Meares Nominees Pty Ltd v Permanent Custodians Ltd

G R Mailman & Associates Pty Limited v Wormald Australia Pty Limited (1991) 24 NSWLR 80 CASES CITED: Osborne v McDermott [1998] 3 VR 1 Perri v Coolangatta Investments Pty Limited (1982) 149 CLR 537 Tricontinental Corporation Limited v HDFI Limited (1990) 21 NSWLR 689

PARTIES: MEARES NOMINEES PTY LIMITED (appellant) PERMANENT CUSTODIANS LIMITED (respondent)

COUNSEL: J STOLJAR SC/ J K TAYLOR (appellant) A J SULLIVAN QC/ V E WHITTAKER (respondent)

SOLICITORS: Slater & Gordon (appellant) Eakin McCaffery Cox (respondent)

LOWER COURT JURISDICTION: Supreme Court - Equity Division

LOWER COURT MEDIUM NEUTRAL CITATION: Meares Nominees Pty Ltd & Ors v Permanent Custodians Ltd [2009] NSWSC 720

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40249/09 SC 3628/09

ALLSOP ACJ BEAZLEY JA HODGSON JA

29 JULY 2009 MEARES NOMINEES PTY LIMITED and Ors v PERMANENT CUSTODIANS LIMITED Judgment 1 HODGSON JA: On 24 July 2009, Palmer J dismissed with costs proceedings in which the appellants had sought a declaration that a Deed of Settlement between them and the respondent remains valid and binding, and an order that it be specifically performed. 2 The appellants appeal from that decision. In my opinion, the appeal should be dismissed and I will state my reasons. 3 The circumstances giving rise to the entry into the Deed are set out as follows by the primary judge: [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 11 am that day but deferred, was then called off. 4 This account of the facts has not been challenged on appeal, although we have been referred to certain additional circumstances. 5 We were referred to some of the negotiations leading up to the Deed; but those circumstances were not pressed as having any major significance as to the construction of the Deed, and I do not think it is necessary to recount them. 6 We were referred to a valuation of the property, together with water rights, which had been obtained by the respondent in about January 2009, this valuation being for $5 million; and that was relied on by the appellants. 7 We were also referred to the circumstance that the Deed was a thoroughly negotiated document, with participation by the solicitor for the respondent. 8 The Deed relevantly contains the following recitals: 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.

5. 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").

6. 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 operative clauses of the Deed were relevantly as follows: 7. The Mortgagor's will make the following payments to Permanent Custodians:- a) By 10.00am 12 pm 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").

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

9. 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 guarantors from all and any obligations under the mortgages.

10. 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.

11. 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. 9 The appellants did not make the second payment referred to in the Deed by 5pm on 12 June 2009. On 26 June 2009, the solicitors for the appellants wrote to the respondent, advising that the appellants were in a position to pay the second payment of $2 million. On 30 June 2009, the respondent replied that it did not regard the Deed as continuing to bind it. 10 The respondent subsequently indicated that it proposed to sell the property by private treaty for $3.1 million, and that gave rise to these proceedings. 11 In his decision, the primary judge noted contentions of the appellants that clause 7(b) of the Deed, coupled with clause 9, created a promise by the appellants to pay $2 million by a certain time, in consideration of which the respondent was to cancel the auction; that the time for payment of $2 million was not of the essence; and that since the appellants were now ready, willing and able to make that payment, they were entitled to specific performance. 12 However, the primary judge accepted the respondent's contention that clause 7(b), coupled with clause 9, created a condition precedent to the respondent's promise to accept an accord and satisfaction for a lesser sum, which had to be complied with according to its terms if it was to be satisfied, referring in his judgment to Tricontinental Corporation Limited v HDFI Limited (1990) 21 NSWLR 689 and Perri v Coolangatta Investments Pty Limited (1982) 149 CLR 537. 13 The appellants rely on the following grounds of appeal: 1 The trial judge erred in failing to construe clause 7(b) of the Deed of Settlement between the appellants and the respondents dated 3 April 2009 (Deed of Settlement) as a promissory condition.

2 Further, even if payment by the appellants of the sum specified in clause 7(b) of the Deed of Settlement was a condition precedent to the performance by the respondent of its obligations under clause 9 of the Deed of Settlement, the trial judge erred in concluding from that fact that the parties intended that strict compliance with the time stipulation in clause 7(b) of the Deed of Settlement was required.

3 The trial judge erred in concluding that the failure by the appellants strictly to comply with the requirement to make the second payment contemplated by the Deed of Settlement at the time stipulated in clause 7(b) entitled the respondent to treat the Deed of Settlement as no longer binding on it. 14 Mr Stoljar SC for the appellants submitted that clause 7(b) of the Deed was promissory, as shown by the words "will make". Failure to make a payment stipulated by clause 7 would be a breach of the Deed. He submitted that it was not a condition precedent to the respondent having obligations under the Deed, because there was an obligation on the respondent to accept payment and to co-operate in giving the appellants the benefit of the Deed. 15 He submitted that the Deed did not amount to an accord executory as characterised by the primary judge; but rather, it was an accord and conditional satisfaction, such that failure by the debtor to perform gave the creditor the option either to proceed on the original cause of action or sue on the compromise agreement. He referred to the discussion of this in Osborne v McDermott [1998] 3 VR 1. 16 Mr Stoljar submitted that, even if the stipulations concerning payments were conditions precedent, equity could still give relief from failure to comply with time limits, at least where, as in this case, the stipulations were promissory and time was not of the essence. Mr Stoljar referred to Perri and Tricontinental, and also to G R Mailman & Associates Pty Limited v Wormald Australia Pty Limited (1991) 24 NSWLR 80. 17 Mr Stoljar submitted that time was not of the essence in this case. The Deed had been the subject of negotiations and prepared by lawyers, and yet contained no stipulation that time was of the essence. He submitted there was nothing in the nature of the contract, such as that it concerned perishable goods, which would imply that time was of the essence. He submitted that the circumstances of a long history of dealings between the parties confirmed that there was no particular significance attached to the performance of obligations on the day specified, rather than say a week or two later. 18 He submitted that the reference in the Deed to consequences if the second payment was not made, on its correct construction, referred to the making of the payment, and not to any particular time or date. He submitted that the words "the second payment" would not be construed as covering more than the payment and the amount of money specified, and would not be construed as extending to a particular time or date of payment. 19 Mr Stoljar submitted that in those circumstances, equity should give specific performance of the Deed. 20 In my opinion, there is a potential ambiguity in the use of the word 'will' in clause 7 of the Deed. I note that in clause 9 of the Deed and in parts of clause 10 of the Deed, the word "will" is used in ways that are plainly promissory; but where the word first appears in clause 10 of the Deed, it is used in a way that would appear to be merely predictory: that is, the assertion that the respondent "will proceed to sell the water entitlements" would not appear to be a promise by the respondent to do this. 21 However, in my opinion, whether or not the word "will" in clause 7 is to be understood as "promises to" or, for example, "intends to", an important consideration is that what is stipulated to happen is less than what the appellants were already contractually bound to do. At the time of the Deed, they were already contractually bound to pay over $6 million, and it seems clear from the circumstances that they were contractually bound to do this immediately. Accordingly, a promise to pay $1 million on 3 April 2008 and $2 million on 12 June 2009, if there were such a promise, would add nothing to the obligations of the appellants or the rights of the respondent, at least unless the respondent was given some additional right in the event that such a promise was not complied with. 22 There is no suggestion in the Deed that the respondent is given any additional right, that it did not already have, in the event that any such promise was not complied with. On one view, there are rights given to the respondent in paragraph 10; but they are not rights that are given to the respondent in the event that what is stipulated in paragraph 7 does not occur. 23 Accordingly, in my opinion, if the stipulations in clause 7 were promises, they are as promises entirely nugatory. In my opinion, their function in the operation of the Deed is entirely as conditions precedent. 24 Against this, it was put by Mr Stoljar that there was an advantage to the respondent in having a promise to receive $3 million, plus the proceeds of sale of the water entitlements, in circumstances where it had a valuation of $5 million covering both of these matters. However, any advantage to the respondent would only come from actual payment of these amounts. No advantage came from any promise as such. In addition, this calculation leaves out of account the value of any rights the respondent may have had against guarantors. 25 In relation to Mr Stoljar's submission that the effect of the Deed was to give the respondent an election to sue on rights given by the compromise rather than the original cause of action, it seems to me clear that the Deed does not manifest any intention to give any election of that kind. Acceptance of the $3 million was to occur, and to be in satisfaction of existing rights, only if the payments were actually made; and the circumstance that on the making of the first payment, the auction was delayed only until after 12 June, further indicates that it was not seriously contemplated by anyone that there be rights given by the Deed which might be accepted in the absence of actual payment, in substitution for the original rights. 26 In my opinion, cases such as Perri and Tricontinental are authorities supporting the proposition that where a condition precedent specifies a time for its performance, time is of the essence. 27 In my opinion also, the specification in this case of a particular time on a particular day tends to confirm this; although there is some force in Mr Stoljar's submission that this consideration is less powerful when the time specified is 5pm on a Friday, that is the end of a working week. 28 In my opinion, further confirmation that time is of the essence is provided by the consideration that once the first payment had been made, the Deed only requires delay of the auction until after 12 June 2009; so that if the second payment is not made by the end of the previous working week, then an auction could occur on Saturday 13 June 2009. 29 For those reasons, in my opinion, the conclusion of the primary judge was correct, and the appeal should be dismissed with costs. 30 ALLSOP ACJ: I agree. I would only wish to add my gratitude for the clear and helpful submissions of Mr Stoljar who put everything that could legitimately be put on behalf of the appellants. Nevertheless, I am in agreement with the analysis of the agreement and the issues enunciated by Justice Hodgson. 31 BEAZLEY JA: I likewise am in agreement with Justice Hodgson. **********

19/08/2009 - Name of solicitors for respondent changed. - Paragraph(s) coversheet

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