The Portland Downs Pastoral Company Pty Ltd v Bexalaw Pty Ltd (in liq)
[2009] QSC 272
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- Notable Unreported Decision
- The Portland Downs Pastoral Company Pty Ltd v Bexalaw Pty Ltd (in liq)[2009] QSC 272
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The Portland Downs Pastoral Company Pty Ltd v Bexalaw Pty Ltd (in liq)[2009] QSC 272
The Portland Downs Pastoral Company Pty Ltd v Bexalaw Pty Ltd (in liq)[2009] QSC 272
SUPREME COURT OF QUEENSLAND
CITATION: | The Portland Downs Pastoral Company P/L & Ors v Bexalaw P/L (in liq) [2009] QSC 272 |
PARTIES: | THE PORTLAND DOWNS PASTORAL COMPANY PTY LIMITED ACN 011 029 416 (first plaintiff) JULIE DOBSON (second plaintiff) SONTEL PTY LIMITED ACN 105 098 762 (third plaintiff) v BEXALAW PTY LIMITED (IN LIQ) (defendant) |
FILE NO/S: | BS 6356 of 2008 |
DIVISION: | Trial Division |
PROCEEDING: | Application |
ORIGINATING COURT: | Supreme Court at Brisbane |
DELIVERED ON: | 21 August 2009 |
DELIVERED AT: | Brisbane |
HEARING DATE: | 3 August 2009 |
JUDGE: | McMurdo J |
ORDERS: |
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CATCHWORDS: | CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – OTHER MATTERS – where parties entered into a joint venture agreement to develop land – where ‘Equity Contribution’ of the plaintiffs and defendant was in the ratio of 35% and 65% respectively – where joint venture agreement contemplated that net proceeds were to be used to repay bridging finance, construction finance and associated costs, and the balance to be retained for final distribution to plaintiffs and defendant in their respective shares – where defendant borrowed money from second and third plaintiff and entered into loan agreement – where loan agreement provided that the defendant would forego its entitlement to payment pursuant to the joint venture agreement until the plaintiffs were paid all monies due and owing to them under the joint venture agreement – where plaintiffs sought a declaration that they be paid their Equity Contribution before the defendant received any distribution – what declaration should be made regarding distribution of monies from the joint venture in the circumstances Corporations Act 2001 (Cth), s 500(2) Property Law Act 1974 (Qld), s 55 |
COUNSEL: | B D O'Donnell QC for the plaintiffs No appearance for the defendants |
SOLICITORS: | Shand Taylor Lawyers for the plaintiffs No appearance for the defendant |
- In 2003 the plaintiffs and the defendant entered into a joint venture agreement for the development of land in Gladstone. Pursuant to the joint venture, the land was purchased and 36 units were constructed. All but two of them have been sold.
- The plaintiffs seek a declaration as to how the remaining assets of the joint venture should be applied. According to the pleadings there is a dispute about that question. But on this application for summary judgment, the defendant did not appear. I am satisfied that it was duly served. It is subject to a creditors’ voluntary winding up. The plaintiff should have leave to proceed pursuant to s 500(2) of the Corporations Act 2001 because the dispute is more conveniently decided within these proceedings and the question is purely one of contractual interpretation.
- In the joint venture agreement, dated 11 August 2003, the plaintiffs were together referred to as “Portland” and the defendant as “Bexalaw”. The agreement recited that Bexalaw is the buyer of the development land which the parties have agreed to jointly develop. Under the heading “Land Acquisition and Finance Stage”, the parties agreed to contribute funds as follows. Bexalaw was to obtain bridging finance in the sum of $450,000 to be secured by a first mortgage over the land. Bexalaw was to contribute an initial amount of $442,000 to assist with the purchase of that land as part of its so-called Equity Contribution. That term was defined as follows:
“…the amount of Funding provided in cash on an unsecured basis by Bexalaw and Portland, which shall be expended on the purchase of the Development Land and other Project Expenses, but always in the ratio of 35% as to Portland and 65% as to Bexalaw, unless otherwise agreed.”
Portland was to contribute an initial amount of $638,000 to assist with the purchase of the development land as part of Portland’s Equity Contribution. Within 45 days of settlement of the purchase, and prior to the commencement of construction on the land, Bexalaw was to repay to Portland the sum of $260,000 “in order to correctly maintain the contributions of equity at 65% from Bexalaw and 35% from Portland”.
- Under the heading “Design and Construction Stages”, it was agreed that Bexalaw was to obtain construction finance to a maximum amount of $5,800,000 to be secured by a first mortgage. It was also agreed that:
“Further Equity Contributions shall be made by the Participants if necessary to advance the design and construction stages of the Project provided always that the total maximum Equity Contributions to be made by Portland to the Project shall be limited to $1,000,000.00.”
- The project expenses were to be paid from “the Funding”, which was defined to include the Equity Contributions, the bridging finance and the construction finance. It was further agreed that:
“Portland’s exposure to any and all losses arising out of the Joint Venture shall be limited to its maximum Equity Contribution.”
Bexalaw was to provide all other funding required to complete the project.
- Under the heading “Settlement Stage” it was provided that before the transfer of any lot to a purchaser, the respective interests of the participants at the conclusion of the construction of the project would be as tenants in common in those shares of 65 per cent and 35 per cent. Costs and outlays in relation to the marketing, sale and settlement of any contract were to be deducted from the net proceeds of any sales. Upon settlement of each contract of sale of a unit, the net proceeds were to be used to repay the bridging finance and construction finance and associated costs and interests as determined by Bexalaw as the manager, and following those payments the balance was to be retained for final distribution. It was agreed that if the joint venture was terminated before the settlement of one or all contracts for the sale of units, the joint venture assets were to be assessed and valued and divided, after payment of all outstanding expenses, in those respective shares. And it was agreed that at the conclusion of the joint venture, evidenced by the completion of the sale or transfer of all lots and payment of all expenses, the net profit of the joint venture was to be divided, again, in those shares.
- As the project proceeded Portland made its maximum Equity Contribution of $1 million and Bexalaw made an Equity Contribution of about $1.8 million. In early 2005, the then financier to the joint venture, Securcorp, had suspended all further advances, and it was necessary for Bexalaw to find another lender. Bexalaw then borrowed $2.1 million from the second plaintiff, the third plaintiff and Flinders Property Investment Pty Ltd, which is a company related to the first plaintiff. That loan was made under an agreement made on 23 March 2005. Clause 4 of the loan agreement provided as follows:
“The Borrower shall forego any and all of its entitlement to any monies to be paid to it pursuant to the terms of a Joint Venture Agreement entered into between it, The Portland Downs Pastoral Company Pty Ltd ACN 011 029 416, Sontel Pty Ltd as Trustee for the Sontel Discretionary Trust ACN 105 098 762 and Julie Dobson (“Portland Group”) dated the 11th day of August 2004, a copy of which is annexed hereto and marked with the letter G until the Portland Group shall have returned to them by the Borrower all monies due and owing to them pursuant to the terms of the said Joint Venture Agreement.”
- The property of the joint venture is now as follows. There are two remaining units which are expected to produce net proceeds of the order of $820,000. There are some of the proceeds of sale of a unit sold last year, amounting to $169,187, which are held in the trust account of the solicitors for the plaintiffs in accordance with an interim agreement between the parties. About $3,000 is held by Bexalaw’s liquidator. And there is said to be a cause of action against the architects for the project, worth $529,552. As to liabilities, the secured lender has been repaid in full. There are outstanding body corporate fees of about $26,000 and a GST liability upon the sale of a previous unit of about $44,000.
- The plaintiffs’ case is that by cl 4 of that loan agreement made in 2005, the defendant agreed that the plaintiff should be paid its Equity Contribution of $1 million before the defendant received any distribution from the joint venture. The defendant has repaid in full the loan made under that agreement. As this dispute has developed, the defendant has maintained, amongst other things, that cl 4 could not affect the respective entitlements under the joint venture agreement, at least once that loan was repaid. However, the loan agreement did not so provide. Whatever was the effect of cl 4, it was not expressed to be limited to a period prior to repayment of the loan.
- According to the joint venture agreement, any balance remaining after payment of creditors was to be distributed to Portland and Bexalaw in the respective shares of 35 per cent and 65 per cent. Their Equity Contributions were not to be repaid, except insofar as they would be effectively within the surplus funds to be so distributed. On its face, cl 4 of the loan agreement would have Bexalaw forgoing its 65 per cent until Portland had been paid its 35 per cent. But that would be pointless, because the respective entitlements could not be quantified until the point in time when all costs and expenses had been paid, and it would not then advantage Portland to receive its share prior to the payment of Bexalaw’s share.
- The words “…shall have returned to them…” suggest a repayment, rather than a payment, to Portland and thereby suggest a reference to the Equity Contribution. An agreement that Portland should get its money back before Bexalaw received anything would serve some purpose, and might well have been intended in circumstances where Bexalaw was keen to obtain necessary funds and they were being advanced by, in effect, the other joint venturers. Clause 4 might suggest a misunderstanding of the effect of the joint venture agreement. Nevertheless that would not affect an agreement for a repayment to Portland of its Equity Contribution if that is how cl 4 should be interpreted. There is no third alternative interpretation. The clause should be interpreted either as Portland argues or in a way which, as I have said, would be pointless. I am persuaded to accept Portland’s interpretation, at least in so far as that would provide for Portland’s Equity Contribution to be repaid in full prior to any payment to Bexalaw.
- A further question, which may or may not be relevant depending upon the available funds, is what is the proper distribution of the funds after repayment of Portland’s Equity Contribution. It was submitted for Portland that those funds would be distributed in the respective shares of 35 and 65 per cent. The alternative interpretation is that after payment to Portland of its Equity Contribution, the funds would be used towards repayment of Bexalaw’s Equity Contribution. In my view that alternative is the preferable interpretation. It is more consistent with the agreed apportionment within the joint venture agreement and it is more consistent with the apparent purpose of cl 4 which is to affect the “priority” of payments. Notably, the plaintiffs pleaded this alternative interpretation as the proper one in their original statement of claim. It was only by a statement of claim amended on 26 June 2009 that they pleaded that after repayment of its Equity Contribution, any balance would be distributed in the agreed proportions, rather than being applied next to repayment of the Bexalaw Equity Contribution.
- The first plaintiff was not a party to the loan agreement. However, I accept the plaintiffs’ case that cl 4 was a promise for the benefit of a beneficiary, namely the first plaintiff, within the meaning of s 55 of the Property Law Act 1974 (Qld). The first plaintiff accepted the benefit of that promise, at least by a letter from its solicitors to Bexalaw dated 4 July 2008. That letter referred to cl 4, and advised that to avoid any doubt, the first plaintiff had accepted the benefit of the promise contained within it. There was an express reference to s 55.
- Accordingly, the plaintiffs have established that they should have judgment for a declaration according to my interpretation of the loan agreement as varying the joint venture agreement. As already noted, the plaintiffs will have leave nunc pro tunc to proceed with this action against the defendant. The plaintiffs will also have leave to amend the claim in terms of the document appearing at pages 154-157 in the exhibits to the affidavit of JL Saunders filed 6 July 2009. The significant amendment was to change the claim in relation to the disposition of funds after repayment of Portland’s Equity Contribution, consistently with that change to Portland’s pleading on 26 June 2009. Although leave will be given to amend the claim, it follows from my interpretation that the declaration should accord with the plaintiffs’ original claim in that respect.
- It will be declared that upon the proper construction of the joint venture agreement between the parties, as varied by a loan agreement made on 23 March 2005, at the conclusion of the joint venture, evidenced by the completion of the sale or transfer of all lots and after payment of all outstanding Project Expenses within the meaning of that term in the joint venture agreement, the remaining funds of the joint venture should be paid as follows:
- first, in paying the Equity Contribution of $1 million made by the plaintiffs to the joint venture;
- second, in paying the Equity Contribution made by the defendant to the joint venture;
- third, in paying the balance to the parties to be divided as to 35 per cent to the plaintiffs and as to 65 per cent to the defendant.
- The terms of that declaration differ from that sought by the plaintiffs also in this respect: the plaintiffs sought a declaration as to the application of “the remaining joint venture assets”. What is to be distributed are the proceeds of sale of the units less the remaining expenses. In that event, the joint venture would be concluded. As discussed above[1] the joint venture agreement also provided for the event that the joint venture was terminated before the completion of sales of all of the units, in which case the assets were to be valued pursuant to cl 16 of that agreement. That is not contemplated by the declaration sought by the plaintiffs. I have altered the words of the declaration which is sought so that they follow more closely the words of the agreement.
- The defendant will be ordered to pay the plaintiffs’ costs of the proceedings, including any reserved costs.
Footnotes
[1] At [6].