Mango Boulevard Pty Ltd v Mio Art Pty Ltd - [2018] QCA 39

SUPREME COURT OF QUEENSLAND

CITATION:

Mango Boulevard Pty Ltd v Mio Art Pty Ltd & Anor [2018] QCA 39

PARTIES:

MANGO BOULEVARD PTY LTD as trustee for the MANGO BOULEVARD UNIT TRUST
ACN 101 544 601
(appellant)
v
MIO ART PTY LTD as trustee for the SPENCER FAMILY TRUST
ACN 121 010 875
(respondent)
ROBERT WILLIAM WHITTON as trustee in bankruptcy of the bankrupt estate of SILVANA PEROVICH
(respondent)

FILE NO/S:

Appeal No 6003 of 2017
SC No 9991 of 2016
SC No 1383 of 2017

DIVISION:

Court of Appeal

PROCEEDING:

General Civil Appeal

ORIGINATING COURT:

Supreme Court at Brisbane – [2017] QSC 87 (Jackson J)

DELIVERED ON:

20 March 2018

DELIVERED AT:

Brisbane

HEARING DATE:

27 September 2017

JUDGES:

Fraser and Morrison and McMurdo JJA

ORDERS:

1. The appeal is dismissed.

2. The appellant is to pay the respondent’s costs of the appeal, to be assessed on the standard basis.

CATCHWORDS:

ARBITRATION – CONDUCT OF THE ARBITRATION PROCEEDINGS – POWERS, DUTIES AND DISCRETION OF ARBITRATOR – DUTY TO OBSERVE RULES OF NATURAL JUSTICE – where there was a dispute between the two sides of a joint venture for the development of land – where the joint venture was formed pursuant to a Share Sale Agreement (SSA) – where the SSA contained a formula by which the price for shares was to be fixed according to the value of the land – where the arbitrator found that the value of the land ought to be calculated as the SSA provided but also with real life market considerations in mind – where the appellant alleged this finding had not been sought by the parties – where the arbitrator used that finding as a basis for rejecting the evidence of three of the appellant’s expert witnesses – whether the arbitrator afforded the appellant a reasonable opportunity to respond to or answer the arbitrator’s use of that finding

ARBITRATION – CONDUCT OF THE ARBITRATION PROCEEDINGS – POWERS, DUTIES AND DISCRETION OF ARBITRATOR – DUTY TO OBSERVE RULES OF NATURAL JUSTICE – where it was contended that the arbitrator’s reasoning was based upon a finding notwithstanding that it was not a basis pleaded or argued by the respondents – where it was submitted that the arbitrator’s introduction of his own methodological approach to value involved a fundamental departure from the requirements of procedural fairness – whether the award was in conflict with the public policy of the State

Commercial Arbitration Act 2013 (Qld), s 34(2)(a)(ii), s 34(2)(a)(iv), s 34(2)(b)

Amasya Enterprises Pty Ltd v Asta Developments (Aust) Pty Ltd [2016] VSC 326, applied
Mio Art Pty Ltd v Mango Boulevard Pty Ltd & Ors (No 2) [2012] QSC 348, cited
TCL Air Conditioner (Zhongshan) Company Ltd v Castel Electronics Pty Ltd (2014) 232 FCR 361; [2014] FCAFC 83, considered
Trustees of Rotoaira Forest Trust v Attorney-General [1999] 2 NZLR 452, applied

COUNSEL:

D Kelly QC, with M Hodge, for the appellant
F M Douglas QC, with D D Keane…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2018] QCA 39
Decision Date: 20 March 2018

CaseChat Overview and Summary

In the matter of Mango Boulevard Pty Ltd v Mio Art Pty Ltd, the dispute arose from a joint venture agreement for the development of land. The case concerned the interpretation and application of a Share Sale Agreement (SSA) which included a specific formula for determining the price of shares based on the value of the land. The central issue was whether the arbitrator properly adhered to the valuation methodology outlined in the SSA when determining the value of the land and if the parties were given a fair opportunity to respond to the arbitrator's findings. Specifically, the appellant argued that the arbitrator's use of a valuation method that included real-life market considerations was not supported by the parties' submissions and thus, violated natural justice.

The court examined whether the arbitrator had the authority to introduce a new valuation approach not argued by the parties, and if this approach was consistent with procedural fairness and public policy. The court found that the arbitrator did not act outside their authority by considering market realities in addition to the SSA's stipulated methodology. The reasoning was that the arbitrator's approach was necessary to ensure the valuation was realistic and aligned with commercial expectations. The court held that the arbitrator's method did not contravene public policy or procedural fairness as it was an appropriate application of the contractual terms to achieve a just outcome.

The appeal was dismissed, and the appellant was ordered to pay the respondent's costs of the appeal, to be assessed on the standard basis.

Orders

Orders of the court

1. The appeal is dismissed.

2. The appellant is to pay the respondent’s costs of the appeal, to be assessed on the standard basis.

Background

Background to the litigation

For reasons which follow I would dismiss the appeal.Background and approach of the learned primary judge The Share Sale Agreement provided for the valuation methodology in cl 4.1, cl 4.3 and cl 4.4, which relevantly provided:“4.1The purchase price of the Shares shall be calculated as the greater of:(a)the difference between the purchase price of the Property set out in the Contract and the improved market value of the Property immediately after the Effective Date less $2,000,000.00; or(b)$5,000,000.00; …4.3For the purpose of clause 4.1(a), the valuation of the Property shall be a market valuation. …4.4The Valuer shall value the Property on the assumptions that:(a)Development Permits have been issued in respect of the whole Property which authorise the development of the Property on substantially similar terms to the terms of the Preliminary Approval, including substantially similar:(i) MCU;(ii) density per hectare;(iii) yield; and(iv) conditions;(b)the Project would achieve a Profit on Cost Percentage return of 25% (“Valuation”).4.5The cost of the Valuation shall be borne by Mango Boulevard.”[1][1]Emphasis added. Clause 8.3 then provided that the Arbitrator “… in reaching a decision as to the value of the Property, must adopt the same methodology as provided in clause 4.4”. Thus, cl 4.4 provided that in ascertaining the “improved market value of the Property immediately after the Effective Date” under cl 4.1, and the “market valuation” of the Property under cl 4.3, the Arbitrator was required to make the agreed assumptions, particularly that the Project would achieve a Profit on Cost percentage return of 25 per cent. The Arbitrator found[2] that the methodology to be applied was a variant of the residual value method, in accordance with the decision of PD McMurdo J[3] in Mio Art Pty Ltd v Mango Boulevard Pty Ltd (No 2)[4] and the Court of Appeal in Mango Boulevard Pty Ltd v Mio Art Pty Ltd.[5] The essential aspect of that finding is in paras [103]-[104] of Part 1 of the Award, as follows:“[103] Real life market considerations, that is, commercial reality, has another role to play in the making of the market valuation under the SSA. If the adoption of the selected amounts in respect of an item or items of cost and the financial return on them produces an improbable and counter-intuitive commercial result on the known indisputable facts, for example that the Respondent actually paid $22,000,000 for the Property and incurred other substantial expenses in respect of it before the Effective Date, and that competent and prudent or rational developers would not buy such a Property unless they reasonably believed they could make a profit of 30% to 45% on all costs (inclusive of the actual purchase price of it), then there will be reason to question, and it would be in conformity with the contractual requirement of a market valuation, that there be at least a serious questioning and scrutiny of those inputs and income on them. In other words, a market valuation requires more than a simple acceptance of a computer generated number on the basis of one only highly contestable set of costs and income.[104]In substance then I accept that the residual cash flow method, or the variant of it for which the SSA provides, is the method of valuation which must be adopted here. But that method certainly does not preclude, indeed the requirement of a market valuation requires, a testing on the bases of various sensitivities, of the result for which the parties contend, and, if found improbable by reference to the market, a revisiting and testing of the inputs and outputs producing that improbability. That is not to ignore the ultimate requirement of a profit of 25% on the assumptions required to be made. It is simply to measure against the evidence, all relevant market considerations operating on the Effective Date, including expectations and requirements of profit then.”[2]Part 1 of the Award, paragraphs [100]-[104], AB 353-355.[3]As his Honour then was.[4][2012] QSC 348.[5][2013] QCA 271.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

Full text does not contain this section.

Ratio Decidendi

Legal Principle Established

Full text does not contain this section.

CITATION:	Mango Boulevard Pty Ltd v Mio Art Pty Ltd & Anor [2018] QCA 39
PARTIES:	MANGO BOULEVARD PTY LTD as trustee for the MANGO BOULEVARD UNIT TRUST ACN 101 544 601 (appellant) v MIO ART PTY LTD as trustee for the SPENCER FAMILY TRUST ACN 121 010 875 (respondent) ROBERT WILLIAM WHITTON as trustee in bankruptcy of the bankrupt estate of SILVANA PEROVICH (respondent)
FILE NO/S:	Appeal No 6003 of 2017 SC No 9991 of 2016 SC No 1383 of 2017
DIVISION:	Court of Appeal
PROCEEDING:	General Civil Appeal
ORIGINATING COURT:	Supreme Court at Brisbane – [2017] QSC 87 (Jackson J)
DELIVERED ON:	20 March 2018
DELIVERED AT:	Brisbane
HEARING DATE:	27 September 2017
JUDGES:	Fraser and Morrison and McMurdo JJA
ORDERS:	1. The appeal is dismissed. 2. The appellant is to pay the respondent’s costs of the appeal, to be assessed on the standard basis.
CATCHWORDS:	ARBITRATION – CONDUCT OF THE ARBITRATION PROCEEDINGS – POWERS, DUTIES AND DISCRETION OF ARBITRATOR – DUTY TO OBSERVE RULES OF NATURAL JUSTICE – where there was a dispute between the two sides of a joint venture for the development of land – where the joint venture was formed pursuant to a Share Sale Agreement (SSA) – where the SSA contained a formula by which the price for shares was to be fixed according to the value of the land – where the arbitrator found that the value of the land ought to be calculated as the SSA provided but also with real life market considerations in mind – where the appellant alleged this finding had not been sought by the parties – where the arbitrator used that finding as a basis for rejecting the evidence of three of the appellant’s expert witnesses – whether the arbitrator afforded the appellant a reasonable opportunity to respond to or answer the arbitrator’s use of that finding ARBITRATION – CONDUCT OF THE ARBITRATION PROCEEDINGS – POWERS, DUTIES AND DISCRETION OF ARBITRATOR – DUTY TO OBSERVE RULES OF NATURAL JUSTICE – where it was contended that the arbitrator’s reasoning was based upon a finding notwithstanding that it was not a basis pleaded or argued by the respondents – where it was submitted that the arbitrator’s introduction of his own methodological approach to value involved a fundamental departure from the requirements of procedural fairness – whether the award was in conflict with the public policy of the State Commercial Arbitration Act 2013 (Qld), s 34(2)(a)(ii), s 34(2)(a)(iv), s 34(2)(b) Amasya Enterprises Pty Ltd v Asta Developments (Aust) Pty Ltd [2016] VSC 326, applied Mio Art Pty Ltd v Mango Boulevard Pty Ltd & Ors (No 2) [2012] QSC 348, cited TCL Air Conditioner (Zhongshan) Company Ltd v Castel Electronics Pty Ltd (2014) 232 FCR 361; [2014] FCAFC 83, considered Trustees of Rotoaira Forest Trust v Attorney-General [1999] 2 NZLR 452, applied
COUNSEL:	D Kelly QC, with M Hodge, for the appellant F M Douglas QC, with D D Keane…