Poulus v MSG Operations Pty Ltd
[2021] QDC 129
To print this judgment please return to the case and click on the PDF icon
next to the
case name. For court use, a full PDF copy is required or preferred.
Exit Distraction Free Reading Mode
Please Note: You are about to print a copy of the onscreen
version of
this judgment. For court use, a full PDF copy of the judgment is required or preferred. Please
return to
the case for PDF printing options.
- Unreported Judgment
- Poulus v MSG Operations Pty Ltd[2021] QDC 129
- Add to List
Poulus v MSG Operations Pty Ltd[2021] QDC 129
Poulus v MSG Operations Pty Ltd[2021] QDC 129
DISTRICT COURT OF QUEENSLAND
CITATION: | Poulus v MSG Operations Pty Ltd [2021] QDC 129 |
PARTIES: | PAUL HENDRICK POULUS and CHERYL ANN POULUS (plaintiff) v MSG OPERATIONS PTY LTD (ACN 621 094 577) (defendant) |
FILE NO: | 1160/20 |
DIVISION: | Civil |
PROCEEDING: | Trial |
DELIVERED ON: | 29 June 2021 |
DELIVERED AT: | Brisbane |
HEARING DATE: | 18 February 2021 (with written submissions provided on 24 and 26 February and 2 March 2021) 23 June 2021 (oral submissions with further written submissions provided on 25 June and 28 June 2021) |
JUDGE: | Rosengren DCJ |
ORDERS: |
|
CATCHWORDS: | CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – OTHER MATTERS – where the defendant operates a sand mining business on the plaintiff’s land – whether pursuant to Part 4 of the lease the defendant is required to pay not less than a minimum monthly royalty each month CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – whether there is an error in clause 4.3.3 of the lease – whether the word “below” has been used erroneously rather than the word ‘above’ – whether it is a clear mistake – whether a correction is required to give effect to the intention of the parties CONTRACTS – COLLATERAL CONTRACTS – CONSISTENCY OF COLLATERAL CONTRACT WITH MAIN CONTRACT – where plaintiff alleges a collateral contract obliging the defendant to pay the royalties for the first three months of the lease on a deferred basis – where the lease contains an entire agreement clause – whether the entire agreement clause applies to exclude a collateral contract – whether the statement is inconsistent with the terms of the lease – whether the statement is promissory rather than representational Uniform Civil Procedure Rules 1999 (Qld) Amax International Ltd v Custodian Holdings Ltd [1986] 2 ELGR 111, applied Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99, cited Ballantyne v Phillott (1961) 105 CLR 379, cited Beaven v Wagner Industrial Services Pty Ltd [2018] 2 Qd R 542, cited Brandi v Mingot (1976) 12 ALR 551, cited Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101, cited Coast Corp Pacific Pty Ltd v Stockland Development Pty Ltd [2018] QSC 305, applied Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337, applied Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640, cited Fitzgerald v Masters (1956) 95 CLR 420, applied Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1, applied Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41, cited Hoyts Pty Ltd v Spencer (1919) 27 CLR 133, applied Jones v Dunkel (1959) 101 CLR 298, cited JP Morgan Ltd v Consolidated Minerals Pty Ltd [2011] NSWCA 3, applied McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579, applied RMI Pty Limited v Spray Coupe Pty Ltd [2021] QCA 37, cited Simic v New South Wales Land and Housing Corporation (2016) 339 ALR 200, applied Schellenberg v Tunnel Holdings Pty Ltd (2000) 200 CLR 121, cited Thompson v Palmer (1933) 49 CLR 507, applied Walton Stores (Interstate) Ltd v Maher (1988) 164 CLR 387, applied Western Australian Bank v Royal Insurance Co (1908) 5 CLR 533, cited Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522, cited |
COUNSEL: | S Fisher for the plaintiff J Lee for the defendant |
SOLICITORS: | Bridge Brideaux Porta for the plaintiff Tony Sowden, Lawyer for the defendant |
Introduction
- [1]The plaintiff, Paul and Cheryl Poulus own a block of land in the Sunshine Coast (‘the land’). It is more than 100 acres and it shares its southern boundary with the Mooloola River. On 27 October 2017 there was a lease signed by them as lessor and the defendant as lessee (‘the lease’)[1]. Mr Pignata, the director of the defendant signed the lease on behalf of the defendant. It grants the defendant the right to use the land for sand mining operations for eight years with a two year option. Part 4 of the lease makes provision for the payment of rent and royalties. The rent payable is limited to $10 for the entire term of the lease. The defendant paid the plaintiff royalties for 14 months between February 2018 and April 2019. It has not made any payments since this time and remains in occupation of the land. The plaintiff claims the outstanding royalties from May 2019 and continuing. The defendant denies that on a proper construction of the terms of the lease it is required to pay these royalties to the plaintiff. The resolution of this issue depends on an interpretation of clauses 4.2.1, 4.3.1, 4.3.2 and 4.3.3 in Part 4 of the lease.
- [2]Further, the plaintiff claims that there was a separate oral agreement whereby the defendant agreed to pay the plaintiff royalties for the months of November and December 2017 and January 2018 on a deferred basis.[2] The defendant also denies this component of the plaintiff’s claim.
- [3]These proceedings were commenced by the plaintiff in April last year. The pleadings relied on by the parties for the purposes of the trial are the further amended statement of claim (‘the statement of claim’) filed by leave at the commencement of the trial, the further amended defence (‘the defence’) filed on 5 October 2020 and the amended reply (‘the reply’) filed on 14 September 2020. The trial was heard over a day. Two witnesses gave evidence, namely Paul Poulus and Marcus Pignata. 22 exhibits were tendered. The parties provided detailed written submissions. These were supplemented with oral submissions.
- [4]The plaintiff claims a declaration that the defendant has breached the lease; monies owing as a debt and/or liquidated debt for royalties owing; and/or damages to be assessed for breach of the lease on account of unpaid royalties.
- [5]Prior to hearing oral submissions, I caused my Associate to notify counsel by an email dated 16 June 2021 that I would need to hear further submissions from them about two particular issues. The first one is whether the plaintiff ought to be precluded from relying on an estoppel in circumstances where it has not been pleaded and was initially raised only in written submissions after the trial had concluded. Counsel were notified that the other issue is whether there is an error in clause 4.3.3 of the lease in the sense that the phrase “that is below the monthly minimum royalty” has been used when the phrase “that is above the monthly minimum royalty” ought to have been used. Despite having been given notice of this, counsel for the defendant informed me at the time of oral submissions that he was not in a position to address the second of these two issues. For this reason, I directed that the parties provide further written submission on this.
Construction of Part 4 of the lease – legal principles
- [6]
“There was also no dispute about those principles of construction. The proper construction of each Undertaking is to be determined objectively by reference to its text, context and purpose. As was stated in Electricity Generation Corporation v Woodside Energy Ltd:
'[T]he objective approach [is] to be adopted in determining the rights and liabilities of parties to a contract. The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean … [I]t will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding "of the genesis of the transaction, the background, the context [and] the market in which the parties are operating". As Arden LJ observed in Re Golden Key Ltd [2009] EWCA Civ 636 at [28], unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption "that the parties … intended to produce a commercial result". A commercial contract is to be construed so as to avoid it "making commercial nonsense or working commercial inconvenience".' (footnotes omitted)
- [7]Justice Mason in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales[5] discussed the admissibility of prior negotiations evidence in an interpretation exercise in the following way:
“Generally speaking facts existing when the contract was made will not be receivable as part of the surrounding circumstances as an aid to construction, unless they were known to both parties, although, as we have seen, if the facts are notorious knowledge of them will be presumed.
It is here that difficulty arises with respect to the evidence of prior negotiations. Obviously the prior negotiations will tend to establish objective background facts which were known to both parties and the subject matter of the contract. To the extent to which they have this tendency they are admissible. But in so far as they consist of statements and actions of the parties which are reflective of their actual intentions and expectations they are not receivable. The point is that such statements and actions reveal the terms of the contract which the parties intended or hoped to make. They are superseded by, and merged in, the contract itself. The object of the parol evidence rule is to exclude them, the prior oral agreement of the parties being inadmissible in aid of construction, though admissible in an action for rectification.
Consequently when the issue is which of two or more possible meanings is to be given to a contractual provision we look, not to the actual intentions, aspirations or expectations of the parties before or at the time of the contract, except in so far as they are expressed in the contract, but to the objective framework of facts within which the contract came into existence, and to the parties' presumed intention in this setting. We do not take into account the actual intentions of the parties and for the very good reason that an investigation of those matters would not only be time consuming but it would also be unrewarding as it would tend to give too much weight to these factors at the expense of the actual language of the written contract.”
- [8]In construing a commercial agreement such as a lease, it must be construed as a whole and each word or part of it should, to the extent possible, be given some work to do.[6] If the language in a clause is open to two constructions, it is proper to construe it so as to avoid consequences which appear unreasonable or unjust.[7]
- [9]While it is not common to depart from the literal meaning of words contained in contracts, it can be done where a word or sentence is meaningless or if it is impossible to make sense of it. Words may be corrected for the purpose of avoiding an absurdity or inconsistency.[8] The issue of construction arises not as a result of an ambiguity in the language of the lease, but because of an apparent inconsistency in its terms. For a correction to be made it must be clear that there has been a mistake and the correction is required to give effect to the intention of the parties.[9]
Part 4 of the lease – relevant clauses
- [10]Part 4 of the Lease is titled “Rent and Royalty”. Clause 4.1 provides for the defendant to pay to the plaintiff $10 by way of rent for the term of the Lease.
- [11]In paragraph 7 of the statement of claim, the plaintiff has pleaded that the defendant covenanted “among other things” with respect to those matters that are set out in clauses 4.2.1, 4.2.2, 4.3.1, 4.3.3, 4.3.6 and the first appendix of the lease. This is admitted by the defendant. It has further pleaded that the lease will speak for itself and that the defendant relies upon the proper construction of it.[10]
- [12]The defendant’s obligation to pay royalties is principally concerned with clauses 4.2.1, 4.3.1, 4.3.2 and 4.3.3 of the lease, which are set out below.
Clause 4.2.1
“In addition to the aforesaid rent, but subject to clause 4.3.2, the Lessee must pay during each month of the Term a royalty to the Lessor by reference to the quantity of all quarriable material extracted, sold and removed from the Operations Area by the Lessee during each month of the Term. The amount of the royalty payable during the first and each subsequent month of the Term shall be calculated in accordance with the formula specified in paragraph (D) of the First Appendix hereto.”
Clause 4.3.1
“The Lessee must pay to the Lessor in advance on account of royalty a monthly minimum amount of Eight Thousand Two Hundred & Sixty Dollars & Eighty One Cents ($8,260.81) in each month of the Term (the "Monthly Minimum Royalty"), the first of such payments to be made on the Date of Commencement of the Term.”
Clause 4.3.2
“To remove any doubt, it is expressly agreed by the Lessor that the Lessee is not required to pay any royalty to the Lessor pursuant to clause 4.2:
- (a)in any month of the Term, unless and until the value of the quarriable material won and removed from the Demised Land in such period calculated in accordance with this Lease, shall exceed the Monthly Minimum Royalty; and
- (b)despite any other provision of the lease, in the first three (3) months of the Term.”
Clause 4.3.3
“At the expiration of each month of the Term a calculation shall be made of the amount received by or payable to the Lessor by way of royalty during the immediate past month and if such amount is less than the Monthly Minimum Royalty, then the Lessee shall be entitled to credit any such over payment of the Monthly Minimum Royalty in any such month against future quarriable material won and removed in any subsequent month that is below the Monthly Minimum Royalty.”
Royalties payable under the lease
- [13]The differing constructions of the payment of monthly royalties in the lease advanced by the parties are as follows:
- (i)The plaintiff contends that since February 2018 the defendant has been required to pay royalties each month of at least the Monthly Minimum Royalty (“the MMR”) figure as provided for in clause 4.3.1 of the lease. For those months where the calculation pursuant to clause 4.2 for the quantity of quarriable material extracted, sold and removed comes in higher than the MMR figure, it has also been required to make a further royalty payment reflecting the amount above the MMR figure. In the months where this calculation comes in lower than the MMR figure, it has not been required to pay royalties in addition to the MMR payment. This shortfall is then used as a credit which is carried forward and applied against any future month where the calculation comes in higher than the MMR figure.
- (ii)The defendant’s position is that the only month when the MMR has been payable without reference to the calculation pursuant to clause 4.2 was in October 2017 when the lease commenced. It is said that pursuant to clause 4.3.2(b) of the lease, there was then no MMR or other royalty amount payable for the months of November and December 2017 and January 2018. The defendant further contends that if the MMR which has been paid has exceeded the figure calculated pursuant to clause 4.2, that excess is held by the defendant as credit for future months in determining whether a MMR is payable for that month.
- [14]In pragmatic terms, the parties’ rival constructional interpretations for the payment of royalties result in potentially significant consequences.
- [15]The contract is a lease agreement for eight years with a two-year option. Under it, the defendant can extract for its sand mining operations, all sorts of quarriable material and from any part of and to any depth of the land.[11] It can erect or bring onto the land buildings, plant and machinery, or other items used for sand mining.[12] It can construct new roads if required.[13] The defendant has agreed to inter alia measure in tonnes the quantity of material removed from the land;[14] provide to the plaintiff a monthly statement setting out the details of the quarriable material removed from the land specifying the amount due to the plaintiff according to the terms of the lease;[15] and provide at the plaintiff’s request the sales figures for each month.[16] These and other features of the lease indicate that it is a commercial contract entered into between the parties and this is the context in which the relevant clauses in Part 4 of the lease are to be considered.
- [16]The objective approach to the interpretation of the relevant clauses is complicated by the fact that the lease is not well drafted. For example, clause 4.2.1 speaks of royalties calculated in accordance with the formula specified in paragraph (D) of the First Appendix. However, it seems that the entire First Appendix specifies the amount of the royalty, with paragraph (D) concerned with indexing the payments in future years. Another example can be found in clause 4.3.2 (a), which should refer to the royalty payable on the quarriable material rather than “the value of the quarriable material”. A further example can be found in clause 4.3.3, which is addressed below.
- [17]The term “royalty” is not defined in the lease. The ordinary dictionary meaning of a royalty in this context is a payment made by a producer of minerals, oil or natural gas to the owner of the site or of the mineral rights over it.[17]
- [18]In relation to clause 4.3.1, on the face of the words, it records an agreement for the defendant to pay the plaintiff each month a royalty of at least the MMR. So much is signified by the reference to the word “minimum”. It must be paid in advance. This plainly means that the defendant is obliged to make the MMR payment before the month to which it relates. The clause provides an exception to this in relation to the first MMR payment, which was to be paid on the date of the commencement of the lease, namely 27 October 2017.
- [19]The underlying machinery for reviewing the quantum of the MMR can be found in clause 4.3.6. It provides for an annual review on 27 October throughout the term of the lease.[18] It is required to be calculated by reference to the prescribed algebraic formula found in paragraph (E) of the First Appendix to the lease. This means that while at the time the lease was executed the MMR was $8,260.81, it is subject to an annual review each 27 October by reference to the CPI.
- [20]Turning to the royalties referred to in clauses 4.2.1 and 4.3.2 of the lease, they relate to the payment of distinct and separate royalties from the MMR referred to in clause 4.3.1. There are several reasons for this.
- [21]First, unlike the MMR payable by the defendant in advance of each month pursuant to clause 4.3.1, the royalty payable by the defendant provided for in clause 4.2.1 is not required to be paid until the 30th day of the month following the month last concluded.[19]
- [22]Second, it is a royalty differently derived by reference to the tonnes of sand, gravel and top soil extracted, sold and removed from the Operations Area during each month of the lease. It is a product volume-based obligation that is imposed depending on the type of product extracted from the plaintiff’s land. This formula provides for lower rates of royalty payable for top soil when compared to other quarriable material.
- [23]Third, the quantum of the royalty is calculated by reference to a different complex arithmetic formula provided for in the First Appendix of the lease. The provision of this more complex formula and the calculation to be undertaken is to derive with precision the monetary value of the quarriable materials extracted, sold and removed in any given month.
- [24]Fourth, pursuant to clause 4.3.2(a), the payment of a royalty provided for in clause 4.2 is not required to be made by the defendant for any month unless the calculation as to the quarriable material extracted, sold and removed exceeds the MMR figure. Further, pursuant to clause 4.3.2(b), even if the calculation results in a figure that exceeds the MMR figure, no additional royalty payment was required to be made by the defendant for the first three months of the lease, namely for the months of November and December 2017 and January 2018.
- [25]Therefore in short, clauses 4.2.1, 4.3.1 and 4.3.2 record an agreement for the defendant to have paid to the plaintiff in advance a monthly royalty of at least the MMR figure. Further, since February 2018, in any month where the calculation for the quarriable material extracted, sold and removed from the plaintiff’s land has exceeded the MMR figure, the defendant has been potentially obligated to make an additional royalty payment to the plaintiff.
- [26]Clause 4.3.3 qualifies this obligation on the part of the defendant, although in my view it contains an error. If it was to be read literally, it would mean that if the royalty calculated under clause 4.2 is less than MMR, the defendant is entitled to credit any such overpayment against future royalty payments below the MMR. This produces an absurd result and renders the clause meaningless. This is because the defendant is not required to make a royalty payment pursuant to clause 4.2 unless the amount payable is above the MMR figure. For this reason, I am satisfied that there is a mistake in clause 4.3.3 and that the phrase “that is below the monthly minimum royalty” was used when the phrase “that is above the monthly minimum royalty” ought to have been used to properly reflect the intention of the parties. As much is evident by a process of construction on the face of the lease and does not require the lease to be rectified.
- [27]This correction has the consequence that if the royalty payable on the quarriable material calculated under clause 4.2 is less than the MMR figure (which was $8,260.81 up to 26 October 2018), the defendant is entitled to a credit for the overpayment against future royalty payments to be made under clause 4.3.2(a). For example, if the defendant had made the MMR payment for March 2018 in advance, and the calculation of the clause 4.2 royalties for the month came to $1,000, the defendant was entitled to a credit of $7,260.81. That credit could then go against any subsequent month in which more than the MMR has been payable, by virtue of the calculation under clause 4.2.
- [28]In the defendant’s most recent written submissions, it is contended that the correction should not be made. I am not persuaded by any of the arguments advanced. Counsel for the defendant has asserted that Mr Pignata would have been able to give evidence about the matters referred to in paragraph 4 of those submissions. There are three points to be made about this. The first point is that there is already evidence of objective background facts which were known to both parties. For example, there is evidence that:
- (i)in early 2017 the plaintiff had leased the land to another company (‘the previous tenant’) for the purposes of sand mining;
- (ii)there was a meeting on 8 August 2017 at which time there was a discussion about the potential for Mr Pignata to take over the lease of the plaintiff’s land from the previous tenant;
- (iii)Mr Pignata would require a new lease and would not be prepared to accept an assignment of the previous tenant’s lease;
- (iv)a draft lease was prepared by the plaintiff’s solicitors;
- (v)Mr Pignata was provided with a copy of the draft lease;
- (vi)after Mr Pignata had considered the draft lease he attended the offices of the plaintiff’s solicitors and signed it.
- [29]The second point is that to the extent that the defendant asserts some further evidence could have been given, it would not have been admissible as part of the surrounding circumstances. This is because it was either not known to both parties, or the statements or actions relied on by the defendant are reflective of an actual intention and/or expectation. The third point is that this does not involve resolving an ambiguity. Rather, the correction is required because the literal sense of the word ‘below’ in clause 4.3.3 is all too clear and does not fit together in a coherent way with the remainder of the lease.
- [30]The defendant’s most recent written submissions also include two tables which in my view are not relevant to a determination of whether the correction should be made. This is because as explained above, the parties were notified by email dated 16 June 2021 that the question to be resolved is whether there is an error in clause 4.3.3 of the lease, in the sense that the phrase "that is below the monthly minimum royalty" has been used when the phrase "that is above the monthly minimum royalty" ought to have been used. This was reiterated at the time of oral submissions. The defendant’s tables relate to the effect of substituting the word “less” with “above” and are therefore of no assistance.
- [31]In my view, making the correction has the consequence that clause 4.3.3 also sits harmoniously with other clauses of the lease. Clause 4.4.1 is a ‘break’ clause that entitles the defendant to terminate the lease after giving notice if all saleable quarriable material has been extracted, or is no longer economically recoverable, or the extraction of it is not economically feasible. Clause 4.4.4 provides that if the lease is surrendered in these circumstances, the MMR shall be reduced in the same proportion as the total number of days remaining in such month following the date of the notice. This is consistent with the existence of an obligation to pay not less than the MMR payment each month, since otherwise if it cost essentially nothing to hold the lease if the defendant just stopped working the quarry, there would be no need to terminate it.
- [32]Clauses 3.4, 3.5 and 4.3.4 are also consistent with an obligation to pay not less than the MMR payment each month. Pursuant to clause 3.4(f), the defendant may surrender the lease by notice in writing in the event of any of the matters arising under clauses 3.4(a) to (d). If the defendant is to surrender the lease for any of these reasons, clause 3.5(c) provides that the MMR is reduced in the same proportion as the total number of days remaining in such month following the date of the notice. This means that even if the defendant gives notice to surrender the lease, the MMR still remains payable, although reduced proportionally to reflect the reduced number of days that the lease remains on foot in that month.
- [33]Pursuant to clause 4.3.4, in the event of a force majeure preventing the defendant from conducting its sand mining operations, it can opt to reduce the MMR payment in the same proportion as the total number of days in which its sand mining operations are suspended on account of such an event. In other words, in the event of a force majeure, the MMR still remains payable, but can be reduced proportionally to reflect the duration of the event.
- [34]Counsel for the defendant contends that the abovementioned interpretation of the royalty provisions in clauses 4.2.1, 4.3.1, 4.3.2 and 4.3.3 is only open if extrinsic materials are used as an aid, or a term is implied, or the lease is rectified. This submission is rejected in circumstances where I am satisfied that this interpretation has been arrived at by applying an objective approach in determining the meaning of the words of the lease by its text, context and purpose. Counsel for the defendant also submitted that the lease between the previous tenant and the plaintiff is irrelevant. I agree and no weight has been given to this exhibit.[20]
- [35]In its written submissions, the defendant placed much reliance on the fact that the lease was prepared by the plaintiff’s solicitors. In my view this is of only limited relevance here. While it is true that words will in some contexts be construed against a party who put them forward, it does not carry much weight in the case of a lease, as its application is entirely arbitrary.[21] Further, there are some other constraints around this principle. First, it is not a primary rule of construction. Rather it is one of last resort where all aids to construction of the contract have been applied and there remains doubt about the meaning of a contract. [22] Second, it is preferable for words in contracts to be interpreted by reference to the logic of the matter, rather than by adopting a mechanical approach of determining the party in whose interest it was formulated or included.[23] Third, if two meanings of a particular contractual provision are possible, the meaning unfavourable to the party who put them forward should not be chosen if one of those alternative meanings is an unrealistic or unlikely construction of the contract.
- [36]It is further submitted by the defendant that the plain words of the lease provide for the outcome contended by it. This is also rejected for the reasons set out above. Further, it presents to me as a commercially unreal proposition and self-serving in its outcomes. In arriving at this conclusion, I am mindful that sometimes of course, an unpalatable commercial outcome may be textually unavoidable. However, this is not the case here.
- [37]It would be uncommercial to think that the defendant could extract and remove a quantity of quarriable materials each month from the plaintiff’s land, whereby the calculation would result in a figure up to just under the MMR figure, and not be obliged to pay any royalties to the plaintiff. This is in circumstances where the rent payable to the plaintiff for the entire term of the lease is $10. It grates against a legitimate expectation created by the express promise in clause 4.3.1 of the lease. This is that the plaintiff would receive a guaranteed monthly minimum payment in respect of quarriable materials, which might be considered to belong to the plaintiff by virtue of their ownership of the land.
- [38]The payment by the defendant of not less than the MMR each month is a valuable and indispensable part of the overall agreement between the parties. It gives effect to the contractual obligations that reasonable persons in the position of the parties would have objectively intended to create. It is commercially sensible in that it provides for an arrangement whereby each party manages its risks as to the payment of royalties, which at the time of entry into the lease had a value which was difficult to calculate or even estimate. Accordingly, the lease provides for an ambulatory consideration through the royalties regime.
- [39]From the defendant’s perspective, it maintains control of the volume extracted, the sale price and its level of profit. If the operations became uneconomic, it has the option to cease operations and surrender the lease pursuant to clause 4.4.1. However, if the operations remain economic, after taking into account the payment of royalties as a cost, it has the option to continue its sand mining operations on the plaintiff’s land for up to 10 years. If an adverse event arises beyond the defendant’s control, clause 4.3.4 provides for the MMR to be reduced proportionally to reflect the number of days in which the defendant’s sand mining operations are suspended on account of this.
- [40]From the plaintiff’s perspective, the defendant’s obligation to make not less than the MMR payment each month neutralises to some extent a risk of the defendant’s possible future failing, for whatever reason, to maximise the commercial opportunity to extract, remove and sell the quarriable materials.
Deferred payments
- [41]The plaintiff’s claim in relation to the deferred payments is somewhat confusing. It is neither clearly pleaded nor otherwise clearly articulated. In paragraph 10A of the statement of claim, it is pleaded that there was an oral agreement in October 2017 in which the plaintiff agreed to accept the MMR payments for November and December 2017 and January 2018 on a deferred basis, with $1,044.99 added to each subsequent invoice. However, by a letter dated 17 August 2020, the defendant requested further particulars of the oral agreement. In the response filed on 1 September 2020, it was particularised as having occurred on 8 August 2017, January 2018 and/or 7 November 2019. Then in paragraph 8A of the reply filed on 21 September 2020, it is pleaded that the oral agreement was concluded prior to the lease being executed, which was on 27 October 2017.
- [42]The confusion as to when this alleged oral agreement was entered into was not resolved in the course of the evidence. Initially in cross-examination Mr Poulus said that it was entered into at the meeting on 8 August 2017. However, later in cross-examination Mr Poulus said that it was derived also from a telephone conversation with Dameon Langdon in January 2018 and at a meeting with Mr Pignata at the mine on 7 November 2019.
- [43]In paragraph 8A of the defence, it is denied that any such oral agreement was entered into. It is further pleaded that even if such an agreement had been entered into, it is rendered invalid by virtue of clause 11.10 of the lease, which is an “entire agreement” clause.[24]
- [44]The confusion was still not clarified in the written or oral submissions.
8 August 2017 meeting
- [45]It is common ground that this meeting occurred. It was the first occasion that Mr Poulus and Mr Pignata had met each other. Dameon Langdon was also present. Mr Pignata had known Mr Langdon since approximately 2012. Mr Langdon had expertise in earthmoving and landscaping equipment and had previously done some work for Mr Pignata.
- [46]It is not in dispute that the reason for this meeting was to ascertain Mr Pignata’s preparedness to take over as the lessee of the plaintiff’s land and to operate a sand mining business on it. There was a discussion about the fact that the previous tenant owed approximately $50,000 to the plaintiff. There was also a discussion about the payment of royalties for the initial three months of the lease. Mr Poulus gave evidence that Mr Pignata mentioned that it was going to be difficult to get the sand mining operations up and running and that it was in response to this that he offered the deferral of royalty payments for the first three months of the lease. It was Mr Pignata’s recollection that Mr Poulus made this offer after he enquired as to whether Mr Poulus would be prepared to agree to the defendant not paying any royalties for the first three months of the lease. It is unsurprising that neither Mr Poulus nor Mr Pignata had a perfect recollection of the details of the conversation that occurred some three and a half years earlier. In my view it is not necessary to resolve this factual dispute as nothing turns on it.
- [47]The totality of the evidence about this issue is somewhat vague. There is no evidence about Mr Pignata’s or Mr Langdon’s response to this suggested approach to the payment of the royalties for the initial three months, or any discussion about how they would be deferred, or the time period over which they would be deferred. This is in circumstances where the plaintiff bears the onus of proof to establish this pleaded oral agreement.
- [48]I am not persuaded that the evidence about this issue gives rise to a valid and enforceable collateral agreement. For such an agreement to exist there needs to be a promise made prior to the execution of the contract and it needs to be in consideration of the party’s entry into the contract. In The Law of Contract[25] Professors Greig and Davis, described a collateral contract in the following way:
“The theory was that an oral promise was made in consideration of the promisee entering into the main written agreement. It constituted a unilateral contract which bound the promisor to honour his promise if the promisee performed the designated act (that is, entered into the main contract). This separate, or collateral, contract was binding. Evidence could be given of its existence because it was distinct from the principal contract contained in the written document.”[26]
- [49]The defendant asserts that the alleged collateral contract constitutes a breach of clause 11.10 of the lease by the plaintiff, because its terms are not part of the entire terms embodied in and constituted by the lease. This clause reads as follows:
“The covenants and provisions contained in this Lease expressly or by statutory implication cover and compromise the whole of the agreement between the parties hereto in connection with the leasing of the Demised Land and it is expressly agreed and declared that no further or other covenants or provisions whether in respect of the Demised Land or otherwise shall be deemed to be implied herein or to arise between the parties hereto by way of collateral or other agreement by reason of any promise, representation, warranty or undertaking given or made by any party hereto to another on or prior to the execution hereof and the continuance of any such implication or collateral or other agreement is hereby expressly negatived.”
- [50]Where parties enter into a written agreement and the execution of it is not contested, they will generally be held to the obligations that they have assumed by that agreement unless relief is afforded by some legal or equitable principle applicable to the case.[27]
- [51]In my view, the ordinary meaning of clause 11.10 is that the lease embodies the entire understanding of the parties and constitutes the entire terms agreed in relation to the leasing of the plaintiff’s land to the defendant for sand mining operations. The parties have agreed, as a matter of contract to an entire agreement clause. The lease supersedes any prior agreement between the parties and this expressly extends to a collateral contract. The existence of this clause in the lease means that if a party was to depart from this promise that it constitutes a breach of contract. In short, in my view clause 11.10 expressly excludes a collateral contract and is an effective answer to the plaintiff’s claim in this regard.
- [52]There are two further reasons why I am not satisfied that the evidence gives rise to a valid and enforceable collateral agreement. The first reason is that such an agreement cannot be inconsistent with the main contract,[28] and here it is. Mr Poulus’ offer to defer the MMR payments for the first three months contradicts clauses 4.2 and 4.3 of the lease. As explained above, these clauses provide that the defendant has been required to pay in advance as a monthly royalty, a figure of at least the MMR for every month since the lease commenced. This includes the months of November and December 2017 and January 2018. There is no provision in the lease for these payments to have been deferred. Further, pursuant to clause 4.3.2(b) if the royalty calculated under clause 4.2 resulted in a figure that was higher than the MMR for any of these three months, no additional royalty payment was required to be made by the defendant.
- [53]The second reason relates to the characterisation of the statement by Mr Poulus to the effect that he was prepared to defer the royalty payments for the first three months of the lease. Statements put forward as collateral contracts must be promissory and not merely representational. In saying this, I am mindful that while representational statements cannot form the basis for an action for breach of contract, they may give rise to other forms of legal liability, such as misrepresentation or misleading conduct, or an estoppel.
- [54]Whether a statement is a promise is determined objectively.[29] A statement in non-promissory form can be a promise if this was reasonably inferred.[30] It is not necessary that a statement should be subjectively intended to be a term of the contract to be one. It is enough if it can be reasonably understood as such. The distinction between a statement that is promissory and a statement that is merely representational can in some cases be a fine one.
- [55]Based on the particular facts here and the evidence that has been adduced, in my view this statement by Mr Poulus is best characterised as representational rather than promissory in nature. It does not go beyond being part of a discussion or negotiation. It is too vague and uncertain to be regarded as a binding contractual promise. While it is pleaded in paragraph 10A of the statement of claim that it was agreed that the deferral would operate in such a way that $1,044.99 would be added to each subsequent monthly invoice, Mr Poulus did not give evidence to this effect.
- [56]Given the above findings it is not necessary to resolve the issue of whether Mr Langdon had authority to speak for or on behalf of the defendant at this meeting.
January 2018 and 7 November 2019 conversations
- [57]Any suggestion that the oral agreement was entered into in the telephone conversation between Mr Poulus and Mr Langdon in January 2018, or in the conversation between Mr Pignata, his bookkeeper and Mr and Mrs Poulus at the mine on 7 November 2019, was not borne out in the evidence.
- [58]In cross-examination, Mr Poulus was specifically asked whether the oral agreement was made on 8 August 2017, in January 2018 or on 7 November 2019. He responded that it was made at “the first meeting”[31], namely the meeting on 8 August 2017.
- [59]As to the January 2018 telephone conversation, Mr Poulus’ evidence was once again vague and confusing. This is not intended to be a criticism of him as this evidence related to a conversation that had occurred more than three years earlier. In evidence in chief Mr Poulus said that he could not recall whether he spoke to Mr Langdon about the defendant paying the royalties for the initial three months on an incremental basis over the following two years.[32] A short time later Mr Poulus gave further evidence that during the discussion he did make this suggestion to Mr Langdon but he could not recall Mr Langdon’s response to this.[33] In these circumstances, I am not satisfied to the requisite standard that the oral agreement as pleaded in paragraph 10A of the statement of claim was entered into in the course of the telephone discussion in January 2018 between Mr Langdon and Mr Pignata. It is therefore once again unnecessary to resolve the issue of whether Mr Langdon had authority to speak for or on behalf of the defendant during this telephone discussion.
- [60]There is simply no evidence that the oral agreement was entered into when Mr Pignata met Mr and Mrs Poulus at the mine on 7 November 2019. By this time the lease had been on foot for more than two years. The parties had become entrenched regarding their respective interpretations of the royalty payments under the lease and it was this that formed the basis of the discussion between them before Mr Pignata showed Mr and Mrs Poulus around the mine.
Estoppel
- [61]In the plaintiff’s written submissions, the issue of an estoppel by convention was first raised.[34] It was not pleaded and pursuant rule 150(1)(e) of the Uniform Civil Procedure Rules 1999 (Qld), it was required to be if the plaintiff seeks to rely on it.
- [62]In the course of oral submissions, counsel for the plaintiff clarified that no application was being made for leave to amend the statement of claim to plead an estoppel. Rather, the point being made is that the defendant has admitted in paragraph 12 of the defence to having made royalty payments of approximately $9,454,49 between Febraury and November 2018 and of approximately $9,614 between December 2018 and April 2019. It is said that there has been no application to withdraw this admission. The relevance of this in the absence of an estoppel is not clear.
- [63]For completeness I should say that had an application been made for leave to plead an estoppel that I would have refused the application. This is because the trial had been conducted according to the pleadings. The plaintiff would be required to prove that the defendant led it to act on the conventional basis asserted by them. Evidence could have been led about this issue. Mr Poulus could have been cross-examined to establish that he did not hold the assumptions relied on and his credit would have been challenged
- [64]Further, it is worth observing that the defendant was unlikely to succeed in a claim by way of estoppel. This is because the remedy will be that which would arise if the assumed facts were true.[35] Mr and Mrs Poulus would need to be able to show that they have been placed in a position in which they will suffer material disadvantage if the defendant is allowed to depart from the assumption.[36] This is an insurmountable hurdle. The assumption purportedly relied on by the plaintiff was that the defendant would pay the MMR for the months of November and December 2017 and January 2018 on a deferred basis over 24 months. The defendant will suffer no disadvantage. This is because I have concluded that under the lease the defendant has in fact been required to make a monthly royalty payment to the plaintiff of at least the MMR figure and this obligation has existed for each and every month since the commencement of the lease on 27 October 2017.
Jones v Dunkel
- [65]In appropriate circumstances where there is an unexplained failure by a party to call a witness, it may lead to an inference that the uncalled evidence would not have assisted the party’s case.[37] The rule does not permit an inference that the evidence of the uncalled witness would in fact have been damaging to the party who did not call the witness.[38] The rule cannot be used to fill gaps in the evidence and only applies where a party is required to explain or contradict something.[39] No inference can be drawn unless evidence is given of facts “requiring an answer”.[40]
- [66]Both parties contend that this rule should operate against the other in relation to the failure of Mr Langdon to give evidence. He had some involvement with the defendant’s mine for a finite period. He is no longer involved in the sand mining operations in any capacity.
- [67]In my view there is no basis for such an inference to be drawn against the plaintiff. I am also not persuaded by the plaintiff’s submissions in this regard. This is because, as explained above, the plaintiff’s case did not come up to proof in respect of the oral agreement being entered into either on 8 August 2017 or in the telephone conversation in January 2018. These are the two occasions when Mr Langdon is said to have been a party to the discussions. Further, the January 2018 telephone conversation was not even pleaded in the statement of claim or the reply.
Conclusion
- [68]There was no oral agreement entered into as has been pleaded in the statement of claim.
- [69]I declare that on a proper construction of clauses 4.2 and 4.3 of the lease dated 27 October 2017, the defendant has been required to pay royalties on the following basis:
- (i)the MMR for the first month of the lease was to be paid on 27 October 2017;
- (ii)each month since October 2017, the defendant has been required to pay the MMR in advance;
- (iii)the payment of a royalty additional to the MMR was not required to be made in November 2017, December 2017 or January 2018;
- (iv)since February 2018:
- (a)the defendant had been potentially required to pay an additional royalty pursuant to clause 4.3.2(a), if the calculation pursuant to clause 4.2 has resulted in a figure higher than the MMR;
- (b)however, if the calculation pursuant to clause 4.2 has resulted in a figure lower than the MMR, pursuant to clause 4.3.3 the defendant has been entitled to credit any such overpayment against future royalty payments where the calculation pursuant to clause 4.2 has resulted in a figure higher than the MMR.
- [70]The plaintiff’s claim includes an order for damages to be assessed on account of unpaid royalties, or monies owing as a liquidated debt. As foreshadowed during oral submissions, it is not possible for me to fairly assess this amount on the current state of the evidence. The parties are best placed to calculate the royalties owing under the lease (particularly with respect to the royalties payable under clauses 4.2, 4.3.2(a) and 4.3.3) that follow from the declarations I have made. I therefore direct that the parties email my Associate an agreed order as to quantum and interest, by 4.00pm on 20 July 2021. If the parties cannot agree, it may be necessary for further directions. However, I strongly urge against this course and I expect the parties to resolve this issue. The costs involved in prolonging this litigation outweigh the benefits of it continuing further.
- [71]I will hear the parties as to costs.
Footnotes
[1] Exhibit 1.
[2] Paragraph 10A, statement of claim.
[3] (2016) 339 ALR 200 at [78].
[4] (2014) 251 CLR 640.
[5] (1982) 149 CLR 337 at 352.
[6] RMI Pty Limited v Spray Coupe Pty Ltd [2021] QCA 37 at [15].
[7]Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1997) 129 CLR 99.
[8] Fitzgerald v Masters (1956) 95 CLR 420 at 426-7.
[9] Chartbrook Ltd v Persimmon Homes Ltd [2009] AC 1101 at [25].
[10] Paragraphs 6-10, defence.
[11] Clause 3.2(e).
[12] Clause 3.1.
[13] Clause 3.2(c).
[14] Clause 4.2.2.
[15] Clause 4.2.2 (a).
[16] Clause 4.2.2(b).
[17] Australian Oxford Dictionary.
[18] Clause 1.10.
[19] Clause 4.2.2(a).
[20] Exhibit 2.
[21] Amax International Ltd v Custodian Holdings Ltd [1986] 2 ELGR 111 at 112; Wilkie v Gordian Runoff Ltd [2005] 221 CLR 522 at 529. This can be compared to a standard form document such as an insurance policy issued to a member of the public.
[22] JP Morgan Ltd v Consolidated Minerals Pty Ltd [2011] NSWCA 3; Western Australian Bank v Royal Insurance Co (1908) 5 CLR 533 at 567.
[23] McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579 at [74].
[24] Paragraph 12A, defence.
[25] Greig and Davis, The Law of Contract (Law Book Co, 1987), 467.
[26] Lindley v Lacey (1864) 17 CB (NS) 578; 144 ER 232; De Lassalle v Guildford [1901] 2 KB 215; Stevens v McHugh (1951) 68 WN (NSW) 240.
[27] Coast Corp Pacific Pty Ltd v Stockland Development Pty Ltd [2018] QSC 305 at [122].
[28] Hoyts Pty Ltd v Spencer (1919) 27 CLR 133; Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1.
[29] Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41 at 61-2.
[30] Ballantyne v Phillott (1961) 105 CLR 379 at 396-7.
[31] Transcript p.1-34, ln 8-20.
[32] Transcript p. 1-25, ln 13-21.
[33] Transcript p. 1-26, ln 6-21.
[34] Plaintiff’s written submissions, paragraph 77.
[35] Walton Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 at 414-15.
[36] Thompson v Palmer (1933) 49 CLR 507 at 547.
[37] Jones v Dunkel (1959) 101 CLR 298.
[38] Brandi v Mingot (1976) 12 ALR 551 at 559-60.
[39] Beaven v Wagner Industrial Services Pty Ltd [2018] 2 Qd R 542.
[40] Schellenberg v Tunnel Holdings Pty Ltd (2000) 200 CLR 121.