Dandaven v Harbeth Holdings Pty Ltd

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

WESTERN AUSTRALIA DISTRICT REGISTRY WAD 213 OF 2007

BETWEEN: DANDAVEN PTY LTD (ACN 118 333 770) AS TRUSTEE FOR THE SIGNS AHEAD TRUST

DAVID JOHN REYNOLDS AS TRUSTEE FOR THE REYNOLDS PROPERTY INVESTMENT TRUST

AND: HARBETH HOLDINGS PTY LTD (ACN 069 310 685)

REASONS FOR JUDGMENT 1 There are two notices of motion before the Court. The first respondent, Harbeth Holdings Pty Ltd seeks judgment against the applicants pursuant to s 31A of the Federal Court of Australia Act 1976 (Cth) ("the Act"), alternatively that the statement of claim be struck out pursuant to Order 11 rule 16 Federal Court Rules 1976 (Cth) on the grounds that it does not disclose a reasonable cause of action against Harbeth. 2 By its motion the second and third respondents seek the same relief except that in addition they seek orders that the statement of claim be struck out and the action dismissed under each of the grounds found in Order 20 rule 2.

Introduction 3 The applicants have commenced proceedings against Harbeth, Mr Healey and PA (2004) Pty Ltd in relation to certain land at Kewdale ("the Land"). The case concerns an option to purchase granted to Dandaven, first under a Contract to Lease and subsequently under a Lease. Dandaven alleges that the option is in respect of the whole of the Land. The second applicant was nominated by Dandaven as purchaser when it purported to exercise the option in 2007. Harbeth has refused to perform the contract of sale said to have been created upon the exercise of the option. Dandaven seeks an order for specific performance of this contract or damages in lieu. The proceedings concern, principally, questions as to the proper construction of the option. In the event that the meaning and effect of the option is construed adversely to the applicants, their claims then are for orders under s 87(1A) of the Trade Practices Act 1974 (Cth) ("TPA") and/or in equity for rectification. The TPA claims for such relief are brought under s 51AA and/or s 51AC of the TPA. There are also estoppel claims. Alternatively, the applicants claim damages against Harbeth for breach of warranty and for breaches of ss 51AA, 51AC and 52 of the TPA, and against Mr Healey and PA (2004) for breach of s 52 of the TPA and/or s 10 of the Fair Trading Act 1987 (WA). PA (2004) is the corporate vehicle of Mr Healey. 4 Harbeth contends, in effect, on the construction point, that the option is in respect of only part of the Land and therefore a part of a lot, and thereby void as contrary to s 136 of the Planning and Development Act 2005 (WA) ("Planning Act"). The applicants submit that this construction would involve attributing to the parties an absurd presumed intention. In any event they submit that in respect of its claims for rectification and related relief, there was a subjective intention for the option to apply to the whole of the Land and for it to be effective, and not void.

Section 31A of the Act 5 Section 31A lowers the bar for obtaining summary judgment: White Industries Australia Ltd v Commissioner of Taxation (2007) 160 FCR 298. The second reading speech of the Migration Litigation Reform Bill 2005 which introduced s 31A stated that its purpose was to strengthen "the power of the courts to deal with unmeritorious matters by broadening the grounds on which federal courts can summarily dispose of unsustainable cases": Boston Commercial Services Pty Ltd v GE Capital Finance Australasia Pty Ltd (2006) 70 IPR 146 at [45]; Jefferson Ford Pty Ltd v Ford Motor Company of Australia Ltd [2008] FCAFC 60 at [124]. 6 Success under s 31A does not require a demonstration that the case is hopeless or bound to fail. The following principles are of general application to an application under s 31A: (a) the Court must be very cautious not to do a party an injustice by summarily dismissing proceedings; (b) the Court ought not dismiss a claim based on a predictive assessment of prospects, where it is possible that if the claim went to trial, it may succeed; (c) in a case where evidence can give colour and content to allegations, and where questions of fact and degree are important, the Court should be more reluctant to dismiss a proceeding on the face of a pleading; (d) it is not Parliament's intention to require the Court to engage in lengthy and elaborate trials on an interlocutory basis for the purposes of determining whether or not a proceeding has no reasonable prospects of success. It may be necessary for the opposing party to provide no more than an outline of evidence, sufficient to show that there is a genuine dispute, to prevent the summary application becoming a trial; (e) if there is a real issue of fact or law to be decided, and the rights of the parties depend upon it, it is obviously appropriate that the matter goes to trial. It cannot be said that where there is a real factual dispute and that factual dispute must be resolved to determine whether the claim succeeds that there is 'no reasonable prospect of success'; (g) it ought not be used to shut out proceedings where, on a proposition of law, there may be room for doubt. On questions of law, an inquiry as to their merit should not be for the purpose of resolving them and also not simply to determine whether the argument is hopeless, but in order to decide if it is sufficiently strong to warrant a trial; (h) evidence of an ambivalent character will usually be sufficient to amount to reasonable prospects; (i) in determining if there are real issues of fact in issue so as to preclude summary judgment the courts must draw all reasonable inferences in favour of the non-moving party. See Genovese v BGC Construction Pty Ltd [2007] FCA 923 at [5]; Boston Commercial Services Pty Ltd v GE Capital Finance Australasia Pty Ltd (2006) 70 IPR 146 at [42]-[48]; Hicks v Ruddock (2007) 156 FCR 574 at [13]; Bond v Barry (2007) 73 IPR 490 at [46]; Commonwealth Bank of Australia v ACN 000 247 601 Pty Ltd (in Liq) (formerly Stanley Thompson Valuers Pty Ltd) [2006] FCA 1416 at [30]; Fortron Automotive Treatments Pty Ltd v Jones (No 2) [2006] FCA 1401 at [21]; Jefferson Ford Pty Ltd v Ford Motor Company of Australia Limited [2008] FCAFC 60. .

Background 7 Harbeth was the owner of a signs business known as "Signs Ahead", which was conducted on the Land. It advertised the sale of its business in January 2006 through Russell Lyon of Performance Business Brokers. Mr Lyon provided to Mr Reynolds an advertising brochure for the sale of the business which stated "The premises and the land on which they stand are or [sic] owned by the vendor and the freehold is for sale along with the business." It is not disputed that such a brochure was given to Mr Reynolds, but it is said that a later brochure was prepared which simply stated "Freehold price: TBA". It is not said that Mr Reynolds or anyone else on behalf of the applicants was given this new brochure. 8 Harbeth had instructed Mr Healey to assist in the sale of the business. Mr Healey also provided accounting services to Harbeth as a consultant to PA (2004) which was also retained to act as settlement agent for Harbeth. 9 There was a conversation between Mr Reynolds and Mr Lyons on behalf of Harbeth, on 8 February 2006, in which Mr Reynolds indicated that he required an option to purchase the whole of the Land. This is not disputed in the respondents' affidavits. 10 There then followed further conversations between Mr Reynolds and Mr Pannekoek on behalf of Harbeth, between 8 and 10 February 2006, in relation to an option to purchase, although the details of the conversations are in dispute. 11 A written agreement dated 10 February 2006 for the sale and purchase of the business for $1.485 million was executed. It was an express condition precedent to the performance of this agreement that Harbeth and Mr Reynolds, or an entity formed by him, would enter into a Contract to Lease.

The Contract to Lease 12 In due course a Contract to Lease in respect of part only of the Land, was prepared. It is a standard form document in the form of an offer and acceptance provided by the Real Estate Institute of Western Australia. 13 In it the "Premises to be Leased" were described as: "Part of 13 Baldwin Street, Kewdale, Western Australia having an area of approximately 3,500 m² (as shown on plan attached to Annexure "B"). "Land" was described as: "Title particulars - Portion of Swan Location 32 and being Lot 439 on Plan 10093 - part only." It contained at Annexure "A" the proposed "Option to Purchase" in the following terms: Option to Purchase If the Lessee decides during the Term to purchase the Premises, and if the Lessee has not at any time during the Term been in default under the terms of the Lease document, the Lessor shall sell the Premises to the Lessee or its nominee for $1.2 m … 14 On 13 February 2006, and before Mr Reynolds signed the Contract to Lease: (i) Mr Reynolds, at 8.28 am, emailed Mr Healey in which he referred to four discrete matters. As to the first of these he said: "Thanks for the changes to the lease. For avoidance of doubt I think the option to purchase should state that it is an option to purchase the whole property. It could be misinterpreted at the moment that it is only the 'leased portion'. What do you think?" (ii) Mr Healey, at 9.13 am, replied by email which addressed each of the four matters. As to the first he said: "It is not possible to sell part of the one lot, but if you wish to change it that will be ok with Harry (Pannekoek), but he would then need to re-sign it"; (iii) Mr Healey sent Mr Pannekoek this email exchange. 15 Mr Reynolds did not alter the terms of the option and he signed the Contract to Lease that same day, 13 February 2006. It is not clear whether or not Harbeth, through Mr Pannekoek, had executed the Contract before Mr Reynolds signed it. There is evidence to suggest Harbeth had done so. First, Mr Healey in his email to Mr Reynolds said that if there were changes made then Mr Pannekoek would need to re-sign the Contract. Second, in an email sent at 9.16 am to Mr Pannekoek, three minutes after his email to Mr Reynolds, Mr Healey again stated that if there were any changes to the Contract Mr Pannekoek would have to re-sign it.

The Lease 16 By Condition 23 of the Contract to Lease, the Lessee was, on demand, obligated to execute a Lease drawn by the Lessor's solicitors containing, at least, the terms of the offer. A Deed of Lease was, in due course, prepared although not by the Lessor's solicitors but by the Lessee's solicitors. It wasexecuted by Harbeth and Dandaven on 7 April 2006. Dandaven had been nominated as Lessee by Mr Reynolds. Again, part only of the Land was leased. 17 On 3 April 2006 prior to the execution of the Lease and completion of the sale of the business, there was a conversation, according to Mr Reynolds, in which he was asked by Mr Pannekoek how he considered the parties should apportion rates and land tax as between the area being leased and the whole of the land. Mr Reynolds says that he told Mr Pannekoek that he would bear the costs of all the rates and land taxes on the whole Land as outgoings, given the goodwill between them, and as he would have to pay for it all the following year in any event once he owned what he described as "the Property". He was there referring to the whole of the Land. 18 On that day and on 4 April 2006, and arguably consistent with Mr Reynold's version of this conversation, PA (2004) as Harbeth's settlement agents, sent settlement statements to Mr Reynolds showing that the applicants would bear all the rates and land taxes on the whole of the Land as from the date of settlement. Mr Pannekoek may have seen these settlement statements at about the time of settlement. 19 The expression "Leased Premises" is defined by Clause 1.1 of the Lease. It relevantly provides that "unless the context otherwise requires … the "Leased Premises" means the premises … described in the Schedule …". The Schedule to the Lease contains the following: "Land" The property known as part of 13 Baldwin Street, Kewdale, Western Australia being more particularly described as Portion of Swan Location 32 and being Lot 439 on Plan 10093 and being the whole of the land comprised in Certificate of Title Volume 2096 Folio 82. "Leased Premises" That part of the Building and/or Land known as Part of 13 Baldwin Street, Kewdale, WA, comprising approximately 3,500 (three thousand five hundred) square metres which area for identification purposes only is outlined blue on the plan annexed hereto. 20 The Option to Purchase is contained in the Schedule as special clause 11(2), which relevantly provides: If the Tenant notifies the Landlord in writing on or before the 7th April 2007 that it wishes to purchase the Leased Premises, and if the Tenant has not at any time during the Term been in default under the terms of this Lease, the Landlord shall sell the Leased Premises to the Tenant or its nominee for $1.2 million … 21 The respondents contend that the defined meaning of "Leased Premises" clearly and unequivocally describes part only of the Land. 22 The applicants submit however that the "context otherwise requires" that the term "Leased Premises", when used in the option provision in special cl 11(2) of the Schedule, should not be given its defined meaning if that meaning is construed to refer to part only of the Land. Such a construction, it submits, would impute to the parties the absurd and commercially unreasonable intention of recording the grant of a void option. They point to the traditional doctrine that courts should be astute to adopt a construction that will preserve the validity of the contract: Meehan v Jones (1982) 149 CLR 571 at 589, and to prefer a construction which will encourage performance rather than avoidance of contractual relations: Ankar Pty Ltd & Arnick Holdings Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549 at 556-557; Westminster Properties Pty Ltd v Comco Constructions Pty Ltd (1991) 5 WAR 191 at 202. The Contract to Lease and the Lease each created a valid demise in that a demise of part of the Land for less than 20 years did not contravene the subdivision provisions of the Planning Act: s 136(1)(a). However the option to purchase would contravene s 136(1)(d) of the Planning Act and hence would be void, if it is construed as referrable to a purchase of part only of the Land. The proper construction, in that context, the applicants submit, is that the option is in respect of the whole of the Land. 23 The applicants' submit that such a construction is reinforced by the mutually known background circumstances. They rely upon the circumstances surrounding not only the Lease but also the Contract to Lease. 24 The process of construction normally requires a consideration of not only the text and context of the written agreement, but also the surrounding circumstances known to the parties, as well as the purpose and object of the transaction: Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at 179, [40]; Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 461-2. The "history" of a contract is part of the context in which a contract takes its meaning: International Air Transport Association v Ansett Australia Holdings Ltd (2008) 242 ALR 47 at [8]. Even where there is no linguistic ambiguity extrinsic evidence may be considered in aid of construction: Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd (2006) 156 FCR 1, particularly at 49-53. Ambiguity is not confined to a competition between two meanings. It extends to meanings which, for example, are doubtful, uncertain, or indistinct and which therefore require a consideration not only of text but also context: Colby Corporation Pty Ltd v Commissioner of Taxation (2008) 165 FCR 133 at [42]-[43]. It may also be admitted to identify the subject matter of a contract, its nature and scope: Codelfa Constructions Proprietary Limited v State Rail Authority (NSW) (1982) 149 CLR 337 at 349. The meaning arrived at in this way may not be the most obvious or most grammatically correct: Australian Broadcasting Commission v Australian Performing Right Association Limited (1973) 129 CLR 99 at 109. Words may generally be supplied, omitted, or corrected in an instrument, where it is clearly necessary in order to avoid absurdity or inconsistency: Fitzgerald v Masters (1956) 95 CLR 420 at 426-427 and 437. 25 In my opinion, the context, background or history of the Contract to Lease may arguably involve a consideration of at least the terms of the advertising brochure, the discussions between Messrs Reynolds and Pannekoek between 8 and 10 February 2006 and the content of the emails passing between Messrs Reynolds and Healey on 13 February 2006. 26 Harbeth's case is that Mr Healey's email does not state or imply that Mr Pannekoek on its behalf would sign an amended contract. Rather, the import is that Mr Reynolds could alter the document after it had been executed by all parties, but that the altered document would then need to be re-executed. It also submits that the only statement about re-signing by Mr Pannekoek is that 'he would then need to resign it'. This it says plainly carries the implication that Harbeth would have to agree to the changes. This is a statement, it says, about what is required to formalise a variation, and is not a statement about an agreement in advance to sign such a variation. It submits that there is no express or implicit assertion to the effect that the Option, as worded, related to the whole of the Land and not just part of it. Finally Harbeth contends that there is no statement or implied assertion about the plain intention arising from the wording. If anything, it says Mr Reynolds is being given a reason why the doubt expressed by him in his email had a proper basis. 27 The second and third respondents adopt the submissions of Harbeth but add that Healey's email makes clear that any change to the wording of the option would have to be taken up with Mr Pannekoek directly by Mr Reynolds with a view to obtaining his agreement to the change. 28 The applicants make the following submissions as to the 13 February emails. Their case, in effect, is that Mr Reynolds was concerned that the terms of the option could be misinterpreted to mean it related only to the leased portion and not the whole of the Land. His email says as much and seeks a response as to this concern prior to his signing the Contract to Lease, and in particular whether the terms of the option should be amended to remove this doubt. Mr Healey in response allayed his concerns by assuring him that such a misinterpretation was not open because it was impossible (as a matter of law) to sell part only of a lot but that if he wanted to change the wording to put it beyond doubt, then that would be acceptable to Mr Pannekoek who would, however, have to re-sign it if he adopted that course. 29 Consideration of this extrinsic materialarguably, in my view, may demonstrate that it was mutually known by the parties to the Contract to Lease that one of its purposes was to ensure that Mr Reynolds or the entity used by him to acquire the business should have the option to purchase the whole of the Land. Viewed in that way it has a tendency to support the construction contended for by the applicants. Certainly there is a serious dispute raised as to the proper construction of the option and the extent to which, if at all, the extrinsic material is relevant. 30 The respondents contend however that, whatever be the position in relation to the Contract to Lease, none of this extrinsic material is even arguably relevant to the construction of the option in the Lease itself which they say is clear in its terms and was drawn by the applicants' solicitors. I do not consider that this necessarily follows. The context, background or history to the Contract to Lease may arguably, in my view, also be relevant to a consideration of what is intended by the option in the Lease. The Contract for Lease, as I observed earlier, by clause 23 contemplated that any Lease would contain the terms of the offer in the Contract to Lease. Both are inter-related in this sense. There was no evidence as to what instructions were given by the applicants to their solicitors for the preparation of the Lease. It is reasonable to infer however that they were provided with the Contract to Lease: Jefferson Ford Pty Ltd v Ford Motor Co of Australia Ltd [2008] FCAFC 60at [132] per Gordon J. It is hardly surprising then that any ambiguity, absurdity or shortcoming in the Contract to Lease, could be repeated in the Lease. Additionally, in respect to the Lease, relevant extrinsic evidence would arguably also include a consideration of the conversations which, on the applicants' case, took place on 3 April 2006, concerning payment of rates and taxes as well as the content of the settlement statements sent to Mr Reynolds on 3 and 4 April 2006. 31 I do not think that it can be said that the applicants have no reasonable prospects of success of demonstrating that the proper construction of the option in the Lease is as they contend, aided by a consideration of the above extrinsic circumstances. There are real issues of fact and law to be determined. The rights of the parties depend upon their resolution. In these circumstances it is appropriate that the matter should go to trial: Hicks v Ruddock at [13].

Agency 32 Harbeth contends that there is no evidence to support the pleas that Mr Healey was its agent to prepare and negotiate with potential purchasers the terms of the documents, to effect the sale of the business and the lease including the option. The second and third respondents submit that neither of them were agents to effect the commercial relations between Dandaven and Harbeth. This, they say, was the function of Performance Business Brokers. Mr Pannekoek, in his affidavit sworn on 21 December 2007 at [6] said that, in January 2006 he arranged for the Signs Business to be advertised for sale through Russell Lyon of Performance Business Brokers and that subsequently he instructed Mr Healey to assist. He did not explain what assistance it was that Mr Healey was to render. He said that Mr Healey provided accounting services to Harbeth and related entities as a consultant to PA (2004) Pty Ltd, the third respondent. In his affidavit sworn 10 March 2008 at [6.2] Mr Pannekoek said that PA (2004) acted as Harbeth's settlement agent. 33 The emails of 13 February 2006 from Mr Healey to each of Mr Reynolds and Mr Pannekoek concerned the Contract to Lease. The contents of each, in my opinion, arguably, is evidence that he, or by implication PA (2004), to which he consulted, acted as agent for Harbeth in relation, at least, to the Contract to Lease as pleaded by the applicants. Arguably, any such agency may extend to the formation of the Lease including the option. The Contract to Lease was inextricably tied up with the Lease and both were interrelated with the agreement for the sale of the business. Accordingly there are questions of fact and law as to the allegations of agency, which will require further exploration at trial. This is sufficient to overcome the dismissal application on this ground.

The other causes of action 34 Other than the case in breach of warranty each of the other causes of action relies to some extent upon the same factual matrix which constitutes the extrinsic material to which I have referred concerning the applicants' case concerning the proper construction of the option. Because of the conclusions I have reached in respect to that material, it follows that I am not persuaded that those causes of action have no reasonable prospect of success. 35 The respective submissions of the parties as to the alleged breach of warranty disclose a serious dispute as to the meaning and effect of cl 12.1(e) of the General Conditions of the Agreement for the Sale of the Business, in particular whether this provision relates only to a then existing Lease and whether the warranty is one continuing until completion. It cannot be said, in my opinion, that the applicants' case in this respect has no reasonable prospects of success. 36 The motions to strike out the statement of claim were not the subject of written submissions and were not, it seemed to me, pressed in oral argument. The brief oral submissions made by counsel for the second and third respondents complained about paragraphs [49]-[51] of the statement of claim which concern the claims under the Trade Practices Act and the Fair Trading Act. These set out the pleading of inducement following on from the pleaded representation in the context of the interrelationship between the Contract to Lease and the Lease. The submission however focussed on the evidence going to the pleaded allegations rather than the structure of the pleading itself. I do not consider that grounds exist for the statement of claim, in whole or part to be struck out. 37 Both motions should be dismissed. The respondents should pay the applicants' costs.

I certify that the preceding thirty-seven (37) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gilmour.

Associate: Dated: 25 June 2008 Counsel for the Applicants: Mr G H Murphy SC

Solicitor for the Applicants: Murfett Legal

Counsel for the First Respondent: Mr T Coyle

Counsel for the Second and Third Respondents: Mr G R Dean

Solicitor for the First Respondent: Lavan Legal

Solicitor for the Second and Third Respondents: Dean & Rowick