153 CLR 438
Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7
251 CLR 640
John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd [2010] HCA 19
241 CLR 1
Louinder v Leis [1982] HCA 28
Source
Original judgment source is linked above.
Catchwords
172 CLR 293
Ciaverella v Balmer [1983] HCA 26153 CLR 438
Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7251 CLR 640
John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd [2010] HCA 19241 CLR 1
Louinder v Leis [1982] HCA 28
Judgment (14 paragraphs)
[1]
Background
The respondent and the appellants held interests in common in a large number of properties, including the Church Street Property. In 2010, the respondent commenced proceedings against the appellants claiming relief arising out of what was said to be a partnership or joint venture between the parties (2010 Proceedings). He sought, among other things, an order for dissolution of the partnership and distribution of the partnership assets.
In 2011, the respondent commenced the 2011 Proceedings against the appellants, seeking orders under s 66G of the Conveyancing Act 1919 (NSW) for the appointment of trustees for sale in respect of the Church Street Property. As I have noted, the respondent had a particular interest in the Church Street Property, since he conducted his business from the premises.
On 1 November 2011, orders were made in the 2011 Proceedings for the appointment of the Trustees, with the sale of the Church Street Property to take place as soon as practicable. The parties to the 2011 Proceedings were to be at liberty to purchase the Church Street Property, whether at auction or by private treaty. The Trustees duly became registered as the proprietors of the Church Street Property.
The Trustees caused the Church Street Property to be auctioned on 31 May 2012. At the auction, the respondent and the appellants bid against each other, but the respondent was successful with his bid of $5 million. The Trustees and the respondent entered into the Contract of Sale immediately after the auction.
The Contract of Sale specified on the cover sheet that the "Completion date" was the 42nd day after the "contract date". Special Condition (SC) 44.3 stated that:
"The Completion date will be the later of:
44.2.1 the 42nd day after the date of this contact; and
44.2.2 the 14th day after the date on which the vendor notifies the purchaser in writing that the title is registered in the name of the Trustee". [3]
The primary Judge did not refer to SC 44.3, but proceeded on the basis that the Completion date under the Contract of Sale was 12 July 2012: Principal Judgment at [6], [21]. As I have indicated, there is no dispute on the appeal that this was the Completion date as defined in SC 44.3.
The respondent did not complete the purchase on 12 July 2012. The Trustees issued a notice to complete on 2 August 2012 (Notice to Complete), which was expressed to expire on 21 August 2012.
Shortly after being served with the Notice to Complete, the respondent filed a notice of motion in the 2011 Proceedings seeking the appointment of trustees for sale of other properties held in common by the parties and an order restraining the Trustees from acting on the Notice to Complete. The notice of motion also sought leave to file a Further Amended Statement of Claim (FASC) and to join the Trustees as parties to the 2011 Proceedings. [4] The draft FASC was a very detailed document that alleged, among other things, that the appellants had breached their fiduciary duties to the respondent and acted fraudulently in their dealings with him. The allegations included claims that the appellants had forged the respondent's signature in order to complete certain transactions.
The respondent's motion was listed in the Duty Judge list for 21 August 2012. On that day the parties (including the Trustees) entered into the Heads of Agreement. The material terms of the Heads of Agreement, which were in typed form but with handwritten alterations, are recounted at [41]-[49] below.
The Heads of Agreement, as will be seen, provided for a valuation regime. A separate dispute subsequently arose between the parties in relation to valuations purportedly undertaken in conformity with the Heads of Agreement. In 2013, the respondent instituted yet further proceedings challenging the valuations. On 30 July 2013 White J held that the valuations were not binding on the parties to the Heads of Agreement. [5]
The Heads of Agreement also provided for the payment of certain moneys by the appellants to the respondents within 28 days of the last valuation of specified properties. As I have noted, that payment (referred to in the Heads of Agreement as the "first payment") was made on 24 December 2013. The first payment occurred considerably later than the parties had originally anticipated, presumably because of the valuation dispute.
On 23 January 2014, the Trustees sent a settlement schedule to the respondent's solicitors in anticipation of completion the following day of the purchase of the Church Street Property. The settlement sheet calculated the "default interest" payable by the respondent in respect of the period 13 July 2012 until 24 January 2014 as $639,817.08. After allowing for a "25% set off", the default interest payable by the respondent was said to be $479, 682.81.
Completion of the purchase of the Church Street Property took place on 24 January 2014. The respondent paid the balance of the purchase price (less a 25 per cent set off for his share of the proceeds). He also paid the amount of default interest calculated by the Trustees. It was agreed that this amount should to be held in trust pending resolution of the dispute as to whether any interest was payable.
On 5 March 2014, the appellants filed the notice of motion to which I have referred (at [16] above). It appears that at that stage the Trustees' solicitors retained in their trust account the amount in respect of default interest paid on settlement by the respondent.
As has been noted, the primary Judge delivered the Principal Judgment on 4 April 2014 and the Supplementary Judgment on 13 May 2014. This Court was informed that after the delivery of the Supplementary Judgment, the Trustees caused the whole of the amount retained by their solicitors to be paid to the respondent. If the appeal succeeds orders will be required to ensure that the moneys paid to the respondent are repaid to the Trustees.
[2]
The Contract of Sale
The Contract of Sale was in the form of the Law Society of New South Wales and Real Estate Institute of New South Wales Contract for the Sale of Land, 2005 edition. As already noted, the Contract of Sale provided for a price of $5 million and a deposit of $100,000.
I have referred (at [26]) to the provisions in the Contract of Sale relating to the Completion date. Clause 15 provided as follows:
"The parties must complete by the completion date and, if they do not, a party can serve a notice to complete if that party is otherwise entitled to do so."
Clause 16.7 provided that on completion the purchaser had to pay the vendor the price less any deposit paid and any other amount "payable by the purchaser under this contract".
SC 33 stated that the vendor and purchaser agreed that "any notice to complete under this contract will be reasonable as to time if a period of 14 days from the date of service of the notice is allowed for completion".
SC 36 is central to the dispute. It stated as follows:
"Late completion
Provided that the vendor is ready, willing and able to give title to the purchaser, if this contract is not completed for any reason (other than the vendor's default) on or before the Completion date then in addition to any other right which the vendor may have under this contract or otherwise the purchaser will on completion of this contract pay the vendor interest on the balance of the purchase price at the rate of 8% per annum calculated on daily balances, commencing on the Completion date and continuing until completion of this contract. This interest is a genuine pre-estimate of liquidated damages and will be deemed to be part of the balance of purchase money due and payable on completion."
[3]
Heads of Agreement
The Heads of Agreement was signed on 21 August 2012. The parties agreed to a valuation regime that applied to all properties in their real estate portfolio, other than the Church Street Property. The appellants agreed to pay the respondent 25 per cent of the valuation amount determined by the valuer (Agreed Amount), less 25 per cent of the debt owed to financial institutions and secured on the properties. The parties agreed to a similar regime in respect of a number of businesses and other assets in which they held interests in common.
Clause 3 of the Heads of Agreement provided that, unless otherwise agreed, the valuer would produce the required valuation within two months of the signing of the Heads of Agreement (that is, within two months of 21 August 2012). Because of the valuation dispute referred to earlier, this timetable was not adhered to.
Clause 4 of the Heads of Agreement dealt with payment to the respondent of his share of the assessed value of the properties:
"The [appellants] agree to pay within 28 days of the last valuation becoming available to the parties a sum representing 25 %of the amount representing the Agreed Value of the properties less 25 % of all costs associated with the steps identified in paragraph 11(a) below (being valuer fees and stamp duty) less 25 % of the debt owed by any of the [appellants and the respondent] to [specified] financial institutions as at 30 June 2005 … (the 'first payment')".
Clauses 5 and 6 of the Heads of Agreement were described by the primary Judge (at [16]) as an "attempt to resolve the existing stand off between the parties concerning the [Contract of Sale]". They provided as follows:
"5. In relation to the [Church Street Property] purchase, the parties agree that:
(a) the Notice to Complete will be withdrawn. The Trustees will not take any steps towards issuing another Notice to Complete until 3 months from the date of signing of this Heads of Agreement.
(b) the settlement of the said purchase is not required to proceed until after the [respondent] receives sufficient funds to complete the purchase.
(c) Upon receipt by the [respondent] of the [first] payment (if amounting to sufficient funds to complete the [Church Street Property] purchase) or, if not sufficient for that purpose, receipt of the second payment (noting the parties' intention that the [respondent] will be in such a position within 3 months of the date of signing this heads of Agreement), the [respondent] will attend to the settlement of the purchase of the [Church Street Property].
(d) If the parties are not in a position to enable the transfer of the [Church Street Property] within 4 months, the Trustees are at liberty to mortgage the [Church Street Property] to pay their outstanding costs, fees and remuneration.
(e) If the parties are not in a position to enable the transfer of the [Church Street Property], within 4 months, the Trustees have a discretion to terminate the contract for sale on the basis that the same payments be made to the [appellants] and real estate agents' commission as if the sale of the [Church Street Property], by the Trustees to the [respondent] had occurred.
(f) The deposit held in respect of the [Church Street Property] be released to the trustees in partial payment of their outstanding legal fees, disbursements and remuneration which shall be taken into account by the trustees in their final determination of each party's entitlement.
6. This agreement does not otherwise affect the terms of the [Church Street Property] contract for sale, or the distribution of funds that would arise upon its settlement in accordance with the Court Orders on 1.11.2011. The decision by the Trustees as to the calculation of the funds arising upon settlement or transfer will be final."
As can be seen, cl 5(b) was included in a draft of the Heads of Agreement but deleted before the document was signed.
Clause 9 provided for payment of the respondent's share of the assessed value of the businesses:
"The [appellants] will pay to the [respondent] a sum of 25 % of the value of the businesses as determined by the nominated accountant within 28 days of the last of those valuations becoming available less associated costs (being any stamp duty payable and the nominated accountant's fees) ('second payment')".
Clause 11 stated that "upon the first payment being made", the respondent would do all things reasonably necessary to transfer or abandon any interest he had or claimed to have in the properties other than the Church Street Property (cl 11(a)). The appellants undertook to use their best endeavours to obtain a release of the respondent from any continuing debts or liabilities in respect of the properties or businesses (cl 11(b)) and to indemnify the respondent against any such debts or liabilities (cl 11(c)).
Clause 12 provided for the payment of interest as follows:
"In relation to any sums not paid on the date required for payment, interest will accrue in the amount of Reserve Bank cash rate plus 4% per annum, calculated on daily rests."
Clause 13 contained releases as follows:
"Upon the first and second payments being paid, the parties release each other and the Trustees from any further claims they may have or in the future may have against the other in respect of the following subject matters:
(a) The properties referred to in the proceedings.
(b) The two sets of proceedings.
(c) Any actual or alleged partnership between the parties.
(d) Any actual or alleged trust arrangements between the parties.
(e) Any actual or alleged legal or equitable interests including security interests that any party may have on any of the properties or businesses referred to in the proceedings."
Clauses 16 and 17 were as follows:
"16. The parties agree that this agreement is immediately binding upon them. The parties will negotiate a more fulsome agreement which will add to, but not modify, the terms agreed herein.
17. The parties agree to stand the two sets of proceedings over to a date convenient to the Court after on or after 10 Dec 2012. Upon the first and second payments being made, the parties will approach the court with consent orders to the effect:
(a) The two sets of proceedings will be discontinued;
(b) Each party will bear their own costs of the proceedings;".
[4]
Principal Judgment
The primary Judge recorded (at [30]) the parties' agreement that cl 6 of the Heads of Agreement meant that the Heads of Agreement did not "otherwise affect" the Contract of Sale, except to the extent that its terms were affected by cl 5. The difference between the parties centred on the meaning of cl 5 and, in particular, cl 5(c) of the Heads of Agreement.
His Honour said (at [33]) that the word "settlement" in cl 5(c) of the Heads of Agreement clearly referred to the obligation to complete the Contract of Sale under cl 15. His Honour then stated (at [34]) his preference for the submissions put on behalf of the respondent, which he summarised as follows (at [31]):
(i) cl 5(c) of the Heads of Agreement created a precondition to the respondent's obligation to complete the Contract of Sale, namely that he received the "first payment" (as defined in cl 4 of the Heads of Agreement);
(ii) cl 5(c) substituted the date of the respondent's receipt of the first payment as the date for completion of the Contract of Sale;
(iii) as a consequence, interest ran only on the unpaid purchase moneys under SC 36 from the amended Completion date (that is, from 24 December 2013, being the date the first payment was actually made).
The primary Judge said (at [36]) that cl 5(c) of the Heads of Agreement assumed that the respondent's obligation to complete the Contract of Sale (that is, "attend to the settlement of the purchase") would follow receipt of the first payment. Thus the receipt of that payment was a precondition to the performance of the respondent's obligation to settle (at [37]).
His Honour considered (at [38]) that this construction of cl 5(c) was reinforced by the reference in cl 5(c) to the first payment "amounting to sufficient funds to complete this [Church Street Property] purchase":
"There seems little point in the parties contemplating the sufficiency of the first payment to achieve settlement unless its receipt were intended to be a pre-condition to settlement. And other mutual obligations arose between the parties under clause 11 to separate their respective interests and obligations in the non-Church Street properties also upon the receipt of the first payment, so that it is to be expected that that same event was being treated as a pre-condition also to [the respondent's] obligation to settle the contract for the only other property, the Church Street property."
According to his Honour (at [39]), retaining the original Completion date of 12 July 2012 under the contract of Sale was "hardly consistent with the receipt of the first payment being a pre-condition to completion" of the Contract of Sale. In any event, cl 5(a) provided for withdrawal of the existing Notice to Complete and prevented another Notice to Complete being issued for three months. The fact that the Trustees could issue a fresh Notice to Complete once the precondition in cl 5(c) was satisfied and the three months period had expired was consistent with the first payment being a precondition to completion (at [40]).
The effect of cll 5(a) and 5(c) read together was that (at [41]):
"… provided three months had passed from the date of the 2012 Heads [of Agreement] and provided the first payment has been received (subject to its sufficiency) the Trustees can issue another Notice to Complete naming the date of the first payment as the missed date of completion."
In his Honour's view (at [42]), cll 5(d) and 5(e) were supplementary machinery provisions consistent with this construction:
"If the first payment and the second payment are not made within 4 months the Trustees are empowered to bring matters to a head by terminating the contract. That provides a kind of backstop to the Trustees and some resolution to the parties if there is unacceptable delay in the valuation process and the first payment is not made. But the consequence of such a termination after the first payment was not made (by clause 11) is that the parties would still be bound to each other."
The primary Judge rejected the appellants' submissions, which he summarised (at [32]) as follows:
"(1) clause 5(c) is not a substitute for the [respondent's] settlement obligation under the Church Street contract; (2) clause 5(c) is only providing that if the Church Street contract is not otherwise settled before the making of the first and second payments (as defined), then settlement had to be done by the time provided for in the clause 5(c); and, (3) clause 5(c) refers to the parties' intention that the settlement might occur within the 3 months contemplated within clause 5, but the parties were conscious that, and provided for, the possibility that settlement might not occur within that time."
His Honour considered (at [43]) that the appellants could gain no comfort from the deletion of cl 5(b) from the Heads of Agreement. Clause 5(b) was unnecessary because cl 5(c) achieved the same result, only with greater precision.
His Honour acknowledged (at [45]) that neither cl 5 nor cl 6 expressly altered the Completion date under the Contract of Sale. However, in his view, that was precisely the effect of cl 5(c) of the Heads of Agreement:
"If that were not so, the odd situation would arise that any Notice to Complete issued would recite a completion obligation in July 2012 when the pre-condition to completion under clause 5(c) would only arise some time after 21 August 2012."
The primary Judge also rejected an alternative argument advanced by the appellants. They had submitted that the second sentence of cl 6 of the Heads of Agreement ("The decision by the Trustees as to the calculation of the funds arising upon settlement of transfer would be final") prevented the respondent from disputing the calculation of interest undertaken by the Trustees for the purposes of completion of the sale of the Church Street Property.
His Honour pointed out (at [49]) that no agreement had been reached by the date of actual completion of the sale as to the inclusion of default interest on the amount payable on completion. Accordingly, the Trustees had left the amount paid in respect of interest in their solicitors' trust account. In his Honour's view (at [55]), the calculations incorporated in the settlement sheet did not constitute "a decision" of the Trustees within cl 6 of the Heads of Agreement. The Trustees were not purporting to bind the parties to any final amount of interest; the calculations were proffered subject to further discussion.
In any event, the primary Judge considered (at [57]) that cl 6 of the Heads of Agreement did not bind the parties to the Trustees' determination of rights and obligations, but only to their arithmetical calculations. The calculations were to be done in relation to "funds arising upon settlement" and calculation of an amount of interest not properly due could not be said to "arise on settlement".
The consequence of the primary Judge's reasoning in the Principal Judgment was that the amount which had been set aside on completion of the purchase of the Church Street Property, could be paid out to the respondent (at [61]).
[5]
Supplementary Judgment
In the Supplementary Judgment, the primary Judge addressed the issue (as he described it) of "interest after the revised completion date of the [Contract of Sale]". The issue was whether, by reason of the delay in completion between the revised Completion date of 24 December 2013 (when the first payment was made) and the actual completion date of 24 January 2014, the respondent was liable under the Contract of Sale to pay interest in respect of that period. The significance of this dispute was that if the respondent was obliged to pay one month's interest, the appellants were entitled to 75 per cent of the amount payable.
The primary Judge accepted (at [13]) the respondent's submission that the Trustees were not in a position to settle the purchase on 24 December 2013 because they had failed to obtain the concurrence of other parties whose co-operation was necessary to enable completion to take place at that time. Since the Trustees were not "ready, willing and able to give title to the purchaser" as required by SC 36, they were not entitled to interest on the balance of the purchase price in respect of the one month period between 24 December 2013 and 24 January 2014. As I have noted, the appellants do not challenge that finding.
[6]
Appellants' Submissions
There was some lack of symmetry between the appellants' written submissions and the oral submissions made on their behalf. In his oral argument, Mr Condon put submissions based on two alternative constructions of cl 5(c) of the Heads of Agreement.
Mr Condon's "preferred" construction was that cl 5(c), contrary to the primary Judge's view, did not alter the Completion date specified in the Contract of Sale. Mr Condon pointed out that cl 5(c) said nothing in terms about the respondent's obligation under cl 15 of the Contract of Sale to complete by the Completion date of 12 July 2012. Instead it provided that upon receipt of the first payment, the respondent "will attend to settlement of the purchase of the … Church Street property".
According to Mr Condon, this language assumed that the respondent was in breach of cl 15 of the Contract of Sale at the date of the Heads of Agreement and that he would remain in breach until completion or settlement took place (although the breach would not of itself constitute a breach of an essential term of the Contract of Sale). On this construction, cl 5(c) of the Heads of Agreement imposed an obligation on the respondent, once he received the first payment (assuming it was of a sufficient amount), to take the steps necessary to be ready for actual completion. Since cl 5(c) said nothing about the respondent's obligation under cl 15 of the Contract of Sale to complete the purchase on the Completion date, the provision could not be construed as deferring the date on which the respondent was contractually obliged to complete - that is, it did not defer the Completion date specified in the Contract of Sale until the date the first payment was actually received. Clause 5(c) merely required the respondent to ready himself for actual completion of the purchase once a particular event occurred, namely receipt by the respondent of the first payment due under the Heads of Agreement.
Mr Condon observed that cl 5(c) expressly contemplated that the first payment would be made within three months of the signing of the Heads of Agreement (although this did not in fact occur). The reference to three months in cl 5(c), so he argued, tied in with cl 5(a), which prevented the Trustees from serving a fresh notice to complete for a period of three months from the signing of the Heads of Agreement. Since the respondent continued to be in breach of cl 15 of the Contract of Sale, it was open to the Trustees, once the three months period expired, to issue a fresh notice to complete.
Mr Condon's alternative construction of cl 5(c) was that adopted by the primary Judge, namely that the provision altered the date fixed for completion by cl 15 of the Contract of Sale. Mr Condon submitted that, even on this construction, the deferral of the date by which the respondent was contractually obliged to complete the purchase had no effect on the operation of SC 36. He contended that not only did cl 5(c) of the Heads of Agreement say nothing about SC 36 of the Contract of Sale, but cl 6 made it clear that the Heads of Agreement were not intended to affect the terms of the Contract of Sale, except to the extent that cl 5 of the Heads of Agreement was inconsistent with the Contract of Sale. Mr Condon invoked what he said was a rule of construction that clear words are necessary to rebut the presumption that a party does not intend to abandon an accrued entitlement.
Mr Condon submitted that SC 36 obliged the respondent to pay interest regardless of whether he was in default under the Contract of Sale. All that was required for the obligation to be enlivened was the non-completion of the Contract of Sale on the Completion date. It did not matter what the reason was, provided the Trustees were not in default and were ready, willing and able to settle on that date. In the events that occurred, the Completion date for the purposes of SC 36 was and remained 12 July 2012. Since the respondent's liability to pay interest under SC 36 was not dependent on him being in default of his obligation to complete in accordance with cl 15, it did not matter if the Heads of Agreement substituted a date later than 12 July 2012 as the date on which the parties were required to complete the sale.
The appellant's written submissions repeated the argument put to the primary Judge, that cl 6 of the Heads of Agreement prevented the respondent from disputing the calculation of interest undertaken by the Trustees in contemplation of completion of the sale. Mr Condon did not elaborate on those submissions.
[7]
Respondent's Submissions
The respondent supported the reasoning of the primary Judge. Mr Studdy SC, who appeared with Ms McWilliam for the respondent, submitted that cl 5(c) of Heads of Agreement imposed a precondition to the respondent's obligation to complete the purchase of the Church Street Property. The provision substituted the date of the receipt by the respondent of the first payment (as defined in the Heads of Agreement) as the "Completion date" for the purposes of cl 15 of the Contract of Sale.
Mr Studdy contended that this construction accorded with the plain meaning of cl 5(c) and with the obvious intention to vary the terms of the Contract of Sale. The respondent's construction was also supported by cl 11, which created other obligations that were dependent on the first payment being made. As the primary Judge concluded, cll 5(d) and 5(e) were supplementary machinery provisions consistent with this construction of cl 5(c).
Mr Studdy further submitted that the surrounding circumstances supported the primary Judge's approach. The Heads of Agreement was entered into after the respondent applied for leave to file the FASC. The amended pleading would have made serious allegations against the appellant, including a claim that the respondent's inability to complete the purchase of the Church Street Property was due to the appellant's conduct. The Heads of Agreement was designed to settle all disputes between the parties. While there was a carve out for the Church Street Property, the completion of the purchase was linked to the valuation process for all the assets and the receipt by the respondent of the first payment.
In these circumstances, so Mr Studdy argued, a reasonable business person would not construe cl 5(c) of the Heads of Agreement as resetting the Completion date, yet leaving the respondent with a continuing obligation to pay interest on the balance of the purchase price. The presumption invoked by the appellants did not assist them, so Mr Studdy argued, because the presumption applies only where the accrued obligation arises by operation of law.
Mr Studdy submitted that the primary Judge had correctly rejected the appellant's arguments founded on cl 6 of the Heads of Agreement.
[8]
Common Ground
There was no dispute on the appeal as to three significant matters. First, although the primary Judge found in the Supplementary Judgment that the Trustees were not ready, willing and able to settle the sale of the Church Street Property on 24 December 2013, neither party suggested that the Trustees were not ready, willing and able to settle the sale on the Completion date specified in the Contract of Sale (12 July 2012) or on the date the Heads of Agreement were signed (21 August 2012). Indeed it was accepted that the Trustees were ready, willing and able to settle at all relevant times prior to 24 December 2013.
Secondly, Mr Studdy accepted that SC 36 of the Contract of Sale required the respondent to pay interest even if the respondent was not in default under the Contract of Sale. Mr Studdy indicated that he made this concession because SC 36 imposed an obligation on the respondent to pay interest if the Contract of Sale was not completed "for any reason (other than the vendor's default)". Prior to the concession being made, it had been pointed out in argument that the last sentence of SC 36 (which states that the interest payable is a genuine pre-estimate of liquidated damages) might suggest payment of interest was required only if the purchaser was in breach of the Contract of Sale. In making the concession, Mr Studdy no doubt took the view that the last sentence of SC 36 simply explained how the interest obligation was calculated and did not undercut the contractual obligation to pay interest if completion did not occur "for any reason …".
Thirdly, both parties accepted that the primary Judge correctly recorded the principles to be applied in determining the rights and liabilities of parties to a contract. Those principles were stated by the majority in Electricity Generation Corporation v Woodside Energy Ltd: [6]
"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 … [I]t will require consideration of a language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding "of the genesis of the transaction, the background, the context [and] the market in which the parties are operating" … [U]nless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption 'that the parties … intended to produce a commercial result'. A commercial contract is to be construed so as to avoid it 'making commercial nonsense or working commercial inconvenience'." (Citations omitted.)
[9]
The Context
As the statement of principle in Electricity Generation v Woodside Energy indicates and as Mr Studdy correctly submitted, in construing the Heads of Agreement it is necessary to have regard to the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the Heads of Agreement. The circumstances known to the parties included the terms of the Contract of Sale, the fact that the Completion date had passed without the purchase of the Church Street Property being completed, the service of the Notice to Complete by the Trustees, the dispute between the parties relating to their broader business interests and the respondent's intention to file a FASC making serious allegations against the appellants. The Heads of Agreement was clearly intended to resolve differences between the parties relating to their business interests, extending well beyond any issues arising out of the Contract of Sale of the Church Street Property. Nonetheless, cll 5 and 6 of the Heads of Agreement specifically dealt with the rights and obligations of the parties under the Contract of Sale.
The circumstances that need to be taken into account in construing cll 5 and 6 of the Heads of Agreement (and specifically cl 5(c)) include the position of the parties to the Contract of Sale at the time the Heads of Agreement was executed. It is not in dispute that the Trustees had been ready, willing and able to complete the sale on the Completion date (12 July 2012). The respondent was therefore in breach of cl 15 of the Contract of Sale by reason of his failure to complete the purchase on the Completion date. His breach was of a non-essential stipulation as to time in the Contract of Sale and was enforceable by an action for damages. However, the breach did not of itself constitute a basis for the Trustees (if they were so minded) to terminate the Contract of Sale. [7]
The respondent's breach of cl 15 of the Contract of Sale entitled the Trustees to serve a Notice to Complete (as they did). The effect of a notice to complete was stated by the High Court in Ciaverella v Balmer: [8]
"the effect of a valid notice to complete, once the purchaser fails to comply, is to establish the existence of an essential breach, the breach which preceded the giving of the notice being non-essential. The function of the notice is to fix a reasonable time for completion so that non-compliance with its requirements evidences a fundamental breach or renunciation … The effect of the notice is not to convert a non-essential term into an essential term." [9]
Thus at the date the parties entered into the Heads of Agreement:
The respondent was in breach of cl 15 of the Contract of Sale.
Since the Contract of Sale had not been completed on the Completion date (the Trustees having been ready, willing and able to give title and not otherwise having been in default), SC 36 obliged the respondent to pay interest on the balance of the purchase price until actual completion.
As Mr Studdy accepted, the respondent's obligation to pay interest under SC 36 arose independently of whether he was also in breach of cl 15.
By 21 August 2012, on my calculation, the Trustees were entitled to approximately $43,000 in accrued interest pursuant to SC 36 of the Contract of Sale.
Service of the Notice to Complete by the Trustees fixed a reasonable time for completion and if the respondent did not complete within the time specified he would be in fundamental breach of the Contract of Sale and the Trustees would be entitled to terminate the Contract.
[10]
Construction of the Heads of Agreement
The Heads of Agreement clearly altered the rights and obligations of the parties under the Contract of Sale in a number of respects:
Clause 5(a) required the Trustees to withdraw the Notice to Complete and to refrain from taking any steps towards issuing another notice to complete for three months. Clause 5(a) did not of itself relieve the respondent from being in breach of cl 15 of the Contract of Sale, but merely prevented the Trustees for a specific period from issuing a fresh notice to complete.
Clause 5(d) permitted the Trustees, in certain circumstances, to mortgage the Church Street Property.
Clause 5(e) conferred on the Trustees a discretion to terminate the Contract of Sale in circumstances not addressed in or contemplated by the Contract of Sale itself.
Clause 5(f) provided for the deposit to be released to the Trustees. No such provision was included in the Contract of Sale.
Clause 6 of the Heads of Agreement stated that the Agreement did "not otherwise affect" the Contract of Sale or the distribution of funds that "would arise upon its settlement". The terms of the Heads of Agreement altering the parties' rights and obligations under the Contract of Sale show that cl 6 had considerable work to do, regardless of the construction of cl 5(c).
Clause 5(c) of the Heads of Agreement provided that upon receipt by the respondent of the first payment, he would "attend to the settlement of the purchase of the … Church Street Property". As the respondent accepted, cl 5(c) did not expressly alter the Completion date specified in the Contract of Sale. Nor did it expressly relieve the respondent from being in breach of cl 15 of the Contract of Sale by reason of his failure to complete on the Completion date. However, the primary Judge thought (at [33]) that it was clear that the word "settlement" in cl 5(c) referred to the obligation to complete in cl 15 of the Contract of Sale. The respondent's submissions echoed this view.
It is of course necessary to construe cl 5(c) of the Heads of Agreement by reference to its language, having regard to the other terms of the Heads of Agreement. It is significant that the word "settlement" is not only used in cl 5(c), but in cl 6, where it appears twice. It is clear that the word "settlement" in cl 6 means the actual completion of the sale of the Church Street Property. The word does not refer to the Completion date specified in the Contract of Sale, nor to the respondent's obligation pursuant to cl 15 of the Contract of Sale to complete on the Completion date. This is demonstrated by the stipulation in cl 6 that "the decision by the Trustees as to the calculation of the funds arising upon settlement" will be final. The calculation of funds arising upon settlement could not be undertaken until the date of actual completion of the sale of the Church Street Property was known. It was obvious to the parties when the Heads of Agreement were signed that the actual completion of the sale of the Church Street Property could not take place on the Completion date specified in the Contract of Sale.
It would be odd if the word "settlement" when used in cl 5(c) of the Contract of Sale has a meaning different from the meaning it clearly has in cl 6. A reasonable business person would see no reason why the same interpretation should not be accorded to a familiar word used in two clauses of the Heads of Agreement addressing the same subject matter, namely the parties' rights and obligations under the Contract of Sale.
When read in context, it is apparent that cl 5(c) of the Heads of Agreement is directed to actual completion of the sale of the Church Street Property. The respondent's obligation under cl 5(c) to "attend to the settlement of the purchase" is enlivened upon receipt of the first payment, provided the payment is of an amount sufficient to complete the purchase of the Church Street Property. The respondent is correct to submit that the obligation to "attend to the settlement" is conditional upon receipt of the first payment. But that obligation is to attend to actual completion of the purchase. The language of cl 5(c) is not apt to refer to the pre-existing breach by the respondent of the non-essential term of the Contract of Sale requiring him to complete by the Completion date.
This construction of cl 5(c) does not involve any conflict with cl 5(a) of the Heads of Agreement. The parties contemplated that the first payment would be made within three months of the signing of the Heads of Agreement. The Trustees were not to take any steps to issue another notice to complete (the first Notice to Complete having been withdrawn) until the period of three months had elapsed. Clause 5(c), unlike the deleted cl 5(b), does not say that the respondent is not bound to settle (that is, actually complete) the purchase until he receives the first payment. The provision is framed affirmatively and says that "he will attend to the settlement" once he receives the first payment.
The primary Judge considered that the Trustees were prevented from issuing a further notice to complete, even if the three months period had expired, unless the respondent had received the first payment. It is by no means clear that this is the effect of cl 5(a), since the provision does not expressly address the entitlement of the Trustees to issue a fresh notice to complete after the three months period. But even if the primary Judge's view is correct, cl 5(a) is not inconsistent with construing cl 5(c) to refer to the respondent's obligation to attend to settlement, in the sense of attending to actual completion of the sale.
The inability of the Trustees to issue a further notice to complete (whether for three months or a longer period) does not deprive cl 5(c) of legal or practical significance. The appellants were parties to the Heads of Agreement, but not to the Contract of Sale. If, for example, the respondent, having received the first payment, failed "to attend to the settlement", the appellants would have a contractual claim against him for breach of the Heads of Agreement. The respondent's breach of cl 5(c) might therefore have consequences for the respective obligations of the appellants and the respondent under the Heads of Agreement.
Similarly, if the respondent failed to attend to settlement notwithstanding receiving the first payment, he would also be in breach of his obligations to the Trustees under the Heads of Agreement. While the Trustees could not issue a fresh notice to complete, they could pursue other remedies in respect of the respondent's breach of the Heads of Agreement. These might include seeking a decree of specific performance of the respondent's obligation "to attend to settlement".
Mr Studdy contended that cl 11 of the Heads of Agreement, which requires the respondent to transfer any interest in properties other than the Church Street Property upon the first payment being made, supports the primary Judge's construction of cl 5(c). Clause 11, like cl 5(c), imposes obligations on the respondent conditional on the first payment being made. But cl 11 does not assist in determining the nature of the obligation imposed on the respondent by cl 5(c) once he receives the first payment.
Nor do I think there is substance in Mr Studdy's contention that the circumstances known to the parties support the primary Judge's construction of cl 5(c) of the Heads of Agreement. The parties knew that the respondent had failed to complete the purchase by the Completion date and that SC 36 of the Contract of Sale required the respondent to pay interest until actual completion (subject to the Trustees not being in default and being ready, willing and able to complete). They knew by the time the Heads of Agreement was signed that interest had been accruing for over a month. They could very easily have agreed to abrogate the respondent's liability to pay interest under SC 36 or to alter the date required for completion under cl 15 of the Contract of Sale. They did neither of those things. They also made it clear in cl 6 of the Heads of Agreement that the Agreement was not "otherwise to affect the terms" of the Contract of Sale.
In my view, contrary to Mr Studdy's contentions, there is nothing uncommercial or unrealistic about construing cl 5(c) of the Heads of Agreement to leave undisturbed the respondent's obligation to pay interest under SC 36. The terms of the Heads of Agreement reflect a negotiated compromise as to the manner in which the rights and obligations of the Trustees and the respondent under the Contract of Sale were to be accommodated within the settlement of the overall dispute between the appellants and the respondent. The compromise did not include any provision relieving the respondent from the accrued and continuing obligation under SC 36 of the Contract of Sale to pay interest on the unpaid balance of the purchase price. The Heads of Agreement modified some provisions of the Contract of Sale and left others intact. The absence of any provision relieving the respondent from his obligation to pay interest under SC 36 involves no inconsistency with any other element of the overall compromise.
Mr Condon submitted that cl 13 of the Heads of Agreement supports a construction of cl 5(c) that leaves the respondent's obligation to pay interest under SC 36 unaffected. He pointed out that cl 13 contains mutual releases between the appellants and the respondent but that it does not release the respondent from claims by the Trustees. Although I do not think that cl 13 is crucial on the question of construction, it does tend to support Mr Condon's position. That being said, even if cl 13 did incorporate mutual releases between the respondent and the Trustees, it would still be necessary to give effect to the preservation of the terms of the Contract of Sale in cl 6 of the Heads of Agreement.
It follows that the primary Judge was in error in construing the Heads of Agreement so as to relieve the respondent from the obligation to pay interest pursuant to SC 36 of the Contract of Sale on the unpaid balance of the purchase price of the Church Street Property.
[11]
The Appellants' Alternative Construction Argument
This conclusion makes it unnecessary to address the appellants' alternative argument that, even if cl 5(c) of the Heads of Agreement altered the date fixed by cl 15 of the Contract of Sale, it did not affect the respondent's obligation under SC 36 to pay interest on the unpaid balance of the purchase price. However, I should record that, had it been necessary to do so, I would have accepted the appellants' alternative argument.
The Contract of Sale in effect defined the Completion date, in the events that occurred, as 12 July 2012. Clause 15 of the Contract of Sale required each party to complete by the Completion date. Clause 15 also provided for the service of a notice to complete if completion did not take place on the Completion date. SC 36 stated that, subject to the Trustees not being in default, if for any reason the sale was not completed on or before the Completion date then, in addition to any other right available to the Trustees, the respondent had to pay interest on the unpaid balance of the purchase price.
As I have noted, Mr Studdy accepted that the respondent's obligation to pay interest under SC 36 was enlivened, regardless of whether or not the respondent was in breach of cl 15 of the Contract of Sale (provided the Trustees were not in default and were ready, willing and able to complete). In other words, their contractual right to interest arose independently of whether the failure to complete on the Completion date was due to the respondent's default. On this basis, the objective of SC 36 of the Contract of Sale was to ensure that the Trustees (and therefore the appellants) were compensated by way of interest for not receiving the balance of the purchase price on the Completion date.
Even if cl 5(c) of the Heads of Agreement postponed the date by which the respondent was obliged by cl 15 of the Contract of Sale to complete the purchase of the Church Street Property, cl 5(c) did not alter the contractual definition of "Completion date". Since the obligation to pay interest under SC 36 of the Contract of Sale was independent of the respondent's obligation to complete under cl 15, the postponement of the latter obligation did not affect his liability to pay interest under SC 36. It would be otherwise if the Heads of Agreement expressly relieved the respondent from his obligation to pay interest on the balance of the purchase price, but the Agreement contains no such provision. Accordingly, on the appellant's less preferred construction of cl 15(c), the respondent was still obliged to pay interest on the balance of the purchase price from the Completion date (12 July 2012) until 24 December 2013.
[12]
The Appellants' Argument Based on cl 6 of the Heads of Agreement
It is unnecessary to deal with the appellants' argument based on cl 6 of the Heads of Agreement. It is enough to say that I would have rejected the argument, essentially for the reasons given by the primary Judge.
[13]
Orders
The appeal must be allowed. The respondent must pay the appellants' costs of the appeal but, if otherwise eligible, should have a certificate under the Suitors' Act 1951 (NSW).
Since the amount held by the Trustees' solicitors has been paid to the respondent, it will be necessary to frame orders to take account of that payment. Accordingly, the appellants should be directed to bring in short minutes of order within fourteen days giving effect to these reasons for judgment. If the proposed short minutes of order are not agreed, the respondent should file its proposed short minutes of order within a further seven days. In the event of disagreement, each set of short minutes should be accompanied by brief written submissions not exceeding three pages in length.
[14]
Endnotes
See at [64]-[65] below.
John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd [2010] HCA 19; 241 CLR 1 at [131]-[132] (per curiam); Ross v Lane Cove Council [2014] NSWCA 50 at [51]-[58] (Leeming JA, Meagher JA and Tobias AJA agreeing); Menzies v Paccar Financial Pty Ltd (No 4) [2014] NSWCA 210 at [101] (per curiam).
The numbering of the sub-clauses in SC 44.3 is incorrect in the original Contract of Sale.
As events transpired, the Trustees were not joined as parties to the 2011 Proceedings, apparently because the motion was overtaken by the entry into the Heads of Agreement.
Arida v Arida [2013] NSWSC 1051.
[2014] HCA 7; 251 CLR 640 at [35].
Louinder v Leis [1982] HCA 28; 149 CLR 509 at 524, 526 (Gibbs CJ, Mason, Stephen and Wilson JJ agreeing).
[1983] HCA 26; 153 CLR 438 at 446.
See also Louinder v Leis at 524 (Mason J); 532 (Brennan J) (a notice to complete is a step in securing the lifting of the equitable restraint on the legal right to terminate); Braidotti v Queensland City Properties Ltd [1991] HCA 19; (1991) 172 CLR 293 at 308 (Deane J).
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 26 June 2015
Solicitors:
Somerset Ryckmans Lawyers (Appellants)
Greenaway & Tohme (Respondent)
File Number(s): 2014/211401; 2014/131524
Decision under appeal Court or tribunal: Supreme Court of New South Wales
Citation: Arida v Arida [2014] NSWSC 395
Arida v Arida (No 2) NSWSC 579
Date of Decision: 4 April 2014; 13 May 2014
Before: Slattery J
File Number(s): 2011/109699; 2010/266736
HEADNOTE
[This headnote is not to be read as part of the judgment]
The appellants and the respondent are brothers who co-owned a property. The respondent successfully bid at auction to purchase the property from Trustees for sale. A special condition in the Contract of Sale provided for the payment of interest to the Trustees if the sale was not completed on the specified Completion Date. The purchase was not completed on the Completion Date.
The appellants, the respondent and the Trustees subsequently entered into Heads of Agreement in order to resolve a wider set of disputes between the appellants and the respondent.
The issue at trial was whether the Heads of Agreement effectively amended the Contract of Sale so as to remove any obligation by the respondent to pay interest pursuant to the special condition unless and until the appellants paid certain moneys to him pursuant to the Heads of Agreement. The primary Judge held that the Heads of Agreement was inconsistent with the special condition and thus interest was not payable.
Held (per Sackville AJA, Bathurst CJ and Macfarlan JA agreeing), allowing the appeal:
The Heads of Agreement reflect a negotiated compromise as to the manner in which the rights and obligations of the Trustees and the respondent under the Contract of Sale were to be accommodated within the settlement of the overall dispute between the appellants and the respondent. On the proper construction of the Heads of Agreement, it did not relieve the respondent from the accrued obligation under the Contract of Sale to pay interest on the unpaid balance of the purchase price.
Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; 251 CLR 640