Copuss Pty Limited (ACN 139 802 805) v William Lawrence Nix & Anor

Were Mr and Mrs Nix entitled to terminate the contract?

32The first two grounds relied on by Mr and Mrs Nix can be taken together. Mr and Mrs Nix's essential complaint is that Copuss did not lodge a development application to carry out the Project and did not use its best endeavours to obtain the requisite approval so that physical work could commence within 8 months after the date of the JV Deed as required by cl 3.1(f). The complaint that the COPUSS Loan Facility was not provided is really a complaint that it was not made available because the work that was meant to be funded by it did not proceed. 33Copuss does not seriously contest those allegations. Nor does it suggest, and nor could it be suggested, that the failure to comply with cl 3.1(f) was not a material breach of the JV Deed. Rather, what Copuss says is that Mr Peterkin agreed with Mrs Nix that the property should be sold without the work being done. In addition, it says that it was prevented from carrying out the work in any event because both 5A and 5B were occupied by tenants with Mrs Nix's agreement. 34I do not accept Copuss's first response to Mr and Mrs Nix's claim. I do, however, accept the second. 35Copuss does not plead that the JV Deed was varied by an agreement between Mr Peterkin and Mrs Nix. Nor does it plead that, as a consequence of Mrs Nix's conduct, Mr and Mrs Nix were somehow estopped from relying on cl 3.1(f). The second cl 16 of the JV Deed provides that the deed may only be varied in writing signed by the parties. But no such written agreement exists. Mr Peterkin does not even depose to a conversation in which it was orally agreed between him and Mrs Nix that the property would be sold without the renovation work being done. He does say in his affidavit in reply that "During the first half of 2010, I had many conversations with [Mrs Nix] about selling the property"; and Copuss points to evidence (which Mrs Nix denies) that Mrs Nix was aware that Copuss had taken steps to sell the property. Mr Peterkin also gave oral evidence in chief that Mrs Nix said at some unspecified time that there was no need for the current tenants to vacate 5A and 5B because they were selling the property as is. But none of this establishes a variation of the obligation imposed by cl 3.1(f). 36Mr Weaver, who appeared for Copuss, submitted that there was a continuing common intention to sell without completion of the works and therefore that the agreement "was a rectification open to the parties and not an amendment required to be in writing". In support of that proposition he referred to Slee v Warke (1949) 86 CLR 271 at 280-1 and Maralinga Pty Ltd v Major Enterprises Pty Limited (1973) 128 CLR 336 at 350 per Mason J. In my opinion, there is no merit in the suggestion that what occurred was a rectification of the contract. Rectification relevantly depends on the existence of a common intention at the time the contract was entered into. Moreover, no claim for rectification was pleaded. 37A considerable amount of evidence was led in relation to the circumstances in which 5A and 5B were occupied by the members of Mrs Nix's family and other tenants and Mr Peterkin's knowledge of those circumstances. Shayne, Mrs Nix's eldest son, moved into 5A in September 2009 and continued to live there when Mrs Nix moved to the cottage. Mrs Nix and Mr Peterkin went to some lengths to get him to move out, which did not happen until 2 February 2010. Mark moved into 5A in March 2010 and has occupied it since then. On 9 August 2010, Mark as tenant and Mrs Nix as landlord signed a 2 year lease in respect of 5A. Mark says that he negotiated that lease with Mr Peterkin and that Mr Peterkin then asked Mark to arrange for Mrs Nix to sign it. Mr Peterkin, on the other hand, says that it was not until he read Mark's affidavit that he became aware that Mrs Nix had granted Mark a 2 year lease. Prior to that time he says that he had thought Mark occupied 5A on a weekly tenancy. In addition, for a short time, 5B was occupied by Mr Semeniuk, one of Mark's employees. 38Mr Peterkin says that, as a result of the decision to sell the property, he instructed Mr Hutton, a real estate agent, to list the property for sale. No purchaser was found. However, in June 2010 Mrs Nix or Mark introduced Mr Gerry O'Neill to Mr Peterkin as a potential purchaser of Copuss's interest in the property. Subsequently, on 9 August 2010, Mr O'Neill entered into a 3 year lease of 5B. Mr Peterkin says that Mrs Nix entered into that lease without Copuss's consent as well. However, I do not accept that evidence. On 19 July 2010, Mr O'Neill, who was renting other accommodation at the time, sent an email to Mr Peterkin in connection with negotiations then on foot for Mr O'Neill to buy Copuss's interest. In that email, Mr O'Neill indicated that he proposed to give notice in relation to his existing accommodation and move in to 5B in three weeks time and to start paying rent of $900 per week "on the basis that there is a minimum 3 year lease in place if the deal falls over for some reason". Mr Peterkin replied on 19 July 2010 saying relevantly: Please feel comfort in giving notice as I will honour my agreement as stated in your email below. The reference to "my agreement" must be read as a reference to an agreement to a three year lease. In my opinion, the likelihood is that Mr Peterkin also agreed to the lease with Mark. The leases were entered into on the same date. It is clear that Mr Peterkin did not want to proceed with the renovations because he did not think their costs could be recovered on a sale. If 5B could not be renovated because it was occupied by Mr O'Neill, it would have been natural for Mr Peterkin to want to rent 5A out as well, particularly in circumstances where Mr Hutton had not been successful in finding a purchaser for the property. 39In my opinion, however, the critical question is whether Mrs Nix agreed to the leases to Mark and Mr O'Neill, not whether Mr Peterkin did. It is clear that Mrs Nix did so, since she signed the leases. It was not suggested that the proposed renovations could proceed while 5A and 5B were occupied. Consequently, at the time that Mr and Mrs Nix gave notice of breach, it was not possible for Copuss to proceed with renovations described in the Schedule of Works and consequently there was no utility in applying for development approval for those works. That state of affairs was brought about by Mrs Nix. I do not think it matters whether Mr Peterkin knew of the relevant facts or asked Mrs Nix to sign the leases. The fact is that Mrs Nix chose to sign the leases and, in doing so, made it impossible to carry out the renovation work at least until the leases expired. Having brought about that state of affairs, I do not think that she was entitled to rely on it as a ground for terminating the JV Deed. This is simply an application of the maxim that no one shall be permitted to take advantage of his or her own wrongdoing: see, for example, Tricon (Aust) Pty Ltd v Ruthol Pty Ltd [2002] NSWSC 294 at [112] per Palmer J. 40The third ground relied on by Mr and Mrs Nix was Copuss's failure to use its best endeavours to refinance the loan. Mr Peterkin gave evidence that he spoke to Ms Jane Hellyer, who at the time worked for ANZ Bank, about refinancing the loan and was informed that ANZ Bank was not prepared to do so because of Mrs Nix's poor credit history. It appears that Mr Peterkin approached the ANZ Bank because that was the bank he had a relationship with. Mr Peterkin also says he spoke to an associate of his, Mr Abignano, about "private equity" finance. 41Contrary to the suggestion in the notice of breach, Copuss's obligation was not to refinance the loan, but to use its best endeavours to do so. In my opinion, Copuss did not comply with that obligation. I accept the submission of Mr Parsons, who appeared for Mr and Mrs Nix, that an informal approach to one or two potential lenders does not amount to the use of best endeavours. However, I am not satisfied that Copuss's failure to use its best endeavours was a material breach of the agreement. The evidence suggests that Mr and Mrs Nix were not in a position to repay the loan. Mr Nix was in a nursing home and, as a result, Mrs Nix had successfully obtained a moratorium on interest payments from Macquarie Bank for six months on hardship grounds. Apart from the work that she did at the sports centre and any income derived from renting the property, Mrs Nix had no means of repaying the loan. Mr Peterkin gave evidence that Mrs Nix told him that she and Mr Nix were liable for a fee of $18,000 on early termination of the Macquarie Bank loan. Although it was put to Mr Peterkin that he did not discuss that matter with Mrs Nix, there is no evidence to suggest that Mr Peterkin was wrong when he said that there was an early termination fee in respect of the Macquarie Bank loan. In addition, I accept Mr Weaver's submission that it was in Copuss's interest as much as Mr and Mrs Nix's to refinance the loan on more favourable terms and that if there had been a realistic possibility of doing so that is a possibility that Copuss would have pursued. In those circumstances, even if Copuss had used its best endeavours to find an alternative lender, I do not think that there was a realistic possibility that Copuss would have been able to refinance the loan on more favourable terms. Consequently, I do not think Copuss's breach was a material one. 42The fourth ground relied on by Mr and Mrs Nix was that Copuss breached cl 7.1 of the JV Deed by failing to provide full information and a true explanation of all matters relating to the affairs of the joint venture. That breach is alleged to have consisted of a failure "to meet with the Defendants as requested". Although it is not apparent from the notice, this allegation relates to a number of meetings that Mr Peterkin arranged to have with Mrs Nix in April and May 2011 which he either cancelled or did not attend. The first meeting was arranged for 1 April 2011 to discuss the proposed sale to Mr O'Neill. The meeting was arranged to be at the cottage at 8.30 am but Mr Peterkin did not turn up until 4.45 pm. At that time, there was a brief discussion concerning the proposal for Mr Peterkin to sell his interest to Mr O'Neill. Mrs Nix said that she wanted to see the proposal in writing as well as documents evidencing the work that Copuss claimed it had done on the property. Mr Peterkin agreed to return with those documents on 3 April 2011. Mr Peterkin turned up late for two other meetings that they had arranged, but again without any documents. He then cancelled or failed to turn up to a series of meetings. However, at some stage, the solicitors for Copuss and Mr and Mrs Nix became involved and it appears that they had discussions concerning a possible sale to Mr O'Neill. 43I am not satisfied that Mr Peterkin's failure to meet with Mrs Nix amounted to a material breach of Copuss's obligations under cl 7.1 of the JV Deed. Mr and Mrs Nix do not point to any consequences of that breach. There were negotiations between the parties through their solicitors concerning the terms on which Mr Peterkin might sell his interest to Mr O'Neill. The sale to Mr O'Neill eventually fell through and, as I have said, Mr O'Neill took a 3 year lease of 5B. But there is no evidence to suggest that that sale fell through because Mr Peterkin failed to meet with Mrs Nix; and nor is there a suggestion that some other consequence flowed or was likely to have flowed from the failure to meet. All that can be said is that Mrs Nix suffered substantial inconvenience because of Mr Peterkin's conduct. However, I do not think that that is sufficient to establish a material breach of the agreement. In addition, in my opinion, the notice of breach insofar as it related to cl 7.1 was defective. The purpose of the notice was to give Copuss sufficient information concerning the breach so it knew what it had to do to rectify it according to cl 10.3. Mrs Nix's complaint was not simply that Mr Peterkin had failed (repeatedly) to meet. Rather, it was that he had failed to attend a meeting to discuss a particular aspect of the joint venture. Copuss needed to be told in the notice what that aspect was so that it was in a position to undertake to meet for that purpose, or take issue with the notice of breach on the basis that a meeting was unnecessary having regard to what had transpired.

Is Copuss entitled to the damages it claims? 44It follows from what I have said that Mr and Mrs Nix were not entitled to terminate the JV Deed based on Copuss's failure to comply with the notice of breach. Their termination of the JV Deed was wrongful and Copuss was entitled to accept that termination as a wrongful repudiation of the contract, terminate the contract itself and sue for damages. It is not prevented by cl 10.6 of the JV Deed from making that claim since the claim for damages does not arise from a termination under cl 10.5. It arises from a wrongful repudiation of the contract. 45Normally, damages are assessed as the amount that would put the wronged party in the position it would have been in if the contract had been performed. However, in some circumstances, the wronged party may be entitled to recover damages by reference to expenditure reasonably incurred under a contract rather than the profit that that party would have earned under the contract on the basis that, absent proof to the contrary, it can be assumed that the wronged party would at least have recovered its expenditure if the contract had been performed. The right to claim damages for breach of contract on this basis depends on the impossibility or difficulty of proving what would have happened if the contract had been performed: The Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 80-86 per Mason CJ and Dawson J; 126-128 per Deane J; 164-166 per McHugh J. The choice between the two alternatives does not involve an election. Rather, they should be seen as two manifestations of the general principle that an award of damages for breach of contract should, so far as money can do it, place the wronged party in the position it would have been in if the contract had been performed: see Amann Aviation at 85 per Mason CJ and Dawson J. 46In my opinion, Copuss is entitled to recover damages in accordance with the principles stated in Amann Aviation. The assessment of Copuss's loss assuming that the contract had been performed is difficult if not impossible. Although the property was difficult to sell because of its unusual characteristics, there is no reason to believe that it could not have been sold for a profit. 47There can be no question that, applying the principles stated in Amann Aviation, Copuss is entitled to recover the outstanding balances of the COPUSS Loan Facility and the COPUSS Assistance Loan Facility as well as the amount paid by Copuss to Macquarie Bank. Those amounts represent expenditure made by Copuss in performing the contract. It is not, however, possible to quantify the amount of that claim because Copuss did not file any admissible evidence concerning those amounts. If the parties cannot agree on those amounts, it will be necessary to hear further evidence on that issue. 48In my opinion, Copuss is also entitled to interest on the COPUSS Loan Facility and the COPUSS Assistance Loan Facility in accordance with the JV Deed up until the date of judgment. Consistently with the approach taken in Amann Aviation, it could be expected that Copuss would at least have recovered its loans together with interest on those loans at the contractual rate if the contract had been performed. In addition, Copuss is entitled to recover interest on the amounts paid to Macquarie Bank in accordance with s 100 of the Civil Procedure Act 2005 (NSW). In my opinion, that interest should run from the date of termination of the contract to the date of judgment. 49On the other hand, I can see no basis on which Copuss would be entitled to recover the amount of the Sheripeter loan. The loan is not owed to Copuss and the amount of that loan was not an expense incurred by Copuss in performing its obligations under the JV Deed. Copuss was obliged to procure a release of that loan. However, as I have said, there is no evidence that it procured that release, let alone that it incurred any costs in doing so. 50That leaves the amount of $6,514.90 claimed by Copuss as the builder's margin under cl 4.2(a) of the JV Deed in respect of work that it did do. Once again, one difficulty in assessing this claim is that Copuss did not file any admissible evidence concerning the costs it incurred in doing the work that it did. In addition, there is no evidence that Copuss submitted the relevant invoices on a monthly basis to Mr and Mrs Nix for their approval in accordance with cl 4.2(b). There is evidence that Mark sought information from Mr Peterkin in relation to costs that Copuss incurred, but the material submitted to Mark would not of itself justify the claim for $6,514.90. More significantly, Mr and Mrs Nix do not in their defence allege that they are not liable to pay the $6,514.90 because Copuss did not comply with cl 4.2(b) or obtain Mr and Mrs Nix's approval to the invoices in accordance with cl 4.2(c). 51In my opinion, Copuss is entitled in principle to recover the builder's margin on work that it did do. That claim is not for money expended by Copuss in complying with its obligations under the contract. However, to the extent that the underlying cost of the work can be proved, it is clearly money that Copuss would have earned if the contract had been performed. There is also no question of double counting if Copuss is awarded both the builder's margin and the cost of the works. Those costs formed part of the COPUSS Loan Facility and were always recoverable, in addition to the margin, if the contract were performed. Once again, Copuss is entitled to interest on that amount in accordance with s 100 of the Civil Procedure Act from the date the contract was terminated to the date of judgment.

Is there any other basis on which Copuss is entitled to recover the amounts it claims? 52As I have said, Copuss makes an alternative claim for moneys paid by it to the benefit of Mr and Mrs Nix. Although poorly pleaded, in my opinion, that claim is sufficient to cover a claim in debt or a claim that Copuss is entitled to recover the amount it paid under the contract on the basis that there has been a total failure of consideration. 53Neither of those possible claims covers the amount of the Sheripeter loan. That amount was advanced by Sheripeter, not Copuss. If any entity has a claim for the recovery of that amount it must be Sheripeter and not Copuss. Mr Weaver all but conceded that that was the position. 54In addition, in my opinion, Copuss is not entitled to recover the builders margin in accordance with cl 4.2(a) of the JV Deed on the alternative basis on which it relies. That claim depends on the existence of a contractual right to recover that margin. 55That leaves the outstanding balance of the COPUSS Loan Facility and the COPUSS Assistance Loan Facility and the interest paid by Copuss in respect of the Macquarie Bank loan. 56There is no reason why Copuss should not be entitled to recover the loans it made to Mr and Mrs Nix. The recovery of those loans do not depend on the contract and whether Mr and Mrs Nix were in breach of it. As the High Court explained in Young v Queensland Trustees Ltd (1956) 99 CLR 560 at 567: The common law does not and never did conceive of indebtedness in a sum certain for an executed consideration as a mere breach of contract: it is rather the detention of a sum of money and that was so whether the creditor enforced his demand by an action of debt or by indebitatus assumpsit. And later it said (at 569): A debt recoverable under an indebitatus count was not and is not now conceived of simply as a cause of action for breach of duty or obligation. In other words it is a mistake to regard the liability to pay a debt of a kind formerly recoverable in debt or indebitatus assumpsit as no more than the result of a breach of contract, a breach which the creditor must affirmatively allege and prove. 57Mr and Mrs Nix may also be required to make restitution to Copuss of the interest it paid in respect of the Macquarie Bank loan because of a total failure of consideration. 58In Equuscorp Pty Ltd v Haxton [2012] HCA 7, French CJ, Crennan and Keifel JJ summarised the principles applicable to the obligation to make restitution in these terms at [30]: + recovery depends upon enrichment of the defendant by reason of one or more recognised classes of "qualifying or vitiating" factors; + the category of case must involve a qualifying or vitiating factor such as mistake, duress, illegality or failure of consideration, by reason of which the enrichment of the defendant is treated by the law as unjust; + unjust enrichment so identified gives rise to a prima facie obligation to make restitution; + the prima facie liability can be displaced by circumstances which the law recognises would make an order for restitution unjust. 59Where the qualifying or vitiating factor is failure of consideration, the failure must be "total". If the innocent party receives and retains any or a substantial part of the benefit expected under the contract, there will not be a total failure of consideration: see Baltic Shipping Company v Dillon (The Ship Mikhail Lermontov) [1993] 176 CLR 344 at 350 per Mason CJ. Whether a party receives and retains a substantial benefit must be determined by reference to the benefit bargained for, not by any benefit in fact: see David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 at 382 per Mason CJ, Deane, Toohey, Gaudron and McHugh JJ. So, for example, in Rowland v Divall [1923] 2 KB 500 it was held that the purchaser of a stolen car had not received any of the benefit bargained for despite the fact that he had the use of the car for a period of time because the benefit he had bargained for was legal title to the car. 60Mr Parsons submitted in the present case that there was not a total failure of consideration because Copuss had had the opportunity to redevelop the property and had received the benefit of rent before the termination of the contract. I do not accept either of those submissions. 61The opportunity to obtain the benefit of the contractual promise assuming the contract is performed is not itself consideration. As Viscount Simon LC explained in Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32 at 48: [W]hen one is considering the law of failure of consideration and of the quasi-contractual right to recover money on that ground, it is, generally speaking, not the promise which is referred to as the consideration, but the performance of the promise. The money was paid to secure performance and, if performance fails the inducement which brought about the payment is not fulfilled. 62In my opinion, the benefit that Copuss contracted for was the benefit it would obtain on completion of the project. That benefit consisted principally of any capital profit earned on the sale of the property. It also included any surplus in "Recurring Income" after the payment of the expenses of the project. Again, under cl 6.2 of the JV Deed that surplus was not payable until completion of project. The fact that the parties derived income during the course of the project which was to be applied to reduce what otherwise would have been their financial obligations in connection with the project does not make that income part of the benefit for which they contracted. The benefit for which they contracted was the surplus, if any, after the payment of expenses. 63Copuss is also entitled to interest on any amount awarded on the above grounds. To the extent that the claim is a claim in debt, Copuss is only entitled to recover the principal it advanced: In re The Australian Metal Company Limited (1923) 33 CLR 329. However, there is no reason why it should not be entitled to recover interest on that amount in accordance with s 100 of the Civil Procedure Act from the date the money was advanced. 64In Heydon v NRMA Ltd (No 2) (2001) 53 NSWLR 600, Mason P (with whom Beazley JA and Ipp AJA agreed) held that it was possible at common law to recover interest in respect of a restitutionary claim. Although some doubt was cast on that proposition by McHugh and Gummow JJ in the earlier case of Commonwealth of Australia v SCI Operations Pty Ltd [1998] HCA 20; (1998) 192 CLR 285 at [72], the statement of Mason P continues to bind this court: Lahoud v Lahoud [2010] NSWSC 1297 at 148 per Ward J; Nu Line Construction Group Pty Ltd v Fowler [2012] NSWSC 587 at [262] per Ward J. In any event, the court has power to award interest under s 100 of the Civil Procedure Act. Interest should run from the date on which it became unjust to withhold the payment: Nu Line Construction Group at [263]. In this case, that was the date on which the JV Deed was terminated.

65Copuss is entitled to recover the outstanding balance of the COPUSS Loan Facility and the COPUSS Assistance Loan Facility and the interest paid by Copuss in respect of the Macquarie Bank loan either as damages for breach of contract or in claims for debt and restitution. If it pursues its claim for damages for breach of contract it is also entitled to recover a margin of 15 percent on costs it actually incurred in performing its obligations under the contract. It must make an election between a claim for damages for breach of contract and a claim in debt and restitution: see Baltic Shipping Company (The Ship Mikhail Lermontov) v Dillon (1993) 176 CLR 344 at 379-380 per Deane and Dawson JJ. Interest is assessed differently depending on the election that Copuss makes. In either case, in the absence of agreement between the parties, it will be necessary to hear further evidence to quantify the relevant amounts. 66Also in either case, an order should be made requiring Mr and Mrs Nix to return the promissory note. 67I will stand the matter over until 9.30 am on 29 June 2012. At that time, the parties should bring in short minutes of order to give effect to this judgment if those short minutes can be agreed. Otherwise, I will give directions in order to resolve the outstanding issues. 68I will hear the parties in relation to costs.

Amendments 28 September 2012 - Incorrectly shown as 2011/270762 instead of 2011/293304 Amended paragraphs: File Number 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: 28 September 2012