Supreme Court New South Wales Medium Neutral Citation: Altis PropCo2 Pty Ltd v Majors Bay Development Pty Ltd [2022] NSWSC 403 Hearing dates: 14 to 16 and 18 March 2022 Decision date: 08 April 2022 Jurisdiction: Equity - Commercial List Before: Ball J Decision: (1) Orders in terms of paragraphs 1 to 2B of the Amended Summons dated 14 March 2022; (2) Judgment for the plaintiff against the defendant in the sum of $235,723.56; (3) Order that the defendant pay the plaintiff's costs. Catchwords: CONTRACTS — Construction — Interpretation — Contract for sale of land — Meaning of "best endeavours" — Whether the parties' right to rescind was inter-dependent on the plaintiff's obligation to use best endeavours to obtain finance from the bank — Whether plaintiff used best endeavours and validly rescinded the contract Legislation Cited: Biosecurity (Human Biosecurity Emergency) (Human Coronavirus with Pandemic Potential) (Overseas Travel Ban Emergency Requirements) Determination 2020 (Cth) Civil Procedure Act 2005 (NSW) Evidence Act 1995 (NSW) Public Health (Covid-19 Restrictions on Gathering and Movement) Order 2020 (NSW) Cases Cited: Aalders v PA Putney Finance Australia Pty Ltd (formerly Anzax Finance Australia Pty Ltd) and ors [2011] NSWSC 756 Alghussein Establishment v Eton College [1991] 1 All ER 267 Bloch v Bloch (1981) 180 CLR 390 Briginshaw v Briginshaw (1938) 60 CLR 336 Foster v Hall [2012] NSWCA 122 Hawkins v Pender Bros Pty Ltd [1990] 1 Qd R 135 Hillam v Iacullo [2015] NSWCA 196 Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 Ruthol Pty Ltd v Tricon (Australia) Pty Ltd [2005] NSWCA 443; (2005) 12 BPR 23,923 Sheffield District Railway Co v Great Central Railway Co (1911) 27 TLR 451 Sydney Attractions Group Pty Ltd v Frederick Schulman [2013] NSWSC 858 Terrell v Mabie Todd & Co Ltd (1952) 69 RPC 234 Tito v Waddell (No 2) [1977] Ch 106; 3 All ER 129 Transfield Pty Ltd v Arlo International Ltd (1980) 144 CLR 83 Category: Principal judgment Parties: Altis PropCo 2 Pty Ltd (Plaintiff) Majors Bay Development Pty Ltd (Defendant) Representation: Counsel: JAC Potts SC with N Laing (Plaintiff) JS Emmett SC with MT Fernandes (Defendant) Solicitors: Clayton Utz (Plaintiff) Fortis Law (Defendant) File Number(s): 2020/207158 Publication restriction: None Judgment 1. In these proceedings, the plaintiff, Altis PropCo 2 Pty Ltd (Altis 2), seeks to recover a deposit of $2,099,000 (together with interest) it paid under a contract dated 27 February 2020 (the Contract) by which it agreed to acquire from the defendant, Majors Bay Development Pty Ltd (MBD), 56 residential apartments (the Apartments) in a development in Mortlake, Sydney (the Majors Bay Development). Altis 2 claims that it validly rescinded the Contract following its failure to obtain a loan from Westpac Banking Corporation (Westpac) and is entitled to a return of the deposit in accordance with the Contract. MBD disputes that the Contract was validly rescinded. Background 1. Altis 2, which was incorporated to acquire the Apartments, is a wholly owned subsidiary of Altis Property Partners Pty Ltd (Altis). Altis carries on business throughout Australia as a property funds manager. As part of that business, it manages property portfolios on behalf of third-party investors in accordance with mandates it holds from those investors. Since 2019, it has held a mandate from entities associated with Kohlberg Kravis Roberts & Co LP (KKR) to invest funds in the Australian residential property market. Pursuant to that mandate it had acquired two buildings that formed part of a residential development in Melbourne (the Caydon Acquisition) and for that purpose had borrowed funds from the Bank of Melbourne, a subsidiary of Westpac. 2. In late July 2019, Mr Marco Cunningham, who at that time was a capital transactions manager with Altis, was introduced to the potential acquisition of Apartments by an independent broker. 3. The Majors Bay Development had been undertaken by MBD, a subsidiary of Holdmark Property Group Pty Ltd (Holdmark). It consisted of a large number of apartments spread across a number of buildings which were constructed in three stages. The proposal was that Altis would acquire all the remaining unsold apartments in the development at a significant discount to their list price. The acquisition was ultimately structured in a way which involved part of the purchase price being borrowed from Westpac, a bank with which KKR had an established relationship, KKR providing 90 percent of the balance of the purchase price in the form of subordinated loan notes and Altis providing the remaining ten percent. A similar structure had been used to make the Caydon Acquisition. It was anticipated that the Apartments would be leased, that the rent would be used to pay some or all of the interest costs and that the Apartments would be sold over a period of time at a profit. Plainly, the attractiveness of the investment depended on interest rates, the ability to lease the Apartments, the rent that would be obtained and movements in the Sydney residential property market over the following three to five years. 4. Following inspections undertaken by Mr Cunningham and negotiations between the parties, on 24 October 2019, Holdmark and Altis executed a Heads of Agreement which described the "key terms" on which "the purchaser" would acquire the Apartments. At that stage the purchase price was contemplated to be $42,000,000. The settlement was expressed to be the earlier of five weeks following the exchange of contracts or 20 December 2019. The Heads of Agreement provided for an exclusive due diligence period of 35 days from the date of the agreement. Due diligence was stated to include "Aluminium Composite Panels review (if required)". 5. On the day after the Heads of Agreement was executed (25 October 2019), Mr Brandon Carter, an employee of KKR Australia Pty Ltd, met with Mr Darren Beatty of Westpac concerning the possibility of borrowing the required funds to purchase the Apartments as well as refinancing the loan in respect of the Caydon Acquisition. KKR took primary responsibility for negotiating the terms of the loan with Westpac and Altis took primary responsibility for negotiating the terms of the acquisition with Holdmark. 6. As part of the due diligence, on 29 October 2019, Altis retained KMPG SGA to conduct a technical due diligence, which included an examination of the cladding on the exterior façades of the relevant buildings to determine whether they complied with fire safety requirements. Following investigations, on 20 November 2019, KPMG SGA recommended that Altis engage a façade specialist to undertake a detailed inspection to establish the exact type of aluminium composite panelling (ACP) installed on the façades of the buildings. It recommended that if it was found that the ACP was non-compliant with the Building Code of Australia then Holdmark should: ● Consider the replacement of the ACP panels with a compliant product, or ● Engage a Fire Engineer to undertake a risk assessment of the panels and provide a performance solution for the building, or ● Provide sprinkler protection coverage to all the buildings. That recommendation resulted in additional investigations and considerable delay in completion of the due diligence. 1. Although Holdmark was pressing for an exchange of contracts, Altis's position was that it was not willing to proceed until the issues in relation to the cladding had been resolved. The parties eventually agreed in principle through an exchange of emails on 19 and 20 December 2019 that: 1. Holdmark would agree to engage a qualified building certifier to identify the cladding which required replacement and to replace the identified cladding at its own cost; 2. Holdmark would agree to retain a sum of money (originally estimated to be $300,000) from the deposit which was to be released once an engineer had certified that the work had been completed; 3. Altis's exclusivity period would be extended to 7 February 2020. 1. In the meantime, KKR commenced negotiations with Westpac on the terms of the proposed facility. Those negotiations were conducted principally by Mr Carter and Mr Peter White, who at the time was a director in the real estate team of KKR Australia Pty Ltd and who was Mr Carter's immediate superior. 2. On 28 October 2019, Mr Carter sent an email to Mr Beatty confirming that KKR was very keen for Westpac to provide indicative terms to refinance the Bank of Melbourne loan and to finance the acquisition of the Apartments. For that purpose, Mr Carter provided Mr Beatty with financial models for the Caydon Acquisition at the time of drawdown and the acquisition of the Apartments and a document that compared the financial terms applicable to the Bank of Melbourne loan with the terms that KKR was seeking for the new loan. 3. On 6 November 2019, the relevant KKR investment committee granted preliminary approval to the investment in Majors Bay Development on the basis that it was expected that the cost of debt would be 3.2 percent compared to 3.6 percent in relation to the loan from Bank of Melbourne. 4. After substantial negotiations particularly in relation to the financial terms of the loan, on 17 January 2020, Westpac provided KKR with an indicative term sheet (which was stated to be "subject to formal credit, other internal approvals and satisfactory documentation …"). By that stage, KKR was also considering investing with Altis in 186 units located in the Sky Tower development in Brisbane. The proposed facility was originally designed to provide a loan for that acquisition as well. By that stage also, Mr Denis Dundovic had become the primary point of contact at Westpac. 5. The term sheet was the subject of further negotiations between Westpac and KKR. The final version was sent to KKR on 29 January 2020 and accepted by Altis on that day. At that stage Altis 2 had not been incorporated. The parties were named as Altis Propco 1 Pty Ltd (another subsidiary of Altis that had been incorporated) and Altis 2. The facility was divided into three tranches. Tranche A was to refinance the loan from Bank of Melbourne. Tranche B was to acquire the Apartments and Tranche C was to acquire the units in the Sky Tower Development. The proposed facility was for three years. The proposed interest rate and fees were: 1. A margin of 1.15 percent per annum on the base rate, which was stated to be BBSY (bank bill swap bid rate); 2. A line fee of 1.15 percent per annum payable on the facility quarterly in arrears; 3. An establishment fee of 0.50 percent on the facility limit. 1. Clause 4 provided that "each Tranche will be available in a single drawing on or before Financial Close". Clause 4 also relevantly provided: On the sale of any Property, the Borrowers must prepay at least the percentage of the Valuation (of that individual Property) specified below: Percentage If Default or Review Event subsisting 100% If LVR > 45% or ICR ≤ 1.50x 52.5% LVR ≤ 45% but > 40% and 50% ICR > 1.50 but ≤ 1.65 x If ≤ 40% and ICR > 1.65x 45% 1. The terms "LVR" and "ICR" were defined in clause 7. That clause relevantly provided: Financial Undertakings applying to the Borrowers will include those set out below. Loan to Value Ratio ("LVR"): Outstanding Amount under the Facility will not at any time exceed 52.5% of the latest bank acceptable Valuation (aggregate on an individual unit basis) of the Secured Properties. Interest Cover Ratio ("ICR"): Commencing on and from 31 December 2020, Net Rental Income will not, at any time, be less than 1.50x Interest Expense for the same period. Equity Cure: Equity cure permitted within 20 Business Days by permanent prepayment of the Facility. No cures permitted on consecutive reporting dates and no more than 3 cures in total over the life of the Facility. Interest Expense means interest and amounts in the nature of interest … Covenant Definitions: Net Rental Income means, for a relevant period, gross revenue actually received by the Borrower from the Properties (and to the extent included, to exclude any tenant rental incentives and rent abatements) less land rents, property Taxes, property management fees and other expenses related to the Properties. Secured Properties means the Properties subject to a real property mortgage in favour of the Lender. 1. Clause 11.1 provided: Events of Review will be standard for a facility of this nature and will include, but not be limited to, the following (even if outside the control of the Borrower): 1. (Majors Bay cladding remediation not completed) all non-compliant cladding in respect of the Properties comprised in the Majors Bay Portfolio is not remedied to the satisfaction of the Financier by the date which is 9 months post Financial Close. … 1. Investigations and negotiations in relation to the cladding issue continued past 7 February 2020. 2. On 10 February 2020, Mr Cunningham, Mr Shaun Hannah, one of the co-founders of Altis, and Mr Gareth Price, Holdmark's director of capital transactions and the person to whom Mr Cunningham reported, met with Mr Dundovic to discuss the cladding issue. During that meeting, Mr Dundovic told Mr Hannah that, although Westpac did not normally lend for the acquisition of properties that had non-compliant cladding, it was willing to do so if the parties agreed on an arrangement to fix the problem within a suitable time and Westpac was satisfied with that arrangement. 3. According to Mr Cunningham, on 18 February 2020, he and Mr Hannah had a telephone conversation with Ms Sue Tan, Holdmark's General Counsel. During that conversation, Ms Tan complained that the process was taking too long and that if contracts were not exchanged soon the deal would be off. Mr Cunningham told her that Altis could not exchange contracts until it had secured funding from Westpac. 4. On 20 February 2020, there was a meeting at Holdmark's offices attended by Mr Sarkis Nassif, the founder of Holdmark, Mr Kevin Nassif, the chief operating officer of Holdmark, Ms Tan, Mr Hannah and Mr Cunningham. The meeting lasted for approximately one and a half to two hours. The main topic of discussion was the cladding issue. Following that meeting, Mr Kevin Nassif sent Mr Hannah and Mr Cunningham a proposed clause to be incorporated in the sale contract which reflected the discussions at the meeting. On the same day, Mr Cunningham sent an email to Mr White summarising what had been agreed. 5. There were further negotiations in relation to those terms. On 24 February 2020, Ms Tan sent an email to Mr Hannah stating, among other things, that "[i]f contracts are not exchanged by 11 am tomorrow, then the whole deal is off". That email provoked some internal discussion within KKR on whether it should agree to an exchange on 25 February 2020. Mr Paul Yang, of KKR, in an email addressed to Mr Carter among others expressed some doubt about the need to exchange immediately having regard to what appeared to be the execution risks. Mr White responded by saying, among other things, that the execution risk was ameliorated by the fact that there were two avenues to rescind the contract, which he described in these terms: 1) we are not satisfied with the proposed performance solution and retention amount for the ACP cladding or 2) the finance terms or conditionality are unpalatable 1. Mr John Pattar, who is head of KKR's real estate business in Asia Pacific, also replied to Mr Yang's email by saying: Thanks for the very valid comments Paul. We are aware from my recent trip the Sydney residential market has started to run up a little, and so we are balancing the need to placate the vendor but at the same time ensuring we have a [sic] enough scope in the conditions precedent on exchange that we have the ability to walk away. We will revert closer to closing to the IC [investment committee] once we are sure those conditions are met. 1. On 25 February 2020, Mr White sent the following email to Mr Cunningham: In regard to the financing opt out, I think you need to email Westpac and make it clear that they shouldn't issue a credit-approved term sheet unless we have agreed the retention amount or any deviation to the indicative term sheet with them. There are instances where lenders will issue a credit-approved term sheet which has material deviations to the indicative term sheet. There is, however, no evidence that Mr Cunningham acted on that suggestion. 1. Contracts were, in fact, exchanged on 27 February 2020. The final contract was for the acquisition of 56 apartments for a total price of $41,980,000. On exchange, Altis 2 paid a deposit of $2,099,000. 2. Clause 35.1 of the Contract provides: Date for completion Completion of this contract is to take place before 4.00pm on the latest of: (a) the date 5 weeks after the date of this contract; (b) the date which is 3 weeks after the vendor gives the purchaser a certificate certifying the Retention Amount pursuant to clause 49.3(a); and (c) 5 Business Days after the purchaser notifies the vendor that it has obtained written approval for the loan and the Loan Documents are fully executed pursuant to clause 36. 1. Clause 36 of the Contract provides: Completion conditional on finance 36.1 Loan The purchaser represents and warrants to the vendor that the purchaser has applied to Westpac Banking Corporation ACN 007 457 141 (Westpac) for a loan to assist in purchasing the property. Subject to this clause 36, completion of this contract is subject to and conditional on the following: (a) the purchaser obtaining written approval for the loan; and (b) the loan agreement with Westpac and ancillary documents required by Westpac prior to provision of the loan (Loan Documents) are finalised and fully executed. 36.2 Purchaser's obligations (a) The purchaser must: (i) use its best endeavours to have the loan approved and finalise and execute the Loan Documents; (ii) keep the vendor fully informed of the progress of the loan application and notify the vendor promptly when the loan is refused or approved or the Loan Documents fully executed, in any case no later than 2 business days after the purchaser receives notice that: A. the loan is refused; or B. the purchaser has obtained written approval for the loan and the Loan Documents are fully executed. (b) If: (i) the loan is refused; or (ii) the purchaser does not obtain written approval for the loan; or (iii) the Loan Documents are not fully executed, by the date that is 3 weeks after vendor gives the purchaser a certificate certifying the Retention Amount pursuant to clause 49.3(a) (Finance End Date), either party may rescind by serving a notice within 7 days after the Finance End Date if the loan has not been approved and Loan Documents fully executed before that notice rescinding is served. (c) The vendor may, by written notice, vary the Finance End Date so it is deemed to be any date after the Finance End Date, provided that date is no later than 8 weeks after the Finance End Date. 1. Clause 49 of the Contract deals with the cladding works. Clause 49.1 requires MBD at its cost to engage a fire engineer to carry out a detailed examination and analysis of the external façade of the buildings and to provide a report setting out recommendations in relation to the replacement of the cladding or alternative fire safety measures to comply with the Building Code of Australia. Under cl 49.2, MBD was required to carry out the necessary works as soon as reasonably practicable after obtaining the Fire Engineering Report (FER). Under cl 49.3, if the necessary work was not or could not be completed within five weeks of the date of the contract then, before settlement, MBD was required to pay into an escrow account 1.5 times the amount determined by a quantity surveyor as the amount necessary to undertake the work identified by the fire engineer. The escrow amount was to be released on completion of the work. If the work was not completed within the time specified in the contract, Altis 2 was entitled to payment of the amount held in escrow. 2. Under cl 3.9, MBD was required to return the deposit if the Contract was rescinded. 3. On 11 March 2020, the World Health Organisation declared COVID-19 to be a global pandemic. 4. On 17 March 2020, Mr Dundovic sent Mr White a conditionally approved term sheet. That term sheet contained a number of amendments to the indicative term sheet dated 29 January 2020. By that stage, KKR and Altis had abandoned the proposal to buy units in the Sky Tower development. Consequently, the facility no longer included financing for that acquisition. 5. The term sheet was expressed to be "subject to satisfactory documentation …". It also contained the following term: Without limitation, the terms and conditions presented in this Term Sheet are conditional on Westpac's further credit committee approval of the remediation plan and proposed rectification works in relation to the non-compliant cladding issues on the Majors Bay portfolio. 1. The term sheet also stated that the "pricing is subject to Westpac pricing committee approval". It also contained changes to the mandatory prepayment obligation. As amended, that obligation was in the following terms: On the sale of any Property, the Borrowers must prepay at least the percentage of the Valuation (of that individual Property) specified below: Percentage If Default or Review Event subsisting or following disposal of the Property, there are 20 or less Properties remaining in the portfolio and subject to Security 100% of net sale proceeds If ICR ≤ 1.50x 52.5% of Valuation If LVR > 45% 52.5% of Valuation LVR ≤ 45% but > 40% 50% of Valuation If LVR ≤ 40% 45% of Valuation 1. Clause 8 (previously cl 9) relevantly stated: Undertakings given by the Borrowers will be standard for a facility of this nature and will include, but not be limited to, the following: 1. … … 19. (Retention Amount) pay any Retention Amount (as defined or referred to in Majors Bay Purchase Contract) into a separate locked account as directed by the Financier. Use of the funds in the Locked Account may at the Financier's election be used to prepay debt or released to the Borrower at the Financier's absolute discretion. 1. Altis 2 did not sign the term sheet. 2. On 23 March 2020, Westpac's pricing committee approved the pricing set out in the conditionally approved term sheet, but with an increase of 45 basis points to the margin. It appears that KKR was not notified of that decision immediately. Instead, on 26 March 2020, Mr Cunningham asked Mr White whether he had received any correspondence form Westpac. Mr White replied that he had not and that he would chase Westpac up. Mr White spoke to Mr Dundovic the following day (27 March 2020), which was a Friday. Mr Dundovic informed Mr White that he had received pricing approval, but that it had been increased by 45 basis points. According to Mr White, Mr Dundovic said that the reason for the increase was that "[t]here is more risk now". Shortly after that call, Mr Dundovic called Mr Cunningham and told him of Westpac's decision. 3. Also on 27 March 2020 at 12.46 pm, Mr Cunningham sent representatives of Holdmark an email requesting an update in relation to the indicative pricing from the quantity surveyor on the remediation work. Mr George Khoury of Holdmark provided that pricing in an email sent at 5.18 pm that day, which had the effect of fixing the date for completion in cl 35.1(b) of the Contract. 4. Also on 27 March 2020, at 5.05 pm, Mr White sent Mr Dundovic an email saying: As discussed, can you please forward the tweaks to the credit approval you mentioned on our call and also how you envisage the valuation approval in the context of the prevailing market? 1. In the meantime, on 25 March 2020 the overseas travel ban implemented by the Biosecurity (Human Biosecurity Emergency) (Human Coronavirus with Pandemic Potential) (Overseas Travel Ban Emergency Requirements) Determination 2020 (Cth) came into effect. 2. At 11.14 am on 30 March 2020, Mr Dundovic sent Mr White (with a copy to Mr Cunningham and others) an email in response to Mr White's email sent at 5.05 pm on 27 March 2020, which relevantly said: As discussed, the pricing was approved on Monday 23 March at 275bps (+45bps) + BBSY. This pricing is valid for 45 days to financial close. Given the impact of COVID-19, we do have concerns with the volatility in the market value of security apartments as well as the lease up, occupancy and rents that can be achieved in the current environment. Please provide details of how you are comfortable with the ascribed market values and rents that can be achieved. 1. About one and a half hours later Mr Dundovic sent Mr White (again with a copy to Mr Cunningham among others) the following email: Further to the conditional credit approval term sheet issued on 17 March (see attached), I can confirm pricing was approved on 23 March 2020 as follows: Margin: 137.5bps (+22.5bps) Line Fee: 137.5bps (+22.5bps) Establishment Fee: 50bps (no change) The above reflects a 45bps increase on the conditional credit approved term sheet. This pricing must be accepted within 14 days from approval, with documentation and financial close to occur within 45 days of approval. 1. On the following day, the first lockdown in New South Wales implemented by the Public Health (Covid-19 Restrictions on Gathering and Movement) Order 2020 (NSW) (the Public Health Order) came into effect. 2. On 31 March 2020, Mr Cunningham sent Mr Dundovic an updated model which was based on the model that had been provided to Westpac on 7 January 2020. The email was a response to Mr Dundovic's email sent at 11.14 am on 30 March 2020. It said: Attached is our updated modelling, reflecting the debt terms outlined in the conditional credit approved term sheet from 17 March. Can you please confirm the reasons behind why the loan applied for (inclusive of original pricing) was not approved? Please note our investors have only committed to that pricing. Despite the above, in relation to your query around the implications of COVID-19, we've adjusted the model as follows: - Year 1 capital growth assumptions have been adjusted down from +4% to -5% on account of the current environment - The lease up phase has been pushed out to 12 months to account for the existing government measures (social distancing, movement restrictions, inability to have physical viewings etc). This has been adopted on the basis that the measures are lifted after 6 months. Our primary concerns are: 1. The additional debt costs: - will adversely impact the financial return. - have not been approved by investors. - materially impact the ability to meet the ICR covenant at the end of the holiday period. For example, the total impact on the ICR cover on the adjusted pricing is -0.20x, stabilising at 1.30x versus 1.50x under the pricing in the original conditional approval. 2. Movement restrictions and social distancing measures will obviously impact the ability to lease up the apartments and conduct inspections. If this persists as advised by the government for the next 6 months, the ICR holiday would not allow sufficient time to stabilise the income in the portfolio. Can you please advise whether [WESTPAC] would consider an extended ICR holiday period of 12 months? We wish to progress our loan as applied for (inclusive of original pricing) subject to an adjustment to the ICR holiday as necessary to accommodate the above. If this his [sic] is not possible, please let us know. 1. In the light of that email and model, Westpac decided to withdraw its offer. Mr Dundovic explained the decision in an internal email dated 1 April 2020 in these terms: The business has made the decision to rescind the Term Sheet and the conditional credit approval given the following: ● Approved (LTAC) pricing cannot be amended; ● Updated financial modelling (provided by the Borrower) implies they will be unable to satisfy the ICR covenant; ● A lower ICR covenant is not acceptable based on the asset class, market conditions (which have changed substantially) and heightened risk factors associated with rental rates, vacancy allowances and sales activity; and ● The Sponsors concerns regarding the performance of the investment as a result of the implications of Covid 19. 1. Mr Beatty had made comments on an earlier draft of that email. One change he made was to the last bullet point, which had previously read "Sponsors concerns regarding the performance of the facility" — a change to which, as I will explain, MBD attaches some significance. 2. On 2 April 2020, Mr Dundovic sent Mr Cunningham an email attaching a letter from Westpac advising that Westpac had revoked its offer set out in the term sheet. The letter stated: We refer to the conditional credit approved terms sheet dated 17 March 2020 issued by Westpac Banking Corporation ABN 33 007 457 141 (Westpac) to the Proposed Borrowers (the Terms Sheet). As you are aware, our offer of finance contained in the Terms Sheet was expressly conditional on Westpac's further credit committee approval of the remediation plan and proposed rectification works in relation to the non-compliant cladding issues on the Majors Bay Portfolio. Such further credit approval has not been obtained as at the date of this letter. Westpac also refers to the adjusted forecast model provided to us on 31 March 2020 and in particular: 1. the likelihood of an ICR breach and your request to defer the ICR holiday period for a further 6 months; and 2. your request to maintain the pricing indicatively quoted at commencement of negotiations. Westpac declines both of the above specific requests. Further, Westpac cannot proceed with the offer to finance on the terms specified in the Terms Sheet. As at the date of this letter, the Proposed Borrowers have not accepted the Terms Sheet. Accordingly, Westpac withdraws and revokes the offer set out in the Terms Sheet. … 1. MBD contends that the second paragraph of this letter makes no sense because the costings that were to form the basis of the further credit approval were not yet due (although they had, in fact, been received on 27 March 2020). I do not accept that submission. Mr Dundovic was not suggesting that Altis 2 had breached some obligation owed to Westpac by not providing the costings. He was simply saying that the loan was conditional on an event which had not yet occurred. 2. When cross-examined on that letter, Mr Cunningham gave evidence that he believed that Mr White had asked for a formal response to the loan application. He gave this evidence: I believe we – we asked something to the effect that if Westpac was going down that path [that is, rejecting the application for finance], we needed some formal correspondence. So we – it couldn't just be over email, "Sorry, the loan has been rejected," we needed to know if it was being rejected, as to why it was being rejected and that needed to be formalised so that we could provide it to our internal stakeholders and provide it to ultimately the vendor. 1. On 3 April 2020 Altis's solicitors, Clayton Utz, sent to Ms Tan an email which relevantly stated: Pursuant to clause 36.2(a)(ii) we notify you that yesterday, despite our client's best endeavours, the loan referred to in clause 36.1 was refused. 1. On 7 April 2020, Mr Cunningham sent Mr Dundovic an email saying: Following on from the below [the email from Mr Dundovic enclosing Westpac's letter], we've had subsequent discussions with the Vendor and are considering nominating a hypothetical price in which we could proceed on the deal. Would you please confirm if the approved pricing from 23 March at 275bps + BBSY still stands? If not, would you please provide an indicative estimate of pricing so we can assess the credit metrics of the revised deal. … 1. Mr Dundovic replied the following day saying: As discussed, we will need to know what the revised deal would look like and then form a view on the risk profile in the current environment. Once provided, we can take it up the line and give you direction on anticipated pricing (assuming the bank is comfortable with the risk profile). … 1. On 15 April 2020, Mr Cunningham sent Mr White an email saying that Altis wished to "determine whether we should explore with Westpac whether it would be prepared to offer financing arrangements on alternative terms". For that purpose, Mr Cunningham asked Mr White a number of questions about KKR's attitude including whether: 1. KKR was prepared to modify the business plan to address Covid-19; 2. Whether KKR was prepared to accept loan terms other than those provided in the original business plan to address COVID-19 including whether it was prepared to agree to an increased margin of 45 basis points or more, whether it was prepared to agree to the capitalisation of interest for a period of time, whether it was prepared to reduce the ICR covenant to reflect the impact of COVID-19 or whether it was prepared to put in more capital; 3. Whether KKR was prepared to enter into a creditor or subordination agreement with Westpac. 1. Mr White replied the following day. He stated that modification of the business plan to incorporate projections resulting from the expected impact of COVID-19 would have detrimental impacts on the risks and returns relating to KKR's loan note facility. He also stated that there was a material risk that a delay in leasing and sale of the apartments would trigger defaults under the loan facility. He said that KKR was not prepared to agree to an increase in the margin. He also said that capitalisation of interest would increase KKR's exposure, that the reduced ICR covenant was unlikely to be achievable and that the provision of additional capital would require a higher rate of return. He said that KKR was open to a subordination agreement. He also said that KKR was prepared to entertain other lenders, but that Westpac "were by far the most competitive of the lenders you approached during the Business Plan drafting …". Prior to sending the email, Mr White told Mr Cunningham that KKR would not move from the business plan on which investment committee approval was based. 2. On 16 and 17 April 2020, in exercise of Altis 2's rights under cl 36.2(c) of the Contract, Ms Tan sent emails extending the Finance End Date to 11 June 2020. 3. Between 20 April 2020 and 26 May 2020, Altis approached Westpac on several occasions to see whether it would reconsider its position. 4. Mr Cunningham says in his affidavit evidence that he spoke to Mr Dundovic on 20 April 2020 and asked whether pricing had improved. According to Mr Cunningham, Mr Dundovic replied "Pricing is still high and our appetite for the transaction remains low. I will keep you updated if pricing improves but the short term outlook for this transaction and similar transactions remains negative". 5. Following that conversation, on 22 April 2020, Clayton Utz sent Ms Tan a letter by email which relevantly said: As an update, we are instructed that: 1. since our last correspondence, Westpac has not moved from its position, having withdrawn and revoked its offer of finance in respect of the loan; 2. there are no facts or circumstances of which our client is currently aware which would indicate that Westpac will change its position and that written approval to the loan will be obtained and the loan documented prior to the Finance End Date set out in clause 36 of the Contract. 1. On 27 April 2020, Mr Cunningham sent Mr Dundovic an email in the following terms: Thought it would be worthwhile confirming one last time that Westpac's position has not changed in respect to the loan for Mortlake? We are proposing next steps with the Vendor and before we seek to rescind the contract, thought it best to check one last time. 1. Mr Dundovic replied the same day saying "I can confirm that Westpac's position has not changed". 2. Mr Cunningham spoke to Mr Dundovic again on 4 May 2020 asking about the prospects of a new deal. According to Mr Cunningham, Mr Dundovic's response was generally negative. He referred to the fact that Westpac had released its results that morning, which were significantly worse than expected. He said that in order to re-enliven the application, Westpac would need an updated valuation which was conservative in relation to real estate values and rents and that it would take a minimum four weeks for Westpac to consider an application from receipt of the updated valuation. Mr Cunningham says that he had a further telephone call with Mr Dundovic on 13 May 2020 in which Mr Dundovic said that nothing had changed from the bank's perspective and it would not approve a loan on the original terms. Mr Cunningham says that he had a further telephone conversation with Mr Dundovic to much the same effect on 19 May 2020. According to Mr Cunningham, during one of the conversations Mr Dundovic told him that he (Mr Dundovic) had had far superior loans rejected by credit, that he had had only one or two loans approved and that the bank was effectively closed for new business. 3. On 26 May 2020, Mr Cunningham and Mr Hannah called Mr Dundovic. According to Mr Hannah, Mr Dundovic said in effect that the loan could not be progressed unless the loan amount was reduced or the interest rate was materially higher. Mr Hannah says that Mr Dundovic said words to the following effect: The terms on the existing loan application will be knocked back again if you were to re-apply. Any new application would need an enhancement for the Bank. This is because the Bank has concerns about the rental levels forecast in the current market being achieved to pre-COVID, and the Bank has an expectation that any new valuation on the property simply won't stack up. In addition, the Bank's view is that there may be a lag effect and the market possibly become worse in the future. Mr Cunningham gave evidence to the same effect. 1. On 2 June 2020, Clayton Utz sent a letter by email to the solicitors acting for MBD in which they relevantly said: As an update, we are instructed that since our last correspondence, Westpac has not altered its position, having withdrawn and revoked its offer of finance in respect of the loan. We are further instructed however that our client had a discussion with Westpac last week, during which the Westpac representative indicated as follows: 1. Any application on the same terms to those previously applied for would certainly be rejected now. The Bank has moved materially against (i.e. unfavourably) our client in respect of pricing and credit metrics. 2. It has been particularly difficult to put deals to Credit for approval because, since COVID-19, the Bank has taken a hard-line approach to where it believed valuations could descend. 3. The Bank is and remains inward-focused on its existing exposures making any new loans extremely hard to obtain. 4. Finally, the Bank has concerns about underwriting assumptions around rents and letting up times and the reliability of any new valuations. In relation to (4), we are instructed that these comments from Westpac in respect of falling rents and extended letting up times are also consistent with what has been received from an independent third-party valuer consulted by our client. Accordingly, there are no facts or circumstances of which our client is currently aware which would indicate that Westpac will change its position and that written approval to the loan will be obtained and the loan documented prior to the Finance End Date set out in clause 36 of the Contract. 1. The Finance End Date occurred on 11 June 2020. Altis served a notice of rescission the following day. Clause 36 of the Contract 1. Clause 36 of the Contract relevantly raises two issues of construction. The first is whether the reference to "loan" in cl 36.1 is a reference to the terms of the loan set out in the indicative offer dated 29 January 2020 or whether it refers more generally to the terms of any loan that might be obtained from Westpac. The answer to that question is important because it gives content to the best endeavours obligation in cl 36.2(a)(i). The second is whether the right to rescind given by cl 36.2(b) is dependent on compliance with the obligations set out in cl 36.2(a). The answer to that question is relevant to the question whether Altis 2 was entitled to exercise a right of recission. The meaning of "loan" 1. In my opinion, the reference to "loan" must be read as a reference to a loan to acquire the Apartments that was substantially on the terms of the loan for which Altis had applied. Altis 2 was relevantly under an obligation to use its best endeavours to have "the loan" approved. The parties did not clearly distinguish between Altis and Altis 2 and the reference to "the loan" was clearly a reference back to the loan in respect of which Altis 2 gave the warranty in cl 36.1. That warranty was not given in respect of a loan generally. Rather, it was given in respect of a loan for which "the purchaser" had applied to Westpac. Only one loan met that description — that is, the loan described in the indicative term sheet dated 29 January 2020. It is true that that loan had three tranches including a tranche to refinance the loan from Bank of Melbourne and a tranche to acquire apartments in the Sky Tower development in Brisbane. However, the term sheet clearly distinguished between those three tranches and Altis 2 had a right to drawdown on each of them separately. Tranches A and C were irrelevant to the acquisition of the Apartments. Consequently, it is natural to read the reference to the loan for which Altis 2 had applied as a reference to Tranche B. 2. MBD contends that the construction set out in the previous paragraph makes no commercial sense, although its explanation of why that is so is difficult to understand. The parties understood that Altis was acquiring the Apartments as an investment for a client. It was apparent to both parties that whether the investment was attractive or not depended on the commercial terms on which it could be made, including the terms on which part of the purchase price could be borrowed. Holdmark knew that Altis was seeking to obtain a loan from Westpac in connection with the transaction. It must have understood that the terms of that loan were important to Altis's decision whether to proceed with the transaction to acquire the Apartments. Mr Cunningham's evidence is that he told Ms Tan in a telephone conversation on 18 February 2020 that Altis could not exchange contracts until it had obtaining funding from the bank. I accept that evidence. It was not denied by Ms Tan (who did not give evidence) and the evidence is plausible. It is consistent with the fact that a short time later the parties commenced negotiations on the terms of what became cl 36 of the Contract. Altis wanted to wait until it had obtained finance before entering into the Contract. Holdmark was insisting that it enter the Contract immediately. In those circumstances, it was natural for the parties to agree to enter into an agreement that was conditional on Altis obtaining the financing it was seeking. Was the right conferred by cl 36.2(b) dependent on compliance with cl 36.2(a)? 1. Whether a contractual right is dependent on a contractual obligation is a matter of construction. As Megarry V-C explained in Tito v Waddell (No 2) [1977] Ch 106; 3 All ER 129, 297: If an instrument grants rights and also imposes obligations, the court must ascertain whether on the true construction of the instrument it has granted merely qualified or conditional rights, the qualification or condition being the due observance of the obligations, or whether it has granted unqualified rights and imposed independent obligations. In construing the instrument, the more closely the obligations are linked to the rights, the easier it will be to construe the instrument as granting merely qualified rights. The question always must be one of the intention of the parties as gathered from the instrument as a whole. See also Aalders v PA Putney Finance Australia Pty Ltd (formerly Anzax Finance Australia Pty Ltd) and ors [2011] NSWSC 756 at [57]ff per Ward J; Hillam v Iacullo [2015] NSWCA 196 at [93] per Leeming JA (with whom Basten and Ward JJA agreed). 1. In the present case, I am not satisfied that the obligation to use best endeavours and the right of recission are dependent. They are not expressed to be dependent. The right of recission depends on a decision of Westpac over which Altis had limited control. Altis's best endeavours were neither a necessary nor sufficient condition for the loan to be approved and consequently their absence was neither a necessary nor sufficient condition for the triggering of a right of recission. 2. MBD points to the fact that the requirement to use best endeavours and the right of recission are contained in the same clause. However, in my opinion, little turns on that. The right and the obligation are concerned with the same subject matter — that is, the loan from Westpac. It was natural that they be contained in the same clause. Moreover, cl 36.2 contains two obligations. One is to use best endeavours. The other is to keep the vendor fully informed of the progress of the loan application. The parties could not have intended that the right of recission was dependent on compliance with that second obligation. Compliance with that obligation had no effect at all on whether the right of recission would arise. The parties could not have intended compliance with one obligation to affect the right of recission, but compliance with the other not to have that effect when the two obligations are contained in precisely the same clause. 3. The failure to use best endeavours may or may not have had an effect on Westpac's decision to refuse the loan (if that is what its decision was). If it had no effect, it is difficult to understand why commercially the parties would have agreed to a provision that still prevented Altis 2 from exercising a right of recission. On the other hand, if did have that effect, MBD would not be left without a remedy. It could still sue for damages for breach of contract. Moreover, in my opinion, it would still be entitled to rely on the principle of construction that "in the absence of clear words, a contractual entitlement upon a particular event will not be enlivened if the event came about through breach of the party seeking to rely on it": see Ruthol Pty Ltd v Tricon (Australia) Pty Ltd [2005] NSWCA 443; (2005) 12 BPR 23,923 at [20] per Giles JA (with whom Santow JA and Hunt AJA agreed). See also Sydney Attractions Group Pty Ltd v Frederick Schulman [2013] NSWSC 858 at [41] per Sackar J; Alghussein Establishment v Eton College [1991] 1 All ER 267 at 270. In that context, it makes little commercial sense to interpret the right as conditional on absolute compliance with the obligation. 4. As Altis 2 pointed out in its submissions, where the parties intended to make a right of recission conditional on compliance with a contractual obligation, they specifically said so. In particular, cl 28 of the Contract relevantly provides: 28.1 This clause applies only if some of the land is described as a lot in an unregistered plan. 28.2 The vendor must do everything reasonable to have the plan registered within 6 months after the contract date, with or without any minor alteration to the plan or any document to be lodged with the plan validly required or made under legislation. 28.3 If the plan is not registered within that time and in that manner – 28.3.1 the purchaser can rescind; and 28.3.2 the vendor can rescind, but only if the vendor has complied with clause 28.2 and with any legislation governing the rescission. As is apparent, this clause expressly makes the vendor's right of recission if a plan is not registered within six months dependent on compliance by the vendor of the obligation to do everything reasonable to have the plan registered within that time. The fact that the parties did not adopt a similar approach in cl 36 counts against the contention that they intended the right and obligation to be interdependent. 1. Altis 2 submits that the terms of cl 36 of the Contract are sufficiently clear to displace the principle of construction that a party cannot take advantage of its own wrong as well. It submits that that is so because the Contract expressly preserves the right to claim damages and because the application of that principle would introduce a degree of uncertainty in the operation of the Contract that the parties could not have intended. I do not accept that submission. The purpose of the best endeavours obligation was to give MBD some comfort that Altis 2 would take all reasonable steps to secure the loan. It was a promise given in return for MBD's agreement that the Contract could be rescinded (and the deposit returned) if the loan was not obtained within the time specified in the Contract. It seems improbable that the parties would have intended that the deposit was to be returned even if Altis 2 failed to use best endeavours to obtain the loan and that failure was a cause of the loan not being obtained unless they specifically said so. However, there is nothing in the Contract which specifically states that the right of recission was preserved even if Altis 2 failed to use best endeavours. Did Altis 2 use best endeavours? 1. An obligation to use best endeavours is to be understood as an obligation to do all that reasonably can be done in the circumstances to achieve the contractual obligation, but no more: Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 64 per Gibbs CJ, citing Sheffield District Railway Co v Great Central Railway Co (1911) 27 TLR 451 at 452; Terrell v Mabie Todd & Co Ltd (1952) 69 RPC 234 at 237. What constitutes 'best endeavours' must be "measured by what is reasonable in the circumstances, having regard to the nature, capacity, qualifications and responsibilities of the [party who bears the obligation] viewed in the light of the particular contract": Transfield Pty Ltd v Arlo International Ltd (1980) 144 CLR 83, 101 per Mason J. 2. The difference between "best endeavours" and "reasonable endeavours" is somewhat elusive, although it has been suggested that the former imposes a "somewhat higher" standard than the latter: Foster v Hall [2012] NSWCA 122 at [33] per Macfarlan JA (Meagher JA and Tobias AJA agreeing). The difference seems to be that the former imposes an obligation to do everything that is reasonably possible to bring about the stated end, whereas the latter simply requires a person on whom the obligation is placed to take steps that a reasonable person in the circumstances would take to achieve that end. 3. Consequently, the question in this case is whether Altis 2 did all that it reasonably could to obtain Westpac's approval to a loan substantially on the terms set out in the indicative term sheet dated 29 January 2020. 4. On that question MBD seeks primarily to demonstrate in detailed submissions based on what is described as circumstantial evidence that Mr Cunningham and Mr White in effect conspired, with the knowing or unknowing assistance of Mr Dundovic, to bring about a situation in which Westpac withdrew its offer to provide financing in order to permit KKR to get out of the transaction. As part of those submissions, it invites the Court to make adverse credit findings against both Mr Cunningham and Mr White. Tell-tale signs of the conspiracy are said to include (without in any way intending to be exhaustive) (1) the internal KKR correspondence indicating that KKR thought that the Contract had been designed with sufficient conditionality to enable it to walk away if it wanted; (2) the fact that "the business", rather than credit, decided to withdraw the offer of financing and the fact that the reasons given (such as the suggestion that there was an existing ICR default) made no sense, indicating that Westpac was keen to accommodate the desires of its customer; (3) the fact that Mr Cunningham produced a revised model for Westpac that contained unduly pessimistic assumptions, including the assumptions in relation to interest rate and sale prices; (4) the fact that Westpac issued two emails in relation to the increase in rates, the later of which did not include in the email chain Mr White's email to Mr Dundovic referring to "tweaks to the credit approval"; (5) the fact that Mr Beatty changed the email giving notice of Westpac's decision so that it offered as one of the reasons for the decision "Sponsors concerns regarding the performance of the investment" rather than Sponsors' concern regarding the performance of the facility; and (6) the fact that no serious attempt was made to renegotiate the terms of the loan with Westpac and that instead Mr Cunningham made periodic and half-hearted requests of Mr Dundovic about whether Westpac had changed its mind. These points are said to be supported by the fact that the possible effect of COVID-19 did not feature heavily in Westpac's decision to withdraw the loan. 5. Mr Cunningham was said not to be a credible witness for a large number of reasons including (1) the fact that he did not depose in his affidavit evidence and said in cross-examination that he could not recall the contents of what was said to be a critical conversation with Mr White on 30 March 2020, after Mr White had received Mr Dundovic's emails (and before Mr Cunningham replied to Mr Dundovic on 31 March 2020); (2) his failure to depose to a conversation on the afternoon of 30 March 2020 with Mr Price and Mr Hannah, which is evidenced by emails arranging the call; and (3) his inability to explain why he included critical assumptions in the model sent to Westpac on 31 March 2020. 6. Mr White was said not to be a credible witness also for a large number of reasons. They included (1) his refusal to accept that KKR led the negotiations with Westpac, despite clear evidence to the contrary; (2) his insistence that he explained to Mr Dundovic that KKR could not agree to an increase in the margin of 45 basis points, when he described it as a "tweak" to the credit approval and what were said to be evasive answers to questions on that subject; (3) his resistance to the proposition that it was likely that KKR would use a loan note structure, despite that being contrary to the objective evidence; (4) his denial that BBSY was falling fast, despite clear objective evidence to the contrary; (5) his denial that he was mindful of the fact that the purchase contract contained a best endeavours obligation. 7. MBD also suggested that an adverse inference should be drawn against Altis 2 in accordance with the principles stated in Jones v Dunkel (1959) 101 CLR 298 from the fact that it did not call Mr Dundovic, Mr Price or Mr Carter. 8. I do not accept these submissions. I do not accept that it was necessary for Altis 2 to call any of Mr Dundovic, Mr Price or Mr Carter. Mr Dundovic was not in Altis 2's camp. He was independent of either party and could have been called by either of them. Altis 2 called the witnesses from Altis and KKR who were most closely involved in the events giving rise to these proceedings — that is, Mr Cunningham and Mr White. The principle stated in Jones v Dunkel does not require it to call all witnesses who had some involvement in those events. 9. I accept that there were some difficulties in the evidence given by Mr Cunningham and Mr White. However, in my opinion both sought to answer questions truthfully as best as their recollections permitted. Both prepared their affidavit evidence at the time they were employees of Altis and KKR respectively. However, both have since left employment with those companies. Although no doubt both had an interest in defending their conduct, neither had a clear interest in defending Altis's case. The relevant events occurred two or more years ago, and much has changed over that time. Moreover, many of the critical events occurred at a particularly uncertain time as a result of the pandemic. It is, therefore, not surprising that their recollections on some matters were poor. A number of the criticisms made of Mr White, in particular, do not seem important. His evidence concerning whether KKR intended to use a loan note structure and his evidence in relation to the best endeavours obligation are examples. His evidence in relation to both was, in fact, plausible. The effect of his evidence on the former was that KKR had not initially committed to a loan note structure and wanted to obtain taxation and legal advice before it did. The effect of his evidence in relation to the latter was that he did not have a clear understanding that Altis 2 had a best endeavours obligation and that he did not know whether it had an obligation of that type or an obligation to use reasonable endeavours. Given the content of a best endeavours obligation, that is plausible. 10. Likewise, the conspiracy case must be rejected. The allegation that Mr Cunningham and Mr White deliberately sought to engineer a situation where Westpac would refuse to lend is a serious allegation. There is a question whether that case had to be pleaded. However, it is unnecessary to resolve that issue. On the conclusions I have reached concerning the correct construction of cl 36 of the Contract, MBD bears the onus of proof on that issue, since it bears the onus of proving that Altis 2 breached the Contract and the right of recission it claimed to be entitled to exercise arose from that breach. In considering whether it has discharged that onus, it is necessary to bear in mind the seriousness of the allegation: see Evidence Act 1995 (NSW) s 140(2)(c); Briginshaw v Briginshaw (1938) 60 CLR 336 at 361–2 per Dixon J. As I will explain, MBD has not discharged that onus. Indeed, in my opinion, the conspiracy case must be rejected. 11. MBD advances an alternative case that Altis 2 did not use its best endeavours to procure Westpac's agreement to the loan. The reasons why I reject MBD's conspiracy case are best explained by explaining why I reject that alternative case as well. 12. The obligation to use best endeavours, obviously enough, did not arise until the Contract was signed and exchanged. It is an obligation imposed on Altis 2. No doubt Altis 2 acted through Altis, and for that reason the obligation was effectively an obligation of Altis. Similarly, to the extent that KKR acted as Altis 2's agent in negotiating with Westpac any act or failure to act on the part of KKR could involve a breach by Altis 2 of its best endeavours obligation. However, KKR itself was not the subject of a best endeavours obligation. It remained free to withdraw from the proposed acquisition at any time, although withdrawal by it did not trigger a right of recission. As I have explained, the best endeavours obligation was an obligation to use best endeavours to obtain a loan to acquire the Apartments on substantially the same terms as those set out in the indicative term sheet dated 29 January 2020. 13. Little turns on the conduct of KKR or, for that matter, Altis before the Contract was signed and exchanged. It was natural for KKR and Altis to seek to bargain for as much flexibility in the conditions of the Contract when financing had not been approved and the problems with the façade had not been rectified. The fact that KKR took comfort from whatever conditions were included in the Contract in deciding to give its approval to it, as evidenced by the exchange of emails on 25 March 2020, says nothing about Altis 2's willingness to comply with its best endeavours obligations. 14. There is a suggestion that Altis 2 did not use best endeavours because it did not sign the conditionally approved term sheet that Mr Dundovic sent Mr White on 17 March 2020. However, in my opinion, the best endeavours obligation did not require Altis 2 to sign that term sheet, at least until Westpac communicated the decision of the pricing committee. Until then, Altis 2 did not know what terms it was being asked to accept. 15. Altis 2 was informed orally on 27 March 2020 and in writing on 30 March 2020 (the next business day) of the pricing committee's decision. That decision was to increase the margin by 45 basis points on the price included in the indicative term sheet. There is a question whether that increase was material. Taken in isolation, an increase of 45 basis points might be regarded as material. However, the base rate (BBSY) had dropped significantly. The evidence is that the BBSY rate on 3-month bank bills was approximately 0.9309 percent on 29 January 2020. By 27 March 2020, it had dropped to approximately 0.4778 percent. Consequently, the total interest rate had decreased slightly between the two dates. Mr White described the changes to the credit approval as "tweaks", which suggests that he thought that they were minor. It is not necessary, however, to reach a final decision on this question, since the significance of the rate increase was overtaken by events. 16. At the time that Mr Dundovic told Mr White of the decision of the pricing committee he expressed concern about "the volatility in the market value of security apartments as well as the lease up, occupancy and rents that can be achieved in the current environment" and asked Mr White to provide details "of how you are comfortable with the ascribed market values and rents that can be achieved". There is no reason to believe that those statements did not reflect genuine concerns held by Westpac at the time. MBD points to the fact that approximately an hour and a half later Mr Dundovic issued a more formal notification of Westpac's decision, which did not include any expression of concern and did not include the earlier emails, including Mr White's email describing the changes as "tweaks". As I have said, MBD suggests that there was something sinister in that. I do not agree. I accept that it is likely that the second email was sent at Mr White's request. The most plausible explanation for the request is that Mr White wanted a formal record of Westpac's decision that he could provide to KKR's investment committee and Mr Cunningham could provide to his superiors and to MBD which simply recorded Westpac's position. There is no reason to think that it was designed to create some separate evidence trail in anticipation of litigation. There is no evidence that at that time Mr White and Mr Cunningham had decided between themselves that they did not want to proceed with the acquisition of the Apartments. It was not their decision to make. The most that could be said was that the rapidly evolving situation in relation to COVID-19 was causing them and Westpac concerns. That seems entirely plausible. Mr Cunningham accepts that he was conscious of the best endeavours obligation, and that he wanted to create a documentary trail that evidenced Altis 2's compliance with that obligation. There is nothing surprising or untoward in that. Nothing that Mr White or Mr Cunningham had done or not done to that point involved a failure on the part of Altis 2 to use best endeavours to procure the loan. 17. On 31 March 2020, Mr Cunningham responded to Mr Dundovic's request for details on "how you are comfortable with the ascribed market values and rents that can be achieved". It is reasonable to infer that that response was one of the matters that led to the decision of Westpac to withdraw its offer. The response had three elements. First, it included an updated model. Second, it expressed a number of concerns about proceeding with the acquisition of the Apartments. Third, it set out what Altis 2 wanted — which was a return to the original pricing and additional relief in respect of the ICR covenant. In my opinion, an important, if not critical, question in the case is whether that response involved a breach of the obligation to use best endeavours. 18. I have concluded that it did not. Mr Cunningham had to respond to Mr Dundovic's request. It would have been a breach of the best endeavours obligation not to do so. Although Westpac had issued the conditionally approved term sheet and the pricing committee had made a decision on the pricing of the loan, the loan was still subject to negotiation of the terms of the formal facility agreement. The likelihood is that Westpac would not have engaged in those negotiations if it had not received any response to Mr Dundovic's request. Moreover, any response had to convey Mr Cunningham's, and Altis's, honestly held views. If it did not, they ran the risk of misleading Westpac. Moreover, Westpac is a highly sophisticated lender. Mr Dundovic asked the questions he did because Westpac had understandable concerns about those matters. Mr Dundovic's email gave Altis an opportunity to respond to those concerns. A response that simply denied those concerns was likely to increase rather than allay them. The approach that Mr Cunningham appears to have taken was to accept the concerns expressed by Westpac and to propose a solution to them, which involved concessions by Westpac. 19. In my opinion, that was a reasonable approach to take. The lockdown took effect the same day. It was uncertain how long it would last, but the expectation was that it could last a number of months. It was uncertain what effect the lockdown, and the pandemic generally, would have on house prices and rents. However, it was reasonable to think that it would have an adverse effect because of the limitations on movements. 20. It is difficult to see that anything turns on the fact that the decision taken by Westpac was taken by the business rather than credit. It is true that the role of the business is to deal with customers and potential customers and to solicit business. But there is no evidence to suggest that it was not usual or appropriate for the business on occasions to make a decision that it was no longer willing to support a particular loan application because of a change in circumstances. That appears to be what happened in this case. 21. MBD submits that the internal records of Westpac do not support a conclusion that the bank was concerned about the pandemic. However, there are no internal records of Westpac which explain why it took the decision to withdraw the loan. The only evidence before the Court is the communication of that decision to credit. Nonetheless, it is plain from Westpac's communications with KKR and Altis that it was concerned about the pandemic and the effect that the pandemic would have on the assumptions on which the original loan approval was based. It would be extraordinary if Westpac did not have those concerns. 22. MBD points out that the Public Health Order did not prevent a person from moving residences and permitted the inspection of properties for the purposes of sale or lease. However, open inspections were prohibited. The only exception was that "a person may show a single person the premises after the person has made an appointment for that purpose": see cl 7(3)(a). It was still reasonable to think that that restriction in combination with the general effect of the Public Health Order would have a very substantial effect on the market; and that the restriction on overseas travel would also have some effect on the number of potential purchasers, since it was likely to have an effect on buyers who lived overseas. 23. MBD is critical of some of the assumptions made in the model included with Mr Cunningham's email. In particular, it points to the fact that the model was predicting a five percent decrease in prices in the first year. MBD submits that that change was at best overly pessimistic and at worst a deliberate adjustment to make the transaction look unattractive, particularly since a corresponding change was not made to the model for the Caydon Acquisition — an anomaly that Mr Cunningham could not explain. Similarly, the model assumed a base interest rate of 0.7 percent, which was substantially higher than the BBSY rate at the time. The model also assumed a reduction in the number of units that would be leased each month. 24. In my opinion, the assumptions adopted by Mr Cunningham were reasonable. Mr Cunningham gave the following evidence in relation to the market growth rate: Q. How did you decide what figure to change the market growth rate to for year 1? A. It was subjective, but ultimately, apart from the concerns the - the bank had raised around, you know, the current environment due to COVID, it was probably our internal assessment that - and to give you context, going into this mandate and going into this transaction, we - we - we had a thesis, the thesis considered effectively a supply shortfall. So we anticipated capital growth in the apartments that we were buying, and then obviously due to COVID, we thought there would be probably a - a - a one‑year lull of sorts based on the environment. So we - we adopted a negative 5% growth rate in that first year from the assumed spot price or spot markets price as at that time. I accept that explanation. 1. As Mr Cunningham also pointed out in cross-examination, the model did not include an interest rate curve. It assumed that the average base rate over the period of the loan would be 0.7 percent. Particularly in view of the uncertainty, that assumption obviously involved a degree of guess work. It does not appear to be unreasonable. For the reasons I have already given, I accept that it was appropriate to adjust the model to reduce the rate at which the Apartments would be leased. As Mr Cunningham pointed out, the position was different in relation to the units that had been acquired in Melbourne, since most of those had already been leased. 2. MBD is critical of Altis 2's conduct because it did not notify Westpac of the fact that it (Altis 2) had been notified on 27 March 2020 of indicative pricing from the quantity surveyor on the remediation work. However, as Altis 2 points out, that costing was sent to Mr Cunningham because he had chased it earlier that day. He did not receive it until after 5.00 pm on 27 March. The next business day was 30 March. There were more urgent matters for Mr Cunningham to attend to that day. Although the pricing would eventually have to be approved by the credit committee, it was not something which required immediate attention. 3. MBD led expert evidence from Mr John McGuinness, an accountant. He gave evidence that, even on the assumptions contained in the 31 March 2020 model, the investment was still profitable. But little turns on this evidence. The critical question is whether Altis breached its obligation to use best endeavours by giving Westpac the information it did in Mr Cunningham's email dated 31 March 2020. As I have explained, in my opinion, Altis 2 had to respond to Westpac's request and it had to give a response which was plausible. Anything less than that may well have breached the best endeavours obligation. In my opinion, Mr Cunningham's response satisfied that requirement. 4. One other point should be made in this context, which is particularly relevant to MBD's conspiracy case, and that is that it is difficult to understand the genesis of the conspiracy if there was one. There is no evidence that senior people at Altis or KKR had instructed Mr Cunningham and Mr White respectively that they wanted to get out of the transaction, leaving it to Mr Cunningham and Mr White to achieve that objective. Despite some misgivings by some people at KKR in January 2020, KKR decided to proceed with the transaction. Admittedly, they may have done so believing that they could get out of it if it proved to be unattractive. However, there is no evidence that that is the conclusion that they had reached by 31 March 2020, let alone that they gave some instructions to Mr White in that regard. 5. Similarly, Mr Hannah appears to have put in considerable personal effort in seeking to resolve the issue in relation to the cladding. MBD accepts that Mr Hannah gave straightforward evidence on which the Court could place some reliance. But his evidence is to the effect that Altis remained keen to pursue the deal even after 31 March 2020. Consequently, MBD's conspiracy case must be that Mr Cunningham and Mr White took it upon themselves to extract Altis 2 from its obligations under the Contract. However, why they did so remains unexplained. 6. It was natural for Mr Cunningham to wait to receive Westpac's response to his email sent on 31 March 2020 before doing anything else. That response, which was sent two days later, on 2 April 2020, withdrew the offer. Holdmark was notified of that decision the following day. Mr Hannah says, and I accept, that he instructed Mr Cunningham to continue to engage with Westpac in an attempt to understand the basis of the decision and see if it could be reversed. I accept that evidence. Having regard to the position Mr Hannah had taken up until then, it was a natural position for him to take. 7. The details of subsequent events are set out above. I accept that there is an element in what Altis did of it going through the motions to preserve its right of recission. But the question is what else it could have done. As I have explained, the best endeavours obligation did not require Altis to seek quite different (and less favourable) terms from Westpac. It was limited to an obligation to obtain a loan on substantially the same terms as the indicative term sheet. It seems plain that Westpac was not prepared to offer those terms at any time before the Finance End Date. 8. MBD submits that Altis's conduct after Westpac's letter dated 2 April 2020 is to be contrasted with its conduct before Westpac provided the indicative term sheet. During that period, Altis (through KKR) negotiated extensively with Westpac on the terms of the loan. According to MBD, if it had used best endeavours, it would have adopted the same approach after 2 April 2020. 9. That submission may have had some force if the best endeavours obligation required Altis 2 to obtain a loan from Westpac on any reasonable terms that it could. However, it did not. As I have said, it was plain that Westpac was not prepared to offer a loan on terms that had been proposed originally. There was, therefore, nothing to negotiate. A best endeavours obligation does not require the person who is subject to the obligation to take steps which are futile: Hawkins v Pender Bros Pty Ltd [1990] 1 Qd R 135 at 150–2. Conclusion and orders 1. It follows that Altis 2 was entitled to rescind the Contract on 12 June 2020. Following recission, it was entitled to a return of the deposit of $2,099,000. The deposit is currently held by a third party in accordance with the Contract. In those circumstances, Altis 2 by its amended summons seeks relevantly the following relief: 1. A declaration that the contract entered into between the plaintiff and the defendant on 27 February 2020 (Contract) was validly rescinded by the plaintiff. 2. A declaration that the plaintiff is entitled to the return of the deposit paid under the Contract. 2A. An order requiring the defendant to take all steps and do all things necessary to return the deposit in the amount of $2,099,000 paid by the plaintiff (Deposit). 2B. An order authorising a Registrar of the Court, in the event that the defendant fails to comply with order 2A within 14 days of the making thereof, to take all steps and do all things necessary, for and on behalf of, and in the name of the defendant, to cause the return of the Deposit paid by the plaintiff. There is no reason why that relief should not be granted. 1. The claim is clearly a claim for the recovery of money: see Bloch v Bloch (1981) 180 CLR 390 at 398–9 per Wilson J. Therefore, Altis 2 is entitled to pre-judgment interest on that amount in accordance with s 100 of the Civil Procedure Act 2005 (NSW). That interest is $235,723.56. There is no apparent reason why costs should not follow the event. 2. Accordingly, the orders of the Court are: 1. Orders in terms of paragraphs 1 to 2B of the Amended Summons dated 14 March 2022; 2. Judgment for the plaintiff against the defendant in the sum of $235,723.56; 3. Order that the defendant pay the plaintiff's costs. ********* DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 11 April 2022