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- Rankin Investments (Qld) Pty Ltd v CMC Property Pty Ltd[2020] QSC 366
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Rankin Investments (Qld) Pty Ltd v CMC Property Pty Ltd[2020] QSC 366
Rankin Investments (Qld) Pty Ltd v CMC Property Pty Ltd[2020] QSC 366
SUPREME COURT OF QUEENSLAND
CITATION: | Rankin Investments (Qld) Pty Ltd & Anor v CMC Property Pty Ltd & Ors [2020] QSC 366 |
PARTIES: | RANKIN INVESTMENTS (QLD) PTY LTD (ACN 150 860 647) (first applicant) BRADLEY JOHN RANKIN (second applicant) v CMC PROPERTY PTY LTD (ACN 128 857 429) (first respondent) PETER THOMAS KENDALL (second respondent) DAVID SPENCER AHERN (third respondent) |
FILE NO: | BS No 4624 of 2020 |
DIVISION: | Trial Division |
PROCEEDING: | Application |
ORIGINATING COURT: | Supreme Court of Queensland at Brisbane |
DELIVERED ON: | 9 December 2020 |
DELIVERED AT: | Brisbane |
HEARING DATES: | 20 and 21 May 2020 |
JUDGE: | Davis J |
ORDERS: |
(a)that the “Default Notice” issued by the respondents to the applicants dated 16 January 2020 was a written notice requiring remedy within the meaning of clause 1.1(g) of the property agreement between the parties. (b)that the “Notice of Event of Default” issued by the respondents to the applicants dated 26 February 2020 was a “written notice of an Event of Default” within the meaning of clause8 of the property agreement between the parties.
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CATCHWORDS: | CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – where the parties entered into a property agreement about the development of land – where the parties also had agreements with a number of third parties/consultants to work on or finance the development – where the second respondent became concerned about a potential conflict of interest arising from the relationship between the second applicant and a consultant and expressed that concern to the second applicant – where the second applicant then sent emails to a number of third parties/consultants telling them to stop work or otherwise jeopardising the progress of the development – where the second applicant also refused to meet with the second respondent – where the respondents then purported to give notice of alleged breaches requiring remedy under the property agreement – where the applicants dispute the validity of the notice to remedy the breach and seek declarations that the notice is invalid – where the respondents seek declarations that the notice is valid and that the buy-out clause in the property agreement has been triggered – whether the applicants had certain obligations under the property agreement – whether the applicants breached those obligations – whether the breaches were capable of remedy – whether the default notice was validly issued – whether the buy-out clause has been triggered – whether declarations ought to be made Batson v De Carvalho (1948) 48 SR (NSW) 417, considered Burger King Corporation v Hungry Jack’s Pty Ltd [2001] NSWCA 187, cited Byrnes v Kendle (2011) 243 CLR 253, followed Circle Petroleum (Qld) Pty Ltd & Ors v Greenslade (1998) 16 ACLC 1577, cited Clarke v Japan Machines (Australia) Pty Ltd [1984] 1 Qd R 404, cited Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty Ltd (No 3) [2012] VSC 99, cited Electricity Generation Corporation v Woodside Energy Ltd & Ors (2014) 251 CLR 640, cited Ex parte Taylor [1980] Qd R 253, cited Expert Clothing Services & Sales Ltd v Hillgate House Ltd [1985] 2 All ER 998, cited Fletcher v Nokes (1897) 1 Ch 271, cited Nashvying Pty Ltd & Ors v Giacomi [2007] QCA 454, considered LSchuler AG v Wickham Machine Tool Sales Ltd [1974] AC 235, considered Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service (2010) 383 ALR 577, followed Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 Savva v Hussein (1996) 73 P & CR 150, cited Scala House & District Property Co Ltd v Forbes & Ors [1974] 1 QB 575, considered Swiss Screens (Aust) Pty Ltd v Burgess (1987) 11 ACLR 756, cited Tricontinental Corporation Ltd v HDFI Ltd (1990) 21 NSWLR 689, cited Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2014) 219 CLR 165, cited Tyrrell v Jesbro Enterprise Pty Ltd [2017] 2 Qd R 634, cited |
COUNSEL: | C Jennings for the applicants M Hodge QC with D Tay for the respondents |
SOLICITORS: | Enyo Lawyers for the applicants Carter Newell Lawyers for the respondents |
- [1]The Big Pineapple is an iconic tourist attraction situated on land on the Nambour Connection Road at Woombye near Nambour on the Sunshine Coast (the land).
- [2]Big Pineapple Corporation Pty Ltd (BPC) owns the land which it holds on the terms of a unit trust known as the Big Pineapple Corp Unit Trust (the trust). Shares in BPC and the units in the trust are owned by interests controlled by Bradley John Rankin,[1] as to one half and Peter Thomas Kendall[2] and David Spencer Ahern,[3] as to the other half. I will refer to Rankin Investments (Qld) Pty Ltd[4] and Mr Rankin collectively as “the Rankin interests” and to CMC Property Pty Ltd,[5] Mr Kendall and Mr Ahern collectively as “the Kendall and Ahern interests”.
- [3]It was proposed to develop the land and the respective parties’ rights and obligations are governed by a contract styled “Property Agreement”. By the property agreement, a party who alleges default by another party may serve a notice requiring remedy of the breach within 28 days[6] which, if not remedied, triggers a mechanism whereby the party serving the notice can acquire the defaulting party’s shares and units. That mechanism is prescribed by clauses 8 and 9 of the property agreement.
- [4]A notice requiring remedy of alleged breaches was given by the Kendall and Ahern interests to the Rankin interests, who dispute the validity of the notice. The Rankin interests seek declarations that the notice to remedy breach is invalid. They also seek other associated declarations. The Kendall and Ahern interests seek declarations that the notice is valid and that the buy-out clause has been triggered.
Non-controversial facts
- [5]Rankin Investments (Qld) Pty Ltd (Rankin Investments) is controlled by MrRankin. He is the sole director and shareholder.
- [6]Each of MrKendall and MrAhern are directors of CMC Property Pty Ltd (CMC) and between them own all the issued shares in that company.
- [7]Roger Lago, at least in 2011, controlled Murgatroyd Investments Pty Ltd (Murgatroyd). MrLago and Murgatroyd were, but are not now, involved in the development of the land and were parties to the property agreement.
- [8]By 2011, BPC had acquired the land, shares had been issued in BPC and units had been issued in the trust. The shares and units were issued to the three groups, being the Rankin interests, the Kendall and Ahern interests and the Lago interests. The details of the holdings are recorded in the recitals to the property agreement set out in paragraph [75] of these reasons.
- [9]
- [10]Various improvements adorn the land. From the time the property agreement was signed, BPC began renovating some of those improvements. That work included repairing a private railway system on the land, repairing the sewerage system and repairing and renovating various sheds and houses.[8]
- [11]In October 2014, the Lago interests departed the project. That was achieved by the Rankin interests and the Kendall and Ahern interests buying out the Lago interests. One of MrLago’s two shares in BPC was acquired by Rankin Investments and the other was transferred to CMC. Fifty of Murgatroyd’s 100 units in the trust were transferred to Rankin Investments and the remaining 50 were transferred to CMC. MrLago resigned as a director of BPC leaving MrRankin and MrKendall as the only directors.
- [12]MrJim Costello holds a licence as a “nominee supervisor and development and project manager”. He is a director of JAM Property Group Qld Pty Ltd, JAM Constructions Pty Ltd and other companies (the JAM companies).[9] He became involved with the BPC project in about 2015.[10] The nature of his involvement, is in some respects, contentious, and I will deal with that separately. However, he was involved with the renovation of a building on the land which had housed a nut factory. BPC renovated that building between late 2018 and late 2019. It was then leased to COYO Yoghurt. He was also involved in obtaining development approvals and a grant of funds from the Queensland Government.
- [13]One of the matters in contention concerning MrCostello is the status of a services agreement which was proposed to be entered into between his company and BPC. I will address those issues later.
- [14]A grant of $2.5 million was awarded by the government to BPC to assist with the redevelopment of the land. That grant was acquired in August 2019.
- [15]In 2019, BPC was moving to complete the next stage of the development. What was planned was a renovation to the main entrance, site frontage and the heritage listed main building.[11] I will call that the “current works”.
- [16]In order to advance the current works, architects Ceccato Hall were engaged. MrCeccato and MrVanderzee of that firm were involved. They were conducting a tender process seeking to identify a builder. The details of what occurred are a matter of contention[12] between the parties and to the extent necessary I will deal with that later.
- [17]In mid-2019, the National Australia Bank was approached in order to secure additional funding for the current works. Approval in principle was obtained in July 2019 for a loan of $3 million. The process, which was hoped would lead to a final approval and the advance of money to BPC, continued throughout 2019.[13]
- [18]Andrew Clough is a real estate agent with Savills Australia. In August 2019, he was approached in relation to the project and had discussions with MrRankin and MrKendall about marketing the developed property for lease. Savills were appointed as BPC’s agents for that purpose in October 2019. MrClough subsequently achieved the leasing of the renovated shed on the property and was, in December 2019, engaging on BPC’s behalf for the lease of other improvements on the land.[14] Dale Savills of Savills Australia was also involved with marketing the property for lease.
- [19]Michael Ivey is an employee of Mitchell Brandtman. They are a firm of consultants who were engaged by BPC to provide quantity surveying services.[15]
- [20]
- [21]Development approvals were acquired. These were obtained in mid-December 2019. The notification of the approvals came shortly before the dispute between the parties flared on 19 December 2019.[18]
- [22]Up to 19 December 2019, there were discussions between MrRankin, MrKendall and others as to how any contract with builders would be structured. Particularly, there was debate about whether BPC should attempt to secure a fixed price or cost plus arrangement. Again, this is a matter of some contention and I comment about it later. One possibility which was being discussed was that MrCostello’s JAM companies might conduct the build. There had also been discussions[19] that MrCostello should be paid a percentage of the sale proceeds of the developed land.
- [23]By 19 December 2019, MrKendall was concerned about the relationship between MrRankin and MrCostello and what he saw as MrRankin pressing to secure for MrCostello a lucrative services agreement and a contract to perform the building work. MrKendall undertook some searches and ascertained that MrRankin and MrCostello had previously done business together.
- [24]The direct catalyst of the current dispute is no doubt MrKendall’s email to MrRankin sent at 2.20pm on 19 December 2019. It was in these terms:
“See attached company extracts, you have a lot of explaining to do as I do not like being played for a fool. I expect Jim owes you a heap of money you’ve MEZ[20] funded him on other projects and it’s in your interest to prop him up as it is obvious there is a lot more going on between you and Jam/Jim than you have ever let on to me and also explains why you were so keen to pay Jim a massive bonus fee and also get JAM doing the renovation on cost plus (despite the fact the COYO Reno went 50% over budget).
I will be emailing Jim shortly regarding the services agreement which I won’t be signing (which is null and void anyway as he didn't agree to it at the time of presentation), I will however pay him something at my discretion when the asset is divested, the amount of which will totally depend on how he conducts himself between now and that point, meaning if he attempts to do anything detrimental to the value of the asset or sale process it will be zero, however if he fades away quietly it will be significant. Furthermore I don’t want him having any further involvement in the project and I will be sending an email to all involved parties informing them that he is no longer involved in the project, thanking him for his contribution in achieving the DA and wishing him all the best in the future.
To say I’m disgusted is an understatement.”[21]
- [25]In response to that email, MrRankin sent several emails on the evening of 19 December 2019:
- (a)At 3.14pm he responded to MrKendall with an email that was copied to MrCostello and MrCatalano in these terms:
- (a)
“Thanks Pete
My pleasure for keeping the team together to get the result.”[22]
- (b)At 4.08pm he sent another email to MrKendall copied to MrCostello, MrCatalano and a MrMunday in these terms:
“We’re all just having a laugh at the moral high ground mate. Priceless.”[23]
- (c)At 4.17pm he sent an email to employees of Ceccato Hall Architects. That attached MrKendall’s email and added the comment:
“Hi all
We should hold off spending any more funds on the BigP until below is signed off.”[24]
- (d)At 7.16pm he sent a copy of MrKendall’s email to MrLongton who was the officer of the National Australia Bank who was handling BPC’s finance application. The comment accompanying the email was:
“Sorry Rob I think Pete[25] forgot yo [sic] to include you in this email.”[26]
- (e)At 7.26pm he sent an email to Savills, attention Andrew Clough and Dale Savills. That attached MrKendall’s email and added the comment:
“Hi Dale and Andrew
Appears we have a problem see email below. Please reframe [sic] from any work until sorted.”[27]
- (f)At 7.37pm he sent a copy of MrKendall’s email to MrGreg Bourke with the comment:
“Hi Greg
Would appear we have some issues (see email below) so please hold off on any PR.”[28]
- (g)At 8.13pm he sent a copy of MrKendall’s email to Michael Ivy of Mitchell Brandtman in these terms:
“Sorry for the late email but it would appear that I’ve been accused of some wrongdoing (see email below) so please hold off on further works in case I’m found to be guilty.”[29]
- [26]On 19 and 20 December 2019, MrRankin sent some text messages to MrKendall.[30] They were inflammatory, childish and pointless. There is no need to analyse them.
- [27]On 7 January 2020, MrKendall sent a further email to MrRankin. That was in these terms:
“Brad,
It is very clear neither of us want to be in a business together any longer than we need to be so we need to move forward quickly with a resolution since you have sent some very unsettling correspondence to almost everyone involved in the project which I find totally inappropriate and unacceptable.
To clarify the terms of our property agreement, clause 9 in the Property Agreement does not deal with one party wanting to forcibly buy out the other party at a set price but rather to prevent a party from wanting to get out at requested price. To that end and once again for the record, CMC property does not want to sell, certainly not under the distress conditions set out in clause 9.
So essentially that leaves three avenues of resolution;
1)We complete the renovation as per the plan, market and divest the property as soon as practicably possible, I sign the service agreement with Jam (although that would be on the condition that Costello has no further involvement in the project) our preferred avenue
2)You buy us out at a mutually acceptable price
3)We buy you out at a mutually acceptable price
Irrespective of which option is taken, to not complete the renovation and fulfil the grant obligations is not commercially smart and will also result in a lot of egg on the face of the party who chooses to not proceed (and the Big Pineapples reputation in general irrespective of who ends up owning it), in other words my view is we are already committed to complete it.
I would also like to point out that I have not said I am reneging on the bonus for Costello but rather I am not signing the service agreement as he has never agreed to it, furthermore I have stated I would pay a bonus at my discretion at completion of divestment based on his conduct up until that time however I will deal with this separately with him as he has chosen to widely publicise some very inaccurate accusations towards myself. Obviously if we proceed with option 1 this becomes irrelevant.
I suggest we meet face to face ASAP to attempt to find a resolution.”[31]
- [28]MrRankin did not respond to the email of 7 January 2020.
- [29]By 16 January 2020, MrKendall had retained Carter Newell Lawyers. MrRankin had by this stage gone on holidays and did not return to work until February.
- [30]On 16 January 2020, Carter Newell sent a letter to MrRankin attaching the notice to remedy default. That is the critical notice and it is reproduced and analysed in paragraphs [97] to [99] of these reasons.
- [31]MrRankin sent an email to Carter Newell on 20 January 2020 in these terms:
“Dear Bronwyn
Thank you for your email, as previously conveyed to your client I found his baseless accusations via an email dated the 18th Dec[32] on a personal level extremely stressful and upsetting considering his incredibly poor timing and the potential risk he put to all the hard work and money that the team has put into the Big Pineapple Renewal. For this reason I’m taking a well earned break and will return mid February. I now obviously will have to get some legal advice and opinion on where I stand and the best way for the Big Pineapple to move forward but agree on finding a solution for both parties asap.
For the record as far as I’m concerned it has been business as usual apart from the grant works. We have a good manager Dean Croyden in place and I have been talking with him regularly, in fact we’ve had great xmas trade including our cafe, train, zoo, record numbers at Treetops experience and our new tenant Coyo Yogurt moved in. I’ve also spoken to some existing tenants, taken calls from Town Planners, approved and paid wages, approved payments of suppliers, conducted meetings in preparation for the up and coming release of The Big Pineapple Music Festival and been commenting on some extra leasing space for one of our existing tenants. So to suggest that I’ve dropped my role as a director is absolute ill informed nonsense. I have done and will continue to be the most active and productive director at the Big Pineapple.
Also I would like to think and I’m sure most would agree that the reasons for postponing a 6-7 million dollar renovation including tenant fit outs and going further into debt until we agree on conditions moving forward does not only show commercial wisdom and good business acumen but more importantly it shows responsibility as a company director. At this moment I don’t have access to the terms and conditions of the Government Grant but it beggars belief anyone would think we could embark on a high profile tax funded project knowing that we currently have serious directors issues and it most certainly wouldn’t be a prudent move for the Big Pineapple brand if we didn’t comply or complete the project.
Thanks again Bronwyn and I will be in touch after my break and in seeking legal advice.”[33] (emphasis added)
- [32]The Big Pineapple was a going concern as a tourist attraction. What MrRankin is communicating in the passage of his email which I have emphasised is that the emails of 19 December stopped the “grant works” which I have called the “current works”, but the business was not affected.
- [33]On 21 January 2020, MrKendall sent emails to the various consultants directing that work resume:
“Dear Howard/Joe[34]
I am aware of an email sent to you on 19 December 2019 indicating that work on the renovation project and tendering process should be suspended.
By way of status update, I advise as director of Big Pineapple Corp Pty Ltd that:
a.There has been no resolution or decision taken by the company to suspend or cease work on or progress with the renovation project you have previously been instructed on; and
b.All work on the project should resume and progress on a ‘business as usual’ basis as previously instructed and agreed;
c.Your main point of contact for the company should be me as project manager and company director, copying my co-director, Brad Rankin.
Accordingly, please resume all work to finalise the tender process and provide recommended contracts for awarding, and provide any required clarifying communication to third parties to confirm the project is proceeding as previously proposed.
If you wish to discuss, please give me a call or let me know if a progress meeting is required.”
- [34]MrRankin at some stage retained Enyo Lawyers who on 13 February 2020 wrote to Carter Newell. In that letter, Enyo Lawyers responded to the various allegations made against MrRankin in Carter Newell’s letter of 16 January and the notice to remedy breach. The letter need not be fully analysed. However, one important aspect was to complain about MrKendall’s attitude towards MrCostello. The letter purported to give a notice to remedy breach to the Kendall and Ahern interests. The letter contained this:
“Notice of actual default
For the following reasons (and without limitation), it is indeed CMC Property Pty Ltd that is in default of the Property Agreement.
- Mr Kendall (without the approval of the Board, as was required) has unilaterally repudiated an agreement with a key member of the development team, namely Mr Costello. As a result of his actions (and we expect you are aware):
a.a number of service providers, including those relied on in your letter and set out above have declined to continue to be involved in the Project.
These service providers have indicated to Mr Rankin that they are prepared to continue to work with our clients, however, in circumstances where Mr Kendall has a history of repudiating agreements after services have been rendered, they are presently unwilling to work with your clients unless formal binding agreements are entered into with an undertaking by your clients that they will be honoured;
b.Mr Kendall has, in furtherance of what appears to be an unconscionable, or at the very least inequitable design, damaged the reputation of the Company with key service providers; and
c.Mr Kendall’s actions damage the Joint Venture and constitute a violation of the statutory obligation to act with good faith (viz l80-182 of the Corporations Act 2001 (Cth).
- The Company, as you are aware, entered into a Financial Incentive Agreement with the Queensland State Government on 1 August 2019 (the Funding Agreement). The Funding Agreement mandated that:
by cl 3.l(b) [the Company] must ‘carry out the [renovation] in accordance with the Project Management Plan and this agreement with due care and skill.’
The Project Management Plan referred to therein stated:
at page 13: ‘Project Manager Team - Jim Costello - Co‑ordinate total project and deliver solution to client’s requirements.’
Your clients by unilaterally repudiating the Services Agreement with Mr Costello have breached cl 6.l(b), 6.l(c) and 6.l(d) as:
a.the Company no longer has a project manager to manage the renovation your client is still insisting upon;
b.the Company is exposed to a claim for damages; and
c.the Company is now in breach of the Funding Agreement, as the persons responsible for delivery of the Project Management Plan, no longer wish to deal with the Company as a direct result of Mr Kendall’s actions.
- We understand (in addition to the above) Mr Kendall’s ongoing and substantial litigation in the Supreme Court of Queensland has caused financial distress to Mr Kendall and CMC Property. Your client has certain obligations in respect of the capitalisation of the Company, of which he is well aware. We understand that Mr Kendall has complained in the past of paying ‘millions’ in legal fees.
Your client has given undertakings at cl 6 of the Property Agreement, to take necessary steps and to act in a just and faithful manner, accordingly, our client calls upon your client to demonstrate that it has the financial capacity to meet its share of the funding obligations of the Company moving forward.
We expect you will agree that if our client is to commit substantial funds to the Company, your client should demonstrate it has the capacity to meet the same obligations. To assist, we confirm that if your client undertakes to demonstrate its financial capacity, our client will do likewise.
- Your client, by publishing spurious allegations about MrRankin has destroyed good faith between the joint venturers.
Demand to remedy
Our clients hereby demand that your clients remedy their defaults in respect of the Property Agreement and:
- your clients, and in particular CMC Property and Mr Kendall, in writing, unequivocally affirm the Services Agreement, and undertake to do all things reasonably necessary to perform the Services Agreement;
- your clients in writing undertake to refrain from repudiating agreements of the Company without unanimous approval of the board and to expressly affirm the Property Agreement;
- CMC Property, by its directors unequivocally retract any allegations against Mr Rankin and Mr Costello as impugned by Mr Kendall’s email of 2:20pm on 19 December 2019.
Your client has 28 days to remedy this default, failing which we expect instructions to take further action against your client, which may include a claim for any damages arising from your clients’ defaults.”[35]
- [35]The letter of 13 February 2020 purports to be a notice to remedy breach which, presumably, could trigger clauses 8 and 9 of the property agreement.
- [36]Correspondence passed between the respective solicitors in February and March 2020. There were assertions and counter-assertions. It is not necessary to descend to an examination of the correspondence. Of some importance, though:
- (a)By letter of 26 February 2020, Carter Newell asserted that the Rankin interests had not remedied the breach alleged on 16 January 2020 and included a notice of Event of Default. This is the document said to be given pursuant to clause8 of the property agreement triggering the rights under clause9.[36]
- (b)On 5 March 2020, Enyo Lawyers purported to give further notice requiring the Kendall and Ahern interests to remedy breach.
- (c)On 2 April 2020, Carter Newell asserted that clause9 of the property agreement had been activated and proposed that the President of the Law Society be approached to appoint an accountant to value the joint venture property.[37]
- (a)
- [37]The breaches alleged against the Kendall and Ahern interests in the letter from Enyo Lawyers of 5 March 2020 were:
“Further notice of default requiring remedy
This letter should be considered as a notice of default requiring remedy within the meaning of the Property Agreement.
Your client’s Notice of Event of Default is misconceived, and is itself an event of default.
If the Notice of Event of Default is not withdrawn and remedied within 28 days hereof, then we expect our clients will begin to take steps under cl9 of the Property Agreement.”[38]
- [38]MrAhern had a number of telephone conversations with MrRankin. He says these occurred on 20 December 2019, 23 January 2020, 3 February 2020 and 4 February 2020.[39] There is some dispute as to what exactly was said.[40] MrAhern said that MrRankin told him that he would not proceed with the project. MrRankin insisted that MrCostello be paid. Nothing turns on those conversations because the relative positions of MrRankin and MrKendall were made clear in a board meeting on 4 March 2020 to which I will now turn.
- [39]MrKendall and MrRankin held a meeting of the board of directors of BPC by telephone on 4 March 2020. The conversation was electronically recorded. The meeting was not fruitful. The main matter of contention between them seemed to be MrCostello. This was made evident early during the conversation in this exchange:
“PK[41]Alright no worries. Um, alright, point 2, ah renovation project, status and progress, um, you’ve put those proposals in about Costello or the JAM agreement. Um, well our position on that has not changed like we’re happy to sign it in conjunction with a um ah revised um agreement moving forward which would say proceed with the renovation um we require / we want to use the NAB funding that we’ve already organised um and then you know, go to two agents, get a pitch off them and then begin to market it and divest it as we’ve always planned.
BR[42]Well my position hasn’t changed either so until / until ah until Costello’s sorted out that’s, that’s where I’m at so …
PKWell we’ll sort Costello out but you understand that if we map out a new agreement, that agreement does not …
BRWe will sort Costello and then we can map out how we move forward. I’m happy with that.”[43]
- [40]The originating application was filed by the Rankin interests on 28 April 2020.
MrCostello
- [41]The impasse between MrRankin and MrAhern about MrCostello was not resolved during the board meeting.
- [42]For reasons which I will explain, it is not necessary to make any final findings about MrCostello’s involvement in the development. However, MrCostello is a central figure in the dispute and a good deal of evidence was led about his involvement in the project.
- [43]MrRankin, in his first affidavit, referred to a discussion with MrKendall which he thought was “about mid 2017” to engage MrCostello.[44] MrRankin cannot be right about the date. MrCostello was involved with BPC much earlier than that. On 24 September 2015, MrCostello sent an email to MrRankin and MrKendall enclosing a “Development Management Services Fee Proposal”.[45]
- [44]MrRankin said that he and MrKendall met with MrCostello on 4 September 2018 and then on 5 September 2018 MrCostello sent them a further proposal. That document contained:
“Document objective - remuneration model based on the retainer for services and an incentive percentage as opposed to equity partnership/percentage ownership.”[46]
- [45]On 10 September 2018, MrCostello sent an email to MrRankin which enclosed a further remuneration model.[47]
- [46]MrRankin swore that a fee for MrCostello, calculated at six per cent of the revenue minus selling costs, was agreed as MrCostello’s fee by both he and MrKendall.[48]
- [47]On 15 April 2019, a memorandum of understanding was sent by MrCostello to MrRankin. That referred to various fees, including: “As agreed with Owners, the 6% will be based on the Gross value and not including any deductions include infrastructure costs”.[49]
- [48]MrKendall, on 6 June 2019, sent an email to MrCostello and MrRankin including a services agreement which provided for fees, including:
“The amount of 6% of the gross sale price of any portion of the land sold and settled on the open market to a third party unrelated to Big Pineapple less commissions and marketing expenses and any fees already paid to Jim pursuant to [other clauses].”[50]
- [49]MrRankin, in his first affidavit, accepted that the services agreement was not executed. However, his case seems to be that there was a finalised agreement with MrCostello. It is undoubted that MrCostello did work for BPC after this time.
- [50]MrKendall, in his affidavit, obviously correctly recalled that MrCostello was engaged much earlier than 2017.[51] He recalled a meeting in September or November 2018 at MrRankin’s office at Lang Parade in Milton.[52] His recollection was that MrRankin offered MrCostello a bonus of two per cent, MrCostello counter-offered with 10 per cent and a figure of six per cent was seemingly agreed. MrKendall’s recall is that MrCostello asked MrRankin to prepare a document to that effect. MrKendall’s recall is that MrRankin never prepared a document.
- [51]MrKendall recalled the memorandum of understanding sent by MrCostello on 15 April 2019. He points out that MrRankin replied to MrCostello by email “Happy to sign off on what’s been agreed to recently” but “won’t be agreeing to any coms[53] payable to you as this will end up being a conflict of interest”.[54] There was a further email from MrCostello on 16 April 2019 and then MrKendall said he had a conversation with MrCostello wherein MrKendall said that he would have an agreement drawn up and sent to him. As already observed, a services agreement was sent to MrCostello on 6 June 2019.
- [52]MrCostello and MrKendall spoke in mid-June 2019 when MrCostello expressed the view that the services agreement was not on acceptable terms. MrKendall said there was a meeting in mid to late June 2019 which he had with MrCostello and MrRankin and the bone of contention from Mr Costello’s viewpoint was that the services agreement did not contain an appropriate timeframe for him to be paid.
- [53]On 13 December 2019, MrCostello emailed MrRankin and MrKendall attaching a copy of the services agreement with handwritten amendments.[55] The only amendment made in handwriting was to replace the name of the party contracting with BPC. MrCostello’s name was deleted and replaced by his company JAM Property Group Qld Pty Ltd. That was likely done for income tax purposes. No terms of the agreement were altered.
- [54]BPC never signed the services agreement. MrKendall and MrRankin fell into dispute a few days after MrCostello returned the document.
- [55]After the dispute between MrKendall and MrRankin erupted, Fox & Company Solicitors, acting for MrCostello and his companies, sent a letter to BPC on his behalf. That letter was dated 4 March 2020. Importantly, that asserted:
“8.After that 10 September 2018 email (MrCostello believes on 11 September 2018), MrCostello met again with Messrs Kendall and Rankin. At that meeting, the parties agreed (and shook hands) on an agreement to the effect that:
- (a)MrCostello would continue to provide development and project management services to BPC as agreed from time to time in relation to the development of the Site;
- (b)MrCostello (or his nominee) would continue to render invoices for agreed consultancy services performed for BPC, generally at a concessional rate;
- (c)upon the sale of the Site (or any portion of it), MrCostello would receive 6% plus GST of the gross sale price.
(‘the 2018 Agreement’).”
And later:
“13.While our clients are naturally buoyed by the apparent concession by BPC concerning our clients’ entitlement to the 6% incentive payment, there were elements of the draft which were not consistent with the 2018 Agreement. In particular, the 2018 Agreement contained no provision for commissions, marketing fees or the fees already paid to MrCostello (or his nominee) to be deducted from the value of the Site for the purpose of determining the 6% incentive payment. Our client, accordingly, did not sign the draft.”[56]
- [56]MrRankin was cross-examined on his affidavit. He was not an impressive witness. He was clearly wrong about when MrCostello first became involved in the project. He was very vague about times and conversations. On occasions, he seemed unsure, even about the contents of his own sworn affidavit.[57] I have not relied upon his evidence except where it is corroborated by other evidence or otherwise is non-contentious.
- [57]MrRankin seemed to say that the draft services agreement represented the bargain that MrCostello and his companies had reached with BPC. Even MrCostello does not accept that.[58]
- [58]MrCostello swore an affidavit[59] and he was also cross-examined by MrHodge QC, for the Kendall and Ahern interests. MrHodge’s cross-examination of MrCostello on the issue of the agreement was not extensive. That was understandable given that MrCostello did not, in his affidavit, contradict much of what was said by MrKendall. In particular, he did not contest, there was a meeting in mid to late June 2019 when he told MrRankin and MrKendall that he did not accept the services agreement because it did not include a timeframe. What he said about that in his affidavit is “… I did raise the question of timeframes for payment with MrKendall and MrRankin. This paragraph [the assertions by MrKendall] is true insofar as my request for certainty of timeframe for payment was rejected”.[60]
- [59]MrKendall was cross-examined on his affidavit.[61] In contrast to MrRankin, MrKendall was an impressive witness. His evidence was not vague like MrRankin’s. MrKendall appeared to have a good memory of events and he gave his evidence confidently. He was clearly attempting to tell the truth.
- [60]MrKendall accepted that in September 2018, the bonus amount to be paid to MrCostello or his companies of six per cent was settled on.[62] He understood that the services agreement which was sent to MrCostello on 6 June 2019 reflected the agreement that had been reached in the September 2018 meeting.[63] Importantly, he was taken to MrCostello’s email sending back the signed services agreement and then:
“MR JENNINGS:
In which he[64] says:
Gents, in accordance with below, please find attached the signed services agreement.
Do you see that?---Yes.
And if you cross the page, the pages that follow – you’ll agree with me, won’t you – that that’s a copy of the services agreement that you had caused to be prepared with some handwritten alterations?---Yes.
Yes. And those handwritten alterations go no further than to replace MrCostello with JAM Property Group Queensland Pty Ltd?---Yes.
And to you know JAM Property Group Queensland Pty Ltd to be one of MrCostello’s companies?---Yes.
And you did at the time?---Yes.
Otherwise, it was the same agreement that you proposed earlier and were willing to sign?---Yes.”[65]
And later:
“MR JENNINGS: Now, MrKendall, this is a copy of the email that you sent to MrRankin at 2.20 on the 19th of December last year?---Yes.
And is it correct that, having received the services agreement from MrCostello, you subsequently haven’t signed that document on behalf of the big Pineapple corporation?---That’s correct.
Yeah. And the reason that you haven’t signed it – am I right in thinking – was expressed in this email on the 19th of December 2019?---There’s two reasons. One is this conflict. The other reason was I under the impression for about five months that MrCostello didn’t sign it because he didn’t agree to it.
Right.
HIS HONOUR: Where did you get that impression from?---Well, we had a - I had a verbal conversation with him after I’d sent that email we were referring to.
Sorry, with MrCostello?---With Mr – with MrCostello. He wanted a timeframe put on it. Neither MrRankin or I agreed to that. We had a meeting - - -
Is this the two-year guarantee?---Yeah. Yeah. So the whole discuss – meeting that – meeting at MrRankin’s place in my mind ended at an impasse where no one agreed anything. So the fact that it went quiet for five months only in my mind added weight to that. So - - -”[66]
- [61]In September 2018, MrCostello, on his own behalf and MrRankin and MrKendall, on behalf of BPC, clearly entered into some arrangement whereby MrCostello would be paid a fee of six per cent of the sale proceeds of the property. On that basis, he continued to do work for BPC.
- [62]However, I do not find that it was a concluded agreement in the sense that the parties only agreed on that particular term. It was always envisaged that there would be further terms which had not yet been agreed to. That can be seen from the memorandum of understanding and from the services agreement. It is also clear from MrCostello’s affidavit that after September 2018 he was negotiating further terms. His solicitor’s letter, asserting that all necessary terms were agreed in September 2018, seems inconsistent with the email traffic which passed thereafter.
- [63]Perhaps MrKendall and MrRankin agreed between themselves that BPC would enter into an agreement with MrCostello or his nominee company in terms of the services agreement. If so, that would be a resolution of the board of directors of BPC. However, it is clear from the letter from Fox & Company that MrCostello had rejected the services agreement.
- [64]I find that there was no concluded agreement between BPC on the one part and MrCostello or his nominee company on the other.
The form of the tender
- [65]In MrKendall’s email to MrRankin of 19 December 2019, he told MrRankin that he suspected that MrCostello was indebted to MrRankin and that he was attempting to have BPC benefit MrCostello so that MrCostello could fulfil business obligations to MrRankin. MrKendall pointed to two ways in which it appeared to him that MrRankin was doing this:
- (a)negotiating a large bonus for MrCostello; and
- (b)pushing to have BPC contract with MrCostello’s building company, JAM Constructions Pty Ltd, to do the work on a cost plus basis.
- (a)
- [66]That, therefore, raised as a matter of contention the question of whether it was commercially appropriate and wise for BPC to enter into a cost plus or fixed fee agreement for the renovation work.
- [67]MrKendall explained in his affidavit that it was not appropriate for there to be a cost plus agreement. MrRankin and MrCostello responded and in their affidavits they extol the virtues of a cost plus agreement. There was cross-examination of the various witnesses on that topic.
- [68]MrHodge QC, for the Kendall and Ahern interests, submitted that the issue of cost plus or fixed fee agreement for the renovation was not relevant to the issues to be determined in the case. I accept MrHodge’s submission.
- [69]In fact, while issue was joined by MrRankin and MrCostello on the topic, MrJennings, for the Rankin interests, did not press for a finding. He made no submissions at all about it.
- [70]There is no need to make any findings other than I accept that it appeared to MrKendall that a cost plus contract was not desirable and he honestly thought that was a matter of concern.
Whether MrRankin told MrKendall, prior to December 2019, that he had previous dealings with MrCostello
- [71]MrRankin probably told MrKendall that he had worked with MrCostello previously. MrRankin introduced MrCostello into the project. The real issue was whether MrRankin told MrKendall that he had funded projects for MrCostello.
- [72]
- [73]I accept MrKendall’s evidence on this point and reject MrRankin’s. For reasons previously explained, I found MrKendall an impressive witness and MrRankin unimpressive. MrKendall is astute in business. He demonstrated that by his recall of events and the precision with which he could swear to what had occurred in the course of the project. He explained how he came to suspect that MrRankin was funding MrCostello.[69] I accept that explanation. There was obviously discussion between MrRankin and MrKendall about the form of the tender and whether MrCostello should be given the contract. Had MrKendall known of the true business relationship between MrRankin and MrCostello earlier, he would, I find, have mentioned that fact during the discussions with MrRankin about whether a cost plus contract with MrCostello was appropriate.
The terms of the property agreement
- [74]As already observed, when the property agreement was executed it contemplated three groups of joint venturers: the Kendall and Ahern interests, the Rankin interests and the Lago interests.
- [75]The property agreement regulates the control of the joint venture. By the recitals, the shareholding and unitholding is recorded. Recitals C and D provide:
“C.Roger,[70] Peter[71] and Brad[72] (“the Shareholders”) hold the following shares in the Company:
- (a)Roger2 Shares;
- (b)CMC Property1 Share; and
- (c)Brad1 Share.
D.Murgatroyd, CMC and Rankin (“the Unitholders”) hold the following units in the Unit Trust:
- (a)Murgatroyd100 units;
- (b)CMC Property50 units;
- (c)Rankin50 units.”
- [76]Therefore, at the time of execution of the property agreement, the Lago interests controlled one-half of the issued shares and units. That holding, though, was not reflected in control of the joint venture. Clause5 provides, relevantly:
“5.ACTIVITIES OF THE BOARD
5.1The Board will be responsible for the Project for and on behalf of the Joint Venture and will be responsible for the overall policies and implementation of the Project subject to this agreement.
5.2The Board shall consist of three (3) members who shall comprise a nominee or appointee of each of the Shareholders. The Shareholders may nominate themselves. …
5.4The decisions of the Board will bind the Joint Ventures.
5.5The Board will meet as often as is necessary. Any of the Shareholders may call a meeting on the Board by giving not less than fourteen (14) days’ notice in that regard to the other Joint Venturer or such shorter notice as the parties may from time to time agree.
5.6A resolution in writing signed by all members of the Board shall be as valid and effectual as if it had been passed at a duly convened meeting of the Board.
5.7A quorum for a meeting of the Board shall be comprised of at least one member or alternate appointed by each Shareholder.
5.8All meetings of the board shall be held at a place agreed by the parties provided that meetings will be deemed to have been duly held if the members required to constitute a quorum are in contact with each other simultaneously by conference telephone or live audio-visual transmission (or similar means).
5.9Each nominee/appointee for a Shareholder present at a meeting of the Board shall be entitled to cast one (1) vote for each Share they hold.
5.10No member of the Board shall be entitled to a casting vote in addition to his deliberative vote. …
5.16Decisions of the Board (including borrowing and a decision to Dispose of any part of the Property) require a majority of greater than 50% of the votes to be cast. In the event of a deadlock in voting of the Board where only 50% of the votes have been cast in favour of the matter the subject of the vote, there is no casting vote and the Board will not proceed with the matter the subject of the vote.”
- [77]What was agreed in relation to the way the development would proceed is limited. Recitals F and G record:
“F.The Company has acquired certain land situate in Queensland and known as The Big Pineapple (“the Land”).
G.The Shareholders and the Unitholders are the Joint Venturers. The Company is to deal with the Land including the leasing, development, and/or ultimate disposal of the Land or any part of it or as the Board from time to time in accordance with the subject to the provisions of this document whether alone or in conjunction with one or more third parties.”
- [78]Clause 2 provides, relevantly:
“2.SCOPE OF THE JOINT VENTURE
2.1The Joint Venturers agree the Company will lease, licence and/or develop and/or ultimately dispose of the Property or do any other act, matter or thing as the Board may determine, from time to time, where applicable, in accordance with the provisions of this document whether alone or in conjunction with one or more third parties…”
- [79]Clause 6 then provides:
“6.UNDERTAKING
6.1Each of the parties undertakes with the other:
- (a)to take all necessary steps on its part to give full effect to the provisions of this Agreement;
- (b)not to engage (whether alone or in association with others) in any activity in respect of the Land except as provided or authorised by this Agreement or as agreed in writing by the parties;
- (c)not to be or cause or permit to be done any act matter or thing whereby in any way the continued enjoyment of the Land for the purposes of the Joint Venture might be jeopardised; and
- (d)to be just and faithful in all of its activities and dealings with the others.
6.2Except in accordance with this agreement, no Joint Venturer shall sell, convey, assign, transfer, mortgage, pledge, charge, encumber, lease, sub-lease or otherwise dispose of or deal in or suffer or permit or cause to be sold, conveyed, assigned, transferred, mortgaged, pledged, charged, encumbered, leased, sub-let, disposed of or dealt with the whole or any part of the Joint Venture Assets or its Joint Venture interest whether by act or deed, amalgamation, merger or consolidation or by operation or law (save for death where it will pass at law) except with the written consent of the other Joint Venturers.”
- [80]Clause 4 provides:
“4.NO RESTRICTION ON OTHER BUSINESS
Nothing contained in this document shall or shall be deemed to restrict in any way the freedom of any Joint Venturer to conduct as it sees fit any others, business or activity whatsoever and wheresoever without any accountability to the others, save that the Joint Venturers severally undertake to use their best efforts in the carrying out of all their obligations for the purposes of the Joint Venture.”
- [81]Various clauses then govern termination of the contract. Clause 3 provides:
“3.TERM
3.1This document will commence on the Commencement Date and shall terminate on the earlier to occur of the following:
- (a)the completion of the Project;
- (b)the date mutually agreed by the Joint Venturers;
- (c)the occurrence of a Force Majeure Event;
- (d)the acquisition by one Joint Venturer of the Joint Venture Interest of all the other Joint Venturers; and
- (e)an Insolvency Event occurring in respect of the Company.
3.2In the event that the Joint Venture terminates pursuant to sub-clause 3.1(a), (b) or (c) all of the Joint Venture Assets shall be realised under the supervision and control of the Board and after payment of all creditors the Gross Revenue less Outgoings shall be distributed amongst the Unitholders in accordance with their respective Units.
3.3Termination of the Joint Venture pursuant to clause 3.1 will:
- (a)not limit or affect the rights of any party which have accrued prior to termination;
- (b)release the parties from any further obligations arising under this agreement except the obligations arising under clause 19.” [73] (emphasis added)
- [82]The term “the Project”, as appears in clause 3.1(a), is defined in clause 1.1(a) as:
“‘the Project’ means the acquisition and/or development, leasing, licensing and/or ultimate disposal of the Property (or any part of it) in accordance with the provisions of this document whether alone or in conjunction with any one or more third parties.”
- [83]Clause 3.1(d) is the relevant clause here and that is governed by clauses 8 and 9. They are as follows:
“8.DEFAULT
A Joint Venturer may provide to another Joint Venture (Defaulting Party) written notice of an Event of Default. A copy of that notice must also be given to all other parties to this Agreement.
9.DEFAULT/WITHDRAWAL
9.1Notwithstanding the constitution of the Company and the trust deed of the Unit Trust, in the event any:
- (a)Joint Venturer wishes to withdraw from the Joint Venture, the Joint Venturer shall be entitled to give written notice of sale to the other Joint Venturers; or
- (b)Joint Venturer has been provided a notice of an Event of Default under clause 8, then the Joint Venturer who has been provided with a notice of an Event of Default shall with effect from the date of the giving of that notice be deemed to have written notice of sale to the other Joint Venturers;
which notice shall grant and constitute an irrevocable offer by the Joint Venturer giving such notice (‘the Withdrawing Party’) to the other Joint Venturers (‘the Grantees’) to purchase the whole but not part of the Joint Venture Interest owned by the Withdrawing Party to the Grantees (‘the Purchasing Option’) in proportion to the Units then held by the Grantees when expressed as a percentage of the total of the Units held by those Grantees (‘Relevant Proportions’).
9.2The purchase price for the Joint Venturer Interests arising from the Purchasing Option (‘the Sale Price’) shall be the value agreed upon by the Withdrawing Party and the Grantees and in default of such agreement within 10 days, the value determined by 1 practising Chartered Accountants (taking into account loans and equity interests) (who shall be entitled to appoint 2 Valuers one from LandMark White and one from CBRE for assistance in valuation of the Property, if required) to be appointed by the Board (and in the event of disagreement not resolved within 10 days by the President for the time being of the Queensland Law Society) who shall act as an expert and not as an arbitrator and whose decision as to the Sale Price shall be final. The date on which the value is determined will be the ‘Valuation Date’.
9.3In the event of the Grantees wishing to exercise the Purchasing Option they shall give notice in writing of their intention so to do to the Withdrawing Party (with a copy of the other Grantees) on or before the expiration of forty five (45) days from the date of the Valuation Date. The Grantees may agree to exercise their Purchasing Option other than in proportion to their Relevant Proportions. If the Grantees do not agree to exercise their Purchasing Option other than in the Relevant Proportions and both Grantees give notice in writing of their intention to exercise the Purchasing Option then two separate acquisitions, each for the Relevant Proportions, shall arise. If one only of the Grantees gives notice in writing of its intention to exercise the Purchasing Option then one (only) acquisition of the whole of the Withdrawing part’s Joint Venture Interest shall be effected.
9.4In the event of the valid exercise of the Purchasing Option the Withdrawing Party shall receive from the party acquiring the Joint Venturer Interest (‘the Acquiring Party'’) the Sale Price by a bank cheque on the date 75 days from the Valuation Date (‘the Settlement Date’).
9.5In exchange for the Sale Price on the Settlement Date, the Withdrawing Party shall transfer to the Acquiring Party unencumbered (free of Security whatsoever) right, title and interest in and to its Joint Venture Interest and shall execute promptly all instruments of transfer and take such other action and steps as may be necessary or appropriate or as required by the Acquiring Party to evidence the Acquiring Party will secure unencumbered ownership of the Joint Venture Interest when transferred and such Acquiring Party may enforce specific performance of it in any Court of competent jurisdiction.
…
9.8Upon and with effect from completion of the sale and purchase, each of the parties are to take such steps as may be necessary to procure the resignation from the Board or otherwise to remove from the Board without any claim against or outstanding liability on the part of the Company, the director appointed by the Withdrawing Party.
9.9For the avoidance of doubt and for the purpose of giving effect to this clause the parties waive the pre-emptive rights in relation to the Shares afforded to them under the constitution of the Company or in relation to the Units under the trust deed of the Unit Trust.
9.10In the event of the Purchasing Option not being exercised by the Grantees (or any of them) and all of the Withdrawing Party’s Joint Venture Interest not being acquired by the Grantees (or any of them), all of the Property will be sold at market on terms that provide for settlement of the Property within 6 months of the Valuation date. Any party or its Associates may bid or acquire the Property. The Gross Revenue from such sale will be dealt with in accordance with this agreement. …”
- [84]Clause 8 refers to an “Event of Default”. That term is defined in clause 1.1(g) as follows:
“(g)‘Event of Default’ in respect of a Joint Venturer (‘The Defaulting Party’) means:
- (i)an Insolvency Event occurs in respect of that Joint Venturer; or
- (ii)that Joint Venturer fails to comply with its obligations under this Agreement and such failure is not remedied within twenty-eight (28) days after written notice requiring remedy has been given by any other Joint Venturer (‘the Non-defaulting Party’). The Non-Defaulting Parties must give a copy of that notice to all parties to this agreement.”
- [85]There are various other provisions. Clause 7 is headed “Finance and Equity” and contains agreements as to how funding for the project will be raised and accounted for. There are provisions governing how shares and units are transferred,[74] for the keeping of joint venture accounts,[75] a clause regulating how notices are to be given[76] and various provisions relevant to the interpretation and operation of the contract.[77] There is a confidentiality provision[78] and a provision dealing with costs.[79]
General observations about the property agreement
- [86]What is absent from the property agreement are any covenants, apart perhaps from clause7[80] where the parties have agreed in any detail as to how the land is to be developed. What is contemplated is the development of the land in a way to be determined by the board of BPC, with the property agreement by clause5 governing how the various parties will behave as board members.
- [87]The property agreement does not seek to avoid deadlock. Deadlock on the board of BPC is more likely now than at the time the contract was made. That is because initially the Lago interests were present and there was a board of three. With the withdrawal of the Lago interests, there is a board of two. However, even with a board of three, deadlock was possible. The board could convene with a quorum of two and could therefore deadlock.[81] No-one held a casting vote.[82]
- [88]Clause 9 does not provide an answer to deadlock. In the event of deadlock, one party might give notice under clause 9.1(a) but there was no obligation to do so. If there is deadlock on the board and no party elects to give notice under clause 9.1(a), then neither clause 9 nor any other covenant provided a mechanism to either unlock the impasse or compel one party to sell out to the other.
- [89]Clauses 8 and 9, together with the definition of “Event of Default”, operate in this way:
- (a)
- (b)a notice to remedy that failure is delivered to the defaulting party by the party alleging breach;[84] and
- (c)
- (d)upon the failure to remedy the default, there is an “Event of Default” entitling the party alleging default to give the defaulting party a notice of an “Event of Default” under clause 8; and
- (e)the delivery of the notice under clause 8 triggers the provisions of clause9 by deeming the defaulting party to have given a notice of sale to (relevantly here) the party serving the notice of an “Event of Default”.[86]
The issues
- [90]The case was commenced by originating application, not by claim. In the application, the Rankin interests claimed declarations and relief from forfeiture. At the trial, differently framed declarations were sought and a claim for relief from forfeiture was abandoned. The declarations ultimately sought were in these terms:
“1.A declaration that the Default Notice dated 16 January 2020 is not a valid and enforceable written notice under clause 1.1(g)(ii) of the Property Agreement between the parties.
2A declaration that the Notice of Event of Default dated 26 February 2020 is not a valid and enforceable written notice under clause 8 of the Property Agreement between the parties.
3A declaration that clause 9.1(b) of the Property Agreement between the parties was not engaged by the Notice of Event of Default dated 26 February 2020 being provided to the applicants.”[87]
- [91]During the hearing, I suggested to MrHodge QC that he might seek declarations as to the validity of the procedure his client followed so that in the event he was successful then the position as between the parties was declared. Without objection from MrJennings of counsel, who appeared for the Rankin interests, he sought declarations in these terms:
“1.A declaration that the ‘Default Notice’ issued by the respondents to the applicants dated 16 January 2020 was a written notice requiring remedy within the meaning of clause 1.1(g) of the Property Agreement between the parties.
2A declaration that the ‘Notice of Event of Default’ issued by the respondents to the applicants dated 26 February 2020 was a ‘written notice of an Event of Default’ within the meaning of clause 8 of the Property Agreement between the parties.”
- [92]As the case was commenced by application, not by claim, there were no pleadings. Directions were given for the exchange of affidavits which were to constitute the evidence in chief of the witnesses and for the exchange of outlines and submissions. This procedure did not result in the respective parties’ cases being precisely framed and, in my view, much of the evidence was difficult to relate to any real issue.
- [93]The parties did produce a list of issues in these terms:
“1.Did the applicants fail to comply with their obligations under the Property Agreement in one or more of the ways identified in the written notice from the respondents dated 16 January 2020?
- Are the ‘obligations’ referred to in the expression ‘Joint Venturer fails to comply with its obligations under this Agreement’ within the definition of ‘Event of Default’ in the Property Agreement (clause 1.1(g)(ii)) limited to obligations capable of being remedied?
- For a document to constitute a ‘written notice requiring remedy’ within the definition of ‘Event of Default’ in the Property Agreement is it necessary for that document to specify the remedy?
4If the answers to Issue 1 is ‘yes’, are all of those failures incapable of remedy?”[88]
- [94]While the list of issues is helpful, the issues are expressed very broadly. Outlines of submissions were exchanged before the hearing. They identified the factual matters of contention and contained legal submissions.
- [95]It is common ground that the Kendall and Ahern interests can only rely, in activating the rights under clause9, on alleged breaches of contract identified in the notice of 16January 2020. That is why issue one is framed in the way it is.
- [96]As earlier explained, the notice of 16 January 2020 was sent under cover of letter by Carter Newell. That letter made various assertions and recited various provisions of the property agreement. MrHodge QC conceded, rightly in my view, that the letter did not form part of the notice sent purportedly pursuant to clause8 of the property agreement.
- [97]The notice itself is in these terms:
“CMC Property Pty Ltd as trustee for the CMC Property Trust and Peter Kendall and David Ahern, give notice under the Property Agreement of in or about March 2012 (Property Agreement) that Bradley John Rankin and Rankin Investments (Qld) Pty Ltd, together being Joint Venturers under the Property Agreement (you), are in default of the Property Agreement, and in particular clauses 2.1, 4 and 6.1 thereof, and you are required to remedy that default within 28 days of the date hereof.
Particulars of the default are:
- on and since 19th December 2019, you have conducted yourself in a manner contrary to the orderly progress of the project and carrying out of the Joint Venture by Big Pineapple Corp Pty Ltd ACN 150 898 909 (the Company) in accordance with the Property Agreement. In particular:
- (a)on 19th December 2019, you emailed the following parties unilaterally, without our knowledge or consent, and without approval of the board of the Company:
- (i)Ceccatto Hall to effectively instruct them (and which was interpreted by them) to cease the contract tender process that was underway;
- (ii)Savills – to effectively instruct them to cease conducting any work on the leasing;
- (iii)Mitchell Brandtman – to effectively instruct them to hold off on any further work on the project as quantity surveyors; and
- (iv)Greg Bourke within the Company to cease public relations work;
- (b)on 19th December 2019, you forwarded an email sent from Mr Kendall to you (taking issue with an actual or potential undisclosed conflict of interest) to NAB contact Rob Longton – potentially frustrating or interfering with the Company’s application for finance for the project; and
- (c)you subsequently declined a request to meet with MrKendall as a fellow director of the Company.
- This conduct in disrupting the orderly carrying out of the project at this stage is highly detrimental to the project and the interests of the Company and the Unit Trust, including by jeopardising the obtaining of finance, jeopardising the State Government grant and ability of the Company to comply with the conditions of the grant, and damaging the goodwill of the project and brand.
This is a notice of default for the purposes of an ‘Event of Default'’ as defined in the Property Agreement.”[89]
- [98]The acts that are relied upon are the sending of the emails identified in paragraphs 1(a) and 1(b) of the notice. There is also an omission, namely failing to meet with MrKendall to discuss the matter. That is alleged in paragraph 1(c). The first sentence of paragraph 1 and the entirety of paragraph 2 are assertions as to the effect of the acts and the omission identified in clauses 1(a), (b) and (c).
- [99]The Rankin interests accept that the emails referred to in paragraph 1(a) were sent on 19 December 2019 to the recipients identified in the notice and accept that the instruction conveyed by these emails was for those persons to cease work. The Rankin interests accept that the email which had been sent from MrKendall to MrRankin was forwarded to MrLongton on 19 December 2019. The Rankin interests also accept that MrRankin did not meet with MrKendall within the time specified in the notice to remedy default, although the circumstances under which he declined to do so are in dispute.
- [100]MrHodge QC, in argument, put that the central issue was whether the Rankin interests had breached the property agreement by sending the emails identified in paragraph 1(a) of the notice.[90] As to the sending of the emails alleged in paragraph 1(b) of the notice, he said this:
“MR HODGE: - - - to the NAB. In reality, I’m not sure that l(b) takes us anywhere because if we don’t get up on l(a), we’re not going to get - - -
HIS HONOUR: You’re not going to get up on l(b).
MR HODGE: - - - up on 1(b).”
- [101]As to the alleged failure of MrRankin to meet with MrKendall, MrHodge QC said this:
“HIS HONOUR: Is because he’s brought everything to a halt.
MR HODGE: - - - is because he’s brought everything to a halt and, in effect, I mean, really, we say (a) is enough by itself bringing everything to a halt and then also say even if somehow it wasn’t, even if he could bring it to a halt without breaching the agreement, if he brings it to a halt and then refuses to meet to discuss or take any steps to actually try to start it back up again, then that must be the breach. But in the end, I’m not sure that that’s going to take us very much further than (a). If your Honour thinks that he’s entitled under the contract to bring everything to a halt, then it’s going to be hard, I think, I can see for us to show that he was entitled to bring everything to a halt but nevertheless he wasn’t entitled to then refuse to do anything to start it back up again.”[91]
- [102]In my view, the narrowing of the case for the Kendall and Ahern interests in the way described above was sensible and appropriate.
Was there a breach of the property agreement?
- [103]As previously observed, the proceedings were commenced by application. There are no pleadings. There should have been. In any case where there are a significant amount of documents and the parties intend to call evidence on disputed facts, pleadings are invariably necessary.
- [104]While a list of issues was belatedly produced, the respective cases are hardly properly and precisely identified by the terms of issueone.[92]
- [105]Evidence was led, and issue joined on matters which in the end have little or no bearing on the outcome.
- [106]The first example of this is the state of MrCostello’s (or JAM’s) services agreement. As previously observed, MrCostello’s involvement was the catalyst for the dispute. In Enyo Lawyer’s letter to Carter Newell of 13 July 2020, MrKendall allegedly reneging on the agreement with MrCostello is alleged to be an “Event of Default” by MrKendall. However, the Rankin interests did not submit that, upon a proper construction of the property agreement, a person in default cannot himself give a notice to remedy another party’s breach.
- [107]Another example is the evidence as to the form of the proposed contract for the work. At best, MrRankin and MrCostello’s evidence could have enabled the Rankin interests to assert that MrKendall had no reasonable basis to hold the suspicions which he did and which were expressed in his email to MrRankin of 19 December 2019. However, he apparently did hold that suspicion and the real issue is as to MrRankin’s response to receiving it.
- [108]Given that directions were made that the parties exchange affidavits and written submissions, I have approached the case on the basis that the submissions define the issues. I have not looked beyond these.
- [109]The parties differ as to the construction of the property agreement.
- [110]Central to the operation of clauses 8 and 9 is the commission of an “Event of Default” as defined in clause 1.1(g). Putting aside insolvency, an “Event of Default” occurs when a party “fails to comply with its obligations” and fails to remedy that failure within 28 days of receiving a notice to remedy.
- [111]Therefore, it is necessary to identify the “obligation” upon MrRankin not to send the emails. The Kendall and Ahern interests say that the sending of the emails breached clauses 2.1, 4 and 6.1.
- [112]MrJennings, for the Rankin interests, submitted that none of these provisions cast a relevant obligation.
- [113]MrHodge QC, cross-examined MrRankin putting to him that he and MrKendall had agreed that the BPC would do certain things. Those things included renovating the improvements on the land using the various consultants who ultimately received emails from MrRankin on 19 December 2019. Mr Rankin agreed.[93]
- [114]What is clear from the Kendall and Ahern interests’ written submissions and the cross-examination of MrRankin is that the case they put is:
- (a)the agreements between MrKendall and MrRankin to renovate the property and to engage the consultants constituted resolutions of the board of directors of BPC; and
- (b)countermanding those resolutions unilaterally (that is, without MrKendall’s agreement[94]) breached an “obligation” under the property agreement.
- (a)
- [115]Unanimous agreement between all directors of a company constitutes a resolution.[95] Clause 5.6 of the property agreement provides that “A resolution in writing signed by all members of the Board shall be as valid and effectual as if it had been passed at a duly convened meeting”.
- [116]It was not submitted on behalf of the Rankin interests that:
- (a)MrRankin and MrKendall had not resolved as a board that BPC would conduct the renovation utilising the consultants who were retained; or
- (b)that clause 5.6, by requiring a resolution to be in writing meant that a unanimous oral resolution was not a resolution of the board of BPC; or
- (c)that the agreements reached between MrRankin and MrKendall were not otherwise valid resolutions of the board of BPC; or
- (d)that MrRankin had not countermanded the resolutions; or
- (e)that Mr Rankin’s actions were not also those of Rankin Investments. This had some importance because the case for the Kendall and Ahern interests was that Mr Rankin’s actions left both Mr Rankin’s shares in BPC and Rankin Investments’ units in the trust vulnerable to acquisition by the Kendall and Ahern interests under clause 9.
- (a)
- [117]Therefore, the issue is whether Mr Rankin countermanding the resolutions breached an obligation of the Rankin interests.
- [118]Heydon and CrennanJJ, in Byrnes v Kendle,[96] a case concerning a trust, observed that the principles of construction of legal instruments be it a constitution, another statute, a trust or a contract, are essentially the same. The aim is to objectively ascertain the intention expressed in the text with that language being interpreted against the context of the surrounding circumstances.[97]
- [119]Because a contract is a commercial arrangement, the context against which the bargain is reached will include the purpose of the contract and the object sought to be achieved by the parties.[98] It follows that the construction of a commercial agreement is conducted on the assumption that the text was intended to produce a commercial result.[99]
- [120]As already observed, the property agreement does not contain any agreement as to what will be built on the property or how it will be financed. The property agreement recognises the parties’ shareholdings in BPC, their interests in units in the trust and the fact that they are represented on the board of directors of BPC. The property agreement then governs the behaviour of the parties in relation to BPC which the property agreement recognises as the developer of the land.
- [121]What is contemplated by the property agreement is that the board of directors of BPC will make decisions about the development of the land.[100] That is hardly novel. However, by clauses 2.1 and 5.4 the parties make specific covenants with each other. Firstly, they agree that BPC will develop the land “as the board may determine”.[101] By clause 5.4, the parties agreed that “the decision of the board will bind the joint venturers”.[102] These provisions mean that where BPC, by resolution of its board, resolves to do or refrain from doing something, each of the joint venturers covenant with each other that the company will do or refrain from doing all those things.
- [122]Against that understanding of the basic structure of the property agreement, clause6 can be understood. It records four “undertakings” which the parties make with each other. Clause 6.1(a) expressly requires the doing of things (the taking of “necessary steps”). Clauses 6.1(b) and 6.1(c) prohibit the doing of things and clause6.1(d) requires the parties to be “just and faithful” to each other.
- [123]Clause 6.1(a) requires the parties to take reasonable steps “to give full effect to the provisions of this agreement”. Those provisions include, notably, clauses2.1 and 5 which provide that the development of the land will be conducted as resolved by the board whose decisions bind the parties.
- [124]Therefore, if the board of directors of BPC has resolved to take a certain course, the decision of the board will “bind the joint venturers” and parties must each “take reasonable steps … to give full effect to provisions of the agreement” including the binding nature of the decisions of the board and that the board is responsible for the “implementation of the project”.[103].
- [125]Clause 6.1(a) is expressed in positive terms in that it speaks of what a party must do, rather than what it must not do. However, a party does not “take necessary steps” to give effect to the provisions of the agreement if it acts inconsistently with the agreement.
- [126]Clause 6.1(b) need not be considered but clause6.1(c) prohibits the doing of a thing which might jeopardise “the continued enjoyment of the Land for the purpose of the Joint Venture”.[104] The notion of “enjoyment of the land’ must be understood on the basis that the “enjoyment of the land” is “for the purposes of the joint venture”. The joint venture is defined as “means the association of the parties pursuant to and for the purposes of this agreement”, and “the purposes of the agreement” clearly includes the development of the land[105] being undertaken by BPC through its board of directors.[106] What is prohibited by clause6.1(c) includes any act jeopardising the development of the land in the way determined by the board. “Jeopardise” in this sense means to harm or retard the development.
- [127]MrRankin has an “obligation” not to take action which prevents the carrying out of BPC’s decisions made through its board of directors. If the board of BPC has resolved for work to be done and has retained consultants who are performing that work, then he has breached his “obligations” under both clause6.1(a) and clause6.1(c) by causing the consultants to stop work.
- [128]MrHodge QC, in his cross-examination of MrRankin:
“MR HODGE: Mr Rankin, I just want to ask you a few questions. I wanted to start with the process by which you recall Big Pineapple having made decisions. You and Mr Kendall, since at least 2014, have been the only two directors of the Big Pineapple Company?---Yes.
And you haven’t held formal board meetings?---No.
The way in which you made decisions is that you will discuss things either in person or by phone or by email or text?---Yes.
And you have at least until the 19th of December 2019 preceded by consensus – that is, the two of you would jointly agree on a course that you were going to adopt for the Big Pineapple Property?---Yes.
And the two of you had agreed at some stage to apply for the development grant from the State of Queensland?---Yes.
And the two of you had agreed to sign the development agreement with the State?---Yes.
And the two of you had agreed that you would remodel the main building on the property?---Yes.
And the two of you had agreed that you would apply to the NAB for financing approval to fund the works on the main building?---Yes.
And the two of you had agreed to appoint Ceccato Hall to manage the process of carrying out the remodelling of the main building?---Yes.
And the two of you had agreed to have Ceccato Hall bring in tenders for that work?---Yes.
And the two of you had agreed to retain Savills as the leasing agents for the property?---Yes.
And the two of you had agreed to instruct them to undertake leasing work for the property?---Yes.
And they were, as at the 19th of December 2019, undertaking that leasing work? They were going out, trying to bring in - or find potential tenants?---Yes.
And those were tenants for the main building once it was - once the renovation works were complete?---Yes.
And the two of you had agreed to retain a person named Greg Bourke for marketing?---To – I’m not sure on that one, actually.
Why is that – you’d suggested Mr Bourke, hadn’t you, for marketing?---I didn’t know Mr Bourke.
You didn’t know Mr Bourke?---No.
It – how - - -?---Prior to.
Prior to him coming on board?---Yes.
And when you say you’re not sure about whether you - - -?---Because I was of the understanding that he was to take it up to approval stage, and we were unsure whether there was any need for him to go further forward.
I see. Let me see if I’ve understood correctly. You had at some time in the past agreed that you would use Mr Bourke - - -?---Correct.
- - - to market the Big Pineapple property?---Yes. …
You had agreed to use Mr Bourke for marketing up to the point where you obtained the development approval?---Yes.
And that – again, I think you’ve understood each time I’ve said ‘you have agreed’, I’m referring to you and Mr Kendall as the two directors. You’ve understood that?---Yes.
And that’s how you’ve been answering my questions?---Yes.
And I think then the point you’re just trying to draw is you’re not sure that the two of you had actually agreed that you would need to keep using Mr Bourke after you obtained the development approval?---Well, if my memory serves me correct, Mr Kendall suggested that we no longer needed Bourke’s services, and that was all to do with expenditure, which I would agree with.
I see. And you – the two of you had agreed that you would use – is it Mitchell Bradman?---Mitchell Brampton. Yes.
Brandtman. I’m sorry. He’s the quantity surveyor?---Correct.
And he was providing quantity surveying services in respect of works– other renovation works that were going on at the property?---Correct.
And again, the two of you had agreed that you would use him?---Yes.
And given him instructions to carry out, as needed, quantity surveying works?---Yes. …”[107]
- [129]Later, still in cross-examination by MrHodge QC:
“MrRankin, you understand, don’t you, that at no stage has MrKendall ever agreed to Ceccato Hall stopping work?---Yes.
And you understand that at no stage has MrKendall ever agreed to Savill stopping work?---Yes.
And you understand that at no stage, has MrKendall ever agreed to Mitchell Brandtman stopping work?---Yes.
I think you say you’re not certain that MrKendall wanted MrBourke to continue with work, is that right?---That’s how I remember it. Yes.
Okay. And so on the 19th of December when you emailed Ceccato Hall and told them to stop work, you knew you weren’t doing it with MrKendall’s agreement?---I – I don’t understand the question. I – you knew – could you repeat that again, please?
Yes. You know that on the 19th December 2019, you emailed Ceccato Hall and told them to stop doing work?---Yes.
And you knew that that wasn’t something that MrKendall had agreed to?---Yes.
And you also emailed Savills and told them to stop doing work on the 19th of December?---Yes.
And you knew that wasn’t something that MrKendall had agreed to?---Yes.
And you also emailed MrBrampton – I might be mispronouncing his name or written it down incorrectly, but in any event, the quantity surveyor and told him to stop doing work on the 19th of December?‑‑‑Yes.
And you knew that that wasn’t something that MrKendall had agreed to?---Yes.
And you also emailed MrBourke and told him to stop doing work?‑‑‑Yes.
But you think – it was possible that in any event, MrKendall didn’t want MrBourke to keep doing work?---Correct.
Okay. You weren’t thinking about that though when you sent the email to MrBourke?---No.”
- [130]MrHodge QC did not suggest to MrRankin that he understood that the agreements being reached with MrKendall were resolutions of the BPC. He did not directly put to MrRankin that he understood that MrAhern was participating in those resolutions through MrKendall. As explained by the authors of Ford’s Principles of Corporations Law,[108] awkward questions can arise as to whether particular agreements reached between directors amount to a resolution of the company.
- [131]MrJennings did not submit, in his written submissions or orally that the agreements reached were not resolutions. Given that the case was conducted without pleadings and on the understanding that the issues were defined by the submissions, I have assumed that the agreements reached between MrRankin and MrKendall were resolutions of BPC.
- [132]Therefore, I find that there were resolutions of BPC to:
- (a)remodel the main building;
- (b)apply to the National Australia Bank for finance;
- (c)engage Ceccato Hall to undertake the contract tender purposes;
- (d)engage Savills to seek tenants of the property;
- (e)engage Mitchell Brandtman to perform quantity surveying; and
- (f)engage Greg Bourke to perform public relations work.
- (a)
- [133]Under cross-examination, MrRankin accepted that the emails of 19 December 2019 constituted instructions to those people to stop work. He accepted that the directions to stop work were given unilaterally by him and were not the subject of agreement by MrKendall, except perhaps in relation to MrBourke.
- [134]It follows that the sending of the emails of 19 December 2019 was done contrary to MrRankin’s “obligations” imposed by clauses 2.1, 6.1(a) and 6.1(c).
- [135]The Kendall and Ahern interests also relied upon clause4 and the obligations of the joint venturers “to use their best efforts in the carrying out of all their obligations for the purpose of the joint venture”. There was debate as to whether a separate “obligation” to use “best efforts” was created by clause4.
- [136]Clause 4 does not take the Kendall and Ahern interests very far. “Best endeavours” must be used in the carrying out of “obligations”, so clause4 only operates once an “obligation” can otherwise be identified. Here, the “obligations” were found in clauses 2.1, 6.1(a) and 6.1(c), as I have explained.
- [137]The Rankin interests, in final submissions, raised an issue as to whether the sending of the emails of 19 December 2019 had any consequences. It was then submitted:[109]
“MR JENNINGS: My simple point is this, by – and I don’t mean to cut across your Honour. By 16 January when one is talking just about breach, that hasn’t occurred.
HIS HONOUR: Why?
MR JENNINGS: Because nothing has been shown to be in jeopardy and then, in terms of the enjoyment of the land or the development of the land, your Honour will recall there’s evidence that, at that stage, they’d only progressed 25 per cent through the tendering process. And the development architects who were responsible for project managing the job had received all noncompliant or unsatisfactory tenders that were well in advance of a relevant - the budget put in place or well above, I should say, the relevant budget.
HIS HONOUR: But these people are all – 1 through to 4 are all the consultants on the project.
MR JENNINGS: Yeah, yes.
HIS HONOUR: Right. So they’re all the consultants and the evidence is that they hold instructions and they’re working.
MR JENNINGS: No.
HIS HONOUR: So you say they were doing nothing.
MR JENNINGS: Well, certainly, they hold instructions. But the evidence is that Ceccato Hall were managing the process. They certainly say to the tenderers hold fire and they do that before this default notice is issued. And they say that in a letter I’ll take your Honour to or I’ll give your Honour the reference to, at least. But shortly after this default notice, there are the emails or correspondence between MrHall and Mr Kendall where he says, look, the response to the second stage or the ongoing stage of the tendering process was unsatisfactory and we can’t take it any further. So it’s in that context that one must, in my respectful submission, consider whether there has been any breach by putting the project or jeopardy or otherwise as is stated or framed in the default notice. It’s just not made out in the evidence, in my submission. Now, contrast that to a position where the parties find themselves four, five or six months down the track where you can – and we’re not talking about a four-week period over the Christmas break, right, where you might be able to demonstrate things that had been postponed and delayed. Well, that’s a different kettle of fish.”
- [138]MrHodge QC, in his final oral reply submissions, said that the issue was a new one and that explained why he had not met it with evidence. In fairness to MrJennings, the issue was raised, albeit obliquely, in his written submissions.[110] In any event, MrHodge QC pointed to what evidence there was in the case to resist the submission.
- [139]The evidence suggests an inference which I draw that the development was jeopardised by the sending of the emails of 19 December 2019. The completion of the project was delayed when work stopped. BPC is carrying debt and no doubt incurring interest. The lost time will have a financial consequence.
- [140]I therefore find that the Kendall and Ahern interests have made out that the sending of the emails on 19 December 2019 constitute a breach of “obligations” in clauses 2.1, 6.1(a) and 6.1(c). It was never submitted by the Rankin interests that the validity of the notice to remedy default was undermined if one alleged breach (of clause4) was not made out.
The form of the notice
Can notice be given for a breach incapable of remedy?
- [141]This is issue two as identified by the parties.
- [142]What is alleged is that on 19 December 2019, MrRankin breached the property agreement by sending the emails and causing the development to halt. That cannot be “remedied” in the sense that the emails cannot be withdrawn and the development retrospectively recommenced. Obviously, any recommencement would occur as and from the time the emails are countermanded. MrRankin refused to hold a meeting with MrKendall. Again, that cannot be undone. MrRankin and MrKendall did not meet until 4 March 2020 and then only over the telephone.[111]
- [143]The Rankin interests submit that only breaches capable of remedy (in the sense that the position is restored as if there had never been breaches) avail a party of the procedure in clauses 8 and 9. It was submitted that when the breach cannot be remedied in that sense, then the procedure in clauses 8 and 9 is not available and the party alleging breach must then rely on common law rights consequent upon breach.
- [144]The Kendall and Ahern interests submit that the concept of “remedy” means to “put right for the future”. It was submitted that the breaches here could be “remedied” by the Rankin interests sending further communications to the consultants and the National Australia Bank, countermanding the instruction in the emails of 19 December and causing the development to continue. The refusal to meet with MrKendall could be remedied by meeting with him. None of these things were done within the time required by the notice.
- [145]Various decisions were cited to me which have considered clauses and provisions similar to clauses 8 and 9 of the property agreement. Ultimately though, the issue is resolved upon a construction of the property agreement. In Scala House and District Property Co Ltd v Forbes & Ors,[112] a tenant assigned his lease without the consent of the landlord in breach of a covenant prohibiting assignment without consent. An issue arose as to whether the breach was capable of remedy. That was relevant to the determination of the validity of a notice given under the Law of Property Act 1925 (UK). It was held that the breach was incapable of remedy. In so finding, the court drew a distinction between positive covenants and negative covenants; that is, covenants requiring the doing of something and covenants requiring a party to abstain from doing something. Once a negative covenant was breached by the doing of something, then that cannot be undone and therefore not “remedied”.
- [146]
“may by notice in writing to the other determine this agreement forthwith if–
- (i)the other shall have committed a material breach of its obligations hereunder and shall have failed to remedy the same within 60 days of being required in writing to do so.”
- [147]After analysing the distributor agreement and noting the various commercial ramifications of different possible interpretations, Lord Reid observed:
“It appears to me that clause 11(a)(i) is ·intended to apply to all material breaches of the agreement which are capable of being remedied. The question then is what is meant in this context by the word ‘remedy.’ It could mean obviate or nullify the effect of a breach so that any damage already done is in some way made good. Or it could mean cure so that matters are put right for the future. I think that the latter is the more natural meaning. The word is commonly used in connection with diseases or ailments and they would normally be said to be remedied if they were cured although no cure can remove the past effect or result of the disease before the cure took place. And in general it can only be in a rare case that any remedy of something that has gone wrong in the performance of a continuing positive obligation will, in addition to putting it right for the future, remove or nullify damage already incurred before the remedy was applied. To restrict the meaning of remedy to cases where all damage past and future can be put right would leave hardly any scope at all for this clause. On the other hand, there are cases where it would seem a misuse of language to say that a breach can be remedied. For example, a breach of clause 14 by disclosure of confidential information could not be said to be remedied by a promise not to do it again.”[115] (emphasis added)
- [148]In a much earlier case in New South Wales, Batson v De Carvalho,[116] SugarmanJ considered a section of the Conveyancing Act 1919 which required the giving of a notice to remedy breach of a lease before forfeiture. Like in Scala House, there had been a purported assignment without consent. His Honour observed:
“It may be objected, and it has been objected in this case, that here the covenant requires a consent ‘first had and obtained.’ But I draw attention to the word ‘remedy’ and to the passage which I have cited from the judgment in Egerton v Esplanade Hotels London Ltd. To ‘remedy’ a breach is not to perform the impossible task of wiping it out—of producing the same condition of affairs as if the breach had never occurred. It is to set things right for the future, and that may be done even though they have for some period not been right, and even though that may have caused some damage to the lessor (for which he is entitled to claim compensation under s.129(1)(c)) provided: Rugby School (Governors) v Tannahill, that the breach has not resulted in a detriment to the premises which cannot be removed within a reasonable time. The physical analogy in the use of the word ‘remedy’ (and similar words, such as ‘cure,’ in other branches of the law) may be referred to, not as an argument but to illustrate what is meant. A breach may be remedied, I think, even though the time for doing the thing under the covenant may have passed, or the order of events stipulated for in the covenant can no longer be observed; to hold otherwise would be to deprive s.129(1)(b) of a great deal, if not all, of its operation.
For these reasons I come to the conclusion that the notice was also defective in that the breach was ‘capable of remedy,’ if not in any other way, then by seeking the consent of the lessor, and the notice did not require the plaintiff to remedy it.”[117] (emphasis added)
- [149]That passage has been consistently followed in Australia[118] and in particular by MuirJA, with whom McMurdoP and DutneyJ agreed, in Nashvying Pty Ltd & Ors v Giacomi.[119] Nashvying was a case concerning a lease where s124 of the Property Law Act 1974 was under consideration. His Honour reviewed the relevant authorities, including Scala and Batson and concluded as follows:
“[76]The weight of authority thus supports the conclusion that ‘once and for all’ breaches, whether of negative covenants or otherwise, are not necessarily incapable of remedy within the meaning of s124(1) of the Property Law Act. The evidence does not establish that the subject breach was incapable of remedy within a reasonable time: that was not a focus of the evidence on the trial. The notice of 29 November 2005 failed to comply with the requirements of s124 and the purported notice of termination, insofar as it relied on the failure to remedy the subject breach, was ineffective. In view of the above conclusions, it is unnecessary to decide whether it is necessary to give a notice under s124 in respect of a breach incapable of being remedied.”
- [150]As already observed, the property agreement does not specify how the development is to proceed other than as directed by the board of directors of BPC. The property agreement governs how the board will operate. It is primarily clause6 which casts obligations on the parties. Clause6 binds the parties to comply with clause5 which is the provision regarding how the board will operate.
- [151]Clauses 8 and 9 do not provide an exclusive code of remedies available upon breach. Nothing in clauses 8 or 9, or the definition of “Event of Default”, or for that matter any other clause in the property agreement, either expressly or impliedly restricts or modifies common law rights to recover damages for breach or to rescind upon fundamental breach.
- [152]What clauses 8 and 9 do is provide a mechanism whereby one party may force the other to sell out its interests where there has been a breach of the property agreement which, as already observed, contains covenants mainly concerned with the conduct of the parties and the board of directors. If the compulsory buy-out occurs, then the party who takes control of BPC can cause the company to perform the development as it sees fit. However, clauses 8 and 9 provide that the party in breach should be given notice to remedy before the buy-out is forced upon it.
- [153]Against that background, it is in my view clear that the intention of clauses 8 and 9 is to give the breaching party the opportunity to put matters right for the future so the development can proceed. That is the intention of the provisions regardless of whether the covenant which is breached imposes positive or negative obligations. The available remedy for the breaches alleged here would consist of further communications with the consultants withdrawing the stop work direction, advising the bank that the development is proceeding, and meeting with MrKendall. Those actions would remedy the breaches enabling the development to proceed. That is consistent with the intention of the parties evidenced by the agreement.
Failure to specify the remedy in the notice
- [154]This is issue three identified by the parties.
- [155]It is common ground that the notice identifies the breaches and calls for remedy of the breaches, but it does not specify what is required to be done by the Rankin interests to constitute remedy.
- [156]The Rankin interests say this is a defect which is fatal to the validity of the notice. Reliance is made upon cases concerning the validity of notices given under various statutory provisions.
- [157]The Kendall and Ahern interests submit that no analogy should be drawn with the cases concerning statutory notices and that on a proper construction of the property agreement all that is required is identification of the breaches and a call to have them remedied within 28 days.
- [158]A number of jurisdictions have legislation which prescribe processes which a landlord must follow before terminating a lease. In Queensland, this is provided for by s124 of the Property Law Act 1974.
- [159]There is no doubt that under s124 of the Property Law Act a notice to remedy breach of a lease must identify what is required to remedy the breach.[120] This, though, is hardly surprising given that s124 of the Property Law Act requires service of the notice in terms of a prescribed form and the form requires the lessor to specify how the breach is to be remedied.[121]
- [160]In Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service,[122] HodgsonJA reviewed a number of authorities the upshot of which is that the content of a valid notice will depend upon a proper construction of the statute under which it was given and the circumstances of the particular breach.[123] Whether the terms of clauses 8 and 9 and the definition of “event of default” required a notice to specify what is required to remedy the breach, cannot be determined by reference to cases which have considered particular statutory provisions[124] but must be considered upon a construction of the property agreement.[125]
- [161]However, the cases which have concerned statutory provisions requiring notices to remedy breaches of leases are of some assistance because the purpose, at least, of requiring service of a statutory notice to remedy breach of a lease is the same as clauses8 and 9 of the property agreement; that the lessee (or the Rankin interests under the property agreement) are alerted to the particular breaches relied upon and told that failure to remedy may lead to termination of the lease (or here the activation of the buy-out).[126]
- [162]However, that does not mean that specific remedial steps must be nominated.
- [163]The obligations upon the parties which may be breached and which may be the subject of a notice are largely contained within clause6. As already observed, clause6 requires the parties to do some acts and refrain from doing others. Specific acts or omissions are (apart from clause6.2) not prescribed and the obligations cast upon parties to the property agreement are drawn in broad terms.
- [164]It is somewhat artificial to draw a sharp distinction between the identification of breach and the specification of the required remedy. In many cases, the statement of the breach will itself identify what is required. For example, clause6.1 obliges the parties to take “all reasonable steps … to give full effect to the … agreement”. Identification of the step not taken obviously also identifies what must be done, namely the taking of the step which was not taken.
- [165]Here, the notice identifies the act(s) of default and calls upon the defaulting party to put right the wrongful action. There may be various ways for a wrongdoer to achieve that. Provided that the wrongdoer does put right the wrong, it will have not committed an act of default. It would not matter whether the wrong was corrected in the specific way that the party serving the notice might prefer. Provided that the acts said to constitute the breach are clearly identified and the notice also identifies the obligation breached, the notice will serve its purpose to place the breaching party on notice as to what is alleged and the fact that it must be put right.
- [166]Here, the notice identifies with significant particularity exactly what was done and which is complained about. In paragraph 1(a), the complaint is clearly the sending of emails. The dates, the recipients, and the effect of the emails are all spelt out. The same can be said of the email referred to in paragraph 1(b). The other allegation is that MrRankin refused to meet with MrKendall. There are no particulars given of the date or times of the request but that hardly matters. The refusal to meet with MrKendall is a clear enough allegation.
- [167]The notice goes on to identify how the sending of the emails and the failure to meet have affected the joint venture. The conduct is said to be “contrary to the orderly progress of the project and the carrying out of the joint venture”[127] and the conduct is “disrupting the orderly carrying out of the project”.[128] Reasons are given for that allegation, namely “jeopardising the obtaining of finance, jeopardising the State Government grant and ability of the Company to comply with the conditions of the grant, and damaging the goodwill of the project and brand”.[129] That is obviously what is alleged to be jeopardising “the continued enjoyment of the Land for the purposes of the Joint Venture”.[130]
- [168]Upon receipt of the notice, the Rankin interests would clearly understand what has to be “put right”. Steps have to be taken to countermand the instructions in the emails of 19 December 2019 and a meeting of directors (formal or otherwise) must be called and had.
- [169]The notice is a valid notice under the terms of the property agreement.
Conclusions and orders
- [170]I find that:
- (a)the Rankin interests breached their obligations under the property agreement;
- (b)the Kendall and Ahern interests gave a valid notice requiring remedy of the breaches;
- (c)the Rankin interests failed to remedy the breaches;
- (d)clauses 8 and 9 of the property agreement were triggered; and
- (e)the Kendall and Ahern interests gave a valid notice under clause8 of the property agreement and the right identified in clause9 arose in favour of the Kendall and Ahern interests.
- (a)
- [171]Consistently with those findings, I order:
- The applicants’ application is dismissed.
- It is declared:
- (a)that the “Default Notice” issued by the respondents to the applicants dated 16 January 2020 was a written notice requiring remedy within the meaning of clause 1.1(g) of the property agreement between the parties.
- (b)that the “Notice of Event of Default” issued by the respondents to the applicants dated 26 February 2020 was a “written notice of an Event of Default” within the meaning of clause8 of the property agreement between the parties.
- The parties will be heard on the question of costs.
Footnotes
[1]The second applicant.
[2]The second respondent.
[3]The third respondent.
[4]The first applicant.
[5]The first respondent.
[6]Property agreement, clauses 1.1(g) and 8, “Event of Default”.
[7]Mr Rankin says it was signed in May 2011. Mr Kendall says it was signed in around December 2011. The document, which is exhibit 2 to the first affidavit of B Rankin (CFI 2), is not dated.
[8]Affidavit of P Kendall (CFI6), paragraph13.
[9]Affidavit of JCostello (CFI8), paragraphs 1 and 2.
[10]Affidavit of P Kendall (CFI6), paragraph 44; Affidavit of JCostello (CFI8), paragraph 5.
[11]Affidavit of P Kendall (CFI6), paragraph 15.
[12]Affidavit of P Kendall (CFI6), paragraphs 17 to 29; Second affidavit of B Rankin (CFI9), paragraphs 2, 9, 10 and 13.
[13]Affidavit of P Kendall (CFI6), paragraphs 30-33.
[14]Affidavit of P Kendall (CFI6), paragraphs 38-43.
[15]T1-43 to 44.
[16]T1-43 to 44.
[17]I will refer collectively to Ceccato Hall, Savills, Mitchell Brandtman and Greg Bourke as “the consultants”.
[18]First affidavit of B Rankin (CFI2), paragraph 22.
[19]Examined later.
[20]No doubt a reference to mezzanine funding.
[21]Affidavit of P Kendall (CFI6), exhibit PTK-1, document 18.
[22]Affidavit of P Kendall (CFI6), exhibit PTK-1, document 19.
[23]Affidavit of P Kendall (CFI6), exhibit PTK-1, document 20.
[24]Affidavit of P Kendall (CFI6), exhibit PTK-1, document 21.
[25]Clearly a reference to MrKendall.
[26]First affidavit of B Rankin (CFI2), exhibit 11.
[27]First affidavit of B Rankin (CFI2), exhibit 12.
[28]Affidavit of P Kendall (CFI6), exhibit PTK-1, document 22.
[29]First affidavit of B Rankin (CFI2), exhibit 13.
[30]Affidavit of P Kendall (CFI6), exhibit PTK-1, document 23.
[31]Affidavit of P Kendall (CFI6), exhibit 24.
[32]In fact it was 19 December 2019.
[33]First affidavit of B Rankin (CFI 2), exhibit 16.
[34]A reference to Howard Hall and Joe Ceccato of Ceccato Hall, the architects.
[35]Affidavit of LMcMahon (CFI3), exhibit pages 97-99.
[36]See later analysis of the agreement.
[37]Affidavit of LMcMahon (CFI3), exhibit 8, 9 and 11.
[38]Affidavit of LMcMahon (CFI3), exhibit 9, page 128.
[39]Affidavit of D Ahern (CFI6), paragraphs 10, 13, 15 and 16.
[40]Second affidavit of B Rankin (CFI9), paragraphs 22-27.
[41]Peter Kendall.
[42]Bradley Rankin.
[43]Affidavit of P Kendall (CFI7), exhibit PTK-1, document 25.
[44]First affidavit of B Rankin (CFI2), paragraphs 10 and 11.
[45]Affidavit of P Kendall (CFI6), paragraph 44.
[46]First affidavit of B Rankin (CFI2), exhibit 5.
[47]First affidavit of B Rankin (CFI2), exhibit 6.
[48]First affidavit of B Rankin (CFI 2), paragraph 15.
[49]First affidavit of B Rankin (CFI 2), exhibit 7.
[50]First affidavit of B Rankin (CFI2), exhibits 7 and 8.
[51]Affidavit of P Kendall (CFI7), paragraph 44.
[52]Paragraph 45.
[53]A reference to commissions.
[54]Affidavit of P Kendall (CFI7), exhibit PTK-1, document 13B.
[55]Affidavit of P Kendall (CFI7), exhibit PTK-1, document 15.
[56]First affidavit of B Rankin (CFI2), exhibit 18.
[57]For example, T1-47, lines 30 to 36; T 1-47, line 40 to T 1-48 line 25; T l-48, lines 30 to 45; T1-50, lines 5 to 25; T1-50, lines 42 to 45; T1-51, lines 5 to 35; T1-52, lines 4 to 43; T1-53, lines 5 to 43.
[58]First affidavit of B Rankin (CFI 2), exhibit 18 (Fox and Company letter).
[59]CFI 8.
[60]Affidavit of J Costello (CFI8), paragraph 19.
[61]CFI 7.
[62]T1-84.
[63]T1-85.
[64]Mr Costello.
[65]T1-88 to 1-89.
[66]T1-90.
[67]T1-61 to 64.
[68]T1-95 to 96.
[69]T1-96.
[70]Lagos.
[71]Kendall.
[72]Rankin.
[73]In clause 3.3(b), there is reference to clause 19. That clause relates to confidentiality and is not relevant here.
[74]Clauses 10 and 11.
[75]Clause 12.
[76]Clause 14.
[77]Clauses 13, 15, 16, 17, 20.1, 20.2, 20.3, 20.4, 20.5, 20.6, 20.10, 20.11 and 20.12.
[78]Clause 19.
[79]Clauses 18, 20.8 and 20.9. It could also convene with a quorum of one.
[80]Finance and equity.
[81]Clause 5.7.
[82]Clause 5.10.
[83]Definition of “Event of Default”, clause 1.1(g)(i).
[84]Definition of “Event of Default”, clause 1.1(g)(ii).
[85]Definition of “Event of Default”, clause 1.1(g)(ii).
[86]Clause 9.1(b). The notion of a notice of sale is created by clause 9.1(a).
[87]Tendered as exhibit 7.
[88]A fifth issue but that related to relief from forfeiture which has been abandoned.
[89]First affidavit of B Rankin (CFI 2), exhibits page 124.
[90]T2-52.
[91]T2-52.
[92]See paragraph [93] of these reasons.
[93]See paragraph [128] of these reasons.
[94]MrKendall’s agreement with MrRankin would constitute a resolution of the board of directors of BPC.
[95]Swiss Screens (Aust) Pty Ltd v Burgess (1987) 11 ACLR 756 at 758 and the various authorities referred to by Muir J (as his Honour then was) in Circle Petroleum (Qld) Pty Ltd & Ors v Greenslade (1998) 16 ACLC 1577.
[96](2011) 243 CLR 253.
[97]At 282-290, [95]-[116].
[98]Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 461-462, [22]; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2014) 219 CLR 165; and Electricity Corporation v Woodside Energy Ltd & Ors (2014) 251 CLR 640 at 656-657, [35] and the other authorities mentioned there.
[99]Electricity Corporation v Woodside Energy Ltd & Ors (2014) 251 CLR 640 at 656-657, [35].
[100]Clauses 2.1 and 5.1.
[101]Clause 2.1.
[102]Clause 5.4.
[103]Clause 5.1 and clause 1.1(w) definition of “the Project”.
[104]Emphasis added.
[105]Defined as “the Project”.
[106]Clause 5.1.
[107]T1-43 and 1-44.
[108]RP Austin and IM Ramsay, LexisNexis Butterworths, “Ford’s Principles of Corporations Law”, 17th edition 2018, paragraph 7.340.
[109]T2-80 to 81.
[110]Paragraph 41.
[111]See paragraph [39] of these reasons.
[112][1974] 1 QB 575.
[113]Expert Clothing Services & Sales Ltd v Hillgate House Ltd [1985] 2 All ER 998, Savva v Hussein (1996) 73 P & CR 150, LSchuler AG v Wickham Machine Tool Sales Ltd [1974] AC 235.
[114][1974] AC 235.
[115]At pages 249-250.
[116](1948) 48 SR (NSW) 417.
[117]Page 427.
[118]Tricontinental Corporation Ltd v HDFI Ltd (1990) 21 NSWLR 689 at 702 and 722-723 and Burger King Corporation v Hungry Jack’s Pty Ltd [2001] NSWCA 187.
[119][2007] QCA 454.
[120]Clarke v Japan Machines (Australia) Pty Ltd [1984] 1 Qd R 404 at 413; see also Tyrrell v Jesbro Enterprise Pty Ltd [2017] 2 Qd R 634.
[121]Ex parte Taylor [1980] Qd R 253, Nashvying Pty Ltd & Ors v Giacomi [2007] QCA 454 at [52]-[63].
[122](2010) 15 BPR 28,563.
[123]Paragraphs 303-328. Here of course there is a contract not a statute.
[124]Burger King Corporation v Hungry Jack’s Pty Ltd [2001] NSWCA 187 at [467].
[125]Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty Ltd (No 3) [2012] VSC 99.
[126]Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service (2010) 15 BPR 28,563 at 309 following cases such as Fletcher v Nokes (1897) 1 Ch 271.
[127]Paragraph 1.
[128]Paragraph 2.
[129]Paragraph 2.
[130]Clause 6.1(c).