CMC Property Pty Ltd & Ors v Rankin Investments (Qld) Pty Ltd & Anor [2021] QCA 173

SUPREME COURT OF QUEENSLAND CITATION: CMC Property Pty Ltd & Ors v Rankin Investments (Qld) Pty Ltd & Anor [2021] QCA 173 PARTIES: CMC PROPERTY PTY LTD ACN 128 857 429 (first appellant) PETER THOMAS KENDALL (second appellant) DAVID SPENCER AHERN (third appellant) v RANKIN INVESTMENTS (QLD) PTY LTD ACN 150 860 647 (first respondent) BRADLEY JOHN RANKIN (second respondent) FILE NO/S: Appeal No 6406 of 2021 SC No 3683 of 2021 DIVISION: Court of Appeal PROCEEDING: General Civil Appeal ORIGINATING COURT: Supreme Court at Brisbane – [2021] QSC 94 (Davis J) DELIVERED ON: 20 August 2021 DELIVERED AT: Brisbane HEARING DATE: 17 August 2021 JUDGES: Sofronoff P and Mullins JA and Crow J ORDERS: 1. Appeal dismissed. 2. Appellants to pay the respondents’ costs on the standard basis. CATCHWORDS: CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – IMPLIED TERMS – OTHER CASES – where the parties entered into a joint venture agreement to develop land – where the appellants triggered buy-out rights in clause 9 requiring the respondents to sell their interest and withdraw from the venture – where the parties did not agree on a purchase price but agreed to an expert determining the value of the respondents’ interest in accordance with clause 9.2 – where no date was defined in the term “Valuation Date” in clause 9.2 – where the primary judge constructed “Valuation Date” to be the date on which the expert declares their determination of the value of the withdrawing party’s interest -- 1 of 5 -- 2 – where the appellant submits the primary judge’s construction of “Valuation Date” was wrong and the date on which the respondents’ interest should be valued is the date on which the offer to purchase the respondents’ interest was made, being the date on which the buy-out rights in clause 9 were triggered – where the appellant submits, amongst other things, that the primary judge’s construction was wrong on grounds that it is uncommercial, leads to uncertainty or absurdity with respect to the process of land valuation and assumed the value of the interest might change between the offer date and the date of actual valuation by an expert – whether the primary judge’s construction of “Valuation Date” being the date on which the expert declares their opinion of the value of the withdrawing party’s interest in the joint venture is correct Network Ten Pty Ltd v Tx Australia Pty Ltd [2018] NSWCA 312, distinguished COUNSEL: M R Hodge QC, with D L Tay, for the appellants D O’Brien QC, with F Y Lubett, for the respondents SOLICITORS: Carter Newell for the appellants Enyo Lawyers for the respondents [1] THE COURT: The appellants and respondents are parties to a joint venture agreement pursuant to which they agreed to develop land. In early 2020, the appellants triggered the default buy-out rights in clause 9 and thereby began a process by which the respondents would sell them their interest and withdraw from the venture. One of the steps in this process is the determination of the value of the interests of the departing joint venturer. Clause 9 lies at the heart of this appeal and clauses 9.1 and 9.2, which are directly relevant, provide as follows: “9 DEFAULT/WITHDRAWAL 9.1 Notwithstanding the constitution of the Company and the trust deed of the Unit Trust, in the event any: (a) Joint Venturer wishes to withdraw from the Joint Venture, the Joint Venturer shall be entitled to give written notice of sale to the other Joint Venturers; or (b) Joint Venturer has been provided a notice of an Event of Default under clause 8, then the Joint Venturer who has been provided with a notice of an Event of Default shall with effect from the date of the giving of that notice be deemed to have written notice of sale to the other Joint Venturers; which notice shall grant and constitute an irrevocable offer by the Joint Venturer giving such notice (“the Withdrawing Party”) to the other Joint Venturers (“the Grantees”) to purchase the whole but not part of the Joint Venture Interest owned by the Withdrawing Party to the Grantees (“the Purchasing Option”) in proportion to the Units then held by the Grantees when expressed as a percentage of the total of the Units held by those Grantees (“Relevant Proportions”). -- 2 of 5 -- 3 9.2 The purchase price for the Joint Venturer Interests arising from the Purchasing Option (“the Sale Price”) shall be the value agreed upon by the Withdrawing Party and the Grantees and in default of such agreement within 10 days, the value determined by 1 practising Chartered Accountants (taking into account loans and equity interests) (who shall be entitled to appoint 2 Valuers one from LandMark White and one from CBRE for assistance in valuation of the Property, if required) to be appointed by the Board (and in the event of disagreement not resolved within 10 days by the President for the time being of the Queensland Law Society) who shall act as an expert and not as an arbitrator and whose decision as to the Sale Price shall be final. The date on which the value is determined will be the “Valuation Date”.” [2] If no sale results under these provisions, clause 9.10 requires the land to be sold at market value with a settlement date no later than six months after the Valuation Date. The proceeds are to be dealt with in accordance with the contract. [3] The thing which the appellants are to purchase is the “Joint Venture Interests” which clause 1.1(q) defines as “the Shares and Units and [the parties’] entitlements and/or obligations therefrom”. The “Shares” are not defined but reference to the recitals to the contract show that they are shares in Big Pineapple Corp Pty Ltd, which is the trustee of a unit trust and which is the registered proprietor of the land which is to be developed. The “Units” are defined as the units issued in that trust. [4] The parties have not agreed on a purchase price. In stating that the “purchase price for the Joint Venture Interests” is to be “the value determined” by a chartered accountant acting as an expert, the contract requires that expert to value the shares and units. The contract is silent, in its express terms at least, about a number of important things concerning the valuation. A valuation of the kind contemplated by clause 9 is an expression of opinion. An opinion about the monetary value of something depends upon many factors, such as the method of valuation and the point in time in respect of which the value is said to hold but the contract’s express terms are silent about these. [5] Although the parties are in dispute about the contractually implied date at which the value of the respondents’ Joint Venture Interest is to be determined, they are agreed that it is must be one of two points of time: either it is the date on which the deemed “irrevocable offer” is made or it is date at which the valuer actually “determines” the value, that is to say, the date on which the appointed expert expresses his or her opinion to the parties. At first instance, Davis J concluded that it was the latter.1 The appellants contend that his Honour was in error. The sole issue for this court is whether that is so. [6] The appellants raise a number of arguments to support their interpretation. [7] First, it is said that as a matter of “commercial common sense” the value of an offer should be its value when it is made. This is hardly axiomatic and we can see no reason why the date on which an offer is made should, as a matter of commerciality, be preferred to, say, the date on which it is accepted or any other date. 1 Before Davis J, the respondents also argued that the date was to be determined by the expert; that construction has been abandoned. -- 3 of 5 -- 4 [8] Second, the appellants submit that Davis J’s interpretation leads to uncertainty and absurdity. They submit that, because the expert is entitled to appoint two valuers to assist in arriving at a valuation of the land, there might be conflicting valuations and dates of valuation. That submission should be rejected. The task of the pair of valuers, if appointed, is only to value “the Property”, which clause 1.1(x) defines as the land and improvements. Their valuations only constitute “assistance” to the expert and any conflict in their valuations will have to be resolved by that expert. The dates at which those two land valuers deliver their own valuations are contractually irrelevant. [9] Third, the appellants rely (faintly) upon the decision of the New South Wales Court of Appeal in Network Ten Pty Ltd v Tx Australia Pty Ltd.2 However, in that case it was common ground between the parties that, under a materially identical set of provisions, the valuation date was the date of offer. The Court did not have to decide the question. [10] Fourth, the appellants submit that Davis J was wrong to think that, because the value of the interest might change between the day the offer is deemed to have been made and the date of actual valuation, it would be uncommercial to conclude that the date of offer was the relevant date. This was so, his Honour said, because it would be uncommercial to conclude that the non-defaulting party is taken to be offered the property at a price that might be very different from its value at the date of actual valuation. [11] Although the contract sets time limits for certain steps, it sets no time within which the expert has to perform the task of valuation. Undoubtedly the contract implies that the expert will act within a reasonable time but the absence of specification means that the period over which the purchase process will run will be uncertain. It is not immaterial to notice that, as a matter of fact, the actual process triggered by the appellants has now continued for well over a year. That is because, in part, the parties have had to litigate several questions, including the present question which, until it is determined, prevents further progress by the expert – at least in practical terms. It follows that, in relation to the day on which the offer is deemed to have been made, the day on which a sale is effected is uncertain. [12] The function of the expert acting under clause 9 is to ascribe a monetary value to the shares and units. The value of these choses in action depend, in part, upon the value of the land and other assets belonging to the company and the amount of its liabilities. Although the sale process might be quick, that might not be so. As this case has shown, well over a year might pass between offer and acceptance. Yet, as Mr O’Brien QC and Ms Lubett submitted for the respondent, while the exit process is underway the project must nevertheless continue and its continuation might require the company to take up capital, to accept loans, to incur liabilities and to discharge them. Clause 7 acknowledges that the liabilities of the joint venture may increase as the development proceeds and clause 9.2 expressly directs the expert to account for alterations in loans and equity interests. It follows that the joint venture agreement envisages that the value of the respondents’ Joint Venture Interest may vary greatly over time. [13] Such potential differences in the value of the interest at the date of valuation and at the date of acceptance of the offer confront both parties equally in terms of mere profit and loss considerations. [14] However, there is significance in the fact that, while the valuation process is temporally unconfined, clause 9.3 requires the acquiring party to accept the offer 2 [2018] NSWCA 312. -- 4 of 5 -- 5 within 45 days of receipt of the expert determination. Clause 9.2 provides that the “purchase price … shall be … the value determined” by the expert. The last sentence of clause 9.2 defines the expression “Valuation Date” to mean the date on which “the value is determined”. Neither party contends that sentence concludes the issue of interpretation because, as Mr Hodge QC and Ms Tay correctly submit, the definition of “Valuation Date” merely serves to set a date from which to measure the time for taking the ensuing steps envisaged by clauses 9.3, 9.4 and 9.10. In this way the contract gives prominence and contractual significance to the point of time at which the expert “determines” the value. Clause 9 makes the expert’s expression of opinion the essential condition precedent for acceptance of the offer and it also makes the date on which the opinion is expressed the temporal foundation for the relatively short period for acceptance. The offer must be accepted within 45 days of the “Valuation Date”, that is to say, the date on which the expert states his or her final opinion of value. If the relevant value is the value of the shares and units that is current on the “Valuation Date”, then the offeree will have available for consideration an offer capable of acceptance at a price which represents the most relevant value of the shares and units – their current value. We can discern no reason why the parties would agree to a sale process which would stipulate as a purchase price an opinion of value that has no necessary relationship to the value of the subject matter at the time of actual sale and has no commercial significance. Indeed, to construe the contract in that way might lead to unfairness. If the value at the date of the making of the offer is lower than the value that is current on the Valuation Date, the acceptor will be able to buy the interest at below current value and pocket the notional profits. If the value at the date of the making of the offer is higher than the value that is current on the Valuation Date, the acceptor can avoid paying more than current value by letting the property be offered for sale at market value pursuant to clause 9.10 and bidding for it. Either way, the acceptor cannot lose. [15] For these reasons, in our opinion, Davis J was correct in his conclusion. -- 5 of 5 --