Phillip Segal & Anor v Max Christopher Donnelly & Ors

Judgment 1These proceedings (2012/162822) arise out of a dispute in relation to the sale of commercial premises in Warwick Farm, NSW (the Property). At the relevant times, the registered proprietors of the Property were Denis Joseph James, the fourth defendant, and Daniel Cvitanovic (as trustee for the bankrupt estate of Anthony Frank Garard) (the Trustee), the third defendant, in equal shares as tenants in common. 2By the time of the events giving rise to this dispute, the Property had been passed in at an auction on 19 April 2012 at which a reserve price of $4.5 million had been set. At the time of the trial the Property was subject to a mortgage to St George Bank (the Bank) securing a debt in excess of $6.5 million. However the Bank appeared to be willing to discharge the mortgage on settlement if a sale price in excess of $4.2 million was achieved. 3The plaintiffs, Dr Phillip Segal and his wife, Dr Deborah Cheung, seek an order for specific performance of what has been described as "the Email Contract" by ordering the first and second defendants, Max Christopher Donnelly and Morgan John Kelly (trustees appointed under section 66G of the Conveyancing Act 1919 (NSW)) (the 66G Trustees), to enter into a Sale Contract with them for the sale of the Property at $4.212 million. The 66G Trustees were appointed on 4 May 2012 in proceedings 2011/358132 between the Trustee as plaintiff and Mr James as defendant (the 66G proceedings). Alternatively the plaintiffs seek orders revoking the orders appointing the 66G Trustees and requiring the registered proprietors to enter into the Sale Contract with the plaintiffs. By Cross-Claim, the 66G Trustees and the Trustee seek an order for the removal of a caveat that the plaintiffs lodged on the title of the Property. 4The proceedings were heard on 14 and 15 June 2012 when Mr JS Emmett, of counsel, appeared for the plaintiffs, Mr MS Henry, of counsel, appeared for the Trustee and the 66G Trustees and Mr J Doyle, of counsel, appeared for the fifth defendant, Fresh Start Bakeries Australia Pty Ltd (FSB), that has entered into a contract with the 66G Trustees to purchase the Property. The fourth defendant, Mr James, was unrepresented. The Facts 5The plaintiffs rely upon a series of emails in support of a claim that there is a binding contract between them and the registered proprietors that can be specifically enforced. It is necessary therefore to set out in detail the history of email communications between the various parties. Low Doherty & Stratford solicitors (LDS) represented the plaintiffs. Meehans Solicitors (Meehans) represented the Trustee and Ms Karen Watson of that firm had the main carriage of the matter. Thomsons Lawyers represented FSB. Monday 30 April 2102 6On Monday, 30 April 2012 at 4.21 pm LDS wrote to Ms Watson in the following terms: We act for Phillip Segal and Deborah Cheung. Our clients' superannuation fund is prepared to contract to purchase the above property paying a 10% deposit. Phillip Segal and Deborah Cheung will also guarantee the performance of the purchasing entity under the Contract. Could you please provide us with a Contract for Sale. 7At 4.50 pm Ms Watson wrote to Mr James enclosing a copy of a letter from Meehans to Mr James referring to the 66G proceedings and advising that orders had been made for Mr James to file evidence in those proceedings by 5.00 pm on 3 May 2012 and for the matter to be adjourned to 4 May 2012. That letter included the following: We note that you advised that Dr Segal and Dr Cheung had made an offer of $3.6 million to purchase the property. We confirm our advice that the Trustee in Bankruptcy needed evidence that Dr Segal and Dr Cheung had capacity to complete the contract before considering the offer. We confirm your advice that you would provide us with a financial statement. 8At 5.17 pm Ms Watson wrote to LDS thanking them for the 4.21 pm email and requesting "evidence" that the plaintiffs had "funds to complete the purchase by way of either a bank statement showing the purchase price or an offer by a financial institution to lend you (sic) client the funds to purchase" the Property. Tuesday 1 May 2012 9On Tuesday, 1 May 2012 at 5.55 am Ms Watson wrote to Mr James advising that FSB had made an offer of $3.7 million to purchase the Property and was "ready to exchange today". Ms Watson also advised Mr James that the offer was acceptable both to the mortgagee and to the Trustee and that "we would like to proceed to exchange today". Ms Watson asked whether this was acceptable to Mr James. Mr James responded by email at 10.39 am asking if he could see the contract and conditions that were proposed to be signed. He also asked whether Ms Watson was offering the other buyers the opportunity to counter the "FSB deal". 10At 10.51 am Ms Watson advised Mr James that the Contract was in the terms provided to him by the real estate agent (the Agent) and that if "your buyers wish to make a higher offer and have the capacity to complete" then they were quite welcome to do so. 11At 11.04 am Mr James wrote to Ms Watson in terms that included the following: As this is the second offer from FSB which you insist I agree to; as half owner of property this offer reduces my liability to St George Bank by approximately $200K, before I consider signing the contract I need your guarantee this is their final and best offer. It would be wrong for you to insisting (sic) on me signing a contract without the assurance that you have obtained the best possibly (sic) price. Once you have the best offer possible please forward a contract to myself. Signed by the trustee with the appropriate approved price, without purchaser details; I will then execute and return. 12At 11.22 am Ms Watson wrote to Mr James in the following terms: The offer by FSB is a result of your buyer's offer. I am not in a position to know whether it is their best offer but it is the highest offer on the table at the moment. Any contract that is signed by you will need to be a complete contract. If your buyers wish to make higher offer (sic) they are welcome to do so. alternatively we can have both parties tender to the agent signed contracts with their best offers and the 10% deposit by 12 noon tomorrow and the highest offer to be accepted. 13At 2.44 pm the Agent advised Ms Watson that he had spoken to Mr James who "didn't seem to have a problem" with Ms Watson's "suggested sale method to get this finalized". The Agent advised that Mr James was meeting with "his buyers" that evening and would make contact with the Agent afterwards to let him know their position. The Agent requested Ms Watson to prepare and forward to Mr James an Irrevocable Authority document explaining the process for the following day. 14At 4.39 pm LDS wrote to Ms Watson in the following terms: I have been provided with a copy of your email to Denis James of 1 May 2012 11.22am. Our clients have indicated that they are prepared to participate in a process as outlined in the last paragraph of your email. I understand the time may change depending on when Mr James returns to Sydney. I have been provided with a copy of a Contract which included 8 pages of special conditions. Could you please provide answers to 2 questions a) Clause 4.3 provides that the Vendor in its discretion may rescind the Contract for any reason until the date of completion. This is highly unusual unilateral right of rescission. We would request its removal. b) Our clients Deborah Cheung and Phillip Segal will propose to sign the Contract in their own names but would request the right by novation clause to novate the Contract within 10 days of exchange to a Trustee set up for the purposes of borrowing for their superfund. Would the Vendor agree to such a clause? 15At 5.10 pm Ms Watson forwarded the Irrevocable Authority to Mr James in relation to the "acceptance of the highest offer and exchange of contracts" with a request that he sign and return it as soon as possible. That document was in the following terms: I, Denis Joseph James as Vendor hereby irrevocably authorise and instruct my solicitor Meehans Solicitors, to accept in the form of a tender final and best offers from purchasers for the purchase of the [Property]. I acknowledge that any purchaser is required to provide their final and best offer to Meehans Solicitors by 3.30pm on Wednesday 2 May 2012 together with a bank/company cheque for the 10% deposit of the final and best offer ("final offer"). I irrevocably agree to sign a contract with the purchaser that puts forward the highest final offer and irrevocably instruct Meehans Solicitors to exchange contracts with the purchaser. 16A similar document was sent to the Trustee at 5.14 pm that day. It was signed by the Trustee and returned to Ms Watson by email at 5.33 pm. 17At 5.22 pm Ms Watson wrote to LDS attaching the final contract which she observed had not been provided to the plaintiffs prior to that time. That communication included the following: If your client proposes to purchase the property by their superfund then that trust should already be set up and functioning. My experience is that where a super fund has not been set up and borrowings approved is that the process takes 4 to 6 months. Wednesday 2 May 2012 18On Wednesday, 2 May 2012 at 10.44 am Mr James wrote to Ms Watson requesting a postponement of the time for the final submission of offers from the 3.30 pm deadline that day to 12.00 pm on 3 May 2012. Mr James advised that he had only returned from Cairns that morning at 10.00am and also advised as follows: Alternate purchasers are both operating today and are unable to meet until this afternoon; following our meeting I will confirm if their intention is not to proceed, and schedule contract signing with you today if possible (late this afternoon). 19At 11.52 am Ms Watson wrote to Mr James advising that she was not able to postpone the "deadline for offers" until the following day and that the "deadline" was at 3.30 pm on 2 May 2012. Ms Watson also advised Mr James that she required him to provide the signed Irrevocable Authority that was sent to him the previous day. At 12.08 pm Mr James wrote to Ms Watson as follows: Sorry Karen there is no choice; there are two vendors here you represent not one... 20At 12.32 pm Ms Watson wrote to Mr James advising that she had spoken to the Trustee and that "we can postpone until 11.00 am tomorrow at the latest". Mr James responded at 12.48 pm as follows: Fantastic and thank you; LJH or your office???" 11am is good... 21At 1.32 pm Mr James wrote to Ms Watson advising that he was unable to change the Irrevocably Authority document. He requested that Ms Watson make the alterations required and return it to him. That email also included the following: Also change "bank or company cheque" to "cheque" this is only for exchange; bank cheque is an unfair burden. 22At 3.54 pm Ms Watson responded to Mr James' email of 12.48 pm by advising "My office". At 4.03 pm Ms Watson wrote again to Mr James enclosing the amended Irrevocable Authority in which the time and the date were changed to 11 am on 3 May 2012. Ms Watson advised: A bank cheque or company cheque is required for the deposit to ensure that the deposit is paid and funds are available. This is the usual course in property transactions. 23At 4.15 pm Mr James wrote to Ms Watson in the following terms: Karen, Sorry I will only sign to read cheque; for exchange I have never used a bank cheque... If I have a cheque at all it will be personal only... 24At 5.05 pm LDS wrote to Ms Watson advising as follows: Further to your email of this morning. Our clients' corporation will be tendering a signed Contract with a completed best offer purchase price and 10% deposit on the basis that the highest offer will be accepted at your office and contracts signed by the 2 Vendors forthwith. The 10% deposit will be 10% of the proposed purchase price not including 10% of any potential GST as referred to in your special condition 19. The cheque will be payable to LJ Hooker Commercial. Please confirm that the above is how the sale will proceed tomorrow. 25At 5.09 pm Ms Watson wrote to LDS and confirmed "that is the process to occur tomorrow". Thursday 3 May 2012 26On Thursday, 3 May 2012 at 10.32 am LDS wrote to Ms Watson in the following terms: We refer to our previous correspondence. Our client had instructed their accountants, Barel Accountants, to obtain a new company to act as the purchaser. There was a major power outage in the Easter (sic) Suburbs which disabled our clients' accountants internet facility and this is continuing this morning, and they were unable to set up a company because of the power failure. Our clients wish to participate in the process and suggest two alternatives: