Supreme Court New South Wales Medium Neutral Citation: Macarthur Farm Pty Ltd (Receivers and Managers Appointed) v Warneet Super Pty Ltd [2024] NSWSC 535 Hearing dates: 30 April 2024 Date of orders: 7 May 2024 Decision date: 07 May 2024 Jurisdiction: Equity Before: Hammerschlag CJ in Eq Decision: Summons dismissed. Catchwords: CONTRACTS – Construction – Written loan agreement (agreement) under which the First Defendant (Lender) lent the First Plaintiff (Borrower) a large sum of money to enable the First Plaintiff to complete the acquisition of real property (the Property) which it was intended to on-sell at a profit in which they would share – Where on one scenario contemplated by the agreement (which scenario arose) profit would be determined on the basis of market value defined in the agreement as the market value of the Property determined by a licenced real estate valuer selected by the Lender – Whether the First Defendant selected a valuer – Whether the First Defendant was put to selecting one, and only one, valuer in advance of the valuer determining market value and if so whether it was for that valuer, and that valuer alone, to determine market value – Whether the determination could be oral – Whether an unfinalised valuation at a date different to the one required by the agreement can constitute a determination under it – Where receivers appointed by the First Defendant to the First Plaintiff sought to retain a licenced valuer to make a determination under the agreement and the valuer refused a retainer in terms requiring him to carry out the exercise required by the agreement – Where his retainer was terminated before completion of a valuation – HELD the First Defendant did not select a valuer – The agreement did not require a selection to be in advance of the bringing into existence of a valuation – The First Defendant could select a valuer who had made a determination – A determination had to be in writing – The unfinalised valuation could not constitute a determination under the agreement Cases Cited: Karenlee Nominees Pty Ltd v Gollin & Co Ltd [1983] 1 VR 657 Legal & General Life of Australia Ltd v A Hudson Pty Ltd (1985) 1 NSWLR 314 Woolworths Ltd v Merost Pty Ltd (1988) 14 NSWLR 300 Holt v Cox (1994) 15 ACSR 313 Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104 Category: Principal judgment Parties: Macarthur Farm Pty Ltd ACN 667 935 971 (Receivers and Managers Appointed) (First Plaintiff) Thomas Peter Crown (Second Plaintiff) Warneet Super Pty Ltd ACN 163 164 921 as trustee for Warneet Super Fund ABN 67 810 588 968 (First Defendant) Rahul Goyal (Second Defendant) Barry Wight (Third Defendant) Representation: Counsel: TE O'Brien with HAX Rodgers (First and Second Plaintiff) RM Foreman SC with KE Holcombe (First, Second and Third Defendants) Solicitors: Marque Lawyers (First and Second Plaintiff) Arnold Bloch Leibler (First, Second and Third Defendants) File Number(s): 2024/00106380 Publication restriction: Nil JUDGMENT INTRODUCTION AND BACKGROUND 1. These proceedings concern the proper construction and operation of a written Loan Agreement dated 7 September 2023 (the Agreement) under which the First Defendant (as Lender) advanced to the First Plaintiff (as Borrower) the amount of $30,100,000 (Loan Amount). The Agreement 1. The First Plaintiff had, on 26 June 2023, entered into a Contract of Sale to purchase a property (the Property) defined in Item 4 of Schedule 1 of the Agreement as: The property and fixtures at: • 186 Macarthur Road, Spring Farm NSW 2570 (being the land comprised in Folio Identifier 22/833317); and • 214 Macarthur Road, Spring Farm NSW 2570 (being the land comprised in Folio Identifier 1/587631). 1. The Property measures 81.83 hectares and is a sand and soil quarry. About 64 hectares of it is rural land. Another part of the land is subject to a Local Council buyback. 2. As at the date of the Agreement, the First Plaintiff had not completed the purchase of the Property. 3. References below to clauses are, unless otherwise stated or the context indicates differently, to clauses of the Agreement. 4. The purpose of the loan is described in cl 3(a) as being for the "sole purpose of purchasing the Property and payment of the Acquisition Costs, any associated costs an [sic] any GST payable by the Borrower in relation to the Borrower". It is not clear what is meant by "in relation to the Borrower" but this does not matter for present purposes. 5. At the same time the Agreement was entered into, other collateral instruments were entered into, including a General Security Deed (the Deed) under which the First Plaintiff charged all its present and after-acquired property as security in favour of the First Defendant for its obligations under, amongst others, the Agreement. 6. The commercial idea underlying the Agreement is that the First Defendant would lend to the First Plaintiff the full purchase price, plus stamp duty and other acquisition costs, to pay for the Property, the Property would be on-sold as speedily as possible at a profit, and the parties would then share, in specified portions, in that profit. 7. The Agreement makes provision for the Lender's Profit Share to be 50% if an On-Sale is achieved within 12 weeks of Contract Competition (of the acquisition of the Property), 60% if an On-Sale is achieved after 12 weeks but on or before 31 May 2024, and otherwise 75%. 8. Clauses 5.1, 5.2 and 5.3 provide: 5.1 Definition of Profit In this clause 5, Profit means: (a) if an On-Sale is completed on or before the Repayment Date, the net profit on the sale of the Property pursuant to the On-Sale is to be calculated in accordance with the following formula: P = G – (S + A + H + FI) where: • P is the Profit; • G is the gross proceeds of the sale of the Property pursuant to and payable on completion of the On-Sale; • S is the Selling Costs; • A is the Acquisition Costs; • H is the Holding Costs; and • FI is the Fixed Interest calculated under clause 5.2(a); and (b) if an On-Sale is not completed on or before the Repayment Date: (i) but the Borrower repays the Secured Money on the Repayment Date, an amount calculated in accordance with the following formula: P = MV – (A + H + FI) where: • P is the Profit; • MV is the Market Value of the Property as at the Repayment Date; • A is the Acquisition Costs; • H is the Holding Costs; and • FI is Fixed Interest calculated under clause 5.2(a) adjusted if required under clause 5.4(b); and (ii) otherwise, the parties agree that the Property must be sold and will be placed on the market for sale within 30 Business Days of the Repayment Date, the Borrower agrees that any such sale process will be at the cost of the Borrower but under the control of the Lender who agrees to use all reasonable endeavours to effect a sale of the Property which is to be offered publicly and promptly, in consultation with the Borrower who must co-operate and take such steps as are reasonably required by the Lender and the Lender will reasonably determine what is a fair and reasonable sale price to accept and the Profit is an amount calculated in accordance with the following formula: P = SP – (S + A + H + FI) where: • P is the Profit; • SP is the gross sale price of the Property; • S is the Selling Costs • A is the Acquisition Costs; • H is the Holding Costs; and • FI is the Fixed Interest calculated under clause 5.2(a) adjusted under clause 5.4(b), 5.2 Interest Interest on the Loan Amount must be paid by the Borrower to the Lender on the Repayment Date, upon completion of the sale of the Property under clause 5.1(b)(ii) or such earlier date on which the Secured Money becomes due and payable whether under clauses 4.2 or 9.2 or otherwise, in the amount equal to the sum of: (a) if an On-Sale is: (i) achieved within 12 weeks of Contract Completion, $0; and (ii) not achieved within 12 weeks of Contract Completion, the amount calculated in accordance with the following formula (Fixed Interest): FI = (0.09 x SM)/365 x N where: • FI is the Fixed Interest; • N is the number of days from the Drawdown Date up to and including the Repayment Date or such other date that the Secured Money is repaid to the Lender in accordance with clause 4.1; and • SM is the Secured Money; and (b) the Profit Share. 5.3 Profit Share For the purposes of clauses 5.2(b) the Profit Share is the amount equal to: (a) 50% of the Profit if an On-Sale is achieved within 12 weeks of Contract Completion; (b) 60% of the Profit if an On-Sale is achieved after the period described in subclause 5.3(a) but on or before 31 May 2024; or (c) otherwise, 75% of the Profit 1. Clause 5.2 provides, relevantly, that interest on the Loan Amount must be paid by the Borrower to the Lender on the Repayment Date, upon completion of the sale of the Property or such earlier date on which the Secured Money (which is defined in cl 1 to mean "all money due from or payable by the Borrower to the Lender" under the Agreement) becomes due and payable, in an amount which includes Fixed Interest (which is not relevant for present purposes) plus the Profit Share. 2. Repayment Date is defined to be the earlier of 26 June 2024, being 12 months from the date of the Contract for Sale, or completion of an On-Sale. There has, to date, been no On-Sale. 3. Clause 1.1 contains the following definition of Market Value: Market Value means the Market Value of the Property determined by a licenced real estate valuer selected by the Lender; 1. Clause 9.2 provides: 9.2 Default declaration The Lender may at any time during any Continuing Default: (a) declare the Secured Money (including to be immediately due and payable whereupon the Secured Money becomes immediately due and payable by the Borrower); (b) enforce the General Security Deed and/or the Mortgage; and/or (c) do any one or more of those things. 1. Clause 9.3 provides: 9.3 Profit Component on Default If the Lender makes a declaration under clause 9.2(a), then the Profit Share under clause 5.4(b) shall be calculated in accordance with the formula in clause 5.1(b)(i)except [sic] that MV will be the higher of the Market Value of the Property as at the date of that declaration and the date of the actual repayment of all of the Secured Money. It is common cause that the reference to cl 5.4(b) should be to cl 5.2(b). The First Plaintiff breaches and Receivers and Managers are appointed to it 1. On or shortly prior to 15 December 2023, the First Plaintiff breached its obligations under the Agreement or collateral instruments (or both), when a second mortgage over the Property was registered. 2. The Deed provides for the appointment of Receivers and Managers to the First Plaintiff after the occurrence of an Event of Default. It is not in dispute that the granting of the second mortgage constituted an Event of Default. The First Plaintiff is defined in the Deed as the Grantor. 3. On 15 December 2023, acting under the Deed, the First Defendant appointed the Second Defendant (Goyal) and Third Defendant jointly and severally as Receivers and Managers (the Receivers) of the First Plaintiff and of all the property secured under the Deed and collateral instruments (which includes the Property). 4. Clause 7.4 of the Deed: Each Receiver will be the agent of the Grantor. The Grantor will be solely responsible for all acts and omissions by, and the remuneration of, each Receiver. 1. The appointment of the Receivers was made by Deed of Appointment and Indemnity. There is nothing in that instrument to indicate that the Receivers became agents of the First Defendant. Retention of Pagano and the 2023 valuation 1. Mr Cristian Pagano (Pagano) is a licenced real estate valuer. He practises as such as Director (Residential Development) of M3 Property which carries on business as a specialist valuer. 2. Mr Ghassy Bayni (Bayni) is associated with the First Defendant (but in a manner not revealed by the evidence). 3. The Second Plaintiff (Crown) is a director of the First Plaintiff. 4. On 22 August 2023, Pagano and Mr Anthony Vrlic (Vrlic), another licenced valuer working at M3 Property, issued a written valuation of the Property as at 22 August 2023 of $27,000,000 exclusive of GST on an "As Is" Market Value basis (the Earlier Valuation). 5. The Earlier Valuation records that the rural component of the Property was not included within a direct comparison assessment made (by reference to market sales evidence of other land in the general vicinity of the Property) in the Earlier Valuation, as it was assumed that it would be unsaleable due to its position and location on the Property. 6. On 19 December 2023, Crown wrote to Goyal asking for a payout figure for the loan. Goyal responded on 20 December 2023 to the effect that he would get back to Crown. On 21 December 2023, Goyal wrote to Crown telling him, amongst others, that the First Defendant was in the process of engaging a valuer to determine the market value (presumably of the Property). 7. It must have been known to both Crown and Bayni that Pagano was the valuer Goyal had in mind because both Bayni and Crown made contact with Pagano, who agreed with the characterisation that he was in the middle of a 'tug-of-war'. Manifestly, because of the operation of the terms of the Agreement, the commercial interests of the First Plaintiff and the First Defendant came into actual or potential conflict with each other because the First Plaintiff would benefit from a lower valuation and the First Defendant from a higher one. 8. These communications prompted Goyal to write to Pagano on 12 February 2024 saying that only the Receivers were able to provide instructions on behalf of the owner and that Crown was not able to provide those instructions (bearing in mind that the owner is the First Plaintiff). On the same day, the First Defendant's solicitors wrote to the First Plaintiff's solicitors saying that their client was working as quickly as possible to obtain a valuation of the Property. On 13 February 2024, the First Plaintiff's solicitors wrote to the First Defendant's solicitors asking whether a valuer had been instructed and, if so, on what date. 9. On 14 February 2024, Pagano provided Goyal with an engagement letter. On 16 February 2024, Mr Jacob McCloskey of the Receivers' office (McCloskey) wrote to Pagano suggesting amendments to the engagement letter. Two significant amendments were sought by the Receivers. The first was the insertion of the following marked-up words in a section of the engagement letter headed 'Purpose': Our valuation shall be prepared for internal purposes only the purpose of determining the 'Market Value' of the Property in accordance with a loan agreement dated 7 September 2023 between Macarthur Farm Pty Ltd (in its personal capacity and as trustee for the Macarthur Farm Trust) (as borrower) and Warneet Super Pty Limited (in its capacity as trustee for the Warneet Super Fund) (as lender) (Warneet). 1. The second was the insertion of the following marked-up words in a section of the engagement letter headed 'Scope of Works': Our report shall address "As Is" Market Value – Exclusive of GST provide a 'Market Value' of the Property – Exclusive of GST as at 15 December 2023 and as at the date of our report. 1. Self-evidently, these amendments were sought to bring the proposed valuation into line with the requirement in cl 9.3 for the Market Value to be determined as at the date of the Declaration (15 December 2023). 2. But Pagano declined an engagement on those terms. Instead, his response was that they were unable to amend their standard letter of engagement. 3. On 20 February 2024, McCloskey signed and returned an unamended version of the engagement letter. The letter contains a number of provisions in the nature of disclaimers and limitations upon the use to which the valuation could be put, commonly found in terms of engagement of real estate valuers. It is not necessary to deal with these because I do not consider that they play any role in the outcome. Importantly, however, Goyal accepted the terms and conditions "In his capacity as Receiver & Manager of Macarthur Farm Pty Ltd". 4. The engagement letter provides that 50% of the fee to be charged is due and payable at the commencement of instructions for the provision of draft numbers, and the remaining fee is payable prior to the release of a final report. The engagement letter includes a series of "Standard Terms & Conditions" of which paragraph 18.1 provides: 18 Termination 18.1 Either party may terminate the appointment to provide the Services, for any reason, on seven days written notice to the other party. Termination will be without prejudice to either party's accrued rights and obligations incurred prior to the date that termination becomes effective. 1. On about 20 February 2024, M3 Property rendered a tax invoice to the First Plaintiff (represented by the Receivers) for the first payment in the amount of $11,000. I infer that the invoice was paid shortly thereafter, but the precise mechanics of how payment was made is not apparent. On 8 March 2024, M3 Property rendered a tax invoice to the First Plaintiff (represented by the Receivers) for the second payment, prior to release of the valuation, also in the amount of $11,000. The amount was paid on the 18 March 2024, seemingly by the First Defendant (I would infer on behalf of the First Plaintiff). In any event, under the Deed of Appointment, the First Defendant indemnified the Receivers for all costs, expenses and charges incurred in connection with their appointment. But M3 Property did not release any valuation. It had still not done so by 21 March 2024. 2. This caused Bayni, acting in a capacity which is unclear, to write to Pagano on 21 March 2024 asking for a refund of the money. He said in his email: Christian [sic], as discussed last night. Please refund the money that we transferred on Friday. You have passed many deadlines and have caused us a lot of grief and we understand you are also conflicted which also concerns us. We paid money last Friday in good faith for M3 to release the report and you haven't done this. We will provide bank details to transfer money back to us. We are very disappointed with the conduct of M3 and though [sic] reputable clients like us would get more respect and more service. 1. Pagano gave evidence under subpoena ad testificandum issued by the First Plaintiff. 2. He testified that Goyal requested the refund and, approximately a week after that, Goyal sent an email terminating the engagement. 3. Subsequently, M3 Property refunded half of the money which had been paid. 4. Either way, a valuation report upon which Pagano had, in conjunction with Vrlic, been working, and which had ostensibly been signed by both of them, although in an advanced stage, was not finalised. 5. The unfinalised report is in evidence (the Unfinalised Report). It records that the purpose of the valuation was "For internal review purposes" and that the instructions were: To assess the market value of the property on the following bases: • "As Is" Market Value – Exclusive of GST. • "As Is" Value Estimate Assuming the Approval of the Concept Subdivision Plans – Exclusive of GST. • "As Is" Value Estimate Assuming the Approval of the Concept Plan and Proposed Subdivision of the R1 Zoned Land, Council Buyback Land and Rural Land into Three Individually Torren's [sic] Title Lots – Exclusive of GST. 1. It records that the Date of Inspection and the Date of Valuation is 13 March 2024. The values attributed to the three bases of valuation are respectively $27,000,000, $31,700,000 and $38,200,000. 2. Pagano gave evidence of a meeting conducted on Teams (a remote videoconferencing platform) on or about 1 March 2024 with the Receivers and others at which the process of valuation was discussed, and that he had, by that time, formed the opinion that $27,000,000 was the "As Is" Market Value of the Property. He was asked to finalise the Unfinished Report, but he could not remember by whom. 3. There is no issue that the retainer of M3 Property and Pagano was effectively terminated. The Daher Valuation 1. The First Defendant retained Mr Anthony Daher (Daher), a certified practising valuer, to provide a market valuation of the Property as at 15 December 2023. 2. In a valuation report produced after an inspection on 25 March 2024, Daher determined the Market Value of the Property to be $39,000,000 as at 15 December 2023 (the Daher Valuation). 3. Taking a different approach to Pagano, he determined that the rural land had a Market Value of $5,928,840. This explains part of the difference between the value in the Unfinished Report and that in the Daher Valuation. 4. On 12 April 2024, the First Defendant's solicitors wrote to the First Plaintiff's solicitors providing a payout figure for the loan of $39,373,530, of which the Profit Share, as defined in the Agreement, is $7,212,972. 5. The Defendants' position is that the First Defendant has selected Daher. PROCEDURAL HISTORY 1. It is necessary, for reasons which will become apparent below, to set out in some detail, the procedural history of this matter. 2. The Plaintiffs commenced these proceedings by Summons sued out of the Court on 20 March 2024. The only substantive relief claimed in the Summons was "[a] declaration as to the sum owed by the first plaintiff to the first defendant pursuant to the Loan Agreement". There was no claim for damages or reference to any breach of the Agreement. The Summons was allocated a return date of 22 April 2024. 3. On the same day, the Plaintiffs filed a Notice of Motion seeking expedition. The Notice of Motion was returnable on 5 April 2024 before the Expedition Judge, Rees J. 4. When the matter came before Her Honour on 5 April 2024, there was discussion about it being stood over to 12 April 2024, but Her Honour was to be on leave at that time. 5. From the transcript, it appears that there may have been some proposal to stand the matter over to 26 April 2024, but junior counsel for the Plaintiffs indicated (no doubt reflecting the urgency attributed to the matter by the Plaintiffs) a preference for the matter to be dealt with on 12 April 2024 rather than 26 April 2024. In the end result, Her Honour arranged the matter to come before me on 19 April 2024. I conducted the Expedition List on that day. 6. In support of the Plaintiffs' application for expedition, the Plaintiffs had filed an Affidavit by their solicitor, Mr Mattock, sworn 20 March 2024. The basis for expedition was said to be the failure, refusal or delay by the Receivers to provide a payout figure and the significant sum of default interest that was continuing to accrue against the First Plaintiff. 7. I interpolate that, on 25 March 2024, the Plaintiffs had issued a subpoena to M3 Property seeking a wide range of documents "in respect of the Property" including all documents recording or constituting a valuation, including any draft valuation, whether written or oral, requested by the Receivers or the First Defendant (the Subpoena). The Subpoena was returnable on 12 April 2024. 8. On 19 April 2024, when the matter came before me, I was informed by junior counsel for the Plaintiffs that counsel for both sides were agreed that the matter was appropriate for expedition. In this context, it is appropriate to observe that the First Defendant's position is that it is owed significantly more than the First Plaintiff says it owes, whatever security the First Defendant has is being eroded by the accrual of significant interest. 9. Junior counsel for the Plaintiffs told me that there was a short question of construction and some ancillary factual issues that would be largely documentary. He also informed me that there was a dispute about whether a subpoena to a third party issued by the Plaintiffs should be set aside. Junior counsel for the Defendants submitted that there were no pleaded facts at that time to which they had been asked to respond. 10. Junior counsel for the Plaintiffs told me that it was not yet quite clear to them whether a valuer was appointed and "factual issues would arise". I raised the possibility of giving the Plaintiffs leave to administer an interrogatory on that subject. I informed the parties that I could hear the matter myself on 30 April 2024. Both parties agreed to the matter being fixed for hearing on that day. I granted the Plaintiffs leave to administer an interrogatory by 5pm on 19 April 2024, directed to whether or not a valuer was appointed and what valuation, if any, they made. I gave directions for the filing and service of Points of Claim and Points of Defence. I made directions for the provision of a Court Book by 4pm on 29 April 2024. I stood the Subpoena over to 26 April 2024 before myself. 11. On 26 April 2024, I dealt with the Defendants' application to set aside the Subpoena. In the meantime, the parties had served on each other Notices to Produce and each had filed a Motion seeking to set the other's Notice to Produce aside. I dealt with all of these matters. Part of the Subpoena survived. The Notices to Produce did not. I stood the Subpoena over before the Registrar on 29 April 2024. 12. In addition, the parties had (apparently earlier on 26 April 2024) signed a consent order giving the Plaintiffs leave to amend their Summons in chambers. I made the order sought. The Amended Summons was filed that day. 13. The Amended Summons deleted the entirety of the declaration sought earlier, and sought the following relief: 1. A declaration as to the sum owed by the first plaintiff to the first defendant pursuant to the Loan Agreement that Mr Cristian Pagano of M3 Property Australia Pty Ltd is the licenced real estate valuer selected by Warneet, pursuant to the Loan Agreement, for the purpose of determining the Market Value of the Property: (a) on the dates referred to in clauses 9.3 of the Loan Agreement; or (b) alternatively, on 15 December 2023. 1A. Further or in the alternative, a declaration that, by its conduct in relation to the selection of a licensed real estate valuer to determine the Market Value, Warneet breached its implied duty of cooperation. 1. It will be observed that, still, the Plaintiffs made no claim for damages. Also, although I had been told that a short question of construction was involved, paragraph 1A now sought a declaration that the First Plaintiff had breached an implied duty of cooperation. 2. In accordance with the directions I had given on 19 April 2024, the Plaintiffs had served Points of Claim on 23 April 2024 and the Defendants had served Points of Defence on 26 April 2024. 3. During the course of the hearing on 26 April 2024, I gave attention to the terms of the declaration sought in paragraph 1A of the Amended Summons, and to paragraph 27 of the Points of Claim ostensibly pleaded to support it. That paragraph pleaded that, by selecting Pagano to determine the market value, obtaining verbal valuations or indications of his valuation from him, retaining at least one other valuer to provide a higher valuation, and purportedly relying on that valuation to establish market value, the First Defendant had breached or alternatively had threatened to breach an implied term of cooperation (pleaded in paragraph 12 of the Points of Claim). 4. I concluded that the declaration sought in paragraph 1A of the Amended Summons and paragraph 27 of the Points of Claim should be struck out, amongst others, because no consequence was pleaded or claimed to flow from the declaration of breach or the allegations in paragraph 27. No damages were claimed and the Daher Valuation was not sought to be impeached. I remarked to junior counsel for the Plaintiffs that any other applications for amendment should be made "quick smart" at some point in time. 5. On 29 April 2024, the day before the trial, the Plaintiffs moved the Duty Judge, Pike J, for leave to further amend the Summons and Points of Claim. 6. The proposed Further Amended Summons deleted the declaration sought in paragraph 1A and sought to include the following two new paragraphs 1B and 1C: 1B. Further or in the alternative, a declaration that the valuation of the Property as at 15 December 2023 conducted by Mr Anthony Daher is not a valid or effective determination of the Market Value of the Property. 1C. Further or in the alternative, damages. 1. The proposed Amended Points of Claim sought to include an averment (paragraph 12A) that, properly construed or as an incident of an implied term of good faith, the Agreement required the First Defendant to exercise its rights, entitlements or discretions under the Agreement to select a licenced real estate valuer to determine Market Value, honestly and reasonably. 2. The Plaintiffs further sought to include in the Points of Claim a series of averments (paragraphs 23, 23A, 23B, 27A, 27C, 27D) that: 1. the First Defendant, or Receivers on its behalf, had sought to retain valuers other than Pagano to provide valuations or indications of their valuations of the Property; 2. the purpose of the First Defendant or the Receivers doing so was to identify a valuer who was willing to give the highest possible valuation; 3. the First Defendant, or the Receivers on its behalf, or their representatives "such as Mr Bayni" attempted to persuade the valuers to increase their valuations or provide valuations in excess of their indicative valuations; 4. the First Defendant's engagement of Daher was the result of the breach of an implied term in the Agreement that the First Defendant would act so as to permit the First Plaintiff to have the benefit of the Agreement and not to act in a manner calculated to deny the First Plaintiff that benefit, and was in breach of the obligation sought to be included by way of paragraph 12A; 5. on the proper construction of the Agreement, a valuation conducted by a valuer engaged by reason of such breaches is not a valid or effective determination of the Market Value of the Property and, in the premises, the Daher Valuation was not valid or effective; and 6. in the alternative, the Plaintiffs had suffered damage, particularised as $7,212,972 or, alternatively, the difference between what the Plaintiffs would have been required to pay the First Defendant had the First Defendant selected a valuer and the said amount. 1. Pike J heard the application. After hearing the parties extensively, His Honour concluded that he should not allow the amendments but without prejudice to the Plaintiffs' right to raise the matter with the trial judge the next day. The upshot was that the Plaintiffs moved their application for amendment at the commencement of the trial. I refused it. I said that I would give reasons in this judgment. I do so later. THE PLAINTIFFS' CASE 1. Counsel for the Plaintiffs put that the Plaintiffs advanced two propositions. However, ultimately, the following is the series of propositions which I understood them to put: 1. on the proper construction of the definition of Market Value and in particular, of the word 'select', the First Defendant gets one, and one only, opportunity to select one valuer, which opportunity must be taken before any determination is made; 2. once the First Defendant has made a selection, its opportunity to select a different or additional valuer is exhausted; 3. the Receivers, on behalf of the First Defendant, retained Pagano, thereby selecting him (with the consequence that no other valuer, including Daher, could thereafter be selected); 4. on the proper construction of the definition of Market Value, the determination by the valuer can be oral; 5. Pagano expressed an oral opinion that the Market Value of the Property was $27,000,000, and this was a valid determination (even though the evidence does not extend to revealing the date to which that determination pertained); 6. alternatively, the incomplete valuation report is a determination of Market Value and, notwithstanding that the date of valuation is stated to be 13 March 2024, "in substance", it can stand as the determination of Market Value of the Property as at 15 December 2023; and 7. if Pagano has not determined Market Value in accordance with the Agreement, it is still for him to do so, despite the fact that his retainer has been validly terminated. 1. Each of these propositions is unsustainable. 2. As to (1) and (2), there are no words in the definition of Market Value which operate to limit the Lender to retaining one valuer for the purposes of bringing into existence a determination under the Agreement upon which it will ultimately make the selection. In this context, counsel for the Plaintiffs was unable to identify any constructional choice to be made. 3. It may be accepted that only one selection can ultimately be made, but there is nothing in the definition to prevent the Lender from simultaneously or successively retaining a bevy of licenced valuers and then selecting from them, the valuer who has made the most beneficial determination. All that is adjectivally required is that there must be in existence an identifiable determination of Market Value at the relevant date by a licenced valuer who is (not was) selected by the Lender. Indeed, nothing in the definition of Market Value requires the Lender to retain the valuer. Subject to limitations in the valuation, and no doubt with the valuer's consent, the Lender could select a valuer who had been retained by someone else and had been brought into existence a complying valuation. There is no requirement for the valuer to be independent and there is no restriction on the Lender from acting in its own interests (although an obligation to act honestly would undoubtedly be implied). The Borrower's primary protection is that the valuer must hold a licence. 4. Concepts of contractual exhaustion of opportunity have no role to play. The requirement for a determination is not a dispute resolution mechanism. 5. As to (3), the First Plaintiff's Points of Claim (paragraph 16) allege that, on or about 20 February 2024, the Receivers, on behalf of the First Defendant, retained Pagano of M3 Property to provide a valuation of the Property for the purposes of calculating the Profit Share under the Agreement. The Points of Claim (paragraph 20) further allege that, in February or early March 2024, the Receivers, on behalf of the First Defendant, requested Pagano to prepare a written valuation of the Property. In the Plaintiffs' written Outline of Submissions dated 29 April 2024, it is put that, in mid-February, Pagano was formally engaged to value the Property, and the engagement letter is footnoted to the submissions. The Points of Claim do not allege that Pagano was selected by any other means. 6. During the course of argument, after I raised it, attention was drawn to cl 7.1 of the Deed but not to cl 7.4 under which the Receivers are the agent, not of the First Defendant but of the First Plaintiff. After reserving judgment, I invited the Plaintiffs to provide a brief written submission as to the basis for the submission or averment (if Pagano was selected) that he was selected by the Receivers on behalf of the First Defendant. They did so. I gave leave to the Defendants to respond. They did so. 7. I received submissions from the Plaintiff to the effect that, on the available evidence, the only realistic inference is that Pagano was selected by the First Defendant. A series of factual matters said to support this inference was identified. They submitted that the Defendants did not call relevant witnesses on the topic, which failure would facilitate such an inference more readily being drawn. They submitted that, whilst cl 7.4 of the Deed made the Receivers agents for the First Plaintiff, it did not follow that all of their actions were performed in that capacity. They pointed to the fact that the second tranche of Pagano's fee was paid by the First Defendant. They further submitted that the question is whether Pagano was selected by the First Defendant, not whether he was engaged or retained, as a matter of the law of contract, by the First Defendant. Finally, they submitted that it is not necessary for the Court to find that the Receivers engaged Pagano as agent for the First Defendant, but if a finding of agency is necessary, it should be made. 8. The First Plaintiff has not made out the allegation that the Receivers retained Pagano, or that anything done by them was as agent for, or on behalf of, the First Defendant. Such a finding would be inconsistent with the express provisions of the Deed and the terms of the engagement letter. 9. That the retention was by way of the engagement letter and that this was the selection of Pagano under the Agreement is, in my view, the only sensible way to read the Points of Claim and the Plaintiffs Outline of Submissions. No other basis was pleaded. What is now sought to be argued is out of line with the Plaintiffs' pleaded case. But, in any event, the objective material establishes that the retention of Pagano by the Receivers was on behalf of the First Plaintiff, not the First Defendant. This is to be contrasted with the Daher Valuation which was commissioned by the First Defendant. 10. As to (4) and (5), although the Agreement does not expressly provide that the determination of Market Value must be in writing, in my view, it plainly must be. In Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104 (Mount Bruce) at [51], the High Court reiterated the settled precept of contractual construction that: Unless a contrary intention is indicated in the contract, a court is entitled to approach the task of giving a commercial contract an interpretation on the assumption "that the parties ... intended to produce a commercial result". Put another way, a commercial contract should be construed so as to avoid it "making commercial nonsense or working commercial inconvenience. 1. To permit of an oral determination would work obvious commercial inconvenience by reason of the uncertainty which would go with it, which is demonstrated in this very case by the Plaintiffs' endeavour to rely on a conversation or conversations as being the determination. The ability to test whether a determination meets the requirements of the Agreement would be significantly eroded as would the accountability of the valuer. Reasonable persons in the position of the parties to the Agreement would not have considered that the meaning of determination was other than a determination in writing (see Mount Bruce at [47]). 2. As to (6), it is common cause that Market Value in the present case is required, because of cl 9.3, to be determined as at the date of the Declaration, 15 December 2023. By the engagement letter, Pagano was not selected to do that exercise. Indeed, he refused to do so. The Receivers sought an amendment to Pagano's standard engagement letter to select him appropriately in accordance with the provisions of the Agreement. He rejected the request. As the engagement letter states, the valuation was to be prepared for "internal purposes only". 3. There are no words in the Agreement which require the Lender to select a valuer to make a determination, as opposed to selecting a valuer who has already made one. There is no temporal requirement. The adjectival requirement of the definition of Market Value is that there must be a determination of Market Value by a valuer who is selected by the Lender. 4. The Unfinalised Report is not a determination because it is unfinalised. If it had been finalised, it would still not be a determination within the terms of the Agreement because it is at the wrong date and was prepared for "internal review purposes". Pagano was not performing, and did not perform, the function of making a determination in accordance with the Agreement: Legal & General Life of Australia Ltd v A Hudson Pty Ltd (1985) 1 NSWLR 314, 335-6; Woolworths Ltd v Merost Pty Ltd (1988) 14 NSWLR 300, 303; Karenlee Nominees Pty Ltd v Gollin & Co Ltd [1983] 1 VR 657, 670; Holt v Cox (1994) 15 ACSR 313, 333. 5. What is entailed in the Plaintiffs' submission that the Unfinished Report can, "in substance", be viewed as of 15 December 2023 is not clear. It either is or it is not. 6. I observe that the Defendants argued that the Unfinalised Report was not a determination under the Agreement for the additional reason that it was done not by Pagano alone but together with Vrlic. I would not uphold this submission. That Pagano acted together with Vrlic would not necessarily mean that he did not make a determination. 7. As to (7), the Plaintiffs' argument that, Pagano having been selected, it is for him to do the valuation, has difficulty accommodating the reality that he declined to carry out the exercise required under the Agreement. The suggestion that it is still for him to carry out the valuation after valid termination of his retainer is manifestly untenable. I leave aside the fact that, on the face of it, the First Defendant had cause for terminating his retainer. THE AMENDMENT APPLICATION 1. I now deal with the Plaintiffs' amendment application. 2. During the course of argument on the application, the Plaintiffs abandoned the amendment claiming damages. 3. My reasons for refusing the application were the following, not in any specific order of precedence. In my view, each was sufficient on its own to warrant refusal: 1. the Plaintiffs obviously made a deliberate forensic decision to bring the narrow case they originally brought, which was characterised as a short question of construction, with some ancillary factual issues which would be largely documentary. They obtained an expedited hearing of that case and the Court accommodated the necessary interlocutory steps urgently; 2. the Defendants would not have been able to meet the proposed amendments without the matter being adjourned. The delay would have been to their commercial prejudice, having regard to the significant amounts of interest accruing (irrespective of who is right) with the concomitant ramifications for the adequacy of the security held by the First Defendant for the Plaintiffs' obligations. The First Plaintiff was not in a position to pay the amount of the Profit Share claimed by the First Defendant ($7,212,972) into Court pending determination of the proceedings; 3. it was the Plaintiffs who applied for the hearing of the matter to be expedited on the footing of the commercial urgency in light of accruing default interest. The consequences of granting the amendments would have been to have permitted them unfairly to act inconsistently with their own position; 4. the form of the amendments was such as to make it close to inevitable that there would have to be further amendments because: 1. the particulars of the proposed averment that, since 15 December 2023, the First Defendant, or the Receivers on its behalf, had sought to obtain valuations or indications of their valuations from other valuers were a reference to the answer to interrogatories and that "Further particulars may be provided"; 2. the particulars to the proposed averment that the First Defendant's or the Receivers' purpose was to identify a valuer who was willing to give the highest possible valuation for the Property for the purpose of calculating the Profit Share were "that this was the purpose… [which] may be inferred from all of the circumstances", without identifying those circumstances; 3. the particulars of the proposed averment that the First Defendant and/or the Receivers on its behalf, or their representatives such as Mr Bayni, attempted to persuade them to increase their valuations or to provide valuations in excess of their indicative valuations were that this course of conduct is to be inferred from matters deposed to in an Affidavit by the Plaintiffs' solicitor. Who the representatives were, apart from Mr Bayni, were not identified; and 1. the gravamen of the amendments was the new and serious allegations that the Receivers did not act honestly and reasonably. There was insufficient material placed before me to satisfy me that these allegations had any real prospects of success. 1. I record that, although it was not part of my reasons for refusing the amendments, an additional consideration justifying refusal would have been that, in various places, the proposed amendments referred to what I have now found to be the untenable proposition that the Receivers acted on behalf of the First Defendant, rather than the First Plaintiff, to which they had been appointed Receivers. CONCLUSION 1. The summons is dismissed. 2. I provisionally order that the Plaintiffs are to pay the Defendants' costs of the proceedings. This order will solidify unless, within seven days of delivery of this judgment, any party notifies, in writing, the opposing parties and my Associate that some other order is sought, specifies what it is and provides brief reasons why. If such notice is given, the order will not take effect and I will make directions for the resolution of 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: 07 May 2024