Quantification of Profit and Fee
114The Clydesdale Fee is 30% of the Profit. The Profit is total Project Revenue minus total Project Costs, provided that Project Costs will exclude management fees paid to Mr Hawes and/or Glenside, but will include fees paid to all other consultants in relation to the Project (as defined in clause 5.6 of Schedule 6). The Project Costs are all actual costs of the Clydesdale Project to the date of sale or valuation as the case may be, whether part of the HPG Advances or incurred by Glenside, inclusive of GST on an actual sale or, in respect of a hypothetical sale, of an amount equal to the GST that would have been payable in respect of an actual sale at the assumed price at the date of the valuation (clause 5.3), including monies payable to a finance provider and all costs in connection therewith (clause 3).
115Initially, Hawes did not provide a calculation of the fee, and Dean calculated it from data provided by Hawes on 8 December 2010. In respect of No.s 2, 4 and 6, Dean allowed project costs of $490,472, and in respect of No.s 3, 5 and 8, $111,400. Hawes has since notified many additional claims, most of which Dean disputes. The parties have set out, in a "Scott Schedule", their competing positions in respect of project costs. I deal below with those that are contentious, by reference to the Scott Schedule, resolution of which should then enable the parties to bring in a final figure.
116There are a number of questions of principle that underlie these disputes.
117First, a number of items are disputed on the basis that they were paid after the date of the valuation, which was 19 February 2007. The question is whether the relevant date is the date on which the cost was incurred, or on which it was paid. The definition of Project Costs limits them to "all actual costs of the Clydesdale Project to the date of sale or of the Valuation as the case may be, whether part of the HPG Advances or incurred by Glenside, inclusive of GST on an actual sale or, in respect of a hypothetical sale, of an amount equal to the GST that would have been payable in respect of an actual sale at the assumed price at the date of the Valuation". Thus the definition treats the hypothetical sale as having taken place at the date of the valuation, rather than the date of exercise of the option. However, it speaks of costs "incurred" by Glenside. Moreover, GST would not be paid, though it would be incurred, on the date of a sale. In my view, project costs include those incurred, not only those paid, up to and including the date of the valuation.
118Secondly, a number of items are disputed on the basis that they relate to the purchase of the properties pursuant to exercise of the options, and are not associated with Glenside's holding, sale or "hypothetical sale" of the options and are thus not "actual costs of the Clydesdale Project ... incurred by Glenside". The purpose of the hypothetical sale formula was to ascertain the value Glenside gained by exercising the option, in lieu of selling it. If Glenside had sold the options, the selling costs would undoubtedly have been Project Costs. The purchase price of the properties is taken into account under the "Adjusted Purchase Price" formula. The costs associated with exercising the option reduce the value of the options to Glenside. Accordingly, in my view, costs associated with exercising the options are legitimate Project Costs. They had to be incurred for Glenside to acquire the value represented by the options.
119Thirdly, there is a claim for the "external investors' profit share" in respect of No.s 2, 4 and 6. Between October 2005 and March 2006, Glenside entered into funding arrangements in respect of No.s 2, 4 and 6 with several investors, in the form of Annexure A to the Clydesdale Deed. Annexure A provided for the project proceeds to be applied (upon sale or hypothetical sale) first in return of investors' capital of $370,000 pro rata between the contributors; secondly in payment of investors' primary profit share of $111,000; thirdly in return of developer's equity of $338,661, fourthly in return of any additional Developer's equity; fifthly in payment of Developer's primary profit share of $111,000, and finally in division of any residue one half to the developer, and the other half between the investors pro rata. Clause 3 of Schedule 6 of the Clydesdale Deed provided that the Hawes Group was entitled to raise finance in such manner as it saw fit, including by way of profit participation by the finance provider, and that all monies payable to a finance provider and all costs in connection therewith would be counted as part of project Costs, and referred in this regard to proposed funding arrangements as set out in the Loan Agreement at Annexure A to the deed. In my view, the "investors' primary profit share", and the investors entitlement to receive half of any residue, are "monies payable to a finance provider" within clause 3 and thus project costs, which were incurred when the funding deeds were entered into, prior to February 2007.
120Fourthly, there is a claim in respect of moneys paid or payable to Berry St Properties in connection with the BSP Deed. The BSP Deed of 23 September 2005 recited that it was the intention of the parties that BSP would provide funding for and take over the management of the project, and apply for and obtain a development consent for construction of the project, and further that at the election of BSP Glenside would sell the options with the benefit of the DA, or - if BSP desired to proceed with construction of the project itself - nominate BSP as the party entitled to exercise them and then exit the project. BSP agreed to provide the funds to procure grants of new options in respect of No.s 3, 5 and 8, and to do all things necessary and to use its best endeavours to obtain a DA before the new options expire, and provide funds for all costs and fees including consultants in connection with the project. Upon obtaining a DA, BSP was to notify Glenside within 4 weeks of its election that the Project be sold with the benefit of the DA, or that Glenside nominate BSP as to party entitled to exercise the options and exit the Project. In the event of a sale of the project, the proceeds were to be applied first, in reimbursement to BSP of all expenses of sale; secondly, in reimbursement to BSP of the costs incurred by it up to $250,000; thirdly, in reimbursement to Glenside of Glenside's costs (incurred before the date of the deed) of $170,000; fourthly, in reimbursement to BSP of any of its costs in excess of $250,000; and the residue to be shared two-thirds to BSP and one-third to Glenside. If at BSP's request Glenside nominated BSP to exercise the options and exited the project, Glenside was entitled to an exit fee of its costs of $170,000 plus one third of the amount by which the valuation on exit exceeded the total of Glenside's costs and BSP's costs. The deed made no provision in respect of Glenside exercising the options for its own benefit.
121Development approval in respect of No.s 3, 5 and 8 was granted on 14 November 2006. On 30 November 2006, the expiry date of the option over No 5, Glenside and BSP entered into an agreement which recited that the option over No 5 was about to expire and the grantor would not give an extension; that BSP was not in a position to exercise the No 5 option before it expired; and that a lender associated with Glenside - a Hawes company - was willing to provide short term finance to enable the option to be exercised and the balance of the deposit paid, but required that an entity under the control of Glenside be nominated as purchaser. By this agreement, BSP consented to Glenside nominating 358PL to exercise the option and purchase the property, and Glenside agreed that if required it would transfer control of 358PL as directed by BSP as part of a sale of the project as contemplated in the DSP Deed. The parties also agreed that if BSP was able to procure a sale of the project without further assistance from Glenside the provisions of clause 7 of the BSP Deed regarding distribution of the proceeds would apply subject only to BSP bearing all interest and costs incurred by Glenside in connection with the short-term finance. Clause 8 provided:
If BSP is unable to procure a sale of the Project prior to the expiry of the options over 3 Clydesdale Place and 8 Clydesdale Place, the parties will consult further but BSP acknowledges that Glenside is not at this point undertaking any obligation to provide further assistance regarding the acquisition of those properties. Glenside states that if any further assistance is provided by it, it will require clause 7 of the Project Agreement to be renegotiated.
122BSP did not procure a sale of the project prior to expiry of the options over No.s 3 and 8. Glenside did provide "further assistance", through 358PL. There is no evidence of what if any further consultation or negotiations took place between BSP and Glenside. However, BSP had some role in finding Dia Gabraa as the ultimate purchaser of No.s 3, 5 and 8.
123The evidence of Mr Adamo (a director of BSP) which, though less than satisfactory in some respects, was not challenged, establishes that BSP prior to 19 February 2007 incurred and paid costs associated with the project, including engaging consultants and other steps necessary to obtain a development approval, amounting to $234,116, plus $9,000 option extension fees; that in conjunction with Mr Hawes, BSP endeavoured to find a purchaser but was not successful before the options expired, so that 358PL exercised the option; that he continued thereafter to attempt to sell the site and eventually did so, and on completion received from 358PL on or about 26 July 2007 "an amount of $250,000 to reimburse costs outlaid and also a consultancy fee of $15,000 plus $1,500 GST".
124Reference has already been made to clause 3 of Schedule 6 of the Clydesdale Deed. In addition to the reference to Annexure A, it provided "The Hawes Group agrees that the eventual finance will be on the same or better terms (to the Hawes Entities) as those that are set out in Annexure 'A'".
125It seems to me that the events that triggered BSP's rights to a distribution under clause 7 of the BSP Deed did not occur: BSP did not elect that the Project be sold with the benefit of the DA, nor that it be nominated to exercise the options. Rather, Glenside (through 358PL) exercised the options on its own behalf, though preserving the possibility of transferring control of 358PL to BSP, which did not occur. The arrangement between Glenside and BSP left highly ambiguous BSP's entitlement in the events that transpired. However, I am prepared to accept that, on one basis or another, it was entitled to the reimbursement of the expenses that it paid to consultants and others to progress the DA and market the project, and that $250,000 should be accepted as a reasonable compromise of these (including the option extension fees). However, I can see no basis on which BSP was entitled to the consultancy fee of $15,000 plus GST, unless it was in connection with the on sale to Dia Gabraa, in which case it was not a cost of the project or the hypothetical sale, and was incurred after 19 February 2007. In any event, Hawes has not discharged the onus of showing that this fee was a cost of the sale. Nor is there any evidence that the two-thirds profit share to which BSP was potentially entitled under clause 7 (fifthly) of the BSP Deed has been paid, or is payable. Had there been, the BSP funding would have been apparently on less favourable terms to Hawes than then pro forma funding agreements in Annexure A. However, on the basis that ultimately BSP receives only the reimbursement of its expenses, to that extent that BSP Deed was not on terms less favourable than Annexure A.
126Against those matters of principle, I turn to the specific items in dispute in the Scott Schedule. References to reasons "first', "secondly", "thirdly" and "fourthly" are to the four heads of reasons so enumerated above.
127Item 34 - Valuation fee $6,650. Allowed. The valuation was required to enable the Glenside to exercise the options and invoke the "hypothetical sale" mechanism. See reason secondly above. Although paid after the date of valuation, it was incurred no later than the date of valuation.
128Item 35 - Cost of funds for deposits (at 24%) $9,651. Disallowed. The cost of raising finance to fund the deposits upon exercise of the options was no more a Project Cost than the cost of finance to fund the balance purchase price upon completion. This was not funding the project (which involved realizing value from the options), but funding the purchase of the property. Whether Glenside raised finance to fund the purchase or did so from its own resources was a matter for its internal arrangements; the costs of raising finance were not an inherently necessary cost of exercising the option.
129Item 36 - Legal costs for options and purchases $10,004. Allowed. The legal costs of exercising the options and purchasing the properties were incidental to the exercise of the options, and necessarily incurred by Glenside in order to gain the value represented by the options. See reason secondly above.
130Item 37 - Stamp duty $156,807. Allowed. This was necessarily incurred as an aspect of exercising the option. See reason secondly above. It was incurred, though not paid, upon exercise of the option and the making of the contract that resulted, before 19 February 2007. See reason first above. Although clause 5.11 of the covering Clydesdale Deed provides that a party taking the benefit of any transaction provided for in the deed, for example a transfer of property, shall pay all stamp duties payable thereon, the Deed did not provide for a transfer of the properties to Glenside; this provision was intended to capture any duty that might be payable on assignment of the options from Gallwey to Glenside. In any event, even if caught by clause 5.11, that does not exclude stamp duty so paid from also falling within the definition of a "Project Cost".
131Item 38 - Agents Fees for acquisition $18,250. Disallowed. The evidence is insufficient to enable me to characterize this item. Hawes has not discharged to onus of establishing that it is a Project Cost.
132Item 39 - Company establishment costs $963. Allowed. This was the cost of incorporating CPPL to exercise the options and purchase the land, while preserving the possibility for an external purchaser to complete the purchase; it was incidental to the exercise of the options and incurred in order to facilitate a potential sale of the project before completion of the acquisition by CPPL. See reason secondly above.
133Item 40 - External investors' primary profit share $111,000. Allowed. See reason thirdly above.
134Item 43 - Half balance profit for external investors $190,174. Allowed. See reason thirdly above.
135Item 51 - Option extension fees not credited $9,000. Disallowed. These were paid by Berry St Properties, not by Glenside, and are included in the amount allowed under item 53.
136Item 52 - Valuation fee $7,650. Allowed, for the same reasons as apply to item 34.
137Item 53 - Berry St Properties costs to 19 February 2007 $265,000. Allowed at $250,000. See reason fourthly, and item 51.
138Item 54 - Cost of funds borrowed for deposits (at 24%) $15,892. Disallowed, for the same reasons as apply to item 35.
139Item 55 - Legal costs for options, exchange and settlement $7,499. Allowed, for the same reasons as apply to item 36.
140Item 56 - Legal costs for BSP agreement $1,800. Allowed. This was a cost in connection with raising finance, within clause 3 of Schedule 6.
141Item 57 - Stamp duty $176,816. Allowed, for the same reasons as apply to item 37.
142Item 58 - Agent fees for acquisition $48,422. Disallowed, for the same reasons as apply to item 38.
143Item 59 - Company establishment cost. Allowed, for the same reasons as apply to item 39.
144Item 66 - Glenside costs $170,000. In light of the view I take about item 68, this does not matter; nor does the countervailing item 70, which offsets it.
145Item 68 - BSP two-thirds profit share $198,760. Disallowed. There is no evidence that this was paid or is payable. See reason fourthly.
146Pursuant to clauses 4 and 7 of Schedule 6, payment of the Fee was to be made, in the case of a hypothetical sale, within seven days from the date of the last settlement of a purchase by the Hawes Group of any Lot comprised in the Project. The last such settlement was, in respect of No.s 2, 4 and 6, on 21 March 2007; seven days thereafter was 28 March 2007. Interest should accrue from that date.