FEDERAL COURT OF AUSTRALIA

Promoseven Pty Ltd v Markey, in the matter of Bluechip Development Corporation (Cairns) Pty Ltd (in liquidation) (Receivers and Managers Appointed) [2013] FCA 1281

THE COURT ORDERS THAT:

1.    The applicant’s appeal against the first respondents’ decision of 27 March 2013 is dismissed.

2.    The applicant is to pay the first respondents’ costs of and incidental to the appeal to be taxed.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

INTRODUCTION

1        Promoseven Pty Ltd (Promoseven) has appealed under s 1321 of the Corporations Act 2001 (Cth) (Corporations Act) and Reg. 14.4 of the Federal Court (Corporations) Rules 2000 (Cth) against a decision of the Court appointed receivers and liquidators of Bluechip Development Corporation Cairns Pty Ltd (Bluechip) to reject, in part, its proof of debt. Section 1321 of the Corporations Act relevantly provides:

1321    Appeals from decisions of receivers, liquidators etc.

(1)    A person aggrieved by any act, omission or decision of:

(a)    a person administering a compromise, arrangement or scheme referred to in Part 5.1; or

(b)    a receiver, or a receiver and manager, of property of a corporation; or

(c)    an administrator of a company; or

(ca)    an administrator of a deed of company arrangement executed by a company; or

(d)    a liquidator or provisional liquidator of a company;

may appeal to the Court in respect of the act, omission or decision and the Court may confirm, reverse or modify the act or decision, or remedy the omission, as the case may be, and make such orders and give such directions as it thinks fit.

2        The present proceeding (QUD230/2013) is one of three related proceedings currently filed in the Federal Court of Australia (see also: QUD172/2011 and QUD227/2013) stemming from the corporate collapse of Bluechip. These reasons for judgment should be read with two earlier interlocutory decisions in those proceedings: Refund Property Fees Pty Ltd v Prime Project Development (Cairns) Pty Ltd [2011] FCA 851 (21 July 2011) (Refund Property Fees v Prime Project) and Refund Property Fees Pty Ltd v Prime Project Development (Cairns) Pty Ltd (No 2) [2011] FCA 1414 (23 November 2011). Bluechip was wound up in the Supreme Court of Queensland on 9 December 2011, see: Re Bluechip Development Corporation (Cairns) Pty Ltd [2011] QSC 368. Regard to that judgment supplies the wider corporate insolvency context in which the present application has arisen.

3        The grounds of appeal are considered in further detail below. It is first desirable to set out the background to the present dispute.

FACTUAL AND PROCEDURAL BACKGROUND

4        The background which I set out in Refund Property Fees v Prime Project at paras [8]-[28] remains relevant. On 2 February 2012, I made orders appointing receivers and liquidators to Bluechip in the primary insolvency proceedings on foot, QUD172/2011. Those orders were as follows:

UPON the undertaking of Refund Property Fees Pty Ltd, Promoseven Pty Ltd and Prime Project Development (Cairns) Pty Ltd given by their respective Counsel that they will not challenge, contest, allege or assert that Nigel Robert Markey and Bradley Vincent Hellen are in a position of conflict or potential conflict by reason of their appointment as both liquidators and receivers and managers of Bluechip Development Corporation (Cairns) Pty Ltd ACN 117 021 566 (In Liquidation).

THE COURT ORDERS BY CONSENT THAT:

1.    The liquidators, NIGEL ROBERT MARKEY and BRADLEY VINCENT HELLEN be appointed Receivers and Managers of Bluechip Development Corporation (Cairns) Pty Ltd ACN 117 021 566 (In Liquidation) pursuant to Mortgage No 712190107 without prejudice to their rights as liquidators to investigate the validity of Mortgage No 712190107.

2.    That NIGEL ROBERT MARKEY and BRADLEY VINCENT HELLEN keep separate accounts of the liquidation and receivership respectively to ensure that the secured creditors do not pay for the costs of the liquidation.

3.    The liquidators, NIGEL ROBERT MARKEY and BRADLEY VINCENT HELLEN are directed pursuant to section 553(1) of the Corporations Act 2001 to require that all debts secured by Mortgage No 712190107 be proved formally.

4.    The liquidators, NIGEL ROBERT MARKEY and BRADLEY VINCENT HELLEN are directed to fix a day (being not less than 60 days and not more than 90 days) on or before which debts secured by Mortgage No 712190107 be proved formally within 21 days of this Order by notice in writing (“the Notice”).

5.    The liquidators, NIGEL ROBERT MARKEY and BRADLEY VINCENT HELLEN are relieved of the requirement to advertise the notice pursuant to regulation 5.6.48(2) of the Corporations Regulations 2001 provided that the notice is served upon:

(a)    Refund Property Fees Pty Ltd at 16 Joint Street, Hamilton and at c/- Irish Bentley, 39 Leopard Street, Kangaroo Point;

(b)    Promoseven Pty Ltd at c/- Courtice Neilson, Level 1, 180 Main Street, Kangaroo Point;

(c)    Prime Project Development (Cairns) Pty Ltd at Unit 1, 75 Longland Street, Newstead and at c/- Hemming & Hart, Level 5, 307 Queen Street, Brisbane.

6.    The liquidators NIGEL ROBERT MARKEY and BRADLEY VINCENT HELLEN are at liberty to disclose to and request and receive information and advice from:-

(a)    Refund Property Fees Pty Ltd and Prime Project Development (Cairns) Pty Ltd regarding any proof of debt lodged by Promoseven Pty Ltd;

(b)    Promoseven Pty Ltd regarding any proof of debt lodged by Refund Property Fees Pty Ltd and Prime Project Development (Cairns) Pty Ltd.

7.    After receiving the proofs of debt secured by Mortgage No 712190107, the liquidators, NIGEL ROBERT MARKEY and BRADLEY VINCENT HELLEN rule on such proofs of debt and ascertain the amount or amounts secured by Mortgage No 712190107, the identity of the secured creditor or creditors, the value of the security and the priority or proportions in which the secured debts are to paid from any amount secured by or realised from Mortgage No 712190107.

8.    The liquidators, NIGEL ROBERT MARKEY and BRADLEY VINCENT HELLEN provide to each person that lodges a proof of debt under paragraph 4 a copy of the each determination pursuant to paragraph 7.

9.    Otherwise the procedure for proofs of debt specified in the Corporations Act 2001 and Corporations Regulations 2001 apply to the proofs of debt lodged pursuant to paragraph 4.

10.    Paragraphs 6 to 14 of the orders made 23 November 2011.

11.    The proceedings be stayed pending the completion of the formal proof of the debts secured by Mortgage No 712190107 in accordance with this order including any appeal from a determination pursuant to paragraph 7.

12.    Costs of today to be in the proceedings.

13.    The proceedings be adjourned to a date to be fixed and vacate the trial presently fixed to commence on 19 March 2012 is vacated accordingly.

14.    Liberty to apply.

[Emphasis added]

5        By orders [7]-[9] made on 2 February 2012, the first respondents were directed pursuant to s 553(1) of the Corporations Act to require that all debts secured by Mortgage No 712190107 (the 2009 Mortgage) be proved formally, and after calling for such proofs, to rule on such proofs of debt and ascertain the amount or amounts secured by the 2009 Mortgage, the identify of the secured creditor or creditors, the value of the security and the priority or proportions in which the secured debts are to be paid from any amount secured by or realised from the 2009 Mortgage.

6        On 11 May 2012, a formal proof of debt was lodged by Promoseven, grounded upon a claim against Bluechip in the sum of $11,277,661 and said to be secured in its favour by virtue of the 2009 Mortgage. The effect of s 588D of the Corporations Act is that Promoseven having lodged such a proof, it has not surrendered any security it holds:

588D    Secured debt may become unsecured

For the purposes of this Part, a secured debt becomes an unsecured debt to the extent that the creditor proves for the debt as an unsecured creditor.

7        In accordance with the orders made on 2 February 2012, the first respondents adjudicated upon the claim in their capacity as receivers, delivering their decision on 27 March 2013. In their decision, the first respondents determined that $1,026,190 was secured in Promoseven’s favour; the balance of the claimed amount, $10,251,471 was rejected as a secured debt (Para 2.3, Adjudication Report, 27 March 2013). Correctly, the first respondents decision did not determine whether any or all of the rejected claims might be admitted as an unsecured claim in the liquidation of Bluechip.

8        In its amended appeal, filed 19 August 2013, the applicant seeks:

1.    That the Court reverse or modify the decision at Parts 5 and 8 of the adjudication of the Respondents dated 27 March 2013 on a Formal Proof of Debt lodged by Promoseven Pty Ltd dated 11 May 2012, and by Affidavit sworn 13 August 2013, so that the amounts listed in Part 5.1 ($1,260,000), at items 5-14, 17, 19-20, and 21-25 of Part 8 ($5,442,000), and Item 27 of Part 10 ($500,000) of the adjudication pertaining to advances by the Applicant between August 2006 to 21 April 2009, plus any interest payable thereon, instead by admitted as being secured by Registered Mortgage No 712190107.

2.    That the Court make such orders and give such directions as it thinks fit.

9        In May 2009, a development comprising commercial premises, retail business premises and serviced residential apartments known as “Cairns Central”, situated at the corner of McLeod and Alpin Streets in the Central Business District of Cairns, in Far North Queensland, was opened. The present dispute arises from arrangements entered into to with respect to the financing of the construction of that property development.

10        On 16 November 2005, a Joint Venture Agreement (JVA) was entered into between Promoseven and Prime Project Development Cairns (Prime), pursuant to which Bluechip, the vehicle by which the development of Cairns Central would be carried out, came to be incorporated: see clause 3.1, JVA. Promoseven and Prime were equal shareholders in Bluechip, each holding 100 fully paid ordinary class shares in the company. Mr Sidney Knell and Mr Stephen Burt were appointed its directors. Mr Knell is additionally a director of Prime along with his wife Mrs Alison Camille Knell (Mrs Knell). Mr Burt, an architect by profession, is additionally a co-director of Promoseven, or more correctly, the Australian director of Promoseven Holdings, a company incorporated in Bahrain, with Mr Akram Miknas the other co-director (based in Bahrain). Promoseven Holdings has significant investments in advertising and communication, hospitality and real estate and development. Mr Burt is personally responsible for all administration and management of Promoseven’s activities in Australia.

11        The JVA was intended to govern the relationship between Promoseven and Prime for the duration of the construction of Cairns Central and beyond: see clause 4, JVA. Under the JVA, Promoseven agreed to provide the land for the project, while Prime agreed to act as development funder. Construction of the project commenced on 26 May 2007.

12        The JVA made provision for some of the project’s financing to be put up by each of the parties to the agreement. However, the majority of the construction costs were sourced from borrowings from the Hong Kong & Shanghai Banking Corporation (HSBC), which provided funds totalling $18 million (paras [5]-[6] Affidavit of S. Burt, 17/07/13). This funding was secured by a registered mortgage over the land on which the project was carried out (the HSBC Mortgage).

13        A number of advances were made by Promoseven to Bluechip between 21 March 2007 and 14 April 2009 due to “costs overruns”. These advances were as follows (Page 22 of Annex GJL5 to the Affidavit of G. Lister, sworn 9 May 2013):

14        The advances were made on an ad hoc basis. As Mr Burt deposes, they were made as “mezzanine funds”, a term which Mr Knell frequently used with Mr Burt and which Mr Burt had “heard elsewhere in the property industry (and have since adopted myself), to describe funding sought or provided by another lender when the funding provided by the principal lender was insufficient, and which funding is to be repaid after the principal lender but in priority to other creditors” (paras [30]-[31] Affidavit of Burt, 17/07/13).

15        There is no doubt that such advances were made. Moreover, the first respondents do not cavil with the characterisation of those advances as ‘loans’. The moot point is whether they were made pursuant to the JVA.

16        A subsequent mortgage, providing security for funds advanced under any ‘agreement’ between Bluechip on the one hand, and Prime and Promoseven on the other (thus making Promoseven and Prime joint mortgagees), was granted on 23 January 2009. This is the 2009 Mortgage.

17        Allied to this mortgage were two separate loan agreements entered into by Bluechip with each of Prime and Promoseven, dated 22 January 2009. I shall hereafter refer to the loan agreement entered into between Bluechip and Promoseven as the ‘Promoseven 2009 Loan Agreement’. The two loan agreements were generally identical. Although both documents are dated 22 January 2009, the evidence establishes that they were not signed until April 2009. The reason that the loan agreements were dated 22 January 2009, according to Mrs Knell, was to reflect their association with the 2009 mortgage.

18        The reason for the making of these two loan agreements, or at least one of the reasons for their making, as Mr Burt accepted in cross-examination (T-14, LL1-3), was in response to winding up proceedings that had been initiated against Bluechip by a separate company, PNP Realty Pty Ltd, in the Supreme Court of the Australian Capital Territory (ACT). Those proceedings were ultimately settled and otherwise have no other relevance to this application.

19        The applicant submits that a draft loan agreement and a draft of a separate mortgage were circulated in 2007, which in its submission, had the effect of securing those advancements in its favour (hereafter, the Alleged 2007 Mortgage and Loan Agreement).

20        There was no reference to, or disclosure of, such instruments in either the original formal proof of debt lodged by the applicant or in its amended proof of debt form lodged on 18 May 2012.

21        It is tolerably clear that a draft mortgage and loan agreement were circulated in 2007, as various email chains between Mr Knell and Mr Miknas show (paras [32]-[39] Affidavit of Burt, 17/07/13). Whether any such documents were executed—a topic on which Mr Burt was called to give evidence during the hearing—is a point of controversy between the parties in this application. Mr Burt deposed that he has cannot locate in the files and records of Promoseven an executed copy of the mortgage and loan agreements, but that he believes such documents were executed. Mr Burt’s evidence is that he had the mortgage and loan documents drawn up by his solicitors and had signed the documents on Promoseven’s behalf. Mr Burt cannot account for what next happened to the documents after this alleged signing. In cross-examination, Mr Burt gave the following account (T-20, LL3-10):

MR JONES: Can you recall giving a copy of those signed agreements to your solicitors, or anybody else acting on your behalf?---No. Mr Knell had those documents.

So you didn’t take any copies of the documents when you signed them?---My recollection would be at the time that as usual, Mr Knell prepared the documents, he would sign them. Then they would be taken away for copying and processing. But I never received a copy back.

Ultimately, the impression which I formed was that Mr Burt was trying to give an honest account but that, because the events concerned had occurred so long ago and disagreements had later ensued between the joint venture parties, an element of reconstruction as to what he expected ought to have happened intruded. I am not satisfied on the balance of probabilities that the alleged 2007 Mortgage and Loan Agreement were executed.

22        The construction of the 2009 Mortgage is thus the focal point of this application. Of the components of the total debt claim rejected by the first respondents in their adjudication decision, the majority were rejected because they related to liabilities incurred prior to the entry of the 2009 Promoseven Loan Agreement made pursuant to the 2009 Mortgage (Para 2.2.1, Adjudication Report, 27 March 2013).

23        The underlying question to be resolved by reference to the 2009 Mortgage is: what did that instrument secure?

24        The parties agree that guidance as to the purpose of the mortgage, under the heading “Purpose” contained therein, is of little assistance. The purpose there stated is:

To capture and formalise all loan funds by Members to the Borrower.

The vagueness of this statement of purpose stems from an absence of the word “Member” in the Mortgage.

25        There is no dispute that Promoseven and Prime are the prescribed “Mortgagee” as that term is defined under the 2009 Mortgage in clause 1.1(22); see further Refund Property Fees v Prime Project at [34]. Bluechip was the prescribed “Mortgagor”.

26        As to what Promoseven and Prime—as mortgagee—had secured in their favour, regard must first be had to the document’s “undertaking” contained in clause 3.1 of the document:

3.    Mortgagor Undertakes to Satisfy Secured Obligations

3.1    “The Mortgagor must satisfy or pay the Secured Obligations to the Mortgagee, or as the Mortgagee directs, immediately on demand by the Mortgagee unless otherwise agreed in writing by the Mortgagee in this Mortgage, in the Agreements or any other Collateral Security.”

[Emphasis added]

27        The first respondents’ adjudication relied on clause 1.1(28)(a) of the 2009 Mortgage as establishing that the “Secured Obligations” were those under the “Agreements” as defined in the 2009 Mortgage. The obligations secured under the 2009 Mortgage were those set out in clause 1.1(28)(a) and (f):

(28)    “Secured Obligations” means and includes:

(a)    all obligations and money which the Mortgagor or any Surety (whether alone or not) is or at any time may become actually or contingently liable to perform or pay to or for the account of the Mortgagee for any reason whatever and in any capacity under or in connection with the Agreements. It includes all interest, fees, costs, indemnities, charges, duties and expenses and the payment of liquidated or unliquidated damages in connection with the obligations or the breach of the obligations of the Mortgagor or nay Surety to the Mortgagee under or in respect of the Agreements;

…

(f)    all money paid or payable by the Mortgagee on account of the Mortgagor, whether directly or indirectly, in respect of the Property.

[Emphasis added]

28        “Property” as it appears in clause 1.1(28)(f) is a reference to the mortgaged land, while “Agreements” as it appears clause 1.1(28)(a) is defined in clause 1.1(1) of the instrument as follows:

(1) every agreement (whether written or otherwise) or deed (excluding this Mortgage) made between [Bluechip] and the Mortgagee whether or not any other person is a party to it and includes any Agreement described in the table at the beginning of this Schedule.

[Emphasis added]

In the Schedule, contained in the table at page 2 of the 2009 Mortgage, “agreements” is expounded to mean:

The Loan Agreement constituted dated 1 July 2006 and each and every written agreement, memorandum or minute of or between the Mortgagor and the Mortgagee from time to time.

29        The more detailed definition of “Agreements” in the schedule is an exhaustive one, because the language used in clause 1.1(1) is that it “includes” any agreement described therein. Of course, the reference to the Loan Agreement dated 1 July 2006 is a reference to the HSBC loan.

30        Whilst Bluechip was the Mortgagor in the 2009 Mortgage, it was an incorporated consequence of, not a party to, the JVA. As noted above, the JVA signed in 2005 was an agreement between Promoseven and Prime. Bluechip operated under the control of Promoseven and Prime as joint venturers.

31        Bluechip remained a 50-50 controlled joint venture vehicle throughout the course of its operations. On behalf of Promoseven, Mr Burt had – at one point – sought to change that percentage figure to 60-40 in Promoseven’s favour to reflect the extra funds that it had contributed to the project, but Mr Knell ultimately did not agree to this (T-19, LL4-10).

32        The JVA contemplated the provision of security for advances provided by way of “mezzanine funding”. The mezzanine funding mechanism in the joint venture agreement contemplates security for a mezzanine funder.

33        Clause 7.6 of the JVA provided that where one party, but not the other, made further advances, those further advances would be repaid in priority (see also p 65 Affidavit of Mr Lister). Notably, clause 16.3 of the JVA reflects an intention on behalf of both Prime and Promoseven to limit the category of agreements giving rise to rights and obligations to documents made in writing. Clause 16.3 provides:

Each document by which the Joint-Venturers would incur obligations or by which the Joint-Venturers would obtain any rights or under which any dealing in or with the assets of the Joint-Venture would arise will be entered into only with the consent of the Steering Committee and must be signed by each of the Joint-Venturers […]

CONSIDERATION

Issues for resolution

34        The core issue in any application such as the present is “whether the liability referred to in the proof of debt is a true liability of the company enforceable against it”, see: Tanning Research Laboratories Inc v O’Brien (1990) 169 CLR 332, at 340-341 (Brennan and Dawson JJ) (Tanning Research Laboratories). The issue is necessarily so put because an appeal against an administrator’s rejection of a proof of debt under s 1321(b) of the Corporations Act, is a hearing de novo: Tanning Research Laboratories at 338-341 (Brennan and Dawson JJ); see also In the matter of Federation Health Limited (Administrator Appointed) (ACN 004 155 622) [2006] FCA 314 at [32]-[36] (Young J) and Re North Sydney District Rugby League Football Club (admin apptd); Murray v Donnelly (2000) 34 ACSR 630 at [3] per Bryson J. This means the proof of debt claim is to be determined by this Court afresh on the merits of the claim, taking into account all relevant evidence, whether or not it was before the first respondents at the time the proof was rejected: Westpac Banking Corporation v Totterdell (1997) 25 ACSR 769 at 772 (Templeman J); see also Brodyn Pty Ltd v Dasein Constructions Pty Ltd [2004] NSWSC 1230 at [29]–[33] (per Young CJ in Eq). In other words, an “appeal” under s 1321(b) of the Act is not an exercise of the appellate jurisdiction of the Court at all, merely what one might term a “statutory appeal” which in point of law involves an exercise of original jurisdiction: Australian Securities & Investments Commission v Forestview Nominees Pty Ltd (Receivers and Managers Appointed) [2006] FCA 1530 at [41] (per French J as his Honour then was) (ASIC v Forestview Nominees).

35        The Court’s task is not confined to correcting ‘unreasonableness’ of the receivers’ decision in the manner applied relevantly in the administrative law context; rather, if it can be shown that the decision is “informed by some error of law or significant factual error or is otherwise so unreasonable”, the decision will not be allowed to stand and the appeal under s 1321 should be allowed: ASIC v Forestview Nominees; affirmed in the context of court appointed receivers and managers in Wentworth Metals Group Pty Ltd v Leigh (2013) 93 ACSR 626 at [22]-[24] (Wentworth Metals Group).

36        As Griffiths J has recently observed in Wentworth Metals Group at [24], there is:

… a degree of flexibility in the standard of review, the context of which is informed by a variety of matters, including the nature of the act or omission being appealed against, its significance to the affairs of the company, and the extent to which business judgment is involved.

37        Properly so, Promoseven bears the onus to demonstrate that the liquidator was wrong in rejecting the proof. If that onus is not discharged, or if this Court is unable to conclude either way whether the proof should be admitted, then the first respondents’ decision must stand: In the Matter of David Gregory Young in his capacity as liquidator of Great Wall Resources Pty Ltd (in liquidation) ACN 080 224 808 and the Corporations Act; Capocchiano v Young [2013] NSWSC 879 at [46].

38        There are four particular issues to be determined in this application:

(a)    Whether a loan agreement and mortgage were entered into between Promoseven and Bluechip in 2007;

(b)    Whether the 2009 Mortgage, on its proper construction, secures only money advanced pursuant to “Agreements”, as that term is defined in the Mortgage;

(c)    Whether the Promoseven 2009 Loan Agreement operates only prospectively, or whether it operates so as to cover prior advances;

(d)    Whether the conduct of the parties in arranging further drawdowns to fund the joint venture constituted an “Agreement” within the meaning of the 2009 Mortgage, and related to this, whether the various further drawdowns were made pursuant to the JVA or whether those drawdowns formed part of or evidenced further agreements.

Submissions advanced

39        According to the applicant, the first respondents’ construction of the 2009 Mortgage was too narrow. The applicant’s grounds of appeal allege that the first respondents erred because:

(a)    The 2009 Mortgage secured money already owing to Bluechip to Promoseven, as well as future advances; and

(b)    The definition of “Agreements” in clause 1.1 of the Mortgage is not limited to the 2009 Promoseven Loan Agreement – but includes all written and oral agreements (however entered or evidenced) between Promoseven and Bluechip.

40        The first respondents’ “phenomenally simple” (as counsel for the first respondent prosaically so-described it) case in riposte is that the various loans fall outside the definition of ‘Agreements’ in the 2009 Mortgage because such loans were made in furtherance of the JVA, but – critically – Bluechip is not a party to the JVA; Promoseven and Prime are. Because the JVA does not fit within the 2009 Mortgage definition of “Agreements”, the applicant must be able to point to another binding and concluded agreement which explains the advances, but it cannot do so. Thus, it submits that Promoseven’s case is an attempt to imply terms (the various loan contracts) in the face of express terms (in the JVA).

41        Whilst counsel for the respective sides share a common point of departure in the formulation of their submissions, they diverge greatly in the projection of their arguments there from. Essentially, the applicant’s case behoves this Court to have close regard to the context of the contentious agreements during the relevant period and the concomitant intentions of each of the parties in so making such contracts, while the case run by the first respondents renders such an analysis somewhat academic.

42        In short, the applicant’s contention is that taking into account the surrounding circumstances and making commercial sense of the mortgage leads to only one conclusion: the 2009 Mortgage was objectively intended to, and did, secure all moneys advanced under and by the agreements which occurred from time to time which related to those advances.

43        The first respondents accept that proposition with qualification, namely to the extent it properly identifies the need for an “Agreement” as defined in the Mortgage as a basis for security as a basis for security. The first respondents do not cavil with the characterisation of the various advances made during the relevant period as “loans” or “loan agreements”. On each occasion, the agreement consisted of an offer by Bluechip to Promoseven that if Promoseven lent it funds, Bluechip would repay the funds with interest, and an acceptance of that offer by Promoseven in lending the funds—or alternatively put—Bluechip’s requests for funds were invitations to treat, with the lending of funds by Promoseven amounting to an offer, and acceptance taking place in Bluechip receiving and using the funds.

44        Crucially, however, the point made for the first respondents is that each of these loan agreements was in fact made pursuant to the umbrella agreement of the JVA but it—the JVA—falls outside the definition of agreements in the 2009 Mortgage, because it was not an agreement to which Bluechip was a party. The result, the first respondents submit, is that the first “Agreement” covered as that term is defined in the 2009 Mortgage, was the Promoseven 2009 Loan Agreement.

45        “Phenomenally simple” or otherwise, the first respondents’ submission that the various loans are not secured in Promoseven’s favour, as they were advanced pursuant to the JVA, of which Bluechip was not a party, has considerable attraction. The applicant made a three-fold riposte to it:

(a)    First, Bluechip was at least a beneficiary of the JVA and entitled to enforce it or have it enforced against it as a contract on the authority of s 55(1) and s 55(3) of the Property Law Act 1974 (Qld) (Property Law Act) and Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 (Trident General Insurance v McNiece Bros); and/or

(b)    Second, Bluechip became a party to each transaction by its acceptance and use of the funds; and/or

(c)    Third, there was an agreement, by conduct if nothing else, between Prime and Promoseven on the one hand and Bluechip on the other hand, that Prime and Promoseven would fund the JVA or part fund it, which in turn gave rise to a further multi-partite agreement between Bluechip and Promoseven relating to any funds so loaned. Raguz v Sullivan & Ors (2000) 50 NSWLR 236 at 250-1 (Raguz v Sullivan) was relied upon in this regard.

Principles

46        Courts have no power to remake a contract for the purpose of avoiding a result which may be considered unjust: Australian Broadcasting Commission v Australasian Performing Right Association Limited (1973) 129 CLR 99 at 109. The starting point of contractual construction is the actual language of the written contract, the subjective intentions of the parties in entering into it being irrelevant. Mason J (as his Honour then was) explained the rationale to this principle in Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 (at 352) (Codelfa Construction) as follows:

We do not take into account the actual intentions of the parties and for the very good reason that an investigation of those matters would not only be time consuming but it would also be unrewarding as it would tend to give too much weight to these factors at the expense of the actual language of the written contract.

47        References to the “common intention of the parties” to a contract are thus properly to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement: Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 (Toll v Alphapharm) at [40]. That intention is thus ascertained objectively, not subjectively. As explained in Toll v Alphapharm at paras [41]-[43]:

In Taylor v Johnson Mason ACJ, Murphy and Deane JJ explained the significance of the difference between the subjective and objective theories of contractual assent by reference to the impeachment of a contract on the ground of unilateral mistake. They said:

"According to the subjective theory, there is no binding contract either at common law or in equity, equity following the common law in this respect. Of course in deciding whether the contract is void ab initio for the unilateral mistake, regard will be had to the doctrine of estoppel in order to determine whether effect should be given to the claim that there has been unilateral mistake. On the other hand, according to the objective theory, there is a contract which, in conformity with the common law, continues to be binding, unless and until it is avoided in accordance with equitable principles which take as their foundation a contract valid at common law but transform it so that it becomes voidable. The important distinction between the two approaches is that, according to the subjective theory, the contract is void ab initio, whereas according to the objective theory, it is voidable only."

Their Honours went on to say that "the clear trend in decided cases and academic writings has been to leave the objective theory in command of the field."

Consistent with this objective approach to the determination of the rights and liabilities of contracting parties is the significance which the law attaches to the signature (or execution) of a contractual document. In Parker v South Eastern Railway Company, Mellish LJ drew a significant distinction as follows:

"In an ordinary case, where an action is brought on a written agreement which is signed by the defendant, the agreement is proved by proving his signature, and, in the absence of fraud, it is wholly immaterial that he has not read the agreement and does not know its contents. The parties may, however, reduce their agreement into writing, so that the writing constitutes the sole evidence of the agreement, without signing it; but in that case there must be evidence independently of the agreement itself to prove that the defendant has assented to it."

More recently, in words that are apposite to the present case, in Wilton v Farnworth Latham CJ said:

"In the absence of fraud or some other of the special circumstances of the character mentioned, a man cannot escape the consequences of signing a document by saying, and proving, that he did not understand it. Unless he was prepared to take the chance of being bound by the terms of the document, whatever they might be, it was for him to protect himself by abstaining from signing the document until he understood it and was satisfied with it. Any weakening of these principles would make chaos of every-day business transactions."

[Footnotes omitted]

CONCLUSIONS

48        I am not satisfied on the evidence that the Alleged 2007 Mortgage & Loan Agreement was ever executed by all named parties. It thus could not and did not secure advances made during the relevant period. There is no doubt, from the email train between Mr Burt and his Bahraini counterpart that such a mortgage was contemplated and a draft circulated. I also accept Mr Burt’s evidence that he signed drafts on behalf of Promoseven. However, no-where in the evidence is it established that the draft mortgage was ever executed by or on behalf of all named parties.

49        The 2009 Loan Agreement did not, on its true construction have retrospective application. As a matter of language, the clause 1 reference to “financial accommodation requested by the borrower” and the contents of clause 2 “using the facility” are each prospective in operation.

50        On its true construction, the 2009 Mortgage did secure monies owing under past “Agreements”, as defined. The question, then is whether there were in fact advances made during the relevant period under “Agreements” as defined? My view is that definition applies only to agreements between Prime and Promoseven and that the advances in question are not secured by the 2009 mortgage.

51        There is a conflict as to what is meant by the term “mezzanine”. Two potential meanings are at large on the evidence in this case. The first is a reference to a particular funding mechanism in the JVA, which contemplates security being given; the other is “mezzanine” means nothing more than funds additional to the $18 million HSBC facility –additional funding under clause 7.6 of the JVA. The latter is the more likely, having regard to Mr Burt’s evidence (para 31 of his affidavit) as to his understanding of the term and to his further evidence that, by mid-2007, there were no further funds available under the HSBC facility.

52        The further advances do not evidence further agreements; neither do they evidence a tripartite agreement by conduct as between the joint venturers and Bluechip (Raguz v Sullivan has no application); all that they do is to evidence advances pursuant to and as contemplated by the JVA. It is to be remembered that Bluechip was a 50-50, Steering Committee controlled joint venture vehicle, not amenable to either Promoseven or Prime unilaterally (for example, via Mr Knell) causing it to make agreements or to request funding. On the whole of Mr Burt’s evidence, all that occurred is that, once the HSBC funds were fully drawn down, further funds were advanced, ad hoc as required, as the JVA contemplated that they might be.

53        It also follows that these advances carried no entitlement to repayment with interest. There was no such provision in the JVA. There is no basis for implying it: BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 16 ALR 363 at 376; Codelfa Construction at 347.

54        As mentioned above, Bluechip was a JVA vehicle. There is nothing in the JVA to indicate any intention by the parties to it, Promoseven and Prime, that Bluechip should be able to insist on the performance of any of the terms of the JVA. Neither s 55 of the Property Law Act nor Trident General Insurance v McNiece Bros has any application to the facts of this case. Bluechip did nothing more than operate under the control of the joint venturers via an external Steering committee.

55        For completeness and in light of a submission made on behalf of Promoseven, reference should be made to the definition of “Secured Obligations” in clause 1.1(28) in the schedule to the 2009 Mortgage. Within this clause, subclause (a) refers to “under of in connection with the Agreements”. In using the word, “Agreements” it is using that word as a defined term in the 2009 Mortgage. Once this is appreciated, the words “under of in connection with the Agreements”, as the first respondent correctly submitted, “refers to obligations and payments which are secured and sets the parameters of the security”. Within clause 1.1(28), it is, as the first respondent also correctly submitted, “unlikely that subclause (f) does precisely the same thing” as subclause (a). “Property” in the latter is a reference to the land which is the subject of the joint venture development. Recalling that and the presence of subclause (a), subclause (f) does nothing more than mean that, provided money is paid or payable as described in subclause (a) (under or in connection with the Agreements”), that money is secured, irrespective of whether it is advanced directly to Bluechip or paid on its behalf to a creditor of Bluechip. In either case, the money advanced will be “in respect of the Property”. Clause 1.1(28)(f) is of no assistance to Promoseven.

56        On the facts found and the construction favoured by me, there is no basis for any distinction being drawn between the three groups of advances mentioned in the Amended Notice of Appeal - $1,260,000, $5,442,000 and $500,000. None is secured by the 2009 Mortgage.

57        It follows that the appeal must be dismissed, with costs.

Associate:

Dated:    28 November 2013