TradeCoast Land Pty Ltd v TradeCoast Central Pty Ltd
[2021] QSC 25
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- Unreported Judgment
- TradeCoast Land Pty Ltd v TradeCoast Central Pty Ltd[2021] QSC 25
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TradeCoast Land Pty Ltd v TradeCoast Central Pty Ltd[2021] QSC 25
TradeCoast Land Pty Ltd v TradeCoast Central Pty Ltd[2021] QSC 25
SUPREME COURT OF QUEENSLAND
CITATION: | TradeCoast Land Pty Ltd v TradeCoast Central Pty Ltd & Ors [2021] QSC 25 |
PARTIES: | TRADECOAST LAND PTY LTD ACN 111 428 212 (plaintiff) v TRADECOAST CENTRAL PTY LTD ACN 100 972 530 (first defendant) and QUEENSLAND REGISTRAR OF TITLES (second defendant) and BRISBANE CITY COUNCIL (third defendant added by counterclaim) |
FILE NO/S: | 2075/20 |
DIVISION: | Trial |
PROCEEDING: | Application |
ORIGINATING COURT: | Supreme Court of Queensland |
DELIVERED ON: | 26 February 2021 |
DELIVERED AT: | Brisbane |
HEARING DATE: | 1 December 2020 |
JUDGE: | Dalton J |
ORDER: | Further disclosure is to be made by the first defendant |
COUNSEL: | P Franco QC with S Eggins for the plaintiff and third defendant by counterclaim M R Hodge QC with R Ivessa for the first defendant |
SOLICITORS: | MinterEllison for the plaintiff and third defendant by counterclaim Tucker & Cowen Solicitors for the first defendant |
- [1]The plaintiff applies for further disclosure. The dispute between the plaintiff and the first defendant arises from a Development Agreement entered into between them in November 2004. At that time the Brisbane City Council owned a large area of land near the Brisbane Airport. The Development Agreement contemplated that BCC would transfer that land to the plaintiff which would thereafter hold it, and dispose of it, only as permitted by the Development Agreement. The first defendant would develop the land for sale as subdivided land without any building improvements on it. This was referred to as the Project.
- [2]As the first defendant developed the land, the plaintiff was to receive money in two ways. As each lot of developed land sold, it would receive a proportionate part of what the Development Agreement called the Guaranteed Base Land Price, an amount of $43 million. It would also receive an amount of money each year called the Deferred Land Price. This was an amount equivalent to 33% of any Project Surplus for the year. Project Surplus was defined to mean an excess of Project Revenues over Project Costs. Project Revenues was defined as income to the project. Project Costs was defined in a detailed way. The definition included the elements that it was money spent on behalf of the parties to the Development Agreement, and spent for the implementation of the Project.
- [3]During the 15 years which followed the making of the Development Agreement much of the land was developed and sold. Six months before the fifteenth anniversary of the Development Agreement, the plaintiff began to query the first defendant’s calculation of Deferred Land Price over the preceding 14 and a half years.
- [4]Clause 20.2 of the Development Agreement provided that on the earlier of: (1) the fifteenth anniversary of the Development Agreement; (2) completion of the Project, or (3) termination of the Development Agreement, the first defendant was to pay any remaining Guaranteed Base Land Price. On or around the fifteenth anniversary of the Development Agreement the first defendant did this, and exercised an option given to it by an agreement at Schedule 5 of the Development Agreement.
- [5]The option was to buy any remaining land in the Project. This was called the Option Land. The purchase price was, in part, any remaining Deferred Land Price to be paid pursuant to the terms of the Development Agreement. The plaintiff refused to settle the land contract brought into being by the exercise of that option. It said that it could not do so because it needed information from the first defendant in order to calculate the purchase price under the option. The plaintiff also asked for a mortgage in its favour to be registered at settlement. The plaintiff was entitled to such a mortgage, to secure monies yet to be paid under the Development Agreement. However, the parties could not, or would not, agree on the terms of a mortgage.
- [6]Faced with the plaintiff’s failure to complete, the first defendant exercised a power of attorney it says was given to it by the option agreement; signed the appropriate land transfer and caused a transfer of the Option Land to be registered. That accounts for the second defendant’s presence in this proceeding.
- [7]The plaintiff claims in this proceeding that it was not obliged to settle the contract of sale because it could not reasonably determine the balance of the purchase price to be paid at settlement, and because the terms of a mortgage in its favour had not been agreed. It therefore claims that the transfer of the Option Land (by power of attorney) was unauthorised. It makes alternative claims, including claims for payment of the Deferred Land Price owing to it under the Development Agreement.
- [8]In this application the plaintiff relies upon analysis of the pleadings, but also upon the views of the expert accountant it has engaged to provide evidence in this proceeding, Ms Grimley. The first defendant made some criticisms about reliance on Ms Grimley’s views. Clearly enough, I determine whether or not a document is directly relevant and ought to be disclosed in the proceeding, not Ms Grimley. Nonetheless, where the pleadings involve allegations within the subject matter of an expert’s authority, I have been assisted by expert evidence to what documents are likely to exist, and be relevant to the issues raised on the pleading.
- [9]Under the Development Agreement it was the first defendant who carried out the development. Thus it was the first defendant who paid the Project Costs and received the Project Revenues. The Development Agreement specifically obliged the first defendant to “create and maintain all accounts, records, reports and other documents reasonably required for the proper management of the Project and proper accounting of all Project Costs and arrange for those Project accounts to be audited annually and copies provided promptly to [the plaintiff].” – cl 13.2(e). Further, cl 18.2(a) provided that the first defendant was to cause “the Project Accounts to be prepared and kept”. Project Accounts was defined as “proper books of accounts of the Project to be prepared and kept in accordance with acceptable accounting procedures and practices”. Clause 18.2(e) of the Development Agreement provided that each party was to have free access to the Project Accounts.
- [10]Clauses 2.4(b) and 2.5 of the Development Agreement provide that the first defendant shall not conduct any business or enterprise other than the Project. The parties acknowledge that a related entity of the first defendant will undertake construction of buildings and improvements on developed lots and that, for that purpose, a related entity of the first defendant might acquire developed lots in accordance with particular provisions of the Development Agreement.
- [11]Some of the plaintiff’s complaints about the first defendant’s disclosure are specific; one is more general. I shall deal with the specific complaints first. I work from the categories of documents in the plaintiff’s draft order (ex 1). This is the most recent and refined of the lists of documents the plaintiff has produced.
Income Tax
- [12]It is not in dispute on the pleadings that, for the life of the Project, the first defendant included in its calculation of Project Costs provision for its income tax totalling $20,635,762. Nor is it contentious that this had the effect of reducing the Deferred Land Price payable to the plaintiff by $6,809,801. There is a dispute between the parties as to whether or not this provision for income tax was a proper Project Cost.
- [13]A second issue arises in relation to these amounts. They were provisions against anticipated income tax, rather than actual amounts of income tax paid by the first defendant. The first defendant has disclosed income tax returns for financial years ended 30 June 2010 onwards and likewise has disclosed work papers concerning its income tax for financial years 30 June 2012 onwards. The plaintiff seeks these same type of documents, but from the beginning of the project, ie, from 30 June 2005 until 30 June 2009 in the case of income tax returns, and until 30 June 2011 in the case of work papers.
- [14]In my opinion the documents are directly relevant and disclosable. The plaintiff’s allegation that the first defendant has wrongly included a provision for its income tax as Project Costs is not limited to the years in respect of which documents have been disclosed; the allegation is that the amounts have been included “throughout the course of the project”. The allegations as to the second issue are framed by reference to the amount of $20,635,762, and thus likewise relate to the entire period of the Project.
- [15]The first defendant says that the Project did not show a Project Surplus until 2011. It says that the documents available on the ATO portal show it paid no income tax until the 2011 financial year. First, the first defendant should disclose the documents it says show these things, not merely assert them. Its assertions do not narrow the scope of the pleaded issues. Secondly, Project Surplus is defined as an excess of Project Revenues over Project Costs and Carry Forward Project Deficit. This means that if Project Costs were wrongly inflated in the early years of the Project, the Carry Forward Project Deficit would have been larger for longer. The plaintiff is entitled to look at all the relevant documents and form its own opinion.
- [16]The first defendant says that these documents need not be disclosed, inter alia, because any relevant information can be obtained from the ATO portal, to which it has allowed the plaintiff access. In my view this is beside the point. The first defendant is obliged to disclose the documents in this proceeding and should do so. In any case, Ms Grimley is of the view that the tax returns and work papers will contain relevant information which cannot be obtained from the portal. The documents should be available for the plaintiff to examine. The plaintiff is not bound to accept the first defendant’s assertions about these things.
- [17]In my view the first defendant must disclose its income tax returns for the financial years 2005 to 2009 and any work papers concerning its income tax paid for the financial years 2005 to 2011.
Payroll Tax
- [18]The first defendant included its payroll tax as a Project Cost when calculating the Deferred Land Price. Whether that inclusion was legitimate will rest upon the construction of the Development Agreement, and in particular the definition of Project Costs.
- [19]It appears that the first defendant paid payroll tax because it was grouped by the Commissioner with another company called TradeCoast Central Childcare Pty Ltd. The Payroll Tax Act 1971 (Qld) makes every member of a group liable for the total amount of payroll tax the Commissioner assesses as owing by the group, so one of the factual issues in this matter is whether or not the first defendant has included payroll tax relating to the childcare business of its related company as a cost of the Project.
- [20]The first defendant has disclosed annual payroll tax returns for both itself and for TradeCoast Central Childcare Pty Ltd. The plaintiff’s expert, Ms Grimley, wishes to see the monthly payroll tax for each of these companies, and supporting work papers. The first defendant objects to this on the grounds of proportionality, which is one of the aims of the document management plan agreed upon by the parties in this matter.
- [21]Ms Grimley says that while the annual payroll returns disclosed show the total amount of payroll tax for the first defendant and TradeCoast Central Childcare Pty Ltd, she needs the monthly returns and the working papers in order to form an opinion as to what, if any, part of the payroll tax paid was referable to the Project (in the event that it could be considered part of the Project Costs). She says that because payroll tax is calculated as a percentage of taxable wages paid, it is necessary to see the underlying data as to wages and salaries in order to perform this exercise.
- [22]The first defendant should disclose the monthly payroll tax returns for itself and TradeCoast Central Childcare Pty Ltd for financial years 2005 to 2020 and supporting work papers which relate to those monthly returns. These documents are directly relevant to the issue of whether or not the payroll tax claimed is a Project Cost. They are necessary in order to come to a view as to whether or not wages paid related to the Project. Their disclosure is proportionate to the issues in this matter.
First Defendant’s Salaries and Wages
- [23]The plaintiff alleges that in calculating Project Costs and the Deferred Land Price throughout the course of the Project, the first defendant included 100% of the salaries and wages it paid as Project Costs without making deductions to account for work performed by those personnel which was not attributable to the Project. It is pleaded that the first defendant’s financial returns in the 2017-2019 financial years show that more than half its income came from activities other than the Project. It will be recalled that the Development Agreement forbad the first defendant to carry on any business other than the Project.
- [24]The first defendant pleads that the plaintiff was aware that it was earning money otherwise than from the Project. It pleads that because the plaintiff did not assert that the salaries of the first defendant’s employees were not a Project Cost, the plaintiff had agreed that they were a Project Cost.
- [25]As well, the plaintiff alleges that from the beginning of the Project, a large proportion of the wages and salaries the first defendant paid were not treated as wages and salaries in the accounts, but were capitalised, and then recovered as costs when a developed lot was sold. The first defendant’s defence shows that capitalisation of this kind did take place, even though the details pleaded by the first defendant differ from those pleaded by the plaintiff.
- [26]The specific documents which the plaintiff says should be disclosed in relation to this issue are the following:
- position descriptions, employment contracts (other than in respect of Iain Tucker and Robert Tucker), including any variations to employment contracts, and/or descriptions of employees’ roles and responsibilities for all employees, whose salaries (or part thereof) were included as a Project Cost in the first defendant’s calculation of the Deferred Land Price;
- documents setting out the allocation of the first defendant’s salary and wages to expense and capitalisation to inventory accounts for the financial years 2005 to 2011;
- documents detailing the wages for each employee of the first defendant by financial year for the financial years 2005 to 2018.
- [27]In my opinion these documents are directly relevant to the pleaded issues and should be disclosed where they exist.
- [28]There are further documents comprehended by the arguments advanced by the plaintiff, but not its draft order, which should be disclosed, where they exist. They are human resources workbooks and wages workbooks; and work papers and notes which bear upon the substance of the matters dealt with by the first two dot points above, and documents which bear upon the time each employee spent working on the Project, and the time each employee spent working in any other business conducted by the first defendant.
- [29]While the first defendant has disclosed some such documents to date, it seems to me that all such documents are relevant and that their disclosure is proportionate to the issues in this litigation. In that regard I have regard to Ms Grimley’s opinions, as well as what is obvious from the pleadings.
- [30]The payroll tax documents – see [22] above, could also be expected to shed some light on these topics and are thus directly relevant as disclosable documents in respect of these issues.
Infrastructure Adjustment
- [31]At paragraphs 29 and following of the statement of claim it is pleaded that throughout the course of the Project the first defendant included, as a Project Cost, amounts totalling $13,682,174 described as infrastructure adjustment. The effect of that was to decrease the amount paid by the first defendant to the plaintiff for Deferred Land Price by an amount of $4,515,117. It is pleaded that there is no basis for including these amounts as a Project Cost.
- [32]The first defendant says that pursuant to an agreement between it, the plaintiff and the Brisbane City Council on 3 June 2015, called the Infrastructure Agreement, the parties agreed that the first defendant was entitled to payments from the BCC which were refunds of infrastructure costs on developed land within the Project. The first defendant says that $13,682,174 was received by it pursuant to the Infrastructure Agreement. Its pleading explains how it accounted for that money, and says that the accounting was appropriate.
- [33]Ms Grimley has informed solicitors acting for the plaintiff that in order to check whether the accounting treatment pleaded by the first defendant occurred, and is appropriate, she needs:
- any correspondence internally within the first defendant, or to which the first defendant or a related entity of the first defendant was a party, concerning the accounting treatment of what has been described as the infrastructure adjustment, and
- any work papers concerning the treatment of the infrastructure adjustment.
- [34]It seems to me that these documents are directly relevant to the pleaded issues and should be disclosed.
- [35]The plaintiff, on Ms Grimley’s advice, says that the audited financial statements of the first defendant for financial years ended 30 June 2005 – 30 June 2011 need to be disclosed. It is explained that although the Infrastructure Adjustment arises only in statements of Project Surplus from financial year 2015 onwards, the initial transactions which gave rise to the need to repay or refund infrastructure charges to the first defendant occurred before that time. Ms Grimley says that without the first defendant’s audited financial statements (and the MYOB files for the project, see below), she cannot understand the nature and amount of these underlying charges and cannot check to see for example, whether they had been previously treated as Project Costs.
- [36]Having regard to the first defendant’s pleading as to how it accounted for monies it received under the Infrastructure Agreement, it seems to me that the earlier years’ financial statements are disclosable, to understand the way the first defendant has treated these amounts. The first defendant’s audited financial statements for the financial year ending 30 June 2005 to 30 June 2011 should be disclosed.
Project Finance
- [37]Under the Development Agreement it was contemplated that the first defendant would borrow money to finance the development of the land to be sold as part of the Project. By way of counterclaim the first defendant alleges that from 2012 it did not record interest and other borrowing expenses as Project Costs, notwithstanding it incurred such costs. In a schedule to the counterclaim it shows the proportion of its total borrowings which it attributes to the Project, along with borrowing costs it says were properly Project Costs, but were not included in the calculation of Project Surplus. It is pleaded that once these costs are included in such a calculation, the plaintiff’s entitlement to the Deferred Land Price is reduced.
- [38]From Schedule 2 to the counterclaim it appears the first defendant had substantial borrowings which it did not use for the Project. It appears that these borrowings were not kept separate from borrowings which the first defendant asserts were proper Project Costs.[1] The first defendant pleads that it financed all Project Costs with borrowings, and that therefore, the amount of borrowings relevant to the Project was equal to the amount of Project Costs.
- [39]Ms Grimley says that she needs copies of all relevant loan agreements and loan statements in order to ascertain whether and what borrowing costs were properly Project Costs. With respect, that seems obvious. Further, she says she needs copies of all the bank statements for all of the relevant loans in order to be able to determine whether or not the first defendant did receive loan monies and what use was made of them. Again, with respect, that seems obvious.
- [40]The solicitor for the first defendant deposes to the fact that all documents relevant to this issue have been disclosed. I am not convinced by the information from Ms Grimley[2] that there are any further documents to disclose.
MYOB Files
- [41]The plaintiff seeks disclosure of the entire MYOB books for the Project from financial year ended June 2005 to financial year ended June 2020. It asks for the books in electronic format, together with all necessary user names and passwords for access. In my opinion the first defendant should make the disclosure sought by the plaintiff.
- [42]Selected parts of the MYOB files have already been disclosed by the first defendant. Ms Grimley’s opinion is that these limited extracts of the MYOB files are not sufficient for her to address the pleaded issues. Ms Grimley says that she requires the complete MYOB files for the Project to establish whether the funds borrowed were used for the Project. She needs to see the full balance sheet and working capital position so as to ascertain the assets and liabilities of the Project, and what part of the Project Costs was financed.
- [43]Secondly, as to the wages and salary issue above, Ms Grimley says that the MYOB files will contain the entries for salaries and wages by relevant employee by date. She would also expect that they contain notations, descriptions of employee roles and timesheet information for relevant employees. She believes this information will assist in determining whether or not appropriate deductions have been made to account for work done which was unrelated to the Project.
- [44]Ms Grimley also believes that the MYOB balance sheet accounts are necessary in order to precisely identify the capitalised proportions of wages and salary and how those amounts have been included as Project Costs.
- [45]It is said on behalf of the first defendant that the MYOB files do not contain “notations, descriptions of employee roles, detail as to work performed or timesheet information for any relevant employee for the duration of the project”. The fact that there may be less accounting information than Ms Grimley would expect does not provide a reason for refusing to disclose what accounting documents have been prepared, and which might be expected to be directly relevant to the issues on the pleading; to the contrary.
- [46]Thirdly, the infrastructure adjustment is another issue where Ms Grimley says that all the MYOB files ought to be disclosed so that she can understand and form an opinion about the pleaded issues. The accounting material which has been provided to date provides insufficient detail for her to understand the adjustments which are made, including the infrastructure adjustment. This is partly because various other adjustments have been made, apparently on the basis that the first defendant had been operating other businesses (contrary to the provisions of the Development Agreement).
- [47]The pleaded allegations in this matter are as to the way the first defendant has dealt with money, and accounted for those dealings, throughout the entire course of the Development Agreement. The plaintiff is entitled to disclosure of sufficient of the accounting records kept by the first defendant in order to have its experts examine them, understand them, and draw their own conclusions about the matters in issue.
- [48]Under the Development Agreement it was the first defendant which was obliged to keep proper Project Accounts and to provide access to those accounts to the plaintiff. Now that disclosure of all entire MYOB files is sought in the proceeding, the first defendant relies upon the fact that it conducted other business in breach of the terms of the Development Agreement to say that providing the entire MYOB files would involve revealing information which relates to its other business activities. Further, it says that if all the MYOB files are provided to the plaintiff, the plaintiff might conduct a fishing expedition and raise other claims against it.
- [49]Neither of these matters is a reason for not disclosing all the MYOB files. Should the MYOB files contain information relating to the first defendant’s other businesses, the plaintiff’s use of them will be governed by the implied undertaking which regulates the use of disclosed documents. Otherwise, it is the first defendant which has included these extraneous matters in the Project Accounts which it was contractually bound to make available to the plaintiff, and which are relevant to the issues in this proceeding.
- [50]Secondly, there is no indication from the plaintiff’s conduct of the proceeding so far that it seeks to litigate in other than a responsible way. Should the plaintiff find other matters of complaint, it will need to seek leave to amend its pleading because the matter is being supervised on the commercial list.
- [51]I will hear the parties as to costs and have the plaintiff bring in a draft order.
Footnotes
[1] There are specific allegations in the pleadings about co-mingled accounts – see paragraphs 26, 27 and 28 of the statement of claim. By agreement between the parties, disclosure issues relevant to them are not pursued on this application.
[2] Affidavit Fletcher sworn 30 November 2020 and filed with leave on 1 December 2020, [151]-[153].