Agius v Sage [1999] VSC 100

Agius v Sage [1999] VSC 100 - VSC 1999 case summary — Zoe

[4]

There are two defendants to the proceeding other than the Developer. The firstnamed defendant John Gerard Sage described himself as "the managing director of the Merchant Pacific Group (Loan Savers Pty Ltd as Trustee for the Horizons Funds Management Trust)". Merchant Pacific Group is and has been since 9 August 1996 a business name registered by Loan Savers Pty Ltd. The expression "Merchant Pacific Group", it seems, was also used as a shorthand reference to a number of companies controlled by Mr Sage. He told me that there were about 20 companies within the group. These companies included the Developer and the thirdnamed defendant Merchant Pacific Pty Ltd. Although Mr Sage maintained that the Developer was not associated with Merchant Pacific Pty Ltd I doubt that this is correct, at least in a technical sense. In a document which was sent to the ANZ Bank on 30 April 1997 the Merchant Pacific family tree is set out. It shows that five named companies were subsidiaries of Loan Savers, the sole director of each of which was Mr Sage. The first of these companies was Merchant Pacific Pty Ltd. The Developer is not shown as one of these subsidiaries but Mr Sage is described as its sole director. Mr Sage also held shares in the Developer and is its secretary. He said that his practice was to use a separate company for each of his projects and that the Developer was the company within the group which he used for the St Kilda Road project. I have no doubt, that in general parlance at least, the Developer was represented by Mr Sage to be a member of the Merchant Pacific Group and would have been seen to be so by a person dealing with the group or with the Developer. The role of Merchant Pacific Pty Ltd in 1997 is more obscure. Mr Sage said that it was just a shelf company that did not enter into specific transactions and, again, that it did not have a particular function at that time. Later, he described it as a service company used to buy photocopying supplies and to run the servicing of the office.

[5]

A feature of the February agreement as pleaded against the defendants is that it contains a term that the Developer procure and provide to the purchaser an insurance bond. A good deal of the trial concerned this matter and it is convenient that I say something at this stage about this and its function in the project. At the time of the February agreement the purchase of the land in St Kilda Road by the Developer had not been completed and no construction work had commenced. Any sale of a unit by the Developer at that time was, therefore, a sale off the plans of a stratum of air space in which the penthouse was to be constructed in the future. Draft contracts for such sales had already been prepared by the Developer's solicitors Deacons Graham & James ("DGJ"). The structure of these contracts was to divide the transaction into two parts, a contract of sale of land and a development contract. The contract of sale had to comply with the requirements of the Sale of Land Act 1962 s.9AA. This meant that money paid under it prior to registration of the Plan of Subdivision had to be held in trust for the purchaser pending its registration. The development contract did not suffer from those difficulties and had the added advantage that money paid under it to the Developer was available for the development. The purchaser also enjoyed the advantage of a substantial saving of stamp duty. The disadvantage for the purchaser, however, was that its pre-payments under the development contract were not secured or protected in the event that the project was aborted or was not completed for some reason. In the normal case, the purchaser paid a deposit of only 10% of the price of which 90% was taken as a deposit under the development agreement and was therefore at risk. In the case of a sale for $500,000, therefore, this would represent $45,000. But if the purchaser agreed, as Mr Agius said he did, to pay the whole of the price up front, the amount at risk increased tenfold. A purchaser who made such an agreement was referred to as an equity investor.

[29]

The circumstances of its execution were the subject of conflicting testimony and, again, I prefer that of Mr Agius. I find that a draft of the document, Exhibit 68, was given to Mr Sage on 11 February 1997 with a request that he execute it. He said he was too busy to do so at the time and the document was left with him. On 17 February after a meeting with a journalist at the Merchant Pacific office in Victoria Street, Melbourne, Mr Agius again raised the question of executing the typed document. He had on this occasion a version which had been amended since 11 February. The original of this amended document was in evidence as Exhibit 148. It was executed by Mr Sage in the sense that he signed it himself and affixed on it in the place for the seal of the Merchant Pacific Group, the common seal of Merchant Pacific Pty Ltd and signed again as a witness to the affixing of this seal. Mr Agius said that he selected this seal from a box containing a number of company seals in the Merchant Pacific office and that, in response to his enquiry, Mr Sage said that this was the correct seal. Five or six copies of this document were signed and sealed in this way. Mr Sage dated these documents, surprisingly, 18 February 1997, that is the day after the date on which the seal was, as I find it, affixed. Mr Agius signed one copy which he left and took the others away. On the same occasion, too, Mr Agius wrote out and signed a cheque for $100 dated 17 February 1997 drawn on the N&C account payable to Merchant Pacific Group and left it with Mr Sage. Furthermore, on the back of one of the sealed documents Mr Agius wrote a receipt dated 17 February 1997 acknowledging receipt of the sum of $100 as "deposit for penthouse 1902 at 582-584 St Kilda Road, Melbourne". Mr Sage signed this also at the same time. Mr Sage asked the other if he was confident that the money was available. Mr Agius replied that it was and that all Mr Sage had to do was to organise the bond. The two men then, with Mr Sage's brother, Anthony, and Mr Agius' son, Oliver, went to dinner at the Punch Lane Wine Bar. Mr Sage said that the execution took place in different circumstances and that it was on 18 February. His evidence of this again at variance to that contained in his affidavit of 14 January 1998. I reject his testimony as a reconstruction based on the date on which appears on the sealed documents. To the extent that Mr Agius' evidence of the events relating to the signing of this document is contradicted by that of Mr Sage I accept Mr Agius' version.

[41]

Given the imminence of the land settlement and Mr Sage's concern to receive the $500,000, this failure to send the third draft of the bond to Mr Agius is truly remarkable. It is the more remarkable, given the fact that the two firms of solicitors were in communication during the week after 11 March. Mr Millen said that he did not mention the bond to his counterpart at any time before 17 March. He did this, he said, because his instructions from Mr Sage were that he should never mention the availability of such a security to equity investors or to their solicitors because the Developer would prefer to receive their money without the need for a bond to secure repayment for non-completion if that were possible. On 17 March, Mr Millen says, the question of the bond was raised in a conversation with Ms Romeo regarding the details of the pending settlement for the penthouse purchase. She asked that the word "solely" be removed from the description of the event of default. It seems that she was speaking about the second draft and he about the third. He sought instructions and told her on the same day that the word should be deleted. The two then thought, mistakenly, that the terms of the bond were agreed. Then followed the Kenyons' letter of 19 March to which I have referred announcing a readiness to exchange contracts. Accepting as I do Mr Millen's explanation for not mentioning the bond before 17 March and that the two were at cross purposes in their conversations of that date, what still remains puzzling is why the third draft was never sent by Mr Sage or Mr Kikalis to Mr Agius. Mr Kikalis says nothing about this. Nor does Mr Sage who was convalescing from his injury at that time. On 19 March he was told of Kenyons' letter of that date in which the bond was to be handed over at the settlement of the contracts between the Developer and Milleye. He knew that this would have to be no earlier than the settlement of the land contract because FAI would not issue the bond until it held mortgage security over the St Kilda Road land. This meant that, if settlement of the Milleye contracts was to occur as the Kenyons letter of 19 March contemplated, this settlement would have to take place at the same time as the settlement of the land contract. He evidently did not trust Mr Agius. He told me that he feared that the purchaser would not produce the $500,000 at a joint settlement and would thereby cause the settlement of the land contract to fail. No reason was given for this mistrust. In any event Mr Sage rejected out of hand the solution proposed by Mr Millen that the money be held by DGJ for the purchaser pending settlement. Mr Sage said that Mr Agius had previously rejected this. Mr Sage said that this possibility was first discussed at the 5 February meeting and later at the 27 February meeting.

[52]

"We refer to your letter dated 3 September 1997. Concerning the word `immediately' we point out that your client does not pay any amount to this firm until the agreed number of apartments have been sold, a certificate is issued and a copy of that certificate provided to your client. When the funds are actually paid, however, they may then be immediately released to our client. We trust that this clarifies the intended position. Concerning your numbered points we are instructed by our client to respond as follows: 1. The Apartment to be sold will be Apartment 1902 as referred to in previous documentation. 2. The property sold will include four carparks namely Lots 213-216 (inclusive). 3. Mr Lee C H Gleeson is an independent accounting consultant engaged by our client. Mr Gleeson is an experienced, professional accountant. He is a Certified Practising Accountant, a Registered Company Auditor and Business Consultant. His qualifications include FCPA, ARMIT, AFAM. Purchasers who pay amounts under Development Agreements permit these to be used to pay project related expenses. To provide comfort to these Purchasers funds may only be deemed project related expenses if Mr Gleeson issues a certificate in respect of them. Therefore he will attend our client's office on a regular basis, review various items of expenditure and will then certify in writing that certain items relate to the project and may be paid using those funds. In connection with the proposed settlement with our client and with various other purchasers it is also necessary for Mr Gleeson to certify when sales have been effected. Mr Gleeson will attend our client's office, will review signed and exchanged Contracts of Sale, will examine whether appropriate deposits have been paid and will, when he is satisfied as to all matters, issue appropriate certificates as to the number of apartments which have been sold. Mr Gleeson will provide the original certificate to this firm. We would prefer to retain that original certificate in our own records. We are prepared to provide you with a copy of the original Certificate and, if you wish, to allow you to sight the original at our office when you or your client attends to make the relevant payment. Our client will agree to seven clear working days in relation to the payments as you have requested. Concerning the sales our client agrees that these must be unconditional (save and except for the fact that the sale is conditional on completion of the development) with at least 5% deposit having been paid in order for the apartment to be deemed to be sold. Please confirm that all of the above matters are to your satisfaction and we will prepare an appropriate Deed between our respective clients dealing with these issues in order to settle this matter."

[61]

The defendants' first and fundamental position upon the February agreement was in truth that there was no agreement at all. Mr Sage said that the discussions in the restaurant on 5 February were part of on-going negotiations between the two men which started in January 1997 and were never consummated in an agreement. I have, at [16] and following, set out my findings of fact as to the events of 5 February. I am satisfied that the proper inference to be drawn from the conduct of Mr Sage and Mr Agius is that they reached agreement at the meeting in the restaurant. The terms of this agreement were that Mr Agius would purchase and Mr Sage sell the penthouse, unit 1902, with three car parks for $500,000 and that, since Mr Agius was to pay the whole price in advance of completion, he should receive a guarantee and an insurance bond as security. Mr Agius was well aware that Mr Sage was carrying out the development by a company within the Merchant Pacific Group. The agreement was therefore made by Mr Sage on behalf of that company. The discussions, therefore, were conducted by Mr Sage on behalf of that company, the Developer. Mr Sage was happy to concede this. I infer from the terms of the memorandum that the two men understood, too, that Mr Agius would make the purchase through his company, N&C. As I have mentioned, the two men contemplated that the transaction would be formally recorded in contracts along the lines of the drafts which Mr Agius had previously received. Notwithstanding this, I infer that the two men by their handshake concluded the deal and intended that each should be bound by it. In short, they intended to enter into legal relations. The hand-written document was then prepared and signed as a memorandum of their agreement. I make these findings as to the actual state of mind of the two men conscious of the debate as to the relevance of subjective intent to the question whether a contract was entered into with the requisite contractual intention: Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 at 314-9, per Hope JA, at 330-1, per Mahoney JA, at 335-8, per McHugh JA; Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 550, per Gleeson CJ, Hope and Mahoney JJA concurring. See, also, Toyota Motor Corporation Australia Ltd v Ken Morgan Motors Pty Ltd [1994] VicRp 55; [1994] 2 VR 106 at 134, per Brooking J. I am satisfied, too, that the proper inference to be drawn by a bystander from their words and conduct on this evening and the context in which these occurred is that the two men intended to make a binding contract.

[63]

This, however, does not dispose of the Developer's point, for the agreement which they relevantly intended to make may, even so, not be one which the courts will enforce: South Australia v The Commonwealth [1962] HCA 10; (1962) 108 CLR 130 at 154-5, per Windeyer J. Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 548, per Gleeson CJ; Toyota Motor Corporation Australia Ltd v Ken Morgan Motors Pty Ltd [1994] VicRp 55; [1994] 2 VR 106 at 130-3, per Brooking J, at 168-70, per Tadgell J. The parties must agree with sufficient certainty upon such terms as are, in the circumstances, legally necessary to constitute a contract. This means that, whatever the negotiators might have thought and, more importantly, whatever the reasonable bystander might infer as to their state of mind, the law will not find a contract exists unless it has been relevantly established that the essential and critical terms of the bargain have been agreed upon: Vroon BV v Fosters Brewing Group Ltd [1994] VicRp 53; [1994] 2 VR 32 at 67, per Ormiston J and the cases there cited. This is the burden which the plaintiffs must discharge: Toyota Motor Corporation Australia Ltd v Ken Morgan Motors Pty Ltd [1994] VicRp 55; [1994] 2 VR 106 at 177, per Tadgell J. This said, I approach my task with a strong disposition to give effect to the intentions and expectations of the negotiators who by their handshake signified that they had concluded a binding agreement. This means that I should strive to overcome any uncertainty in such a case: Hawthorn Football Club Ltd v. Harding [1988] VicRp 6; [1988] VR 49 at 55, per Tadgell J. It is necessary to observe, too, that at this level I am not concerned with the question whether the note or memorandum is sufficient; it is whether the parties agreed on all the necessary terms at their meeting in the restaurant on the evening of 5 February. I turn now to the respects in which it has been suggested that there was no agreement.

[83]

It was accepted that the note or memorandum must contain all or all of the essential terms of the contract: Sinclair & Scott & Co Ltd v Naughton [1929] HCA 34; (1929) 43 CLR 310 at 318, Corcoran v O'Rourke [1888] VicLawRp 158; (1888) 14 VLR 889; Hawkins v. Price [1947] 1 Ch 645. The identity of the vendor is an essential term. The memorandum is expressed as a statement by Mr Sage as managing director of the Merchant Pacific Group. For reasons which I have set out, it is possible by reference to the brochure to know that the Merchant Pacific Group is a shorthand label for a group of companies of which the Developer is a member and that the Developer was the company carrying out the development of the Aurora project. In the ordinary course, this company would be the first vendor of units within that project. I was pressed on the authority of Rosser v Austral Wine & Spirit Co Pty Ltd [1980] VicRp 33; [1980] VR 313, to conclude that the memorandum sufficiently identified the Developer as vendor. I do not think this is correct. This is not a case where the contracting party is described in general terms and is capable of identification from this description. In the memorandum the vendor is in fact misdescribed. It is not Mr Sage; it is not the Merchant Pacific Group. Leaving aside, as I must for present purposes, the words spoken by the negotiators, the terms of the memorandum do not identify the vendor without resort to evidence of the intention of Mr Sage: Rossiter v Miller (1878) 3 App.Cas. 1124 at 1153, per Lord Blackburn; Rosser v Austral Wine & Spirit Co Pty Ltd [1980] VicRp 33; [1980] VR 313 at 318-9. Furthermore, the omission of the three car parks is a non-conformity because these lots formed a minor but appreciable portion of the property sold. The same may be said as to the requirement that contracts be prepared and executed including details of the penthouse to be constructed. As to the terms of payment, I have concluded at [53] and [54] that it was an implied term of the agreement that payment of the whole of the price should be made within a reasonable albeit prompt time upon receipt of the bond. An implied term need not be recorded in the note or memorandum: Hawkins v Price [1947] 1 Ch 645 at 654, per Evershed J.

[99]

Milleye was ready to settle on 14 March 1997 and this fact was communicated to the solicitors for the defendant on 19 March. By that date the conduct of the Developer and its solicitors gave rise to the same assumption in Milleye as Tadgell J was prepared to draw in Colin v Holden [1989] VicRp 48; [1989] VR 510. Like the plaintiff in that case, Mr Agius expected documents to be executed to record formally that which had previously been agreed. Like the plaintiff in that case he assumed that the Developer would execute the documents in the terms which had been agreed. Moreover, to adopt the terminology of Mason CJ and Wilson J in Waltons Stores (Interstate) Ltd v. Maher (1988) 168 CLR 387 at 406, the Developer created or encouraged Milleye to make that assumption. It had done this in the month or so prior to 19 March in the dealings which had gone on to negotiate the terms, not of the principal contracts, for these never caused any difficulty, but in the negotiations as to the side agreement and the bond. It had done this in the three weeks following 19 March by deliberately failing to respond to the communications of Kenyons to which I have referred in [33] above Mr Sage's decision to refuse to settle which had been made and communicated to Mr Millen on or shortly after 17 March was not passed on to Milleye or its solicitors. Milleye continued to hold itself ready to settle from 19 March and even after 7 April during the period that Mr Sage was "stringing it along" with concealment and falsehood. Milleye would have settled and reduced the agreement of 5 February to writing but for the fraud and practice of the Developer, to adopt the expression of the Lord Chancellor in Maxwell v Mountacute. There is abundant evidence of reliance by Milleye upon the assumption that the necessary documents would be executed and that the penthouse would, in due course, be completed and delivered to it. There is likewise abundant evidence that it acted to its detriment in reliance upon this holding the funds ready and incurring legal costs. This is, indeed, a case where it would be unconscionable for the Developer to avoid the consequences of its agreement of 5 February by reliance upon the Statute of Frauds.

[114]

In the course of argument I expressed concern about the omission from the 5 February memorandum of any reference to the three car parking spaces. Where an omission of an agreed term from the note or memorandum causes an agreement to contravene the Statute of Frauds and thereby to become unenforceable, this, too, may be overcome by waiver of the term, if it is available: Smith v Lush (1952) 52 SR (NSW) 207 at 210, per McLelland J; Scott v Bradley [1971] 1 Ch. 850. Again, the question is whether the term is solely for the benefit of Milleye, the party which would waive it. Counsel for that party announced in the course of their final address that Milleye would, if it were necessary, waive its right to the car parks; for the price of $500,000 it would accept the penthouse with no car parking allotments. Counsel for the Developer protested that this ought to have been pleaded. Authority is against that submission: Toga Development (No.10) Pty Ltd v Gibson (1973) 2 BPR 9,260 at 9,271. They complained, too, that the rules of fairness which underlie rr.13.07 and 13.10 oblige the plaintiffs to have given them notice of the waiver. It was said, further, that the concession was inconsistent with the way the plaintiffs' case had been presented at trial and that, if the defendants had had notice of it, they would have sought instructions as to the impact on the Developer and on the project of a sale of a unit without parking spaces. My own first impression was that this might contravene the town planning requirements for the site, but no evidence of that was before me. Some of these complaints were raised by memorandum submitted after the trial was concluded. No question of either of the parties reopening their case therefore arose. It is for the plaintiffs to show that the term they would waive is solely for their benefit. Given the lack of evidence on this matter, they have not discharged the burden. If they were entitled to waive the term as to car parks as a matter of procedure, they cannot do so because they have not satisfied me that the term was solely for the benefit of the purchaser.

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