Lahoud & Anor v Lahoud & Ors

S.D. Epstein SC - Plaintiffs/Cross Defendants COUNSEL : L.V. Gyles - Defendants/Cross Claimants

Baron & Associates - Plaintiffs/Cross Defendants SOLICITORS : Aitken McLachlan Thorpe - Defendants/Cross Claimants

1 On 30 May 2005 I delivered judgment in these proceedings: [2005] NSWSC 509. I held that the Plaintiffs were entitled to specific performance of an agreement contained in Terms of Settlement whereby prior litigation between the parties had been resolved. I directed that the parties bring in Short Minutes of Order reflecting the reasons for judgment. 2 The parties brought in radically different proposed Short Minutes of Order and a further hearing was necessary. 3 I will assume that the reader of this judgment is familiar with the issues and the history of the matter as set out in my earlier judgment. As in the earlier judgment, for the sake of convenience and without intending any disrespect, I will refer to Messrs Joseph and Victor Lahoud by their first names and reference to each of them will include reference to their respective companies which are party to these proceedings. Whether mortgage must be discharged

4 The first issue to be resolved depends upon the construction of certain terms of the Terms of Settlement. In the Terms of Settlement, "the First Applicant" means Joseph, "the First Respondent" means Victor, and the Second and Third Respondents are Victor's companies. 5 Clause 2 of the Terms of Settlement provided: "The Second Respondent is to pay to the First Applicant the sale proceeds of Unit 4 at 135-145 Sailors Bay Road, Northbridge (being the land contained in Folio Identifier 4/SP 53342) and a three bedroom unit at 135-145 Sailors Bay Road, Northbridge presently owned by the Second Respondent, which unit shall be nominated by the First Applicant by 4pm on Thursday, 15 February 2001 but shall not include unit 18 or 24. The First and Second Applicant and the First and Second Respondent agree to the conditions set out in schedule 1 hereof regarding this clause 2." 6 Schedule 1 provided: "1. The First Applicant will instruct solicitors and agents in relation to each sale and the Respondents shall provide all assistance, instructions and all documents as are reasonably required to effect each sale.

The First Respondent will, within seven (7) days, provide to the First Applicant a key to each unit to enable the First Applicant to coordinate the sale subject to any existing tenancies and ensuring the quiet enjoyment of the Second Respondent's tenant and not placing the Second Respondent in breach of any lease.

The First and Second Applicants shall use their best endeavours to achieve the highest price available for each property. The First Applicant shall set the reserve price for any auction sale.

The First Applicant shall pay the legal fees and disbursements in relation to each sale.

The First and Second Respondents will, on completion of each sale, provide payment by bank cheque to the First Applicant of the sale proceeds for each unit, which means the "Price" as is defined in the Contract for Sale of Land - 2000 Edition, published by the Law Society of New South Wales, net of GST without any other deduction. Further, the First and Second Respondents will pay on completion the following:

(a) The selling real estate agent's commission provided it does not exceed 2% of the sale price for the three bedroom unit;

(b) All current council, water, strata, insurance or any other rate or premium due on each unit up to the date of settlement of the sale;

(c) Pay and discharge at settlement (or earlier) of the sale of each unit, with their own funds, all moneys owing to both secured and unsecured creditors in relation to each unit;

(d) All or any (if any) income tax, capital gains tax or any other costs or impost as applicable to the First and Second Respondents in relation to the said sale of each unit;

The selling agent's fee for Unit 4 in SP 53342 and all advertising and other disbursements on both units shall be paid by the Applicants or any one of them.

The Applicants understand and accept that the sale of the units referred to in Clause 2 of the Terms of Settlement shall be subject to any existing tenancy and leasing rights unless same can be terminated prior to completion in accordance with the Residential Tenancies Act.

In the event that the units cannot be sold and completed within six months then the applicants shall take a transfer in specie of the units and pay all costs and disbursements and duties." 7 The parties have agreed that the two units to be dealt with under the Terms of Settlement are Units 4 and 31 at 135-145 Sailors Bay Road, Northbridge ("Units 4 and 31"). Because of this dispute, the units have not been sold within the period of six months stipulated in Schedule 1 paragraph 8. 8 There is a mortgage on the title to the two units. Joseph contends that paragraph 8 entitles him to a transfer of the fee simple in the two units free from encumbrances, i.e., free from the mortgage. Victor says that Joseph is entitled only to a transfer of the units subject to the mortgage. 9 Mr L. Gyles of Counsel, who appears for the Defendants, submits:

• paragraph 8 does not expressly refer to any obligation to transfer the units free from encumbrances;

• paragraph 8 is to be contrasted with paragraph 5(d) which requires that if the units are sold, rather than transferred to Joseph, Victor is to bear the cost of discharging all encumbrances;

• the lack of an express obligation in paragraph 8 to the same effect as paragraph 5(d) indicates that the parties intended that Victor should not bear the burden of discharging encumbrances on the units if they are to be transferred to Joseph rather than sold and the proceeds of sale paid to Joseph;

• the absence in paragraph 8 of a term similar to paragraph 5(d) negatives any implication of law that paragraph 8 requires Victor to transfer an unencumbered title to Joseph. 10 I am unable to accept Mr Gyles' submissions. In my opinion, paragraph 8 requires Victor to transfer the title to the units free of encumbrances, for the following reasons. 11 It is well established that in a simple or "open" contract for the sale of land which does not state expressly the nature of the interest to be sold the law implies a term that the sale is of the fee simple free of encumbrances; the implication can, however, be rebutted by proof that the purchaser knew of a particular encumbrance prior to entry into the contract: see e.g. Dart on Vendors & Purchasers (7th Ed) Vol 1, p.240, approved in Timmins v Moreland Street Property Co Ltd [1958] Ch 110, at 120; In re Gloag & Miller's Contract (1883) 23 Ch D 320, at 327; McGrory v Alderdale Estate Company Ltd [1918] AC 503, at 508; Stonham The Law of Vendor & Purchaser, paras 202, 203. 12 Paragraph 8 of the Terms of Settlement is not, of course, a contract for sale of land in the conventional sense because the consideration given by Joseph for the transfer of the units is not money but the surrender and release of claims against Victor pursuant to the Terms of Settlement. However, the consideration is money's worth and provides both sufficient and valuable consideration to support a contract. The obligation to transfer land contained in paragraph 8 of the Terms of Settlement is, in my opinion, closely analogous to the obligation to transfer land arising under a conventional simple or open contract for sale of land. I can see no reason why the ordinary implication of law as to title should not, prima facie, apply to the contractual obligation contained in paragraph 8. 13 Mr Gyles does not submit that Joseph had actual knowledge that Units 4 and 31 were encumbered by a mortgage prior to execution of the Terms of Settlement. He relies only on the provisions of paragraph 5(d) as indicating that the parties did not intend that the implication of law as to title should apply to a transfer under paragraph 8. I am unable to accept that submission. 14 Paragraphs 4, 5 and 6 are intended to make clear that Joseph is to pay the legal costs and disbursements of the conveyance of the units and certain agents' fees and disbursements, but Victor is to be responsible for all other expenses and charges. By clause 5, Joseph is to receive the contract price on the sale of the units "without any deduction", i.e., without any of the deductions referred to in clause 5 which one would normally make in arriving at a figure for nett proceeds of sale of property, as that term is usually understood. 15 However, paragraph 8, unlike paragraph 5, is not concerned with the calculation of proceeds of sale: it is concerned with transfer of title. Its purpose is to provide an alternative benefit for Joseph if the units cannot be sold within a certain time. In the light of the benefits which paragraphs 4, 5 and 6 are intended to confer on Joseph, it would be anomalous to read into paragraph 8 some intention that the normal implication of law as to title is not to apply. 16 Accordingly, I hold that paragraph 8 requires Victor to procure transfer to Joseph of the fee simple in the units, free of the mortgage. 17 There does not seem to be any dispute between the parties that on settlement of the conveyances from Victor to Joseph the adjustments normally made on the sale of land should be made between the parties in respect of Council and water rates, land tax, strata levies and utility charges. Execution of further deed

18 The second issue between the parties is whether specific performance should be ordered of clause 7 of the Terms of Settlement which provides: "The parties to this agreement will enter into a deed in accordance with this agreement." 19 Mr Gyles insists that such a deed must be executed; Mr Epstein SC, who appears for Joseph, said at first that it would be pointless to order specific performance of clause 7 because the parties had previously tried but failed to agree upon the terms of such a deed and had become embroiled in a dispute as to whether Victor was bound to execute a deed in a form which his solicitor had approved. Ultimately, however, Mr Epstein indicated that he would not resist an order for specific performance of clause 7. 20 Joseph has sought specific performance of the Terms of Settlement, not of some agreement alleged to have been made later between the parties or their solicitors. If Joseph seeks specific performance of the contract constituted by the Terms of Settlement, the whole of the contract must be performed, including clause 7. 21 I accept, as Mr Epstein submits, that it is highly probable that the parties will not be able to agree about any terms to be included in the deed. However, no further agreement is needed. Crude and inelegant though it might be as a piece of drafting, the deed required by clause 7 need contain no more or less than the provisions of the Terms of Settlement, excluding Schedule 2 which makes provision as to how any dispute about the terms of the deed is to be resolved. If Joseph tenders to Victor for execution such a deed, Victor will be bound to execute it. If one party disputes the form of the deed the other may require the dispute to be resolved in accordance with the provisions of Schedule 2. The obligation to refer the dispute in accordance with Schedule 2 may be enforced by proceedings for specific performance, if the need arises. Form of orders

22 The parties have submitted competing Short Minutes of Order. The Plaintiffs' Short Minutes of Order will be Exhibit P5 and the Defendants' Short Minutes will be Exhibit D3. 23 I make orders pursuant to my earlier judgment and pursuant to these reasons as follows:

(1) Declaration in terms of paragraph 1 of Exhibit P5.

(2) Declaration in terms of paragraph 2 of Exhibit D3.

(3) Order that as soon as practicable after these Orders take effect, the Defendants execute a deed to be tendered by the Plaintiffs containing the terms of the Terms of Settlement other than Schedule 2.

(4) Declaration that on the true construction of the Terms of Settlement the Defendants are bound to transfer to the Plaintiffs the freehold title to Units 4 and 31 free of all encumbrances by way of mortgage or other security.

(5) Declaration in terms of paragraph 3 of Exhibit D3 with the following amendment, namely, in lieu of the words "together with" there be inserted the words "and that the parties are required to make" .

(6) Order that the Defendants procure completion of the transfer of Units 4 and 31 to the Plaintiffs as soon as practicable after these Orders take effect.

(7) Declaration that the Transfers of Units 4 and 31 which are to be delivered to the Plaintiffs upon completion of the conveyances need not be stamped with stamp duty.

(9) Order in terms of paragraph 9 of Exhibit D3. 24 The proceedings cannot be disposed of finally because the parties have foreshadowed extensive debate about costs. That debate is said to require another full day's hearing at least. I will give directions for the argument as to costs. Stay application

25 The Defendants seek a stay of these orders pending determination of an appeal. I have been provided with the proposed Grounds of Appeal. 26 The Defendants say that if there is no stay and the appeal is successful, the units to be transferred to Joseph may have been disposed of by him in the meantime so that the Defendants will have suffered irreparable prejudice. 27 Mr Epstein says that if a stay is granted it should be limited to a period of fourteen days within which the Defendants may make an application to the Court of Appeal to extend the stay. 28 In my opinion, if a stay is not granted pending determination of the appeal, the Defendants may suffer irremediable damage in the way which Mr Gyles suggests. Accordingly, there will be a stay of the orders and directions which I have made pending determination of the appeal to the Court of Appeal. The Plaintiffs may, of course, apply at any time to the Court of Appeal for removal of the stay on the ground that the Defendants are not prosecuting the appeal with due expedition or for any other reason. 29 Notwithstanding the stay, I will proceed with the costs hearing so that all matters in dispute can be taken to the Court of Appeal at the same time.

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