Plaintiffs v CASTLEWAY PTY LTD

1 I will refer to the plaintiff companies collectively as 'the TPC Group'. Mrs Rado controls the TPC Group. There are two defendants: Mr Keeghan; and his company, Castleway Pty Ltd. For convenience, I will refer to the defendants as 'Castleway', unless it is necessary to identify Mr Keeghan personally. On 7 December 2010, the TPC Group, Castleway Pty Ltd, and Mr Keeghan entered into the Property Development and Services Agreement ('PDSA'). The dispute between the parties relates to Castleway's entitlements under the PDSA.

2 In substance, under the PDSA Castleway was to provide to the TPC Group property-development services in relation to the TPC Group's business of property acquisition and development. In exchange, Castleway was to receive a 'Service Fee,' which would be a share of the TPC Group's profit or loss. The PDSA defined the 'TPC Group Profit' and the 'TPC Group Loss' to mean the 'net profit or loss' of the TPC Group, calculated in accordance with the PDSA.

3 Before the matter came on for hearing before me on 21 August 2017, the parties had agreed to divide the trial between two hearings: one on liability, and the other on quantum. On 19 July 2017, Castleway filed a second further amended defence and counterclaim ('SFADCC').[1] The amendments included a defence and counterclaim relating to an amount of $20 million that the TPC Group donated to the Rado Family Foundation ('$20-million donation'). Castleway alleged, inter alia, that the TPC Group made the donation improperly. Castleway alleged that the donation involved an unlawful conspiracy between Mrs Rado and Mr Lee. Mr Lee, an accountant, is a member of the TPC Group's board and a financial adviser to Mrs Rado. The alleged conspiracy was, in effect, to damage Castleway by reducing its entitlement under the PDSA by $8 million (ie 40 per cent of $20 million).

4 At a subsequent directions hearing before Almond J on 28 July 2018, the parties agreed that the issues relating to the plea concerning the $20-million donation should not be heard at the hearing before me. I understand that the parties agreed to that course to ensure that Almond J listed the matter before me rather than at a later date when all issues could be heard.

5 Accordingly, when the matter came on before me on 21 August 2017, the parties informed me that I was not to hear the issues relating to the $20-million donation. However, during the hearing before me, issues arose as to whether or not Castleway could challenge the credit of Mrs Rado and Mr Lee. As their credit also arose on the matter of the $20-million donation, I ruled that it would not be appropriate to allow a witness's credit to be challenged twice (ie once in the hearing then before me, and subsequently in the hearing about the $20-million donation). Accordingly, I ordered that the Court should hear the issues about the $20-million donation at the same time as the issues on liability.[2]

6 On 5 October 2017, I delivered a judgment that resolved most of the liability issues in the proceeding, including the issues relating to the $20-million donation (the 'October Reasons').[3] The parties had indicated to the Court that it might be possible for them to resolve any outstanding liability and quantum issues if I resolved certain issues relating to the construction of the PDSA and to liability. The October Reasons set out the background facts and details of the dispute.

7 Regrettably, after my October Reasons, the parties were not able to resolve the issues between them relating to Castleway's entitlements under the PDSA. The parties continued to disagree on several accounting and other issues. These disputed issues affected the calculation of the net profit of the TPC Group for several financial years.

8 On 11 December 2017, I delivered a further judgment, where I identified several outstanding issues in relation to which the Court could benefit from the assistance of a special referee.[4] On 11 December 2017, I ordered that certain questions be referred to Mr Greg Meredith, of Ferrier Hodgson.

9 Mr Meredith delivered a report dated 27 April 2018 ('special referee's report').[5] The parties now seek final orders in the proceedings. The orders which they seek address, amongst other matters, Castleway's entitlements, interest, and costs.

10 After the special referee delivered his report, I directed the parties each to file a list of issues that they considered the Court was yet to resolve. Ultimately, however, the dispute boiled down to the parties' competing drafts of proposed orders.

11 As is evident in the TPC Group's proposed orders, the TPC Group contends that the Court should adopt the special referee's report. The TPC Group then proposes that I make a declaration as to the amounts payable in Service Fees to Castleway.[6]

12 Under the TPC Group's proposed orders, I would not enter judgment for amounts payable. Rather, the parties would observe the process described in cl 3 of the PDSA. Under cl 3, Castleway, as the Manager, would render an invoice to the TPC Group representative (Mrs Rado) for the amount that the Court has declared to be owing to Castleway. The TPC Group would then pay the invoice in accordance with cl 3.

13 In its proposed orders, Castleway seeks orders that reject some of the findings of the special referee and seeks judgment on its counterclaim for the TPC Group to pay $14,105,038.66 (inclusive of GST). Castleway submits that this amount represents the full amount of the outstanding Service Fees payable under the PDSA in respect of the 2013-14, 2014-15, and 2015-16 financial years. The proposed order then sets out an amount for each year and the method of calculation. Castleway also seeks certain declarations and costs, which claims I will deal with below.

14 In addressing the aspects of the special referee's report, I will adopt the headings that Castleway uses in its written submissions.[7] In addressing the special referee's findings, I accept that I must have regard to the following principles.

15 Under r 50.04 of the Supreme Court (General Civil Procedure) Rules 2015:

The Court may as the interests of justice require adopt the report of a special referee or decline to adopt the report in whole or in part, and make such order or give such judgment as it thinks fit.

16 There are certain relevant factors that I must take into account in the exercise of this discretion. The Court of Appeal summarised these factors in Wenco Industrial Pty Ltd v W W Industries Pty Ltd:[8]

The approach to be taken in considering whether to adopt the report of a referee has been the subject of extensive consideration by courts in different jurisdictions. Although the underlying rules are not always the same, the following propositions can be extracted from the cases. They provide a general guide as to how the question of the adoption of a referee's report should be approached:

(a) First, in exercising the power conferred by r 50.04 to adopt the report of a special referee, the court has a wide power which is to be exercised 'as the interests of justice require'. This broad mandate should not be the subject of restrictions laid down in advance of judges exercising it. Subject to what follows, it is undesirable to attempt closely to confine the manner in which the discretion is to be exercised.

(b) Secondly, the purpose of rr 50.01 and 50.04 is to provide, where the interests of justice so require, a form of partial resolution of disputes alternative to orthodox litigation. Further, that purpose would be frustrated if the reference were to be treated as 'some kind of warm-up for the real contest'.

(c) Thirdly, in so far as the subject matter of dissatisfaction with a report is a question of law, or the application of legal standards to established facts, a proper exercise of discretion requires the judge to consider and determine that matter afresh.

(d) Fourthly, where a report shows a thorough, analytical and scientific approach to the assessment of the subject matter of the reference, the court would have a disposition towards acceptance of the report, for to do otherwise would be to negate both the purpose and the facility of referring complex technical issues to independent experts for inquiry and report.

(e) Fifthly, if the referee's report reveals some error of principle, absence or excess of jurisdiction, patent misapprehension of the evidence or perversity or manifest unreasonableness in fact-finding, that would ordinarily be a reason for rejection. In this context, patent misapprehension of the evidence refers to a lack of understanding of the evidence as distinct from the according to particular aspects of it different weight; and perversity or manifest unreasonableness mean a conclusion that no reasonable tribunal of fact could have reached. The test denoted by these phrases is more stringent than 'unsafe and unsatisfactory'.

(f) Sixthly, generally, the referee's findings of fact should not be re-agitated in the court. The court will not reconsider disputed questions of fact where there is factual material sufficient to entitle the referee to reach the conclusions he or she did, particularly where the disputed questions are in a technical area in which the referee enjoys an appropriate expertise. Thus, the court will not ordinarily interfere with findings of fact by a referee where the referee has based his or her findings upon a choice between conflicting evidence.

(g) Seventhly, the purpose of r 50.01 and r 50.04 would be frustrated if the court were required to reconsider disputed questions of fact in circumstances where it is conceded that there was material on which the conclusions could be based.

(h) Eighthly, the court is entitled to consider the futility and cost of re-litigating an issue determined by the referee where the parties have had ample opportunity to place before the referee such evidence and submissions as they desire.

(i) Ninthly, even if it were shown that the court might have reached a different conclusion in some respect from that of the referee, it would not ordinarily be (in the absence of any of the matters referred to in subpara (e) above) a proper exercise of the discretion conferred by r 50.04 to allow matters agitated before the referee to be re-explored so as to lead to qualification or rejection of the report.

17 I accept the special referee's report, save as discussed below. I now turn to the issues to be resolved.

B1 Accounting and legal expenses incurred in connection with this proceeding

18 The special referee found that both the legal expenses and accounting expenses relating to the commencement and conduct of this proceeding constitute Normal Business Expenses for the purposes of the PDSA.[9] The special referee said in respect of the legal fees:[10]

However, I recognise that, in the context of legal proceedings the parties' costs are:

(a) Often considered separately; and

(b) Are the subject of further determination by the judge as to which party should bear the costs of the proceedings, and in what amounts.

Therefore, whilst my view is that the legal expenses constitute Normal Business Expenses, the Court may have a preference to make an adjustment for those legal expenses relating to this proceeding that affect the calculation of the Service Fee.

19 The special referee made a similar comment in respect of the accounting fees.[11]

20 In my opinion, the dispute between Mrs Rado and Mr Keeghan (putting aside the various companies) is essentially about how the profits of the business conducted by the TPC Group should be shared between Mr Keeghan and Mrs Rado. Mr Keeghan submits that certain expenses should not be included in the calculation of the profit and that the proceeds of certain transactions should be included in the calculation of the profit. Mrs Rado takes the opposite view.

21 Mrs Rado incurred legal and accounting fees in connection with this proceeding. Mr Keeghan says that it would be unfair for those to be taken into account in calculating the TPC Group's profit. He says it would be unfair for him to have to bear all his own legal and accounting expenses incurred in this dispute (no doubt running into hundreds of thousands of dollars), as well as having his share in the TPC Group's profit reduced on account of Mrs Rado's accounting and legal expenses. In effect, Mr Keeghan would bear the cost of 40 per cent of her legal and accounting costs incurred in this dispute.

22 Castleway also submits that any construction of the PDSA which would allow the TPC Group's legal and accounting costs of the proceeding to reduce Castleway's Service Fees 'has little to commend it on the grounds of commercial efficacy or common sense.' Castleway submits that the lack of commerciality points against its being the correct construction.[12]

23 Castleway submits that interpreting the PDSA in the manner adopted by the special referee would give rise to a bizarre situation. Castleway would be required to bear 40 per cent of the TPC Group's accounting and legal costs, irrespective of whether:

(a) the TPC Group was successful or not (which, on most issues in this case, including all the critical issues, it was not);

(b) the contentions of the TPC Group advanced had any merit; or

(c) the costs of the TPC Group decided to spend in connection with the proceeding were reasonable or justified.

24 Castleway refers to the High Court judgment in The Herald and Weekly Times Ltd v Federal Commissioner of Taxation.[13] There the High Court held that the compensation and legal costs paid by a newspaper publication in defending defamation claims were part of the costs of publication.

25 The Commissioner of Taxation had disallowed the expense as an allowable deduction. The taxpayer appealed to the Supreme Court of Victoria where Mann J dismissed the appeal. On appeal to the High Court of Australia, Gavan Duffy CJ and Dixon J said that:[14]

The question whether money is expended in and for the production of assessable income cannot be determined by considering only the immediate reason for making a payment and ignoring the purpose with which the liability was incurred.

The money was spent to answer the claims, and whether it was expended wholly and exclusively for the production of income, must depend upon the manner in which the claims were incurred. When it appears that the inclusion in the newspaper of matter alleged by claimants to be defamatory is a regular and almost unavoidable incident of publishing it, so that the claims directly flow from acts done for no other purpose than earning revenue, acts forming the essence of the business, no valid reason remains for denying that the money was wholly and exclusively expended for the production of assessable income.

27 McTiernan J also held that the purpose of the expenditure is a critical issue in determining whether it had been incurred in producing income. His Honour said:[16]

It should, I think, have been concluded upon the finding that the expenditure was an unavoidable consequence of carrying on the business of printing and publishing the appellant's newspaper that the money in question was wholly and exclusively laid out or expended by the appellant to get its income. Indeed it would follow from his Honor's finding that the only condition that could have freed the appellant from the expenditure in question was that it ceased to carry on the business of printing and publishing a newspaper. The money, it is true, was paid out after publication. But the publication of printed matter was at once the act which produced the income and generated the liability which the moneys were expended to discharge. The amount of the liability was not fixed until after publication, but it was part of the true cost of publication. It was wholly and exclusively expended to print and publish the newspaper. This was the operation by which the Company produced its income.

28 Drawing upon these authorities, I recognise that the purpose of the expenditure is a relevant consideration. In this case, the expenditure was not incurred for the production of income of the business of the TPC Group, but rather for the purpose of resolving disputes as to the division of the income of the TPC Group between it and Castleway.

29 I do not consider the legal and accounting expenses incurred by Mrs Rado's companies, effectively on her behalf, in disputing the allocation of the profits of the business, to be a Normal Business Expense incurred in earning the profit of the business. I say this in full light of the expertise of the special referee, and of the principles laid down in Wenco v W W Industries.[17]

30 Castleway managed the relevant property-development business, and the TPC Group made contributions to its pool of property assets. The properties had several owners. The PDSA, however, treated the business as a single entity that generated a single profit or loss. When one has regard to the circumstances in which Mrs Rado and the TPC Group incurred their legal and accounting expenses, one sees that the purpose was not to generate income for the business. It may have generated income for the various owners of the assets constituting the business, but that would come about by shifting the burden, in part, of the accounting and legal expenses incurred by the TPC Group in these proceedings to Castleway through the different calculation of shares in profit. The TPC Group may well have incurred the legal and accounting expenses in the course of earning income for the TPC Group. But the TPC Group did not incur those expenses in earning income of the business the subject of the PDSA.

31 Of course, the calculation of a business' profit incurs accounting expenses. These are expenses incurred in the ordinary course of business, because they provide necessary information to manage the business.

32 But these accounting and legal expenses are those which relate to the litigation and which the TPC Groups seeks to have deducted from the business profit. In my opinion, these expenses fall into a different category entirely. They relate solely to a dispute between the persons entitled to share in the profit. The dispute between those persons is over how they should share the profit, not how they should make the profit.

33 In my opinion, a reasonable businessperson would not seek to treat the legal and accounting costs incurred by one joint-venture partner - in a dispute over the division of the profits of the joint venture - as an expense of the joint venture.

34 In my opinion, the finding made by the special referee on this issue was not a finding of fact. In my opinion, the special referee erred in failing to acknowledge the clear distinction between an expense incurred in relation to the division of the profit between joint venturers as opposed to an expense incurred in earning the profit of the joint venture.

35 In my opinion, the interests of justice require that the Court not take into account the legal and accounting expenses incurred by the TPC Group in these proceedings, in calculating the profit of the business. To do otherwise would impose a grave injustice on Castleway and Mr Keeghan. Accordingly, I do not adopt that aspect of the special referee's report.

B2 Negotiating proposed variations to the PDSA

36 Between about May 2013 and September 2014, the parties were involved in negotiations to amend the terms of the PDSA and extend the PDSA's operation for a further year, as a potential resolution of the disputes between them. This resulted in a mediation conference before the Honourable Ray Finkelstein QC and continuing negotiations involving extensive exchanges of proposed drafts of amendments to the PDSA. Ultimately the parties did not agree upon the proposed variations.

37 The TPC Group has included the legal and accounting expenses it incurred when conducting these negotiations in the profit of the business for the purposes of the PDSA. By including those expenses, the TPC Group reduces Castleway's Service Fee entitlement. In contrast, the expenses which Castleway incurred in conducting these negotiations were borne by Castleway as its own personal expenses.

38 Castleway submits that on the proper construction of the PDSA, these expenses of the TPC Group should not operate to reduce Castleway's Service Fee. Castleway submits that cl 10.1 of the PDSA requires that '[e]ach party must bear its own costs arising out of the negotiation, preparation and execution of this Agreement.' Clause 10.6 requires 'That a variation of a term of this Agreement must be in writing and executed by the parties.' Clause 1.1 further provides that 'Agreement means the agreement and any variation made to it.'

39 Castleway submits that since a variation of, or amendment to, the PDSA constitutes part of 'this Agreement' for the purpose of cl 10.1, then on a proper construction of the PDSA each party is required to bear its own costs arising out of any variation to its terms.

40 Castleway submits that the phrase 'arising out of' used in cl 10.1 - which is to be construed broadly and with commercial common sense - also supports the conclusion that each party is to bear its own costs associated with seeking to vary the PDSA's terms, whether the proposed variations are concluded or not. Castleway refers to Government Insurance Office (NSW) v RJ Green & Lloyd Pty Ltd,[18] where the High Court held that the phrase 'arising out of' had a wider compass than the phrase 'caused by'.

41 Castleway submits that it would be commercially nonsensical if the parties were required to each bear the costs of successfully negotiating a variation to the PDSA, whereas, in the case of unsuccessful negotiations over proposed variations to the PDSA, the TPC Group could use its costs to reduce the Service Fee payable to Castleway.

42 Castleway says that, in addition, there would appear to be no restriction on the costs that the TPC Group could incur and throw onto Castleway in this manner. Meanwhile, Castleway would be obliged to bear its own costs of the negotiations.

43 Castleway submits that the resolution of this issue depends upon the proper construction of the PDSA. The Court has properly reserved that task for itself, as a matter of legal construction of the PDSA, rather than as an accounting issue for the special referee to determine.

44 In my opinion, the special referee's analysis in his report indicates that he impermissibly adopted the task of interpreting the PDSA. In relation to this issue, he based his conclusion on an overly broad interpretation of the phrase 'Normal Business Expenses.' In my opinion, his interpretation was inconsistent with the Court's findings in the October Reasons.

45 The special referee held that, in his view, legal expenses provided in the course of negotiating the PDSA constitute Normal Business Expenses.

In relation to the Defendants' assertion that the legal expenses 'had no nexus, or connection, with the operation of the TPC Group's business' and 'cannot be correlated with the TPC Group's income for the 2014 or 2015 financial years', in my view, as the PDSA related to the provision of property procurement, development and management services the PDSA had a clear connection with the operation of the TPC Group's business and the earning of income for the TPC Group. Accordingly, expenses associated with the negotiation of that agreement also had a connection and correlation to the operation and income of the TPC Group. These expenses are therefore Normal Business Expenses.

47 The special referee accepted the TPC Group's assertion that the PDSA does not expressly exclude these amounts under cl 10.1 of the PDSA.

48 Castleway submits, however, that the issue was a matter of legal construction. Castleway submits that the expenses were incurred in negotiating an amendment to the PDSA, and that the PDSA defined the Agreement to mean 'this agreement or any variations made to it.' Under cl 10.1 each party was to bear its own costs arising out of the negotiation of 'this Agreement', which included any variations made to it.

49 I accept that to resolve the issue, the Court must determine the proper construction of the PDSA. As I stated in my reasons in Re Adaz (No 4), '[a]ny argument that an expense should be excluded by reason of an express provision of the PDSA will be dealt with by the Court.'[20]

50 In my view, cl 10.1 applies whether or not the negotiation led to an amendment of the PDSA. Negotiations that lead to no change in the PDSA are still costs arising out of the negotiation of the PDSA. Accordingly, I find that Court should not adopt the special referee's construction.

51 For these reasons, I do not accept the special referee's finding that the legal expenses incurred by the TPC Group in relation to the negotiation should be taken into account in calculating the profit to be shared under the PDSA.

B3 Directors' fees paid to Mr Lee in the 2014-15 and 2015-16 financial years

52 The fees paid to Mr Lee as a director of the TPC Group companies have been significantly increased in the 2014-15 and 2015-16 financial years. The special referee treated the increased fees as a Normal Business Expense which reduced the profit of the business under the PDSA. Castleway had submitted that the increases were excessive and unreasonable, and that they should not have been treated as an expense in calculating the net profit of the business.

53 Castleway refers to the evidence led at trial on Mr Lee's director's fees. The evidence established that on two occasions Mr Lee was granted substantial increases to his directors' fees. Mr Lee was granted these increases by arrangements made solely between himself and Mrs Rado, without any reference to Mr Keeghan, who was a director and the chief executive officer of the TPC Group, even though the increases would reduce the profit to be shared by Castleway.

54 No evidence was led to justify the increased directors' fees on the basis of any additional work or services that Mr Lee was providing, or expected to provide, as a director of the TPC Group. Nor was there any evidence put before the special referee to identify whether the extra fee related to services provided to Mrs Rado or the companies, and in what respects, so that the special referee could provide his opinion on whether any extra work related to service provided to the business the subject of the PDSA , or were provided to Mrs Rado and her family interests.

55 On or around 11 August 2015, Mr Lee's directors' fees were increased from $140,000 to $170,000 (plus GST) per annum, as a lump sum, with the increase backdated to 1 July 2014. On Mr Lee's evidence, the reason for this increase was 'the increased level of work and involvement I was required to put in.'[21]

56 Mr Lee agreed in cross-examination with the proposition put to him that 'the $170,000 figure was something [he] basically plucked out of the air.'[22] The minutes of the TPC Group's meeting on 11 August 2015 do not record any explanation being provided for that increase. The increase was not the subject of a vote by the TPC Group's directors.[23] Instead, it was agreed unilaterally between Mrs Rado and Mr Lee, but without reference to Mr Keeghan. No rational justification was ever provided for the backdated fees increase. Mr Lee was paid $170,000.27 in directors' fees for the 2014-15 financial year.

57 Mr Lee was subsequently paid the sum of $190,670.87 as directors' fees for the 2015-16 financial year, despite the fact that there was no evidence of any agreement between Mrs Rado and Mr Lee to further increase his directors' fees in that year.

58 Mr Lee's directors' fees were again increased on 13 December 2016 to $255,000 per annum (plus GST), by agreement between Mrs Rado and Mr Lee. This increase was backdated to 1 July 2016. Nobody had previously informed Mr Keeghan about the proposed increase.[24] Again, the reason that Mr Lee gave was a contention alleging Mr Lee's increased workload without further explanation.[25] Again, the proposal was presented to the TPC Group's board as a fait accompli.[26]

59 Under cross-examination, Mr Lee again accepted the proposition put to him 'that $255,000 is a figure that [he] broadly plucked from the air.'[27] No rational explanation has ever been provided to justify the increases in directors' fees. These fees have been treated as a business expense of the TPC Group, and reduced the Service Fee payable to Castleway.

60 In comparison, in the two years prior to his retirement from Grant Thornton, Mr Lee billed the following amounts in respect of his work for the TPC Group:

(a) in the 2012-13 financial year, 63 hours, which equated to approximately $35,000 in fees (based on a charge-out rate of approximately $550 per hour); and

(b) in the 2013-14 financial year, 159 hours, which equated to approximately $87,000 (based on a charge-out rate of approximately $550 per hour).

61 Mr Lee did not identify any changes to his responsibilities as a director of the TPC Group that might justify such significant increases in his fees.[28] He did assert that implementing Mrs Rado's asset realisation plan was part of the explanation,[29] particularly in the case of the increase of December 2016.[30] However, he did not identify which aspect of his services as a director in assisting Mrs Rado to implement the plan justified the significant increases. Nor did he explain why any advice or assistance he gave to Mrs Rado in relation to the plan could justify such an increase.

62 Nor did Mr Lee provide any record of his work for the TPC Group or Mrs Rado, as a director. For example, Mr Lee did not charge separately for the work he performed to set up, chair, and administer the Rado Family Foundation's activities. He acknowledged in cross-examination that this was because he was on a 'fixed retainer' and did not record the time spent on different activities.[31]

63 Castleway submits that Mr Lee's directors' fees were simply 'ad hoc' fees, determined between him and Mrs Rado. According to Castleway, they were determined without any reference to Mr Keeghan, the TPC Group's chief executive officer. Castleway submits that the fees bear no relationship to the actual services that Mr Lee provided as a director of the TPC Group. Furthermore, there was no evidence that the board appointed Mr Lee as an executive director with powers of management, as distinct from his board duties.

64 Castleway submits that it is also apparent that Mr Lee did not provide these services as part of the TPC Group's business activities, nor in the interest of those activities, nor as part of Mr Lee's board duties. Castleway submits that Mr Lee instead performed his services in his capacity as a personal advisor and mentor to Mrs Rado and her family.

65 Castleway submits that this is quite likely the result of the non-arm's-length relationship between Mr Lee and Mrs Rado, given Mr Lee's extensive involvement with Mrs Rado as her advisor of 20 years.

66 Castleway submits that their relationship is an indication that Mr Lee's directors' fees are a related-party transaction, which influences their proper accounting treatment. Castleway contends that Mr Lee should therefore be classified as a 'related party' under AASB124 Related Party Disclosures. This classification would render all payments to him 'related-party transactions.'

67 Castleway submits that if the special referee's finding were to stand, then it would allow parties in the position of Mrs Rado and Mr Lee to adopt any figure for Mr Lee's directors' fees. They could adopt a figure that bears no relationship to the services actually provided, driven by the ulterior motive of significantly reducing Castleway's Service Fee.

68 Castleway submits that Mr Lee's fees were invoiced to Adaz Nominees, were paid, and were impermissibly relied upon to reduce Castleway's Service Fee.[32] Castleway contends that no consideration was given to Castleway's interests, such that the TPC Group now seeks to impose upon it the burden of 40 per cent of Mr Lee's substantial fees. Accordingly, Castleway contends that these fees should not be regarded as forming part of the Normal Business Expenses which the TPC Group was entitled to be taken into consideration when calculating Castleway's Service Fees.

69 Castleway says that Mr Lee's original fee of $140,000 per annum is more than a reasonable remuneration for his work as a director of the TPC Group. Castleway does not object to the originally agreed base fee. Instead, it contends that any additional amounts for directors' fees, as unilaterally increased by the agreement between Mr Lee and Mrs Rado, cannot be utilised to reduce artificially the relevant Service Fees payable to Castleway.

70 Castleway concludes that on this basis, the Court should extract as an expense when calculating the TPC Group Profit:

(a) $30,000.27 for the 2014-15 financial year, being the amount by which Mr Lee's fees in the 2014-15 financial year exceed $140,000 (such that the relevant increase in the Service Fee, applying the 40-per-cent profit-band adjustment, is $13,200.12 (inclusive of GST)) which is reflected in Castleway's proposed order 1(b)(iv) at Annexure A to its submissions; and

(b) $50,670.83 for the 2015-16 financial year, being the amount by which Mr Lee's fees in the 2015-16 financial year exceed $140,000 (such that the relevant increase in the Service Fee, applying the 40-per-cent profit-band adjustment, is $22,295.17 (inclusive of GST)) which is reflected in Castleway's proposed order 1(c)(iv) at Annexure A to its submissions.

71 In substance, the TPC Group submits that the Court should accept the special referee's report and that there are no proper grounds for not accepting the report as to Mr Lee's directors' fees.

72 The TPC Group submits that the special referee's report determined questions of fact, not law. The TPC Group submits that question 1 referred to the special referee asked whether certain categories of expenses related to 'the TPC Group's normal business activities'. If those categories of expenses did so relate, then they could be taken into account in calculating TPC Group Profit for the purpose of calculating the Service Fee payable to Castleway for the 2013-14, 2014-15, and 2015-16 financial years. The TPC Group contends that the identification of the TPC group's 'normal course of business' was a factual matter.

73 The TPC Group submits that the special referee explained that 'Normal Business Expenses' were, in his view, those:[33]

(a) that a reasonable business person would take into account in calculating the TPC Group or a group similar to the TPC Group's profit or loss;

(b) that are commonly accepted as the type of expenses that would be incurred as part of operating a business in the property development industry; and

(c) that have a connection to the operation of the TPC Group's business or corporate structure.

74 However, in the TPC Group's submission, the special referee did not include expenditure of an entirely private or personal nature, nor expenses that were unconnected to the operation of the business or to the corporate structure of the TPC Group entities.

75 The TPC Group submits that there is no error of principle, absence or excess of jurisdiction, or patent misapprehension of the evidence in the special referee's formulation of this view.

76 The TPC Group submits that it is consistent with the finding at paragraph [73] of my October Reasons,[34] that '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,' for the purposes of calculating the Service Fee.

77 The special referee made findings as to whether or not particular categories of expense complained of by Castleway were normal business expenses. The TPC Group contends that his findings are:

(a) findings of fact, based on the evidence and submissions advanced by the parties before the special referee and the special referee's expert opinion, in turn based on his training and experience;[35] and

(b) consistent with the guidance given by the Court to the special referee as to kinds of expenditure that may be in the normal course of business, as in the case of Mr Lee's directors' fees[36] and expenses of winding up the TPC Group,[37] or not, as in the case of the donation to the Rado Family Foundation.[38]

The special referee's findings with respect to Mr Lee

In my view, Mr Lee's fees constitute Normal Business Expenses.

In relation to the Defendants' assertion that:

(a) Mr Lee 'took no active role in the TPC Group's day-to-day business affairs', I observe that:

(i) A board directors' responsibilities do not pertain to the day-to-day management of a business; and

(ii) Based on my review of the board minutes Mr Lee attended and contributed to the board meetings;

(b) 'implementing Mrs Rado's asset realisation plan was part of the explanation [for Mr Lee's increase in director's fees]', I accept the Plaintiffs [sic] response that the 'decision to wind up the TPC Group was permissible within the framework of the PDSA and accordingly the expenses associated with it are to be considered to be incurred in the normal course of business'.

To the extent that Mr Lee's directors fees are attributable to:

(a) The set-up of Rado Family Foundation; or

(b) Any other work for Mrs Rado in a personal capacity;

in my view, they would not be characterised as Normal Business Expenses.

However, in relation to Mr Lee's director fees attributable to:

(a) The set-up of Rado Family Foundation, I observe that:

(i) The Rado Family Foundation was registered on 2 July 2017;

(ii) The Plaintiffs submitted at the Conference that work on setting up the Rado Family Foundation commenced around October 2016, therefore, it is unlikely that any of Mr Lee's directors' fees for FY14-FY16 were attributable to the set-up of the Rado Family Foundation; and

(b) Any other work for Mrs Rado in a personal capacity:

(i) The Defendants do not make any submissions in this respect (other than in relation to the implementation of Mrs Rado's asset realisation plan, discussed above); and

(ii) I have not been provided with sufficient information to determine whether any (and, if applicable, to what extent) such work has been performed.

79 It is apparent from the special referee's reasons, that the special referee did not squarely address the increases in Mr Lee's directors' fees. It is also apparent that the special referee was of the view that he had not been provided with sufficient information to determine the extent to which Mr Lee's fees may have related to providing other work for Mrs Rado in her personal capacity.

80 There are several disquieting aspects to the increase in Mr Lee's directors' fees. First and foremost, they were made without any reference to the managing director of the TPC Group. There is no suggestion that Mr Keeghan identified any deficiency in the service provided by the directors in conducting the business the subject of the PDSA that may have required or justified extra work from Mr Lee.

81 Secondly, it was Mrs Rado alone who decided to increase the fee. She made the decision without Mr Keeghan's consent, even though Castleway may have had to bear 40 per cent of the increase.

82 It is apparent, however, that the special referee did not make a decision on whether the increases in Mr Lee's fees were warranted or not. He expressly said that he did not have enough information to make that decision.

83 There was no evidence that Mr Lee's board duties increased, nor that he was at any stage appointed an executive director to undertake executive activities. His duties were limited to attending board meetings and undertaking any ancillary work that such attendances involved.

84 In this case, therefore, it is not a matter of the Court's acceptance or rejection of the special referee's findings about Mr Lee's directors' fees. The special referee made an initial statement that, in his view, Mr Lee's directors' fees constitute Normal Business Expenses. This statement, in the context of the whole report, merely means that in the normal course of business directors' fees as such are an expense properly taken into account when calculating the profit of the enterprise. The special referee also makes clear that, to the extent that the fees relate to work performed for Mrs Rado in her personal capacity, the fees are not a Normal Business Expense. Nor in my opinion would they constitute directors' fees.

85 In my view, it was incumbent on the TPC Group of companies to justify the fee increase in view of the fact that Mr Keeghan did not agree to them, nor receive any justification for them. Mr Lee gave evidence. I am not satisfied that he did justify the increase in his fees by reference to any board activity that he undertook. Mr Lee did not claim that the board authorised him to carry out any executive functions, nor did he say that he did in fact carry out any executive functions.

86 At all times, Mr Lee merely acted as a director of the board of directors without any executive powers. The task has fallen to me to determine whether the increase in the directors' fees paid to Mr Lee is a Normal Business Expense. I find that the increase has not been shown to be a Normal Business Expense incurred in the normal course of business by the business the subject of the PDSA. The increase should thus be excluded from the calculation of the net profit of the business.

87 In my opinion, the interests of justice require that the increases in directors' fees should not be taken into account when calculating the TPC Group Profit under the PDSA.

88 The disputed expense category labelled item A2 in the special referee's report concerned accounting expenses for 'Excluded Entities'.

89 Item 5 of sch 2 of the PDSA provides that the Excluded Entities are not part of the TPC Group. Accordingly, the Excluded Entities should not be included for the purpose of calculating the TPC Group Profit. There were 12 nominated Excluded Entities.

that for the purpose of calculating TPC Group Profit, the TPC Entities will include any entity established by the one or more TPC Group Entities after the date of his Agreement for which the Manager provides property development services under this Agreement.

91 I infer, therefore, that the parties agreed that the Manager was not providing any development services under the Agreement, to and for the Excluded Entities. Accordingly, as the parties agreed, the cost and expenses of maintaining and conducting those companies would not be taken into account in calculating the TPC Group Profit.

92 Expenses relating to the Excluded Entities had been included in the calculation of the TPC Group Profit as set out in the Jackson Report. The TPC Group accepted that the expenses had been included in calculating the TPC Group Profit, but that the inclusion was justified.

93 In Annexure A to the order referring questions to the special referee, the TPC Group submitted in relation to the expenses of the Excluded Entities:

For strategic, commercial and income tax purposes, planning was undertaken for the combined TPC Group entities and 'Excluded Entities'. Any outcomes generated in relation to the 'Excluded Entities' ultimately benefited the TPC Group entities. Determining an appropriate income tax outcome for the group, which resulted in the minimum level of income tax, provided the group with additional retained profits and cash, which were ultimately utilised as working capital within the business operations. In turn, this reduced the need for the group to rely on external funding, which would have brought with it interest charges and associated business risk. The accounting fees incurred in relation to 'Excluded Entities' were desirable or appropriate form the point of view of the pursuit of the business ends of the TPC Group being carried on, and there was an obvious commercial connection between these expenses and carrying on of the TPC Group's business.

Expenses are unrelated to the TPC Group's normal business activities, and therefore are not entitled to be taken into account when calculating Castleway's Service Fee.

Expenses of 'Excluded Entities' are also expressly excluded from the TPC Group Profit calculation by reason of Item 5 of Schedule 2 to the PDSA.

95 The special referee said that this item related to accounting fees. These accounting fees were expensed and paid for by SR Consolidated. The fees affect calculation of the TPC Group Profit for entities:[40]

(a) which Mr Keeghan had an interest in; and

(b) which are considered to be profit-recipient companies and funding trusts.

96 In relation to the entities in which Mr Keeghan had an interest, the special referee accepted that, if these expenses were charged in those entities, then Mr Keeghan would in substance bear 50 per cent of the expense. This would mean that it would be better for the expenses to be charged in the TPC Group, because his share would then be 40 per cent.

97 As to the entities that were considered to be profit-recipient companies and funding trusts, the special referee said:[41]

In my view, the accounting expenses incurred in respect of the profit recipient companies and funding trusts Excluded Entity types above are Normal Business Expenses as they appear to:

(a) Be a result of the corporate and funding structure of the TPC Group;

(b) Have been established for the purpose of tax planning activities, profit sharing and funding; and

(c) Not carry on a separate and distinct business to the TPC Group.

98 The special referee concluded that he accepted the TPC Group's assertion that '[a]ny outcomes generated in relation to the Excluded Entities ultimately benefited the TPC Group entities' due to the benefit of their existence from a tax and funding perspective. Thus he concluded no adjustment was required for item A2.

99 Castleway's objection to the acceptance of this finding is based on the ground that the PDSA expressly excludes from the calculation the TPC Group Profit expenses relating to the Excluded Entities. Castleway says that any argument based on a purported benefit to the TPC Group entities is irrelevant. What is decisive is the terms of the PDSA.

100 Castleway said that the TPC Group did not dispute the calculations that Castleway put forward, and that the Court should therefore make the adjustments. The proposed orders allow for these adjustments.[42] The TPC Group submits that the Court should not permit the reopening of these findings by the special referee.

101 I find that the issue raised by Castleway is solely a matter of construction of the PDSA. I accept Castleway's construction. The special referee ignored the construction issue and accordingly addressed an issue that he was not entitled to address.

102 I find that the adjustments that Castleway proposed should be made to the calculation of the TPC Group Profit.

B5 $82,000 allocated to Mrs Rado's loan account for the 2013-14 financial year

103 The special referee noted that according to the Hockley Report $82,000 for accounting fees paid to Grant Thornton had been incorrectly journaled to Mrs Rado's loan account rather than being expensed to the TPC Group.

104 The special referee said in his executive summary that:[43]

Whilst this matter is not directly responsive or relevant to the questions I have been instructed to consider, if the Court accepts that an adjustment should be made in respect of this item, the adjustment would consist of a deduction of $82,000 from the TPC Group Profit, based on the amount that was allocated to Mrs Rado's loan account, rather than being expensed.

105 Castleway submits that this issue was not referred to the special referee.[44] The TPC Group ask that the Court make this adjustment in order to ensure that the calculation of the Service Fee for the 2013-14 financial year is in accordance with the PDSA.

106 Castleway opposes the adjustment. Castleway submit that the matter was not referred to the special referee. Further, Castleway submits that there is no evidence before the Court to make that adjustment when calculating Castleway's Service Fee entitlement for the 2013-14 financial year. Castleway submits that there is no evidence before the Court that the TPC Group has taken any step to amend its income tax returns for the 2013-14 financial year on account of this alleged error.

107 Castleway submits that the proposed adjustment is therefore incompatible with the formula for calculating the TPC Group Profit prescribed at sch 2 of the PDSA. The formula takes as its starting point the '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',[45] subject to the Court's findings regarding expenses not incurred in the normal course of the TPC Group's business.[46] Castleway submits that the formula does not accommodate the $82,000, because there is no evidence that the 2014 tax returns for the TPC Group included the $82,000 as a deductible expense.

108 Further, Castleway submits that the $82,000 for Grant Thornton's fees journaled to Mrs Rado's loan account was presumably paid by the TPC Group and treated as a deductible expense of Mrs Rado, or one of her entities, to reduce her income tax liability. Accordingly, if the adjustment is made, Mrs Rado and the TPC Group would effectively receive a windfall benefit. Mrs Rado would retain the benefit of the tax deduction for the 2013-14 financial year, by the expense being allocated to her as a deductible expense, whilst the TPC Group will seek to treat the sum of $82,000 as a tax deduction to be adjusted against the Service Fee.

109 I am not satisfied, on the evidence before me, that the expense was incorrectly debited to Mrs Rado's loan account. Further, there is no evidence that Mrs Rado has amended her relevant tax return so that she no longer claims the accounting expense as a tax deduction. I accept that the starting point of the calculation of the TPC Group Profit is the income tax returns of the TPC Group companies.

110 Accordingly, in my opinion, there is no ground for amending the accounts of the TPC Group to treat the accounting fees as an expense to be taken into account in calculating the TPC Group Profit.

111 In my October Reasons, I ruled on whether or not certain projects were an 'Introduced Project' for the purpose of the PDSA. Mr Garratt submitted that it would be desirable for me not to make declarations as to which projects were or were not an 'Introduced Project' but rather give rulings on the proper construction of the definition of 'Introduced Project.' Mr Golvan submitted that it would reduce potential for further disputes if I made the declarations sought.

112 Clause 9.7 expressly provides for a party to seek a declaration to protect or preserve its rights under the PDSA. Further, the TPC Group sought a declaration as to whether or not certain projects were an Introduced Project under the PDSA in its claim.

113 Accordingly, I propose to make the declarations sought. I have already expressed my view on the proper construction of an 'Introduced Project' in the October Reasons.

114 I do not consider it necessary to revisit those reasons.

115 As mentioned, the TPC Group seeks a declaration as to the amount due for the Service Fee payable to Castleway under cl 3 of the PDSA for the 2013-14, 2014-15, and 2015-16 financial years. On the other hand, Castleway seeks judgment for the Service Fee payable under cl 3 of the PDSA for those financial years.

116 In its submissions, the TPC Group submits that Castleway is not entitled to interest. The TPC Group submits that the Court has found that Castleway is not entitled to payment of 'undisputed invoices' (or any other component) of the Service Fees for the 2013-14 to 2015-16 financial years until the Court has resolved Castleway's notices of dispute through the present proceeding. Castleway refers to the Court's reasons in Re Adaz (No 2).

117 The TPC Group contends that it will not incur a debt until the Court has made its final orders in the proceeding and Castleway has issued invoices that conform to those orders. The TPC Group submits that a liability to interest only arises after the correct amount of the disputed Service Fee is resolved, and after the nominated accountant has calculated the Service Fee for the year in question. The TPC Group submits that it is only after those steps are satisfied that Castleway is entitled to issue an invoice, which the TPC Group has 30 days to pay.

118 On the other hand, Castleway contends that it is entitled to interest under s 60 of the Supreme Court Act 1986 on the unpaid amounts of the Service Fees payable from the date at which the SFADCC was filed (19 July 2017). Castleway says that it was at this stage of the proceeding that it pleaded that in breach of the PDSA, the TPC Group had failed to pay Castleway the full amount of the Service fee to which it was entitled to under the PDSA and that by reason thereof, Castleway had suffered loss and damage.[47]

119 Clause 3 of the PDSA had been observed in part before the TPC Group commenced these proceedings on 30 October 2015. The TPC Group filed a statement of claim on 21 December 2015. The statement of claim sought declarations as to Introduced Projects, a declaration that Kawana Waters could be disposed of without Castleway or Mr Keeghan's consent, and a declaration about the calculation of the Service Fee under cl 3 of the PDSA.

120 Castleway filed a defence and counterclaim on 12 February 2016. In the counterclaim, Castleway sought an order for specific performance of the PDSA by procuring the nominated accountant to calculate the TPC Group Profit in the manner set out in sch 2 of the PDSA and report to the TPC Group and Castleway on the Service Fee payable in respect of the financial years in which the disputed expenses have been included as an expense.

121 Castleway also alleged that, on 15 December 2015, it had written to the President of Chartered Accountants in Australia (Victorian Division) requesting the appointment of an independent expert pursuant to cl 9 of the PDSA to determine the dispute between the TPC Group and Castleway regarding whether certain specified projects of the TPC Group were introduced projects for the purposes of the PDSA. Castleway pleaded that it was advised that the President would no longer appoint independent experts on or after 30 June 2015, and that accordingly none was appointed. Castleway pleaded that in the circumstances, the PDSA arrangements for appointing an independent expert to determine the extant disputes between Castleway and the TPC Group arising in connection with the PDSA have failed.

122 Castleway pleaded that the terms of the PDSA for appointing an independent expert to determine disputes were subsidiary and non-essential terms and that, accordingly, notwithstanding cl 9.4 of the PDSA, the Court was entitled to hear and determine disputes arising between Castleway and the TPC Group in connection with the PDSA.

123 Thus, at that stage, Castleway was seeking the specific performance of the PDSA but alleging that the Court could determine disputes in connection with the PDSA rather than follow the dispute procedure in the PDSA.

124 On 3 March 2016, the TPC Group filed an amended statement of claim with minor amendments.

Amended defence and counterclaim of 18 April 2016

125 On 18 April 2016, Castleway filed an amended defence and counterclaim. The amended defence raised a fresh issue that the costs of the litigation should not be treated as an expense in the calculation of the TPC Group Profit.

126 The amended defence and counterclaim also alleged that the TPC Group had failed to pay to Castleway the full amount of the Service Fee to which it was entitled under the PDSA. Castleway alleged that this failure constituted a breach of the PDSA. Castleway alleged that, by reason of the breach, it had suffered loss and damage. Castleway alleged that the loss and damage constituted the difference between the Service Fee, which it would have received had the disputed expenses not been taken into account when determining the TPC Group Profit, and the amount of the Service Fee paid by the TPC Group to Castleway. The relief sought now included a claim for damages representing the full amount of the Service Fee which Castleway was entitled to be paid under the PDSA, plus interest and costs.

Further amended statement of claim of 27 May 2016

127 On 27 May 2016, the TPC Group filed a further amended statement of claim. The further amended statement of claim added allegations concerning the construction of the PDSA in relation to assets subject and not subject to capital gains, and sought a declaration accordingly. This is the statement of claim which went to trial before me.

128 The TPC Group claimed declarations about: (1) Introduced Projects; (2) the construction of the PDSA and the disposition of the Kawana Waters land; (3) the calculation of the TPC Group Profit; and (4) the calculation of the Service Fee and capital gains and losses.

Further amended defence and counterclaim of 10 June 2016

129 In response, Castleway filed a further amended defence and counterclaim on 10 June 2016. The defence raised the issue of the payment of commission on introduced projects. The defence alleged that:

(a) costs incurred in preparing financial statements and tax returns for Mrs Rado and her family companies should not have been treated as an expense in calculating the Service Fee;

(b) the legal costs of the proceedings should not be included in calculating the Service Fee; and

(c) the costs of negotiating variations to the PDSA should not be included in calculating the Service Fee.

130 Castleway also alleged that allowance for carried forward capital losses should be taken into account when calculating the Service Fee. The defence also alleged that the only accountancy fees that should be taken into account were those incurred by the TPC Group in its normal business activities.

131 Under a further amendment, Castleway alleged that, in breach of the PDSA, the TPC Group had failed to pay Castleway the full amount of the Service Fee to which it was entitled under the PDSA.[48] Castleway pleaded loss and damage as before.

Reply and defence to further amended counterclaim of 17 June 2016

132 The plea of the TPC Group to the 10 June 2016 defence and counterclaim of Castleway is long and detailed. Importantly, the TPC Group alleged that, on 1 March 2016, the parties agreed that cl 9 of the PDSA did not deprive this Court of jurisdiction with respect to the disputes between the parties, which are the subject of this proceeding. The TPC Group said that, in light of this, it did not plead further to the allegations in paras [62]-[65], as they are not material. The particulars stated that the agreement was constituted by an email letter of the solicitors for the TPC Group dated 26 February 2016, and a responsive email of the solicitors for Castleway dated 1 March 2016.

133 Paragraphs [62]-[65] are the pleas referred to above,[49] and concern the Court's role in undertaking the dispute-resolution process referred to in paragraph 9 of the PDSA. If there is a dispute as to the calculation of the Service Fee under cl 3 of the PDSA, the dispute was to be dealt with under cl 9.

134 The TPC Group did not plead that Castleway was not entitled to seek damages for the non-payment of the Service Fee by reason that it had not followed the procedure specified in cl 3. In particular, the TPC Group did not plead that there was any barrier to the Court ordering damages for loss and damage as claimed.

Second further amended defence and counterclaim of 19 July 2017

135 As discussed above, Castleway amended its defence and counterclaim to respond to the attempted $20-million donation to the Rado Family Foundation.

136 As mentioned, the amendments to Castleway's defence included a claim that the TPC Group breached the PDSA by failing to pay Castleway the full amount of the Service Fee to which it was entitled under the PDSA. Castleway went on to claim that, by reason of the TPC Group's breaches of the PDSA, Castleway had suffered loss and damage. Castleway provided extensive particulars of the loss and damage in the schedule to its counterclaim.

Amended reply and amended defence to second further amended counterclaim of 31 July 2017

137 The TPC Group does not expressly plead to the damages claims, but says generally that it joins issue, save for the admissions contained in its pleadings.[50]

138 As the above pleadings discloses, Castleway sought declarations as to the proper calculation of the Profit of the TPC Group under the PDSA. Castleway also sought an order for a declaration that on the proper construction of the PDSA, Castleway was entitled to receive payment from the TPC Group of certain specified sums. Castleway sought an order that the TPC Group specifically perform the PDSA. Castleway sought a declaration that it was entitled to damages[51] as well as claiming damages. Castleway, however, did not seek judgment for a specified amount.

139 The PDSA recognised that either party could dispute the nominated accountant's calculation of the Service Fee. If Castleway wanted to argue that certain expenses should not have been taken into account in calculating the TPC Group Profit, then it could avail itself of cl 9. This clause contains a procedure for resolving such disputes, and cl 3 provides that Castleway may render an invoice 'after the Dispute is resolved in accordance with clause 9.' The TPC Group would then be bound to pay the invoice.

140 Under cl 9 of the PDSA, an independent expert was to be appointed to resolve any dispute about the calculation of the amount that the TPC Group would pay to Castleway. As discussed above, an independent expert could not be appointed under the PDSA as the person authorised to make the appointment would not do so. Accordingly, the parties accepted that they could no longer observe the dispute procedure in cl 9. As a consequence, the parties agreed that cl 9 did not deprive the Court of jurisdiction with respect to the disputes between the parties.

141 The TPC Group says, however, that there has been no agreement between the parties to amend the process by which it pays Castleway. According to the payment process set out in cl 3 of the PDSA, Castleway presents a compliant invoice to the TPC Group, and the TPC Group is obliged to pay the invoice within 30 days of its receipt. The TPC Group accepts that the Court may resolve the issue of what constitutes a compliant invoice by reason of the agreement between the parties.

142 Under cl 3(c) of the PDSA the Service Fee is to be paid annually in arrears on the basis, inter alia, that after the Service Fee is reported to the TPC Group and the Manager, either party has 10 days to give to the other party a 'dispute notice' in accordance with cl 9. If no-one gives a dispute notice, then the parties are deemed to have agreed on the Service Fee.

143 Under cl 9, if a dispute arose between any of the parties in connection with the PDSA, then the parties were obliged to comply with the relevant dispute-resolution procedures in cl 9 before initiating any action or proceeding.

144 Under the PDSA, there was no obligation on the TPC Group to pay the Service Fee for a particular financial year until the dispute about the quantum was resolved. As such, there was no debt owing or damages payable that could attract an award for interest until the issues as to the proper amount for which an invoice could be issued had been resolved. In my opinion, the fact that the parties agreed that the Court could resolve the dispute as to the amount that could be invoiced did not alter the fact that under the PDSA no obligation to pay could arise until after that dispute was resolved.

145 The PDSA accepted that either party could challenge the report issued by the nominated accountant on the calculation of the Net Profit of the TPC Group. Further, the PDSA permitted either party to seek declarations from the Court. Thus, the PDSA contemplated and addressed how the parties should manage disputes as to the calculation of the Service Fee and the construction of the PDSA.

146 In my opinion, the TPC Group was entitled to seek declarations as to the proper calculation of the Service Fee. The TPC Group did not breach the PDSA in doing so, even if the Court were to reject the TPC Group's contentions.

147 Similarly, Castleway was entitled to seek declarations, as it has, as to the amount that it was properly entitled to invoice the TPC Group for and on the construction of the PDSA. Castleway may then issue the relevant invoice and the TPC Group will be obliged to pay the invoiced amount.

148 As the Court is now hearing this dispute over the calculation of the Service Fee, the Manager will be able submit a Tax Invoice for the Service Fee to the TPC Group's representative within 14 days of the dispute's resolution, but not before.

149 Accordingly, in my opinion, Castleway is not entitled to an order for damages for the breach of the PDSA alleged. The breach alleged is that the TPC Group has failed to pay to Castleway the full amount of the Service Fee that it is entitled to under the PDSA. In my opinion, Castleway has not established such a breach.

150 In my opinion, the PDSA did not provide for the accrual of interest during any application of the dispute-resolution procedures. Furthermore, no damages are due. Accordingly, the Court will not award interest at this stage of the proceeding.

151 I direct that Castleway bring in a draft minute of orders on both the claim and counterclaim reflecting the findings made in this judgment and in the prior judgments in this matter. I expect that the declarations sought will specify the compliant Tax Invoice that the TPC Group is obliged to pay under cl 3 for each of the 2013-14, 2014-15, and 2015-16 financial years.

152 I will adjourn the question of costs and any other issues still to be resolved until after the TPC Group has paid Castleway the moneys due under the Tax Invoices referred to above.

[1] Castleway filed the SFADCC pursuant to orders of Almond J made 17 July 2017.

[2] Re Adaz Nominees Pty Ltd (No 1) [2017] VSC 517 ('Re Adaz (No 1)').

[3] Re Adaz Nominees Pty Ltd (No 2) [2017] VSC 578 ('Re Adaz (No 2)' or 'October Reasons').

[4] Re Adaz Nominees Pty Ltd (No 4) [2017] VSC 755 ('Adaz (No 4)').

[5] Special referee's report (27 April 2018).

[6] Plaintiffs, 'Plaintiffs' Submissions on Final Orders', 26 July 2018, [24].

[7] Defendants, 'Defendants' Submissions for a Hearing on 26 July 2018', filed 24 July 2018.

[8] [2009] VSCA 191; (2009) 25 VR 119, 126-7 [17] ('Wenco v W W Industries') (citations omitted).

[9] Special referee's report (27 April 2018) Annexure E, findings 22-5.

[10] Special referee's report (27 April 2018) Annexure E, findings 43-4.

[11] Special referee's report (27 April 2018) Annexure E, finding 23.

[12] Gollin & Co Ltd v Karenlee Nominees Pty Ltd [1983] HCA 38; (1983) 153 CLR 455, 464 (Mason, Murphy, Brennan, Deane, and Dawson JJ).

[13] [1932] HCA 56; (1932) 48 CLR 113 ('Herald v FCT').

[14] Herald v FCT [1932] HCA 56; (1932) 48 CLR 113, 118.

[15] Herald v FCT [1932] HCA 56; (1932) 48 CLR 113, 119.

[16] Herald v FCT [1932] HCA 56; (1932) 48 CLR 113, 127.

[17] [2009] VSCA 191; (2009) 25 VR 119.

[18] [1966] HCA 6; (1966) 114 CLR 437, 445 (Menzies J), 447 (Windeyer J).

[19] Special referee's report (27 April 2018) Annexure E, finding 34.

[20] Re Adaz (No 4) [2017] VSC 755 (11 December 2017) [24].

[21] Updated Witness Statement of Ian Arthur Lee, 8 August 2017, [87]. See also Transcript of Proceedings (4 September 2017) 686.3-4.

[22] Transcript of Proceedings (4 September 2017) 687.14-26.

[23] Transcript of Proceedings (4 September 2017) 686.22-4.

[24] Transcript of Proceedings (4 September 2017) 688.4-8.

[25] Witness Statement of Gerard Damian Keeghan, 19 December 2016, [190].

[26] Transcript of Proceedings (4 September 2017) 688.15-21.

[27] Transcript of Proceedings (4 September 2017) 688.20-1.

[28] Transcript of Proceedings (4 September 2017) 688.1-5.

[29] Transcript of Proceedings (4 September 2017) 688.6-9.

[30] Transcript of Proceedings (4 September 2017) 689.16-19.

[31] Transcript of Proceedings (4 September 2017) 651.10-21.

[32] Transcript of Proceedings (4 September 2017) 689.28-9.

[33] Special referee's report (27 April 2018) 6 [9].

[34] Re Adaz (No 2) [2017] VSC 578, [73].

[35] Special referee's report (27 April 2018) Annexure A sets out a curriculum vitae of Greg Meredith.

[36] Re Adaz (No 2) [2017] VSC 578, [92].

[37] Re Adaz Nominees Pty Ltd (No 3) [2017] VSC 717, [22] ('Re Adaz (No 3)').

[38] Re Adaz (No 2) [2017] VSC 578, [85].

[39] Special referee's report (27 April 2018) Annexure E, findings 51-4 (citations omitted).

[40] Special referee's report (27 April 2018) Annexure E, finding 14.

[41] Special referee's report (27 April 2018) Annexure E, finding 16.

[42] See cls 1(a)(iv), 1(b)(iv), and 1(c)(iv) of the proposed order.

[43] Special referee's report (27 April 2018) 9 [18].

[44] Defendants, 'Defendants' Submissions for a Hearing on 26 July 2018', 19 July 2018, [57]-[58].

[45] Defendants, 'Defendants' Submissions for a Hearing on 26 July 2018', 19 July 2018, [57].

[46] Re Adaz (No 2) [2017] VSC 578, [77].

[47] Defendants, SFADCC, 19 July 2017, [60A]-[60BF].

[48] Defendants, 'Further Amended Defence and Counterclaim', 10 June 2016, [60A].

[49] See above at [121]-[123].

[50] Plaintiffs, 'Amended Reply and Amended Defence to Second Further Amended Counterclaim', 31 July 2017, [1].

[51] Defendants, SFADCC, 19 July 2017, prayer for relief F.