Salvatore Sanfilippo v Anvest Holdings Pty Ltd and Ors

Supreme Court of NSW|2013-09-11|Before: Slattery J

Judgment 1The parties to these proceedings disagree about the amount of vendor finance that must be repaid to finalise a share sale agreement. 2On 6 December 2010 Mr Salvatore Sanfilippo sold 15,000 shares in Landco Pty Limited ("Landco") to his fellow director and equal shareholder in that company, Mr Romeo Tamburri, for a total consideration of $6,908,500. Mr Sanfilippo provided part of this consideration, the sum of $1,266,000, by way of vendor finance to Mr Tamburri. The agreed vendor finance terms permitted Mr Tamburri to set off certain defined expenses against his liability to repay the $1,266,000 in vendor finance. Mr Sanfilippo, the plaintiff (and the provider of the vendor finance) contends that Mr Tamburri is not entitled to any set off for such defined expenses. But Mr Tamburri contends that sufficient of these defined expenses can be set off that he now has no remaining liability to repay the vendor finance to Mr Sanfilippo. 3The parties agreed as to the quantum, the payer and the payee of all the expenses that Mr Tamburri claims can be set off against his repayment obligation under the vendor finance. But they disagreed about whether these identified expenses qualified under the relevant contractual definition as expenses that could be set off against Mr Tamburri's vendor finance repayment obligation. The principal issues between the parties were as to the construction of their vendor finance agreement. The parties have other lesser disputes, which will also be detailed in these reasons. 4In these proceedings Mr M.Southwick of counsel appeared for the vendor, Mr Sanfilippo and Mr H.Stitt of counsel appered for the purchaser, Mr Tamburri. More background is now required to understand the matters in issue. Mr Sanfilippo and Mr Tamburri End a Property Joint Venture 5Mr Tamburri and Mr Sanfilippo met when they were attending TAFE College in 1996, whilst studying a diploma of building course. They discovered a like-minded interest in property-based entrepreneurial activity. After mutual discussions in 1997 they decided to launch a project home building company, Firstyle Homes Pty Ltd ("Firstyle"), which opened its first display home in Green Valley in 1997. Firstyle prospered and the pair decided to reinvest some of their profits into a land development company, Landco. By the time of the transactions the subject of these proceedings they each owned 15,000 shares in Landco. 6In the course of their business activities in 1998 Mr Tamburri and Mr Sanfilippo came into contact with a Liverpool based finance broker, Mr Carl Damien. Through Mr Damien the opportunity arose for them to purchase with Mr Damien a property at Kookaburra Road, Prestons ("the Kookaburra Road property"). The Kookaburra Road property was at that stage zoned future urban 1E. The parties finally committed to buy the property jointly, exchanging contracts in 1998 for $1,080,000. Landco acquired 50 per cent of the property in Mr Damien's company, Beneficial Marketing Pty Ltd ("Beneficial"), acquired the other 50 per cent share. The two companies held their respective interests as tenants in common. 7The parties initially financed the purchase with a loan through St George Bank. They later re-financed this obligation with the NAB. Landco and Beneficial borrowed the money from St George Bank jointly and arranged with one another to pay 50 per cent of the interest and other outgoings to St George. They did this by operating a joint account into which they contributed equally and from which payments were made equally to St George. 8The Kookaburra Road property was not the only property that Mr Tamburri and Mr Sanfilippo acquired through Landco. Several other properties were acquired for development. Details of some of these properties that are relevant to the matters in issue between the parties appear later in these reasons. 9Whilst Landco and Beneficial were planning the development of the Kookaburra Road property they sought to manage it as financially efficiently as possible. In November 2004 Landco leased the property to a cattle breeding and raising company, in part to qualify it to gain primary production status and thereby an entitlement to an exemption from land tax from December 2004. Landco and Beneficial enjoyed that benefit until the property's primary production status was revoked in December 2010, a revocation that was retrospective for the land tax years from 2006 onwards. There were indications from about 2007 that the Kookaburra Road property might be re-zoned as industrial land. The parties undertook investigations in that direction. The Local Council did re-zone the land for industrial use in 2007. 102008 was a turning point for the parties. In January 2008 the Kookaburra Road property had been re-valued at $9.1 million. This value sufficiently surprised all the parties that they were attracted to selling the Kookaburra Road property. But the global financial crisis had already started. The next few years saw ever declining values for industrial property. But also in 2008 Mr Sanfilippo and Mr Tamburri began to discuss going separate ways both in their Landco and in their Firstyle business activity. 11Landco and Beneficial could not sell the Kookaburra Road property for $9 million in the first half of 2008. By late 2008 Beneficial began to suffer financial distress and was unable to carry its share of its financial obligations to the National Australia Bank, both on the Kookaburra Road property and another property Beneficial had purchased with Landco in similar circumstances. Rather than allow a Beneficial-Landco default with NAB, Landco paid Beneficial's share of the two companies' joint mortgage obligations, as well as Landco's own share. This was a rational course on paper at least, as Landco appeared to hold a substantial equity in the property. Landco kept making payments for Beneficial. 12But by mid 2009, as economic activity slowed and property prices fell, Landco's equity in the Kookaburra Road property was rapidly eroding. By then the refinanced principal amount owing to the National Australia Bank was $4.5 million and the property could not be readily sold. The parties commenced multiple negotiations: with one another to separate their business interests; with Beneficial which was in continuing default; with potential purchasers of the property; and with the National Australia Bank, the mortgagor. 13As might be expected with the property mortgaged to a financial institution, Landco's interest in the Kookaburra Road property remained on its balance sheet from the time of its purchase until the transactions the parties entered into in 2010 and 2011. 14Amidst discussions with buyers of the Kookaburra Road property at figures much lower than $9 million the parties began intensely to negotiate the separation of their interests between about August and December 2010. Many of these negotiations involved Landco's financial advisers LCI Partners Pty Limited ("LCI Partners"). Except in very limited ways indicated later in these reasons the Court has not taken into account any of these negotiations, either in their oral or written form. There is no need to detail any of them here. The parties' negotiations culminated in their making an agreement on 6 December 2010, for the sale of Mr Sanfilippo's shares in Landco to Mr Tamburri. Landco was quite solvent at the time. But not surprisingly, because of the special difficulties attending to the Kookaburra Road property, it received close attention in the parties' agreement. The parties' detailed terms for dealing with the Kookaburra Road property are analysed below. As was contemplated by their 6 December 2010 agreement, part of the consideration provided under it by way of vendor finance was formalised in another deed on 22 July 2011 made between Mr Sanfilippo, Mr Tamburri and a nominee company associated with Mr Tamburri. 15Despite the detailed provisions the parties had made in their agreements for one or other of them to acquire Beneficial's interest in the Kookaburra Road property, in fact the property was sold to a third party. The parties filled 2011 with further attempts to sell the Kookaburra Road property, in an atmosphere of increasing pressure from the NAB. The Bank indicated that it wanted the properties sold by 31 December 2011. Contracts were exchanged for the sale of the property for a consideration of $4,675,000 including GST on 23 December 2011. The sale settled in March 2012. At no stage between November 2009 and the settlement of the property in March 2012 did Beneficial make any payments for its share of mortgage interest, outgoings or other expenses on the Kookaburra Road property. 16With this general background it is necessary now to examine what the parties agreed in December 2010, and July 2011.

The December 2010 Deed 17Mr Sanfilippo and Mr Tamburri finally reached agreement on 6 December 2010 as to the terms on which Mr Tamburri would exit his shareholding. They did so in their December 2010 deed, to which they made Landco a party. 18The December 2010 deed recited: that the parties held respective 50 per cent legal and beneficial ownership of the shares in Landco; that the desire of the Vendor, Mr Sanfilippo, was to sell his 15,000 shares to Mr Tamburri "or his nominee" (Recitals A to D); that "this document is to be considered to be legally binding" but "may be replaced with a fully documented Agreement for sale of Shares to give effect to this Agreement" but that the terms of "this Heads of Agreement" are "intended to be part of the final Agreement between the parties" (Recital E); that the vendor "shall cease to have involvement in Landco and management of Firststyle from 5.00pm 6th December 2010" (Recital F); but that "the purchaser shall continue to trade the business of Landco and manage the business of Firststyle from that date" (Recital F); and the purchaser "must procure LCI Partners to provide the vendor reports and updates of the Landco business until completion of the Share Sale Agreement" at three monthly intervals; and, that the purchaser "may nominate another entity to be the purchaser in the Share Sale Agreement", but the purchaser "will personally guarantee the obligations of the nominee in the Share Sale Agreement (Recital G). 19Mr Sanfilippo's departure from Landco's management at 5.00pm on 6 December 2010 was an important integer in the bargain the parties reached in their December 2010 deed. Not only was it mentioned in the recitals, but the parties required the initial $750,000 of the consideration, to be paid at exactly the same time as Mr Sanfilippo ceased his involvement in Landco's management. Clauses 1 and 2 of the December 2010 deed demonstrate this: "1. In consideration of the payment of seven hundred and fifty thousand dollars ($750,000) by the Purchaser to the Vendor by 5pm 6th December 2010 (of which $50,000 has already been paid leaving a balance of $700,000), the Vendor shall until completion of the formal Share Sale Agreement not be involved in the day to day business of Landco or the management of Firstyle. 2. On and from completion of such formal Share Sale Agreement and Vendor shall cease to have any management and involvement in the business of the company of Landco." 20Mr Sanfilippo and Mr Tamburri envisaged that a final binding form of Share Sale Agreement would be executed between them within less than 10 days (by 15 December 2010) to replace the December 2010 deed. But in the meantime the December 2010 deed would be legally binding: "3.1 That the payment of seven hundred and fifty thousand dollars ($750,000) paid by the Purchaser to the Vendor shall be applied as part of the deposit and purchase price for the shares to be transferred from the Vendor to the Purchaser. 3.2 A Sale of Share Agreement is to be executed by the Vendor and Purchaser (to which Landco is a party) by the 15th December 2010. In the event that a formal Share Sale Agreement is not executed this Deed remains legally binding. 3.3 The Sale of Share Agreement in regards to Landco will document that seven hundred and fifty thousand dollars ($750,000) has been paid to the Vendor by the Purchaser as part payment for the consideration of the Vendors 15,000 shares in Landco." 21Neither party anticipated on 6 December 2010 that no agreement would be reached on a replacement Share Sale Agreement. Their default agreement (in clause 3.2) therefore turned out to be a well-crafted plan: the December 2010 deed would remain legally binding in the absence of a replacement. But as will be seen the parties were able to formalise the vendor finance aspects of their consensus a little further. 22Clause 4 is the engine room of the December 2010 deed; it provides in detail for the payment of consideration to Mr Sanfilippo between 6 December 2010 and mid 2011, by means that could perhaps be described as a staged voluntary partial winding-up of Landco. The parties agreed to transfer particular properties out of Landco by successive consensual capital distributions. They did so without expressly using any mechanisms available to them for this purpose under the Corporations Act 2001 (Cth). The December 2010 deed does not expressly provide for all the steps identified in this paragraph. But they are implied. The parties staged the payment of this consideration according to an agreed program by which they could prepare the properties for their transfer out of Landco. Once each property was out of Landco Mr Tamburri was then able to release his interest in each one and transfer it to Mr Sanfilippo, free of encumbrances, to meet his obligations to pay consideration to Mr Sanfilippo. The staging of these transfers shows much about the parties' intentions. 23Clause 4 is divided into 16 parts, clauses 4A to 4P, only some of which must be considered in detail. Clause 4 is drafted in a form that anticipates it being fitted into a later Share Sale Agreement. It opens as follows: "The Essential Terms of the Agreement for the Sale of the Vendor's Shares to the Purchaser are as follows". 24Clauses 4A, 4B and 4C provide for the repayment of Mr Sanfilippo's director's loan of $1,629,500, "on or before completion of the transfer of shares" (clause 4A); to a "cash adjustment" to be paid to the vendor, and a price of $5,266,500 for all Mr Sanfilippo's shares (clauses 4B and 4C): "4A The Vendor to be repaid his Director's Loan in the agreed amount of $1,629,500 on or before completion of the transfer of shares. 4B In addition to the repayment of the Director's Loan and the Purchase Price for the shares, the Vendor shall receive a cash adjustment amount of $12,500.00 as agreed. 4C The Purchase Price agreed for all of the Vendor's shares to be transferred to the Purchaser or his nominee is $5,266,500. This in addition to the repayment of the Vendors loans referred to in clause 4(A) and cash adjustment amount referred to in clause 4(B)." 25Clause 4D breaks down the price of $5,266,500 for all the vendor's shares into its component parts, by attaching particular agreed values to particular properties and authorising Landco to transfer each of them to Mr Sanfilippo at particular dates. It is not necessary to reproduce the whole of clause 4D in these reasons. But the major payment stages appear below. 26$750,000 - December 2010. The parties agreed that sum of $750,000 was to be paid by bank cheque on 6 December 2010. $50,000 of this amount was agreed to have already been paid by bank cheque, as indeed it had on 20 October 2010. 27Lot 71, Sixteenth Avenue - 15 December 2010. The parties agreed that Landco would transfer its property Lot 71, Sixteenth Avenue to Mr Sanfilippo free of encumbrances by 15 December 2010 at an agreed value of $950,000. The parties agreed to this transfer in the following terms: "Landco to transfer, free of mortgage encumbrance, to the Vendor or his nominee together with all right, title and interest in relation to any development consent attaching to those properties and all material, documents, plans and records relating to those properties in the control or possession of Landco, or the Purchaser for Lot 71 Sixteenth Avenue (Lot 71 Deposited Plan 1110982) by the 15th December 2010. The parties agree that the value of Lot 71 Sixteenth Avenue is $950,000." 2840 Buchan Drive - 31 January 2011. The parties agreed that Landco would transfer its property 40 Buchan Avenue to Mr Sanfilippo free of encumbrances by 31 January 2011, at an agreed value of $1,800,000. And an adjusting amount of $450,000 was to be paid by bank cheque by the same date. The parties agreed to this transfer in the following terms: "Landco to transfer, free of mortgage encumbrance, to the Vendor or his nominee together with all right, title and interest in relation to any development consent attaching to those properties and all material, documents, plans and records relating to those properties in the control or possession of Landco, or the Purchaser for 40 Buchan Avenue (Lot 2 in Deposited Plan 1043457) by the 31st January 2011. The parties agree that the value of 40 Buchan Drive is $1,800,000." 29Mr Sanfilippo's resignation from Landco's Board by 31 January 2011. Once all consideration agreed to be paid by 31 January 2011 was paid, Mr Sanfilippo agreed to resign as a director of Landco. The consideration due to be paid by that date was, $3,950,000, roughly two thirds of the total consideration payable. This $3,950,000 was made up of $750,000 payable by 6 December, $950,000 (the agreed value of Lot 71, Sixteenth Avenue) payable by 15 December 2010, and $2,250,000, being $1,800,000 (the agreed value of 40 Buchan Drive) plus $450,000 (the bank cheque) by 31 January 2011. It may be inferred from these terms that Mr Sanfilippo was prepared to relinquish his director's governance over the affairs of Landco once this proportion of the consideration had been paid. 30155 Jardine Drive - by 30 April 2011. The parties agreed that the next property that Landco would transfer to Mr Sanfilippo, 155 Jardine Avenue, would be transferred by 30 April 2011 at an agreed value of $1,680,000. The December 2010 deed implies the parties anticipated difficulties in Landco delivering title to this property to the vendor by that date. So they agreed that if Landco did not transfer this property on time that the purchaser would pay interest on the $1,680,000 agreed value for 155 Jardine Drive, from 1 May 2011, until the settlement of its transfer. "Landco to transfer, free of mortgage encumbrance, to the Vendor or his nominee together with all right, title and interest in relation to any development consent attaching to those properties and all material, documents, plans and records relating to those properties in the control or possession of Landco or the Purchaser for 155 Jardine Drive (Lot 56 in Deposited Plan 29317) at the same time as the transfer of seven thousand five hundred (7,500) shares in Landco held by the Vendor to the Purchaser by the date of the completion of the Share Sale Agreement. In the event that Jardine Drive is not delivered to the Vendor by the 30th April 2011 the parties agree to meet in good faith to discuss the delivery of Jardine Drive by 30th June 2011 or an alternate means of settlement. The parties agreed that the value of 155 Jardine Drive is $1,680,000.00 Should the Purchaser not be able to deliver Title to 155 Jardine Drive to the Vendor by the 30th April 2011 or provide an alternate means of settlement agreed between the parties, then the parties agree to extend settlement date and the transfer of shares to the 30th June 2011 provided that the Purchaser pays interest on the amount of $1,680,000 at the rate of ten per centum (10%) from the 1st May 2011 to settlement date." 31Landco's transfer of 155 Jardine Drive to Mr Sanfilippo by 30 April 2011 was an important milestone in the share sale. At the same time Mr Sanfilippo would transfer half of his shares in Landco (7,500 shares) to Mr Tamburri or his nominee, as clause 4E made clear, in the following terms: "4E. The Vendor agrees to transfer seven thousand and five hundred (7,500) shares in Landco to the Purchaser or his nominee upon receipt of payment of the Purchase Price, Director's Loan and Cash Adjustment less the agreed Vendor Finance amount of $1,266,000." 32The parties also agreed (in clause 4F) on the terms of the vendor finance facility that Mr Sanfilippo would provide Mr Tamburri. The vendor finance was secured over the 7,500 shares remaining in Mr Sanfilippo's hands after 31 January 2011, and would be interest free up to 22 November 2011. Clause 4F is linked to the important later set-off provisions of clause 4L, and provides as follows: "4F The Vendor agrees to provide by way of Vendor Finance to the Purchaser or his nominee an amount of $1,266,000. The terms of the loan are: * The Borrower will be the Purchaser or his nominee. * The Purchaser will personally guarantee the Vendor Finance facility. * Loan amount $1,266,000. * Payable by 22nd November 2011 with no interest. * The Vendor will retain title to seven thousand and five hundred (7,500) shares of the fifteen thousand (15,000) shares being transferred in Landco to the Purchaser as security until the repayment of the Vendor Finance. * The Purchaser shall not be entitled to set off any amounts that the Purchaser may claim may be owed to him, pursuant to this Deed the Share Sale Agreement or any other arrangement between the Vendor and Purchaser against the Vendor Finance, other than any adjustment referred to in paragraph 4(L). * In the event that the loan is not repaid by the 22nd November 2011 the Vendor agrees to extend the period for repayment to the 22nd May 2012 in consideration of the Purchaser agreeing to pay interest on the outstanding amount of the Vendor Finance for the period commencing 23rd November 2011 until the loan is repaid at the rate of ten per centum (10%) per annum; * The Vendor agrees that the loan may be repaid in cash or by the transfer of a property having a net equity to at least the value of the outstanding Vendor Finance by mutual agreement plus any interest that may accrue in accordance with this clause. Upon payment of the Vendor Finance (plus any accrued interest) and simultaneously with receiving that payment the Vendor shall transfer the shares held by the Vendor as security for the Vendor Finance amount to the Purchaser to complete the Share Sale Agreement." 33Clauses 4G, 4H, 4I and 4J contain machinery provisions that assist in the construction of clause 4L. First, in clause 4G the parties to an extent repeated what they had agreed in clause 3, to endeavour to sign a exchange and a formal agreement for the sale of shares by 15 December 2010, but in the absence of doing so they were to meet in good faith to resolve outstanding disputes and if necessary seek specific performance of the existing December 2010 deed. The parties made clear in clause 4H that the vendor, Mr Sanfilippo could not be restrained from "establishing and operating his own land development business" in any location. 34In clause 4I, the parties more fully defined the extent of Mr Sanfilipppo's disability from managing the affairs of Landco after 5pm on 6 December 2010. By that clause Mr Sanfilippo agreed that from that time "he will not sign any document in his capacity as a director of Landco or in any other capacity that he would otherwise be authorised to sign". The same disability applied to the documents that he might otherwise sign in his capacity as a manager of Firststyle Homes Pty Ltd. The documents embraced by the prohibition were broadly defined as "documents of any nature whatsoever, including but not limited to cheque accounts, credit accounts, contracts etc". But the parties built in an exception to this prohibition, so that it applied only "without a request in writing from Romeo Tamburri", and if such a request were made Mr Sanfilippo agreed to comply with it within a reasonable time. 35Importantly, no such prohibition applied to the Kookaburra Road property. Clause 4I stated, "The Vendor shall be entitled to remain involved in the management of the Kookaburrra Road property [after 5pm 6 December 2010]". Already the parties were quarantining the Kookaburra Road property by making special management arrangements for it. 36By clause 4J the parties agreed to backdate to the beginning of the then current financial year an indemnity in respect of home warranty claims as follows: "4J The Share Sale Agreement will include a full release and indemnity from Landco, and the Purchaser to the Vendor effective 30 June 2010 with respect to all claims, liabilities, expenses with respect to any home warranty claims. The Purchaser must use its best endeavours to procure a full and final release and discharge of the Vendor from all facilities, debts and liabilities and personal guarantees provided by the Vendor for any advance to Landco and/or Firstyle Homes Pty Ltd or any other related body corporate as soon as practicable by 30th June 2011 or by the 30th April 2011 if the transfer of Jardine Drive is able to be completed." 37As in many other parts of the Deed clause 4J distinguishes between the position of Landco and the Purchaser. 38Clause 4K provided a continuing responsibility for Mr Sanfilippo up to $100,000 for various claims that may be brought against Landco and Firststyle at the end of the previous financial year, as follows: 4K. The Vendor shall remain responsible for a cumulative total amount not exceeding $100,000 in respect of any claims for payment of income tax, GST, superannuation payments, breach of copyright claims and industrial relation claims (claims by employees that may be brought against Landco and Firstyle for the period up to and including 30th June 2010) and workers compensation for Landco and Firstyle for the period up to 30 June 2010 provided such claims are made and enforceable before 30 June 2013. This clause does not apply to the Kookaburra Road, Prestons property. 39Clauses 4J and 4K are part of a series of clauses that release the vendor, Mr Sanfilippo, from various risks associated with the continuing management and operation of Landco during the 2010 - 2011 financial year. Their purpose is consistent with an overall objective of ensuring that once Mr Sanfilippo abandoned managerial control of Landco at the close of business on 6 December 2010 that he would not thereafter be expected to meet any liabilities associated with Landco's business operations. Although its language is a little unclear, clause 4J seems to operate as a retrospective and prospective release in respect of liability for home warranty claims. 40But clause 4K contains a curious gap: it does not cap Mr Sanfilippo's liability for income tax, GST, superannuation and similar payment after 30 June 2010; but perhaps this is intentional in light of the terms of clause 4L. Clause 4K specifically excludes its application to the Kookaburra Road Preston's property. So it was understood that Mr Sanfilippo would remain exposed to a number of liabilities for that property, after 30 June 2010. 41The parties' continuing liabilities for the Kookaburra Road property were regulated by clause 4L. This clause was an attempt to comprehensively deal with all the major sale and tax scenarios that the parties envisaged they may encounter with the Kookaburra Road property. Strangely they did not consider the actual scenario that occurred: the Kookaburra Road property was sold to a third party. Clause 4L provides as follows: 4L. The parties note that Landco owns a 50% share in a property at Kookaburra Road Prestons with the other 50% shareholder being Beneficial Marketing Pty Limited. The sale of the Vendors shares in Landco does not include the Vendors effective 25% interest in this property (that is as 50% shareholder of the 50% owner) and it is agreed that the Vendors 25% share in this property would remain in Landco and all outgoings paid in respect of this Property on behalf of the Vendor to be met by the Purchaser may be deducted from the Vendor Finance. Should the 50% share of Beneficial Marketing Pty Ltd in this property be offered for sale or in the event that Landco using its best endeavours is able to convince Beneficial Marketing Pty Ltd to sell its 50% share then the Vendor and Purchaser agree that the 50% share of Beneficial Marketing Pty Ltd will be purchased by the Vendor. In the event that the Vendor and Purchaser do not agree to the purchase price then either party may proceed to purchase the share of Beneficial Marketing Pty Ltd independently of the other. In the event that the Vendor and Purchaser do agree to the purchase price, then upon completion of the purchase of Beneficial Marketing Pty Ltd share by the Vendor, and subject to the Purchaser making available to the Vendor 50% of the purchase price from Beneficial Marketing Pty Ltd (less any amount jointly funded by way of a loan for the benefit of the purchaser and the vendor) and 50% of any stamp duty payable paid by the Vendor for the purchase of the share of Beneficial Marketing Pty Ltd, the Vendor will relinquish and transfer to the Purchaser all the Vendor's effective 25% interest in the property held for him in Landco prior to the purchase by the Vendor of the interest of Beneficial Marketing Pty Ltd, that is 50% of the property would remain in Landco with the Vendor having no further entitlement to the 50% share held by Landco going forward. The Purchaser will relinquish and transfer to the Vendor all the Purchaser's effective 25% interest in the property held for him by the Vendor, that is 50% of the property would remain in Landco with the Vendor having no further entitlement to the 50% share held by Landco going forward and 50% of the property will be owned by the Vendor beneficially. In the event that either the Vendor or Purchaser acquire the share of Beneficial Marketing Pty Ltd independently, then the parties agree to transfer the 25% interest in the property held by Landco in trust for the Vendor to the Vendor or his nominee at an agreed value of 50% of the original purchase price, with the costs and stamp duty to be shared equally between the parties. In the event that a capital gains tax event occurs in relation to the sale or transfer of the Kookaburra Road property then the parties agree that Landco will pay from any net proceeds due to Landco any capital gains tax prior to the distribution. The Vendor and Purchaser will pay equally any shortfall in capital gains tax payable by Landco on the sale. 42Regrettably clause 4L's five paragraphs are not internally numbered. For convenience of reference throughout these reasons each of these five unnumbered paragraphs will be numbered in their sequential order. So for example, the first paragraph in clause 4L will be referred to as "clause 4L(1)". 43Clauses 4M, 4N, 4O and 4P provided further machinery to support the sale to Mr Tamburri of Mr Sanfilippo's shares in Landco: Mr Tamburri would pay stamp duty on the share transfer and Mr Sanfilippo on the land transfers out of Landco (clause 4M); each party would pay its legal costs of the transaction (clause 4N); the parties would issue a joint letter on 7 December 2010 to Landco's sub-contractors and suppliers, informing them that "the vendor is no longer responsible for any payments to sub-contractors or suppliers to Landco or Firststyle" (clause 4O); and, Mr Sanfilippo's right to pursue profits from a joint venture in which Firststyle was involved was preserved (clause 4P).

The July 2011 Loan Facility 44In July 2011 the parties agreed to restructure the vendor finance provided under the December 2010 deed by entering into a loan facility. Under the December 2010 deed, clause 4F, Mr Sanfilippo agreed to provide vendor finance to "the purchaser or his nominee". The facility was structured as a loan to Anvest Holdings Pty Ltd ("Anvest"), with Mr Tamburri as the guarantor of Anvest's obligations and Landco was not a party. The July 2011 loan facility records that Mr Sanfilippo was transferring 7,500 of his 15,000 Landco shares contemporaneously with its execution and that 7,500 Landco shares would remain with him. 45The parties agreed in the July 2011 loan facility: that the principal sum of $1,266,000 would be advanced (clauses 1.1 and 13.1); that 7,500 shares in Landco would be retained by Mr Sanfilippo as security, for the repayment of the principal sum, and for all amounts otherwise due from Anvest to Mr Sanfilippo (clauses 1.2 and 13.1); that Anvest could extend the repayment date by notice in writing between 1 and 15 October 2011 to a later date of 22 May 2012 (clause 2.2); and that the borrower would pay interest on the principal sum accruing from day to day at simple interest at the rate of 10 per cent per annum (clauses 3.1 and 13.1). 46In the July 2011 loan facility the parties also readdressed the issue of deductions from the repayment of the facility and they decided, for the reasons explained, to reaffirm what they had agreed in the December 2010 deed, clause 4L. 47Under the heading "General Payment Provisions" and the sub-heading "Payment by 12pm without deduction of set-off" the parties agreed in clauses 4.1 and 4.2 as follows: "4.1 All payment required to be made by the Borrowed under this document must be made to the Lender in full in immediately available funds prior to 12 pm on the relevant due date (or any earlier time specified) without any deduction other than the adjustments referred to in paragraph 5B 4L of the Agreement for Sale of Shares and the Deed of Agreement. 4.2 The Borrower irrevocably and unconditionally waives any right of set off, combination or counterclaim in relation to any such payments other than the adjustments referred to in paragraph 5B 4L of the Agreement for Sale of Shares and the Deed of Agreement." 48The text of clauses 4.1 and 4.2 above exactly reproduces the form of these clauses in the July 2011 loan facility. The text evidences the failure of the parties to finalise the Agreement for Sale of Shares that they were also negotiating. As the surrounding documents show, the parties were at this time attempting to reach consensus on a formula better to reflect what they had agreed in clause 4L and to do so in a proposed clause 5B of their draft agreement for Sale of Shares. When they failed to so agree in the July 2011 loan facility, they acknowledged in this text that they had reverted to the default position reflected in clause 4L. 49Under the heading "No Set-off by Borrower", the parties further reinforced in clause 4.6 their agreed regime for set-offs against the vendor finance obligation, as follows: "4.6 The Borrower is not entitled to set off against the Principal Sum and any amounts payable by the Borrower to the Lender pursuant to this Deed or the Deed of Agreement any amounts that the Borrower may claim be owing by the Lender to it or to any third party other than the adjustments referred to in paragraph 5B 4L of the Deed of Agreement for Sale of Shares." 50The parties agreed upon a number of other machinery provisions. They agreed that as long as Anvest owed Mr Sanfilippo any amount under the July 2011 loan facility that both Anvest and the guarantor, Mr Tamburri, undertook to pay taxes by their due date, to carry on the business of Landco efficiently and not to cause to be issued any further shares in Landco or to "transfer or sell any asset owned by Landco" as at July 2011, unless in the ordinary course of business and at market value for proper consideration: clause 6. 51Anvest and Mr Tamburri further agreed not during the currency of the July 2011 loan facility to grant or allow the creation of any security in competition with securities created by the loan facility: clause 7.1. Anvest agreed that Mr Sanfilippo could retain title to his remaining 7,500 Landco shares until the principal sum and all amounts due under the loan facility were repaid and upon their repayment Mr Sanfilippo "will transfer" his remaining 7,500 shares to Anvest: clause 7.2. The parties further agreed that Mr Sanfilippo may permanently retain the remaining Landco 7,500 shares and may dispose of them or retain them as he may choose in order to recover the principal sum in the event that the principal sum was not paid by the agreed repayment date": clause 7.3. 52In the July 2011 loan facility Mr Tamburri gave a guarantee and indemnity in consideration for Mr Sanfilippo's entry into the loan facility. In addition to a number of clauses reserving Mr Sanfilippo's rights as lender against the guarantor, the July 2011 loan facility limited Mr Tamburri's rights as guarantor to set-off or counter claim, consistently with the operation of clauses 4.1, 4.2 and 4.6: "12.8 Until all money payable to the Lender in connection with this document is paid, the Guarantor must not, without the Lender's approval: (a) raise a set-off or counterclaim available to it or the Borrower against the Lender in reduction of the Borrower's liability under this guarantee and indemnity other than the adjustments referred to in paragraph 5B 4L of the Agreement for Sale of Shares and the Deed of Agreement; (b) claim to be entitled by way of contribution, indemnity, subrogation, marshalling or otherwise to the benefit of any security or guarantee held by the Lender in connection with this document; (c) make a claim or enforce a right against the Borrower; or prove in competition with the Lender if a liquidator, provisional liquidator, receiver, administrator or trustee in bankruptcy is appointed in respect of the Borrower or otherwise is unable to pay the Borrower's debts when they fall due." 53Clause 12.8 was also adjusted to delete reference to clause 5B of the proposed Agreement for the Sale of Shares.

The Draft Share Sale Agreement 54The parties gave up on negotiating a new share sale agreement just before they executed the July 2011 loan facility: clauses 4.1, 4.2, 4.6 and 12.8 of the July 2011 loan facility (see below) contain internal evidence of that failure. Their last draft was in evidence ("the Draft Agreement"). 55The negotiations for a new share sale agreement failed largely because the issue litigated in these proceedings emerged in the course of the negotiations and the parties were unable to resolve their differences about it. 56The Anvest/Tamburri parties advanced clause 5B of the Draft Agreement in an attempt to negotiate a substitute for clause 4L(1) that, if agreed, would have resolved in their favour the present dispute. The relevant change that the Anvest/Tamburri parties sought to clause 4L(1) by their clause 5B is that in the words "to be met by the Purchaser" in clause 4L, the word "Landco" would be substituted for "Purchaser". 57Anvest and Mr Tamburri sought these changes. They could not be agreed. So the July 2011 loan facility was executed, crossing out any reference to the application of clause 5B of the Draft Agreement, and leaving in reference clause 4L. 58Mr Sanfilippo submitted that the Court should not interpret the December 2010 deed as if the words in clause 4L(1) "to be met by the purchaser" contained a reference to "Landco", instead of "the Purchaser as was proposed in the unagreed clause 5B. 59But in my judgment no significance should be attached to the parties' failure to agree on the Draft Agreement, clause 5B. The clause is merely evidence of a failed attempt to resolve the differences now being litigated. Mr Tamburri's conduct in seeking to propound this change in clause 5B not evidence or an admission that the Anvest/Tamburri parties' construction of the December 2010 deed was unsustainable. Moreover, as the legal principles identified below make clear, it is conduct subsequent to the making of the December 2010 deed, which cannot be taken into account in its construction.

Consideration Passing Under the December 2010 Deed 60The parties agreed what payments had been made and what properties had been transferred in performance of clause 4D of the December 2010 deed. All transfers and payments relied upon were made in the period between October 2010 (just before execution of the December 2010 deed) and July 2012. 61Most of the pecuniary and non-pecuniary consideration paid under the December 2010 deed was sourced from Landco itself. The three parcels of real estate that were transferred out of Landco, were transferred to Mr Sanfilippo's nominee for the purpose, Sanfilippo Investments Pty Ltd, a company associated with Mr Sanfilippo. Landco made all cash payments prior to 2012 to Mr Sanfilippo. But Anvest made two cash payments in July 2012 to Mr Sanfilippo. Anvest claimed that these two cash payments were sufficient to satisfy its vendor finance obligations. All the cash payments made and other consideration provided can be reduced conveniently into a table as follows. Payments of consideration to Sanfilippo Interests under the December 2010 Deed Date Description of Consideration and Recipient Source of Payment Amount 20/10/2010 Payment to Mr Sanfilippo Landco 50,000.00 13/12/2010 Payment to Mr Sanfilippo Landco 700,000.00 20/12/2010 Transfer of 41 Buchan Avenue, Edmondson Park to Sanfilippo Investments Landco 1,800,000.00 20/12/2010 Transfer of Lot 71 Sixteenth Avenue to Sanfilippo Investments Landco 950,000.00 3/02/2011 Payment to Mr Sanfilippo Landco 445,928.25 6/05/2011 Payment to Mr Sanfilippo Landco 12,500.00 27/07/2011 Transfer of Jardine Drive to Sanfilippo Investments Landco 1,680,000.00 24/07/2012 Payment to Mr Sanfilippo Anvest 255,193.80 24/07/2012 Payment to Mr Sanfilippo Anvest 97,035.20 TOTAL 5,990,657.25

62Anvest's two 24 July 2012 payments of $255,193.80 and $97,035.20 to Mr Sanfilippo were the payments that the Anvest/Tamburri parties claimed completed their satisfaction of the vendor finance facility, the rest of the facility being satisfied, they say, by the set offs in dispute in these proceedings. 63There was debate at one stage as to whether the Anvest/Tamburri parties had actually paid to Mr Sanfilippo the amount of $97,035.20. But by the conclusion of the proceedings that had been resolved and it was accepted that the amount had been paid. 64In addition to the above amounts actually paid to or at Mr Sanfilippo's direction, in paragraph 23 of their defence, the Anvest/Tamburri parties pleaded the amounts that they claimed they were entitled to set off against their vendor finance repayment obligation. During the trial Anvest/Tamburri tendered (Exhibit 4) a useful summary of their final set off claims, together with the documents that established each of the outgoings in question. Exhibit 4 did prove payment of the following outgoings. The parties contested the application of clause 4L(1) to these outgoings. It is useful to divide them by class of outgoing. 65Mortgage Payments. Landco made the following payments to a joint Landco/Beneficial bank account from which payments were then made to the National Australia Bank, the Kookaburra Road mortgagee, as Exhibit 4 shows. (a) 2 December 2010 - $70,000 (b) 22 February 2011 - $100,000 (c) 4 May 2011 - $65,000 (d) 27 July 2011 - $97,000 (e) 27 September - $66,000 TOTAL: $398,000 66Land Tax. Landco made a number of payments to lawyers and financial advisers on account of an objection to an assessment of Land Tax, on the Kookaburra Road property, as Exhibit 4 shows as follows. (a) 20 September 2011 $4,800 (b) 27 September 2011 - $9,000 (c) 27 September 2011 - $2,179 (d) 24 January 2012 - $2,974 (e) 6 February 2012 - $5,365 (f) 5 April 2012 - $17,098 TOTAL: $40,616 67Council Rates. Landco made the following payments on account of Council rates for the Kookaburra Road property as Exhibit 4 shows. (a) 20 July 2010 - $4,031 (b) 2 November 2010 - $4,021 (c) 9 February 2011 - $4,021 (d) 6 May 2011 - $4,021 (e) 25 July 2011 - $4,145 TOTAL: $20,239 68Other Miscellaneous Payments. Landco made a number of other miscellaneous payments on account of the Kookaburra Road property, which are recorded in Exhibit 4 as follows. (a) Valuation - 16 November 2012 - $4,000 (b) Administration fees - 25 April 2012 - $14,600 (c) 50 per cent of GST on the sale of Landco's interest in the Kookaburra Road property - 20 July 2012 - $109,426 (d) Agent's commission on the sale of the Kookaburra Road - 13 March 2012 - $10,000 (e) Worker's compensation audit fees - 13 June 2011 - $11,000 (f) 50 per cent of $466,741 in capital gains tax payable in Landco's 2012 tax return - 30 June 2012 - $233,345 (g) 50 per cent of $2,500 in Landco's legal costs for recovery action against Beneficial - 22 December 2011 - $1,250 69In the course of final submissions, it became clear that Mr Sanfilippo did not contest that most of these Exhibit 4 outgoings were outgoings paid "in respect of [the Kookaburra Road property]" within clause 4L(1). The contested issue was whether the outgoings in question satisfied the other requirements of clause 4L(1). The resolution of that issue requires a detailed analysis of clause 4L, construed in accordance with applicable legal principles. It is first necessary to identify the applicable principles.

Ambiguity in the Construction of Contracts 70Three areas of legal principle relating to the construction of commercial and other contracts are relevant to the parties' contest: (1) the proper approach to their interpretation; (2) the extent to which surrounding circumstances are admissible to assist in their interpretation; and (3) the use of post-contractual conduct in construction. The applicable principles in each of these areas is not in doubt. 71(1) Approach to Interpretation. The December 2010 deed was a commercial contract negotiated through lawyers. It should be construed bearing in mind the commercial objectives of the parties. Interpreting a commercial document "requires attention to the language used by the parties, the commercial circumstances which the document addresses and the objects which it is intended to secure": McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579; [2000] HCA 65 at [22] p 589, and Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522, [2005] HCA 17 ("Wilkie"). 72And the law gives the parties the compliment of assuming they have agreed on something real, not illusory. Unless a contrary intention is indicated, a Court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption "that the parties ... intended to produce a commercial result" and a commercial contract is to be construed so as to avoid it "making commercial nonsense or working commercial inconvenience": Zhu v Treasurer of New South Wales (2004) 218 CLR 530 at 559 [82] per Gleeson CJ, Gummow, Kirby, Callinan and Heydon JJ. See also Gollin & Co Ltd v Karenlee Nominees Pty Ltd (1983) 153 CLR 455 at 464; [1983] HCA 38 and Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7 at [35]. 73The "principle of objectivity" is applied in contact interpretation. In Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, [2004] HCA 52 ("Toll") the High Court affirmed this principle, repeating its previous statement in Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451, [2004] HCA 35. The High Court said in Toll at ([40] p179): What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. 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. 74(2) Surrounding Circumstances. Evidence of surrounding circumstances is admissible to assist in interpretation of a contract "if the language is ambiguous or susceptible of more than one meaning", but such evidence "is not admissible to contradict the language of the contract when it has a plain meaning": Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337, [1982] HCA 24 ("Codelfa"), per Mason J (as his Honour than was). The authorities have since much debated what Mason J meant by "ambiguous" or "susceptible of more than one meaning". Spigelman CJ has suggested that they mean different things and that the expression "susceptible of more than one meaning" widens the available gateway beyond the grammatical ambiguity to which the word "ambiguous" refers, so that all that is required to allow reference to "surrounding circumstances" is that the meaning is "for any reason doubtful": Gardiner v Agricultural & Rural Finance Pty Ltd [2007] NSWCA 235 ("Gardiner") at [12]. In similar vein, in McCourt v Cranston [2012] WASCA 60 ("McCourt") at [24] Pullin JA of the Western Australian Court of Appeal suggested that the composite expression may mean just "difficult to understand". 75The parties debated whether there was ambiguity in clause 4L of the December 2010 deed. But they did so in a curious way. Whilst contending for competing constructions, each party said that clause 4L was "clear and unambiguous". In the alternative, each said that, if the contract was ambiguous the Court could take into account surrounding circumstances to resolve the ambiguity in that party's favour. 76But once the gateway of ambiguity is opened, what "surrounding circumstances" are admissible? As Mason J explained in Codelfa, the evidence of surrounding circumstances was not admissible where it was "evidence of negotiations or of the parties' intentions" and that it should be "restricted to evidence of the factual background known to the parties at or before the date of the contract, including evidence of the 'genesis' and objectively the 'aim' of the transaction": Codelfa at 351 and Secured Income Real Estate (Aust) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 at 605-606. 77The High Court and the Court of Appeal have discussed and applied these principles in many cases: Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181,[2001] HCA 70 and Toll. When the High Court refused special leave to appeal in Western Export Services Inc v Jireh International Pty Ltd (2011) 282 ALR 604, [2011] HCA 45 ("Jireh"), it confirmed its reaffirmation of Codelfa as a binding authority in Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 240 CLR 45, [2002] HCA 5 at [39]. 78Many of these cases contain warnings about the admission of voluminous evidence in aid of the process of construction. In Toll (at [35], pp 177-8) the High Court expressed concern about the uncritical reception of marginally relevant evidence, particularly evidence of the subjective understanding of the parties, in the following terms: [35] A striking feature of the evidence at trial, and of the reasoning of the learned primary judge, is the attention that was given to largely irrelevant information about the subjective understanding of the individual participants in the dealings between the parties. Written statements of witnesses, no doubt prepared by lawyers, were received as evidence in chief. Those statements contained a deal of inadmissible material that was received without objection. The uncritical reception of inadmissible evidence, often in written form and prepared in advance of the hearing is to be strongly discouraged. It tends to distract attention from the real issues, give rise to pointless cross-examination and cause problems on appeal where it may be difficult to know the extent to which the inadmissible material influenced the judgment at first instance. 79The parties in this case tendered on both sides much of the type of evidence that Toll warns against. But this evidence substantially came from Anvest and Mr Tamburri. Mr Sanfilippo objected to evidence of the negotiations of the parties set out Mr Tamburri's principal affidavit, which also contained general declarations about the common intentions of the parties. The Court could not rule on the relevance of this material until all the issues had been fully debated. So the material was admitted, subject to the right of each party to contend in final submissions that the Court should not take into account some or all of it. The material objected to was carefully identified on both sides. The Court has set out in these reasons some very limited surrounding circumstances that were known to both parties and to which the Court has had regard. But the material was mostly disregarded. 80Post Contractual Conduct. The parties advanced evidence of their post-contractual conduct and communications. Such evidence cannot be used as an aid in the construction of a contract: Agricultural & Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570 a [35], [2008] HCA 57 and Current Images Pty Ltd v Dupack Pty Ltd [2012] NSWCA 99. Reference to post contract conduct is permissible to determine when a contact has been formed: Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603, [2009] NSWCA 407. 81No issue of the formation of the contracts arises here: the parties contended that both the December 2010 deed and the 2011 loan facility were binding agreements. They just disagreed on what they meant. The Court admitted evidence of the parties' conduct subsequent to the December 2010 deed but prior to the 2011 loan facility. The Court took this material into account to construe the 2011 loan facility, but the same material could not be used to construe the earlier December 2010 deed. The Court did not have regard to material after the 2011 loan facility to assist it to construe either the December 2010 deed or the 2011 loan facility. Some events after July 2011 were taken into account, but only to understand the circumstances in which various payments were made that were said to be deductible under the 2011 loan facility.

What Surrounding Circumstances Can be Taken Into Account Here 82The reaffirmation of the December 2010 deed, clause 4L in the July 2011 loan facility pushes back by about 7 months the time for assessing the known surrounding circumstances to which the parties may advert in resolving any ambiguity in the terms of clause 4L. To the extent there is any ambiguity in clause 4L the Court could, in my judgment, take into account surrounding circumstances known to the parties at or before 6 December 2010. 83But with a change in the parties (adding Anvest and removing Landco) Mr Sanfilippo and Mr Tamburri agreed once again on 22 July 2011 to be bound to the terms of clause 4L in the process of reformulating the vendor finance facility contemplated by clause 4F. If what was agreed between Landco and Mr Tamburri and Mr Sanfilippo in clause 4L were ambiguous in December 2010, the same text was also ambiguous in July 2011, when the parties to these proceedings signed the later document. When construing clause 4L, because of the substitution of the July 2011 loan facility, the Court can take into account known surrounding circumstances up to that later date, even though they post date the December 2010 deed. 84But there are very few additional matters in this intervening period to which the parties directed the Court's attention. One was the failed attempt to negotiate a new Share Sale Agreement up to July 2011. The Court can take into account the Draft Agreement, because it had passed between the parties prior to execution of the July 2011 loan facility. But despite the Court's capacity to take it into account, for the reasons given above it is of no significance to the present task. 85Beneficial remained in default to the NAB between December 2010 and July 2011, another surrounding circumstance known to both parties. But the parties had been well aware of Beneficial's default in December 2010, a default which explains much of the parties concern to provide for the sale of Beneficial's interest in the Kookaburra Road property in clause 4L of the December 2010 deed. 86Mr Sanfilippo submitted that if the Court were to look outside the December 2010 deed or the July 2011 loan facility, that it should only take into account a limited number of known surrounding circumstances prior to either the December 2010 or July 2011 documents: that Beneficial was continuing in default; that the parties were both represented by lawyers and financial advisers; and, that although the Draft Agreement sought to amend the December 2010 deed clause 4L in the terms of its own clause 5B, that the July 2011 loan facility was executed by the defendants without that amendment by crossing out the proposed clause 5B. 87The Anvest/Tamburri parties took alternative positions on the extent of surrounding circumstances to which the Court could have regard. Their principal submission was that the Court could and should construe the December 2010 deed and the July 2011 loan facility without the need to refer to surrounding circumstances because the documents were not ambiguous. But if surrounding circumstances were to be taken into account Anvest/Tamburri submitted that the Court could look at a far wider range of surrounding circumstances. Mr Stitt pointed to payments of up to about $410,000 that had already been made from Landco with Mr Sanfilippo's knowledge to cover the position of Beneficial. Next Mr Stitt submitted that the minutes of meeting, which evidenced the various discussions between the parties, and that were then incorporated into the December 2010 deed, may also be taken into account - mainly to prove that these pre-contractual payments he relies upon were made with the Mr Sanfilippo's knowledge. 88The Court is prepared to infer that as Mr Stitt submits, Mr Sanfilippo was aware that these payments were made before execution of the December 2010 deed. But in the end such material had no significance in the Court's reasoning. Despite its internal challenges, clause 4L can be construed without the need to resort to surrounding circumstances to resolve any ambiguity. The fact that Landco may have made payments on Beneficial's behalf prior to December 2010 and prior to July 2011 does not in itself assist the Court in the process of construction; nor do any of the other wider matters to which Mr Stitt referred. But the Court has had regard to two matters of context to which Mr Sanfilippo's submissions have referred: that lawyers represented both parties and that Beneficial was in default.

Construing the December 2010 Deed clause 4L 89The parties' principal contest concerns the meaning of the words in clause 4L(1) "and all outgoings paid in respect this Property on behalf of the Vendor to be met by the Purchaser may be deducted from the Vendor Finance". Ultimately there was little dispute about whether payments had been made "in respect of the property". By the time of final submissions Mr Sanfilippo, through his counsel Mr Southwick, properly conceded that all but a few of the claimed outgoings were "in respect of" the Kookaburra Road property. And both parties accepted in submissions that the expression "deducted from the vendor finance" means much the same as: set off against the obligation to repay the vendor finance. The parties' respective contentions about the balance of the words in this disputed clause may be shortly stated. 90The Anvest/Tamburri parties' contentions. The Anvest/Tamburri parties contended that the contested words meant that every outgoing that Landco paid "in respect of the Property" from the time of the December 2010 deed may legitimately be deducted from the obligation to repay the vendor finance to Mr Sanfilippo. More specifically, the Anvest/Tamburri parties submit that, in this clause: (a) "all outgoings" means "the whole of" the outgoings, and that "outgoings" means the amount of money expanded or outlaid and that there is therefore no limitation in the nature, quality, extent and time of the outgoings that may be deducted under this clause; (b) the "outgoings" that may be deducted are not limited by the identity of the payer of the outgoings - the payer may be Romeo Tamburri the purchaser under the December 2010 deed, or Landco itself; and, (c) even though "all outgoings" in clause 4L is qualified by the phrase "on behalf of the Vendor", this only means that the vendor did not wish always to make payments himself but that the vendor acknowledged that others would be making payments for him from time to time, a construction which reflects the continuation of the arrangements predating the December 2010 deed under which Mr Tamburri had made payments on behalf of Mr Sanfilippo with respect to this property to save Mr Sanfilippo the necessity of doing so. 91Mr Sanfilippo's contentions. Mr Sanfilippo contests the Anvest/Tamburri construction of these words. He emphasises that three separate elements in the description of "outgoings" in clause 4L(1), must be cumulatively satisfied in order to authorise any set off against the vendor finance. In his submission, in order for an outgoing to be set off against the vendor finance it must be: (1) made "on behalf of the Vendor"; and (2) "to be met"; (3) "by the Purchaser". Mr Sanfilippo submits that none of the outgoings that the Anvest/Tamburri parties claim in these proceedings to set off against the vendor finance satisfies elements (1) and (3), and that only some of the outgoing in question satisfy element (2). 92Mr Sanfilippo's contentions may be elaborated. He submits that all the payments Landco made in respect of the Kookaburra Road property were made on its own behalf and not "on behalf of the Vendor". Landco did itself make all the payments that the Anvest/Tamburri parties claim to set off against the vendor finance. So, Mr Sanfilippo submits: (1) none of these could have been paid by Landco in any sense "on behalf of the Vendor" because Landco had no obligation to act on behalf of the vendor; and, (2) nor could Landco's payments be said to be met "by the Purchaser". Under the December 2010 deed (Recital D) "Purchaser" means Mr Tamburri but includes his "nominee". And Mr Sanfilippo submits the three payments made before the December 2010 deed cannot satisfy the future requirement that they are "to be met" by the Purchaser, because they had already been "met" at the time the December 2010 deed was executed. 93The parties' contentions focus on different parts of the disputed words. Anvest and Mr Tamburri seek to maximise the available set off against the vendor finance, thereby reducing their repayment obligations: emphasising the words in the beginning of the contested clause "all outgoings paid in respect of the Property". In contrast Mr Sanfilippo seeks to restrict the available set off against the vendor finance, thereby maintaining the quantum of the purchaser's vendor finance repayment obligation: emphasising the words at the end of the contested clause, "on behalf of the Vendor to be met by the Purchaser". 94Discussion. The words "on behalf of the Vendor" present a central puzzle in the construction of clause 4L(1). It is difficult to see how payments made by Mr Tamburri as purchaser could be made "on behalf of the Vendor [Mr Sanfilippo]". So, if Mr Tamburri must be the payer, as Mr Sanfilippo submits he must for the payment to qualify under clause 4L, what work do the words "on behalf of the Vendor" do? Mr Southwick's submission for Mr Sanfilippo was that, if Mr Tamburri were the payer, the words have some work to do in the following circumstances: (1) Landco is the legal and beneficial owner of the Kookaburra Road property; (2) if Landco defaulted on the mortgage to the NAB and Mr Tamburri was obliged to satisfy Landco's obligations to the NAB under his guarantee; then, (3) to the extent that his payments to the NAB were more than his proportionate share of Landco's financial obligations to the NAB, then Mr Tamburri could deduct the excess from the vendor finance. 95But Mr Stitt's answer to this analysis was persuasive. First, he says, clause 4L(1) refers to "all outgoings paid on behalf of the vendor" [emphasis added], words that do not readily limit the outgoings that may be paid "on behalf of the Vendor", to a narrow class of payments that Mr Tamburri might wish to recover by way of equitable contribution from Mr Sanfilippo for satisfying more than his equal share of a co-ordinate guarantor's liability to one secured creditor of Landco, the NAB. Why would the parties express their intention so broadly, when the right they seek to protect is so narrow? Secondly, the description "on behalf of" the Vendor is not an apt one for the payments Mr Tamburri would have had to make to the NAB in the circumstances postulated. Such payments would primarily be made "on behalf of" Landco, rather than the Vendor, which company, in the circumstances assumed, would have already defaulted on its primary liability to the NAB. Thirdly, Mr Southwick's submission means that the parties must have been contemplating that Mr Tamburri's rights would arise upon default by Landco to the NAB; yet there are indicators in clause 4L that the parties' very purpose was to avoid such an unfortunate eventuality of default. But clause 4L(1) contains indications that the words "on behalf of Vendor" may have a wider meaning, which meaning is well adapted to an unusual concept that the parties deployed in the clause. 96In their clause 4L contractual discourse, the parties launched a legal concept, which at first blush appears to be complete legal nonsense: they speak of the sale of the Vendor's shares, as not including "the Vendor's effective 25% interest in this property (that is as 50% shareholder of the 50% owner)". Mr Southwick's submission is correct: the draftsperson is here trying to deal with a concept that is not known to the law. A shareholder in a company does not have a right, whether "effective" or otherwise to any particular asset of the company; rather the interest in a company represented by a share, includes, rights and obligations contained in the company's constitution and the Corporations Act 2001; it may include a right to vote at company meetings, a right to dividends and a right to participate in a distribution on winding up, but the share is nevertheless an indivisible piece of property: Re Inland Revenue Commissioners v Crossman [1937] AC 26, Re Alex Russell [1968] VR 285, at 299, and FAI General Insurance Co Ltd (In Liq) v Sherry [2002] SASC 431. 97A right to receive the proceeds of sale of one of a company's assets, as seems to be attempted here, is not assignable in the absence of a special provision in the company's memorandum and articles: Corporations Act, s 1070A. There is no such provision in Landco's constitution. 98On the strength of such orthodox legal analysis, Mr Southwick submits that as Mr Tamburri could not assign an interest in this particular company asset to Mr Tamburri, then Mr Tamburri as purchaser must have paid nothing for, and Mr Sanfilippo received nothing for, this illusory "effective 25% interest" in the Kookaburra Road property. Mr Southwick submits that there was no effective retention for Mr Sanfilippo of any share in the Kookaburra Road property; after all he says, were the Kookaburra Road property to be sold, Landco, not its shareholders would be entitled to the proceeds of sale. 99Mr Stitt's answer to this point opens the way to understanding what the parties really intended in clause 4L. Mr Stitt submits that Mr Sanfilippo did receive a tangible benefit under clause 4L. And in my judgment he did receive such a benefit. If one accepts the Anvest/Tamburri contentions as to the construction of clause 4L, that important benefit was that Mr Sanfilippo did not himself have to make any payments to creditors with respect to that part of the Kookaburra Road property that Landco still held pending its transfer to Mr Sanfilippo. In my judgment that idea is central to what the parties had in mind in clause 4L(1) in its context in the December 2010 deed. 100Construction of Clause 4L. Understanding the context of clause 4L is critical. Dealing with the Kookaburra Road property was the last stage of what the Court has described above as the staged voluntary partial winding-up of Landco. The Kookaburra Road property was the fourth Landco property that the parties were consensually seeking to transfer out of Landco in order to effect a complete separation of their interests in Landco. 101But it was the most complicated of the four properties to transfer in this way: Landco only owned 50% of the Kookaburra Road property and Landco's co-owner was already in default to the mortgagee. It was unlikely that the whole property could be transferred to Mr Sanfilippo as the other three were to be transferred out of Landco. More complex terms were required in clause 4L to effect the same in specie transfer of this property to Mr Sanfilippo that clause 4D had effected with respect to the other three properties. The parties had less control of the fate of this property so a more textured regime was necessary to deal with all the anticipated possibilities. On the other hand, as 50% of the property already lay outside Landco (with Beneficial), on some scenarios it would actually be easier to deliver a share of the property to Mr Sanfilippo to finalise the December 2010 deed. But the contractual objective was still the same as with the other three properties: to transfer (here part of) the property to Mr Sanfilippo in consideration for his transfer of his Landco shares. 102Once this objective is appreciated clause 4L(1) makes much more sense. The clause then far less resembles the jurisprudential soup that first confronts its reader. Here in my judgment is how the clause 4L(1) works. 103Clause 4L(1) notes in its first sentence that Landco owns "a 50% share in" the Kookaburra Road property with Beneficial. The draftsperson of the December 2010 deed was in no doubt that Landco owned 50% of the Kookaburra Road property legally and beneficially. Consistent with Landco's balance sheet, the parties do not at this point in the clause have Landco make a declaration of a trust of Landco's interest in the Kookaburra Road property for the shared benefit of Mr Tamburri and Mr Sanfilippo. 104Clause 4L(1)'s second sentence then deals with Landco's 50% share in the Kookaburra Road property, introducing two ideas by declaring that "[t]he sale of the Vendor's shares in Landco does not include the Vendor's effective 25% interest in this property". 105The first of these two ideas appears in clause 4(1)'s second sentence: "the Vendor's effective 25% interest in this property". The parties are not here declaring that Landco holds 25% of this property on trust for Mr Sanfilippo. One would expect Mr Tamburri might get a co-ordinate declaration of trust, if that were so. The parties do not use conventional words of trust. And what follows in parentheses to describe the vendor's 25% interest, "(that is as 50% shareholder in of the 50% owner)" rather suggests that a trust is not what the parties have in mind but that something derivative from Mr Sanfilippo's then shareholding interest in Landco was intended. Moreover, deploying the word "effective" to describe the 25% interest, suggests something perhaps trust-like but not actually a trust. The primary meaning of the word "effective" given in the Macquarie Dictionary is "serving to effect the purpose; producing the intended or expected result". In my judgment the word is used in its primary meaning here. Here for the purposes of achieving the contractual purpose the parties are agreeing to treat Mr Sanfilippo as if he had a 25% interest in this property, held through Landco. Much of the contractual machinery that follows in clauses 4L(1) - (5) attempts to realise that purpose by conferring a bundle of contractual rights on Mr Sanfilippo so as to ensure the benefit of 25% of this property would be delivered to him in specie. And true to the parties' adoption of the word "effective", clause 4L addresses this purpose quite comprehensively. 106And an important second idea appears in clause 4(1)'s second sentence: "the sale of the Vendor's shares in Landco does not include" (emphasis added) the Vendor's effective 25% interest in this property. The intention is also clear: with the Landco shares Mr Tamburri is acquiring, he is not buying the right to deal with this particular part of Landco's assets. He was to have exclusive management rights over the day-to-day affairs and assets of Landco from close of business of the day of execution of the December 2010 deed and to have sole control of Landco's board from 31 January 2014. But these clause 4L(1) words "the sale of the Vendor's shares in Landco does not include" importantly limited Mr Tamburri's general control of Landco's assets by requiring him to deal with the Kookaburra Road property separately from those assets, by respecting the special bundle of Kookaburra Road related rights that clause 4L conferred on Mr Sanfilippo. 107The next clause 4L(1) words emphasise the same point: "and it is agreed that the Vendor's 25% share in this property would remain in Landco". The parties have already defined what they mean by "the Vendor's effective 25% interest" in the property and now they lapse into shorthand dropping the word "effective" and simply record that what they are talking about is "the Vendor's 25% share". What they are talking about is the whole bundle of Mr Sanfilippo's clause 4L rights over the Kookaburra Road property. 108The balance of clause 4L(1)'s second sentence contains the disputed words. Their meaning is now much clearer. They address a problem created by the parties' decision to confer clause 4L rights on Mr Sanfilippo over Landco's Kookaburra Road property, whilst nevertheless giving the management control of Landco's assets to Mr Tamburri. Could Mr Tamburri damage Mr Sanfilippo's clause 4L rights in this property by failing to pay Landco's creditors who may have rights over it? 109The parties' answer is "no". Analysis of the whole of their disputed words, gives this answer. The disputed words were inserted to require Landco and Mr Tamburri to outlay funds to protect Mr Sanfilippo from losing the benefit of his clause 4L "effective 25% interest" in the property. But he would only have that benefit at the price that in turn Mr Tamburri could deduct those necessary financial outlays later from the vendor finance owing to Mr Sanfilippo. 110The disputed words fit this idea well. First the words "all outgoings paid in respect of this property on behalf of the Vendor" mean that share of all the outlays for the Kookaburra Road property that are supporting Mr Sanfilippo's clause 4L interest in this property. And the coverage of "all outgoings" ensures full protection from all Kookaburra Road related creditors for Mr Sanfilippo. But who precisely will pay the outgoings is left vague and couched in the passive voice "all outgoings paid" without distinguishing whether the payments were to be made by Landco or by another person. This is perhaps not surprising as the parties' central focus was not exactly who pays but for the purchaser to keep Mr Sanfilippo's clause 4L rights to the property fully protected. 111The phrase "on behalf of the Vendor" captures the idea that the outlays in question must be outlaid to protect the vendor's clause 4L effective 25% interest in the property. A proportionate 25% share of the total outgoings paid in respect of the property would in ordinary language be paid "on behalf of" Mr Sanfilippo, because they were outgoings paid to protect his clause 4L rights to control 25% of the Kookaburra Road property. 112What do the next words "to be met by the Purchaser" require? Do Landco's payments qualify as "met by the Purchaser"? The precise words used are important. The parties chose "met" by the purchaser rather than "paid" for a reason. The words "met by the purchaser" are referring not to the act of payment itself but are allocating responsibility to ensure that payment is made. The Macquarie Dictionary gives the relevant meaning of "meet" as "to satisfy (needs, obligations, demands, etc...)". The purchaser's relevant contractual duty under clause 4L is to satisfy the Kookaburra Road property related outgoings to protect Mr Sanfillipo's clause 4L rights over the property. It is logical that the parties would have this duty fall on Mr Tamburri, because under the December 2010 deed he gained immediate management control over Landco, the entity legally responsible for these outgoings and he was in a position to ensure that Landco paid them. But if for some reason Landco did not pay them, the clause still protects Mr Sanfilippo by leaving responsibility with Mr Tamburri to satisfy them so they will "be met by the Purchaser" in that sense. 113This analysis of "to be met by the Purchaser" also assists resolution of another side dispute between the parties. Mr Sanfilippo contended that three payments that had been made before the execution of the December 2010 deed on 6 December 2010 did not qualify as deductible from the vendor finance under clause 4L, because they were not future payments but were past payments as at the date of the December 2010 deed. This submission somewhat misses the point of the parties' use of the words "to be met". These words do not refer to future payments at all but they allocate a particular function or responsibility to Mr Tamburri: his contractual duty under clause 4L(1) is to satisfy the Kookaburra Road property related outgoings to protect Mr Sanfillipo's clause 4L rights over the property pending the working through of the clause 4L mechanisms for the disposal of the Kookaburra Road property. 114Most of the three outgoings in question were, as at 6 December 2010, very recently past outgoings: the bulk of about $74,000 of these three outgoings was paid on 2 December 2010. But the parties' language well covers them, even though they marginally predate the December 2010 deed. The critical words "all outgoings paid... to be met by the Purchaser" (emphasis added) can readily refer to past (that is pre 6 December 2010) outgoings that are in fact met by the purchaser in conformity with the functional responsibility for satisfying those payments that is allocated to the purchaser under clause 4L(1). These three pre-6 December 2010 Landco paid outgoings are no less deductible from the vendor finance than outgoings Landco paid after that date. 115Returning to the main construction issue: Clause 4L certainly does not prohibit Landco from paying outgoings. And it is easy to see from the December 2010 deed why Mr Sanfilippo should have little genuine concern about whether Mr Tamburri or whether Landco actually pays the outgoings. Mr Sanfilippo only held a security interest in the 7,500 Landco shares left in his name after 31 January 2011: they only secured the repayment of the vendor finance and were upon its repayment to be transferred to Mr Tamburri (clause 4F). Mr Sanfilippo had little reason to require Mr Tamburri to continue to maintain Landco's capital by making these payments himself. Indeed, it is consistent with Mr Sanfilippo's construction of these words that Mr Tamburri could have readily used Landco's capital to borrow from Landco the full amount of the outgoings, and then used those borrowings to pay those outgoings in his own name. It is difficult to see the commercial point of the construction for which Mr Sanfilippo contends. 116The wider clause 4L context also supports the Court's construction. It is not necessary to go into the operation of clauses 4L(2) to (4) in detail. These clauses deal with the consequences of the offering of Beneficial's 50% share of the Kookaburra Road property for sale: clause 4L(2). The parties may agree on the price at which they may buy from Beneficial (clause 4L(2)), or they may disagree (clause 4L(3)). Either way, certainty is ultimately achieved as to how the parties will deal with the "Vendor's effective 25% interest in the property held for him in Landco". If they agree on price, then under clause 4L(3) Mr Sanfilippo will buy Beneficial's share in the property and relinquish his clause 4L rights over Landco. If they disagree on price, then a number of options are possible under clause 4L(4); but all these options will result in Mr Sanfilippo's clause 4L rights expiring, when they change into a pure beneficial interest in the property which will be transferred to Mr Sanfilippo or to his nominee. But these mechanisms all lead to the result that Mr Sanfilippo will realise his clause 4L rights over the Kookaburra Road property after a short period. In the meantime clause 4L(1) fully ensures that all outgoings are met on the property to protect the value of Mr Sanfilippo's clause 4L rights over it. And the same phrase, "effective 25% interest in the property" continues to be used in clause 4L(3) to describe the vendor's clause 4L rights as long as those rights exist. 117This construction means, and I conclude, that Mr Tamburri can deduct from the vendor finance that part of the outgoings either he or Landco has paid in respect of the Kookaburra Road property that would account for his (as defined under clause 4L) effective 25% interest in that property. 118Finally, some oral evidence in the proceedings pointed to the conclusion that Mr Sanfilippo's legal representatives and Mr Tamburri's legal representatives at the time of the December 2010 deed understood from their mutual communications: that Landco held the 50% of the Kookaburra Road property not owned by Beneficial on trust equally for Mr Sanfilippo and Mr Tamburri. But the Court does not take this evidence into account on the issue of construction, although it is theoretically capable of qualifying as one of the known surrounding circumstances at the time of the December 2010 deed. This evidence was expressed, as in the form of a conclusion and gave little insight as to what was actually said between the respective legal representatives. Mr Chalabian was the solicitor for Mr Sanfilippo prior to the December 2010 deed. His evidence of his assumption in December 2010, was that "Landco was the trustee of this property [the Kookaburra Road property] for Mr Sanfilippo and Mr Tamburri as to their 50%". Mr Chalabian says that Mr Costa, Mr Tamburri's solicitor, also communicated this assumption to him. Mr Chalabian explained: "my recollection was that we both had the same understanding of that issue - that Landco was the trustee for both Mr Sanfilippo and Mr Tamburri". But without doubting the sincerity of Mr Chalabian's evidence, this all seems to be a little glib and it does not correspond with the parties' actual language in the December 2010 deed, which has moved away from trust concepts to the specific contractual arrangements to protect and dispose of Mr Sanfilippo's effective 25% interest in the Kookaburra Road property. 119Paragraphs 23, 24 and 25 of Mr Tamburri's and Anvest's defence pleaded a series of agreements authorising the making of particular payments under the 2011 loan facility. These pleaded agreements set up their own class of pre-contractual conduct, which Anvest and Mr Tamburri said should be taken into account to determine what items could be set off against the vendor finance under the December 2010 deed or the 2011 Loan Facility. As a result of the Court's conclusions as to the proper construction of clause 4L, which accept the Anvest/Tamburri construction, it is not necessary to consider any alternative basis on which outgoings in respect of the Kookaburra Road property might be set off against the vendor finance.

The Pleading Issue 120There was also a dispute about the extent of the pleadings. Mr Sanfilippo argued that it was not permissible for the Anvest/Tamburri interests to look at Landco as a trustee of the Kookaburra Road property as such analysis is beyond the pleadings. In his alternative claim Mr Stitt argued Landco should be seen as holding 50 per cent of the Kookaburra Road property on trust for Mr Tamburri and Mr Sanfilippo. 121The Anvest/Tamburri case does not go beyond the pleadings. Mr Stitt's trust submission was only put in the context of the proper construction of clause 4L. The Anvest/Tamburri interests do not seek any trust-related relief. Rather they seek to have the Court construe the contract. The pleadings are apt for that purpose. And in any event as these reasons show, the December 2010 deed does not declare that Landco actually held its 50 per cent of the Kookaburra Road property on trust for Mr Sanfilippo and Mr Tamburri. Moreover, the Anvest/Tamburri trust argument was only a fall back position if their primary submissions about the construction of clause 4L were not accepted. But their primary submissions have been accepted in these reasons. Application of this construction to general Kookaburra Road Outgoings 122The Court's construction of the December 2010 deed clause 4L resolves most of the contested classes of Kookaburra Road related outgoings in favour of Anvest/Tamburri. Most of these classes of payments are uncontroversial. Amounts representing Mr Sanfilippo's share of the following outgoings may be deducted from the Anvest/Tamburri obligation to repay the vendor finance: Landco's mortgage payments to the NAB; Landco's land tax payments to the Office of State Revenue; Landco's payment of council rates; and the valuation and administration fees that Landco has paid in respect of the Kookaburra Road property. All of these outgoings are recorded in exhibit 4. 123Even in final submissions some of the categories of miscellaneous expenditure that the Anvest/Tamburri parties claimed did not appear to have been fully conceded by Mr Sanfilippo as being "in respect to this property". But in the circumstances, all of these other categories of expenditure were outgoings paid "in respect to this property" and may be set off against the Anvest/Tamburri vendor finance repayment obligation. 124There were a number of these categories of miscellaneous expenditure. All of them in my view were outgoings paid "in respect to this property". The NAB required a valuation of the property; failure to conform with NAB's request may have exposed Landco to liability to NAB and put the property at risk of sale. Landco expended funds on lawyers seeking recovery of money from Beneficial. Were that money to have been recovered it would have been brought to account in reduction of the vendor finance, as it would have reduced Landco's mortgage payments to the NAB. So, expenditure on attempting to recover that money was outgoings paid "in respect to this property". And the real estate agents fees paid concerning the possible sale of the Kookaburra Road property were outgoings should be seen as subsidiary to the realisation of Mr Sanfilippo's effective 25% interest in the property and are therefore outgoings paid "in respect to this property". This covers all the minor residual categories of expenditure in dispute. 125Finally, it is not efficient for the Court to attempt to calculate the precise amount to be set off against the Anvest/Tamburri vendor finance repayment obligation. In the light of the Court's reasons, it is more convenient for the parties to bring in short minutes of order calculating the amount more precisely. 126But there were three other outgoings that raise issues that require more specific consideration. The special issues of GST, CGT and workers compensation 127In addition to the general arguments advanced in relation to clause 4L the parties advanced argument about GST, CGT and workers compensation. It is necessary to address these additional arguments now. 128GST. Each party deployed expert evidence on the GST item. It was accepted that GST of $425,000 was charged on the sale of the Kookaburra Road property on 23 December 2011. One quarter of that is approximately $106,000. The proceeds of the sale of the Kookaburra Road property were applied to satisfy debts owing to the Office of State Revenue and NAB. The Anvest/Tamburri parties contend that does not void Landco's obligation to remit the GST payable to the ATO, although no amount on account of GST appears to have been paid to the ATO as yet. Mr Sanfilippo on the other hand complains that amounts for which Landco has been reimbursed in the purchase agreement should not be deducted from the vendor finance. 129It seems to me that this issue can be resolved in the following way. If after all other payments of monies received under the contract are paid to the Office of State Revenue and the NAB and there is GST actually paid to the ATO, then all that seems to have happened is that GST reimbursement from the purchaser has been applied to satisfy other Kookaburra Road related liabilities of Landco. As a result of the Court's wider conclusions here it may be that this issue does not have to be decided. If monies received on account of GST have been applied to meet other Kookaburra Road obligations then those other obligations may be brought to account in deduction of the vendor finance. This may need to be investigated further by the parties in light of the Court's reasons. But prima facie Mr Sanfilippo's argument would appear to be correct that if Landco has been indemnified for unpaid GST it is not out of pocket and this is not "an outgoing paid" within clause 4L(1). 130CGT. The parties debated whether or not a "capital gains tax event" had occurred within clause 4L(5). Rather than deal with this issue theoretically, based upon what the experts have said, the Court invites submissions from the parties as to whether or not this can be left to an assessment by the Australian Taxation Office, rather than speculating what the Tax Office might do based on expert evidence. The Court could perhaps make declarations of right as to the parties' entitlements under clause 4L(5) once that assessment is available. If this is not acceptable to the parties they will need to put supplementary submissions as to why. 131Workers' compensation. The Anvest/Tamburri parties seek to deduct $11,000 in workers compensation payments from their vendor finance repayment obligation. The Anvest/Tamburri parties ground their claim under clause 4K, which is set out above. They do not contend that the monies the subject of this claim have anything to do with the Kookaburra Road property. Clause 4K gives the vendor responsibility for workers compensation and other payments up to accumulative total of exceeding one hundred thousand dollars, independently of the Kookaburra Road property. Mr Sanfilippo denies that this claimed set off is available to the Anvest/Tamburri parties. A number of issues arise on this claim. 132First, Mr Sanfilippo raises a timing issue. Mr Sanfilippo contends that the invoice the Anvest/Tamburri parties rely upon is too late for the Anvest/Tamburri parties to take advantage of clause 4K, which clause refers to "workers compensation... for the period up to 30 June 2010". On 30 June 2011 LCI Partners invoiced Landco $22,000 plus GST for workers compensation audit accounting fees. Although the invoice is dated 30 June 2011 the invoice relates to an audit for the period 11 June 2006 to 11 June 2009. Thus the audit relates to the reconciliation of workers compensation obligations for the financial years prior to 30 June 2010 and therefore comes within time. 133Secondly, Mr Sanfilippo raises a characterisation issue. He submits that the relevant invoice is for audit costs, not for claims for the payment of workers compensation. This submission draws upon the terms of clause 4K, which says that the "vendor shall remain responsible... for a cumulative total amount... in respect of any claims for payment of... workers compensation". Mr Mr Sanfilippo submission is persuasive on this point. An invoice for a workers compensation audit is not in my view a "claim for payment of... workers compensation". This claim for deduction from the vendor finance will be disallowed on this ground. 134Thirdly, Mr Sanfilippo raises an issue based on the scope of the July 2011 loan facility, which only allows deductions from the vendor finance on the grounds set out in clause 4L of the December 2010 deed. The July 2011 loan facility does not refer to deductions from the vendor finance based upon clause 4K. This would in my view have provided another basis to deny the Anvest/Tamburri parties a right set off in respect of these workers compensation audit invoices. But because the characterisation issue has been decided adversely to the Anvest/Tamburri parties, it is not necessary to decide this question 135In light of the Court's conclusions and subject to the more specific issues, the parties should be able to bring in short minutes of order to calculate the precise amount of the set off from the vendor finance payable to Mr Sanfilippo. Conclusions and Orders 136For the foregoing reasons the Court largely accepts the construction that the Anvest/Tamburri parties advance in relation to clause 4L of the December 2010 deed. But these reasons show that a further determination may be necessary with respect to the specialised issues of the goods and services tax and capital gains tax. The best course in the circumstances is for the parties to be required to bring in short minutes of order to give effect to these reasons. 137The Anvest/Tamburri parties have been mostly successful these proceedings. Ordinarily costs would follow the event. It may be that one or other party wishes to argue for a special costs order. If so that argument should be able to be conducted orally this week, if it is required. The parties should liaise with my associate to arrange a suitable time for such argument to take place if it is required. 138The orders of the court therefore are as follows: (1)Direct the parties by 5pm on Tuesday 27 May to bring in short minutes of order to give effect to these reasons. (2)Direct the parties to liaise with my associate to arrange a suitable time this week, if it is required, to resolve any issues concerning the form of final orders and concerning costs.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 27 May 2014

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