Lindsay-Owen v Schofields Property Development Pty Ltd
[2014] NSWSC 1177
•28 August 2014
Supreme Court
New South Wales
Medium Neutral Citation: Lindsay-Owen v Schofields Property Development Pty Ltd [2014] NSWSC 1177 Hearing dates: 11 to 14 August 2014 Decision date: 28 August 2014 Before: Ball J Decision: 1. The plaintiffs' claim and the defendant's cross-claim be dismissed.
2. The plaintiffs pay the defendant's costs of the proceedings.
Catchwords: CONTRACT - construction of joint venture agreement - whether pre-existing bank debt to be paid by plaintiffs with own funds or by joint venture with funds borrowed for proposed development - extrinsic materials - whether permissible to rely on pre-contractual negotiations in aid of construction or to establish intention of parties - whether permissible to rely on post-contractual conduct as admission to prove a fact relevant to parties' contractual obligations - where no admission identified - where post-contractual conduct relied on to establish intention of parties
CONTRACT - relief - whether mutual mistake to support order for rectification - where no common intention of the parties
PROCEDURE - civil - pleadings - application to amend case to include claim for rectification for unilateral mistake - where proposed amendment deficient - where amendment sought on final day of hearing - where witnesses would need to be recalled if amendment allowedCases Cited: Agricultural & Rural Finance Pty Ltd v Gardiner [2008] HCA 57; (2008) 238 CLR 570
Arthur Yates & Company Pty Ltd v Vegetable Seeds Committee [1945] HCA 55; (1945) 72 CLR 37
Australian Gypsum Ltd v Hume Steel Ltd [1930] HCA 38; (1930) 45 CLR 54
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337
Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 306 ALR 25
Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; (2009) 76 NSWLR 603
Igloo Homes Pty Ltd v Sammut Constructions Pty Ltd [2005] NSWCA 280
Johns v Australian Securities Commission (No 2) (1992) 35 FCR 146
Johnston v Brightstars Holding Company Pty Ltd [2014] NSWCA 150
Maralinga Pty Ltd v Major Enterprises Pty Ltd [1973] HCA 23; (1973) 128 CLR 336
NSW Medical Defence Union Ltd V Transport Industries Insurance Co Ltd (1986) 6 NSWLR 740
Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65; (2007) 69 NSWLR 603Texts Cited: RP Meagher, JD Heydon and MJ Leeming, Meagher Gummow & Lehane's Equity: Doctrines and Remedies, (4th ed, 2001, LexisNexis) Category: Principal judgment Parties: Gregory Hamilton Willoughby Lindsay-Owen (First Plaintiff)
DairyCorp Pty Ltd (Second Plaintiff)
Schofields Property Development Pty Ltd (Defendant)Representation: Counsel:
M Dicker SC with D Hand (Plaintiffs)
L V Gyles SC with S Lawrance (Defendant)
Solicitors:
Mills Oakley Lawyers (Plaintiffs)
Clayton Utz (Defendant)
File Number(s): 2014/157612 Publication restriction: None
Judgment
Introduction
In 1990, the first plaintiff, Mr Lindsay-Owen, inherited a half interest in 56 hectares of what was then rural land at Schofields on the north-western outskirts of Sydney. In June 2006, Mr Lindsay-Owen arranged for the second plaintiff, Dairycorp Pty Ltd (Dairycorp), a company in which he owns all the shares and of which he is the sole director, to buy Mr Lindsay-Owen's sister out of her share in the property, and, for that purpose, Mr Lindsay-Owen and Dairycorp (together, the plaintiffs) arranged to borrow the sum of $16 million secured against the property from the National Australia Bank (NAB).
In October 2009, Mr Lindsay-Owen became aware that the land was to be released for precinct planning and was likely to be rezoned for residential use. By about that time, the NAB debt had increased to approximately $23.5 million. The increase largely comprised early development costs and capitalised interest. On 29 March 2010, Mr Lindsay-Owen and Dairycorp entered into a joint venture agreement (JVA) and a number of associated agreements with the defendant, Schofields Property Development Pty Ltd (Schofields), a special purpose company that had been incorporated by Villawood Properties (Villawood), a successful property developer based in Victoria, to develop the land.
The question in this case is whether it was a term of the JVA that the debt owed by the plaintiffs to NAB and secured over the land would be repaid out of money borrowed by the joint venture at the time planning approval was granted or whether the plaintiffs would be responsible for repaying that debt at that time. The plaintiffs contend for the first of these alternatives. Alternatively, they submit that the JVA should be rectified to have that effect. Originally, the claim for rectification was put on the basis that the parties had made a common mistake in relation to the terms of the JVA. On the last day of the hearing, the plaintiffs applied to amend their claim seeking, in the alternative, rectification on the basis of a unilateral mistake. I refused that amendment and said at the time that I would give my reasons in this judgment.
Schofields contends that, on the proper construction of the JVA, the plaintiffs were responsible for repaying the NAB debt. It also denies that the agreement should be rectified. However, if it is wrong about that, it submits that the agreement must be rectified in other ways to give effect to what the plaintiffs submit was the common intention of the parties.
The agreements
Two agreements are relevant to the resolution of the issues in this case. The first is the JVA itself. The second is a Facility Agreement by which Schofields agreed to advance the plaintiffs certain sums of money.
The joint venture was established by cl 3 of the JVA. Clause 3.1 provides:
The Joint Venture Parties agree to form an unincorporated joint venture to carry out the Project on and subject to the terms and conditions set out in this Agreement.
The expression "Joint Venture Parties" is defined to mean Dairycorp and Schofields. "Project" is defined relevantly to mean "the development, subdivision, marketing and sale of the Land primarily for residential purposes and other ancillary uses as Lots, super Lots or in its entirety ...".
The parties' participating interests in the joint venture are set out in cl 4. They change over time depending on the amount advanced under the Facility Agreement.
Clause 4 of the Facility Agreement provides for five types of advance to be made by Schofields to the plaintiffs:
- A "Prior Advance" to be made within 14 days of the date the conditions precedent set out in the JVA are satisfied. That advance consisted of $3,000,000 plus the difference between the amount of the plaintiffs' existing debt facility and the amount for which they were able to refinance that facility (in excess of $18.8 million);
- Eight "Interim Advances" each of $250,000 to be paid quarterly, the first of which was to be paid on the date that was one calendar quarter after the date of satisfaction of the conditions precedent set out in cl 2 of the JVA;
- "Interest Advances" on the plaintiffs' existing debt. These amounts were to be advanced from 1 April 2010 up until the time when "Planning Approval" was obtained for the Land. They were to be made to the extent that interest was not paid by the plaintiffs and could not be capitalised under the relevant facility;
- "Capital Advances" in respect of the plaintiffs' existing debt. These advances were required to be made from the date of the agreement until Planning Approval if the plaintiffs were required to repay part of the existing debt in circumstances described in cl 6 of the JVA to the extent that the repayments were not made by the plaintiffs;
- A "Valuation Advance" payable in accordance with cl 4.4(b) of the Facility Agreement, which provides:
(b) If Planning Approval is obtained at any time during the term of this agreement, the Financier shall, within one month of obtaining a Valuation of the Land, provide to the Borrower an Advance calculated as follows:
A =
(50% - PI) x (V - LA) - I
where:
A =
amount of the Advance
V =
the amount of the Valuation
LA =
the amount owing by the Borrower to other lenders and secured by the Security Property in priority to the Securities
PI =
the Financier's then existing Participating Interest under the Joint Venture Agreement expressed as a percentage
I =
the amount of interest paid by the Financier in respect of the LA and treated as an Advance under clause 4.5
and A is a positive number. If A is not a positive number the Financier will not be required to make any further Advance and clause 4.1(n)(ii) of the Joint Venture Agreement will apply.
"Planning Approval" is defined to mean "approval by the relevant consent authority of the first development application ... which must allow for the delivery of at least 100 lots lodged in accordance with the relevant precinct plan ...".
By making the Prior Advances, Interim Advances and Capital Advances, Schofields obtains an interest in the land and the joint venture in the proportion that the amount advanced bears to an agreed or notional value of the land of $30 million. So, for example, on the payment of the Prior Advance of $3 million, Schofields obtained a 10 percent participating interest.
Schofields also obtains a participating interest by making Interest Advances. However, cl 4.1 of the JVA provides that the interest it obtains depends on when the advance is made. If the advance is made prior to 30 months after the date of the agreement, the interest is the proportion that the amount of the advance bears to $30 million. If the Interest Advance is made between dates that are 30 months and 48 months from the date of the agreement, the interest is the proportion that the amount of the advance bears to the market value of the property at the date that is 30 months after the date of the JVA as determined in accordance with cl 25 of the JVA. If the Interest Advance is made between dates that are 48 months and 66 months from the date of the agreement, the interest is the proportion that the amount advanced bears to the market value of the property at the date that is 48 months after the date of the JVA.
On making the Valuation Advance, Schofields obtains a 50 percent interest in the joint venture. Under cl 4.1(n)(ii), if the Valuation Advance is a negative figure, the plaintiffs must repay the overpayment, and, if they fail to do so, cl 4.1(n)(ii)B provides that "each Joint Venture Party will have a Participating Interest equal to the actual interest existing at the date Planning Approval was obtained".
There appears to be a minor drafting error in clause 4.4(b) of the Facility Agreement. "I" is defined to be the amount of the Interest Advances. However, it also appears from cl 4.6(b) that it was intended to include Capital Advances. That clause provides:
Each payment under clause 4.6(a) [which provides for the payment of Capital Advances] will constitute an Advance under this Agreement and will be deducted from Advances in accordance with clause 4.4.
Clause 4.3 of the JVA sets out how the joint venture is to be funded. It provides that a committee established under the JVA may make cash calls. However, cl 4.3(a) provides:
The Joint Venture Parties acknowledge that it is their intention to fund all Joint Venture Costs, whether before or after the date that Planning Approval is obtained by way of External Loan Funds.
"Joint Venture Costs" is defined broadly in cl 1.1 to mean "the aggregate of all costs, expenses and outgoings incurred by the Joint Venture Parties in connection with the Project, the Land or the Joint Venture Assets, as detailed in the Project Budget or otherwise approved by the JV Committee and accounted for in accordance with generally accepted accounting principles in Australia". The definition goes on to list a number of inclusions, including (in para (d)) "other costs necessarily incurred as a result of ownership of the Land excluding any interest payable under any refinancing obtained under clause 2(b)". There is no mention in the definition of the costs of repaying the NAB facility following the granting of Planning Approval.
Clause 5.4 of the Facility Agreement provides:
If a Participating Interest is taken by [Schofields] under clauses 4.1 of the Joint Venture Agreement then, to the extent applicable, the relevant Advances under this Agreement will be deemed to have been repaid.
Clause 2 of the JVA sets out several conditions precedent. Relevantly, cl 2(a)(i) provides that the agreement is conditional on:
[R]efinancing of the debt facility taken out by Dairycorp and secured against the Land as at the date of this Agreement by Dairycorp on terms acceptable to both Dairycorp and Schofields including those terms set out in clauses 2(b)(iv) and (v) by the Refinance Condition Date
Clause 2(b) sets out the obligations of the parties in relation to the refinance. It is evident from that clause that the parties proceeded on the basis that the refinancing would be for an amount of at least $18.8 million. Under cl 2(b)(iii), Schofields agreed, if required by the new financier, to provide a guarantee of Dairycorp's obligations limited to an amount equal to three years worth of interest. Clause 2(b)(iv) required that it be a term of the new facility that the financier would agree to a transfer of parts of the land to Schofields to correspond to its participating interest. Clause 2(b)(v) required it to be a term of the new facility that the financier would execute a tripartite agreement with Dairycorp and Schofields, which gave Schofields step-in rights in the event of a default by Dairycorp. Clause 2(d) provides:
For the avoidance of any doubt, Dairycorp acknowledges that Schofields is under no obligation to assume any liability under Dairycorp's existing debt facility (or any refinance of that existing debt facility).
Clause 11 sets out what is to happen when planning approval is obtained. It provides:
External Loan Funds
By the date which is 30 Business Days after Planning Approval is obtained:
(a) the Joint Venture Parties agree to:
(i) borrow all External Loan Funds required to complete the Project in proportion to their Participating Interests, with each Joint Venture Party being severally liable for its share of borrowings; and
(ii) execute all documents and do all things necessary to provide security to any provider of External Loan Funds over their respective interests in the Joint Venture Assets and the Land, including signing any mortgage over the Land under which the Joint Venture Parties will be tenants in common in proportion to their Participating Interests in the Land or any charge in respect of the Joint Venture Assets and the Land. If Schofields does not hold an Interest in the Land, Schofields will be liable for the External Loan Funds to the extent of its Participating Interest in the Joint Venture Assets; and
(b) Dairycorp agrees to repay its existing debt facility and procure the release of all securities in relation to that debt facility from title to the Joint Venture Assets and the Land.
"External Loan Funds" is defined in cl 1.1 to mean:
any loan:
(a) provided by any party who is not a Joint Venture Party to the Joint Venture Parties for the purposes of the Project after the Planning Approval is obtained; and/or
(b) in respect of which the Joint Venture Parties become severally liable in proportion to their Participating Interests after the Planning Approval is obtained,
and includes all unpaid interest and all capitalised interest in relation to that loan from time to time.
Clause 15 provides a mechanism to deal with defaults by either party. It provides for the service of a default notice and a cure period. Ultimately, if a default is not remedied, the non-defaulting party has a right to buy out the defaulting party's interest at the "Valuation Amount". "Valuation Amount" is defined to mean:
An amount equal to VA where:
VA = (V - EL - C) x PI x 0.94
V = the Valuation as advised by the Valuer
PI = the Participating Interest of a Defaulting JVP
EL = all outstanding External Loan Funds
C = outstanding Joint Venture Costs
Clause 23.1 of the JVA provides:
Standstill Period
Unless required to do so in order to comply with its obligations under this Agreement, a Joint Venture Party must not Alienate or in any other way deal with the whole or part of its Participating Interest or the Land before Planning Approval is obtained in respect of the Land other than with the consent of the other Joint Venture Party which consent may be withheld without reason or given on condition.
"Alienate" is defined in cl 1.1 to mean, relevantly:
... sell, lease, licence, assign, transfer, grant options or rights of pre-emption (other than by way of security) over, create trusts in respect of or otherwise part with possession of any Joint Venture Asset or Participating Interest or the Land or any interest in the whole or any part of it ...
The negotiations
Mr Lindsay-Owen started looking for a joint venture partner in about August 2009. He settled on Villawood in late 2009. Before doing so, he says that he sent Villawood a statement of his assets and liabilities, which disclosed that his total assets were approximately $83.7 million (including the Schofields land at $65 million) and that his total liabilities were approximately $29.2 million (including the loan to NAB of $23.5 million). There is, however, no evidence that Villawood received that statement of assets and liabilities, and, in my opinion, it is unlikely that it was sent. Mr Lindsay-Owen discovered his telephone records, which show that he dialled Villawood's fax number on 27 August 2009. However, the records indicate that that call lasted for 3 seconds. It is unlikely that that was sufficient time for the fax to go through. It is more likely that he dialled the number by mistake, since, immediately after placing that call, he rang Villawood's normal telephone number and spoke for a period of 2 minutes and 18 seconds.
Villawood retained Mr Mazzone of Clayton Utz to act for it in the negotiations of the joint venture, and the plaintiffs retained Mr Downing of HWL Ebsworth. It is apparent that Mr Lindsay-Owen relied heavily on Mr Downing in connection with the negotiations for the joint venture.
Villawood has two executive directors: Mr Costelloe and Mr Johnson. They were the two most senior executives within the group. Mr Costelloe had established Villawood in 1989. Mr Johnson joined him in 2006, and, from that time, their interests in the group were equal. The third most senior executive of Villawood was Mr Taber, who is and was at the relevant time the managing director. Up until 16 December 2009, Mr Costelloe was the person at Villawood who was primarily responsible for negotiating with Mr Lindsay-Owen, although Mr Taber also played a role, and they both kept Mr Johnson informed of what was happening in the negotiations.
The parties exchanged several draft term sheets between September and November 2009.
On 1 December 2009, Mr Taber circulated a revised term sheet that he had prepared. The term sheet relevantly proposed two options. Option 1 was in the following terms:
Villawood pays to Dairycorp:
● $3 million within 14 days of signing documents
● $250,000 quarterly per quarter for the next 8 quarters
● After PSP, 33.3% of the value of each stage of the land at the commencement of construction of each stage
Debt position:
● Dairycorp remains liable for all debt until PSP
● At PSP:
(a) Dairycorp repays land debt
(b) Villawood and Dairycorp assume 50/50 liability for development debt (assuming development debt is staged)
Option 2 was in the following terms:
Villawood pays to Dairycorp:
● $3 million within 14 days of signing documents
● $250,000 quarterly per quarter for the next 8 quarters
● At PSP, 33.3% of the value of the land at PSP less 50% of the land debt
Debt position:
● Dairycorp remains liable for debt until PSP
● At PSP, Villawood and Dairycorp assume 50/50 liability for land and development debt
"PSP" is an acronym used in Victoria standing for "Precinct Structure Plan". It is similar to rezoning.
The term sheet was sent to Mr Downing who, after he received it, rang Mr Mazzone. According to Mr Downing, he said to Mr Mazzone that "it is [a] fundamental thing for us that [Schofields] be responsible for 50% of the NAB debt". Mr Mazzone does not deny that conversation, and I accept that it occurred.
There were various other discussions between the parties in relation to the term sheet, and there was a lengthy meeting in Melbourne on 7 December 2009 attended by Mr Lindsay-Owen, Mr Downing, Mr Costelloe, Mr Taber and Mr Mazzone to discuss it.
Following that meeting, on 10 December 2009, Mr Downing circulated by email a marked-up version of the term sheet. The marked-up version deleted Option 1 and amended the expression "PSP" in Option 2 so that it read "rezoning". The earlier version of the term sheet also contained some provisions dealing with the payment of interest on the existing land debt. Mr Downing added the following two bullet points to those provisions:
● Dairycorp may at any time elect to pay some or all of the interest on the land debt to the bank rather than Villawood.
● Dairycorp can elect to repay some or all of the Villawood interest loan immediately prior to conversion.
Mr Costelloe replied to that email the same day saying:
It looks like we have a deal, please all confer with each other to produce docs asap
On the following day, Mr Lindsay-Owen forwarded a copy of Mr Costelloe's response (and the amended term sheet) to Mr Moses at NAB. Mr Taber also prepared a summary of the term sheet and, at Mr Johnson's request, sent a copy to Mr Moses and Mr Sherlock at NAB. The first three paragraphs of the summary were in the following terms:
Villawood to pay Dairycorp $3m at execution & $250k per quarter over 2 years (total $5m). This will be initially by way of loan secured by second mortgage over the land and charge over the company.
Villawood to pay the current NAB loan interest when it falls due for the first 2.5 years. This will be treated as a loan to Dairycorp with security as above.
At rezoning the site will be revalued and Villawood will acquire 50% share in the land by way of payment of 33.3% of the rezoning valuation of the land (excluding NAB debt) less 50% of the NAB debt less the NAB loan interest accrued to date.
The summary went on to explain how interest on the NAB loan was to be paid pending planning approval. It stated that Villawood could pay interest on the loan but that Dairycorp also had the right to pay all or part of the NAB loan interest. The summary concluded:
Given that rezoning occurs then development will proceed on the basis of a 50:50 joint venture ownership of the land. We would be expecting the development costs to be fully funded under normal terms and conditions.
On 14 December 2009, Schofields was incorporated. Its directors are Mr Johnson and Mr Robertson, a solicitor who, over the years, has done a substantial amount of work for Villawood. Schofields' shareholder is TOR Pty Ltd, now known as Sandhurst Capital Pty Ltd, a company in the Villawood group.
Mr Costelloe went on holidays on 16 December 2009 and did not return to the office until February 2010. Mr Taber became primarily responsible for instructing Mr Mazzone in relation to documentation of the joint venture.
Some time prior to 23 December 2009, Mr Taber says he became concerned about the arrangement by which Schofields would take over half the NAB debt when planning approval was obtained. That concern arose because of the risk that, if Schofields took over half the debt and made the advance payments contemplated by the parties, it would overpay for its half interest in the joint venture without any guarantee of being able to recover the amount of the overpayment. Driven by that concern, it appears that Mr Taber instructed Mr Mazzone to draft the joint venture agreements on the basis that the plaintiffs would repay the NAB debt when planning approval was granted. Neither Mr Taber nor Mr Mazzone specifically raised that change with Mr Lindsay-Owen or Mr Downing. In cross-examination, Mr Taber said that he thought that Schofields' change in position would be apparent from the drafting of the agreements and that the circulation of the first drafts was itself the beginning of the negotiating process in relation to the final terms of the joint venture. The plaintiffs took issue with that evidence. They pointed out that Mr Taber had not given that evidence in his affidavit and that it appeared to be inconsistent with subsequent events (described below) in which Mr Taber gives an account of the agreement that suggests Schofields would become responsible for repayment of half the debt after planning approval had been granted. However, I found Mr Taber to be a satisfactory witness. The evidence strikes me as plausible, and I accept that Mr Taber's failure to give the evidence in his affidavit can be explained by his ill health at the time the affidavit was prepared.
On 23 December 2009, Mr Mazzone circulated first drafts of the relevant agreements, including a first draft of the JVA and Facility Agreement. There were significant differences between the drafts circulated by Mr Mazzone and the final versions of the agreements. It is apparent that they were reviewed carefully by Mr Downing, and he made extensive comments on them. Clause 9 of the draft circulated by Mr Mazzone was relevantly in substantially the same terms as cl 11 of the final version of the JVA. The final version amended cl 9 of the draft to provide that security given to any provider of External Loan Funds be over a party's respective interests in the Joint Venture Assets "and the Land", and it specified that a mortgage granted as security be one under which the Joint Venture Parties are "tenants in common in proportion to their Participating Interests in the Land". The final version also added the last sentence in subpara (a)(ii). A subparagraph was removed from the draft provision, which dealt with the ranking of securities as between External Loan Funds providers and proposed "Cross Charges" over each Joint Venture Party's Participating Interest. Importantly, however, the final version of cl 11(a)(i) remained unchanged, and the only amendment made in cl 11(b) was to specify that Dairycorp's obligation to procure the release of all securities in relation to its debt facility with NAB be from title to the Joint Venture Assets "and the Land". Clause 4.4 of the first draft of the Facility Agreement was also in similar terms to cl 4.4 of the final version of that agreement. In particular, the formula in cl 4.4(b) did not change.
Mr Downing did not make any changes to cl 9 as originally circulated by Mr Mazzone, although he included a comment at the end of cl 9(a)(ii) saying "Presumably the intention here is the refinance". Clayton Utz responded to that question on 15 January 2010 saying "Yes. That is correct."
The JVA and the Facility Agreement went through further drafts. However, none of the changes are of significance to this case. Mr Johnson and Mr Robertson executed the Facility Agreement and JVA on behalf of Schofields. Mr Johnson says that he read through the agreements before signing them. He says that, at the time he signed the JVA, it was his intention that Dairycorp alone would be obliged to discharge the debt over the land shortly after planning approval had been obtained. I accept that Mr Robertson looked through the agreements before signing them. Whether he formed the intention that he said he did is less clear. Although Mr Johnson was a director of Schofields, he was not the person who was responsible for negotiating the agreements or the commercial terms of them. He became a director of Schofields because it was known that Mr Costelloe would be away. The agreements are quite complicated and take some time to understand. Mr Johnson is a busy person and appeared to have a poor recollection of the agreements when giving evidence. His recollection is likely to have been affected by subsequent events. I think it is unlikely that he turned his mind specifically to the question whether the existing NAB loan would become part of the joint venture debt after Planning Approval was granted. Mr Robertson did not give evidence.
Events following execution of the agreements
As I have said, the agreements were executed by the parties on 29 March 2010. It appears that, as at that date, the plaintiffs' debt to NAB was reduced to approximately $20.9 million. How that happened is not clear from the evidence.
There were negotiations with NAB concerning the refinancing of the existing debt. A dispute arose between Schofields and Mr Lindsay-Owen concerning who should bear the refinancing costs. Mr Taber sent an email to Mr Lindsay-Owen on that topic on 29 April 2010 in which he said:
I have reviewed the matter with Rory and advise our position remains unchanged -
There are two ways to structure / view the foundations of this deal
1. if we take responsibility for say 50% of the debt then we could buy 50% of the net equity for (32-20.9)/2=5.6m (and be responsible for half the debt) or
2. if Dairycorp remain solely responsible for all of the debt then our money only buys equity in the land (based on agreed valuations) and Dairycorp retains the remaining equity in the land and is responsible for all of the debt.
The second option is the basis of our deal and all documentation. We have no responsibility for (and obtain no benefit from) the debt despite the fact that our payments to Dairycorp in return for equity in the land are based on a combination of payments including reductions to debt and interest on debt. It is this reasoning that underpins our position that the finance costs relating to the debt is solely the responsibility of Dairycorp.
This situation changes after planning approval when money changes hands so that both Dairycorp and Schofields will each have 50% equity in the land and 50% responsibility for the debt (which will be increased to account for development costs, etc) and both will be entitled to 50% of the profit from the development.
I trust this explains the reasoning behind our position.
The statement that, following planning approval, Dairycorp and Schofields will have "50% responsibility for the debt (which will be increased to account for development costs, etc)" certainly suggests that, at the time Mr Taber wrote the email, he thought that the joint venture would take over responsibility for the existing debt following the granting of planning approval.
NAB agreed to refinance the existing debt, but not for the full amount, and, on 30 April 2010, Schofields paid to Dairycorp $2,118,294 under cl 2(b)(ii) of the JVA. At the same time, it paid the amount of $3 million pursuant to cl 4.2 of the Facility Agreement, which Mr Lindsay-Owen says was used for working capital and to repay other debts.
The land was not rezoned until 11 May 2012. In the meantime, Schofields made other advances under the Facility Agreement, including the eight Interim Advances of $250,000 each. At some stage, the parties appointed Villawood Management Pty Ltd to manage the joint venture.
Following rezoning, a number of disputes arose between the parties, and, on 16 July 2013, the plaintiffs commenced these proceedings seeking declarations to the effect that, on its proper construction, the JVA required the NAB debt to be repaid from funds borrowed by the joint venture in accordance with cl 11(a)(i) of the JVA.
On 1 November 2013, a deferred commencement development consent for 224 residential lots was issued by Blacktown City Council making development consent subject to a voluntary planning agreement.
On 17 December 2013, a finance application was prepared on behalf of the joint venture seeking funding of $35 million, which included an amount for "land finance". At the time, the debt owed by the plaintiffs was $18.8 million. However, the facility had been increased to $21,650,000 to allow for up to $2,850,000 in land holding costs, planning costs and marketing costs pending approval of a full application for development finance. Mr Costelloe was involved in the preparation of that application, which was sent on behalf of the joint venture parties to potential lenders, including NAB. Again, it is apparent that the persons who prepared the application thought at the time that the joint venture would become responsible for the whole of the NAB debt.
On 16 April 2014, a voluntary planning agreement was entered into, which satisfied the condition in the deferred commencement development consent. That amounted to Planning Approval for the purpose of the JVA.
On 29 April 2014, Mr Taber sent a letter to Dairycorp stating that Dairycorp was responsible for repaying the NAB facility. Following that letter, the plaintiffs amended their Summons and Commercial List Statement to seek rectification of the JVA.
The contractual claim
The principles relating to the construction of a commercial contract are not in doubt. They were recently summarised by the High Court in Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 306 ALR 25 at [35] in these terms:
[T]his Court has reaffirmed the objective approach to be adopted in determining the rights and liabilities of parties to a contract. The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding "of the genesis of the transaction, the background, the context [and] the market in which the parties are operating". As Arden LJ observed in Re Golden Key Ltd, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption "that the parties ... intended to produce a commercial result". A commercial contract is to be construed so as to avoid it "making commercial nonsense or working commercial inconvenience". [footnotes omitted]
The court may not have regard to the negotiations between the parties for the purpose of determining the correct construction of the contract except to the extent that those negotiations establish objective facts, which were known to both parties and which, therefore, form part of the context in which the contract is to be interpreted. As Mason J said in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337 at 352:
... prior negotiations will tend to establish objective background facts which were known to both parties and the subject matter of the contract. To the extent to which they have this tendency they are admissible. But in so far as they consist of statements and actions of the parties which are reflective of their actual intentions and expectations they are not receivable. The point is that such statements and actions reveal the terms of the contract which the parties intended or hoped to make. They are superseded by, and merged in, the contract itself. The object of the parol evidence rule is to exclude them, the prior oral agreement of the parties being inadmissible in aid of construction, though admissible in an action for rectification.
Mason J referred to one possible exception to this general principle (at 352-3):
There may perhaps be one situation in which evidence of the actual intention of the parties should be allowed to prevail over their presumed intention. If it transpires that the parties have refused to include in the contract a provision which would give effect to the presumed intention of persons in their position it may be proper to receive evidence of that refusal. After all, the court is interpreting the contract which the parties have made and in that exercise the court takes into account what reasonable men in that situation would have intended to convey by the words chosen. But is it right to carry that exercise to the point of placing on the words of the contract a meaning which the parties have united in rejecting? It is possible that evidence of mutual intention, if amounting to concurrence, is receivable so as to negative an inference sought to be drawn from surrounding circumstances.
Generally, the court may not have regard to the subsequent conduct of the parties in interpreting the contract: Agricultural & Rural Finance Pty Ltd v Gardiner [2008] HCA 57; (2008) 238 CLR 570; Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; (2009) 76 NSWLR 603. However, evidence of post-contractual conduct may be admissible as an admission to prove a fact which is relevant to the parties' contractual obligations: see Johnston v Brightstars Holding Company Pty Ltd [2014] NSWCA 150 at [79]-[84] per Beazley P; at [121] per Basten JA; at [134] per Gleeson JA. The relevant fact may be what was said where the contract is an oral one. It may also be a fact that forms part of the context in which the agreement was reached, a fact concerning whether agreement was reached or a fact concerning whether the agreement was wholly in writing or is to be found in the conversations between the parties as well. However, as Basten JA pointed out in Johnston v Brightstars Holding Company Pty Ltd at [121]:
... to the extent that the evidence reveals an opinion as to a question of law rather than fact, the admission may be irrelevant or valueless.
As I have said, the plaintiffs' primary claim is that, on the correct construction of the JVA, it requires the Joint Venture Parties, by a date which is 30 Business Days after Planning Approval is obtained, to borrow sufficient funds to pay out the NAB loan and to complete the project. That is said to be the effect of cl 11 of the JVA when understood in the context in which the joint venture was established and in the context of other terms of the JVA and the Facility Agreement. The plaintiffs also submit that regard can be had to the negotiations for the JVA, and, in particular, their rejection of Option 1 of the term sheet circulated by Mr Taber on 1 December 2009. In addition, they rely on Mr Taber's email dated 29 April 2010 and the fact that Villawood Management Pty Ltd prepared a finance application in December 2013 that contemplated the joint venture would borrow sufficient funds to pay out the NAB loan as admissions that can be taken into account in construing the agreement.
It is helpful to consider first the surrounding circumstances and the question of what other material can be taken into account in interpreting the terms of the JVA.
The most significant surrounding circumstances relied on by the plaintiffs are their financial position and the fact that they could not repay the NAB debt themselves. In my opinion, stating the position in those terms puts the point too highly. I accept that, without a joint venture, the plaintiffs were not in a position to repay the NAB debt without selling the land; and Schofields must have known that to be the case. Apart from anything else, that knowledge can be inferred from the structure of the payments to be made by Schofields in order to obtain a 50 percent interest in the joint venture. The terms of the Facility Agreement required Schofields to make an initial payment of $3 million together with any shortfall in the refinancing of the NAB loan, plus eight payments of $250,000 each quarter, interest payments from 1 April 2010 and a capital payment if NAB required the debt to be reduced. Apart from some interest payments, those payments permitted Schofields to obtain an interest in the joint venture and land on the basis that the land was worth $30 million. It seems clear that the parties expected the value of the land to increase. Consequently, it was to the plaintiffs' advantage to make interest and principal payments if they could since the result would be that Schofields would have to pay more to acquire 50 percent of the land and a 50 percent interest in the joint venture. It must have been evident from the fact that the plaintiffs negotiated for terms of the JVA and Facility Agreement that provided for Schofields to make those payments that the plaintiffs could not make those payments themselves. It is difficult to understand why the payments to be made by Schofields were structured in the way that they were if the position were otherwise.
However, I do not think that it follows that the parties knew that the plaintiffs would not be able to repay the loan once Planning Approval was obtained. The plaintiffs could not repay that loan out of their own resources. However, following Planning Approval, they were entitled to a further payment from Schofields. The plaintiffs submit that little weight can be placed on that consideration because the further payment depended on obtaining a valuation and the process under the JVA for obtaining that was likely to take longer than the 30 Business Days in which the plaintiffs must repay the debt; and, in any event, it must have been obvious to the parties that the amount to be paid would not be sufficient to cover the amount of the loan. However, there is nothing in the JVA that prevents the plaintiffs from borrowing the amount to repay the loan to NAB. Clause 23.1 states that a Joint Venture Party must not "Alienate" or in any other way deal with its interest before Planning Approval is obtained other than with the consent of the other Joint Venture Party. It says nothing about the position after Planning Approval is obtained. The definition of "Alienate" excludes an alienation "by way of security". Moreover, the prohibition in cl 23.1 does not apply where the alienation is made to comply with obligations under the JVA. The plaintiffs were not in a position to borrow the amount of the existing NAB loan before Planning Approval. However, at the time the JVA was entered into, the parties expected the value of the land to increase substantially following the granting of Planning Approval, the parties knew that it was likely that Dairycorp would be entitled to a further payment under the JVA, that Dairycorp would be in a joint venture with a successful property developer and that it would be expected to have a 50 percent interest in that joint venture and the profits it generates. Finally, the parties must have understood that much of the development risk would be removed by the granting of Planning Approval. Consequently, they may well have anticipated that, following Planning Approval, Dairycorp would be in a position itself to raise funds to pay out the NAB loan. Certainly, I do not think it could be said that Schofields knew that that was not the case.
The plaintiffs seek to rely on evidence of the pre-contractual negotiations and, in particular, on their rejection of Option 1 of the amended term sheet circulated by Mr Taber on 1 December 2009, the draft JVA circulated by Mr Mazzone on 23 December 2009, Mr Downing's comment on cl 9 of that draft on 11 January 2010 and Mr Mazzone's response on 15 January 2010 as shedding light on the meaning of the JVA and cl 11, in particular. However, they seek to do so for an impermissible purpose. The plaintiffs rely on those documents to establish that the intention of the parties was that, following the granting of Planning Approval, the joint venture would become responsible for the NAB debt. That is directly contrary to the principle stated by Mason J in Codelfa. I accept Schofields' submission that this is not a case where the parties have refused to include in the contract a provision which would give effect to what Schofields says was their presumed intention so as to fall within the possible exception identified by Mason J. It cannot be said that the parties refused to include a term in the JVA stating that Dairycorp would be responsible for repaying the NAB debt. Indeed, cl 11(a)(ii) (about which I say more below) seems to be just such a clause. The fact that an earlier term sheet proceeds on the basis that Dairycorp would not be responsible for repaying the NAB debt is not itself such a refusal.
The plaintiffs seek to rely on Mr Taber's email dated 29 April 2010 and the finance application prepared in December 2013 as evidence of post-contractual admissions. But the plaintiffs do not identify the relevant admission. It is apparent that they seek to rely on those documents as demonstrating that it was Schofields' intention that the joint venture would become responsible for the NAB debt following the granting of Planning Approval. Once again, it seems to me that that is an impermissible purpose.
It follows that the intention of the parties must be ascertained largely from the words used in the JVA and Facility Agreement but understood in a context where Schofields was required to make certain payments to acquire a 50 percent interest in the land and the joint venture, and where Dairycorp was unable to service its existing debt but there was no reason to think that it would not be capable of repaying that debt once Planning Approval had been granted.
As I have said, cl 11(a)(ii) appears to contain a clear statement that, by a date which is 30 Business Days after Planning Approval is obtained, Dairycorp agrees to pay its existing debt facility and to procure a release of all securities, so that the land can be made available as security for the project debt which the JVA contemplates will be raised by the joint venture. Significantly, cl 11(a)(ii) says that "Dairycorp" agrees to pay its existing debt facility. It does not say that the joint venture agrees to do so.
The plaintiffs submit that cls 11(a)(i) and 11(a)(ii) need to be read together, that their order is important and that that order, and the use of the word "and" at the end of cl 11(a)(i), suggest that the joint venture will obtain external financing and that Dairycorp will then use part of that external financing to repay its existing debt to NAB. However, that interpretation is not obvious on the drafting of cl 11(a). The clause says that two things are to happen within 30 Business Days of Planning Approval. One is the raising of new debt. The other is the repayment by Dairycorp of the existing debt so that the security held by NAB over the land can be released. That explains the use of the word "and". There is nothing in cl 11(a) to suggest that Dairycorp's repayment obligation is dependent on the joint venture obtaining external financing for the joint venture. The fact that the two events are to occur by the same date suggests the opposite. It is to be expected that, if the parties had intended that the joint venture would be responsible for repaying the NAB debt, cl 11(a)(ii) would have said so, instead of saying that it was the responsibility of Dairycorp.
The plaintiffs rely on other terms of the JVA and Facility Agreement which they say support the interpretation of cl 11 for which they contend. The most significant clause is cl 4.4 of the Facility Agreement. That clause sets out the payment to be made by Schofields to equalise the parties' interests in the joint venture. The plaintiffs submit that it makes no sense to deduct from that payment the amount of the NAB debt if the parties intended that Dairycorp would be responsible for repaying that debt.
The plaintiffs' submission based on cl 4.4 of the Facility Agreement would have considerable force if cl 4.4 required the whole of the NAB debt to be deducted from the amount payable by Schofields to obtain a 50 percent interest in the joint venture. The other advances to be made by Schofields under the Facility Agreement suggest that it was to earn a 50 percent interest in the joint venture (and the land) by paying 50 percent of the value of the land. If the amount of the NAB debt is deducted from the final payment, that strongly suggests that the parties intended that Schofields would assume the responsibility for half of that debt through the joint venture, otherwise it would be paying substantially less than 50 percent of the value of the land to acquire a 50 percent interest in the joint venture.
The difficulty, however, is that the formula stated in cl 4.4 does not require the whole of the NAB debt to be deducted from the payment to be made by Schofields. Rather, it requires that, at most, a proportion of that debt be deducted. The proportion to be deducted depends on the participating interest that Schofields has already obtained through earlier payments. The greater the participating interest that Schofields earns through advances made before Planning Approval is obtained, the smaller the proportion of the existing debt that is deducted in calculating the final payment to be made by Schofields to obtain its 50 percent interest.
It is difficult to understand the commercial purpose behind this provision. Schofields produced various worked examples to demonstrate that, on certain assumptions, the formula has a sensible commercial operation, although its analysis depends on assessing the amount payable under cl 4.4(b) as at the date of payment, not the date of Planning Approval. On that interpretation, if Dairycorp complies with its contractual obligations, it will have repaid the NAB loan, "LA" in the formula will be zero and, leaving interest aside, Dairycorp will be entitled, in effect, to receive 50 percent of the value of the land (although not necessarily 50 percent of the value of the land as at the date Planning Approval is granted). Also on that interpretation, the commercial rationale of the provision is to operate as a penalty in the event that Dairycorp fails to repay the NAB debt in accordance with cl 11(a) of the JVA, or, at least, an inducement for Dairycorp to do so, since the reduction is only made if Dairycorp has failed to repay the NAB debt at the time the advance is made. This interpretation avoids the more extreme results of the clause, although it is not clear why the penalty or inducement is proportional to the amount that Schofields has already advanced. That amount bears no relationship to the prejudice suffered by Schofields as a result of any delay or failure by Dairycorp to repay the NAB loan. Moreover, it is difficult to understand why "I" is to be deducted when the interest advanced by Schofields is already taken into account in calculating Schofields' participating interest.
On the other hand, it is equally difficult to understand the commercial rationale of the provision if, once Planning Approval is obtained, the joint venture becomes responsible for the NAB debt. In that event, the reduction in the amount that Schofields must pay under cl 4.4(b) by reference to the NAB debt may be small, but, however small it is, Schofields must also assume liability for half the NAB debt in order to acquire its 50 percent interest in the joint venture. In that event, it will pay substantially more than 50 percent of the value of the land to acquire a 50 percent interest; and the reduction that cl 4.4(b) requires to be made to take account of existing debt cannot be understood as compensation for the fact that Schofields must assume half the NAB debt.
In my opinion, cl 4.4(b) sheds little light on the parties' intention in relation to the question who would be responsible for repayment of the NAB debt following the granting of Planning Approval. It is difficult to say that the commercial purpose of the clause was to do anything more than fix part of the price that Schofields had to pay in order to acquire an interest in the land and joint venture. It may have made commercial sense for that price to be calculated by reference to the value of the land. But that is not the only approach the parties could have taken. The plaintiffs were contributing the land to the joint venture. Schofields was contributing its expertise. How those different contributions were to be valued was a matter for negotiation. The parties were each represented by experienced solicitors, and the result of the negotiations included cl 4.4(b).
The plaintiffs point to a number of other provisions of the JVA which they say support their construction of cl 11. However, in my opinion, the provisions that the plaintiffs point to cannot alter the clear meaning of cl 11(b), and most of them are equivocal. For example, the definition of "External Loan Funds" includes a loan "in respect of which the Joint Venture Parties become severally liable ... after the Planning Approval is obtained". That definition is sufficiently wide to cover the NAB debt of the plaintiffs' interpretation of cl 11 of the JVA. But I do not think that the definition is inconsistent with Schofields' interpretation. The plaintiffs put emphasis on the fact that the terms of the refinancing of the NAB debt required Schofields' approval. But that requirement can be explained by the fact that Schofields was required to make various repayments calculated by reference to the amounts payable under that facility, were required if necessary to give a limited guarantee in respect of it and had step-in rights in the event of a default by the plaintiffs. The plaintiffs also point to cl 17.3 of the JVA, which provides that any compensation received in respect of the compulsory acquisition of the "TIDC Land" would be applied to the repayment of the NAB debt or interest on that debt as determined by the joint venture committee. The "TIDC Land" is part of the land shown on a Deposited Plan. The plaintiffs submit that the parties would not have agreed to apply that compensation towards the NAB loan unless Schofields was to become responsible for half of it. However, I do not think that follows. Clause 17.3 applies whether or not Planning Approval was obtained and whether compulsory acquisition occurred before or after that time. The significance of the provision is difficult to gauge without knowing the likely value of the land the subject of compulsory acquisition. But there is no reason why the provision should not simply be regarded as part of the consideration agreed by Schofields in order to obtain a 50 percent interest in the land and joint venture.
There are two other provisions of the JVA that support Schofields' interpretation of cl 11.
First, cl 2(d) states that Schofields is under "no obligation to assume any liability under Dairycorp's existing debt facility (or any refinance of that existing debt facility)". The plaintiffs submit that cl 2(d) is only concerned with the position prior to the granting of Planning Approval. However, the clause does not say so, and the reference to any refinance of the existing debt facility suggests that the clause was intended to have a continuing operation.
Second, cl 4.3(a) states that it is the intention of the parties "to fund all Joint Venture Costs, whether before or after the date that Planning Approval is obtained by way of External Loan Funds". The JVA contains an extensive definition of "Joint Venture Costs". However, that definition does not include the costs of paying out the plaintiffs' existing debt secured against the property. It is to be expected that the parties would have said that the Joint Venture Costs would include an amount to pay out the plaintiffs' existing facility if that is what they intended.
It follows that the plaintiffs' claim based on the correct construction of the JVA must be rejected.
The claim based on rectification
In order to make out a claim for rectification based on a mutual mistake, it is necessary to establish "in the clearest and most satisfactory manner" or by clear and "convincing proof" that, at the time they executed the JVA, the parties had a common intention concerning their agreement which is not reflected in the written contract: see Australian Gypsum Ltd v Hume Steel Ltd [1930] HCA 38; (1930) 45 CLR 54 at 64 per Rich, Starke and Dixon JJ; Maralinga Pty Ltd v Major Enterprises Pty Ltd [1973] HCA 23; (1973) 128 CLR 336 at 349 per Mason J; Igloo Homes Pty Ltd v Sammut Constructions Pty Ltd [2005] NSWCA 280 at [88], [168] per Ipp JA (with whom Santow JA agreed). The mistake may be a mistake concerning the effect of words that were chosen deliberately: NSW Medical Defence Union Ltd V Transport Industries Insurance Co Ltd (1986) 6 NSWLR 740 at 747-8. The common intention must be capable of clear expression: Australian Gypsum Ltd v Hume Steel Ltd at 64. In order to ascertain the parties' common intention, the court can consider the negotiations between them. It may also consider evidence of the uncommunicated subjective intention of the parties: Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65; (2007) 69 NSWLR 603 at [176]-[187] per Tobias JA; at [258]-[316] per Campbell JA (with both of whom Mason P agreed). Where a corporation is involved, the primary consideration in determining the intention of the corporation is the state of mind of the person who acted: Igloo Homes Pty Ltd v Sammut Constructions Pty Ltd [89], referring to Johns v Australian Securities Commission (No 2) (1992) 35 FCR 146 at 172 per Black CJ and Von Doussa J; Arthur Yates & Company Pty Ltd v Vegetable Seeds Committee [1945] HCA 55; (1945) 72 CLR 37 at 69, 76 and 82.
The circumstances in which a court will grant rectification for a unilateral mistake are less clear. However, at a minimum, they involve one party operating under a mistake, and the other party knowing of that mistake and contributing to it: for discussion, see RP Meagher, JD Heydon and MJ Leeming, Meagher Gummow & Lehane's Equity: Doctrines and Remedies, (4th ed, 2001, LexisNexis) at [26-075].
The plaintiffs claim that the JVA should be rectified by inserting after clause 11(b) the words "and (c) the Joint Venture Parties agree that for the purposes of the repayment of the existing debt facility in clause 11(b) above, the Existing Debt will be repaid by Dairycorp utilising the External Loan Funds borrowed by the Joint Venture Parties pursuant to clause 11(a)".
In my opinion, there is an insuperable problem with the claim for rectification based on a common mistake. The claim depends on treating the amended term sheet distributed by Mr Taber on 1 December 2009, Mr Downing's response on 10 December 2009 deleting Option 1 and amending Option 2, and Mr Costelloe's acceptance of those changes on the same day as encapsulating the common intention of the parties, which continued through until execution of the JVA on 29 March 2010. It is doubtful that that common intention continued having regard to Mr Taber's evidence; and there is a question whether Mr Costelloe's intention on 10 December 2009 can be treated as the intention of Schofields.
But leaving those difficulties aside, in my opinion, it is clear that Villawood's intention as expressed in the amended term sheet was that it would agree to the joint venture taking over the NAB debt provided the plaintiffs agreed to reduce the amount Villawood had to pay to acquire a 50 percent interest in the joint venture by half the amount of the debt. That was expressed by the bullet point which stated that "[a]t PSP" Villawood would pay Dairycorp "33.3% of the value of the land at PSP less 50% of the land debt". It is clear from the two options presented in the amended term sheet that Villawood was willing to pay half the value of the land to acquire a 50 percent interest in the joint venture. It was indifferent to whether it took responsibility for half the NAB debt following PSP provided that, if it did, the price it paid was reduced by the amount of the debt for which it took responsibility. Its position made perfect commercial sense. However, Mr Downing says that he interpreted the statement "33.3% of the value of the land at PSP less 50% of the land debt" as meaning 33.3 percent of (the value of the land at PSP less 50% of the land debt) - in other words, 33.3 percent of the value of the land less one sixth of the land debt. Mr Lindsay-Owen did not form a separate intention in relation to the term sheet but relied on advice from Mr Downing concerning its appropriateness. Mr Downing's interpretation of the bullet point was obviously favourable to his clients. On the plaintiffs' case, the amount to be deducted in respect of the debt changed when the first draft of the JVA was circulated on 23 December 2009. That change, on the plaintiffs' case, was less favourable than Mr Downing's interpretation of the term sheet but still more advantageous to them than the interpretation that was obviously being placed on it by Villawood.
How all this came about from the plaintiffs' point of view is unclear. However, what is clear is that the intention on which the rectification case is based was an intention that Villawood should take responsibility for half the land debt provided the amount payable by it for a half interest in the land (and joint venture) was reduced by that amount. Those two elements cannot be separated. The plaintiffs never shared that intention. It was their intention that Villawood would take responsibility for half the land debt but that the amount payable by Villawood (later, Schofields) would be reduced by less than that amount - originally, it appears by one sixth of the land debt and then by a proportion of the debt calculated in accordance with the formula set out in cl 4.1(b) of the Facility Agreement. Consequently, there was never a common intention to start with. For that reason alone, the plaintiffs claim for rectification must fail.
The plaintiffs sought to amend their case following Mr Taber's cross-examination to plead a unilateral mistake. The mistake is said to be that they believed that the joint venture would borrow sufficient money to repay the NAB debt and that each of the joint venture parties would take their proportionate responsibility for that debt - that is, each would become liable for 50 percent of the debt. Mr Taber is said to have known of that belief, and the belief is said to have been induced by Schofields' conduct in not correcting the mistake in the period between mid-December 2009 and 29 March 2010.
There were a number of problems with this proposed amendment. The amendment application was made on the last day of the hearing. The plaintiffs were on notice from the time Mr Taber's affidavit was served on 31 July 2014 of his evidence that his intention changed in the second half of December 2009. It is true that he did not explain how that change came about until he was cross-examined, but on the way the plaintiffs sought to put their amended case, the amendment could have been sought to be made following service of the affidavit. It was not put to Mr Taber that he knew that the plaintiffs were mistaken. And it was not put to Mr Downing and Mr Lindsay-Owen that the mistake under which they say they operated was induced by Schofields. Consequently, if the amendment had been allowed, it would have been necessary for a number of the witnesses to be recalled. It is doubtful that an allegation that a mistake was induced by silence is sufficient for rectification based on a unilateral mistake unless facts are pleaded and proved which would give rise to a duty to speak out or at least an expectation that that would occur. Consequently, the proposed amendment was deficient. For the reasons I have given, I also considered that it was made too late.
In addition to those considerations, the proposed amendment suffered from a similar flaw to the case based on common mistake. At most, it could only be said, on the basis of what Schofields (through Villawood) did, that Schofields induced the plaintiffs to believe that it would assume responsibility for half the debt (through the financing organised by the joint venture) if the plaintiffs agreed to reduce the amount payable by Schofields by the amount of the debt for which it became responsible. But the plaintiffs say that they never had that belief. Consequently, any mistake they operated under was not induced by Schofields.
It was for those reasons that I refused leave to make the amendment.
The cross-claim
By its cross-claim, Schofields seeks orders that the JVA and Facility Agreement be rectified in various respects. The amendments would give effect to Option 2 of the amended term sheet dated 1 December 2009 - that is, to the proposal that, if the joint venture took over responsibility for the NAB debt following the granting of Planning Approval, then the amount payable by Schofields should be reduced by the amount of the debt for which it would become responsible as a joint venture partner. The cross-claim is defensive in nature and is not pressed if the plaintiffs' rectification case fails, which it has.
It follows that the cross-claim should be dismissed.
Orders
The orders of the Court are that the plaintiffs' claim and the defendant's cross-claim be dismissed.
As I have said, the cross-claim was defensive in nature. It took up virtually no time in the hearing. In those circumstances, I think that the appropriate order in relation to costs is that the plaintiffs pay the defendant's costs of the proceedings.
**********
Decision last updated: 28 August 2014
16
0