Tony Arida v Sid Arida; Tony Arida v Sid Arida

Supreme Court of NSW|2014-03-27|Before: Slattery J, Rein J

Judgment 1On 21 August 2012 four brothers, Tony, Sid, Joseph and George Arida, settled the litigation among them in a Heads of Agreement. They now disagree about their settlement obligations, due to their differing views as to the construction of the Heads of Agreement. 2In August 2012 Tony Arida and his brothers Sid, Joseph and George held either legally or beneficially a portfolio of 23 properties in the City of Sydney and the suburbs of Campbelltown, Wentworthville, Granville, Oatlands, Berowra, Merrylands, Ryde, and Mulgoa. Not all of the brothers were then registered proprietors of all of these properties. That, among other things, occasioned differences among them about their respective shares in beneficial ownership of these properties. 3Their differences led to litigation. In September 2010 Tony Arida commenced proceedings ("the 2010 proceedings") against Sid, Joseph and George Arida alleging a partnership or alternatively a joint venture among the four of them for the purchase, development, letting and sale of properties and the operation of child care centres and fashion stores. Tony Arida further alleged in the 2010 proceedings that this partnership resulted in the brothers' investment in this portfolio of 23 properties. 4In 2011 Tony commenced a second set of proceedings ("the 2011 proceedings") against his three brothers, this time seeking Conveyancing Act 1919, s 66G relief for the appointment of trustees for sale in respect of one of the properties, a commercial property in Church Street, Parramatta. Tony Arida had a special interest in the sale of this property: he conducted a business from it. 5Trustees for sale were appointed to the Church Street property in November 2011. The trustees auctioned the property on 31 May 2012 and Tony Arida purchased it at the auction for a consideration of $5,000,000, paying that day a deposit of $100,000. 6The 31 May 2012 auction contract (the Church Street Contract) provided for completion 42 days later, on 12 July 2012. Tony Arida did not complete on that date. The vendor trustees issues a notice to complete on 2 August 2012. 7The trustees' notice to complete brought matters to a head. Tony Arida filed an amended notice of motion in the 2011 proceedings which was listed before Rein J in the Equity Division duty list of this Court on 21 August 2012. Tony Arida's August 2012 motion sought the appointment of trustees for sale, not only to the Church Street property but to the City of Sydney property and five other properties in the property portfolio in Granville, leave to join the trustees as defendants, and to restrain them from acting on the notice to complete. 8The August 2012 motion became the vehicle for a wider settlement of all the parties' differences. The result was the 21 August 2012 Heads of Agreement ("the 2012 Heads"), which shows all the signs of close drafting attention from solicitors and counsel associated with the hearing before Rein J. One difference has arisen about the legal effect of this carefully crafted document. There are two contradictory perspectives on what the parties take away from the agreement. Judged objectively, only one of them can be right. 9The trustees for sale, who were sought to be joined as defendants to the 2011 proceedings in the August 2012 motion, became parties to the 2012 Heads. This was a logical result of the circumstances facing the negotiating parties: the trustees were the vendors under the Church Street Contract and had issued a notice to complete.

The 2012 Heads 10The 2012 Heads was designed to separate all of the parties' common real estate and business interests. The agreed scheme of separation may be shortly described. 11Through the 2012 Heads the Arida brothers decided to try and keep control of their real property portfolio, whilst they resolved their differences. They agreed to a valuation regime over all the properties in the portfolio apart from the Church Street property. These properties were listed in the first schedule to the proposed Further Amended Statement of Claim. The parties decided they would jointly request the President of the Australian Property Institute to nominate a valuer with appropriate expertise to value their property portfolio. Appropriate mechanisms were put in place to ensure the independence of the valuer, the co-operation of the parties and a timely valuation: 2012 Heads, clauses 1, 2 and 3. 12Sid, Joseph and George Arida agreed to pay 25 per cent of the net value of these properties (other than the Church Street property) to Tony. They agreed upon a mechanism (clause 4) pursuant to which Tony Arida would receive (net of sale costs) 25 per cent of the valuation amount determined by the valuer (the Agreed Value), less 25 per cent of the debt owed to financial institutions and secured over those properties. The 2012 Heads later provide that in exchange for that payment Tony Arida would "transfer or abandon" any interest he has or may claim in the portfolio of properties. Clause 4 provided as follows:- "4. The first to third defendants agree to pay within 28 days of the last valuation becoming available to the parties a sum representing 25 per cent of the amount representing the Agreed Value of the properties less 25 per cent of all costs associated with the steps identified in paragraph 11(a) below (being valuer fees and stamp duty) less 25 per cent of the debt owed by any of the plaintiff, the first to third defendants to the following financial institutions as at 30 June 2005 that was secured by the Properties including but not limited to: (a) Citigroup; (b) Arab Bank; (c) ING Bank; (d) Australian Wholesale Lending (the "first payment")" 13The net amount that Sid, Joseph and George Arida agreed to pay Tony Arida under clause 4 was defined for the purposes of the 2012 Heads as the "first payment" a term which becomes of significance within the contentious provisions of the 2012 Heads, clauses 5 and 6. 14Clauses 1 and 5 of the Heads carve out the Church Street property from the valuation process and from the calculation of the Agreed Value. By August 2012 the trustees for sale had already agreed to sell the Church Street property to Tony Arida for $5 million dollars through the Church Street contract, and it was contemplated that Tony Arida would use the first payment to fund that purchase. 15The Arida brothers owned other assets jointly. They owned interests in a portfolio of businesses including uniforms, children's supplies, day care centres and a vehicle wholesaler all centred in the Sydney suburb of Granville. The Arida brothers set up a somewhat similar scheme for the valuation of these businesses (the business portfolio). In a group of provisions in the 2012 Heads (clauses 7, 8, 9) the parties agreed: to request the President of the Institute of Chartered Accountants to nominate a valuer/accountant to value the businesses (clause 7); to ensure the nominated accountant was appropriately qualified; to provide that Sid, Joseph and George Arida pay Tony 25 per cent of the net valuation of the business portfolio (clause 9); and, to ensure that the parties provide the valuing accountant with all necessary documentation (clause 10). The provisions of clause 9 importantly define the meaning of "the second payment" in the 2012 Heads. Clause 9 provided in full:- "9. The first to third defendants will pay to the plaintiff a sum of 25 per cent of the value of the businesses as determined by the nominated accountant within 28 days at the last of those valuations becoming available less associated costs (being any stamp duty payable and the nominated accountant's fees) ("second payment")" 16The structuring of the first and second payment in the 2012 Heads creates the framework for the operation of clauses 5 and 6. These clauses attempt to resolve the existing stand off between the parties concerning the Church Street contract. They provide as follows:- "5. In relation to the [Church Street property] purchase, the parties agree that: (a) the Notice to Complete will be withdrawn. The Trustees will not take any steps towards issuing another Notice to Complete until 3 months from the date of signing of this Heads of Agreement. (b) the settlement of the said purchase is not required to proceed until after the plaintiff receives sufficient funds to complete the purchase. (c) Upon receipt by the plaintiff of the final payment (if amounting to sufficient funds to complete the [Church Street property] purchase) or, if not sufficient for that purpose, receipt of the second payment (noting the parties' intention that the plaintiff will be in such a position within 3 months of the date of signing this Heads of Agreement), the plaintiff will attend to the settlement of the purchase of the Church Street property. (d) If the parties are not in a position to enable the transfer of [the Church Street property] within 4 months, the Trustees are at liberty to mortgage [the Church Street property] to pay their outstanding costs, fees and remuneration. (e) If the parties are not in a position to enable the transfer of [the Church Street property], within 4 months, the Trustees have a discretion to terminate the contract for sale on the basis that the same payments be made to the defendants and real estate agents' commission as if the sale of [the Church Street property], by the Trustees to the plaintiff had occurred. (f) The deposit held in respect of [the Church Street property] be released to the trustees in partial payment of their outstanding legal fees, disbursements and remuneration which shall be taken into account by the trustees in their final determination of each party's entitlement. 6. This agreement does not otherwise affect the terms of the [the Church Street property] contract for sale, or the distribution of funds that would arise upon its settlement. The decision by the Trustees as to the calculation of the funds arising upon settlement or transfer will be final." 17The 2012 Heads also provided a number of machinery provisions. These machinery provisions related to: what would occur upon the making of the first payment (clause 11); the calculation of interest on sums not paid under the agreement (clause 12); and, for releases upon the making of the first and second payments (clause 13). These machinery provisions assist the construction of clauses 5 and 6 and were as follows: "11. That upon the first payment being made: (a) The plaintiff will do all things necessary things reasonably necessary and sign all necessary documents to transfer or abandon any interest he has or may claim to have in any of the Properties. (b) The first to third defendants will use best endeavours to obtain a release and discharge of the plaintiff from any continuing debt or liability obligation in respect of any loans or facilities existing as at the date of this agreement that in any way relate to the business or properties referred to in this deed or in the proceedings. (c) Upon the plaintiff providing the documents referred to in (a), the first to third defendants will indemnify the plaintiff in relation to any debt or liability which he has or is alleged to have of its debt or any other obligations, (including by way of guarantee) which he has or is alleged to have to any government and/or statutory authorities and/or the following banks or financial institutions: (i) Arab Bank (ii) Citigroup (iii) ING Bank (iv) Australian Wholesale Lending (v) Any other financial institution to which there is owed any debt or liability obligation in respect of any loans or facilities existing as at the date of this agreement that in any way relate to the business of properties referred to in this deed or in the proceedings. 12. In relation to any sums not paid on the date required for payment, interest will accrue in the amount of Reserve Bank cash rate plus 4% per annum, calculated on daily rates. 13. Upon the first and second payments being paid, the parties release each other and the Trustees from any further claims they may have or in the future may have against the other in respect of the following subject matters: (a) The properties referred to in the proceedings. (b) The two sets of proceedings. (c) Any actual or alleged partnership between the parties. (d) Any actual or alleged trust arrangements between the parties. (e) Any actual or alleged legal or equitable interests including security interests that nay party may have on any other the properties or businesses referred to in the proceedings." 18The parties also dealt with subsidiary matters. Each party was to pay all his own legal costs associated with the valuation and transfer regime in the 2012 Heads: clause 14. The 2012 Heads, and any agreements entered into pursuant to it were to remain confidential to the parties and a limited class of other persons: clause 15. 19The 2012 Heads had the status of an immediately binding agreement. And it provided for certain procedural consequences of the making of the first and second payments (clauses 16 and 17). These clauses provide as follows:- "16. The parties agree that this agreement is immediately binding upon them. The parties will negotiate a more fulsome agreement which will add to, but not modify, the terms agreed herein. 17. The parties agree to stand the two sets of proceedings over to a date convenient to the Court after on or after 10 Dec 2012. Upon the first and second payments being made, the parties will approach the court with consent orders to the effect: (a) The two sets of proceedings will be discontinued; (b) Each party will bear their own costs of the proceedings;"

The Church Street Contract 20The parties are divided on the issue of the extent to which the 2012 Heads varied the parties' obligations under the Church Street contract. Their differences require the examination of only a limited number of clauses of the Church Street contract. 21The Church Street contract was in the form of the Law Society Real Estate Institute Contract for the Sale of Land - 2005 Edition and dated 31 May 2012. The trustees agreed to sell the Church Street property to Tony Arida for $5 million dollars. The contract provided for the purchaser to pay a deposit of $100,000, with the balance of $4.9 million due on completion. The Church Street contract provided for completion on the 42nd day after the contract date. The parties agreed that the 42 day period would expire on 12 July 2012. Under clause 15 of the contract the parties agreed to complete by the completion date: "15. Completion date The parties must complete by the completion date and, if they do not, a party can serve a notice to complete if that party is otherwise entitled to do so." 22The vendor's and purchasers' principal obligations on completion were respectively defined by clauses 16.1 and 16.7 of the Church Street contract as follows: "16.1 On completion the vendor must give the purchaser any document of title that relates only to the property. ... 16.7On 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)." 23In the event of late completion the parties agreed in clause 36 of the special conditions upon a regime for the payment of interest: "36. Late completion Provided that the vendor is ready, willing and able to give title to the purchaser, if the contract is not completed for any reason (other than the vendor's default) on or before the Completion date then in addition to any other right which the vendor may have under this contract or otherwise the purchaser will on completion of this contract pay to the vendor interest on the balance of the purchase price at the rate of 8% per annum calculated on daily balances, commencing on the Completion date and continuing until completion of this contract. This interest is a genuine pre-estimate of liquidated damages and will be deemed to be part of the balance of purchase money due and payable on completion." 24None of the other provisions of the Church Street contract are said to be affected by the 2012 Heads.

The Construction of the 2012 Heads 25The 2012 Heads is a well-crafted document. Despite the dispute which has broken out it, is drafted in a way which should not embarrass the lawyers on either side. Sometimes different perspectives on the drafting process and the separate, but uncommunicated, objectives of the parties lead to disputes such as this one. But the law resolves them by the application of objective principles of construction. 26There are many appellate pronouncements upon how courts should construe commercial contracts. I am guided by the most recent of these, the High Court's decision in Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7 at [35] where the majority (French CJ, Hayne, Crennan, and Kiefel JJ) described the approach to construction of the commercial contract in the following way: "[35] Both Verve and the Sellers recognised that this court has reaffirmed the objective approach to be adopted in determining the rights and liabilities of parties to a contract. The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean (McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579 at 589 [22] per Gleeson CJ ;[2000] HCA 65; Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 462 [22] per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ ; [2004] HCA 35; International Air Transport Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151 at 160 [8] per Gleeson CJ ; [2008] HCA 3; see further Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181 at 188 [11] per Gleeson CJ, Gummow and Hayne JJ ; [2001] HCA 70, citing Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912 ; [1998] 1 All ER 98 at 114. See also Homburg Houtimport BV v Agrosin Private Ltd [2004] 1 AC 715 at 737 [10] per Lord Bingham of Cornhill). That approach is not unfamiliar (See, for example, Hydarnes Steamship Co v Indemnity Mutual Marine Assurance Co [1895] 1 QB 500 at 504 per Lord Esher MR; Bergl (Aust) Ltd v Moxon Lighterage Co Ltd (1920) 28 CLR 194 at 199 per Knox CJ, Isaacs and Gavan Duffy JJ; [1920] HCA 41; see generally Lord Bingham of Cornhill, "A New Thing Under the Sun? The Interpretation of Contract and the ICS Decision", (2008) 12 Edinburgh Law Review 374.). As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract (Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 461-462 [22] per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at 179 [40] per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ; [2004] HCA 52; International Air Transport Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151 at 160 [8] per Gleeson CJ, 174 [53] per Gummow, Hayne, Heydon, Crennan and Kiefel JJ; Byrnes v Kendle(2011) 243 CLR 253 at 284 [98] per Heydon and Crennan JJ; [2011] HCA 26. See also Charter Reinsurance Co Ltd v Fagan [1997] AC 313 at 326 and 350; Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900 at 2906-2907 [14]; [2012] 1 All ER 1137 at 1144). Appreciation of the commercial purpose or objects is facilitated by an understanding "of the genesis of the transaction, the background, the context [and] the market in which the parties are operating" (Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 at 350 per Mason J; [1982] HCA 24, citing Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989 at 995-996; [1976] 3 All ER 570 at 574. See also Zhu v Treasurer of New South Wales (2004) 218 CLR 530 at 559 [82] per Gleeson CJ, Gummow, Kirby, Callinan and Heydon JJ; [2004] HCA 56; International Air Transport Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151 at 160 [8] per Gleeson CJ.). As Arden LJ observed in Re Golden Key Ltd ([2009] EWCA Civ 636 at [28].), unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption "that the parties ... intended to produce a commercial result". A commercial contract is to be construed so as to avoid it "making commercial nonsense or working commercial inconvenience"(Zhu v Treasurer of New South Wales (2004) 218 CLR 530 at 559 [82] per Gleeson CJ, Gummow, Kirby, Callinan and Heydon JJ. See also Gollin & Co Ltd v Karenlee Nominees Pty Ltd (1983) 153 CLR 455 at 464; [1983] HCA 38.)." 27In his dissenting judgment Gageler J compactly expressed the same idea at [53]: "[53] Commercial parties contracting at arm's length are free to agree on terms each considers to be to its own commercial advantage. The terms of their agreement, however, are construed by a court to mean what reasonable commercial parties in their position can be taken together to have meant." 28This judgment does not call for any further debate about legal analysis of the well-known principles of construction of commercial contracts.

The Construction of the 2012 Heads, clauses 5 and 6 29The defendants' contention is that nothing in the 2012 Heads, clauses 5 and 6, operates to alter the obligation in the Church Street contract for the purchase to settle within 42 days of 31 May 2012. Clause 6 makes clear that the 2012 Heads do "not otherwise affect the terms of [the Church Street] contract", and clause 5 is the only candidate for affecting the Church Street contract. The defendants submit: that clause 5(c) does not alter the settlement obligation already imposed under the Church Street contract; and, that the clause was only designed to provide for the situation that if the Church Street contract was not otherwise settled before the first and second payments were made, then it must be settled then. 30The parties do not differ about the meaning of clause 6. They accept that the effect of its first sentence is that the 2012 Heads do not "otherwise affect" the terms of the Church Street contract, except to the extent that such terms may be affected by clause 5. But the parties differ on the extent to which clause 5 affects the terms of the Church Street contract. And within clause 5, the parties' principal point of difference is the meaning of clause 5(c). 31Their differences may be shortly stated. Mr Tony Arida, argues that: (1) clause 5(c) creates as a precondition to Mr Tony Arida's obligation to settle the Church Street contract that the first payment (as defined under clause 4) be received; and (2) clause 5(c) substitutes the date of the plaintiff's receipt of the first payment as the date for completion of the Church Street contract; so that as a result (3) interest only runs on unpaid purchase moneys under special condition 36 from the amended completion date, of the making of the first payment. 32The defendants submit, in contrast, that: (1) clause 5(c) is not a substitute for the plaintiff's (Mr Tony Arida's) settlement obligation under the Church Street contract; (2) clause 5(c) is only providing that if the Church Street contract is not otherwise settled before the making of the first and second payments (as defined), then settlement had to be done by the time provided for in the clause 5(c); and, (3) clause 5(c) refers to the parties' intention that the settlement might occur within the 3 months contemplated within clause 5, but the parties were conscious that, and provided for, the possibility that settlement might not occur within that time. 33One preliminary matter is clear. The expression "settlement" in the 2012 Heads, clause 5(c) is a reference to the obligation to "complete" under the Church Street contract, clause 15. The two expressions are commonly construed as meaning the same thing in contracts for the sale of land: see De Leuil v Jeremy [1964-1965] NSWR 1939, at 1953, per Asprey J (with whom Manning J agreed). And the 2012 Heads clearly uses "settlement" in the sense of completion of the Church Street contract. 34In summary, I prefer the submissions put on behalf of Tony Arida. The Court's analysis of clause 5(c) in its context largely accepts Mr Jones SC's submissions on the two main construction issues: (1) whether the first payment is a pre-condition to Mr Tony Arida's obligation to settle ("the pre-condition issue"); and (2) whether clause 5(c) alters the completion date under the Church Street contract ("the completion date issue"). 35On the pre-condition issue, the starting point is clause 5(c) itself. Shorn of permutations and parentheses it simply states: "Upon the receipt by the plaintiff of the first payment...the plaintiff will attend to the settlement of the purchase of the [Church Street property]." 36Clause 5 assumes that the plaintiff's obligation to complete - that he "will attend to the settlement" of the purchase - will follow "upon receipt by the plaintiff of the first payment". Receipt of the first payment is, in my view, a pre-condition of Tony Arida's obligation to settle, so that if the first payment were not made the plaintiff's obligation to attend to the settlement would not arise. 37The words of the 2012 Heads, clause 5(c) themselves strongly indicate an interdependence of the event, "upon the receipt" of the first payment by the plaintiff, with the plaintiffs obligation, "the plaintiff will attend" to the settlement of the purchase. The simple description of the event of receipt followed by the obligation to settle leads in itself to the natural construction of the clause that the event is a pre-condition to the performance of the obligation to settle. 38Moreover, the contractual context of clause 5(c) reinforces the idea that by the 2012 Heads the parties were making receipt of the "first payment" a pre-condition to Mr Tony Arida's obligation to settle. The valuation process provided for in clauses 1, 2 and 3 would provide a net payment to Mr Tony Arida. It was not contemplated he would be making a payment himself. The first payment will only provide the clause 5(c) obligation that "the plaintiff will attend to the settlement", if the first payment is one "amounting to sufficient funds to complete" the purchase of the Church Street property. There seems little point in the parties contemplating the sufficiency of the first payment to achieve settlement unless its receipt were intended to be a pre-condition to settlement. And other mutual obligations arose between the parties under clause 11 to separate their respective interests and obligations in the non-Church Street properties also upon the receipt of the first payment, so that it is to be expected that that same event was being treated as a pre-condition also to Mr Tony Arida's obligation to settle the contract for the only other property, the Church Street property. 39The outcome of the completion date issue partly follows from the result of the pre-condition issue. Retaining the original completion date of the 12 July 2012 under the Church Street contract is hardly consistent with the receipt of the first payment being a pre-condition to completion of the Church Street contract. 40But in any event clause 5(c) works with clause 5(a) to provide for a different effective completion date for the Church Street contract. The existing Notice to Complete is withdrawn and cannot be acted upon: clause 5(a). Another Notice to Complete cannot be issued "until 3 months from signing" the 2012 Heads. This means that another notice cannot be issued before that three month period expired. Those words do not mean that once the three months expires the defendants would automatically be entitled to issue a Notice to Complete. The words chosen are deliberately more tentative than that: they are that the Trustees "will not take any steps towards" issuing another Notice to Complete. The words do not give express authority to issue a notice at 3 months. Rather the Trustees, parties like the defendants to the 2012 Heads, cannot commence preparation for issue of another Notice to Complete. This is quite consistent with the Trustees only being able to issue a Notice to Complete after, but not immediately upon, expiry of the three month period. The Trustees may issue that notice once the pre-condition in 5(c) has been satisfied and the three months have expired. That is consistent with the first payment, that may occur after three months, being a pre-condition to settlement. 41There is a little vagueness in the clause 5(c) requiring that the plaintiff "will attend to the settlement" [emphasis added], but the meaning is sufficiently clear: the plaintiff must "attend to" his settlement obligations required under the Church Street contract upon and with the making the first payment. Mr Jones SC concedes that means in effect, to attend immediately to those obligations. That in my view is what it means. The result is that provided three months had passed from the date of the 2012 Heads and provided the first payment has been received (subject to its sufficiency) the Trustees can issue another Notice to Complete naming the date of the first payment as the missed date of completion. 42Clauses 5(d) and 5(e) are supplementary machinery provisions consistent with this construction. If the first payment and the second payment are not made within 4 months the Trustees are empowered to bring matters to a head by terminating the contract. That provides a kind of backstop to the Trustees and some resolution for the parties if there is unacceptable delay in the valuation process and the first payment is not made. But the consequence of such a termination after the first payment was not made (by clause 11) is that the parties would still be property-bound to each other. 43The defendants' answers to this construction are not persuasive. The defendants submit that crossing out of clause 5(b) is inconsistent with Mr Tony Arida's construction. The defendants point to a number of authorities that suggest that deleted words in standard form or other contracts can be referred to as an aide to the meaning ambiguous words in a term which remains: see Burger King Corporation v Hungry Jacks Pty Ltd [2001] NSWCA 187 at [137] and Aberdeen Asset Management Limited v Challenger Wealth Link Management Ltd [2002] NSWCA 245 at [63]. But the deletion of clause 5(b) is understandable and consistent with Mr Tony Arida's construction. Clause 5(b) is unnecessary, because substantially the same result flows from clause 5(c). Indeed clause 5(c) creates a more precise regime defining when settlement could proceed not by reference to vague concepts such as "sufficient funds to complete the purchase" but by reference to the actual receipt of the first payment as defined and the second payment as defined. What remained in clause 5(c) was a more precise and satisfactory contractual result to the parties. 44The defendants submitted that the 2012 Heads clause 5 only operate as an agreement between the Trustees and Tony Arida but does not bind the defendants. But the short answer to this is that the Trustees the defendants and Mr Tony Arida are parties to the 2012 Heads and they are all bound by them. 45The defendants also submit that there is no reference in either clauses 5 or 6 which appears to directly refer to an alteration of the completion date in the Church Street contract. This submission is correct as far as it goes. But in my view a proper reading of clause 5(c) is that that is what the 2012 Heads are doing: altering the completion obligation under the Church Street contract. If that were not so, the odd situation would arise that any Notice to Complete issued would recite a completion obligation in July 2012 when the pre-condition to completion under clause 5(c) would only arise some time after 21 August 2012. 46It follows in my view that for the purposes of clause 15 of the Church Street contract the "completion date" is the date modified by clause 5(c) of the 2012 Heads. And in the events which have occurred that date is 24 December 2013, when the first payment was made. Interest should be calculated under special condition 36 from that date, not any earlier date.

The Defendants' Alternative Argument - The Legal & General v Hudson Point 47The Court has accepted Tony Arida's construction of the 2012 Heads. Against that possibility the defendants advanced an alternative point: that the second sentence of clause 6 of the 2012 Heads, "The decision by the trustees as to the calculation of the funds arising upon settlement of transfer would be final", prevents Tony Arida from dissenting from the calculation of interest the trustees apparently performed for the settlement of the Church Street contract on 24 January 2014. Tony Arida says that clause 6 does not apply to this calculation. 48A settlement sheet was prepared for completion of the Church Street contract on 24 January 2014. In the usual way it started with the purchase price (of $5,000,000 plus GST of $500,000), deducted the deposit, made adjustments for council and water rates, land tax and Tony Arida's share of outgoings and deducted certain allowances by the vendor, presumably associated with the first payment as defined under the 2012 Heads (clause 4). The overall calculations of the settlement sheet are not of present relevance. One of the items added to the amount payable by the purchaser on the sheet was default interest in the sum of $479,862.81. This was said to have been calculated for the period from "13/07/12 to 24/01/2014". The calculation then proceeded to take the balance of purchase price of $4,900,000 ($5 million minus $100,000) at an interest rate of 8 per cent over this period, to produce a total interest figure of $639,817.08. This figure was then adjusted to $479,862.81 to give Mr Tony Arida credit for his 25 per cent interest in the property for which he was being credited on the sale. 49On Thursday, 23 January 2014 the solicitors for the trustees, Gillis Delaney (Mr Hayter), forwarded the settlement sheet to all the parties preparing for completion of the Church Street property. The email said, relevant to this issue, "herewith final schedule. We will sort out part of the outgoings claim by Mr Ryckmans' clients next week as well as the interest issue". As earlier indicated, there was no agreement at settlement as to inclusion of any component of default interest in the consideration payable on completion. So the sum of $479,862.81 was left in the trustees' solicitors' trust account pending the determination of this motion. 50The defendants submit that this calculation of default interest of $479,862.81 is a 2012 Heads "decision by the trustees" which is "final" and binding on Tony Arida, whatever the Court's construction of the 2012 Heads, clauses 5 and 6. Mr Golledge elaborated the argument the following way. 51Mr Golledge submits that because of the parties' extensive disputes they decided to excise one issue from the possibility of potential dispute, namely the amount that would have to be paid on settlement. They excised that issue by vesting the decision about it in the trustees. This decision was to be binding. Mr Golledge submits on behalf of the defendants that the present is a classic case for the application of the well-known passage of the judgment of McHugh JA in Legal & General Life of Australia Ltd v A Hudson Pty Limited (1985) 1 NSWLR 314 ("Hudson") at 335C-336A: "This review of the authorities shows that this branch of law has been subject to much difference of opinion over the last thirty years. Moreover, much of the discussion appears to have proceeded upon the assumption that at least the general proposition espoused by Sir John Romilly MR, in Collier v Mason can be applied to both legal and equitable remedies. With respect, I think that this is a mistake. Only one decision (Jones v Jones), however, has resulted in a valuation being set aside by the application of what I regard as a wrong principle. The preferable course, in my opinion, is to restate the law on the matter in accord with what I believe is its correct basis. In my opinion the question whether a valuation is binding upon the parties depends in the first instance upon the terms of the contract, express or implied. This was pointed out by Sir David Cairns in the Court of Appeal in Baber v Kenwood Manufacturing Co Ltd (at 181). A valuation obtained by fraud or collusion can usually be disregarded even in an action at law. For in a case of fraud or collusion the correct conclusion to be drawn will almost certainly be that there has been no valuation in accordance with the terms of the contract. As Sir David Cairns pointed out, it is easy to imply a term that a valuation must be made honestly and impartially. It will be difficult, and usually impossible, however, to imply a term that a valuation can be set aside on the ground of the valuer's mistake or because the valuation is unreasonable. The terms of the contract usually provide, as the lease in the present case does, that the decision of the valuer is "final and binding on the parties". By referring the decision to a valuer, the parties agree to accept his honest and impartial decision as to the appropriate amount of the valuation. They rely on his skill and judgment and agree to be bound by his decision. It is now settled that an action for damages for negligence will lie against a valuer to whom the parties have referred the question of valuation if one of them suffers loss as the result of his negligent valuation: Sutcliffe v Thackrah [1974] AC 727; Arenson v Arenson [1977] AC 405. But as between the parties to the main agreement the valuation can stand even though it was made negligently. While mistake or error on the part of the valuer is not by itself sufficient to invalidate the decision or the certificate of valuation, nevertheless, the mistake may be of a kind which shows that the valuation is not in accordance with the contract. A mistake concerning the identity of the premises to be valued could seldom, if ever, comply with the terms of the agreement between the parties. But a valuation which is the result of the mistaken application of the principles of valuation may still be made in accordance with the terms of the agreement. In each case the critical question must always be: Was the valuation made in accordance with the terms of a contract? If it is, it is nothing to the point that the valuation may have proceeded on the basis of error or that it constitutes a gross over or under value. Nor is it relevant that the valuer has taken into consideration matters which he should not have taken into account or has failed to take into account matters which he should have taken into account. The question is not whether there is an error in the discretionary judgment of the valuer. It is whether the valuation complies with the terms of the contract." 52Mr Golledge further submits that the critical question to be posed here in relation to the trustees' calculation is "was the calculation made in accordance with the terms of the contract?" Mr Golledge submits, paraphrasing McHugh JA, if the calculation is in accordance with the contract it is "nothing to the point" that the calculation may have proceeded on the basis of error. 53McHugh JA's statement in Hudson has been frequently applied, including in Holt & Anor v Cox [1997] 23 ACSR 590 ("Holt"). Mr Golledge relies upon both Hudson and Holt to contend that it is insufficient for a satisfied party to point to some mistake in the reasoning process exposed by the trustees, provided it is in accordance with the contract. Here Mr Golledge says that provided there is "a decision by the trustees" and it is one "as to the calculation of the funds arising upon settlement or transfer" then it will be final, even if the proper construction of the contract might lead to a different calculation. 54Mr Jones SC's answers to this argument are persuasive. 55First, the calculation in the settlement sheet is not "a decision" of the trustees within the 2012 Heads, clause 6. Mr Hayter's covering email of 23 January 2014 describes the settlement sheet as a "final schedule". But he proffers the interest calculation as part of an "interest issue" that "we will sort out....next week". The clear intent of the email is only to furnish the draft calculation of the amount that should be set aside on account of interest, a matter which was expected to be resolved by further discussion the following week. The trustees are not purporting by this communication to bind the parties to any final calculation: it was proffered subject to further discussion. 56Mr Jones SC next submitted that it was not clear that the settlement sheet was a calculation which had its origins with "the trustees". That argument is not sustainable. Mr Golledge rightly points out that the chain of email correspondence shows a manager on behalf of the trustees, a Martin Yu, forwards the "amended settlement sheet and calculations" to Mr Hayter, who then passes them on unamended to the parties within 15 minutes. 57Mr Jones SC's final argument was also persuasive. He submits the parties did not agree to be bound by the trustees' determination of rights and obligations but only by their arithmetical calculation. Analysis of clause 6 confirms the validity of this argument. The "calculation" that the trustees are authorised to perform under clause 6 is one as to "funds arising upon settlement or transfer". The calculation to be performed by the trustee assumes that the various integers of the calculation "aris[e] upon settlement". An input to the calculation such as the reservation of an amount of interest, for a period before 24 January 2014 for which it is not properly due under the 2012 Heads, cannot be said to "arise on settlement". 58And another way at looking at the matter is to interpret literally what the trustees were asked to do: namely, a "calculation". The trustees were known to the parties not to be legally qualified. They were not specifically authorised to determine rights and obligations. Clause 6 authorises them only to do mathematics, not to construe clauses 5 and 6 of the 2012 Heads. 59In the result the defendants' alternative argument also fails.

Conclusion and Orders 60For the foregoing reasons the Court concludes that the construction of the 2012 Heads propounded on behalf of the plaintiff, Mr Tony Arida is the more persuasive. The Court has concluded that clause 5(c) of the 2012 Heads resets the date for completion under the Church Street contract. The Court does not find persuasive the defendants' argument based on clause 6 of the Church Street contract. 61This leads to the result that the amount of $479,862.81 set aside at the time of settlement of the Church Street property on 24 January 2014 can now be substantially paid to Mr Tony Arida. 62There may still be issues as to whether any part of this sum must still be paid to the trustees on settlement. The "first payment" under the 2012 Heads, clause 4 and 5(c) was made on 24 December 2013. The Court has accepted that the 2012 Heads, clause 5(c) amends the date for completion of the Church Street contract to that date. But some interest will still chargeable in accordance with special condition 36 between 24 December 2013 and 24 January 2014, unless it can be demonstrated that the trustees were not ready, willing and able to settle within special condition 36 on 24 December. 63The Court expects the parties to attempt to calculate an agreed sum of interest for this period. If the parties cannot resolve the issue of whether the trustees were ready, willing and able to settle on 24 December, the Court will determine that question. If the parties want the Court to decide such an issue they should inform the Court at the next appearance. But the economics of such an exercise seem marginal, as 8 per cent the rate of interest under special condition 36 on $5 million for one month is approximately $33,000. 64Under UCPR, r 42.1 costs would normally follow the event. But one or other party may seek a special costs order. When the matter comes back before the Court for the making of final orders the parties may put any further arguments as to costs. 65In the result the Court directs and orders the following: (1) Direct the parties to bring in short minutes of order to give effect to these reasons and to calculate in accordance with these reasons any interest due upon completion of the Church Street contract. (2) Direct that any submissions on issues of costs of these proceedings and in respect of the settled proceedings 2010/266736 be served and sent to my Associate by 5pm on Wednesday, 23 April 2014. (3) List the proceedings for final argument on all outstanding issues, including costs at 9.30am on Monday, 28 April 2014.

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. Decision last updated: 04 April 2014

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (8 paragraphs)

Cases Cited (24)

Cited By (2)