Awad v Naboulsi

CATCHWORDS : PRACTICE AND PROCEDURE - summary striking-out of pleadings - allegations of fact inconsistent with prior judgment - allegation of existence of earlier collateral contract inconsistent with deed - allegation of special construction of deed - strike-out granted - leave to re-plead

LEGISLATION CITED : Cheques Act 1986 (Cth) Uniform Civil Procedure Rules 2005

Agricultural and Rural Finance Pty Limited v Gardiner [2008] HCA 57; (2008) 83 ALJR 196 Cabassi v Vila [1940] HCA 41; (1940) 64 CLR 130 Equuscorp Pty Ltd v Glengallan Investments [2004] HCA 55; (2004) 218 CLR 471 Cachia v Westpac Financial Services Ltd [2005] NSWCA 239 CASES CITED : Hong Kong Fir Shipping Co v Kawasaki Kisen Kaisha [1962] 2 QB 26 Koompahtoo Local Aboriginal Land Council v Sanpine Pty Limited [2007] HCA 6; (2007) 233 CLR 115 Land Enviro Corp Pty Ltd v HTT Huntley Heritage Pty Ltd [2008] NSWSC 185 McDonald v Dennys Lascelles Ltd [1933] HCA 25; (1933) 48 CLR 457 Moschi v Lep Air Services [1973] AC 331

PARTIES : Sofia Awad (Plaintiff) Toufic Naboulsi (Defendant)

COUNSEL : S A Wells (Plaintiff) F Santisi (Defendant)

SOLICITORS : Stevenson Business Lawyers (Plaintiff) JN Legal (Defendant)

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

JUDGMENT 1 HIS HONOUR: The plaintiff, Ms Sofia Awad, seeks to strike out and/or dismiss those paragraphs of the cross-claim filed by the defendant, Toufic Naboulsi, that, the plaintiff alleges, seek to re-litigate previous proceedings and/or assert an unarguable proposition. The previous proceedings, originally in the Equity Division of the Court ("the first proceedings"), were resolved by a Deed and orders were made, inter alia, dismissing the proceedings, as a consequence of the resolution of the matter. 2 The parties in these proceedings seek to litigate a substantive matter relating to damages for breach and/or repudiation of the Deed. In response, the defendant alleges implied terms in the Deed and/or a collateral contract, the terms of which rest upon an understanding of the circumstances that gave rise to the original proceedings and the execution of the Deed. It is necessary to set out some of that background. Facts 3 The first proceedings was a claim by Mr Naboulsi that alleged Ms Awad was an employee of the business owned in its entirety by Mr Naboulsi. The defence to that claim, agitated by way of defence and cross-claim, was that Ms Awad and Mr Naboulsi were in partnership in the aforesaid business, being a partnership at will. 4 The consequential issues in the first proceedings concerned the ownership of stock and other assets that remained after it was alleged that the partnership dissolved. Orders for account were sought. The matter was referred to mediation and resolved by the execution of the aforementioned Deed. It is necessary to recite some of the terms of the Deed, which, in some part, summarises the facts that were in issue between the parties, and the most relevant provisions of the Deed. The Deed was entered on 11 March 2008 between Mr Naboulsi and Ms Awad and the relevant terms were: " RECITALS : A. Naboulsi alleges that since about 17 June 2002 he has operated the business known as City Perfume (BN *******) as a sole trader. B. Naboulsi alleges that on 2 February 2008 Awad, without his consent, removed stock belonging to City Perfume and consisting of perfume products, cosmetics and fashion accessories ('the Trading Stock') from premises located at [address supplied]. C. By way of Summons filed in the Supreme Court of New South Wales on 12 February 2008 in proceedings 1455 of 2008 ('the Supreme Court proceedings') Naboulsi sought inter alia: (a) A declaration that Awad had no right, title or interest in the Trading Stock. (b) That Awad deliver all of the Trading Stock in her possession, custody or control to him. (c) Damages for conversion and/or detention of the Trading stock. D. Awad filed a Statement of Cross-Claim on 20 February 2008 in the Supreme Court proceedings wherein she has sought, inter alia, a declaration that from early 2002 Naboulsi and Awad conducted the business known as City Perfume as partners in equal shares, and wherein she sought further declarations and orders in respect of such alleged partnership. E. Awad has claimed in the Statement of Cross-Claim that she terminated the partnership in early February 2008 and took stock of the partnership into her control for safe keeping. F. Naboulsi filed a Defence to the Cross-Claim in the Supreme Court proceedings on 28 February 2008 wherein he has denied carrying on the business known as City Perfume in partnership with Awad and wherein he alleges that any work performed by Awad in the business known as City Perfume was performed by her as an employee only. G. Awad has claimed she delivered all of the Trading Stock in her possession to Naboulsi on 18 February 2008, whereas Naboulsi claims only part of the Trading Stock was returned to him. H. Awad claims that further stock belonging to City Perfume ('the Further Stock') was sold by her on 1 February 2008 to a third party purchaser, that the Further Stock had not been paid for by that third party purchaser and that it was now available to be returned to Naboulsi. I. On a without admissions basis the parties have agreed to resolve the Supreme Court proceedings and all issues between them upon the terms of this Deed.

OPERATIVE PROVISIONS : 1. Naboulsi, will within 14 days of the signing of this Deed: (a) Pay to Awad the sum of $105,000.00. (b) Undertakes to attend to the payment of a debt owing to Citibank by Awad (BSB ******, Account No. *********) in the sum of $5365.29 ('the Citibank Debt'), with the Citibank debt to be discharged within thirty (30) days of the date of this Deed. (c) Unconditionally and irrevocably releases Awad from all actions, suits, causes of action (including under Statute), claims, complaints, demands, claims for costs or expenses whatsoever which Naboulsi now has against Awad but for the execution of this Deed, arising from or relating to: (i) The Supreme Court proceedings. (ii) The business known as City Perfume. 2. Awad shall, within 24 hours of receiving payment from Naboulsi, deliver, to such place as nominated by Naboulsi, the Further Stock and all original/copy business records and documents (including bank records) belonging to or relating to or referring to City Perfume and/or Naboulsi, and an ANZ Eftpos machine; such business records and documents and Eftpos machine being presently in Awad's possession, custody or control. 3. In consideration of the payments referred to in clause 1 (a) and 1 (b) above, Awad unconditionally and irrevocably releases Naboulsi from all actions, suits, causes of action (including under statute) claims, complaints, demands, claims for costs or expenses whatsoever which Awad now has against Naboulsi but for the execution of this Deed, arising from or relating to: (a) The Supreme Court proceedings. (b) The business known as City Perfume. … 5. This Deed constitutes the entire agreement of the parties about its subject matter and supersedes all previous Agreements, understandings and negotiations on that subject matter. The parties acknowledge that this is an entire agreement and that they have not relied upon any representations made and have entered into this agreement of their own volition following legal advice. … 7. This Deed may be pleaded as an absolute bar by any of the parties hereto to any actions, suits or proceedings commenced, continued or taken by any of the parties hereto or on their behalf with respect to or in any way connected with the matters recited in this Deed." 5 The amended statement of claim in these proceedings alleges that the $105,000 payable pursuant to clause 1(a) of the Deed was not paid. It alleges that, on 14 March 2008, a cheque for the amount of $51,500 was delivered, which cheque was dishonoured and that no further amounts have been proffered. 6 Further, Mr Naboulsi has also not satisfied the Citibank debt, to which clause 1(b) of the Deed refers. 7 Causes of action are claimed under contract and pursuant to the terms of the Cheques Act 1986 (Cth). The damages, $65,365.29, is calculated by taking the sum of $105,000 (clause 1(a) of the Deed) and the Citibank debt of $5,365.29 (clause 1(b) of the Deed) and deducting from it $45,000, being, it is alleged, the value of stock held. 8 Mr Naboulsi, in his defence in these proceedings, alleges that the Further Stock (clause 2 of the Deed) was stock to the value of "about $372,055" and alleges (either in the defence or cross-claim) that there was an implied term and/or a collateral contract to the effect that he was entitled, prior to making the payments, to which clause 1 of the Deed refers, to inspect the stock that was to have been returned pursuant to clause 2 of the Deed and that the payments in clause 1 of the Deed were conditional on the stock being in or to the value of the aforesaid amount. 9 Further, he alleges that the collateral agreement (allegedly entered into on 11 April 2008, just prior to signing the Deed) required an inspection and satisfaction as to the accuracy of the representations on value and quality of the stock, upon which half of the amount owing would be paid, whereupon half the stock would be provided. Thereafter, the other half of the payment would be made and the second half of the stock would be returned. The agreement is allegedly oral. 10 Mr Naboulsi alleges that it was the representation and the further agreement relating to the quality and availability of the stock upon which he relied to sign the Deed, which, otherwise, he would not have executed. 11 Apparently, it is alleged, an agent of Mr Naboulsi inspected the stock, from which inspection, it is said, Mr Naboulsi was not satisfied as to the truth or accuracy of the representations on value or quality. Mr Naboulsi alleges that the aforesaid satisfaction was a condition precedent "to the Deed becoming enforceable and binding". Mr Naboulsi alleges that it is for that reason that the cheque was cancelled and no further amounts were paid. 12 The cross-claim, to which objection is taken, recites and/or alleges that:

(i) Mr Naboulsi was the sole owner and sole proprietor at all times of the business;

(ii) Ms Awad was employed on a casual and/or part-time basis;

(iii) As a consequence of the foregoing, and because Ms Awad is the cousin of Mr Naboulsi, she had access to keys, copies of which were made without authority;

(iv) All stock was owned by Mr Naboulsi (and the value of the stock is specified); and

(v) Ms Awad took some or all of the stock wrongfully and remained in possession of it. The allegations in the immediately preceding paragraph agitate the issues of fact that were at issue in the first proceedings, and were resolved by the Deed and the consent orders. Construction of the deed and its effect on the existence of a collateral agreement 13 The fundamental issue that underpinned the first proceedings was the dispute between the parties as to the nature of their relationship. Mr Naboulsi alleged it was an employment relationship in which Ms Awad was the employee. As earlier stated, Ms Awad alleged it was a partnership. The determination of that relationship would have determined the ownership of the stock and the other consequential issues between the parties. 14 The Deed expressly requires the payment by Mr Naboulsi of $105,000. There is an express condition precedent, being the passing of 14 days from the signing of the Deed. The terms of the Deed are inconsistent with the existence of another condition precedent. Moreover, clause 2 of the Deed makes clear that the whole of the $105,000 (together with the payment of the Citibank debt) was payable before Ms Awad was required to deliver the Further Stock, to which that clause refers. The delivery of the stock is a dependent obligation that arises only upon the payment of the amount to which clause 1 of the Deed refers. 15 Without regard to any collateral contract or implied term, or any attempt at rectification, any failure by Ms Awad to deliver the Further Stock could be enforced either by specific performance or damages. A collateral agreement, or implied term, as to the value and quality of Further Stock would be a matter to be agitated at a time when, pursuant to the Deed, Ms Awad was under an obligation to return the Further Stock. 16 Further, if there be a collateral contract and/or implied term as to the quality of the Further Stock and/or its value, then for Mr Naboulsi to refuse unilaterally to pay the amounts, to which clause 1 of the Deed refers, is to treat the contractual arrangement evidenced by the Deed at an end. In other words, the effect of that which Mr Naboulsi has done is to rescind the Deed, either on account of the breach of the collateral agreement and/or implied term, or on the basis of an anticipatory breach of clause 2 of the Deed. 17 In order for a party to have the right to rescind a contract for breach, the breach must be a breach of an essential term of the contract or a sufficiently serious breach of an intermediate term: Hong Kong Fir Shipping Co v Kawasaki Kisen Kaisha [1962] 2 QB 26; Koompahtoo Local Aboriginal Land Council v Sanpine Pty Limited [2007] HCA 6; (2007) 233 CLR 115. 18 Given that the obligation to provide the Further Stock under clause 2 of the Deed arises only after the payment in full of the amounts referred to in clause 1 of the Deed, the obligation in clause 2 cannot be an essential term, breach of which would negate the requirement for payment in clause 1. It is now trite that the discharge of a contract relieves the parties of further performance of the contract, but does not relieve the parties of obligations, or divest rights, which have been acquired unconditionally: McDonald v Dennys Lascelles Ltd [1933] HCA 25; (1933) 48 CLR 457, at 476-477 per Dixon J; Moschi v Lep Air Services [1973] AC 331, at 350-351, per Lord Diplock. On the passing of 14 days, all that was required had occurred, the obligation of Mr Naboulsi had accrued and Ms Awad had an accrued right. The obligation to pay and the right to receive the amounts under clause 1 of the Deed for was not executory, at the time of the contract's rescission, and did not dissolve and was not determined. 19 There may be essential terms in this Deed. There may be intermediate terms. Non-payment of the $105,000 may be a breach of an essential term and failure to take steps to resolve the proceedings may be in a like class. But the non-payment of the $105,000 was a breach by Mr Naboulsi for which damages run, and possibly a right to rescind. The rescission would not relieve Mr Naboulsi of his obligation to pay the amount. Inconsistency between Deed and "Collateral Contract" 20 The difficulty faced by Mr Naboulsi is that the Deed, on its face, expresses the view that it constitutes the entire agreement and supersedes any oral understanding or agreement, or negotiations. If there were, as alleged, an agreement reached immediately prior to the Deed, it could not override the express terms of the Deed. Further, clause 5 of the Deed expresses the fact that Mr Naboulsi, and Ms Awad, has not relied upon any representation to enter into the agreement. 21 The Deed is an absolute bar to either Mr Naboulsi or Ms Awad taking any proceedings in any way connected with the matters recited. 22 The High Court has recently had occasion to re-emphasise the pre-eminence of the written agreement between parties. It said: "Having executed the document, and not having been induced to do so by fraud, mistake, or misrepresentation, the respondents cannot now be heard to say that they are not bound by the agreement recorded in it. The parol evidence rule, the limited operation of the defence of non est factum and the development of the equitable remedy of rectification, all proceed from the premise that a party executing a written agreement is bound by it. Yet fundamental to the respondents' case that the operative agreements between the parties were wholly oral, and reached earlier than the execution of the written agreements, was the proposition that the written agreements subsequently executed not only may be ignored, they must be. That is not so. Having executed the agreement, each respondent is bound by it unless able to rely on a defence of non est factum , or able to have it rectified. The respondents attempted neither.

There are reasons why the law adopts this position. First, it accords with the 'general test of objectivity [that] is of pervasive influence in the law of contract'. The legal rights and obligations of the parties turn upon what their words and conduct would be reasonably understood to convey, not upon actual beliefs or intentions.

Secondly, in the nature of things, oral agreements will sometimes be disputable. Resolving such disputation is commonly difficult, time-consuming, expensive and problematic. Where parties enter into a written agreement, the Court will generally hold them to the obligations which they have assumed by that agreement. At least, it will do so unless relief is afforded by the operation of statute or some other legal or equitable principle applicable to the case. Different questions may arise where the execution of the written agreement is contested; but that is not the case here. In a time of growing international trade with parties in legal systems having the same or even stronger deference to the obligations of written agreements (and frequently communicating in different languages and from the standpoint of different cultures) this is not a time to ignore the rules of the common law upholding obligations undertaken in written agreements. It is a time to maintain those rules. They are not unbending. They allow for exceptions. But the exceptions must be proved according to established categories. The obligations of written agreements between parties cannot simply be ignored or brushed aside.

The conclusion that the respondents are bound by the written loan agreements may leave open the possibility that an earlier consensus reached by the parties was in each case a collateral agreement (made in consideration of the parties later executing the written agreement), but that has never been the respondents' case. In another case it may leave open the possibility that the contract is partly oral and partly in writing. But that cannot be so here. The oral limited recourse terms alleged by the respondents contradict the terms of the written loan agreement. If there was an earlier, oral, consensus, it was discharged and the parties' agreement recorded in the writing they executed. It is the written loan agreement which governed the relationship between Rural Finance and each respondent." ( Equuscorp Pty Ltd v Glengallan Investments [2004] HCA 55; (2004) 218 CLR 471 at [32]-[35], [36].) (Emphasis added and footnotes omitted.) 23 Of course, the parties are entitled to enforce the Deed. Enforcement of the Deed may give rise to arguments about the proper construction and meaning of the term "Further Stock" and on that issue, the parties would be entitled to rely upon a special meaning of the term. While the use of ex post facto conduct and/or discussions to construe a contract is impermissible (Agricultural and Rural Finance Pty Limited v Gardiner [2008] HCA 57; (2008) 83 ALJR 196), it is permissible to adduce evidence of a particular business context and permissible to examine the relationship between the parties to the contract or between any collateral contract and the Deed. 24 But that is not what the cross-claim seeks to do. Rather, the cross-claim agitates, as an objective fact, the same issues that were sought to be agitated in the first proceedings. Mr Naboulsi is not entitled to re-agitate these issues. He may be entitled to agitate the fact that these matters were in issue between the parties as part of the circumstances from which the Deed can be properly construed, but not the objective existence of the facts or the ownership of the Further Stock. The first proceedings 25 As earlier stated, Mr Naboulsi seeks to agitate the same facts that necessarily underpinned the first proceedings. This is generally impermissible. 26 Even though the first proceedings were resolved by consent, the judgment is binding on the parties and resolves the elements upon which it relied: Cabassi v Vila [1940] HCA 41; (1940) 64 CLR 130; Cachia v Westpac Financial Services Ltd [2005] NSWCA 239; Land Enviro Corp Pty Ltd v HTT Huntley Heritage Pty Ltd [2008] NSWSC 185. Mr Naboulsi does not seek to set aside the judgment from the first proceedings. Rather, he seeks rectification of the agreement and/or he seeks to assert, as previously stated, the existence of a collateral agreement or implied terms. 27 Previously, the Court has remarked that Mr Naboulsi is entitled to state the issues that were between the parties prior to their resolution in the first proceedings and is entitled to adduce evidence as to the true nature of the agreement and/or of the true meaning of the term "Further Stock", but he is not entitled to have the Court determine that which has been resolved by the judgment issued in the first proceedings. Conclusion 28 The issues associated with the status of Ms Awad were necessarily determined in the first proceedings. Further, the claim for a collateral contract and/or implied terms, as pleaded, is a claim for an agreement inconsistent with the Deed, entered into before the execution of the Deed. The first is impermissible and the second cannot give rise to an arguable cause of action. 29 However, to the extent that Mr Naboulsi claims that a special meaning must be given to the term "Further Stock", he is, as previously stated, entitled to assert the facts and circumstances that were in issue in the first proceedings and therefore gave rise to the agreement. This does not include an assertion as to the objective existence of any fact inconsistent with the judgment in the first proceedings. 30 The notice of motion, somewhat unusually, seeks the striking out of certain paragraphs of the statement of cross-claim and, in the alternative, seeks the dismissal of the proceedings. In other words, the primary remedy is under the Uniform Civil Procedure Rules 2005 UCPR 14.28 (the striking out of pleadings) and the alternate remedy is under UCPR 13.4 (the striking out of proceedings or a claim in proceedings). Mr Naboulsi is capable of re-pleading in a way that raises the issue of the special meaning given, or that ought to be given, to "Further Stock" and, as such, it is appropriate only to strike out the paragraphs that offend and to allow Mr Naboulsi to re-plead. These are the orders the Court will make. 31 The Court makes the following orders:

(i) Pursuant to the Uniform Civil Procedure Rules 2005 UCPR 14.28, paragraphs 1, 2, 5, 6, 7, 8, 9, 10, 14, 15, 16, 17, 20, and 27 of the first cross-claim and statement of cross-claim be struck out;

(ii) The cross claimant be granted liberty to file an amended first cross-claim and statement of cross-claim;

(iii) The cross claimant/defendant pay the plaintiff/cross defendant's costs of and incidental to the motion, as agreed or assessed.

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