Ling v O'Reilly
[2021] WADC 78
•10 AUGUST 2021
JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CIVIL
LOCATION: PERTH
CITATION: LING -v- O'REILLY [2021] WADC 78
CORAM: WHITBY DCJ
HEARD: 9-11 & 28-29 JUNE 2021 & WRITTEN SUBMISSIONS DATED 29 JULY 2021
DELIVERED : 10 AUGUST 2021
FILE NO/S: CIV 2775 of 2019
BETWEEN: HEE LEONG LING
Plaintiff
AND
SEAN DAMIAN O'REILLY
Defendant
AND
SEAN DAMIAN O'REILLY
SEAN DAMIAN O'REILLY AND MELISSA LOUISE O'REILLY as Trustee for WWTD DEVELOPMENT TRUST
Plaintiffs by counterclaim
AND
HEE LEONG LING
SILVERSHORE ENTERPRISES PTY LTD
Defendants by counterclaim
Catchwords:
Joint Endeavour to purchase and develop residential property - Whether one party to the Joint Endeavour loaned money to the other party - Whether loan was a sham - Whether set-off agreement - Implication of terms in set-off agreement - Evidence required to establish reasonableness of expenses
Legislation:
Nil
Result:
Plaintiff's claim dismissed
First and second plaintiffs by counterclaim’s counterclaim dismissed
Representation:
Counsel:
| Plaintiff | : | Mr N Dillon |
| Defendant | : | Mr G Douglas & Ms T Watson |
| Plaintiffs by counterclaim | : | Mr G Douglas & Ms T Watson |
| Plaintiffs by counterclaim | : | Mr G Douglas & Ms T Watson |
| Defendants by counterclaim | : | Mr N Dillon |
| Defendants by counterclaim | : | Mr N Dillon |
Solicitors:
| Plaintiff | : | Tang Law |
| Defendant | : | Douglas Cheveralls Lawyers |
| Plaintiffs by counterclaim | : | Douglas Cheveralls Lawyers |
| Plaintiffs by counterclaim | : | Douglas Cheveralls Lawyers |
| Defendants by counterclaim | : | Tang Law |
| Defendants by counterclaim | : | Tang Law |
Case(s) referred to in decision(s):
BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266
Masters v Cameron (1954) 91 CLR 353
Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37
Sandbank Holdings Pty Ltd v Durkan [2010] WASCA 122
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165
West Boat Builders Pty Ltd v Cull Holdings Pty Ltd [1999] WASCA 72
Table of Contents
Introduction
Background
The issues
The pleadings
The evidence
Witnesses - general observations
Facts not in issue
Did Mr Ling loan $1 million to Mr O'Reilly?
Positions of the parties
Evidence
Mr Tan
Mr Wu
Mr Ling
Ms Lee
Mr O'Reilly
Findings and determination
Did Ms Lee, on behalf of Mr Ling, represent that Mr Ling would not enforce the Loan or the Loan Document?
Positions of the parties
Evidence
Ms Lee
Mr O'Reilly
Findings and determination
Is the Loan otherwise enforceable?
Positions of the parties
Evidence
Ms Lee
Mr O'Reilly
Findings and determination
Did Mr Ling and Mr O'Reilly agree that expenses of the Joint Endeavour paid by the Trust would be set-off against the Loan?
Positions of the parties
Evidence
Mr Ling
Ms Lee
Findings and determination
What are the terms of the Set-Off Agreement?
Positions of the parties
Evidence
Mr Ling
Ms Lee
Mr O'Reilly
Findings and determination
What Trust Expenses can be set-off against the Loan?
Positions of the parties
Findings and determination
Payments to Jetpoint Progress Claims 1, 14 and 15 - Attachment A - Items 34, 46 and 49
Progress Claim 1 - Attachment A - Item 34 (Exhibit 1.945)
Progress Claim 14 - Attachment A - Item 46 (Exhibit 1.957)
Progress Claim 15 - Attachment A - Item 49
Property Purchase - Deposit Payments - Attachment A - Items 1, 3, 5 and 6
Bank Mandate Fee - Attachment A - Item 27
Land Tax - Attachment A - Items 18 and 36
City of South Perth - Attachment A - Items 4, 8, 10, 15, 19, 31 and 47
Water Corporation - Attachment A - Items 14, 20, 21, 23, 24, 25, 26, 27a, 28, 29, 30, 33, 35, 37, 38, 39 and 41
Electricity - Attachment A - Items 17, 38a and 45
Draftsman - Attachment A - Items 7 and 22
Survey - Attachment A - Item 2
Designs - Attachment A - Items 9 and 11
Demolition - Attachment A - Items 12 and 32
Urban Energy - Attachment A - Item 13
Gas - Attachment A - Item 16
Fencing - Attachment A - Items 40 and 42
Whitehurst Survey - Attachment A - Item 44
Western Australian Planning Commission (WAPC) Lodgment Fees - Attachment A - Item 43
Lawn Mowing and Gardening - Attachment A - Items 48 and 50
Summary of Trust Expenses
Is the Trust entitled to a declaration?
Conclusions and final orders
Attachment A
WHITBY DCJ:
Introduction
Mr Hee Leong Ling, the plaintiff, and Mr Sean Damian O'Reilly, the defendant, were close friends. Mr Ling and Mr O'Reilly saw each other five to six days a week. Mr Ling's wife, Ms Yu Lian Lee and Mr O'Reilly's wife, Ms Melissa O'Reilly, were also friends.
In 2015, Mr Ling and Mr O'Reilly decided to buy and develop a property together. In 2016, they jointly purchased, through their respective entities, a property in Como (Property).
For the purposes of buying and developing the Property, Mr Ling's entity was Silvershore Enterprises Pty Ltd as trustee for the Ling Family Trust (Silvershore) and Mr O'Reilly's entity was Sean Damian O'Reilly and Melissa Louise O'Reilly as trustees for the WWJD Development Trust (Trust).
Mr Ling and Mr O'Reilly agree that they entered into a joint endeavour to develop the Property, on the understanding that Silvershore and the Trust would share equally in any profit or loss. Unfortunately, Mr Ling and Mr O'Reilly do not agree on the amounts that Silvershore and the Trust each contributed to the development of the Property.
Mr Ling says he loaned Mr O'Reilly $1 million to allow Mr O'Reilly to pay the Trust's share of the purchase price of the Property. Mr Ling says that Mr O'Reilly has repaid some of that loan but must repay the rest with interest.
Mr O'Reilly says that Mr Ling did not loan him any money. Instead, he says that Mr Ling agreed that Silvershore would finance the entire purchase price of the Property and that the Trust would reimburse the Trust's share of the purchase price as soon as the Trust had the money, or at the latest, when the Property was sold.
Mr O'Reilly says that even if Mr Ling did loan him $1 million, Mr Ling agreed that any expenses that the Trust paid towards the development of the Property would be set-off against the amount owed under any loan. Mr O'Reilly says that the Trust had paid expenses towards the development of the property that totally extinguish any loan from Mr Ling.
Mr Ling says he did not agree to any set-off, but if he did, then it is only verified and reasonable expenses that can be set-off. Mr Ling says the Trust has not provided enough detail to establish that the expenses claimed by the Trust are reasonable.
As a result of their differing views, Mr Ling and Mr O'Reilly found themselves on opposite sides in a court room, both having spent money on legal fees and both having suffered the stress and uncertainty inherent in litigation. Not surprisingly, their friendship did not survive. Unfortunately, this is not an uncommon story when friends go into business together. What is less common is that the development of the Property did not fail. Six units were built on the Property and Mr O'Reilly and Mr Ling each received three units.
The contemporaneous documents tendered into evidence during the trial overwhelmingly supported the existence of a loan as contended for by Mr Ling and a set-off agreement as contended for by Mr O'Reilly. It is unfortunate that both parties persisted in cases to the contrary. What this case really came down to was a dispute between Mr Ling and Mr O'Reilly about the expenses reasonably attributable to the development of the Property. It is equally unfortunate that this issue could not have been resolved without the need for a five day trial heard years later in this court.
For the reasons that follow, I find that:
(a)in June 2016, Mr Ling loaned Mr O'Reilly $1 million;
(b)Mr O'Reilly and Mr Ling agreed that interest would be charged on the outstanding amount of the loan at the rate of 3% per annum;
(c)Mr O'Reilly has made payments totalling $885,921 towards the repayment of the loan;
(d)Ms Lee, acting on behalf of Mr Ling, agreed that Mr O'Reilly could set-off expenses that were incurred by the Trust towards the development of the Property against the loan;
(e)the expenses must be reasonable in order to be set-off;
(f)Mr O'Reilly is entitled to set-off expenses claimed by the Trust in the amount of $201,378.81 against the loan;
(g)the balance outstanding under the loan, as at 10 June 2021, was $196,407; and
(h)therefore, Mr O'Reilly has fully repaid the loan.
Background
Mr Ling is married to Ms Yu Lian Lee. Mr Ling and Ms Lee are shareholders and directors of Silvershore.
Mr O'Reilly is married to Ms Melissa O'Reilly. Mr O'Reilly and Mrs O'Reilly are trustees and beneficiaries of the Trust.
In August 2015, Silvershore and the Trust entered into a joint endeavour to purchase and develop the Property as a commercial enterprise with a common intention of obtaining profit and contributing equally for a mutual benefit (Joint Endeavour).
Mr Ling and Mr O'Reilly discussed obtaining finance to fund the contributions required by Silvershore and the Trust to fund a percentage of the purchase price of the Property. Although they attempted to secure funding, they were unable to obtain finance to purchase the Property.
The settlement date for the purchase of the Property was originally scheduled to take place in November 2015. The settlement date was extended twice. Silvershore and the Trust eventually settled on the Property in June 2016. Silvershore advanced the funds for the purchase price of the Property.
Mr Ling and Mr O'Reilly are in dispute about who was going to fund the purchase price of the Property.
Mr O'Reilly says that, in November 2015, Silvershore agreed to pay the whole of the purchase price of the Property and that the Trust agreed to repay its share of the purchase price of the Property as soon as it had the money, or at the latest, when the Property was sold. Mr O'Reilly says that Mr Ling did not loan him $1 million.
Mr Ling says that, on 9 June 2016, he loaned $1 million to Mr O'Reilly to enable Mr O'Reilly to provide the Trust with its 50% of the purchase price of the Property (Loan). Mr Ling says that the Loan is evidenced in a written document dated 9 June 2016 and executed in April 2017 (Loan Document).
Mr O'Reilly admits that he signed the Loan Document in April 2017. However, he says the Loan Document is a sham because it was only created for the purpose of Mr Ling's application for permanent residency. Mr O'Reilly seeks a declaration that the Loan Document is not legally binding and therefore does not give rise to an obligation for him to repay Mr Ling.
In February 2018, Silvershore and the Trust entered into a construction contract with Jetpoint Nominees Pty Ltd trading as Ace Constructions WA (Jetpoint). Mr O'Reilly and Mr Mario Andreou are the directors of, and equal shareholders in (either themselves or through a corporate entity) Jetpoint.
Mr Ling and Mr O'Reilly are also in dispute as to whether Mr O'Reilly can set-off amounts the Trust says it paid for expenses on behalf of the Joint Endeavour (Trust Expenses) against the Loan.
Mr Ling denies that there was any agreement to set-off Trust Expenses against the Loan. Mr Ling says that, even if there was a set‑off agreement, then only verified and reasonable expenses can be set‑off against the Loan. Mr Ling says the Trust has not verified the Trust Expenses nor proved that the Trust Expenses are reasonable.
The Trust also seeks a declaration, by way of counterclaim, that the Trust and Silvershore entered into the Joint Endeavour in August 2015 and that each party, is obliged, upon sale of the assets of the Joint Endeavour, to distribute the proceeds so as to ensure that each party has contributed (or lost) equally in the Joint Endeavour.
The issues
The following issues arise:
1.Did Mr Ling loan $1 million to Mr O'Reilly?
2.If Mr Ling did loan $1 million to Mr O'Reilly:
(a)did Ms Lee, on behalf of Mr Ling, represent that Mr Ling would not enforce the Loan or the Loan Document?; and
(b)is the Loan otherwise enforceable?
3.If the Loan is enforceable:
(a)Did Mr Ling and Mr O'Reilly agree that Trust Expenses would be set-off against the Loan?
(b)If so, what are the terms of the Set-Off Agreement?; and
(c)What Trust Expenses can be set-off against the Loan?
4.Is the Trust entitled to a declaration that Silvershore and the Trust are obliged to equally contribute to the Joint Endeavour?
The pleadings
The pleadings comprise of:
(i)Amended Statement of Claim filed 30 April 2020.
(ii)Further Re-Amended Defence and Set-off of Defendant and Defendant's (First Plaintiff by Counterclaim) and Second Plaintiff's Counterclaim filed 6 June 2021.
(iii)Re-amended Reply to Amended Defence and Set-Off and Amended Defence to Counterclaim filed 16 June 2021.
The evidence
The following witnesses gave evidence at the trial for Mr Ling and Silvershore:
(a)Mr James Tan, the tax accountant for Silvershore;
(b)Mr Charles Wu, the migration agent for Mr Ling and Ms Lee;
(c)Mr Ling; and
(d)Ms Lee.
The following witnesses gave evidence at the trial for Mr O'Reilly and the Trust:
(a)Mr O'Reilly; and
(b)Mr Andreou.
At the commencement of the trial three files of documents were tendered by consent, which became exhibit 1.[1] Only those documents referred to during evidence of the witnesses became part of exhibit 1. I will refer to the documents in exhibit 1 by the reference '1.' followed by the page number.
[1] Exhibit 1 - Trial bundle comprising of three volumes.
Throughout the course of the trial, a number of additional documents were also tendered into evidence.
Witnesses - general observations
I will outline the relevant evidence of each witness in relation to each issue. However, I make the following general observations about the testimony of each of the witnesses.
I find the evidence of Mr Tan and Mr Wu to be of limited relevance given they each relied upon instructions given to them by Mr Ling and Ms Lee.
I find that Ms Lee had Mr Ling's authority to act on his behalf at all times. None of the witnesses disputed this fact.
I found Mr Ling, Ms Lee and Mr O'Reilly to be truthful witnesses. However, I have reservations about the reliability and accuracy of their evidence, where that evidence was provided in support of their respective cases. Accordingly, I have relied only upon their oral testimony where it was either:
(a)consistent across the witnesses;
(b)against the witness' own interest; or
(c)if there was conflicting evidence in relation to an issue, supported by contemporaneous documents.
I also assessed the evidence of Mr O'Reilly in the context of the number of roles Mr O'Reilly had in the development of the Property - his Trust was part owner of the Property and he was a 50% shareholder and a director of Jetpoint. It was evident that Mr O'Reilly did not always distinguish in which capacity he was giving evidence. There was nothing sinister or underhanded about this - all parties were aware of his different roles. In fact, it appears that Mr O'Reilly's involvement in Jetpoint was one of the factors which was considered by both parties to be beneficial in developing the Property. However, it has come to pass that the different roles held by Mr O'Reilly has been a complicating factor that has significantly contributed to the dispute between Mr Ling and Mr O'Reilly.
Facts not in issue
The following evidence was not the subject of any dispute and I make findings of fact in accordance with the paragraphs to follow under this heading. I will also refer back to these facts at relevant times during the consideration of each of the issues. The facts are in chronological order and where there is a dispute that is integral to the determination of the issues in this action, I have signposted those facts in dispute as part of the chronology.
In August 2015, Silvershore and the Trust entered into a contract for the purchase of the Property as tenants in common (Contract). The Contract was subject only to Foreign Investment Review Board (FIRB) approval.[2]
[2] Exhibit 1.1.
In August 2015, Silvershore and the Trust agreed to purchase the Property for the purpose of developing it, selling it for a profit and sharing in the profits equally - this is referred to as the Joint Endeavour.[3]
[3] Defence and Counterclaim par 17; Amended Defence to Counterclaim par 5.
Mr Ling, Ms Lee and Mr O'Reilly were the directors of Silvershore. Mr O'Reilly ceased being a director of Silvershore on 21 March 2019.[4]
[4] Exhibit 1.698.
In August 2015, $20,000 deposit was paid pursuant to the Contract. It is in dispute whether the Trust paid $20,000 or Silvershore and the Trust each paid $10,000.
On 30 September 2015, Silvershore obtained FIRB approval.[5] The Contract became unconditional.
[5] Exhibit 1.18.
It is in dispute whether Silvershore agreed, in November 2015, to fund the entire purchase price of the Property, including the Trust's 50% share of the purchase price of the Property.
On 11 November 2015, Silvershore, the Trust and the seller of the Property entered into a variation of the Contract pursuant to which:
(a)the deposit was increased to $80,000; and
(b)interest was paid by Silvershore and the Trust to the seller, calculated at 5% per annum on the purchase price of the Property for the period 24 November 2015 up to and including the date of settlement; and
(c)settlement date was extended to 30 April 2016.[6]
[6] Exhibit 1.21.
On 19 April 2016, Silvershore, the Trust and the seller entered into a further variation of the Contract pursuant to which:[7]
(a)the deposit was increased by $50,000 to a total of $130,000;
(b)Silvershore and the Trust to pay City of South Perth water and sewerage rates and land tax from 1 May 2016 until settlement;
(c)the purchase price was increased from $2,020,000 to $2,077,668 (Purchase Price);
(d)the interest clause as per the variation signed and dated 11 November 2015 was deleted; and
(e)the settlement date was extended to 27 June 2016.
[7] Exhibits 1.32 - 1.33.
It is in dispute whether Mr Ling agreed, in June 2016, to loan Mr O'Reilly $1 million to allow Mr O'Reilly to fund the Trust's 50% share of the Purchase Price (Loan).
On 26 February 2018, Silvershore and the Trust engaged Jetpoint to undertake the building development on the Property (Construction Contract).[8] The Construction Contract was signed by Mr Ling, on behalf of Silvershore (witnessed by Ms Lee), and Mr O'Reilly, on behalf of the Trust (witnessed by Mrs O'Reilly). The Construction Contract was a fixed price contract for the amount of $3,015,000.
[8] Exhibit 1.145 (Construction Contract).
Mr O'Reilly and Mr Mario Andreou (or his entity) are the shareholders and directors of Jetpoint.[9]
[9] ts 383.
In April 2017, Mr O'Reilly and Mr Ling signed a document which purported to record a loan from Mr Ling to Mr O'Reilly for $1 million (Loan Document). The date which appears on the first page of the Loan Document is 9 June 2016.[10]
[10] Exhibit 1.44.
It is in dispute whether the Loan Document was a sham.
On 10 June 2016, Silvershore transferred $2,053,093.35, being the remaining balance of the Purchase Price to Floreat settlements.[11]
[11] Exhibit 1.49.
On 22 June 2016, the Property settled.[12]
[12] Exhibits 1.55 - 1.58.
The following amounts were paid by Mr O'Reilly (or the Trust) to Mr Ling (or Silvershore):
(a)$200,000 on 6 April 2017;[13]
(b)$100,000 on 27 November 2017;[14]
(c)$100,000 on 15 April 2018;[15] and
(d)$185,921 on 5 March 2021.[16]
[13] Exhibit 1.113.
[14] ts 94, ts 441.
[15] ts 94, ts 441.
[16] ts 441.
On 30 June 2018, 33.33% of the shares in the Irish Twinwood Unit Trust, to the value of $300,000, were transferred from the Trust to Silvershore.[17] It is in dispute whether the shares were transferred to Silvershore in reduction of the Loan or whether the shares were transferred to Silvershore pursuant to the Joint Endeavour.
[17] Exhibits 1.190 - 1.191.
On 16 March 2020, practical completion of the Property, pursuant to the Construction Contract, occurred.[18]
[18] Exhibits 1.706 - 1.707.
On 5 February 2021, Silvershore and the Trust agreed to separate the ownership of the units built on the Property so that they each received three units.[19]
[19] Exhibits 1.725 - 1.732; ts 97 - ts 98.
Did Mr Ling loan $1 million to Mr O'Reilly?
Positions of the parties
Mr Ling says that, in June 2016, he loaned Mr O'Reilly $1 million. Mr Ling says the terms of the Loan are recorded in an email between Ms Lee, on his behalf, and Mr O'Reilly. Mr Ling says that the terms of the Loan were later evidenced in writing in the Loan Document signed by himself and Mr O'Reilly in April 2017.
Mr O'Reilly says that Mr Ling did not loan him $1 million. Mr O'Reilly says that, in November 2015, Silvershore, not Mr Ling, agreed to pay the Trust's portion of the purchase price of the Property and that the Trust would repay $1 million, with interest at 3% per annum, as soon as possible or upon the sale of the Property.
Mr O'Reilly admits that he signed the Loan Document in April 2017, but says that it does not evidence the Loan because it was a sham document. Mr O'Reilly says the Loan Document is a sham because Ms Lee told him it was only required for Mr Ling's permanent residency application and would only be provided to her accountant.
Mr O'Reilly says that he did not sign the Loan Document until April 2017, but the Loan Document is dated 9 June 2016. Mr O'Reilly says that even if the Loan Document is not a sham, the payment referred to in the Loan Document was not advanced in April 2017. Therefore, the Loan Document is not enforceable by Mr Ling because the consideration in the Loan Document is no consideration or past consideration.
Evidence
Mr Tan
Mr Tan is the accountant for Silvershore. Mr Tan gave evidence that he prepared the financial accounts for Silvershore for the 2017, 2018, 2019 and 2020 financial years.[20]
[20] Exhibit 2.
For each of these years, the accounts of Silvershore disclose a 50% interest in the Property as an asset and do not disclose a loan of $1 million owed to Silvershore by Mr O'Reilly or the Trust.
I accept the evidence of Mr Tan as being truthful, accurate and reliable.
However, given that Mr Tan was preparing the accounts on the basis of instructions given to him by Mr Ling and Ms Lee, I do not place any weight on his evidence in determining whether there was a Loan or whether the Loan Document was a sham.
Mr Wu
Mr Wu is a chartered accountant and a registered migration agent. Mr Ling and Ms Lee are his clients for the purposes of seeking Australian residency.[21]
[21] ts 61.
Mr Wu provided advice to Ms Lee about the information that was required to substantiate an application for permanent residency. I find that Mr Wu's evidence is only relevant to establish the following:
(a)Mr Ling and Ms Lee were applying for a permanent residency visa in April 2017;[22]
(b)Mr Wu requested a copy of the written loan agreement as evidence of a $1 million loan owed to Mr Ling by Mr O'Reilly;[23] and
(c)Ms Lee provided him with the Loan Document.[24]
[22] ts 61.
[23] ts 64, ts 66.
[24] ts 67.
Counsel for Mr O'Reilly submitted that the evidence of Mr Wu should not be considered accurate or reliable because Mr Wu was reluctant to accept that he understood the Loan Document to have been executed on 9 June 2016. Mr Wu's evidence was that he did not 'believe or not believe' when asked about whether the Loan Document was created on 9 June 2016.[25]
[25] ts 67, ts 68.
I found Mr Wu's evidence to be truthful, reliable and accurate. In my view, Mr Wu's evidence as to his view when the Loan Document was created and signed is not relevant to the issue of whether the Loan Document was a sham. Evidence as to what Ms Lee told him may be relevant, but evidence of what he understood is not.
Mr Ling
Mr Ling has an economics degree from the University of London and has an extensive commercial career which includes running and structuring private and listed companies.[26]
[26] ts 73.
Mr Ling says that, in August 2015, Mr O'Reilly identified the Property as a possible joint investment and he and Mr O'Reilly went to look at the Property.[27] Mr Ling says it was agreed between himself and Mr O'Reilly 'that it would be a fifty-fifty investment'.[28]
[27] ts 78.
[28] ts 79.
Mr Ling accepted that he and Mr O'Reilly discussed obtaining finance for 80% of the Joint Endeavour, or at the least 60% finance.[29]
[29] ts 79, ts 80.
Mr Ling said each of Silvershore and the Trust paid $10,000 each of the $20,000 deposit required under the Contract.[30]
[30] ts 82.
When it was put to Mr Ling in cross-examination that he knew that Mr O'Reilly did not have the money to fund 50% of the purchase price of the Property, Mr Ling said he did not know that and was not told that by Mr O'Reilly.[31] Mr Ling did accept that Mr O'Reilly did tell him that without finance, Mr O'Reilly may not be able to come up with 50% of the purchase price.[32]
[31] ts 105.
[32] ts 113.
Mr Ling said that he was ready to advance his 50% of the Purchase Price in November 2015.[33] He referred to his bank statement in support of this proposition.[34]
[33] ts 84, ts 85.
[34] Exhibit 1.29.
Mr Ling said that settlement of the Property failed to take place in November 2015 because:[35]
… close to that date, Mr O'Reilly told me that he couldn't come up with his half of the funds, and he had to devise a mechanism to delay settlement to a later date.
[35] ts 85.
On 11 November 2015, Mr Ling signed a variation of the Contract to extend the settlement date to April 2016.[36]
[36] ts 86; Exhibit 1.21.
Mr Ling said that Mr O'Reilly continued to try and obtain finance and that he assisted Mr O'Reilly when requested.[37]
[37] ts 87.
As April 2016 approached, Mr Ling said that:[38]
As we get towards settlement, it looks very much like it's going to fail again … because [Mr O'Reilly] couldn't raise half of the purchase price yet.
[38] ts 87.
On 19 April 2016, Mr Ling signed a variation of the Contract because he says 'it was not a lot of choice really'.[39]
[39] Exhibit 1.116; ts 88.
When asked if he proffered any other way to get around the issue of obtaining finance, Mr Ling said:[40]
Towards May or June, Mr O'Reilly asked if I could forward the money for him if he could pay back in three months.
[40] ts 88.
Mr Ling said Mr O'Reilly said to him 'can you pay my half for me first and I'll pay back in three months'.[41]
[41] ts 89.
Mr Ling said Mr O'Reilly offered to pay him 5% interest but that he said 3% interest would cover his losses with the bank. Mr Ling said he thought about the offer from Mr O'Reilly and then said 'Okay' to Mr O'Reilly in person.[42]
[42] ts 89.
Mr Ling said that he then asked Ms Lee to come up with the terms for the Loan. He was shown an email dated 6 June 2016 from Ms Lee to Mr O'Reilly.[43] Mr Ling did not draft this email but said that he discussed it with Ms Lee and told her what to put in the email.[44]
[43] Exhibit 1.534.
[44] ts 90.
Mr Ling said that, in March 2017, none of the Loan had been repaid by Mr O'Reilly so he asked Mr O'Reilly if he had sold anything and when was he going to repay it.[45]
[45] ts 91.
On 6 April 2017, Mr O'Reilly paid Mr Ling $200,000. Mr Ling signed a receipt for this amount.[46]
[46] Exhibit 1.113; ts 91.
Mr Ling, when asked about the Loan Document and how it came into existence, gave the following evidence:[47]
Mr Ling: Can we put this loan on paper?
… because we need to formalise the thing because it was not paid in the three months they would have raised this loan.
And we also needed to be very careful of how this moneys [sic] would be treated when they get returned.
… I was very wary if it was misunderstood and would be taxable and it would be classified as new income and I couldn't let that happen.
… [the Loan Document] is for the tax office, not the accountant.
Mr Dillon: … when you executed this loan agreement, did you confer at all about the document? Did he raise any issue with you about it?
Mr Ling: No.
[47] ts 92 - ts 93.
In November 2018, Mr Ling and Mr O'Reilly exchanged messages via WhatsApp in an attempt to resolve the issues between them. Mr Ling agreed that this was a chronology written by him of what happened in the arrangements for the Joint Endeavour.[48] In a WhatsApp message to Mr O'Reilly, Mr Ling wrote:[49]
When you said you may not have all the capital for the 50 per cent portion. I said I would fund it.
[48] ts 106.
[49] Exhibit 1.183.
When questioned about whether this statement effectively meant that Mr Ling had agreed to cover the purchase price of the Property if finance could not be obtained, Mr Ling clarified that it was only referring to covering his half.[50]
[50] ts 115.
It was put to Mr Ling in cross-examination that he did not pay Mr O'Reilly $1 million, rather that he paid the settlement agent the whole of the Purchase Price. Mr Ling accepted that $1 million was not paid to Mr O'Reilly, but that it was paid to the settlement agent on behalf of Mr O'Reilly.[51]
Ms Lee
[51] ts 118 - ts 119.
Ms Lee has a law degree from the University of London. Ms Lee has worked in corporate lending institutions and currently assists Mr Lee in looking after his investments.[52]
[52] ts 135 - ts 136.
Ms Lee said that, in June 2016, Mr Ling told her he had agreed to loan Mr O'Reilly $1 million for his share of the purchase price of the Property and asked her to have a discussion with Mr O'Reilly as to the arrangement.[53] Ms Lee said she spoke with Mr O'Reilly in person in June 2016 about the Loan. She then sent an email to Mr O'Reilly on 6 June 2016, to which he responded, on 7 June 2016, by inserting red text next to Ms Lee's questions:[54]
[53] ts 89.
[54] Exhibit 1.534; ts 146.
Sean,
Had a discussion with Leong about Coode with regards to the short term bridging loan required by you for the settlement of Coode on the 27 June 2016. Yes, initially we were going to borrow 80%. This is a bit hard due to no financials from KL.
For our cashflow planning purposes we need to clarify a few things with you;
How long do you anticipate you need the bridging loan for? As soon as a couple of the properties sell. 3 months, but could be a little longer.
Where are you expecting the settlement to come from?There are 6 properties for sale in Perth plus 5 in Port Hedland (hopefully complete in 6 weeks).
Bassendean 1 sold $500k 3 to go. When 3 sell I will have $500k freed up
Booragoon - 2 for sale. When sold I will have $700k freed up
Port Hedland -1 sold 4 to be for sale - When the first one settles I will have $700k freed up
As soon as any 2 of the above come through I can pay into Coode account.
We will need to peg it to the current deposit rate to address our cost of funds. Yes agreed.
We would need the arrangement to be documented in a simple form. An acknowledgement between us. Yes agreed
We can sit down and chat about this, sooner better as we will be leaving soon.
Cheers,
Yu Lian
Ms Lee said that she considered the email and its response as an agreement in itself.[55]
[55] ts 147.
In April 2017, Ms Lee said that she told Mr O'Reilly, that as they had agreed to document the Loan earlier, it was time to do it now.[56]
[56] ts 149.
Ms Lee prepared a receipt dated 6 April 2017 for repayment of $200,000 by Mr O'Reilly to Mr Ling in reduction of the Loan.[57] Ms Lee said that Mr O'Reilly did not mention the Trust making this repayment.[58]
[57] Exhibit 1.113.
[58] ts 149.
Ms Lee said that, around April 2017, she had met with Mr Wu and he told her to provide a list of assets and liabilities. Ms Lee accepted that the Loan Document was provided to Mr Wu for the purposes of the permanent visa application, but said that the Loan Document was also required, because Mr Ling had not been paid back yet, and for Australian Taxation Office purposes.[59]
[59] ts 149.
Ms Lee said Mr Reilly sent her a draft loan agreement but Ms Lee thought it was too complicated so she drafted a loan document and sent to it Mr O'Reilly. Ms Lee and Mr O'Reilly exchanged a number of drafts.[60] Ms Lee said that both Mr O'Reilly and Ms Lee had input into the drafting of the Loan Document.[61] In relation to the 'Event of Default' clause included in the Loan Document, Ms Lee said that Mr O'Reilly asked for it to be included in the document.[62]
[60] Exhibit 3.
[61] ts 153.
[62] ts 155.
Ms Lee said that Mr O'Reilly never objected to the terms of the Loan Document. She also denies that she ever said to Mr O'Reilly that the Loan Document was only required for her to provide to Mr Wu.[63]
[63] ts 183.
Ms Lee said that, in 2018, there was still a large part of the Loan that was not repaid. Mr O'Reilly proposed that he transfer his share in other property in Norma Road as part payment of the Loan. Ms Lee said she prepared a document to give effect to Mr O'Reilly arranging for the Trust to transfer interest in the Norma Road property in reduction of the Loan - the document was titled 'Agreement for the Sale and Purchase of Trust Units in Irish Twinwood Unit Trust' (Twinwood Trust Agreement).[64] It is signed by Mr O'Reilly and Mr Ling. The first paragraph states:
A Loan Agreement was entered into on 9th June 2016 between Hee Leong Ling and Sean Damian O'Reilly for the sole purpose of paying for 50% of the purchase of 206 Coode Street, Como 6152 WA on behalf of WWJD Development Trust.
[64] Exhibit 1.190; ts 159.
Ms Lee said Mr O'Reilly did not question the terms of the Twinwood Trust Agreement.[65]
[65] ts 159.
In July 2018, Ms Lee said she met with Mr O'Reilly to talk about the amount outstanding on the Loan.[66] Ms Lee said they also met to talk about a deposit required for the construction to proceed and the requirement that Silvershore and the Trust spend a total of $195,000 of their own money before they could proceed to a drawdown from the bank for construction.[67] Ms Lee recorded what she understood Mr O'Reilly's proposals to be in an email dated 5 July 2018.[68]
[66] ts 161.
[67] ts 161.
[68] Exhibit 1.196.
Counsel for Mr O'Reilly submitted that Ms Lee should not be considered a credible witness because Ms Lee did not tell the truth to Mr Wu when she said there was a documented loan agreement. Counsel for Mr O'Reilly submitted that Ms Lee was evasive with her answers when questioned about what she said to Mr Wu.
Mr O'Reilly
Mr O'Reilly acknowledged the existence of the Loan in emails.[69] Mr O'Reilly signed the Loan Document,[70] the Twinwood Trust Agreement,[71] and a receipt for repayment of monies pursuant to the Loan.[72]
[69] Exhibits 1.85, 1.534 and 3.
[70] Exhibit 1.47.
[71] Exhibit 1.191.
[72] Exhibit 1.113.
Mr O'Reilly gave evidence that he signed these documents, including the Loan Document, without worrying about the legal effect of the documents.[73] Mr O'Reilly said that the accounting treatment of the Loan 'didn't make any difference to me as long as the amount was accounted for'.[74] Mr O'Reilly accepted that he understood the difference between signing documents individually and on behalf of an entity.[75]
[73] ts 296, ts 298 and ts 431.
[74] ts 453.
[75] ts 404, ts 429.
When giving evidence about why he signed the Loan Document if he did not believe it to be accurate, Mr O'Reilly said that he signed it because he understood it was only going to be used for Mr Ling's permanent residency application.[76]
[76] ts 431 - ts 432.
When asked about conferral between himself and Ms Lee regarding the terms of the Loan Document, Mr O'Reilly said:[77]
Well the terms were already agreed previously and they were just being reflected in - in that one to mirror … the actual agreement.
[77] ts 433.
Mr O'Reilly, when asked in examination about the Twinwood Trust Agreement said:[78]
… they knew the property, it was rented, it was making money, you know, I said, here, take that if you want it, you know, and they wanted it so I gave it to them because whilst I didn't think I had a legal responsibility to repay the loan at that time I was happy to try and reduce it at the time, anyway, any time, you know.
[78] ts 298.
Counsel for Mr Ling submitted that I should not find the evidence of Mr O'Reilly in relation to the Loan and the Loan Document credible because the contemporaneous documents overwhelming support the existence of the Loan.
Findings and determination
The evidence of Mr Tan and Mr Wu is consistent with the existence of the Loan. However, their evidence is dependent upon what Mr Ling and Ms Lee told each of those witnesses. If Mr Ling and/or Ms Lee were providing inaccurate instructions to Mr Tan and Mr Wu, then their evidence has no probative value. As a result, I have not placed any weight on the evidence of Mr Tan and Mr Wu to determine the issue of whether there was a Loan and/or whether the Loan Document was a sham.
The evidence given by Mr Ling, Ms Lee and Mr O'Reilly was complicated by the various roles that each of them had - whether as individuals, directors of companies, trustees and in the case of Mr O'Reilly, also as a director and shareholder of Jetpoint. The friendship between Mr Ling and Mr O'Reilly meant that there was initially a relationship of trust between the parties which resulted in less formal communication. As that friendship deteriorated, so did the trust and consequently, the level of formality in their communication increased.
I find that Mr Ling, Ms Lee, and Mr O'Reilly were all honest witnesses. They each made admissions on occasions which went against their respective interests. However, it was clear to me that the reliability and accuracy of their evidence was, at times, compromised by their desire to advance their respective cases.
The evidence of Mr Ling and Ms Lee is to the effect that there was a Loan and that the Loan Document simply evidenced the Loan. The Loan Document was therefore, not a sham.
I found Mr Ling to be an honest witness. Mr Ling did, on occasions, make admissions that went against his interests. However, there is no escaping the fact that Mr Ling has a self-interest in remembering events in a manner which favour his case. Mr Ling is a sophisticated businessman and I find that he would have understood the difference between acting in his personal capacity and acting as a director of Silvershore.
Mr Ling's evidence was consistent with his pleaded case that he loaned Mr O'Reilly $1 million in June 2016 and that the Loan was later evidenced in writing by the Loan Document.
In assessing the accuracy and reliability of Mr Ling's evidence, I have placed significant weight on the contemporaneous documents referred to by Mr Ling. Those documents, in particular the email at exhibit 1.534, persuade me that Mr Ling's evidence in relation to the Loan was reliable and accurate.
Overall, I found Ms Lee to be an honest witness. Ms Lee gave evidence, on occasion, that went against Mr Ling's interests. However, Ms Lee's evidence must be assessed in light of the self-interest bias that was manifest.
I find that there were inconsistencies in Ms Lee's evidence about her correspondence with Mr Wu. Ms Lee did tell Mr Wu that the Loan was documented, when in fact it was not documented in the form that she later sent to Mr Wu. Ms Lee also said that she considered the email as the loan agreement in itself, yet this is not the document that she provided to Mr Wu. In contrast to that, Ms Lee's and Mr Ling's evidence about requiring the Loan Document for tax purposes was consistent.
Given these inconsistencies and recollection bias, I have reservations about the reliability and accuracy of Ms Lee's evidence in relation to the Loan.
The evidence of Mr O'Reilly is that there was no Loan, rather that there was an agreement reached in November 2015 whereby Silvershore agreed to pay the whole of the purchase price of the Property, which included the Trust's 50% contribution to the purchase price.
Mr O'Reilly signed documents and sent emails on a number of occasions over the duration of the Joint Endeavour that refer to a loan in a manner consistent with the existence of the Loan. The contemporaneous documents and oral testimony of Mr O'Reilly provided compelling evidence in support of the existence of a loan from Mr Ling to Mr O'Reilly in or around 9 June 2016.[79]
[79] Exhibits 1.534, 1.190; ts 290, ts 291, ts 293, ts 295, ts 298, ts 308, ts 309, ts 311, ts 312, ts 315, ts 367, ts 368, ts 416, ts 424, ts 430, ts 431, ts 433, ts 434, ts 439, ts 446, and ts 447.
Mr O'Reilly is a financially and commercially educated person and he accepted that he understood the difference between signing individually and on behalf of an entity. I do not accept that he signed the Loan Document, the repayment invoice and the Twinwood Trust Agreement without any regard to the wording and legal effect of those documents. I find that Mr O'Reilly's evidence is consistent with the existence of the Loan.
However, it is the contemporaneous documents, in the form of the email from Mr O'Reilly to Ms Lee,[80] the repayment invoice,[81] the Twinwood Trust Agreement,[82] and the Loan Document[83] that provide the most persuasive evidence in favour of a finding that the Loan existed.
[80] Exhibit 1.534.
[81] Exhibit 1.113.
[82] Exhibit 1.191.
[83] Exhibit 1.47.
Mr Ling has discharged the onus of persuading me, on the balance of probabilities, of the existence of the Loan.
Having found that Mr Ling did loan Mr O'Reilly $1 million in June 2016, the case of Masters v Cameron (1954) 91 CLR 353 is relevant in determining whether the Loan Document is a sham.
In Masters v Cameron, the plurality of the High Court identified three categories of contract:[84]
Where parties who have been in negotiation reach agreement upon terms of a contractual nature and also agree that the matter of their negotiation shall be dealt with by a formal contract, the case may belong to any of three cases. It may be one in which the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect. Or, secondly, it may be a case in which the parties have completely agreed upon all the terms of their bargain and intend no departure from or addition to that which their agreed terms express or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document. Or, thirdly, the case may be one in which the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract.
In each of the first two cases there is a binding contract: in the first case a contract binding the parties at once to perform the agreed terms whether the contemplated formal document comes into existence or not, and to join (if they have so agreed) in settling and executing the formal document; and in the second case a contract binding the parties to join in bringing the formal contract into existence and then to carry it into execution. Of these two cases the first is the more common. Throughout the decisions on this branch of the law the proposition is insisted upon which Lord Blackburn expressed in Rossiter v. Miller (1878) 3 App Cas 1124 when he said that the mere fact that the parties have expressly stipulated that there shall afterwards be a formal agreement prepared, embodying the terms, which shall be signed by the parties does not, by itself, show that they continue merely in negotiation. His Lordship proceeded: ' . . . as soon as the fact is established of the final mutual assent of the parties so that those who draw up the formal agreement have not the power to vary the terms already settled, I think the contract is completed' (1878) 3 App Cas, at p 1151 : see also Sinclair, Scott &Co. Ltd. v. Naughton (1929) 43 CLR 310, at p 317. A case of the second class came before this Court in Niesmann v. Collingridge (1921) 29 CLR 177 where all the essential terms of a contract had been agreed upon, and the only reference to the execution of a further document was in the term as to price, which stipulated that payment should be made 'on the signing of the contract'. Rich and Starke JJ. observed (1921) 29 CLR, at pp 184, 185 that this did not make the signing of a contract a condition of agreement, but made it a condition of the obligation to pay, and carried a necessary implication that each party would sign a contract in accordance with the terms of agreement. Their Honours, agreeing with Knox C.J., held that there was no difficulty in decreeing specific performance of the agreement, 'and so compelling the performance of a stipulation of the agreement necessary to its carrying out and due completion' (1921) 29 CLR, at p 185 : see also O'Brien v. Dawson (1942) 66 CLR 18, at p 31.
[84] Masters v Cameron (360) - (361).
The Loan clearly falls within the first category of agreement identified in Masters v Cameron. In June 2016, Mr Ling and Mr O'Reilly reached finality in arranging all the terms of their bargain and intended to be immediately bound to the performance of those terms, but at the same time proposed to have the terms of the Loan restated in a form which would be fuller or more precise but not different in effect. The fact that the Loan Document was executed in April 2017, after the Loan was entered into, is of no effect - in fact, it is consistent with the first Masters v Cameron category of agreement.
I find that the Loan Document was not a sham. Mr Ling and Ms Lee may have had additional incentives to record the Loan in writing in April 2017, in this case for the purposes of Mr Ling's visa application, for tax purposes and because payment of the Loan was delayed. These additional incentives do not alter the fact that the parties had agreed, in June 2016, to record the Loan in writing at a later date.
Given I have made a finding that the Loan was entered into in June 2016 and evidenced in writing in April 2017 in the Loan Document (in accordance with Masters v Cameron agreement category one), the issue of whether the Loan Document is unenforceable due to past consideration or lack of consideration is one that falls away.
In summary, I make the following findings:
(a)in June 2016, Mr Ling loaned Mr O'Reilly $1 million. The Loan was partly oral,[85] partly written[86] and partly by conduct;[87]
(b)Mr Ling and Mr O'Reilly agreed that the Loan would be recorded in a more formal document at a later time;[88]
(c)in April 2017, as agreed the Loan was evidenced in writing in the Loan Document;
(d)the Loan Document was not a sham; and
(e)there was proper consideration for the Loan, as evidenced by the Loan Document, therefore the Loan Document is not unenforceable due to past consideration or lack of consideration.
Did Ms Lee, on behalf of Mr Ling, represent that Mr Ling would not enforce the Loan or the Loan Document?
Positions of the parties
[85] ts 89.
[86] Exhibit 1.534.
[87] The payment of $1 million towards the Purchase Price by Mr Ling on behalf of Mr O'Reilly.
[88] Exhibit 1.534; ts 89.
Mr O'Reilly says that Ms Lee, on behalf of Mr Ling, said to Mr O'Reilly that the Loan Agreement was only for the purpose of assisting Mr Ling with his permanent residency application and that Mr Ling would not seek to enforce it and would only give it to his accountant. Mr O'Reilly says that Mr Ling cannot enforce the Loan Agreement by virtue of estoppel.
Mr Ling's position is that Ms Lee did not say to Mr O'Reilly that the Loan Agreement would not be enforced.
Evidence
Ms Lee
Ms Lee was not questioned about whether she said to Mr O'Reilly that she would not enforce the Loan. Ms Lee gave evidence about whether she said the Loan Agreement would only be given to her accountant - Ms Lee said that she did not say this to Mr O'Reilly.[89]
Mr O'Reilly
[89] ts 156 - ts 157.
Mr O'Reilly was also not questioned directly about whether Ms Lee told him that the Loan Agreement would not be enforced. Mr O'Reilly was only questioned about whether Ms Lee told him that the Loan Document was only required for purposes of a visa application and would only be given to Ms Lee's accountant. Mr O'Reilly said that Ms Lee did say this to him.[90]
Findings and determination
[90] ts 290.
Neither Ms Lee nor Mr O'Reilly gave any evidence to support a finding that Ms Lee told Mr O'Reilly that the Loan Document would not be enforced. It may be that Mr O'Reilly is asking the court to draw an inference that this is what Ms Lee meant when she said that the Loan Document would only be provided to Mr Wu for the purposes of Mr Ling's permanent residency application.
I cannot be satisfied, on the evidence, that Ms Lee did in fact say that the Loan Document would only be provided to Mr Wu. In the absence of finding this fact, there is no scope to draw an inference that Ms Lee represented that Mr Ling would not enforce the loan.
In any event, given my findings in relation to the existence of the Loan, whether or not the Loan Document is enforceable is a moot point as Mr Ling is not dependent upon the Loan Document to enforce the Loan. The Loan Document simply evidences the Loan.
Mr O'Reilly bears the onus of proving, on the balance of probabilities, that the representation was made. There is no evidence to support such a finding.
I find that Ms Lee did not represent that the Loan Document would not be enforced.
Is the Loan otherwise enforceable?
Positions of the parties
Mr Ling says the 'Effects of Event of Default' clause contained in the Loan Document (Default Clause) is not enforceable for the following reasons:
(a)to the extent that the Default Clause is ambiguous, it should be construed against the interpretation advanced by Mr O'Reilly in accordance with the contra proferentum rule;
(b)the Property has not been sold, instead the units on the Property have been divided between the Trust and Silvershore, which means that Mr O'Reilly's interpretation of the Default Clause would defeat the main object of the Loan Document - which is to provide for the repayment of the Loan;
(c)the ordinary and natural meaning of the Default Clause, when read in the context of the other terms of the Loan Document, is that it provides security for repayment of the Loan, not the only mechanism for repayment of the Loan; and
(d)the Default Clause cannot impose an obligation on a third party, in this case the Trust, and therefore it is unenforceable.
Mr O'Reilly says that the Loan Document is only enforceable by the mechanism provided for in the Default Clause.
Evidence
Ms Lee
Ms Lee said that her and Mr O'Reilly went back and forth in drafting the terms of the Loan Document. Ms Lee said that both her and Mr O'Reilly made amendments to the Loan Document and that either her or Mr O'Reilly could have drafted the Default Clause.[91]
Mr O'Reilly
[91] ts 196 - ts 197.
Mr O'Reilly said that he requested a clause be included in the Loan Document which provided for the sale of the Property if he could not pay the Loan. Mr O'Reilly said that he did not draft the Default Clause.[92]
Findings and determination
[92] ts 434.
The Default Clause provides:[93]
In the event of default, the parties mutually agree that the …Property is to be sold and the share of the proceeds of [the] …Trust obtained in the sale is to be utilised towards settlement of all outstanding Principal of this loan contained in this Agreement.
For avoidance of doubt, outstanding Principal is the balance Principal amount after taking into account all interim Principal amounts paid by [Mr O'Reilly] and acknowledged by [Mr Ling].
[93] Exhibit 1.45.
The Trust is not a party to the Loan Document and therefore, cannot be bound by the Default Clause. Mr O'Reilly did not provide any evidence that he had authority, individually, to bind the Trust, or that he signed the Loan Document on behalf of the Trust. On this basis, I find that the Default Clause is unenforceable.
Even if the Default Clause is enforceable, the issue is how it is to be construed. The role of the court in construing a written contract is to give effect to the common intention of the parties. The common intention of the parties is to be ascertained objectively. The meaning of the terms of a contract in writing is to be determined by what a reasonable person would have understood them to mean: Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165.
In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. The language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract are all relevant to that determination: Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37.
The contra proferentum rule is based on the principle that, where a clause in a contract is ambiguous, the ambiguity should be resolved against the person responsible for drafting the clause. This rule is only applicable where a contractual clause remains ambiguous after all other aids to construction have been utilised: Sandbank Holdings Pty Ltd v Durkan [2010] WASCA 122 [34].
For the reasons that follow, I do not find that ambiguity remains in the interpretation of the Default Clause having regard to the well‑established principles of contractual construction.
In my view, to construe the Loan Document in a manner that only requires repayment of the Loan by sale of the Property is inconsistent with what a reasonable business person would have understood the Loan Document to mean.
I find that a reasonable businessperson would have understood the Default Clause to operate to give Mr Ling a method of securing payment of the Loan. Given that, rather than selling the Property, the units on the Property have been divided between Silvershore and the Trust, the Default Clause is redundant. To attribute any other meaning to the Default Clause would defeat the commercial purpose of the Loan Document.
Given that I have found that the Default Clause is not ambiguous, there is no need to resort to the contra proferentum rule. In any event, it would have been necessary for Mr Ling to prove that Mr O'Reilly drafted the Default Clause. I am satisfied that Ms Lee drafted the Default Clause, not Mr O'Reilly, because:
(a)Ms Lee drafted all of the other clauses in the Loan Document and forwarded the Loan Document to Mr O'Reilly for his review and comments;
(b)Mr O'Reilly asked Ms Lee to insert a clause to provide for the sale of the Property if the Loan was not repaid; and
(c)the style of drafting of the Default Clause is consistent with the other clauses of the Loan Document.
I find that the Loan, as evidenced by the Loan Document, is enforceable and the outstanding balance of the Loan is payable by Mr O'Reilly to Mr Ling.
Did Mr Ling and Mr O'Reilly agree that expenses of the Joint Endeavour paid by the Trust would be set-off against the Loan?
Positions of the parties
Mr O'Reilly says that Ms Lee, on behalf of Mr Ling, agreed that Trust Expenses could be set-off against the Loan. Mr O'Reilly says that this would be done by calculating 'Net Operating Expenses', that is, the amount by which 50% of the financial contributions of one joint venture partner exceed 50% of the financial contributions of the other joint venture partner (Net Operating Expenses). The Loan would then be reduced by the amount of Net Operating Expenses.
Mr O'Reilly says that this set-off agreement was evidenced in writing in emails between Ms Lee and Mr O'Reilly in July and September 2018.
Mr Ling says that Ms Lee and Mr O'Reilly were only exchanging ideas and that any indication that expenses were to be set-off against the Loan was not intended to create legal relations. Mr Ling says that there was no set-off agreement.
Evidence
Mr Ling
Mr Ling gave the following evidence under cross-examination:[94]
Mr Douglas: … do you agree that there was an agreement … between the Trust and [Silvershore] or between you and Mr O'Reilly that the development costs could be set-off against the loan. Do you agree that that was the case?
Mr Ling: Any development costs that were valid and approved, yes.
Mr Douglas: could be set-off against the loan?
Mr Ling: Valid and approved, yes.
Mr Douglas: Approved by whom?
Mr Ling: By everybody.
Ms Lee
[94] ts 126.
Ms Lee gave the following evidence in cross-examination:[95]
Mr Douglas: … can I take you to [exhibit 1.198].. you'll see there …
'For the net operating amount owing from us to you. We can use it to contra the Leong loan if you are agreeable.'
…
Ms Lee: I'm saying that for the net operating amount owing from us to you, that means Silvershore to Sean, we can use it, yes, amounts that are confirmed and legitimate and approved
…
Mr Douglas: … [exhibit 229] … so I'm suggesting to you that the arrangement was that where expenses were paid and you say that they need to meet certain criteria, those will be set-off against the Leong loan. Do you agree with that?
Ms Lee: Yes. Once the criteria has been made and we are - basically it's legitimate, you have shown us what the payments are for, then sure it will be set-off, yes.
[95] ts 222 - ts 223.
By email to Mr O'Reilly dated 8 July 2018, Ms Lee stated:[96]
Sean, for the addition AUD50K deposit paid, you had paid on behalf of us right? For the net operating amount owing from us to you, we can use it to contra the Leong Loan if you are agreeable.
[96] Exhibit 1.198.
When asked about these comments in cross-examination, Ms Lee said:[97]
I believe that [the AUD 50K deposit] was for the additional deposit that was required because of the extension of time that we sought from the sellers of Coode …
… in that [net] operating amount would be the amounts that, like I mentioned earlier, that he had spended - I had spended [sic]. Confirm amounts, yeah. And then if there was any - in this case I believe that at that point Sean would have paid more and any excess can be used to offset the loan with Leong, yeah.
Findings and determination
[97] ts 165.
Mr O'Reilly bears the onus of proving the existence of a set-off agreement.
The evidence of both Mr Ling and Ms Lee is consistent with the existence of an agreement between Mr Ling and Mr O'Reilly for the Trust Expenses to be set-off against the Loan. Mr Ling and Ms Lee were unequivocal in their evidence that they agreed to a set-off agreement. The contemporaneous documents also support a finding that Ms Lee, on behalf of Mr Ling, agreed to set-off expenses incurred by the Trust against the Loan.
I find that there was an agreement between Mr Ling and Mr O'Reilly to set-off Trust Expenses against the Loan (Set-Off Agreement).
The parties are in dispute as to the terms of the Set-Off Agreement.
What are the terms of the Set-Off Agreement?
Positions of the parties
Mr Ling says the Set-Off Agreement was subject to the implied term that in relation to every Trust Expense, Mr O'Reilly was required to:
(a)verify:
(i)the invoices claimed;
(ii)the hours worked making up any claim;
(iii)the rates charged for any works undertaken;
(iv)the materials used and the cost of materials; and
(b)establish each was in all the circumstances a reasonable charge.
Mr Ling says that Mr O'Reilly has not verified or established that the Trust Expenses are reasonable.
Mr O'Reilly says that Set-Off Agreement contained an implied term that Trust Expenses must:
(a)have been paid;
(b)have been incurred for the benefit of the Joint Endeavour; and
(c)not be unreasonable.
Evidence
Mr Ling
Mr Ling gave evidence that the Trust Expenses must be valid and approved by both Silvershore and the Trust in order to be set-off against the Loan.[98]
Ms Lee
[98] ts 126.
Ms Lee gave evidence that the Trust Expenses must be legitimate.[99]
[99] ts 222 - ts 223.
Ms Lee was sent a schedule of expenses relating to the Property on a number of occasions by Mr O'Reilly.[100] In an email to Mr O'Reilly on 8 July 2018, Ms Lee says: 'Can we aim to finalise operating expenses paid by you as well as us soonest on Coode'.[101] When asked what she meant by that, Ms Lee said:[102]
I think from the time we purchased the land till this time, we had come up with stuff that we had to pay out of pocket, that sort of thing, so it was all over the place. So I just wanted to pin down what was the expenses that each party had paid and then we can rationalise and reconcile what we need to pay him or he pay us.
Mr O'Reilly
[100] Exhibits 1.206, 1.209 - 1.213.
[101] Exhibit 1.198.
[102] ts 164 - ts 165.
Mr O'Reilly sent a spreadsheet, or a similar version of the spreadsheet detailing the Trust Expenses on a number of occasions to Ms Lee[103] and he says Ms Lee did not dispute the items in the spreadsheet.[104] Mr O'Reilly says he continued to pay the Trust Expenses believing that they would be set-off against the Loan.[105]
Findings and determination
[103]Exhibit 1.206 - 1.213, 1.553 - 1.555 and 1.528 - 1.530.
[104] ts 309, ts 310, ts 311, ts 312 and ts 313.
[105] ts 308, ts 310, ts 311, ts 312, and ts 313.
The test for determining whether a term should be implied into a contract is set out in the well-known passage of the majority of the Privy Council in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 283:[106]
… for a term to be implied, the following conditions (which may overlap) must be satisfied:
(1)it must be reasonable and equitable;
(2)it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it;
(3)it must be so obvious that 'it goes without saying';
(4)it must be capable of clear expression;
(5)it must not contradict any express term of the contract.
[106] See also Codelfa Construction Pty Ltd v State Rail Authority NSW (1982) 149 CLR 337, 347 which applied BP Refinery.
I am not persuaded by the evidence of Mr Ling and Ms Lee that the terms sought to be implied by Mr Ling in the Set-Off Agreement satisfy the principles outlined in BP Refinery. Their evidence was not that they told Mr O'Reilly, at the time those expenses were being incurred, that the Trust Expenses must be valid, approved and legitimate - it was simply their evidence at the trial of what they subjectively believed to be the case.
The term sought to be implied by Mr Ling is not necessary to give business efficacy to the set-off agreement, nor it is so obvious that 'it goes without saying'. The invoice detail required by such an implied term may not in fact be relevant to each and every Trust Expense.
However, an implied term to the effect that all Trust Expenses must be paid, must have been incurred for the benefit of the Joint Endeavour and must be reasonable does satisfy all of the BP Refinery conditions.
The issue is then whether Mr O'Reilly has proved, on the balance of probabilities that each of the Trust Expenses claimed in the Attachment A to the Defence and Counterclaim was paid, was incurred for the benefit of the Joint Endeavour and was reasonable for the Trust to pay.
What Trust Expenses can be set-off against the Loan?
Positions of the parties
Mr O'Reilly says each of the Trust Expenses (totalling $506,482.32 as particularised in Attachment A to the Defence and Counterclaim) was paid, was incurred for the benefit of the Joint Endeavour and was reasonably paid by the Trust.
Counsel for Mr O'Reilly submitted that, when Mr O'Reilly on behalf of the Trust paid an invoice of the Joint Endeavour, the Trust paid for half of that invoice thereby ensuring that Mr O'Reilly was acting in the best interests of the Joint Endeavour.
Mr Ling says that Mr O'Reilly has not proved that the Trust Expenses were reasonably paid by the Trust, and that in order for Mr O'Reilly to prove that the Trust Expenses were reasonable, he must provide to Silvershore evidence of the hours worked, the rate for the work, the materials used and the cost of the materials.
Counsel for Mr Ling submits that any material that goes to the reasonableness of the invoices, for example a quantity surveyor's report, is inadmissible for the purpose of proving the reasonableness of the expense because it is expert opinion evidence from the quantity surveyor and the quantity surveyor has not been called to give evidence.
Counsel for Mr Ling submits that there is insufficient evidence to establish that Trust Expenses are reasonable.
Findings and determination
The threshold issue to determine is what evidence is required in relation to each Trust Expense in order to satisfy the court that it was reasonable. The evidence required to establish reasonableness of an expense was the subject of much debate during the trial of this action. The determination of this issue requires consideration of the authorities referred to by counsel for each of Mr O'Reilly and Mr Ling.
Counsel for Mr Ling relied upon the case of West Boat Builders Pty Ltd v Cull Holdings Pty Ltd [1999] WASCA 72 as authority for the proposition that in order for Mr O'Reilly to prove that the Trust Expenses were reasonably incurred, he must provide to Silvershore evidence of the hours worked, the rate for the work, the materials used and the cost of the materials.
In Westboat, the respondent (plaintiff) and the appellant (defendant) had entered into an oral agreement whereby the respondent undertook to install electrical wiring to a certain standard in a ferry vessel owned by the appellant. The appellant admitted that it had agreed with the respondent that the respondent would install the electrical wiring to the requisite standard and that the appellant would pay the reasonable cost of the works, not exceeding $50,000. Ipp J (with whom Steytler J agreed) identified as in issue the reasonableness of the invoices and said at [19] - [21]:
In Michael Kellaway International Pty Ltd v Shark Bay Airport Pty Ltd, unreported; FCt SCt of WA; Library No 970604; 13 November 1997 Kennedy J said:
"In Bonham-Carter v Hyde Park Hotel Ltd (1948) 64 TLR 177 at 178 Lord Goddard CJ said:
'Plaintiffs must understand the fact that if they bring actions for damages it is for them to prove their damage; it is not enough to write down the particulars, and, so to speak, throw them at the head of the court saying: "This is what I have lost; I ask you to give me these damages". They have to prove it. The evidence in this case with regard to damages is extremely unsatisfactory.'
Unfortunately, the present case is, in my opinion, just such a case … The evidence is not such as to prove the respondent's damage. There is no evidence as to any verification of invoices, as to the verification of quantities, or as to the reasonableness of the charges."
This is a more extreme case than Michael Kellaway International Pty Ltd v Shark Bay Airport Pty Ltd. Here, the respondent did not even "write down the particulars". It merely attempted to rely on the invoices which contained quite inadequate detail as to how the amounts claimed in each particular invoice were arrived at. There was no evidence as to the verification of hours worked, the rate for the work, the materials used and the cost of materials.
In my opinion there was no evidence on which the learned Judge could have found that the respondent's charges were reasonable.
There is an important distinction to be drawn between West Boat and this case. In West Boat the respondent was seeking the payment of his invoices from the appellant on the basis that the appellant had agreed to pay the reasonable costs of the work completed. In this case however, the Trust is claiming reimbursement of 50% of the Trust Expenses from the Joint Endeavour for work carried out by third parties.
Counsel for Mr O'Reilly referred, in closing submissions, to Gold City Developments Pty Ltd v Portpride Pty Ltd [2010] WASC 148 in support of the submission that the oral evidence of Mr O'Reilly with the relevant invoices is sufficient to establish the reasonableness of the invoices.[107]
[107] Defendant's closing trial submissions par 46(8).
Counsel for Mr Ling submitted, in written supplementary closing submissions,[108] that Gold City was distinguishable because:
(a)the claim was between a builder and principal (for payment of unrecovered costs for work) which is different to this case where what is involved is an accounting between parties to the Joint Endeavour;
(b)a different duty and standard of accounting is required in this case; and
(c)Gold City was an appeal from an arbitrator's decision where the arbitrator had the benefit of specialist experience to draw on, as distinct from a case before a judge.
[108] Plaintiff's limited submissions in response to Defendant's written closing trial submissions pars 4 - 6.
As counsel for Mr Ling was correct to highlight, this is not a case where I am required to determine the rights between a third party on the one hand and the Joint Endeavour on the other hand. It is a case about an account between parties to the Joint Endeavour. Counsel for Mr Ling correctly observed that Silvershore is not in dispute with a third party, it is in dispute with the Trust, in relation to whether the Trust Expenses are reasonable.
Accepting the submissions of counsel for Mr Ling, it does not follow in my view, that the Trust must then provide expert evidence in relation to each invoice in order to have the Trust Expenses accounted for between itself and Silvershore.
Rather, the issue is whether it was reasonable for the Trust to pay an expense on behalf the Joint Endeavour as between itself and Silvershore. If the parties in this case were the third party who issued an invoice on one side and Silvershore and the Trust on the other, and the issue was whether that third party could recover an amount from the Joint Endeavour where the parties had agreed that the Joint Endeavour would pay all of the reasonable costs associated with the development of the Property, then West Boat would be relevant. It is not that case, and West Boat is distinguishable on that basis.
Similarly, Gold City is also not authority for what is required to establish what Trust Expenses are reasonable between the Trust and Silvershore - Gold City considered invoices issued by third parties to another party. It is also distinguishable from this case on that basis.
I find that, in order to determine whether or not is was reasonable for the Trust to pay an expense on behalf of the Joint Endeavour, expert evidence is not necessarily required. The reasonableness of each Trust Expense is to be determined on the basis of the evidence presented at trial, including the oral evidence of the witnesses and the contemporaneous documents.
The distinction between whether an invoice issued by a third party to the Joint Endeavour was reasonable and whether it was reasonable for the Trust to pay an expense on behalf of the Joint Endeavour may be a fine one. When assessing whether it was reasonable for the Trust to pay a Trust Expense on behalf of the Joint Endeavour, one factor is whether the Trust considered the invoice to be reasonable and had sufficient grounds for doing so. It may be that, in some circumstances, it would only be reasonable for the Trust to pay a Trust Expense if a breakdown of the work hours, the rate per hour, materials used and costs of materials was provided by the third party issuing the invoice. In other circumstances, it may be reasonable to pay a Trust Expense without requiring such detail. Evidence of the process that Mr O'Reilly went through in order to determine whether to pay a Trust Expense is relevant to this determination.
In summary, each Trust Expense needs to be considered separately in order to determine whether the Trust Expense is reasonable and may be set-off against the Loan pursuant to the Set‑Off Agreement.
Payments to Jetpoint Progress Claims 1, 14 and 15 - Attachment A - Items 34, 46 and 49
I will consider Trust Expenses comprising payments to Jetpoint as a group of Trust Expenses before making determinations in relation to individual Progress Claims 1, 14 and 15.
Mr Ling, on behalf of Silvershore, and Mr O'Reilly, on behalf of the Trust, both signed the Construction Contract and both agreed that the fixed price for construction of the units on the Property was $3,015,000 (or $2,740,909.09 exclusive of GST) (Construction Contract Sum).
Ms Lee gave evidence that the Construction Contract was for a lump sum in the amount of $3,015,000.[109]
[109] ts 221.
Mr Ling accepted that the process for obtaining finance for the progress payments to Jetpoint was for the builder to issue an invoice, the bank would send someone to verify this invoice and then the owners would be sent a drawdown approval to sign.[110]
[110] ts 96.
Practical completion of the Property development occurred on 20 March 2020. The total amount paid by the Joint Endeavour to Jetpoint was $3,056,188.42.[111]
[111] Exhibits 1.944 - 1.958.
Clause 21.2 of the Construction Contract provides:
The progress claim is to include details of the value of the works carried out and of other moneys due to the builder pursuant to the provisions of the contract.
Clause 21.3 of the Construction Contract provides that Silvershore and the Trust can effectively challenge a progress claim, the result being that a portion of the claim is paid and there is a dispute in relation to the balance.
In October 2018, Ashton Associates prepared a Quantity Surveyors Construction Cost Report (QS Report) in which it stated that, in its opinion, the cost of the development of the Property, in accordance with the Construction Contract was $2,840,000 (ex GST).[112]
[112] Exhibits 1.258 - 1.519.
I accept that the QS Report is admissible to prove that it was reasonable, between Silvershore and the Trust, for the Trust to pay amounts towards the Construction Contract Sum on behalf of the Joint Endeavour.
Mr Andreou gave evidence that there are invoices in support of progress claims.[113] However, this does not mean that those invoices are required to be provided to the Joint Endeavour in order for the progress claims to be payable by the Joint Endeavour. The Construction Contract was a fixed price contract and individual invoices would not have altered the Construction Contract Sum that the Joint Endeavour was obliged to pay Jetpoint.
[113] ts 391.
It was reasonable for the Joint Endeavour to pay progress claim payments so far as they comprised the Construction Contract Sum. There is no evidence that Jetpoint did not perform the Construction Contract. I infer from the lack of evidence to the contrary and from the practical completion date that the development of the Property was completed to the satisfaction of Silvershore and the Trust. The fact that Mr O'Reilly shared in the profit of Jetpoint, as a shareholder and director of Jetpoint, is irrelevant. Mr Ling knew that Mr O'Reilly was a director and shareholder of Jetpoint.[114] In fact, it appears to me to be one of the factors motivating the parties to enter into the Joint Endeavour.
[114] ts 82, ts 83.
I find that it was reasonable for the Trust to pay the Trust Expenses incurred towards the Construction Contract Sum because:
(a)Silvershore entered into the Construction Contract and agreed, together with the Trust, to pay the Construction Contract Sum;
(b)there is no dispute that the Construction Contract has been completed;
(c)it was reasonable for the Trust, on behalf of the Joint Endeavour, to rely upon the QS Report to satisfy itself that the Construction Contract Sum was payable;
(d)the detail provided in each progress claim was sufficient to satisfy the requirements of cl 21.2 of the Construction Contract, given it was a fixed price contract;
(e)the undisputed progress claims contained the same level of detail as the disputed progress claims. Payment of the undisputed progress claims was made by Silvershore and the Trust; and
(f)the Trust is not required to provide evidence to verify hours worked, the rate for the work, the materials used and the cost of materials used by Jetpoint, as the Construction Contract Sum was agreed.
I will now consider each individual disputed progress claim and whether the Trust can set it off against the Loan.
Progress Claim 1 - Attachment A - Item 34 (Exhibit 1.945)
Mr O'Reilly seeks to set-off an amount of $214,500 against the Loan representing a payment made by the Trust towards Progress Claim 1 issued pursuant to the Construction Contract.
Counsel for Mr Ling submitted that Progress Claim 1 does not contain sufficient details, as required by cl 21.2 of the Construction Contract, to justify the amount charged.
On 27 July 2020 Ms Lee sent an email to Mr and Mrs O'Reilly and said:[115]
As part of the Facility Agreement with the Bank, we as the owners would need to spend a total of AUD195,000.
[115] Exhibit 1.962.
Ms Lee says she asked Mr O'Reilly many times for details of the costs of the construction works, the costs of materials being employed, the labour time and disbursements, but was never provided with any of those details by Mr O'Reilly.[116]
[116] ts 174, ts 175.
Ms Lee said she was not sure whether some of the costs in the spreadsheets sent through by Mr O'Reilly were double counted by also being included under the first progress payment to Jetpoint.[117]
[117] ts 168.
On 27 July 2020, Mr O'Reilly responded to a request from Ms Lee for invoices to substantiate a payment of $195,000[118] to Jetpoint:
You correctly point out that a condition precedent for the bank to provide finance is [the payment]. This amount was assessed as payable by the QS and subsequently the bank confirmed with the builder that [the payment] was paid … This was not subject to individual invoices and neither could it be expected to be.
It is not for the 'owners' to know any or all the exact invoices except that the amount came off the total amount payable for the contract.
[118] $195,000 (ex GST) or $214,500 (including GST); Exhibit 1.961.
Ms Lee says she asked Mr O'Reilly for invoices supporting Progress Claim 1 but they were never provided.[119]
[119] ts 175.
Ms Lee gave evidence that she required an itemisation of the amount of $195,000 plus GST required to be spent by the Joint Endeavour before they could drawdown from the bank because she wanted to know what could be considered or included in that amount.[120]
[120] ts 237.
On 29 September 2018 Ms Lee sent an email to Mr O'Reilly[121] in which she said 'with regards to the 200K you have paid to the bank. Once you do the QS finalise then we can proceed to contra loan'. Ms Lee gave evidence that she was referring to the amount of $214,500 in this email.[122] When questioned about this email during cross‑examination, Ms Lee gave the following responses:[123]
Mr Douglas: By qs do you mean quantity surveyor?
Ms Lee: Yes.
[121] Exhibit 1.229.
[122] ts 217 - ts 218.
[123] ts 218.
At the trial, there was an issue as to whether the Trust had actually paid $214,500 towards Progress Claim 1. Mr O'Reilly gave evidence that $214,500 was paid by the Trust by reducing the Trust's loan account with Jetpoint.[124]
[124] ts 305.
Mr O'Reilly gave evidence that the Trust had loaned money to Jetpoint so that Jetpoint could pay for expenses. Mr O'Reilly, when explaining how this loan from the Trust to Jetpoint was reduced in payment of Progress Claim 1, said:[125]
[125] ts 304 - ts 305.
Mr O'Reilly: So we built up a loan account, and when it came time to - for the first claim, the bank was only paying …- after the owners, WW and Silver Shore, had put in another 214,000. As I had a loan with them, you know, they put in the land, I was - I was putting in the 214,500, and so I'd already ‑ ‑ ‑
Mr Douglas: What was the 214,500 - you said you were putting in the 214,500?‑‑‑
Mr O'Reilly: Right, so I had put it in over a period of months.
Mr Douglas: For what?
Mr O'Reilly: Well, basically - technically, it's just a loan to Jetpoint, and then Jetpoint used it - the building company used it for a home indemnity, for concrete, for brickies.
… Used it everywhere, you know, but they were then - they then put in their first progress claim
… So that was the first [progress] claim out of the 3 million contract, and the owners were required to pay - pay the first 214,500.
… So I build up a loan account, because I'd been paying money - when I say I, the trust had been paying money into Jetpoint, and so we counted - that loan account was used to pay for the first 214,500.
… Leaving just the balance for the bank to pay, which they paid.
A court should not, as a matter of course, make a costs order that a successful party only recover a percentage of its costs, even though that party has not been wholly successful because it is often the case that a party will not be successful on every issue. Also, an analysis of which party was successful on every issue raised at trial would result in increased costs and time dedicated to costs argument: Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 [67] ‑ [68].
Costs orders should only be apportioned where a successful party failed at trial on discrete and severable issues, and only in circumstances where those issues have added to the costs in a significant and discernible way: Strzelecki Holdings Pty Ltd v Jorgensen [2019] WASCA 96 [51] (Strzelecki).
The exercise of the court's discretion to make a costs order to reflect the limited success of a party should be approached broadly and as a matter of impression, rather than as an exercise in mathematical precision: Amaca Pty Ltd (Formerly James Hardie & Co Pty Ltd) v Moss [2007] WASCA 162 (S) [6].
In deciding whether costs should be apportioned to reflect issues on which each party was successful, the following factors should be addressed in considering the issues on which the successful party failed:
(a)the degree to which those issues were separate and distinct;
(b)the proportion of the costs incurred and the time taken at trial in litigating those issues;
(c)the importance, strength and merit of those issues; and
(d)the conduct generally of the successful party:
Lexis Nexis, Civil Procedure Western Australia, vol 1 (185‑11‑19) [66.1.10] citing Macks v Viscariello(No 2) [2018] SASCFC 106 and Parabanks Shopping Centre Pty Ltd v City of Salisbury (No 2) [2013] SASC 204.
Once the court has decided, in the exercise of its discretion, the appropriate costs order based upon the success of a party, either in whole or in part, the next issue to be determined is whether costs should be awarded on a party and party or on an indemnity basis.
There must be a special or unusual feature of a case in order for a court to exercise its discretion to award costs on an indemnity basis: Yara Australia Pty Ltd v Oswal [2012] WASCA 264 [33].
One circumstance where an indemnity costs order is warranted is where an unsuccessful party unreasonably rejects a Calderbank offer: Ford Motor Company of Australia Ltd v Lo Presti (2009) 41 WAR 1 (Lo Presti): Strzlecki [82].
In deciding whether the rejection of a Calderbank offer was unreasonable, the following factors are relevant:
(a)the stage of the proceeding at which an offer was received;
(b)the time allowed to the defendant to consider an offer;
(c)the extent of the compromise offered;
(d)the defendant's prospects of success assessed at the date of an offer;
(e)the clarity with which the terms of an offer were expressed; and
(f)whether an offer foreshadowed an application for indemnity costs in the event of the defendant rejecting it:
Lo Presti [19].
The mere fact that the unsuccessful party is ultimately worse off after trial then it would have been had it accepted a Calderbank offer, does not mean that the rejection of the Calderbank offer was unreasonable: Strzelecki [83]. If the reasons given by a party for rejecting a Calderbank offer are legally or factually inadequate, then the rejection of an offer is likely to be unreasonable.
Whether the rejection was unreasonable must be assessed at the time that a Calderbank offer is rejected, not with the benefit of hindsight. I must be satisfied that a reasonable person in the plaintiff's position, giving proper consideration to the evidence to be adduced and properly advised about the law, should have assessed his or her prospects of success to be so low that it was unreasonable to reject a Calderbank offer: Currie v Currie[No 3] [2018] WASC 306 [13].
The party who asserts that a Calderbank offer was unreasonably rejected bears the onus of proving that the rejection was unreasonable such that the court should make an order for indemnity costs: Lo Presti [21].
In summary, in exercising my discretion to make an order for costs, I must conduct a four‑stage enquiry:
(a)first, 'who is the successful party?';
(b)second, 'was that party wholly successful?';
(c)third, if there is an issue as to whether a party was wholly successful, 'should the costs be apportioned between the parties to reflect the limited success of the party?'; and
(d)fourth, 'did the unsuccessful party unreasonably reject a Calderbank offer so as to warrant an indemnity costs order?'.
Who was the successful party?
The starting point in determining the appropriate costs orders is to identify which party was successful. Each of the plaintiff and the defendant submit that he was the successful party in the action.
The plaintiff says that he was overwhelmingly successful because he succeeded in every respect in relation to the Loan.
On the other hand, the defendant says that he was wholly successful in his defence by way of set-off and, given the plaintiff's claim is to be dismissed, there is no reason to depart from the usual costs order that costs follow the event.
In order to determine which party was ultimately successful at the trial, I must determine who was successful in the underlying, real contest between the parties.
The plaintiff commenced the action seeking repayment of the outstanding Loan balance. The defendant denied the existence of the Loan. Further, the defendant pleaded that he had entered into an agreement with the plaintiff to set-off the Trust Expenses against any amounts owing from the defendant to the plaintiff. The plaintiff pleaded that he did not enter into the Set-Off Agreement as alleged or at all.[212]
[212] Amended papers for the judge filed 10 August 2021.
The real contest between the parties was whether the defendant had to repay the plaintiff any money. In essence, the defendant said any money that he owed the plaintiff had already been repaid because he (or he on behalf of the Trust) had paid more of the expenses associated with the development of the Property, such that both parties were essentially 'even'.
The ultimate outcome of the trial was that the defendant was not required to repay the plaintiff any money. His defence of set-off was entirely successful in extinguishing the plaintiff's claim. In my view, the defendant was the successful party in the underlying, real contest between the parties.
Was the defendant wholly successful?
While the defendant succeeded on the real contest between the parties, he was unsuccessful on the following issues:
(a)the existence of the Loan;
(b)the enforceability of the Loan; and
(c)claiming certain Trust Expenses.
I will refer to the first two of these issues collectively as the Loan issues and the third issue as the Expenses issue.
The other issue on which the plaintiff asserts he was wholly successful was in relation to the terms to be implied in the Set-Off Agreement.
Counsel for the plaintiff submitted that the plaintiff acknowledged the Set‑Off Agreement during the trial and was successful in establishing that it was an implied term that the Trust Expenses must have been paid, have been incurred for the benefit of the Joint Endeavour and have been reasonable.[213]
[213] Plaintiff's outline of submissions in relation to costs, dated 17 August 2021, par 20.
That is not an accurate reflection of what the plaintiff asserted at trial. Despite the fact that the plaintiff and Ms Lee gave evidence consistent with the existence of a set-off agreement, the plaintiff denied the existence of the Set-Off Agreement as alleged or at all in the pleadings. The defendant was required to adduce evidence to establish the Set-Off Agreement.
Further, the plaintiff's case at trial was that the Set-Off Agreement contained an implied term that, in relation to every Trust Expense, the defendant was required to:
(a)verify:
(i)the invoices claimed;
(ii)the hours worked making up any claim;
(iii)the rates charged for any works undertaken;
(iv)the materials used and the cost of materials; and
(b)establish each was, in all the circumstances, a reasonable charge.
I made a finding against the term sought to be implied by the plaintiff in the Set-Off Agreement.[214] The finding I made in relation to the terms to be implied in the Set-Off Agreement did not wholly accord with either the plaintiff's or the defendant's case at trial.[215]
[214] Reasons for Decision [170].
[215] Reasons for Decision [172].
In these circumstances, I am of the view that:
(a)the defendant was unsuccessful on the Loan issues;
(b)the defendant was wholly successful on the issue of existence of the Set-Off Agreement;
(c)neither party was successful on the issue of the terms to be implied in the Set-Off Agreement; and
(d)the Defendant was partly successful on the Expenses issue.
In summary, it is only the Loan issues and the Expenses issue on which the defendant was either wholly or partly unsuccessful at trial.
Should the costs be apportioned between the parties to reflect the limited success of the defendant?
In accordance with the legal principles identified above, in deciding whether to apportion costs to reflect the defendant's limited success, I must have regard to:
(a)the degree to which the Loan issues and the Expenses issue were separate and distinct from the other issues at trial;
(b)the proportion of the costs incurred and the time taken at trial in litigating each of those issues;
(c)the importance, strength and merit of each of those issues; and
(d)the conduct generally of the successful party.
The Loan issues were separate and distinct issues at trial. There was no overlap between the Loan issues and the set-off defence pleaded by the defendant.
There was a significant portion of costs incurred and time taken at trial in relation to the Loan issues. The plaintiff called Mr Tan and Mr Wu to give evidence at trial only in relation to these issues. Further, discovery of documents, evidence of the plaintiff, Ms Lee and the defendant and legal submissions were devoted separately to the Loan issues.
On the other hand, the Expenses issue was not separate and distinct. Given the plaintiff denied the existence of the Set-Off Agreement and, in any event, asserted that the defendant had not verified the Trust Expenses, the defendant was required to adduce evidence on each and every Trust Expense it claimed. Ultimately, even though not all Trust Expenses were allowed, sufficient Trust Expenses were held to be reasonable and set-off against the Loan such as to completely extinguish the balance of the Loan. The plaintiff did not admit any of the Trust Expenses were reasonable.
While there was a significant portion of costs and time taken at trial to determine the Expenses issue, the defendant was only partially unsuccessful. The Trust Expenses that were not set-off pursuant to the Set-Off Agreement were not significant in terms of costs and/or time taken at trial.
The Loan issues were of importance, strength and merit. As indicated in the Reasons for the Decision, the contemporaneous documents overwhelmingly supported the existence of the Loan.[216]
[216] Reasons for Decision [10].
Conversely, those Trust Expenses that were not permitted to be set‑off had limited importance because the defendant did not seek to claim repayment from the plaintiff to the extent that Trust Expenses exceeded the amount outstanding pursuant to the Loan.
The last consideration is the conduct of the successful party generally. In the event that the defendant had admitted the Loan and pleaded the Set-Off Agreement, I would have determined him to be wholly successful. In denying the existence of the Loan and pleading that the Loan Document was a sham, the costs incurred and time taken at trial were significantly increased.
I also make the observation that the plaintiff did not accept at trial that the Trust Expenses, to the extent that they represented payments towards the Construction Contract Sum, were Trust Expenses that were part of the Set‑Off Agreement. At trial, I found that the plaintiff signed the Construction Contract and, as a result, was aware of the fixed price Construction Contract Sum.[217] The plaintiff had sufficient information, from the time that he signed the Construction Contract, in relation to these Trust Expenses to determine the amount to be set‑off against the Loan. In these circumstances, the conduct of the defendant was not of a nature to deprive him of the costs of the action relating to the Expenses issue.
[217] Reasons for Decision [193].
As I have stated, even though the defendant was not permitted to set-off every Trust Expense claimed pursuant to the Set-Off Agreement, he was not claiming re-imbursement from the plaintiff for those Trust Expenses incurred in excess of the balance of the Loan. Therefore, I do not consider his conduct in claiming those Trust Expenses to be objectionable.
In all of the circumstances, I am of the view that the costs should be apportioned only to reflect the fact that the defendant was unsuccessful on the Loan issues.
The process of allocating costs associated with the Loan issues is not an exercise in mathematical precision. Having regard to the pleadings, the Loan issues raised by the parties, the time occupied by the Loan issues in the action and the general conduct of the action, I have formed the impression that the Loan issues were a significant and substantial part of the action and that the defendant ought recover only 50% of its costs of the action.
Did the plaintiff unreasonably reject a Calderbank offer as to warrant an indemnity costs order?
Having determined that the appropriate costs order is that the plaintiff pay 50% of the defendant's costs of the action, the fourth stage of the enquiry is to determine whether the plaintiff unreasonably rejected the Offer.
In deciding whether the plaintiff's rejection of the Offer was unreasonable, the following factors are relevant:
(a)the stage of the proceeding at which the Offer was received;
(b)the time allowed to the plaintiff to consider the Offer;
(c)the extent of the compromise offered;
(d)the plaintiff's prospects of success assessed at the date of the Offer;
(e)the clarity with which the terms of the Offer were expressed; and
(f)whether the Offer foreshadowed an application for indemnity costs in the event of the defendant rejecting it.
The Offer allowed the plaintiff sufficient time to consider it, it was expressed clearly and it did foreshadow an application for indemnity costs in the event it was rejected. The real issues in relation to the Offer are the stage of the proceeding at which it was received by the plaintiff and the plaintiff's prospects of success at the time of the Offer.
Before considering each of these issues, it is important to assess the circumstances that existed at the time of the Offer.
The relevant chronology of events is:
•23 July 2019 ‑ proceedings commenced.
•1 November 2019 ‑ defence filed ‑ no defence of set-off pleaded.
•13 November 2019 ‑ plaintiff's application for summary judgment filed.
•10 February 2020 ‑ affidavit of defendant in opposition to plaintiff's application for summary judgment (February 2020 Affidavit).
•24 March 2020 ‑ plaintiff's application for summary judgment dismissed, plaintiff ordered to pay the defendant's costs of the application.
•29 May 2020 ‑ defence, set-off and counterclaim filed (substituting entire defence dated 1 November 2019).
•11 June 2020 - Defendant's offer of settlement to plaintiff of $188,633.67 (Offer).
•3 July 2020 ‑ defence to counterclaim filed.
•18 September 2020 ‑ parties give general discovery.
•5 March 2021 ‑ defendant paid $185,920.50 to the plaintiff.
•1 June 2021 ‑ defendant's further list of documents ‑ including at documents 100 and 101 of the list.
•June 2021 ‑ immediately prior to trial, defendant provides 'bundle of documents relating to outgoings' (Exhibits 1.819 ‑ 1.943) and 'bundle of progress claim tax invoices' (Exhibits 1.944 -1.960).
•9 June 2021 ‑ trial commences.
The plaintiff submits that the Offer was made shortly after the set‑off was pleaded on 29 May 2020 and in circumstances where he had not been provided with all of the information required to justify the reasonableness of the Trust Expenses.
The defendant submits that the plaintiff had all of the information he needed to assess the Offer due to the information provided to the plaintiff before the proceedings were commenced and the documents annexed to the February 2020 Affidavit.[218] The defendant's solicitors provided a comparison of the Trust Expenses allowed pursuant to the Set-Off Agreement on the one hand, with the Trust Expenses claimed in the Offer and whether evidence had been provided in support thereof at the date of the Offer on the other hand (Comparison Table).[219]
[218] February 2020 Affidavit par 75, Annexure 'SDO15'.
[219] Defendant's outline of written submissions in relation to costs dated 17 August 2021: Attachment A.
I am satisfied that the Comparison Table, together with the invoices annexed to the February 2020 Affidavit, establishes that:
(a)as at the date of the Offer, the defendant had provided the plaintiff with invoices relating to 38 of the 52 Trust Expenses awarded at trial (89% of the value of the Trust Expenses); and
(b)as at the date of the Offer, the defendant had provided the plaintiff with information to assess 37 of 46 Trust Expenses included in the Offer (94% of the value of the Trust Expenses).
In considering whether the plaintiff's rejection of the Offer was unreasonable, I have had regard to the following facts and circumstances:
(a)the defendant maintained, in the February 2020 Affidavit, that the Loan did not exist and that the Loan Document was a sham;
(b)the February 2020 Affidavit annexed invoices, but did not explain in detail what they related to;
(c)the defendant maintained, in the Offer, that there was no Loan;
(d)while the defendant did establish that a significant proportion of Trust Expenses claimed in the Offer should be set-off pursuant to the Set‑Off Agreement, the defendant was not successful at trial in claiming all of the Trust Expenses claimed in the Offer. The significance of this is that the defendant was entitled to have reservations, at the time of the Offer, surrounding the validity of the Trust Expenses claimed. It was not unreasonable, at the time of the Offer, for the plaintiff to have reservations about the reasonableness of the Trust Expenses, where, in fact, some of those Trust Expenses were ultimately determined at trial not to be reasonable;
(e)discovery on oath had not been provided by either party at the time of the Offer;
(f)the defendant provided a further list of documents on 1 June 2021, nine days before the trial, which contained a composite set of invoices comprising the Trust Expenses; and
(g)the plaintiff did not obtain a more favourable outcome at trial than the Offer. If the plaintiff had accepted the Offer, he would have been better off than he finds himself now, at the end of the trial.
The fact that the plaintiff did not do better at trial than the Offer is not the determinative factor in assessing whether it was unreasonable for the plaintiff, at the time of the Offer, to reject the Offer. The court does not assess whether rejecting the Offer was unreasonable with the benefit of hindsight.
I am satisfied that the stage of the proceedings at which the Offer was made, the fact that Offer maintained that the Loan did not exist and that the Trust Expenses claimed by the defendant were not all allowed at trial, nor were they sufficiently explained to the plaintiff at the time of the Offer, all combine to establish that the plaintiff's rejection of the Offer was not unreasonable at the time the Offer was made.
In summary, the defendant has not established that there is any special or unusual feature of this case which warrants an exercise of my discretion to award costs on an indemnity basis.
Costs of the counterclaim
I turn finally to consider the issue of the costs of the counterclaim. Ultimately, the counterclaim fell away because the defence of set-off was successful. I was not required to determine the substantive merits of the counterclaim.
In these circumstances, I consider that the appropriate order in relation to the counterclaim is that there be no order as to costs.
Conclusion and final orders
I find that the defendant was the successful party following the trial of this action.
Given that the defendant was wholly unsuccessful on the Loan issues, I have, as a matter of impression, apportioned the costs order to reflect the defendant's limited success. I have assessed, as a matter of impression, that 50% of the costs of the action were attributable to the Loan issues.
I find that the plaintiff did not unreasonably reject the Offer. Accordingly, I do not exercise my discretion to award indemnity costs to the defendant.
I make the following final orders:
1.The plaintiff's action is dismissed.
2.The counterclaim is dismissed.
3.The plaintiff pay 50% of the defendant's costs of the action to be taxed if not agreed.
4.There be no order as to costs of the counterclaim.
I certify that the preceding paragraph(s) comprise the reasons for decision of the District Court of Western Australia.
CB
Associate to her Honour Judge Whitby
23 SEPTEMBER 2021
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