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  •   Notable Unreported Decision

Mackenzie v Kentcade Properties Pty Ltd

 

[2012] QSC 299

 

 

SUPREME COURT OF QUEENSLAND

 

PARTIES:

FILE NO:

Trial Division

PROCEEDING:

Claim

ORIGINATING COURT:

DELIVERED ON:

5 October 2012

DELIVERED AT:

Brisbane 

HEARING DATE:

17 September 2012

JUDGE:

Applegarth J

ORDER:

The Management Rights Contract and the Property Contract referred to in the Claim be specifically performed.

CATCHWORDS:

CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – OTHER MATTERS – where plaintiffs own Lot 9 and hold management rights associated with a  resort developed by the defendant – where plaintiffs entered into an Option Agreement granting them the option to sell Lot 9 and the management rights to the defendant on the happening of certain “put option events” – where plaintiffs contend certain put options occurred, entitling them to exercise the option – whether put option events occurred within the meaning of the Option Agreement – whether plaintiffs validly exercised their option

EQUITY – EQUITABLE REMEDIES – SPECIFIC PERFORMANCE – DEFENCES – From conduct of parties – Want of fairness – where plaintiffs entitled to order for specific performance – whether plaintiffs exercised option in breach of implied obligation of good faith – whether discretion not to order specific performance should be exercised on the grounds of unfairness to the defendant and third parties

Acts Interpretation Act 1954 (Qld), s 49

Corporations Act 2001 (Cth), s 601ED

Property Agents and Motor Dealers Act 2000 (Qld), ss 114, 115

AMCO Wrangler Ltd v Sukkar (1985) 1 NSWLR 577, cited

Antaios Compania Naviera SA v Salen Rederierna AB  [1985] AC 191, cited

Blackett v Clutterbuck Bros (Adelaide) Ltd [1923] SASR 301, cited

Blomley v Ryan (1956) 99 CLR 362, cited

Bowman v Durham Holdings Pty Ltd  (1973) 131 CLR 8, cited

Edwards v Stocks [2008] TASSC 12, cited

Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 218 CLR 471, cited

Ex parte Lesiputty (1947) 47 SR (NSW) 433, cited

Flowers v Vescio [2006] NSWCA 342, cited

Larter v Skone James [1976] 1 WLR 607, cited

Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451, cited

R v Arkwright (1848) 12 QB 96, cited

R v Fairford Justices; ex parte Brewster [1976] QB 600, cited

Rainy Sky S.A. and ORs v Kookmin Bank [2011] UKSC 50, cited

Ruzeu v Massey-Ferguson (Aust) Ltd [1982] VR 529, cited

Toll (FGCT) Pty Limited v Alphapharm Pty Ltd (2004) 219 CLR 165, cited

COUNSEL:

G A Thompson SC and D M Turner for the plaintiffs

F L Harrison QC and M P Amerena for the defendant

SOLICITORS:

MacGillivrays Solicitors for the plaintiffs

Greenhalgh Pickard Solicitors for the defendant

[1] The plaintiffs (“the Mackenzies”) hold the management rights associated with the Coolum Seaside Resort, which comprises 47 apartments.  They are resident managers and own Unit 9 from which they operate their caretaking and letting business.  The resort was developed by the defendant (“Kentcade”).

[2] On 15 May 2009 Kentcade appointed the Mackenzies its agent in respect of each of the 41 apartments it then owned (“the Kentcade Lots”).  By Part 21 of the document that appointed it (“the Bulk Form 20a”) Kentcade:

 

(a)undertook that in the event of any of the Kentcade Lots being sold or otherwise transferred, Kentcade would:

 

(i)give notice to the purchaser or transferee of the relevant Kentcade Lot of all advance bookings for the Kentcade Lot;

 

(ii)obtain from that purchaser or transferee an undertaking to accept the purchase or transfer subject to the conditions of such advance bookings;  and

 

(b)agreed that such undertaking on the part of the purchaser would form part of the contract for the purchase or transfer of the Kentcade Lot.

 

I shall refer to this as “the Undertaking Obligation”.

[3] On 3 November 2011 the Mackenzies and Kentcade entered into an Option Agreement under which Kentcade granted to the Mackenzies an option (“the Put Option”) to sell the management rights and Lot 9 to Kentcade upon the happening of a “Put Option Event”.  The Mackenzies contend that certain Put Option Events occurred, that they exercised the Put Option and are entitled to orders that the contract for the sale of the management rights and the contract for the sale of Lot 9 be specifically performed.

[4] Kentcade denies that there was a “Put Option Event”.  Alternatively, it submits that the Court should exercise its discretion to not order specific performance.

[5] The Mackenzies allege three separate Put Option Events:

 

(a)Breaches of clause 3.4 of the Option Agreement (“the Notice Obligation”);

 

(b)Termination of “one or more of the Forms 20a” in the circumstances provided for by clause 4.1(4) of the Option Agreement (“the Form 20a Termination Event”);

 

(c)Breach of the Undertaking Obligation.

The issues

[6] The substantial issues may be summarised as follows:

 

1.Did Kentcade breach the Notice Obligation contained in clause 3.4?  This issue turns largely upon the meaning of “on” in clause 3.4.

 

2.Was there a Form 20a termination event as provided for in clause 4.1(4)?  This issue turns on:

 

(a)whether there was a termination of “one or more of the Forms 20a”;

 

(b)if so, whether the exception contained in clause 4.1(4) applies.

 

3.Is the Undertaking Obligation contained in a document “associated with” the Option Agreement and, if so, was there a breach of the Undertaking Obligation? 

 

4.If the Mackenzies validly exercised the Put Option, whether orders for specific performance should be declined as a matter of discretion on the grounds that:

 

(a)in exercising the Put Option the Mackenzies breached an implied obligation of good faith;

 

(b)it would be unfair to order specific performance.

Background facts and relevant provisions

[7] The income that the Mackenzies derive from the ownership of the management rights comes mainly from their management of the letting of lots in the resort.  There is no obligation on the owner of a lot in the resort to put their lot into the letting pool.

[8] Because the Kentcade Lots constituted 41 of the 47 lots in the scheme, any sale by Kentcade of the Kentcade Lots carried with it a risk that a purchaser or purchasers would decide not to place the lots in the letting pool as Kentcade had done pursuant to the Bulk Form 20a.  This carried the risk of a diminution in the income derived by the Mackenzies from the letting business and a devaluation of their business. 

[9] It was in this context that on or about 3 November 2011 the Mackenzies entered into the Option Agreement with Kentcade.  The Option Agreement refers to the Mackenzies as “the Seller” and to Kentcade as “the Grantee”.

[10] Clause 4 of the Option Agreement provides that each of a number of matters are Put Option Events.  These include “all Events of Default”.  Clause 1.1(16) defines “Event of Default” to mean the following events:

 

“(a)if a party fails to pay or repay money which is due and payable to the other party under this Agreement, a Contract or document associated with either of them;

 

(b)if a party defaults in the performance of an Obligation on that party’s part under this Agreement, the Contract or a document associated with either of them;  or

 

(c)any other event specifically described as an Event of Default in this Agreement.”   (emphasis added)

[11] Clause 3.4 contains obligations to give notice as follows:

 

“3.4The Grantee must, in respect of each lot in Coolum Seaside (other than the Discretionary Lots and the Excluded Lots) which the Grantee intends to sell, transfer or assign (‘Lot Sale’), give Notice to the Seller on both:

 

(1)the execution of a contract, or reaching of an agreement with the buyer for that Lot Sale;  and

 

(2)the completion of the contract or agreement for that Lot Sale.”  (emphasis added)

Clause 3.5 provides that a breach of clause 3.4 by Kentcade is an Event of Default.

[12] Clause 4.1(4) includes among the Put Option Events the following:

 

“(4)Termination of any one or more of the Forms 20a except:

 

(a)where required to permit the completion of an arms length sale of one or more of the Grantee’s lots in the Development to a third party unrelated to the Grantee (“Third Party”);  and

 

(b)either:

 

(i)the Grantee procures the Third Party to enter into a PAMD[1] form 20a, in the Seller’s standard form and terms, with the Seller on or before completion of the sale;  or

 

(ii)no more than 2 Third Parties in any 12 month period fail to enter into a PAMD form 20a, in the Seller’s standard form and terms, with the Seller on or before completion of their purchase ...”.

This provision prompts attention to the definition of “Forms 20a”.  This term is defined to mean “the PAMD forms 20a between the Seller and the Grantee, or an associate of the Grantee, for all of the Grantee’s Lots”.

Principles of construction

[13] The principles governing the interpretation of commercial contracts are not in dispute, and need not be restated at length.  The meaning of the contract is to be determined objectively according to what a reasonable person in the position of the parties would understand the words to mean.  If there is ambiguity, regard may be had to the commercial purpose of the transaction and background knowledge which would have been available to the parties.  An interpretation which will give the contract a businesslike operation is to be preferred.  Commercial contracts should be construed to make commercial sense of them.  An absurd, unreasonable or capricious result is to be avoided.

[14] The starting point is the natural and ordinary meaning of the expression. The Court seeks to ascertain what the parties meant by the words which they have used. An objective approach is applied.[2]  It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe.[3]

[15] Evidence of the surrounding circumstances is only admissible where the words are ambiguous.  Unambiguous language cannot be disregarded simply because the contract would have a more commercial and businesslike operation if an interpretation different to that dictated by the language were adopted. 

[16] The interpretation should accord with what commercial people in the position of the parties would understand the words to mean.    The interpretation should be “consistent with business common sense.”[4]  In the case of an ambiguous expression, the “more commercially sensible” construction should be preferred.

The Notice Obligation

[17] The issue of whether Kentcade breached the Notice Obligation turns principally on the meaning of “on” in the context of clause 3.4.  Clause 3.4 required Kentcade to give notice to the Mackenzies “on” both:

 

1.the execution of a contract, or reaching of an agreement with the buyer for that Lot Sale;  and

 

2.the completion of the contract or agreement for that Lot Sale.

The relevant facts are not in dispute.  Paragraph 8 of the statement of claim, which was admitted, contains a table of the contracts entered into by Kentcade to sell a total of 15 of the Kentcade Lots.  The table sets out the date of each contract, the date notice of each contract was given to the Mackenzies, the completion date of each contract that settled and the date notice of the completion of each contract was given to the Mackenzies.  To take one example, the date of the contract for the sale of Lot 2 was 2 December 2011, but notice was not given of it until more than four weeks later on 5 January 2012.  In most other cases the period between the date of the contract and the date of notice of it was about a month.  In one case the length of time was 38 days.

[18] The Mackenzies submit that the word “on” is used in clause 3.4 in a temporal sense, and should be given its natural ordinary meaning.  The Oxford English Dictionary defines “on” in a temporal sense as meaning “indicating the day or part of a day during which an event takes place;  at the time of”.  The Mackenzies submit that even if some temporal latitude is allowed, “on” should not be construed to extend very far beyond the time of occurrence of the relevant event.[5]  The expression “on” is incapable of accommodating a notice given many days or weeks after the relevant event.

[19] Such an interpretation of “on” is submitted to be supported by its context, including:

 

(a)the apparent commercial purpose of the provision;

 

(b)the requirement for a notice to be given “on” the occurrence of one of the events stated in clause 3.4(1), and a further notice “on” the completion of the contract pursuant to clause 3.4(2).

They submit that the flexible or imprecise construction of the word “on” contended for by Kentcade does not reflect the “business commonsense” approach to construction referred to by Diplock L in Antaios Compania Naviera SA v Salen Rederierna AB.[6]

[20] Kentcade submits that clause 3.4 does not stipulate the giving of notice within a particular time and, accordingly, clause 16.10 of the Option Agreement which provides that “time will be of the essence” is not engaged.  It further submits that, by parity of reasoning with authorities that have construed the synonym “upon”, the word “on” identifies “the trigger for the giving of the notice”, not the time within which it must be given.

[21] Clause 3.4 is described by Kentcade as a “machinery provision” intended to assist the Mackenzies in obtaining the benefit of the Put Option Event in clause 4.1(4) if it becomes available.

[22] Although the requirement to give a further notice “on” the completion of the contract means that the first notice must be given before the completion date, Kentcade submits that the critical time is the date of completion of the contract of sale since it is only upon the completion of such a contract that the interests of the Mackenzies as the holders of the management rights may be threatened by diminution in the letting pool if Kentcade fails to secure their appointment at the settlement.  Against that background, Kentcade submits that the context in which clause 3.4 appears and the subject matter of the Option Agreement lead to the conclusion that the requisite notices must be given after:

 

(a)entry into a contract for a Lot Sale, but probably before completion of that contract;  and

 

(b)after completion of such a contract, but within a reasonable time so as to permit the Mackenzies a fair and reasonable opportunity to exercise the Put Option, if appropriate, within the applicable 90 day time limit.

[23] Kentcade’s preferred construction is submitted to accord with reason and good sense where, for example, a buyer may make use of the statutory cooling-off period of five business days, or a contract may not proceed, for example, because it is subject to finance and the finance condition fails.  The notice requirement in clause 3.4(1) is said to be intended to be “an advance warning that the seller should get ready to consider its position if ultimately it was informed in accordance with clause 3.4(2) that such a contract had been completed.”

[24] Finally, Kentcade submits that its notices of entry into contracts and its notices of the completion of certain contracts were all within a reasonable time.

[25] Each party cited authorities which involved consideration of expressions “on”, “on or about” or “upon” in a variety of contexts.  As Stephen J stated in Bowman v Durham Holdings Pty Ltd:

 

“‘Upon’ may mean ‘before’, ‘simultaneously with’ or ‘after’ the act done to which it relates and it will take its intended meaning from its context.”[7]

Accordingly, in their context, the words “upon the exercise of the option” in that case did not require that payment of the purchase price should occur simultaneously with the exercise of the option.  In other contexts, for example where the expression “on the death” is used the word “on” means either before the death, or simultaneously with the death, or immediately after the death.[8]  Depending upon its context, the word “on” may impose a stricter time requirement than “on or about” which has been interpreted to mean no more than a few days away from the nominated event.[9]

[26] In other contexts the word “on” or “upon” has been construed as not imposing a temporal requirement in the nature of “at the same time as”.[10]  In some contexts it means “after”.

[27] The authorities cited by both parties in relation to the meaning of “on”, “on or about” or “upon” serve to illustrate that in some contexts the word “on” or its synonym “upon” does not stipulate a time for something to be done.  Bowman v Durham Holdings Pty Ltd illustrates that point in respect of the synonym “upon”.  However, as Jordan CJ  has observed:

 

The word upon in different cases may undoubtedly either mean before the act done to which it relates, or simultaneously with the act done or after the act done, according, as reason and good sense require, the interpretation with reference to the context and the subject matter of the enactment.[11]

[28] The issue then is what reason and good sense require in the context of the present contract.  This includes the context in which clause 3.4 appears, the apparent purpose[12] of including such a term in an agreement that related to management rights and the circumstances under which the Put Option might be exercised to sell them.

[29] I am not persuaded that the text or context of clause 3.4 supports the conclusion that the execution of a contract, or reaching an agreement for the sale of a lot, was simply a trigger, leaving Kentcade with latitude to give the first notice at any time after entry into the contract but before its completion.

[30] In its context, clause 3.4 is not a mere “machinery provision” that was intended to provide an advance warning that the Mackenzies should be ready to consider their position if they were later informed, in accordance with clause 3.4(2), that such a contract had been completed.  The provision is not simply ancillary to the relevant Put Option Event under clause 4.1(4).  Clause 3.4(1) is prescriptive in its terms and its requirement for the first notice to be given may assist the Mackenzies in the conduct of their business and thereby enhance its value.  It may assist them to make forward bookings in respect of the lot and other lots, and arrange bookings so as to secure future bookings in later years to their advantage.  Early notice assists them to make administrative arrangements for a possible change in ownership of a lot.  Clause 3.4 is not necessarily linked to clause 4.1(4).  Performance of its obligations may assist the conduct of the management rights business. 

[31] The practical significance of the dual notice requirements to the conduct of the management rights business should be fairly apparent.  Even without resort to the evidence of Mrs Mackenzie, I accept the Mackenzies’ submission that the obvious purpose of the notice required by clause 3.4 is to apprise them of an agreement to sell a lot as soon as it occurs.  Mrs Mackenzie gave evidence which touched upon the practical operation of the business.  The nature of the business, as explained by Mrs Mackenzie, supports the submission that the construction of the word “on” contended for by the Mackenzies is to be preferred, so as to give the clause a business-like interpretation and an interpretation which business people would have understood in the circumstances of an agreement relating to the subject matter of a management rights business. 

[32] Such a business relies on forward bookings of accommodation.  Because bookings are often taken many months in advance, and customers pay deposits and otherwise plan holidays on the basis of their booking, it is important for the manager of such a resort to be given the earliest possible notice that a lot may be taken out of the letting pool.  Although some forward bookings may be protected by the Undertaking Obligation, the risk exists that after the contract of sale is entered into and before the Mackenzies are informed of the contract, they will take further advance bookings.  Lot owners are not obliged to join the letting pool.  The earliest possible notice that a lot may change hands enables the Mackenzies to avoid the problem of continuing to take accommodation bookings for a lot purchased by a third party who may not join the letting pool.  Taking such bookings and not being in a position to honour them could lead to upset customers and other consequences that might have an adverse impact on the business.  The Mackenzies were protected against some problems to the extent that Kentcade promised to obtain an undertaking from each purchaser to honour all forward bookings.  Some buyers might be unwilling to give such an undertaking or to honour it.  In any event, directing forward bookings to a unit that is not subject to contract and which is expected to remain in the pool for the long term might enhance the business, particularly in respect of “repeat” holidaymakers who in following years will try to book the same unit.  Having the earliest possible notice of entry into sales is an advantage to the Mackenzies in relation to their conduct of the business and the management of forward bookings. 

[33] The notice requirements of clause 3.4 are also practically important to a manager to enable it to make appropriate plans to deal with the accounting and other administrative consequences of a change in ownership of one or more lots.  Substantial administrative tasks are required in relation to accounting for income and expenses, and to make appropriate arrangements to ensure the continuity of the supply of utilities and other essential services to lots. 

[34] In its practical operation the notice requirement contained in clause 3.4(1) may serve to inform the Mackenzies of the identity of the purchaser and facilitate their negotiation of a fresh authorisation in accordance with the PAMD Form 20a agreement to act as the incoming buyer’s letting agent.  However, the notice requirement does not expressly require Kentcade to inform the Mackenzies of the name and address of the buyer and I do not rely upon this aspect as a separate or additional basis to conclude that giving the Mackenzies as much time as possible might enhance the efficient conduct of their business and its value. 

[35] Instead, the other matters pointed to by the Mackenzies in their submissions in relation to arranging forward bookings for the relevant lots or alternative lots within the letting pool and making appropriate arrangements for a possible changeover in ownership support the conclusion that the purpose of the notice required by clause 3.4(1) is to inform the Mackenzies of an agreement to sell as soon as the agreement is reached or the relevant contract is executed.

[36] The possibility that such a contract will not settle, for example because finance to complete it is not obtained, does not detract from the practical importance to managers such as the Mackenzies of having as much advance notice as possible of the real possibility that the contract will be completed, and for them to make suitable arrangements for the letting of the subject lot or others.  Such arrangements are important to the practical operation of their business.

[37] An interpretation of “on” which requires the notice to be given on the date of the relevant occurrence or within a few days thereafter accords with the ordinary meaning of the word “on”, while allowing for the exigency that it may not be possible for a notice to be given on the very same day that the contract is executed.  For example, the contract may be executed late in the day and it may not be possible to give the notice that same day.  In such a case the notice would be given in accordance with clause 3.4 if it was given on the next working day or possibly the next few working days.  An interpretation which permits such a notice to be given many days or weeks after the event would not accord with the apparent commercial objective of clause 3.4. 

[38] One reason for this conclusion is that the word “on” apparently has the same meaning in its application to both the event referred to in clause 3.4(1) and the event referred to in clause 3.4(2), namely completion.  In certain circumstances the completion of the contract will bring to an end the authority of the Mackenzies in respect of the lot.  It would be important for them to know that a contract has been completed on the day of completion for a variety of practical reasons, including that in some cases their authority would be at an end.  An interpretation which interprets the word “on” in the sense contended for by the Mackenzies in respect of both parts of clause 3.4 makes commercial sense and gives the agreement a business-like interpretation.

[39] These considerations are not outweighed by Kentcade’s countervailing argument that the event is simply a trigger, leaving, in the case of the notice required by clause 3.4(1), an obligation to give the notice at some indefinite time prior to completion. 

[40] There is no contest between the parties that clause 3.4(1) was intended to provide “an advance warning” to the Mackenzies.  Ultimately, the issue is whether an interpretation of the word “on” in accordance with its ordinary meaning and so as to give the Mackenzies as much warning as possible is to be preferred, as according with the parties’ presumed intention in using that word.  Having considered the competing submissions of the parties, including arguments based upon commercial sense, I conclude that the word “on” was used in a temporal sense, and its context meant the day of the relevant event or within a short time thereafter, being no more than a few business days.

[41] If, instead, the notices had to be given within a reasonable time after the relevant event, then I am not satisfied that the notices required by clause 3.4(1) were given within a reasonable time.  The giving of the notices was not a demanding task.  There is no suggestion that it was not possible to give such a notice on or shortly after the execution of a relevant contract, or after agreement was reached with the buyer of the relevant lot.  The passage of weeks before the notice was given was not a reasonable time.

[42] In summary, the construction contended for by Kentcade of the meaning of “on” should not be accepted.  I prefer the construction contended for by the Mackenzies.  There was a breach of the Notice Obligation.  The breach of the Notice Obligation was an Event of Default and gave rise to a Put Option Event.

Was there a Form 20a Termination Event?

[43] For there to be a Put Option Event pursuant to clause 4.1(4) there first needed to be “termination of any one or more of the Forms 20a”.  In other words, there needed to be termination of any one or more of the PAMD Forms 20a between the Mackenzies and Kentcade for all of the Kentcade Lots. 

[44] Next, there would not be a Put Option Event if the exception in clause 4.1(4) applied, namely:

 

(a)where the termination was required to permit the completion of an arms length sale of one or more of the Kentcade Lots to a third party unrelated to Kentcade;  and

 

(b)either:

 

(i)Kentcade procured the third party to enter into a PAMD Form 20a in the Mackenzies’ standard form and terms with the Mackenzies on or before completion of the sale;  or

 

(ii)no more than two third parties in any 12 month period fail to enter into a PAMD Form 20a in the Mackenzies’ standard form and terms with the Mackenzies on or before completion of their purchase.

[45] The Mackenzies allege that nine contracts were completed by Kentcade prior to 15 February 2012, and:

 

(a)the act of completing each contract terminated the Form 20a insofar as it applied to each relevant lot;

 

(b)Kentcade failed to procure entry by any of the purchasers under the Kentcade contracts into a Form 20a with the Mackenzies in the Mackenzies’ standard form and terms on or before completion of the sale.

[46] The term “the Seller’s standard form and terms” in clause 4.1(4) (which I have described as “the Mackenzies’ standard form and terms” for ease of reference) requires some explanation.  Part 21 of the Bulk Form 20a contained the following condition:

 

“The Client undertakes that in the event of the Property being sold or otherwise transferred, notice will be given of all advance bookings to the buyer or transferee and an undertaking shall be obtained from that buyer or transferee to accept the purchase or transfer subject to the conditions of such advance bookings and such undertaking shall be part of the contract for the purchase or transfer of the Property and the Client indemnifies the Agent against any claim due to non-compliance with this part and against any loss the Agent may suffer due to any such non-compliance.”

The Mackenzies’ solicitor, Mr Kleinschmidt, who has extensive experience in the law in this area, prepared a new document which his affidavit describes as the Standard Form 20(a) on behalf of the Mackenzies.  It included as paragraph 2 of Part 21 what Mr Kleinschmidt describes as “the MIS Exemption Provision” in the following terms:

 

“The Client and the Agent acknowledge and agree that the Agent has rights with respect to property that facilitate the use of the strata units in the complex and that should a majority of owners of units in the complex and whom have current letting appointments (‘Investors’) with the Agent require that those rights be assigned to another person specified by those Investors then the Agent will:

 

(a)Assign those rights to that person at their market value determined by a qualified independent valuer instructed by the Agent disregarding any special value of the property because it can be used to operate a resort, hotel, motel service department (sic) complex;  and

 

(b)Give reasonable assistance to enable that person to operate the resort, hotel, motel or serviced apartment complex including making available information concerning and in respect of bookings.”

Mr Kleinschmidt explains that the MIS Exemption was incorporated by him into the Standard Form 20a in order to enable the Mackenzies to attract an exemption from the operation of some of the provisions of the Corporations Act 2001 (Cth) dealing with managed investment schemes.  On one view of the relevant legislation, it operates to require registration of a managed investment scheme once the letting pool had more than 20 members.  If a managed investment scheme is not registered as required by s 601ED, it is liable to be wound up.  These provisions did not apply to the letting pool of the resort at the time of entry into the Option Deed because Kentcade owned 41 of the 47 lots.  However, Mr Kleinschmidt was concerned that as soon as sales by Kentcade of its lots caused the letting pool to have more than 20 members then s 601ED might apply.  A winding up of any scheme constituted by the letting pool had the potential to have a catastrophic impact on the financial affairs of the Mackenzies.  Hence the need to obtain an exemption from the operation of the Act. The MIS Exemption Provision was included in the Standard Form 20a in order to attract an exemption under an ASIC Class Order. 

[47] The Mackenzies instructed Mr Kleinschmidt to send to the solicitors for Kentcade a Form 20a that included the MIS Exemption Provision, and to tell them that this was the standard Form 20a used by the Mackenzies for the purposes of clause 4.1(4).

[48] On 30 November 2011 Mr Kleinschmidt, acting on those instructions, caused a letter to be sent to the solicitors for Kentcade which enclosed the Standard Form 20a.  The letter explained that it was the Mackenzies’ “standard form and terms” PAMD Form 20a, including for the purposes of clause 4.1(4)(b)(i) of the Option Agreement.  The letter anticipated that the Mackenzies would receive signed copies of the Forms 20a upon the settlement of each sale. 

[49] The forms that Kentcade procured from the nine third parties who completed contracts of sale prior to 15 February 2012 were not in this form.  Save in respect of one lot (Lot 15) the Form 20a that was signed by the third party was signed after 30 November 2011.  In those circumstances, the Mackenzies submit that the Put Option Event provided for in clause 4.1(4) occurred because:

 

(a)there was termination of “one or more of the Forms 20a”;  and

 

(b)the exception in clause 4.1(4) was not engaged.

[50] Kentcade submits:

 

(a)there is only one Form 20a, and it was not terminated;

 

(b)the change in the scope of the Bulk Form 20a arising upon completion of the sale of a lot does not constitute termination of “one or more of the Forms 20a” as it applied to the relevant lot;

 

(c)what clause 4.1(4) required in the circumstances was not termination of the Mackenzies’ authority as it applied to particular lots, but the termination of the Bulk Form 20a.

[51] Next, Kentcade submits, in the alternative, that the circumstances of exemption envisaged in clause 4.1(4) applied with respect of the completion of the nine Kentcade contracts.  This submission is advanced on the basis that:

 

(a)the Form 20a procured was in the form of the Mackenzies’ standard form and terms (as appearing in the Bulk Form 20a);  and

 

(b)what the Mackenzies describe as their “standard form and terms” Form 20a does not constitute a “PAMD Form 20a, in the Seller’s standard form and terms” within the meaning of clause 4.1(4). 

[52] On either basis, Kentcade submits that no Put Option Event under clause 4.1(4) of the Option Agreement has arisen.

The termination issue

[53] Kentcade resists the proposition that the words “any one or more of the Forms 20a” should be construed in circumstances in which the parties were aware that there was only one Form 20a between them (the Bulk Form 20a) as if the words referred to the numerous appointments in respect of each of the Kentcade Lots that were made, as a matter of convenience, in one Form 20a.  Its essential submission is that there was only one Form 20a and, as a consequence, clause 4.1(4) was engaged only in the event of “the termination of the entirety of the obligations under a Form 20a”.  It speculates that the drafter of the Option Agreement may have thought that there were multiple Forms 20a, when in fact there was only one.  I find it unnecessary to speculate about what the drafter had in mind, since it is the parties’ presumed mutual intention that is relevant in construing the words, and the parties knew that there was only one Form 20a, covering multiple lots and making numerous appointments.  The possibility that at some future time there might be a change of circumstances and the parties might enter into more than one Form 20a does not alter the fact that at the time they entered the Option Agreement they knew that there was only one Form 20a document, albeit one which made appointments in respect of numerous separate lots.

[54] Kentcade submits that although the interpretation of clause 4.1(4) urged by it may have unintended consequences, one must interpret the actual words used by the parties, and not read them as if they applied, in effect, to the numerous appointments made by the single form, or as if the single form that was used for convenience was made up of many Forms 20a.  According to Kentcade, the opening words of clause 4.1(4) focus upon forms, not lots or appointments, and should be literally interpreted.

[55] This argument has surprising consequences.  To take a simple, hypothetical example, if there were three Kentcade lots the subject of a single Form 20a, and one of the lots was sold, on Kentcade’s argument, the Form 20a would not be terminated even in respect of the lot that was sold upon completion of the sale contract.  The manager would still have obligations to Kentcade in respect of it.

[56] According to Kentcade, the opening words of clause 4.1(4) would be engaged only if it completed a sale of all of the lots.  This interpretation is not said to advance any purpose, but is one which is said to be dictated by the words used in the agreement in circumstances in which there is only one Form 20a.

[57] The clause should be construed in circumstances in which the parties knew at the time they entered the Option Agreement that there was a single document, the so-called “Bulk Form 20a”, which made numerous appointments in respect of many lots, and the clause addressed the circumstance in which “one or more of the Grantee’s lots”[13] might be the subject of a sale to a third party.  The clause contemplates the sale of one or more, but not necessarily all, of the Kentcade Lots to a third party.

[58] A PAMD Form 20a appoints a letting agent to perform letting services for an owner in respect of an identified lot.  It is required by law.[14]  The appointment does not run with the title to the lot.  Leaving aside accrued rights and obligations, it ceases to operate upon the completion of a sale of the lot to a third party.  The appointment of the agent, and its authority to act with respect to the lot, terminates, unless the agent is appointed by a Form 20a by the incoming buyer.  This is the situation addressed by clause 4.1(4) and the word “termination” should be construed to refer to the termination of the agent’s appointment upon completion of the sale of a lot.

[59] In the case of a sale by Kentcade of a single lot, the Bulk Form 20a is terminated in respect of that lot upon completion of the sale, but continues to apply to the remainder of the Kentcade Lots.  This permits continuity of the Mackenzies’ appointment in respect of lots that are still owned by Kentcade, and the obtaining of a Form 20a, if possible, from the new owner of the lot in respect of which the Mackenzies’ appointment is terminated.

[60] Kentcade’s argument that the Bulk Form 20a is not terminated in respect of the lot that is sold does not give the clause a sensible, business-like interpretation in circumstances in which the parties, as a matter of convenience, used the Bulk Form 20a rather than enter numerous, separate Form 20a documents.  On Kentcade’s argument the Bulk Form 20a is not terminated in respect of the relevant lot and the parties’ obligations continue in respect of a lot that is no longer owned by Kentcade.  This would seemingly extend to an obligation on the manager to account for rent and an obligation on the part of Kentcade to pay fees.  Such an unreasonable and apparently unintended interpretation of the operation of the clause in the case of the sale of one or more, but not all, of the Kentcade Lots should not be preferred if another interpretation, consistent with the principles of construction is open which gives the clause a practical and apparently intended operation.

[61] The interpretation contended for by the Mackenzies is to be preferred.  The clause, by its terms, was not concerned simply with the possibility of the sale of all of the Kentcade Lots, bringing the Bulk Form 20a to an end upon the completion of those sales.  It applied to the sale of one or more, but not all, of the lots.  In such a case, and in circumstances in which the parties knew there was only one Form 20a (the so-called “Bulk Form 20a”), a sensible interpretation of the clause is to treat the Bulk Form 20a as if it was, in effect, more than one Form 20a, and was inelegantly described as “the Forms 20a” in the opening words of clause 4.1(4).  The words “the Forms 20a” should be so understood in circumstances in which the parties contracted on the basis that there was only one Form 20a which governed their relationship and operated as if a Form 20a had been given in respect of each lot to which the Mackenzies were appointed to act.  If the Bulk Form 20a was to be treated for the purposes of clause 4.1(4) as if it was only one form then the clause would not have been cast in terms of “the Forms 20a”.

[62] If, instead, the Bulk Form 20a is to be treated as a single form for the purpose of clause 4.1(4), then the opening words of the clause should be construed as relating to the termination of the appointment and the authority conferred by the Bulk Form 20a in respect of a lot that is the subject of a sale contract to a third party.   Upon the completion of such a sale the Form 20a is terminated in respect of that lot.

[63]  It is true that the literal words of the clause relate to the termination of the form, not the termination of an appointment conferred by that form.  However, in their context, the words of clause 4.1(4) should be construed to refer to the termination of the authority conferred by the form to let a lot when the sale of one or more of the lots is completed.

[64] The completion of several of the Kentcade Lots terminated the Form 20a (being the Bulk Form 20a) in respect of each of the lots that were sold upon the completion of that sale. 

Does the exception in cl 4.1(4) apply?

[65] The Mackenzies allege in respect of the nine Kentcade contracts completed prior to 15 February 2012 that Kentcade failed to procure entry by any of the buyers into a Form 20a with the Mackenzies in the Mackenzies’ standard form and terms on or before completion of the sale.  Kentcade contests this and says that it procured from each such buyer “a PAMD Form 20a in the Seller’s standard form and terms”, being the form of the Bulk Form 20a which was the only Form 20a that the Mackenzies had used at that time and was therefore their “standard PAMD Form 20a”. 

[66] The solicitor for Kentcade explains that until he received the correspondence from the Mackenzies’ solicitors dated 30 November 2011, he proceeded on the basis of providing the Form 20a to the purchaser based on the Bulk Form 20a previously used.  The Bulk Form 20a was the only form the Mackenzies had used to his knowledge up until the receipt of that correspondence.  Upon receipt of the new Form 20a he then used it “for future contracts”, being contracts that were issued after 30 November 2011.  In respect of contracts which were in the process of being negotiated or executed (and in the case of Lot 15 had been executed by a buyer), no steps were taken to have the buyer enter into the new Form 20a that the Mackenzies’ solicitors on 30 November 2011 had described as their “standard form and terms” PAMD Form 20a.  As a result, the PAMD Form 20a that was signed by the buyer of each of the contracts of sale which were completed and which were referred to in paragraph 8 of the statement of claim was generally in the form of the Bulk Form 20a.

[67] The Mackenzies’ point is that after 30 November 2011, and prior to completion of the relevant contracts, they had a Form 20a which constituted “a PAMD Form 20a, in the Seller’s standard form and terms” being the document sent to Kentcade’s solicitors on 30 November 2011, and Kentcade did not procure each buyer to enter into this form on or before completion of the sale.  The Mackenzies raise other issues about the forms that were obtained by Kentcade, including the fact that in some cases the insurance information sought by Part 11 of the form was not completed. 

[68] Kentcade submits that to constitute the Mackenzies’ standard form and terms it was not sufficient for the Mackenzies’ solicitors to nominate the same as being their “standard form and terms”.  This simply identified intended standard terms, not a form that had been used so as to become the seller’s standard form.  I do not accept this argument.  A party starting a business can nominate its standard form and terms.  From time to time, a party can change its standard form and terms.  They may become the party’s standard form and terms when they are so described by that party.  To be effective they could not be kept a secret.  But here the Mackenzies’ standard form and terms were notified to Kentcade on 30 November 2011 and, in clear terms, Kentcade was told that this was the Mackenzies’ “standard form and terms” PAMD Form 20a, including for the purposes of cl 4.1(4)(b)(i). 

[69] The next, and more substantial submission by Kentcade is that the matters relied upon by the Mackenzies in support of the proposition that the PAMD Form 20a forms procured by buyers did not accord with the Mackenzies’ standard form and terms are, in the main, about matters in the addendum to the form.  On this basis they argue that a failure to provide information sought by the addendum to the Mackenzies’ so-called “Standard Form 20a” is not a failure to have the third party “enter into a PAMD Form 20a in the Seller’s standard form” within the meaning of the clause.  Expressed differently, when the Option Agreement refers to a PAMD Form 20a, in the Mackenzies’ standard form and terms, it should not be read as the Standard Form 20a “plus any addendum that the plaintiff might choose to tack on to the end of it”.  If, and to the extent, the Option Agreement authorised the Mackenzies to specify a “standard” Form 20a, it did not give them license to impose obligations on the buyer outside the scope of the statutorily-prescribed form.

[70] The approved statutory form has a number of parts, ending with Part 8 for signatures.  Beneath that part the form allows for “SCHEDULES OR ATTACHMENTS (IF APPLICABLE)”.  Both the Bulk Form 20a and the form which the Mackenzies nominated as their standard Form 20a on 30 November 2011 contain an addendum.  Each addendum is in a form authorised to be used under licence by members of the Queensland Resident Accommodation Managers Association.  The Form 20a addendum in this form contains additional parts that deal with matters such as sole agency, bank account details, insurance, presentation of property, agents’ responsibilities, clients’ responsibilities and acknowledgments, cancellation policy, use of the property by the client, promotions, assignment, charges, commission and in Part 21 “Other Conditions”.  The addendum concludes with provision for a separate signature and a privacy statement and consent in order to comply with the requirements of the Privacy Act 1988 (Cth).

[71] Kentcade submits that to the extent the addendum goes beyond what is required by s 114 of the PAMD Act and contains additional information not mentioned in the approved form or permitted by s 49 of the Acts Interpretation Act 1954,[15] the addendum is not to be regarded as part of the Form 20a.  The consequence is that a failure to provide the information sought by the addendum is not a failure to procure entry into a “PAMD Form 20a, in the Seller’s standard form”.

[72] The appropriate starting point is the Option Agreement itself and the meaning which should be given to the words “PAMD Form 20a, in the Seller’s standard form and terms” in that context.  Those words are not necessarily confined to matters which must, pursuant to s 114, be stated in an appointment.  In any event, the statutory form contemplates that it might be supplemented with attachments.  The status of the addendum relied upon by the Mackenzies in this case does not turn upon the fact that it was headed “Form 20a Addendum” rather than “Attachment”. 

[73] Section 114(3)(c)(iv) provides that the appointment must state “any condition, limitation or restriction on the performance of the service”, and Part 4 of the approved form makes provision for this and states that if the space provided is insufficient additional sheets should be attached to the form.

[74] The terms of cl 4.1(4) and its subject matter serve to limit what the Mackenzies might choose to provide by way of their “standard form and terms”.  The attempted inclusion of extraneous items that do not relate to their appointment and the performance of the service would mean that such extraneous items could not be described as part of “a PAMD Form 20a, in the Seller’s standard form and terms”.  However, many matters will relate to the appointment and be permitted to be included in an attachment or addendum to the PAMD Form 20a since they bear upon the rights and obligations of the client and the agent in respect of the appointment.  Many matters will constitute a “condition, limitation or restriction on the performance of the service” and be required to be stated in the form.  Insurance is an example.  Both the Bulk Form 20a and the Mackenzies’ Standard Form 20a includes as Part 11 a provision that the client must:

 

“·maintain a public liability insurance policy for at least
$5 million;

 

·maintain a policy of insurance for the furniture and effects in the Property;

 

·provide to the agent the following details of such insurance ...”.

These obligations in relation to insurance are not a matter which s 114 specifically prescribes, but are a condition upon which the agent agrees to perform the service.   They bear upon the rights and obligations of the client and the agent in respect of the subject matter of the agent’s appointment.  Accordingly, the Mackenzies’ standard form and terms in relation to insurance form part of a PAMD Form 20a.

[75] The position in relation to Part 21 of the form is more contentious.  Kentcade submits that these conditions are not a “condition, limitation or restriction” on the performance of the service so as to be required to be stated in accordance with s 114(3)(c)(iv), and fall outside of the contents of a “PAMD Form 20a, in the Seller’s standard form and terms”.

[76] As to the first paragraph of Part 21, a condition by which the client undertakes in the event of sale to give notice of advanced bookings and to obtain an undertaking from the buyer to honour them is a condition upon which the agent agrees to perform the service.  It relates directly to the subject matter of the agreement and is a condition or term which falls within the expression “a PAMD Form 20a, in the Seller’s standard form and terms”.

[77] The second paragraph in Part 21 provides for circumstances in which a majority of owners of units may require the manager’s rights to be assigned to another person.  The granting of such rights and the obligation imposed upon the agent to, among other things, give reasonable assistance to enable a new person to operate the resort, including making available information about bookings, relates to the terms of the agent’s appointment and the conduct of the service that is the subject matter of the agreement.  It confers rights upon the client and other owners affecting the conduct of letting.  It is the kind of provision which an owner might seek for their protection, and the provision for assignment constitutes a limitation on the agent’s rights in connection with the subject matter of the agreement.  In short, it relates to the circumstances under which the agent will not be able to continue to provide the service.  It also falls within the terms of cl 4.1(4)(b). 

[78] I conclude that the Mackenzies’ Standard Form 20a, as conveyed under cover of the letter of 30 November 2011, became the “Seller’s standard form and terms” after their contents and status were communicated to Kentcade.

[79] To attract the exception in cl 4.1(4) Kentcade had to procure a PAMD Form 20a in that form from a buyer if it had not already done so.

[80] I leave open, but shall assume in Kentcade’s favour that, in procuring the Form 20a signed by the buyer of Lot 15 prior to 30 November 2011 in accordance with the previous form, it fulfilled the requirement of cl 4.1(4)(b)(i).  There is a competing argument that, having been notified of the new form, and possibly having not executed the contract, Kentcade was obliged to obtain a further, new Form 20a in respect of Lot 15.  However, it is unnecessary to resolve this argument.

[81] In respect of other lots, it did not procure the buyer to enter into a PAMD Form 20a before it was informed of the Mackenzies’ Standard Form 20a terms and conditions.  It failed to do so.  The fact that it subsequently procured buyers to execute a form which was not, and had ceased on 30 November 2011 to be, the Mackenzies’ “standard form and terms” does not assist it.  If Kentcade wished to attract the exception in cl 4.1(4) it was required to procure the buyer to enter into a form in the Mackenzies’ “standard form and terms”.  After 30 November 2011 Kentcade knew what this form was. 

[82] The possibility always existed that the Mackenzies might, at some stage and before a Form 20a had been executed by a buyer, nominate new standard terms and conditions.  If Kentcade wished to guard against this possibility and engage the exception in cl 4.1(4) it should have contractually obliged the buyer to execute such a document or, in the absence of a contractual entitlement, requested the buyer to execute such a document.

[83] That the Mackenzies might adopt standard terms and conditions which differed from the contents of the Bulk Form 20a was something which might be expected.  For example, the Bulk Form 20a in Part 16 contained no provision for the client or the client’s relatives or friends to use the property, subject to availability.  Kentcade presumably was content with such a provision.  However, the standard forms and conditions introduced after 30 November 2011 in Part 16 provided a period of four weeks for the client’s use.  The Mackenzies might have thought that such a provision was attractive to owners and should form part of their standard terms and conditions.

[84] It is unnecessary to address all of the various respects in which the forms that were provided to the Mackenzies are alleged to have failed to reflect their standard terms and conditions.  As noted, some of the forms did not complete the section in relation to insurance by naming the insurer and giving a policy number.  This information was only provided later, and well after settlement.  The better view, it seems to me, is that Part 11 of the form required details of the insurance to be provided as part of the form.  A form which failed to include these required details would not be a form which complied with the Mackenzies’ standard form and terms, which required these details to be completed on the form.

[85] It is sufficient for present purposes to conclude that in respect of two or more sales, Kentcade failed to procure the buyer to enter into a PAMD Form 20a in the Mackenzies’ standard form and terms.  It failed to procure entry into that form after 30 November 2011.  More than two third parties failed to enter into such a form with Kentcade on or before completion of their purchase.  As a result, a Put Option Event pursuant to cl 4.1(4) arose.

The Undertaking Obligation

[86] The Mackenzies contend that in respect of the nine Kentcade contracts completed by it prior to 15 February 2012, Kentcade failed to:

 

(a)obtain from the buyer of each Kentcade Lot an undertaking to accept the purchase subject to the conditions of such advance bookings applicable to the lot; 

 

(b)include such undertaking as a term of each of the Kentcade contracts,

and thereby breached the Undertaking Obligation.  Kentcade denies this. Its first submission is that a breach of the Undertaking Obligation is not an event of default.  In this regard, it submits that the Undertaking Obligation is contained in the Form 20a and this document is not “associated with” the Option Agreement. 

[87] One obstacle to this argument is that Kentcade’s defence admitted that the Form 20a is associated with the Option Agreement or the contract to be entered into upon exercise of the Put Option.  When this was pointed out during oral submissions, senior counsel for Kentcade in his submissions in reply sought leave to withdraw the admission on the grounds that it was not an admission of fact, related to the construction of a document, but was more in the nature of a concession on a point of law and that withdrawing the admission would not cause the Mackenzies prejudice.  An explanation as to why the admission was made was not proffered, but the point only arose late in the hearing and the efficient conduct of the hearing did not justify its prolongation to explore this issue.  It is unnecessary to decide whether leave to withdraw the admission should be granted since I conclude that the admission was properly made.

[88]  Kentcade submits that, whilst the Form 20a was connected or related to the Option Agreement, it is not “associated with” it.  Expressions such as “associated with”, “in connection with” and “related to” can bear a variety of meanings, depending upon their context.  The word “associated” does not appear to have been used in cl 1.1(16)(b) in any special or technical sense.  Kentcade submits that the word “associated”, as used in that clause, requires something more than a connection or relation between the Bulk Form 20a and the Option Agreement.

[89] I accept that a passing reference to the Form 20a in the Option Agreement might not be sufficient to mean that the form is “associated with” the Option Agreement.  However, there is more than a passing reference to the form.  It is pivotal to the Put Option Event provided for in cl 4.1(4).  I conclude that the Form 20a is associated with the Option Agreement.

[90] The Mackenzies submit that Kentcade did not comply with the Undertaking Obligation because, first, it did not give notice to the purchaser or transferee of the relevant lot of all advance bookings for that lot.  This is apparent because no request for information about those advance bookings was made to the Mackenzies.  This alleged breach is not contested.  Instead, Kentcade appeared to argue that any such breach was of no consequence because suitably worded undertakings were obtained from the purchasers.  However, this does not alter the fact of a breach. 

[91] The Mackenzies further argue that they did not receive, on or before the completion date of the Kentcade contracts, any written undertakings on behalf of the purchasers undertaking to be bound by all forward bookings applicable to the relevant lot.  The Mackenzies and their solicitors gave evidence that no such undertakings were given on or before completion.  Insofar as undertakings were contained in the sale contracts, a complete copy of the contracts was not provided to the Mackenzies or their solicitors prior to 11 September 2012.  However, in the case of Units 12, 13, 15, 16, 17, 18 and 24, the conveyancers for those purchases did not wish to have the undertakings referred to in Part 21 of the Form 20a as a term of the written contract for sale.  Instead those undertakings were given in correspondence by which the conveyancers acknowledged and confirmed the existence of a collateral agreement.

[92] The obligation in Part 21 of the Form 20a required such undertaking to “be part of the contract for the purchase or transfer of the property”.  Kentcade submits that this expression is sufficiently broad to comprehend collateral agreements of the kind given here.  The collateral agreements recorded in correspondence are said to be enforceable and “part” of the contract for the purchase or transfer of the property.

[93] In my view, the requirement that the undertaking “shall be part of the contract for the purchase or transfer of the property” should be interpreted in its context to require the undertaking to form part of the contract itself, whether this be in the form of a special condition or otherwise.  The requirement for the undertaking to be part of the contract, and not simply recorded in correspondence by way of a collateral agreement, was apt to give greater practical assurance to the Mackenzies that such an undertaking would be honoured, without the need for argument as to whether the undertaking had the force of a contractual promise that was enforceable either at the instance of Kentcade or at the instance of the Mackenzies for whose benefit the undertaking was obtained. 

[94] I conclude that Kentcade breached the Undertaking Obligation.  This amounted to an event of default and gave rise to an additional Put Option Event.

Exercise of the Put Option

[95] The Mackenzies were entitled to exercise the Put Option.  There is no dispute that the Put Option was exercised as required and that Kentcade failed to sign contracts in the form of the annexures to the Option Agreement and necessary associated materials.  The Mackenzies, as attorney for Kentcade, executed the contracts and associated materials.  The contracts which they seek to have specifically enforced came into existence.  The Mackenzies remain ready, willing and able to complete them. 

[96] There is no dispute that specific performance is an appropriate remedy, and more appropriate than a remedy in damages.  The remaining issue is whether an order for specific performance should be declined as a matter of discretion. 

Did the Mackenzies exercise the Put Option in breach of an implied obligation of good faith or unfairly?

[97] This matter was raised in argument, but not pleaded.  The scope of an implied obligation of good faith in the exercise of an option of the present kind was not extensively argued in the hearing before me.  Reference was made to leading authorities and articles on the implied obligation of good faith.  Reference was made to the implied obligation of good faith in the context of the exercise of powers.  The present context is somewhat different involving the exercise of a Put Option. 

[98] In any event, Kentcade argues that, having regard to the purpose of the contract, and the fact that the Mackenzies do not suggest that the Put Option was exercised out of fear for the value of the management rights, I should infer that it was exercised for the purpose of merely realising on their investment at what for other reasons was a convenient time.  I decline to draw this inference.  It was not put to Mr Mackenzie when he was cross-examined, and Mrs Mackenzie was not cross-examined at all.  I decline to find that the Mackenzies’ conduct in exercising the option constitutes “exploitative conduct which defeats the purpose for which the contract was made”.  The option was exercised in circumstances in which the Mackenzies perceived it was in their interest to do so.  One of the relevant circumstances is that the completion of the sales will bring Kentcade’s interests to a level close to the level at which it will cease to have majority voting rights on the body corporate.  The Mackenzies may have a legitimate concern as to the future.  In short, Kentcade has not persuaded me that the Mackenzies exercised their rights under the Option Agreement in breach of an implied duty of good faith.

[99] The remaining discretionary ground is unfairness.  Reference was made to Blomley v Ryan.[16]  However, the present circumstances are far removed from the circumstances of that case.

[100] Kentcade argues that the burdens of management of the complex should not be forced onto it as an unwilling purchaser in the present circumstances, nor should an unwilling manager with no suggested management competence or experience be forced on the owners of units who are not parties to the present proceedings.  However, I do not accept that there is any unfairness in the circumstances of the execution of the Put Option, or in the circumstances of the creation of the contracts that are sought to be specifically enforced.  It is consistent with equity and good conscience to enforce the bargain reached between the Mackenzies and Kentcade.  Kentcade agreed to acquire the management rights in certain circumstances.  It is a substantial development corporation.  If it lacks the staff or experience to undertake management of the resort, it can appoint suitably qualified managers or attempt to sell the management rights to such persons. 

[101] I decline to exercise the discretion not to order specific performance. 

Conclusion

[102] The Mackenzies have established at least one Put Option Event.  They were entitled to exercise the Put Option, and did so.  The contracts should be specifically enforced. 

[103] I will hear the parties in relation to a suitable form of order.

Footnotes

[1] Property Agents and Motor Dealers Act 2000 (“PAMD Act”).

[2] Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 218 CLR 471 at 483 [34]; Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 461–462, [22].

[3]Toll (FGCT) Pty Limited v Alphapharm Pty Ltd (2004) 219 CLR 165 at 179 [40].

[4] Rainy Sky S.A. and Ors v Kookmin Bank [2011] UKSC 50 at [29]-[30].

 

[5] Larter v Skone James [1976] 1 WLR 607.

[6] [1985] AC 191 at 201.

[7] (1973) 131 CLR 8 at 16, following Ex parte Lesiputty (1947) 47 SR (NSW) 433 at 436.

[8] Larter v Skone James (supra).

[9] Blackett v Clutterbuck Bros (Adelaide) Ltd [1923] SASR 301; Ruzeu v Massey-Ferguson (Aust) Ltd [1982] VR 529; Edwards v Stocks [2008] TASSC 12.

[10] R v Arkwright (1848) 12 QB 960 at 970; 116 ER 1130 at 1134; Ex parte Lesiputty (supra); R v Fairford Justices; ex parte Brewster [1976] QB 600 at 604; AMCO Wrangler Ltd v Sukkar (1985) 1 NSWLR 577 per Kirby P at 580; Flowers v Vescio [2006] NSWCA 342 per Santow JA (with whom Beazley and Bryson JJA agreed) at [48] to [50]; Bowman v Durham Holdings Pty Ltd (supra).

[11] Ex parte Lesiputty (supra) at 436

[12] The subjective intention of a party is not admissible in this regard.

[13] Clause 4.1(4)(a), emphasis added.

[14] PAMD Act, ss 114, 115.

[15] Which provides that substantial compliance with an approved form is sufficient.

[16] (1956) 99 CLR 362 at 401-402.

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Editorial Notes

  • Published Case Name:

    Mackenzie v Kentcade Properties Pty Ltd

  • Shortened Case Name:

    Mackenzie v Kentcade Properties Pty Ltd

  • MNC:

    [2012] QSC 299

  • Court:

    QSC

  • Judge(s):

    Applegarth J

  • Date:

    05 Oct 2012

  • White Star Case:

    Yes

Litigation History

No Litigation History

Appeal Status

No Status