Court of Appeal Supreme Court New South Wales Medium Neutral Citation: Hubbard v Cheah [2011] NSWCA 222 Hearing dates: 15 July 2011 Decision date: 01 August 2011 Before: Beazley JA at 1; Giles JA at 2; Hodgson JA at 8 Decision: Appeal dismissed with costs. [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.] Catchwords: CONTRACT - Interpretation - Provision of finance for development - Whether on true construction of contract principal repayable. PROCEDURE - Pleading - Need to avoid surprise. Legislation Cited: Civil Procedure Act 2005 s 56 Uniform Civil Procedure Rules rr 14.11, 14.14 Category: Principal judgment Parties: appellant: Peter James HUBBARD first Respondent: Shaun Yin Thuan CHEAH second respondent: HPL DEVELOPMENTS PTY LIMITED third respondent: Warwick James LINDSAY Representation: appellant: M R Hall first respondent: G Carolan second and third respondent: No appearance appellant: Patey & Murphy first respondent: Hunter Family Law Centre second and third respondent: No appearance File Number(s): 2010/364894 Decision under appeal Citation: Cheah v HPL Developments Pty Limited & Ors [2010] NSWDC 221 Date of Decision: 2010-10-06 00:00:00 Before: Sidis DCJ File Number(s): 263 of 2008 Judgment 1BEAZLEY JA: I agree with the reasons and orders proposed by Hodgson JA. I also agree with the additional comments of Giles JA. 2GILES JA: The facts are fully set out in the reasons of Hodgson JA, which I have had the advantage of reading in draft. 3I agree with his Honour that categorisation of Mr Cheah's funding as an investment or a loan is not helpful, and that what has to be determined is the effect of the provisions of the agreement. Clause 2(1)(e) is a complete basis for liability of HPL, and for the guarantors to be liable pay $460,000 to Mr Cheah, if the principal repayment to La Trobe had fallen due. 4Clause 2(1)(e) was pleaded as the basis for liability, although it was not specifically pleaded that the principal repayment to La Trobe had fallen due. Whether the principal repayment had fallen due was not prominent in the proceedings, which in this respect became preoccupied with investment or loan, but was an issue for determination on such evidence as was directed to it. 5The La Trobe loan was for one year from no later than 21 June 2005. As explained by Hodgson JA, it is apparent from the letter of 29 June 2006 that Mr Cheah had by that date not extended it. Thus the principal repayment had fallen due. Mr Cheah appears thereafter to have extended the La Trobe loan so that in January-February 2008 it was "becoming due and payable". But the second proposal in the letter of 29 June 2006 had not come to pass, and his accrued entitlement to have the $460,000 paid to or for him remained and was not negated by any such extension. 6Mr Hubbard submitted to the effect that a finding that the principal repayment to La Trobe had fallen due could not properly be made, because that had not been pleaded and other evidence might have been called if it had been an issue. While not specific as to the principal repayment falling due, the pleading alleged that HPL failed to make any payment on the La Trobe loan and demands for the whole $460,000. It was within the pleading that the principal repayment had fallen due, and it was open to find that it had notwithstanding the little attention paid to it in the proceedings. 7Although the case was not decided by the primary judge with a direct finding that the principal repayment to La Trobe had fallen due, her Honour's decision was correct. I agree that the appeal should be dismissed with costs. 8HODGSON JA: On 6 October 2010, Sidis DCJ gave her decision in proceedings in which the first respondent (Mr Cheah) had sued the second respondent (HPL), the appellant (Mr Hubbard), the third respondent (Mr Lindsay) and Secure Mortgage and Leasing Pty Ltd (Secure) for amounts said to be due pursuant to certain agreements. On the basis of that decision, the primary judge gave a verdict and judgment in the sum of $460,000 against HPL, Mr Hubbard and Mr Lindsay jointly and severally, and adjourned the proceedings to 10 November 2010 to deal with issues of costs and interest. On 10 November 2010, the verdict and judgment was varied by the addition of interest of $129,606.57. 9Mr Hubbard appeals from that decision. Outline of facts 10The proceedings arose from arrangements made by the parties in about May 2005 concerning the development of a property at Coolangatta in Queensland. Mr Hubbard and Mr Lindsay were at that time directors of HPL. 11The parties made an agreement dated 20 May 2005. In that agreement, HPL was identified as the developer, Mr Cheah as the investor, Secure as the broker, and Mr Hubbard, a Mr Pearce (since deceased) and Mr Lindsay each as the guarantor. 12Relevant provisions of that agreement are the recitals, and clauses 1, 2, 6, 7 and 9 - 13: WHEREAS: A. The developer is in the process of purchasing the property and becoming the registered proprietor and beneficial owner thereof. B. The developer will also acquire from the vendor of the property the current development application for the construction of eighteen (18) units, which the developer will use his best endeavours to vary to provide for the construction of 16 two (2) storey townhouses (description of project), subsequent to which the developer will undertake construction of the project with the intention that on completion of the development the property will be sold. C. The Parties acknowledge and agree to the developer contracting with a builder for the construction of the project and to the builder effecting the construction of the development and associated works on the property on behalf of the developer. D. The investor, at the request of the developer and the guarantors, has agreed to invest the investment funds with the developer to enable and assist the developer with the funding of the acquisition and development of the property, in consideration for which the developer has agreed that the investor shall be entitled to and receive a share in the profits derived and arising from the venture. E. The broker has procured both the investment funds from the investor and the finance facilities from the financier, in consideration for which the developer has agreed that the broker shall be entitled to and receive (in addition to any other fees agreed to be paid) a share in the profits derived and arising from the venture. NOW THIS AGREEMENT WITNESSES AND IT IS AGREED AS FOLLOWS: Definitions and interpretations 1. (1) In this agreement and unless otherwise indicated by the context or subject matter: (a) "the property" means that property situated at and known as [...] Street, Coolangatta, Queensland; (b) "the development" means the construction and completion of the proposed sixteen (16) two storey residential townhouse development on the property in accordance with the plans and all works and the like associated therewith; (c) "the building contract" means the proposed building contract to be entered into by the developer with a suitably qualified builder for the construction of the development; (d) "the investment funds" means the funds to be advanced by the investor to the developer; (e) "the finance facilities" means each of two (2) loans facilities from MSF GROUP in the sum of FOUR MILLION FOUR HUNDRED AND SIXTY THOUSAND DOLLSRS [sic] ($4,460,000.00) and EIGHT HUNDRED AND THIRTY THOUSAND DOLLARS ($830,000.00) respectively (to be secured by registered first and second mortgages against the property: (f) "the venture" means the undertaking to acquire the property, to obtain all necessary statutory permits, to proceed with the development and on completion to effect the sale of the property and to distribute any profits derived therefrom or bear any losses arising in accordance with the terms of this agreement; (g) "the architect" means the firm of architects contracted by the developer; (h) "the permits" means the town planning permit and the building permit together with any demolition permit and/or any other statutory permits obtained or to be applied for as may be required in respect of the development and the use of the property as residential townhouses; (i) "the plans" means all plans, architects' or other professional drawings and specifications in respect of the development as shall be from time to time prepared and approved of by the developer and where necessary by any relevant statutory authority; (j) "venture costs" shall have the meaning ascribed in cl 7 hereof; (k) "the quantity surveyor" means such firm or company of quantity surveyors as shall be contracted by the developer; (I) a reference to party means that party and it's successor and permitted assigns; (m) words importing a person shall include a firm or corporation; (n) words importing the singular shall include the plural and vice versa; (o) words importing any gender shall include every gender; (p) a reference to any statute includes a reference to any statute consolidating, amending or replacing the same. (2) Headings to clauses have been inserted for ease of reference only and do not affect and interpretation of the clause to which they relate. Developer - warranties and covenants 2. (I) The developer covenants and agrees with and warrants to the investor that: (a) the developer will become the sole absolute and beneficial owner of the property upon completion of its purchase of the property AND except for the finance facility herein acknowledged will not mortgage, charge, sell, assign, transfer, lease, licence, part with possession of or declare any trust in respect of or otherwise dispose of or agree to dispose of or suffer or commit the disposal of any interest in the property or the venture or any part thereof; (b) the developer will not, without the prior written consent of the investor, permit any change in it's directors or the sale, transfer, assignment of interest in or other form of alteration of ownership of its share capital, or any other change in management or control of the developer; (c) the developer will observe, perform and be bound by all and singular the terms, covenants, conditions, stipulations and agreements contained or implied in any contracts, mortgages, charges, loan agreements or otherwise in respect to any transactions relating to the property and comply with any notices or requirements in respect of the property (statutory or otherwise); (d) the developer will ensure that all necessary insurance policies as may be required for the development and the property are forthwith taken and are adequate and that the insurance policies are paid up and maintained and that the terms of the policies are not breached throughout the course of the venture. (e) The developer will pay on behalf of to the investor all the costs, including application fees, legal fees and establishment costs, plus interest and principal repayments (if any), as and when they fall due under the investors loan facility with La Trobe arranged by the investor in order to procure the investment funds or any substitute loan facility. ... Venture funding and finance 6. (1) The developer agrees with the investor that, with the exception of such funds as are actually paid to the developer by the investor pursuant to the terms of this agreement and procured pursuant to the finance facilities, all and any moneys as are required to proceed with and complete the development and the venture will be forthwith provided and paid by the developer. (2) The investor covenants with the developer that he will, simultaneously with the execution of this agreement, advance the investment funds to the developer. Venture costs 7. (1) For the purpose of this agreement the expression 'venture costs' means all moneys paid or payable and listed hereunder incurred in respect of the venture namely: (a) the purchase price of the property together with all legal fees, disbursements, stamp duty and registration fees payable in respect of the purchase; (b) all applications, moneys, fees, bonds, professional fees and charges payable to any statutory authority or other authority or advisers relating to the approval of any application for the permits including all legal costs and other consultants' expenses and all expenses incurred to date in respect of obtaining the permits excepting any of the aforesaid paid pursuant to the building contract; (c) all legal and associated expenses of the parties connected with the development, and the sale of the property and effecting of the venture, [excepting any] legal and associated expenses arising from a party being in default which shall be borne by the defaulting party; (d) costs relating to design and preparation of the plans in respect of the development, subject to the proviso in cl 5(2); (e) rates, land tax and any other statutory charges in respect of the property; (f) insurance premiums with respect to the development and the property, excepting and of the aforesaid paid pursuant to the building contract; (g) costs arising from and as provided in cl 5 hereof, [excepting] any of such costs already accounted for under cl 7(l)(d); (h) all costs (including, but not limited to, stamp duty and other disbursements) associated with and fees and interest, including repayment of the principal loan amounts, payable ,under both the investor's loan facility and the finance facilities, excepting interest and costs arising from default by the developer which shall be borne by the developer; (i) all amounts properly payable to the builder under cl 4; (j) all bank charges and all professional accounting and audit fees and disbursements incurred in maintaining bank accounts and preparing auditing (if required) books of account in relation to the venture; (k) all agents' commission and any other fees or expenses incurred in relation to leasing/or sale of the property during the course of or on completion of the venture; (l) all survey fees and the quantity surveyor's fees and any other consultants' fees properly attributable and relating to the venture; (m) penalty interest for late completion payable to the investor by the developer for late completion, being 9.5% p.a. from that date which is twelve (12) months from the date of this agreement until the date of payment of venture profits to the investor. (n) such other costs, expenses and outgoings as may be agreed upon from time to time between the developer and the investor in writing, provided that they are directly attributable to the venture. ... Venture profits and losses 9. (1) The net profit or net loss (as the case may be) arising from the venture shall be an amount equal to the gross sale price on the sale of the property LESS the total of the venture costs. (2) The final net profit or final net loss arising (as the case may be) from the venture will be respectively distributed and borne as follows: (a) Net losses : The developer shall bear and pay (as and when any moneys fall due for payment) all and any losses arising from and in respect of the venture. (b) Net profits : Shall be payable and distributed to the developer, investor and broker in the following proportions: Developer - twenty [sic] per cent (60%) Investor - twenty percent (20%) Broker - twenty per cent (20%) Distribution of proceeds of sale 10. (1) On the sale of the property or any part thereof it is acknowledged, declared and agreed by the parties hereto (notwithstanding the provisions of cl 9 hereof) the developer shall and is hereby directed to receive and distribute such proceeds of sale in the following manner and order of priority: (a) payment to or retention by the purchaser of any adjustments properly due to the purchaser pursuant to the terms of the contract of sale; (b) estate agent's commission and advertising expenses and legal fees and disbursements relating to the sale; (c) principal, accommodation, fees, interest and costs payable to the financier under the finance facilities in order to obtain a partial or full discharge (as the case may be) of the finance facilities in accordance with their terms; (d) payment of any venture costs outstanding and then due and payable on their terms; (e) thereafter the balance of net profits-arising, after payment of any venture costs the outstanding, shall be distributed between the developer and investor and the broker in accordance with its terms. Termination of the venture 11. (1) The venture shall continue until termination by: (a) mutual agreement in writing; or (b) completion of the development and sale of the property and distribution of the proceeds of sale; or (c) otherwise, at the expiration of the period of eighteen (18) months from the date of this agreement. (2) Notwithstanding any delay or previous neglect or waiver of the right to exercise such option and without prejudice to any of the rights of any other party hereto in respect of or arising out of this agreement, the venture shall also terminate, at the written option of the investor, if default is made by any other party hereto in the performance or observance of any obligation on his part arising under this agreement or under either of the finance facilities and such default is incapable of being remedied or, if capable of being remedied, such default continues without being remedied for fourteen (14) days after written notice of such default has been given to the defaulting party by the investor. (3) Upon the termination of the venture pursuant to cl 11 a full account in writing shall be taken of all the assets of the venture and of all liabilities connected with the venture and immediately after such account shall be taken all the assets (other than cash) of the venture shall be valued and realised and sold to the best advantage and the moneys arising from such sale and other moneys of the venture shall be applied in accordance with cl 9 and 10 hereof. Indemnities 12. (1) All of the other parties hereto jointly and each of them severally covenant and agree with the investor to and do hereby indemnify and keep indemnified the investor from and against all and any loss, damage, action, suit, claim, demand, cost, charge, expense of any kind whatsoever which the investor may suffer or incur or be called upon to suffer or incur in relation to the development, the venture, the property (and occupants thereof or invitees thereon) or otherwise whether or not arising by virtue of any breach or default by the other parties or their employees, agents or contractors or any of their obligations or duties arising hereunder AND none of the other parties hereto shall counterclaim against nor join the investor in any of the matters as aforesaid AND the said covenants and indemnities shall continue notwithstanding completion of the venture and termination of this agreement. Guarantee 13. (1) The guarantors, in consideration of the investor having provided the investment funds and entering into this agreement at the request of the guarantors, and the broker having procured both the investment funds and the finance facilities, do hereby for themselves, their transferees, assigns, executors and administrators jointly and severally covenant and agree with and guarantee to the investor and the broker that if at any time default shall be made by the developer in the payment of any moneys agreed to be paid by the developer under this agreement or in the performance or observance of any term or condition of this agreement to be performed or observed by the developer, the guarantors will immediately on demand pay to the investor and the broker all and any of such moneys as shall then be payable by the developer pursuant to the terms of this agreement and all losses, costs, charges and expenses whatsoever which the developer may incur by reason of any default as aforesaid on the part of the developer AND this guarantee shall be a continuing guarantee and shall not be released by any neglect or forbearance on the part of either the investor or the broker in enforcing payment or requesting payment of any moneys under the terms of this agreement or the performance or observance of any of the agreements, obligations, conditions contained herein or by time being given to the developer for any such payment, performance or observance or by any other thing which under the law relating to sureties would but for this provision have the effect of releasing the guarantors, their transferees, assigns, executors or administrators. 13The "investors loan facility with La Trobe" referred to in cl 2(1)(e) of the agreement arose from a loan offer made by La Trobe Home Loans of Australia Pty Limited on 10 May 2005 for $460,000, accepted by Mr Cheah on 12 May 2005 (Combined Book 156-7), with a variation advised by a letter dated 13 May 2005 (Combined Book 159). These documents provided that the loan would have a term of one year. 14Pursuant to that facility, $400,000 was paid to HPL in May 2005 (or perhaps 21 June 2005: Combined Book 104), and $60,000 was set aside to service the loan for one year. 15On 16 June 2005, the same parties entered into another agreement, the operative terms of which were as follows: 2. The parties hereby acknowledge that the attached documentation is the documentation relating to the investor's Current Loan Facility. 3. The developer and the guarantor hereby confirm that they will, in accordance with their obligations under clause 2(1)(e) of the Development Agreement, pay all of the investor's costs, including application fees, legal fees and establishment costs, as and when they fall due under the Current Loan Facility. No "attached documentation" as referred to in cl 2 was put into evidence before the primary judge. 16On 29 June 2006, solicitors acting for Mr Cheah wrote to the directors of HPL a letter in the following terms: RE: YOUR COMPANY & SHAUN CHEAH DEVELOPMENT OF PROPERTY [...] STREET, COOLANGATTA We act for Shaun Cheah who has consulted our firm in relation to the security of his investment with your company for the development of the above property. We note that the investment by our client with your company in the sum of $460,000.00 is evidenced in two agreements dated 20 May 2005 and 16 June 2005. We note that your company has acquired title to the Coolangatta property and that you have recently refinanced the property with a loan from St George Bank discharging the prior mortgage to MSF Group. We note however that construction of the proposed town house development has not yet commenced. Our client is most concerned about the progress of the development and he has made his concerns known to representatives of your company. In relation to those concerns several propositions have recently been put to Mr Cheah by representatives of your company including a proposition that at the time of the St George Bank refinancing and investment by other investors our client's investment would be repaid to him in full. That has not happened. Further a proposition was made that if Mr Cheah agreed to leave his investment in place with your company your company would pay Mr Cheah's interest on his $460,000.00 loan from La Trobe Investment Management Australia Pty Limited for a period of 12 months with a payment equal to six months interest being paid to him in a lump sum. It now appears that that proposal is also in doubt. It is quite clear that Mr Cheah can only consider leaving his investment with your company in place if he is in possession of all documents and financial information relating to the development. We note that Clause 5(1) of the agreement dated 20 May 2005 requires that Mr Cheah be fully informed of the progress of the development and that he is to approve all plans and proposed terms of sale of the property comprising the development. On behalf of Mr Cheah we require that you provide to us the following: I. A copy of approved plans for the development site together with a copy of the Council Development Consent. 2. A copy of the St George Bank loan approval for both the recent refinancing and for construction financing. 3. A copy of the proposed Contracts for Sale of the lots in the development for sale "off the plan". 4. Particulars of all pre-sales currently existing. 5. Financial projections for the period from the present until the time of proposed completion of the development and sale of the individual units. Unless we receive all of the above information and documents by 4 July 2006 we are instructed to take proceedings to secure the repayment to our client of all monies paid by him in respect of the Coolangatta development and as referred to in the said agreements dated 20 May 2005 and 16 June 2005. 17There was undisputed evidence that none of the defendants paid anything towards interest or principal under the La Trobe loan, after the $60,000 had been exhausted (which was in about June or July 2006: see Combined book 104-105). I note that further "upfront fees" were paid to La Trobe on 31 August 2006 and 26 September 2006. 18It is clear from these circumstances that the second proposition put in the second paragraph of the letter of 29 June 2006 was not taken up. 19On 6 December 2006, Mr Cheah's solicitors wrote again to the directors of HPL, requiring repayment to Mr Cheah of his total investment and interest, and giving the alternative of entry into a new agreement. Solicitors acting on behalf of the directors replied claiming that the only entitlement to Mr Cheah was to share in profits. Thereafter, Mr Cheah's solicitors purported to terminate the agreement. 20On 5 December 2007, new solicitors acting for Mr Cheah claimed payment of $579,952.62, referring to HPL's obligation to pay Mr Cheah's costs in relation to the loan made to him, plus principal and interest payments as they fell due. 21According to Mr Cheah's affidavit, which in this respect was not challenged, during January and February 2008 he was negotiating a loan from Westpac Corporation "as the loan to Latrobe was becoming due and payable". The affidavit continued that the rate of interest offered by Westpac was less than that charged by La Trobe; and that on 15 February 2008 he settled the loan owing to La Trobe by way of a loan from Westpac of $426,400 plus $26,812.48 from his personal funds. 22The proceedings were commenced on 14 August 2008. Pleadings 23Relevantly, Mr Cheah's statement of claim alleged the agreements, referred to the terms of cll 12 and 13 of the agreement of 20 May 2005, and continued: 16 Pursuant to clause 2(1)(e) of the First Agreement, the First Defendant was obliged to pay on behalf of the Plaintiff all the costs including application fees, legal fees and establishment costs plus interest and principal repayments (if any) as and when they fall due under the Plaintiff's loan facility with La Trobe. 17 On or about 27 May 2005 the Plaintiff advanced to the First Defendant the sum of $460,000.00. 18 From the sum of $460,000.00 an amount of $60,000.00 was set aside to service the loan. 19 Upon the expenditure of the sum of $60,000.00 the First Defendant failed to make any payment on the loan from La Trobe. 20 By letter dated 6 December 2006 the Plaintiff made a demand on the First defendant for the payment of all moneys owed to him by the First Defendant. 21 Pursuant to clause 11 of the First Agreement, the Plaintiff terminated the First Agreement by letter dated 21 December 2006. 22 Pursuant to clause 7(1)(m) of the First Agreement, the Plaintiff is entitled to penalty interest at the rate of 9.5% per annum on the sum of $460,000.00 from 19 May 2006 until date of payment. 23 By letters dated 5 December 2007 the Plaintiff made a demand on each of the First, Second, Third and Fourth Defendants for payment of all moneys owed by the First Defendant to the Plaintiff. 24 On or about 15 th February 2008 Plaintiff settled the loan to La Trobe by obtaining a loan from Westpac Banking Corporation ("Westpac") in the sum of $426,400 and personally contributing the sum of $26,812.48. 25 The loan obtained from Westpac was on terms and conditions no less favourable than the existing loan with La Trobe. 26 The First, Second, Third and Fourth Defendants have not paid the amount outstanding under the First Agreement to the Plaintiff. 24The defence of Mr Hubbard relevantly quoted cl 2(1)(e) and continued: 18 Does not know and cannot admit the truth of the facts alleged in paragraphs 17, 18 and 19. 19 ... 20 Admits that the Plaintiff purported to terminate the First Agreement as alleged in paragraph 21 but does not admit that the First Agreement was validly terminated by the Plaintiff. 21 Says that in relation to the facts alleged in paragraph 22 of the Statement Of Claim that for the purposes of the First Agreement the "venture costs" include: "(m) penalty interest for late completion payable to the investor by the developer for late completion, being 9.5% p.a. from that date which is twelve (12) months from the date of this agreement until the date of payment of venture profits to the investor." But otherwise does not admit the facts alleged. 22 Does not admit that demands were made as alleged in paragraph 23 of the Statement Of Claim. 23 Do not know and cannot admit the truth of the facts alleged in paragraph 24 of the Statement Of Claim. 24 Do not know and cannot admit the truth of the facts alleged in paragraph 25 of the Statement Of Claim. 25 Denies that moneys are outstanding as alleged under the First Agreement to the Plaintiff and say that: (a) Upon termination of the First Agreement the Agreement provides that: "11.(3) Upon the termination of the venture pursuant to cl 11 a full account in writing shall be taken of all the assets of the venture and of all liabilities connected with the venture and immediately after such account shall be taken all the assets (other than cash) of the venture shall be valued and realised and sold to the best advantage and the moneys arising from such sale and other moneys of the venture shall be applied in accordance with cl 9 and 10 hereof." (b) No account in writing has been taken of the assets of the venture and of all of the liabilities connected with the venture. (c) The assets of the venture have not been valued nor realised nor sold to the best advantage and that accordingly no moneys have arisen from the sale of the venture assets to be applied as provided for in Clauses 9 and 10 of the First Agreement, which clauses provide as follows: [And it then quoted clauses 9 and 10 of the agreement of 20 May 2005.] On that basis, Mr Hubbard denied indebtedness to Mr Cheah. Decision of primary judge 25The primary judge identified the following issues: 1 Did the plaintiff provide funds to the first defendant by way of investment or loan? 2 What were the first defendant's obligations in regard to repayment of the funds? 3 Was the agreement validly terminated? 4 Were the second and third defendants discharged from their obligations as guarantors? 5 Was the third defendant bound by the terms of the guarantee? 6 What were the plaintiff's rights to interest? 26The primary judge held that the funds were provided by Mr Cheah to HPL by way of loan. She then considered whether any obligation on HPL (and the guarantors) to pay Mr Cheah was postponed until there had been a winding-up of the venture in accordance with cl 11(3) and/or cll 9 and 10. The primary judge rejected that, holding that those provisions did not displace the obligation in cl 2(1)(e) to pay all amounts including principal and interest as and when they fell due. 27The primary judge held that the agreement was terminated by effluxion of time on 20 November 2006; and that the guarantors were not discharged by any change made from the original loan offer by La Trobe. 28On that basis, the primary judge found that Mr Cheah was entitled to $460,000 plus interest. Grounds of appeal 29Mr Hubbard relies on the following grounds of appeal (he did not press ground 3 in the amended notice of appeal): 1 The Trial Judge erred in finding that the Plaintiff (First Respondent) provided funds to the First Defendant by way of loan. 2. The Trial Judge erred in finding that the Plaintiff (First Respondent) was entitled to the repayment of the sum of $460,000.00 (and interest) in the absence of the winding up of the Venture. Submissions on appeal 30Mr Hall for Mr Hubbard submitted that the language of the agreement was of capital investment, not loan; and that this was confirmed by oral discussions in evidence and by descriptions given to the arrangement in correspondence. 31He submitted that the principal did not become payable to Mr Cheah because: (1) It would not in any event become due to Mr Cheah unless and until the venture was wound up; (2) Even if clause 2(1)(e) operated independently of winding-up, it was not alleged or proved or found by the primary judge that the principal ever became due and payable to La Trobe. Mr Cheah's affidavit said only that it was "becoming due and payable" when he was negotiating with Westpac; so that it may have been paid out using the Westpac loan before it actually fell due. Decision 32In my opinion, it is not to the point whether the agreement is properly characterised as an investment agreement or a loan agreement: what has to be determined is the effect of its provisions. In my opinion, the conversations and the descriptions in correspondence have no bearing on that question. 33In my opinion, it is clear that cl 2(1)(e) operates independently of cll 9 and 10 and 11. If it be the case that the principal of the loan became repayable to La Trobe prior to the winding-up of the venture, the obligation of HPL and the guarantors was to pay that principal at that time. There is nothing in cll 6, 7, 9, 10 and 11 to suggest the contrary. 34There is more substance in Mr Hall's second submission. It was not explicitly alleged in the statement of claim that the principal did become due and payable to La Trobe, and it was not explicitly found by the primary judge that it did so. 35However, plainly Mr Cheah was relying on cl 2(1)(e) as support for his claim for payment of the principal. There are in my view strong reasons for holding that, if Mr Hubbard wished to raise the point that the principal was not due because it never became due to La Trobe, that point should have been raised in the defence: (1) Defendants have an obligation to raise matters that otherwise could cause surprise: see Uniform Civil Procedure Rules (UCPR) r 14.14. (2) Defendants as well as plaintiffs have an obligation to draw the court's attention to the real issues in the case: see Civil Procedure Act 2005 s 56. (3) It might even be that Mr Cheah did not have an obligation to plead that the principal became due to La Trobe, as this might be regarded as a mere condition precedent: see UCPR r 14.11. 36Further, in my view the primary judge was permitted by the parties to proceed on an assumption that the principal had become due and payable: see for example the following paragraphs of her judgment: 47 Clause 10(1)(d) provided for the payment of venture costs outstanding and then due and payable before any profits might be distributed. This provision clearly contemplated that venture costs would be paid for as and when they fell due. It could therefore only be interpreted as applying to so much of the La Trobe loan as was required to be paid to obtain discharge of the finance facility entered into with the plaintiff if the loan was not repaid when it fell due. 48 Further, the first defendant paid the fees and costs of the plaintiff's securing the loan facility from La Trobe and paid interest up to the sum of $60,000 in accordance with the provisions of the loan agreement. It was apparent therefore that it clearly understood that it was the first defendant's obligation to meet these payments in accordance with the terms of the loan agreement. It was not suggested that the first defendant expected the plaintiff to meet those obligations and await the termination of the venture for reimbursement. 49 The argument that the second agreement supported the second defendant's interpretation of the first agreement was clearly untenable. The second agreement confirmed the obligation contained in clause 2(1)(e) of the first agreement to pay the plaintiff's costs, including application fees, legal fees and establishment costs, as and when they fall due . There could be no suggestion that this provision excused the first defendant from meeting principal repayments as they fell due. 37Even if it is appropriate that this point be permitted on appeal, in my opinion it should not succeed. 38There was in my opinion sufficient evidence that the principal did become due and payable in May 2006 (or at the latest 21 June 2006). The loan agreement was for one year, so unless some further binding agreement was made between Mr Cheah and La Trobe, before the expiry of that year, it did then become due and payable. It would not matter that La Trobe did not at that time press for payment, but allowed it to remain outstanding. 39The letter of 29 June 2006 strongly supports an inference that at that time Mr Cheah had yet not made a binding contractual arrangement with La Trobe as to terms on which the loan would be extended; so that the principal must have fallen due by 21 June 2006 at the latest. 40That would be sufficient to justify dismissal of the appeal. However, I note also the following: (1) Upon termination of the venture on 20 November 2006, HPL was obliged by cl 11(3) to realise the assets and apply them in accordance with cll 9 and 10. (2) A reasonable time for that exercise must have passed by 14 August 2008, when the proceedings were commenced. (3) The effect of cll 9 and 10 (noting especially cl 9(2)(a)) is that HPL (and thus the guarantors) would be liable to make up any shortfall from the distribution to Mr Cheah of amounts payable to La Trobe. (4) It was clear that Mr Cheah had, by 14 August 2008, suffered a loss to the extent of the liability to La Trobe that he had reasonably paid out in February 2008, a loss against which he was indemnified by HPL and the guarantors under cl 12. Conclusion 41In my opinion, the appeal should be dismissed with 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: 21 March 2012