Australian Hardwood Mgmt Ltd v Perovich
[2007] SADC 99
•27 September 2007
DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
AUSTRALIAN HARDWOOD MGMT LTD & ANOR v PEROVICH & ANOR
[2007] SADC 99
Judgment of His Honour Judge Chivell
27 September 2007
CONTRACTS
General contractural principles - Offer and acceptance - Intention to create legal relations - Parties - Discharge, breach and defences to action for breach - repudiation and non-performance
DAMAGES
General principles - measure and remoteness of damages in actions for breach of contract
James v Twiss [1929] SASR 110; Perri and Another v Coolangatta Investments Proprietary Limited (1982) 149 CLR 537; Australian Broadcasting Corp v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540; Briginshaw v Briginshaw (1938) 60 CLR 336; Abram and Another v A V Jennings Ltd (2002) 84 SASR 363; Waltons Stores (Interstate) Limited v Maher and Another (1988) 164 CLR 387; Salisbury Mausoleum P/L v Both [2007] SASC 152; Commonwealth of Australia v Amann Aviation Pty Limited (1991) 174 CLR 64, applied.
AUSTRALIAN HARDWOOD MGMT LTD & ANOR v PEROVICH & ANOR
[2007] SADC 99Introduction
The first plaintiff, Australian Hardwood Management Limited (“AHM”) is the “responsible entity”, as defined in s9 of the Corporations Act 2001 (C/W), for the Adelaide Hills Premium Vineyards Project (“the project”). The project is a registered managed investment scheme within the meaning of that legislation (see s601FA-601FT).
The second plaintiff, Adelaide Hills Investments Limited (“AHI”), is the owner of the land near Gumeracha, in the Adelaide Hills, on which the project has established a vineyard.
The promoters of the project invited potential investors to apply for an interest by publishing a Product Disclosure Statement and Prospectus (“PDS&P”) (Exhibit P2). The PDS&P contained an application form to join the project (see p46, at Court Book p49 (CB49)). The form states:
A. APPLICATION FOR INTERESTS
By completing and signing this form you:
· apply for _________ interest (minimum of 1) in the Adelaide Hills Premium Vineyard Project (insert number).
· apply for ___________ Shares (4,000 Shares partly paid to $0.40 per Share per Interest) in Adelaide Hills Investments Limited ACN 112 016 967.
B. .....
C. POWER OF ATTORNEY
This section of the form comprises a Power of Attorney made on the day specified at the end of the form, by the person or company that executes the Application Form.
WHO AND HOW YOU APPOINT
1. You hereby appoint Australian Hardwood Management Limited (ACN 079 695 051) and each of its directors, company secretary and other such persons as that company may nominate separately as your attorneys specifically and only for the purposes of executing the Farming Agreement.
2. You agree to formally approve what the attorney does under this Power of Attorney. You agree and declare that this Power of Attorney is given for valuable consideration and further agree that you may not revoke the appointment.
THE POWERS YOU GIVE UNDER THE POWER OF ATTORNEY
Your attorneys may, in your name:
(a) do everything required to sign, seal and deliver the Farming Agreement.
(b) do anything that you can do as a Farm in the Adelaide Hills Premium Vineyard Project or anything that you can do or are obligated to do in relation to the transaction contemplated by the Constitution and Farming Agreement.
(c) stamp and register this Power of Attorney and any of those documents, if necessary.
D. .....
E. TERMS OF APPLICATION AND EXECUTION CLAUSE
I/We have read the Adelaide Hills Premium Vineyard Project Application Form and the Power of Attorney and herein:
1.I/We hereby apply to enter into the Farming Agreement; and
2.I/We hereby appoint the attorneys for these purposes in accordance with Sections C and D above.
Upon acceptance of the application, the directors of AHM signed a “Farming Agreement” on behalf of an applicant pursuant to the Power of Attorney. The Farming Agreement, a sample of which is set out at CB39, is a contract between the “farmer” or investor, and AHM. The agreement sets out the obligations undertaken by AHM in terms of establishing and maintaining the vineyard, and the obligations undertaken by the farmer to pay AHM for its services in that regard the amounts set out in the agreement.
The PDS&P document, Exhibit P2, also contains a prospectus for an issue of shares in AHI. That prospectus states:
Each investor in the project must subscribe for 4000 shares in the Company for each Farm subscribed. The terms of issue of the shares are that they shall be issued as partly paid to $0.40 per share with a further amount of $0.60 payable at the call of the directors of the Company or if no call is made prior to 30 June 2010 then on 30 June 2010.
The PDS&P provides that the purchase price for the shares, 4,000 x $0.40 = $1,600.00, was payable “on application”.
The PDS&P makes the following statement about the formation of the contract:
ACCEPTANCE OF APPLICATION
Upon your application being accepted, the Farming Agreement will be executed by your appointed attorney and copies returned to you.
Signing and returning the Application Form and Power of Attorney binds you to the document once your Application has been accepted. However, if your Application is not accepted, the documents are not binding and are of no force and effect.
ACCEPTANCE
The Responsible Entity may in its absolute discretion reject the application. You will be notified in writing upon your application being accepted.
(CB 47)
The PDS&P also refers to the “Constitution and Compliance Plan” for the Project. At section 5.4 (p26, CB 29), it states:
1. Scheme Constitution
The Adelaide Hills Premium Vineyard Project is a managed investment scheme and in accordance with the Corporations Law a Constitution for the Project has been lodged with the ASIC. When you subscribe for an interest in the project, you become a member of the managed investment scheme. The Constitution constitutes a contract between the Responsible Entity as the responsible entity and each Member. It is legally enforceable and sets out the parties respective rights and responsibilities.....
Thus, upon acceptance by AHM of the application, a number of contracts were brought into existence:
·a contract whereby an applicant appointed the directors of AHM as his or her Power of Attorney for the purposes of entering into the Farming Agreement;
·a contract between AHM and an applicant whereby they agree to be bound by the Constitution of the managed investment scheme;
·upon execution by the directors of AHM as Attorneys for the defendants, and by AHM itself, the Farming Agreement; and
·a contract with AHI to purchase 4,000 of its $1 shares for each “Participation”, partly paid to $0.40, with the balance payable at call.
I will refer to all of these contracts collectively as “the contracts”.
The Defendants’ Application
The first defendant, Silvanna Perovich, is a businesswoman who lives in Brisbane. She operated a business called Neo Lido Pty Ltd. She was also a director and shareholder of Spars Pty Limited (“Spars”), which is the second defendant. Spars was the trustee for an entity called the Zadar Trust.
Using the application form in the PDS&P document, Ms Perovich made an application to participate in the scheme. She applied for 30 “Participations” in the project, and 120,000 shares in AHI.
The application form (Exhibit P7), carries the following notice immediately above the section filled in by the applicant:
By completing and signing this form you achieve the following:
1.You apply to participate in the Adelaide Hills Premium Vineyard Project to the extent nominated.
2.You appoint a certain number of people called “Attorneys” to do specific things on your behalf, and in your name, under a Power of Attorney.
3.You acknowledge that you have read and understood the Document and attached legal documents in respect of the Adelaide Hills Premium Vineyard Project.
4.You apply for Shares in Adelaide Hills Investments Limited ACN 112 016 967.
Ms Perovich filled out the form as follows:
APPLICANT 1
Ms SILVANA PEROVICH
Surname/Corporate ZADAR TRUST
Or Trustee Name SPARS PTY LTD ATF
First Name(s)
Date of Birth
Mailing Address 26/238 BOWEN TERRACE
NEW FARM 4005 Q
E-mail Address [email protected]
Telephone:(Private) 07 3254 2556 (Business)
Facsimile 07 3254 2156
Occupation
Tax File No* ABN
Ms Perovich signed the form personally, and dated it 31 May 2005, in the presence of a witness, Richard Spencer, her business partner. In addition, she signed the section appropriate to a company. The signature clause reads:
SIGNATURE [signed S Perovich]
DATE 31/05/05
SIGNATURE (WITNESS) [signed R Spencer]
DATE 31/05/05
OR IF A COMPANY
THE COMMON SEAL OF OR SIGNED BY AUTHORITY OF THE BOARD OF DIRECTORS
IN THE PRESENCE OF SILVANA PEROVICH [signed S Perovich]
SECRETARY/DIRECTOR
DIRECTOR [no signature]
What is noteworthy about the way Ms Perovich signed the application is:
1. she validly signed it on her own behalf;
2.the common seal of the company was not affixed, nor is there evidence of authority of the Board of Directors.
Mr Fergus McLachlan, a Director of both AHM and AHI, and a promoter of the project, said that he spoke to Ms Perovich by telephone on 31 May 2005. He was in the offices of Norton Capital Pty Ltd in Sydney, and she was in her office in Brisbane. There was a clear dispute between Mr McLachlan and Ms Perovich about what was said. I will discuss this dispute later.
Following the conversation, the signed application form was sent by facsimile machine to Norton Capital’s office in Sydney. Exhibit P7 has a fax date of “02 Jun 2005 09:24”. Mr McLachlan said that there was another copy of the document received in Sydney on 31 May 2005 (T34-35), but that copy was not produced.
It was common ground that no payment was made, either by Ms Perovich or Spars, “upon application” as is stipulated in the PDS&P. The question of whether, and on what basis payment was to be made is central to the issue between the parties.
Plaintiff’s actions on receipt of application
The application form signed by Ms Perovich triggered a number of events:
·the issue by AHM of a tax invoice, dated 31 May 2005 (Exhibit P6), for a total of $279,784.48 directed to Silvanna (sic) Perovich at the address stated in the form. I note that the address was spelt “Bowan” rather than “Bowen Terrace”, but no point was made by either party about that;
·the issue by AHM of a Vine Lot Certificate signed by Mr McLachlan as Managing Director certifying that as from 31 May 2005 Ms Perovich was the holder of 30 Participations numbered 223-252 in the Adelaide Hills Vineyard Project 2005 (Exhibit P8);
·the issue by AHI of a Share Certificate, dated 28 June 2005, signed by Fergus McLachlan and Dugald McLachlan as Directors, certifying that Ms Perovich was the registered holder of 120,000 shares in AHI (Exhibit P9);
·the execution of a Farming Agreement by Fergus McLachlan as Attorney for Ms Perovich on the one hand, and by Fergus McLachlan and Dugald McLachlan as Directors of AHM on the other. Mr McLachlan told me that the entire Farming Agreement was sent to Ms Perovich along with the other documents, but only the signature page (p7) was retained by the plaintiff (T44). That page is Exhibit P5. The body of the agreement is contained within the PDS&P (Exhibit P2).
Mr McLachlan told me that he personally posted all of the above documents to Ms Perovich. He was unable to say precisely when they were posted, although he suggested that they were probably sent on 2 June 2005 (T89). He said that none of the documents were returned to the plaintiffs undelivered (T45, T90).
The plaintiffs contend that the issue and execution of these documents by the plaintiffs constitutes an acceptance of Ms Perovich’s application, and created a binding contract to pay the monies specified.
Ms Perovich, on the other hand, admits she signed the application form (see Affidavit of Defence sworn but not dated, para 3(f)), but says she did so purely as director and agent for Spars, as Trustee of the Zadar Trust. Further, she says that at no time did she receive any communication of an acceptance of the application, or any of the documents outlined above (T114-5, T155-6). Accordingly, she denied that any contract was formed, either with her or Spars. She said she formally withdrew the application on her own behalf by letter, dated 26 May 2006, (Exhibit P14), and on behalf of Spars the offer was withdrawn by solicitor’s letter of the same date (Exhibit P26).
It is common ground that until Ms Perovich applied for 30 Participations in the project, the promoters had only accepted applications for 52 Participations from other investors. The minimum subscription in the PDS&P was 80 (see Exhibits P2, P5, CB8). Upon receipt of Ms Perovich’s application, Mr McLachlan said that he notified the stakeholder, Huntley Custodians Limited, that the minimum subscription had been achieved, and requested them to release the funds they were holding.
Once the funds were released, work commenced immediately to establish a vineyard. It was important that work commence by 31 May 2005 so that tax benefits were available for the 2005 tax year (T89).
On 1 July 2005, a tax invoice directed to Ms Perovich for the further sum of $21,120.00 was drawn up.
On 20 July 2005, Mr McLachlan sent Ms Perovich an email (Exhibit P10) which read as follows:
Silvana
I spoke to Mark and I am able to fund the timeing (sic) on the development. We are getting financing for the land and therefore I need the money for the purchase of the shares before the end of next week. This is $48,000 and would it be possible if this was paid with the rest to follow when the refinancing is done.
Ferg
(my underlining)
The reference to “Mark” was a reference to Mark Norton of Norton Capital. He was assisting with capital-raising for the project.
Ms Perovich’s reply was as follows:
Fergus
We are just out of court with summing up continuing. I don’t expect to have any problems with the $48K at the end of next week however I will have that confirmed by this Friday so I will let you know.
Kind regards
Silvana
There were a number of subsequent telephone conversations and emails to similar effect - Mr McLachlan enquiring when payment would be made, and Ms Perovich telling him that the “refinancing” still had not been achieved.
Ms Perovich’s evidence was that during the telephone discussion on 31 May 2005, she told Mr McLachlan that she was refinancing using a property at Mango Hill, near Brisbane, as security. She said:
I explained that it would not be possible unless of course I had the finance, I was happy to enter into an agreement to invest in the project as long as it didn’t require any funds to be paid immediately, I could only do that once the finance had come through. That was accepted by all parties concerned. (T114)
She went on to explain that she regarded the obtaining of finance as a “condition precedent” to the “offer” she made to join the project. (T114)
When Ms Perovich put that position to Mr McLachlan in cross‑examination, he replied:
Sorry, your financial concerns were not made clear to me, nor would I pry into your financial business. My understanding was Neo-Lido was going to raise a significant amount of money and already had. My understanding from Norton Capital was that you were extremely wealthy and could afford this five times over. That’s my impression. Whether they told me that directly or not, never disputed or never negated that impression. (T91)
Mr McLachlan had earlier described the conversation with Ms Perovich in examination‑in‑chief as follows:
..... the conversation was from Ms Perovich ‘How many units do you need to reach minimum subscription?’, I said ‘30’. ‘That should be fine, I’ll have the application form to you’ and that was the end of the phone call. (T33)
Having regard to that evidence, I do not accept Mr McLachlan’s assertion that he had no knowledge of, or interest in, Ms Perovich’s financial affairs. I think that his evidence about that was reconstructed. He made specific reference to the “refinancing” in the underlined part of his email of 20 July 2005 set out above.
Was the application accepted?
The evidence establishes that upon receipt of the application, AHM issued a tax invoice (Exhibit P6), and a Vine Lot Certificate (Exhibit P8), and executed the Farming Agreement (the signature page is Exhibit P5, the body of the agreement is in Exhibit P2). AHI also issued a Share Certificate for 120,000 shares. All of these documents were in the plaintiffs’ name. Although there was no explicit acceptance of the application, it is clearly implicit in the issue of these documents that the offer was accepted by AHM and AHI.
As I said, Ms Perovich denied receiving any notice that the plaintiffs had accepted the application. I do not accept her evidence about that. Mr McLachlan gave evidence that he posted the documents personally (T44). He gave evidence that the documents were not returned undelivered.
In James v Twiss [1929] SASR 110, Murray CJ said:
(the defendant) was entitled, in my opinion, to the benefit of the prima facie presumption of fact that an envelope addressed and posted as he described and not afterwards returned through the dead‑letter office, reached its destination in the ordinary course of post (Warren v Warren (1834) 1 C.M.R. 250)
..... Then, in my opinion, the burden was shifted onto the complainant to prove that the returns were not received by him.
This case is referred to in Cross on Evidence, 6th Australian Edition, at [1130] as an example of circumstantial evidence from which inferences may be drawn that a later event occurred, so‑called “prospectant circumstantial evidence”.
Ms Perovich’s bald assertion that she did not receive the documents were not convincing. She did make a rather vague reference to having had trouble with the mail (T171-2) and also said when asked about a later letter (Exhibit P12), dated 21 November 2005, that she could not remember if she had received it or not (T159, T160).
She was more inclined to assert that the documents were not sent at all, because that would fit better with her version of the facts (T155).
Further, in my opinion Ms Perovich’s subsequent conduct is completely inconsistent with her evidence that no documents were received. For example, in her email of 20 July 2005 (Exhibit P10), she had no qualms in saying “I don’t expect to have any problems with the $48k at the end of next week .....”, and in her email of 10 January 2006, she said “we I (sic) expect to be in a position to pay the outstanding funds by the end of the month .....” (my underlining).
My impression of Ms Perovich is that she is a clever and shrewd woman, and she was well aware of how significant it would have been if she had heard nothing from the plaintiffs since the end of May. She certainly would not have regarded herself as having any obligation to pay “outstanding” money if she had not understood that the application had been accepted, yet that was what she said.
The first time this alleged non-receipt was raised was in the solicitor’s letter, dated 26 May 2006 (Exhibit P16), almost 12 months later. That letter stated, inter alia,
It is to be noted that until correspondence from your office concerning the Creditor’s Statutory Demands was received earlier this month, our clients have received no communications from or on behalf of your clients.
That statement is untrue as the various emails and telephone calls I have referred to demonstrate.
I accept Mr McLachlan’s evidence that the documents were sent, and I find that it has been proved on the balance of probabilities that Ms Perovich received them. I reject her evidence to the contrary.
Were binding contracts formed?
The question then becomes whether the obtaining of finance by Ms Perovich and/or Spars was, to use Ms Perovich’s words, a “condition precedent” to the formation of contracts or not.
In Perri and Another v Coolangatta Investments Proprietary Limited (1982) 149 CLR 537, Mason CJ drew a distinction between a condition the non‑fulfilment of which prevents the contract from coming into existence, and a condition which merely suspends the time for performance of obligations pursuant to the contract. His Honour said at p551:
There is an obvious difference between the condition which is precedent to the formation or existence of a contract and the condition which is precedent to the obligation of a party to perform his part of the contract and is subsequent in the sense that it entitles the party to terminate the contract on non‑fulfilment. In the first category the transaction creates no rights enforceable by the parties unless and until the condition is fulfilled. In the second category there is a binding contract which creates rights capable of enforcement.....
Mason CJ went on to explain that courts should tend to interpret such conditions as being the latter type unless the intention of the parties is clearly otherwise.
His Honour said, at p552:
In most cases it is artificial to say, in the face of the details settled upon by the parties, that there is no binding contract unless the event in question happens. Instead, it is appropriate in conformity with the mutual intention of the parties to say that there is a binding contract which makes the stipulated event a condition precedent to the duty of one party, or perhaps of both parties, to perform. Furthermore, it gives the courts greater scope in determining and adjusting the rights of the parties. For these reasons the condition will not be construed as a condition precedent to the formation of a contract unless the contract read as a whole plainly compels this conclusion.
In my opinion, the evidence establishes on the balance of probabilities that there was a condition agreed between the parties that Ms Perovich and/or Spars obtain refinancing on the Mango Hill property, but it was not a condition precedent to the formation of the contracts. Rather, it was a condition which suspended the time for performance by the defendants of their obligations to pay.
This conclusion is fortified by the following further pieces of evidence:
·the evidence of Mr Norton, who gave evidence for the defendants, and who was present during the conversation of 31 May 2005, that:
- “we knew [Silvana’s] situation and we knew [she] wouldn’t be able to settle until such time as the refinancing occurred” (T139);
- “it was assumed that the refinancing would occur” (T140);
- “it was very clear it was subject to this block of land being refinanced” (T141);
- regardless of when payment was to be made, it was clear that Ms Perovich was obliged to pay the application fees referred to in the PDS&P (T146);
- the discussion about refinancing the land was a matter of when Ms Perovich would pay, not a matter of if she would pay (T147).
·the language of the subsequent emails assumes an obligation to pay. For example, in an email, dated 10 January 2006, Ms Perovich said:
..... given that timeframe we I (sic) expect to be in a position to pay outstanding funds by the end of the month ..... (Exhibit P11)
My conclusion, therefore, is that binding contracts were created, with the only matter not agreed being the time at which payment was to be made. I find that a term should be implied in the contracts that finance would be obtained by the defendants within a reasonable time, and that payment would be made forthwith after that.
I am conscious that such terms should not be implied too quickly.
In Australian Broadcasting Corp v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540, Gleeson CJ said:
To say that parties to negotiations have agreed upon sufficient matters to produce the consequence that, perhaps by reference to implied terms or by resort to consideration of reasonableness, a court will treat their consensus as sufficiently comprehensive to be legally binding, is not the same thing as to say that a court will decide that they intended to make a concluded bargain. Nevertheless, in the ordinary case, as a matter of fact and commonsense, other things being equal, the more numerous and significant the areas in respect of which the parties have failed to reach agreement, the slower a court will be to conclude that they had the requisite contractual intention.
I am satisfied that enough was agreed in this instance to conclude that the requisite contractual intention was present.
A mere device?
Another assertion made by Ms Perovich was that there was no intention to form binding contracts because her application was a mere device to enable the promoters of the project to satisfy the minimum subscription requirement of 80 participations, so that the money already subscribed by the other investors could be unlocked.
It is clear that Mr McLachlan was anxious to get that last subscription to get over the minimum. He said in evidence in relation to the events of 31 May 2005:
I was in Sydney frantically trying to achieve more subscriptions with Norton Capital ….
(T32 - my underlining)
I also note that Ms Perovich’s application was accepted without receiving payment, whereas the PDS&P stipulated that the fees should be paid “on application”.
While the actions of Mr McLachlan in this regard may be classified as poor management, I do not see this as contradicting the conclusion I have reached that binding contracts were formed.
The allegation that the application was a mere device is an allegation of serious misconduct. If it was true, then those involved, including Mr McLachlan, Mr Norton and, indeed, Ms Perovich, would be guilty of unethical, unprofessional and possibly illegal conduct.
Such an allegation requires clear proof. In Briginshaw v Briginshaw (1938) 60 CLR 336, Dixon J said at p362-3:
The seriousness of an allegation made, the inherent unlikelihood of an occurrence of the given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question whether the issue has been proved to the reasonable satisfaction of the tribunal. In such matters, “reasonable satisfaction” should not be produced by inexact proofs, indefinite testimony, or indirect references,
.....
When, in a civil proceeding, a question arises whether a crime has been committed, the standard of persuasion is, according to the latter opinion, the same as upon other civil issues….. But consistently with this opinion weight is given to the presumption of innocence and exactness of proof is expected.
In my opinion, the evidence to support Ms Perovich’s allegations does not create reasonable satisfaction in my mind that they are true. Indeed, I am satisfied to the contrary. In my view, Ms Perovich has seized upon Mr McLachlan’s obvious keenness to sign her up on 31 May 2005, and has tried to exploit it for her own purposes.
Who were the parties to the contracts?
Ms Perovich argued that the application was not made on her own behalf, but was made in her capacity as a director of Spars as trustee for the Zadar Trust.
The way that Ms Perovich filled out the application form is ambiguous. She filled out and signed sections applicable to both personal and corporate applicants. She signed personally in the presence of a witness, yet did not affix the Spars company seal, or have it signed by another director. She allowed the form to state that “I/We apply …..” without deleting one or the other. In subsequent correspondence she used the personal pronoun rather than referring to the company, except in the rather cryptic “we/I” quoted above in her email of 10 January 2006 (Exhibit P11).
In Abram and Another v A V Jennings Ltd (2002) 84 SASR 363, Besanko J, with whom Doyle CJ and Mullighan J agreed, said:
It seems that the court may have regard to the circumstances surrounding the contract in order to identify the parties to the contract (Young v Schuler (1883) 11 QBD 651; Edwards v Edwards (1918) 24 CLR 312; Mallinson v Scottish Australian Investment Co Ltd (1920) 28 CLR 66 at 75; Perpetual Trustee Co v Bligh (1940) 41 SR (NSW) 33; Prenn v Simmonds [1971] 1 WLR 1381; [1971] 3 All ER 237.
Extrinsic evidence may also be admitted if there is an ambiguity .....
In Giliberto v Kenny (1983) 57 ALJR 283 Gibbs CJ said:
‘Extrinsic evidence was admissible to show, as it did, that Mrs Kenny, in agreeing to buy, was acting as an agent for her husband as well as herself .....’
It was not until the solicitors’ letter to the plaintiffs’ solicitors, dated 26 May 2006 (Exhibit P26), that the distinction was drawn between Ms Perovich and the Company (she wrote a similar letter, purporting to withdraw the “offer” to participate in the project, on her own behalf on the same date (Exhibit P14).
I have already held that Mr McLachlan posted the documents drawn up after the offer was received to Ms Perovich and that she received them. They were all in her name – see the tax invoices (Exhibit P6), the Vine Lot Certificate (Exhibit P8), the Share Certificate (Exhibit P9), and the Farming Agreement, the back page of which is Exhibit P5. At no stage in any subsequent correspondence or conversation did Ms Perovich suggest that those documents had been drawn in error.
I find that it is more likely that Ms Perovich was making a joint application on behalf of herself and Spars. She said that she regarded her participation as an appropriate tax-minimisation step, because there was the prospect of income once the Mango Hill development got under way (T129, 134-6). Making a joint application kept her options open in terms of whether it was she or Spars who needed the tax deduction most.
In the words of Besanko J in Abram’s case (supra at [65]):
I cannot think of any persuasive reason why [Ms Perovich’s] name would appear on the contract in the place in which it does unless it was intended that (she) be a party to the contract.
Estoppel
If I am wrong about that, I uphold the plaintiffs’ contention that Ms Perovich is now estopped from denying that she was a party to the contracts, in light of her failure to comment on the fact that the documents mentioned above were in her name, a failure which induced the plaintiffs to proceed with the project and incur expense in the development of the vineyard.
In Waltons Stores (Interstate) Limited v Maher and Another (1988) 164 CLR 387, the High Court examined the general concept of estoppel. Mason CJ and Wilson J in their joint judgment said at p404:
..... the principle that equity will come to the relief of a plaintiff who has acted to his detriment on the basis of a basic assumption in relation to which the other party to the transaction has “played such a part in the adoption of the assumption that it would be unfair or unjust if he were left free to ignore it.”: per Dixon J in Grundt (1937) 59 CLR at 675, see also Thompson (1933) 49 CLR at 547. Equity comes to the relief of such a plaintiff on the footing that it would be unconscionable conduct on the part of the other party to ignore the assumption.”
The learned authors of Cheshire and Fifoot’s Law of Contract, 7th Edition, at [2.7] point out:
What should be stressed is that the underlying principle is the combination of detrimental reliance by the one party and unconscionable conduct by the other.
In my view, the plaintiffs have relied upon the conduct of Ms Perovich in forming a belief that she intended to be bound by the contract, and have acted to their detriment in incurring expense, and that Ms Perovich’s present attempts to deny that she is bound are unconscionable. To allow them to succeed would unjustly deprive the plaintiffs of a right of recovery against her personally.
Payment within a reasonable time
I have already mentioned the emails exchanged between Mr McLachlan and Ms Perovich on 20 July 2005. Exhibit P15 is a list of telephone calls made to Ms Perovich. The longer ones, on 19 July 2005, 27 July 2005, 2 December 2005 and 30 January 2006 were, on Mr McLachlan’s evidence, also about when she would attend to payment.
On 21 November 2005, Mark Higgins, the General Manager of AHM, wrote to Ms Perovich in the following terms:
Following your various conversations with this office, this letter is formal notice to complete the investment in the above named project.
I have endorsed your invoice for fees outstanding. Please pay as soon as possible.
(Exhibit P12 - my underlining)
Ms Perovich said she was unsure whether she received that letter (T159‑160). I reject that evidence. I find that she did receive it, for the same reasons as I find that she received the earlier correspondence. It is intriguing that she used the same expression, “outstanding funds” in her email of 20 January 2006 (Exhibit P10) quoted earlier herein.
Ms Perovich wrote another email, dated 10 April 2006, again citing delays in obtaining finance, and apologising (Exhibit P13). Ms Perovich did not, and has not at any stage, paid the outstanding fees.
In the letter from Spars’ solicitor to the plaintiffs’ solicitor, dated 26 May 2006 (Exhibit P26), reference was made to a Creditor’s Statutory Demand received “earlier this month” (Exhibit P26). The Creditor’s Statutory Demand was not put in evidence, but I infer that one was made in May 2006.
Spars’ solicitors purported to withdraw what they described as Spars’ “offer” in the 31 May 2005 application. They asserted that there was a “genuine dispute” that any monies were owing. Ms Perovich wrote a letter in similar terms on her own behalf on the same day (Exhibit P14). She wrote:
If, which is denied, the application document of 31 May 2005 were an offer made by me to you, that offer has not been accepted by you, and is hereby withdrawn.
In Salisbury Mausoleum P/L v Both [2007] SASC 152 at [27], Debelle J said:
Repudiation is a serious matter and is not to be lightly found or inferred: Ross T Smyth & Co Ltd v T D Bailey Son & Co [1940] 3 All ER 60 at 71; Shevill v Builders Licensing Board (1982) 149 CLR 620, per Wilson J at 633; Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17 per Mason J at 32; Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623 per Brennan J at 643 and per Deane and Dawson JJ at 657.
I am conscious of his Honour’s comments, but I have reached the clear conclusion that the letters constitute an indication that both defendants intended to repudiate the contract.
Clearly, they indicate an intention to be no longer bound by the contract. Even if the letters were based on a genuine, but unjustified interpretation of the contract, they still amount to repudiation (see Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17 at 37, 38, 40 and the other cases referred to in Cheshire and Fifoot’s Law of Contract, 7th Australian Edition at [21.11] note 84).
However, in this case it is not necessary to go that far. In my view, the evidence is clear that Ms Perovich, and hence Spars, knew that they were bound by the contracts, for all the reasons I have already outlined, and the letters were not based on a misinterpretation of the contracts.
In a letter, dated 1 August 2007, from the plaintiffs’ solicitors to Ms Perovich (Exhibit P24), the plaintiffs asserted that Ms Perovich and Spars repudiated the contracts for the above reasons, and purported to terminate the contracts. Alternatively, it was asserted that, pursuant to Clause 14.6 of the Farming Agreement, an essential term of that contract having been breached by the non‑payment, and 60 days’ notice having been given by the letter, dated 21 November 2006 (Exhibit P12), to which I have already referred, and also by subsequent emails also referred to earlier, the plaintiffs were entitled to terminate the contracts, and did so.
The Statement of Claim was not amended to take account of this letter. Acceptance of the repudiation and/or breach of essential term were not pleaded. However, breach of contract is pleaded. The prayers for relief in paras 40-49 include prayers for declarations in various forms, orders for payment of liquidated amounts (para 44) (which look a little like claims for specific performance of the contract), but also include, in para 46, “Damages for breach of contract”.
The action was set down pursuant to Rule 74A.05 without the requirement for a formal defence to be filed, but in her affidavit of November 2006, Ms Perovich made a blanket denial that she has any “personal liability” to either of the plaintiffs (para 6), and implicitly made the same denial in relation to Spars.
Rule 6R 223 of the combined Rules of Court states:
The Court may, in an appropriate case give judgment for a form of relief that differs from the kind of relief sought by the plaintiff.
In those circumstances, I do not think it causes any injustice to the defendants if I make a finding that the contact was repudiated by both defendants, and that the plaintiffs have terminated it as a result. Debelle J said in Salisbury Mausoleum P/L v Both (supra) at [26]:
A party is entitled to terminate a contract if the other party repudiates it. However, neither breach nor repudiation by one contracting party of itself terminates the contract and it is necessary that the other party elect to treat it as discharged: Heyman v Darwins, Ltd [1942] AC 356; Automatic Fire Sprinklers Pty Ltd v Watson (1946) 72 CLR 435; Carr v J A Berriman Pty Ltd (1953) 89 CLR 327; Murphy v Zamonex Pty Ltd (1993) 31 NSWLR 439 at 454. As a general rule, one party remains bound to perform its obligations notwithstanding breach by the other unless he terminates the contract for the breach or repudiation by the other party.
I am satisfied that the cause of action (i.e. breach of contract) has been sufficiently pleaded, and I am satisfied that no injustice would result from making such findings (see Micarone v Perpetual Trustees (1999) 75 SASR 1; Rawcliffe v Bianco Hiring Service Pty Ltd (2002) 224 LSJS 266, both quoted in Lunn’s Civil Procedure in South Australia at [6R 99.35]).
As to liability, I find:
1.The application signed by Ms Perovich on 31 May 2005 (Exhibit P7), and its acceptance by the issue of a tax invoice (Exhibit P6), a Vine Lot Certificate (Exhibit P8), a Share Certificate (Exhibit P9) and the execution of the Farming Agreement (Exhibit P5), all of which documents were posted to and received by the defendants, gave rise to binding contracts between the plaintiffs and the defendants.
2.The contracts obliged the defendants, and both of them, to pay the amounts specified in the PDS&P and the Farming Agreement within a reasonable time.
3.Both defendants, by letters, dated 26 May 2006, repudiated the contracts.
4.In the alternative, both defendants failed to comply with the requirement to pay within a reasonable time, which was a breach of an essential term of the contracts.
5.The plaintiffs, by letter, dated 1 August 2007, terminated the contracts.
6.By reason of the breach/repudiation of the contracts, the plaintiffs are entitled to damages.
Damages
Mr Kennelly, counsel for the plaintiffs, submitted that the plaintiffs were entitled to damages for the extent of their losses by reason of the breach of the contracts, rather than payment of the money prescribed in the contracts, an order for payment of which would be to enforce the contracts. That would be inappropriate in circumstances where the plaintiffs have terminated the contracts for breach and/or repudiation.
In Commonwealth of Australia v Amann Aviation Pty Limited (1991) 174 CLR 64 at pp80-82, Mason CJ and Dawson J said:
The general rule at common law, as stated by Parke B in Robinson v Harman (1848) 1 Ex 850 (154 ER 363 at 365), is “that where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed.” This statement of principle has been accepted and applied in Australia: see Wenham v Ella (1972) 127 CLR 454 per Gibbs J at 471.
The award of damages for breach of contract protects a plaintiff’s expectation of receiving the defendant’s performance. That expectation arises out of or is created by the contract. Hence, damages for breach of contract are often described as “expectation damages”. The onus of proving damages sustained lies on a plaintiff and the amount of damages awarded will be commensurate with the plaintiff’s expectation, objectively determined, rather than subjectively ascertained. That is to say, a plaintiff must prove, on the balance of probabilities, that his or her expectation of a certain outcome, as a result of performance of the contract, had a likelihood of attainment rather than being more expectation.
..... [at 81] It is for this reason that expectation damages are often described as damages for loss of profits. Damages recoverable as lost profits are constituted by the combination of expenses justifiably incurred by a plaintiff in the discharge of contractual obligations and any amount by which gross receipts would have exceeded those expenses. This second amount is the net profit.
..... If the performance of a contract would have resulted in a plaintiff, while not making a profit, nevertheless recovering costs incurred in the course of performing contractual obligations, then that plaintiff is entitled to recover damages in an amount equal to those costs in accordance with Robinson v Harman, as those costs would have been recovered had the contract been fully performed. Similarly, where it is not possible for a plaintiff to demonstrate whether or to what extent the performance of a contract would have resulted in a profit for the plaintiff, it will be open for a plaintiff to seek to recoup expenses incurred, damages in such a case being described as reliance damages or damages for wasted expenditure. (emphasis added)
[at 82] ..... Hayes v Dodd ([1990] 2 All ER 815 per Staughton LJ at 820) is a useful illustration of the statement that the expressions “expectation damages”, “damages for loss of profits”, “reliance damages” and “damages for wasted expenditure” are simply manifestations of the central principle enunciated in Robinson v Harman rather than discrete and truly alternative measures of damages which a party not in breach may elect to claim.
The corollary of the principle in Robinson v Harman is that a plaintiff is not entitled, by the award of damages upon breach, to be placed in a superior position to that which he or she would have been in had the contract been performed.
In that context, Mr Kennelly submitted that, in this case, the expenses incurred by the plaintiffs in setting up the vineyard were incurred in reliance upon the defendants’ promise to pay pursuant to the contracts. If the defendants had not promised to pay, the minimum subscription would not have been achieved, and work would not have commenced.
First Plaintiff’s Damages
Mr Kennelly submitted that, pursuant to para 5.1 of the applicable Farming Agreement, that is, applicable to “Farmers” who join the scheme between 1 July 2004 and 30 June 2005 inclusive (see Exhibit P2, p37, CB40), the defendants agreed to pay to AHM, the “responsible entity”, certain amounts.
The PDS&P also states that an investor will be required to pay certain amounts, and these amounts differ from those set out in the Farming Agreement. In his Schedule of Losses, Mr Kennelly used the PDS&P figures, but I will set out both. The various amounts are set out below:
(1)for the period from the “Settlement Date” (which is not defined, but which I assume to be the date of application as the date of acceptance, so either 31 May or 2 June 2005) to 30 June 2005:
PDS&P Farming Agreement - trellising 1,344.00 1,222.00 - irrigation 891.00 810.00 - management fee 3,656.00 3,323.00 - planting 360.00 283.00 - farm occupation fee 374.00 - TOTAL $6,625.00 $5,638.00
(2) for the period 1 July 2005 to 30 June 2006:
PDS&P Farming Agreement - management fee 1,623.00 - - administration fee 330.00 - - farm occupation fee 374.00 - TOTAL $2,327.00 $1,520.00
(3) for the period 1 July 2006 to 30 June 2007:
PDS&P Farming Agreement - management fee 1,421.00 - - administration fee 385.00 - - farm occupation fee 385.00 - TOTAL $2,191.00 $1,292.00 (4)(contains a formula for subsequent fees - irrelevant for present purposes).
The total of these fees is:
PDS&P Farming Agreement (1) to 30 June 2005 6,625.00 5,669.16 (2) 1 July 2005-30 June 2006 2,327.00 1,520.00 (3) 1 July 2006-30 June 2007 2,191.00 1,292.00 TOTAL $11,143.00 $8,450.00
These are the amounts payable for each “Participation”. Since the defendants agreed to purchase 30 Participations, AHM argues that the amount payable was:
PDS&P Farming Agreement $11,143 x 30 = $334,290 $8,450.00 x 30 = $253,500
Mr Kennelly’s schedule puts the figure at $357,320.00, but that figure is based on arithmetical miscalculation. To complicate matters further, that incorrect figure is transposed to $375,320.00 later in the Schedule, so I will ignore it for the purpose of these calculations.
A further complication is that the tax invoices (Exhibit P6) claim different amounts again. The invoice, dated 31 May 2005, claims $279,284.48, the invoice, dated 1 July 2005, claims $21,120.00, and the amount payable for 2006/07 was $23,100.00. The total of these amounts is $324,004.48.
In assessing damages, I have regard to the comments of Mason CJ and Dawson J in Commonwealth of Australia v Amann Aviation Pty Limited (supra) at p83:
The settled rule, both here and in England, is that mere difficulty in estimating damages does not relieve a court from the responsibility of estimating them as best it can. Indeed, in Jones v Schiffmann (1971) 124 CLR 303 at p308, Menzies J went so far as to say that the “assessment of damages ..... does sometimes, of necessity involve what is guess work rather than estimation”. Where precise evidence is not available the court must do the best it can .....
(footnotes omitted)
I am unable to say whether more precise evidence of these figures is available or not - it is difficult to see why it would not be available, as they are liquidated amounts, after all. Further, the evidence as to the expenditure was peculiarly within the knowledge of the plaintiff (see Blatch v Archer (1974) 98 ER 969 at 970, see also Placer (Granny Smith) Pty Ltd v Theiss Contractors Pty Ltd [2003] HCA 10 per Hayne J at [75]). Doing the best I can, I will proceed on the basis most favourable to the defendants.
The evidence was that AHM incurred expense in the establishment of the vineyard in reliance upon the defendants’ undertakings to pay the amounts expended.
The establishment costs are set out in the bundles of invoices, Exhibits P19, P20, P21 and P23. The amounts are as follows:
Exhibit P19: 1 July 2005 - 30 September 2005 78,583.62
Exhibit P20: 1 October 2005 - 31 December 2005 134,147.25
Exhibit P21: 1 January 2006 - 31 March 2006 80,636.50
Exhibit P23: 5 September 2005 - 18 October 2006 878,663.13
TOTAL $1,172,030.50That total figure represents the expenses incurred in setting up the entire vineyard. As there were a total of 82 Participations, that represents a figure of $14,293.05 per Participation. As the defendants purchased 30 Participations, the cost for their portion of the total was ($14,293.05 x 30) $428,791.65.
Mr Kennelly argued that AHM’s loss could be established by subtracting the amounts payable by the defendants from $428,791.65. Using the PDS&P figures, that amount would be ($428,791.65 - $334,290.00) $94,501.65. Using the Farming Agreement figures it would be ($428,791.65 - $253,500.00) $175,291.65. Using the invoice figures it would be ($428,791.65 - $324,004.48) $104,787.17.
I am not satisfied, however, that this is an accurate or reasonable way of measuring AHM’s losses. Mr McLachlan said in evidence that money was lent to AHM from other companies controlled by his family when the defendants failed to pay (T50). He also asserted that the amount owing by the defendants amounted to his loss of profits (T96), but I cannot see that this can be so. I have no information about the basis of any such losses, the tax implications for AHM or other such matters.
Mr McLachlan also told me that the project was re‑subscribed successfully later, and I have no information about that either, in particular, whether it ameliorated or indeed totally compensated for the defendants’ default. He said (T96):
The subsequent prospectus or PDS was another capital raising essentially. I mean we backed it onto the same constitution but it is capital raising with another product ruling so it is separate for the terms of this, but in that development, we lost a great deal of money and we have subsequently been able to make up some of that money, or a vast - greater majority of that money by the second development, the extra development.
Mr Kennelly submitted that this claim is for moneys lost in reliance on the defendants’ promise. However, it has not been established that the money has been “lost” or, to use the words of Brennan J in Commonwealth of Australia v Amann Aviation Pty Limited (supra) “wasted”, since the establishment expenses may have been recouped fully or partially later. Brennan J said at p104-105:
Where a contract has been rescinded for breach, the amount which a plaintiff has expended in reliance on the defendant’s promise and which is wasted by reason of the defendant’s breach of his promise is a proper subject of damages for breach of contract: McRae v Commonwealth Disposals Commission, at 412-414. Damages assessed for wasted expenditure incurred in reliance on the defendant’s promise may be described as “reliance damages” to distinguish them from damages assessed for loss of the benefits which the plaintiff expected from performance of the contract (expectation damages). A plaintiff who seeks to recover reliance damages must ordinarily prove that the net value of the benefits to which he would have been entitled if the contract had been performed ..... would have exceeded the wasted expenditure incurred in reliance on the defendant’s promise ..... and, to the extent that he fails to do so, his claim will fail.
In my opinion, AHM has failed to prove that excess, so its claim must fail.
The only thing that AHM has proved satisfactorily is that it lost the use of the money promised by the defendants during the establishment phase of the vineyard. The Farming Agreement is silent about the interest rate to be charged in default of payment.
The “Third Replacement Constitution” for the Project (Exhibit P3), to which the defendants also agreed to be bound (see the PDS&P, Exhibit P2, P26, CB 29) at para 14.6(a) (CB 72) provides for a default interest rate of 17%. Having accepted that condition by making the application, it is reasonable to adopt it for present purposes. In so doing, I adopt the approach of estimating damages as best I can in accordance with Commonwealth of Australia v Amann Aviation Pty Limited (supra). Strictly, it could be argued that this rate should only apply until the project was re‑subscribed. However, the plaintiffs have been kept out of their money throughout, so I will apply that rate to the present time.
Applying that rate to the amounts payable by the defendants, I calculate the plaintiff’s loss in that regard from the date of application, 31 May 2005, to the present:
·using the figures most favourable to the defendants, then the amount payable pursuant to the Farming Agreement was:
- from 31 May 2005 to the present, (30/9):
$5,638.00 x 30 x 17% x 2.33 years = $66,996.35
- from 1 July 2005 to the present:
$1,520 x 30 x 17% x 2.25 years = $17,442.00
- from 1 July 2006 to the present:
$1,292.00 x 30 x 17% x 1.25 years = $ 8,236.50
TOTAL $92,674.85
Second Plaintiff’s Damages
Similarly, the second plaintiff, AHI, claimed $48,000 being for 120,000 shares partly paid to $0.40. However, these shares were forfeited when the contracts were terminated on 1 August 2007. I have no evidence as to whether they were, or will be, sold to anybody else, or what value they might currently have, and so I am unable to find that AHI has lost $48,000 in that sense. However, using the same reasoning as I applied to the first plaintiff, I conclude that AHI has lost the use of that money for the relevant period, and is entitled to damages to compensate for that.
In my view, the same interest rate should apply. The loss is therefore $48,000 x 17% x 2.33 years = $19,012.80.
Orders
For the above reasons, there will be judgment for the first plaintiff, AHM, in the sum of $92,674.35 and for the second plaintiff, AHI, for $19,012.80. I will hear the parties as to any consequential orders.
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