| JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA LOCATION : PERTH CITATION : ERBEAC INC -v- CITY OF BUNBURY [2013] WADC 159 CORAM : CURTHOYS DCJ HEARD : 22 JULY & 11 SEPTEMBER 2013 DELIVERED : 22 OCTOBER 2013 FILE NO/S : CIV 823 of 2010 BETWEEN : ERBEAC INC Plaintiff
AND
CITY OF BUNBURY
Defendant
Catchwords: Contract - Contractual interpretation - Inter-connected agreements in contractual interpretation Legislation: Nil Result: Judgment for plaintiff of $404,740.30
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Representation: Counsel:
Plaintiff : Mr S Van Dongen
Defendant : Mr R W Richardson
Solicitors:
Plaintiff : Zilkens & Co
Defendant : Christopher Garvey
Case(s) referred to in judgment(s):
Bytan Pty Ltd v BB Australia Pty Ltd [2012] VSCA 233
Cape Lambert Resources Ltd v MCC Australia Sanjin Mining Pty Ltd [2013] WASCA 66
Hancock Prospecting Pty Ltd v Wright Prospecting Pty Ltd [2012] WASCA 216
House of Peace Pty Ltd v Bankstown City Council (2000) 48 NSWLR 498
Lend Lease Real Estate Investments Ltd v GPT RE Ltd [2006] NSWCA 207
Provincial Insurance Australia Pty Ltd v Consolidated Wood Products Pty Ltd (1991) 25 NSWLR 541
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Introduction 1 On 12 November 2002 ERBEAC Inc, as lessee, and the City of Bunbury (the City), as lessor, entered into a lease agreement for a property located at in Bunbury (Book of Documents vol 1 page 1 ff). 2 The lease required ERBEAC to establish a 'business incubator', as defined in the lease, in Bunbury within three years. 3 Prior to the expiration of the three-year period ERBEAC sought the City's consent to assign the lease to a third party. 4 A dispute arose between the parties over the assignment. The dispute was settled by a deed dated 5 April 2005 (Book of Documents vol 1 pages 180 - 184). 5 In this action ERBEAC claims $404,470.30 from the City of Bunbury under cl 1.5 of the deed, which reads: The City agrees that if it has not made significant progress towards the establishment of a business incubator or business facilitation project in Bunbury by 31 March 2008, the City must repay the money the City has received pursuant to this clause 1 less any costs reasonably incurred by the City towards the development of a business incubator or business facilitation project … 6 Pursuant to cl 1.5 of the deed the City would be required to repay $450,000, less costs reasonably incurred relevantly $49,529.70, to ERBEAC if it had not made significant progress towards the establishment of a 'business incubator or business facilitation' project in Bunbury by 31 March 2008. 7 It is common ground that a business incubator was not established. It is also common ground that the net amount payable by the City if ERBEAC's claim is correct is $404,470.30. 8 ERBEAC claims that the City did not make significant progress towards the establishment of a business incubator or business facilitation project in Bunbury by 31 March 2008 and that the City is therefore required to repay $404,470.30 and interest to ERBEAC. 9 The City denies that it is liable to repay the money. (Page 4)
10 On 11 December 2007 (Book of Documents vol 2 pages 616 - 621) the City entered into a memorandum of understanding with VUE DC Pty Ltd and ISA Pty Ltd to establish the Australian Centre for Digital Innovation ('ACDI'). VUE and Isa entered into a joint venture and leased part of a building owned by the City in which the ACDI was established. 11 The City argues that the establishment of the ACDI constituted significant progress towards establishing a business facilitation project by 31 March 2008.
Clause 1 of the deed – business facilitation project in context 12 Clause 1 of the deed provided: 1. Business Incubator Funding 1.1 Erbeac agrees to pay to the City at the settlement $450,000.00 in full and final satisfaction of Erbeac's obligations under clauses 62, 63 and 64 of the lease and subject to the terms set out in this clause 1. … 1.3 The City acknowledges that it receives the $450,000.00 … to be held by the City as sole trustee for the purpose of developing a business incubator or business facilitation project in Bunbury. 1.4 The City agrees that it will use its reasonable endeavours to progress the establishment of a business incubator or business facilitation project in Bunbury on or before 31 March 2008. 1.5 The City agrees that if it has not made significant progress towards the establishment of a business incubator or business facilitation project in Bunbury by 31 March 2008, the City must repay the money the City has received pursuant to this clause 1 less any costs reasonably incurred by the City towards the development of a business incubator or business facilitation project … 1.6 The City acknowledges that nothing in this deed affects any right Erbeac has to establish a business incubator in Bunbury or its surrounding region utilising its own resources and any funding it can obtain from any third party. (Page 5)
1.7 The City hereby releases and forever discharges Erbeac from any and all obligations Erbeac had, has or might in future have under clauses 62, 63, and 64 of the lease with effect from the payment of the $450,000.00 (as adjusted in accordance with clause 1.2).
The primary issue 13 The primary issue in this case is whether the steps taken by the City to establish the ACDI constituted significant progress towards the establishment of a 'business facilitation project' by 31 March 2008. If it did not then the City is liable to repay $404,470.30 plus interest to ERBEAC. 14 It is common ground that if the ACDI is not a 'business facilitation project then the City has not made significant progress towards the establishment of a business facilitation project'. 15 The corollary is that if the ACDI is a business facilitation project then the City did make significant progress by 31 March 2008. 16 Resolution of the issue requires: The opposing constructions of 'business facilitation project' 17 ERBEAC's case is that 'business facilitation project' refers to a project by which assistance is provided to developing and expanding businesses. The object of the project must be to advance the business interests of parties other than the business interests of the project itself. Further, the aim of the project must generally be to help, develop, assist and provide support to multiple businesses so as to benefit the local community. Assistance to a single business does not constitute a 'business facilitation project'. 18 The City's case is that 'business facilitation project' 'has a simple clear meaning, that is, any undertaking or scheme designed to assist and promote business activity' (City closing submissions par 10). 19 For the reasons stated below I accept the construction contended for by ERBEAC. (Page 6)
Principles of contractual construction 20 In resolving this matter I have applied the principles of contractual interpretation set out below. 21 In Bytan Pty Ltd v BB Australia Pty Ltd [2012] VSCA 233 Warren CJ set out the following principles of contractual interpretation: [10] First, the contract should be construed objectively: 'The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction (Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd(2004) 219 CLR 165 [40]).' [11]Secondly, surrounding circumstances can be used to resolve ambiguities: '[E]vidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning. Generally speaking facts existing when the contract was made will not be receivable as part of the surrounding circumstances as an aid to construction, unless they were known to both parties, although … if the facts are notorious knowledge of them will be presumed (Codelfa Construction Pty Ltd v State Rail Authority (NSW)(1982) 149 CLR 337, 352 (Mason J, Stephen and Wilson JJ agreeing); Western Export Services Inc v Jireh International Pty Ltd[2011] HCA 45 [3] - [5]).' [12]Thirdly, the contract must be construed as a whole and in the case of ambiguity the court should prefer a construction that does not lead to capricious or inconvenient results: '[T]he whole of the instrument has to be considered, since the meaning of any one part of it may be revealed by other parts, and the words of every clause must if possible be construed so as to render them all harmonious one with another. If the words used are unambiguous the court must give effect to them, notwithstanding that the result may appear capricious or unreasonable, and notwithstanding that it may be guessed or suspected that the parties intended something different. The court has no (Page 7)
power to remake or amend a contract for the purpose of avoiding a result which is considered to be inconvenient or unjust. On the other hand, if the language is open to two constructions, that will be preferred which will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust, 'even though the construction adopted is not the most obvious, or the most grammatically accurate' … Further, it will be permissible to depart from the ordinary meaning of the words of one provision so far as is necessary to avoid an inconsistency between that provision and the rest of the instrument. (Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99, 109 (Gibbs J)).' See also Martin CJ in Cape Lambert Resources Ltd v MCC Australia Sanjin Mining Pty Ltd [2013] WASCA 66 [51] - [53]. 22 The role of surrounding circumstances in construing a contract are set out more expansively by McLure P (Newnes JA & Le Miere J concurring) in Hancock Prospecting Pty Ltd v Wright Prospecting Pty Ltd [2012] WASCA 216: 75 The role of the court in construing a written contract is to give effect to the common intention of the parties. The common intention of the parties is to be ascertained objectively. That is, the meaning of the terms of a contract in writing is to be determined by what a reasonable person would have understood them to mean: Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165. The subjective intention or actual understanding of the parties as to their contractual rights and liabilities are irrelevant in the construction exercise. 76 The practical limitation flowing from the Codelfa true rule is that surrounding circumstances cannot be relied on to give rise to an ambiguity that does not otherwise emerge from a consideration of the text of the document as a whole, including whatever can be gleaned from that source as to the purpose or object of the contract. 77 The word 'ambiguous', when juxtaposed by Mason J with the expression 'or susceptible of more than one meaning', means any situation in which the scope or applicability of a contract is doubtful: Bowtell v Goldsbrough, Mort & Co Ltd (1905) 3 CLR 444, 456 - 457. Ambiguity is not confined to lexical, grammatical or syntactical ambiguity. 78 Moreover, the extent to which admissible evidence of surrounding circumstances can influence the interpretation of a contract depends, in the final analysis, on how far the language of the (Page 8)
Dictionary meanings 23 Care needs to be taken with the use of dictionary meanings to arrive at the proper construction of a phrase used in a contractual term. The words are not simply the sum of the individual meanings: see Provincial Insurance Australia Pty Ltd v Consolidated Wood Products Pty Ltd (1991) 25 NSWLR 541, (560D), (562D) (Mahoney JA); (Page 9)
House of Peace Pty Ltd v Bankstown City Council (2000) 48 NSWLR 498. 24 The ordinary meanings of the words that comprise the phrase 'business facilitation project' include: (a) 'Business' - refers to, but is not limited to, trades, industries, professions, buying and selling; a commercial endeavour. (b) 'Facilitation' – the action of facilitating something, the action of making something easy or less difficult or more easily achieved. (c) 'Project' – a plan or scheme, planned undertaking. (Australian Oxford English Dictionary) 25 There is no significant difference as to the ordinary meaning of each of the words put forward by ERBEAC and the City. 26 The ordinary meaning of the words in a phrase provides the basis for the proper construction of that phrase. However, in construing the phrase 'business facilitation project' the ordinary meaning is to be applied in context having regard to the construction of the deed as a whole.
Are the lease and the deed to be construed as inter-connected agreements which must be construed as a whole? 27 It is important to note the following provisions of the deed: 28 ERBEAC argues that the fact that the deed compromises obligations under the lease, and that important provisions in the deed expressly refer to specific provisions of the lease, means that it is appropriate to construe the deed in the context of the provisions of the lease. 29 The City argues that, given that the deed was a compromise of a dispute in relation to the lease, it is not appropriate to construe the deed in the context of the provisions of the lease. (Page 10)
30 I accept ERBEAC's argument. The deed cannot be understood without reference to the lease. The fact that the deed is a compromise of a dispute in relation to the lease cannot mean that the terms used in the deed are to be construed without reference to the lease. The specific references in the deed to the lease mean that the lease and the deed are interconnected in the sense used by McLure P in Hancock Prospecting[81] and are to be construed accordingly.
Three phrases relevant to construction 31 Three phrases arise for consideration in construing cl 1.5 of the deed: (a) 'Business incubator', which appeared in the lease and the deed; (b) 'Business facilitation project', which appeared only in the deed; and (c) 'Business development projects', which only appeared in the lease. 32 'Business incubator' is defined in cl 1 of the lease. Neither 'business facilitation project' nor 'business development projects' are defined in either the lease or the deed.
The meaning of the phrase 'business incubator' 33 'Business incubator' is defined in cl 1 of the lease to mean: [T]he provision of facilities to assist new and expanding appropriately qualified businesses to access funds for their development and expansion including the supply of premises, venture capital, seed monies, development funds, mentors and equity for selected enterprises. (Book of Documents vol 1 page 7). 34 Given the interconnectedness of the lease and the deed and the use of the common phrase 'business incubator' that phrase bears the same meaning in the deed as in the lease.
The ejusdem generis rule 35 In order to properly contract one must take note of the ejusdem generis rule. In Lend Lease Real Estate Investments Ltd v GPT RE Ltd [2006] NSWCA 207 [30] Spiegelman CJ said: The general principle of the law of interpretation that the meaning of a word can be gathered from its associated words - noscitur a sociis - has a number of specific sub-principles with respect to the immediate (Page 11)
textual context. The most frequently cited such sub-principle is the ejusdem generis rule. The relevant sub-principle for the present case is the maxim propounded by Lord Bacon: copulatio verborum indicat acceptationem in eodem sensu - the linking of words indicates that they should be understood in the same sense. As Lord Kenyon CJ once put it, where a word 'stands with' other words it 'must mean something analogous to them'. (Evans v Stevens (1791) 4 TR 224; 100 ER 986 at 987. See also W J Byrne (ed) Broomes Legal Maxim (9th ed) Sweet and Maxwell, London (1924) pp 373–374.)
Does 'business incubator' aid in 'construing business facilitation project'? 36 The deed uses the terms 'business incubator' and 'business facilitation project' disjunctively. 37 ERBEAC argues that the use of the phrase 'business incubator' in the same context as the phrase 'business facilitation project' in various clauses of the deed of itself suggests that the parties objectively intended that while these phrases meant something different they were in fact closely related concepts. 38 It argues that the phrase 'business facilitation project' means a project the purpose or object of which is consistent with and closely related to the purposes of a 'business Incubator', as defined in the lease. 39 The City argues that if it was the parties' objective intention pursuant to the deed to incorporate obligations imposed under the lease in the compromise those matters would have been expressly spelt out. For example, if it was the parties' intention that the 'Project' was to have similar characteristics to the business incubator then that would have been a simple matter of drafting, e.g., a Business Incubator or something similar, or similar project. However, the words used do not take that approach, rather 'it', i.e., the 'business facilitation project', is expressed as an alternative by the use of the word 'or'. 40 I do not accept the City's argument. The ejusdem generis rule is well known and understood by contract drafters. In the context of the lease and the deed, ERBEAC's argument is correct. 41 In short, 'business facilitation project' is be read ejusdem generis with 'business incubator' - the linking of words indicates that they should be understood in the same sense and it must mean something analogous to them. (Page 12)
ERBEAC's obligations under the lease 42 The purpose of the deed was to compromise the parties' obligations under the lease, particularly those relating to cl 62, cl 63 and cl 64 (see par D of the Introduction, cl 1.1, cl 1.7). 43 ERBEAC correctly argues that in the circumstances, it is important to understand how cl 62, cl 63 and cl 64 of the Lease operated. 44 ERBEAC's analysis is: (a) within six months of the date of the lease, ERBEAC was required to establish an entity (the 'Centre') to set up and operate a business incubator in Bunbury (cl 62); (b) the Centre was to have the attributes and characteristics set out in cl 63(a) to cl 63(d). Those attributes and characteristics included that the Centre had to be a non-profit organisation with the same or substantially similar constitution, objects, powers and rules of ERBEAC, but with a focus on the Greater Bunbury area; (c) Clause 64 imposed an obligation on ERBEAC and the Centre to execute a 'Management Agreement', to be approved by the City, which was to contain certain terms and conditions (set out in cl 64(a) to cl 64(k)). (e) The 'Management Agreement' was intended to: (f) Clause 64(j) provided, in effect, that if the business incubator was not fully operational within three years, then the money in the Common Fund at that time could be transferred to the City at the City's request. (Page 13)
(g) The money, upon its transfer, was intended to: 45 The City's analysis is: (a) The lease required ERBEAC to set up a Centre to operate a business incubator; (b) ERBEAC would contribute $150,000 per annum to a common fund, being the proceeds received from a sub-lease; (c) If the business incubator was not fully operational the common fund would be transferred to the City 'for use by it for its own purposes in Business Development Projects consistent with its then current policies.' 46 I accept ERBEAC's fuller analysis as explaining the function of cl 62 to cl 64.
Is 'business facilitation project' narrower than 'business development projects'? 47 It is convenient to deal with the phrase 'business development projects' at this point because it appears in the lease and not in the deed. 48 ERBEAC argued that the expression 'business facilitation project' is narrower than the term 'business development projects' used in the lease. 49 On the other hand, the City makes much of the use of the words 'consistent with its [i.e. the City's] then current policies' in relation to business development projects to argue that those words narrow the use to which the funds were able to be put under the lease and that 'business development projects' is a narrower concept than a 'business facilitation project'. 50 The ordinary meaning of development is 'the action or process of developing; evolution; growth, maturation; an instance of this; a gradual unfolding, a fuller working out' (Shorter Oxford English dictionary). (Page 14)
51 'Business development projects' is an extremely wide concept. 'Development' is a wider concept than 'facilitation'. I am unable to understand the emphasis that the City places on the requirement that the use of the funds be consistent with the City's current policies. The purpose of that limitation is simply to recognise the statutory limits on the City's powers. I do not accept that that requirement narrows the meaning of business development projects. 52 The phrase 'business development projects' is a concept that is much broader than a 'business incubator', and gave the City a very wide discretion under the lease in the event that a business incubator was not established by ERBEAC.
The objectives of the deed and its inter-relationship with the lease 53 Clause 1.5 provides that if significant progress is not made by the City towards the development of a 'business incubator' or 'business facilitation project' before 31 March 2008 then the City is required to repay the money it received from ERBEAC. 54 ERBEAC argues that it was not the parties' objective intention that all of ERBEAC's obligations in cl 62, cl 63 and cl 64 would simply be transferred to the City in exchange for the payment of $450,000. In particular, it is clear that the parties did not intend to impose any obligations on the City to establish the Centre, with the characteristics referred to in cl 63 or otherwise, or to require the formulation of a management agreement of the sort contemplated in cl 64 of the Lease. It also clear ERBEAC contends that the parties did not intend that the City was obliged to establish a 'business incubator'. 55 The City argues that it was not open to ERBEAC to submit that some elements of the business incubator should be incorporated into the term, 'business facilitation project', but not others on a random basis. 56 The City has mischaracterised ERBEAC's argument. What ERBEAC argues is that the effect of the deed was to continue ERBEAC's objectives whilst recognising that the form necessarily changed because it was the City that was to carry out those objectives rather than the Centre. 57 I accept ERBEAC's argument that the parties' intention, objectively ascertained, was to ensure that at least the broader objectives of cl 62, cl 63 and cl 64 were ultimately implemented. In other words, the range of outcomes that might be expected to flow from the establishment of (Page 15)
a 'business incubator' would be achieved, although not necessarily through the establishment of a 'business incubator' as that concept was defined in the lease. 58 Although cl 64(j) of the lease contemplated that if the 'business incubator' was not fully operational within three years then the accumulated common fund could be used by the City, there are some significant differences between cl 64(j) and the Deed: (a) Clause 64(j) provides that the accumulated common fund will be vested in the City and become its 'absolute property', subject to the obligation to expend the money in 'its Business Development projects'. There is no obligation to repay the money to ERBEAC in the lease. In contrast, the deed provides that the $450,000 is to be held by the City as 'sole trustee' for the purpose referred to, and the City is obliged to 'repay' the money in the circumstances provided for in cl 1.5. (b) In the event that the City was required to repay the money to ERBEAC it would be repaid to a non-profit organisation whose primary activities were at all relevant times concerned with the establishment and running of 'business incubators' for the purpose of providing assistance to new and developing businesses. (c) Clause 64(j) provides that the money could be used by the City 'for its own purposes in 'Business Development projects' consistent with its then current policies'. 59 The commercial purpose of the deed was to ensure that the City only retained the $450,000 to the extent that it was able to be applied by the City in making significant progress towards achieving the original broad outcomes that were contemplated by the parties. 60 The City also argued that if it was the parties' objective intention pursuant to the deed, to incorporate obligations imposed under the lease in the compromise, there can be no doubt that those matters would have been expressly spelt out. In effect the City seems to be arguing that the phrase 'business facilitation project' is to be construed without reference to the previous arrangement. The phrase has to be interpreted in context. The previous arrangement, as expressed in the lease, is part of that context and is relevant to the construction of the phrase. 61 ERBEAC's concession that a 'business facilitation project' is different to a 'business incubator' does not mean, as the City contends, that the (Page 16)
phrase 'business facilitation project' is to be interpreted without regard to the term 'business incubator'.
The meaning of 'business facilitation project' 62 The objective intention of the parties expressed in the deed was to ensure that the broader objectives of cl 62, cl 63 and cl 64 of the lease were fulfilled in circumstances in which the lease was to be assigned to a third party who had no interest in assuming those obligations. The deed provided that (in effect) the money that was expected to be generated from the sub-lease (approximately $150,000 per year) for the three-year period (cl 64(a)) would be made available to meet those objectives, notwithstanding the assignment, and that the City would assume the responsibility for meeting the broader objectives within a specified time frame. 63 Accordingly, when considered in its proper context, the phrase 'business facilitation project' means a project that is intended to, and does in fact, aid or assist in the establishment, development and expansion of a variety of businesses, but which doesn't otherwise operate as a 'business incubator'. 64 It follows that a project that is or results in the establishment of a commercial enterprise which provides services to businesses, and may then incidentally facilitate those businesses, is not a 'business facilitation project' because that is not the focus of the project. A bank certainly facilitates business, by providing finance and other banking services, but a bank could not be seen to be a 'business facilitation project'. For example, if the money had been given to support the establishment of a branch of the Bendigo Community Bank in Bunbury it could not be said that the City had thereby established a 'business facilitation project'.
Implied terms? 65 The City argued: 18. What [ERBEAC] asserts is a two-stage process – firstly, that on a true construction, the term 'business facilitation project' should be considered to be a project similar to that of a Business Incubator (notwithstanding that [ERBEAC] submits it is something different) and then to go to stage two to identify what those similarities should be, in effect, by reference to what a Business Incubator would do. (Page 17)
19. The submission obviously lacks logical consistency. One way to test the validity of the plaintiff's proposition is to examine whether or not the term or terms suggested could be implied. 66 The City's characterisation of ERBEAC's submission is incorrect. ERBEAC simply submits that the phrase should be construed in accordance with recognised principles of construction. The City does not state any basis for its assertion that it is appropriate to test the validity of ERBEAC's submissions by examining whether or not the term or terms could be implied. A construction in ERBEAC's favour does not require any terms to be implied. Accordingly it is unnecessary to deal with the City's arguments on the implication of terms.
Multiple businesses 67 ERBEAC argues that a project must have as its object the advancement of the business interests of other parties, as distinct from the development of its own commercial interests. 68 The City's submission that the construction of a 'business facilitation project' contended for by ERBEAC requires a similar process to that identified in cl 62 to cl 64 is not correct. A 'business facilitation project' requires the same objects as a 'business incubator', not the same process. Clause D(1) of the introduction to the deed confirms that. 69 ERBEAC argues that, the project must be directed towards helping, developing, assisting and supporting more than one business. Assistance to a single business would not constitute a 'business facilitation project'. I accept ERBEAC's submissions on this point. A business facilitation project was intended to be an ongoing project. Inherent in that is assisting multiple businesses.
The provision of premises 70 ERBEAC argued that cl 1.5 indicates that the parties contemplated that the City would incur costs of the sort referred to in sub-clause 1.5(1) to sub-clause 1.5(3). The language used in those provisions in turn indicates that: (a) the 'business facilitation project' would manifest itself in a form that could be described as a 'facility' (in other words, something that provides a supporting capability, an establishment set up to fulfil a particular function or provide a particular service; or an opportunity, or equipment or resources for doing something - source: Australian Oxford Dictionary); (Page 18)
71 Accordingly, the context also indicates that a 'business facilitation project' would have its own operations as a business facilitator; a project that is directed towards assisting or facilitating business. It would also be a project that would be running, with premises and staff. 72 I accept ERBEAC's argument.
Not for profit 73 ERBEAC argued that a 'business facilitation project' must be not for profit. 74 The City argued that, if one looks at the definition of 'Business Incubator' in the Lease, there is no requirement that the 'Business Incubator' and its services be provided on a 'not for profit' basis. 75 Although ERBEAC was a not for profit organisation it does not follow that a 'business facilitation project' must be exclusively not for profit. There is not anything in the deed that requires that a 'business facilitation project' operate exclusively as a not for profit entity. Rather, the object of the project must be to advance the business interests of parties other than the business interests of the project itself.
If the words are ambiguous what do the surrounding circumstances disclose as to the meaning? 76 I am of the view that an ambiguity does not arise. The words 'business facilitation project' can be construed by reference to the deed when read with the lease. 77 All the documents relating to the surrounding circumstances have been admitted. 78 ERBEAC argues that: The surrounding circumstances that were known to both parties include the terms of the Lease, particularly clauses 62, 63 and 64. Other surrounding circumstances that were known to both parties are: (Page 19)
(a) the fact that Erbeac is, and was at all relevant times, a not-for-profit organisation (Book of Documents, Volume 3, page 935). (b) the fact that the primary activities of Erbeac are, and were at all relevant times, concerned with the establishment and running of business incubators for the purpose of providing assistance to new and developing businesses (Book of Documents, Volume 3, page 935). 79 The terms of the lease are relevant within the test stated by McLure P in Hancock Prospecting [81]. 80 ERBEAC's constitution appears at vol 3 page 935. It establishes that ERBEAC is a non-profit organisation. However, the reference to the fact that ERBEAC is a non-profit organisation is to be found in the lease itself. 81 The objectives of ERBEAC are apparent from the constitution. They include, in broad terms, the development of small businesses and new or expanding businesses of any kind. The constitution is specifically referred to in the lease at cl 63(a). If it were necessary to refer to the surrounding circumstances, the objectives of ERBEAC as set out in the constitution support the conclusion I have reached as to the meaning of business facilitation project.
Did the City breach cl 1.5 of the deed? 82 Paragraph 5 of the City's defence pleads that by 31 March 2008 it had made significant progress towards the establishment of a 'business facilitation project' in Bunbury. 83 The City pleads eight sub-paragraphs as particulars of the significant progress that it had made. However, what the City ultimately relies on as evidence of the 'business facilitation project' is the ACDI project. The events leading up to that say something about what the City intended but the question about whether the City fulfilled its obligations under the deed is objective. 84 Particulars 5.6 to 5.8 of the defence plead: 5.6 In November 2007, the Defendant by its Chief Executive Officer signed a Memorandum of Understanding with a joint venture partner, ISA Technologies, for the establishment of a Digital Innovation Centre within the building then in the course of construction on Lot 512, and to lease approximately 500 square metres of the ground floor office space in the new building to ISA Technologies for a joint venture development of an Australia Centre for Digital Innovation, ('ACDI') designed to (Page 20)
The City's argument that it did establish a business facilitation project 85 The City submits that the computer data hosting facility and training facilities clearly constituted a project that created new facilities in Bunbury that assisted existing businesses by providing not previously available information technology services and facilities (defence par 5.1). 86 The City submits that its 'business facilitation project' can be divided into two parts. (Page 21)
87 The first part was the City's acceptance of the fact that the proposed joint venture partners required a building of a particular standard before it could operate the proposed joint venture and that it required the City to contribute and be responsible for the cost of providing such a building which the joint venture could operate out of. That is, the City would make available suitable premises. 88 In addition, the joint venture partners required the City to share in certain other costs involved in the project – for example, the cost of setting up the special effects lab and 3D visualisation lab. 89 The City argues that from all minutes and reports, the City clearly considered this to be an essential element of establishing this new industry in Bunbury. That is, it was a necessary financial component of the project as it was necessary to be able to provide suitable premises to induce VUE and ISA to set up and operate ACDI. 90 The City goes on to argue that it is clear from the Memorandum of Understanding and the statements of Weary and Ayres that ACDI was to create a new industry based on digital technology, such technology to provide digital services to established businesses in Bunbury and, in addition, to provide otherwise locally unavailable highly specialised computer services and storage facilities. This entity would create employment, training in the industry and highly specialised services to assist businesses in the Bunbury area, such services directed at to improving and assisting those businesses in their business endeavours.
Was the ACDI a business facilitation project? 91 The history of the matter and the considerations that motivated the City are conveniently contained in an extract from the council meeting of 26 February 2008 (Book of Documents vol 3 pages 661 - 667). At that meeting the City considered whether it should provide extra funding. The extract stated: Background Council resolved to enter into the field of information and communications technology ('ICT') in September 2005 through its decision to incorporate a 'Smart building' as part of the new library development. As a direct consequence, two ICT private companies namely, ISA and VUE, expressed interest in the proposed facility and the joint venture entity known as 'ACDI' was proposed to establish a centre for digital innovation in Bunbury. (Page 22)
Council has developed a relationship with ACDI since at least June 2007 and this culminated in the Memorandum of Understanding that was endorsed by Council in November 2007 (Decision No 236/07). A local working group was established in November 2007 to progress the initiative and this group includes the South West Development Commission, Edith Cowan University, Chamber of Commerce, Bunbury City Council and representatives from ISA and VUE. The benefits to Bunbury in pursuing this initiative are described in detail the November 2007 report to Council but briefly, these are: - Local economic development - employment opportunities - Improved access to high performance computing services - Improved digital communications - Introduction of a new industry to Bunbury - preparation of digital content for movies A draft lease and agreement to lease have been prepared. … Strategic and/or Regional Outcomes This proposal can be directed linked to the City of Bunbury Strategic Plan 2007-2012 Strategic Objective 3.2, 'Have well planned, developed and maintained City Infrastructure to identify and prioritise infrastructure needs' and Strategic Direction 2.4 which states that the City will 'develop a property strategy that benefits the City's residents, businesses, community and sporting organisations'. … Comments 1. The funding arrangements above are considered to be the best Council can offer to the proponents under the circumstances. 2. The proponents are yet to indicate if this offer is sufficient for them to proceed, particularly as the 2 laboratories will not receive immediate funding. Further negotiations are also anticipated on the lease agreement. 3. Council's exposure to risk under this arrangement is limited in that Council will be funding infrastructure for a data centre and office space. This expenditure will be required to bring the facility up to a lettable standard irrespective of who is the tenant. (Page 23)
Economic, Social, Environmental and Heritage Issues Leasing out floor space at the new Library will provide a return on investment to Council (and the community). Establishment of the ACDI will provide employment for local residents in information technology and film making. Part-time employees may also be required for film production work as a flow-on effect of the Centre's operations. The ACDI will provide local groups and businesses with access to state of the art technologies (includes super computing or HPC) for simulation and modelling in areas including emergency services and community use of internet video-over-broadband communications and virtual environments. 92 The council resolved to provide the additional funding. 93 What emerges from the minutes of 26 February 2008 is that: (a) the construction of the smart building was to allow the City to enter into the field of information and communications technology; (b) the benefits were very broad and were not directed to a 'business facilitation project' but rather to 'develop a property strategy that benefits the City's residents, businesses, community and sporting organisations'; (c) the commercial utilisation of the lettable space was a major, if not the major, consideration, in the utilisation of the space. 94 I accept ERBEAC's extensive submissions on specific items in the preceding documents that support these conclusions. I reject the City's interpretation of those documents. I have not dealt with those documents specifically because the minutes of 26 February 2008 encapsulate the conclusions to be drawn from the previous documents. 95 The relevant space in the building was subsequently leased to ISA, and then sub-let to VUE. The ACDI was operated from this space.
The City's witnesses 96 The City called a number of witnesses. 97 There was evidence that a computing data hosting facility was currently not available to people in Bunbury and people had to divert to Perth for that service (Statement Ayres par 116). Data hosting and (Page 24)
training facilities were not otherwise available in Bunbury (Statement Ayres (118)). 98 Alan Kevin Lindsay was a director of VUE DC Pty Ltd. The City's submissions highlighted the following parts of his evidence: 28. Oral evidence of Alan Kevin Lindsay: 28.1 Mr Lindsay indicated the types of services his company, VUE, provided to people in Bunbury and the South West of Western Australia: 28.1.1 Movies (animated movies, live action movies). 28.1.2 Television – mainly documentary. 28.1.3 Trans-media installations for museums websites. 28.1.4 Training films. 28.1.5 The company also trains people in animation and other digital content. 28.1.6 The witness speaks to groups of people in Bunbury in respect of 'developing new business, new business strategies'. 29. Written evidence of Mr Lindsay and witness statement dated 5 September 2012, tendered in evidence 11 September 2012 [Exhibit '117']. See: 29.1 para 3 – possible employment of 80-100 additional employees; 29.2 para 4 – ACDI provision of digital animation display for Dolphin Discovery Centre; and 29.3 paras 8, 9, 10 and 11 – projects undertaken. 99 I cannot see anything in Mr Lindsay's evidence that would amount to evidence of a 'business facilitation project'. The work carried out by him is exactly the sort of work that you would expect of a 'company that creates digital animation, visual effects, live action films and other visual media projects' (exhibit 117 par 1) it is not directed to business facilitation. 100 Silvano Loris la Puma was the managing director of ISA Pty Ltd. The City's submissions highlighted the following parts of his evidence: (Page 25)
101 Further, par 3 of exhibit 113 states: ISA markets a range of specialist Information Computing and Technology (ICT) solutions and services to mainly Enterprise class Public and Private sector clients within Australia and South East Asia. These services include: 3.1 on-demand high performance super computing and application services; 3.2 the production of 2 and 3 dimensional computer generated visual imaging; 3.3 the production of large scale complex networks including Local Area Networks, wireless networks and computerised telephony solutions, both vocal and digital; 3.4 the design, development and commissioning of custom software engineering for enterprise applications throughout Bunbury, the South West of Western Australia and Australia; 3.5 the development and implementation of digital information security systems; 3.6 the development and production of customised electronic business systems, particularly enterprise messaging systems and the associated information security systems; (Page 26)
102 In relation to the 'Data Centre', in cross-examination at page 31 of the transcript, Mr La Puma explained that it was 'all the environmentals and the equipment that provides an environment in which the high performance computers can exist'. Mr La Puma also confirmed the Data Centre was 'a room in which the computers are stored'. Finally, the Data Centre is, as Mr La Puma explained at par 7 of his statement, 'ISA's data centre'. 103 As with Mr Lindsay I struggle to see how any of those matters could be said to evidence a 'business facilitation project'. They are simply the services that you would expect a specialist IT company to provide. 104 ISA's activities in Perth were not related to a 'business facilitation project'. I do not see how the fact that a branch office was opened in Bunbury makes ISA's activities in Bunbury a 'business facilitation project'. 105 Mr La Puma gave evidence about the activities of the ADIC. At pars 7 and 8 of his statement he said that the ACDI: … is a joint venture arrangement between ISA and VUE that targets projects requiring specialised digital animation skills provided by VUE combined with the specialist information technology, digital visualisation and high performance computing (HPC) capabilities found within ISA's data centre … The ACDI joint venture targets projects on a commercial 'fee for service' basis Australia wide. 106 Having regard to the contents of the contemporaneous documents the evidence of Mr Weary and Mr Ayres does not advance the matter further. Ultimately, ACDI provided computing services on a commercial basis. 107 As ERBEAC's submission states 'none of those activities, whether considered individually or in combination with the other activities undertaken by other entities, are consistent with it ever having been engaged in, or having been a participant in, a 'business facilitation project', within the proper meaning of that phrase'.
ACDI and multiple businesses 108 The City argues that if a business facilitation project does require multiple businesses to be facilitated then the ACDI did facilitate multiple (Page 27)
businesses. Those businesses were the corporations carrying on business under the name of VUE and ISA Technologies. 109 I do not accept that the establishment of the ACDI amounted to multiple businesses so as to constitute a business facilitation project. VUE and ISA were established businesses. The ACDI was simply a joint venture between the two. 110 The City also argues that the creation of the Joint Venture and ACDI would create a new industry which would provide for employment and the provision of previously unavailable services and facilities to all the businesses operating in the Bunbury area, by way of computer expertise, digital content and imagery, and training in ICT. 111 I reject this argument. The establishment of an industry is simply too general to fit within the concept of a business facilitation project.
Not for profit 112 ERBEAC argues that the establishment of the ACDI could not be a 'business facilitation project' because it was not a non-profit entity. 113 The City argues that the 'project', as created by the defendant, did not have as an object a commercial benefit for the City. The City's object was to assist other business development in the Bunbury area and create a new industry with its ongoing economic benefits. The City had an actual and ongoing interest in the 'project' and such interest was not commercial in the sense that it was not motivated by profit. 114 The City argues that it provided suitable premises for those entities to carry on business in Bunbury by way of a head lease to ISA Technologies and by consenting to a sub-lease to VUE (Book of Documents vol 3 pages 808, 923). 115 The City further argues that if one adopts the definition of the term 'business incubator' in the Lease (Book of Documents vol 1 page 7), one of the objects is the provision of premises. Premises in the City's project were made available to ISA Technologies, VUE and ACDI to assist them in their business venture which was the conduct of their individual businesses and the Joint Venture. And, additionally, the project included the creation of suitable premises at the cost of the City to induce and facilitate ISA and VUE to enter into the Joint Venture and to establish and promote the new industry in the Bunbury region. (Page 28)
116 I reject these arguments. Premises were made available on a commercial basis consistent with the City's aim to achieve a return on its investment, consistent with the commercial utilisation of the space.
Conclusion 117 The City did not make significant progress towards the establishment of a 'business incubator' or 'business facilitation project' in Bunbury by 31 March 2008. The City instead entered into a commercial leasing arrangement with ISA (an IT service provider) and VUE (a film production company) for the purpose of establishing the ACDI. 118 The ACDI was not a 'business facilitation project'. It was (and is) a joint venture between an IT service provider and a film producer.
Judgment 119 Because the City breached cl 5.1 of the deed by not making significant progress towards establishing a 'business facilitation project' by 31 March 2008, there should be judgment for ERBEAC for $404,470.30 together with interest at the rate of 6% per annum from 1 April 2008 until judgment. 120 The City is to pay ERBEAC's costs of the action, including reserved costs, to be taxed.
Postscript 121 This matter was originally listed for hearing for two days on 11 and 12 September 2012. 122 The hearing commenced on 11 September 2012. It soon became apparent that the bundle of documents had not been prepared in proper form. The trial proceeded and witness statements were tendered and there was very brief cross-examination. Counsel for both parties proposed that the trial be adjourned for a number of reasons including getting the documents in order. 123 The trial was adjourned on 11 September 2012. Written submissions were to be filed shortly thereafter and the matter would then be listed before me. 124 The matter was re-listed before me on 21 February 2013 to make formal orders for the filing of submissions. Submissions were finally filed in April. (Page 29)
125 There were then difficulties finding a suitable date for the matter to be re-listed. 126 Ultimately, the further hearing on 22 July 2013 was held in the middle of a 10-day civil trial I was hearing. 127 Had the parties had the documents in order and been prepared to complete the trial on 11 and 12 September 2012 the parties would have received this decision before Christmas 2012. 128 I realise that factors beyond the control of the parties explain some of the delay but this only emphasises the need to be prepared to proceed on the allocated trial dates.
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