Lepcanfin Pty Ltd v Lepfin Pty Ltd

1. [1]

   The Plaintiff, Lepcanfin Pty Ltd (“LPL”), for whom Ms Whittaker SC with Ms K. Petch appear, has brought proceedings in the Commercial List of this Division against: Lepfin Pty Ltd (“Lepfin”); Lepcon Pty Ltd (“Lepcon”); Antegra Pty Ltd (“Antegra”); Antegra Management Leppington Pty Ltd (“AML”); Lepdev Pty Ltd (“Lepdev”) and Berlyn Holdings Pty Ltd (“Berlyn”), to whom I shall refer collectively as “the Applicants”, and Domenico and Josephine Capitani (“the Capitanis”).

2. [2]

   The Applicants (for whom Mr Muddle SC and Mr R. Davies appear) by Notice of Motion filed on 24 July 2019 (“the Motion”) seek to have the proceedings struck out or stayed. The Capitanis have not yet filed a response to the Plaintiff’s Commercial List Statement and are not parties to the Motion, but they have indicated that they support the Applicants’ Motion: see T5.10-15.

The Background

1. [3]

   Antegra and the Capitanis own a block of land in Leppington NSW which they wished, with the involvement of Lepcon, Lepfin, Lepdev, AML and Berlyn, to develop. LPL agreed to lend $10 million for the venture and a Development Deed (“the Development Deed”) was entered into on 14 August 2014 by LPL with Antegra, the Capitanis, Lepfin, Lepcon, Lepdev, AML and Berlyn. A copy of the Development Deed is found at Court Book 41-71 (the two volume Court Book, marked Exhibits A1 and A2, will be referred to as “CB”) but the schedules, which consist of draft guarantees and a mortgage (to be entered into pursuant to cl 3.1 as a condition precedent to the Development Deed becoming operational: CB 46) are not in the form of the document as signed. It was agreed by Counsel that the Development Deed as signed did include as annexures the Guarantees and Mortgage in the form actually signed by the relevant parties and which are found at CB 302-378.

2. [4]

   The Development Deed contained a clause providing for LPL to receive a “facilitation fee”, payable after repayment of all monies lent by LPL and Lepcon pursuant to the Development Deed. Schedule 2 of the Development Deed provided a method of calculating that fee. By cl 3.3 of the Development Deed, Lepcon was required to make an interest free loan to Lepfin of $3.9 million within a specified time. Clause 12.4 provided (CB 57-58):

3. [5]

   Lepcon did not advance the full amount of the loan required to be made by cl 3.3 and LPL claimed that it was entitled to the increased facilitation fee which has been described by parties in this litigation as the Facilitation Fee Top-up and which I shall refer to as the “Top-up”.

4. [6]

   The Development Deed contained a clause dealing with dispute resolution, which included a mechanism for negotiated resolution and, failing that, appointment of an expert. The following sub-clauses are of significance:

5. [7]

   LPL and the Applicants entered into two amended deeds, the second of which is entitled “Second Amendment and Restatement Deed” (CB 28-40). The Applicants contended that by reason of that document and/or for other reasons, LPL had waived its entitlement to the Top-up, which waiver LPL disputed.

6. [8]

   Following the failure to resolve the dispute which had arisen in respect of the Top-up, steps were taken to appoint an expert. Dr Elisabeth Peden, a barrister, was appointed as the expert and an agreement was entered into between LPL, Antegra and Dr Peden entitled the Expert Determination Agreement (“EDA”). It was agreed that the EDA was signed on 9 April 2018 by LPL and on 10 April 2018 by Antegra (CB 96-104, being the two signed but undated agreements). The timing of the execution of these documents is significant for reasons which shall shortly become clear. Whilst the dispute before Dr Peden was framed as one between Antegra and Lepcanfin, it is clear that Antegra was seen as the protagonist for the group of companies of which Antegra was one, and no point was made at the time or at the hearing before Dr Peden about the fact that the agreement was signed by Antegra alone. All of the companies now described as the Applicants were referred to in the expert determination process as “McCool” or “McCool entities” by reason of the fact that Mr Bernie McCool was sole director and secretary of each of those companies.

7. [9]

   The EDA contained, inter alia, the following clauses:

8. [10]

   The EDA also contained the following as a “brief description of the subject matter of the dispute”:

9. [11]

   On 21 February 2018 the solicitors for the Applicants (Dentons) drafted an email to Dr Peden which they forwarded to the solicitors for LPL, Colin Biggers & Paisley (“CBP”) (CB 79-80), and to which CBP replied by email (CB 78). CBP’s email commented on the draft and said this:

10. [12]

    Dentons replied by email of 23 February 2018, saying relevantly:

11. [13]

    On 28 February 2018, CBP by email advised that LPL would serve its Points of Defence by 9 March 2018: see CB 85.

12. [14]

    The Applicants served their Points of Claim (“POC”) on 12 March 2018 (CB 85-88) and LPL served its Points of Defence (“POD”) on 10 April 2018 (CB 89-95).

13. [15]

    It will be observed that by para 13 of the POC (at CB 86), Antegra, Lepcon and Lepfin asserted:

14. [16]

    The POC and POD were provided to Dr Peden.

15. [17]

    In the course of the expert determination, Antegra made submissions in relation to the issue of penalty. LPL, through CBP, contended in response that only the “dispute as defined” in the EDA should be considered by Dr Peden (see CB 120-121). CBP sought in its email of 25 June 2018 (CB 196) to deal with its email of 21 February 2018, saying:

16. [18]

    Dr Peden also received an email from Dentons on behalf of Antegra contending that LPL should not be permitted an opportunity to deal with the penalty issue since that had been on the table from the time of the POC. Dr Peden wrote to the parties on 12 June 2018 advising that she felt required to determine the issue not only of waiver but also the nature and existence of the obligation to pay the Top-up (CB 179), and she decided to permit LPL to advance submissions on the issue of penalty notwithstanding Antegra’s objection (see CB 176).

17. [19]

    Dr Peden proceeded to determine the question of waiver and penalty. She concluded that:

    1. (1)

       LPL had waived the right to enforce the obligation on Lepcon to pay the full Lepcon loan but had not waived the entitlement to the Top-up (her reasons are found at CB 213-214);

    2. (2)

       That the Top-up was a penalty and unenforceable (her reasons are found at CB 206-219).

18. [20]

    Following the expert determination, arrangements were made for the monies which had been paid into CBP’s trust account pending the outcome of the Determination to be paid out. LPL agreed to the money going out to Antegra and Lepcon rather than just Lepcon, which had paid the money into the CBP trust account (see CB 220-224). The Applicants claim that what occurred amounted to an “accord and satisfaction” and, therefore, is a separate basis to support their contention that LPL cannot succeed in respect of its first prayer for relief.

19. [21]

    By its Commercial List Statement, LPL seeks the following relief (in addition to costs):

20. [22]

    By the Motion, the Applicants seek the following orders (prayers 1 – 5):

21. [23]

    There are really two quite discrete aspects of LPL’s claims. The first can be encapsulated as the contention that Dr Peden exceeded her mandate (“the Mandate Point”). The second is that, in respect of the Guarantees, LPL is free to litigate in this Court the question of whether the guarantors are liable for the Top-up, even assuming it is a penalty (“the Guarantees Issue”). In this respect, LPL relies on cls 3.1(b)(i)-(ii) and cl 4.2(e) (see CB 348-349):

The Mandate Point

1. [24]

   The Applicants contend that this aspect of LPL’s claim should be struck out for the following reasons:

   1. (1)

      The dispute referred to Dr Peden included the issue of penalty – i.e. that issue fell within the words:

   2. (2)

      There was an agreement reached between LPL and Antegra that the dispute which would be referred to Dr Peden would be the dispute established through the POC and POD. This has been referred to as “the Pleadings Agreement”.

   3. (3)

      LPL is estopped from asserting that the dispute to be determined by Dr Peden did not include the penalty issue.

   4. (4)

      LPL asked Dr Peden to determine whether or not the penalty issue was part of the dispute, which she did, and LPL made submissions on this point. LPL cannot ask the expert to decide whether an issue is to be determined and then claim that it was not within her mandate when she decides that it is.

   5. (5)

      There was accord and satisfaction.

2. [25]

   The Applicants contend that there is no validity in LPL’s contentions, but assert that if there was a remedy available to LPL it would not be the determination by this Court of the penalty issue but, rather, a requirement that the expert determination procedures be recommenced. This is the confidential procedure to which LPL contracted, both in the Development Deed and the EDA.

3. [26]

   It was accepted by Mr Muddle that a party to an agreement containing a dispute resolution clause that precludes access to the Courts is not precluded from challenging a determination by an expert on the grounds that the expert has not embarked on the task given to him or her even if the contract containing the dispute resolution clause states that the expert’s determination is final: see Legal & General Life of Australia Ltd v A Hudson Pty Ltd (1985) 1 NSWLR 314 and Australian Vintage Pty Ltd v Belvino Investments No 2 Pty Ltd [2015] NSWCA 275; (2015) 90 NSWLR 367.

4. [27]

   Ms Whittaker contended that to strike out LPL’s Mandate Point claim the Applicants must satisfy the test in General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125, 129-130 per Barwick CJ, namely that they must demonstrate that the Plaintiff’s case is “so clearly untenable that it cannot possibly succeed”.

5. [28]

   In General Steel, Bathurst CJ accepted that argument “even of an extensive kind may be necessary to demonstrate that” this is so. At 129, Barwick CJ noted that the jurisdiction to terminate an action summarily should be used sparingly and he said of the many authorities cited:

6. [29]

   I think it is clear that at the time that the nature of the dispute was first articulated in the email to be sent to Dr Peden (CB 79-80) the words used were not intended to cover the issue of penalty because at that point in time it had not been raised by the Applicants. Had the Applicants raised penalty for the first time in written submissions, the question of whether that would have fallen within the dispute as defined seems to me to be a question on which minds might differ and I would not regard that argument as being one that should lead to summary dismissal of LPL’s case.

7. [30]

   The weakness of LPL’s position here, however, is that:

   1. (1)

      It asked for the dispute to be delineated by POC.

   2. (2)

      The Applicants agreed to do so if LPL agreed to serve POD.

   3. (3)

      LPL agreed to serve POD.

   4. (4)

      The Applicants by their POC articulated the penalty issue.

   5. (5)

      LPL by its POD responded to the penalty claim.

   6. (6)

      LPL signed the EDA at a time when it was fully cognisant of the penalty issue as part of the dispute to be referred.

   7. (7)

      The words of the EDA are wide enough to include the issue of penalty so delineated, i.e. “Lepcanfin’s entitlement to the increase in the facilitation fee”.

8. [31]

   In my view, it is clear that LPL’s proposal that the dispute be delineated by POC, and then by POC and POD, was accepted. The exchange amounted to an offer by LPL that the dispute to be determined by Dr Peden be delineated by POC, and to a counter offer by the Applicants that it be delineated by POC and POD – an offer that was accepted by the Applicants by email and put into effect. There was no requirement in the Deed that the Applicants (or LPL) utilise POC or POD so there was consideration for the offer and counter offer.

9. [32]

   The matter can also be viewed, alternatively, as follows – by the time that the EDA was entered into, LPL and the Applicants were aware that the penalty issue was a matter that would form part of the dispute to be referred. This was the matrix of facts known to both parties which assists in interpreting what was meant as at 10 April 2018 by the words set alongside the description of “brief description of subject matter of dispute”: see CB 100. The words in the EDA (the tripartite agreement between the Applicants, LPL and Dr Peden) - “and Lepcanfin’s entitlement to the increase in the facilitation fee” - are broad enough to cover the penalty issue that the parties had delineated by the exchange of POC and POD.

10. [33]

    The pleaded case is that Dr Peden exceeded her authority (although Dr Peden is not joined as a defendant to LPL’s claim, presumably because the dispute relates to whether, as between LPL and the Defendants, it was agreed that the issue of penalty would be determined) – and all of the material relevant to the question of whether Dr Peden had authority is found in the Court Book. The objective theory of contract requires attention not to what the parties or their agents thought or intended but what can be drawn from what they wrote, said or did and the matrix of facts known to both parties at the time: see Electricity Generation Corporation t/as Verve Energy v Woodside Energy Ltd (2014) 251 CLR 640, 656 at [35]; Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337, 350; Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451, 462. Ms Whittaker contended that the email of 21 June 2018 (CB 177) explained what was meant by the request for the POC. I do not think that email assists LPL’s case at all – it confirms by the words emphasised in [17] above that LPL was, through its agent, fully apprised of the issues before it signed the EDA, but in any event it was sent after the Pleadings Agreement was formed and after the agreement was signed, and does not establish a surrounding circumstance known to both parties at the time of entry into the Contract, i.e. either the Pleadings Agreement or the EDA: Birla Nifty Pty Ltd v International Mining Industry Underwriters Ltd [2014] WASCA 180 at [50] per McLure P, with whom Buss and Newnes JJA concurred. No relevant or potentially relevant material has been identified by LPL as undermining the conclusion that LPL and the Applicants agreed that the penalty issue would be one of the matters to be determined by the expert and that they intended Dr Peden to determine the penalty issue as at the date that they signed the EDA. LPL’s case is, in my view, obviously untenable and to permit LPL’s case on this issue to proceed, it seems to me, would manifestly involve “useless expense”.

11. [34]

    In the light of this conclusion, it is strictly unnecessary to consider the estoppel point (the Applicants assert an estoppel by representation and estoppel in pais), the accord and satisfaction point or the request by LPL for determination of whether the penalty issue was part of the dispute for resolution by the expert, but I will make a brief comment in relation to the accord and satisfaction point. LPL paid out the money maintaining its position that Dr Peden should not have determined the issue of penalty. If it was otherwise correct about the Mandate Point, my preliminary view is that it would be quite unfair to LPL to conclude that it lost the right to challenge the determination because of the manner in which the money was paid out and I am not persuaded that there should be summary judgment on that basis.

The Guarantees Issue

1. [35]

   The Applicants contend that LPL is precluded from advancing its case on the Guarantees in this Court because it has agreed that the issue which it seeks to litigate will be subject to the dispute resolution clauses in the Development Deed.

2. [36]

   LPL seeks a declaration that even if the Top-up is a penalty it is still recoverable from the guarantors – Lepcon, Antegra, AML, Lepdev, Berlyn and the Capitanis – either by reason of cl 3.1(i) and (ii) or cl 4.2 of the Development Deed.

3. [37]

   The Applicants contend that cl 9.2 of the Development Deed applies to the Guarantees Issue, because that is a dispute which “arises out of the Development Deed”.

4. [38]

   LPL contends that the dispute does not arise out of the Development Deed but, rather, is a discrete and separate matter arising out of the Guarantees which can be brought before the Courts notwithstanding the dispute resolution clauses in the Development Deed.

5. [39]

   In support of their contentions, the Applicants submit:

   1. (1)

      The term “arises out of” is of wide import.

   2. (2)

      The Guarantees are part of the Development Deed – they are a condition precedent to the obligations under the Development Deed – their form is mandated by the Development Deed.

   3. (3)

      The Top-up is a creation of the Development Deed. It can only come from the Development Deed.

   4. (4)

      The parties must be taken to have agreed that all disputes connected with the Guarantees would arise out of the agreement.

6. [40]

   The Applicants refer to what was said by Hammerschlag J in Dance with Mr D Ltd v Dirty Dancing Investments Pty Ltd [2009] NSWSC 332 at [52]:

7. [41]

   The Applicants also refer to Rinehart v Hancock Prospecting Pty Ltd [2019] HCA 13; (2019) 93 ALJR 582 (“Rinehart”), to which I refer below.

8. [42]

   In support of its contentions, LPL contends that:

   1. (1)

      Clause 9.2 uses the phrase “out of this agreement” not “out of the Project Documents”. “Project Documents” are defined in cl 17.1 of the Development Deed (at CB 23) as:

   2. (2)

      “Arises out of” is a phrase less comprehensive in its ambit than, for example, “arising out of or related to this agreement or the breach thereof” (see IBM Australia Ltd v National Distribution Services Ltd (1991) 22 NSWLR 466) or “which arises out of, relates to or is in connection with any aspect of….. this Agreement or the validity of this Agreement” (see Sweetpea Petroleum Pty Ltd v Paltar Petroleum Ltd [2018] NSWSC 1649).

   3. (3)

      The Guarantees contain no reference to dispute resolution in general, and do not preclude use of the Court to determine matters under the Guarantees.

   4. (4)

      That the Court has a wide discretion to stay proceedings even if the parties have agreed on arbitration or expert determination: see Dirty Dancing at [53].

9. [43]

   In Rinehart, two of Ms Gina Rinehart’s children were seeking to proceed against Ms Rinehart and companies she controlled (as well as assignees of various tenements) in the face of a clause that required any disputes that arose “under this deed to be referred to arbitration”. The applicants contended that their claim that their agreement to the deeds was procured by misconduct of their mother could proceed in the Federal Court against all respondents, which the trial judge held to be correct. The Full Court held that the proceedings as against Ms Rinehart and the companies that she controlled (all parties to the relevant deeds) had to be dealt with by arbitration but that the claims against the assignees could be heard by the Federal Court. The High Court held that all of the applicants’ claims had to be dealt with by arbitration (by a majority in relation to the assignees and unanimously in relation to the claims against the other parties).

10. [44]

    The plurality made reference at [23] to Rinehart v Welker [2012] NSWCA 95; (2012) 95 NSWLR 221 (“Welker”) in which the High Court said (at [23]) that Bathurst CJ had noted (at [125] of Welker) that the phrase “under this deed” has consistently been given a narrow meaning - a dispute is “under” a deed “if the outcome of the dispute is governed or controlled by” the deed. The High Court did not find it necessary to determine the correctness of that view: see [25] of Rinehart.

11. [45]

    The High Court in Rinehart (per Kiefel CJ, Gageler, Nettle and Gordon JJ, with whom Edelman J agreed) said at [44]:

12. [46]

    On the issue of the claims against assignees, Edelman J dissented, seeing the position of the assignees as similar to guarantors who are not party to a deed between the debtor and creditor that contains an arbitral clause. The majority regarded the analogy as “inapt”, adding (at [77]):

13. [47]

    The majority in Rinehart, having referred to what had been said by Brennan and Dawson JJ in Tanning Research Laboratories Inc v O’Brien (1990) 169 CLR 332, 342-343, said at [73]:

14. [48]

    Rinehart involved an arbitration clause not an expert determination clause and the words used here are “arise out of”, somewhat wider than “arise under”. It also involved a question of validity of the deeds. The High Court has made it clear in Rinehart that the commercial context and the parties’ desire for privacy and certainty, reflected in the arrangements for the orderly dispatch of issues, are to be taken into account in assessing whether arbitration has been contractually agreed by the parties for the determination of all disputes that might arise between them: Rinehart at [44], [48]-[49], [73]. The reasoning, I infer, ought to apply to expert determination in the same fashion. Unlike the assignees in Rinehart and the guarantors in Ex parte Young; In re Kitchin (1881) 17 Ch D 668 (to which the judgments in Rinehart refer), the guarantors in the present matter are parties to the agreement containing the clause requiring recourse to arbitration/expert determination.

15. [49]

    I think it is most unlikely that the parties to the Development Deed who are also parties to the Guarantees would have intended that the question of whether the Top-up is payable by Lepcon, say, by virtue of the Development Deed, would be determined by an expert but not whether it is payable by Lepcon as guarantor. There is no good reason to suppose that the other guarantors should be seen as being in a different position.

16. [50]

    I accept that there may be room for disagreement as to whether action can ever be taken on the Guarantees without recourse to expert determination, but what is under consideration here is whether the Guarantees Issue is a dispute which arises out of the Development Deed. As Bathurst CJ (with whom Young JA agreed) noted in Welker at [123], “under this deed” has been given a narrower construction than phrases such as “arising out of this deed”. Bathurst CJ cited what had been said by Lord Brandon (with whom the other of their Lordships agreed) in Samick Lines Co Ltd v Owners of the “Antonis P Lemos” [1985] AC 711, 727 that:

17. [51]

    Bathurst CJ also at [117] of Welker cited what had been said by Gleeson CJ in Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways Ltd (1996) 39 NSWLR 160, 165:

18. [52]

    In my view, the dispute does not have to arise wholly or solely out of the Development Deed. It is an issue arising out of or connected with the Development Deed whether an obligation imposed on Lepcon by the Development Deed (i.e. the Top-up) can be enforced against the guarantors (who are also parties to the Development Deed) even if the obligation is found to be a penalty, and I think, objectively, it is clear that the parties intended that disputes of this kind (like the dispute over penalty) would be referred to an expert with a legal background.

Discretion

1. [53]

   I turn to the issue of discretion. In Dirty Dancing, Hammerschlag J at [53] said:

2. [54]

   At [54] his Honour referred to three examples of situations where the justice of the case may require a stay to be refused, namely:

3. [55]

   If the issue in question here is referred to an expert, there will be no multiplicity of proceedings and the agreed procedures prescribed in the Development Deed are not unsuitable for determination of the Guarantees Issue.

4. [56]

   Two other factors taken into account as matters relevant to the exercise of discretion identified in LPL’s submissions (see 35(d)) are where the agreed alternative dispute resolution process would deal with only part of the dispute and where there is a wider public interest in the dispute being dealt with by the Courts. Neither of those considerations is pertinent here.

5. [57]

   Dealing with the question of expertise, the issue of whether a clause is a penalty is very much a matter of law and into which policy issues intrude. An argument as to whether even if a clause is void as a penalty between creditor and debtor it can be enforced against a guarantor is equally, if not more so, a question of law into which policy intrudes. This, it seems to me, is the strongest point in favour of LPL’s argument that the issue should be decided by a Court and not by an expert, but against that is the fact that the Development Deed clearly anticipates that the parties will appoint a legally qualified person for a “legal dispute”. That is precisely what they did on the issue of penalty, and that issue is obviously closely related to the present issue. LPL has the onus of establishing that the Court proceedings should continue and that onus has not, in my view, been discharged.

Conclusion

1. [58]

   It follows from the above that LPL’s claim on the Mandate Point should be dismissed and that the balance of the proceedings should be stayed.

2. [59]

   There remains potentially one matter which is that the Applicants contend in their written submissions that the Guarantees Issue should be referred to Dr Peden. Since the Applicants have, I was informed, issued new notices under the Development Deed in relation to the Guarantees Issue, and since it is clear that the Guarantees Issue was not previously before Dr Peden, I do not see a basis for forcing LPL to accept the appointment of Dr Peden on the Guarantees Issue. As LPL contended, the regime for expert determination requires consensus and there is a mechanism for agreement, failing which the President of the Law Society of NSW is to appoint an expert (cl 9.3(c)) (CB 55). It is open to LPL to propose a barrister (including Senior Counsel) as the expert for the determination of the Guarantees Issue.

3. [60]

   LPL should pay the Applicants’ costs of the Motion. The Applicants should prepare a proposed form of orders to reflect these conclusions.