for the release of some funds to him. I accept Angelo's evidence that when speaking to Joseph on a number of occasions about releasing the $550,000, Joseph repeatedly assured him "Ange, don't worry I will speak to John. We will organise it". 5. It is to be implied from conversations such as these that Joseph was acknowledging that Angelo had a claim of right to the $550,000 (part of the funds in the Matthew Dooley & Gibson trust account). 6. But in early 2006 Angelo found out that the $550,000 had disappeared. In a telephone inquiry at that time to Mr Margiotta to enquire about the trust account monies, Angelo said to Mr Margiotta "I have spoken to Joe who tells me the money can be released. Apparently he has spoken with John". This accurately recounted to Mr Margiotta a conversation that Angelo had previously had with Joseph. 7. Then to Angelo's great surprise Mr Margiotta replied to him "Ange, John has already taken the money. I assume that he was giving it to you. I no longer am holding any money in my trust account". 8. Angelo reacted quickly. He immediately telephoned Joseph and recounted Mr Margiotta's revelations to him. 9. They then had the following angry conversation: "Joseph: 'Anthony couldn't' keep it in his trust account, because the law doesn't allow him to keep the money after settlement'. Angelo: 'That's bullshit Joe. Where is the money?' Joseph: 'John has stolen the money'. Angelo: 'So you have let him steal from me. I wasn't expecting this from you Joe. You're like a brother to me. What do I do now?' Joseph: 'He has not only stolen the money from you. He's also stolen money from Sue and myself. I've just found out that he forged my signature and Sue's signature and obtained money on our home loan'. Angelo: 'Does Sue know this?' Joseph: 'No, she doesn't know and I don't know how I'm going to tell her. I'm just hoping that John gets the money back from Switzerland'." 1. Triggered by Angelo's inquiries about where the money had gone Angelo and Joseph's conversation became more recriminatory. Angelo suggested that they "go to the police". Joseph resisted "how can I do that to my brother?" 2. Then Angelo came up with an idea. He wanted to set up a meeting to get some formal admissions from John or to see whether John was going to keep stonewalling him: "I want to set up a meeting with you and John at my place and I want your brother Robert there as an independent witness and we are going to put it on John as to what he has done with all our money". Joseph volunteered to arrange such a meeting, adding regretfully "I only wish you had taken the $550,000 earlier". But John had not agreed to release the money earlier. 3. The meeting was arranged shortly afterwards. It took place at Angelo and Rosemary's place at Jindabyne Crescent, Peakhurst. John, Joseph, Robert and Angelo were all present. Joseph and John dispute Angelo's version of this meeting. But I entirely accept Angelo's account which was in the following terms: "Angelo: 'John, I've asked your brother here as an independent witness. I want you to explain to all of us where the money has gone. John, did you take the money?' John: 'Yes I did'. Angelo: 'Are you telling us that you stole the money'. John: 'No, I've made an investment for us with Gaytano, and we'll get back $33 million US'. Angelo: 'I told you before that I'm not interested in any investment. It's bullshit and it's a scam. I just want my money back'. John: 'I will get your money back. I'll get it within a month, but you have to agree that you won't share in the $33 million. None of it will be yours'. Angelo: 'John, all I want is my money. How much have you given this Gaytano guy?' John: 'I'm not sure, but I will get your money back'. Angelo: 'How much have you given him out of the Projects?' John: 'I haven't done the figures'. Angelo: 'That's the story of your life. You and Barbara are preparing the figures. Get me my money or I'll have no option but to go to the police. You are a thief'." 1. John's oral evidence about whether any of the joint venture proceeds had actually been invested with Gaytano was most unsatisfactory. Under cross-examination John was at first wilfully reluctant to admit that he had even applied any funds derived from the projects to investments with Mr Gaytano. But when the absurdity of continuing denials could no longer be maintained he ultimately admitted that such investments were made. And that in my view is what he did with the $550,000, as the narrative reveals. 2. Not surprisingly this revelation commenced a deep and lasting estrangement between Angelo and Rosemary on the one side and John, Barbara, Joseph and Suzanne. Angelo says, and I accept, that he tried to contact John to discuss the issues between them in 2006 and 2007 but John would not take his calls. When Angelo was able to get through to Joseph in these years, Joseph only responded to him with platitudes, "Ange, I know it's difficult for you to understand. I am sure that everything is going to be alright". Final Attempts at Resolution – Late 2009 1. Angelo and Rosemary made a number of later attempts to end the family standoff. In July 2009 Angelo arranged a meeting with Joseph and Anthony Margiotta but nothing satisfactory emerged from this occasion. Angelo continued to complain about the lack of proper figures. At this meeting Joseph gave early indication of the factual distortions which can be sourced to John and which later emerged during John's cross-examination. Joseph said that "John says you have all the records". Understandably, and because it was contrary to the true facts, Angelo exploded at this and said "Joe that is bullshit and you know it". 2. A final and unsatisfactory meeting in what must have been late 2009 took place among Joseph, John, Anthony Margiotta and Angelo at the offices of Mathew Dooley & Gibson in Castle Hill. This conversation is important both for what John and Joseph do say and what they do not say. A number of the accounting explanations that John and Joseph were to propound later propound, they did not even attempt to voice in this meeting. If these explanations had any credibility, this was the time they should have been advanced. The conversation was in the following terms: "Angelo: 'John, I'm here today to try and work out the money that you and Joe owe me. I just want my money, and then we can part company. We did three jobs together, Parramatta, Mosman and Balmoral. In my office a few years ago we sat down and agreed that the $550,000.00 in Anthony's trust account was my money, and you took it'. John: 'I have I invested that money'. Angelo: 'John, I didn't authorise you to invest that money. We made good money from the developments. I estimate we made in the vicinity of $2.5 million, and that should be in Anthony's trust account'. John: 'Based upon what?' Angelo: 'We made one million in Parramatta, eight hundred in Mosman, and I've never seen the figures for Balmoral'. Joseph: 'That sounds about right'. John: 'We never made anywhere near that amount of money'. Angelo: 'That's not correct. Joe and I have been through the figures for Parramatta and Mosman, and we basically agree that we made that sort of money in the projects. I've never seen the figures for Balmoral, and you vacated my officer before we had been through the figures. I finally received the settlement sheets for Balmoral and I see that Joe and Sue (the first and second defendants) received $300,000.00 which Joe said he did not receive. Touchstone Building got money, you got money and Barbara received money'. John: We all received money from Balmoral based on what was put in. Barbara put money into the Project as a partner. I'm doing the figures for Balmoral, and I'll have them completed very shortly. Can you provide me with your figures for Parramatta and Mosman?' Angelo: 'I have the figures on my laptop and I'll email them to you'." 1. Consequent upon this last conversation, Angelo did forward figures to John. But he received no reply. John's response to Angelo's narration of the lengthy history of requests for an accounting in respect of these projects was completely inadequate and hardly consistent with the case he eventually made at trial: John did not provide accounts; John did not deny that he and Joseph were in a personal joint venture with Angelo and Rosemary; and John did not disclaimed any obligation to provide accounts. Unsurprisingly, Angelo decided to commence this litigation in 2011. Overview of the Legal Issues 1. The Court's narrative of findings provides the basis to determine the legal issues. The Court must first conclude who the parties were to the joint-venture and whether, subject to any pleaded defences, the defendants are liable to account to the plaintiffs. The Court will then consider John and Joseph's defences and the Limitation Act issues raised. Finally it is necessary to consider the form of any orders to be made. These issues are dealt with in the form of the questions in the headings below. Who were the parties to the joint-venture? 1. The identity of the parties to any joint-venture is to be determined objectively by looking at what was said between the parties in the factual matrix in which it said and ascertaining between whom the parties objectively intended that the obligations would be owed: Air Tahiti Nui Pty Limited v McKenzie [2009] NSWCA 429 at [28]. 2. The findings in the Court's factual narrative make clear that these parties expressed themselves in such a way such that it should be objectively inferred that they were making a joint-venture agreement between the several natural persons who were speaking to one another and that to the extent the parties referred to corporate bodies it was only with the intention of identifying vehicles that provided a convenient mechanism through which monies might be paid. The parties did in fact use the corporate vehicles they each controlled as avenues to pay or receive funds from time to time during the operation of these joint ventures. 3. And Joseph admitted in cross-examination that the Parramatta Project joint venture conversations had been in the terms that Angelo described to the extent that the terms had referred to names of natural persons. This strengthens the inference that all these conversations were in similar terms: referring to natural person as the parties. 4. In addition to the findings already expressed in the factual narrative, the parties raise a number of contentions relevant to the question of the identity of the parties to the joint-venture that are dealt with here. 5. John and Joseph sought to answer Angelo and Rosemary's case on this issue by pointing to an email that Angelo had sent on 6 August 2009 to "Bathroom Dynamics", which email referred to profit shares from the Parramatta, Killarney Street and Esther Road Projects as apparently being derived in the names "Russo Nominees", "Bathroom Dynamics" and "Russo Superannuation Fund". But Angelo satisfactorily explained, in terms that the Court accepts, that he used these names "Russo Nominees", "Bathroom Dynamics" and "Russo Superannuation Fund", because they were the entities that had contributed the funds, and not because he intended them to be parties. In my view that was also obvious to all sides in these conversations. This document was not damaging to the plaintiff's case. 6. And the respective investment ledgers maintained by Angelo for his own joint venture use (Exhibit C) and John for his use, with the assistance of Ms Murphy are consistent with this conclusion as they both refer to Angelo as a party to the joint venture. 7. Each of the joint ventures, at Parramatta, at Killarney Street and at Esther Road was made in the names of parties to these proceedings. The defendants submitted that the remedy of account must be refused where the correct parties have not been sued: Southern Equity Pty Ltd v Timevale Pty Ltd [2012] NSWSC 15 at [112] and Re Cyril Sharp and Ors [1992] FCA 616. But here the correct parties have been sued. Are the defendants required to account to the plaintiffs? 1. The relevant legal principles may be shortly stated. A court will only order the taking of an account if it is satisfied that the parties are in an accounting relationship with each other: that is, if the court is satisfied that one party would be liable to pay the other anything which is found on the taking of the account to be owed: Re Cyril Sharp and Ors [1992] FCA 616 and Lang v Simon (1952) 53 SR (NSW) 508, at 514. With respect to joint ventures, parties are entitled to an accounting between them unless the joint-venture deed negatives this right: Marcolongo v Mattuissi [2000] NSWSC 834 at [71]. 2. None of the plaintiffs or the defendants in these proceedings formalised their joint-venture relationship in writing. In the factual narrative above the Court has made findings about the many occasions on which Angelo placed confidence and trust in John's and Joseph's present and prospective management of joint-venture finances at the time that Angelo and Rosemary made each of their investments in the joint-venture. The defendants agreed in my view in this context, in which the plaintiffs placed trust and confidence in them without any formal agreement, to act as fiduciary agents for the plaintiffs: United Dominions Corp Ltd v Brian Pty Ltd (1985)157 CLR 1, at 12. They are liable to account to the plaintiffs on that basis, as accounts will be decreed in equity in respect of such quasi-fiduciary relationships as principal and agent, or in relationships of trust and confidence: Warman International Limited v Dwyer (1995) 182 CLR 544 and Feiglin v Ainsworth [2011] VSC 454 at [26]. 3. In a rather late manoeuvre under cross-examination, for the first time John suggested that it was Angelo and not himself who was responsible for keeping the accounts of the various joint ventures. Were this contention made good it may have the effect of answering the plaintiff's case by placing responsibility for the preparation of accounts on Angelo himself. The lack of substance in this contention has already been dealt with in the findings in the factual narrative. 4. But further to be weighed against this contention is John's own evidence that he was receiving joint-venture income and paying joint-venture expenses using his personal bank account as a joint-venture account. Moreover, in order for the plaintiffs to meet what was in substance a defence to the plaintiff's claim on this issue a clear pleading would have been required. And the issue was not pleaded. Nor was the issue clearly flagged in the defendants affidavits. In any event, all persons associated with doing the accounts for the joint-venture, CBS Accounting, Mr Mangraviti and Ms Murphy were more closely associated with the defendants than with Angelo. 5. The defendants also contended that an allegation of wilful default was not pleaded and was therefore unavailable because it is a matter for express pleading: Juul v Northey [2010] NSWCA 211 at [203]. The defendants were correct: wilful default had not been pleaded. But this did not remain an issue. In closing submissions Mr Ashurst SC only pressed a claim for account in common form. By the time of their closing submissions the plaintiffs had more closely examined the effect of the decision in Grace v Grace [2012] NSWSC 796 at [215] – [219] that wilful default must be established on the revenue side and not on the expenditure side and so may not be available for the plaintiff's claim in this case. Are the defences an answer to the plaintiff's claim? 1. The only defences to an action for an account where liability to account is established are: (1) the giving of a release; (2) that the defendant has rendered proper accounts and the account has been paid; (3) and, a plea of settled account: On Equity, Croft, Smith and Young, Thompson Law book Co, at [16.1340] . The defendants deployed neither a plea of release, nor of settled account here. 2. The defendant sought to contend that Mr Ken Mangraviti, an accountant the defendants engaged, had produced proper accounts for the joint-venture. Mr Mangraviti gave evidence in support of his work. Mr Mangraviti's accounts, prepared at the request of the defendants under cover of a letter from him to the defendants' solicitors, were really only bookkeeping summaries of transactions for the projects and were wholly based on information which the defendants had provided to him. Mr Mangraviti's evidence, showing as it did his receipt of instructions and information from the defendants for his accounting task, was in itself an answer to the defendants' contention that Angelo, not John, had responsibility for preparing joint-venture accounts. 3. A few examples will show why Mr Mangraviti's accounts were wholly inadequate as joint-venture accounts. His accounts do not record who contributed the money by each joint-venture partner so that proportional entitlements to joint-venture profits could be calculated: in other words, his accounts are not really prepared as partnership accounts. The covering letter to Mr Mangraviti's accounts makes clear that he has not reviewed any source documents in preparation of the accounts or undertaken any verification or validation procedures. This is important, given that for Grazia Holdings Pty Limited, apparently in respect of the Parramatta Project, the cost of sales recorded in his accounts includes $1,205,629 in "development costs", $180,000 in "building fees" and $50,000 in "project management fees" apparently paid to the defendants or entities that they control. Nor have the defendants made up for these inadequacies by producing the primary documents which Mr Mangraviti used to undertake his work. 4. Although the accounts for the the Parramatta Project are presented as being in the name of Grazia Holdings Pty Ltd, the accounts for the Killarney Street and Esther Road Projects are not in the name of any entity. And both the Killarney Street and the Esther Road projects contain the same unverified claims for "development costs" "building fees" and "project management fees" paid to the defendants or their related entities for very substantial amounts. A proper joint-venture accounting worthy of the name would have attempted some process of verification of these expenses. 5. I accept that if all the payments that the plaintiffs claim were made, were made then (and the Court has already found that many were) that the plaintiffs are likely to have made a loss in the order of $277,874 instead of a profit of at least $396,567, a rough calculation based on Mr Mangraviti's own figures. This outcome is reached by adding back all the management fees and building fees in Mr Mangraviti's calculations. And it means the plaintiff may be able to receive a return on their contribution of $277,824 plus their proportion of profits, namely $396,567, making a total of $624,441. In my view there would therefore be a point to an account in this case if there is a proper basis to order one. Does Limitation Act 1969 or a discretionary defence answer the plaintiff's claim? 1. The defendants contend that the plaintiffs' claims are wholly statute barred. The defendants submit that: the Parramatta Project was completed in late 2002; the Killarney Street Project commenced in April 2002 and was completed in January 2004; and, the Esther Road Project commenced in May 2003 and was completed on 29 July 2005. These proceedings were commenced by summons on 31 August 2011 more than six years after completion of the Esther Road Project. 2. The defendants submit that any debt due to the plaintiffs on each project accrued on the day of its completion, even though the joint-venture parties agreed to roll over the funds into the next project; the rolling of the debt does not stay the limitation period running on the already accrued debt: Frinty v Landmax Developments [2010] NSWSC 734. The submission was that the six-year limitation period for debt at common-law began to run in respect of each joint-venture more than six years before commencement of proceedings at common-law. And so the cause of action is said to be statute barred and extinguished under Limitation Act 1969 ss 14(1)(a) and 63. The remedy of account in equity is relevantly also six years, by analogy with the common law: Limitation Act ss 15, 23 and 64 and Cassegrain &Co Pty Ltd v Cassegrain [2011] NSWSC 1156. 3. But there are several difficulties with this limitation defence. In my view there was only one joint-venture which was slightly varied over time by the parties to permit the parties to apply joint-venture funds to different projects as required. This analysis is more consistent with the facts as found: (1) the considerable overlap between the ending of one project and the beginning of another; (2) the lack of any formal documentation creating separate joint-venture agreements; (3) the continuity of the same trust and confidence of Angelo and Rosemary in John and Joseph through all the projects; and (4) the language of the parties upon their going into Killarney Street and Esther Road, which does not bespeak their making wholly new joint venture arrangements, rather just adjusting an ongoing relationship to apply it to new circumstances. Thus there is no question of the limitation period running out for earlier joint ventures. 4. And the limitation period for the last joint-venture had not run out in any event. The appropriate limitation analogy in this case is not common-law action in debt but partnership. Time does not begin to run in respect of the liability to account to partners until either final distribution, or the partnership is dissolved either by express statement or implication: Faitrouni v El Omar [1999] NSWSC 84 [4] – [6] and Akcan v Cross [2013] NSWSC 802 at [24]. 5. The final distribution did not take place until September or early October 2005 when John moved funds in respect of all projects out of the Mathews Dooley and Gibson Trust account. That was within six years before commencement of proceedings. 6. And there is another problem for the defendants' limitation case. Once the joint venture funds are in John's hands and before their unauthorised distribution to him was discovered he continued in a relationship of trust and confidence as a fiduciary agent administering property for the plaintiffs. Angelo's discovery of the misapplication of funds does not occur until early 2006, an event which is as close to the practical dissolution of this joint venture as one could find, and well within 6 years before proceedings were commenced. 7. The defendants related laches defence does not have merit. The defendants did not propound a positive case that the plaintiffs' failure to bring the proceedings earlier meant that the defendants had become disabled from locating documents or otherwise protecting their interests. The defendants did not demonstrate any irremediable prejudice from any delay that had occurred. Moreover there should be balanced in the discretionary mix against the laches defence the fact that John had on several occasions in a family context promised to provide accounts and had thereby induced Angelo to keep waiting longer for them. What is the appropriate form of orders in the proceedings? 1. Angelo and Rosemary now seek orders for an account in common form. An order for an account in common form will usually define the proposed accounting task with some precision to make clear what transactions are encompassed within the accounting process and what transactions are not so encompassed. Angelo and Rosemary seek to define the scope of the task by an order that John or Joseph produce accounts in common form of each of the Parramatta, Killarney Street and Esther Road Projects detailing: 1. The contributions of each joint venture partner to the Projects; 2. The distributions to each joint venture partner from the Projects; 3. The properly incurred expenses of each Project; and 4. The income received from each Project. 1. Given the Court's findings in the factual narrative above and given the other issues that can be anticipated in any accounting, in my view this form of order is appropriate. Requiring the accounting to record "properly incurred" expenses is appropriate because Touchstone Building Pty Limited, Joseph and John controlled the building company that carried out construction work for these various Projects. It may be necessary to examine the expenses incurred by the joint venture because there is no third party creditor who would be able to independently vouch for the appropriateness of such expenses. 2. Added to this there is evidence that on 30 November 2004 John instructed his accountant, Mr Ken Mangraviti, when preparing 2003 financial accounts for the joint venture. After enclosing copies of the 2001 and 2002 financial accounts for Touchstone Building (referred to as "TB" in the email) John said to Mr Mangraviti in these written submissions: "For finance purposes I now need the 2003 a/cs prepared. What I am asking that the profits stay in TB P/L's a/cs instead of distributing out to JV's. Please call to discuss". 1. Evidence such as this certainly suggests the possibility of overcharging expenses to the joint venture by entities relating to John and Joseph. The Court will make orders for accounts in common form with the scope of Angelo and Rosemary have suggested in their submissions. 2. As this Court no longer has Masters in Equity who would carry out such an account the Court's practice now is that the judge hearing the case or another judge will hear any contested accounting issues. This leads to the question of when and where certain issues, which were contested between the parties but which have not yet been determined by the Court, should be determined. There are a number of these and the evidence relating to them has not been detailed in these reasons. The further issues were: 1. Whether certain building and project management fees were chargeable by Touchstone Building to the joint venture; 2. Whether other expenses claimed by John and Joseph should be allowed in the form in which they appear in Mr Mangraviti's report; and 3. Whether there was any "contra" arrangement by which Angelo and Rosemary would receive the benefit of building work done at their home in discharge of some of the joint venture's interest obligations to them. 1. On all these matters the Court has heard sufficient evidence to determine them but in the manner in which the proceedings were conducted it seems to me that insufficient time was given in final submissions to identify the relevant evidence relating to these subsidiary matters. The parties' submissions were directed to the principal matters which have now been determined. There is potential for unfairness to arise both to the defendants and the plaintiff because neither side has really put detailed submissions about these contested issues. 2. The Court will therefore reserve these matters for further consideration. The Court can deal with those issues by giving a short supplementary judgment once the parties have put in further written submissions. Alternatively, those issues, and any issues of a similar nature which the parties wish to identify, can be included in the accounting that is ordered. These observations should be sufficient for the parties to discuss the next procedural steps and to prepare short minutes of order to give effect to these reasons. Conclusions and orders 1. In the result therefore the Court has found that a joint venture was made between the natural persons who are the parties to these proceedings, not their companies. The Court has not upheld the defendant's defences that accounts have already been provided, or their limitation defence, or any of their other discretionary arguments as to why relief should not be granted. In the result the Court will make an order that the defendants provide to the plaintiffs joint venture accounts for the Parramatta, Killarney Street and Esther Road Projects in common form detailing the matters that the plaintiffs have requested. 2. The plaintiffs have been substantially successful in the proceedings. Costs would normally follow the event. But there are a number of issues still to be determined and it may be more appropriate to consider costs questions once those matters reserved for further consideration have been determined. And it may be that one or other of the parties seeks a special costs order. 3. In the result therefore the Court will order as follows: 1. Direct the parties to bring in short minutes of order to give effect to these reasons. 2. Direct the parties to file with my Associate and exchange any submissions in relation to any contest concerning the form of the short minutes of order or any issues of costs by 5pm on 13 February 2015. 3. List the proceedings for further directions and argument on any outstanding issues at 9.30am on Tuesday, 17 February 2015, or such other time as the parties may arrange for their mutual convenience through my Associate. ********** Amendments 06 February 2015 - para 179 (spacing) near citation and "are" in last line changed to "and". 23 February 2015 - Heading styles changed: "Russo Family Property Developments - 1999 to 2005" and "Overview of the Legal Issues" 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: 23 February 2015