Court of Appeal Supreme Court New South Wales Medium Neutral Citation: Lindsay-Owen v Winton Partners Funds Management Pty Ltd [2017] NSWCA 78 Hearing dates: 3 March 2017 Decision date: 12 April 2017 Before: Macfarlan JA at [1]; Payne JA at [2]; Emmett AJA at [25] Decision: Appeal dismissed. The First Appellant and Second Appellant to pay the Respondent's costs of the appeal. Catchwords: CONTRACTS – construction of terms – appellants involved in property development joint venture – dispute arose which required sale of the relevant land – respondent entered into multiple agreements with appellants by which it agreed to act as "attorney and agent" in respect of sale – respondent distributed sale proceeds amounting to more than $100m – dispute as to $5m remuneration claimed by respondent – amount of remuneration determined by reference to "sale proceeds of the Property" – construction of "Property" – construction of "proceeds" Cases Cited: Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181; [2001] HCA 70 Suttor v Gundowda (1950) 81 CLR 418; [1950] HCA 35 Category: Principal judgment Parties: Gregory Hamilton Willoughby Lindsay-Owen (First Appellant) DairyCorp Pty Ltd (Second Appellant) Winton Partners Funds management Pty Ltd (Respondent) Representation: Counsel: N Kidd SC (Appellants) J C Giles SC with H Mann (Respondent) Solicitors: Mills Oakley Lawyers (Appellants) Dentons (Respondent) File Number(s): 2016/184385 Decision under appeal Court or tribunal: Supreme Court of New South Wales Jurisdiction: Equity Division Citation: [2016] NSWSC 640 Date of Decision: 10 June 2016 Before: Hammerschlag J File Number(s): 2016/98573 [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.] Judgment 1. MACFARLAN JA: I have had the advantage of reading the judgment of Emmett AJA in draft. I agree with his Honour's proposed orders and reasons for judgment. 2. PAYNE JA: I have read the judgment of Emmett AJA in draft. I gratefully adopt his Honour's summary of the facts and the relevant contractual provisions. I agree with the orders his Honour proposes but differ in respect of the treatment of the notice of contention. For essentially the reasons given by the primary judge I would dismiss the appeal with costs. 3. My reasons for rejecting the notice of contention need only be stated briefly. "Property", is defined in the Mandate Agreement, in the following paragraph: The Parties agree that the Mandate is to enable Winton to undertake its role as attorney and agent for DairyCorp under clause 7 of the Deed of Acknowledgment and the Power of Attorney in relation to the exercise of Schofields's right of sale of DairyCorp's land at Schofields, NSW ("Property") under the Deed of Acknowledgement… 1. Whilst the construction preferred by Emmett AJA and Macfarlan JA has much to commend it, I am ultimately persuaded by the reasoning of the primary judge that this is a bespoke definition to be contrasted with the way in which the sale of the RMS and Non-RMS Land was addressed in the Deed of Acknowledgement and Joint Venture Agreement. 2. Clause 5(b) of the Deed of Acknowledgement makes it clear that the only land to be sold in accordance with cl 15.6(d) of the Joint Venture Agreement, that is, in exercise of Schofields' right of sale, was the Non-RMS Land. I agree with the primary judge that there are other provisions in the Mandate Agreement consistent with the Property being the Non-RMS Land, for example, those providing for the remuneration to be due and payable on the day of settlement of the sale of Property, and recording that the final outcome to the appellants from the sale of the Property was subject to various market forces beyond the control of the respondent. Accordingly, I agree with the primary judge that the reference to "Property" in the phrase "all proceeds above $12 million that are received by DairyCorp in relation to the sale of the Property" is a reference to the Non-RMS Land only. 3. The notice of appeal contained 8 grounds but the parties agreed that they could be addressed under 5 headings as follows: 1. appeal grounds 1-4 – the Worked Example; 2. appeal ground 5 – alleged inconsistency between outstanding debt figure in the Worked Example and treatment of the cl 4(d) amount; 3. appeal ground 6 – the "variable amounts"; 4. appeal ground 7 – the timing of the sale of the RMS and Non-RMS parcels of land; and 5. appeal ground 8 – the use of drafts of the Mandate Agreement. Appeal grounds 1-4 – the worked example 1. The substance of grounds 1-4 is that the primary judge should have given primacy in construction of the Mandate Agreement to the figure used for outstanding debt in the Worked Example. That would have the effect that the debt which had to be deducted from the appellants' share of the gross proceeds was not the actual outstanding debt at the time of the sale of the Property but either the hypothetical amount of $24 million used in the example or $22,944,317.28, being the total NAB debt calculated on the assumption that no repayment of the NAB debt occurred following the RMS Land sale. 2. The construction advanced by the appellants is not what the words in the Mandate Agreement say, nor is that construction supported by context or purpose. 3. The appellants' submission that the primary judge gave the Worked Example "no real work to do at all" should be rejected. His Honour correctly concluded that the role of the "Worked Example" was consistent with its description; it was an example of how the formula should be applied. As an example based on unknown future events, the example necessarily used hypothetical numbers. 4. That the primary judge rejected the appellants' argument based on the Worked Example does not mean his Honour gave the example no work to do. The primary judge accepted the methodology explained by the example and gave effect to that method of arriving at amounts standing to the account of the parties. No error has been shown in that approach. This conclusion effectively addresses grounds 1-4 of the notice of appeal, save for one additional complaint made by the appellants. 5. To the extent that the appellants allege error by the primary judge in making a finding that on the competition of the sale of the Non-RMS Land DairyCorp received $37,351,319 when in fact it received $31,761,215.25, that submission should be rejected. The respective cases advanced at trial, one by the respondent and the two alternatives put forward by the appellants, were each predicated on receipt by DairyCorp of $37,351,319. This point about "receipt", advanced for the first time on appeal, is not available: Suttor Gundowda Pty Ltd (1950) 81 CLR 418; [1950] HCA 35 at 438 per Latham CJ, Williams and Fullagar JJ. 6. Grounds 1-4 should be rejected. Appeal ground 5 – alleged inconsistency between NAB debt figure in the Worked Example and treatment of the cl 4(d) amount 1. Ground 5 is a variation of the complaints in grounds 1-4 and takes the appellants no further. The appellants' complaint proceeds on an assumption that the reference to "outstanding debt" in the Worked Example means only the NAB Debt. The appellants rely on the fact that, although cll 6 and 9 are expressly referred to in the Worked Example, cl 4(d) is not. That is readily explained. On 6 December 2014 the amounts in cll 6 and 9 of the Deed of Acknowledgement were known. The amount in cl 4(d) of the Deed of Acknowledgement (the Schofields debt) depended on the amount of the proceeds from the RMS Land sale after all usual settlement deductions (referred to generally in cl 4(b)). Neither amount was known. The Worked Example thus adopted a hypothetical amount for outstanding debt. 2. Ground 5 should be rejected. Appeal ground 6 – the variable amounts 1. Ground 6 alleges that the primary judge fell into error by finding that a consequence of the appellants' construction was that while the other figures in the Worked Example were "variable", the NAB debt figure was not "variable". The submission advanced starts from a premise about what the primary judge said which is incorrect. 2. The primary judge correctly described the Worked Example as a "hypothetical calculation". At [49] the primary judge referred to all integers being variable except, on the appellants' construction, the NAB debt. His Honour was there referring to the integers specified in the chapeau to the Worked Example: the sale proceeds, the appellants' interest and the outstanding debt. So understood the primary judge was correct. The appellants' construction has the effect that the integers in the chapeau are to be treated differently. On that construction, the sale price and the appellants' interest are examples only (not to be used in the actual calculation) but the outstanding debt is to be understood as the NAB debt which was fixed and to be used in the actual calculation. The primary judge was correct to reject that construction. 3. Ground 6 should be rejected. Appeal ground 7 – the timing of the sale of the RMS and Non-RMS parcels of land 1. Ground 7 addresses construction on the assumption that the settlement of the Non-RMS Land occurred before the settlement of the RMS Land. The appellants submitted that on that assumption and in the events which occurred the construction adopted by the primary judge would result in a substantially lower fee being paid to the respondent, and thus that the construction adopted by the primary judge was submitted to have an uncommercial result. 2. Whilst ground 7 is in my view the strongest argument in favour of the construction of "Property" preferred by Emmett AJA in upholding the notice of contention, the suggested consequences do not cause me to read the words used by the parties differently. The language used is inconsistent with the construction urged by the appellant. 3. At the time when the Mandate Agreement was entered into, the parties were proceeding on an assumption that the sale of the RMS Land would complete before the Non-RMS Land, as actually occurred. That is demonstrated by the terms of the Deed of Acknowledgement, which were relied on by the appellants for other purposes. That the methodology identified in the Worked Example may have had significant consequences for the respondent if the unexpected occurred does not assist the appellants' argument. If events had occurred in the way here identified by the appellants, the respondent may have found that it entered into a bad bargain. Such bad bargains are not of themselves "unbusinesslike". In any event, "business commonsense" is a topic upon which minds may differ: Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181; [2001] HCA 70 per by Gleeson CJ, Gummow and Hayne JJ at [43]. No error has been shown in the approach of the primary judge. 4. Ground 7 should be rejected. Appeal ground 8 – the use of drafts of the Mandate Agreement 1. This ground may be addressed shortly. No reliance was placed by the appellants before the primary judge on the drafts of the Mandate Agreement. None of the drafts (including the draft now expressly relied on) was the subject of submissions made to the primary judge. The parties were asked by the primary judge whether they relied on pre-contractual drafts and both parties expressly confirmed that they did not. The respondent thereby lost, at least, the opportunity to address the content of the drafts and seek to place the drafts or amendments in context by leading further evidence. That is the end of the point in this Court: Suttor v Gundowda. 2. Ground 8 should be rejected. Conclusion 1. For the foregoing reasons I join in the orders proposed by Emmett AJA. 2. EMMETT AJA: This appeal is concerned with the proper construction of an agreement made between the appellants, Mr Gregory Lindsay-Owen and DairyCorp Pty Ltd (DairyCorp), on the one hand, and the respondent, Winton Partners Funds Management Pty Ltd (Winton), on the other. The agreement (the Mandate) was described as "Advisory Mandate" and was entered into on 6 December 2014. The Mandate was concerned with the terms on which Winton would provide services to Mr Lindsay-Owen and DairyCorp in connection with a joint venture arrangement (the Joint Venture Agreement) made on 29 March 2010 between Mr Lindsay-Owen and DairyCorp, on the one hand, and Schofields Property Development Pty Ltd (Schofields), on the other. The dispute that is the subject of the appeal concerns the calculation of the remuneration to be paid to Winton by Mr Lindsay-Owen and DairyCorp for the provision of the services under the Mandate (the Services). The Joint Venture Instruments 1. Under the Joint Venture Agreement, DairyCorp and Schofields were to associate themselves as an unincorporated joint venture to develop land situated at Schofields in outer western Sydney (the Schofields Land). The Schofields Land was defined in the Joint Venture Agreement as "the Land". That may have some significance, as will appear below. By cl 3.1 of the Joint Venture Agreement, DairyCorp and Schofields agreed to form an unincorporated joint venture to carry out a project consisting of managing the development, subdivision, marketing and sale of the Schofields Land (the Project). Clause 4 described the participating interest and contributions of the joint venture parties, the precise details of which are not presently relevant. However, the effect was that Schofields would acquire an escalating participating interest in the joint venture and its assets. 2. By cl 11 of the Joint Venture Agreement, DairyCorp agreed to repay its existing debt facility and procure the release of all securities in relation to that debt facility over the Schofields Land. DairyCorp was required to do so within 30 business days after approval by the relevant consent authority of a development application allowing for the delivery of a specified minimum number of lots in a subdivision of the Schofields Land. Breach of cl 11 by DairyCorp apparently led to a falling out between the joint venturers, and the taking of action under cl 15, which dealt with "Default". 3. Under cl 15.3 of the Joint Venture Agreement, a non-defaulting joint venture party could give a default notice to a defaulting joint venture party if an event of default occurred and the non-defaulting joint venture party desired to terminate the Joint Venture Agreement. Under cl 15.6(b), if a default notice was served in accordance with cl 15.3 and the defaulting joint venture party failed to remedy the default within a specified period, the non-defaulting joint venture party could require or direct the joint venture parties to sell the Schofields Land and all property and assets from time to time of the joint venture. Under cl 15.6(d), the sale was to be for cash, on the open market, on the most appropriate terms available and in a timely, but not necessarily hasty, manner. 4. At the same time as the Joint Venture Agreement was entered into, the parties entered into a Facility Agreement (the Facility Agreement), under which Schofields was to make advances to DairyCorp. The Facility Agreement also provided that, if Schofields took a participating interest in the Joint Venture, advances made under the Facility Agreement would be deemed to be repaid, such that the debt owing to Schofields was to be converted into equity in the joint venture. In the events that happened, Schofields converted its debt such that its participation interest was ultimately agreed to be 40.67%. Clause 4 of the Facility Agreement relevantly provided that, promptly after planning approval was obtained, the parties would obtain a valuation of the Schofields Land. Clause 4 also provided that, in certain circumstances, Schofields would, within one month of obtaining the valuation provide an advance to Mr Lindsay-Owen and DairyCorp for amounts calculated in accordance with that clause. The advances to DairyCorp by Schofields were to be secured by mortgage of the Schofields Land. 5. At the time when the joint venture arrangements were put in place, DairyCorp was indebted to National Australia Bank Limited (NAB) in a significant sum. The repayment of that indebtedness was secured by a first mortgage over the Schofields Land. The Joint Venture Agreement was subject to various conditions precedent, including the refinancing of DairyCorp's indebtedness to NAB. DairyCorp in fact refinanced the secured debt with NAB, such that it continued to be indebted to NAB, but on different terms. The new indebtedness was also secured by first mortgage over the Schofields Land. 6. On 30 April 2010, NAB, Schofields, DairyCorp, Mr Lindsay-Owen and two related companies of Schofields, being Villawood Management Pty Ltd and TOR Pty Limited, entered into a deed (the Intercreditor Deed) to regulate the priorities as between NAB and Schofields in relation to their respective securities over the Schofields Land. The securities given to NAB were to be first in priority and, the securities to be given to Schofields were to be second in priority. Specifically, the rights of Schofields under its securities were to be postponed to the rights of NAB under its securities. 7. In January 2014, the Schofields Land was sub-divided to create, relevantly, two parcels. One parcel (the RMS Land), situated on the north-west boundary, was intended for road construction purposes by Roads and Maritime Services (RMS), a state government instrumentality. On 23 May 2014, Mr Lindsay-Owen and DairyCorp entered into a contract for the sale of the RMS Land to RMS for a price of $10,897,260. Completion of that sale was to take place on the 42nd day after the contract was entered into. However, for reasons that were unexplained and are not relevant, it was not in fact completed until 23 February 2015. The balance of the Schofields Land (the Non-RMS Land) was intended to be the subject of further subdivision in pursuit of the Project. The Retainer of Winton 1. At some time during 2014, DairyCorp and Schofields fell out. The reasons are not presently relevant, but it appears that DairyCorp was under financial pressure, particularly with respect to repaying the amount owing to NAB, which was secured by mortgage over the Schofields Land. At about that time, Winton became involved in representing DairyCorp and Mr Lindsay-Owen in their dealings with Schofields. 2. On 6 October 2014, Schofields gave DairyCorp notice under cl 15.6 of the Joint Venture Agreement requiring the Non-RMS Land to be sold in accordance with that provision. Schofields subsequently commenced proceedings against DairyCorp in the Commercial List of the Supreme Court and, on 3 December 2014, a mediation was conducted in relation to the proceedings. The mediation resulted in a compromise whereby, on 6 December 2014, an instrument was executed by Schofields, DairyCorp, Mr Lindsay-Owen and Winton (the Deed of Acknowledgement). 3. By the Deed of Acknowledgement, the parties agreed that Schofields had a participating interest in the joint venture of 40.67% and that the terms of the Joint Venture Agreement were otherwise unaffected by the Deed of Acknowledgement. They also agreed that the Joint Venture Agreement was to continue to apply and bind the parties to it, including the existing default by Mr Lindsay-Owen and DairyCorp under cl 11. 4. By cl 4 of the Deed of Acknowledgment, the parties acknowledged and agreed that: (a) an agreement to sell the RMS Land to RMS existed and the parties intended to perform all acts and execute all documents to enable concluding that sale as soon as possible, (b) Schofields was entitled to 40.67% of the proceeds of sale of the RMS Land, net of certain expenses (Schofields RMS proceeds), (c) on receipt of Schofields RMS proceeds, Schofields would apply those proceeds to reduce the indebtedness of DairyCorp to NAB, and (d) the Schofields RMS proceeds so paid were to become part of the liability of DairyCorp and Mr Lindsay-Owen to Schofields under the Facility Agreement, to be secured by the securities in favour of Schofields, ranking after the securities in favour of NAB. 1. By cl 5 of the Deed of Acknowledgment, the parties agreed that, upon the sale of the Non-RMS Land, Schofields was to be entitled to receipt of proceeds equal to 40.67% of the sale price, net of certain expenses. By cl 5(b), the parties also agreed that the Non-RMS Land was to be sold in accordance with cl 15.6(b) of the Joint Venture Agreement as a result of the non-remedied default of DairyCorp. However, notwithstanding enforcement in accordance with cl 15.6(d), Schofields agreed to conduct the sale process for the Non-RMS Land in accordance with the provisions set out in cl 5(c). I shall return to cl 5(c) below. 2. By cl 6 of the Deed of Acknowledgment, Mr Lindsay-Owen and DairyCorp agreed to pay Schofields certain amounts. Those amounts were to be payable from the share of the sale proceeds of the Non-RMS Land that belonged to Mr Lindsay-Owen, DairyCorp and Winton. The amounts were to be paid to Schofields at settlement of the sale of the Non-RMS Land. 3. By cl 7(a) of the Deed of Acknowledgment, Mr Lindsay-Owen and DairyCorp appointed Winton as their attorney and agent, with full power and authority to exercise all and any rights and to comply with all obligations that they or either of them had under or in relation to the Joint Venture Agreement or the Schofields Land. I shall return to cl 7 below. 4. By cl 9 of the Deed of Acknowledgment, Schofields acknowledged and agreed that it was responsible for payment of 40.67% of "the $1,602,512 planning debt in DairyCorp's name". Schofields agreed to pay that amount from its share of the sale proceeds of the Non-RMS Land and agreed to pay that amount at settlement of the sale of the Non-RMS Land. By cl 10 of the Deed of Acknowledgment, Mr Lindsay-Owen and DairyCorp acknowledged and agreed that they were responsible for 100% of the outstanding debt owing to NAB. 5. By deed dated the same day as the Deed of Acknowledgement (the Power of Attorney), DairyCorp and Mr Lindsay-Owen appointed Winton as their attorney under power to exercise all and any rights that either of them had under or in relation to the Joint Venture Agreement or in relation to the Schofields Land. 6. The Mandate was also entered into on the same day as the Deed of Acknowledgement and it is common ground that the Mandate must be construed in the context of the Joint Venture Agreement, the Facility Agreement, the Deed of Acknowledgment and the Power of Attorney. While the Deed of Acknowledgment and the Power of Attorney were prepared with a degree of formality, having been prepared by solicitors, the Mandate appears to be a much more informal instrument. The terms of the Mandate are set out in Schedule 1 to these reasons. The Mandate 1. The critical part of the Mandate concerns the provision for "Winton Remuneration", whereby DairyCorp agreed to pay to Winton, from its share of "the sale proceeds of the Property", 20% of all proceeds above $12 million that are received by DairyCorp "in relation to the sale of the Property". Set out in the Mandate is a "Worked Fee Example", which was apparently intended to explain how the Winton Remuneration was to be determined. The dispute between the parties concerns the extent to which a deduction was to be made from DairyCorp's share of "the sale proceeds of the Property" of the amount owing to NAB by DairyCorp, secured by first mortgage over the Schofields Land, which, at the time when the Mandate was entered into, included both the RMS Land and the Non-RMS Land. 2. As at 6 December 2014, the amount owing to NAB that was secured on the Schofields Land was $22,944,317.28. On completion of the sale of the RMS Land, the proceeds amounted to $9,227,151.50, the whole of which, including Schofield's share, was paid by DairyCorp to NAB in reduction of the amount secured, in accordance with cl 4(c) of the Deed of Acknowledgment. That left a balance owing to NAB of $13,717,165.78. NAB discharged its mortgage in respect of the RMS Land but retained its first mortgage over the Non-RMS Land. 3. On 6 February 2015, the Non-RMS Land was sold for a total purchase price of $114,280,870.96. Completion of that sale took place on 26 March 2015. After expenses and payment to NAB of the balance of the debt owing of $13,717,165.78, the sum of $95,960,999.00 remained for distribution to DairyCorp and Schofields. DairyCorp's share at 59.33% was $56,993,660.71. 4. The principal question for determination is whether, in calculating the amount of the Winton Remuneration, the "sale proceeds of the Property" should include the sum of $9,227,151.50, being the proceeds from the sale of the RMS Land. If it does not, a secondary question arises as to what part of the amount owing to NAB should be deducted from the proceeds of sale payable to DairyCorp. 5. It is difficult to see why, as a matter of principle or rationale, there should be any deduction of the amount owing to NAB. The Services, which were to be provided by Winton, were to ensure that the Schofields Land was sold for the highest price that could reasonably be obtained in the market. The amount owing to NAB, which was secured on the Schofields Land, had no bearing on the effort that Winton might put into supervising the sale by Schofields. The amount owing to NAB would be unaffected by the price obtained from the sale. 6. The proceeds of sale come from the seller. The seller, DairyCorp, owed money to NAB. No doubt the buyer was directed to pay direct to NAB the amount owing to NAB. However, as between buyer and seller, that was a payment by the buyer to the seller. That sum represented the proceeds of the sale by DairyCorp. Nothing that was going to be done by Winton would normally have any effect on the amount owing to NAB. 7. A possible rationale suggested in the course of argument is that the debt to NAB was incurring interest. Thus, the sooner the whole of the Schofields Land was sold and the proceeds received, the lower would be the amount of interest payable. Whether that is the rationale is a matter for speculation. It does not matter because it is clear, as will become apparent, that a deduction had to be made for an amount referable to the debt due to NAB. That follows from the words of the "Worked Fee Example" included in the Mandate. The litigation has been conducted on the basis that some amount should be deducted for the NAB debt, having regard to the "Worked Fee Example". The Proceedings before the Primary Judge 1. Ultimately, the contract for the sale of the RMS Land to RMS was completed and the total proceeds were paid to NAB in part reduction of the indebtedness of DairyCorp to NAB. The moneys paid to NAB included the share of the proceeds that would otherwise have been paid to Schofields. 2. A contract for the sale of the Non-RMS Land was also entered into and completed in due course. The share of the proceeds to which Schofields was entitled, including reimbursement of its share from the sale of the RMS Land, was paid to Schofields. That left a balance to be applied to DairyCorp under the Joint Venture Agreement. From that share, the amount of the Winton Remuneration was to be deducted. 3. The proceeds of sale were received by Winton as attorney for DairyCorp under the Deed of Acknowledgment and the Power of Attorney. Winton retained from the proceeds the sum of $5,070,263.83, which it claimed represented the calculation of the Winton Remuneration under the Mandate. DairyCorp disputed the entitlement of Winton to that amount. Relevantly, DairyCorp claimed that Winton was not entitled to more than the sum of $3,975,370.03. I shall describe below the way in which the two competing amounts were calculated. 4. Winton commenced proceedings in the Commercial List of the Supreme Court. In its amended summons, it claimed a declaration that the sum of $5,070,263.83 that it had paid to itself pursuant to the power granted under the Power of Attorney was then due and payable to it pursuant to the terms of the Mandate. DairyCorp filed a cross-claim in which, relevantly, it sought the immediate repayment by Winton of the sum of $1,152,234.93. 5. Competing arguments were advanced before the primary judge as to the calculation of the Winton Remuneration under the Mandate. Winton's primary contention was that the Mandate should be construed on the basis that references to "the proceeds of the sale of the Property", in the calculation of the Winton Remuneration, should be understood as referring to the proceeds of the sale of the whole of the Schofields Land, being "the Land" as defined in the Joint Venture Agreement. On that basis, the term "the Property" would mean "the Land" as defined in the Joint Venture Agreement and would include both the RMS Land and the Non-RMS Land, as those terms were defined in the Deed of Acknowledgment. DairyCorp, on the other hand, contended that the term "the Property" should be understood as referring only to the Non-RMS Land. His Honour accepted DairyCorp's contention and concluded that the term "the Property", when used in the provisions dealing with "Winton Remuneration", should be construed as referring only to the Non-RMS Land. 6. In the light of that conclusion, it was necessary for the primary judge to resolve a further question of construction. Winton contended that, in calculating the Winton Remuneration, only the amount of the balance of indebtedness of DairyCorp to NAB at the date of completion of the sale of the Non-RMS Land should be deducted. That is to say, the amount realised from the sale of the RMS Land, which had been applied in reduction of the indebtedness to NAB, was not to be deducted. DairyCorp, on the other hand, contended that the whole of the indebtedness to NAB before the reduction from the sale of the RMS Land should be deducted. His Honour accepted the contention advanced by Winton. In the result, although Winton's primary contention was rejected, acceptance of its secondary contention produced the same result. The competing contentions produced financial results as shown in Schedule 2 to these reasons. 7. As a consequence, the primary judge granted the relief claimed by Winton as plaintiff in the proceedings brought by it in the Commercial List. His Honour declared that the sum of $5,070,263.83 paid to Winton was, when paid, then due and payable to Winton pursuant to the terms of the Mandate. His Honour ordered that the cross claim be dismissed. His Honour ordered DairyCorp and Mr Lindsay-Owen to pay Winton's costs of the proceedings. The Appeal 1. As I have said, having regard to the way in which the primary judge construed the balance of the Mandate, his Honour reached the same conclusion as to the amount payable to Winton as would have resulted had his Honour accepted Winton's primary contention as to the construction of the term "the Property". While Winton seeks to support his Honour's reasoning, it has filed a notice of contention in which it seeks to support his Honour's conclusion but on the basis that his Honour erred in his construction of the term "the Property". It is convenient to deal first with the question raised by the notice of contention. 2. The primary judge observed that the definition of the term "the Property" was a "bespoke definition" to be contrasted with the definition of "the Land" in the Joint Venture Agreement, as adopted in the Deed of Acknowledgment. His Honour considered that cl 5(b) of the Deed of Acknowledgment made it clear that the only land to be sold in accordance with cl 15.6(d) of the Joint Venture Agreement, in the exercise of Schofields' rights, was the Non-RMS Land. His Honour considered that there were other provisions in the Mandate consistent with the term "the Property" being limited to the Non-RMS Land. His Honour referred to the provision to the effect that the remuneration was to be due and payable "on the day of settlement of the sale of Property" (sic). His Honour also referred to the provision that, while Winton would apply its reasonable endeavours to the performance of the Services, the final outcome to DairyCorp "from the sale of the Property" was subject to various market forces beyond the control of Winton. I consider that his Honour's conclusion was erroneous. 3. The term "the Property" occurs in several places in the Mandate. Most significantly, the term is defined in the context of recording the agreement between the parties that the purpose of the Mandate was to enable Winton to undertake its role as attorney and agent for DairyCorp under cl 7 of the Deed of Acknowledgment and under the Power of Attorney in relation to "the exercise of Schofields' right of sale of DairyCorp's land at Schofields, NSW" under the Deed of Acknowledgement. DairyCorp contends that that language indicates that, since the RMS Land was already the subject of a binding contract for sale, the exercise of Schofields' right of sale must be construed as relating only to the Non-RMS Land. 4. However, that contention ignores the reference to the Deed of Acknowledgement and the Power of Attorney, which specify the extent of Winton's involvement and the extent of the Services. In that regard, it is significant that the Mandate provided that the parties' obligations under it were subject to the terms of the Deed of Acknowledgement and that, in the event of any inconsistency between the terms of the Deed of Acknowledgement and the terms of the Mandate, the terms of the Deed of Acknowledgement were to prevail. 5. By cl 7(a) of the Deed of Acknowledgement, Mr Lindsay-Owen and DairyCorp irrevocably and unconditionally appointed Winton as their attorney and agent with full power and authority to exercise all and any rights, and comply with all obligations, that either of them had under or in relation to the Joint Venture Agreement or in relation to "the Land". The term "the Land" has the same meaning in the Deed of Acknowledgement as in the Joint Venture Agreement, namely, the whole of the Schofields Land, including both the RMS Land and the Non-RMS Land. Further, by the Power of Attorney, DairyCorp and Mr Lindsay-Owen appointed Winton as their attorney to exercise all and any rights that either of them had under or in relation to the Joint Venture Agreement and to execute any document or instrument contemplated by the Deed of Acknowledgement or the Joint Venture Agreement. 6. The term "the Property" appears in the Mandate in the heading "Orderly Sale of the Property" and in the provisions appearing below that heading. Those provisions begin by requiring Winton to monitor "the sale process undertaken by Schofields under the Deed of Acknowledgement". At the time when the Deed of Acknowledgement was entered into, the contract for the sale of the RMS land was on foot, although the date for completion had long since passed. On the other hand, while there appears to have been no suggestion that the contract for the sale of the RMS Land would not be completed, circumstances could have arisen whereby it was not completed. 7. Further, the contract for sale to RMS was still executory and action had to be taken under it by DairyCorp in order to complete the sale. The authority conferred by cl 7 of the Deed of Acknowledgement and of the Power of Attorney extended to executing documents, including documents that would be required to complete the sale. The reference to "the exercise of Schofields' right of sale" suggests the exercise of the right conferred by cl 15.6(d) of the Joint Venture Agreement to "require or direct" the joint venture parties to sell the joint venture assets and the Schofields Land. That power clearly extends to the whole of the Schofields Land and is not limited to the Non-RMS Land. The reference to "the exercise of Schofields' right of sale" does not delimit the meaning of the word "Property". 8. In the Deed of Acknowledgement, different regimes were set out in relation to the RMS Land and the Non-RMS Land. Nevertheless, the Deed of Acknowledgement clearly dealt with the sale of both parcels. Thus, under cl 4, the parties acknowledged and agreed that an agreement to sell the RMS Land existed and that the parties intended to perform all acts and execute all documents to enable concluding that sale as soon as possible. Clause 4 then dealt with the application of the proceeds of the sale of the RMS Land. 9. By cl 5 of the Deed of Acknowledgement, the parties agreed that the Non-RMS Land was to be sold in accordance with cl 15.6(d) of the Joint Venture Agreement. Curiously, rather than use the term "non RMS Land" defined for the purposes of the Deed of Acknowledgement, the parties used the phrase "the Schofields Land (other than the RMS Land)". That was probably careless drafting. 10. Clause 5(c) recorded that Schofields had agreed to conduct the sale process for the Non-RMS Land according to the regime then laid down as follows: (i) Schofields agreed to undertake "the Tender Process", namely, the appointment of a sales agent to act on behalf of the joint venture for the purpose of running an open tender process and calling for expressions of interest whereby offers to purchase the Non-RMS Land would be sought, without delay so as to enable the completion of the sale of the Non-RMS Land. (ii) If, at any time up to 30 days prior to the close of the Tender Process, an offer was received for an amount equal to or greater than the sum of $85 million less the total amount paid on settlement of the RMS Land, then either Schofields or Winton could, at its option, require the offer to be accepted. (iii) If after the closing date of the Tender Process an offer was received, then Schofields could accept that offer and sell the Non-RMS Land. If an offer was accepted by Schofields the other parties agreed to conclude the sale at that sale price. (iv) The Non-RMS Land could be sold prior to the Tender Process closing with the consent of both Winton and Schofields. 1. The provisions under the heading "Orderly Sale of the Property" require Winton to monitor that process to ensure "appropriate rigour" was applied to the following: * Seeking submissions; * Advising on the best method of sale and structure of the sale campaign; * Designing a broad based national marketing and sales campaign; * Advising on the preparation of Information Memorandum and other materials; * Helping to filter buyer interest; and * Negotiating terms of sale and relevant documentation. 1. DairyCorp acknowledged that it may or may not be possible for Winton to provide input on some or all of the Services. Winton agreed that, in the exercise its power under the Power of Attorney, it would at all times act in the best interest of DairyCorp and seek to maximize the proceeds to be realized from the sale of the Property. The fact that the binding contract for sale of the RMS Land was in the minds of the parties might suggest that the sale process just described was to apply to the Non-RMS Land. Nevertheless, there would be no inconsistency in reading the reference to "the proceeds to be realised from the sale of the Property" at the end of the provisions dealing with the "orderly Sale of the Property" as being limited to the Non-RMS Land. 2. After setting out the "Worked Fee Example", to which I shall return below, the Mandate records that the parties agreed that Winton's remuneration would be due and payable "on the day of settlement of the sale of Property". That reference is consistent with an intention to refer to the settlement of the sale of the last part of "the Property" to be sold. There is nothing in the provisions of any of the instruments to indicate that the Non-RMS Land would be sold only in one parcel. There is no reason to draw any conclusion, from the reference to "the day of settlement of the sale" in relation to the Property, to the effect that there will be only one "day of settlement". 3. Under the penultimate sentence of the material under the heading "Winton Remuneration", the parties agreed that the fee structure reflected the efforts and commitment of Winton before and after the date of the Mandate and that any fees payable to Winton "at the conclusion of the sale of the Property" would be due and payable in accordance with the Mandate, irrespective of the level of engagement and involvement Winton was about to achieve "in the process of selling the Property". While those references tend to suggest a reference to the sale process specified in cl 5 of the Deed of Acknowledgement in relation to the Non-RMS Land, they are not necessarily limited in that way. For the reasons indicated above, the Services, for which the Winton Remuneration was to be paid, extended to the RMS Land as well as to the Non-RMS Land. The material is therefore equivocal in relation to the meaning to be accorded to the term "the Property". 4. The references to "the Property" in the provisions dealing expressly with the Winton Remuneration must be construed against the considerations outlined above. Thus, DairyCorp agreed to pay "from its share of the sale proceeds of the Property" a fixed proportion of all proceeds above a specified amount that were to be received by DairyCorp "in relation to the sale of the Property". There is nothing in that language to suggest that it is only the proceeds of the sale of the Non-RMS Land that should be brought to account. At the time when the Mandate was entered into, the contract for sale of the RMS Land was still executory. No proceeds from the sale of the RMS Land had been received. Having regard to the fact that the Services, to be provided under cl 7 of the Deed of Acknowledgment and under the Power of Attorney, extended to the Joint Venture Agreement without restriction, there is no reason to construe the term "the Property" in those provisions as being limited to the Non-RMS Land. The term "the Property" should be understood as being equivalent to the term "the Land" as defined in the Joint Venture Agreement. 5. It is curious that a new term was used in the Mandate when terms had been defined in both the Joint Venture Agreement and the Deed of Acknowledgment. The Mandate provided that words not defined in the Mandate but defined in the Deed of Acknowledgment were to have the meaning given to them in the Deed of Acknowledgment. The Deed of Acknowledgment, in turn, provided that capitalised terms not otherwise defined were to have the meaning given to them in the Joint Venture Agreement. Thus, it would have been open to the drafter of the Mandate to use any of the terms "the Land", "the RMS Land" or "the Non-RMS Land". In effect, the dispute is as to whether the term "the Property" means "the Land" or "the Non-RMS Land". Be that as it may, the adoption of the new term is equivocal as to the construction that should be accorded to it. 6. Another possible factor that leads to the construction contended for by Winton is to be found in the "Worked Fee Example". In the example, a direction is given that the hypothetical $42 million proceeds to be received by DairyCorp were to be applied in repayment of the outstanding debt, which was stated to be $24 million. As I have said, the rationale for deducting the outstanding debt is unclear. However, it is clear that the reference to $24 million was intended to be a reference to the total amount owing to NAB, which was secured on the Schofields Land, including the RMS Land. 7. There is no reference in the "Worked Fee Example" to the amount contemplated by cl 4(d) of the Deed of Acknowledgment. By that provision, the parties agreed that the relevant proportion of the proceeds of the sale of the RMS Land to be received by Schofields was to be applied to reduce the NAB debt. However, that was in effect an advance by Schofields to DairyCorp to enable DairyCorp to reduce the amount of the NAB debt in order to obtain a discharge of the RMS Land from the mortgage to NAB. Upon sale of the Non-RMS Land, that sum was to be paid first to Schofields. That is to say, it was in effect the NAB debt in a different guise. There was, therefore, no need to refer to it in the examples, because it would have been included in the sum of $24 million of outstanding debt referred to in the "Worked Fee Example". Accordingly, the absence of express reference to the cl 4(d) sum in the "Worked Fee Example" is equivocal as to the construction that should be given to the term "the Property". 8. Further, once the parties had agreed that the amount owing to NAB was to be deducted in calculating the Winton remuneration, it would be quite arbitrary to reduce the amount of the deduction simply because Schofields had been substituted as creditor in respect of part of the debt. While the debt to NAB was reduced on settlement of the sale of the RMS Land, the outstanding indebtedness remained unchanged. As a matter of common sense, therefore, there should be no reduction of the amount owing to NAB for the purpose of calculating the proceeds of sale received by DairyCorp, 20% of which, after deduction of relevant expenses, was to be paid to Winton. 9. On the construction of "the Property" contended for by DairyCorp, which was accepted by the primary judge, and on the primary judge's approach to deduction of the amount owing to NAB, the amount of the Winton remuneration would vary very significantly according to whether the sale of the RMS Land was completed before or after the sale of the Non-RMS Land. That arbitrariness would be avoided by the construction contended for by Winton. 10. The primary judge erred in his construction of the Mandate insofar as he construed the term "the Property" as meaning only the Non-RMS Land. The Notice of Contention should therefore be upheld. Nevertheless, the result in terms of the amount of the Winton remuneration is the same. That is to say, there is no error in declaring that the sum of $5,070,263.83 paid to Winton was, when paid, then due and payable to Winton pursuant to the terms of the Mandate. In the circumstances, it is not necessary to deal with the grounds relied on by Mr Lindsay-Owen and DairyCorp in their amended Notice of Appeal. Conclusion 1. The appeal should be dismissed. Mr Lindsay-Owen and DairyCorp should be ordered to pay Winton's costs of the appeal. ********** SCHEDULE 1 DairyCorp / GLO –Terms of Advisory Mandate Outlined below are the terms for the advisory mandate ("Mandate") under which Winton Partners Funds Management Pty Ltd ACN 158 242 347 ("Winton") will act on behalf of DairyCorp Pty Ltd ACN 007 093 898 and Greg Lindsay Owen (together "DairyCorp"), in respect of its dealing with Villawood Properties Pty Ltd / Schofields Property Development Pty Ltd ACN 141 112 165 ("Schofields") ("together Villawood"). (Winton and DairyCorp together shall be the "Parties"). The parties acknowledge that DairyCorp, Schofields and Winton have entered into a Deed of Acknowledgement on or about the date of this Mandate (Deed of Acknowledgment). DairyCorp acknowledges that Winton played a key role in the resolution of the dispute between DairyCorp and Villawood in relation to their joint venture and the negotiation and finalisation of the Deed of Acknowledgment which documented the resolution of the dispute. The Parties acknowledge that in additional to the appointment of Winton as attorney and agent for DairyCorp under clause 7 of the Deed of Acknowledgment, DairyCorp has appointed Winton as its attorney under a Power of Attorney dated on or about the date of this document (Power of Attorney). The Parties agree that the Mandate is to enable Winton to undertake its role as attorney and agent for DairyCorp under clause 7 of the Deed of Acknowledgment and the Power of Attorney in relation to the exercise of Schofields' right of sale of DairyCorp's land at Schofields, NSW ("Property") under the Deed of Acknowledgement, and that Schofields' sale process is appropriately conceived, transparent and executed in such a way as to maximize the sale price achieved, to the extent that Winton is able to under the Deed of Acknowledgement. Winton confirms that as part of the terms of the Mandate, it is prepared to assist in funding DairyCorp's ongoing legal fees up to the limits noted below. The Parties agree that the following services will be provided by Winton for the duration of the Mandate term ("Services"): Services: 1. Attorney and agent for Schofields - Winton will act as DairyCorp's attorney and agent under clause 7 of the Deed of Acknowledgement and under the Power of Attorney. - DairyCorp agrees that it has no power or right to, and that it will not, direct Winton as to how to exercise the acts and omissions of Winton conferred on Winton under clause 7 of the Deed of Acknowledgement and the Power of Attorney. - DairyCorp acknowledges that Winton's powers are governed by and are limited by the Deed of Acknowledgement Funding of legal Fees - Winton's intention is to limit future litigation costs by seeking agreement with Villawood in relation to the various matters in dispute and then progressing to an orderly sale in line with the points outlined below - All commercial points to be agreed with Villawood will require the agreement of both DairyCorp and Winton - Winton agrees to fund up to $300,000 of further legal fees for the current litigation against Villawood ("Winton Contribution") - The Parties agree that Winton has the right to instruct legal advisers in respect of all costs funded - The Parties agree that Winton has the right to select legal advisers to carry out all works funded by Winton 2. Orderly Sale of the Property - Winton will monitor the sale process undertaken by Schofields under the Deed of Acknowledgement to use its best efforts to ensure appropriate rigour is applied to the following: • Seeking submissions from a range of national sales agent firms • Advising on the best method of sale and structure of the sale campaign • Designing a broad based national marketing and sales campaign appropriate print and online media • Advising on the preparation of Information Memorandum and due diligence materials to present to potential buyers • Helping to filter buyer interest and work with the 'highest value' candidates • Negotiating terms of sale and relevant documentation - DairyCorp acknowledges and agrees that it may or may not be possible for Winton to provide input on some or all or the Services and this will be based on the level of engagement achieved with Schofields under the Deed of Acknowledgement who may or may not be co-operative - Winton agrees that in the exercise its Power of Attorney it will at all times act in the best interest of DairyCorp and be seeking to maximize the proceeds to be realized from the sale of the Property. Winton Remuneration: - DairyCorp agrees to pay to Winton or as Winton may direct in writing, the following from its share of the sale proceeds of the Property: a) Reimbursement of the Winton Contribution, plus a $100,000 introduction fee to Iain Murray as a first priority; b) 20% of all proceeds above $12 million that are received by DairyCorp in relation to the sale of the Property. For the avoidance of doubt the reimbursement of the Winton Contribution and the Iain Murray introduction fee are not subject to the $12 million hurdle and are to be paid as a disbursement irrespective of the final return achieved. The fees are quoted exclusive of GST and to the extent that GST is applicable Worked fee example: - Based on the above agreed remuneration structure, the sale proceeds based on $70m price, a c. 60% interest in the Property, and $24m debt balance (i.e. in c. 6 months' time) on DairyCorp's side of the Property, would indicatively be applied as follows: * $42m to DairyCorp and $28m Schofields * DairyCorp's $42m to then be applied as follows: * $24m in repayment of the outstanding debt * [$1,901,713] to Villawood being [$2,664,276] in payment of amounts to Villawood required under clause 6 of the Deed of Acknowledgement less [$762,563] owing by Villawood to DairyCorp under clause 9 of the Deed of Acknowledgement * $400,000 in repayment of Winton's legal expenses incurred and the Iain Murray fee * $12m to DairyCorp * $2.96m to DairyCorp and $0.74m to Winton - reflecting the ratio of 80 / 20 beyond $12m - The total proceeds to DairyCorp under this example equate to $14.96m - The Parties agree that the remuneration will be due and payable on the day of settlement of the sale of Property and are to be directed to be paid as a disbursement out of sale proceeds received by DairyCorp's advisors - The Parties further acknowledge and agree that Winton will apply its reasonable endeavours to the performance of the Services, however the effectiveness of Winton's involvement in the sale process will be directly influenced by the co-operation and engagement of Schofields and or its representatives, the terms of the Deed of Acknowledgement and the final outcome to DairyCorp from the sale of the Property is subject to various market forces beyond the control of Winton. - The Parties agree that the fee structure above fairly reflects the efforts and commitment of Winton before and after the date of this Mandate and that any fees payable to Winton at the conclusion of the sale of the Property are due and payable in accordance with this agreement, irrespective of the level of engagement and involvement Winton is able to achieve in the process of selling the Property - The fees shall be paid by or on behalf of DairyCorp to bank account Westpac Banking Corporation BSB: 032 040 Account Number: 211642. Further Assurances: Each Party hereby agrees, at its own expense, to take any further action and to execute any further document and/or instruments as the other Party may reasonably request to give effect to this Agreement and/or the Deed of Acknowledgment. General: This Mandate is governed by the laws of NSW and the Parties subject themselves to the jurisdiction of the Courts of that place. This Terms of Mandate constitutes a binding agreement on the terms set out above. The Parties obligations under this Mandate are subject to the terms of the Deed of Acknowledgement and in the event of an inconsistency between the terms of the Deed of Acknowledgment and the terms of this Mandate, the terms of the Deed of Acknowledgement will prevail. Words not defined in this Mandate but defined in the Deed of Acknowledgement have the meaning given to them in the Deed of Acknowledgement. This agreement may consist of a number of copies, each signed by one or more parties to the agreement. If so, the signed copies are treated as making up one document. SCHEDULE 2 Item Winton DairyCorp Proceeds received by DairyCorp on settlement of Non-RMS Land 95,960,999.00 95,960,999.00 Schofield's 40.67% share (39,027,338.29) (39,027,338.29) DairyCorp's 59.33% share 56,933,660.71 56,933,660.71 Proceeds received by DairyCorp on settlement of RMS Land $9,227,151.50 N/A Schofield's 40.67% share (3,752,682.52) N/A DairyCorp's 59.33% share 5,474,468.98 N/A Total of DairyCorp's share of proceeds 62,408,129.69 56,933,660.71 (Deductions) : Additions NAB (22,944,317.28) (22,944,317.28) [1] Schofield's amount under cl. 4(d) of DoA 0 0 Schofield's amount under cl. 6 of DoA (2,664,275.54) (2,664,275.54) Schofield's amount under cl. 9 of DoA 651,782.30 651,782.30 Iain Murray (100,000) (100,000) Adjustments sub total (25,056,810.52) (25,056,810.52) Net Proceeds 37,351,319.17 31,876,850.19 DairyCorp Mandate Hurdle (12,000,000) (12,000,000) Balance 25,351,319.17 19,876,850.19 Winton's fee being 20% of the Balance 5,070,263.83 3,975,370.03 Endnote 1. The $22,944,317.28 is comprised of the $9,227,151.50 repayment made to NAB on completion of the RMS Land sale and the $13,717,165.78 repayment made to NAB on completion of the Non-RMS Land sale. 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: 23 March 2018