Pomeroy Pacific Pty Ltd v Melstone Wellington Pty Ltd
[2017] VCC 1699
•23 November 2017
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
EXPEDITED LIST
Case No. CI-17-01945
| Pomeroy Pacific Pty Ltd | Plaintiff |
| v | |
| Melstone Wellington Pty Ltd and Melstone Capital Pty Ltd | Defendants |
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JUDGE: | His Honour Judge Woodward | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 20 November 2017 | |
DATE OF JUDGMENT: | 23 November 2017 | |
CASE MAY BE CITED AS: | Pomeroy Pacific Pty Ltd v Melstone Wellington Pty Ltd & Anor | |
MEDIUM NEUTRAL CITATION: | [2017] VCC 1699 | |
REASONS FOR JUDGMENT
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Subject: CONTRACTS
Catchwords: Construction of agreement for project management services – analysis confined to language of agreement and context – whether fee payable in lump sum or progressively – agency – no evidence of agency agreement or ostensible authority – whether there can be a holding out when the existence of the principal is unknown – assessment of interest payable
Cases Cited:Apple and Pear Australia Ltd v Pink Lady America LLC (2016) 343 ALR 112, [2016] VSCA 280; International Paper Co v Spicer (1906) 4 CLR 739; Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104, [2015] HCA 37; International Paper Co v Spicer (1906) 4 CLR 739
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr D Aghion | Tisher Liner FC Law |
| For the Defendants | Mr A Silver | Madgwicks Lawyers |
HIS HONOUR:
1 This proceeding concerns the construction of a commercial agreement. More specifically, an agreement dated 31 July 2015 (“agreement”) for the provision by the plaintiff (“Pomeroy”) of development and project management services to the first defendant (“Melstone Wellington”) or to both Melstone Wellington and the second defendant (“Melstone Capital”). The project was an apartment development at 16-22 Wellington Road, Box Hill (“project”).
2 The issues in dispute and my brief answers to them are as follows:
· Did Melstone Wellington enter into the agreement on its own behalf or both on its own behalf and as agent of Melstone Capital? Answer: the former.
· Was the $140,000 increase in the fee payable as a lump sum on obtaining planning permission or as an accretion to the base fee payable progressively with the base fee? Answer: the latter.
· What (if any) amount is payable to Pomeroy Pacific for the 60-day notice period for termination of the agreement? Answer: given that Pomeroy did not issue any invoices to Melstone Wellington for work done in that 60-day period, nothing is payable.
· What (if any) amount is payable to Pomeroy Pacific as interest pursuant to the agreement? Answer: Interest is payable from the date of the writ pursuant to s2 of the Penalty Interest Rates Act 1983 (Vic)
3 Apart from the issues of construction, there was very little in dispute between the parties. Neither party called any witnesses, and the documents relied on by the parties were tendered by agreement.
The agreement
4 The agreement is in the form of a document entitled “Development and Project Management Proposal”. In addition to containing more formal contractual provisions, it also has a number of what might be described as promotional statements and information. The first part of the agreement takes the form of a covering letter dated 31 July 2015 addressed to “Melstone Developments Pty Ltd, C/O Evan Zhang (Managing Director)”. Melstone Developments Pty Ltd is the former name of Melstone Group Pty Ltd and is not a party to these proceedings. Melstone Group Pty Ltd holds shares in Melstone Capital, which in turn holds all the issued shares in Melstone Wellington.
5 The covering letter includes a long list of what are described as the “key deliverables you are seeking from your Development and Project Manager”. Pomeroy relies on a number of these items as evidence of Melstone Wellington’s ostensible authority to enter into the agreement on behalf of Melstone Capital. They include:
“Work with you to achieve a Town Planning Permit that maximises the site’s yield including obtaining the maximum developable height
…
Engage consultants at cost competitive fees through competitive tension
…
Arrange for the preparation of the legal and marketing documentation to enable sales to occur
…
Manage sales and marketing including, local international and third-party channels
…
Issue detailed invitation to tender documentation and assess tenders”
…
Manage the builder to prevent substitution of specified fixtures and fittings without your prior consent”
6 The next section of the agreement is headed “Project Appreciation”, and includes the statement that: “Melstone Developments is seeking to obtain a Town Planning Permit for the construction of up to 16 storeys with the potential of 130 apartments or more”. This is followed by the commencement of the section dealing with the “Scope of Works”, which identifies the “six project delivery stages we intend to provide to deliver your development project”. The introductory section concludes:
“We pride ourselves on providing a fully integrated and rounded service which is demonstrated by our commitment to seamlessly integrating each stage of work. As such, work which is identified as occurring in one stage may often be instigated in an earlier stage and be concluded later in the process.”
7 Stage 1 is “Project Establishment/Feasibility/Town Planning”. It provides (among other things) that Pomeroy, “will focus on establishing an appropriate design brief to enable the lodgement of a Town Planning Application that is financially viable, maximises profit and mitigates risk”. The final bullet point for this stage is: “Oversee and drive the whole planning process up until Council makes a determination”. Stage 2 is “Detailed Design”, Stage 3 is “Sales & Marketing”, Stage 4 is “Tendering & Contract Negotiation, Stage 5 is “Construction Management and PC” and Stage 6 is “Defect Management”.
8 The next section of the agreement is central to the issues in this proceeding. It is entitled “Fee Schedule”. It relevantly provides as follows:
“Our Fees on your project are based on the application of resources and the time required to provide high quality Development and Project Management services for the proposed development. We have chosen to fix our Fee as opposed to providing a Fee which is assessed based on a % of construction. I trust this provides you with greater certainty that we remain focused on achieving the most cost competitive construction price without compromising quality.
Whilst we understand you are targeting a Permit for a 16 level development, we have provided a base Fee assuming a Permit for up to a 10 storey development. We have done this to provide you with the most competitive Fee and to ensure our interests are aligned by creating an incentive structure that rewards us for being able to achieve greater height. This Fee structure concept should provide you with confidence that we will fight for every extra level and additional yield.
Proposed Fee and Formula
Our Development and Project Management Fee is a Base Fee of $360,000.
For each additional level above 10 storeys (ground plus 9) up to 12 storeys (ground plus 11), our Fee will be increased by $30,000 per level. Therefore, if a Permit for a 12 storey building is obtained, our fee will be increased by $60,000.
For each additional level above 12 storeys (ground plus 11), our Fee will be increased by $40,000 per level. Therefore, if a Permit for a 13 storey building is achieved, our fee will be $460,000.
Our Fee for Stage 1 (project Establishment/Feasibility/Town Planning is $70,000 and this is to be deducted from the overall Fee.
Pomeroy’s fee (‘Fee’) is based upon the following:
·The Fee is based on the development being delivered in one Stage
…
·The Fee does not include out-of-pocket expenses
·The Fee is based on a continuous engagement of not more than 48 months
·Stage 6 – Management of the 12 month defect liability Period will be provided based on hourly rates
·The Fee excludes work required for a VCAT hearing
...
·The Fee remains subject to our standard terms and conditions of engagement – page 33
…
·Invoices will be issued monthly and are to be paid on 14 day terms
·All figures quoted are exclusive of GST”
9 The signature page is the next page of the agreement and is headed “Project Particulars”. What appears on this page is important to the resolution of the agency issue discussed below. After the project address (16-22 Wellington Road, Box Hill) and a reference to the Fee Schedule on the previous page, it states: “I/We hereby accept the enclosed fee proposal, terms and conditions and direct Pomeroy Pacific Pty Ltd to commence work as outlined herein”. Alongside the words in the next line: “For and on behalf of” is the name “Melstone Wellington Pty Ltd”, written in hand. The next line is Melstone Wellington’s ABN followed by signatures and printed names of Evan Zhang, Ran Wang and Chang Qing Wang, each of whom is a director of both Melstone Wellington and Melstone Capital.
10 After about 17 pages of details of Pomeroy’s previous projects, information about its personnel and its accreditations and qualifications, is the final page of the agreement headed “Terms & Conditions”. These relevantly include the following:
“1. The following words are ascribed the corresponding meanings:
“Client” means the party referred to in the ‘Project Particulars’;
…
“Project Management Services” means the services described under ‘Scope of Work – Stage 1 – 6’.
…3. Pomeroy Pacific shall provide the Consulting Services and the Client shall pay Pomeroy Pacific the fees and reimbursable expenses in accordance with these Terms and Conditions. All monies payable by the Client to Pomeroy Pacific shall be paid strictly within seven days of Invoice. Without relieving the Client of the obligation to pay invoices and accounts, monies not paid within that period shall attract interest at a rate of 10% compounding daily from the date of invoice until payment in full. If any accounts or invoices are outstanding for more than 14 calendar days, Pomeroy Pacific may suspend all Consulting Services or terminate the agreement and be entitled to the balance of their contracted fee.
…5. The Client is the party disclosed in the Project Particulars, and that party shall be the party to which invoices shall be sent and held responsible for the payment of such invoices or accounts.
…8. Subject to the additional conditions on page 14 [the “Fee Schedule”], if the Consulting Services are increased or protracted due to causes or decisions beyond the control of Pomeroy Pacific, then an additional monthly fee in accordance with the Fee schedule will be applied during each stage.
9. Fees will be invoices progressively on a monthly basis.
…12. In the event that the Client terminates the agreement due to a material and un-remedied breach, the Client shall pay Pomeroy Pacific all outstanding amounts payable pursuant to these terms and conditions regardless of whether they have been invoiced. In the event of termination for reasons other than un-remedied material breach by Pomeroy of its obligations under this Agreement, the Client shall pay to Pomeroy Pacific a three month termination fee. Termination under this agreement can occur only on the expiration of not less than 60 days written notice.”
11 There is no definition in the agreement of “Consulting Services”, and both parties accepted (correctly in my view) that references to “Consulting Services” should instead refer to “Project Management Services”.
Post-agreement events
12 On 23 October 2015, Pomeroy issued its first invoice to Melstone Wellington for $15,000 plus GST and expenses. The invoice was later paid. The parties agree that Melstone Wellington became registered as proprietor of 18 and 22 Wellington Road, Box Hill on, respectively, 5 November 2015 and 21 April 2016. It is not clear on the evidence whether the street address 20 Wellington Road, Box Hill exists, but (if it does) it does not appear to be in dispute that Melstone Wellington ultimately became registered proprietor of 18-22 Wellington Road, Box Hill.[1] The parties also agree that Melstone Capital became registered proprietor of 16 Wellington Road, Box Hill on 22 August 2016.
[1]I note that the transfer of land to Melstone Wellington dated 16 October 2015 includes two titles, but the title search show the street address of both titles as 18 Wellington Road. Either the street address of one of those two titles is in fact 20 Wellington Road, or there is no 20 Wellington Road, Box Hill
13 Pomeroy issued a further five invoices each month after its 23 October 2015 invoice. Each of these invoices was for $11,000 plus GST and expenses, and was addressed only to Melstone Wellington. The first invoice of $15,000, plus the five monthly invoices thereafter of $11,000 each, concluding with an invoice dated 20 March 2016, gave a total amount invoiced by that date of $70,000, net of GST and expenses. This is consistent with the term in the Fee Schedule that: “Our Fee for Stage 1…is $70,000 and this is to be deducted from the overall Fee”. No further invoices were sent by Pomeroy until an invoice $16,150 plus GST and expenses dated 28 August 2016 and two invoices for $11,471.74 plus GST and expenses dated, respectively, 29 September and 25 October 2016. These too were addressed only to Melstone Wellington.
14 On 26 October 2016, the City of Whitehorse issued a Notice of Decision to Grant a Planning Permit stating that: “the Responsible Authority has decided to grant a permit”, that will allow “construction of a 14 storey building comprising not more than 133 dwellings with basement car parking”. There is no dispute that the issue of this Notice of Decision constituted the completion of Stage 1 of the project and the obtaining of a permit for a 14 storey building, for the purposes of the Fee Schedule at page 14 of the agreement. References below to the “permit” are to this notice of decision.
15 The three invoices issued in August, September and October 2016 referred to above are included in an internal Pomeroy spreadsheet as being applicable to “Stage 2 - Sales and Marketing”. However an internal email dated 4 November 2016, Mark Petzer, Project Manager of Pomeroy relevantly states:
“With reference to the below email from Melstone [not in evidence], I note:
1. The $70,000 allocation to Stage 1 (Project Establishment/ Feasibility/ Town Planning) on page 14 of the attached agreement was invoiced by 29 March 2016. Much of the work done since then was Stage 1 scope. Whilst clause 8 on page 33 allows us to carry on charging at a monthly rate, the agreement doesn’t contemplate a time limit for Stage 1. In short, we may struggle to claim that any portion of the subsequent fees are variations to Stage 1.
2. A number of non-Stage 1 portions of services have been requested since March and so should easily support the fees charged for August and September 2016 of $16,150 and $11,471 respectively. The below list represents my recollection only so all copied are welcome to add/amend as you see fit.
…
3. As discussed in October, the invoice for October is difficult for me to support because the Client did ask me on 29 September to HOLD until the NOD [Notice of Determination] arrived.”
16 Presumably as a result of the matters referred to in this email (and in particular paragraph 3), on 9 March 2017, Pomeroy issued a credit to Melstone Wellington for the October 2016 invoice. It is not in dispute that, apart from the credited October 2016 invoice, all of the invoices referred to above (totalling $97,621.74, not including GST and expenses), were paid.
17 One invoice was not paid. This was an invoice dated 13 December 2016 for $140,000. It includes the narration:
“The Town Planning permit has now been received for 16-22 Wellington Street, Box Hill, which includes 14 Storeys. As per the Signed Agreement a Bonus is due if there are additional levels above 10 Storeys. Bonus breakdown Story 11 $30,000, Story 12 $30,000, Story 13 $40,000 and Story 14 $40,000.”
18 There were two versions of this invoice in evidence. They are identical, except that one is addressed to Melstone Wellington alone and the other is addressed to both Melstone Wellington and Melstone Capital. The first was in Pomeroy’s discovery and the second was exhibited to an affidavit sworn on behalf of Pomeroy by its solicitor, in support of an application for a freezing order. One explanation for the difference is that Pomeroy updated the invoice by adding Melstone Capital as an addressee, once it had determined to include a claim in the proceeding against Melstone Capital. However, nothing turns on this.
19 The first version of the invoice was an attachment to an email sent by Mark Pomeroy to Evan Zhang at “[email protected]” on 14 December 2016. The email relevantly states:
“Hi Evan, it was great seeing you yesterday and once again congratulations on the permit.
In accordance with our agreement, it was agreed that should a town planning permit be obtained for greater than 10 levels, the following bonus payments would apply:
-$30,000 per level for levels 11 and 12; and
-$40,000 per level for levels 13 and 14.
Therefore the bonus that is now due and payable is $140,000.
Can you please arrange payment of the attached invoice and I look forward to catching up again soon.”
20 There were in evidence a number of emails concerning payment of outstanding invoices between Mark Pomeroy and Evan Zhang between early February and April 2017. Two of those emails include Mr Zhang’s sign-off, describing him as Managing Director, “Melstone Developments Pty Ltd”. Only one of those emails is otherwise relevant for present purposes. It is an email dated 24 February 2017 from Mr Zhang to Mr Pomeroy and is in the following terms:
“As we discussed this Wednesday, my partners and I had a meeting on Thursday, we have agreed to pay the first two invoices [being the invoices of $16,150 and $11,471 sent respectively in August and September 2016] on Friday next week.
For the $140,000 invoice, they have some concern about the amount owing, and I ask them to send me their opinion formally in email by Friday, and up to now I have not received it.
Pomeroy has provided us very good services for the Feasibility and Town Planning stage for box hill [sic] project, however, we have to decide to terminate the Services due to the shareholder issue and the transfer of ownership.
I will pass our experience with Pomeroy to the new purchaser and I hope you can bring the project into reality.
Melstone will certainly have two new projects in this year (one has been confirmed) and we are willing to deliver a livable [sic] apartment project into the market and build up our brand. I hope we can maintain a good relationship and have a successful cooperation soon”.
21 It is not in dispute that this email was a valid notice of termination of the agreement and that termination of the agreement occurred pursuant to clause 12 of the agreement 60 days after the email, on 25 April 2017.
Analysis
Was Melstone Wellington the agent of Melstone Capital?
22 Pomeroy submits that Melstone Wellington entered into the agreement “as ostensible and actual agent for” Melstone Capital. It points to a number of steps that Pomeroy has agreed to undertake on behalf of the counter-party to the agreement that could only be done with the authority of the registered proprietor of the project land, or a person authorised to act on behalf of the registered proprietor. It then postulates: “One might ask rhetorically, how Pomeroy Pacific could have performed the agreement in relation to 16 Wellington Street, if Melstone Wellington did not have authority to enter into the agreement as agent for Melstone Capital?”[2]
[2]Pomeroy written submissions at [5]
23 The difficulty with this submission is that a putative need for authority does not, without more, enliven a principal and agent relationship. There are any number of ways in which Melstone Capital could facilitate the various steps by Pomeroy without appointing Melstone Wellington as its agent or otherwise assuming a direct liability to pay Pomeroy’s fee. In my view, for the reasons below, the agency argument is not made out. The only party that has assumed any liability under the agreement to pay Pomeroy’s fee is Melstone Wellington and the claim against Melstone Capital should therefore be dismissed.
24 Turning first to the allegation of “actual agency”, I take this as a reference to a contract (express or implied) pursuant to which Melstone Capital in fact appointed Melstone Wellington as its agent to enter into the agreement. I agree with the Melstone parties’ submission that the onus is on Pomeroy to prove the existence of such a contract and it has comprehensively failed to do so. It has not produced any document or adduced evidence from any witness to the effect that such a contract existed as at the date of the agreement or, indeed, at any time.
25 Further, the agreement itself cannot stand as such a contract. It is self-evidently a contract between Pomeroy and Melstone Wellington alone. The Terms & Conditions on page 33 of the agreement define “Client” as “the party referred to in the ‘Project Particulars’”. The only party named in those Project Particulars is Melstone Wellington (both by its name and its ABN). There is nothing in or about the agreement that could be said to constitute a contract by Melstone Capital to appoint Melstone Wellington as its agent, or to otherwise extend the operation of the agreement or any obligation to pay the “Fee” thereunder to any entity other than Melstone Wellington.
26 Turning next to ostensible authority, a principal may be liable under a contract effected by a person who possesses no actual authority from the principal, but on whom the principal has, by his or her words or actions, conferred “apparent” or “ostensible” authority. Conferral of ostensible authority will generally involve a “holding out” in the form of a representation by the principal (in this case Melstone Capital) as to the extent of the apparent agent’s authority.[3] The representation commonly manifests as conduct of the principal, rather than a direct communication to the other party. A direct communication would in most cases be evidence of actual authority.
[3]Attorney-General (Ceylon) v Silva [1953] AC 461 at 479
27 Again, there is no evidence of any “holding out” by Melstone Capital of Melstone Wellington as its agent. As indicated above, Melstone Capital did not become registered proprietor of 16 Wellington Road, Box Hill until 22 August 2016, over 12 months after the date of the agreement. There is nothing in evidence (such as a contract of sale) to suggest that Melstone Capital had been identified even by the Melstone parties or their directors as the likely purchaser of 16 Wellington Road as at 31 July 2015. Indeed, it was only registered three days earlier (28 July 2015).
28 Even if Melstone Capital had been the registered proprietor of 16 Wellington Road at the time of the agreement, it would have been necessary as a starting point for Pomeroy to have adduced evidence of its knowledge of that fact at the time it entered into the agreement. But in circumstances where Melstone Capital was not in fact the registered proprietor and there is no evidence that Pomeroy was even aware of its existence as at the date of the agreement, the argument based on ostensible authority becomes unsustainable.
29 Notably, Pomeroy has not cited any authority in support of the proposition that ostensible authority can be conferred by an undisclosed principal. It is counter-intuitive (if not oxymoronic) to allege a “holding out”, where the existence of the party said to be doing the holding out (or even any “class” of such party) is not known to, or even ascertainable by, the representee. The only authority that I have located that might be said to support the proposition[4] has been widely discredited[5] and cannot be said to represent the law in Australia.[6]
[4]Watteau v Fenwick (1893) 1 QB 346,
[5]See the discussion in GE Dal Pont, Law of Agency (2nd Ed, LexisNexis Butterworths 2008) at [20.51]
[6]International Paper Co v Spicer (1906) 4 CLR 739, per Isaacs J at 763
When and how was $140,000 fee increase payable?
30 This issue raises a confined question of construction. Both parties relied in argument on the High Court decision in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd[7] as stating the applicable principles. There is a helpful analysis of this case and the earlier authorities in the decision last year of the Victorian Court of Appeal in Apple and Pear Australia Ltd v Pink Lady America LLC (“Apple and Pear”).[8]
[7](2015) 256 CLR 104; [2015] HCA 37, per French CJ, Nettle and Gordon JJ at [46]-[52]
[8](2016) 343 ALR 112; [2016] VSCA 280, per Tate JA at [91] to [140] and Ferguson and McLeish JJA at [229]-[232]
31 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. That inquiry will require consideration of 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. Unless a contrary intention is indicated, the court is entitled to approach the task of giving commercial contract a businesslike interpretation on the assumption that the parties intended to produce a commercial result. Put another way, a commercial contract is to be construed so as to avoid it making commercial nonsense or working commercial inconvenience.
32 Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning. However, sometimes, recourse to events, circumstances and things external to the contract is necessary. It may be necessary in identifying the commercial purpose or objects of the contract. It may be necessary in determining the proper construction where there is a constructional choice.
33 In this case, while there is at least arguably a constructional choice, neither party seeks to rely on circumstances and things external to the contract to support the respective construction for which they each contend. There was some suggestion in the Melstone parties’ submissions that Pomeroy relied on emails in February and March 2017. However, in my view there are no issues in this case that might attract the admission of evidence of post-contractual conduct,[9] and Pomeroy did not submit to the contrary or otherwise seek to rely on the emails in argument on the construction question. Thus the analysis below is informed only by the language of the agreement itself and what the agreement reveals about the commercial purpose it secures.
[9]NC Seddon and RA Bigwood, Cheshire and Fifoot Law of Contract (11th Aust Ed, LexisNexis Butterworths 2017) at [10.16]
34 Pomeroy’s argument focuses on the language in the introductory paragraphs of the Fee Schedule. In particular, Pomeroy relies on the reference to the fee arrangement “creating an incentive structure that rewards us for being able to achieve greater height” (my emphasis) and to the increased fee being payable if a permit for additional storeys is “achieved” or “obtained”. Pomeroy submits that these provisions demonstrate that “the express commercial intent of the agreement was to tie the bonus to a permit being ‘achieved’ or ‘obtained’” and that, “payment at that time [that is, when the permit is obtained] is consistent with an objective reading of the text, context and purpose”. It argues that it also makes commercial sense that an incentive payment is payable at the time when the incentive was achieved.
35 I agree that the incentive in the fee arrangement was tied to the permit being achieved or obtained and was designed to reward Pomeroy for being able to achieve greater building height. Where I differ with Pomeroy is on the question of when and how the incentive was to accrue. In my view, a common sense and commercial reading of the words in the third paragraph of the Fee Schedule: “we have provided a base Fee assuming a Permit for up to a 10 storey development”, is that Pomeroy has determined an acceptable fee for a 10 storey building. More particularly, it has worked out what it needs to charge to Melstone Wellington in order to cover staff costs and overheads and make a profit, assuming the anticipated work will involve project management, tender management, marketing and sales of apartments and infrastructure extending over 10 storeys. It is axiomatic that additional storeys and additional apartments would involve further time and costs being devoted to these tasks, although not necessarily in a direct linear way.
36 Thus, in my view, the third paragraph of the fee schedule as a whole is identifying that the proposed increase from the base fee of $360,000 is designed to do two things:
· first, cover the additional time and costs that would inevitably be incurred by Pomeroy in providing services in respect of each additional floor; and
· second, provide for an element of additional incentive (and thus profit) for each additional floor.
37 This second element is exemplified in particular by the fact that floors 13, 14 and beyond each generate a greater increase (that is, $40,000 per floor) than the $30,000 for each of floors 11 and 12. The Melstone parties have in substance submitted that the fact that each increase inevitably includes at least an element of compensation for extra work done, is consistent with the increased fee being paid progressively as the work is done. I agree. And the fact that it also includes an escalating incentive amount does not justify a construction that would have the full $140,000 payable as a lump sum immediately on the grant of the permit.
38 To the extent that there is any doubt on the proper reading of the explanatory third paragraph of the fee schedule on which Pomeroy relies, in my view that doubt is eliminated when that paragraph is read with the language used in relation to the calculation of the fee under the heading “Proposed Fee and Formula”. The first line of that section of the Fee Schedule reads: “Our Development and Project Management Fee is a Base Fee of $360,000”. The expression “Base Fee” is capitalised. However, only the capitalised word “Fee” is later defined in the Fee Schedule, not the composite expression “Base Fee”. I also note that the immediately preceding paragraph also uses the expression “base Fee”, but “base” is not capitalised. In my view, nothing should be read into this single instance of the capitalisation of the word “Base”, and instead the focus is on the defined term “Fee”.
39 When one moves to the next sentence, this speaks in clear terms of “our Fee” being increased for additional storeys above 10 storeys. Some confusion is then created by the use of lower case “fee” in the next line, and the reference to the amount of increase ($60,000), rather than the amount of the “Fee” post-increase. The next sentence is similarly worded and again has “Fee” first in uppercase and then in lowercase, but concludes with the words “our fee will be $460,000”.
40 To my mind, taken together, these three sentences speak clearly of a “Fee” of $360,000 becoming a “Fee” of $460,000, if a permit for 13 storeys is achieved. If a permit for 14 storeys is achieved (as occurred here) the “Fee” becomes $500,000. Put another way, once the number of stories approved by the permit is known (in this case, 14 stories), the first sentence under the heading “Proposed Fee and Formula” should be read as if it said “Our Development and Project Management Fee is $500,000”, and the following two sentences are disregarded.
41 Pomeroy does not point to any provision in the remaining section of the Fee Schedule nor in the Terms & Conditions on page 33, that supports its alternative construction concerning the timing of the payment of the Fee increase. I too have found nothing that assists Pomeroy’s argument on this issue. On the contrary, there are a number of provisions that point the other way. First, the next sentence of the Fee Schedule reads: “Our Fee for Stage 1… is $70,000 and this is to be deducted from the overall Fee”. If the parties had intended that the full amount of any “Fee” increase was to be paid in one lump sum on the grant of the permit (which would necessarily occur on the completion of Stage 1), this is where one would have expected to find provision for such a lump sum payment.
42 Second, the term: “The Fee is based on a continuous engagement of not more than 48 months” in the fourth bullet point on page 14, is in my view consistent with an intention that the payment of the “Fee” (including any increase) be distributed over the full length of the engagement. Third:
· the term: “Invoices will be issued monthly and are to be paid on 14 day terms” in the tenth bullet point on page 14; and
· clause 9 of the terms and conditions: “Fees will be invoiced progressively on a monthly basis”(emphasis added),
likewise suggest a progressive distribution of the “Fee” over the life of the agreement.
43 On the construction I prefer, these provisions would allow for monthly invoices to include a progressive (in the sense of pro-rata) uplift comprising the higher “Fee”, once the permit is granted and the total “Fee” is known.
44 Pomeroy has argued that this construction:
“does not make commercial sense because it would allow the defendants to do precisely what they have done – obtain a favourable permit by the efforts of Pomeroy Pacific; then terminate the agreement prematurely and onsell the properties, and thus deprive Pomeroy Pacific of its incentivised fee while at the same time taking the benefit of the incentivisation”.[10]
[10]Pomeroy written submissions at [12]
45 It is notorious that the issue of a planning permit by a local authority in respect of undeveloped land can affect the value of that land. In particular, a permit allowing for higher density development will invariably lead to an increase in value, and sometimes a significant increase. When this occurs, it is not uncommon for a developer to elect to sell the land with the permit for a short-term profit, rather than proceed with the development. It is not in dispute that clause 12 of the Terms & Conditions of the agreement allows for early termination by Melstone Wellington, subject to 60 days’ notice and payment of a termination fee.
46 In my view, against that background, Pomeroy must be taken to have accepted at least some risk that its engagement may not extend beyond the grant of the permit or the early stages of development. This is reinforced by the provision in the Fee Schedule capping the “Fee” for Stage 1 at $70,000. I consider that this is consistent with the parties contemplating the possibility that the development may not proceed beyond Stage 1 because, for example, the number of storeys allowed under the permit rendered the project unviable.
47 Thus, in my view, on a proper construction of the Fee Schedule, Pomeroy accepted a commercial risk that their incentive to secure additional stories would be limited to a progressive uplift of their “Fee”, for as long as the agreement remained on foot. I accept that this may seem a somewhat miserly reward for Pomeroy’s efforts in securing a permit for 14 floors, but that is an insufficient basis for a finding that a particular construction creates a commercial nonsense.
48 The Melstone parties have pleaded[11] that the requirement to pay pro-rata is an implied term of the agreement. I do not agree. In my view, for the reasons above, this is no more than the common sense construction of the fee and invoicing provisions taken together, as discussed above.[12] Thus the question of whether the Melstone parties have made out the indicia for the implication of a term into the agreement does not arise. I would add that the matters raised in Pomeroy’s amended reply concerning this alleged implied term[13] are to my mind, consistent with the view of the fee and invoicing that I prefer.
[11]Amended defence to amended statement of claim filed 20 November 2017 at [6C]
[12]Above at [41]-[43]
[13]Amended reply filed 20 November 2017 at [4]
49 So what is the progressive or pro-rata uplift to which Pomeroy is entitled in the circumstances that have arisen? In my view, this should be calculated as proposed by the Melstone parties’ submissions.[14] That is, it should be calculated as if Pomeroy had applied the fee increase pro-rata across each of the invoices it had rendered up to the date of termination, apart from the December 2016 invoice for $140,000 for payment of the fee increase in one lump sum. This gives a figure of $37,968, plus GST. It is this figure, and not $140,000, that should have been charged by Pomeroy’s 13 December 2016 invoice.
What (if any) amount is payable to Pomeroy Pacific for the 60-day notice period for termination of the agreement?
[14]Melstone parties’ written submissions at [27]
50 It is clear from the provisions of the agreement dealing with the mechanics of invoicing, that:
· Pomeroy’s “Fee” is to be invoiced “progressively on a monthly basis” (clause 9 of the Terms & Conditions);
· Pomeroy is entitled to render invoices monthly and invoices are payable on 14 day terms (bullet point 10 in the Fee Schedule).
51 It follows from my preferred construction above that these provisions would permit Pomeroy progressively to issue invoices for amounts that incorporated the Fee increase. However, the invoicing provisions make clear that the obligation to pay arises only as and when such an invoice is issued. The evidence is that no invoices were issued by Pomeroy to Melstone Wellington during the 60 day notice period, apparently because Melstone Wellington had instructed Pomeroy in or about October of the previous year to cease work.[15]
[15]This is referred to in the email of 4 November 2016 extracted at [15] above
52 A further issue would have arisen on the construction of the agreement, had Pomeroy continued to issue progressive monthly invoices to Melstone Wellington in the period from and including October 2016 up until the termination took effect on 25 April 2017. The issue could have become particularly difficult if the evidence was that Pomeroy had done no work in that period. However, as no such invoices were issued, the issue does not arise for determination.
53 The first sentence of clause 12 of the Terms & Conditions governs the obligations of the parties where there is a material and un-remedied breach of the agreement by Pomeroy. Despite this, the concluding words of that sentence (“regardless of whether they have been invoiced”) might be said to support an argument that Pomeroy is similarly entitled to be paid sums owing where the agreement is terminated under the second sentence (where there is no breach by Pomeroy), also regardless of whether they have been invoiced. However, the better view is that these words are not repeated in the second sentence of the clause because the provision of the 60 day notice period which is not available in the case of material and un-remedied breach would allow more than sufficient time for Pomeroy to finalise unfinished work and issue all outstanding invoices.
54 In my view, the notice period is simply a period in which the agreement continued to run, allowing for any work and invoicing continuing to occur as necessary. It also provided Pomeroy with an opportunity to complete any unfinished work and ensure all of its invoicing for fees and expenses were up to date. However, in the absence of an express term imposing a default fee for that notice period along the lines of the termination fee, I see no warrant for reading into clause 12 of the Terms & Conditions a provision effectively extending the termination fee for a further 60 days.
55 As for the three month termination fee itself, the parties are agreed that if I find for the Melstone parties on the construction of the provisions relating to the fee increase, the termination fee is $31,250.01 plus GST. This is calculated by taking the total fee including the fee increase of $500,000, dividing this by 48 (the number of months of continuous engagement contemplated by the fee schedule) to get a monthly figure of $10,416.67, and then multiplying that figure by three.
What (if any) amount is payable to Pomeroy Pacific as interest pursuant to the agreement?
56 There are at least three approaches to the interest question. The first – being an approach suggested by the Melstone parties – is to treat the invoice of 13 December 2016 as if it invoiced the sum I have found was then due (namely, $37,968 plus GST). On that approach, and interest would accrue on that sum pursuant to clause 3 of the Terms & Conditions on page 33 of the agreement, at 10% per annum compounding daily from the date of invoice (13 December 2016) to payment in full.
57 Another approach would be to treat that invoice as a demand for the purposes of s58 of the Supreme Court Act 1986 (Vic) (made applicable to this Court pursuant to s50 of the County Court Act 1958 (Vic)), and assess interest on that sum at the rate for the time being fixed under s2 of the Penalty Interest Rates Act 1983 (Vic). A third approach would be simply to allow interest on all amounts owing (that is the $37,968 referred to above, and the $31,250 termination fee, both plus GST) on and from the date of the writ (5 May 2017) pursuant to s60 of the Supreme Court Act 1986 (Vic). I note that only the third approach can be applied to the termination fee, as on no view was there an invoice or demand for a termination fee before proceedings were commenced.
58 In my view, both the first two approaches have an air of artificiality about them. As this proceeding demonstrates, there is considerable complexity around ascertaining Pomeroy’s true entitlement at the time of the grant of the permit. The Melstone parties should not be penalised for not paying an invoice within the time prescribed, when the invoice was rendered for what I have found was considerably in excess of that entitlement.
59 I accept that there is some tension between this finding and allowing the December 2016 invoice to stand as satisfying the need under the agreement for an invoice to found the obligation on the Melstone parties to pay the $37,968 as representing the Fee increase on the sums charged up to the issue of the permit. It is at least arguable (consistently with my finding above concerning the notice period) that the failure to issue an invoice in the correct amount for the fee increase disentitles Pomeroy to any payment for that increase. However, I am satisfied that there is a clear distinction between:
· an invoice operating to enliven a right to receive payment, subject to ascertaining the amount due; and
· an invoice operating to crystallise an obligation to pay interest on an unascertained sum.
60 In my view therefore, interest should be ordered on the basis of the third approach above.
Judgment and orders
61 For the reasons above I propose to give judgment for Pomeroy in the proceeding in the total sum of $69,218 plus interest at the rated fixed for the time being under s2 of the Penalty Interest Rates Act 1983 (Vic) on and from 25 May 2017.
62 Although costs would normally follow the event, the concessions made by the Melstone parties in their submission suggest that there may be reasons for departing from the usual order for costs in this case.
63 I will therefore hear further from the parties on the form of final orders and on costs.
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Certificate
I certify that these 21 pages are a true copy of the reasons for decision of His Honour Judge Woodward delivered on 23 November 2017.
Dated: 23 November 2017
Simon Bobko
Associate to His Honour Judge Woodward
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