P G Rogan & Ors v Rushton

[1] On 1 September 1997, the Rushton valuation business, established in Australia in about 1974, was being carried on by Edwin Rushton Pty Ltd, the shares in which were held by Bruce and Susan Rushton. The Rushtons, pursuant to an agreement of that date styled "Rushton Group Equity Holders Agreement" ("the Equity Agreement") sold their shares in Edwin Rushton Pty Ltd to Rushton Group Pty Ltd. Parties to the agreement included Rushton (Qld) Pty Ltd and Senmead Pty Ltd, the first and second plaintiffs in action 10771/01 (companies controlled by Phillip Holzberger) and Rushton (Vic) Pty Ltd, Rushton (SA) Pty Ltd, the second and third defendants in action 10771/01 (companies controlled by Peter Rogan). Another party to the agreement was the first defendant, Rushton (NSW) Pty Ltd.

[2] In general terms, the effect of the Equity Agreement was to transfer ownership of the Rushton valuation business to entities controlled by Mr Holzberger and Mr Rogan. The Holzberger interests were given the right to use the Rushton name in connection with a valuation business in Queensland and Papua New Guinea and the Rogan interests were given similar rights in respect of Western Australia, Tasmania, Victoria and South Australia. Both the Rogan and Holzberger interests were to participate in the valuation business carried on in New South Wales under the Rushton name. The assets of the valuation business were distributed between the Holzberger and Rogan interests and the shared entity which was to carry on the New South Wales business.

[3] Under an agreement dated 22 October 1999 ("the Sale Agreement") the Holzberger interests sold to the Rogan interests for a consideration of $1,450,000, their interests in the New South Wales business, their interests in three partnerships and shares in three specified companies. The agreement still contemplated though that the Rushton business would be presented to the public as a National one with operations in New Zealand, Papua New Guinea and Fiji.

[4] On 8 June 2000 Rushton (Qld) commenced proceedings in the Supreme Court of Victoria against Rushton (Vic), Rushton (SA) and Rushton (NSW) for alleged breaches of the Sale Agreement. Prior to any trial of the proceedings the dispute was compromised. Counsel for the parties signed a document headed "Memorandum Of Understanding Of Terms To Be Incorporated into the Sale Of Business Interests Agreement dated 22 October 1999 and Other Matters" ("the Memorandum"). The Memorandum set out, in some detail, a new regime for the manner in which referral work was to be carried out and remunerated.

[5] These proceedings were heard together with proceedings commenced in the Supreme Court of Queensland by Rushton (Qld), Senmead and Apada Investments Pty Ltd against Rushton (NSW), Rushton (Vic) and Rushton (SA).

[6] Mr Rogan, Rushton (SA) and Rushton (Vic) claim against Rushton (Qld), Senmead and Mr Holzberger for a declaration that the defendants are obliged by the Sale Agreement to execute a deed of option executed by OAMPS Ltd forwarded by the plaintiffs to the defendants and for an order that the defendants execute the deed forthwith. The better relief was abandoned during the hearing.

[7] The defendants resist the plaintiffs' claims on grounds that -

(a) there is no obligation on the defendants to execute the option as it fails the requirements of clause 13.5 of the sale agreement;

(b) there is no obligation on the defendants to execute the option or to give consent to the sale contemplated by it as there is no "sale or transfer" within the meaning of clause 13.5;

(c) if, contrary to the defendants' contentions, they are in breach of clause 13 the plaintiffs are not entitled to specific performance as -

(i) they are and were not ready and willing to perform their own obligations under the sale agreement and they do not have clean hands.

[8] It is convenient to consider the above arguments separately.

[9] Under clause 13 of the Sale Agreement, the Rogan Group grants an option to the Holzberger Group to acquire the "Rogan Name Rights"[1] which is exercisable by notice in writing to the Rogan Group within 30 days of the happening of a "Trigger Event". "Trigger event" is defined in clause 13.6 as follows -

For the purpose of this clause 13 the following words have the following meanings:

(1) becomes bankrupt, insolvent under administration or an externally administered body corporate;

(3) is fraudulent in connection with the operation of its Business;

(b) a finding by the arbitrator pursuant to clause 11.5 that the defaulting party has failed to remedy a breach of the rules and regulations;

(c) The Rogan Group sells or transfers any legal or beneficial interest in the Rogan Name Rights without the prior written consent of the Holzberger Group."

The Holzberger Group must provide to the Rogan Group its written consent to a sale or transfer of any legal or beneficial interest in the Rogan Name Rights provided that the transferee enters into a deed of option on substantially the same terms as the option contained in this clause."

It is this provision which is being invoked by the plaintiffs.

[11] The "Rogan Name Rights" are defined in clause 13 to mean "all or any rights associated with the Business Names, including goodwill and any intellectual property rights used in connection with the business conducted by the Rogan Group in Victoria, South Australia ... New South Wales ... Western Australia ...".

[12] Clause 12.5 mirrors clause 13.5 and clause 12.1 grants an option by the Holzberger Group to the Rogan Group to acquire the Holzberger Name Rights. Those rights are defined by reference to Queensland and Papua New Guinea.

[13] The deed of option is expressed to be entered into between OAMPS as grantor and Rushton (Qld), Senmead and Mr Holzberger as the grantee. It provides that -

(a) the grantee consents to the sale and transfer by the Rogan Group to the grantor of the Rogan Name Rights;

(b) with effect from completion of the sale the grantor grants an option to the grantee to acquire the Rogan Name Rights for the option price on the terms set out in the deed.

[14] The deed mirrors the terms of clause 13 save that in its definition of "Trigger Event", paragraph (b) of clause 13.6 has been omitted. The defendants argue that the omission has the result that there is no deed of option in "substantially the same terms as the option contained in ... clause 13".

[15] It is difficult to do justice to the plaintiffs' argument without setting it out in full but I will try. The argument commences with a reminder that in construing the relevant terms the court should prefer a construction which "will avoid consequences which appear capricious, unreasonable, inconvenient or unjust".[2] It is also contended that "substantially similar" comprehends something more than a mere change in the name of the parties to the various promises.

* The context in which the Sale Agreement was entered into was that -

(a) the Holzberger and Rogan interests under the Equity Agreement shared in the NSW business;

(b) the Sale Agreement "emphasises the Holzberger - Rogan personalities as being integral";

(c) the purpose of the Sale Agreement was to transfer the NSW business to the Rogan interest as a result of disputes;

(d) the agreement sought to regulate the relationship between the Rogan and Holzberger interest in a detailed way.

* At the date of the Sale Agreement the Holzberger Group included Senmead which executed the Sale Agreement in its own capacity and as trustee of the Rushton (Q) Employee Benefits Trust.

* As the removal of Senmead effected a change in the legal interests in the Holzberger Names Rights, consent under clause 12(6) of the Sale Agreement was required. That issue is being litigated in other proceedings.

* By operation of s 15 of the Trusts Act 1973 the benefit of the Sale Agreement was assigned to Aparda Pty Ltd, the new trustee, but not the burden. Thus the whole Holzberger Group, as defined in the Sale Agreement, is unaltered "but with the added complication that part of the benefit of the contract is vested in Apada and the burdens remain in Senmead".

* The Rogan Group retains its rights under the Sale Agreement against Senmead and Rushton (Q).

* The defendants contend that any potential purchaser should enter into an agreement which ties it to the obligations in clause 11.13 and 14 of the Sale Agreement and schedules 3 and 4. Nothing in clause 13 so provides and it is unlikely that a purchaser has the obligation to "go looking for and make decisions about what other obligations it must assume derived from elsewhere in the contract".

* Schedule 3 and 4 contain provisions "which are Rogan and Holzberger specific" and are not readily amenable to the substitution of third parties".

* It is remarkable that the option clause makes no mention of incorporation of the detailed provisions of schedules 3 and 4 and other provisions of the Sale Agreement in the option if the parties had intended that result. Rather, the parties required that the deed be "substantially similar".

* The contention that the mutual reciprocal obligations in the Sale Agreement form part of what is required to achieve substantial similarity is wrong because the level of protection accorded to the Holzberger Group would be outweighed by that which is accorded to the Rogan Group or a transferee.

* If the Rogan Group wished to protect its interest and of the Sale Agreement, there would be difficulty in obtaining redress against Apada as it is not a member of the Holzberger Group or a party to the Sale Agreement. As a result of Apada substitution for Senmead the benefit and burden of the interstate arrangements and restrictions on competition are no longer mutual and reciprocal and in the absence of mutuality and reciprocity the terms of a transfer ought be confined to those provisions of the trigger events set out in clause 13.6(a) and (c).

[17] The Sale Agreement is a sophisticated legal document. One may infer that commercially experienced solicitors were involved in its preparation and that careful consideration to its terms was given by the solicitors and their respective clients. In those circumstances, it is improbable that the parties laboured under the misapprehension that the effect of a transfer of either the Rogan name rights or the Holzberger Name Rights would be to bind the transferee to the terms of the Sale Agreement in the absence of the transferee actually agreeing to be so bound. That conclusion has a significant bearing on the question of whether the proposed deed of option is "on substantially the same terms" as the cl 13 option.

[18] The Sale Agreement is a commercial document and should be construed with a view to making commercial sense of it.[3]

[19] In Antaios, Lord Diplock, in discussing the imperative to make business sense of commercial contracts, observed -

"If detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense."

[20] Having regard to considerations such as these, the test of whether the deed of option is "on substantially the same terms" is more concerned with the substance and effect of the deed rather than with its form.

[21] If Schedules 3 and 4 are not binding on a transferee and if, in consequence, clause 11.5 can have no application to the conduct of a transferee, a definition of "Trigger Event" in a deed of option which contains a paragraph in terms of paragraph (b) would have the same legal and practical effect as a deed which did not contain such a paragraph.

[22] The requirement of substantiality envisages that a provision in a deed of option reflecting the content of clause 13 may differ from that content to accommodate changed circumstances resulting from the subject transfer.

[23] The defendants submit that if paragraph (b) were to remain in the deed of option signed by a transferee the consequence would be that the transferee "thereby agrees to be bound by clause 11, which refers to schedules 3 and 4". Presumably, it is submitted inferentially that, in this way, Schedules 3 and 4 would become binding on the transferee. I am unable to accept that the parties intended to bind a transferee to the terms of the Sale Agreement by this obscure and tenuous process.

[24] If the parties had intended that cls 12 and 13 operate as options to acquire the grantors' rights and interests under the Sale Agreement and to bring about a novation of the agreement, in effect, it is remarkable that the subject matter of the option is the "Name Rights". Even if I had considered there to be some merit in the defendants' argument I would have rejected it. There are limits to a court's ability, in construing a written contract, to avoid an inconvenient, improbable or even harsh result.

[25] In Australian Broadcasting Commission v Australasian Performing Right Association Ltd [4], Gibbs J expressed the limitations on a court's powers in construing a written contract as follows -

"It is trite law that the primary duty of a court in construing a written contract is to endeavour to discover the intention of the parties from the words of the instrument in which the contract is embodied. Of course the whole of the instrument has to be considered, since the meaning of any one part of it may be revealed by other parts, and the words of every clause must if possible be construed so as to render them all harmonious one with another. If the words used are unambiguous the court must give effect to them, notwithstanding that the result may appear capricious or unreasonable, and notwithstanding that it may be guessed or suspected that the parties intended something different. The court has no power to remake or amend a contract for the purpose of avoiding a result which is considered to be inconvenient or unjust. On the other hand, if the language is open to two constructions, that will be preferred which will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust, `even though the construction adopted is not the most obvious, or the most grammatically accurate', to use the words from earlier authority cited in Locke v Dunlop (1888) 39 Ch. D. 387, at p 393, which, although spoken in relation to a will, are applicable to the construction of written instruments generally; see also Bottomley's Case (1880) 16 Ch. D. 681, at p 686. Further, it will be permissible to depart from the ordinary meaning of the words of one provision so far as is necessary to avoid an inconsistency between that provision and the rest of the instrument." (emphasis added)

Is there a sale or transfer within the meaning of Clause 13.5?

[26] Another argument advanced is that, although clause 13.5 may contemplate a sale conditional upon a clause 13.5 consent, it does not encompass anything falling short of such a sale. The argument proceeds that the words "a sale or transfer" cannot be construed as including a "possible sale". Furthermore, it is submitted that clause 13.5 conditions the obligation to consent upon "the transferee" entering into a "deed of option" on substantially the same terms as clause 13. Those terms create binding obligations, presently enforceable by the Holzberger Group and that would not make sense if the consent may be required when there are negotiations at an indeterminate period of time prior to a possible sale.

[27] As it is a trigger event for a transfer to take place without "the prior written consent on the Holzberger Group", plainly, clause 13.5 contemplates a consent to a transfer being given prior to the transfer. In the case of a "sale" the same considerations apply. It is possible that any problem with a triggering event may be able to averted by making the sale conditional upon approval but, even assuming that to be so, I do not understand why, if a consent must be provided to a contemplated transfer it cannot be provided to a contemplated sale as long as the content of the transaction is known. For there to be a consent to a sale the sale must be appropriately identified. Normally that would be done by provision of the proposed agreement for sale. That seems to have happened here through the provision of a "letter of intent" presented to the Rushton Group by OAMPS.

[28] Even if I had concluded that the defendants were not obliged to consent to the sale contemplated by the letter of intent because that course of action was premature, it would have been appropriate to grant declaratory relief.

[29] The defendants argue, in the alternative, that the plaintiffs are not entitled to the declaratory relief sought or to specific performance as -

(a) they are and were not ready and willing to perform their own obligations under the Sale Agreement as amended by the Memorandum of Agreement; and

These points, which were the subject of brief written submissions, received little, if any, oral elaboration. The written submissions on the lack of clean hands contention placed particular reliance on Darter Pty Ltd v Malloy[5] and Staples v Baker[6].

[30] Darter v Malloy is a case in which the plaintiff sought specific performance of a contract of sale of land which, as was pointed out in the reasons of the court[7], contained "mutual promises calling for concurrent performance or reciprocal fulfilment on each side."

[31] Staples v Baker concerned a claim for contribution by a co-guarantor which the court held to be equitable in nature and thus capable of being "lost or reduced when it would be inequitable to enforce it."[8]

[32] Neither case is of any relevence to the contractual provision under consideration. For the doctrine to have application the impropriety complained of must have "an immediate and necessary relation to the equity"[9] relied on. It has also been said that the principle applies only where the right sought to be vindicated is "one which if protected, would mean the plaintiff was taking advantage of his own wrong."[10]

[33] In any event it may be doubted that the doctrine has application to a claim for merely declaratory relief.[11]

[34] As the plaintiffs abandoned their claim for specific performance it became unnecessary to explore in any detail the question of whether the plaintiffs were willing to perform their own obligations under the Sale Agreement and, if they were not, the consequences which flow therefrom.

[35] I am not satisfied, however, that the plaintiffs, at relevant times, were not ready and willing to perform their obligations under the Sale Agreement. The plaintiffs have asserted an erroneous view of the terms and content of the Sale Agreement, as amended, but it does not follow that they are unready to perform its terms as determined by the court.[12]

[36] The plaintiffs have established their entitlement to declaratory relief and I invite counsel to agree minutes of judgment to give effect to these reasons.

[2] See Butt v Long [1953] HCA 76; (1953) 88 CLR 476 at 486.

[3] _Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Lt_d (1990) 20 NSWLR 310 at 313-314; Antaios Compania Naviera SA v Salen Rederiena AB [1985] AC 191 at 201; Mannai Investments Co Ltd v Eagle Star Life Assurance Co Ltd [1997] UKHL 19; [1997] AC 749 at 771; Wickman Machine Tool Sales Ltd v L. Schuler AG [1973] UKHL 2; [1974] AC 235 at 251.

[4] [1973] HCA 36; (1972-73) 129 CLR 99 at 109.

[5] [1993] 2 Qd R 615, 620-621.

[6] [1999] 1 Qd R 317.

[9] Moody v Cox [1917] 2 Ch 71 and Equity, Doctrines and Remedies, 3rd Ed, para 326.

[10] FAI Insurances Ltd v Pioneer Concrete Services Limited [1987] 15 NSWLR 552 at 561 and see also Myers v Casey [1913] HCA 50; [1913] 17 CLR 90 at 124 and 101-102.

[11] See Equity, Doctrines and Remedies, 3rd Ed, para 326 and Declaratory Orders, 2nd Ed, para 608.

[12] C.f. DTR Nominees Pty Ltd v Mona Homes Pty Ltd [1978] HCA 12; (1977) 138 CLR 423 at 431-2.