Ozmen Entertainment Group Pty Ltd v Neptune Hospitality Pty Ltd

Background 2 Under the JVA, Kanki and Neptune agreed on the way in which they wanted to operate a harbour cruise business on the vessel Seadeck. Neptune and Kanki demise chartered her from her owner, the first applicant, Ozmen Entertainment Pty Ltd, for $1 for the three-year term of the joint venture. Kanki and Entertainment were in common ownership and the owners hoped to profit by the benefits conferred on Kanki under the joint venture. 3 The parties intended that Seadeck would carry 800 or more passengers when she was anticipated to be fully licensed by the Independent Liquor and Gaming Authority of New South Wales. Subject to certain exceptions, the JVA also provided that if Seadeck were licensed to carry 800 passengers, Neptune would pay Kanki a minimum net profit share of $5 million per annum. Unfortunately, things did not go as the parties had contemplated at the inception of their relationship. They suffered a series of misfortunes. The Authority licensed Seadeck to carry only 450 passengers, dramatically affecting the profitability of the enterprise. The parties quickly fell into dispute. 4 One of the issues in the trial was how Neptune, which was responsible for the day-to-day management of the joint venture, dealt with accounting for both its revenues, expenses and profit payments to Kanki, if any. The parties had agreed at the outset of the hearing that questions of quantum would not be decided during that phase of the proceeding and would be ultimately sent to a referee. Relevantly, cl 9 and Sch 1 of the JVA provided: 9. Assets and Repayments (a) Party 1 and Party 2 will operate the Business under the Business Name and the Business Name shall remain the shared property of Party 1 and Party 2 after this Agreement comes to an end or otherwise terminated; (i) Either Party 1 or Party 2 may wish to purchase the 50% share belonging to its counterpart when this Agreement comes to an end or otherwise terminated. (b) The Business and its assets are the shared property of Party 1 and Party 2 subject to the Vessel described in Clause 1 of this Agreement including all fixtures and attachments to same as listed in Schedule 3 which remains the property of the Licensor as defined in Clause 1 of this Agreement. (c) Party 1 acknowledges that Party 2 has paid the following: (i) A Hire Premium not to be repaid by Party 1; (ii) 100% of the Shared Costs with 50% of this to be repaid by Party 1 from and including the date from when the costs were incurred. (d) Party 1 agrees to repay Party 2: (i) 50% of the Shared Costs plus interest; (ii) 50% The RINA Survey Fee; in monthly instalments over 36 months from the date the Vessel commences trading as a Domestic Commercial Vessel with the first instalment due at the end of the first month of trade; and (iii) 50% The Generator Cost in monthly instalments over 36 months from the date the Vessel commences trading as a Domestic Commercial Vessel with the first instalment due at the end of the first month of trade. (iv) Party 2 may fit out and install such plant and equipment on the Vessel as it requires for the conduct of the Business with notice to and consent from Party 1. (v) Party 1 may not unreasonably withhold consent. (e) Party 1 and Party 2 agree to construct the Awning on the Vessel. It is agreed that Party 1 and Party 2 will share equally the cost of the Awning: (i) Party 2 will pay for the Awning and the 50% contribution by Party 1 by monthly instalments over 36 months from the date the Vessel commences trading as a Domestic Commercial Vessel with the first instalment due at the end of the first month of trade. … 18. SCHEDULE 1 Awning means the permanent fixture attached to the Vessel which is part complete as at the date of this agreement. Construction amount paid to date for Stage 1 being $163,356.00 and is expected to increase. Hire Premium means $442,900.00 for the transport and delivery of the Vessel to New South Wales. Licensor means Ozmen Entertainment Pty Ltd ACN: 601 451 941 RINA Survey Fee means any fee paid by Party 2 to RINA to ensure the Vessel is in survey. Generator Cost means any cost paid by Party 2 for the cost of replacing the main generator on the Vessel. Shared Costs means the total of: Initial Loan $250,850.38 to meet unexpected operational costs associated with transportation of the Vessel to New South Wales Further Costs* $437,298.39 for Legal Costs and Vessel Transportation Costs (Egypt to Batam) $39,921.57 for Seadeck Upholstery $105,500.00 for Neptune Staff Costs Associated with project Managing Delivery of the Vessel $104,902.31 Superyacht Marina Berthing Costs *The values of these costs are as of 22 October 2015 and are subject to increase. Any increase is subject to approval by Party 1 under clause 10 (k). ** Party 1 will not be contributing to the Shared Costs unless proof of payment and an Itemised Bill is provided for same. (emphasis in cl 9 added, bold emphasis and underscore in Sch 1 in original) 5 In the April 2019 reasons, I found that Kanki had validly terminated the JVA on and from 25 July 2017. At the conclusion of the April 2019 reasons, I said (369 ALR at 703 [302]-[303]): The first three year term of each of the JVA and charterparty would have come to an end in late October 2019. If Entertainment is entitled to return Seadeck, that should happen sooner rather than later. Damages may not be an adequate remedy, especially if, as the evidence suggests (based on the statutory declarations that Mr Douchkov and Mr Como gave to the ILGA), Neptune will not be able to pay them. That suggestion is supported because Neptune has financed over $400,000 of its legal costs in this proceeding from the joint venture's accounts. In my opinion, Entertainment will have to give a ship's mortgage over Seadeck or some other security to secure any obligation that it or Kanki may have to Neptune after the assessment of damages and the taking of accounts has occurred. The receivers will also need to be discharged. 6 Unfortunately, and probably because there was no need to be precise about quantum or the items that would become the subject of the reference, I used the expression "shared costs" at various places in the April 2019 reasons in a manner that was not consistent with the definition in Sch 1 of the JVA, and sometimes included in that description the additional costs in cl 9(d)(ii) and (iii) and 9(e). 7 In the April 2019 reasons, I had rejected Neptune's claims in the cross-claim that those expenditures had led to it having a proprietary interest in the vessel. I also rejected its other claims to a proprietary interest that it had asserted arose from its fulfilling any obligations under the charterparty or JVA, in effect, to spend money which neither Entertainment nor Kanki had requested it spend. The context in which the parties had agreed to operate under the JVA was that they had the hope of making the very large profits that would support the minimum net profit guarantee for Kanki of $5 million per annum. 8 Following the delivery of the April 2019 reasons, the parties debated, over several days in April and May 2019, the orders that should be made to reflect the outcome of those reasons. During the course of argument on 2 May 2019 to settle the orders that I ultimately made on 9 May 2019, a debate took place between counsel in which senior counsel for Neptune sought clarification of what the then draft order, that ultimately became order 13, meant. I said that I had had in mind that where Neptune had undertaken works at its expense, such as construction of the awning, installing toilets, redoing the damaged decks and putting in fixtures and fittings that would remain with the vessel, Neptune had improved its value but was out of pocket. I said that Neptune had undertaken those works as part of its and Kanki's obligations as charterers of Seadeck under the charterparty that may have fallen within the fifty-fifty responsibility of Kanki and Neptune provided for in the JVA. I said that the mortgage to which I had referred in the April 2019 reasons should secure any entitlement Neptune might be found to have on the taking of the accounts and the assessment of whatever sum Kanki might be found liable to reimburse it (369 ALR at 703 [303]). 9 On 9 May 2019, I gave reasons (the 9 May reasons) and made orders declaring that Kanki had terminated the JVA and that: 9. Neptune account to Kanki for the profits of the Business from 6 January 2016, being the date of entry by Neptune and Kanki into the JVA, such account to be assessed. … 13. Kanki pay Neptune the amount of Shared Costs calculated in accordance with the JVA with such amounts to be assessed.

The issue raised by the referee 10 On 27 November 2020, I appointed the Hon R V Gyles AO QC as referee, and ordered that: 2. The Referee is to determine the following matters: … b. The amount of any damages (including interest) payable by Neptune to the Second Applicant (Kanki) for breach of the Joint Venture Agreement between the Second Applicant and the Respondent dated 6 January 2016 (JVA). … e. The amount of Shared Costs calculated in accordance with the JVA (including interest) payable by Kanki to Neptune. (emphasis in original) 11 The referee raised in his first preliminary determination made on 30 June 2021 an issue as to the construction of order 13 made on 9 May 2019. The referee construed order 13 as referring only to the definition of shared costs in Sch 1 of the JVA and excluding any other items under cl 9. He raised a question as to how cl 9(d)(iv) and (v) should be construed given that those clauses did not provide for payment or repayment of anything by Kanki to Neptune or for the terms of any such payment, notwithstanding that the opening words of cl 9 itself and, in particular, cl 9(d) pointed in that direction. 12 Having determined that the use of the expression "Shared Costs" in order 13 referred to the defined term in Sch 1 of the JVA, the referee considered that the Court might take a different view about the construction of that expression or effect amendments to the 9 May 2019 orders. He considered that this issue should be decided sooner rather than later. I agree.

Consideration 13 The question is whether it is possible to amend or otherwise deal with order 13 to allow the referee to enquire into the issues that I said, on 2 May 2019, the draft of order 13 would allow to be considered if they fell within the terms of the JVA. 14 In Burrell v The Queen (2008) 238 CLR 218, Gummow ACJ, Hayne, Heydon, Crennan and Kiefel JJ said at 224-225 [21]: The power to correct the record so that it truly does represent what the court pronounced or intended to pronounce as its order (L Shaddock & Associates Pty Ltd v Parramatta City Council [No 2] (1982) 151 CLR 590 at 594-595) provides no substantial qualification to that rule. The power to correct an error arising from accidental slip or omission, whether under a specific rule of court or otherwise, directs attention to what the court whose record is to be corrected did or intended to do. It does not permit reconsideration, let alone alteration, of the substance of the result that was reached and recorded. (emphasis added) 15 Here, some of the orders made on 9 May 2019 were final, including the declaration of the termination of the JVA. However, the orders for ascertaining what sums were due by one party to another were not final. Kanki has undergone changes of counsel and solicitors, the first soon after May 2019, and recently went into liquidation. 16 The Full Court affirmed my construction of various parts of cl 9 and Sch 1 on the issues as to whether, and to what extent, Neptune could add to the shared costs as defined in Sch 1 that it had incurred prior to the entry into the JVA (see Neptune Hospitality Pty Ltd v Ozmen Entertainment Pty Ltd (2020) 375 ALR 489 at 532-534 [154]-[163] and grounds 19-22 set out at 512-515 [92]). However, their Honours did not deal with the present issue of how the words "Shared Costs", as used in order 13, ought be understood or, indeed, how cl 9 operated as it is also, infelicitously, expressed. 17 After the clarification in argument on 2 May 2019 as to what the form of relief the then draft of order 13 meant, I had intended that Neptune be able to pursue whatever claims that I had not determined in the April 2019 reasons which it wanted to assert as to what may have been due to it on the proper construction of the JVA for expenditures it had made over and above the defined term "Shared Costs" in Sch 1. 18 It will be a matter for the referee to construe how cl 9(d)(iv) and (v) operate. However, cl 9 generally deals with the assets of the business and the joint venture as being shared property, and provides that the parties each pay a 50 per cent share of specified expenses. In particular, there will be issues for the referee to determine as to whether or not cl 9(d)(iv) and (v) were intended to make Kanki liable for any of the installation costs and, if that is so, whether those sums were payable in instalments, as other items in cl 9(d)(ii), (iii) are (e) were, or immediately, as was the case for the items in cl 9(c) and (d)(i). I note that Neptune expressly accepted, in argument today, that if it were found entitled to payment under cl 9(d)(iv) and (v), Kanki would not be liable to repay more than 50 per cent of what Neptune had expended. 19 The timing of when any payment under cl 9 was due will be important, having regard to the termination of the JVA, and will affect whether Kanki is liable for the full, or a lesser, amount. In McDonald v Dennys Lascelles Limited (1933) 48 CLR 457 at 476-477, Dixon J said: … When a party to a simple contract, upon a breach by the other contracting party of a condition of the contract, elects to treat the contract as no longer binding upon him, the contract is not rescinded. as from the beginning. Both parties are discharged from the further performance of the contract, but rights are not divested or discharged which have already been unconditionally acquired. Rights and obligations which arise from the partial execution of the contract and causes of action which have accrued from its breach alike continue unaffected. When a contract is rescinded because of matters which affect its formation, as in the case of fraud, the parties are to be rehabilitated and restored, so far as may be, to the position they occupied before the contract was made. But when a contract, which is not void or voidable at law, or liable to be set aside in equity, is dissolved at the election of one party because the other has not observed an essential condition or has committed a breach going to its root, the contract is determined so far as it is executory only and the party in default is liable for damages for its breach. (emphasis added, citations omitted) 20 While order 2(e) in the 27 November 2020 orders also used the capitalised expression "Shared Costs", as had order 13 made on 9 May 2019, there was no definition of that expression in either set of orders. When settling, in May 2019, the form of what became order 13, neither Neptune nor Kanki, at that stage, identified or argued about what that capitalised expression meant, beyond the clarification discussed in argument on 2 May 2019. 21 In my opinion, the expression of order 13, although clarified by counsel in the course of argument on 2 May 2019, did not accurately "reflect the intention of the Court" and so falls within the meaning of r 39.05(e) of the Federal Court Rules 2011. That is because all parties accepted on 9 May 2019 that Neptune should be able to put forward its argument that it could make a claim for costs to be shared between it and Kanki that would be determined in the reference in respect of whatever it considered was open to it under the proper construction of the JVA as an accrued right prior to its termination (subject to excluding any claim that could not be maintained because of any finding in the April 2019 reasons). Of course, that entitlement did not allow issues decided in the April 2019 reasons or by the 9 May 2019 orders to be reopened. It will be for the referee to construe the JVA, consistently with the April 2019 reasons, and those of the Full Court, and decide whether such a claim is valid and, if so, what its quantum is.

Conclusion 22 For these reasons, I will order that orders 13 made on 9 May 2019 and 2(e) made on 27 November 2020 be vacated and will substitute orders to give effect to the April 2019 reasons. I certify that the preceding twenty-two (22) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Rares.