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Rossang Pty Ltd v Lakoteh Pty Ltd[2022] QSC 201

Rossang Pty Ltd v Lakoteh Pty Ltd[2022] QSC 201

SUPREME COURT OF QUEENSLAND

CITATION:

Rossang Pty Ltd v Lakoteh Pty Ltd [2022] QSC 201

PARTIES:

ROSSANG PTY LTD

(applicant)

v

LAKOTEH PTY LTD

(respondent)

FILE NO/S:

BS No 7448 of 2022

DIVISION:

Trial Division

PROCEEDING:

7203 of 2022

ORIGINATING COURT:

Supreme Court at Brisbane

DELIVERED ON:

20 September 2022

DELIVERED AT:

Brisbane

HEARING DATE:

29 July 2022

JUDGE:

Hindman J

ORDER:

  1. It is declared that under clause 2 of the Agreement, the Respondent is obligated to transfer to the Applicant (or the Applicant’s nominee) the Respondent’s half interest in Lot 1 Survey Plan 313498 Title Reference 51262260 being Unit 1, 13-15 The Esplanade, Maroochydore and Lot 702 Survey Plan 305316 Title Reference 51262528 being Unit 702, 13-15 The Esplanade, Maroochydore (the Applicant’s Landowner Retention Lots).
  2. It is ordered that the Respondent transfer to the Applicant (or the Applicant’s nominee) the Applicant’s Landowner Retention Lots.
  3. The Respondent pay the Applicant’s costs of the proceeding.

CATCHWORDS:

CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – where the applicant and respondent had entered into a partnership to conduct real estate ventures – where the partnership generally operated on a 50/50 basis – where the partnership acquired a property for development and entered into a development agreement with a third party developer – where the development is completed, the development agreement completely performed, and the agreement between the partners is performed but for (relevantly) the transfer of real estate between the partners – where the respondent contends the balance of the agreement should not be performed as to do so would render the partnership unable to meet its contended obligation to the respondent – whether the respondent is obligated to perform the balance of the agreement – whether specific performance should be ordered

Partnership Act 1891 (Qld), s 47

Phillips v Spinaze [2005] QSC 268

XL Insurance Co Se v BNY Trust Company of Australia Ltd [2019] NSWCA 215

COUNSEL:

P Travis for the applicant

G J Barr for the respondent

SOLICITORS:

Elliott May Lawyers for the applicant

Greenhalgh Pickard Solicitors for the respondent

Introduction

  1. [1]
    The applicant (Rossang) applies for a declaration and orders for specific performance requiring the respondent (Lakoteh) to transfer its half-interest in certain real estate to Rossang.  The dispute arises out of a partnership between the parties and the partnership’s involvement in a property development. 
  2. [2]
    There are no disputed facts.  The resolution of the dispute turns on the proper construction of an agreement between the parties regarding the Development, in particular clause 2.8 of the Agreement concerning the Landowner Advance.

Background facts

  1. [3]
    In 2013, Rossang and Lakoteh entered into a partnership for the purpose of conducting real estate ventures on the Sunshine Coast (the Partnership).  There was no written partnership agreement.  Generally, the Partnership operated on a 50/50 basis.  The persons acting for Rossang and Lakoteh about the Partnership were Mr Williamson for Rossang and Mr Bolton for Lakoteh, directors of the respective companies.  
  2. [4]
    The Partnership acquired development land located at 13-15 The Esplanade, Maroochydore in 2013.  Each partner contributed equally to that acquisition.  The Partnership borrowed $1,680,000 from National Australia Bank (NAB) to assist in the acquisition.  NAB took a mortgage over the development land.  The development to be carried out on the development land comprised the construction of nineteen residential units, two retail tenancies and associated carparking (the Development).  The Development was known as “Essence of Cotton Tree”.
  3. [5]
    To progress the Development, the Partnership entered into two agreements:
    1. (a)
      on 25 July 2019, the Partnership and Forrman Pty Ltd (the Developer) entered into an agreement for the construction of the Development (the Development Agreement);
    2. (b)
      also on 25 July 2019, the partners and Mr Williamson personally entered into an agreement entitled Agreement Regarding Essence Cotton Tree (the Agreement).  The Agreement attaches a copy of the Development Agreement at Schedule 1.
  4. [6]
    The recitals to the Agreement disclose that:
    1. (a)
      the Partnership owns the development land; 
    2. (b)
      the Partnership proposes to enter into the Development Agreement with the Developer; 
    3. (c)
      under the Development Agreement, the Partnership will be entitled to retain ownership of certain property in the Development and receive payments from the receipts in respect of the Development, as provided for in the Development Agreement; 
    4. (d)
      Mr Williamson had advanced a loan to the Partnership; 
    5. (e)
      the Partnership agreed to share and distribute the benefits referred to in (c) above as set out in the Agreement. 
  5. [7]
    The Development was completed, the Development Agreement completely performed, and the Agreement partly performed. 

What is in dispute

  1. [8]
    As yet unperformed under the Agreement is the transfer of a real estate interest from Lakoteh to Rossang of certain lots in the Development (the Applicant’s Landowner Retention Lots) (which are the focus of this proceeding), and the transfer from the Rossang to Lakoteh of certain lots in the Development (the Respondent’s Landowner Retention Lots) as well as cash from the Partnership account to Lakoteh (the Landowner’s Entitlement). 
  2. [9]
    Rossang says (and it is not disputed) that it stands ready, willing and able to do all that is necessary to make the transfers, so that the transfers to Lakoteh are not in issue.  The obstacle to performance of the Agreement is that Lakoteh refuses to transfer the Applicant’s Landowner Retention Lots to Rossang. 
  3. [10]
    Lakoteh contends the balance of the Agreement should not be performed as  under clause 2.8 of the Agreement a distribution is required to be made to it of $1,042,500.  The Partnership does not have available cash to make that distribution such that the property transfers should not occur.  The Partnership is being wound up and Partnership assets, including the lots in the Development currently owned by the Partnership, may need to be sold to satisfy the debts of the Partnership (in particular the debt owed to Lakoteh mentioned above). 

Question to be answered

  1. [11]
    The resolution of the dispute depends on the proper construction of clause 2.8 of the Agreement and whether, as Lakoteh contends, it creates (and there continues to exist) a liability of the Partnership to Lakoteh in the amount of $1,042,500.  If there is such a liability then the parties agree that there will also be a liability of the Partnership to Rossang in the amount of $637,500.
  2. [12]
    If no such liability was created (and continues to exist), then there does not seem to be (based on the submissions of the parties) any other impediment to ordering the specific performance of the remaining obligations in the Agreement.  To so order would not adversely affect the winding up of the Partnership as there is no suggestion that the Partnership is insolvent if it does not have the above liabilities to the partners.

The operation of the Development Agreement

  1. [13]
    As above, the Agreement attaches the Development Agreement as a schedule and it picks up language and definitions from the Development Agreement.  Accordingly, it is convenient to commence with an analysis of the operation of the Development Agreement, which will assist to inform the operation of the Agreement.
  2. [14]
    The Development Agreement in its recitals notes that:
    1. (a)
      the Partnership is the owner of the development land;
    2. (b)
      the Partnership wishes to engage the Developer to complete the Development on the terms of the Development Agreement. 
  3. [15]
    The key aspects of the operation of the Development Agreement are as follows. 
  4. [16]
    The Developer is to finance and construct the Development.  Lots in the Development are to be sold (excluding some lots which the Landowner retains) and the proceeds from the Development are to be distributed in an identified way. 
  5. [17]
    The monies and other benefits that the Partnership obtains by participation in the Development comprised and were paid as follows.  
  6. [18]
    First, the Partnership was to receive a payment from the Developer shortly after the Development Agreement was entered into of approximately $282,000, representing reimbursement of costs the Partnership had already incurred about the Development (clause 11.4 and Schedule 4) (Landowner Reimbursement).  The Landowner Reimbursement was paid by the Developer to the Partnership on 23 August 2019.
  7. [19]
    Second, the Partnership was to receive loan from the Developer shortly after the Development Agreement was entered into of $1,680,000, which amount was required to be used to pay out the existing debt (secured by mortgage on the development land) that the Partnership owed to NAB (clause 11.3) (Landowner Advance).  The Landowner Advance was required to be repaid by the Partnership to the Developer.   
  8. [20]
    The terms of the Landowner Advance were:

“11.3 Landowner Advance[1]

The Developer agrees to lend the Landowner Advance to the Landowner, subject to and in accordance with the following terms:

  1. (a)
    subject to clause 11.3(c) and clause 11.3(d), the Developer will make the Landowner Advance available to the Landowner on or before the date five Business Days after the Effective Date;
  1. (b)
    proceeds of the Landowner Advance must be applied only in repayment of amounts owed by the Landowner to the Existing Mortgagee and secured by the Existing Mortgage;
  1. (c)
    the Landowner Advance may, at the Developer’s discretion, be paid directly to the Existing Mortgagee in which case the Landowner Advance will be deemed to have been made available to the Landowner in accordance with this clause 11.3;
  1. (d)
    provision of the Landowner Advance is subject to and conditional upon receipt by the Developer of a release in respect of the Existing Mortgage and any Security Interest held by the Existing Mortgagee in respect of Project Assets, in form and substance satisfactory to the Developer;
  1. (e)
    no interest will accrue or be payable in respect of the Landowner Advance under this agreement;
  1. (f)
    the Landowner must repay to the Developer the Landowner Advance:
  1. (1)
    if this agreement terminates or is terminated …;  and[2]
  1. (2)
    otherwise, in accordance with clause 14.5(d).”
  1. [21]
    The Landowner Advance was made in accordance with clause 11.3 of the Development Agreement on 23 August 2019 save that prior to the Landowner Advance being made the Partnership paid $35,000 to NAB in respect of the NAB loan such that the Landowner Advance was actually paid:
    1. (a)
      $1,645,000 direct to  NAB in discharge of the loan (allowing the release of the NAB mortgage);
    2. (b)
      $35,000 to the Partnership. 
  2. [22]
    Nothing turns on that.
  3. [23]
    Third, the Partnership had an identified period of time in which it was entitled to market and sell certain lots in the Development.  It would earn an entitlement to monies (effectively commissions) for lots that it sold (clause 8.2) (the Landowner’s Entitlement).  The Partnership was paid the Landowner’s Entitlement by the Developer (approximately $633,350). 
  4. [24]
    Fourth, the Partnership would retain ownership of certain lots in the Development, in particular:
    1. (a)
      lots 602 and 702 (being residential lots);
    2. (b)
      tenancy 1 on the ground floor (being a commercial/retail lot) (Landowner Retail Space);
    3. (c)
      certain basement and storage areas associated with the above lots.[3]
  5. [25]
    All of these lots are now in the ownership of the Partnership.  
  6. [26]
    Fifth, if an option was exercised by the Partnership (which it was, at an agreed price of $1,750,000, in respect of which cash was paid), the Partnership would become the owner of the balance retail space in the Development.
  7. [27]
    The way in which proceeds from the Development were to be applied is set out in clause 14.5 of the Development Agreement, that provides:

“14.5  Application of Receipts[4]

The Developer must cause the Receipts paid by the Landowner in accordance with paragraph 14.1 to be paid, applied or retained in the following order and manner:

  1. (a)
    first, all amounts to be paid or retained for payment to the Project Financier in accordance with the Finance Documents until the Senior Debt has been repaid in full;
  1. (b)
    second, the amount of any GST payable by the Landowner on supplies made by it in connection with the Project (excluding any GST remitted directly to the Commissioner of Taxation in accordance with clause 14.1(b)(1)) less any amount retained by the Landowner on account of GST;
  1. (c)
    third, to the Landowner, an amount equal to the Landowner’s Entitlements;
  1. (d)
    fourth, in or towards repayment to the Developer of the outstanding balance of the Landowner Advance until the Landowner Advance has been repaid in full;
  1. (e)
    fifth, to the Developer, an amount equal to the GST payable on the supply for which the Development Fee is payable; and
  1. (f)
    sixth, the balance to the Developer.”
  1. [28]
    As mentioned above, in compliance with clause 14.5(d) of the Development Agreement, the Partnership received an amount in respect of the Landowner’s Entitlement, and the Landowner Advance was repaid to the Developer.
  2. [29]
    As between the Partnership and the Developer, the Development Agreement has been wholly performed and no relevant disputes exist. 

The operation of the Agreement

  1. [30]
    In broad terms, the Agreement was to operate as follows.
  2. [31]
    First, in respect of the lots to be retained by the Partnership under the Development Agreement it was agreed that (clause 2.1 of the Agreement):
    1. (a)
      lot 702, the Landowner Retail Space and associated parking spaces and basement storage areas were to be retained by Rossang;
    2. (b)
      lot 602 and associated parking spaces and basement storage areas were to be retained by Lakoteh. 
  3. [32]
    Presently each of the above lots remains in the ownership of the Partnership (Lakoteh refusing to comply with Rossang’s requests to enable the lots to be transferred into the names of the partners in their own capacity as contemplated by clauses 2.1 to 2.5 of the Agreement). 
  4. [33]
    Second, in respect of the balance retail space, clause 2.9 provided for how that option might be exercised.  As it occurred, the option was exercised for the benefit of Lakoteh and Lakoteh paid the $1,750,000 in cash for that lot.  Lakoteh became the owner of the balance retail space. 
  5. [34]
    Third, in respect of the Landowner Reimbursement paid by the Developer (approximately $282,000), the partners agreed how those funds were to be distributed in clause 2.7 of the Agreement.  The Partnership paid Mr Williamson $170,000 on 26 August 2019 as required by clauses 2.7.1 and 2.7.2 of the Agreement.  The balance of the amount remains in the Partnership account.
  6. [35]
    Fourth, in respect of the Landowner Entitlement, that amount was to be retained by Lakoteh (clause 2.1.3 of the Agreement) (approximately $633,350).  That has not yet occurred.  The amount remains in the Partnership account.  
  7. [36]
    Fifth, in respect of the Landowner Advance, clause 2.8 of the Agreement provided:

Landowner Advance

2.8 The Landowner Advance payable by the Developer under clause 11.3 of the Development Agreement shall be distributed as follows:

2.8.1 $637,500.00 payable to [Rossang]; and

2.8.2 $1,042,500.00 payable to [Lakoteh].”

  1. [37]
    As per [21] above, on 23 August 2019 the Developer paid the Landowner Advance by paying out the NAB loan (then totalling $1,645,000) and paying the balance of $35,000 to the Partnership.
  2. [38]
    It is clear that the Agreement contemplates arrangements about the Development that mean that the ultimate split of proceeds received by the Partnership from the Development may not be precisely 50/50 as between the partners.  There is nothing peculiar or untoward about that – the partners were at liberty to make whatever arrangements they chose as to how the Partnership’s returns from the Development were to be dealt with.  Mr Bolton explains that the upshot of the Agreement was that Lakoteh would receive about 45% of the spoils of the Development, and Rossang about 55%[5] - the precise split, and the reasons for the difference, are of no consequence. 

The current position – summary 

  1. [39]
    Following the completion of the Development:
    1. (a)
      Lakoteh received the balance retail space (pursuant to the exercise of the option and the transfer under clause 2.9 of the Agreement);
    2. (b)
      the Landowner’s Entitlement (and perhaps the balance of the Landowner’s Reimbursement) remain in the Partnership account;
    3. (c)
      the Partnership retains the following lots:
      1. lot 602 (being the Respondent’s Landowner Retention Lots);
      2. lot 702 and the Landowner Retail Space (being the Applicant’s Landowner Retention Lots).

The applicant’s position

  1. [40]
    Rossang submits that it is entitled to orders for specific performance requiring Lakoteh to transfer its half interest in the Applicant’s Landowner Retention Lots because that is what the Agreement expressly and unequivocally demands of Lakoteh (see clause 2 of the Agreement).  Clause 7.7 of the Agreement requires Lakoteh to act to give effect to clause 2. 
  2. [41]
    Rossang also points to the fact that the Agreement contains an entire agreement clause (clause 7.5), a variation clause requiring writing and signature by each party (clause 7.11), and a no implied waiver clause (clauses 7.12 and 7.13).
  3. [42]
    Rossang says there is no ambiguity about the purpose of the Agreement or the construction of clause 2 of the Agreement. 
  4. [43]
    As to the purpose of the Agreement, Rossang points out that Mr Bolton acknowledges at [15] of his affidavit that (emphasis added):

“With an understanding that the Partnership would proceed to engage the Developer to carry out the works, on 25 July 2019 the Respondent and the Applicant executed a written agreement setting out terms that had been agreed in discussions between [Mr Bolton] and Mr Williamson as to what the Respondent and the Applicant would each get out of the Essence Agreement …”

  1. [44]
    And as to the construction of clause 2 of the Agreement, Mr Bolton further acknowledges at [25] of his affidavit that it was “agreed by the Essence Agreement” that:
    1. (a)
      lot 702 would be distributed to Rossang under clause 2.1.1;
    2. (b)
      lot 602 would be distributed to Lakoteh under clause 2.1.3;
    3. (c)
      “Shop 1” (the Landowner Retail Space) would be distributed to Rossang under clause 2.1.2; and
    4. (d)
      the Landowner’s Entitlement would be distributed to Lakoteh under clause 2.1.3.
  2. [45]
    Rossang submits that Lakoteh’s construction of clause 2.8 of the Agreement whereby it says it is entitled to a distribution of $1,042,500 is wrong because clause 2.8 does not give an entitlement to any post-Development distribution.  In that respect Rossang submits: 
    1. (a)
      clause 2.8 of the Agreement provides that the Landowner Advance payable by the Developer under clause 11.3 of the Development Agreement shall be distributed “$637,500” to Rossang and “$1,042,500” to Lakoteh;
    2. (b)
      the Landowner Advance is an upfront advance from the Developer (as lender) to the Partnership (as borrower).  In other words, the Landowner Advance is a liability of the Partnership to the Developer – not a liability of the Partnership to Rossang or Lakoteh;
    3. (c)
      the Partnership’s liability to the Developer was discharged when the Development was completed and the receipts for the Development were applied by the Developer in accordance with clause 14.5(c) of the Development Agreement to the repayment of the Landowner Advance;
    4. (d)
      thus, the notional allocation as between the parties to the Agreement of the liability created by the Landowner Advance, might have had some relevance if the Landowner Advance was not repaid.  But that is not a concern because the debt notionally held by each of the partners was subsequently discharged;
    5. (e)
      that Lakoteh’s construction is not correct is plain when one asks from where the Partnership was to receive the additional $1,680,000.  The Development Agreement is very specific about amounts coming to the Partnership – and every dollar of those amounts is anticipated and allocated in the Agreement.  Yet, on Lakoteh’s construction of the Agreement, the careful allocation of assets and amounts are nugatory because there is (apparently) an unexpected shortfall of $1,680,000 that the Partnership (and the parties to the Agreement) did not anticipate.
  3. [46]
    Rossang further says that, contrary to Lakoteh’s submissions, s 47 of the Partnership Act 1891 (Qld) does not override the partners’ agreement as to how they will distribute partnership assets as between each other.  This error is said by Rossang to be parasitic on the first because there is otherwise no issue between the partners.  In any case, Rossang says that Lakoteh’s second error is exposed by the terms of s 47, which expressly provide that the rules set out therein are “subject to any agreement”.  The Agreement is one such agreement.  Thus, s 47 of the Partnership Act 1891 is subject to the Agreement, not the other way around, as suggested by Lakoteh.  Interpreting s 47 as Lakoteh suggests not only defies the express terms of the provision, but also creates an incentive for a partner in the place of Lakoteh to get to the end of a particular project and decide that a notice of dissolution should be issued under s 42, the express written agreement swept aside, and the profits “equalised” in favour of the partner issuing the notice of dissolution.  Section 47 does not create that absurd result.

The respondent’s position

  1. [47]
    Lakoteh opposes the orders sought by Rossang because it says the proposed distribution seeks to invoke a selective part of the Agreement, and to ignore another part of the Agreement.
  2. [48]
    It is Lakoteh’s contention that clause 2.8 of the Agreement contemplates a distribution to it in the amount of $1,042,000 which it says is a liability of the Partnership to it.  That has caused an impasse that has resulted in the dissolution of the Partnership by notice from Lakoteh to Rossang.[6]
  3. [49]
    It is submitted by Lakoteh that the effect of clause 2.8 of the Agreement can be understood in this way:
    1. (a)
      the Partnership had a debt relating to the purchase of land that originally stood at $1,680,000;
    2. (b)
      through the Development, the Partnership obtained a benefit that resulted in the extinguishment of that $1,680,000 debt;
    3. (c)
      the partners agreed that benefit would be distributed as an amount payable to them respectively (not in accordance with the 50/50 proportion of their share in the Partnership) in the following amounts:
      1. Rossang - $637,500;
      2. Lakoteh - $1,042,500,
    4. (d)
      the reason for so doing, was that the partners had agreed Rossang would get more real property (lot 702 and the Landowner Retail Space compared to Lakoteh’s lot 602), and Lakoteh would get more cash (the Landowner Entitlement plus more of the Landowner Advance money).  The result, calculated by Mr Bolton in [25] of his affidavit, is consistent with what he says was a split from the Development returns of 45% to Lakoteh and 55% to Rossang.
  4. [50]
    Lakoteh says that Rossang’s construction of the Agreement renders clause 2.8 meaningless.
  5. [51]
    Lakoteh says that the intention of the parties, viewed objectively, with an aim of giving commercial effect to all of the words in the Agreement, calls for an outcome by which a contribution of a value of $1,042,500 is recognised and accounted for in favour of Lakoteh in the winding up of the Partnership.  And in order to do so, it may be necessary for the Partnership to have recourse to the capital of the Partnership, which includes lots 602, 702 and the Landowner Retail Space, as well as the cash in the Partnership account.
  6. [52]
    For all those reasons, Lakoteh says the issues should more properly be dealt with in Supreme Court Claim number 7448 of 2022 commenced by Lakoteh (as plaintiff) against Rossang (as defendant).[7]  Lakoteh has sought a range of outcomes in that proceeding to facilitate the winding up of the Partnership, it says in accordance with all of the terms of the Agreement and the Partnership Act 1891.

The winding up of the partnership

  1. [53]
    Lakoteh gave Notice of Intention to Dissolve Partnership with effect from 24 February 2022. 
  2. [54]
    Section 42 of the Partnership Act 1891 deals with the rights of partners as to the application of partnership property:

“On the dissolution of a partnership every partner is entitled, as against the other partners in the firm, and all persons claiming through them in relation to their interests as partners, to have the property of the partnership applied in payment of the debts and liabilities of the firm, and to have the surplus assets after that payment applied in payment of what may be due to the partners respectively after deducting what may be due from them as partners to the firm, and for that purpose any partner or his or her representatives may on the termination of the partnership apply to the court to wind up the business and affairs of the firm.”

  1. [55]
    In Phillips v Spinaze,[8] Jones J observed:[9]

“The next usual step after dissolution is to wind up the partnership by realising the assets and paying the debts and liabilities of the firm before distributing the surplus, if any, among the partners according to their rights and interests. This process is subject to agreement between the parties. In Rushton (Qld) Pty Ltd & Anor v Rushton (NSW) Pty Ltd & Anor, McPherson JA goes on to explain:

‘Winding up in that way may be avoided if the parties agree on a sale to one or more of the remaining partners of the shares of the outgoing partner, or if there is a provision in the partnership agreement to that effect.’”

And:[10]

“The fact that the expression contains terms that are contrary to the basic principle of partnership law does not invalidate the agreed processes for the winding up or devolution of the partnership assets. As was noted in a passage in McGowan v Commissioner for Stamp Duties in para [11] above it is open to the parties to arrive at some different arrangement for the disposition of partnership assets other than what is provided for in s 42 of the Partnership Act. In that case His Honour went on to say:

‘Although a partner has no title to a specific property owned by the partnership, ‘he has a beneficial interest in the partnership assets, indeed in each and every asset of the partnership,’: see Federal Commissioner of Taxation v Everett (1980) 143 CLR 440, 446. On dissolution each partner retains that interest: Hendry v Perpetual Executors & Trustees Association (1961) 106 CLR 256, 266; which has been authoritatively described as ‘a right to a proportion of the surplus after realisation of the assets and payment of the debts and liabilities of the partnership’: FCT v Everett.’”

  1. [56]
    Section 47 of the Partnership Act 1891 deals with the rule of distribution of assets on final settlement of accounts as follows:

“In settling accounts between the partners after a dissolution of partnership, the following rules are, subject to any agreement, to be observed -

  1. (a)
    losses, including losses and deficiencies of capital, are to be paid first out of profits, next out of capital, and lastly, if necessary, by the partners individually in the proportion in which they were entitled to share profits;
  1. (b)
    the assets of the firm including the sums (if any) contributed by the partners to make up losses or deficiencies of capital, are to be applied in the following manner and order -
  1. (i)
    in paying the debts and liabilities of the firm to persons who are not partners in the firm;
  1. (ii)
    in paying to each partner rateably what is due from the firm to each partner for advances as distinguished from capital;
  1. (iii)
    in paying to each partner rateably what is due from the firm to each partner in relation to capital;
  1. (iv)
    the ultimate residue (if any) is to be divided among the partners in the proportion in which profits are divisible.”

Analysis

  1. [57]
    First, the starting point is that the Partnership had a liability to NAB of $1,680,000 secured by a mortgage. 
  2. [58]
    Second, clause 11.3 of the Development Agreement required the Landowner Advance to be used to pay that Partnership liability.  As between the Developer and the partners, the advance is to the Partnership and the Partnership is liable for its repayment.  That is confirmed because it is the Partnership (the Landowner) that is liable to repay the advance under the Development Agreement. 
  3. [59]
    Third, clause 2.8 of the Agreement is therefore concerned necessarily only with how the Landowner Advance is to be treated by the partners.  Further, clause 2.8 is concerned only with how a liability to repay the loan by the Developer to the Partnership is to be allocated per se.  That must be so because it cannot give rise to a right to be actually paid any part of the Landowner Advance, because that advance must be used to discharge an existing liability of the Partnership to NAB.  The Development Agreement compels that construction by its express terms. 
  4. [60]
    Fourth, if the Landowner Advance is not discharged by receipts from the Development, for whatever reason, then the Partnership remains liable to repay it to the Developer.  However, inter se, the partners are liable to the extent of their respective share of that liability under clause 2.8 of the Agreement.  If one of the partners pay the whole liability, they are entitled to contribution to the extent overpaid based on clause 2.8. 
  5. [61]
    But if the Landowner Advance is discharged by receipts from the Development, then the division of the Partnership liabilities undertaken in different shares by clause 2.8 of the Agreement is irrelevant because there is no longer a Partnership liability. 
  6. [62]
    Accordingly, I do not agree with Lakoteh’s construction of clause 2.8 of the Agreement.  It does not operate to create a liability of the Partnership to Lakoteh in the amount of $1,042,500.
  7. [63]
    Clause 2.8 in its terms does not create any liability of the Partnership to either of the partners.  It does not purport to be mechanism to balance out how the Partnership’s returns from the Development are to be divided between the partners as set out in other parts of the Agreement. 
  8. [64]
    The Landowner Advance was paid by the Developer (except in respect of $35,000) as contemplated by clause 11.3(c) of the Development Agreement and was repaid to the Developer as contemplated by clause 14.5(d) of the Development Agreement.  In those circumstances, clause 2.8 of the Agreement has no work to do.
  9. [65]
    Whilst words of a contract should be interpreted in a way that gives them an effect, rather than in a way that makes them redundant,[11] as above it is not that clause 2.8 of the Agreement necessarily has no effect, it simply does not have effect in the circumstances that exist. 
  10. [66]
    I agree with the submissions for Rossang that to construe clause 2.8 of the Agreement in any other way is inconsistent with the purpose of the Agreement which does appear carefully drafted to deal with a distribution of land and money coming to the Partnership at the end of the Development.  The Landowner Advance was always required to be repaid to the Developer – it was not contemplated to be an amount available at the end of the Development to actually be distributed to the partners. 
  11. [67]
    All other aspects of the Agreement having been performed, the balance of the Agreement should be ordered to be performed.  The winding up of the Partnership is no bar to that occurring. 

Conclusion

  1. [68]
    The consequence of the above is that orders should be made as follows:
  1. It is declared that under clause 2 of the Agreement, the Respondent is obligated to transfer to the Applicant (or the Applicant’s nominee) the Respondent’s half interest in Lot 1 Survey Plan 313498 Title Reference 51262260 being Unit 1, 13-15 The Esplanade, Maroochydore and Lot 702 Survey Plan 305316 Title Reference 51262528 being Unit 702, 13-15 The Esplanade, Maroochydore (the Applicant’s Landowner Retention Lots).
  2. It is ordered that the Respondent transfer to the Applicant (or the Applicant’s nominee) the Applicant’s Landowner Retention Lots.
  3. The Respondent pay the Applicant’s costs of the proceeding.

Footnotes

[1]  Landowner Advance was defined in clause 1.2 to mean a loan from the Developer to the Landowner (the Partnership) of $1,680,000 on the terms in clause 11.3.

[2]  The Development Agreement was not terminated so this subclause does not apply.

[3]  Unencumbered units 602, 702 and Landowner Retail Space with associated basement storage and carparking had a value of $7,150,000.

[4]  Receipts are defined in clause 1.2 of the Development Agreement to be receipts from sale of lots and the amount of all input tax credits received by the Landowner.

[5]  Affidavit of Bolton, [15].

[6]  Notice of Intention to Dissolve Partnership with effect from 24 February 2022 is at exhibit “MBL-4” of the affidavit of Leadbetter (page 20).

[7]  A copy of the Claim and Statement of Claim filed on 24 June 2022 is exhibit “DB-8” to the affidavit of Bolton (pages 51-60).

[8]  [2005] QSC 268.

[9]  Ibid at [10].

[10]  Ibid at [12].

[11] XL Insurance Co Se v BNY Trust Company of Australia Ltd [2019] NSWCA 215 at [72] per Gleeson JA with Bell P agreeing.

Close

Editorial Notes

  • Published Case Name:

    Rossang Pty Ltd v Lakoteh Pty Ltd

  • Shortened Case Name:

    Rossang Pty Ltd v Lakoteh Pty Ltd

  • MNC:

    [2022] QSC 201

  • Court:

    QSC

  • Judge(s):

    Hindman J

  • Date:

    20 Sep 2022

Appeal Status

Please note, appeal data is presently unavailable for this judgment. This judgment may have been the subject of an appeal.

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