Supreme Court New South Wales Medium Neutral Citation: Alfred Anthony Vella v Medallist Golf Holdings Pty Limited [2017] NSWSC 211 Hearing dates: 09/02/2017 Date of orders: 09 March 2017 Decision date: 09 March 2017 Jurisdiction: Equity Before: McDougall J Decision: Plaintiff entitled to some but not all of the relief sought. Parties to bring in draft orders. Catchwords: EQUITY – development agreement – proper construction of terms – whether the plaintiff is entitled to have the first defendant provide an account in respect of his share of profits – whether there are implied terms in the development agreement Cases Cited: BP Refinery (Westernport) Pty Limited v Shire of Hastings (1977) 180 CLR 266 Cordon Investments Pty Ltd v Lesdor Properties Pty Ltd [2012] NSWCA 184 Lang v Simon (1952) 53 SR (NSW) 508 Mackay v Dick [1881] 6 App Cas 251 Macquarie International Health Clinic Pty Limited v Sydney Southwest Area Health Service [2010] NSWCA 268 Texts Cited: Australian Oxford Dictionary (2nd Edition, 2004) Macquarie Dictionary (6th Edition, 2013) Meagher, Gummow and Lehane's Equity Doctrines and Remedies (5th Edition, 2015) Category: Principal judgment Parties: Alfred Anthony Vella (Plaintiff) Medallist Golf Holdings Pty Limited (First Defendant) Kathleen Anne Vella (Second Defendant) Representation: Counsel: C M Harris SC (Plaintiff) I M Jackman SC / J A C Potts / L E Hulmes (First Defendant) Solicitors: Selvaggio Lawyers (Plaintiff) Clayton Utz (First Defendant) Fairfax Lawyers (Second Defendant) File Number(s): 2016/69644 Judgment 1. HIS HONOUR: The plaintiff (Mr Vella) and his then wife (the second defendant, Mrs Vella) were for some years the owners of land at Colebee, on the north western outskirts of Sydney. On 5 October 2007, Mr and Mrs Vella entered into a "Deed of Development Agreement" (the development agreement) with the first defendant (Medallist). Under that agreement, Mr and Mrs Vella granted Medallist the exclusive right to develop their land as part of a "Project" that included other lands owned by third parties. In essence, the Project comprised a development of many hundreds of residential lots surrounding a golf course. 2. The development agreement provided for Medallist to make a number of fixed payments to or for the benefit of Mr Vella. Those fixed payments, five in all, were paid on the achievement of defined events. In addition, the development agreement provided for Medallist to pay a "variable share of development proceeds" to Mr Vella upon three other defined events. Medallist says that in the events that have happened, nothing was payable. Mr Vella is dissatisfied with Medallist's contention. He commenced these proceedings to vindicate what he says are his rights. 3. Mr and Mrs Vella are no longer married. Mrs Vella, who is of course a necessary party to these proceedings, filed a submitting appearance. For convenience, I will proceed generally on the conventional basis that the development agreement was made between Mr Vella and Medallist, and that the rights of the "Owner" (defined as Mr and Mrs Vella) under that agreement were rights of Mr Vella alone. 4. Medallist developed the Project in stages. At the outset, it projected that the development would be completed, with all lots sold, in 5½ years from commencement. However, that projection became unrealistic with the onset of the Global Finance Crisis, which struck in earnest just as the first stage of the Project was released for sale. 5. I do not know if Mr Vella suggests that the decision to develop and sell in stages meant that completion, overall, was delayed. However, the evidence satisfies me that it was reasonable for Medallist to decide to undertake the development by stages. My reasons for this conclusion appear at [123] to [138] below. The real issues in dispute 1. The parties submitted their respective statements of what they saw to be the real issues in dispute. There was no difference of any substance between those statements. Mr Vella's statement broke the issues down in a way which I thought to be helpful. I indicated that unless Medallist had any objection (and none was notified), I would adopt Mr Vella's statement of the issues. 2. On that basis, the real issues in dispute are: 1. Is the plaintiff entitled to have the first defendant provide an account in respect of his share of profits? 2. On its proper construction, does clause 6.8 of the Deed oblige the first defendant to make available to the plaintiff: (i) copies of its calculations of the plaintiff's share of profits, identifying the nature and amount of all costs included in those calculations; and (ii) all documents and information the plaintiff may require to be able to check those calculations himself; or, if not, does it oblige the first defendant to make available (iii) all documents itemising and identifying the nature and amount of: (a) "actual Gross Realisations for Project Lots" up to the settlement of the 400th and 600th lots; (b) "the forecast Development Costs for the entire Project" up to the settlement of the 400th and 600th lots; and (iv) will the first defendant be obliged to provide the same information on sale of the Final Lot? 3. Alternatively, are there implied terms in the Deed to the effect set out in paragraph 2(i) and (ii) or to the effect set out in paragraph 2(iii) and (iv)? 4. Do the two "Independent Reasonable Assurance Reports" by KPMG dated 21 November 2016 satisfy the first defendant's obligations under clause 12 of the Deed? 5. If not, does clause 12, on its proper construction, require the first defendant to furnish to the plaintiff independent audit certificates in relation to the sale of the first 400, 600 and the final lots which confirm that the first defendant's calculation of the share of profits: (i) included all income are require in the Deed; and (ii) subtracted only costs which the first defendant was entitled to subtract under the Deed? 6. Is there an implied term of the Deed requiring the first defendant to sell all of the lots within a reasonable time and/or to do all things necessary on its part to allow the plaintiff to obtain the share of profits to which he is entitled on the sale of the Final Lot? 7. If so, has the first defendant beached that implied term? 8. If so, what damage has the plaintiff suffered? Note: (i) The second defendant has filed a submitting appearance and the above Issues refer to the plaintiff and the first defendant only. (ii) The phrase "share of profits" is used to denote the share of development proceeds (to which the plaintiff and the second defendant) are entitled under numbers 6, 7 and 8 of the Table appearing in clause 2.3(b)(iv) of the Deed of Development Agreement between them and the first defendant dated 5 October 2007. (iii) The above Issues do not include consequential orders which may arise, depending on the way on which the above issues are resolved. 1. That statement of the issues requires a little elaboration. Clause 6.8 of the "Deed" (that is, the development agreement) imposed on each party an obligation to be just and act in good faith in its activities and dealings with the other party. Clause 12 required Medallist to procure a report from an independent auditor verifying Medallist's calculations of any profit share payable to Mr Vella. Two of the reports on which Medallist relies were obtained from KPMG in November 2016. The third was obtained, again from KPMG, in February 2017. 2. I add that the question of payment of a profit share arose after the sale of 400 lots in the subdivision, again after the sale of 600 lots, and again after the sale of all lots. The first two KPMG reports relate to the first two of those "milestones" (my word, not the parties'). At the time of the hearing, KPMG had not provided the "Final Lot" report. Mr Jackman indicated that he understood it was to be produced in the near future, and that it would likely be in the form of the first two reports. 3. With the parties' consent, I made orders that had the effect of providing for the Final Lot report to be tendered when available; for Mr Vella further to amend his summons to seek relief in respect of it; and for the parties to have an opportunity to put submissions as to the validity of that report. Those things occurred. Thus, when I turn to the fourth and fifth issues I shall (as I say at [87] deal with them by reference to that Final Lot report. Relevant provisions of the development agreement 1. The development agreement on which Mr Vella sues was preceded by a series of option and other agreements. One of those other agreements was a form of development deed dated 6 March 2007. Fortunately, with one exception, it is not necessary to look at those earlier agreements. 2. Recitals A and B of the development agreement set out, with commendable brevity, the background: RECITALS: A. The Owner owns the Land. B. The Owner wishes to engage the Developer and the Developer agrees to develop the Land and carry out the Project on the terms and conditions set out in this Deed. 1. Clause 1.3 denied, with a limited exception, the existence of a joint venture, partnership or other fiduciary relationship: 1.3 No Joint Venture, Partnership or other Fiduciary Relationship Nothing in this Deed constitutes a joint venture, partnership or other fiduciary relationship except as set out in Clause 10.3 between the Owner and / or the Developer. 1. Clause 10.3 concerned a power of attorney granted by Mr and Mrs Vella to Medallist, and contained a recognition that by reason of (and limited to) that power of attorney, Medallist would owe fiduciary duties to Mr and Mrs Vella. 2. Clause 2 is of fundamental importance: 2 Parties' Intention 2.1 Development Rights and Limitation of Representations Concerning the Land (a) The Owner grants to the Developer exclusive rights to develop the Land as part of the Project on the terms and conditions in this Deed. (b) The Developer makes no representation nor gives any warranty to the Owner as to the Land or the Project other than as set out in this Deed and the Owner makes no representation or warranty as to the suitability or otherwise of the Land or the Project other than set out in this Deed. (c) The Owner wishes to retain the benefits of ownership of the Land including ownership of a proportion of the proceeds of its development and sale. 2.2 Projected Sale Price and Works Commencement (a) The Owner acknowledges that the Developer may determine (and at any time change) the sale prices for any Project Lot. The Owner must not object to, make any claim or set off for, nor impede nor fetter the Developer in the proper exercise of its rights under this Deed for any such determination or re-determination. (b) From the date of this Deed, the Owner consents to the Developer (and any persons authorised by the Developer) to commencing and carry out the Works and grants a licence to the Developer (and any persons the Developer authorises) for the term of this Deed to access, occupy and use the Land for all purposes involving or related to carrying out those Works, completing the Project, exercising its rights and performing its obligations under this Deed provided that at all times, subject to clause 5.1(e), the Developer and his authorised persons have regard to the Owner's right to occupy the Owner's Residence according to this deed. (c) The Developer shall provide to the Owner a schedule setting out the purchase price of Sale Contracts exchanged every 3 months during the marketing period or after exchange of every 50 Sale Contracts whichever is the later to occur. 2.3 Marketing and Owner Entitlements (a) From the date of this Deed, the Developer is authorised to market the Lots for sale at a sale price determined by the Developer under clause 2.2 (a). (b) The Owner is entitled to the distribution of sale proceeds set out in the table in this clause 2.3(b) such that when the event specified in the second column in the table occurs the Developer must distribute to the Owner the amount specified in the third column opposite that event provided that: (i) the amounts of the variable share of development proceeds in the table are calculated according to clause 6.10 for the purposes of determining the amounts in items 6,7 and 8 of the third column; (ii) if a parcel of land is sold within the Project as a lot and it comprises 2 or more of the lots shown in the Project Plan which would have been created by subdivision had it not been for that sale then for the purpose of calculating the number of Project Lots settled regard must be had to the number of Project Lots which would have been created had the parcel been so subdivided; (iii) settlement occurs when the contract for sale of a Project Lot to a third party is completed; (iv) the Developer is entitled to a distribution of the development and sale proceeds from the Project Lots being the balance of proceeds not paid to the Owner according to the table in this clause 2.3(b) but excluding any entitlement to the Owner's Residence; (v) for the avoidance of doubt, no part of the 6B lot or Owners Residence is to be taken into account in determining the Owner's entitlements under this clause. Owners' share of development proceeds No. Event Amount 1 Settlement of the 50th Lot $1,000,000 2 Settlement of the 100th Lot $1,000,000 3 Settlement of the 150th Lot $1,000,000 4 Settlement of the 300th Lot $1,500,000 5 Settlement of the 350th Lot $1,000,000 6 Settlement of the 400th Lot Variable share of development proceeds determined in accordance with clause 6.10 7 Settlement of the 600th Lot Variable share of development proceeds determined in accordance with clause 6.10 8 Settlement of the final Lot Variable share of development proceeds determined in accordance with clause 6.10 (c) The Owner agrees not to appoint any sales agent to market for sale the lots created by subdivision of the Owner's Residence into separate residential lots as described in clause 5.3 (d) other the sales agent retained for sale of the Lots. 1. I referred earlier to a development deed of 6 March 2007. That deed contained a very different regime for distribution of the profits of the development, and cl 2.3 was in very different terms. I mention it only because one of the elements of the calculation of profit distribution under the earlier deed was "Development Costs". Clause 2.3(b)(i) referred to "a rough estimate" of those costs set out in Schedule 5, "which estimate may increase or decrease…". The subparagraph stated clearly that the schedule should "not be relied on… as costs that have been agreed". 2. I mention those matters only because Mr Harris referred to the earlier form of development deed, and in particular to cl 2.3(b) and schedule 5, for the purpose of showing that the costs actually incurred were very much greater than might have been expected. I find it difficult to see how a "rough estimate" of costs, one which was expressly "not [to] be relied on", in a deed that was superceded, can have any relevance to resolution of the issues arising under the development agreement that was later made, and by reference to which (as is common ground) the parties' rights and liabilities are now regulated. 3. Clause 6.1 made it clear that Mr and Mrs Vella were and would remain the legal and beneficial owner of the land: 6.1 Subject to clauses 5.3 and 8.3, the parties acknowledge that the Owner is and will remain the legal and beneficial owner of the Land. 1. Clause 5.3 can be put to one side. Clause 8.3 required Mr and Mrs Vella to make the land available as security for any finance that Medallist would require. Allied to cl 8.3, cl 6.14 of the deed gave any "Lender" the right to step in and take the place of the developer under the development agreement. 2. Clause 6.5 comprised a negative pledge whereby Mr and Mrs Vella were deprived of the right to deal with the land in any way without Medallist's prior written consent. It is not necessary to set out cl 6.5. 3. I have referred already to cl 6.8 but, for the sake of clarity, set it out: 6.8 Good faith Each party must be just and act in good faith in all its activities and dealings with the other party under this Deed. 1. It may be noted that although cl 6.8 appears in a clause dealing with interests in the land (and entitlements to share in the proceeds of development), its operation appears to be more general. 2. By clause 6.9, Mr and Mrs Vella, as the proprietors of the land, were to be the vendors under all contracts for sale of lots. However, by that clause and others, Medallist had total control of all sales, and was entitled to receive or direct the payment of all proceeds of sale. 3. Clause 6.10 specified how the shares of proceeds payable on settlement of the sales of the 400th, 600th and final lots were to be calculated. It must be said that the drafting of cl 6.10 is opaque; and I add that it would not have been too difficult to avoid at least some of the opacity. The clause provides: 6.10 Calculation of the Owners' share of development proceeds (Clause 2.3(b)(v)) The variable portion of the Owner's share of development proceeds as described in clause 2.3 (b) (v) is calculated according to this clause where; Base case means the Developer's estimated as at the date of this Deed; GR(BC) means the forecast Gross Realisations for the entire Project estimated by the Developer at the date of this Deed, being $343,514,500; DC (BC) means the forecast Development Costs for the entire Project estimated by the Developer at the date of this Deed, being $218,359,885; GR(400) means actual Gross Realisations for Project Lots sold up to the settlement of the 400th lot, + $175,536,592; GR(600) means actual Gross Realisations for Project Lots sold up to the settlement of the 600th lot, +$91,547,792; GR(Final) means actual Gross Realisations for Project Lots; DC(400) means the forecast Development Costs for the entire Project estimated by the Developer at the settlement of the 400th lot; DC(600) means the forecast Development Costs for the entire Project estimated by the Developer at the settlement of the 600th lot; DC(Final) means the Development Costs for the entire Project; Diff(BC) means the difference between the GR(BC) and DC(BC) (i.e. GR(BC) – DC(BC)); Diff(400) means the difference between the GR(400) and DC(400) (i.e. GR(400) – DC(400)); Diff(600) means the difference between the GR(600) and DC(600) (i.e. GR(600) – DC(600)); Diff(Final) means the difference between the GR(Final) and the DC(Final) (i.e. GR(Final) – DC(Final)); Distrib(400) means amounts distributed to the Owner under this calculation at the settlement of the 400th lot; Distrib(600) means amounts distributed to the Owner under this calculation at the settlement of the 600th lot; Distrib(Final) means amounts distributed to the Owner under this calculation at the settlement of the Final lot; a) The Owner's share will be calculated as follows: At the 400th Lot: Distrib(400)= [ Diff(400) – Diff(BC) ] X 20% At the 600th Lot: Distrib(600)= { [ Diff(600) – Diff(BC) ] X 20% } – Distrib(400) At the final Lot: Distrib(Final)= { [ Diff(Final) – Diff(BC) ] X 20% } – Distrib(400) – Distrib(600) At the settlement of the 400th, 600th and final Lots, the calculations above will be performed by the Developer; At the time of each calculation, Development Costs (DCs(400/600/Final)) will be updated by the Developer for actual and forecast costs to complete; (b) Any amounts distributed to the Owner under the calculations in clauses 6.10 will not be subject to re-determination, even if the difference in Gross Realisations and Development Costs subsequently decreases; (c) At the time of each calculation, if the Owner's share is calculated to be less than zero, no distribution will be made 1. I have referred already to cl 12. Again for the sake of clarity, I set it out: 12 AUDIT The Developer shall provide to the Owner a report from an independent auditor within 60 days of the settlement of the 400th, 600th and Final Lot within the Project. The report will verify all amounts used in the calculation of the Owner's share of development proceeds carried out under clause 6.10); 1. The terminal semicolon could be thought to indicate that there was to be some further verbiage. There is not. 2. Schedule 1 to the development agreement contained a more detailed description of the Project. It is not necessary to set out that description. 3. Schedule 7 to the development agreement set out "worked examples" of the operation of cl 6.10. It was said to be an: Example calculation of Owner's variable share of proceeds (values included in this clause [sic] are for illustrative purposes only and should not be relied upon)… . 1. The examples were predicated on the development's comprising 818 lots. In fact, as completed, there were 898. The calculations were based on the integers "GR(BC)", "DC(BC)" and "DIFF(BC)" as defined in cl 6.10. 2. It is sufficient, to illustrate the operation of cl 6.10, to set out para (f) of Schedule 7, showing how profit share might be calculated on settlement of sale of the Final Lot, assuming the realisations and costs set out "for illustrative purposes only" in that paragraph. Share in Increase on Settlement of the Final Lot No of Lots 818 Owner's Share: 20% Actual Gross Realisations (Final): $376,875,638 Base Case Forecast for Remaining Lots: $ Total Gross Realisation: GR(Final) $376, 875,638 Development Costs: DC(Final) $224,662,754 Difference: Diff(Final) $152,212,884 Increase Vs Base Case Difference: $27,058,269 Owners' Share: $5,411,654 Less Previously Paid: Distrib(400)+Distrib(600) $2,398,826 Owner's Share at Final Lot: Distrib(Final) $3,012,828 Relevant factual background 1. On 1 April 2014, Medallist's solicitors Clayton Utz notified the then solicitors for Mr Vella that the sale of the 400th lot had been completed, and that Medallist's cl 6.10 calculation showed that no distribution would be made to Mr Vella. The letter forwarded a schedule which was supposed to support that proposition. 2. In late May or early June 2014, Clayton Utz forwarded to Mr Vella's solicitors a report from Grant Thornton dated 29 May 2014, which purported to be a report for the purposes of cl 12 of the development agreement. That report concluded that Grant Thornton had "not become aware of any matter that makes us believe that the calculation of the owner's share is not in accordance with the deed" and that there were "no matters that have come to our attention that would result in the owner's share being more than zero as calculated in accordance with the deed". 3. There was some disputatious correspondence following the letter of 1 April 2014 and the delivery of the first Grant Thornton report. It is not necessary to go to that correspondence. 4. On 26 May 2015, Clayton Utz wrote again to the solicitors for Mr Vella. That letter in effect confirmed that the sale of the 600th lot had been completed. It enclosed another Grant Thornton report which, apart from a very minor and irrelevant discrepancy, confirmed Medallist's apparent view that there was no profit share payable to Mr Vella. 5. Again, there was disputatious correspondence. Again, it may be ignored. 6. On 22 December 2015, Clayton Utz wrote to Mr Vella's solicitors, reporting that the sale of the 750th lot had been completed. The letter enclosed a schedule, said to be given pursuant to cl 2.2(c) of the development agreement, showing "the number of lots exchanged or settled as at close of business on 18 December 2015". 7. Mr Vella commenced these proceeding by filing his summons on 4 March 2016. He contended, among other things, that the Grant Thornton reports did not meet the requirements of cl 12, and sought an order that compliant reports be provided. Initially, Medallist disputed that it was required to provide further reports. However, when Mr Vella procured the issue of a subpoena directed to Grant Thornton requiring production of the documents given to it to enable it to prepare its reports, Medallist's position changed. It "withdrew" those reports and, on 21 November 2016, served the first two KPMG reports on Mr Vella. It relied on those reports "as satisfying its obligations under cl 12 of the Development Agreement", in respect of the calculations on sale of the 400th and 600th lots. First issue: should Medallist account to Mr Vella in respect of his profit shares? The parties' submissions 1. Mr Harris of Senior Counsel, who appeared for Mr Vella, submitted that his client's claimed entitlement to an account could be upheld on two bases. 2. First, Mr Harris submitted, the relationship established by the deed was effectively one of trust and confidence, arising from the fact that Mr Vella had signed over to Medallist the full responsibility for the development (from planning to execution to sale), and was entirely reliant on Medallist. He submitted that there was a "quasi agency relationship", or a relationship "tantamount to agency", arising from what he said was Mr Vella's entire reliance on Medallist and his vulnerability to Medallist's possible non-performance or misperformance of its contractual obligations. 3. Alternatively, Mr Harris submitted, Mr Vella was entitled to an account in aid of his contractual right to receive shares of profits on the sale of the 400th, 600th and final lots. Mr Harris relied on the decision of McClelland J in Lang v Simon (1952) 53 SR (NSW) 508. 4. Mr Jackman of Senior Counsel, who appeared with Mr Potts of Senior Counsel and Ms Hulmes of Counsel for Medallist, submitted that the relationship between Mr Vella and Medallist was not one of a kind where equity, in the exercise of its exclusive jurisdiction, would order the taking of accounts. Thus, Mr Jackman submitted, if an account were to be ordered, it would have to be on the basis that equity, in its auxiliary jurisdiction, would order the account in aid of Mr Vella's legal rights. 5. As to that, Mr Jackman submitted, there was no basis for equity to intervene. He submitted that the decision in Lang fell within a recognised class of cases, as between employer and employee, where the former could be ordered to account to the latter, and that there was no basis for extending the reasoning in that class of case to the relationship established by the development agreement. 6. Mr Jackman emphasised that, in the present case, the parties had expressly turned their minds to the question of how Mr Vella might be satisfied as to Medallist's calculations, and had included cl 12 in their bargain. Mr Jackman submitted (correctly, so far as the report shows) that there was no equivalent to cl 12 in the contract between Mr Lang and his employer Mr Simon. 7. Alternatively, Mr Jackman submitted, an account would be refused on discretionary grounds. He relied again on cl 12, and submitted that where the parties had chosen a method of resolving questions as to the adequacy of Medallist's calculations of profit share, the court would not interfere by exercising its discretion to order, in addition, an account. 8. Mr Jackman submitted, further, that it was clear that any account would be futile. He relied on figures which (he said) showed, in essence, that the profits actually made on the development overall were, in round figures, $50 million. However, as Mr Jackman submitted, there could be no profit share payable to Mr Vella unless the profits exceeded the integer DIFF(BC), which was in round figures $125 million. It followed, Mr Jackman submitted, that unless on the taking of accounts the final profit could be improved by at least $75 million, by either or a combination of showing that more had been received, or that less had been incurred by way of development costs, there could be no benefit to Mr Vella. 9. Mr Harris submitted, in response, that the figures in question had not been verified by any officer of Medallist, and were no more than assertions contained in a document that was sent with a disputatious letter prepared for the purposes of these proceedings. That submission is factually correct: the calculations were attached to a letter of 30 November 2016 from Clayton Utz to Mr Vella's solicitors, which attached and referred to schedules of sales and costs. Neither of the witnesses who gave evidence for Medallist (Mr Christopher Lowry and Mr Puneet Rai) purported to verify the accuracy of those figures. Decision 1. I start by observing that Mr Vella is seeking to enforce legal rights: rights arising under the development agreement. He is not seeking to enforce, or to obtain the benefit of, a right that arises only in equity. See Heydon, Leeming and Turner, Meagher, Gummow and Lehane's Equity Doctrines and Remedies (5th Edition, 2015) at [26-015]. It follows, in my view, that Mr Vella is seeking the taking of accounts (and an order for payment of anything that may be found to be due to him on the taking of those accounts) in aid of his legal rights arising under the development agreement. 2. Mr Vella must show, as the basis on which an account might be ordered, that Medallist has undertaken to be an accounting party, and that on performance of its obligations to account, he would be entitled to payment of whatever might be found to be owing. Those two conditions do not seem to be in dispute. In any event, if they are, they are in my view satisfied. 3. First, and as has been seen, Mr Vella's entitlement to share in profits of the Project arises under cl 6.10 of the development deed. That clause requires that the calculations that it specifies be carried out by Medallist on settlement of the sales of the 400th, 600th and final lots. That is to say, Medallist has undertaken, by implication at least, to prepare an account (or "calculation") showing what, if anything, it owes Mr Vella by way of profit share. Clause 2.3(b) obliges Medallist to pay whatever might be owing. 4. Mr Jackman did not appear to dispute, at least at the level of basic principle, that his client stood in an accounting relationship to Mr Vella. His submission was that, bearing in mind the twin answers that he put forward (cl 12 and futility), no account would be ordered [1] : HIS HONOUR: Can I just start at the beginning? Do you accept, leaving aside cl 12, that, in principle, as this is a case of the plaintiff being entitled to a share of profit as defined, accounts could be ordered in aid of that contractual right? JACKMAN: It would certainly be a stronger case without cl 12, yes, but the one further discretionary factor in the present case, is an argument from futility, and I can develop that now or later, depending on where your Honour wants to go with the question. Even without cl 12, in our submission, the Court wouldn't order an account here because, on the evidence, it would be futile to do so. That is a submission which is based upon two things. One is the calculation that was provided on 30 November 2016 under cover of the letter at p 536 and, jumping ahead to p 555, the calculation is set out at 555. 1. In any event, I accept that in principle Medallist is an accounting party vis à vis Mr Vella. Its obligation to pay him his share of profits determined after the accounting exercise (or "calculation") is performed is clear. 2. I turn to the question of the proper construction of cl 12 of the development agreement. The principles to be applied in construing commercial contracts are well known. I see no point in repeating or paraphrasing them, or in citing any of the many cases in which those principles have been authoritatively expounded. 3. I start by observing that cl 12 is headed "Audit". There is nothing in the development agreement to provide (as is often found in commercial contracts) that headings to clauses and subclauses are for convenience only, and do not affect, nor are they to be taken into account in, the proper construction of the relevant clause or subclause. 4. The next point is that the person who is to conduct the cl 12 exercise (to use, for the moment, a neutral term) is described as an "independent auditor". Mr Harris submitted that those words described the function that the person was to perform. Mr Jackman submitted that they identified the kind of person who was to perform the task, or the qualifications that that person must have. 5. The next point is that the purpose of the report to be prepared by the independent auditor is to "verify" not just the cl 6.10 "calculation" but, rather, the "amounts used in" that calculation. 6. The ordinary English meaning of the noun "audit" appears, from the Australian Oxford Dictionary (2nd Edition, 2004) as "an official examination of accounts" or "a systematic review". The same source gives the ordinary English meaning of "auditor" as "someone who audits accounts'. Finally, the same source again gives the meaning of the verb "verify" as including to "establish the truth or correctness of by examination or demonstration". The Macquarie Dictionary (6th Edition, 2013) is to similar effect: Audit an official examination and verification of accounts and records, especially of financial accounts; or a thorough examination or inspection, particularly in relation to an approved standard measure. Auditor a person appointed and authorised to examine accounts and accounting records, compare the charges with the vouchers, verify balance sheets and income items, and state the result. Verify to prove (something) to be true, as by evidence or testimony; confirm or substantiate; or to ascertain the truth or correctness of, especially by examination or comparison 1. Accepting, as I do, the obvious proposition that the proper construction of a clause in a contract comprises more than the sum of the ordinary English meanings of the words used in it, those definitions are nonetheless instructive. The heading "Audit" suggests that the subject matter of the clause is an examination of accounts: if not an official examination then, at least, one that is to have independent standing, as between the parties to the agreement. The reference to "independent auditor" lends support to the proposition that the report that the person is to produce is to stand between, so as to establish the rights and liabilities of, the parties to the agreement. 2. The purpose of the report is confirmed by the use of the verb "verify" and by the identification of what it is that is to be verified: the amounts used in Medallist's cl 6.10 calculations. It could not be suggested that the independent auditor was required to examine and establish the truth of every debit and credit set out in those calculations. That would be an impossibly onerous task. But what the independent auditor is required to do, in my view, is to establish the correctness of those figures by examination or demonstration. That could be done, as is commonly done in audits properly so-called of financial statements, by examining samples of data, thought to be sufficient in range and nature to enable conclusions to be drawn as to the truth (and, in the audit context, fairness) of those financial statements. 3. I return to the requirement that the report be prepared by an independent auditor. Read in context, that seems to me to indicate that the person who prepares the report must act in the role of – as if he or she were – an independent auditor of the material that the report is required to verify. Thus, I think, the better view of those words is that they describe the role in which that person is to act. But even if they describe (as Mr Jackman submitted) no more than the qualifications of the person appointed so to act, nonetheless they fit comfortably with the notion that what is to be undertaken is an exercise of audit and verification. 4. In context, the role of cl 12 is clear. Mr Vella remained the owner of the land. He was effectively prevented from dealing with it in any way other than as required by Medallist (or, upon the exercise of cl 6.14 step in rights, by any Lender). He was required also to exercise his rights from time to time as Medallist (or a Lender) directed. In exchange, Mr Vella was entitled to receive the fixed payments and any profit share that fell due, pursuant to cl 6.10, on completion of the sale of the 400th, 600th and final lots. 5. The entire development was to be conducted by, or under the control of, Medallist. Mr Vella had no express right to intervene in the development, or to be provided with financial information from time to time (I shall turn later in these reasons to his implied term case). The calculation of any profit share accruing to him was to be carried out by Medallist, based on books and records to which it alone had access, and reflecting the outcome of business activities for which it had sole responsibility. 6. In those circumstances, Mr Vella was critically dependent on Medallist to carry out the calculations accurately, based on all and only relevant information. He had no express right (and again, I leave aside his implied term case) to oversee or verify Medallist's calculations, or to examine the accounting records on which those calculations would be based. In that sense, the thrust, if not the language, of Mr Harris' submission, that Mr Vella's position vis à vis Medallist was one of "reliance and vulnerability" [2] , may be accepted. 7. Thus, cl 12 plays a crucial role in the contractual scheme. It is the mechanism – the only express mechanism and, on Medallist's case, the only mechanism express or implied – giving Mr Vella some protection against incorrect calculations of any profit share. I do not for a minute suggest that the calculations undertaken by Medallist were made in bad faith, or dishonestly. However, it is reasonably clear that the outcome of the calculations could be critically affected by decisions made as to (for example) the apportionment or allocation of various items of expense. There is no need to go into detail. The simple point is that, even assuming a cl 6.10 calculation carried out conscientiously and in good faith, mistakes may happen. 8. In short, in my view, both the language of cl 12 and its clear function, as shown by the language used and the contractual context within which the clause appears, lead to the conclusion that Mr Vella is entitled to require Medallist to procure an independent expert to examine and verify – that is to say, establish the truth or correctness of – the amounts used by Medallist in its calculations carried out from time to time under cl 6.10. 9. Once that is understood, there is in my view no basis for equity to go further, and order an account, where the independent auditor's reports in fact satisfy the requirements of cl 12. But assuming for the moment that the reports did satisfy the requirements of cl 12, they would provide the measure of assurance, as to the correctness of Medallist's calculations, that Mr Vella contracted to accept, and Medallist to give. 10. The scheme of the parties' bargain required Medallist to prepare calculations sufficient to show what, if anything, was owed to Mr Vella at each of the three relevant milestones. Each calculation was to be verified by an independent person who would perform a process in the nature of an audit. That process would demonstrate the truth or correctness of Medallist's account, or would demonstrate errors in it, as the case may be. 11. It follows, in my view, that where the cl 12 exercise has been undertaken in accordance with the requirements of the clause, so that no error can be found in its performance, then as a matter of discretion at least the court would not order, in addition, an account in equity. 12. Nor do I think that any different conclusion follows if (and I do not decide that the assumption is correct) the relationship between Mr Vella and Medallist was, or might be characterised as, a "quasi-agency relationship", or one under which Medallist occupied a position "tantamount to agency". To put the matter in the terms discussed by Heydon, Leeming and Turner [3] , even if the relationship be fiduciary or quasi-fiduciary in nature, it is nonetheless a relationship arising out of legal rights, and thus one where an account would be ordered (if at all) only in the auxiliary jurisdiction of equity. 13. For reasons that I will give, I do not think that the reports prepared by KPMG satisfy the requirements of cl 12. Thus, I do not think that the mere provision of those reports is of itself a bar to an order for accounts. However, the discretionary consideration still remains. Why should Mr Vella have an order for the taking of accounts (which would be an enormously time-consuming, labour-intensive and costly exercise) when his cl 12 rights could be vindicated by the provision of further reports that do what cl 12 require? 14. I add that even if some sort of order in the nature of an order for accounts were to be made, my strong inclination would be to refer the question out to an expert accountant. It seems to me to be clear, to the point of near-certainty, that a referee would not examine each and every transaction but, rather, would undertake an exercise in the nature of an audit. Thus, even if I were to make some order of the kind sought by Mr Vella, it is unlikely that he would receive a greater degree of assurance from its outcome than he would from reports prepared by an independent auditor that satisfied the requirements of cl 12. Second issue: the proper construction of cl 6.8 The parties' submissions 1. Mr Harris submitted that cl 6.8 imposed two distinct obligations on the parties. The first was to be just. The second was to act in good faith. Each obligation was to be performed in respect of all that party's "activities and dealings with the other party" under the development agreement. In this case, Mr Harris submitted, the obligation to be "just" was additional to the obligation to act in good faith, and required (relevantly) Medallist to be equitable and fair in its dealings with Mr Vella. 2. Mr Harris referred to decisions that sought to explain the nature of a contractual obligation to act in good faith, and the content of such an obligation. They included Macquarie International Health Clinic Pty Limited v Sydney Southwest Area Health Service [4] and Cordon Investments Pty Ltd v Lesdor Properties Pty Ltd [5] . Mr Harris drew from those cases the following propositions: 1. the obligation to act in good faith required Medallist to cooperate with Mr Vella in achieving the contractual objects; to comply with honest standards of conduct; and to comply with reasonable standards of conduct. 2. The particular content of the obligation to act in good faith should be assessed in the context of the particular contract in which the obligation is found (or implied) and the circumstances known to the parties. 3. A contractual obligation of good faith does not require the party owing it to subordinate its own interests to the interests of the other. 1. In this case, Mr Harris submitted, Medallist had complete control over Mr Vella's land and its development. It alone possessed the information necessary to calculate any entitlements that he might have to profit shares under cl 6.10. In those circumstances, the requirement to be just – to act in a way that, objectively, is equitable or fair – would require Medallist to give Mr Vella information that he (I interpolate, reasonably) required to check Medallist's calculations. 2. The same consequences, Mr Harris submitted, followed from the obligation to act in good faith. In this context, Mr Harris submitted, Medallist's "activities and dealings with [Mr Vella] under the [development agreement]" extended to its calculations under cl 6.10. That last point may be accepted. 3. Mr Jackman submitted that the construction of cl 6.8 – specifically, the ascription of content to the obligations to be just and act in good faith – required attention to be paid to the contract as a whole. That was necessary so that the construction adopted did not cut across or contradict other express features of the bargain. In this case, Mr Jackman submitted, the parties had provided a mechanism to enable Mr Vella to be satisfied as to Medallist's calculations under cl 6.10: namely, cl 12. Mr Jackman submitted that "the specific or particular provision in para 12 is paramount to what one might otherwise have got perhaps from a generalised obligation of good faith… the content of the duty of good faith has to be formulated by having regard to the provisions of the contract itself and the legitimate interests of the two parties which may well be in conflict" [6] . 4. Mr Jackman submitted that if cl 6.8 were construed as Mr Harris submitted it should be, it would subvert, and thus be inconsistent with, fidelity to the bargain because it would cut across a particular aspect of it: namely, that embodied in cl 12. Decision 1. The decisions in Macquarie International Health Clinic [7] and Cordon Investments [8] refer to Sir Anthony Mason's extra-curial writing as to the content of a contractual obligation of good faith [9] . 2. The elements of the obligation of good faith referred to by Sir Anthony Mason and in the two cases to which I have referred were said to be three, to an extent overlapping, matters: 1. An obligation to cooperate to achieve the contractual objectives; 2. compliance with honest standards of conduct; and 3. compliance with standards of conduct that are reasonable having regard to the respective interests of the parties. 1. In Cordon Investments, Bathurst CJ noted [10] that "[a]n implied obligation of good faith could not extend to imposing obligations on the parties that were, in effect, inconsistent with the terms of the Agreement". In the present case, of course, I am dealing with an express obligation of good faith. Nonetheless, in ascribing particular content to that obligation, one should not construe it so that it would be inconsistent with other express terms. 2. In my view, that approach is consistent with the judgment of Allsop P in Macquarie International Health Clinic [11] . Allsop P said that the contractual obligations of good faith "must be assessed and interpreted in the light of the bargain itself and its contractual terms". I note that the obligation in that case was an express term of the parties' contract. 3. In the present case, to construe cl 6.8 as Mr Vella contends would have the effect of adding another layer to the contractual measure of protection for which he bargained. That bargain, for present purposes, obliged Medallist to do two things: 1. make the cl 6.10 calculation at each of the last three milestone events, and act justly and in good faith towards Mr Vella when it did so; and 2. at its own expense, procure an independent auditor to prepare a report complying with cl 12. 1. If Mr Vella's construction of cl 6.8 were to be accepted, there would be a third relevant obligation cast on Medallist, namely an obligation, in the event that Mr Vella were dissatisfied with its calculation as (hypothetically) verified by the cl 12 report, to produce to him such documents as he might require to check Medallist's calculations, and if necessary perform his own calculations. 2. I do not accept that cl 6.8 should be construed to have that effect. It is given sufficient operation, for the purposes of cl 6.10, because it requires Medallist to be just and act in good faith towards Mr Vella when carrying out its calculations. The possibility that Medallist might not so act (or that it might seek so to act, but might nonetheless miscalculate the result) is covered by cl 12. The independent auditor to be appointed for the purposes of cl 12 is, by definition (because he or she is "independent"), someone who stands apart from and between the parties. The auditor, being impartial, will not approach the task of verification with some predisposition one way or the other. If the audit is carried out in accordance with cl 12, the result will be that Medallist's calculation is verified: that its truth or correctness has been established. And if the report does not verify the calculations in that sense then, no doubt, the putative deficiency in Medallist's calculations can be rectified. 3. With that mechanism in place, why is it necessary to construe the general words of cl 6.8 so as to produce the outcome for which Mr Vella contends? Such a construction achieves nothing, in terms of benefit to him. It imposes a further layer of obligation on Medallist. And it effectively ignores the very important function that cl 12 was intended to perform (and, if followed faithfully, would perform) in the execution of the parties' bargain. Third issue: implied term The parties' submissions 1. Mr Harris submitted that the terms for which Mr Vella contended, if they were not express terms of the development agreement on the proper construction of cl 6.8, should be implied into that agreement. He relied on implication in fact, in accordance with the decision of the Privy Council in BP Refinery (Westernport) Pty Limited v Shire of Hastings (1977) 180 CLR 266. In essence, Mr Harris relied on his submissions as to the proper construction of cl 6.8, appropriately modified to take account of the somewhat different jurisprudential exercise required to support implication in fact. 2. Mr Jackman, also relying on his submissions as to the proper construction of cl 6.8, submitted that there was no basis to imply the terms, because they were not necessary to give business efficacy to the contract, and indeed cut across the terms of the contract (each submission relying on cl 12). Decision 1. In my view, no terms should be implied of the kind for which Mr Vella contended. Essentially for the reasons I have given, the parties turned their minds to the way in which Mr Vella might be protected from errors (or worse) in calculation on the part of Medallist, and agreed on the mechanism of cl 12. A report prepared in accordance with cl 12 would provide Mr Vella with the contractual degree of satisfaction he required that Medallist's calculations truly set out his entitlement. There is thus nothing to be served by the insistence, through implication, on another level of protection. Fourth and fifth issues: cl 12 and the KPMG reports 1. It is convenient to consider these issues together. Content of the Final Lot report 1. Before I turn to the parties' submissions, I should say a little about the KPMG reports. I will do so by reference to the "Final Lot" report dated 17 February 2017. 2. The report describes itself as an "Independent Reasonable Report to the Directors of [Medallist]". It states its conclusion as follows: In our opinion, in all material respects, the Medallist Golf Holdings Pty Limited Statement of Calculation of Owner's Share of Development Proceeds at the final lot has been properly prepared by Medallist Golf Holdings Pty Limited in accordance with the Deed of Development Agreement dated 5 October 2007. 1. The report states that the "information subject to assurance" is Medallist's calculation of Mr Vella's share of the development proceeds on completion of the sale of the final lot. That "information" was (for want of a better word) evaluated according to the report, "in accordance with Australian Standard on Assurance Engagements ASAE 3000" (the Standard). KPMG said: We conducted our work in accordance with Australian Standard on Assurance Engagements ASAE 3000 (Standard). We believe that the assurance evidence we have obtained is sufficient and appropriate to provide a basis for our conclusion. In accordance with the Standard we have: ● used our professional judgment to assess the risk of material misstatement and plan and perform the engagement to obtain reasonable assurance that the Statement of Calculation of Owner's Share of Development Proceeds at the final lot is free from material misstatement, whether due to fraud or error; ● considered relevant internal controls when designing our assurance procedures, however we do not express a conclusion on their effectiveness; and ● ensured that the engagement team possessed the appropriate knowledge, skills and professional competencies. 1. The report defined the function of "reasonable assurance" as follows: Reasonable assurance is a high level of assurance, but it is not a guarantee that it will always detect a material misstatement when it exists. Misstatements, including omissions, are considered material if, individually or in the aggregate, they could reasonably be expected to influence relevant decisions of the intended users taken on the basis of the Statement of Calculation of Owner's Share of Development Proceeds at the final lot. 1. The relevant version of the Standard is that published in June 2014, said to be operative from 1 January 2015. That Standard, in its own terms, relates to "Assurance Engagements Other than Audits or Reviews of Historical Financial Information". 2. In para 12(a) of the Standard, an assurance engagement is defined to mean: An engagement in which an assurance practitioner aims to obtain sufficient appropriate evidence in order to express a conclusion designed to enhance the degree of confidence of the intended users other than the responsible party about the subject matter information (that is, the outcome of the measurement or evaluation of an underlying subject matter against criteria). 1. For present purposes the engagement appears to have been what the Standard calls a "reasonable assurance engagement": one "in which the assurance practitioner reduces engagement risk to an acceptably low level in the circumstances of the engagement as the basis for the assurance practitioner's conclusion". 2. Paragraph 37 of the Standard requires the assurance practitioner to "plan and perform an engagement with professional scepticism, recognising that circumstances may exist that cause the subject matter information to be materially misstated". Paragraph 38 requires the practitioner to "exercise professional judgment in planning and performing an insurance engagement, including determining the nature, timing and extent of procedures". 3. Later paragraphs of the Standard deal in more detail with the requirements for professional scepticism (paras A76 to A80) and professional judgment (paras A81 to A85). The parties' submissions 1. The starting point of Mr Harris' submissions was that cl 12 requires an investigation in the nature of an audit, the result of which would be to verify – demonstrate the truth or correctness of – Medallist's calculations. He submitted that an investigation carried out in accordance with the Standard, the purpose of which was to give "reasonable assurance" to Mr Vella, fell far short of what cl 12 required. Mr Harris noted that, in its own terms, the Standard did not apply to (among other things) audit engagements. 2. Mr Harris submitted that there were particular deficiencies in the report. First among these was that it did not identify the financial information that had been examined for the purposes of preparing the report. He submitted that if cl 12 were to fulfil its function, it was necessary that the information that had been evaluated (to use, again, that description of the exercise) should be both identified and set out in the report or annexed to it. 3. Mr Jackman submitted [12] : … it is axiomatic that cl 12 must be construed in a way which is consistent with what an independent auditor could and would have done under accepted auditing standards, or other accounting standards. It cannot have been the contemplation of the parties that they would be requiring an independent auditor to do something outside the ambit of accepted standards which bind auditors. 1. Mr Jackman amplified that submission [13] : There are standards that aren't just audit standards which are relevant because, of course, some of the crucial integers which are being verified are forecasts or estimates of forecasts by the developer and audit standards don't cover any notion of verifying forecasts, but there are assurance standards which do cover the giving of opinions by auditors in relation to matters other than historical financial information. 1. Mr Jackman drew attention to relevant paragraphs of the Standard, for the purpose of supporting his submission that a report prepared in accordance with the Standard, and expressing a conclusion of reasonable assurance as to the subject matter that was investigated, would be sufficient for the purposes of cl 12. 2. Mr Jackman put a number of submissions as to what an auditor might or might not do, in terms of annexing to an audit report either the financial information that was audited or some summary of it (or, in this case, the calculations that were to be verified). There was no evidence of audit practice to support those submissions. Decision 1. The assurance that the report gives is that Medallist's calculation "has been properly prepared" in accordance with the development agreement. It is apparent, from the statement of the way in which the work was carried out, that KPMG performed something other than an audit of the information. The report does not say, except in the most general terms, what it was that KPMG considered, or what analysis or testing it applied to that material. 2. More fundamentally, the report, as the product of a reasonable assurance engagement, was one aimed to reduce "risk to an acceptably low level in the circumstances of the engagement". However, what cl 12 requires is that the amounts used in Medallist's calculation are to be "verified". The clause suggests very strongly that this process of verification is to be by way of, or equivalent to, an audit of the relevant information. 3. The calculation that cl 6.10 requires is no more and no less than the performance of the arithmetical exercise that it sets out, based (in the case of the Final Lot calculation) on the actual Gross Realisations for all lots and the actual Development Costs for the entire project, and the contractually defined integer Diff(BC). Realistically, once the figures are plugged in, the calculation follows as a matter of course. The outcome of the calculation, in terms of any return to Mr Vella, depends critically on the inputs. In the language of cl 12, the outcome depends critically on "the amounts used in the calculation of the Owner's share". That is why the task of the independent auditor is to "verify" those amounts. Verification of the amounts will necessarily verify the outcome of the arithmetical exercise performed in respect of, using, or based on those amounts. 4. However, what is missing from KPMG's Final Lot report (and it was missing from the two earlier reports) is any indication of the extent to which KPMG had examined, let alone verified, those amounts. A statement that the calculation has been properly prepared in accordance with the development agreement does not, in my view, amount to a statement that the amounts used in that calculation have been verified. It may mean no more than that the arithmetical exercise of calculation has been performed correctly. 5. Thus, on the face of the report (and again, this applies equally to the two previous reports), what has been done is not what should have been done. The report is not capable of giving the degree of comfort, or satisfaction, that cl 12 intended Mr Vella to have. 6. Mr Jackman submitted that, because the cl 6.10 calculations embodied forecasts in the integers GR(BC) and DC(BC), and (although not of present relevance) in the integers DC(400) and DC(600), they were to that extent inherently insusceptible of verification by audit. The point may be accepted, but it seems to me to go nowhere. 7. The amounts of the first two forecasts were specified in cl 6.10. On the proper construction of the clause, the parties agreed to use those figures, notwithstanding that each was described as a "forecast", as the contractual base from which profits, and hence shares of profits, should be calculated. There was no requirement for the independent auditor to satisfy himself or herself of the accuracy or validity of those figures, as forecasts. The task was simply to audit and verify the actual financial information that was used as the inputs for the other integers of the calculation, and of course the arithmetical accuracy of the calculation itself. 8. I accept that the logic of the previous paragraph cannot be applied in terms to DC(400) and DC(600). They, too, are estimates. But, unlike the Base Case estimates, they are not contractually specified. There is no contractually mandated starting point. 9. In any event, even if it be correct to say, as Mr Jackman submitted, that estimates are something inherently incapable of audit, that does not answer the point. The point is that, for the Final Lot calculation, what is required is verification of the amounts used in that calculation. To the extent that those amounts include estimates, those estimates are to be verified, along with other information that was used. If the process of audit is inappropriate for that, the independent auditor must be something else that satisfied the contractual requirement of verification. 10. I add, although it is a little off the point, that the 400th and 600th lot calculations are what might be called interim. The correct figure of any profit share payable, based on actual costs incurred, will be established upon sale of the Final Lot. Thus, any inaccuracies in the calculation of the distributions at the two earlier milestones will be corrected. 11. Thus, I do not see, in the circumstance that the integers include elements of forecast, any reason for discerning in the language of cl 12 (its subject being an "Audit", and the person who performs that audit being an "independent auditor"), that something other than a process of audit is required. Nor do I see any indication that the process of verification requires something qualitatively different to an audit. 12. Regardless, the obligation that cl 12 imposed on Medallist was to obtain reports that were prepared in accordance with the requirements of the clause. It was not an obligation to obtain reasonable assurance reports. Nor, for that matter, was it an obligation to an obtain audit reports. The fundamental requirement is that the reports should establish, by examination or demonstration, and thus verify the truth or correctness of, the information used in Medallist's calculations of profits and profit shares. 13. Whether the reports meet that requirement is to be assessed by looking at their substance, not at the label given to them. Nonetheless, the statement that the work was undertaken by reference to the Standard raises a reasonable inference that what was done was no more (and no less) than the Standard requires). At the end of the day, the Standard does not require verification of the information the subject of the investigation. And the reports do not show that any process of verification was undertaken. 14. It follows that Mr Vella is entitled to the declaration that he seeks in respect of the Final Lot report. 15. I turn to the related questions raised by the fifth issue. I have said in general terms what it is that a cl 12 report should achieve, and why in my view the KPMG report of 17 February 2017 does not do so. It does not seem to me to be either necessary or desirable to go further, and to attempt to express, in a paraphrase of the kind that the issue suggests, the requirements of cl 12. Sixth and seventh issues: delay in completing the Project The parties' submissions 1. Mr Harris submitted that the implied term for which Mr Vella contended arose either by implication through the operation of cl 6.8 (or, it may be, as an incident of the content of cl 6.8) or, independently, as a term to be implied on the basis established by cases such as Mackay v Dick [14] . 2. Mr Harris submitted that there was evidence of delay. He referred to the schedule of lots sold that Medallist had provided to Mr Vella (through their respective solicitors) on 28 April 2016. Mr Harris submitted that an inference of undue delay could be drawn from that schedule. He submitted that Medallist had delayed sales so as to put off the need to carry out the final calculation of profit share under cl 6.10. 3. Mr Harris submitted, further, that this was a case where all the evidence was peculiarly within the knowledge of Medallist, but that Medallist had not shown that delay in completion was due to causes beyond its control. 4. Mr Jackman submitted that there was no basis for implication of the term on which Mr Vella relied. In any event, he submitted, there was no evidence of breach. He referred to the evidence of Messrs Lowry and Rai. 5. Further, Mr Jackman submitted, there was no evidence of loss because Mr Vella had not proved that he would have received any of the three variable profit distributions for which cl 6.10 provides. Decision 1. I am content to proceed on the basis of an assumption that a term of the kind for which Mr Vella contends should be implied in the development agreement. I expressly refrain from concluding that the assumption is correct. The reason for proceeding in this way is that, in my view, there is no evidence of breach of any such term. 2. I start by saying that there is some evidence of delay. Medallist's original forecast suggested that the Project would take 5 ½ years to complete. That forecast was based on an assumed initial sales rate of eight lots per month, increasing to 15 lots per month in the last two years of the Project's life. In fact, finalisation of the Project took more than nine years from the date the development agreement was made. If the relevant time lag is that from the launch of the sale process to completion of the sale of the Final Lot, the delay was more than eight years. 3. Mr Lowry is a real estate agent. In October 2009, Medallist retained his company, Urban Land and Housing Pty Limited (Urban) as a non-exclusive agent to sell lots in the Project. At the same, Medallist had its own internal sales team. Urban was retained to compete with that sales team. 4. Mr Lowry gave, without objection, evidence that was partly of fact and partly of an expert nature. He said that when Urban was first engaged, "it was a very tough sales market and sales rates were very poor, not just for [the Project] but for projects more generally… it was very hard to sell property at this time" [15] . 5. Mr Lowry supported that opinion by data taken from an industry publication which, among other things, summarised sales of vacant lots over the years 2010 to 2015. 6. Mr Lowry identified several factors for the slow rate of sales including: 1. the excess of supply in the market; 2. the difficulty that potential purchasers experienced at the time in obtaining bank finance; and 3. that during the initial stages, the only access to the Project was through an area "renowned for low income housing", and the Project did not present as "a premium estate" [16] . 1. By contrast, Mr Lowry said, "from about 2013, we began to sell the lots as fast as we could get them released from Medallist" [17] . 2. Mr Lowry gave further evidence, all of which confirms that initially it was difficult to sell lots in the Project. He said, further, that he had never been instructed by Medallist to delay or hold up sales. 3. Mr Rai is a director of Medallist. He has been involved with the Project since mid 2008. For the first three years of his involvement with the Project, it was all he worked on. 4. Mr Rai gave evidence of a number of reasons why construction (as he called it) of the Project took some time to finalise. One of those reasons was that the launch of the Project coincided with the onset of the GFC. 5. Mr Rai gave evidence as to why, in his view, it was appropriate for Medallist to develop the Project in stages. I accept that evidence. It is a matter of common sense. 6. In summary, had Medallist undertaken the construction of the entire development "upfront", significantly higher holdings costs would have been incurred, and the profitability of the development would have been significantly diminished. Further, the release of a large number of completed lots into a slow market (as existed in October 2008, and for some time thereafter) would have been likely to depress both the rate of sale of individual lots and the prices obtained for them. 7. Mr Rai referred to two specific instances of delay: one caused by contamination, and one caused by Mr and Mrs Vella's delay in submitting a transfer. I have to say that I do not regard those matters of being of particular significance. 8. Mr Rai specifically denied that he had given any instruction to delay the project, or sales of lots, and said that, on the contrary, "there has always been an incentive for Medallist to have sales occur as quickly as possible, in order to minimise the holding costs… and deliver a better internal rate of return…" [18] . 9. He explained why that was so [19] : As developers, we are incentivised to sell a project faster, and there are two reasons for this. A project that is completed faster achieves a higher equity rate of return which is one of the criteria by which Macquarie measures the success of its projects. This metric is positively correlated to project profitability and negatively correlated to project duration. Macquarie incentivises its employees to deliver a better internal rate of return by attempting to either improve project profitability or reduce project duration. Faster sales and better profitability which is linked with those sales reflects positively on us as the developers by lending credibility to the project and the team that led it. It also has an impact on performance and remuneration assessment at Macquarie. 1. Mr Harris submitted, and I accept, that there were some difficulties in Mr Rai's evidence. For example, Mr Rai suggested in his affidavit [20] that it was a requirement of the development consent that some six lots be sold as house and land packages. Mr Rai attributed that to the relevant Development Control Plan. The DCP does not support that evidence. I do not regard this apparent error as undermining the substance of those aspects of Mr Rai's evidence to which I have just referred. 2. I accept the evidence given by Messrs Lowry and Rai. It is inherently plausible. It may be accepted that the Project was not completed as quickly as Mr Vella (or, for that matter, Medallist) might have wished. However, I am satisfied that the reasons for the delay, including specifically the difficulty in achieving sales in the post-GFC market, have been adequately explained. 3. In addition, I accept Mr Rai's evidence that it would have been economically irrational for Medallist (a subsidiary of Macquarie Bank Limited – not a corporation given to economic irrationality) to delay completion of sales. After all, although Mr Vella would receive 20% of profits above the threshold, Medallist received the other 80%. Eighth issues: damages 1. This issue does not arise. In any event, there is at present no basis on which damages could be assessed. Summary of conclusions 1. The issues as I have set them out at [7] should be answered as follows: 1. No. 2. No. 3. No. 4. (reformulated in terms of the Final Lot Report dated 17 February): No. 5. Not necessary to answer. 6. Assume (but do not decide), yes. 7. No. 8. Does not arise. Orders 1. In principle, Mr Vella has made good his entitlement to declarations and orders in terms of prayers1 to 4 , or alternatively 12 and 16, of the third further amended summons. 2. It would follow that Medallist is yet to provide, and is bound provide, a Final Lot report that satisfies the requirements of cl 12 of the development agreement. One would hope that if such a report did show that there was money owing to Mr Vella, then (subject to any appeal and its outcome) Medallist would pay to Mr Vella such amount as might be indicated, and appropriate compensation by way of interest. 3. There may be some debate as to the orders to be made, and in any event there is very likely to be a debate as to costs. In those circumstances, I think that the better course is to stand the matter over with directions for each party to furnish draft orders that it says are required to give effect to my reasons (including draft orders as to costs), and submissions in support. 4. My present view is that any dispute as to the form of the orders to be made or as to costs should be resolved on the papers once the parties have had an opportunity to put submissions in chief and in reply. If any party has a different view, they should notify me of that when the matter is listed for directions, in accordance with the third order that I am about to make. 5. I make the following orders: 1. direct the parties to exchange by 17 March 2017 and deliver to my Associate a draft of the orders that each seeks to give effect to these reasons, and submissions (limited to 5 pages) in support. 2. Direct the parties to exchange by 24 March 2017 and deliver to my Associate submissions (again limited to 5 pages) in reply. 3. List matter for directions at 9:30am on 28 March 2017 before me. ********** Endnotes 1. T42.1-.12; and see [43], [44] above. 2. T24.25. 3. Meagher, Gummow and Lehane's Equity Doctrines and Remedies at [26-035]. 4. [2010] NSWCA 268. 5. [2012] NSWCA 184. 6. T41.13-.18. 7. [2010] NSWCA 268. See Hodgson JA, with whom Macfarlan JA agreed, at [146]. 8. [2012] NSWCA 184. See Bathurst CJ, with whom Macfarlan and Meagher JJA agreed, at [145] 9. A F Mason, "Contract, Good Faith and Equitable Standards in Fair Dealings" (2000) 116 LQR 66 at 69. 10. At [146]. 11. At [14]; his Honour agreed with the orders proposed by Hodgson JA, and substantially with Hodgson JA's reasons. 12. T33.17-.22. 13. T33.43-.50. 14. (1881) 6 App Cas 251 at 263. 15. Affidavit affirmed 16 August 2016 [13]. 16. Affidavit, [19]. 17. Affidavit, [21]. 18. Affidavit sworn 8 September 2015, [52]. 19. Affidavit, [53]. 20. At [41]. 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: 10 March 2017