Stokes v Greenup

By way of an Amended Statement of Claim filed on 27 May 2021, the plaintiffs seek:

As the parties agree that interest is no longer accruing, making any declaration is no longer of any utility. The plaintiffs are either entitled to a judgment for a specified sum or they must fail.

The defendants deny that any amount is payable and dispute the construction of the deed proposed by the plaintiffs.

This case is the culmination of a property development proposed and initially undertaken by the parties which did not end successfully for them.

During the course of the parties’ involvement in the project, the plaintiffs contributed a significantly higher sum towards the ongoing costs than the defendants.

The parties agreed that, in recognition of this disparity of contribution, the defendants would pay interest on the difference between the contributions. The deed was intended to reflect that agreement.

Whilst the defendants made some payments in accordance with the deed, they contend that, given the events which have occurred, they have no obligation to make any further payments.

The hearing proceeded over 2 days on 20 and 21 July 2021. Joshua Knackstredt of Counsel appeared for the plaintiffs and Paul Bolster of Counsel appeared for the defendants. Both parties provided helpful oral and written submissions.

There was an issue as to the admissibility of some of the documentary evidence and the commentary in the affidavits. As the admissibility of certain parts of the evidence might depend upon the findings as to ambiguity or issues arising in respect of the construction of the deed, the parties agreed that I should deal with the evidence and the objections to the evidence as part of this judgment.

I will not refer further to the relationship between the first plaintiff and the second plaintiff or the first, second and third defendants as the parties agree that it is not necessary to distinguish between each plaintiff and each defendant for the purposes of the issues in the proceedings. I will thus use the terms “plaintiff” and “defendant” with reference to Mr Stokes and Mr Greenup respectively.

The plaintiff and the defendant were principals in corporate entities/trusts through which they invested in a corporate joint venture vehicle, known as Brighton Toronto Pty Ltd (“BT”) as trustee for the Brighton Toronto Trust (“BTT”) for the purposes of a property development at Cameron Park in Newcastle (“the project”).

The plaintiff and the defendant became acquainted through their mutual involvement with a development company. The plaintiff has extensive history as an educator and as a businessman. The defendant is a builder and developer.

In 2007, the plaintiff and the defendant agreed to pursue a development at Cameron Park. The defendant was an equal shareholder in BT and an equal unitholder in BTT with Mr Anthony Wharton. According to the defendant, Mr Wharton wished to end his association with the two entities which gave rise to an opportunity for the plaintiff to become involved. The plaintiff acquired 50% of the shares in BT and 50% of the units of BTT.

The parties agreed that BT would act as the trustee of BTT and that the entities would undertake development of the site and that they would each contribute 50% of the equity loan funds required for the development.

In late 2007 or early 2008, the parties agreed to purchase the lot adjacent to the existing parcel of land which was going to be developed. BT obtained a loan in the amount of approximately $700,000 to purchase the land which was secured by way of a mortgage over the property as well as director guarantees from the plaintiff and the defendant.

In 2011, the parties entered into an agreement that all monies contributed by the plaintiff over and above the monies contributed to by the defendant would attract interest of 15% per annum from the date of contribution.

The parties entered into an equity loan and subscription agreement with an entity known as the Lime Group in 2011. The effect of the agreement was that the Lime Group would contribute loan capital totalling $1,350,000 which consisted of $350,000 for part repayment of the existing bank loan with the remainder to be released once BT received a development loan.

The parties were unable to arrange a development loan and, as a result, the Lime Group withdrew from the agreement. Throughout 2007 to 2017, the parties incurred costs related to the development. These included loans, interest repayments and penalties which were applied by the bank because BT was forced to request several loan repayment extensions. The plaintiff says that by the end of the 2012 financial year, he had loaned a total of $1,395,854.

In 2013, the plaintiff arranged a further loan of $920,000 from his cousin on behalf of BT. These funds were used to pay out the remaining bank loan balance.

The plaintiff says that by the end of the 2015 financial year, the total loan balance contributed by him was $2,019,778.

After several unsuccessful attempts to finance the project, the parties were put into contact with a number of investors who were collectively known as the “Wagga Group” in early 2017.

Throughout the first half of 2017, the parties negotiated with the Wagga Group. The final agreement between BT and the Wagga Group consisted of the following:

The plaintiff and the defendant issued shares in BT and units in BTT to the Wagga Group equivalent to 50% of the total shares and units.

The $2,430,000 received as consideration for that transfer was distributed as follows:

Throughout 2017 and 2018 problems emerged with the development which the plaintiff says culminated in a meeting in January 2018 where the defendant and members of the Wagga Group held a meeting and resolved to remove the plaintiff from his role and responsibilities with the development.

Subsequent to the plaintiff withdrawing from any active role in the project, the plaintiff and the defendant entered into the deed which is the subject of these proceedings.

As is plain from the terms of the deed, the parties intended that the deed would govern their rights and obligations in respect of the interest payable to the plaintiff on the excess contributions of the plaintiff. The earlier agreement in respect of interest ceased to have any effect.

On 5 March 2019, the plaintiff resigned as a director of BT.

On 3 June 2019, a shareholders meeting was held. At that meeting, it was decided that the Wagga Group would buy out the interest of the plaintiff and the defendant in the development.

In late June or early July 2019, the plaintiff entered into an agreement with the Wagga Group pursuant to which:

The defendant also agreed to sell his shares and units to the Wagga Group and their entities. Further, a deed of release was entered into between BT and the defendant’s building company, Able, which dealt with the amounts to be paid by Able to BT for commissions on sale of properties in the project.

Unlike the plaintiff, the defendant was able secure the upfront repayment of his equity loan of $452,000 as part of the agreement to transfer his shares and units to the Wagga Group.

According to the plaintiff, he did not know (at least initially) that the defendant had also entered into an agreement with the Wagga Group to sell his shares and units.

On becoming aware of the details of the defendant’s agreement, the plaintiff unsuccessfully attempted to re-negotiate with the Wagga Group for his equity loan to be repaid but, according to the plaintiff, he was told that there were no funds left to repay his loan after the defendant’s loan had been repaid.

So although the Wagga Group paid the amount of the defendant’s outstanding loan balance to the defendant on the transfer of the defendant’s shares, it only agreed to pay the plaintiff’s loan balance at the end of the project.

The principal sum owing to the plaintiff under the loan agreement was ultimately paid by BT as anticipated by the plaintiff’s agreement with the Wagga group.

This case relates only to the outstanding amount said by the plaintiff to be owing by the defendant under the terms of the deed.

The plaintiff says that the defendant has made payments in the amount of $129,914. There is some disagreement between the parties as to how much interest is owing. The plaintiff says that $844,724 is the correct figure and the defendant’s position is that the outstanding amount is $822,103. The significance of this dispute may depend on my findings in this judgment.

Although the plaintiff and the defendant each had a separate sale agreement to sell their interests to the Wagga Group, these agreements were interdependent as the agreements had a clause to the effect that should either agreement not be completed for any reason, then the Wagga Group could not be called upon to complete the agreements.

It follows that if either the plaintiff or the defendant did not proceed with the sale of their shares and units to the Wagga Group, the Wagga Group would not proceed with the purchase of the other person’s shares and units.

Throughout February 2018, the parties exchanged emails negotiating the amount of interest that was payable to the plaintiff. These negotiations culminated in the deed which was dated 6 March 2018.

The recitals to the deed were as follows:

The deed imposed an obligation on the defendant to accrue and pay interest on the loans contributed by the plaintiff over and above the loans contributed by the defendant, which was to be calculated using loan balances contained in a balance sheet at the end of each financial year. The interest to be paid was the amount calculated in a spreadsheet which was attached as schedule 1 to the deed and was to be “updated from time to time until the Greenup and Stokes loans have been repaid.”

The deed contained a clause as to payment of interest:

The deed contained a clause to the effect that the agreement was the final one between the parties and superseded all other agreements and arrangements relating to the defendant’s obligation to accrue and pay interest to the plaintiff.

The deed contained the following provisions in the event of a default:

There is a dispute as to the proper construction of the deed and as to whether further terms should be implied into the deed.

The plaintiff read four affidavits dated 5 January, 23 March, 1 July and 16 July 2021. The defendant read two affidavits dated 1 March and 19 April 2021.

Both the plaintiff and the defendant were cross-examined. The effect of the cross-examination of the plaintiff was an acknowledgment that:

The effect of the cross-examination of the defendant was an acknowledgment that:

In the end, I gained the impression that the point of cross-examination of both the plaintiff and the defendant was merely to:

The extent to which any of this evidence could be treated as anything other than background remained in issue. It might depend upon the extent to which I accept the plaintiff’s submissions that evidence of surrounding circumstances or post-contractual conduct should be admitted having regard to the suggested ambiguity in the deed.

The primary contention of the plaintiff is that clause 1 of the deed imposes an obligation on the defendant to pay interest on the difference between the contributions of the plaintiff and the defendant to the project financing. That obligation remains until all of the interest, calculated in accordance with the other terms of the deed, has been paid.

On the plaintiff’s case, clause 3.2 does not limit the primary obligation to pay interest arising under clause 1. It merely sets out some non-exhaustive circumstances in which payments must be made.

In those circumstances, the plaintiff submits that it is necessary to imply a term into the deed that the payment of interest as required by clause 1 would be made within a reasonable time. It is necessary to imply the term because on the plaintiff’s case there are no dates for payment of interest. Where no time for performance of any contractual obligation is specified, the law would imply a term that performance must be effected within a reasonable time: Donau Pty Ltd v ASC AWD Shipbuilder Pty Ltd. [1]

Alternatively, there should be a term implied into clause 3.2 to the effect that if the defendant sold his interest in BT and BTT prior to the full amount under the deed being paid, the obligation to pay that full amount would be immediately payable in whole at the time of the sale of the shares and units.

The plaintiff’s case is thus dependent upon the implication of terms into the deed so as to give effect to the objective intention of the parties and so as not to render the deed “a solemn farce”, that is, meaningless.

The defendant says that the deed must be read as a whole. Whilst clause 1 specifies the principal obligation to pay interest (consistent with the plaintiff’s approach), clause 3.2 identifies the means by which and when the net interest must be paid. Indeed, clause 3.2 provides the only means by which the plaintiff has an entitlement to be paid.

There has been no failure to pay the net interest with reference to the three events set out in clause 3.2 and thus there is no obligation on the defendant to pay interest.

As the deed contains a provision for when and how performance is to occur (clause 3.2) then there is no basis on which the terms sought by the plaintiff would be implied. Further, such implied terms would be inconsistent with the express terms of the agreement.

Further, there is a provision which sets out the rights and obligations of the parties in the event of default by the defendant.

Finally, the defendant relies on a waiver and estoppel argument. The defendant submits that the plaintiff was aware that the defendant was selling his shares and units and is taken to have consented to the sale of the shares and units and waived any assertion of breach and is estopped from asserting that the sale was an event of default.

The task of identifying the meaning of terms in a deed involves identifying the intention of the parties on an objective basis by reference to the text, construed in light of its context and purpose. [2]

Evidence of the subjective intentions of the parties is not relevant. In Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [3] the High Court said:

As is often said, the starting and ending point for the construction of a document is the language chosen by the parties to record their bargain. [4]

The Court must give effect to the language used by the parties unless to do so would give the contract an absurd operation. [5]

As Bathurst CJ observed in McGrath v Sturesteps; Sturesteps v HIH Overseas Holdings Ltd (in liq): [6]

In the end, both parties accepted that the proper approach to the construction of the deed would be as I have just outlined.

However the parties differed on the extent to which I should have regard to extrinsic evidence, being evidence relating to the surrounding circumstances, pre-contractual negotiations and post-agreement conduct.

On the defendant’s case, there is no scope for having regard to such material in construing the deed. The plaintiff says that, if I find ambiguity in the deed, evidence of the pre-contractual negotiations would be admissible as would evidence of alleged post-deed admissions.

It is appropriate that I say something about that issue at the outset.

As far back as 2011 the parties agreed that the defendant would pay interest to the plaintiff on the plaintiff’s additional contributions to the project.

However, events moved on and the plaintiff sought to evidence the defendant’s agreement to pay him interest, particularly once he had ceased to be actively involved in the project.

On 1 February 2018 the plaintiff wrote to the defendant referring to his earlier email confirming cessation of any role and responsibility in respect of the project stating:

The defendant did not respond immediately but responded on 5 February 2018 seeking further information about the quantum of the interest owed. After further exchanges, the defendant wrote to the plaintiff on 7 February 2018 at 9.27am stating:

Thereafter there were further email exchanges as to the rate of interest which should be applied but no further statements or comments about the suggestion that the defendant would be paying interest on the excess contributions.

On 28 June 2019 the plaintiff wrote to the defendant suggesting that he had just become aware that the defendant was receiving an immediate negotiated settlement for his shares and units and equity loan together with payment of commissions for sales up to and including May 2019.

The plaintiff noted that he would not be receiving payment of his equity loan for possibly two years, if at all. He sought confirmation from the defendant as to the amount that the defendant would be receiving and paying to the plaintiff stating that “otherwise I may have to reconsider whether or not to proceed with my arrangement to sell my shares and units.”

The defendant wrote back seeking to clarify some matters, though acknowledging that he would be receiving the loan repayment at that time but referring to his expectation that he would receive some payments from settlements which would enable him to make payments under the deed. He stated:

The plaintiff responded asking “Are you saying that Geoff is incorrect and that you are not intending to pay me any part of the Equity Loan monies that you will be receiving now?”.

The defendant responded stating his view that “I am saying that I am in full compliance with our agreement which clearly states that I MUST pay you 50% of all commissions received as and when I get them.”

There followed a further email from the plaintiff again seeking to clarify whether the defendant would be paying commissions irrespective of whether the money was received personally by the defendant or his company, Able Builders Pty Ltd, and drawing the defendant’s attention to clause 5 of the agreement (relating to default events), in particular noting that if the defendant sought to transfer or sell any of his shares or units, that would trigger a compulsory, immediate assignment of the defendant’s shares and units to the plaintiff.

The defendant responded immediately stating that he fully intended to pay the plaintiff 50% of all commissions that he received regardless of to whom they were paid stating “You will get 50% of all comms”.

On 1 July 2019 at 11.58am the defendant wrote to the plaintiff (obviously following a conversation) in the following terms:

On the same day the defendant sent two further emails to the plaintiff. The plaintiff submits that the email of 2.19pm is particularly significant:

The plaintiff submits that in these emails the defendant said that he would pay the interest via commissions but any remaining amounts would be coming from a different project, being the Tuncurry project. This email was in response to the plaintiff’s email of 2.05pm on 1 July 2019 stating “I need your commitment to pay this balance from sources other than from the project profits and DMF fees. I need this commitment in these words in an email from you before I go back to Geoff with the go ahead and we only have a couple of hours before the deadline.”

The plaintiff says that the defendant’s statement that he would pay the interest from another source is an admission by the defendant that he was required under the deed to pay all of the interest irrespective of how much he received from the three sources set out in clause 3.2. He refers to being bound by the agreement and then confirms that he will pay the total amount of interest from sources other than those referred to in the deed.

On 14 July 2019 the plaintiff wrote to the defendant setting out his view as to the ongoing obligations of the defendant, referring to the breach by the defendant of the deed in that he divested himself of his shares and units; and suggesting that he had a clear and continuing obligation to pay interest as specified in schedule 1 to the deed and that this obligation continued regardless of the source of payment.

On 18 July 2019 the defendant responded:

There followed a number of emails from the plaintiff to the defendant seeking further confirmation from the defendant that he would paying all of the interest. The defendant did respond by email, making some further payments on receipt of commissions and ultimately responded saying that he would be seeking legal advice on the plaintiff’s views as to the obligations under the deed. It does not seem to me that this latter correspondence takes the matter any further.

It is the defendant’s statement that he would be paying all of the interest, not just from the receipt of the moneys referred to in clause 3.2 but from other sources, that the plaintiff relies on as some form of post-agreement admission consistent with the plaintiff’s construction of the deed. That is, the defendant has admitted that under the terms of the deed he is obliged to pay all of the net interest, irrespective of whether he receives sufficient funds from the sources specified in clause 3.2 to do so. The obligation to pay remains until the full amount of the net interest is paid.

The defendant objects to the admissibility of the emails to which I have just referred and says that:

Plainly, in cases such as this, there will be a substantial body of material which may be admitted on the basis that it is relevant to background. In any case, it is important that the Court understands the background to the commercial arrangement, at least so that the Court might form a view on an objective basis as to the purpose of the agreement and the context in which the parties decided to bind themselves to such an arrangement.

Much of the material provided by the parties and admitted into evidence really falls into a category of evidence which might be described as uncontested background. Indeed, the affidavit evidence and the oral evidence adduced under cross-examination merely clarified the background material. It does not seem to me that any of the oral evidence adduced by the parties could be described as evidence of subjective intention (which would not be admissible for the purposes of construing the deed).

In International Air Transport Association v Ansett Australia Holdings Limited [7] Gleeson CJ observed:

Like the agreement referred to by the Chief Justice in that case, this deed has a history and the history leading up to the entry into the deed is admissible as part of the context in which the deed takes its meaning.

It is not necessary that a party demonstrate ambiguity in the deed so as to render evidence of the history of events leading up to the entry into the deed relevant and admissible.

However, that does not necessarily mean that evidence of pre-contractual negotiations is admissible.

In Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [8] Mason J observed:

In Angas Securities Ltd v Small Business Consortium Lloyds Consortium No. 9056 [9] Sackville AJA observed:

Evidence of surrounding circumstances is of assistance in construing the document. However, evidence of surrounding circumstances could not be used to give the deed a meaning contrary to the ordinary plain meaning of the words merely because the Court may consider the result is in some way unjust.

Just like in Codelfa and other cases such as Angas Securities I consider that the emails between the parties leading into the entry into the deed are admissible as part of the background and context in which the terms of the deed were agreed.

In Cherry v Steele-Park [10] Leeming JA observed that ambiguity is a conclusion rather than a pre-condition to the admissibility of evidence of surrounding circumstances.

In my view, irrespective of any finding as to ambiguity in the text of the deed, I can have regard to those emails as part of the consideration of context and for the purposes of discerning the objective intention of the parties.

Having said that, to the extent that there are statements made by either party as to the parties’ subjective belief, intention or understanding as to what the effect of the deed might be, I would not have regard to that evidence.

As such, the documents constituting the pre-contractual negotiations are admissible but there is a limit on their use. They cannot be used for the purposes of establishing or considering the parties’ understanding, belief or subjective intention as to what the text of the deed means or what the effect of the agreement that they entered into should be.

The post-deed emails may be in a different category.

In County Securities Pty Ltd v Challenger Group Holdings Pty Ltd & Anor [11] McColl JA stated:

In this matter there is no dispute that the deed was entered into. The question is whether these post-deed communications can be admitted as evidence aiding the construction of the deed, that is, leading to a construction of the deed in a way that compels the defendant to pay the total net interest within a reasonable time, irrespective of the receipt of funds from the sources specified in clause 3.2.

I do not consider that they can be. Indeed, I accept the defendant’s contentions on the admissibility of these post-agreement communications.

Firstly, as was observed by Campbell JA in Lym International Pty Ltd v Marcolongo [12] there is a difference between the task that is involved in interpreting a wholly written contract and the task involved in finding what has been agreed in a contract that is not wholly in writing.

When the contract is wholly in writing, the admissibility of evidence is decided by reference to whether it is able to assist in ascertaining the meaning that the bystander who knows all the relevant surrounding circumstances would understand from the parties using those words.

Although post-contractual statements could be relevant in ascertaining what the parties have actually agreed, for example, the identity of the parties or whether the document contains all of the terms, it is not admissible as an aid to construing the express terms of the deed.

Describing the statements of the defendant as set out in the emails to which I have referred as admissions does not take the issue any further.

This agreement is not partly in writing and partly oral. Further, the plaintiff does not suggest that it is necessary to have regard to these post-agreement communications for the purposes of determining whether any terms should be implied into the agreement.

In any event, it does not seem to me that any of the emails from the defendant contain admissions of the type for which the plaintiff contends.

In a different case or in a claim for a different type of relief, the plaintiff might have relied on the content of the emails as some form of representation but there is no statement by the defendant in any post-agreement communication in clear terms that he was obliged to pay all of the interest including from sources not referred to in the deed.

The fact that he said that he would be doing so does not constitute an admission that he was obliged under the terms of the deed to do so. As McColl JA observed in County Securities at [162] care must be taken in identifying the facts said to be admitted.

I do not accept that any of the post-deed communications can be interpreted as an admission of the type relied on by the plaintiff. A statement that a person would pay an amount is not an admission that he was obliged under the terms of an agreement to pay that amount. Further, whilst the defendant consistently stated that he would comply with the agreement, what compliance means is obviously in issue. I would not have regard to post-deed statements by the parties as to what the deed required the defendant to do.

In the circumstances, whilst those post-deed emails may be admissible for the purposes of establishing when and in what circumstances interest payments were actually made, I would limit their use and not have regard to them as an aid to construing the deed. I would not admit them as to any admission.

I have regard to the pre-contractual communications between the parties as evidence of the surrounding circumstances known to both parties at the time of entry into the deed. I similarly have regard to the recitals of the deed as evidencing the context and circumstances in which the parties entered into the deed and as establishing the objective intention of the parties.

Recitals in a deed are generally not part of the operative part of the deed. However, they form part of the deed and may be considered when construing the deed as a whole and in context. In my view, the recitals provide a summary of the background to the entry into the deed. Indeed, the evidence of surrounding circumstances on which the plaintiff seeks to rely adds little to the context provided by the recitals.

Plainly the intent of the parties, assessed objectively, was that the deed would reflect their agreement being an agreement that the defendant pay interest to the plaintiff calculated in accordance with an agreed rate (clause 2.1) and accruing commencing on 30 June 2007 and finishing when the total of the loans from both the plaintiff and the defendant had been repaid.

The total of loans from both the plaintiff and the defendant has been repaid. Interest has thus ceased to accrue.

As set out in clause 3.1, the amount which the defendant was obliged to pay was the net interest calculated and specified in the schedule 1 spreadsheet. It must have been the intention of the parties that the defendant would pay all of the interest calculated in accordance with clause 2.

Clause 3.2 commences “The ‘Net Interest’ will be paid as follows”. Neither party suggests that there is any ambiguity in the meaning of clause 3.2. It is a clause purporting to set out when the net interest will be paid. That is, the defendant will pay 50% of the sales commissions he receives as and when he receives the commissions. Thereafter, he will pay the balance (that is, any amount still outstanding after payment in accordance with clause 3.2(a)) from the net profits from the development and sale of the leaseholds of the units as and when he received the net profits money.

If the defendant’s 25% share of net profits is not sufficient to pay the balance of the net interest then the defendant will pay the remaining balance from his 25% share of deferred management fees as and when he receives them.

In my view, the parties intended to specify when the interest would be payable through clause 3. It would be payable as and when the plaintiff received the amounts referred to in clause 3.2(a) and, if that was not sufficient 3.2(b) and, if that was not sufficient 3.2(c).

I do not accept the plaintiff’s contention that the deed does not contain a term specifying the time for payment. The time for payment is specified as when the amounts referred to in clause 3.2 are received by the defendant.

It is apparent that the parties did not contemplate that there would be insufficient funds from the sources identified in clause 3.2 to pay the full amount of interest. Indeed, there is no evidence that there would not have been if the defendant had not sold his shares and units.

There is no ambiguity in clauses 1, 2 and 3. Clause 1 sets out the obligation to pay. Clause 2 sets out the rate at which interest will be calculated and clause 3 sets out when the interest must be paid.

The problem which leads to these proceedings is that the defendant sold his shares and units before he received sufficient funds to pay all the interest calculated in accordance with clause 2.

The plaintiff submits that, as the parties did not contemplate this, there is now no clause specifying the time for payment.

In reality what is in dispute is not what the terms of the deed mean but whether the deed is missing a term or terms. As was observed by Mason J in Codelfa, the question of implication raises an issue as to the meaning and effect of the agreement. Having said that, the question of whether a term should be implied is not really one of interpretation of the existing terms.

By implying a term, the Court is seeking to give effect to the presumed intention of the parties. It is not necessary that there be any ambiguity in the document. It is just that it is necessary to imply a term to give effect to the intention of the parties objectively assessed.

In BP Refinery (Westernport) Pty Limited v President, Councillors and Ratepayers of the Shire of Hastings [13] the Privy Council identified five conditions for the implication of a term in fact as follows:

The plaintiff submits that all of the five conditions are satisfied for both of the terms he seeks.

It is well established that, if the time for performance of contractual obligations has not been specified, a term will be implied that the obligation is to be performed within a reasonable time. [14]

What constitutes a reasonable time is a question of fact which must be determined by what is fair to both parties at the time of the exercise of the right. [15]

It is not necessary to specify what is a reasonable time in the circumstances of this matter. The defendant does not dispute that, if a term of the type sought by the plaintiff is implied into the contract, that time has long since passed. The issue is whether a term should be implied at all.

In my view, it is not permissible to imply a term specifying when payment is to be made, that is, within a reasonable time, for the following reasons.

Firstly, the implication of such a term is not necessary to give business efficacy to the agreement. There is already a clause specifying when payment of interest must be made, being when the events set out in clause 3.2 happen. Further, there is a default clause by which the parties identified events of default and what would happen in the event of a default. The agreement is not thus rendered ineffective or frustrated by the absence of a term requiring payment within a reasonable time.

Further, the implication of such a term would create an inconsistency with clause 3. [16]

This is because there is nothing in clause 3 which would require the defendant to pay the interest even if, for example, the delay in receiving profits or deferred management fees was extensive or unreasonable. The implication of a term requiring payment within a reasonable time may be inconsistent with the intention of the parties that the defendant need only pay the interest on receipt of funds from the sources set out in clause 3.2, whenever that might be.

In the circumstances, I do not accept the plaintiff’s contention that the conditions for implication of a term that payment must be made within a reasonable time are satisfied.

In my view, they are not.

The alternative term sought by the plaintiff is a term requiring the defendant to pay all of the interest calculated in accordance with clause 2 on sale by the defendant of his shares and units in the project. The defendant did not pay all of the interest owing when he sold his shares and units.

The implication of such a term may have some attraction in the sense that it would enable the plaintiff to be paid in full and reflect what might have been the expectation of the parties that the plaintiff would be paid in full. It might be viewed as unfair that the defendant did not pay the full amount of interest to the plaintiff, particularly having regard to the background to the deed and the fact that, despite the original intention of the parties many years earlier, the plaintiff had contributed a significantly higher sum than the defendant.

However, whilst the Court might strive to avoid a result which might seem unfair to a particular party, the parties are bound by their agreement and it is not the function of the Court to rewrite the agreement.

The essential problem with the plaintiff’s case is that the deed contains clauses that specify:

Despite this, the plaintiff seeks a judgment based on implied terms.

The implication of such a term is not necessary to give business efficacy to the deed. This is because the parties must be taken to have contemplated the very risk which came home, being the risk that the defendant might attempt to sell his shares.

The parties included a default clause and specified events of default. One default event was an attempt by the defendant to transfer or sell his shares and units. The parties then agreed on what would happen if there was an event of default, intending that the plaintiff would obtain the benefit of the defendant’s shares. The plaintiff was entitled to register a charge to protect his interest in the defendant’s shares.

The intent of the parties was that the defendant would not be able to simply sell all of his shares and units to defeat the principal obligation under the deed. He would have to assign a proportion of his shares to the plaintiff, presumably to ensure that there were sufficient funds from the sources set out in clause 3.2 to enable full payment to be made to the plaintiff.

In these proceedings, the plaintiff does not seek to enforce clause 5. Nor did he seek to enforce clause 5 when he became aware that the defendant would be selling his shares.

In my view, the parties contemplated what would happen if the defendant attempted to sell his shares and included a term in the deed setting out the rights and obligations of the parties should that event occur. It is thus not necessary to imply another term into the deed to specify what would happen if the defendant sold his shares. The parties have already included a term as to what would happen if the defendant attempted to do so.

The deed must be construed as a whole and in context. Obviously, the defendant could pay the net interest before receiving the amounts specified in clause 3.2 if he chose to but he was only obliged to pay the net interest as and when he received the amounts referred to in clause 3.2. This is what they agreed. The only reason he might not receive amounts from the development sufficient to pay the net interest payable under the deed would be if something happened which the parties agreed to describe as events of default.

The implied term sought by the plaintiff is in reality another form of default clause. That is, if the defendant sold his shares he must pay the full amount of interest immediately.

Having regard to the existing default clause, such a clause is neither necessary nor obvious. This is because the parties agreed on what would happen should events occur that would have the potential to frustrate the intent of the parties. Their intention was that the defendant would pay the interest from the sources specified in clause 3.2.

In my view, clause 5.1 provides a mechanism for the protection of the plaintiff’s rights and interests under the agreement should the defendant act in default of the agreement or if any of the five default events occurred. This is important as the deed is not silent either as to when interest should be paid and what would happen if interest was not paid in accordance with clause 3.2.

In my view the conditions for implication of a term as set out in BP are not satisfied.

In the circumstances, I am not satisfied that either of the terms sought by the plaintiff should be implied into the deed.

This may be unfortunate for the plaintiff. He may view it as unfair but the parties included terms in the deed both as to when the interest would be payable and what would happen if the defendant did certain things which might frustrate or defeat the obligations arising under the deed. I do not consider that a term should be implied which would be inconsistent with that which the parties agreed in the first place.

My findings as to the construction of the deed means that the dispute between the parties as to quantum does not need to be resolved. However, for completeness, I will deal with that issue.

It is agreed between the parties that the defendant’s loan was repaid on 2 July 2019. However, the financial statement for BTT for the financial year ending 30 June 2019 shows that there was no loan owing to the defendant. The defendant submits that because the payment was received in the next financial year, his loan balance should still be displayed in the trust’s balance sheet.

The plaintiff’s position is that clause 1.1 of the deed holds that the interest is to be calculated using the loan balances in the balance sheet of BTT at the end of each financial year. As the balance sheet shows that the loan had been repaid, the correct construction of the deed means that the interest has to be calculated based on the balance sheet. I prefer the plaintiff’s contention. Therefore, had the plaintiff been successful I would have entered a judgment for him in the sum of $844,724.

The defendant also raises waiver and estoppel. Having regard to the plaintiff’s case, I am not sure how such defences could run. The plaintiff is not now seeking to enforce clause 5 or seek damages based on a failure of the defendant to transfer the relevant portion of his shares to him. The plaintiff’s case is based on implied terms. If the circumstances exist which permit the implication of the terms, it is difficult to understand how the plaintiff could be estopped from seeking them. In any event it is not necessary to consider these issues further.

The plaintiff’s claim fails and I enter a judgment for the defendant.

I order the plaintiff to pay the defendant’s costs.