AW Ellis Engineering Pty Ltd v Malago Pty Ltd
[2012] NSWSC 55
•24 February 2012
Supreme Court
New South Wales
Medium Neutral Citation: A W Ellis Engineering Pty Limited and Ors v Malago Pty Limited and Ors [2012] NSWSC 55 Hearing dates: 1 February 2012, 2 February 2012 Decision date: 24 February 2012 Jurisdiction: Equity Division Before: Sackar J Decision: See paras 182, 183, 184 and 185
Catchwords: CONTRACTS - General Contractual Principles - Construction and Interpretation of Contracts - Surrounding Circumstances - Intention to be Bound - Agreement to Execute more Formal Agreement - More Formal and Additional Terms Legislation Cited: Transport Administration Act 1988 (NSW)
Environmental Planning and Assessment Act 1979 (NSW)
Ports and Maritime Administration Act 1995 (NSW)Cases Cited: Allen v Carbone (1975) 132 CLR 528
Taylor v Johnson (1983) 151 CLR 422
Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165
Byrnes & Anor v Kendle (2011) 243 CLR 253
Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451
International Air Transport Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151
Masters v Cameron (1954) 91 CLR 353
Anaconda Nickel Ltd v Tarmoola Pty Ltd (2000) 22 WAR 101
G R Securities Pty Limited v Baulkham Hills Private Hospital (1986) 40 NSWLR 631
Godecke v Kirwan (1973) 129 CLR 629
Powell v Jones [1968] S.A.S.R. 394
Axelsen v O'Brien (1949) 80 CLR 219
Mackay v Dick (1881) 6 App Cas 251
Pagnan Spa v Feed Products Ltd [1987] 2 Lloyds Rep 601
Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429
Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337
Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61
Turner v Bladin (1951) 82 CLR 463
ANZ Executors & Trustees Ltd v Humes Ltd [1990] VR 615
Sutton v Gundowda Pty Ltd (1950) 81 CLR 418Texts Cited: Meagher, Gummow & Lehane, Equity Doctrines & Remedies 4th Ed (2002);
Sir Kim Lewison & David Hughes, The Interpretation of Contracts In Australia;
William Wetmore Story, A Treatise on the Law of Contracts Not Under Seal, Boston (1844)Category: Principal judgment Parties: A W Ellis Engineering Pty Limited - Plaintiff
Malago Pty Limited - DefendantRepresentation: R Smith SC, Ms J Gleeson - Plaintiff
G Miller QC, D Eardley - Defendant
A R Conolly & Co, lawyers
File Number(s): 2011/312816
Judgment
The Proceedings
The Plaintiffs seek a declaration that there is a binding and enforceable contract between themselves and the Defendants for the sale of the Plaintiffs' interests in Sydney Superyacht Marina Pty Ltd ("SSM") and SSM T'ee ("SSM T'ee") to the Defendants. They also seek an order that the contract be specifically performed.
The Plaintiffs have put a proposed deed before the court which they assert is the result of the agreement the parties should be obliged to enter.
In the alternative the court is asked to grant specific performance of the promises in the agreement.
The proceedings therefore involve three questions. The first is whether the Heads of Agreement which was executed by the relevant parties following a mediation on 22 July 2011 before Mr R J Ellicott QC is legally binding. The second question is whether the court should order that the parties specifically perform the obligations imposed by the alleged contract.
The third question is, in the event that the court is of the view that specific performance should not be granted, are the Plaintiffs entitled to any and if so what damages. In relation to this question I made an order at the beginning of the hearing that all questions excluding damages should be determined at this stage.
Factual Background
The Plaintiffs have set out in their submissions the factual background, which includes a number of relevant commercial agreements that were in place at the date of the mediation. That background is not in my opinion controversial and I respectfully adopt it in very large measure with some modest additions.
The Sydney Superyacht Marina ("the Marina") is located on the western side of the Anzac Bridge, in Rozelle Bay. The Marina is the largest facility in Sydney Harbour where superyachts may be berthed. A superyacht is a vessel with a length of 24 metres or more.
The waterfront and land constituting the Marina are owned by Roads and Maritime Services, a corporation constituted under the Transport Administration Act 1988 (NSW). Until late 2011, the relevant functions of that corporation were undertaken by the Maritime Authority of NSW ("NSWM"), a body corporate constituted under the Ports and Maritime Administration Act 1995 (NSW).
In 2008 the NSW Government developed a master plan for the development of Rozelle and Blackwattle Bays, to retain sufficient waterfront sites for working waterfront activities to cater for a range of maritime activities.
On or about 17 November 2008 NSWM issued a request to the public for proposals ("RFP") for purchase of business and redevelopment and lease of land at Rozelle Bay. This involved redevelopment of the existing Marina, both to expand its berthing capacity, and introduce commercial buildings in the associated land area.
Sydney Superyacht Marina Pty Limited ("SSM") (which is referred to in the Agreement as SSM Pty Ltd) submitted a proposal in response to the RFP on 25 February 2009.
On 31 July 2009 NSWM awarded SSM preferred proponent status.
On 26 August 2009 the parties to this litigation established the Sydney Superyacht Marina Unit Trust ("the Unit Trust").
Each of the corporate parties to this litigation became founding unitholders of the Unit Trust.
On 17 September 2009, NSWM, and SSM, entered into a management agreement for the existing Marina business which NSWM then owned and operated. SSM has managed the business under that Agreement and a Business Sale Agreement mentioned below since September 2009.
On 10 June 2010, in anticipation of executing formal documents with NSWM, the parties to this litigation entered into a Unitholders Deed governing the Unit Trust ("Unitholders Deed").
Schedule 4 to that Deed recorded details of the shares issued in each of SSM, and SSM T'ee, which replaced SSM as the Trustee of the Unit Trust. It also identified the units issued in the Unit Trust.
The substance of the shareholdings and unitholdings both at the date of the Unitholders Deed, and now, is that the corporate Plaintiffs hold 44% of the shares in each of SSM and SSM T'ee, and the same percentage of units in the Unit Trust. The corporate Defendants hold 56% of the shares in those companies and units in the Unit Trust.
On 15 June 2010, NSWM entered into a number of agreements relating to the development of the Marina. They are:
(a) A Business Sale Agreement with SSM (the "Business Sale Agreement")
(b) With SSM T'ee:
(i) Access and Works Licence Deed ("Access Licence");
(ii) Development Deed - Rozelle Bay Superyacht Marina Precinct.
These three agreements remain on foot. Neither SSM, nor SSM T'ee, is in default of any obligations under any of those agreements.
The Business Sale Agreement involved a sale by NSWM to SSM of the Business and the Assets (as defined) of the existing Marina. The purchase price was $2 million. The purchase price was payable on or before 1 September 2014. The "business" is defined to mean the berthing and storage of boats, dry boat storage, leasing and licensing arrangements with third parties and all other income generating activities, including the sale and supply of goods and services.
The Business Sale Agreement was interdependent with each of the Development Deed and Access Licence Deed.
Whilst the Purchase Price was not to be paid until 1 September 2014, SSM, as purchaser, was required within 60 days of 15 June 2010, to deliver to NSWM the "Purchase Price Bank Guarantee".
It is common ground that Akalam Pty Limited, a company controlled by a Mr Gav, provided the Bank Guarantee.
Akalam took a Deed of Floating Charge over the assets of SSM, (but not SSM T'ee), to secure SSM's obligation to return the Bank Guarantee.
Mr Gav had been a party potentially interested in financing the development but in the end did not provide the funding.
The Access Licence confers a licence on SSM T'ee to permit it to develop the Licensed Site (as defined) in accordance with SSM T'ee's obligations under the Development Deed. The Licensed Site is defined in the Access Deed which includes the Wetland Licence Site (the Marina) and the Dryland Licence Site. The area of the Wetland Licence is depicted in a plan (attachment A) attached to the Deed where it is described as the Rozelle Bay Superyacht Marina.
The Wetland Licence area is that part of the development on the water in Rozelle Bay in which berths are located. The Dryland Licence area is that part of the development, on land adjoining the Marina berth area which will be redeveloped for Marina and tenant offices and facilities, restaurants and cafes and a function centre.
Clause 2.1 of the Access Licence confers a non-exclusive licence on SSM T'ee to use and occupy the Licensed Site for a defined period to permit it to comply with its obligations under the Development Deed.
The Licensee is responsible for all outgoings which could include liability to relevant persons or authorities or reimbursement of the Licensor (clause 3.2). Outgoings could include electricity, gas, telephone etc (clause 3(2)(b)).
SSM T'ee as licensee is permitted, subject to the consent of NSWM (now Roads and Maritime Services), to grant a sub-licence of any part of the Licensed Site (clause 7.2). A similar right will apply once the development obligations have been performed and the Long Term Leases are granted. Provisions similar to clause 7.2, permitting the grant of a licence, are contained in clause 10.3 of the draft Long Term Wetland Lease (Attachment A to the Development Deed). Similar provisions are also contained in clause 10.2 of the draft Long Term Dryland Lease (Attachment B to the Development Deed).
Another relevant feature is Schedule 2 to the Access Licence. It provides formulae for the computation of the Licence Fees payable by SSM T'ee under the Licence.
Schedule 1 of the Deed (item 3) provides the Licensee is to pay a Wetland Base fee of $228,000 to be increased annually in accordance with Schedule 2. This base fee is to be increased annually at a rate of 3% (Schedule 2, clause 3.1).
Pursuant to clause 3.2 of Schedule 2 the Licensee is also liable for what is called a Wetland Supplementary Licence Fee. This is of course additional to the Wetland Base Fee.
The Wetland Supplementary Licence Fee is calculated by subtracting the Wetland Base Fee for the relevant period from the higher of either what is called the Wetland Imputed Licence Fee and the Wetland Actual Licence Fee. (clause 3.2(a), Schedule 2). By reason of the formula theoretically the Supplementary Licence Fee could be a positive or a negative amount. In either eventuality there is a methodology for adjustment between Licensor and Licensee (clause 3.2 (c)).
The Wetland Imputed Licence Fee means 19% of the aggregate of what is described as the Wetland Imputed Revenue (calculated in a particular way) and all revenue from direct services provided. The Wetland Imputed Revenue requires for its calculation a combination of what if any revenue could be expected to be received from a related entity for each berth or a third party taking into account what are described as Imputed Revenue Guidelines. The revenue may be zero if genuine attempts have been made and the berth has been vacant. An amount is then fixed for the purposes of the supplementary licence fee calculation.
The Wetland Actual Licence Fee amounts to 19% of the aggregate of what is described as the Wetland Actual Gross Revenue, which comprises all income from the use of the Marina and all revenue from direct service charges.
The Supplementary Licence is therefore arrived at by reference to the higher of the revenue actually received under the lease and in effect the market (or imputed or assigned rent) calculated by reference to the formula set out in Schedule 2. This integer is then put into the relevant formula as described above.
One of the Plaintiffs, Mr Ellis swore an affidavit on 11 November 2011. In that affidavit he sets out the practice adopted by the business. He states he is familiar with the Schedule of Charges rendered to yachts using the Marina. Annexed to his affidavit is an Annexure C which clearly distinguishes between revenue derived from the Berthing Tariff and the Tariff in relation to the provision of Services. The Licence Fee payable under the Access Deed clearly involved a calculation based on an aggregate of revenue generated from the marina and revenue generated from services. The Berthing Rate did however as a matter of practice include services such as rubbish removal, service of marina attendants, provision of water and sewerage pump out which were part of the Berthing Tariff, and they were not the subject of separate charges. Services such as supply of electricity, telephones, fuel, internet and data communications were charged additionally and were not treated as part of the Berthing Rate. Mr Ellis' evidence on the issue was not challenged. I accept it.
The most detailed agreement entered into with NSWM is the Development Deed. It provides for the detailed terms upon which SSM T'ee will develop the existing Marina.
Clause 3 records NSW Maritime's objectives which include developing the Marina to provide berthing and provisioning of at least 24 superyachts.
Clause 5 provided that NSWM was obliged to grant to SSM T'ee, provided the latter complied with its obligations under the Deed, long term leases for each of the Wetland and Dryland areas of at least 39 years.
SSM T'ee undertook obligations to ensure that the design documentation was consistent with the NSW Government's Master Plan (clause 7(a)) and had obtained all approvals relevant to the development (clause 8).
The development of the Dryland work required planning consent from the Minister for Planning under Part 3A of the Environmental Planning and Assessment Act 1979 (NSW) for the whole of the Dryland work. The development application has not yet been determined by the Department of Planning. NSWM has extended the Substantial Commencement Date for Stage 1 of the Dryland works to 30 June 2012.
SSM T'ee is to enter into a building contract for the development. It is permitted to construct the Dryland Work in up to 5 Stages.
The Development Deed contained, as attachments, draft Long Term Wetland and Dryland Leases.
The draft Long Term Wetland Lease and the Long Term Dryland Lease each contain provisions which permit the grant of sub-licences of parts of each of the Wetland and Dryland areas similar, as I have observed, to provisions in the Access Deed.
The redevelopment which NSWM approved permits the upgrade of the Marina to accommodate 24 superyachts. There will be additional space in which smaller vessels, including tender vessels, may be berthed.
Disputes arose between the James' interest (Mr Brian James and his son Justin, who controlled the First and Fourth Defendants respectively) and the Plaintiffs. Mr R J Ellicott QC was appointed mediator pursuant to a mediation agreement. The mediation took place on 22 July 2011. Each of Messrs Brian and Justin James on the one hand and Mr Ellis and Mr Mitchell attended the mediation. The James' interests were represented by Mr Pappas, their then solicitor and his employed solicitor, Ms Panos. Messrs Ellis' interests were represented by their solicitor, Mr Conolly and Mr Benson an employed solicitor.
After negotiations Mr Ellicott wrote out a two page document. It was signed by Mr Anthony Ellis and Mr Brian James whose signatures were witnessed by Mr Ellicott QC. It was in the following terms:
Brian James & ors/Tony Ellis & ors
as named in Mediation Agreement dated 22/7/2011
Heads of Agreement
1. Tony Ellis and others agree to sell their shares and units in SSM Pty Ltd and SSM Trustee Pty Ltd to Brian James and others on the following terms:
(a) Brian James & others to pay to Tony Ellis & others the sum of $2.125 million plus GST if applicable by an upfront payment of $1.75 million and 6 annual payments of $62,500 each plus GST if applicable commencing on 1 July 2012.
(b) Tony Ellis & others to receive 21.6% plus G.S.T of the Gross Marina berth income of the Rozelle Marina. They to be responsible to pay NSWMA 19% thereof
(c) Tony Ellis & others to have transferred to them 21.6% of the surface water area of the berths of the Marina this percentage being represented by the appropriate number of berths which would make up that area
(d) Mutual releases to cover all outstanding claims to the parties against the others or their associated companies arising out of the management and administration of the Rozelle Marina to date.
(e) Tony Ellis and others to be indemnified by Brian James and others in relation to any claims made against them arising in relation to claims against SSM Pty Ltd and SSM Trustee Pty Ltd.
(f) The parties will use best endeavour to obtain any necessary consents and leases or other rights for the purpose of implementing their agreement from NSW Maritime Authority.
(g) Without affecting the binding nature of these Heads of Agreement the parties within 7 days to execute a formal document or documents as agreed between their respective solicitors to carry out and express in more formal terms and additional terms as these Heads of Agreement. The formal agreement is to contain a provision for monthly payments of 21.6% share of gross Marina berth income based on a reasonable estimate of that income for that year
(h) Mr Brian James to personally guarantee the payment of the annual payments referred to above
(i) Settlement of the transaction to take place within 28 days of the execution of a formal agreement as reference to (g) above
Signed by Tony Ellis
on behalf of Tony Ellis
and others
On 22/7/2011
Signed by Brian
James on behalf of
Brian James and
others on 22/7/2011.
The Heads of Agreement clause 1(g) contemplated that the parties solicitors would meet with a view to agreeing to more formal terms and adding perhaps additional terms to give effect to the Heads of Agreement. Between 26 July and 24 August 2011 the respective solicitors for the relevant parties undertook what can only be described as a substantial drafting exercise in an attempt to reach agreement on formal documentation so as to resolve all outstanding matters concerning their disputes. It is important to appreciate some of the detail of that exercise.
This process occurred at least in the period from 26 July to around 18 August. On 26 July Mr Benson forwarded to Ms Panos, solicitor for the Defendants a draft of the proposed Deed of Settlement and Release. Mr Benson made clear he had not received final instructions on the Deed for his clients.
On 28 July Mr Benson informed Ms Panos that he, having received further instructions would send a revised draft Deed. He did.
On the same day Ms Panos referred to a proposed clause 7.9 of the draft which purported to provide for assignment of the rights to the Gross Marina Berth Income and which had not been "agreed" at the mediation, but her clients were content for such a provision.
It is clear at this stage that the Plaintiffs were pressing for an exchange and execution of the Deed on 29 July 2011.
On 28 July Mr Conolly sent an email to Mr Pappas which commented on a number of clauses in the Defendants proposed draft. He also put a suggested new definition of Gross Marina Berth Income. It is also clear at this stage there were a number of clauses not agreed.
On 29 July just before noon Mr Benson rang Ms Panos to enquire whether her clients would be able to execute the Deed later that day. She said she hoped so.
Later in the day at about 3pm, Mr Ellis and Mr Mitchell attended Mr Conolly's office for the purpose of executing the Deed. However at about 4pm Mr Pappas and Ms Panos attended Mr Conolly's office without their clients.
During the meeting which took place in Mr Conolly's office, Mr Benson made notes on Mr Conolly's email to Mr Pappas of 28 July as items were discussed.
Mr Conolly indicated his clients would agree to the date for execution being extended until the Tuesday provided the date of completion take place on Friday 26 August. Mr Pappas indicated his clients would agree to that. That evening Mr Benson sent a redrafted Deed to Ms Panos.
On 1 August Mr Benson sent Ms Panos a revised copy of a plan of the area to be attached to the Deed.
On 2 August Ms Panos indicated that her clients would like the 21.6% of the Gross Marina Berth Income indexed at 3% per annum.
During that day a number of emails passed between the solicitors. One of the emails during that day raised the question of the access route shown on the plan. The Plaintiffs were concerned that a person might have to potentially jump down a two metre drop and asked whether the Defendants had any other plans. Ms Panos responded there was a ladder that could be used.
Late that afternoon Mr Benson responded to Ms Panos on a number of issues but indicated the access via the ladder was unacceptable. There was also still an issue regarding the Defendants request for a last right of refusal.
Again on 3 August a number of emails passed between the respective solicitors. The Plaintiffs continued to agitate their position on the question of a more appropriate access. One email contained photographs of the ladder earlier referred to at high tide in order to make the point. The Plaintiffs pressed for a meeting to finalise matters.
On 4 August Mr Conolly in an email addressed to Mr Pappas advised that Mr James had agreed with Mr Ellis that the Plaintiffs should have the same access as "normal, general public access to the area, and that accorded to Marina clients and their subcontractors". Other matters were also dealt with in the email.
On 5 August Mr Benson sent yet another version of the suggested Deed. Many other emails passed between the solicitors on that day, however around lunchtime on that day Mr Conolly enquired by email of Mr Pappas to indicate what was happening. Later that afternoon Ms Panos told Mr Benson she was awaiting instructions. Finally she said that she expected to get back to Mr Conolly on Monday (8 August).
Not satisfied, Mr Conolly sent a further email that afternoon complaining about the lack of progress in the face of the alleged agreement before the mediation.
On Tuesday 9 August Mr Conolly suggested execution of the Deed on Wednesday at 2pm. Ms Panos said by email she needed to get instructions.
At this point, although there were still some matters not agreed, the parties had made considerable progress on the terms of the Deed.
However on Wednesday 10 August Ms Panos told Mr Benson that her clients finance has "now dropped out" and they did not feel comfortable signing a Deed until they had confirmation finance would be available. She also indicated her clients still had some problems with some clauses.
On 15 August Mr Conolly sent an email to Ms Panos. The email makes clear he thought from what had been said at the mediation that Mr James was funding himself. Ms Panos said that was not so.
Over the next few days Mr Conolly sought somewhat unsuccessfully to get Mr Pappas to speak with him. On 18 August Mr Conolly again asserted that he and his clients believed that Mr James was self funding the agreement needed.
Further on 18 August Mr and Mrs Ellis and Mr Mitchell executed the then version of Deed and Mr Conolly had it hand delivered to Mr Pappas' office.
On Tuesday 23 August Mr Conolly warned that completion was due to take place on Friday 26 August. To that end Mr Conolly sent a detailed agenda to Mr Pappas as to steps to be completed for settlement.
Mr Pappas responded on 24 August reminding Mr Conolly that the parties remained in substantial disagreement regarding certain "key" terms, but suggested the parties should continue to work constructively towards a "complete resolution of the matter".
Mr Conolly on 25 August asserted there was agreement and that the only reason Mr Pappas' clients had not proceeded to settlement was a lack of funds.
It is plain by the detailed response of 26 August that Mr Pappas on behalf of his clients was now and for the first time asserting that there was no binding contract. In response to an assertion by Mr Conolly that his clients may terminate the contract in due course, Mr Pappas responded as follows:
"There is no contract for your clients to terminate".
Mr Conolly in an email dated 29 August asserted that a suggestion that there was no binding agreement would constitute a repudiation of the agreement.
On 16 September Mr Pappas indicated he no longer acted for the Defendants.
I have set the history of these matters out at some little length because I consider it exposes a number of matters. First the post mediation conduct of the Defendants supports the proposition that until around 26 August the Defendants via their solicitor Mr Pappas were seemingly attempting to reach agreement on the Deed in accordance with the Heads of Agreement. Their attitude changed when their finance became unavailable. The contention that the contract was not binding arose coincidentally perhaps at this moment, notwithstanding the considerable efforts taken to consummate the terms of the Deed.
By 18 August there was in my view agreement on a substantial number of aspects of the Deed.
On 26 August 2011 however the Defendant's solicitors refused to proceed any further with the drafting exercise.
Proceedings were commenced on 29 September 2011.
The Contentions of the Parties
The Plaintiffs submit that as a result of the handwritten document prepared at the mediation and signed by the relevant persons it was expressly agreed that there would be a legally binding arrangement whether or not a formal document was executed. Further the Plaintiffs argue that the court should order in these circumstances the parties to specifically perform the obligations imposed by the contract by requiring the parties to enter into and perform (and cause SSM and SSM T'ee to enter into and perform) the obligations contained in the proposed Deed of Settlement and Release. The Plaintiffs also submit that the proposed Deed represents those matters the parties had agreed as at 18 August 2011 together with some additional items not agreed, but which the Plaintiffs submit the Defendants should be obliged to accept. Alternatively the Plaintiffs seek specific performance of the promises in the Heads of Agreement.
The Plaintiffs submit damages are an inadequate remedy in the circumstances. I did not detect any submission to the contrary from the Defendants on this point were I otherwise to find a binding contract as alleged.
The Defendants contend that the Heads of Agreement could not as a matter of law be a binding and legally enforceable agreement. It is submitted that the document on its proper construction is incomplete and uncertain in its terms.
It was also submitted by the Defendants that the post contractual conduct establishes no concluded agreement because the parties engaged in detailed negotiations and failed to reach agreement as to the terms of the Deed of Settlement and Release.
The Defendants point to clause 1(g) of the Heads of Agreement and to the fact that the parties intended their respective solicitors to agree to a "more formal document or documents" to carry out and express in more formal terms and additional terms which is of itself they submit a clear indication the Heads of Agreement are necessarily incomplete.
Another issue concerns the payment of the $1.75m, and the notion of "upfront payment" which, it is asserted by the Defendants, adds to the uncertainty.
Uncertainty according to the Defendants also intrudes into the so-called agreement because of the term "Gross Marina Berth Income", referred to in the Heads of Agreement. This they submit was not agreed or defined and is uncertain.
Confusion and uncertainty is also said to arise because the Heads of Agreement did not include SSM and SSM T'ee as parties. The Defendants also contend NSWM should have been a party to the Deed.
Complaint is also made by the Defendants about the lack of definition of "Rozelle Marina", and further that 1(f) could not be complied with because the NSWM were not willing to entertain a sub licence. It is also submitted that NSWM should have been a party to the Heads of Agreement.
There is also resistance to being compelled to execute the Deed of Settlement the Plaintiffs have proffered to the court. It is put the Defendants have simply not agreed to all of its terms. No specific submission was however put as to the drafting of any of the proposed clauses in the draft deed proffered by the Plaintiffs.
In conclusion the Defendants submit that the Plaintiffs knew the Defendants could not afford to acquire the Plaintiffs interest in the project or meet the upfront payment of $1.75m. As a result the Heads of Agreement must have been subject to an implied term that the Defendants would acquire "subject to third party finance".
The Legal Principles
Whether or not the parties here intended the agreement to be immediately binding is to be determined objectively having regard to the language contained in the Heads of Agreement. The High Court has repeatedly affirmed this proposition. Allen v Carbone (1975) 132 CLR 528 ; Taylor v Johnson (1983) 151 CLR 422 ; Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 ; Byrnes & Anor v Kendle (2011) 243 CLR 253 .
The Heads of Agreement must of course be read in the light of the surrounding circumstances.
The High Court in Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 said at 462:
The construction of the letters of indemnity is to be determined by what a reasonable person in the position of Pacific would have understood them to mean (26). That requires consideration, not only of the text of the documents, but also the surrounding circumstances known to Pacific and BNP, and the purpose and object of the transaction (27). In Codelfa Constructions Pty Ltd v State Rail Authority of NSW (28), Mason J set out with evident approval the statement of Lord Wilberforce in Reardon Smith Line Ltd v Hansen-Tangen (29):
"In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating."
In International Air Transport Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151, the High Court remarked at 160:
In giving a commercial contract a businesslike interpretation, it is necessary to consider the language used by the parties, the circumstances addressed by the contract, and the objects which it is intended to secure (18). An appreciation of the commercial purpose of a contract calls for a understanding of the genesis of the transaction, the background, and the market (19). This is a case in which the Court's general understanding of background and purpose is supplemented by specific information as to the genesis of the transaction. The Agreement has a history; and that history is part of the context in which the contract takes its meaning (20).
As the authors point out in Lewison and Hughes , The Interpretation of Contracts in Australia (2012) at p118:
...the relevant background consists of facts that were actually known to both (or all) parties to the contract, or that are sufficiently notorious that it can be presumed they were so known. Facts which were known to only one of them will not be relevant. Nor is it sufficient to prove that facts were reasonably available, without demonstrating that their availability should lead to an inference being drawn that they were in fact known by both parties. It is, of course, the case that facts which were not known to either party at the date of the contract are not relevant to the construction of the contract, for if the facts were unknown they cannot have played any part in forming the presumed intention which is embodied in the contract. However, where a fact is known to one party and not to the other, in theory it may well have played a part in forming the intention of the party who knew that fact. However, unless a fact is known to both parties, it will not be admitted in evidence, because the court is seeking not the actual intention of one party to the contract, but the presumed mutual intention of both of them.
Story puts it as follows in A Treatise on the Law of Contracts Not Under Seal , at page 148:
In as much as every contract derives its force from the mutual assent of the parties thereto, to certain terms, it becomes necessary, not only to interpret those terms, in order to ascertain the intention of the parties in entering into the agreement, but also, so to construe them, as to give a legal operation to such intention. The collection of such intention, by inferences from stated terms, or from actual circumstances, or both, is the office of interpretation. The adjustment of such intention to paramount law, is the office of construction.
If the terms of such a document indicate that the parties intended to be bound immediately, effect must be given to it. Construction of a document may make it sufficiently clear that the parties were content to be bound immediately by the terms to which they had agreed, notwithstanding they contemplated further documentation. Masters v Cameron (1954) 91 CLR 353 at 360; Anaconda Nickel Ltd v Tarmoola Pty Ltd (2000) 22 WAR 101 (per Ipp J at 110).
As McHugh JA (as he then was) said in G R Securities Pty Limited v Baulkham Hills Private Hospital Pty Limited (1986) 40 NSWLR 631 at 634:
However, the decisive issue is always the intention of the parties which must be objectively ascertained from the terms of the document when read in the light of the surrounding circumstances: Godecke v Kirwan (1973) 129 CLR 629 at 638; Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 at 332-334, 337. If the terms of a document indicate that the parties intended to be bound immediately, effect must be given to that intention irrespective of the subject matter, magnitude or complexity of the transaction.
Even when a document recording the terms of the parties' agreement specifically refers to the execution of a formal contract, the parties may be immediately bound. Upon the proper construction of the document, it may sufficiently appear that "the parties were content to be bound immediately and exclusively by the terms which they had agreed upon whilst expecting to make a further contract in substitution for the first contract, containing, by consent, additional terms": Sinclair, Scott & Co Ltd v Naughton (at 317).
McHugh J A also said at 635-636:
Under the agreement each party was obliged to do all that was necessary on his part to enable the other party to have the benefit of the agreement concluded by the correspondence: Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 at 607. This included doing everything necessary to enable contracts to be exchanged by 18 April 1986: Godecke v Kirwan (at 641). If the parties agreed on additional terms, they would be added to the formal contract. If they did not, the formal contract would give effect only to the agreed terms and conditions of the correspondence. The case, therefore, is one where the parties were bound by the informal agreement but expected to make a further contract which by consent might contain additional terms: Sinclair, Scott & Co Ltd v Naughton (at 317).
As Walsh J (with whom Mason J agreed) had earlier pointed out in Godecke v Kirwan (1973) 129 CLR 629 at 639, an agreement which obliges a subsequent agreement to be entered into may contain covenants for example in the new agreement not included in the original contract. In expressing his agreement with the South Australian decision of Bray CJ in Powell v Jones [1968] S.A.S.R. 394, Walsh J accepted that there was no reason in principle for holding that there cannot be a binding contract even if some matter is left to be determined by one of the contracting parties. His Honour took the view that because he was there looking at a clause which permitted the insertion of covenants and conditions (not inconsistent with those contained in the offer), he thought any new terms should also be limited by reference to the reasonableness of requiring the inclusion of those covenants and conditions. He thought that the clause meant that what was required must be reasonable in an objective sense and in the event that there was a dispute it was always a matter for a court to decide.
The relevant clause the court was concerned with in Godecke was in the following terms:
6. If required by the Vendor/s, I/we shall execute a further agreement to be prepared at my costs by his appointed Solicitors containing the foregoing and such other covenants and conditions as they may reasonably require.
Gibbs J in Godecke was also of the view the parties may leave terms, even essential terms, to be determined by a third person. In such a case His Honour was of the view that a contract would not be bad for uncertainty because if the third person settled the terms of the contract it would be rendered certain. His Honour said (at page 645):
It is no objection that the power to determine the terms and conditions to be incorporated in the contract is left to the solicitors for one of the parties.
Gibbs J also referred to the decision of the High Court in Axelsen v O'Brien (1949) 80 CLR 219 in which Latham CJ had found that there had been a concluded contract notwithstanding further terms of the bill of mortgage remained to be arranged or determined by a solicitor. Indeed in that case Latham CJ was of the view that if the solicitor failed to settle the terms not only was that no bar to specific performance but the court in granting specific performance was well able to settle the terms if the solicitor had not done so. Gibbs J did however draw a distinction between an agreement which left further terms to be settled by "one of the parties rather than by his solicitors"(at 646). Gibbs J thought that if one of the parties to a contract was left a discretion as to whether or not he or she would carry the contract out as allegedly agreed then it could not be said that there was a concluded bargain. To delegate however to third parties especially solicitors to implement the agreement is an entirely different matter.
Where of course the performance of a contract cannot take place without co-operation of both parties it is implied that co-operation will occur. Neither party to a contract is permitted to prevent the other party from performing the contract: Mackay v Dick (1881) 6 App Cas 251.
Here the Defendants appear to assert that the Heads of Agreement falls within the third category of Masters v Cameron , namely a case in which the intention of the parties was not to make a concluded bargain at all unless and until they executed a formal contract in due course.
Once a court has however determined that the requisite intention is present it is necessary then to go on to consider whether the contract is so incomplete or uncertain as to be void. It is clear that there can be no binding and enforceable obligation unless the terms of a bargain, or at least its essential terms, have been agreed on. If an essential or critical term is expressly left to be settled by the future agreement of the parties there will be no binding contract. Obscure or ambiguous language incapable of any precise or definite meaning may also be an impediment to finding the parties intended binding contractual relations.
What is or is not an essential term is sometimes difficult to ascertain. It has been said that a term which is essential is one without which the contract cannot be enforced. Pagnan Spa v Feed Products Ltd [1987] 2 Lloyds Rep 601 per Lloyd LJ at 619.
Barwick CJ in Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429 (at 436 - 437) said:
But a contract of which there can be more than one possible meaning or which when construed can produce in its application more than one result is not therefore void for uncertainty. As long as it is capable of a meaning, it will ultimately bear that meaning which the courts, or in an appropriate case, an arbitrator, decides is its proper construction: and the court or arbitrator will decide its application. The question becomes one of construction, of ascertaining the intention of the parties, and of applying it. Lord Tomlin's words in this connexion in Hillas & Co. Ltd. v Arcos Ltd. (1) ought to be kept in mind. So long as the language employed by the parties, to use Lord Wright's words in Scammell (G.) & Nephew Ltd. v Ouston (2) is not "so obscure and so incapable of any definite or precise meaning that the Court is unable to attribute to the parties any particular contractual intention", the contract cannot be held to be void or uncertain or meaningless. In the search for that intention, no narrow or pedantic approach is warranted, particularly in the case of commercial arrangements. Thus will uncertainty of meaning, as distinct from absence of meaning or of intention, be resolved.
Discussion
In my opinion the terms of the Heads of Agreement indicate in plain and unequivocal language that the parties intended to bind themselves immediately upon signing the document. I am also of the view that the Heads of Agreement contain all the relevant and essential terms required for a legally binding and enforceable contract.
I am simply unable to accept any of the arguments advanced by the Defendants in opposition to such a conclusion. I am entirely unpersuaded that the language chosen by the parties could objectively be viewed as anything other than evincing an intention to be immediately bound, subject to more formal documentation including the potential for additional terms to be settled by the parties' respective solicitors.
There are a number of pointers in the language in the Heads of Agreement which clearly indicate that the parties were intending immediately to conclude an agreement. First the description "Heads of Agreement" is a very clear indicator in and of itself. Mr James signed the document it seems to me on behalf of himself, his son and the companies they represented. Mr Ellis signed it it seems to me on behalf of himself and Mr Mitchell and the companies they represented. The words indicating that the Ellis' interests "agreed to sell" their shares and units in SSM Pty Limited and SSM Trustee Pty Limited (the only relevant entities) to the James' interests is another clear indication of what the parties were intending to achieve.
The reference to the price of $2.125 m in clause 1(b) of the Heads of Agreement with the "upfront payment" of $1.75 m and the six annual instalments is in my mind clear in its import. The notion of "upfront" is obviously an indication that the monies were to be paid within 28 days of the execution of the formal agreement referred to in paragraph 1(i) and before (i.e. in advance) the instalments were to begin. The six annual instalments are to commence on 1 July 2012. The language does not sensibly permit of any other interpretation.
The reference in clause 1(b) "Gross Marina Berth Income" is a phrase that is not expressly defined in the Heads of Agreement nor does one find that phrase as such defined in any of the agreements between the relevant entities and NSWM. But the phrase cannot be understood devoid of context. The relevant parties to this litigation via SSM and SSM T'ee were parties to the various commercial agreements referred to earlier in this judgment.
The adjective "Berth" as the Plaintiffs rightly contend is very important. The Marina business distinguishes between "Berth Income" and income from services provided to berthed vessels. Users of the marina were provided with a schedule of charges which identified what are described as Berthing and Service Tariffs. The accounts of the business to 30 June 2011 also separately recorded under "Income", "Berth Rental" and "Marina Services" as sources of revenue.
At the date of the Heads of Agreement, vessels using the Marina were charged a Berthing Rate, and additional charges for services, not included in the Berthing Rate. The Berthing Rate did however include services such as rubbish removal, the services of marina attendants, provision of water, and sewerage pump out. Other services however, such as the supply of electricity, telephones, fuel, internet and data communications were charged additionally and not treated as part of the Berthing Revenue.
In calculating the licence fee payable by the SSM T'ee pursuant to the Access Deed revenue from the rental of the berths and all relevant services are aggregated as explained above. The revenue described in clause 1(b) of the Heads of Agreement was clearly intended to be a subset only of the revenue otherwise taken into account in fixing licence fees.
Therefore the expression "Gross Marina Berth Income" must in my opinion be construed against the background of how the parties clearly knew the business operated. That expression is obviously intended to relate only to income derived from renting the berths although that rate does include services for rubbish removal etc. All other revenue from other services was not intended to be included in that expression. Given the surrounding circumstances known to the parties I regard the term as not suffering from any uncertainty.
Clause 1(b) also refers to the Ellis interests receiving 21.6% of the "Gross Marina Berth Income of the Rozelle Marina", and are in turn responsible for payment of 19% of that amount to NSWM. That notion is in my view abundantly clear and for that matter certain.
The Defendants however say that the phrase "Rozelle Marina" in clause 1(b) of the Heads of Agreement is uncertain. I regard that submission as untenable. The Access Deed provides the Licensee with access to the "Rozelle Bay Superyacht Marina Precinct". This is one of the deeds signed by Mr James. It has a plan attached described as the Licensed Site. That plan, attachment A, shows the area and depicts Rozelle Bay and also clearly identifies the Rozelle Marina for relevant purposes. In addition of course Mr James was a signatory to the February 2009 proposal submitted to NSWM which identifies the Rozelle Marina as the site in respect of which he along with others tendered. The evidence in my opinion permits of only one conclusion namely that there is only one Rozelle Marina. I reject the submission that that term is uncertain.
Clause 1(c) of the Heads of Agreement provides the transfer to the Ellis interests of 21.6% of the surface water area of the Marina. It is clearly intended that this would cover the appropriate number of berths which would make up this area. There is in my mind no uncertainty about what is meant by these words. It would have required some calculations to be performed but that is a mechanical task. Its meaning is however clear.
However, Mr Ellis in his affidavit sets out the process by which the 21.6% of the surface water area of the berths of the Marina has in fact in my view been determined subsequent to the mediation.
On 26 July Mr Ellis prepared a calculation of what he believed would comprise the 21.6% of the surface area. He provided it to a Mr John Ferres of Scott Carver Pty Limited, the architect retained by SSM who in turn performed some calculations. Mr Ferres' calculation and plan as shown in his email of 27 July shows a hatched area described as "Tony and Sam, Lease and Licence" with a length of 71.7 metres. "Tony and Sam" are Mr Ellis and Mr Mitchell respectively.
Mr Ferres subsequently redid his calculations showing the hatched area this time at a length of 64.5 metres. As a result Mr Ellis had a conversation with Mr Justin James. Mr James however refused to supply any calculations he had done.
Mr Ellis spoke to a Mr Alan Doyle of Rygate surveyors who had previously undertaken surveys for NSWM including those of the surface water area of the Marina.
As a result of his conversation with Mr Doyle, Mr Ellis sent an email to Mr Ferres on 3 August. In that email Mr Ellis informed Mr Ferres the appropriate length was 65.5 metres.
Mr Ferres again redid the calculations and on 3 August he informed Mr Ellis that the whole area comprising the 21.6% was 3,791 sq m (57.93 x 65.45). Mr Ferres amended the plan accordingly, Mr Ellis sent that amended plan to Mr Conolly and Mr Benson.
On 5 August Mr Benson forwarded amongst other things the plan showing the hatched area with the dimensions 57.93m and 65.45m respectively to Mr Pappas.
The Defendants and their then solicitor Mr Pappas never challenged the calculation. Further there was no cross examination of Mr Ellis on this issue and Mr James gave no evidence at the hearing on this issue so as to challenge it. In my view obviously the Defendants accept that calculation, however in any event there appears to be no dispute about it.
Clause 1(d) of the Heads of Agreement provides for mutual releases to "cover all outstanding claims" as therein described. That term is in my mind clear and certain and entirely conventional as part of resolving the disputation. It cannot be suggested that competent solicitors would have any difficulty understanding and implementing such a term.
Clause 1(e) is again perfectly clear in its terms. As part of the Ellis interests handing over control of the Marina (which is the consequence of the agreement) to the James interests such a term whereby an indemnity is sought and agreed, is in my opinion wholly unexceptionable. Again I regard it as a conventional term and a matter about which there is no uncertainty. Competent solicitors are well able to implement such a term.
Clause 1(f) of the Heads of Agreement is again in my view clear and certain. The notion of best endeavours is well understood in commercial contracts. It would certainly be regarded as implicit in commercial agreements where documents of various sorts need to be brought into existence as part of the implementation of such an agreement. Here it is explicit. Either the best endeavours will be successful or not, that is a different issue. I do not see any uncertainty.
Clause 1(g) is a very important clause. The words "Without affecting the binding nature of the Heads of Agreement" are in my mind the clearest indication the parties intended immediately to be bound. These words do not in my opinion reasonably permit of a different interpretation.
It was also intended within 7 days the respective solicitors would prepare to execute a document to "carry out and express in more formal terms and additional terms as these Heads of Agreement". Again the reference to "more" formal terms is a clear indication in my view the parties intended to be immediately bound. The word "more" is reflective merely of degree. Also that the formal document was to "carry out" the Heads of Agreement which again indicates to me the implementation of an already binding agreement.
Further there is an explicit reference that the formal agreement was to contain a provision for the monthly payments of 21.6% of the "Gross Marina Berth Income" to be based on a reasonable estimate of the income for the year. There is nothing uncertain about this notion in my view.
Clause 1(h) provides that Mr James agreed to personally guarantee the annual payments (meaning the $62,500 referred to in clause 1(g)). This is plainly clear enough.
Clause 1(i) also in my view is clear in its terms. It provides for settlement, namely the payment of the $1.75 m is to be paid within 28 days of the execution of the document in clause 1(g).
The respective interests represented at the mediation and those who signed the Heads of Agreement were doing so in circumstances where they were representing, as clearly was the fact, that each as directors and shareholders of SSM and SSM T'ee were about to make the agreement contained in the Heads of Agreement. Pursuant to the Heads of Agreement the Defendants will be the sole directors, shareholders and unit holders in these companies and the related unit trust and will control the business. Those present at the mediation were well able to understand, agree and implement that outcome. To suggest SSM and SSM T'ee should have been parties to the Heads of Agreement ignores the commercial and legal realities.
The proposition that NSWM should have been a party to the Heads of Agreement has no substance to it at all. There is no reason why they should have been nor did anyone suggest it at the mediation. Their role in due course would be their level of engagement pursuant to clause 1(f)
The Defendants have also asserted that the agreement was one which was to be "subject to finance". This submission I should say is one which I regard again as untenable.
It is said that the court should find that the Plaintiffs were aware for example that the Defendants did not have the financial resources to agree to be immediately bound by the Heads of Agreement.
There is no doubt that as at 4 February 2011 Mr Conolly (solicitor for the Plaintiffs) in an email to Mr Nicholas Pappas (the then solicitor for the Defendants) stated bluntly that his clients did not at that point believe the Defendants could buy the Plaintiffs out. It would also appear that Mr Conolly may have held that view immediately prior to the mediation. That of course makes all the more credible Mr Conolly's evidence that he expressly raised the question of whether the Defendants could afford to buy his client out at the start of the mediation to which, he was assured by Mr Pappas that the Defendants (and in their presence) were able to acquire the Plaintiffs' interest. I am satisfied that Mr Conolly asked the very question as he asserted in his evidence.
A number of the persons who accompanied Mr Conolly to the mediation gave evidence before me to similar effect, which clearly corroborated him. That included Messrs Benson, Ellis and Mitchell.
Thirdly, neither Mr Brian James, his son Justin nor for that matter their solicitor Mr Pappas or Ms Panos (who assisted Mr Pappas) was called to contradict that evidence.
Although it was put to Mr Ellis that such a conversation did not take place he rejected that notion and I accept his rejection. Such a suggestion was not put to either of Messrs Conolly, Benson or Mitchell. I accept their evidence.
My finding that such an express assurance was forthcoming on 22 July 2011 from Mr Pappas in his clients presence makes the attempt by the Defendants to support such an implication as here untenable.
Further I can see no basis in any event for otherwise finding such an implication. Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 ; Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61. Such an implication in all of the circumstances is neither reasonable, necessary, nor obvious, and it directly conflicts with the very assurance given by Mr Pappas on the day of the mediation. It is simply inconceivable that if it had been an issue it would not have been raised and if agreed so easily incorporated into the Heads of Agreement.
From the above as I have already said I am of the view that as a result of the mediation on 22 July 2011 a binding agreement was reached. It was to be the subject of a more formal agreement which might (or might not) include additional terms. What is clear is that by 18 August 2011 agreement was reached as to a large number of the terms of the proposed Deed of Settlement and Release but clearly not all.
Relief
In the circumstances I consider that this is an appropriate case for the grant of specific performance. The bargain should be upheld and implemented. There is no discretionary defence pleaded. Although there is evidence that in August of 2011 the Defendants lacked the funds then to implement their bargain and that is when they asserted their bargain was not legally enforceable. However there is no evidence they are insolvent or unable as opposed to unwilling to complete the contract.
The question is should the court grant specific performance of the proffered Deed or simply the promises? The Plaintiffs submit, correctly in my opinion that the Heads of Agreement contain seven operative promises. (See Plaintiff's submissions [93] to [99], 30 January 2012).
The fact the parties had delegated the formalising of their agreement to their respective solicitors whose task remains unfulfilled is no bar to a grant of specific performance. The Court can complete the task. In doing so it does not, so to speak fill any gaps, it completes the agreement the defaulting party has failed to implement. Godecke v Kirwan per Walsh J at 643, Gibbs J at 645-646. Turner v Bladin (1951) 82 CLR 463 per Williams, Fullager and Kitto JJ at 473; Axelsen v O'Brien per Latham CJ at 225.
A contract for the sale of shares and units in a unit trust where those shares and units are not available on the market, is one susceptible of specific performance. Meagher, Gummow & Lehane 'Equity Doctrines & Remedies 4 th Ed (2002) [20 - 040]; ANZ Executors & Trustees Ltd v Humes Ltd [1990] VR 615 per Brooking J at 625.
Also where a contract is of a kind where the purchaser could sue for specific performance the vendor can also sue. Turner v Bladin at 473, where Williams, Fullager and Kitto JJ said:
We are of opinion that where the contract is of such a kind that the purchaser can sue for specific performance, the vendor can also sue for specific performance, although the claim is merely to recover a sum of money and that he can do so although at the date of the writ the contract has been fully performed except for the payment of the purchase money or some part thereof.
If I am to order specific performance of the proffered Deed I need to be satisfied in my opinion its terms are both consistent with the Heads of Agreement and not unreasonable in its various requirements: Godecke v Kirwan per Walsh J at 642 - 643.
I articulate the issue in this way for a number of reasons. In Godecke , Walsh J construed the clause under consideration as only permitting the court to insert as a term one that would not be inconsistent with the original agreement. That would, it seems to me, follow a matter of course in any situation where the court completes the contractual obligations of the parties. To do otherwise would change the fabric of the agreement. After all what the solicitors in Godecke, as indeed here, were obliged to do was to implement the already existing agreement. That would mean simply using more formal language or adding additional terms.
Walsh J also thought the clause under consideration in Godecke limited the additional terms to those that could be described as objectively reasonable. The clause in that case expressly provided that the vendor's solicitor may "reasonably require" an additional term. Walsh J was of the opinion that those words should be construed as requiring a purchaser only to accept those terms which were objectively reasonable. In my mind although in Godecke the relevant term was express, I consider a court generally would not impose upon a party by way of an order for specific performance in circumstances such as these something which was objectively unreasonable.
Submissions on Proposed Deed
The Plaintiffs identified during submissions by reference to the proposed Deed where disagreement lay. The Defendants made no submissions on the drafting proposed as such, in respect of those clauses not agreed. They contented themselves with a submission that no binding agreement was reached.
The provisions in the proposed Deed which were not the subject of agreement are proposed clauses 1.1.9, 1.1.20, 7.7, 7.8, 8.4.4, 8.4.36, 8.5.22, 8.5.30 and 17.1. The Plaintiffs seek specific performance of the Deed which includes these provisions. The Defendants did not challenge the proposition that these were the clauses in dispute.
The solicitors for the Defendants were obliged to co-operate with their counterparts to consummate the Deed so as to implement the agreement reached. Insofar as the Defendants failed to instruct their solicitors to do just that they were in breach of the agreement and they simply are not permitted to assert there is no agreement when they are the reasons the agreement has not been formalised. Sutton v Gundowda Pty Ltd (1950) 81 CLR 418. The Defendants belatedly have described the process undertaken by the Plaintiffs as in effect a suit for rectification. I regard that submission in the light of my findings as misconceived.
The definition of "Gross Marina Berth Income" of the Rozelle Marina is the expression used in clause 1(b) of the Heads of Agreement. It was not defined in Heads of Agreement. However the agreement reached at the mediation was to be implemented in the context in which the parties were then doing business.
The term "Gross Marina Berth Income" is defined in the proposed clause 1.1.9 of the Deed as follows:
1.1.9 "Gross Marina Berth Income" means all the income from income generating activities, associated with the use of the Wetland Site only, by any entity, but not including revenue from Service Charges. If any part of the Wetland Site is under the effective control of an entity other than SSM T'ee, or one of the Non-James parties, then the income from that part of the Wetland Site will be deemed to be the higher of the actual income generated from all income generating activities, and the amount that would be the Wetland Imputed Revenue for that part of the Wetland Site if that entity were the lessee under the Draft Long Term Wetland Lease, but excluding, in either case, any revenue actually derived from Service Charges in respect of that part of the Wetland Site.
The first sentence of the proposed clause above is a precise reflection of what was occurring within the business namely that berthing revenue and service charges were separately treated. The emphasis on the adjective "Berth" is a clear pointer as to the source of the agreed revenue for the purposes of the Heads of Agreement. The parties as I have found distinguished in the running of the business revenue derived from berths (which included certain services included in the rate for the berth) and other services which persons were separately charged for. The agreement only relates to the revenue derived from berths and the parties knew only too well what that meant.
The balance of the proposed clause contains a number of terms the parties which on any view were at least familiar with. First the reference to the Wetland Site is a reference to the Marina. The next term is Wetland Imputed Revenue. This term is one defined in the Access Deed under which the parties have been doing business since mid 2010. It is defined in clause 1.1, Schedule 2 of the Access Deed to mean revenue imputed or assigned to berths calculated in the manner therein described. There is no definition of this term in the proposed Deed which is an obvious oversight.
The balance of the clause is said by the Plaintiffs to do no more than introduce against the backdrop of existing commercial contracts provisions and concepts similar to those in the Access Deed or indeed the proposed Long Term Lease.
The Plaintiffs further submitted as I understood it that as a possibility with a Long Term Lease in place the parties controlling the Marina (the Defendants) could conceivably enter into arrangements whereby they might sell an asset which might be part of the land development and/or sell a berth or berths for a capital sum which would not in effect include any berthing income. If that were to happen the balance of the proposed clause is to ensure that the definition will include such an amount.
There is an obvious similarity between terms in the proposed provision and those for example contained in the Access Deed. The proposed clause 1.1.9 however has a deeming mechanism. It also requires consideration of the rights and obligations of a lessee under the Draft Long Term Wetland Lease. The definition of Wetland Imputed Revenue in the Draft Long Term Lease is identical to the way the term is defined in the Access Deed.
I must confess to having reservations however that the balance of the proposed clause (after the first sentence) is consistent with the Heads of Agreement and reasonable in its scope.
The provisions in the Access Deed and/or Draft Long Term Lease which employed the mechanism of comparing imputed and actual revenues, was for the purpose and objective as I apprehend it of optimising revenue to NSWM by way of Licence fees or rent payable. Clause 1.1.9, at least the balance of the clause I would apprehend is to optimise the Plaintiffs commercial interests. Of course that is of no consequence if such a provision had been agreed. As I have said I have serious reservations, given the distinct promises made, to determine such a provision is consistent with the Heads of Agreement and reasonable. I am not disposed to grant specific performance of that portion of clause 1.1.9.
I would however order specific performance of what is proposed as the first sentence of clause 1.1.9.
"Service Charges" is defined as follows in proposed clause 1.1.20:
1.1.20 "Service Charges" means any changes levied to Marina tenants, from time to time, that constitute genuine and reasonable charges for services actually provided to those tenants. However, it does not include charges for the following four classes of services: the provision of work by Marina employees, the provision of fresh water, sewerage pump out, and rubbish removal.
This is merely a reflection of the way the business operated and should have been agreed. It also is necessary to make clause 1.1.9 abundantly clear. It is consistent with the Heads of Agreement and reasonable.
Clause 7.7 was not agreed. It is in the following terms:
Subject to clauses 8.2, 8.3 and 8.9 of this Deed, to the extent the Non-James Parties receive any Gross Marina Berth income Payment, they will, upon receipt of a valid tax invoice, pay NSW Maritime 19% of the amount of that Gross Marina Berth Income Payment
Clauses 8.2, 8.3 and 8.9 (which have been agreed) deal with the situation in which for example NSWM grant a lease or licence of the relevant area directly to the Plaintiffs. The Defendants would no longer pay the Plaintiffs the agreed 21.6% of revenue because the Plaintiffs would charge persons occupying the berths directly and receive the relevant revenue. The Plaintiffs would then be directly responsible to NSWM for the agreed 19% of that amount. The proposed clause 7.7 is simply to make that clear that if the Plaintiffs receive revenue directly they will upon the receipt of a tax invoice pay NSWM directly. The provision should have been agreed and is a reasonable request, consistent with the Heads of Agreement.
Clause 7.8 (that is the limited portions underlined) was not agreed but it is simply a method of getting documents to identify what the Marina Income is. It provides for the Plaintiffs at their expense to receive audited statements if they wish. I consider that a reasonable term and consistent with the regime agreed.
Clauses 8.4.4, 8.4.36, 8.5.22 and 8.5.30 are new and were not agreed. These are mechanical matters which would flow once the definition of Gross Marina Berth Income has been determined. They are reasonable and should have been agreed.
Clause 17.1 was not strictly agreed in those terms but is a perfectly reasonable requirement given the conduct of the parties. Mr Ellis gave evidence of a conversation he says took place between Mr Brian James and himself prior to 4 August in which Mr James told Mr Ellis that the Plaintiffs should have the same access as the public Marina clients or subcontractors. This conversation is referred to in the email from Mr Conolly on 4 August to Mr Pappas. No evidence was called from either Mr James or Mr Pappas to deny the conversation. Mr Ellis deposed to having had such a conversation with Mr James about access in his affidavit of 11 November 2011. He was not challenged in cross examination. I accept such a representation was made to Mr Ellis and thereby agreement was reached. In those circumstances clause 17.1 is perfectly appropriate.
Therefore the clauses which were not agreed (subject to my comments on clause 1.1.9) should be, along with the balance of the Deed as agreed, the subject of an order for specific performance.
Conclusion
In accordance with my reasons, I propose to make the following declaration and order:
(a) A declaration that there is a binding and enforceable contract between the Plaintiffs and the Defendants for the sale of the Plaintiffs interests in Sydney Superyacht Marina Pty Limited (ACN 127 177 904) (SSM) and SSM T'ee Pty Limited (ACN 141 712 610) (SSM T'ee).
(b) An order that the contract be specifically performed and carried into execution.
In making the above orders I appreciate further and additional orders will need to be made to reflect my reasons, and in particular to provide for the implementation of the order for specific performance.
I note that the Plaintiffs submitted a suggested form of short minutes which included orders additional to the above dealing with a number of mechanical issues. I should indicate that I would be disposed to make orders in accordance with paragraphs 3(a) (with an appropriate date inserted), 3(b) (with the appropriate Deed attached to reflect my reasons), 3(c) and paragraphs 4 - 10 inclusive.
I would invite the parties to prepare the Short Minutes and Deed and approach my Associate so that the matter can be listed before me for the making of the further orders.
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Decision last updated: 24 February 2012
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