Simons Investments & Developments Pty Ltd as trustee for Simons Investments & Developments Trust v Penshurst Properties Pty Ltd as trustee for Penshurst Property Trust

The statement of claim

1. In pars 4 to 9 of its statement of claim, Simons pleaded, in the alternative, that Simons entered into an oral loan agreement with Penshurst, or with Penshurst, a Mr Dobri Maksimovic and Mr George Alex. Mr Alex is the brother of Ms Alex. Simons alleged that, whichever agreement was made, it was made in or about February 2010. Under the agreement, as alleged by Simons, Simons made a loan to the borrower, or borrowers, of $400,000 in cash, on the basis that the loan would be repaid with $40,000 interest within 1 month. The particulars of the agreement were the same in each case. The agreement was made orally between Mr Jimmy Kendrovski on behalf of Simons and Mr Dobri Maksimovic on behalf of the borrower, or borrowers.
2. During the cross-examination of Mr Kendrovski, it became clear that any agreement for loan that was made was made in late 2009, and not February 2010. Simons was not incorporated until 29 January 2010, and Penshurst was incorporated on 6 January 2010. Accordingly, the loan could not have been made by Simons to Penshurst at the time it was alleged to have been made.
3. In submissions, Simons accepted that the loan was in fact made by Mr Kendrovski to Mr Alex, or perhaps to Mr Alex and Ms Alex.
4. Simons pleaded in par 10 of its statement of claim that, on 7 December 2010, Simons, Penshurst and Prespa Pty Ltd entered into a joint venture agreement under which they agreed to subdivide the property situated at 1 Victoria Avenue, Penshurst, to develop the subdivided lots, to sell those lots, and to share the profits from the sale of the lots equally.
5. Simons' primary allegation is based upon par 11 of its statement of claim, which alleges: On 7 December 2010, Simons, Penshurst and Ms Alex entered into an agreement ("the Deed") pursuant to which: (a) Penshurst agreed and acknowledged that it owes the sum of $440,000 to Simons; (b) Penshurst agreed to pay Simons the sum of $440,000 from its first available profit share to be received by it from the joint venture; (c) Penshurst directed and provided an irrevocable authority to the solicitors for the joint venture to deposit the amount of $440,000 into the nominated bank account of Simons; and (d) Ms Alex provided a personal guarantee to Simons for the performance by Penshurst of its obligations under the Deed. Particulars The Deed was in writing and was dated 7 December 2010.
6. In the balance of its statement of claim, Simons alleges circumstances in which the joint venture was performed, and monies became available from Penshurst's share of the profits of the joint venture to repay the debt of $440,000 to Simons. Penshurst has not paid the debt to Simons. Simons seeks a number of declarations and orders; but in essence, it seeks an order that Penshurst pay to Simons the sum of $440,000 plus interest, and that the Court make appropriate orders to enforce the charge which it claims arose out of the irrevocable authority to the solicitors for the joint venture in respect of all available parts of Penshurst's share of the profits of the joint venture.

The defence

1. In its defence, Penshurst in effect alleged that it did not become indebted to Simons in February 2010. A number of reasons for that allegation were pleaded, but they need not be considered in detail. As I have noted above, Simons now accepts that the original loan was not made by Simons to Penshurst.
2. Penshurst admitted that it was a party to the joint venture agreement, but said that it only did so in its capacity as trustee of the Penshurst Property Trust.
3. Penshurst admitted that, on or about 7 December 2010, Ms Alex, in her capacity as the director of Penshurst, signed a document that purported to be a deed between Simons and Penshurst. It alleged that the deed was not sealed or delivered, and is invalid and of no effect.
4. Penshurst stated that, during the period 18 November 2013 to 25 March 2014, it has received $453,802.20 in profit share under the joint venture agreement.
5. Penshurst also alleged that Ms Alex signed the deed under duress (par 23); that Simons is estopped from seeking to enforce the deed by reason of an estoppel (par 24); and that on 28 November 2013 the parties to the joint venture entered into an agreement (the November 2013 Agreement) that had the effect of excluding an amount of $363,188.38 of Penshurst's share of the joint venture profits from the amount against which Simons could claim repayment of the debt. Of these three defences, Silver Pinball ultimately did not make any submission in support of the estoppel defence.

The facts

1. I am satisfied that the evidence establishes the following facts relevant to the determination of the remaining issues in dispute between Simons and Silver Pinball.
2. Apart from the circumstances in which the loan of $400,000 was originally made, there was little controversy about the facts in this matter. Simons read the affidavits of eight witnesses, two of whom were cross-examined. Aspects of the evidence given by the principal of Simons, Mr Jimmy Kendrovski, in cross-examination were unsatisfactory. Mr Kendrovski frankly admitted, however, that his recollection was not good as a result, he claimed, of the time that he had spent as a professional fighter. I accept that Mr Kendrovski attempted to answer the questions put to him as truthfully as he could. In the end, apart from the question of the circumstances in which the loan of $400,000 was originally made, the issue of Mr Kendrovski's credit has not been significant. Silver Pinball did not read any of the affidavits that had been filed by Penshurst. I should add that I accept the evidence given by the other witness who was cross-examined, Mr Dobri Maksimovic.
3. In 2009, Mr Maksimovic commenced working with Mr Alex in Mr Alex's labour hire business, after Mr Alex asked Mr Maksimovic to become a partner in the business.
4. In November 2009, Mr Alex asked Mr Maksimovic to obtain a loan for him of $400,000 for 1 month at 10% interest, to pay bills for his businesses and rates and water rates for his family property at 1 Victoria Avenue, Penshurst. Mr Alex said that he expected to be able to repay the loan when he received a cheque through one of his businesses, for an amount in the order of $800,000 or more, that was payable by Westfield.
5. In late November or early December 2009, Mr Maksimovic asked Mr Kendrovski for a short term loan of $400,000. I accept Mr Maksimovic's evidence that he did not ask for the loan to be made to himself, or himself and any other person. The loan was to be made to Mr Alex for the purposes of his labour hire business, traffic development business and property development company. At that time Penshurst had not been incorporated. They agreed on a loan for 1 month at 10% interest.
6. In mid to late December 2009, Mr Kendrovski gave Mr Maksimovic $400,000 in cash. The cash was in two envelopes, which each contained $200,000. Mr Maksimovic took the cash to Mr Alex at his house, and gave the envelopes to him. Mr Maksimovic observed Ms Alex taking cash from where Mr Alex had put the $400,000, on about three occasions during the next month.
7. Penshurst was incorporated on 6 January 2010.
8. Simons was incorporated on 29 January 2010. Ms Anita Simonovski, Mr Kendrovski's then de facto partner, and now wife, became the sole director and secretary of Simons.
9. In January or early February 2010, Mr Kendrovski paid a visit to Mr Maksimovik, who informed him that Mr Alex was not in a position to repay the loan on time.
10. In mid-February 2010, Mr Maksimovic, on behalf of Mr Alex, made a proposal to Mr Kendrovski that the loan could be repaid through the sale or joint development of the Victoria Avenue property. That property was owned as to 25% by Mr Alex, 25% by Ms Alex, and as to 50% by their mother, Ms Georgina Alex. Mr Kendrovski was interested in the proposal. Mr Kendrovski informed his cousin, Mr Mijovski, who is a builder, of the proposal. Mr Mijovski is a director of Prespa Pty Ltd.
11. During February 2010, discussions occurred between Mr Kendrovski, Mr Alex, Ms Alex, Mr Maksimovic and Mr Mijovski, in which it was agreed that Mr Alex, Mr Kendrovski and Mr Mijovski would develop the Victoria Avenue property as a joint venture through their companies, after purchasing it from the Alex family, and that Simons would be repaid the $440,000 from Penshurst's share of the profits.
12. Ms Alex became a director of Penshurst on 1 March 2010, and acted as a director of that company from that date.
13. On 4 May 2010, a contract for the sale of the Victoria Avenue property was exchanged for a price of $2.09 million. Mr Kirco Jakimovski solicitor, acted for the purchasers, Penshurst, Prespa and Simons.
14. The Penshurst Property Trust was created by trust deed made on 13 May 2010. Ms Alex officially became the director of Penshurst on that date.
15. The contract for sale of the Victoria Avenue property was completed on 16 June 2010. Penshurst, Prespa and Simons became registered proprietors of the property as tenants in common in equal shares.
16. On 11 August 2010, Mr Jakimovski prepared a draft joint venture agreement and circulated it to the joint venturers.
17. In mid-August 2010, a meeting occurred at the Roxy Hotel in Arncliffe, between Mr Mijovski, Mr Kendrovski, Mr Simonovski, Mr Alex and Ms Alex, in which Mr Kendrovski told Mr Alex that he needed security for the $440,000 that was outstanding. Mr Alex said to Mr Kendrovski that Simons would get its money when the units in the joint venture project were sold.
18. In November 2010, a meeting occurred at the Gecko Bar and Restaurant in Brighton-le-Sands between Mr Alex, Ms Alex, Mr Kendrovski, Ms Simonovski, Ms Mijovski, Mr Mijovski, and a Mr Peter Kay and his girlfriend and son. During the meeting, Mr Alex produced a draft joint venture agreement, which had been drafted by his solicitor. Mr Kendrovski said that he was happy with the draft joint venture agreement, because it contained a term that would require the $440,000 that was owed to Simons to be repaid out of Penshurst's share of the joint venture proceeds. The relevant term was in substance the same as the operative part of the deed that was later signed on 7 December 2010.
19. In early December 2010, a meeting occurred between Mr Jakinovski, Mr Mijovski, Mr Kendrovski, and Ms Alex, in which it was agreed that the clause in the draft joint venture agreement about the repayment of the $440,000 loan should be omitted, and put into a separate document, because it did not relate to Prespa.
20. I accept Mr Kendrovski's evidence that he told Ms Alex that Simons would only enter into the joint venture agreement if Penshurst agreed to repay the money that Mr Kendrovski had loaned to Mr Alex in late 2009, plus the outstanding interest, out of its share of the proceeds of the joint venture. Penshurst was not under any duress when it agreed to that arrangement. Penshurst was acquired by Mr and Ms Alex, and the Penshurst Property Trust was established, for the benefit of Mr and Ms Alex and their family. It was, in effect, the alter ego of Mr and Ms Alex.
21. The final form of the joint venture agreement was executed on 7 December 2010.
22. Clause 6 of the joint venture agreement provided for the contribution of capital and share of profits and losses in the following terms: The parties must contribute the capital required to complete the project in the following proportions and will share in the profits and losses of the venture in the same proportions. Party one-one third share Party two-one third share Party three-1/3 share = 3/3 share
23. The distribution of the proceeds of sale was dealt with by clause 10, which provided: (a) Profit Received shall be calculated as Gross Revenue, being all incoming revenue received in relation to the sale of any part of the Property, less payments made in the following priority: (i) Firstly, in satisfaction of any registered or unregistered mortgages (including a loan from any Venturer) on the property including the amount of the principal, interest, costs and any other amounts payable by the venturers to the mortgagees in relation to the project. (ii) Secondly, in satisfaction of any legal expenses and real estate agents commissions. (iii) Thirdly in satisfaction of any unpaid tax invoices owing to third-party creditors of the joint venture project. (iv) Fourthly, in satisfaction of any unpaid tax invoices owing to third party creditors of the builder. In the event such payments are made, same amounts will be deducted from the second party's profit share. (v) Fifthly, in satisfaction of any GST of the joint venture project. b) Subject to the terms of this Agreement, the balance of the Profit Proceeds, shall be distributed equally between the joint venturers.
24. The deed concerning the repayment of the loan was also executed on 7 December 2010. Mr Jakimovski prepared the deed himself by copying the term that had previously been in the draft joint venture agreement, and making consequential changes to ensure that the term, which had been transposed to a separate deed, was meaningful.
25. The operative part of the deed provided as follows: The first party [Penshurst] agrees and acknowledges that it owes the sum of $440,000 to the second party [Simons]. The first party agrees to pay the second party the sum of $440,000, from the first party's first available profit share to be received from the joint venture project at 1 Victoria Avenue, Penshurst. The first party directs and provides you irrevocable authority herewith to the Joint Venture's solicitors to deposit the amount of $440,000 into the nominated bank account of the second party. The director of the first party attending this agreement on behalf of the company [Ms Alex] shall be deemed to be the Guarantor and provides herewith a personal guarantee to the second party.
26. A sequestration order was made in respect of the estate of Mr Alex on 19 April 2011. As it happens, the commencement of Mr Alex's bankruptcy related back to a date before the date of the contract for the sale of the Victoria Avenue property.
27. Mr Alex's trustees in bankruptcy commenced proceedings in the Federal Court of Australia on 15 November 2013. The trustees sought declarations and orders based upon Mr Alex alienating his share of the Victoria Avenue property after the date his bankruptcy commenced.
28. On 18 November 2013, in the Federal Court proceedings, the Court made an interim order, which required the joint venture parties, together with Mr Alex and his mother, to pay the net proceeds of sale of the home units that had been constructed as part of the joint venture project in the manner required by the order. Order 2(k) had the effect that one quarter of the Net Profit Received (as defined) was to be paid into an interest-bearing trust account in the names of the solicitors for the trustees and Mr Jakimovski. Order 2(l) permitted the payment of three quarters of the Net Profit Received to the joint venture parties "to be distributed as agreed between them". The interim orders were extended (subject to minor variations) until 27 March 2014.
29. The rationale for the interim orders concerning the disposition of the Net Profit Received was apparently that Penshurst was entitled to a one third interest in the Victoria Avenue property, as well as a one third interest in the joint venture. The trustees alleged that Penshurst had not actually paid to the vendors its one third share of the purchase price. Accordingly, the trustees' proceedings were directed at recovering Penshurst's share in the Net Profit Received, or some part of that money. It is also apparent that the Federal Court was satisfied that, as Penshurst was entitled to one third of the Net Profit Received, an appropriate amount for the purposes of the interim orders was one quarter.
30. On 28 November 2013, the joint venture parties entered into an agreement regarding the funds that were the subject of the Federal Court orders, as was permitted by order 2(l).
31. It is significant that the agreement had the following heading: "Agreement between the joint venturers for the distribution of nett (sic) profits in relation to the townhouse development known as 1 Victoria Avenue, Penshurst NSW 2222". The aspect of the heading that is important to the construction of the relevant terms of the agreement is the words "for the distribution of net profits".
32. The 28 November 2013 agreement included the following terms: 7. The Joint Venturers agree that: a. Kirco Jakimovski from JK Solicitors hereafter referred to as the "Solicitor for the Joint Venture" shall continue to act as the solicitor for the Joint Venturers. b. As per Order 2(l) of the Court Orders, three quarters of the Profit Received shall be distributed to the fourth to sixth respondent (sic) as agreed between them. The profit referred to in this item of the Court orders shall hereafter be referred to as "the three quarters of net profit". c. As per Order 2(k)(i) of the Court Orders one quarter of the Net profit received shall be paid into an interest-bearing trust account in the names of the solicitors for the trustee and Kirco Jakimovski solicitor for the fourth to sixth respondents. The profit in this item of the Court Orders is hereafter referred to as "the one quarter of net profits held in trust". d. The monies held in the account referred to in Order 2(k) of the Court Orders are not to be paid or disturbed except under an order of the Court. e. The distribution of "the three quarters of net profit" shall be carried out by the "Solicitor for the Joint venture" as follows: I. 33 and 1/3% to Simon's (sic) Investments II. 33 and 1/3% to Prespa III. 8 and 1/3% to Penshurst Properties. 8. After Simon's (sic) Investments and Prespa receive the distribution of "the three quarters of net profit" as set out in paragraph 7(e) above herewith, Simon's (sic) Investments and Prespa agree to make no claim for "the one quarter of net profits held in trust". 9. The Joint Venturers agree that notwithstanding any other provision in this Agreement that paragraph 7(e) of this Agreement is to operate as an irrevocable Authority for Payment to the Solicitor for the Joint Venture.
33. Penshurst's 8 1/3%, when added to the 25% that was retained in accordance with the Federal Court's interim orders, made up Penshurst's 33 1/3%.
34. The proceedings now before the Court were commenced by summons filed on 25 March 2014. At that time, of the 22 home units that had been constructed as part of the joint venture project, only units 8, 9, 17 and 22 had not been sold. As I understand it, the proceedings were commenced with some urgency, in anticipation of an expected settlement of the Federal Court proceedings, which would involve an agreement concerning the application of the money then held by Mr Alex's trustees under interim order 2(k). An interlocutory injunction was made by this Court that the net proceeds from the sale of unit 17 be deposited into an account controlled by Simons and Penshurst.
35. As at 26 March 2014, $363,138.38 was held by Mr Alex's trustees under interim order 2(k).
36. The Federal Court proceedings were in fact settled on 27 March 2014. Under that settlement, it was agreed that Mr Alex's trustees would be paid $250,000, and the remaining amount of $113,138.38 would be paid to Penshurst.
37. The $113,138.38 was in fact paid by Mr Alex's trustees to Penshurst in accordance with the settlement. That amount is therefore no longer available to be subject to the charge that Simons claims was created by the deed.
38. The interlocutory orders made by this Court on 25 March 2014 were extended on 28 March 2014. Penshurst's one third share of the net proceeds of sale of unit 17 was required to be paid into a joint account controlled by the solicitors for Simons and Penshurst.
39. In due course, on 7 May 2014, $182,524.59 was deposited into the joint account.
40. On 18 June 2014, by further interlocutory order of this Court, $37,425 from the net proceeds of sale of unit 8 was paid into the joint account.
41. A further $70,000 was paid into the joint account on 5 September 2014, from the net proceeds of sale of unit 9, in accordance with a further interlocutory order of this Court.
42. The amount in the joint account is now $289,949.59, plus any interest that has accrued on the money deposited.
43. The only home unit that remains unsold is unit 22. Penshurst's one third share of the net proceeds of sale of unit 22 will therefore be the only additional fund, when added to the $289,949.59, that will be available for execution under the charge that Simons claims was created by the deed.

Proper construction of the deed

1. I will first consider the effect of the deed on its proper construction. As a deed, the agreement will be effective to create legal rights between the parties to it in accordance with its terms, even if Simons did not provide consideration to Penshurst. If Silver Pinball's submission that Simons did not provide consideration to support the deed is made out, the only effect will be that Equity would not enforce any charge that was intended to be created by the deed.
2. By the first sentence in the operative part of the deed, Penshurst, as trustee for the Penshurst Property Trust, became indebted to Simons in the sum of $440,000. That legal result flows from Penshurst's agreement, as expressed in the first sentence, and is effective even if, before the deed was executed, some party other than Penshurst, such as Mr Alex, was the person who owed that sum to Simons.
3. The natural meaning of the second sentence in the operative part of the deed is that Penshurst agreed to pay to Simons the $440,000 from Penshurst's "first available profit share" to be received from the project. That promise concerns the timing of the payment, and also the priority of Simons' entitlement to payment, in relation to the other purposes for which Penshurst may wish to apply the whole of the profit share in the project to which it became entitled. Simply put, Penshurst had to pay the first $440,000 from its profit share to Simons.
4. Silver Pinball submitted that the second sentence had an additional effect, being that it limited Simons' entitlement to be paid the $440,000 to being paid out of the first $440,000 of profit share that Penshurst received, so that if, for any reason, including the permission of Simons, some or all of the first $440,000 profit share was not paid to Simons, Simons' entitlement to receive payment was pro tanto reduced by that amount.
5. That submission should be rejected. It is inconsistent with the clear commercial intent of the deed. There is no reason - and none was suggested by Silver Pinball - as to why the parties to the deed first created the obligation imposed on Penshurst to pay the full $440,000 to Simons, and then provided that it was only necessary for Penshurst to pay that amount to the extent that Simons was able to ensure that it was paid out of the first $440,000 of profit share received by Penshurst. As I have said above, the second sentence of the operative part of the deed was concerned with timing and priority, and not with any limitation upon the amount actually required to be paid.
6. In submissions, Simons pointed to an aspect of the joint venture agreement that supports its submission as to how the deed should be construed. In my view, it is clear from the history of the parties' negotiations in relation to the proposed joint venture, that the joint venture agreement and the deed were intended to form part of the one transaction, so that it is appropriate to have regard to the terms of the joint venture agreement for the purpose of construing the deed.
7. Clause 10 of the joint venture agreement, which provides for the distribution of the proceeds of sale of the properties to be constructed as part of the joint venture project, and which is set out above, has the effect that the Net Profit Received was to be calculated on the basis of all of the Gross Revenue, being all incoming revenue received in relation to the sale of any part of the property, less all of the payments listed in pars (i) to (v). It was only then that the balance of the Profit Received was to be distributed equally between the joint venturers.
8. The effect of this provision was that, in a strict legal sense, each joint venture party's profit share was only to be received at some time towards the end of the joint venture, when it was finally possible to calculate the Profit Received. Strictly, that required the parties to know what all of the payments that were required to be deducted were.
9. If the joint venture agreement had been applied strictly in accordance with its terms, then interim payments of profit share would not have been received by the individual joint venture parties, before the final profit share could be determined. The joint venture agreement, therefore, did not contemplate that there would be separate receipts of profit share at different times over the course of the joint venture. That has the effect that Silver Pinball's submission that the deed should be construed on the basis that Simons was only entitled to receive payment, if that payment was made out of the first $440,000 of profit share received by Penshurst, but it was not entitled to be paid out of later receipts of profit share, loses its meaning. There was only intended to be one receipt of profit share.
10. It is true that the parties to the joint venture agreement apparently agreed that informal interim distributions of profit share would be made, apparently upon the assessment of the parties that interim distributions could safely be made, without risking the possibility that there would be insufficient money available from the sale of later parts of the project assets to meet all of the joint venture's costs. That informal arrangement, which is not expressly contemplated by the joint venture agreement, does not have any effect on the proper construction of the deed.

Creation of charge

1. A charge may be created over real property by a charge or direction in a settlement, will or other instrument, whereby the property is expressly or constructively made liable or specifically appropriated to the discharge of a debt: Fisher & Lightwood's Law of Mortgage (3rd Australian edition) [2.3].
2. In Jackson v Richards [2005] NSWSC 630; (2005) 12 BPR 23,091 White J said: [17] The critical question is whether it should be inferred that the parties intended that if the Drummoyne property were to be sold, the defendant's share of the proceeds of sale were to be kept separate from his other assets, and the costs paid from that separate fund. [18] An agreement between a debtor and his creditor that the debt owing shall be paid out of a specific fund coming to the debtor will create a valid equitable charge upon the fund and operate as an equitable assignment of it. (Rodick v Gandell (1852) 1 De GM & G 763 at 777, 778; 42 ER 749 at 754). However, for this principle to apply, there must be a specific fund from which the debt owing is to be paid. In Swiss Bank Corporation v Lloyds Bank Ltd [1982] AC 584, Buckley LJ said (at 595): If the debtor undertakes to segregate a particular fund or asset and to pay the debt out of that fund or asset, the inference may be drawn, in the absence of any contra indication, that the parties' intention is that the creditor should have such a proprietary interest in the segregated fund or asset as will enable him to realise out of it the amount owed to him by the debtor. [19] For such a charge to be created by an agreement to pay a debt out of a fund to come to the debtor, the parties must have agreed that the debtor would keep the fund separate from his other assets. (Moseley v Cressey's Co (1865) LR 1 Eq 405 at 409).
3. See also Halsted (Bankrupt) v The Official Trustee in Bankruptcy, in the matter of Halsted (Bankrupt) [2011] FCA 1242.
4. I am satisfied that the operative part of the deed created a charge over Penshurst's profit share to be received from the joint venture project, for the purpose of ensuring that the $440,000 that was payable to Simons would be paid to it first out of Penshurst's profit share. The deed identified the fund that was to be applied in payment of the amount due to Penshurst. Clause 2 of the joint venture agreement provided for a process for nominating the joint venture solicitor, and a solicitor, Mr Jakimovski, was retained to act for the joint venture. The joint venture project involved the development of the Victoria Avenue property into a number of separate home units, and the profit share of each of the joint venture parties would be generated from the sale of the home units. Eventually, the Gross Revenue from the project would be received by the joint venture's solicitor, following settlement of the individual contracts of sale. In this way the joint venture's solicitor would be able to control relevant parts of the Profit Received. Accordingly, the irrevocable authority granted by Penshurst to the solicitor under the terms of the deed to deposit the amount of $440,000 into the nominated bank account of Simons, created an equitable charge over Penshurst's profit share.
5. Although it is true that, on the face of the deed, Simons did not provide consideration to support Penshurst's promise to pay the sum of $440,000 to it, it is settled law that the Court may look beyond the face of the deed for such consideration: Yaroomba Beach Development Company Pty Ltd v Coeur de Lion Investments Pty Ltd (1989) 18 NSWLR 398 at 407-409 per Giles J (as his Honour then was); Jones v Moss [2007] NSWSC 969 at [51]-[53] per White J; and Paterson v Pongrass Group Operations Pty Ltd [2011] NSWSC 1588 at [81]-[84] per White J.
6. I am satisfied that Simons provided consideration for the obligation that the deed imposes upon Penshurst, because Mr Kendrovski said to Ms Alex on behalf of Penshurst that Simons would not enter into the joint venture unless Penshurst executed the deed. The subsequent entry by Simons into the joint venture agreement, at the request of Penshurst, provided consideration to support Penshurst's obligations to Simons under the deed. Although the deed obliged Penshurst to pay $440,000 to Simons, it bargained for the benefit of being able to participate in the joint venture as an equal third party, and that gave it the opportunity to earn a profit share greater than the amount it was obliged to pay to Simons.
7. It is clear from the history of the negotiations between the parties concerning the proposed joint venture that for much of the period of those negotiations, at the insistence of Mr Alex, the obligation that the deed ultimately imposed upon Penshurst was intended to be a part of the joint venture agreement. The obligation was only removed from the draft joint venture agreement, and inserted into a separate deed, at the request of Prespa, and on the advice of Mr Jakimovski, because the obligation to pay the $440,000 was between Penshurst and Simons, and was not an obligation with which Prespa was concerned, or intended to be privy. The deed and the joint venture agreement were therefore, in commercial reality, as between Simons and Penshurst part of a single package or transaction, and I am satisfied that the obligations that Simons undertook under the joint venture agreement provided consideration for Penshurst's promise in the deed: see Yaroomba Beach Development Company Pty Ltd v Coeur de Lion Investments Pty Ltd at 409 and 412.

Effect of the 28 November 2013 agreement

1. Penshurst pleaded, in par 25(f) of its defence, that the effect of the 28 November 2013 agreement was that, in relation to the net profit received from the sales of 13 identified home units, Simons would make no claim for 25% of those net profits, being an amount of $363,188.38. The home units that were identified were apparently all of the units that had not already been sold at the date the Federal Court made the interim orders, which included units that were the subject of current contracts of sale, and the remaining units that were not. Penshurst pleaded in par 25(g)(ii) of its defence that the sum of $363,188.38 formed part of Penshurst's first available profit share from the Project. Finally, it pleaded in par 25(h) that the consequence was that Simons is unable to recover any more than $76,811.62 under the deed.
2. It is clear from the terms of the interim orders made by the Federal Court that the Net Profit Received, as that term was used in the interim orders, related to the proceeds of sale of all of the home units that had not already been sold, including units that were subject to current contracts of sale, and units that were not.
3. The resolution of this aspect of the dispute depends upon the effect of clause 8 of the 28 November 2013 agreement, which I will set out again for convenience: 8. After Simon's (sic) Investments and Prespa receive the distribution of "the three quarters of net profit" as set out in paragraph 7(e) above here with, Simon's (sic) Investments and Prespa agree to make no claim for "the one quarter of net profits held in trust".
4. Clause 8 is somewhat misguided because it refers to Simons and Prespa receiving "the three quarters of net profit". In fact, each of Simons and Prespa would only receive one third of the total net profit. Of the three quarters, Penshurst was entitled to receive 8 1/3 % of the total. It appears that nothing turns on this, as the parties did not seek to make anything of it.
5. At least 8 1/3 % of the total net profit will therefore be available for execution under the charge, if a valid charge was created.
6. Clause 8 also contains an agreement by Simons that it would "make no claim for 'the one quarter of net profits held in trust'".
7. As at 28 November 2013, the Federal Court had made interim orders that would have the effect, if they continued to operate for the remainder of the duration of the joint venture project, that eventually 25% of the net profit from the sale of all of the unsold home units would be paid into the account operated by Mr Alex's trustees.
8. As it has happened, the effect of the settlement of the Federal Court proceedings on 27 March 2014 was that only $363,138.38 was held by the trustees at that time. Thereafter, the trustees ceased to receive any part of the net proceeds of sale of any properties whose contracts of sale were settled after that date.
9. The payment of the $113,138.38 to Penshurst, following the settlement of the Federal Court proceedings, is consistent with the 28 November 2013 agreement having the effect that Penshurst would be absolutely entitled to so much of the 25% as was not ultimately paid to Mr Alex's trustees. However, the majority of the High Court in Agricultural & Rural Finance Pty Ltd v Gardiner [2008] HCA 57; (2008) 238 CLR 570 at [35] (Gummow, Hayne and Kiefel JJ) said that "it is not legitimate to use as an aid in construction of [a] contract anything which the parties said or did after it was made".
10. If clause 8 of the agreement is read literally, together with the definition of "the one quarter of net profits held in trust" found in clause 7(c), then the effect would appear to be that Simons agreed to make no claim for 25% of the net profit of the joint venture that was payable to Penshurst out of the proceeds of sale of units received after the date of the Federal Court order. The reason is that clause 8 does not only apply to money paid into the account required by the Federal Court order, but it applies to all money required to be paid into that account. Accordingly, it would apply to money that was not actually paid into the account because of the intervention of the settlement of the Federal Court proceedings.
11. However, it is not a proper approach to the construction of the 28 November 2013 agreement to limit the consideration of the wording to clause 8 and the definition of the term "the one quarter of net profits held in trust". It is necessary to construe those words in the context of the agreement as a whole.
12. In Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640, French CJ and Hayne, Crennan and Kiefel JJ said at 656 [35] (citations omitted): [35] … this court has reaffirmed the objective approach to be adopted in determining the rights and liabilities of parties to a contract. The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding "of the genesis of the transaction, the background, the context [and] the market in which the parties are operating". As Arden LJ observed in Re Golden Key Ltd (in rec), 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". A commercial contract is to be construed so as to avoid it "making commercial nonsense or working commercial inconvenience".
13. I accept this statement of principle as to the proper approach to the construction of commercial contracts: see also Mainteck Services Pty Ltd v Stein Heurtey SA [2014] NSWCA 184 at [71].
14. There was no evidence about the process by which the joint venture parties entered into 28 November 2013 agreement. However, it is clear that it was a response to orders 2(k) and 2(l) made by the Federal Court, whereby 25% of the proceeds of sale of the home units was required to be paid into the account held by Mr Alex's trustees, and 75% could be distributed between the joint venture parties as agreed between them. Before the Federal Court order was made, on a strict construction of the joint venture agreement, the profit was not distributable until all costs were known, and had been paid, and prior to that time all of the joint venturers had an undivided one third interest in all of the net proceeds of sale. The making of the Federal Court orders disturbed that legal arrangement. As Mr Alex's trustees were pursuing Penshurst's share in the proceeds of the joint venture, Penshurst had a practical need to establish its entitlement to the money ordered to be paid into the account, and the other joint venturers had a need to separate their entitlements from the entitlement of Penshurst, which had largely become subject to the control of the Federal Court. The joint venture parties had to make the agreement contemplated by order 2(l).
15. There is nothing to suggest that the commercial purpose or object to be secured by the agreement had anything to do with the deed made between Simons and Penshurst on 7 December 2010, or even that the parties to the 28 November 2013 agreement had the earlier deed in mind when they entered into the later agreement. The purpose for the 28 November 2013 agreement is found in the title, where it is said that the agreement is "for the distribution of the net profits" of the joint venture. The purpose of the agreement was therefore concerned with how, as between themselves, the joint venturers would distribute the profit, and not whether Simons and Penshurst would vary the earlier deed.
16. A crucial aspect of clause 8 for the purposes of its proper interpretation is that part in which Simons and Prespa agreed to make no claim for "the one quarter of net profits held in trust". Clause 8 placed Prespa on the same footing as Simons. Both companies made the same promise not to make a claim for "the one quarter of net profits held on trust". That suggests that, whatever the purpose of clause 8 was, it was intended to have the same effect in respect of both of the other two joint venturers. Those circumstances reinforce my view that clause 8 was only intended to deal with the entitlement of the joint venture parties to the proceeds of sale of the home units vis-a-vis their rights under the joint venture agreement. The purpose was to sever the joint entitlement of all of the parties to all of the proceeds of sale, and to identify the money held subject to order 2(k) as being the separate entitlement of Penshurst.
17. Accordingly, notwithstanding the apparent literal effect of clause 8, on the proper construction of the 28 November 2013 agreement, it only prevented Simons claiming the 25% of the proceeds of sale of the home units that was required to be paid into the account by order 2(k) in its capacity as a party to the joint venture agreement. It did not prevent Simons making a claim against any of that money to which Penshurst was entitled by exercising its rights under the deed.

Conclusion

1. I therefore find that Penshurst, as trustee for the Penshurst Property Trust, was, at the time it was replaced by Silver Pinball, indebted to Simons under the 7 December 2010 deed for the amount of $440,000.
2. The effect of the replacement of Penshurst by Silver Pinball as trustee of the Penshurst Property Trust is that Silver Pinball is now liable to pay the $440,000 to Simons, and, as Penshurst entered into the deed in its capacity as trustee, the amount due is payable out of the trust assets.
3. Simons is also entitled to be paid interest under s 100 of the Civil Procedure Act 2005 (NSW).
4. Simons is entitled to enforce the charge created by the 7 December 2010 deed against the whole of the share of the proceeds of sale of the joint venture units to which Penshurst was entitled, and which has been paid into the account in accordance with the orders made by this Court. It is also entitled to enforce the charge against the share in the proceeds of sale of Unit 22 to which Penshurst would have been entitled had it not been replaced as trustee by Silver Pinball. Appropriate orders should be made to facilitate the enforcement of the charge by Simons.
5. There is no reason, of which I am aware, why the Court should not dismiss the cross claim filed by Penshurst against Simons.
6. The costs of the proceedings in respect of Simons claim against Penshurst and Penshurst's cross claim against Simons should be paid by Silver Pinball, as trustee of the Penshurst Property Trust.
7. I will invite Simons to prepare short minutes of order to implement the conclusions reached in these reasons for judgment, and deliver those short minutes of order to my associate, after appropriate consultation with the legal representatives of Silver Pinball.

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: 13 August 2015