Daswan Australia Pty Ltd v Linacre Developments Pty Ltd (in Liq)

SUPREME COURT OF VICTORIA

COURT OF APPEAL

S APCI 2018 0054

DASWAN AUSTRALIA PTY LTD	First Applicant
and
JUDY TONINI	Second Applicant
v
LINACRE DEVELOPMENTS PTY LTD (IN LIQ) (ACN 128 025 678)	First Respondent
and
CHRISTOPHER WILLIAM PAUL	Second Respondent

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JUDGES:	HARGRAVE, ASHLEY JJA and ALMOND AJA
WHERE HELD:	MELBOURNE
DATE OF HEARING:	25 October 2018
DATE OF JUDGMENT:	19 December 2018
MEDIUM NEUTRAL CITATION:	[2018] VSCA 350
JUDGMENT APPEALED FROM:	[2018] VCC 40 (Judge Macnamara)

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CONTRACTS – Interpretation of deed of compromise – Whether payments made were in conformity with deed or breach of essential time limit – Whether deed affirmed – Clear gap in deed – Whether terms should be implied into deed – BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 applied – Terms implied – Leave to appeal granted on some grounds – Appeal dismissed.

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APPEARANCES:	Counsel	Solicitors
For the Applicants	Mr I W Upjohn QC with Ms S M Kelly	Latep Legal
For the First Respondent	No appearance	--
For the Second Respondent	Mr J P Moore QC with Dr L Hilly	Mills Oakley

HARGRAVE JA
ASHLEY JA
ALMOND AJA:

This application for leave to appeal concerns the construction of a Deed of Compromise (‘the deed’ or ‘the compromise’) executed on 14 August 2015 between: Judy Tonini (‘Tonini’) and Daswan Australia Pty Ltd (‘Daswan’)[1] as lenders (collectively, ‘the lenders’); and Linacre Developments Pty Ltd (‘Linacre’) as borrower and Christopher William Paul (‘Paul’) as guarantor (collectively, ‘the respondents’).[2]
[1]Daswan is a company owned and controlled by Michael and Mary Calman.
[2]There were other parties to the deed also; but they are of no immediate relevance.

The deed was executed in circumstances where Linacre had defaulted in repayment of loans made to it by the lenders. The deed required Linacre to pay $3.4 million to the lenders (the ‘compromise payment’) in two components: (1) an initial payment of $750,000; and (2) the remaining $2.65 million (the ‘balance sum’). The initial payment was made within the agreed time and no issue arises about it. The lenders allege that the balance sum was paid late and, as a result, Linacre and Paul remained liable to the lenders under the loan agreements for the total amounts lent plus interest. This was said to be, overall, an amount exceeding $11 million.

The lenders sued Linacre and Paul on this basis in the County Court. By the time of trial Linacre was in liquidation,[3] and did not appear.[4] Thus, the substantive defendant was Paul as guarantor. He denied breach of the deed. The gist of his case was that amounts totalling more than $3.4 million had been paid to the lenders in conformity with the deed.[5] The main question was whether or not the payments had been made in conformity with, or in breach of, the requirements of the deed. A second question was whether, even if the compromise amount had been paid in accordance with the deed, Linacre and Paul nonetheless remained liable on the loan agreements.
[3]Liquidators were appointed on 2 March 2017, administrators having been appointed on 25 January that year.
[4]The lenders sought no relief against it ‘beyond its being generally bound by the determinations in the proceeding’: Daswan Australia Pty Ltd v Linacre Developments Pty Ltd (in liq) [2018] VCC 40 [99] (Judge Macnamara) (‘Reasons’).
[5]Paul also raised a counterclaim. The Judge found that claim made out in an amount of about $21,000. That finding is not challenged by this appeal.

The Judge found that Linacre had complied with the terms of the deed, and dismissed the lenders’ claims for declaratory and monetary relief.

Proposed grounds of appeal

The lenders now seek leave to appeal, relying upon the following proposed grounds:[6]

1.The learned trial judge erred by failing to find that, on its proper construction, the Deed required the defendants to pay the Balance Sum within an essential time limit and that, by reason of the respondents’ breach of that essential time limit, the Deed did not operate to release the defendants from liability for the Debt.
2.The learned trial judge acted on a wrong principle by failing to have proper regard to the text of the Deed, instead elevating the surrounding circumstances at the time the Deed was entered into and the consequence of a breach of the Deed to [principal] considerations, rather than treating them as aids to the constructional task.
3.The learned trial judge erred by finding that, on its proper construction, the Deed delimited the sources of payment of the Balance Sum when, as a matter of fact, no provision of the Deed delimits or prescribes the sources from which payment of the Balance Sum could be made.
4.The trial judge erred by failing to find that clause 8 of the Deed created an accord and conditional satisfaction under which discharge of the underlying debt was conditional on the performance of the Deed according to its terms.
5.The trial judge erred by failing to determine the appellants’ claims of misleading and deceptive conduct.
[6]Rather than referring to ‘proposed grounds’, we will simply describe them as ‘grounds’ in these reasons.

Disposition foreshadowed

In our opinion, for the reasons which follow, the lenders should have leave to appeal on grounds 1 to 4, but the appeal should be dismissed. Their application for leave to appeal on ground 5 should be refused.

Events culminating in the execution of the deed

It is necessary to describe the circumstances which ultimately led to the execution of the deed.

The loan and guarantee agreements related to the provision of finance by the lenders to Linacre to further a residential and retail development project known as ‘The Element’ in Glen Huntly Road, Elsternwick (‘the project’). Linacre had been incorporated in 2007. In this Court, it was eventually clarified that it was not a ‘special purpose vehicle’ with respect to the project; but there was nothing to suggest that it had been involved in any earlier project. Between October 2007 and October 2016, Paul was its sole director, and secretary. Linacre was the purchaser of the land[7] on which the project was developed. It was also the borrower from Tonini and Daswan. It was the trustee of the Linacre Developments Trust.[8] Under the deed of settlement which established the trust, Paul was both guardian and appointor. He was also the primary beneficiary.[9] The development itself was undertaken by Lechte Corporation, two of whose directors had close family ties with Paul.
[7]By contract dated 16 September 2010.
[8]A deed of settlement was executed on 2 November 2007.
[9]Reasons [2].

Pursuant to the loan agreements, between late 2010 and 2012 Tonini and Daswan lent quite large amounts to Linacre. The precise amounts lent were apparently in dispute at trial, but the broad picture is revealed by the amended statement of claim, which pleaded that Tonini had lent a total of $2,132,832 and that Daswan had lent a total of $2,097,286.74. The Tonini loan agreement provided for a non-default interest rate of 24 per cent per annum, and a default rate of 32 per cent. The Daswan loan agreement provided for an interest rate of 24 per cent.

Regrettably, the project was undercapitalised[10] and in December 2013 Linacre defaulted under the loan agreements.[11] Not wishing to jeopardise completion of the project, which only got underway that year,[12] neither Daswan nor Tonini took immediate steps to recover the applicable loan or enforce the guarantee.
[10]As the Judge said, ‘not one cent of cash equity capital was employed in the project, [so] to say that it was “undercapitalised” is something of an understatement’: Reasons [63].
[11]It had earlier sought from Tonini, and had been allowed, an extension of time to repay the initial loan moneys.
[12]Reasons [51].

The project reached a state of ‘official completion’ some time in early-2015.[13] It apparently consisted of more than 40 lots, most of which were residential, and a few of which (presumably at ground floor level) were retail. The development had been marketed from 2012,[14] and the ‘first round of settlement of units commenced [on] 20 February 2015’.[15] It was not in debate at trial or in this Court, that the few lots unsold as at 14 August 2015 were, as the Judge concluded, ‘obviously the ones which were most difficult to market’.[16]
[13]Ibid [53].
[14]Ibid [141].
[15]Ibid.
[16]Ibid.

In late May 2015, letters were sent on behalf of Tonini and Daswan alleging defaults under both loan agreements.

Under the security documentation, Tonini and Daswan were entitled to take mortgages over the project land. They did nothing in that connection.

Also under the security documentation, Tonini and Daswan were given a fixed and floating charge over the assets of Linacre. They were authorised to register the charges ‘in such places where failure to do so would render such charges void against a liquidator or judgment creditor’.[17]
[17]Clause 4.1 of the charge in favour of Tonini. Her authority to register the charge was conferred by clause 4.2.

Up until May 2015, the lenders took no steps to register the charges.

Then, on 26 May 2015, Tonini’s solicitor had the Tonini charge registered on the Personal Properties and Securities Register (‘PPSR’) against the ACN of Linacre — but not against the ABN of the Linacre Developments Trust. On 29 July 2015, the same registration was effected in respect of the Daswan charge.

In consequence of the registration, ‘the charges were ineffective insofar as they pertained to the trust’s assets, including the development project for which the loan advances were made’.[18] We pause to note that none of the securities executed in favour of the lenders had made any reference to the existence of the trust; and the Tonini charge, indeed, had in substance asserted that Linacre held legal and beneficial entitlement to the charged assets.[19]
[18]Reasons [59]. The reference in that paragraph of the Reasons to ‘2017’ may be erroneous, or may refer to some later step taken. Either way, it is apposite to the lenders’ situation as at late-July 2015, by which time both charges had been registered, but only against Linacre.
[19]See ibid [55]–[58].

In the course of the development, Linacre procured loans from a number of Lechte and Paul related entities (‘the associated creditors’). On 13 May 2015 the associated creditors registered their security interests on the PPSR against both Linacre and the trust. That was the situation at the time when a possible compromise between Tonini and Daswan on the one hand, and Linacre and Paul on the other, began to be addressed.

It should also be noted that, at this time, NAB held a first-ranking mortgage over the unsettled and unsold units in the project in an amount of $2.3 million.

In all, as at late-May 2015, and continuing until the deed was executed, not only had the lenders not taken up available securities, they had been leap-frogged by the associated creditors. They were singularly unprotected.

As early as January 2015, Tonini and Daswan sought the advice of Craig Seymour, a director of BPS Advisory, with respect to their position. On 1 June 2015,[20] he attended a meeting at the offices of a law firm acting for Linacre, Paul and the Lechte Group. Paul was also present. According to Tonini, both Paul and a lawyer stated that there was ‘no money left in the project’ and that ‘there was no money left to repay the loans’.
[20]Or perhaps it was 2 June. Nothing turns on it.

Mr Seymour provided advice to the lenders’ solicitor on 9 June 2015, and he copied his assessment to the lenders. Then, on 11 June 2015, Mr Seymour copied nearly all of that advice to the solicitor acting for the respondents, as part of the negotiation of the compromise. Mr Seymour’s email to the respondents’ solicitor described the lenders’ ‘reluctant acceptance of the [previously] negotiated position’ as being based on his advice to them — which he then substantially set out ‘in the interests of transparency and good faith’.

The gist of his advice was that liquidation of Linacre and bankruptcy of Paul was ‘the baseline position’. In a liquidation, the lenders might hope to recover $1.1 million in 12–18 months. Having regard to variables in the event of Paul becoming bankrupt:

the BEST possible construction of a liquidation/bankruptcy scenario is a return to [the lenders] of $3.1 million over 3 - 4 years.

In other words, in the event of liquidation, absent a compromise, the lenders would probably recover only a small part of their loans and the accumulated interest. In this respect, Mr Seymour gave oral evidence about his initial conversation with the respondents’ solicitor about the manner in which Linacre and Paul had deliberately arranged their affairs — on the basis of insolvency advice — to protect themselves in the event of insolvency and consequent liquidation and bankruptcy. The Judge set this evidence out, as follows:

As to Mr Paul’s insolvency advice, in his viva voce evidence Mr Seymour said:
There’s a whole industry called Insolvency Pre-Packs and Pre-Insolvency … It’s a particularly distasteful part of the industry and this was a classic example of it. … So what happens is a solicitor or an adviser, I use the term broadly, will package up a set of circumstances in such a way that the offer presented to the creditors is palatable from the perspective that anything else represents a materially worse outcome and it seeks to use insolvency law in a way that it’s not intended.

He continued:
The essence of it is that the debtor and his advisers will essentially use the gaps in insolvency law … to look after one segment of an audience, and it can be the secured creditor provisions or whatever, and then stall for time effectively with unsecured creditors and then leave them in an invidious position of, ‘Take it or leave it’, and then use the threat of an insolvency appointment as leverage against the debtor [scil creditor] in a commercial negotiation, and within the first 90 seconds of the first meeting I attended on this file, Mr Eliau’s opening remarks were, ‘There’s nothing in it for you and we’ve had a chat with David Ross at Hall Chadwick’, and it was very obvious from that point on that this was a pre-pack.[21]

The substance of the above evidence was conveyed by Mr Seymour to the lenders in his 9 June 2015 email.

[21]Reasons [71]–[72] (emphasis added).

In fact, Mr Seymour’s email to the respondents’ solicitor did not contain a full acceptance of the previously negotiated general terms of the compromise, but involved at least one proposed change. However, in setting out the ‘key elements’ of a proposed deed of compromise, Mr Seymour set out his clear advice to the lenders that it was ‘critical that … preference [issues] are avoided’ in structuring the proposed compromise. In other words, if there was a compromise and payment thereunder, the prospect of a relation back claim in the event of liquidation needed to be guarded against.

The parties also agreed that the contents of further advice from Mr Seymour to the lenders, following his due diligence review of Linacre’s books and records, was admissible evidence of mutually known objective facts. However, that may be doubted; as there is no evidence that this post-due-diligence written advice was shared with the respondents. Thus, we will not set it out. As appears below, it is unnecessary to go beyond the mutually known advice to resolve the appeal grounds.

There followed, according to the evidence, 29 drafts of the deed. They culminated in the document executed on 14 August 2015. That document, as will be seen, was expressed in language which was ambiguous at a number of points. It bore the stamp of competing hands at work.

The deed

Viewed against the above objective background facts known to the parties, the deed was clearly to the lenders’ financial advantage. They stood to receive a sum certain which would exceed the return on a liquidation. One reason was that, by the proposed compromise, the associated creditors agreed to subordinate their claims to those of the lenders.

It is now convenient to set out the key definitions and relevant clauses of the deed:

RECITALS
R1.With no admission as to liability or otherwise, the Company has agreed to pay the Lenders the Compromise Payment on the terms and conditions contained under this Deed.

1        DEFINITIONS AND INTERPRETATIONS
1.1      Definitions
In this Deed, unless the context otherwise requires:
…
(b)       Balance Sum is defined in clause 5.2(b).
…
(f)Company means Linacre Developments Pty Ltd ACN 128 025 678.

…
(i) Compromise Payment means $3.4 million.
…
(k)Debt means the total outstanding loan liability of the Company to the Lenders from time to time.
…
(u)Loan Agreements means:
(i)Loan & Guarantee Agreement between the Company (as Borrower), Daswan (as Lender) and Paul (Guarantor) dated on or about 23 December 2011, and includes any additional or ancillary transaction documents or agreements such as the Deed of Charge and the Deed of Guarantee and Indemnity;
(ii)Loan & Guarantee Agreement between the Company (as Borrower), Tonini (as Lender) and Paul (Guarantor) dated on or about 18 October 2010, as varied from time to time and includes any additional or ancillary transaction documents or agreements such as the Deed of Charge and the Deed of Guarantee and Indemnity.

(v)Net Settlement Proceeds means any and all settlement monies arising from or in respect of the settlement of an Unsold Lot:
(i)Less monies due and payable pursuant to the NAB Loan;
(ii)Less costs and expenses ordinarily incurred in respect of the sale and settlement of an Unsold Lot which are due and payable at settlement, including agent fees and associated legal costs.

…
(dd)Residual Rights has the meaning set out under clause 11.1.

…
(ff)Transaction means the transactions contemplated or occasioned by the Transaction Documents, including but not limited to any and all monies loaned by the Lenders to or for the benefit of the Company.
(gg)Transaction documents include:
(i)the Loan Agreements;
(ii)the Heads of Agreement;
(iii)the unregistered securities granted pursuant to or under the Loan Agreements;
(iv)the Joint Venture Agreement;
(v)the Project Management Agreement; and
(vi)any other ancillary or related agreement or document.

(hh)Unsettled Lots means lot numbers R3 and 201 of the Development.
(ii)Unsold Lots means lot number R1, R2, 101 and 401 of the Development.

4. CONDITIONS OF COMPROMISE
4.1 Exchange
Upon completion of the due diligence and upon this Deed being exchanged between the Parties:
(a)the Lenders will:
(i)provide a letter of satisfaction in respect of the settlement of Lot 707;
(ii)immediately withdraw caveat no. AL912107E registered against the Unsettled Lots;
(iii)upon registration of the Lender Mortgages, remove the caveats on the Unsold Lots; and
(iv)provide the Company a signed letter confirming that the Default Notices are withdrawn, upon registration of the Lender Mortgages; and

(b)the Company will:
(i)ensure proceeds from the sale of the Unsettled Lots will be used solely to pay down the NAB Loan, other than payments under the sum of $5,000.00 each, and no more than $20,000 in aggregate; and
(ii)grant to the Lenders the securities pursuant to clause 5.3 and 5.4.

(“Exchange Conditions”)

…
5        PAYMENT OF COMPROMISE PAYMENT
5.1      Compromise
Subject to:
(a)       the fulfilment of the Exchange Conditions; and
(b)       the conduct of the due diligence or the waiver thereof; and
in consideration of;
(c)the Lenders hereby agreeing to forbear from exercising or acting on any of their rights, interests, entitlements, remedies under or pursuant to the Transactions or in respect of the Debt;

(d) the Lender withdrawing the Default Notices;
(e)the Lenders withdrawing the caveat registered on the Unsettled Lots;
(f)the Lenders agree to assign the Residual Rights as provided in clause 11;

(g) the releases provided for in clause 8,
the Company has agreed to pay to and for the benefit of the Lenders the Compromise Payment and grant the relevant securities, subject to the terms and conditions of this Deed.
(‘Compromise’)

5.2 Payment Terms
The Compromise Payment will be paid as follows:
(a)upon the exchange of the Deed, an initial payment of $750,000.00 (‘Initial Payment’) will be paid to the Lenders; and
(b)the balance of the Compromise Payment (‘Balance Sum’) shall be paid to the Lenders:
(i)from the Net Settlement Proceeds from the sale of the Unsold Lots which settles on or before 30 September 2015; and/or
(ii)by way of transfer of ownership of any Unsold Lots in accordance with clause 6.1

5.3 Security
(a)As security for the obligations in this Deed including the due and punctual payment of the Compromise Payment, so long as any sum or liability or obligation is owing to the Lenders pursuant to this Deed:
(i)the Company will grant to each of Daswan and Tonini a second ranking registered mortgage on the titles of the Unsold Lots, which is subject to provision of NAB’s consent, which for the avoidance of doubt is to be provided at the exchange of this Deed, in a form mutually agreed between the Company (‘Lender Mortgages’); and
(ii)the Associated Creditors hereby acknowledge and agree jointly and severally that they agree to subordinate to each of the Lenders, their rights, interests and entitlements pursuant to their Security Interests that each of the Associated Creditors have over all the assets of the Company.

(b)The Company shall not assign, charge, mortgage, transfer, or otherwise dispose of any rights of or purport or agree to assign, charge, mortgage, transfer, or otherwise dispose of any rights which it may from time to time and for the time being have against the Lenders (or any one of them) in respect of the subordinated indebtedness or any transactions relating thereto.

5.4 Irrevocable Direction
(a)Subject to the conduct of the due diligence (or the waiver thereof), the Company further agrees to procure within five (5) Business Days of exchange of this Deed, an undertaking from Maddocks Lawyers, whom are acting on behalf of the Company in respect of the sale and settlement of the Unsold Lots, which inter alia states that:
(i)upon each settlement of any Unsold Lot, the Net Settlement Proceeds shall be applied to the discharge of the registered mortgages over the relevant lots; and
(ii)Maddocks Lawyers will provide a copy of any and all correspondences in respect of each settlement of the Unsold Lots to the Lenders and their legal representative; and
(iii)the Lenders will be notified immediately if Maddocks Lawyers are no longer act for the Company in respect of the sale and settlement of the Unsold Lots.

(b)The Irrevocable direction and undertaking, described in clause 5.4(a) will continue until such time the Compromise Payment has been paid in full in accordance with the terms and conditions of this Deed.

5.5 Nature of Compromise Payment
(a)Upon payment of the Compromise Payment and the assignment of Residual Rights under clause 11, as between the parties only, the Lenders agree and acknowledge that:
(i)no further monies will be due or payable to the Lenders in respect of the Transactions, including under the Loan Agreements, whether presently owing or at some time in the future; and
(ii)any and all liabilities, guarantees, warranties, representations and indemnities granted under or in respect of the Transactions, whether arising under the Transaction Documents or otherwise, shall not be exercisable or enforceable by the Lenders.

(b)The Company and Paul acknowledge that the balance of the Debt remains payable however the Lenders agree not to pursue the balance of moneys owing to the Lenders pursuant to the Loan Documents for a period of two (2) years.
(c)The Company shall be hereby entitled to rely on this clause 5.5 as sufficient evidence of such matters contained hereunder.
(d)Nothing in this clause 5.5 affects the rights of a nominee under clause 11.1 to enforce the Residual Rights.

6 UNSOLD LOTS
6.1 Sale of Unsold Lots
(a)The Compromise Payment will be paid and discharged in full upon the sale of the Unsold Lots and Unsettled Lots in the Development.
(b)In respect of the Unsold Lots, the Parties hereby agree and acknowledge that:
(i)the Company must apply any and all settlement proceeds from the sale of Lots 201 and R3 towards the repayment of monies due and payable under the NAB Loan, with the outstanding balance of the NAB Loan to be secured solely against Lot 401 by way of registered mortgage granted to NAB;
(ii)by 30 September 2015, the Company must do all things necessary and required to discharge any registered mortgages (i.e. the NAB mortgage), other than the Lender Mortgages, against the Unsold Lots; and

(iii) on or before 30 September 2015:
A.the Company will do all things necessary and required to sell all of the Unsold Lots at best possible price, in view of meeting its obligations under this Deed; and
B.subject to clause 5.4, present to the Lenders or their authorised representative unconditional Contracts of Sale of Land in respect of the Unsold Lots.

(c)If the Company fails to comply with clause 6.1(b), the Lenders may, by written notice to the Company, require the legal and beneficial ownership of the Unsold Lots to be transferred to the Lenders.
(d)If the Lenders acquire the legal and beneficial ownership of Unsold Lots (or any balance thereof):
(i)the Compromise Payment will be deemed to have been paid in full and clause 5.2 will be deemed to have been satisfied; and
(ii)in accordance with clause 8 of this Deed, the Company, the Developer and the Project Manager shall be irrevocably and unconditionally released from the performance of any duties, obligations, covenants, representations and warranties contained under this Deed; and
(iii)the Company waives all its rights, interests and entitlements in any settlement proceeds arising from the subsequent sale of any Unsold Lots and acknowledges that the Lenders, to the exclusion of all other Parties, are entitled to the full sum of settlement proceeds arising from any sale of the Unsold Lots, regardless of whether or not the actual settlement proceeds received by the Lenders exceeds or will exceed the total Compromise Payment.

and all Parties are entitled to rely on this clause 6.1(d) of such matters contained hereunder.
(e)Nothing in this clause 6.1 affects the rights of a nominee pursuant to clause 11.1

8        RELEASE
On satisfaction of Clause 5.2, the Parties hereby release and forever discharge each other from any Cause of Action which each Party has or at any time may have or which but for the execution of this Deed could or might have had against each other in connection with, arising from or incidental to:
(a)       the Transactions;
(b)       the Transaction Documents;
(c)       the Development;
(d)any act or omission of any of the parties required under this Deed,

save and except for:
(e) any Causes of Action issued to enforce this Deed;
(f)any Causes of Action between the Associated Creditors and the Company; and/or
(g)any Causes of Action associated with the enforcement of the Residual Rights pursuant to clause 11.

9 BAR TO PROCEEDING
(a)The Parties, and each of their heirs, executors, administrators and assigns shall not make or pursue any Cause of Action against the other parties (or in the case of a corporate party) its officers, agents, successors, assigns or insurers or any one of them in relation to any claim or liability for which a release has been given under clause 8 of this Deed, save as expressly excluded under clause 8 of this Deed.
(b)This Deed may be pleaded as a full and complete defence by all or any of the parties, their officers, agents, successors, assigns or insurers to any complaint, action, suit or proceedings commenced, continued or taken by or on behalf of another party in connection with any of the matters referred to in this Deed and the Recitals to this Deed.

11 AUTOMATIC ASSIGNMENT
11.1 Automatic Assignment
Subject to the satisfaction of clause 5.2, the Lenders hereby assign to and for the benefit of a party nominated by the Company:
(a)all their rights, interests and entitlements in or under or pursuant to the Loan Agreement, including any ancillary or collateral documents such as the Deed of Guarantee and Deed of Charge;
(b)all their rights, interests and entitlements in the Transaction Documents, generally;
(c)all their rights, interests and entitlements in any present or after-acquired securities or powers of attorney granted to the Lenders under or pursuant to the Transaction Documents (including the Loan Agreement) and/or this Deed.

(the ‘Residual Rights’)

…
16 MISCELLANEOUS
…
(i)Unless otherwise provided herein, time is of the essence of this Deed in respect of any date or period determined under this Deed.
…

Events subsequent to the execution of the deed

On 14 August 2015, pursuant to the deed, Linacre paid the initial sum of $750,000 to the lenders. That left the balance sum to be paid under the deed. Also on that date, Linacre granted mortgages over lots 101, R1 and R2 in favour of Tonini and Daswan. The mortgages were registered on 4 September 2015.

By 30 September 2015: (1) the settlement of two lots — R3 and 201 — which had been sold at the time when the deed was executed, had been finalised; (2) a previously unsold lot — 401 — had been sold and settled; (3) the net proceeds from those sales had been paid to NAB, the first ranking mortgagee; and (4) a contract had been entered into with respect to a second unsold lot — 101.

Thus, as at 30 September 2015, lots R1 and R2 remained unsold; and lot 101 remained unsettled.

Pausing, ‘R’ denoted a retail lot. As at 14 August 2015, of the more than 40 lots in the project, there were two sold, but unsettled, one of which was a retail lot; and four unsold lots, two of which were retail lots. As acknowledged by the lenders’ counsel in argument, this situation accords with the relatively common experience of difficulty in selling retail lots in a development such as this — a circumstance underlining the common understanding of the parties that only the most difficult lots to sell remained unsold at the time when the deed was executed.

On 30 September 2015, Linacre’s solicitors wrote to the lenders’ solicitor setting out the current situation. They advised that most if not all of the sale proceeds of lot 101 would be applied to paying the balance sum and that negotiations were under way relating to the sale of lots R1 and R2. They estimated that sales could be finalised in a month. They sought an extension of time to effect the sales, and pointed out that it would be to the lenders’ financial advantage not to take a transfer of those lots and bear marketing costs themselves.

On 16 October 2015, the lenders’ solicitor emailed Linacre’s solicitor seeking copies of sale documents to which, under the deed, the lenders were entitled.

On 23 October 2015, the lenders’ solicitor gave notice of default. Rectification was required within seven days, failing which the lenders would ‘seek to enforce [their] rights without further notice’. By letter also dated 23 October 2015, Linacre’s solicitors denied default. The lenders did not in fact take the foreshadowed action.

On 30 October 2015, the lenders’ solicitor sent a notice of default to Linacre’s solicitors, alleging breaches by Linacre of its obligations under the Tonini and Daswan loan agreements, and requiring rectification within 21 days. By letter of 16 November 2015, default was denied.

On 7 March 2016, Linacre’s solicitors advised that the sale of lot R2[22] would settle on 18 March. The lenders were requested to take steps to discharge mortgages and their PPS security interests over the lot. The solicitors stated that the net proceeds of sale would be paid to the lenders. There followed email correspondence between the solicitors. Details of the sale price and deductions were sought and provided. The overall position with respect to the compromise was discussed, as was the suggested program to sell the final lot, R1.
[22]The contract, executed by Linacre on 21 December 2015, was for a sale price of $1 million.

On 29 March 2016, lot R2 settled. Net proceeds were paid to the lenders.

A contract for the sale of lot R1 was executed by Linacre on 22 August 2016. The sale price was $900,000. There was email correspondence in which it was recognised that the net sale proceeds would not cover the unpaid amount of the balance sum then owing, and in which Linacre’s solicitors foreshadowed the top-up that was eventually paid.

In early-December 2016, there was email correspondence between the solicitors pertaining to a proposed settlement on 12 December 2016. Again the lenders were requested to take necessary steps to discharge securities held over the lot. Settlement was, however, delayed.

Linacre sought a letter from the lenders acknowledging satisfaction of the deed. The lenders’ position was that the deed made provision for appropriate assurances. There was some byplay between the solicitors concerning the prospect and consequences of Linacre going into liquidation.

In the event, the settlement of lot R1 took place on 20 January 2017, and on that day the net proceeds of sale and a top up of $255,682.03 were paid to the lenders. The lenders’ solicitor crossed out, on a confirmation of receipt given to him by Linacre’s solicitor, the words ’being the final amount due under the Deed of Compromise’. He replaced them with the words ‘made out to [the lenders]’.

On 25 January 2017, as we have previously noted, voluntary administrators of Linacre were appointed. They were appointed liquidators on 2 March 2017.

On 19 May 2017, the lenders commenced the County Court proceeding.

On 19 May 2017, the liquidators commenced a Supreme Court proceeding seeking declarations that Linacre’s cash at bank was the property of Linacre as trustee of the trust, and orders that the Tonini and Daswan charges were unperfected as at the commencement of the administration and so vested in Linacre.

The lenders initially resisted the orders sought, but later withdrew their opposition. They incurred costs of $24,805, in respect of which they sought recompense from Linacre and Paul in the present proceeding.

Reasons of the primary judge

The lenders’ written submissions in this Court show that their application for leave to appeal[23] against the judgment is founded upon challenge to the judge’s Reasons at [138]–[148] and [192]–[198]. In their reasons for seeking leave to appeal, the lenders state that the grounds of appeal are connected only with the proper construction of the terms of the deed and that the task of construction is to be discharged against the background facts as found by the trial judge.
[23]And, if leave be granted, the appeal.

The reasons of the primary judge relevantly state:

Conclusions
Neither party contended that on the material point, the Deed of Compromise was unambiguous or susceptible of only one meaning, so that in accordance with the third of the principles enunciated in the joint judgment in Mount Bruce Mining Company, it is proper to consider surrounding circumstances. To use the classic formulation by Sir Anthony Mason, we may consider ‘objective background facts which were known to both parties and the subject matter of the contract’ — Codelfa Construction Pty Ltd v State Rail Authority of New South Wales(1982) 149 CLR 337, 352 per Mason J (as he then was). The principal objective circumstance here is that, as Mr Seymour stated in his evidence, when he was engaged to provide expert advice to the [lenders] in the run-up to the execution of the Deed of Compromise, he found that they were confronted with an ‘[insolvency] pre-pack’. His advice to the [lenders] was ‘you got set up and done over’. Linacre and its other members stole a march on the [lenders]. The basis of Mr Seymour’s opinion was well known to the defendants and their advisors. He believed they had contrived the situation (See [72]).
[Counsel for Paul] submitted that the [lenders] could be regarded as having a further legal vulnerability based upon Daswan’s being in breach of the fundraising obligations which it undertook under the Joint Venture Agreement. By reference to the clauses relied upon, this suggestion has some surface plausibility. Nevertheless, as [counsel for the lenders] submitted, this was not pursued in cross-examination. Had this alleged potential liability of the [lenders] been more real than apparent, I would have expected Mr Calman to have been confronted with it. Accordingly, I put that consideration to one side.
If the submissions made by the [lenders] as to the operation of clause 5.2 are to be accepted, the effect is that the [lenders] obtained from the weak position just described, an arrangement of the very potent type where a defendant is entitled by the early payment of a compromise sum to obtain a substantial reduction in the size of its liability, but failing timely payment must shoulder the entire liability asserted by its creditors. These are fairly common settlement terms obtained by [lenders] in a strong position. An example is to be found in Cameron v UBS AG (2000) 2 VR 108. One usual feature of such arrangements is that the terms of settlement entail an acknowledgement on the part of the defendant of liability for the larger sum, but embody an arrangement whereby it may obtain a release by payment of a substantially smaller sum. This structure is necessitated, as Cameron’s case demonstrates, by the need to avoid the operation of the rule against penalties. If these parties had a joint and overt intention to create a regime such as this, the drafting techniques are well-known. The deed would scarcely have taken the form that it did if this were their joint intention. It is difficult to conceive that they would have employed the somewhat perplexing and ambiguous terms which we find in the Deed of Compromise.
I am fortified in that view by the thought that, following a period of deliberation and the review of more than 20 drafts, the Deed of Compromise was executed on 14 August 2015. If 30 September 2015 was to be regarded, as the [lenders] would have it, as a ‘drop dead date’, after which Linacre and Mr Paul are to be regarded as having lost the ability to obtain releases under the Deed of Compromise, a bare six weeks seems to be a very short period of time to obtain unconditional contracts of sale for the Unsold Lots, much less settle those sales. According to the evidence, the development had been marketed since 2012. Construction was completed in February 2015. The first round of settlement of units commenced 20 February 2015. The unsold units were obviously the ones which were most difficult to market. Given the relative negotiating strengths of the parties, it would seem unlikely that Linacre and Mr Paul would undertake so tight and difficult a deadline. To put it another way, an arrangement which was setting up the compromise to fail would not be a business-like arrangement. It would be an arrangement that reasonable business people would be unlikely to enter into.

If 30 September 2015 were intended as a drop dead date, it would have been easy to employ language which would make that plain. The parties have refrained from doing so. Clause 5.2(b) provided for payment of what it describes as the ‘Balance Sum’ from the net proceeds of sale of lots which settle on or before 30 September 2015, or by transfer in specie. This regime leaves open an ambiguity as to what is to occur in the circumstances which pertain here. It also creates a problem as to what is to occur in the event that, in obedience to clause 6.1(b)(iii), Linacre obtained unconditional contracts of sale for the Unsold Lots and presented them to the lenders ‘on 30 September 2015’. In that scenario, clause 5.2(b)(i) would not operate because the settlements would not occur on or before 30 September 2015. Nor could (ii) operate because, in the case of unconditional contracts of sale, beneficial title would have passed to the relevant purchaser. Perhaps what would be contemplated in such a situation would be the transfer to the [lenders] of the rights of Linacre as vendor under an uncompleted contract, though query if this would amount to the transfer of ‘the legal and beneficial ownership of the Unsold Lots’, as contemplated by clause 6.1(c) and (d).
None of this, of course, deals with the fact that, as previously explained, under clause 6.1 the [lenders] had a right, but not a duty, to take the Unsold Lots in specie in satisfaction of their entitlement to the compromise payment. This apparently was a situation negotiated by the [lenders]. It is tempting to consider that when this matter was conceded by Linacre and Mr Paul, there was a failure by the parties to make consequential amendments to clause 5.2 or to consider its operation in circumstances such as the present. If this is a correct interpretation of events, one will seek in vain for a ‘harmonious’ interpretation allowing all provisions of the deed to operate together, leading to a rational outcome in all circumstances. It would seem the present scenario, which, as explained, is the one which as at 14 August was the most likely outcome, has not been directly catered for. There is a major conceptual gap in the operation of the deed.
Clause 5.2 has now been complied with. The entitlement to a release and to bar proceedings created by clauses 8 and 9 arose as at 20 January 2017, before this proceeding was commenced. By virtue of clause 16(i), ‘time is of the essence ... in respect of any date or period’. Absent any issues of waiver or election, if 30 September were a date by which payment of the ‘Balance Sum’ was required, failure to pay the amount by close of business on that date would have enabled the [lenders] to treat the compromise deed as discharged. But there are two problems with reaching this conclusion which would lead to judgment for the [lenders] for the amounts which they claim.
First, as a textual matter, the date 30 September appears only to be significant as to the mode or source of payment of the balance sum, rather than being established as a date by which payment must necessarily have been made. Secondly, even if that were wrong and failure by 30 September to pay the balance sum was in breach of a term of which time was of the essence, that breach would have presented the [lenders] with a duty to elect either to affirm the deed, in which case, in accordance with the authorities referred to by [counsel for Paul], the right to discharge the compromise arrangement forthwith would be lost unless then exercised - subject, of course, to the ability of an aggrieved person in such circumstances to defer electing whilst avoiding during the period of deferment any step which might in itself be regarded as an election.
In this case, without the necessity of a tedious narrative of events, the [lenders] complained of a breach by a notice dated 30 October — that is, a month after the alleged breach of an essential time stipulation — but elected to proceed with the Deed of Compromise. One may debate just how valuable the new registered securities were and what advantage was derived from the postponement of the related creditors’ claim. It cannot be said, however, that these benefits were so minimal as to be illusory. The [lenders], quite prudently one would think, decided to derive what they could from the Deed of Compromise, and only once this process had been completed on 20 January 2017 did they seek to revert to reliance upon the original loan transaction documents. The better view, however, is that the issue of election did not arise because there was no breach of an essential time limit.
It may be objected that such a determination gives unreasonable concessions to Linacre and Mr Paul, leaving to them to pay the ‘Balance Amount’ when convenient for them. I note, first, that there was no evidence before me which would enable me to determine that the delay in realisation of the Unsold Lots was the result of other than commercial difficulties in finding buyers. In any event, the essence of the compromise arrangement, both according to its terms and the advice and interpretations provided by Mr Seymour, was that the Unsold Lots were to provide the source of payment of the balance amount. Unless the [lenders] saw fit to take those Unsold Lots in specie, they were necessarily at the mercy of the market in waiting for purchasers to come forward and settle.
I am inclined to the view that the absence of any provision for interest to be payable on the compromise amount to the [lenders] was the result either of a failure to analyse the scenarios which might present themselves in practice, or else perhaps from the view that the payout to the [lenders] was to be sourced from the Unsold Lots and the [lenders] were required to bear the cost of delay in realisation, which would necessarily have been the case had the [lenders] taken up the option of taking a transfer in specie. I prefer these two interpretations to one which would have the absence of an interest clause stand as a factor invalidating the analysis I am inclined to adopt, as explained above.
…
Claim for Legal Costs
With respect to the claim by Daswan and Mrs Tonini for total legal costs in the sum of $24,805, being the total of two bills of $12,402.50 rendered to each of them, the contention, as I understand it, is that but for the misleading or deceptive conduct of Mr Paul and Linacre, these legal costs would not have been incurred. Insofar as the proceedings were determined against the [lenders], these costs were effectively thrown away and therefore damages should be paid by Linacre and Mr Paul.
Assuming without deciding that it is established that Linacre, by its misleading or deceptive conduct, misled Daswan and Mrs Tonini as to the existence of the trust and that Mr Paul was knowingly concerned in that misleading or deceptive conduct, I am not satisfied that the incurring of the liability by the [lenders] can be regarded as caused by the misleading or deceptive conduct for the purposes of s 236 of the Australian Consumer Law.
The issue of the validity of the [lenders’] fixed and floating charges was treated as covered by the provisions of the Personal Property Securities Act. It was not suggested that there was any uncertainty as to the operation of that statute. The only element of uncertainty was as to the [lenders’] knowledge of the existence of the trust.
If, in the face of such a clear legal conclusion, they saw fit to incur legal costs in fruitlessly contending the opposite, can it be said that those legal costs were incurred by reason of the misleading or deceptive conduct rather than a failure on the [lenders’] part to bow to the inevitable?
It may be that if there were evidence as to the costs which the [lenders] incurred, to be advised that their securities had not been perfected and were therefore effectively worthless, such costs could be regarded as the result of the misleading or deceptive conduct which I have assumed for the purposes of this analysis has been established, both against Linacre and Mr Paul.
As it is, however, the costs for which claim is made are not divided in this way. Accordingly, this part of the damages claim must fail for want of proof.
A more fundamental reason for rejecting the claim for these legal costs is that, on the findings I have made, the amounts owing under the relevant Deeds of Charge had been fully cleared by the operation of the Deed of Compromise. That being the case, the [lenders] had no legitimate interest in seeking to assert the continued validity of those charges and, for that reason, the legal costs were not reasonably incurred. The claim for the legal costs therefore fail.[24]
[24]Reasons [138]–[148], [192]–[198] (some citations omitted).

Applicable principles of contract interpretation

Before considering the rival submissions, we set out the uncontroversial legal principles governing the proper interpretation of the deed. Given that the parties agree that the relevant aspects of the deed are ambiguous, and that evidence of objective surrounding circumstances known to the parties is admissible, it is sufficient to set out the following passage from the plurality judgment (French CJ, Hayne, Crennan and Kiefel JJ) in Electricity Generation Corporation v Woodside Energy Ltd:

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 … 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, 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 a commercial nonsense or working commercial inconvenience’.[25]
[25](2014) 251 CLR 640, 656–7 [35] (citations omitted) (‘Electricity Generation’).

Submissions for the lenders

The parties prepared and filed substantial written outlines of argument. But, as very often happens, the competing submissions were refined in the course of oral argument. We will focus upon the principal contentions in their final form, beginning with the lenders’ submissions[26] relating to grounds 1 to 4.
[26]Partly as expressed orally, and partly as expressed in writing.

Although senior counsel for the lenders at one point orally submitted that the language of the deed was not ambiguous, he resiled from that position. His argument then took this general approach. On the one hand, he contended that the deed in its ordinary language could be read so as to give it an harmonious operation. On the other hand, he submitted that, so far as the Judge was entitled to have regard to objective circumstances known to the parties, his Honour erred by elevating one circumstance above others, this distorting the prism through which his Honour construed the document.

Counsel developed the first aspect of his submissions, that the words of the deed could be given a harmonious operation, this way:

(1) Clause 5.2 of the deed was critical, but it was not a stand alone provision. It was not the source of the obligation to make the compromise payment. It provided the mechanics for payment.

(2) Nor was the obligation to pay found in clause 5.1. All that clause did was recite obligations contained elsewhere in the deed.

(3) The key obligations arose under clause 6.1. By sub-clause (a) the compromise payment was to be paid and discharged in full ‘upon the sale of the unsold lots and unsettled lots’. The obligation was to pay on sale, not settlement.

(4) Next, sub-clause (b)(iii)A was to be read as if it said — ‘On or before 30 September 2015 Linacre will sell the unsold lots at best possible price’. This obligation to sell by 30 September was absolute. By sub-clause 16(i), time was of the essence.

(5) If Linacre failed to sell the unsold lots by 30 September 2015, then the lenders had the right to elect to take a transfer of the unsold lots. If they so elected, then the compromise payment would be deemed paid, clause 5.2 to have been satisfied, and in accordance with clause 8 Linacre would be released from further performance under the deed. Further, the automatic assignment of rights under clause 11 would be triggered.

(6) If the lenders elected not to take a transfer of the unsold lots then, implicitly, Linacre would have to find the balance of the compromise amount from somewhere else.

(7) The absolute requirement which sub-clause 6.1(b)(iii)A imposed upon Linacre to effect sale by 30 September 2015 was reconcilable with sub-clause 5.2(b)(i) by implying into the latter a requirement to pay the proceeds of a sale made before 30 September 2015 within a reasonable time after that date. The words ‘shall be paid to the lenders’ in the opening part of sub-clause 5.2(b) should not be read literally so as to make payment before 30 September 2015 obligatory.

(8) Moreover, the deed did not require the balance of the compromise amount to come solely out of the proceeds of sale of the unsold lots. Neither sub-clause 5.2(b) nor sub-clause 6.1(a) required it. Linacre and Paul could have chosen to borrow, and held onto those lots.

(9) By sub-clause 5.5(b) the balance of the debt remained payable whether or not the compromise amount was paid in accordance with the deed. The lenders only undertook not to sue for the balance for a two year period. Sub-clause 5.1(c) did not tell to the contrary.

(10) It was not open to Paul to argue that the arrangements under the deed thus described, made with some purpose in mind, were antipathetic to the real nature of the transaction. Linacre and Paul could not blow hot and cold.

(11) Implicitly, the Judge had rejected the lenders’ contention that clause 8 was an accord and conditional satisfaction in a form which entitled the lenders to both recover the balance sum and sue on the debt. No reasons were provided for that conclusion, and it was in error.

(12) Clause 8 was not a ‘classical’ accord and conditional satisfaction provision. The parties had agreed to ‘contract out of the standard or classical analysis’. So it was unnecessary for the lenders to elect whether to sue on the deed or the loan agreements.

(13) The meaning to be given to clause 8 was illuminated by clause 5.5. The debt did not merge in the accord or on its satisfaction. The lenders’ obligation was, subject to the operation of clause 8, not to sue on the debt for two years. If clause 5.2 was complied with, the debt was assigned to Linacre and Paul.

(14) What then, constituted ‘satisfaction of clause 5.2’ for the purposes of clause 8? The answer was that late payment of the balance sum was not payment in accordance with clause 5.2. Therefore, clause 8 did not take effect when an amount equivalent to the balance sum was paid on 20 January 2017. The deed remained on foot. Clause 5.2 not having been complied with, clause 8 simply did not operate.

(15) Further, a conditional satisfaction was chosen to give effect to the assignment in clause 11. The debt was preserved so that it could be voted in any insolvency. Sub-clause 8(g) was crucial. It provided that the release in clause 8.2 did not apply to enforcement of rights assigned under clause 11. No election was required of the lenders.

As to the second aspect of his submissions, that the Judge erred in his use of the admissible objective surrounding circumstances, counsel contended that:

(1) The one circumstance upon which the Judge fixed was that Mr Seymour was of the opinion, communicated not only to the lenders but to Linacre and Paul, that the lenders were confronted with an ‘insolvency [pre-pack]’. This led his Honour to the conclusion, if he was to accept the lenders’ construction, that they would have achieved an arrangement of a ‘very potent type’ from the ‘weak position’ identified by Mr Seymour. If that had really been the parties’ intention, it could have been simply and clearly expressed.

(2) In the context of the objective circumstance established by Mr Seymour’s opinion, the further matters relied upon by the Judge were that — (a) if the construction advanced for the lenders was correct, Linacre and Paul had entered into an arrangement that reasonable business people would be unlikely to enter into; (b) the parties had refrained from employing language which would make it plain that 30 September 2015 was an essential time of limitation; (c) sub-clause 5.2(b) left open an ambiguity about what was to occur in the circumstances that came to pass; and (d) whilst clause 6.1 provided that the lenders had a right, but not a duty, to take a transfer of the unsold lots, the scenario that came to pass ‘had not been directly catered for’.

(3) An objective circumstance, not referred to by the judge, was the fact that negotiations had been in train for several months before the deed was executed. The short time-frame set by clause 5.2(b)(i) could be understood as a hang-over from earlier on, when the time-frame would not have been so compressed.

With respect to ground 5, the lenders submitted that:

(1) The Judge wrongly dismissed their contention that the misrepresentation of Linacre and Paul caused them to incur legal costs in the Supreme Court proceeding. His Honour dismissed that claim because, among other things, he had found that no moneys were owed to the lenders because the obligations of Linacre and Paul under the deed had been met.

(2) To the extent that the Judge relied upon his construction of the deed, the decision was erroneous and could not stand.

(3) The Judge mistook the question which the lenders had to consider. It was not the proper construction of the Personal Properties Securities Act 2009 (Cth) but whether moneys held by the liquidators were the property of Linacre in its own capacity or as trustee of the trust — a question the answer to which was by no means clear either to the lenders or the liquidators.

(4) In the event, the lenders were entitled to take a reasonable period of time to consider their position. Having done so, and having incurred costs, they had consented to the orders sought by the liquidators within a reasonable time.

(5) Contrary to the import of Paul’s submissions, at trial they had not abandoned reliance upon misleading or deceptive conduct in the set-off to counterclaim

Orally, lenders’ counsel conceded that he faced some difficulty with a disproportionality analysis in respect of ground 5 if his clients’ submissions on grounds 1 to 4 were unsuccessful.

Submissions for Paul

It was submitted for Paul[27] that:
[27]Again, partly in writing, and partly orally.

(1) The deed was replete with ambiguities. That made it relevant to establish the objective circumstances in which it was compiled, in order to give meaning to it.

(2) The Judge correctly found, on the proper construction of the deed, and in the events which occurred, that the deed did not specify a date by which the entire amount of the compromise was to be paid. No time limit was fixed by the deed for the scenario that transpired. But even if there was such a date, the lenders had not terminated the deed when that date passed, and the deed continued to operate for the benefit of all parties. So, when the amount owed by Linacre under the deed was paid in full, Linacre and Paul were entitled to the benefit of the release, and the lenders were not permitted to sue on the original loan agreements.

(3) The two most important background facts relevant to construction of the deed were the poor position of the lenders on account of their failure to properly register their original securities, and the advice which they received from Mr Seymour about that poor position, the substance of which advice was provided to all parties before the deed was entered into. The lenders’ failure to properly register their securities[28] left them seriously exposed. The associated creditors had registered their securities ahead of the lenders. As things stood, and in a liquidation, the associated creditors would be paid first. Paul as guarantor was worth nothing.
[28]According to the evidence, it was their failure to register mortgages, rather than their failure to register the chargers effectively, which was then in focus.

(4) The substance of Mr Seymour’s advice was that it was critical for the lenders to enter into an agreement which provided for subordination of the associated creditors to the lenders, for the registration of fresh securities for the lenders, and for a mechanism to avoid a liquidation which might see those fresh securities attacked by a liquidator as preferences.

(5) Clause 4 provided for the grant of new mortgages in favour of the lenders, which was relevant to Mr Seymour’s advice that they should seek new securities and to be put in a better position than the associated creditors.

(6) Another objective fact known to the parties at the time of execution of the deed was that the unsold lots were the most difficult to market.

(7) The Judge was correct to conclude that the deed required, if the lenders elected not to take transfer of the unsold lots, that Linacre’s obligation was then to continue to try to sell them and to apply the proceeds in reduction of the balance. The Judge had rightly held that the deed did not require payment of the compromise amount by 30 September 2015.

(8) What the deed required of Linacre on or before 30 September 2015 was to pay to the lenders all net settlement proceeds generated from the sale of any unsold lots which settled by that date, do all things necessary and required to discharge any registered mortgages, other than the new lender mortgages, against the unsold lots, do all things necessary and required to sell all of the unsold lots at the best possible price, and present to the lenders or their authorised representative unconditional contracts of sale in respect of the unsold lots.

(9) The deed did not require the compromise amount to be paid by 30 September 2015. On a plain reading, sub-clause 5.2(b)(i) said no such thing. That sub-clause attached the date 30 September 2015 to the verb ‘settles’. Thus, sub-clause 5.2(b)(i) provided that the net settlement proceeds from the sale of unsold lots which settled on or before 30 September 2015 were to be paid by Linacre to the lenders.

(10) Nor did sub-clause 6.1(a) say that the compromise amount was to be paid by 30 September 2015. That sub-clause dealt with ‘sale’. Contrast the concept of sale and settlement in clause 5.2.

(11) It did not follow from the obligation in sub-clause 6.1(b)(iii)A that Linacre was required to sell the unsold lots by 30 September 2015. That is not what the sub-clause said. It was well possible that the particular lots could not be sold in the six week period between the signing of the deed and 30 September 2015, still less sell the lots at the best possible price, notwithstanding Linacre doing everything possible to achieve that aim.

(12) Thus, a construction of the deed, if it required payment of the full compromise amount by 30 September 2015 in the events that occurred was consistent with one scenario expressly contemplated by the parties in sub-clause 6.1(b)(iii) — that is, where all of the unsold lots were sold by 30 September 2015, but the contracts were not due to settle for some time thereafter. The deed specified that Linacre, in that situation, was required to present to the lenders the unconditional contracts of sale. Yet if the lenders were correct in submitting that clause 5.2 required payment of the entire amount by 30 September 2015, Linacre would have breached the deed, and become disentitled to the release despite it fulfilling every aspect of what clause 6.1(b) required it to do in relation to the unsold lots.

(13) Even if the obligation in sub-clause 6.1(b)(iii)A could be read as requiring Linacre to sell the unsold lots by 30 September 2015, it did not follow that the deed must be construed as requiring payment by that date. If that had been the intention, it was pointless for the deed to require presentation of unconditional contracts of sale to the lenders by 30 September 2015.

(14) If the lenders’ argument was correct, it would be clause 6.1, not clause 5.2, that imposed the requirement to pay the compromise sum by 30 September 2015. But the release in clause 8 turned on the ‘satisfaction’ of clause 5.2; and that clause gave the lenders an option on electing to take a transfer of unsold lots in the event that any such lots remained unsold on 30 September 2015.

(15) The construction advanced for the lenders produced another commercially unreasonable consequence. According to their argument, the lenders were given the ‘extraordinary choice’ of electing to take a transfer. If they so elected, they could sell or retain the unsold lots. In either event, that would be the end of their entitlement. Moreover, if they opted to sell the lots, they would incur the marketing expenses. But if they did not take a transfer, they could receive whatever amount Linacre raised by later sales and then sue for millions more. This pointed to the proper construction being that, if the lenders elected not to take the unsold lots, the deed would continue to operate. So, when all the lots had been sold, and the net proceeds had been paid to the lenders, in accordance with the deed that would be the end of it. There would be satisfaction of clause 5.2 and clauses 8 and 11 would come into play.

(16) The Judge was correct to say that there are common settlement terms available to lenders in a strong position that permit the recovery of a larger sum if a lesser sum is not paid on time in a way which avoids the law of penalties. If the parties had intended such an arrangement, they could easily have done so. Further, if the parties had intended that 30 September 2015 be the ‘drop-dead date’, it would have been easy to employ language making that plain. Instead, clause 6.1(a) provided that the compromise payment was to be made in full on the occurrence of a particular event, not a date.

(17) The parties knew, at the time of execution of the deed, that the unsold lots were the ones which were most difficult to market. That made it objectively unlikely that Linacre and Paul would agree to undertake so tight and difficult a deadline, if the consequences of failing to meet it were so large.

(18) The Judge found, as a matter of fact, that all parties knew that the unsold lots provided the only possible source of funds for the payment of the balance of the compromise amount. So it made perfect sense for the agreement having the intended effect that, unless the lenders elected to take the unsold lots, they were necessarily at the mercy of the market in waiting for purchasers to come forward and settle.

(19) The lenders’ submission that Linacre was required to pay the balance of the compromise amount by 30 September 2015 from any source was both contrary to the language of the deed and flew in the face of objectively known facts as to the financial circumstances of Linacre and Paul. Linacre had no security to give and no available funds. Paul’s financial position, whether by design (which Mr Seymour considered was the case) or otherwise, was fraught.

(20) In the event, the preferable construction by some margin was that if there were unsold lots on 30 September 2015, and if the lenders elected not to take ownership of them, the deed continued to operate for the benefit of all parties.

(21) So to conclude recognised that clause 5.2 did not deal with the situation in this case — that is, where unsold lots remained unsold as at 30 September 2015, there were thus no net proceeds with which to pay the balance of the compromise payment by that date, and the lenders did not elect to take the unsold lots in satisfaction of the unpaid balance sum. For that reason, words should be read into clause 5.2 by necessary implication to the effect of his Honour’s conclusion. Such a term would be reasonable and equitable, necessary for business efficacy and was so obvious as to go without saying. It would avoid imposing on Linacre and Paul the burdens of the deed without any of its benefits, in circumstances where the very act which would bring about such an outcome was within the lenders’ discretion — that is, the election not to take a transfer of the unsold lots.

(22) The Judge’s construction was much more commercially reasonable than the construction advanced for the lenders. It did involve the implication of a term. At some point, failure to take all reasonable steps to effect sales and make payment to the lenders would become unreasonable. The lenders could then allege breach and terminate.

(23) The weight sought to be placed by the lenders on the fact that the deed provided for the preservation and assignment of the debt owed under the loan agreements was irrelevant to the issue of construction. The purpose of preserving and assigning the debt was clear. As the lenders themselves said, it was preserved so that it could be voted in any insolvency. Keeping the debt alive for voting purposes was a device for ensuring that there would be a deed of company arrangement and not a liquidation. That was for the benefit of all parties. It was consistent with Mr Seymour’s advice to the lenders that it was critical that issues of preferences were avoided.

(24) The Judge was correct to conclude that, even if the deed did require the compromise payment to be made by 30 September 2015, the consequences of non-compliance, in circumstances where the deed was never terminated, was not that the lenders were able to pursue the balance of amounts owing under the loan agreements. The contract had been affirmed without the lenders setting a new time for performance. Time ceased to be essential. It was replaced with an obligation to perform in a reasonable time. The contract continued for the benefit of all parties. Here, the lenders unquestionably affirmed, rather than terminated, the deed after 30 September 2015.[29] They affirmed because otherwise they stood to incur marketing costs and expend time and effort in attempting to sell the unsold lots. But what the lenders suggested in this proceeding was that the deed remained on foot only for their benefit. That contention was contrary to authority. If a breached contract is not terminated but instead affirmed, it remains on foot. And if the breach was of an essential time stipulation, that stipulation ceases to apply.

(25) The lenders’ submissions with respect to clause 8 amounted to saying that the opening words ‘on satisfaction of Clause 5.2’ meant ‘on payment by 30 September 2015’. In that way, the operation of clause 8 was impermissibly cut adrift from performance of the obligation to sell and settle, whether it be by 30 September 2015 or by some reasonable time thereafter.

[29]One instance was the email from the lenders’ solicitor to Linacre’s solicitors referred to at [35] above.

With respect to ground 5, Paul submitted that leave to raise this ground should be refused for two reasons:

(1) First, because it was now said to be relevant only as a set-off in defence of Paul’s counterclaim and on the premise that the lenders’ construction arguments were rejected. The counterclaim was upheld in an amount of $21,663.24. It was disproportionate for the lenders to raise ground 5 as a stand-alone ground of appeal. Even if the Ground had a real prospect of success, leave should be refused in the exercise of the Court’s residual discretion under s 14C of the Supreme Court Act 1986.

(2) Second, because the trial was expressly conducted, as disclosed by the final written submissions for the lenders,[30] on the basis that the lenders’ claim of misleading or deceptive conduct by Paul would become relevant[31] only if the Judge found that the guarantees which he had given had been discharged by reason of the lenders’ failure to register their securities. In that event, they would argue that such failure was induced by Paul’s misleading or deceptive conduct, and that they had suffered loss and damage being the lost value of the guarantees.

[30]There were no oral submissions.

[31]At trial, Paul conceded that Tonini’s failure to perfect security could not discharge his liability under that guarantee. But he argued to the contrary in the case of Daswan.

It was further submitted that the Judge had nonetheless addressed the lenders’ pleaded defence to counterclaim reliance upon alleged misleading or deceptive conduct. Assuming, without deciding, that Paul had been knowingly concerned in conduct of that kind, and that the lenders had been misled, his Honour had nonetheless not been satisfied that the lenders had incurred legal costs by reason of being misled.[32]
[32]Reasons [193]–[197].

Analysis
Grounds 1 to 4

We begin by considering the submissions advanced for the lenders as to the meaning of the deed. Doing so, as will be seen, illuminates the improbability that the submissions were correct.

According to those submissions:

(1) Nothing was missing from the agreement between the parties as expressed in the deed. There was an absolute obligation upon Linacre to sell the unsold lots by 30 September 2015. That obligation was imposed by sub-clause 6.1(b)(iii)A. If there was a failure to sell the lots, they, the lenders, could elect to take a transfer of title to the unsold lots.

(2) Linacre’s obligation was not only to sell the unsold lots by 30 September 2015 but to pay settlement moneys by that date. The latter obligation was imposed by sub-clause 5.2(b)(i). Time was of the essence. 30 September 2015 was, in the judge’s language, ‘a drop dead date’.

(3) As an alternative to payment being made by 30 September 2015, the lenders could take transfer of ownership of the unsold lots in accordance with clause 6.1. But if an unsold lot was sold before 30 September 2015, such that there was compliance with sub-clause 6.1(b)(iii)A, but the proceeds of sale were not received until after that date, sub-clause 5.2(b)(i) should be construed to permit such a payment without there being a breach.

(4) Further, if all the unsold lots were not sold by 30 September 2015, then there was necessarily a breach of sub-clause 5.2(b)(i). For that reason, there could not be ‘satisfaction of clause 5.2’ for the purposes of clause 8. The consequence was, the debt having been preserved by clause 5.5(b), the lenders were not precluded from suing on the loan agreements. Also because clause 5.2 was not satisfied, the automatic assignment provided for by clause 11.1 did not operate. That is, it did not stand in the way of the lenders pursuing claims on the loan agreements.

In our opinion, the meaning thus given to the deed falls down at a number of points.

First, what Linacre undertook to do on or before 30 September 2015, by sub-clause 6.1(b)(iii)A, was ‘all things necessary and required to sell all of the Unsold Lots at [the] best possible price, in view of meeting its obligations under [the] Deed’. In our opinion, there is no warrant for reading that sub-clause as if it said, ‘on or before 30 September 2015 the company will sell the Unsold Lots at best possible price’. The text does not say anything like that, and a reasonable businessperson would not have understood the term in this way in the objectively known circumstances. Yet that was the starting point for the lenders’ whole argument. In our view, the sub-clause should be given its ordinary meaning — that is, that Linacre would do all things necessary and required to sell the unsold lots at the best possible price before 30 September 2015 with a view of meeting its obligations under the deed. This makes the lenders’ further contention, that sub-clause 5.2(b)(i) required the balance sum to be paid, unsound.

Second, the right of the lenders to elect to take ownership of the unsold lots, conferred by sub-clause 6.1(c), extended to breach of any of the obligations imposed by sub-clause 6.1(b). That would embrace the situations where, amongst other things, Linacre did not make its best efforts to sell the unsold lots at best possible price, or, having not sold the lots despite its best endeavours, could not present to the lenders by 30 September 2015 unconditional contracts of sale in respect of the unsold lots. In the event, the operation of the election provision did not depend upon the construction of sub-clause 6.1(b)(iii)A advanced for the lenders.

Third, it is to be noted that clause 6.1 was concerned with sale of the unsold lots, not sale and settlement. Oddly, sub-clause 6.1(a) provided that ‘[t]he Compromise Payment will be paid and discharged in full upon the sale of the Unsold Lots and Unsettled Lots in the Development’. That cannot be read literally. Rather, it must mean that the balance of the compromise amount would be paid when the proceeds of sale of the unsold and unsettled lots was remitted to the lenders. In any event, clause 6.1 is only part of the story. One must then go to clause 5.2.

Clause 5.2 provided that the compromise payment ‘will be paid as follows’. Sub-clause 5.2(b) addressed payment of the balance sum, providing that it:

shall be paid to the lenders:
(i)from the Net Settlement Proceeds from the sale of the Unsold Lots which settles on or before 30 September 2015; and/or
(ii)by way of transfer of ownership of any Unsold Lots in accordance with clause 6.1.

The consequence of the lenders’ argument is that sub-clause (b)(i) should be read as if it said:

On or before 30 September the balance sum must be paid from the net settlement proceeds from the sale of unsold lots, necessarily sold before that date, or from any other source available to Linacre, save that net sale proceeds of a sale necessarily made before 30 September 2015 but not received by that date may be paid within a reasonable time after that date.

But that is not what clause 5.2(b)(i) said, or anything remotely like it. Sub-clause (b)(i) addressed the situation in which, some one or more of the unsold lots having been sold before 30 September 2015, net settlement proceeds were received before that date. Such moneys were to be paid towards satisfaction of the balance sum. On its face, the sub-clause did not address the situation where some one or more of the unsold lots remained unsold as at 30 September 2015; or, so far as there had been any sales, proceeds were not received until after that date. On its face, if sales proceeds were not received by 30 September 2015 (but subject to the operation of sub-clause 6.1(c), as to which — see later), sub-clause (b)(ii) gave the lenders a right to elect to take a transfer of unsold lots. The ‘and/or’ separating sub-clauses (b)(i) and (ii) was probably intended to deal with the situation in which there had been some sales and proceeds received by 30 September 2015, whilst other lots then remained unsold.

In either of the two situations just mentioned, there would be satisfaction of clause 5.2, with the consequence that clauses 8 and 11 would be activated, and Linacre and Paul would be released from further liability under the loan agreements.

Fourth, the lenders’ submissions as to the effect of sub-clause 5.2(b)(i) run into the difficulty that, as the Judge observed, if 30 September 2015 had been intended to be a ‘drop dead’ date for payment, that could easily and clearly have been said.[33]
[33]Ibid [142].

Fifth, if the parties had intended that, failing payment of the balance amount by 30 September 2015 from the proceeds of sales of the unsold lots, the lenders were to be free to sue on the loan agreements, there was a well-known drafting method to achieve such a result. As the Judge noted,[34] having referred to Cameron v UBS AG,[35] that method was not adopted. This told against the meaning contended for by the lenders.
[34]Ibid [140].
[35](2000) 2 VR 108.

Sixth, there is really no doubt why the debt was preserved. It was so that it could be voted, if necessary, in favour of a deed of company arrangement rather than a liquidation. Its preservation for that purpose accorded with Mr Seymour’s advice to the lenders — which was shared with the respondents and their lawyers. The fact that, on satisfaction of clause 5.2, Linacre and Paul were to be released from further liability and the benefit of the debt was to inure in favour of Linacre and Paul, was again consistent with the use of the debt for purposes other than facilitating an opportunity for the lenders to sue on the debt despite payment of the compromise amount having been made. In our opinion, the statement by Young J in Morgan v 45 Flers Avenue Pty Ltd,[36] relied upon by the lenders, is not apposite to determining the meaning of the critical terms in this deed.
[36](1986) 10 ACLR 692, 694–5.

Seventh, the lenders’ interpretations are inconsistent with the objective background facts. At the time when the deed was going through its various drafts, the lenders had been advised that their position was extremely weak. In a liquidation of Linacre, they could expect to receive very little. Paul’s affairs had been organised so that he would not be a likely source of reparation of any significant part of the loan moneys. The associated creditors had stolen a march on them.

Yet, as the lenders would have it, they achieved a position under the deed in which they negotiated payment of a sum certain, obtained priority over the associated creditors, obtained fresh securities, were protected to an extent against the risk of liquidation of Linacre, and were additionally the beneficiaries of a situation in which, despite payment of the full compromise amount, they were still able to sue on the loan agreements. If the deed should be given that meaning, it was truly a situation in which the lenders’ very weak position had been transformed into a dominant one. It tells against the conclusion that reasonable persons in the position of the parties would have understood the terms of the (admittedly ambiguous) deed in that way.

Now consider the construction advanced for Paul. A number of those submissions attacked the meaning of the deed contended for by the lenders. We have considered most of those submissions when describing the lenders’ contentions and the weaknesses in the case thus advanced. We will not address those submissions further.

Paul’s positive case accepted that there was a gap in the deed. Whilst sub-clause 6.1(b)(iii)A did not require that sales be made by 30 September 2015, and whilst, in such a case, it was said to be open to the lenders to elect to take title to any unsold lots, what was to happen if there were unsold lots as at 30 September 2015 and there was no election? Did it mean that, by an act wholly within the discretion of the lenders, clause 5.2 could not be satisfied, with the consequence that the release in clause 8 could not be activated, this leaving Paul open to suit on the loan agreements even if the balance of the compromise amount was later paid and accepted? Would such an outcome be consistent with the approach to determination of the meaning of the terms of a commercial contract described in the judgment of the plurality in Electricity Generation?[37] The answer to those questions was unequivocally ‘no’. It was inconceivable that Linacre and Paul would have agreed to such an outcome in light of the objectively known circumstances. Moreover, the reason why the debt was preserved was not in doubt. It had nothing to do with preserving for the lenders a right to sue on the loan agreements where the compromise amount had in fact been paid. In the event that there was a substantive breach of the deed, the lenders could resort to suit on the loan agreements. But that was not this case. The basal purpose of the deed, considered in a commercial context and bringing into consideration objectively known circumstances, was to secure for the lenders payment of the compromise amount or, in lieu, transfer of title to unsold lots. In return, Linacre and Paul were to be released from further liability.
[37](2014) 251 CLR 640, 636–7 [35] (French CJ, Hayne, Crennan and Kiefel JJ).

Further, put negatively, the parties should not be understood to have constructed an agreement which was foredoomed to fail. Yet if 30 September 2015 assumed dominating significance, that was almost certainly the situation, because the prospect of sales and settlement of the unsold lots in the six weeks between 14 August and 30 September 2015 was, considered commercially, near enough to zero.

According to Paul’s submissions, a term could be and should be implied which met the requirements stated in BP Refinery (Westernport) Pty Ltd v Shire of Hastings.[38] The alternative answer, leading to the same outcome, was that the lenders had affirmed the agreement. The Judge had correctly so decided.[39] The unsold lots had been sold and the proceeds remitted to the lenders within a reasonable time. In either case there had been no breach of clause 5.2, and Linacre and Paul had been released from further liability.
[38](1977) 180 CLR 266, 283 (Lord Simon of Glaisdale, Viscount Dilhorne and Lord Keith of Kinkel) (‘BP Refinery’).
[39]See [57](24) above.

In our opinion, Paul’s submission with respect to implication of a term should be accepted. A term should be implied to resolve what the Judge described as ‘a major conceptual gap in the operation of the deed’.[40] His Honour did not deal with the matter in quite that way — resolving it on the basis that there was no breach of an essential time limit and that, in any event (at least, provisionally), the lenders had elected to proceed[41] — and yet we think that in principle it was the best resolution of the problem.
[40]Reasons [143].
[41]Ibid [146].

Counsel for Paul did not formulate the term which should be implied. His submission was rather that words should be read in to the effect of his Honour’s conclusion. We consider that the implied term under sub-clause 5.2(b)(i) should be expressed as an expansion of time, to allow payment of the balance sum from the proceeds of sale of unsold lots sold by 30 September 2015 or within a reasonable time thereafter in all the circumstances — in accordance with the underlining in the restatement of that sub-clause below:

The balance of the Compromise Payment (‘Balance Sum’) shall be paid to the Lenders:
(i)from the Net Settlement Proceeds of the sale of such of the Unsold Lots, which may settle on or before 30 September 2015 or, in respect of any Unsold Lot which is not sold or settled before that date, such payment to be made promptly after settlement of each such sale and the entire Balance Sum to be paid in any event not later than a reasonable time after 30 September 2015 in all the circumstances.

It is next necessary to consider a question as to the operation of sub-clause 6.1(c). The question was not addressed in argument, either in this Court or below. Sub-clause 6.1(c) permitted the lenders to elect to take title to unsold lots in the event of any non-compliance with sub-clause 6.1(b). Focusing on sub-clause (b)(iii), the enquiry was directed to events occurring no later than 30 September 2015. Thus, the right to elect had either arisen by that date, or it had not.[42] Failure to make best efforts for sale after that date was irrelevant, likewise failure to present unconditional contracts for sale. The right could not arise by reason of events which took place after 30 September 2015. As we have said, there was no evidence that Linacre did not apply itself to the sale of the unsold lots in accordance with the applicable standard under sub-clause (b)(iii)A. It follows that the right could never arise in the present circumstances; and therefore the alternative contemplated by sub-clause 5.2(b)(ii) was no alternative at all.
[42]Although that is not to say that any failure by Linacre to make every effort to sell the unsold lots by that date would necessarily have been apparent by 30 September 2015. Further, it is apparent that (b)(iii)B should be read together with (b)(iii)A, as B is dependent on sales of unsold lots first occurring under A.

It was obviously a matter of importance in the commercial resolution of the problem which arose between the parties that sub-clauses 5.2(b) and 6.1(c) could work together. In the event, we consider that there should be implied into sub-clause 6.1(b)(iii) a time frame compatible with the reasonable time for sale and payment fixed by the implied term in sub-clause 5.2(b)(i). Consistent with that implied term, we would imply into the introductory words to sub-clause 6.1(b)(iii) the added words: ‘or by such time thereafter as is reasonable in all the circumstances’. With those words being implied, the sub-clause would begin:

(iii)On or before 30 September 2015, or by such time thereafter as is reasonable in all the circumstances:
A. the Company will …

The above implied terms are necessary to make the deed work because, as we have said, sub-clauses 5.2(b), 6.1(b)(iii) and 6.1(c) were incapable of working together in the present circumstances. In our view, the implied terms as to reasonable time meet the BP Refinery criteria. For the reasons we have given, such terms are: (1) reasonable and equitable; (2) necessary to give business efficacy to the deed; (3) so obvious that they ‘[go] without saying’; (4) capable of clear expression; and (5) such as to not contradict any express term of the deed when read as a whole.[43] So considered, the payments which were made conformed with sub-clause 5.2(b)(i). There was no suggestion that Linacre did not apply itself to the sale of these difficult to sell lots. And it evidently remitted the net proceeds of sale to the lenders in good time.
[43]BP Refinery (1977) 180 CLR 266, 283.

On the footing, as we conclude, that the Judge was correct to hold that Linacre satisfied the requirements of sub-clause 5.2(b)(i), the release provided for by clause 8 was activated. We have noted the lenders’ submissions as to the effect of clause 8 and clause 11, at [53](9)-(13) and (15) above. In our view, there was no merit to the lenders’ submission that the combined effect of clauses 5.5(b), 8(g) and 11 was to leave it open to the lenders to sue on the loan agreements even if Linacre paid the compromise amount in accordance with the deed. The language of the relevant clauses does not lead to such a conclusion. It rather fits with the intention of the parties objectively considered, most particularly the desire to prevent Linacre being liquidated. It is also the case, in our opinion, that the construction advanced for the lenders would produce a result which was commercially bizarre. We add that, if the lenders’ construction was correct, they need never have sought to show that Linacre had not complied with the compromise. Their simple position could have been — ‘it doesn’t matter one way or the other’.

In summary, we conclude that the correct analysis is as follows: once Linacre had satisfied clause 5.2 (either by paying the compromise amount in full, or else by the lenders electing to take title to unsold lots) clause 11 operated automatically to effect an assignment of their rights under the loan agreements (and ancillary documents including guarantees and charges) to a nominee of Linacre. Their rights under those agreements could then be voted against any attempt to liquidate the company.[44] It was thus necessary to preserve their rights, whilst at the same time releasing Linacre and Paul from any further liability if clause 5.2 was satisfied. The release by clause 8 was thus qualified by preserving the residual rights which were automatically assigned by clause 11. But the residual rights would have been in substance non-existent if the debt arising from the loan agreements had been extinguished.
[44]Just as they could vote those rights if there was an attempt to liquidate the company before clause 5.2 was satisfied.

So what was done, by sub-clause 5.5(a) was to provide for a release ‘as between the parties only’ to the deed; whilst, by sub-clause 5.5(b) Linacre and Paul acknowledged that the balance of the debt remained payable, and the lenders agreed not to sue for two years. This was a way of giving the residual rights a substantive content. The drafting was clumsy, but the objective intent was clear enough. The alternative meaning proposed by the lenders, which involved a sophisticated argument that this was an accord and conditional satisfaction ‘with a difference’, in that satisfaction of the condition was not the end of it, lacked any merit.

Ground 5

In our opinion, leave to appeal should be refused for the reasons advanced by Paul in his submissions noted at [58]–[59] above. To be clear, we do not consider that the ground had a real prospect of success, essentially because the Judge resolved the issue at a factual level which has not been shown to be arguably incorrect. But if that was not so, we would exercise our residual discretion to refuse leave[45] in light of the way in which the trial was conducted below, and by reason of disproportionality in circumstances where no other reason to remit the matter has been demonstrated.
[45]Kennedy v Shire of Campaspe [2015] VSCA 47 [5], [14]; Molonglo Group (Australia) Pty Ltd v Cahill [2018] VSCA 147 [96]–[97]; Chief Commissioner of the Australian Federal Police v Opal Storm Pty Ltd [2018] VSCA 301 [24]–[27], [71]–[74].

Orders

We will make the orders foreshadowed at [6] above.

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[2018] VSCA 350

19 December 2018