Pact Properties Pty Limited v APF Commercial Pty Limited

CATCHWORDS : CONTRACTS - construction and interpretation - sale agreement - application of variation agreement - calculation of retention amount - calculation of purchase price - interest rate payable.

LEGISLATION CITED : Property Stock and Business Agent Act 2002

CASES CITED : Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99

Pact Properties Pty Limited (Plaintiff) PARTIES : APF Commercial Pty Limited (First Defendant) Delwyn Sela (Sedond Defendant)

COUNSEL : A F Fernon (Plaintiff) S R Donaldson SC / J Chambers (Defendants)

SOLICITORS : O'Neill Marengo Lawyers (Plaintiff) Abelitis Solicitors (Defendants)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST

50036/07 PACT PROPERTY PTY LIMITED v APF COMMERCIAL PTY LIMITED (FORMERLY KNOWN AS APF PACT PTY LIMITED) & 1 ORS JUDGMENT 1 HIS HONOUR: The plaintiff (Pact) carried on a property management business. It agreed to sell that business to the first defendant (APF). The sale agreement was made on 30 September 2005 and varied by a variation agreement made on 30 November 2005. 2 The agreement as varied provided for the purchase price to be paid in two instalments - 75 percent (capped at $1.5 million) on "completion" and the balance (called "retention amount") one year thereafter. 3 Completion, or something substantially equivalent to completion, occurred on 30 November 2005. The first instalment of the purchase price, fixed by the variation agreement at $700,000, was paid. The retention amount became payable on 30 November 2006. It has not been paid. In these proceedings Pact sues to recover what it says is the retention amount.

The issues 4 The parties agreed substantially on the real issues in dispute. Those issues included a claim by APF, put in the alternative to its case as to the proper construction of the sale agreement, for rectification. 5 At the heart of the real issues there lies a question of construction of the relevant provisions of the sale agreement. If that question is resolved in favour of APF then, subject to the resolution of two relatively minor subsidiary issues, the proceedings can be resolved without looking at the mass (or morass) of evidence said to be relevant to the question of rectification. 6 The parties therefore agreed that the question of construction and, if they arose, the two issues subsidiary to it should be determined separately from, and before the other issues in the proceedings. 7 In their formulation of the issues for preliminary determination, the parties separated out what I have called a question of construction into two separate questions. The issues as formulated by the parties are: Issues for preliminary determination. 1. Whether on a proper construction of the written agreement between the plaintiff and the defendants dated 30 September 2005, as varied by the further written agreement dated 30 November 2005, the Retention Amount payable on the date provided in clause 6 of the 30 November 2005 agreement is; (a) Twenty five percent of the purchase price calculated as at 30 November 2005 in accordance with formula in clause 3.1 of the 30 September 2005 agreement; or (b) Twenty five percent of the payment of $700,000 payable under clause 2 of the 30 November 2005 agreement; or (c) The difference between the purchase price calculated as at 30 November 2006 in accordance with the formula in clause 3.1 of the 30 September 2005 agreement less the sum of $700,000; or (d) Calculated on some other basis, and if so, what basis. 2. Whether on a proper construction of the written agreement between the plaintiff and the defendants dated 30 September 2005, as varied by the further written agreement dated 30 November 2005, the calculation of the purchase price referred to in paragraph 1(a) or 1(c) is to be arrived at by applying the multiples specified in clause 3.1 to: (a) only the annual income from "Property Management Agreements" and "Facilities Agreements" that have been novated to the first defendant as at 30 November 2005; (b) only the annual income from "Property Management Agreements" and "Facilities Agreements" that have been novated to the first defendant as at 30 November 2006; or (c) all the annual income from "Property Management Agreements" and "Facilities Agreements" that the first defendant received between 30 November 2005 and 30 November 2006. 3. What rate of interest is payable in relation to the Retention Amount: (a) in the period since 30 November 2005 and 30 November 2006; and (b) thereafter.

Noted: 1. If questions 1(a) or (b) and 2 (a) or (b) are answered in the affirmative, then the following issues remain to be resolved: a. What adjustment, if any, should be made to the Retention Amount for "Replacement Income" arising out of the agreements entered into: i. between the first defendant and EMC Asset Management Pty Limited; and/or ii. between Australia Performance Strata Management Pty Limited and the Owners of Strata Plan 18604. 2. If question 2(c) is answered in the affirmative, then the defendant's cross claim seeking rectification of the 30 September Agreement needs to be determined. Pact's business 8 Pact conducted a property management business, which comprised three elements. In the jargon of the sale agreement, that business was defined as follows: Business means the business conducted by the Vendor of managing and letting properties for Commissions of which Business the Rent Roll can be viewed as being the business assets and also the business conducted by the Vendor under the various facilities agreements; 9 As I have said, the business comprised 3 elements. Again in the jargon of the sale agreement, those elements were:

Facilities Management Business means the Vendor's business of facilities management evidenced by the Facilities Agreements and all goodwill associated with it and such of the Business Assets as are used in that facilities management business; Leasing Business means the Vendor's business of property leasing including all goodwill associated with it and those of the Business Assets as are used in it; Property Management Business means the Vendor's business of managing properties including the Property Management Portfolio and all goodwill associated with it and such of the Business Assets as are used in that business; The heads of agreement

10 The negotiations that led to the making of the sale agreement occupied some months. The first formal record of consenus is a letter, styled "Heads of Agreement", dated 28 June 2005. The parties signed that letter on 26 July 2005. It was expressed to be "subject to contract". 11 Relevant provisions of the Heads of Agreement included the following:

(1) paragraph 3, which identified the assets to be sold as including all management agency agreements and facilities management contracts in Pact's name; (2) clause 5, which described the "method of sale" as being "novation of existing contract": (3) clause 6, which fixed the price by reference to multiples of the base annual income from property management and the base annual income from facilities management, set out what those amounts were (or how they could be calculated) as at May 2005 and thus derived a "total sale price", excluding GST, of $2,001,219.48; (4) clause 7, which dealt with settlement and provided for the concept of a split payment comprising an amount payable on completion and a retention amount; and (5) clause 15 which provided for revision of the amount payable on completion if any managed property were vacant at that date. The sale agreement 12 The sale agreement was concluded, as I have said, on 30 September 2005. It is not a document that is distinguished by clarity or consistency of drafting. On the contrary, it is replete with confusion and inconsistency. The drafting of the document is such as to make it a matter of real difficulty to seek to construe its provisions in context and, so far as possible, each harmonious with the other (see Gibbs J in Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 109. 13 Clause 2 was the agreement for sale and purchase of the "business". I have set out above the definition of that expression. By clause 2.3, "Transfer of title, risk & Work-in-Progress," that expression is defined as follows: 2.3 Transfer of title, risk & Work-in-Progress Legal and beneficial title to the Business and risk in both the business and in the Business Assets passes to the Purchaser on Completion. (a) This includes: (i) the software detailed in Item 9 as provided in clause 7; and (ii) all fees, work-in-progress and other remuneration that have not been fully earned and invoiced by Completion and (b) the Vendor must use its best endeavours to ensure that the Purchaser obtains the benefit of such fees, work-in-progress and other remuneration that have not been fully earned and invoiced thereof as from Completion but the Vendor will retain the benefit of the Receivable and the Purchaser must reimburse or account to the Vendor within five (5) Business Days and Receivables received by the Purchaser subsequent to Completion. 14 Clause 2.6 deals with the time for completion. It reads as follows: 2.6 Time of completion The parties agree that the sale and purchase recorded in this Agreement is to be settled on the Completion Date upon which occasion the Purchaser must deliver to the Vendor a bank cheque for $150,000.00 or such other sum as may be payable at settlement in application of the provisions of clause 3.1(c) made up as detailed in clause 3 with such adjustments as are called for in this Agreement. In addition to the amount to be paid at settlement on the Completion Date Purchaser must set aside the Retention Amount provided for in clause 3 and (subject to such adjustments as are called for in this Agreement and subject also to the possible early payment of the Retention Amount under clause 3.5) pay that Retention Amount to the Vendor by way of bank cheque on the second anniversary of the Completion Date. 15 "Completion date" is defined in item 1 of the Reference Schedule as follows: The later of either 20 October 2005 or 3 Business days following advice in writing by the Vendor to the Purchaser that the Novated Agreements have been executed. 16 Clause 3, which deals with quantification and payment of the purchase price, lies at the heart of the parties' dispute. In essence, and acknowledging that what I am about to say is as to the first element controversial, the structure is as follows:

(1) there is what might be called a prima facie purchase price, quantified on the basis of earnings for May 2005, of $2,001,219.48. (2) however, the purchase price is to be recalculated at the date of completion by making adjustments in substance to reflect matters that are specifically referred to in clause 3 itself. (3) on completion, 75 percent of the purchase price so calculated, capped at $1.5 million, is to be paid over. The balance is the "retention amount". (4) when the retention amount becomes payable, adjustments are to be made to reflect among other things business lost and not replaced up until the date that the retention amount becomes payable. 17 The language in which that scheme is expressed is as follows: 3.1 Purchase Price The Purchase Price payable by the Purchaser will be: (a) the amount calculated by applying the following formula: PP = [(A x 2.5) + (B x 1.5) + (C-D)] And the amount payable by the Purchaser on Completion Date will be calculated by applying the following formula: PP = [(A x 2.5) + (B x 1.5) + (C - D)] - RA where: PP is the Purchase Price payable by the Purchaser on Completion subject to any adjustments arising by application of the provisions of this Agreement; A is the base annual income from Property Management Agreements;

B is the base annual income from Facilities Agreements; C is any increases by way of the adjustments arising by application of the provisions of clause 3.2(c) - clause 3.2(e) inclusive; and

D is any decreases by way of the adjustments arising by application of the provisions of clause 3.2(d) and clause 3.2(d) and clause 3.2(e); and RA is the Retention Amount. (b) the parties record that at the date of this Agreement and based upon the figures for May 2005; (i) A is $51,852.87 such that (A x 2.5) in the formula in clause 3.1(a) equals $1,555,586.10 (ii) B is $24,757.41 such that (B x 1.5) in the formula in clause 3.1(a) equals $445,633.38 (iii) that in application of that formula (A x 2.5) + (B x 1.5) equals $2,001,219.48 (c) the parties record that because it is not yet possible to quantify the values to be attributed to the other elements in the formula in clause 3.1(a) that the amount to be paid by the Purchaser on Completion Date is to be such sum not exceeding $1,500,000.00 which in application of the formula in clause 3.1(a) represents the amount (when annualised) equal to 75% (plus GST if applicable) of PP being the Purchase Price as defined in the formula in clause 3.1(a). 3.2 Component elements in ascertaining Purchase Price The Purchase Price is the Consideration as defined in clause 21.2 that is to say the Property Management Business Consideration the Facilities Management Business Consideration and the Leasing Business Consideration each of which is as quantified in Item 3 of the Reference Schedule and compromises of: (a) the base annual income from Property Management Agreements is set out in clause 3.1(b); (b) the base annual income from Facilities Agreements is set out in clause 3.1(b); (c) the Retention Amount as detailed in clause 3.7 which is the amount represented by RA in the formulae appearing in clause 3.1(a); (d) the increases represented by C in the formulae appearing in clause 3.1 arising by application of the provisions of clause 3.3 are those occasioned by the apportionments and adjustments called for under clauses 3.3, 3.7, 3.8(g) 9.1 and 9.2; and (e) the decreases represented by D in the formulae appearing in clause 3.1(a) arising by application of the provisions of clause 3.3 are those occasioned by the apportionments and adjustments called for under clauses 3.3, 3.7, 9.1 and 9.2. 3.3 Adjustment of purchase Price In this clause "Principal" means the Principal under the Management Agency Agreement as such agreement is defined in clause 21.2. The parties agree that the Purchase Price (in respect of which the Purchaser must under clause 3.9 deliver a letter as at Completion) must allow for adjustments as set out below: (a) Loss of a Principal - If a property (in this clause "Property" ) listed in Annexure 1 and forming part of the Rent Roll as at Completion ceases to be managed by the Purchaser for the Principal (or a successor in title to the Principal) then no amount for that Principal and or Property shall be included in the calculation of the Adjusted Sale Price; and (i) the Purchaser must notify the Vendor in writing within 14 days of receipt of any notice from any client of the termination of any Management Agency Agreement and must give the Vendor reasonable information as to the full circumstances of any such termination and loss of a Principal; and (ii) Notwithstanding the provisions of this clause 3.3 (a) if the termination and loss of a Principal was substantially due to the Purchaser's failure to have used its best endeavours to perform under the relevant Management Agency Agreement then there will be no adjustment under this clause 3.3 (a); and (iii) If there is a dispute between the parties as to whether the Purchaser has failed to use its best endeavours to perform its obligations then either party may request the President for the time being of the Real Estate Institute of NSW to appoint an expert to enquire into the relevant circumstances and obligation and to determine the issue, which determination must be conclusive and binding upon the parties in the absence of manifest error. (b) Vendor's failure to comply with Act - If the fees payable by the Principal of a Property are as a direct result of the Vendor's failure to comply with section 55 of the Property Stock and Business Agents Act 2002 (" Act ") are unrecoverable by the Purchaser then no amount for the Principal and/or Property will be included in the calculation of the Adjusted Sale Price provided always that the provisions of this clause 3.3(b) do not apply where failure to comply with the Act was the result of the Purchaser's failure to execute and/or forward any novation agreement when requested by the Vendor so to do and in any such event that Principal and /or Property shall not be included in the calculation of the Adjusted Sale Price; and (c) Vacancy - If a Property is vacant as at Completion then the value of such Property calculated pursuant to clause 3.2 must not be included in the Purchase Price to be paid under clause 3.9(a) but payment of such value will be one of the factors contributing to the final value of the Adjusted Sale Price on the Redemption Date as per clause 3.8(d) payable by the Purchaser to the Vendor when that Property has been leased and occupied by a rent paying tenant provided that this takes place during the Retention Period. Also included as one of the factors contributing to the final value of the Adjusted Sale Price to be paid by the Purchaser to the Vendor on the Redemption Date as per clause 3.8(d) is the provision as to Variation in Basic Management Fees set forth in clause 3.7 (c); (d) Arrears - If the rent payable for any Property is 2 months or more in arrears as at Completion then the value of such Property must not be included in the Purchase Price but such value will (provided it takes place during the Retention Period) be included in the Purchase Price and paid to the Vendor: (i) when the rent has been brought up to date; or (ii) when the lease relating to that Property has been surrendered and the Property has been leased and occupied by another the tenant. … 3.7 Quantifying the Retention Amount In this clause the annual income generated by the Business is referred to as the " Total Annual Income" . Upon Completion Date the Retention Amount is the amount which in application of the formulae in clause 3.1(a) represents the excess above the 75% sum specified in clause 3.1(c), or the excess above $1,500,000.00, whichever is the greater, and: (a) In the event that upon the date of payment of the Retention Amount (regardless of whether such date is on or before the second anniversary of the Completion Date) the Total Annual Income at that date is higher than the Total Annual Income was on the Completion Date then there is to be no adjustment in the amount payable by the Purchaser to the Vendor by way of Retention Amount; and (b) In the event that upon the date of payment of the Retention Amount (regardless of whether such date is on or before the second anniversary of the Completion Date) the Total Annual Income at the date is lower than the Total Annual Income was on the Completion Date then there must be an adjustment in the amount payable by the Purchaser to the Vendor by way of Retention Amount. The adjustment in the amount payable is quantified by application of the formulae in clause 3.1; (c) In the event that upon the date of payment of the Retention Amount (regardless of whether such date is on or before the second anniversary of the Completion Date) the Total Annual Income at that date is so much lower than the Total Annual Income was on the Completion Date that the Retention Amount is zero or is a negative amount then in any such event the parties agree that there will be no further adjustment in the amount the Purchase Price such that in that event the Vendor's exposure to any reduced Purchase Price is restricted to the quantum of the Retention Amount; and (d) In addition to any variation arising due to loss of the Principal as provided for in clause 3.3(a) the parties when applying clause 3.8(d) to calculate the Adjusted Sale Price must also take account of any variation in the total amount of the Basic Management Fees received by the Purchaser ( "Variation in Basic Management Fees" ) arising at any time after Completion date and before the Purchaser pays the Retention Amount from the figures used as at Completion for the calculation of: (i) the Property Management Business Consideration; and (ii) the Facilities Management Business Consideration; (e) In the event that upon the date of payment of the Retention Amount (regardless of whether such date is on or before the second anniversary of the Completion Date) any of the Property Management Agreements annual income from Facilities Agreements is cancelled or otherwise terminated for any reason then the provisions of clause 3.3(c) to clause 3.3(e) inclusive are to be applied to the intent that any consequential adjustments in the Purchase Price are to be effected in quantifying the final amount payable by the Purchaser to the Vendor by way of Retention Amount. (f) upon the date of payment of the Retention Amount (regardless of whether such date is on or before the second anniversary of the Completion Date) the Total Annual Income at that date is higher than the Total Annual Income was on the Completion Date then there is to be no adjustment in the amount payable by the Purchaser to the Vendor by way of Retention Amount. (g) In the event that during the Retention Period any ore or more of the situations covered in clause 3.3 (a) or 3.3 (c) to clause 3.3 (e) inclusive arises with a consequential diminution of the Total Annual Income then the Vendor will be at liberty at any time during the Retention Period to introduce Principals/new Properties to the Purchaser and (i) the annual income ( "Replacement Income") arising from all the various management agency agreements and Facilities Agreements which the Purchaser and the owners of such new Properties or Principals enter into following such introduction must be recognised by the Purchaser as being in substitution for the diminution of the Total Annual Income; and (ii) in any such event the parties agree that the provisions of Annexure 6 are to govern the introduction of new Properties or Principals and the resulting Replacement Income. (h) Even if during the Retention Period none of the situations covered in clause 3.3 (a) or 3.3 (c) to clause 3.3(e) inclusive arises and as a result there is no diminution of the Total Annual Income then the Vendor will nevertheless be at liberty at any time during the Retention Period: (i) to introduce new Properties or Principals to the Purchaser and; (ii) the annual income ("Reserve Income") arising from the various all management agency agreements and Facilities Agreements which the Purchaser and the owners of such new Properties enter into following such introduction must be recognised by the Purchaser as being in the nature of a reserve pool out of which can be attributed an income stream that will be in substitution for any diminution of the Total Annual Income in the event that at any time during the Retention Period any one or more of the situations covered in clause 3.3 (a) or 3.3 (c) to clause 3.3 (e) inclusive arises with a consequential diminution of the Total Annual Income; and (iii) if at the end of the Retention Period the Reserve Income exceeds the diminution in the Total Annual Income then the difference or excess will become a windfall gain to the Purchaser without any payment being required by the Purchaser to the Vendor. (i) In addition to the provisions of clause 3.7(g) and clause 3.7(h) if the Vendor transfers (whether under clause 10.1 or otherwise) to the Purchaser any other management agency agreements and Facilities Agreements ('Transferred Contracts") then the annual income ("Transferred Income") arising from those Transferred Contracts must also be recognised by the Purchaser as being in the nature of a reserve pool and the Transferred Income must be treated the same way as Reserve Income under clause 3.7(h) in substitution for any diminution of the Total Annual Income as if the wording of clause 3.7(h) had been repeated mutatis mutandis in this clause. … 18 Clause 6.7 gives APF the right to terminate in some circumstances. It reads as follows: 6.7 Right of termination

If prior to completion any event occurs (other than an event constituting or giving rise to a breach of any of the warranties) which, in the reasonable opinion of the Purchaser, adversely affects or is likely to adversely affect, to a material degree, the ability of the Purchaser to have the benefit of novation of a majority of the Management Agency Agreements, then the Purchaser shall be entitled by notice in writing to the Vendor to terminate this Agreement, but the occurrence of such an event shall not give rise to any right to damages or compensation provided that the Purchaser covenants that it will not enter into any Management Agency Agreement with any Principal or Owner or in respect of any Property for a period of 24 months from the date of termination. 19 Clause 10 define the subject matter of the sale as follows:

10. THE BUSINESS BEING SOLD 10.1 Rent Roll & Property Management Business The Business as defined in clause 21.2 is the entire undertaking of the Vendor and comprises not only the Rent Roll as defined in clause 21.2 but also the Property Management Business and the Leasing Business as defined in clause 21.2. 20 Clause 20.4 excludes precontract negotiation. It reads as follows: 20.4 Pre-Contractual Negotiation This Agreement: (a) expresses and incorporates the entire consensus between the parties in relation to its subject matter, and all the terms of that consensus; and (b) supersedes and excludes any prior or collateral negotiation, understanding, communication or agreement by or between the parties in relation to that subject matter or any term of that consensus. 21 Relevant definitions, apart from those to which I have referred already, include the following: Adjusted Sale Price means the sum which is the Purchase Price as adjusted at the revision of the Rent Roll in accordance with clause 3.8. Basic Management Fees means the fees payable by the clients for facilities management and/or property managements as a percentage of rental collection, or in a limited number of cases as fixed annual fees (which are as at Completion as set out in Item 5 ); and for the avoidance of any doubt, excluding fees payable for leasing or other services. Facilities Agreements means those agreements for additional services and which are frequently evidenced simply by exchange of correspondence and which have developed as adjuncts to Management Agency Agreements. Novated Agreement means an agreement that (by way of a Deed of Novation entered into between the Vendor, the Purchaser and the owner of a property) had the service performance obligations under agreement effectively transferred form the Vendor (as the party originally bound by that agreement) to the Purchaser for the term of the agreement thereby novated whether such agreement is recorded (in the case of Facilities Agreements) by exchange of correspondence or recorded (in the case of Management Agency Agreements) by formal contracts. Property Management Business means the Vendor's business of managing properties including the Property Management Portfolio and all goodwill associated with it and such of the Business Assets as are used in that business. Property Management Business Consideration means the consideration for the Property management Business. Property Management Portfolio means the 'managing agency agreements' set out in Item 10 . Rent Roll means: (a) the list of rental properties managed for commission as set out in Annexure 1 of this Agreement; and (b) all Management Agency Agreements and Facilities Agreements standing in the name of the Vendor in connection with the list of rental properties noted above; and (c) all hardware, software licences and files required to continue the services at present rendered by the Vendor under and pursuant to the Management Agency Agreements and Facilities Agreements noted above.

Retention Amount means the sum provided for in clause 3.1 and quantified in clause 3.7. 22 Returning for a moment to clause 3: I note that the expression "property management agreement" used in clause 3.1 is not expressly defined. I note further that: (1) the arithmetic in clause 3.1(b) leaves out a step. In each case, the income is a monthly figure. In each case that figure must be multiplied by 12 to get the annual figure which is then used for the purpose of application of the formula in clause 3.1(a); (2) the various elements of the consideration specified in clause 3.2 are not (despite what the clause says) quantified in item 3 (or elsewhere) of the reference schedule; (3) some of the clauses to which cross-reference is made in clause 3.2 do not exist; and (4) clauses 9.1 and 9.2, which do exist, relate to staffing costs. Although some of the matters referred to in clause 9 may be the subject of adjustments at completion (I refer in particular to clause 9.1(d) and 9.2(c)) it is not necessary now to set out clause 9.

The variation agreement 23 As at 30 November 2005, Pact had procured the novation to APF of 12 only of the more than 120 management agreements comprising the "rent roll". Thus, having regard to clause 2.6 and the definition of "completion date", completion could not be required. 24 However, the parties by the variation agreement recorded that completion would take place notwithstanding Pact's failure to procure the novations. They agreed that the amount payable on completion would be $700,000. They agreed also that the retention amount would be payable on the first anniversary of completion. 25 I should note that the variation agreement does not in terms say that what was to happen when the $700,000 was paid was "completion" for the purposes of the sale agreement. However, as I shall mention, that seems to me to be an inevitable effect of what the parties did agree. First issue: What is the retention amount 26 In what follows when I discuss the issues I shall record what seemed to me to be the essence of counsels' submissions. In doing so, I acknowledge that I may do those submissions less than complete justice. However, each counsel reduced his submissions to writing, and I had the opportunity to read those submissions carefully. I have taken all the written submissions into account. To the extent that they recounted various aspects of the agreement, they are in any event covered in what I have said. 27 Mr Fernon of counsel, who appears for Pact, submitted that the retention amount was the difference between the purchase price on the completion date and the sum of $700,000. The former amount, he submitted, was $2,001,219.48. The latter, he submitted was the sum fixed by the variation agreement as the amount payable by APF on the completion date. 28 Mr Donaldson of Senior Counsel, who appeared with Ms Chambers of counsel for the defendants (the second and third defendants, to whom I have not yet referred, are in effect guarantors of APF's obligations) submitted that the retention amount was to be calculated in accordance with clause 3.1 of the sale agreement, notwithstanding the making and performance of the variation agreement. Alternatively, he submitted, it was one third of $700,000. 29 It was fundamental to Mr Fernon's submissions that the purchase price at the completion date was the fixed amount to which I have referred, not some amount calculated (or recalculated) in accordance with 3.1(a). That is why, when I summarised the operation of clause 3 earlier, I said that the first step (and for that matter the second step) were contentious. 30 I do not accept that fundamental point. In my view, it is clear that the fixed amount is what might be called an indicative purchase price. 31 Clause 3.1(a) itself states, in terms, that the purchase price payable by APF will be the amount calculated by applying the formula that is set out. Likewise, and inevitably, it states that the amount payable by APF on the completion date will be calculated by application of the formula. It does not provide that the purchase price, is a fixed amount or that the retention amount is the fixed amount less $1,500,000. If Mr Fernon's fundamental point were correct, there would be no utility in the way that clause 3.1(a) was drafted. On the contrary, there would be considerable disutility. 32 This view of the intention explicit in clause 3.1(a) is confirmed by the wording of clause 3.1(c). That clause provides, among other things, that some of the elements in the formula in clause 3.1(a) are not capable of quantification at the date of the agreement. Thus, it contemplates the application of that formula using the "correct" amounts. 33 This view is confirmed by clauses 2.6 and 3.7. Clause 2.6 obliges APF to deliver a bank cheque for either $1.5 million "or such other sum as may be payable at settlement in application of the provisions of the clause 3.1(c)". The introductory words of clause 3.7, which clause has the effect of defining the retention amount, refer to that amount as "the amount which in application of the formulae in clause 3.1(a) represents the excess of the 75% sum specified in clause 3.1(c), or the excess above $1,500,000 whichever is the greater". 34 I accept that there are some indications to the contrary. In particular, the definition of "purchase price" read in conjunction with item 3 of the rent schedule is difficult to reconcile with the contractual provisions to which I have referred. But by the introductory words of clause 21.2, the definitions set out have the meaning assigned "unless the context otherwise requires". 35 In my view, the context established by the contractual provisions to which I have referred is more than sufficient to overcome what might be otherwise the prime facie effect of the definition. 36 The identification of the retention amount must therefore proceed on the basis that the purchase price is to be calculated on the completion date using the formulae set out in clause 3. The effect of the variation agreement included in substance that it fixed 30 November 2005 as the completion date. See in particular, clause 3 (cross-referenced to the agreement to which it refers) and clauses 5 and 6. 37 The variation agreement also fixed the amount payable as at that date. But it did not in terms vary the mechanism for calculation of the purchase price. Nor did it vary clause 3.7. As I have pointed out, the introductory words to clause 3.7 stand as a definition of retention amount (and this is made clear by the definition of "retention amount" in clause 21.2). 38 Thus, leaving aside as irrelevant the reference in cl 3.7 to $1.5 million, the retention amount is 25 percent of the purchase price calculated in accordance with clauses 3.1(a) and (c). Nothing in the specification of the amount payable on completion alters that. 39 It follows that the first issue should be answered "Yes" as to para (a) and "No" as to paras (b) and (c). Second issue: what income is to be used in the calculation of the purchase price? 40 Mr Fernon submitted that all income actually "transferred" (my word, not his) to APF should be used in the calculation. It was inconceivable, he submitted, that income would be transferred but that APF should not have to pay for it. 41 In support of this submission Mr Fernon focused on the expression "Property Management Agreements" in clause 3.1. 42 That expression is used in the definition of integer A, forming part of the formulae. Mr Fernon submitted, by reference to other provision of the agreement, that the expression "Property Management Agreements" caught all sources of income flowing from the management of the properties, and not just from Management Agency Agreements as defined in clause 21.2. 43 Mr Fernon supported this submission by referring to clause 3.2. It was clear, he said, that the Property Management Agreements were those that generated the income set out in clause 3.1(b)(i). It was, I think, common ground as to clause 3.1 (b), that the income figures stated were monthly and not annual. If that were not common ground, it is in any event clearly correct. 44 Thus, Mr Fernon submitted, any agreement that yielded the monthly income stated in clause 3.1(b)(i), was a "Property Management Agreement". 45 I note at this stage that if that is the correct construction of the relevant provision of the agreement then there is nothing in the agreement, which is expressed by clause 20.4(a) to comprehend the whole of the parties' agreement, that would enable the identification of the Property Management Agreements in question. It would be a little strange if the parties intended something as fundamental as the calculation of the purchase price to be incapable of resolution within, the four corners of what was expressed to be their entire agreement. 46 Mr Donaldson noted that the sale agreement was predicated on novation of the Management Agency Agreements. He referred to clauses 2.2(b), 2.6, 3.9(b) and 6.7. Reference may also be made to clause 3.3(b). Thus, Mr Donaldson submitted, since novations were the key to performance, then novation must be taken to define the agreements in respect of which integer A has to be collated. 47 Mr Donaldson relied on the definition of "Management Agency Agreement", which incorporates the need for novation, to support the submission. 48 As to the non defined term Property Management Agreements, Mr Donaldson submitted that it was used in error, and should be read as the defined term Management Agency Agreement. 49 In my view, Mr Donaldson's submissions shall be accepted. It was of the essence of the sale agreement that APF should get an enforceable right to the fees, by reference to which the purchase price was calculated. Hence the requirement for novation. 50 Section 55 of the Property Stock and Business Agent Act 2002 reads as follows:

55 No entitlement to commission or expenses without agency agreement

(1) A licensee is not entitled to any commission or expenses from a person for or in connection with services performed by the licensee in the capacity of licensee for or on behalf of the person unless: (a) the services were performed pursuant to an agreement in writing (an "agency agreement") signed by or on behalf of: (i) the person, and (ii) the licensee , and

(b) the agency agreement complies with any applicable requirements of the regulations, and

(c) a copy of the agency agreement signed by or on behalf of the licensee was served by the licensee on that person within 48 hours after the agreement was signed by or on behalf of the person. (2) The regulations may make provision for or with respect to regulating the form of agency agreements and the terms, conditions and other provisions that an agency agreement must or must not contain. Without limiting this subsection, the regulations may prescribe one or more standard forms of agency agreement .

(3) Without limiting the means by which a copy of the agency agreement may be served on a person, it may be served by means of facsimile transmission or by such other means as the regulations may allow.

(4) A court or tribunal before which proceedings are taken by a licensee for the recovery of commission or expenses from a person, or before which a licensee is a respondent to a consumer claim relating to commission or expenses (as referred to in section 36), may order that the commission or expenses concerned are wholly or partly recoverable despite a failure by the licensee to serve a copy of the relevant agency agreement on the person within 48 hours after it was signed by or on behalf of the person.

(5) A court or tribunal is not to make such an order unless satisfied that: (a) the failure to serve a copy of the agreement within the required time was occasioned by inadvertence or other cause beyond the control of the licensee , and (b) the commission or expenses that will be recoverable if the order is made are in all the circumstances fair and reasonable, and (c) failure to make the order would be unjust. 51 Absent novation, APF would not get, on completion, an enforceable right to the fees payable under agreements that were not novated. It might of course thereafter make its own written agreement with the principal in question, and thus satisfy section 55. But the point of present concern is the calculation of the purchase price as at the completion date, not what might happen thereafter, assuming that something less than full compliance occurred. 52 In my view this approach is supported by the definitions of the Property Management Business and Property Management Portfolio. The Property Management business includes the business of managing the Property Management Portfolio. It also includes the business known as the facilities Management Business and the Business known as the Leasing Business. 53 The definition of Property Management Portfolio directs attention to "the Managing Agency Agreements" set out in Item 10. Although in this usage the expression "managing agency agreements" is not distinguished by initial capital letters, it is nonetheless a term that is explicitly defined in clause 21.2. When one goes to item 10 of the Reference Schedule, one finds that the Property Management Portfolio is "The Managing Agency Agreements ... set out in annexure 1". 54 Annexure 1 sets out the 120 or more properties in respect of which Pact held a Managing Agency Agreement. 55 When one looks at the matter, and puts the term "Property Management Agreements" into its contractual context, it is I think the case that it was used conceptually as synonymous with the definition of Management Agency Agreement. Of course, it could not be wholly synonymous, because the latter definition includes the need in relation to novation. But I think it is clear enough that the parties did not intend that the Property Management Agreements on which the calculation of integer A was to be based were anything other than the Managing Agency Agreements forming part of the "rent roll" identified in annexure 1. 56 For reasons that I must say were not touched on in submissions, the second formula referred to alternative dates of 30 November 2005 and 30 November 2006. The second formula is concerned with the proper contractual basis for the calculation of the purchase price. That refers to clause 3.1(a). That calculation is to be charged out as at the completion date. In the events that have happened, the parties effectively treated 30 November 2005 as the completion date. 57 Thus, I conclude, the second issue should be answered "Yes" as to 2(a) and "No" as to paras (b) and (c). Third issue: interest rates 58 The parties agreed on the applicable interest rates. In the first period, 30 November 2005 to 30 November 2006, they agreed that the applicable interest rate was 6 percent per annum, simple, not compound. For the second period, 1 December 2006 onwards, they agreed that the applicable interest rate was the Westpac Indicator Lending Rate plus two percent.

59 Issue 3 should be answered accordingly. Conclusion 60 I direct that my answers to the separate questions be recorded.

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