Prime Constructions Pty Ltd v Westbridge Investments Pty Ltd

3671/04 - PRIME CONSTRUCTIONS PTY LTD v WESTBRIDGE INVESTMENTS PTY LTD JUDGMENT 1 HIS HONOUR: By statement of liquidated claim filed in the Local Court at the Downing Centre, Sydney, on 3 February 2003 the plaintiff claimed $11,754.60, and costs, from the defendant for goods sold and delivered. The claim was disputed and both parties were represented by solicitors, a Mr Park and a Ms Lim for the plaintiff, and a Ms Williams for the defendant. 2 On 21 January 2004 the plaintiff's solicitor made an offer that the parties settle the matter for the amount claimed, with each party to pay its own costs, with a deed of release to be entered into between the parties. On 23 January 2004 the defendant's solicitor accepted this, as a matter of principle, and Ms Williams emailed Ms Lim as follows: "I attach the deed of release in this matter. Please let me have any comments as I would like to prepare execution copies as soon as possible. Finally, I am now holding the cheque in favour of your client for $11,721.60." 3 Mr Park accepted the deed as drafted, and on 9 February 2004 Ms Williams emailed him the deed for execution. 4 On 12 February 2004 Mr Park emailed Ms Williams: "Dear Kim, The terms referred to in your e-mail below is acceptable. Can you please fax me a signed copy and I will attend to its filing straight away? Also, I've received the signed deed from your client today so we are now in a position to exchange deeds and the settlement cheque. Can you please advise your client that we are ready and inquire as to when the deeds can be exchanged?"

On 13 February at 10.10am Ms Williams emailed back: "Hi Peter I am informed by Les Houlton Westbridge that the deed of release has now gone to the co-director for execution. I will revert to you when I receive the return of the deed. In the meantime I shall print out the Terms of Settlement, sign same and forward it to you." 5 That was the last of the "Dear Peter" and "Dear Kim" e-mails. Thereafter there was correspondence of "Dear Sir" or "Dear Madam", as the case may be. 6 The first of these was a fax Ms Williams sent on 13 February to the effect that: "We ... have been instructed to advise that, after further consideration, our client has now reconsidered its position."

An additional term was then proposed about a letter from the plaintiff to the proprietor as to the quality of the works that had been done. 7 This was replied to by a contention that the matter had been settled and settlement has occurred, and there was desultory correspondence between the solicitors, until Ms Williams notified Mr Park on 22 April 2004 that her firm had ceased to act for the defendant, which would be thereafter acting for itself. 8 On about 9 February 2004 the deed, in the form which had been agreed between the solicitors, was executed in the following way; the document ended:

SIGNED SEALED AND DELIVERED by PRIME CONSTRUCTIONS PTY LIMITED in the presence of:"

Opposite the attestation clause was the signature of a director, Mr Holmes, and that signature was witnessed by Mr Flint, who was not the secretary of the company, but was its accounting and administration manager. The so-called deed was then delivered to Mr Park by about 12 February 2004. 9 On 28 June 2004 the plaintiff commenced the present proceedings seeking specific performance of the alleged agreement to settle the Local Court proceedings. The matter came on for hearing before me on 3 September and today. 10 A series of questions need to be addressed:

1. Was there a final settlement of the Local Court proceedings?

2. What was the effect of the document executed on 9 February 2004?

3. What is the effect of the ratification of that document on 15 September 2004, and the signing of another copy of the deed?

I will deal with these matters in turn. 11 1. There is often a problem where parties have made an agreement to settle proceedings, which agreement is to be consummated by formal documentation. As the leading case of Masters v Cameron (1954) 91 CLR 353, 360 makes it clear, there can be at least three situations:

(i) that the parties have reached a final binding agreement, but propose to have the terms re-stated in a form which will be fuller or more precise, but not different in effect;

(ii) the parties have agreed, but have made performance of one or more of the terms conditional upon the execution of a formal document; or

(iii) they have not even reached a final agreement at all.

There are other variations. It is always a matter of fact and intention. 12 In view of the correspondence which I have set out, the fact that the terms of the deed were finally agreed upon, the terms of settlement were finally agreed upon, it seems to me that all that was left was pure mechanics and the case falls within the first of the classes in Masters v Cameron. Thus, I am satisfied that there was a final settlement of the proceedings. 13 2. A deed is the most solemn act that a person can perform with respect to its property. Deeds have a very ancient origin and because the execution of a deed is such a solemn matter the law prescribes the way in which they are to be executed, so that it is understood by the persons executing them what a solemn legal act they are performing by being bound by a deed. 14 The prime legislation governing the execution of deeds by corporations is s 127 of the Corporations Act 2001 and s 51A of the Conveyancing Act 1919. Section 51A enables a company to execute a deed under seal with a signature of a director and a secretary. Section 127 (2) of the Corporations Act says much the same sort of thing. However, s 127 (1) makes it clear that a company can bind itself by a deed by a less formal method. However, two directors of the company must sign the deed, or a director and a company secretary must sign the deed, and if there is only one director of a company then that director alone can sign it, and the document must be expressed to be a deed. 15 In the instant case, while the document was expressed to be a deed, only one director signed it so there was no compliance with s 127 of the Corporations Act. As there was no seal, there was no compliance with section 51A of the Conveyancing Act. 16 Section 127(4) of the Corporations Act makes it clear that the section does not limit the ways in which a company may execute a document, including a deed. It is not particularly clear what this covers. However, it would seem that it covers the common law method of executing a deed, or the method of executing a deed that is binding on the company, which is prescribed by the company's constitution. 17 In the instant case, I was not favoured with a copy of the company's constitution, so there can be no reliance on the common law method of execution of a deed, which usually involves the seal and signature by the directors and secretary. 18 However, it would seem that s 127(4) also covers the situation where, by virtue of some estoppel, the deed is binding on the company. Mr Davis, who appeared for the plaintiff, (the defendant indicated it would not attend the hearing) relied on the decision of Mackenzie J in the Supreme Court of Queensland in Carter v Schmierer BC200300443. That was a case where his Honour was asked to make a declaration under s 418A of the Corporations Act that a charge was valid. I must confess, I do not read the case in the same way as Mr Davis does. It would seem that his Honour was of the view that, in all the circumstances, the document was not executed as a deed, but the mortgagor company was estopped from denying it. In the end, he declared that, insofar as it is asserted that the charge was invalid because it was not executed in accordance with s 127 of the Corporations Act, the appointment of the receivers and managers pursuant to the charge was valid. He thus, with great skill, circumvented the technical question. 19 I have before today (see Nicom Interiors Pty Ltd v Circuit Finance Pty Ltd (2004) 50 ACSR 25) pointed out how essential it is for lawyers advising companies which are executing deeds to be very careful to ensure that they are executed in accordance with s 127, or other permissible methods. Unfortunately, in the present case somewhere along the line, I do not know whose fault it is, the document which was executed on 9 February failed to comply with those standards of execution, and was not, technically speaking, a deed. 20 If the document were a deed, then its being handed to the solicitor on about 12 February would operate as delivery. That would mean that as soon as the deed was in the hands of the solicitor it was binding on the plaintiff, and the fact that the other party had not executed the deed was no excuse for not complying with it. 21 Accordingly, the releases given by that deed to the defendant have been in effect. The only way in which the plaintiff could have escaped from being bound by the deed, if the other party had not executed it within a reasonable time, (the deed having been delivered) was by application in equity. See Scook v Premier Building Solutions Pty Ltd (2003) 28 WAR 124; Carew's Case (No 2) (1855) 7 De GM&G 43; 44 ER 17 and Federal Commissioner of Taxation v Taylor (1929) 42 CLR 80. 22 Even if there was not a proper execution of the deed, because Mr Park had represented to Ms Williams that the deed had been executed, it may well have been that estoppel would operate so that the plaintiff would be estopped from denying that the document was a deed, and if the defendant had taken that view, then the deed would have had the same operation as if it had been executed as a deed. 23 Accordingly, on this basis, we have what is known in specific performance law as an executed contract. 24 3. The evidence is that on 15 September, that is this morning, there was a meeting of the board of directors of the plaintiff, which both ratified the deed and also executed a new deed properly. The question is what is the effect of that? 25 Ordinarily, ratification relates back to the time when the original act was done. There is an exception where what is to be done has to be done within a limited time; see Dibbins v Dibbins [1896] 2 Ch 348. However, that line of cases only seems to apply where time is of the essence. Here, although it may well be argued that there was only a reasonable time in which the deed could be signed and proffered, time was not of the essence, and the acts of the defendant precluded the formal document being proffered, and as the defendant never saw it, it never realised that the deed was not properly executed. 26 Accordingly, either by estoppel, as I indicated under heading 2, or because of ratification, the deed took effect from the date of delivery on 12 February 2004, and the consequences flow as per para 2 of these reasons. 27 If that is wrong, then the evidence is that the new deed was delivered this morning to the solicitor, and that would show that as at the date of hearing, which is the only relevant time, the plaintiff was ready, willing and able to fulfil the contract, so far as the same remained to be performed on its part. 28 4. The next question is what order should be made. Where there is an executed contract, ordinarily, specific performance is granted automatically because it is unfair that one party should be bound by an agreement and the other not, when they have intended that there should be mutual rights. 29 However, in the present case, granting specific performance creates more problems than it solves. Assuming the defendant maintains its attitude of not doing anything, then the decree for specific performance would have to be entered, someone would have to apply on motion under s 100 of the Supreme Court Act for the deed to be executed by a Registrar of the court in the name of the defendant, and then a fresh action would have to be commenced in a Local Court for debt on the specialty. In view of the amount involved, this would be a very expensive exercise indeed. 30 It seems to me that as there is a specifically enforceable agreement, one can make a declaration that the defendant is bound by the terms of the document, which is, for instance, annexure A to Mr Drake's affidavit of 15 September 2004, including the releases contained therein, and then merely give judgment for the plaintiff for the sum referred to in the deed, namely, $11,721.60, and that is the sort of order I will make. 31 I declare that the defendant is bound by the terms of the deed of release, annexed A to the affidavit of JDM Drake, sworn herein on 15 September 2004, as if it had signed the deed. 32 I find a verdict for the plaintiff for $11,721.60 and order the defendant to pay the plaintiff's costs of the proceedings, but no costs are to be allowed for the 15 September 2004 hearing.

Last Modified: 09/20/2004 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.