[2013] WASCA 66
Cherry v Steele-Park (2017) 96 NSWLR 548
[2017] NSWCA 295
Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337
[1982] HCA 24
Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544
[2017] HCA 12
Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640
Source
Original judgment source is linked above.
Catchwords
[2013] WASCA 66
Cherry v Steele-Park (2017) 96 NSWLR 548[2017] NSWCA 295
Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337[1982] HCA 24
Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544[2017] HCA 12
Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640[2008] HCA 3
Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896
Jones v Dunkel [1959] 101 CLR 298HCA 8
Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451[2004] HCA 35
Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181[2001] HCA 70
Mainteck Services Pty Ltd v Stein Heurtey SA (2014) 89 NSWLR 633[2014] NSWCA 184
Masterton Homes Pty Ltd v Palm Assets Pty Ltd (2009) 261 ALR 382[2009] NSWCA 234
McGrath v Sturesteps (2011) 81 NSWLR 690[2011] NSWCA 315
Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104[2014] WASCA 164
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165[2004] HCA 52
Western Export Services Inc v Jireh International Pty Ltd (2011) 282 ALR 604[2011] HCA 45
WIN Corporation Pty Ltd v Nine Network Australia Pty Ltd (2016) 341 ALR 467
[2016] NSWCA 297
Zhu v Treasurer of the State of New South Wales (2004) 218 CLR 530
Judgment (18 paragraphs)
[1]
ALR 467; [2016] NSWCA 297
Zhu v Treasurer of the State of New South Wales (2004) 218 CLR 530; [2004] HCA 56
Category: Principal judgment
Parties: Abignano Nominees Pty Ltd (First Plaintiff / Second Cross-Defendant)
Avich Holdings Pty Ltd (Second Plaintiff / Third Cross-Defendant)
Gennaro Abignano (Third Plaintiff / Fourth Cross-Defendant)
B & J Abignano Pty Ltd (Fourth Plaintiff until 20 March 2020 / Fifth Cross-Defendant)
Altius Pty Ltd (Defendant / First Cross-Claimant)
Sheridan Claire Peterkin (Second Cross-Claimant)
Jerolu Investments Pty Ltd (Third Cross-Claimant)
SP Two Pty Ltd (Fourth Cross-Claimant)
Representation: Counsel:
D Neggo (Plaintiffs and Cross-Defendants)
T Lynch SC (Defendant and Cross-Claimants)
[2]
Solicitors:
Macpherson Kelley Pty Ltd (Plaintiffs and Cross-Defendants)
Watson Mangioni Lawyers Pty Ltd (Defendant and Cross-Claimants)
File Number(s): 2017/320112
[3]
INTRODUCTION
By an Amended Statement of Claim dated 20 March 2020, the plaintiffs sought relief totalling $926,174.72 with interest and costs. This was in relation to a debt that the plaintiff submit is owed to them from loans made to the defendant. By way of a Cross-Claim, the defendant and cross-claimants seek a variety of relief that releases them from the debt due from it to the plaintiffs or, alternatively, damages or equitable compensation.
For the reasons below, there should be judgment for the first plaintiff. The defences and alternative remedies raised by the defendant and cross-claimants should be rejected.
[4]
The Parties
Before delving into the facts, it is helpful to start by setting out who the parties are in this case. I note at the outset that I will, without any disrespect, refer to the parties and individuals in these proceedings by their first names in the interests of clarity. This was also the approach adopted in the submissions of the parties.
Biagio Abignano (fifth plaintiff/first cross-claimant) and Paul Peterkin were former business associates. They had known each other for over 20 years. Their relationship started out with Paul doing carpentry and building work on property developments carried out by Biagio and Biagio's father, Gennaro Abignano (third plaintiff/fourth cross-defendant). Over time, Biagio and Paul became involved in property development projects together, both personally and through a variety of associated companies. Paul's wife, Sheridan Peterkin, was also involved both personally and also as the trustee of the Bodhi Trust.
The parties have also grouped a number of entities and trusts which Biagio and Peter had authority to bind. The "Biagio entities" refer to:
1. Abignano Nominees Pty Ltd (first plaintiff/second cross-defendant) ("Abignano Nominees"), which was the trustee of the Biagio Abignano Family Trust ("Abignano FT");
2. Avich Holdings Pty Ltd (second plaintiff/third cross-defendant) ("Avich");
3. B & J Abignano Pty Ltd (fifth cross-defendant) ("B&J"), which was the trustee of the Abignano Superannuation Fund ("Abignano SF").
The "Paul entities" refer to:
1. Jerolu Investments Pty Ltd ("Jerolu"), which was the trustee of the Peterkin Superannuation Fund ("Peterkin SF");
2. Sheripeter Pty Ltd ("Sheripeter"), which was initially the trustee of the Peterkin Family Trust ("Peterkin FT") but has been in liquidation since 13 March 2018;
3. ACN 154 869 137 Pty Ltd, which was the nominee purchaser that received what will later be described as the "Abignano assets" in the "buy-out" and initially as the trustee of the Peterkin Family Investments Trust ("Peterkin FIT"); and
4. SP Two Pty Ltd (fourth cross-claimant) ("SP Two"), which has subsequently been the trustee of the Peterkin Family Trust and Peterkin Family Investments Trust.
[5]
Altius and the Pasadena Property
Central to this dispute was the arrangements relating to Altius Pty Ltd (defendant/first cross-claimant) ("Altius"). Altius was a joint entity that, until about 14 April 2016, had both Biagio and Paul as their only directors and the issued shares were held equally between Sheripeter (as trustee of the Peterkin FT) and Abignano Nominees (as trustee of the Abignano FT). Since that time, however, it has been a Paul entity.
On 26 March 2012, a deed ("Altius UT Deed") was entered into by Altius (as trustee) to establish the Altius Unit Trust ("Altius UT"). At the time of creating the trust, both B&J (as trustee of the Abignano SF) and Jerolu (as trustee of the Peterkin SF) held 10 units each.
On 29 March 2012, B&J, Jerolu, Paul, Biagio and Altius entered into the Unit Trust Share and Unitholders Agreement ("Unitholders Agreement"), which made arrangements between themselves about the operation of the Altius UT. The Unitholders Agreement was signed and sealed by Biagio and Paul.
Clause 3.1 of the Unitholders Agreement provided that the activities of the trust were confined to the activities referred to in the First Schedule and those activities that the Unit Holders unanimously agree to undertake. The First Schedule stated:
First Schedule
The business of the trust estate will be to:
(i) Acquire, develop and hold the property situated at 1585 Pittwater Road, Church Point NSW 2105 (being Lot 142 in Deposited Plan 752048) for the long term for the purpose of derivation of rental income;
(ii) Develop the property in accordance with the proposed Schedule of Works to maximise the potential rental income from the property; and
(iii) Ultimately sell the property in the long term.
Clause 3.3 of the Unitholders Agreement provides that the parties "will at all times through this Agreement, act towards each other with the utmost good faith and with the purpose of carrying out the intention evidenced by the Agreement".
On 3 May 2012, Altius (as trustee of the Altius UT) entered into a Joint Venture Agreement ("JV Agreement") with Abignano Nominees (as trustee of the Abignano FT) and Sheridan (as trustee of the Bodhi Trust). Under cl 3.1 of the JV Agreement, the general objectives of the joint venture were as follows:
3.1.1 To protect Altius from the commercial risks associated with the Project;
3.1.2 To reward the parties according to their respective roles.
[6]
The Buy Out
All parties acknowledge that the joint venture did not prosper or proceed smoothly. There was difficulty in obtaining a new development consent and an application for a development consent was refused. There was no or little development of the Pasadena.
At the same time, the relationship between Biagio and Paul soured over a separate property at 1731 Pittwater Road, Mona Vale NSW 2103 - which was a partnership between Abignano Nominees and Sheripeter known as the SPAN Development - and resulted in proceedings in this Court.
In essence, the parties accept that Altius UT did nothing or very little other than acquire and then hold the Pasadena. Around late 2015, Biagio wanted to sell the Pasadena but Paul preferred to continue with the property. Against this backdrop, Paul and his related entities engaged in a process to "buy out" the interests of Biagio and his related entities in the joint venture and trust.
On 17 November 2015, Altius, Jerolu, B&J, Paul, Biagio, Abignano Nominees, Sheridan and Sheripeter entered into a written agreement ("Buy Out Agreement"). B&J and Abignano Nominees were the vendors. Jerolu and Sheripeter were the purchasers.
Under the Buy Out Agreement, the vendors agreed to grant the purchasers a "put and call option" for the purchase of the 172,500 units in the Altius UT held by B&J (as trustee for Abignano SF) and the share in Altius held by Abignano Nominees (as trustee for Abignano FT) (collectively, the "Abignano Securities"). In consideration of the vendors agreeing to the purchaser's request to grant the purchaser the put and call option, the purchasers were to pay $500,000 to Biagio.
It is convenient to set out in full two relevant clauses that I will return to later in my judgment. The first is cl 3.2(a) of the Buy Out Agreement, which provides as follows:
3.2 The parties agree that the [Put & Call] Option Agreement will be in a more detailed and precise form than, but not inconsistent with, the provisions of this Clause 3.2. The parties agree that the Option Agreement will provide for the following:
(a) that the purchase price for the Abignano Securities shall be $2,600,000 ("Purchase Price"), which amount shall be adjusted as at the settlement of the Transaction for:
(i) the amount of $600,000 on account of Abignano's liabilities with respect to the mortgage registered over the Property ("the NAB Mortgage"); and
(ii) all liabilities for all outstanding contributions payable in respect of holding costs of the Property (including but not limited to water rates, council rates and land tax, but excluding costs relating to any development application with respect to the Property) by any or all of Abignano [which was defined to mean B&J], Biagio, and Abignano Nominees pursuant to any or all of the Joint Venture Agreement dated 3 May 2012, the Altius Unit Trust Deed dated 26 March 2012, and the Unit Trust Share and Unitholders Agreement dated 29 March 2012 until 11 November 2015; and
(iii) the Consideration; …
[7]
PLAINTIFFS' CLAIM
The plaintiffs claim a net amount of payments made by Abignano Nominees, Avich, Gennaro and Biagio to Altius between 18 July 2012 and 15 January 2016. The total amount of payments from the four plaintiffs was $947,555.08. Some of the amounts paid by Abignano Nominees, Avich and Biagio (but not Gennaro) have been repaid. Once the repayments are taken into account, the total net amount claimed is $922,874, which, the plaintiffs say, is broken down to $671,369 from Abignano Nominees, $181,507 from Avich, $56,100 from Gennaro and $13,898 from Biagio.
It was agreed that the net amount was obtained by Altius as the proceeds of loans to it and that, subject to the issues raised in the Defence and Cross-Claim, the sum of those net amounts are now due and repayable. There is a dispute as to whether Avich, Gennaro or Biagio were lenders of the respective sums in the preceding paragraph or whether the lender of the full $922,874 was Abignano Nominees.
The plaintiffs say that the principles are "straightforward". The evidence of Biagio is that the balance of the loans would be repaid when a locan for the construction of the Pasadena was obtained. Relying on the evidence of Paul, such was loan was indeed obtained in 2017 or earlier by SP Two to fund the redevelopment of the buildings, infrastructure and fit-out and establishment of the Pasadena business. Thus, the plaintiffs say that all of their loans are now repayable.
[8]
DEFENDANT'S DEFENCE AND CROSS-CLAIM
The defendant and cross-claimants raised a number of issues.
The first issue is whether or not the loans were matters that were encompassed by the Holding Costs Contribution in the Option Agreement. The defendant submits that the loans were comprehended by the adjustment provided for in cl 6.4(b) of the Option Agreement and that adjustment was made. This issue thus turned on the proper construction of cl 3.2(a) of the Buy Out Agreement and cl 6.4(b) of the Option Agreement, including whether consideration can be had to correspondence between the Abignano and Peterkin representatives in the lead-up to the Option Agreement.
It is only if the loans were not covered by the Holding Costs Contribution then the remaining matters raised in the defence and cross-claim would be enlivened for the Court's determination.
The defendant and cross-claimants claim that there were four representations made by Biagio, his related entities or his legal representatives in the negotiation of and lead up to the Buy Out Agreement and Option Agreement to the effect that there were no loans owing to Biagio and his related entities.
The First Biagio Representation was no longer being pressed by the cross-claimants. Before receiving a Schedule of Agreed Facts provided by the parties after the close of oral submissions, there was an issue as to the amounts that Altius owed the plaintiffs as at 30 June 2015. The plaintiffs submitted that the total owed was $893,274. The cross-claimants pled that there was an agreement that Altius owed Abignano Nominees only $840,017. This agreement purported arose from Biagio's conduct in "making and issuing the Financial Statements of Altius Unit Trust for the 2015 financial year" and that there was a representation by Biagio that there were no loans owing to himself ("the First Biagio Representation").
As I noted above, the cross-claimants have now indicated that they do not press the First Biagio Representation. All the parties accept that there was no agreement that the only liabilities of Altius to any of the plaintiffs was a loan liability of $840,017 to Abignano Nominees. The amount submitted by the plaintiffs was accepted as the amount that Altius owed any of the plaintiffs as at 30 June 2015 was $893,274.
The Second Biagio Representation related to negotiations between the representatives of Biagio and Paul about the terms of the Option Agreement, specifically the amount of the buy-out price. According to the defendant, those negotiations were conducted or concluded on the basis that the loans were, or were to be treated as, not repayable and that Altius would not be required to repay them. The cross-claimants assert that there was a "Common Understanding" that Biagio and his related entities would release Altius from any debts owed by it to any of them or alternatively would not sue Altius to recover such debts. This was made at the time of making what was described as the "First Biagio Offer".
[9]
WHO WAS THE LENDER OF THE LOANS TO ALTIUS?
The first issue is whether the amounts paid to Altius by Avich ($181,507), Gennaro ($56,100) and Biagio ($13,898) loans made to Altius by each of those parties, respectively, or loans made by Abignano Nominees only. It is clear that these amounts were paid directly from the back accounts of Avich, Gennaro and Biagio, respectively.
This issue was not argued at any length in the course of the hearing. The parties agree with the total amount in any case. In my view, the evidence is consistent with the view that, although the loans were paid from different accounts, those loans to Altius were by Abignano Nominees only. There is no positive evidence that Biagio was acting for or on behalf of (as an agent or otherwise) of Avich and Gennaro. The evidence points to him negotiating and entering into agreements as the representative of Abignano Nominees.
[10]
WERE THE AMOUNTS CLAIMED "HOLDING COSTS OF THE [PASADENA] PROPERTY" FOR THE PURPOSES OF THE DEFINITION OF HOLDING COSTS CONTRIBUTION?
As noted above, cl 6.4 of the Option Agreement had expressly stated that the Purchase Price had been adjusted by "allowing in the Purchasers' favour the Holding Costs Contribution".
The defendant and cross-claimants submitted that the correspondence between the Abignano and Peterkin representatives leading up to the Buy Out and Option Agreements indicated that the Holding Costs Contributions covered the loans and that the Purchase Price had already offset any loans owed by the defendant.
It is convenient to begin by summarising the material relied on by the defendant and cross-claimants. From 16 October 2015 to 12 November 2015 (which was in the lead up to the Buy Out Agreement), Mr Parsons (acting for the Biagio entities) and Mr Siddle (for the Paul entities) had made several offers and counter-offers to buy the interests of Biagio and his related entities. The relevant correspondence can be set out as follows:
1. On 16 October 2015, Mr Parsons sent an email to Mr Siddle with an offer for $2.25 million and noted that "[y]our client would have to make an adjustment for his share of liabilities (including Mortgage) up to the date of settlement".
2. On 20 October 2015, Mr Siddle sent an email to Mr Parsons making a counter-offer for $2.85 million "with an adjustment up to the date of settlement for our client's share of liabilities, including the mortgage".
3. On 20 October 2015, Mr Parsons sent an email to Mr Parsons making a counter-offer for $2.35 million. Mr Siddle responded that afternoon and asked "can you please confirm whether your client's counter-offer of $2,350,000 contained in the below email is subject to an adjustment for our client's share of liabilities, including the mortgage". Mr Parsons responded the next morning to say that "[m]y clients offer of $2,350,000.00 is subject to an adjustment for your client's share of liabilities, including the mortgage".
4. On 27 October 2015, Mr Siddle sent a letter to Mr Parsons making a counter-offer stating (after repeating the above offers) that "our client hereby makes an open offer to sell its units ,,, for $2,700,000 with an adjustment up to the date of settlement, being six weeks after acceptance of the offer, for our client's share of liabilities, including the mortgage". On 5 November 2015, the offer was reiterated and it was noted that "Abignano's obligations and liabilities in respect to all matters and accounts are terminated from today's date".
5. On 12 November 2015, there was an email from Mr Parsons to Mr Siddle that records an agreement reached by their respective parties. It noted that the purchase price would be $2.6 million. Under item 4, it states "In respect of the current Altius Unit Trust loan account, adjustment of Vendor liabilities to date and half NAB Mortgage on settlement".
[11]
Construction of Contracts
It is well-settled that courts give effect to the objective intention of the contract, not the subjective views of the parties, at the time of entering into the contract. In Cherry v Steele-Park (2017) 96 NSWLR 548; [2017] NSWCA 295 ("Cherry") at 565 [72], Leeming JA (with whom Gleeson and White JJA) stated:
The starting point and the ending point of the construction of a written commercial contract is the language chosen by the parties to record their bargain. In a familiar passage, Gibbs J referred in Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 109; [1973] HCA 36 to the "primary duty" of a court construing a written contract to ascertain the legal meaning of a document "from the words of the instrument in which the contract is embodied". As I have said, "[v]ery often, nothing in the context will come close to displacing the ordinary grammatical meaning of the legal text": Mainteck Services Pty Ltd v Stein Heurtey SA (2014) 89 NSWLR 633; [2014] NSWCA 184 at [74].
Some closer consideration needs to be given to the authorities of the High Court as to the use of context and surrounding circumstances in construing a contract. This is particularly important in this case.
The starting point is what Mason J (as his Honour then was, with whom Stephen and Wilson JJ agreed) described as the "true rule" in Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337; [1982] HCA 24 ("Codelfa") at 352 as follows:
The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning.
This "rule" has also been described as the "ambiguity gateway" because it suggests that, when construing a contract, it is necessary to point to "ambiguity" before recourse can be had to evidence of surrounding circumstances as an aid to interpretation.
However, at the turn of the 21st century, there was a High Court authority tending to favour the principles enunciated by Lord Hoffman in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 ("ICS Principles"). Those principles appear to not align with need to find ambiguity before surrounding circumstances can be considered in statutory interpretation.
[12]
Consideration
I turn, first, to the text in cl 1.1 of the Option Agreement (as extracted above) which sets out the meaning of Holding Costs Contribution. That provision refers to the sum of the following liabilities that have the following attributes:
1. It is an outstanding contribution;
2. It is payable in respect of "holding costs" of the Property (including but not limited to water rates, council rates and land tax, but excluding costs relating to any development application with respect to the Property);
3. It is payable by:
1. B&J;
2. Biagio; and/or
3. Abignano Nominees; and
1. It is payable pursuant to any or all of:
1. The Joint Venture Agreement dated 3 May 2012;
2. The Altius Unit Trust Deed dated 26 March 2012; and/or
3. The Unit Trust Share and Unitholders Agreement dated 29 March 2012 until 11 November 2015.
Once the text is separated out in this way, the resolution of this point becomes clear. The text in the definition of "Holding Costs Contribution" in cl 1.1 of the Option Agreement - as well as cl 3.2(a)(ii) of the Buy Out Agreement - make plain that the liabilities referred to in those provisions need to be sourced from the JV Agreement, Altius UT Deed or Unitholders Agreement, in addition to the other matters referred to in (1)-(3) above.
This aspect of the text is unambiguous. Although the JV Agreement, Altius UT Deed or Unitholders Agreement were not expressly referred to in the emails and letters relied on by the defendant and cross-claimants, those emails and letters are not capable of detracting from the plain text. The plain text requiring that the liabilities be sourced from at least one of those three documents cannot be ignored or discarded just because pre-contractual communications between the parties did not expressly refer to them. Whilst those communications may illuminate the meaning of "holding costs" or "contributions", they cannot alter or detract from the words chosen by the parties.
None of the loans to Altius were "pursuant" to the JV Agreement, Altius UT Deed or Unitholders Agreement. First, it is agreed by the parties that the loans do not amount to "Initial Contributions", "Second Contributions" or "Further Funds" as provided by the JV Agreement. This is because both Biagio and Peter commenced the joint venture on the basis that the venture would be funded by borrowings rather than by the "Contributions" or "Further Funds" under the JV Agreement. Secondly, it was accepted that the loans do not amount to "Project Costs" as defined in the JV Agreement. Thirdly, the loans are not liabilities that are imposed pursuant to the Altius UT Deed or Unitholders Agreement.
[13]
HAVE THE DEFENDANT AND CROSS-CLAIMANTS ESTABLISHED THE "COMMON UNDERSTANDING"?
The defendant and cross-claimants submitted that the negotiations between Mr Siddle and Mr Parsons between 17 February and 13 March 2016 establish the "Common Understanding". It was pleaded that this understanding was as follows:
From about 17.02.2016 to about 13.03.2016
(1) Mr Biagio Abignano, through his lawyers Macpherson Kelley, and
(2) Mr Peterkin, through his lawyers W. H. Parsons & Associates,
Negotiated the terms of the Option Agreement including, among other things, the amount of the Adjusted Buy Out Price.
Those negotiations were throughout conducted or alternatively concluded on a basis, common to Messrs Biagio Abignano and Peterkin, and thus Altius, that:
(1) the amount of Holding Costs Contribution would be the amount necessary to ensure that the "Abignano" and "Peterkin" shares of the funding of the holding costs of the Pasadena Land to 11.11.2015 were equal, and
(2) in respect of the loans referred to in [paragraph] 28 [of the Cross-claim] above
(a) that they were, or were to be treated as, not repayable, and on either basis Altius would not be required to repay them,
(b) Altius would not require payment to it of any outstanding contributions that would otherwise be due to it from Biagio Abignano, Abignano Nominees P/L and/or B&J Abignano P/L as sums necessary to enable Altius to repay the liabilities referred to in 28 above (as holding costs of the Pasadena Land to 11 November 2015), and
(c) the Purchase Price would not be adjusted, ie. reduced, by the amount of those outstanding contributions,
The correspondence relied on by the defendant and cross-claimants in support of this Common Understanding is as follows:
1. On 17 February 2016, Mr Siddle sent a letter to Mr Parsons noting cl 3.2(a)(ii) of the Buy Out Agreement and "[a]ccordingly" sought "a detailed breakdown of your clients' proposed schedule of outstanding contributions as soon as possible".
2. On 7 March 2016, Mr Parsons responded to Mr Siddle by email at 1:44pm. In relation to the issue about cl 3.2(a)(ii) of the Buy Out Agreement, Mr Parsons said that the sum for the Holding Cost Contribution "is a sum determined by reference to the entire account between our respective clients and Altius since mid-2012", He also stated that "[y]our client is aware of most if not all of the amounts payable" and would "send to you shortly our client's calculation of the amount owing by your clients".
3. On 8 March 2016, Mr Parsons sent an email to Mr Siddle stating that "[y]our client has been provided with all accounts relating to holding costs" and referred to documents, including an Excel spreadsheet, in "the Dropbox" that both parties had access to. The Excel spreadsheet (the "Running Sheet"), under titles "Payments made [by] Paul" and "Payments made by Biagio" made reference to a number of loans and interest payments. The defendant and cross-claimants submitted that the payments referred to in that document were loans to Altius UT by Biagio or Paul (and their respective entities) to fund the costs of the joint venture. The Running Sheet noted the difference between the payments made by "Paul" and "Biagio" as $33,440.63. Divided by two, this equals $16,720.36.
4. On 10 March 2016, Mr Siddle sent an email to Mr Parsons that relevantly stated:
In relation to the proposed adjustments, our client considers that it will not be able to reach a concluded view before completion. Accordingly, we are instructed to propose that the sum of $16,720.36 be withheld from the purchase price and paid into our trust account at completion pending agreement being reached as to the adjustments
1. On 11 March 2016, Mr Parsons provided a "settlement sheet" proposing cheques in favour of "Abignano Nominees Pty Ltd" for $1,483,279.64 and "TBA" for $16,720.36. Both these cheques were to be "[f]rom Purchaser". That document also noted that there was a "[n]eed to consider how to terminate the Joint Venture Agreement".
[14]
Consideration
I have carefully considered the correspondence relied on by the defendant and cross-claimants. I am not satisfied that there was a common understanding between Paul and Biagio (and their related entities) that, after taking into account the amounts reflected in the Running Sheet and the finalised Holding Costs Contribution, the loans referred to above were, or were to be treated, as not repayable. This is so for three reasons.
First, as I have explained above, the text of the Buy Out Agreement and Options Agreement relating to holding costs, which was the basis on which the Running Sheet was created to calculate, do not incorporate the loans made to Altius that are in contention in this case. Although the textual inquiry was an objective analysis and issues relating to the Common Understanding concern a subjective inquiry, I am of the view that the ordinary and natural meaning of the text in both agreements is relevant to what the parties had in mind.
Secondly, the amounts and references to "loans" in the Running Sheet do not demonstrate that they were relevant to the particular loans in dispute. Nor do the amounts in the Running Sheet add up to the loan amounts that were paid to Altius by the plaintiffs. It is noteworthy that the itemised amounts and dates on the Running Sheet do not necessarily correspond to the amounts and dates of the loans paid by the plaintiffs. This is a strong indicator that the Running Sheet did not reflect the loans that the plaintiffs made to Altius.
Thirdly, the correspondence between the parties do not describe or state that the loans were to be treated as not repayable. I am of the view that there is substance in the submissions of Mr Lynch that, given the commercial context and nature of the transaction, the parties would likely have wanted all liabilities to be settled in the process of reaching the Buy Out Agreement. There is much to be said that Paul would have wanted any demand for the repayment of loans to be dealt with and incorporated into the Buy Out Agreement. However, I consider it highly unlikely in the extreme that Biagio would have agreed to treat the significant sum of funds owed to him and his entities in loans from Altius, including what was known as the NAB Loan, to be treated as not repayable without having this issue being raised and addressed in the written agreements and on the face of the correspondence.
[15]
HAVE THE DEFENDANT AND CROSS-CLAIMANTS ESTABLISHED THE SECOND, THIRD AND FOURTH BIAGIO REPRESENTATION?
Once it is accepted that the Common Understanding is not established, on the defendant and cross-claimants' pleaded case, the Second Biagio Representation cannot be made out.
The Third Biagio Representation, as pleaded, relies on the Common Understanding being established as the basis of the dealings between the parties through to 3 May 2016 until the final adjusted buy out price was determined. I do not find that this has been made good. The email correspondence between the Messrs Parsons and Siddle on 4 April 2016, 3 May 2016 and 9 May 2016 do no more, in relation to this issue, than discuss and calculate the amounts to be paid for the Holding Costs Contribution. That correspondence, whether considered alone or with the correspondence considered above is not capable of establishing the Common Understanding that the defendant and cross-claimants plead. Accordingly, the Third Biagio Representation cannot be made out.
I am satisfied on the evidence that the plaintiffs did not demand the defendant and cross-claimants repay the loans in the period immediately before 4 May 2016. This silence alone, without more, cannot establish a representation or offer that, if the Option Agreement was completed, the plaintiffs intended to release Altius from any debts owed by it or would not thereafter sue the defendant to recover the funds. It is in the ordinary course of business dealings, or indeed in everyday dealings, that a party can lend money to another and then expect (and, if necessary, demand) repayment. There were no specific inquiries made by the defendant or cross-claimants to the plaintiffs about the status of the loans by which silence could infer a representation. Accordingly, the Fourth Biagio Representation cannot be made out.
[16]
OTHER ISSUES
The cross-claimants plead that the four Biagio Representations amount to misleading and deceptive conduct under s 18 of the ACL. It is clear from [56]-[61] of the Cross-Claim that the only misleading and deceptive conduct pleaded is the making of the four Biagio Representations. As the Second, Third and Fourth Biagio Representations have not been found, the claim for relief under the ACL must fail.
The cross-claimants claim that the conduct giving rise to the Fourth Biagio Representation can amount to a breach by Biagio and his related entities of the obligation that he and it deal with the cross-claimants in good faith. Alternatively, it would amount to a breach of fiduciary duties. In [9.1] and [9.2] of the Parties' Schedule of Agreed Facts and Issues in Dispute, the cross-claimants suggests that this issue arises only if [8.2] and [8.3], which relate to establishing misleading and deceptive conduct, are answered affirmatively. As I have answered the misleading and deceptive conduct claim in the negative, the issues relating to a breach of good faith and/or fiduciary duties appear to not arise. But, to the extent that it is necessary to deal with this issue as pleaded, I am of the view that no breach has been established. There can be no breach by a party merely demanding repayment of money it lent. I am not satisfied that the period of silence gave rise to any breach.
The final issue in the Parties' Schedule of Agreed Facts and Issues in Dispute relate to the operation of s 9 of the Trustee Act 1925 (NSW) and whether SP Two is the successor of Sheripeter and ACN 154 such that it can bring and maintain their claim against the cross-defendants. As I have found against the cross-claimants on all the issues raised, it is strictly unnecessary to consider this issue. I have proceeded on the basis that SP Two could bring and maintain claims against the cross-defendants. If that assumption is not correct, there is no doubt that the other cross-claimants could bring and maintain the issues in this matter.
Parties should bring in short minutes of order to my Associate to reflect this judgment. Those short minutes of order should address the issue of costs. I am of the view that costs should follow the event but the parties may agree to a different order.
[17]
ORDERS
For these reasons, the Court makes the following directions:
1. Direct the parties to confer and agree upon short minutes of order reflecting the terms of this judgment. The plaintiff is to file the short minutes of order to the Associate to Walton J by 12:00pm on Friday 23 December 2022.
2. In the event that the parties are unable to reach agreement, direct that each party is to provide to the Court a competing set of short minutes of order by 12:00pm on Friday 23 December 2022.
3. The matter will be dealt with on the papers thereafter unless the Court requires, or the parties request, the matter to be relisted.
4. Liberty to apply.
[18]
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: 16 December 2022
The "Project", as set out in Part 9 of the Schedule (and which largely replicates the language in the First Schedule to the Unitholders Agreement), was as follows:
Project means to:
(i) Acquire, develop and hold the Asset (for the long term) for the purpose of derivation of rental income;
(ii) Develop the Asset in accordance with the proposed Schedule of Works to maximise the potential rental income from the Asset; and
(iii) Ultimately sell the Asset in the long term.
The Asset was referring to the property at 1585 Pittwater Road, Church Point NSW 2105, a previously abandoned restaurant and motel site known as the Pasadena. Clause 3.3.1 of the JV Agreement made clear that Altius was to become the holder of title and the registered proprietor of the Asset.
Under cl 11.1, Altius warranted that "[i]t is and will at the Commencement Date be, or entitled to be, the registered owner and beneficial owner of the Asset free from all encumbrances and adverse interests except any provided for in this Agreement" and that "[i]t will have the financial capacity to discharge its Obligations". Clause 1.1.20 defined the term "Obligations" to mean "all the liabilities and obligations of a party (including any indemnity granted by it) under this Agreement". Clause 11.3 also stated that "[e]ach party", which included Altius, "will punctually pay and discharge its separate debts and indemnifies the other from any claims arising therefrom".
Clause 3.8 of the JV Agreement stated that Altius was able to raise and borrow money for the purpose of the Project and was able to encumber the Pasadena to do so. Clause 3.4 sets out the role of Abignano Nominees and Sheridan, which relevantly states as follows:
3.4 The Abignano and Bodhi's [which is defined in Part 3 to refer to Abignano Nominees as trustee for the Abignano FT and Sheridan as trustee for the Bodhi Trust] role is to provide:
3.4.1 the Initial Contributions and Second Contributions set out in Part 5 of the Schedule. These contributions are to be paid within 10 business days of receipt of a written notice from Altius requesting payment and Altius may request the contribution be paid in one instalment or by a series of instalments;
3.4.2 provide, at its own expense, such further funds as may be required from time to time for the purposes of completing the Project Costs (such additional funds are not to be deemed Contributions for the purposes of this Agreement unless the Parties agree in writing);
The "Initial Contributions" is defined as $610,000 and "Second Contributions" is defined as "$1,000,000 to $2,000,000". It is noteworthy that "Project Costs" is defined in Pt 10 of the Schedule to mean "[t]he costs of development of the Asset in accordance with the proposed Schedule of Works". Therefore, although the "Project" includes acquiring the Pasadena, "Project Costs" only refers to the costs of development.
I note that Altius did not issue any written notice requesting payment of the Initial Contributions or the Second Contributions, and thus they never became due.
The second is cl 4.1, which provides as follows:
4.1 Subject to completion of the Transaction:
(a) Jerolu releases Abignano [defined to mean B&J] from and with respect to any liability to reimburse or account to Altius for or otherwise pay:
(i) any amount in respect of the NAB Mortgage (other than the adjustment referred to in clause 3.2(a)(i) above), including but not limited to principal repayments, interest, charge, levies, fees, duties, taxes and penalties, from 11 November 2015 and Jerolu hereby indemnifies Abignano for and with respect to any claim or demand made on Abignano for any such period; and
(ii) …
(iii) any amount in relation to or arising out any development application and/or approval process with respect to the Property and/or its development or in relation to any negotiations with respect to the Crown Land lease from 11 November 2015 and Jerolu hereby indemnifies Abignano for and with respect to any claim made on Abignano for any such amount;
(iv) …
On 14 March 2016, Altius, Jerolu, B&J, Paul, Biagio, Abignano Nominees, Sheridan and Sheripeter entered into a written agreement titled "Put and Call Option" ("Option Agreement"). Clause 6.4 provided as follows:
6.4 The Purchase Price shall be $2,600,000, but that sum shall be adjusted on Completion as follows:
(a) by allowing in the Purchasers' favour the sum of $600,000 on account of Abignano's liabilities with respect to the mortgage registered over the Property; and
(b) by allowing in the Purchasers' favour the Holding Costs Contribution; and
(c) by allowing in the Purchasers' favour the amount of the Consideration; and
(d) by allowing in the Vendors' favour, an amount equal to the Abignano Contribution.
Relevantly, the "Abignano Contribution" and "Holding Costs Contribution" was defined in cl 1.1 as follows:
1.1 In this Option Agreement, unless the context indicates otherwise:
Abignano Contribution refers to the amount (if any) Jerolu is liable to pay Abignano pursuant to Clauses 4.2(a) and 4.2(b) of the Agreement [which was defined to mean the Buy Out Agreement].
…
Holding Costs Contribution means the sum of all liabilities for all outstanding contributions payable in respect of holding costs of the Property (including but not limited to water rates, council rates and land tax, but excluding costs relating to any development application with respect to the Property) by any or all of Abignano [which refers to B&J], Biagio, and Abignano Nominees pursuant to any or all of the Joint Venture Agreement dated 3 May 2012, the Altius Unit Trust Deed dated 26 March 2012, and the Unit Trust Share and Unitholders Agreement dated 29 March 2012 until 11 November 2015.
Between March and May 2015, Paul and his related entities had paid, or been allowed as adjustments against the price for the Abignano Securities, amounts that approximately total to $2,600,000.
The Third Biagio Representation purportedly occurred on or about 3 May 2016 when Paul and Biagio agreed that $14,117.80 should be the amount of the Holding Costs Contribution to be deduced from the purchase price. The cross-claimants submitted that the parties had relied on the Common Understanding and, therefore, Biagio made a representation (and offer) that, if the Option Agreement was completed on the basis that the Holding Costs Contribution was $14,117.80, then he and his related entities would release Altius from any debts owed by it to any of them or alternatively would not sue Altius to recover such debts. This offer is described as the "Second Biagio Offer".
The Fourth Biagio Representation purportedly involved the conduct of Biagio of not disclosing to Altius, Paul or Paul's related entities that he had made loans to Altius that were not taken into account by their omission from the calculation of the final buy out price. The cross-claimants submitted that this conduct amounted to a representation by Biagio that, if the Option Agreement was completed on the basis that the Holding Costs Contribution was $14,117.80, then he and his related entities would release Altius from any debts owed by it to any of them or alternatively would not sue Altius to recover such debts.
The cross-claimants submit that they agreed to the Holding Costs Contribution and entered into the Option Agreement in reliance of the Second, Third and/or Fourth Representations.
The cross-claimants submitted that the Second to Fourth Biagio Representations amount to misleading and deceptive conduct, a breach of the Biagio Offers, a breach of written agreements and/or a breach of director's duties owed by Biagio. The cross-claimants sought an order under s 237 of the Australian Consumer Law (NSW) ("ACL") that released Altius from any debt due from it to the cross-defendants and indemnified the cross-claimants for any debts due from Altius to any of the cross-defendants. The cross-claimants also claim damages under s 236 of the ACL or under the general law or equitable compensation.
The cross-claimants note that pursuant to two deeds dated 5 March 2018 - one between Sheridan and SP Two, and the other between ACN 154 and SP Two - they assigned their rights to bring and maintain the cross-claims pursuant to s 9 of the Trustee Act 1925 (NSW).
The defendant and cross-claimants submitted that the references to liabilities or obligations in those communications were to matters in respect of which the Biagio entities might, as it was in respect of the mortgage, be liable or obliged to put the Altius UT in funds so that the indebtedness could be discharged. They submitted that the loans from the Biagio entities was indebtedness just "like" the mortgage. This, they submitted, was reflected in the Holding Costs Contribution.
In Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181; [2001] HCA 70 ("Maggbury"), Gleeson CJ, Gummow and Hayne JJ referred to the first of the ICS Principles at 188 [11] as follows:
Interpretation of a written contract involves, as Lord Hoffmann has put it: "the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract."
However, in Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 240 CLR 45, Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ stated at 62-63 [39] as follows:
[R]eference was made in argument to several decisions of the House of Lords, delivered since Codelfa but without reference to it. Particular reference was made to passages in the speeches of Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society [No 1] … in which the principles of contractual construction are discussed. It is unnecessary to determine whether their Lordships there took a broader view of the admissible "background" than was taken in Codelfa or, if so, whether those views should be preferred to those of this Court. Until that determination is made by this Court, other Australian courts, if they discern any inconsistency with Codelfa, should continue to follow Codelfa.
A few years later, members of the High Court appear to return to the Magbury approach. In Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451; [2004] HCA 35 ("Pacific Carriers"), Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ held at 462 [22] as follows:
The construction of the letters of indemnity is to be determined by what a reasonable person in the position of Pacific would have understood them to mean. That requires consideration, not only of the text of the documents, but also the surrounding circumstances known to Pacific and BNP, and the purpose and object of the transaction.
Similarly, in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52 ("Toll v Alphapharm"), Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ stated at 179 [40] as follows:
This Court, in Pacific Carriers Ltd v BNP Paribas, has recently reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined. It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction.
Similar views were also expressed by the High Court in Zhu v Treasurer of the State of New South Wales (2004) 218 CLR 530; [2004] HCA 56 at 559 [82] (Gleeson CJ, Gummow, Kirby, Callinan and Heydon JJ) ("Zhu") and International Air Transport Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151; [2008] HCA 3 at 160 [8] (Gleeson CJ) and 174 [53] (Gummow, Hayne, Heydon, Crennan and Kiefel JJ, as Kiefel CJ then was) ("IATA v Ansett").
Following all of these High Court decisions, the NSW Court of Appeal held that "ambiguity" is not a precondition to the use of evidence of surrounding circumstances as an aid to contractual construction: Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603 at 616-618 [14]-[18] (Allsop P, as his Honour then was); Masterton Homes Pty Ltd v Palm Assets Pty Ltd (2009) 261 ALR 382; [2009] NSWCA 234 at 384-385 [1]-[3] (Allsop P, as his Honour then was, with whom Basten JA agreed).
The approach of the NSW Court of Appeal in this respect was the subject of an application for special leave to appeal to the High Court. In Western Export Services Inc v Jireh International Pty Ltd (2011) 282 ALR 604; [2011] HCA 45, special leave was refused but Gummow, Heydon and Bell JJ made the following observations at 605 [2]-[4]:
[2] The primary judge had referred to what he described as "the summary of principles" in Franklins Pty Ltd v Metcash Trading Ltd. The applicant in this Court refers to that decision and to MBF Investments Pty Ltd v Nolan [[2011] VSCA 114 at [195]-[204]] as authority rejecting the requirement that it is essential to identify ambiguity in the language of the contract before the court may have regard to the surrounding circumstances and object of the transaction. …
[3] Acceptance of the applicant's submission, clearly would require reconsideration by this Court of what was said in Codelfa Construction Pty Ltd v State Rail Authority of NSW by Mason J, with the concurrence of Stephen J and Wilson J, to be the "true rule" as to the admission of evidence of surrounding circumstances. Until this Court embarks upon that exercise and disapproves or revises what was said in Codelfa, intermediate appellate courts are bound to follow that precedent. The same is true of primary judges, notwithstanding what may appear to have been said by intermediate appellate courts.
[4] The position of Codelfa, as a binding authority, was made clear in the joint reasons of five Justices in Royal Botanic Gardens and Domain Trust v South Sydney City Council and it should not have been necessary to reiterate the point here. We do not read anything said in this Court in Pacific Carriers Ltd v BNP Paribas; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd; Wilkie v Gordian Runoff Ltd and International Air Transport Association v Ansett Australia Holdings Ltd as operating inconsistently with what was said by Mason J in the passage in Codelfa to which we have referred.
However, the precedential value of Jireh was addressed by Kiefel and Keane JJ (as Kiefel CJ then was) in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 ("Mount Bruce Mining") at 132-133 [110]-[113], which is as follows:
[110] The "ambiguity" which Mason J said may need to be resolved arises when the words are "susceptible of more than one meaning". His Honour did not say how such an ambiguity might be identified. His Honour's reasons in Codelfa are directed to how an ambiguity might be resolved.
[111] In reasons for the refusal of special leave to appeal given in Western Export Services Inc v Jireh International Pty Ltd, reference was made to a requirement that it is essential to identify ambiguity in the language of the contract before the court may have regard to the surrounding circumstances and the object of the transaction. There may be differences of views about whether this requirement arises from what was said in Codelfa. This is not the occasion to resolve that question.
[112] It should, however, be observed that statements made in the course of reasons for refusing an application for special leave create no precedent and are binding on no one. An application for special leave is merely an application to commence proceedings in the Court. Until the grant of special leave there are no proceedings inter parties before the Court.
[113] The question whether an ambiguity in the meaning of terms in a commercial contract may be identified by reference to matters external to the contract does not arise in this case and the issue identified in Jireh has not been the subject of submissions before this Court. To the extent that there is any possible ambiguity as to the meaning of the words "deriving title through or under", it arises from the terms of cl 24(iii) itself.
Other High Court cases have continued to use language from the post-Royal Botanic and pre-Jireh line of authorities. In Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 ("Woodside"), French CJ, Hayne, Crennan and Kiefel JJ (as Kiefel CJ then was) stated at 656-657 [35] as follows:
The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract.
In Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544; [2017] HCA 12 ("Ecosse Property"), Kiefel, Bell and Gordon JJ (as Kiefel CJ then was) explained at 551 [16]:
It is well established that the terms of a commercial contract are to be understood objectively, by what a reasonable businessperson would have understood them to mean, rather than by reference to the subjectively stated intentions of the parties to the contract. In a practical sense, this requires that the reasonable businessperson be placed in the position of the parties. It is from that perspective that the court considers the circumstances surrounding the contract and the commercial purpose and objects to be achieved by it.
The NSW Court of Appeal has consistently held that it is not necessary to point to ambiguity before having recourse to evidence of surrounding circumstances. In Mainteck Services Pty Ltd v Stein Heurtey SA (2014) 89 NSWLR 633; [2014] NSWCA 184 ("Mainteck"), Leeming JA (with whom Ward and Emmett JJA, as the President then was) stated at 653 [71] that:
To the extent that what was said in Jireh supports a proposition that "ambiguity" can be evaluated without regard to surrounding circumstances and commercial purpose or objects, it is clear that it is inconsistent with what was said in Woodside at [35]. The judgment confirms that not only will the language used "require consideration" but so too will the surrounding circumstances and the commercial purpose or objects. Although the High Court in Woodside did not expressly identify a divergence of approach, Jireh was notoriously controversial in precisely this respect … It cannot be that the mandatory words "will require consideration" used by four Justices of the High Court were chosen lightly, or should be "understood as being some incautious or inaccurate use of language" …
Leeming JA explained that to say that a legal text is "clear" or has a "plain meaning" is a conclusion. It is the outcome of a process of interpretation. To state that a legal text is "clear" does no more than recognise that "there is nothing in the context which detracts from the ordinary literal meaning". It therefore becomes clear that the notion that it may first be necessary to consider context when construing a contract is not inconsistent with Codelfa's "true rule". On this footing, it does not follow that the task of assessing whether a phrase or expression is ambiguous or susceptible of more than one meaning must be undertaken without regard to evidence of surrounding circumstances.
The approach in Mainteck has been consistently followed by the NSW Court of Appeal in WIN Corporation Pty Ltd v Nine Network Australia Pty Ltd (2016) 341 ALR 467; [2016] NSWCA 297 at 478 [59] (Barrett AJA with whom McColl JA and Sackville AJA agreed) and Cherry at 566 [78] (Leeming JA with whom Gleeson and White JJA).
This is not the end of the matter. Indeed, McLure P described Jireh as creating a "heated controversy" in Cape Lambert Resources Ltd v MCC Australia Sanjin Mining Pty Ltd (2013) 298 ALR 666; [2013] WASCA 66 at 695 [107]. The WA Court of Appeal has taken a different approach to the NSW Court of Appeal. In Technomin Australia Pty Ltd v Xstrata Nickel Australasia Operations Pty Ltd (2014) 48 WAR 261; [2014] WASCA 164 ("Technomin"), McLure P stated at 270 [37] that "[t]his court has taken the view that the guidance in Western Export Services should be followed until further direction from the High Court". Her Honour's view was also shared by Murphy JA at 298-299 [212]-[217].
In my view, this conflict and confusion can be resolved as follows. First, I consider that the authority of the High Court favours the view that surrounding circumstances can be considered without first passing through an ambiguity gateway. The unanimous or majority decisions in Ecosse Property, Woodside, IATA v Ansett, Zhu, Toll v Alphapharm and Pacific Carriers all point to consideration of surrounding circumstances as part of the contractual interpretation process. The only decision in the post-Royal Botanic High Court authorities that contradicts this long string of decisions is Jireh. Respectfully, I do not believe the approach in Technomin is consistent with the views given by members of the High Court in Mount Bruce Mining regarding the precedential status of statements made when refusing special leave.
Secondly, I am bound to follow the decisions of the NSW Court of Appeal in Mainteck and subsequent decisions. NSW courts, including this Court when constituted by a single Judge, are bound to follow decisions of the NSW Court of Appeal even if the Judge may find the reasoning or absence of it to be "unsatisfactory" (and I cast no view in that respect): Application by Christopher Cranney pursuant to s 78 of the Crimes (Appeal and Review) Act 2001 (NSW) [2022] NSWSC 1005 at [29] (Walton J), citing Proctor v Jetway Aviation Pty Ltd [1984] 1 NSWLR 166 at 177 (Moffitt P). This is so even if intermediate courts of appeal of other States have come to a different conclusion.
In any case, I respectfully agree with the reasoning of Leeming JA that whether a contractual term is "clear" is a conclusion that can only be reached after the provision has been interpreted with regard to the surrounding circumstances and background knowledge of the parties when they entered the contract.
I add that I do not consider that this view necessarily conflicts with what Mason J (as his Honour then was) articulated in Codelfa when read in the context of the whole judgment. This is because his Honour in Codelfa cited approvingly the statement by Lord Wilberforce in Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989 at 995-996 as follows:
In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating.
(That statement was also cited approvingly by French CJ, Hayne, Crennan and Kiefel JJ (as Kiefel CJ then was) in Electricity Generation at 656-657 [35].)
In reaching this view, I note the acute observation of Kiefel and Keane JJ (as Kiefel CJ then was) in Mount Bruce Mining at 132 [110]:
The "ambiguity" which Mason J said may need to be resolved arises when the words are "susceptible of more than one meaning". His Honour did not say how such an ambiguity might be identified. His Honour's reasons in Codelfa are directed to how an ambiguity might be resolved.
Consistent with that observation, I believe that the better view is that surrounding circumstances can be used as an aid to construing a contract without the need to first search for and locate ambiguity although clearly the significance of surrounding circumstances will be greater where the text is highly ambiguous. In those circumstances, the surrounding background can play a very helpful - and possibly even a determinative - role in resolving the case. But, on the other end of the spectrum, the role of surrounding circumstances would only be a very limited aid - and sometimes unlikely to be helpful at all - where the text, properly construed, is plain and crystal clear. This is not to import an "ambiguity gateway" but to properly recognise the extent that the construction of a contract can be assisted by surrounding circumstances. As Bathurst CJ (with whom Macfarlan JA and Sackville AJA agreed) said in McGrath v Sturesteps (2011) 81 NSWLR 690; [2011] NSWCA 315 at [17]:
Whilst it is correct in my opinion that context and the surrounding circumstances known to both parties can be taken into account (see Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 350, 352) even in cases where there is an absence of apparent ambiguity (Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 at [40]; International Air Transport Association v Ansett Australia Holdings Ltd [2008] HCA 3; (2008) 234 CLR 151 at [8]; Park v Brothers [2005] HCA 73; (2005) 80 ALJR 317 at [39]; Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; (2009) 76 NSWLR 603 at [14], [63], [305]) that does not permit the Court to depart from the ordinary meaning of the words used by the parties merely because it regards the result as inconvenient or unjust: Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 109.
I consider that my view is consistent with authorities from the NSW Court of Appeal. As Leeming JA stated in Mainteck at [74], "[v]ery often, nothing in the context will come close to displacing the ordinary grammatical meaning of the legal text". Similarly, in Newey v Westpac Banking Corporation [2014] NSWCA 319, Gleeson JA (with whom Basten and Meagher JJA agreed) said at [91]:
[T]here is no licence for 'judicial rewriting' of an agreement: Kooee Communications Pty Ltd v Primus Telecommunications Pty Ltd [2008] NSWCA 5 at [27] (Basten JA; Giles and Tobias JJA agreeing); Franklins at [23] (Allsop P). The ability of courts to give commercial agreements a commercial and businesslike interpretation is constrained by the language used by the parties. If, after considering the contract as a whole and the background circumstances known to both parties, a court concludes that the language of a contract is unambiguous, the Court must give effect to that language unless to do so would give the contract an absurd operation: Jireh International Pty Ltd v Western Exports Services Inc at [55] (Macfarlan JA; Young JA and Tobias AJA agreeing).
The principal contention of the defendant and cross-claimants was that the term small-c "contributions" in the definition found in cl 1.1 of the Option Agreement and the text of the cl 3.2(a)(ii) of the Buy Out Agreement encapsulated more than capital-C "Contributions" in the JV Agreement. Whilst I see some merit in that contention, it is strictly not necessary to determine that issue because, even if I agreed with the proposition, it does not overcome the fact that the loans were not payable "pursuant to any or all of the" JV Agreement, Altius UT Deed or Unitholders Agreement.
Thus, the loans did not fall within the meaning of the Holding Costs Contribution in cl 3.2(a)(ii) of the Buy Out Agreement.
The defendant and cross-claimants submitted that the Running Sheet treated the costs referred to in it as "holding costs" and the loans referred to in it as "contributions" to those "holding costs". It is submitted that the Running Sheet is evidence that the holding costs adjustment would be worked out as the net difference in the contributions (including the loans) made by Biagio and Paul (subject to final agreement at a later date). It is submitted that this amounted to a representation by Biagio (and relevant entities) that the approach proposed by Mr Parsons was correct in principle but not in detail. It is on this basis that the Common Understanding arose.
One basis that the defendant and cross-claimants relied on was the fact that all parties had prepared their financial statements for the 2016 financial year on the basis that the loan amount would not be repaid. In this respect, counsel for the defendant and cross-claimants cross-examined Biagio extensively on the financial statements for the Abignano FT,
The defendant and cross-claimants submitted that had Paul thought or knew that they would face a demand prior to the settlement of the Option Agreement "it is so obvious that it goes without saying that … they would have required the matter to be addressed". They submit that the very fact that a demand was made by Biagio on the very next day after the final adjustments to the holding costs contribution amount were agreed demonstrates that it "was something in [Biagio's] mind certainly by the time of 12 May [2016] and really, as one will see form some correspondence, much earlier".
The plaintiffs submit that there was no Common Understanding. There was no evidence that any such understanding was held by Biagio, Paul or Sheridan, nor was it put to Biagio. They submit that no Common Understanding appears on the face of the Buy Out Agreement, Option Agreement or in the correspondence that I have summarised above.
The plaintiffs also submit that Common Understanding cannot arise because it depends upon the defendant and cross-claimants establishing the First Biagio Representation, which I have noted above was abandoned.
I do not accept the submission of the defendant and cross-claimants that the Common Understanding is evidenced by the fact that all parties prepared their financial statements for the year ending 30 June 2016 on the basis of it. When this issue was put to Biagio, I found him to be a witness of credit who sought to assist the Court notwithstanding that many of the documents that he was taken to were not prepared by him but by his accountant.
It became clear, once all the material was reviewed and considered, that the accountant had attempted to "park" certain amounts received under the heading "Loan - Altius Unit Trust" in Abignano Nominee's financial statements in the 2016 financial year. It is not necessary to go into great detail suffice to say that the note "to hold these balances here @30.06.2016 to then sort with Super Fund" emphasised that what appeared to be a balancing on the financial statements was a temporary "solution". I accept the explanation given by the plaintiffs that this was because the accounts had not yet caught up with the accounting work for B&J, where some of the funds should have been directed towards as B&J owned units in the Altius UT.
In the light of these findings, it is unnecessary to consider Jones v Dunkel [1959] 101 CLR 298; HCA 8 issues raised by the plaintiff in this respect arising from the election by the defendant to not call Paul Peterkin.
Overall, I do not accept that the final agreement as to the amount of the Holding Costs Contribution took into account all of the loans made by Biagio and Paul over the life of the joint venture. I am not satisfied that the defendant and cross-claimants had proven that Biagio had an understanding that the loans were, or were to be treated as, not repayable, or that Biagio and his entities would not thereafter sue Altius to recover the debts, because the holding costs contribution would ensure that the funding was equal