Joseph Finance and Investment Pty Ltd v Eastwood Retirement Pty Ltd

[2023] VSC 731

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMERCIAL COURT
COMMERCIAL LIST

S ECI 2021 02186

Joseph Finance and Investment Pty Ltd (ACN 153 729 125) (as trustee for the Lifestyle Investment Unit Trust)	Plaintiff
v
Eastwood Retirement Pty Ltd (ACN 130 786 195) (as trustee for the Eastwood Retirement Unit Trust)	Defendant

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JUDGE:	Croft J
WHERE HELD:	Melbourne
DATES OF HEARING:	9-13 and 19 October 2023
DATE OF JUDGMENT:	7 December 2023
CASE MAY BE CITED AS:	Joseph Finance and Investment Pty Ltd v Eastwood Retirement Pty Ltd
MEDIUM NEUTRAL CITATION:	[2023] VSC 731

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CONTRACT — Breach of contract — Deed of Option to purchase villas in Retirement Village — Option Deed provided that defendant would grant plaintiff option to purchase the Retirement Business from defendant — Whether defendant used reasonable endeavours to complete the proposed development — Whether defendant did everything reasonably necessary or desirable to give full effect to the provisions of the Option Deed — Whether Option Deed was an enforceable agreement — Whether terms of the Sale Agreement were void for uncertainty — Internal practice of the defendant not a defence for depriving plaintiff of the benefit of the Option Deed or excusing any failure by the defendant to perform its obligations — Defendant’s financial viability considerations not a defence to breach of contractual obligations — Option Deed binding and enforceable — Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd (1982) 149 CLR 600 — Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 — Masters v Cameron (1954) 91 CLR 353 — Mount Bruce Mining v Wright Prospecting Pty Ltd (2015) 256 CLR 104 — Gu v Hong [2018] NSWSC 1330 — Cypjayne Pty Ltd v Babcock & Brown International Pty Ltd (2011) 282 ALR 152.

DAMAGES — Loss of opportunity damages — Sellars discount — Masters Home Improvement Pty Ltd v North East Solution Pty Ltd [2017] VSCA 88 — ACN 115 918 959 Pty Ltd v Hoeys Lawyers Pty Ltd [2021] VSC 79 — Sellars v Adelaide Petroleum NL (1994) 179 CLR 332.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr J Evans KC and Mr A Silver	Madgwicks
For the Defendant	Mr N De Young KC and Mr S Cromb	HWL Ebsworth Lawyers

HIS HONOUR:

Introduction

1. Encore Property Management Pty Ltd (ACN 143 668 624) is a body corporate and was, until about 24 March 2016, known as Lifestyle Retirement Pty Ltd and was, until 30 October 2015, the trustee of a trust known as the Lifestyle Investment Unit Trust (“Lifestyle Trust”). 

1. The plaintiff, Joseph Finance and Investment Pty Ltd (ACN 153 729 125) (“Joseph” or “the plaintiff”), has been a body corporate since 13 October 2011 and has been trustee of the Lifestyle Trust since 30 October 2015.  Joseph brings these proceedings in the capacity of trustee of the Lifestyle Trust.

1. The defendant, Eastwood Retirement Pty Ltd (ACN 130 786 195) (“Eastwood” or “the defendant”), is a body corporate which is the trustee of the Eastwood Retirement Unit Trust (“ERUT”).  Eastwood is the registered proprietor as owner of land situated at 20 Evergreen Way, Eastwood, being the whole of the land described in Certificate of Title Volume 11117 Folio 331 (“Land”).  Eastwood has been the registered proprietor of this land since 2010.

1. In or about 2010, Eastwood was contemplating the development of the Land into a retirement village at which it would then carry on a business of operating a retirement village. 

1. In subsequent years, a retirement village was constructed on the Land by Eastwood (variously referred to as “the Development”, “the Proposed Development”, or “the Village”) and the business of operating the village was commenced (“Retirement Business”). 

1. On or about 3 June 2010, by deed dated 3 June 2010 (“Option Deed”), Lifestyle, as trustee of the Lifestyle Trust, and Eastwood agreed that Eastwood granted Lifestyle an option (“Option”) to purchase the retirement village, including the Land.

1. Construction of the retirement village proceeded in the years following 2010 until completion of the units comprising the Village occurred in 2020.  Joseph, as the successor to Lifestyle as trustee of the Lifestyle Trust, sought to exercise the Option but this was denied by Eastwood on the basis that this was not open to it according to the terms of the Option Deed.  Joseph now seeks damages for what it says is the wrongful denial by Eastwood of its right to do so.

Claims

1. It is the position that this proceeding is framed by the plaintiff’s statement of claim dated 23 June 2021 (“SOC”), including further and better particulars dated 15 September 2021, the defendant’s amended defence dated 25 August 2023 (“Amended Defence”) and the plaintiff’s reply dated 20 August 2021.  So framed, the parties filed a proposed joint list of issues dated 24 August 2023, which identified some 11 issues.  Issues 3 to 6 involved issues of construction of the Option Deed, which were raised in support of the plaintiff’s claimed relief at paragraph A of the SOC, to the effect that the plaintiff continued to have the benefit of the Option.  In filing its outline of opening submissions on 19 September 2023, the plaintiff elected to no longer pursue its claim for that relief, leaving it to its claim for damages for breach of the Option Deed. 

1. As a consequence of the election made by the plaintiff, the issue in this proceeding is whether the defendant breached its contractual obligations to:

(a)        use reasonable endeavours to achieve Completion under the Option Deed on or before 20 July 2020, as required by clause 5.1 of the Option Deed; and

(b)       on request by the plaintiff, to do everything reasonably necessary or desirable to give full effect to the provisions of the Option Deed and the transactions contemplated by it, as required by clause 9 of the Option Deed;

in that, between November 2019 and July 2020 (“the Relevant Period”), the defendant failed to perform or have performed the necessary construction works to enable occupancy permits to be issued for Villas 51 and 52 in the Development, prior to the Expiry Date of 20 July 2020.  The plaintiff says that the evidence discloses that the only action required to be undertaken by the defendant in order to achieve this was giving the necessary instructions to its builder to bring those works to completion.  Moreover, there is no suggestion that such an instruction could not or would not have been complied with by the builder. 

1. In general terms, the defendant asserts by way of defence that it did not breach its contractual obligations to the plaintiff because:

(1)of the defendant’s ‘general practice of constructing villas in pairs upon entry into an unconditional contract of sale for at least one of the pair (“Practice”) [which] was undertaken for legitimate financial viability reasons and with the knowledge and assent of Joseph’[1] and where, between November 2019 and 29 June 2020, Villas 51 and 52 were at lock‑up stage, continued to be marketed for sale and were not subject to an unconditional contract of sale;

(2)of the effect that undertaking the construction works to enable occupancy permits to be issued for Villas 51 and 52 prior to the Expiry Date of 20 July 2020 would have had on ‘Eastwood’s financial viability’;[2]

(3)the Option Deed was an ‘agreement to negotiate’ and did not create an enforceable Option in the hands of the plaintiff;[3] and

(4)the terms of the Sale Agreement (to be entered into upon exercise of the Option by the plaintiff) were not agreed and, alternatively, are void for uncertainty.[4]

[1]Amended Defence at [13(b)] and [23], CB45–CB47.

[2]Amended Defence at [23], CB46–CB47.

[3]Amended Defence at [25]–[26], CB47–CB48.

[4]Amended Defence at [25]–[26], CB47–CB48.

Evidence

Plaintiff’s witnesses

1. The plaintiff called evidence from:

(a)        Thomas Camp, its sole director and the director of Freedom2Go Pty Ltd (“F2G”).  He gave three witness statements in the proceeding, being witness statements dated 24 June 2022,[5] 11 November 2022[6] and 25 July 2023.[7] 

[5]CB50 (“First Camp Statement”).

[6]CB111 (“Second Camp Statement”).

[7]CB165 (“Third Camp Statement”).

(b)       Antonio (Tony) Vescio, an employee of F2G and the accountant for the project.  He also gave three witness statements in the proceeding, being witness statements dated 11 November 2022,[8] 5 April 2023[9] and 14 July 2023.[10]

[8]CB121 (“First Vescio Statement”).

[9]CB123 (“Second Vescio Statement”).

[10]CB170 (“Third Vescio Statement”).

(c)        Kenneth White, an associate of Thomas Camp.  He gave one witness statement in the proceeding, being a witness statement dated 7 November 2022.[11]  Following the redactions and use limitations ruled upon or agreed at trial, the White Statement did not contain evidence of any material assistance to the Court for the determination of the dispute, and Kenneth White was not required for cross‑examination. 

(d)       Rick Goldberg, a partner at Madgwicks Lawyers (“Madgwicks”).  He also gave one witness statement in the proceeding, being a witness statement dated 24 June 2022.[12]  The Goldberg Statement confirmed that the communications between Madgwicks and HWL Ebsworth Lawyers (“HWLE”) as annexed to the First Camp Statement were true copies.  Rick Goldberg was not required for cross‑examination. 

(e)        Dan Magree, a valuer of retirement villages.  He provided an expert valuation report,[13] which was filed on behalf of the plaintiff in the proceeding on 28 October 2022.  Dan Magree opined that the market value of the deferred management fee (“DMF”) of the existing loan/license agreements as at 3 October 2022 was $19.2 million excluding GST.[14]  The defendant does not contest this valuation (as at that date).  Accordingly, Dan Magree was not required for cross‑examination.[15]

[11]CB107 (“White Statement”).

[12]CB61 (“Goldberg Statement”).

[13]CB175 (“Magree Report”).

[14]CB179 and CB208.

[15]Defendant’s Outline of Opening Submissions (4 October 2023), [45].

Only Thomas Camp and Tony Vescio were required by the defendant to be cross‑examined.

Defendant’s witnesses

1. The defendant called evidence from its three living directors (with Phillip Ellis having passed away in October 2020):

(a)        Michael Sadler who gave three witness statements in the proceeding, being witness statements dated 16 September 2022,[16] 30 May 2023[17] and 1 June 2023.[18] 

(b)       Duncan Johnston who gave two witness statements in the proceeding, being witness statements dated 30 May 2023[19] and 6 October 2023.[20]

(c)        John Stephenson who gave one witness statement in the proceeding, being a witness statement dated 6 October 2023.[21]

[16]CB62 (“First Sadler Statement”).

[17]CB131 (“Second Sadler Statement”).

[18]CB160 (“Third Sadler Statement”).

[19]CB150 (“First Johnston Statement”).

[20]CB1686 (“Second Johnston Statement”).

[21]CB1693 (“Stephenson Statement”).

Findings of credit

1. The defendant did not ask the Court to make any adverse findings as to the credit of any witness, whether for the plaintiff or the defendant.  As observed, such findings are serious matters and ought not lightly be drawn.  Moreover, the defendant also submits that adverse credibility findings are not a prerequisite to either party succeeding on their respective claims in the proceeding, having regard to the nature of the claims and the evidence.  To the extent that the plaintiff takes a different position, and invites the Court to draw adverse findings against the defendant’s witnesses, the defendant says that any such findings would be unfounded.  Moreover, it is observed that, as the defendant submitted in opening, each of its directors acted ‘diligently and carefully and acutely aware of their obligations as directors including to act in the best interest of the company and to avoid insolvent trading.’[22] 

   [22]T105.25–105.31 (Defendant’s opening).

1. In my view, it is the position that the outcome of these proceedings does not depend upon credibility findings but, rather, objective matters which are evident from the defendant’s financial position at various times and the decisions taken by the defendant’s directors, particularly with respect to the priorities they adopted as between obligations under the Option Deed and obligations, or perceived obligations, under loan arrangements.  In this context, there are, however, some observations that I made in the reasons which follow with respect to some of the evidence. 

Background

Retirement Village operation and the ‘DMF’

1. At all times, the Land remained the property of the defendant.  Incoming residents would enter into a ‘loan licence agreement’ with the defendant that provided them with exclusive use of a villa and non‑exclusive use of the common property.[23]  Under that agreement, the resident pays an incoming ‘resident loan’ or ‘in‑going contribution’[24] on the entering into a loan/licence agreement and is charged a monthly service fee for the management of the facility.  After 12 months of residence, 20% of a resident’s loan becomes the property of the defendant, and is described as the ‘DMF’ or ‘Deferred Management Fee’, which is revenue to the defendant.[25]  When a resident leaves the Village (or dies), their licence comes to an end and the defendant must repay the balance (80%) of the resident loan, as a ‘refundable in‑going contribution’.[26]  Notwithstanding that there was no sale of land under the ‘loan/licence agreement’, it was not uncommon to describe such a loan/licence agreement as a ‘sale’ and the occupancy by a resident and the payment of the loan as a ‘settlement’. 

   [23]First Camp Statement at [7], CB51-52.

   [24]This is the defined term used in the Retirement Villages Act 1986 (Vic), which in various respects governs the rights of a resident and an owner or manager of a retirement village such as the Village.

   [25]Second Vescio Statement at [18], CB128.

   [26]This is also a defined term used in the Retirement Villages Act 1986 (Vic).

1. The timing of the repayment of the refundable in‑going contribution is the earlier of a new incoming resident paying their in‑going contribution for that villa; or the expiry of six months, although there are examples of the defendant arranging with outgoing residents to delay payment beyond six months with interest payable.  The defendant was able to use the cashflow generated from the receipt of in‑going contributions to fund its operations, including future construction, paying down debt and repaying outgoing resident loans. 

Construction of the final villas in the Development

1. By 2019, the community centre and all relevant infrastructure was complete.[27]  By 26 March 2019, the defendant had instructed its builder to construct all remaining villas to completion.[28]  From March 2019 until November 2019, the Builder’s Reports provided to and circulated by the defendant, which recorded the progress of construction of the remaining villas in the Development, recorded a completion date for Villas 51 and 52 of not later than 31 December 2019.[29] 

   [27]Minutes of Eastwood board meeting on 10 December 2019, CB821; Minutes of ERUT AGM on 10 December 2019, CB1231.

   [28]Builder’s Report dated 26 March 2019, CB1028–1029.

   [29]See Builder’s Report dated 5 March 2019, CB1026–1027; Builder’s Report dated 26 March 2019 , CB1028–1029; Builder’s Report dated 23 July 2019, CB1030–1031; Builder’s Report dated 27 August 2019, CB1058–1059; Builder’s Report dated 11 September 2019, CB1060–1061; Builder’s Report dated 2 October 2019, CB1062-1064; Builder’s Report dated 12 November 2019, CB1071–1073; Builder’s Report dated 26 November 2019, CB1093–1095.

1. On a date between 23 July 2019 and 27 August 2019, the defendant revised its instruction to its builder to complete all villas, by instead instructing that Villas 51, 52, 60 and 61 be built to lock up stage only.[30]  On 28 October 2019, Villas 51 and 52 reached lock‑up stage, and further construction stopped on those villas.[31]  By 3 February 2020, the defendant had instructed its builder to build Villas 60 and 61 to completion.[32]  By 14 May 2020, Villas 51 and 52 were the only villas in the Development not to have reached practical completion, that is to have had occupancy permits issued.[33]

   [30]See Builder’s Report dated 23 July 2019, CB1030–1031, which still recorded an instruction to build all remaining villas to completion; Builder’s Report dated 27 August 201, CB1058–1059, by which that instruction had been amended so that Villas 51, 52, 60 and 61 were to proceed to build to lockup stage only.

   [31]First Camp Statement at [24], CB57; see also Builder’s Report dated 12 November 2019, CB1071–1073.

   [32]Builder’s Report dated 3 February 2020, CB1110–1112.

   [33]First Camp Statement at [24], CB57.

Financing the Development

1. The defendant acquired the Property from Eastwood Corporation Limited (“Eastwood Corporation”) in 2010 for a purchase price of $4,916,240.[34]  Approximately $4 million of that purchase price was borrowed by the defendant from Eastwood Corporation, secured by a mortgage over the Property.[35]  It also obtained $1.6 million of unsecured convertible notes from ER Properties as trustee for the ER Properties Trust.[36]  The balance of the Development was, at least initially, funded by funds from unitholders.[37] 

   [34]First Sadler Statement at [20], CB67.

   [35]First Sadler Statement at [20], CB67.

   [36]T475.5–12 (Johnston XXN).

   [37]First Sadler Statement at [21], CB67.

1. In or around November 2013, the Eastwood Corporation loan was refinanced through a new loan from ER Properties Pty Ltd (“ER Properties”), which also involved the raising of additional funds for a total loan amount of $6.1 million (“the ER Properties Loan”).[38]  The Loan Agreement for the ER Properties Loan was executed in or about mid‑2014 (“ER Loan Agreement”).[39]

   [38]CB577; T33.23–28 (Plaintiff’s opening).

   [39]CB550; T483.25–484.2 (Johnston XXN).

1. From 2013/2014, ER Properties as trustee of the ER Properties Unit Trust (“ER Properties Trust”) was the primary lender to the defendant.  ER Properties held a first ranking registered mortgage over the Land, from at least 2017.[40]  Duncan Johnston was a director of both ER Properties and the defendant from 6 November 2009 until the company’s deregistration.[41]

   [40]CB1596.

   [41]CB1003.

1. ER Properties’ unitholders consisted of East Gippsland Properties Pty Ltd (as the major unitholder), unitholders who were also unitholders in Eastwood (making up 44%) and other investors who were sophisticated investors.[42]  The ER Properties Loan had an initial loan of a term of three years, with repayment of the principal due by 7 November 2016.[43] The ER Properties Loan term was subsequently extended by an initial Deed of Variation to expire on 6 November 2018,[44] and by a second Deed of Variation to expire on 7 May 2020.[45]  The ER Loan Agreement expressly provided that the loan expiry date was an end date, and that Eastwood was at liberty to repay all or part of the loan at any earlier point, in which case, interest would be calculated to the date of repayment only.[46]  Interest was payable quarterly in arrears, commencing on 31 December 2013, at a rate of 10% per annum.[47]  The loan was secured by a first ranking mortgage over the Property.  Thomas Camp was the guarantor of the facility.[48]

   [42]First Johnston Statement at [12], CB152.

   [43]First Johnston Statement at [10]–[11], CB152.

   [44]CB691.

   [45]CB725.

   [46]CB553 (clauses 2.1.2 and 2.1.5).

   [47]CB553 (clause 2.1.3).

   [48]CB551.

1. Throughout the Development, the defendant also obtained funding by borrowings from:

(a)        National Australia Bank, in the form of a $500,000 ‘come and go facility’ between about November 2013 and March 2017;[49] but this facility was no longer available after the title which had been made available to the defendant to use as security was no longer available;[50]

(b)       a superannuation fund associated with Leigh Venables (a resident of the Village), in the sum of $500,000 between July 2014 and around June 2016;[51] and

(c)        four private lenders (being entities associated with Michael Sadler, Duncan Johnston, Pamela Stephenson and Gordon and Noelle Burdekin) in the sum of $1 million, in November 2019 (defined below as the “Secondary Loan”).[52]

[49]First Sadler Statement at [67], CB82; T379.2–10 (Sadler XXN); CB699.

[50]T378.1–9 (Sadler XXN).

[51]CB614; T86.21–87.9 (Plaintiff’s opening).

[52]First Sadler Statement at [113], CB99; CB793–809.

ER Properties

The defendant’s relationship with ER Properties

1. The defendant and ER Properties took what is reasonably described as an informal approach, to documenting the ER Properties Loan, as is more particularly indicated by the following:

(1)Michael Sadler and Duncan Johnston each attached undated versions of the loan agreement to their witness statements (although the typed date ‘2014’ is present).[53]  The only version which has a date in it is the version annexed to the ‘Deed of Variation No. 2’, which has a typed date of ‘2014’, with a handwritten amendment of ‘7 November 2013’.[54] 

[53]CB550; CB574.

[54]CB725.

(2)Duncan Johnston said that the loan documentation was not ready in time in November 2013, but ER Properties was content to lend the funds without documentation.[55] 

[55]T483.22–484.2.

(3)ER Properties was granted a mortgage by the defendant which also has a typed date of 2014, with a handwritten amendment of 7 November 2013 (it would appear that the mortgage document was prepared in conjunction with the loan agreement in 2013).[56]  It was not registered until 29 March 2017.  The mortgage only secured $5.96 million of the $6.1 million advanced by ER Properties to the defendant.[57] 

[56]CB1596.

[57]T485.15–485–16.

(4)A ‘Deed of Variation’ extended the term of the loan from 6 November 2016 to 6 November 2018.  The version attached to Michael Sadler’s witness statement is undated (although with a typed date of ‘2018’).[58]  A version dated 6 November 2016 (with the 2018 crossed out) appears at Annexure B to the ‘Deed of Variation No. 2’.[59] 

[58]CB691.

[59]CB725.

(5)On 8 November 2018, after the term of the loan had already expired, Michael Sadler emailed Duncan Johnston requesting an extension of the term for 18 months.[60] 

[60]CB1390.

(6)A ‘Deed of Variation No. 2’ (dated 6 November 2018 but obviously backdated) extends the loan term pursuant to the 8 November 2018 email – from 6 November 2018 for 18 months to 7 May 2020.[61]  It is this document, which is dated 2018, in which the only dated copies of the loan agreement and the Deed of Variation exist (the plaintiff contends that the Court should find that the Deed of Variation was created in 2018 at the same time as the Deed of Variation No. 2 and that there was no written extension of the loan between November 2016 and November 2018). 

[61]CB725.

(7)There was no written extension of the term of the loan past 7 May 2020, at which date the loan principal was still $2.3 million.

(8)Duncan Johnston gave the following evidence:

Mr Evans:In fact, there was, if I can put it this way, really a tacit agreement that the loan would be, the loan term would be extended for not an unlimited period of time, but just it would be extended without the need for formal documentation to be prepared?

Mr Johnston:   Um, I think that's - um, that would be correct because we had a first mortgage and our directors recognised that, and then I do believe that the chairman spoke to the chairman of East Gippsland Properties to give them some reassurance as well.[62]

(9)The loan was ultimately fully repaid on 15 February 2021.[63]

[62]T491.1–491.9.

[63]CB953.

1. It is clear from the evidence that the relationship between ER Properties and the defendant was at all times very close and both entities conducted themselves on the basis that it was wholly up to the defendant as to the timing and quantum of repayments, although, as the defendant submits, there was pressure from ER Properties to make ongoing repayments ahead of the strict repayment obligation provisions contained in the ER Properties Loan.[64]  More particularly:

   [64]Defendant’s Outline of Closing Submissions (18 October 2023), [5.22]–[5.24]; and see further below [146]-[148].

(1)Michael Sadler’s evidence was that:

… From ER Properties’ perspective, it had ensured that it had oversight over the Development by the reporting processes documented in the minutes and described above, and the appointment of Duncan Johnston as ER Properties’ representative on the defendant’s board. I was consistently told throughout the project by Duncan Johnston and other ER Properties personnel that ER Properties was happy to continue their investment in the Development, due to the secure nature of their security and the favourable rate of interest.[65]

This evidence was affirmed under cross-examination[66] and Michael Sadler confirmed that he meant including up to February 2021.[67]

(2)       Tony Vescio’s evidence was that:

The cash flow summary table was something that I regularly updated… At the bottom of the cash flow statements, I included in red, the ‘Available Cash excluding loan repayments’ This was to show how much cash there was actually available given that at all times, the decision to make payments to ER Properties was always up for discussion by the Eastwood board.[68]

[65]First Sadler Statement at [125], CB105-106.

[66]T367.27–368.2.

[67]T369.7–369.14.

[68]Second Vescio Statement at [10], CB125-126.

1. Indeed, it is true to say that the evidence indicates that at no time did ER Properties ever issue any demand in respect of the loan.[69]  No ‘informal notice’ was ever given by ER Properties either.[70]  Duncan Johnston agreed that ER Properties would have sent an ‘informal notice’ before any formal notice of default was ever sent to the defendant.[71]  Additionally, Duncan Johnston gave evidence that no demand was going to be sent by ER Properties to the defendant.[72]  His further evidence was that ER Properties decided not to issue any notices of default, bearing in mind the damage that this could do to the Development.[73]  Duncan Johnston in his oral evidence said that ER Properties did not ever want ‘to upset the apple cart’ — by which he meant the defendant and the Bairnsdale community.[74]  He also gave evidence that the defendant’s Board knew this position.[75]

   [69]T367.9–369.15.

   [70]T492.7–492.8.

   [71]T491.30–492.6.

   [72]Second Johnston Statement at [17], CB1690; T491.14–491.15.

   [73]Supplementary Johnston statement at [17].

   [74]T491.14-491.23.

   [75]T491.24–491.26.

1. Consistently with the position that it was wholly a matter for the defendant how much and when it repaid the ER Properties Loan, and that ER Properties was never actually threatening to enforce its loan rights against the defendant, Duncan Johnston never recused himself from any meeting of the defendant or the defendant’s Board or discussion surrounding how much to pay ER Properties; notwithstanding that he would have done so had a conflict arisen.[76]  Moreover, he gave evidence that he never perceived that any such conflict arose.[77]

   [76]T473.23–474.24.

   [77]T473.23–474.24; T476.15.-476.22.

1. ER Properties was deregistered on 17 December 2021.[78]

   [78]CB1003.

The defendant’s relationship with its builder, CM & HM Banks Pty Ltd

1. The relationship between the defendant and its builder, CM & HM Banks Pty Ltd, was clearly friendly.  Not only were the owners of the builder company indirect unitholders in the defendant[79] but, by late 2019, the defendant had a longstanding relationship of accommodating each other, including with the builder accepting delayed payments when requested by the defendant.[80]  This position appears to have followed as a result of this longstanding relationship, the builder having already built all of the 154 completed villas in the Village.  More particularly, the builder had already agreed to delay payment for the lockup stage of Villas 51 and 52.[81]  

   [79]Second Camp Statement at [30], CB117;  First Sadler Statement at [21(b)], CB67.

   [80]Second Camp Statement at [30], CB117.

   [81]Second Camp Statement at [30], CB117; CB788; CB810.

1. Delayed payment to the builder was one of the tools which the defendant used to manage cashflow in the Development.[82]  It was used throughout the life of the Development; and decisions to request delayed payment with the builder were documented in the defendant’s Board minutes.[83] 

   [82]T370.22–370.29; CB633; T372.9–372.14; CB636; CB641.

   [83]E.g. see CB492, CB633, CB636.

1. Michael Sadler confirmed that ‘[b]uilders and contractors being owed significant sums of money and receiving late payments was a constant theme of the Development.’[84]  Duncan Johnston also gave evidence that ‘[w]hile smaller creditors were generally paid on time, [he] was often required to negotiate payment terms with the builder Chris Banks and the Landscaper, Tim Hack….’[85]

   [84]First Sadler Statement at [63], CB81.

   [85]First Johnston Statement at [25], CB156.

Option Deed

The Development and the Option Deed

1. In 2009/2010, the defendant became the registered proprietor of the Land with the intention of developing it into a retirement village, the Development, consisting of 158 villas[86] for residents together with other buildings and amenities.  In 2009, F2G was appointed by Management Agreement to manage the Development, including overseeing the construction, finances, HR, sales and marketing of villas.[87]  Tony Vescio was the internal accountant employed by F2G throughout the entire Development.[88] 

   [86]First Sadler Statement at [15], CB65.

   [87]First Camp Statement at [5]–[6], CB51; CB245.

   [88]First Vescio Statement at [1], CB121.

1. As indicated previously, on or about 3 June 2010, the defendant and the plaintiff’s predecessor executed the Option Deed.  In May 2016, the defendant and the plaintiff agreed to extend the Expiry Date in the Option Deed to 30 June 2020.[89]  In June 2020, the parties further agreed to extend the Expiry Date in the Option Deed to 13 July 2020 and then, on 13 July 2020, to 20 July 2020.[90]

   [89]First Camp Statement at [10]–[11], CB52; CB682–683.

   [90]SOC at [14] and [16]; CB891; CB925; Admitted in the Amended Defence at [14] and [16].

Option Deed provisions

1. The Option Deed includes the following defined terms (in clause 1.8):

“Completion” means issue of occupancy permits for the Villas, a community centre and infrastructure for the Proposed Development.

“Completion Date” means the date on which Completion takes place.

“Disclosure Material” means written confirmation that Completion has taken place and any written disclosure required by legislation regarding the Retirement Business, including an up-to-date signed Vendor’s Statement in respect of the Property.

…

“Expiry Date” means 11 May 2016 or such other date as the parties agree to in writing.

…

“Price” means an amount equal to 20% of the total amount of refundable in-going contributions paid by or on behalf of residents of the Retirement Village up to and including the Completion Date, less any amount which has before that date been refunded to residents, such price to be inclusive of GST.

…

“Retirement Business” means the Grantor’s business of running the Retirement Village and all of the things that are necessary for the business to continue operating, including without limitation the Property, plant and equipment, licences, permits, contractual rights and goodwill.

…

“Sale Agreement” means an agreement for the sale of the Retirement Business by the Grantor to the Grantee (and/or its nominee) for the Price with settlement to take place 90 days (or earlier where agreed) from the Exercise Date on terms and conditions to be agreed, failing agreement on terms and conditions determined by an expert appointed by the President of the Law Institute of Victoria (or by such other expert as the parties may agree to in writing.

“Term” means the period commencing on the date of this Deed and ending on the Expiry Date or such other earlier date as the parties may agree to in writing.

1. The option itself is provided for and granted in clause 2 as follows (“Option”):

2.2In consideration of the payment of the Option Fee…the Grantor now grants to the Grantee an option to purchase the Retirement Business for the Price on the terms set out in this Deed, which option will expire on and cannot be exercised after the Expiry Date. The option in this clause 2 will expire if the Completion takes place after the Expiry Date. The Price is inclusive of GST.

1. The mode of exercise of the Option under the Option Deed is provided for in clause 3 as follows:

3.1Unless the option in clause 2 has expired, within 30 days after the Completion Date, the Grantor must provide the Grantee with the Disclosure Material. This is to enable the Grantee to make a decision as to whether to exercise its option under this Deed.

3.2To exercise its option under clause 2 the Grantee must deliver written notice to the Grantor on or before the Expiry Date in the form of Schedule 2 within 7 days of receipt of the Disclosure Material. Within 7 days of the Exercise Date the Grantor shall deliver to the Grantee two original Sale Agreements signed by the Grantor. Within 7 days of receipt of the two original Sale Agreements signed by the Grantor, the Grantee shall sign the Sale Agreements and return one original to the Grantor, upon which a binding Sale Agreement will have been created.

1. Other relevant provisions of the Option Deed include the following clauses:

5.1The Grantor agrees to use reasonable endeavours to complete the Proposed Development before the end of the Term.

…

9Each party agrees, at its own expense unless otherwise required by this Deed, on the request of the other party, to do everything reasonably necessary or desirable to give full effect to the provisions of this Deed and the transactions contemplated by it…

1. Correspondence was exchanged between the parties with respect to the Option Deed in 2016.  On 22 April 2016, the plaintiff wrote to the defendant requesting ‘3 amendments to the Option Deed’, and informing it that the plaintiff had been appointed the new trustee of the Lifestyle Investment Unit Trust on 30 October 2015;[91] on 3 May 2016, Phillip Ellis of the defendant wrote to the plaintiff requesting confirmation ‘that there is no change in the beneficial ownership of the Deed of Option’ and confirming the extension of the Expiry Date to 30 June 2020;[92] and on 9 May 2016, the plaintiff wrote to Phillip Ellis confirming the agreed extension of the Expiry Date and reduction of villas from 169 to 158.[93]

   [91]CB674–675.

   [92]CB682.

   [93]CB683.

Enforceability of Option Deed

1. The defendant asserts that as a result of the definition of ‘Sale Agreement’ in clause 1.8 of the Option Deed and as a result of clause 3.2 of the Option Deed: the parties had not agreed on the terms of the Sale Agreement (being the terms of sale of the Retirement Business in the event the Option was exercised);[94] the terms of any Sale Agreement were uncertain;[95] the Option Deed and Sale Agreement both constituted Masters v Cameron category three agreements;[96] and the Option Deed did not create an enforceable agreement to enter into the Sale Agreement.[97]  The plaintiff, on the other hand, contends that the provisions of the Option Deed are both binding and enforceable.  I turn now to particular aspects of the positions of the parties in this respect. 

   [94]Amended Defence at [25(c)(i)].

   [95]Amended Defence at [25(c)(ii)].

   [96]Amended Defence at [25(c)(iii)].

   [97]Amended Defence at [26].

Intention to create a binding agreement

1. As the defendant highlights, the High Court in Masters v Cameron[98] described three categories of contract, namely: ‘… one in which the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect.’  (“First Category”); ‘… a case in which the parties have completely agreed upon all the terms of their bargain and intend no departure from or addition to that which their agreed terms express or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document.’  (“Second Category”); and ‘… one in which the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract’ (“Third Category”).[99]

   [98](1954) 91 CLR 353.

   [99](1954) 91 CLR 353 at 360.

1. The High Court has separately, in Sinclair, Scott & Co Ltd v Naughton,[100] described a fourth category of cases in which ‘the parties were content to be bound immediately and exclusively by the terms which they had agreed upon whilst expecting to make a further contract in substitution for the first contract, containing, by consent, additional terms’ (“Fourth Category”). 

   [100](1929) 43 CLR 310.

1. It follows that a document falling within either the First, Second or Fourth Categories is an immediately binding contract, whereas a document falling within the Third Category is an unenforceable agreement to agree.[101] 

   [101]The Edge Development Group Pty Ltd v Jack Road Investments Pty Ltd [2019] VSCA 91 at [22].

1. Having regard to this position, the relevant principles of interpretation and assessment of the existence of a contract between parties where a document has been signed by them were summarised by Sackar J in Gu v Hong[102] which include:

   [102][2018] NSWSC 1330 at [32]–[48].

(1)Whether or not the parties intended the agreement to be immediately binding is to be determined objectively having regard to the language contained in the relevant document.[103]

(2)That is to be determined by what a reasonable businessperson would have understood those terms to mean.  That inquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract.[104]

(3)If the terms of a document indicate that the parties intend to be bound immediately, effect must be given to it.[105]

(4)Ordinarily, the process of construction is possible by reference to the contract alone.  If an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances cannot be adduced to contradict its plain meaning.[106]

(5)The circumstances where extrinsic materials can aid in the construction of a contract include:[107]

(a)in the event of ambiguity;[108]

(b)in determining the existence of a contract;[109]

(c)mutually known facts or descriptive terms.[110]

[103][2018] NSWSC 1330 at [35] (citations omitted).

[104]Mount Bruce Mining v Wright Prospecting Pty Ltd (2015) 256 CLR 104 (“Mount Bruce Mining”) at 116, [47].

[105]Gu v Hong [2018] NSWSC 1330, [40].

[106]Mount Bruce Mining at 116, [48].

[107]See generally Mount Bruce Mining at 117, [49].

[108]Gu v Hong [2018] NSWSC 1330, [44].

[109]Guv Hong [2018] NSWSC 1330, [46].

[110]Guv Hong [2018] NSWSC 1330, [48].

1. More generally, the High Court has said that: ‘[W]hen a document containing contractual terms is signed, then, in the absence of fraud, or, … misrepresentation, the party signing it is bound …’.[111]  Moreover, post‑contractual conduct is admissible on the question of whether a contract was formed.[112] 

   [111]Toll (FCGT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, 181 (at [46]).

   [112]Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 at [25] (per Heydon JA).

Essential terms of a binding agreement

1. It is uncontroversial that there can be no binding agreement without the essential or critical terms having been agreed upon.[113]  Nevertheless, inessential terms that are vague or incomplete can be filled by the Court, ignored or severed.[114]  The nature of the particular contract under consideration will affect what is regarded as constituting an essential term in this context.[115] 

   [113]Australian & New Zealand Banking Group Ltd v Frost Holdings Pty Ltd [1989] VR 695 at 700 (per Kaye J citing Thorby v Goldberg (1964) 112 CLR 597 at 607).

   [114]Seddon & Bigwood, Cheshire & Fifoot Law of Contract (LexisNexis Butterworths 11^th Australian ed. 2017), [6.2].

   [115]Australian & New Zealand Banking Group Ltd v Frost Holdings Pty Ltd [1989] VR 695 at 701 (per Kaye J citing May and Butcher Ltd v R (H.L.) [1934] 2 K.B. 17 at 21).

1. Nevertheless, an essential term of a contract is not to be regarded as uncertain or incomplete where parties leave elements of that term to be determined by a third person or agreed mechanism.[116]  In Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd,[117] the High Court considered an option granted to a tenant for a further term of a lease was sufficiently certain where the rent for that further term was to be determined by a third party.  In this context the majority of the Court stated:[118]

It is established by authority, both ancient and modern, that the courts will not lend their aid to the enforcement of an incomplete agreement, being no more than an agreement of the parties to agree at some time in the future. Consequently, if the lease provided for a renewal “at a rental to be agreed” there would clearly be no enforceable agreement. On the other hand, it is also well established that the parties to a contract may leave terms — even essential terms — to be determined by a third person: see the cases cited in Godecke v. Kirwan.[119] In the present case, the lease itself provides the entire mechanism for determining the rental for the renewed term. There is no further agreement required of the parties. It is true that if they do agree upon that rental, then there is no occasion to resort to the independent mechanism that the lease provides. But, there being no such agreement, all that is required is that the President name a person to fix a figure being not less than the minimum rental operative during the original term. No formality is required to effect the necessary appointment. Either party may request the President to facilitate the fulfilment of the agreement. It may be assumed that if he declines to do so, or if the person nominated declines to carry out the task assigned to him, then the renewal cannot be effected, and that Wilson’s exercise of the option will have been fruitless. Nevertheless, in the circumstances as they stand at present, there is a valid agreement for the renewal of the lease subject to the fixation of a rental for the new term. The fixation of that rental is a condition precedent to the performance of the agreement.

And continuing:[120]

If a lessor agrees to renew a lease at a rent to be fixed by a third party, and agrees (expressly or impliedly) to do all that is reasonably necessary to ensure that the rent is so fixed, it is not right to say that there is no concluded contract until the rent is fixed. There is a contract which immediately binds the lessor to perform his obligation to do all that is reasonably necessary to ensure that the rent is fixed, although the performance of the further obligation to renew the lease is conditional on the rent being fixed.

[116]Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd (1982) 149 CLR 600 at 604; Mushroom Composters Pty Ltd v IS & DE Robertson Pty Ltd [2015] NSWCA 1 at [62]–[64] (per Sackville AJA, MacFarlan and Gleeson JJA agreeing).

[117](1982) 149 CLR 600.

[118]Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd (1982) 149 CLR 600 at 604-605 (Gibbs CJ, Murphy and Wilson JJ) (citations included).

[119](1973) 129 CLR 629 at 645 (Gibbs J).

[120]Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd (1982) 149 CLR 600 at 606 (Gibbs CJ, Murphy and Wilson JJ).

1. In this context, contracts for the sale of land have been upheld where they evidence in writing the essential terms or, as such terms have been described, the “four Ps”: the parties to the contract, the property being sold, the price, and the promises being made by the parties.[121] 

   [121]Twynam Pastoral Co Pty Ltd v Anburn Pty Ltd (1989) 6 BPR 13,448 at 13,455.

Uncertainty

1. Uncertainty with respect to contracts may arise both as a result of uncertainty in content, such as where the essential terms are incomplete or uncertain,[122] or with respect to construction.  These two elements were highlighted in Troiano v Voci & Ors as follows:[123]

   [122]Mushroom Composters Pty Ltd v IS & DE Robertson Pty Ltd [2015] NSWCA 1 at [62]–[64] (per Sackville AJA, MacFarlan and Gleeson JJA agreeing).

   [123][2021] VSC 851 at [338]–[339] (Delany J) (citations included).

[338]In support of their uncertainty contention the defendants referred to the observations of Menzies J in Thorby v Goldberg:[124]

“It is a first principle of the law of contracts that there can be no binding and enforceable obligation unless the terms of the bargain, or at least it’s essential or critical terms, have been agreed upon. So, there is no concluded contract where an essential or critical term is expressly left to be settled by future agreement of the parties. Again, there is no binding contract where the language used is so obscure and incapable of any precise or definite meaning that the court is unable to attribute to the parties any particular contractual intention.”

[339]So far as uncertainty in construction is concerned, in Upper Hunter District Council v Australian Chilling and Freezing Co Ltd,[125] Barwick CJ said:[126]

“… a contract of which there can be more than one possible meaning or which when construed can produce in its application more than one result is not therefore void for uncertainty. As long as it is capable of a meaning, it will ultimately bear that meaning which the courts, or in an appropriate case, an arbitrator, decides is its proper construction: and the court or arbitrator will decide its application. The question becomes one of construction, of ascertaining the intention of the parties, and of applying it. Lord Tomlin’s words in this connexion in Hillas & Co Ltd v Arcos Ltd. (1932) 147 LT 503, at p 512, ought to be kept in mind. So long as the language employed by the parties, to use Lord Wright’s words in Scammell (G) & Nephew Ltd v Ouston (1941) AC 251 is not “so obscure and so incapable of any definite or precise meaning that the Court is unable to attribute to the parties any particular contractual intention”, the contract cannot be held to be void or uncertain or meaningless. In the search for that intention, no narrow or pedantic approach is warranted, particularly in the case of commercial arrangements. Thus will uncertainty of meaning, as distinct from absence of meaning or of intention, be resolved.”

[124]Thorby v Goldberg [1964] HCA 41; (1964) 112 CLR 597, 607, quoting the dissenting judgment of Sugerman J in the NSW Court of Appeal.

[125]Upper Hunter District Council v Australian Chilling and Freezing Co Ltd [1968] HCA 8; (1968) 118 CLR 429.

[126]Ibid, 436-7.

1. Nevertheless, the Court should favour the construction consistent with validity of a contract over that which would make the contract void for uncertainty.[127]  Moreover, uncertainty does not necessarily arise merely because of possible alternatives in construction:[128]

… a contract of which there can be more than one possible meaning or which when construed can produce in its application more than one result is not therefore void for uncertainty. As long as it is capable of a meaning, it will ultimately bear that meaning which the courts …decid[e] is its proper construction …The question becomes one of construction, of ascertaining the intention of the parties.

In Delaney v Delaney, Lyons J stated:[129]

… I would prefer to express the principle in the more restrained terms expressed in The Interpretation of Contracts, namely that “where parties have entered into what they believe to be a binding agreement, the court is most reluctant to hold that their agreement is void for uncertainty, and will only do so as a last resort”.[130]

[127]Lewison and Hughes, The Interpretation of Contracts in Australia (Thomson Reuters), [7.15].

[128]

[129][2021] VSC 365 at [333].

[130]Sir Kim Lewison, The Interpretation of Contracts (Thomson Reuters (Professional), 6th ed, 2015) 466 [8.13] and cases referred to therein.

1. More particularly, it has been held that an agreement is not uncertain on account of the fact that the parties agreed to appoint an expert but did not expressly agree on the terms of the expert’s appointment.[131]

   [131]

Application of legal principles to the Option Deed

1. The plaintiff submits that: the objective intention of the parties was that the Option Deed be immediately binding in its terms (and did not fall within any category of Masters v Cameron); by providing a mechanism in the Option Deed by which the terms of any Sale Agreement were to be determined (both as to the Price and the other, non‑essential, terms), the parties had reached agreement on the necessary terms of any Sale Agreement; and as a result of the said mechanism, the terms of any Sale Agreement were not uncertain, so that the Option Deed was not invalid.  The defendant, on the other hand, contends the contrary, with particular reference to the definition of ‘Sale Agreement’ and also the definition of ‘Price’. 

Intention to be bound

1. In support of the plaintiff’s submission that the parties intended to be bound by their Option Deed, reference is made to clause 11 of the Option Deed which provides that: ‘The provisions of this Deed shall enure for the benefit of and be binding upon the parties and upon their respective successors’[132] (plaintiff’s emphasis).  Additionally, the plaintiff points to the wording of the Option Deed generally [133] which, it contends, particularly in the absence of any statement that its provisions were not binding, sets out the terms on which the Option is granted.  Further, the Option Deed is signed by the parties to it.[134]

   [132]CB342.

   [133]CB335-346.

   [134]See above [44].

1. The plaintiff also points to the variety of post-contractual conduct to which it submits the court should have regard, namely:

(1)the resolution of the board of the defendant to enter into the Option Deed;[135]

(2)payment of the Option Fee of $30,000 by the plaintiff’s predecessor, in 2010 and 2011;[136]

(3)the agreed variation of the Option Deed in 2016;[137]

(4)the Madgwicks letter dated 29 November 2019[138] and the HWLE letter in response on 7 April 2020;[139]

each of which, it is submitted, evidence the clear intention of the parties that the Option Deed was binding.

[135]Minutes of meeting of directors dated 17 May 2010, CB329 at CB332.

[136]Minutes of meeting of directors dated 17 May 2011, CB399; Minutes of meeting of directors dated 23 August 2011, CB409.

[137]First Camp Statement at [10]–[11], CB52.

[138]CB818–819.

[139]CB858–859.

1. Moreover, it is submitted by the plaintiff that the position that the Option Deed provides for the entering into of a Sale Agreement upon the exercise of the Option does not mean that the Option Deed falls within a category of Masters v Cameron which would mitigate against its immediate and ongoing binding effect and enforceability — especially as there is nothing to indicate that the parties to the Option Deed anticipated further documentation of the Option.  Further, it is contended that the requirement to enter into a Sale Agreement is merely a performance obligation under the Option Deed. 

1. For the reasons which follow I am of the view that the position as put by the plaintiff is correct and that any further steps taken as a result in the operation of the Option Deed are just that, steps by way of performing obligations under that deed.  In particular, the determination of ‘Price’ by way of a mechanism provided for in clause 1.8 of the Option Deed falls precisely within that characterisation.

Sale Agreement

1. It is helpful in the present context to set out again the critical provisions of the Option Deed which define the expression ‘Sale Agreement’ with respect to the exercise of the Option.  As to its definition, clause 1.8 of the Option Deed provides as follows:

“Sale Agreement” means an agreement for the sale of the Retirement Business by the Grantor to the Grantee (and/or its nominee) for the Price with settlement to take place 90 days (or earlier where agreed) from the Exercise Date on terms and conditions to be agreed, failing agreement on terms and conditions determined by an expert appointed by the President of the Law Institute of Victoria (or by such other expert as the parties may agree to in writing) (defendant’s emphasis).

And as to its significance in the exercise of the Option, clause 3.2 of the Option Deed provides as follows:

To exercise its option under clause 2 the Grantee must deliver written notice to the Grantor on or before the Expiry Date in the form of Schedule 2 within 7 days of receipt of a the Disclosure Material. Within 7 days of the Exercise Date the Grantor shall deliver to the Grantee two original Sale Agreements signed by the Grantor. Within 7 days of receipt of the two original Sale Agreements signed by the Grantor, the Grantee shall sign the Sale Agreements and return one original to the Grantor, upon which a binding Sale Agreement will have been created.

1. The defendant submits that the fact that the Sale Agreement is defined to comprise ‘terms and conditions to be agreed’ renders it unenforceable as an agreement to agree, unless it can be saved by the balance of the clause.  The balance ‘failing agreement on terms and conditions determined by an expert appointed by the President of the Law Institute of Victoria’ are these provisions.  However, the defendant submits that these words need to be construed in the context of the provisions of clause 3.2 which requires this process of determining terms and conditions to occur ‘within 7 days of the Exercise Date’.  From a practical perspective, the defendant observes that this means that the expert needs to have been appointed, and determine in their own right — not by way of a mediated discussion between the parties where they determine the terms — all the terms and conditions of the sale agreement.  Moreover, it is said that the provisions of the contract give no instruction as to how the ‘expert’ is to balance the competing and opposing commercial and legal interests of the two parties. 

1. More particularly, it is contended by the defendant that such terms and conditions might reasonably be expected to include the:

(1)content and extent of business warranties, which would require extensive negotiation before being agreed upon by the parties in a sale of a retirement village business.  The respective leverage position of each of the parties might reasonably be expected to impact upon, for example, the minimum dollar amount required for individual warranty claims, and the minimum dollar threshold for a basket of warranty claims before a vendor would be required to reimburse the purchaser;

(2)adjustments for employee leave entitlements.  One would reasonably expect that the sale of a business would necessitate the vendor and purchaser to negotiate and agree upon the accrual of employee entitlements to, for example, long service and sick leave;

(3)deposit payable on the exercise of the option;

(4)negotiable split between the parties for sales of villas that occur between the signing of a sale agreement and completion, as well as the party responsible for the associated refurbishment expenses;

(5)party entitled to the deferred management fee for any sales that occur prior to settlement.  Reference was made to the explanation in the plaintiff’s opening that entitlement to the DMF only becomes absolute after 12 months of occupation before it is progressively released to the operator.[140]  The question of which party is to be entitled to this fee, or to what extent it is shared and how it is paid, might reasonably be expected to be the subject of negotiations, the outcome of which would be impacted by the leverage position of each party; and

(6)pre-Completion restrictions that could apply to the operator between signing and completion, insofar as they relate the running of the Village.  One might expect these to include, for example, restrictions on the hiring of new employees, or prohibitions on the sales of any assets or villas unless it is over an agreed list price.  Alternatively, the parties might have negotiated a complete prohibition against the sale of villas.

[140]T14.13–14.23 (Plaintiff’s opening).

1. As the defendant submits, courts have previously upheld clauses which enable a discrete and objectively determinable fact to be determined by a third party.  An example is the valuation of market rent for the purpose of a lease, as was the position in the Booker Industries[141] case.  However, it is contended that the position under these provisions of the Option Deed are much more pervasive in that there is a requirement for an expert to determine the terms and conditions of a contract, where there is not an objectively ascertainable ‘fact’, such as valuation, but the entire terms and conditions of an agreement. 

   [141](1982) 149 CLR 600; and see above [46].

1. The plaintiff, on the other hand, emphasises that the context in which clause 3.2 would operate is not a blank canvas, so to speak, as in the present case each of the price, parties, property and promises to pay and transfer are already set out in the Option Deed; hence the essential terms of the Sale Agreement had already been agreed at the time the Option Deed was made.  Moreover, to the extent that the Court may be of the opinion that an essential term was not yet agreed, the decision of the majority in Booker Industries[142] is particularly apt in that leaving an essential term to be determined by a third party does not mean the parties have not reached agreement as to all essential terms. 

   [142](1982) 149 CLR 600.

1. The plaintiff also contends that although clause 3.2 of the Option Deed states that ‘a binding Sale Agreement will have been created’[143] after execution of a Sale Agreement by the parties, this does not alter the fact that the terms of the Sale Agreement, or a mechanism for determining such terms, was agreed.  As was the case in Booker Industries, the obligation to enter and perform the Sale Agreement would only arise upon the exercise of the Option.  Indeed, there would be no contract for the sale of the Retirement Business until after the Option was exercised.  Thus the plaintiff contends that, applying the reasoning in Booker Industries[144] and Watpac Constructions,[145] there is no uncertainty in the terms of any Sale Agreement as clause 1.8 of the Option Deed provides a mechanism for the appointment of an expert to determine additional terms of the Sale Agreement other than those already set out in the Option Deed in the absence of agreement between the parties after the exercise of the Option.  

   [143]Option Deed, cl 3.2, CB339.

   [144](1982) 149 CLR 600.

   [145][2015] NSWSC 780.

1. In my view, the, so-called, practical issues raised by the defendant in terms of the appointment of an expert and the timing provisions for the determination of the terms and conditions of the Sale Agreement are answered by reference to the provisions of the Option Deed to which reference has been made.  Having regard to the extent to which these essential terms are already provided for means, in my view, that the reasoning in decisions such as Booker Industries and Watpac Constructions is analogous and forceful in the present context.  Consequently I am of the opinion that the terms of the Sale Agreement are not uncertain in the relevant sense. 

1. For the preceding reasons I am of the opinion that the Option Deed is both binding and enforceable. 

‘Endeavours clauses’

General observations

1. In Electricity Generation Corporation v Woodside Energy Ltd,[146] the High Court summarised the general observations that can be made in respect of endeavours clauses:

   [146](2014) 251 CLR 640 (“Electricity Generation”).

Reasonable endeavours

Contractual obligations framed in terms of “reasonable endeavours” or “best endeavours (or efforts)” are familiar. Argument proceeded on the basis that substantially similar obligations are imposed by either expression. Such obligations are not uncommon in distribution agreements, intellectual property licences, mining and resources agreements and planning and construction contracts. Such clauses are ordinarily inserted into commercial contracts between parties at arm’s length who have their own independent business interests.

Three general observations can be made about obligations to use reasonable endeavours to achieve a contractual object. First, an obligation expressed thus is not an absolute or unconditional obligation. Secondly, the nature and extent of an obligation imposed in such terms is necessarily conditioned by what is reasonable in the circumstances, which can include circumstances that may affect an obligor’s business. This was explained by Mason J in Hospital Products Ltd v United States Surgical Corporation, which concerned a sole distributor’s obligation to use “best efforts” to promote the sale of a manufacturer’s products. His Honour said:

The qualification [of reasonableness] itself is aimed at situations in which there would be a conflict between the obligation to use best efforts and the independent business interests of the distributor and has the object of resolving those conflicts by the standard of reasonableness … It therefore involves a recognition that the interests of [the manufacturer] could not be paramount in every case and that in some cases the interests of the distributor would prevail.

As Sellers J observed of a corporate obligor in Terrell v Mabie Todd & Co Ltd, an obligation to use reasonable endeavours would not oblige the achievement of a contractual object “to the certain ruin of the Company or to the utter disregard of the interests of the shareholders”. An obligor’s freedom to act in its own business interests, in matters to which the agreement relates, is not necessarily foreclosed, or to be sacrificed, by an obligation to use reasonable endeavours to achieve a contractual object.

Thirdly, some contracts containing an obligation to use or make reasonable endeavours to achieve a contractual object contain their own internal standard of what is reasonable, by some express reference relevant to the business interests of an obligee.[147]

[147]Electricity Generation at [40]–[43] (footnotes omitted).

1. Compliance with an endeavours clause ‘must be determined objectively in the light of what in fact is required to be done, in the circumstances as they exist, to achieve the stated objective.’[148]  It is trite that the content of the obligor’s obligation under an ‘endeavours’ clause is specific to the particular context of the individual case.

   [148]Paltara Pty Ltd v Dempster (1991) 6 WAR 85 (“Paltara”) at 89 (per Malcolm CJ, Pidgeon J agreeing).

1. Care should be taken before applying observations from courts in respect of different commercial contexts.  In O’Rourke v P & B Corporation Pty Ltd, Martin CJ stated:[149]

Care should be taken before applying observations made in that commercial context to a quite different context, such as the present circumstance of a contract for the sale of land.

In the context of the distributorship agreement, Dawson J observed at 143 ‑ 144:

Nor does the existence of a best efforts or best endeavours clause, such as was found to be a term of the contract … impose a duty upon the distributor to disregard his own interests. In speaking of a ‘best endeavours’ clause in a licence agreement, in Transfield Pty Ltd v Arlo International Ltd (Mason J said that it went no further than to prescribe ‘a standard of endeavour which is measured by what is reasonable in the circumstances, having regard to the nature, capacity, qualifications and responsibilities of the licensee viewed in the light of the particular contract’ … . Clearly that leaves room for a balancing of interests and does not require the elimination of any conflict. (footnotes omitted)

Observations of that kind are apt to a continuing commercial relationship, such as that of manufacturer and distributor, or licensor and licensee, in which the interests of the parties may compete and even conflict from time to time. However, different considerations apply to a once-off contract such as a contract for the sale of land, in which both parties can be taken to have an interest in the contract being performed. Accordingly, I would not be inclined to accept the proposition that P & B could take account of its own interests in the discharge of its obligations under its contracts with the plaintiffs, although P & B’s case does not depend upon that proposition (plaintiff’s emphasis).[150]

[149](2008) 36 WAR 197 (“O’Rourke”).

[150]O’Rourke at [145]–[147].

‘Best endeavours’ and ‘reasonable endeavours’

1. In Cypjayne Pty Ltd v Babcock & Brown International Pty Ltd,[151] Bathurst CJ (with McFarlan and Young JJA agreeing) noted:

The expressions “best endeavours” and “reasonable endeavours” generally speaking have been considered by the courts as imposing similar obligations. In Transfield Pty Limited v Arlo International Limited [1980] HCA 15; (1980) 144 CLR 83, a provision requiring the appellant use best endeavours in and towards the design, fabrication, installation and selling of the respondent’s pole was described by Mason J as a standard of reasonableness (at 100) and further (at 101) as a standard of endeavour which is measured by what is reasonable in the circumstances having regard to the nature, capacity, qualifications and responsibilities of the licensee viewed in light of the particular contract. In the same case Wilson J (at 107) described it as an obligation to do all that could be reasonably expected having regard to the circumstances of the licensee's business operation. In Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41, Mason J (at 91‑92) said the extent of the obligation is governed by what is reasonable in the circumstances (see also Dawson J at 144) (plaintiff’s emphasis).[152]

[151](2011) 282 ALR 152 (“Cypjayne”).

[152]Cypjayne at [67].

1. In Foster v Hall,[153] Macfarlan JA (with whom Meagher JA and Tobias AJA agreed) concluded that:

The addition of the word “best” to the expression “reasonable endeavours” raises the required standard to a level somewhat higher than that imposed by a simple “reasonable endeavours” obligation. However I do not consider that there is any significant difference, at least for present purposes, between the content of an obligation to use “best reasonable endeavours” and one to use “best endeavours”.[154]

It should be noted that the court did not make reference to Cypjayne and did not express the extent of the difference between ‘best’ and ‘reasonable’ other than ‘somewhat higher’.

[153][2012] NSWCA 122.

[154]Foster v Hall [2012] NSWCA 122 at [33].

1. When the majority in Electricity Generation, stated: ‘Contractual obligations framed in terms of “reasonable endeavours” or “best endeavours (or efforts)” are familiar’,[155] they expressly cited Cypjayne.  Their Honours acknowledged (and did not seek to say differently) the parties’ decision to proceed on the basis that the obligations imposed by either expression are ‘substantially similar’.[156]  The High Court’s decision not to take a different position and the decision in Cypjayne have been acknowledged or expressly adopted in several superior courts since.[157]

   [155]Electricity Generation at [40].

   [156]Electricity Generation at [40].

   [157]Artesian Hospitality Pty Ltd v Tsuen Fung Holdings Pty Ltd [2021] QSC 288 at [101]–[102]; Australian Securities and Investments Commission v Dover Financial Advisers Pty Ltd [2019] FCA 1932 at [54].

1. In Wang v Kaymet Corporation Pty Ltd,[158] Stevenson J expressed his own view that he did not see any difference:

Here, the obligation of the defendants was to use “reasonable endeavours” to register the Strata Documents by the Date for Registration; rather than “everything reasonably necessary” (Hawes v Cuzeno Pty Ltd [1999] NSWSC 1167; Masters v Belpate Pty Ltd [2001] NSWSC 169), “everything reasonable” (Hardy v Wardy [2001] NSWSC 1141, affirmed on appeal in Wardy v Hardy [2002] NSWCA 215; AJDJ Pty Ltd v Pacific West Developments Pty Ltd [2001] NSWSC 1174), “with reasonable expedition” (Schenk), “all reasonable endeavours” (Gauld v Obsidian Holdings Pty Ltd [2009] NSWSC 924), or “best endeavours” (Transfield Pty Ltd v Arlo International Ltd (1980) 144 CLR 83, although in an admittedly different context).

There is some authority to the effect that an obligation to use “reasonable endeavours” or “reasonable efforts” is less onerous than an obligation to use “all reasonable endeavours”, “all reasonable efforts” or “best endeavours” (for example see Jolley v Carmel Ltd [2000] 2 EGLR 153 Lewison QC (as his Lordship then was) sitting as a Deputy High Court Judge, at 159; cited with approval in Rhodia International Holdings Ltd v Huntsman International LLC [2007] EWHC 292 per Flaux QC (as his Lordship then was), also sitting as a Deputy High Court Judge, at [34]).

Refshauge J considered the matter in some detail in Stepping Stones Child Care Centre (ACT) Pty Ltd v Early Learning Services Ltd [2013] ACTSC 173 at [274] to [300]. His Honour expressed the view that “an obligation to use ‘reasonable endeavours’ is not as onerous as one to use ‘best endeavours’ or ‘all reasonable endeavours’” (at [283]).

I doubt, especially in the context of the facts in this case, that there is any distinction of substance to be drawn between these expressions. Ultimately, neither Mr McInerney nor Mr Corsaro SC, who appeared with Mr Bambagiotti and Mr Auld for the defendants, suggested there was.

In the recent case of Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; 251 CLR 640, the High Court considered the expression “reasonable endeavours”. Argument proceeded upon the basis that substantially similar obligations were imposed by the terms “reasonable endeavours” or “best endeavours (or efforts)” (at [40]).[159]

[158][2015] NSWSC 1459 (“Wang”).

[159]Wang at [40]–[44].

1. In Weatherbeeta Ltd v Hammersmith Nominees Pty Ltd,[160] Connock J did not seek to draw any distinction between ‘best endeavours’ and ‘reasonable endeavours’, instead analysing ‘endeavours clauses’ generally. 

   [160][2019] VSC 559.

Threshold level of conduct for ‘endeavours clauses’

1. As the plaintiff observes, a number of attempts have been made to express the threshold conduct required of ‘endeavours clauses’, while recognising that each case is fact‑specific. 

1. In Electricity Generation, the majority noted:

As Sellers J observed of a corporate obligor in Terrell v Mabie Todd & Co Ltd, an obligation to use reasonable endeavours would not oblige the achievement of a contractual object “to the certain ruin of the Company or to the utter disregard of the interests of the shareholders”. An obligor's freedom to act in its own business interests, in matters to which the agreement relates, is not necessarily foreclosed, or to be sacrificed, by an obligation to use reasonable endeavours to achieve a contractual object.[161]

[161]Electricity Generation at [42].

1. In IBM United Kingdom Ltd v. Rockware Glass Ltd [1980] F.S.R. 335, Buckley LJ stated, in the context of an obligation on a party to use ‘best endeavours’ in respect of the obtaining of planning approval:

In my judgment the test must be: what would an owner of the property with which we are concerned in this case, who was anxious to obtain planning permission, do to achieve that end? The formula which has been suggested and which would commend itself to me is that the plaintiffs as covenantors are bound to take all those steps in their power which are capable of producing the desired results, namely the obtaining of planning permission, being steps which a prudent, determined and reasonable owner, acting in his own interests and desiring to achieve that result, would take…[162]

[162]IBM United Kingdom Ltd v. Rockware Glass Ltd [1980] F.S.R. 335 at 343.

1. In Hawkins v Pender Bros Pty Ltd,[163] the Queensland Court of Appeal considered the test for ‘best endeavours’ in respect of the obtaining of planning approval for construction.  Shepherdson J (with whom Thomas and Williams JJ agreed) cited the above passage from IBM, and then stated:

   [163][1990] 1 Qd R 135 (“Hawkins”).

Mr Sofronoff Q.C. for the respondents referred this Court to Hospital Products Ltd v. United States Surgical Corporation (1984) 156 C.L.R. 41 in which the High Court considered an exclusive distribution agreement. At 64 Gibbs C.J. said:

‘‘The implied obligation to use best efforts to promote the sale of the goods necessarily imported the obligation not to take any deliberate steps to damage the market for those goods in Australia. The meaning of terms of this kind has been considered in a number of cases but it is trite to say that the meaning of particular words in a contract must be determined in the light of the context provided by the contract as a whole and the circumstances in which it was made and that decisions on the effect of the same words in a different context must be viewed with caution. On the one hand an express promise by an agent to use his best endeavours to obtain orders for another and to influence business on his behalf ‘necessarily includes an obligation not to hinder or prevent the fulfilment of its purpose’ Shepherd v. Felt and Textiles of Australia Ltd. (1931) 45 C.L.R. 359 at p.378. On the other hand, an obligation to use ‘best endeavours’ does not require the person who undertakes the obligation to go beyond the bounds of reason; he is required to do all he reasonably can in the circumstances to achieve the contractual object but no more: Sheffield District Railway Co. v. Great Central Railway Co. (1911) 27 T.L.R. 451 at p.452; Terrell v. Mabie Todd and Co. Ltd. (1952) 69 R.P.C. 234 at p.237.’’

Mason J. (as he then was) at 91 and 92 said:

“A best efforts clause is not an uncommon feature of a distributorship agreement. However, it is unusual to include in the clause the provision that the promisor will use his best efforts for the common benefit of both parties. It is a clause ordinarily inserted in a contract between parties at arms length, designed to give protection to one party by imposing an obligation on the other to promote the sale of the first party’s products. The extent of the obligation thereby imposed is governed by what is reasonable in the circumstances: Transfield Pty. Ltd. v. Arlo International Ltd. (1980) 144 C.L.R. 83, at pp. 100–101, 107 … To say that the promise was to be performed to or for the common benefit of both parties is to overlook the qualification of reasonableness usually associated with a best efforts promise. The qualification itself is aimed at situations in which there would be a conflict between the obligation to use best efforts and the independent business interests of the distributor and has the object of resolving those conflicts by the standard of reasonableness.”

Dawson J. (at 143–144) said:

“Nor does the existence of a best efforts clause or best endeavours clause … impose a duty upon the distributor to disregard his own interests.”

In my view, the test stated by Lord Justice Buckley is not essentially different from that stated in the High Court although as I have said the High Court was dealing with a distributorship agreement. The High Court recognises that the covenantor, while bound to the other contracting party, must not go beyond the bounds of reason in doing all he reasonably can in the circumstances to achieve the contractual object but no more than the contractual object. If Lord Justice Buckley’s test is to be criticised it could perhaps be because it does not sufficiently emphasise the aspect of reasonableness.

What I think is clear is this – that in discharging its obligations the covenantor is not required to act in such a way that he faces ruin (Terrell v. Mabie Todd and Co. Ltd [1952] 2 T.L.R. 574, 575). It is in this area that the combined aspects of prudence and reasonableness take effect.[164]

[164]Hawkins at 151-152.

1. In Joseph Street Pty Ltd v Tan,[165] Warren CJ, Nettle JA and Cavanough AJA considered the obligation of ‘best endeavours’ (they were not asked and did not consider if there was any difference between ‘best endeavours and reasonable endeavours’), and also cited the above passage from IBM with approval, further stating:[166]

An obligation to use best endeavours to achieve a contractual object requires the obligor to do all he or she reasonably can do in the circumstances to achieve that contractual object.[167] The words “best endeavours” mean what they say – best endeavours, not second-best endeavours; and so, within reasonable limits, they require the obligor, broadly speaking, to leave no stone unturned to achieve the object in view.[168]

Their Honours acknowledged that the reasoning of Buckley LJ had been adopted by the Western Australian Court of Appeal,[169] the Queensland Court of Appeal[170] and the NSW Court of Appeal.[171]

[165](2012) 38 VR 241 (“Joseph Street”).

[166]Joseph Street at [41].

[167]Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41, [64]-[65] (Gibbs CJ).

[168]Sheffield District Railway Company v Great Central Railway Company (1911) 27 TLR 451, 452 (Lawrence J); Paltara Pty Ltd v Dempster (1991) 6 WAR 85, 100 (Kennedy J); Rehins Pty Ltd v Debin Nominees Pty Ltd [No 2] [2011] WASC 168, [145] (Murray J).

[169]Joseph Street at [43].

[170]Joseph Street at [44].

[171]Joseph Street at [45].

1. In O’Rourke, Martin CJ opined that the statements that ‘best endeavours’ is not ‘second best endeavours’ and ‘leaving no stone unturned’ is not inconsistent with Buckley LJ’s test.[172]

   [172]O’Rourke at [150]–[153].

1. In Paltara, Malcom CJ considered a ‘best endeavours’ clause and cited Hospital Products Ltd v United States Surgical Corporation:[173] ‘…he is required to do all that he reasonably can in the circumstances to achieve the contractual object, but no more.’[174]

   [173](1984) 156 CLR 41 (“Hospital Products”) at 64.

   [174]Paltara at 89.

‘Everything reasonably necessary’ clauses

1. A clause that requires a party to do ‘everything reasonably necessary’ or ‘everything reasonable’ is different to an endeavours clause.

1. In ICM Investments Pty Ltd v San Miguel Corporation,[175] the Victorian Court of Appeal considered a contractual obligation to do ‘everything reasonably necessary’ to pay a dividend.  Their Honours noted:

Under the Option Deed, the obligation cast upon San Miguel was unconditional; it was not subject to best or reasonable endeavours.[176]

[175](2014) 48 VR 503 (“ICM Investments Limited”).

Option price

[512]Emeness Pty Ltd v Rigg [1983] 1 Qd R 172, following Domb v Isoz [1980] 1 All ER 942.

[513]See above [8].

1. The gravamen of the defendant’s submissions in relation to the option price is that the ‘Price’ cannot be ascertained on the evidence before the Court. 

1. More particularly, the defendant observes that the plaintiff opened its case with the proposition that ‘the price that was required to be paid was in the order of $9 million’.[514]  However, it says that the plaintiff does not provide any explanation for this figure in its pleadings or written opening though in oral opening, it submitted that ‘price equals 20 percent of the refundable component of the in-going contributions …. so it means 20 percent of the 80 percent in simple terms.’[515]  The defendant says that, nevertheless, this is not what the Option Deed stipulates; as it submits in more detail, which is now considered. 

   [514]T6.31 (Plaintiff’s opening).

   [515]T18.4-18.11 (Plaintiff’s opening).

1. Turning to the provisions of the Option Deed itself, the defendant makes reference to the Option price which is to be ascertained by undertaking the calculation prescribed by the definition in clause 1.8 of that Deed, namely:

“Price” means an amount equal to 20% of the total amount of refundable in-going contributions paid by or on behalf of residents of the Retirement Village up to and including the Completion Date, less any amount which has before that date been refunded to residents, such price to be inclusive of GST.

The expressions ‘refundable in-going contribution’ and ‘in-going contribution’ have their particular statutory meanings under the provisions of s 3 of the Retirement Villages Act1986 (Vic) as follows:

“in-going contribution” means the payment made—

(a)by way of donation because of an understanding between a person and an owner or manager to the effect that, on the making of the donation, the person will be entitled to become a resident of the village; or

(b)in consideration of acquiring shares in a company, if those shares confer on the holder the right to become a resident of a retirement village; or

(c)in consideration of the right to become a resident—

whether paid by or on behalf of the person who wishes to become a resident and whether in a lump sum or by instalments but does not include rent;

…

“refundable in-going contribution” means so much of an in-going contribution as is under a residence contract or this Act—

(a)refundable to the resident if the resident leaves the retirement village; or

(b)payable to the resident's estate if the resident dies …

It follows from these definitions that an ‘in-going contribution’ is the sum of money which a resident pays when a person becomes a resident of a retirement village and a ‘refundable in-going contribution’ is the sum of money they receive back when they leave the retirement village.

1. The defendant contends that when regard is had to these provisions the effect is, as indicated at the outset, that the Option ‘Price’ is not ascertainable.  More particularly, it is said that a refundable in-going contribution cannot be quantified until after a resident has left the Village.  This is because, as the Magree Report confirms, departing residents received a share of ‘any capital gain (or loss) realised’ and ‘a vacating resident is generally responsible for refurbishment costs and selling expenses’.[516]  Dan Magree explains that 20% of the original contribution plus an administration fee of 2.5% is retained by the defendant, and states that: ‘The amount of the departure fee depends on the length of stay in the village and capital appreciation of the unit (as the resident receives 50% of the capital gain of the ILU [Independent Living Unit]).  The departing resident also pays a 3% refurbishment fee which is held in the long‑term sinking fund.’[517]  The costs are illustrated in the ‘Outgoing Resident’s Deed’,[518] which confirms that the ‘Refunded Loan Amount’ takes into account an Administration Fee, Long Term Maintenance Fee, Deferred Management Fee, refurbishment costs, monies owing, an Appreciation Payment, valuation costs and payments on account of interest accrued on an unpaid residential care accommodation bond.  Thus the defendant submits that if one were, for the sake of argument, to read the reference to ‘refundable in-going contributions’ in the definition of ‘Price’ as meaning just ‘in-going contributions’, then such amounts would be readily ascertainable at any given point in time but otherwise reliance upon ‘refundable in-going contributions’ as an essential integer in the definition of ‘Price’ means that it is not ascertainable.  Additionally, the defendant submits that the fact that the total quantum of ‘refundable outgoing contributions’ is unascertainable at any given point further supports the defendant’s, so‑called, Incompleteness Defence.  However, I have in the preceding reasons found that there is no basis in this defence and so the defendant’s submissions with respect to it do not raise any relevant matters in the present context.[519] 

   [516]Magree Report at [3.1],CB195.

   [517]Magree Report at [6], CB204.

   [518]CB1252.

   [519]See above [61]-[62].

1. The plaintiff, on the other hand, submits that the use of the expression ‘refundable in-going contributions’ in the definition of ‘Price’ instead of merely using ‘in-going contributions’ does not create the necessary absurdity which would empower the Court to rewrite the bargain struck in the Option Deed or, more generally, to render calculation of ‘Price’ impossible hence its determination ‘unascertainable’.  More particularly, the plaintiff submits that the distinction between the two expressions, ‘refundable in-going contribution’ and ‘refundable out-going contribution’, as used in the Act,[520] is clear and that the distinction is preserved in the choice of the phrase ‘refundable in‑going contribution’ in the definition of ‘Price’ in the Option Deed.  As to the contention that the use of the phrase ‘refundable in‑going contribution’ creates a commercially absurd result in the performance of the Option Deed, it is said by the plaintiff to be unsustainable, applying the principles of contractual interpretation, to which reference is made in the reasons which follow.  Rather, it is said that the effect of the definition is that a lower ‘Price’ is provided for than would be calculated if the alternative phrase ‘in‑going contribution’ had been used.  Finally, it is noted that years later, Tony Vescio misread or misapplied the definition of ‘Price’ when writing his email on 3 December 2020.[521]  In any event, the plaintiff submits, and in my view correctly, that this is irrelevant, noting in any event that it was never put to Tony Vescio.

   [520]The Act was in force at the date of the Option Deed, on 3 June 2010.

   [521]CB820.

1. As indicated, in relation to this particular issue, the plaintiff made submissions in relation to the principles of contractual interpretation in respect of the potential for rectification by construction; principles which, as it says, are well settled.[522]  More particularly, in terms of these principles, a court may not depart from the ordinary meaning of the words used by the parties merely because it regards the result as inconvenient or unjust.[523]  A court is not justified in disregarding unambiguous language simply because the contract would have a more commercial and business‑like operation if an interpretation different to that dictated by the language were to be adopted.[524]  Thus a court is not permitted to engage in a judicial ‘re‑writing’ of the contract to overcome the language that the parties chose to record their agreement at the time so as to achieve an outcome that one party considers to be more convenient and ‘fair’.[525]  A court must give effect to the language chosen by the parties unless to do so would give the contract an absurd operation.[526]  In summary, a court’s ability to give commercial agreements a commercial and business‑like interpretation is constrained by the language used by the parties considered in the context of the contract as a whole and the background circumstances known to both parties. 

   [522]Mount Bruce Mining at [46]-[51].

   [523]Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 109.

   [524]Jireh International Pty Ltd (t/as Gloria Jean’s Coffee) v Western Exports Services Inc [2011] NSWCA 137 at [55].

   [525]In the matter of Peak Invest Pty Ltd [2022] NSWSC 1288 at [95].

   [526]Newey v Westpac Banking Corporation [2014] NSWCA 319 at [91] per Gleeson JA (with whom Basten and Meagher JJA agreed).

1. In the event of the language used by the parties creating an absurdity a court may intervene in limited circumstances.  The ability of a court to rectify a contract on account of absurdity, known as ‘rectification by construction’, was summarised by the Court of Appeal in Perpetual Limited v Myer Pty Ltd,[527] in a detailed analysis of the then existing authorities.[528] The Court of Appeal in Perpetual agreed with the trial judge’s caution before engaging in rectification by construction:[529]

   [527][2019] VSCA 98 (“Perpetual”).

   [528]Perpetual at [122]-[130].

   [529]Perpetual at [126]-[127] (citations omitted).

[126]The trial judge … expressed the caution required before a court engages in rectification by construction in the following terms:

The courts are, of course, cautious to warn of the limits of this type of reasoning, lest it be considered a means—by way of a loose definition of ‘absurdity’—to avoid contracts that a party might have come to regard as commercially onerous or unreasonable. Accordingly:

(a)‘[a] court is not justified in disregarding unambiguous language simply because the contract would have a more commercial and businesslike operation if an interpretation different to that dictated by the language were adopted’;

(b)‘[i]f 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 power to remake or amend a contract for the purpose of avoiding a result which is considered to be inconvenient or unjust’;

(c)‘[t]he courts have no mandate to rewrite agreements, so as to depart from the language used by the parties, merely to give a provision an operation which, as it appears to the court, might make more commercial sense’;

(d)the ‘test of absurdity is not easily satisfied’; and

(e)the principle requires a very strong level of conviction that a mistake has been made.

Recently, in Apple & Pear Australia Ltd v Pink Lady America LLC, the Victorian Court of Appeal said:

[W]hile a court should construe a commercial contract to avoid absurdity it is not part of its role to construe an agreement that otherwise has an explicable commercial result in a manner that increases the commercial benefits to one party to the agreement.

[127]    We agree with those words of caution.

1. In this respect, the plaintiff emphasises that the defendant has not pleaded that the written definition of ‘Price’ requires rectification, or that the Option Deed does not reflect the bargain struck between the parties to it.  Additionally, it is observed that the defendant has not filed any counterclaim enlivening the Court’s jurisdiction to consider that issue.  Further, it is submitted that no evidence has been adduced to support such a contention and apart from the written terms of the Option Deed, no evidence has been adduced of the intention of the original parties to the Option Deed (being Lifestyle Retirement Pty Ltd and Eastwood) at all in respect of this issue. 

1. In relation to this issue, I accept the plaintiff’s submissions for the reasons advanced in support of those submissions.  In so doing, I do not discount some of the difficulties highlighted by the defendant with respect to the calculation of ‘refundable in‑going contributions’ for the purpose of determining the ‘Price’.  However, in my view, it follows from the provisions of the Option Deed, particularly clause 3.2, that once the ‘Exercise Date’ is fixed as a result of the plaintiff delivering a notice pursuant to clause 3.2[530] or, in the present circumstances, the date upon which breach of the provisions of the Option Deed occurred, the accounts of the defendant would enable determination of the value of the ‘refundable in‑going contributions’ at this time. 

   [530]See the definition of “Exercise Date” in clause 1.8 of the Option Deed: CB338.

Market value

GST

1. The plaintiff contends that the purchase of the Retirement Business pursuant to the Option Deed constituted a ‘supply of a going concern’ on which GST was payable.  The effect of this is said to be, noting that the ‘Price’ is inclusive of GST, that the plaintiff would have received an input tax credit for the GST component of the Price.  On this basis the plaintiff contends that the ‘Price’ would have been $9,053,343.24 so that the net effect would be that the plaintiff had to pay $8,230,312.04 plus GST and it could expect a rebate for the GST of $823,031.20.  Thus it is said that in the plaintiff’s hands, the Retirement Business has a value of $19,200,000.  The plaintiff says further that it is not entitled to damages for an amount by reference to the GST which may be payable by a purchaser on the current value.

1. In support of this position, the plaintiff makes reference to the foundational provisions upon which GST is payable found in Parts 2‑1 and 2‑2 of A New Tax System (Goods and Services Tax) Act1999 (Cth) (“the GST Act”). More particularly, it is submitted that whether or not the sale of a going concern is GST‑free is dependent upon satisfaction of s 38‑325 of the GST Act, which provides (and provided at all relevant times) that:

(1)The supply of a going concern is GST-free if:

(a)The supply is for consideration; and

(b)The recipient is registered or required to be registered; and

(c)The supplier and the recipient have agreed in writing that the supply is of a going concern.

(2)A supply of a going concern is a supply under an arrangement under which:

(a)The supplier supplies to the recipient all of the things that are necessary for the continued operation of an enterprise; and

(b)The supplier carries on, or will carry on, the enterprise until the day of the supply (whether or not as a part of a larger enterprise carried on by the supplier).

Reference was also made to the decision of the Administrative Appeals Tribunal in Brookdale Investments Pty Ltd v Commissioner of Taxation[531] where the Tribunal stated:

In Midford v Deputy Federal Commissioner of Taxation [2005] AATA 623 the Tribunal (Member Barton) said, at [7], that the supply of a going concern is not ipso facto GST‑free, but only if the supplier and recipient have wittingly agreed, in writing, that the supply is a GST‑free supply of a going concern in the manner set out in s 38–325(1)(c) of the GST Act.

[531][2013] AATA 154; (2013) 91 ATR 976.

1. Turning to the particular aspects of this matter the plaintiff submits that the hypothetical sale from the defendant to it of the ‘Retirement Business’[532] would have been a ‘supply of a going concern’ pursuant to s 38‑325(2) as clearly this business was going to continue to be operated by the defendant until transferred to the plaintiff. However, it submits that this hypothetical sale would not be GST‑free as it could not satisfy s 38‑325(1) of the GST Act because:

(1)As per the observations in Brookdale, a supply of a going concern is not GST‑free per se, the requirements of s 38-325(1) of the GST Act must be satisfied; and

(2)There was no agreement in writing that the transaction would be GST‑free as required by s 38‑325(1)(c) (as per the statement in Brookdale) – to the contrary, the Option Deed expressly stated that the Price is inclusive of GST.

The consequence of such a finding, as indicated previously, is that the plaintiff would have had to pay $9,053,343.24 but received a GST input tax credit for $823,031.20 leaving an actual cost of $8,230,312.04. In this context, the plaintiff observes that there is no evidence as to whether it was registered for GST, however it is submitted that the Court can readily infer, based on the fact being registered would entitle the plaintiff to a GST rebate of $823,031.20 but if it were not already registered for GST it would have registered itself so as to be entitled to the rebate. I accept that this follows as a matter of commercial reality and the inference should be made also noting the plaintiff’s submission that the plaintiff was entitled to be registered for GST pursuant to s 23‑10(2) and 9‑20(1)(a) of the GST Act.

[532]CB339.

1. The defendant prefaces its submissions in this context on the basis that the plaintiff appears to adopt a GST‑inclusive valuation figure, without establishing any basis to do so.  In light of the plaintiff’s submissions to which reference has been made I do not find any force in this criticism as, in my view, the plaintiff has established a basis to do so.  Moreover, the Magree Report did not value the village having regard to GST as Dan Magree expressly disavowed holding any expertise on the issue, stating: ‘In relation to any potential GST liability, we advise that we are not taxation or legal experts and we recommend competent and qualified advice be obtained’.[533]  In any event, the defendant’s criticisms and observations with respect to the plaintiff’s submissions in this respect appear to me to be addressed, as indicated previously in these reasons.  Also, regard should be had to the plaintiff’s concession that the Court should assess damages using Dan Magree’s valuation on an exclusive GST basis of $19,200,000, which is a figure also put forward as the appropriate sum by the defendant.[534]

   [533]CB182.

   [534]See Plaintiff’s Supplementary Closing Submissions (2 November 2023), [20] and Defendant’s Outline Of Closing Submissions (18 October 2023), [18.12].

1. For the preceding reasons I accept that the plaintiff is entitled to an input tax credit with respect to GST.  Moreover, if the plaintiff’s entitlement to an input tax credit were not accepted, its loss would be the difference between the Price of $9,053,343.24 and the current value of $19,200,000, and it would reduce the loss of $10,146,656.76.  However, accepting such entitlement, it follows that, on the basis of the Magree Report’s valuation on an exclusive GST basis, loss would amount to $10,969,687.96.[535]

   [535]And see Plaintiff’s Supplementary Closing Submissions (2 November 2023), Annexure B (which is set out below at [220]).

Valuation date

1. The plaintiff seeks to adopt the valuation contained in the Magree Report, being a valuation as at 3 October 2022, of $19,200,000 plus GST.[536]  As to the valuation date, the defendant makes reference to the plaintiff’s opening where the valuation date of ‘February 2022’ was adopted relying upon the Magree Report which, as it is observed, has a valuation date of 3 October 2022.  In any event, the defendant contends that the normal date of assessment would be mid‑2020, being the date on which, in its hypothetical counterfactual, the plaintiff would have acquired the Village.  The defendant criticises the plaintiff on the basis that it seeks to use the valuation date more than two years later and, consequently, would need to establish this date as a departure from the normal position[537] and account for the significant amount of interest that it would have needed to have been paying for the previous two years, but has done neither.  Neither, it is said, did the plaintiff lead any expert evidence on the valuation of the Village as at the Option Expiry Date.  The closest thing to an independent valuation contemporaneous with the Expiry Date in evidence is said to be the indicative valuation of ‘$12.5mill- $13mill’ from Jones Lang LaSelle on 26 May 2020, upon which Thomas Camp relied in his email to the Bank of Queensland on 25 June 2020.[538] 

   [536]See CB175-231.

   [537]Cargill Australia Ltd v Viterra Malt Pty Ltd (No 28) [2022] VSC 13 at [3915] per Elliot J.

   [538]CB1569-1570.

1. The plaintiff, on the other hand, submits that the most recent evidence as to the market value of the Retirement Business is that contained in the Magree Report.  Moreover, it observed that Dan Magree was not cross-examined on his opinion as set out in this Report.  As to the appropriate date for the valuation, the defendant’s criticism of the use of a date more than two years after the Expiry Date is, in my view, addressed by the plaintiff’s contention that where, as in the present case, it seeks damages as an alternative to specific performance, the date of the election of that course is the critical date, rather than the Option Expiry Date.  On the basis the valuation date as stated in the Magree Report is only approximately 11 months prior to that election date and, having regard to the authorities requiring the Court to do the best it can with the evidence before it in calculating damages, the Magree Report valuation is appropriately accepted.  Further, in relation to the Magree Report it is the position that Dan Magree, the author of the report, was not cross-examined on his opinion and, additionally, the Court does not have the benefit of any evidence as to how the valuation of the Village may have changed – by way of increase or decrease – between 3 October 2022 and the election date.  Hence, the Court must do the best it can, as indicated. 

Calculation

1. For the preceding reasons I am of the opinion that the calculation of damages is properly set out in Annexure B to the Plaintiff’s Supplementary Closing Submissions[539] as follows:

   [539]Dated 2 November 2023 (footnotes included).

Annexure B

Damages arising from the difference between Purchase Price and the value of the Retirement Business

1.Option Price: $9,053,343.24 (incl. GST) (that is $8,230,312.04 excluding GST)

“Price” means an amount equal to 20% of the total amount of refundable ingoing contributions paid by or on behalf of residents of the Retirement Village up to and including the Completion Date, less any amount which has before that date been refunded to residents, such price to be inclusive of GST.

Eastwood maintained Resident Loans ledgers wherein:

(a)upon a resident’s entry to the village, the loan ledger is debited;

(b)upon a resident’s exit from the village, the loan ledger is credited (with 80% being refunded to the outgoing resident and the 20% DMF being attributed to Eastwood).

Resident Loans Ledgers as at 30 June 2020
Ledger 2-1800	$5,658,339.53[540]
Ledger 2-3100	$50,925,055.75[541]
$56,583,395.28
Reduce to 80%, which is the refundable component of the in‑going contributions, to the outgoing residents	$45,266,716.22[542]
20 % of $45,266,716.22	$9,053,343.24
Excluding GST	$8,230,312.04

[540]Supplementary Statement of Tony Vescio dated 5 April 2022 at [20] (CB129-130); CB937.

[541]Supplementary Statement of Tony Vescio dated 5 April 2022 at [20] (CB129-130); CB937.

[542]The court might note that in the correspondence in 2020, individuals, including Tony Vescio, missed this step in the mechanism, erroneously taking 20% of the Loan Ledger and not 20% of that part of the Loan Ledger which was refundable (CB820).

2.Value of Retirement Business: $19,200,000 (excluding GST) $21,120,000 (incl GST)[543]

3.Damages on purchase price: $10,969,687.96 $12,066,656.76 (incl GST)[544]

In terms of the Sellars discount it is, in my view, reasonable to apply a 10% Sellars discount[545] to reflect such risk as may arise in relation to the plaintiff obtaining finance to complete the purchase of the Village having exercised the Option.  As indicated previously, I accept that the plaintiff has provided evidence as to its ability to secure the funds to complete the purchase but, nevertheless, it could not sensibly be taken as 100% assurance that this finance might ultimately be obtained.  Nevertheless, I am of the opinion that the evidence that is available to the Court together with the commercial incentive to exercise the Option having regard to the value of the Village and the Option Price, are factors which would, in my view, also weigh in the mind of a financier. 

[543]Expert report of Dan Magree dated 28 October 2022, valuation as at 3 October 2022 of $19,200,000 plus GST. (CB175-231).

[544]Calculated by deducting the Price from the value of the Retirement Business.

[545]See T652.24-653.26 as to the plaintiff’s submissions in this respect.

Conclusion and orders

1. The parties are to bring in orders to give effect to these reasons.

1. I reserve the question of costs and will hear the parties on this issue as required.

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Upper Hunter County District Council v Australian Chilling & Freezing Co Ltd (1968) 118 CLR 429 at

436–437 (per Barwick CJ); see also Delaney v Delaney [2021] VSC 365 at [326] (citing submissions at [2(h)]).

Watpac Construction NSW Pty Ltd v Taylor Thompson Whitting (NSW) Pty Ltd [2015] NSWSC 780 at

[59]–[60].