Acorn Consolidated Pty Ltd v Hawkeslade Investments Pty Ltd
[2000] WASCA 322
•3 NOVEMBER 2000
ACORN CONSOLIDATED PTY LTD & ANOR -v- HAWKESLADE INVESTMENTS PTY LTD [2000] WASCA 322
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2000] WASCA 322 | |
| THE FULL COURT (WA) | |||
| Case No: | FUL:192/1999 | 6 OCTOBER 2000 | |
| Coram: | PIDGEON J IPP J MURRAY J | 3/11/00 | |
| 12 | Judgment Part: | 1 of 1 | |
| Result: | Appeal dismissed | ||
| PDF Version |
| Parties: | ACORN CONSOLIDATED PTY LTD (ACN 050 494 810) LAWRENCE LAMBRO ANTHONY ZIATIS HAWKESLADE INVESTMENTS PTY LTD (ACN 000 602 862) |
Catchwords: | Contract General contractual principles Construction and interpretation of contracts Where a clause is inconsistent with other contractual clauses the inconsistent clause is interpreted to avoid capricious, unreasonable, inconvenient or unjust construction. Regard is had to the contract as a whole Turns on own facts |
Legislation: | Nil |
Case References: | Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 Gwyn v Neath Canal Co (1868) L.R. 3 Ex 209 NGL Properties Pty Ltd v Harlington Pty Ltd [1979] VR 92 at 95 Allstate Explorations NL v Beaconsfield Gold NL [1999] NSWSC 832 Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191 B & B Constructions (Aust) Pty Ltd v Brian A Cheeseman & Associates Pty Ltd (1994) 35 NSWLR 227 Charter Reinsurance Co Ltd v Fagan [1997] AC 313 Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 Commonwealth v Western Australia (1999) 196 CLR 392 Cooper Brookes (Woollongong) Pty Ltd v Commissioner of Taxation (Cth) (1981) 147 CLR 297 Government Insurance Office (NSW) v Penrith City Council (1999) 102 LGERA 102 Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] 2 WLR 945 Manufacturers Mutual Insurance Ltd v Withers (1988) 5 ANZ Insurance Cases 75,336 Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 67 ALJR 170 Prenn v Simmonds [1971] 1 WLR 1381 Pukallus v Cameron (1982) 180 CLR 447 Reardon Smith Line v Hansen Tangen [1976] 1 WLR 989 Schuler AG v Wickman Machine Tools Sales Ltd [1974] AC 235 State Rail Authority of NSW v Earthline Constructions (1999) 160 ALR 588 Trawl Industries of Australia Pty Ltd v Effem Foods Pty Ltd (1992) 27 NSWLR 326 Upper Hunty County District Council v Australian Chilling & Freezing Co Ltd (1968) 118 CLR 429 Watson v Phipps (1985) 63 ALR 321 Westpac Banking Corporation v Tanzone Pty Ltd & Ors [2000] NSWCA 25 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA TITLE OF COURT : THE FULL COURT (WA) CITATION : ACORN CONSOLIDATED PTY LTD & ANOR -v- HAWKESLADE INVESTMENTS PTY LTD [2000] WASCA 322 CORAM : PIDGEON J
- IPP J
MURRAY J
- First Appellant (First Plaintiff)
LAWRENCE LAMBRO ANTHONY ZIATIS
Second Appellant (Second Plaintiff)
AND
HAWKESLADE INVESTMENTS PTY LTD (ACN 000 602 862)
Respondent (Defendant)
Catchwords:
Contract - General contractual principles - Construction and interpretation of contracts - Where a clause is inconsistent with other contractual clauses the inconsistent clause is interpreted to avoid capricious, unreasonable, inconvenient or unjust construction. Regard is had to the contract as a whole - Turns on own facts
(Page 2)
Legislation:
Nil
Result:
Appeal dismissed
Representation:
Counsel:
First Appellant (First Plaintiff) : Mr M L Bennett
Second Appellant (Second Plaintiff) : Mr M L Bennett
Respondent (Defendant) : Mr W S Martin QC &
Ms N M Johnston
Solicitors:
First Appellant (First Plaintiff) : Bennett & Co
Second Appellant (Second Plaintiff) : Bennett & Co
Respondent (Defendant) : Talbot & Olivier
Case(s) referred to in judgment(s):
Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99
Gwyn v Neath Canal Co (1868) LR 3 Ex 209
NGL Properties Pty Ltd v Harlington Pty Ltd [1979] VR 92
Case(s) also cited:
Allstate Explorations NL v Beaconsfield Gold NL [1999] NSWSC 832
Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191
B & B Constructions (Aust) Pty Ltd v Brian A Cheeseman & Associates Pty Ltd (1994) 35 NSWLR 227
Charter Reinsurance Co Ltd v Fagan [1997] AC 313
Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337
Commonwealth v Western Australia (1999) 196 CLR 392
(Page 3)
Cooper Brookes (Woollongong) Pty Ltd v Commissioner of Taxation (Cth) (1981) 147 CLR 297
Government Insurance Office (NSW) v Penrith City Council (1999) 102 LGERA 102
Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896
Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] 2 WLR 945
Manufacturers Mutual Insurance Ltd v Withers (1988) 5 ANZ Insurance Cases 75,336
Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 67 ALJR 170
Prenn v Simmonds [1971] 1 WLR 1381
Pukallus v Cameron (1982) 180 CLR 447
Reardon Smith Line v Hansen Tangen [1976] 1 WLR 989
Schuler AG v Wickman Machine Tools Sales Ltd [1974] AC 235
State Rail Authority of NSW v Earthline Constructions (1999) 160 ALR 588
Trawl Industries of Australia Pty Ltd v Effem Foods Pty Ltd (1992) 27 NSWLR 326
Upper Hunty County District Council v Australian Chilling & Freezing Co Ltd (1968) 118 CLR 429
Watson v Phipps (1985) 63 ALR 321
Westpac Banking Corporation v Tanzone Pty Ltd & Ors [2000] NSWCA 25
(Page 4)
1 PIDGEON J: I agree with the reasons of Ipp J and I agree with the conclusion of the trial Judge (Owen J) that the construction advanced by the respondent should be upheld for the reasons stated by Owen J.
2 A similar conclusion can also be reached another way. Kelly CB said in Gwyn v Neath Canal Co (1868) LR 3 Ex 209 at 215:
"The result of all the authorities is that when a court of law can clearly collect from the language within the four corners of a deed, or instrument in writing, the real intentions of the parties, they are bound to give effect to it by supplying anything necessarily to be inferred from the terms used, and by rejecting as superfluous whatever is repugnant to the intention so discerned."
3 I consider that the law in Australia based on this and other authorities is set out in the following passages from 10 Halsbury's Laws of Australia, para 140-585 which reads:
"Words should be construed in a deed in the manner which is most in accordance to the intention of the grantor; the words are not the principal things in a deed, but rather the intent and design of the grantor. The words of an instrument must be construed according to the intent of the parties, and as such words may generally be supplied, omitted or corrected in an instrument where it is clearly necessary in order to avoid absurdity or inconsistency.
…
An instrument is to be construed according to the intention of the parties appearing from the whole of its contents and to this end corrections may be made which a perusal of the document shows to be necessary; it is simply a matter of the interpretation of the document and in such circumstances there is no need for rectification of the instrument. Accordingly, when a court can clearly collect from the language within the four corners of a deed, or instrument in writing, the real intentions of the parties, it is bound to give effect to the instrument by supplying anything necessarily to be inferred from the terms used, and by rejecting as superfluous whatever is repugnant to the intention as discerned."
(Page 5)
4 This last proposition is based on the authority of Gwyn v Neath Canal Co. This case was applied by Kaye J in NGL Properties Pty Ltd v Harlington Pty Ltd [1979] VR 92 at 95.
5 The facts and the relevant clauses of the contract are set out in the reasons of Ipp J.
6 The intention of the parties must be ascertained by reading the whole of the document, including the words claimed to be repugnant. Clause 4(d) of the contract specifies the method to discharge the balance of the purchase price. The covenant is to pay $550,000. Part of this is to be discharged by the transfer of shares. The clause then refers to an agreed minimum value of the shares at 45 cents which yields an amount a little in excess of the purchase price. If the shares fall below this minimum value, then there is a shortfall to be paid by the purchaser. One would therefore expect the calculation to be made on the settlement date. The fact that this was the intention of the parties is supported by the fact that the term "settlement date" appears on four occasions in cl (d). It is further supported by the fact that the guarantee given, is a guarantee of the shortfall at the settlement date. The next factor to support the intention of the parties is that the date of the contract would have no apparent relevance and having regard to the way the date is defined, it would be unknown to at least some of the parties when they executed the contract. A calculation based on the contract date would lead to an indefinite figure to a number of the parties and I would see it as highly improbable that any party would agree to an unknown purchase price.
7 I would have no hesitation in reaching the view that the intention of the parties was that the calculation was to be made on the settlement date and that the reference to the contract date are words repugnant to that intention. The agreement would stand if the words "as of the date of this contract" were deleted.
8 IPP J: This appeal and cross-appeal concerns the construction of a contract for the sale of certain property near the Harvey Estuary.
9 The trial Judge, Owen J, upheld the respondent's contentions as to the construction of the contract. The respondent, in the alternative, claimed rectification of the contract, but his Honour dismissed that claim. The appellants contend that his Honour erred in construing the contract and the respondent contends that his Honour erred in denying its claim for rectification. Hence the appeal and cross-appeal. The cross-appeal, in effect, is conditional upon the appeal on the construction issue
(Page 6)
- succeeding. I have come to the conclusion that the appeal must fail. It is therefore unnecessary to deal with the cross-appeal.
10 In argument before us issues were raised as to the principles to be applied in determining whether or not extrinsic evidence should be admitted for the purposes of construing a contract. Time was also spent on arguments that concerned the nature and extent of the evidence that was said to be admissible. In my opinion, however, the appeal falls to be decided without reference to any extrinsic evidence. The approach to construction expressed by Gibbs J in Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 is determinative of the issues that arise, having regard only to the four corners of the contract. His Honour said in that case (at 109 - 110):
"It is trite law that the primary duty of a court in construing a written contract is to endeavour to discover the intention of the parties from the words of the instrument in which the contract is embodied. Of course the whole of the instrument has to be considered, since the meaning of any one part of it may be revealed by other parts, and the words of every clause must if possible be construed so as to render them all harmonious one with another. If the words used are unambiguous the court must give effect to them, notwithstanding that it may be guessed or suspected that the parties intended something different. The court has no power to remake or amend a contract for the purpose of avoiding a result which is considered to be inconvenient or unjust. On the other hand, if the language is open to two constructions, that will be preferred which will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust ... . Further, it will be permissible to depart from the ordinary meaning of the words of one provision so far as is necessary to avoid an inconsistency between that provision and the rest of the instrument. Finally, the statement of Lord Wright in Hillas & Co Ltd v Arcos Ltd [(1932) 147 LT 503 (at 514)], that the court should construe commercial contracts 'fairly and broadly, without being too astute or subtle in finding defects', should not, in my opinion, be understood as limited to documents drawn by businessmen for themselves and without legal assistance (cf Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd [(1968) 118 CLR 429 (at 437)])."
(Page 7)
11 The first appellant ("Acorn") was the purchaser under the contract concerned and the respondent the vendor. The contract was recorded in a Real Estate Institute standard contract form. To describe the dispute that arose between the parties, it is necessary to refer to some of the provisions of the contract.
12 The schedule to the contract (which appears on the first page of the form) contains the following clause:
"(iv) Purchase Price: $625,000 payable in the terms of Special Condition 4(1) thereof [sic]."
- The words "Purchase Price" and the dollar sign were part of the printed form. The phrase "625,000 payable in the terms of Special Condition 4(1) thereof" was typed in.
13 Special Condition 4(1) is a condition that was not part of the standard form but was added thereto by the parties. The condition was originally drafted by the second appellant ("Mr Ziatis") on behalf of Acorn, but Mr Hodge, on behalf of the respondent, made alterations to it. I set out below the condition, showing the alterations made by Mr Hodge in italics.
"4 Special Conditions
(1) Purchase Price
(a) $25,000 as and by way of a deposit payable as to $1,000 herewith and $24,000 within 7 days of acceptance of this offer and shall be released to the Vendor immediately.
(b) $25,000 thirty days after the payment of the deposit referred to in sub-paragraph (a) above and shall be released to the Vendor immediately.
(c) $25,000 thirty days after the payment of the instalment of purchase price referred to in (b) above and shall be released to the Vendor immediately.
(d) $550,000 by the transfer by the Purchaser to the Vendor on the Settlement Date of 1,223,000 tradeable ordinary shares in Cobra Resources NL at an agreed value of 45c each ('the Shares'). In the event that the market value of the Shares on
(Page 8)
- the Settlement Date is less than 45c per share then the Purchaser shall pay to the Vendor the difference between the 45c per share and the value of the Cobra Resources NL Shares as of the date of this contract ('the Shortfall') The directors of the purchasing company personally guarantee any shortfall between the share price and purchase price at the settlement date.
If the Shares are trading at greater than 45c each on the Settlement Date then the Vendor shall be entitled to the benefit of the additional value."
14 Clause 4(1)(d) of Special Condition 4 refers to "the date of this contract" and "the [s]ettlement [d]ate". On 16 October 1998, the contract was signed on Acorn's behalf and on 17 October 1998 on the respondent's behalf. It was accepted, in effect, that 17 October 1998 was the date of the contract. This is in accord with condition 24(1) of the Joint Form of General Conditions for the Sale of Land (which was incorporated in the contract) which provides:
"Date of Contract" means the date of execution of the Contract by the last of the parties thereto whose execution is necessary to make the Contract binding on all the parties thereto."
- It is common cause that "the [s]ettlement [d]ate" as contemplated by cl 4(1)(d) was 14 May 1999 (the settlement date being defined in the contract as being "[on] or before 14 May 1999").
15 The parties accept that, by cl 4(1), at the settlement date, Acorn was obliged to pay to the respondent a deposit of $75,000, and to provide it with 1,223,000 shares in Cobra. The dispute between them concerns the balance payable by Acorn.
16 The appellants contend that, properly construed, cl 4(1)(d) obliges Acorn, at settlement, to pay - as the balance - a sum equal to the difference between 45 cents and the price at which shares in Cobra were trading at the date of the contract (17 October 1998) multiplied by the 1,223,000 shares in Cobra. Owen J found that shares in Cobra were trading at 26 cents at the trading day closest to 17 October 1998 (a Saturday) the date of the contract. Hence, the appellants contend that, in addition to the deposit and the transfer of the Cobra shares, Acorn was obliged at settlement to pay the respondent the sum of $232,370 (being 19 cents x 1,223,000).
(Page 9)
17 The respondent contends, on the other hand, that, properly construed, cl 4(1)(d) requires the balance in question to be a sum equal to the difference between 45 cents and the price at which shares in Cobra were trading on 14 May 1999 (the settlement date) multiplied by 1,223,000. On 14 May 1999 the shares in Cobra were trading at about 12 cents. Hence, according to the respondent, in addition to the deposit and the transfer of the Cobra shares, Acorn was obliged at settlement to pay it the sum of $403,590 (being 33 cents x 1,223,000).
18 On the appellants' construction the respondent would receive for the land the following value:
Deposit $75,000
Shares $146,760
Shortfall cash payment $232,370
Total $454,130
19 If the respondent's construction is correct it would receive for the land the following value:
Deposit $75,000
Shares $146,760
Shortfall cash payment $403,590
Total $625,350
20 The difficulty in construction is caused by the requirement in cl 4(1)(d) that the purchaser pay to the vendor "the difference between 45 cents per share and the value of the Cobra Resources NL [s]hares as of the date of this contract". The appellants say that "the date of this contract" must be construed literally. According to the appellants, the phrase means what it says, and the consequence is that the relevant date is 17 October 1998. The respondent, on the other hand, says that there are ambiguities in cl 4(1)(d), and the construction contended for by the appellants is capricious, unreasonable and unjust, and therefore should be rejected. The respondent contends that "the date of the contract" should be construed as meaning "the [s]ettlement [d]ate".
21 The first step in the exercise of construction that is required is to determine whether the clause is ambiguous. In this regard, the sentence,
(Page 10)
- "the directors of the purchasing company personally guarantee any shortfall between the share price and purchase price at the settlement date", is of particular significance. The ordinary meaning of the sentence is that the directors of Acorn guarantee any shortfall that may arise at the settlement date between the share price of Cobra as at that date and the purchase price. This attributes to the guarantors an entirely different liability to that based on the literal meaning of the preceding sentence. According to the literal meaning, the liability of the purchaser is established by reference to the date of the contract and not the settlement date. These matters give rise to more than an ambiguity. In fact there is a fundamental inconsistency in the clause.
22 Counsel for the appellants submitted that the conflict could be resolved by attributing to the words "any shortfall" the defined meaning of the words "the Shortfall" in the preceding sentence. I accept that that is a possible answer. It does, however, involve attributing to the words "any shortfall" the defined meaning of a different phrase, namely, "the Shortfall". It also involves ignoring the words in the last sentence, "between the share price and purchase price at the settlement date", as the consequence of giving the words "any shortfall" the defined meaning of "the Shortfall" is that the words following "any shortfall" become otiose. Moreover, the phrase "any shortfall" connotes a variable notion of "shortfall", while on the appellants' construction there can only be one shortfall, namely the sum of $232,370 (that is to say, on the appellants' version, no matter what the price of the shares might be as at the settlement date, the shortfall of $232,370 remains a constant).
23 In any event, the possibility of resolving this inconsistency by construing the sentence as submitted by the appellants, does not alter the fact that, on the face of the clause, the inconsistency exists. The issue then arises: Is that inconsistency to be resolved by construing the sentence as suggested by the appellants, or by construing "the date of this contract" as "the [d]ate of the [s]ettlement", as suggested by the respondent? This question lies at the heart of this appeal.
24 It is to be observed, moreover, that there is another ambiguity in cl 4. This ambiguity concerns the purchase price. Clause 4 expressly states that the purchase price is $625,000. Additionally, cl 1 of Special Condition 4 states, expressly, that the purchase price "shall be the sum of $625,000". The effect of the appellants' construction of cl 4(1)(d), however, is that the purchase price will vary depending on the price of the shares on the day of settlement. This is best illustrated by three scenarios prepared by senior counsel for the respondent. They are all based on the
(Page 11)
- appellants' construction and assume different prices of the Cobra shares on the day of settlement.
Scenario 1
If the shares trade at 44¢ on day of settlement, the vendors receive:
(a) Deposit $ 75,000
(b) Shares (1,223,000 @ 44¢ ) $538,120
(c) Shortfall (1,223,000 x ($0.45 - $0.26)) $232,370
$845,490
Scenario 2
If the shares trade at 1¢ on day of settlement, the vendors receive:
(a) Deposit $ 75,000
(b) Shares (1,223,000 @ $0.1) $ 12,230
(c) Shortfall (1,223,000 x $0.45 - $0.26)) $232,370
$319,600
Scenario 3
If the shares trade at 26¢ on day of settlement, the vendors receive:
(a) Deposit $ 75,000
(b) Shares (1,223,000 x $0.12) $146,760
(c) Shortfall (1,223,000 x ($0.45 - $0.26)) $232,370
$454,130
(Page 12)
- price for the shares. That is consistent with the purchase price the parties agreed.
26 On the appellants' construction, if the shares trade at 44 cents on the day of settlement, that is, only one cent less than the agreed value of 45 cents, as reflected in cl 4(1)(d), the respondent receives $845,490. That is more than $220,490 in excess of the agreed purchase price. This is an extraordinary result for such a minor reduction in the agreed value of the shares. On the other hand, if the shares trade at 1 cent (scenario 2 above) at the settlement date, the respondent receives a total of $319,600, a reduction of $305,400 in the purchase price of $625,000. These consequences that inevitably arise from the appellants' construction seem to me to be both capricious and unreasonable. They are also inconsistent with those parts of the contract that provide that the agreed purchase price shall be $625,000.
27 I would refer to one other aspect of the contract that has some significance. The contract was entered into on a Saturday. It was on that day that Mr Ziatis, on behalf of Acorn, sent a facsimile transmission to his agent saying that he accepted the counter offer made by the respondent and Mr Ziatis then initialled the amendments on the contract form. Mr Ziatis is a solicitor. It seems obvious that had he intended the construction now advanced by the appellants, he would have appreciated the constant element of $232,370 for which the appellants now contend. It would have been open to him to make this quite plain in the clause, but he did not.
28 Owen J took into account all the factors I have enumerated above. Relying on Australian Broadcasting Commission v Australasian Performing Right Association Ltd, his Honour concluded that the construction advanced by the respondent should be upheld. I am in entire agreement with his Honour. I would dismiss the appeal.
29 MURRAY J: I agree entirely with the reasons published by Pidgeon and Ipp JJ and I can discern no error in the approach and reasoning of Owen J, the trial Judge. Both the appeal and cross-appeal should be dismissed.
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