NWEC Pty Ltd v NW & RS Enterprises Pty Ltd [2019] NSWSC 149

Supreme Court New South Wales

Medium Neutral Citation: NWEC Pty Ltd v NW & RS Enterprises Pty Ltd [2019] NSWSC 149 Hearing dates: 27, 28 February; 1, 2, 3, 7, 8 March; and 13 October 2017; and 13 February, 5 and 27 April 2018 Decision date: 25 February 2019 Jurisdiction: Equity Before: Lindsay J Decision: Reasons for Judgment published; Submissions invited Catchwords: CONTRACTS – Joint Venture – Rights and duties of Joint Venturers inter se – Failure of joint venture – Accounting between joint venturers Legislation Cited: Australian Consumer Law Civil Procedure Act 2005 NSW Corporations Act 2001 Cth Trade Practices Act 1974 Cth Cases Cited: - Texts Cited: - Category: Principal judgment Parties: Plaintiff: NWEC Pty Ltd ACN 105 035 505 First Defendant: NW & RS Enterprises Pty Ltd ACN 126 857 047 Second Defendant: Raphael Shin Enterprises Pty Ltd ACN 103 452 473 Third Defendant: Raphael Shin Fourth Defendant: Space Con Pty Ltd ACN 098 002 692 Representation: Counsel: Plaintiff: S Burchett First Defendant: No appearance Second, Third and Fourth Defendants: CD Wood and D Parish

Solicitors: Plaintiff: Goodwin Legal First Defendant: no appearance Second, Third and Fourth Defendants: H & H Lawyers File Number(s): 2013/00296630

Judgment

INTRODUCTION 1. In proceedings commenced by statement of claim, the Court is called upon to make determinations necessary to facilitate the winding-up of a failed joint-venture for residential development of land in Marsden Road, Dundas ("the Dundas Land"). The object of the joint venture was the construction of 16 townhouses, sale of the townhouses and distribution of profits anticipated to arise from such sales. 2. The joint venturers were the plaintiff and the second defendant, each a corporation. In colloquial terms, the plaintiff's role in the joint venture was that of an investor; the second defendant's role was that of a project manager. 3. The joint venture had its genesis in an oral agreement between representatives of the plaintiff (Mr JJ Lee) and the second defendant (Mr R Shin, the third defendant) on or about 15 June 2007. Although that agreement was acted upon in ensuing months, it was superseded by an undated written agreement (styled "Shareholders Deed") executed by the plaintiff, the second defendant and (as those parties' joint venture corporate vehicle) the first defendant on 7 April 2008. 4. Preliminary steps towards execution of that written agreement were the following: (a) the registration of the first defendant on 2 August 2007 as the corporate vehicle of the plaintiff and the second defendant for the purpose of carrying the joint venture into effect; (b) by a contract made on 7 March 2008 and completed on 1 July 2008, the purchase of the Dundas Land by Mr Lee, as trustee for the first defendant, and, upon completion of the purchase, his transfer of the land to the first defendant subject to a mortgage in favour of the ANZ Bank; (c) the provision to the first defendant of a written tender by the fourth defendant (a corporation), by a letter dated 4 April 2008, for construction of townhouses on the Dundas Land; and (d) the preparation of a written construction contract (styled "Design and Construct Contract-Lump Sum") executed by the first and fourth defendants on 7 April 2008 following execution of the Shareholders Deed. 5. The "construction contract" took the form of a printed document (partially completed in handwriting) which was not, in terms, wholly consistent with either the written tender or the Shareholders Deed. It was purportedly amended, on or about 21 February 2010, to allow for the prospect of increased construction costs, and delays, without attaining any degree of regularity of form greater than it formerly had. 6. The third defendant supplies a link between the second and fourth defendants. He was, effectively, the owner or controller of both of those co-defendants, and their main representative in dealings associated with the joint venture. In general terms, he might be described as a land developer. He was the person through whom the joint venture project was proposed to the plaintiff by the second defendant. He was the person through whom the fourth defendant (a self-styled company of architects and builders) submitted the construction tender to the first defendant. Through him, the second defendant enlisted the plaintiff to provide financial assistance for a development project which the second defendant, on its own, had sought to advance since early 2004. 7. The plaintiff and the second defendant are equal shareholders in the first defendant. The first defendant's board of directors comprises the third defendant as nominee of the second defendant and Mr SW Kang as nominee of the plaintiff. The third defendant is the managing director and secretary of the first defendant. As nominee director of the plaintiff, Mr Kang commonly reported to Mr Lee, a principal of the plaintiff. Mr Kang was at one time personally interested in the plaintiff, but no longer is so. 8. A common bond between Mr Lee, Mr Kang and the third defendant is a Korean heritage. This is relevant to note, in three respects. First, the joint venturers came together in the context of social connections between their principals as Korean-Australians. Secondly, negotiations between the plaintiff and the second defendant associated with the oral joint venture agreement of 15 June 2007 or thereabouts were conducted in the Korean language, as were many subsequent dealings associated with the joint venture. Thirdly, in advancing contentions that the third defendant managed the affairs of the first defendant in his own interests and in the interests of the second and fourth defendants, without the fully informed consent of the plaintiff, the plaintiff points to a lack of English literacy on the part of Mr Kang, who is said to have been largely dependent upon, and deferential to, the third defendant in discharge of his duties as a director of the first defendant. Mr Kang's deference to the third defendant was, in my assessment, no more than Mr Lee's indulgence towards the third defendant in the provision of funds before the parties fell out on or about 25 October 2011. 9. It is common ground between all parties to the proceedings that management of the first defendant is, and has been for some time, deadlocked and that, consequentially, it would be just and equitable for an order to be made, under the Corporations Act 2001 Cth, for the first defendant to be wound-up. The relief sought in the statement of claim includes (in prayer 14(b)) an order that the first defendant be wound-up and that a liquidator be appointed for that purpose, and (in prayer 16) an order that a receiver and manager of all property of the first defendant be appointed. 10. Because management of the first defendant is deadlocked, the company has not been separately represented in the current proceedings. The plaintiff and the second defendant, as the first defendant's only shareholders, have expressly conducted the proceedings on the basis that the company's interests are adequately protected given the constitution of the proceedings. All have acquiesced in this. 11. The time at which management of the first defendant became deadlocked. might reasonably be identified with meetings held on 18 and 25 October 2011 during the latter of which the plaintiff asserted, and the second defendant denied, that the joint venture was at an end. 12. The plaintiff contends that at that time the third defendant, on behalf of the second defendant, repudiated "the joint venture agreement" and, on behalf of the fourth defendant, repudiated the construction contract: (a) by an admission that no construction work had been performed over a three year period because of cost increases that the second defendant would have had to bear under the Shareholders Deed; and (b) by unjustified demands on behalf of the second and fourth defendants for the payment of money. 13. I accept that the second and fourth defendants' inaction was, in substantial part, a product of their lack of financial resources of their own, and that (in the person of the third defendant) they were trying to pressure the plaintiff (particularly Mr Lee) into providing more funds; but I am not prepared to accept that the conduct of the second and fourth defendants amounted to a repudiation of their respective obligations under the Shareholders Deed and the construction contract. At least part of the delays in the performance of construction work was attributable to a discovery by the third defendant, in or about July 2008, that the drawings on which the Development Approval for the Dundas Land was based were wrong (because they depicted a ground level different to the actual ground level), with a consequent need to obtain a variation of the DA. The third defendant, representing both the second and the fourth defendants, continued in his determination to develop the Dundas Land in association with the plaintiff. The history of financial dealings between Mr Lee and the third defendant – in which Mr Lee indulged the third defendant's incessant need for money – colours an assessment of what occurred in October 2011. 14. The parties allowed their relationships to drift beyond that time. The first defendant effectively ceased to carry on business in or about April 2012 when the fourth defendant completed excavation work and installed footings on the Dundas Land in order to prevent the first defendant's Development Approval from lapsing. Thereafter, the only work done on the land was low-order maintenance (primarily lawn mowing), in respect of which the second and fourth defendants have abandoned any claim for an allowance. 15. Despite the absence of construction work on the Land, costs associated with holding the Land were incurred after the parties' relationships irretrievably broke down and management of the first defendant became deadlocked. As claimed by the second defendant, those costs principally comprised bank fees, interest on borrowings, council rates and land tax. 16. The second defendant seeks to have its funding of such costs taken into account in its favour on the taking of accounts as between itself and the plaintiff. The pleadings do not clearly articulate this, but the second defendant's case was articulated (including by reference to draft amended pleadings marked for identification MFI D13 and MFI D16) sufficiently for that case to be adjudicated, in principle, without further amendment of the defence -responsive as is the defence to a statement of claim which includes as a primary claim for relief an order that an accounting be taken. Disputes about arithmetical detail can be dealt with, if need be, in light of determinations made about the proper construction and operation of the Shareholders Deed and the construction contract. 17. These proceedings were not commenced until 20 July 2015, when the plaintiff filed its statement of claim. That pleading sought an accounting for the joint venture (and damages) from the second, third and fourth defendants in terms broadly consistent with an allegation that "the joint venture agreement" had been terminated by the plaintiff for breach on 25 October 2011. However, it was also predicated upon an assumption that the construction contract remained on foot. 18. All in all, difficulties attend a finding that the Shareholders Deed and the construction contract were terminated (discharged) by acceptance on 25 October 2011 of repudiatory conduct on the part of the second and fourth defendants. The better view of the facts is that the parties became entrapped in their deadlocked management of the first defendant, a consequence of which was that the first defendant ceased to carry on business in or about April 2012. All parties, including the fourth defendant, at about that time and thereafter, acquiesced in failure of the Development Project. The plaintiff sought refuge in claims for an accounting from the second, third and fourth defendants. For their part, they hoped that, by resisting those claims and by anticipating a capital appreciation of the Dundas Land, they could ultimately achieve a financial advantage. 19. Although nominal works were undertaken on the Dundas Land in 2012 (when, in April, footings were installed) in order to preserve a Development Approval attaching to the land, no substantial work was at any time undertaken by or on behalf of the first defendant in construction of the projected townhouses, beyond demolition of existing buildings . 20. Well beyond commencement of the final hearing of the proceedings, the second, third and fourth defendants maintained that the joint venture (and the associated construction contract) remained on foot. Mutual recognition that the Development would never be completed by these parties came only during the course of the proceedings. That manifested itself in the parties' agreement that the Dundas Land be sold under direction of an external officer appointed by the Court. 21. The practical reality is that, but for a necessity for decisions to be taken consequent upon abandonment of the joint venture project and the construction contract, both the project and the construction contract were abandoned by the parties to them in or about April 2012, in the wake of their falling out on or about 25 October 2011. Substantial delays after that time in resolving differences between the parties reflect, on the plaintiff's side, a reluctance to accept that the outcome of the joint venture project could be anything other than profit to itself in line with aspirational projections made by the third defendant and, on the part of the defendants other than the first defendant, a reluctance to accept responsibility for alleged mismanagement of the project, combined with intransigence in winding up the joint venture. 22. There was some debate at the time of agreement to a sale of the Dundas Land as to whether the external officer to be appointed by the Court should be a provisional liquidator or a receiver and manager of the first defendant's property. A receiver and manager was preferred by the plaintiff as the means best calculated to facilitate a determination of questions in dispute (the evidence upon which had been taken by the Court) before the making of an order that the first defendant be wound-up. 23. By and with the consent of the parties, on 13 October 2017 orders were made for the appointment of a receiver and manager of the first defendant's property, with directions for the Dundas Land to be sold. 24. The receiver sold the land by auction on 7 December 2017. Settlement of the sale contract was effected on 7 February 2018. The sale price was $5.2 million plus GST, subject to adjustments. 25. On 27 April 2018, the evidence before the Court was formally closed. 26. Allowing for steps ancillary to the sale, necessary for an orderly conduct of the receivership, on 4 June 2018 the receiver paid into court the sum of $3,997,213.60, representing proceeds of sale of the Dundas Land after discharge of a National Australia Bank mortgage secured on the land (in the sum of $1,021,390.22) and net of selling and other expenses. 27. On the joint application of the parties, on 29 August 2018, the funds in court, including interest, were ordered to be paid out to the solicitors for the parties jointly, to be held by them on trust pending the determination of the proceedings.