La Fontaine v La Fontaine [2009] VSCA 305

2 Raymond, who appeared in person at the hearing, appeals on the ground that her Honour was wrong to characterise his conduct as repudiatory and misapplied the law relating to repudiation of contract. In our view, for reasons which follow, her Honour's decision was correct in fact and law, and the appeal must be dismissed.

3 On behalf of their respective family trusts, Peter and Raymond are equal unit holders in the Melbourne Development Unit Trust ('the Trust'). The Melbourne Development Company Pty Ltd ('MDC' or 'the development company') is trustee of the Trust. Raymond and Peter are directors of and equal shareholders in MDC. Raymond was sole shareholder and director of another company, which traded as Melbourne Building Company ('MBC').

4 In May 2002, MDC purchased land in Black Rock for the purpose of a building development. On 22 August 2002, Raymond and Peter entered a partnership to complete that development; and MDC engaged MBC as builder to carry out the development.

5 Over the following months, the brothers' business relationship broke down. They entered negotiations to terminate the partnership. An agreement was brokered by their father, Barry La Fontaine, whereby Raymond was to pay Peter $140,000.00 and Peter would relinquish his share of MDC. This agreement was not performed.

6 On 21 September 2004, Raymond and Peter entered a contract ('the agreement') under which Peter agreed to transfer his units in the Trust to Raymond for $120,000.00. Raymond agreed to make that payment within 60 days of the agreement, or earlier if he obtained finance before that date. On 20 November 2004 (the last day for payment), Raymond paid Peter $10,000.

7 In mid-December 2004 Peter's solicitor wrote to Raymond, seeking payment of the balance of $110,000 owing under the agreement. On 16 December, Raymond informed Peter's solicitor that he would pay by 23 December. On 24 December, Raymond sent Peter a series of text messages, the last of which said:

You've got 10K already 5K is needed to repair defects. The builders margin is 23K short. That makes it 82K not including damages but you can have 90K today if you sign a release and end it! Otherwise you can have the company. I'm going to see dave for 2 weeks so think about it carefully. You never had this money anyway, think of it like that, you're a winner anyway move on.

8 On 25 December, Raymond paid Peter $105,000, leaving $5,000 outstanding. On 18 January 2005, Peter e-mailed Raymond in these terms: 'Please advise whether or not you intend paying the remaining $5000 as per our agreement and if so by when.'

9 On 19 January 2009 Raymond replied by email. The first paragraph was in these terms:

As I advised Dad by text message when I gave him my cheque (and the rest of the family), $5000 is being kept to carry out to cover extensive repairs to the rear decks of the property that where cut by the tiler accidentally when the tile grout was done wrong and the tile sizes were incorrect. That has caused leaking to the garage. You were involved with this and should remember. Also there are other issues with the building which require maintenance as they are defects and must be covered by my building insurance.

10 On 28 February 2009, Peter's solicitor wrote to Raymond. The relevant part of the letter said:

Termination of the Agreement

By your conduct, including matters stated in your e-mail of 19 January 2005, you have evinced an intention to be no longer bound by the Agreement.

Our client considers that your conduct constitutes a repudiation of your obligations under the Agreement and that you no longer intend to be bound by it.

You are now informed that our client accepts your repudiation of the Agreement and now elects to terminate it.

11 Raymond's solicitor replied on 9 March 2009 acknowledging the agreement but denying repudiation. He said:

Our client concedes that he has withheld payment of the final instalment of $5,000.00 from your client in consideration of estimated expenditure of $10,000.00 required to effect repairs to decking on a property for which both of our respective clients are liable.

Nevertheless, we enclose our client's bank cheque for $5,000.00 payable to your client in order to conclude the agreement.

We also enclose Resignation Minute, Share Transfer form and Unit Transfer form. Please ensure your client now complies with his obligations under the agreement by completing, executing and returning the documents to our office within 14 days.

12 Peter subsequently issued proceedings against Raymond. The statement of claim raised a number of issues which it is unnecessary to detail. Following a mediation it was agreed that the parties would seek determination of a preliminary question whether Peter had validly terminated the agreement. As noted earlier, her Honour found that it was a valid termination.

13 The exchange of correspondence set out above shows that Raymond clearly indicated an intention not to perform the contract in accordance with its terms. This without more constituted repudiatory conduct, entitling Peter to terminate the contract.

14 This conclusion would be sufficient to dispose of the appeal. It is appropriate, nevertheless, to set out what emerged in the course of the submissions which Raymond advanced on his own behalf. Whether a person's conduct is repudiatory is, of course, to be judged objectively but, as will appear, what Raymond said about his subjective view of the agreement served only to confirm the correctness of the judge's conclusion.[1]

15 At first, Raymond's argument appeared to suggest that he had mistakenly believed that his withholding of $5,000.00 involved no departure from the agreement, and that he had intended no departure. As his submissions developed, however, he made it quite clear that he had knowingly and intentionally departed from the agreed terms.

16 It was common ground that the agreement had been intended to effect a complete separation between the brothers and, in particular, to leave Raymond as sole owner of the development company (MDC) and its property assets. He asserted in the course of argument that, in agreeing to make payment of $120,000 under the agreement, he had given up a claim to something like $70,000 which at that time he believed was owing to MBC for building works.

17 Subsequently, Raymond received notice of a $10,000 claim for defects in respect of one of the properties which MDC had constructed. As at 21 September, this was an unforeseen liability. Raymond agreed in the course of argument that, in signing the agreement, he had taken the risk that there would be unforeseen liabilities of this kind. He knew that, in return for the $120,000, he would acquire the Trust properties with all their advantages and disadvantages.

18 When asked by the Court to explain the short payment, Raymond said he had decided that it was 'a reasonable thing' to adjust the agreed purchase price 'to set aside $5,000 of Peter's money and $5,000 of my money to deal with the defects'. He did not realise, he said, that this would bring the agreement to an end, though he accepted in argument that it was in the nature of a contract that, once it is made, it cannot be altered unilaterally by one party. (He did make the point, nevertheless, that throughout his career as a builder he had had clients who had refused to honour bargains and had unilaterally withheld amounts payable.)

19 When asked by Byrne AJA why, as at 25 December, he had paid only $105,000 rather than $110,000, he said that he had 'chosen not to pay' because of the defects report which he had just received in relation to the relevant property. He said he had been 'distraught' upon receiving the report, and had not wanted to 'end up carrying the can for defects as I had done before'.

20 Raymond confirmed that, as the email of 19 January conveyed, he had had no intention of paying the remaining $5,000. He regarded himself as entitled to adjust the purchase price downwards, unilaterally. At the same time, he confirmed in argument that he had not intended to derail the separation. He simply wanted to have the separation take place at his (adjusted) price, not at the agreed price.

21 The text message set out in paragraph 7 above makes it even clearer that Raymond had been looking to renegotiate the price. At that point, he was wanting to adjust the price not only for the defects but also for the builder's margin. On any view, that issue had been settled by the agreement made on 21 September 2004.

22 In our view, the agreement reflected a negotiated settlement, and Peter was entitled to insist on being paid the full amount without deduction. It is irrelevant that Raymond later paid the balance. The only question is what a reasonable person in Peter's position would have concluded as at 19 January 2005.[2] He could not have known that, following legal advice, Raymond would pay up.

23 Raymond knew full well that the September agreement was to draw a line under all disputes between the brothers. He readily confirmed this in argument. In our view, Peter was entitled following the 19 January e-mail to conclude - as was the fact - that Raymond did not intend to comply with the agreement. He did not regard himself as bound to pay the agreed purchase price. His conduct was a repudiation of the agreement, which Peter was entitled to accept.

24 In the circumstances the appeal will be dismissed.

[1] See Sopov v Kane Constructions Pty Ltd [2007] VSCA 257, [7]-[15] (Maxwell P and Kellam JA).

[2] Laurinda Pty Limited v Capalaba Park Shopping Centre Pty Limited [1989] HCA 23; (1989) 166 CLR 623, 647-8 (Brennan J), 657-8 (Deane and Dawson JJ).