Sunrise Waters Pty Ltd v Club Cavill Pty Ltd
[2007] QSC 157
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- Notable Unreported Decision
- Sunrise Waters Pty Ltd v Club Cavill Pty Ltd[2007] QSC 157
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Sunrise Waters Pty Ltd v Club Cavill Pty Ltd[2007] QSC 157
Sunrise Waters Pty Ltd v Club Cavill Pty Ltd[2007] QSC 157
SUPREME COURT OF QUEENSLAND
CITATION: | Sunrise Waters Pty Ltd v Club Cavill Pty Ltd [2007] QSC 157 |
PARTIES: | SUNRISE WATERS PTY LTD ACN 122 703 815 (plaintiff) V CLUB CAVILL PTY LTD ACN 099 023 711 (defendant) |
FILE NO/S: | BS 2236/07 |
DIVISION: | Trial |
PROCEEDING: | Application for declaration |
ORIGINATING COURT: | Supreme Court of Queensland |
DELIVERED ON: | 3 July 2007 |
DELIVERED AT: | Brisbane |
HEARING DATE: | 13 April 2007 |
JUDGE: | Moynihan J |
ORDER: |
|
CATCHWORDS: | PROCEDURE – MISCELLANEOUS PROCEDURAL MATTERS – DECLARATIONS – JURISDICTION – where parties entered into Put and Call Option Deed – where mortgagee’s approval of terms of deed required – where defendant terminated deed - whether mortgagee’s approval was obtained – whether termination was wrongful and of no effect Bridle Estate Pty Ltd v Myer Realty Pty Ltd (1977) 51 ALJR 743, considered. Brien v Dwyer (1978) 141 CLR 378, applied. Foran v Wright (1989) 168 CLR 385, considered. Grieve & Anor v Enge & Anor [2006] QCA 213, considered. Masters v Cameron (1954) 91 CLR 353, applied. Peter Turnbull & Co Pty Ltd v Mundas Trading Co (Australasia) Pty Ltd (1954) 90 CLR 235, followed. Romanos v Pentagold Investments Pty Ltd (2003) 217 CLR 367, applied. Shepherd v Baster [2006] WASC 176, considered. Whitty v Fin Control Systems Pty Ltd [2000] NSWSC 332, considered. |
COUNSEL: | R Douglas SC with D Thomae for the plaintiff. J Bell QC for the defendant. |
SOLICITORS: | Saunders Downing Hely Solicitors for the plaintiff. Asahi Lawyers for the defendant. |
Introduction
- MOYNIHAN J: Club Cavill Pty Ltd (Club) owns land on the Gold Coast. On 19 January 2007 it entered into a Put and Call Option Deed (the deed) with Sunrise Waters Pty Ltd (Sunrise) for sale or the purchase of the land. In the event of the exercise of the buy or sell option the purchase price was $25,500,000.
- The deed incorporated a form of contract for the sale or purchase of land to be completed in accordance with the deed and a guarantee and indemnity to Club of Sunrise’s performance of the contract.
- Relevantly, for present purposes, Club’s land was the subject of a mortgage to MFS Pacific Finance (the mortgagee). The deed was subject to the mortgagee’s approval of ‘all its terms’: see clause 29.
- On 8 January 2007 Club purported to terminate the deed on the ground that there had been no approval pursuant to clause 29 and again on 21 March 2007 for the non-payment of the initial deposit provided for by the deed due on 9 February 2007.
- Sunrise lodged a caveat over the land and instituted proceedings for specific performance; pleadings were exchanged. Club brought an application for removal of the caveat.
- Sunrise pleads that the mortgagee approved the terms of the deed on 31 January 2007. Club pleads that the terms of the deed were not approved and raised other issues, to be considered later.
- On 11 April 2007 Sunrise brought, by agreement and with a view to speedy resolution of the dispute, an application for summary judgment in its specific performance action seeking declarations that:
- The mortgagee’s approval pursuant to clause 29 had been obtained on 31 January 2007.
- The purported termination of 8 February 2007 was ‘wrongful and of no effect’.
- The application proceeded on the basis that it turned on two basic points, first whether there was approval in terms of clause 29 of the deed (the approval point). Secondly, whether in the circumstances Club was obliged to but failed to pay the deposit provided for under the deed (the deposit point).
- The deposit point arises for consideration only if it is determined that the mortgagee gave approval in terms of clause 29 of the deed.[1] I therefore turn to the approval point, noting that the relevant contractual terms are set out in a schedule to these reasons.
The approval point
- The resolution of the approval point turns on the effect to be given to clause 29 of the deed[2] and to correspondence exchanged between the solicitors for Sunrise, Club and the mortgagee in respect of the operation of the clause.
- The issues which arise on the pleadings and submissions relating to the deposit point are conveniently summarised as whether:
- the mortgagee gave unqualified approval of ‘all of the terms’ of the deed;
- the mortgagee gave approval on conditions accepted by Sunrise and Club so as to comply with clause 29 of the deed;
- the mortgagee’s conditions did not effect the substance of the deed, being administrative or procedural in nature;
- the deed in the terms Sunrise seeks to enforce was in writing and signed by the parties; and
- the agreement Sunrise sought to enforce was not marked up and initialled as was required for it to be effective.
- The exchange of communication between the solicitors for Sunrise, Club and the mortgagee by facsimile followed up by post. It is convenient to refer to this exchange in terms of the name of the party rather than the solicitors.
- By a letter dated 22 January 2007 Club sought the mortgagee’s approval of the deed.[3]
- In its reply of 31 January 2007 the mortgagee stated that it had ‘no objection’ to Club entering into the arrangements proposed by the deed subject to four conditions:[4]
…
- special condition 11 (Operational Works) of the option contract incorporated in the deed) is deleted (i.e. no works are to be carried out on the property prior to settlement).
- the mortgagee receives the net proceeds of approximately $24.735 million in exchange for partial releases of security as far as they relate to Lot 4;
- in circumstances where the initial deposit and balance deposit are to be released to (Club) these funds are paid to the (mortgagee) as a partial reduction of the loan facilities (without deduction for any commission); and
- no event of default or potential event of default under the loan security documentation has occurred or occurs prior to the repayment of the loan.
- As to condition 1, special condition 11 of the option contract annexed to the deed (the contract) provided that Sunrise ‘may attend to preliminary excavation operational work on the land from the date of the contract’.[5]
- The mortgagee’s letter went on to say that it was not prepared to provide written confirmation as contemplated by clause 28(a) of the deed[6] and would not enter into the arrangement contemplated by clause 28(b)[7] before concluding:
If your client does proceed with the matter, please provide us with a copy of the amended document prior to execution.
- Paragraph 28.1(a) of the deed provided for written confirmation by all of Club’s mortgagees that the total secured debt was less than 70 per cent of the purchase price less the deposit. Sub-paragraph (b) provided for a deed by which all of Club’s mortgagees’ convenanted no further advances would be made under their mortgages.
- On 1 February 2007 Club informed Sunrise:[8]
… that the solicitors acting on behalf of our client’s mortgagees advised us that (the mortgagee) will not provide written confirmation as contemplated by Clause 28(a) of the Put and Call Option Deed and will not enter into a Deed as stipulated in Clause 28(b) thereof. Further, they are not agreeable to Special Condition 11 of the Contract. We enclose a copy of the facsimile dated 31 January 2007 for your information.
For this reason stated above, our client instructs us that the following amendments are to be made:
Special Condition 11 of the Contract-Operational Work (Condition 1)
Clause 11 must be deleted in whole.
Clause 28 of the Put and Call Option Deed (Condition 2)
Clause 28 needs to be deleted in whole.
Clause 10(a) of the Put and Call Option Deed” (Condition 3)
The last sentence of Clause 10(a) “The Stakeholder shall hold the Deposit until a party becomes entitled to it’ needs to be deleted.
Guarantee and Indemnity (Condition 4)
The preamble of the Deed must be changed slightly as stipulates “the due payment by the purchaser to you of the deposit and settlement amount reserved by and all other moneys payable under the Contract…”
However, as the deposit will not be released to you immediately upon payment, the words “to you” needs to be deleted.
Please obtain instruction as to whether your client is agreeable to the above deletions and if so we will forward the original Put and Call option Deed, the Contract and Guarantee and Indemnity for your client’s initialling purposes.
- Conditions 3 and 4 appear to be administrative or machinery conditions not effecting the substantive contractual obligations.
- On 2 February 2007 Sunrise responded:[9]
Our client accepts the amendments set out in your facsimile to us of yesterday.
As foreshadowed in your facsimile, would you please forward your client’s original Put and Call Option Deed annexing the contract and guarantee and indemnity so they may be initialled by our client.
As the deposit is not now to be released, we suggest that separate agreement be reached that the deposit be invested with interest accruing to be split equally between the parties.
- Club informed the mortgagee on 2 February 2007 that:[10]
[O]ur client accepts all the following deletions as requested in your facsimile under reference:
Special Condition 11 of the Contract-Operational Work
Clause 11 must be deleted in whole.
Clause 28 of the Put and Call Option Deed
Clause 28 needs to be deleted in whole.
Due to the fact that Clause 28 of the Put and Call Option Deed is to be deleted, our client is agreeable that the following is to be deleted, which is related to Clause 28:
Clause 10(a) of the Put and Call Option Deed
The last sentence of Clause 10(a) “The Stakeholder shall hold the Deposit until a party becomes entitled to it” needs to be deleted.
Guarantee and Indemnity
The preamble of the Deed must be changed slightly as stipulates “the due payment by the purchaser to you of the deposit and settlement amount reserved by and all other moneys payable under the Contract…”However, as the deposit will not be released to you immediately upon payment, the words “to you” needs to be deleted.
Please note that there are any related clauses to Clause 11 of the Put and Call Option Deed.
However our client is not agreeable to the following:
The Lender (mortgagee) receives the net proceeds of approximately $24.735 million in exchange for partial release of security as far as they relate to Lot 4.
Our client requests that the figure to be changed to $24.6585 million due to 10% of GST on the commission.
Please obtain instructions from your client today as a matter of urgency.
- Club informed the mortgagee on 6 February 2007:[11]
We refer to your facsimile dated 31 January 2007 and our facsimile dated 2 February 2007 in respect to the abovementioned matter.
As you we (sic) informed you in our facsimile under reference, our client requests that one of the conditions for your client to give its consent to our client entering into the Put and Call Option Deed for the sale of Lot 4 on SP180847 to be changed to “the Lender receives the net proceeds of approximately $24,6585 million in exchange for partial release of security as far as they relate to Lot 4 on SP 180847.”
As you are aware, pursuant to Clause 29 of the Put and Call Option Deed, our client must obtain your client’s approval to enter into the Deed within fourteen (14) business days of the date of the Deed, which is dated 19 January 2007. Therefore our client must obtain your client’s approval on or before 9 February 2007.
For the above stated reason, we seek an urgent instruction from your client in respect to this matter and inform us on this by return as a matter of urgency.
- The mortgagee responded to Club on 8 February 2007 at 2.22pm:[12]
We refer to your facsimile of 2 February 2007.
Our client has instructed us to advise that it requires clause 10(a) to remain in the Put and Call Option Deed.
All other amendments are acceptable to our client.
Please confirm once the documents have been signed and the deposit of $1,000,000.00, due within 14 days, has been paid.
- On 8 February 2007 Club informed Sunrise at 6pm):[13]
…
We inform you that our client can not accept one of the conditions placed on by MFS Finance Limited (the mortgagee) for it to give its consent to all the terms of the Put and Call Option Deed.
For this reason, we are instructed to inform you that our client now terminates the Contract pursuant to Clause 29 of the Put and Call Option Deed.
- The unacceptable condition is not specified, inferally it appears to relate to clause 10(a) and the requirement to account for the whole of the deposit rather than withholding of the commission. Club now also relies on the other conditions.
- Club’s defence however pleads:
3. (p)By letter dated 2 February 2007 from the solicitors for the defendant to the solicitors for MFS, the defendant rejected the conditions imposed by MFS (the mortgagee) for its approval to the terms of the Deed in particular by reference to the Second Condition and Third Condition;
(q)Further, as to the Fourth Condition, an event of default or potential event of default under the Loan Agreements would occur prior to the repayment of the loan, if:
- an unconditional contract of sale (….of the Kosho Land) for a price in excess of the difference between the amount of the Debt and the sale price under any contract made pursuant to the Deed (namely for a sum in excess of $4,966,500) was not produced to MFS by the defendant on or before 21st April 2007; or
- The defendant was unable to provide evidence that the Debt will be repaid by the due date.
- On 16 February 2007 Sunrise told Club that it did not accept that the deed had been lawfully terminated and foreshadowed a caveat and the institution of proceedings.
- Club contends that the communications between Sunrise, Club and the mortgagee canvassed do not constitute approval in terms of clause 29 of the deed.[14] It also contends that there was to be no binding variation until the deed had been marked up and re-executed and, that solicitors were not authorised to vary the contract.[15]
- So far as clause 10(a) of the deed[16] is concerned it was approved by the mortgagee in the letter of 31 January 2007. The mortgagee rejected, as it was entitled to, Club’s endeavours to have the clause modified to allow it to retain the commission from out of the deposit money.
- Clause 29 is unqualified as to the mortgagee’s approval and the consequences of approval not being obtained. The effect of clause 29 is that if the mortgagee did not approve all of the terms of the deed, Club could terminate it by notice at any time prior to 5pm after 14 business days from 19 January 2007, the date of the deed, ie 9 February 2007. If it did not do so the condition was deemed to be satisfied.
- The mortgagee approved all the terms of the deed either unconditionally or on terms accepted by Sunrise and Club. In the event, the mortgagee’s letter of 31 January 2007 constituted approval in terms of clause 29 of the deed. Club and Sunrise accepted the mortgagee’s conditions or the mortgagee refused to modify them.
- It will be recalled that clauses 18 and 19 of the deed[17] deal with default by a party and its consequences. They have no application to the mortgagee’s approval pursuant to clause 29 in the circumstances which apply here.
- The deed in the terms Sunrise seeks to enforce is in writing and, subject to the authority of the solicitors, signed by the parties.
- The solicitor for Sunrise had express authority to amend the deed.[18] Club has not asserted that its solicitors had no authority to amend the deed in the circumstances where the whole of the correspondence was signed by them. In any event Club’s sole director[19] deposes in terms of the ‘deed as varied by my solicitors’.[20]
- I turn to the issue of whether an altered deed needed to be marked up and initialled to be effective.
- The issue of whether such terms impose a condition which must be satisfied before a contract is enforceable has been canvassed in many cases, notably Masters v Cameron.[21]
- A useful starting point for present purposes is the decision by Young J in Whitty v Fin Control Systems Pty Ltd.[22] See also Bridle Estate Pty Ltd v Myer Realty Pty Ltd.[23] Young J identified four categories:-
(i)The parties intend to be bound at once though they will later restate their terms more formally and precisely;
(ii)The parties considered that the contract was only to come into force when a condition is fulfilled, such as the exchange of more formal documents;
(iii)The parties are merely agreed to agree; and
(iv)The parties make a provisional contract intending to be bound by it but assuming that in due course further contract will be made containing the agreed and further terms to be agreed on.
- In my view this is a case where the parties intended to be bound at once but contemplated that the deed be amended so far as it was necessary for it to be a complete and correct record. It was not contemplated that this was a condition to be satisfied before the parties were bound.
The deposit point
- Clause 10(a) of the deed[24] require Sunrise to pay the initial deposit of $1,000,000 within ‘fourteen (14) business days hereof’ ie by 9 February 2007 and the balance of $1.5 million on 1 April 2007.
- On 8 February 2007 Club terminated the contract relying on clause 29 of the deed and no deposit was tendered or paid on 9February 2007.
- By a letter dated 16 March 2007 Sunrise tendered a personal cheque by Linemill Pty Ltd as trustee for the Mewitt Development Family Trust No. 2 in the sum of $1,000,000 and Club rejected it by a letter of 21 March 2007 on the ground that it was a personal cheque drawn by a non party to the contract and it was too late.
- Clause 3 of the contract scheduled to the deed[25] contemplated payment by cheque saying that failure to pay the deposit as provided or payment by a post dated or dishonoured cheque constituted substantial breach of the contract.
- Clause 15 of the deed provided that time was of the essence. Clause 18 of the deed has no application in circumstances where Club did not choose to serve a notice and Club purported to terminate the contract for non compliance of clause 29.
- The failure to pay the initial deposit by 9 February 2007 constituted a breach of an essential or fundamental term of the contract giving Club a right to terminate it as a consequence of the failure: Brien v Dwyer;[26] Romanos v Pentagold Investments Pty Ltd.[27]
- Club’s purported termination of the contract on 8 February 2007 on the ground of non compliance with clause 29 of the deed intimated to Sunrise that there was no point in paying the initial deposit due on the following day: see Peter Turnbull & Co Pty Ltd v Mundas Trading Co (Australasia) Pty Ltd.[28]
- In Foran v Wright[29] Brennan J, having referred to the ‘primary rule that neither party who failed to perform when the time performance arose could rescind the other party’s failure for timely performance of an obligation’.
- He went on to say that if one party intimates to the other it is useless to fulfil the obligation and the other party acts on that intimation ‘the party to whom the information is given is dispensed from a nugatory tender of performance’.
- The purported termination of the deed on the ground of non compliance with clause 29 was an implied if not express intimation that there was no point in Sunrise tendering the initial deposit on the following day: see also Shepherd v Baster;[30] Grieve & Anor v Enge & Anor.[31]
- For the reasons canvassed Sunrise is entitled to a declaration that the mortgagee’s approval pursuant to clause 29 was obtained on 31 January 2007 and the declaration that the purported termination of 8 February 2007 was wrongful and of no effect.
SCHEDULE OF RELEVANT TERMS
- Clause 1 of the deed provides:
Deposit
Deposit” means the sum of two million five hundred thousand dollars ($2,500,000.00) which comprises the Initial Deposit and the Balance Deposit and otherwise has the meaning given to that term in the Contract.
- The ‘Contract’ is that in schedule 2 of the deed Clause 3 of which provides:
3.1The Deposit shall be paid by the Purchaser to the Stakeholder immediately upon the formation of this Contract.
3.2If the Purchaser:
(a)fails to pay the Deposit as provided in clause 3.1;
(b)pays the Deposit by cheque which is post-dated; or
(c)pays the Deposit by cheque which is not honoured on presentation;
then, the Purchaser shall be in substantial breach of this Contract and the Vendor may:
(i)affirm this Contract and exercise the rights expressed in clause 13.2; or
(ii)terminate this Contract and exercise the rights expressed in clause 13.3.
3.3The rights and powers conferred by clause 3.2 are in addition to any other rights the Vendor may have at law or in equity.
3.4The Deposit shall be retained by the Stakeholder until completion or earlier termination of this Contract whereupon the Stakeholder shall pay the Deposit to the person entitled to it.
3.5If this Contract is terminated pursuant to the provisions of clauses 7.6, 9.3(a), 19, 20.1, 21.1, 31.1, 31.5, 32.2 or 32.3(2), the Deposit and other moneys paid under this Contract shall be refunded to the Purchaser by the Vendor or the Stakeholder as the case may be but without interest, costs or damages and the same shall be accepted by the Purchaser in full and final satisfaction of all claims.
- Clause 10(a) of the deed dealt with the deposit in these terms.
The Purchaser (Sunrise) shall pay the Initial Deposit to the Stakeholder within fourteen (14) Business Days of the date hereof and the Balance Deposit to the Stakeholder on the first day of April 2007. The Stakeholder shall hold the Deposit until a party becomes entitled to it.
- Clause 15 of the deed provides:
Time of the Essence
Time is of the essence of this Deed.
- Clause 16 of the deed is:
Counterpart Conditions
This Deed may be entered into by way of exchange of counterparts, one which is to be signed by the Purchaser and the other to be signed by the Vendor. These counterparts shall together constitute the binding execution of this Put and Call Option Deed.
- Clause 17 of the deed provides:
Default
A party to this Deed will be in default where:
(a)it has failed to comply with the material provision of this Deed; or
(b)it enters or is placed into any form of external administration referred to in the Corporations Law or any application is made to place it under such external administration.
- Clause 18 of the deed provides:
Rights on Default
(a)Where the Vendor serves a notice in writing upon the Purchaser requiring a default to be remedied and that default remains unremedied within seven (7) days of the date of that notice then the Put Option shall become immediately exercisable by the Vendor who may elect to either affirm this Deed and exercise the Purchase Option or terminate this Deed, declare the Security Bond forfeited, and sue the Purchaser for damages.
(b)if the Vendor affirms this Deed under Clause 19(a) and elects to exercise the Put Option then it may sue the Purchaser for:-
(i)damages;
(ii)specific performance; or
(iii)damages and specific performance.
(c) The Vendor may claim damages for any loss it suffers as a result of the default by the Purchasing including its legal costs on a Solicitor and own client basis.
- Clause 19 of the deed provided:
Entire Deed
- This Deed may only be amended or supplemented in writing signed by the parties, or in any other manner agreed.
- The Deed is the entire agreement of the parties on the subject matter. The only enforceable obligations and liabilities of the parties in relation to the subject matter are those that arise out of the provisions contained in this Deed. All representations, communications and prior agreements in relation to the subject matter are merged in and superseded by this Deed.
- Clause 28 of the deed provided:
Release of Deposit
28.1After the Initial Deposit and the Balance Deposit have respectively been paid to the Stakeholder in accordance with clause 10 hereof, it may be released to the Vendor within fourteen (14) Business Days of the Vendor providing the following to the Purchaser:-
- written confirmation from all of the Vendors mortgagees that the total debt secured by those mortgages is less than 70% of the Purchase Price less the Deposit (that is 70% x $25,500,000.00 - $2,500,000.00 - $2,500,000.00) = $16,100,000.00); and
- A Deed from all of the Vendor’s mortgagees whereby all the mortgagees each covenant that no further advances will be made under the mortgages.
- Clause 29 of the deed provides:
Approval of Vendor’s Mortgagees.
This Contract is subject to the approval of all its terms by one of the Vendor’s Mortgagees, MFS Pacific Finance Limited (the mortgagee) within fourteen (14) Business Days of the date hereof. The Vendor may terminate this Contract by notice to the Purchaser at any time before 5:00pm on that day if MFS Pacific Finance Limited does not give its approval. If the Vendor does not terminate this Contract by 5:00pm on that day this Condition will be deemed to be satisfied.
Footnotes
[1] See Schedule.
[2] Ibid.
[3] Affidavit of Fusanobu Hir Sano sworn 22 March 2007, court file BS2526/07, document 2, “HFS-14”.
[4] Ibid, “HFS-15”.
[5] The contract for sale and purchase in schedule 1 of the deed completed in accordance with the deed – deed clause 12.
[6] Above n 1.
[7] Ibid.
[8] Above n 3, “HFS-17”.
[9] Ibid, “HFS-18”.
[10] Ibid, “HFS-19”.
[11] Ibid, “HFS-22”.
[12] Ibid, “HFS-23”.
[13] Ibid, “HFS-25”.
[14] Above n 1.
[15] Outline of submission for Club Cavill Pty Ltd, 28.
[16] Above n 1.
[17] Ibid.
[18] Affidavit of Noel Charles Mewett sworn 11 April 2007, court file BS2526/07, document 10, paragraph 12.
[19] Rieko Fujino.
[20] Affidavit of Rieko Fujino sworn 5 April 2007, court file BS2526/07, document 4.
[21] (1954) 91 CLR 353.
[22] [2000] NSWSC 332.
[23] (1977) 51 ALJR 743, 747 (Jacobs J).
[24] Above n 1.
[25] Ibid.
[26] (1978) 141 CLR 378, 104 (Jacobs J), 397 (Stephen J).
[27] (2003) 217 CLR 367, 374, [20].
[28] (1954) 90 CLR 235, 246 (Dixon J), 253 (Kitto J).
[29] (1989) 168 CLR 385, 417 (Brennan J).
[30] [2006] WASC 176.
[31] [2006] QCA 213.