Westgem Investments Pty Ltd v Commonwealth Bank of Australia Ltd
[2022] WASCA 132
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
TITLE OF COURT : THE COURT OF APPEAL (WA)
CITATION: WESTGEM INVESTMENTS PTY LTD -v- COMMONWEALTH BANK OF AUSTRALIA LTD [2022] WASCA 132
CORAM: MURPHY JA
MITCHELL JA
FRASER AJA
HEARD: 4 - 8 APRIL 2022
DELIVERED : 4 NOVEMBER 2022
FILE NO/S: CACV 104 of 2020
BETWEEN: WESTGEM INVESTMENTS PTY LTD (Receivers and Managers appointed) (in liq) in its own right and as trustee for HOSSEAN POURZAND and JENNY MARIA POURZAND as trustees for the HELEN TRUST and PAKWEST PTY LTD
First Appellant
HOSSEAN POURZAND in his own right and as trustee for the HELEN TRUST and the SHERIN TRUST and the POURZAND FAMILY TRUST and JENNY MARIA POURZAND in her own right and as trustee for the HELEN TRUST and the SHERIN TRUST and the POURZAND FAMILY TRUST
Second Appellants
PAKWEST PTY LTD (Receivers and Managers appointed) in its own right and as trustee for the NEWPORT SECURITIES PTY LTD and as trustee for various other companies listed in the appeal notice
Third Appellant
NEWPORT SECURITIES PTY LTD (Receivers and Managers appointed) (Controllers appointed) in its own right and as trustee for the PAKWEST TRUST and the NEWPORT FAMILY TRUST and the LUKE SARACENI FAMILY TRUST
Fourth Appellant
OAKCURE PTY LTD in its own right and as trustee for the PARRY TRUST
Fifth Appellant
SEAPORT PTY LTD (Receivers and Managers appointed) in its own right and as trustee for the SEAPORT TRUST
Sixth Appellant
LUKE SARACENI
Seventh Appellant
MAYPORT NOMINEES PTY LTD (Receivers and Managers appointed) in its own right and as trustee for the MAYPORT UNIT TRUST
Eighth Appellant
QUEEN STREET PROPERTIES PTY LTD in its own right and as trustee for the QUEEN STREET PROPERTIES TRUST
Ninth Appellant
GRAND EDITION PTY LTD (Receivers and Managers appointed) in its own right and as trustee for the FARAH INVESTMENT TRUST NO 4
Tenth Appellant
LMS HOLDINGS PTY LTD as trustee for the SARACENI FAMILY TRUST
Eleventh Appellant
TOKYO CITY PTY LTD as trustee for the TOKYO CITY TRUST
Twelfth Appellant
MAREE SARACENI PTY LTD as trustee for the TOKYO CITY TRUST and the LUKE SARACENI FAMILY TRUST
Thirteenth Appellant
MAREE ANN SARACENI
Fourteenth Appellant
SINGLE HOLDINGS WA PTY LTD as trustee for the TUART INVESTMENTS UNIT TRUST
Fifteenth Appellant
SARACEN PROJECT MANAGEMENT PTY LTD as trustee for the SARACEN PROJECT MANAGEMENT TRUST
Sixteenth Appellant
CARDUP INDUSTRIAL LAND HOLDINGS PTY LTD in its own right and as trustee for the CARDUP INDUSTRIAL LAND TRUST and the CARDUP INDUSTRIAL LAND TRUST NO 2
Seventeenth Appellant
GOLDCUP NOMINEES PTY LTD as trustee for the PAKWEST TRUST
Eighteenth Appellant
GOLDEN WEST PROPERTIES PTY LTD as trustee for the POURZAND FAMILY TRUST and the OZRA TRUST and the GOLD HOUSE TRUST and JENNY'S TRUST
Nineteenth Appellant
AND
COMMONWEALTH BANK OF AUSTRALIA LTD
First Respondent
WESTPAC ADMINISTRATION 2 LTD
Second Respondent
WESTPAC ADMINISTRATION 3 LTD
Third Respondent
FILE NO/S: CACV 99 of 2020
BETWEEN: LUKE SARACENI
Appellant
AND
COMMONWEALTH BANK OF AUSTRALIA LTD
Respondent
FILE NO/S: CACV 100 of 2020
BETWEEN: TOKYO CITY PTY LTD as trustee for the TOKYO CITY TRUST
Appellant
AND
COMMONWEALTH BANK OF AUSTRALIA LTD
Respondent
FILE NO/S: CACV 101 of 2020
BETWEEN: LMS HOLDINGS PTY LTD as trustee for the SARACENI FAMILY TRUST
Appellant
AND
COMMONWEALTH BANK OF AUSTRALIA LTD
Respondent
FILE NO/S: CACV 102 of 2020
BETWEEN: BRYAN KEVIN HUGHES as liquidator of WESTGEM INVESTMENTS PTY LTD (in liq) (Receivers and Managers appointed)
Appellant
AND
COMMONWEALTH BANK OF AUSTRALIA LTD
First Respondent
WESTPAC ADMINISTRATION 2 LTD
Second Respondent
WESTPAC ADMINISTRATION 3 LTD
Third Respondent
ON APPEAL FROM:
Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA
Coram: TOTTLE J
Citation: WESTGEM INVESTMENTS PTY LTD v COMMONWEALTH BANK OF AUSTRALIA LTD [No 6] [2020] WASC 302
File Number : CIV 1652 of 2011, CIV 1596 of 2011, COR 77 of 2014, CIV 1651 of 2011, CIV 2722 of 2012
Catchwords:
Contracts - Construction - Financing agreement under which financiers provided funding to developer company to undertake development of a multi‑storey building in Perth CBD - Where funding agreement provided in effect for developer company to request 'drawdowns' to meet building and related costs incurred in development - Where developer company a single purpose corporate entity controlled by two shareholders who were sophisticated property developers - Where finance agreement provided for developer company to contribute additional equity contributions if 'Cost Overrun' - Where 'Cost Overrun' was defined by reference to 'Cost to Complete' the Project - Meaning of the term 'Cost to Complete' - Whether Cost to Complete included likely cost to complete infrastructure work in the form of a tunnel connecting the high rise tower with a train station - Where contract provided for compliance with Development Approval - Whether Project included tunnel - Whether Project had ambulatory operation - Where tunnel deleted from Works under building contract - Whether Project was synonymous with Works for the purposes of the finance agreement - Whether removal of tunnel from building contract a Permitted Variation under Builder's Side Deed
Insolvency - Part 5.7B Corporations Act 2001 (Cth) - Principles - Whether judge erred in finding developer company was insolvent at relevant times - Where developer company's debt comprised bank debt, building debt and trade creditor debt - Where bank debt included Cost Overruns sum - Whether developer company had access to financial resources through its shareholders - Where shareholders had substantial net worth and had committed $146 million of their own money to Project - Bank debt - Where financiers in fact provided forbearance after builder terminated building contract and pending entry into of new building contract and refinancing of whole Project - Where no finding by primary judge or contention that provision of forbearance was the subject of a binding agreement for forbearance - Whether and to what extent forbearance considered as part of the commercial reality of developer company - Consideration of company's available liquid assets - Consideration of administrator's and liquidator's statutory reports - Where statutory reports to creditors indicated that company was not insolvent save for a limited period inconsistent with liquidator's case on insolvency in primary proceedings
Insolvency - Part 5.7B Corporations Act - Uncommercial transactions - Where refinancing agreements extended time for repayment of bank debt - Where refinancing on terms that shareholders of developer company provided guarantees and securities to support refinancing by developer company - Whether reasonable person in developer company's position would not have entered into refinancing agreements and arrangements involving provision of guarantees and securities from shareholders and related entities - Whether refinancing transactions uncommercial transactions
Unconscionable conduct - Section 12CB and s 12CC of Australian Securities and Investments Commission Act 2001 (Cth) - Whether financiers acted unconscionably in entering into refinancing agreement with developer company - Where refinancing agreement provided for repayment of capital in instalments - Where first instalment not paid - Whether Financiers knew developer company would not be able to pay first instalment - Where financiers sought to keep borrower 'alive' to continue Project - Whether both parties benefited from transaction - Comparison to asset lending - Where shareholders of developer company commercially sophisticated - No unconscionability
Contracts - Implied terms - Whether one financier's adoption of Banking Code created implied term for joint lending where other financier did not adopt Banking Code - Whether collateral contract incorporating Banking Code - No implied term or collateral contract established
Contracts - Implied terms - Whether finance agreement required financiers not allege an Event of Default in respect of events which were not Events of Default - Where finance agreement lengthy and prescriptive - Where implied term not so obvious it 'goes without saying' - No implied term
Contracts - Implied terms - Whether finance agreement required financiers not to allege an Event of Default in respect of events for which there were no reasonable grounds to form an opinion that there was an Event of Default - Whether alleged implied term added anything to efficacy of agreement - Whether alleged implied term inconsistent with express terms of agreement - Where loan agreement did not confer contractual discretion - No implied term
Unconscionable conduct - Section 12 CC of Australian Securities and Investments Commission Act - Whether judge erred in not considering statutory unconscionability claims in relation to Event of Default determinations - Whether developer company acted on reasonable belief financiers would comply with Banking Code - Whether judge erred in not defining acceptable community standards - Where judge considered totality of circumstances - Where no belief by developer company that financiers would comply with Banking Code - Where judge explained his finding with reference to community standards - No unconscionable conduct
Misleading or deceptive conduct - Alleged misrepresentation by financiers - Where builder wished to terminate building contract on basis inter alia that the Superintendent was acting improperly in rejecting variations and extensions of time claims - Where Superintendent the brother of director of developer company - Where builder ultimately terminated building contract for alleged breach by developer company in failing to provide evidence as to developer company's ability to complete building work - Where developer company had not provided information requested - Where developer company alleged that financiers had made misrepresentations to builder which had caused builder to terminate building contract - Where builder had requested information from financiers as to financial position of developer company and existence of any default - Where financiers had no obligation to provide information - Where developer company alleged misrepresentation by silence by financiers - Whether financiers' silence and/or conduct in the circumstances conveyed to builder that developer company was in breach of finance agreement - Whether financiers' silence and/or conduct conveyed to builder that financiers were entitled to withhold finance - Whether financiers' silence and/or conduct conveyed to builder that financiers were prepared to withhold finance - Where developer company itself provided information to builder that it was in breach of financing agreement - Where financiers continued to provide funding - Alleged representations not made
Legislation:
Australian Securities and Investments Commission Act 2001 (Cth), s 12 CB, s 12CC
Corporations Act 2001 (Cth), s 95A, s 588FBResult:
Consolidated appeal dismissed
Category: B
Representation:
CACV 104 of 2020
Counsel:
First Appellant : C R C Newlinds SC & W A D Edwards & D J Pratt & R May Second Appellants : C R C Newlinds SC & W A D Edwards & D J Pratt & R May Third Appellant : C R C Newlinds SC & W A D Edwards & D J Pratt & R May Fourth Appellant : C R C Newlinds SC & W A D Edwards & D J Pratt & R May Fifth Appellant : C R C Newlinds SC & W A D Edwards & D J Pratt & R May Sixth Appellant : C R C Newlinds SC & W A D Edwards & D J Pratt & R May Seventh Appellant : C R C Newlinds SC & W A D Edwards & D J Pratt & R May Eighth Appellant : C R C Newlinds SC & W A D Edwards & D J Pratt & R May Ninth Appellant : C R C Newlinds SC & W A D Edwards & D J Pratt & R May Tenth Appellant : C R C Newlinds SC & W A D Edwards & D J Pratt & R May Eleventh Appellant : C R C Newlinds SC & W A D Edwards & D J Pratt & R May Twelfth Appellant : C R C Newlinds SC & W A D Edwards & D J Pratt & R May Thirteenth Appellant : C R C Newlinds SC & W A D Edwards & D J Pratt & R May Fourteenth Appellant : C R C Newlinds SC & W A D Edwards & D J Pratt & R May Fifteenth Appellant : C R C Newlinds SC & W A D Edwards & D J Pratt & R May Sixteenth Appellant : C R C Newlinds SC & W A D Edwards & D J Pratt & R May Seventeenth Appellant : C R C Newlinds SC & W A D Edwards & D J Pratt & R May Eighteenth Appellant : C R C Newlinds SC & W A D Edwards & D J Pratt & R May Nineteenth Appellant : C R C Newlinds SC & W A D Edwards & D J Pratt & R May First Respondent : J Thomson SC & J Taylor SC & V Ghosh Second Respondent : J Thomson SC & J Taylor SC & V Ghosh Third Respondent : J Thomson SC & J Taylor SC & V Ghosh Solicitors:
First Appellant : Jackson McDonald Second Appellants : Jackson McDonald Third Appellant : Jackson McDonald Fourth Appellant : Jackson McDonald Fifth Appellant : Jackson McDonald Sixth Appellant : Jackson McDonald Seventh Appellant : Jackson McDonald Eighth Appellant : Jackson McDonald Ninth Appellant : Jackson McDonald Tenth Appellant : Jackson McDonald Eleventh Appellant : Jackson McDonald Twelfth Appellant : Jackson McDonald Thirteenth Appellant : Jackson McDonald Fourteenth Appellant : Jackson McDonald Fifteenth Appellant : Jackson McDonald Sixteenth Appellant : Jackson McDonald Seventeenth Appellant : Jackson McDonald Eighteenth Appellant : Jackson McDonald Nineteenth Appellant : Jackson McDonald First Respondent : King & Wood Mallesons Second Respondent : King & Wood Mallesons Third Respondent : King & Wood Mallesons CACV 99 of 2020
Counsel:
Appellant : C R C Newlinds SC & W A D Edwards & D J Pratt & R May Respondent : J Thomson SC & J Taylor SC & V Ghosh Solicitors:
Appellant : Jackson McDonald Respondent : King & Wood Mallesons CACV 100 of 2020
Counsel:
Appellant : C R C Newlinds SC & W A D Edwards & D J Pratt & R May Respondent : J Thomson SC & J Taylor SC & V Ghosh Solicitors:
Appellant : Jackson McDonald Respondent : King & Wood Mallesons CACV 101 of 2020
Counsel:
Appellant : C R C Newlinds SC & W A D Edwards & D J Pratt & R May Respondent : J Thomson SC & J Taylor SC & V Ghosh Solicitors:
Appellant : Jackson McDonald Respondent : King & Wood Mallesons CACV 102 of 2020
Counsel:
Appellant : C R C Newlinds SC & W A D Edwards & D J Pratt & R May First Respondent : J Thomson SC & J Taylor SC & V Ghosh Second Respondent : J Thomson SC & J Taylor SC & V Ghosh Third Respondent : J Thomson SC & J Taylor SC & V Ghosh Solicitors:
Appellant : Jackson McDonald First Respondent : King & Wood Mallesons Second Respondent : King & Wood Mallesons Third Respondent : King & Wood Mallesons Case(s) referred to in decision(s):
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Table of Contents
Murphy JA
Introduction
Broad overview of the key events
The evidence
The judge's findings - overview
The issues in the appeals and their resolution
The principal agreements and the Development Approval
The Heads of Agreement dated October 2006
The Development Agreement
Dispute resolution and parties legally bound
The Complex
The Building
The Premises
The Integrated Fit Out Works and the Non Integrated Fit Out Works
Lease Commencement Date and term
Practical Completion
Completion of the development
Lessor's covenants
Mortgagee Consent
Required authority approvals
Appendix 1 - Complex Development
The Development Approval and the tunnel
2007 Salta Building Contract
The contract sum
Superintendent
Execution of work under the Contract
Practical completion
Defects Liability Period
Variations
Payment claims and obligations: GC 42.1
Payments by Financiers to Salta
Provisional sums
Default of Westgem
Builder's Side Deed (23 April 2008)
Side Deed - Heads of Agreement (23 April 2008)
The MOFA (23 April 2008)
Parties
Recital
Definitions
The provision of the Facilities - cl 2
The limits of the facilities
Expiry of the facilities
Purpose of the Facilities - cl 3
Drawdown Notices - cl 4
Contingent instruments - cl 6
Interest - cl 7
Pre-payment and Repayment - cl 8 and cl 9
Payments - cl 10
Conditions precedent to drawings - cl 13
Conditions precedent to first Drawing
Conditions precedent to subsequent Drawings
Representations and warranties - cl 14
Obligations and undertakings - cl 15
Financial ratios - cl 16
Events of Default - cl 17 and cl 18
The Facility Agent - cl 41
The construction issue - Westgem's ground of appeal and submissions
Ground 1
The proper construction of the MOFA - Cost to Complete
Chronology of events
April - June 2009
Early July 2009
16 - 22 July 2009 - First Cost Overrun
24 - 31 July 2009 - Westgem Bridging Facility
Early August 2009
5 August 2009 drawdown
10 August 2009 - Bankwest default notice
Saraceni/Pourzand contribution of $146 million by 1 September 2009
1 September 2009 - payment of balance of First Cost Overrun
1 September 2009 drawdown
17 - 18 September 2009 - Second Cost Overrun
21 September 2009 meeting Westgem and Financiers
24 September 2009 - the Financiers' strategy
25 September 2009
25 September 2009 - amendment to Lease Agreement
25 September 2009 - appointment of 333
28 September 2009
1 - 13 October 2009
15 - 16 October 2009
23 - 29 October 2009
Early to mid‑November 2009
18 November 2009 Letter
24 - 26 November 2009
27 November 2009
30 November 2009 Bankwest Strategy Paper
30 November 2009 drawdown
1 December 2009 - execution of the 18 November 2009 Letter
2 December 2009
3 December 2009
17 ‑ 18 December 2009 security documentation
18 December 2009 - Saraceni company creditors
22 December 2009 Strategy Paper
24 December 2009 - Amended 18 November 2009 Letter Agreement
4 and 8 January 2010 drawdowns
12 January 2010 drawdown
12 January 2010 - Charter Hall's offer to purchase Mr Pourzand's interest
15 - 27 January 2010
28 January 2010 - execution of First Additional Securities
28 January 2010 - Westgem's solvency declaration
28 and 29 January 2010
2 February 2010
4 February 2010 drawdown and cumulative drawdowns
8 - 12 February 2010 - Salta Stoppage
25 February 2010 - Salta termination of 2007 Salta Building Contract
25 February 2010 - Mr Griffiths' response to Salta termination
Late February/early March 2010
2 March 2010 drawdown
5 March 2010 default notice
12 March 2010 - proposal by Mr Saraceni and Mr Pourzand
19 March 2010 - 333 Reviews of Sponsors' positions
Late March 2010
1 - 23 April 2010
14 April 2010 Bankwest Strategy Paper
23 April 2010
28 April 2010 drawdown
3 May 2010 drawdown
4 - 14 May 2010 - refinancing negotiations
14 May 2010 - further proposal to the Financiers
19 May 2010 - revised proposal to the Financiers
28 May 2010 drawdown
31 May 2010 meeting with the Financiers
1 and 2 June 2010 drawdowns
2 - 16 June 2010
16 - 17 June 2010 - Financiers' indicative terms sheet
18 - 21 June 2010
24 June 2010 - Mr Pourzand's email to Mr Saraceni regarding his contribution
28 June 2010
30 June 2010 Bankwest refinancing approval
30 June 2010 drawdown
30 June 2010 - Fourth Deed of Variation
30 June 2010 - Westgem's solvency declaration
5 July 2010 - documentation
8 July 2010 drawdown
20 - 28 July 2010
29 July 2010
30 July 2010 drawdown
4 August 2010
9 August 2010
10 and 16 August 2010
13, 17 and 19 August 2010 drawdowns
23 - 25 August 2010 - Perron sale not proceeding
27 August 2010 - Vasse Newtown Variation Agreement
30 - 31 August 2010
31 August 2010 drawdown
31 August 2010 - Fifth Deed of Variation
31 August 2010 - Westgem's solvency declaration
1 September 2010
2/3 September 2010 - Mr Saraceni's decision not to sell Vasse Newtown interest
6 September 2010
7 September 2010
9 - 10 September 2010 - Financiers told that Perron sale not proceeding
12 September 2010
13 September 2010 - Probuild Building Contract
13 September 2010 - potential investment by JP Morgan
14 - 16 September 2010
16 September 2010 - entry into agreements amending the Lease Agreement
22 September 2010 - request for drawdown in respect of soft cost trade creditors
22 September 2010 - Westgem's solvency declaration
22 September 2010 - Financiers' communications concerning possible deferral of $23 million payment
Westgem's expectation as at 22 September 2010
22 September 2010 - execution of Restated MOFA and securities
23 September 2010
24 September 2010 and the meeting in Sydney with Goldman Sachs and Mr Saraceni
28 September 2010
29 September 2010 Westgem request for deferral of $23 million
30 September 2010 non‑payment of $23 million
30 September 2010 drawdown
30 September 2010 - discussions with other potential investors
4 October 2010
5 October 2010 drawdown
8 October 2010
13 October 2010 Letter Agreement
15 October 2010 - revised Goldman Sachs proposal
26 and 29 October 2010 drawdowns
22 November 2010 - revised Goldman Sachs proposal
24 and 30 November 2010 drawdowns
15 December 2010 drawdown
17 - 20 December 2010
23 December 2010 drawdown and cumulated drawdowns
30 December 2010
31 December 2010
2011
Statutory reports to creditors
Insolvency principles
Liquidator's case on insolvency in the primary proceedings and the judge's findings
Liquidator's case on insolvency in the primary proceedings
Summary of the judge's findings
The judge's findings as to insolvency as at 25 September 2009
The judge's findings as to insolvency in the period December 2009 - January 2010
The presumption of insolvency in the period 11 January 2010 to 11 January 2011
Other findings apparently connected with the issue of solvency
The issues of insolvency in the appeal
The respondents' notice of contention
The Financiers' submissions
Liquidator's submissions
Westgem's debt - general observations
Bank debt
Bank debt: 25 September 2009 - 28 February 2010
Bank debt: 5 March 2010 - 30 June 2010
Bank debt: 31 August 2010 - 22 September 2010
Bank debt: 22 September 2010 - January 2011
Building debt
Bank debt - conclusions on insolvency
The question of insolvency as at 25 September 2009 and the Second Cost Overrun debt to 28 January 2010
The question of insolvency as at 22 September 2010
Trade creditors - observations and conclusions on insolvency
Liquid assets
Trade Creditors' debt - 1 December 2009 - 30 April 2010
Trade creditors/liquid assets - 1 December 2009 - 30 April 2010
Conclusions on insolvency with respect to trade creditors - December 2009 - January 2010
Trade creditors: June 2010 - 31 December 2010
Judge's findings on uncommercial transactions
18 November 2009 Letter Agreement and related instruments
Fourth Deed of Variation
Fifth Deed of Variation
Restated MOFA
13 October 2010 Letter Agreement
Liquidator's submissions - uncommercial transactions
18 November 2009 Letter Agreement
Fourth and Fifth Deeds of Variation
Restated MOFA
13 October 2010 Letter Agreement
Uncommercial transactions - principles
Uncommercial transactions - principles
Uncommercial transactions - disposition
18 November 2009 Letter Agreement
Fourth Deed of Variation
Fifth Deed of Variation
Restated MOFA and associated securities
13 October 2010 Letter Agreement
Conclusion - uncommercial transactions
MOFA redocumentation (Restated MOFA) claims
Overview
The Financiers' knowledge as at 22 September 2010 (ground 26)
Unconscionable conduct (ground 27)
The judge's findings
Westgem's appeal and submissions
Disposition - unconscionable conduct
Code Conduct Term - disposition
Implied and other terms alleged by Westgem
The alleged terms
The judge's findings
Code Conduct Term
Event of Default Term
Reasonable Grounds Term
The Banking Code
Westgem's appeal - Code Conduct Term
Disposition - Code Conduct Term
Westgem's appeal - Amended Event of Default Term
Disposition - Amended Event of Default Term
Westgem's appeal - Amended Reasonable Grounds Term
Disposition - Amended Reasonable Grounds Term
Alleged unconscionability in relation to First and Second Cost Overruns
Grounds 21(b) and 22
Disposition
Salta Stoppage and Termination claims against the Financiers
Westgem's claims
Background matters
2008
April to May 2009
July 2009
3 - 5 August 2009
12 August 2009
21 August 2009 Bankwest letter
26 August - 3 September 2009
Salta's 4 September 2009 Show Cause Notice
5 - 14 September 2009
18 September 2009
24 September 2009
29 September 2009
1 October 2009
Early October 2009
12 October 2009
13 - 23 October 2009
29 October 2010
11 - 18 November 2009
20 November 2009
26 - 27 November 2009
2 - 10 December 2009
14 December 2009
15 - 18 December 2009
22 - 24 December 2009
29 December 2009 - Salta's further show cause notice for non‑payment
11 - 12 January 2010
15 - 22 January 2010
25 January 2010
27 January 2010
27 - 29 January 2010
29 January 2010 - Westgem's letter of disclosure to Salta
2 February 2010
4 February 2010 - funding of Salta's progress claim
5 February 2010
8 February 2010 - Salta stoppage
8 February 2010 - Financiers' strategy paper
9 - 11 February 2010
12 February 2010
16 - 17 February 2010
19 February 2010
23 February 2010
24 February 2010
25 February 2010
Builder's Side Deed
Westgem's grounds of appeal
Westgem's submissions
Disposition
Conclusion
Mitchell JA
Consolidated appeal ground 1: construction of the MOFA
Consolidated appeal grounds turning on success of construction argument
Grounds 2 - 13: approaching case on erroneous construction
Grounds 14 and 15: Banking Code of Conduct term
Grounds 16 and 17: wrong or unreasonable allegation of default
Grounds 18 and 19: causation issues
Ground 20: estoppel by deed
Consolidated appeal grounds 23 - 25: Salta termination claim
Consolidated appeal grounds 21 - 22 and 26 - 27: unconscionable conduct
Consolidated appeal ground 28: breach of Code of Conduct term
Consolidated appeal ground 29: error in dismissing appellants' claims
Liquidator's appeal: uncommercial transaction claims
Ground 1: the 18 November 2009 Letter Agreement
Ground 2: Restated MOFA
Grounds 3 and 4: extension documents
Notices of Contention
Orders
Fraser AJA
MURPHY JA:
Introduction
1These reasons deal with appeals against orders of Tottle J in the primary proceedings in which the learned primary judge dismissed claims made by the appellants against the respondents in relation to the financing of a commercial property development in Perth known as Raine Square, which was being undertaken by Westgem Investments Pty Ltd (Westgem). Westgem was effectively a creature of its two shareholders, Mr Luke Saraceni and Mr Pourzand.
2This is a consolidated appeal comprising, in effect, two appeals. One is an appeal by Westgem and related entities.[1] The other is an appeal by the liquidator of Westgem.[2]
[1] CACV 104 of 2020 (CACV 104). Appeals CACV 99 - 102 and 104 of 2020 were consolidated by orders made on 26 October 2020, with CACV 104 as the lead appeal.
[2] CACV 102 of 2020 (CACV 102) is the Liquidator's appeal. Except where footnotes specifically refer to CACV 102, footnote references should be taken to refer to documents filed in CACV 104. Both CACV 102 and 104 shared the same Blue Book and Green Book.
3The respondents are successors to the financiers which financed the Raine Square property development. The original financiers were Bank of Western Australia Ltd (Bankwest) and the Bank of Scotland International Australia Ltd (Bank of Scotland), collectively referred to as 'Financiers'. The principal lending instrument was a Multi‑Option Facility Agreement (MOFA). The lending was supported by (1) a real property mortgage over the Raine Square site, (2) a fixed and floating charge over the assets of Westgem, and (3) a share mortgage given by Mr Luke Saraceni and Mr Pourzand over their shares in Westgem. Mr Pourzand and Mr Saraceni and related parties also gave guarantees.
4The primary proceedings included:
1.Claims by Westgem against the Financiers for breach of contract, misleading or deceptive conduct and unconscionable conduct.
2.Claims by the liquidator of Westgem to set aside certain transactions entered into by Westgem from 25 September 2009 as 'uncommercial transactions' voidable under pt 5.7B of the Corporations Act 2001 (Cth) (Act).
3.Claims by the Financiers (by counterclaim) for money allegedly due by Westgem and the guarantors and for breach of contract or misleading or deceptive conduct in respect of negotiations for additional funding sought by Westgem in 2010.
5The primary judge relevantly for present purposes (1) dismissed Westgem's claims and the related claims by the guarantors, and dismissed the liquidator's claims, and (2) allowed the Financiers' money claims.[3]
[3] Primary decision [1340], [1342] - [1343].
6In these reasons, when referring to claims, grounds of appeal, submissions and the like by the appellants in CACV 104, these parties will for convenience be referred to collectively as 'Westgem' unless otherwise indicated.
Broad overview of the key events[4]
[4] The following overview is principally taken from the facts as found or accepted by the judge at primary decision [9] - [31], and the events based on findings and contemporaneous documents referred to in more detail in [53] ‑ [187], [259] ‑ [551] below.
7Mr Luke Saraceni and Mr Pourzand were experienced property developers who had worked together previously on property developments. In September 2004, they incorporated Westgem as a special purpose joint venture vehicle to develop Raine Square. Mr Pourzand and Mr Saraceni each held one of two shares in Westgem on trust for their related entities and trusts. Mr Saraceni was the sole director of Westgem.
8Companies related to Mr Saraceni were involved in various managerial capacities in the development. They were Saracen Project Management Pty Ltd (Saracen Management) and Saracen Properties Pty Ltd (Saracen Properties).
9Mr Saraceni and Mr Pourzand were assisted in negotiations with the Financiers by Mr Clohessy. He was closely involved with the financing and development, and played a major role in communicating with the Financiers on behalf of Westgem.
10Between December 2004 and March 2006, Westgem acquired the Raine Square site with funding from St George Bank Ltd, to which it granted a mortgage over the site.
11In January 2006, Westgem and Bankwest commenced negotiations with a view to Bankwest leasing office space in the proposed development.
12On 30 August 2006, Westgem obtained development approval pursuant to the City Planning Scheme No 2 and the Metropolitan Regional Scheme (Development Approval). Approval was given for a development of 21 levels of office space, three retail levels, three parking levels and a pedestrian tunnel under William Street. The pedestrian tunnel was to connect the (then proposed) William Street underground train station with the Raine Square tower (the tunnel).
13The negotiations between Westgem and Bankwest culminated in the execution by Westgem and Bankwest of a document called 'Heads of Agreement' in October 2006. The Heads of Agreement provided, in general terms, for Westgem to undertake the construction of the Raine Square complex in accordance with the Development Approval, and lease office premises to Bankwest.
14In 2007, Westgem arranged for the demolition, site retention and earthworks to be undertaken at a cost of approximately $8.5 million.
15In December 2007, Westgem and a building company, Salta Constructions Pty Ltd (Salta), entered into a fixed price building contract for the construction of the development (2007 Salta Building Contract). The 2007 Salta Building Contract provided for a lump sum Contract Sum of $281.879 million, inclusive of provisional sums but subject to any additions or deductions made under the 2007 Salta Building Contract. The total allowed for provisional sums was $92.477 million, which included $4.3 million for tunnel works and $70 million for 'Bankwest Integrated Fit Out Works'. Thus, the Contract Sum under the 2007 Salta Building Contract, excluding the provisional sum for Bankwest Integrated Fit Out Works, was $211.879 million ($281.879 million minus $70 million).
16Saraceni Project Engineering Pty Ltd, a company controlled by Mr Luke Saraceni's brother, Mr Frank Saraceni, was appointed the Superintendent under the 2007 Salta Building Contract.[5] Work under the 2007 Salta Building Contract started in April 2008.
[5] Except where context indicates otherwise, reference to Mr Saraceni should be taken to refer to Mr Luke Saraceni.
17On 23 April 2008, a suite of agreements was entered into, being:
1.a Builder's Side Deed in connection with the Financiers' rights in relation to the operation of the 2007 Salta Building Contract;
2.a Side Deed - Heads of Agreement, in connection with the fulfilment of the Heads of Agreement;
3.the MOFA for the provision of finance up to a limit of $327.2 million with an Expiry Date of 30 June 2010;[6] and
4.guarantees and securities executed in favour of BWA Custodians Ltd (Security Trustee) by Mr Saraceni, Mr Pourzand and their respective entities.
[6] There were also first, second and third variations to the MOFA entered into via deeds respectively on 24 August 2008, 3 March 2009 and 28 May 2009.
18The MOFA was executed by Westgem as borrower, the guarantors, the Financiers, the Security Trustee and Bankwest in its capacity as Facility Agent. The general scheme of the MOFA was that, subject to conditions, Westgem would drawdown funds to meet construction costs over the course of the development.
19The MOFA provided for the appointment by the Financiers of a 'Project Certifier' for the purposes of the MOFA. The Project Certifier was the person appointed by the Financiers, in their absolute discretion, to act on their behalf for the purposes of certifying the Project, including the provision of an initial report and ongoing monthly reporting. Amongst other things, and in general terms, the Project Certifier was to certify the total cost to complete the Project and the adequacy of contingency provisions.
20It was a condition precedent to the first drawdown under the MOFA that the Financiers be provided with an 'Approved Project Budget', defined to mean the detailed feasibility study and cash flow for the Project determined on a 'whole project' basis in a form and substance satisfactory to the Financiers in their absolute discretion.
21The MOFA also provided, in effect, that further drawdowns (after the initial drawdown) were dependent on there being no 'Cost Overrun' (as defined in the MOFA). A Cost Overrun, if not paid within five business days of demand, was an Event of Default. The most significant consequence of a Cost Overrun was that it required Westgem - in reality, Mr Saraceni and Mr Pourzand - to contribute further equity funding to the Project. In general terms, the guarantees executed by the MOFA guarantors were limited to $20 million in respect of principal debt, but were unlimited in amount in respect of Cost Overruns.[7]
[7] Primary decision [66].
22A 'Cost Overrun' was defined in the MOFA by reference to the term 'Cost to Complete' in cl 1.1(33) of the MOFA. The proper construction of 'Cost Overrun' and, in particular, 'Cost to Complete' in the MOFA was a key issue at trial and a key issue in this appeal. Upon Westgem's case, after the Superintendent under the 2007 Salta Building Contract issued a 'Contract Sum Adjustment' on 7 July 2009 directing removal of the tunnel works from that contract (as found by the judge - see [272] below), the 'Cost to Complete' in cl 1.1(33) of the MOFA did not, on its proper construction, include the cost to complete the tunnel.
23Effectively in satisfaction of the Heads of Agreement, on 7 April 2009, Westgem and Bankwest entered into a Lease Agreement in relation to the development and construction of the Raine Square development and a lease to Bankwest (Lease Agreement).[8]
[8] Primary decision [90] - [91].
24By July 2009, the relationship between Salta and Westgem had deteriorated to the extent that Salta wanted to negotiate a new contract with a revised and much higher contract price, and Westgem wanted to replace Salta with another builder. Both Salta and Westgem were considering the options open to them to terminate the 2007 Salta Building Contract.
25On 16 July 2009, the Project Certifier reported to Bankwest as Facility Agent that the cost to complete was $243 million (including contingencies), representing an overrun of $12.92 million (approximately $13 million) over the Approved Project Budget figure of approximately $230 million. The cost to complete sum of $243 million included the likely cost to complete the tunnel. On 22 July 2009, Bankwest, in its capacity as Facility Agent, determined that a Cost Overrun, in the amount of $12.92 million, had occurred (First Cost Overrun). Bankwest on 22 July 2009 informed Westgem that payment of the First Cost Overrun was required.
26On 4 August 2009, Westgem made a cash contribution of $4.7 million, which together with a sum of $1.8 million previously paid by Westgem to Salta and treated as an equity contribution, constituted a $6.5 million contribution to the First Cost Overrun.[9] On 10 August 2009, Bankwest served a default notice on Westgem, on the basis that the First Cost Overrun had not been paid in full within five business days of 22 July 2009. The balance of the First Cost Overrun was paid on 1 September 2009 pursuant to a bridging facility.[10]
[9] Primary decision [379].
[10] Primary decision [387].
27On 14 September 2009, the Project Certifier provided a further report to Bankwest as Facility Agent in relation to the cost to complete. That report estimated that the total cost to complete was then $260 million, ie, $17 million more than in its 16 July 2009 Report. Again, the sum included the likely cost to complete the tunnel. On 18 September 2009, Bankwest, in its capacity as Facility Agent, determined that the second Cost Overrun in the amount of $17 million had occurred (Second Cost Overrun), and demanded payment of Westgem within five business days. The Second Cost Overrun was disputed by Westgem but was subsequently the subject of a letter agreement between the parties referred to below.
28On or about 25 September 2009, the Lease Agreement was amended by a first supplementary agreement. It settled claims made by Westgem against Bankwest in respect of managing the Integrated Fitout services and sought to align the provisions of the Lease Agreement with those of the 2007 Salta Building Contract.[11]
[11] Primary decision [92].
29Although the Financiers maintained that Westgem was in default under the terms of the MOFA, they continued to fund the cost of building work undertaken by Salta. In October 2009, as a result of the default, they refused to fund the ancillary costs of the development, principally consultants' costs, referred to as 'soft costs'. Subsequently however, funding by the Financiers resumed for the payment of soft costs on an ad hoc basis.
30The resolution of the parties' differences arising from the Second Cost Overrun was reached in the form of a letter agreement executed on 1 December 2009 (18 November 2009 Letter Agreement). Under the 18 November 2009 Letter Agreement, the Financiers extended Westgem's time for payment of the Second Cost Overrun, and Westgem agreed to procure additional securities. On 24 December 2009, there was an amendment to the 18 November 2009 Letter Agreement, which provided for the Second Cost Overrun debt to be paid by instalments on 31 January 2010, 28 February 2010, and 15 March 2010 (later amended to 25 March 2010). Additional securities were provided and executed on 28 January 2010. As events transpired, $7 million of the Second Cost Overrun debt was paid, leaving $10 million unpaid.
31By the end of November 2009, the relationship between Westgem and Salta had deteriorated to the point where there was a mutual and profound level of distrust between them.[12] Both sides wanted to terminate the 2007 Salta Building Contract. Salta wanted to replace it with another contract with new payment terms and a different Superintendent, and Westgem wanted to replace Salta with another builder.[13]
[12] Primary decision [744].
[13] Primary decision [799].
32In late 2009 and early 2010, a company (Charter Hall) expressed an interest in acquiring Mr Pourzand's interest in the development, which was held by his company (Oakcure).
33On 8 February 2010, Salta suspended work on the project and on 25 February 2010 it terminated the 2007 Salta Building Contract. Charter Hall then lost interest in acquiring Mr Pourzand's interest in the development.
34The suspension of works under, and termination of, the 2007 Salta Building Contract constituted Events of Default under the MOFA. On 5 March 2010, the Financiers sent a default notice to Westgem, which included a reservation of their rights in relation to the non‑payment of the balance of the Second Cost Overrun debt, and the Events of Default arising from the suspension and termination of the 2007 Salta Building Contract.
35Despite the Events of Default, in light of the termination of the 2007 Salta Building Contract, Westgem and the Financiers commenced a period of negotiations in which they negotiated fresh terms upon which the Financiers would fund the costs of completing the development. Pending completion of the negotiation of fresh terms, the parties agreed to extend the expiry date under the MOFA, first to 31 August 2010 under the Fourth Deed of Variation and, next, to 30 September 2010 under the Fifth Deed of Variation. Both deeds recited the Financiers' agreed forbearance from the exercise of their rights in respect of the Events of Default the subject of the 5 March 2010 default notice.
36On 13 September 2010, Westgem, with the Financiers' agreement, entered into a new building contract with Probuild Constructions (Aust) Pty Ltd (Probuild). It was for a lump sum of $116.95 million, including provisional sums but excluding additions and deductions under the contract (Probuild Building Contract). Probuild took possession of the site and started work.
37The Lease Agreement and the first supplementary agreement were amended on 16 September 2010 by an Amended Supplementary Agreement and a Second Supplementary Deed.[14]
[14] Primary decision [92].
38The parties completed their contractual negotiations for refinancing by on or about 22 September 2010. A deed of amendment and restatement of the MOFA (Restated MOFA), and related securities, were executed between 22 and 24 September 2010. The Restated MOFA, dated 22 September 2010, increased the facility limit from $327.2 million to $446.6 million. The Expiry Date was extended to 30 September 2011. The principal was to be repaid in four tranches: (1) $23 million by 30 September 2010; $27 million by 31 December 2010; (3) $31.1 million by 30 June 2011; and (4) the balance by 30 September 2011. Mr Pourzand, Mr Saraceni and related entities were required to, and did, provide additional guarantees and securities.
39Westgem did not repay the first tranche of $23 million under the Restated MOFA on 30 September 2010. On 15 October 2010, the parties entered into a further agreement, by which Westgem's default in this regard was remedied. The repayment schedule was revised, and Westgem was required to repay $50 million by 31 December 2010 (13 October 2010 Letter Agreement). In other words, the unpaid $23 million due on 30 September 2010 was effectively rolled over to 31 December 2010, when the $27 million payment was due.
40Westgem did not make the $50 million payment due on 31 December 2010.
41On 11 January 2011, the Financiers appointed receivers and managers of the property of Westgem. On the same day, Mr Hughes[15] was appointed as voluntary administrator of Westgem.
[15] He was later to be appointed liquidator.
42On 27 October 2011, Practical Completion was achieved under the Probuild Building Contract and the Bankwest Lease Agreement.
43In April 2012, Bankwest took possession of the office premises and started to pay rent. In August 2012, the retail complex of the Raine Square development was opened.
44On 18 October 2012, Mr Hughes was appointed liquidator of Westgem (Mr Hughes or the Liquidator).[16]
[16] Mr Hughes is the appellant in CACV 102.
45On 18 June 2013, Charter Hall purchased the Raine Square development for $458 million.[17]
[17] GB 13601 - 13826.
The evidence
46There was a very large amount of documentary material tendered by the parties. The judge observed that the 'core bundle' contained in excess of 14,000 pages of material representing approximately 10% of the total 'trial library'.[18] The plaintiffs themselves, including Mr Pourzand and Mr Saraceni, did not give evidence. Nor did the liquidator of Westgem give evidence on the question of insolvency. The Financiers called a number of witnesses involved in the relevant events at the time. These included a number of bank officers (Mr Griffiths, Mr Pavisich, Mr Mahaffy, Mr McDonald), Mr Sanders of Ralph Beattie Bosworth, the Project Certifier, and Mr Gowdie who represented the consultants engaged by the Financiers at the time.
[18] Primary decision [56].
The judge's findings - overview
47In summary and in general terms, the judge found, relevantly in effect, that:
1.On the proper construction of the MOFA, the 'Cost to Complete' included the likely cost of the tunnel, and, accordingly, Westgem was liable in respect of the Second Cost Overrun.[19]
2.Westgem was insolvent in the period 25 September 2009 to 31 December 2010.[20]
3.The 18 November 2009 Letter Agreement and the securities provided pursuant to it, the Fourth and Fifth Deeds of Variation, the Restated MOFA and related securities and the 13 October 2010 Letter Agreement were not 'uncommercial transactions' within the meaning of s 588FB of the Act.[21]
4.The Financiers did not, by entering into the Restated MOFA, engage in unconscionable conduct within the meaning of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act).[22]
5.The MOFA did not contain implied terms alleged by Westgem and described by Westgem as the 'Code Conduct Term', the 'Event of Default Term' and the 'Reasonable Grounds Term'.[23]
6.Even if the above alleged terms were implied in the MOFA, the entry into of the Restated MOFA by the Financiers would not have involved any breach of those terms.[24]
7.Salta had not suspended works under or terminated the 2007 Salta Building Contract by reason of misleading representations conveyed by the Financiers to Salta. Westgem had not established misleading or deceptive conduct. Nor had it established causation in that regard.[25]
8.The Financiers did not engage in unconscionable conduct within the meaning of the ASIC Act by determining or asserting the First and Second Cost Overruns.[26]
9.Irrespective of the proper construction of the MOFA, Westgem was, in any event, estopped by deed (pursuant to the Fourth and Fifth Deeds of Variation) from contending that it was not in default in respect of the Second Cost Overrun.[27]
[19] Primary decision [100] - [211].
[20] Primary decision [1038] - [1133].
[21] Primary decision [1134] - [1233].
[22] Primary decision [846] - [993].
[23] Primary decision [212] - [329].
[24] Primary decision [847], [993].
[25] These claims were described by the judge as 'Salta Stoppage and Salta termination claims': primary decision [667] ‑ [845].
[26] Primary decision [443] - [460], [622] - [651].
[27] Primary decision [653] - [666].
The issues in the appeals and their resolution
48In broad summary, the issues in the appeals are:
1.Whether, on the proper construction of the MOFA and in the events which happened, the 'Cost to Complete' under the MOFA included the likely cost of the completion of the tunnel.[28]
2.Whether Westgem was insolvent in the period 25 September 2009 to 31 December 2010.[29]
3.Whether the judge erred in finding that the transactions referred to in point 3 of the preceding paragraph were not uncommercial transactions.[30]
4.Whether the judge erred in finding that by entering into the Restated MOFA, the Financiers did not engage in statutory unconscionable conduct.[31]
5.Whether the judge erred in finding that the 'Code Conduct Term', the 'Event of Default Term' and the 'Reasonable Grounds Term' were not implied terms of the MOFA.[32]
6.Whether the judge erred in finding that by entering into the Restated MOFA, the Financiers did not breach the 'Code Conduct Term'.[33]
7.Whether the judge erred in not considering Westgem's statutory unconscionability claims in relation to the First and Second Cost Overruns on the bases that (1) Westgem acted on a reasonable belief that the Financiers would comply with the Banking Code of Conduct and/or the Code Conduct Term, and/or (2) the Financiers' dealings in relation to the First and Second Cost Overruns were unconscionable having regard to contemporary community standards of conduct as at 2010 as between banker and customer.[34]
8.Whether the judge erred in finding that Westgem had not established (1) that the Financiers had made misleading representations to Salta as to Westgem's capacity to make payments under the 2007 Salta Building Contract, and (2) that any such (alleged) misrepresentations had caused Salta to suspend works under, and subsequently terminate, the 2007 Salta Building Contract.[35]
9.Whether the judge erred in finding that Westgem was estopped by the Fourth and Fifth Deeds of Variation from alleging that it was not in default of the Second Cost Overrun.[36]
[28] CACV 104, appeal ground 1 (appeal grounds 2 - 13, 18 and 19 are dependent on success of appeal ground 1); notice of contention, grounds 1 ‑ 4.
[29] CACV 102, respondents' notice of contention.
[30] CACV 102, appeal grounds 1 - 4.
[31] CACV 104, appeal grounds 26 - 27.
[32] CACV 104, appeal grounds 14 - 17; notice of contention, ground 5.
[33] CACV 104, appeal ground 28.
[34] CACV 104, appeal grounds 21(b), 22. Appeal ground 21(a) depends on the success of appeal grounds 14 ‑ 15 (appeal ts 262).
[35] CACV 104, appeal grounds 23 - 25.
[36] CACV 104, appeal ground 20; notice of contention, appeal ground 6.
49For the reasons which follow, I would dismiss the appeal. In relation to the issues referred to in the preceding paragraph, my conclusions are:
1.On the proper construction of the MOFA, the 'Cost to Complete' included the likely cost of the completion of the tunnel.
2.The Liquidator did not establish that Westgem was insolvent in the period 25 September 2009 to 22 September 2010, and, to that extent, the judge erred. However, the judge was correct insofar as his Honour concluded that Westgem was insolvent in the period 22 September 2010 to 31 December 2010.
3.The judge did not err in finding that the transactions referred to in point 3 of [47] above were not uncommercial transactions.
4.The judge did not err in finding that by entering into the Restated MOFA, the Financiers did not engage in unconscionable conduct.
5.The judge did not err in finding that the Code Conduct Term, the Event of Default Term and the Reasonable Grounds Term were not implied terms of the MOFA.
6.The judge did not err in finding that by entering into the Restated MOFA, the Financiers did not breach the Code Conduct Term.
7.The judge did not err in considering Westgem's statutory unconscionability claims in relation to the First and Second Cost Overruns as alleged in point 8 of the preceding paragraph.
8.The judge did not err in finding that Westgem had not established its claims for misleading or deceptive conduct in what was described as the 'Salta Stoppage and Salta Termination claims'.
50The estoppel point referred to in point 9 of [47] above raised novel questions as to whether detrimental reliance was required and, if so, whether it was established on the facts. It is unnecessary to explore these topics for present purposes. Westgem fails in any event on the proper construction of the MOFA.
The principal agreements and the Development Approval
51The principal agreements, relevantly for present purposes, are:
1.The Heads of Agreement dated October 2006.
2.The 2007 Salta Building Contract.
3.The Builder's Side Deed dated 23 April 2008.
4.The Side Deed - Heads of Agreement dated 23 April 2008.
5.The MOFA dated 23 April 2008.
52The relevant provisions of the first four of these agreements are summarised in [53] ‑ [120] below. The provisions of the MOFA are summarised in [121] ‑ [187] below.
The Heads of Agreement dated October 2006
53The Heads of Agreement was entered into in October 2006 between Westgem and Bankwest, as well as Mr Pourzand and Mr Luke Saraceni, and their respective entities (collectively, the Lessor's Guarantor).
54The subject matter of the Heads of Agreement comprised, in essence (cl 3 ‑ cl 5):
1.The construction and development of the 'Complex'.
2.The construction of a proposed office building (Building) in the Complex.
3.The 'Premises' within the Building.
4.A proposed lease to Bankwest.
5.The proposed entry into a more detailed agreement between the parties described as the 'Development Agreement'.
6.The provision of guarantees totalling $8.2 million by Westgem in favour of Bankwest to secure Westgem's obligations under the Heads of Agreement and the proposed Development Agreement.
The Development Agreement
55Clause 3 of the Heads of Agreement provided for the (proposed) Development Agreement to be entered into to 'cover construction matters, as well as the more usual agreement for lease matters, and extending to and including the various ancillary documents such as a fit out deed … relating to the development of the Complex …'.[37]
[37] GB 4804.
Dispute resolution and parties legally bound
56Clause 59 of the Heads of Agreement provided that the parties must use reasonable endeavours to negotiate in good faith to expeditiously agree the terms of the Development Agreement.
57In the meantime, by cl 60, the parties agreed to be bound by the Heads of Agreement.
The Complex
58The Heads of Agreement provided, by cl 5, that the Complex was to be constructed by Westgem at Westgem's cost on the 'Land' (as defined) at the corner of William and Murray Streets, Perth, and was to consist of:[38]
the Building, all underground public and tenancy parking, refurbished buildings, above and below ground retail and food court area, plaza and landscaped area - all in accordance with the attached Development Approval and the plans and specifications in appendix 1. (emphasis added)
[38] GB 4806.
59By cl 5, Westgem also acknowledged that it would:[39]
construct the proposed tunnel under William Street in accordance with the Development Approval.
[39] GB 4807.
The Building
60By cl 4, the Building was to be an office building, to be constructed as part of the Complex.
61Clause 15 of the Heads of Agreement referred to Bankwest taking a lease of the 'Building'.[40]
[40] However, other provisions might be thought to indicate that Bankwest would take a lease of the 'Premises' (eg, cl 4, cl 7, cl 8, cl 9, cl 11, cl 12, cl 16, cl 17, cl 24 and cl 25) - the point was not argued and is not critical to the disposition of this appeal.
The Premises
62By cl 4 of the Heads of Agreement, the Premises would comprise level 1 (podium level) through to level 21 of the Building, having an estimated net lettable area of approximately 42,507 sqm. It also provided that Bankwest may, by notice to Westgem, no later than 1 November 2008, select one floor to not be included in the Lease.
63Clause 4 of the Heads of Agreement also provided for the Premises to be provided by Westgem to Bankwest to base building standard and configuration, as outlined in the 'architectural and services specifications' included in appendix 1, and fitted out by Westgem in accordance with that part of Bankwest's fit out plans, being 'Integrated Fit Out Works'.
64Clause 16 of the Heads of Agreement provided that the Premises should be used as office accommodation and ancillary purposes for the normal operation of Bankwest's business.
The Integrated Fit Out Works and the Non Integrated Fit Out Works
65The Heads of Agreement provided, by cl 7 ‑ cl 9, for two types of fit out works - the 'Integrated Fit Out Works' and the 'Non Integrated Fit Out Works'.
66Clause 40 provided that, at that point in time, Bankwest believed that: (a) the Integrated Fit Out Works would be construction‑type works; (b) the Non Integrated Fit Out Works would be works such as installing furniture and loose partitioning.[41]
[41] GB 4837.
67In broad terms, cl 4 and cl 7 ‑ cl 9 of the Heads of Agreement provided, in effect, that Westgem would carry out the Integrated Fit Out Works and, after Practical Completion and handover of the Premises to Bankwest, Bankwest would then undertake the Non Integrated Fit Out Works. There was also provision, however, for there to be a staged handover of the Premises by Westgem to Bankwest, prior to Practical Completion, and provision for the prospect that the Integrated Fit Out Works and the Non Integrated Fit Out Works might be completed prior to the Lease Commencement Date.
68Clause 40 of the Heads of Agreement provided that Westgem and Bankwest must work together and agree, as soon as practicable, (1) the design, scope of works, and costing of the Integrated Fit Out Works, and (2) the timeframe for both the Integrated Fit Out Works and the Non Integrated Fit Out Works. The guiding principles in negotiations would be that Westgem must not seek to include any works which would reasonably and properly be regarded as Westgem's works in providing the Complex.
69It was also agreed, by cl 40, that as part of the Development Agreement, Westgem would provide a schedule of milestone dates by which time Bankwest must provide the relevant documentation in order for Westgem to design the base building and complete the Integrated Fit Out Works.[42]
[42] GB 4837.
70Also by cl 40, the Integrated Fit Out Works were to be undertaken and charged to Bankwest 'at cost', with preliminaries and a margin of the contract sum and relevant provisions to be agreed as part of the Development Agreement. It also provided that Bankwest would require the Integrated Fit Out Works to be tendered, and Bankwest would have the right to have input into the selection of subcontractors invited to tender for the specialised works.[43]
[43] GB 4838.
71In relation to the Non Integrated Fit Out Works, cl 41 of the Heads of Agreement provided that Bankwest would have the right to complete the installation of part of its fit out works on a non‑integrated basis by its own contractors.
Lease Commencement Date and term
72The Heads of Agreement provided, in effect, by cl 7, that subject to specified circumstances, the Lease Commencement Date would be the later of (1) 1 November 2009, or (2) 120 days after 'Practical Completion' and handover of the Premises for the purpose of Bankwest undertaking the Non Integrated Fit Out Works (cl 7(a)(ii)). The term was to be 12 years from the Initial Lease Commencement Date (cl 6).
Practical Completion
73By cl 47, for the purposes of the Heads of Agreement, Practical Completion was defined to mean that:
1.the Building, the agreed portions of the Complex, and the Integrated Fit Out Works were all complete except, in effect, for minor omissions and incomplete works and defects which would not prevent the Premises and other areas to be used by Bankwest from being reasonably capable of being used in accordance with the Development Agreement, and which would not prejudice the convenient use of the Premises and which would not cause any legal restriction on the use or occupation of the Premises; and
2.Westgem had obtained and provided to Bankwest all statutory certifications required under relevant authorities, codes and legislation required to occupy the Premises, and had obtained and provided to Bankwest an occupancy permit for the Premises.
74By cl 40, it was agreed that the 'full definition' of Practical Completion and milestone dates would be provided pursuant to the Development Agreement.
75By a 'sunset provision' in cl 48, if Practical Completion was delayed beyond 31 December 2010, Bankwest would have the right to terminate the Development Agreement at no penalty.[44]
[44] GB 4848.
Completion of the development
76Clause 46 provided:
Completion of the Balance of the Development
It is a fundamental condition of this Heads of Agreement (and any Development Agreement that may be entered into by the parties) that the Complex including all the buildings fronting Hay, William and Wellington Streets … and all walkways to and from the bus and train stations, all motor vehicle accessways, all parking (including public parking), retail, plaza and landscaped areas are fully developed (has achieved Practical Completion) and ready to receive tenants as at the 1st day of July 2010 and that there are no works left undone at the 31st day of December 2010. Any exceptions to this must be disclosed by [Westgem] and fully agreed by the parties as part of settling the Development Agreement. Without limitation, [Westgem] must disclose the timing by which the walkways and accessways are to be provided to the complex for full and proper access.
If any parts of the Complex are not completed prior to the 31st day of December 2010 (except any portions that the parties agree need not be completed by the 31st day of December 2010) then a fair and reasonable portion of [Bankwest's rent], Outgoings, all licence fees etc for the Premises, car parking bays etc shall abate (having regard to any loss of enjoyment of the Complex by [Bankwest]) until such time as the whole complex is completed. Any dispute as to the quantum of abatement shall be determined by an expert pursuant to Annexure C.
Notwithstanding the requirements for completion outlined above if any part of the Complex not initially constructed is subsequently constructed it must be done causing as little interference as reasonably practical to the Building or [Bankwest's] use and occupation of the Building, Premises or complex and cannot commence until [Westgem] (or its successors or assigns) demonstrates that it can complete the works in a timely manner. Once construction commences, [Westgem] must complete the construction in a timely manner.
For the avoidance of doubt nothing in the foregoing permits, and [Westgem] must not undertake or allow to be undertaken, any major new construction works to the building after the Lease Commencement Date (eg constructing additional floors) without [Bankwest's] prior approval, which [Bankwest] may withhold in its absolute discretion.
The construction and development of the Complex must be substantially in accordance with the material in Appendix 1. If it is not, [Westgem] will be deemed to be in default, and [Bankwest] will be entitled to be compensated for any loss, damage, cost or expense suffered or incurred by it as a consequence and the expert determination clause in Annexure C will apply to any dispute over that compensation. That compensation may be taken by [Bankwest] as an abatement of the money payable by it under the Development Agreement. (italics emphasis added)
Lessor's covenants
77By cl 45, Westgem agreed to keep and maintain the Complex (including finishes and appearances, as well as the structure) to an A Grade standard, and would provide and maintain the Building services and any services to the car parking area, storage area, and other similar areas over which Bankwest had rights in the Complex to a Premium Grade standard.
Mortgagee Consent
78Clause 52 provided, relevantly in effect, that the Development Agreement must be binding on any mortgagee or charge of the Land or the Complex.
Required authority approvals
79By cl 58, Westgem, at its expense, was required to use best endeavours to secure a building licence, a forward works licence, and demolition licence, to construct the Contract in accordance with the Heads of Agreement, and to keep Bankwest reasonably informed of progress.
Appendix 1 - Complex Development
80Appendix 1 to the Heads of Agreement incorporated the planning approval documents, including the Development Approval, indicating that a condition of the Development Approval was the construction of a pedestrian tunnel to the new railway station at William Street.[45]
[45] Conditions 1.2, 5; GB 4868 - 4869. See also cl 46 at [76] above.
81Appendix 1 also indicated that the development provided for the following levels:[46]
[46] GB 4874 - 4875.
1.A basement, comprising 184 public car park bays and 28 tenant car parking bays.
2.A lower car park and food court level, comprising 122 car parking bays, bicycle stores and a food hall with 24 retail/café tenancies, escalator and stair links via a tunnel to the new William Street station, and the pedestrian bridge over Wellington Street.
3.Upper car park, comprising 45 tenant car parking bays, loading docks, courier bays and bin stands.
4.Murray Street level, comprising existing hotels and café/bars, new café/bar, 19 retail/café tenancies, two office lobbies, a supermarket escalator and stair links.
5.Upper retail level, comprising larger retail tenancies, bar/café, existing hotels, escalator and stair links.
6.Podium level, being the first level of the office tower, with a terraced area and café.
7.Office tower levels 2 - 13, with floor plates of approximately 2,200 sqm.
8.Office tower levers 14 - 20, with floor plates of approximately 1,700 sqm.
9.Office tower level 21, with 1,370 sqm of office space, plus an outdoor terrace.
The Development Approval and the tunnel
82The Heads of Agreement annexed a copy of the City of Perth's recommendation for Development Approval. It recommended, in terms subsequently approved, that approval be given, subject to conditions, to commence development of a mixed-use building comprising a 21‑level office tower, three retail levels and three parking levels at Raine Square, in accordance with Town Planning Approval dated 19 December 2005 and plans received on 16 August 2006, and in accordance with the provisions of City Planning Scheme No 2 and the Metropolitan Region Scheme. The conditions for approval included that the development not exceed a specified maximum plot ratio granted to the development on the basis, amongst other things, of pedestrian facilities including an underground (tunnel) connection to the William Street railway station (cl 1.2). The tunnel would connect the Raine Square development at the corner of William, Wellington, Queen and Murray Streets with the train station to be built on the other side of William Street, facilitating foot traffic to and from Raine Square to the adjacent railway station. The attached plans included a plan showing the tunnel from the Raine Square development under William Street to the adjacent William Street station.[47]
[47] GB 4785.
83The City of Perth's recommendation for Development Approval included the following explanation with respect to the plot ratio floor area:[48]
[48] GB 4878 - 4880.
Bonus Plot Ratio:
The proposed mixed use development has 65,482m2 of plot ratio floor area on the subject site, which equates to a total plot ratio of 5.32:1. This exceeds the maximum permitted 5.0:1 plot ratio for the site by 3,912m2 of plot ratio floor area, equating to a plot ratio bonus of 6.4%.
As justification for the 6.4% bonus plot ratio being sought, the applicant proposes a range of community facilities including:-
•a public space adjacent to Murray Street;
•pedestrian facilities, including a link to the new railway station;
•conservation of listed and non-listed buildings; and
•public art.
The pedestrian tunnel, public forecourt and public art/interpretive proposals, have an estimated value in excess of $2 million.
…
Pedestrian facilities:
Raine Square presently plays a role in the city's north-south pedestrian movement system, providing a link to and from Northbridge and the bus and rail stations, with pedestrian access into and through the site available from Murray, William and Wellington Streets.
… At the lower level of the retail arcade, pedestrian access will be provided between Wellington Street (at footpath level) and the new railway station east of William Street via a below ground pedestrian tunnel.
The pedestrian tunnel will be approximately seven metres in width and include a lift, stairs and escalators due to the level difference of approximately five metres from the lower level of the retail arcade to the station concourse. … The link to the new station is expected to receive high levels of usage, with the proposed development itself potentially accommodating 2,350 employees. The design of the pedestrian link has been discussed with the New MetroRail division of the Public Transport Authority. The western wall of the station concourse has been designed with a removable panel to accommodate this strategic pedestrian link.
The pedestrian links will satisfy the Essential Criteria and many of the Performance Criteria for pedestrian facilities and together with the pedestrian tunnel to the new railway station warrants granting of some bonus plot ratio. (emphasis added)
84It also referred to pedestrian links, as follows:[49]
At the lower level of the retail arcade, pedestrian access will be provided between Wellington Street (at footpath level) and the new railway station east of William Street via a below ground pedestrian tunnel. This aspect is proposed in support of the bonus plot ratio and is supported in principle and is the subject of a separate development application. (emphasis added)
[49] GB 4885.
85As noted earlier, the formal approval in terms of the Development Approval was granted on 30 August 2006.[50]
[50] See GB 4773 - 4797.
2007 Salta Building Contract
86The 2007 Salta Building Contract was constituted by a formal instrument of agreement, general conditions of contract (GCs), with annexures that included a schedule of provisional sums and a bill of approximate quantities.
The contract sum
87The formal instrument provided that the Contract Sum (ie, lump sum) was $281,879,573. This sum included provisional sums, but excluded any additions or reductions required to be made under the contract itself (GC 2, definition of 'Contract Sum'). The sum allowed for provisional sums was $92,477,218 which included tunnel works of $4.3 million and 'Bankwest Integrated Fit Out Works' of $70 million (Annexure pt C).
Superintendent
88By GC 2, GC 24 and Annexure pt A, Saraceni Project Engineering Pty Ltd (whose sole director and employee was Mr Frank Saraceni) was appointed to act as the Superintendent under the 2007 Salta Building Contract.
Execution of work under the Contract
89By GC 3.1, Salta was required to execute and complete the 'work under the Contract'. The phrase 'Work under the Contract' was defined to mean:
The work which [Salta] is or may be required to execute under the [2007 Salta Building Contract] and includes variations, remedial work, Constructional Plant and Temporary Works.
90By GC 3.1 and GC 35.2, Salta was required to execute the work under the 2007 Salta Building Contract to Practical Completion by the Date of Practical Completion, and Westgem was required to pay Salta the lump sum adjusted by any additions or deductions made pursuant to the operation of the Contract.
Practical completion
91'Practical Completion' was defined in GC 2 as:
[T]hat stage in the execution of the work under the [2007 Salta Building] Contract when -
(a)the Works are complete except for minor omissions and minor defects -
(i)which do not prevent the Works from being reasonably capable of being used for their intended purpose; and
(ii)which the Superintendent determines [Salta] has reasonable grounds for not promptly rectifying; and
(iii)rectification of which will not prejudice the convenient use of the works; and
(b)those tests which are required by the [2007 Salta Building Contract] to be carried out and passed before the Works reach Practical Completion have been carried out and passed; and
(c)documents and other information required under the [2007 Salta Building Contract] which, in the opinion of the Superintendent, are essential for the use, operation and maintenance of the Works have been supplied.
92'Works' were defined to mean:
The whole of the work to be executed in accordance with the [2007 Salta Building Contract] including variations provided for by the [2007 Salta Building Contract], which by the [2007 Salta Building Contract] is to be handed over to [Westgem].
93By GC 35.2, Salta agreed to execute the work under the 2007 Salta Building Contract to Practical Completion by the Date for Practical Completion. By Annexure pt A, the Date for Practical Completion was defined as 'Practical Completion of the complex by 28 February 2010'.
Consolidated appeal grounds 21 - 22 and 26 - 27: unconscionable conduct
1075Grounds 21 - 22 and 26 - 27 of the consolidated appeal, so far as they survive the substantive failure of ground 1, contend that the trial judge erred in rejecting the appellants' claim that the Financiers engaged in statutory unconscionable conduct under s 12CC of the ASIC Act (as in force prior to 1 January 2011) in requiring Westgem to execute the Restated MOFA.
1076The Restated MOFA gave Westgem a number of things:
1.It enabled the Project to be constructed by Probuild rather than Salta. This was necessary for Westgem to be able to undertake the Project as the MOFA required Salta to complete the Project.
2.It increased the facility amount by $130.6 million to $446.6 million.
3.It extended the term of the facility by 12 months from 30 September 2010 under the Fifth Deed of Variation to 30 September 2011 under the Restated MOFA.
1077In return, the Restated MOFA required the provision of an additional $72.1 million in security and payment (in addition to certain increased fees and interest rates) of:
1.$23 million by 30 September 2010;
2.$27 million by 31 December 2010;
3.$33.1 million by 30 June 2011; and
4.the balance of the facility by 30 September 2011.
1078Provision of security of $72.1 million under the Restated MOFA involved converting the $50 million security provided under the 18 November 2009 Letter Agreement, as security for payment of $17 million, to a security for repayment of the whole facility. There was also a requirement for the addition of securities to make up the $72.1 million security value.
1079The Restated MOFA was executed on 22 September 2010. The first $23 million payment was due on 30 September 2010.
1080The judge found that, by 22 September 2010, the Facility Agent's officers had 'real doubts' about whether the $23 million payment would be made on 30 September 2010.[864] Ground 26 challenges this conclusion and contends that the judge ought to have found that, when they executed the Restated MOFA, the Financiers knew that Westgem would fail to pay $23 million by 30 September 2010. However, senior counsel for the appellants submitted that his unconscionability argument should be upheld irrespective of the resolution of ground 26.[865]
[864] Primary decision [934], [943], [957].
[865] Appeal ts 183 - 185.
1081In essence, the appellants' unconscionability argument, put at its highest, is as follows. The Financiers knew that $17 million of the $23 million due by 30 September 2010 was to come from the sale to Perron of Seaport's interest in a land development known as Vasse Newtown.[866] On 9 September 2010, the Financiers were informed that the sale of the Vasse Newtown interest to Perron had fallen through.[867] On 22 September 2010 (the day the Restated MOFA was signed), officers of the Financiers had already begun taking steps to gain approval for the deferral of the first $23 million payment.[868] The Financiers entered into the Restated MOFA knowing that they would never have to perform the obligations referred to at [1076] above because they knew that Westgem would default on the payment of $23 million some eight days later. The Financiers proceeded to sign the Restated MOFA with this knowledge in order to gain the $72.1 million in additional security for the facility. The unconscionability lay in making a promise which the Financiers knew they would never have to perform, because Westgem would default eight days later, in order to take the additional $72.1 million in security.[869]
[866] Primary decision [51], [865], [871].
[867] Primary decision [915].
[868] Green AB 13329, 13333.
[869] Appeal ts 186 - 189.
1082The main difficulty I have with this submission is that it looks to the position of Westgem and the Financiers when the Restated MOFA was executed without regard to how the parties contemplated, at that time, the Restated MOFA would be implemented. It also ignores the manner in which the Restated MOFA was actually implemented. The court must determine whether the Financiers engaged in conduct that was, in all the circumstances, unconscionable within the meaning of s 12CC(1) of the ASIC Act. Both parties contemplated deferral of the payment obligation at the time of execution of the Restated MOFA. Deferral of the $23 million payment obligation was a circumstance that was reasonably foreseeable at the time of the alleged contravention of s 12CC of the ASIC Act. Therefore, the court is not precluded by s 12CC(5)(a) of the ASIC Act from taking that circumstance into account.
1083In that regard, it is very significant that, as contemplated at the time of execution of the Restated MOFA, the Financiers did not enforce the obligation to pay $23 million by 30 September 2010 and extended the payment date to 31 December 2010 (when $50 million was payable). It is not suggested that the 31 December 2010 date for repayment of $50 million was unreasonable or unachievable. The sponsors had significant (between about $167 million and $202 million) net equity in other property[870] and, in Mr Pourzand's case, cash reserves.[871] Extension of the time for payment to 31 December 2010 gave Mr Saraceni and Mr Pourzand a reasonable opportunity to use those assets to generate funds which they could advance to enable Westgem to meet its payment obligations under the Restated MOFA. Significant funds (over $47 million) were actually advanced by the Financiers under the Restated MOFA between its signing and the appointment of receivers on 11 January 2011.[872] In these circumstances, it would be artificial to ignore the manner in which the Restated MOFA was implemented, consistently with the parties' expectations at the time of execution, in deciding whether it was, in all the circumstances, unconscionable for the Financiers to require Westgem to execute the Restated MOFA in order to obtain the further finance it desired.
[870] See the analysis at annexure 2 to the Appellant's Amended Response to Practice Direction 7.4 Schedule in Support of Notice of Contention in the Liquidator Appeal, esp at Liquidator Appeal White AB 258.
[871] See the analysis at annexure 3 to the Appellant's Amended Response to Practice Direction 7.4 Schedule in Support of Notice of Contention in the Liquidator Appeal, esp at Liquidator Appeal White AB 274 (and see 268 re Mr Saraceni's position).
[872] See drawdown schedule at Green AB 13844 and the amended schedule handed up by the respondents without objection at the appeal hearing (appeal ts 321 - 322).
1084Also relevant is the trial judge's unchallenged finding that the Financiers' entry into the Restated MOFA was procured by misleading or deceptive conduct by Mr Saraceni and Mr Clohessy as to the true position of the proposed Perron transaction in relation to the Vasse Newtown project and the dilution of Mr Saraceni's interest in that project.[873]
[873] Primary decision [1010] - [1011].
1085In considering whether the Financiers' conduct was unconscionable it is necessary to have regard to all the circumstances, including the parties' contemplation (which came to fruition) that the $23 million payment obligation under the Restated MOFA could be deferred. When that is done, I cannot regard the Financiers' alleged conduct in requiring Westgem to execute the Restated MOFA, in order to obtain the desired further finance, as unconscionable conduct within the meaning of s 12CC(1) of the ASIC Act. As the trial judge correctly observed:[874]
[W]hen asked by Westgem to do so, the Financiers agreed to defer the $23 million payment to 31 December 2010. Subject to the satisfaction of various conditions, they waived the default constituted by the failure to make the payment on 30 September 2010. The willingness to waive the default supports the conclusion that when the Financiers entered into the Restated MOFA they intended to provide Westgem with a real opportunity to complete the Project rather than using the Restated MOFA as a device to obtain additional security to be enforced at the first available opportunity.
[874] Primary decision [992].
1086Ground 27(d), which contends that the trial judge erred in failing to find that it was unconscionable for the Financiers to enter into the Restated MOFA, is not established. The trial judge's ultimate conclusion that the appellants had not made out their unconscionability claim in relation to the Restated MOFA was correct. Therefore, in my view, the appellants' unconscionable conduct claim must fail even if one or more of the errors alleged by grounds 21 - 22, 26 and 27 (a) - (c) were established. It is not necessary to determine those grounds, as they do not identify any material error which could affect the proper resolution of the appellants' unconscionable conduct claim in relation to the Restated MOFA.
Consolidated appeal ground 28: breach of Code of Conduct term
1087Ground 28 of the consolidated appeal contends that the trial judge erred in finding that the Financiers' entry into the Restated MOFA was not a breach of the Banking Code of Conduct term asserted by grounds 14 and 15. The failure of grounds 14 and 15 mean that ground 28 must also fail.
Consolidated appeal ground 29: error in dismissing appellants' claims
1088Ground 29 of the consolidated appeal contends that, by reason of the alleged errors the subject of grounds 1 - 28, the trial judge erred in dismissing the appellants' claims and giving judgment against them in the primary proceedings. This ground fails because grounds 1 - 28 do not identify any material error by the trial judge.
Liquidator's appeal: uncommercial transaction claims
1089The grounds of the Liquidator's appeal (CACV 102 of 2020) all, in effect, contend that the trial judge erred in failing to find that certain finance documents were not uncommercial transactions within the meaning of s 588FB of the Corporations Act 2001 (Cth) (Act). The success of these grounds turns on whether it may be expected that a reasonable person in Westgem's circumstances would not have entered into the relevant transaction having regard to the matters referred to in s 588FB(1)(a) - s 588FB(1)(d) of the Act. Those matters are:
(a)the benefits (if any) to the company of entering into the transaction; and
(b)the detriment to the company of entering into the transaction; and
(c)the respective benefits to other parties to the transaction of entering into it; and
(d)any other relevant matter.
Ground 1: the 18 November 2009 Letter Agreement
1090It may be accepted that the 18 November 2009 Letter Agreement gave very little to Westgem - essentially it was a promise to forbear from immediately exercising rights to appoint a receiver etc. In my view the proper construction of the 18 November 2009 Letter Agreement is that, subject to compliance with the terms of the agreement, the forbearance was to 31 January 2010.
1091However, there was no real detriment to Westgem in signing the 18 November 2009 Letter Agreement:
1.On the basis that Cost Overrun defaults had occurred, the acknowledgment of that fact in the letter agreement did not place Westgem in any significantly worse position than before it signed the agreement.
2.The agreement required the provision of second ranking mortgages or other 'Additional Credit Support' of at least $50 million. In my view, provision of $50 million in additional security would satisfy this requirement. A reasonable businessperson would understand the language as avoiding the need to provide security valued at precisely $50 million, allowing the obligation to be satisfied by provision of security valued at $50 million or more. However, the additional security was to be provided by third parties, not Westgem. While the resources of its sponsors may have been depleted (which could be a detriment to Westgem as those resources were no longer available to it), there is no evidence that Westgem had any use for those resources other than to support the development of its sole project, being the Raine Square development. In any event, the additional securities were to be released under par 4(4) of the 18 November 2009 Letter Agreement when the Cost Overrun defaults were remedied and no Event of Default subsisted.
3.Clause 5.1(3) of the agreement did not create an obligation to pay the $500,000 fee. Rather it made the payment of that fee a condition for the discontinuance of the Default Rate. If the fee was not paid the position that existed before entry into the 18 November 2009 Letter Agreement - application of the Default Rate - prevailed.
4.Clause 5.2 provided for the Financiers to issue a notice requiring payment of all secured money in the event that amendments to the MOFA were proposed by the Financier but not agreed. However, the existence of a Cost Overrun Event of Default meant that the Financiers had that option in any event, under cl 18.1(1) of the MOFA.
1092On balance, the transaction does not appear to me to be one into which a reasonable person in Westgem's position would not have entered, so as to constitute an uncommercial transaction as alleged in ground 1 of the Liquidator's appeal.
Ground 2: Restated MOFA
1093The effect of the Restated MOFA is referred to at [1076] - [1079] above.
1094The general effect of the Restated MOFA was to reduce the amount payable on 30 September 2010 from the outstanding balance of the facility to $23 million. The Restated MOFA increased the options for Westgem to raise funds to complete the Project (a result which everyone desired and considered to be attainable) and reduced the amount payable on 30 September 2010.
1095Taking these matters into account, I agree with the trial judge's reasons at [1227] - [1228] of the primary decision (reproduced at [716] above) for not being satisfied that the Restated MOFA was a transaction into which a reasonable person in Westgem's position would not have entered.
1096The Liquidator's principal attack on the trial judge's reasoning on appeal concerns the obligation to pay $23 million by 30 September 2010. The trial judge concluded that, when the Restated MOFA was signed on 22 September 2010, Westgem (by its guiding mind, Mr Luke Saraceni) knew that it would not be able to make the $23 million payment on 30 September 2010.[875] Mr Saraceni had raised the issue with the Financiers and been told that if there was a default in payment the bank would 'consider its position at the time'.[876]
[875] Primary decision [983] - [984].
[876] Primary decision [922] ‑ [923].
1097The Liquidator's principal contention on appeal is, in effect, that a reasonable person in Westgem's position would not have signed an agreement which required it to shortly make a payment that it knew could not be made. What a reasonable person may have done would be to tell this to the bank and seek terms on which payment was to be made at a time when it could be in a position to make the payment through sponsor asset sales (ie the end of the year).[877]
[877] Appeal ts 168 - 170, 488 - 490.
1098I am unable to accept that submission. There had been protracted negotiations as to the terms of the Restated MOFA from at least early May 2010. Westgem entered into the Probuild Building Contract on 13 September 2010, and implementation of that contract depended upon financing under the Restated MOFA. Westgem had received expressions of interest in investing in the Project from JP Morgan and Goldman Sachs on 14 - 16 September 2010. It had signed an amended lease agreement with Bankwest on 16 September 2010. In this context, a reasonable person in Westgem's position could well regard a bird in the hand as being worth two in the bush.
1099That is, rather than imperil the Project by a further series of negotiations on the terms of finance, a reasonable person might consider it better to take the terms which were on the table and hope to negotiate a deferral of the $23 million payment obligation. Westgem had reason to believe that the Financiers would be receptive to that proposal (as proved to be the case). If an extension was not ultimately forthcoming, then there would be no reason to expect that the Financiers would be prepared to vary the draft Restated MOFA to provide for later payment dates. This would mean there was no significant disadvantage in signing the Restated MOFA and then seeking deferral of payment. If Westgem signed the Restated MOFA and an extension was refused, then Westgem (as opposed to third parties who provided additional security) would be in no substantively worse position than if the Restated MOFA was not signed and the Financiers appointed receivers in September 2010.
1100Further, the benefits to the Financiers, principally the provision of additional security in the amount of $72.1 million, were proportionate to the amount of additional finance ($130.6 million) to be provided by the Financiers under the Restated MOFA.
1101For these reasons, and for the reasons explained by Murphy JA at [766] - [778] above, the trial judge was correct to hold that the Restated MOFA was not an uncommercial transaction.
Grounds 3 and 4: extension documents
1102Grounds 3 and 4 of the Liquidator's appeal contend that the 13 October 2010 Letter Agreement, and the Fourth and Fifth Deeds of Variation are uncommercial transactions.
1103These agreements merely extended time for payment and fees. I see no basis on which they could be properly regarded as uncommercial transactions as alleged in grounds 3 and 4 of the Liquidator's appeal.
1104The detriment to which the Liquidator points in signing the 13 October 2010 Letter Agreement was the payment of a $230,000 default fee.[878] However, given the scale of the financing involved, I am not persuaded that a reasonable person in the position of Westgem would regard this to be an unacceptable price to pay for the extension. The detriment to which the Liquidator points in signing the Fourth and Fifth Deeds of Variation is the acknowledgement of Events of Default.[879] Again, I am not persuaded that this acknowledgment would be regarded as an unacceptable price by a reasonable person in Westgem's position, particularly given that Westgem was actually in default by reason of their failure to pay Cost Overruns and Westgem internally recognised the Second Cost Overrun to exist.[880]
[878] Appellant's submissions in the Liquidator's appeal, par 26.
[879] Appellant's submissions in the Liquidator's appeal, par 29.
[880] As to Westgem's internal recognition of the Second Cost Overrun, see primary decision [394] - [397], [590], [602], [651].
Notices of Contention
1105As in my view none of the grounds of appeal in the consolidated appeal or the Liquidator's appeal are established, it is unnecessary to deal with the notices of contention filed in those appeals.
Orders
1106For the above reasons, I would dismiss both the consolidated appeal and the Liquidator's appeal.
FRASER AJA:
1107I have had the distinct advantage of reading the reasons of Murphy JA and Mitchell JA. I agree with the orders proposed by Murphy JA and his Honour's reasons, save only that I do not find it necessary to decide whether the first appellant was insolvent at the material times.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
RW
Associate to the Honourable Justice Murphy
4 NOVEMBER 2022
(1) This section applies if:
(a) a person is a director of a company at the time when the company incurs a debt; and
(b)the company is insolvent at that time, or becomes insolvent by incurring that debt, or by incurring at that time debts including that debt; and
(c)at that time, there are reasonable grounds for suspecting that the company is insolvent, or would so become insolvent, as the case may be[.]
…
(2) By failing to prevent the company from incurring the debt, the person contravenes this section if:
(a) the person is aware at that time that there are such grounds for so suspecting; or
(b)a reasonable person in a like position in a company in the company's circumstances would be so aware.
…
(3)A person commits an offence if:
(a) a company incurs a debt at a particular time; and
(aa) at that time, a person is a director of the company; and
(b)the company is insolvent at that time, or becomes insolvent by incurring that debt, or by incurring at that time debts including that debt; and
(c)the person suspected at the time when the company incurred the debt that the company was insolvent or would become insolvent as a result of incurring that debt or other debts (as in paragraph (1)(b)); and
(d) the person's failure to prevent the company incurring the debt was dishonest.
3
80
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