Quinn Villages Pty Ltd v Mulherin
[2006] QSC 163
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- Notable Unreported Decision
- Appeal Determined (QCA)
- Quinn Villages Pty Ltd v Mulherin[2006] QSC 163
- Add to List
Quinn Villages Pty Ltd v Mulherin[2006] QSC 163
Quinn Villages Pty Ltd v Mulherin[2006] QSC 163
SUPREME COURT OF QUEENSLAND
PARTIES: | |
FILE NO: | |
Trial | |
PROCEEDING: | Trial |
ORIGINATING COURT: | |
DELIVERED ON: | 5 July 2006 |
DELIVERED AT: | Brisbane |
HEARING DATE: | 19-22 June 2006 |
JUDGE: | Chesterman J |
ORDER: | 1.The defendant is to pay to the plaintiff such amount as is found due by the expert, appointed by the Court for that purpose, pursuant to clause 27.3 of the development agreement dated 13 January 1999 between the plaintiff and the defendant; 2.The defendant within 30 days provide to the plaintiff a release of mortgage in registrable form together with all such documents as are necessary to effect release of the mortgage granted by the plaintiff in favour of the defendant over the land described as lot 41 on RP 151487 County of Canning, Parish of Maroochy, title reference 15776181; 3.All further claims for relief brought by the plaintiff are adjourned; and 4.The defendant’s counterclaim is dismissed. |
CATCHWORDS: | CONTRACTS – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – OTHER MATTERS – parties made agreement to participate in joint venture for residential property development – if management committee obtained copy of offer of finance sufficient to carry out development, parties would share profits and losses equally – plaintiff received offer – non-receipt by management committee – implied obligation – neglect – finance itself subject to conditions – whether defendant participant or lender by management committee’s non-receipt of finance offer – whether terms of finance offer conditions precedent to contract for finance or its performance – contribution – agreement indemnifies each party for other’s negligent acts/omissions – plaintiff made payments to contractor whose performance is alleged to have caused delays and increased costs – project manager recommended termination of contractor’s contract – plaintiff did not accept recommendation – whether decision not to terminate negligent – whether payments made negligently CONTRACTS – DISCHARGE, BREACH AND DEFENCES TO ACTION FOR BREACH – DISCHARGE BY AGREEMENT – GENERALLY – non-fulfilment of term requiring receipt of finance offer by management committee – whether contract void by own force or voidable at parties’ election – whether defendant affirmed agreement by his conduct Butt v M’Donald (1896) 7 QLJ 68, followed Gange v Sullivan (1966) 116 CLR 418, applied M K & J A Roche Pty Ltd v Metro Edgely Pty Ltd [2005] NSWCA 39, distinguished Mackay v Dick (1881) 6 App Cas 251, applied Meehan v Jones (1982) 149 CLR 571, applied Rudi’s Enterprises Pty Ltd v Jay (1987) 10 NSWLR 568, distinguished Sargent v ASL Developments Ltd (1974) 131 CLR 634, applied Suttor v Gundowda Pty Ltd (1950) 81 CLR 418, applied |
COUNSEL: | S Couper QC with him J Meredith for the plaintiff A J H Morris QC with him I Erskine for the defendant |
SOLICITORS: | Plastiras Lawyers for the plaintiff Gateway Lawyers for the defendant |
[1] The plaintiff is a developer. The defendant is an investor. They came together with a view to sharing the profits from a residential development, to be built in two stages, on the Sunshine Coast known as ‘Coolum Fairways’, but the venture was unsuccessful. The developed lots in stage one sold for less than the cost of development. Stage two is moribund. There are no plans for it to proceed. The plaintiff made good most of the losses, though the defendant has contributed some moneys. The plaintiff seeks orders obliging the defendant to contribute to the costs of the development so that their losses will be equal. The claim is based upon cl 27 of the Development Agreement (‘the Agreement’) of 13 January 1999 by which the parties agreed to regulate their business relationship.
[2] Clause 27.1 provided:
‘27.1The Parties record that it is their intention to carry out the Project on the basis of a sharing of risk on a 50% to 50% basis.
…
27.3… each Party indemnifies and agrees to keep the other always indemnified in respect of any liability, loss, claim or expense it may incur as a result of its participation in this Agreement and the carrying out of the Project to the extent that the Party suffers loss, liability, claim or expense which is over and above its assumed liability of 50% of the risk.’
[3] The defendant resists the claim on the basis that, as events transpired, the Agreement was not binding upon him and that his relationship with the plaintiff was that of lender and borrower.
[4] The plaintiff owned the land which was to be the development site and on which townhouses were to be built and sold. The parties agreed that the plaintiff should make the land available for the project and that its value was $800,000. This was to be the plaintiff’s capital contribution to the project. The defendant was to contribute $800,000 in cash. The plaintiff had borrowed $400,000 from the Commonwealth Bank of Australia and secured repayment by mortgage over the land. Terms of the Agreement provided for the payment by the defendant of $400,000 to discharge the debt due to the bank and the payment of further sums aggregating $400,000 into an account to be utilised in meeting costs of the development.
[5] It is appropriate to regard the plaintiff and the defendant as agreeing to participate, at least conditionally, in a joint venture although that term is not found in the Agreement. By cl 3 the parties agreed that they should not be partners nor should either be responsible or liable for the act or omission of the other, nor become an agent of the other.
[6] The outcome of the dispute between the parties turns upon the meaning and operation of cl 8 of the Agreement. It provided:
‘8.1Subject to satisfaction of the conditions contained in Sub-Clause 2, Mulherin shall pay to the Owner the sum of $400,000 in order to equalise the capital contribution of the Parties to the Agreement. The Owner agrees to defer payment required under this Clause so as to enable Mulherin to make the payment from repayment of the Advance. Mulherin agrees that all funds payable to him by way of repayment of the Advance shall instead be paid to the Owner to satisfy the payment required by this Clause. Mulherin shall authorise the Project financier to make payments direct to the Owner in order to help give effect to this Clause.
8.2Mulherin shall not be required to make the capital contribution referred to in Sub-Clause 1 until such time as the following conditions have been met:-
(a)The Management Committee receives a copy of an offer of finance produced by Ashe Morgan Winthrop, Finance Brokers, or any other finance broker or financier for an amount sufficient to facilitate the carrying out of the Project being an amount sufficient to pay all the Project Costs and any other costs or expenses incurred in carrying out the Project and the terms of that finance approval being accepted by the Management Committee. If the finance offer is subject to the sale of a certain specified number of Developed Lots in the Project, then this condition is not satisfied until those Developed Lots are sold as specified in the finance offer.
(b)The Management Committee is furnished with a copy of a valuation of the unimproved Land of $1,100,000.00 - $1,250,000.00 from a respected and recognised valuation company;
(c)The Management Committee is furnished with a detailed marketing plan for the sale of the Developed Lots on an off the plan basis to third party buyers and that marketing plan being accepted by the Management Committee;
(d)The Management Committee is furnished with a budget detailing all the anticipated costs of carrying out the Project and such budget being accepted by the Management Committee (“the Project Budget”).
…
8.4If, within 12 months from the date of execution of this Agreement, the requirements of Sub-Clause 2(a) to (d) have not been fulfilled, then this Agreement shall be at an end. In those circumstances, all capital contributions made by Mulherin shall be deemed to be an advance by Mulherin to the Owner together with the Advance already made under Clause 7. The total amounts advanced shall be secured by the Mortgage contemplated by Clause 23. The advance shall be for a period of 9 months from the date of this Agreement coming to an end and shall accrue interest at a rate which is 2% above the Commonwealth Bank of Australia 90 day bill rate. For avoidance of doubt, the Owner shall be required to repay the advance together with any interest accrued thereon within nine (9) months from the Agreement coming to an end.’
[7] ‘Mulherin’ is a reference to the defendant. The ‘owner’ is the plaintiff. Clause 7 required the defendant to make the payments, together aggregating $400,000, to an account from which payment would be applied in payment of development costs. Clause 23 provided:
‘23.1In order to secure the performance by the Owner of its obligations under this Agreement and the repayment of all monies owing to Mulherin, the Owner must grant to Mulherin an all moneys Mortgage over the Land …
…
23.6Mulherin shall not be obliged to release the Mortgage until he has received all monies due and owing to him under this agreement, but shall give a partial release of the Mortgage on the sale of each Developed Lot, if required in return for payments in accordance with Clause 25.
23.7Mulherin shall grant priority to the financier of the Development Loan as contemplated by Clause 17 …’
[8] Clause 17 required plaintiff and defendant to ‘arrange a Development Loan for an amount sufficient to carry out the Project.’
[9] It thus appears that if the conditions set out in cl 8.2 of the Agreement were satisfied the defendant should become a participant in the development sharing equally in its profits and losses. Should those conditions not be satisfied he was to be a lender to the plaintiff for $800,000, the amount he conditionally contributed to the venture. This sum was to be secured by mortgage. The defendant maintains that the conditions were not satisfied; that he did not become liable to contribute to the costs of the project; that he lent money to the plaintiff which was repayable pursuant to cl 8.4; and he counter-claims for the amount of the advance.
[10] Some other provisions of the agreement should be noted. Clause 22 provided for ‘the conduct of the Project’ to be managed by the management committee which was to comprise ‘one … representative of each Party appointed in writing.’ By cl 22.5:
‘A member of the Management Committee may at any time convene a meeting of the Management Committee.’
[11] A management committee was appointed and the defendant was a member of it. It met from time to time to consider various aspects of the project.
[12] The time limited by cl 8.4 for the fulfilment of the conditions identified in cl 8.2 was twelve months which expired on 13 January 2000. Prior to that date a valuation of the land showing it to be worth $1,250,000 was received from a respected and recognised valuation company. Likewise a detailed marketing plan for the sale of developed lots was prepared by an experienced real estate salesman engaged by the plaintiff for that purpose prior to 13 January 2000; and a detailed budget showing the anticipated costs of carrying out the project had been prepared.
[13] It appears that none of the valuation, marketing plan or budget was put before the management committee for its acceptance. The defendant, prior to 13 January 2000, knew of the existence of the valuation and that the figure met the requirement of cl 8.2(b). Likewise the defendant admitted that he had been given and read the marketing plan and budget prior to the first anniversary of the making of the agreement. The non-compliance with conditions 8.2(b), (c) and (d) are insubstantial and the defendant disclaimed any reliance upon them.
[14] The critical question concerns condition 8.2(a) which required the receipt of ‘an offer of finance … sufficient to facilitate the carrying out of the Project …’.
[15] By letter dated 23 November 1999 Capital Finance Australia Ltd (‘Capital Finance’) made an offer of ‘financial accommodation’ on the terms and conditions set out in the letter. Relevant conditions were:
‘Facility Amount: Stage 1: $3,728,000 and Stage 2: $3,102,000
…
All advances would be made as and when [Capital Finance] considers fit. Funds will generally be made available in accordance with the attached … table.
Repayment Date: The Facility must be repaid in full 24 months from the date the Facility is first provided.
Conditions Precedent: Advances will only be provided when the following conditions are satisfied.
(a)The project auditor is to be selected and instructed by [Capital Finance] …
(b)[Capital Finance’s] solicitors are to be provided with copies of exchanged contracts with an aggregate sale price of $2,337,000 before any funding and $5,306,000 before the commencement of any Stage 2 funding … The aggregate value of sales to non-Australian resident purchasers must not exceed $250,000 in either stage. All contracts must be to bona fide arms length purchasers, must provide for 10% deposits and be on terms satisfactory to [Capital Finance] and its solicitors.
…
(f)Fixed price building contract on terms … satisfactory to [Capital Finance] for a price of not more than $3.249M for Stage 1 and $2.872M for Stage 2 …
…
Ongoing Conditions: The following ongoing special conditions must be complied with throughout the term of the facility:
(a)A full set of development documentation must be provided …
(b)The borrower must provide written authorisation for all draw-downs.
…
Loan Terms:
3.General Conditions … : The Facility Amount will only be advanced when [Capital Finance] is prepared to do so and all matters relating to the Facility are to [Capital Finance’s] satisfaction. …’
Acceptance:
Despite anything else, [Capital Finance] reserves the right to withdraw from this transaction if this Facility Agreement is not accepted within 14 days from the date of this letter …
[16] The offer was addressed to Quinn Group (Management) Pty Ltd, a company associated with the plaintiff and a member of the ‘Quinn Group of Companies’. For present purposes one can take it that the offer of finance was made to the plaintiff.
[17] Mr Quinn, a director of the plaintiff, has deposed that shortly after receiving the letter from Capital Finance he spoke to the defendant about his terms. He said that ‘a formal letter of offer had been received … and that approval for the finance component of the project was “over the line”.’ The defendant questioned him ‘about the terms of the … facility and whether they were substantially different from the indicative offer.’ Mr Quinn told the defendant that they were not. He mentioned that an establishment fee of $31,000 had to be paid to the financier which wanted ‘signed contracts with the construction manager … before any moneys could be drawn down.’ Mr Quinn told the defendant that a term of the offer was that Capital Finance, prior to advancing funds ‘wanted 50 per cent of pre-sales of each stage to be reached’ and that he believed that 50 per cent of the stage 1 units had been pre-sold. He told the defendant that he believed that Capital Finance was satisfied with the pre-sales and that he intended to execute the acceptance of the offer. The defendant ‘agreed that [he] should do this.’
[18] The defendant conceded that he knew that 50 per cent of pre-sales were required as a pre-condition to the loan and that in a conversation with Mr Quinn he agreed that they should proceed with stage 1 of the development. The defendant denied having been given a copy of the letter of offer from Capital Finance and denied that he was told in detail of its terms. It is, I think, right that he was not given a copy of the document but I have no doubt he was told of its salient terms as Mr Quinn deposed. I prefer Mr Quinn’s evidence to the defendant’s. He was excessively cautious and protective of his position. At times he was evasive.
[19] The plaintiff accepted the offer by signing a copy of the letter on 1 December 1999 to indicate that it agreed to borrow the money on the terms set out.
[20] It is common ground that the management committee did not receive a copy of Capital Finance’s offer. The offer was produced by Ashe Morgan Winthrop and it was for an amount sufficient to facilitate ‘the carrying out of the project’. I will leave to one side the question whether the offer was ‘subject to the sale of a certain specified number of … lots …’.
[21] Does the fact that the management committee was not given a copy of the offer of finance mean that the condition in cl 8.2(a) was not satisfied? The plaintiff submits not and relies upon the principle which finds expression in Mackay v Dick (1881) 6 App Cas 251. The principle was expressed by Lord Blackburn at 263:
‘As a general rule … where in a written contract it appears that both parties have agreed that something shall be done, which cannot effectually be done unless both concur in doing it, the construction of the contract is that each agrees to do all that is necessary to be done on his part for the carrying out of that thing, though there may be no express words to that effect. What is the part of each must depend on circumstances.’
[22] The defendant’s counsel submits that the condition found in cl 8.2(a) was for the benefit of both plaintiff and defendant, relying on the authority of Meehan v Jones (1982) 149 CLR 571 per Mason J. I accept the submission. The result is that the principle expressed in Mackay is applicable. Both parties agree that the management committee should have received and considered the offer of finance. The condition and its fulfilment was for the benefit of both parties to the agreement. Either plaintiff or defendant could have convened a meeting of the management committee to satisfy condition 8.2(a). Neither did. Both were therefore in breach of the implied obligation ‘to do all … things as are necessary … to enable the other party to have the benefit of the contract’: per Griffith CJ in Butt v M’Donald (1896) 7 QLJ 68 at 71. The consequence of the failure was described by Lord Watson in Mackay at 270: the defendant cannot rely upon the non-fulfilment of the condition because his own neglect (as well as the plaintiff’s) was the cause of the non-fulfilment so the condition must be taken to have been fulfilled.
[23] I therefore conclude that the defendant may not rely upon the failure of the management committee to receive or consider the finance offer as a basis for contending that the agreement did not become unconditional.
[24] The defendant has a more substantial point. It is that the offer of finance was subject ‘to the sale of a certain specified number of developed lots’ and that number of lots was not sold by 13 January 2000. The submission descends into greater detail. It is pointed out that the second condition precedent contained in the letter of offer was that Capital Finance’s solicitors were to be provided with ‘copies of exchanged contracts with an aggregate sale price of $2,337,000 before any funding and $5,306,000 before … any Stage 2 funding’, and that ‘[a]ll contracts must be … on terms satisfactory to [Capital Finance] and its solicitors’.
[25] The defendant accepts that prior to 13 January 2000 the plaintiff had executed unconditional contracts for the sale of developed lots, the aggregate total price of which exceeded $2,337,000. But it submits that there is no evidence that prior to the critical date those contracts had been provided to Capital Finance’s solicitors or that Capital Finance or its solicitors had expressed satisfaction with their terms. As a matter of fact this submission appears correct.
[26] The defendant has another point. It is that cl 8.2 of the agreement required an offer of finance ‘sufficient to facilitate the carrying out of the Project being an amount sufficient to pay all the Project Costs …’. The terms Project and Project Costs are defined so as to refer to the whole of the project, stages one and two. The argument is that the condition as to ‘the sale of a certain specified number of developed lots’ requires pre-sales aggregating in the value of $5,305,000. That was the value of pre-sales required before funding for stage two would be made available and funding for stage two was part of the project costs as defined.
[27] It is common ground that the plaintiff did not have, by 13 January 2000, pre-sales with a value of $5,305,000. Accordingly the defendant submits that condition 8.2(a) had not been fulfilled.
[28] The plaintiff’s answer is that the offer of finance was not conditional upon a specified level or value or pre-sales. It draws a distinction between conditions affecting the offer to provide finance and conditions affecting the performance of the promise to provide finance once the offer had been accepted. It points out that the offer was made, and accepted, resulting in a binding agreement on 1 December 1999. The agreement obliged Capital Finance to advance moneys to the plaintiff, though on conditions, one of which related to the value of unconditional contracts of purchase. The contrast is between a condition precedent to the making of a contract and a condition precedent to its performance. The defendant’s submission is that the offer was subject to a condition which had to be satisfied before the offer could be accepted and result in a binding agreement. The plaintiff’s submission is that the offer could be, and was, accepted but the provision of finance depended on a number of conditions, one of which was pre-sales of the developed lots.
[29] The matter is not free from doubt, indeed the point is difficult, but I incline to the plaintiff’s submission. There are two reasons.
[30] The first is that the condition specified in cl 8.2 concerned matters which might be described as preliminary to the defendant’s becoming a participant in the project. They were not concerned with whether or when the project should actually start. The defendant was to be satisfied that finance was available to complete the development; that the land had a certain minimum value; that there were detailed plans to sell the lots and that there was a budget for the development which indicated its profitability. These matters were all concerned with demonstrating whether or not the development was viable from the point of view of profitability. Their satisfaction determined whether the defendant became a participant in the project but did not commit the project to going ahead. The management committee was to decide whether there was an acceptable offer of finance. The ‘conditions precedent to draw-down’ contained in the offer of finance were not relevant to the management committee’s enquiry for the purposes of cl 8.2(a). That clause was concerned with whether, by 13 January 2000, the plaintiff could obtain project finance, on acceptable terms. That required an offer of finance capable of acceptance. It did not require the advance of money by 13 January 2000. Acceptance of the offer was not conditional on a specified level of pre-sales.
[31] The second point concerns the terms of condition precedent (b) of Capital Finance’s offer. It strongly suggests that funding would be made available to construct stage 1 of the project before $5,305,000 worth of contracts had been executed. It contemplated advances for stage one if a lesser value of pre-sales were achieved. It follows that there was a binding contract to lend money before the higher level of pre-sales had been achieved. The provision of funds was conditional upon a level of pre-sales, but funds would be advanced for stage one if, as had happened, contracts totalling in value more than $2,337,000 had been executed. I think the proper conclusion is that condition precedent (b) was not, and was not meant to be, a condition precedent to the acceptance of the offer of finance. The offer of finance, as has been mentioned, was one which required sufficient finance for the whole project. Condition precedent (b) would allow advances for stage one only of the project. It was aimed at something different to that which condition 8.2(a) was intended to achieve. I think it right that the conditions precedent were directed towards performance of the contract, not its formation.
[32] The defendant’s reliance upon the failure to have the contracts of pre-sale approved by Capital Finance and its solicitors is, I think, misplaced. Clause 8.2(a) makes no reference to obtaining the approval of the financier, or its solicitors, to pre-sale contracts. The defendant seeks to import that requirement into the clause because of the terms of condition precedent (b). The importation is unjustified. Clause 8.2(a) will be satisfied if ‘the sale of a certain specified number of … lots’ has been achieved. No more was required.
[33] The defendant’s attempt to import the further condition confirms the plaintiff’s submissions that condition precedent (b) is not a condition of the type with which cl 8.2(a) was concerned.
[34] Accordingly I conclude that the finance offer was not subject to a specified number of sales. The only condition not fulfilled was the receipt by the management committee of the offer of finance and for the reasons I have expressed the defendant cannot rely upon that failure to regard the contract as having remained conditional. It follows that cl 8.4 did not become operable. The requirements of sub-clauses 2(a), (b), (c) and (d) were fulfilled, or are taken to have been fulfilled, by 13 January 2000. The defendant became a participant to the project. He did not become, by virtue of cl 8.4, a lender to it.
[35] Lest my conclusion with respect to cl 8.2 be wrong I will consider cl 8.4 on the basis that condition 8.2(a) had not been fulfilled by 13 January 2000 by reason of the fact that the plaintiff had not executed unconditional contracts to sell lots to a value of $5,305,000.
[36] The defendant contends that in that circumstance, cl 8.2 automatically brought the development agreement to an end, making the defendant a lender. The clause provides that if the specified conditions have not been fulfilled ‘this Agreement shall be at an end.’ The plaintiff submits that the effect of that phrase is to make the contract voidable, not void, should the conditions be unsatisfied. The basis for the submission is, of course, Suttor v Gundowda Pty Ltd (1950) 81 CLR 418. The case concerned a contract for the sale and purchase of real property which was conditional upon the consent of a government official being obtained within two months from the date of the contract. Clause 12 of the contract provided that should such consent not be obtained within the specified period ‘this contract shall be deemed to be cancelled …’.
[37] Latham CJ, Williams and Fullagar JJ said (at 440-441):
‘… although cl. 12 in terms provides for an automatic avoidance of the contract on the occurrence of a specified event, that is … by no means the end of the matter. … Where the event in question is one which cannot occur without default on the part of one party to the contract, the position is clear. The provision is then construed as making the contract not void but voidable: only the party … not in default can avoid it … In the present case the happening of the event … may be brought about by failure on the part of either party … or it may be brought about without any default on the part of either party. … The provision in question is to be construed as making the contract not void but voidable. The question who may avoid it depends on what happens. If one party has by his default brought about the happening of the event, the other party alone has the option of avoiding the contract. If the event has happened without default on either side, then either party may avoid the contract. But neither need do so, and, if one party having a right to avoid it does not clearly exercise that right the other party may enforce the contract against him.’
[38] The condition here in question, which was not fulfilled, was that contracts for the sale of lots with aggregated purchase prices of at least $5,305,000 be executed. There is no suggestion in the evidence that the failure to fulfil the condition was the fault of either plaintiff or defendant. Both seem to accept that the agents employed to find buyers applied themselves diligently to that task. This case is thus in the same category as Suttor.
[39] I ignore the condition that the offer of finance had to be put to the management committee for approval. That was a condition which either party might have satisfied by convening a meeting of the management committee. Neither did so; both were in default; neither can rely upon the failure of that condition.
[40] Suttor was reaffirmed by the High Court in Gange v Sullivan (1966) 116 CLR 418 in which a contract for the sale of land was conditional upon local government approval for its redevelopment. The contract provided that if such approval were not given by a specified date the contract should be ‘deemed to be at an end and all moneys … refunded …’. Taylor, Menzies and Owen JJ said (at 441):
‘It was argued … that the condition did not mean that the contract was brought to an end automatically when the council had not granted approval by 31st May. Suttor v Gundowda Pty Ltd, together with other cases, was relied upon … Whilst the effect of a condition must in every case depend upon the language in which it is expressed and a decision upon the meaning of one condition cannot determine the meaning of a different condition, the authorities cited do show a disposition on the part of courts to treat non-fulfilment of a condition such as that here under consideration as rendering a contract voidable rather than void … Accordingly, notwithstanding that the language of the condition here is susceptible of meaning that the contract came to an end if 31st May passed without the council’s approval, we are prepared to treat non-fulfilment … as rendering the contract voidable rather than void.’
[41] It will be noted that the phrase in cl 8.4 is indistinguishable from that found in Gange. Accordingly the highest authority appears to compel the conclusion that cl 8.4 did not bring the agreement to an end automatically but made it voidable.
[42] The defendant submits that Suttor and Gange do not compel this conclusion. It is pointed out that the court in Gange expressly recognised that the effect of a condition must in every case depend upon its own terms, and that subsequent decisions of the (New South Wales) Court of Appeal have modified the effect of the earlier cases decided by the High Court. These more recent cases have focused upon the particular wording of the conditions in question to arrive at the result that those particular contracts came to an end without the further intervention of the parties.
[43] The first case is Rudi’s Enterprises Pty Ltd v Jay (1987) 10 NSWLR 568. The contract for the sale of a ski lodge made it conditional upon obtaining the approval of the Director of National Parks. If the approval were not obtained the contract was to be ‘null and void and of no effect …’. Samuels JA (with whom Priestley and McHugh JJA agreed) said (at 579):
‘The language of the deed strongly suggests that the parties intended refusal of consent to work automatic termination. In cl 6 the stipulation is that the deed “shall be null and void” in the contemplated event. There are provisions elsewhere … enabling a party to “rescind …” so that there is a deliberate terminological distinction between the rescission, which obviously requires the act of a party, and the passive “null and void”. Clause 35 contains even more explicit language, namely: “This Deed shall be null and void and of no effect.” It goes on to provide what is then to happen … and to require the parties … to do everything … necessary to restore them respectively to the positions they were in prior to entering into the instrument.’
[44] One can understand why in that case the clause was construed as operating to bring the contract to an end on the happening of the specified event without the further act of either party. The contract itself distinguished between circumstances which would make it voidable and those which would bring it to an end by its own force. Those considerations do not apply to cl 8.4 with respect to which the remarks found in Suttor and Gange apply without modification.
[45] Rudi’s Enterprises was followed in M K & J A Roche Pty Ltd v Metro Edgely Pty Ltd [2005] NSWCA 39, and what was called the ‘Suttor principle of construction’ was distinguished to enable the court to reach the conclusion that a contract came to an end by its own force where a condition required for the validity of the contract went unfulfilled. The clause in question, however, provided that the contract should ‘be deemed to be automatically rescinded and of no force and effect’ if the condition were not satisfied. This was regarded as showing ‘clearly … that the parties’ intention, as manifested by the words they chose, was that the contract would be automatically rescinded and that no notice was required …’ (at [47]).
[46] There is no such indication in cl 8.4. It is a clause of the type which has been construed in accordance with Suttor since that decision was handed down. I accept, of course, that the construction of every contract depends upon its particular language, and that the principle expressed in Suttor and Gange will give way where there is a sufficient contrary indication in the language of the particular contract. There is, however, no such contrary indication in cl 8.4. It should be construed as the High Court indicated.
[47] The non-fulfilment of condition 8.2(a) made the contract not void but voidable. The question next to be addressed is whether the defendant avoided the contract. He did not do so expressly. He committed no overt acts to bring the contract to an end by reason of the non-fulfilment of condition 8.2(a). Indeed his conduct is only consistent with his deliberate election to affirm the agreement and to remain a participant in the project.
[48] For his conduct to amount to a binding election the defendant had to know of the facts which gave rise to his right to avoid the agreement, that he did not have to know of the existence of his legal right: Sargent v ASL Developments Ltd (1974) 131 CLR 634. Relevantly what the defendant had to know was that the condition concerning the required value of pre-sales had not been satisfied by
13 January 2000.
[49] The defendant conceded in cross-examination that he knew ‘beyond a shadow of a doubt that cl 8.2(a) had not been fulfilled by 13 January 2000’ (T100.10). The evidence is clear that Mr Walker sent the defendant weekly sales reports. The one sent by fax on 10 January 2000 for the week ending 9 January 2000, showed that the aggregate of prices in executed contracts for the sale of lots was $4,339,668, almost $1,000,000 below the limit required before the offer of finance is said to be necessary to make the Agreement unconditional.
[50] The defendant submits that he should not be found to have elected to affirm the agreement because of some evidence given by Mr Quinn on behalf of the plaintiff. This was the evidence (T79.29-.32):
‘Was there ever a time when you formed the view that Dr Mulherin wasn’t insisting on compliance with cl 8.2(a)? – No.
Or that Dr Mulherin wasn’t intending to enforce his rights under that clause? – No.’
[51] The topic was not further explored in cross-examination or re-examination. It is difficult to know what Mr Quinn meant by his answers. For that matter it is difficult to know what point the questions were meant to elicit. Whether or not the defendant ‘insisted on compliance’ with cl 8.2(a) or ‘intended to enforce his rights under the clause’ can only be gauged by reference to what the defendant did and what he knew when he did it. The defendant’s right, in the event that the condition was not satisfied, was to avoid the contract or to affirm it. If, with knowledge of the facts giving rise to that right of election the defendant did things which are unequivocally referrable to the Agreement remaining in force, he will have elected to affirm it. His state of mind (apart from the question of knowledge I have referred to) and subjective intention are irrelevant to the question whether or not he avoided the agreement.
[52] Between 12 October 2000 and 1 October 2001 the defendant made 28 additional advances of money towards the costs of completing the project. Those advances amounted to a total of $109,143.16 and were made in response to requests from the plaintiff ‘to help fund the Project’. This evidence comes from the defendant’s own affidavit.
[53] It goes without saying that these further payments are irreconcilable with the notion that the Agreement had come to an end by virtue of the provisions of cl 8.4. In that event the contributions made by the defendant to that date were to be treated as an advance to the plaintiff which was obliged to repay them, with interest, no later than nine months after the Agreement came to an end. The defendant was not obliged to make further payments. On the defendant’s argument the Agreement came to an end on about 13 January 2000. The further payments were made between October 2000 and October 2001. They are explicable only on the basis that the Agreement remained in force and the defendant remained a participant obliged to contribute to his costs but also entitled to an equal share of the profits.
[54] The other significant event occurred on 7 April 2000. On that day the defendant, together with the plaintiff and Capital Finance, executed a deed of priority by which the defendant agreed that the mortgage securing his advances to the plaintiff was to be subordinated to a mortgage securing the advances to be made by Capital Finance. The defendant became second mortgagee behind Capital Finance which agreed to limit the amount it could be paid in priority to the defendant to $6,830,000.
[55] It will be recalled that cl 23.7 of the Agreement required the defendant to give priority in the event that an acceptable offer of finance to allow the completion of the project was received. The execution of the deed of priority is an obvious performance of cl 23.7 and is consistent only with the defendant affirming the Agreement and carrying out the obligations it imposed on him. It is absolutely inconsistent with the Agreement having been avoided.
[56] There can be no doubt that the defendant understood the significance of what he was doing. He intended the project to continue with him as a participant in its anticipated profits. He had this to say in evidence (T115.30-.33):
‘Is it fair to say your view was, regardless of the strict requirements of cl 8.2, “this was a profitable project. It was going to be funded. Let’s get on with it”? – That’s correct …’,
and at T120.30-.40:
‘You’ve already agreed … that it was your view that there was no reason to doubt that this was a profitable project as at March 2000 … That remains the case, doesn’t it? – That remains the case, yes.
The reason you were to consider seeking an extension of time for compliance was because you regarded this as a profitable project in which you wished to participate, correct? – Yes …’
[57] I find that the defendant made a binding election to affirm the Agreement because of his belief that the project would yield him a profit and that his further contributions to the capital of the project and his execution of the deed of priority were unequivocal affirmations of the Agreement made with the knowledge that the plaintiff had not made sufficient contracts from the sale of lots to satisfy Capital Finance’s conditions for making a loan to allow the complete project to be completed.
[58] It follows that the defendant has failed to refute the plaintiff’s claim that he should contribute equally to the expenses incurred with respect to the project, pursuant to cl 27.3 of the Agreement.
[59] There was a dispute which could not be resolved on the evidence the parties had brought to Court about the amount which the defendant should contribute. By the agreement of the parties I made an order referring to a chartered accountant the computation of the amount. Mr Hellen is to report back to the Court in July.
[60] In the meantime the defendant raised a number of specific defences relating to the quantum of the plaintiff’s claim in addition to the matters which have been referred to Mr Hellen. One point is that the plaintiff’s capital contribution should be regarded as $710,000 on the basis that the market value of the land when the Agreement was made was $1,100,000 and the defendant contributed $400,000. The arithmetic is obvious but the concept seems awry. If the land were worth $1,100,000 the plaintiff’s contribution is greater than the $800,000 which the parties agreed, and the defendant should make a greater contribution. Significantly the parties expressly agreed that the value of the land which was the plaintiff’s contribution to the project was to be taken as $800,000.
[61] The defendant’s next point is that the expenses in respect of which the plaintiff seeks contribution were incurred after the Agreement came to an end on 13 January 2000 and without the knowledge and consent of the management committee or the defendant. The first contention fails by reason of my finding that the Agreement did not terminate on 13 January 2000. The answer to the second condition is that the Agreement did not require the consent of the management committee or of the defendant to each individual item of expenditure. The criterion for the satisfaction of cl 27.3 is that the expense in question be incurred ‘as a result of … participation in this Agreement and the carrying out of the project’.
[62] The defendant’s next point is more substantial. He contends that part of the moneys paid by the plaintiff towards the cost of the project and in respect of which it seeks contribution were paid unnecessarily and, indeed, negligently. The consequence is submitted to be that those amounts do not constitute an expense of ‘carrying out … the Project …’. The defence is also based upon cl 3.2 of the Agreement which provided that:
‘Each Party must indemnify the other … from and against any and all costs, losses, claims, damages and liabilities arising out of any negligent act or omission of the indemnifying Party …’.
[63] It is said that ‘the effect of cl 3.2 when read with cl 27 is that any indemnity is limited to those “non-negligent acts or omissions of the party which must give the indemnity” ’. It is said that the plaintiff was negligent in making payments to the contractor who was engaged to supply and install the steel framing for the townhouses. That company, Monarch Building Systems Pty Ltd (‘Monarch’) performed badly. It delivered the framework components late and its system was so complicated that its workmen took longer than expected to assemble the parts and erect the framework. This in turn caused delays to the other contractors whose work was to follow the erection of the framework. Delays were compounded and costs escalated.
[64] The project manager, Global Construction Management Pty Ltd (‘Global’) recommended that Monarch’s contract be terminated for breach and that another company, National House Framing Pty Ltd (‘NHF’) be engaged instead. Global estimated that the substitution could be effected for a cost less than retaining Monarch as the framework supplier. The plaintiff did not accept the recommendation and retained Monarch. This decision, with the concomitant result that Monarch was paid pursuant to its contract, is said by the defendant to have been negligent and that he should not have to contribute more than the amount that would have been payable had the recommendation been accepted, Monarch dismissed from the site, and NHF engaged instead.
[65] The relevant evidence came from Mr Densley, a construction manager employed by Global to be responsible for the development of Coolum Fairways. Late in August or early September 2000 Mr Densley spoke to the plaintiff’s manager at the site and ‘discussed the issues with Monarch and that they were up to three months behind in their contract supply.’ Mr Densley said that Global ‘had arranged to bring in another trade contractor to complete the supply which would take about three weeks to complete … once … given the go-ahead.’ The other contractor was NHF. Subsequently a meeting was convened at the offices of Nicol Robinson Halletts, the solicitors for the plaintiff, to discuss the problems caused by Monarch’s delays. Messrs Quinn, Harmer, Walker and Folker attended on behalf of the plaintiff and Mr Densley represented Global. The plaintiff’s solicitor was also present.Mr Densley recommended that Monarch be replaced by NHF because the Monarch system of framing was ‘disjointed’ and costly to install because it was labour-intensive. This had led to delays. Mr Densley’s recommendation was not accepted.
[66] Mr Densley estimated that the cost of changing contractors, from Monarch to NHF, would have been between $20,000 and $30,000. The amount paid to Monarch exceeded that sum. Significantly Mr Densley did not testify that he advised the plaintiff’s representatives of that cost estimate. Equally significant is the fact that Monarch did not accept that its system was deficient or that it had caused delays to the project. Global, as project manager, corresponded with Monarch complaining of their delays and asking for an expedited effort. Monarch replied that it was Global’s project management that was the cause of the delays and cost over-runs. Monarch has, in fact, commenced legal proceedings against the plaintiff claiming moneys due to it under its contract or damages for breach of it.
[67] By letters dated 20 September and 9 October 2000 Nicol Robinson Halletts wrote to Global as a consequence of the earlier meeting in its offices. The first letter noted that Monarch would probably issue proceedings ‘seeking the monies which it claims are presently due under the … Contract and possibly damages for lost profit on the balance of the project’ should the plaintiff terminate its contract with Monarch. The letter went on:
‘We have been instructed to convey to you that [the plaintiff] has every confidence in Global … and the recommendations it makes. However, you will appreciate the decision to terminate a trade contractor is one which may involve tens of thousands of dollars in costs and potential liability for our client, and so all alternative options should be thoroughly explored.
It follows … that we have not yet terminated the contract with Monarch …’.
[68] The letter of 9 October referred to a meeting between the plaintiff and Monarch in which Monarch’s representatives had ‘asserted that the delays … were in fact caused by actions or omissions of Global …’ and went on:
‘You will appreciate that [the plaintiff] was not in a position to respond in detail … however, the fact that the allegations were made makes it clear that any litigation between [the plaintiff] and Monarch … on the basis of any [breach] by Monarch … in performing its obligations … would not be a simple or straight forward matter.
…
Monarch … has made representations … that it can adequately perform its obligations under the … contract …
It follows that [the plaintiff] does not propose to terminate the … Contract. [The plaintiff] proposes to continue with Monarch … at least to the end of stage 1 …’.
[69] Mr Quinn explained in his affidavit:
‘I had reservations about terminating Monarch’s contract. Termination would have invariably resulted in Monarch commencing proceedings against [the plaintiff] for breach of contract. Any such litigation would have been an expensive process without any guaranteed outcome at the end of the day, and would also have been a distraction from completing stage 1 of the project. My preference was to try and work with Monarch in order to complete the project.’
[70] In circumstances where the plaintiff was not advised by Global that the cost of replacing Monarch with NHF would be no more than about $30,000 and that, in any event, such an estimate was unrealistic given Monarch’s assertions that it was not in breach of its contract and would sue, as it has, should its contract be terminated, the plaintiff’s decision not to accept Global’s recommendation was not negligent. The reasons given by its solicitors were plausible. A minute examination of the performance of Global’s project management contract and Monarch’s supply contract might show that in the end savings could have been achieved by replacing contractors. On the facts known to the plaintiff in September 2000 it was not negligent not to reject Global’s recommendation.
[71] By letter from the defendant’s solicitors of 18 July 2003 the defendant repudiated the agreement by demonstrating his determination no longer to be bound by its terms. By letter of 12 August 2003 the plaintiff by its solicitors accepted the repudiation and terminated the agreement and the parties’ respective participations in the project. Stage 2 remains incomplete. It has been found unprofitable to build the remaining townhouses which would have constituted that stage of the project. Indeed it was that revelation that prompted the defendant to repudiate the agreement. It follows that the defendant has no right to participate in the assets of the project or in any profits which may enure from the development of the remaining land. Equally he will have no liability to contribute to any losses. Any accrued rights or liabilities that existed as at 12 August 2003 by reason of the defendant having been a party to the Agreement remain.
[72] The defendant’s mortgage remains as an encumbrance on the plaintiff’s title to the remaining land. It secures any moneys due to the defendant from the plaintiff. The defendant asserted, by his counter-claim, that such moneys were owing. The basis for the claim was the defendant’s contention that the Agreement had come to an end by reason of the non-fulfilment of the conditions found in cl 8.2 so that the advances he had made to the project were to be treated as a loan to be repaid by the plaintiff secured by the mortgage. I have found that that claim cannot succeed. The counter-claim must be dismissed. It is clear on the evidence that there will be no profit from the project up to the time of recission and no moneys will be payable by the plaintiff to the defendant. It follows that the mortgage cannot secure the payment of any moneys and it should be released.
[73] The defendant resists this relief apparently on the basis that the defendant continues to have some interest in the plaintiff’s land and that the value of the balance land should be taken into account in fixing the amount due from the defendant to the plaintiff by way of contributions pursuant to cl 27.3. There are answers to both contentions. In the first place the defendant has no continuing interest in the project or the plaintiff’s assets. This follows from the termination of the Agreement following the defendant’s repudiation of it. In the second place it was not made clear how the value of the land might affect the balance of contributions. The parties agreed that the totality of the land was to be valued at $800,000 and was to constitute the plaintiff’s initial capital contribution to the project. There is no evidence that the land had any other value. In any event this point was not pleaded and I do not propose to consider it further.
[74] One further point should be noted. Monarch has, as noted, already commenced proceedings against the plaintiff claiming damages for breach of contract. Global has intimated that it too will commence proceedings against the plaintiff to claim about $1,250,000 by way of damages for breach of its contract with the plaintiff. The plaintiff seeks against the defendant a declaration that he is obliged to indemnify it with respect to any liability it may be found to have to Global and/or Monarch arising out of their contracts relating to the performance of the project.
[75] It is not possible to determine on the present state of the evidence whether any such liability of the plaintiff to Global and/or Monarch would fall within the terms of cl 27.3 thereby obliging the defendant to contribute to the sums the plaintiff may have to pay those claimants.
[76] Accordingly the appropriate order is to adjourn that part of the plaintiff’s claim until the situation is made manifest by events.
[77] I order the defendant to pay to the plaintiff such amount as is found due by the expert, appointed by the Court for that purpose, pursuant to cl 27.3 of the development agreement dated 13 January 1999 between plaintiff and defendant.
[78] I further order that the defendant forthwith provide to the plaintiff a release of mortgage in registrable form together with all such documents as are necessary to effect release of the mortgage granted by the plaintiff in favour of the defendant over the land described as Lot 41 on RP 151487 County of Canning, Parish of Maroochy, title reference 15776181.
[79] I adjourn all further claims for relief brought by the plaintiff.
[80] I order that the defendant’s counter-claim be dismissed.