Craigmoor Pty Ltd v Harvest Investment Co (No 2) Pty Ltd & Anor [2020] QSC 131 Bradley J

SUPREME COURT OF QUEENSLAND CITATION: Craigmoor Pty Ltd v Harvest Investment Co (No 2) Pty Ltd & Anor [2020] QSC 131 PARTIES: CRAIGMOOR PTY LTD ACN 066 033 896 (plaintiff) v HARVEST INVESTMENT CO (NO 2) PTY LTD ACN 612 180 766 (first defendant) CHRISTOPHER DAVID SLACK (second defendant) FILE NO/S: BS No 2830 of 2019 DIVISION: Trial Division PROCEEDING: Trial ORIGINATING COURT: Supreme Court at Brisbane DELIVERED ON: 26 May 2020 DELIVERED AT: Brisbane HEARING DATE: 28 and 29 January 2020 JUDGE: Bradley J ORDER: The Court declares that the determination of the Hon R N Chesterman AO RFD QC made on 3 December 2018 in respect of the dispute between the plaintiff and the first defendant is final and binding on the plaintiff and the first defendant. The Judgment of the Court is that: 1. The first defendant pay to the plaintiff the amount of $1,115,612.11, including $115,612.11 interest to this day; and 2. The second defendant pay to the plaintiff the amount of $553,812.91, including $53,812.91 interest to this day. The court will hear the parties on the question of costs. CATCHWORDS: CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – INTERPRETATION OF MISCELLANEOUS CONTRACTS AND OTHER MATTERS – where the plaintiff granted an entity related to the second defendant an option for it (or its nominee) to purchase land owned by the plaintiff for $5.25 million – where the second defendant was advised that, to develop the land, telecommunications infrastructure would -- 1 of 35 -- 2 need to be relocated at a cost of approximately $1 million – where the original option deed was rescinded and the plaintiff granted the first defendant (or its nominee) an option to purchase the land for $4.25 million – where, on the same day that the new option deed was executed, the plaintiff and first defendant executed another deed (the Profit Share Deed), by which the first defendant agreed to pay the plaintiff up to $1 million if, inter alia, it cost less than $1 million to relocate the telecommunications infrastructure – where the first defendant nominated a third party to purchase the land after incurring costs of less than $1 million relocating the telecommunications infrastructure – where a dispute arose as to the liability of the first defendant to the plaintiff under the Profit Share Deed – where the dispute was referred to an expert for determination – where the expert determined the first defendant was liable to pay $1 million to the plaintiff – where the first defendant did not make any payment to the plaintiff pursuant to the expert determination – whether the expert determination was affected by manifest error – whether the first defendant is liable to the plaintiff pursuant to the Profit Share Deed, properly construed Civil Mining & Construction Pty Ltd v State of Queensland [2013] QSC 214, approved Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640, considered Ex parte Dawes; Re Moon (1886) 17 QBD 275, cited Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104, applied OneSteel Manufacturing Pty Ltd v BlueScope Steel (AIS) Pty Ltd (2013) 85 NSWLR 1, cited Rinehart v Hancock Prospecting Pty Ltd (2019) 93 ALJR 582, considered Shoalhaven City Council v Firedam Civil Engineering Pty Ltd (2011) 244 CLR 305, cited TX Australia Pty Ltd v Broadcast Australia Pty Ltd (2013) 29 BCL 266, explained Victoria v Tatts Group Ltd (2016) 328 ALR 564, cited Westport Insurance Corporation v Gordian Runoff Ltd (2011) 244 CLR 239, cited COUNSEL: A J Shah for the plaintiff J W Peden QC for the defendants SOLICITORS: Thompson McNichol for the plaintiff K & L Gates for the defendants [1] The plaintiff (Craigmoor) and the first defendant (Harvest) are parties to a profit share deed (the Profit Share Deed). A dispute arose between them about the liability of Harvest to Craigmoor under it. The parties referred the dispute to an expert for determination pursuant to the Profit Share Deed. The expert determined that Harvest is liable to pay Craigmoor $1 million. -- 2 of 35 -- 3 [2] Harvest has not paid Craigmoor any amount for the liability determined by the expert. In this proceeding, Craigmoor seeks judgment against Harvest for $1 million (or alternatively $950.000.00) and interest and costs. Craigmoor also seeks judgment against the second defendant (Mr Slack) for $500,000.00 and interest and costs, on the basis that he has guaranteed the performance by Harvest of its obligations under the Profit Share Deed, capped at that amount. [3] Harvest and Mr Slack (the defendants) contend that the expert determination was affected by manifest error, such that Harvest is not bound by it. The defendants say Harvest has no liability under the Profit Share Deed, properly construed. Mr Slack contends he has no liability to Craigmoor because Harvest has no liability under the deed. Background to the dispute and the proceeding [4] In early 2015, Mr Slack became interested in a large area of vacant land at 141 Jones Road, Buderim1 (the land) owned by Craigmoor, which he understood may be suitable for a large shopping complex, including a major supermarket tenancy. Stuart Bishop or Damian Tutt of Taylor Bridge Capital Pty Ltd (TBC) had approached Mr Slack and told him about the land. [5] Mr Slack spoke with Kenneth Cyril Guy, a director of Craigmoor. Mr Guy told him that Craigmoor had previously agreed to sell the land for $7.2 million to a third party who sought development approval to construct a shopping centre, including two supermarkets with a combined “box size” of 4,480 square metres. The Sunshine Coast Regional Council or its predecessor (the Council) had refused development approval and the sale had not proceeded. [6] Mr Guy had over 40 years of experience in the residential, commercial and industrial real estate markets within the Sunshine Coast and had held a real estate agent’s licence during that time. He had had direct involvement in a number of real estate developments. The other director of Craigmoor was Michael Binney. Mr Slack had more than 20 years of experience in the residential, commercial and industrial real estate markets within South East Queensland, with a background predominantly focussed on private sector development. Although his length of experience was shorter than Mr Guy’s, Mr Slack had been involved in larger scale developments. [7] Mr Slack considered two strategies for the land. His preferred strategy was to secure a pre-commitment from Woolworths or Coles to lease premises to be developed on the land, to obtain planning approvals for the development, and then to sell or trade the land in an undeveloped state to a third party. The second strategy was to secure the pre-commitment and planning approval, procure a building contractor, fully develop the land, and then sell it. Mr Slack said the second was not his preferred strategy, because it required substantially more capital and involved the assumption of substantially more risk. [8] In March 2015, Craigmoor and a company then known as Harvest Asset Management Services Pty Ltd (HAMS), controlled by Mr Slack, signed a put and call option deed (the Original Option Deed) by which, relevantly, Craigmoor granted HAMS or its nominee an option to purchase the land for $5.25 million. It was subject to the 1 More particularly described as Lot 1 on SP 105435, title reference 50254728. -- 3 of 35 -- 4 Council granting a development permit (or permits) pursuant to a development application by HAMS on terms and conditions wholly satisfactory to HAMS in HAMS’ absolute discretion. [9] HAMS engaged TBC to be the project manager of “the Buderim project” (the Project) on a success-fee basis. Between the execution of the Original Option Deed and the submission of an application to the Council, Mr Bishop of TBC was involved in assisting with the design phase of the Project. During this period, in about July 2015, a civil engineer or a traffic engineer involved in the Project informed Mr Bishop that there were several telecommunications pits and infrastructure located on the verge of the Jones Road frontage of the land, and that these may have to be moved, depending on the manner in which Jones Road was designed for the Project.2 [10] In September 2015, Mr Slack caused a material change of use development application (the development application) to be lodged with the Council on behalf of HAMS. In it, HAMS sought approval to develop a shopping complex on the land, including a supermarket with a “box size” of 3,906 square metres. [11] In October 2015, the Council requested additional information (the Council RFI) to assess the development application. According to Mr Slack, two major issues were identified in the Council RFI: reducing the size and scale of the Project; and relocating the existing telecommunications infrastructure. The latter concerned pits through which telecommunications cables were accessed. The Council RFI indicated that the Council would require enhanced traffic access to the land, which would involve a slip lane being constructed over the existing location of the pits. In order for the pits to be accessed safely, they needed to be relocated. [12] In November 2015, Mr Slack met with representatives of Telstra Corporation Limited (Telstra), who estimated the cost of relocating the telecommunication infrastructure could be at least $1 million. Mr Slack informed Craigmoor of this estimate. [13] In December 2015, Mr Slack decided to start negotiations with Craigmoor for a reduced purchase price for the land. He raised the Council’s two major issues in correspondence with Craigmoor as impediments to funding the development of the land. He provided a financial model for the Project (including construction costs) based on a reduced “box size” for the supermarket. He requested a “modification to the commercial arrangements to reflect a revised purchase price of $4.25m”. Craigmoor rejected the request. [14] In February 2016, Mr Slack wrote to Craigmoor requesting a meeting to discuss two options. He favoured an option that would “involve a restructuring of the purchase price” and a “subsequent project profit split post certain benchmarks being achieved at the back end”. He followed this with a set of “sensitivity tables” based on a purchase price of $4.25 million. These projected that the Project might return a “development profit on cost” of between 7.36% and 20.44%. Mr Slack proposed that Craigmore could share 50% of any return over 12%, which the tables showed to be dependent on the “Exit Cap Rate” and the “Construction Cost”. He then provided a detailed explanation of the alterations and concessions HAMS was prepared to make to the Council. He said he was confident these addressed the majority of the Council’s concerns, but wrote: 2 Exhibit 11 at [6]. -- 4 of 35 -- 5 “If we do make these concessions however the project is not viable with the current land price. … If we are not able to alter the land price structure we will not be able to present a sensible response to council which will not be in either parties [sic] interests.” [15] In response, Craigmore identified the relocation of the telecommunications infrastructure as the “major item” the cost of which was “totally unknown”. Craigmoor offered to contribute “on completion and presentation of the plan and quote” for the relocation. Craigmoor was prepared to make this contribution by reducing the purchase price to $5 million. Craigmoor’s response concluded advising: “We would be prepared to discuss the sale price and/or a joint venture at a future date once we are clear on what the Council will support and we have a more accurate project cost assessment.” [16] On 22 February 2016, Mr Slack replied to the directors of Craigmoor: “For the purposes of clarity we will be amending the option deed to reflect the following; a. The final purchase price will be calculated by using the current $5.25m purchase price and deducting the actual true costs of identifying, designing and relocating the telecommunications infrastructure (being the Telstra, NBN and Optus pits and cabling). All invoices and quotes will be provided in a completely transparent way upon receipt. Any deduction will be capped at $1m. In the event the price is not known for the works prior to settlement, $1m will be held in trust (the face purchase price adjusted accordingly) and the balance unspent monies rebated once the fixed price of the works is known.3 b. [Craigmoor] will be entitled to 50% of the development profit above a 12% Return on Cost. Internal DM fees will be capped at 3% of total cost. Profit will be determined based upon the sale price of the asset/project. Should asset not be sold within a 6 month period from practical completion – a market valuation will be used to determine profit and end value.4 Could you both please confirm this is acceptable via return email and I will instruct the lawyers accordingly. Once executed it will be only 1-2 weeks to finalise the response to [the Council].” [17] Craigmoor responded “no foreseen problems but subject to solicitors advice”. There followed the production and exchange of draft legal documents. In the course of these exchanges, Mr Slack also requested “a change to the buying entity”. Craigmoor raised no objection to this. 3 The final sentence of this paragraph a. appears to have been added between the first version of the proposal, sent by Mr Slack at 11:29 am, and the second, sent at 2:09 pm on 22 February 2016. 4 The final two sentences of this paragraph b. also appear to have been added between the first and second version of the proposal. -- 5 of 35 -- 6 [18] There were some technical difficulties in the email communications between the parties’ respective solicitors, which appear to have delayed finalisation of a formal agreement on revised terms. [19] On 4 May 2016, when further draft documents were exchanged, the proposal became one involving the rescission of the Original Option Deed by a deed (the Deed of Rescission) and its replacement with a new put and call option deed (the Option Deed) granting Harvest or its nominee an option to purchase the land for $4.25 million, and the execution of the Profit Share Deed (to which the new purchaser Harvest – and not HAMS – would be a party). [20] On 20 May 2016, Craigmoor and HAMS executed the Deed of Rescission,5 and Craigmoor and Harvest executed the Option Deed and the Profit Share Deed. The Option Deed was subject to the Council granting a development permit (or permits) pursuant to a development application by Harvest for approval to develop the land (the development approval condition). It was agreed the development approval condition was for the benefit of Harvest, who could waive it. Mr Slack executed each of these documents on behalf of Harvest or HAMS, as applicable. [21] Also on 20 May 2016, Mr Slack signed, sealed and delivered a deed poll dated 17 May 2016 (the Guarantee). By clause 2(a) of the Guarantee, Mr Slack unconditionally and irrevocably guaranteed the performance by Harvest of all of its obligations under three instruments, including the Option Deed and the Profit Share Deed. As a separate covenant, he indemnified Craigmoor against any loss or damage it may suffer as a result of Harvest failing to fulfil its obligations under those instruments. By clause 2(b) of the Guarantee, Mr Slack capped certain of his obligations (including relevantly those under clause 2(a)) at $500,000.00. [22] These instruments gave effect to the mutually accepted position that Craigmoor was to take on the risk of the costs of relocating the telecommunications pits and cables up to $1 million.6 Craigmoor did so through the reduced purchase price in the Option Deed, compared with the Original Option Deed. If the actual costs, as defined in the Profit Share Deed, were less than $1 million, then Craigmoor could recover the balance under clause 3 of the Profit Share Deed. According to Mr Slack, the option arrangements between Harvest and Craigmoor reflected his preferred strategy of securing a pre-commitment from a large supermarket tenant, as well as planning approvals, and on selling or trading the undeveloped land to a third party to construct the proposed shopping complex.7 [23] On or about 11 August 2017, Harvest signed an agreement for lease (the AFL) with Coles Supermarkets Australia Pty Ltd (Coles) by which Harvest agreed to carry out the buildings, improvements, plant services and other works to be constructed or installed to create a shopping centre complex on the land and to lease between 3,656.25 and 3,750.00 square metres of premises to Coles. The AFL was conditional upon approval of a material change of use to use the land as a shopping complex development. 5 This was pleaded by Craigmoor in paragraph 22 of the amended statement of claim and was not the subject of a denial or non-admission by the defendants in the further amended defence. At the trial, the matter proceeded on the common basis that HAMS had changed its name to Harvest Investment Co Pty Ltd, which was the name of the other party to the Deed of Rescission. 6 Outline of submissions of the defendants filed by leave on 29 January 2020 (Defendants’ outline) at [79](i). 7 Exhibit 9 at [7](a). -- 6 of 35 -- 7 [24] By 20 November 2017, Mr Slack had some information about the price for constructing the proposed shopping complex on the land. He said it was significantly more than an earlier estimate. Mr Slack said he believed there was insufficient profit for Harvest to justify the risk of constructing the development. This was consistent with his view formed in early 2015 that the preferred option was to secure a pre- commitment from Woolworths or Coles and development approval, and then sell the land undeveloped to a third party. [25] On 12 December 2017, Harvest entered into an agreement with Big Fish Developments (Qld) Pty Ltd as trustee for Big Fish Developments Trust (Big Fish) and Robert Joel Comiskey (the Nomination Agreement), dealing with a number of matters, including the transfer of rights and obligations under the AFL from Harvest to Big Fish, Harvest nominating Big Fish to exercise the call option in the Option Deed, and Harvest, as agent for Big Fish, exercising the call option. The Nomination Agreement provided for Big Fish to pay Harvest a nomination fee of $5.5 million plus GST. It was agreed that $250,000.00 of the nomination fee was payable as a deposit upon signing of the Nomination Agreement. [26] On or about 16 January 2018, Coles consented to the assignment by Harvest of its rights and obligations under the AFL to Big Fish. [27] On 31 January 2018, Harvest nominated Big Fish to exercise the call option under the Option Deed, waived the development approval condition, and gave notice that Big Fish exercised the call option. The same day, pursuant to exercise of the call option, Craigmoor and Big Fish entered into a contract for Big Fish to purchase the land for $4.25 million. [28] On 21 February 2018, Big Fish and Harvest settled the Nomination Agreement and Big Fish and Craigmoor settled the contract to purchase the land. As a result, Big Fish paid Harvest the balance of $5.25 million of the nomination fee (having paid Harvest $250,000.00 on signing the Nomination Agreement) and paid Craigmoor the $4.25 million purchase price for the land. The total amount paid by Big Fish for the nomination fee and the purchase price was $9.75 million. The total amount received by Harvest from Big Fish for the nomination fee was $5.5 million and the total amount received by Craigmoor from Big Fish for the purchase of the land was $4.25 million. The dispute and the Expert Determination [29] After completion of the sale, the dispute arose between Craigmoor and Harvest. It was about the liability of Harvest to Craigmoor under clauses 2.1 and 3 of the Profit Share Deed. [30] The Hon R N Chesterman AO RFD QC (the Expert) was appointed as an expert to determine the dispute. Craigmoor and Harvest made written submissions to the Expert. On 3 December 2018, the Expert published his determination and reasons (together, the Expert Determination) to the parties. The reasons comprise 75 paragraphs and, together with the determination, run to 21 pages. The determination appears at the commencement of the published document: “Harvest Investment Co (No. 2) Pty Ltd is liable to pay Craigmoor Pty Ltd the sum of $1,000,000 pursuant to clause 3 of the Profit Share Deed dated 20 May 2016.” -- 7 of 35 -- 8 [31] Following the Expert Determination, Harvest failed to pay any amount to Craigmoor. [32] On 15 March 2019, Craigmoor commenced this proceeding against Harvest. It was consolidated with a proceeding against Mr Slack, which Craigmoor had commenced in the District Court. By the end of the trial, Craigmoor’s case relied on the matters in an amended statement of claim in the consolidated proceeding (the statement of claim)8 and the defendants relied on the matters in the further amended defence of the defendants in the consolidated proceeding (the defence).9 [33] Craigmoor’s primary claim against Harvest in this proceeding is a claim to enforce the binding result of its agreement with Harvest to submit their dispute to expert determination. On that claim, Craigmoor seeks declarations and judgment for $1 million, plus interest and costs. Craigmoor’s alternative claim against Harvest is to enforce Craigmoor’s rights or Harvest’s liabilities under clause 3 of the Profit Share Deed. On the alternative claim, Craigmoor seeks judgement for $950,000.00, plus interest and costs. [34] The different quantum of each of the two alternative claims may be simply explained. At the trial, it was common ground that, by 21 February 2018, Harvest had incurred telecommunication infrastructure costs of $50,000.00.10 Harvest failed to put that fact (or any evidence of it) to the Expert. Rather, before the Expert it was common ground that Harvest had paid nothing by way of Telecommunication Infrastructure Costs. However, for the purpose of determining Craigmoor’s rights under clause 3.1 of the Profit Share Deed, the court must take the actual costs into account. [35] Craigmoor’s claim against Mr Slack is different. He was not a party to the Profit Share Deed. No dispute between Mr Slack and Craigmoor was the subject of the Expert Determination. Craigmoor must prove that Mr Slack is liable under the Guarantee, which in turn requires Craigmoor to prove that Harvest is liable under the Profit Share Deed. Mr Slack’s liability under the Guarantee is capped at $500,000.00, so Craigmoor seeks judgement against him for that amount, plus interest and costs. The Profit Share Deed terms and related matters before the Expert [36] As noted, the dispute before the Expert concerned Harvest’s liability to Craigmoor under clauses 2.1 and 3 of the Profit Share Deed. By those clauses, the parties agreed: “2.1 Harvest to pay Craigmoor Profit Harvest must pay Craigmoor the Craigmoor Profit within 30 days after the later of: (a) settlement of the Sale Contract; and (b) the date a value for the Development is obtained if clause 2.2 applies. … 8 Filed on 24 September 2019. 9 Filed by leave on 29 January 2020. 10 Transcript 1-5 L36-43. This was confirmed by an amendment to paragraph 58 of the defence, to admit the factual allegation made in paragraph 30 of the statement of claim. -- 8 of 35 -- 9 3. Telecommunication Infrastructure Costs 3.1 Obligation to pay In the event the Telecommunication Infrastructure Costs are less than $1million dollars [sic] Harvest must pay to Craigmoor an amount equal to the difference between $1 million and the Telecommunication Infrastructure Costs. 3.2 When to pay Any amount payable under clause 3.1 must be paid within 30 days of determination of the amount of the Telecommunications Infrastructure Costs.” [37] The terms “Craigmoor Profit”, “Sale Contract”, “Development”, “Development Costs” and “Telecommunications Infrastructure Costs” are defined in clause 1.1 of the Profit Share Deed: “Craigmoor Profit means the lesser of: (a) an amount calculated as follows: CP = 𝑆𝑃 − (𝐷𝐶 x 1.12) 2 CP = Craigmoor Profit SP = Sale Price or the value of the Property11 calculated under clause 2.2 (whichever applies) DC = aggregate of all Development Costs; and (b) $1,000,000.00, provided, however, that where the sum of the Craigmoor Profit and the amount (if any) paid by Harvest to Craigmoor under clause 3.1 exceeds $1,000,000.00 the Craigmoor Profit will be $1,000,000.00 less the amount paid by Harvest to Craigmoor under clause 3.1.” “Development means the development of the Property as a regional supermarket or such other use as is determined by Harvest.” “Development Costs means all costs reasonably incurred in relation to the Development, and to avoid doubt includes all costs relating to the Development irrespective of whether incurred by Harvest or another entity in which Chris Slack was a director at the relevant time …” “Sale Contract means a contract including put and call option agreement, under which a third party acquires the Property from Harvest or a related entity of Harvest, so that Harvest or a related entity of Harvest no longer has any interest in the Property or the Development.” 11 Property is also defined in clause 1.1 of the Profit Share Deed, as the land. -- 9 of 35 -- 10 “Telecommunications Infrastructure Costs means all Development Costs incurred in relation to the relocation of the telecommunications infrastructure (including the telecommunications pits).” [38] The Profit Share Deed also included the following agreed provisions about record keeping for Development Costs and Telecommunications Infrastructure Costs: “2.4 Harvest to keep records (a) Harvest must keep accurate and up to date accounting records of the Development Costs and on or before the 15th day of each quarter, Harvest must give Craigmoor a statement of the Development Costs incurred during the previous quarter. On the anniversary of each 12 month period following the date of this Deed, Harvest must give Craigmoor a statement prepared by a qualified chartered accountant or certified practising accountant which contains reasonable details of the Development Costs incurred during the previous 12 month period. Included with the first statement which Harvest is required to provide must be reasonable details of any Development Costs for any period which Harvest intends to include in the calculation of the Craigmoor Profit. (b) To avoid doubt it is expressly agreed that all costs relating to the Development will be included as Development Costs irrespective of whether the costs were incurred by Harvest or any another [sic] entity in which Chris Slack was at the relevant time a director. … 2.7 Telecommunications infrastructure costs Harvest must keep a separate record of the Telecommunications Infrastructure Costs.” [39] The parties to the Profit Share Deed also agreed: “5.1 Nature of obligations (a) … (b) Each obligation imposed on a party by this Deed in favour of another is a separate obligation. Unless specified otherwise, the performance of one obligation is not dependent or conditional on the performance of any other obligation. 5.2 Entire understanding (a) This Deed contains the entire understanding between the parties concerning the subject matter of the Deed and supersedes, terminates and replaces all prior agreements and communications between the parties. -- 10 of 35 -- 11 (b) Each party acknowledges that, except as expressly stated in this Deed, that party has not relied on any representation, warranty or understanding of any kind made by or on behalf of another party in relation to the subject matter of this Deed.” [40] For the expert determination process, Craigmoor and Harvest had agreed on ten factual matters, which the Expert recited in paragraph 1 of the Expert Determination. These matters are referred to at [4], [8], [12], [20], [22], [23], [25], [26], [27] and [28] above. [41] In light of the $1 million cap in the proviso to the definition of Craigmoor Profit, the Expert’s decision on Harvest’s liability under clause 3 meant it was unnecessary to consider the claim under clause 2.1 of the Profit Share Deed. In this proceeding, Craigmoor does not assert any rights against Harvest pursuant to clause 2.1.12 Meaning of manifest error [42] In this proceeding, the defendants did not contend that the Expert Determination failed to answer the description of what the Expert was required to determine according to the Profit Share Deed. The only basis of challenge is that the Expert Determination is affected by manifest error. This expression is found in clause 4.3(a) of the Profit Share Deed: “4.3 Obligations of parties If an Expert is required to resolve a Dispute: (a) the Expert’s determination will, except in the case of manifest error, be final and binding on the parties”. [43] In the Profit Share Deed, the parties did not agree that a particular definition or meaning of “manifest error” was to apply in this clause of the deed. [44] Citing TX Australia Pty Ltd v Broadcast Australia Pty Ltd,13 at [20] and [21], the defendants submitted that the expression “manifest error” as used in the Profit Share Deed “would, as a matter of law, include an error of law”.14 [45] The two paragraphs of the reasons of Brereton J are as follows: “[20] In this context ‘manifest error’ is an error presented upon the face of the Expert’s determination and accompanying reasons, and does not distinguish between ‘facile errors’ and ‘those of complexity’, nor between obvious errors and less obvious errors, nor between errors of law and errors of fact (although, as errors of law are separately addressed, without any requirement that they be manifest, ‘manifest error’ will usually be relevant in the case of non-legal error). The key requirement is that the error be apparent on the face of the determination and reasons. 12 Transcript 1-7 L36-38. 13 (2013) 29 BCL 266 (TX Australia). 14 Defendants’ outline at [114]. -- 11 of 35 -- 12 [21] An ‘error of law’ includes at least the usual grounds on which courts will review the decisions of administrators or arbitrators. I shall address those that are relevant as they arise, below.”15 [46] It is apparent, one might say “manifest”, that the cited passage is not authority for the contention advanced. At [20], Brereton J noted that the parties before him “separately addressed” errors of law so that such an error did not need to be a manifest error. In that instance, the parties had agreed the expert’s determination “shall be final and binding on both parties except in the case of manifest error, negligence, fraud, error of law” or any breach of certain conflicts of interest.16 At [21], Brereton J gave some content to the separate ground of “error of law”, absent any requirement that it be manifest. The defendants’ citation could not be described as “apt to assist the Court materially in resolving the real matters in dispute”.17 [47] In Westport Insurance Corporation v Gordian Runoff Ltd,18 the High Court resolved a number of difficulties about the meaning of “manifest error of law on the face of the award” in s 38(5)(b)(i) of the Commercial Arbitration Act 1984 (NSW). The joint majority judgment concluded that: “the words ‘a manifest error of law on the face of the award’ comprise a phrase which is to be read and understood as expressing the one idea. An error of law either exists or does not exist; there is no twilight zone between the two possibilities. But what is required here is that the existence of error be manifest on the face of the award, including the reasons given by the arbitrator, in the sense of apparent to that understanding by the reader of the award.”19 [48] In a separate judgment, Keifel J agreed that: “manifest error of law requires that the error appear on the face of the Award, which includes the reasons for it, and that the error be apparent to the understanding of the reader. … It does not require that the error be of a particular quality or that errors involving complex questions be disqualified.”20 [49] I respectfully adopt the view of Jackson J, in Civil Mining & Construction Pty Ltd v State of Queensland,21 that many of the cases decided before Westport should be viewed with some caution as to finer points of the meaning of manifest error. [50] By clause 4.3(a) of the Profit Share Deed, Craigmoor and Harvest agreed to bind themselves to an expert determination and to confine the circumstances in which it could be challenged. By clause 4.2(b) they expressly provided that an expert appointed pursuant to the Profit Share Deed was not to act as an arbitrator. Any specific considerations arising when the court is asked to review an arbitrator’s 15 TX Australia at 271 (citations omitted). 16 See TX Australia at 270 [14]. 17 Supreme Court of Queensland, Practice Direction No 16 of 2013, 18 October 2013, [2](b). TX Australia was cited as an unreported judgment, [2012] NSWSC 4, so that [5] of the Practice Direction should also have been considered. 18 (2011) 244 CLR 239 (Westport). 19 Westport at 267-268 [42] (French CJ, Gummow, Crennan and Bell JJ). 20 Westport at 301 [163]. 21 [2013] QSC 214 at [25]. -- 12 of 35 -- 13 decision do not arise in this case. The nature of an expert determination process is neither arbitral nor judicial.22 It has advantages of expedition and economy.23 Those advantages were promoted, in this instance, by the confined scope for challenge to an expert determination. [51] In its usual or ordinary meaning, a manifest error relevantly includes an error of law apparent from a reading of the decision and the reasons of the decision-maker. There is no call for the expression to have an unusual or extraordinary meaning in the Profit Share Deed. In the oral submissions, the defendants’ counsel seemed to accept this to be correct.24 Alleged manifest errors [52] The defendants pleaded two manifest errors. [53] The first was an alleged failure to consider the recitals, the definition of “Telecommunication Infrastructure Costs” in clause 1.1 and the text of clause 3.1 of the Profit Share Deed “in order to identify the context and purpose” of the deed.25 [54] The second was an allegation that the Expert “made a central finding” about the purpose of the Profit Share Deed being to recompense Craigmoor, which finding was: “(i) not one contended for by Craigmoor; (ii) [abandoned]; (iii) not one referenced by the expert in the Expert Determination as appearing in any material before the Expert; (iv) not one supported by reference to any term of the Profit Share Deed; (v) inconsistent with the true purpose as set out in paragraph 20 above as appears from paragraphs 15, 18 and 19 above; and (vi) simply wrong.”26 [55] In a written outline of submissions and in address at the conclusion of the evidence, the defendants’ counsel contended that these two errors “may be characterised in three ways”. These were said to be: “118. First, the Expert approached the task of contractual interpretation incorrectly. He applied an incorrect test. 119. Second, and in any event, the Expert identified an incorrect ‘purpose’ of the Profit share deed. 22 Shoalhaven City Council v Firedam Civil Engineering Pty Ltd (2011) 244 CLR 305 (Shoalhaven) at 315 [26] (French CJ, Crennan and Keifel JJ). In some instances, a process designated as an “expert determination” may in fact be closer to an arbitration, when the terms of the parties’ agreement and the basis of engagement of the “expert” are examined. The parties raised no such question in this proceeding. 23 Zeke Services Pty Ltd v Traffic Technologies Ltd [2005] 2 Qd R 563 (Zeke Services) at 570 [27] (Chesterman J), cited with evident approval by French CJ, Crennan and Kiefel JJ in Shoalhaven at 315 [25]. 24 Transcript 2-73 L31-43. 25 Defence at [24]. 26 Defence at [25]. -- 13 of 35 -- 14 120. Third, inexplicably, the Expert did not refer to the obvious statement by the parties of their intention as expressed in the Recitals to the Profit share deed. Had he done so, he could not have, as a matter of logic, come to the conclusion reached by him.” [56] Counsel for Craigmoor objected that the “first characterisation” was wholly new and unpleaded.27 It may be part of Harvest’s second pleaded error – that the Expert identified “an incorrect purpose” of the Profit Share Deed. In any event, it is convenient to deal with each of the three characterisations separately, as counsel for the defendants did, so that their case may be understood. First characterisation: the approach to contractual interpretation [57] For the defendants, it was submitted that the Expert made “a clear error of law” in construing the Profit Share Deed by reference to the provisions of the deed. This, it was submitted, was an error of law in applying “an incorrect test” that gave “primacy to the text”. It was said to be contrary to the decisions of the High Court in Electricity Generation Corporation v Woodside Energy Ltd,28 Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd29 and Rinehart v Hancock Prospecting Pty Ltd.30 [58] This submission was said to be supported by the following passage in the reasons of Edelman J in Rinehart: “Every clause in a contract, no less arbitration clauses, must be construed in context. No meaningful words, whether in a contract, a statute, a will, a trust, or a conversation, are ever acontexual.”31 [59] In Rinehart, the High Court was construing the expression “any dispute under this deed” in an arbitral clause.32 In the joint judgment, the majority cited, with evident approval, the conclusion of the Full Federal Court that “[c]ontext will almost always tell one more about the objectively intended reach of such phrases than textual comparison of words of a general relational character”.33 Their Honours continued: “There may be cases which have to be resolved largely, if not entirely, by reference to the language of the arbitral clause in question. But this is not such a case. The background to and the purposes of the Deeds, as reflected in their terms, point clearly to arbitral clauses of wide coverage with respect to what was to be the subject of confidential processes of dispute resolution.”34 [60] The passage from the judgment of Edelman J, on which the defendants relied, followed immediately his Honour’s statement of agreement with the reasons in the joint judgment of the other members of the court for refusing leave to intervene and dismissing the appeals.35 27 Transcript 2-74 L13-15. 28 (2014) 251 CLR 640 (Woodside Energy). 29 (2015) 256 CLR 104 (Mount Bruce Mining). 30 (2019) 93 ALJR 582 (Rinehart). 31 Rinehart at 600 [83]. 32 See Rinehart at 587 [10]. 33 Rinehart at 589 [26] (Kiefel CJ, Gageler, Nettle and Gordon JJ). 34 Rinehart at 589 [26] (citations omitted). 35 The separate reasons of his Honour arise from a dissenting view on the cross-appeal. -- 14 of 35 -- 15 [61] Unlike the arbitral clause in Rinehart, clause 3 of the Profit Share Deed includes no “words of a general relational character”. Neither his Honour’s reasons nor those of the other members of the High Court in Rinehart support the defendants’ submission that the Expert made “a clear error of law” by construing the deed by reference to the provisions of the deed. [62] Next, the defendants relied on the judgment of French CJ, Nettle and Gordon JJ in Mount Bruce Mining, extracting the following paragraph in their written submissions: “In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. That enquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract.”36 [63] Their Honours’ joint judgment continued, in a passage not extracted or cited by the defendants: “Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning.”37 [64] A passage from Woodside Energy was cited as authority, where French CJ, Hayne, Crennan and Kiefel JJ explained: “The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract.”38 [65] Each of these decisions identifies the language used by the parties in the contract as the starting point for construing a clause. None deprecates a process that may end at that same point. Indeed, that is what may ordinarily occur. It follows that these decisions are not authority for the defendants’ submission that the Expert Determination was affected by an error of law because the Expert gave “primacy” to the text.39 [66] The defendants also relied on two earlier authorities about statutory construction. In Project Blue Sky Inc v Australian Broadcasting Authority,40 the majority used the word “context” to refer to “the language and purpose of all the provisions of the statute” and “the language of the instrument viewed as a whole”. In CIC Insurance 36 Mount Bruce Mining at 116 [47] (citations omitted). 37 Mount Bruce Mining at 116 [48], citing Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 at 352 (Mason J). 38 Woodside Energy at 656-657 [35] (citations omitted). 39 The defendants explain that a “simple word search reveals” that “the word ‘primacy’ does not appear in the reasons for judgment” in Woodside Energy, Mount Bruce Mining and Rinehart: Defendants’ outline at [125]. This confirms the continuing importance of human practitioners in the legal process, over algorithms, when unconsidered word searches may lead to unhelpful submissions. 40 (1998) 194 CLR 355 at 381 [69] (McHugh, Gummow, Kirby and Hayne JJ). -- 15 of 35 -- 16 Ltd v Bankstown Football Club,41 the “context” of a statutory provision was the existing state of the law and the mischief to be overcome. Neither leads to a conclusion that it is an error of law to construe a provision in a commercial contract by reference, in the first place, to the terms of the contract as a whole. [67] The defendants also cite Victoria v Tatts Group Ltd.42 In that decision, the High Court construed the expression “new gaming operator’s licence” by reference to the text of the provision, the relevant definition in the agreement and the operation of related clauses in the agreement,43 before observing that the construction derived in that way was “further supported by the context and purpose” of the agreement.44 [68] In the Expert Determination, the Expert dealt briefly with the “relevant legal principles for construing a commercial contract”, noting they were “well known.” The Expert cited Mount Bruce Mining as “the most recent pronouncement by the High Court” and extracted several passages. These included paragraph 46 from the judgment of French CJ, Nettle and Gordon JJ: “The rights and liabilities of parties under a provision of a contract are determined objectively, by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose”,45 and paragraphs 47 and 48, which are set out at [63] and [64] above. [69] The Expert also extracted the following passage from the judgment of Bell and Gageler JJ: “… the proper interpretation of each of those terms is to be determined by reference to what reasonable businesspersons having all the background knowledge then reasonably available to the parties would have understood those terms to have meant as at [the date of the contract].”46 [70] No error is apparent in Expert’s the summary of the relevant principles. [71] In the Expert Determination, the Expert identified and considered the recitals, the definitions of “Craigmoor Profit”, “Development”, “Development Costs”, “Sale Price” and “Sunset Date” in clause 1.1, and clauses 2.1, 2.2, 2.4, 2.5, 2.7, 3.1, 3.2 and 5.1(b) of the Profit Share Deed. He also considered the terms and conditions of the Option Deed, the AFL (and the proposed lease it contained), the Nomination Agreement, and the agreed factual background to the transaction. [72] The defendants contended that the Expert’s rejection of Harvest’s submission about the interpretation of the Profit Share Deed was “an error of law on the face of the expert determination”. The Expert summarised Harvest’s submission in this way: “Harvest’s major premise is that the commercial purpose underlying the Profit Share Deed (and the Option Deed) is that the Development must be completed, a shopping centre built, and the Property sold or 41 (1997) 187 CLR 384 at 408 (Brennan CJ, Dawson, Toohey and Gummow JJ). 42 (2016) 328 ALR 564 (Tatts). 43 Tatts at 575-577 [51]-[60] (French CJ, Kiefel, Bell, Keane and Gordon JJ). 44 Tatts at 577 [61] (French CJ, Kiefel, Bell, Keane and Gordon JJ). 45 Mount Bruce Mining at 116 [46] (citations omitted). 46 Mount Bruce Mining at 134 [120]. -- 16 of 35 -- 17 valued to determine whether Harvest made a profit before any money can be payable under the Profit Share Deed. By the time the shopping centre is built all Development Costs, including those of moving the cables and pits, would be ascertained. Harvest argues that the Profit Share Deed does not contemplate the assessment of profit under clause 2 before the shopping centre is built, or there being any liability under clause 3 before the cables have been relocated. It contends that the Profit Share Deed does not apply to what it calls the Early Disposal of the Property.”47 [73] The Expert extracted part of Harvest’s submissions to him about the dispute, which he considered made Harvest’s point most clearly, including the following: “Necessarily, the Profit Share Deed applies only if the development proceeds. The Deed does not address, and does not apply to, any circumstances by which the Property is not developed. As for the commercial purposes or objects to be secured by the Agreement, it is a Profit Share Deed. If the Development does not proceed and a profit generated, then there is no additional payment to Craigmoor”.48 [74] The Expert considered and rejected these submissions by Harvest, providing the following reasons: “37. There are difficulties with this approach. Firstly, it promotes the commercial purpose of the Profit Share Deed above the words the parties chose to state their agreement in the task of ascertaining the parties’ intention. This inverts the process described in Mount Bruce Mining, which gives primacy to the text, the parties’ words. Secondly, to the extent that one may have regard to commercial purpose to construe an agreement the purpose must appear from the terms of the agreement as a whole. It is not permissible to predicate a commercial purpose and then impose it on the agreement to arrive at what the parties ‘must have meant’. 38. One then must look at whether the Profit Share Deed and the Option Deed demonstrate the commercial purpose of sharing profits and/or paying a shortfall in telecommunication removal costs only after the shopping centre has been built and the removal costs incurred. Harvest argues that such a purpose is evident, and that to attempt to apply the terms of the Profit Share Deed to the Early Disposal requires the terms to be ‘strained’. 39. The Profit Share Deed expressly contemplates that Harvest might sell the Property and does not express any limit on when the sale might take place. That is to say the Profit Share Deed can operate according to its terms and without straining its language in the event that Harvest sold the property at any stage of the Development, from application for a development 47 Expert Determination at [35]. 48 Expert Determination at [36]. -- 17 of 35 -- 18 permit to final completion of the shopping centre. The Craigmoor Profit as defined can be ascertained immediately upon the sale by comparing the sale price with the Development Costs incurred to the point of sale. 40. Moreover, the Option Deed expressly contemplates that Harvest might dispose of all or part of its interest in the Property prior to the exercise of the Call Option. The two Deeds, the Option Deed and the Profit Share Deed, must be read together to gain an understanding of the parties’ transaction. 41. The two Deeds operate according to their terms. They were executed at the same time and record the parties’ whole transaction. If, as Harvest contends, the Profit Share Deed is operable only in one event, that development proceed to completion whether or not by Harvest, one would expect some indication in the text to that effect. Instead one has an Option Deed allowing the option to be exercised by Harvest’s nominee and a contemporaneous Profit Share Deed which specifies payments to be made by Harvest to Craigmoor by reference to described circumstances which do not include a limitation that the payments are due only when the shopping centre is built. 42. Under clause 3 Harvest must pay the difference between $1,000,000 and the Telecommunication Infrastructure Costs. The difference is payable within 30 days of ascertaining the amount of those costs. 43. Likewise, under clause 2 Harvest must pay Craigmoor the Craigmoor Profit within 30 days of settlement of a sale contract as defined by the Profit Share Deed. 44. To repeat the point, the clauses can operate whenever the Property is sold, at whatever stage of the development. 45. The terms of the Profit Share Deed can apply to the circumstances described by Harvest, but they can also apply to the circumstances of an Early Disposal. Harvest relies in part on the Sunset Date as showing when the profit, if any, was to be determined, but that provision only sets the latest time by which any profit is to be ascertained. It does not provide that a profit cannot be determined earlier.” [75] It is apparent from these reasons that the Expert considered the terms of the Profit Share Deed and the Option Deed and the agreed factual background to the transaction to test whether they revealed the purposes and objects for which Harvest contended. The Expert found they did not.49 No error of law is apparent. I reject the defendants’ contention that the Expert Determination is affected by manifest error in the Expert’s approach to contractual interpretation. 49 Read in the context of the following paragraphs 38 to 45 of the Expert Determination, the Expert’s reference in paragraph 37 to “commercial purpose” is to the commercial purpose alleged by Harvest. -- 18 of 35 -- 19 Second characterisation: the purpose of the Profit Share Deed [76] The second manifest error for which the defendants contended was said to be found in paragraph 46 of the Expert Determination: “The commercial purpose of the [Profit Share Deed] was to recompense Craigmoor for the reduction in price by allowing it to share in any profit (as defined) from Harvest’s disposition of the Property, and/or from any savings in Telecommunication Infrastructure Costs. The purpose is apparent from the terms of the Profit Share Deed.” [77] The defendants submitted to the court that: “133. The expert does not identify which terms of the Profit share deed he is referring to. With respect to the Expert, there is no such term that refers to such a purpose. Nowhere in the Profit share deed are there any words that support such a ‘purpose’. 134. There is no reference in the Profit share deed or the option deeds to any ‘reduction in price’ or ‘recompense’.” [78] The conclusion in paragraph 46 followed the analysis in paragraphs 37 to 45 of the Expert Determination, extracted at [74] above. In paragraphs 39 and 43, the Expert referred to clause 2.1 of the Profit Share Deed, which “expressly contemplates that Harvest might sell the Property” without fully completing any proposed development, and makes the relevant amount “payable within 30 days” after settlement of the Sale Contract (as defined in clause 1.1) or the valuation under clause 2.2, and to the definition of “Craigmoor Profit” in clause 1.1, which “can be ascertained immediately upon the sale”. In paragraphs 40 and 41 of the Expert Determination, the Expert referred to clause 4.1 of the Option Deed, which “expressly contemplates that Harvest might dispose of all or part of its interest in the Property prior to the exercise of the Call Option” and allows “the option to be exercised by Harvest’s nominee”. In paragraph 42 of the Expert Determination, the Expert referred to clause 3.2, which makes the relevant amount “payable within 30 days of ascertaining the amount”. [79] The Expert had set out each of these terms in paragraphs 2 to 12 (for the Profit Share Deed) and 25 (for the Option Deed) of the Expert Determination. [80] The agreed facts before the Expert included execution of the Original Option Deed with the $5.25 million purchase price, the $1 million estimate of the cost of relocating the telecommunications cables and pits, execution of the Option Deed with the $4.25 million purchase price, and the following description of the Profit Share Deed: “under the Profit Share Deed Harvest was obliged to pay Craigmoor (i) an amount, called the ‘Craigmoor Profit’, which could not exceed $1,000,000 but might be nothing, and (ii) an amount of $1,000,000 less the cost of relocating the telecommunication cables and pits. If the sum of the two amounts exceeded $1,000,000 the amount of the ‘Craigmoor Profit’ was to be reduced by the amount payable under the second obligation. The intention was that Harvest’s liability under both obligations was not to exceed $1,000,000”.50 50 Expert Determination at [1](f). -- 19 of 35 -- 20 [81] In Harvest’s written submissions to the Expert, it had put the following: “As for the circumstances addressed by the Agreement,51 the original sale price was reduced to reflect the increased cost of the telecommunication relocation works and to provide Craigmoor with a share in the upside in specified circumstances. Namely, if the telecommunication relocation costs came in lower than anticipated or Harvest made more than twelve percent return on investment, then a share of that profit would be paid to Craigmoor.” [82] The defendants’ submission about the second characterisation of the alleged manifest error must be rejected. The Expert identified the terms of the Profit Share Deed (and the related agreements) to which he was referring and the relevant background facts known to both parties. The “reduced” sale price was among the matter the parties addressed by the Profit Share Deed. In the circumstances, no error is apparent in the description of the purpose in paragraph 46 of the Expert Determination. Third characterisation: the recitals to the Profit Share Deed [83] The third “characterisation” of the defendants’ alleged manifest error is expressed in this way in their written submissions to the court: “The Expert did not anywhere in the expert determination look at context or refer to the recitals to the Profit share deed. He did not set out any of the recitals with emphasis as to why they are relevant to text, context and purpose. Had he done so, and noting the recognition given to the recitals in Rinehart at para [31] to [32], he could not have arrived at the purpose that he did.”52 [84] This submission must also be rejected. [85] As noted at [40] above, the Expert identified the agreed factual context for the Profit Share Deed at the outset of the Expert Determination. [86] The Expert set out the recitals in full in paragraph 50 of the Expert Determination. The Expert did so in the course of considering Harvest’s submission that: “… the expression ‘Development Costs’ is not to be limited to costs expended by Harvest, and to construe this expression otherwise would be inconsistent with the: (a) clear wording of the Deed; (b) balance of the terms of the Deed; and (c) factual background and commercial purpose of the deed. 51 Harvest’s reference to the “Agreement” may be to the Profit Share Deed or to the whole of the transaction on 20 May 2016, comprised of execution of the Deed of Rescission, the Option Deed, the Profit Share Deed and the Guarantee. The precise meaning might have been clear if the whole of Harvest’s written submissions to the Expert were before the court. However, the defendants objected to Craigmoor tendering any documents that were before the Expert and, after the defendants made some concessions about their defence, Craigmoor did not press the tender. These reasons proceed on the basis that the “Agreement” at least includes the Profit Share Deed. 52 Defendants’ outline at [135]. -- 20 of 35 -- 21 … the phrase under consideration is … all costs reasonably incurred in relation to the Development … There is no temporal limit or other limit as to which entity incurs the costs. There is no reason to read down the words.”53 [87] The recitals were among the items considered by the Expert and from which he concluded: “The Profit Share Deed contemplates that, subject to Harvest’s right to nominate a purchaser under the Option Deed, and its right to sell the Property at any time, Harvest would develop the Property and incur Development Costs as defined. It would be an odd reading of the term ‘Development Costs’ if they were not those costs incurred and paid for by Harvest.”54 [88] The Expert also identified “more explicit indications that Development Costs are those incurred by Harvest”.55 [89] The practice of including recitals in agreements is “common and longstanding”.56 They “often set out aspects of the background or context to the transaction which is the subject of the agreement”.57 In OneSteel Manufacturing Pty Ltd v BlueScope Steel (AIS) Pty Ltd,58 Allsop P observed: “The recitals to the agreement set out those aspects of the background that give explanation to the transaction. There may be other background facts, but the recitals reveal the background chosen by the parties by way of the identification of relevant context. The recitals can assist in interpretation of operative provisions, though they do not control the latter’s operation when clear and unambiguous”. [90] His Honour cited the judgment of Lord Esher MR in Ex parte Dawes; Re Moon,59 in which the following appears: “If the recitals are clear and the operative part is ambiguous, the recitals govern the construction. If the recitals are ambiguous, and the operative part is clear, the operative part must prevail. If both the recitals and the operative part are clear, but they are inconsistent with each other, the operative part is to be preferred.” [91] The recitals to the Profit Share Deed were as follows: “A. Craigmoor has contracted to sell the Property to Harvest. B. Following completion of the sale, Harvest intends to develop the Property. C. Harvest has agreed to share the profit of the development with Craigmoor in accordance with this deed.” 53 Expert Determination at [49]. 54 Expert Determination at [50]. 55 Expert Determination at [50]-[55]. 56 Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603 at 695 [379] (Campbell JA). 57 Schwartz v Hadid [2013] NSWCA 89 at [81] (Meagher JA) (Schwartz). 58 (2013) 85 NSWLR 1 at 21 [65] (citations omitted, emphasis in original), cited with approval by Meagher JA in Schwartz at [81] and Bond J in Baldwin v Icon Energy Ltd [2018] QSC 233 at [116]. 59 (1886) 17 QBD 275 at 286 (Lindley and Lopes LJJ agreeing). -- 21 of 35 -- 22 [92] The Profit Share Deed recitals are quite unlike the detailed narrative in the deed in Rinehart.60 As well, the Expert’s task in construing clause 3 did not involve defining the limit of words of a general relational character, such as those in Rinehart. [93] In recital A, Craigmoor and Harvest record that “Craigmoor has contracted to sell the Property to Harvest”. That was quite incorrect. No such contract was then in existence and none came into existence. Craigmoor had granted Harvest an option to acquire the land. The option was conditional. Harvest was not bound to exercise it. Harvest could nominate another to exercise it. It is an example of inaccurate drafting that the parties did not correct. It might be understood as poor attempt to refer to the Option Deed, which was the other instrument to which Craigmoor and Harvest were parties. Both deeds were entered into on the same day and as part of a transaction that included the Deed of Rescission. With respect correctly, the Expert considered the Option Deed and its relevant terms as part of the context in which clause 3 of the Profit Share Deed was to be construed.61 These were parts of the factual background, unlike the incorrect recital. [94] In recital B, the parties recorded that Harvest intended to develop the land. The defendants contended this was a reference to the completion of all work to develop and construct the proposed shopping complex on the land. There is no reason to confine the general expression in that way. [95] In recital C, the parties recorded, in very general terns, the effect of clause 2. It provides no more context for clause 3 than clause 2 does. [96] None of the three recitals refers to clause 3 or to Telecommunication Infrastructure Costs. It follows, as the defendants’ counsel eventually accepted, the recitals do not contain the entirety of the purpose of the Profit Share Deed and it is not possible to determine the purpose of the deed solely by reference to the recitals.62 [97] In the history of the negotiation of the instruments, the obligation in clause 2 of the Profit Share Deed arose from the earlier proposal of Mr Slack to Craigmoor, to give Craigmoor a share of the “return” if the Project resulted in Harvest achieving a “super- profit”; and the obligation in clause 3 arose from an agreement that Craigmoor was to take on the risk of the costs of relocating the telecommunications infrastructure up to $1 million,63 with a right to recoup any underspend by Harvest on those costs. [98] It is of little importance that the recitals to the Profit Share Deed do not refer to the Telecommunication Infrastructure Costs, which are the subject matter of clause 3. Clause 3 is not difficult to interpret. Its purpose is plain from its terms. In construing “Telecommunication Infrastructure Costs”, the Expert applied the analysis he had used for “Development Costs”, noting that the parties had defined “Development Costs” to include “Telecommunication Infrastructure Costs”.64 He had considered the agreed definition in the Profit Share Deed65 and the other operative terms that dealt with Development Costs, and Harvest’s submission on the meaning of the defined expression.66 60 See Hancock Prospecting Pty Ltd v Rinehart 257 FCR 442 at 459 [65]. 61 Expert Determination at [40]-[41]. 62 Transcript 2-27 L1-17. 63 Defendants’ outline at [79](i). 64 Expert Determination at [55]. 65 Expert Determination at [9]-[11]. 66 Expert Determination at [49]-[55]. -- 22 of 35 -- 23 [99] As the Expert appreciated, clause 3 gave effect to part of the bargain, negotiated in the preceding months, which, in its final form, involved the rescission of the Original Option Deed and the entry into the Option Deed with a reduced purchase price for the land. [100] The defendants’ third characterisation of the alleged manifest error is unfounded. In the Expert Determination, the Expert did consider the context of clause 3 and referred to the recitals. He set out the recitals and considered them to the extent they were relevant to text, context and purpose of the transaction. There was no evident error in the Expert’s description of the purpose of clause 3 in this regard. Conclusion on the pleaded manifest errors [101] The defendants’ first pleaded error – that the Expert failed to consider the recitals, the definition of “Telecommunication Infrastructure Costs” in clause 1.1 and the text of clause 3.1 of the Profit Share Deed67 – is simply wrong. The Expert considered each of those elements of the Profit Share Deed in the Expert Determination. [102] The second pleaded error was not the subject of any specific written or oral submissions at the conclusion of the trial. It is convenient to consider it against any relevant evidence and the conclusions reached above about the defendants’ three characterisations of the alleged errors. Whether purpose not contended for by Craigmoor [103] The defendants failed to establish their allegation that the Expert’s “central finding” as to the purpose of the Profit Share Deed was not one contended for by Craigmoor. The defendants did not put Craigmoor’s submissions to the Expert into evidence. When Craigmoor sought to do so, the defendants objected to the tender of any material put before the Expert, on the ground that clause 4.3(e) of the Profit Share Deed prevented the tender. That clause is in these terms: “4.3 Obligations of parties If an Expert is required to resolve a Dispute: … (e) any information or documents disclosed by a party under this clause 4 must be kept confidential and cannot be used (and cannot be called into evidence in any subsequent litigation by any party) except to attempt to resolve the Dispute in circumstances where the parties have consented to such disclosure”. [104] The objection was resolved by the defendants making certain concessions about their pleaded case68 and Craigmoor not pressing the tender of the material before the Expert. So there was no evidence before the court from which it could be concluded that Craigmoor did not contend for such a conclusion as to the purpose of the Profit 67 Defence at [24]. 68 On 29 January 2020, by leave, the defendants filed their further amended defence. Amendments to paragraphs 24 and 25 of the defence meant that the defendants no longer relied on the matters in paragraphs 8 to 14, 16, 17 or 20 to 23 as a basis to contend that the Expert Determination was affected by manifest error. -- 23 of 35 -- 24 Share Deed. Given the basis of the defendants’ objection to the tender of the material, it could hardly be thought Craigmoor bore any onus to prove it did put such a contention to the Expert. [105] Had there been evidence that Craigmoor did not advance the contention, it may not have assisted the defendants. This is because the role of the Expert was expressly to “act as an expert and not as an arbitrator”. The Expert was not limited to accepting or rejecting contentions put by Craigmoor and Harvest. He was to apply “his own store of knowledge, his expertise, to his observations of facts, which are of a kind with which he is familiar”.69 He was required to provide his expert opinion on the dispute, not to arbitrate or adjudicate between the rival contentions. Reference to material and terms [106] If the defendants’ complaint in subparagraphs 25(iii) and (iv) of the defence is that the Expert cited no “material” or “term” in which the purpose of the Profit Share Deed was set out in the language used by the Expert, that is not an error. Commonly, commercial agreements do not include a specific provision as to their “purpose”. The Profit Share Deed had none. Nor did the parties describe the purpose of their transaction in a statement or document to which the Expert could refer. It was not an error for the Expert to proceed to determine the purpose of the transaction by examination of the Profit Share Deed as a whole, including the recitals, and, where appropriate, the related instruments and the surrounding circumstances known to the parties. [107] The Expert’s analysis of the Profit Share Deed in the Expert Determination shows that his conclusion about its purpose was supported by the context of the other provisions, including the definitions of “Craigmoor Profit”, “Development Costs” and “Telecommunication Infrastructure Costs” in clause 1.1, and clauses 2.1, 2.2, 3 and 5.1(b), as well as by provisions of the Option Deed and the matters commonly known about the circumstances of the transaction set out in the agreed facts. The defendants’ alleged purpose of the Profit Share Deed [108] In paragraph 20 of the defence, the defendants alleged that: “20. As at the date of entering into the Profit Share Deed, the context and purpose of the Profit Share Deed was: (a) as set out in Recitals A, B and C. of the Profit Share Deed, namely to share such profit that was made following the purchase by Harvest of the Property and the development of that Property by Harvest, in accordance with the Profit Share Deed (“Profit share”); (b) that the Profit share would include both the Craigmoor Profit (as that term is defined in the Profit Share Deed) and any amount payable under clause 3.1 of the Profit Share Deed but limited in total to the sum of $1million; and 69 Zeke Services at 570 [27] (Chesterman J), cited with evident approval by French CJ, Crennan and Kiefel JJ in Shoalhaven at 315 [25]. -- 24 of 35 -- 25 (c) that the Profit share would be payable only in the event of there being a profit by reason of the development by Harvest of the property and making of a profit of more than 12% return on investment or the costs of the Telecommunication Infrastructure Costs incurred being less than $1million.” [109] The defendants alleged that this purpose “appears from” the recitals, the definition of Telecommunication Infrastructure Costs in clause 1.1, and clause 3.1 of the Profit Share Deed.70 They pleaded that the Expert Determination is in error because it is inconsistent with the purpose they allege in paragraph 20 of the defence. [110] The defendants’ alleged “context and purpose” lacks a foundation in the Profit Share Deed, the accompanying Option Deed and Deed of Rescission, and the agreed factual circumstances provided to the Expert. It is inconsistent with the parties’ agreement to include both clause 2 and clause 3 in the Profit Share Deed, and so is contrary to clause 5.1(b). It is also inconsistent with clause 4.1 of the Option Deed, by which Craigmoor and Harvest expressly contemplated that Harvest could “nominate another person to exercise the Call Option”, who would then acquire the land. [111] The defendants’ alleged purpose is not consistent with Mr Slack’s evidence of his preferred strategy, which he said was reflected in the put and call option arrangements between Harvest and Craigmoor. These agreed provisions and the reasonable opinion of Mr Slack indicate the parties shared a common understanding that Harvest could avoid the commitment of substantially more capital and the assumption of substantially more risk by disposing of its interest before the land was fully developed as a shopping complex. Given the parties’ experience in the real estate market, they would also have understood that, exercising ordinary commercial prudence, Harvest would not commit capital to constructing any buildings on the land before it held the title to the land. It follows that a disposal of Harvest’s interest by exercising its right to nominate a third party purchaser would likely occur before any substantial construction on the land. [112] In the context of these provisions, commonly known facts and experience, a reasonable businessperson in the position of Craigmoor and Harvest would have understood that clause 3 of the Profit Share Deed was likely to operate in a range of circumstances, including where the shopping complex had not been fully developed by Harvest (or another entity controlled by Mr Slack). Mr Slack’s preferred strategy [113] In his first prepared statement, Mr Slack said his preferred strategy “was reflected in the put/call arrangements” between Harvest and Craigmoor.71 This is a reference to the Option Deed, although the same observation could have been made about the Original Option Deed, with its nomination provisions. In his second prepared statement he described his dealing with the land as “a speculative venture to secure the approval”.72 70 Defence at [25](v). The recitals, the definition and clause 3.1 are the matters pleaded in paragraphs 15, 18 and 19 of the defence and identified by reference to those paragraphs. 71 Exhibit 9 at [7](a). 72 Exhibit 10 at [5]. -- 25 of 35 -- 26 [114] In final address, the defendants’ counsel submitted that Mr Slack had ceased to hold this opinion by the time he executed the Profit Share Deed and the Option Deed. Mr Slack gave oral evidence at the trial. He said that the contents of his two statements were true and correct. He gave no evidence to the effect of the defendants’ counsel’s submission. He was not asked about any change of opinion. It is a reasonable and logical opinion, likely to be common among persons like Mr Slack and Mr Guy with considerable experience in the real estate market. [115] I reject the submission that Mr Slack had ceased to hold his opinion about a preferred strategy at the time he caused Harvest to enter into the Profit Share Deed, as it is without any evidentiary foundation and is contrary to the prepared evidence given by Mr Slack. Other criticisms of the Expert Determination [116] In oral submissions, the defendants’ counsel made a series of other criticisms of the Expert Determination, none of which was pleaded. They were that the Expert’s conclusion as to the purpose of clause 3, set out in paragraph 46 of the Expert Determination, demonstrated that his reasoning was “irrational” or “unfounded on the evidence”.73 On questioning, it was revealed that the basis of these submissions was a contention that the Expert erred in considering the terms of the Original Option Deed, which was rescinded as part of the transaction on 20 May 2016. It was put that the Expert should not have considered that instrument and, had he not done so, he could not have concluded that the purchase price for the land had been reduced by $1 million. [117] The Original Option Deed was part of the factual matrix. It was the subject of the Deed of Rescission, executed contemporaneously with the Option Deed and the Profit Share Deed. Mr Slack executed all three instruments, so that through him Harvest had full knowledge of it. It was among the ten agreed facts put to the Expert by the parties.74 It was relevant to understanding the context and purpose of the transaction that included the Profit Share Deed. [118] The Expert’s reasoning, considered above, could not fairly be described as irrational or unfounded. Conclusion on the manifest error defence [119] The Expert Determination is not affected by manifest error. It follows that Harvest is bound by the Expert’s determination. [120] In the expert determination process, it was common ground that Harvest had paid nothing by way of Telecommunication Infrastructure Costs.75 The Expert noted that Harvest could incur no such costs from 21 February 2018, when the sale of the land to Big Fish settled. On this basis, the Expert also determined that Harvest was obliged to pay the $1 million sum to Craigmoor on 23 March 2018, being 30 days after the settlement. No separate challenge was made to this conclusion. Harvest is also bound by that part of the Expert Determination. 73 Transcript 2-82 L15-31. 74 Expert Determination at [1](b). 75 Expert Determination at [72]. -- 26 of 35 -- 27 Mr Slack’s liability as guarantor [121] Craigmoor pleaded that Mr Slack’s promise to guarantee Harvest’s performance of all of its obligations under the Profit Share Deed meant that Craigmoor was entitled to call on Mr Slack to pay the full extent of his liability ($500,000.00) in respect of Harvest’s failure to perform its obligation to pay the amount determined by the Expert. At the beginning of his address, counsel for Craigmoor abandoned that submission.76 [122] Craigmoor maintained its alternative case that Harvest is liable to Craigmoor for $950,000.00 under clause 3 of the Profit Share Deed, on its proper construction, so that Mr Slack is liable to Craigmoor under the Guarantee up to the capped amount of $500,000.00. [123] The difference between Harvest’s liability under clause 3, as determined by the Expert, and Harvest’s liability as alleged in Craigmoor’s alternative case against Mr Slack is explained by the parties’ agreement that Harvest incurred $50,000.00 in Telecommunications Infrastructure Costs.77 Proper construction of clause 3 of the Profit Share Deed [124] Clause 3 is a short provision divided into two separate sub-clauses, each of one sentence: “3. Telecommunication Infrastructure Costs 3.1 Obligation to pay In the event the Telecommunication Infrastructure Costs are less than $1million dollars [sic], Harvest must pay to Craigmoor an amount equal to the difference between $1 million and the Telecommunication Infrastructure Costs. 3.2 When to pay Any amount payable under clause 3.1 must be paid within 30 days of determination of the amount of the Telecommunications Infrastructure Costs.” [125] The parties have allowed most of the work to be done by their definition of “Telecommunication Infrastructure Costs” in clause 1.1,78 and the definition of “Development Costs” of which the Telecommunication Infrastructure Costs are a subset. Defendants’ primary pleaded case on the proper construction of the Profit Share Deed [126] In paragraph 21 of their defence, the defendants pleaded that: “on a proper construction of clauses 1.1, 3.1 and 3.2 of the Profit Share Deed, having regard to the text, context and purpose of the Profit Share Deed, no amount is payable by Harvest to Craigmoor unless Harvest purchases the Property, proceeds with the Development, relocates the telecommunication infrastructure and incurs the Telecommunication Infrastructure Costs.” 76 Transcript 2-91 L36-39. 77 See [34] above. 78 The defined expression is, in fact, “Telecommunications Infrastructure Costs”, but the omission of the “s” in clause 3 is an obvious and inconsequential typographical error. -- 27 of 35 -- 28 [127] In paragraph 22A, the defendants pleaded that: “any interpretation of the Profit Share Deed, and in particular clauses 3.1 and 3.2, that would result in [Harvest] being liable to pay $1M to [Craigmoor] if [Harvest] did not develop the property as envisaged by the parties and as set out in the recitals to the Profit Share Deed, would be an absurd commercial outcome such that the operation of the text ought to be curtailed or conditioned as set out in paragraph 21 above to avoid that absurdity.” [128] The plain meaning of the words used in clause 3.1 and clause 3.2 does not include the construction alleged in paragraph 21 of the defence. Neither the definition of Telecommunication Infrastructure Costs,79 nor the definition of Development Costs, both in clause 1.1, assist to found the defendants’ construction. [129] In addition to the clauses considered above, the defendants pointed to the recitals. [130] As noted at [93] above, recital A is incorrect. It is evidently an error made by the drafters and overlooked by the parties. No party asserted that either was bound by or estopped from denying this false statement in the recital. As best it can be understood, recital A might be a reference to the Option Deed, which was the only other instrument executed by Craigmoor and Harvest at the time of the Profit Share Deed. In any event, recital A does not support a construction of clause 3 that confines its operation as the defendants contend. [131] Recital B refers to an intention on the part of Harvest “to develop the Property”. In recital C, the parties recorded, in very general terms, the effect of clause 2: “to share the profit of the development … in accordance with this deed”. [132] The Profit Share Deed is consistent with the other instruments executed by the parties on 20 May 2016 in expressing a common intention that Mr Slack, through Harvest or another entity, would develop the land.80 [133] The expression “develop the Property” in recital B and “development” in recital C on their ordinary and plain meaning are references to the many different things that are necessary or convenient to progress a development such as the Project. This work, in securing a potential tenant’s commitment, professional consultants’ assessments and reports, and development approval, is part – indeed an important part – of the development of the land.81 Harvest (and other entities controlled by Mr Slack) would incur Development Costs, including Telecommunication Infrastructure Costs, as defined in the Profit Share Deed, in developing the land, even if Harvest disposed of its interest before the proposed shopping complex was completed. A reasonable businessperson in the position of the parties to the Profit Share Deed would understand “develop” and “development” to be such work. There is no reason to conclude they would confine the expressions to mean such work only if all work to construct a shopping complex on the land were to be completed by Harvest. 79 “Development Costs incurred in relation to the relocation of the telecommunications infrastructure (including the telecommunications pits)”. 80 Defendants’ outline at [79](k). 81 According to Mr Slack, Big Fish paid the $5.5 million nomination fee for this work by Harvest and the risk assumed by Harvest in doing the work: exhibit 10 at [5]. -- 28 of 35 -- 29 [134] Mr Slack’s preferred strategy was not to take on the substantially higher cost and risk of constructing a shopping complex on the land, but rather to secure a large supermarket tenant and planning approval, before selling the land to a third party. It may be assumed that he was not, by the recitals, deceiving Craigmoor about his intentions. With Mr Guy’s similar experience in the real estate market, Craigmoor would likely have shared Mr Slack’s opinion. Relevantly for present purposes, a reasonable businessperson in the position of the parties would have understood the Profit Share Deed, including the recitals, in this way and would not have read “develop” or “development” as an “all or nothing” expression. [135] In the Profit Share Deed, Development Costs expressly included “all pre-purchase due diligence costs and expenses” and “all costs in relation to the application for a development permit and of obtaining the development permit”,82 upon which the Option Deed was conditional. A reasonable businessperson in the position of the parties would have understood that fees would be paid or payable to contractors or consultants, including professional consultants, engaged to advise Harvest and to enter into discussions with the Council, Telstra and other users of the telecommunications cables and pits,83 before the exercise of the call option. An “internal development management fee” of 3% would be applied to all such costs.84 The period for exercising the option would not begin to run until development approval was obtained, unless Harvest waived the development approval condition. [136] The defendants’ construction also conflicts with the parties’ agreement that in the Profit Share Deed, unless the context requires otherwise, the singular includes the plural and vice versa, so that Development Costs includes a Development Cost; and “a reference to a thing includes a part of that thing”, so that the Development includes part of the Development.85 [137] The defendants’ specific meaning would be contrary to the definition of Development Costs agreed by Craigmoor and Harvest in clause 1.1 of the Profit Share Deed, in which they speak of costs reasonably incurred “in relation to” the Development and all costs “relating to” the Development. Such costs could be incurred even if Harvest did not complete the Development. [138] The defendants’ specific meaning also presents a difficulty because the parties agreed that, in the Profit Share Deed, “Development” means “the development of the Property as a regional supermarket or such other use as is determined by Harvest”.86 In other words, no specific type of development was agreed. Whether Harvest had proceeded with or completed the Development might depend upon what Harvest had determined to be the Development. [139] The defendants submitted there was a “constructional choice” available in construing clause 3.1 of the Profit Share Deed.87 They contended it was “common ground on the pleadings that there is ambiguity or constructional choice about the breadth of the meaning of clauses 3.1 and 3.2”. This contention was untrue. The parts of the 82 See paragraphs (a) and (b) of the definition of Development Costs in clause 1.1 of the Profit Share Deed. 83 See paragraph (g) of the definition of Development Costs. 84 See paragraph (n) of the definition of Development Costs. 85 See paragraphs (a) and (k) of clause 1.2. 86 See the definition of Development in clause 1.1 (emphasis added). 87 Defendants’ outline at [56]-[57]. -- 29 of 35 -- 30 statement of claim and the reply to which the defendants referred did not support it.88 The defendants’ primary pleaded case and the submissions put in writing are not that the text of clause 3.1 (and related provisions) is capable of more than one meaning, on the basis of the words the parties employed. It is that the words should be given a curtailed or conditioned meaning to avoid an absurd or uncommercial result. [140] In either case, the defendants’ contentions about the proper construction of the clause may be tested having regard to the “events, circumstances and things external to the contract which are known to the parties or which assist in identifying the purpose or object of the transaction”.89 [141] The Option Deed, executed at the same time as the Profit Share Deed, recorded the parties’ common intention that Harvest could nominate one or more other persons to exercise the call option, just as HAMS had been able to do under the Original Option Deed. In other words, the parties always contemplated that the entity directed by Mr Slack could dispose of its interest in the land by nominating another person to acquire the land. I reject the defendants’ submission, relying on the recitals, that the parties only contemplated the sale of the land by Craigmoor to Harvest, and only contemplated the completion of the then proposed development of the Project by Harvest.90 [142] Having considered the evidence of surrounding circumstances, I reject the defendants’ submission that it was “implicit in the very terms negotiated” that Harvest would acquire the land and that the terms in the Profit Share Deed “must be construed accordingly on the basis that Harvest acquires” the land,91 and that, “[n]owhere is there any text to support a purpose” that the Profit Share Deed “would apply if the land was not acquired [or] not developed” by Harvest.92 [143] The defendants’ submission is contrary to the preferred strategy of Mr Slack. That strategy would be commonly understood by reasonable businesspersons with long experience in the real estate market, such as the directors of the parties. [144] A reasonable businessperson in the position of Craigmoor and Harvest would understand development to be all the work undertaken towards the completion of the Project before the disposal of Harvest’s interest to a third party, whether or not the shopping complex had been completely constructed at that time. [145] A reasonable businessperson in their position would know that Development Costs (including Telecommunication Infrastructure Costs) would likely be incurred by Harvest (and earlier would have been incurred by HAMS) before the call option was exercised under the Option Deed, and that they could be incurred even if Harvest did not purchase the land or did so but did not complete the planned shopping complex. That knowledge would inform their understanding of clause 3. [146] In places in their written submissions, the defendants appear to contend that the title of the Profit Share Deed is a basis for construing clause 3 to apply only in the event that Harvest makes a “profit” or even a “super-profit”.93 Nothing in the parties’ 88 Statement of claim at [23]; defence at [7A]-[22A]; plaintiff’s further amended reply in the consolidated proceeding filed 16 October 2019 at [18]-[23]. 89 Mount Bruce Mining at 117 [50] (French CJ, Nettle and Gordon JJ). 90 Defendants’ outline at [75]. As noted above, the statement in recital A about a contract of sale was untrue. 91 Defendants’ outline at [82]. 92 Defendants’ outline at [89]. See also at [90]. 93 Defendants’ outline at [86], [88], [89], [91], [97]. -- 30 of 35 -- 31 language in clause 3 justifies such a construction. The language used in clause 2 confirms the difference between the two obligations and the express term in clause 5.1(b) confirms that each is a separate obligation, rather than two aspects of a single one. In the circumstances, it is apparent that recital C refers only to the “Craigmoor Profit” provision in clause 2, and only in the most general of terms. It provides no more context for construing clause 3 than clause 2 does. I reject the defendants’ submission that clause 3 is “about profit” because it is about a “saving” to Harvest in its “expenditure being less than anticipated”.94 [147] The defendants’ construction is commercially absurd. It would operate so that Harvest could acquire the land, make considerable savings on the relocation of the telecommunications cables and pits, and all but complete the construction of the shopping complex, yet avoid any liability to Craigmoor by disposing of its interest in the land before the “development” was completed. Such an outcome would be arbitrary and perhaps irrational. [148] I reject the submission that something has clearly gone wrong with clause 3.1 or that it would be commercially absurd if Harvest were to be liable under it if it disposed of its interest in the land by nominating another purchaser to exercise the call option. [149] The proper construction of the provision is that the separate obligation of Harvest arises in the event that the Telecommunication Infrastructure Costs incurred by Harvest (or another entity of which Mr Slack was a director at the time the costs were incurred) are less than the agreed amount. If that occurs, Harvest is obliged to pay the difference to Craigmoor. Those costs are those reasonably incurred by Harvest (or another Slack-directed entity) in relation to the relocation of the telecommunications infrastructure (including the telecommunications pits) relating to the development of the land as a regional supermarket, or such other use as is determined by Harvest. The obligation is not confined to circumstances where Harvest purchases the land and completes the development of a shopping complex on it. [150] Clause 3.2 operates to make any sum payable within 30 days of the relevant costs being determined. As the Expert observed, once Harvest had disposed of its interest in the land, subject to necessary accounting steps, the Telecommunication Infrastructure Costs that had been incurred could be determined. If there was any dispute about the figure, the parties had the benefit of the expert determination process under the Profit Share Deed. Defendants’ alternative submissions about clause 3.1 [151] In the first of a series of alternative submissions, the defendants contended that the court should construe clause 3.1 by “the insertion of words to achieve the intention of the parties”.95 The asserted intention is that the payments under the Profit Share Deed were to apply only in the event of the land being acquired by Harvest and “being developed” (meaning completion of construction of the shopping complex). [152] Such insertion would make clause 3.1 inconsistent with the relevant definitions in clause 1.1, and with the interpretation provisions in clause 1.2. The intention the inserted words would achieve is not one founded in the language used by the parties. Nor is it founded in the language of the other contemporaneously executed instruments. 94 Transcript 2-24 L29 - 2-25 L39. 95 Defendants’ outline at [95]. -- 31 of 35 -- 32 [153] A reasonable businessperson in the position of the parties would not have understood clause 3.1 to be conditioned in this way, having regard to the other terms of the Profit Share Deed, the Option Deed, the Deed of Rescission and the history or process by which the Profit Share Deed emerged. The supply of the additional words is not clearly necessary. [154] Alternatively, the defendants submitted a term should be “implied” in clause 3.1 of the Profit Share Deed, in the form of an additional sentence: “This obligation arises only in the event of Harvest purchasing the Property from Craigmoor, proceeding with the Development, relocating the telecommunication infrastructure and incurring the Telecommunication Infrastructure Costs.”96 [155] For the reasons considered above, such a term should not be implied. Like the “insertion” submission, it is contrary to the intentions of the parties, as recorded in the express terms of the Profit Share Deed, and in the Option Deed executed at the same time. It is also contrary to common understanding of the parties that Harvest could (and rationally would, if possible) nominate another entity to purchase the land and/or construct the complex, so as to reduce its capital commitment and risk. It is not necessary to give business efficacy to the deed. The defendants’ alternative pleaded construction [156] In paragraph 22 of the defence, the defendants pleaded an alternative construction of clause 3.1: “if clause 3.1 is to be construed by reference to its text without due regard to the context and purpose of the Profit Share Deed as set out above, then no amount is yet payable under clause 3.1 of the Profit Share Deed because: (a) the term Telecommunication Infrastructure Costs means all Development Costs incurred irrespective of the entity that incurs them; (b) under clause 3.2 of the Profit Share Deed, Harvest’s obligation to pay is within 30 days of determination of the amount of the Telecommunication Infrastructure Costs; (c) the Property has not yet been developed and all Telecommunication Infrastructure Costs have not been incurred or determined; and (d) only once the Telecommunication Infrastructure Costs have been incurred and determined, can any entitlement of Craigmoor under clause 3.2 of the Profit Share Deed be ascertained and be payable.” [157] Leaving aside the extraordinary conditional clause, I reject that defendants’ construction as clearly wrong. As the Expert noted, it is inconsistent with the language used by the parties in clause 2.4(b) and with the similar language used in the chapeau to the definition of “Development Costs”, which provides that the term: 96 Defendants’ outline at [98]. -- 32 of 35 -- 33 “to avoid doubt includes all costs relating to the Development irrespective of whether incurred by Harvest or another entity in which Chris Slack was a director at the relevant time”. [158] It is inconsistent with the obligation of Harvest to keep accurate and up to date accounting records of the Development Costs (and a separate record of the Telecommunications Infrastructure Costs) and report on them to Craigmoor each quarter and annually.97 [159] It would not produce a commercial result, in that it would put the tabulation of the relevant costs beyond the ability of the parties and likely mean they could never be determined. One might go so far as to characterise it as nonsensical or absurd. [160] I similarly reject the defendants’ related submission that “there is no payment obligation until the works have been completed, regardless of which entity does the works”.98 The Telecommunication Infrastructure Costs incurred [161] It is common ground that Harvest had incurred Telecommunication Infrastructure Costs of $50,000.00 as at 21 February 2018 and that no further such costs have been incurred since then. Having disposed of its interest in the land, Harvest will incur no further such costs. [162] The defendants did not adduce evidence that any other entity incurred such costs at a time when Mr Slack was its director. There was no evidence about any unrelated entity having incurred or incurring any costs in relation to the relocation of the telecommunications cables and pits. [163] The Telecommunication Infrastructure Costs can therefore be determined. According to the defendants, this could be done by either Craigmoor or Harvest. As it happens, the two are in accord. There is no dispute for the court (or an expert) to determine. [164] I reject the defendants’ submission that, in some way that could not be expressed in words, the Telecommunications Infrastructure Costs had not yet been “determined”. As best as it could be understood, the submission was that Craigmoor had failed to plead that the costs had been determined and so the defendants had not been obliged to admit, deny or not admit such an allegation.99 [165] In the circumstances, I am satisfied that the Telecommunication Infrastructure Costs within the meaning in clause 3 of the Profit Share Deed are $50,000.00. It follows that Harvest’s obligation under clause 3.1 is to pay to Craigmoor $950,000.00. Time for payment – determination of the costs [166] Harvest is the only entity to have incurred Telecommunications Infrastructure Costs. It has incurred none since 21 February 2018. It was obliged to keep accurate and up to date accounting records of the Development Costs (which include the Telecommunication Infrastructure Costs) and to keep a separate record of the Telecommunication Infrastructure Costs.100 97 See clauses 2.4(a) and 2.7 of the Profit Share Deed, extracted at [38] above. 98 Defendants’ outline at [104]. See also at [105]. 99 Defendants’ outline at [103]; Transcript 2-68 L7 – 2-72 L43. 100 These obligations arise under clauses 2.4(a) and 2.7 of the Profit Share Deed. -- 33 of 35 -- 34 [167] According to the defendants, either Craigmoor or Harvest could determine the Telecommunication Infrastructure Costs. In the case of Craigmoor, this could be done by inspecting or auditing the records kept by Harvest. In the case of Harvest, it could be done by “tallying up” the amounts in the records Harvest itself kept.101 [168] No evidence was adduced of the detail of the Telecommunication Infrastructure Costs that Harvest incurred, no doubt because the figure was agreed. It is difficult therefore to estimate how long it might have taken Harvest, who incurred the costs and kept the records, to tally up the costs. [169] On 20 May 2017, Harvest had been obliged to give Craigmoor a statement, prepared by a relevantly qualified accountant, containing reasonable details of any Development Costs (which include any Telecommunication Infrastructure Costs) for any earlier period which Harvest intended to include in the calculation of the Craigmoor Profit. By 15 April 2018, Harvest was obliged to give Craigmoor a statement of the Development Costs incurred during the previous quarter, as it had been obliged to do on the 15th day of each preceding quarter since 15 July 2016.102 [170] In the circumstances, assuming Harvest did not breach its contractual obligations to Craigmoor in these respects, Harvest must have determined the Telecommunications Infrastructure Costs by 15 April 2018. On this basis, I conclude that Harvest was obliged to pay Craigmoor the Telecommunications Infrastructure Costs within 30 days of 15 April 2018, which is 15 May 2018. [171] Since that date, Harvest has been in breach of its contractual obligation under clause 3 of the Profit Share Deed. [172] Mr Slack is liable to Craigmoor pursuant to his covenant to unconditionally and irrevocably guarantee the performance by Harvest of all of its obligations under Profit Share Deed and his separate covenant to indemnify Craigmoor against any loss or damage it may suffer as a result of Harvest failing to fulfil any of those obligations. His liability is $500,000.00, which is the monetary limit of his obligation. That obligation crystallised on 15 May 2018. Disposition [173] The court should make the declaration sought by Craigmoor in respect of the Expert Determination being final and binding on Craigmoor and Harvest. Given the judgment sought by Craigmoor against Harvest, there does not appear to be any utility in the second declaration sought – about the obligation of Harvest to perform and fulfil its obligation under clause 3 of the Profit Share Deed to pay Craigmoor $1 million. [174] There should be judgment for Craigmoor against Harvest for $1 million together with interest on that amount from 23 March 2018 pursuant to s 58 of the Civil Proceedings Act 2011 (Qld) (CPA) at the rate prescribed from time to time under Supreme Court Practice Direction No 7 of 2013. The interest to today’s date is $115,612.11. [175] Craigmoor should have judgment against Mr Slack for $500,000.00 together with interest on that amount from 15 May 2018 pursuant to s 58 of the CPA at the rate prescribed. The interest to today’s date is $53,812.91. 101 Transcript 2-7 L 30-46, 2-8 L33-39, 2-68 L26-27. 102 Both these obligations arise under clause 2.4(a) of the Profit Share Deed. -- 34 of 35 -- 35 [176] Craigmoor has substantially succeeded in its claim against Harvest and Mr Slack. Absent any other relevant consideration, they should pay Craigmoor’s costs of the proceeding. However, the defendants advised the court that they wish to be heard on costs. Accordingly, I will hear the parties’ submissions on costs upon publication of these reasons. -- 35 of 35 --