Mango Boulevard Pty Ltd v Mio Art Pty Ltd
[2013] QCA 271
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- Notable Unreported Decision
- Appeal Determined (QCA)
- Mango Boulevard Pty Ltd v Mio Art Pty Ltd[2013] QCA 271
- Add to List
Mango Boulevard Pty Ltd v Mio Art Pty Ltd[2013] QCA 271
Mango Boulevard Pty Ltd v Mio Art Pty Ltd[2013] QCA 271
SUPREME COURT OF QUEENSLAND
PARTIES: | |
FILE NO/S: | SC No 1714 of 2011 |
Court of Appeal | |
PROCEEDING: | General Civil Appeal |
ORIGINATING COURT: | |
DELIVERED ON: | 20 September 2013 |
DELIVERED AT: | Brisbane |
HEARING DATE: | 2 April 2013 |
JUDGES: | Fraser and Gotterson JJA and Peter Lyons J Separate reasons for judgment of each member of the Court, each concurring as to the orders made |
ORDERS: |
|
CATCHWORDS: | CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – INTERPRETATION OF MISCELLANEOUS CONTRACTS AND OTHER MATTERS – where the parties entered a number of contracts to give effect to a joint venture for the purchase and redevelopment of land at Mango Hill (‘the Property’) – where one of the contracts entered into, a share sale agreement (‘SSA’), provided a procedure by which a valuation of the Property could be obtained – where the valuation of the Property was to be undertaken by an independent valuer – where the SSA allowed for a party dissatisfied with the valuation to obtain an alternative valuation – where, in the event the valuation and alternative valuation were within 10 per cent of one another, the valuation would be taken to be the average of the two valuations – where the SSA provided that if the difference was more than 10 per cent, the dissatisfied party could request the parties go to mediation and then arbitration – where the parties obtained a valuation and an alternative valuation – where the first appellant alleged that the alternative valuation was not an alternative valuation for the purposes of the SSA – where, after the first respondent had commenced proceedings, it obtained a second alternative valuation – where the difference between the valuations was more than 10 per cent – where the trial judge ordered that the dispute be referred to mediation – where the respondents filed a notice of cross-appeal to the effect that, if both alternative valuations were found to be ineffective, the valuation should also be held to be ineffective – whether the valuation, alternative valuation or second alternative valuations were valuations for the purposes of the SSA – whether the dispute should be referred to mediation in accordance with the procedure in the SSA CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – IMPLIED TERMS – OTHER CASES – where the identity of the valuer who prepared the alternative valuation was not disclosed to the first appellant prior to arranging the valuation – where the second alternative valuation was obtained from the same valuer – where the trial judge found that the first alternative valuation was ineffective as the identity of the valuer was not disclosed to the first appellant – where the appellants argued that there was an implied term in the SSA requiring the identity of the valuer to be communicated prior to arranging an alternative valuation – where the trial judge found the first alternative valuation was not an alternative valuation for the purposes of the SSA because the appellants were not notified of the identity of the valuer – where the appellants contended that they also should have been notified prior to the arrangement of the second alternative valuation – where the appellants also submitted that there was an implied term that an alternative valuation be provided within a reasonable time – whether there was an implied term in the SSA that notification of the valuer should precede the arrangement of the second alternative valuation – whether there was an implied term in the SSA that an alternative valuation must be provided within a reasonable time Integrated Planning Act 1997 (Qld) Alliance Petroleum Australia NL & Ors v Australian Gas Light Company (1985) 39 SASR 84, cited Business and Professional Leasing Pty Ltd v Akuity Pty Ltd (2008) 24 BCL 405; [2008] QCA 215, cited Ellmore (Maitland) Pty Ltd v Tull (1995) 7 BPR 14,305, cited Gollin & Co Ltd v Karenlee Nominees (1983) 153 CLR 455; [1983] HCA 38, considered GR Mailman & Associates Pty Ltd v Wormald (Aust) Pty Ltd (1991) 24 NSWLR 80; [1991] NSW Conv R 59,302, considered Lahoud v Lahoud [2009] NSW Conv R 56-245; [2009] NSWSC 623, cited Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623; [1989] HCA 23, cited Legal & General Life of Australia Ltd v A Hudson Pty Ltd (1985) 1 NSWLR 314; (1985) NSW Conv R 55-237, considered Louinder v Leis (1982) 149 CLR 509; [1982] HCA 28, cited Mio Art Pty Ltd v Mango Boulevard Pty Ltd & Ors (No 2) [2012] QSC 348, related Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537; [1982] HCA 29, considered Tew v Harris (1847) 11 QB 7; (1847) 116 ER 376; [1847] Eng R 817, cited United Scientific Holdings Ltd v Burnley Borough Council [1978] AC 904; [1977] 2 WLR 806, cited Veba Oil Supply & Trading GmbH v Petrotrade Inc [2002] 1 All ER 703; [2001] EWCA Civ 1832, distinguished York Air Conditioning and Refrigeration (A/sia) Pty Ltd v The Commonwealth (1949) 80 CLR 11; [1949] HCA 23, cited |
COUNSEL: | J D McKenna QC, with A Stumer, for the appellants F M Douglas QC, with D Keane, for the first and third respondents The second respondent appeared on her own behalf |
SOLICITORS: | Minter Ellison for the appellants Delta Law for the first and third respondents The second respondent appeared on her own behalf |
[1] FRASER JA: In 2002 Neo Lido Pty Ltd as agent for Kinsella Heights Development Pty Ltd (“Kinsella Heights”) contracted to purchase land north of Brisbane at Mango Hill (“the Property”) for $22 million, with settlement due in August 2004. The second respondent, Ms Perovich, and Mr Spencer each owned 50 per cent of the shares in Kinsella Heights. By a share sale agreement (“SSA”) dated 4 July 2003, the first appellant (“Mango Boulevard” a wholly owned subsidiary of the second appellant “BMD”) contracted with Mr Spencer and Ms Perovich to acquire 50 per cent of their shares in Kinsella Heights. The shares were to be transferred to Mango Boulevard by no later than 7 July 2003. That occurred and two representatives of Mango Boulevard joined Mr Spencer and Ms Perovich on Kinsella Height’s board of directors.
[2] The SSA was one of a suite of contracts which gave effect to a joint venture for the acquisition and redevelopment of the Property between the “Neo Lido Group” and the “BMD Group”. Under those contracts, the purchase price for the Property and other costs of the venture were to be funded by the BMD Group. The advances were to be repaid as a first call on the proceeds of sales of the developed land. The BMD Group was to receive a 25 per cent profit on the costs as a second call on the proceeds of the sales, with any additional profits to be shared between the venturers. The Neo Lido Group was also to benefit by receiving some of the costs and whatever profit Mr Spencer and Ms Perovich received on the sale of their shares in Kinsella Heights. Mr Spencer held his interests in the venture as trustee. After he was bankrupted in August 2007, the first respondent (“Mio Art”) replaced him as trustee.
[3] Under clause 5 of the SSA, the share price was to be paid after the share transfer and not before the later of the settlement of the purchase of the Property or the “Effective Date” (the date upon which an anticipated preliminary development approval took effect). The price was to be determined with reference to the improved market value of the Property. This litigation is concerned with the question whether the price was determined in 2007 by reference to one valuation then obtained by the parties to the SSA, or whether the price must be determined at a mediation or, failing agreement at the mediation, by arbitration.
Background
[4] The resolution of the appeal turns upon the proper construction and application to the facts of cl 4 of the SSA. Clause 4 provides:
“4.1The purchase price of the Shares shall be calculated as the greater of:
(a)the difference between the purchase price of the Property set out in the Contract and the improved market value of the Property immediately after the Effective Date less $2,000,000.00; or
(b)$5,000,000.00;
which purchase price shall be reduced by:
(a)the total amount in respect of the Monthly Development Management Fee (excluding GST) which have been paid by the Company to the Consultant as at the Effective Date;
(b)the Bank Guarantee Fees (excluding GST).
4.2Mango Boulevard shall procure that Urbex:[1]
(a)lodge and prosecute one Development Application in respect of the whole Property, which incorporates a development plan that is appropriate so as to maximise the potential yield of the Property and profit in relation to the Project;
(b)prosecute and lodge the Development Application as expeditiously as is reasonably possible;
(c)use its best endeavours to procure that the Development Application is granted as soon as is reasonably possible, including negotiating in good faith with all referral agencies, stakeholders and interested parties (‘Interested Parties’) to reach reasonable comprises and commercial solutions to any conditions or objections raised by Interested Parties; and
(d)use its best endeavours to obtain Preliminary Approval and Development Permits in respect of the whole of the Property which are appropriate so as to maximise the potential yield and profit in relation to the Project.
4.3For the purpose of clause 4.1(a), the valuation of the Property shall be a market valuation. The parties shall consult with each other in an attempt to agree on the market value of the Property immediately after the Effective Date. If, however, the parties are unable to agree on the value of the Property within 30 days from the Effective Date, a valuation of the Property shall be carried out by a registered valuer agreed between the parties. If the parties are not able to agree on a registered valuer within 40 days after the Effective Date, any one of the parties may request the president for the time being of the Australian Property Institute to select a valuer from the panel of valuers approved by Mango Boulevard’s financiers at that time (‘Valuer’).
4.4The Valuer shall value the Property on the assumptions that:
(a)Development Permits have been issued in respect of the whole property which authorise the development of the Property on substantially similar terms to the terms of the Preliminary Approval, including substantially similar:
(i)MCU;[2]
(ii)density per hectare;
(iii)yield; and
(iv)conditions;
(b)the Project would achieve a Profit on Cost Percentage return of 25% (‘Valuation’).
4.5The cost of the Valuation shall be borne by Mango Boulevard.
4.6If any of the parties are dissatisfied with the outcome of the Valuation (‘Dissatisfied Party’), then that party may arrange an alternative valuation (‘Alternative Valuation’). The Alternative Valuation does not have to be carried out by a valuer on the panel of Mango Boulevard’s financiers, however, the Alternative Valuation shall be carried out on the basis of the same assumptions set out in clause 4.4. The cost of the Alternative Valuation shall be borne by the Dissatisfied Party.
4.7If the difference between the Valuation and the Alternative Valuation is 10% or less, the value of the Property shall be calculated as the average of the Alternative Valuation and the Valuation.
4.8If the difference between the Valuation and the Alternative Valuation is more than 10%, then the Dissatisfied Party may require that the question of the true value of the Property be submitted to mediation in accordance with clause 8.
4.9If the parties are unable to resolve the dispute through mediation within 30 days after the dispute has been referred to mediation, then the Dissatisfied Party may require that the dispute be submitted to arbitration in accordance with clause 8.”
[5] Clause 12.1 of the SSA defines various terms as follows, “except to the extent that the context otherwise requires”:
“‘Development Application’ means the application which has been prepared by the Consultant pursuant to the Contract, for Preliminary Approval under the Integrated Planning Act 1997 authorising a material change of use (‘MCU’) of the Property for residential purposes generally;
…
‘Development Permits’ means development permits issued by the Pine Rivers Shire Council pursuant to the Preliminary Approval regardless of the terms, conditions or costs attaching to those permits;
…
‘Effective Date’ means the date on which the Preliminary Approval authorising the MCU of the whole Property takes effect (as that term is used in the Integrated Planning Act 1997);
…
‘Preliminary Approval’ means MCU (Preliminary Approval) granted by the Pine Rivers Shire Council pursuant to the Development Application regardless of the terms, conditions or costs attaching to that approval;”
[6] Shortly after the SSA was signed, the parties agreed to make separate applications for preliminary development approvals for the areas to the south and the north of a rail corridor which bisected the Property. Because the northern precinct might include a shopping centre, approval for which would likely be opposed by the developer of a nearby shopping centre, it was agreed that application for approval of that precinct would be deferred. Application for approval of the southern precinct was to proceed immediately. In the result, an application for approval for the southern precinct (excluding one lot) was lodged with the Council on 19 December 2003, and the application for the northern precinct was not lodged until 27 May 2005.
[7] There was a dispute at the trial about the impact of this agreement upon the provisions for fixing the share price in the SSA. The trial judge found that:[3]
(a) The parties agreed that the Property should be valued only once and at the time when either the first or the second of the preliminary approvals was granted.
(b) The result was that Mr Spencer and Ms Perovich were entitled to elect to have the Property valued when the preliminary approval for a Material Change of Use in respect of the southern precinct was issued on 29 August 2006.
(c) They elected to have the Property valued at that time, including by their conduct in giving a notice on 31 October 2006 under cl 4.3 of the SSA to convene a meeting of the parties to agree upon the market value of the Property.
(d) The Effective Date for the purposes of the SSA became 30 January 2007 (the date of expiry of the period of any appeal by submitters against the preliminary approval for the southern precinct in a Negotiated Decision Notice issued on 19 December 2006 under s 3.5.17 of the Integrated Planning Act 1997 (Qld)).
[8] Pursuant to cl 4.3 of the SSA, the parties agreed to the appointment of Mr McEvoy of LandMark White to carry out the valuation of the Property in accordance with cl 4.4 of the SSA. Mr McEvoy was instructed to value the whole of the Property assuming an approved development for the whole Property, although the letter of instructions sent by Mango Boulevard to Mr McEvoy referred only to the preliminary approval in respect of the southern precinct. The LandMark White valuation was sent to Mr Spencer and Ms Perovich on 27 February 2007. It valued the Property as at 18 January 2007 at $12.19 million. Mr Spencer and Ms Perovich disputed its efficacy as a Valuation under cll 4.3 and 4.4. The trial judge found and declared that the LandMark White valuation was “the valuation for the purposes of cl 4.4 of the SSA”. The respondents’ notice of contention and their cross-appeal challenges that finding and declaration.
[9] After extensive communications between the parties after the LandMark White valuation was delivered, by letter dated 28 July 2009 Mio Art (which had by then succeeded to Mr Spencer’s rights) sent to Mango Boulevard what was claimed to be an Alternative Valuation under cl. 4.6, in which Mr Sergiacomi assessed the market value of the Property at $186 million. The trial judge declared that this valuation (“the first Sergiacomi valuation”) was not an “Alternative Valuation” for the purposes of the SSA. The error was that Mr Sergiacomi valued the Property as at November 2007 rather than as at the Effective Date of 30 January 2007, and that affected the amount of the valuation.[4] The trial judge also found that the valuation was not an Alternative Valuation for another reason. In breach of an implied term of the SSA that a valuation could be challenged in accordance with cll 4.6 – 4.9 only if the identity of the valuer was communicated to the other party prior to arranging the valuation, the identity of Mr Sergiacomi as the valuer was not disclosed to Mango Boulevard before Mio Art arranged the valuation.[5] The respondents’ notice of contention and cross-appeal contend that the trial judge should have found and declared that, notwithstanding the fact that the valuation “spoke as at November 2007”,[6] the first Sergiacomi valuation was an Alternative Valuation for the purposes of the SSA.
[10] After Mio Art had commenced proceedings, Mango Boulevard for the first time took the point that the first Sergiacomi valuation did not value the property as at the relevant date. In response, Mio Art instructed Mr Sergiacomi to produce a second valuation. This valuation was dated 21 June 2011 (“the alternative Sergiacomi valuation”) and assessed the value of the Property as $170 million as at the Effective Date of 30 January 2007. The trial judge declared that the alternative Sergiacomi valuation was the “Alternative Valuation” for the purposes of the SSA. It followed, and the trial judge declared, that the plaintiff was entitled to require the question of the true value of the Property to be submitted to mediation under cl 4.8 and, if not resolved through mediation within 30 days after the dispute had been referred to mediation, the plaintiff might require the dispute to be submitted to arbitration pursuant to cl 4.9. Mango Boulevard’s notice of appeal challenges both declarations, its challenge to the second of those declarations being based upon its challenge to the first.
[11] In all respects Ms Perovich adopted Mio Art’s arguments in the appeal and cross‑appeal, which in turn endorsed the trial judge’s reasons, subject only to the few exceptions which I will identify.
Notification of identity of the valuer
[12] In holding that it was an implied term of the SSA that a Valuation under cll 4.3 and 4.4 of the SSA could be challenged under cll 4.6 – 4.9 only if the identity of the valuer instructed to prepare an Alternative Valuation was communicated prior to arranging the valuation, the trial judge applied Gollin & Company Ltd v Karenlee Nominees Pty Ltd & Anor.[7] In that case a lease provided for rent to be fixed as a percentage of the mean of valuations by two valuers, one appointed by each party. The High Court (Mason, Murphy, Brennan, Deane and Dawson JJ) held that the valuations obtained by each party had not been made in accordance with the lease because neither party had notified the other of the appointment of a valuer until after receipt of the valuation. The trial judge quoted the following passages in the High Court’s reasons:
“In some cases, the appointment of a person to fill a particular role or to perform a particular task will require nothing more than communication between appointor and prospective appointee. That is not ordinarily so in a case where one party to a contract is entitled or required to appoint a third person to do something with consequences that are contractually binding upon the other party or parties. In such a case and in the absence of contrary provision in the contract, the appointment will ordinarily be effective only when the prospective appointee has been clothed with the requisite authority by being identified as the person appointed for the purposes of the contract by communication of his identity by the party entitled or required to appoint to the other party or parties.
…
That reasoning appears from the above extracts from judgments in Tew v. Harris.[8] It encompasses the following four related considerations: (i) that such an appointment involves the exercise of the contractual right to appoint which exists against the other party to the contract; (ii) that a purpose of such an appointment is that the actions of the person appointed will be binding upon that other party; (iii) that that other party is ordinarily entitled to object if the purported appointment does not comply with the requirements of the contract or is vitiated by conflict of interest on the part of the purported appointee or by fraud or corruption; and (iv) that the opportunity so to object should be available to the other party before the appointee embarks on the appointed task.
…
[I]n a situation where it is common ground that, apart from the case where an initial appointment miscarries, the clause was intended to authorize each party to appoint but one valuer as distinct from ‘shopping around’ for the lowest or highest valuation, a conclusion that a party could effectively appoint a valuer for the purposes of the clause without notifying the other party until after the valuation had been received would place the other party in a situation where he would ordinarily have no means of knowing whether the valuation produced was in fact the valuation made by the valuer appointed (i.e. the valuer first appointed) for the purposes of the clause.”[9]
[13] The trial judge rejected Mio Art’s argument that Gollin should be distinguished on the ground that the Sergiacomi valuations could not bind Mango Boulevard because, in terms of cl 4.7 of the SSA, they varied from the LandMark White valuation by more than 10 per cent. Mio Art argued that because the final value would have to exceed $22,000,000 to have any effect upon the calculation of the price (see cl 4.1), an Alternative Valuation which differed from the LandMark White value by more than 10 per cent could have no bearing upon the price. It also argued that the Sergiacomi valuations had no binding force because the ultimate determination of value would be made by agreement at mediation or by arbitration. As the trial judge reasoned, however, the Alternative Valuation could have mattered because it would have resolved the controversy as to the value, and therefore altered the share price, if it had been within 10 per cent of the LandMark White valuation, and if either of the Sergiacomi valuations is valid they will necessarily have contractually binding consequences by obliging the parties to participate in a mediation and, in the absence of an agreement at the mediation, an arbitration.[10]
[14] Mio Art argued that there was no implied term in the SSA requiring the identity of the valuer to be communicated prior to arranging an Alternative Valuation because such a term was not necessary to give business efficacy to the contract and did not go without saying. That argument is inconsistent with the conclusion in Gollin that, subject to any contrary provision in the contract, an appointment by a contracting party of a third person to do something with consequences that are contractually binding upon the other party “will ordinarily be effective only when the prospective appointee has been clothed with the requisite authority by being identified as the person appointed for the purposes of the contract by communication of his identity by the party entitled or required to appoint to the other party …”.[11] Mio Art argued that a contrary indication should be found in the contrast between the requirement for agreement upon a valuation chosen from Mango Boulevard’s financier’s panel in cl 4.3 and the absence of any similar stipulation in relation to the Alternative Valuation. In fact, the requirement for a panel valuer in cl 4.3 applies only in the case of an appointment by the President of the Australian Properties Institute. In any event, the contrast does not undermine any of the rationales for implication of the term articulated in Gollin.
[15] Accordingly, I would affirm the trial judge’s conclusion that the first Sergiacomi valuation was not an Alternative Valuation for the purposes of the SSA.
[16] The trial judge held that the position was different for the alternative Sergiacomi valuation; Mango Boulevard did not argue that Mr Spencer and Ms Perovich were required to give further notification of the identity of Mr Sergiacomi as the valuer before arranging the alternative valuation, Mango Boulevard had taken the point that the 2009 valuation did not value the Property at the relevant time, Mio Art then arranged for that error to be corrected in the alternative Sergiacomi valuation, and Mango Boulevard did not say that it was prejudiced by not receiving notification that Mr Sergiacomi was to produce another valuation.[12] The trial judge described Mango Boulevard’s argument as being that Mr Spencer and Ms Perovich’s failure to identify Mr Sergiacomi before the arrangement for his first valuation forever precluded using him as the alternative valuer; “[p]ursuant to the implied term … the failure to communicate the identity of Mr Sergiacomi prior to his engagement prevents Mio Art from relying on any valuation from Mr Sergiacomi, even a valuation obtained after Mango became aware that he had been engaged.”[13]
[17] Mango Boulevard submitted that it did argue before the trial judge that notification of the identity of the valuer was required to precede the arranging of the alternative Sergiacomi valuation, that there was no such notification, and that, applying Gollin, the alternative Sergiacomi valuation was not an Alternative Valuation for the purposes of the SSA. Mango Boulevard submitted that the argument quoted by the trial judge was its second argument at trial, which was that it was a corollary to the principle in Gollin that once Mr Spencer and Ms Perovich obtained a valuation from Mr Sergiacomi without notifying Mango Boulevard of his identity they were prohibited from obtaining a subsequent valuation from him, even if they had expressly notified Mango Boulevard of his identity after the first Sergiacomi valuation was obtained and before obtaining an alternative valuation. Mio Art disputed Mango Boulevard’s challenges to the trial judge’s description of its arguments, but Mio Art did not submit that the Court should not consider all of the arguments now articulated by Mango Boulevard. It is appropriate to consider those arguments.
[18] When the first Sergiacomi valuation was delivered, Mango Boulevard disputed its efficacy, but not on the ground that Mr Spencer and Ms Perovich had arranged that valuation without first notifying Mango Boulevard of the appointment of Mr Sergiacomi. Mango Boulevard subsequently took the point about the Effective Date and, in response to that point, Mio Art’s solicitors wrote to Mango Boulevard’s solicitors advising that Mio Art would obtain a further valuation as at the date which Mango Boulevard asserted was the Effective Date.[14] Bearing in mind that Mio Art had arranged the first valuation from Mr Sergiacomi, its solicitor’s correspondence conveyed that Mio Art would obtain the further valuation from Mr Sergiacomi. The implied term articulated in Gollin does not comprehend this situation. Acknowledging that one of the justifications for that contractual implication is to prevent one party from “shopping around” for the valuation most favourable to that party,[15] it nevertheless would be unreasonable to qualify the apparently straightforward, express terms of the SSA by a further implication that an Alternative Valuation arranged after the valuer’s identity was communicated to the other party is nonetheless ineffective if the valuer’s identity was not earlier communicated before the party arranging the Alternative Valuation arranged an earlier valuation which was found to be ineffective for an unrelated reason. The alternative Sergiacomi valuation was not ineffective on that account.
[19] That conclusion makes it unnecessary to consider Mio Art’s further argument that, if the alternative Sergiacomi valuation was ineffective on that account, that would not preclude Mio Art from arranging a further Alternative Valuation from a new valuer after first notifying Mango Boulevard of the identity of the new valuer. Another reason for not considering that argument is that it is not reflected in any claim for relief in Mio Art’s cross-appeal. Mio Art’s cross-appeal does seek an order that it is entitled to require the question of the true value of the Property to be determined in the way described in cll 4.8 and 4.9, but that reflects Mio Art’s different argument that the contractual machinery for the “tiered valuation approach”[16] had broken down and there was no justification for requiring a further valuation before the matter was referred to arbitration. Again, it is not strictly necessary to consider this argument, but I record my view that there are substantial obstacles in the way of accepting it. If a reasonable time for arranging an Alternative Valuation has not expired, it could not be said that the contractual machinery for fixing the share sale price has broken down. On the other hand, if a reasonable time for obtaining an Alternative Valuation has expired, the question whether Mio Art is precluded from obtaining a further Alternative Valuation depends upon whether it is an implied condition of the entitlement to obtain an Alternative Valuation that it must be obtained within a reasonable time. In a subsequent section of these reasons I conclude that there is no such implied condition in the SSA.
First Sergiacomi valuation as at the wrong date
[20] Although the respondents’ cross-appeal contended that the trial judge erred in determining that the first Sergiacomi valuation was not an Alternative Valuation because it spoke as at November 2007 rather than as at the Effective Date of 30 January 2007, that contention was not developed in argument. The trial judge’s reasons explain why this error is another ground for holding that the first Sergiacomi valuation was not an Alternative Valuation for the purposes of the SSA.[17]
Were the Sergiacomi valuations provided within a reasonable time?
[21] The trial judge accepted Mango Boulevard’s argument that an Alternative Valuation must be provided within a reasonable time of the Valuation, but was not persuaded that either of the Sergiacomi valuations was provided beyond a reasonable time so as to be ineffective on this account.[18] Mango Boulevard’s notice of appeal challenges the trial judge’s finding that the alternative Sergiacomi valuation was not provided beyond a reasonable time. It argued that there was no satisfactory explanation for the delay of more than four years between delivery of the LandMark White valuation in February 2007 and delivery of the alternative Sergiacomi valuation in June 2011 and that the trial judge did not point to any satisfactory explanation for that delay.
[22] The trial judge accepted that it would not be “efficacious for a dissatisfied party to have an unlimited amount of time in which to engage the process set out in cl 4.6 and subsequent provisions”,[19] and applied the “ordinary prima-facie rule … that when a contract provides for the doing of an act and there is no express provision as to time the law implies that it must be done within a reasonable time”.[20] That was not controversial in this appeal. Nor was it controversial that the determination whether a reasonable time within which to exercise a contractual right has elapsed must be made in light of the circumstances existing at the time when the right is exercised.[21] Nor did Mango Boulevard challenge the trial judge’s following elucidation of the implied term:
“… The implied limitation is in the terms of a reasonable time, which means a time which is reasonable having regard to the respective interests of the parties and their intention, insofar as it appears from the express terms of the contract, for the operation of the provisions within cl 4. It was in the interests of the parties that this process of valuation, mediation and arbitration not be interminable, but instead result in the provision of an outcome by which each side would know with certainty what it was to pay or receive. It was also important that the value be fairly and accurately assessed, because the intention of the parties was that the price should be calculated by reference to, as far as possible, the true value of the Property. Expedition in the calculation of the price was not the only consideration. Thirdly, the assessment of what constituted a reasonable time is affected not simply by the amount of time which was required to produce an alternative valuation. The implication was that the valuation would be provided within a reasonable time and not that it would be provided as soon as was practicable.”[22]
[23] Mango Boulevard did challenge the trial judge’s statements that the assessment of a reasonable time “was also to be affected by the prejudice, or lack of it, to the ‘satisfied’ party from the passage of time between the original and the alternative valuation” and that “[s]ome delay which was productive of some real prejudice would be more likely to matter in this context than the delay which had caused no prejudice.”[23] Absence of prejudice was submitted to be irrelevant because prejudice was not alleged by the respondents. That argument does not meet the trial judge’s point that absence of prejudice was relevant to the assessment of a reasonable time, which was in issue on the pleadings. It was right for the trial judge to take into account the absence of any suggestion of prejudice in the extensive, contemporaneous correspondence between the parties. The trial judge referred to the absence of any complaint by Mango Boulevard since 2009 that the first Sergiacomi valuation was provided too late, a letter dated 24 August 2009 from Mango Boulevard’s solicitors to Mio Art’s solicitors inviting Mio Art to procure an alternative valuation to be carried out on the correct basis in the context of a contention that it was ineffective, not because it was too late, but because it did not adopt the assumptions in cl 4.4 of the SSA, repetitions of that statement in subsequent correspondence, and statements in letters to Mio Art’s solicitors in October and November 2009 that Mango Boulevard would comply with the SSA and participate in a mediation “when properly invoked under the Share Sale Agreement”.[24] Another relevant consideration for the trial judge was that, whilst it was desirable that the process be pursued in a timely way finally to determine the value of the property and the purchase price, it was plain throughout that Mr Spencer and Ms Perovich were dissatisfied with the LandMark White valuation.[25] Furthermore, there were other matters in dispute between the parties and delay in obtaining the Alternative Valuation was not holding up completion of the joint venture or the winding up of dealings between the parties, so could not be regarded as being particularly pressing.[26]
[24] Mango Boulevard submitted that it was deprived of certainty as to the amount it would be required to pay for the shares, but the circumstances identified by the trial judge suggest that this was not prejudicial to it at that time. Mango Boulevard argued that the trial judge’s reference to the absence of any complaint by Mango Boulevard in 2009 that the first Sergiacomi valuation was too late was irrelevant in the absence of any pleading or argument that Mango Boulevard had waived the reasonable time requirement. It was relevant, as the trial judge considered, as evidence that Mango Boulevard did not then consider that an unreasonable time had elapsed and as evidence that the passage of time had not resulted in prejudice.[27]
[25] The trial judge found that for much of the period up until delivery of the first Sergiacomi valuation there was extensive correspondence in which Mr Spencer and Ms Perovich or their solicitors sought material said to be required for the purpose of briefing the valuer. In response to Mango Boulevard’s argument that the information was irrelevant in the exercise of producing an Alternative Valuation and was not used in the LandMark White valuation or in the Sergiacomi valuations, the trial judge observed that the question was not whether the material was useful or necessary but whether Mr Spencer and Ms Perovich unreasonably delayed by pursuing it; the trial judge considered that from their perspective the material, including material about the calculation of the area able to be developed which would likely be important in calculating the yield, may well have had the potential to be relevant and useful.[28] Mango Boulevard argued that the trial judge thereby erred by failing to take an objective view. That argument seemed to treat the trial judge’s reference to “their perspective”[29] as involving reference to a subjective state of mind. That is not what it conveys in the context of the trial judge having framed the question as being “whether the sellers unreasonably delayed in arranging an alternative valuation by pursuing [this information].”[30] That the material was not ultimately used did not require the trial judge to conclude that it was objectively not reasonable for Mr Spencer and Ms Perovich to pursue it when they did.
[26] Mango Boulevard contended that the trial judge overlooked a gap in Mr Spencer and Ms Perovich’s correspondence about the valuations between 19 March 2008 and 24 April 2009. It was not submitted that the trial judge found or implied that there was no such gap, and the trial judge made it plain, by the expression “[m]uch of the period”,[31] that the extensive correspondence did not cover the whole period between February 2007 and July 2009. Contrary to another submission made for Mango Boulevard, the trial judge also did not overlook Mango Boulevard’s notice in a letter dated 3 April 2007 that it would rely on the LandMark White valuation to determine the share price unless the sellers nominated their alternative valuer by 13 April 2007. The trial judge referred to that letter,[32] to the reply in the sellers’ letter dated 13 April 2007 that the LandMark White valuation was not effective for the purposes of cl 4.3 of SSA and that the sellers had appointed a valuer, to subsequent correspondence from Mango Boulevard which treated it as being open to the sellers to provide an alternative valuation for the purposes of the SSA, and to correspondence from the sellers calling for more information for the purpose of obtaining a valuation.[33]
[27] As to the period between delivery of the first Sergiacomi valuation and the alternative Sergiacomi valuation, the trial judge noted that the ground upon which the trial judge held the first Sergiacomi valuation to be ineffective (that it valued the Property as at the wrong date) was not taken by Mango Boulevard until it filed a defence to Mio Art’s claim on 29 March 2011. Mio Art responded to that defence by arranging the alternative Sergiacomi valuation which corrected that mistake. The trial judge accepted that Mango Boulevard’s failure to take the point earlier was not fatal to its contention that the delay was unreasonable but that it was relevant. Had the mistake been pointed out earlier the alternative Sergiacomi valuation would have been provided earlier.[34] Mango Boulevard argued that the error in the valuation date should have been obvious to the respondents, particularly when the LandMark White valuation was dated in January 2007 and, by the end of the trial, the respondents conceded that this was the correct date. There is force in Mio Art’s reply that this argument is not readily reconcilable with Mango Boulevard’s conduct in challenging the efficacy of the first Sergiacomi valuation on grounds which did not include a contention that the valuation date was not the Effective Date. It will be recalled that uncertainty about the Effective Date was introduced by the variation to the SSA to provide for separate preliminary approvals for the northern and southern precincts. Whilst it was common ground by the end of the trial that the Effective Date became 30 January 2007, that seems to have been partly a consequence of the sellers’ inability to recall conversations many years earlier which had apparently supported their contrary pleading.[35]
[28] Furthermore, that no prejudice resulted from the delay in providing the alternative Sergiacomi valuation was suggested both by the matters discussed earlier and by the fact that it differed in substance from the first Sergiacomi valuation only by the correction of the date of valuation and consequential effect on the value. As the trial judge pointed out, the first valuation informed Mango Boulevard of the substance of the valuation issues and made it plain that, once the valuation date was corrected, the Alternative Valuation would be more than 10 per cent than the LandMark White valuation, with the consequential inevitability of mediation and probably arbitration.[36]
[29] The trial judge did not err in failing to find that the alternative Sergiacomi valuation was delivered after the expiry of a reasonable time.
Consequence of the lapse of a reasonable time for delivery of an Alternative Valuation
[30] It is nevertheless appropriate to express a view upon Mio Art’s contention that the primary judge should have found that, if either Sergiacomi valuation was provided beyond a reasonable time, it remained effective as an Alternative Valuation. The trial judge discussed the authorities upon which Mio Art relied for that contention at trial (Alliance Petroleum Australia NL & Ors v Australian Gas Light Company,[37] Gollin v Karenlee,[38] and United Scientific Holdings Ltd v Burnley Borough Council)[39] but found it unnecessary to decide the question.[40]
[31] Mango Boulevard argued that the proper construction of the SSA was that the right to deliver an Alternative Valuation expired when a reasonable time elapsed after a Valuation was delivered, so that the purchase price then fell to be determined by reference to the Valuation. Reliance was placed upon Ellmore (Maitland) Pty Ltd v Tull,[41] Business & Professional Leasing v Akuity Pty Ltd,[42] York Air Conditioning and Refrigeration (A/sia) Pty Ltd v The Commonwealth,[43] and Lahoud v Lahoud.[44] The first two cases concerned contractual rights in the nature of options to purchase. They have no application in relation to the very different rights under cl 4 of the SSA.[45] York concerned a contractual right in one party to review the other party’s profit margin and require a reduction in the contract price and Lahoud concerned a contractual right to have the accounts of a business audited. Those provisions also bear little resemblance to the valuation machinery in cl 4 of the SSA.
[32] In Gollin, a lease provided for a review of the annual rental payable for the last five years of the term during a three month period immediately preceding the commencement of the fourth year of the term, the annual rental to be as agreed and failing agreement to be determined with reference to two valuations, one obtained by the lessor and one obtained by the lessee. The High Court found an implied obligation “to do whatever was necessary to give efficacy to the terms of the rent review clause when required to do so by the other party”, including an obligation to appoint a valuer within a reasonable time “of being required so to do”.[46] For present purposes, the relevant finding is that the implied obligation was not a condition of the availability of the rent review procedure or of the essence of the contract. It could not reasonably be concluded that the implied obligation of a dissatisfied party that any Alternative Valuation under cl 4.6 of the SSA must be delivered within a reasonable time was of the essence of the SSA itself. The question is whether it was a condition of the entitlement to deliver an Alternative Valuation that it be delivered within a reasonable time of the original Valuation.
[33] Mango Boulevard submitted that Gollin should be distinguished on the ground that the rent review clause in that case contained the only provision for ascertaining the rent for the relevant period, so that treating compliance with the implied obligation as a condition of the entitlement would frustrate the rent review procedure (and thus the whole contract). As the trial judge noted,[47] the High Court took that feature into account. On the other hand, in United Scientific Holdings, to which the High Court referred with approval in Gollin,[48] the House of Lords concluded that non‑compliance with expressed time limits in rent review clauses in leases in which, absent a review, the existing rent would continue, did not preclude the defaulting party from obtaining a review. That was so unless there was a contrary indication in the rent review clause. Similarly, in Alliance Petroleum, Cox J upheld the validity of the appointment of an arbitrator in an arbitration for fixing the price of gas payable under a long term gas supply contract despite the appointing party’s breach of an express term requiring the appointment to be made within a specified time, even though the arbitration might merely alter the price otherwise fixed by the contract. Cox J acknowledged that a liberal view might more readily be taken of a time provision in a clause which constituted the only avenue for fixing a price, but considered that it did not follow that time was of the essence in other cases.[49]
[34] Ultimately the question must turn upon the construction of the particular terms of the SSA. Various considerations favour the view that if the alternative Sergiacomi valuation was delivered after the expiry of a reasonable time it nonetheless constituted an Alternative Valuation for the purposes of cll 4.6 – 4.9. Clause 4 of the SSA might properly be regarded as merely a machinery provision designed to give effect to the contractual intention to fix the purchase price in accordance with the main agreement expressed in cl 4.1.[50] The SSA does not include any express requirement for the time of delivery of an Alternative Valuation and it does not expressly provide that timely delivery is a condition of the right to deliver an Alternative Valuation. [51] The uncertainty about what period amounts to a reasonable time also militates against an implication that the rights apparently conferred by cll 4.6 – 4.9 in relevantly unconditional terms are lost upon expiry of a reasonable time. It is also relevant that it is unlikely that the value to be determined under cl 4 would be affected by delay in obtaining an Alternative Valuation.[52] Nor would it be likely that relevant information for the valuers or the arbitrator would be lost with the effluxion of time. A party which sustained losses as a result of breach of the implied term would be entitled to recover damages for that loss, and the prospect that one of the parties would instead lose the potentially valuable right to have the share price arbitrated might be said to be too high a price to pay for what might be a trifling breach of the obligation to deliver the Alternative Valuation within a reasonable time.
[35] Mio Art also argued that a party concerned about the other party’s delay beyond a reasonable time would be entitled after the expiry of a reasonable time to give notice requiring the other party to arrange any Alternative Valuation within a reasonable time, in default of which the defaulting party would lose the entitlement to do so.[53] As Mango Boulevard pointed out, High Court decisions hold that a notice making time of the essence after a reasonable time has expired in some cases is necessary for the different purpose of justifying termination of a contract.[54] That accords with Halsbury’s Laws of England in the extracts cited in Alliance Petroleum. Theoretically, a similar procedure might form part of an implied term, but that seems to stretch the intention imputed to reasonable contracting parties beyond breaking point.
[36] However, as appears from Peter Lyons J’s reasons,[55] in G R Mailman & Associates Pty Ltd v Wormald (Aust) Pty Ltd[56] Gleeson CJ and Samuels J referred to the High Court’s approval in Gollin of United Scientific Holdings as requiring the conclusion that the notice procedure endorsed in the latter case was potentially applicable in the context of a contractual rent review mechanism which did not specify the consequences of a party’s failure to take a step within a specified time. The differences between such a rent review mechanism and cl 4 of the SSA are not so significant as to constitute a ground for adopting a different construction of cl 4. If that construction is adopted, any party to the SSA who is concerned by the failure of any other party to deliver an Alternative Valuation within a reasonable time is entitled to give that other party a notice making delivery of an Alternative Valuation within a reasonable time essential, in the sense of it being a condition of the right to deliver such a valuation. That construction accords sufficient weight both to the considerations in the respondents’ favour already mentioned and the considerations in favour of Mango Boulevard’s construction that it is manifestly desirable that both the seller and buyer ascertain the price to be paid for the shares without undue delay and that the loss of an entitlement to deliver an Alternative Valuation would simply leave the price to be determined with reference to the Valuation arranged in accordance with the agreed process in cl 4.3.
[37] For these reasons, and for the reasons given by Peter Lyons J which I have had the advantage of reading, I would accept Mio Art’s contention that, if the alternative Sergiacomi valuation was delivered after the expiry of a reasonable time, it nevertheless remained effective as an Alternative Valuation.
Lot yield
[38] Mango Boulevard argued that the trial judge erred in failing to find that the alternative Sergiacomi valuation was not an Alternative Valuation because it did not proceed on the assumption required by cl 4.4(a)(iii) that “[d]evelopment [p]ermits had been issued in respect of the whole Property which authorised the development of the Property on substantially similar terms to the terms of the Preliminary Approval, including substantially similar … (iii) yield …”.
[39] Lot yield is a function of the area of land able to be developed as lots for sale and the development density. The trial judge acknowledged that these were required to be derived from the preliminary approval, but considered that the manner in which the assumptions were expressed in cl 4.4(a) reflected the parties’ anticipation that the precise density and yield “would be unknowns at the time of the valuation”, that “there was no single correct figure which had to be assumed for the yield”, and that “because of the variation to the SSA to permit different applications for the southern and northern precincts, at the time of the approval of the southern precinct the likely terms of the development permits for the northern precinct were yet more difficult to predict”.[57] After discussing the terms of the preliminary approval contained within the Negotiated Decision Notice for the southern precinct and documents incorporated in it, and the assumptions made by Mr Sergiacomi for the southern precinct and also for the northern precinct (for which there was no preliminary approval to be taken into account), the trial judge found that Mango Boulevard had established only one of their many criticisms of Mr Sergiacomi’s calculation of yield, namely, the inclusion of the relatively small area of 7.98 hectares of land which was instead required for the widening of an arterial road. Otherwise Mr Sergiacomi’s figures for the relevant areas, and consequential yields, for the southern precinct were not inconsistent with the preliminary approval and nor were his assumptions for the northern precinct inconsistent with cl 4.4, its effect being “necessarily compromised when the parties agreed to seek separate approvals.”[58]
[40] The trial judge also held that if Mr Sergiacomi did make errors in calculating the relevant areas in every respect for which Mango Boulevard contended, that did not invalidate the alternative Sergiacomi valuation as an Alternative Valuation for the purposes of the SSA; “[b]ecause there was no single set of figures which were the correct ones, the parties’ agreement was to allow for the likelihood that different valuers could use different yields”.[59] The trial judge considered that this conclusion was consistent with the approach referred to by McHugh JA in Legal & General Life of Australia Ltd v AHudson Pty Ltd[60] that:
“… the parties should be taken to have agreed that a valuation or an alternative valuation under this scheme would not be made ineffective by a mistake by the valuer in the calculation of yields, including a mistake in the calculation of the areas from which those yields would be derived. Especially where the calculation of yields was necessarily imprecise, it was not the intention of the parties, upon an objective view, for the process for determining the value of the Property to be susceptible to the uncertainty which would come from challenges to the valuer's work such as the defendants now make. That is fortified by the fact that the parties agreed that if necessary, the value was to be determined finally by an arbitrator.”[61]
[41] Mango Boulevard argued that this involved an error of principle, that the trial judge “did not undertake the essential task of construing the Preliminary Approval to determine the lot yield permitted for the Property”, and that “on no sensible construction of the Preliminary Approval did it permit a lot yield as high as 3,000”[62] (the figure adopted by Mr Sergiacomi). Mango Boulevard argued that the trial judge’s approach was inconsistent with the commercial purpose of cl 4.4(a) of ensuring that any valuation would be consistent with the development which the parties proposed to undertake on the Property. The clause was intended to protect the sellers from a valuation conducted on a false basis, such as, for example that the land was unsuitable for development at all, and it was intended to protect Mango Boulevard from a valuation on the basis of a development for which no approval had been granted. Whilst acknowledging that the expression “substantially similar” allowed for some latitude in relation to the yield, Mango Boulevard submitted that if the valuer departed in a material way from the yield allowed by the preliminary approval, the valuer would not have performed the task required by the SSA and the valuation would therefore have no effect as an Alternative Valuation. Mango Boulevard also argued that the trial judge’s reasoning incorrectly assumed that it was impossible to construe the preliminary approval to determine the permitted lot yield or a range of permitted lot yields; because the preliminary approval was a legally operative administrative decision authorising a material change of use under the Integrated Planning Act 1997, the trial judge should have construed it and applied that construction in deciding whether the alternative Sergiacomi valuation was effective as an Alternative Valuation.
[42] Mango Boulevard argued that an error as to yield was closely akin to an error as to the identity of the property being valued, an error which typically results in a valuation being found to be ineffective for its intended purpose. Veba Oil Supply & Trading GmbH v Petrotrade Inc[63] was cited for the proposition that any material departure from the instructions to an expert whose determination will bind the parties to a contract which is not “trivial or de minimis in the sense of it being obvious that it could make no possible difference to either party” results in the expected termination not being binding.
[43] Mango Boulevard submitted that there was a simple way of construing the preliminary approval to determine that the yield for the southern precinct was approximately 1488 lots and that the yield for the northern precinct was 221 – 276 lots. The preliminary approval for the southern precinct approved its use for urban development “in accordance with the Mango Hill Structure Plan subject to the following Conditions …”, including the approved Plan of Development which comprised drawings including “Drawing No. S3871-SP-002 (Kinsella Heights Preliminary Approval Plan of Development)”. The legend on that plan described minimum densities and approximate area calculations for each zone in the Plan. Using those figures, the total number of dwellings envisaged by the Plan was 1488. Mango Boulevard also relied upon the similar yield of 1458 for a developable area of 86 hectares for “Precinct 3 – Kinsella Heights” (an area somewhat larger than the southern precinct) stated in Annexure 2.5 of the Mango Hill Structure Plan. Mango Boulevard also challenged the trial judge’s rejection of its argument that the areas assessed by Mr Sergiacomi invalidated his valuations because they were outside any range of areas which could have been assumed consistently with cl 4.4. In the southern precinct, Mr Sergiacomi assessed areas for the three different neighbourhoods (low, medium and high density) of 117.35 hectares, 18.66 hectares, and 6.84 hectares respectively. In the northern precinct he assessed a total area of 25 hectares, 20 hectares of low density (15 lots per hectare, same figure for the southern and northern precincts) and five hectares of high density (40 lots per hectare).
[44] The trial judge explained why those arguments did not justify a conclusion that the Sergiacomi valuations must be regarded as having departed from the assumptions expressed in cl 4.4(a). The Plan of Development gave a figure of 12 dwellings per hectare in one of the three different residential neighbourhoods, whereas the Mango Hill Structure Plan, also incorporated in the preliminary approval, referred to the same figure but also gave the different figure of 15 dwellings per hectare for that neighbourhood. The trial judge also referred to various matters which demonstrated the non-prescriptive nature and generality of these documents. Clause 1.2.2.2 of the Structure Plan provided that “Council will consider … applications for higher densities in appropriate locations”. (I note also that the notes to the Land Use Structure Plan Figure 2 explain that boundaries of the open space areas were “indicative only”, the development layout shown on the structure plan Figure 2 land use was “indicative”, and it was intended to communicate the structure plan’s “development principles”.) The measurements on the Plan of Development were expressed to be approximate. The Preliminary Approval provided, in the first condition, that the Plan of Development provides “guidance” about the “general development parameters for the site”, and more detailed plans submitted with applications for development permits were to “reflect” the Plan of Development. The Plan of Development itself includes notes that it “is indicative only and is subject to change”. Under the heading “Important notes” there are statements that “[t]he dimensions, areas and total number of lots shown hereon are subject to final field survey and also to the requirements of Council and any other authority which may have requirements under any relevant legislation” and “[t]he proposed boundaries as shown hereon are preliminary only and are subject to final design, and local authority approval”.
[45] It is therefore difficult to see that the stated “Minimum Average Net Residential Density” figures in each of the three residential neighbourhoods, the stated approximate areas in each of those neighbourhoods, or the extrapolated total of 276 residential dwellings derived from those figures, must be regarded as inflexible. By incorporating the Structure Plan, inconsistent in some respects with the Plan of Development, and by treating the figures in the latter as supplying no more than approximations giving guidance about general development parameters, the preliminary approval for the southern precinct allowed for a range of area, density and yield figures. The effect of that feature and the latitude allowed by the phrase “substantially similar” left scope for a variety of quite different views about the figures required to be used in order to comply with the assumptions in cl 4.4(a) of the SSA.
[46] One issue agitated by Mango Boulevard concerned the correctness of Mr Sergiacomi’s measurements of area. Mr Sergiacomi used areas derived from a survey plan prepared for him by a surveyor.[64] This plan was itself derived from the plan of the development, which was not scaled, and the surveyor derived the areas by his own scaling. Mango Boulevard submitted that this was not a reliable method of deriving areas. That might be so, but it is not possible to conclude that this approach was so unreasonable as to stigmatise the resulting calculations as being contrary to the assumptions stated in cl 4.4.
[47] Another issue concerned the effect of cl 1.2.2.1 of the Structure Plan, which stated that “land use and development is located and developed in accordance with the designations on Figure 2 – Land Use Plan”. Clause 1.2.2.2, referring to “Urban Residential Neighbourhoods”, stated that “average net residential density is taken to be the measure of housing density expressed as dwellings per hectare calculated by adding the area of residential lots plus the area of local roads, local-level park, open space (i.e. excluding arterial roads and Rural and Open Space designated areas) and then dividing by the number of dwellings created.” Mr Sergiacomi included an area which was depicted on the Plan of Development and the Structure Plan as both “Rural and Open Space” and as “Local Park”. The trial judge regarded the provisions as ambiguous but preferred Mr Sergiacomi’s interpretation. Mango Boulevard submitted that there was no ambiguity about the exclusion of the parks because the legend on both plans listed all of the parks under the heading “Rural and Open Space”. I would respectfully adopt the trial judge’s conclusion that there was an ambiguity. It is at least an open view that, in the stated measure of housing density in cl 1.2.2.2 of the Structure Plan, the expressions “local-level park” and “Rural and Open Space” were intended to be mutually exclusive, so that so much of the area shown on the structure plan and on the approved plan of development as being “Local Park” would not be excluded as “Rural and Open Space”. If Mango Boulevard’s contrary construction is correct, Mr Sergiacomi’s analysis nevertheless could not be regarded as being so unreasonable on that account as to preclude it from having effect as an Alternative Valuation.
[48] The trial judge accepted that the correctness of Mr Sergiacomi’s assumptions about the areas available for development in the northern precinct were “certainly questionable”, but was not prepared to accept that his assumptions were unreasonable in circumstances in which the variation to the SSA to permit separate applications, whilst requiring a valuation to be undertaken before both applications were approved, effectively left the valuer to speculate upon the likely preliminary approval for the northern precinct.[65] Mango Boulevard argued that this overlooked the only surveying evidence, that of Mr Christofis, which was that the developmental area in the northern precinct was 18.3 hectares rather than 25 hectares. Mio Art pointed out that one explanation for the difference might be found in an area of five hectares which, Mio Art submitted, could be developed at a density of 40 lots per hectare. Mango Boulevard responded that the contentious area was properly excluded because it was not identified as “developmental area” in the Structure Plan or the Local Area Plan and there was no suggestion in any of the planning instruments that the area was available for development. In circumstances in which there was no preliminary approval for the northern precinct, the Structure Plan was a policy document designed to “establish the broad structure, layout, appropriate land uses”,[66] it did not quantify the areas of the relevant neighbourhoods, and it did not unambiguously exclude the disputed area from the areas which might be developed, the points made by Mango Boulevard are insufficient to justify a conclusion that the alternative Sergiacomi valuation evidenced such a departure from the required assumptions as to disqualify it as an Alternative Valuation.
[49] It is not necessary to discuss Mango Boulevard’s other detailed criticism of the Sergiacomi valuations. In my respectful opinion the trial judge’s analysis is correct in principle. The “assumptions” referred to in subparagraphs (ii) and (iii) of paragraph (a) of cl 4.4 were not expressed as figures or formulae capable of yielding only one set of figures. The parties must be taken to have appreciated that a preliminary approval might be capable of allowing for a variety of different areas, densities, and yields, as did the preliminary approval obtained for the southern precinct. Exercises of judgment were also necessarily involved in deciding what terms of the hypothetical development permits would be “substantially similar” with the terms of the preliminary approval. The uncertainty is even more pronounced in relation to the northern precinct, in respect of which the SSA as varied did not contemplate any preliminary approval. In these circumstances, reasonable persons in the positions of the parties to the SSA would have understood cl 4.4 and thus cl 4.6, as requiring the valuer to exercise his or her judgment in deriving the area, density and yield for the hypothetical Development Permits. That construction is fortified by paragraph (b) of cl 4.4, which required the valuer to make potentially important judgments about, for example, the expenses falling within the descriptions given in the definition of “Cost”. There was no suggestion that Mr Sergiacomi’s valuations were not made honestly and impartially. Applying McHugh JA’s analysis in Legal & General Life of Australia Ltd, any mistake by Mr Sergiacomi in making judgments about area, density and yield, would not preclude his valuation from being treated as an Alternative Valuation for the purposes of cl 4 of the SSA.
[50] Assuming, without deciding, that Veba states the law applicable in Australia, it must be understood in its factual context. The relevant contractual provision specified comprehensive and precise instructions for an expert who was to determine the quantity and quality of the goods sold under the contract. Unlike the position under that contract, an Alternative Valuation, except one which was within 10 per cent of the Valuation, could have no determinative effect, the issue as to the true value being resolved at a mediation or by arbitration, and the assumptions which cl 4.4 of the SSA required the valuer to adopt required the valuer to exercise a variety of judgments.
[51] There was no error in the trial judge’s reasons for concluding that none of the errors for which Mango Boulevard contended demonstrated that the Sergiacomi valuations were ineffective upon the basis that they departed from the assumptions expressed in cl 4.4 (a).
Components of the valuation
[52] Mango Boulevard argued that the trial judge erred in rejecting its argument that the alternative Sergiacomi valuation did not adopt the assumption in cl 4.4(b) of the SSA that “the Project would achieve a Profit on Cost Percentage return of 25%…”. To understand the argument it is necessary to set out some additional definitions of terms used in the SSA:
“‘Costs’ means the aggregate of the following costs in respect of the Project:
(a)the purchase price of the Property referred to in the Contract;
(b)$5,000,000.00 in respect of the purchase price of the Shares;
(c)the costs in relation to the civil construction, internal and external to the Property;
(d)the costs relating to the provision of infrastructure to the Property including electricity, telecommunications, gas etc;
(e)Council fees and charges relating to the Property, including headworks charges;
(f)consultants fees incurred in relation to the Project;
(g)Development Management Fees;
(h)the Development Facilitation Fee;
(i)landscaping and open space betterment costs in relation to the Property;
(j)holding costs in relation to the Property, including interest, land tax and rates;
(k)advertising and marketing costs relating to the sale of the Property or any Lot, including costs in relation to the set up and maintenance of a sales office;
(l)such other costs as may be reasonably incurred in relation to the Project;
However, Costs do not include the following costs:
(a)any commissions paid in connection with the sale of the Lots;
(b)conveyancing fees and costs associated with the sale of the Lots;
(c)any costs or fees in relation to the Project which have been paid to the Management Committee, Urbex, BMD Constructions Pty Ltd, BMD Consulting Pty Ltd or any other person who is a Related Person of Mango Boulevard or BMD and which are in excess of reasonable arm’s length commercial fees;
(d)corporate costs incurred by the Consultant, the Company, Mango Boulevard, Urbex and BMD which are not Project specific costs, including overhead costs, (to be advised).
…
‘Income’ means the aggregate of the gross sale prices achieved in respect of the Property or each of the proposed Lots comprising the Property following reconfiguration for sale as residential land, less:
(a)GST paid in respect of the sale of each of the Proposed Lots (if any); and
(b)the selling commission (including GST) paid in respect of the sale of each of the Proposed Lots; and
(c)legal costs (including GST) paid by the Principal in respect of the sale of each of the Proposed Lots;
…
‘Profit’ means Income - Cost;
‘Profit on Cost Percentage’ means Profit/Cost X 100;
‘Project’ means the acquisition and development of the Property, including but not limited to the lodgement and management of the Development Application and such further applications as may be required to obtain the necessary Development Permits to develop the Property;”
Selling commissions and legal fees, purchase price of the shares; and Development Management Fees
[53] The trial judge accepted that Mr Sergiacomi included as costs selling commissions and legal fees which the definitions required to be brought into account in calculating “Income” rather than in “Costs”. The trial judge considered that this had the effect of reducing the market value:
“I accept that this was inconsistent with the SSA, which required that the valuer would achieve a ‘Profit on Cost Percentage’ of 25 per cent, with ‘Profit’ meaning ‘Income minus Cost’. These amounts totalled approximately $41 million. This had the effect of inflating the income. Of course the costs were increased by the same amounts. But overall the calculation of the market value of the land would be higher for the fact that these items were included in the calculation of costs rather than in the calculation of income because of the assumption that, in effect, costs (including the market value) would be 80 per cent of the income.”[67]
[54] The trial judge also accepted that the $5,000,000 purchase price of the shares identified in paragraph (b) of the definition of “Costs” was not included in the costs in the Sergiacomi valuations. The trial judge considered that the inclusion of that item as a cost would be illogical because the SSA required an assessment of the value to a hypothetical developer of the value of the Property with the benefit of the preliminary approval, and the $5,000,000 minimum price for the shares would not be a cost either to the hypothetical developer or to the owner of the Property, Kinsella Heights. A similar issue arose in relation to the Development Management Fees in paragraph (g) of the definition of “Costs”. Mr Sergiacomi excluded those fees from the costs. The trial judge considered that this was appropriate because the fee “was not an item of cost which would burden the hypothetical purchaser” and these fees were in any event to be deducted in calculating the purchase price of the shares, so that taking them into account in a calculation of the value would involve double counting.[68]
[55] Mango Boulevard argued that the contract unequivocally required the valuer to apply the definition of “Costs” in the SSA. It argued that this also accorded with the purpose of the valuation ascertained from the SSA and from the suite of contracts described in [2] of these reasons, particularly the following provisions:
(a) Clause 5 of the Project Management Agreement dated 24 June 2003, the effect of which was that Mango Boulevard was entitled to all Profit of the Project up to a “Profit on Cost Percentage” of 25 per cent, with 60 per cent of any additional profits going to Mango Boulevard and 40 per cent of any additional profits going to Kinsella Heights;
(b) Clause 6.1 of the Shareholders Deed dated 4 July 2003, the effect of which was that Kinsella Heights’ share of profits would be shared between Mr Spencer, Ms Perovich and Mango Boulevard in proportion to their shareholdings.
It was submitted that this context confirmed that it was irrelevant to consider whether the costs would or would not be borne by a hypothetical developer, so that the terms of the definition in the SSA should be strictly applied.
[56] A difficulty in that logic is that it would seem to require the $22,000,000 purchase price of the property, identified in (a) of the definition of “Costs”, to be included as a cost even though it was also to be deducted from the market value of the Property in calculating the purchase price of the shares. As the trial judge pointed out, Mango Boulevard’s own valuer, Mr McEvoy, considered that this was illogical:
“Mr McEvoy appeared to see the flaw in including this component. Had he done so, he would have arrived at a market value which was a negative figure. The value was to be calculated by assessing the likely income, from which the total amount of the developer's costs could then be ascertained given the assumed profit percentage. Once the total costs were ascertained, the assessed (or assumed) development costs apart from the cost of the acquisition of the land were to be subtracted from the total costs, resulting in the amount which the hypothetical developer would be prepared to pay for the purchase of the land, or in other words, the market value. Thus it is clear that this definition of ‘Costs’ was not to be applied without some qualification. Mr McEvoy included that cost of $5 million. But just as it would have been illogical to have included the $22 million component, so too was it illogical to include the $5 million component, which would not be a cost to the hypothetical developer. In turn, Mr Sergiacomi was not wrong to have excluded it.”[69]
[57] The definitions, including the definition of “Costs” upon which Mango Boulevard relied, replicated those in the Project Management Agreement and the Shareholders Deed. The definitions appear to have been apt in those contexts, but insofar as it is submitted that the definitions in the SSA inexorably required the result for which Mango Boulevard contended, it should be borne in mind both that the introductory words of the definitions required their use “except to the extent that the context otherwise requires” and that the SSA emphatically insisted upon a market valuation to determine the value of the Property, from which the purchase price of the Property, monthly Development Management Fee, and other amounts were to be deducted in determining the purchase price of the shares: see cl 4.1(a) (“improved market value”), and cl 4.3 (“… the valuation of the Property shall be a market valuation …” and the parties shall “attempt to agree on the market value of the Property”). The apparent purpose of cl 4.4(b) was to require the valuer to assume a fixed developer’s profit of 25 per cent in the acquisition and development of the Property: see the definition of “Project”. The inclusion in the costs taken into account in calculating that profit of the purchase price of the Property, the minimum purchase price of the Shares, and the Development Management Fees (an amount exceeding $2,000,000), seems illogical and inconsistent with SSA’s emphatic insistence upon a market valuation and its provision for deduction of the purchase price and monthly Development Management Fees from the improved market value of the property in the calculation of the share price under cl 4.1.
[58] I would affirm the trial judge’s conclusion that the treatment of those items in the alternative Sergiacomi valuation did not preclude it from being an Alternative Valuation under cl 4 of the SSA.
Landscaping and open space betterment costs in relation to the Property
[59] The trial judge rejected Mango Boulevard’s contention that Mr Sergiacomi did not include anything for “landscaping and open space betterment costs in relation to the Property”, finding that although nothing was included under that description the relevant costs were included within Mr Sergiacomi’s calculations as “construction costs”.[70] Mango Boulevard’s contention in the notice of appeal that this was an error[71] was not pursued in its written or oral arguments and should not be accepted.
Effect of the suggested errors
[60] In holding that the errors which Mango Boulevard contended were made in Mr Sergiacomi’s calculations would not in any event render his valuations inefficacious for the purposes of the SSA, the trial judge found that the overall effect of the errors amounted to a difference of about $15,000,000, that would result in an adjustment from Mr Sergiacomi’s first valuation of $186,495,226 to $171,708,945, and it could be safely inferred that the effect of the similar adjustments to the alternative Sergiacomi valuation “would be insignificant for the operation of cl 4 of the SSA”.[72] Mango Boulevard argued that this was wrong because the amounts which Mr Sergiacomi failed to include as costs were very substantial, the error inevitably increased the amount of the valuation in a material way, and that increase would likely influence the parties’ conduct in any mediation or arbitration. Mango Boulevard cited Veba for the proposition that Mr Sergiacomi’s material departures from the specified methodology required a conclusion that his valuation was ineffective as an Alternative Valuation.
[61] I have explained why I do not regard Veba as governing the proper construction of cl 4 of the SSA. Despite the substantial costs which were involved in the asserted errors by Mr Sergiacomi, the effect of those asserted errors was in truth insignificant in the context of cl 4. Their cumulative effect in money terms amounted to less than 10 per cent of the amount of Mr Sergiacomi’s valuations. Assuming that each asserted error was an error, the effect of the errors and the consequences of correcting them were apparent. Correction of all asserted errors could not conceivably produce an Alternative Valuation which was within 10 per cent of the Valuation. The real reason for the material difference between the amounts of the valuations lay in the difference between the amounts allowed as income from development sales (more than $560,000,000 in the case Mr Sergiacomi’s valuations as against less than $300,000,000 in the case of the LandMark White valuation).[73] Considered from an objective viewpoint, it is an unlikely construction of cl 4 that the effect of these kinds of errors was to preclude an arbitration to determine the true value of the Property.
Challenge to the LandMark White valuation
[62] The trial judge summarised the reasons for rejecting Mio Art’s challenge to the LandMark White valuation in the following passage:
“Ultimately, the plaintiff desisted in its challenge to the LandMark White valuation as being effective for the purposes of the contract. But it may be noted that this valuation was open to criticism in respect of the yields which Mr McEvoy assumed. He was instructed that the yield would be 1,731 lots across the two precincts. That assumption may be compared with the yields according to the calculations of Mr Christofis of the relevant areas, upon the assumption that the defendants are correct upon each of their arguments as to what should have been included or excluded in this respect. Upon those premises, the yield would be 1,845 (at 12 dwellings per hectare for the low density neighbourhoods) or 2,208 (at 15 dwellings per hectare in that neighbourhood). Adopting the latter figure at least, it follows that the assumption as to yields made by Mr McEvoy was not substantially similar to what was indicated by the Preliminary Approval. But for the same reason, I would not hold that Mr McEvoy’s valuation was ineffective for the purposes of the SSA.”[74]
[63] The respondents’ notice of cross-appeal challenges the trial judge’s declaration that the LandMark White valuation was the “Valuation” for the purposes of cl 4.4 of the SSA and claims instead a declaration that it was not such a “Valuation” – but only in the event that Mango Boulevard succeeds in establishing that both of Mr Sergiacomi’s valuations were ineffective.
[64] As Mio Art argued, whilst its ultimate submission at the trial was that both the LandMark White valuation and one of the Sergiacomi valuations were effective under cl 4 of the SSA, it also argued that the LandMark White valuation should be held ineffective as a Valuation if both of the Sergiacomi valuations were held to be ineffective as Alternative Valuations upon the grounds advanced by Mango Boulevard. In light of my conclusion that the trial judge was right to find that the second Sergiacomi valuation was effective as an Alternative Valuation, and having regard to my agreement with the trial judge’s compelling analysis in the passage just quoted, it seems unnecessary to embark upon a detailed discussion of the parties’ competing submissions about the efficacy of the LandMark White valuation. That analysis requires the conclusion that, if the alternative Sergiacomi valuation is not an Alternative Valuation for the purposes of cl 4.6 of the SSA because it did not adopt the assumptions required by cl 4.4(a) of the SSA, Mr McEvoy’s adoption of Mango Boulevard’s instructions about yields similarly disqualifies the LandMark White valuation as a Valuation for the purposes of cll 4.3 and 4.4.
[65] In that event, I would have favoured the making of the declaration to that effect sought in the cross-claim. I would not have favoured the making of the declaration sought in the cross-claim that the dispute should now be referred to mediation and, in default of agreement at the mediation, to arbitration. It would instead have been appropriate to remit the matter to the trial judge. That would have been appropriate because cl 4 required arbitration only in specified circumstances in which the parties had arranged both a Valuation and at least one Alternative Valuation and there were no findings upon the issue whether it was now too late for a replacement Valuation and an Alternative Valuation to be obtained.
Proposed orders
[66] Costs should follow the event, save in relation to the cross-appeal. The respondents acted reasonably in bringing the cross-appeal and I would hold that it should succeed to a significant extent if the appellants’ challenge to the alternative Sergiacomi valuation succeeds. In my opinion the following orders are appropriate:
1. Dismiss the appeal and cross-appeal.
2. The appellants are to pay the respondents’ costs of the appeal and the cross‑appeal.
[67] GOTTERSON JA: I agree with the orders proposed by Fraser JA and with the reasons given by his Honour. I agree also with the reasons of Peter Lyons J.
[68] PETER LYONS J: I have had the advantage of reading in draft the reasons of Fraser JA. I respectfully agree with his Honour’s reasons, though it seems to me that one matter calls for further consideration. I also agree with the orders proposed by his Honour. The matter which I propose to discuss further is the question whether the right to deliver an Alternative Valuation expired upon the effluxion of a reasonable time after delivery of the Valuation. Subject to what follows, I would adopt his Honour’s discussion of the facts (including the terms of the SSA), description of issues, and summary of arguments and relevant considerations. I have also adopted his Honour’s nomenclature.
[69] It is convenient to commence with the following observations about the provisions of the SSA relating to the price to be paid for the shares:
(a) The obligation to pay the price arose under cl 5.1. Its effect was to fix the price as the price calculated under cl 4.1(a), though with a minimum of $5,000,000, subject to some specified adjustments. It is convenient to refer to these as the variable price and the minimum price, respectively.
(b) The minimum price was to be paid, as the parties must have expected, within seven days of the Effective Date, which, as things turned out, was 30 January 2007. Although cl 5.1(a), together with the definition of “Completion Date”, envisaged an alternative time for payment, the parties must have seen that the Effective Date would inevitably occur later than the date of settlement of the SSA, which was to be no later than 7 July 2003. That was only three days after the date of the SSA.
(c) Any balance payable by virtue of the calculation under cl 4.1(a) was payable within two days after the determination of the purchase price pursuant to cl 4. Although cl 5.1(b) envisaged an alternative time, namely the date of settlement of the contract, the parties must have inevitably expected that in fact the variable price would be determined on a date well after the date of settlement of the SSA. That is because cl 4 required the determination of the purchase price by reference to the market value of the Property “immediately after the Effective Date”; see cl 4.3.
(d) Critically, the calculation of the purchase price under cl 4.1(a) was to be determined by reference to the market value of the Property immediately after the Effective Date. Although the clause referred to the “improved market value” of the Property, the sense in which it was “improved” is to be understood as a reference to the obtaining of development permits, rather than the construction of improvements; see cl 4.4(a). Moreover, since the Effective Date was determined by reference to a preliminary approval, which does not authorise development to occur, improvement by the carrying out of development was plainly not contemplated by the parties to have occurred by a date very shortly after the Effective Date; see the definition of “Effective Date” in cl 12.1.
(e) The Property was of substantial size – approaching 240 hectares in area. The parties intended to maximise its yield and profit; cl 4.2(a). They also envisaged a development application, and the obtaining of a preliminary approval (as well as development permits). The parties also anticipated negotiations with referral agencies and other interested parties, intended to reach reasonable compromises and commercial solutions to conditions or objections. As it happened, the Effective Date was more than three years and six months after the parties entered into the SSA. Had there been an appeal to the Planning and Environment Court, that date was likely to have been significantly later than 30 January 2007. Although these things were not known to the parties at the time when they entered into the SSA, it seems to me to be illustrative of the uncertainties, so far as the parties were concerned at the time they entered into the SSA, about when the Effective Date might occur; and the real prospect that the Effective Date would be some years after the date of the SSA.
(f) Clause 4.3 provided a means of fixing the date (30 days from the Effective Date) after which, if the parties were unable to agree on the value of the Property, the Valuation was to be carried out; and a date (40 days after the Effective Date) after which, if they were unable to agree on any valuer to carry out the valuation, one of them might request the appointment of a valuer. In each case a consequence was identified if the event did not occur within the relevant period.
(g) However, no time was specified for the carrying out of the Valuation; or for the making of the request for the appointment of a valuer; or for obtaining the valuation.
(h) No doubt after the Valuation had been carried out, and provided to the parties, either of them was given the right to arrange for an Alternative Valuation; cl 4.6. The clause, however, makes no express mention of the communication of dissatisfaction by one party to the other; or of obtaining the Alternative Valuation; or of the provision of it to the other party. Not surprisingly, it does not specify any means for determining the time by which any of these events was to occur; nor indeed a time for arranging an Alternative Valuation.
(i) No time was specified within which the party obtaining the Alternative Valuation might require the question of the value of the Property to be submitted to mediation.
(j) No time was specified within which the party obtaining the Alternative Valuation might require the dispute about the true value of the Property be submitted to arbitration.
(k) It might be said that where the SSA made no provision for determining the times for any of the matters to which I have referred, it might be implied that each must be done within a reasonable time of some earlier event, identifiable by reference to the SSA. If that be so, again no provision was made for the consequence of the failure to take any of those steps within a reasonable time. Indeed, no consequence is identified for the failure to take any step at all; for example, the failure to require the question of the value of the Property to be submitted to mediation; or if mediation is unsuccessful, the failure to require the dispute to be submitted to arbitration.
[70] It can be seen that such provision as was made for an Alternative Valuation is but one step in a relatively lengthy process for the ultimate determination of the purchase price, to be carried out a relatively long time after the parties entered into the SSA.
[71] The respondent’s submissions rely principally on three cases. The first is United Scientific Holdings Ltd v Burnley Borough Council.[75] That case dealt with two leases which included rent review clauses. One provided that the rent review process should be carried out within a stated time. The other contained a more elaborate timetable for steps to be carried out in the course of the rent review. In each case it was held that the failure to comply with time limits did not prevent the lessor from relying on the rent review clause. Three of their Lordships[76] adopted as correct the following statement from Halsbury’s Laws of England [77] in relation to contracts of all kinds:
“Time will not be considered to be of the essence unless: (1) the parties expressly stipulate that conditions as to time must be strictly complied with; or (2) the nature of the subject matter of the contract or the surrounding circumstances show that time should be considered to be of the essence; …”
[72] Their Lordships rejected an analogy with an option, which must be exercised strictly within the time provided. Lord Diplock pointed out that the determination of the new rent under the procedure did not bring into existence a fresh contractual relationship between parties, nor end one which previously existed: rather, the obligation to pay the rent determined by the review, was an obligation that the tenant undertook when entering into the lease.[78] Lord Salmon, too, focused on the fact that the tenant had undertaken to pay the revised rent, the review process merely quantifying the amount which the lessee was bound to pay; and his Lordship considered that the fact that the parties did not adhere to time limits should not deprive the lessor of the right to receive the benefit of the agreed (revised) rent.[79] Like Lord Simon of Glaisdale,[80] Lord Fraser regarded the rent review clause as a machinery provision,[81] and thus not indicating that time stipulations for the review were essential. Lord Fraser also pointed out that the review varied only one term in a continuing contract; and a term the parties had agreed from the beginning might be varied.[82]
[73] Their Lordships had dealt with the time provisions by considering whether they were “of the essence”. The argument was advanced that, in a case where the lessor is not obliged to initiate a review, there is no room for applying the equitable rule which would release a party from the consequences of failure to perform the obligation. Lord Fraser observed that the equitable rule was not limited to cases where a party had failed to perform an obligation by a stipulated time; it originated “in relieving a mortgagor from the consequence of failure to redeem his property by the stipulated date although he had no obligation to do so”; and noted that a tenant who considered himself prejudiced by the landlord’s delay in exercising the right conferred by a review clause, might give a notice prescribing a further time within which the right must be exercised, thus making time of the essence.[83]
[74] The second case relied upon by the respondents was Gollin & Co Ltd v Karenlee Nominees Pty Ltd.[84] It seems to me that its principal significance in the present case is the approval by the High Court of the decision of the House of Lords in United Scientific Holdings.[85]
[75] This case too considered a rent review clause. No time was specified for the taking of steps for a rent review, in the event the parties failed to reach agreement about it. It was held that, while the parties were under an obligation to take the relevant steps within a reasonable time after the expiry of the period within which they might agree about the rent, it was neither “a condition of the availability” of the rent review procedure, nor “of the essence of the contract” that the steps be taken within that reasonable time.[86] These conclusions were significantly influenced by the fact that, absent the review procedure, there was no mechanism for determining the rent for the final five years of the lease. The Court considered that the fact that there was “no express provision as to time” was one reason why it was “even clearer” in that case that the failure to take steps for the rent review procedure within a reasonable time, could not be said to make unavailable the rent review provision, or that the implied condition that the steps be taken within a reasonable time was of the essence of the contract.[87]
[76] It is at this point convenient to refer to GR Mailman & Associates Pty Ltd v Wormald (Aust) Pty Ltd.[88] All three members of the New South Wales Court of Appeal accepted that the law to be applied was that stated in United Scientific.[89]
[77] Gleeson CJ adopted[90] the following summary by Slade LJ of the effect of the decision in United Scientific:[91]
“(1)Where a rent review clause confers on a landlord or tenant a right for his benefit or protection, as part of the procedure for ascertaining the new rent, and that right is expressed to be exercisable within a specified time, there is a rebuttable presumption of construction that time is not intended to be of the essence in relation to any exercise of that right.
(2)In a case where the presumption applies, the other party concerned may, if he wishes to bring matters to a head after the stipulated time for the exercise of the right has expired, give to the owner of the right a notice specifying a period within which he requires the right to be exercised, if at all; the period thus specified will if it is reasonable then become of the essence of the contract …
(3)The presumption is rebuttable by sufficient ‘contraindications in the express words of the lease or in the interrelation of the rent review clause itself and other clauses or in the surrounding circumstances.’ …
(4)Though the best way of rebutting the presumption is to state expressly that stipulations as to the time by which steps provided for by the rent review clause are to be taken is to be treated as being of essence,[92] this is not the only way. Any form of expression which clearly evinces the concept of finality attached to the end of the period or periods prescribed will suffice to rebut the presumption. The parties are quite free to contract on the basis that time is to be of the essence if they so wish.”
[78] His Honour also noted that the reference to time being of the essence of the contract usually applied to stipulations as to the time for the performance of contractual obligations, rather than for the exercise of contractual rights. Nevertheless, he clearly accepted that the notice mechanism was available in respect of making time of the essence for the exercise of a contractual right, as a consequence of the decision in United Scientific.[93]
[79] Samuels JA noted[94] an apparent anomaly in the adoption of the decision in United Scientific, on the ground that in Perri v Coolangatta Investments Pty Ltd[95] it was accepted that the equitable rules concerning time stipulations (including notices to complete) had no application where the time stipulation in the contract was a non-promissory condition precedent to the existence of the contractual obligation, even where the condition precedent required an act or event to occur within a reasonable time. It might be observed that Mason and Brennan JJ who were parties to the decision in Gollin had also been members of the Court which decided Perri in the previous year. The explanation may lie in the difference in the type of clause under consideration in Perri. Fulfilment of a condition of the type considered in Perri was not something within the control of the party to the contract, to whom it was suggested a notice might be given, so that time might become essential.[96] Moreover, it may also be relevant that non-fulfilment of such a condition, either by the time stated in the contract, or within a reasonable time where that is implied, would give rise to a right to terminate the contract. The taking of a step in a rent review procedure is of a different character.
[80] Finally, GR Mailman makes clear that where the contract specifies the consequence of failing to take a step by a stated time, for example, by providing that a nominated rent becomes the rent payable under the lease if it is not disputed within the time, then the time stipulation is taken to be essential.
[81] The third case relied upon was Alliance Petroleum Australia NL v Australian Gas Light Co.[97] In it, Cox J applied the law as stated in United Scientific to an agreement for the supply of natural gas, which contained a provision for the review of the price. Failure to take steps within the time specified in the contract was held not to deprive a party of the right to invoke the review procedure. His Honour considered that the review provision was a collateral machinery provision.[98] As I read his Honour’s judgment, a significant aspect of the reasoning leading to his conclusion that time was not essential, was the application of the principles he had derived from United Scientific.[99]
[82] It seems to me that there is no material difference in character between the provisions of cl 4 of the SSA, relating to the determination of the variable price; and the provisions for the variation of the price for gas in Alliance, or the variation of rent, considered in United Scientific, as simply the sum of money payable to a landlord for the use of premises.[100] It therefore seems to me that it is appropriate to apply the law as stated in United Scientific, with the result that time is not to be considered of the essence in a case like the present one. Plainly there is no expressed stipulation to the effect that time was essential. Nether the nature of the subject matter, nor the surrounding circumstances, would suggest a contrary conclusion.
[83] If the question were looked at simply as a matter of construction of the SSA, there are, in my view a number of reasons for concluding that time was not intended to be essential. Significantly, no time was fixed by which the Alternative Valuation was to be obtained, a consideration which appeared of some influence in Gollin. The obtaining of the Alternative Valuation was but one step in a process of determining a price, at a time well after the parties entered the SSA; the process itself being one which involved a number of steps, and which might take some time to complete. For most of the steps in that process, no time was fixed. It seems to me to be quite unlikely that time was of the essence in relation to the obtaining of the Valuation, for without it no price could be determined under cl 4.1(a). It then seems a little incongruous to say that the time for obtaining the Alternative Valuation was nevertheless of the essence. The parties envisaged that the Alternative Valuation might differ from the valuation under cl 4.3 and cl 4.4 by more than ten percent, not surprisingly, given the nature of the valuation to be carried out. In light of the potential amount of money which might be involved and the fact that the procedure of obtaining an Alternative Valuation was open to any party, it seems unlikely that the parties would have intended the right to be lost if not exercised within a reasonable time. I also note that the SSA made provision for making the minimum payment towards the purchase price at a time somewhat earlier than the determination of the price under cl 4.1(a), through the mechanisms found in cll 4.3 to 4.9.
[84] A troubling consequence of this approach might be that the processes provided for in cl 4.6 and the following clauses might be left open for an indefinite period. However, that consideration applies equally to the rent review cases, and the determination of price in Alliance. If cl 4.6 is to be read as meaning that the Dissatisfied Party had an obligation, or alternatively a right, to obtain an Alternative Valuation within a reasonable time of receiving the Valuation, it seems to me that Perri would not preclude the giving of a notice making time of the essence. In any event, unreasonable delay in obtaining an Alternative Valuation, causing prejudice to other parties, would prevent the exercise of the right.[101]
[85] Accordingly, I am of the view that the implied limitation of a reasonable time, within which an Alternative Valuation might be provided under cl 4 of the SSA agreement, was not “of the essence”; so that the failure by a party to do so within a reasonable time after the Valuation is not, of itself, sufficient to prevent the operation of those parts of cl 4 which are intended to be consequential on the obtaining by one party of such a valuation. As indicated, I otherwise agree with Fraser JA.
Footnotes
[1] Urbex Pty Ltd, the development manager appointed by Mango Boulevard.
[2] A “material change of use” under the Integrated Planning Act 1997 (Qld).
[3] Mio Art Pty Ltd v Mango Boulevard Pty Ltd & Ors (No 2) [2012] QSC 348 at [62].
[4] [2012] QSC 348 at [87]-[88].
[5] [2012] QSC 348 at [93].
[6] Notice of contention, paragraph 3.
[7] (1983) 153 CLR 455.
[8] (1847) 11 QB 7 [116 ER 376].
[9] (1983) 153 CLR 455 at 470-472.
[10] [2012] QSC 348 at [91]-[92].
[11] (1983) 153 CLR 455 at 470.
[12] [2012] QSC 348 at [94].
[13] Defendants’ written submissions, para 360(a), quoted by the trial judge at [2012] QSC 348 at [95].
[14] Letter Minter Ellison to Delta Law 14 April 2011, Letter Delta Law to Minter Ellison 20 May 2011.
[15] (1983) 153 CLR 455 at 472.
[16] Respondents’ outline of argument, paragraph 68.
[17] [2012] QSC 348 at [87]-[88].
[18] [2012] QSC 348 at [99], [109], [112].
[19] [2012] QSC 348 at [99].
[20] York Air Conditioning and Refrigeration (A/sia) Pty Ltd v The Commonwealth (1949) 80 CLR 11 at62.
[21] [2012] QSC 348 at [101], citing Business and Professional Leasing Pty Ltd v Akuity Pty Ltd [2008] QCA 215 at [45].
[22] [2012] QSC 348 at [102].
[23] [2012] QSC 348 at [102].
[24] [2012] QSC 348 at [106].
[25] [2012] QSC 348 at [107].
[26] [2012] QSC 348 at [108].
[27] [2012] QSC 348 at [104].
[28] [2012] QSC 348 at [103].
[29] [2012] QSC 348 at [103].
[30] [2012] QSC 348 at [103].
[31] [2012] QSC 348 at [103].
[32] [2012] QSC 348 at [57].
[33] [2012] QSC 348 at [57]-[58], [104]-[106].
[34] [2012] QSC 348 at [110].
[35] See [2012] QSC 348 at [17], [24]-[33], [61].
[36] [2012] QSC 348 at [111].
[37] (1985) 39 SASR 84.
[38] (1983) 153 CLR 455 at 468.
[39] [1978] AC 904 referred to in Gollin v Karenlee.
[40] [2012] QSC 348 at [113]-[115].
[41] (1995) 7 BPR 14,305 at 14,307.
[42] [2008] QCA 215 at [45], [49].
[43] (1949) 80 CLR 11 at 50-51 (Latham CJ), 62-63 (Dixon J).
[44] [2009] NSWSC 623 at [394]-[395].
[45] See [1978] AC 904 at 939B, 946A, 951 and 961-962.
[46] (1983) 153 CLR 455 at 467.
[47] [2012] QSC 348 at [114]-[115].
[48] (1983) 153 CLR 455 at 468.
[49] (1985) 39 SASR 84 at 92.
[50] See (1985) 39 SASR 84 at 92.
[51] See (1983) 153 CLR 455 at 468.
[52] See [1978] AC 904 at 950.
[53] See (1985) 39 SASR 84 at 90-91, referring to Halsbury’s Laws of England 4th Ed., Vol 9, “Contract”, para 481 and its approval by three of the Law Lords in United Scientific Holdings, and the approval of para 482 in the same title by the House of Lords in Bungey Corporation, New York v Tradax Export SA, Panama [1981] 1 WLR 711.
[54] Louinder v Leis (1982) 149 CLR 509 at 512-514, 519-524, 531-536; Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623 at 637-638, 644-645, 651-653, 654.
[55] At [76]-[79].
[56] (1991) 24 NSWLR 80 at 86-88, 95.
[57] [2012] QSC 348 at [117].
[58] [2012] QSC 348 at [134].
[59] [2012] QSC 348 at [135].
[60] (1985) 1 NSWLR 314 at 335-336.
[61] [2012] QSC 348 at [136].
[62] Outline of argument for the appellants, paras 15 and 16.
[63] [2001] EWCA Civ 1832; [2002] 1 All ER 703 at [26] (Simon Brown LJ, Tuckey LJ agreeing at [39]).
[64] Cottrell Cameron & Steen Surveys drawing 9212-01A, 15/6/07: ARB 3679.
[65] [2012] QSC 348 at [133].
[66] Southeast Queensland Regional Plan, Pt F, 8.9.
[67] [2012] QSC 348 at [142].
[68] [2012] QSC 348 at [145].
[69] [2012] QSC 348 at [144].
[70] [2012] QSC 348 at [146].
[71] Notice of Appeal, ground 21.
[72] [2012] QSC 348 at [147].
[73] The relevant figures are collected in MFI 10, columns 1 and 2 (the first Sergiacomi valuation and that valuation adjusted for errors) and 4 (the LandMark White valuation).
[74] [2012] QSC 348 at [137].
[75] [1978] AC 904.
[76] Viscount Dilhorne at 937; Lord Simon of Glaisdale at 944; and Lord Fraser of Tullybelton at 958.
[77] 4th ed, vol 9, para 481.
[78] United Scientific at p 930.
[79] United Scientific at p 951, 955.
[80] United Scientific at p 946.
[81] United Scientific at p 959.
[82] United Scientific at p 961.
[83] United Scientific at p 962.
[84] (1983) 153 CLR 455.
[85] Gollin at p 468.
[86] Gollin at p 467-468.
[87] Gollin at p 468.
[88] (1991) 24 NSWLR 80.
[89] At 86 per Gleeson CJ; at 95 per Samuels JA; at 99-100 per Meagher JA.
[90] See GR Mailman at 88.
[91] See Trustees of Henry Smith’s Charity v AWADA Trading & Promotion Services Ltd (1983) 47 P & CR 607, at 619.
[92] See United Scientific Holdings Ltd v Burnley Borough Council per Lord Diplock [1978] AC at 936, and per Lord Salmon [1978] AC at 947.
[93] GR Mailman at 88.
[94] See GR Mailman at 94.
[95] (1982) 149 CLR 537, at 545-546 and 569.
[96] See Perri at p 545-546 and p 569.
[97] (1985) 39 SASR 84.
[98] Alliance at 92 and 105.
[99] See Alliance at 104 – 106.
[100] United Scientific at 935, 940, 947, 956, 963-964.
[101] See United Scientific at 951.