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Lo v Huang[2019] QDC 61

DISTRICT COURT OF QUEENSLAND

CITATION:

Lo v Huang [2019] QDC 61

PARTIES:

PEILO

(plaintiff)

v

ROBERT HUANG

(defendant)

FILE NO/S:

BD 2821/17

DIVISION:

 

PROCEEDING:

Trial

ORIGINATING COURT:

District Court at Brisbane

DELIVERED ON:

26 June 2019

DELIVERED AT:

Brisbane

HEARING DATES:

21-22 February 2019, 4 April 2019, 26 April 2019

JUDGE:

Jarro DCJ

ORDERS:

  1. I will hear from the parties as to the form of the order and costs. 

CATCHWORDS:

DEEDS – where the plaintiff entered into a contract of sale for the purchase of a share in real property owned a company controlled by the defendant – where the defendant and the company controlled by the defendant entered into a deed of indemnity in favour of the plaintiff – where a side agreement to secure deposit moneys paid by the plaintiff in accordance with the contract of sale was recorded as a recital to the deed of indemnity – whether the agreement recorded in the recital was, in fact, entered into – whether the recital recording the agreement gave rise to an entitlement to the amount claimed by the plaintiff

Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603

COUNSEL:

S Anderson for the plaintiff

B Vass for the defendant

SOLICITORS:

Cathay Lawyers for the plaintiff

Mills Oakley for the defendant

  1. [1]
    Mrs Pei Lo (Mrs Lo) seeks $359,854.67, together with $11,613.80 as net rental income, from the defendant Mr Robert Huang (Mr Huang).[1] 
  1. [2]
    The principal amount of $359,854.67 is said to be for the remainder of the deposit Mrs Lo paid for the purchase of a share in property at Parkinson owned by Mr Huang’s company called United Communications Network Pty Ltd (UCN).[2]    
  1. [3]
    Mrs Lo and her husband Mr Zhang Yong Lo (Mr Lo) first met Mr Huang when they needed to buy land. Mr Huang was a home loan broker in a home loan company.[3]  He has been UCN’s sole director since 31 January 2003.[4]
  1. [4]
    In around 2005, Mrs Lo authorised her husband to engage in negotiations with Mr Huang in relation to two properties:
  1. (a)
    104 Hume Road, Toorbul (the Toorbul property); and,
  1. (b)
    2939 Beaudesert Road, Parkinson (the Parkinson property).
  1. [5]
    Regarding the first property, that is the Toorbul property, it is not in dispute between the parties that on 21 March 2005, Mrs Lo and Mr Huang entered into:
  1. (a)
    a contract for sale by which Mrs Lo purchased a 20 per cent share in the Toorbul property from Mr Huang for $234,000; and,
  1. (b)
    a deed of indemnity by which Mr Huang indemnified Mrs Lo in respect of any claims by the mortgagee over the Toorbul property (the 21 March Deed).[5]
  1. [6]
    After paying a total of $234,000 to Mr Huang, Mrs Lo acquired a 20 per cent share of the Toorbul property on 28 April 2005. It is this property which comprises the second aspect of Mrs Lo’s claim against Mr Huang for net rental income.
  1. [7]
    Mrs Lo gave evidence that in the course of purchasing her share of the Toorbul property, she, her husband and Mr Huang had conversations about purchasing other properties including the Parkinson property.[6]  Mrs Lo was present for some of the discussions between her husband and Mr Huang regarding the Parkinson property; sometimes she was absent.  On the occasions when she was absent, she relied on her husband to tell her what he had discussed with Mr Huang.[7] 
  1. [8]
    Regarding the second property, that is the Parkinson property, the parties do not cavil that on 31 May 2005, Mrs Lo and Mr Huang entered into:
  1. (a)
    an agreement by which Mrs Lo agreed to purchase a 20 per cent share in the Parkinson property from UCN for $500,000 with a deposit of $499,999; and,
  1. (b)
    a deed of indemnity by which UCN/Mr Huang indemnified Mrs Lo in respect of any claims by the mortgagee over the Parkinson property (the 31 May Deed).[8]
  1. [9]
    Regarding the 31 May Deed, Mr Huang asserts that UCN and Mr Lo (in his capacity as agent for Mrs Lo) agreed to an investment agreement, the terms of which were oral and not reduced to writing (Investment Agreement).[9]  This assertion is denied by Mrs Lo.[10] 
  1. [10]
    On 17 June 2005, an REIQ contract was executed by the parties to effect the transfer of the 20 per cent interest in the Parkinson property to Mrs Lo (the Parkinson sale contract).[11]
  1. [11]
    The relevant terms of the Parkinson sale contract are as follows:

“2.2 Deposit

  1. (1)
    The Buyer must pay the Deposit to the Deposit Holder at the times shown in the Reference Schedule.  The Deposit Holder will hold the Deposit until a party becomes entitled to it.
  2. (2)
    The Buyer will be in default if it:
  1. (a)
     does not pay the Deposit when required;
  1. (b)
     pays the Deposit by post-dated cheque; or
  1. (c)
     pays the Deposit by cheque which is dishonoured on presentation.

...

2.4 Entitlement to Deposit and Interest

  1. (1)
     The party entitled to receive the Deposit is:
  1. (a)
     If this contract settles, the Seller;
  1. (b)
     If this contract is terminated without default by the Buyer, the Buyer; and
  1. (c)
     If this contract is terminated owing to the Buyer’s default, the Seller.
  1. (2)
     The interest on the Deposit must be paid to the person who is entitled to the Deposit.
  1. (3)
     If this Contract is terminated, the Buyer has no further claim once it receives the Deposit and interest, unless the termination is due to Seller’s default or breach warranty.
  1. (4)
     The Deposit is invested at the risk of the party who is ultimately entitled to it.”
  1. [12]
    There was only one special condition to the Parkinson sale contract, namely:

“The seller discloses that Brisbane City Council has issued a Notice of Intention to resume the property and the buyer agrees not to make any requisition demand or claim for compensation in respect to any matter disclosed herein.”

  1. [13]
    Mrs Lo said that Mr Huang told both her and her husband that he would continue to fight against the Council’s decision to resume the Parkinson property and that he would “definitely win the case”.[12]  Despite initially paying $200,000 towards the purchase of her share in the Parkinson property, Mrs Lo continued to make payments towards the purchase.  Mrs Lo said that Mr Huang told her that “he would continue to fight against the Council, requesting compensation or swap land” and in order for him to do this, “he needed us to make the payment”.[13]  Therefore Mrs Lo made the payments towards the Parkinson sale contract.   
  1. [14]
    When asked about the special condition, Mrs Lo indicated that if the Council insisted on resuming the Parkinson property, she could not force Mr Huang to sell the land to her or for her to claim compensation against Council. She would simply receive her $500,000 back.[14]
  1. [15]
    It seems unusual, albeit irrelevant, that such a large deposit amount was proffered in circumstances where Mr and Mrs Lo were aware, according to the sole special condition of the Parkinson sale contract, that the Council had issued a Notice of Intention to resume the Parkinson property. Nonetheless the Parkinson sale contract was entered into, and, by late August 2005, Mrs Lo made $500,000 worth of payments for the Parkinson sale contract.[15]
  1. [16]
    The settlement date for the Parkinson sale contract was 3 July 2006. However the Parkinson sale contract could not be completed because the Parkinson property was eventually resumed by the Council on 23 September 2005.[16]
  1. [17]
    Mrs Lo was never informed by her husband that he agreed to a side agreement (such as the Investment Agreement as asserted by Mr Huang). Mrs Lo stated that there were no other agreements that she entered into with Mr Huang in relation to the Parkinson property, aside from the 31 May Deed and the Parkinson sale contract.[17] 
  1. [18]
    Mrs Lo conceded in cross-examination that the Parkinson sale contract came to an end when the Council resumed the land in September 2005. She denied the proposition that in signing the Parkinson sale contract to purchase the 20 per cent share, she would be entitled to one fifth (20 per cent) of its sale proceeds whenever it was sold.[18]
  1. [19]
    Mr Lo confirmed that at around the time of the 31 May Deed and the Parkinson sale contract, Mr Huang told him that he could reverse the Council’s decision and that he had “letters of support” from a number of politicians.[19]  Mr Lo also confirmed that there were no other agreements aside from the Parkinson sale contract and the 31 May Deed as between himself, his wife and Mr Huang with respect to the Parkinson property.[20]
  1. [20]
    In cross-examination Mr Lo, initially it seemed, denied the proposition that if the Parkinson property was sold, his wife would receive a fifth of the proceeds of sale.[21]  He said he and Mr Huang never discussed the issue because it was about purchasing the property; not selling it.[22]  He said that he agreed that it was either: “settlement of the land or refund of my money”.[23]  The ultimate plan was that Mr Huang would hold the property and wait to subdivide it – whether in eight years, 10 years or 20 years.[24]  To Mr Lo (and his wife), they did not mind how long Mr Huang held the property.[25]  Mr Lo then seemed to have accepted the proposition that assuming the Council did not resume the Parkinson property and for some reason the land decreased in value, his wife would receive 20 per cent of the devalued price.[26]
  1. [21]
    Mr Huang said that in the course of his discussions regarding the Parkinson property most of his dealings were with Mr Lo.[27]  Mr Huang said that he explained to Mr Lo that the Council was intending to resume the property but he saw potential and he needed some help.[28]  One week later, Mr Lo (on behalf of his wife) returned and wanted to proceed with the purchase of a share in the Parkinson property.[29]  Mr Huang then said that there was a risk because the Parkinson property was the subject of the Council’s intention to resume the land.  He explained to Mr Lo that there were three possible outcomes: the first was that they could keep the entire land; secondly it was possible that they might be able to keep part of the land and develop the land into an industrial park; and the third option was that the Council would resume the land in full.[30]
  1. [22]
    The following passage appears in the cross-examination of Mr Huang:

“MS ANDERSON:   One of the things that you and Mr Lo reached agreement about on the 31st of May 2005, was that Mrs Lo would have security for her payment of $499,999, and that security would be your 80 per cent interest of – in the Toorbul property.  That’s right, isn’t it?That security, I can say yes.  But I can say more.

Right.  So the answer is yes?Okay.  But, I can say more. 

All right.  And you’d like to say more about that?Yeah.  I want to say more.

Go ahead, Mr Huang.  Go ahead?Yeah.  Because I, in the very beginning, I offered this as security to him.  One is for the ANZ mortgage.  The second is for the 100,000 deposit he paid.  I want him to get more time to do his due diligence, to do a assessment.  So – and this why, after we do in the whole case, you know, on 12th of August 2005 I asked him, “Is this [indistinct] going ahead?”  Okay?  Or – or you want to get out of this investment agreement?  He said to me, “I need to talk to my wife and Mr Ma.”  And then he come back to me with the 300,000 cheque.  So to my understanding he’s full commit in my security, or will he forfeit its duty. 

Sorry.  Your security is what?My – my – my security not to – I said to him, okay.  Not to Mrs Lo.  Is already forfeited because he make up his mind still want to go ahead, and to pay me the full amount, 400,000, because we realised we could not settle then.  We could not settle then, consequent to [indistinct] them fully.  So we – we can – we can do a [indistinct] for.  We have settlement.  You have the full 300 per cent pay and 100 per cent [indistinct] settlement, or you just    

Sorry.  I can’t understand what you’re saying.  Say that again?I asked him to forfeit investment agreement by 10 in 100 per cent what he can get out of contract.  He can get out of investment agreement.”

Well, on the 12th of August, when you asked Mr Lo if he would   ?After – after 12 August.  Yeah.

When you asked Mr Lo if he wanted to continue with the contract?No, no.  The investment agreement.

Well, you see, there’s a contract for sale of the Parkinson property of 20 per cent.  Correct?I didn’t want to realise it.

If you could just answer my question, Mr Huang.  There’s a contract for sale of 20 per cent of the Parkinson property.  Correct?Yes.

And the deposit that Mrs Lo is required to pay under the Parkinson sale contract, is $499,999.  Correct?After the 12th of August, was Mr Lo and me.  We fully understand the contract, it has been void.  It’s impossible.  The only thing that [indistinct] is joint venture agreement, joint investment agreement.  So I asked him, “Are you serious?  Are you still going ahead?”

Mr Huang, the security that you offered to Mrs Lo was for the full amount of $499,999.  Correct?  Correct?Whatever I’ve got in – in here.

In the May deed at H?Yeah.

That’s what it says.  Yes.  So when you had the conversation after the 12th of August with Mr Lo, you told him, “I need the $300,000 to continue this buy”, didn’t you?I said, “I need the money.”  I also said, “Are you sure you still want to go ahead?”

And you said, “There’s nothing for you to lose.  There’s no risk because you’ve still got the security over the Toorbul property.”  Correct?No.  I did not say that.

Because, in fact, the agreement that – where you offered the security over the Toorbul property, was still in place.  It didn’t end because the property had been resumed, did it?Up to the 12th of August the [indistinct] [indistinct] had been [indistinct].  But there is no way we can transfer the 20 per cent of the shares of them to Mrs Lo.  And so I – I asked him that, you still want to go ahead with the investment agreement?  That means we might have enough fighting for compensation for [indistinct].  We might get more money than we pay.  We might get less money than we pay.  And he said he needed to check with his wife and Mr Ma.

Mr Huang, isn’t it right that, even after the 12th of August, you still intended to fight for compensation?Yes.  We both – we both   .”[31] 

  1. [23]
    As indicated Mr Huang’s plan to reverse the Council’s decision to resume the Parkinson property was not realised. It seems an order was made in the Supreme Court confirming the Council’s decision.
  1. [24]
    Mr Huang, on behalf of UCN, submitted an application to the Council for compensation on 28 February 2016.[32] Mr Huang received $875,000 for the resumption despite the fact that the Parkinson property comprised of 50 hectares and UCN paid $1.7 million for the land in December 2004.
  1. [25]
    At the time of entering into the Parkinson sale contract, there was a mortgage over that property in favour of the Australian and New Zealand Bank. Also at the time of entering into the Parkinson sale contract, there was a mortgage over the Toorbul property. Mr Huang was responsible for both mortgages.
  1. [26]
    In May 2018, the Toorbul property was sold following the appointment of statutory trustees for $411,183.37. This figure represented the net proceeds of sale. In July 2018, Mrs Lo was paid the amount of $74,424.41 for her 20 per cent share of the sale of the Toorbul property, less the trustees’ fees.[33]
  1. [27]
    Sometime in 2018, Mrs Lo became aware that the Toorbul property was rented out.[34]  It seems that Mr Lo went to the Toorbul property and spoke to a tenant who was living there.  The tenant informed Mr Lo that rental of around $330 per week was being paid.[35]  Mrs Lo gave evidence that she did not consent to the Toorbul property being rented out.  Indeed she paid land tax on the Toorbul property.  Mr Huang paid the rates on the Toorbul property.  A spreadsheet was produced at trial on the assumption that the rent from the Toorbul property was $130 per week.[36]  It was on this basis that Mrs Lo sought to advance an entitlement to a share of the rental income derived from the Toorbul property.   

Parkinson Sale Contract / “Security Agreement” / “Investment Agreement”

  1. [28]
    Paragraph 10 of the Further Amended Statement of Claim pleads the following:

“10. On 31 May 2005:

  1. The Plaintiff and UCN entered an agreement by which:
  1. the Plaintiff agreed to purchase, and UCN agreed to sell, a one-fifth share of 2939 Beaudesert Road, Parkinson QLD 4115, properly described as Lots 511, RP221538 and Lots 2 and 5, RP897053, County of Stanley, Parish of Yeerongpilly (Parkinson property);
  2. the Plaintiff agreed to pay UCN $500,000 in consideration of the purchase of the Parkinson property;
  3. the Plaintiff was to pay a deposit of $499,999.000 (the Deposit); and
  4. settlement was to occur on 3 July 2006.
  1. The Plaintiff, Defendant and UCN entered a deed of indemnity (31 May Deed).”
  1. [29]
    Paragraph 10 has been admitted by Mr Huang who also pleads, however, that on 31 May 2005, the parties entered into the “Investment Agreement”.[37] 
  1. [30]
    The “Investment Agreement” is denied by Mrs Lo who asserts that:

“[b]y the 31 May Deed …. [Mrs Lo and Mr Huang] recorded an agreement by which [Mr Huang] would provide to [Mrs Lo] as security for the payment by [Mrs Lo] of $499,999.00 prior to settlement, [Mr Huang’s] four-fifths share in the Toorbul property”.[38]

  1. [31]
    I reject Mr Huang’s assertion that on 31 May 2005, the “Investment Agreement” was created. I am not persuaded by his evidence about this matter. Instead, I accept the evidence given by Mr Lo and Mrs Lo who both denied that Mr Lo (on behalf of his wife) entered into the “Investment Agreement”. Their evidence was not sufficiently challenged in cross examination to cause me to alter my opinion and find to the contrary. Further the parties could have easily reduced the alleged terms of the “Investment Agreement” into writing on 31 May 2005, such as they managed to achieve through the 31 May Deed and 21 March Deed. Indeed it is surprising that at the time of the 31 May 2005 meeting, the 31 May Deed was produced reflecting certain operative matters, yet the terms of the “Investment Agreement” which allegedly took place on that day were not reduced to writing into the same (or a similar) document. For those reasons I am not satisfied that the “Investment Agreement” was arrived at.
  1. [32]
    So what was agreed by the parties on 31 May 2005?
  1. [33]
    Paragraph [10] of the Further Amended Statement of Claim pleads two events that occurred on 31 May 2005: the Parkinson sale contract and the 31 May Deed. These two events are not in dispute.[39] 
  1. [34]
    It was submitted at trial on behalf of Mrs Lo that on 31 May 2005 a “security agreement” was made, the details of which were “recorded”/“memorialised” in the 31 May Deed.[40]  It was submitted that the “security agreement” created an equitable interest which entitled Mrs Lo to an interest over the remainder of the Toorbul property.[41]  Reliance was placed on recitals F, G and H of the 31 May Deed, which provides as follows:

“F. Lo has agreed to pay $499,999 to any bank nominated by UCN within 5 working days from the date of this deed.  The balance $1.00 is payable on settlement.

G. Huang is the sole director of UCN.  Huang owns 80/100th share in lot 104 Hume Road, Toorbul in the State of Queensland (the security). 

H. Huang has agreed to give the 80/100th share in Lot 104 Hume Road, Toorbul in the State of Queensland as security for Lo’s $499,999 payment before the settlement.”

  1. [35]
    However I am not persuaded by this submission.
  1. [36]
    Recitals are regarded as not part of the substantive provisions of a deed but are analogous to extrinsic material. So, it follows that, if the operative terms of a deed are clear, it is not legitimate to refer to the recitals to contradict or modify the clear meaning. If both the recitals and the operative terms are clear but inconsistent, the operative terms prevail. It may even be legitimate to treat a recital as in effect a covenant if that appears to be the intention of the parties.[42]   
  1. [37]
    Campbell JA in Franklins Pty Ltd v Metcash Trading Ltd (2009) NSWLR 603 at 695 – 698, [379] – [390] (with Allsop P at [29] and Giles JA at [42] – [43] agreeing) stated as follows:

Use of Recitals – Principles

379.There is a common and long-standing practice of including in a deed or agreement certain introductory words, traditionally called recitals, that are written in the document before words such as “Now this deed witnesses...” or “It is agreed...” that state the operative content of the deed.  Recitals can be of various kinds – including statements of the factual background to the transaction, statements of the intention or object of the parties in entering the transaction, or statements that the parties (or one or other of them) have agreed to do or will do certain acts.

380.Because of this variety of recitals, and because the task of the court is to interpret the particular document that is in dispute, statements in cases to the effect that recitals should always be treated in some particular way in construction of an agreement should be treated with caution, and as subject to the context in which they were uttered. In particular, relevant types of context could be the type of recital that was being considered in the particular case, the type of operative provision the recital is sought to be used as an aid to construction of, and whether other assistance can be derived from other operative provisions of the document in construing the provision that is in question.  Subject to that caveat, there are some principles that emerge from the case law, which might at least constitute guidelines as to how recitals can be used in construction of an operative provision.

  1. (1)
    The recitals are a part of the agreement, and can be used as an aid to construction of an operative provision in an agreement: Lee v Alexander (1883) 8 App Cas 853 at 870; Orr v Mitchell [1893] AC 238 at 252-3, 254; Inland Revenue Commissioners v Raphael [1935] AC 96 at 143.
  1. (2)
    Nevertheless, there is a distinction between the operative terms of a contract and the recitals.  Although the recitals can assist in the construction of a contract, they are not themselves operative terms: Bath and Mountague’s Case (1693) 3 Chan Cas 55 at 101; [1685] EngR 4120; 22 ER 963 at 991; Young v Smith (1865) LR 1 Eq 180 at 183; IRC v Raphael at 135, 144.
  1. (3)
    There is a great deal of authority from the 19th and early 20th century to the effect that the manner in which the recital can be used depends upon whether either the recital or the operative provision is “ambiguous”: eg, Ex parte Dawes, In re Moon (1886) 17 QBD 275 at 286; In re Michell’s Trusts (1878) 9 Ch D 5 at 9; Young v Smith at 183-4; Orr v Mitchell at 254; Morrison & Goolden, Norton on Deeds, 2nd ed (1928) Sweet & Maxwell, at p 197 ff.  These authorities take the view that recitals can be used to determine the meaning of an ambiguous operative provision, but cannot cut down operative words that are clear and unambiguous, even if the recital is also clear and unambiguous and is contrary to the operative provision: Ex parte Dawes, In re Moon at 286; see also Walsh v Trevanion (1850) 15 QB 733 at 751; 117 ER 636 at 642 and Mackenzie v Duke of Devonshire [1896] AC 400 at 405-6, 407, 408.  These authorities have been applied by intermediate courts of appeal in Australia: O'Loughlin v Mount (1998) 71 SASR 206 at 217-19; Chacmol Holdings Pty Ltd v Handberg [2005] FCAFC 40; (2005) 215 ALR 748 at [38]- [50], [105]; Harpur v Levy [2007] VSCA 128; (2007) 16 VR 587 at 601 [63]; Ellis v Dariush-Far [2007] QCA 398; (2007) 242 ALR 635 at [18], and by Isaacs J in dissent in Bebarfald & Co Ltd v Macintosh [1911] HCA 8; (1911) 12 CLR 139 at 161-3.
  1. (4)
    There are also more recent authorities which state that recitals can provide a means of proving background facts that are themselves legitimate aids to construction: Rutter (Inspector of Taxes) v Charles Sharpe & Co Ltd [1979] 1 WLR 1429 at 1433D; Peppers Hotel Management Pty Ltd v Hotel Capital Partners Ltd [2004] NSWCA 114; (2004) 12 BPR 22,879 at [77]- [78]; Square Mile Partnership Limited v Fitzmaurice McCall Limited [2006] EWCA Civ 1690; [2007] 2 BCLC 23 at [52], see also section 53(2)(a) Conveyancing Act 1919They can be at the least an admission by the party to the deed of the truth of the matter stated, under the general law concerning evidence.  In some circumstances they could give rise to an estoppel by deed, or an estoppel by convention, that prevented a party to the document asserting the contrary of the fact stated in the recital: Greer v Kettle [1938] AC 156 at 170-1; Cousens v Grayridge Pty Ltd [2000] VSCA 96 at [57]; Caboche v Ramsay [1993] FCA 611; (1993) 119 ALR 215 at 236-7; [1993] FCA 611; 27 ATR 479 at 499 (FCAFC); Eslea Holdings Ltd v Butts (1986) 6 NSWLR 175 at 188.
  1. (5)
    Recitals which state that parties, or one or other of them, will carry out a particular action can be used to support an implied term in the agreement Ansett Transport Industries (Operations) Pty Ltd v Commonwealth [1977] HCA 71; (1977) 139 CLR 54 at 72; Aspdin v Austin (1844) 5 QB 671 at 683-5; [1844] EngR 231; 114 ER 1402 at 1407-8, but not recitals which merely set out the objects of the parties: Ansett Transport Industries (Operations) Pty Ltd v Commonwealth at 62-3, 73, 85-6.  There is no occasion to make the implication if the document contains an express covenant relating to the same subject matter: Dawes v Tredwell (1881) 18 Ch D 354 at 359 cited in O'Loughlin v Mount at 217.

381.An illustration of how their status might merely be that of guidelines is found in Tom Elvin Pty Ltd v Knell [2003] ACTSC 36 at [19], where Crispin J said:

“Despite the apparently unequivocal statements in some of the authorities cited that case I am not persuaded that operative parts of a deed, even if otherwise apparently clear and unambiguous, could never be read down by reference to the recitals.  I am inclined to think that there may be cases in which the recitals may so clearly spell out the scope of the intended transaction that it would be an affront to common sense not to treat them as providing a context within which operative provisions in the deed should be construed”.

382.I also note the leaving open of the question by Maxwell P in his dissenting judgment in Harpur v Levy at 592 [17].

383.Although much of the older English authority on the subject of recitals seems to insist upon a preliminary finding of “ambiguity” in the operative provisions of a contract before the recitals can be used as an aid to interpretation, it appears that this was simply part of the wider requirement insisted upon at the time that unambiguous words be interpreted without any extrinsic aids.  This seems evident from the explanation of “ambiguity” in the speech of Lord Macnaghten in Orr v Mitchell at 254:

“When the words in the dispositive or operative part of a deed of conveyance are clear and unambiguous they cannot be corrected by reference to other parts of the instrument.  When those words are susceptible of two constructions the context may properly be referred to for the purpose of determining which of the two constructions is the true meaning.  In order to justify a reference to the context for this purpose, it is not necessary that the language of the dispositive or operative clause should be ambiguous in the sense that without some help you cannot tell which of two meanings should be taken.  The rule applies though one of the two meanings is the more obvious one, and would necessarily be preferred if no light could be derived from the rest of the deed.  For the purpose of construing the dispositive or operative clause, the whole of the instrument may be referred to though the introductory narrative or recitals leading up to that clause are, perhaps, more likely to furnish the key to its true construction than the subsidiary clauses of the deed.” (emphasis added)

384.It seems likely from this passage that the requirement of ambiguity did not exist as a special rule relevant to the use of recitals, but rather as part of the general rule relating to context.  However, Lord Macnaghten clearly contemplates, in the final sentence, that recitals can be used to interpret the operative provisions of a contract.

385.The way in which a perceived need to find ambiguity before one could go outside the operative provisions of a document for assistance in construing that document was the nineteenth century view also appears in the statement in Lee v Alexander at 869-70 of when recitals could be an aid to construction.  Lord Blackburn (in construing a dispositive clause in a deed of conveyance) explained how recitals (narrative) could be used:

“I take the canon of construction to be that where the description of the premises assigned is clear and unambiguous, effect must be given to it by the Court, even though convinced from other parts of the deed that it was not what the parties meant to say.  But general words following a specific description rarely, if ever, clearly and unambiguously express that everything which may come within that general description is to pass.  They may, and more commonly do, mean that if there is anything which virtually and in substance is part of the thing described, though it may be not perfectly described, that shall pass; and consequently I think it is legitimate to look at the narrative in the deed, and still more at the dispositive words used, in order to see whether there appears on the face of the conveyance a sufficient indication that it was intended to restrict those general words, secundum subjectam materiem.”

(As to the last phrase, see further Leaway Pty Ltd v Newcastle City Council (No 2) at [75]-[84].)

386.Similarly, in IRC v Raphael at 142-3, Lord Wright (with whom Lord Thankerton agreed), before commencing to examine the authorities relating to the use of recitals, said:

“It must be remembered at the outset that the Court, while it seeks to give effect to the intention of the parties, must give effect to that intention as expressed, that is, it must ascertain the meaning of the words actually used. ... The words actually used must no doubt be construed with reference to the facts known to the parties and in contemplation of which the parties must be deemed to have used them: such facts may be proved by extrinsic evidence or appear in recitals ...”

387.However, after examining the authorities, his Lordship felt constrained by the earlier authority of Mackenzie v Duke of Devonshire, particularly the forceful words of Lord Halsbury LC at 406:

“... I never in my life heard of the language of a deed which contained a perfectly unambiguous provision being twisted from the natural ordinary meaning of the words by a preliminary statement of what the maker of the deed intended should be the effect and purpose of the whole deed when made.”

388.This reasoning, which proceeds on the basis that it is possible to interpret an operative provision in a contract in an acontextual manner, cannot stand with the High Court’s statements that interpretation necessarily involves a consideration of the words of the contract in their context: Maggbury at 188 [11], Pacific Carriers at 462 [22], Toll v Alphapharm at 179 [40], IATA v Ansett at 160 [8], 174 [53]. The criticisms of Lord Hoffmann in Charter Reinsurance v Fagan and Mannai, and the triumph of the “common sense principles by which any serious utterance would be interpreted in ordinary life” over “the old intellectual baggage of ‘legal’ interpretation” which occurred in Investors Compensation means that, insofar as these earlier decisions require a finding of “ambiguity”, and proceed on the basis that it is possible to read the operative provisions without the aid of context, those decisions should not be followed.  It would follow then that the recitals in a deed can be looked at as part of the surrounding circumstances of the contract without a need to find ambiguity in the operative provisions of the contract.

389.However, it should be emphasised that (at least for recitals not saying that one or other party will carry out a particular action) the recital is merely a means by which the surrounding circumstances and purpose of the transaction can be ascertained.  Where recitals purport to record the surrounding circumstances and purpose of a transaction, it is those surrounding circumstances or purposes “as can be got from the language of the recital in the deed itself” that are used to construe the contract (Rutter v Charles Sharpe at 1433D; see also Peppers Hotel Management v Hotel Capital Partners at [77] – [78] (per McColl JA); Square Mile Partnership at [52]; Lewison, The Interpretation of Contracts, at [10.11], p 396-7).  As Lord Wright put it in IRC v Raphael at 144: “The nature of recitals as statements of facts which are in the contemplation of the parties, is illustrated by the Scotch term ‘narrative.’

390.That a recital can be looked at as part of the surrounding circumstances of the contract still leaves room for the rule (accepted by intermediate courts of appeal in Australia and by Isaacs J in Bebarfald & Co Ltd v Macintosh) that where the recital is in conflict with the true interpretation of an operative provision (according to the modern standards of interpretation), the operative provision prevails.  Strictly speaking, that is not so much a rule of construction as a reflection of the fact that recitals are not operative provisions in a contract.

Use of recitals – application 

391.In the Supply Agreement, recitals B and C are statements of the joint wish of the parties. They are in the nature of objects of the agreement. Recitals D and E take the form of a “recognition” by one party of a “need” of the other. It would be appropriate to interpret the agreement, consistently with its operative terms, in a way that enabled those needs to be met.

392.Recitals F and G are in the form of statements of what will happen under the agreement.  There are examples, beyond the one relied on by Mason J in  Ansett Transport Industries (Operations) Pty Ltd v Commonwealth, of cases that have recited that it had been agreed that a certain thing should happen, where no express covenant to do that thing was contained in the deed, where the court construed the recital as giving rise to an implied covenant that the thing should be carried out: Sampson v Easterby (1829) 9 B & C 505; 109 ER 188, affirmed in the Exchequer Chamber in Easterby v Sampson (1830) 6 Bing 644; 130 ER 1429; Mackenzie v Childers (1889) 43 Ch D 265.  After discussing these cases, Lewison, The Interpretation of Contracts says (at 404 [10.15]):

But the court will in any case be cautious in spelling a covenant out of a recital, because that is not the part of the deed in which covenants are usually expressed: Farrall v Hilditch (1859) 5 CB NS 840 [144 ER 337].  The court must be satisfied that the language does not merely show that the parties contemplated that the thing might be done, but it must amount to a binding agreement upon them that the thing shall be done: James v Cochrane (1852) 7 Exch 170 [155 ER 903] … It is of course difficult as a matter of language to construe a recital (‘whereas A has agreed’) as meaning ‘A hereby agrees’.”  (Some footnotes omitted)

(emphasis added)

  1. [38]
    In the present instance, the operative terms of the 31 May Deed are clear and unambiguous. Therefore the recitals are not required to interpret the terms of the deed. The terms required: “UCN/Huang agree to indemnity Lo and keep Lo indemnified against any liability whatsoever to Lo arising from UCN/Huang and Lo mortgage of the land”.  That indemnity, according to the clause 3 “shall extend to any liability for costs and expenses (including legal fees) by Lo incurred by her in:

(a)defending proceedings, whether criminal or civil;

(b)in connection with an application relating to such proceedings, in which the court grants relief to the person under the law”.

  1. [39]
    In other words, the operative terms relate to Mr Huang’s agreement to indemnify Mrs Lo in respect of the mortgage over the Parkinson property in the event that the mortgagee made a demand or claim against Mrs Lo as 20 per cent owner of that property. They only apply in a situation where the mortgagee makes a demand or claim against Mrs Lo, in which case, Mr Huang has agreed to indemnify her. This has not occurred and accordingly no issue has arisen with respect to the performance of the 31 May Deed.
  1. [40]
    When the 31 May Deed is read as a whole, there can be no doubt that the subject matter of the deed was the agreement to indemnify. It cannot be disputed that it is legitimate to have regard to the recitals to determine the true construction of the terms where there is otherwise some doubt about the construction.[43]  However, plainly, this is not the case in the present instance.   
  1. [41]
    Yet, Mrs Lo seeks to rely upon the recitals to give rise to an entitlement to the amount claimed by creating in the defendant’s four-fifths share of the Toorbul property the interest as pleaded by Mrs Lo.[44]  I reject that argument.  Whilst I recognise that it is possible for recitals to be considered part of the agreement, the recitals themselves are clearly not the operative terms.  Despite recital H recording that Mr Huang has agreed to give the 80/100th share in the Toorbul property as security for Mrs Lo’s $499,000 before settlement, in my view, any action Mrs Lo has, relates to the “security agreement” and does not properly come within the 31 May Deed. 
  1. [42]
    It has been pleaded on Mrs Lo’s behalf, payment of $359,854.76 or $359,853.76 “pursuant to an agreement recorded by the deed executed by the parties on 31 May 2005 wherein [Mr Huang] offered his four-fifths share in the property as security for $499,999.00 advance payment after payments made”.[45]   
  1. [43]
    In my view, if any entitlement arose for Mrs Lo, it arises pursuant to the terms of the “security agreement” (and not the 31 May Deed unless the recitals which are sought to have been relied upon as purportedly confirming an agreement, were actually contained within the operative part of the 31 May Deed).
  1. [44]
    Furthermore whilst there is an indication of the existence of a security in recital H, it is the security itself and not the recitals of the 31 May Deed which permit Mrs Lo to the entitlement she seeks. In other words, it is the terms of the “security agreement” and not the recitals component to the 31 May Deed which properly enable Mrs Lo to obtain the relief sought. The terms of the “security agreement” were not pleaded and I am unprepared to make an order regarding the effect of the security when it appears loosely in the recitals as opposed to the operative part of the deed.
  1. [45]
    Additionally, there are matters of uncertainty surrounding the terms of the “security agreement” such as for instance when and how the security could be called upon. For example it is unclear in the recitals whether Mr Huang has already given the security or whether he had offered to do so but at that time the parties did not yet have a concluded agreement about the terms on which that security would be given. It is also possible and consistent with the wording in recital H that the parties did intend at that time that security would be given, but for some reason a final, complete and binding agreement did not eventuate. I do not consider it to be cast in promissory language.[46]  Also, it is unclear from the pleadings and evidence how the “security agreement” was formed; whether it was oral or written; what its terms were; what it required Mr Huang to do; when Mrs Lo was entitled to call upon the security; and whether there were any preconditions to calling upon the security. 
  1. [46]
    Finally given recital H is not in the operative part of the agreement, then I take the view that there is no agreement with respect to the matters set out in paragraph H. The 31 May Deed is a deed of indemnity. It is not an agreement regarding the “security agreement”. I note the 31 May Deed was admitted but that is not the same as admitting that the “agreement” referred to in the recitals was in fact entered into by the parties, particularly as the recitals are not clear on whether the agreement had already been entered into by the parties or not. It is one thing to admit that the recitals contain a record of an agreement, but that is different to admitting that the record is correct or true. Recital H cannot be considered to be the “security agreement”, but only a reference to it.[47]  Further I consider limited weight ought be placed on the accuracy and reliability of the recitals, despite the submission advanced that when the recitals are considered by reference to the entire deed, it becomes clear that the security that is offered is unambiguous.  For example recital D is factually incorrect because it states that Mrs Lo has agreed to purchase her share of the Parkinson property “pursuant to an agreement for sale dated the same date as this deed”.  Yet the agreement for sale was dated 17 June 2005 and not 31 May 2005.[48]  All in all I have formed a view that the language of the recitals is insufficient to conclude a binding and enforceable security agreement.      
  1. [47]
    In the circumstances the proper entitlement for the relief Mrs Lo seeks was either to sue with respect to the “security agreement” per se or pursuant to the Parkinson sale contract, which in any event would ordinarily be out of time, given these proceedings commenced close to 12 years after the Parkinson property was resumed by the Brisbane City Council. I note it was submitted on behalf of Mrs Lo that Mr Huang should be prevented from relying on a defence regarding the limitation period on the basis of waiver estoppel. However it was properly pleaded on Mr Huang’s behalf that upon the proper construction of both the Parkinson sale contract and the operative terms of the 31 May Deed, Mrs Lo was precluded from the relief she seeks.
  1. [48]
    Lastly Mrs Lo’s pleaded case sets out the relevant events that occurred on 31 May 2005.[49]  Two pleaded agreements were entered into on that day, namely: the Parkinson sale contract and the 31 May Deed.  No reference is made to entering into any “security agreement” on 31 May 2005.[50]  All that is pleaded about the “security agreement” appears at [12] of the Further Amended Statement of Claim, the effect of which is denied by Mr Huang.[51]  Estoppel was not pleaded.[52]  Nor was a covenant pleaded.
  1. [49]
    Therefore, consistent with the submissions advanced on behalf of Mr Huang, I am not satisfied that a “security agreement” existed which:
  1. (a)
    gave rise to an equitable charge or mortgage;
  1. (b)
    granted Mrs Lo an entitlement to payment of $359,854.76 or alternatively $359,853.76; and,
  1. (c)
    granted Mrs Lo an entitlement to be paid that amount from the sale of the Toorbul property. 

Toorbul Property Rental Income

  1. [50]
    Mrs Lo gave evidence that her husband went to the Toorbul property and found someone living there. She had not agreed to the property being rented out.[53]  Mr Lo gave evidence that he attended the Toorbul property in 2018 and spoke to a tenant who was paying weekly rent “around $300, $330”.[54]  He then spoke to the agent who told him “it’s $130 per week”.    
  1. [51]
    There being no actual proof of the amount of rent received by way of evidence which does not offend the hearsay rule, I am not satisfied that Mrs Lo has adequately ascertained the net rental income received from the Toorbul property in the amount of $11,613.80.[55] 
  1. [52]
    However, and in light of the pleadings, I am satisfied that Mr Huang should account to Mrs Lo for the rent he received whilst a tenant was living in the Toorbul property.[56]  He admitted there was a tenant in the Toorbul property who paid rent of varying amounts.  I do not accept his evidence that there was an oral agreement between himself and Mr Lo that any rental income be used to offset Council rates and land tax applicable to the Toorbul property when Mrs Lo, whose evidence I do prefer about this issue, said that she paid land tax on the Toorbul property and Mr Huang paid the rates.[57]  No limitation issue was pleaded on behalf of Mr Huang.[58] 
  1. [53]
    Therefore I find that Mrs Lo is entitled to an account of the rental income for the duration of the 20% share in the Toorbul property whilst the Toorbul property was tenanted.

Conclusion

  1. [54]
    Accordingly whilst Mrs Lo’s claim for the amount of $359,854.76 or in the alternative $359,853.76 pursuant to an agreement recorded by the 31 May Deed has failed, Mrs Lo is entitled to an account of the net rental income from the time she acquired her 20% share in the Toorbul property, for the duration of the property’s tenancy.
  1. [55]
    I will hear the parties as to the form of the orders and costs.

Footnotes

[1]  See Submissions of the Plaintiff dated 1 April 2019 at [4]. 

[2]  See Submissions of the Plaintiff dated 1 April 2019 at [1]. 

[3]  T1-33.

[4]  See Further Amended Statement of Claim at [3(c)], admitted in the Amended Defence at [2(c)]. 

[5]  See Further Amended Statement of Claim at [4] and [6], admitted in the Amended Defence at [4] and [6].  See also Exhibit 4. 

[6]  T1-35.

[7]  T1-64.

[8]  See Further Amended Statement of Claim at [10] and [12(a)], admitted in the Amended Defence at [10] and [12].  See also Exhibit 2.

[9]  See Amended Defence at [10(e)].  

[10]  See Reply (and Answer) at [5]. 

[11]  See Exhibit 3.

[12]  T1-49, line 41.

[13]  Ibid.  See also Exhibits 11 and 12.

[14]  T1-48, line 31.

[15]  Further Amended Statement of Claim at [13], admitted in the Amended Defence at [13].  See also T1-42 and Exhibits 8 and 9.

[16]  Further Amended Statement of Claim at [15], admitted in the Amended Defence at [15].

[17]  T1-49, line 5.

[18]  T1-68.

[19]  T1-75, line 17.

[20]  T1-78, line 40.

[21]  T1-84, line 21.

[22]  T1-84, line 22.

[23]  T1-84, line 27.

[24]  T1-89, line 16.

[25]  T1-89.

[26]  T1-95.

[27]  T2-9.

[28]  T2-9 – T2-10.

[29]  T2-10.

[30]  T2-10.

[31]  T2-28, line 39 to T2-30, line 15.  Mr Huang was further cross examined about the 31 May Deed:  see T2-41, line 20 to T2-43, line 20.  See also re-examination at T2-49, line 20 – T2-50, line 17.

[32]  T2-38, line 19.

[33]  Exhibit 15.  See also Submissions of the Plaintiff dated 1 April 2019 at [3].

[34]  T1-58.

[35]  T1-79, line 40.

[36]  See Exhibit 16.

[37]  See Amended Defence at [10(e)] and [10(f)].

[38]  See Reply at [5(b)], referring to Further Amended Statement of Claim at [12(b)]. 

[39]  See Amended Defence at [10]. 

[40]  See for example T1-4, line 40 and T4-3, line 14.

[41]  See T4-3, line 18.

[42]  Nicholas Seddon, Seddon on Deeds (2015, The Federation Press) at 175-176, [5.3].

[43] Ellis v Dariush-Far (2007) 242 ALR 635 at [18] (Keane JA, Williams JA and Daubney J agreeing).

[44]  See Submissions of the Plaintiff at [5(a)].

[45]  See Further Amended Statement of Claim, Prayer for Relief at [1].

[46] As was submitted on behalf of Mr Huang, it is not cast in promissory language analogous to, for example: “Mr Huang hereby agrees to grant X security on Y terms.

 Mr Huang has offered, and Ms Lo has accepted Mr Huang’s offer that…

 

 The parties hereby agree as follows…”

[47]  This includes with reference to recitals F and G.

[48]  Exhibit 3.

[49]  Paragraph [10] of the Further Amended Statement of Claim.

[50]  Cf paragraph [12] of the Further Amended Statement of Claim.

[51]  As was submitted on behalf of Mr Huang, the pleading is not to the effect of: “On 31 May 2005, the plaintiff and the defendant entered into an agreement whereby the plaintiff agreed to do X and the defendant, in return, agreed to do Y”. 

[52]  As required under r150(1)(e) of the UCPR

[53]  T1-59, lines 1 – 8. 

[54]  T1-79.

[55]  See also T2-46.

[56]  See also T2-16, lines 25 – 27.

[57]  T1-59, lines 20 – 31. 

[58]  See paragraphs [22] – [25] of the Amended Defence.

Close

Editorial Notes

  • Published Case Name:

    Lo v Huang

  • Shortened Case Name:

    Lo v Huang

  • MNC:

    [2019] QDC 61

  • Court:

    QDC

  • Judge(s):

    Jarro DCJ

  • Date:

    26 Jun 2019

Litigation History

EventCitation or FileDateNotes
Primary Judgment[2019] QDC 6126 Jun 2019Plaintiff's claim for damages for breach of contract dismissed; plaintiff's claim for rental income allowed: Jarro DCJ.
Notice of Appeal FiledFile Number: Appeal 7367/1912 Jul 2019-
Appeal Determined (QCA)[2020] QCA 9708 May 2020Appeal allowed; decision set aside insofar as it dismissed the claim for damages for breach of contract; as real property has been sold by statutory trustees, the parties are to provide a form of draft order to give effect to the reasons: Fraser JA, Henry and Brown JJ.

Appeal Status

Appeal Determined (QCA)

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