Platinum United II Pty Ltd & Anor v Secured Mortgage Management Ltd

SUPREME COURT OF QUEENSLAND

CITATION: Platinum United II Pty Ltd & Anor v Secured Mortgage Management Ltd (in liq) [2011] QCA 162

PARTIES: PLATINUM UNITED II PTY LTD ACN 108 421 334 (first appellant) / PLATINUM UNITED PTY LTD ACN 103 365 215 (second appellant) v SECURED MORTGAGE MANAGEMENT LIMITED (IN LIQUIDATION) ACN 089 571 184 (respondent)

FILE NO/S: Appeal No 13839 of 2010 / SC No 10072 of 2008

DIVISION: Court of Appeal

PROCEEDING: General Civil Appeal

ORIGINATING COURT: Supreme Court at Brisbane

DELIVERED ON: 15 July 2011

DELIVERED AT: Brisbane

HEARING DATE: 16 May 2011

JUDGES: Fraser and Chesterman JJA and Fryberg J / Separate reasons for judgment of each member of the Court, each concurring as to the orders made

ORDERS: **1.**Appeal dismissed; / **2.**The parties are directed to lodge written submissions as to costs in accordance with paragraph 52 of Practice Direction No 2 of 2010.

CATCHWORDS: BANKING AND FINANCE – INSTRUMENTS – LOAN FACILITIES – where the appellants and respondent entered into a “commercial loan facility agreement” for the purposes of refinancing an existing loan and providing progressive construction finance – where a clause in the agreement purported to confer an “absolute discretion” in the lender to make progressive finance funds available – where the appellants argued the discretion related only to the timing and mechanism of payments – where the respondent argued the discretion was whether to provide progressive finance at all – where the primary judge adopted a construction in accordance with the respondent’s interpretation – whether the primary judge erred in construction of the agreement / PROCEDURE – SUPREME COURT PROCEDURE – QUEENSLAND – PROCEDURE UNDER UNIFORM CIVIL PROCEDURE RULES AND PREDECESSORS – PLEADING – STATEMENT OF CLAIM – where the primary judge struck out a paragraph of the appellants’ statement of claim under r 171 of the Uniform Civil Procedure Rules 1999 (Qld) on the basis that it was unsustainable as a matter of law – whether the construction of the agreement was sufficiently clear to justify a summary order / Uniform Civil Procedure Rules 1999 (Qld), r 171 / Agar v Hyde (2000) 201 CLR 552; [2000] HCA 41, cited / Batistatos v Roads and Traffic Authority (NSW) (2006) 226 CLR 256; [2006] HCA 27, cited / Elderslie Property Investments No 2 Pty Ltd v Dunn [2008] QCA 158, considered / Platinum United II Pty Ltd & Anor v Secured Mortgage Management Limited (in liq) [2010] QSC 455, affirmed / Questband Pty Ltd v Macquarie Bank Ltd [2009] QCA 266, cited / Questband Pty Ltd v Macquarie Bank Ltd [2009] QSC 7, cited / Spencer v The Commonwealth (2010) 241 CLR 118; [2010] HCA 28, cited

COUNSEL: A J H Morris QC, with T Matthews, for the appellants / R Derrington SC, with S Cooper, for the respondent

SOLICITORS: Conroy & Associates for the appellants / McInnes Wilson for the respondent

1. FRASER JA: The appellants have appealed against orders made by the Chief Justice striking out paragraphs of the appellants’ third further amended statement of claim¹ and refusing the appellants’ application for particulars of the defence of the respondent (“SMML”).²

Paragraph 15(a): Breach of the commercial loan facility agreement

2. The appellants claimed that SMML was liable for damages for breach of a “commercial loan facility agreement” made in May 2007 between the first appellant as borrower and SMML as lender. In paragraph 15(a) of the third further amended statement of claim the appellants alleged that SMML breached its obligations under the agreement by failing to provide progressive construction finance. The Chief Justice struck out that paragraph on the basis that it was unsustainable as a matter of law, holding that cl 2.2 and cl 2.5.1 of the agreement made it clear that it fell within SMML’s absolute discretion whether or not to provide the progressive construction finance.³ The appellants argued that the proper construction of the agreement was instead that SMML’s discretion related only to the timing and mechanism of the progressive payments.

3. The agreement provided:

“2.COMMITMENT

2.1 Facility

Subject to the terms and conditions of this Agreement and in reliance on the representations and warranties contained herein the Lender agrees to make the Cash Advance and the Borrower agrees to accept the Cash Advance (or so much thereof as is drawn down progressively) on the date which is two (2) Business Days (or such lesser period as the Lender may agree) after the date on which any Conditions Precedent referred to in Clause 7 have been satisfied, but in any event not later than 6 April, 2007.

2.2 Purpose

The proceeds of the Facility will be used for the purposes of assisting with the refinance of the existing loan facility and thereafter to provide, at the discretion of the Lender, progressive funding against the cost of the construction of twelve storey 40 unit residential unit development on the Land in accordance with the plans, specifications and preliminary Scheme submitted to the Lender

2.3 Use of Drawdowns

The drawdowns must only be utilised for the purposes set forth in Clause 2.2 hereof.

2.4 Loan Facility

The Loan Facility will be drawn in one lump sum and then made available to the Borrower progressively for the purposes as set out in clause 2.2.

2.5 Progressive Drawdown

2.5.1 The balance of the Cash Advance will be made available at the Lender’s absolute discretion to be drawn down progressively by the Borrower. The proceeds of such drawdowns will be disbursed to such payees and consultancy professionals as will be approved by the Lender for the purposes aforesaid. A drawdown may only be permitted if a consulting engineer, a quantity surveyor or a valuer (‘the Lender’s consultant’) at the request of the Lender provides a certificate detailing the following information:-

(a) estimated cost of work to be done;

(b) value of work completed to date;

(c) amount of the claim for drawdown;

(d) value of the work still to be completed.

2.5.2 The Borrower will meet all the costs of the Lender’s consultant for the purposes of providing any necessary certificate and, if unpaid, may be paid by the Lender and capitalised.

2.5.3 The amount of any drawdown will only be for such amount that the Lender in its sole discretion deems sufficient to enable the balance of the Cash Advance to complete the Works.

2.5.4 Draws against the cost of construction will only be made available on a ‘nett of GST’ basis. This facility does not include any funding of GST liabilities of the builder or any other authorised payee. The Borrower must satisfy the Lender that it has paid the relevant GST liability before the proceeds of the drawdown are disbursed.

2.6 Cash Retention by Lender

The Borrower agrees to the Lender’s retention of $2,658,040.32 from the Cash Advance for any purpose relevant to the cash advance including, but not limited to, payment or pre-payment of interest instalments and administration fees.

…

REPAYMENT AND PREPAYMENT Repayment

The Borrower must on the Repayment Date pay to the Lender an amount equal to the Outstanding Sum in respect of the Facility as at that date.

…

FEES AND INTEREST

5.1Establishment Fee, Fees, Interest and Other Charges

(a)The Borrower must pay to the Lender in respect of the Facility a non-refundable and non-rebatable acceptance fee of $111,232.00 (inclusive of GST) on or before Drawdown Date.

(b)The Borrower must pay to the Lender in respect of the Facility from the proceeds of the Drawdown, a non-refundable and non-rebatable funding fee of $222,464.00 (inclusive of GST).

(c)The Borrower must pay to the Lender in respect of the Facility from the proceeds of the Drawdown, a non-refundable and non-rebatable Loan Administration fee of $2,224.64 (inclusive of GST).

(d)The Borrower will be responsible for all or any fees charged by the Lender’s panel Valuers in connection with the giving of or an assignment of the Valuation Report, at any time.

(e)The Borrower must pay all of the Lender’s legal costs and expenses in documenting and securing the Facility on an indemnity basis.

(f)The Borrower must pay to the Lender all other fees and charges associated with account keeping and/or other services charged and chargeable by the Lender in accordance with its usual practice from time to time and the Lender is hereby authorised to debit any such fees (and to include any fees referred to in (d) and (e) above) to the account of the Borrower.

(g)If the Facility is not drawn down by the date referred to in Clause 2.1 the Lender may in its absolute discretion extend such date, but is under no obligation to do so. The Lender may require a further non-refundable and non-rebatable extension fee but is under no obligation to continue the Facility past the Drawdown Date.

(h)At any time after 23 March, 2007 the Lender may by notice to the Borrower select a date that is prior to the actual Drawdown Date as the Nominated Drawdown Date. Interest will accrue on the full amount of the Facility as if it were Drawdown at the rate and in the manner set forth in Clauses 5.2 and 5.4 and will be due for payment on the actual Drawdown Date.

5.2 Calculation and Payment of Interest on Cash Advance

5.2.1 Interest - Fixed Rate

The Borrower has elected to fix the interest rate for fourteen (14) months from the Drawdown Date. Interest at the fixed rate shall be calculated and shall accrue in accordance with the following provisions:-

(a)the rate of interest applicable to the Cash Advance (including all interest and fees which may from time to time be capitalised in respect of the above) will be 17.00% per annum (‘the Higher Rate’) PROVIDED THAT if no event of default shall have occurred and the Borrower pays the Lender on time, then the Lender will accept interest at the rate of 12.00% per annum (‘the Lower Rate’).

…

(f)Even though the loan is drawn down progressively against the value of construction as contained in Clause 2.5, the Borrower acknowledges that the interest payable from the date of first drawdown is on the full amount of the Cash Advance as if it had been drawn in one lump sum. The Lender will, however, allow a credit against such interest for the equivalent of the amount payable on a Deposit Account in respect of any undrawn portion of the Cash Advance by a Trading Bank nominated by the Lender (National Australia Bank) for an ‘on call’ account. The credit will be account [sic] for on a monthly in arrears basis.

…

7.CONDITIONS PRECEDENT

The obligations of the Lender under this Agreement (including, without limiting the generality of the foregoing, the obligation of the Lender to make the Cash Advance or any part thereof from time to time) are subject to the following conditions precedent:-

…

(d) that the Lender shall have amassed sufficient funds from its investors to make the Cash Advance”.⁴

4. “Cash Advance” was defined in cl 1.1 to mean “$20,224,000.00 together with any interest, costs and fees which [were] from time to time capitalised in respect of the Facility”. The word “Facility” was defined to mean “the facility to be made available by the Lender hereunder for the accommodation of the Borrower the terms and conditions of which are set out in this Agreement”. “Drawdown” was not defined, but “Drawdown Date” was defined to mean “the date on which the Cash Advance or any part thereof is made”. “Repayment Date” was defined to mean the date that was fourteen months from the first Drawdown Date.

5. Clause 2.5.1 conferred upon SMML an “absolute discretion”. There is authority for the proposition that a term of a contract which confers upon one of the parties to it an absolute discretion to do or refrain from doing an act excludes an obligation to act reasonably in the exercise of that discretion.⁵ The question in this case is different. It is whether the agreement conferred the discretion upon SMML whether or not to provide progressive construction finance. At the hearing of the appeal some submissions were directed to the precise nature of any such discretion and the consequences of a failure by SMML to exercise the discretion. It is not necessary to consider those questions. Paragraph 15(a) of the appellants’ pleading did not allege any failure by SMML to exercise the discretion or any deficiency in the manner of its exercise. It pleaded only that SMML breached a contractual obligation to provide the progressive construction finance. If SMML instead possessed a discretion whether or not to provide that finance, paragraph 15(a) was correctly struck out.

6. The relevant principles concerning the construction of commercial contracts were identified by Muir JA, with whose reasons Holmes JA and White J agreed, in Elderslie Property Investments No 2 Pty Ltd v Dunn:

“The object of contractual construction is to ‘ascertain and give effect to the intentions of the contracting parties.’ Those intentions, to be determined objectively, are ‘what a reasonable person would have understood [the words of the contract] to mean.’ And to ascertain that ‘normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction.’ Such a reasonable person is one who has all the background knowledge which would reasonably have been available to the parties in the situation which they were in at the time of the contract. The Deeds, as commercial contracts, ‘should be given a businesslike interpretation’. The interpretation of each Deed requires ‘attention to…the commercial circumstances which the document addresses, and the objects which it is intended to secure.’ Commercial contracts are to be construed with a view to making commercial sense of them.

In Wickman Machine Tool Sales Ltd v L Schuler AG Lord Reid said:

‘The fact that a particular construction leads to a very unreasonable result must be a relevant consideration. The more unreasonable the result the more unlikely it is that the parties can have intended it, and if they do intend it the more necessary it is that they shall make that intention abundantly clear.’

In Antaios Compania Naviera SA v Salen Rederierna AB, Lord Diplock expressed stronger views concerning the imperative to make business sense of commercial contracts, stating:

‘If detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense.’”⁶ (citations omitted)

7. The construction adopted by the Chief Justice reflected what a reasonable person would have understood the words of the agreement to mean. SMML’s agreement in cl 2.1 to make the Cash Advance was expressed to be subject to the terms and conditions of the agreement and it was qualified by the words “or so much thereof as is drawn down progressively”. Under cl 2.2 the proceeds of the Facility after refinancing the existing loan facility were to be used for the purpose of providing progressive funding against construction costs “at the discretion of the Lender”, and cl 2.5.1 provided that the “balance of the Cash Advance” was to be made available “at [SMML’s] absolute discretion”. (There was no definition of “the balance of the Cash Advance”, but that expression referred to so much of the Cash Advance as was available for progressive construction finance after the refinancing of the first appellant’s existing loan facility: so much appears from clauses 2.2, 2.4, 2.5.1 and 2.5.3.)

8. The appellants argued that the provision in cl 2.4 that the “Loan Facility” was to be “drawn in one lump sum” was an indication that SMML did not retain a discretion whether or not to provide any part of the whole Cash Advance. However, cl 2.4 also referred to cl 2.2 which, consistently with cl 2.5.1, described SMML’s obligation in relation to progressive construction finance as discretionary. In so far as cl 2.4 provided for the Facility to be drawn in one lump sum, it conflicted with clauses 2.1, 2.2, 2.5.1, 2.5.3, 2.5.4, and 5.2.1(f), each of which contemplated that the construction finance would be drawn down progressively. That conflict may be resolved by construing cl 2.4 as providing for a notional drawdown of the whole Cash Advance as a foundation for the calculation of interest required by cl 5.2.1(f), which very clearly recognises that the whole amount may not be provided to the first appellant. In any event this point is not a sufficient reason for overlooking the clear expressions in clauses 2.2 and 2.5.1 of the discretionary character of SMML’s obligations in relation to the provision of progressive construction finance.

9. Contrary to another argument by the appellants, cl 2.5.3 does not support the construction that SMML’s discretion related only to the timing and mechanism of the progressive payments of the Cash Advance. That clause dealt with a different topic. The second purpose expressed in cl 2.2 and the first sentence of cl 2.5.1 concerned the availability of construction finance, whereas cl 2.5.3 concerned the amount of any progress payment of such finance. The appellants also argued that the second and third sentences of cl 2.5.1, and cl 2.5.3, suggested that SMML was not intended to possess a discretion whether or not to make progressive construction finance available. However the language and structure of cl 2.5 indicates that those provisions applied only if SMML first exercised the absolute discretion conferred by the first sentence of cl 2.5.1 to provide progressive construction finance. The appellants referred also to cl 2.6, but its terms do not materially bear upon the present issue.

Paragraphs 15(b), 15(e), 17A and 17B

14. The Chief Justice also struck out paragraphs 15(b), 15(e), 17A and 17B of the appellants’ pleading. The appellants’ notice of appeal challenged those decisions but at the hearing of the appeal the appellants did not press that challenge if, as I would hold, the Chief Justice’s decision to strike out paragraph 15(a) should be affirmed. The appellants remain at liberty to amend their pleading as they may be advised. In these circumstances it is not necessary to consider these paragraphs of the pleading.

Paragraph 19: loss and damage

15. Paragraph 19 of the third further amended statement of claim alleged that the first appellant suffered specified loss and damage. The Chief Justice referred to this allegation as being “problematic in suggesting the measure of damages in tort, not contract.”¹⁰ The appellants argued in their outline of submissions that the Chief Justice’s analysis appeared to misapprehend the relief claimed. This point was not pursued in oral argument. It is not necessary to consider it because paragraph 19 was not struck out.

Appellants’ application for particulars

16. Paragraph 5 of the appellants’ application sought an order that SMML provide particulars of its defence as requested in numerous paragraphs of the appellants’ request for further and better particulars dated 11 May 2010. The Chief Justice refused that application. The appellants contended that the Chief Justice did not give any reasons for that decision, but the transcript demonstrates that the Chief Justice did give reasons.¹¹

17. Although the appellants’ notice of appeal challenged the order refusing the application for particulars, at the hearing of the appeal the appellants foreshadowed that, if the appeal against the striking out of paragraph 15(a) failed, it might be necessary to amend aspects of the appellants’ pleading, with the prospect of consequential amendments to SMML’s defence. That might render provision of the particulars sought in the appellants’ request a wasteful exercise. In those circumstances, senior counsel for the appellants accepted that it was inappropriate for the Court to consider the propriety of SMML’s refusal to provide the requested particulars. This aspect of the appeal should be dismissed for those reasons. That should not be seen as precluding the appellants from pursuing their request for particulars after the delivery of a further amended statement of claim.

Orders

18. At the hearing of the appeal the Court intimated that it would allow the parties an opportunity to make submissions about costs after the Court had published its decision. In my opinion the appropriate orders are:

(a) Dismiss the appeal.

(b) Direct the parties to lodge written submissions as to costs in accordance with paragraph 52 of Practice Direction No 2 of 2010.

[19] CHESTERMAN JA: I agree with the orders proposed by Fraser JA for the reasons given by his Honour.

[20] FRYBERG J: The appellants submitted that the court should adopt a commercial interpretation of the agreement between the parties, citing the passage of the judgment of Muir JA in Elderslie Property Investments No 2 Pty Ltd v Dunn quoted by Fraser JA.¹² However the statement of claim did not identify any facts or circumstances throwing light on that question. The appellants identified from the terms of the contract the fact that the contract was very one sided, but that in isolation is not sufficient to sustain the submission. In some contexts a one sided contract may be quite understandable; in others it might be commercially absurd. Contracts are not made in a vacuum and that is as true of commercial contracts as of any others.

[21] I agree with the orders proposed by Fraser JA and generally with his Honour’s reasons for those orders.

Footnotes

1. Platinum United II Pty Ltd & Anor v Secured Mortgage Management Limited (in liq) [2010] QSC 455. ↩

2. Platinum United II Pty Ltd & Anor v Secured Mortgage Management Limited (in liq) (unreported, SC(Qld), de Jersey CJ, No 10072/08, 2 December 2010). ↩

3. [2010] QSC 455 at [7]. ↩

4. This extract includes headings, but cl 1.2(b) of the agreement provided that clause headings were inserted for convenience of the reader and should be ignored in construing the agreement, except to the extent that such interpretations shall be excluded by or be repugnant to the context. ↩

5. See Questband Pty Ltd v Macquarie Bank Ltd [2009] QSC 7 at [102], affirmed in Questband Pty Ltd v Macquarie Bank Ltd [2009] QCA 266 at [66]; Murphy v Zamonex Pty Ltd (1993) 31 NSWLR 439 at 451A-B, 453D-F; Australian Mutual Provident Society v 400 St Kilda Road Pty Ltd [1991] 2 VR 417 at 420, 426; Vodafone Pacific Ltd v Mobile Innovations Ltd [2004] NSWCA 15 at [188]-[198]; Troupakis v Adams [1999] FCA 609 at [7]-[9]. ↩

6. [2008] QCA 158 at [20]-[22]. ↩

7. The appellants referred to Godecke & Anor v Kirwan (1973) 129 CLR 629 at 646-7 and Hill v Canberra Centre Holdings Pty Ltd (unreported, SC(ACT), Miles CJ, No 437/90, 23 December 1994, BC 9404873). At first instance the applicant’s counsel also referred to Gippsreal Ltd v Registrar of Titles & Kurek Investments Pty Ltd [2006] VSC 115, the relevant passage in which was submitted to be unaffected by the appeal reported at [2007] VSCA 279. ↩

8. Batistatos v Roads and Traffic Authority (2006) 226 CLR 256 at 275 [46], citing (2000) 201 CLR 552 at 575-576 [57].