Equititrust Limited v Checkling Pty Ltd

Supreme Court of NSW|2012-02-15|Before: Schmidt J, Mr J

Judgment 1These proceedings were commenced by statement of claim filed in February 2011, in which orders concerning two properties located at Richmond and Windsor were sought by the plaintiff. The proceedings were concerned with the loan made to the first defendant, which was secured over the two properties. Relevantly, possession of the Richmond property was sought, as well as an order for the second and third defendant's surrender of occupation of that property, pursuant to a residential tenancy given by the first defendant, of which the plaintiff claimed to have been given no prior notice, as required by the mortgage. 2The second and third defendants filed a defence in April 2011. On 18 May 2011, the Court ordered that the plaintiff have possession of the property. The consent orders then made also required that the second and third defendants surrender possession of the property by 14 June 2011. That possession was not given by the defendants. The plaintiff finally secured occupation of the property in November 2011, after a writ of possession was issued and enforced by the Sheriff. For their part, the second and third defendants only vacated the property in August. 3This judgment deals with a motion filed by the plaintiff in August 2011, seeking orders under s 73 of the Civil Procedure Act 2005, in relation to the true construction of the compromise embodied in the judgment and orders which the Court entered by consent on 18 May 2011. The principal issue was identified by the parties to be whether the settlement agreement, as reflected in the Court's consent orders, properly construed, meant that the second and third defendant's failure to vacate the property by 14 June meant that the plaintiff is entitled to the return of $30,000 from the second and third defendants' solicitor. 4Section 73 of the Act gives the Court jurisdiction to determine any question in dispute between the parties as to whether, and on what terms, the proceedings have been compromised or settled between them, and to make such orders as it considers appropriate, to give effect to any such determination.

The orders in issue 5The relevant consent orders made in May 2011 by Fullerton J were: "1. An order that the Plaintiff have leave to bring the Second Proceedings against the First Defendant. 2. Judgment for possession of the land described in the Schedule (the Land). 3. Leave to issue a writ of possession forthwith in relation to the Land. 4. A declaration that the Plaintiff as mortgagee under the mortgages dealing numbers AD774452 AND 774453 is not bound by the lease on or about 9 October (or alternatively 28 October) 2009 from the First Defendant to the Second Defendant dated of part of the Land. 5. A declaration that the Plaintiff as mortgagee under the mortgages dealing numbers AD774452 and 774453 is not bound by the lease dated 1 January 2010 from the First Defendant to the Third Defendant of part of the Land. ... 6. An order that the Second and Third Defendants surrender any and all leases or licenses in respect of (a) the Land, to Checkling Pty Ltd; (b) the property situated at Dight Street, Richmond owned by Gonfanon Pty Ltd to Gonfanon Pty Ltd (the "Boral Land") within 14 days. 7. An order the Second and Third Defendants surrender occupation of the Land and the Boral Land on or before 14 June 2011. 8. An order that Equititrust Ltd pay the sum of $35,000 to the trust account of the solicitors for the Second and Third Defendants within 7 days. 9. The Court notes the agreement of the parties that the solicitor for the Second and Third Defendants may release $5,000 immediately upon receipt of said sum and the balance only after compliance with orders 6 and 7 above. ... " 6The orders sought by the plaintiff were opposed by Mr Peter Birch, the second defendant. His case was that the defendants became entitled to receive the $30,000 when they gave possession in August, because order 9 did not make the giving of possession on or before 14 June required by order 6 'an essential term'.

The circumstances in which the settlement was reached 7Both parties contended that the Court's orders were not ambiguus and that the construction for which they each contended, was apparent on the face of the order. It was accepted, however, that if there was any ambiguity was in the words used, in construing the terms of the orders agreed, the Court could look to surrounding circumstances, to cast light on the parties' intentions. (See Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337 ; Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; (2009) 76 NSWLR 603 and Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45.) 8It is convenient to recollect what Mason CJ observed in Codelfa : "22. The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning. Generally speaking facts existing when the contract was made will not be receivable as part of the surrounding circumstances as an aid to construction, unless they were known to both parties, although, as we have seen, if the facts are notorious knowledge of them will be presumed. (at p352) 23. It is here that a difficulty arises with respect to the evidence of prior negotiations. Obviously the prior negotiations will tend to establish objective background facts which were known to both parties and the subject matter of the contract. To the extent to which they have this tendency they are admissible. But in so far as they consist of statements and actions of the parties which are reflective of their actual intentions and expectations they are not receivable. The point is that such statements and actions reveal the terms of the contract which the parties intended or hoped to make. They are superseded by, and merged in, the contract itself. The object of the parol evidence rule is to exclude them, the prior oral agreement of the parties being inadmissible in aid of construction, though admissible in an action for rectification. (at p352) 24. Consequently when the issue is which of two or more possible meanings is to be given to a contractual provision we look, not to the actual intentions, aspirations or expectations of the parties before or at the time of the contract, except in so far as they are expressed in the contract, but to the objective framework of facts within which the contract came into existence, and to the parties' presumed intention in this setting. We do not take into account the actual intentions of the parties and for the very good reason that an investigation of those matters would not only be time consuming but it would also be unrewarding as it would tend to give too much weight to these factors at the expense of the actual language of the written contract. (at p352)" 9It was not in dispute that the parties' May 2011 settlement was arrived at in circumstances where it was known that the plaintiff was seeking to obtain possession of the property prior to 30 June. The property had the benefit of certain water licenses issued under the Water Act 1912, which the plaintiff was seeking to sell. The defendants had not only asserted a right to possession of the property under the residential lease, (which they accepted in the settlement did not bind the plaintiff), but they had also claimed rights in respect of the water licenses. That claim rested on provisions of the Water Act which gives occupiers certain rights in relation to such licences. 10In an affidavit sworn in the proceedings in April 2011, Mr Clout, the receiver and manager of the assets of the first defendant, explained in detail his pursuit of the sale of the property and the water licences, which could not proceed while the defendants retained possession of the property. He also there explained why failure to obtain such possession prior to 30 June, would have had a negative impact on the price for which the water licenses could be sold. 11These were all background facts which were known to both parties and were the subject matter of the agreement which they reached in May, which was encompassed in the consent orders which were then made by Fullerton J. By that agreement order 7 required that the defendants would give up possession of the property by 14 June, in which event they were to receive a further payment of $30,000, in addition to $5,000 earlier made to them.

Mr Birch's explanation of why the order was not complied with 12Mr Birch gave affidavit evidence as to the circumstances in which it came to be that this order was not complied with. 13He there explained that he was legally represented in the negotiations which led to the consent orders being made in May; that he then believed that he would be able to comply with them, but that difficulties outside of his control later prevented him from surrendering occupation of the property by 14 June. In brief, the circumstances which he explained were that he collected a cheque made in favour of his son, the third defendant James Birch on 9 June; it became apparent to him on 10 or 11 June that he would not be able to comply with the order, due to heavy rains and 'a flooding effect' caused by a nearby creek, which prevented him driving a suitable vehicle to the house, which was located at the top of a hill; he consulted his lawyer on 14 June, in order to advise of the problems and to seek an extension of time; the plaintiff refused that request; heavy rainfall continued; Mr Birch believed the plaintiff's attitude to be unreasonable, with the result that he: "... decided to slow down considerably in terms of moving from the subject property and felt that if they didn't wish to help me I would not help them" 14There were further negotiations which did not result in any agreement. On 14 July, it was proposed that if Mr Birch moved by 15 July, he would be paid $25,000. Mr Birch understood that this offer had been accepted by his solicitor, with the result that he attended the property at 5 pm on 15 July to meet the agent to hand over the keys to the property, but the agent did not appear. Mr Birch's affidavit does not disclose when, in fact, it was that he surrendered occupation of the property. At the hearing it was, however, common ground that any agreement to vacate by 15 July was also not adhered to and the defendants did not vacate until 14 August. 15Correspondence annexed to Mr Birch's affidavit also discloses that it was disputed that there had been torrential rain prior to 14 June, given Bureau of Meteorology records which showed that the Richmond area had received only 7.0 mm of rain in the days in question. 16There was no approach to the Court as a result of the breach of the order. Instead, Mr Birch's solicitor advised on 14 July: "It is conceded that our client had failed to comply with the orders of 18 th May 2011. In particular his non-compliance with orders (6) and (7) brings into effect the guillotine order of (9) in that such actions prohibit our release of any monies that are held in our trust account." 17Still the defendants did not vacate the property. Even accepting Mr Birch's evidence that the agent did not attend as arranged on 15 July, there was no explanation given as to why the keys were not then returned, possession was not given and the agreed $5,000 repayment was not made out of the defendant's solicitor's trust account to the plaintiff, as he claimed had been agreed. 18On the case advanced for Mr Birch in written submissions, it was submitted that this delay reflected 'difficulties with weather and with obtaining alternative accommodation' and that there had been third party interference with the sale of the property, independent of the defendants. Those submissions were not supported by the evidence, which included evidence as to only a small amount of rainfall in the area at the time, as well as photographs and plans of the property, which did not plausibly leave open the conclusion that Mr Birch's explanation for the failure to give possession, as had been agreed, had any foundation in reality. 19It is convenient to observe that when the difficulties with the case being advanced became apparent during the course of submissions, Mr Birch gave his solicitor instructions that he sought the opportunity to give further evidence, inconsistent with that to which he had deposed in his affidavit, in order to advance a different explanation for his failure to adhere to the Court's order. 20I refused that application, given the history of the proceedings, namely that the motion had been listed for hearing twice in 2011, when it was adjourned on Mr Birch's application; that Mr Birch had sworn his affidavit on 10 February 2012, shortly prior to the hearing; and that the application for the calling of further evidence arose during the course of submissions, when Mr Birch came to appreciate the difficulty with his evidentiary case. That conclusion was reinforced when it was considered that the evidence proposed to be given would have necessitated an opportunity being given to the plaintiff, not only to obtain instructions, but also an opportunity to lead evidence from Mr Clout as to new claims about a further claimed agreement, about which Mr Birch wished to give evidence. 21It was entirely apparent in the circumstances that the requirements of the Civil Procedure Act , particularly what is provided in s 56, as to the Court's obligation to facilitate the just, quick and cheap resolution of the real issues in the proceedings, could not permit the course proposed. The issue before the Court was the proper construction of the orders in issue. They were not ambiguous and the further evidence which Mr Birch sought to give, was not relevant to the proper determination of their construction. 22Mr Clout had given an unchallenged account in an affidavit sworn on 15 September 2011, of what had transpired when he visited the property on 29 June. He was not required for cross-examination and Mr Birch did not deal with this account in his affidavit. Mr Clout's evidence was that on 29 June, when he told Mr Birch that he was in contempt of the Court's orders Mr Birch had then informed him that he had been unable to move out, due to the rains, but that he was ready to move and would do so the next Saturday. On inspection the house was largely empty, other than for removal boxes. Mr Birch did not give up possession of the property as he had advised Mr Clout and on 4 July when they spoke again, told him the would be leaving on 6 July. It was common ground this did not occur.

Mr Birch's case may not be accepted on a proper construction of the consent orders 23In oral submissions it was conceded that order 7 of the consent orders had not been complied with, but it was argued that nevertheless, properly construed, order 9 did not depend upon such compliance. In written submissions it was argued for Mr Birch that the terms of the settlement did not express time to be 'of the essence', but were rather crafted to ensure that Mr Birch did not receive the agreed $30,000, until he moved out. On the face of the order, he was entitled to payment of the disputed sum. 24If there were any ambiguity, it would be accepted that the delay in giving possession did not impede the plaintiff's ability to sell the water licenses and, it followed, caused it no loss, with the result that it would be concluded that Mr Birch was entitled to receive the $30,000, after possession of the property was given up. 25While it was accepted that the plaintiff had an interest in obtaining possession of the property before 30 June, it was argued that this interest was satisfied by the making of the Court's order. The fact that possession was not in fact given until August, did not preclude the plaintiff's sale of the water licenses attaching to the property. In the result if there was any ambiguity in the order, it would be resolved in the defendants' favour. Fairness required that the orders sought by the plaintiff be refused. 26The case advanced for Mr Birch may not be accepted. The consent orders in question are not ambiguous. They required the defendants to give possession of the property 'on or before 14 June'. The release of the payment made to Mr Birch's solicitor under order 8, was dealt with in order 9. It provided for the immediate payment of $5,000 to Mr Birch, when his solicitor received the $35,000 from the plaintiff's solicitor. Payment of the balance was to be made to Mr Birch ' only after compliance with orders 6 and 7 above' (my emphasis). Order 6 was complied with. Order 7 was not. 27After 14 June it was not possible for order 7 to be complied with, given its terms, which required that possession be given before that date. In the result, failure to comply order 7 meant that Mr Birch was not entitled to payment of the $30,000 in dispute. That payment was only to be made, if both order 6 and order 7 were complied with. They were not. It follows in the circumstances, that the sum in issue must be returned to the plaintiff, Mr Birch having no entitlement to have any part of it paid to him. 28Even if it were possible to reach the conclusion that there was any ambiguity in the order, the contextual evidence as to the surrounding circumstances, can only lead to the same conclusion. 29It was the defendants who claimed not only an entitlement to possession of the property, but also to rights in relation to the water licences, as the result of their occupation of the property. The need to obtain possession prior to 30 June was known to the defendants, given the impact upon the price for which the water license could be sold by the plaintiff after 30 June. The defendants' rights to the water licenses rested on their occupation of the property. That was what they agreed to give up by 14 June, so that the sale of the licences could proceed prior to 30 June. 30That is the context in which it was agreed that in return for possession being given by that date, the plaintiff would make a payment of $35,000 to the defendants. $5,000 was to be released immediately on receipt of the payment. The final $30,000 was to be paid only if possession was given by 14 June. That did not occur. It wasn't given by 15 July, or by the later dates Mr Birch advised to Mr Clout. Payment of $30,000 after possession was finally given in August, only after steps were taken by the Sheriff, was not contemplated by the parties' agreement, as reflected in the consent orders made. Even if the matter could be determined on the basis of 'fairness', as was finally urged for the defendants, the order sought could not be made. 31Mr Birch's claimed inability to move out of the property by 14 June, as agreed, was quite implausible on the evidence that only some 7 mm of rain fell in the area in the days preceding that date and having regard to the evidence as to the nature and location of the house on the property, located on a considerable rise, fronting onto a sealed road, a considerable distance away from a body of water. 32There was otherwise no explanation given for the failure to move out subsequently, let alone any explanation for remaining in possession of the property until August, other than Mr Birch's decision, as he explained, to 'slow down considerably' in giving up possession of the property. That decision involved not only a breach of the Court's order, but a plain repudiation of the agreement to give possession by 14 June. In the result, no right to payment of the $30,000 could be established.

Costs 33The usual order as to costs under the Rules is that they should follow the event. Unless the parties approach within 7 days, that will be the Court's order.

Orders 34For the reasons given, I order that:

Pursuant to section 73 of the Civil Procedure Act 2005: (a) on the true construction of the compromise embodied in the Judgment and Orders of the Court entered on 18 May 2011 (the Orders), the Plaintiff is entitled to be repaid $30,000 of the sum paid to the trust account of the solicitors for the Second and Third Defendants, DC Legal Pty Ltd, pursuant to the said Orders in the event that the Second Defendant and the Third Defendant of the land, the subject of the proceeding, on or before 14 June 2011; (b) that the Second Defendant and Third Defendant failed to surrender occupation of the land on or before 14 June 2011; (c) that DC Legal Pty Ltd forthwith pay the said amount of $30,000 to the Plaintiff; (d) in the event that DC Legal Pty Ltd has paid the said amount of $30,000 to or at the direction of the Second Defendant and/or Third Defendant, that the Second Defendant and the Third Defendant repay the said amount of $30,000 to the Plaintiff.
Unless the parties approach within 7 days of the date of the judgment, the Court's order as to costs is that the defendants must bear the plaintiff's costs of the matter, as agreed or assessed.

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: 27 February 2012

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