Melham v Katter

The alternative claims for relief in the Notice of Motion 23I should briefly note that the two alternative bases in the Notice of Motion upon which relief was sought (specific performance of the Put and Call Option, and setting aside the terms of settlement) were not argued. The defendants conceded that this Court does not have jurisdiction to grant specific performance (s 134(1)(b) District Court Act 1973 (NSW)). The defendants' oral application to amend to seek a declaration to the same effect was dismissed by me on the basis that the nature of such relief similarly falls outside the jurisdiction of this court, for the reasons explained by Bryson JA in Kendell v Carnegie, supra, at [42]. The application to set aside the terms of settlement was simply not pursued.

An overview of the parties' submissions 24The defendants' submissions are essentially that as soon as the plaintiff was forwarded the Put and Call Option for the sale of the proposed Lot 4 in the development: (a)The plaintiff became obliged to execute the contract, on the basis that this would have effected the "provision of a unit by each defendant". (b)The "unit" provided was offered on "reasonable terms" pursuant to order 5. (c)The sending of the deed annexing the contract was sufficient to release the defendants, under order 8, from their obligation to make the monetary payment of $400,000 pursuant to orders 1 to 4. 25In his outline of written submissions, Mr Hogan-Doran submits that the defendants' argument may be summarised as saying that by provision of a townhouse with a sale price of $790,000 released them from their liability to repay the plaintiff $400,000 plus interest up to settlement. However, what is proffered is an unexecuted contract for the sale of a townhouse with no certificate of title, an unknown settlement date, and which requires the defendants to pay a further $390,000 to purchase that townhouse, in circumstances where many of the terms of the contract are incomplete, uncertain, capable of variation and not complying with the description in the Terms of Settlement. 26Mr Hogan-Doran also notes that, although the defendants claimed that this townhouse had to be provided as the "first available", all of the units were already available at the time of settlement, as the draft plan had been formulated in May 2012, three months before the agreement settling the litigation. The defendants had told the plaintiff that there would be pre-sales before Christmas 2012. The word "available" in the Terms of Settlement meant "completed", in the sense of being ready for sale. The townhouse in question had not been built and as it lacked a volume and folio number, could not be sold by the plaintiff, which meant that it was not "available". 27I shall next set out the manner in which the terms of settlement should be construed.

Construction of the terms of settlement 28The parties agree that the terms of settlement were to be construed in accordance with general contractual principles, namely to determine the construction of the documents objectively, by reference to what a reasonable person would have understood the instrument to mean: Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 40 at [5] (Allsop P) and [287]ff (Campbell JA). Allsop P noted, at [23] that examination of surrounding circumstances was not licence for the "judicial re-writing" of the agreement. 29Ms Culkoff submits (written submissions, paragraph 12) that the Terms of Settlement are clear. Her submission is that the terms provided for the defendants to execute a Put and Call Option in favour of the plaintiff "for the sale of a unit on reasonable terms" (clause 5) and that this was done. 30However, the terms of settlement do not begin at clause 5; they begin at clause 1. They first provide (orders 1 to 4) for settlement in the sum of $400,000 inclusive of interest and costs, and that judgment was to be given for this sum, but that judgment would not be entered until 1 April 2013 (paragraph 1). Order 4 then permits the plaintiff to enter judgment on a sliding scale, dependent upon compliance with the terms by the defendants, as follows: (a)for 90 days after 7 August 2012, the settlement sum of $400,000 was free of interest; (b)if the sum of $400,000 were to be paid after 7 August 2012 and before 1 April 2013, interest, including interest back-dated to the date of judgment of 7 August 2012, was the sum for which judgment was to be entered; (c)alternatively, if "paragraph 5 herein applies" the judgment sum would remain at $400,000, presumably plus interest, unless the Put and Call Option arrangement occurred prior to the 90 days expiry; (d)if none of these occurred then the judgment would be entered on or after 1 April 2013 for $1 million. 31These were parties who had agreed that the settlement sum would be $400,000 inclusive of costs and interest, with a delayed period for interest to run, and with an alternative to paying by cash in the form of a Put and Call option for a unit in a named development. However, the alternative of paying by non-cash methods had to be either comparable or better than the payment of the $400,000. 32While I am cautious about acceptance of the surrounding circumstances, and settlement negotiations, in accordance with the submissions of counsel on both sides, one particular fact was agreed upon as being relevant, namely that the defendants were unable to pay the $400,000 at the time of the settlement negotiations, and these were alternative plans designed to permit them, if the money was still not available as at 1 April 2013, to provided an alternative, namely the sale of "a unit on reasonable terms at 136-138 New Canterbury Road, Petersham".

"On reasonable terms" 33What was intended by the phrase "on reasonable terms"? The following terms may be identified from the contract: (a)The "first available to be sold". (b)On settlement, "clear title must be provided". (c)The sale value of the unit is "at least $400,000 (plus the amount of any applicable interest under Order 3) at the time of settlement of the unit". (d)The contract in respect of the sale of the unit must be entered into no later than 31 March 2013. 34The terms of settlement in the alternative to payment of cash provide that a unit with a price of "at least $400,000 (plus the amount of any applicable interest under Order 3)". 35Mr Hogan-Doran stated that, as at 31 March 2013, post judgment interest was approximately $25,000. In addition, 31 March, the date by which the contract must be entered into, was not the date of settlement. Special condition 30 contained a series of dates which, if the contract were signed on 31 March, could add approximately $5,000 more of interest. In addition, if the plaintiff had to wait until the plan was registered, the interest in question would be substantially more. As at the date of hearing (27 September 2013) the plan had still not been registered, and unpaid interest is currently $41,000. 36 The Put and Call Option exercised by the defendants referred simply to "$400,000" not "$400,000 plus interest", which was the wording of orders 3 and 5. In other words, the plaintiff would lose all entitlement for interest, despite having settled the matter in August 2012. This provision alone, Mr Hogan-Doran submitted, was not reasonable. He also referred to other features of the Put and Call option as not "on reasonable terms". The most significant of these was the high price of the townhouse, and the fact that a townhouse was offered and not a unit. As the plaintiff's solicitors pointed out in their response of 25 January 2013, the plaintiff would have to pay an amount almost the equivalent of the judgment sum (i.e. $390,000) in order to recover the $400,000 that was owed. 37This brings me to the question as to what the orders provided for if the property offered was substantially more valuable than the $400,000 plus interest. Ms Culkoff submitted that the use of the word "sale" meant that any additional sum would have to be paid by the plaintiff. Mr Hogan-Doran submitted that as the terms of settlement were silent as to any further payment, the provision of the unit was to be on terms which did not require the payment by the plaintiff of any further money. 38I agree with Mr Hogan-Doran's contentions that if the parties had intended that the "at least $400,000" plus interest would be merely credited towards the purchase price, this would have been expressly provided for. A contract must be construed so as to preserve the validity of the transaction (Meehan v Jones (1982) 149 CLR 571 at 589 per Mason J). The plaintiff was quite explicit in what he wanted. It was to be a unit worth at least $400,000 plus the outstanding interest, which, as at 31 March 2013 would have been approximately $25,000. If the unit had been worth slightly more, that would have been a windfall to the plaintiff which would have offset the additional costs (such as stamp duty and legal fees), uncertainty (in that the unit may not have been able to be sold for the agreed price) and delay in the subsequent sale of the unit. What the defendants could not do was to provide a townhouse (as opposed to a unit) which was almost double the price of the settlement sum of $400,000. 39Mr Hogan-Doran referred to other factors which meant that the transaction was not "on reasonable terms", such as the price sought for the townhouse, for which there was no valuation evidence. For all the plaintiff knew, the townhouse's real value could have been $600,000, not $790,000. In addition, as the defendants were associated with the development, the plan could have been changed to render the townhouse less valuable, or for it to be the last one finished, or for the value of the finishings to be unacceptable (for example, there was no car parking, a problem for any Sydney property). 40For any one of these reasons, the Put and Call option proposed by the defendants was so unreasonable as to amount to non-compliance with the Terms of Settlement. 41Whether or not the Put and Call option was made on reasonable terms, was the plaintiff obliged to execute it?

Was the plaintiff obliged to execute the sale of land contract? 42It is clear from orders 5-7 and 8(b) that the plaintiff has the right, but not the obligation, to enter into the Put and Call Option arrangement. It is an alternative, and the need for the parties to be in agreement is reflected by the use of the term "reasonable" in the orders. 43Counsel for the plaintiff draws my attention to the following features of the terms of settlement: (a)Order 7 makes it clear that the obligations under orders 5 and 6 lie on the defendants, not upon the plaintiff; (b)There is no obligation upon the plaintiff in respect of the Put and Call Option, including no requirement for co-operation in relation to order 7; see Mackay v Dick (1881) 6 AC 251. 44Mackay v Dick has been discussed and explained by the NSW Court of Appeal in Fulham Partners LLC v National Australian Bank [2013] NSWCA 296 at [35]-[37]: "[35] ... Mackay v Dick involved a contract for the sale of an excavator, on condition that it passed a specified test. The test required the co-operation of the purchaser. There was an implied obligation on the purchaser to permit the test to be carried out. The purchaser was found to have breached that obligation and thus subverted the condition which determined whether or not it was liable to pay the purchase price. The House of Lords held that the vendor was entitled to judgment for payment of the price of the machine. [36] Mackay v Dick was not referred to in the written submissions of either party, or in the judgment of the primary judge. The remedy it espoused could only apply by analogy. It has been noted that there was no discussion in the House of Lords as to remedy: E Peel, Treitel - The Law of Contract (12th ed, 2007) at [2-116]. The comment in Treitel continued: In principle it seems wrong to hold him so liable, for such a result ignores the possibility that the machine might have failed to come up to the standard required by the contract, even if proper facilities for trial had been provided. It is submitted that the correct result in cases of this kind is to award damages for breach of the subsidiary obligation.... To hold the party in breach liable for the full performance promised by him, on the fiction that the condition had occurred, seems to introduce into this branch of the law a punitive element that is inappropriate to a contractual action. The most recent authorities rightly hold that such a doctrine of "fictional fulfilment" of a condition does not form part of English law. [37] Mackay v Dick has been referred to in the High Court, but generally in relation to the implied obligation of co-operation, not in reference to the remedy. There are large questions, involving both fact and law, as to whether a condition is taken to be satisfied only where one party has rendered its fulfilment "impossible" and whether cl 20.1 should be construed in the way proposed: cf Newmont Pty Ltd v Laverton Nickel NL [1983] 1 NSWLR 181 at 188 (a judgment of the Privy Council delivered by Sir Harry Gibbs). It was no part of the NAB parties' case that such a principle applied. It was a matter for the appellants to make good, if they wished to do so. As they did not clearly identify this as an issue in the proceedings, no finding should be made. Nor should the assumption be accepted." 45Nor can it be said that there was an implied term, in the terms of settlement, for the plaintiff to execute the sale of land contract. First of all, such an implied term is not necessary in order to give the terms of settlement a proper meaning, as the terms of settlement as enshrined in the orders provide that the settlement sum is $400,000 plus interest after a certain date. In addition, to imply a condition into the terms of settlement which is inconsistent with the express nature of those terms of settlement is impermissible (Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at 448; University of Western Australia v Gray (2009) FCR 346 at [136]; Yorkshire Water Services Ltd v Sun Alliance & London Insurance PLC [1997] 2 Lloyd's Rep 21 at 30, 33). 46The obligations placed upon the defendants are onerous, in the sense that they must provide "reasonable" terms. This, when combined with the absence of any obligation upon the plaintiff to effect the proposed alternative transaction, clearly indicates that the mere sending of a Put and Call Option is not enough to trigger the alternative procedure for settlement. 47Reading the orders as a whole, the orders make it clear that the provision of a unit was at the plaintiff's option in lieu of the $400,000 plus interest at the UCPR rate (which is 9.5%) as opposed to the interest under the deed of loan sued upon. 48Counsel for the plaintiff also submits that there are significant defects in the form and content of the Put and Call Option. I shall briefly summarise these as follows: (a)They were not executed by the defendants themselves but by corporations that were strangers to the transaction. The first defendant was a director of one of those companies, but the other company had no connection with the transaction and was not a party under the control of the Court orders. If one or both of these companies defaulted, enforcing the provisions of the terms of settlement would become a significant difficulty. (b)Options must be exercised strictly in accordance with their terms: Tonitto v Bassal (1992) 28 NSWLR 564 at 574 per Sheller JA. Clause 4 of the Put and Call Option required that it be served with a contract "duly executed by the vendor". This was not done. (c)There is no evidence that Lot 4 was worth $400,000 plus interest at the time of settlement and there is great uncertainty about what is in fact being sold. While I am prepared to infer that a townhouse in Petersham is unlikely to be worth less than $400,000, that would only be the case if it remained in the form set out in the Put and Call Option. The vendors had the right to amend the draft plan and could have changed Lot 4 to reduce its value considerably. In addition, there was no timetable for the subdivision (it would appear that the subdivision has not been finalised, even at the time of this application) and there was no obligation on the unrelated companies, or the defendants if the subdivision was not achieved (see special conditions 20, 21 and especially 30(b)). (d)There are a number of less significant issues, such as the inability of the plaintiff to make requisitions on title, the absence of schedule of finishes and the impact of the fact that the townhouse in question has no garage, carport or car space. 49Even if these terms were objectively reasonable, the plaintiff was not obliged to accept the offer of a unit in lieu of the $400,000 judgment sum.

Was the townhouse the "first available"? 50The defendants were compelled by the settlement orders to offer the first unit that was available. They submit that the only "unit" that could be provided was this unit, because it was the "first available". 51There are three problems with this argument: (a)The defendants were the persons best placed to decide which unit was "first available", as they were the developers of the property at 136-138 New Canterbury Road, Petersham. There was no reason why they could not have made such arrangements as were necessary for the "first available" property to be a unit worth at least $400,000 plus UCPR interest. Examination of the floor plans shows a number of such units in the proposed development, which were one-bedroom units with small balconies, and would clearly fall within the parameters of a property of this value. (b)The plaintiff submitted that the evidence showed all units were "available" in theory as all could be sold "off the plan". In the course of negotiations, Mr Katter told the plaintiff: "There have been sales off the plan and we expect the presales to be completed by Christmas [2012]". Mr Fullick, the solicitor for the plaintiff, was also present. He said "When do you expect to have the premises at lock-up stage with an occupation certificate and a certificate of title to issue in your names?" Mr Katter replied: "By Christmas".This was part of the discussion the parties had in relation to the choice of a date in 2013 in the Terms of Settlement, to allow for any delays in the building work.There was a challenge to this evidence on the basis that it was impermissible, as it amounted to interpretation of the contractual terms. However, that evidence has a secondary and more important purpose (and it was put forward solely on this restricted basis), namely it confirmed the fact that there had already been presales "off the plan" in this development. In those circumstances, the defendants could not be heard to say that this $790,000 townhouse was the first property available to be sold off the plan or any other basis.I indicated to the parties that I would defer ruling on the admissibility of the contents of paragraphs 10 and 11. I propose to admit them on the restricted basis that Mr Katter made admissions that there had been sales off the plan and that pre-sales were expected to be completed by Christmas 2012. The alternative would be to require the production by the defendants of all sales off the plan in order to determine the dates. Such a task would be not only onerous but unnecessary. (c)Finally, and most importantly, the phrase "first available" did not mean the first property available to be sold off the plan. The draft plan had been formulated in May 2012. The phrase "first available" needs to be read in the context of terms of settlement which required, as is common with all terms of settlement, that settlement be effected sooner rather than later. In those circumstances "first available" meant "first available" in the sense of being available for the plaintiff to be able to resell (i.e. a completed apartment, ready for occupation).

The impact of the price to be paid for the unit 52The principal objection the plaintiff had to the proposed property was that, with a sale price of $790,000 he was effectively paying $390,000 (if not more) in order to recover the original $400,000 in the terms of settlement he had agreed to. 53The terms of settlement do not speak of any payment at all by the plaintiff. The plaintiff is to receive either a payment of $400,000 by the due date, or a unit. The terms of settlement are silent as to what is to happen if the unit is worth more than the "at least $400,000", and Ms Culkoff submits that this means that the additional cost must be borne by the plaintiff. 54This submission is misconceived. The plaintiff would have incurred substantial costs, including stamp duty and conveyancing fees, particularly since the unit in question was intended to be sold, as well as all of the consequential delays arising from accepting goods in kind as opposed to a sum of money. 55A contract may be void for uncertainty where the purchase price is dependent upon the price being determined as "reasonable" (see Hall v Busst (1960) 104 CLR 206 at 228 per Walsh J). However, the purchase price here was quite clear. It was to be "at least $400,000" plus outstanding interest. 56All that the defendants had to do was to provide a Put and Call Option for a property which was worth at least $400,000 plus the outstanding interest (which at the time of the Put and Call Option, being provided on 14 December 2012, was approximately $25,000). The failure to do so, or to answer the complaints of the plaintiff in the letter of 25 January 2013, is relevant to the test for setting aside judgment under UCPR r 36.15, to which I now return.

Was entry of judgment "against good faith"? 57In practical terms, a default judgment signed contrary to the terms of a contract or other agreement between the parties may amount to absence of good faith: Roach v B & W Steel Pty Ltd (1991) 23 NSWLR 110 at 113 - 4, citing Cash v Wells (1830) 109 ER 826. 58No argument is brought as to the circumstances in which the terms of settlement were agreed (such as a submission that the entry of judgment for $1 million is oppressive, or amounts to a penalty). Nor is any other argument put before me as to duress, mistake or any other basis upon which entry of judgment following terms of settlement, or the agreement upon which it is based, could be invalidated (Harvey v Phillips (1956) 95 CLR 235 at 243-244). The submission is that entry of judgment for $1 million was against good faith because there had been a tender of the equivalent of the full sum involved. 59However, not only were the terms of the Put and Call Option incapable of amounting to being "reasonable" but the defendants' failure to reply to the letter of 25 January, or to take any step other than repeat their offer on 26 March (by which time it was effectively too late to comply with the orders) is also relevant. Their position was that, by not signing the Put and Call Option, the plaintiff had lost all rights to enter judgment even for $400,000, which was the agreed settlement sum up until 1 April 2013. 60The defendants were given ample notice by the plaintiff of his intention to enter judgment for $1 million. As the correspondence, and entry of judgment after such notice, demonstrates, no matter how strongly the opposing party disputes such a step, cannot, without more, amount to absence of good faith, for the reasons explained by the NSW Court of Appeal in Roach v B & W Steel, supra. The entry of judgment was not "against good faith", and the defendants' notice of motion is dismissed with costs.

Conclusions and orders 61I make the following orders: (1)The defendants' notice of motion seeking to set aside judgment for $1 million entered on 23 July 2013 is dismissed. (2)The defendants' oral application to amend the notice of motion and, in lieu of order (2), seek a declaration is dismissed. (3)Defendants pay plaintiff's costs. (4)Liberty to apply in relation to costs. (5)Exhibits retained for 28 days.

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