Booth v Cerreto (No 2)

On 15 December 2023, the Court delivered its principal judgment in these proceedings: Booth v Cerreto [2023] NSWSC 1574 (J). The parties were largely in agreement about the orders required to give effect to the principal judgment, save as to one aspect of the working out of the accounting between them and as to costs.

This judgment resolves both remaining disputes. In relation to costs, where each party has, in overview, enjoyed a measure of success, the Court will make no order as to costs to the intention that each should pay their own costs.

This judgment should be read and assumes familiarity with the principal judgment. Defined terms in the principal judgment have the same meaning in these reasons.

The parties provided written outlines of submissions which were supplemented by argument today. Mr NJ Kidd of Senior Counsel appeared with Mr JA Darvall of Counsel for the plaintiffs. Mr A Cheshire of Senior Counsel appeared with Mr C Carroll of Counsel for the defendants.

Turning first to the question of the orders to be made in respect of the accounting, the debate turned on what was to happen in relation to any surplus after payment out of the parties’ respective contributions. It may be illustrated by the two versions of the relevant orders which were propounded in the course of argument by the parties.

Mr Kidd SC proposed orders 4(e), (f) and (g);

For his clients’ part, Mr Cheshire SC disputed what was proposed in Mr Kidd SC’s order 4(f). He submitted that all that was required was for orders 4(e) and (f) to provide:

The nub of the debate between the parties was the status of the defendants’ borrowings secured over the Properties, which borrowings were unrelated to the Venture. Mr Kidd SC submitted that his proposal did justice to his clients by ensuring that any notional surplus was calculated on the basis that in the scheme of the proposed orders the defendants did not get the benefit of the earlier payment out of the mortgages over the Properties insofar as those mortgages had been raised by the defendants for purposes unrelated to the Venture.

Mr Cheshire SC submitted that the approach contended for by the plaintiffs was in effect to reopen the point which I had rejected at J [55] to [58]. It was submitted that the Court in J [45] to [51] had rejected the defendants’ submission concerning how the discharge of Mrs Dominello’s mortgages was to be treated. Mr Cheshire SC submitted that it followed that because the Court had thereby found that the defendants had not paid out her loans, those loans should not be taken into account for the purposes of calculating any notional surplus.

I accept Mr Cheshire SC’s submissions. In my respectful view, the essential issue is whether or not the defendants were entitled to use the Properties as security to raise money for purposes unrelated to the Venture. At J [52] I rejected Mr Kidd SC’s submission that the defendants were contractually prohibited from borrowing on the Properties to pay out Mrs Dominello’s loans (as opposed to developing the Properties).

While it was not necessary for me to decide in the principal judgment, it follows from that rejection that, if necessary, I would also have found that in circumstances where the plaintiffs’ entitlement from the Venture in return for Mrs Dominello’s equity in the Properties was to receive half the residences that were built and with no other relevant contractual rights in the Properties, there is no basis to find that the defendants should be prohibited from borrowing on the Properties for other purposes. In other words, there is nothing in any of the versions of the contractual terms of the Venture advanced by the plaintiffs that would have prohibited the defendants from offering the Properties as security for borrowings unrelated to the Properties. Their only relevant obligation was to give the plaintiffs clear title to half the residences that were constructed pursuant to the Venture at the end of the project.

The task at hand, as Mr Cheshire SC submitted, was to ensure that the parties were made whole in respect of their contributions to the Venture and then, in accordance with J [61] to [65], they would receive the benefit of any surplus left after the sale of the Properties. Consistent with my view that there was no contractual prohibition on the defendants being allowed to raise money on the Properties for other purposes, I accept that the appropriate course here is not to embark upon the exercise which Mr Kidd SC’s proposed orders invited. It does seem to me, with respect, that the course suggested by Mr Kidd SC is really to reopen the issue which I decided against his clients in J [55] to [58].

Accordingly, in relation to this first remaining dispute between the parties, the Court will not make order 4(f) as proposed in Mr Kidd SC’s draft. The Court will make the orders set out in [7] above as propounded by Mr Cheshire SC.

In relation to the question of costs, the parties provided written outlines of submissions in accordance with directions which I made at the time of delivering the principal judgment. In summary, the parties’ initial positions were diametrically opposed. While each made some concessions, the effect of each side’s proposed orders was that the other should pay a large proportion of the opponent’s costs. Having noted this, I asked my associate to put the parties on notice yesterday afternoon that I would be assisted by receiving submissions as to why the just outcome should not be that the Court make no order as to the costs of the proceedings. For the reasons that follow, that is what will occur.

In approaching the question of costs, it is important to recall that these proceedings fell into two parts.

In the first part, the litigation was dominated by a dispute as to whether the terms of the Venture were oral or written. The plaintiffs said they were oral. By a cross-claim, the defendants said they were written.

The proceedings were listed for hearing before Pembroke J on 24 June 2019. By email on 17 June 2019, the defendants’ solicitors wrote to Pembroke J’s Associate (and copied to the plaintiffs’ solicitors):

This led to the events set out at J [14] to [20] culminating in the orders made on 12 July 2019, including the dismissal of the defendants’ cross-claim and the reservation of costs. On this latter point. I set out again what Pembroke J said on that occasion:

The matter then proceeded into its second part. This was the continued assertion by the plaintiffs of their claim for damages in contract, and the resolution of the joint accounting process agreed between the parties. It was this second part of the proceedings that I determined in the principal judgment.

The plaintiffs modified their initial position as to costs before me today and did not wish to be heard against the outcome of there being no order as to costs. Mr Kidd SC accepted that it was an outcome properly open to the Court given the overall result of the proceedings.

The defendants also modified their position today, but not to the same extent as the plaintiffs. Mr Cheshire SC’s submissions may be summarised as:

Mr Kidd SC resisted the approach advanced by the plaintiffs. His submissions may be summarised as:

In determining the question of costs I have applied three propositions:

I propose to determine the present question by considering the contract claims and the accounting exercise separately, given how Mr Cheshire SC approached his response to the proposition that there should be no order as to the costs of the proceedings generally.

There are three steps in relation to the contract claim:

As to the plaintiffs’ costs of the cross-claim, it seemed to me that there was some possibility for an order to be made that the defendants should pay the plaintiffs’ costs of the handwriting expert deployed by the plaintiffs in support of their case that the written agreement alleged in the cross-claim was a forgery. When I put this to Mr Kidd SC, he maintained the entirely understandable purity of his position that the better outcome overall was for there to be no order as to costs without sending the parties into the kind of costs allocation exercise which I had in contemplation.

As to the defendants’ costs of the plaintiffs’ claim in contract, I had originally thought that it might be justifiable to order that the plaintiffs pay the defendants’ costs of all the expert reports obtained by the defendants to meet the contractual damages claim. However, in a revealing prelude to what might have been the case had this matter gone off to a costs assessment, a dispute immediately arose between the parties as to whether or not the costs of those expert reports were solely referable to the contract claim. Mr Kidd SC submitted that those reports were also relevant to the accounting exercise. Mr Cheshire SC did not agree.

Of some present importance is the fact that the reports which I had in mind were ultimately not relied upon at the hearing before me, so I have never had occasion to look at them. It would be inappropriate and disproportionate to the task at hand for me now to attempt to do so, or to invite the parties to a more detailed examination of the issues to which those expert reports were in fact directed. The dispute which broke out before me, without any disrespect to either side, is sufficient to persuade me of the wisdom of making no order as to costs in any respect, including to avoid any kind of dispute that might arise between the parties were the Court to make a more particular costs order in relation to specific evidence.

Turning to the accounting aspect of the case, the parties were ultimately in agreement that there should be no order as to costs. However, it is appropriate that I briefly record why this is the position which the Court considers should apply. The starting point, evident from what transpired before Pembroke J, is that the accounting referral was the product of an agreement between the parties. Provided neither party thereafter behaved unreasonably, this bespeaks that there should be no order as to costs, because each side’s costs are an incident of the working out of their failed joint venture relationship by the accounting process.

I do not consider there was any such unreasonable behaviour. In assessing the parties’ conduct, I have not overlooked Mr Cheshire SC’s submission that the ultimate resolution would have been faster and simpler if the plaintiffs had not continued to press their claim for contractual damages. I agree. However, that submission cannot affect the outcome on costs because the fact remains, as I noted in J [12(7)], that Mr Cheshire SC accepted at the hearing that the plaintiffs remained entitled to run their contract claim, notwithstanding what appeared to be everyone’s intention before Pembroke J (as I found at J [19]).

Furthermore, insofar as the parties litigated issues arising from Mr Peasley’s report (a possibility which they did contemplate at the time they were before Pembroke J), viewed holistically each party has had a measure of success. Contrary to the way in which Mr Kidd SC put his argument, for the purposes of the present task given the issues debated in this case, the appropriate measure of that success is by issue rather than the value of each issue.

Of the four accounting issues that were the subject of argument, each party succeeded on two. The plaintiff succeeded on the effect of the discharge of the Mrs Dominello’s loans (J [45] to [52]) and the treatment of any surplus (J [61] to [65]). The defendants succeeded on the holding costs (J [53] to [54]) and as to the deduction pressed by the plaintiffs for the alleged “benefit” to the defendants’ of their borrowings over the Properties (J [55] to [58]) and to which I have already referred in [12] above.

In applying this approach, I have borne in mind Mr Kidd SC’s submission concerning other matters which fell away or were conceded by the defendants during the course of the hearing. I do not consider them to have been sufficient in themselves either to affect the Court’s discretion or, given what I have said about limiting the scope for argument on any costs assessment, to be susceptible to a special costs order.

The parties are to bring in orders in accordance with those which they have agreed, now to be varied to give effect to these reasons.