Cypjayne Pty Limited v Babcock & Brown International Pty Ltd - [2010] NSWSC 180

No judgment structure available for this case.

CITATION: Cypjayne Pty Limited v Babcock & Brown International Pty Ltd [2010] NSWSC 180

HEARING DATE(S): 9-13,16,17 November 2009

JUDGMENT DATE :
12 March 2010

JUDGMENT OF: Bryson AJ at 1

DECISION: (1) On the plaintiffs’ claim, give judgment for the defendants with costs.
(2) On the cross-claim, declare that the cross-claimant CAGCare Pty Ltd is entitled to the deposit of $400,000 and interest thereon paid on 19 December 2007 and held as stakeholder by Osbornes lawyers pursuant to clause 4.2(d) of the Allocated Places Purchase Agreement.
(3) Direct that the cross-defendant Blue Hills Village Management (Liverpool) Pty Ltd direct Osbornes Lawyers to pay over the deposit and interest to the cross-claimant.
(4) Order that the cross-defendant pay the cross-claimant’s costs of the cross-claim.

CATCHWORDS: CONTRACT – Formation – Reasonable commercial endeavours. - TRADE PRACTICES ACT – Misleading and deceptive conduct – Extended negotiation for sale of Retirement Village business began September 2007 – Contracts drafted and two exchanged on 19 December 2007 for sale of Allocated Places – complex continuing negotiations and dealings involving – Heads of Agreement stating when agreements would become binding – Modifications in detail of proposed contracts and parties – Contemplated extended sequence of entry into agreements to accommodate Vendors’ concept of effects on their CGT position – Applications to Commonwealth Department of Health and Ageing for administrative approvals for transfer – Obligation of purchaser of Allocated Places to use reasonable commercial endeavours to bring about fulfilment of conditions precedent which would require decisions of others to commit capital – DOHA approvals available on 23 June 2008 but conditions precedent not fulfilled – Detailed consideration of complex facts led to findings that there was no breach of contract and no misleading or deceptive conduct – Claims dismissed deposit refunded – Decision on facts.

LEGISLATION CITED: Aged Care Act 1997 (Cth) s16
Retirement Villages Act 1999 (NSW)
Trade Practices Act 1974 (Cth) s52

CATEGORY: Principal judgment

CASES CITED: Hospital Products Limited v United States Surgical Corporation (1984) 156 CLR 41
Sagacious Procurement Pty Ltd v Symbion Health Ltd (formerly Mayne Group Ltd) [2008] NSWCA 149
Secured Income Real Estate (Australia) Limited v St Martins Investment Pty Limited (1979) 144 CLR 596
Watson v Foxman (1995) 49 NSWLR 315

PARTIES: CYPJAYNE PTY LIMITED (ACN 008 651 509) (first plaintiff)
Edwin Paul CAYZER (second plaintiff)
Sverre RODSKOG (third plaintiff)
B&L TRADING PTY LIMITED (ACN 003 742 818) (fourth plaintiff)
D&C PROPERTIES PTY LIMITED (ACN 100 441 236) (fifth plaintiff)
Maurice TULICH (sixth plaintiff)
Curtis Jack MANN (seventh plaintiff)
David BRODIE eighth plaintiff
BLUE HILLS VILLAGE MANAGEMENT (LIVERPOOL) PTY LIMITED (ninth plaintiff)
BABCOCK & BROWN INTERNATIONAL PTY LTD (ACN 108 617 483) (first defendant)
CAGCARE PTY LIMITED (second defendant)

FILE NUMBER(S): SC 2008/290462

COUNSEL: B A J COLES QC/ J J YOUNG (plaintiffs)
D B STUDDY SC/ K H BARRETT (defendants)

SOLICITORS: Harris & Company Solicitors (plaintiffs)
Watson Mangioni Lawyers Pty Limited (defendants)

- 1 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

BRYSON AJ

Friday, 12 March 2010

2008/290462 CYPJAYNE PTY LIMITED and Others v BABCOCK & BROWN INTERNATIONAL PTY LIMITED and Others

JUDGMENT

1 HIS HONOUR: The plaintiffs’ claims arise out of the proposed sale of Blue Hills Village and Blue Hills Manor, a retirement village business and aged care facility conducted at Prestons, New South Wales, by a partnership among three companies and two persons who are the first to fifth plaintiffs. Each of the sixth, seventh and eighth plaintiffs was the principal of one of the three companies, and within the Partnership each guaranteed the obligations of one partner company. The sixth and seventh plaintiffs, Mr Tulich and Mr Mann, acted together as co-managers of Partnership affairs, and were the representatives of the Partnership in dealings with others and acted so as to bind the Partners. There were some differences or disputes within the Partnership, but they do not affect the present case.

2 The Partnership owned the land on which the retirement village and aged care facility were erected; the land in Lot 100 DP 870327 and Lot 134 DP 879295. The retirement village contains 152 living units. The ninth plaintiff, Blue Hills Village Management (Liverpool) Pty Limited (“BHVML”) operated the aged care facility under some arrangement with the Partnership, and was controlled by the Partnership. BHVML held 67 low-care Allocated Places under the Aged Care Act 1997 (Cth). Holding the Allocated Places brings entitlement to subsidy from the Commonwealth.

3 Conducting a retirement village and aged care facility are activities which are heavily regulated by Commonwealth and State legislation. In practical terms it was not possible to sell the retirement village and aged care facility together unless the purchaser was or put in place a person who was an approved provider for the purposes of the Aged Care Act 1997, so approved by the Secretary of the Commonwealth Department of Health and Aging or by a delegate. (The Department is referred to as DOHA.) It was also necessary that a transfer of an operational place be approved by the Secretary: s 16-1 of that Act. An effect of s 16 was that the proposed transfer day had to be at least 90 days after the date of the application; if the application was made on 31 January the transfer date could not be earlier than 30 April. Provisions of the Retirement Villages Act 1999 (NSW) s 41 also had to be complied with; residents had to be given information about a new operator at a meeting on at least 7 days notice, and the meeting had to be at least 28 days before the change of operator. The difficulties of compliance with these statutory requirements had to be dealt with appropriately when making arrangements for a completion date. It is unlikely that a transferee would initiate procedures for a meeting under the State law unless it knew that it had approval under the Commonwealth law.

4 The defendants were all part of the Babcock & Brown Group of companies, a complicated structure the ultimate holding company of which was, at the relevant times, Babcock & Brown Limited. Babcock & Brown Limited went into voluntary administration on 13 March 2009 and into liquidation on 24 August 2009. In the complex array of proposed arrangements which can be thought of as the proposed sale CAGCare Pty Limited, the second defendant, was formed while negotiations were proceeding for the specific purpose of purchasing the Allocated Places, and for that purpose becoming an Approved Provider and obtaining approval for transfer of the Allocated Places to it from BHVLM for various considerations, principally payment of $4 million. BHVML and CAGCare entered into a written agreement for that sale on 19 December 2007; this is the Allocated Places Purchase Agreement, referred to as APPA. The first defendant Babcock & Brown International Pty Ltd (BBIPL) gave BHVML a Performance Guarantee relating to CAGCare’s obligations, executed on 21 December 2007. BBIPL was involved because it had sufficient resources to be financially responsible; CAGCare had no significant assets, subscribed capital or resources at all and could do nothing except with resources provided from elsewhere in the Babcock & Brown Group. Officers of the third defendant, Babcock & Brown Australia Limited (BBA) conducted the negotiations with the Partnership, both before and after 19 December 2007. BBA entered into Heads of Agreement dated 4 October 2007 which state the terms upon which negotiations and dealings proceeded.

5 Babcock & Brown Communities Ltd (BBC), is not a party to the proceedings; it had some association with the Babcock & Brown Group, but was not a member of that group; it was a public company listed on the Australian Securities Exchange, conducted in the interests of its shareholders and not of the Group, and had independence in the conduct of its affairs. BBA provided BBC with financial and banking investment advice.

6 Neither the evidence nor these reasons observe precision in references to parties. Entire consistency is difficult as there are nine plaintiffs, five Partners and vendors and three guarantors, and BHVM was vendor only of the Allocated Places. Events and conduct referred to as those of BBC and BBA are sometimes those of subsidiaries or related companies. In internal documents and letterheads there are many references to Babcock & Brown, B&B and to Babcock & Brown Limited. Babcock & Brown Limited was not a significant actor in the events but was in ultimate control of the companies which were. CAGCare Pty Ltd is the only company which ever truly became a purchaser. I have tried to observe precision where it is important but at many points generalised reference to BBA or to defendants is sufficient.

7 The plaintiffs’ claim is pleaded in Part C – The Plaintiffs’ Contentions of the Further Amended Summons filed at the opening of the hearing on 3 November 2009 and can be separated into three counts.

2. The defendants are estopped in relation to the APPA and the Transaction Documents. In final address this claim was not pressed.

3. The defendants are liable for an indemnity and damages for conduct in contravention of the Trade Practices Act.

8 One breach is that CAGCare did not, on 24 June 2008 or thereafter ensure the execution of the Transaction Documents (Contentions C26, C27).

9 A second breach (C27A) is not participating in steps to extend the Transfer Day approved by the Secretary of DOHA after 1 September in breach of Cl 2.1(b).

10 There is an alternative allegation of breach of Cl 2.2(a) by failing to ensure that condition precedent 2.1(b) was satisfied (C28 and C29 and C30 to C34).

11 The defendants based another claim on allegations that the defendants engaged in conduct in contravention of the Trade Practices Act 1974 (Cth) s 52 (1). “A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.” This claim is based on three representations. The Document Representation (C41 to C47) was (C41):

(a) Appending the schedules to the Asset Purchase Agreement;

(b) Inserting the description of the Babcock and Brown entities into the Warranty Deed, Loan Agreement, Deed of Assignment, Deed of Admission and Deed of Procurement of Retirement; and,

and that the Defendants had the authority and capacity to satisfy them ("the Document Representation")..

12 There are many Particulars and in the course of the judgment I will deal with those sufficiently significant to require disposition. The particulars refer to a number of matters, none of which is literally a representation to any of the effects alleged.

13 It is further alleged that the Document Representation was false in that the transaction documents were not acceptable to CAGCare (C43). It is alleged that in reliance on and induced by the Document Representation (C44) the plaintiffs conducted themselves from 19 December 2007 onwards in accordance with it, causing BHVML to enter into and perform obligations under the APPA, continue negotiations, refrain from seeking alternative purchasers and incur consultant’s costs; and that they suffered consequent loss of damage.

14 It is also alleged that the defendants made the Approval Representation (C48) in these terms:

Further and in the alternative, the Defendants represented to the Plaintiffs that all internal approvals had been obtained to effect the acquisition of the Retirement Village and the Manor and the business operations associated with them (“the Approval Representation”).

15 Again many particulars are given, a large array of acts and events which could be thought to deal with the approval representation only in very oblique ways. I deal with those which I find significant in these reasons. Again it is alleged that the Approval Representation was false. It is again alleged to have caused conduct by the plaintiffs relying on and induced by it, loss and damage.

16 The plaintiffs further allege the Completion Representation in these terms (C55):

Further and in the alternative the Defendants represented to the Plaintiffs that the defendants are bound to, and will, complete and execute the Transaction Documents after the Second Defendant obtained approved provider status …”

17 Similarly there are many particulars and allegations of reliance, inducement and damage. The particulars to paragraph 55 refer to passages in the evidence of Mr Mann and Mr Tulich similar and some cases the same as earlier referred to.

18 Senior Counsel for the plaintiff in the course of closing submissions told me (t 309/184):

COLES: … the relevant representations which are dealt with later are those which or the conduct are those which existed and induced the step taken by the plaintiffs as at 19 December to enter into the agreement and bind themselves. The relevant representations or statements or communications between the parties after that have evidentiary significance in connection with the misleading and deceptive conduct claim to the extent that they confirm or acknowledge the prior and wholly consistent representations or conduct of which the plaintiffs complain up to and including 19 December.

19 The Blue Hills Partnership Agreement was formed in April 2004; the business which it conducted had existed earlier. In 2007 the Partnership under the control of Mr Tulich and Mr Mann was minded to sell the business, and obtained the assistance of Colliers International. In August 2007 Colliers circulated an information memorandum to a small number of persons seeking expressions of interest. This led to expressions of interest including one from BBA. By the end of August 2007 BBA’s expression of interest was regarded as appropriate to pursue. BBA’s letter to Colliers International of 29 August 2007 (A2/370) offered an indicative purchase price of $30,190,000. The letter referred to a number of related subjects including there being no deduction from the offer for accommodation bond liabilities, to the need for due diligence investigation, to other subjects to be considered, and to other possible new business. Significant passages in the letter include these:

This indicative bid is made by Babcock & Brown on the basis that if Babcock & Brown is selected as a preferred bidder, Babcock & Brown intends to offer this opportunity to BBC for their consideration. We note that this will not impact the timing and process for the acquisition of the blue Hills Assets or our ability to execute on the acquisition if we are the preferred bidder.

We believe that the Blue Hills Assets would be an excellent addition to BBC’s portfolio of retirement villages as it is very complementary to BBC’s current asset mix and provides BBC with further penetration into the New South Wales market.

……

3. CONDITIONS, REPRESENTATIONS AND WARRANTIES
This indicative offer is subject to the following terms:

Detailed due diligence, by which we mean controlled access to the assets within the Blue Hills Assets, business records, operations and staff (where and when appropriate), all of which will be kept confidential; and

“2 To conduct an expeditious process with minimal disturbance to residents and staff.”

20 The letter was signed for BBA by Andrew Tyndale and Christine Ku. Mr Tyndale was the leader and Ms Ku was a member of the management team concerned with this part of BBA’s affairs. Mr Tyndale had some delegated authority to make decisions but I am not concerned with its scope as he did not exercise it. Ms Ku did not have such authority. Soon afterwards representatives of BBA embarked on due diligence investigations within restrictions imposed by confidentiality agreements. Colliers informed BBA that BBA was the preferred purchaser. But the contemplated purchaser was or soon became BBC. Communication was opened in September 2007 between solicitors, Mr Osborne of Osbornes Lawyers on behalf of the Partnership and Mr Velez of Watson Mangioni on behalf of the Babcock & Brown interests, and information was passed between them.

21 BBA and Mr Tulich and Mr Mann entered into an arrangement entitled “Heads of Agreement for the Sale of Blue Hills Village and Blue Hills Manor”. This arrangement is recorded in a letter from BBA to Mr Mann and Mr Tulich dated 4 October 2007 and the endorsed acceptance signed by them and dated 7 October 2007. (One copy in evidence is defective: see both Ex A2/452-455 and A2/461-465.) The main purpose of the letter was to record, after due diligence investigation, “a final cash offer of $30,190,000 for the assets of Blue Hills as described …”. Several passages are significant for present purposes.

We note that this letter is from Babcock & Brown on behalf of Babcock & Brown Communities and confirm that Babcock & Brown has entered into an investment advisory mandate with Babcock & Brown communities (BBC) for Babcock & Brown to act on BBC’s behalf in relation to the proposed purchase of Blue Hills (“the Transaction”).

22 There is reference to a need for final confirmatory due diligence. There was to be no deduction for accommodation bond liabilities. The transaction structure was described in Clause 2 and took the form of the acquisition by BBC of stated assets – the business, entitlements under existing residency contracts, 67 bed licences (referring to the Allocated Places) and related assets. There was a proposed sale process timetable which led to settlement at the end of November 2007 subject to Commonwealth approval. Particularly significant is par 5:

5. TERMS AND CONDITIONS
This offer is subject to the following:

Confirmatory due diligence, including controlled access to your facilities, business records, operations and staff (where appropriate) by us and our (advisors, all of which will be kept confidential; and
Internal and external approvals;
Documentation; arid
Execution of satisfactory sale contracts to effect the transfer.

… the parties agree to deal with each other in relation to the potential acquisition of Blue Hills on an exclusive basis for the duration of the timetable outlined in clause 4 unless otherwise extended by the parties.

23 Clause 8 imposed requirements of confidentiality. Following Clause 8 was this passage: (Ex A2/464)

Except with respect to paragraphs 9 and 10 this Heads of Agreement is not intended to be legally binding. No agreement for the sale of Blue Hills will be legally binding until the parties enter into future sale agreements. The parties agree that it is only at the execution of the sale agreements that a contract of sale will be entered into by the parties.

24 Mr Mann and Mr Tulich accepted by signing this statement (ExA2/455):

This heads of agreement, as outlined above, is accepted for and on behalf of the vendors of the assets referred to in paragraph 3, and we confirm that those vendors have obtained all necessary approvals and authorities to enter into this agreement.

25 In the Heads of Agreement it is distinctly stated, at two places and in two different ways, that a number of circumstances must exist before the offer is to be binding, and before an Agreement for Sale is to be binding. These statements establish what was then the intention of the parties about how they would proceed, what effect their negotiations would produce, and the circumstances in which their dealings would become binding. Unless and until a party or both parties stated or otherwise indicated in a clear way that it or they no longer intended to proceed on that basis, but intended to proceed on some other basis, these statements of intention continued in effect, and on an objective view of their communications neither party intended to enter into a legally binding contract in any other way. The parties’ communications and negotiations remained subject to these limitations unless and until there was some clear indication that their intentions had changed. Nothing happened which overtook them with respect to any proposed agreement under consideration; except that the APPA and the Indemnity passed to the point where documents were executed.

26 On 4 October 2007 Mr John Martin, Managing Director of BBC approved incurring costs of $450,000 in association with due diligence, and a Preliminary Capital at Risk (PCAR) Report was prepared by Ms Ku.

27 Thereafter those involved gave their attention to due diligence, with a number of meetings and inspections and inquiries. Mr Velez began the preparation of draft documents and sent several to Ms Ku on 12 October 2007 (A2/523) and his draft, following the letter of offer, related to three agreements, a Land Purchase Agreement, a Business Purchase Agreement and an APPA. Their communications reflect the prefinality of what was taking place: “for review”, “look forward to your comments”, and so forth.

28 An important development, not at first involving BBA, is first noted in documents in evidence at Ex A2/589G, a written advice of 25 October 2007 to Mr Mann written by Mr Scott McGill of Pitcher Partners, Accountants and Advisors, reviewing in considerable detail aspects of Capital Gains Tax on the interests and affairs of the Partners relating to the proposed sale. Soon afterwards the Partnership obtained written advice on the tax implications of the proposed sale from Mr Edgar Baltins of KPMG. The first draft advice was dated 1 November 2007 (A2/598); there was a further draft on 8 November 2007 (A2/670) and the written advice itself was dated 22 November 2007 (A3/902).

29 On 26 October 2007 Ms Ku sent a message to Mr Barry Smith of Colliers (Ex A2/593) saying that due diligence had been performed on leases which had been the subject of some expression of concern, stating

We confirm that we will proceed with the acquisition of the Blue Hills’ assets at the offer price of $30,190,000 with no deduction for the amount of the accommodation bond liabilities

30 Particular 41(c) and Mr Tulich’s first affidavit refer to a meeting on 23 November 2008 at Whitehall, where the Partners had or used an office, at which Ms Ku stated and explained that BBC did not want to have to announce the acquisition immediately. He says that Ms Ku said:

We don’t want to have to announce the acquisition immediately. So we can’t sign the land transfer straight away. Instead, we will have this ready to sign and will sign them after receiving approved provider status.

31 Mr Tulich’s affidavit also says that at a later point Mr Velez said:

BBC as a listed entity has an obligation to announce acquisitions and for these reasons BBC wants to delay announcement until next year. The allocated places agreement would be signed and the balance would be signed when BBC could make the announcement in January 2008.

32 As narrated in Mr Tulich’s evidence, these statements could not in their context convey or support the document representation as alleged. What was under discussion was the time when contemplated arrangements would be carried out, not that the contemplated arrangements were in a state where they were or could be committed to. It is extremely improbable that Ms Ku or Mr Velez said anything which would convey a commitment. Ms Ku denied doing so and Mr Velez gave an altogether different account of what he said. Mr Osborne (Affidavit 38) gave an account of what took place which was altogether different to Mr Tulich’s account and included attributing to Mr Velez a suggestion that documents be prepared, signed but not exchanged – “… hold them in escrow – that way there is no binding agreement and we can make the announcement later.” Events at this meeting did not convey or support the document representation.

33 Particular 48(a) refers to acts and events in nine paragraphs of Mr Tulich’s affidavit of 8 July 2008. Paragraph 14 of the affidavit refers to statements by Ms Ku and Mr Velez at the meeting of 23 November 2008 with which I dealt earlier. There was no support in the events of that meeting for the approval representation. Mr Velez’s evidence, which no evidence contradicted, is that he expressly referred to both sides being uncomfortable about there not being a binding agreement (Velez Affidavit at 8).

34 Particular 48(b) again refers to Mr Mann’s first Affidavit of 7 July 2008 par 23 and to the meeting of 23 November 2008. Mr Mann gives an account of a conversation initiated by Ms Ku stating that BBC did not wish to announce the purchase of the Village to the market and would prefer to wait until January or February. There was a conversation where Ms Ku and Mr Velez took the position that “The moment we purchase the Village it will become material for BBC and we will have to notify the market.” Ms Ku, Mr Osborne and Mr Velez also gave evidence about events at this meeting. Their accounts differ in emphasis and in significant detail, but in no view of any of them was the approval representation stated or conveyed. Formulation of the proposed course and the documents was only beginning and any impression created then must have been completely overtaken by other communications before 19 December 2007.

35 Particulars par 48(c) refer to Mr Osborne’s affidavit sworn on 7 July 2008 par 38 and to the meeting of 23 November 2007. Mr Osborne gives longer statements about that meeting including a statement attributed to Mr Velez, generally similar to Mr Velez’s evidence, confirming that there was to be no binding agreement until a deferred announcement could be made. Mr Osborne’s account in no way supports the approval representation. Particular 55(a) again refers to the events of 23 November 2007, and also of 2 May 2008 and 20 June 2008, in support of the completion representation, to no greater effect.

36 An event which took negotiations in a new direction was that on 19 November 2007 (or not long before) the Partnership’s solicitor Mr Osborne sent BBA’s solicitor Mr Velez a draft discussion paper seeking a revised structure for the transaction along lines indicated in Mr Baltins’ drafts, confirmed in his advice of 22 November 2007.

37 Theretofore the structure of the transaction under consideration had its complexities and inherent conditionality in that the sale of the land and the business could not take place unless there had been administrative approval by DOHA for transfer of the Allocated Places. What Mr Baltins of KPMG advised, and what the vendors wished to do involved a far more complex array of agreements and arrangements. I will not state them in all detail. They began with a series of transactions and events adjusting arrangements within the Partnership, concluding with an amendment of the Partnership Agreement. Then there was a series of steps in transactions with BBC and it was contemplated that BBC entities, not BBC itself but entities introduced into the proposed transactions by Mr Baltins’ advice, were to become partners in the Partnership and in that way take ownership of the retirement village.

38 This would be brought about by a series of steps.

(2) In step 2 BHVML would use most of the money received under the APPA to repay a loan BHVML owed to the Partnership.

(3) In step 3 BBC would lend the Partnership $24,948,240 unsecured and on terms that it would be recoverable only from the partners for the time being (not, that is, from anyone who left the Partnership). Mr Baltins contemplated (not in clear terms) deferred repayability of the loan and commercial rate of interest; at a later stage the proposed transaction differed a little from this.

(4) In step 4 the Partnership would use the $24.9 million loan and the $3.8 million received from BHVML to pay out the current accounts of the Partners and an unsecured debt of $5.6 million to a bank; these would approximately equal the moneys received.

(5) In step 5 each Partner would assign a 99.9 per cent share of its interest to one of the BBC entities for a total consideration of $1,159,580.

(6) In step 6 the BBC entities would be admitted into the Partnership, in which they would own a 99.9 per cent interest.

(7) In step 7 the BBC entities would pay $2,180 to other Partners to procure their retirement.

(8) In step 8 the original Partners would retire.

(9) In step 9 there would be a transfer of title to land from the retired Partners to the BBC entities. (No Land Sale Agreement was referred to.) There was no express reference to stamp duty on this transfer; I see the possibility that a large sum of stamp duty might be payable.

(10) In step 10 the retired Partners would pay consultant and agents’ fees; and

(11) In step 11 the new partners would progressively repay outgoing resident loans.
After these steps the loan of $24.9 million would be repayable to BBC only by the new partners, BBC’s own entities, and the old Partners would not be liable for it.

39 The account I have given of Mr Baltins’ advice has been greatly compressed. As I understand it an object was that the capital received by the old Partners on disposal of their interests in the Partnership would be a relatively small sum and would not include the amount of the loan. The array of transactions required would be much more complicated than the documents drafted by Mr Velez and then under consideration.

40 It was a central and evidently important aspect that the documents were to be entered into in sequential steps. Mr Tulich’s evidence showed that he understood that the transaction was to proceed in that way. I could not bring his mind to deal with whether the desired taxation consequences would have been achieved if all the agreements had been committed to at the same time; but I regard it as obvious that there were advantages in the sequential procedure and that the plaintiffs understood that the advantages would not be achieved without the sequential procedure.

41 Mr Osborne’s discussion paper, which was communicated to Mr Velez on 19 November and discussed soon afterwards, generally follows Mr Baltins’ advice; not in all details. The discussion paper included the following passage:

5.3 The general intent of the parties is that every step in the transaction is interdependent on the others occurring will need to be recorded in one of the documents, with provision that if anyone step fails to take place then the other agreements can be rescinded.

42 Babcock & Brown were prepared to entertain the new structure. Mr Osborne set about drafting suitable documents. On 26 November 2007 he sent Mr Velez his redraft of the APPA and the Loan Agreement. The condition precedent did not accord with what Mr Osborne had said in his discussion paper. The condition precedent received close attention and (it seems) several significant alterations before it achieved the form in which it was executed on 19 December 2007. Mr Osborne forwarded further drafts on 27 November 2007 as follows:

(2) deed of assignment of 99.9 per cent interest in partnership;

(3) deed of admission to partnership;

(4) deed of procurement of retirement.
Several of these drafts needed to be replicated to produce parallel documents involving each Partner. Mr Velez drafted an Asset Sale Agreement and sent it to Mr Osborne on 27 November. He also drafted a Warranty Deed that would see the existing Partners give warranties about a number of matters relating to Partnership affairs. Another warranty term related to the involvement of BBC.

43 BBC made a large acquisition, and announced to the Australian Securities Exchange on 1 November 2007 that it had purchased the Conform Health Group for about $160 million. This was followed by a presentation and meetings of BBC representatives with groups of investors, some of which Ms Ku attended. A majority of investors expressed views against BBC making any further acquisitions at that time. Mr Martin, the Managing Director of BBC, told Ms Ku that from the perspective of management and investor expectations it was unlikely that BBC could do another deal in calendar year 2007. As settlement of the Blue Hills purchase was contemplated for late November 2007 this meant that if the purchase was to take place within that time frame, BBC would not be the purchaser and would not provide funds.

44 Drafting of a CAR relating to committing capital of BBA began in November 2007 while Ms Ku was absent on leave, and continued when she returned. Contemplation by Ms Ku and within BBA of the proposed transaction altered, and the contemplation became that an entity of BBA would enter into the first of the sequence of transactions which the vendors now required, the APPA, using capital provided by BBA, in the expectation that BBC would again be in a position to consider acquisitions in 2008, after its half yearly results were released in February 2008; Ms Ku expected that the results would exceed market expectations. She proceeded with preparation of a draft CAR seeking approval of Mr Topfer, an officer of BBA who had some delegated authority which was not defined by evidence but was accepted as sufficient to approve the CAR relating to the proposed purchase. Mr Topfer was asked to approve placing $4 million at risk on the APPA. CAGCare was incorporated on 3 December 2007, as the contemplated purchaser in the APPA. CAGCare had no employees, has never traded, had no financial statements and has no assets. Its only activity ever has been to enter into the APPA and make the application for DOHA approvals which followed, using BBA’s money, staff and resources.

45 Procedures within BBA for considering a CAR were highly structured and included obtaining endorsements (“sign off”) by persons within BBA’s organisation with responsibilities for legal/compliance, accounting, tax, treasury and in some cases (but not this case) several others. Late in November and into December the process of drafting and considering the CAR received fairly intense attention within BBA. Meanwhile the drafting process between Mr Osborne and Mr Velez continued, also intensively.

46 Mr Osborne’s affidavit par 41 deals with a telephone conversation among Mr Osborne, Mr Velez and Ms Ku on 27 November 2007. Mr Mann and Mr Tulich did not take part in this telephone conversation. The statement attributed to Mr Velez dealt with reasons for not signing documents and holding them in escrow, which might bring an obligation to make a public announcement, and described a scheme in which a subsidiary of Babcock & Brown, not of BBC, would be the party to the APPA and the subsidiary could later be sold to BBC, so that BBC would then make the announcement and enter into the other agreement. What Mr Velez proposed was not having documents signed but not exchanged, but exchanging the APPA and making that conditional on, among other things, receipt of approval. The approval representation has no support there; quite to the contrary.

47 A meeting “with the vendors and lawyers” on 11 December 2007 (A5/1517) attended by Mr Hector of BBA’s Corporate Finance reviewed outstanding issues. Mr Hector reported that:

^th

48 It was Mr Mann’s evidence (Affidavit 7 July 2008 [28]) that a conversation occurred at the meeting on 11 December 2007 at the offices of Whitehall which supported the document representation. Mr Mann gave evidence that he said to Mr Osborne and Mr Velez “Are the contracts complete so they can be signed without any further amendments?” Both Mr Osborne and Mr Velez responded “Yes”. Mr Mann said “So when the approval is secured, we can just sign and complete the transaction.” Mr Velez, while collating his documentation and packing up responded “Yes”.

49 Mr Velez’s evidence showed that he did not recall a conversation in these terms. Mr Osborne’s affidavit dealt very briefly with this conversation in a way which did not bear out what Mr Mann said. Mr Osborne’s par 56 relates to the meeting of 11 December 2007. Mr Osborne’s evidence deals with Mr Velez speaking of BBC Nominees being parties to the unsigned documents and saying “but when we do the documents BBC entities will be substituted.” There is no support for the approval representation there. Mr Osborne’s agenda and notes (A5/1494) do not bear Mr Mann out; they are appropriate for detailed discussion of a number of draft documents and they show that a commitment about completion was not the business in hand at the meeting. Mr Mann in cross-examination accepted that the documents were not finalised and that he was not relying on advice from Mr Velez but received advice from Mr Osborne who did not ask Mr Velez whether the Agreements were complete. I find that nothing happened at this meeting which could support the document representation. The approval representation was not conveyed at this meeting; this finding is supported by what Mr Mann asserts was said then.

50 Particular 55(b) of the completion representation again refers to Mr Mann’s first Affidavit par 28 and his evidence about the meeting on 11 December 2007. A key expression in the conversation of which Mr Mann here speaks is that it his evidence that he said to Michael Osborne and Peter Velez “Are the contracts complete so they can be signed without any further amendments” and both replied “Yes”. However in cross-examination he accepted that he did not ask whether the agreements were complete (T90), although he affirmed that he asked whether the agreements could be signed without any further amendments. As he conceded soon after (T91) they could not be signed because they had not been finalised.

51 Intense preparation and attention continued during that week. On Friday, 14 December 2007 an arrangement was made for signing, that is, signing the APPA, on 19 December 2007 at 12.30 pm. Mr Osborne reported to the Partners in considerable detail by letter on Sunday, 16 December 2007 (A5/1626). This letter is distinguished for the clarity and frankness with which it refers to the irreducible uncertainties of the proposed course, and to Mr Mann and Mr Tulich’s consideration and acceptance of the uncertainty. Mr Osborne advised the Partners comprehensively on the KPMG advice and on nine different deeds and agreements. He dealt in detail with the steps which were to be taken; his advice includes paragraph 1.7 (A5/1628).

1.7. The result of BBC’s requirement not to announce this year means that the agreements will not be binding until at least January when the public announcement is made, though the unusual nature of the transaction means that in practical terms the agreements will not be binding until completion. This matter has been considered at length by the CEO’s. the position of both CEO’s (and the writer) is, taking into account all the circumstances of the negotiations and the fact the structure of the deal was radically altered half way through at the Partners’ request, there is no viable commercial option to avoid the uncertainty surrounding the binding nature of the agreements prior to completion.

52 Dealing with the APPA Mr Osborne said:

3.2 This agreement is the only agreement to be signed this year. It is the agreement referred to in Step 1 (page 8) of the KPMG letter.

3.4 the allocated places purchase agreement also indirectly sets the timing for the whole transaction – the date for the transfer of the allocated places is determined by the Secretary of the Department of Health and Ageing – and it is around this date that the timing for the rest of the transaction will be set.

53 Mr Osborne noted that the lender in the Loan Agreement was a yet to be formed entity. So too were the two B&B entities which were to become partners, referred to in several of the documents. The transfer of land had not yet been prepared.

54 Mr Osborne’s advice included a sequence of transactions (A5/1641-2) which proceeded on the assumption that the APPA would be exchanged on 19 December 2007 and the transfer would be approved by DOHA on Monday, 19 March 2008. On these assumptions the following sequence would be followed:

Assumptions

a) Exchange Allocated Places 19 Dec

THEN

Stage 1

Enter Intra Partner Agreements.

Stage 2

Stage 3

Enter Loan Agreement

Stage 4

Complete Allocated Places Agreement

Complete Fixed Assets Agreement (to be confirmed)

BHVM uses money to pay loan to Partnership

Partnership Draws down on loan

Sufficient cleared funds are paid by BBC entities to discharge Adelaide Bank mortgage

Balance of moneys drawn by direction to pay

Stage 5

20 March 2008

Stage 6

21 March 2008

BBC and BBC2 admitted into Partnership

BBC 1 and BBC2 acquire balance of interest in partnership and procure retirement of partners

Real Property Transfer for Land Delivered.

Balance of Funds Paid.

55 It was an aspect of his advice that in the course which Mr Osborne contemplated and pointed out to the vendors, the documents which had been drafted would not come into effect at the one time, but would come into effect in a series of clearly separated stages. To produce the contemplated outcome the whole series had to be completed. A previous contractual commitment to enter into each of the whole series would deprive the process of sequential entry of any meaning or effect, and would have complicated or perhaps prevented the desired outcomes. Whatever effect that would be, the course which Mr Osborne advised and the vendors and BBA embarked on was a course in which documents would be entered into sequentially and in the stated stages, not one in which there would be an initial commitment to all of them. This aspect of the transaction was introduced at the requirement of and to suit the purposes of the vendors.

56 Cross-examination of Mr Tulich showed that he well understood the uncertainties which Mr Osborne’s letter conveyed. So too for Mr Mann also.

57 Particular 41(b) refers to correspondence between Mr Osborne and Mr Velez on 17, 18 and 19 December 2007 (A5/1723, A7/2095). At about 8.02pm on 18 December one of these messages, from Mr Velez’ office, states “The revised documents are subject to our client’s review” (A7/2193). These messages are a part of an intense series of exchanges, continuing until an hour or two before the documents were signed, about document drafting. They are inherently incapable of supporting the document representation; they tend to show the contrary, prefinality and need for further consideration, and the terms of the drafts produced on and by 19 December show prefinality on their face. The process of preparing draft documents leading up to 19 December 2007 was intense, and involved among other things very close application by Mr Osborne the plaintiffs’ solicitor and repeated reference to Mr Tulich, Mr Mann or both of them. They cannot have supposed that provisions found in these documents were other than of high importance, or that entry into the documents was not truly the process which would form the contemplated relationships between the parties.

58 Some concerns arose very late. One related to the repayment deferral provisions in the Loan Agreement. The facts are obscure but there was a competition between drafting the Loan Agreement so as to provide for repayment after 200 years with potential repayment after 100 years, and alternatives of 20 and 10 years. I cannot follow from the documents from which side these alternative proposals came but Mr Osborne told Mr Velez in a message on Sunday, 16 December (A5/1643) “That term is not negotiable and must be reinstated. It’s a deal breaker.” However this was resolved in some way which did not break the deal.

59 The Partners reviewed the documents with their solicitor on 17 December 2007 (A5/1680). Other solicitors, Minter Simpson, were involved in drafting documents relating to internal arrangements within the Blue Hills Partnership. There were a number of drafting changes at late stages. On 18 December the APPA was reframed so that the guarantor BBIPL the first defendant was not a party but gave a guarantee in a separate document. This is BBIPL’s only involvement in the whole narration. The arrangement for a separate stand-alone Performance Guarantee, and the redrafting which this involved emerged at a late stage; A7/2167, 2198.

60 In its final form the APPA contained Clause 2.1 conditions precedent and Clause 2.2 reasonable endeavours (A7/2119-2120):

2. Conditions for Completion
2.1 Conditions precedent
Completion of this Agreement will not proceed unless and until each of the following conditions precedent have been satisfied or waived:

approval under the AC Act

(b) Acquisition of Village and Facility : the Buyer or a Related Corporation of the Buyer enters into agreements on terms acceptable to the Buyer and the Seller to effect the acquisition of the Village and the Facility and the business operations associated with them.

2.2 Reasonable endeavours
(a) The Buyer and Seller must each use its reasonable commercial endeavours to ensure the Conditions are satisfied as quickly as possible including by providing all reasonable assistance to the other Party as is necessary to satisfy the Conditions.

(b) The Buyer must use its reasonable commercial endeavours to become approved as a provider of aged care under the AC Act as quickly as possible.

(c) Without limiting Clause 2.2(a), the Buyer and Seller must jointly prepare and submit an application to the Secretary for approval of the transfer of the Allocated Places to the Buyer in accordance with this Agreement ( Application ) as soon as practicable and in any event within 5 Business Days of the date of this Agreement.

(d) Each Party must provide the Secretary with any information in relation to the Application as may be required of that Party and must do so expeditiously and in any event not more than 5 Business Days after receiving notice of the request.

61 The Performance Guarantee is inherently conditional in the sense that the obligations which it guarantees arise under the APPA.

62 Separate arrangements were also made, on 19 December 2007, for other documents to be guaranteed. The final form of the APPA emerged only on the morning of 19 December 2007 (A7/2194). Also on the morning of 19 December 2007 Mr Topfer approved the CAR, in effect authorising CAGCare to enter into the $4 million purchase and pay a $400,000 deposit. Ms Ku and others within BBA’s organisation were informed of Mr Topfer’s approval by an email of 11.38 am on 19 December 2007. The deposit was paid by bank transfer later that day into a bank account of Mr Osborne’s firm as stakeholders. Under Clause 4.2(d) of APPA the deposit is held by Mr Osborne’s firm as deposit in an interest bearing account at a bank. The seller is entitled to the deposit if the Agreement is completed Cl 4.2(e). The buyer is entitled to the deposit if this Agreement is not completed other than as a consequence of a breach by the buyer of Clause 2.2 (See A 72148–2149). (The intermediate position between (d) and (e) did not happen.) Entitlement to the deposit carries with it entitlement to interest under Cl 4.2(c)(ii).

63 Mr Mann alleges (Affidavit 1/31) that Mr Velez made a relevant statement during the course of signing documents at the meeting at the offices of B&B on 19 December 2007. Mr Mann alleges that Mr Mann said “Are the remaining documents in order to sign when they have to be” and Mr Velez responded “Yes”. Mr Velez’s evidence is that the exchange was to this effect. Mr Mann said “Can we sign the documents?” or “Are we okay to sign the document”. Mr Velez replied “Yes”. Mr Tulich’s oral evidence was to the effect that Mr Velez did not indicate to anybody while Mr Tulich was present that the draft documents were in a form that they could then be signed. It was altogether obvious that they were not; that must have been a prominent reality of the meeting. Mr Mann accepted in cross-examination that they were not. I do not believe this part of Mr Mann’s affidavit evidence.

64 Particular 41(e) refers to evidence of Mr Osborne about an event during the meeting commencing at 12:30 pm on 19 December 2007 at which APPA and the Performance Guarantee were signed. Mr Osborne said in evidence (Affidavit 74) that he arrived at about 12:30 pm, Mr Velez and his assistant Mr Clarke were present and so were other persons. Mr Mann and Mr Tulich arrived about 1:00 pm. Mr Osborne said that soon after he arrived, that is before Mr Mann and Mr Tulich were there, Mr Velez (Affidavit 74):

‘Peter, here are copies for you of all the documents as agreed’.”

65 Mr Osborne said (Affidavit 76): “When Curtis Mann arrived I heard the following conversation between Peter Velez and Curtis Mann.

Curtis “Are all these documents complete – can we sign them without any changes?”

66 Mr Velez denied in evidence that he said that there were copies of all the documents “as agreed” and Mr Osborne accepted in cross-examination that Mr Velez did not say that the documents were “complete”. Cross-examination of Mr Osborne showed that he had difficulty (which I regard as altogether understandable) in remembering the precise words which Mr Velez had used.

67 These exchanges are incapable of conveying or supporting the document representation. They can only have related to the documents which were then to be signed. I accept that it could well have been said by Mr Velez to the effect that he had copies of all the documents as drafted. It would not be a reasonable, indeed it would not be a rational interpretation of his saying something like that and producing documents that he was giving a commitment on behalf of the defendants that they would all be executed at some time. Obviously they were not to be executed at that meeting; as he explained, he had powers of attorney for the two which were to be executed (or rather he thought he did) and it would have been a complete departure from what either side wanted to do to make a commitment to any other documents on that occasion. The allegation that Mr Velez said or otherwise behaved in a way which indicated commitment other than to the documents which he was signing, or indicated that he was able to give a commitment other than for the documents for which he had powers of attorney, is extremely improbable. In my finding Mr Velez did not speak at the meeting on 19 December 2007 in terms which conveyed or could convey the document representation.

68 Mr Tulich’s affidavit par 15 refers to events at the meeting at Babcock & Brown’s offices on 19 December 2007 at which Mr Tulich signed documents. He says that at this event, and at a later lunch meeting at a restaurant, Mr Velez and later Ms Ku spoke to him in terms which conveyed that the Village had been sold. Mr Tulich says that when he signed the document he said “This now means the Village is sold?” and Mr Velez replied “Yes”. Mr Tulich says that during lunch Ms Ku said to him “How do you feel now that you have sold the Village?” This statement if made could not convey the approval representation; it does not refer to internal approval. When cross-examined Mr Tulich could no longer recall their conversation. Ms Ku denied it. It is quite possible that someone may have spoken to him or spoken in general terms about selling the Village, but this cannot have misled anyone who took part in the events of that meeting and knew what had happened.

69 Mr Mann’s affidavit par 31 says that at the meeting on 19 December 2007 when the APPA was signed Mr Mann said “Are the remaining documents in order to sign when they have to be” and Mr Velez responded “Yes”. This was also relied on in support of the document representation. Mr Mann acknowledged when cross-examined that he knew that the draft documents were not in a position to be signed; (T107). He asserted that Mr Velez did indicate to him that once the approval was secured the parties could just sign the documents. In my finding the conversation was about the state of preparation of the documents, on the face of the documents there were obvious qualifications about their being ready to sign which all present must have known, and the subject of all necessary approvals being obtained was not dealt with. If it had been dealt with the striking anomaly of the presence of condition precedent 2.1(b) in the APPA would, with fair certainty, have been spoken about. There is no evidence that anyone ever sought to remove it having regard to the approval representation. The plaintiffs’ case is an attempt to swear away special condition 2.1(b) and to have rights adjudged as if it were not there on 19 December; but it was plainly there before their eyes, and no one told them otherwise.

70 Mr Mann’s affidavit par 32 and par 35 are referred to in particulars. Paragraph 32 sets out a conversation with Ms Ku at lunch on 19 December 2007 which as there alleged has no possible reference to the approval representation. She denies the attributed statement. Paragraph 35 is about lunch on 7 January 2008 and contains no relevant matter.

71 Mr Osborne’s pars 76 and 77 relate to events on 19 December 2007. There is nothing in Mr Osborne’s account which tends to support the making of the approval representation. The high point is that Mr Osborne says, to the same effect as Mr Mann, that Mr Mann asked Mr Velez whether the documents were completed and could be signed without any changes and Mr Velez said “Yes”. Some of Mr Osborne’s evidence under cross-examination was less precise in what he attributed Mr Velez. On no account in evidence of what Mr Velez said did he say that all internal approvals had been obtained to effect the acquisition, or say anything which meant that or could convey it. The most that could be understood from the plaintiffs’ evidence at its highest is that Mr Velez behaved as if he thought the contemplated transactions would proceed and take place. There could be nothing misleading or deceptive in that; that is what Mr Velez, and also Ms Ku expected to happen. This could not rationally be understood to indicate that the documents which had been drafted did not mean what they said and that rights and opportunities in them would not be relied on. Any indication of expectation of progress related to progress in accordance with the documents.

72 The APPA provided for completion by 30 June 2008 in its cl 2.5(a). If any Condition was not satisfied or waived on or before 30 June 2008, the Buyer or Seller could terminate the APPA. There was some arrangement to extend this cut-off date to 31 August 2008, which was attended to, with no apparent urgency, by exchanges between solicitors and produced a Deed of Variation, executed by the parties and treated as given effect on 23 April 2008 (A7/2139, A10/3110). The APPA provided in clause 7 “subject to satisfaction or waiver of the Conditions, Completion must take place …. on the date nominated as the transfer date for the transfer of the Allocated Places by the secretary of DOHA …”. Clause 7.2 contained provisions for making the time to complete time of the essence by notice, for which fourteen days was sufficient. If completion did not take place on the date nominated by the Secretary of DOHA, it was necessary to obtain a further decision from the Secretary nominating a later date. With co-operative action this did not prove difficult on the one occasion when it happened. Arranging for this variation showed the continuing interest of both sides.

137 In my finding BBA remained sincerely attached to the project of acquiring Blue Hills Village and Manor until a very late stage; the first indications that BBA’s enthusiasm was waning came only on 11 June 2008, and before then there were no such signs. This intention survived the events in February 2008 where it became clear that BBC would not be the purchaser; this turn of events led BBA and its officers, the team led by Mr Tyndale including Ms Ku, to direct their attention to holding and warehousing the asset until BBC was disposed to take it. This involved BBA in a new need to finance the project for a significant period. There were clear prospects of large economic advantages for BBA, and also for Ms Ku and Mr Tyndale, if the contemplated transactions ended successfully. Until the litigation in July Ms Ku remained sincerely attached to furthering the project, and gave detailed and close attention to the project and to obtaining CAR approval. BBA’s pursuance of the business was sincerely intended; but not to the exclusion of any adverse commercial consideration which might emerge.

138 Intense attention was given to understanding and if possible overcoming the perceived CGT problem when noticed early in April 2008. The perception that there was a risk that $24 million of the money laid out would not be included in the cost base calculation, increasing liability for capital gains tax by many millions of dollars, would have brought consideration to a quick end if there had not been strong attachment to the project. I find that the detailed attention given to the CGT problem was genuine; indeed there was no evidence that the conduct of that business was not sincerely intended.

139 Mr Topfer was not an officer of CAGCare, and was to make a decision on behalf of BBA which had no contractual obligation. BBA was in a position of commercial risk and commercial interest which Mr Topfer was wholly at liberty to weigh up. By the end of June 2008 BBA was receiving combatively expressed demands for completion of the transaction, on documents which had not been settled, and the demands were not reasonably accommodated to the difficulties and to what needed to be done to comply. This is hardly likely to have moved BBA in the person of Mr Topfer to decide to enter more deeply into the relationship or to commit large sums of capital to it.

140 What the reasonable commercial endeavours in clause 2.2(a) are to be directed towards includes fulfilment of condition precedent 2.1(b) and entry into the agreements which would fulfil clause 2.1(b): that is, agreements on terms acceptable to CAGCare (and also to BHVLM). The obligation to use reasonable commercial endeavours is not an obligation to find some terms which are acceptable. It is plain, and the language of clause 2.2(a) in my reading recognises that reasonable commercial endeavours might be made but that the outcome might not be achieved.

141 Counsel gave me extensive references to case law in which obligations to exercise best endeavours, reasonable endeavours and similar expressions had been considered. These are not terms of art and can only be applied in relation to the contractual document in which they appear, the acts and events with which it deals and the object to which the endeavours are to be directed. In Cl 2 there is the word “commercial” which I have not seen in any of the case law cited. “Commercial” excludes any conduct which is not commercially motivated, and limits the field of action so as to exclude personal antipathy or other considerations which are not commercial in character. The obligation to use reasonable commercial endeavours is an obligation not to act capriciously, not capriciously to omit to act and not to act without some sound reason. The endeavours are commercial endeavours; as always in commerce, commercial endeavours are endeavours in pursuit of one’s own interests; perhaps interests shared with others, but still one’s own. The limits of reasonable commercial endeavours involve a judgment about what one’s commercial interests are. The obligation is more qualified than an obligation to use best endeavours, or reasonable endeavours; but such obligations do not take the actor out of an entitlement to consider his own interests. I have been assisted by discussion in Hospital Products Limited vUnitedStates Surgical Corporation (1984) 156 CLR 41 at 143 – 144 (Dawson J). As Dawson J said at 144 of “best endeavours”: “Clearly that leaves room for a balancing of interests and does not require the elimination of any conflict.”

142 If the terms available were not acceptable to CAGCare for a commercial reason, or there are no acceptable terms, not entering into transaction documents was not a breach of clause 2.2(a). Deciding against the transaction for reasons of spite, antipathy or some other reason extraneous to commerce would produce breach of clause 2.2(a); deciding against agreement, or not reaching the point of decision for a commercial reason would not breach the obligation.

143 The condition precedent and the reasonable commercial endeavours obligation are not interdependent; if there was a breach of the reasonable commercial endeavours obligation the consequences are damages; the condition precedent has effect nonetheless. If CAGCare had prevented the condition precedent from being fulfilled by intended action or deliberate breach of some other contractual obligation for that purpose, reliance on the condition precedent might not be available to CAGCare. Nothing in the facts could support that outcome.

144 In my finding reasonable commercial endeavours did not require CAGCare to press BBA to allocate capital without making the modifications to the Loan Agreement and related documents which Mr Klendjian had decided, after full consideration, were appropriate.

145 Even if it had been established that there had been a breach of clause 2.2(a) such breach had no effect on the course of events and on not entering into agreement. Until 24 and 26 June 2008 when DOHA’s decisions became known, and until the condition precedent in cl 2.1(a) was fulfilled entry into agreements would achieve nothing. When DOHA’s approvals became known CAGCare and BBA in the person of Ms Ku were in a high state of activity leading towards obtaining a commitment of capital by BBA. CAGCare had no capital of its own and the primary commercial endeavour required of it was to seek commitment of capital by BBA. Although many expressions by plaintiff’s counsel and witnesses appeared to assume that BBA was bound by clause 2.2(a), that is plainly not so; the reasonable commercial endeavours obligation bound only CAGCare. Ms Ku made a whole-hearted and thorough attempt to obtain the commitment of capital, and her CAR was supported by a number of other persons within BBA’s organisation by the time it was submitted on 30 June; and her activity in support of it continued afterwards. It was not successful, and without a commitment of capital it could have been commercially deranged for BBA, CAGCare or any other company and perilous for their directors to enter into any agreements.

146 The plaintiffs’ senior counsel observed on the events of June 2008 that nothing in them indicated that there was any relevant matter of disagreement, controversy or dispute between the parties. Quite to the contrary, the CAR included a significantly modified form of proposal and agreement; if it had been approved further negotiation would have been required, and if this modification had not appeared in the CAR there would have been no prospect of approval, as Mr Klendjian would not have agreed and his agreement was a practical necessity.

147 The plaintiffs’ senior counsel put forward very detailed analysis of the manner in which the business of the Group was managed from time to time, and of the points at which he contended there had not been reasonable commercial endeavours. The need to obtain involvement and commitment of BBC was an overwhelming realistic consideration, known to both parties by and before 19 December 2007. When BBC was known not to be interested, consideration of other means of financing the transaction and completing it was well within the scope of reasonable commercial endeavours; and there was time to pursue them while DOHA considered the application. Ms Ku’s attention, when this development emerged, to other ways of progressing the transaction was an exemplification of reasonable commercial endeavours, not a breach of such an obligation. Intense and detailed consideration of the CGT problem was an exercise of reasonable commercial endeavours; it was necessary to undertake this in support of the essential project of obtaining a decision by BBA to commit capital. The plaintiffs joined in the endeavours to find a resolution to the perceived CGT problem. This consideration required inquiries to a number of people, resources which cost money, outside advice and detailed attention to modifications of what had earlier been considered, if some acceptable outcome was to emerge. Another course which could have been taken was to treat the prospect of a large Capital Gains Tax liability as a complete obstacle to be receded from, not an obstacle to be negotiated. In my judgment it would be incorrect to treat all this attention as not consistent with reasonable commercial endeavours. However if it is the correct view that the only commercial endeavours which should have been under consideration related to the transaction documents in the form which they took on 19 December 2007, that view would have required that when the CGT difficulty was perceived, internal approval should have been refused.

148 I am satisfied that there was no breach of cl 2.2(a) at any time. As CAGCare has incurred no liability, the first defendant BBIPL has incurred no liability under the Performance Guarantee. BBIPL’s indemnity liability is co-extensive with CAGCare’s liability. The machinery requirements relating to a demand in Clause 2.2(a) have a practical effect of limiting BBIPL’s liability to an amount demanded in a written demand, which could only be made within a period which closed on 30 September 2008. A demand in fact was made on 29 September 2008, but has no effect.

149 Ms Ku referred to the transaction at one point in a draft CAR (T 273.1 - .3, 274.14.18) as an option. This was a passing reference, not an expression of an overall view held by her or BBA of the transaction, and she behaved in relation to the transaction as if she had a strong commitment to it. From the point of view of CAGCare and of the obligation of CAGCare, it was not an option. From the point of view of BBA, which had no contractual obligation about whether or not it would decide to furnish CAGCare with capital, the transaction could only proceed at the decision of BBA: this could be called an option.

150 The loss and damage alleged to flow from each of the three representations (see C46, 53 and 60) is that “the plaintiffs lost the opportunity for seeking alternative purchasers of the retirement Village and Manor in a falling market” and also consultants’ costs of entering into and performing obligations under the APP agreement. In view of the terms of the representations alleged and the times when they were alleged to have been made I understand they allege an opportunity lost on 19 December 2007 when the APPA was entered into. Mr Tulich also spoke in evidence of a lost opportunity to return the property to the market at some stage in the first half of 2008; he said that the effect of this was not available to him because of his exclusive dealing obligation. The exclusive dealing obligation was accepted in the Heads of Agreement and was not imposed on 19 December 2007.

151 BHVML was contractually bound to CAGCare by the APPA which could not be completed without DOHA approvals, and provided the period to 30 June 2008 for those approvals to be obtained, soon extended by agreement to 31 August 2008. If the Partners had changed their course before then and withdrawn from dealings with BBA and sold or attempted to sell the Village and Manor to someone else they would have precipitated a breach of contract by BHVML. Further, the exclusive dealing provision in the Heads of Agreement bound the Partners and as a practical matter could not be departed from by BHVML. Mr Tulich was aware of this and said so in his evidence. Any alternative course to continuing to deal with the defendants would have involved the plaintiffs or some of them in breach of contract and possible liabilities. With these disincentives to alternative action it should not be found that the conduct complained of, if it was misleading or deceptive, caused the plaintiffs or any of them to lose any opportunity which was practically available to them, or to incur any loss which they had a real opportunity to avoid.

152 If the disappearance of the possibility that the proposed arrangements would ever be entered into and the proposed sale would ever be completed is conceived of as a loss to the plaintiffs, or as damage to them, which I do not accept, the loss and the damage arose out of events which, although they could not be foreseen in detail, could be clearly contemplated as possible outcomes of the complicated arrangements which the parties made, and proposed to make, by 19 December 2007. In terms of the APPA, possible outcomes in which all internal approvals would not come into existence within the time extended to 31 August 2008, given the complete control which each party had over the existence of internal approvals, and over the step of entering into executed agreements stipulated in the Heads of Agreement, were perfectly obvious at all times, and neither party had any right to feel aggrieved or even surprised if some such outcome occurred. An analysis in which the plaintiffs suffered loss or damage by any representation made to them by Mr Velez or Ms Ku or otherwise on behalf of the defendants, and that the loss or damage was the result of misleading or deceptive conduct in which the defendants engaged, is a wrong analysis.

153 It is my conclusion that the plaintiffs did not suffer any loss or damage at all, whether or not caused by conduct, representations or misrepresentations of defendants. The end result contemplated simply did not emerge. The Heads of Agreement made it clear that there was no intention to enter into legal relationships except with all relevant internal approvals and on exchange of executed documents. These things did not happen. There was no contractual obligation to make them happen. There was no misleading or deceptive conduct causing the plaintiffs to act on the basis that they would happen. The outcome, while not one that anyone expected or desired, was readily foreseeable; no contract was made apart from the APPA and that had no relevant effect because its condition precedent was not fulfilled.

154 Evidence relating to damages was led at the hearing but I deferred consideration and submissions in detail of damages, as I intended to take this up, as necessary, after coming to conclusions on liability.

155 Although the pleadings allege breaches of Clauses 2.2(b) to (e) relating to the conduct of the application to DOHA for approval with a transfer these allegations were not developed at the hearing and no basis for them was shown. The plaintiffs in their pleadings claimed that there had been a breach of the implied term requiring the contracting party to do all such things as are necessary on his part to enable the other party to have the benefit of the contract; see Secured Income Real Estate (Australia) Limited v St Martins Investment Pty Limited (1979) 144 CLR 596 at 607-608 (Mason J), Mason J’s observations show the implication is readily made to support performance of a fundamental obligation, and may in some circumstances be made to entitle the other contracting parties to a benefit although not fundamental to the contract. It is not possible in the present case to identify a fundamental obligation, or any obligation to which the implied term could be said to be ancillary. It was not a contractual obligation of CAGCare to bring about completion of all the contemplated transactions; quite otherwise, CAGCare itself was not obliged to take the Allocated Places unless the condition precedent was fulfilled, and CAGCare’s part in fulfilling it was no higher than using reasonable commercial endeavours. In my opinion the plaintiffs cannot rely on the implied term.

156 For these reasons I will give judgment for the defendants, with costs. CAGCare is entitled to the deposit and interest, and I will make a declaration and directions accordingly.

:

(2) On the cross-claim, declare that the cross-claimant CAGCare Pty Ltd is entitled to the deposit of $400,000 and interest thereon paid on 19 December 2007 and held as stakeholder by Osbornes lawyers pursuant to clause 4.2(d) of the Allocated Places Purchase Agreement.

(3) Direct that the cross-defendant Blue Hills Village Management (Liverpool) Pty Ltd direct Osbornes Lawyers to pay over the deposit and interest to the cross-claimant.

(4) Order that the cross-defendant pay the cross-claimant’s costs of the cross-claim.

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Citations

Cypjayne Pty Limited v Babcock and Brown International Pty Ltd [2010] NSWSC 180

Most Recent Citation

Cypjayne Pty Limited v Babcock and Brown International Pty Ltd [2011] NSWCA 173

Cases Citing This Decision

1

Cypjayne Pty Ltd v Babcock & Brown International Pty Ltd [2011] NSWCA 173

Cases Cited

5

Statutory Material Cited

3

Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64

Orr v Ford [1989] HCA 4

CITATION:	Cypjayne Pty Limited v Babcock & Brown International Pty Ltd [2010] NSWSC 180
HEARING DATE(S):	9-13,16,17 November 2009
JUDGMENT DATE :	12 March 2010
JUDGMENT OF:	Bryson AJ at 1
DECISION:	(1) On the plaintiffs’ claim, give judgment for the defendants with costs. (2) On the cross-claim, declare that the cross-claimant CAGCare Pty Ltd is entitled to the deposit of $400,000 and interest thereon paid on 19 December 2007 and held as stakeholder by Osbornes lawyers pursuant to clause 4.2(d) of the Allocated Places Purchase Agreement. (3) Direct that the cross-defendant Blue Hills Village Management (Liverpool) Pty Ltd direct Osbornes Lawyers to pay over the deposit and interest to the cross-claimant. (4) Order that the cross-defendant pay the cross-claimant’s costs of the cross-claim.
CATCHWORDS:	CONTRACT – Formation – Reasonable commercial endeavours. - TRADE PRACTICES ACT – Misleading and deceptive conduct – Extended negotiation for sale of Retirement Village business began September 2007 – Contracts drafted and two exchanged on 19 December 2007 for sale of Allocated Places – complex continuing negotiations and dealings involving – Heads of Agreement stating when agreements would become binding – Modifications in detail of proposed contracts and parties – Contemplated extended sequence of entry into agreements to accommodate Vendors’ concept of effects on their CGT position – Applications to Commonwealth Department of Health and Ageing for administrative approvals for transfer – Obligation of purchaser of Allocated Places to use reasonable commercial endeavours to bring about fulfilment of conditions precedent which would require decisions of others to commit capital – DOHA approvals available on 23 June 2008 but conditions precedent not fulfilled – Detailed consideration of complex facts led to findings that there was no breach of contract and no misleading or deceptive conduct – Claims dismissed deposit refunded – Decision on facts.
LEGISLATION CITED:	Aged Care Act 1997 (Cth) s16 Retirement Villages Act 1999 (NSW) Trade Practices Act 1974 (Cth) s52
CATEGORY:	Principal judgment
CASES CITED:	Hospital Products Limited v United States Surgical Corporation (1984) 156 CLR 41 Sagacious Procurement Pty Ltd v Symbion Health Ltd (formerly Mayne Group Ltd) [2008] NSWCA 149 Secured Income Real Estate (Australia) Limited v St Martins Investment Pty Limited (1979) 144 CLR 596 Watson v Foxman (1995) 49 NSWLR 315
PARTIES:	CYPJAYNE PTY LIMITED (ACN 008 651 509) (first plaintiff) Edwin Paul CAYZER (second plaintiff) Sverre RODSKOG (third plaintiff) B&L TRADING PTY LIMITED (ACN 003 742 818) (fourth plaintiff) D&C PROPERTIES PTY LIMITED (ACN 100 441 236) (fifth plaintiff) Maurice TULICH (sixth plaintiff) Curtis Jack MANN (seventh plaintiff) David BRODIE eighth plaintiff BLUE HILLS VILLAGE MANAGEMENT (LIVERPOOL) PTY LIMITED (ninth plaintiff) BABCOCK & BROWN INTERNATIONAL PTY LTD (ACN 108 617 483) (first defendant) CAGCARE PTY LIMITED (second defendant)
FILE NUMBER(S):	SC 2008/290462
COUNSEL:	B A J COLES QC/ J J YOUNG (plaintiffs) D B STUDDY SC/ K H BARRETT (defendants)
SOLICITORS:	Harris & Company Solicitors (plaintiffs) Watson Mangioni Lawyers Pty Limited (defendants)