12 July 2019 Agreement
64 The respondents submit there is no issue that the 12 July 2019 Agreement is binding, enforceable and has been performed at least to the extent that Marketlend paid $100,000 to Fifo Capital. I accept that submission, however the issue is the effect of that agreement on Fifo Capital's right to bring its action.
65 The respondents refer to cl 5.3 of the 12 July 2019 Agreement which provides, along with cls 5.2 and 5.4:
5.2 your client undertakes not to commence or resume enforcement action against CEE (including any steps for the winding up of the company) for a period of three (3) months following the above payment to your client, during which the parties would attempt to negotiate in good faith with respect to entering into a payment plan relating to the balance of the CEE debt. The rights of your client against CEE would otherwise be unaffected;
5.3 your client acknowledges, agrees and undertakes that that (sic) it will make no claim against EW whether as a secured or unsecured creditor or over the assets or business of EW (noting, however, that your client has a security interest over the Z Class Preference Share in EW held by John 1.1 Pty Ltd) (Z Class Preference Share);
5.4 your client agrees and acknowledges that RAI Limited will be issued a preference share in EW which will give RAI Limited the right to the first 65% of the net sale proceeds of the business or assets of EW following the payment of creditors of EW in accordance with their priorities under law which will rank in priority to any rights that attach to the Z Class Preference Share.
66 The respondents refer to the marked up Deed Poll sent by Fifo Capital's solicitors to Marketlend's solicitors on 3 June 2019 which provided, in cl 3, that "Fifo Capital acknowledges, agrees and undertakes that it will make no claim against [EW] whether as a secured or unsecured creditor over the assets or business of [EW]."
67 The respondents also refer to an email from Mr Cobb to Mr Petty sent 16 May 2019 and an email from Mr Petty to the participants in the 16 May 2019 teleconference after that teleconference concluded. They submit Mr Petty's email is inconsistent with the asserted evidence put forward by Fifo Capital of the conversation on that day and the outcome of that teleconference.
68 I have read the transcript of that teleconference and watched the video recording. Whether Mr Petty's email is inconsistent with the evidence put forward by Fifo Capital is a matter that I am not prepared to decide based on a single piece of evidence tendered on an interlocutory application and forming part of a large and complex factual matrix.
69 The respondents submit that although not executed, the marked up Deed Poll by Mr Calabretta in his email sent 10 May 2019 provides context for the 12 July 2019 Agreement.
70 That may well be correct, but it is unnecessary to decide whether it provides context at this point. The marked up Deed Poll was a counter offer to that put by Marketlend, was never accepted and never executed. I do not consider that it carries any weight for the purposes of this application.
71 Next, the respondents submit that to determine the proper construction of the 12 July 2019 Agreement, the starting point is the words actually used. They submit there is no ambiguity in cl 5.3 of the 12 July 2019 Agreement and that there is no doubt what the words mean. They refer to the principle of objectivity by which the rights and liabilities of the parties to a contract are determined: Pacific Carriers Ltd v BNP Paribas [2004] HCA 35, 218 CLR 451, [22]; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52, 219 CLR 165 [40] where the High Court said:
40 This Court, in Pacific Carriers Ltd v BNP Paribas, has recently reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined. It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction.
(citations omitted)
72 On that basis, the respondents submit the 12 July 2019 Agreement is capable of clear expression and there is nothing in the surrounding context to disturb the ordinary meaning of, in particular, cl 5.3. The respondents urge a construction of the 12 July 2019 Agreement which comprises a complete release by Fifo Capital of its security for all time.
73 The respondents submit evidence relied upon by Fifo Capital of what transpired at the 16 May 2019 and 9 July 2019 telephone conferences is inadmissible or even if admissible, cannot be used to establish a meaning inconsistent with the unambiguous terms of the Agreement. They submit that the evidence upon which the applicants rely is directed at the witnesses' subjective understanding and is inconsistent with the transcripts of the teleconferences on 16 May and 9 July 2019. They concentrate on what was in the contemplation of the parties and take a number of objections to the affidavit evidence.
74 The respondents point to cl 5.2 of the 12 July 2019 Agreement, and submit it does not qualify the release in cl 5.3.
75 I have read the transcript of the 9 July 2019 teleconference and watched the video. The respondents seek a finding at this stage as to the meaning and effect of an agreement sufficient to warrant an order for summary dismissal in circumstances where no evidence has been tested. To that extent there is a factual vacuum and I am not prepared to make such a finding without hearing all the evidence and hearing that evidence tested.
76 Fifo Capital relies on Grant v John Grant & Sons Pty Ltd [1954] HCA 23, 91 CLR 112, 131 (Dixon CJ, Fullager, Kitto and Taylor JJ) where the High Court said:
The question is whether upon a proper interpretation of the deed the general release clause should be restrained to matters in dispute within the meaning of these recitals. The question depends primarily on the application of the prima facie canon of construction qualifying the general words of a release by reference to particular matters which recitals show to be the occasion of the instrument. But it is also affected by the general tenor of the deed. …
77 Fifo Capital also refers to Sarina v Fairfax Media Publications Pty Ltd [2018] FCAFC 190; (2018) 365 ALR 15. That was a matter in which the applicant, Sarina sought leave to appeal against a decision of the primary judge dismissing summarily, pursuant to s 31A(2) of the Act, proceedings in defamation against the respondent. The applicant had commenced proceedings in the District Court of New South Wales alleging defamation. The parties participated in a mediation and entered into a deed in which Sarina gave releases to the respondent. In considering the terms of those releases, the Court (Rares, Markovic and Bromwich JJ) said: at [20]-[21].
20. Where, in a deed (or agreement) a clause provided one party with a release in wide or general words, the common law principle of construction restricted the otherwise wide or general operation of those words by construing the release clause as operating upon only the subject or occasion to which the deed (or agreement) read as a whole referred: Grant 91 CLR at 123-124 per Dixon CJ, Fullagar, Kitto and Taylor JJ. Thus, where, as often occurs, a deed recited that the parties have had a particular dispute, but the clause creating the release did not expressly confine its operation to the dispute mentioned in the recitals, the principles of construction at common law read down the wide words of the release to apply only to the dispute in the recitals. Indeed, Dixon CJ, Fullagar, Kitto and Taylor JJ explained (Grant 91 CLR at 124 and 131) that the common law principle was that a written instrument expressed in general terms (be it a deed or statute) had to be construed having regard to the circumstances to which the instrument must have intended to apply. This in substance accords with the modern principles applicable to the construction of contracts and deeds. …
21 However, where one of the parties to a release sought to rely upon its wide and general words, equity considered whether it would be unconscientious for that party to enforce such a meaning by examining each party's actual knowledge and intention at the time of entry into the release: Grant 91 CLR at 124-125. In other words, as Dixon CJ, Fullagar, Kitto and Taylor JJ held (at 129-130), equity will restrain a party seeking to enforce a wide or general release where it would be unconscientious for that party to do so in all of the circumstances. In such a case, the court will examine the knowledge and intention of both releasor and releasee as to the subject matter on which the release would operate.
78 Fifo Capital submits that on the basis of these authorities, the inquiry required in this case, involving as it does a contractual release stated in wide terms, concerns the following four matters:
(a) What dispute the parties are addressing in the document;
(b) What disputes are in their contemplation;
(c) Whether one party had a duty of disclosure to the other; and
(d) What was the subjective beliefs and intentions of the parties as to those matters.
79 On the John Grant & Sons equity point, the respondents submit that John Grant & Sons has never been authority for the propositions that the general words of a release can only ever apply to matters known to the parties: The Owners Corporation of Strata Plan 61390 v Multiplex Corporate Agency Pty Ltd (No 2) [2012] NSWSC 322, [22] (Pembroke J).
80 However, paragraph 22 of Pembroke J's judgment in Multiplex, upon which the respondents rely, must be seen against the broader consideration by his Honour of the equitable principles derived from John Grant & Sons. His Honour said: at [22]-[25] and [27]-[29]:
22. The principle for which Grant v John Grant & Sons (supra) stands is sometimes described more widely than is justified. It is not, and never has been, authority for the proposition that the general words of a release can only ever apply to matters then known to the parties. There have been many explications of the principle but none rises any higher than the reasoning in the joint judgment of Dixon CJ, Fullager, Kitto and Taylor JJ in that case. …
23. There are two aspects to the reasoning in the joint judgment in Grant v John Grant & Sons (supra). First, the High Court held, as a matter of construction, that the general words of the release should be construed by reference to the subject matter of the particular disputes which the recitals said the parties had resolved to settle on the terms of the deed. In other words, in accordance with ancient principle and sound practice - "the general words of a release should be restrained by the particular occasion" … "the general words of a release are to be restrained by the particular recital" … and "If there be introductory matter, that will qualify the general words of the release".
24. Thus the resolution of the first aspect of the decision in Grant v John Grant & Sons depended on the interpretation of the release according to settled rules of construction. It involved no new principle. The joint judgment endorsed the following statement of Lord Langdale: "It has been considered that the general words of release are to be restrained by the contract and intention of the parties, that contract and intention appearing by the deed itself or from any other proper evidence ...".
25. In other words, the intention of the parties that appears from the terms of the contract and any other proper evidence will control and de-limit the operation of general words of a release. The general words should not be permitted to subvert what the parties should be taken to have intended when the release is properly construed in its context. Thus the joint judgment in Grant v John Grant & Sons (supra) described the application of the principle to the facts before them in the following conventional terms:
The question depends primarily on the application of the prima facie canon of construction qualifying the general words of a release by reference to particular matters which recitals show to be the occasion of the instrument ... prima facie the release should be read as confined to the matters forming the subject matter of the disputes which the deed recites ...
26. …
Equitable Principle
27. However, the second aspect of the decision in Grant v John Grant & Sons (supra) involves the application of equitable principle. The joint judgment explained that acceptance of the facts that were pleaded in that case made it inequitable for the releasee to set up the general words of the release in answer to the particular liability that the releasor now sought to enforce. That is because the liability had nothing to do with the subject matter of the deed of release. It was quite extraneous to it. And the releasee's attempt to defend the liability by resort to the general words of the release was unconscionable and opportunistic. This was an additional ground for arriving at the ultimate result. It was the context in which the pleaded facts relied upon included the propositions that the releasor did not know of the liability now sought to be enforced, did not intend to release it as part of the transaction and did not know of any intention on the part of the releasee that it should be released. …
28. The court held that in the circumstances it would be unconscientious to allow the general words of the release to be relied upon. The equity was described as one "to have the general words of a release confined to the true purpose of the transaction ascertained from the scope of the instrument and the external circumstances". …
29. This aspect of the reasoning was a particular illustration of one of the many ways in which equity restrains a party from any unconscientious reliance on legal rights. Naturally, the trigger for the application of the equitable principle must be some feature of the facts or conduct of one of the parties that is against conscience. That is why the joint judgment in Grant's case endorsed (at 125) Kerly's statement in his Historical Sketch of the Equitable Jurisdiction of the Court of Chancery that:
The peculiar construction of releases in equity, which restricts their operation to matters within the contemplation of the parties, rests also partly on mistake of expression and partly on mistake going to the substance of the transaction.
In other words, equity permits an investigation of the circumstances, including consideration of the actual intentions of the parties, in order to determine whether enforcement of the general words of a release would be against conscience.
(citations omitted)
81 I accept Fifo Capital's submissions that an enquiry needs to occur in relation to at least some of the matters identified in [78] above. In particular, there is a question as to whether cl 5.3 is qualified by cl 5.2. It seems to be common ground that the objective of the 12 July 2019 Agreement was to clear the winding up petitions against both CEE and EW. Clause 5.2 provides that Fifo Capital is "… not to commence or resume enforcement action against CEE (including any steps for the winding up of the company) for a period of three (3) months …" following the payment made by Marketlend to Fifo Capital. It was during that period of three months that the parties would attempt to negotiate, in good faith, in respect of entering into a payment plan relating to the balance of CEE's debt to Fifo Capital.
82 The 12 July 2019 Agreement is silent as to what happens after that three months and what might happen to the security Fifo Capital holds over the assets of CEE in circumstances where those assets are transferred either to EW or some other entity. Still further, there is an issue, significant in the context of these proceedings, as to when the assets of CEE were transferred to EW and the circumstances of any transfer of assets done.
83 Further, on one view, cl 5.4 may interfere with the priority of the Z class preference shares in EW by ranking RAI's preference share ahead of that preference share over which Fifo Capital had a share mortgage. If that is correct, it raises a question as to the circumstances in which Fifo Capital was prepared to compromise its existing security, if at all.
84 There is, therefore, at the least, an issue about the ambit of any release contained within the 12 July 2019 Agreement. The factual circumstances leading up to the acceptance of the 12 July 2019 Agreement which provide context to the ambit of any release contained within it and the potential compromise by Fifo Capital's security are complex and will require evidence and the testing of that evidence. It is a factual scenario that cannot be determined based on limited material and on an application such as this.
85 It is for those reasons that I do not accept the respondents' submissions that the effect of the 12 July 2019 Agreement is such as to warrant an order for summary dismissal of part of Fifo Capital's claim.