Kosho Pty Ltd v Trilogy Funds Management Ltd
[2013] QSC 135
SUPREME COURT OF QUEENSLAND
CITATION:
Kosho Pty Ltd & Anor v Trilogy Funds Management Ltd, Trilogy Funds Management Ltd & Ors v Fujino [2013] QSC 135
PARTIES:
KOSHO PTY LTD ACN 104 663 792
(first plaintiff)
and
CITY CO PTY LTD ACN 099 0723 748
(second plaintiff)
v
TRILOGY FUNDS MANAGEMENT LIMITED
ACN 080 383 679
(defendant)
TRILOGY FUNDS MANAGEMENT LIMITED
ACN 020 383 679 IN ITS CAPACITY AS THE CUSTODIAN OF THE PACIFIC FIRST MORTGAGE FUND
(first plaintiff)
and
THE TRUST COMPANY (AUSTRALIA) LIMITED
ACN 000 000 993 IN ITS CAPACITY AS THE CUSTODIAN OF THE PACIFIC FIRST MORTGAGE FUND
(second plaintiff)
and
THE PUBLIC TRUSTEE OF QUEENSLAND
(third plaintiff)
v
RIEKO FUJINO
(defendant)FILE NOS:
BS 4728 of 2010
BS 10543 of 2010DIVISION:
Trial Division
PROCEEDING:
Claim
ORIGINATING COURT:
Supreme Court of Queensland
DELIVERED ON:
29 May 2013
DELIVERED AT:
Brisbane
HEARING DATE:
24 – 27 September 2012, 2 October 2012, 26 – 27 November 2012 and 28 March 2013
JUDGE:
Applegarth J
ORDER:
1. Direct the plaintiffs in the Fujino proceeding to submit draft minutes of judgment in each proceeding in accordance with these reasons, namely:
a) judgment for nominal damages for breach of contract in the Kosho proceeding and the plaintiffs’ claims in the Kosho proceeding otherwise be dismissed; and
b) judgment for the plaintiffs in the Fujino proceeding.
2. Liberty to the parties to make submissions on costs and the form of orders.
CATCHWORDS: CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – where developer (Kosho) entered into a finance facility with a lender (Trilogy) for a proposed development on the Gold Coast – where offer of finance subject to numerous Special Conditions – where Special Condition (p) required an “unconditional copy of the sale contract for the commercial property” to be provided and a 10 per cent deposit – whether Kosho’s provision of a Put and Call Option Deed and Security Bond satisfied Special Condition (p)
CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – DISCHARGE, BREACH AND DEFENCES TO ACTION FOR BREACH – CONDITIONS – GENERAL MATTERS – where Special Condition (s) required Trilogy to prepare a deed of assignment and consent which was satisfactory to Trilogy as lender and the Department of Main Roads – where Kosho claims that Trilogy engaged in unreasonable delay in negotiating and preparing a satisfactory deed – whether the delay by Trilogy was unreasonable
CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – IMPLIED TERMS – GENERALLY – where Kosho alleges certain terms are implied into the finance facility– whether those terms meet the conditions for implication – whether a duty of good faith should be implied – whether Trilogy breached any implied terms
DAMAGES – MEASURE AND REMOTENESS OF DAMAGES IN ACTION FOR BREACH OF CONTRACT – REMOTENESS AND CAUSATION – GENERAL PRINCIPLES – where the Kosho and a third party mortgagor seek damages for loss of the opportunity to derive a profit from proposed developments and loss of equity in their respective properties – whether any loss or damage was caused by Trilogy’s alleged breach of contract – whether the plaintiffs have proved the quantum of their claimed loss and damage
Australian Securities and Investments Commission Act 2001 (Cth) s 12DA
Competition and Consumer Act 2010
Trade Practices Act 1974 (Cth) s 51AC, s 52Attorney-General (NSW) v World Best Holdings Ltd [2005] NSWCA 261; (2005) 63 NSWLR 557, applied
Australis Media Holdings Pty Ltd v Telstra Corporation Ltd (1998) 43 NSWLR 104, cited
BP Refinery (Westernport) Pty Ltd v Shire of Hastings [1977] HCA 40; (1977) 180 CLR 266, cited
Burger King Corporation v Hungry Jack’s Pty Ltd [2001] NSWCA 187; (2001) 69 NSWLR 558, cited
Butt v M’Donald (1896) 7 QLJ 68, cited
Canon Australia Pty Ltd v Patton [2007] NSWCA 246; (2007) 244 ALR 759, cited
Codelfa Construction Pty Ltd v State Rail Authority (NSW) [1982] HCA 24; (1982) 149 CLR 337, cited
Commonwealth Bank of Australia v Renstel Nominees Pty Ltd [2001] VSC 167, cited
Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2004] HCA 55; (2004) 218 CLR 471, cited
Garry Rogers Motors (Aust) Pty Ltd v Subaru (Aust) Pty Ltd [1999] FCA 903; [1999] ATPR 41-703, cited
Higgins and Fidge v Drysdale [1996] VicRp 22; [1996] 1 VR 346, cited
Hospital Products Ltd v United States Surgical Corp [1984] HCA 64; (1984) 156 CLR 41, cited
Jackson Nominees Pty Ltd v Hanson Building Products Pty Ltd [2006] QCA 126, cited
K & K Real Estate Pty Ltd v Adellos Pty Ltd [2010] NSWCA 302, cited
Laurelmont Pty Ltd v Stockdale & Leggo (Queensland) Pty Ltd [2001] QCA 212, cited
Lewis v Hillhouse [2005] QCA 316, cited
Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2010] NSWCA 268, cited
McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; (2000) 203 CLR 579, cited
McGrath v Australia Naturalcare Products Pty Ltd [2008] FCAFC 2; (2008) 165 FCR 230, cited
Ministry of Defence v Wheeler [1998] 1 All ER 790; 1 WLR 637, cited
Mullins v Kelly-Corbett [2010] QCA 354; (2011) Q ConvR 54-748, cited
Nilon v Bezzina [1988] 2 Qd R 420, applied
Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451, cited
Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd [1954] HCA 25;(1954) 90 CLR 235, cited
Peters (WA) Ltd v Petersville Ltd [2001] HCA 45; (2001) 205 CLR 126, cited
PSAL Ltd v Kellas-Sharpe [2012] QSC 31, cited
Questband Pty Ltd v Macquarie Bank Ltd [2009] QSC 7, cited
Rainy Sky S.A. and Ors v Kookmin Bank [2011] UKSC 50; [2011] 1 WLR 2900, cited
Ratcliffe v Evans [1892] 2 QB 524, cited
Renard Constructions (ME) v Minister for Public Works (1992) 26 NSWLR 234 cited
Secure Parking (WA) Pty Ltd v Wilson [2008] WASCA 268;(2008) 38 WAR 350, cited
Secured Income Real Estate(Australia) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596, cited
Sellars v Adelaide Petroleum NL [1994] HCA 4; (1994) 179 CLR 332, applied
South Sydney District Rugby League Football Club Ltd v News Ltd [2000] FCA 1541; (2000) 177 ALR 611, cited
The Commonwealth v Amann Aviation Pty Ltd [1994] HCA 54; (1991) 174 CLR 64, applied
Toll (FGCT) Pty Limited v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165, cited
Watson v Foxman (2000) 49 NSWLR 315, citedCOUNSEL:
R G Bain QC and I A Erskine for the plaintiffs in BS 4728 of 2010 and the defendant in BS 10543 of 2010 (“the Kosho/Fujino interests”)
P J Flanagan SC and J M Horton for the defendant in BS 4728 of 2010 and for the plaintiffs in BS 10543 of 2010 (“the Trilogy interests”)SOLICITORS:
Tress Cox for the Kosho/Fujino interests
Clayton Utz for the Trilogy interests
TABLE OF CONTENTS
The Kosho proceeding
The Fujino proceeding
The issues
Was Special Condition (p) satisfied?
The issue of construction: is the Put and Call Option Deed a “sale contract for the commercial property”?
Was the Security Bond “a deposit”?
Was the Deed “unconditional”?
Dispensation with performance of Special Condition (p)
Conclusion – Special Condition (p)
Special Condition (q)
Special Condition (s) and its contractual context
Background to the negotiation of Special Condition (s)
The course of events concerning satisfaction of Special Condition (s)
A simple matter within Trilogy’s control?
The meaning of “in relation to” in its context
DMR’s satisfaction
Was there an unreasonable delay by the Trilogy interests in respect of Special Condition (s)?
Was the delay and Trilogy’s conduct concerning Special Condition (s) illegitimate and part of a deliberate strategy?
Implied terms
Alleged breach of implied terms
Alleged misleading and deceptive conduct
Alleged unconscionable conduct
Causation
Assessment of Loss
Mr Lytras’ Assumptions:
Mr Lytras’ calculations
Loss of a chance - principles
Parties’ submissions
The value of the Surfers Paradise land and its possible profitable development
Possible development profit from the Carrara land - overview
Assumed sales rates and prices of Abadi residential units
Further finance and the effect of the GFC
The profitability of the development
Remoteness
Conclusion – loss of development profit
Loss of equity: Carrara land
Costs not otherwise incurred
Conclusion – Assessment of Loss
Conclusion
This is a case about a proposed development on the Gold Coast that did not proceed because of lack of funds. In the first proceeding, the developer (“Kosho”) sues over the alleged failure of a lender to provide funds under a 2009 Facility. The lender says that it was not obliged to do so because certain special conditions were not satisfied. In the second proceeding, the lender sues the director and sole shareholder of Kosho,
Ms Fujino, pursuant to a guarantee dated 19 October 2007 for monies which it says are payable by Kosho under the terms of an earlier facility agreement.
The Kosho proceeding
In 2004 Kosho acquired land on the Nerang-Broadbeach Road at Nerang. It hoped to develop the 4.44 ha site into an integrated, mixed-use, master-planned development to be known as the Abadi Residential Village. The development was to be on a large scale incorporating 333 apartments (or 328 apartments and a
32 suite hotel) in addition to commercial/retail space. The first stage was to include 124 units in five separate buildings, with 1600 m² of shops and restaurants. The first stage, in turn comprised five individual stages: 1A, B1, B2, C and D.
By mid-2007 Kosho’s debt needed to be refinanced. It approached City Pacific Limited (“CPL”). On or about 17 October 2007 CPL as responsible entity of the Pacific First Mortgage Fund (“PFMF”) offered Kosho a finance facility of $12,610,000 (2007 Facility). This offer was accepted by Kosho. The security provided for the 2007 Facility included a first registered mortgage over the development site at Nerang (which Kosho in these proceedings describes as “the Carrara land”), a first registered third party mortgage granted by City Co Pty Ltd (“City Co”) over land situated at 3 Beach Road, Surfers Paradise (“the Surfers Paradise land”) and a deed of guarantee and indemnity granted by Ms Fujino. City Co was associated with Kosho and formed part of a group known as Coast Land International. A proposal existed to develop a 19 storey boutique hotel on the Surfers Paradise land. In excess of $10m was advanced under the 2007 Facility. The 2007 Facility was for a term of 18 months.
In early 2009 the Kosho interests (which I will refer to simply as Kosho) began negotiations for a new facility which would cover its existing debt and assist with sales and marketing, development and construction costs in relation to Stage 1A of the Abadi Residential Village. This culminated in a Letter of Offer dated
24 June 2009 from CPL for that purpose. This offer was promptly accepted by
Ms Fujino on behalf of Kosho and on behalf of City Co as third party mortgagor. The 2009 finance facility (2009 Facility) was for a total amount of $16m and the Letter of Offer dated 24 June 2009 stated:
“· $16,000,000.00 (Sixteen Million Dollars) to be advanced generally to meet the following costs:
·Current Position $12,610,000
·Construction/Consultants $2,193,830
·Interest (to be retained) $860,000
·Contingency $336,170
Total Facility $16,000,000
Less proceeds from sale of Commercial Property ($2,647,937)”
The 2007 Facility, which was originally due to expire on 19 April 2009, was extended, initially to 30 April 2009, and later to 30 June 2009, so as to enable Kosho to negotiate the 2009 facility. The term of the 2009 Facility was 12 months. In that regard, the letter stated:
“Facility to expire 30 June 2010. An option to extend the facility may be approved by the Lender provided the Lender is satisfied with the progress of the project and no event of default exists. It is the intention of the City Pacific First Mortgage Fund to finance the entire project (as per proposal dated March 2009), using best endeavours, however the facility will be reviewed on 30 June 2010 at which time a decision will be made on extending the facility if at all possible. Any extension will be at the sole discretion of the City Pacific First Mortgage Fund.”
The offer was subject to numerous Special Conditions. Special Condition (g) related to progress payment claims in respect of construction. Special Condition (k) related to the mortgage over the Surfers Paradise land and provided:
“(k)The Lender agrees to release any encumbrance over Lot 3 Beach Road upon provision of a $3,000,000.00 cash payment and/or achieving Project (Stage 1A) loan to value ratio of 67% and/or future Project Sub-stages achieving a loan to value ratio less than 70%. Any release of security will be subject to an updated valuation of the remaining security property dated within 30 days of the release.”
The Special Conditions which assume greatest importance in the Kosho proceedings are Special Conditions (p), (q) and (s). These provide as follows:
“(p)This offer is subject to an unconditional copy of the sale contract for the commercial property being provided to the Lender’s solicitor and confirmation from the Lender’s solicitor that the sale is unconditional and a deposit of 10% has been paid.
(q)This offer is conditional upon the commercial property settling on or before 28 February 2010.
...
(s)This offer of finance is conditional on, and subject to:
(i)the borrower entering into a deed of assignment and consent in relation to the agreement between the Department of Main Roads, Kosho Pty Ltd and Club Cavill Pty Ltd (Assignment Deed) to be prepared by, and on terms satisfactory to the Lender;
(ii)the borrower causing Club Cavill Pty Ltd to enter into the Assignment Deed.
(iii)the Department of Main Roads confirming that it is satisfied with the terms of the Assignment Deed; and
(iv)the Assignment Deed being entered into and binding on the Borrower and Club Cavill Pty Ltd (and the Borrower providing two originals of the Assignment Deed executed by both the Borrower and Club Cavill Pty Ltd to the Lender) within 2 business days of receipt of the Assignment Deed.”
On 20 July 2009 Trilogy Funds Management Limited replaced CPL as responsible entity of PFMF.
The funds to meet construction and consultant costs of $2,193,830 were never advanced. The Trilogy interests (which I will refer to simply as Trilogy) say that this was because Special Conditions (p), (q) and (s) were never satisfied.
Kosho contends that Special Condition (p) was satisfied and that it was disabled from complying with Special Conditions (q) and (s) by Trilogy’s conduct. Kosho’s essential allegation is that Trilogy unreasonably delayed in its consideration and determination of Kosho’s compliance with the requirements of the 2009 Facility, and, in particular, delayed in entering into a deed of assignment on terms satisfactory to Trilogy and terms satisfactory to the Department of Main Roads (“DMR”) in accordance with Special Condition (s). It alleges that by failing to advance funds under the 2009 Facility by, at the latest, the end of October to early November 2009 so as to enable Kosho to commence the development and the construction of Stage 1A, Kosho was disabled from complying with Special Condition (q).
Kosho alleges that by acting as it did, Trilogy breached certain implied terms of the 2009 Facility. Trilogy contests the existence of most of the alleged implied terms, and also denies that it breached any implied terms.
Kosho makes a multi-million dollar claim for damages for breach of contract in respect of the profit which it says it would have earned from the successful development of the project. Trilogy responds that:
(a)the lender had no obligation to advance the funds, having regard to the terms of the offer and Special Conditions (p), (q) and (s);
(b)even if there was such an obligation, the additional funding was for Stage 1A of the development, and Kosho would therefore have had, in any event, to seek a great deal more funding in order to be in a position to derive profit;
(c)it is totally unrealistic to suggest that such funding could have been obtained at a cost which would have allowed Kosho to profit from the development (assuming it could in fact have been obtained); and
(d)the development would not, in any event, have returned a profit: the global financial crisis intervened and the Gold Coast property market fell into a major decline from which it has not, even yet, emerged.
Kosho also advances claims for alleged misleading and deceptive conduct and alleged unconscionable conduct. Each of Kosho’s claims give rise to the same essential issue of causation. There also is a substantial issue about the assessment of Kosho’s alleged loss and damage.
A separate issue arises in relation to CPL’s alleged failure to discharge the mortgage over the Surfers Paradise land pursuant to a request made on 8 April 2009. The short answer to this claim is that the request to release the mortgage was superseded by negotiations whereby the Surfers Paradise land was to be offered as security as part of the 2009 Facility.
The Fujino proceeding
In this proceeding Trilogy claims as a debt from Ms Fujino monies owing under the guarantee granted by her dated 19 October 2007. Ms Fujino defended this proceeding, and the substantive ground of defence was that, by reason of her alleged limited ability to read English, she was in a position of disadvantage when signing the guarantee, CPL was aware of the possibility that such disadvantage might exist and that the transaction was unfair. After this “unconscionability” issue was litigated and identified as the only substantive issue in the Fujino proceeding, Trilogy made written submissions filed 10 December 2012. It was only in the Kosho submissions filed 1 February 2013 that Ms Fujino abandoned reliance on the matters relating to her alleged position of disadvantage in executing the guarantee, which featured in her defence and counterclaim. The late abandonment of this defence and counterclaim has implications for costs.
The remaining issue in the guarantee action is whether Kosho has a claim for damages which can be set-off against its liability under the 2007 Facility (as varied), and thereby reduce or extinguish the debt which Ms Fujino guaranteed. Accordingly, the Fujino proceeding depends on the resolution of the damages claim in the Kosho proceeding.
The issues
The substantial issues may be summarised as follows:
(1) Was Special Condition (p) satisfied?
(2)Did conduct by Trilogy, in breach of contract, disable Kosho from complying with Special Conditions (q) and (s)?
(3)Did Trilogy engage in the misleading and deceptive conduct which is alleged?
(4)Did Trilogy engage in the unconscionable conduct which is alleged?
(5)Issues of causation. The relevant inquiry is about the position that Kosho and City Co each would have been in if Trilogy had performed the contract and not engaged in the alleged conduct in breach of statute. A particular inquiry is whether Kosho would have been entitled to obtain an advance for the purpose of consultants’ fees and construction costs if Trilogy had not conducted itself as alleged, and what would have happened if Kosho had obtained the requested funds.
(6)The final issue is the assessment of the quantum of any loss and damage that was caused to Kosho by any breach of contract and/or contravention of statute that is established by Kosho. Kosho and City Co each claim substantial damages on the basis of the loss of the opportunity to develop the Carrara land and the loss of the opportunity to develop the Surfers Paradise land and that each has suffered loss of equity in those properties.
Was Special Condition (p) satisfied?
It is convenient to set out again the words of Special Condition (p):
“(p)This offer is subject to an unconditional copy of the sale contract for the commercial property being provided to the Lender’s solicitor and confirmation from the Lender’s solicitor that the sale is unconditional and a deposit of 10% has been paid.”
It is common ground that the “commercial property” referred to in Special Condition (p) and also in Special Condition (q) is a commercial property comprising Stage 1A.
On 3 January 2009 Kosho (as grantor) entered into a Put and Call Option Deed with a Japanese businessman, Hiroo Ota (as grantee). In simple terms, the Put and Call Option Deed granted Mr Ota a Call Option to purchase proposed Lots 1 to 10 (inclusive) in the commercial property that was to be constructed. It also granted Kosho a Put Option to require Mr Ota to purchase the lots. If the Call Option was exercised then a contract for the sale and purchase of each of the lots in the form of a contract contained in Schedule 2 to the Deed was to be delivered to Kosho along with a deposit amounting to 10 per cent of the purchase price of $8m plus GST. The unconditional contract contained in Schedule 2 was in the form of contract approved by the Real Estate Institute of Queensland and the Queensland Law Society for commercial land and buildings.
The Put Option constituted an irrevocable offer by Mr Ota to enter into such a contract. The exercise of the Put Option required Kosho to deliver to Mr Ota an executed copy of the contract. The Put and Call Option Deed provided that a contract for the sale and purchase would come into existence between Mr Ota and Kosho upon the delivery of that executed contract. Mr Ota was required to execute the contract and cl 14.1 of the Deed granted Kosho an irrevocable power of attorney to sign on Mr Ota’s behalf any contract of sale that came into existence under the Deed.
Clause 12 of the Put and Call Option Deed required Mr Ota to pay a Security Bond to Kosho’s solicitors when he signed the Deed, and provided for the Security Bond to be held by that firm as security for the performance of Mr Ota’s obligations under the Deed. Clause 12.2 provided that if the Call Option or the Put Option was exercised, the part of the Security Bond set out in the Deed as relevant to each lot would be “credited towards the deposit payable” under the contract applicable to that lot. If neither the Call Option nor the Put Option was exercised any remaining amount of the Security Bond was to be refunded. A Security Bond of $800,000 was paid on 28 January 2009 and was held in Kosho’s solicitor’s trust account until October 2010, when Kosho terminated the Put and Call Option Deed and released the Security Bond back to Mr Ota.
Clause 28 of the Put and Call Option conferred upon Kosho an entitlement to terminate the Deed in certain events, including if any approval by a federal, state or local government authority was not given, or was withdrawn, changed, suspended or declared invalid. Kosho also was able to terminate the Deed if any approval was subject to a condition that it was unable to comply with, or was dissatisfied with because, in Kosho’s opinion, complying with a condition may prevent or hinder or delay the profitable completion and/or disposal of the development.
CPL knew of the Put and Call arrangement as early as February 2009. Kosho’s revised March 2009 funding submission which was provided to CPL on
2 April 2009 contained a copy of the Put and Call Option Deed.
Kosho did not exercise its option, and neither did Mr Ota.
Kosho submits that Special Condition (p) was satisfied by the provision of the Put and Call Option Deed on various dates after the 2009 Facility was agreed, including 29 June 2009, 2 July 2009 and 11 August 2009.
Trilogy responds that Special Condition (p) was never satisfied since:
(a)what was provided by Kosho was a Put and Call Option Deed, and not a “sale contract”;
(b)there was no deposit but a Security Bond which was to be credited “towards the deposit” payable under a yet to be executed sale contract and which, unlike a deposit, was to be refunded to the grantee if the option was not exercised; and
(c)the Put and Call Option Deed was not “unconditional” since it was conditional upon approvals and other conditions specified in cl 28.
These contentions raise three issues as to whether Special Condition (p) was satisfied:
(a)Is the Put and Call Option Deed a “sale contract for the commercial property” within the meaning of Special Condition (p)?
(b)Was the Security Bond a “deposit” within the meaning of that Special Condition?
(c)Was the Put and Call Option Deed an “unconditional” sale contract for the commercial property?
If Trilogy is correct in its contention that Special Condition (p) was not satisfied, then Kosho argues that performance of the Special Condition was dispensed with by Kosho in the circumstances so that it was excused from actual performance.
The issue of construction: is the Put and Call Option Deed a “sale contract for the commercial property”?
The principles of construction are not disputed. They can be shortly stated.
The meaning of the contract is to be determined objectively according to what a reasonable person in the position of the parties would understand the words to mean. If there is ambiguity, regard may be had to the commercial purpose of the transaction and background knowledge which would have been available to the parties. An interpretation which will give the contract a businesslike operation is to be preferred. Commercial contracts should be construed to make commercial sense of them. An absurd, unreasonable or capricious result is to be avoided.
The starting point is the natural and ordinary meaning of the expression. The Court seeks to ascertain what the parties meant by the words they have used. An objective approach is applied.[1] It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe.[2]
[1]Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 218 CLR 471 at 483 [34]; Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 461 – 462 [22].
[2]Toll (FGCT) Pty Limited v Alphapharm Pty Ltd (2004) 219 CLR 165 at 179 [40].
Evidence of the surrounding circumstances is only admissible where the words are ambiguous. Unambiguous language cannot be disregarded simply because the contract would have a more commercial and businesslike operation if an interpretation different to that dictated by the language was adopted.
The interpretation should accord with what commercial people in the position of the parties would understand the words to mean. The interpretation should be “consistent with business common sense.”[3] In the case of an ambiguous expression, the “more commercially sensible” construction should be preferred.
[3]Rainy Sky S.A. and Ors v Kookmin Bank [2011] 1 WLR 2900 at 2911, [29] – [30].
In summary, interpreting a commercial document such as the Letter of Offer requires attention to “the language used by the parties, the commercial circumstances which the document addresses, and the objects which it is intended to secure.”[4]
[4] McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579 at 589 [22].
Kosho submits that a Put and Call Option Deed is the style of contract often used in off-the-plan “multiple lot” commercial sales in the development industry in Queensland. So much may be accepted. But that is not the present issue. The issue is whether the Put and Call Option Deed dated 3 January 2009 is a “sale contract for the commercial property” within the meaning of Special Condition (p). Kosho points to the terms of the Put and Call Option Deed, and submits that there were no rights to terminate reposed in the buyer and that “all the flexibility lay with the Seller”. If the buyer did not exercise the Call Option, Kosho was entitled to exercise the Put Option and compel execution of a contract in terms of the unconditional contract appearing in Schedule 2. However, the fact that Kosho could have compelled Mr Ota’s entry into (and later settlement of) an unconditional sale contract for the commercial property does not mean that the Put and Call Option Deed was itself a “sale contract for the commercial property” within the meaning of Special Condition (p). The language of Special Condition (p) and its context do not favour Kosho’s construction of it.
I accept Trilogy’s submission that, by this condition, the lender sought the certainty of a pre-sale of the very first stage of the development which it was to fund. The
24 June 2009 Letter of Offer anticipated that the funding would be used, among other things, to meet consultants and construction costs in relation to Stage 1A and that the total amount of the 2009 Facility of $16m would be reduced by the proceeds of sale of the commercial property. Special Condition (q) indicates that as at 24 June 2009 the parties anticipated the construction of Stage 1A and settlement of the sale of the commercial property occurring on or before 28 February 2010.
An unconditional sale contract for the commercial property, which bound the buyer of that property to pay an agreed purchase price, would provide a commercial lender with a higher degree of assurance of its loan being repaid or reduced in amount than a Put and Call Option Deed, which did not oblige either party to enter into such a contract and which permitted Kosho to terminate the Put and Call Option Deed in certain events. Such a Deed would provide the lender with no assurance that a sale contract for the commercial property would come into existence. No such contract would come into existence if neither party exercised its option, and no such contract would come into existence if Kosho chose to terminate the Deed (for example because it was dissatisfied with a condition which a local government authority placed upon the proposed development).
Special Condition (p) came to be negotiated in circumstances in which the parties had communicated about the Put and Call Option Deed dated 3 January 2009. If that Deed and the payment of the Security Bond under it were sufficient to meet the commercial purpose of Special Condition (p), then its inclusion seemingly was unnecessary. The inclusion of Special Condition (p) and the fact that its terms were not confined to provision of the previously agreed Put and Call Option Deed suggest that the parties envisaged that the provision of some other form of contract and confirmation of the payment of a 10 per cent deposit might satisfy the condition. It does not necessarily mean that provision of the Put and Call Option Deed and confirmation that a Security Bond had been paid pursuant to it would satisfy Special Condition (p). The condition might have been satisfied by the provision of a copy of the sale contract entered into upon the exercise of either the Put Option or the Call Option. It might have been satisfied by the provision of a different sale contract for the commercial property in the event that neither option was exercised. The language of Special Condition (p) indicates that before advancing funds under the 2009 Facility, CPL wished to obtain a copy of a contract for the sale of the commercial property, not simply a contract which would give rise to an unconditional, binding sale contract if and when an option was exercised.
The conclusion that Special Condition (p) required a sale contract of the kind that was in Schedule 2 to the Deed, or some other form of immediately binding contract for the sale of the commercial property, and was not satisfied by provision of the Deed, is reinforced by the requirement that the contract be “unconditional” and that a “deposit” of 10 per cent had been paid. The payment of a deposit of 10 per cent was an earnest of a committed buyer’s performance of its obligation to complete the sale contract and might be forfeited to the benefit of both the lender and the borrower if the buyer did not complete. By contrast, the provision of a copy of the Put and Call Option Deed and confirmation that a Security Bond had been paid pursuant to it provided no assurance that a “sale contract” would be entered into and a deposit paid pursuant to it. Either party to the Put and Call Option Deed might choose for either good or idiosyncratic reasons to not exercise the option. Kosho might choose for good or idiosyncratic reasons to terminate the Deed pursuant to
cl 28, perhaps in the hope of finding a buyer which would offer a higher purchase price. Such a course would provide a lender with far less assurance than a binding sale contract that the commercial property would be sold with the proceeds of sale available to reduce the loan.
The text and context of Special Condition (p) lead me to conclude that the “sale contract for the commercial property” was one which imposed binding contractual obligations on a buyer which could be enforced to the benefit of the lender and the borrower, being in the form of a “sale contract”, rather than a contract which gave each party to it an option to require the other to enter a sale contract for the commercial property if certain events came to pass.
I conclude that the Put and Call Option Deed dated 3 January 2009 was not a “sale contract for the commercial property” within the meaning of Special Condition (p).
Was the Security Bond “a deposit”?
In addition, any confirmation that the Security Bond provided for in cl 12 of the Deed had been paid did not amount to confirmation that “a deposit of 10 per cent” had been paid. The Security Bond was not a deposit. If a sale contract eventuated then the amount paid under the Security Bond might have been “credited towards the deposit payable” under the contract. The Security Bond was not a deposit and the absence of confirmation that “a deposit” of 10 per cent had been paid provides an additional ground upon which Special Condition (p) was not satisfied.
Was the Deed “unconditional”?
This makes it unnecessary to determine the third sub-issue as to whether the Put and Call Option Deed was “unconditional”. In its context I consider that the word “unconditional” was intended to require the sale contract to be one which was not subject to a condition which might result in it not being performed, such as a condition making it subject to finance. Trilogy argues that conditions such as those appearing in cl 28 of the Put and Call Option Deed, which reserved to Kosho wide discretions to not proceed with the project and to terminate the Deed in certain events, including changes to an approval or the imposition of conditions upon approval which Kosho was “dissatisfied with”, made the Put and Call Option Deed a conditional one. Clause 28.3 made Kosho’s obligations conditional upon it obtaining, by 15 January 2010, pre-sales of lots in the residential component of the development of an aggregate gross value of at least $50m. In response, Kosho submits that it obtained the relevant development approval on 20 January 2009, and the fact that it might terminate the Deed in certain circumstances under cl 28.1 ignores:
·the fact that it was entirely in Kosho’s interests to obtain finance and settle the sale of the commercial property;
·that the relevant conditions were expressed to be for the benefit of Kosho and could be waived by it; and
·that upon the Call Option being exercised by it, Mr Ota became unconditionally and irrevocably bound to execute an unconditional contract in the form appearing in Schedule 2, and if he did not execute the contract, then Kosho might do so pursuant to its power of attorney.
I am inclined to conclude that if the Put and Call Option Deed was in fact a “sale contract for the commercial property” and if Kosho had waived the benefit of the conditions contained in cl 28 then it would have become “unconditional” within the meaning of Special Condition (p). However, Kosho did not waive those conditions. Accordingly, the agreement was not “unconditional”.
If, however, Kosho is correct in submitting that the agreement was “unconditional”, notwithstanding the presence of cl 28 which made the Deed and Kosho’s obligations under it subject to certain conditions, then this tends to reinforce the conclusion which I have reached about the meaning of “sale contract for the commercial property”. On Kosho’s case it was sufficient for it to satisfy Special Condition (p) to again provide on 29 June 2009 a copy of the Put and Call Option Deed and to confirm that the Security Bond had been paid. On such an approach, the Special Condition having been satisfied, it would have been open to Kosho to terminate the Deed pursuant to cl 28 a short time afterwards if one or more of the circumstances stated in cl 28 existed. According to Kosho, Special Condition (p) would have been satisfied in circumstances in which neither party to the Put and Call Option Deed exercised its option, so as to cause an unconditional binding contract for the sale of the commercial property to come into existence. I decline to conclude that the parties, by their choice of the words contained in Special Condition (p), should be taken to have intended that Special Condition (p) would be satisfied in such a case. In their context, the words “sale contract for the commercial property” should be interpreted to refer to an immediately binding contract for the sale of the commercial property, not an agreement which conferred an option to require the other party to enter into such a contract in certain events.
The interpretation urged by Trilogy, and which I prefer, best accords with the apparent commercial objective of Special Condition (p), namely to provide the lender with the assurance that an unconditional contract for the sale of the commercial property had been entered into, supported by the payment of a
10 per cent deposit, being a contract which would yield sale proceeds and thereby reduce the amount of the loan.
I conclude that Kosho did not provide a “sale contract for the commercial property” within the meaning of Special Condition (p). There was no confirmation that such a sale contract was “unconditional” and that a “deposit” of 10 per cent had been paid. Kosho failed to satisfy Special Condition (p) and by reason of its non-compliance Trilogy was entitled not to advance the further funds that were the subject of the 2009 Letter of Offer.
Dispensation with performance of Special Condition (p)
As an alternative to its contention that Special Condition (p) was satisfied, Kosho submits that it was excused from performance of the condition in the circumstances. This contention rests largely upon Trilogy’s delay in advising Kosho that in Trilogy’s view, Special Condition (p) was not satisfied.
In response, Trilogy says that its delay in advising that Special Condition (p) had not been satisfied is immaterial since:
(a)Kosho does not plead that Trilogy’s alleged omission amounted to a waiver of the condition or that some form of estoppel arose;
(b)no cause of action is advanced by Kosho which provides any other basis to ignore the condition; and
(c)a failure to advise another party to a contract that they have not met their obligations is, without more, no basis to say that the relevant obligation is expunged from the contract.
Kosho accepts that it has not claimed that the condition was waived or that Trilogy is estopped from relying upon it. It does not advance any cause of action based upon Trilogy’s delay and silence. It does not contradict the third proposition advanced by Trilogy and which I have summarised at (c) above. Instead, Kosho argues that it was for Trilogy to reject “the proffered performance” if it thought it had such an entitlement, and that, in the circumstances, it was excused from performing Special Condition (p).
The essential facts concerning Trilogy’s delay and the communication of its position in relation to satisfaction of Special Condition (p) are as follows. On
20 October 2009 Trilogy’s then solicitors wrote to Kosho’s then solicitors and noted that there were “a number of outstanding conditions precedent in respect of the above facility”. The first outstanding condition that was nominated was “an unconditional sales contract for the commercial property”. By letter dated
27 October 2009 Kosho’s solicitors stated that a copy of the unconditional commercial sales contract had been provided on 29 June 2009 and that on
11 August 2009 Kosho’s solicitors had confirmed that this document, namely the Put and Call Option Deed, was held on file. The letter also confirmed that $800,000 was held in the solicitors’ trust account being the “security bond paid by the Grantee under the Put and Call Option Deed”. Kosho’s solicitors contended that all the required items had been provided. There was no immediate response to that correspondence, despite follow-up communications from Kosho’s solicitors and its “Chief Executive Officer – project partner”, Mr Slijderink.
In February 2010 Trilogy and its solicitors were negotiating with DMR and its solicitors in connection with a deed of assignment that would satisfy Special Condition (s). They advised that once the final deed with DMR was satisfactory, and subject to the “conditions precedent” being satisfied, the PFMF would advance funding. On 17 February 2010 Trilogy’s solicitors, Clayton Utz, declined to comment on specific Special Conditions until such time as the deed had been agreed with all parties. On 23 February 2010 Clayton Utz described an assertion in
Mr Slijderink’s email of 18 February 2010 that Trilogy was satisfied with all other conditions and/or Special Conditions as “totally incorrect”, and advised that Trilogy would not review the status of the loan conditions until the terms of the deed with DMR had been settled.
Trilogy’s solicitors’ email of 23 February 2010 did not communicate an acceptance of Kosho’s position in relation to Special Condition (p). The status of Special Condition (p) and other conditions was to be reviewed, but Trilogy did not resile from the position which it had adopted on 20 October 2009, namely that an unconditional sales contract for the commercial property had not been provided.
In the absence of any plea or submission based upon principles of waiver or estoppel, Kosho’s written submissions relied upon authorities concerned with “Dispensation with performance of condition” in arguing that it was excused from satisfying Special Condition (p). The authorities relied upon by Kosho in this regard are to the effect that “a plaintiff may be dispensed from performing a condition by the defendant expressly or impliedly intimating that it is useless for him to perform it and requesting him not to do so.”[5] In oral submissions, Kosho’s Senior Counsel acknowledged that the principle concerning dispensation with performance required an express or implied intimation that it was useless for Kosho to perform, and that no such intimation was given. This acknowledgment was correctly made since the evidence does not demonstrate that Trilogy intimated, either expressly or impliedly, that Kosho need not perform Special Condition (p), or that it was useless for it to do so.
[5]Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd (1954) 90 CLR 235 at 246-247, cited in K & K Real Estate Pty Ltd v Adellos Pty Ltd [2010] NSWCA 302 at [92] – [93]; Mullins v Kelly-Corbett (2011) Q ConvR 54-748 at 63,523 [18] – [20].
Kosho advanced a different argument, which had not been developed in its written submissions, or pleaded by it, that the provision of the Put and Call Option Deed and confirmation that the Security Bond had been paid constituted “substantial performance” of Special Condition (p). I am unable to agree that proffering the Put and Call Option Deed in lieu of a “sale contract for the commercial property” constituted substantial performance, or that it was accepted as such by Trilogy. For the reasons discussed in connection with the issue of construction, the Put and Call Option Deed differs substantially from a binding and unconditional sale contract of the kind which might have come into existence had Kosho or Mr Ota exercised their respective options. In addition, no deposit was paid and the absence of a deposit is another reason why there was not substantial performance of Special Condition (p). The payment of a Security Bond which was refundable in the event an option was not exercised is unlike a non-refundable deposit that is paid under an unconditional contract of the kind appearing in Schedule 2 to the Put and Call Option Deed.
Conclusion – Special Condition (p)
The failure of Kosho to satisfy Special Condition (p) (either according to its terms or in substance), coupled with the fact that Trilogy did not intimate to Kosho that it need not satisfy the condition, entitled Trilogy to not advance the further funds that were the subject of the 2009 Facility.
Special Condition (q)
As noted, Special Condition (q) provides:
“(q)This offer is conditional upon the commercial property settling on or before 28 February 2010.”
It is common ground that this condition was not satisfied. Kosho argues that it was disabled from being in a position to satisfy Special Condition (q) because of the failure of Trilogy to advance monies intended for consultants’ costs in relation to the design of the commercial property and the costs needed to construct it. Documents associated with the requested funding, including a spreadsheet annexed to a funding submission anticipated that the construction costs for Commercial Building A would be $880,000, spread over five months with an anticipated settlement of the commercial property in the seventh month of the project timeline yielding $2,750,000. Kosho had no other source of available funds to meet the required construction costs, let alone consultants’ costs which would have to be incurred to specify the construction that was to be undertaken so as to facilitate entry into an anticipated tripartite agreement between Kosho, the builder and CPL as mortgagee.
If Kosho had established that it satisfied Special Condition (p) and satisfied the other conditions (particularly Special Condition (s)) so as to entitle it to have further funds advanced to it in mid to late 2009, then I may have been satisfied that Trilogy’s breach of agreement in not advancing the funds disabled Kosho from being in a position to satisfy Special Condition (q). However, Kosho’s failure to comply with Special Condition (p) meant that there was no obligation on Trilogy to advance funds under the 2009 Facility. Therefore, whilst the failure to advance monies intended for construction costs disabled Kosho from satisfying Special Condition (q) Trilogy was not obliged to advance those monies because Special Condition (p) was not satisfied.
As to Special Condition (q), if both Conditions (p) and (s) had been satisfied then Trilogy would have been obliged to advance monies intended for construction costs once those conditions were satisfied. Any failure to do so may have disabled Kosho from satisfying Special Condition (q), depending on questions of timing. Since Trilogy was not obliged to advance monies because Kosho failed to satisfy Special Condition (p) Kosho’s inability to satisfy Special Condition (q) was not the result of a breach of contract by Trilogy. Kosho’s failure to satisfy Special Condition (q) is not excused by reason of Trilogy’s breach of an obligation to advance the required construction costs.
I have concluded that Trilogy was not obliged to advance further funds under the 2009 Facility including funds intended for construction costs, because Special Condition (p) was not satisfied. In the circumstances, Kosho’s failure to satisfy Special Condition (q) provides an additional ground upon which Trilogy can rely in defence of Kosho’s claim that it was entitled to have further funds advanced to it.
Special Condition (s) and its contractual context
It is convenient to again set out Special Condition (s):
“(s)This offer of finance is conditional on, and subject to:
(i)the borrower entering into a deed of assignment and consent in relation to the agreement between the Department of Main Roads, Kosho Pty Ltd and Club Cavill Pty Ltd (Assignment Deed) to be prepared by, and on terms satisfactory to the Lender;
(ii)the borrower causing Club Cavill Pty Ltd to enter into the Assignment Deed.
(iii)the Department of Main Roads confirming that it is satisfied with the terms of the Assignment Deed; and
(iv)the Assignment Deed being entered into and binding on the Borrower and Club Cavill Pty Ltd (and the Borrower providing two originals of the Assignment Deed executed by both the Borrower and Club Cavill Pty Ltd to the Lender) within 2 business days of receipt of the Assignment Deed.”
Subclause (s)(i) requires the deed of assignment and consent to be “in relation to” the 5 June 2007 Deed of Agreement. The deed of assignment and consent is to be prepared by the lender. Its terms are to be “satisfactory” to the lender. They also must be satisfactory to DMR which, of course, was not a party to the 2009 Facility, and was not an entity which Trilogy could direct. DMR was free to withhold any confirmation that it was satisfied with the terms of the deed of assignment and consent for whatever reason. Special Condition (s) envisaged that Kosho would cause its related entity, Club Cavill Pty Ltd (“Club Cavill”), to enter into the deed and that it and Club Cavill enter into it within two days of receipt.
Special Condition (t) provides an important context. It relevantly provides:
“As part of this facility the City Pacific First Mortgage Fund agrees to rebate costs and fees to the borrower to a maximum amount of $2,800,000.00. This is compensation for the transfer of the rights and obligations to Sunrise Waters Pty Ltd as agreed between Club Cavill (a related entity of the borrower) and the Department of Main Roads, in relation to the adjacent Sunrise Waters property in accordance with special condition (s).
The compensation is paid on the basis that it is in full and final settlement of all claims that the Borrower and/or Club Cavill may have at any time in relation to the resumption of the land from the property by the Department of Main Roads. ...”
Special Condition (t) then continues to describe that the compensation will be paid by way of a discount to prevailing interest rates as well as a rebate on certain fees that would otherwise have been charged on the 2009 Facility.
Special Condition (s) was not satisfied. Kosho submits that this is because of Trilogy’s unreasonable delay or its absence of good faith in seeking illegitimately to exploit the opportunity to extract new and additional rights for the benefit of itself and a defaulting borrower of the PFMF, Sunrise Waters Pty Ltd (“Sunrise Waters”).
Trilogy’s case is that:
(a)It understandably sought the assignment of those rights, which had a relationship to the subject matter of the 2007 Deed of Agreement that was to be assigned.
(b)Considerable effort was made to reach agreement between the various parties in relation to the terms of a deed of assignment and consent that would be satisfactory to the various parties, including Trilogy as lender and DMR.
(c)DMR understandably wanted something in return for the valuable rights that were being negotiated, and never communicated its satisfaction of the terms of any proposed deed of assignment and consent.
(d)The delay in concluding negotiations and documenting an assignment that was satisfactory to all parties was for reasons that cannot be attributed to Trilogy, or which cannot be attributed solely or principally to Trilogy.
(e)The allegation of unreasonable delay and a lack of good faith on its part cannot be sustained on the evidence.
These submissions require consideration of the background to the Deed of Agreement between Club Cavill, Kosho and the State of Queensland (acting through DMR) made on 5 June 2007, and the lengthy course of negotiations about the terms of a deed that would be satisfactory to Trilogy and DMR.
Issues of construction arise about the meaning of Special Condition (s), particularly:
(a)whether the matters in respect of which Trilogy sought specific provision were “in relation to” the agreement between Club Cavill, Kosho and DMR; and
(b)the constraints on Trilogy’s freedom to decide that the terms of a deed of assignment and consent were not “satisfactory” to it, or that a deed of assignment and consent would be “satisfactory” to it only if it included certain provisions. What are the matters about which Trilogy might legitimately seek satisfactory terms? Must it act in good faith in seeking the inclusion of terms that are satisfactory to it?
The last issue may be approached as a matter of construction: that properly construed, Special Condition (s) requires good faith on Trilogy’s part in preparation of terms, their negotiation with DMR and arriving at a state of satisfaction with those terms. Expressed differently, the argument is that, as a matter of construction, Trilogy cannot find terms to be unsatisfactory on grounds that are capricious, advanced for an illegitimate purpose or otherwise advanced without good faith. If, however, Special Condition (s) is not construed as necessarily importing notions of good faith, then the issue of good faith may arise for consideration in the context of an implied term. Part of Kosho’s case is that the 2009 Facility included an implied term that CPL “would in (sic) all times act in good faith in their dealings with Kosho in relation to their consideration of, and determining issues of satisfaction in relation to, the conditions precedents under the finance facility”.
It is appropriate to defer consideration of whether, as a matter of law, Trilogy was obliged to act in good faith in determining whether it was satisfied with the terms of a proposed deed of assignment and consent until I have made findings of fact about Trilogy’s conduct, including its alleged unreasonable delay in determining issues of satisfaction.
Background to the negotiation of Special Condition (s)
Club Cavill is a related entity of Kosho and City Co. Club Cavill and Kosho owned adjoining parcels of land. Part of Club Cavill’s land was resumed under the Acquisition of Land Act 1967 (Qld) by DMR for the purpose of future road construction. Club Cavill obtained compensation rights as a result in 2005.
On 4 August 2006 the Council issued preliminary approval in respect of a development application that had been lodged in 2003. The preliminary approval was in respect of the Club Cavill land, land owned by Kosho and the resumed land. An appeal was filed on 13 September 2006 in relation to the approval, and at the time of the 5 June 2007 Deed of Agreement this appeal remained unresolved.
If Club Cavill, or any successor in title to the Club Cavill land, wished to pursue its development in accordance with the preliminary approval or any future Council approval then it required access to the resumed land to complete flood mitigation works in respect of the development. Mr Slijderink on behalf of Club Cavill and Kosho negotiated the Deed of Agreement with the State of Queensland acting through DMR. One aspect of the Agreement was a grant by DMR to Club Cavill and to Kosho (if required), their respective successors in title and any future owners of the land, rights of access for all purposes connected with the execution of the works contemplated by the preliminary approval and any future approvals. An important right was the right to excavate and remove from the resumed land soil for the purposes of flood mitigation and as otherwise required by the approval, and to transport the soil to the Club Cavill and Kosho lands for use as fill material on those lands in accordance with the building approval and any future approvals. In return for these valuable rights Club Cavill agreed “with effect from the date on which it commences development” on the Club Cavill land to waive any rights to compensation under the Acquisition of Land Act 1967 it may have against the DMR for the taking of the resumed land. In short, Club Cavill agreed with DMR to forego its compensation rights, but only on a conditional basis. If it did not commence development on the Club Cavill land, then its compensation rights were not waived.
The soil rights that Club Cavill acquired were valuable. As Mr Slijderink explained, there was a significant advantage in acquiring the soil rights. Otherwise the owner would have to obtain operational works approvals and in a flood plain that may take many years.
Club Cavill agreed to sell its land to Sunrise Waters. Significantly, the agreement did not convey the soil rights. This worked greatly to the disadvantage of Sunrise Waters. Officers of DMR later privately expressed some sympathy for Sunrise Waters’ predicament and harboured some suspicion that Sunrise Waters acquired the Club Cavill land without knowing that it had not bargained to acquire the soil rights.
The sale of the property to Sunrise Waters settled in August 2007. Club Cavill continued to assert its entitlement to compensation. In a letter to Crown Law, which acted on behalf of DMR, dated 30 January 2008, Club Cavill and Kosho’s lawyers noted that Club Cavill’s waiver of its right to compensation only took effect “from the date on which it commences development” on the lot which had been sold to Sunrise Waters on 17 August 2007. Since Club Cavill had not commenced or carried out any works on that lot the right to compensation remained. Kosho and Club Cavill’s lawyers sought confirmation that DMR and Crown Law had not had any dealings with Sunrise Waters which had the effect of according it any of Kosho and Club Cavill’s rights and entitlements under the Deed of Agreement dated
5 June 2007 “or which has otherwise touched upon the rights or entitlements held by our clients pursuant to the Deed”. Kosho and Club Cavill continued to assert a right to claim compensation from the State of Queensland in relation to the resumption.
A meeting was held on 13 February 2009 at the offices of CPL to discuss Club Cavill’s compensation rights and the entitlements afforded to it under the Deed of Agreement with DMR and the possible assignment of those rights to CPL. The meeting also discussed the future funding of Kosho’s Abadi Residential Village project. Mr Slijderink on behalf of Kosho advanced what he told the meeting was a “commercially practical and equitable solution in regards to mitigating the PFMF financial exposure to Sunrise Waters”. At the time receivers had been appointed to sell the land and an expression of interest campaign was due to end in March.
Mr Slijderink referred to his company’s continuing right to claim compensation from DMR and the fact that Sunrise Waters needed to obtain the rights and entitlements afforded to Club Cavill under the Deed of Agreement so that it could maximise the development potential of the land and commence bulk earthworks. Mr Slijderink went on to assert that the claim to compensation was worth well in excess of $10m and probably exceeded $20m. He proposed a mutually beneficial outcome that would involve a payment in exchange for the compensation rights. This was the genesis of what eventually became Special Conditions (s) and (t) in the 2009 Facility. Kosho and Club Cavill were offering the opportunity for CPL to maximise the development potential of the Sunrise Waters land.
The course of events concerning satisfaction of Special Condition (s)
Subject to further submissions about the making of a single costs order to avoid the separate assessment of costs in each proceeding, I propose to order Ms Fujino to pay the plaintiffs’ costs of and incidental to the Fujino proceeding to be assessed on an indemnity basis.
My provisional view is that the very limited success of the plaintiffs in the Kosho proceedings should be reflected in an order that the plaintiffs pay 85 per cent of the defendants’ costs of and incidental to the Kosho proceeding, to be assessed on the standard basis.
I will hear the parties, if necessary, about an appropriate costs order in each proceeding, or the making of a single costs order to avoid separate assessments in each proceeding.
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