Yule v Smith

: Counsel: Mr P Maiden SC (Plaintiff) Mr E Muston (Defendant) Solicitors: Malouf Solicitors (Plaintiff) Swaab Attorneys (Defendant) File Number(s): 2008/278833

Judgment 1His Honour : This is the hearing of a notice of motion dated 11 August 2010 by the defendant seeking orders pursuant to s73 of the Civil Procedure Act 2005 for the enforcement of a settlement of the substantive proceedings. The proceedings are under the Property Relationships Act 1984 in which the plaintiff seeks an adjustment of property interests. There was a two-day mediation on 21 May 2010 and after it concluded, a document "Heads of Agreement" was signed by the parties. The terms of the Heads of Agreement are as follows: "Heads of Agreement Yule & Smith - 2857 of 2008

1. That within 3 months the Defendant transfer to the Plaintiff all of his right, title and interest in the property at xxxx Etna Street, North Gosford ("the Etna Street property"), unencumbered with all council and water rates paid and land tax paid.
2. That the Defendant provide to the Plaintiff the following: 2.1 stamped DA plans for the Etna Street property within 21 days; 2.2 a letter from Gosford Local Council certifying that the DA for the Etna Street property is still current, within 21 days and 2.3 a letter from Gosford Local Council certifying that there has been practical/physical commencement of the Etna Street property within 21 days; a bank cheque for $150,000 made payable to the Plaintiff or as she may direct in writing at the same time the Etna Street property is transferred to the Plaintiff pursuant to paragraph 1.
3. That the plaintiff indemnifies the Defendant from and in respect of all actions, claims, suits and demands as may be made against the Defendant by Corrinn Westley in relation to moneys loaned by Corrinn Westley to the Defendant.
4. That the Plaintiff and the Defendant release the other from all debts owing from one to the other, including any obligation of the Defendant to account to the Plaintiff for profits received by him or paid to him (or at his discretion) arising from any partnership venture.
5. That the Plaintiff releases the Defendant and the following from all claims in respect of any monies whatsoever owed to the Plaintiff howsoever arising: 5.1 DP Smith Enterprises Pty Ltd 5.2 DP Smith (Holdings) Pty Ltd 5.3 DP Smith (Homes) Pty Ltd 5.4 Bayside Estate Pty Ltd 5.5 JOLMS Pty Ltd 5.6 DP Smith Superannuation Fund; 5.7 BA Yule & DP Smith Superannuation Fund); 5.8 Smith Superannuation Fund That there be no order as to costs. NOTATION: Noted that neither party may seek entry of order in accordance with the Heads of Agreement until certification by the defendant with paragraphs 2.1 to 2.7 inclusive herein." 2The Heads of Agreement thus required that the defendant provide to the plaintiff the stamped DA plans for the Etna Street property within 21 days from 21 May 2010. The evidence from the defendant is that on 28 May a tube approximately a metre in length containing stamped DA plans for xx-xx Etna Street, North Gosford were delivered to the plaintiffs solicitors. Mrs Yule accepted delivery of the plans, however she complained that some of them were not originals but photocopies of the original stamped plans held by the council. The plans supplied were the ones that related to the Development Approval and they were incorporated by reference into that approval by condition 32 of the covenant. Also enclosed were Mr Toft's engineering plans for detention storage approved by council on 6 December 1995. Nothing turns on the supply of copies rather than originals. The claim does not require the originals. I am satisfied that the relevant plans were submitted in accordance with the agreement. 3Mr Smith had signed a transfer of the property which was held in his name, unencumbered and there is no issue that he agreed to pay $150,000 to Mrs Yule as was required under the Heads of Agreement. This leaves the question of whether or not Mr Smith has provided to Mrs Yule: (a) A letter from Gosford Local Council certifying that the DA for the Etna Street property is still current; and (b) A letter from Gosford Local Council certifying that there has been practical/physical commencement of the Etna Street property. 4In the letter dated 28 May 2010, which forwarded the plans, there was also enclosed a copy of letter from Gosford Local Council dated 6 February 1996. That letter was as follows: "GOSFORD CITY COUNCIL 49 MANN STREET, GOSFORD, N.S.W.. 12.250. P.O. BOX 21, GOSFORD. DX 7211 GOSFORD Mr DP Smith xxxxx LONG JETTY NSW 2261 Please Quote: DA 13497 Mr Peter Pegg:jh BA 63111/91 6 February 1996 Development Application No 13497 Proposed Forty Sever. (47) Dwelling Residential; Flat buildings on Lots 9 & 10 DP 216928 No. xx-xx Etna Street, North Gosford. Dear Mr Smith, I refer to your letter dated 5 January 1996 and advise that an inspection of the above property by Council's Development Engineer confirmed that work has commenced in accordance with approved Engineering Plans. The development has achieved "physical commencement' within the meaning of the Environmental Planning & Assessment Act and is therefore ongoing, unless Council has issued a notice to complete under Section 99 of the Act. Yours faithfully- PETER PEGG Manager Development Control" 5On 31 May 2010 the Mr Smith's solicitors supplied a letter in the following terms from the Gosford Local Council to Mrs Yule: "Mr DP Smith xxxxx LONG JETTY NSW 2261 Please Quote S0097S9 Pater Pegg:ak 31 May 2010 Gosford City Council 49 Mann Street Gosford PO BOX 21 Gosford NSW 2250 DX 7211 Gosford Dear Mr Smith Physical Commencement DA13497 - Proposed Forty Steven (47) Dwelling Residential Fiat Buildings on Lots 9 & 10 DP 216928 No xx-xx Etna Street North Gosford I refer to your telephone call of 31 May 2009 and advise that the information contained in Council's correspondence of 6 February 1996 which states that physical commencement of the above development Is ongoing is still relevant. Yours faithfully Peter Pegg ACTING MANAGER - DEVELOPMENT" 6Mr Smith's submission in relation to the construction of the agreement relied upon the principles adumbrated by the Court of Appeal in Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407 per Allsop P at paragraphs [14] - [19]: "14 The state of the law in this respect is to be ascertained from a number of High Court cases: Maggbury Pty Limited v Hafele Australia Pty Limited [2001] HCA 70; 210 CLR 181 at 188 [11]; Pacific Carriers v BNP Paribas at 461-462 [22]; Zhu v Treasurer of the State of New South Wales [2004] HCA 56; 218 CLR 530 at 559 [82]; Toll (FGCT) v Alphapharm at 179 [40] and International Air Transport Association v Ansett Australia Holdings Limited [2008] HCA 3; 234 CLR 151 at 160 [8] and 174 [53]. These cases are clear. The construction and interpretation of written contracts is to be undertaken by an examination of the text of the document in the context of the surrounding circumstances known to the parties, including the purpose and object of the transaction and by assessing how a reasonable person would have understood the language in that context. There is no place in that structure, so expressed, for a requirement to discern textual, or any other, ambiguity in the words of the document before any resort can be made to such evidence of surrounding circumstances. 15 As Campbell JA points out, the approach to construction of the documents in question by the High Court in Agricultural and Rural Finance v Gardiner at 205 [38] and in Park v Brothers [2005] HCA 73; 80 ALJR 317 at 325 [39] did not involve any consideration of ambiguity. 16 Further, intermediate appellate courts have been clear in their expression of view that these recent decisions of the High Court are to the effect that the identification of ambiguity is not a precondition to examining legitimate surrounding circumstances: Lion Nathan Australia Pty Ltd v Cooper Brewery Ltd [2006] FCAFC 144; 156 FCR 1 at 10-12 [45]-[52] (Weinberg J), 22 [100] (Kenny J) and 48 [238] (Lander J) agreeing with Finn J at first instance [2005] FCA 1812; 223 ALR 560 at 573 [78]; Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65; 69 NSWLR 603 at 626 [107]-[109] (Tobias JA, with whom Mason P and Campbell JA agreed); Synergy Protection Agency Pty Ltd v North Sydney Leagues' Club Limited [2009] NSWCA 140 at [22] (myself, with whom Tobias JA and Basten JA agreed) and Masterton Homes Pty Ltd v Palm Assets Pty Ltd [2009] NSWCA 234; 261 ALR 382 at 384-385 [1]-[3] (myself with whom Basten JA agreed) and see also to like effect [113] (Campbell JA). 17 None of the above High Court decisions discussed what some have seen as the tension in Sir Anthony Mason's reasons in Codelfa Constructions Pty Limited v State Rail Authority of New South Wales [1982] HCA 24; 149 CLR 337 between what was written at 348-351 and the expression of the "true rule" at 352. That what was said in Codelfa at 352 can be taken to conform with the apparent width of the principle expressed at 348-351 can, if it arose for consideration, be taken from: (a) an acceptance of the views of Spigelman CJ expressed in South Sydney Council v Royal Botanic Gardens [1999] NSWCA 478; 10 BPR 18,961 at 18,966 [35] and in Gardiner v Agricultural and Rural Finance Pty Ltd [2007] NSWCA 235; (2008) Aust Contracts R 90-274 at 90,340 [7]-[13] (otherwise unaffected by the High Court decision) and extra-judicially in "From text to context: contemporary contractual interpretation" (2007) 81 Australian Law Journal 322; (b) a recognition that the phrase used by Mason J in Codelfa at 352 "if the language is ambiguous or susceptible of more than one meaning" does not mean that the susceptibility of the language to more than one meaning must be assessed without reference to the surrounding circumstances or extrinsic material; (c) a recognition of the width of the guiding authorities that Mason J discussed at 348-351, in particular Prenn v Simmonds [1971] 1 WLR 1381 at 1383-1384; Utica City National Bank v Gunn 118 NE 607 (1918); Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989 at 995-997; and DTR Nominees Pty Ltd v Mona Homes Pty Ltd [1978] HCA 12; 138 CLR 423 at 429; and (d) a recognition of the width of the approach in England even in the 1920s: Lake v Simmons [1927] AC 487 at 509 per Viscount Sumner: "commercial contracts are to be interpreted with regard to the circumstances of commerce with which they deal, the language used by those who are parties to them, and the objects with which they are intended to secure", cited by Gleeson CJ in McCann v Switzerland Insurance Australia Limited [2002] HCA 65; 203 CLR 579 at 589 [22] and IATA v Ansett at 160 [8]. 18 In any event, whether or not aspects of the reasons of Mason J require, as a matter of theory, any exegesis, the High Court has clearly stated the position conformably with the cases referred to at [17 (c)] above and discussed by Mason J in Codelfa at 348-351. This can be taken from the clarity of the expression of principle in the later High Court cases to which I have referred, as well as from the references in Pacific Carriers v BNP Paribas at 461-462 [22], Zhu at 559 [82] and IATA v Ansett at 160 [8] to Codelfa at 350 and 351, and not 352. The issue is therefore not one for resolution otherwise than by application of current High Court authority. The approach to the construction of commercial contracts 19 The essential character of the task of construction of commercial contracts can be seen in a number of authoritative decisions of the High Court, and of other courts authoritatively endorsed by the High Court. A commercial contract should be given a businesslike interpretation: McCann at 589 [22]. Thus, the nature and extent of the commercial aims and purposes of the agreement or parts thereof are part of the essential background circumstances: "the genesis of the transaction, the background, the context, the market in which the parties are operating": Codelfa at 350 quoting Reardon Smith at 995-996 cited by the Court in Zhu at 559 [82] and see Lake v Simmons at 509 cited by Gleeson CJ in McCann at 589 [22] and IATA at 160 [8]. The need for a businesslike construction not only informs the nature and extent of the extrinsic material legitimately of assistance, but it also directs the approach to be taken to the ascription of meaning to the words used by the parties. The words should be given a construction so as "to avoid ... [making] commercial nonsense or is shown to be commercially inconvenient": Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310 at 313-314 (Kirby P) cited by the Court in Zhu at 559 [82]. This is not only a reflection of the place of the informing surrounding circumstances, it is also a requirement not to approach words in a business contract pedantically or in a manner prone to defeat the evident commercial purpose. They should be read "fairly and broadly, without [the court] being too astute or subtle in finding defects": Hillas & Co Limited v Arcos Limited (1932) 147 LT 503 at 514 per Lord Wright cited in Australian Broadcasting Commission v Australasian Performing Right Association Limited [1973] HCA 36; 129 CLR 99 at 109-110. Similar expressions of the correct approach eschewing detailed semantic and syntactical analysis to lead to a construction contrary to business commonsense can be seen in what Lord Diplock said in Miramar Maritime Corporation v Holborn Oil Trading Ltd [1984] AC 676 at 682 and Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191 at 201. As Gleeson CJ, Gummow J and Hayne J said in Maggbury at 198 [43] in the context of citing the relevant passage from Lord Diplock's speech in Antaios , what is "business commonsense" is an objectively ascertained matter and thus referable to the evidence, and a matter about which there may be dispute. (It is not to be forgotten that shipping cases such as Miramar and Antaois were dealt with by judges of great stature and experience in the context of markets and practices with which they were intimately familiar.)" 7The submissions continue as follows: "Applying these principles to clauses 2.2 and 2.3 of the Heads of Agreement, it is necessary to consider the actual words employed in the clauses and the surrounding circumstances known to both Mr Smith and Ms Yule at the time that the Heads of Agreement was executed. It is common ground that the parties intended that Mr Smith transfer the Etna Street property (and $150,000) to Ms Yule in settlement of the claim made against him by her in the substantive proceedings. It is clear from the cross examination of Ms Yule that, at the time this agreement was reached, both she and Mr Smith were aware that: (a) the Etna Street property was the subject of development consent issued by Gosford Council; (b) the development consent could lapse but that it would not have done so if work had been done in relation to it; that is, if physical commencement of the works associated with the development consent had been achieved; an understanding entirely consistent with the scheme envisaged by s95 Environmental Planning and Assessment Act 1979; (c) at an earlier time Mr Smith had told Ms Yule that he had in fact undertaken work to prevent the development consent from lapsing; she can be seen in photographs of the work which Mr Smith had undertaken which appear in Exhibit 2; (d) following the transfer, Ms Yule had no intention of undertaking the work contemplated by the development consent. She was never going to construct units on the Etna Street property but rather intended to on sell it; and (e) that the existence of a valid development consent was likely to increase the value of the Etna Street property beyond that ascribed to the land by the Valuer General. Viewed objectively, it is clear that Ms Yule was eager to ensure that Gosford Council (being the relevant authority) shares Mr Smith's view that the development consent had not lapsed. The objective purpose of clauses 2.2. and 2.3 of the Heads of Agreement is to require that Mr Smith obtain from Gosford Council an expression of its view that the development consent has not lapsed. The words used in clauses 2.2 and 2.3 achieve that purpose. In particular, it is quite clear from the opening words of both clauses that they are calling for the expression, in writing, of Gosford Council's view as to the status of the development consent. It is accepted that the words used in drafting clauses 2.2 and 2.3 lack precision. The phrase ' the DA for the Etna Street property is still current ' is not ideally suited. The acronym DA would ordinarily be used to describe the development application rather than the resultant development consent. Nevertheless, read in a businesslike way against the relevant background, the phrase could only have been intended as a reference to the development consent having not lapsed. The words ' certifying that there has been practical/physical commencement of the Etna Street property ' make little sense when read literally. However, as the development consent would only have lapsed had the work contemplated by it not been " physically commenced" for the purposes of s95 Environmental Planning and Assessment Act 1979 it is clear that the physical commencement of these works was what was being referred to. In fact, clause 2.3 is almost entirely repetitious of clause 2.2 as satisfaction of one would almost inevitably lead to the other being similarly satisfied. Both prior to and in connection with the present application, Mr Smith has provided Ms Yule with ample documentary evidence of Gosford Council's view that the development consent attached to the Etna Street property has not lapsed; that is, Gosford Council is clearly of the opinion that physical commencement of the works contemplated by the development approval was achieved by Mr Smith within the relevant period. A perusal of the correspondence between Mr Smith and Gosford Local Council referred to in the Applicant's Chronology and dated: 2 February 1994, 16 February 1994, 22 December 1995, 5 January 1996, 25 January 1996, 5 February 1996, 6 February 1996, 31 May 2010, 12 August 2010 and 18 August 2010 can lead only to this conclusion. It is accepted that the correspondence does not expressly use the word " certify" . However, a business like construction of clauses 2.2 and 2.3 does not require it to do so. To insist on the use of the word would be to approach the construction of the clauses ' pedantically or in a manner prone to defeat the evident commercial purpose . Applying a businesslike construction, Mr Smith has satisfied the obligations under clause 2.2 and 2.3 of the Heads of Agreement. " 8The plaintiff made two main points in her submissions. The first was that the amounts payable to Gosford Council prior to obtaining building approval (or nowadays a construction certificate) of $166,108.30 were not paid and this is a breach of clause 1 of the Heads of Agreement. The second point concerns clause 2 of the Heads of Agreement. It was submitted that the letter, from Gosford Council dated 31 May 2010, does not certify (a) that the "DA for the Etna Street property is still current, and (b) that there has been practical/physical commencement of the Etna Street property". 9I turn to deal with the first matter. In August 1993, there were a number of modifications to the development consent relating to the provision of a security deposit, contributions to future road works and contributions to public open space. Under conditions 39 to 43 of the development consent, these amounts were payable before the issue of the building approval or building consent. 10I note that the current position in respect of required payments is that $166,108.30 is required to obtain (a) water and sewerage services to the site and (b) certification for those services. The current contribution pursuant to condition 43 towards local infrastructure has been reduced to $55,914.11. 11Mrs Yule submitted that the words "encumbrance" and "council and water rates" used in clause 1 have settled meanings and those meanings would encompass payments that have to be made at the time a person proceeds with a building application. They are to pay the required contributions prior to that stage of the development. 12Mrs Yule also suggested that it was incumbent upon Mr Smith in the context of an application for adjustment of property interests that there should have been full disclosure of Mr Smith's financial circumstances. Reference was made to Dowrick v Sissons (1996) 20 FAM LR 466 and other cases that followed. It is clear that Mrs Yule did not know of the liability and when cross-examined, Mr Smith conceded he did not tell Mrs Yule about these amounts because he was not asked. 13Mr Smith made the point that it was not incumbent upon him to provide to Mrs Yule details of the costs associated with the undertaking. That was a matter that was so obvious that it goes without saying. Mr Smith submitted that all he was required to do was to disclose the value of his assets, which he did. Given that Mrs Yule had no experience as a property developer, it is not unusual that she may be surprised about these costs. Any person familiar with property development would certainly know that there were likely to be such contributions to be made at that stage of building approval. 14It should also be noted that Mrs Yule will not be liable for these expenses given that she intended to sell the development before the building approval stage. 15In the context of this matter, the relevant council rates, water rates and land tax were all paid. In my view, the contribution which may never become payable if the defendant does not proceed, are not an encumbrances on the property. 16So far as disclosure is concerned, it is probably true that the principles referred to apply equally to the hearing and to any mediation. They are stated by the House of Lords in Livesey (formerly Jenkins) v Jenkins [1985] AC 424 at 437 in these terms: "I stated earlier that, unless a court is provided with correct, complete and up-to-date information on the matters to which, under s 25(1), it is required to have regard, it cannot lawfully or properly exercise its discretion in the manner ordained by that subsection. If follows necessarily from this that each party concerned in claims for financial provision and property adjustment (or other forms of ancillary relief not material in the present case) owes a duty to the court to make full and frank disclosure of all material facts to the other party and the court. This principle of full and frank disclosure in proceedings of this kind has long been recognised and enforced as a matter of practice. The legal basis of that principle, and the justification for it, are to be found in the statutory provisions to which I have referred." 17I find it hard to accept that in the context of the mediation Mr Smith should have provided details of what are in effect the cost of building the units. As Mrs Yule was taking on that development for resale she no doubt should, with advice, have made her own assessment of these costs. She was well represented by experienced counsel at the mediation. I would not refuse specific performance on this ground.

Certification requirement 18Mrs Yule submitted that the words "still relevant" do not amount to a certification that physical commencement of the development has commenced, nor does it certify that the DA is still current. The word "certifying" means "to make a formal statement of, or to attest, or to declare by certificate". Thus, the document to be provided by the Council was to be a valid document that could be relied upon by attesting that the development consent was still on foot. It was submitted that the words used by the Council "that physical commencement of the above development is ongoing is still relevant" do not give any assurance that the Council has accepted that the original consent is still in force. 19She submitted that at the time, the relevant provision was s95(4) of the Environmental Planning and Assessment Act 1979: "Development consent for the erection of a building... does not lapse if building, engineering or construction work relating to the building.... is physically commenced on the land to which the consent applies before the date on which the consent would otherwise lapse....". 20She submitted that it is clear from the section that it is a question of fact as to whether building, engineering or construction work has been physically commenced on the land. Whether the consent has lapsed is probably a mixed question of fact and law: see Tobias JA in Hunter Development Brokerage Pty Ltd v Cessnock Council (2005) 63 NSWLR 124, at [19]. 21There was evidence before me demonstrating the work that was done to achieve what was said to be substantial commencement of the development. Having regard to that evidence, this has been achieved. Mrs Yule's attitude to this issue was that it was not this court's task to decide that question even if the court had jurisdiction to do so. According to Mrs Yule all this court has to do is decide whether Mr Smith has complied with clause 2.2 of the Heads of Agreement such that it should order specific performance. 22It is clear that the correspondence does not use the word "certified". It is to be noted that there is no statutory obligation for the Gosford Council to so certify and that a consideration of the correspondence before and after the letter of 31 May 2010, details of which are set out above, makes it clear that Gosford Council was clearly of the opinion that physical commencement of the work contemplated by the development was achieved. 23It can hardly be suggested that in the context of the present case and the clause that it was incumbent on Mr Smith to obtain some declaratory order from the Land and Environment Court that the development consent had not lapsed in accordance with the Environmental Planning and Assessment Act 1979. Such a procedure was involved in St Basil's Homes & NSW Land and Housing Corporation v Randwick Council [2011] NSWLEC 72. However, that case was one where the agreement of the parties required the application as part of the agreement. 24Plainly the present clause does not require that. It requires something less. 25In my view, having regard to the available correspondence and noting that it is not suggested that the time limits in the Heads of Agreement are of the essence or have been made of the essence, there has been compliance with clause 2.2 and 2.3 of the Heads of Agreement. 26In my view, there has been compliance with the terms of the Heads of Agreement and the Court should make an order enforcing the Heads of Agreement. 27I direct the parties to bring in Short Minutes and argue costs.

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: 22 June 2011