Plaintiffs / Defendants by Counterclaim v Defendants / Plaintiffs by Counterclaim

CONTRACT - Construction of contract - Properties held as trading stock not included in calculation of termination adjustment on basis of not being 'unrealised capital gains' - Whether 'unrealised capital gains' relates to all assets - Intention of parties determined objectively according to language of agreement - Adjustments to profit suggest awareness of distinction between capital gains and income on revenue account - Agreement made by sophisticated commercial actors with developed appreciation of accounting practices - 'Unrealised capital gains' applies only to capital assets.

CONTRACT - Construction of contract - 'Unrealised capital gain or loss' and cost base for interest in land - Whether unrealised capital gain or loss based on recorded value or land value - Where interest in land held by unusual trust structure - Land acquired for purposes of development and profit - Interest valued according to land value.

REAL PROPERTY - Valuation of land - Valuer revised valuation after communication from party - Whether change in valuation justified - Revised valuation reasonable and not due to urging, pressure or influence - Revised valuation accepted.

REAL PROPERTY - Valuation of land - Land previously valued for GST margin scheme - Whether to rely on prior valuation for subsequent valuation - Prior valuation happened before critical events relevant to subsequent valuation - Independent subsequent valuation relied on.

CONTRACT - Construction of contract - Whether outstanding loans give rise to 'unrealised capital gain' - Revenue from loans treated as revenue when received - Outstanding loans not included in 'unrealised capital gain'.

REAL PROPERTY - Valuation of land - Income of sale of property subject to good faith negotiations - Whether agreement made to adjust income - Agreement not conditional on other agreements being made - Income of sale of property adjusted.

INTEREST - Entitlement to interest - Some aspects of Service Fee disputed - Whether interest payable on undisputed aspects - Issuance of dispute notice necessarily identified undisputed amount - Undisputed amount a sum certain - Interest payable on undisputed amount.

1 This proceeding relates to a dispute between, on the one hand, Gerard Keeghan and a company related to his interests Castleway Pty Ltd ('Castleway') and, on the other, a group of companies that may collectively be described as the TPC Group.

2 The TPC Group evolved from a road construction business commenced by Rinaldo (Ron) Rado and operated through various corporate entities. Over time, the business of the TPC Group, which initially involved civil construction, asphalt production and quarrying, became to principally involve property development. In many cases, that involved the acquisition of broad acre land and the subsequent subdivision and sale of residential lots. Properties were acquired in Victoria and Queensland.

3 Mr Keeghan commenced working with Mr Rado in 1982, the year that Mr Keeghan and one of Mr Rado's daughters were married. In 1994, Mr Keeghan was appointed as Chief Executive Officer of Standard Roads, one of the entities within the TPC Group. Mr Rado died in April 2001, and his widow, Agnes (Nancy) Rado became the ultimate shareholder of the TPC Group. According to his evidence, from April 2001 Mr Keeghan was solely responsible for running the TPC Group's property acquisition, development and management business as its Chief Executive Officer.

4 On 7 December 2010, Castleway, Mr Keeghan and the companies comprising the TPC Group entered into a written agreement entitled the 'Property Development Services Agreement' ('PDSA'). Although he had held a Chief Executive Officer position within the TPC Group before December 2010, under the Executive Services Agreement ('ESA') which was made on the same day as the PDSA, Mr Keeghan was appointed as Chief Executive Officer of the TPC Group's central operating company. This agreement regulated the terms of his employment including providing for his remuneration.

5 In broad compass, the PDSA provided that, in return for providing property development services to the TPC group, Castleway would be entitled to an annual 'service fee' calculated as a sliding percentage of the profit of the group. In the final year of the term of the PDSA, the service fee was to be adjusted by a 'termination adjustment' which involved adjusting the group profit to take into account 'unrealised capital gains' and 'unrealised capital losses' which were to be calculated as at the date of the termination of the PDSA.

6 In addition to the annual service fee (which included the termination adjustment in respect of the final year), Castleway was also entitled to commission on 'introduced projects', being a project that the TPC group was made aware of by Mr Keeghan or Castleway before the termination of the PDSA for the purpose of acquisition, development or management.

7 The PDSA also provided for the means by which the annual service fee would be calculated. That process involved the appointment of a 'nominated accountant' who, acting on behalf of the TPC Group, would be tasked with performing the calculation of the annual service fee. In each of the years in dispute, the firm of accountants Grant Thornton was the nominated accountant.

8 From perhaps as early as 2012, the parties have been in dispute about various matters including the calculation of the annual service fee. Arising from that dispute, on 30 October 2015, the TPC Group commenced proceedings in this Court in relation to the service fee payable in respect of the 2014, 2015 and 2016 financial years and in relation to commission payable on certain disputed introduced projects. A central issue in that proceeding came to include an argument in relation to the 30 June 2017 year. Shortly before the end of the 2017 year, the TPC Group made a $20 million donation to a charitable foundation associated with the Rado family. The effect of that donation was to reduce the taxable income and in turn the net profit of the TPC Group which resulted in a corresponding reduction in the amount payable to Castleway as its share of the profit.

9 I note that on 29 June 2016, the TPC Group (through one of its entities) gave notice under the ESA terminating Mr Keeghan's employment with effect from 30 June 2017.

10 On 28 December 2016, Castleway gave notice of its intention to terminate the PDSA, with effect from 29 June 2017. It follows that the year ending 30 June 2017 was the final year of the term of the PDSA and a termination adjustment was required to be made in respect of the Service Fee payable in that year.

11 The first proceeding, which included the donation dispute, resulted in a number of decisions by Robson J and the Court of Appeal.[1]

12 On 5 October 2017, Robson J delivered judgment addressing many of the substantive issues on liability.[2] The parties however remained in dispute over various items and subsequently Robson J appointed a special referee to address various accounting issues.[3] The special referee provided a report to the Court and the parties.

13 On 22 August 2018, the nominated accountant issued a Service Fee Report in respect of the 30 June 2017 year to the TPC Group and Castleway which stated that the Service Fee due to Castleway was $15,107,923 (exclusive of GST). The Service Fee Report was prepared following the special referee's report and, in respect of items that had hitherto been contentious, reflected the conclusions reached by the special referee.

14 On 29 August 2018, the TPC Group served a dispute notice in relation to the Service Fee Report. In its notice, the TPC Group took issue with the decision of the nominated accountant to add back the $20 million charitable donation that the TPC Group had made just before the end of the 2017 financial year. As mentioned above, the effect of the donation was to reduce the taxable income of the TPC Group by $20 million. I note that, for different reasons, both Robson J and the Court of Appeal held that the donation should be ignored for the purpose of determining the TPC Group's profit.

15 On 31 August 2018, Castleway served a dispute notice in respect of the Service Fee Report.

16 Following a further judgment of Robson J,[4] on 11 February 2019, the nominated accountant served a Revised Service Fee Report which provided that the sum of $15,521,722 (exclusive of GST) was due to Castleway.

17 Both Castleway and the TPC Group issued a dispute notice in respect of the Revised Service Fee Report, on 18 and 19 February 2019 respectively. The TPC Group revised its dispute notice on 21 February 2019. By its revised dispute notice, the TPC Group disputed the refusal of the nominated accountant to allow certain deductions (in effect by adding the payments back). Those deductions were:

(a) the $20 million donation;

(b) $115,240 of directors' fees in excess of an allowed amount of $140,000;

(c) $406,458 for legal fees in the remitted proceeding;

(d) $99,317 for accounting fees in connection with the remitted proceeding;

(e) $18,537 for accounting fees in negotiating proposed variations to the PDSA;

(f) $1,492 for accounting fees for members of the Rado family; and

(g) $24,995 for accounting fees for 'excluded entities'.

18 As part of the dispute resolution mechanism required by the PDSA, good faith discussions were held between the parties attended by Mr Keeghan and Mr Ian Lee (a director of the TPC Group and a former partner of Grant Thornton) on 7 and 18 March, 15 April and 16 May 2019. Some items of dispute were resolved.

19 On 27 May 2019, the TPC Group commenced this proceeding seeking declaratory relief in relation to amounts owing under the PDSA in respect of the 2017 year.

20 On 19 August 2019, Castleway issued three tax invoices to the TPC Group consequent upon the provision of the Revised Service Fee Report:

(a) Tax Invoice 1901 in the sum of $15,521,722 (exclusive of GST). The invoice was said to relate to the 2017 financial year PDSA Service Fee as calculated by Grant Thornton on 12 February 2019 in the Revised Service Fee Report. It was said to be 'Without prejudice to Castleway's rights and remedies pursuant to the [PDSA]'. On the same day, Castleway filed a defence and counterclaim in the proceeding. This invoice corresponded to the amount reported by the nominated accountant;

(b) Tax Invoice 1901A which was described as a supplementary invoice 'consequent on additional [2017 financial year] TPC Group Profit, not included in the [nominated accountant's] report'. This invoice was in the amount of $2,366,791.03 (exclusive of GST);

(c) Tax Invoice 1901B in the sum of $10,294,568.22 (exclusive of GST) and which related to the calculation of the termination adjustment including the omission of certain properties owned by the TPC Group as at the date of termination but excluded from the termination adjustment on the basis that there were held as trading stock on revenue account and therefore did not give rise to an unrealised capital gain.

21 On 7 August 2020, the Court of Appeal allowed an appeal from Robson J and made final orders on 20 November 2020 remitting that proceeding for an assessment of damages. It is unnecessary at this point to refer to the reasons of the Court of Appeal. As will appear they were concerned with the construction of the PDSA and in particular the $20 million donation. The remitted proceeding was subsequently resolved.

22 On 10 December 2020, Riordan J gave directions in this proceeding which included the following:

As soon as practicable, the plaintiffs make any request (as it is so advised) that Grant Thornton (being the nominated accountant under the PDSA) prepare an amended Service Fee Report for the financial year ending 30 June 2017 in accordance with the orders of the Court of Appeal made 20 November 2020 and the reasons delivered on 7 August 2020 and 20 November 2020 in proceedings S APCI 2019 0014 and S APCI 2019 0024, with such report to be provided to the parties by 22 January 2021.

23 Riordan J also ordered on that date that the plaintiffs and the defendants both file and serve a list of all questions arising out of the remitted proceeding, the Revised Service Fee Report, or otherwise in this proceeding.

24 On 16 December 2020, the nominated accountant served a Second Revised Service Fee Report providing for an amount of $15,521,722 (exclusive of GST). The Second Revised Service Fee Report proceeds on the basis of the Court of Appeal's orders, and is apportioned for the incomplete year.[5] There is no amendment to the Termination Adjustment.

25 On 31 December 2020, Castleway served a dispute notice to the Second Revised Service Fee Report.

26 On 30 June 2021, the solicitors for the TPC Group wrote to the solicitors for Castleway taking issue with Castleway's continued reliance on the 2019 invoice. In that letter, it was noted that since the Service Fee Report was issued on 22 August 2018 there had been revisions following the decisions of Robson J and then the Court of Appeal resulting in the Revised Service Fee Report and the Second Revised Service Report.

27 The letter invited Castleway to issue a new invoice for the undisputed component of the 2017 financial year Service Fee in the sum of $7,415,653 (exclusive of GST), being $7,255,653 (exclusive of GST) as set out in the Second Revised Service Fee Report plus a further amount of $160,000 (exclusive of GST). It said that Castleway could issue the tax invoice on a without prejudice basis.

29 On 19 July 2021, the TPC Group paid the sum of $8,157,218.30 (being the sum of $7,415,653 plus GST) representing what it contended was the undisputed component of the 2017 financial year Service Fee. The TPC Group requested that Castleway issue an invoice for the purpose of, so it appears, dealing with its GST obligations and in order to obtain an input tax credit for the amount of GST payable.

30 As the above chronology exposes, there have been a number of iterations of the Service Fee Report prepared by the nominated accountant for the 2017 year. The following table sets them out:

31 Notwithstanding that Robson J at first instance and the Court of Appeal have been required to examine in some detail the construction of the PDSA, the parties remain in dispute about how it is intended to work in some fundamental respects.

32 As noted, this proceeding was commenced by the TPC Group seeking declaratory relief. Subsequently, by counterclaim, Castleway sought the payment of amounts that it claimed were owing to it under the PDSA in respect of the 2017 year and in respect of commission on introduced projects. The preparation of both the claim and counterclaim proceeded by way of pleadings. As already noted, Riordan J directed the parties to formulate questions reflecting the issues in dispute.

33 Although some of the issues have been resolved (and for which the parties deserve some credit) there remain a significant number of issues to be determined. The resolution of most of the issues, certainly the most significant by amount claimed, depends on disputed questions of construction of the PDSA. As will appear, the dispute about the meaning of the PDSA can be reduced to a series of questions that serve to isolate the particular constructional issue. Atomising the contractual dispute in that way can, no doubt, be useful. However, I would make two observations.

34 The first is that the device of articulating the contractual dispute into a series of questions referable to specific terms can risk ignoring, or at least undermining, a foundational principle of construction that the instrument must be construed as a whole giving the contract a harmonious operation, as best can be achieved, having regard to the objective theory of contract. So that, for example, questions about what might reasonably be described as machinery provisions may assume a different tenor when divorced or examined apart from the agreement as a whole.

35 The second observation is that the invitation to identify questions in dispute has, as it appears to me, encouraged rather than dissuaded the parties from putting matters in issue. That observation derives some support from the number of issues in dispute and that the parties still quibbled over the form of some of the questions, the fact that some items of dispute have a value of as little as $6,265,[6] that Castleway relied on written closing submissions of over 200 pages and the TPC Group relied on written opening submissions of 80 pages not including annexures and an additional summary in tabular form of 47 pages and a tender bundle of more than 8000 pages.

36 I should not be misunderstood. I have found the written submissions generally helpful, albeit unduly long. However, I have not found it necessary to refer to every argument, many of which are contingent, in seeing to explain my reasons for decision.

1. The Remitted proceeding

1.1 ...

1.2 ...

1.3 ...

(a) ...

(b) ...

1. Questions arising from the Second Revised Service Fee Report served 23 December 2020 in respect of the period ending 29 June 2017

Are the questions for determination in relation to the calculation of the FY2017 Service Fee under the PDSA in this proceeding limited to those which:

(a) arise out of the Second Revised Service Fee Report served on 23 December 2020; and

(b) were disputed by Castleway in its Dispute Notice issued on 31 December 2020 [irrespective of whether the relevant item was reported or disclosed]?

2.1 The 2016-17 Service Fee Report

2.1.1 Was the TPC Group obliged to:

(a) [issue, or] procure that the nominated accountant issue a Service Fee report for the 2016-17 financial year by 30 April 2018; and/or

(b) [issue, or] procure that the nominated accountant issue a Service Fee report for the 2016-17 financial year which 'correctly' calculated the amount payable to Castleway, [including any Termination Adjustment]?

2.1.2 If the answer to either [2.1.1(a)] or [2.1.1(b)] is 'yes', and given the answers to questions [2.3] and [2.4] below, did the TPC Group breach either of these obligations?

2.1.3 If so, what loss and damage has Castleway suffered?

2.1.4 Is interest payable on that loss and damage?

2.1.5 If so:

(a) what interest rate applies?

(b) from what date does interest accrue?

2.2 The invoice, the undisputed Service Fee component and interest

2.2.1 Was the Invoice deprived of legal consequence as a result of the Court of Appeal's judgment in Adaz Nominees Pty Ltd v Castleway Pty Ltd [2020] VSCA 201 and the issuance of the Second Revised Fee Report by the nominated accountant [at the TPC Group's request] [pursuant to the Court's orders dated 10 December 2020]?

2.2.2 Is Castleway estopped from relying on the invoice in light of its [alleged] agreement, alternatively its [alleged] acquiescence, [both of which Castleway disputes,] in the nominated accountant replacing the Revised Service Fee Report with the Second Revised Service Fee Report, and in [allegedly] thereafter treating the Second Revised Service Fee Report as valid in its dealings with the TPC Group [which Castleway also disputes]?

2.2.3 Was there an 'undisputed' Service Fee component' of the Invoice which the TPC Group was obliged to pay?

2.2.4 Did the TPC Group breach the PDSA by failing to pay any part of the Invoice?

2.2.5 If so, what loss and damage has Castleway suffered?

2.2.6 Is interest payable on that loss and damage?

2.2.7 If so

(a) what interest rate applies?

(b) from what date does interest accrue?

2.3 Calculation of the Service Fee

2.3.1 In disputing the calculation of the Service Fee, is Castleway entitled to depart from and challenge the accounting treatment or amount of items of invoice or expenditure reported in the TPC Group's income tax returns? Are the matters which may be disputed pursuant to clause 3.3(c) of the PDSA limited to the correctness of the calculations made by the nominated accountant in accordance with Schedule 2 to the PDSA on the basis of the income tax returns there referred to?

2.3.2 Subject to resolution of issue [2.3.1] above, did the nominated accountant err in calculating the amount of the Service Fee, not including the Termination Agreement, for the 2016-17 financial year? In particular, did the nominated accountant err by taking into account"

2.3.2.1 a cost base in respect of the TPC Group's interest in Gumbuya Park of $1,649,409 rather than $602,879, or alternatively $82,501, being the actual acquisition of the Gumbuya Park land settled on 20 July 2006?

2.3.2.2 ...

2.3.2.3 the proper treatment of the outstanding annual leave and long service leave entitlements which had accrued to Mr Keeghan before the Term of the PDSA commenced on 1 July 2007?

2.3.3 ...

2.3.4 ...

2.3.5 If the answer to any part of issue [2.3.2] to [2.3.4] is 'yes', and subject to the answer to issue [2.3.1], above, what is the correct calculation of the Service Fee for the 2016-17 financial year before applying the Termination Adjustment?

2.4 Termination

Unreported projects

2.4.1 The calculation of the Termination Adjustment in [each of the reports in Table 1 including] the Second Revised Service Fee Report did not report any 'unrealised capital gain or losses' in respect of various properties held by the TPC Group at the Termination Date. The TPC Group contends that this was correct on the basis that they were properties held on current account. On the proper construction of the PDSA, are 'unrealised' capital gains or losses' in respect of any one or more of the following properties that were held by the TPC Group on current account as at the Termination Date to be take into account when calculating the Termination Adjustment?

2.4.1.1 360 Princes Highway, Officer, Victoria 3809 (Officer);

2.4.1.2 27 Highwood Drive, Hillside, Victoria 3037 (Hillside);

2.4.1.3 Hillcrest Park Estate, Tallowwood Street, Maleny, Queensland 4552 (Maleny);

2.4.1.4 120-130 Alma Road, Dakabin, Queensland 4503 (Alma Road);

2.4.1.5 Lot 29, Central Boulevard, Birtinya, Queensland 4575 (Kawana Waters);

2.4.1.6 Hallam South Road; and

2.4.1.7 Pacific Highway, Valla, New South Wales 2448 (Pacific Highway, Valla).

2.4.2 On the proper construction of the PDSA, are 'unrealised capital gains or losses' in respect of any one or more of the following assets to be taken into account when calculating the Termination Adjustment?

2.4.2.1 Interest accrued pursuant to a facility operated by Tynong Pastoral Unit Trust (Tynong Interest);

2.4.2.2 Interest accrued pursuant to a facility operated and provided to the Chauffer joint venture (Chauffer Interest);

2.4.2.3 Interest accruing to the TPC Group from a finance facility made available by the TPC Group to the IBIS Care joint venturers, which as at the Termination Date had accrued in the amount of $1,952,192.32 (IBIS Care Interest); and

2.4.2.4 Interest accrued in at call or term deposits or in treasuries, bonds or debentures held, controlled and/or legally or beneficially constituting an entitlement of any TPC Group entity which have not been discovered and/or reported to date.

Reported items - calculation dispute

2.4.3 Taking into account the answer to issues [2.4.1] and [2.4.2], what is the Termination Adjustment to be applied to Castleway's 2016-17 Service Fee? In particular, did the Termination Adjustment calculation correctly:

2.4.3.1 take into account an unrealised capital gain or loss (as applicable) in respect of the TPC Group's interest as at the Termination Date in the following [properties]:

(a) [40-72 Rokeby Street and 33 Rupert Street, Collingwood (Rokeby Street), based on a recorded value of the TPC Group's interest of -$1,703,866, rather than what Castleway contends was a relevant valuation as at 30 June 2017 of $17,000,000 for the Rokeby Street property];

[Rokeby Street based on a recorded value of the TPC Group's interest in the Rokeby Street Fixed Trust of -$1,703,866, rather than what Castleway contends as a percentage share in the value of the property based on a valuation of the whole of property as at 30 June 2017 of $17,000,000];

(b) 14 Barker Road, Garfield (Garfield), based on a valuation as at 29 September 2016 of $2,200,000, which Castleway does not accept as being correct as it did not take into account what Castleway contends was an unrealised capital gain accruing from a margin scheme benefit to the TPC Group of $1,821,361;

(c) 11 Abbotsford Road, Bowel Hills, Queensland (Bowen Hills), based on a valuation as at 30 June 2017 of $1,400,000, rather than the sale price of the Bowen Hills property on or about 5 October 2017 of $1,850,000 which Castleway contends is the relevant value;

(d) Lot 13 Ellis Beach, based on a valuation by Herron Todd White as 30 June 2017 of $830,000 (given on 6 June 2018), whereas Castleway contends that the calculation ought to have been upon a valuation by Knight Frank as at 30 June 2017 of $1,500,000 (given on 31 May 2017); and

2.4.3.2 not take into account any unrealised capital gain from the contracted sale of lots which had not settled as at the Termination Date at:

(a) Pacific Highway, Valla;

(b) Officer;

(c) Alma Road;

(d) Garfield; and

(e) Maleny.

2.4.3.3 account for the cost base [in accordance with the financial records of the relevant TPC Group entity, including the general journals], as at the Termination Date in respect of:

(a) Officer;

(b) Maleny;

(c) Pacific Highway, Valla;

(d) Alma Road;

(e) Rokeby Street;

(f) Brew Road;

(g) Garfield;

(h) Bowen Hills;

(i) Lot 13 & 22, Ellis Beach;

(j) 2505 Princes Highway, Tynong North;

(k) 11-21 Walker Street, Dandenong; and

(l) IBIS Care.

2.4.3.4 take into account alleged accrued increases in cost bases by estimated construction costs and contingencies, such as refundable municipal, infrastructure and landscaping bonds, unutilised to completion of the respective projects at the Termination Date, including for:

(a) Officer;

(b) Alma Road; and

(c) Maleny.

2.4.4 On the proper construction of the PDSA, should the unrealised gain on the Garfield development include the amount of $200,000 that the purchaser paid to reimburse the vendor's GST liability?

2.4.5 ...

2.4.5.1 ...

2.4.5.2 ...

2.4.6 What is the proper treatment of unrealised bank, Treasury and debenture interest for funds deposited before the Termination Date, but which investments mature after the Termination Date for the purposes of calculating the Termination Adjustment? In particular:

2.4.6.1 Do the unrealised bank, Treasure and debenture deposits constitute current assets as at 29 June 2017?

2.4.6.2 Is the interest that had accrued on those deposits as at 29 June 2017 an unrealised capital gain for the purposes of calculating the Termination Adjustment?

2.4.6.3 If the answer to issue [2.4.6.1] and/or [2.4.6.2] is yes, what is the value of:

(a) Chauffer Interest;

(b) Tynong Interest; and

(c) [Interest accrued in] term deposits [and other interest-bearing assets] held by TPC Group entities [which had not been discovered and/or reported as at 31 December 2020 (being the date of Castleway's 31 December 2020 Dispute Notice)].

2.4.7 Given the answers to [2.4.1] to [2.4.6] above:

2.4.7.1 what value is to be given to the relevant projects when calculating the Termination Adjustment;

2.4.7.2 what cost is to be attributed to the relevant projects when calculating the Termination Adjustment;

2.4.7.3 what was the proportion of the TPC Group's interest in respect of the relevant projects when calculating the Termination Adjustment; and

2.4.7.4 accordingly, what is the correct amount of the Termination Adjustment payable to Castleway?

3. Matters arising otherwise in this proceeding no S ECI 2019 02312

Commission

3.1 What amount of Commission is payable, if any, by the TPC Group to Castleway under the PDSA for any Introduced Project sold after the Termination Date, including:

3.1.1 Rokeby Street, whose sale was settled on about 15 January 2020;

3.1.2 11-21 Walker Street, Dandenong, whose sale was settled on about 19 October 2018;

3.1.3 Brew Road, whose sale was settled on about 30 April 2018;

3.1.4 Bowen Hills, whose sale was settled on about 26 November 2017; and

3.1.5 any other Introduced Project sold after the Termination Date.

3.2 By what date was the Commission calculated in issue [3.1] due to be paid to Castleway, pursuant to clause 4.5(c) of the PDSA?

3.3 What interest, if any, is due on the Commission?

38 The entries that are italicised represent disputed versions of the questions. I have not found the dispute on the form of the questions of any significance to the issues I need to determine or necessary to resolve.

39 Grouping the issues as best I can my conclusions are as follows.

40 For the 2017 year, the TPC Group was required to furnish a Service Fee Report by 31 March 2018. It failed to do so, this was a breach of the PDSA, but Castleway did not issue an invoice and has suffered no loss by reason of the breach. The TPC Group was not contractually required to issue a Service Fee Report with the 'correct figure'.

41 The invoice served by Castleway was valid and there was an undisputed amount which the TPC Group was obliged to pay. It paid the amount on 19 July 2021, and its failure to pay within the time stipulated by the PDSA, namely 30 days from receipt of the invoice, was a breach of the PDSA. Castleway is entitled to interest. I will hear further from the parties on the interest rate, having regard to clause 3.7 of the PDSA in so far as that clause may be relevant.

(a) The profit is the amount specified in the TPC Group tax return and there is no basis to depart from that figure in the absence of agreement or an amended assessment;

(b) Of the two items remaining in dispute, Gumbuya Park and Mr Keeghan's termination payment:

(i) Gumbuya Park was the subject of an agreement;

(ii) The deduction for the termination payments is as set out in the tax return for the 2017 year and was properly taken into account.

(a) assets held on revenue account are not included in the concept of unrealised capital gain. Officer, Hillside, Maleny, Alma Road, Kawana Waters, Hallam Road South and Pacific Highway, Valla were all correctly excluded from the calculation.

(b) The interest payments accrued in respect of Tynong, Chauffer, and Ibis Care and term deposits did not give rise to an unrealised capital gain and were correctly excluded from the calculation.

44 In relation to specific calculation of reported items for the termination adjustment:

(a) Rokeby Street was wrongly valued. The valuation adopted by the nominated accountant did not reflect the task in the PDSA. It should have been valued on land value. Doing so also resolves the dispute about the cost base so that amounts paid by the investors should have been excluded;

(b) Garfield was wrongly valued. The nominated accountant used an out of date valuation that predated actual sales that had been made (but not settled) before the termination date. I accept the evidence of Mr Sutherland other than in respect of a deduction of 12% for profit and risk;

(c) Bowen Hills was correctly valued;

(d) Brew Road was correctly valued; and

(e) Ellis Beach was wrongly valued. I accept the evidence of Mr Coates that the value of lot 13 is $1,500,000 (and not $830,000 as used by the nominated accountant). The cost base correctly included an additional amount of $502,829 in respect of lot 13 with a total cost base at $2,359,454. Lot 22 wrongly included an allowance for motor vehicles, furnishings and fittings and goodwill in the cost base.

45 The Service Fee will need to be adjusted having regard to my conclusions in respect of Gumbuya Park, Rokeby Street, Garfield and Ellis Beach.

46 I will hear the parties on the question relation to commission on introduced projects in light of these reasons.

47 The PDSA appointed Castleway as the 'Manager' to provide property development services to the TPC Group. Castleway was to be remunerated by a 'Service Fee', being a scaled percentage of the 'TPC Group Profit' calculated as set out in a schedule to the agreement. Provision was made for the termination of the PDSA which triggered a termination adjustment in respect of the final year and Castleway had an entitlement to further payment, called 'Commission', after termination in relation to what the PDSA defined as 'Introduced Projects'.

48 For present purposes, the three critical elements of the PDSA concern the obligation to pay, the method of calculation and the dispute mechanism.

The obligation to pay an annual Service Fee and the definition of 'TPC Group Profit'

49 The obligation to pay is cast in clear terms. Relevantly, cl 3.1 requires the TPC Group to pay Castleway the Service Fee in respect of each Financial Year during the term of the PDSA.

The parties agree that the Service Fee shall be calculated by the TPC Group's nominated accountant based on TPC Group Profit in each Financial Year during the Term in the manner set out in Schedule 2.

the net profit... of the TPC Group calculated in accordance with Schedule 2, and any references to calculation of TPC Group Profit shall include the calculation of the net profit... for the TPC Group.

52 The PDSA does not, as the Court of Appeal made clear, adopt a definition based on some ordinary commercial understanding of 'net profit', rather the term is as defined in sch 2.

53 Schedule 2 has eight sub-clauses. Sub-clause 1 provides that the Service Fee 'shall be determined based on TPC Group Profit for that Financial Year', and provides for an incremental scale expressed as a percentage of the 'TPC Group Profit'.

54 Sub-clause 2 is headed 'Calculation of TPC Group Profit' and defines the TPC Group Profit to mean 'adjusted taxable profit before income tax on a consolidated basis' and calculated in accordance with the table attached to sub-cl 2. The table is as follows:

Total Taxable Income (loss) as per income tax returns for the TPC Group Entities and associated entities set out in Annexure A to this Agreement

Inter-entity current year taxable dividends or taxable trust distributions declared

Notional non assessable gain (loss) on pre-CGT assets (See Note 1 below)

Current year post CGT capital losses not otherwise offset in taxable income (loss)

Carried forward capital losses offset against current year capital gains

Any post 1 July 2007 dividend paid from profits for shares in any TPC Entity sold or disposed of to external parties

Carried forward income losses offset against current year taxable income (loss)

Percentage share owned by external parties of non wholly owned TPC Entities (See Note 3 below)

Any carried forward TPC Group Loss (See Note 2 below)

The parties acknowledge that the calculation of TPC Group Profit for the Financial Year ending 30 June 2008 is attached as Annexure C to this Agreement. The parties agree that if there is any dispute regarding calculation of TPC Group Profit in any subsequent Financial Year the calculation shall (where practicable) be undertaken in accordance with the principles and standards reflected in the calculation of TPC Group Profit for the 2008 Financial Year.

55 As the table makes clear, the calculation commences with the 'Total Taxable income (loss) as per income tax returns for the [relevant TPC Group entitles]'. The entries in the table provide for certain adjustments to that figure to be made. The content of some of the adjustments is explained further in notes to the table.

56 For example, the PDSA proceeds on the basis that some of the property of the TPC Group may have been acquired before the commencement of the capital gains regime in September 1985. The gain realised on the disposal of such assets would not be brought to account as part of the taxable income. However, the table requires an adjustment to be made to bring those properties in, including by ascribing a notional market value for pre-CGT land.

57 Clause 3.3 of the PDSA stipulates the process to be adopted in calculating the Service Fee.

58 The first obligation is on the TPC Group and relates to the finalisation of financial statements and tax returns of the TPC Group entities. It requires the TPC Group to use 'reasonable endeavours' to finalise the statements and returns by 31 December in the following financial year and to 'procure in any event' that they are finalised by 31 March in the following year.

59 The next obligation on the TPC Group is to procure 'the nominated accountant acting for the TPC Group' to calculate the TPC Group Profit in the manner set out in sch 2 and report back to both the TPC Group and Castleway within 30 days of the finalisation of the tax returns. The report provided by the nominated accountant is described by the parties as a 'Service Fee Report'. Several versions of the report were prepared for the 2017 financial year.

60 As will appear, the financial returns and accounts for the 2017 year were not finalised by 31 March 2018. Castleway contends that this constituted a breach of the PDSA and that as a result it delayed payment to it with the result that it suffered loss and damage. Castleway seeks to value this loss by seeking the payment of interest (at the penalty rate) for the period of the delay.[7]

61 As already noted, the task of the nominated accountant is required to be completed quite soon after the finalisation of the accounts and tax returns. The PDSA does not require that the nominated accountant be responsible for the preparation of these documents.

62 Clause 3.3 allows for either party to give to the other party a 'Dispute Notice' in accordance with cl 9 within 10 days of the nominated accountant reporting the Service Fee to the TPC Group and Castleway. If no Dispute Notice is given then the Service Fee is 'deemed to be agreed' by the parties. As will appear, that is not to say that the parties are bound by the Service Fee for all time and for all purposes.

63 Clauses 3.3(d), (e) and (f) contemplate that Castleway will issue an invoice as the trigger to pay the Service Fee. There is some awkwardness in how the provisions deal with the situation in which there is a Dispute Notice given in accordance with cl 3.3(c) which does not extend to the entire amount specified. The Court of Appeal held that where there is both a disputed and undisputed component of the Service Fee, an invoice could be issued identifying the undisputed amount so as to trigger an obligation to pay that amount even though the dispute as to the balance remains unresolved.[8]

64 Where an invoice is 'correctly rendered' by Castleway the TPC Group is required to pay within 30 days of receipt.[9] Clause 3(f) provides that the TPC Group may dispute an invoice if the amount is not equal to the amount of the Service Fee as set out in the applicable report from the accountant.

(a) the TPC Group will pay the non-disputed component (if any) of the invoiced amount in accordance with cl 3.3(e); and

(b) the TPC Group may withhold the disputed component until the dispute is resolved in accordance with cl 9, in part or in whole, in favour of the Manager and, subject to cl 3.3(g), shall pay any amount so resolved in favour of the Manager to the Manager within 30 days of resolution of the dispute.[10]

66 Clause 3.7 expressly provides for the payment of interest in the event that the TPC Group defaults on payment, including by delay, in accordance with cl 3. Clause 3.7 provides that if the TPC Group defaults in payment of any monies due under cl 3 the TPC Group must, upon demand, pay interest at the rate of 2% higher than the current ANZ 90 day Bank Bill Swap Bid Rate on the amount in default from the time it fell due until that amount has been paid in full.

67 In order to understand what might legitimately be comprehended by a Dispute Notice it is necessary to refer to cl 9. Although cl 3.3(c) contemplates that the dispute resolution mechanism in cl 9 will apply where one or other of the parties disputes the Service Fee calculated by the nominated accountant, it is also plain that cl 9 is not confined to that circumstance. It is relevant to note that both Castleway and the TPC Group can dispute the Service Fee.

68 Clause 9.1 provides that if a dispute arises between any of the parties 'in connection with' the PDSA the dispute resolution procedures must be complied with before commencing any action or proceeding.[11] A party wishing to resolve a dispute must give notice in writing 'specifying reasonable details' of the dispute and 'identify the matters in dispute'. The parties are then obliged to enter into good faith discussion. If the dispute remains unresolved 15 days after receipt of the notice, any disputing party may refer the dispute to an independent expert in accordance with cll 9.4 to 9.6. The expert determination is binding.

69 It is also necessary to refer to cl 3.5 which allows Castleway to inspect and verify the accounts and the adjustment provisions in sch 2.

The TPC Group shall maintain, for a period of seven (7) years after the Financial Year to which they relate, accurate records and accounts to determine the Service Fee payable in respect of the relevant Financial Year. The TPC Group will permit an accountant or auditor of the Manager from time to time during ordinary business hours to inspect and verify all or any records required to be maintained by the TPC Group under this clause 3.5, provided that prior to inspecting such records and accounts, the accountant or auditor enters into a confidentiality agreement in favour of the TPC Group in a form approved by the TPC Group (acting reasonably).

71 Sub-clause 3 of sch 2 provides for adjustments to be made either because there is an amended income tax assessment or because an audit under cl 3.5 identifies an underpayment or overpayment of the Service Fee. It provides as follows:

Amended Income Tax Assessments

If for any Financial Year ending during the Term there is an amended income tax assessment for any TPC Entity the amount of the adjustment shall be offset (added or subtracted as the case requires) against the calculation of TPC Group Profit for the Financial Year in which the amended assessment is finalised.

Prior Year Errors

If an audit conducted under clause 3.5 of the Agreement reveals an underpayment or overpayment of the Service Fee for any Financial Year or the TPC Group and the Manager otherwise determine that there has been an overpayment or underpayment due to an error, omission or incorrect calculation of the Service Fee the amount of the underpayment or overpayment shall be adjusted (added or subtracted as the case requires) against the calculation of TPC Group Profit for the Financial Year in which the underpayment or overpayment was detected.

No Interest on Adjustments

The parties agree that any adjustment shall not be subject to default interest under clause 3.7 of this Agreement.

72 As already mentioned, in the final year of the PDSA, the service fee payable is required to be adjusted by reference to unrealised capital gains or losses. This is referred to as the termination adjustment. Sub-clause 4 provides for this further adjustment of the TPC Group Profit for the final year of the term. During the final year, the TPC Group Profit is to be adjusted as follows:

(a) TPC Group Profit shall be reduced by an amount equal to the unrealised capital losses as at the date of termination or expiry of the Agreement;

(b) TPC Group Profit shall be increased by an amount equal to unrealised capital gains as at the date of termination or expiry of the Agreement.

The parties agree that if the Term ends on a date other than at the end of a Financial Year, the Service Fee shall be reduced on a pro rata basis for the period between the date of termination and the end of the relevant Financial Year.

73 It is convenient at this point to mention some matters of context that were well known to the parties. At the time the PDSA was made, Mr Keeghan had been involved in the TPC Group business for 28 years and had been its Chief Executive Officer for 16 years. It must be accepted that in that role he had both responsibility for, and an understanding of, the accounting practices of the TPC Group. He had accounting qualifications.

74 Mr Keeghan did not have equity in the business. The effect of the PDSA, and one may infer, one of its purposes, was to allow him to share in the profits of the group.

75 The Court of Appeal referred to the purpose of the PDSA in the following way:

Objectively assessed, the purpose of the PDSA was, as Castleway and Mr Keeghan submitted, to provide for a long term relationship between the TPC Group on the one hand and Castleway and Mr Keeghan on the other whereby the TPC Group would combine its resources and Castleway and Mr Keeghan's expertise to generate profits from property development opportunities. Whether the Service Fee provisions are characterised as a 'sharing' of profits or as a calculation 'by reference to' profits makes no difference. The parties determined that Castleway's remuneration should be entirely dependent on the TPC Group Profit. This is explicable by the obligations of Castleway as Manager as provided for in the PDSA. It is Castleway's work as Manager which will generate the profits. The purpose of the express promises in the PDSA, both Castleway's obligation to source and manage projects to a profitable outcome, and the TPC Group's obligation to pay the Service Fee, was maximisation of the TPC Group Profit.[12]

76 In such a context, when the parties were negotiating the PDSA, a critical issue would have been how profit was to be defined and what would be the process for its quantification and payment. At the time the PDSA was made, Mr Keeghan was familiar with the accounting and business processes adopted within the group. As a Chief Executive Officer he had access to, and oversight of, the accounts. On the other hand, without equity such as a shareholding or other form of interest his access to the books of accounts and his ability to verify them most likely depended on his continued employment. For that reason, another issue that would have been of importance to the parties was the means of verification of the profit in respect of which the PDSA was to provide a share to Castleway.

77 Of course, parties to commercial contracts often unwittingly inject ambiguities into contracts even in respect of central or critical clauses, yet the fact that the current disputed questions of construction largely focus on critical features of the PDSA and the parties were sophisticated and knowledgeable about the operations of the business and entities conducting it suggests that some care was exercised over the terms of the document.

78 At this point it is convenient to refer to some evidence that Mr Keeghan sought to adduce about the negotiations leading up to the making of the PDSA. That evidence was objected to by the TPC Group on the basis that it was irrelevant and did no more than seek to prove Mr Keeghan's subjective intentions or understandings.

79 In his amended witness statement dated 6 May 2022, Mr Keeghan sets out some of the background, as he sees it, and some aspects of the negotiations of the PDSA. He refers to various exchanges of correspondence. In one of the emails sent on 7 August 2009 which addressed including some projects into the profit figure for a period of time after the termination of the agreement, Mr Keeghan wrote:

Property developments take many years - 2 yrs is simply not enough. The profitability of the project and the development costs etc can be easily quantified, and the accounts can be audited for verification. 5 years would be required, and if sacked I would agree to continue to work on those property projects for no management fee

80 In response Mr Hockley, on behalf of the TPC Group wrote saying that:

If employment was to cease it would be inappropriate to continue within the organisation as per normal commercial employment conditions. However, as we have discussed it would be appropriate to consider the value created from these incomplete projects within the agreement. This would be along similar principles as that of the unrealised capital gains and losses at time of cessation (point 3 above). Your thoughts on how this calculation might be accommodated?

81 In my opinion the evidence of Mr Keeghan and the communications are inadmissible. The evidence reflects the subjective intention and understanding of Mr Keeghan, and the course of negotiations. It does not provide legitimate background evidence. In any event, even if it were admissible it does not assist the Court in deciding the construction of the disputed questions. It provides no sound reason to prefer one construction of the PDSA over another:

82 I reject other objections made by the TPC Group to the evidence of Mr Keeghan. To the extent they related to the incorporation of the earlier statement, the objection is one of form of the document, which is irrelevant given the adoption by the witness in his evidence and the content of the statement to which the objection relates is admissible.

83 Castleway objects to the expert evidence of Mr Cohilj on the basis that it contained opinions on questions of law. It did not object to receipt of the report as a submission. The distinction between matters of legitimate opinion and questions of law is not always difficult in the context of revenue law. I admit the report and have had regard to it. To the extent there are disputed questions of tax law, I have treated it as a submission as to the law. Given my construction of the PDSA, much of the report is of little relevance. It has not been significant to any disputed questions that I have had to resolve.

84 As will appear, the construction of the PDSA was not assisted by the witness evidence of the parties. Further, I have found the general criticisms of the process adopted by the TPC Group and the extent to which it sought to control the amount in the Service Fee Report to be largely irrelevant to the issues in dispute. Although Castleway complained that the nominated accountant acted as a cipher for the TPC Group it did not contend that the Service Fee Reports were invalid (perhaps in recognition of the fact that it sought to rely on its own invoice issued in response to establish an undisputed amount). Further, to the extent that there are valuations issues in dispute I have determined the questions on the evidence before the Court and have not accorded the decision of the nominated accountant any special weight or authority.

The principles of construction of commercial contracts

85 The general principles to be applied in the construction of commercial contracts were summarised by French CJ, Nettle and Gordon JJ in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd in the following terms:[13]

The rights and liabilities of parties under a provision of a contract are determined objectively, by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose.

In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. That inquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract.

Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning.

However, sometimes, recourse to events, circumstances and things external to the contract is necessary. It may be necessary in identifying the commercial purpose or objects of the contract where that task is facilitated by an understanding 'of the genesis of the transaction, the background, the context [and] the market in which the parties are operating'. It may be necessary in determining the proper construction where there is a constructional choice. ...

Each of the events, circumstances and things external to the contract to which recourse may be had is objective. What may be referred to are events, circumstances and things external to the contract which are known to the parties or which assist in identifying the purpose or object of the transaction, which may include its history, background and context and the market in which the parties were operating. What is inadmissible is evidence of the parties' statements and actions reflecting their actual intentions and expectations.

Other principles are relevant in the construction of commercial contracts. Unless a contrary intention is indicated in the contract, a court is entitled to approach the task of giving a commercial contract an interpretation on the assumption 'that the parties ... intended to produce a commercial result'. Put another way, a commercial contract should be construed so as to avoid it 'making commercial nonsense or working commercial inconvenience'.

86 In Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd, Kiefel, Bell and Gordon JJ said:[14]

It is well established that the terms of a commercial contract are to be understood objectively, by what a reasonable businessperson would have understood them to mean, rather than by reference to the subjectively stated intentions of the parties to the contract. In a practical sense, this requires that the reasonable businessperson be placed in the position of the parties. It is from that perspective that the court considers the circumstances surrounding the contract and the commercial purpose and objects to be achieved by it.

87 In addition, the Court must have regard to all of the words used in the agreement 'so as to render them all harmonious one with another'[15] and to ensure the 'congruent operation [of] the various components [as a] whole'.[16]

88 In its reasons the Court of Appeal gave further guidance to the approach to a commercial contract. I have had regard to and endeavoured to apply that guidance.

89 There are a number of disputed questions of construction concerning the PDSA, resolution of which will, in many respects, be critical to the outcome of the proceeding. In broad terms, the contested areas of construction concern:

(a) the nature of the TPC Group's obligation to procure the nominated accountant to provide a Service Fee Report;

(b) the significance of the amount recorded in the income tax returns and the extent to which that amount can be challenged or revised;

(c) the role of the nominated accountant and effect of its calculation of the Service Fee; and

(d) the meaning of the phrase 'unrealised capital gain' in the calculation of the termination adjustment.

90 The first contested issue of construction has both a procedural and a substantive aspect. It concerns the nature of the obligation on the TPC Group to complete financial statements and tax returns and to procure the nominated accountant to calculate the Service Fee. The issue is reflected in question 2.1.

91 Clause 3.3(a) requires the TPC Group to use 'reasonable endeavours' to procure that financial statements and tax returns for each entity are finalised on or before 31 December in the financial year following the relevant year. It must 'procure in any event' that the statements and returns are finalised by 31 March.

92 The TPC Group is also required to 'procure' the nominated accountant to calculate the TPC Group Profit in the manner set out in sch 2 and report the Service Fee payable within 30 days of the finalisation of the tax returns.

93 Castleway submits that the PDSA required that the 2017 financial year financial statements and tax returns be completed by 31 March 2018 with a Service Fee Report by 30 April 2018. The Service Fee Report was provided to Castleway on 23 August 2018. Castleway contends that this constituted a breach of the PDSA that sounds in damages in the form of interest.

94 I shall return to the factual position later in these reasons but deal here with the construction of the PDSA.

95 The first sub-issue is the nature of the obligation to procure the finalisation of the financial statements and tax returns for the entities within the TPC Group. Clause 3.3(a) is divided into two obligations. The first requires the TPC Group to use its best endeavours to finalise the accounts and returns by 31 December and the second to procure them 'in any event' by 31 March.

96 In my view, the distinction in language must be seen as deliberate and connotes different types of obligations. Whereas the first is expressed as an obligation to use best endeavours, the obligation to finalise the accounts by 31 March is a strict one, and the failure to do so constitutes a breach of the PDSA.

97 The second, related sub-issue concerns the obligation to procure the nominated accountant to calculate and report on the Service Fee. It is textually significant that cl 3.3(b) does not qualify the TPC Group's obligation by requiring it to use best endeavours. The contrast with the first part of cl 3.3(a) must also be seen to be deliberate.

98 True it is that, perhaps unlike the accounts and tax returns, the time taken by the nominated accountant may to some extent be outside the control of the TPC Group. Although this should not be overstated since the preparation of the accounts and tax returns also involved external agents. However, there are a number of textual features that have led me to conclude that the obligations are in effect strict and that the failure of the nominated accountant to report within the 30 day period would constitute a breach of the obligation imposed on the TPC Group under cl 3.3(b).

99 The first indication is that the nominated accountant is 'acting on behalf of the TPC Group'. This supports a conclusion that responsibility for any delay in the report, either due to a delay in commissioning the nominated accountant or a delay in the performance of the work, should lie with the TPC Group.

100 Second, the nature of the calculations will, in the ordinary course, be routine. As I explain below the starting point for ascertaining the TPC Group Profit is the amount in the tax returns of the various entities. The adjustments based on the table in sch 2 would not appear to be particularly complex. Of course, the final termination adjustment may well present some difficulty in valuing the unrealised capital gains and losses, however, such problems only arise in the final year and do not suggest that a strict construction is absurd or unintended.

101 Third, cl 3.3 is erected on an express sequential time frame. Clause 3.7 provides that if the TPC Group defaults in payment of any money due under cl 3, interest is payable on the unpaid portion at the rate of two per cent above the current 90 day Bank Bill Swap Bid Rate. This clause reinforces the theme of cl 3.3 that the TPC Group should abide by the temporal obligations contained within the clause and that the risk of delay should lie with the TPC Group, which, of course will be best placed to manage that risk.

102 Before leaving this aspect of the construction of cl 3 it is necessary to note a submission by Castleway that the obligation on the TPC Group is to obtain the 'correct figure' from the nominated accountant. I reject that submission for the reasons set out below.

103 By way of an overarching theme, Castleway submits that the PDSA requires the identification of the true or correct taxable income and that the nominated accountant, and any expert appointed under cl 9 must arrive at the correct figure having regard to the underlying books of account and applying relevant principles drawn from accounting and taxation practice and law. So, for example, even though the tax return for one of the entities recorded a particular capital gain from the sale of an asset, Castleway submits that the PDSA requires the nominated accountant, the appointed expert, and the Court in the present context, to determine what the 'correct' cost base of the asset was for the purpose of determining the 'correct' income that should be, but was not, reflected in the tax return.

104 In support of that submission, Castleway notes that the PDSA allows for it to inspect and verify the financial records of the TPC Group which, it says, must be for the purpose of testing and, if necessary, correcting the figures in the tax returns. It submits that the calculation of the nominated accountant is not binding and the broad scope of the dispute clause is capable of correcting errors in the taxable income as stated in the tax returns.

105 Castleway submits that an income tax assessment can be varied up to four years after the assessment issues and there is therefore nothing to prevent a successful challenge by Castleway to the TPC Group's calculation of taxable income being followed by an amendment to the relevant tax return.

106 It refers to what it describes as the absurd situation that the TPC Group could control the form of its tax returns despite Castleway contesting a particular expense and having its view 'upheld'. It submits it would be absurd if errors in the tax return, including both inadvertent and deliberate errors, could not be corrected and a distribution of profit based on an erroneous taxable income would not be compatible with the PDSA's profit sharing objective.

107 The TPC Group submits that the parties agreed to use the figure in the tax returns as the basis for the calculation and there is no means to alter the figures that are recorded in the returns. According to the TPC Group, the amounts in the tax return represent the immutable starting point for the profit calculation.

108 As a matter of text, the calculation of the Service Fee takes as its starting point the total taxable income 'as per income tax returns'. The natural reading of that obligation is that the nominated accountant will take the figure set out in the tax returns. The PDSA does not say that the nominated accountant, or an expert acting under cl 9, must identify what, in its professional opinion, ought to be included in the total taxable income of the TPC Group. Nor can such an obligation be implied.

109 The definition and calculation of the TPC Group Profit is a central aspect of the PDSA. Indeed, it goes to the very heart of the agreement and would have been of central concern to the parties. As already observed, I infer that care was taken with its drafting.

110 Although the agreement provides that Castleway would be given a percentage of profit, there is no single or universal definition of profit. As a general concept, profit may be expressed as revenue less expenses, however which expenses may be brought to account or the timing in which that is to occur may vary depending on the particular context in which the issue arises. For example, income tax legislation may define profit for the purposes of determining eligible income in a way that differs from generally accepted accounting practice.[17]

111 In the PDSA the parties elected to define profit by reference to the taxable income or loss 'as per income tax returns'. This is highly significant for at least two reasons:

(a) that which is required to be included in a return is determined by the operation of legislative rules that are capable of definite application and in general terms, do not depend on the individual accounting practice of the taxpayer; and

(b) there are obligations on taxpayers to lodge accurate returns, backed by sanctions enforced by the Commissioner of Taxation.

112 Although the amount returned lies in the control of the TPC Group as taxpayer, the obligation is to lodge an accurate return and the amount returned will, in the context of a self-assessment regime, be reflected in the issue of an assessment. Given Mr Keeghan's role as Chief Executive Officer and his history with the TPC Group, it is not surprising that he was comfortable with the figure in the tax return as representing the critical means for the calculation of the TPC Group Profit.

113 It is important to recall that the PDSA was made at a time in which Mr Keeghan had a long and trusted role in the organisation and he was familiar with the accounting and taxation practices of the business. The decision to define profit by reference to the tax returns was obviously made in the context of identifying an objective figure, the reliability of which was backed by legal sanction.

114 I am unable to accept Castleway's submission that the process of audit and review means that the relevant figure is not what the TPC Group chose to put in its tax returns but the figure that, in the application of taxation law and accounting principle, it should have put in. Despite the various ways in which the Service Fee calculation can be disputed and revised, in my opinion, none of them contemplate a change to the figure in the tax return other than through the process of an amended assessment.

115 The PDSA confers on Castleway the ability to inspect and verify 'all or any records' of the TPC Group which are required by cl 3.5 to be kept for seven years. A dispute may take the form of a challenge to the calculations of the nominated accountant or it may go further. A broader challenge is plainly contemplated. There would be no point in conferring an ability on Castleway to inspect and verify the financial accounts if it could not use the information it obtains to seek a revision of the Service Fee. However, confining the calculation to the tax returns does not undermine the process of review.

116 The adjustment following an audit allows for an adjustment to be made if there is an underpayment or overpayment of the Service Fee. Since the Service Fee is defined by reference to the figure in the tax return, correctly relying on that figure could not produce an overpayment or an underpayment even if an audit shows that a different figure for taxable income ought to have been included. In such a case, unless the parties otherwise agree, or unless there is an amendment assessment, the parties are bound by the figure in the tax return.

117 Support for that approach can, in my respectful opinion, be gleaned from the reasons of the majority in the Court of Appeal.

118 The Court of Appeal held that there was no ambiguity or contradiction in the provisions that required the income to be 'as per income tax returns' which was 'founded on' the taxable profit as per the returns. The Court held that the clause refers to 'a specific figure in income tax returns, not any other amount that, despite being a different figure, might somehow be "consistent with" the figure in the return in question, or which merely "has regard to" the latter figure'.[18]

119 Robson J had, at trial, held that the words 'net profit' appearing in the definition of 'TPC Group Profit' meant 'net profit' according to its ordinary usage. On that basis, 'net profit' was the figure arrived at after deducting from revenue 'only expenses relevant to the calculation of the profit or loss in the sense understood by reasonable businesspersons should be taken into account in calculating the TPC Group Profit or Loss'.[19] For that reason, an extraordinary donation of $20 million to a charitable foundation was on the reasoning of Robson J excluded.

120 The Court of Appeal rejected that construction. The majority held that the figure in the tax returns was 'critical' and the deductions required to be made included all tax deductible expenses. However, the making of the donation of $20 million was a breach of an implied term not to take any step that would deprive the counterparty to the benefit of the contract. The breach found by the Court of Appeal was antecedent to the completion of the tax return. However, the approach of the Court of Appeal is consistent with primacy being given to the form of the tax return for the purposes of making the calculation of the Service Fee.

121 Finally, I would add that the approach advanced by Castleway, which treats the amount in the tax returns as provisional, would be productive of disputation and uncertainty. Despite defining the profit by reference to the amounts in the tax returns, Castleway would give no or little significance to the tax returns. In my view, such a construction would run counter to the evident purpose of defining the income in the way that was chosen by the parties.

The effect of the nominated accountant's determination

122 The next issue of construction relates to how a calculation made by the nominated accountant and reflected in a Service Fee Report is to be treated by the parties including in any dispute resolution process or in a proceeding in a court.

123 The TPC Group submits that a Service Fee Report is final and binding on the parties subject only to a dispute notice being served within the 10-day time period stipulated in cl 3.3(c) or on limited grounds that relate to whether or not it can be said the termination accorded with the statutory task reposed in the nominated accountant under the PDSA. It submits that the parties are bound by the determination if the nominated third party has addressed the task fixed by the contract for its determination.

124 The TPC Group submits that the role of the nominated accountant is akin to that of an expert third party determination. In AGL Victoria Pty Ltd v SPI Networks (Gas) Pty Ltd, Nettle JA articulated the principles in the following way:[20]

... the question of whether it is open to review an expert determination on the ground of error is in the first place to be decided according to whether the determination answers the contractual description of what the expert was required to determine. I also agree with the judge that the question of whether an error in determination deprives the determination of compliance with the contractual description of what the expert was required to determine is in the first place to be answered according to whether the error occurred in respect of a task which the contract entrusted to the expert. As Mason P explained in Holt v Cox, although mistake is not itself a ground for vitiation of a final and binding expert determination, a mistake may still be of such a nature that the resultant determination is beyond the realm of contractual contemplation - beyond anything which the parties may be supposed to have intended to be final and binding - and therefore susceptible to review.

The situation is analogous to that which faces a court in a cases of judicial review of administrative error. Just as an administrative decision maker has an area within which he or she may make mistakes without relevant consequence, so too an expert appointed under contract has an area within which the contract contemplates that he or she may make mistakes without relevant consequence. Similarly, just as there are some administrative mistakes which amount to jurisdictional error, and so expose a decision to judicial review, those appointed under contracts to make determinations may make errors which are beyond the area of tolerance which it is to be supposed the contract had in view.

Therein lies the distinction drawn in some of the authorities, and observed by the judge in this case, between an error in the exercise of a judgment, opinion or discretion entrusted to an expert, and an error which involves objective facts or a mere mechanical or arithmetical exercise. Subject to the contract in question, it is easier to suppose that parties to a contract contemplate that an error of the former kind be beyond the realm of review than it is to think that they intend to be fixed with errors of objective fact or in processes of mechanical calculation.

As this case demonstrates, however, matters are likely to be more complex where error occurs in the course of an exercise which is partly comprised of discretion, judgment or opinion and partly constituted of objective fact or mechanical calculation. In some such cases, the overriding discretionary or judgmental character of the exercise may so inform each step in the determination as to put even those steps which are matters of objective fact or mere mechanical calculation beyond the scope of permissible review. In other instances it may appear that, despite the overall character of the exercise, the various steps in the determination are severable, according to whether they are essentially discretionary or judgmental or simply matters of objective fact or mechanical calculation, and that those steps which are of the latter kind are within the scope of permissible review. The question in each case is what the parties should be presumed to have intended, and that is to be determined objectively from the terms of the contract, bearing in mind the context in which it was created.

125 The TPC Group submits that the adjustments that are required to be made from the taxable income 'as per' the income tax returns, including the termination adjustment, involve matters of judgment and degree and that in order to displace the calculation it is necessary to show that the calculation was not open to any accountant called upon to undertake the task. It says that the task of the nominated accountant is to start with the tax returns and use the management accounts to make the necessary adjustments, recognising that the adjustments would not otherwise be reflected in the tax returns. It says that the PDSA does not contemplate that the nominated accountant would go behind the management accounts but would use them as a basis for the required calculation.

126 Castleway submits that the report of the nominated accountant does not serve the role of an expert determination and has no special status. It submits:

(a) the nominated accountant is not independent but acts on behalf of the TPC Group;

(b) the PDSA does not say that the report is binding. It notes that in the event that no dispute notice is served it is deemed to be agreed, but gives it no status in the event of a dispute;

(c) the PDSA refers expressly to the determination of an expert appointed by the parties under cl 9 being 'final and binding'. The absence of similar language in relation to the report of the Service Fee tells against any special status; and

(d) the limited timeframe, which would prevent the nominated accountant from having the opportunity to review the primary accounts, is inconsistent with a binding determination by the nominated accountant.

127 Castleway further submits that, in the case of the Service Fee Reports, the nominated accountant did not exercise independent judgment but was dictated to by the TPC Group through its solicitors. In that respect, it refers to a number of emails from the TPC Group solicitors in which the nominated accountant was told to use certain figures. For example, in relation to the termination adjustment for the 2017 financial year the TPC Group solicitors instructed the nominated accountant to use certain valuations for the purposes of the calculation. I shall return to this evidence in due course.

128 As already explained, the starting point for the calculation of the Service Fee is taken from the income tax returns. The adjustments required by the table in sub-cl 2 of sch 2 and the final adjustments in sub-cl 3 of sch 2 require the nominated accountant to perform some calculation that may not be apparent from the returns. Self-evidently, these items will represent a departure from the amount of taxable income stated in the return. The PDSA does not confine the nominated accountant to any particular source in making the required adjustments but it might be expected that the adjustments will be derived from the financial accounts. No doubt, it would be expected that the nominated accountant would employ its professional skill and judgment and undertake the exercise in accordance with generally accepted accounting practice.

129 I also note that the PDSA provided that the calculation of the TPC Group Profit for the 2008 year was provided for in Annexure C to the PDSA and that in any subsequent year, the calculation was to be 'undertaken in accordance with the principles and standards reflected in the calculation of TPC Group Profit for the 2008 Financial Year'. The inclusion of that requirement reinforces the importance of the existing accounting and taxation practice adopted within the TPC Group.

130 When looked at as an integrated whole, it is tolerably clear that the role of the nominated accountant is to perform the required calculation based on the tax return and financial accounts in a timely way to ensure prompt payment. To that extent, the process ensures some degree of rigour and ensuring a prompt and accurate payment of the Service Fee.

131 It will be recalled that in the absence of a dispute notice the calculations of the nominated accountant are 'deemed to be agreed'.

132 In my opinion, the scheme of the PDSA is for the nominated accountant to perform the necessary calculations and then report to the parties. That determination is deemed to be agreed in the absence of a dispute. A dispute can be raised both at the time, and within the time limit in cl 3.3(c), or subsequently by way of a broader dispute including one informed by any audit or inspection undertaken under cl 3.5. The PDSA expressly allows for an audit process and it follows that, at least out of this process, one or other of the parties could seek an adjustment or correction and, in the absence of agreement, initiate a dispute arising from this process. The TPC Group acknowledged that the dispute process would not require as a necessary precondition that the error or omission be identified in an audit or review undertaken under cl 3.5.

133 It follows that the ability to dispute the amount, within 10 days or subsequently, shows that the parties were not to be bound by the figure arrived at by the nominated accountant but in the absence of a dispute notice the amount is taken to be agreed.

134 In any dispute resolution process invoked by one or other of the parties, the calculation of the nominated accountant does not enjoy any special position or status. Faced with a particular Service Fee there is no textual reason that would limit Castleway to disputing the calculation performed by the nominated accountant. A dispute notice may be given per cl 3.3(c) within 10 days of the Service Fee being reported to the parties. The notice engages the mechanism in cl 9. The subject matter of a dispute for the purposes of cl 9 is a matter 'in connection with' the PDSA. They are words of wide ambit. It may be that when it receives the Service Fee Report, Castleway wishes to dispute the calculation made by the nominated accountant. It may wish to dispute other matters in connection with the PDSA that may impact on the calculation. The reference to cl 9 in cl 3.3(c) does two things. First, it makes it clear that the dispute mechanism applies to a calculation made by the nominated accountant; and secondly, it addresses the consequences for payment when a dispute is or is not initiated at that time.

135 Once the dispute mechanism is engaged good faith discussions must take place and in the absence of agreement the clause contemplates the appointment of an independent expert and a binding determination. In this process, the calculations of the nominated accountant do not enjoy any privileged position.

136 However, at both the level of the nominated accountant and the expert determination that starting point for the calculations remains the same, that is the income tax as per the returns. It follows that there is no scope for either the nominated accountant or the independent expert to change the figures in the tax return.

137 As already noted, some of the calculations will require a departure from the figures in the tax return. That will be the case for both the adjustments required by the table in sub-cl 2 of sch 2 and for the termination adjustment. So, for example, the nominated accountant will need to calculate the hypothetical unrealised capital gain or loss at the date of termination of the PDSA. That figure will not be found in the tax return. In a dispute resolution process the independent expert would need to undertake the same exercise. In doing so, the independent expert is not confined to asking whether the calculation of the nominated accountant was reasonably open to the nominated accountant but would be required to form its own opinion on the relevant matters.

138 For the purposes of both the work of the nominated accountant and in any determination by an expert under cl 9, the purpose of the PDSA provision is to ensure that the Service Fee is calculated having regard to taxation and accounting practice. The PDSA contemplates that, having regard to the accounts and exercising professional judgment, the correct figure would be arrived at after making the necessary adjustments. The ability to inspect and audit the accounts and to obtain a binding expert determination tells against the calculation of the nominated accountant having any dispositive force in a dispute resolution process.

139 In addition to reviewing the calculations of the nominated accountant through the dispute resolution clause, it would also be open to challenge the determination in a court. However, more difficult issues arise. I have concluded that the basis for challenging the decision of the nominated accountant would be limited to a decision or calculation that is not authorised by the contract, that is one that does not answer the contractual question. That is because the parties agreed that the Service Fee would be calculated by the nominated accountant and based on TPC Group Profit in the manner set out in sch 2. Subject to the dispute resolution process I have referred to the parties agreed that the Service Fee would be calculated on that basis which determines the liability under the contract.

140 The dispute resolution clause expressly provides that it does not prejudice the rights of a party to seek injunctive, declaratory or other interlocutory relief (including for specific performance) against the other parties 'in order to protect or preserve its rights' under the PDSA. That clause recognises that court action may be available to protect contractual rights, but it does not translate into a provision that would have the court determine what the Service Fee should be.

141 To so reason does not elevate the determination by the nominated accountant to the position of an independent expert. Rather, it recognises that Castleway's entitlements are to be calculated in a certain way by an identified entity, the nominated accountant, subject to a binding determination by an independent expert. The PDSA does not contemplate that the entitlement to be paid will equate to what a court might find should be the Service Fee, on the evidence before it.

142 On the other hand, it is open to the parties to challenge the determination of the nominated accountant if it did not reflect the contractual task. So, for example, if the nominated accountant failed to use the figure in the relevant tax return for the purpose of determining the TPC Group Profit, then the determination would not reflect the contractual entitlement.

143 The position just explained is complicated by the fact that the parties were in fact unable to appoint an independent expert.[21] That difficulty prompted the following exchange between the parties. On 26 February 2016, the TPC Group's solicitors wrote to Castleway's solicitors in the following terms:

Our clients are willing to agree that the entirety of clause 9 of the PDSA will no longer apply to any disputes between the parties to the PDSA, so that all issues between the parties can be dealt with in this Proceeding. However, they consider that this needs to be a matter of express agreement.

144 The TPC Group's solicitors raised the issue again on 1 March 2016, stating:

An agreement that the entirety of clause 9 will no longer apply needs to be a matter of express agreement.

145 Castleway accepted that position later that day, stating:

Our clients agree to the proposition that cl 9 of the Property Development Services Agreement dated 7 December 2010 no longer applies to disputes between the parties.

146 In the light of that agreement, it is open to the Court to determine the Service Fee on the basis of the evidence before it.

147 As will appear, most of the dispute between the parties, and certainly the most by value, turns on the construction of the PDSA rather than any decision involving professional judgment on the part of the nominated accountant.

148 It is convenient to address a point raised by the TPC Group about the ambit of the dispute. The TPC Group contends that the parameters of the dispute are confined by the Second Revised Service Fee Report, the dispute notice given in respect to it and the list of questions. It is clear that the parties intended that there should be a dispute mechanism that was capable of resolving all disputes about the interpretation and application of the PDSA and armed Castleway with the means of obtaining the necessary information.

149 The procedural requirements should be construed in a common sense way. A dispute notice is a means of putting the TPC Group on notice of the ambit of the dispute but should not be treated as if it were a strict pleading. In my view, the issues raised in the questions are properly raised. It is regrettable that the issues between the parties have spanned more than one proceeding in this Court and, subject to procedural fairness, the Court should endeavour to ensure that all issues in dispute between the parties are now resolved. No question of unfairness or prejudice has been raised. And, as will appear, almost all of the issues stem from disputed questions of construction of the PDSA.

Construction questions respecting the termination adjustment

150 The third and, in dollar terms, most important area of dispute between the parties concerns the calculation of the termination adjustment. More specifically, a significant point of departure between the parties is whether the phrase 'unrealised capital gains' (and losses) refers to any gains made by the TPC Group in its business or only those which are recorded on capital account, thus excluding items on revenue account.

151 Before coming to the competing constructions, it is convenient to explain at this point why it matters.

152 The distinction between income on capital account and on revenue account has long been a fundamental one under Australian tax law. The distinction remains important, but less so than during an earlier time when capital gains were tax free.

153 The income tax legislation has brought to tax as income both income as understood on ordinary concepts and income as captured by various statutory extensions. One of the extensions relates to income derived from the sale of trading stock.[22] In Commissioner of Taxation (Cth) v St Hubert's Island Pty Ltd,[23] it was accepted that land could constitute trading stock if the land is bought and sold as part of a business. In such cases, income derived from the sale of land would be treated as income and not a capital gain. As might be imagined that was particularly important when capital gains were not taxed as income or the taxpayer was keen to deduct expenses related to land against assessable income.

154 The method of calculating income in respect of trading account was explained by Dixon J in Commissioner of Taxes (SA) v Executor Trustee & Agency Co of South Australia Ltd where he explained, '[t]he basis of a trading account is stock on hand at the beginning and end of the period and sales and purchases.'[24]

155 These concepts are now embodied in the ITAA. There are three key features of these provisions:[25]

(a) an amount received by the taxpayer in respect of the disposal of trading stock in the ordinary course of business is included in the taxpayer's assessable income as 'ordinary income';[26]

(b) the costs incurred in relation to the trading stock are deductible against the taxpayer's assessable income;[27] and

(c) the taxpayer's assessable income also includes the difference between the 'value' of the trading stock at the end of the income year and its value at the start of the income year.[28]

156 In calculating the value of the trading stock at the opening and close of the income year, the taxpayer may elect to adopt one of three methods: its cost, its market selling value or its replacement value.[29] The value of the trading stock at the opening of an income year is the same amount as applied at the end of the last income year. Although the taxpayer must elect to use a method of valuation, it may chose a different method in different years. The method chosen may mean that the taxpayer could obtain a higher allowable deduction or a lower assessable income in a particular year.

157 Before the making of the PDSA, the TPC Group treated some, but not all, of its land holdings as trading stock. In respect of some land holdings, the characterisation of the property changed over time depending on the prevailing purpose for which the property was held. Where land was held as trading stock, the TPC Group elected to use the cost prices as the opening and closing value of trading stock with the effect that it only brought income to account when properties were sold and not by reference to changes in closing value compared to opening value.

158 As a consequence of how the assets were dealt with in the TPC Group accounts, the land held as trading stock was not held as a capital asset in the management accounts and sales were not treated as capital gains under the CGT provisions. Rather, the revenue on sale was included as income.

159 Relevantly, the TPC Group held the following projects as trading stock at 29 June 2017:

(a) Officer;

(b) Hillside;

(c) Maleny;

(d) Alma Road;

(e) Kawana Waters;

(f) Hallam South Road; and

(g) Pacific Highway, Valla.

160 It is convenient at this point to mention how the CGT provisions apply to trading stock.

161 The capital gains regime[30] in the ITAA imposes liability in respect of gains received or deemed to have been received on the disposal of a 'CGT asset'.[31] The gain is determined by reference to a statutory cost base. The detail is presently unimportant. A CGT asset is defined very broadly so as to capture 'any kind of property; or a legal or equitable right that is not property'.[32] Examples given by the legislation include land and buildings.[33]

162 Because a particular asset may be both trading stock and a CGT asset, the ITAA addresses the risk of double taxation (by treating the amount received on the sale of trading stock both as income on ordinary concepts and as a capital gain), by providing that a capital gain or capital loss made from a CGT asset which is trading stock is to be 'disregarded'.[34]

163 The net effect is that, as at the date of termination, a number of properties were held as trading stock and were not included by the TPC Group in the calculation of the termination adjustment on the basis that they were not 'unrealised capital gains'. The question is whether, as a matter of construction, the TPC Group was correct to exclude those properties from the termination adjustment.

164 Castleway submits that an unrealised capital gain relates to all TPC Group assets. On this approach, sub-cl 4 of sch 2 requires the nominated accountant to identify the hypothetical gain that would result if all of the assets held by the TPC Group were disposed of on the termination date.

165 It submits that the relevant words, 'unrealised capital gain' are used in their ordinary sense and are apt to cover all of the assets and not just those which, from an accounting or taxation perspective, are held on capital account. It says that, in its ordinary conception, a capital gain is a gain realised on the disposal of an asset calculated by deducting the cost of the asset from the proceeds on its disposal.[35] It says that there is no evidence the parties had a technical meaning in mind, and in any event, the words 'capital gain' and 'capital loss' do not have a particular meaning that is notorious, uniform and certain. It says that Mr Keeghan did not have any special knowledge of tax law.

166 It says that its construction advances the obvious purpose of the PDSA namely to compensate Castleway in respect of all TPC Group projects having regard to the overarching role of Castleway and Mr Keeghan to manage the entire development business.

167 Castleway says that the table of adjustments in cl 2 assists its argument. It says that the purpose of the table is to bring to account all gains and losses including those, such as pre-CGT gains, that would not be included in taxable income. This was said to support the purpose of the PDSA to give Castleway an interest in the profit of all the TPC Group Projects regardless of their accounting treatment.

168 Relatedly, it submits that a narrow or technical construction would frustrate the purpose and give rise to a potential conflict of interest. The effect of the approach taken by the TPC Group was to deny Castleway a profit interest in projects managed by it. The conflict was said to arise because on that construction, Castleway and Mr Keeghan would have an interest in bringing forward the realisation of profits rather than let them mature to a more profitable outcome after the termination of the agreement.

169 Finally, and in the alternative, Castleway says that the disposal of the assets held on revenue account would still represent a capital gain for the purposes of the ITAA and therefore fall within the technical meaning of capital gain but the provisions ensure that the gain is not taxed twice.

170 The TPC Group submits that the relevant terms have a technical meaning. It submits that the clause adopts the well-known and understood distinction in accounting and taxation practice between a category of assets, the proceeds of sale of which would not be related as income but as a capital gain.

171 In my view, the answer lies in the language used in the PDSA. Whether or not the agreement gives effect to the subjective intentions of the parties is not to the point. Their intention is to be determined objectively. On its proper construction, unrealised capital gains does not include notional gains in respect of assets that are not held as capital assets but which are recorded on revenue account within the TPC Group accounts. That construction best reflects the language used by the parties.

172 I start by noting that the parties agreed to modify the profit figure set out in the tax returns by making the adjustments contained in the table under sub-cl 2 to sch 2. It is plain from those items that the parties were alive to the fact that income tax legislation in some respects treats, or has treated, capital gains differently to income on revenue account.

173 Thus, for example, it was known to the parties that the TPC Group held assets that were acquired before September 1985 and were thus 'pre-CGT assets' that were not, when disposed of, liable to be taxed as capital gains. Any gains that were derived from the disposal of such pre-CGT assets would not be included in the tax returns and therefore would not be brought to account as income in the hands of the TPC Group. However the parties agreed that any 'notional non-assessable gain (or loss)' derived from the disposal of such an asset would be brought into the TPC Group Profit. So, for example, in the event the TPC Group entity sold a pre-CGT asset the notional gain would be added to TPC Group Profit and Castleway would be entitled to a percentage of the profit, notwithstanding that it would not form part of the TPC Group's income in its tax returns.

174 That adjustment in the table, together with other examples, such as certain franking credits, non-assessable pre-CGT capital gains and carried forward income losses shows that attention was given to the potential operation of taxation laws, and an awareness that, at least in some respects, those laws have distinguished between income that would be treated as a capital gain and income on revenue account.

175 The PDSA was made by sophisticated commercial actors, each with a developed appreciation of the nature of the business and accounting practices adopted within it. The construction favoured by Castleway gives no meaning to the word 'capital' on the basis that it covers every asset of the TPC Group.

176 In arriving at my conclusion on the construction of the PDSA I have been wary of two considerations. The first is how the contract was performed and the subjective understandings of the parties. The second is generalised statements as to the purpose of the PDSA.

177 Although how the parties perform a contract often provides an unsafe guide as to the meaning of a particular term there are some aspects of past performance that tend against an argument that the construction I favour is illogical or absurd or produces unjust outcomes.

178 As already noted, the TPC Group treated some of its land holdings as trading stock and some as capital assets. From time to time, the characterisation of the asset changed within the accounts of the TPC Group and this produced taxation consequences. For example, when the PDSA was entered into, Officer was booked as a capital asset. In the 2015 financial year, it was converted to trading stock. This process resulted in a notional capital gain of $4,166,000 which was booked as income in the tax returns and Mr Keeghan received the benefit of the gain through his percentage of the TPC Group Profit in the 2015 financial year. On the other hand, when the TPC Group initially prepared its calculation of the termination adjustment it included all of the properties owned by the group including those held as trading stock and booked this amount as an expense. This potentially points to a subjective understanding as to the meaning of the phrase 'unrealised capital gain'.

179 I also acknowledge that the construction I favour, which confines an unrealised capital gain to an asset that, at the relevant time, is not held for sale in the ordinary course of business, has the effect of excluding trading stock. It might be thought that land held as trading stock will be close to the point of development and sale, and that Castleway may have provided more 'property development services' in respect of that land rather than land that is held on capital account as part of the TPC Group land bank. In turn that might suggest that it would be more likely for Castleway to earn a proportion of the unrealised gain on such assets. To some extent the construction might have induced Castleway or Mr Keeghan to bring forward projects prematurely.

180 The fact that trading stock also falls within the definition of a CGT asset does not affect the construction I favour. The statutory concept of capital gain does not obliterate the well understood distinction between assets held on capital account and those held on revenue account. The distinction remains fundamental and, as I have explained, is deliberately employed in the PDSA.

181 However those considerations at most reflect the subjective understanding of the parties, and do not justify the departure from the language of the PDSA that Castleway's construction would produce.

182 With these questions of construction disposed of, it is necessary to turn to the specific disputed items.

Disputes as to the value of projects excluded from the termination adjustment

183 In the event that the Court held that trading stock was to be included for the purpose of calculating the termination adjustment, the parties differed in respect of some of the assets as to the value of the gain or loss.

184 On the view I take as to the meaning of the termination adjustment provision, these issues do not arise. I do not propose to determine them.

185 There are a number of discrete issues concerning the calculation of the termination adjustment in respect of certain properties and loans.

186 Rokeby Street is a property in Collingwood covering three contiguous titles.

187 The ownership structure of Rokeby Street is unusual. The land is owned by PGB Nominees Pty Ltd ('PGB'), the trustee of the Rokeby Trust. Roading Investments Pty Ltd as trustee for the Roading Investment Trust No 3 ('Roading Investments') held interests in the Rokeby Trust via two partnerships:

(a) Rado Investments Trust No 3 & Nesco Holdings Unit Trust Partnership (Lots 1 & 2 Partnership); and

(b) Rado Investments Trust No 3 & Nesco Holdings Unit Trust & Beerbee Trust & Kane Investment Trust & Miller Family Trust (Lot 4 Partnership).

188 The Rokeby Street land comprises three separate titles. There are four units in the trust, which the trust deed describes as a fixed trust. With the exception of Lot 1, the lots do not correspond to a title. The interests of the members of the Rokeby Trust were regulated by a trust deed, pursuant to which:

(a) Roading Investments held 68 per cent of Lots 1 and 2, 50 per cent of Lot 4 and no interest in Lot 3;

(b) each Member had a beneficial interest in the Member's Lot and had a right to use, occupy, lease, charge or encumber the Member's Lot (cl 3.1);

(c) no interest of any Member pursuant to the trust deed was able to be sold, bought or otherwise disposed of or transferred except with the consent of the Trustee first obtained (cl 7.1(a)); and

(d) all Members were required to unanimously consent in writing to deal with Rokeby Street (cl 10.1(j)).

189 The TPC Group submits that there were a number of gaps in the trust deed. It submits in particular, that no power of sale was specifically conferred on the Trustee, no process was established for meetings of Members to be called in relation to individual Lots, and no clear process was set out for the distribution of the proceeds of any sale of Rokeby Street to a third party (without determining the Trust), in the event that a sale was to take place with the unanimous consent of the Members. With the exception of Lot 1, the other two titles forming part of Rokeby Street do not align discretely with the lots under the trust deed.

190 Castleway submits that Rokeby Street was acquired for the purposes of a development project and when the differing percentage interests in the lots are brought together, Roading Investments held a 45.44 per cent interest in the project.

191 Roading Investments' interest in Rokeby Street was recorded in the assets of the TPC Group as a capital item. There is no dispute that it needed to be brought to account in calculating the termination adjustment. The dispute is the amount of the hypothetical unrealised capital gain as at 29 June 2017 and the cost base that should be applied.

192 The Rokeby Street property was acquired by PGB in July 2008. It was acquired for the purpose of development.

193 In 2014 expressions of interest were sought for the sale of the property but the results were disappointing and no sale proceeded. The sale of the property was revisited in 2017. At the TPC Group meeting held on 7 February 2017, Mr Keeghan reported that the had been a 'JV meeting' before December 2016 and that in the light of a sale of a nearby property at a price of $8,000 per square metre, the 'joint venture' had appointed an agent to conduct an off market campaign. Mr Keeghan expressed the view that a price of $5,000 to $5,500 per square metre was more likely which would result in a total price of 'around $20 million' for the property.

194 At the meeting, Mr Keeghan noted that there was a discrepancy between the proportionate holding under the trust deed and the schedule of percentage ownership that had been used by the parties to the investment to record their individual interests. He noted that income and expenses had been apportioned on the basis of what 'the parties had each invested and had agreed upon on a square metre basis'. He noted that the proportionate holding under the trust deed was comparatively better for the TPC Group and that in any dispute the trust deed 'would be the bible'. However he noted that it was best to wait and see the level of sales interest before raising the discrepancy, saying that if the total property was to sell for $20 million, the TPC Group would receive approximately $6.1 million on an original investment of $1 million and that it may not be worth fighting over the difference which was estimated to be around $200,000.

195 Before he left the TPC Group, Mr Keeghan commissioned CBRE Valuations Pty Ltd ('CBRE') to value the Rokeby Street land. CBRE valued the land at $17 million.

196 On 2 March 2018, the solicitors for the TPC Group asked CBRE to value the unit holding under the trust deed, rather than the land. In response, Jeff Davies of CBRE said that they were unable to value the units. Mr Davies explained:

From a valuation perspective, we are unable to apportion the value of these obscure interests / ownership structure. This is further complicated by the fact the property has multiple tenants / leases encumbering different areas (titles) of the property. Our assessment can only be based on a 'market value' assessment (i.e. willing buyer, willing seller in an arms [sic] length transaction), in line with our initial assessment. This is further complicated given the development potential / utility of the site 'in one line' (which is how it was valued).

197 In the light of this development, the TPC Group solicitor instructed Grant Thornton that 'Rokeby Street should be treated as a 100% loss'. In its accounts, Roading Investments recorded the cost of acquiring its interests in the partnership as $1,703,866. As a result, Rokeby Street produced an unrealised capital loss of $1,703,866 as at 30 June 2017.

198 As things transpired, Rokeby Street was sold on 9 January 2019, for $24,500,000. As at 20 December 2019, the TPC Group's share in the sale price was valued at $10,895,150.

199 TPC Group adduced evidence from a valuer, Mr Grant Sutherland.

200 Mr Sutherland was asked to value the TPC Group interest in the Rokeby trust. He concluded that, having regard to the fact that the trust deed does not accord with the titles forming the property, with the exception of Lot 1, that leases cross title boundaries in part, that the parties only hold partial interests in various 'hypothetical lots' and in the case of all parties not in all hypothetical lots, the uncertainty around timing and particularly the complications created by a complex trust deed, it was not 'possible to value Roading Investments' interest in the Rokeby Trust as at 29 June 2017'.

201 It is convenient to commence by returning to the nature of the task that the PDSA requires. The PDSA requires a hypothetical exercise to value the capital gain or loss at a certain point in time. The exercise is hypothetical because at that point, the TPC Group remained the owner of the asset and no gain or loss had been crystallised. The purposes for which the asset is held is, to my mind, relevant to any assessment of the nature of the asset and the hypothetical circumstances in which it would be disposed. The hypothetical exercise arises in the context of a well-resourced and experienced property developer.

202 In this case, the purpose of the acquisition of Rokeby Street was for the TPC Group to acquire an interest in land that could be held, developed and then sold at a profit. The purpose was not to acquire an interest in a trust. It may be inferred that the trustee acquired the land at market value. Although no explanation for the curious structure was given in the evidence, it would be absurd to suggest that, at the moment of acquisition by the trustee, the initial interest in the trusts was worthless. Despite the legal structure that was employed, the TPC Group perceived that it was in a joint venture with other parties with a view to development and profit. In the TPC Group meetings, the arrangement was referred to as a joint venture (or JV) that required the cooperation of the parties. It is clear from the assumptions that Mr Sutherland was asked to make, and reflective in the evidence, that the parties involved in the trust were considering sale in 2014, 2015 and 2017 and that in the absence of an acceptable offer were content to hold the land. At all times that remained a viable and realistic assumption.

203 In my opinion, the only realistic possibility for the disposal of the land was with the cooperation of the parties with a joint view towards sale. There was no realistic prospect of the TPC Group seeking to dispose of its interest in the trust. That was not the purpose for which the TPC Group contributed to the purchase of the land.

204 In the circumstances, and even though it does not reflect the legal structure that the parities had adopted, the best method of valuing the interest in Rokeby Street is by land value.

205 For the purpose of calculating the service fee, the nominated accountant treated the value in the units as zero. This yielded a net loss of $1,703,866. For the reasons given this was not the correct approach and indeed, was not reasonably open to the nominated accountant and did not reflect the task required by the PDSA.

206 Mr Keeghan had obtained a valuation from CBRE which valued the land as at 30 June 2017 at $17 million. The TPC Group accounts record the costs of the development as $7,773,999. In my view these figures fairly and accurately record the value and costs of the project (and the interest of the TPC Group) from which the unrealised capital gain can be derived.

207 In the event that the relevant asset is the Rokeby Street property, there is a dispute as to whether the costs are $7,773,999 (as contended for by Castleway and reflected in the general ledger) or $10,729,431 (as contended for by the TPC Group). The difference is the sum of $2,763,468 which reflects the acquisition costs of the units. In my view these amounts should be excluded. They are not costs incurred by the Rokeby Street Fixed Trust in acquiring the land but costs of the investors in acquiring units in the trust.

208 It follows that the unrealised capital gain is to be derived from the difference between the land value of $17,000,000 and the costs of $7,773,999.

209 Ellis Beach is on the Captain Cook Highway North of Cairns, Queensland. As at the date of termination, land in Ellis Beach was held by Bellbird Park Developments Pty Ltd as trustee of a joint venture. Roading Group Pty Ltd as trustee for the Rado Investment Trust No 2 had a 50 per cent interest in the Ellis Beach development.

210 The parties are in dispute about two lots on the Ellis Beach development: Lot 13 and Lot 22. Lot 13 comprises a bar and grill business and Lot 22 is the location of a caravan park and cabin accommodation.

211 It is not in dispute that as at the date of termination, the TPC Group had unrealised capital gains in relation to the two Ellis Beach units. The parties disagree on the value of these gains.

212 The first issue concerns the cost base on Lot 13. Castleway contends the cost base is $1,802,224.77 based on the amount recorded in the general ledger. The TPC Group argue that the cost base is $2,359,454.73. The TPC Group seek to bring into account a number of outgoings the most significant of which is $502,829 representing the value of acquiring a leasehold and which, according to Mr Skinner is recorded in a trial balance.

213 The general ledger for Ellis Beach, on which Castleway relies, records a balance of $1,802,224.77. The general ledger includes an entry for 'Leased Land Beginning Balance' in the amount of $502,829.00. In his witness statement Mr Skinner refers to the 2007 accounts for the Bellbird Park Joint Venture which records as a fixed asset 'Leasehold Land - Ellis Beach' also in the amount of $502,829.00. Mr Skinner says that he was instructed by Ms Shearyn Lai, the internal accountant at the TPC Group, that this amount has been included in the joint venture accounts since acquisition.

214 Castleway submits that there is no admissible evidence as to the disputed amount. I disagree. The accounts recorded an asset in that amount as 'leasehold land'. No hearsay objection was taken to the evidence of Mr Skinner as to what he had been instructed. That amount is also recorded in the general ledger. Based on that evidence, I infer that the $502,829.00 was paid to acquire the leasehold and was therefore properly included in the cost base.

215 The second issue concerns the valuation of Lot 13 at the termination date.

216 In May 2017 Mr Keeghan retained Mr Wesley Coates of Knight Frank to value Lots 13 and 22.

217 Mr Coates valued Lot 13 had $1,050,000 and Lot 22 and $1,230,000. On 12 May 2017 Mr Keeghan sent the following email to Mr Coates:

Hi Wes

This only values the improvements and bar and grill.

I thought there would have to be some value for the balance land upon which we have a permit for 245 rooms and tourist shops in 4 siting locations on Lot 13?

Whilst we are still waiting on the final EPBC permit conditions, the value of this should be included in Lot 13.

Plus we have spent $1.8M on the designs and technical issues and approvals.

Based on this valuation those costs, which we have capitalised, are not worth anything!

Would you please review and advise further?

Happy to talk it through with you at any time.

Regards

Ged Keeghan

218 Mr Coates issued a revised valuation in relation to Lot 13 in the amount of $1,500,000. The difference between the valuations was explained by an increase for the value attributable to the vacant land which increased from $50,000 in the first report to $100,000 in the revised figure.

219 In May 2018 TPC Group commissioned valuer Herron Todd White ('HTW') to value Lots 13 and 22.

220 The TPC Group obtained a valuation from HTW for Lot 13 in May 2018. The valuation was $830,000. HTW valued Lot 22 at $1,600,000.

221 On 17 May 2018, the solicitors for the TPC Group requested HTW to divide the valuations for the two properties, which to that point had been contained in a single report, into two reports. HTW explained that it was not possible to prepare each valuation without referring to the other, in part because the water supply and sewerage treatment plant that served Lot 22 were located on part of Lot 13.

222 On the same day, the TPC Group's solicitor instructed Grant Thornton to apply the $830,000 valuation report from the HTW report and the valuation of $1,230,000 for Lot 22 from the Knight Frank Report. Grant Thornton prepared the termination fee on that basis.

223 At the hearing, Castleway called Mr Coates to give evidence in support of his valuation. The TPC Group called Mr John Leeson, valuer.

224 In providing his expert report, Mr Leeson was not asked to value the property. Rather he was asked to express an opinion on the relative strengths of the valuations provided by HTW of $830,000 and by Knight Frank of $1,500,000. In his report, Mr Leeson noted that both HTW and Knight Frank had valued Lot 13 by capitalising the income stream attributable to the business to be conducted on the land together with an added value for the balance of the land area was not used for that purpose.

225 Mr Leeson was critical of the Knight Frank report for increasing the value of the 'balance land' from $50,000 to $100,000 which he said came about as a result of the urging of Mr Keeghan. On the other hand Mr Leeson was critical of the HTW approach for the failure to include any market evidence to support its value of the balance land, failing to explain their estimated rental income adjustments and by using as a basis properties located in Cairns which had little if any relevance to the subject property for comparison purposes.

226 In his expert report, Mr Coates maintained his valuation of $1,500,000. He said that he had initially made a mistake in his valuation of the balance land and that his revised figure was correct.

227 The two experts met and provided a joint report to the Court. In the joint report Mr Leeson is recorded as saying that the assessment by HTW of $830,000 'was considered to be conservative and that the approach undertaken by the HTW report was inconsistent and not considered to be reliable'.

228 In my opinion the criticisms that both experts made of the HTW valuation are well-founded. The lack of market evidence supporting the HTW valuation and inconsistencies within the report referred to by the experts make it unreliable.

229 The real contest between the experts was whether Mr Coates was justified in increasing the value of the balance land.

230 Mr Leeson expressed the opinion that the initial assessment of $50,000 per hectare was in line with the market evidence included in the Knight Frank assessment.

231 I have come to the view that Mr Coates' valuation should be accepted. Unlike Mr Leeson he was asked to value the land. He has more experience than Mr Leeson in the area where Ellis Beach is located.

232 Although the change in value of the balance land came about after the email from Mr Keeghan, I do not consider that this undermined the independence of the opinion ultimately expressed. His explanation for the change in figure was reasonable and I am satisfied that the figure arrived at reflects his professional opinion and did not come about from any urging, pressure or influence from Mr Keeghan.

233 I accept the valuation of $1,500,000 as being fair and appropriate for the purposes of the termination adjustment.

234 The issue with the termination payment in respect of Lot 22 Ellis Beach concerns the cost base. The cost base adopted by the TPC Group and the nominated accountant included an amount for motor vehicles, furnishings and fittings and goodwill on the acquisition of the property.

235 These items should not have been included in the cost base. The motor vehicles, furniture and fixtures are depreciating assets which do not form part of the cost base of the property.[36] The same applies to the goodwill.[37]

236 Garfield was a 24-lot residential greenfields property development comprising 3.64 hectares, approximately 79 kilometres south-east of Melbourne owned by Gumbuya Park Pty Ltd.[38]

237 Garfield was held on capital account. Between 2013 and the middle of 2016, steps were undertaken to develop the land for sale. Mr Keeghan oversaw this work, which included rezoning of the land, Government Gazettal and approved planning scheme amendment with Cardinia Shire. In around 2016 it was intended that for accounting purposes, the development would be transferred from the capital account to the revenue account prior to the sale of the individual lots. In 2016, Mr Keeghan commissioned valuer CBRE to value the land for the purposes of the GST margin scheme, which allows GST to be calculated on the basis of a calculated anticipated margin. In its report, dated 29 September 2016, CBRE valued the current market value land on an 'as is' basis at $2,200,000.

238 In its report, CBRE noted that the land was the subject of a planning permit which allowed for a 23-lot subdivision in accordance with an approved plan. At that stage the proposed plan of subdivision provided for 24 lots. CBRE concluded that, based on comparable sales, the value of the land as a vacant development site was approximately $2,100,000 based on $550,000 to $600,000 per hectare.

239 Using a residual cash flow analysis based on the estimated revenue and costs for the development, CBRE arrived at a valuation of $2,200,000. That figure was based on projected revenue of $5,604,545 (exclusive of GST) with development costs of $2,381,390, agents commission on sale of $162,030 and an allowance for profit and risk (based on 15 per cent) of $709,893.[39] At the time of the CBRE report no lot sales had occurred.

240 Between 2016 and June 2017 the development works were completed and by 30 June 2017, 18 of the 24 lots were the subject of concluded contracts for sale that had not settled. The total consideration in respect of the executed contracts was $4,590,000. Gumbuya Park Pty Ltd had budgeted an amount of $1,530,000 for the unsold lots making total revenue from sales $6,120,000.

241 On 12 June 2017, Mr Keeghan sent an email to Mrs Rado and Mr Lee attaching spreadsheets which he described as 'operating budgets for FY18' for each entity. The spreadsheet in respect of Garfield showed a budgeted revenue of $6,120,000 and budgeted development costs of $4,394,000. The costs included an allowance for the cost of land of $2,200,000 based on the CBRE valuation.

242 In January 2017, Mr Keeghan instructed Grant Thornton to use the CBRE valuation when changing from the capital account to the trading account. As things transpired, Garfield was not transferred to review the account until after 30 June 2017, with the effect that, at the date of termination of the PDSA, Garfield remained on capital account and was brought to account in the calculation of the termination adjustment.

243 For the purposes of calculating the termination adjustment, Grant Thornton used the CBRE valuation of $2,200,000 as the value of the development. From that figure two deductions were made:

(a) as Garfield was a pre-CGT asset identified in the PDSA, the PDSA had attributed a notional cost as at 1 July 2007 of $339,000. This amount was deducted; and

(b) an amount of $209,379 was deducted, representing development costs incurred after June 2008.

244 This resulted in a unrealised capital gain of $1,651,621.[40]

245 I note that, as a result of an agreement made in the without prejudice discussions the parties agreed that the development costs of $209,379 would be added back into the figure.

246 Mr Sutherland also gave expert valuation evidence in relation to Garfield.

247 He valued the land on an 'as is' basis. He was asked to value the land as at 29 June 2017.

248 In his report, Mr Sutherland noted that 18 of the 24 lots had been sold but not settled. Mr Sutherland was asked to assume that the total selling costs for the project were $237,116.23 (exclusive of GST). He was also asked to assume that total development costs were $2,183,420.40 (exclusive of GST) with $1,974,041.74 (exclusive of GST) expended after 29 June 2017.

249 Based on what Mr Sutherland regarded as comparable sales, he adopted a value of $725,000 per hectare, and concluded that on that basis the land was valued at $2,650,000 on a GST exclusive basis.

250 Mr Sutherland also valued the land on the basis of a hypothetical development analysis. In doing so, Mr Sutherland assumed that GST would be payable under the GST margin scheme. Using the sale price achieved in the pre-sales as a basis, Mr Sutherland assumed gross revenue of $6,187,000. After deducting for GST on the basis of the margin scheme and using the costs he was asked to assume, Mr Sutherland concluded that the feasibility analysis indicated a (rounded) value for the land of $2,660,000 (exclusive of GST).

251 In appendix 10 to his report, Mr Sutherland set out some of his workings. He arrived at a residual land value based on the completion for the development based on the following figures:

Profit & Loss (Valuer's Style) (inclusive of GST) - Margin Scheme Amounts are in $'s

Profit & Risk Factor (Ex GST) 12.00% (15.95% IRR) 603,294

252 Castleway submits that Garfield should be analysed in two steps.

(a) First, it contends that there was an unrealised gain based on the GST margin valuation. It says that the value of the land was $2,200,000 less the nominal value of the land attributed in the PDSA of $339,000 giving rise to an unrealised capital gain of $1,861,000;

(b) Second, it says that there was a further unrealised gain as at 29 June 2017 represented by the value of the pre-sales and budgeted future sales less budgeted costs. On this basis he contends that there was a budgeted revenue of $6,120,000 less development costs of $4,394,000 which include the costs of namely the $2,200,000 together with budgeted development costs in the sum of $2,188,400.[41]

253 As to the first component, Castleway submits that the GST margin valuation once the nominal PDSA acquisition cost is deducted, captures the unrealised capital growth to that point in time. The second component then captures the increased growth for that point until 29 June 2017 with the value determined by reference to budgeted revenue and costs.

(a) The use by the nominated accountant of the 2016 CBRE valuation was reasonable and not shown to be in error;

(b) The opinion of Mr Sutherland, who valued the land at $2,650,000, was said to support the reasonableness of the CBRE valuation;

(c) The GST margin valuation does not represent a separate asset including for the purposes of determining the unrealised capital gain.

256 First, contrary to the submissions of Castleway, the GST margin scheme did not create a separate asset. Further, the question is what is the unrealised capital gain as at 29 June 2017, at which point in time none of the lots had settled. Somewhat inconsistently, Castleway criticises the use by the nominated accountant of the CBRE valuation on the basis that it was undertaken before much of the development works had been completed and before any sales had occurred, yet seeks to rely on the CBRE valuation as a stepping stone in the ultimate valuation.

257 Second, in my opinion, it was not reasonable for the nominated accountant to rely solely on the CBRE report. It was prepared before critical events occurred. Plainly in my view, the actual sales that occurred between the CBRE valuation and the termination date were an important factor in valuing the development as at 29 June 2017.

258 The focus is on the position that existed as at the date of termination. The unrealised capital gain is best captured by the difference in the value of the land at that time less the cost which again is generally best estimated by using the CGT cost base regime as this was the basis on which the capital gain would ultimately be brought to account by the TPC Group on disposal.

259 The approach of Castleway and that of Mr Sutherland share a reasonable amount of common ground.

260 Mr Sutherland valued the development at $2,650,000 (exclusive of GST) on a comparable land sale basis and at $2,660,000 on a hypothetical development basis.

261 Putting to one side the argument about the GST margin scheme valuation reflecting a separate asset which I consider to be a distraction, Castleway says the projected revenue was $6,120,000 and expenses were $2,194,000 together with $339,000 for the PDSA nominal land value. That results in a valuation of $3,587,000.[42]

262 When regard is had to annexure 10 to Mr Sutherland's report which sets out the workings by which he arrived at his valuation based on the hypothetical development analysis, the material difference between the Mr Sutherland's valuation and the claim of Castleway can be explained by two factors applied by Mr Sutherland in his development analysis. First, he deducted GST based on the margin scheme. In that respect I note that the GST margin scheme was ultimately applied by the TPC Group on settlement of the lots in the 2019 financial year. I infer it was always intended that the margin scheme would be applied. In part that was why the CBRE valuation was obtained in 2016 in conjunction with moving the development from capital account to revenue account.

263 Second, Mr Sutherland discounted the revenue by 12 per cent to take into account profit and risk. The application of this discount reflected Mr Sutherland's approach to the task which was to value the land on an 'as is' basis at market value. Mr Sutherland explained in his report that to value the development he had to consider what a hypothetical purchaser would be prepared to pay in an arm's length transaction at the relevant date to acquire the property with the benefit of existing permits, pre-sales and expenditure for the continuation of the development. I note that in its report CBRE had applied a profit and risk discount of 15 per cent.

264 In my opinion, in assessing the unrealised capital gain, it is appropriate to exclude any part of the projected revenue that would be required to be remitted by the TPC Group by way of GST. Such an amount is not aptly described as a gain. In my view the approach taken by Mr Sutherland was correct in this respect.

265 On the other hand, the deduction for risk and profit was not appropriate. I reach that conclusion based on the nature of the task that the PDSA requires on termination. The purpose of the clause is to provide a percentage of the gain that the TPC Group has nominally earned to the point of termination. In some cases that concept will not be captured by assuming the disposal of the asset in an arm's length transaction. The deduction of 12 per cent reflected what a purchaser would seek to extract by way of profit having regard to risk, but in the scenario on which the termination clause is based the TPC Group would retain the asset and enjoy the profit having regard to risk. The deduction would deny Castleway part of the gain, in circumstances where the TPC Group will ultimately receive that gain when the asset is ultimately developed. That is particularly so where the TPC Group would inevitably continue to develop Garfield until completion.

266 It is true that as at 29 June 2017 there was some risk that pre-sales would not be completed or the unsold lots may not be sold at the budgeted price.

267 I have concluded that the appropriate unrealised capital gain, excluding GST, is best estimated by adding back the 12 per cent profit and risk allowance but otherwise adopting Mr Sutherland's calculations.

268 That produces a gain of $3,262,137 that must be brought to account.

269 I note that question 2.4.4 refers to an additional amount of $200,000 that the purchaser paid to reimburse the vendor's GST liability. This was not taken into account. Castleway has not, in its written submission or in cross examination of Mr Skinner, the accountant for the TPC Group, identified any basis for a separate adjustment in relation to this sum and I conclude that no separate adjustment should be made.

270 Brew Road is a potential development site in Tynong North, Victoria, comprising 7.18 hectares of partially treed land. The land was owned by Looilla Pty Ltd as trustee for the Looilla Trust.

271 As at 29 June 2017 it was held on capital account and was brought into account by the nominated accountant for the purposes of calculating the termination adjustment.

272 There is no dispute that the value of the land at the termination date was $300,000. According to its accounts the TPC Group expended $6,265 in development costs excluding land costs. Once the nominal land price and the additional costs were combined, the nominated accountant included a loss of $15,625 in the termination adjustment.

273 The land was originally acquired before September 1985 and was a pre-CGT asset. As already adverted to, the PDSA provides for various adjustments in calculating the TPC Group Profit. They include in relation to pre-CGT assets a 'Notional non assessable gain (loss) on pre-CGT assets'. Under the PDSA Brew Road had a notional market value of $309,000.

274 Note 1 of item 2 of sch 2 to the PDSA provides:

'Notional non assessable gain (loss) on pre-CGT assets' is the difference between the net sale proceeds on sale of the Land & Properties or Shares listed below and the notional market value for the relevant Land & Properties or Shares as agreed by the parties and (in the case of Land & Properties) set out below or (in the case of Shares) calculated as set out below.

A surplus amount is a gain (to be added to the calculation of TPC Group Profit) a deficit amount is a (loss) (to be subtracted from the calculation of TPC Group Profit).

275 It follows that had Brew Road been sold during the term of the PDSA, the gain or loss would be the difference between net sale proceeds and the nominal price. I would construe net sale proceeds as including expenses.

276 Given that there was no sale of the asset during the term of the PDSA, note 1 to item 2 of sch 2 had no direct application. In assessing the unrealised capital gain or loss it is appropriate to take into account both the notional costs of the land and any additional costs expended in relation to the proposed development. For that reason, the termination adjustment correctly included a loss of $15,265.

277 The TPC Group, through Bellbird Park Developments Pty Ltd owned a 50 per cent interest in land in Bowen Hills Queensland which was owned as a potential development site.

278 In early 2017 Mr Keeghan was asked to sell the property. To that end, on 15 May 2017 a valuation was obtained from valuer, JLL. In its report of that day, JLL ascribed a market value of $1,400,000. Certain expenses were incurred in relation to the property which were brought to account in the 2017 financial year Service Fee.

279 The property remained unsold at 29 June 2017. It was subsequently sold by a contract dated 5 October 2017 for $1,850,000.

280 There is no dispute that the project costs were $1,989,485.

281 In preparing the termination adjustment, the nominated accountant used the JLL valuation of $1,400,000 for the purpose of fixing the value of the land. This resulted in a loss of $589,486 on the property, half of which was attributable to the TPC Group. Thus, the nominated accountant attributed an unrealised capital loss of $294,743 in the termination adjustment.

282 Castleway contends that the value of the land was $1,850,000. It says, therefore, that the unrealised capital loss on Bowen Hills should have been $69,743.

283 The TPC Group submits that it was open to the nominated accountant to use the JLL valuation and no error has been shown. As already explained I do not consider that the correct issue is whether the figure used by the nominated accountant was reasonable but rather what is the correct valuation as at the relevant date.

284 I accept the opinion of JLL. It predated the termination date, was based on relevant comparable sales and was an accurate assessment of the value as at the termination date. The subsequent sale in October does not alter my conclusion.

285 Castleway contends that outstanding loans extended by the TPC Group gave rise to an unrealised capital gain as at the termination adjustment.

286 Castleway contends that where the TPC Group has an outstanding loan in respect of which it is entitled to receive interest in the future, the loan is an asset that gives rise to an unrealised capital gain. The nominated accountant did not include any amount in respect of these items.

287 The TPC Group practice was to accrue interest on a monthly basis and to record on a receipts basis for tax purposes.

288 In my view, the outstanding loans did not represent an unrealised capital gain. The revenue derived from the loans was treated, appropriately, as revenue when received. There was no occasion to bring forward or capitalise the future income stream as an unrealised capital gain. Although loans can be factored, there is nothing to suggest that this was a realistic possibility in respect of any of the loans held by the TPC Group. There was the possibility that the loans would be repaid, but on such a scenario there would be no gain on repayment of the principal.

289 The treatment by the nominated accountant accorded with the taxation and accounting practice of the TPC Group. It was both open to the nominated accountant and in my view correct not to include these so called financial assets in the calculation of the termination adjustment. That approach also accords with the approach taken in respect of Rokeby Street by reference to the purpose of the loan, the intended financial return and the existing accounting and taxation practice adopted by the TPC Group.

290 Even if, properly framed, the question is whether the Service Fee, in so far as it related to the gains from the properties, was reasonably open to the nominated accountant I would hold that in respect of Rokeby Street, Garfield and Ellis Beach, it was not.

291 It was not open or reasonable to regard the Rokeby Street property as being of no value. In relation to Garfield the nominated accountant used an out of date valuation that predated actual sales that had been made (but not settled) before the termination date and ignored relevant material that was available or could have been obtained with reasonable diligence. In relation to Ellis Beach, the evidence of Mr Leeson and Mr Coates was to the effect that the HTW valuation on which the nominated accountant proceeded was flawed. It did not provide a reasonable basis for the service fee in that respect.

CALCULATION OF THE SERVICE FEE (OTHER THAN TERMINATION ADJUSTMENT)

292 Gumbuya Park comprised land at 2705 Princes Highway and 155 Brew Road Garfield, Victoria. The land was held by a TPC Group company called Standard Roads Pty Ltd. Standard Roads operated an asphalting and road construction business. In March 2002, the shares in Standard Roads were sold to Fulton Hogan Constructions Pty Ltd. Inadvertently, the sale of shares had the effect of transferring ownership of Gumbuya Park to Fulton Hogan. To reverse this unintended effect, Futon Hogan agreed to sell Gumbuya Park to Looilla Pty Ltd ('Looilla'), a company within the TPC Group, for consideration of $1. Stamp duty was paid on the sale in the sum of $82,500 based on market value at that time.

293 On 22 September 2016 Looilla sold Gumbuya Park to an unrelated third party for the price of $3,650,000. As a result of the sale, Looilla received income, being the purchase price less cost base, which it was obliged to declare in its tax return. In its tax return Looilla returned income from the sale in the amount of $1,892,879. The parties agree that from this amount, it can be inferred that the cost base used by Looilla in its return was $1,649,409.

294 Castleway submits that the cost base used by the TPC Group in completing its tax return was wrong and that a different figure should be included as income. Specifically, it submits that the correct cost base was $602,879 as this was the figure recorded in the books of account and the net profit figure should be adjusted accordingly.

295 On the proper construction of the PDSA, the income recorded in the tax return of $1,892,979 was required to be taken into account in identifying the 'income per tax return'. It was not suggested that the insertion of this amount into the tax return was a breach of the PDSA or that it was anything other than genuine. This amount was taken into account in calculating the Service Fee. Subject to an argument that I will shortly address, there was no error in the approach taken by the TPC Group in this regard. Castleway's argument proceeds on a misconstruction of the PDSA.

296 Castleway also submits that the figure was the subject of an agreement between Mr Keeghan and Mr Lee in the context of good faith discussions arising from Castleway's notice of dispute.

297 Following service by Castleway of a notice of dispute, Mr Keeghan and Mr Lee met on a number of occasions pursuant to the obligation in cl 9 to engage in good faith negotiations to resolve the dispute. It is not in dispute that Mr Lee and Mr Keeghan met on 7 and 18 March, 15 April and 16 May 2019.

298 As will appear both gentlemen said that they had prepared documents at or about the time of those meetings for the purpose of recording what was discussed. In the case of Mr Keeghan, he said that he kept a spreadsheet setting out the issues in dispute and the position of the parties. His evidence about this document was somewhat unclear but in cross-examination he said that parts of the document were prepared in advance of a meeting and parts of it after the last meeting. Mr Lee took some brief handwritten notes.

299 On 29 May 2019, the solicitor for the TPC Group wrote to Castleway's solicitor setting out their understanding as to the state of negotiations. In relation to Gumbuya Park, which was referred to by reference to Looilla, the letter stated:

The TPC Group maintains its position as set out in the TPC Group's March Response, and expressly denies any breach of Order 4. Accordingly, this item remains in dispute.

300 Mr Keeghan said that the first meeting occurred on 7 June 2019. One of the issues discussed was Gumbuya Park. Mr Keeghan said that he told Mr Lee that the cost base that was used to derive the net income was higher than the cost base in the company accounts, which recorded a cost base of $602,000. He said that Mr Lee agreed to look at the issue and return to it at the next meeting.

301 At the next meeting, which he thought was on 17 June 2019, the issue was not discussed.

302 He said there was a third meeting at which they discussed Gumbuya Park. Mr Keeghan said that he told Mr Lee at that meeting that when the property was sold Mr Keeghan had discussed the issue with RSM, the auditors of Looilla, who advised him that the sale should be recorded in the accounts of Looilla with a cost base at $602,500 which is what occurred. According to Mr Keeghan, Mr Lee acknowledged the cost base had been recorded but that at the time of the preparation of the tax return it was decided to use a cost base calculated by reference to the stamp duty paid and, as the amount recorded in the tax return reflected that cost base, that would be the figure that would be used for the purposes of the PDSA.

303 Mr Keeghan said that he reached agreement with Mr Lee on Gumbuya Park but he could not remember whether it was at the third or the fourth meeting.

304 Mr Keeghan said that at the fourth meeting, Mr Lee was unhappy with him and the meeting was terminated shortly after it commenced. Mr Keeghan said that at this meeting, Mr Lee 'rescinded all of his previous concessions'.

305 Mr Keeghan said that he took notes at the meeting and afterwards transcribed them into a spreadsheet. During the course of his evidence Mr Keeghan was permitted to refresh his memory by reference to that spreadsheet.

306 The first part of the spreadsheet, which contains the footer 'TPC Group Profit FY17 amendments to ADJUSTED INCOME IL part review 150419.xlsx' contains five columns. The column headings and entries for Gumbuya Park are as follows:

Adjustments now made by GT; adjustments GDK included in Termination Fee

Comments and further clarification required

After 7 March and 18 March Meetings re DN

Outstanding queries on Adjusted Income

15/04/2019 - GDK adjustments

Sale of Gumbaya Park Land

Cost base has been incorrectly determined at $1,649,409 - the land is shown in Gumbaya Park P/L ledger at $602,879.

Profit on sale was $2,788,699.95 not $1,895,879

Adjustment required to reflect correct profit

IL said 'PDSA is calc based on taxable income' and that is not what he is relying on.

See Looilla correct GG tab tab

GDK gave working sheet to IL 18/3/19

GDK - Sales Price was $3,650,000 less land cost, s'duty and legals/comm

Net margin is $2,788,699 per TPC schedule

Appears TPC have 'manufactured' a higher cost base to report less tax payable, and ignored history contained in the red property files.

307 A further iteration of the spreadsheet, containing the footer 'TPC Group Profit FY17 amendments to ADJUSTED INCOME IL after 160519.xlsx' contains six columns, with a sixth column headed: '16/05/19 DN meeting'. The first four columns of the entry for Gumbuya Park are identical to the previous iteration of the spreadsheet. The fifth and sixth columns are as follows:

Outstanding queries on Adjusted Income

15/04/2019 - GDK adjustments

GDK - Sales Price was $3,650,000 less land cost, s'duty and legals/comm

Net margin is $2,788,699 per TPC schedule

Appears TPC have 'manufactured' a higher cost base to report less tax payable, and ignored history contained in the red property files.

IL agreed to be adjusted as incorrect

IL rescinded his agreement 15/4/19 that this be adjusted. Says he will rely on the tax return as submitted as per PDSA

308 After referring to that entry in his evidence in chief, Mr Keeghan gave evidence that Mr Lee had agreed to the adjustment sought by Mr Keeghan at the meeting of 15 April.

309 In cross-examination, Mr Keeghan said that he had prepared the first form of the spreadsheet before the 15 April meeting and that he had given a copy to Mr Lee to guide the discussion. He said that after the final meeting on 16 May he inserted the last sentence to the entry for 15 April and at the same time the entry for 16 May so that he recorded both the agreement and its rescission at the same time although they had happened at different meetings.

310 In his evidence, Mr Lee said that he did not have much recall of the detail of the meetings. He said, with the exception of the last meeting, the meetings went for a couple of hours and that he and Mr Keeghan would work though the issues Mr Keeghan sought to raise. Again, with the exception of the last meeting, he said he kept very brief handwritten notes. The last meeting concluded shortly after it started, when Mr Lee got up and left the meeting without any progress being made. No notes were made by Mr Lee in relation to the last meeting.

311 The notes taken by Mr Lee at the first meeting on 7 March show that Mr Keeghan raised the cost base issue and that it was 'to be reviewed'. The next entry for Gumbuya Park are in the notes of the meeting of 15 April where the following notation appears:

312 Mr Lee's evidence was that at the meeting of 15 April, he was 'potentially considering' making a concession in relation to Gumbuya Park. In evidence in chief, Mr Lee was asked, after referring to his notes, whether he had made a concession or reached an agreement on Gumbuya Park, to which he replied 'not a final agreement'. He accepted that the meeting had occurred a long time before and that 'it may be a possible adjustment to the calculations depending on how everything else panned out'.

313 Having carefully considered the evidence of Mr Lee and Mr Keeghan I am satisfied that there was an agreement to adjust the income in the amount of $895,200. I reach that conclusion for the following reasons.

314 I accept that both Mr Lee and Mr Keeghan were endeavouring to recall the events as best they could. Neither had a recollection of much of the detail. Mr Keeghan was clear in his evidence that an agreement had been reached. Mr Lee appears to have accepted that there was some degree of consensus but that it was conditional and would depend on how things panned out.

315 The notes taken by both men support an agreement having been reached. The reference in Mr Lee's notes to 'Adj $895' reflects the figure being sought by Mr Keeghan as shown in the second column of his spreadsheet. It provides some support for Mr Keeghan's evidence as having provided the spreadsheet. In my view, the evidence of Mr Lee that the offer was tentative or was conditional on another agreements being made is implausible. The meetings proceeded on the basis of working though item by item as if they stood alone. I do not accept that there was any suggestion that no agreement would be reached until all items had been resolved. Indeed, that was not the course that was adopted with the TPC Group and Mr Keeghan both accepting various matters and giving effect to them.

316 I do not consider much weight should be placed on the solicitor's letter of 20 May. By that stage it is clear that relations had broken down and the meeting of 19 May finished abruptly and without further discussion. The fact that Gumbuya Park was said to still be in dispute may have reflected Mr Lee's view or be a product of general unhappiness with the state of affairs. I note that Mr Keeghan told Mr Lee that he did not trust him and no doubt this coloured Mr Lee's view. However, I am satisfied that an agreement was reached at the penultimate meeting when relations were not as strained as they were to become.

317 It is true that Castleway did not dispute the solicitor's letter which stated that Gumbuya Park had not been agreed. However, I would not draw an inference that Castleway was thereby conceding that to be reflecting of the state of affairs. There were many items at play; it is entirely plausible that the assertion could have gone unremarked. It is clear that putting Gumbuya Park to one side there were many items that were the subject of continuing dispute.

318 It follows that there was an agreement. The TPC Group accepted that if I found that an agreement was reached between Mr Keeghan and Mr Lee, it would follow that the termination adjustment would be adjusted take into account what was agreed. The agreement was to adjust the income by adding the amount of $895,620 to the profit.

319 When Mr Keeghan's employment was terminated, he was entitled to accrued entitlements under the ESA in relation to unused annual leave, long service leave and sick leave in the sum of $443,422. The TPC Group claimed this amount as a deduction in the 2017 financial year. It is recorded in the income tax returns and reflected in the taxable income. This deduction had the effect of reducing the TPC Group Profit for that year, with a corresponding reduction in the amount payable to Castleway in the Service Fee.

320 Castleway contends that it should have been claimed as a deduction in the 2018 financial year being the year in which it says the amount was paid.

321 Given my construction of the PDSA, I reject this argument. This component of the Service Fee correctly reflected the income 'per the income tax returns'. No amended return has been lodged relating to this issue.

322 I note that, in any event, the amount was paid on 30 June 2017. I reject the argument advanced by Castleway that this was premature because Mr Keeghan remained employed as Chief Executive Officer until the end of 30 June 2017. The amount was deducted in the year it was paid.

323 The Court of Appeal held that where there is a dispute as to the Service Fee consequent upon the nominated accountant's report, the Manager is not precluded from rendering an invoice containing non-disputed and disputed components, and, if it does so, the TPC Group is obliged to pay the non-disputed components in accordance with cl 3.3(e), that is, 30 days after receipt (subject to sub-cl (g), where that applies).[43]

324 As already observed, Castleway served an invoice on 19 August 2019. That invoice followed the Service Fee Report.

325 Castleway submits that, when regard is had to the Revised Service Fee Report and the TPC Group's dispute notice served in respect of it, the undisputed amount owing to Castleway was $7,277,954.50 (exclusive of GST).[44] It says that this amount was a debt or sum certain that was payable on 19 September 2019, being 30 days after it issued its invoice.

326 Castleway notes that this amount is slightly less than the amount which the TPC Group said was undisputed in its letter of 30 June 2021 (being $7,415,653 excluding GST). The discrepancy arises from the inclusion by the TPC Group of $160,000 based on an amendment to the Tynong Pastoral tax return to exclude as a decision a payment to Partners in Property Queensland Pty Ltd.

327 Castleway seeks interest under s 58 of the Supreme Court Act 1986 on the amount of $8,005,749.95.

328 The TPC Group submits that the invoice has no status under the PDSA because it was supplanted or displaced as a result of the service of the Second Revised Service Fee Report. It says that a Service Fee Report is the foundation of the Manager's right to payment for the Service Fee.

(a) Robson J had held that the nominated accountant had not addressed the contractual task at the time it issued the Service Fee Report because it included certain expenses which Robson J held fell outside the deductions allowed for by the PDSA, which he held were limited to deductions that related to the ordinary course of business (rather than those claimed in the relevant tax return);

(b) The effect of Robson J's decision was that the Service Fee Report had 'no legal effect' and led to the Revised Service Fee Report which replaced it;

(c) Castleway served a dispute notice in response to the Revised Service Fee Report;

(d) The Court of Appeal held that the construction of the PDSA adopted by Robson J in relation to what expenses should be deducted was wrong and that the profit was the profit contained in the relevant tax return;

(e) The effect of the reasons and orders of the Court of Appeal was that the nominated accountant had not properly addressed the contractual task required in assessing the 2017 financial year Service Fee in the Revised Service Fee Report, which was also then of no legal effect in determining the 2017 financial year Service Fee. The Revised Service Fee Report was accordingly a nullity as far as affecting the rights and liabilities of the parties was concerned. The TPC Group remained under an obligation to procure the nominated accountant to report as to the 2017 financial year Service Fee by all means within its power, which entailed the TPC Group requesting the nominated accountant to prepare a report which conformed with the orders of the Court of Appeal;

(f) The Second Revised Fee Report was procured as a result of the order of Riordan J which allowed for the parties to request a further Service Fee Report.

330 In short, the TPC Group submits that the steps taken before the Second Revised Service Report, including the issue of the invoice, are of mere historical significance.

331 The purpose of the nominated accountant procedure, including the provision of a Service Fee Report and invoice, is to allow for the prompt calculation and payment of the Service Fee for each year. The fact that a Service Fee Report contains an error or proceeds on a false basis does not mean that it is incapable of triggering an invoice. Indeed, the purpose of the provisions is to allow a winnowing of agreed amounts so as to focus attention on those areas that remain in dispute. It would subvert that purpose if an error as to one component of the Service Fee precluded the Manager from issuing an invoice and required the whole process to either miscarry completely or start from the beginning. It is also plain that Castleway should not have to wait until all disputes are finalised before it is entitled to be paid anything.

332 When a Service Fee is reported to the parties, both the TPC Group and the Manager have the opportunity to dispute the amount reported. As a matter of course, the Manager may initiate a dispute where it contends that the reported fee is less than it considers should have been reported, and conversely, the TPC Group may engage the dispute regime where it contends that the reported fee is too high. That is what happened in resolution to the Service Fee Report and the Revised Service Fee Report.

333 Although the PDSA does not contemplate that the nominated accountant would prepare and serve more than one Service Fee Report for a given period, there is no prohibition on doing so. There is nothing in the PDSA that would prevent the parties utilising the Service Fee process on more than one occasion as part of resolving a dispute. In my view, such a course is consistent with the purpose of the PDSA.

334 Where there is a dispute, the provision of a Service Fee Report may commence an iterative process, the first step of which is the serving of a dispute notice and the holding of good faith discussions. Although, as I have held, a critical component of the calculation is fixed by the amounts recorded in the TPC Group tax returns, other components may not necessarily admit of a single or precise answer. So for example, a termination adjustment may involve competing assessments of the hypothetical value of an asset at a point in time. It is unsurprising that the parties continued to utilise the nominated accountant process to work through their dispute. The process aided clarity and provided a mechanism for the payment of amounts that were once in dispute. As a result of decisions of the Court, some of the decisions have been shown to be in error.

335 Although dispute notices were served in response to the Service Fee Report and the Revised Service Fee Report, Castleway refrained from issuing an invoice until the Revised Service Fee had been provided. Again, this was not inconsistent with the PDSA. In particular I note that although there is a timeframe for the issuing of an invoice, the nature of that obligation is dealt with expressly in the following way:

Any failure or delay in submitting a Tax Invoice shall not be construed as a waiver of the Manager's right to submit the Tax Invoice.

336 Conformably with the text of the PDSA, it was open to Castleway to issue an invoice in response to the Revised Service Fee Report. There was no obligation on the TPC Group to accept the amount owing and it could either dispute the Service Fee Report or dispute the invoice.

337 Through its dispute notice served in response to the Revised Service Fee Report, the TPC Group indicated the extent to which it did not agree with the reported fee. It also necessarily identified the undisputed amount. In my opinion, the TPC Group became obliged to pay the undisputed amount within 30 days. The amount of the reported Service Fee which it disputed was clear and the corresponding undisputed amount was a sum certain that the TPC Group became obliged to pay.

338 The TPC Group does not contend that the invoice was invalid or inoperative at the time it was issued. Rather, the TPC Group submits that it was rendered nugatory or became a nullity as a result of the orders made by the Court of Appeal. Alternatively, it contends that by acquiescing in the decision to issue the Second Revised Service Fee Report it is estopped from relying on the invoice.

339 I reject those submissions. The Service Fee Report provided by the nominated accountant on 22 August 2018, the Revised Service Fee Report and the Second Revised Service Fee Report were various iterations of the 2017 report. It was open to Castleway to issue an invoice consequent upon the service of the Revised Service Fee Report and for the TPC Group to dispute the invoice.

340 I do not accept the TPC Group's submission that the Revised Service Fee Report was a 'nullity'. In my opinion it represented the genuine professional opinion of the nominated accountant. The errors in the calculations that were subsequently exposed by the court process did not preclude the report being the foundation for the identification of the undisputed amount. Indeed, that is what occurred; the TPC Group accepted at the time it disputed the Revised Service Fee Report that at least $7,277,954.50 (exclusive of GST) was undisputed and owing.

341 Nor do I consider that any estoppel arises against Castleway. True it is, that Castleway had many complaints against the TPC Group and the nominated accountant. However, that did not preclude it from serving an invoice in order to at the least distil an undisputed amount. That is what occurred. The ongoing iterative process did not render the invoice inefficacious. Castleway did not elect to abandon the invoice and its conduct was not inconsistent with reliance on the invoice to trigger payment of the undisputed amount.

342 The process adopted by the parties of preparing a Second Revised Service Fee Report was not intended, and did not have the effect of, putting everything in dispute and returning the parties to the beginning of the process as if nothing had occurred before.

343 It follows that Castleway was entitled to be paid the undisputed amount within 30 days of receipt of the invoice. Payment was not made until 19 July 2021. I would reserve my decision on the quantum of the interest until hearing from the parties on the potential application of cl 3.7 of the PDSA before deciding whether Castleway is entitled to interest under s 58 of the Supreme Court Act 1986 for the period between 19 September 2019 and the date of payment on the undisputed sum of $7,277,954.50 (exclusive of GST).

Interest on late service of accounts, tax return and Service Fee Report

344 Earlier in these reasons I set out my conclusions on the obligation on the TPC Group to finalise accounts and procure a Service Fee Report from the nominated accountant.

345 Clause 3.3(a) required the TPC Group to finalise its accounts and tax returns by 31 March 2018. The accounts were finalised and provided to Castleway by 19 April 2018.

346 The TPC Group was required by cl 3.3(b) to obtain from the nominated accountant a Service Fee Report within 30 days from 19 April 2018, that is by 19 May 2018. The Service Fee Report was provided on 22 August 2018.

347 By reason of these breaches, there was a delay in the time in which Castleway could issue an invoice that would have triggered an obligation to pay any undisputed amount. However, there was no obligation to pay until Castleway served an invoice. In my view the delay in finalising the Service Fee Report did not result in any loss to Castleway.

348 As I have already explained, I reject the submission of Castleway that the TPC Group was required to ensure that the Service Fee Report was correct, with the consequence that it is entitled to damages by way of interest on the difference between the amount calculated by the nominated accountant and the amount this Court ultimately determines to be the correct Service Fee. The PDSA deals with errors in the Service Fee Report through the dispute resolution process. Although there were errors in the Service Fee Report in the sense that, in some respects, it did not answer the contractual description, nevertheless it discharged the obligation to procure a Service Fee Report and it was open to the parties to engage the dispute resolution process, which they did. The same holds true for the Revised Service Fee Report and the Second Revised Service Fee Report.

349 Given that the commission payable on introduced projects depends on the extent to which there was any entitlement to payment for those projects as part of the Service Fee, the TPC Group submitted that the issue concerning commission can be deferred until after I have resolved the issues in relation to the Service Fee including the termination payment.

350 I will give the parties an opportunity to make submissions on the orders that should be made conformable with these reasons.

ADAZ NOMINEES PTY LTD (ACN 006 228 119) ATF THE RADO NO 2 TRUST

Second Plaintiff / Second Defendant by Counterclaim

ROADING GROUP PTY LTD (ACN 097 993 292) ATF THE RADO INVESTMENT TRUST NO. 2

Fourth Plaintiff / Fourth Defendant by Counterclaim

ROADING INVESTMENTS PTY LTD (ACN 104 325 797) ATF THE RADO INVESTMENTTRUST NO 3

LOOILLA PTY LTD (ACN 092 067 322) ATF LOOILLA TRUST

BELLONIC PTY LTD (ACN 092 015 828) ATF BELLONIC TRUST

Seventh Plaintiff / Seventh Defendant by Counterclaim

TYNONG PASTORAL CO PTY LTD (ACN 060 828 364) ATF TYNONG PASTORAL UNIT TRUST

Eighth Plaintiff / Eighth Defendant by Counterclaim

PIP MELBOURNE PTY LTD (formerly PARTNERS IN PROPERTY PTY LTD) (ACN 120 760 125)

TYNONG PROPERTY DEVELOPMENTS PTY LTD (ACN 081 950 647) ATF AMARCO SERVICES TRUST

CASTLEWAY PTY LTD (ACN 131 870 481) ATF THE CASTLEWAY TRUST

Second Defendant / Second Plaintiff by Counterclaim

[1] Re Adaz Nominees Pty Ltd (No 2) [2017] VSC 578; Re Adaz Nominees Pty Ltd (No 5) [2018] VSC 624; Re Adaz Nominees Pty Ltd (No 6) [2019] VSC 14; Adaz Nominees Pty Ltd v Castleway Pty Ltd [2020] VSCA 201 ('Court of Appeal reasons').

[2] Re Adaz Nominees Pty Ltd (No 2) [2017] VSC 578.

[3] Re Adaz Nominees Pty Ltd (No 5) [2018] VSC 624.

[4] Re Adaz Nominees Pty Ltd (No 6) [2019] VSC 14.

[5] Recalling that the PDSA was terminated on 29 June 2017.

[7] This issue is reflected in Question 2.1.

[8] Court of Appeal reasons, [248]-[249] (Whelan JA and Riordan AJA).

[11] An exception is provided for in respect of injunctive, declaratory or other interlocutory relief in cl 9.7.

[12] Court of Appeal reasons, [137] (Whelan JA and Riordan AJA).

[13] [2015] HCA 37; (2015) 256 CLR 104, 116-17 [46]-[51]; [2015] HCA 37 (citations omitted).

[14] [2017] HCA 12; (2017) 261 CLR 544, 551 [16]-[17]; [2017] HCA 12 (citations omitted).

[15] Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99, 109 (Gibbs J); [1973] HCA 36.

[16] Wilkie v Gordian Runoff Ltd [2005] HCA 17; (2005) 221 CLR 522, 529 [16] (Gleeson CJ, McHugh, Gummow and Kirby JJ); [2005] HCA 17.

[17] Federal Commissioner of Taxation v Whitfords Beach Pty td [1982] HCA 8; (1982) 150 CLR 355, 379-81 (Mason J); [1982] HCA 8.

[19] Re Adaz Nominees Pty Ltd (No 2) [2017] VSC 578, [73].

[20] [2006] VSCA 173, [51]-[54] (citations omitted).

[21] Re Adaz Nominees Pty Ltd (No 5) [2018] VSC 624, [121], [140] (Robson J).

[22] Income Tax Assessment Act 1997 (Cth) div 70 ('ITAA').

[23] (1978) 138 CLR 210; [1978] HCA 10.

[24] [1938] HCA 69; (1938) 63 CLR 108, 156; [1938] HCA 69.

[28] Ibid s 70-35.

[29] Ibid s 70-45.

[34] Ibid s 118-25.

[35] Oxford Dictionary of Finance and Banking (3rd ed, 2005).

[37] Ibid s 110-25(5A).

[38] Previously called Standard Roads (Investments) Pty Ltd.

[39] The final figure of $2,200,000 also included some rounding and a further deduction for GST in respect of some items.

[40] 97.8% of which was allowed in the Second Revised Service Fee Report on a pro rata basis, in light of the termination of the PDSA on 29 June 2017.

[41] Comprising $1,883,000 for earthworks and construction; $275,400 for agents commission and legal fees and $30,000 for repairs and maintenance.

[42] The TPC Group had a 97.87 per cent interest in the development.