Incentives and transfer documents - what is recorded?

A case summary of Sentinel Citilink Pty Ltd v PS Citilink Pty Ltd [2018] QSC 239

Given the Court’s construction of the reference “balance of the Purchase Price” and the magnitude of the purchase price of this transaction, the outcome of this case demands attention.

The Contract

Sentinel Citilink Pty Ltd as trustee of the Sentinel Citilink Trust (the Seller) and PS Citilink Pty Ltd as trustee of the Citilink Property Trust (the Buyer) entered into a contract dated 20 December, 2017 for the sale and purchase of commercial property located in Bowen Hills, Queensland. The critical details of the Contract were as follows:

• The purchase price payable was $81,200,000.00
• The deposit payable was $4,060,000.00
• Settlement was fixed to a date which was 5 business days after notification that a particular certification had been obtained
• A Special Condition which provided that the balance purchase price payable at settlement on the Contract was to be adjusted by an amount equivalent to the value of any outstanding incentives which the Seller had agreed to provide or perform for tenants for the property.

What happened?

Settlement was called and due on 19 January 2018. Prior to settlement the parties had agreed that the amount of the outstanding lease incentives was $2,003,050.67.

The Buyer prepared a Form 1 Transfer and Form 24 and submitted these documents to the Seller which recorded, in Item 4 “Consideration”, a price of $79,196,949.34 being the purchase price of $81,200,000.00 less the outstanding incentives.

The Seller was concerned not to be seen to execute documents which misrepresented the true position to the Office of State Revenue and the Registrar of Titles and took the view that the true position was that there was a cash consideration of $81,200,000.00.

By the time that settlement was due the parties had still not reached an agreement about what price should be recorded on the Form 1 Transfer and Form 24. The sale did not settle and that evening the Buyer sought an extension of the settlement date. No agreement was reached to this effect.

A few days later the Seller gave notice to that the Buyer that it terminated the Contract, forfeited the deposit and reserved its rights to sue for damages for breach of contract. The Buyer disputed the Seller’s termination and lodged a caveat on the property. The Seller commenced proceedings for breach of contract and in reply the Buyer sought a declaration that the Contract had not been validly terminated and sought an order for specific performance of the Contract.

The Court's findings

The Buyer’s contractual promise to pay

The Seller argued that:

• the Special Condition providing that the balance purchase price payable at settlement was to be adjusted by an amount equivalent to the value of any outstanding incentives was merely an adjustment which took place at settlement which should be regarded as equivalent to the usual apportionments for rates and outgoings and not affecting the assessment of the “balance of the Purchase Price”; and
• on the proper construction of the Contract, it would not necessarily follow that there would be a deduction (that they perhaps had already paid the incentives to the lessees which would result in no adjustment under the Special Condition).

The Court found that:

• the promise to pay the ‘balance of the purchase price’ must be construed as contemplating the deduction of something from the purchase price. His Honour’s view was that the promise to pay “the balance of the Purchase Price” must be construed by reference to the following clauses of the Contract, namely:
  • Standard clause 4.1 (settlement and possession)
  • Standard clause 13.1 (Buyer’s default)
  • Standard clause 15.6 (deduction of land tax)
  • Special Condition 11.12 (in the context of obliging the Seller to allow an adjustment to “the balance Purchase Price payable on settlement” of an amount equal to the outstanding incentives.
• on the proper construction of the Contract, the maximum amount which could be payable under the Contract was $81,200,000.00 less the amount payable for the outstanding incentives. His Honour stated that it was an inevitability (not just a possibility) that the amount paid by the Buyer would be a lesser amount, because it was an inevitability (and not just a possibility) that there would be an adjustment required by operation of Special Condition 11.12 if the contract was to proceed to settlement, and the Seller was to have complied with its obligations in relation to the leases and incentive arrangements.

So, whose version of the transfers should have been used?

The critical question during trial was whether the Seller was contractually entitled to insist on its version of the transfer documents.

Standard clause 10 of the Contract required the Buyer to prepare and deliver the transfer documents to the Seller within a reasonable time prior to the settlement date. The Seller was then obliged to execute the transfer documents in exchange for the balance of the Purchase Price.

The Buyer’s solicitor sent draft transfer forms to the Seller’s solicitor listing the adjusted purchase price of $79,196,949.34 in Item 4 “Consideration” on the Form 1 and also as the total cash figure in Part B, Panel 4 “Details of Sale Price” in the Form 24.

The Seller’s solicitor responded suggesting that the full purchase price of $81,200,000.00 should be displayed on the forms and after numerous email exchanges with the Buyer’s solicitor later delivered a Form 1 Transfer and Form 24 executed by the Seller with the amount of consideration shown as $81,200,000.00. Such conduct amounted to the following inferences:

• The Seller transfers the fee simple to the Buyer for the monetary consideration of $81,200,000.00;
• The Seller acknowledges the receipt of the monetary consideration of $81,200,000.00;
• The Seller declares, amongst other things, the truth and correctness of the information contained in the forms.

His Honour concluded that the Seller was not contractually entitled to insist on its version of the transfer. This was because on the proper construction of the Contract as entered into, the maximum amount which could be paid by the Buyer under the Contract was not $81,200,000.00, but $81,200,000.00 less the rental incentive deduction.

His Honour made reference to:

• the Land Titles Practice Manual and the requirements set out in the Manual for completion of a Form 1 Transfer and a Form 24. In particular, that the Manual provides instructions as to the completion of the forms by the provision of an additional detail via a Form 20 “Enlarged Panel” where further detail is thought necessary. 
• section 194 of the Criminal Code 1899 (Qld), section 239 of the Land Valuation Act 2010 (Qld), the Australia Solicitors Conduct Rules 2012 and section 122 of the Taxation Administration Act 2001 which all contain various prohibitions against recording false or misleading information in the transfer forms.

Conclusion

Finding for the Buyer and declaring that the Contract was not lawfully terminated by the Seller, His Honour stated that:

• it was wrong for the Seller to insist on completion of the forms in a way which involved the Seller declaring (and the Buyer agreeing) that $81,200,000.00 was the full amount paid by the Buyer for the transfer of land; and
• the Seller could have dealt with its stated concerns about misrepresentation by filling out the forms in such a way as to provide further detail about the manner of calculation of consideration payable under the Contract.