Lighthouse Corporation (Capital) Pty Ltd v One76 Pty Ltd
[2024] VSC 623
•9 October 2024
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
COMMERCIAL LIST
S ECI 2022 04840
| LIGHTHOUSE CORPORATION (CAPITAL) PTY LTD (ACN 123 511 624) | Plaintiff |
| v | |
| ONE76 PTY LTD (ACN 623 876 353) & Ors (according to the attached Schedule) | Defendants |
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JUDGE: | Delany J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | On the papers |
DATE OF RULING: | 9 October 2024 |
CASE MAY BE CITED AS: | Lighthouse Corporation (Capital) Pty Ltd v One76 Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2024] VSC 623 |
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EVIDENCE – Proposal to exclude expert evidence prior to trial – Evidence proposed to be directed to asserted terms of art – Admissibility and relevance of proposed evidence a matter for trial – Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37, Apple and Pear Australia Ltd v Pink Lady America LLC [2016] VSCA 280, Max Cooper & Sons Pty Ltd v Sydney City Council (1980) 29 ALR 77, Quasar Resources Pty Ltd v APG Aus No 3 Pty Ltd [2023] WASCA 171, Keybridge Capital Ltd v Bell Potter Securities Ltd [2022] NSWSC 1022, Harding v Sutton (No 2) [2021] VSC 789 referred to – Evidence Act 2008 (Vic) s 80.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Stephen Wartski | Merton Lawyers |
| For the Defendants | St. John Hibble | DSA Law |
HIS HONOUR:
Background
This ruling concerns the question of whether the plaintiffs ought to be permitted to file expert evidence in the proceeding in support of their case. The ruling proceeds by reference to the letter of instruction to the expert, Mr Darren Stacey of BDO Australia.
Mr Stacey has not yet reported but expedition of the ruling is important because the proceeding is listed for a two day trial on 14 November 2024 and 15 November 2024. If the proposed evidence is not excluded based on the letter of instruction the defendants need to be given an opportunity to engage their own expert in advance of trial.
The claim in the proceeding alleges breach of an exclusivity obligation in a procurement agreement.
At the directions hearing on 1 October 2024 counsel for the plaintiff confirmed that a letter of instruction to Mr Stacey for the provision of an expert report had been prepared. I ordered that a copy of that letter be provided to the solicitors for the defendants and to my Chambers. I ordered the parties file short written submissions in support of the position for which they contend concerning admissibility. Those steps have now been completed.
The proposed expert evidence
In its letter of instruction the plaintiff asks Mr Stacey to provide his expert opinion as to the meaning of certain expressions, if there be any such meaning amongst financiers or members of the ‘finance industry’ and to provide examples of the use of these expressions in practice based upon his experience and expertise in this area:
(a) senior debt;
(b) mezzanine/ subordinated debt; and
(c) equity or preferential debt.
(‘specific terms’)
The letter of instruction includes the following:
1.the Agreement was entered into between the Plaintiff and the First and Second Defendants in this matter on 1 September 2019;
2.the Variation was entered into between the Plaintiff and each of the Defendants in this matter on 6 May 2021;
3. By the Agreement and Variation the Plaintiffs and Defendants broadly agreed that the Defendants would pay the Fee to the Plaintiffs if:
a. the Plaintiff procured an offer of “financing” for the Defendants’ Client Projects during the exclusivity period; or
b. the Defendants accessed “financing” from any external source during the exclusivity period for the Client Projects.
4. “Financing” was a defined term in the Agreement and means:
“any form of finance (which for the purposes of this Agreement shall have a broad construction), including equity, or debt finance (whether secured or unsecured), including any hybrid or mezzanine finance, combination or combined Financier facilities, subordinated debt arrangements, or consortium funding arrangements, offered or provided to the Client and/or Client Parties by Financier Parties”.
5. “Client Projects” was a defined term in the Agreement and means:
“shall mean a specific property development venture of any nature including but not limited to residential, commercial, industrial, land subdivision, hospitality, retirement living, aged care, medical centres, childcare centres, in Australia or any other country, where Client Parties is the principal sponsor of the said venture: Clause 2.7 of the Procure Agreement”
In these circumstances the specific property development referred to in the definition of Client Projects was the proposed development of 150 or more apartments at 3-9 Lusher Road, Croydon, VIC, 3136 (Land).
6. On 15 October 2021 the Fourth Defendant (Nine Lusher Road Pty Ltd) entered into a Development Agreement with Community Housing (Vic) Limited for the development of 43 one bedroom apartments, 77 two bedroom apartments, 15 three bedroom apartments and 2 four bedroom apartments on the Land (Funding Deed).
7. On 25 October 2021 the Fourth Defendant entered into a Development Agreement to sell the Land to Community Housing (VIC) Limited (Contract).
8. Among other issues one remaining question in the proceedings is whether or not the Funding Deed or Contract (together or separately) constitute Senior Debt, Mezzanine/Subordinated Debt, Equity or Preferential Debt (Question).
It is regarding this Question that we now seek your expert opinion as the Fee payable by the Defendants to the Plaintiff will be calculated based on the answer to this Question.
Submissions
The defendants submit the proposed evidence, if admitted, would go well beyond the legitimate use of expert opinion evidence and seeks to have the Court either ignore or rewrite the plain text of the agreements.
The plaintiff submits that the specific terms on which Mr Stacey is to provide his opinion are terms of art and are akin to the expression ‘pay loadings’, described as a term of art in the building industry by the Privy Council in Max Cooper & Sons Pty Ltd v Sydney City Council.[1]
[1]Max Cooper & Sons Pty Ltd v Sydney City Council (1980) 29 ALR 77 [85] (Lord Diplock).
Both parties rely on the principles for the interpretation of contracts in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd.[2]
[2]Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 256 CLR 104 [46]–[53] (French CJ, Nettle and Gordon JJ) (‘Mount Bruce Mining’).
The defendants submit the principles in Mount Bruce Mining do not permit evidence from an industry expert concerning the interpretation of commercial contracts. They refer to Apple and Pear Australia Ltd v Pink Lady America LLC[3] where Tate JA said:[4]
In my view, it follows from what was said in Mount Bruce that it would be wrong to conclude that the High Court has endorsed an approach to the construction of commercial contracts, whereby the surrounding circumstances, including, relevantly, pre-contractual negotiations, can invariably be relied upon to assist construction. This is not to deny that the objective approach to contractual interpretation requires, as confirmed by French CJ, Nettle and Gordon JJ in Mount Bruce, reference to the ‘text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose’.
[3]Apple and Pear Australia Ltd v Pink Lady America LLC [2016] VSCA 280; (2016) 343 ALR 112 (‘Apple and Pear’).
[4]Apple and Pear Australia Ltd v Pink Lady America LLC [2016] VSCA 280; (2016) 343 ALR 112 [137].
The defendants submit s 80(a) of the Evidence Act 2008 (Vic) (‘Evidence Act’) does not have the effect of automatically allowing expert evidence on the ultimate issue. It reads:
Evidence of an opinion is not inadmissible only because it is about—
(a) a fact in issue or an ultimate issue
The defendants refer to Harding v Sutton (No 2)[5] where Richards J made observations including concerning the operation of s 80(a):
[58] First, evidence of any kind is only admissible if it is relevant — that is, it is evidence that, if it were accepted, could rationally affect the assessment of the probability of the existence of a fact in issue in the proceeding. The proportionality of the Vaccination Directions is not a fact in issue in the proceeding. It is one of the ultimate issues in the proceeding. Determining it will involve the application of the complex legal test under s 38(1) and s 7(2) of the Charter, to the facts as I find them on the evidence at trial. Opinion evidence as to the overall question of proportionality would not be relevant to any fact that I have to determine, and would be inadmissible for that reason alone.
[59] Second, I doubt that s 80(a) of the Evidence Act displaces the ‘fundamental common law principle which excludes expert legal opinion evidence as intruding upon the essential judicial function and duty’ to determine the ultimate issue for decision. In the context of this case, an opinion about the proportionality of the Vaccination Directions would be an opinion about a question of mixed fact and law. It would inevitably involve an element of legal opinion that is not properly a matter for expert evidence.
[60] Third, it is axiomatic that an expert witness is not an advocate for a party. They may give evidence of opinion that is probative of a fact in issue, where the opinion is based on the witness’s specialised knowledge. Their role is not to argue the case of the party who has retained them to give evidence in the proceeding. Phrasing questions for expert witnesses in a way that seeks an opinion on the ultimate legal issue for decision may invite tendentious opinion that is both unhelpful and irrelevant.
[5]Harding v Sutton (No 2) [2021] VSC 789 (‘Harding’).
The defendants submit that the parties agreed on a joint list of issues that was filed on 1 May 2024. The list of issues provides that one of the issues for determination is whether on proper construction of the Procurement Agreement dated 1 September 2019 (‘Procurement Agreement’), whether the sums payable under the Contract of Sale entered into on 25 October 2021 or the Development Agreement entered into on 15 October 2024 (together, ‘the agreements’), constitute either senior debt, mezzanine/subordinated debt, equity or preferential debt for the purposes of Schedule of the Procurement Agreement. The defendants submit that in those circumstances the proposed opinion evidence should be excluded.
Consideration
I consider it would be inappropriate to exclude the proposed evidence without both receiving Mr Stacey’s report and any report relied on by the defendants in response and hearing all of the evidence and arguments at trial concerning the proper construction of the agreements.
As French CJ, Nettle and Gordon JJ observed in Mount Bruce Mining, ordinarily the process of contract construction is possible by reference to the contract alone.[6] It is for the judge to look at the contract, ‘its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose’[7] to determine its meaning. Where a contract is unambiguous, evidence of surrounding circumstances cannot be adduced to contradict its plain meaning.[8]
[6]Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 256 CLR 104 [48].
[7]Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 256 CLR 104 [46].
[8]Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 256 CLR 104 [48].
Some of the terms upon which Mr Stacey has been asked to opine have been interpreted by Courts in the past as part of the routine contract construction task without expert evidence being adduced. For example in TheBell Group Ltd (in liq) v Westpac,[9] at first instance Owen J noted the following about the meaning of subordinated debt:[10]
[9]The Bell Group Ltd (In Liq) v Westpac Banking Corporation [no 9] [2008] WASC 239; (2008) 39 WAR 1.
[10]The Bell Group Ltd (In Liq) v Westpac Banking Corporation [no 9] [2008] WASC 239; (2008) 39 WAR 1 [2568]–[2587].
2569 Subordinated debt has been widely used in a variety of contexts. The predominant feature of the subordinated debt of a corporation is that it that will rank behind other debts, but before equity. On occasions, shareholders may prefer to capitalise a company by the use of subordinated debt rather than equity. Some of the reasons why an entity or an individual may have a preference for subordinated debt over equity include:
(a) from the debtor’s perspective, the ability to deduct interest payable from gross profits in calculating net profits on which tax is payable;
(b) from the creditor’s perspective, the liability to pay interest is mandatory, whilst payment of dividends is usually dependent upon profits;
(c) a corporate debtor can repay debt whilst a return of capital is subject to legal restrictions;
(d) institutional restrictions on investment in shares (particularly private equity) may not apply to debt investments;
(e) debt can be secured but equity cannot; and
(f) the debtor’s shareholders may wish to exclude debt investors from capital growth or may not wish to dilute their shareholding, although a similar result could be achieved through a structured issue of preference shares.
2570 Subordinated debt has, in the past, formed a fixed capital component of banks and other institutions that are subject to statutory capital adequacy regimes. In the past it was not uncommon to see subordinated debt used in highly leveraged takeovers and management buy-outs in order to increase the finance available. In Wood P, The Law of Subordinated Debt, the author (an English lawyer and academic) described subordination as ‘undoubtedly quirky and idiosyncratic from a legal point of view’. [clxxxvii] He also said that subordination does not fit easily into conventional legal concepts and suggested that some ‘twisting and wrenching’ is required to make it work.
The term ‘preferential debt’ is commonly considered by courts with respect to priority payments in a bankruptcy or insolvency context.[11] The term ‘mezzanine debt’ was considered in Tall Trees Tanah Merah Pty Ltd v Trust Company (PTAL) Ltd as Custodian for the LM First Mortgage Income Fund[12] by Greenwood J without the assistance of expert evidence. The terms ‘senior debt’, ‘equity’ and ‘mezzanine debt’ were all considered by the Federal Court in relation to a funding model in Carey v Freehills also without any expert evidence.[13]
[11]McEvoy v Incat Tasmania Pty Ltd [2003] FCA 810 [12]–[15]; Re Matthew Bros (in liquidation) [1962] VR 262, 264–265; Re Concept Constructions Pty Ltd (in liq) (1976) 2 ACLR 219; Central Brakes Service (Newcastle) Pty Ltd v Central Brakes Service (1989) 7 ACLC 1199, 4.
[12]Tall Trees Tanah Merah Pty Ltd v Trust Company (PTAL) Ltd as Custodian for the LM First Mortgage Income Fund [2014] FCA 963 [30].
[13]Carey v Freehills [2013] FCA 954 [59].
While it may be the case that the proposed evidence is not admissible and is of no assistance in this case, I do not understand French CJ, Nettle and Gordon JJ in Mount Bruce Mining to have intended to exclude the possibility of expert evidence from a witness experienced in the particular industry familiar with technical terms about the meaning of those terms in the particular industry as an aid to the proper construction of the contract. The passage from Apple and Pear relied on by the defendants does not address the question of the admissibility or otherwise of evidence of the meaning of technical terms or terms of art.[14]
[14]Apple and Pear Australia Ltd v Pink Lady America LLC [2016] VSCA 280; (2016) 343 ALR 112 .
That expert evidence of such matters will be admitted in an appropriate case involving the proper construction of a written contract was recently confirmed by the Western Australian Court of Appeal in Quasar Resources P/L v APG Aus No 3 Pty Ltd.[15]
[15]Quasar Resources P/L v APG Aus No 3 Pty Ltd [2023] WASCA 171 (‘Quasar Resources’).
In QuasarResources the central issue on appeal was as to the meaning of the word ‘refining’ in the context of the royalty clause in an agreement for the sale of mining tenements.[16] The appellant submitted there was no justification in fact or in law for the judges’ reliance on expert evidence of industry meaning of ‘refining’ or other terms used in the agreement.[17] At trial no party challenged the admissibility of the expert evidence.[18]
[16]Quasar Resources P/L v APG Aus No 3 Pty Ltd [2023] WASCA 171 [1].
[17]Quasar Resources P/L v APG Aus No 3 Pty Ltd [2023] WASCA 171 [15].
[18]Quasar Resources P/L v APG Aus No 3 Pty Ltd [2023] WASCA 171 [48].
Beech and Vaughan JJA, with whom Lundberg J agreed in the result of dismissing the appeal, explained that the trial judge did not err in having regard to evidence of the common understanding in the Australian mining industry of various words and phrases in the agreement:[19]
[19]Quasar Resources P/L v APG Aus No 3 Pty Ltd [2023] WASCA 171 [49]-[59], [61].
Evidence may be led to prove the custom or usage in a particular locality, trade, market, business or class of persons. If proved, the custom or usage may sustain an implied term or it may inform the interpretation of an expression used in the agreement. In the latter respect, such evidence does not depend on ambiguity. The custom or usage must be so notorious, uniform and certain that any party can be presumed to have known of it and intended that meaning in using the expression in question. In Western Australia, these principles are usually associated with the decision of Ipp J in Homestake Australia Ltd v Metana Minerals NL. The strictness of the requirements of custom and usage to sustain the implication of an implied term has been explained in a number of cases in the High Court.
Custom and usage is not, however, the only basis for admitting expert evidence of the common understanding in an industry or other sphere to assist in the construction of a particular word or phrase. There are many cases in which evidence of that kind is admitted to assist in the process of construction of a contract, and many statements in text books to the same effect, without reference to the stringent requirements of establishing a meaning by custom and usage. That said, it must be acknowledged that it is not always easy to identify the principles being applied in a particular case by a court in having regard to evidence of this kind. For example, in some cases, it is not clear whether statements made as to evidence of this kind - such as a reference to ‘technical meaning’ - are references to evidence of custom and usage, with its requirements identified in [49] above, or to evidence admitted on a different and broader basis.
In Max Cooper & Sons Pty Ltd v Sydney City Council, Lord Diplock, delivering the advice of the Privy Council, said of the phrase ‘pay loadings’ that:
It is not an expression that is used in ordinary speech; without extrinsic evidence from a witness experienced in the building industry and familiar with the technical terms used in it, a judge could only speculate as to the meaning of ‘pay loadings’. That the ordinary meaning in which a technical expression is used in a particular industry is not a question of construction but is a question of fact to be decided upon expert evidence, has been undoubted law since it was laid down by Parke B in Shore v Wilson (1842) 9 Cl and Fin 355; 8 ER 450. A question of construction (which is one of law) arises only when it becomes necessary to determine whether the particular context in which the expression is used shows that in that context it was intended to bear its ordinary technical meaning or some more extended or restricted meaning.
Australian law no longer maintains the distinction drawn in this passage between interpretation - determining the meaning of the words used - and construction - the legal effect to be given to them. However, that does not detract from what is said as to the use of expert evidence.
This passage from Max Cooper & Sons v Sydney City Council was cited with approval by this court in Sino Iron v Mineralogy. It was also applied by Ipp J in Technomin Australia NL v Southern Resources Ltd, a case with some parallels to the present case and which is discussed in detail in Lundberg J’s reasons. Ipp J held, applying this passage, that evidence as to industry understanding of ‘treatment costs’ was admissible in aid of construing that phrase in a mining agreement. This approach was approved on appeal.
In Lewison and Hughes, The Interpretation of Contracts in Australia [5.07], the authors observe that the court may hear evidence to assist its understanding of a scientific or technical word, referring to Shore v Wilson and to what was said by Jordan CJ in Australian Gas Light Co v Valuer‑General, albeit in the context of the construction of a statute. The same point was made by Lord Wilberforce in Schuler v Wickman Tool Sales. Similarly, in Heydon on Contract, it is said that if the meaning of technical or scientific terms is disputed, the meaning may be established by expert evidence.
Further, at least where a term is ambiguous or susceptible of more than one meaning, extrinsic evidence is admissible to assist in determining the meaning of a particular descriptive word or term.
In Technomin, Ipp J also applied this principle, in addition to relying on the principle expounded in Max Cooper & Sons v Sydney City Council, in admitting extrinsic evidence of the industry understanding of the terms ‘net smelter return’ and ‘treatment costs’ in aid of determining the proper construction of those terms in a mining agreement. His Honour’s approach in this regard was approved on appeal.
In Metal Roofing and Cladding Pty Ltd v Amcor Trading Pty Ltd, McPherson JA applied this principle to evidence as to what was meant in the relevant market by ‘PVC resin’, the parties having entered an agreement of sale and purchase of goods by that description. In so holding, McPherson JA distinguished (i) evidence as to what is commonly understood in an industry by descriptive words in the agreement from (ii) evidence of the custom of a trade, which must be notorious, uniform and certain.
In Sino Iron v Mineralogy, this court observed, by analogy with Phoenix Commercial Enterprises Pty Ltd v City of Canada Bay Council, that the fact that a word or expression has a technical meaning in an area of discourse relevant to the contract in question, in itself provides a basis for the reasonable reader to conclude that the term or expression is used in its technical sense, unless there are other factors present that show that it is not used in that special sense.
Professor Carter has observed that evidence of technical or other usages of words within a particular industry (or locality) may be led as contextual evidence, independently of the rules on custom and usage. The same point was made by Einstein J in Enron Australia Finance Pty Ltd (in liq) v Integral Energy Australia, in a passage quoted with evident approval in Sino Iron v Mineralogy. Context may be sufficient to infer an intention to adopt the usage of a word or phrase applicable in the industry in which the contracting parties operate.
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It is not easy to see how any meaning is to be ascribed to the phrase ‘net smelter royalty’ if regard is not had to expert evidence. To our minds, absent evidence as to how that term is understood in the mining industry, to refer to something as a net smelter royalty has no particular or ascertainable meaning. In that respect, the phrase may be thought to be like the phrase ‘pay loadings’ in Max Cooper & Sons v Sydney City Council.
In Keybridge Capital Ltd v Bell Potter Securities,[20] Rees J was called upon to consider the meaning of ‘firm’ in stockbroking and whether the word had a specific technical meaning. Her Honour received evidence from an economist relied on as expert evidence but concluded the evidence did not rise above the ordinary natural meaning of the word.[21]
[20]Keybridge Capital Ltd v Bell Potter Securities [2022] NSWSC 1022 (‘Keybridge’).
[21]Keybridge Capital Ltd v Bell Potter Securities [2022] NSWSC 1022 [134].
As Rees J stated in Keybridge, expert evidence as the special or technical meaning of a word may not be used to opine as to how that word was used in the particular circumstances of the case, that being the province of the Court.[22]
[22]Keybridge Capital Ltd v Bell Potter Securities [2022] NSWSC 1022 [139].
I proceed on the basis that s 80(a) of the Evidence Act does not have the effect of automatically allowing expert evidence on the ultimate issue. I share the doubt expressed by Richards J in Harding that the section displaces the fundamental common law principle that excludes expert legal opinion evidence as intruding upon the essential judicial function and duty to determine the ultimate issue for decision. However, I do not accept that the clear purpose of the proposed evidence is to resolve the ultimate issue or to intrude on the judicial function and duty. If the proposed evidence is accurately described as evidence of the industry understanding of particular terms, or that a particular word or expression has a technical meaning relevant to the contract as was found to be the case in Quasar Resources such evidence may be found to be of assistance in determining the meaning of a particular word or term in the agreements.
The fact the joint list of issues recites that the task is the proper construction of the agreements does not mean that the proposed evidence may not be admissible in aid of that construction. It may or may not be the case that the instructions to Mr Stacey lead to an expression of opinion by him as to the meaning of one or more of the words upon which he has been asked to opine. If so, it will be necessary to consider the admissibility of the evidence and to determine whether or not the use of the words in question were in their technical sense.
In advance of the evidence in response to the letter of instruction whether the proposed evidence is relevant, admissible and of assistance in the proper construction of the Procurement Agreement and the Variation to that agreement dated 6 May 2021 is not able to be determined. It would be premature to exclude the proposed evidence prior to the receipt of the report which Mr Stacey has been instructed to prepare and prior to the trial.
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SCHEDULE OF PARTIES
| S ECI 2022 04840 | |
| By Original Proceeding | |
| LIGHTHOUSE CORPORATION (CAPITAL) PTY LTD (ACN 123 511 624) | Plaintiff |
| - and - | |
| ONE76 PTY LTD (ACN 623 876 353) | First Defendant |
| EASTERN SPORTS RECOVERY PTY LTD (ACN 635 092 867) | Second Defendant |
| EASTERN WELLNESS ASSETS PTY LTD (ACN 644 656 057) | Third Defendant |
| NINE LUSHER ROAD PTY LTD (ACN 638 424 932) | Fourth Defendant |
| By Counterclaim | |
| EASTERN WELLNESS ASSETS PTY LTD (ACN 644 656 057) | Plaintiff by Counterclaim |
| - and - | |
| LIGHTHOUSE CORPORATION (CAPITAL) PTY LTD (ACN 123 511 624) | Defendant by Counterclaim |
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