Magiturn Pty Limited v Pleash[2012] QDC 50

DISTRICT COURT OF QUEENSLAND

Introduction

1. [1]
   The plaintiff (Magiturn) seeks a declaration that the defendants (the administrators) have no right, title or interest in the sum of $114,557.85 held by the plaintiff’s solicitors (the fund) and an order that the fund and any interest thereon be paid to Magiturn.

2. [2]
   The administrators claim that they are entitled to the fund and seek a declaration accordingly.

3. [3]
   The fund is part of the proceeds of the sale by Magiturn of a property at Labrador.

4. [4]
   The administrators claimed to hold a charge over the property pursuant to the terms of a deed of indemnity and guarantee dated 7 July 2008.

5. [5]
   The administrators lodged a caveat over the property claiming an equitable interest in it pursuant to the deed. They commenced proceedings in the Supreme Court at Brisbane on 21 August 2008 seeking a declaration that they held such equitable interest.

6. [6]
   Magiturn defended the proceedings on the grounds that it had not entered into the deed because it was executed by only one of two of the directors and Magiturn did not authorise the execution of the deed. Magiturn also claimed that it held the property as trustee for the Aquila Unit Trust and it did not enter into the deed in its capacity as trustee of the trust.

7. [7]
   The property was sold in 2009 and settlement was due on 26 September 2009. There was correspondence between the solicitors for Magiturn and the solicitors for the administrators which ultimately led to the withdrawal of the caveat.

8. [8]
   The administrators claim that the effect of the correspondence is that it was agreed that the fund would be paid to them following determination of their remuneration application. Magiturn claims that the correspondence simply reflects an intention to preserve the maximum amount of the administrators’ costs pending resolution of their claim.

9. [9]
   The resolution of the issue requires a close examination of the correspondence between the solicitors.

Background facts

10. [10]
    Clint Karananos and Michael Baldwin were associates. Mr Baldwin was a real estate agent. Mr Karananos was the only witness called at the trial. His evidence was not controversial, was unchallenged and therefore should be accepted.

11. [11]
    Mr Jurth for the defendants informed me that Mr Baldwin was in prison and unavailable to be called as a witness.^[1]

12. [12]
    Mr Baldwin proposed to Mr Karananos that they purchase a residential block of land at Labrador on the Gold Coast.  Magiturn was formed for that purpose.  The company was registered on 1 September 2006.^[2] Mr Karananos and Mr Baldwin were the directors.

13. [13]
    By contract dated 28 September 2006 Magiturn as trustee for the Aquila Unit Trust purchased the Labrador property for $1,081,000.00. The original unit holders of the Trust were Gemship Pty Ltd an entity associated with Mr Karananos and Aus-Kiwi Pty Ltd, an entity associated with Mr Baldwin.^[3]

14. [14]
    The purchase of the property was financed through the National Australia Bank at Southport.

15. [15]
    On 7 July 2008 the administrators were appointed to Gold Coast Property Investments & Management Pty Ltd, a company of which Mr Baldwin was director.^[4] On the same date Mr Baldwin signed a deed of indemnity and guarantee in favour of the administrators.  The guarantors under the deed were named as Mr Baldwin and Magiturn. Mr Baldwin signed the deed on his own behalf and as a director of Magiturn.^[5] By clause 10 of the deed the guarantors purported to charge all of their real property to secure all monies owing to the administrators.

16. [16]
    Mr Karananos knew nothing of the transaction.^[6] It is common ground that Magiturn did not authorise the execution of the deed.

17. [17]
    In reliance on the equitable interest said to have been created by the deed the administrators lodged a caveat over Magiturn’s Labrador property.^[7]  Mr Karananos knew nothing of the caveat until he received a letter from the Registrar of Titles in compliance with s. 123 Land Title Act 1994 giving Magiturn notice of the lodgement of the caveat.^[8]

18. [18]
    The administrators commenced proceedings in the Supreme Court on 21 August 2008 seeking a declaration that they held an equitable interest in the Labrador property.^[9]

19. [19]
    Magiturn defended the Supreme Court proceeding on the basis that it was not bound by the deed as Mr Baldwin did not have authority to enter into it on behalf of Magiturn and, in the alternative, if it was bound, it was not bound in its capacity as trustee of the Trust.^[10]

20. [20]
    In 2009 a real estate agent approached Mr Karananos advising him that he had a potential buyer for the Labrador property.  The property was sold for approximately $1.8 million.^[11]  Settlement was due to be effected on 26 September 2009.^[12]

Correspondence between the solicitors

21. [21]
    Magiturn’s solicitors apparently requested that the administrators’ solicitors provide a payout figure in respect of the administrators’ costs. On 23 April 2009 the administrators’ solicitors sent an email to the plaintiff’s solicitors referring to an earlier telephone conversation. The email^[13] stated that:

“You have requested a final payout figure in relation to the above proceedings.  As you may be aware, the Administrators who are now the liquidators of Gold Coast Property Investments & Management Pty Ltd (Receivers and Managers appointed) (In Liquidation) (A.C.N. 078 570 653), are in the process of finalising an Application to be filed in the Supreme Court of Queensland to have their fees incurred through acting as administrators of the company approved.

The Application will seek that the remuneration of the former Administrators be fixed for the period of 7 July 2008 to 13 October 2008 in the amount of $87,057.85 including GST. The Application also seeks costs which at present amount to approximately $27,500.00.

In light of the above the final payout figure as at today’s date is $114,557.85.  Once our client receives payment of same we will attend to lodging a withdrawal of caveat.”

22. [22]
    Magiturn’s solicitors wrote to the administrators’ solicitors on 14 August 2009 stating:

“We advise that our client has entered into a contract to sell the property over which your client has lodged a caveat and which is the subject of this action.  We advise that Settlement is due on the 26th day of September 2009.  We advise that at settlement it is our client’s intention to have a cheque drawn payable to the Supreme Court of Queensland in the sum of $114,557.85 being the maximum amount of your client’s costs as per your firm’s correspondence.  On this basis our client will require a withdrawal of caveat to be produced by your client at the settlement of the Contract of Sale.

Please confirm that your client will produce a Withdrawal of Caveat in registrable form at the settlement of the Contract of Sale on the basis proposed in this correspondence.  If we do not receive written confirmation by 5.00 pm Thursday 20 August 2009 our client will immediately apply to the court for the appropriate orders.”^[14]

23. [23]
    The administrators’ solicitors responded by letter dated 20 August 2009 stating:

“We refer to your letter dated 14 August 2009.

We are instructed that our client is agreeable to providing a Withdrawal of Caveat at settlement of the sale of the property on the following bases:

1. That a bank cheque made payable to the Supreme Court of Queensland for the sum of $114,557.85 is provided to your firm at settlement;
2. That you provide your undertaking that the cheque referred to in 1. above will be paid into the Supreme Court of Queensland as soon as practicable after settlement, to be held in court:

a. pending determination of our clients’ remuneration application, at which time the funds are to be immediately released to our client; or

b. agreement being reached between the parties as to its disposal.

We look forward to your response.”^[15]

24. [24]
    Magiturn’s solicitors did not reply immediately and on 21 September 2009 the administrators’ solicitors sent a facsimile requesting a response as soon as possible.^[16]

25. [25]
    On 28 September 2009 Magiturn’s solicitors sent a letter to the administrators’ solicitors by email stating:

“We refer to your letter dated 20 August 2009 and your facsimile dated 25 September 2009.

The delay in our response has been caused by seeking confirmation from the solicitors for the Purchaser that they will accept a Withdrawal of Caveat at Settlement, rather than requiring registration prior to Settlement.  We advise that we have received this confirmation.

Accordingly, our client is agreeable to the terms contained in paragraphs 1 and 2 of your correspondence dated 20 August 2009.  We request that you provide us with a copy of the Withdrawal of Caveat as soon as possible so that we can provide a copy to the solicitors for the Purchaser for their approval.  We advise that we will also require an undertaking from your firm to answer any Requisitions in respect to the Withdrawal of Caveat.

We advise that Settlement is to occur on 5 October 2009 and accordingly we look forward to your urgent response.”^[17]

26. [26]
    On 28 September 2009 the administrators’ solicitors sent an email to Magiturn’s solicitors seeking confirmation that the undertaking sought in the email of 20 August 2009 was also being given. Magiturn’s solicitors confirmed that the undertaking was given in an email on 29 September 2009.^[18]

27. [27]
    Magiturn’s solicitors endeavoured to make the payment into the Supreme Court by bank cheque on 27 October 2009. Rule 560(2) Uniform Civil Procedure Rules 1999 requires a person making a payment into court to file an affidavit in compliance with the Court Funds Regulation 2009.  Magiturn’s solicitor swore an affidavit but failed to state the statutory provision or rule of court that authorised the payment into court as required by s. 5(3)(d) Court Funds Regulation 2009.  The Supreme Court would not accept the bank cheque and the solicitors’ file note indicates that the failure to state the relevant statutory provision or rule of court was the reason for that.^[19]

28. [28]
    In a letter dated 29 October 2009 Magiturn’s solicitors wrote to the administrators’ solicitors advising that the Supreme Court would not accept the payment into court and would require an order of the court to allow the payment to be made. The letter continued:

“In the circumstances we suggest that the payment be made to our firm’s trust account to be held on our firm’s undertaking not to deal with this amount except by agreement of the parties or Order of the court.  Please confirm whether this is acceptable to your client.”^[20]

29. [29]
    Later the same day the administrators’ solicitor replied stating:

“I confirm that you undertake not to deal with the monies except by agreement between the parties or by order of the court.  In those circumstances, please set up a Controlled Monies Account in the names of our respective clients.”^[21]

Subsequent events

30. [30]
    On 17 December 2009 the Supreme Court gave leave to the administrators to discontinue the proceeding, the relief sought no longer being relevant as the property had been sold.

31. [31]
    On 26 May 2010 the Federal Court in Sydney made an order fixing the administrators’ remuneration at $74,718.05.^[22]

The contentions of the parties

32. [32]
    Mr Looney for Magiturn submitted that there was no agreement reached between the parties that had the effect of resolving the primary dispute in the Supreme Court proceedings, namely whether the administrators obtained an interest in the property pursuant to clause 10 of the deed. He submitted that the correspondence simply reflects an agreement to preserve the maximum amount to which the administrators would be entitled if it was found that Magiturn was bound by the terms of the deed. He submitted that there was nothing in the evidence that gave rise to a conclusion that Magiturn was in a position of apparent weakness in the Supreme Court proceedings. He pointed out that Mr Karananos had not executed the deed and there was no evidence that he had any knowledge of it at the time it was entered into by Mr Baldwin. Mr Looney submitted that the surrounding circumstances were relevant to the construction to be placed on the correspondence. He submitted that general principles of “commercial” construction require a presumption that the parties did not intend that the terms of the contract operate unreasonably and that a commonsense approach be taken.^[23]

33. [33]
    Mr Looney submitted that by the terms of the first agreement reached between the parties the amount of $114,557.85 was to be paid into court in the proceeding. When that was not able to be done the second agreement provided for the retention of the monies in Magiturn’s solicitors’ trust account and not to be dealt with other than by agreement between the parties or by order of the court. He submitted that Magiturn had been contending that it was not bound by the deed and there is no indication in the correspondence that it had resiled from that position. Moreover he submitted that there was no logical reason why Magiturn would agree to the payment to the administrators of the maximum amount to which they might be entitled. There was potential for a windfall gain to the administrators in the event that the remuneration order was less than they were seeking. As the administrators no longer contend that Magiturn is bound by the terms of the deed Mr Looney submitted that there should be a declaration that they have no right, title or interest in the fund and an order that the fund including any interest earned thereon be paid to Magiturn.

34. [34]
    Mr Jurth for the administrators submitted that prior to the compromise agreement the administrators had the benefit of the caveat over the property protecting the interest that they claimed. They were not required to withdraw the caveat. Upon entering into and fully performing their obligations under the compromise agreement by withdrawing the caveat the administrators gave up the protection that it gave them. Mr Jurth submitted that the caveat was withdrawn for the sole benefit of Magiturn because it allowed settlement of the sale of the Labrador property to proceed enabling Magiturn to produce clear title to the property to the satisfaction of the purchaser.  He submitted that it was irrelevant that the interest in the property claimed by the administrators was disputed by Magiturn.  He contended that for its own commercial reasons Magiturn decided to enter into the compromise agreement.  Mr Jurth submitted that following the inability of Magiturn’s solicitors to make the payment into court the correspondence on 29 October 2009 simply had the effect of varying the terms set out in the administrators’ letter dated 20 August 2009 so that the monies were held in Magiturn’s solicitors’ trust account pending determination of the remuneration application at which time they were to be released to them, or agreement between the parties, or order of the court.

Consideration

35. [35]
    It is not in issue that Magiturn’s solicitors had the authority to compromise the Supreme Court proceeding.^[24]

36. [36]
    The task of ascertaining the intentions of the parties reflected in the correspondence must be undertaken from an objective point of view. In Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd^[25] the High Court said:

“This Court, in Pacific Carriers Ltd v BNP Paribas, has recently reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined.  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.  References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement.  The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean.  That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction.”^[26]

37. [37]
    In the email dated 23 April 2009^[27] the administrators’ solicitors said that upon receipt of the final payout figure of $114,557.85 they would attend to the lodgement of a withdrawal of the caveat.  The letter from Magiturn’s solicitors dated 14 August 2009 described that figure as the maximum amount of the administrators’ costs.  This letter proposed that the fund be paid into court.  However the letter from the administrators’ solicitors dated 20 August 2009, while accepting that the fund be paid into the Supreme Court, proposed that the fund be held by the court pending determination of the remuneration application, at which time the funds were to be immediately released to the administrators.  That proposal was accepted by Magiturn’s solicitors on 28 September 2009.  Mr Looney submitted in the event that the funds were released to the administrators the agreement did not mean that they could retain the monies if it was ultimately concluded that Magiturn was not bound by the deed.  In that event he submitted that the administrators would have been obliged to refund the monies.  I do not accept that contention.  It would be expected that if the administrators were to be bound to refund the monies the correspondence would say so.  There is not the slightest indication in the correspondence that it was contemplated that following release of the funds the administrators might be required to refund the monies.

38. [38]
    Settlement was originally due on 26 September 2009. Apparently there was an extension of the time for settlement to 5 October 2009. The issue therefore became urgent by 28 September 2009 when Magiturn’s solicitors agreed to the terms proposed in the administrators’ solicitors’ letter of 20 August 2009. It is perhaps curious that Magiturn would forego any right to maintain that it was not bound by the deed, particularly in view of the evidence in this trial that indicates that it had a strongly arguable case in the Supreme Court proceedings. However settlement was looming. In the letter dated 14 August 2009 Magiturn’s solicitors foreshadowed an application to the court for appropriate orders if the caveat was not withdrawn. A written response was sought by 5.00 pm on 20 August 2009. As at 28 September 2009, the settlement was one week away so the issue was pressing and an urgent response was sought, presumably in relation to Magiturn’s request that the administrators’ solicitors provide a copy of the withdrawal of caveat as soon as possible as well as an undertaking to answer any requisitions in relation to it.

39. [39]
    If the settlement did not proceed on 5 October 2009 Magiturn may have been in breach of the contract. It is true that the administrators may have been exposed to a claim for damages if it was found that the caveat was lodged without reasonable cause.^[28]  In such a proceeding the administrators would have had the onus of proving that the caveat was lodged with reasonable cause.^[29]

40. [40]
    The further correspondence on 29 October 2009 following the inability of Magiturn’s solicitors to pay the fund into court simply had the effect of varying the earlier agreement by requiring the monies to be held in the trust account of Magiturn’s solicitors. In context it did not mean that condition 2a. in the letter dated 20 August 2009 was no longer operative. That condition remained, which in the context of the surrounding circumstances and based on an objective interpretation of the correspondence meant that the fund was to be immediately and unconditionally released to the administrators.

41. [41]
    In all of the circumstances I conclude that the effect of the correspondence was to compromise the Supreme Court proceeding so that the administrators were entitled to the fund upon determination of their remuneration application.

Orders

42. [42]
    Accordingly I make the following orders:

1. The plaintiff’s claim is dismissed.
2. Declaration that the defendants are entitled to all of the right, title and interest in the fund held in the plaintiff’s solicitors’ trust account, including any interest accrued thereon.
3. Order that the fund held in the plaintiff’s solicitors’ trust account, including any interest accrued thereon be paid to the defendants.
4. That the plaintiff pay the costs of the defendants to be assessed on the standard basis or agreed.