Plaintiffs / Defendants by Counterclaim v Defendants / Plaintiffs by Counterclaim

INTEREST - Interest on termination adjustment - Whether interest payable in respect of additional termination adjustment - Where termination adjustment of 2017 service fee understated - Penalty interest awarded from date of relevant invoice until payment.

INTEREST - Interest on commission - Rate and time period of interest in respect of commission entitlements - Gain or loss capable of being known when schedule of costs prepared for each project within 30 days of settlement - Penalty interest awarded from 60 days after settlement of each project - Interest payable on overpayments of commission at contractual rate.

Supreme Court Act 1986, s 58.

1 On 22 March 2023, the Court published its principal reasons in the proceeding resolving a number of issues.[1]

2 Regrettably, the finalisation of orders has taken much longer than is desirable. The parties were given an opportunity to consider the Reasons and make submissions on final orders. To that end, the matter was adjourned to 25 May 2023. As is explained in more detail below, shortly before the resumed hearing date, an issue arose as to whether the Court should deal with the payment of commission under the Property Development Services Agreement ('PDSA') in respect of properties that had settled after the trial in October 2022. Castleway objected to that course. Both parties sought to put on evidence in the event that the Court dealt with those properties and the matter was adjourned to 14 July 2023. That date became inconvenient to the parties and the matter was again adjourned to 28 August 2023. In the result, submissions were advanced on most of the issues remaining in dispute on 28 August and the issue of the post-hearing properties was put off for a further hearing. The final hearing occurred on 29 November 2023.

3 There are a number of issues that need to be determined arising from the Reasons. The parties have prepared a document setting out the ambit of the dispute as to the final form of orders, other than costs ('the ambit document'). As originally filed, the ambit document identified nine issues that remained in dispute.[2] The parties have further narrowed the issues and I am required to determine six issues. The two main areas of dispute concern the question of interest and the calculation of commission payments on certain introduced projects.

4 For the sake of completeness I note that of the original issues contained in the ambit document, issues 1 and 2 were resolved by agreement. Issue 4 concerns Garfield and relates to whether the findings made by the Court at [268] of the Reasons took into account the fact that the TPC Group only held a 97.87 per cent interest and that there was an agreed notional value. After discussion, it was clear that these items had not been factored in by the Court in the Reasons and it was necessary to take those matters into account. Once that is done, the parties are agreed that it yields an agreed termination adjustment for Garfield of $2,860,875.

The payments of commission on introduced projects (issues 6A and 6)

5 The parties are in dispute about how the commission payable on introduced projects is to be calculated. The dispute is covered by issues 6A and 6. Issue 6A is a pure question of construction of the PDSA, rather than a dispute about its application to any specific project. Issue 6 has an underlying issue of construction and also concerns the calculations made in relation to Lots 13 and 22 Ellis Beach and Hallam South Road.

7 First, at the time of the trial in October 2022, not all of the introduced projects had been completed to settlement and therefore for those properties the point at which commission would become payable had not been reached. Relevantly, the properties in that category were Hillside, Lots 13 and 22 Ellis Beach and Hallam South Road. By the time of argument on the form of orders, these properties had settled and the commission had become payable. Moreover, a dispute had emerged between the parties about the calculation of the commission that was payable on Lots 13 and 22 Ellis Beach and Hallam South Road. The TPC Group wanted the incipient dispute on commission relating to these projects to be determined by the Court and adduced some brief evidence in relation to the finalisation of the accounting costs for these projects. The issue was identified as issue 6A in the ambit document.

8 Castleway objected to the Court dealing with this aspect of dispute. Indeed, notwithstanding that a dispute had already emerged about the amounts owing in respect of these properties, Castleway submitted that the Court should not deal with it and that if a dispute remained a new proceeding could be issued. Castleway also submitted that it needed further discovery. In the result the hearing of issue 6A was adjourned to allow the TPC Group to provide further documents. On the resumed hearing, Castleway initially maintained its objection to the Court dealing with issue 6A even though it was in a position to deal with it. The utility and wisdom of the continued objection was difficult to fathom. Ultimately, Castleway withdrew its objection and the parties agreed that the Court should deal with issue 6A concerning the commission payable on Lots 13 and 22 Ellis Beach and Hallam South Road. As a result, the list of questions dated 26 May 2021 which was the subject of the trial was amended so as to include, as an issue, the amount of commission payable for these properties.

9 Second, turning to the context of the arguments, it will be recalled that the PDSA provided for an annual service fee based on a percentage of group profit and, in the final year, a termination adjustment based on the unrealised capital gains or losses as at the date of termination. As explained in the Reasons, the calculation of this amount is confined to assets held on capital account. In addition, the PDSA provided for the payment to Castleway of a commission on 'introduced projects'. Although there had been a dispute between the parties as to the identification of the introduced projects, this issue was resolved by the Court of Appeal.[3]

10 Where an introduced project was, at the time of termination of the PDSA, held on capital account, Castleway was entitled to a payment based on any unrealised capital gains in respect of it. That means that such an introduced project might be the subject of both a payment on account of a termination adjustment and a commission once the introduced project was finally disposed of. The parties agree that the PDSA does not contemplate a double payment and that the termination adjustment payment must be taken into account when calculating the amount owing as commission.[4]

11 This might result in an additional payment by way of commission where the asset has increased in value compared to the nominal calculation done for the termination adjustment (calculated by deducting the termination adjustment from the commission payment). On the other hand, if the asset has decreased in value it may mean that the component of the termination adjustment is greater than the commission entitlement, leading to an adjustment in favour of the TPC Group. In other words, the disposal of the asset may lead to Castleway making a payment to the TPC Group. This process is also reflected in the following declaration made by Robson J, which was not the subject of any appeal:

The Court declares that when calculating the Commission on Introduced Projects completed after the termination of the PDSA under cl 4.5 of the PDSA, any Termination Adjustment under Item 4 of Schedule 2 to the PDSA that Castleway has already received in relation to the Introduced Projects will be taken into account.[5]

12 As will appear, this process, in which Castleway has an entitlement to be paid in advance of the commission, also gives rise to certain issues relating to the payment of interest. Before coming to that issue, it is necessary to determine certain questions concerning:

(a) the calculation of the commission entitlement; and

(b) certain factual issues relating to properties that were settled after the hearing in this Court in October 2022.

4.5 If this Agreement is terminated by either party, then the parties agree that following termination:

(a) the TPC Group will pay to the Manager a commission for any Introduced Projects completed after the date of termination of the Agreement (Commission);

(b) the Commission will be calculated in accordance with the principles in Schedule 2 for each Introduced Project completed in any Financial Year, and without limiting Schedule 2 the parties agree that the table in Item 1 of Schedule 2 shall apply to the aggregate TPC Group Profit (or TPC Group Loss) for Introduced Projects settled in the relevant Financial Year;

(c) the TPC Group will pay the Commission to the Manager on or before the date which is 30 days following the later of settlement of the Introduced Project or the calculation of all accounting costs for the Introduced Project by the TPC Group; and

(d) the Manager acknowledges that any payment under clause 4.5(c) shall be an advance payment of Commission in the period between payment of the amount and determination of the final Commission payable for the relevant Financial Year. The Manager shall refund on demand any overpayment of Commission paid to the Manager in any Financial Year following any final calculation of the Commission payable for that Financial Year.

14 Clause 4.5(b) makes it plain that the calculation of the commission will reflect the terms of sch 2. Importantly for present purposes, item 1 of sch 2 is expressly adopted. Item 1 is in the following terms:

1. Calculation of Service Property Procurement & Development Fee (Service Fee)

The Service Fee for each Financial Year during the Term shall be determined based on TPC Group Profit for that Financial Year and calculated in accordance with the following table.

If TPC Group Profit falls within Band 1 to Band 7 (both inclusive) the Manager shall be entitled to a Service Fee calculated in accordance with column 5 'Aggregate Amount payable to Manager'. If the calculation of TPC Group Profit results in a loss (TPC Group Loss) then no Service Fee will be payable.

$75,000 plus 20% of TPC Group Profit above $500,000

$175,000 plus 25% of TPC Group Profit above $1 million

$425,000 plus 25% of TPC Group Profit above $2 million

$675,000 plus 30% of TPC Group Profit above $3 million

$975,000 plus 30% of TPC Group Profit above $4 million

$1,275,000 plus 40% of TPC Group Profit above $5 million

15 In purported compliance with cl 4.5, the TPC Group paid to Castleway a commission in respect of the properties that had settled before the trial of the proceeding in October 2022.[6] As already adverted to, four introduced projects settled after the hearing in October 2022.[7]

16 The first two areas of dispute concern the construction of the PDSA.

17 The TPC Group calculated the commission based on the realised gain for the introduced project at the time of its disposal. On its approach, the first step is to identify the gain in accordance with the TPC Group accounts. The second step is to identify the commission payable on that gain by reference to the table in item 1 of sch 2 to the PDSA. The third step is to deduct the amount paid by way of termination adjustment in the service fee for the final year, that is 2017.

18 The steps can be illustrated by Rokeby Street. In that respect it will be recalled that Castleway was successful in its challenge to the termination adjustment in respect of Rokeby Street.[8]

(a) Based on the findings of the Court, Castleway was entitled to be paid $1,672,323.74 in the 2017 year as a termination adjustment in respect of Rokeby Street.[9]

(b) The TPC Group sold its interest in Rokeby Street in January 2020 and made a group profit of $7,110,167. Using the table in item 1 of sch 2, the commission payable to Castleway on this figure is $2,119,066.80.

(c) The amount owing is the difference between the amount paid by way of termination adjustment and the commission payable on the gain realised on settlement. This amount is $491,418 including GST.

19 Castleway's position is that the TPC Group has incorrectly calculated the commission in respect of these introduced projects, primarily by failing to correctly adjust the commission for the termination adjustment in respect of these projects. Castleway submits that this denies it the intended benefit of adding the termination adjustment to the other components of the final service fee before applying the marginal rates in sch 2. Castleway contends that the commission should be calculated by simply subtracting the termination adjustment from the capital gain, then applying the marginal rates in sch 2 to the net amount. The effect is to adjust the termination adjustment against the final gain on sale rather than adjusting the amount Castleway received as a payment based on that termination adjustment.

20 Castleway submits that in order to calculate the commission entitlement in those cases where there has been a payment for the project as part of a termination adjustment, it is necessary to adopt the following steps:

(a) first, identify the group profit on disposal (in the case of Rokeby Street this was $7,110,167);

(b) second, deduct the unrealised capital gain as at termination adjustment (in the case of Rokeby Street this was $4,192,294.85) to determine the 'Remaining profit to be the subject of the Commission'; and

(c) third, apply the table in sch 2 to this amount of 'remaining profit'.

21 As already noted, it is common ground that the commission payable on an introduced project had to take into account the fact that the project (if held on capital account) would have been the subject of a termination adjustment based on a hypothetical 'unrealised' capital gain or loss. Importantly, however, the PDSA does not explicitly state how this is to occur.

22 In his reasons for judgment on this issue, Robson J explained that the two payments, termination adjustment and commission, were not cumulative but had to be reconciled.[10] He said:

That is, under the termination adjustment, the defendant receives a share of the increased value of a project valued at the date of termination. The plaintiffs submit that under the Introduced Project provision, the defendants would again receive that increased value if it was maintained when the project was completed.

The defendants agree that Castleway should not receive compensation twice for any such projects, but say that a simple calculation can be made to avoid double counting, whereby any adjustment made at termination can be taken into account in calculating the commission to be paid at a future date if a profit were to be derived.

In my opinion, it is implicit in the PDSA that the defendants were not to be compensated twice for the same share of profit. Any calculation of the profit to be accounted to Castleway at the end of a development of an Introduced Project would naturally take into account any payments that Castleway has already received in relation to that project.

In view of the fact that the agreement is a profit sharing agreement, any double counting would be ignored in calculating the applicable profit to be shared.[11]

23 In my view, for the purposes of adjusting the commission, the critical issue is the amount that Castleway has already received, rather than the formula by which that amount was derived. As Robson J observed, any adjustment 'would naturally take into account any payments that Castleway has already received in relation to that project'. For that reason, the approach taken by the TPC Group is correct.

24 In order to arrive at the termination adjustment payable to Castleway it was necessary that the TPC Group calculate the unrealised capital gain or loss. This is a hypothetical figure that enables Castleway to get a measure of the (nominal) profit of the project at the date of termination. Those projects were not limited to introduced projects but they were confined to those held on capital account. The commission is payable on completion and settlement of the project and therefore at a time when actual receipts and expenses will be known. The gain or loss will be a matter of calculation, not estimation.

25 Ultimately, where there is an entitlement to commission (which is payable on all introduced projects and not just those on capital account) there has to be some taking into account of any payments that Castleway has received. By the time of ultimate disposition, the nominal gain ceases to be relevant and the focus is on the amounts actually received.

26 The effect of Castleway's approach would be to calculate the commission in two tranches for those projects that were the subject of a termination adjustment. The first part would involve calculating the gain on the period up to the date of the termination of the PDSA and the second would relate to any gain or loss between the date of termination and the settlement of the project. This would have the effect of setting the final commission on a hypothetical basis. In my view, the commission payable on cl 4.5 is not a hypothetical figure, but an actual figure. The adjustment simply takes into account the payment that had been made in relation to a project that was also the subject of a termination adjustment.

27 It follows that issue 6A should be resolved in favour of the TPC Group.

Calculation of commission on post-trial properties (issue 6)

28 The next issue concerning the calculation of commission is confined to those properties that settled after the trial. I note that Castleway did not make the same point in respect of commission paid for properties that settled before trial; its only point was that addressed by issue 6A.

29 The central question under issue 6 is whether, in calculating the gain or loss, it is necessary to add revenues earned by the TPC Group during the period between the termination of the PDSA and the final disposition of the asset.

30 The TPC Group submits that the appropriate method is to identify the revenue received from the realisation of the asset and deduct the purchase cost, development expenses, holding costs directly referable to the asset and selling expenses. In the case of assets which were held on capital account, this process was reflected in the capital gain using the capital gains tax regime in the income tax legislation. In the case of property held as trading stock, the process was similar but required the identification of the relevant expenses, being those that were directly referable to the particular property. The TPC Group did not take into account revenue such as rent, or expenses that were relevant to the earning of that revenue. Although these would be relevant to the calculation of group profit during the life of the PDSA and therefore would have been taken into account in each year's service fee, they were not relevant to the commission based on completion of the project.

31 By contrast, Castleway submits that in addition to the gain derived on sale, it is entitled to commission on revenues derived from the properties between the date of termination of the PDSA and the sale or disposition of the property. It submits that including revenues is consistent with the proper construction of the PDSA, which functions as a profit-sharing agreement. It says that the TPC Group have wrongly taken into account expenses without taking into account the corresponding revenue.

32 The submission can be illustrated by Lots 13 and 22 Ellis Beach.

33 Lots 13 and 22 were the subject of a termination adjustment as at the date of termination of the PDSA.[12] The sale price was $4,150,000, from which a number of expenses were deducted. This yielded a profit on sale of $917,686. Castleway contends that in calculating commission, the TPC Group wrongly excluded business revenue derived from leasing the premises between the date of termination and the date of sale. This amounted to income of $2,585,400. So, for example, for the 2018 financial year the TPC Group made a business profit (not including depreciation) of $407,000, which Castleway submits formed part of the gain on which it was entitled to commission.

34 The effect of Castleway's submission would be to calculate commission on the basis of both revenues derived during the holding of the asset and any capital gain. It would in effect capitalise income earned from the asset and add that amount to the amount earned on disposal. I reject the submission.

35 First, it finds no purchase in the text of the PDSA. It is plain that during the life of the PDSA Castleway is entitled to a percentage of group profit, which includes profit derived from the sales of assets but also income derived by the group, for example from rental income. That process comes to an end on termination of the PDSA. If it was intended that Castleway was to continue to enjoy the benefit of that income in respect of introduced projects, there would appear to be no reason why it would be deferred until sale of the asset.

36 Second, the process adopted by the TPC Group better reflects the structure and operation of the PDSA as a whole, which is focused on payments that are calculated by reference to the accounts and tax returns of the TPC Group. It is significant that cl 4.5 requires the calculation of commission to be informed by the principles in sch 2, which are in turn based on the accounts and tax returns of the TPC Group. The TPC Group calculation reflects the treatment of the projects in the accounts, namely as deriving a gain or loss at the completion of the project, having regard to revenues on disposal and costs attributed to the project.

37 Third, commission is payable on termination of the project and payable after settlement.[13] That plainly refers to the sale of the project on completion rather than an ongoing entitlement to any income that may be earned in the meantime. It also better reflects the contribution made by Castleway in circumstances in which Mr Keeghan would have no executive function after termination of the PDSA and his employment agreement.

38 Mr Skinner gave evidence that the commission was calculated on the basis of revenue earned on disposal less the relevant expenses, being those directly referable to the particular property. Subject to two matters, in my view that approach accords with the PDSA and I accept his evidence that the calculations of the commission payable on Hillside, Lots 13 and 22 Ellis Beach and Hallam South Road were done in this way. The first matter in relation to Ellis Beach is that in calculating the gain, the TPC Group deducted some expenses based on goodwill and motor vehicle expenses. Given that Ellis Beach was held on capital account and was the subject of a termination adjustment, the commission should likewise be based on capital gain and in my view, those items should not have been taken into account.

39 The second matter relates to expenses. As I have endeavoured to explain, in assessing the gain for the purposes of commission, it is not correct to take into account income earned, such as rent, when the asset was held by the TPC Group. Equally, if an outgoing had been expensed by the TPC Group against that rental or business income, it would not be correct, in my view, to claim the same expense against the revenue on disposal. So in the case of Hallam, the TPC Group earned rental income of $509,366 during the period between the termination of the PDSA and its final disposal. If it incurred expenses in earning that income and deducted them against receipts, it ought not be entitled to claim those deductions against the sale revenue.

Principles in the ordering of interest under s 58

40 Section 58 of the Supreme Court Act 1986 provides:

58 Interest to be allowed when debts or sums certain recovered

(1) If in a proceeding a debt or sum certain is recovered, the Court must on application, unless good cause is shown to the contrary, allow interest to the creditor on the debt or sum at a rate not exceeding the rate for the time being fixed under section 2 of the Penalty Interest Rates Act 1983 ... from the time when the debt or sum was payable (if payable by virtue of some written instrument and at a date or time certain) or, if payable otherwise, then from the time when demand of payment was made.

(3) A debt or sum payable or a date or time is to be taken to be certain if it has become certain.

41 In Carbone v Melton City Council, the Court of Appeal summarised the principles in the following way:

The statutory power to award interest has a twofold beneficial purpose. First, to compensate a party who has been obliged to take proceedings to recover a money sum and who in the meantime has been kept out of moneys which could otherwise have been used or upon which interest could have been earned. Secondly, to encourage the early resolution of litigation. In AJ Lucas Drilling Pty Ltd v McConnell Dowell Constructors (Aust) Pty Ltd, this Court stated that s 58 should not be given a narrow meaning and that its beneficial purpose should be given a broad application.[14]

42 It is not in dispute that s 58 is potentially available in relation to amounts owing under the PDSA but unpaid. Indeed, the TPC Group has paid penalty interest on some of the amounts that it had belatedly made to Castleway. The TPC Group's principal submissions focus on seeking to persuade the Court that there is good reason for not allowing interest under s 58. As will appear, I do not accept those submissions. Before coming to the individual components, I would observe that the purpose of the PDSA was to allow Castleway the benefit of profits made by the TPC Group, both during its currency and, in relation to introduced projects, at the time of their completion, even if this occurred after the termination of the PDSA.

43 It is true that the PDSA has been shown to be productive of disputation. No doubt it was written at a time when the well of goodwill was relatively deep, and the parties might have considered themselves as competent business people used to the vagaries, risks and imprecision of a property development undertaking and capable of arriving at a sensible and potentially agreeable outcome. In the heat of battle, the PDSA has revealed a number of infelicities of language and given rise to innumerable disputes. I do not regard the fact that the PDSA has been difficult to apply in some respects as tending against an award of penalty interest. The award of interest recognises the cost of money and provides an incentive, which should not be diluted, to avoid costly and protracted litigation.

44 In many ways, the TPC Group had the advantage of holding all of the information and having control over the course of development. The PDSA is relatively clear on when amounts are owing and an award of interest reinforces the importance of timely payment. To the extent that Castleway was held out of its money, penalty interest provides an important measure of compensation.

The payment of interest on conceded items (issue 3)

45 During the course of the litigation, the TPC Group conceded a number of items which resulted in an increase in the 2017 service fee.[15]

46 It may be accepted that by making these concessions, the TPC Group narrowed the issues at trial, but in doing so the TPC Group also accepts that it should have paid this amount when it fell due. In my view penalty interest at a rate of 10 per cent is payable on these items from 19 September 2019, being 30 days after Castleway issued invoice 1901A which covered these items.

47 As a result of the Court's determination, the termination adjustment of the 2017 service fee was found to have been understated in a number of respects, most significantly in relation to Rokeby Street.

48 The TPC Group submits that in respect of these amounts there is good reason not to apply s 58.

49 The TPC Group submits that the termination adjustment in relation to introduced projects is in effect an interim payment and the entitlement should await the final determination of the commission. It submits that this is compounded by the fact that it later overpaid commission in respect of some introduced projects and that an award of penalty interest would overcompensate Castleway.

50 It says that an award of penalty interest would be punitive and at odds with the structure of the PDSA which allows for audits leading to adjustments that would not attract penalty interest.

51 Castleway seeks penalty interest at 10 per cent, payable from 30 April 2018, the date from which the TPC Group should have procured that the nominated accountant reported the termination adjustment.

52 In my view, an award of penalty interest at 10 per cent is appropriate. Although there is an interplay between a termination adjustment and commission, the former is not merely a payment on account of the latter. The PDSA provides for two distinct payments and it is plainly contemplated that Castleway should enjoy the benefit of the termination adjustment at the time of termination. As already noted, the making of timely payments is an important feature of the PDSA. The entitlement to commission is contingent on completion and settlement and the scale of the payment will depend the income in the relevant year.

53 Interest is payable from the date of the relevant invoice until payment.

54 Commission is payable in accordance with cl 4.5 of the PDSA. For some projects, namely those introduced projects held on capital account, the unrealised gain or loss will already have been factored into the final service fee by means of a termination adjustment. For other introduced projects the first payment (not including any revenue booked by way of income and paid as a complement of a service fee) will be by way of a commission following 'completion' and settlement of the project.

55 Clause 4.5 of the PDSA imposes an obligation to pay commission for the project following the latter of settlement and calculation of accounting costs.[16] Neither party contended that a payment under cl 4.5(c) was in effect an advance payment of commission that would be reconciled once the final accounts were done, as contemplated by cl 4.5(d). Rather, each accepted that commission was due 30 days after settlement or finalisation of accounting costs for the project (rather than accounting costs for the year).

56 In the case of Rokeby Street, settlement occurred after the calculation of accounting costs and commission became payable 30 days after settlement. The calculation of commission is to be in accordance with what is set out above. It follows that, in respect of Rokeby Street, an amount reflecting the termination adjustment was payable from the date of invoice in 2019 and an amount payable in respect of commission from the date of settlement. In my view, each payment is subject to penalty interest at a rate of 10 per cent from the date on which the amount was payable until it was paid.

57 In relation to the other projects, the finalisation of accounts was after settlement.

58 At the trial in October 2022, the TPC Group adduced evidence from Mr Skinner that the accounts were finalised within 30 days after the end of the financial year. However, at the resumed hearing on 28 August 2023, Ms Shearyn Lai, the CFO for the TPC Group, gave evidence about the timing of which the TPC Group calculates the relevant accounting costs for individual projects. Her evidence was that she prepared a costs of sales schedule for each project within 30 days of settlement and provided these to the external accountants Grant Thornton. Final accounts and tax returns were prepared. The TPC Group contends that for the purposes of cl 4.5, 30 days after accounting costs means 30 days after the preparation of accounts by the external accountants.

59 In cross examination, Ms Lai accepted that the costs were calculated within 30 days of settlement of the project.

60 The TPC Group contends that interest is payable 30 days after finalisation of the accounts by the external accountant. The dates are set out in the sixth column to Annexure D (Option 1) to the TPC Group's submissions dated 16 May 2023.

61 Castleway contends that the accounts were finalised within a month after settlement and this is the date on which the obligation to pay commission should be assessed.

62 Having regard to Ms Lai's evidence, she prepared a schedule of the costs of each project within a month after settlement. At that point the gain or loss was capable of being known and could be calculated. It is appropriate to order interest from 60 days after settlement. This accommodates both the preparation of the accounts and the 30‑day period after finalisation of accounts. To be clear, penalty interest at a rate of 10 per cent is payable on the commission payable in respect of each project from that date.

63 Where a project is reflected in the termination adjustment and commission, there will be no double payment. The first aspect will be payable as a termination adjustment and the second as commission. For the purposes of undertaking the respective obligations, it is not helpful to treat the termination payment as a pre-payment of commission. In this respect it is notable that not all projects were the subject of a termination adjustment (only those on capital account) and Castleway was entitled to a termination adjustment on some projects that were not introduced projects and which were not subject to a commission. Further, the calculation of the amount owing for a termination adjustment and commission depends on the applicable rate in sch 2, which depends on the overall income for the relevant year. Given that the two payments (termination adjustment and commission) for the same project were likely to be in different years, they may be calculated on the basis of different rates. This reinforces the different nature of the payments.

64 The TPC Group also seeks a negative adjustment to the calculation of commission to deal with introduced projects in respect of which the termination adjustment will have been overpaid relative to Castleway's ultimate commission entitlement. As I understand its submissions, Castleway does not accept that the termination adjustment was 'overpaid' merely because the relevant property realised less than its value assessed at the termination date, and says that if the termination adjustment exceeds the net sale price, it is appropriate to apply a negative adjustment from the date of settlement of the project.

65 In my view, it is appropriate to keep the amounts owing on termination adjustment for the 2017 year and the amounts owing as commission separate for the purpose of claiming interest. The entitlement to a termination adjustment is not provisional but complete, and where there has been a failure to pay the amount on time, interest should be awarded. In relation to any overpayment for commission (which will only become owing on settlement), in my view Castleway should pay interest on the amount overpaid to it from that date. The process of reconciliation should not be used to rewrite the amount owing as a termination adjustment. Castleway were entitled to be paid and to enjoy the benefit of the money from when the final service fee became due. At final settlement of the project, the amount owing by commission is to be calculated and the amount paid by way of service fee taken into account. In the event that the former payment exceeds the latter, Castleway is obliged to repay the difference and in the event it delays in doing so, it is liable to pay interest on the amount.

66 It appears that the TPC Group made a payment on account of commission on 9 August 2022 in respect of a number of introduced projects, including Rokeby Street. That calculation proceeded on an erroneous basis that led it to overpay commission. On the other hand, as explained in the Reasons, it underpaid the termination adjustment.

67 Castleway submits that it should be a restitutionary interest of 3.9 per cent. I do not agree that this would fairly compensate the TPC Group for the amount it is entitled to be paid in the event that the amount referable to the termination adjustment was greater than the final commission. In all the circumstances, including that Castleway is to be awarded interest at penalty rates in relation to late payments owing to it, the fairest way to proceed is to apply the contractual rate of interest found in the PDSA to any overpayment.

68 I will direct the parties to submit a minute of orders and hear the parties on costs.

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] Adaz Nominees Pty Ltd v Castleway Pty Ltd [2023] VSC 129 ('Reasons'). A second set of reasons were published on 28 April 2023 dealing with an issue omitted from the Reasons: Adaz Nominees Pty Ltd v Castleway Pty Ltd (No 2) [2023] VSC 224.

[2] Numbered 1 to 8 and including issue 6A.

[3] Adaz Nominees Pty Ltd v Castleway Pty Ltd [2020] VSCA 201, [195] (Whelan JA and Riordan AJA).

[4] Re Adaz Nominees Pty Ltd (No 2) [2017] VSC 578, [112]-[113] (Robson J); Adaz Nominees Pty Ltd v Castleway Pty Ltd [2020] VSCA 201, [170] (Whelan JA and Riordan AJA), [254] (McLeish JA).

[5] Re Adaz Nominees Pty Ltd (No 6) [2019] VSC 14, [45].

[6] Rokeby Street, Bowen Hills, Officer, Brew Road, Garfield, Church and Pacific Highway Valla.

[7] Hillside, Lots 13 and 22 Ellis Beach and Hallam South Road.

[9] The component of the service fee payable in 2017 based on the unrealised capital gain in Rokeby Street was derived from an unrealised gain of $4,192,294.85. Applying the table in sch 2, that resulted in a payment of 40 per cent, being $1,672,323.74.

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

[14] [2020] VSCA 117; (2020) 60 VR 539, 549 [44] (Tate and Kyrou JJA); [2020] VSCA 117 (citations omitted).

[15] Issues 2.3.2.2, 2.3.3 and 2.3.4 of the Updated List of Questions dated 29 November 2023.