25 Clause 16.01(d) contemplates repayment, to the Senior Finance Lender, of the Senior Finance, or reduction of it as required by the senior finance lender in connection with the release of the first mortgage over a lot. It therefore contemplates that the Senior Finance will have been advanced. If the Senior Finance had been advanced then also the Land Payment would have been made. Significantly, clause 16.01 does not provide for payment, from the proceeds, of the Land Payment. Arguably, it assumes that the Land Payment has been made. Indeed, that is more than arguable, because the reference to the repayment of the SF Lender of the Senior Finance must assume that the Land Payment has been made.
26 The overall structure of the Joint Venture Agreement involved the Matthews contributing their land, Claydon Park, in return for a payment of $12 million, if development approval acceptable to the Developer were obtained. If development approval was not obtained the provisions of clause 5.09 to clause 5.12, to which I have referred, enabled them to terminate the Joint Venture Agreement and retain their land. If development approval was obtained and the project proceeded, they were to receive a payment of $12 million.
27 The construction of clause 17 contended for by DTC contemplates a situation in which the Matthews would be compelled to part with their land, have it sold and receive ultimately only 50 per cent of the equity in it, in circumstances where they had not been paid for it. Yet although provisions of the agreement to which I have referred, including the definition of Land Payment, the definition of Senior Finance, and the terms of clause 4.02 make abundantly clear that the parties intended that the Matthews would be paid, and would be paid $12 million, by the joint venture for the acquisition from them of the land, albeit with development approval. It is hardly conceivable that the parties intended, against that background, to provide for a means by which the joint venture could effectively acquire the land from the Matthews for nothing in the absence of an acceptable development approval. Such a provision would practically incentivise failure of the Development Application, by providing an opportunity for the joint venture to be able to acquire the land for nothing in that event.
28 It is also a matter of considerable significance that clause 17 is a dispute resolution clause: its purpose was to facilitate the resolution of disputes between the parties, not to change their substantive rights and obligations under the substantive provisions of the agreement. To give clause 17.05 the effect for which DTC contends would provide for significant changes to be worked to the substantive rights of the parties under the guise of a dispute resolution clause.
29 For DTC it was argued that clause 17.05, in particular, reflects a concept of equality between the parties under the agreement. In my view, that submission so far as it goes is correct, in that by providing for the Developer to give notice to the Owners of the price at which the Developer would sell its interest and permitting it to purchase the Owners' interest at the same price if they decline, it plainly recognises an equality of interest. However, that argument itself demonstrates that clause 17.05 could not have been intended to operate before the Joint Venture had acquired the Land from the Owners: there was no equality until that purchase took place, because until that point the Joint Venture was obliged to pay the owners $12 million upon development approval to acquire the Land, and it was only after that had happened that there was truly a position of equality between the parties under the agreement, where both had equal interests in the land.
30 In referring to sale of the Developer's interest in the development, "including the land unsold", and to the sale of the land or the then unsold balance of the land, clauses 17.05 and 17.06 assume that the Joint Venture has acquired the land. But the Joint Venture beneficially acquires the Land only when it pays the Matthews for it, by making the Land Payment.
31 Against that, it is true that clause 4.03 suggests that the Joint Venture might become beneficially entitled to the Land upon giving an election notice after completion of its due diligence, as distinct from upon obtaining a development approval. At first sight, that view is fortified by the provision that the Owners are responsible for rates and taxes up to that time, but that such outgoings are therefore to be met from Preliminary Finance and/or from Senior Finance. But on close consideration, that circumstance does not in fact reinforce the argument; the circumstances that the rates and taxes are to be met initially from Preliminary Finance, in fact, fortifies the argument in the opposite direction. To the extent outgoings are funded from Preliminary Finance, they will ultimately be met by the Matthews, who are obliged to repay the Preliminary Finance, so that although some funds were made available for that purpose by loan from DTC, ultimately the obligation of paying rates and taxes until a Development Approval was gained, Senior Finance obtained and the Land Payment made, was that of the Matthews - favouring the view that they remained beneficially entitled in the meantime.
32 What clause 4.03 was intended to do was to ensure that once an election notice was given, the Owners were obliged, if Development Approval was granted, to provide the Land clear and unencumbered to the Joint Venture.
33 In my view, in the context of this agreement as a whole, it is inconceivable that the parties could have intended that the Land could be the subject of compulsory sale pursuant to the dispute resolution provisions before the Joint Venture had acquired it by paying the Land Payment consequent upon Development Approval being granted.
34 A further consideration that supports that view emerged from discussion as to what might happen if there were a dispute between the parties as to whether one or other of them had effectively elected to terminate the Joint Venture under clause 5.10 - or for that matter under any other of the termination provisions in clause 5. If DTC's construction were correct, then - notwithstanding that the Owners might validly elect to terminate under one or other of those provisions - if the Developers genuinely disputed the validity of that termination, the dispute resolution provisions would be attracted, and with them the compulsory sale provision, and despite what might ultimately prove to be a valid termination, the dispute resolution provision would instead lead to the Joint Venture effectively acquiring the land, and its compulsory sale. I cannot conceive that this is what the parties intended.
35 In my opinion, therefore, clause 17.05 and clause 17.06 do not have operation prior to payment of the Land Payment. They do not operate in the present circumstances, and DTC's claim for specific performance must fail on that ground.
Other issues on DTC's claim
36 Had I not reached that conclusion, it would have been necessary to address the other issues which I shall do, but briefly, in light of the conclusion that I have reached above.
37 Genuine dispute. I am satisfied that there was a dispute in existence prior to DTC giving its Notice of Dispute on 9 February 2009, and that insofar as that was a condition precedent to the operation of the dispute resolution provisions of the agreement, it was satisfied.
38 No abandonment. I reject the argument, advanced by the Matthews, that the contract had been abandoned prior to early 2009. It suffices to refer to Mr Matthew's acknowledgement in the witness box that, although he regarded the Joint Venture Agreement as "sick", it was not yet dead, and he was keeping his mind open. In any event, the conduct of the parties is quite inconsistent with their having abandoned the Agreement. Each was seeking to take advantage of the provisions of the Agreement for its own purposes, rather than treating the Agreement as no longer relevant. True it is that DTC was seeking to renegotiate its terms, but it was doing so within the context of an existing and binding agreement, not on the basis that there was no existing agreement between the parties.
Did the Matthews terminate the Agreement?
39 As to whether the Matthews validly terminated the agreement by their notice of 25 February 2009, that requires me to return to the effect of clause 5.12 and clause 6.01. The construction of those clauses, in the context of the agreement as a whole, is not an easy exercise.
40 Clause 5.12 must have been intended to achieve some effect by providing for a deemed waiver, but in my view the better view is that, in the context of clause 6.01, the effect intended was that if a right of termination under any of clauses 5.08 to 5.11 were not exercised, and the approval was obtained as referred to in clause 6.01, then all participants were deemed to have waived their various rights of termination.
41 Essentially, until the approval was obtained, these were continuing rights of rescission, not rights to be exercised once and for all. The distinction was recognised by the High Court of Australia in Immer (No. 145) Pty Limited v Uniting Church in Australia Property Trust (NSW) (1993) 182 CLR 26, 42 [see also Penola Trading Co Pty Limited v Sunny Springs Pty Limited [2009] VSCA 161, especially at [104]; Neate v Parfit [2006] WASC 121, [68]; Lutre Pty Limited & Anor v Ellison (1997) 151 ALR 626, 639; Lantry v Tomule Pty Limited (2007) 12 BPR 23,727, [2007] NSWSC 81, [67]; ETNA v ARIF [1999] 2 VR 353, [1999] VSCA 99, [58]; Devpro v Seamark Pty Limited [2007] QCA 241, [26]; Barooga Projects (Investments) Pty Limited v Duncan [2004] QCA 149 [31-32] and [141] and Williams v Commonwealth Bank of Australia [1999] NSWCA 345, [170]]. The point is that where there is a continuing right to rescind rather than one that is exercisable only once and for all, it is not an affirmation to continue to act in accordance with the contract, or to continue to treat the contract as on foot, because the right to rescind does not evaporate. I think the better view is that the parties intended to provide that after two years, each would have an "out" if it wished. That "out" arose on the expiration of the two-year period, and it continued at least until approval was granted. If either party was concerned during that period that it was in jeopardy of the other terminating at some stage, then it was open to the first party itself to terminate it if it wished, or to negotiate further terms on which the parties would proceed in the meantime.
42 Accordingly, I proceed on the basis - although I must say with a little diffidence - that the right to terminate under clause 5.09 survived, and continues to survive.
43 The condition in clause 5.09 was a condition precedent to performance of the contract, not to formation of the contract. In other words, it was what is often called a condition subsequent. Where such a condition is not satisfied due to the fault of one of the parties to the contract, that party is not entitled to rescind for failure of the condition, and only the innocent party can exercise the right of rescission - even where, as in the present case, the contract expressly gives the right to rescind to both parties [Suttor v Gundowda Pty Limited (1950) 81 CLR 418, 440, 441; Plumor Pty Limited v Handley (1996) 41 NSWLR 30, 34; Kayserian Nominees (No. 1) Pty Limited v JR Garner Pty Limited [2008] NSWSC 803]. A party wishing to rescind cannot take advantage of its own ineffective or own inefficient measures to comply with its contractual obligations, and where one party's default has deprived the other of a substantial chance that the condition would have been fulfilled, the first cannot exercise the right of recision [see Kayserian Nominees [27] and the cases there referred to].
44 The question then becomes whether the Matthews contributed in a material way in the circumstances that resulted in the approval having not been obtained within two years. The Matthews withdrew the MHE Development Application in December 2007. They submit that was not a breach of the contract, on the basis that a Manufactured Homes Estate was not the development contemplated by the Joint Venture Agreement. They submit that the only "application" contemplated by the Joint Venture Agreement was one for approval of a Development as defined, and that the MHE application was not for such a Development. In my view that submission fails to give sufficient weight to clause 5.02 of the Agreement, which is as follows:
5.02 The Participants shall determine how best to give effect to the general intention of the Joint Venture to establish an estate for seniors living and related aged care facility on the Land. The Developer's objectives in preparing the design and strategy for the Project and in completing the Application is to:
(a) maximise the prospects of the Application being approved by Council,
(b) maximise the financial return from the Developer, and
(c) maintain flexibility regarding the ongoing development of and exit strategies from the Development.