Fisher v Degnan

Judgment

1. MACFARLAN JA: The facts and circumstances of this matter are fully set out in the judgments of Kirk JA and Basten AJA which I have had the advantage of reading in draft form. For the reasons below, I agree with Basten AJA that the appeal should be dismissed with costs.
2. I refer first to the following passage in the primary judgment, which contains the essence of his Honour's findings: "[85] On my reading of the Deed as a whole, characterisation of the $250,000 paid by Mr and Mrs Degnan as a 'loan' would have operative effect if and only if the parties, despite their best endeavours, could not effect a subdivision of the land. In that circumstance, the Deed contemplated that the $250,000 would be repaid '[by] agreement between the parties and failing agreement then upon demand'. Characterisation of the $250,000 as a loan was subordinate to characterisation of it as a purchase price for that part of the land upon which the principal dwelling was located."
3. This extract reflects the fact that the Deed between the parties was self-evidently principally, if not solely, concerned with the parties' agreements as to how a payment of $250,000 to be made by the Degnans to the Fishers (but in fact already made) was to be characterised. Their arrangements relating to this topic were made against the background, recorded in the Deed, that the Degnans had previously agreed to purchase from the Fishers one of the two lots ("the Lot") to be created by the sub-division of the land at Sawtell.
4. It is in my view unnecessary to consider whether the earlier purchase agreement referred to in the Deed was, or subsequently became, enforceable. Whether or not it was, or did become, enforceable the parties agreed by the Deed that the payment of $250,000 was to be treated as the purchase price of the Lot and that if the sub-division did not proceed it was to be treated as a loan repayable to the Degnans. As the sub-division did proceed, the Degnans were entitled to assert an equitable interest in the Lot because of the agreement embodied in the Deed as to how the payment of $250,000 was to be treated in that circumstance. Further, as the Lot was sold by the Fishers without their authority, the Degnans were entitled to equitable compensation, as the primary judge held.
5. In support of these conclusions it is necessary to refer to the following provisions of the Deed.
6. The "Principal Sum" referred to in the Deed is expressly identified by clause 2.1.3 and Item 3 of the Schedule to the Deed as the sum of $250,000. The extrinsic evidence of the surrounding circumstances known to both parties indicated that this was a sum that the Degnans had already paid to the Fishers, notwithstanding that clause 3 refers to its payment in the future.
7. Clause 3 states that payment of the Principal Sum is "for purchase" of the Lot, and clauses 2.1.4, 8, and Item 4 of the Schedule, reiterate that arrangement by describing the Principal Sum's purpose as "[t]o assist in purchasing of" the Lot ("the Purpose"). For the reasons given by Kirk JA in [55] of his judgment, I do not consider that this part of the Schedule should be understood as referring to the antecedent purchase of the whole block by the Fishers from a third party. Clearly it is a reference to purchase of the Lot alone, despite what Kirk JA accurately describes as its "awkward use of language" (see [78]).
8. These and the remaining provisions of the Deed do not simply refer to the prior agreement as a matter of historical fact. They indicate that that agreement, with its terms supplemented by the Deed (particularly as to what is to happen if the subdivision does not proceed), is part of the parties' current arrangements and promises. In particular, clause 8 imposes an obligation on the Fishers to apply the Principal Sum to the purchase of the Lot (that is, "for the Purpose"). Their execution of the Deed resulted in the Fishers promising that they would do that. That in turn constituted an agreement of the Fishers, for consideration, to sell the Lot to the Degnans. It does not matter that the Fishers may previously, orally or in writing, have already made that promise. The critical point is that, even if they had, they repeated it in the Deed.
9. The Deed also states how the Principal Sum payment is to be characterised in the event that the purchase does not proceed. Thus, clause 11 provides that the Principal Sum is to be immediately repayable without the necessity for any demand if, inter alia, "[t]he Borrower [being the Fishers] fails to use the Principal Sum for the Purpose". Clause 4 provides for repayments of the Principal Sum to be made in accordance with Item 6 of the Schedule which states that they are to be made "[b]y agreement between the parties and failing agreement then upon demand". The apparent inconsistency between this requirement for a demand and clause 11's statement that one is not necessary is not of any present significance. What is important is the parties' agreement that in the postulated circumstance the Principal Sum payment is to be treated as a loan, whereas, in the alternative situation (the subdivision and purchase proceeding), it is to be treated as the purchase price of the Lot.
10. For these reasons, the terms of the Deed support the conclusion to which the primary judge came. Apart from identifying the uncontroversial fact that $250,000 had already been paid by the Degnans to the Fishers, the extrinsic material which was in evidence before the primary judge was not in my view of any material assistance, one way or the other, in determining the dispute between the parties.
11. KIRK JA: This case concerns the construction of a short, quickly drafted document executed by four family members: Mrs Karen Fisher and Mr George Fisher on the one hand, and Mrs Judith Degnan and Mr John Degnan on the other. Karen Fisher is the daughter of Mrs and Mr Degnan, and George Fisher is her husband. Mr Degnan died in 2015, before proceedings were commenced.
12. Mrs Degnan was the plaintiff below, bringing the proceedings in her personal capacity and as representative of her husband's estate. The Fishers are the appellants in this appeal and Mrs Degnan is the respondent.
13. Mrs Degnan contends that the document at the heart of these proceedings, a document dated 20 July 2012 and entitled "Deed of Loan" ("the Deed"), contained a contract for the purchase of the front portion of a block of land owned by the Fishers. The Fishers dispute this, contending that the document only provided for the making of a loan by the Degnans to the Fishers.
14. The primary judge found that the Deed provided for both a loan and a sale. His Honour held that the Fishers had thus been constructive trustees of the front portion of the land. As it had been sold before the proceedings were commenced, his Honour awarded Mrs Degnan equitable compensation.
15. The appeal turns on a question of construction which can be simply stated: does the Deed provide for the sale of the land in question? In my view it does not. The appeal should thus be upheld, with costs.
16. This judgment sets out the context in which the issue arises, then summarises the judgment below, and then addresses the issue of construction and the grounds of appeal. Before doing so, however, it is appropriate to set out why the issue on appeal is so limited.

What is and is not in issue on the appeal

1. In her statement of claim Mrs Degnan pleaded an agreement between the parties in the following terms: "6. It was agreed between the plaintiff, the deceased and the Fishers that: (a) The Fishers would purchase the Property; (b) The Fishers would build a house at the rear of the Property; (c) The plaintiff and the deceased would pay the sum of $250,000 to the Fishers as consideration for the purchase of the existing house on the Property; (d) The Fishers would apply to subdivide the Property and, upon completion of the subdivision, title in respect of the area occupied by the existing house would be transferred to the Plaintiff and the deceased ("the Agreement"). 7. Pursuant to the Agreement, on 2 July 2012 the Plaintiff and the deceased paid the sum of $250,000 to the Fishers. 8. On or about 20 July 2012, the Plaintiff, the deceased and the Fishers executed a Deed of Loan which had been prepared by the solicitor acting for all of the parties."
2. This pleading suggests that there was an "Agreement" for subdivision of the property in question and sale to the Degnans for the sum of $250,000. The pleading indicated that this Agreement pre-existed the Deed. That being so, it was not limited by the terms of the Deed. The statement of claim implies that the Deed was executed as part of fulfilling the Agreement.
3. Unsurprisingly, in their defence the Fishers invoked the Statute of Fraud provisions: "the Defendants say that to the extent that the Agreement pleaded by the Plaintiff is not in writing it is unenforceable for failure to comply with Conveyancing Act 1919 (NSW) s 54A or s 23C". Section 54A(1) provides as follows: "No action or proceedings may be brought upon any contract for the sale or other disposition of land or any interest in land, unless the agreement upon which such action or proceedings is brought, or some memorandum or note thereof, is in writing, and signed by the party to be charged or by some other person thereunto lawfully authorised by the party to be charged."
4. If the matter had proceeded based upon the way Mrs Degnan had pleaded the Agreement then a significant issue would have arisen as to whether or not the Deed sufficiently constituted a "memorandum or note" of that Agreement. But the matter did not proceed in that way, as the primary judge explained at [54]: "What is common ground in these proceedings is that the respective rights and obligations of the parties are governed by the Deed dated 20 July 2012, properly construed. Although the plaintiff's case was presented in terms of an alleged oral agreement which led to the making of the Deed (as a result of which the defendant pleaded the 'Statute of Frauds' provisions of sections 23C and 54A of the Conveyancing Act 1919 NSW), the focus for attention throughout the hearing was on the Deed and, incidentally, any extrinsic evidence of the parties' intention that may be admissible in construction of the Deed. There is no need to be deflected by a consideration of the 'Statute [of] Frauds' provisions and the equitable doctrine of part performance."
5. On appeal Mrs Degnan filed no notice of contention. There was thus no contention that the primary judge's conclusion could be supported by reliance on some agreement beyond the Deed, or based upon some other legal doctrine. There was no argument on appeal addressed to whether the Statute of Frauds requirements would have been met if the agreement went beyond the Deed, as there no doubt would have been if Mrs Degnan had sought to maintain that there was a broader agreement.
6. That the focus on appeal was just on the Deed was confirmed in oral submissions by counsel for Mrs Degnan, in the course of discussing some cross-examination of the solicitor (Mr Oliver) who had drafted the Deed: "KIRK JA: Picking up on that reference at black 86 line 23, he said, 'I agreed to...was the loan'. One way of potentially understanding that is that the deed of loan was part of a broader agreement, and as Mr Sirtes pointed out, in fact the way it had originally been pleaded was that there was an oral agreement reached prior to the deed being entered. But in the course of argument below it seems that all the focus turned to and crystallised upon the deed. So we're just left with the construction of the deed, not the sort of thing that perhaps Mr Oliver was talking about there. You haven't put on a notice of contention. CAROLAN: The difficulty below was obviously from my point of view that Mr Degnan had died. The evidence disclosed that the discussions which have taken place were discussions between Mr Degnan and Mr Fisher and the difficulty in proving an antecedent agreement was the loss of Mr Degnan as a witness to that oral agreement. MACFARLAN JA: On one view the recital [ie clause 3 of the Deed] might've been argued to be an admission and even a note or memorandum of a prior oral agreement, but that's not the way the case was put. CAROLAN: No, your Honour, I accept that."
7. Nor did Mrs Degnan ever make any claim in proprietary or promissory estoppel. There was one sentence in the Degnans' closing written submissions to the Court below raising estoppel, but it had not been pleaded, nor raised in opening, and it does not seem to have been pursued. Nor was rectification ever sought. Nor was there any claim made against the solicitor who drafted the document.
8. Thus this Court is confined to considering whether the Deed of and by itself includes a contract for the sale of the claimed land.

The context in which the Deed was entered

1. The following summary of the background to the Deed is substantially drawn from the judgment below. The dispute concerns residential land in Sawtell on the Central Coast of New South Wales. At some point before the purchase of the land the two couples formed a plan to live near each another. The attraction of the block in question was that an existing dwelling stood on the front part of the land, with ample space behind it. The couples contemplated that the Degnans might live in the existing dwelling, and that the Fishers would build and then live in a second dwelling behind the first, with the block being subdivided.
2. On 2 August 2011 the Fishers became the registered proprietors of the land, having contracted to buy it in May 2011. In accordance with the agreed plan, the Degnans moved into the house at the front of the block upon completion and began to pay rent. A local solicitor, Mr Kinloch Oliver, acted for the Fishers on the purchase. The Fishers organised construction of a new dwelling at the back of the block. The Degnans undertook some renovations of the house at the front, at their own expense.
3. In June 2012 the two couples jointly retained Mr Oliver, apparently in order to reduce their plans to some legal arrangement and to assist with the proposed subdivision.
4. Mr Oliver spoke by phone to Mr Degnan on 2 July 2012. His file note of that conversation reads as follows: "KO reluctantly takes phone call from John, who seems to think it's urgent that he see KO. There is some new agreement now in regard to interest and the like, and KO has Sarah put him in for Tuesday when KO returns. KO makes it clear that it's a family matter and there's no reason why he can't extend the money to them now if agreement has been reached."
5. On 2 July 2012 - it may be inferred after the phone call with Mr Oliver - Mr Degnan transferred $250,000 into a bank account held by the Fishers. The money had come from a long anticipated bequest from the estate of Mr Degnan's brother. Mr Degnan recorded the transfer as being for "House Purchase". The Fishers were anxious to receive this money because they were experiencing some cash flow problems in servicing their mortgage commitments. This was presumably because they had bought the subject property and commenced building their new house prior to selling their previous residence. They did not manage to sell that previous residence until 12 July 2012, having placed it on the market in October 2011.
6. There was no documentary evidence of how the Fisher's recorded receipt of the money, although Matthew Degnan - Mrs Degnan's son and Mrs Fisher's brother, who was a witness for Mrs Degnan - gave evidence that he had seen a handwritten receipt which read "[f]or the sum of $250,000 paid to K & G Fisher for the purchase of the front dwelling at … Sawtell". However, the primary judge was not satisfied that he should accept that claim and Mrs Degnan did not seek to rely on this evidence on appeal. The Fishers did not contend that the transfer was by way of gift.
7. On 10 July 2012 the Degnans executed the Deed, which had been prepared by Mr Oliver. On 20 July 2012, which is the date it bears, the Deed was executed by the Fishers. The contents of the Deed are discussed below.
8. After the transfer the Degnans ceased paying rent. Around the same time the Fishers moved into the newly constructed dwelling at the back of the block.
9. On 22 October 2012 the local council granted development approval for subdivision of the land. The Degnans paid at least one half of the costs of the subdivision, including the costs of retaining Mr Oliver. It appears that Mr Fisher and Mr Degnan agreed to postpone effecting the subdivision because of a view that the local council rates would be higher on two separate blocks than they were on one joint block.
10. The formal subdivision did not occur until January 2019. The front of the block, on which stood the older dwelling occupied by Mrs Degnan, became Lot 270. The back of the land, on which stood the newer dwelling occupied by the Fishers, became Lot 271. Both lots were registered in the name of the Fishers.
11. In October 2018 the Fishers listed both (proposed) lots for sale. It was the proposed sale which led to the Fishers taking steps to finalise the subdivision.
12. On 31 January 2019 contracts for the sale of Lot 270 were exchanged, with a sale price of $485,000. It appears that the relationship between the Fishers and Mrs Degnan broke down in February 2019 as Mrs Fisher pressed her mother to expedite her departure from her home on Lot 270 in anticipation of completion of its sale. The sale was completed later that month.
13. The proceedings were commenced in December 2019. Mrs Degnan claimed that the Fishers were obliged to transfer Lot 270 to her upon registration of the subdivision and that, having sold that lot, they were liable to account to her for the proceeds of sale, net of agent's commission and conveyancing costs, and making allowance for a payment of $250,000 which was made by the Fishers to her shortly after the commencement of the proceedings. That belated payment was made by the Fishers as repayment of the loan to them by the Degnans which they said had been provided for in the Deed.

The judgment below

1. Mrs Degnan, Mrs and Mr Fisher, Mr Matthew Degnan, and the solicitor Mr Oliver all gave evidence below, as did a legal partner of Mr Oliver. The primary judge correctly noted at [89] that a court cannot substitute for the terms of a contract some different form of agreement based upon acceptance, or otherwise, of their conflicting evidence about conversations in negotiations. In any event, at [90] he recorded his view of the evidence of the family members as being that although "they all endeavoured to give their evidence honestly, I am inclined to the view that each of them gave evidence about long ago conversations coloured by their self-interest, and closely aligned views, on the proper construction of the Deed". For these reasons, his Honour said at [92] that his "construction of the Deed is based upon the terms of the Deed itself", read in the light of the surrounding circumstances known to both sides. Neither party asked this Court to take a different approach.
2. His Honour did have regard to two letters sent by Mr Oliver as part of considering the surrounding circumstances. His Honour's reliance on these letters was criticised by the Fishers. Those letters are discussed below.
3. The decision of the primary judge was founded mainly on clause 3 of the Deed. His Honour's core reasoning was as follows: "[70] … despite its title, clause 3 appears in fact to be an operative part of the Deed, both in recording the parties' intention that Mr and Mrs Degnan acquire an interest in the land for the payment of $250,000 and in characterising the 'Principal Sum' as a loan. But for clause 3, there is no express agreement on the part of Mr and Mrs Degnan to lend money to Mr and Mrs Fisher. … [73] Mrs Degnan contends that clause 3 evidences the operative provision of the Deed, all else in the Deed (including the title 'The Deed of Loan') being subordinate to it. In my opinion, that contention is correct. … [79] I do not regard the title of the Deed (as a 'Deed of Loan'), or the language of a 'loan' scattered throughout the Deed, as determinative of characterisation of the Deed as a whole or of clause 3 of the Deed in particular. Clause 3 makes little sense if not read as embodying an operative agreement for Mr and Mrs Degnan to purchase their dwelling for $250,000, with title to be transferred to them upon registration of a subdivision to be effected at the shared cost of all parties. [80] Characterisation of the Deed as an agreement for a loan, and nothing more, simply because it bears the label 'Deed of Loan' and uses language indicative of a loan, is not permissible. The Deed has to be read as a whole. The language of purchase in clause 3 is intractable. [81] Clause 3 cannot be discounted as a mere 'recital', not intended to have operative effect. That is because the clause is instrumental in recording both an agreement for purchase and an agreement for a loan pending subdivision. [82] Characterisation of the $250,000 as a loan can be explained by uncertainty as to whether the land would be approved for subdivision. Implicit in both the first and the second paragraphs of clause 3 was an agreement on the part of all parties to seek subdivision approval and, upon subdivision of the land, to generate separate Torrens Title Deeds for each dwelling on the land. … [85] On my reading of the Deed as a whole, characterisation of the $250,000 paid by Mr and Mrs Degnan as a 'loan' would have operative effect if and only if the parties, despite their best endeavours, could not effect a subdivision of the land. In that circumstance, the Deed contemplated that the $250,000 would be repaid '[by] agreement between the parties and failing agreement then upon demand'. Characterisation of the $250,000 as a loan was subordinate to characterisation of it as a purchase price for that part of the land upon which the principal dwelling was located."
4. His Honour concluded by explaining the basis for Mrs Degnan's claim for equitable compensation. The Degnans' purchase of Lot 270 became unconditional upon the subdivision being approved, and as they had paid the purchase price of $250,000 the contract of sale in the Deed was "amenable to an order for specific performance [and] the Fishers became constructive trustees of the property for the Degnans": at [105]. When Lot 270 was sold, the Fishers held the proceeds of sale on trust for Mrs Degnan and for Mr Degnan's estate.

Construction of the Deed

1. The Fishers had four grounds of appeal: "1. The primary judge erred in construing the Deed as comprising an agreement for the sale of the Property and not as a loan. 2. The primary judge erred in law in construing the Deed by reference to correspondence that post-dated the Deed. 3. The primary judge erred in law by treating Clause 3 of the Deed as an operative provision. 4. The primary judge erred in fact and law by failing to have regard to relevant contextual evidence."
2. Their principal complaint was that the primary judge's construction of the Deed was wrong. Grounds 3 and 4 are effectively part of the construction issue raised by ground 1. Ground 2 is relatively distinct, but ultimately feeds into the construction issue.
3. The evidence of Mr Oliver was that the Deed was drafted rapidly, under pressure from the Fishers who were keen to gain access to the money that Mr Degnan had inherited. As the primary judge noted at [59], it is evident that the Deed was adapted by Mr Oliver from some office precedent, presumably one dealing with loans.
4. The terms of the Deed are to be construed in context and purposively. They are to be understood as a reasonable person in the position of the parties would understand them, taking account of the surrounding circumstances known to the parties and the object of the transaction. The subjective beliefs or understandings of the parties about their rights and liabilities are not relevant.

The Deed in overview

1. The Deed is five pages long. It consists of 11 clauses, as well as a schedule of seven short items. It is headed "DEED OF LOAN".
2. Clause 1 identifies the parties. Clause 2 is headed "Interpretations and Definitions". The term "Degnan" is defined to mean Mrs and Mr Degnan, "the Borrower" is defined to mean the Fishers, and the "Principal Sum" is defined as $250,000.
3. The clause upon which the primary judge founded his decision was clause 3, which is quoted below. After clause 3 comes a heading "IT IS AGREED", after which follow clauses 4 to 11.
4. Clause 4 provides that repayment of the principal is to be in accordance with Item 6 in the Schedule, which provides that repayments are "[b]y agreement between the parties and failing agreement then upon demand". Clause 5 requires "the Borrower" to pay to the Degnans any costs incurred by the Degnans in enforcing payment should "the Borrower" fail to make payment. Clause 6 concerns interest on any judgment obtained "against the Borrower for any amount due by the Borrower under this Deed". Clause 7 concerns the payment of certain fees, legal costs and stamp duty "payable in respect of this loan"; these are payable by the Fishers as required by the Degnans.
5. Clause 8 provides that "[t]he Borrower shall utilise the Principal Sum for the Purpose", which purpose is defined in the Schedule as being "[t]o assist in purchasing of a property situated at [the address in Sawtell]".
6. Clause 9, in conjunction with Item 7 in the Schedule, provides for the lodging of a caveat by the Degnans over the property. Clause 10 is omitted.
7. Clause 11 is headed "Miscellaneous". It lists eight events the occurrence of which causes the remaining amount of the principal to become immediately repayable. These include, for example, that the Fishers breach any provision of the Deed.
8. In the Schedule, Item 5 indicates that the interest rate is "nil", even though there is no reference to any interest being payable in the Deed (leaving aside interest on a judgment, as dealt with in clause 6).

Clause 3 - its heading, nature and effect

1. Clause 3 is as follows: "3. Recitals Degnan has agreed to pay the Principal Sum to the Borrower for purchase of a property situated at [Sawtell]. That property is one of two situated at that address, being a dual occupancy. The Borrower is in the process of a subdivision of the property by way of Torrens Title subdivision so that separate titles will issue for the two properties. At the request of the Borrower, Degnan has agreed to lend the Borrower the Principal Sum pursuant to the terms of this Deed. Degnan and the Borrower have further agreed that all costs associated with the subdivision of the property are to be borne equally by the parties. Degnan and the Borrower have further agreed that Degnan will cease making rental payments (currently $325 per week) following payment of the Principal Sum."
2. One preliminary point should be addressed about the first sentence of the clause. The Fishers argued that the sentence should be understood to refer to the purchase of a property by them, namely purchase of the whole Sawtell block, not a purchase by the Degnans of part of that block after subdivision. That construction is open if the first sentence is read by itself. But the submission is unpersuasive. The Sawtell property had been bought by the Fishers about a year prior to the Deed being entered, rendering it unlikely that the Deed would speak about a loan "for purchase" of a property bought a year before. More significantly, the second sentence in clause 3 states: "That property is one of two situated at that address, being a dual occupancy". The words "that property" refer to the property identified in the first sentence. And the third sentence refers to the Fishers being "in the process of a subdivision of the property … so that separate titles will issue for the two properties". In this context, it is evident that the reference to "purchase of a property" in the first sentence is to purchase by the Degnans of one of the two blocks that would exist after the subdivision.
3. The question then is whether clause 3 should be understood as containing an agreement for that subdivided block to be sold by the Fishers to the Degnans.

The heading is irrelevant

1. Much of the argument below and on appeal concerned the question whether clause 3 should be read as an "operative" provision or not. That argument arose because the clause is preceded by the heading "Recitals" and reads largely in the manner of a classical recital, that is, stating matters of context in which the deed or contract has been made. As noted, it is also followed by a heading "IT IS AGREED", after which follows the bulk of the terms of the Deed.
2. Neither the primary judge nor either side in the appeal made reference to clause 2.6 of the agreement, which reads: "Side notes and headings have been inserted for guidance only and shall not be deemed to form part of the context of this Deed."
3. Similar clauses, providing that headings are "for convenience only and do not affect interpretation", have been construed as requiring that headings be ignored when construing an agreement: Orleans Investments Pty Ltd v MindShare Communications Ltd (2009) 254 ALR 81; [2009] NSWCA 40 at [67]-[68]; Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603; [2009] NSWCA 407 at [348] (Franklins). The same consequence follows here. Accordingly, clause 3 must be read without the heading "Recitals".
4. It is also arguable that clause 2.6 precludes reliance on the words "IT IS AGREED" which precedes clause 4, as this might also be characterised as either a heading or a side note. The same may be said of the words "DEED OF LOAN" which appear at the top of the Deed. However, in the end nothing turns on those points.
5. When clause 2.6 is given effect, no starting presumption can be made that clause 3 merely sets out contextual matters and has no operative effect. But it does not conclude the issue. Clause 3 falls to be construed according to its language in the context of the Deed as a whole. That language and context may still mean that the clause should be understood as merely setting out matters of background prior to the operative parts of the agreement.

The language of clause 3

1. The first sentence of clause 3 states that "Degnan has agreed to pay the Principal Sum to the Borrower for purchase of a property situated at [Sawtell]". This sentence can be understood in two ways. On one view it merely records an existing fact which forms part of the context in which the Deed has been made. On the other view the point of the sentence is to record that agreement so as to give legal effect to it: in other words, it would be read in the sense that "Degnan has hereby agreed".
2. The former is the more natural reading. The sentence is expressed in the present perfect tense: "has agreed". The present perfect ordinarily records a statement of past fact with some continuing import. It may be contrasted with the simple present "agree", which indicates the coming to a state of agreement in the immediate present and, when used in the context of a legal document, ordinarily constitutes the speech-act by which the agreement is enacted.
3. However, the phrase "Degnan has agreed" is a similar expression to "it is agreed", and that latter general phrase is commonly used in documents to mark out those provisions of the document which constitute the present agreement. Indeed, that phrase is used in this Deed.
4. Further, in Ansett Transport Industries (Operations) Pty Ltd v Commonwealth (1977) 139 CLR 54 at 72; [1977] HCA 71, Mason J explained: "No doubt it is correct to say that, where in the recitals to a deed or an agreement it is acknowledged that the parties have agreed to do, or will do, certain acts, a promise to do those acts will be read into the agreement in the absence of an express promise to that effect. Then, there being no indication of a contrary intention, it may be safely inferred that the absence of a contractual provision was due to oversight or inadvertence."
5. This approach was invoked by Mrs Degnan here. It confirms that reading the statement in clause 3 as recording an agreement is possible. Language is flexible. And it may well be argued that construction of this rapidly drafted document should not turn on fine analysis of tense. That being said, the significance of the words employed cannot be wholly discounted.
6. In Franklins Campbell JA addressed the significance of recitals. At [392] he quoted with approval the following passage from K Lewison, The Interpretation of Contracts (4th ed, 2007, London, Sweet & Maxwell; footnotes omitted): "But the court will in any case be cautious in spelling a covenant out of a recital, because that is not the part of the deed in which covenants are usually expressed: Farrall v Hilditch (1859) 5 CB NS 840 [; 144 ER 337]. The court must be satisfied that the language does not merely show that the parties contemplated that the thing might be done, but it must amount to a binding agreement upon them that the thing shall be done: James v Cochrane (1852) 7 Exch 170 [; 155 ER 903] … It is of course difficult as a matter of language to construe a recital ('whereas A has agreed') as meaning 'A hereby agrees'."
7. A footnote in the text to the last sentence reads: "A recital is cast in the form of a statement of fact (usually past fact) whereas a promise is a matter of present obligation. A promise unlike a statement of fact is a 'performative utterance' (ie something of which it cannot be said that it is true or false; it creates the obligation merely by being uttered): see J L Austin, How to Do Things With Words. …"
8. Although these remarks are directed at provisions which are formally recitals, they can also apply to provisions which employ the language of a recital. Lewison's observation that "[i]t is of course difficult as a matter of language to construe a recital ('whereas A has agreed') as meaning 'A hereby agrees'" is also applicable if the word "provision" is substituted for "recital".
9. As noted above, the effect of the construction advocated by Mrs Degnan is as if the first sentence of clause 3 did contain the word "hereby". That word may not be strictly necessary to convey that the sentence contains a promise, but its presence would certainly make that meaning clearer. The absence of that word, or something similar, illustrates that the more natural construction of the language is that it is a recitation of background fact.
10. The question then becomes whether matters of context in the Deed militate in favour of the first sentence being construed as a "performative utterance", that is, as manifesting an agreement so as to give it legal effect rather than simply recording an historical fact. The main point invoked by Mrs Degnan in this regard is that, as the primary judge found, it is necessary to construe clause 3 as the operative clause of the Deed. It is also appropriate to consider the nature of clause 8 read with the purpose identified in item 5 of the Schedule. For the reasons below, neither of those contextual matters suggest that the text of clause 3 should be construed as containing an agreement for the sale of the front block.

Whether clause 3 is the main operative clause

1. The primary judge considered that "clause 3 evidences the operative provision of the Deed": at [73], original emphasis. This was chiefly because "[b]ut for clause 3, there is no express agreement on the part of Mr and Mrs Degnan to lend money to Mr and Mrs Fisher": at [70]. His Honour thus considered that the fourth sentence of clause 3 - referring to the Degnans having "agreed to lend the Borrower the Principal Sum pursuant to the terms of this Deed" - was the recording of an agreement and not merely a recitation of background fact. That being so, the first sentence of clause 3 could also appropriately be characterised in that way.
2. A difficulty with this reasoning, as the Fishers point out, is that it assumes that the Deed is seeking to provide for the lending of the money. Yet the $250,000 had already been provided by the Degnans to the Fishers on 2 July 2012, prior to entry into the Deed (which was executed by the Degnans on 10 July and by the Fishers on 20 July 2012). That fact is part of the surrounding circumstances to which regard may be had in construing the document. It was thus not necessary for the Deed to provide for the actual lending of the money. What the Deed obviously did seek to do, at the least, was to record that the loan had occurred and to set out the machinery terms of the loan. When read in this light there is no reason to read the fourth sentence as providing for the lending of the Principal Sum; it simply records the background to the Deed in the manner and language of a recital.
3. The premise that clause 3 needed to be understood as a, indeed the, operative clause was thus mistaken. All of clause 3 reads as if it is setting out the background against which the Deed is entered into, in the manner of a recital. There is no need to discover contractual obligations in the first and fourth sentences of clause 3. There was plenty of operative work being done by the other provisions of the Deed without having to characterise clause 3 in that way.
4. The first sentence of clause 3 does record that there has been an agreement that the Degnans were to pay the Principal Sum in order to acquire such a portion. That there had been such an agreement is arguably reinforced by the second last sentence of clause 3, which refer to the parties having agreed that all costs associated with the subdivision are to be borne equally by the parties. These points would have provided significant support to an argument that there was a prior oral agreement which was evidenced in writing by the Deed. But, as explained above, Mrs Degnan abandoned that argument below and did not seek to resurrect it on appeal. Nor did Mrs Degnan press any claim that in reliance on the first sentence of clause 3 she could set up an estoppel, or a claim that the first sentence in clause 3 could be sued on as a warranty of the existence of some agreement.

The significance of clause 8 and item 4

1. Clause 8 provides that "[t]he Borrower shall utilise the Principal Sum for the Purpose". That purpose is defined in item 4 of the Schedule as being "[t]o assist in purchasing of a property situated at [the address in Sawtell]". A similar construction issue arises here as arose for the first sentence of clause 3, namely identifying what "property" is being referred to: who is being assisted, to purchase what? However, this item is more ambiguous than the first sentence of clause 3.
2. Again, it is relevant that the Fishers had purchased the land a year before. That militates against an understanding that the purpose is to assist the Fishers purchase the whole block. That being said, it would not be an unusual use of language to say that parents are assisting their daughter and son-in-law purchase property - in the sense of helping to pay it off - by loaning funds at some low rate of interest, even if the loan is made some time after the property had been bought.
3. Even so, it is an awkward use of language to describe the payment of money in consideration for the purchase of a house as being paid "to assist in purchasing". That notion is much more simply captured by saying "to purchase". The words employed more readily describe purchase by the transferee from some third party than it does purchase by the transferor from the transferee.
4. As for clause 8 itself, that imposes an obligation on the Fishers to use the loaned money "to assist in purchasing of a property situated at … Sawtell". That is language more directed to what use they can put the loaned money to; it is not the language of sale.
5. The obligation in clause 8 and the ambiguous statement of purpose in item 4 do not weigh in favour of construing clause 3 as recording an agreement of sale, as opposed to a recital of background. If clause 8 was meant to create an obligation of sale it was a very indirect and indistinct way of seeking to do so. No doubt it was for that reason that Mrs Degnan's submissions were focused on clause 3.

The other provisions of the Deed

1. The conclusion that neither clause 3, nor the Deed generally, provides for the sale of the front lot of the Sawtell property gains significant reinforcement from consideration of the remaining provisions of the Deed.
2. Textually, there is a clear difference in the language employed in clause 3 and the rest of the Deed. In each of the clauses which follows clause 3 the main verb is "shall", which is undoubtedly the language of present obligation. The main substantive obligation then is that which appears at clause 4, being that "[t]he Borrower shall make payments of principal in accordance with the terms and conditions in Item 6", which provides for repayments by agreement or upon demand. That is consistent with the fact that the loan had already been made, and the purpose of the Deed was to provide for its repayment and other machinery so as not to leave the Degnans unprotected.
3. More generally, the Deed does not deal with the sorts of issues that one would expect it to address if it were intended to be a contract for sale. The Fishers pointed to five matters, although I note that they did not argue below or on appeal that the contract was uncertain because the land had not yet been subdivided - see judgment [86].
4. First, there is no term dealing with who was to pay stamp duty on the transfer of the front block. Mrs Degnan pointed out that ordinarily the purchaser is liable for stamp duty. That being said, the reference in the second last sentence of clause 3 to the parties having agreed that "all costs associated with the subdivision of the property are to be borne equally by the parties" arguably creates some doubt about this. At the least, no clear provision was made on the topic.
5. Secondly, there are no conditions linking the subdivision to any obligation to transfer. This is a relatively weak point, because if clause 3 was construed as providing for the sale then the obligation would be implicit in that clause.
6. Thirdly, there is no term stipulating a date on which the obligation to transfer would occur. This point is again weak, because a requirement to transfer within a reasonable time would be implicit if it was a contract of sale.
7. Fourthly, there is no term dealing with the consequences if the subdivision is not achieved. The primary judge reconciled this at [85] by saying that "characterisation of the $250,000 paid by Mr and Mrs Degnan as a 'loan' would have operative effect if and only if the parties, despite their best endeavours, could not effect a subdivision of the land". In his Honour's view, "[c]haracterisation of the $250,000 as a loan was subordinate to characterisation of it as a purchase price for that part of the land upon which the principal dwelling was located". But this is to read into the Deed words which are not there. It is one thing to find that there are implied terms of cooperation, as the primary judge did at [83]. It is another to read in a term imposing a condition on a loan for which there is no direct textual support, nor any necessity. The necessity for such a reconciliation only arises if the Deed is characterised as being both a contract for sale and a loan, that being the matter at issue. In considering whether the contract should be characterised in that way, the absence of any express resolution of how the provisions relating to the loan are to be reconciled with a sale weighs significantly against the contract being found to have such a dual character.
8. Moreover, there are difficulties in effecting a reconciliation. Clause 11 provides that the Principal Sum "shall immediately become repayable" if certain events occur, including that the Fishers breach any provision of the Deed, or any judgment is entered against either of them. This type of provision is understandable in the context of a loan, where the lender's main interest is in return of the loaned funds. But if the Deed is also a contract for sale then a key interest of the Degnans' would be obtaining the subdivided front block, even if (perhaps especially if) say a judgment had been entered against one or both of them. Whether or not such an event would bring their rights to a transfer to an end is simply not addressed.
9. Fifthly, there is no term specifying the purchase price. This point has some force, in that this issue is not addressed expressly. It links to the issue discussed above with respect to the significance of clause 8 and item 4. That being said, if clause 3 was seen as providing for sale then the purchase price would, implicitly, be the Principal Sum of $250,000.
10. These five points have variable force. Taken together they serve to illustrate that, leaving aside the first sentence of clause 3, the Deed simply does not address issues of the sale of the as-yet-undivided front block. Clauses 4-11 deal with unsurprising aspects of a loan agreement. They say nothing as to a sale. What the Deed does do is set out the sorts of terms that might be expected in a family loan, giving the lenders some degree of legal protection whilst the process of subdivision was worked through. It is a contract dealing with the mechanics of a loan. The first sentence of clause 3 provides no solid basis for also characterising the Deed as a contract for the sale of land. A reasonable person in the position of the parties who stood back and read the document as a whole would not construe it as such.

The extrinsic evidence

1. The main focus of the primary judge was on the text of the Deed. His Honour also took some account of the context in which the Deed was entered, in a way which is consistent with authority. However, more controversially, his Honour did also find some confirmatory support for the construction he adopted in two letters sent by the solicitor, Mr Oliver, to the Degnans and the Fishers. His Honour erred in doing so.
2. Mr Oliver was jointly retained by the Degnans and the Fishers. His first conference was with Mr Degnan and Mrs Fisher on 1 June 2012. On 5 June 2012 he sent them a letter which stated the following, amongst other things: "Firstly, we note that John [Degnan] is keen to acquire freehold the front older residence for a figure of approximately $250,000 to $260,000. … We are aware that John will be in a position to advance some funds to reduce [Mr and Mrs Fisher's] indebtedness to the St George Bank. We advise that this is capable of being done by way of a loan agreement, which could be secured by way of a caveat or a second mortgage over the property, pending subdivision. Clearly the terms and conditions of the loan, the duration of sale, and other particulars that would need to be put into the loan agreement can be obtained from you later, however the initial step should be confirming with a surveyor that it is capable of being subdivided, which we are sure that it can. Once that assurance has been received, we can then proceed to having an agreement put in place between John, Karen and George which will basically be to the effect that for John paying the agreed amount of money, he will receive, following subdivision, all right, title and interest in the front home. … What we can say, however, is that if John is in a position to advance the money from his inheritance in the next week or so, then we can certainly prepare the loan agreement to provide protection to John, and that loan agreement would regulate the conduct of the parties leading up to subdivision and transfer of the front home to John. … We would also at that time need to prepare the loan agreement between John, George and Karen, and for that we would need to know what the purchase price is for the front property, noting that stamp duty will need to be paid on it in due course, who will fund or whether it will be split 50/50 in regard to the subdivision costs, and what, if any security John will require pending the subdivision (a caveat, second mortgage?)."
3. The primary judge noted that the Fishers had not protested, after receiving the letter, that a sale was not part of the agreement. But these statements in the letter cut a bit each way. On the one hand the references to creating a loan and the need for an assurance that the property could be subdivided might suggest that a two step legal process was envisaged: first a loan, then later some provision for a sale. On the other, it is clear that a sale of the subdivided portion is part of the proposal being discussed. The letter is equivocal as to whether the whole agreement was to be captured in one document. That that is so was illustrated in cross-examination of Mr Oliver about the letter: "Q. You're then communicating to the clients that once the subdivision can proceed, we can then proceed to having an agreement put in place, which will basically be to the effect that for John paying an agreed amount of money, he will receive all right, title and interest. That would be the contract of sale that you were arranging? A. Yes, that's correct. Yes, once I've got the information, I could do that. Yes. Q. But that would be a contract for sale wouldn't it? A. That would be a contract for transfer, in my view, because - because the way we do it in the legal profession is because - we don't have a contract, as such. We just have a transfer - a transfer for consideration, of course. It saves a bit of work and energy, and I was assuming that the parties were working jointly towards a subdivision, but they never came back. Q. What do you mean they never came back? A. Well, after the account was paid, I never heard further from any of them. Q. I see. Thank you. Can I just suggest to you that you're talking in that agreement about - in the letter, about two agreements; one for the loan, and as you say, the transfer agreement. Two separate agreements; correct? A. Yeah, that's correct. Once I got the surveyor's advice that it was capable of being subdivided, and he would have done a draft survey, and given some indication of what it would have looked like, then at that stage, I would have - he has created a second document, because there were still issues outstanding."
4. If anything, this cross-examination suggests that Mr Oliver thought there would be a two step process. The letter was also sent over a month before the Deed was drafted. Much could have changed in the meantime. Indeed, Mr Oliver's file note of his phone conversation with Mr Degnan on 2 July 2012 stated that Mr Degnan had indicated "[t]here is some new agreement now in regard to interest and the like". This letter had little if any probative value in construing the Deed.
5. The second letter was sent by Mr Oliver to the parties on 26 July 2012, six days after the Fishers had executed it. The letter discussed the way ahead in dealing with various issues. Most notably it stated as follows: "We note that John and Judith have extended the sum of $250,000 to George and Karen, which in effect is for the purchase of the home sitting at the front of the property. Clearly this needed to be evidenced in writing to protect both parties, and the easiest and simplest way to do it was by way of a capital Deed of Loan."
6. The primary judge suggested at [100] that it was permissible to take account of this evidence, even though it post-dated the Deed, because "the letter is so closely associated with execution of the Deed as to be fairly characterised as contemporaneous with it". Even leaving aside the fact that the letter is post-contractual, the letter has no real probative value. The portion quoted may tend to support the Degnans, although it is still rather equivocal ("which in effect is for the purchase of the home"). The difficulty is that it is simply Mr Oliver's characterisation of what was agreed. His subjective view of things is no more probative than the subjective views of the parties would be.
7. The two letters were thus irrelevant.

Conclusion

1. It appears from clause 3 of the Deed that the parties did agree that the Degnans would purchase the front block from the Fishers. It may be that the Fishers have resiled from that agreement. But the only issue ultimately presented for determination in the Court below and on appeal is whether the Deed provides for such a sale. To characterise the Deed in that way is not supported by the terms of the document.
2. The orders of the Court should be as follows: 1. The appeal is allowed, with costs. 2. The orders made by the Supreme Court on 3 November 2021 are set aside and, in lieu thereof, the proceedings are dismissed with costs.
3. BASTEN AJA: This appeal concerns the characterisation of a payment of $250,000 made by an elderly couple to their adult daughter and her husband. Shortly after the payment was made the agreement between the family members was documented as a Deed of Loan. The purpose of the payment was identified as "[t]o assist in purchasing of a property" where both couples lived.
4. In proceedings in the Equity Division brought by the mother, Judith Anne Degnan (her husband John Alan Degnan having died in April 2015), Lindsay J held that the amount constituted payment for one lot in a proposed subdivision of the property and that Mrs Degnan was entitled to equitable compensation for her share of the property which had been sold by the younger couple, Karen Anne Fisher and George John Fisher. [1] The amount of $250,000 having been repaid, the order in favour of the respondent was a judgment in the sum of $264,748.07, being the balance of the proceeds of sale of the subdivided land. The Fishers appealed.
5. The appellants' submissions distinguished between evidence with respect to (i) objective circumstances known to both parties, (ii) expressions of subjective intention, and (iii) post-contractual correspondence. It is convenient to set out the uncontroversial factual background before turning to the issues in dispute.

Factual background

1. The Deed was executed on 20 July 2012. Many of the important events to which it related occurred before that date.
2. It is convenient to identify first the circumstances of the parties. In 2011, the Degnans enjoyed a good relationship with their daughter and her husband. Both couples were looking to purchase a property which they could jointly occupy. The Fishers identified a property known as Lot 27, Sixteenth Avenue, Sawtell, with a rundown house and space at the rear of the property to permit the construction of a new dwelling. The Fishers were living in a home which they owned. The Degnans did not then have the funds to purchase a share of the property, having lost their home which had been provided as security for a business which failed. However, John Degnan anticipated receiving an amount of $250,000 from the estate of his brother of which he was the sole beneficiary.
3. A contract for the purpose of purchasing Lot 27 for $390,000 was signed by the Fishers in May 2011, with settlement on 2 August 2011. The solicitor acting for the Fishers on the purchase was Kinloch Oliver of Robson & Oliver, solicitors in Sawtell. The property was purchased in the names of the Fishers, who were in the process of selling their existing home.
4. Upon settlement of the purchase of Lot 27, the Degnans moved into the existing house and commenced paying rent to the Fishers in an amount of $325 per week (which was apparently fixed on as the rent paid by the previous tenants to the previous owners). On 2 July 2012, Mr Degnan transferred to the Fishers the amount of $250,000 received from his brother's estate. The Degnans then ceased paying rent to the Fishers.
5. According to the evidence of Ms Fisher, construction of a dwelling at the rear of Lot 27 commenced in or about August 2011. [2] The cost of construction was $193,530 and the Fishers borrowed to cover the costs. The Fisher family moved to the new dwelling in early July 2012. At about the same time, the Fishers' previous home sold for $400,000, with settlement taking place on 12 July 2012. As noted above, the Deed of Loan relating to the $250,000 was signed on 20 July 2012, more than two weeks after the payment had been made.
6. Mr Degnan died on 28 April 2015. Although arrangements were then underway to subdivide the property, the subdivision was not completed until 29 January 2019, when the front lot (with the house occupied by Mrs Degnan) became Lot 270 and the rear lot (with the Fishers' new dwelling) became Lot 271. Both lots remained in the names of Karen and George Fisher.
7. By the time of completion of the subdivision, the Fishers had made plans to move again. In October 2018, they had entered into a contract to purchase a property at Toormina which settled on 12 February 2019.
8. On 31 January 2019, they entered into a contract for the sale of Lot 270 for $485,000. On 15 November 2019, they entered into a contract for the sale of Lot 271 for $645,000. By that time relations had deteriorated between Mrs Degnan and the Fishers, who paid Mrs Degnan neither the proceeds of the sale of Lot 270 nor, until 29 January 2020, the amount of $250,000. In the meantime, on 17 December 2019, Mrs Degnan commenced proceedings claiming equitable compensation for Lot 270.

Issues on appeal

1. The notice of appeal identified four grounds which were crisply stated as follows: "1 The primary judge erred in construing the Deed as comprising an agreement for the sale of the Property and not as a loan. 2 The primary judge erred in law in construing the Deed by reference to correspondence that post-dated the Deed. 3 The primary judge erred in law by treating Clause 3 of the Deed as an operative provision. 4 The primary judge erred in fact and law by failing to have regard to relevant contextual evidence."
2. The focus of the submissions was the language of the Deed, to which it is convenient to turn.

Deed of loan

1. The Deed was a five-page document, prepared by Robson & Oliver. Many of the clauses were in standard form and are of no present relevance. There are two matters of nomenclature to be noted. First, it was described as a Deed of "Loan"; secondly, it used the term "Borrower" to refer to the Fishers. Item 3 in the schedule to the Deed identified the "Principal Sum" as $250,000. Item 4 in the schedule identified its "purpose" which, as noted above, was "to assist in purchasing of a property" with the address in Sawtell. The interest rate was identified as "Nil". Curiously for a loan agreement, repayments were identified in item 6 of the schedule as "[b]y agreement between the parties and failing agreement then upon demand". Item 7 in the schedule conferred on the Degnans a right to lodge a caveat on the property "if and when required".
2. The principal operative clause required that the Fishers "make payments of principal in accordance with the terms and conditions of item 6". Other than these provisions, the clause to which most attention was paid in submissions and in the court below was clause 3 which was titled "Recitals". It read as follows: "Degnan has agreed to pay the Principal Sum to the Borrower for purchase of a property situated at … Sixteenth Avenue Sawtell NSW 2452. That property is one of two situated at that address, being a dual occupancy. The Borrower is in the process of a subdivision of the property by way of Torrens Title subdivision so that separate titles will issue for the two properties. At the request of the Borrower, Degnan has agreed to lend the Borrower the Principal Sum pursuant to the terms of this Deed. Degnan and the Borrower have further agreed that all costs associated with the subdivision of the property are to be borne equally by the parties. Degnan and the Borrower have further agreed that Degnan will cease making rental payments (currently $325.00 per week) following payment of the Principal Sum."
3. One issue between the parties was whether clause 3 was properly to be understood as a recital or as stating in part the obligations under the Deed.

Rewriting the Deed

1. The gravamen of the appellants' case was that the terms of the Deed were clear and unambiguous and that the trial judge had, in contravention of basic principles of construction, effected a rewriting of the document, giving it an operation which was inconsistent with its ordinary meaning. In part, the appellants' case turned upon what was perceived as an attempt by the trial judge to give effect to the submissions on behalf of Mrs Degnan, which required the Fishers merely to repay the principal sum. The appellants submitted that the judge used clause 3 as if it included an agreement to make a loan, from which the obligation of repayment derived. In another part, it was said that the judge read clause 3 as if it constituted a sale of land.
2. Whether or not those submissions accurately reflected the reasoning of the trial judge, and there were passages which supported those conclusions, they were unnecessary. They would also have suggested that the Deed was a complete statement of the arrangements between the parties, which it patently was not. The judge's orders can be supported on a more limited basis.
3. The Deed contained no provision for payment of any amount of money by way of loan or otherwise; rather, it provided for "repayment" of an amount which it assumed had already been paid. Indeed, it made a very limited provision for repayment, including an expectation of some future agreement as to the terms of repayment, together with a default position that, if there were no such agreement, repayment would be on demand.
4. The appellants' insistence on a finding that the Deed constituted a sale of land was the premise for its complaint (not articulated in the grounds of appeal) that there were fundamental terms missing from such an agreement. These were (i) liability for stamp duty, (ii) a condition linking the subdivision with an obligation to transfer, (iii) a date on which the obligation to transfer would arise, (iv) a term dealing with the consequences of there being no subdivision, and (v) the purchase price.
5. None of these complaints is persuasive. As to (i), stamp duty is generally paid by a purchaser. As to (ii), there was no suggestion that there would be a transfer of anything other than a lot created by subdivision. As to (iii), the obligation to transfer was immediate, but contingent. As to (iv), the consequence of a failure to subdivide was the protection provided to the Degnans by the Deed, namely that they could recover the money paid. As to (v), if there were no agreement as to price, there was no agreement as to the principal sum. Yet, that sum was identified in the schedule to the Deed. The missing element was that it had not been identified as the purchase price. However, that it was the purchase price turned on the available contextual evidence as to the objective circumstances which predated the creation of the Deed and the appropriate construction of clause 3 in the context of the Deed.
6. What these "missing terms" demonstrated was, not merely that the Deed was not in itself a contract for the sale of land, but that it was not able to be properly construed without reference to the steps which had been agreed between the parties from before the time the property was purchased, through to the payment of money by Mr Degnan and the circumstances of the execution of the Deed. These were not negotiations, but steps taken in the amicable working through of the family's living arrangements.

Giving effect to clause 3

1. Although not in terms identified in the recitals, the fact that the amount of $250,000 had already been paid by Mr Degnan to the Fishers was well known to the parties. It may have been implicit in the final sentence in clause 3. In effect, the terms upon which the $250,000 was paid were the subject of a pre-existing agreement, predating the execution of the Deed. The terms of that agreement may be derived from clause 3. That was the approach taken by the trial judge.
2. The ordinary meaning of the first sentence of clause 3, subject to a possible ambiguity, was that the Degnans were making a payment to the Fishers, who were then the owners of Lot 27, for the Degnans to purchase "a property" situated at that address. The alternative reading is that the Degnans were making the payment for the Fishers to purchase the property. However, not only is the alternative reading not the preferable understanding of the first sentence, but it is contradicted by the second sentence. The phrase "a property" in the first sentence is the subject of identification by reference to "[t]hat property" in the second sentence. That property is not Lot 27 as a whole (which the Fishers had purchased in their names), but "one of two situated at that address" which was further identified as "a dual occupancy".
3. That reading is further consistent with the third sentence which states that the Borrower (being the registered owners) were in the process of carrying out a subdivision as a result of which "separate titles will issue for the two properties", namely those presently constituting the dual occupancy. On that understanding, the payment was a prepayment of the purchase price for one lot in the proposed subdivision, which had not taken place at that time.
4. This conclusion was expressed by the trial judge in the following passage: "85 On my reading of the Deed as a whole, characterisation of the $250,000 paid by Mr and Mrs Degnan as a 'loan' would have operative effect if and only if the parties, despite their best endeavours, could not effect a subdivision of the land. In that circumstance, the Deed contemplated that the $250,000 would be repaid '[by] agreement between the parties and failing agreement then upon demand'. Characterisation of the $250,000 as a loan was subordinate to characterisation of it as a purchase price for that part of the land upon which the principal dwelling was located."
5. The appellants' submissions as to the proper construction of the Deed, namely that there had been a loan repayable on demand at any time and without further consideration of the circumstances surrounding the execution of the Deed, failed to explain the apparent intention of the parties that there be a subdivision of the land to create two separate titles. That intention appears not only from the first paragraph in clause 3, but also from the second which states that the parties have further agreed to share the costs of the subdivision. On the appellants' case, that was an irrelevant circumstance; on Mrs Degnan's case, it reflected the fact that she and her husband were purchasing one of the two lots to be created by the subdivision. There was no suggestion that any further payment would be required for the transfer of the property being purchased by them. Nor was there doubt as to which property was intended, it being the property they occupied, with whatever curtilage was identified as part of the subdivision.
6. Mrs Degnan's reading is also consistent with the third paragraph of the recital, namely that she and her husband were to cease making rental payments following payment of the principal sum. Where a purchaser enters into property prior to settlement, it is a normal condition of an agreement that the purchaser pay rent until the purchase price is paid. The appellants' argument failed to acknowledge the significance of the third paragraph of clause 3. On Mrs Degnan's case, she and her husband had been obliged to pay rent whilst occupying the property, an obligation which ceased upon payment of the price for that part of the property which was to be theirs when subdivision occurred.
7. On that reading of the document, an intrafamily transaction, which had already been largely completed, except for a subdivision, was documented by clause 3 of a Deed which otherwise provided for a contingency, namely that the proposed subdivision recorded in clause 3 would not occur. The subdivision did occur, but title to Lot 270 was not transferred to Mrs Degnan, the land being sold by the Fishers to a third party without accounting to its equitable owner for the proceeds of sale. The judge correctly held that the Fishers were obliged to provide compensation to Mrs Degnan for her equitable entitlement to Lot 270.
8. Ground 3 of the notice of appeal complained that the primary judge had wrongly treated clause 3 of the Deed as an "operative provision". Although the judge so described it, it is not clear precisely what this characterisation conveyed. On one reading, what the judge did was to rely on clause 3 to imply a limitation on the Fishers' obligation to repay the principal sum so that it would be subsumed in the entitlement of the Degnans to a transfer of title to the new front lot once the subdivision was registered. That an appropriate implication may be derived from recitals is consistent with the principle stated by Mason J in Ansett Transport Industries (Operations) Pty Ltd v Commonwealth of Australia. [3] The trial judge did not err in adopting this approach to the recitals in clause 3.

Reliance on extraneous material

1. On 5 June 2012, Mr Oliver, the solicitor who had acted for the Fishers on the purchase of the property, wrote to the Fishers and Mr Degnan following a conference with Ms Fisher and Mr Degnan, in a letter headed: "Subdivision and sale to John Property: … Sixteenth Avenue, Sawtell."
2. The letter commenced: "We refer to the above and in particular to the writer's conference with Karen and John, and advise as follows. Firstly, we note that John is keen to acquire freehold the front older residence for a figure of approximately $250,000 to $260,000. We note that at the moment, the new home that is being constructed is only a few weeks away from completion, and that it has been undertaken as a dual occupancy. This therefore means that there is only one title deed."
3. The solicitor then advised that a Torrens title subdivision would be appropriate. He noted that "John will be in a position to advance some funds to reduce George and Karen's indebtedness to the St George Bank" and continued: "We advise that this is capable of being done by way of a loan agreement, which could be secured by way of a caveat or a second mortgage over the property, pending subdivision. Clearly the terms and conditions of the loan, the duration of same, and other particulars that would need to be put into the loan agreement can be obtained from you later, however the initial step should be confirming with a surveyor that it is capable of being subdivided, which we are sure that it can. Once that assurance has been received, we can then proceed to having an agreement put in place between John, Karen and George which will basically be to the effect that for John paying an agreed amount of money, he will receive, following subdivision, all right, title and interest in the front home. … What we can say however is that if John is in a position to advance the monies from his inheritance in the next week or so, then we can certainly prepare the loan agreement to provide protection to John, and that loan agreement would regulate the conduct of the parties leading up to subdivision and transfer of the front home to John." (Emphasis added.)
4. Referring to Codelfa Construction Pty Ltd v State Rail Authority of New South Wales, [4] the trial judge noted that the Deed could be construed "in the light of the parties' common knowledge of circumstances surrounding execution of the Deed dated 20 July 2012, but the court cannot substitute for the terms of the Deed some different form of agreement based upon acceptance, or otherwise, of their conflicting evidence about conversations in negotiations". [5] The judge rejected reliance upon the testimony of the parties, but referred to the solicitor's letter of 5 June 2012. He stated: "93 To the extent it may be permissible to have regard to correspondence of Mr Oliver written shortly before execution of the Deed, that correspondence supports a finding that the parties' agreement was one for the purchase of land by Mr and Mrs Degnan, not merely an agreement for a loan. This evidence goes to the existence of an agreement for the Degnans to purchase an interest in the land, not particular terms of the agreement. 94 The construction of the Deed dated 20 July 2012 I favour is consistent with a letter dated 5 June 2012 addressed by Mr Oliver to Mr and Mrs Fisher (then living away from the land) and Mr Degnan (then living on the land) following a conference he had with Mrs Fisher and Mr Degnan on 1 June 2020."
5. The judge noted Ms Fisher's evidence that she had received and read the letter, and Mr Fisher's acceptance that he may have received it and read it. [6] The judge continued: "97 Neither of them protested to Mr Oliver that there was no agreement for the Degnans to purchase the principal dwelling or for title to be transferred to the Degnans upon a subdivision of the land. …"
6. There was no error in the judge having regard to that material, which was consistent with the pre-existing arrangements which had been recorded in clause 3 of the Deed.

Subsequent correspondence with solicitor

1. Campbell JA accepted in Lym International Pty Ltd v Marcolongo [7] that, at least where a contract is not wholly in writing, "an admission of one of the parties could assist in ascertaining what they have agreed". The statement by the solicitor that there was an agreement for the transfer of the front property to Mr Degnan, not disputed by the Fishers, could be relied upon as an admission by them as to their ongoing obligation to make such a transfer upon the completion of the subdivision, a matter referred to in clause 3, but without the detail of the agreement being identified.
2. In a letter of 26 July 2012, that was written one week after the execution of the Deed, Mr Oliver stated: "We note that John and Judith have extended the sum of $250,000 to George and Karen, which in effect is for the purchase of the home sitting at the front of the property. Clearly this needed to be evidenced in writing to protect both parties, and the easiest and simplest way to do it was by way of a Deed of Loan." There was also reference to arrangements being made with surveyors for the subdivision to proceed.
3. The letter of 26 July was accompanied by a fee memorandum addressed to both parties, which included references to the conference on 1 June 2012 with Ms Fisher and Mr Degnan, enquiries of the surveyor, the letter to the parties of 5 June 2012 and 12 July 2012 to the Degnans together with attendance on the Fishers having the Deed of Loan explained, approved and executed. This was retrospectant evidence of pre-contractual events having contextual relevance when read with the pre-contractual correspondence and clause 3.
4. The trial judge made the following use of this material: "99 On 26 July 2012, in a letter reporting to all parties the fact that their Deed dated 20 July 2012 had been executed by all parties, Mr Oliver canvassed circumstances surrounding the Deed at the time of its execution, identifying the Degnans' payment of $250,000 to the Fishers as being, in effect, for the purchase of the primary dwelling on the land. 100 Although it post-dates the date of the Deed, the letter is so closely associated with execution of the Deed as to be fairly characterised as contemporaneous with it. 101 Its utility in identifying the subject matter of the Deed derives not so much from its content as from the absence of any dissent by its recipients."
5. Having set out the terms of the letter of 26 July, the judge continued: "103 No party protested, upon receipt of this letter, that the Deed did not operate as, or evidence, an agreement for Mr and Mrs Degnan to purchase the principal dwelling on the land for $250,000, with title to that part of the land to be transferred to them on subdivision of the land into two Lots."
6. In my view, this reasoning was permissible; I would reject ground 2. Even if this use of post-contractual correspondence were not permissible and were disregarded, the conclusions reached without it would remain.

Reasoning precluded by course of trial?

1. There was an issue agitated in the course of the appeal as to whether treating the Deed as a note or memorandum of a prior agreement was inconsistent with the way the matter proceeded at trial. In my view, it was not.
2. First, it was clearly pleaded in the statement of claim at pars 6-8, set out at [17] above. Secondly, the claim was presented in this way in the plaintiff's outline of submissions at trial, at pars 5 and 9. Thirdly, the existence of a prior agreement for purchase was supported by the evidence of the Degnans' solicitor, Mr Oliver, given in the course of cross-examination. [8] Fourthly, the pleading and the material referred to above were relied upon in written closing submissions of the plaintiff at, for example, pars 5 and 28.
3. The judgment below noted that the plaintiff sued upon an agreement alleged to have been made by the two families in or about mid-2011 and documented in a Deed dated 20 July 2012. [9] Although the judge considered that the "focus" of the proceeding was on the Deed, that was not necessarily inconsistent with the plaintiff asserting that the recital in cl 3 recorded a prior agreement. [10]
4. In the course of submissions for Mrs Degnan in this Court, counsel noted that Mr Oliver had attempted "to embody what was clearly an agreement between the parties for the transfer of the subdivided property for the sum of $250,000", but did not do so with "clear expression". [11] He continued, again referring to Mr Oliver's evidence, that there was a deed which he had called "the Loan Agreement, and secondly, there was the transfer, and the transfer gives effect to the agreement which is recorded in the Loan Agreement."
5. It is tolerably clear from these materials that, neither at trial nor in this Court, did Mrs Degnan abandon her claim that there was a prior agreement, contingent upon approval of a subdivision, for the transfer to her and her husband of the front portion of the land. This agreement was recorded in cl 3 of the Deed; the case, whether sound or otherwise, was not abandoned.

Conclusions

1. As to ground 1, the trial judge did not construe the Deed as comprising an agreement for the sale of the property and not as a loan. Rather, he implied a limitation on the operation of the Deed to circumstances where a subdivision did not eventuate.
2. As to ground 2, while it may be doubted that the correspondence after the execution of the Deed took the matter very much further, there was no error in the manner in which the judge relied upon that material. If, contrary to that view, the judge erred in that respect, the error was not material.
3. As to ground 3, accepting that there is a generic distinction between recitals and operative provisions, it may be doubted that reliance on the recitals to imply a limitation on the obligation of repayment is to construe the recitals as operative provisions, although the judge used that language.
4. As to ground 4, the judge did not fail to have regard to relevant contextual evidence. The focus of the appellants' submissions was material (such as the post-contractual correspondence) to which they said reference was impermissible. That was the subject of ground 2.
5. The proper construction of the Deed, discussed above, supported the conclusions reached by the trial judge and the orders made.
6. The appeal should be dismissed with costs.

Endnotes

1. Degnan v Fisher [2021] NSWSC 1334 ("Degnan").
2. Affidavit of Karen Anne Fisher, 5 June 2020, par 45.
3. (1977) 139 CLR 54 at 72; [1977] HCA 71; see further Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603; [2009] NSWCA 407 at [29] (Allsop P), [379]-[381], [389]-[390] (Campbell JA, Giles JA agreeing); Schwartz v Hadid [2013] NSWCA 89 at [80]-[86] (Meagher JA, with my agreement at [3]).
4. (1982) 149 CLR 337 at 347-353; [1982] HCA 24.
5. Degnan at [89].
6. Degnan at [96].
7. [2011] NSWCA 303; 15 BPR 29,465 at [143] (Campbell JA; Sackar J and I agreeing).
8. Trial Tcpt, 26/03/21, p 86(5), (30) and (35)-(45).
9. Judgment at [1].
10. Judgment at [54].
11. Tcpt, 18/05/22, p 16(42). 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: 11 October 2022