(6) … any agreement found to have been made … was made by the [Fahds] solely to avoid paying Capital Gains Tax, the agreement is illegal and not enforceable by the Court.
9 The following statement of facts is based on the Trial Judge's findings. The Trial Judge dealt with the facts meticulously and at length, and it is not necessary to state them in the same detail now.
10 Mr Fahd and Mr Nassif were known to each other as members of the Lebanese Christian community. The Fahds agreed by two contracts of 25 July 2002 to purchase the York Street properties from Mr and Mrs Clarke for $2,010,000, settlement to be delayed for six months. The Nassifs were anxious to purchase the property which was suitable to their needs including needs relating to care of their invalid son. Mr Nassif found that they had been unsuccessful in attempts to purchase the property from the Clarkes, and a mutual friend Mr Peter Maroun arranged a meeting between Mr Fahd and Mr Nassif within a couple of weeks of the contract between the Fahds and the Clarkes. Mr Nassif, representing the Nassifs, and Mr Fahd representing the Fahds agreed that the Nassifs would pay the Fahds at least $150,000 in addition to the contract price to secure the property for the Nassifs. The Trial Judge found (resolving a dispute on the evidence) that Mr Nassif agreed that he would also pay the Fahds' out-of-pocket expenses.
11 Ms Belinda Kenneally solicitor was at that time acting for the Fahds on their purchase from the Clarkes. Mr Nassif and Mr Fahd saw Ms Kenneally on 23 August 2002 when Mr Fahd explained, in the presence of Mr Nassif, that agreement had been reached for the Nassifs to pay an additional $150,000 out of the contract price, and were to purchase the property, and that this result was to be achieved by Ms Kenneally arranging for rescission of the contract between the Fahds and the Clarkes and for another contract to be exchanged between the Nassifs as purchasers and the Clarkes. Ms Kenneally suggested (as a lawyer well might) that she prepare a written agreement recording the collateral arrangement, and Mr Fahd told her that it was a private arrangement, that there was no need to reduce it to writing, that writing would defeat the purpose and that Mr Nassif was a man of honour and that it would cause embarrassment if he doubted him and put the arrangement in writing. Ms Kenneally made appropriate file notes but did not prepare a written agreement. She conducted negotiations with the solicitors for the Clarkes, and initially it seemed that the Clarkes would rescind their contract and enter into a new contract with the Nassifs. Then there was delay; one of the Clarkes died, probate was obtained and the surviving vendor refused to make the rescission arrangement. The surviving vendor insisted on completion, and the Fahds were obliged to complete and did so on 7 April 2003. The Fahds incurred stamp duty of $96,050, which they would not have incurred if there had been a rescission; the Nassifs would have incurred stamp duty on the new contract between themselves and the Clarkes which was contemplated but did not come about. This brought an end to Ms Kenneally's retainer for the Nassifs: there was nothing else that Mr Nassif had asked or authorised her to do. The Nassifs regarded the initial agreement as at an end when it became clear that the Clarkes would not rescind their contract with the Fahds. When the Fahds settled their purchase there was no further room for the arrangement between Mr Fahd and Mr Nassif, of which Ms Kenneally had been told, to have any operation. As the Trial Judge concluded, the first agreement lapsed.
12 The Fahds claimed and the Trial Judge found that within a few days after settlement Mr Nassif and Mr Fahd met again and agreed orally a similar arrangement for a payment collateral to sales of the two properties by the Fahds to the Nassifs. Out-of-pocket expenses which would fall to be paid under that arrangement were considerably more than the out-of-pocket expenses to which the earlier or arrangement would have related, as the Fahds had incurred stamp duty and costs in their purchase. Mr Fahd instructed Ms Kenneally on 11 April 2003 to prepare a contract for the sale by the Fahds as vendors to the Nassifs as purchasers for the same prices and total price as in the purchases from the Clarkes. Mr Nassif did not consult or see Ms Kenneally in relation to these instructions, did not give her any account of the collateral arrangement and was not present when Mr Fahd gave Ms Kenneally his account. When Mr Fahd gave Ms Kenneally instructions to prepare contracts to sell the properties to the Nassifs, he said "Can you please prepare the necessary contracts. It is on the same agreement as before." Ms Kenneally's evidence about the collateral arrangement was to the effect that Mr Fahd said to her "Now look Belinda, don't worry about that, Sarkis and I have got that under control, just put the same thing on this contract for moneywise as it was on the Clarkes' two contracts."
13 All Ms Kenneally's professional responsibilities towards the Nassifs and her retainer from Mr Nassif for business relating to the Clarkes' sale had come to a definitive end. The Nassifs instructed Mr Robert Bounassif solicitor to act for them on the purchase from the Fahds. Ms Kenneally prepared the forms of contract; Mr Nassif collected them from her office on 23 April 2003; contracts were exchanged on 28 April 2003 and the purchase was settled on 5 June 2003; the purchase prices paid and accounted for on settlement totalled $2,010,000 and nothing was paid at that time in respect of any collateral arrangement.
14 Mr Nassif's account of the arrangements which led to the sales from the Fahds to the Nassifs was completely different to Mr Fahd's account. According to Mr Nassif arrangements for the sale by the Fahds to the Nassifs were made orally before the Fahds settled their purchase, and were not made in response to a request by the Nassifs to purchase the property but in response to a statement by Mr Fahd that the Nassifs could purchase the property for the price for which he had bought it, without a collateral arrangement for payment, because he had other major financial commitments and needed a quick settlement with early release of the deposit; and that Mr Nassif told Mr Fahd that he was happy to move as quickly as possible considering that Mr Fahd no longer wanted the extra $150,000. Mr Nassif denied that there was ever an agreement at any stage to reimburse out-of-pocket expenses, either at the first stage or at the second stage. The Trial Judge rejected Mr Nassif's evidence about this.
15 There was a considerable body of evidence about communications in which attempts were made to persuade Mr Nassif to make payments or the subject was otherwise discussed and he made statements which in some cases might have been seen as commitment. These included a dinner meeting at Candelori's restaurant in Smithfield attended by Mr Nassif, Mr Fahd and Mr Maroun in October 2003, a breakfast meeting at Mr Maroun's house also in October 2003 attended by the same persons and Mr Khattar and a meeting in August 2004 at Rydges Hotel Rosehill attended by Mr Nassif and Mr Bounassif his solicitor, Mr Maroun and Mr Khattar, in which the contents of an affidavit which Mr Maroun had made were discussed. The Trial Judge reviewed the evidence on these matters in detail as he proceeded to his findings.
16 The Trial Judge's conclusions on the facts were very strongly based on close consideration of the evidence in detail. His Honour relied not only on his preference, for reasons clearly expressed, for the credibility of Mr Fahd's evidence in contrast to that of Mr Nassif, but also on many corroborating events and circumstances proved by the evidence of other witnesses, and from objective circumstances, such as Mr Nassif having left with Ms Kenneally in relation to the first transaction cheques for out-of-pocket expenses; the cheques were not used and were returned to him when the first transaction came to a conclusion. Some of the corroboratory evidence was very striking, including evidence of the responses of Mr Nassif to requests and demands for additional payment after settlement of the purchase from the Fahds, and explanations of his position which witnesses said Mr Nassif had given.
17 At the hearing submissions were made by the appellants' Senior Counsel in support of some of the questions raised by the Notice of Appeal before amendment. It was suggested during cross-examination that Mr Fahd bought the properties with the intention of developing the land with cluster houses, that he found that this development proposal would not be allowed because of heritage listing, and for that reason he was anxious to divest himself of the property and ready to forego the collateral advantages that he had earlier arranged for. The Trial Judge found (Red 65 [105]):
105 In this regard I accept the Plaintiff's evidence that it was not his intention to develop the property in the manner suggested. I also accept that he was aware at all relevant times of the heritage listing which did not affect his motivation in respect of his acquisition of the property.
18 The contention on appeal was (Orange 7U-8E):
A. The finding in paragraph 105 of the Judgment where His Honour accepted the evidence of Mr. Alex Fahd that it was not his intention to develop the subject property by putting cluster houses on it where His Honour did not consider the evidence of both Mr. Sid Saad and Mr. George Khouri, whose evidence was to the opposite effect. His Honour placed emphasis on the fact that Mr. Fahd was doing a favour for Mr Nassif (paragraph 106. Judgment) and that his motivation in selling the property to the Appellants was his concern for the welfare of the Appellants and their infant son.
19 It was also contended (Orange 8S-9I):
6. His Honour did not accept that Mr. Fahd in reality wished to develop the subject property and put town houses or cluster homes on it. On the one hand Mr. Fahd was said to be acting because of the circumstances of the Appellants and their son but, on the other hand, it was put that Mr. Fahd was acting in his own commercial interests in attempting to redevelop the site and subsequent to ascertaining that the site could not be redeveloped he made a decision to sell it. The evidence of Messrs. Saad and Khouri goes to prove the latter version.
7. His Honour accepted Mr. Fahd's evidence without dealing with the evidence of these two independent witnesses.
8. In his affidavit sworn 10 November, 2004 paragraph 3. Mr Saad recounts a conversation with Mr Fahd in early 2002 where Mr. Fahd indicated that he was looking to do something on the property and was thinking about erecting cluster homes thereon. Mr. Fahd denies this conversation - Transcript, day 2, page 53, lines 45-55.
20 Evidence was given by a witness named Mr Saad that he had a conversation with Mr Fahd in early 2002 in which Mr Fahd indicated that he was looking to do something on the property and was speaking about erecting cluster homes there; Mr Fahd denied this conversation. Mr Khoury, a qualified draughtsman who had known Mr Fahd for a long time and had done work for him, said to the effect that in early August 2002 Mr Fahd had told Mr Khoury of his purchase and referred to his desire to put a new development on the land. There were according to Mr Khoury's evidence further conversations touching on whether Mr Fahd was aware that the property was heritage-listed and on the nature of the development which could be placed on the land.
21 The matters of which these witnesses spoke have no more than a very indirect bearing on the probabilities or on the acceptation of Mr Fahd's evidence about what influences bore on him in April 2003, and on what he in fact said to Mr Nassif in the disputed conversation.
22 As I have already shown, the Trial Judge comprehensively rejected Mr Nassif's account in evidence of the arrangements made after Mr Fahd had settled his purchase from the Clarkes. In doing so the Trial Judge rejected the view of the facts that Mr Fahd was ready and anxious to pass on the properties to Mr Nassif for the total prices he had paid for them without any extra consideration, and told Mr Nassif to that effect. The evidence relating to the suggestion that Mr Fahd was motivated by some failed development of cluster houses received relatively little attention from the Trial Judge, and while not insignificant was no more than a small part of the array of considerations which the Trial Judge brought to bear on his decision not to accept Mr Nassif's evidence and to accept Mr Fahd's evidence. The principal foundation of that finding, among many foundations, was that Mr Nassif did not give the Trial Judge a good impression in giving his own evidence, having regard to inconsistencies and some aspects of demeanour. On the cluster housing issue, and indeed on issues generally, it could not be said that the Trial Judge was in error in not referring in the course of his reasons to every matter with respect to which there was some evidence bearing on a finding. In my opinion the Trial Judge gave sufficient consideration to the basis of his finding, and sufficiently communicated that basis to the parties in the reasons given in the judgment.
23 The Trial Judge considered and rejected the contention that the purpose of failing to record the agreement in writing was to avoid the payment of taxation of some kind. The Trial Judge found (Red 68 [117]): "I accept that the parties being members of a tight-knit Lebanese Christian community regarded their agreement as based on honour, the phrase that has emerged frequently during the course of the evidence." It was the Trial Judge's view that the agreement was legally enforceable. On the point relating to the alleged purpose of avoiding Capital Gains Tax or income tax, the Trial Judge's finding was based on the simpler ground of acceptation of Mr Fahd's evidence about his purpose. Submissions by the appellant's counsel raised no substantial reasons for concluding that the Trial Judge was in error in this finding.
24 The Trial Judge's findings on the collateral arrangement on which the litigation is based were as follows (Red 65L-R [107]-[108], 66R-U [113]):
107 I am satisfied having regard to the whole of the evidence that there was an agreement between the Plaintiff and Defendant to transfer the two properties on the basis that the Defendants would pay the Plaintiffs $150,000.00 together with " out of pocket expenses ".
108 The out of pocket expenses were not particularised in any of the discussions between the parties.
…
113 Having regard to those findings I find there was a collateral agreement between the Plaintiffs and Defendants.
25 The Trial Judge did not spell out what he found to be the consideration for the collateral agreement; but the only interpretation reasonably available of the conversation evidence which Mr Fahd gave is that the consideration for the promise to make the collateral payments was to be entry into the agreements for sale. The Trial Judge's findings at [107], taken in the context of the judgment including extensive references to the evidence of Mr Fahd which the Trial Judge accepted, should be understood as a finding that there was an oral agreement to the effect that in consideration of the Nassifs and the Fahds entering into written contracts of sale at prices totalling $2,010,000.00 the Nassifs would pay the Fahds $150,000 together with out-of-pocket expenses.
26 The closest approach which was made before the Trial Judge to the point on which in my opinion the appeal should be disposed of is referred to in the judgment (Red 67 [114]):
114 Mr Warren in his written submissions referred to the Plaintiff's case as relying upon a collateral agreement. He submitted that the terms of the collateral agreement related solely to price paid for the property and that there was no valid or justifiable reason why the price could not have been included in the written contract of sale.
27 Several legal principles prevent or limit access to or reliance on material other than the express terms of a written agreement for the purpose of ascertaining the meaning of the agreement. When addressing fact-finding the courts do not readily accept that a collateral warranty or promise has in fact been made to a different effect to the terms found in the written document which the parties proceeded to enter into. This was expressed in Shepperd v Ryde Corporation (1952) 85 CLR 1 at 13 thus:
The reluctance of courts to hold that collateral warranties or promises are given or made in consideration of the making of a contract is traditional. But a chief reason for this is that too often the collateral warranty put forward is one that you would expect to find its place naturally in the principal contract.
28 Speaking in the most general way, probability does not favour a finding that parties who carefully set out their agreement at length and in writing also intended to be bound by another arrangement made by word-of-mouth and not set out or recorded in their written agreement. But this is not conclusive, as is shown by the decision in Shepperd's case itself. Counsel for the Nassifs referred the Trial Judge to this consideration, and it would seem, to Shepperd's case. The submission, and the Trial Judge's treatment of it, related to the probabilities and to the influence on fact-finding of the consideration mentioned in the passage in Shepperd's case which I have set out.
29 A statement, in even stronger terms than in Shepperd's case, of the suspicious and strict approach taken by courts to collateral contracts the sole effect of which is to vary or add to the terms of a principal written contract was made by Lord Moulton in Heilbut, Symons & Co. v Buckleton [1913] AC 30 at 47.
30 The argument on appeal invoked a different difficulty, with some relation to that in Shepperd's case: a legal rule prevents effect from being given to collateral agreements which are made in consideration of entering into the principal contract but are inconsistent with the principal contract. This rule is not referred to in the judgments in Shepperd's case. It is very clearly established by authority in the High Court of Australia. In Hoyt's Proprietary Ltd v Spencer (1919) 27 CLR 133 at 147-148 Isaacs J, after a characteristically exhaustive review of authorities, said:
The truth is that a collateral contract, which may be either antecedent or contemporaneous (per Erle C.J. and Byles J. in Lindley v . Lacey [17 C.B. (N.S.) at 586 and 587] and per Cockburn C.J. in Angell v . Duke [L.R. 10 Q.B. at 177]), being supplementary only to the main contract, cannot impinge on it, or alter its provisions or the rights created by it ; consequently where the main contract is relied on as the consideration in whole or part for the promise contained in the collateral contract, it is a wholly inconsistent and impossible contention that the other party is not to have the full benefit of the main contract as made; and the appellant's first contention is therefore unsound. If in any case the Court finds two enforceable agreements executed in such circumstances that one is intended to affect the other, no doubt such effect will be given to them as the superimposing operation of the governing contract requires; but in that case it is not collateral, but dominant. (See the observations of Fry J. in Gartside v .Silkstone and Dodworth Coal and Iron Co. [21 Ch. D. 762 at 767-8].)
31 In Cutts v Buckley (1933) 49 CLR 189 at 201 Evatt J made a brief reference to this subject: "It is true, as Mr. Watt pointed out, that a collateral verbal warranty may co-exist with a written agreement containing express warranties upon other matters, providing there is no inconsistency." Evatt J referred to Heilbut, Symons & Co. v Buckleton as the leading case on the subject and as containing statements of principle.
32 In Maybury & Anor v Atlantic Union Oil Company Limited (1953) 89 CLR 507 the High Court (Dixon CJ, Fullagar and Taylor JJ), in an ex tempore judgment delivered by Dixon CJ, said at 517:
A collateral agreement made in consideration of a main agreement cannot effectively subsist unless it is consistent with the main agreement. Once an agreement is made in writing it is treated, unless the parties are shown otherwise to intend, as the full expression of their obligations. It is established that the writing was intended to contain only part of a fuller agreement it may be otherwise. That, however, is not the present case. But it may be established that an entirely separate agreement was made by the parties. One of them may give a collateral promise in consideration of the other entering into the principal agreement. But if such a collateral agreement is to have effect as a contract it must be consistent with the provisions of the main agreement, the making of which by the other party provides that consideration. If the promise sought to modify, control or restrict the principal agreement it would detract from the very consideration which is alleged to support the promise.
33 Later at 517-518 their Honours held that the oral collateral agreement alleged conflicted with the main agreement and could not stand with it, and went on to refer to part of the passage in the judgment of Isaacs J in Hoyt's Proprietary Ltd v Spencer which I have set out. Their Honours said at 518: "The collateral agreement which is alleged does impinge on the clause which I have read, and does affect to alter the rights created by it. We therefore think that the collateral agreement cannot stand with the main agreement and is unenforceable."
34 This principle and the observations of Isaacs J in Hoyt's Proprietary Ltd v Spencer were applied in the Court of Appeal in Esanda Ltd v Burgess & Anor [1984] 2 NSWLR 139 see 144-145 (Hutley JA), 145-156 (Samuels JA); and see too 152 (Priestley JA who dissented). This rule was again stated, in short terms, in Gates v The City Mutual Life Assurance Society Limited (1986) 160 CLR 1 at 5-6 (Gibbs CJ), 11 (Mason, Wilson and Dawson JJ).
35 When the collateral agreement and the written contracts are taken together inconsistency appears immediately; the written contracts specify prices totalling $2,010,000.00 but the money to be payable under the collateral agreement is to include further sums. The inconsistency which so appears is enhanced by the terms in detail of the written contracts. In each contract of sale (and the relevant provisions in both are identical) the amount of money which is the price is stated on the front page (Blue 2/308). This reference to the price is picked up by Printed Clause 16.7 (Blue 2/314) which says, "On completion the purchaser must pay to the vendor, by cash (up to $2,000) or settlement cheque, the price (less any deposit paid) and any other amount payable by the purchaser under this contract (less any amount payable by the vendor to the purchaser under this contract)." Each contract also contains Special Condition 31 (Blue 2/320) which is in the nature of an "Entire Agreement" clause and provides, among other things and regardless of grammar, "The Purchaser acknowledge that they buy the property relying on their own inspection, knowledge and enquiries and that they do not rely on any representations, if any, made to them by or on behalf of the Vendor and the parties agree that there have been no warranties and no agreements, conditions and undertakings made between the parties hereto other than those in writing contained in the Contract."
36 It would be inconsistent both with the provisions relating to the price, and also with the Special Condition, to give effect to a collateral agreement under which the sum of money agreed to be paid in the contract is not the only sum of money which the vendor is to pay to the purchaser in relation to the sale, and there is any further amount to pay, whether described as commission, out-of-pocket expenses or in any other way.
37 Counsel for the respondent referred to passages in the judgment of Knox CJ in Hoyt's Proprietary Ltd v Spencer at 138-139 which he contended give a wider operation to collateral agreements. The learned Chief Justice said at 139: "A distinct collateral agreement, whether oral or in writing, and whether prior to or contemporaneous with the main agreement, is valid and enforceable even though the main agreement be in writing, provided the two may consistently stand together so that the provisions of the main agreement remain in full force and effect notwithstanding the collateral agreement."
38 If this should be understood to express a different test and a different view of inconsistency to the judgment of Isaacs J, that is not a view which has prevailed. It is not clear to me that Knox CJ in fact supported a broad view of inconsistency in which it was enough merely that both provisions could be complied with. This was, in substance, the basis on which counsel for the respondent argued that there was no inconsistency. In Maybury v Atlantic Union approval was expressed of Isaacs J's expressions, and the view taken by the High Court in that case of inconsistency appears to be the same view as that expressed by Isaacs J.
39 The circumstances in which the point on which the case turns was first brought forward, and the manner in which the Nassifs conducted their case at the trial and indeed at most preparatory points in the appeal proceedings bring under consideration the question whether the ordinary course in which costs follow the event should be followed. If the significant matter had been brought forward in what I regard as a proper way, early in the proceedings at the point where Notice of Grounds of Defence was filed or otherwise in advance of the trial, it is overwhelmingly likely that the trial would have been much shorter and simpler, if it had taken place at all, and would not have occupied seven days. Then too, there would have been no need for an appeal. The ordinary reasoning in which a successful litigant recovers costs does not appear to me to be applicable; there has been a significant failure of procedural justice, as a result of the Nassifs' not having brought forward their significant point at a time when it was reasonable to do so, leaving the Fahds in a position where they were committed to the litigation and the expense and trouble which it involved. A significant amount of public and private resources and judicial time has been used for which it is in retrospect not possible to see an appropriate need. In the circumstances I am of the view that the Court of Appeal should call on the parties for written submissions dealing with the order for costs which should be made in the light of the Court's decision. For my own part the starting point for consideration, which could of course be dislodged if adequate reasons were shown, should be that the Nassifs should not recover any costs, either in the Court of Appeal or in the District Court, but that each party should be left to bear its own costs at each stage. However before a decision is made on the order for costs the Court should direct that each party make a written submission, within seven days, on the question of costs, and reply in writing to the opponent's submission within a further seven days.
40 In my opinion the Court of Appeal should order: