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- Sekler v Kim Carroll Investments Pty Ltd[2021] QSC 312
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Sekler v Kim Carroll Investments Pty Ltd[2021] QSC 312
Sekler v Kim Carroll Investments Pty Ltd[2021] QSC 312
SUPREME COURT OF QUEENSLAND
CITATION: | Sekler v Kim Carroll Investments Pty Ltd [2021] QSC 312 |
PARTIES: | ALEX SEKLER (applicant) v KIM CARROLL INVESTMENTS PTY LTD ACN 097 189 136 (respondent) |
FILE NO: | BS 13320 of 2021 |
DIVISION: | Trial |
PROCEEDING: | Originating Application |
ORIGINATING COURT: | Supreme Court of Queensland |
DELIVERED ON: | 1 December 2021 |
DELIVERED AT: | Brisbane |
HEARING DATE: | 24 November 2021 |
JUDGE: | Flanagan J |
ORDER: | Order as per Annexure A. |
CATCHWORDS: | CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – CLASSIFICATION OF TERMS – where the parties executed a standard form contract for the sale of residential property – where the contract included a special condition – where the special condition was expressed in the language of a warranty – where the respondent vendor “warranted” that a related company would enter into an agreement with the applicant purchaser for the sale of a business to the applicant – where the business was conducted out of the property the subject of the contract – whether the special condition was an essential term giving rise to an entitlement to terminate in the event of breach – whether breach of the special condition by the applicant was such as to deprive the respondent of substantially the whole benefit of the contract – whether the respondent was entitled to terminate the contract – whether the respondent should be ordered to specifically perform the contract Fuentes v Bondi Beachside Pty Ltd [2016] NSWSC 531, cited Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26, cited Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115; [2007] HCA 61, cited Mehmet v Benson (1965) 113 CLR 295; [1965] HCA 18, cited |
COUNSEL: | J W Peden QC for the applicant |
SOLICITORS: | Hamilton Locke for the applicant |
- [1]On 30 August 2021, the applicant entered into two separate contracts to purchase two properties at Buderim. The first contract is for a property known as “Malumba Estate” (Malumba Estate Contract). The Malumba Estate Contract names the applicant as the buyer and names Kim Michael Carroll and Heidi Meyer as the seller. The purchase price is $17.1 million. Malumba Estate comprises 4.07 hectares on the escarpment at Buderim and has the benefit of a development approval obtained by Mr Carroll and Ms Meyer from the Sunshine Coast Regional Council. The development approval is for the development of a 111-room five-star luxury hotel and conference resort.
- [2]The second contract, which names the applicant as the buyer and the respondent as the seller, is for an adjoining property comprising 3.86 hectares known as “Aquila Retreat” (Contract). The purchase price for Aquila Retreat is $3.4 million. Mr Carroll is the sole director of the respondent.
- [3]At the time the Contract was executed, there was an existing business called “Aquila Boho-Luxe Retreat” being conducted on Aquila Retreat by Aquila Retreat Space Pty Ltd. Mr Carroll and Ms Meyer are directors of Aquila Retreat Space Pty Ltd. Ms Meyer describes the business as follows:
“... a niche group accommodation where groups of 30 or more, plan an event at the property during their stay. We call this an event staycation. This could be a wedding group, a corporate group retreat, a wellness retreat group by way of example.”[1]
- [4]Both contracts are in the form of the QLS/REIQ standard form Contract for Houses and Residential Land, 16th ed, and include special conditions. The special conditions in the Contract include an entitlement for the seller to remain in possession until 1 November 2021 “rent free”, and some further special conditions in Annexures A and B of the Contract.
- [5]The two contracts were to settle together 14 days from the contract date, which was 30 August 2021. After some extensions, the Malumba Estate Contract settled on 15 September 2021 and the applicant is now the registered proprietor of the Malumba Estate. The Contract for Aquila Retreat has, however, not settled and the respondent has purported to terminate it. By originating application, the applicant seeks an order that the Contract be specifically performed.
- [6]The Contract is a contract for “Houses and Residential Land”. Clause 1.1(2)(gg) of the Terms of Contract defines “Property” to mean:
- (i)the Land;
- (ii)the Improvements; and
- (iii)the Included Chattels.
- (i)
- [7]The Land is identified as 21 Box Street, Buderim, Qld, 4551, more particularly described as Lot 3 on RP 27982, Title Reference 15205107. The Included Chattels are identified as “pool cleaning equipment”.
- [8]Clause 1.1(2)(p) of the Terms of Contract provides:
“‘Essential Term’ includes, in the case of breach by:
- (i)the buyer: clauses 2.2, 2.5(1), 2.5(5), 5.1 and 6.1; and
- (ii)the seller: clauses 2.5(5), 5.1, 5.3(1)(a)-(d), 5.3(1)(e)(ii) and (iii), 5.3(1)(f), 5.5 and 6.1;
but nothing in this definition precludes a Court from finding other terms to be essential.”
- [9]Clause 1.1(2)(v) defines “Improvements” to mean fixed structures on the Land and all items fixed to them.
- [10]As I have already observed, the special conditions included Annexure A and Annexure B. Annexure A is entitled “Special Conditions ‘Aquila’” and provides:
“1. Future Bookings
It is understood that Aquila Retreat Space P/L uses this property to conduct accommodation bookings and events.
1.1 The Buyer may: -
a) Request that the Seller cancel all bookings from the Settlement Date; or
b) Honor the future bookings and be entitled to any profits gained from that accommodation booking from the Settlement Date onwards.
1.2 The Buyer must give to the Seller three (3) months’ notice in writing if they wish for the bookings to be cancelled.
1.3 The Seller will continue to make future bookings until such time that the Buyer instructs otherwise.
2. Transfer of Business from Aquila Retreat Space Pty Ltd
2.1 This Contract includes the transfer of the business known as ‘Aquila Boho-Luxe Retreat’ which is owned by Aquila Retreat Space Pty Ltd and operated at Aquila Retreat, 21 Box Street, Buderim.
2.2 The Seller warrants that the Directors of Aquila Retreat Space Pty Ltd will enter into an Agreement with the Buyer for the transfer of this Business.
2.3 The transfer will include all matters associated with the business such as income from forward bookings, websites, social media handles, IP, good will, stationery and computers and all other indicia of the business.
2.4 The transfer will exclude three computers used primarily by the Sellers.
3. Inventory
This transaction includes all items noted in the inventory annexed hereto ‘Annexure B’.”
- [11]Annexure B, which is entitled “Aquila Retreat Sale Inventory”, lists assorted household items under various headings including, for example, “living and dining areas”, “kitchen”, “pantry”, “bedroom 1” and “bedroom 2”.
- [12]Clause 2.2, by use of the words “will enter”, contemplates Aquila Retreat Space Pty Ltd and the applicant entering into an agreement for the transfer of the Aquila Boho‑Luxe Retreat business at some time in the future. Clause 2.2 does not effect a transfer of the business but rather records a warranty given by the respondent as seller (in circumstances where Mr Carroll was the sole director) that the directors of Aquila Retreat Space Pty Ltd (being Mr Carroll himself and Ms Meyer) will enter into such an agreement.
- [13]On 8 September 2021, the applicant’s solicitors wrote to the respondent’s solicitors, noting that the Contract foreshadows that a business contract would be entered into. The email continued:
“Our client has been advised that this property should not be purchased in his own name and the business contract should also be in a different entity.
We therefore suggest that the existing contract be rescinded and two contracts then be entered into with the price apportioned between the property and business.
In those circumstances we suggest that settlement be extended for say two weeks to allow this to take place.”[2]
- [14]On 9 November 2021, the respondent’s solicitors replied that the respondent was agreeable to rescinding the Contract and entering into two new contracts but only on certain conditions, including that the applicant pay the respondent’s legal fees in relation to the business sale capped at $5,000 plus GST, that the apportionment of the purchase price between the land and the business not have any tax implications for the respondent and, further, that the sale of the business and the land be contemporaneous.
- [15]While cl 2.1 of Annexure A states that the Contract includes the transfer of the business, the Contract does not expressly make the sale of the Property either contemporaneous with or contingent upon any agreement to transfer the business.
- [16]On 22 September 2021, the respondent’s solicitors enquired of the applicant’s solicitors whether the applicant still intended to rescind the Contract and enter into a new contract with a different buying entity. The applicant’s solicitors replied on the same day:
“Please do not prepare the business contract yet if it is at our client’s cost.”[3]
- [17]On 23 September 2021, the applicant’s solicitors wrote to the respondent’s solicitors:
“We confirm our telephone message that our instructions are to complete the contract on Monday for the property and the transfer of the business can then be dealt with separately.
Therefore could you please confirm agreement with the settlement statement we sent on Tuesday this week.”[4]
- [18]On 24 September 2021, the respondent’s solicitors replied:
“Under Annexure A Special Condition 2 the Contract for Houses and Residential Land dated 30 August 2021 (‘the Contract’) the transaction includes inter alia a transfer of the business. Accordingly, it is our client’s position that this condition of the Contract will not be satisfied until either the business transfer has occurred, or a business contract has been entered into collateral to this Contract. Until all conditions of the Contract are satisfied our client will not be in a position and is not required to Settle. Our client would not have entered into the Contract in the absence of the obligation of the parties to transfer the business.
…
Given that our clients are to remain in possession of the property until 1 November 2021 we suggested that prior to the Settlement Date of the Contract a Business Sale Contract be entered into. The terms of the Business Sale Contract are to be agreed by both parties with the settlement date of 1 November 2021. Please let us know as a matter of urgency if you have any objections to our firm preparing the Business Sale Contract.”[5]
- [19]On 25 September 2021, the applicant’s solicitors wrote:
“We confirm that our client is ready, willing, and able to settle the Contract for the land on 27 September 2021, with that in mind can you please confirm agreement or otherwise with the draft settlement statement sent to your office on 21 September.
Our client requests and requires the settlement of the contract on 27 September 2021 and the question of the proposed business contract is dealt with below.
Under Special Condition 2.2 of Annexure A to the Contract, the Seller warranted that the Directors of Aquila Retreat Space Pty Ltd (Aquila) would enter into an agreement to transfer the business owned by Aquila known as ‘Aquila Boho-Luxe Retreat’ to the Buyer (the Business). Aquila is not a party to the Contract.
The Contract contemplates that the Buyer may make an election on whether to accept a transfer of Business. Therefore, the Buyer proposes that Aquila enters into an agreement to transfer the Business to a recently formed entity called ASV Retreat Pty Ltd (ASV Retreat) with effect on and from 1 November 2021. As per Special Condition 2.3 of Annexure A to the Contract:
‘the transfer will include all matters associated with the business, such as income from forward bookings, websites, social media handles, IP, good will, stationery and computers and all other indicia of the business.’
For the avoidance of doubt, in addition to reflecting the above items the formal documentation for transfer of the Business will incorporate the following terms:
- 1.Deposits – all deposits that have been paid to Aquila in respect of the period on and after 1 November 2021 (forward bookings) must be transferred to ASV Retreat on settlement of the Business Sale Agreement. We understand this amount is currently $174,930.00 AUD and it is our client’s intention to honour all future bookings once a contract for the business has been entered into; and
- 2.Consideration – The consideration payable from ASV Retreat to Aquila for the transfer of the Business will be $1. The consideration is reflective of the discussions with Aquila and was relied upon in entering into the Contract.”[6]
- [20]In response, the respondent’s solicitors stated:
“Our client agrees to the transfer of the business to the entity referred to as ASV Retreat Pty Ltd. from November 1st 2021.
Our client agrees to the other terms set out in your letter, but it does not agree to the transfer of the deposits to your client as there is no requirement to do so.”[7]
- [21]On the same day, the respondent’s solicitors communicated as follows:
“Our instructions are that settlement is not to take place until issues regarding the business carried on at the premises are resolved.”[8]
- [22]On 27 September 2021, the respondent refused to settle. On the same day, the applicant’s solicitor reserved the applicant’s rights and reaffirmed that the applicant was ready, willing and able to settle. In this respect, on 23 September 2021, the applicant had paid the balance purchase price for the Contract to his solicitor’s trust account, where it currently remains.
- [23]On the evening of 27 September 2021, Mr Carroll and Ms Meyer sent an email to the applicant explaining why they did not settle the Contract. Essentially, they argued that they had received $180,000 from forward bookings and, despite special condition 2.3 of Annexure A, did not wish to pay that income to the applicant. Instead, they asserted that the transfer of the business “must take place as a condition of the sale”.[9] This requirement is not to be found in the Contract.
- [24]On 6 October 2021, Mr Carrol and Ms Meyer sent a further email stating that they no longer wished to sell and “any previous contract between us [is] now null and void”.[10] The applicant lodged a caveat on 7 October 2021 and thereafter sought to settle the Contract on 1 November 2021, but again the respondent failed to settle.
- [25]The applicant relies on the respondent’s email of 6 October 2021 as constituting a wrongful repudiation of the Contract by the respondent.
- [26]The respondent submits that no order for specific performance should be made as the Contract was lawfully terminated by the respondent’s email of 6 October 2021. This is because the applicant, by its conduct in refusing to perform “a fundamental part”[11] of the Contract (in failing to enter into an agreement for the sale of the business), repudiated the Contract. The material reveals that the only grounds for the respondent’s refusal to settle were that a business sale contract had not yet been entered into between the applicant and Aquila Retreat Space Pty Ltd, and that the applicant had suggested dealing with the business sale “separately”.
- [27]There are several difficulties with the respondent’s submission. First, the Contract did not make the sale of the property conditional upon the buyer entering into an agreement for the transfer of the business. As I have already observed, cl 2.2 only records the seller’s warranty that the directors of Aquila Retreat Space Pty Ltd will enter into an agreement for the transfer of the business. This was in circumstances where, pursuant to cl 1.1(a) of Annexure A, the buyer was entitled to request that the seller cancel all bookings from the settlement date. The buyer was required to give to the seller three months’ notice in writing if the buyer wished for the bookings to be cancelled. While no such notice was given, the limited operation of the warranty in cl 2.2 is informed by the fact that, by the giving of such notice, the buyer was able to effectively bring the business to an end.
- [28]Secondly, the respondent’s submission proceeds on the premise that cl 2.2 of Annexure A is an essential term of the Contract. It is not defined in cl 1.1(2)(p) of the Terms of Contract as an essential term but that definition does not preclude a Court from finding other terms to be essential. In determining whether cl 2.2 is an essential term (a breach of which would give the respondent a right to lawfully terminate), the clause should be construed in the context of the Contract as a whole. A breach of a non-essential term only gives rise to a right by the innocent party to terminate the contract if the breach is of such seriousness as to deprive the innocent party of substantially the whole benefit it was intended to obtain from the contract. In Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd,[12] the majority approved of Diplock LJ’s observations in Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd[13] that the question whether a breach by one party relieves the other of further performance of its obligations cannot always be answered by treating a contractual undertaking as either a condition or a warranty, and that:
“… all that can be predicated is that some breaches will and others will not give rise to an event which will deprive the party not in default of substantially the whole benefit which it was intended that he should obtain from the contract; and the legal consequences of a breach of such an undertaking, unless provided for expressly in the contract, depend upon the nature of the event to which the breach gives rise...”[14]
- [29]According to White J in Fuentes v Bondi Beachside Pty Ltd,[15] the critical question is whether the breach of the relevant special condition, which is not an essential term, substantially deprived the vendor of a substantial part of the benefit of the contract.
- [30]As a matter of construction, cl 2.2 of Annexure A is not an essential term. First, the Contract is one for the sale of the “Property”, which is defined as meaning “the Land”, the “Improvements” and the “Included Chattels”, each of which is defined. Secondly, as I have already observed, the Contract does not provide that the sale of the property is conditional upon any agreement to transfer the business nor that both must occur contemporaneously. There is no time stipulation in cl 2.2 at all. Thirdly, although cl 2.2 is contained in Annexure A which is headed “Special Conditions ‘Aquila’”, it is expressed as a warranty. While the language of “conditions” and “warranties” is not determinative, it remains a relevant consideration. Fourthly, Aquila Retreat Space Pty Ltd is not a party to the Contract. Clause 2.2 does not create any enforceable obligation as against that company. The enforceable obligation is that of the seller warranting that the directors of Aquila Retreat Space Pty Ltd will enter into an agreement with the buyer for the transfer of the business.
- [31]It is unnecessary for me to conclusively determine whether there was any breach of cl 2.2 by the applicant because, in my view, the alleged breach would not deprive the respondent of a substantial part of the benefit of the Contract which was a contract for the sale of residential property. In those circumstances, the respondent cannot rely on the alleged breach to resist an order that the Contract be specifically performed. As stated by Barwick CJ in Mehmet v Benson:
“That the plaintiff was in default in payment of the instalments of the price and of the interest on the unpaid balance of it (time not being of the essence) though relevant to that question does not establish that he was not in the relevant sense ready and willing to perform the contract. If it were otherwise a purchaser in substantial default of inessential terms could never be granted specific performance. Indeed, the significance of the distinction between essential and inessential terms is derived from the fact that a person in breach of inessential terms may be granted specific performance.”[16]
- [32]It follows that the respondent’s purported termination of the Contract by email of 6 October 2021 constitutes an unlawful termination of the Contract and the applicant is entitled to an order that the Contract be specifically performed.
Disposition
- [33]The parties have agreed the form of the orders in the event the Court finds in the applicant’s favour.
- [34]The proposed orders seek two declarations. First, that the Contract was not lawfully terminated on behalf of the respondent on 6 October 2021 and, secondly, a declaration that the Contract ought to be specifically performed and carried into execution. As the Court has found that the Contract was unlawfully terminated by the respondent, it is unnecessary to make the first declaration. As to the second declaration sought, it is, in my view, more appropriate that the Court order that the Contract be specifically performed rather than declaring that it ought to be specifically performed. The balance of the proposed orders specify the mechanisms to give effect to the order for specific performance.
- [35]The Court will make orders as per Annexure A.
Annexure A
THE ORDER OF THE COURT IS THAT:
- 1.The contract in writing dated 30 August 2021 between the Applicant (as buyer) and the Respondent (as seller) (Contract) for the sale of Lot 3 on Registered Plan 27982, Title Reference 15205107 otherwise described as 21 Box Street, Buderim Queensland 4551 (Land) and the included chattels set out in annexure B of the Contract (Included Chattels) be specifically performed.
- 2.The Respondent execute all such documents and do all such things as are necessary to specifically perform the Contract.
- 3.For the purposes of giving effect to order 2:
- a.the Respondent, by its sole director and company secretary, Kim Michael Carroll (Mr Carroll), is to attend at the offices of East Coast Settlements, Level 1, 8 First Avenue, Maroochydore Qld at 2.00 pm on 15 December 2021 (Appointment) and to execute a transfer in registrable form by the respondent as transferor to the Applicant as transferee of the Land (Transfer);
- b.the Respondent, by Mr Carroll, is to bring to the Appointment:
- i.a Form 3 – Release of mortgage in registrable form by Westpac Banking Corporation in respect of its registered mortgage with dealing number 718079880 over the Land (Release of Mortgage); and
- ii.a release and (for PPSA registered security interests) undertaking to amend registration by Westpac Banking Corporation as secured party of its security interest registered on the Personal Property Securities Register with registration number 201705310085852 in respect of the Included Chattels (PPSR Release);
- c.the Applicant is to attend the Appointment and to bring with him:
- i.the following bank cheques in the total amount of $3,050,109.96, being the sum specified in the settlement statement contained in Annexure B as the balance purchase price due as at 15 December 2021:
- 1.Bank cheque in the sum of $9,610 payable to the Commissioner of State Revenue;
- 2.Bank cheque in the sum of $3,039,013.43 payable to Westpac Banking Corporation or, if the Respondent directs the Applicant by 10am on 15 December 2021, bank cheques in the aggregate sum of $3,039,013.43, payable to Westpac Banking Corporation in an amount sufficient to discharge the Mortgage and then as the Respondent or Respondent’s solicitor directs; and
- 3.Bank cheque in the sum of $1,486.53 payable to Unity Water,
(together, Bank Cheques); and
- ii.an authority for Next Invest Pty Ltd as trustee for the Next Invest Trust trading as Next Property Group to account to the Respondent for the deposit of $350,000 (Authority); and
- d.the Transfer when executed is to be handed to the Applicant, together with the Release of Mortgage and PPSR Release in exchange for which the Respondent is to be handed the Bank Cheques and the Authority.
- 4.If the Respondent, by Mr Carroll, fails to attend the Appointment or fails to execute any necessary document or to take any necessary step in order to give effect to order 2, the Registrar of this Court be empowered to execute all such documents and do all such things in the name and on behalf of the Respondent as may be necessary in order to specifically perform the Contract and directions appointing the Registrar to so act.
- 5.The Respondent pay the Applicant’s costs of and incidental to this application to be assessed, if not agreed, on the standard basis.
- 6.The parties have liberty to apply on three business days’ written notice.
Annexure B
Footnotes
[1] Affidavit of H Meyer affirmed 22 November 2021, CD-9, paragraph 24.
[2] Affidavit of M K Bowen affirmed 10 November 2021, CD-3, exh MKB-2.
[3] Affidavit of M K Bowen affirmed 10 November 2021, CD-3, exh MKB-9.
[4] Affidavit of M K Bowen affirmed 10 November 2021, CD-3, exh MKB-11.
[5] Affidavit of M K Bowen affirmed 10 November 2021, CD-3, exh MKB-13.
[6] Affidavit of M K Bowen affirmed 10 November 2021, CD-3, exh MKB-14.
[7] Affidavit of M K Bowen affirmed 10 November 2021, CD-3, exh MKB-16.
[8] Affidavit of M K Bowen affirmed 10 November 2021, CD-3, exh MKB-18.
[9] Affidavit of A Sekler affirmed 10 November 2021, CD-2, exh AS-9.
[10] Affidavit of A Sekler affirmed 10 November 2021, CD-2, exh AS-11.
[11] Respondent’s Submissions, paragraph 20.
[12] (2007) 233 CLR 115, [49] (Gleeson CJ, Gummow, Heydon and Crennan JJ).
[13] [1962] 2 QB 26.
[14] Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26, 70 (Diplock LJ), quoted in Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115, [49] (Gleeson CJ, Gummow, Heydon and Crennan JJ).
[15] [2016] NSWSC 531, [49], citing Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115 and Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26.
[16] (1965) 113 CLR 295, 307.