J Cummins Pty Ltd v F & D Bonaccorso Pty Ltd [2014] NSWSC 1064 | Case summary

Determination 97The applicable principles concerning rectification of instruments have been comprehensively considered in recent times by the Court of Appeal, notably in Ryledar Pty Ltd & Anor v Euphoric Pty Ltd [2007] NSWCA 65; (2007) 69 NSWLR 603 at [122]-[143] and [259]-[316] and Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; (2009) 76 NSWLR 603 at [444]-[461]. I was referred by Mr Parsons to a more recent discussion and application of the principles by Sackar J in W & K Holdings (NSW) Pty Ltd v Laureen Margaret Mayo [2013] NSWSC 1063. 98In accordance with those principles, it is necessary for the plaintiff, in order to make out its case for rectification, to establish that the Second Option fails, on its true construction, to give effect to a common intention held by the parties at the time the Second Option was entered into. It is also necessary for the common intention to be established by clear and convincing proof (see Franklins Pty Ltd v Metcash Trading Ltd (supra) at [451]-[461] per Campbell JA; Lewis v Condon; Condon v Lewis [2013] NSWCA 204 at [62] per Leeming JA). 99The alleged common intention is to the effect that, upon the exercise of either the put option or the call option, the plaintiff as purchaser would be treated as having already paid the defendant as vendor a deposit of $1.4 million towards the purchase price of $5.7 million. Both parties apparently accepted that proof of such common intention was dependent upon, at least, an acceptance of Mr Hawkins' evidence that, in the meetings held in the period from about late May to early August 2010, the parties reached and maintained a consensus to that effect. 100For the reasons which follow, I do not accept the central thrust of Mr Hawkins' evidence, namely, that it was agreed that the plaintiff would be treated as having already paid a deposit of $1.4 million towards a stated purchase price of $5.7 million. Neither do I accept Mr Hawkins' evidence to the effect that it was agreed that the property would be sold with the defendant receiving the first $4.3 million of the proceeds, the plaintiff receiving the next $1.4 million, and the parties sharing equally any proceeds above $5.7 million. In these circumstances, the essential foundation of both the rectification case and the alternative case falls away, with the consequence that the plaintiff's claims must be dismissed. 101Mr Hawkins' affidavit contains a detailed account of the various discussions he had with members of the Bonaccorso family, and he gave his evidence in a generally confident manner. However, it was apparent on some occasions during his cross-examination that he did not possess any real recollection of the discussions. More importantly, certain aspects of his testimony gave rise to significant concerns about the accuracy and reliability of his account, in particular on the central matter of the agreed price and deposit for the Second Option. 102Mr Hawkins was heavily taxed in cross-examination about the apparent lack of documentary support for the existence of the agreement he claimed. At one stage, Mr Hawkins referred to the existence of some correspondence between MCW Lawyers and Mr Buda which was sent prior to the execution of the Second Option, that dealt with an increase in price from $4.3 million to $5.7 million and allowed for a $1.4 million deposit. Mr Hawkins was unable to point to or produce any document of that character which supported his account, despite being given every opportunity to do so. 103In fact, the communications passing between MCW Lawyers and Mr Buda in the period from 1 July 2010 to 10 August 2010 provide no support whatsoever for Mr Hawkins' account. Those communications included negotiations about the definition of "Price" in the draft agreement. If either party had thought that it had been agreed that a $1.4 million credit was to be given to the plaintiff, it would be expected that this would have been conveyed to the party's solicitor who would then have taken it up in the negotiations about the definition of "Price". 104Mr Hawkins further claimed in cross-examination that after the draft agreements had been provided in July 2010, he had spoken to MCW Lawyers and told them he was concerned that the $1.4 million credit had not been adequately documented, and MCW Lawyers had responded to him after they had taken the matter up with Mr Buda. When Mr Hawkins was asked to accept that his expression of concern was nowhere recorded, Mr Hawkins suggested that he had seen a document, probably an MCW Lawyers diary note, in which MCW Lawyers stated that Mr Buda's document "doesn't reflect the deposit". It is clear that MCW Lawyers produced documents for the purposes of this case, yet Mr Hawkins was unable to point to the document he claims to have seen. In these circumstances, I cannot accept that Mr Hawkins spoke to MCW Lawyers as he claimed, and I conclude that his recollection of the MCW Lawyers note was made up in the witness box to advance the plaintiff's case. 105At another point in his cross-examination, Mr Hawkins said that he recalled using some notes of the June 2010 meetings when he prepared his affidavit. Again, no such notes were produced. If any such notes existed and provided support to Mr Hawkins' account of the meetings, they would surely have been exhibited to the affidavit, or at least safely retained. I am unable to accept that any such notes were used by Mr Hawkins as claimed. 106I found numerous other aspects of Mr Hawkins' evidence to be less than satisfactory. It is not necessary to list them all. His evidence that Mr Buda dated the contract for sale on 29 October 2010 when the plaintiff was attempting to exercise the call option is one example. Mr Hawkins' evidence that he brought twelve contracts with him to Mr Buda's office on that occasion is another. His evidence as to what he told members of the Bonaccorso family about having obtained an option over a nearby property (in Leicester Street) was inconsistent and unimpressive. Mr Hawkins was clearly incorrect in his recollection of when he attended a fundraising event that was also attended by Frank, Garry and Paul Bonaccorso. I also find that he was incorrect in saying that a meeting with accountants at Parramatta took place in September 2010, rather than June 2010. 107Overall, I consider Mr Hawkins' evidence to be inaccurate and unreliable in important respects, and that, accordingly, a circumspect approach to his testimony is called for. I would be reluctant to accept his evidence on any matter of importance, unless it was independently corroborated by reliable evidence. 108I also have concerns, to a lesser degree, about the reliability of the evidence given by Frank Bonaccorso, Garry Bonaccorso and Paul Bonaccorso. Some of the criticisms made by Mr Gray in his closing submissions seem to me to have force. In particular, I agree that Frank Bonaccorso appeared to have little recollection of the events of 2010, and the weight that can be attached to his affidavit evidence is accordingly reduced. I also agree that the accounts given by Garry and Paul Bonaccorso have to be viewed in the light of the fact that the issues have likely been the subject of considerable discussion within the family over the past few years, and there is thus a significant risk that their accounts include reconstructions rather than true recollections. The evidence given by Garry and Paul Bonaccorso to the effect that the family was not concerned about the possibility of the Council resuming the property may well fall into that category. I am not able to accept that evidence in the light of Ms Mathieson's file note which records Mr Buda telling her that the possible resumption of the land was a reason for the defendant to want to finalise the Second Option as soon as possible. 109Despite those concerns, and for reasons which are set out further below, I am at least prepared to accept these witnesses' denials of Mr Hawkins' evidence to the effect that it was agreed that the plaintiff would be treated as having already paid a $1.4 million deposit, and that the plaintiff would receive, after the first $4.3 million, the next $1.4 million out of the proceeds of a sale. 110I do not have such concerns in relation to the evidence of Mr Buda. He gave his evidence in a careful and cautious manner and seemed to be trying to accurately answer the questions put to him, albeit that his recollection of events was not particularly good, and he did not have the benefit of any file notes made by him. Mr Gray did not, in his closing submissions, direct any particular criticism towards Mr Buda's evidence, and indeed very little of his affidavit evidence was challenged in cross-examination. I generally accept Mr Buda's evidence, and where it is in conflict with the evidence of Mr Hawkins (including in relation to the events of 29 October 2010), I prefer Mr Buda's evidence. 111Mr Buda denied that in late June or early July 2010 Mr Hawkins told him about the new deal being "at $5.7 million with $1.4 million already allowed as my deposit", and that Frank Bonaccorso "gets an increase to $4.3 million and that's all he gets until I have been repaid my deposit of $1.4 million and that is the deposit I am credited with now ...". Further, Mr Buda recalls receiving instructions from Frank Bonaccorso and Garry Bonaccorso to the effect that he was to draft a new option agreement involving a purchase price of $5.7 million and a deposit of $1.4 million, and an agreement that if the property was sold in the meantime for more than $5.7 million, the amount above $5.7 million was to be shared equally. 112The documents Mr Buda prepared in early July 2010 were consistent with such instructions having been given. 113I have already mentioned that I do not accept the evidence given by Mr Hawkins during his cross-examination that after receiving those documents he spoke to MCW Lawyers to express a concern about the $1.4 million credit not being adequately documented, and that the issue was taken up with Mr Buda. That evidence was not contained in Mr Hawkins' affidavit and none of it was put to Mr Buda. I also do not accept the evidence given by Mr Hawkins during his cross-examination that after receiving the documents he himself raised the issue with Mr Buda. This evidence was also absent from his affidavit and was not put to Mr Buda. 114The evidence establishes that Mr Buda sent drafts of the new agreements to MCW Lawyers on 7 July 2010. The documents, in the forms in which they had been submitted, were executed by the plaintiff and returned by MCW Lawyers to Mr Buda on 12 July 2010. The MCW Lawyers covering letter made no mention of any issue about the drafts. Rather, receipt of executed counterparts was awaited. As mentioned earlier, there were subsequent communications between MCW Lawyers and Mr Buda concerning amendments to the definition of "Price" in the draft agreement. There is no mention in those communications (or in any of the MCW Lawyers file notes) of any agreement to the effect that part of the Price, namely the deposit, was to be treated as credited or already paid by the plaintiff. 115On 6 August 2010, once the amendments were agreed, the defendant executed the agreements (as amended) and they were sent to MCW Lawyers on 10 August 2010. 116The evidence of Mr Buda, and the documentary evidence of the communications between the lawyers in July and early August 2010, provides cogent support for the view that no agreements as asserted by Mr Hawkins were made by the parties in their meetings in about late June to early July 2010. That evidence is also consistent with the evidence given on behalf of the defendant to the effect that the new agreement entailed a price of $5.7 million, a deposit of $1.4 million, and in the event of a sale for greater than $5.7 million, a sharing of the proceeds above that amount. In these circumstances, I am prepared to accept the evidence given by each of Frank, Garry and Paul Bonaccorso that such an agreement was reached in the meetings with Mr Hawkins in late June and early July 2010. 117I am not persuaded that the making of such an agreement should be seen as commercially irrational or inherently unlikely. By June 2010, the units in the property remained in an unrenovated state. Mr Hawkins accepted that he did not, at that stage, have a buyer for the whole of the property. There was evidence that the prospect of a new Development Control Plan coming into effect in the near future had given rise to interest in the property at levels in the range of $6.5 million to $8 million. Moreover, as Mr Gray accepted, there was no evidence one way or the other as to whether the plaintiff was in fact in a position to exercise the First Option which was about to expire. 118By entering into the Second Option, the plaintiff obtained the opportunity to acquire the property later in the year at a price which might well be lower than its then market value. The plaintiff also obtained the benefit of the new clause 11.4(c). It is true that a deposit of $1.4 million (almost 25%) is higher than is usual, but agreeing to such a deposit does not strike me as irrational in the circumstances. It is not evidently less rational than agreeing to give the plaintiff a credit of $1.4 million. 119I also do not think that the terms of clause 11 of the Second Option provide significant support for the existence of an agreement as asserted by Mr Hawkins. The clause first appeared in the First Option. It provided the plaintiff with an alternative means of exercise of the call option. (The reference in the Schedule 3 Nomination Notice to Put Option is clearly an error). Under the clause, one or more individual lots may be sold directly to a third party, with the proceeds of sale being dealt with in accordance with clauses 11.2 to 11.4. 120Some amendments were made to clause 11 for the purposes of the Second Option. Clauses 11.4(c) and 11.4(d) were added. Further, in clause 11.2, the stated sale price in respect of renovated units was increased from $375,000 to $475,000, and the amount of proceeds to be initially deducted and paid to the defendant in respect of a renovated unit was increased from $325,000 to $358,333. 121If twelve renovated units were each sold for $475,000, the total proceeds would be $5.7 million. Mr Gray made the point that it would make no sense for the plaintiff to agree to that regime if the Price was $5.7 million (with no credit for $1.4 million) because the plaintiff would not receive any of the proceeds. 122That outcome is a function of the relationship between the $475,000 figure and the Price. Under the First Option, the corresponding figures were $375,000 and $3.9 million. If twelve renovated units were each sold at that price, the total proceeds would be $4.5 million, some $600,000 greater than the Price. That is, under the First Option, twelve times the stated sale price for a renovated unit exceeded the Price, whereas under the Second Option it did not. It is true that in that respect, the efficacy of clause 11 as an alternative means of exercising the option was reduced from the plaintiff's point of view. However, as mentioned, the plaintiff obtained the benefit of the new clause 11.4(c) in the Second Option. 123I have not overlooked the circumstance that the difference between twelve times $475,000 ($5.7 million) and twelve times $358,333 ($4,299,996) is approximately $1.4 million. However, the relationship between those products in clause 11.2 does not seem to be intended to have any bearing in respect of the deposit. Moreover, I do not accept Mr Hawkins' evidence (denied by Mr Buda) that Mr Buda told him that the difference between $475,000 per unit and the $358,333 (per unit) payable to the defendant "is your deposit". 124The conclusions I have reached as to what was agreed in the meetings in late June and early July 2010 are reinforced by the fact that there were several occasions, following entry into the Second Option, where Mr Hawkins failed to assert the existence of the agreement about the crediting of the deposit in circumstances where such an assertion would be expected. 125The evidence establishes that: (1)on 27 October 2010, Ms Hart advised Mr Hawkins that if the option was to be exercised, the deposit had to be paid. (This evidence is a further indication that Mr Hawkins did not raise the issue about the deposit with MCW Lawyers in July 2010 as he claimed); (2)on 3 November 2010, Ms Hart advised Mr Hawkins that he needed to pay the deposit; (3)on 15 December 2010, Mr Hawkins had a conversation with Ms Hart following the receipt of Mr Buda's letter which stated that the option had not been exercised, including by reason of a failure to pay the deposit; (4)on 31 March 2011, Ms Mathieson told Mr Hawkins that he should have paid the deposit when he exercised the option; and (5)on 1 April 2011, Ms Hart told Mr Hawkins that he did not exercise the option properly and that he did not pay the deposit. 126It seems that on none of those occasions did Mr Hawkins say anything about there being no need to pay the deposit, or that an agreement had been reached to that effect. It was not until 4 April 2011, in the context of considering a further letter from Mr Buda dated that day, that Mr Hawkins appears to have said that the defendant had already received the deposit. He told Ms Mathieson that the deposit had been received by way of money already spent by the plaintiff on the property in a sum exceeding $200,000. Even then, Mr Hawkins failed to state in simple terms that it had been agreed that the $1.4 million deposit was to be treated as paid. 127For the reasons set out above, I am not persuaded that the alleged common intention the subject of the rectification claim was held when the Second Option was entered into. Neither am I persuaded that the alleged oral agreement the subject of the alternative claim was made. 128Accordingly, the plaintiff's claims fail, and the Statement of Claim must be dismissed. The plaintiff should pay the defendant's costs of the proceedings.

J Cummins Pty Ltd v F & D Bonaccorso Pty Ltd

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (6 paragraphs)

Parties

Cases Cited (6)

Cited By (1)