Meares Nominees Pty Ltd & Ors v Permanent Custodians Ltd

Meares Nominees Pty Ltd (First Plaintiff) PARTIES : Lochshiel Pty Ltd (Second Plaintiff) ICW Pty Ltd (Third Plaintiff) Permanent Custodians Ltd (Defendant)

COUNSEL : J. Stoljar SC, Ms J.K. Taylor (Plaintiffs) J. Stevenson SC, Ms V.E. Whittaker (Defendant)

SOLICITORS : Slater & Gordon (Plaintiffs) Eakin McCaffery Cox (Defendant)

3628/09 Meares Nominees Pty Ltd & Ors v Permanent Custodians Ltd

1 In these proceedings the Plaintiffs seek a declaration that a Deed of Settlement between the parties remains valid and binding, and an order that it be specifically performed by the Defendant. The facts are not in dispute. The question is entirely one of construction of the terms of the document. 2 The Plaintiffs are the registered proprietors of a large farming property at Womboota which is in the southern part of New South Wales close to the border between New South Wales and Victoria. The property has been in the Meares' family for three generation. 3 The Defendant is the mortgagee of the property by assignment of mortgages entered into in 2001. The property has been severely affected by drought and by August 2006 the Plaintiffs were in substantial default under the mortgages. 4 On 8 August 2006, the Defendant demanded repayment of the debt due, then in excess of $4,690,000. The Plaintiffs were unable to repay the debt. In December 2006 the parties attended a mediation under the Farm Debt Mediation Act 1994 (NSW). It was agreed that if the Plaintiffs were not able to refinance the debt, the Defendant would be entitled to possession of the property. Throughout 2007 the Plaintiffs endeavoured to obtain refinance, without success. 5 On 5 February 2008, the Defendant commenced proceedings for possession. However, the Defendant agreed to delay the taking of possession for a further period to allow the Plaintiffs more time to obtain refinancing. Eventually judgment for possession was entered on 10 November 2008 and on 12 January 2009 the Plaintiffs gave vacant possession. The Defendant then caused the property to be advertised for sale at an auction to be held on 3 April 2009. The Plaintiffs continued to negotiate a settlement of the debt by way of a refinancing. 6 On 2 April 2009, the Plaintiffs' accountant wrote to the Defendant making a proposal for settlement which would enable the Plaintiffs to retain the property. The proposal was that the Plaintiffs would pay $3M in full and final settlement of the debt, which then stood in excess of $6M. The shortfall would be made up from the proceeds of sale of valuable water rights which the Plaintiffs owned and which were also subject to the mortgages. The Defendant would sell those water rights and retain the proceeds. It would receive $3M from the Plaintiffs and would discharge the mortgages over the property to enable a new mortgage to be obtained by the Plaintiffs. The Plaintiffs said that they had arranged a mortgage with a new financier. The payment of $3M was to come in two instalments, the first instalment of $1M being made on the day of the auction. 7 The Defendant agreed to the proposal. A Deed of Settlement was prepared by the Defendant's solicitors. It was signed by the parties shortly before noon on 3 April when the Defendant was satisfied that the first instalment of $1M was actually going to be received by its bank by noon. The auction of the property, which had been scheduled for 11am that day but deferred, was then called off. 8 The Deed of Settlement relevantly provides as follows: "4. Permanent Custodians has made arrangements to sell the land as Mortgagee at auction to be held at Deniliquin at 11.00am on 3 rd April 2009 ('the auction') and to sell the water entitlements immediately after the auction.

The mortgagors have requested that Permanent Custodians delay the auction and accept certain payments in satisfaction of the debts secured by the mortgagors ('the debt').

Permanent Custodians has agreed to delay the auction and accept the payments in satisfaction of the debt provided the terms of this deed are complied with.

The Mortgagors will make the following payments to Permanent Custodians:

a) By 10.00am 12PM [handwritten amendment] on 3 rd April 2009 payment by bank cheque or electronic funds transfer to an account nominated by Permanent Custodians of One Million Dollars ($1,000,000.00) ('the first payment').

b) By 5.00pm on Friday 12 June 2009 payment by bank cheque or electronic funds transfer into an account nominated by Permanent Custodians of Two Million Dollars ($2,000,000.00) ('the second payment').

PROVIDED that the first payment is made, Permanent Custodians agrees to delay the auction sale of the property until after the 12 June 2009.

PROVIDED the second payment is made, Permanent Custodians will delay the auction indefinitely and accept the second payment in full satisfaction of all moneys secured by the mortgages and shall release the mortgagors and any financiers [handwritten insert] from all and any obligations under the mortgages.

Permanent Custodians will proceed to sell the water entitlements, and the mortgagors will do all things and sign all documents to allow such a sale to proceed and will not raise any objection or claim in relation to the sale of the water entitlements.

Notwithstanding any of the above arrangements, neither the Mortgagors nor their agents, employees, successors or assigns shall be allowed access to or possession of the land until after the second payment has been made and written authority is received from Permanent Custodians."

The Plaintiffs did not make the second payment by 5pm on 12 June 2009. 9 On 26 June 2009 the Plaintiffs' solicitors wrote to the Defendant advising that the Plaintiffs would be ready to settle the refinancing and to pay the balance of the $2M. The Defendant responded that it did not regard the Deed of Settlement as continuing to bind it. The Defendant now proposes to sell the property by private treaty for $3.1M. It is in these circumstances that the Plaintiffs seek to restrain the sale and to have the Deed of Settlement performed. 10 The Plaintiffs contend that Clause 7(b) of the Deed, coupled with clause 9, create a promise by the Plaintiffs to pay the sum of $2M by a certain time, in consideration of which the Defendant is to cancel the auction and that time for payment of the sum of $2M is not of the essence so that the Plaintiffs, now being ready willing and able to make that payment, are entitled to specific performance of the Deed. 11 The Defendant contends that clause 7(b) coupled with clause 9 create a condition precedent to the Defendant's promise to accept an accord and satisfaction of the whole of the debt for a lesser sum and, since that precondition has not been satisfied, the Defendant is not bound to release the debt in accordance with the terms of the Deed. 12 In my opinion, the Defendant's construction of the Deed is correct. Clause 7 of the Deed does not create for the first time a present debt owing by the Plaintiffs to the Defendant. That debt already exists by virtue of the mortgages. What clause 7 provides is that the Plaintiffs will repay part of that debt at precisely defined times. Clauses 8 and 9 provide that if those partial repayments are made at the stipulated times, then the Defendant will accept an accord and satisfaction but those clauses and Recital 6 emphasise that the release is conditional. It is subject to an event occurring by a specified time. It does not alter the character of clause 9 as creating a condition precedent that the condition is to be performed by one side of the agreement, that is, by the Plaintiffs. 13 The law in this regard is well summarised by Samuels JA in Tricontinental Corporation Limited v HDFI Limited (1990) 21 NSWLR 689, at 703 G. "A condition precedent, on the other hand, need not be promissory in nature. It is a stipulation in an agreement upon the fulfilment of which the existence of a contract, or of a principal obligation under an existing contract, is made contingent. The stipulation may involve the occurrence of an event that is independent of both parties, or it may require a unilateral act : see Halsbury's Laws of England , 4th ed, vol 9, par 511 at 353.

If the condition precedent is the performance of some act by one party, it is not necessary to inquire whether the failure to do the act was also a breach of contract unless the party promised to do the act which is the condition precedent: Carter, Breach of Contract (1984) par 432 at 96. The observations of Diplock LJ in United Dominions Trust (Commercial), Ltd v Eagle Aircraft Services, Ltd [1968] 1 WLR 74; [1968] 1 All ER 104, in relation to unilateral contracts are in point. His Lordship said (at 84; 109-110): '… [T]he initial inquiry is whether the event, which under the unilateral contract gives rise to obligations on the part of the promisor, has occurred. To that inquiry there can only be a simple 'Yes' or 'No'. The event must be identified by its description in the unilateral contract; but if what has occurred does not comply with that description, there is an end of the matter. It is not for the court to ascribe any different consequences to non-compliance with one part of the description of the event than to any other part if the parties by their contract have not done so …

For the inquiry here is: 'What have the parties agreed to do?' - not 'What are the consequences of their having failed to do what they have agreed to do?' as it was in the Hongkong Fir case.' (My emphasis.)

His Lordship indicated that this analysis applied not only to unilateral contracts, but also to 'unilateral obligations' in agreements that also contain what he termed 'synallagmatic', or reciprocally binding, obligations. Similarly, it has been said that if a provision is expressed in terms of a condition precedent, this of itself gives it the character of essentiality: Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 at 554 per Mason J. Implicit in his Lordship's remarks is the proposition that a condition precedent is strictly construed. So where a provision lays down an act by one party as a condition precedent to the existence of an obligation on the part of the other party, the condition precedent will not be fulfilled until the former party does an act that strictly matches that described in the contract ." (emphasis added) 14 Mr Stoljar SC, who appears with Ms J Taylor of Counsel for the Plaintiffs, in a most able argument, has referred me to cases such as Neeta (Epping) Pty Ltd v Phillips (1974) 131 CLR 286, at 299, and Perri v Coolangatta Investments Pty Limited (1982) 149 CLR 537, as demonstrating that equity's flexibility as to time clauses extends with equal force to clauses which are properly classified as conditions precedent to the coming into operation of a contractual obligation. 15 I do not think that Neeta is authority for that proposition without qualification. Neeta was a paradigmatic vendor and purchaser suit. The purchaser, in breach of contract, failed to tender a Memorandum of Transfer on time. The vendor served a Notice to Complete but the vendor was herself in breach of the contract so that the Notice to Complete was invalid. It was not a case of non-fulfilment of a condition precedent but, rather, whether a breach by one party as to time for performance entitled the other party to make time of the essence. 16 On the other hand, Perri v Coolangatta is a case involving a condition precedent. The purchasers' obligation to complete the purchase of land was conditional upon the sale of their own home, but the purchasers did not promise to sell their home within any particular time. The High Court drew a distinction between a condition precedent fulfilment of which depended upon one contracting party performing a contractual promise by a certain time and a condition precedent fulfilment of which did not depend upon a party performing a contractual promise. In the first case, non-fulfilment of the promise is a breach of contract and the question is whether time for performance of the promise is, or can be made, of the essence, entitling the other party to terminate the contract. In the second case, there is no breach by one party so that the question of time for performance does not arise: if the condition is not fulfilled by the stipulated date the contract may be terminated without further ado: see per Gibbs CJ at 545-546; Brennan J at 566. Although Mason J was in dissent, his observation on general principle, which is referred to by Samuels JA in Tricontinental, is consistent with the law as stated by the other members of the High Court in Perri. 17 As I have said, in this case the Deed of Settlement does not provide for the Plaintiffs to incur an obligation, not previously existing, which is to be performed at a particular time in order to receive in exchange a particular benefit. It is a contract which provides only for one thing, that is, that an existing debt of the Plaintiffs to the Defendant - repayment of which has long been in default and enforcement long delayed - will be discharged in full if payment of a lesser amount is made by a certain time. Certainty of time for payment and the avoidance thereby of further delay and uncertainty as to enforcement of the Defendant's rights were the very essence of the benefit for which the Defendant was contracting, as appears from the face of the document and from the context of the transaction. 18 In my view, payment of $2M by 5pm on 12 June 2009 in accordance with clause 7(b) of the Deed of Settlement was of the essence of the contract and was the precondition for the operation of clause 9. That precondition not having been fulfilled in accordance with its terms, the Defendant has never become obliged to accept the accord and satisfaction provided in that clause. For these reasons, the Plaintiffs' Summons must be dismissed. 19 The orders I will make are as follows:

i) The Plaintiffs' Summons is dismissed with costs.

ii) Upon the Plaintiffs, by their Counsel, giving the usual undertaking as to damages, I order that up to 5pm on 31 July 2009 the Defendant, by itself, its servants or agents, be restrained from exercising or purporting to exercise the power of sale in the registered mortgage numbers 7504059, 7503980 and 7504102 by agreeing to sell or entering into any contract for the sale of the properties described in Auto-Console 13993-247, Auto-Console 13993-246, Folio Identifier 1/229209, Folio Identifier 1/189483 and Auto-Console 7799-42.

iii) Liberty to apply on two days' notice. 20 I note that the injunction is sought and granted for the purpose of enabling the Plaintiffs to consider an appeal from the judgment which I have just pronounced and for no other purpose.

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