Linfield Developments Pty Limited v Shuangxing Development Pty Limited

Solicitors: Deutsch Miller - plaintiff Baker & McKenzie - first and sixth defendants Auyeung Hencent & Day Lawyers - second, third and fifth defendants ERA Legal - fourth defendant File Number(s): 2014/346903

Introduction

1. This is a case about the enforcement of a contract. Both main groups of defendants resist the entitlement of the plaintiff (Linfield) to enforce a call option contained in a commercial agreement. In resisting the claim, the second, third and fifth defendants (Guan defendants) called three witnesses of fact, two of whom gave evidence in Mandarin through an interpreter. The fourth defendant did not actively participate other than to put submissions on one legal question. The sixth defendant (ACFM), which was in a practical sense the primary defendant, elected not to call a witness. The principal witness for the Guan defendants was Mrs Guan. She is an experienced Chinese business woman but she was not a satisfactory witness. She gave me the impression that she does not give sufficient attention to the primary importance that the law attributes to formal written contractual obligations.
2. I had occasion some years ago to emphasise the primacy of contractual obligations. In Seven Network (Operations) Limited v Warburton (No 2) [2011] NSWSC 386 at [3] I said that: One of the abiding principles of a civilised system of law such as ours is that contracts are meant to be observed … We make decisions on the assumption that contractual obligations will generally be performed and solemn commitments will not be ignored … If there were not adherence to such a principle, the conduct of private and commercial affairs would become an uncertain jumble.
3. There are of course exceptional cases when relief from the effect of the terms of a contract is afforded by the operation of statute or by reason of some applicable legal or equitable principle. But it remains an enduring truism that 'Where parties enter into a written agreement, the Court will generally hold them to the obligations which they have assumed by that agreement': Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2004] HCA 55 at [35].
4. Mrs Guan may or may not have been influenced by a suggested method of interpersonal dealing called 'Guanxi', whatever it is. Some suggest that it is the most misunderstood business concept in China. But such evidence as there was, or might have been, on this topic came only from Mrs Guan and was justifiably objected to. I rejected it. And there was no evidence from a suitably qualified expert on the issue. Whether or not Guanxi is a system of social networks and influential relationships that facilitates business dealings, it could not justify Mrs Guan's approach.
5. In any event, Mrs Guan's evidence was so implausible and so unreliable that I formed the view that I could not safely act on the basis of it except where it was clearly corroborated. Her evidence did not provide a sound foundation for the numerous defences that she put forward. Frequently her evidence was inconsistent with written documents and contemporaneous written communications. And when it was apparent that certain questions, or her answers to them, were unhelpful to her case, she behaved defensively. Her position was made worse by the absence of corroborative evidence from persons who were present with her at critical meetings, particularly her solicitor Mr Edwin Kwan. I reached the view that Mrs Guan lacked credibility. When her unsatisfactory evidence finally concluded, counsel for ACFM, who stood to take the benefit of any successful defence established by the Guan defendants, announced that he no longer proposed to read any of his affidavits.

The Issues

1. I should outline the issues. Mrs Guan controlled the first defendant (SXG), which is now in administration. It agreed to purchase land in Auburn in Sydney's west and entered into a development agreement with a third party, Linfield which contained a call option in the latter's favour. The call option is contained in clause 18.6 of the development agreement. It was entered into on 20 December 2013. The agreement contemplated that SXG would complete the purchase of the land and that Linfield would invest in and manage the redevelopment of the land. After SXG completed the purchase of the land, ACFM appointed administrators to it. When an event of default occurred, Linfield exercised its right to call for the land pursuant to the option.
2. The real fight over the wreckage left by SXG is between Linfield and ACFM. ACFM advanced $20,360,364 to SXG on 5 August 2014 to enable the latter to complete the purchase of the land. It contends that its interest as equitable mortgagee has priority to any interest of Linfield pursuant to the call option. Although there is an anterior legal question relating to the nature of Linfield's interest, a central aspect of the dispute between ACFM and Linfield is factual - whether Linfield acquiesced, encouraged or consented to ACFM taking a first registered mortgage over the Auburn land. On this issue, the contemporaneous documents and written communications do not assist ACFM, whose case was further weakened by its failure to read the affidavits of its two senior officers, Mr Howard Ting and Mr Owen Chen, who might have explained ACFM's actions and motivations.
3. There is another group of issues that I will call secondary issues, mainly because, as the evidence unfolded, they appeared increasingly unsupportable. In large measure, they depended on the credibility of Mrs Guan. They represent a catalogue of almost every conceivable contractual and equitable issue that a contracting party might theoretically be entitled to invoke in a given case. The regrettable litany extended to questions of misrepresentation, unconscionability, unjustness, uncertainty, estoppel, misleading conduct, repudiation, abandonment, termination, penalties and relief against forfeiture.
4. Specifically, the issues in this group are whether the development agreement is void for uncertainty; whether the development agreement was terminated by mutual agreement on 2 June 2014; whether the development agreement was abandoned; whether Linfield is estopped from relying on its rights contained in the development agreement; whether Linfield repudiated the development agreement; whether any such repudiation was accepted by SXG; whether the call option amounts to a penalty; whether SXG is entitled to relief against forfeiture; whether Linfield made certain representations to SXG; whether, if made, the representations were misleading and deceptive in contravention of section 18 of the Australian Consumer Law 2010 (Cth) (ACL); whether Linfield's conduct in procuring Mrs Guan to sign the development agreement as guarantor was unconscionable within the meaning of sections 20-21 ACL or in equity; whether, as against Mrs Guan, the development agreement is unjust within the meaning of sections 7 and 9 of the Contracts Review Act 1980 (NSW); and whether Linfield's conduct after entry into the development agreement was unconscionable within the meaning of sections 20-21 ACL.

Credibility, Witnesses & Corporate Entities

1. I should make some preliminary remarks about the affidavit and oral evidence of the witnesses. As always, the contemporaneous written records created before the threat of litigation were a more reliable indicator of what occurred than the competing contentious accounts of conversations drafted at a later date under the guiding hand of a party's solicitor. As I said in Mealey v Power [2015] NSWSC 1678 at [4]: '…what matters most is usually the proper construction of such contemporaneous notes and documents as may exist, and the probabilities that can be derived from those notes and any other objective facts'.
2. The limitations of affidavits as vehicles for conveying an accurate account of past oral communications are well-known. In Thomas v SMP (International) Pty Ltd [2010] NSWSC 822, I set out some of the considerations: [23] … Affidavits have an important function and serve a useful purpose. But they are not necessarily always the best means of leading evidence-in-chief. Where there are disputed issues of fact involving oral representations and conversations, affidavit evidence can sometimes be an unsatisfactory medium for leading the evidence-in-chief. [24] It is well known that eminent jurists with unparalleled trial experience have expressed misgivings about the elicitation of evidence-in-chief by affidavits in cases whose success or failure depends on disputed representations and conversations. A colourful but apposite aphorism frequently invoked by Hon T E F Hughes QC, and attributed to Lord Buckmaster, is that "the truth sometimes leaks out of an affidavit - like water from the bottom of a well"… [25] Justice Emmett elaborated more fully on the difficulties to which affidavits and witness statements can give rise in Practical Litigation in the Federal Court of Australia - Affidavits (2001) 20 Australian Bar Review 28: Where evidence is controversial, particularly where credibility of the witness is involved, the adducing of the evidence in written form is often undesirable and can be quite unfair… With the very best of intentions a lawyer who settles an affidavit or a witness statement will invariably reduce the language of the witness to the lawyer's own language. That may entail changes in meaning and emphasis that, although not intended, may expose a witness to unnecessary difficulties in the course of cross-examination. On the other hand, a dishonest witness will always be assisted by having evidence put into credible form by a lawyer... [26] In 1996 in the Access to Justice Report, Final Report (HMSO), 1996 at [55], Lord Woolf pithily observed: Witness statements have ceased to be the authentic account of the lay witness; instead they have become an elaborate, costly branch of legal drafting. [27] And as long ago as 1975, the New South Wales Law Reform Commission, in Working Paper 14, (1975) - Procedure: Common Law Pleadings, also observed (paragraph 7.3): "affidavit evidence is said (and with justification) to be more the evidence of the legal advisor than the witness". [28] A common thread in the commentary is that the studied reconstruction, and formulation in writing, of contentious conversations and oral communications in language that is usually settled and refined by lawyers, can sometimes be unreliable and unintentionally misleading. …
3. While affidavits are, for those reasons, often unreliable touchstones of the truth, oral evidence is frequently also unreliable for a different reason. In Watson v Foxman (1995) 49 NSWLR 315 at 319, McLelland CJ in Eq succinctly stated what we all recognise as an everyday aspect of the judicial process: …human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said.
4. Lord Pearce explained these issues, and emphasised the 'utmost importance' of contemporary documents, in his speech in Onassis and Calogeropoulos v Vergottis [1968] 2 Lloyd's Rep 403 at 431, a successful appeal by a litigant named Aristotle Socrates Onassis: Credibility covers the following problems. First, is the witness a truthful or untruthful person? Secondly, is he, though a truthful person, telling something less than the truth on this issue, or, though an untruthful person, telling the truth on this issue? Thirdly, though he is a truthful person telling the truth as he sees it, did he register the intentions of the conversation correctly and, if so, has his memory correctly retained them? Also, has his recollection been subsequently altered by unconscious bias or wishful thinking or by overmuch discussion of it with others? Witnesses, especially those who are emotional, who think that they are morally in the right, tend very easily and unconsciously to conjure up a legal right that did not exist. It is a truism, often used in accident cases, that with every day that passes the memory becomes fainter and the imagination becomes more active. For that reason a witness, however honest, rarely persuades a Judge that his present recollection is preferable to that which was taken down in writing immediately after the accident occurred. Therefore, contemporary documents are always of the utmost importance.
5. Given those considerations, a healthy scepticism about the reliability of affidavit and oral evidence of conversations is often justified - in many types of cases but especially in commercial cases. In recent times, no one has put the matter quite so decisively as Leggatt J in Gestmin SGPS SA v Credit Suisse (UK) Ltd [2013] EWHC 3560 (Comm) at [22]: …the best approach for a judge to adopt in the trial of a commercial case is, in my view, to place little if any reliance at all on witnesses' recollections of what was said in meetings and conversations, and to base factual findings on inferences drawn from the documentary evidence and known or probable facts. He added perceptively however: This does not mean that oral testimony serves no useful purpose - though its utility is often disproportionate to its length. But its value lies largely, as I see it, in the opportunity which cross-examination affords to subject the documentary record to critical scrutiny and to gauge the personality, motivations and working practices of a witness, rather than in testimony of what the witness recalls of particular conversations and events.
6. I have already expressed an adverse view of Mrs Guan's evidence, to which I will return in more detail later. She had at least three advisors in connection with the project to redevelop the Auburn land. One was Henson Liang, a property advisor and member of her staff. Another was Simon Zhuang. And a third was Edwin Kwan, her solicitor. Mr Kwan did not venture into the witness box and remained unheard and out of sight. Henson Liang and Simon Zhuang gave evidence but they were unsatisfactory witnesses whose evidence on the principal issues was neither plausible nor reliable. I will also return later to their evidence.
7. Ben Lin was Linfield's only factual witness and is its sole director. He is obviously a clever young man. Mrs Guan said he was 'too smart' but I do not agree. He was a good witness who was cross-examined over three hearing days and remained at all times cool-headed, articulate, impressive and precise. The principal effect of his lengthy cross-examination was to reinforce his evidence and enhance its plausibility. The manner in which he gave his evidence and the content of the many emails which he sent, suggest that he is cautious, prudent and scrupulously careful.
8. SXG was incorporated on 22 January 2013 specifically for the purchase and development of the Auburn land. Mrs Guan was its sole director. The fourth defendant, Shuangfu Development Pty Limited (Shuangfu), another company controlled by Mrs Guan, was specifically incorporated on 7 July 2011 for a property development project at Kensington. The Kensington properties were numerous and the project was ambitious. It came to nothing. ACFM has also appointed administrators to Shuangfu.
9. ACFM trades as part of a group of companies known as 'A-Capital', whose business is the financing of predominantly Chinese clients in Australia. The names ACFM and A-Capital are used interchangeably. The sole director of ACFM is Owen Chen. Howard Ting was the group's assistant general manager.

The Contract for Sale of Land

1. The starting point in the sequence of transactions and dealings is the contract for sale of the Auburn land. It was entered into on 24 June 2013 between SXG as purchaser and R S L Custodian Pty Limited (RSL) as vendor. The purchase price was $20 million. The deposit was $1 million payable as to $300,000 on the date of the contract, $300,000 within 6 months from the date of the contract and $400,000 within 9 months from the date of the contract. The completion date was 24 June 2014.

Memorandum of Understanding

1. Mrs Guan was looking for an investor in her development project. On 2 December 2013 she signed on behalf of SXG a preliminary document described as 'Memorandum of Understanding'. Linfield was the other named party although it did not execute the document. The memorandum of understanding contemplated that the parties would execute a subsequent heads of agreement and that after doing so, there would be a 14 day due diligence period. It stated expressly that it was preliminary to 'the negotiation of necessary formal legally binding contract documentation'. A schedule of key commercial terms was attached but those terms appear to have been unresolved.

Heads of Agreement

1. On 3 December 2013, a heads of agreement document was signed by Ben Lin and Mrs Guan. Its effect was to grant Linfield 'an exclusive period of two (2) weeks from 3 December 2013 to complete all property investigations and negotiate all legal instruments including a Development Deed, Option Agreement and Sale Contract'.
2. Importantly, the heads of agreement provided that SXG and Linfield agreed that: … the development/acquisition of the Property will be via a Development Deed whereby a Call option Agreement for the purchase of the Property will be executed simultaneously and will be provided as security to [Linfield]. The terms and conditions will be subject to final negotiations between the parties and such negotiations to proceed only if [Linfield] elects to proceed after the expiry of the Due Diligence Period. (emphasis added)

The Development Agreement

1. After the due diligence period, the parties met on 20 December 2013. Ben Lin, his father Jally Lin, Mrs Guan, Henson Liang, Simon Zhuang and Edwin Kwan were present. Henson Liang said that Edwin Kwan was a very experienced solicitor and that he had recommended him to Mrs Guan for that reason. Mr Kwan commenced acting for Mrs Guan in early December. He was provided with the memorandum of understanding, the heads of agreement and a draft of the development agreement. Before the meeting on 20 December, he reviewed the development agreement and advised Mrs Guan about it. Mrs Guan then executed the development agreement in the presence of Mr Kwan. She did so in five separate capacities - in her personal capacity, as the sole director of SXG, as the sole director of Shuangling International Development Pty Limited, as the sole director of Shuangfu, and as the sole director of Shuang Shen Pty Limited.
2. The terms of the development agreement included that SXG was to complete the contract for the purchase of the Auburn land for $20 million. Linfield agreed to pay the deposit of $1 million by making loans to SXG of $300,000, $400,000 and $300,000 respectively. Subject to clause 5.6, SXG was to pay the balance of the purchase price ($19 million plus or minus settlement adjustments) on or before 24 June 2014. Linfield also agreed to advance SXG an amount up to a maximum of $5 million to assist SXG to fund the amount required to complete the contract, but only If SXG made a request in writing at least one month before 24 June 2014. If Linfield provided such funding, then its entitlement to project income would be proportionately increased in accordance with clause 7.4. Linfield was required to undertake at its own cost the planning, design, construction and development of the project and was required to perform project management services and development and marketing services as defined in schedules 1 and 2 of the development agreement. Finally, Linfield and SXG were entitled to share equally in project income after repayment of the costs of development, subject to adjustment if Linfield advanced money to SXG in accordance with clause 5.6.
3. Relevantly, bearing in mind the issues in this case, SXG agreed by clause 7.1 not to grant a mortgage over the land other than to secure the proposed construction finance for the development. It was prohibited from granting a mortgage to secure a loan (if one were necessary) to fund the purchase price. For its part, Linfield was granted a call option to acquire the land, which it was entitled to exercise before or after completion of SXG's contract to purchase the land. The obvious commercial objective of the call option was to ensure that Linfield should not lose its valuable opportunity to have the benefit of the redevelopment of the land, if SXG were not able to proceed. If exercised before completion, the option price was 'the amount necessary to complete the Contract'. If exercised after completion, the option price was $20 million, subject to variation if the development had been approved. Upon exercise of the option after completion, SXG was obliged to transfer the land to Linfield free from mortgage, charge or encumbrance. Either option was exercisable if SXG committed an 'Event of Default' which was an 'Insolvency Event' (clause 18.6(b)).
4. I should interpolate that, notwithstanding the clear terms of the development agreement, Mrs Guan alleged that certain misrepresentations were made to her at the meetings on 3 and 20 December 2013. The misrepresentations are said to have related to the supposed involvement of Jally Lin's company 'PBD' in the development and whether SXG or Linfield or even PBD would be responsible for providing the settlement funds for the purchase of the Auburn land.
5. Senior counsel for Linfield submitted with some justification that the misrepresentation case of the Guan defendants was hopeless. Among other weaknesses, the proposition that Linfield would provide the settlement funds suffered from the disadvantage of being commercially implausible. It entailed the notion that Linfield agreed to provide all of the finance, not only for the construction of the project, but also for the acquisition of the land, and to assume all of the consequent risk while still providing SXG with 50% of the profits. The misrepresentation case was certainly not proven to my satisfaction. I have already observed that Mrs Guan was an implausible witness. The terms of the development agreement, on which she had legal advice from Mr Kwan, were inconsistent with her misrepresentation case. And Mr Kwan, who was present with her at the meeting on 20 December, could have corroborated her, if he were able to do so. His unexplained failure to give evidence fortifies my conclusion that I should reject Mrs Guan's evidence of misrepresentation on these issues.
6. As events transpired during the hearing, Linfield chose not to read an affidavit in reply from Jally Lin. This may well have been because it became apparent during Mrs Guan's cross-examination that she could not be relied on and that no evidence in reply from Jally Lin was necessary to make out Linfield's case or rebut the case of the Guan defendants. In the circumstances, I draw no adverse inference from Jally Lin's absence. As I said in Caswell v Sony/ATV Music Publishing (Australia) Pty Ltd [2014] NSWSC 841 at [40] - [41]: [40] …The absence of a witness cannot be used as a makeweight. A Jones v Dunkel inference may only make evidence more probable and cannot be used to make up any deficiency of evidence. To use the homely expression of the plaintiff's own counsel in this case, '[t]here must be an inference before there can be comfort'. This is an apt and abbreviated paraphrase of the true principle for which Jones v Dunkel at 308 (per Kitto J) stands, namely: … that any inference favourable to the plaintiff for which there was a ground in the evidence might be more confidently drawn when a person presumably able to put the true complexion on the facts relies on as the ground for the inference has not been called as a witness by the defendant and the evidence provides no sufficient explanation of his absence. (emphasis added) [41] In order for that principle to apply in this case, there must first be evidence sufficient to support an inference in favour of the central propositions for which the plaintiff contends, namely that Sony did not exercise its discretion at all, or did not do so reasonably and in good faith. If so, Sony's unexplained failure to call Mr Trotter would enable me to draw that inference more comfortably. As I have endeavoured to explain, the evidence does not support the inference that the plaintiff seeks to establish. Sony's failure to call Mr Trotter does not therefore improve his case. The rule in Jones v Dunkel only applies where a party is 'required to explain or contradict something' or where the course of the evidence throws up facts necessarily 'requiring an answer'. Schellenberg v Tunnel Holdings Pty Ltd (2000) 200 CLR 121 at [51]; Cubillo v Commonwealth (2000) 103 FCR 1 at [355]. That is not this case.

The Call Option

1. The terms of the call option deserve to be set out in full: 18.6 Option (a) On the date of this agreement and in consideration of the sum of $1 paid by LFD to SXG (receipt of which is hereby acknowledged) SXG grants to LFD an unconditional Call Option (b) LFD may exercise the Call option if: (1) SXG does not comply with a Default Notice, if the Event of Default is capable of being remedied; (2) the Event of Default by SXG is not capable of remedy; (3) the Event of Default by SXG is an Insolvency Event. (c) The Call Option is exercised by LFD if it serves notice in writing on SXG stating that it exercises the Call option because of one of the events specified in clause 18.6(b). (d) On completion of the transaction in clause 18.6(d) this agreement will be deemed to be terminated and the Participants will have no further claims on each other except in relation to breaches or entitlements under this agreement occurring before the date of termination 18.7 Exercise before completion of Contract If the Call Option is exercised before completion of the Contract (a) SXG irrevocably appoints LFD as its attorney to execute such documents and to do such things as may be necessary to proceed to completion of the Contract; (b) SXG must on completion of the Contract sign and deliver to LFD a transfer of the Land in registrable form, together with the duplicate certificates of title; and (c) LFD must pay to the vendor under the Contract (at the direction of SXG) the amount necessary to complete the Contract; and (d) SXG must re-pay to LFD all amounts due under clause 6. 18.8 Exercise after completion of Contract If the Call Option is exercised after completion of the Contract, then within 10 Business Days of service on SXG of the notice in clause 18 .6(c): (a) SXG must deliver to LFD a duly signed Transfer of the Land in registrable form, free from mortgage, charge or encumbrance (other than a registered first mortgage in favour of the Project Financier and any caveat lodge by LFD); (b) If the Call Option is exercised and Development Approval has not been obtained, LFD must pay to SXG by unendorsed bank cheque the sum of $20,000,000 00; (c) If the Call Option is exercised after Development Approval has been obtained, the consideration payable to SXG must be increased by any increase in the value of the Land since completion of the Contract, such value to be agreed and, failing agreement, by a Valuer acting as an expert not as an arbitrator and whose opinion is final and binding on the parties The consideration will be reduced by: (1) the Deposit Loan; (2) the Project Management Fee and the Development Management Fee, both calculated against the value of the Land determined by the Valuer; (3) one half of the Project Costs (other than the Project Management Fee and Development Management Fee) incurred to the date of delivery of the Transfer in clause 18 8(a). (d) For the purposes of this clause, if clause 18.8(c) applies, the Transfer must be delivered 10 Business Days after the valuation in clause 18.8(c) is served on SXG; (e) The parties must agree on a Valuer to perform the valuation in clause 18.8(c) and, failing agreement, the Valuer is to be appointed by the president for the time being of the Australian Property Institute (NSW Division) Inc.

SXG Lack of Funds

1. After entry into the development agreement on 20 December 2013, Linfield paid $300,000 pursuant to clause 5.2(a), $400,000 pursuant to clause 5.2(b) and incurred considerable expenses for architects, engineers, town planners, consultants and solicitors.
2. By April 2014, it had become apparent that SXG did not have the resources to complete the contract for the purchase of the land. This is the point at which events commenced to unravel. SXG's impecuniosity led to the involvement of ACFM as a potential source of finance for the project. A series of meetings on multiple dates between 11 April and 2 August 2014 took place. The terms of many of the conversations at these meetings are the subject of dispute. The competing versions not only suffer from the fallibilities identified in Watson v Foxman but they distract from the contemporaneous email and other correspondence.
3. One thing that is clear, is that from the beginning of the negotiations between SXG, Linfield and ACFM, Ben Lin wished to maintain the benefits and advantages given to Linfield pursuant to its development agreement. Thus as early as 15 April 2014, he sent an email to Howard Ting of ACFM which attached an unsigned copy of the development agreement. It included a statement: As per our phone conversation earlier please find enclosed 1 Current development agreement in place with [SXG] and Mrs Guan. … My understanding is that once the assignment is done Linfield Developments will maintain the same terms of the development agreement already in place with the new unit trust/trustee and/or hold units in the trust. (emphasis added)
4. This email put ACFM on notice from 15 April 2014 of the terms of the existing development agreement between Linfield and SXG, including the terms of the call option. It also put ACFM on notice of the basis on which Linfield was prepared to engage with it, namely the maintenance of the same terms of the development agreement already in place.
5. An important meeting took place on 22 April 2014. SXG, Linfield and ACFM were all represented. Mrs Guan was there with her advisor Henson Liang and her solicitor Mr Kwan. Mr Ting and Mr Chen were there from ACFM. And Ben Lin was there with his father Jally. Ben made a note of the meeting. Part of the note stated: Owen [Chen] just said to her [Mrs Guan] lawyer why don't you explain clearly to your client what she's signed in the Development Agreement … Owen says the existing agreement with Linfield must STAY.
6. Ben Lin recalled that Jally said to Mr Chen at the meeting that 'You can't get rid of Linfield, there is a development agreement in place'. This evidence was not contradicted and I regard it as probable. Ben Lin, and vicariously his father Jally, were naturally keen to safeguard the rights, interests and entitlements which had been secured for Linfield in the development agreement. All parties appear to have assumed that a new development agreement would have to be negotiated and agreed.
7. On 30 April 2014, Ben Lin sent an email to Howard Ting which stated, inter alia: I've almost finalised the terms of the new development agreement to be put in place between the Trust Fund and Linfield. Is there any chance we can have a quick meeting on Friday afternoon between 3-5 pm so I can discuss the particulars with you and make sure we're on the same page. A few of the requirements differ quite significantly from the original development agreement, actually to make the Agreement more palpable [sic] and in favour of the Fund, so I'd like to go through them with you.
8. On 2 May 2014, Ben Lin and Howard Ting had a meeting at Milsons Point. Mr Tanevski, a property advisor to Linfield was also present. He reiterated 'Linfield cannot be any worse off under the new development agreement'. Ben Lin had earlier provided a document which set out 'key terms' that he expected in a proposed new development agreement with the contemplated entity that would own the land in lieu of SXG. One of those key terms was the right to lodge a caveat to protect the equitable interest that Linfield asserted.
9. Some form of unit trust was apparently envisaged for the proposed re-financing with ACFM. On 14 May 2014, Ben Lin sent an email to Howard Ting stating: Just wondering how you're progressing with the setup of the fund and IM for this project? Owen mentioned to my Dad that the aim is to get Mrs Guan to assign the project to the trust by this Friday. Could you please clarify'? Let me know if you need any help, could you also send a draft copy of the IM to me and also an update on the terms that we discuss last time. (emphasis added)
10. On 14 May 2014, Howard Ting responded: I met with Baker & McKenzie yesterday and we are working on this as quickly as we can.

ACFM Legal Advice

1. ACFM sought legal advice from Baker & McKenzie about the development agreement between SXG and Linfield. Its solicitor was Sam Appleton. On 26 May Howard Ting wrote to Mr Appleton and copied his email to Owen Chen. He referred to Linfield's development agreement with SXG, attached a copy of it in a zip folder and described a number of 'issues and constraints'. Mr Ting observed that: We do not want to cause [SXG] to inadvertently breach its obligations under either the sale contract or the development agreement. He then added however: A Capital and others would like to get a 'mortgage' over the Auburn property.
2. He informed Mr Appleton that one of the issues was 'how SXG can 'terminate' the existing development agreement with [Linfield] and then for Grosvenor Pirie as trustee for [Australia Capital Sunlink Property Fund] to enter into a new development agreement with [Linfield]'. He concluded by informing Mr Appleton: We will need [Linfield] to sign a deed of release to release [SXG] from all liability under the existing development agreement and to arrange for [Linfield] to enter into a new development agreement with Grosvenor Pine as Trustee for ACSP. To deal with the fact that [Linfield] has provided money and also incurred costs, we would prefer for those amounts to be recognised in the new development agreement as a security deposit which will be repaid to [Linfield] upon successful completion of the project. (emphasis added)
3. Mr Appleton's response came on 3 June. It contained a warning to ACFM. He said that his firm had reviewed the development agreement but that 'We are unsure how much opportunity there would be to materially amend/replace' a number of the substantive provisions of the development agreement. He then listed a number of significant aspects of the agreement. The first of those was Linfield's call option. The second was the prohibition on the grant of a mortgage by SXG. The email stated: SGX has granted a Call Option to Linfield under this Agreement, which allows Linfield to call for the transfer of the property to it, in circumstances where SGX defaults in its obligations under the Agreement, commits an act of insolvency or fails to comply with a default notice issued under the Agreement. This can be exercised prior to Completion of the Contract or after Completion. … The Agreement currently prohibits SXG mortgaging the property, other than in favour of Linfield who is permitted to mortgage the property to secure project finance. This will need to be addressed to the extent that mortgage arrangements are proposed to be used as part of the Completion steps. Termination of the Agreement by mutual agreement is contemplated, and provided Linfield agrees to the proposed termination and replacement of this Agreement with a new development agreement, there is nothing in the existing arrangements that should prevent that. [emphasis added]

The Structure Paper

1. On 2 June 2014, a meeting took place with Ben Lin, Howard Ting, Owen Chen, Mrs Guan, Henson Liang, Mr Liu and David Tanevski. Mrs Guan said that her solicitor Mr Kwan, was also present. Howard Ting provided Ben Lin with a structure paper entitled 'Australia Capital Sunlink Property Fund Auburn Project, Structure Paper, 30 May 2014'. Ben Lin and Mrs Guan signed the last page of the structure paper which contained the statement: We, the undersigned, agree with this structure document and will endeavor in good faith to complete the necessary steps in this document and execute the necessary documents listed therein.
2. Mrs Guan contends that at this meeting Linfield agreed to terminate or abandon its rights under the development agreement. But this forlorn argument is inconsistent with the clear statements in the structure paper. Page 4 of the structure paper listed a number of what were described as 'transaction documents' to give effect to the series of 'Proposed Steps' by which it was contemplated that the Australia Capital Sunlink Property Fund would be established for the Auburn project. Two of the contemplated transaction documents were: (4) Deed of Release between SXG and LFD to terminate existing development agreement; (5) New development agreement between ACSP and LFD. (emphasis added)
3. The assumed state of affairs on which the structure paper was predicated was that the development agreement between SXG and Linfield was on foot and continued to be valid and binding. One of its central premises was that a condition precedent to Linfield's further agreement in respect of the Auburn land was termination of the existing development agreement and the entry into a substitute agreement.
4. Mrs Guan accepted that 'for the fund to go ahead, there would need to be a whole series of formal contract documents prepared and then signed'. The following exchange effectively put paid to this aspect of her case: His Honour: Q. Mrs Guan at the meeting on 2 June I think Henson Liang was present with you, is that right? A. INTERPRETER: Yes. Q. Did Mr Kwan come with you, the solicitor? Mr Kwan was there? A. INTERPRETER: Yes. Q. Do you recall that you signed the document on the last page? A. INTERPRETER: Yes. Q. That is, the document which was described as a structure paper? A. INTERPRETER: Yes. Q. Do you recall that the last page stated that you agreed to complete the necessary steps and execute the necessary documentation listed in the document? A. INTERPRETER: Yes. Q. Do you recall that two of the contemplated documents referred to in the structure paper were a deed of release to terminate existing development agreement and a new development agreement. Do you recall that? A. INTERPRETER: Yes. Q. Subsequent to the signing of the structure paper on 2 June, no deed of release nor a new development agreement came into existence, did it? Did they? A. INTERPRETER: That's correct.
5. Also significant, and inconsistent with the termination and abandonment cases, were the statements that Mrs Guan subsequently made in her director's report as to the affairs of SXG. She described the reason for the failure of SXG as the 'failure to terminate the Development Agreement with Linfield'.

Linfield Kept Uninformed

1. On 10 June 2014, which was the date proposed in the structure paper for the termination of the development agreement and the substitution of a new agreement, Ben Lin sent an email to Howard Ting which relevantly stated: Just wondering how everything is going with the Auburn project. Has Mrs Guan signed everything that is required for the new structure? Could you please forward a draft copy of the IM as well as the new development agreement between Linfield and the Trust as soon as they are available so we can have some time to review and exchange comments. I remember the target date to have everything signed was this Thursday and settlement is just around the corner so I want to make sure everything is in order on our end too. (emphasis added)
2. On or about 11 June, Howard Ting responded to the enquiry about 'how everything is going' by reassuring Ben Lin that he was 'still finalizing all the nitty gritty on Mrs Guan's side of things' before he could finalise 'the development agreement and IM'.
3. Increasingly however, from about this point in time, Ben Lin was kept uninformed. He became concerned about the lack of information he was receiving. He said that attempts were made to contact ACFM 'but we weren't receiving much response'. Howard Ting cancelled meetings with him that were proposed for 20 and 23 June. Such information as was provided to Linfield about SXG's contemplated new funding arrangements was sketchy. On 24 June, the proposed settlement date, Henson Liang telephoned Ben Lin to inform him that Owen Chen of ACFM had not yet committed to lend 'the $7 million or the $12.5 million'.
4. On 25 June Ben Lin had an unsatisfactory meeting with Mrs Guan, leaving him with an inconclusive and uncertain picture. Mrs Guan said among other things that she wanted to go back to China to get more money; that she could come up with $5 million; that if her lawyer wrote to A-Capital, everything would be okay; and that Owen Chen had a lien or caveat over her Kensington properties. She blamed Linfield for the delay in completing the Auburn purchase. When Ben asked her to 'show us copies of all the documents you are going through with Owen', she responded by saying 'I don't know much about the documents. Please consult with Joe Zheng'.
5. Later that day, Ben Lin had a meeting at the office of ACFM. Mr Chen told him: I can only lend $12.5 million. There is a big shortfall so I have arranged for Mrs Guan to borrow a further $7 million … [from others] SXG has agreed to share 40% of its [ie SXG's] profits with the financiers but Mrs Guan needs to come up with a further $4 million before they can lend the money.
6. Several things may be said about the evidence of this conversation. First, senior counsel for ACFM did not seek to contradict or undermine it in his cross-examination of Ben Lin. Nor did he call Mr Chen. Second, Mr Chen's words appear to be at odds with the reality of what he must have known was about to happen on the next day. The disparity between what Mr Chen said on 25 June and what happened on 26 June, suggests that Mr Chen was not speaking honestly to Ben Lin.

The Loan Agreement

1. On 26 June 2014, SXG and Shuangfu entered into a loan agreement with ACFM. The facility limit was $45 million, of which up to $19 million was earmarked for payment to RSL, as the vendor of the Auburn land, and $21 million related to the refinance of the Kensington project. The loan agreement provided, among other things, for a first registered mortgage to be given to ACFM over the Auburn land upon completion of SXG's purchase.
2. The only notice to Linfield appears to have been earlier that morning, when Joanna Wu of A-Capital sent an email to Ben Lin attaching a copy of a draft loan agreement between SXG and ACFM. There had been no prior notice. When Ben Lin replied: 'Just confirming that Mrs Guan has already signed this agreement with A-Capital?' The disingenuous answer was 'Not yet'. Ben Lin actually thought that the unsigned document may have been sent to him in error. He was not subsequently provided with any signed document and when he later sought to ascertain the structure of the arrangement between SXG and ACFM, he met resistance.
3. Ben Lin promptly instructed Linfield's solicitors, Piper Alderman, to write to SXG's solicitor, Mr Kwan, reminding SXG 'that it has obligations to our client under the Development Agreement to keep our client copied into all material correspondence regarding the Contract'. Piper Alderman's letter was sent on 26 June. On 27 June Ben Lin met Joe Zheng, as Mrs Guan had suggested. He said 'Can you please let me know what is going on from your camp' to which Mr Zheng responded that - Mrs Guan is looking for money; he wasn't sure what was going on; and he did not have a copy of 'the proposed loan documents'. Given the 26 June loan agreement, this seems evasive, at best.
4. On 4 July Ben Lin attended a meeting with Mr Chen. He did not understand that ACFM had committed to advance funds to SXG and had begun to think that SXG would never complete the purchase. He wanted to invite ACFM to consider funding Linfield to complete the purchase. Mr Chen said 'I'm locked up with Mrs Guan on Kensington and I'm trying to put Auburn into a combined fund … You need to sort out your issues with the development agreement with Mrs Guan'.
5. On 7 July 2014, Ben Lin followed up this conversation. He wrote to Owen Chen and Howard Ting about ACFM providing funding to Linfield to purchase the Auburn land. He said that SXG was in breach of its obligations under the development agreement and explained that Linfield had legal advice confirming that, given certain events, it could exercise its rights to 'take control of the contract and settlement of the property'. He said that he understood that 'A-Capital has been in talks with SXG to provide funds to complete the contract subject to SXG providing $2 - $4 million in equity'. He specifically asked 'Could you please clarify immediately whether A-Capital is proceeding with this arrangement …'. There was no response.
6. The email concluded by exploring the possibility of ACFM funding Linfield to purchase the land as follows: Notwithstanding this, LFD would like to invite A-Capital (ACP) to provide funding for the Auburn RSL Project with Linfield Developments (LFD) as per the following key terms: - ACP agrees to loan LFD $19,000,000 as debt to help fund settlement of the Auburn RSL Contract of Sale - ACP takes a first registered mortgage over the land - LFD pays ACP an interest rate of 5% per annum capitalized and payable at the end of the project - LFD agrees to share 20% of the profits of the project with ACP - LFD contributes the remaining equity required to settle the property (approximately $2,000,000) and owns the equity on the project - The loan term is 5 years - LFD is the Development Manager for the project and all existing development management agreements and consultants arrangements are maintained If the above is to your approval could you please urgently forward a heads of agreement to Linfield Developments Pty Ltd and terms sheet for review and signing. Alternatively, if ACP is not willing to fund the acquisition of the Auburn RSL site then Linfield Developments will need to find an alternative financier in the case of SXG doesn't settle and LFD Calls its Option to purchase the site.
7. On 10 July, Owen Chen, Ben Lin and Mr Tanevski met again. Ben Lin's account of their conversation was not contradicted and I accept it. Mr Tanevski said to Mr Chen 'Linfield has entered into a development agreement and SXG warranted that it would settle the land unencumbered …We are still trying to work with you but Linfield cannot be any worse off'.
8. ACFM was not interested. It had decided on a different strategy. It ignored the 7 July email. It shut its eyes to the past course of dealing. It disregarded the basis on which the parties had been proceeding. It ignored the development agreement and Linfield's proposals for its re-negotiation. And unknown to Linfield, it entered into an amended loan agreement with SXG on 18 July and arranged settlement for 5 August.
9. Ben Lin was increasingly disturbed and uncertain. In mid-July he rang the solicitor for RSL and received scraps of information. Sometime afterwards, he was told that settlement was booked for 5 August. On 23 July he instructed Piper Alderman to write again to Mr Kwan, SXG's solicitor, emphasizing the terms and conditions of the development agreement between SXG and Linfield. In particular, the letter warned that '… SXG must not use (or agree to use) the Land as security for any purpose other than for a mortgage to be granted as part of the Project Finance to be arranged by LFD (clauses 7.1 and 7.2)'. Among other things, the letter asked for 'written confirmation that SXG has not agreed to use the Land as security for any proposed financing arrangements'.
10. Mr Kwan responded the next day, ignoring the warning from Piper Alderman: … our client has to enter into mortgage and other financial arrangements with another party in order to complete the purchase of the Auburn property. Your client is fully aware of the source of the finance and our client does not see the need at this stage to provide further information. Our client remains of the opinion that the respective parties need to meet soon to sort out the differences and to work out a way forward…
11. This letter also alleged that Linfield had itself breached the development agreement but there was no suggestion that any alleged breach was repudiatory, that any repudiatory conduct had been accepted or that the development agreement had been terminated. In fact, the letter affirmed the development agreement by calling for compliance with clause 3.2. Still less was there any suggestion in this letter that Linfield had abandoned the development agreement by signing the structure paper.
12. On 2 August, Ben Lin met Mr Chen once again. He told Chen that he was unclear what ACFM's agreement with Mrs Guan and SXG was. He added that 'Linfield has to stick with its existing development agreement until such time that a new acceptable one is in place'. This statement was unchallenged in cross-examination and was not, of course, contradicted by any evidence from Mr Chen. It would seem that Mr Chen did not inform Ben Lin that ACFM had decided to adopt a different strategy. He did not disabuse Ben Lin of the latter's apparent belief that there was some utility in Linfield sticking to 'its existing development agreement until such time as a new acceptable one is in place'. In truth, ACFM had decided to ignore the development agreement between SXG and Linfield, including in particular, the express prohibition on the grant of a mortgage.
13. On 5 August, SXG completed the purchase of the Auburn land. In contravention of the development agreement, it granted a mortgage over the land to ACFM. On 6 August, when Linfield became aware of what had happened, it lodged a caveat on the title to the Auburn land - before registration of the mortgage to ACFM. On 20 November, ACFM appointed administrators to SXG. This is the event of default on which Linfield relies for the exercise of its call option. On 20 January 2015 Linfield served notice pursuant to clause 18.6(c) of the development agreement exercising its call option.

Nature of Linfield's Interest

1. The first question as between ACFM and Linfield concerns the nature of Linfield's interest arising pursuant to the call option. If Linfield has an equitable interest in the Auburn land, the question then becomes - which of the equitable interests of Linfield and ACFM has priority? ACFM's interest either arose on 26 June 2014 when the loan agreement was originally entered into or on 5 August 2014 when it advanced the funds at completion and received an equitable charge and unregistered mortgage. Linfield's 'interest' is different. It had two rights pursuant to the call option. Its initial right pursuant to clause 18.7 arose when the development agreement was entered into on 20 December 2013. Another right pursuant to clause 18.8 took effect upon completion on 5 August 2014. I have concluded that Linfield acquired an equitable interest in the Auburn land on completion - but not before that date.
2. For its part, ACFM contends that Linfield did not acquire an equitable interest in the land until 20 November 2014 when the event of default occurred or on 20 January 2015 when the call option was exercised. I do not think that is right. There is little doubt that, generally speaking, a conditional call option will create an interest in land at the time of the grant of the option. It is not necessary to wait until the condition has been triggered or the option exercised for the equitable interest to arise: Jessica Holdings Pty Ltd v Anglican Property Trust Diocese of Sydney (1992) 27 NSWLR 140; Re Henderson's Caveat [1998] 1 Qd R 632; Re Premier Freehold Pty Ltd's Caveat [1981] Qd R 547; Forder v Cemcorp Pty Ltd (2001) 51 NSWLR 486; GPT Re Ltd v Lend Lease Real Estate Investments Ltd [2005] NSWSC 964; Lend Lease Real Estate Investments Ltd v GPT Re Ltd [2006] NSWCA 207; Radoman Pty Ltd v Vexapu Pty Ltd [2008] NSWSC 8.
3. However, in the usual case, the equitable interest in land will have been created by the registered proprietor, with the result that a court of equity will recognize and enforce that interest against the registered proprietor. In this case the interest pursuant to clause 18.7 is said to have been created by a purchaser (SXG) as a result of the grant by it of an option to a third party (Linfield) prior to completion of a contract to purchase the land from the registered proprietor (RSL). ACFM contended with some justification that Linfield could not acquire an interest in the land from SXG before completion. Linfield certainly acquired a valuable contractual right prior to completion, which was enforceable in equity by injunction against SXG. But it is difficult to see how the grant of a conditional option by a purchaser to a third party could create an interest in land enforceable against the registered proprietor. The position is similar, but one step further removed, from the position of the conditional purchaser in the particular circumstances explained by Windeyer J in Brown v Heffer (1967) 116 CLR 344 at 351-2.
4. The right given to Linfield by clause 18.7 of the development agreement is a right, prior to completion, to 'proceed to completion of the Contract' as the attorney of SXG and pay to the vendor 'the amount necessary to complete the Contract'. It is a right to step into the shoes of the purchaser under the contract for sale. But there was no suggestion that RSL, the registered proprietor, knew of Linfield's pre-completion right. And it was not, of course, a party to the development agreement between SXG and Linfield. There is no apparent legal basis by which RSL could be bound, as against Linfield, to recognize its contractual right pursuant to the call option. Still less is there a reason to think that, prior to completion, Linfield had an equitable interest in the land which could, for example, entitle it to restrain RSL from selling the land to a third party - if RSL was otherwise justified in doing so because of some breach and consequent termination of the contract for sale.
5. In GPT Re Ltd v Lend Lease at [62] White J described the contingent equitable interest of the grantee of a call option from the registered proprietor as one which is 'imposed on but not carved out of the legal estate' and that it is commensurate with the holder's right, which equity will protect, to compel the grantor to honor its contract. In this case, that analogy does not fit. No equitable interest in the land has been carved out of or imposed on RSL's legal estate. Nor has some sort of subsidiary equitable interest in the land - enforceable against RSL - been carved out of or imposed on SXG's equitable interest as purchaser pursuant to the contract for sale. As against SXG, Linfield's right prior to completion is contractual.
6. It is pertinent to observe, although it is not determinative of this issue, that the drafter of the development agreement appears to have recognized the distinction between Linfield's rights pursuant to the call option before and after completion. Clause 23.10 permits Linfield to register a caveat on the land only after completion. For the reasons that I have explained, the distinction is understandable. Linfield did not have an equitable interest in the land before completion. But it did have such an interest upon completion. From completion, SXG was the putative registered proprietor and Linfield's rights pursuant to clause 18.8 of the development agreement gave it an interest in the land enforceable against SXG.
7. That interest arose because, from completion, Linfield had the right, upon exercise, to require SXG to deliver to it a 'duly signed Transfer of the land in registrable form, free from mortgage, charge or encumbrance' upon payment of $20 million if, as in this case, development approval has not been obtained. This valuable right is qualitatively different to Linfield's right before completion. It constituted an equitable interest in the land commensurate with Linfield's right, enforceable by equity, to compel SXG to comply with clause 18.8. For the reasons explained in paragraph [67] above, the fact that the exercise of Linfield's right was contingent upon the occurrence of an Event of Default which was an Insolvency Event, does not mean that it did not have an equitable interest in the land until the occurrence of that event or exercise of the option. I should mention in passing that the particular terms of clause 18.8 of the development agreement in this case make it unhelpful to attempt to draw any comparison with the quite different facts in Palm Gardens Consolidated Pty Ltd v P G Properties Pty Ltd [2009] SASC 311 at [80].

Priority between ACFM and Linfield

1. The result is that each of ACFM and Linfield acquired an equitable interest in the land upon completion of the contract for sale on 5 August 2014. In fact, ACFM may possibly have acquired an interest on 26 June when it entered into the loan agreement with SXG. Even assuming that it did, the merits are not equal. They favour Linfield. To start with, the sequence of events that I have explained in paragraphs [47] - [65] above suggests that ACFM perceived an advantage in acting surreptitiously. In late June and July 2014, it commenced to depart from the basis upon which the parties had been proceeding since April. It was no longer interested in the negotiation of a new development agreement between SXG and Linfield or in arranging for the termination of their existing development agreement. And there was no explanation for this departure. One available inference is that ACFM perceived a commercial benefit in ignoring Linfield's rights and ignoring the past course of dealing - in the hope or expectation that Linfield might retreat or be forced into a position of negotiating from a position of disadvantage.
2. As I have mentioned, senior counsel for ACFM made a forensic decision not to read the affidavits of the two senior officers of ACFM. Their absence entitles me more readily to draw an unfavourable inference against ACFM. In S S Pharmaceuticals v Qantas [1991] 1 Lloyd's Rep 288 at 293, Gleeson CJ and Handley JA said: Where the inference of greater fault is open on the evidence we see no difficulty in drawing that more adverse inference where the defendant fails to call evidence. As Mr Justice Rich (who was part of the majority) said in Insurance Commissioner v Joyce, (1948) 77 CLR 39 at 49 where an inference is open and the defendant elects not to give evidence 'the Court is entitled to be bold'.
3. The following facts tell against ACFM. They formed part of a written submission provided to ACFM on the first day of the hearing. The clarity with which Linfield's responsive case on priority was set out made it unnecessary for there to be a formal pleaded reply. I did not require it and senior counsel for ACFM consented to this course. The case on priority between ACFM and Linfield was conducted by reference to those matters. I am satisfied that each has been established: 1. at all material times ACFM was aware of the existence and terms of the development agreement; 2. those terms included clause 7.1 by which SXG agreed that it 'must not use (or agree to use) the Land as security for any purpose' including, without limiting the generality of the clause, that it 'must not grant any mortgage, charge or other encumbrance over the Land'. The terms also included clause 11.6 headed 'Alienation of Interests' and 11.7 headed 'Mortgaging of Interests'; 3. ACFM had received specific advice from Baker & McKenzie on 3 June 2014 in relation to the development agreement and the constraints which that agreement presented for any involvement by ACFM; 4. ACFM was aware that Linfield had paid $700,000, representing 70% of the deposit on the property and had been working hard at its own expense to progress the development application for the project; 5. ACFM knew that Linfield expected that, if its development agreement were to be superseded, Linfield and ACFM would have to agree to the terms of a new development agreement as part of any new financing arrangement; 6. ACFM knew that Linfield expected that the terms of a new development agreement would be first agreed between the parties before a new financing arrangement; 7. ACFM entered into its loan and security arrangements with SXG in the knowledge that doing so entailed a breach by SXG of the existing development agreement and in circumstances where that development agreement had not been terminated nor the terms of a new development agreement agreed; 8. ACFM departed from the conventional basis upon which the parties had been proceeding, namely that any financial participation by ACFM which involved it taking security over the land would necessarily require formal termination of the existing development agreement and execution of a new development agreement on terms satisfactory to Linfield.
4. From a commercial perspective, and having regard to the evidence, it seems reasonable to infer that by late June 2014, ACFM had concluded that it did not want to share any profits from the proposed development with Linfield; did not want to reimburse Linfield for the substantial expenses which it had incurred; and wished to improve its own security and negotiating position as against Linfield. It chose to run the risk of taking a mortgage from SXG with knowledge that the grant of mortgage would constitute a breach of SXG's obligation pursuant to clause 7.1 of its development agreement with Linfield.
5. ACFM acted stealthily - despite the candid discussions between Ben Lin, Howard Ting and Owen Chen in April and May 2014 and the apparent recognition by ACFM at that stage that it was necessary or appropriate for Linfield's existing development agreement to be terminated and a new agreement entered into. And the unexplained absence of Howard Ting and Owen Chen from the witness box merely reinforced the inference of sharp practice. I accept Ben Lin's evidence, which was plausible, and in the circumstances, understandable, that 'ACFM gave Linfield comfort that it would be receiving a new development agreement'. He added, equally credibly in the circumstances, that he 'trusted that ACFM would front up with the new development agreement'.
6. Having changed its mind, ACFM did not give Ben Lin full, frank and honest information, including advance notice, about the loan agreement on 26 June 2014, the amended loan agreement on 18 July 2014 and the proposed settlement on 5 August. When Ben Lin became aware that settlement had occurred, he caused Linfield to lodge a caveat preventing registration of ACFM's mortgage. If he had been fully aware of the arrangements between SXG and ACFM before 5 August 2014, there might have ensued the very renegotiation of the development agreement on which the parties had embarked in apparent good faith in April. There was no necessarily insuperable obstacle to such a renegotiation from Linfield's perspective. It was just a question of terms. But ACFM did not want to pay the price and instead attempted to 'freeze out' Linfield.
7. As I have mentioned, Linfield's case in reply on the priority question was not pleaded because it had been unambiguously set out in writing and there was therefore no necessity to repeat it formally. Its crux was an allegation of conventional estoppel. I repeat the concluding contention: ACFM departed from the conventional basis upon which the parties had proceeding, viz. that any financial involvement by ACFM involving it taking security over the Land would as a necessary component first require termination of the existing Development Agreement and agreement being reached with Linfield as to satisfactory terms of a new development agreement.

The Legal Test

1. This is not an example of the usual case where conduct by the holder of the prior interest (ACFM) has led the holder of the later interest (Linfield) to acquire its interest in ignorance of the prior interest. Linfield's right to an interest in the land was embodied in clause 18.8 of the development agreement which it entered into on 20 December 2013. That right crystallized upon completion on 5 August 2014 but it was acquired when the agreement was entered into. ACFM did not cause Linfield to enter into the development agreement.
2. However, for the reasons that I have explained, ACFM's conduct caused Linfield to act on a false premise and resulted in it suffering detriment. The test for resolution of a priority dispute between competing equitable interests in land is often said to be flexible. Courts sometimes speak of 'general considerations of fairness'. I do not think that the test should be confined in all cases by conventional categories. Nor, on reflection, should it be circumscribed by the factors which I stipulated in Circuit Finance Australia (Receivers and Managers appointed) (in liquidation) v Panella [2011] NSWSC 311 at [13], which were adopted by Darke J in Champion House Sales Pty Ltd v JKAM Investments Pty Ltd; Hotray Pty Ltd v JKAM Investments Pty Ltd [2014] NSWSC 952 at [90]. Those factors may be useful, and may well apply in most cases. But they will not necessarily cover every situation.
3. This case calls for the application of a broader, more overarching statement of principle. Such an approach was set out by Bryson J in Cranston v CBFC Ltd, Supreme Court of New South Wales, unreported, 11 June 1993 at pages 30-31. I respectfully adopt the following analysis by his Honour: Although the judgments in the High Court of Australia in Latec Investments Ltd v Hotel Terrigal Pty Ltd (1965) 113 CLR 265 dealt with the classification of claims protected by equitable remedies in the context of competition, no clear principles of catergorisation and priority emerged. The view of Menzies J, Taylor J or Kitto J must be considered with respectful deference, but it is significant of [sic] the elaboration of the subject and its intractability to categorisation that a clear common view did not emerge. The judgments in the High Court in Heid v Reliance Finance Corporation Pty Ltd & Anor (1983) 154 CLR 326 do not treat the competition of priorities of equities as turning on precise categorisations. Mason and Deane JJ resolved the conflict on the basis of their acceptance of "…a more general and flexible principle that preference should be given to what is the better equity in an examination of the relevant circumstances" (at 341). In my respectful view their Honours did not adopt any precise usage of "equitable interest" and "equity" as they would have done if precision had been appropriate: see the whole judgment at 339 to 345 including the terminology employed on page 342. Gibbs CJ and Murphy J also resolved the conflict on broader bases.
4. The approach of Bryson J in Cranston, which recognizes the 'intractability to catergorisation' in this area of the law, is also reflected in the following additional decisions: Person to Person Financial Services Pty Ltd v Sharari [1984] 1 NSWLR 745 at 746-7 per McLelland J; Cash Resources Australia Pty Ltd v BT Securities Ltd [1990] VR 576 at 586 per Brooking J; Avco Financial Services Ltd v Fishman [1993] 1 VR 90 at 93 per Tadgell J; and Elderly Citizens Homes of SA Inc v Balnaves (1998) 72 SASR 210 at 223-5 per Debelle J.
5. For those reasons, and having regard to those statements of principle, I have reached the conclusion that the facts of this case, which are sufficient to ground a conventional estoppel against ACFM, are also sufficient to justify Linfield's equitable interest being treated as having priority over the interest of ACFM. I adopt Linfield's submissions as follows: [106] In the present case, applying the test in Heid v Reliance Finance, the merits are plainly not equal "bearing in mind the conduct of both parties, the question of any negligence on the part of the prior claimant, the effect of any representation as possibly raising an estoppel and whether it can be said that the conduct of the first or prior owner has enabled such a representation to be made ..." if, contrary to Linfield's principal submission, ACFM held the prior equitable interest, there was "tangible conduct by the holder of the first interest which caused the holder of the later interest to act [or not to act] on a false premise". [107] The Court would comfortably find that, at least from the time of the Structure Paper of 2 June 2014, all parties proceeded on the conventional basis or footing that, if there were to be a new funding agreement put in place which would see A/Capital or its nominated entity assuming some interest in the property, that would be on the quasi-formal, albeit non-binding basis, set out with considerable clarity in the 2 June Structure Paper. [108] The execution of the Loan Agreement on 26 June 2014 and subsequent amended documents and related security documents represented a departure from that conventional basis by both SXG and ACFM in circumstances that were relevantly unconscionable (if unconscionability is indeed a necessary element for a conventional estoppel to arise - see the discussion by Edelman J in Mineralogy Pty Limited v Sino Iron Pty Limited (No 6) [2015] FCA 825 at 758-779) and obviously caused a detriment to Linfield.
6. I add, to the extent that it is necessary to do so, that the facts that I have found demonstrate unconscionability by ACFM. I acknowledge that in principle, parties to commercial arrangements do not have to safeguard the interests of each other. ACFM could have made clear from the outset that it was not interested in the renegotiation of Linfield's development agreement with SXG and that, if SXG chose to deal with ACFM in breach of the development agreement, Linfield would have to look to its remedies against SXG. But that would have been impractical and ACFM adopted a different course - on which it proceeded until late June. And Linfield acted to its detriment. ACFM should not now be permitted to resile from the basis on which the parties had been dealing with each other. The equities are not equal. In my view, ACFM has forfeited the priority to which its equitable mortgage and charge would otherwise have been entitled.

ACFM's Cross Claim

1. Before leaving this aspect of the case, I should turn to ACFM's defence and cross claim, which turn on the same findings of fact. ACFM pleaded estoppel and misleading conduct against Linfield. Its essence consisted of contentions that Linfield stood by while ACFM advanced money on security over the Auburn land; that Linfield purposefully elected not to exercise its call option before completion of SXG's purchase, knowing that completion could only occur if ACFM advanced funds on terms that included the grant of security over the land; and that Linfield knew that no development agreement had been entered into before completion, yet raised no complaint.
2. I do not accept the factual characterization that is inherent in ACFM's case. Linfield was misled, not ACFM. It was Ben Lin who was uncertain - a state of mind that he made clear to Owen Chen as late as 2 August. He wanted SXG to complete the purchase but he did not embark on a 'deliberate strategy' to mislead ACFM. On the other hand, ACFM, through Howard Ting and Owen Chen, knew exactly what they were doing. Their eyes were wide open. They took a chance, knowing that a grant of mortgage by SXG would be a breach of an express term of its development agreement with Linfield. They were prepared to take a commercial and legal risk to advance their own interests, not because of any misunderstanding, but because they made a clear-eyed business decision to do so. Their absence from the witness box meant that there was no opportunity to explore their motives. But Dr Bell SC was on strong ground in suggesting that they had decided to 'acquire now and negotiate later'.
3. Those findings and conclusions are sufficient to dispose of ACFM's cross claim. There is no factual basis for a finding of estoppel or misleading conduct against Linfield. ACFM did not rely upon Linfield's representations and conduct to act to its detriment. Given the facts that I have found, and ACFM's decision not to read the affidavits of its two senior officers, Mr Ting and Mr Chen, ACFM's submissions in support of its cross claim were bold.

The Penalty Issue

1. The other major legal issue is the penalty argument propounded by the Guan defendants. ACFM stood to take the benefit of this defence if it was made out, but chose not to address any submissions to support it. I have concluded that there was good reason for silence on this issue.
2. It is difficult to see anything at all extravagant or unconscionable about the terms or operation of the call option in clause 18 of the development agreement. If exercised before completion, clause 18.7 required Linfield to proceed to completion and 'pay to the vendor … the amount necessary to complete the Contract'. If exercised after completion, clause 18.8 required Linfield to pay the purchase price, namely $20 million, to SXG. In the event that the call option was exercised after development approval had been obtained, there was a formula for variation, subject to expert arbitration. On their face, these provisions do not appear penal in character. On the contrary, they appear designed to ensure that if the call option is exercised, Linfield will be in the same position that SXG would have been in, but no better.
3. I fail to see any legitimate ground of complaint, other than that Mrs Guan does not want Linfield to have the commercial benefit of the price that she agreed to pay to RSL. Her apparent contention is that she believes she obtained a bargain and that the land is, or was, worth more than the contract price. This seems to me to be beside the point. As Allsop J said in Paciocco v Australia & New Zealand Banking Group Ltd [2015] FCAFC 50 at [95] '…the task of the court is to assess whether the clause in question is penal in character. The task (or technique) is one of construction in a wide sense, falling to be decided by the meaning and content of the words and on the inherent circumstances of each particular contract, judged at the time of its making: Dunlop at 86-87'.

A Question of Construction

1. I listened with patient reluctance to detailed opinion evidence relating to the supposed value of the land at different points in time - land on which Mrs Guan had once hoped to achieve an ambitious development project, but for which she never obtained development approval. To this day, it remains unapproved. That evidence was adduced notwithstanding that Allsop J emphasized in Paciocco at [95] that the assessment of whether a contractual clause was penal in character involved a 'process of contractual construction and interpretation, and also any necessary characterisation of the clause with that meaning in its full context'. And he reiterated that the 'question is to be assessed as at the time of entry into the contract'.
2. I have concluded that, as a matter of construction and characterisation, there is nothing oppressive or unconscionable about the terms or operation of clause 18 of the development agreement. On its face, and as a matter of substance, it is fair and reasonable. It matters not that the land is or was possibly worth more than the contract price. If the exercise price of the call option is commercially attractive because it is based on a beneficial contract price, then that is merely a fortuitous commercial incident of a reasonable contractual provision. Both SXG and Linfield stood to benefit from it. For that reason alone, I do not accept the Guan defendants' penalty argument. I think it is wrong in principle. It would mean that a clause that was not a penalty at the time of entry into the agreement, could subsequently become a penalty because of later events that affect the value of the land.
3. The question is and always has been one of construction. It has been approached in that way for over a century. In Dunlop Pneumatic Tyre Company Limited v New Garage & Motor Company Limited [1915] AC 79 at 86-7 Lord Dunedin said: The question whether a sum stipulated is penalty or liquidated damages is a question of construction to be decided upon the terms and inherent circumstances of each particular contract, judged of as at the time of the making of the contract, not as at the time of the breach (Public Works Commissioner v Hills [1906] AC 368 and Webster v Bosanquet [1912] AC 394.
4. Ninety years later, in Ringrow Pty Ltd v BP Australia Pty Ltd [2005] HCA 71 the High Court of Australia closed the door (for the time being) on further debate, stating unanimously at [12]: Neither side in the appeal contested the foregoing statement by Lord Dunedin of the principles governing the identification, proof and consequences of penalties in contractual stipulations. The formulation has endured for ninety years. It has been applied countless times in this and other courts. In these circumstances, the present appeal afforded no occasion for a general reconsideration of Lord Dunedin's tests to determine whether any particular feature of Australian conditions, any change in the nature of penalties or any element in the contemporary market-place suggest the need for a new formulation. It is therefore proper to proceed on the basis that Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd continues to express the law applicable in this country, leaving any more substantial reconsideration than that advanced, to a future case where reconsideration or reformulation is in issue.
5. Additionally, and in any event, I am not satisfied by the evidence that the value of the Auburn land was more than $20 million as at 20 December 2013. The Guan defendants relied upon the evidence of Mr Sukkar who gave figures in his revised report valuing the land between $21.7 million and $24.3 million as at 20 December 2013. These figures were derived in part by using a risk factor rate of 22% but Mr Sukkar fairly conceded in cross examination that reasonable minds could differ as to the rate to be chosen. He accepted that a reasonable and competent valuer could equally have chosen a rate of 25%. This would have the consequence of reducing his valuation by several million dollars, bringing his range down to between $19.7 and $22.3 million. This alone is fatal to the penalty case - at least the case based on the value of the land at the time of entry into the agreement.

Hypothetical Development Valuation Method

1. There were other difficulties with Mr Sukkar's valuation, in particular his methodology, not to mention his unwarranted enthusiasm. I do not think that it was appropriate to value the land on a 'highest and best use' basis in December 2013 given the numerous uncertainties that pertained to the development, including the absence of development approval. Innumerable possibilities and countless combinations and permutations relating to design, layout, density and cost remained to be resolved.
2. Eminent judges with specialist expertise in land and valuation cases - far more than I have - have consistently warned against the hypothetical development method of valuation. Some of those warnings include: Co-ordinated Resources Pty Ltd v Valuer-General (1983) 27 The Valuer 779 at 780, per Cripps J: Although this is a recognised method of valuation, its use … has always been regarded as suspect. If the estimates of assumed improvement costs, gross rentals and outgoings are not accurate, the whole exercise leads to an unreliable result. A small difference in the rate of capitalisation from that assumed has significant consequences. See also Gwynvill Properties Pty Ltd v Commissioner for Main Roads (1983) 50 LGRA 322 at 326 per Cripps J. Western Australian Planning Commission v Arcus Shopfitters Pty [2003] WASCA 295 at [65], per McLure J: The hypothetical development analysis is a less reliable valuation method because of the number and nature of the assumptions that have to be made. Palmalco Pty Ltd v Minister Administering the National Parks and Wildlife Act 1974 (No 3) (1991) 71 LGRA 441 at 447, per Hemmings J: However, the inevitable multiplicity of assumptions and adjustments make such mathematical hypothetical assessment less reliable than the "selling" approach based on market sales of comparable land with the minimum of adjustment. Coastal Estates Pty Ltd v Bass Shire Council [1993] 2 VR 566 at 577-8, per Gobbo J: The chief peril of the analysis method is that it may give an air of certainty by recourse to a mathematical calculation where there is no more and no less than an exercise of judgment. An exercise of judgment does not become more valuable merely because it is converted into a percentage. The nature of the uncertainties and possibilities for error in the analysis method have been very well described in the judgment of Wells J in Brewarrana's Case, at 180-2. Brewarrana Pty Ltd v Commissioner of Highways (No 1) (1973) 32 LGRA 170 at 181 per Wells J: But the detailed discussion in evidence of the hypothetical subdivision method, as it is applied today, has left me with grave misgivings as to its practical utility in many cases, including the present, and for the reasons for those misgivings it is unnecessary to look further than the elementary mathematical principles with respect to absolute and relative error. 15 Lorimer Street Pty Ltd v Secretary to the Dept of Infrastructure (1997) 97 LGERA 239 at 252-3 per Byrne J: The weakness of the [hypothetical development] approach is that it applies an apparently scientific formula to a great number of subjectively established variables. The operation of the formula is such that small variations to these variables can have a very great impact upon the result: Turner v Minister of Public Construction (1956) 95 CLR 245 at 268 per Dixon CJ. This has caused valuation judges of great eminence and experience to warn against a too ready reliance upon this approach. … One feature which runs through these warnings is the danger of applying the approach where the hypothetical development is not to be carried out within a reasonably short time.
3. The plaintiff's valuation expert, Mr Rowlands, counselled against the adoption of a valuation methodology based on a hypothetical development. He said that it was not appropriate in the circumstances of this case, although he accepted that it may be appropriate in a given case as a development 'unfolded'. He was referring to the progressive achievement of certainty surrounding the likely successful construction of an approved development project. Mr Rowlands was an impressive expert witness, and significantly more experienced than Mr Sukkar. He highlighted the essential weakness in the highest and best use valuation method when he said 'They (ie lenders) are now becoming aware that a development approval only has value when the building is built, not just because it is granted'. As I have mentioned, in this case, Mrs Guan's development project was no more than an aspiration. There was no development approval; nor any final resolution whatsoever of the multiple uncertainties that attended the project.
4. Even if it were appropriate to rely on a hypothetical development methodology, I am not satisfied that there is a proper foundation to accept several of the critical assumptions on which Mr Sukkar's report relied. These include the time for development approval, the number of units that may be approved, the adoption of the middle risk band of 22%, the internal rate of return, the existence of pre-sales, the impact of flooding and the easement. And as I have mentioned, the impact of reasonable changes to Mr Sukkar's assumptions leads to a valuation, on his methodology, which is less than $20 million as at December, 2013.

Time of Assessment

1. The final point that arises on the penalty question is a question of law. Over the objection of the plaintiff, I allowed Mr Sukkar to give opinion evidence of the value of the land at various future dates after December 2013, which was the date when the development agreement was entered into and the terms of the call option were agreed. I have already referred to the decision of the Full Court of the Federal Court of Australia in Paciocco, and in particular to the statement by Allsop J that the 'question is to be assessed as at the time of entry into the contract'. I see no reason in law or in principle to depart from that approach. And, although I am not bound by that decision as a matter of precedent, I should treat it with considerable respect. I adopt the following statement of Brooking J in Re Kakadu Resources ltd [1992] 2 VR 610 at 612: A judge of this court will, of course, treat a decision of the Full Court of the Federal Court in any field as having a high degree of persuasive authority.
2. In addition, the reasoning of Allsop J in Paciocco has the advantage of according with modern and ancient authority. I have already referred to Lord Dunedin's statement in Dunlop Pheumatic Tyre Company at 86-7 and its endorsement by the High Court of Australia in Ringrow at [12]. See also Forrest & Barr v Henderson & Co (1869) 8 M, 187 at 193 per Lord Inglis and Clydebank Engineering and Shipbuilding Company v Don Jose Ramos Yzquierdo v Castaneda [1905] AC 6 at 17 per Lord Davey. For those reasons, the only relevant time for determination of the penalty question was at the date of entry into the development agreement.

Credit Issues

1. Before disposing of the remaining issues, I should return to the credibility of Mrs Guan and her two supporting witnesses of fact. Henson Liang was an unsatisfactory witness. Even making allowance for any confusion arising from his imperfect English, his evidence was at best unhelpful and in general unreliable. He gave remarkably specific evidence of conversations which occurred on particular occasions more than two years ago. He accepted that he had no notes of any of these conversations but implausibly insisted that he could recall what was said with specificity and particularity. It was clear during his cross-examination that he had no real idea when the conversations purportedly occurred or the detail of what was said. His recollection was frequently shown to be wrong and inaccurate. Moreover, he had a significant financial interest in the outcome of the litigation. Henson Liang was a personal guarantor of ACFM's $45 million loan to SXG. He therefore had a personal and commercial motivation to give evidence that would assist the defendants.
2. Simon Zhuang was also an unsatisfactory witness. I did not think that his evidence was always honest. He gave his evidence through an interpreter but clearly understood certain questions from both Dr Bell SC and me. On one occasion he even corrected an answer in English given by the interpreter. It had originally been proposed that he give evidence pursuant to a subpoena. But without explanation or justification, he produced an affidavit on the morning when he was called. His counsel did not ask, and he did not explain, why the affidavit was not served earlier in accordance with the directions of the Court.
3. Mr Zhuang claimed to remember specific dates of meetings he attended several years ago in circumstances where he had no notes or contemporaneous written documents relating to these meetings. He stated that the recollection of events in his affidavit sworn on the morning that he gave evidence was better than his recollection six months earlier. When asked by Dr Bell SC about the date of a meeting at A-Capital, he was vague. Yet in the affidavit he had sworn on the morning of his evidence, he was specific. He had an email address in the English language but protested that his assistant wrote emails in English on his behalf and read emails in English sent to him. He received copies of formal contractual or related documents typed in English but said he could not read them. He even requested a copy of the development agreement in English but did not consider it necessary to have it translated. When confronted with a copy of a letter in English dated 9 May 2014, addressed to him as 'Dear Simon', his response was defensive. When he was legitimately pressed on matters going to his credit - to which his counsel took no objection - his evidence became more indirect, more non-responsive and he complained of a 'lack of respect'. Often, I thought, he was thinking on his feet, seeking to qualify or embroider earlier answers whenever he perceived that they might not have assisted him or Mrs Guan. Simon Zhuang also had a financial connection with Mrs Guan. He was entitled to receive 4% commission on any amount he procured from an investor in the Auburn project.
4. Like a general leading from the rear, Mrs Guan gave her evidence after Henson Liang and Simon Zhuang. She is an Australian resident with a considerable business background in the People's Republic of China (PRC). The evidence was inexact but her business experience in China appears to have included a taxi and freight business, a steel processing and iron ore mining business which at one point employed 3,000 people and an electricity power board business. In the conduct of each of these businesses, she had to deal with commercial contracts.
5. Since 2010 Mrs Guan has engaged in various property developments in Australia including at Kensington and in the Blue Mountains. The evidence in relation to the Blue Mountains project was primarily obtained from Mr Zhuang during his cross-examination. Mrs Guan gave evidence that she obtained the funds for her Australian property development activities by selling some of her assets in China including the mining business which she said she sold for $20 million. For the purposes of her Kensington project, she purchased between 2012 and 2014 through Shuangfu 8 blocks of land for development into 200 units and 1,700 square metres of retail space. In relation to the Blue Mountains project, Mr Zhuang said that Mrs Guan discussed with him the development of the land into a Chinese cultural centre with a kung fu school, church and spa facilities. This evidence was opaque but it was enough to indicate to me that overall, her commercial property development experience in Australia was not insubstantial. Although Mrs Guan sometimes gave the impression of being naïve, the project for the redevelopment of the Auburn land was not her first property development in Australia.
6. Mrs Guan also gave evidence through an interpreter. She had limited English. Frequently, it was necessary to restrain her from volunteering information. Often she was unwilling or unable to satisfactorily answer questions put to her. At times she over-compensated, effecting sincerity, emotion or even charm. Like Henson Liang and Simon Zhuang, and unlike Ben Lin, Mrs Guan had no notes of any alleged conversations. She had a very poor memory. She purported to recall a number of events in detail in her various affidavits but was unable to recall anything with precision during cross-examination. I found her evidence to be implausible and unreliable. I thought she was cavalier about the truth and about her contractual obligations. She is another of the personal guarantors of the $45 million loan from ACFM.

Other Issues

1. The findings of fact that I have already set out in detail, and my conclusions on credibility, are sufficient to resolve most of the remaining issues raised by the Guan defendants. I have reached the view that there was no misrepresentation, no unconscionability, no misleading conduct, no unjustness and certainly no estoppel. I have already made clear that there was no termination or abandonment, let alone any repudiation of the development agreement or acceptance of any such repudiation. Nor is there any reason to conclude that the development agreement or the call option is void for uncertainty. However, one issue requires slightly more elaboration. But it also fails.

Corporate Guarantees

1. The corporate defendants named as guarantors in the development agreement seek a declaration that on the proper construction of clause 21.1(b) of that agreement, they are not obliged to indemnify Linfield for its loss or damage. This is a claim that only arises in the event that Linfield is not entitled to its primary relief.
2. Both Mrs Guan and two companies associated with her were guarantors under the development agreement. The corporate guarantors submit that they were not 'Guarantors' within the meaning of clause 21.1(b) and are therefore under no contractual liability to Linfield. They contend that no clause defines or requires the term 'Corporate Guarantors' to be a subset of the term 'Guarantors'.
3. Mrs Guan is defined in the 'Parties' section of the development agreement as 'Guarantor'. The third, fourth and fifth defendants are defined as 'Corporate Guarantor' in clause 1.1. Clause 21.1 uses the undefined term 'Guarantors'. The natural and obvious construction is that the plural use of the term refers to the various guarantors under the development agreement, namely Mrs Guan (defined as the guarantor) and the two corporate guarantors.
4. There is no ambiguity in clause 21.1 of the development agreement by use of the plural word guarantors. In the context of the terms of the development agreement, it refers to the guarantors described in its terms, being both the 'Guarantor' and the 'Corporate Guarantors'. Clause 21.5 supports this interpretation.

Relief & Orders

1. There is no genuine dispute about the circumstances of Linfield's exercise of the call option. Its access to available funds, if it matters, was not seriously put in issue. In any event, its obligation to pay $20 million arises only on delivery of the transfer by SXG. Any other faint argument about the exercise of the option seemed to have dissipated by the end of the hearing. It if remained, it was so slight as to have lost all force. I have concluded that it is not supportable - either by the facts or by reference to the terms of the development agreement.
2. Nor is there any occasion for denying Linfield the relief to which it is entitled, or for qualifying that relief, because ACFM advanced $20,360,364 to SXG. The insolvency of SXG means that, after payment of the $20 million due by Linfield pursuant to the exercise of its option, and the deduction of expenses, ACFM will be out of pocket. But as I have reiterated, ACFM is the author of its own misfortune. And I have found that it acted unconscionably. Its sharp practice was designed to advance its own commercial interests and prejudice those of Linfield. It has lost its priority and must bear the consequences. There is no occasion for equity to ameliorate those consequences.
3. The plaintiff is entitled to succeed and should have declarations and orders in accordance with, or to the effect of, prayers 1-4 of the amended statement of claim. The defendants should pay the plaintiff's costs. The plaintiff's solicitors should deliver to my associate within 10 days, agreed orders and any consequential directions if necessary.
4. The practical outcome is that the administrators of SXG, or the receivers of its property, will be required to take all necessary steps to deliver to Linfield 'a duly signed Transfer of the Land in registrable form, free from mortgage, charge or encumbrance'. And Linfield should pay $20 million to SXG upon delivery of the transfer.
5. If there is a caveat on the title, it is incumbent on SXG to issue a lapsing notice and take all steps necessary to have that caveat removed if it does not automatically lapse. The only relevant caveat appears to be one lodged after the exercise of the option. I was told that it relates to a right of first refusal in respect of the property. There should be no difficulty in that caveat being removed. A right of first refusal does not constitute an interest in land: Beneficial Finance Corporation Ltd v Multiplex Constructions Pty Ltd (1995) 36 NSWLR 510. 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: 14 March 2016