MJ Arthurs Pty Ltd v Portfolio Housing Pty Ltd
[2015] QCA 86
To print this judgment please return to the case and click on the PDF icon
next to the
case name. For court use, a full PDF copy is required or preferred.
Exit Distraction Free Reading Mode
Please Note: You are about to print a copy of the onscreen
version of
this judgment. For court use, a full PDF copy of the judgment is required or preferred. Please
return to
the case for PDF printing options.
- Unreported Judgment
- Appeal Determined (QCA)
- MJ Arthurs Pty Ltd v Portfolio Housing Pty Ltd[2015] QCA 86
- Add to List
MJ Arthurs Pty Ltd v Portfolio Housing Pty Ltd[2015] QCA 86
MJ Arthurs Pty Ltd v Portfolio Housing Pty Ltd[2015] QCA 86
SUPREME COURT OF QUEENSLAND
CITATION: | MJ Arthurs Pty Ltd & Anor v Portfolio Housing Pty Ltd & Anor [2015] QCA 86 |
PARTIES: | MJ ARTHURS PTY LTDACN 145 344 056 (first appellant) |
FILE NO/S: | Appeal No 7462 of 2014 SC No 1897 of 2013 |
DIVISION: | Court of Appeal |
PROCEEDING: | General Civil Appeal |
ORIGINATING COURT: | Supreme Court at Brisbane – [2014] QSC 151 |
DELIVERED ON: | 19 May 2015 |
DELIVERED AT: | Brisbane |
HEARING DATE: | 26 March 2015 |
JUDGES: | Gotterson and Philippides JJA and Ann Lyons J Separate reasons for judgment of each member of the Court, each concurring as to the orders |
ORDERS: |
(a) for further directions as to matters still in dispute between the parties; and (b) to make such further or other orders (including orders as to costs) as are deemed fit. |
APPEAL AND NEW TRIAL – APPEAL – GENERAL PRINCIPLES – INTERFERENCE WITH JUDGE'S FINDINGS OF FACT – OTHER MATTERS – where from 2005 the second appellant and second respondent had undertaken building projects together – where the second respondent would identify building project opportunities and the second appellant would undertake the building work – where after the building construction was completed, the second appellant and second respondent would share net profits equally – where routinely, a corporate vehicle and a business trust structure were used to carry out each project – where the second appellant and second respondent had a falling out in the middle of 2012 and the second appellant sent an email which, it was agreed by all parties, had the effect of terminating whatever contractual arrangements were in place between the parties and their respective entities as at that date – where the appellants claimed relief based upon the agreement for the Mackay project – where the appellants sought the following relief: a declaration that certain real property was held on trust for the first and second appellants; money judgments in stated amounts for debt or moneys had and received; an account of moneys paid to the first respondent or its bank account since 19 November 2012 by purchasers under construction contracts with the first appellant; and damages for breach of contract – where the respondents counterclaimed $2,481,541.50 being “one half of the profits earned” on some 66 construction contracts under the Mackay project which were the contracts that had been entered into by the date of termination, but had not been completed by that date – where the learned primary judge was asked to determine, irrespective of the true nature of the legal relationship between the appellants and the respondents whether the respondents’ entitlement to profit share was to be calculated only in respect of construction contracts completed as at the date of termination or upon the 65 construction contracts (excluding 1 contract) as alleged by the respondents or such other number of construction contracts the court found as having been entered into or procured on or before the date of termination – where the appellants contended that the entitlement arose in respect of any given construction contract, only when the contract had been completed and actual profit could be ascertained – where the respondents contended that their entitlement arose in respect of such a contract, when all the administration work necessary for procuring it had been completed by the second respondent – where the learned primary judge held that the respondents’ entitlement to profit share should not be calculated only in respect of construction contracts completed as at the date of termination – where the appellants filed a notice of appeal alleging some six errors of the learned primary judge in their grounds of appeal – where the sixth error alleged that the learned primary judge found that a benefit arose for the second respondent to share equally in net profits when the second respondent procured the presentation of a building contract for execution by the second appellant but the learned primary judge found that the second respondent’s obligations were fulfilled upon presentation of a construction contract for execution between a third party and the second appellant – where the appellants’ contention underpinning the sixth ground of appeal was that the finding to the effect that the acts of performance required of the second respondent were complete when such a contract was presented for execution, was not open on the evidence or the case pleaded by the respondents – where the appellants’ argument on appeal was that the appropriate finding on the evidence and on the case as pleaded was that the second respondent’s tasks and responsibilities extended beyond presentation of a construction contract for execution and to a point of attending at handover at the completion of a construction contract – where the appellant submitted that, conformably with the principle, the respondents’ entitlement to profit share did not arise until the second respondent had attended to the last of his tasks – whether the learned primary judge erred as to the time at which the respondents’ entitlement to profit share arose under an oral agreement between them and the appellants Queensland Building Services Authority Act 1991 (Qld) BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266; [1977] HCA 40, considered Koehler v Cerebos (Australia) Ltd (2005) 222 CLR 44; [2005] HCA 15, cited Westralian Farmers Ltd v Commonwealth Agricultural Service Engineers Ltd (1936) 54 CLR 361; [1936] HCA 6, considered | |
COUNSEL: | D R Cooper QC, with L D Bowden, for the appellants P W Hackett for the respondents |
SOLICITORS: | Quinn & Scattini Lawyers for the appellants Cronin Litigation Lawyers for the respondents |
[1] GOTTERSON JA: The first appellant, MJ Arthurs Pty Ltd (“M J Arthurs”), of which the second appellant, Mr Michael Arthurs, is a director, were plaintiffs in proceedings in the Supreme Court at Brisbane commenced on 27 February 2013, against the first respondent, Portfolio Housing Pty Ltd (“Portfolio”), the second respondent, Mr Shaun Davison, a director of the first respondent, and another individual as defendants. Mr Davison and his company were also plaintiffs by counterclaim in the proceedings.
[2] At its heart, this appeal is against a finding made by the learned primary judge as to the time at which the respondents’ entitlement to profit share arises under an oral agreement between them and the appellants. The litigation has arisen in the following factual setting.
Factual background
[3] Mr Arthurs and Mr Davison had, since about 2005, undertaken projects together. The essential nature of the project business was that Mr Davison would identify building project opportunities and Mr Arthurs would undertake the building work. After the building construction was completed, they would share net profits equally. Routinely, a corporate vehicle and a business trust structure was used to carry out each project. The litigation concerned the last of the projects carried out by Mr Arthurs and Mr Davison together.
[4] The learned primary judge described features of that project, its development and its ultimate termination in the following way:
“[3]The final project in which they were engaged involved the building of houses in Mackay. By that time, Mr Davison had become a ‘permanently excluded individual’ under the relevant provisions of the then Queensland Building Services Authority Act 1991. That legislation also limited the engagement which Mr Arthurs, a licensed builder, could have with Mr Davison with respect to building projects, Mr Arthurs and Mr Davison were concerned to ensure that their business dealings did not fall foul of the legislation. They took legal and accounting advice. The upshot was that the Mackay projects were conducted through the first defendant, Portfolio Housing Pty Ltd (‘Portfolio’).
[4]The Mackay project also involved an external marketer, Optima Homes Pty Ltd (‘Optima’). Optima sold ‘house and land’ packages to members of the public. Typically, Optima would require that the purchaser sign both a contract to acquire a particular block of land and a building contract with Mr Arthurs (or his company). The involvement of Optima required some modification to the way in which money was received and disbursed from the third parties for whom houses were being built. Whereas in previous projects, those third parties had paid their progress payments under their respective building contracts to Mr Arthurs (or his company, which also held a building licence), Optima required ‘control’ of the funds generated under the building contracts.
[5]Under the particular arrangement with Optima, progress payments under a building contract were not paid to Mr Arthurs, but to a specific account which was jointly controlled by Optima and Portfolio. Optima would be paid its marketing commission from that account, and the balance would be transferred into another account controlled by Portfolio. Mr Arthurs would then he paid his construction costs from that account.
[6]Construction of houses on the Mackay project commenced from the middle of 2012. Mr Arthurs and Mr Davison then had a falling out. On 19 November 2012, Mr Arthurs sent an email to Mrs Davison which, it is agreed by the parties, had the effect of terminating whatever contractual arrangements were in place between the parties (and their respective entities) as at that date.
[7]As I have mentioned, there were, as at 19 November 2012, a number of houses in the Mackay project on which construction had been completed. There was also, at that date, a number of lots in respect of which construction contracts had been signed, but work had either not commenced or had not been completed.”[1]
The claims in the litigation
[5] The appellants’ claims as plaintiff before the learned primary judge were those set out in a second amended statement of claim filed on 1 May 2014.[2] The relief claimed against the respondents as defendants was based upon the agreement for the Mackay project. It included a declaration that certain real property was held on trust, in one instance for M J Arthurs and Mr Michael Arthurs and in the other, for M J Arthurs; money judgments in stated amounts for debt or moneys had and received; an account of moneys paid to Portfolio or its bank account since 19 November 2012 by purchasers under construction contracts with M J Arthurs; and damages for breach of contract.
[6] The respondents’ claim as counterclaiming plaintiffs also arose from the agreement. The pleading before his Honour which advanced it was a third further amended defence and counterclaim filed on 29 May 2014.[3] The sum claimed was $2,481,541.50 being “one half of the profits earned” on some 66 construction contracts under the project. These were contracts which had been entered into by the date of termination, but had not been completed by that date.
The question for determination
[7] The matter was tried over five days in June 2014. By the third day of the trial, the parties had identified a single question that they wished the learned primary judge to determine. By that time, the counterclaim had been refined to be one in respect of 65 construction contracts being those listed in a schedule, exhibit 20.[4]
[8] After some refinement of the question, on the following day, 5 June 2014, his Honour made orders by consent in these terms:
“1.The trial judge determine, irrespective of the true nature of the legal relationship between the plaintiffs and the defendants whether the defendants’ entitlement to profit share calculated according to Exhibit 29 flowing from the plaintiffs’ termination of that relationship on 19 November 2012 is to be calculated:
(a)only in respect of construction contracts completed as at 19 November 2012 as alleged by the plaintiffs; or
(b)upon the 65 construction contracts in Exhibit 20 (excluding the Rasmussen contract) as alleged by the defendants or such other number of construction contracts the Court finds as having been entered into or procured on or before 19 November 2012.
2.Following the determination in paragraph 1, the trial judge appoint a Special Referee to make an enquiry to enable the Special Referee to decide what amounts if any are due to be paid by one party to the other upon the application of the agreed profit share formula (Exhibit 29) with respect to the construction contracts and the following properties:
(a)41 Peverell Street, Hillcrest;
(b)17 Parklane Crescent, Beaconsfield; and
(c)23 Parklane Crescent, Beaconsfield;
3.The costs of the Special Referee in the first instance are to be paid by the plaintiffs and defendants in equal shares.
4.The costs of the proceedings are reserved until after the taking of the account by the Special Referee.”[5]
[9] By that time, the parties had also agreed upon a profit sharing formula which was set out in exhibit 29.[6] His Honour’s answer to the question would determine whether the counterclaimants were entitled to a share of profit on any of the 65 construction contracts in exhibit 20, and, if so, on which of these contracts.
How the questions were determined at first instance
[10] The learned primary judge made appropriate reference to the principle that whilst termination discharges obligations of further performances under a contract, rights which have accrued as at termination are not lost unless the contract provides for that consequence.[7] Of particular relevance to termination of an oral executory contract which is silent as to consequences of termination, are the following observations of Dixon and Evatt JJ in Westralian Farmers Ltd v Commonwealth Agricultural Service Engineers Ltd:[8]
“… But primarily it remits the inquiry to a general consideration of what is involved in the sudden termination of an executory agreement under which liabilities are accruing from day to day. We are concerned only with a liability to pay a liquidated demand. In general the termination of an executory agreement out of the performance of which pecuniary demands may arise imports that, just as on the one side no further acts of performance can be required, so, on the other side, no liability can be brought into existence if it depends upon a further act of performance. If the title to rights consists of vestitive facts which would result from the further execution of the contract but which have not been brought about before the agreement terminates, the rights cannot arise. But if all the facts have occurred which entitle one party to such a right as a debt, a distinct chose in action which for many purposes is conceived as possessing proprietary characteristics, the fact that the right to payment is future or is contingent upon some event, not involving further performance of the contract, does not prevent it maturing into an immediately enforceable obligation.”
[11] Guided by those observations, his Honour set about determining from the evidence what the parties had agreed concerning derivation by the respondents of an entitlement to profit share. He summarised the competing contentions before him. The appellant plaintiffs contended that the entitlement arose in respect of any given construction contract, only when the contract had been completed and actual profit could be ascertained.[9] The respondent defendants, on the other hand, contended that their entitlement arose in respect of such a contract, when all the administration work necessary for procuring it had been completed by Mr Davison.[10]
[12] The learned primary judge then set out two passages from the evidence, namely:
“[14]In respect of the Mackay project, Mr Arthurs gave the following evidence:
‘Tell me this: did you have a discussion against the background that you believed you make a profit on this venture?--- Yes.
Now, did you believe, if you made a profit, it would be dealt with somehow?--- Yes.
Did you discuss how it might be dealt with?--- It would be dealt with equally.
And what did you say to him and what did he say to you about how it might be dealt with equally?--- It would be dealt with equally at the end – at the end of the project.
What do you mean at the end of the project?--- At the end of the house builds. We had – we had approximately – there were 60 to 70 contracts in Mackay.
I see?--- And that was going to be at the end of the project. If there was any profits, that would be dealt with then.
So I understand you to be saying that you discussed with him that the profit would be paid only at the end of the whole development. Is that correct?--- Yes. Yes,
And did you discuss how this project – sorry – how this profit would be calculated?--- Yes. It would become my construction costs, administration costs, any other incidentals; that would come off whatever – whatever was there. And whatever was left after that was – that was the profit and that was to be provided equally.’
[15]Under cross-examination, Mr Davison’s evidence concerning profits on the Mackay project was as follows:
‘MR COOPER: Anyway, and so when – when you and Mr Arthurs got together over a beer, and we’re talking about how this would go forward, about what you would do and what he would do, it was against the background that you both understood that notwithstanding what you agree, either of you at any time can leave?--- Correct.
Thank you. Now, I suggest to you that the two of you agreed that the profits that would be made on any house constructed in Mackay would be divided 50/50?--- Correct.
And you agreed that the profit would be calculated by taking from what you actually received for the contract price by taking from that the marketer’s fees, administration costs, professional fees and the things referred to in the formula?--- Correct.
But the administration fees did not include personal fees, did they, fees of you?--- No’.”
[13] Drawing upon that evidence, his Honour then made the following finding as to when the respondents’ entitlement to profit share arose:
“[16]Central to the position advanced by Mr Arthurs is the contention that the parties’ respective rights to receive a share in the profits only arose when the profits crystallised and were capable of calculation upon the completion of construction of a house. There was, however, no express agreement to that effect. At its highest, Mr Arthurs’ evidence was that any profits on the Mackay project would be “dealt with equally at the end of the project”. If that means, as I understand it to mean, that a distribution of any profits would occur when they were able to be calculated at the end of the project, then that makes perfect practical sense. But that does not necessarily mean that a party’s right to share in those profits only arises when those profits crystallise. It is clear enough on the evidence, and there is no real dispute about this, that Mr Davison’s obligations, which were associated with the pre-building contract dealings with third parties, were fulfilled upon the presentation of a building contract for execution between the third party and Mr Arthurs. Mr Arthurs’ obligations were then to complete construction under the building contract. On that basis, it seems to me that the proper construction of the relationship between Mr Arthurs and Mr Davison was that, upon Mr Davison fulfilling his obligations and, in effect, procuring the presentation of a building contract for execution by Mr Arthurs, there arose for the benefit of Mr Davison a right to share equally in any net profits derived from the ultimate construction of the building by Mr Arthurs. Any such rights which had accrued prior to the act of termination on 19 November 2012 were not then vitiated.
[17]It follows, therefore, that I do not accept, for the purposes of the question posed, that the defendants’ entitlement to profit share is to be calculated ‘only in respect of construction contracts completed as at 19 November 2012’.” (emphasis supplied)
[14] Having made that finding, his Honour made further findings as to whether Mr Davison had completed the necessary administration work in respect of some 13 individual construction contracts in exhibit 20. These were contracts which were dated on or after 19 November 2012.
[15] On 15 July 2014, the learned primary judge made the following orders based upon the totality of his findings:
“1.Declare for the purposes of determining the question posed in Order 1 made on 5 June 2014, that the defendants’ entitlement to profit share calculated according to Exhibit 29 flowing from the plaintiffs’ termination of the relationship between the plaintiffs and the defendants, is to be calculated upon the construction contracts listed in Exhibit 20 but excluding the construction contracts for the following properties (as described in Exhibit 20):
- 680 Warilla
- 694 Trinity
- 723 Trinity
- 724 Trinity
- 729 Trinity
- 744 Burleigh
- Lot 1 Tindaridge
- 48 Morris
- Lot 47 Rasmussen
2.Direct the parties to bring in draft orders to give effect to Order 2 made on 5 June 2014.”[11]
Further orders were made pursuant to Order 2 on 1 August 2014.[12]
The appeal and grounds of appeal
[16] On 12 August 2014, the appellants filed a notice of appeal[13] against the judgment published on 15 July 2014. Some six errors are alleged in the grounds of appeal. It is sufficient for present purposes to refer to the last of them only. It is this:
“(f)His Honour erred in finding at [16] of his reasons:-
‘On that basis, it seems to me that the proper construction of the relationship between Mr Arthurs and Mr Davison was that, upon Mr Davison fulfilling his obligations and, in effect, procuring the presentation of a building contract for execution by Mr Arthurs, there arose for the benefit of Mr Davison a right to share equally in any net profits derived from the ultimate construction of the building by Mr Arthurs. Any such rights which had accrued prior to the act of termination on 19 November 2012 were not then vitiated’.”
[17] The appellants’ challenge to this finding is centred upon the anterior finding expressed in the same paragraph of the reasons that Mr Davison’s obligations were fulfilled upon presentation of a construction contract for execution between a third party and Mr Arthurs. That finding was to the effect that the acts of performance required of Mr Davison on behalf of the respondents under the contract were complete when such a contract was presented for execution. The appellants’ contention underpinning this ground of appeal is that such a finding was not open on the evidence or the case pleaded by the respondents.
[18] Neither party challenged his Honour’s reliance upon the principle expressed in Westralian Farmers or his articulation of it. The appellant’s argument on appeal was that the appropriate finding on the evidence and on the case as pleaded was that Mr Davison’s tasks and responsibilities on behalf of the respondents extended beyond presentation of a construction contract for execution and to a point of attending at handover at the completion of a construction contract. The appellant submitted that, conformably with the principle, the respondents’ entitlement to profit share did not arise until Mr Davison had attended to the last of his tasks.
[19] At the hearing of the appeal, the respondents sought to sustain the finding at first instance as to when an entitlement to profit share arose on two alternative bases. One was that it was expressly agreed between the parties that the respondents’ entitlement to profit share arose upon entry into a construction contract with a third party.[14] The other was that the contract between the appellants and respondents contained an implied term to the effect that upon termination of it, the respondents would be entitled to a profit share on any construction contract that had been entered into before termination.[15] Both of these bases necessarily rely upon the concession in the Westralian Farmers principle that the parties to a contract may agree on terms that would confer an entitlement to payment on a party before performance by it of all acts of performance required of it under the contract.
The evidence and pleadings relied on by the appellants
[20] Both Mr Arthurs and Mr Davison gave evidence concerning their roles on behalf of the appellants and respondents respectively. In evidence-in-chief, Mr Arthurs answered questions on that topic in this way:
“All right. Now, did you and Mr Davison have a discussion about the respective roles and obligations that you’d each play in this development?---Yes.
Where did you have those discussions?---At various places. One of them was on a - remember it was on the plane back from Mackay when we first, like, had a look at all the properties up there.
Right?---And we just discussed what – what each side would do. Well, Mr Davison would – he would source, like, the time ---
Well, I just want to focus with you at the moment. Now, what did you and Mr Davison discuss about your role in this venture?---I would be building. Building site.
And in what form? In your own name or in some other name? How was that to be [indistinct]?---Well, at the time, I had – I had a company but it wasn’t – It didn’t have a BSA licence and I had a personal licence. So we were going to build – I was going to build the houses in my personal licence until such times as the – the company was licensed.
All right. And who would enter into building contracts for the construction of houses on these lots?---I would.
In your own name?---In my own name.
And what would happen when the company came along?---Well, then I – I’d start doing the contracts in the company name.
All right. And did that occur?---It did. Yeah. It did occur.
All right. Now, was your sole function that of a builder?---Yes.
All right. Now, did you discuss with Mr Davison what performance – what tasks he might [indistinct]?---Yes.
And what did you discuss with him and where?---He said that he was going to take care of the administration side of the business; both him and his wife. They were – they were to provide the preparation of the building contracts. They were to select lots --- sorry. House – houses for particular lots.
What do you mean by select houses?---We had – I had approximately six, maybe eight, house designs.
Right?---So the marketer would send the – an outline of the – the proposed lot. We would have to work out what type of – one of my houses would fit on there. So when they’d done that, we’d send it off to – well, Mr Davison would send it off to the marketer at an agreed price and then it was up to the marketer whether they accepted it or not.
Now, who communicated with the purchasers?---I thought it was Mr Davison, but it was – but it turned out to the marketer.
Who issued the progress claims?---It was supposed to be Mr Davison, but it turns it out it was – It was the marketer.
All right. And who collected the progress claims?---Both the marketer and the Davisons.
And who attended to handover and completion of construction?---It was supposed to be the Davisons, but that never occurred.
All right. Now, what happened when money was received on account of progress claims for your account – your building work? What happened to the money, physically?---The money would go from the client into a joint held account by Portfolio Housing Trust and it was controlled by Optima. And then it would go – it would be moved – my percentage of the money – sorry. It – that would move from the Portfolio Housing Trust---
Just go slowly. You say that there was – In an account controlled by Optima, what happened with the money in that account so far as Optima was concerned?---They would take their commission.
I see. And how much was their commission?---It varied. I can’t say a figure on it. It – it varied.
All right. Now, after Optima had taken the commission out of the money, what happened to the funds in those accounts?---Portfolio Housing would then move it across to another account which I had access to and then I’d pay all my payments and construction bills from that account.”[16]
“All right. Now, your role on the other hand was what we call administration; is that correct?---Correct.
And you and he discussed what you would do and one of your roles, I suggest, was selecting designs to go on specific lots?---In conjunction with Mr Arthurs, yes.
Yeah. That was one of your roles?---Yeah. Cool.
And you were to be involved in the preparation of construction contracts, if necessary?---If it necessary, yes.
And you would be the contact point with the purchasers in respect of anything about the bill?---Yes.
You would issue progress payments to the purchaser's financier, if necessary?---If necessary.
You would collect progress payments from purchasers on behalf of the builder?---Yes.
You would attend to the handover of the property on completion to the person who bought it?---Yes.
And if there were any problems after handover, such as repairs or defects or something like that, that was your job to pacify the owner and attend to the correction of those?---Correct.
Thank you very much. So there was a clear line of demarcation between what you were doing and what he was doing?---Yes.
Do you agree with that? And you had to do all the things that I put to you so you could get your 50 per cent of the profit; correct? That was what you had to do?---As part of my roles, yes.”[17] (emphasis supplied)
[22] The learned primary judge did not refer to any of this evidence given by Mr Arthurs and Mr Davison in his reasons. The evidence which he did set out at paragraphs 14 and 15 of the reasons was directed at how profit was to be calculated for each construction contract, at what point it could be calculated, and when the profit, as calculated, would be distributed. It did not relate to what each party was to do in order to derive an entitlement to a share of profit on a construction contract.
[23] The evidence of Mr Arthurs and Mr Davison was generally consistent in that the latter’s tasks and responsibilities extended beyond presentation of a construction contract for execution in that certain of them were to be carried out during the performance of the construction contract. It was also consistent with the respondents’ case as pleaded. The contract on which the counterclaim was based was designated the “Continuation Agreement”,[18] the terms of which were pleaded in paragraph 3 of the third further amended defence. Paragraph 3(ii)D listed the services to be provided on the respondents’ side as these:
“(1)preparation of construction contracts;
(2)placement of house plans on blocks in consultation with the Second Plaintiff Defendant;
(3)collection of construction draw downs from clients;
(4)to communicate with clients through the construction process including attending to the handover of houses to clients and acting as the primary contact to identify with clients the necessary post construction rectification works to be performed by the Second Plaintiff;
(5)general administration services.”[19]
No reference to this aspect of the pleadings was made by the learned primary judge.
The respondents’ submissions on appeal
[24] At the hearing of the appeal, counsel for the respondents was asked to identify the evidence which supported the express term for which he contended.[20] He read from the evidence of Mr Arthurs which is set out at paragraph 20 of these reasons, but did not refer to any other evidence. In my view, Mr Arthurs’ evidence does not support a finding that the parties discussed and agreed that the respondents’ entitlement to profit share would arise upon execution of a construction contract. Nor would it find support in the evidence of Mr Davison set out at paragraph [21] of these reasons.
[25] Faced with these difficulties in proof of an express term, the respondents resorted to the implied term to which I have referred. Such a term was to be implied, it was submitted, from the circumstance that once a construction contract was executed, there arose a prospect of profit derivation from it.
[26] In order for such a term to be implied, it would have to fulfil the criteria for implication of contractual terms enunciated in the Privy Council in BP Refinery (Westernport) Pty Ltd v Shire of Hastings,[21] and endorsed by the High Court on many occasions.[22] In my view, implication of the term suggested here encounters difficulty with three of the criteria, namely, that the implied term be reasonable and equitable; that it be necessary to give business efficacy to the contract; and that it be so obvious that it goes without saying.
[27] It is not at all obvious to me that the parties would have regarded such a term as applicable to their contract. There is no reason to suppose that they would have agreed that, at termination, the respondents would be entitled to a profit share on a construction contract then executed, notwithstanding that Mr Davison, for the respondents, had not by then performed all his tasks and responsibilities relating to it. Certainly it is not obvious that the appellants would have so agreed. As well, such a term would not seem to be equitable for the circumstance of a termination by the appellants for good cause, in which they, in all likelihood, would have had to arrange for Mr Davison’s outstanding tasks to be carried out at their own expense. Furthermore, it is by no means a term which is necessary to give business efficacy to the contract which can operate commercially without it. I therefore reject the implied term for which the respondents contend.
[28] I mention at this point that in supplementary submissions made after the hearing of the appeal, the respondents drew attention to facts to pleaded in paragraph 3(i) of the third further amended defence[23] and to evidence which supported those facts. In summary, the facts pleaded are that the parties never discussed or agreed that “payment of one half of the profit would be paid upon completion” of the construction of individual houses and that, as a matter of practice, the parties would draw from the project bank accounts on an “as needed” basis and would discuss drawings periodically “to ensure such drawings were equal”. Neither of these facts speaks to the issue of when an entitlement to profit share on a construction contract was to arise. They do not, in my view, support either the express term or the implied term for which the respondents contend.
Conclusion
[29] The finding by the learned primary judge that the respondents’ entitlement to profit share on a construction contract arose when it was presented by Mr Davison for execution is not justified in principle or on the evidence at trial. That evidence did not support an express or implied term of the contract between the appellants and the respondents to the effect that the entitlement to profit share would arise at that point. To the contrary, the evidence, supported by the respondents’ own pleading, justified a finding that, conformably with principle, the respondents, through Mr Davison, were required to perform tasks and responsibilities after presentation of a construction contract for execution and up to the point of completion of it, in order to derive such an entitlement.
[30] Since the finding that underpins the declaration made on 15 July 2014 cannot be sustained, the declaration itself cannot be sustained. It must be set aside and substituted by a declaration in conformity with the finding justified by the evidence.
Disposition
[31] The appellants have submitted a draft order containing four orders that they propose be made in the event that the appeal succeeds. The respondents have indicated that in that event, they would not oppose the first three of them. The fourth order proposes that the matter be remitted to the learned primary judge for further directions as to matters still in dispute and necessary further orders. The respondents have proposed instead an amendment to Order 1 of the orders made on 1 August 2014 which, they submit, would obviate remitting the matter. The orders made then deal in detail with the scope of work to be undertaken by a Special Referee. They are not, themselves, the subject of appeal. As well, an order as to costs of the proceedings at first instance is yet to be made by the learned primary judge. I am therefore unpersuaded that the amendment proposed would have the outcome for which the respondents contend.
Orders
[32] I would propose the following orders:
1. Appeal allowed.
2. Declare that for the purpose of determining the question posed in Order 1 made on 5 June 2014, that the Defendants’ entitlement to profit share according to Exhibit 29, flowing from the Plaintiffs’ termination of the relationship between the Plaintiffs and the Defendants, is to be calculated only in respect of construction contracts completed as at 19 November 2012.
3. The respondents pay the appellants’ costs of the appeal to be assessed.
4. Otherwise remit the matter to the learned primary judge:
(a) for further directions as to matters still in dispute between the parties; and
(b) to make such further or other orders (including orders as to costs) as are deemed fit.
[33] PHILIPPIDES JA: The appeal should be allowed. The other orders proposed by Gotterson JA should be made for the reasons set out in his Honour’s judgment with which I agree.
[34] ANN LYONS J: I agree with the reasons of Gotterson JA and the orders he proposes.
Footnotes
[1] AB348. These facts are uncontentious.
[2] AB225-246.
[3] AB292-325.
[4] AB216-217.
[5] AB326-327.
[6] AB218.
[7] Reasons [12].
[8] (1936) 54 CLR 361 at 379-380.
[9] Reasons [13](a).
[10] Reasons [13](b).
[11] AB346-347.
[12] AB356-359.
[13] AB360-363.
[14] Tr1-33 ll1-11.
[15] Tr1-40 l36 – Tr1-41 l3.
[16] AB51 Tr1-51 l31 – AB53 Tr1-53 l15.
[17] AB192 Tr4-12 l29 – AB193 Tr4-13 l13.
[18] Counterclaim paragraphs 8 and 8B; AB317.
[19] AB295-296.
[20] Tr1-33 l13.
[21] (1977) 180 CLR 266 at 283.
[22] For example, in Koehler v Cerebos (Australia) Ltd (2005) 222 CLR 44 at 57-8.
[23] AB298.