The Urban Partnership Pty Ltd v Landco Holdings Pty Ltd

[2003] NSWSC 492

CITATION:	The Urban Partnership Pty Ltd v Landco Holdings Pty Ltd [2003] NSWSC 492
HEARING DATE(S):	01/05/03; 07/05/03
JUDGMENT DATE:	12 June 2003
JURISDICTION:	Equity Division Commercial List
JUDGMENT OF:	Nicholas J
DECISION:	Plaintiff entitled to declaration and orders sought in the Second Further Amended Summons
CATCHWORDS:	CONTRACT - Interpretation - Whether upon the proper construction of agreement Plaintiff entitled to payment of fee upon sale of development site - Whether there was an alternative agreement under which the Plaintiff was entitled to payment of such fee - HELD Plaintiff entitled to declaration and orders sought in Second Further Amended Summons
CASES CITED:	Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191 Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 Investors Compensation Scheme [1998] 1 WLR 896 Masters v Cameron (1954) 91 CLR 353 Maggbury Pty Ltd v Hafele Australia Pty Limited (2001) 76 ALJR 246 Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 186 ALR 289
PARTIES :	The Urban Partnership Pty Ltd - Plaintiff Landco Holdings Pty Ltd - Defendant
FILE NUMBER(S):	SC 50091/02
COUNSEL:	P W Taylor SC/A M Colefax - Plaintiff P H Greenwood SC/S A Goodman - Defendant
SOLICITORS:	Luscombe Wright Lawyers - Plaintiff Clayton Utz - Defendant

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

NICHOLAS J

12 June 2003

50091/02 The Urban Partnership Pty Ltd v Landco Holdings Pty Ltd

JUDGMENT

The Proceedings

1 HIS HONOUR: These proceedings concern a dispute between The Urban Partnership Pty Ltd (TUP) which is a property development consultant and Landco Holdings Pty Ltd (Landco) which is a real estate property developer. By its Second Further Amended Summons TUP claims an entitlement to outstanding fees said to be owing in relation to consultancy services provided in relation to a development project over land at Arncliffe in New South Wales variously known as “the Qantas Project”, “the Interciti Development Project” or “the Interciti Project”, (the Qantas project).

2 The claim for fees is put on alternative bases. Firstly, TUP relies upon the agreement made between the parties on or about 10 September 1999 evidenced by the exchange of letters of 3 September 1999 from Landco to TUP, and of 10 September 1999 from TUP to Landco (the September agreement). Alternatively, TUP relies upon an agreement which it claims was made between the parties in January 2001. Alternatively as evidenced by the letter from TUP to Landco of 8 January 2001, the letter from Landco to TUP of 22 January 2001, words spoken at meetings between representatives of the parties on 7 June 2001, and a letter from TUP to Landco of 8 June 2001 (the June agreement).

3 It is appropriate to consider first the claim based upon the proper construction of the September Agreement.

4 The letter of 3 September 1999 is in the following terms:

“Following our recent meeting with the Board and your subsequent discussions with Andy, we are pleased to confirm formally the commercial arrangements between Landco and TUP, and the ongoing arrangement as our NSW Business Development Managers.
The Commercial Arrangements agreed upon between both parties is [sic] based on the following:
TERM: Two year commitment with an option to extend the arrangement for a further three years.
MONTHLY FEES: base fee of $20,000 [sic] month plus a project service fee $2,500 for each active project undertaken. Out of pocket expenses and contribution to the Sydney Office expenses will continue as is currently the case.
PROJECT PROFIT SHARING: The board has set the overall hurdle rate on all projects at 22% of turnover. TUP will share 35% of all project profits above the hurdle rate set.
QANTAS PROJECT: In the event of a sale of this project prior to development, TUP will be entitled to a sliding scale fee for success, increasing from 10% at $11 Million to 25% at $14 Million. The sliding fee will be paid on the incremental net value achieved on the sale of the project.
If the project is rezoned and developed by Landco through a joint venture mechanism then TUP will be entitled to a minimum project fee of $1 million or profit sharing based on the above principles, whichever is higher.

SPRING HILL - EXTENTION (sic) LAND: Once re-zoning approvals have been achieved on the land, TUP will be entitled to a project fee of $240,000.

Although there are still some minor matters to resolve, hopefully we can discuss this once Andy gets back to the Office. I have also attached a revised table of projected profits for your (sic) to review. Please contact me if there are any changes to be made.”

5 The letter of 10 September 1999 is in the following terms:

“Thank you for your letter of 3/9 confirming our engagement to provide NSW Business Development Services for the next two years. We accept the basis of engagement as set out with the following notations:
1. Monthly Fees
“For each active project undertaken” should read “for each active project element undertaken”.
Our Fee basis is not inclusive of GST and will need to be adjusted to accommodate this when the legislation is enacted.
2. Qantas Project
We note that the sliding scale fee does not increase to more than 25% at $14.0 m but it would continue to apply to any price exceeding that amount.
We appreciate the time you have given to finalising this matter. We look forward to a continuing successful relationship”.

Background to the September agreement

6 A summary of events which establish the relevant circumstances in which the September agreement was made is as follows.

7 At all material times the principal activities of Landco were conducted in the Australian Capital Territory. TUP began providing property development services to it during 1997. In November 1997 it provided these services in respect of the Spring Hill Village Project. During 1998 the services included developing for Landco a business strategy which involved locating inner and outer urban projects within New South Wales. In effect the arrangement was that TUP represented Landco in New South Wales.

8 Early in 1998 Mr Chandler, a director of TUP, became aware of a site at Arncliffe owned by Qantas (the Qantas site) and of an adjoining site owned by the State Railway Authority of New South Wales (SRA). In his view there was very substantial potential for redevelopment if the two sites were combined and if an easement in favour of Telstra situated approximately along the boundary of the sites was relocated. He considered that Landco could profit from purchasing the Qantas site and entering into a co-operative arrangement with SRA and other parties to develop the combined sites. The proposed development of the combined sites came to be referred to as “the Interciti Project”.

9 In para 8 of his affidavit sworn 25 October 2002 Mr Chandler said that there were a number of factors critical to the successful development of the sites which included:

“a. Obtaining the support of Rockdale City Council to the proposed redevelopment and the preparation and approval by Council of appropriate planning instruments to allow a viable development to proceed;
b. Obtaining the agreement of Telstra to relocate its easement so that instead of bisecting the Interciti Site, it would run along the boundary;
c. Obtaining the approval of the Heritage Office to a complementary use of Tempe House and its grounds that would both achieve conservation objectives and make the property available to residential and commercial property owners of the redeveloped site;
d. Integrating the proposed new Wolli Creek Railway Station with the development;
e. Making an active contribution to Rockdale City Council’s Master Planning efforts for North Arncliffe with the intent of enhancing the surrounding value to the Interciti Site”.

10 On 12 August 1998 Mr Chandler sent a letter to Mr Andy Rosin, then the managing director of Landco. In it he advised of a revised offer made on behalf of Landco for the purchase of the Qantas site for $8.5 million, and of future development possibilities for both the Qantas and SRA sites. He included information to the effect that Rockdale City Council (the Council) had prepared a draft Local Environmental Plan (LEP) and a draft Development Control Plan (DCP), and that both instruments were under review by the Council.

11 On 5 May 1999 Landco put another offer to purchase the Qantas site for $8.5 million.

12 On 31 May 1999 Mr Chandler attended a board meeting of Landco. He presented a submission as to the future development of the Qantas site and advised that the timeframe for the project would be approximately three to five years and could be part of Landco’s long term strategy.

13 On 10 June 1999 there was a board meeting of Landco at which its future involvement in the acquisition and development of the Qantas site was discussed. The minutes record that it was expected that this development project would run for approximately four years. The board resolved to proceed with the project subject to obtaining a letter of intent from Landcom to work with Landco on a master plan and a joint venture.

14 In about mid June 1999 Mr Chandler discussed with Mr Rosin possible options for Landco being the purchase and sale of the Qantas site once major approvals were in place, and the purchase and development of it as a joint venture project. The major approvals were the LEP and DCP.

15 On 17 June 1999 there was a meeting between Mr Chandler and Mr Rosin during which the future relationship of TUP and Landco was discussed. It was agreed that Mr Chandler should present for the consideration of the board a proposal for a continuing commitment of TUP to assist Landco with various projects. It was said that the Interciti Project should be treated separately, as to which the Board had the option to either sell or develop the site.

16 On 29 June 1999 Mr Chandler attended a board meeting during which he made suggestions as to the future development of the Qantas site by Landco. The board resolved to proceed with its purchase on an unconditional basis.

17 On 20 July 1999 Landco was granted an option to purchase the Qantas site for $8.5 million. A contract was made which provided for completion by the end of May 2000.

18 On 16 August 1999 Mr Chandler made a submission at a Landco board meeting concerning the terms for a future relationship between TUP and Landco. Under separate headings reference was made to the term or period of engagement, monthly fees which included a monthly retainer and a project service fee, and project profit sharing. Separate reference was made to the Qantas project and to the entitlement of TUP to a commission on the sale price should Landco decide to sell the project before any construction commenced, and if rezoning had been achieved by TUP. Attached to the submission were calculations of TUP’s profit share in respect of the Spring Hill, Wadalba, Fung Land, and Rosedale projects. Under a separate heading “QANTAS PROJECT” was a calculation of TUP’s commission on sale.

19 In its letter of 20 August 1999 Landco provided its response to Mr Chandler’s submission. Under corresponding and separate headings there was reference to the term or period of engagement, monthly fees which included a base fee and a project service fee, and project profit sharing. Under the heading “QANTAS – SALE OF PROJECT” appear the following words:

“In regard to this project, should Landco decide to on sell the project once rezoning has been achieved, Landco propose to pay TUP the following for the profits achieved on sale (Example is also attached):”.

There followed calculations by way of example as to TUP’s percentage share of profit on sale beneath which was this statement:

“Should Landco decide not to sell the Qantas Project, and continue to develop and on-sell the product to the market then the agreed Project Profit Sharing principles as outlined will be initiated.
While we have set out a basis for the commercial arrangements between us, you may like to discuss this further with us to finalise a mutually agreeable basis to go forward”.

Attached to the letter were calculations by way of example of TUP’s profit sharing in a form which corresponds to Mr Chandler’s submission. Under the separate heading “Qantas Project” were set out calculations as to TUP’s commission on sale.

20 On 30 August 1999 TUP responded with a letter the heading of which was in the following terms:

“TUP Terms of Engagement 30/7/99 to 30/6/2001”

Relevantly it said:

“For the two years ahead we respond to your letter as follows:
1. The basis for monthly fees is as per our previous agreement and acceptable to us. It should be noted that in the case where particular projects require additional inputs beyond those provided by David Brown, Jeff Cummings and myself these will be treated as a development expense. This will be necessary on projects such as Qantas where a development management fee will be required.
…
3. Project Profit Sharing as proposed does not reflect our discussion with the Board. Landco (NSW) has set as an operating hurdle a return to shareholders of 17%. We propose our profit share become effective at 20% not 22%. In order to progress this matter we are comfortable to leave the hurdle at 22% for the existing Spring Hill development but to lower the hurdle to 20% for subsequent stages and all other projects.
We feel this is reasonable given the strategic decision to enter certain projects such as Wadalba and Rosedale Grove. Further we do not wish to pursue project identification fees such as for Qantas. We feel our performance recognition should result from value creation and outcomes.
4. Qantas Project. The fee scale for success in the event of sale prior to development will have resulted from considerable effort from TUP. We have put this site together and already the Board can see what we have achieved. Our proposal for a sliding scale fee for success increasing from 10% at $11.0m to 25% at $14m and beyond is considered by us to be equitable. Given that this option would most likely be exercised in the short to medium term (and that the project will not be paid for until May 2000) such an event would represent an extra ordinary return on investments. We seek your reconsideration of this position.
…
Subject to our finalising the above we would like a formal exchange of letters confirming our mutual commitment. We would like to sign off on a revised table of projected profits along the lines of the one which accompanied your letter but reflecting the final agreed terms. In regard to the option for a further 3 years we feel that a number of minor matters need to be clarified before this is put in place. Issues include: agreement on the trailing project profit where the option is not exercised, the degree to which Landco may or may not want to incorporate TUP management resources further into its business and agreeing how emerging profits can be recognised on an annual basis”.

21 On 6 September 1999 Mr Pratezina sent the letter dated 3 September 1999 to TUP, the contents of which are set out in para 4 above. To the letter was attached a revised table of projected profits which referred to TUP’s profit share for the projects and, separately, commission in respect of sale of the Qantas project. TUP’s response was the letter of 10 September 1999, the relevant contents of which are set out in para 5 above.

22 The evidence of Mr Chandler was that, as at September 1999, the Council had developed a master plan for the site and the LEP and DCP were still in draft stage. At this time his view was that the Council’s concept for the site was inappropriate, impractical, and flawed. He intended to request it to review the process and consider TUP’s proposals for development.

23 In respect of the claim based upon the September agreement it is common ground that the two year commitment period expired on 30 June 2001 subject to a consensual extension until 30 September 2001. It is also common ground that Landco sold the Qantas site to Landcom for the sum of $16.99 million on 26 March 2002. TUP had no involvement in the relevant negotiations and sale. Prior to the sale the requirements of the Council for the site had been met. Landco denies the entitlement of TUP under the September agreement to the payment of a success fee upon the sale of the land.

24 Landco contends that the September agreement came to an end on 30 June 2001 and denies any obligation to pay any amount to TUP pursuant to it, the sale having taken place on or about 26 March 2002.

Landco’s submissions

25 Landco submits that upon the proper construction of the September agreement the entitlement of TUP to a profit upon the sale of the Qantas site arises only if the sale occurs within two years, i.e. on or before 30 June 2001.

26 It is put that this construction is consistent with the ordinary meaning of the words of the letter of 3 September 1999 when read in context, and with the letter of 10 September 1999. The first provision recorded is that the term is for two years with an option to extend. There is no subsequent reference to a temporal limitation. The natural and reasonable reading of the whole document supports the conclusion that the two year period applies to all the events which entitle TUP to remuneration, absent words which indicate a contrary intention. The letter of 10 September 1999, whereby TUP’s engagement to provide business development services for the next two years is confirmed and accepted, supports this approach.

27 The commercial intention of the parties should be ascertained from a reasonable reading of the words which, in this case, demonstrate as a matter of business common sense the intention that the two year period should apply to the events described. It was argued that TUP’s case should be recognised as one which depends upon a detailed semantic and syntactical analysis of the document which leads to a conclusion that flouts business common sense and should be rejected. (Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191 at 201.

28 It was put that this construction is supported by background facts and circumstances which indicate the expectation and purpose of the parties in making the September agreement. At this time, so it was said, it was the belief of the parties that any sale would occur within two years, although development might extend beyond that time. Reliance was placed on the statement of Mr Chandler to the board meeting on 13 May 1999 that the timeframe for the project would be approximately three to five years, and on the note in the minutes of 10 June 1999, that it was expected that the development would run for approximately four years.

29 It was put that the intention to treat sale and development differently for the purposes of the agreement is further evidenced by the letters of 20 August 1999 from Landco to TUP and TUP’s letter of 30 August 1999 in response.

30 The Court was reminded of the letter of 30 August 1999 in which, referable to the Qantas project, it was said:

“The fee scale for success in the event of sale prior to development will have resulted from considerable effort from TUP …. Given that this option would most likely be exercised in the short to medium term (and that the project will not be paid for until May 2000) such an event would represent an extra ordinary return on investments”.

Reference was also made to the penultimate paragraph in which TUP indicated acceptance of the proposed term and option subject to clarification of a number of minor matters including “agreement on the trailing project profit where the option is not exercised”.

31 As to this letter it was put that it demonstrated Mr Chandler’s assertion to the effect that the parties contemplated that sale would occur within the two years, that the agreement was for a two year period although there may be matters outstanding relevant to development projects which occurred after the two year period requiring agreement.

32 There was a further submission that minutes of the meeting of the Interciti Evaluation Project of 15 September 1999 attended by Mr Chandler and a Mr Bauer (on behalf of Landcom) demonstrated an expectation that a number of significant matters would happen within the two year period. These matters included adoption by Council in May 2000 of the LEP and DCP (thereby opening the way for sale in accordance with one of Landco’s options) and the start of the development of the site by September 2000. The document thus showed that at or about the time of the making of the September agreement the parties regarded as a possibility both sale and development within the two year period but, even if the development went beyond the period, TUP was entitled to a minimum fee.

33 It is convenient to deal with this last submission now. In my view the evidence from the document as explained by Mr Chandler in cross-examination does not establish the expectation or anticipation contended for, or that it is of a kind which has relevance to the construction issue. The meeting was for the purpose of evaluating the Interciti project. In the minutes, under the heading “Work Plan” was included a Target Schedule in which adoption by council of the LEP and the DCP was to take place in May 2000, and the start of Stage 1 of the development on site was to be in September 2000. Mr Chandler’s evidence, which I accept, was that these entries were to be understood as part of a nett target programme, possible of achievement, but liable to interruption no matter how realistic they then appeared. I am satisfied that the Target Schedule contained estimates only. In my view the evidence provides no basis for a finding that as at September 1999 it was the expectation of the parties that a draft LEP and DCP would be adopted by council by or in May 2000, or that the joint venture development of the site would start in September 2000.

34 TUP submits that upon the proper construction of the September agreement it was entitled to a fee whenever a sale took place irrespective of the two year commitment period.

35 In my opinion this construction is correct and TUP’s submissions should be accepted for the following reasons.

36 A reasonable reading of the letter of 3 September 1999 makes plain the intention to differentiate between the Qantas project and the other projects for the purpose of specifying TUP’s entitlement to remuneration for services.

37 It is apparent that for projects other than the Qantas project there was an entitlement to two types of remuneration, namely

· Monthly fees which included a base fee and a project fee for each active project undertaken.

· A share of project profits calculated at a rate above the hurdle rate.

Examples of calculations of profit shares for active projects were set out in an attachment to the letter. The Qantas project was not included with these but was referred to separately.

38 For the Qantas project there was an entitlement to remuneration on alternative bases, namely

· A success fee in the event of sale prior to development, calculated according to a sliding scale.

or

· A minimum project fee of $1 million, or a profit share, if the project was rezoned and developed by Landco through a joint venture mechanism.

39 It being plain that the parties intended to differentiate between the Qantas project and the other project for the purpose of TUP’s remuneration, it becomes necessary to ascertain whether it was intended that the two year period applied to all projects, including the Qantas project, with the result that TUP’s entitlement depended upon sale or rezoning and development occurring within that period, or whether it was intended that such limitation did not apply to the Qantas project.

40 To the extent that such intention is not clear from the words themselves it is well accepted that reference may be made to the background, context, and circumstances in which the parties were operating at the time the agreement was made. In Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 186 ALR 289 at 292-293, it was said:

“In Codelfa , Mason J (with whose judgment Stephen J and Wilson J agreed) referred to authorities which indicated that, even in respect of agreements under seal, it is appropriate to have regard to more than internal linguistic considerations and to consider the circumstances with reference to which the words in question were used and, from those circumstances, to discern the objective which the parties had in view. In particular, an appreciation of the commercial purpose of a contract:

"presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating".

Such statements exemplify the point made by Brennan J in his judgment in Codelfa :

“The meaning of a written contract may be illuminated by evidence of facts to which the writing refers, for the symbols of language convey meaning according to the circumstances in which they are used.””

41 To similar effect is the observation of Gleeson CJ, Gummow and Hayne JJ in Maggbury Pty Limited v Hafele Australia Pty Limited (2001) 76 ALJR 246 at 248 (para 11), quoting with approval Lord Hoffmann in Investors Compensation Scheme [1998] 1 WLR 896 at 912-913 to the effect that interpretation of a written contract involves the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of contracting.

42 I have summarised the background circumstances above. Of them, matters which I find to be of particular significance as indicative of their contractual intention, are:

(a) The matters critical to the development of the site included those identified in para 9 above. On 31 May 1999 it was Mr Chandler’s advice to the board that development might take from three to five years, and on 10 June 1999 it was the board’s expectation that it might take four years.

(b) From mid June 1999 the parties proceeded on the basis that Landco’s options were the purchase and sale of the site once major approvals (being the LEP and DCP) were in place, and the purchase and development of it as a joint venture project.

(c) It was uncertain when the LEP and DCP would be adopted by Council.

(d) The proposal on 16 August 1999 of Mr Chandler to Landco as to the terms of their future relationship, which included a proposal for remuneration on sale of the project before any construction commenced. This was the genesis of the agreement. The proposal in respect of the Qantas project is plainly intended to be read and considered as distinct from the proposal for the other projects. It proposes a commission payable upon the happening of contingencies of rezoning and Landco’s decision to sell before any construction commences. It is unrelated to the monthly fees and project profit sharing in respect of other projects.

In my opinion it is plain from this document that the two year term relates to the proposed arrangement for a fee and profit entitlement for the other projects and not to the Qantas project. The concept of a monthly fee, expressly agreed to be payable from July 1999, provides a rational basis for agreement as to the period for which this proposed arrangement should operate. The examples and Service Agreement Option attached to the proposal are consistent with such arrangement.

The very words of the proposal concerning the Qantas project negate a conclusion that the two year limitation was applicable to it. No temporal limitation is indicated for the achievement of rezoning by TUP or Landco’s decision to sell upon which TUP’s entitlement would depend. The only temporal factor requires the decision to sell before any construction commences. It would have been unreasonable for the recipient of the proposal to read it otherwise. The language reflects the reality of the situation then existing that the parties could not foresee when the relevant approvals would be given, or when either a sale, or rezoning and development, would take place.

(e) Landco’s response of 20 August 1999 makes plain its intention to address the other projects and the Qantas project so as to correspond with TUP’s proposal. The phrase “…. agreed that from July 1999” has been included under the heading “Term”, whereas in the proposal it appeared under the heading “Monthly Fees”.

The relevant matter concerning the Qantas project is set out in para 19 above. The words make clear the intention that Landco’s two year commitment to TUP for fees and profit share in respect of the other projects was inapplicable to the arrangement for the Qantas project. As in TUP’s proposal, the only temporal factor is directed to the occasion of achievement of rezoning. A sliding scale for a share in profits on sale is proposed in response to TUP’s proposal for a commission.

In addition, a proposal is made (obviously with regard to the other option) to meet the contingency that Landco decides not to sell, and continues to develop and “on-sell the product to the market”. As already noted, Landco’s expectation at this time was that development might take four years.

(f) TUP’s letter of 30 August 1999 is consistent with the preceding correspondence and maintains the differentiation between the arrangement proposed for the other projects and that proposed for the Qantas project. In it TUP presses its claims for a higher profit share for the other projects and for a higher sliding scale for a success fee on sale than those proposed in Landco’s letter of 20 August 1999.

43 As to the September agreement, TUP submits, correctly in my view, that the document itself clearly indicates that TUP’s profit share entitlement was independent of the two year commitment period. Significant features are:

(a) TUP’s profit share entitlement for the “QANTAS PROJECT” was dealt with separately, and differently, from the general “PROJECT PROFIT SHARING” entitlement;

(b) “the event of a sale of this project prior to development” was the explicit contingency triggering TUP’s Qantas project profit share entitlement - without any qualification about the timing of the sale or its occurrence within the “two year commitment” period;

(c) the agreement unequivocally promised that TUP’s “sliding fee” for its profit share “will be paid on the incremental net value achieved on the sale of the project” - again without any qualification about the timing of the sale or its occurrence within the “two year commitment” period;

(d) the agreement promised TUP “a minimum project fee of $1 million” if the development proceeded through a joint venture - and without any timing qualification and irrespective of the profit share entitlement that might otherwise have arisen under the “PROJECT PROFIT SHARING” provisions of the agreement.

44 In my opinion application of the two year limitation to the arrangement for remuneration for the Qantas project in respect of either option would do violence to the ordinary language of the letters of 3 and 10 September 1999. It would bring about a result which ignores the absence therein of any words which require that the contingencies upon which TUP’s entitlement depends must occur within any specified period of time, for example before expiry of the agreement on 30 June 2001.

45 Furthermore, when the September agreement is considered with regard to the circumstances in which it was made I am satisfied that it demonstrates the intention of the parties that the two year commitment was applicable only to the arrangement for remuneration for services in respect of the other projects, and was not intended to have any relevance to services rendered in respect to the Qantas project.

46 Contrary to Landco’s submission, in my opinion neither the background circumstances nor the terms of the letters support a finding that it was intended to treat sale and development differently for the purpose of the agreement. When the words and passages in the letter of 30 August 1999 relied upon for this submission are read in context with the proposal of 16 August 1999 and the letter of 20 August 1999, it seems clear that the parties never intended that the two year term should apply to a sale, or that relevantly with regard to the time limitation, a distinction was to be made between sale and development.

47 As earlier indicated, there was no certainty as to when the relevant approvals would be made by the Council. The evidence does not establish that there was an expectation that these important matters would be finalised by 30 June 2001 and I do not regard the letter of 30 August 1999 as evidence that there was, at least for Mr Chandler. This uncertainty renders improbable an intention to distinguish between sale and development in the agreement.

48 Accordingly, I conclude that upon the proper construction of the September agreement TUP is entitled to a fee whenever the sale took place, irrespective of the two year commitment period. I find that this construction is in accordance with the contractual intention of the parties as evidenced by the letters of 3 and 10 September 1999 considered together, or considered in light of the circumstances in which they were written.

49 On the other hand, it seems to me that the construction for which Landco contends would bring about a result which would not give the agreement a rational and commercial operation, and would be in conflict with what I have found to be the intention of the parties.

50 For example, as was submitted by TUP, if Landco’s contention that TUP’s entitlement ended on 30 June 2001 was correct, the result would be that Landco was given complete control over whether TUP would ever become entitled to the contemplated success fee. Consistently, the agreement left it open to Landco to prevent the success fee ever accruing to TUP. It could have done so by the simple expedient of neither selling nor developing the project within the two year period. In other words, TUP’s entitlement was left to the discretion of Landco.

51 Suffice it to say that such a construction would be patently unreasonable in the circumstances of this case, and would defy business common sense.

52 For the above reasons I find that, upon the proper construction of the September agreement, Landco is liable to pay to TUP a success fee upon the sale of the Qantas site calculated in accordance with the September agreement.

53 If I am wrong in my conclusion as to the September agreement it is desirable that I should consider whether TUP has established its claim on either of the alternative bases alleged.

The first alternative

54 One alternative basis for TUP’s claim is an agreement alleged to be constituted by the letter dated 8 January 2001 from TUP to Landco and the letter in response dated 22 January 2001 from Landco to TUP. It is put that the effect of these letters is to repeat the substance of the September agreement, free of any time limitation.

55 The relevant circumstances in which these letters came to be written are the following:

(a) On 19 July 2000 TUP wrote to Landco concerning terms of engagement. It included the following:

“2. The following table of profit share is agreed as follows:
Project Proceeds”.
Thereunder appeared a table showing a sliding scale of TUP profit share, beneath which appeared the following words:
“Project sold prior to development”
Then appeared a table showing a sliding scale of TUP profit share in the event of the sale of the property, similar to that referred to in the letter of 3 September 1999.


(b) In early October 2000 Mr Josip Zivko became the Chairman of Landco, and continues to be so. Shortly afterwards he reviewed the letters of 20 August, 30 August, 3 September and 10 September 1999.

(c) On 12 October 2000 there was a meeting between Mr Zivko and Mr Chandler during which Mr Zivko stated that he was aware of the existing arrangement which was due for review in June 2001.

(d) On 16 October 2000 TUP wrote to Landco. The letter included the following:

“As you are aware we have an existing engagement with Landco for its Sydney project. Due to the importance of the Interciti project, Landco has recently sought to formalise a longer term arrangement than that which is due for review in June 2001.

…

Landco has over the last few months proposed that TUP enter into a set of formal agreements which cover:

· General projects

· Interciti project

· Profit share”.

Attached to the letter was a draft statement in which Landco’s projects were described. Concerning the Interciti project it said:
“Advance planning on the $340m Interciti development at North Arncliffe via a proposed joint venture with Landcom and SRA. The project involves 950 apartments and over 50,000 m2 of commercial development over the new southern interchange at Wolli Creek, just one stop from the International Airport”.
This description is supported by evidence in plans which illustrate the scope and complexity of the proposed project at this time.


(e) In about October 2000 the LEP and DCP were approved by the Council. It is common ground that these approvals were regarded as most important for the Qantas site.

(f) In December 2000 negotiations were continuing between Landco and Landcom and SRA in respect of a joint venture agreement. There was some indication that the parties might reach agreement within a short period of time.

(g) On 19 December 2000 there was a meeting between Mr Zivko and Mr Chandler during which Mr Zivko stated that he would honour the September agreement. He also expressed his view that Landco should not have entered into the agreement, and that he saw no basis for paying consultants a profit share.

56 On 8 January 2001 TUP wrote to Landco a letter by way of a proposal for an agreement concerning their future relationship. Relevant passages of the letter are:

“Following my meeting with Josep [sic] Zivko, Andy Rosin and yourself on the 19/12/00 it was suggested that I confirm the agreement proposed as this would apply to the ongoing Landco/TUP relationship. We recognise that as a result of the recent acquisition of Landco by Consolidated that some of the earlier directions set for the business have changed. We confirm that:

…

4 In regard to the Interciti project (Qantas) we confirm our understanding of the profit share arrangements as follows:
(a) In the event the development parcel (Qantas land) is sold prior to entering into a Joint Venture as follows:”

Included in this sub-para was a table of TUP’s share of profit on sale similar to that set out in the letter of 19 July 2000. Beneath the table appeared a reference in these words:

“(As per our letter of 17/7/00)”.


It was common ground that the correct date was 19 July 2000.

Sub-paras 4(b) and (c) referred to bases of remuneration for TUP in the event that the development of the project proceeded, and for an initial project success fee.

57 On 22 January 2001 Landco wrote to TUP a letter the terms of which are as follows:

“Thank you for your letter with respect to TUP Engagement Terms and Agreement dated 8 January 2001. We have spoken on the phone a number of times and whilst I would still like to meet with Andy, Tony and yourself to clarify some minor points I believe that the process has been beneficial to my understanding of the arrangements.
I agree with point 1 in your letter and wish to clarify the individual arrangements for each project by way of a list of projects and payments due each month, and also confirm that the arrangements extend to 30.6.2001 with Landco having the option to extend these arrangements or negotiate new ones.
I would like to speak further to you with respect to point 2 of your letter, but believe this is an accurate summary of the situation.

In regard to profit sharing, point 3 of your letter, I would like to reiterate that the current forecasts as set out in our fax of 18.12.2000 are indeed only estimates at this stage with entitlements to TUP to be determined after audited profit figures for the period to 30.6.2001 are available.
As part of the Spring Hill Village profit share I have prepared a payment of $200,000 (enclosed) and anticipate the final instalment after the profit figures outlined above become available.
I confirm the arrangement set out with respect to Manooka Valley in 3(b).
Rosedale Grove profit share, like Spring Hill Village, is subject to a calculation of the entitlement after audited profit figures for the period to 30.6.2001 are available.
In relation to the 3(d) I understand that there are presently no other projects.
I also accept the basis of your offer with respect to the Wadalba project and would like you to know that we too are interested in a positive on-going relationship between Landco and TUP.
Interciti, point 4 of your letter, requires some clarification with respect to time periods and by way of examples in relation to the tables set out in 4(a), (b) and (c)(ii). I believe this is best done at a meeting with Andy, Tony, you and I, which we will arrange shortly.
The payment proposed in 4(c)(i) which relates to the SRA Land transfer compensation is agreed and enclosed in the sum of $236,000. In regard to the compromise proposed by TUP, ie discount of $150,000, I accept the condition set out in the first bullet point, but need some clarification of the final sentence in the second bullet point, whilst acknowledging the gesture is not a precedent.
Point 5 of the letter has I believe been satisfactorily resolved and is the subject of correspondence between Marsdens and ourselves and TUP, and I believe all parties are now aware of the desired procedures which are to be followed.
David, I do also hope that this settling in discussion paves the way for an easier ongoing relationship, and I appreciate your efforts in expediting the clarification of the arrangements. I am confident we can work well together and indeed agree on a basis to continue beyond 1.7.2001”.

58 It is common ground that no meeting took place to discuss TUP’s profit share arrangements with Landco as envisaged in this letter, and time periods and other matters were never clarified.

59 The Plaintiff submits that the letters of 8 January and 22 January 2001 constitute an agreement whereby the parties agreed, inter alia, to the remuneration arrangement made by the September agreement in the event of a sale of the Qantas project. It was put that this agreement was in effect a reaffirmation of the September agreement, to apply when the two year commitment period came to an end. It was further put that the requirement stated in the letter of 22 January 2001 for “some clarification” with respect to “Interciti point 4 of your letter” should be understood as indicative of acceptance of the profit share proposal contained in para 4 of the letter of 8 January 2001. This was said to evidence the intention of the parties to make a binding agreement although its terms might be restated in a more precise form, and was thus within the first category discussed in Masters v Cameron (1954) 91 CLR 353 at 360.

60 In my opinion these words and phrases read in context, and the letter read as whole, give no support to the submission. A reasonable reading of the letter shows it to be a carefully considered response to the proposal for each item.

61 Where an item is agreed upon, appropriate and clear words and phrases of acceptance are used: e.g: “I agree with point 1 in your letter”; “I confirm the arrangement”; “I also accept the basis of your offer with respect to”; “The payment proposed in 4(c)(i) … is agreed”.

62 In contrast, the context in which the requirement for clarification appears cannot be reasonably read as indicative of acceptance. The relevant words are:

“Interciti, point 4 of your letter requires some clarification with respect to time periods and by way of examples in relation to the tables set out 4(a), (b) and (c)(ii). I believe this is best done at a meeting with Andy, Tony, you and I, which we will arrange shortly”.

63 I am unable to find that the letters manifest the mutual assent of the parties to, or that a reasonable person in the position of each party would think after reading them that there was, a concluded bargain in respect of the Interciti project. (Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 para 81).

The second alternative

64 As the second alternative basis for its claim TUP alleges an agreement evidenced by the letters of 8 January and 22 January 2001, a meeting between Landco and TUP on 7 June 2001, and TUP’s letter to Landco dated 8 June 2001.

65 In April 2001 the Council approved the master plan development application for the site.

66 On 7 June 2001 two meetings took place in Canberra between Mr Zivko and Mr Chandler. One was in the morning at the offices of the ANZ Bank, and the other in the afternoon at the offices of Landco. There is a dispute as to whether anything, and if so what, was said during the meetings about an arrangement for TUP’s remuneration for the Interciti project after 30 June 2001.

67 Mr Chandler said that by the time of the meetings he understood that Landco would not take up the option to extend the September agreement beyond 30 June 2001. There was work outstanding for the projects at Spring Hill and Wadalba, and it was necessary to agree on a basis for finishing that work after that date. He thought that he would require three months, until 30 September 2001, for this purpose.

68 He said that at the second meeting Mr Pratezina was also in attendance. The matter of tying up loose ends by 30 September 2001 was discussed. The Qantas project and profit share was also discussed. He said that Mr Zivko said words to the effect:

“There is no question about your profit entitlement on the Qantas project”.

69 Mr Chandler said that he made a note at the meeting. He was taken to it in cross-examination. He said that he wrote everything which appears under the heading “Landco/DC” during the course of the meeting. The note is as follows:

“Landco/DC	7/6
· Manuka [sic] - $240 OK + Input	JZ
· Rosedale – Water issue	AP
- Sales	DC
-
· Interciti - profit share OK
· Spring Hill - Profit share (200-240)
- Fee
· Wadalba - IEA/C
- B F
- Kamira
- Block –B”

70 His evidence was consistent with that contained in para 30 of the short version of his affidavit sworn 25 October 2002. The following passage is part of the account of the conversation:

“Myself: “I want to confirm that our profit share is as set out in our letter of 8 January 2001. You indicated back in January that you had a number of points to clarify but we haven’t had any further discussion”.
Zivko: “Well, I confirm that we will honour the arrangement. There is no problem if we sell the site but you have to accept that if there is a delayed settlement the timing will be determined by when we actually get the cash”.

71 Mr Zivko denies that there was at any time that day a discussion about profit share arrangements for the Interciti project extending beyond 30 June 1999 to the effect asserted by Mr Chandler, or at all. In para 23 of the short version of his affidavit sworn 20 December 2002 he denied the conversation with included the passage set out in the preceding paragraph.

72 Mr Zivko said that there was discussion concerning the Interciti project during the morning meeting at the ANZ Bank but not concerning TUP’s profit share. There was no evidence as to the context in which the project was discussed on this occasion.

73 He said that at the afternoon meeting a new agreement was reached for TUP to continue working for three months after 30 June 2001. The Spring Hill project and its profit share, the Manooka project and the share of $240,000.00, and the Wadalba and Rosedale projects were discussed. Interciti was not.

74 In the short version of his affidavit sworn 20 December 2002, Mr Pratezina said that he did not recall the conversation as set out in Mr Chandler’s affidavit. He was not called at the hearing.

75 On 8 June 2001 TUP wrote to Landco. The relevant passages are:

“Following our meeting with yourself and Tony yesterday, I acknowledge that Landco’s strategic direction in NSW has changed and that this will require a revision of TUP’s basis of engagement from 1/7/01. Given the amount of work on hand we confirm that our current level of service will continue until the end of September. At that juncture we believe that the residual on-going matters can be attended to based on the following terms from 1/10/01:
Monthly retainer $10,000 per month
Individual project activity as needed $2,500 per project
Interciti monthly fee share as per the existing joint venture arrangement
We would anticipate that by the 30/12 that this level of service will be able to revert to simply a fee based on each assignment agreed with you at the time.
We acknowledge that except for the following profit share arrangements:
Spring Hill Village
As calculated to 30/6/01 (including deferred settlement lots – Tony Pratezina to advise)
Manooka Valley
$240,000 payable upon and when re-zoning of the extension land occurs
Interciti
As per the schedule agreed in our letter of 8/1/01:
that future service by TUP will not involve a profit share. As you will appreciate, our retainer fee base to this time was structured on performance related to economic value created.

…

Like you, I feel we have built up a constructive working relationship over the last six or so months and you may be assured of our resolve to work through the next few months to achieve Landco’s objectives. Hopefully, by the time we wrap up Interciti, we can all claim a very successful relationship on all fronts. Once again, thank you for your time yesterday”.

76 In his affidavit Mr Chandler said that the letter was to confirm the discussion of 7 June 2001. He was not cross-examined on the letter.

77 Mr Zivko said that he read the letter and understood it to refer to the afternoon meeting on 7 June 2001. He said it was not a record of what had been discussed or agreed, and denied that it confirmed what was said. He thought the purpose of the letter was to introduce matter which had not been discussed. He did not pay much attention to the reference to Interciti because it was not a matter agreed upon, and in respect of which there had been no negotiation. As to this, he thought it was an attempt to put something forward which had not been discussed and was not acceptable to Landco. He did not think the letter was a proposal, otherwise he would have replied to it. In fact, there was no reply to the letter.

78 On 19 September 2001 Mr Chandler and Mr Zivko had a meeting during which the requirement for TUP to continue working, and TUP’s profit share for the Interciti project, were discussed. Mr Chandler told Mr Zivko that TUP was prepared to accept a reduced payment of $1.75 million, a proposal which was rejected. Mr Zivko’s evidence is that he stated, in effect, that he had no intention of paying TUP a profit share and it was not entitled to one after 30 June 2001. Mr Chandler denies that Mr Zivko said these things. It is, however, unnecessary to find which version should be accepted in order to decide the issue under consideration.

79 On 2 October 2001 TUP wrote to Landco. The relevant passages in the letter are:

“We refer to our various letters to you of 8/1 and 8/6 as we move towards the new arrangements Landco wishes to have in place with TUP for its NSW based projects. This letter now follows our discussions on the 19/9 at which we proposed a basis for providing our support activities over the coming months.
…
We note that the profit share arrangement will be applied to the Landco land value apportionment of the proposed joint venture wind up should you proceed with the acquisition of the SRA parcel and as a result, the termination of our engagement on the project at the point. This would apply alternatively, if the site is sold by Landco should you not proceed with the current acquisition of the SRA parcel. Based on the current transaction price of $40.0 m and a Landco apportion in the order of $18.6 m we would estimate that the TUP profit share to be, subject to confirmation of costs to date, in the order of: $18.6 m - $11.0m (cost/estimate) = $7.6 m x .25% = $1.9m; as per table 4(a) of our letter of the 8/1/01.
We note that the future cost of any capital works as opposed to the obtaining of consents as previously contemplated by the Joint Venture will not form part of Landco costs in accessing the TUP profit share. We are proceeding with the arrangement of these works (eg Arncliffe Street/Princes Highway road widening) as requested by the Joint Venture with the view that this will add further value to the site”.

The letter concluded with the words:

“I would appreciate your response to this letter, given we are now proceeding as per the level of service outlined herein”.

80 Mr Chandler was not cross-examined on the letter.

81 Mr Zivko said he read the letter and did not respond to it. He said that he did not understand it to convey an assertion that TUP was entitled to a profit share in the event of any future sale of the Qantas site.

82 With regard to the totality of the evidence as to the circumstances in which the afternoon meeting on 7 June 2001 took place and the letter of 8 June 2001 was written, I am satisfied that an agreement was made in the terms for which TUP contends, and I so find.

83 In my opinion Mr Chandler’s account of the conversation at the meeting should be accepted. I prefer it to the account given by Mr Zivko in which he denied that TUP’s entitlement to a profit share was discussed.

84 I found Mr Chandler to be a credible witness whose evidence that Mr Zivko agreed to the arrangement set out in the letter of 8 January 2001 was entirely consistent with the probabilities. I find that the diary note was made by Mr Chandler during the meeting as a record of matters discussed and agreed. In cross-examination, Mr Zivko accepted that the matters recorded therein, with the exception of the Interciti project, were discussed, which indicates to me that the note was accurate.

85 In my view it is simply improbable that, in the circumstances, there would have been discussion about arrangements for the other projects but not about entitlement to profit share for the Interciti project. The question of TUP’s entitlement was not yet resolved. The matters for clarification referred to in the letter of 22 January 2001 were still outstanding. TUP’s entitlement under the September agreement, restated in the letters of 19 July 2000 and 8 January 2001, was substantial. It is difficult to accept, as a matter of common sense, that Mr Chandler would have let the occasion pass without raising and settling the issue. To have done so would have been inconsistent with the importance given to it in prior dealings and correspondence with Landco.

86 Furthermore, I have no doubt that if the profit share issue had not been settled at the meeting, or if at the end of it Mr Chandler had any doubts as to TUP’s entitlement to a profit share after 30 June 2001, he would have pressed the claim in his letter of 8 June 2001 as he had in the past. It is to be remembered that such a claim was consistently pressed from the time of TUP’s submission to the Landco board on 16 August 1999 and in the letters of 30 August, 10 September 1999, 19 July 2000 and 8 January 2001. In these letters the basis for remuneration for the Qantas project was differentiated from that applicable to the other projects. They show that Mr Chandler sought substantial remuneration for TUP’s services commensurate with Landco’s profit on sale or development which, to a large degree, would be attributable to those services.

87 Support for the finding that there was agreement also arises from the very language of the letters of 8 June and 2 October 2001, which confirm arrangements in respect of all projects, and the relationship for the future completion of them.

88 On the other hand, I find the evidence of Mr Zivko as to his denial of any discussion of profit share for the Interciti project at the meeting on 7 June 2001 is implausible, and I reject it. I also find to be implausible his evidence in cross-examination of his understanding of each of the letters of 8 June and 2 October 2001, and his reasons for not responding to them. It is unnecessary to recite passages from the evidence as the basis for this conclusion is apparent from the transcript.

89 I am satisfied that the letters made plain to Mr Zivko, as they do to any reasonable reader, that it was Mr Chandler’s belief that there was agreement on profit share, and that TUP was ready to continue providing services on the basis of that agreement. Mr Zivko impressed me as a forthright person who would not hesitate to correct Mr Chandler in blunt and clear terms if he thought that Mr Chandler’s version of the outcome of the meeting was wrong or unacceptable. In my opinion his failure to respond to either letter, in the circumstances, is explicable by his acceptance that their contents accurately recorded the agreement in respect of the projects, including Interciti.

90 For the above reasons I am satisfied that TUP has established that there was an agreement evidenced by the letters of 8 January and 22 January 2001, the afternoon meeting of 7 June 2001 and TUP’s letter to Landco dated 8 June 2001.

Conclusion

91 TUP has established its claim in accordance with the September agreement, alternatively in accordance with the June agreement, to a fee, upon the sale of the Qantas site and, accordingly, is entitled to the declaration and orders sought in the Second Further Amended Summons.

92 It is appropriate that I direct the Plaintiff to bring in short minutes of orders. The parties may also address me in relation to costs. Arrangements should be made by 19 June 2003 for the relisting of this matter.

**********

Last Modified: 06/24/2003