Silkchime Pty Ltd v Warwick Entertainment Centre Pty Ltd [No 2]
[2013] WASCA 224
SILKCHIME PTY LTD -v- WARWICK ENTERTAINMENT CENTRE PTY LTD [No 2] [2013] WASCA 224
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2013] WASCA 224 | |
| THE COURT OF APPEAL (WA) | |||
| Case No: | CACV:105/2012 | 2 AUGUST 2013 | |
| Coram: | McLURE P BUSS JA MURPHY JA | 27/09/13 | |
| 24 | Judgment Part: | 1 of 1 | |
| Result: | Appeal dismissed | ||
| B | |||
| PDF Version |
| Parties: | SILKCHIME PTY LTD (Receivers & Managers Appointed) WARWICK ENTERTAINMENT CENTRE PTY LTD (Receivers & Managers Appointed) |
Catchwords: | Corporations law Inter-company loans Alleged joint venture agreement Turns on own facts |
Legislation: | Corporations Act 2001 (Cth), s 475(1), s 1305 |
Case References: | Nil |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA TITLE OF COURT : THE COURT OF APPEAL (WA) CITATION : SILKCHIME PTY LTD -v- WARWICK ENTERTAINMENT CENTRE PTY LTD [No 2] [2013] WASCA 224 CORAM : McLURE P
- BUSS JA
MURPHY JA
- Appellant
AND
WARWICK ENTERTAINMENT CENTRE PTY LTD (Receivers & Managers Appointed)
Respondent
ON APPEAL FROM:
Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA
Coram : LE MIERE J
Citation : WARWICK ENTERTAINMENT CENTRE PTY LTD (RECEIVERS AND MANAGERS APPOINTED) atf THE WARWICK ENTERTAINMENT CENTRE UNIT TRUST -v- SILKCHIME PTY LTD (RECEIVERS AND MANAGERS APPOINTED) atf THE SILKCHIME UNIT TRUST [No 2] [2012] WASC 275
File No : CIV 1094 of 2008
Catchwords:
Corporations law - Inter-company loans - Alleged joint venture agreement - Turns on own facts
Legislation:
Corporations Act 2001 (Cth), s 475(1), s 1305
Result:
Appeal dismissed
Category: B
Representation:
Counsel:
Appellant : Mr A Metaxas
Respondent : Mr J A Thomson SC & Ms V A MacMillan
Solicitors:
Appellant : Metaxas & Hager
Respondent : Corrs Chambers Westgarth
Case(s) referred to in judgment(s):
Nil
1 McLURE P: The appellant/defendant (Silkchime) appeals from orders made by Le Miere J on 9 August 2012 requiring it to pay to the respondent/plaintiff (Warwick) the sum of $11,560,695 and interest thereon.
2 Silkchime and Warwick were part of the Westpoint group of companies (the Westpoint Group). Mr Norman Carey was a director of those and other companies in the Westpoint Group.
3 In 1990 Mr Carey commenced a business relationship with brothers Patrick Ho and Stephen Ho who both lived in Singapore.
4 In 1991 Erley Pty Ltd, a company associated with Mr Carey, purchased land in Warwick (the Warwick Entertainment Centre land). Mr Carey formulated a development proposal to build a cinema complex on that land (the Warwick Entertainment Centre development). In about 1992 Mr Carey proposed to the Ho brothers that they invest in the Warwick Entertainment Centre development. The Ho brothers agreed and in April 1992 Erley, Greenleaf Holdings Pty Ltd, a company controlled by the Ho brothers, and Warwick, the proposed joint venture vehicle, entered into a joint venture agreement for the purpose of acquiring the Warwick Entertainment Centre land and developing it.
5 Warwick is the trustee of the Warwick Entertainment Unit Trust. Erley and Greenleaf each held 50% of the units in that Trust. The Warwick Entertainment Centre development was completed in September 1993.
6 A company associated with Mr Carey acquired an option to purchase land adjoining the Warwick Entertainment Centre land (the Warwick land). Mr Carey prepared a plan for the development of the Warwick land (the Warwick Commercial Park development).
7 In 1994 Mr Carey proposed to the Ho brothers that they acquire an interest in the Warwick land and become involved in its development. The Ho brothers agreed and Silkchime was incorporated to act as the corporate vehicle for the project. In January 2005 Silkchime became the owner of the Warwick land for a purchase price of $3.6 million and held it as trustee for the Silkchime Unit Trust which was created on 6 December 1994. Erley and Greenleaf each held 20 units in the Silkchime Unit Trust. The Ho brothers were also directors of Silkchime and Warwick.
8 Silkchime admits that Warwick advanced $3.6 million to it by way of loan to purchase the Warwick land but pleads that that advance (loan 1), and subsequent advances, were made by Warwick to Silkchime pursuant to an oral joint venture agreement made in or about 1994, reduced to writing on 20 July 1995 and dated 22 August 1995 (the JVA). Silkchime claimed that the JVA between it and Warwick was to the effect that the loans were made on a non-recourse, interest free basis.
9 Silkchime proceeded with the development of the Warwick land, which was subdivided into lots. Some, but not all, of the lots had been sold when, on 24 January 2006, Receivers and Managers were appointed in respect of all the property of Warwick and of the lots in the Warwick land still owned by Silkchime at that time.
10 Silkchime also claimed that the accounts of Warwick and Silkchime incorrectly record expenses incurred in the Warwick Commercial Park development (loan 2) as a loan made by Warwick to Silkchime when they should have been recorded as a loan by Warwick to Westpoint Corporation which then lent the money to Westpoint Constructions Pty Ltd. What is contentious is the accounting treatment of advances made under a facility granted by National Mutual Ltd (NML) to Warwick (the NML facility), all of which were drawn down by 30 June 1997. Westpoint Corporation was the head company of the Westpoint Group and acted as the Group's treasury.
11 At about the same time as Receivers were appointed to Warwick and Silkchime, Westpoint Corporation was placed in voluntary administration. Subsequently Westpoint Corporation was ordered to be wound up and liquidators were appointed.
The trial judge's findings
12 Mr Russell Morgan, a chartered accountant and registered company liquidator, had the day to day conduct of the receiverships of Warwick and Silkchime. Mr Martin Langridge, a chartered accountant and partner of Deloitte Touche Tohmatsu, was engaged by Warwick's solicitors to provide an independent expert's report. Based on the evidence of Messrs Morgan and Langridge the trial judge found that the following table correctly summarised the balance of the Warwick/Silkchime loans as disclosed in the accounting records of both Warwick and Silkchime:
Interest | ||||||
Year | Principal Advances | Repayments | Loan 1 | Loan 2 | KPMG adj | Loan Balance |
1995 | $3,769,920 | - | $161,995 | - | $3,931,915 | |
1996 | $8,928 | - | $377,271 | - | $4,318,114 | |
1997 | $3,589,451 | - | $336,888 | $107,422 | $8,331,875 | |
1998 | $300,000 | ($1,571,197) | $353,122 | $164,150 | $7,577,950 | |
1999 | - | - | $354,200 | $148,944 | $8,081,094 | |
2000 | - | - | $355,170 | $158,042 | $1,262,754 | $9,857,060 |
2001 | $10,208 | - | $354,200 | $172,843 | $10,394,311 | |
2002 | - | - | $354,200 | $138,014 | $10,886,525 | |
2003 | - | - | $354,200 | $157,943 | $11,398,669 | |
2004 | - | ($2,054) | $354,200 | $155,768 | $11,906,583 | |
2005 | - | - | $353,941 | $155,768 | $12,416,292 | |
2006 | - | - | $201,845 | $88,766 | $12,706,904 | |
Total | $7,658,507 | ($1,573,252) | $3,911,233 | $1,447,661 | $1,262,754 |
14 The loans recorded in the books of Warwick and Silkchime were verified in a report as to affairs (RATA) signed by Mr Carey and Mr Graeme Rundle and submitted to the Receivers of each company on 2 March 2006 pursuant to s 475(1) of the Corporations Act 2001 (Cth).
15 Mr Carey was a director of each company and Mr Rundle was the chief financial controller of the Westpoint Group from October 1997 to January 2006. In that capacity he was responsible for the overall accounting, administration and finance of the companies in the Westpoint Group. He was also the company secretary of both Warwick and Silkchime. The Warwick RATA stated that it was owed $12,706,904 by Silkchime. The Silkchime RATA stated that it owed Warwick $12,673,372.
16 Mr Carey also signed a declaration sent with each RATA to the effect that the RATA was compiled on his behalf by Mr Rundle and Mr Greg Nairn who had been responsible for managing the books and records of the relevant company up until the date of appointment of the Receivers and that he had not personally verified the contents of the RATA as he did not have the necessary information to do that.
17 The trial judge made the unchallenged finding, based on s 1305 of the Corporations Act, that the financial records and other books of Warwick and Silkchime are prima facie evidence of the matters recorded in them. He concluded that he should find that Silkchime was indebted to Warwick in the sum of $12,706,904 unless there was evidence to the contrary [23].
18 The trial judge found that the JVA was not executed by Warwick or Silkchime in 1995 and that it was not signed until some years after the relevant advances had been made by Warwick to Silkchime [31], [39], [63]. There were a number of bases for this finding. First, the objective circumstance at the time of the alleged signing of the JVA in July 1995 in Singapore were inconsistent with its execution at that time. In particular, the common seal of Silkchime on the JVA is a round seal whereas other documents executed at the same time by Silkchime bear a square seal [33]. The other documents were stamped, the JVA was not.
19 Second, the accounting treatment in the financial records of both Warwick and Silkchime of the balance between the companies was inconsistent with the existence of a joint venture in the terms set out in the JVA. The accounts of both companies treated the advances as a loan and interest was charged on those loans.
20 Before October 1997 Tracey Lodge, a qualified chartered accountant, was responsible for the management of the Warwick and Silkchime accounts and reported directly to Mr Carey. Mr David Hewitt was the Westpoint Group chief financial controller prior to October 1997 when he was replaced by Mr Rundle.
21 The trial judge rejected Mr Carey's evidence that Mr Hewitt gave him the corporate seals he took to Singapore in July 1995 and that he gave the executed JVA to Mr Hewitt on his return to Perth. The trial judge found that Mr Hewitt and Ms Lodge (neither of whom were called as witnesses) were not aware of the JVA or of any contractual arrangement between Warwick and Silkchime to the effect that the loans from Warwick to Silkchime were interest free and non-recourse [43].
22 Further, Mr Rundle did not raise with Mr Carey or anyone else the correctness of the treatment in the Warwick and Silkchime accounts of the loans from Warwick to Silkchime or the charges of interest on those loans. Mr Rundle did not see a copy of the JVA during the time of his employment at the Westpoint Group.
23 Third, the RATAs for both Silkchime and Warwick, signed by Mr Carey and Mr Rundle and dated 2 March 2006, are consistent with the accounts of Silkchime and Warwick and inconsistent with the JVA. The declaration signed by Mr Carey is not a declaration that he had not read or considered the RATAs. The trial judge continued:
Mr Carey signed the RATA, which stated that he certified that the particulars contained in it were true to the best of his knowledge and belief. Mr Carey could not have done that if he knew that the advances made by Warwick to Silkchime were governed by the JVA which provided that the loans were interest free and non-recourse [49].
24 Fourth, the trial judge relied on Silkchime's delay in disclosing the JVA. Silkchime did not raise the existence of the JVA in response to the demand for repayment of the debt when it was first made in a letter dated 14 June 2007 from Warwick's Receivers to Mr Carey as a director of Silkchime. The 14 June letter referred to the debt of $12,706,904 owed to Warwick by Silkchime, the RATA signed by Mr Carey and demanded payment of the debt within seven days. The solicitors for Mr Carey responded by letter dated 21 June 2007 which made no reference to the JVA. Mr Carey said the letter was written on his instructions and that he saw it before it was sent. Again, no reference was made to the JVA in a letter dated 10 July 2007 from Mr Carey's solicitors to the Receivers' solicitors. The JVA was first referred to in a letter dated 18 July 2007 from Mr Carey's solicitors to the Receivers' solicitors.
25 Finally, based on the evidence as a whole, the trial judge rejected the evidence of Messrs Carey, Patrick Ho and Stephen Ho that the JVA was executed on 20 July 1995 in Singapore.
26 The trial judge also found that there was no oral agreement made by Warwick and Silkchime through Mr Carey and the Ho brothers that Warwick would lend money to Silkchime on a non-recourse, no interest basis [67]. He rejected the evidence of Mr Carey and Mr Patrick Ho on that subject, it being inconsistent with the objective circumstances. Further, the pleading of an oral agreement was a late addition to Silkchime's defence.
27 An issue at trial was the proper construction of cl 5 of the JVA which was in the following terms:
Warwick agrees to loan Silkchime funds to assist in the acquisition and development of the Silkchime property on the basis that it will receive a 25% profit share from the development of the land. This loan will be interest free and is provided on a non-recourse basis.
28 The trial judge recognised that it was not necessary to consider the construction of cl 5 because he had found that the JVA was not executed until many years after the loans had been made by Warwick to Silkchime [69]. However, he dealt with the construction issue on the basis that the JVA was executed and dated in accordance with the evidence of Mr Carey and the Ho brothers. The trial judge rejected Warwick's claim that it applied only to the prospective advance of funds by Warwick to Silkchime, stating:
[T]hat is not a reasonable construction. The clause refers to Warwick loaning funds to assist in the acquisition and development of the Silkchime property. By 21 August 1995 or 20 July 1995 Warwick had already advanced $3.6 million to Silkchime to enable Silkchime to acquire the property.
Clause 5 applies to the prospective advance of funds by Warwick to Silkchime as well as the funds already advanced. ... It is apparent from the recitals, and from the evidence that on 20 July 1995 or 22 August 1995, little had been done to advance the development of the Silkchime property and Warwick had not advanced to Silkchime the funds necessary for that purpose [71] - [72].
29 The trial judge also addressed an alternative argument that only arose if the JVA was executed in accordance with the evidence of Mr Carey and the Ho brothers. On that assumption, which was inconsistent with his findings, the trial judge found that the conduct of Warwick and Silkchime between July 1995 and January 2006 objectively manifested an intention to abandon or discharge the JVA or an oral agreement on the same terms [76].
30 The trial judge then turned his attention to loan 2. There were five draw downs of the NML facility, the first was on 26 November 1996, the second on 16 December 1996, the third on 24 January 1997, the fourth on 12 February 1997 and the fifth and final draw down on 21 March 1997. The trial judge found that all of the amounts drawn down were to reimburse costs incurred by Silkchime except for the amount of $701,634 which was to reimburse construction costs incurred by Westpoint Constructions in relation to two developments on the Warwick land, being the 'CarLovers' and 'UltraTune' developments.
31 The balance of the loan from Warwick in Silkchime's financial statements at 30 June 1997 was recorded as $8,331,875 of which the non-current liability was shown as $3,600,000 (loan 1) and the current liability as $4,731,875 (loan 2). The trial judge held that the current liability incorrectly included the amount of $701,634 [112].
32 The final matter (for present purposes) addressed by the trial judge was in relation to interest. Warwick made no further advances to Silkchime after 1 July 1997. After that date, movements in the loan balance were primarily the result of capitalising accrued interest. There was also the partial repayment of the loan by Silkchime from the proceeds of sale of part of the Warwick land.
33 The trial judge noted that the financial statements of Warwick and Silkchime for the financial years 1995 to 2006, the monthly work papers prepared by the Westpoint accounting staff and the entries in the accounts of Warwick and Silkchime include interest charges and the capitalising of those charges. The trial judge continued:
In the absence of any evidence to the contrary it may be inferred, and I would infer, that those companies had agreed that interest should be paid at the calculated rate and capitalised [117].
34 However, there was other evidence (in addition to that relating to the JVA and alleged oral agreement that preceded it) on this subject, being notes to the Silkchime accounts and loan confirmation letters.
35 A note to the Silkchime financial statements for the financial year 2004 states, in effect, that the loan from Warwick is interest free and has no fixed term for repayment. A similar note is appended to the Silkchime financial statements for the financial year 2005.
36 Further, Mr Rundle as company secretary of Warwick signed a loan confirmation letter dated 30 June 2003 to the directors of Silkchime confirming that the balance of the loan receivable from Silkchime as at 30 June 2003 was $11,398,669 and stated that the loan was interest free, unsecured and had no fixed term for repayment. The letter further stated that Warwick would not call for repayment of the loan unless Silkchime had the ability to pay its debts as and when they fell due.
37 Mr Rundle on behalf of Silkchime signed a loan confirmation letter dated 30 June 2004 which stated that the balance of the loan payable to Warwick as at 30 June 2004 was $11,906,582.53 and that the loan was interest fee, unsecured and had no fixed term for repayment.
38 Mr Rundle also signed a loan confirmation letter dated 30 June 2004 from Warwick which confirmed the balance of the loan owing by Silkchime and that it was interest free, unsecured and had no fixed term for repayment. The letter stated that Warwick would not call for repayment of the loan unless Silkchime had the ability to pay its debts as and when they fell due.
39 Mr Rundle signed similar loan confirmation letters on behalf of Silkchime and Warwick on 30 June 2005.
40 The trial judge found that all the loan confirmation letters were prepared by the Westpoint accounting staff as a matter of course to meet what they understood to be the requirements of the auditors. The letters were signed by Mr Rundle as a matter of course and without checking that they were correct. The trial judge gave no weight to them [120].
41 The trial judge also placed no weight on the notes appended to Silkchime's 2004 and 2005 accounts:
They are incorrect on their face in that they state that the loan is interest free when it included capitalised interest. Notwithstanding the note appended to the 2004 financial statements, interest continued to be accrued in the accounting records of Warwick and Silkchime and included in the amount of the loan recorded in the 2005 financial statements. I place no weight on those notes.
I find that interest was charged, and capitalised, on the loans from Warwick to Silkchime in accordance with an agreement between those companies. The agreement is to be inferred from their course of dealing from 1995 to 2006. During that period interest was calculated, accrued and recorded in the accounts of each company. The accrued and capitalised interest was included in the financial statements of each company [121] - [122].
42 Thus the trial judge found that Warwick made loans to Silkchime in the amounts entered in the accounting records of Warwick and Silkchime and that Silkchime was indebted to Warwick in the amount of $12,706,904 less $701,634 and the interest accrued and capitalised on the latter sum [128] - [129].
Grounds of appeal
43 Of the 12 grounds of appeal, five were abandoned (grounds 1, 2, 3, 7 and 8). Grounds 5.1, 9.1, 9.5 and 9.6 are based on ground 1 and thus also abandoned. The remaining grounds are in the following terms:
4. The learned trial Judge erred in fact and in law in finding [39] that the objective circumstances were inconsistent with the JVA having been executed before the advances made by the respondent to the appellant insofar as the finding was made without regard to the evidence of Carey that:
4.1 on 2 November 1995 the City of Wanneroo had issued an Approval to Commence Development to the Respondent for the development of an additional cinema at the Warwick Entertainment Centre ... which approval was conditional on the respondent securing an additional 74 car parking bays, reciprocal rights for vehicular access and car parking with the appellant thus creating the need for a document to include those or similar requirements;
4.2 in 1996 and 1997 the appellant and the respondent had given effect to the terms of the JVA by signing on about 14 January 1997 a deed with the City of Wanneroo as regards car parking to enable further development of the Warwick Entertainment Centre ... and modification of restrictive covenants affecting the property of each of the appellant and the respondent.
5. The learned trial Judge erred in fact and in law in finding [40] that the accounting of the appellant and the respondent were inconsistent with the JVA because in the accounts interest was accrued when the JVA provided that the loan was interest free insofar as:
5.2 the finding was made without regard to the 2004 and 2005 financial statements of the appellant ... which recorded that the loan by the respondent to the appellant was interest free; and
5.3 if the 2004 and 2005 financial statements of the appellant were admissible as prima facie evidence of the truth of the contents then His Honour could not find otherwise merely because earlier financial statements accrued interest on the loan.
6. The learned trial Judge erred in fact and in law in finding that the RATA signed by Carey ... was inconsistent with the debt bearing interest [49] insofar as:
6.1 His Honour found that the JVA was signed some years after 1995 [63] but implicitly well before 2006 when the RATA was signed; and
6.2 the statement of the debt in the RATA was wrong if, as His Honour found, the JVA had been signed.
9. The learned trial Judge erred in fact and in law in finding that the appellant and the respondent had abandoned the JVA [76] insofar as:
9.2 there was nothing further for the appellant to do under the JVA so there was no basis for finding it had abandoned the JVA ... ;
9.3 there was nothing further for the respondent to do under the JVA except pay the appellant $10,000 per car bay ... ;
9.4 there was no imperative for the respondent to pay the appellant $780,000 for the car bays because the beneficial interests in both properties were held equally by Erley ... and Greenleaf ... ;
10. The learned trial Judge erred in fact and in law in finding that [the draw downs of the NML facility (except the amount of $701,634) were correctly recorded in the respondent's accounts as a loan to the appellant] ... when His Honour should have found that the monies borrowed and expended in relation to design, consulting fees, marketing and advertising, project management, leasing fees and construction work on the appellant's land ... was money borrowed by Westpoint Constructions ... insofar as:
10.7 the appellant entered into agreements for the sale of land and simultaneously [Westpoint] Constructions entered into design and construct contracts with the purchasers of the land; and
10.8 as between the appellant and [Westpoint] Constructions the monies paid for design, consulting fees, marketing and advertising, project management, leasing fees and construction work of the proposed buildings was not expenditure by the appellant.
11. The learned trial Judge erred in fact and in law in finding [119] that Rundle's evidence that the loan accounts were not interest free was anything more than a comment on the documents and was not evidence admissible as against the appellant and further the evidence was inconsistent with the JVA which His Honour found had been signed some years after 1995.
12. The learned trial Judge erred in fact and in law in placing 'no weight' [121] on the notes appended to the appellant's 2004 and 2005 accounts to the effect that the loan was interest free because the notes were inconsistent with interest continuing to be charged when the proper finding was that interest was being charged incorrectly if the notes were given the prima facie status of the financial statements.
The JVA
44 The recitals to the JVA are to the effect that Warwick owns the Warwick Entertainment Centre land and is the beneficiary of a restrictive covenant that restricts the use of Silkchime's Warwick land; Warwick wishes to modify the restrictive covenant on its land; Silkchime owns the Warwick land and is the beneficiary of a restrictive covenant that restricts the use of the Warwick Entertainment Centre land; Silkchime wishes to subdivide and develop its property into a commercial park; Silkchime wishes to modify the restrictive covenant registered on the Warwick land to accommodate the proposed uses; and it 'is recognised by both parties that they can substantially increase the value of their adjoining properties by working jointly and assisting each other in modifying the current restrictive covenants on each title, integrating the operation of the properties, subdividing and developing the Silkchime property which will substantially increase the value of both properties'.
45 The operative provisions of the JVA include the following:
3. Warwick and Silkchime agree to subdivide and develop the Silkchime property in such a way as to integrate vehicular and pedestrian traffic between both properties and to compliment the operation of both properties as part of the overall Regional Shopping Precinct.
4. Silkchime will provide additional car bays for Warwick if these are required for alternative uses proposed from time to time by Warwick for its property. Warwick will pay Silkchime $10,000 per car bay.
Ground 4
46 The alleged error in ground 4 (and 5.2) is that the trial judge erred by making a finding 'without regard to' certain evidence. It is important to recognise that this appeal does not concern the exercise of a discretion or the making of a discretionary judgment in which a failure to take into account a relevant matter constitutes an appealable error. The primary task of the trial judge in this case was to make factual findings (on the balance of probabilities). There are a number of points to be made in that context. First, the failure to expressly refer to an item of evidence does not establish that it was ignored. Second, any proven failure to have regard to particular evidence will only be significant if the evidence is (a) relevant and (b) would and should undermine the correctness of the factual finding. That is, the appellant has to establish that the finding was against the weight of the evidence or otherwise not open. In that event, an appellant is also obliged by Practice Direction 7.4 to identify in writing (in its submissions or a schedule) all of the relevant evidence on the subject, including the evidence that supports the finding. The appellant made no attempt to comply with Practice Direction 7.4. Further, setting aside a factual finding that is against the weight of the evidence does not in all cases establish a finding to the opposite effect.
47 With that background, I turn to the merits of the grounds. The evidence establishes the correctness of the factual matters set out in subpar 4.1 of ground 4. The evidence also establishes that by deed dated 14 January 1997 between Silkchime, Warwick and the City of Wanneroo, Silkchime agreed to grant an easement in gross in lieu of the condition of subdivision relating to the provision by Silkchime of car parking bays as part of the approval for Warwick to commence development of an additional cinema on the Warwick Entertainment Centre land.
48 The trial judge's finding in [39] is primarily directed to the rejection of the appellant's case, which was that the JVA was executed in July 1995 in Singapore. No alternative case was advanced by the appellant. I am not persuaded that the events in November 1995 and January 1997 referred to in 4.1 and 4.2 are relevant to the appellant's pleaded case relating to the JVA. Even if relevance could be established, the appellant has not attempted to demonstrate that the challenged finding is, having regard to the matters in 4.1 and 4.2 in the context of the evidence as a whole, against the weight of the evidence. Having regard to all of the matters identified by the trial judge in support of his findings in [31], [39] and [63], the appellant's claim is not reasonably arguable. I would dismiss ground 4.
Grounds 5 and 12
49 The appellant challenges the trial judge's finding (at [41]) that the accounts of Warwick and Silkchime were inconsistent with the existence of the JVA on the basis that the finding was made 'without regard to' the notes to the appellant's 2004 and 2005 accounts that the loan was interest free. Ground 12 is to the same effect.
50 The trial judge did not ignore the notes to the accounts. He expressly considered the notes and concluded that they should be given no weight. His explanation for that conclusion at [121] - [122] of his reasons, which are quoted above, is unassailable. The broader context compels the conclusion. That includes the financial statements for the entire period and the RATAs signed by Messrs Carey and Rundle and submitted to the Receivers on 2 March 2006. Grounds 5 and 12 are without merit and should be dismissed.
Ground 6
51 Ground 6 is to the effect that the statement of the debt in the RATA was wrong because the trial judge (1) found that the JVA was signed after 1995 but well before 2006 and (2) held that cl 5 of the JVA was intended to operate retrospectively and prospectively.
52 There is no foundation for the claim that the primary judge impliedly found that the JVA was signed 'well before 2006' or indeed at any time before the appointment of the Receivers in January 2006. The trial judge did not make an express finding as to the date when it was signed. Having positively rejected the appellant's case that it was signed in July 1995, there was no need to do so. However, it is clear that the trial judge impliedly found that the JVA was not in existence before the Receivers were appointed in January 2006. That is evident from his analysis of, and reliance on, the RATAs, which were signed in March 2006, and Silkchime's delay in disclosing the existence of the JVA when demand was first made by the Receivers of Warwick in June 2007.
53 Moreover, the trial judge's construction as to the retrospective effect of cl 5 of the JVA is on the assumption that the appellant had established that it was signed in July 1995, some months after the advance of the purchase price for the Warwick land but well before any of the other advances. If the JVA was executed some years after all the relevant advances were made ([31], [63], [69]), as the trial judge found, it would be unreasonable for the JVA to be in the prospective terms in which it is expressed. It is clear from the trial judge's reasons as a whole that he concluded that the JVA was signed after January 2006 and backdated. Ground 6 is without merit and should be dismissed.
Ground 9
54 Ground 9 challenges the finding of abandonment. The trial judge addressed this ground on the assumption that the appellant would succeed in its claim that the JVA was executed in July 1995. That claim having failed in the appeal, the issue of abandonment does not arise. It is unnecessary to deal with it.
Ground 10
55 Ground 10 relates solely to loan 2, being sourced from draw downs made by Warwick under the NML facility. Prior to a draw down under the NML facility, Warwick sent a draw down notice to NML and directed that the cheque should be payable to Westpoint Corporation. As noted above, Westpoint Corporation was the 'treasury' for companies in the Westpoint Group. Monies were paid into and out of Westpoint Corporation because it had a bank account, unlike Silkchime, Warwick and, I infer, other companies in the Westpoint Group.
56 The accounts of Silkchime record the amounts received from Warwick as a loan and are accounted for as work in progress. Silkchime conceded at trial that in respect of expenditure for work on unsold lots in the Warwick Commercial Park development, the work in progress that was accrued in the Silkchime accounts was properly so recorded.
57 The trial judge identified Silkchime's case as being that, insofar as the draw downs from the NML facility were used to meet payments made in respect of lots sold for specific developments, those expenditures should not have been accounted for as work in progress for Silkchime but as expenditure incurred by Westpoint Constructions. Silkchime's pleaded case was that:
[E]xpenditure recorded in [Silkchime's] balance sheet as at 30 June 1997 relating to:
(a) design and [consult];
(b) marketing and advertising;
(c) project management; and
(d) leasing fees;
for lots sold to Arcane Pty Ltd, Tarana Holdings Pty Ltd, Indietro Pty Ltd, Bruce Moore, Wah Fat Pty Ltd, Energym (WA) Pty Ltd, Richview Nominees Pty Ltd and Yvonne Gertrude Cornell was expenditure by Westpoint Constructions and not by [Silkchime] (par 12.3 of the fourth further re-amended defence).
58 In par 12.3 of the fourth further re-amended defence, the categories of expenditure said to be wrongly recorded in Silkchime's balance sheet as at 30 June 1997 include civil, structural and mechanical engineers, town planning, project management fees, architect's fees, quantity surveyors, legal and professional fees, valuation and consultant fees, marketing and advertising, loan interest and accountancy fees.
59 Silkchime conceded that expenditure incurred on lots described as 'Wiggles and Giggles' and 'Medical Centre' was correctly characterised as work in progress because the lots had not been sold. However, ten 'lots' in the Warwick Commercial Park development were the subject of a contract for the sale of land between Silkchime and a purchaser and an associated contract between Westpoint Constructions and the same purchaser for the construction of a building on that land. In Silkchime's records, the building is described by the purpose for which it is to be used. The date of the sale contract, the purchaser and the purpose are as follows:
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60 All of the land sale contracts (with the exception of the sale to Cornell) related to proposed lots the subject of a subdivision plan awaiting approval from the Western Australian Planning Commission.
61 The agreements with Arcane provide a template. The land sale contract (Arcane land sale contract) contains Annexure A, cl 6 of which relevantly provides:
Development Approval
(a) the Vendor acknowledges that the Purchaser makes this offer for the purpose of developing the Property as a CarLovers Carwash facility in the manner contemplated in the Building Contract (the 'Proposed Development').
(b) If the Vendor has not already done so, within fourteen (14) days after the date of this Contract the Vendor shall submit plans and applications for the development of the Property by the construction thereon of the Proposed Development in accordance with the Building Contract.
62 Clause 7 of Annexure A to the Arcane land sale contract relevantly provides:
Building Contract
(a) Upon execution of this Contract the Purchaser shall execute as principal and the Vendor shall procure that WESTPOINT CONSTRUCTIONS PTY LTD ... shall execute as builder two copies of the Building Contract in respect of the Proposed Development.
(b) In this Contract 'Building Contract' means a Lump Sum Construction Deed to be entered into simultaneously with this Contract between the Purchaser as principal and Westpoint Constructions as contractor.
63 Clause 16 of Annexure A refers to an Agreement for Lease and Lease (the Lease) between the vendor (as lessor) and CarLovers CarWash Ltd (as lessee) relating to the proposed carwash facility to be erected on the property. The Lease was not in the appeal books.
64 An executed Building Contract between Arcane and Westpoint Constructions was in evidence. The payment of the contract sum under the Building Contract is conditional on, inter alia, the Builder constructing the works to practical completion (cl 2.1(2)) and is timed to coincide with settlement under the land sale contract (cl 8.1).
65 Clauses similar in substance and effect to cl 6 and cl 7 of the Arcane land sale contract were in the land sale contracts with Wah Fat, Moore, Energym, Kingrose, Richview and Raeside. The land sale contracts with Kingrose and Richview also contained clauses similar in substance and effect to cl 16. In the case of Tarana, there were clauses similar in substance to cl 6 and cl 16 and an executed Building Contract. In relation to the purchaser Cornell, there was no equivalent to cl 6, cl 7 or cl 16 but there was an executed lump sum design and construct contract dated 21 January 2000. Silkchime and Indietro entered into a Heads of Agreement under which Indietro agreed to enter into a pro forma land sale contract and Building Contract, copies of which were annexed thereto.
66 Warwick does not challenge the trial judge's finding in relation to the sum of $701,634 (part of the fourth draw down), not because it concedes that it is correct, but because it has no bearing on the amount of the judgment debt it will be able to recover.
67 It can be accepted that the accounting treatment in the financial records must properly reflect the underlying transactions. The limited documentation adduced in evidence is consistent with Silkchime having incurred the expenses that are challenged in the appeal. A document prepared by Silkchime prior to the appointment of the Receivers (the Silkchime draw down summary) itemises amounts paid by Silkchime from funds drawn down under the NML facility in respect of each proposed development (under headings which include CarLovers, UltraTune, Professional Centre, Medical Centre, Bowling Centre, Taco Bill, Wiggles & Giggles, Health & Fitness, Vet Clinic, Video and Service Station). The Silkchime draw down summary also shows the expenditure incurred in respect of each proposed development under one or more of seven cost categories. Mr Morgan gave evidence about this document and identified in handwriting on it the recipient of the payments (GAB 1/162), all of whom were companies in the Westpoint Group. The cost categories and payees are as follows:
Leasing fees - Westpoint Realty;
Licence fees - Westpoint Corporation;
Design and consult - Westpoint Consulting;
Marketing and advertising - Westpoint Realty;
Project management fee - Westpoint Corporation;
Construction costs - Westpoint Corporation;
Land equity - Westpoint Corporation (50%).
68 There are other documents that are also consistent with the accounting treatment, including a letter dated 29 November 1996 to Patrick and Stephen Ho, a letter dated 12 December 1996 from Westpoint Corporation to the other financier of the Warwick Commercial Park development, Challenge Bank, journal entries dated 7 January 1997 and sch 3 of the Building Contract between Energym and Westpoint Constructions indicating that the construction specification and schedule of finishes were prepared by Westpoint Consulting.
69 The trial judge undertook a detailed analysis of the expenditure in respect of each development under each draw down the subject of the Silkchime draw down summary. He made multiple factual findings in respect of each draw down. The trial judge concluded, in effect, that the costs in issue were for work done by and for Silkchime prior to the sale of the various lots to purchasers and prior to the purchasers engaging Westpoint Constructions to carry out building works on the lots. The trial judge also found that, pursuant to cl 6(b) of the land sale contracts, Silkchime was obliged to submit to local authorities plans and applications for development and that the plans were prepared by Westpoint Consulting for Silkchime to satisfy its obligations under the land sale contract [85].
70 Silkchime's written submissions in support of ground 10 are short and at a high level of generality. They are captured in par 75 which is in the following terms:
His Honours [sic] analysis was flawed as follows:
75.1 the appellant had no interest in advertising or marketing anything except its land;
75.2 there was no basis for the finding that the plans and applications for development were prepared for the appellant merely because it covenanted to lodge then [sic] to relevant authorities, particularly when the contract stated, for example, that the purchaser was making the offer for the 'purpose of developing the Property as a Car Lovers Car Wash facility in the manner contemplated by the building contract ... cl 6(a);
75.3 the obligation to lodge plans did not create an obligation to supply plans ... cl 6(b).
71 The oral submissions put on behalf of Silkchime at the hearing of the appeal took the matter no further. It is not correct to say that Silkchime had no interest in advertising or marketing anything except its land. The land sale contract and the Building Contract were part of a package in which the date of settlement under the land sale contract coincided with practical completion under the Building Contract.
72 The challenge is otherwise confined to only one of the many findings made by the trial judge on this subject. There is no merit in the challenge to the trial judge's finding that the plans and applications referred to in cl 6(b) were prepared for Silkchime because it was contractually obliged to submit the plans and applications for development to the relevant authorities for approval. Having regard to the transaction package and the timing of Silkchime's obligation in cl 6(b), the plans the subject of the development application must have been completed or substantially completed prior to entry into the land sale contract and Building Contract. Further, there are other relevant provisions in cl 6 of the land sale contract. That contract is in all respects subject to and conditional upon the written approval from all relevant authorities for the construction of the Proposed Development in accordance with the Building Contract (cl 6(c)). Clause 6(f) provides:
If any amendment to any of the plans and specifications annexed to the Building Contract is required as a result of any condition upon which any approval contemplated in Clause 6(c) is granted, the Vendor [Silkchime] shall be entitled to amend those plans and specifications and thereupon the Building Contract shall be deemed to be consequentially amended.
73 By contrast, the Building Contract imposes no obligation on Westpoint Constructions in relation to the preparation or submission of plans and applications for development of the property.
74 Silkchime has fallen a long way short of displacing the prima facie evidence in the financial records of Silkchime and Warwick that Silkchime was indebted to Warwick in relation to the advances the subject of loan 2. Ground 10 must be dismissed.
Ground 11
75 This ground challenges the correctness of what is described as the trial judge's 'finding' in [119] concerning Mr Rundle's evidence directed at the loan confirmation letters. Paragraph 119 is in the following terms:
Mr Rundle was cross-examined about the loan confirmation letters. He stated that the auditors required a loan confirmation and the letters were prepared for the benefit of the auditors. Mr Rundle said his understanding was that the auditors required the loan confirmation to ensure that the inter-company debts would not be called so as to enable the auditors to be able to say that the group can operate as a going concern. When it was put to him that a very significant part of the loan as at 30 June 2003 comprised capitalised interest Mr Rundle said:
'Having reviewed the accounts and documentation recently, I have become aware that loan balance includes quite a substantial amount of capitalised interest. At the time I signed this letter it was one of probably 30 or 40 prepared by our accountants within the group financial control unit and it would appear that the statement that the loan is interest free is incorrect' (ts 1598).
Mr Rundle said that the same applied to the 2004 loan confirmation letter, that is, he accepted that the statement that the loan was interest free was incorrect. Mr Rundle said that it appeared from the general ledger and the balance in the general ledger, which was reflected in the accounts, that interest was being charged and if that was the case then the statements in the loan confirmation letters were incorrect. Mr Rundle said he did not check the loan confirmation letters with great care. He explained:
'I relied on the accountants who prepared the letters that they had correctly transposed the figures from the general ledger and the financial statements on to the letter. I didn't check it personally myself and nor did I check the statements in relation to whether the interest was being charged or loans were interest free' (ts 1600).
77 Silkchime's written submissions on this ground are short and can be stated in full:
76. The finding was [119] that Rundle's evidence was that the loan accounts were not interest free.
77. The evidence given was nothing more than a comment on the documents ... Rundle had no knowledge of the JVA ... and so his evidence could have been nothing more.
78. That evidence was inconsistent with the JVA ... which His Honour found had been signed some years after 1995.
78 It is apparent from the submissions that ground 11 only arises if the terms and conditions of the loans from Warwick to Silkchime were governed by the JVA. They are not. Ground 11 must be dismissed.
Conclusion
79 The grounds of appeal are without merit. The appeal must be dismissed.
80 BUSS JA: I agree with McLure P.
81 MURPHY JA: I agree with McLure P.
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