Burwood Project Management P/L v Polar Technologies International P/L & N.... [1999] NSWSC 1203 | Case summary

"The rights and benefits of this deed" referred to in Clause 4.1 are not identical with the option to purchase the property earlier granted in Clause 1.1 but are wider, and on the ordinary meaning of the words include interests under any contract formed on exercise of the option. 5 Plaintiff's counsel referred me to observations of Dixon CJ in MacDonald v Robins (1954) 90 CLR 515 at 520 and following in relation to the operation of a contractual provision prohibiting assignment. That case related to an alleged breach of covenant against assignment without consent in a lease which was held not to be broken by a Deed of Dissolution of Partnership which operated as an equitable assignment of an interest in the lease. In my view MacDonald v Robins was disposed of on the meaning and effect of the covenant in the lease. The Deed of Option to Purchase deals generally with legal and equitable interests, primarily with equitable interests, and the terms of Clause 4 establish lack of assignability as a characteristic of the rights and benefits created. Clause 4 has the same breadth of operation as the law relating to the effect of contractual provisions prohibiting assignment stated by Lord Browne-Wilkinson in Linden Gardens Trust Limited v Lenesta Sludge Disposals Limited [1994] 1 AC 85. Although that case related to a contract for services Lord Browne-Wilkinson at 108 stated his view in terms which applied to contractual rights generally: "Therefore the existing authorities establish that an attempted assignment of contractual rights in breach of a contractual prohibition is ineffective to transfer such contractual rights. I regard the law as being satisfactorily settled in that sense. If the law were otherwise, it would defeat the legitimate commercial reason for inserting the contractual prohibition, viz., to ensure that the original parties to the contract are not brought into direct contractual relations with third parties." 6 His Lordship referred at 109 to exceptions in property law related to assignment of leases. The lack of effect in law of provisions which restrain assignments of leases, and the limited effect of covenants which qualify this, have long been established. An option to purchase, which expressly or impliedly restrains, usually for a relatively short time, alienation of land except in accordance with the exercise of the option does not fail because of the doctrine invalidating restraints on alienation; see Wollondilly Shire Council v Picton Power Lines Pty Limited (1994) 33 NSWLR 551 per Handley JA at 555 and discussion by Young J in Elton v Cavill (1993) 43 NSWLR 289 at 299. Contractual restraints for a short time, in this case only until exercise of the option and possibly thereafter only until 30 August 1999, do not fall within the law invalidating restraints on alienation. After completion, the new registered proprietor is to be entirely free from any restriction. In my opinion the restriction imposed by Clause 4, contractually and for a short time only pending completion of the contemplated sale, is not invalidated by the law relating to restraints on alienation. 7 If the parties' rights are addressed in terms of the table of general principles identified by Lightman J in Don King Productions Inc v. Warren and Others, [1999] 3 WLR 276 at 301-302, [1998] 2 AllER 608 at 631 to 633, to which I was referred, clause 4 of the Option to Purchase Deed falls within Principle 5 at page 632 while clause 5 of the Points for Agreement falls outside Principle 7. Lightman J found that there was a trust of the benefit of contracts in that case [1999] 3 WLR at 304 and was upheld by the Court of Appeal at 312-316: but the issues did not include enforcement of the trust against persons who were not parties to its creation. 8 Polar was not the only developer interested in the land. Illawarra was concerned to dispose of the land and receive the consideration so as to meet its banking commitments. As 31 July 1999 approached, Polar's directors had keen interest, indeed enthusiasm for pressing on with the indoor ski development, and they had a natural interest in turning to the best account possible the opportunities presented by having the option and the development consent. Polar had spent $37,500.00 on an earlier option or options as well as $100,000.00 it had paid for the current option. Polar did not have the funds to pay $150,000 on exercise of the option, let alone the funds necessary to carry out the development. 9 Mr Reda Wassef is a director of Eden Property Development Pty Limited and of other companies associated with its business in property development. Mr Shaheer Gobran, an architect, is also a director. In negotiations in which Mr Wassef had the principal part and Mr Gobran had very little part, Mr Wassef discussed proposed dealings in the land with Mr Graham and Mr Kneale. These discussions were opened with a telephone call initiated by Mr Wassef on Tuesday 27 July, followed by a meeting in the afternoon of 28 July and further discussions on 29 and 30 July. Then on Saturday 31 July there were several meetings, and extensive discussions. These led to Mr Kneale writing out during the afternoon a handwritten document headed "Points for Agreement" which was completed when Mr Wassef, Mr Graham and Mr Kneale met at the club's Hurstville premises at about 4.00 p.m - Exhibit 9. At this meeting Mr Kneale added Clauses 4 and 5, which Mr Wassef required, to the document and made another minor change incorporating those clauses, and the Points for Agreement were signed. Mr Kneale produced a copy of the Notice of Exercise which was required to be delivered, and this was altered in a manner satisfactory to Mr Wassef. As altered the Notice named the person giving it and exercising the option as "POLAR TECHNOLOGIES INTERNATIONAL PTY LTD ACN 060 576 025 (for itself and/or its related entity BURWOOD PROJECT MANAGEMENT PTY LTD ACN.082.712.409)". 10 Then at 4.37pm the notice, executed under seal by Polar, was handed to the duty manager at the club premises together with a cheque for $150,000.00. The cheque was drawn by Helix Constructions Pty Limited, a company in some way associated with Eden Property Developments and not involved in the events in any way other than by providing the cheque which was at Mr Wassef's disposition. The plaintiff Burwood Project Management Pty Limited (Burwood) was introduced into the events during the course of discussions on 31 July by Mr Wassef as a shelf company which he had available to take part in the transaction. So far as appears, it had no other business. It had not been mentioned as a participant until that day. 11 The meaning and legal effects of the Points for Agreement are not easy to discern. It contains several indications of pre-finality. Its opening words are "Points for Agreement". The words of agreement are "it is mutually agreed in principal as follows". There is reference in Clause 2 to $137,500.00 as the minimum reimbursement which Polar is to receive. As its reimbursement is not otherwise defined this indicates that some further agreement or arrangement was contemplated. 12 Some other provisions of the Points for Agreement also indicate its pre-finality. Clause 2 deals with what is to happen "if development of the site proceeds to completion in its agreed form" and Clause 3 "if development does not or cannot proceed by Burwood in its current D.A. approved form". Obviously something is to happen to establish whether development of the site is to proceed or cannot proceed in accordance with the existing development consent. Then there are subsidiary provisions in Clause 3 which are to operate if the development does not proceed. In that event sub-clause 3.1 seems to indicate that Burwood could decide to relinquish or fail to complete the land purchase contract and also contemplates an outcome in which development would proceed in some other form as determined by Burwood which would require a new development consent; then Polar was to receive the minimum reimbursement of $137,500.00. 13 Overall the Points for Agreement do not constitute a scheme of provisions which are readily comprehensible as a commercial arrangement. As the Points for Agreement do not according to their own terms purport to be a complete statement of the terms of the parties' agreement, evidence of the whole of the contractual arrangements of which they form part is admissible. 14 Clause 4 provides "Should for any reason the exercise of the option be deemed ineffective and the balance deposit paid therewith be thereby refundable then such balance deposit shall be directly paid by the grantor to Burwood." Clause 4 alludes to an arrangement of primary importance not referred to in the express terms, that Burwood was to provide the $150,000.00 which had to be paid on exercise of the option. 15 The parts which were to operate immediately on 31 July do not have the air of pre-finality. Clause 1 provides "The option to be exercised by Polar in its terms in favour a company to be nominated by Burwood." 16 Clause 5 provides "Polar acknowledges that the Burwood nominated purchaser company is a related entity in the option terms and Polar hereby irrevocably assigns to Burwood its absolute interest in the option and the purchase contract." 17 The definition of "related entity" in s. 9 of the Corporations Law extends to many associations and reaches companies with one common director, as well as the holding companies and subsidiaries mentioned in s. 50. Although it would have been simple to create a related-entity relationship, there was no such relationship on 31 July and never has been since. 18 It will be seen that the Notice of Exercise referred to Burwood itself, not to a company nominated by Burwood. No nominee of Burwood has been introduced into the events by Burwood at any stage, and there never has been a Burwood nominated purchaser company to which the acknowledgment in Clause 5 could relate. The acknowledgment is meaningless in its own terms but if it is taken to apply to Burwood as a related entity in the terms of the Deed of Option, it is plainly wrong and must have been known to be wrong to all involved in the document. 19 The words in Clause 5 dealing with assignment are at the heart of this litigation. There is an internal inconsistency or dissonance in that at the time the agreement was made there was no purchase contract, and if the option were assigned any purchase contract later formed would belong to the assignee as a result of the assignment of the option. It is necessary to understand from the evidence of the parties about their oral arrangements, most particularly those of 31 July, what arrangements they made about the effect of the restriction on assignment in the Deed of Option, and the form which was to be taken by arrangements between them for carrying out the contemplated development. It is only after establishing the effect of oral arrangements about those two matters that it can be seen why the Points for Agreement show signs of being incomplete and of pre-finality, and what was contemplated would be done about the restriction on assignment. 20 Mr Wassef's information about the indoor ski facility started with his conversation with directors of Polar on the afternoon of Wednesday 28 July, when he was given the written material which had been collected and compiled by Polar about the project. As the development involved paying $2,500,000.00 for the land and large sums, up to $20,000,000.00 for the redevelopment and there was a need to obtain appropriately skilled management for the project, it is very unlikely that Mr Wassef would give a firm or unqualified commitment that Burwood would go on with the indoor ski development within three or four days of first considering it. It was contemplated that Burwood might go on with that development, and that possibility is reflected in Clause 2 of the Points for Agreement, and so is the possibility of further participation of Polar and of increased reimbursement. On the other hand there is clear reflection in Clause 3 of contemplation that development might not proceed in that form and that some other development might be undertaken - see Clause 3.2 21 In its amended cross-claim Polar claims against Burwood that Burwood in the person of Mr Wassef induced Polar to enter into the Points for Agreement and to exercise its rights under the Deed of Option by representing and warranting falsely that Burwood had the present intention to enter into a joint venture agreement for the purpose of establishing a ski run complex and gymnasium with Polar and would subsequently do so, and that Burwood had the present intention to develop and would subsequently develop the land with Polar as joint venturers as a ski run complex and gymnasium, and that no alternative use for the property would be considered unless the ski run project could not be proceeded with. It is alleged that Polar acted on those representations and warranties in turning away, about the middle of the day of Saturday 31 July, another proposal by Messrs. Blyth and Manson who are the principals of the sixth and seventh defendants, which was in effect a proposal to acquire the option for $300,000.00, with no prospect for Polar of further involvement in development, as it was obvious that Messrs. Blyth and Manson would not carry on with the indoor ski development. This would have brought in money forthwith for Polar, although Polar would have foregone any prospect of participating in the ski facility development, to which its directors, particularly Mr Graham were very deeply attached and on which they had spent several years of effort and large sums of money. Polar would also have foregone any prospect of any further reimbursement. 22 Oral evidence dealt extensively with what in detail was said by Mr Kneale, Mr Graham and Mr Wassef about the proposed development. I find it very difficult to make precise findings about what was said or to understand the total effect of a series of statements in a series of meetings, and I find the objective probabilities of considerable assistance in coming to a conclusion about whether the cross-claim has been made out. I am impressed by the signs on the face of the Points for Agreement that there was contemplation not only that the development would proceed in accordance with the development consent, but also that it might not, and that in that case Burwood would have some power of decision. 23 Another consideration bearing on the probabilities is that it seems to me to be very unlikely that Mr Wassef would give anything like an unqualified assurance which would commit him and interests associated with him to a very large project when he had only begun to hear details about it three or four days earlier and he had no expertise in the field. I am satisfied that nothing which could be understood as an unqualified assurance was given, and that the need for further negotiation and agreement about the terms on which the indoor ski development would take place was obvious to all and is recognised by the document which was prepared. I do not find that Mr Wassef was insincere or deceptive in his references to his openness to proceeding with the indoor ski development, and in my finding it was also clear that he was not making a complete commitment and that he might decide that the land should be used for some other development. For this reason I do not uphold the claim for damages for misrepresentation under subs. 82(1) or under subs. 87(2)(d) of the Trade Practices Act. 24 I also find that it cannot be shown that Polar's action in turning away Messrs. Blyth and Manson was caused by any representations made by Mr Wassef. They were turned away at a relatively early stage in the conversations of Saturday 31 July and more was said later in the day about the intentions of Mr Wassef and those associated with him. My finding is that Messrs Blyth and Manson were turned away because Messrs Kneale and Graham saw the opportunity to pursue the indoor ski development as the better opportunity than finally parting with their connection with the land. 25 I am satisfied that the difficulty about assignability created by Clause 4 of the Deed of Option was seen by Mr Wassef as well as Mr Graham and Mr Kneale on the afternoon of 31 July as a large difficulty of high importance for the effectiveness of their transaction, and that this difficulty was reflected in both the written and the oral arrangements in a way which represents the basal importance, if the Option to Purchase or the Contract were to be assigned, of making the arrangements effective as against Illawarra, which they would not be unless Illawarra consented to them. There was no time to seek or obtain Illawarra's consent; earlier in the day an attempt had been made to vary the arrangements in another way when Mr Graham and Mr Wassef spoke to Mr Ohlin, the club's manager, entirely without success. There was no prospect of getting Illawarra's consent that afternoon, and it would obviously have been imprudent to let Illawarra know that there was an arrangement which was an unauthorised assignment. The references in Clauses 4 and 5 to the related entity question and to the possibility of the exercise being deemed ineffective are reflections of this concern. 26 The fact that there was concern about assignability appears much more clearly from evidence of Mr Kneale about the course of discussion which I accept. In Mr Kneale's evidence, he put before Mr Wassef at the meeting on the afternoon of Wednesday 28 July that Polar was looking for a joint venture partner for the project and that Polar was anxious to develop the indoor ski run. In his account of his first conversation on Saturday 31 July Mr Kneale speaks of Mr Wassef as saying "We have decided we would like to go ahead with the development". In his lengthy account of the second meeting on Saturday 31 July at about 1.30pm, the many statements which he gives in evidence include that he said "Well, we'll have to agree on a lot more details; we really need a joint venture agreement between us, as Polar will have to exercise the option and we need to cover the ongoing arrangements." This led to discussion in the course of which he showed Mr Wassef the Option Deed particularly Clause 4 which Mr Wassef read. 27 Mr Kneale's evidence went on to say that he had told Mr Wassef "We may be able to set up a joint venture company by using a shelf company and issuing shares to Polar to regulate the arrangements and comply with the requirements of the option." This led to Mr Wassef introducing for the first time reference to the shelf company Burwood. Mr Kneale then said "Well, we would need to tell the club what we are doing, but we understand that they have a board meeting on Tuesday evening at which the Notice of Exercise of Option will be presented for acceptance before they sign the contract. I believe that they would probably agree to sign the contract in favour of the joint venture company if they know what we are doing having regard to the shortness of time." Then some arrangements were made by telephone with the club General Manager Mr Ohlin, for a meeting with club officers on the morning of Monday 2 August. 28 Turning to the composition of the document Mr Kneale said "Well, what basic things do we need to put down now? We will have to meet again after the meeting with the club on Monday and agree on the rest of the arrangements before the club's board meeting on Tuesday evening." Mr Kneale's evidence is that Mr Wassef then dictated the Points for Agreement which he wrote out other than Clauses 4 and 5. 29 At a later stage in the events when the parties had met again at the club premises at Hurstville at 4.00pm the two additional clauses were dictated by Mr Wassef and written down, as was the amendment to the Notice of Exercise. Mr Kneale said "I have a problem with Clause 5 because as I have said Burwood is not presently a related entity. We will have to finalise our agreement before the club deals with the matter and hope they agree on the basis of our joint venture arrangements with Burwood." After this the Points for Agreement were signed and the Notice of Exercise with the cheque was delivered to the duty manager. 30 I am satisfied that Mr Kneale's account of what took place is substantially correct with respect to advertence to the significance of Clause 4 of the Deed of Option, to the fact that the arrangements relating to assignment and participation of Burwood did not comply, and to the need to make some further arrangements which could be put before Illawarra in the hope of the club's approval so that the arrangements for the participation of Burwood in the purchase could be effective; and also with respect to advertence to the need to meet further and make a further arrangement dealing with the problem of the related entity and also defining the joint venture in time to put arrangements before Illawarra at its directors' meeting on Tuesday 3 October and seek its approval. The Points for Agreement were signed and the option was exercised on the shared understanding that there was a need to make and define further arrangements, and to do so before the club directors met on 3 August; this obvious need explains the indications of pre-finality. 31 In my opinion the meaning and legal effect of what was said and the parties' shared understanding that there had to be further agreement so as to form their entire arrangement is that it was a condition of the Points for Agreement that further agreement had to be reached. This shared understanding explains some of the events of 2 and 3 August, and in particular it explains the absence of any disclosure to Illawarra of the terms of the Points for Agreement, of the fact that Burwood was not a related entity or of what Burwood's participation truly was. It would not indeed have been possible to explain fully or clearly what Burwood's participation was unless and until it was defined by the contemplated further agreement; and there never was one. 32 Where the manner of exercise is specified in the agreement creating an option, the question whether the option has in fact been exercised is considered with some strictness, although not with undue strictness. This strictness is related to the perception that a purchaser has an equitable interest in land which is brought into existence by the exercise of option and is different in kind from the interest created by the option. There is more room for equitable intervention, and hence less strictness, where the purchaser already has an interest in the land and failing to conform to some procedural requirement can bring about its forfeiture. In Prudential Assurance Ltd v Health Minders Pty Limited (1989) 9 NSWLR 673 at 677 Kirby P stated the principles applicable; for present purposes, the primary rule is that the notice of exercise of the option must express clearly and unequivocally the fact that this is what is intended, but "(3) the appropriate question to be asked is what anybody who received the letter, subsequently said to amount to the exercise of the option, would fairly have understood to be the meaning of it in the circumstances of its receipt…..". The approach appears to be the same as that taken to errors in notices in Mannai Investment Co. Limited v Eagle Star Life Assurance Co. Limited AC 749. 33 That approach would not have saved the Notice of Exercise of 31 July 1999 had Illawarra been disposed to dispute its effectiveness; the notice suffers from ambiguity because of the "and/or" expression, and could yield at least three meanings, namely that Polar exercised the option for itself, that Polar exercised the option both for itself and for Burwood, and that Polar exercised the option for Burwood only. The reasonable recipient might also consider whether the recipient was being offered the choice of which of these to accept or whether the giver of the notice was reserving a choice; the reasonable recipient could not know the answer. One thing that is clear about the Notice of Exercise is that Burwood did not give the notice. 34 In view of some submissions which were made I should add that I regard it as clear that the notice does not on any possible view of its terms mean that Polar was exercising the option for itself as trustee for Burwood; its terms do not say that. When the Notice is understood in the context of the Deed of Option the reference to Burwood as a related entity indicated that there had been an assignment. It was not made known by the notice or in any other way that Burwood was not a related entity, that the statement that it was was untrue, or that there had been a purported assignment which was contrary to Clause 4 of the Deed of Option. Illawarra did not have the benefit of being told the truth, and acting on the limited facts available to it decided to treat Polar as the purchaser. It continued in this line until the Deed of Termination which bears date 13 August, and did not depart from it at the hearing. Illawarra did not want Burwood as its purchaser and had it been told the truth it would have repudiated the Notice of Exercise and it would have been within its rights to do so. 35 The events of 2 and 3 August are difficult to understand or to analyse, because the arrangements between Burwood and Polar were incomplete in essential respects and always remained so. At the first meeting with club officers on the morning of 2 August Mr Wassef presented Burwood as the purchaser, and in the circumstances this must have been a claim relating to the effect of the Notice of Exercise. A statement to the same effect was made later on 2 August in a letter from Eden Property Developments signed by Mr Wassef to the club. On that day a club officer adverted to the identity of Mr Gobran, who attended as one of the Eden Property Development representatives, with an enquirer who some weeks before had shown an interest in the property on behalf of persons interested in the affairs of the Egyptian Coptic Church. The club had its solicitor make searches of register information relating to companies and found nothing to confirm the related entity relationship asserted in the Notice of Exercise. Suspicion and wariness entered the club's conduct of affairs. In fact Mr Gobran's enquiry had come to nothing and there was no continuing interest in acquiring the land of any persons associated with the Egyptian Coptic Church. 36 The club's solicitor Mr Holt made a telephone enquiry of Mr Kneale on 2 August and received a temporising answer which referred to the prospect of there being a joint venture, but minimised the participation of Burwood and did not reveal the agreement to assign in the Points for Agreement. After obtaining written advice from Mr Holt the club's directors decided at their meeting on 3 August to treat the Notice of Exercise as an effective exercise of the option by Polar, and to act on the basis that the club was dealing only with Polar and not with Burwood. The Club did not adopt the line that Burwood was the purchaser: the false representation in the Notice of Exercise was not acted on. The club adhered to its position thereafter, and still did in its counsel's final submissions, and it appears to me that the position was reasonably available and probably a correct view of the Notice of Exercise, although it would also have been possible to maintain that the Notice of Exercise was ineffective. 37 By the time the club directors met on 3 August no further arrangement of any kind had been made between Burwood and Polar; no arrangements for creation of a related entity relationship had been made and no arrangements for a joint venture or defining further co-operation had been made. Evidence and submissions were directed to contentions about whose fault it was that no joint venture arrangement was made, but that is not to the point; if no agreement emerged, the condition was not fulfilled and there was no basis for trying to obtain the club's consent to the assignment which had any prospect of being shown to comply with clause 4, literally or in spirit. 38 Illawarra was never asked to consent to the assignment, by Burwood or by Polar, and was never given a frank and true statement of what Burwood's position was. 39 For a statement to be frank it would have been necessary to show Illawarra a copy of the Points for Agreement; and that did not happen until a copy was delivered on 20 August, annexed to an affidavit served after the commencement of this litigation on 19 August. 40 It was obvious enough that Burwood wished to be treated as having some interest in the purchase. What were not obvious, and in substance were deliberately concealed, were the circumstances in which Burwood thought it had some rights. Obviously enough, to reveal them would be at the peril that Illawarra would insist on its own rights under Clause 4. 41 Clause 4.1 has contractual effect only between the parties to the Deed of Option to Purchase. The parties cannot by terms of their Deed change the general law such as s. 12 of the Conveyancing Act, 1919 which relates to legal assignment of choses in action, or the recognition in Equity of assignments and agreement to assign for value. An agreement between Polar and Burwood could, depending on what its terms were, assign in equity Polar's interest in the option and in the contract created on its exercise to the extent of those interests whatever they were. The position that Illawarra was bound in equity by any such assignment and was bound to give effect to equitable interests of Burwood created by it would not be established simply by showing that Illawarra had notice of the assignment and of the equitable interests which existed as between Burwood and Polar. 42 The effect of notice is only a part of the facts relevant to Illawarra's position in conscience, and the prohibition on assignment and Illawarra's immunity from the effect of an assignment, and from the need of having to deal with or consider assignees according to the terms of the contract under which Polar acquired any rights and had anything itself to assign, is of far higher importance than the existence of notice. Burwood cannot bind Illawarra in conscience by taking an assignment of property when the deed which created the property expressly stipulated that there should not be an assignment. To hold that Illawarra was bound in conscience by such an arrangement would be to override an immunity which Illawarra had been expressly assured it would have. Burwood cannot bind Illawarra in conscience to an assignment when it was a characteristic of the thing assigned that there would not be an assignment. Illawarra's position in conscience is improved by the undoubted fact that before the purported assignment Burwood had actual notice of the terms of Clause 4 and could see its effect. Illawarra's position in conscience is further improved by Burwood's participation in the preparation of the Notice of Exercise in a form which falsely stated that Burwood was a related entity to Polar Technologies and falsely suggested that there had been a permitted assignment. 43 The Notice of Exercise was intentionally misleading because it was clear to both Mr Kneale and Mr Wasseff, the principals representing Polar and Burwood who established the form of the notice, that Polar was not a related entity. 44 Mr Wasseff claimed that he did not understand this, that he believed that Burwood was a related entity if it agreed to purchase the land from Polar and that Mr Kneale led him into this belief. Mr Kneale's account of what passed between them is quite different. Clause 5 shows that the parties understood that the need for Polar and Burwood to become related parties had to be satisfied, and by recording Polar's acknowledgment of a fact that was obviously wrong it prevented Polar from relying on the point: it established a convention about what the facts were. 45 Mr Wasseff's assertion that he thought that the agreement to purchase would make Burwood and Polar related entities cannot be accepted; a rational adult could not have thought that the Corporations Law said that, and also could not have thought that the Deed of Option contained a provision which was so completely futile. Mr Wasseff gave his occupation as company director. It is not necessary to attribute any knowledge of the law relating to corporations to him; it is enough to attribute ordinary adult rationality to him to conclude that he could not and did not think that the companies became related entities simply because they entered into the Points for Agreement. 46 The formation of the Points for Agreement on 31 July can be explained only on the basis that the parties recognised that they had to make a joint venture agreement and that they had to make this acceptable to Illawarra very promptly, if their transaction was to be effectual and Burwood was to be the purchaser from the Club: and also recognised that if the Club knew what the actual relationship was the Club would be entitled to treat the transaction as ineffectual. Their behaviour on 31 July was underlain by recognition that according to the Deed of Option the Club was not bound to deal with any assignee, that the Club could not be told straight away about the assignment, and that some further arrangement had to be formed, very promptly, which the Club could be told about in the hope of bringing the Club to the view that the arrangement was satisfactory. Otherwise the fact that they were not related entities was bound to come out. Any appearance of agreement produced from the Club by a Notice of Exercise which contained an untrue statement about the standing of Burwood could not be binding on the Club unless the Club knew of the circumstances and decided to approve of them; this would be obvious to any honest person, and in my finding it was obvious and was known to Burwood on 31 July. 47 When the club directors adopted their position on 3 August there was no further room for the Points for Agreement to operate, as the joint venture agreement in relation to which the Points for Agreement were to operate had not come about. It was not possible for Polar to raise enough money to complete the purchase contract from its own resources without the benefit of a joint venture agreement. Polar's position, with a commitment to pay a further $2,250,000.00 on 30 August to complete the purchase which it could not possibly meet, and with no resources to carry on the development, was a severely embarrassing one. Its position was complicated by the facts that as it had just used $150,000.00 of money provided by Burwood to get into a position which Polar did not actually want, and that Polar was not even in a position to seek to quiet Burwood by refunding that money. It seems possible that the position could have been retrieved by co-operation, but that was not forthcoming. 48 On 5 August the club's solicitor, Mr Holt was given some information about Burwood's position in a conversation with its solicitor, Mr Loupos, who had only been instructed that day. In this conversation Burwood's position was presented as a sub-purchaser from Polar, not as an assignee of the option, and Mr Loupos said, inaccurately, that Burwood purchased the land from Polar after the exercise of the option. Mr Loupos asked whether Illawarra would recognise Burwood as the purchaser, meaning the purchaser directly from Illawarra, so that Burwood would avoid paying double stamp duty. Mr Holt said that Illawarra did not know anything about the sale Polar to Burwood, and that before he could get instructions he would need to see that contract. Mr Loupos said that he would need to get instructions before he could give Mr Holt a copy. Mr Loupos and Burwood did not give Mr Holt or Illawarra a copy at any relevant time, and did not ever present Burwood's position on the footing that it had an assignment of the option, or an assignment of the purchase contract agreed to before exercise of the option. 49 Illawarra had a natural economic motivation to deal with someone who in fact would purchase the land and pay for it, and knew of the interest of Messrs. Blyth and Manson from earlier dealings with them. After some days, somewhat contrived arrangements were put together between Mr Holt representing the club and Polar and its solicitors which led to a Deed of Termination bearing date 13 August 1999 between Illawarra and Polar which terminated Polar's contract and provided for a refund of $150,000.00. Correspondence leading to this Deed of Termination contains assertions, which are not borne out either by provisions of any agreement or by any evidence about arrangements, and have a strong air of contrivance, about there being a condition or understanding of the club that the indoor ski development would be carried out. This was in reality a matter of indifference to Illawarra, whose only real concern was to sell its land and collect a proper price. The Deed of Termination was dated 13 August although it appears to me that it only became effective when it was adopted by the club's directors at a meeting on 17 August. Messrs. Blyth and Manson, acting through the sixth and seventh defendants which are companies which they control, entered into a contract to purchase the land, to which the date 13 August was attributed. That was the date on which they signed the contract and paid over the deposit, although it appears to me that the contract only became effective when a condition contained in it requiring ratification by Illawarra's directors was fulfilled on 17 August. 50 Illawarra's position that it was not bound by the contract with Polar was based on the Deed of Termination, but it was entitled to disavow the contract on the more profound basis that it had been brought into existence by an untrue representation about the state of conformity with cl.4, which concealed the truth that cl.4 had been consciously broken on the calculation that when there was a joint venture agreement, which it was contemplated would soon be made, the Club could be persuaded to accept Burwood in the same way as it would have accepted a related entity. 51 The conduct of the club was attacked and it was alleged that the club incurred liability to Burwood out of these events on several bases. It was alleged that Burwood was a beneficiary of a trust of the property and that the club was on notice of the trust. This view is incorrect for a series of reasons; there was no declaration of trust, and the characterisation of Polar as a trustee for the limited purposes for which that character is attributed to a vendor of property in favour of the purchaser was not appropriate because the conditions in which Polar could have been obliged to complete its agreement to assign the purchase contract had never been fulfilled and after 3 August it had not been possible that they would be fulfilled. In any event Illawarra would not have been bound in conscience by notice of Burwood's entitlement. Yet further, there had not been any true notice of Burwood's entitlement, as Burwood's position had first been presented as that of the purchaser under the Notice of Exercise, and later when a request was made for a copy of the document on Mr Holt's receiving an assertion that Burwood was a sub-purchaser, that request was not met, for reasons which are obviously connected with the difficulties which would have arisen if the club had been told that there had been an assignment contrary to Clause 4 of the Deed of Option to Purchase. 52 Burwood would have no equitable interest, and there would be nothing of which to give notice, until fulfilment of the conditions in and including, at least, the fulfilment or conditions in which Polar was obliged to complete. Illawarra was never given notice of such events and indeed those events never were completed. 53 Burwood was unable to complete the purchase on 30 August because it was unable to obtain performance by Polar of its part in the chain of events that had to happen for completion; Burwood could not complete without participation of Polar in executing documents and in other ways. 54 It was also contended that the club incurred liability to Burwood on a basis related to Barnes v Addy LR 9 Ch App 244 to the effect that the club had knowingly and dishonestly assisted Polar in a breach of a trust of which Polar was the trustee and Burwood was the beneficiary. In my finding there was no such trust. The material which was contended to show dishonest assistance went no further than contentions that there were indications available to the club of notice that Burwood had some kind of interest in Polar's contract. These were not indications of dishonesty, and disregard of notice by a person who on equitable principles is not bound by the notice cannot be revisited and given the nomination of dishonesty. Illawarra's moves to disencumber itself of Polar after some years of inconclusive dealings, and to make an agreement with people who could be expected to pay and to do so in the near future, and its readiness to hand back the recent payment of $150,000.00 which had produced no useful result but might well give rise to claims, are quite sufficiently explained by the honest pursuit of Illawarra's own economic interests. There is no substantial evidence of knowing or dishonest assistance. 55 There were further issues relating to supposed competing priorities between Burwood and Messrs. Blyth and Manson's companies. These issues need not be adjudicated as Burwood has no equitable interest which can enter into a competition of priorities. 56 The standing controversy about whether an option is a sale subject to a condition that the optionee elects to purchase even before the option is exercised still continues. The controversy was referred to by Dixon CJ in Braham v Walker 104 CLR 366 at 376, by Gibbs J in Laybutt v. Amoco Australia Pty Ltd (1974) 132 CLR 57 at 71 to 76; and in many other judgments. In my opinion the controversy is to be resolved by deciding on the terms of the agreement in question what the parties intended with respect to there being the present sale of an interest in land although subject to a condition or no more than a contract that an offer made was to remain open for a stated time and was not to be withdrawn. 57 The Deed of Option is entirely contractual. It contains careful mechanism by which Polar can acquire for itself an interest in the land; if that is to happen Polar must exercise the Option in the manner prescribed, and that brings about obligations in the form of the contract for sale of land annexed to the Deed of Option. The transition is marked, and highly defined, from contractual entitlement to an interest in real estate. The contractual restriction on assignment in cl.4 points to the distance between the rights created and ordinary rights of property. 58 In my view then before delivery of the Notice of Exercise Polar did not have any interest in land other than the option which was personal to itself, and could not by the Points for Agreement presently confer an interest on Burwood. However, this issue is not determinative, as Polar soon did become a purchaser on the exercise of the option and on Illawarra's treating it as effectual, and an effectual agreement for a sub-purchase would have conferred an equitable interest on Burwood in its turn, an equitable interest, that is, as against Polar. However, there was no effectual agreement for a sub-purchase, and that result was not produced. The purported assignment of the purchase contract in cl.5 of Exhibit 9 could not have immediate effect as there was no purchase contract; but should be viewed as an agreement to assign the purchase contract when and if one came into existence. There was no assignment after the purchase contract came into existence. 59 Burwood which brought about conduct by the Club which appeared to accept that Polar was the purchaser cannot take advantage of that conduct or allege that it created any beliefs or brought about any conduct of Burwood for the purpose of creating equitable obligations, because Burwood's own deception was the basis of the whole chain. Burwood's rights as against Polar fall within a different ambit but they cannot give rise to an equitable interest in the property as against the Club nor against any other person with whom the Club dealt. Illawarra is as entitled to have its contractual arrangement respected as anybody else, and has no obligation in conscience to observe a purported interest in land created without respecting its own rights. 60 Although Burwood did not make a claim specifically dealing with the subject, general restitution principles seem to raise for consideration whether the $150,000 payable to Polar under the Deed of Termination should in turn be paid on to Burwood. Under the order of 7 September 1999, $150,000 has been paid into Court, and any such entitlement will have to be considered before an order is made for its payment out. So too will the enforcement of costs orders. 61 Orders:

Burwood Project Management P/L v Polar Technologies International P/L & N. Kneale, J. Graham, J. Neimanis, Illawarra Catholic Club Ltd, D. Blyth P/L ACN 002019 & Kevin Manson P/L

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Judgment (10 paragraphs)

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Cases Cited (5)

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