Winton Partners Funds Management Pty Ltd –v- Gregory Hamilton Willoughby Lindsay-Owen

1. [1]

   HIS HONOUR: The issue in this case is the amount of remuneration which the plaintiff, Winton Partners Funds Management Pty Ltd (Winton), is entitled to receive under the terms of an Advisory Mandate Agreement (the Mandate), entered into with the defendants, Mr Gregory Lindsay-Owen and his company Dairycorp Pty Ltd (together DairyCorp), on 6 December 2014.

The joint venture

1. [2]

   DairyCorp owned a substantial parcel of land at Schofields, which is in the local government area of Blacktown, New South Wales.

2. [3]

   In 2010, DairyCorp entered into a written Joint Venture Agreement with Schofields Property Development Pty Ltd (Schofields), a developer of residential estates, to develop the land. At the same time, they entered into a Facility Agreement, under which Schofields was to make advances to DairyCorp. The Joint Venture Agreement provided for Schofields to acquire an escalating participating interest in the venture. The joint venture parties appointed a related company of Schofields, Villawood Management Pty Ltd (Villawood), to act as project manager. The Facility Agreement provided, relevantly, that if a participating interest was taken by Schofields, advances made by it would be deemed to be repaid. In other words, the arrangements provided for Schofields to convert its debt interest into equity in the joint venture. Schofields did convert, and ultimately, its participation interest was 40.6%.

3. [4]

   At the time, DairyCorp owed the National Australia Bank (NAB) a significant amount of money secured by first mortgage over the land. The Joint Venture Agreement was subject to various conditions precedent including the refinancing of DairyCorp’s debt secured against the land, on acceptable terms. This occurred with NAB. The Joint Venture Agreement contained a provision (cl 15.6(d)) entitling Schofields to give notice requiring the parties to sell the land if DairyCorp defaulted in its obligations under the Joint Venture Agreement.

4. [5]

   On 14 January 2014, the land was subdivided to create a new lot on the north-west boundary, apparently to enable Roads and Maritime Services (RMS) to purchase it for road construction purposes. The new lot has throughout been referred to by the parties as “the RMS land”. The RMS land was sold to RMS by written contract made on 23 May 2014 for $10,897,260 (inclusive of GST). Under the contract, completion was to occur on the 42nd day after the contract, but for reasons which are unexplained, completion only occurred on 23 February 2015. Immediately prior to completion of the sale, the debt owed by DairyCorp and secured over the land exceeded $22 million.

Problems arise

1. [6]

   At some point during 2014, DairyCorp and Schofields fell out. There was litigation between them in this Court. DairyCorp was, by all accounts, under financial pressure, particularly with respect to repaying NAB.

2. [7]

   Winton is a privately owned company which specialises in residential property development.

3. [8]

   On 30 September 2014, Mr Lindsay-Owen was introduced to Winton’s Chief Executive officer, Mr Chris Meehan (by a Mr Iain Murray, a business acquaintance of Meehan), as a person who might be able to assist DairyCorp. Mr Lindsay-Owen maintained that Villawood was trying to back him into a corner so that he would default on the NAB loan, and they could then “steal the property” from him.

4. [9]

   Endeavouring to assist DairyCorp, Winton made contact with NAB. Winton reported back to DairyCorp that it was unlikely that NAB would agree to an extension for repayment.

5. [10]

   On 6 October 2014, Schofields gave DairyCorp notice under the Joint Venture Agreement requiring the land to be sold.

6. [11]

   Subsequently, various proposals were made by Winton with a view to resolving DairyCorp’s difficulties with NAB and Schofields. By 27 November 2014 however, no solution had been achieved. Winton then proposed that it could be of assistance, given the acrimony between DairyCorp and Schofields, by being involved in the sale which was anticipated to result from Schofield’s notice.

7. [12]

   Winton and DairyCorp then started to discuss the terms of what ultimately became the Mandate.

The Deed of Acknowledgement

1. [13]

   On 3 December 2014, a mediation in connection with the proceedings brought in this Court by Schofields against DairyCorp took place. This resulted in the entry into, on 6 December 2014, between Schofields, DairyCorp and Winton of an instrument entitled ‘Schofields and Dairycorp Joint Venture Deed of Acknowledgement’ (the Deed of Acknowledgement) and the grant by DairyCorp to Winton of a Power of Attorney authorising Winton, amongst others, to do anything in connection with the joint venture and Deed of Acknowledgement.

2. [14]

   In the Deed of Acknowledgement Mr Lindsay-Owen is referred to as ‘GLO’, and Winton as ‘WP’. The following are the presently materially relevant provisions of the Deed of Acknowledgment.

Meaning of “Land”

1. [15]

   Clause 1.2(b) of the Deed of Acknowledgement incorporates capitalised defined terms in the Joint Venture Agreement. In cl 1.2 of the Joint Venture Agreement, “Land” is defined by reference to Certificates of Title folios which, it is common cause, comprehended both the RMS land and the non-RMS land.

The Mandate

1. [16]

   On 6 December 2014, Winton and DairyCorp entered into the Mandate.

2. [17]

   The entire text of the Mandate is set out in the Schedule to this judgment. For convenience, the critical provisions are set out immediately below.

Subsequent transactions

1. [18]

   As earlier mentioned, completion of the sale of the RMS land occurred on 23 February 2015. The figures which appear below have been extracted from the parties’ submissions and appear to agreed.

2. [19]

   After settlement deductions, DairyCorp was entitled to a net balance of $9,227,151.50, which was paid over to NAB in reduction of DairyCorp’s debt of $22,944,317.28. After this payment, DairyCorp owed $13,717,165.78.

3. [20]

   On 6 February 2015, the non-RMS land was sold to Stockland Development Pty Ltd for a total of $114,280,870.96 (including GST). Completion of the sale took place on 26 March 2015. After deductions and payment to NAB in full (the debt was then $13,717,165.78), there was $95,960,999.00 available for distribution to DairyCorp and Schofields. DairyCorp’s share (59.33%) was $56,993,660.71.

4. [21]

   It is common cause that where the Mandate refers to “proceeds”, this is a reference to net proceeds, and it is common cause that DairyCorp’s share of funds was distributed by Winton as follows:

5. [22]

   As will be observed, in reaching the figure for the proceeds received by DairyCorp, Winton deducted the actual NAB debt ($13,717,165.78) as it stood on completion of the sale of the non-RMS land.

6. [23]

   It is common cause that no amount was payable in respect of the Winton Contribution.

DairyCorp’s position

1. [24]

   DairyCorp took issue with this calculation.

2. [25]

   It contends that the Mandate required that the proceeds received by DairyCorp are to be calculated by deducting the amount of the NAB debt as it stood prior to the repayment made on completion of the RMS land. In other words, it maintains that that repayment is to be ignored.

3. [26]

   As I understand it, it argues that:

4. [27]

   Put differently, it contends that the words “proceeds…in relation to the sale of the Property” are to be construed as if the NAB debt had not been partly repaid.

5. [28]

   As to the precise amount of the NAB debt to be deducted, its primary contention is that because the Worked fee example refers to $24 million, that is the amount that must be deducted, even though the actual debt (ignoring the partial repayment) was $22,944,317.28. Its alternative contention is that the actual amount of the debt (ignoring the partial repayment), is to be deducted.

6. [29]

   Under cl 4 of the Deed of Acknowledgement, Schofields was entitled to 40.67% of the proceeds of the RMS land which was to be applied to reduce the NAB debt, and repaid to Schofields out of the proceeds from the sale of the non-RMS land. In effect, Schofields agreed to lend its share of those proceeds back to DairyCorp, until disposal of the non-RMS land. Because DairyCorp’s contentions require the NAB debt to be deducted, ignoring the RMS land sale repayment, the reduction brought about by Schofields’ loan must also be ignored.

7. [30]

   Hence, the respective outcomes on DairyCorp’s alternative scenarios are as follows:

Winton’s position

1. [31]

   Winton argues that where the Mandate refers to the proceeds received by DairyCorp in relation to the sale of the Property, this means both the RMS and non-RMS land. In this regard, it relies principally on the definition of “land” in the Joint Venture Agreement, which is incorporated into the Deed of Acknowledgment. However, it puts that it is a distinction without a difference because even if the Property is only the non-RMS property, its calculation, in any event, incorporates the proceeds received by DairyCorp in relation to the sale only of the non-RMS land.

2. [32]

   Winton points out that at the date of settlement of the non-RMS land, the RMS land had been sold, and the actual NAB debt was some $13 million. It puts that DairyCorp’s position does not accord with the plain meaning of the words of the Mandate, and that DairyCorp’s position is internally inconsistent because it only gives credit for the amount received for the RMS land, but ignores the reduction in debt achieved by the sale of the RMS land. It also points out that DairyCorp’s primary contention, based on the $24 million figure in the Worked fee example, allows for variation in all of the integers, except for the $24 million figure which is fixed, and does not accord with the prevailing fact at the relevant time.

3. [33]

   It puts that the Worked fee example is nothing more than an example, and that the figure taken for the debt balance plays no significant role in the construction of the Mandate.

The relief sought

1. [34]

   Winton seeks a declaration that the sum of $5,070,263.83, which it has 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.

2. [35]

   Pending resolution of this dispute, Winton has appropriately paid the whole amount claimed by it as remuneration to its solicitors, who hold it in trust.

3. [36]

   DairyCorp cross claims seeking payment of either $1,306,030.35 (being the difference between $5,070,263.83 and $3,764,233.48) or $1,094,893.80 (being the difference between $5,070,263.83 and $3,975,370.03) from the proceeds of the non-RMS land sale.

4. [37]

   For the following reasons, I consider that Winton’s position is correct and DairyCorp’s untenable.

5. [38]

   At issue is the meaning to be attributed to the words “proceeds…that are received by DairyCorp in relation to the sale of the Property”.

6. [39]

   This involves a question of contractual construction.

7. [40]

   As a commercial agreement, the meaning of the Mandate is to be determined by what a reasonable businessperson would have understood it to mean. It is to be construed by reference to the language used, the surrounding circumstances known to them, and the commercial purpose or object of the contract. Reference must be had to its entire text, context and purpose. It is to be construed so as to avoid making commercial nonsense or working commercial inconvenience: Electricity Generation Corporation v Woodside Energy Limited (2014) 251 CLR 640 at [35]; Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 89 ALJR 990 at [47].

8. [41]

   Whilst I agree with DairyCorp that the reference to “Property” in the phrase “proceeds in relation to the sale of the Property” is a reference to the non-RMS land only, I agree with Winton that the distinction is of no moment.

9. [42]

   As to the meaning of “Property”, it is defined earlier in the Mandate, in the following paragraph (also quoted above):

10. [43]

    This is a bespoke definition and is to be contrasted with the definition of land in the Deed of Acknowledgement and Joint Venture Agreement.

11. [44]

    Leaving aside that an objective fact known to both Winton and DairyCorp at the time of the Mandate was that the RMS land had already been sold, cl 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. There are other provisions in the Mandate 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 property, and recording that the final outcome to DairyCorp from the sale of the Property was subject to various market forces beyond the control of Winton.

12. [45]

    However, there is a logical disconnect in DairyCorp’s contention that because “proceeds” means proceeds of the non-RMS land, the Mandate requires them to be calculated by assuming (contrary to reality) the existence of a debt, which at the time the proceeds are received, has been paid and no longer exists.

13. [46]

    Even less does the Mandate require the calculation to be made on the double fiction that the NAB debt had not been reduced, and that it should be fixed at exactly $24 million.

14. [47]

    The plain words of the Mandate require ascertainment of the net proceeds of the sale of the Property. No real constructional choice is required to be made.

15. [48]

    Those words entitle Winton to remuneration of 20% of all proceeds above $12 million received by DairyCorp in relation to the sale of the non-RMS land. As is said above, the parties are agreed that “proceeds” means net proceeds. The simple reality is that the net proceeds of the sale of the non-RMS land received by DairyCorp on 26 March 2015 were $37,351,319.

16. [49]

    The Worked fee example contains assumed integers for the purposes of enabling a hypothetical calculation to be made. These include the sale price and the date of sale. They are clearly not intended to be, nor could they be, precise. DairyCorp’s interest in the property was taken as an approximation. On DairyCorp’s submission, all integers, except the $24 million figure, are variable. There is nothing in the Mandate or the Worked fee example to justify this.

17. [50]

    The commercial purpose and object of the Mandate was to enable Winton to act as DairyCorp’s agent and to monitor the sale process, and to use its best endeavours to ensure appropriate rigour was used in trying to get DairyCorp the best outcome. For this it was to be paid a proportion of the net proceeds after DairyCorp had taken the first $12 million. There is no suggestion that Winton did not perform.

18. [51]

    There is significant tension between DairyCorp’s position that the debt figure must be fixed as it was prior to the RMS land sale, and the fact that at the time the Mandate was executed, all parties were operating under the assumption that completion for the RMS land would occur prior to the sale of the non-RMS land. This is clear from cl 4 of the Deed of Acknowledgement, which expressly provides that the Schofields’ share of the RMS land proceeds would be applied to reduce the NAB debt (cl.4(c)), and further regulates how that would impact Schofields’ rights to proceeds at the time of the RMS land settlement (cl.4(d)).

19. [52]

    I do not consider that any reasonable business person in the position of the parties would have understood the Mandate to operate in the way DairyCorp suggests it does.

20. [53]

    Winton is entitled to the declaration which it seeks.

21. [54]

    DairyCorp’s Cross-Claim is to be dismissed.

22. [55]

    The parties are to bring in short minutes reflecting this outcome.

23. [56]

    The exhibits are to be returned.

24. [57]

    I will hear the parties on costs should it prove necessary.