Plaintiffs v Defendants

Supreme Court of Victoria|2008-06-18|Before: Kyrou J

Appeal under s 148, Victorian Civil and Administrative Tribunal Act 1998 (Vic) - error of law in construction of contract - order affirming order of Victorian Civil and Administrative Tribunal on a different legal basis.

1 This is an appeal under s 148 of the (Vic) ("VCAT Act") from the following order made on 28 June 2007 by a Member of the Victorian Civil and Administrative Tribunal ("Tribunal"):

All funds including all accrued interest held by P. Ferraro, lawyer, on behalf of Keith Frederick Kite, Gail Lesley Kite and You Yang Vista Pty Ltd in Bendigo Bank Cash Management Account number 124984931 are to be disbursed to Keith Frederick Kite and Gail Lesley Kite forthwith.

2 The proceeding before the Tribunal involved a dispute over who was entitled to the funds held in a trust account that was established to provide security for expenditure that might be required to comply with certain conditions that might be imposed by the Wyndham City Council ("Council") in connection with an application for a planning permit.

3 For the reasons set out in this judgment, I have concluded that although the Tribunal erred in law, its order is legally correct and should be affirmed.

4 Mr and Mrs Kite ("defendants") were the owners of a property located at 150-168 Bulban Road, Hoppers Crossing ("Bulban Road Property") upon which was located a dwelling known as "Ison house". Ison house was demolished in late 2002 and on 5 February 2003, Mr Kite pleaded guilty to a charge under s 16 of the Building Act 1993 (Vic) for not obtaining a permit for the demolition of Ison house. He was ordered to pay a fine of $3,000 to the Council and costs of $2,000.

5 The Council passed a resolution requiring the defendants to construct on the Bulban Road Property an interpretive display or memorial that provided details of Ison house ("display centre"). That resolution was not formalised by way of a condition on any planning permit. The Council initially proposed an agreement under s 173 of the Planning and Environment Act 1987 (Vic) but subsequently decided not to proceed with such an agreement. The Tribunal found that at no time did Mr Kite deny the existence of the requirement to construct the display centre.

6 The defendants agreed to sell the Bulban Road Property to You Yang Vista Pty Ltd ("You Yang") for $1.34 million. The sale transaction involved two separate contract notes. The first contract note contained a special condition that made the contract conditional upon a planning permit being approved for not less than a 120 site caravan park. The second contract note, which replaced the first, did not contain this special condition. It provided for settlement to take place on 7 January 2005 or within 14 days of a permit for a 105 site caravan park being approved by the Council, whichever was later.

7 You Yang made an application to the Council for a planning permit in relation to a 105 site facility which was described as a residential village and caravan park. The application was scheduled to be considered by the Council on 9 May 2005. The parties to the contract of sale agreed to settle the sale on 5 May 2005 prior to approval of a planning permit. In the lead up to the proposed settlement, there was correspondence between the parties relating to the settlement. In the course of that correspondence, the solicitors for You Yang (Ferraro Pruscino & Co) requested that out of the proceeds of sale, the amount of $20,000 be placed in a trust account to be used towards the construction of the display centre in accordance with the requirements of the Council.

8 The correspondence between the solicitors culminated in an agreement being reached in relation to the retention of funds in a trust account by letters dated 3 and 4 May 2005.

9 The letter of 3 May 2005 was from the solicitors for Mr and Mrs Kite (Fogarty Lawyers) to Ferraro Pruscino & Co. Omitting irrelevant parts, the letter stated:

As to the $20,000.00 to be retained at settlement, we confirm that our clients agree to that sum being deposited in an interest bearing account with Bendigo Bank Limited in trust for our clients and the Purchaser. The signatories to the account will be Paul Ferraro and James Serong. Moneys are withheld to satisfy only those conditions which Council may impose in relation to the building of an Interpretive Display for Ison House, not "to satisfy any conditions the Council may impose". The withholding of funds is to be done on the strict understanding that our clients be given a copy of the permit as soon as it issues and that your client delegates its rights of appeal to our clients in relation to any conditions regarding the Interpretive Display.

We understand that your client spoke to our client today and advised him that he expected moneys withheld at settlement to be released by 30 June next. Please confirm that it is agreed:

That the funds withheld are withheld for the sole purpose of satisfying conditions which may relate to the Interpretative Display.
That your client delegates its rights of appeal against any conditions imposed in that regard.
That funds withheld, less any expenditure required to satisfy conditions in relation to the Interpretative Display (if any), be released to our clients no later than 30 June 2005.

Subject to confirmation of those matters, we suggest that settlement be effected at our office at 10.00 a.m. on Thursday 5 May 2005.

10 Omitting irrelevant parts, the letter of 4 May 2005 from Ferraro Pruscino & Co to Fogarty Lawyers stated "We are instructed to confirm that points 1, 2 & 3 of your letter dated 3 May 2005 are agreed to".

11 Settlement of the contract of sale took place on 5 May 2005 and the amount of $20,000 was paid into a trust account with Bendigo Bank Limited. In the events that occurred, the account was in the name of You Yang and the defendants, and the sole signatory was Mr Ferraro of Ferraro Pruscino & Co.

12 Not having heard anything further from Ferraro Pruscino & Co in relation to the planning permit, on 30 June 2005, Fogarty Lawyers sent a letter by fax to Ferraro Pruscino & Co requesting that the $20,000 be released to the defendants. Ferraro Pruscino & Co responded on the same day by sending a letter by fax enclosing various documents. One of the enclosed documents was a letter dated 21 June 2005 from the Council to You Yang setting out the following resolution passed by the Council on 20 June 2005:

The Interpretive Display Centre is constructed on the Council reserve abutting the subject site or on land offered by the current registered proprietor of 150 Bulban Road, Werribee.
The Interpretive Display Centre be constructed by 30 March 2006, generally in accordance with the plans prepared by Locus Design Group (Project Reference RE-197 dated June 2005).
The cost of constructing the Interpretive Display Centre is borne by the registered proprietor of 150 Bulban Road, Werribee.
The on-going maintenance of the Interpretive Display Centre is met by Council unless the Display is located within the property located at 150 Bulban Road, Werribee.

13 One of the other enclosed documents was prepared by Locus Design Group Pty Ltd and was headed "Ison House - Interpretive Display, Costing Justification Schedule - Estimate". It listed various items of cost totalling $20,196.[1]

14 The letter of 30 June 2005 from Ferraro Pruscino & Co to Fogarty Lawyers concluded with the statement "[b]ased on the costings we have received from Locus Design Group, Architect Practitioners and Registered Commercial & Residential Builders in the sum of $20,196.00 there is no refund due to your client".

15 Following discussions between You Yang and the Council, it was agreed that they would execute an agreement under s 173 of the Planning and Environment Act 1987 (Vic).

16 On 10 October 2005, the Council resolved to issue a notice of decision to grant a planning permit for a residential village and caravan park on the Bulban Road Property. The resolution was conditional upon the owner of the land entering into an agreement under s 173 of the Planning and Environment Act 1987 (Vic) with the Council to cover design and operational matters. The s 173 agreement that was subsequently executed by You Yang and the Council[2] contained undertakings on the part of You Yang in relation to the construction of a display centre at the Bulban Road Property. Although the planning permit was not in evidence before the Tribunal, the Tribunal had before it the Council's resolution of 10 October 2005. The resolution stated that the planning permit be subject to a number of conditions. The conditions did not include a condition relating to the construction of a display centre.

17 On 24 November 2006, Mr Kite commenced a proceeding in the Tribunal against Phillip Caruso, a director of You Yang, James Serong of Fogarty Lawyers (who was described as a signatory to the trust account) and Paul Ferraro of Ferraro Pruscino & Co (who was also described as a signatory to the trust account) seeking an order that the funds held in trust be paid to them. By order dated 7 February 2007, Mrs Kite was added as an applicant, You Yang was added as a respondent and, with the consent of Mr and Mrs Kite, the application against Mr Serong and Mr Ferraro was dismissed. It is not clear why Mr Caruso remained a respondent. The Member of the Tribunal who heard the proceeding made the order set out in paragraph 1 of this judgment and delivered oral reasons for decision on 28 June 2007. The Member subsequently delivered written reasons.

18 The written reasons for decision comprise 36 paragraphs. Paragraph 1 describes the dispute and paragraph 2 deals with aspects of the procedural history of the proceeding. Paragraphs 3 to 34 deal with factual issues, particularly the correspondence between the solicitors and the resolutions of the Council. Paragraphs 35 and 36 state as follows:

There are several aspects to this dispute. The first is that the applicants take the view that purchase money should have been paid by 30 June. If that was the case and 30 June arrived and no money had been paid, it would have been open to the vendors to rescind the contract. It appears that this was not attempted and that the parties to the contract were satisfied to proceed without regard to time to determine the outcome of the application to the Wyndham City Council and allow the contract to be completed.
The next question is what is to be done with the money which is held on trust by Mr Ferraro? This comes back to the contract. Both contract notes make reference to approval by the Council of a permit for 120 site caravan park. This is not what was ultimately approved. The permit was for a more substantial development of residential village and caravan park. Also, the money withheld in relation to the interpretive centre was held in anticipation of an application being made for a 120 site caravan park. By changing the application, the purchaser has changed the complexion of the whole contract. It might be said then that the condition in relation to the holding of the $20,000 no longer applied. I sense there has been an element of opportunism not only from the Wyndham City Council in seeing an opportunity to obtain agreement for a more elaborate structure to be constructed at the expense of a party other than the Council but also on the part of the purchaser in agreeing to such a construction which would enhance the development rather than merely satisfy the requirement if any such requirement did exist prior to the sale for the construction of an interpretive display. In all the circumstances I am satisfied that it is appropriate that the money held on behalf of the parties by Paul Ferraro, the principal of Ferraro Pruscino & Co solicitors and all interest on that money is to be disbursed to the applicants in this dispute.

19 Phillip Caruso and You Yang appealed to this Court from the Tribunal's order. Before me, the plaintiffs sought leave to amend the notice of appeal and I granted leave for them to do so. The amended notice of appeal states the following question of law in respect of which the appeal is brought:

Was it a proper construction of the agreement constituted by the defendants' solicitor's letter of 3 May 2005 and the first plaintiff's solicitor's letter of 4 May 2005 to determine that the retention sum of $20,000 be paid to the Defendants?

20 It is not clear from the Tribunal's reasons for decision or from the other documents before me what Act of Parliament conferred jurisdiction on the Tribunal in relation to the proceeding. The application to the Tribunal dated 24 November 2006 appears to rely on the Fair Trading Act 1999 (Vic). In any event, the parties before me did not raise any issue about the jurisdiction of the Tribunal at first instance or of this Court on appeal. Nor did they submit that the form of the Tribunal's order was inappropriate in the absence of Mr Ferraro, the sole signatory to the trust account, as a party to the proceeding before the Tribunal. It is not clear, for example, whether Mr Ferraro undertook to abide by any order that the Tribunal might make when he was removed as a party to the proceeding.

21 Section 148 of the VCAT Act provides that where the Court of Appeal or the Trial Division of the Supreme Court, as the case requires, gives leave to appeal, a party to a proceeding before the Tribunal may appeal, on a question of law, from an order of the Tribunal in the proceeding. Section 148(7) provides that the orders that the Court may make on an appeal include an order affirming, varying or setting aside the order of the Tribunal, an order that the Tribunal could have made in the proceeding, or any other order the Court thinks appropriate. An appeal under s 148 is in the nature of judicial review in the original jurisdiction of the Supreme Court.[3]

22 It was common ground before me that the correspondence of 3 and 4 May 2005 created a separate contract between the parties as to the establishment of a trust account and the entitlement to the funds in the trust account. Mr Stirling, who appeared for the defendants, submitted that the proper construction of the contract is a question of law. He submitted that the contract must be construed objectively by examining the surrounding circumstances which existed at the time that the contract was entered into and which were known by the parties, by looking to the language of the contractual documents and deciding what a reasonable person in the position of the parties would consider that the parties had actually agreed upon.[4] He acknowledged that the reasons for decision of the Tribunal did not set out how the Tribunal interpreted this separate contract and merely set out a conclusion as to who was entitled to the funds. However, he submitted that this Court, on appeal, has the power to determine the legal meaning and effect of the contract and to make an order as to who was entitled to the trust funds based on the evidence before the Tribunal. Mr Hay, who appeared for the plaintiffs, did not dispute this.

23 In my opinion, paragraph 36 of the Tribunal's reasons for decision, which contains the Tribunal's conclusion that it was "satisfied that it is appropriate that the [trust funds] be disbursed to the applicants in this dispute", fails to explain the legal basis for that conclusion. Insofar as one can distil the legal basis for the Tribunal's decision from paragraph 36, it appears that the Tribunal decided that the entitlement to the trust funds depended on whether the type of planning permit that You Yang applied for coincided with the type contemplated by the contract of sale. If this interpretation of the Tribunal's reasons is correct, the Tribunal misstated the facts as well as misapplied the law. The contract of sale in its final form, did not provide for a 120 site caravan park and was not conditional upon a planning permit being approved. It was submitted by Mr Hay (and not disputed by Mr Stirling) before me that there was no evidence for the Tribunal's comments about opportunism on the part of the Council and You Yang, and that these comments amounted to speculation on the part of the Tribunal. More fundamentally, the Tribunal appears to have ignored that, as a matter of law, the correspondence of 3 and 4 May 2005 created a separate contract and that the events that preceded that contract were only relevant insofar as they formed part of the surrounding circumstances which might assist in construing the contract. It follows that, in making its decision without analysing the terms and legal effect of the very contract that determined the rights and obligations of You Yang and the defendants in relation to the trust funds, the Tribunal fell into error.

24 Although I have concluded that the Tribunal erred in law, I am satisfied that I have the power to determine the meaning and effect of the contract between You Yang and the defendants and to determine who is entitled to the trust funds pursuant to the contract.

25 Mr Stirling submitted that the purpose of the contract was for the sum of $20,000 to be set aside until 30 June 2005 as security for any construction costs expended by You Yang in relation to the display centre and that the parties did not intend that the security fund remain for all time to be accessed by You Yang if and when it elected to carry out the relevant works. He initially focused his attention on paragraph numbered 3 in the letter of 3 May 2005. His primary submission was that paragraph numbered 3 required payment of the trust funds by no later than 30 June 2005 subject to deduction of any amounts actually paid by You Yang as at that date for the construction of the display centre. He submitted that the word "expenditure" meant "paid". Mr Stirling's secondary submission was that if the word "expenditure" did not mean "paid" but rather meant an amount that was required to be expended in the future, the amount had to be quantified by an actual quote from the tradespeople who would construct the display centre. He submitted that the estimate provided by the Locus Design Group did not fall in that category because they were not the tradespeople who would construct the display centre. Mr Stirling's fallback submission, in the event I rejected his primary and secondary submissions, was that a fair and reasonable amount could be deducted for the cost of constructing the display centre and that the proceeding would have to be remitted to the Tribunal to enable it to hear evidence on what is a fair and reasonable amount.

26 Mr Hay submitted that the expression "expenditure required" meant an amount that was payable in the future and which had been quantified by You Yang by 30 June 2005, that the estimate of the Locus Design Group was sufficient to quantify the expenditure required, and that Mr and Mrs Kite were not entitled to any part of the trust funds.

27 In the course of argument, I indicated to Mr Stirling that my preliminary view was that the expression "expenditure required" in the context in which it appears in paragraph numbered 3 of the letter of 3 May 2005 did not mean "amounts actually paid". Mr Stirling initially submitted that the word "conditions" in paragraphs numbered 1 and 2 of the letter of 3 May 2005 meant conditions imposed by the Council. When I raised with Mr Stirling the possibility that "conditions" might mean conditions in a planning permit, Mr Stirling submitted that that must be the correct meaning of "conditions" because of the reference to "permit" earlier in the letter of 3 May 2005 and because paragraph numbered 2 of the letter could only be given effect if "conditions" meant conditions in a planning permit.

28 Mr Hay conceded that a possible meaning of "conditions" is conditions in a planning permit and that it was open to the Court to interpret "conditions" in that way. However, he submitted that the word "conditions" could mean conditions imposed by the Council, irrespective of how they were imposed. He submitted that there was nothing in the surrounding circumstances that indicated that the parties had in mind conditions in a planning permit. Mr Hay also conceded that if You Yang's obligations relating to the construction of the display centre were solely in the s 173 agreement, paragraph numbered 2 of the letter of 3 May 2005 could not be given effect because You Yang would not have a right of appeal in respect of obligations it had assumed under the agreement. However, Mr Hay submitted that as the planning permit was not before the Tribunal, there was no evidence as to whether the planning permit itself imposed any conditions in relation to the construction of the display centre.

29 In my opinion, the references to "conditions" in the letter of 3 May 2005 are references to conditions of a planning permit. This interpretation follows naturally from a reading of the letter as a whole, and in particular the reference to "permit" in the letter and the reference to "appeal rights" in paragraph numbered 2 of the letter. This interpretation is reinforced when one has regard to the surrounding circumstances, including the desire of the parties to effect settlement on 5 May 2005, the fact that the application for the planning permit was due to be considered by the Council,[5] and the fact that the letter of 3 May 2005 stated that a representative of You Yang had informed Mr Kite on that day that You Yang "expected moneys withheld at settlement to be released by 30 June next". These circumstances indicate that as at 4 May 2005, You Yang and the defendants expected that it would be known by 30 June 2005 what conditions the planning permit would contain in relation to the display centre and what amount would be required to be expended to comply with those conditions, and that the balance in the trust account, if any, would be remitted to Mr and Mrs Kite by then.

30 The facts, as found by the Tribunal, suggest that the Council's requirements in relation to the construction of the display centre were set out in the s 173 agreement rather than in the planning permit. In any event, as there was no evidence before the Tribunal that, as at 30 June 2005, any planning permit imposed conditions requiring You Yang to construct a display centre, it follows logically that no expenditure was required by You Yang as at that date to comply with any condition of the permit in relation to the construction of the display centre. Even if 30 June 2005 cannot be regarded as a critical date for this purpose and the position can be analysed as at the time the proceeding was before the Tribunal, the conclusion remains the same. It follows that Mr and Mrs Kite are entitled to be paid all of the funds in the trust account, including accrued interest.

31 I have therefore concluded that notwithstanding that the Tribunal erred in law, the Tribunal's order is correct[6] as a matter of law and the question of law set out in paragraph 19 of this judgment must be answered "Yes".

Comments on the Tribunal's reasons for decision

32 Section 117(5) of the VCAT Act provides that, where the Tribunal gives written reasons, it must include in those reasons its findings on material questions of fact. The reasons of the Tribunal do not need to be as detailed as judgments of this Court and should not be scrutinised over-zealously.[7] However, the Tribunal's reasons must allow the logic of its decision and the process of reasoning to be followed, especially in relation to important points and conclusions,[8] and must set out the legal basis for the Tribunal's decision.[9] The Tribunal must comply with the above requirements in the context of its statutory obligation to determine each proceeding with as much speed as the requirements of the VCAT Act and the enabling enactment and a proper consideration of the matters before it permit.[10] Whilst it is acknowledged that reconciling the above may sometimes prove difficult, the Tribunal should bear in mind that inadequate reasons for decision may lead, as in this case, to an appeal to this Court and cause additional delay and expense for the parties.

33 Subject to any submissions from the parties, I propose to make an order affirming the order of the Tribunal.

34 I will hear the parties on the proposed order and in relation to costs.

[1] There was a second schedule with a total of $20,037. The differences between the two schedules are not relevant.

[2] An unexecuted copy of the agreement was in evidence before the Tribunal. There was evidence that the agreement was executed some time after 27 February 2006.

[3] Roy Morgan Research Centre Pty Ltd v Commissioner of State Revenue of the State of Victoria [2001] HCA 49; (2001) 207 CLR 72, 79-80 [15].

[4] Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451, 461-2 [22].

[5] As at 4 May 2005, You Yang was apparently aware that the Council was due to consider the application for a planning permit on 9 May 2005. It is not clear whether the defendants were aware of the precise date.

[6] See paragraph 20 of this judgment in relation to the form of the Tribunal's order.

[7] Minister for Immigration and Ethnic Affairs v Wu Shan Liang [1996] HCA 6; (1996) 185 CLR 259, 271-2; Commissioner of State Revenue v Anderson (2004) 56 ATR 8; [2004] VSC 152, [33].

[8] See, eg, Alesci v Salisbury [2002] VSC 475, [7]-[8]; Commissioner of State Revenue v Anderson (2004) 56 ATR 8; [2004] VSC 152, [33]; Tower Australia Ltd v Filippis [2007] VSC 236, [13].

[9] Berbers v Transport Accident Commission (2002) 19 VAR 201; [2002] VSC 211, [25].

Fair Trading Act 1999(Vic)

Civil and Administrative Tribunal Act 1998

Environment Act 1987

At a glance

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