Bone v Wallalong Investments (No.2)
[2012] NSWSC 203
•12 March 2012
Supreme Court
New South Wales
Medium Neutral Citation: Bone v Wallalong Investments (No.2) [2012] NSWSC 203 Hearing dates: 23/02/2012 and 24/02/2012 Decision date: 12 March 2012 Jurisdiction: Equity Division - Commercial List Before: McDougall J Decision: Plaintiff entitled to judgment against all defendants for arrears of interest. Stand over for orders.
Catchwords: VENDOR AND PURCHASER - contract for sale of land - whether plaintiff entitled to serve notice to complete - whether plaintiff ready, willing and able to complete on contract completion date or on dated fixed by notice to complete - whether plaintiff validly terminated contract by service of notice of termination - whether purchaser liable to pay interest from the extended date for completion, to the date of termination.
GUARANTEE - enforceability - whether directors of purchaser gave enforceable guarantees to the plaintiff - cross-claim - whether guarantors, upon payment of the rateable share of the guaranteed obligation, have a right of exoneration.
DAMAGES - whether plaintiff entitled to damages for loss of bargain.
PROCEDURE - application for leave to amend - prejudice - whether, if permitted, amendments would raise fresh factual issues.Legislation Cited: Civil Procedure Act 2005 (NSW) Cases Cited: DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423
Wright v Featherstone (1984) Q Conv R ¶54 - 118
Ex parte Robertson [1983] 1 Qd R 526Category: Principal judgment Parties: David James Bone (Plaintiff)
Christopher Alexander Moylan (Second Defendant)
Leonard John Tomkins (Third Defendant)Representation: Counsel:
EA Cheeseman / GJ O'Mahoney (Plaintiff)
EA Walker (Second Defendant)
A Ogborne (Third Defendant)
Solicitors:
Wilson & Co (Plaintiff)
Osborn Jensen (Second Defendant)
Roy Williams (Third Defendant)
File Number(s): 2011/62339
Judgment
The essential questions for decision are:
(1)is the first defendant (Wallalong) liable to the plaintiff (Mr Bone) for damages (including loss of bargain damages for breach of contract); and
(2)are the second to fourth defendants (the directors) liable, as guarantors, for any such liability?
On 28 January 2005, Mr Bone as vendor and Wallalong as purchaser made a contract for the sale of rural land (the contract). In the events that happened, the contract was due for completion on 9 August 2005. It became clear, prior to that date, that Wallalong could not complete.
Following negotiations, Mr Bone, Wallalong and the directors (I shall refer to them individually as Mr Moylan, Mr Tomkins and Mr Wilkes) executed a document described as deed of variation of the contract (the deed). By that deed, the completion date was extended to 9 February 2006 and Wallalong agreed to make some additional payments to Mr Bone. The deed also provided that the directors would guarantee the obligations of Wallalong to Mr Bone under the contract as varied.
Wallalong did not complete the contract on 9 February 2006. Again, it had become clear, prior to that date, that it could not do so.
After the passage of much time, and many intervening events, on 15 February 2010 Mr Bone served what was (or purported to be) a notice to complete on Wallalong. The notice to complete appointed 12 March 2010 as the date for completion and made time of the essence.
Wallalong did not complete the contract. On 10 May 2010, Mr Bone served what was (or purported to be) a notice of termination of the contract on Wallalong and the directors.
Wallalong and Mr Wilkes did not appear at the hearing. I am satisfied, for reasons that do not need explanation, that each of them has been duly served.
The real issues
Ms Cheeseman of counsel, who appeared with Mr O'Mahony of counsel for Mr Bone, stated that the real issues in dispute were as follows:
(1)was Mr Bone entitled to give a notice to complete when, on 15 February 2010, he purported to do so?
(2)Was Mr Bone in a position to complete, or ready willing and able to complete, on the date fixed for completion, namely 12 March 2010?
(3)Whether Mr Bone validly terminated the contract by service of the notice of termination on 10 March 2010?
(4)Whether the directors gave enforceable guarantees to Mr Bone of the obligations of Wallalong under the contract as varied?
(5)Whether, under the terms of the contract as varied, Wallalong was liable to pay interest, pursuant to special condition 4, from 9 February 2006 (the extended date for completion) until 10 May 2010 (the date of termination)?
(6)What is the amount of any liability that is proved?
The applications for leave to amend
Before I deal with those issues, I will deal with two applications for leave to amend that were made, indicating why I rejected one and why the other should succeed.
Application by Mr Tomkins
Up until about the morning of the hearing, it was common ground, on the "pleadings", that the contract had been brought to an end. On Mr Bone's case, it had come to an end because he terminated it by reason of Wallalong's failure to settle on the date appointed, being an essential date. On the case for each of Mr Moylan and Mr Tomkins, the contract was terminated because, in giving the notice of termination, Mr Bone had repudiated the contract and his obligations under it, and Wallalong had accepted that repudiation.
At the hearing, Mr Ogborne of counsel, who appeared for Mr Tomkins, applied to withdraw the assertion that the contract had been terminated by accepted repudiation, and to allege, in its place, that the contract had been abandoned. Mr Ogborne submitted that this was so because Wallalong, being on any view in breach of its obligations under the contract as at whatever was the date it purported to accept what it said was Mr Bone's repudiation, was not in a position to do so. The consequences, Mr Ogborne said, were that there could be no claim for damages; and, further, that all amounts paid under the contract should be refunded.
Ms Cheeseman opposed the application.
Mr Ogborne submitted that this amendment, if permitted, would not raise any fresh factual issues. That was so, he submitted, because all that Mr Tomkins sought to do was to argue that the facts that would be in evidence in any event should be given a different characterisation in law.
I rejected the application for leave to withdraw the pleading and to amend, and said that I would give reasons for doing so in my judgment.
Abandonment of a contract is not just a question of law. As Stephen, Mason and Jacobs JJ said in DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 at 434, the question is whether, on all the facts, "the parties must be regarded as having so conducted themselves as to abandon or abrogate the contract".
It may well have been the case that Mr Ogborne wished to rely on no evidence other than that which, he was reasonably entitled to expect, would be adduced on the basis of the affidavits that were to be read, and the court book that had been prepared. But it does not follow that Ms Cheeseman would have been obliged to limit her answer to the case of abandonment in the same fashion. Had the pleading been withdrawn, and the amendment made, at an appropriate time before the hearing, it would have been open to those acting for Mr Bone to undertake further examination of the available evidentiary material, to see what there was that might be relevant to the question of abandonment. But, having regard to the time at which and way in which the question arose, they were denied the opportunity to do so.
This is not a case where it is self-evidently clear that the case for Mr Bone must have been prepared and conducted in exactly the same way had the amendment been made. On the contrary, when one pays attention to what is involved in the concept of abandonment of a contract, it is clearly likely that further investigations would have been performed. Whether those investigations would have unturned any relevant material is a matter of speculation. But the point is that Mr Bone was denied the opportunity to undertake those investigations.
Mr Bone's application for leave to amend
The case put by Mr Bone against the directors on their guarantees was (see the amended commercial list statement filed on 30 May 2011, para 48) that they gave their guarantees as a term of the contract but "by virtue of the deed". I set out para 48:
48By virtue of the Deed, it was a term of the Contract that:
(a)each of Moylan, Tompkins and Wilkes jointly and severally guaranteed to Bone the payment of moneys and performance of obligations by River Island pursuant to the Contract;
(b)the giving of time or other indulgence or concession to River Island, Moylan, Tompkins and Wilkes or the failure to require or enforce the payment of money due under the Contract to Bone shall not in any way prejudice or affect the obligations of River Island, Moylan, Tompkins and Wilkes;
(c)as between Bone and Moylan, Tompkins and Wilkes, each of Moylan, Tompkins and Wilkes are to be considered the principal debtor and obligor for the payment of moneys due and performance of obligations under the Contract.
The amendment that Ms Cheeseman sought to make, in her submissions in reply, was to delete the words "it was a term of the contract that" in the chapeau to para 48.
The application was opposed by Mr E A Walker of counsel, who appeared for Mr Moylan, and by Mr Ogborne.
Reference was made to the very late state of the proceedings in which the application was pressed. Mr Ogborne pointed to a letter written by his instructing solicitors to the solicitors for Mr Bone shortly before the hearing, in which it was said that, on the assumption that Mr Bone's case was limited to the pleadings as they stood and the evidence comprised in the court book, Mr Tomkins would not adduce any evidence.
Mr Walker noted that he had expressly stated that his client was answering the pleaded case which, he submitted, was a case that the guarantee arose as "a term of the Contract". It is certainly correct that Mr Walker's submissions had focused, among other things, on the absence of privity between Mr Bone on the one hand and Mr Moylan on the other under the contract for sale, either as originally made or as varied by the deed.
Ms Cheeseman submitted that on a fair reading of para 48, bearing in mind that this was a proceeding in the commercial list, it was clear that Mr Bone was suing on the deed, either on its own or in conjunction with the contract. In any event, she submitted, there could be no real prejudice.
I do not think that para 48 can be read in the expansive way that Ms Cheeseman suggested. As a matter of plain English, it seems to me to say that any liability that the directors may have arises under their guarantees, which guarantees were terms of the contract as it was varied by the deed. In other words, on a fair reading of para 48, I think that Mr Bone is suing the directors on guarantees given by them pursuant to the varied contract. That understanding is reinforced by the relevant wording of the deed, in so far as it purports to make the guarantee obligation a term of the varied contract. I will come to this in due course.
However, I have real difficulty in understanding how the case for either Mr Moylan or Mr Tomkins might have been conducted differently if para 48 had always been framed in the way that Ms Cheeseman sought, by amendment, to frame it. As pleaded, the case was whether there was a contract in existence, on which the directors could be sued, that contained the guarantee obligation. That contract had been nominated as the contract for sale of land. The guarantee obligation was said to be included in the contract for sale of land, and enforceable against the directors, because of the provisions of the deed. Thus, the enforceability of the deed against the directors was a necessary element of the pleaded case.
On the case sought to be made by the amendment, the question is whether, on the proper construction of the deed, and bearing in mind the fact that each of the directors was said to have signed sealed and delivered it, although none of them was named as a party, any liability attaches, under the deed, pursuant to the guarantee obligation.
There was a deal of evidence as to the circumstances in which the negotiations for an extension of time, and the terms on which it might be granted, had occurred. None of that any of that evidence was relevant to the question of construction. The question is what, objectively, the parties to the litigation sought to achieve by the deed in the circumstances in which it was made, taking into account its terms, the fact that the directors were not named as parties to it, that it included a provision for them to guarantee the obligations of Wallalong, and that they signed it in their individual capacities.
No doubt, irrelevant and thus inadmissible evidence could have been sought as to subjective intention. No doubt, probably irrelevant and probably inadmissible further evidence of the negotiations for the variation might have been adduced. But in my view, although the cases might have been conducted differently, the reality is that neither the cross-examination of Mr Bone nor the evidence sought to be adduced for Mr Moylan or Mr Tomkins (neither of whom, in the result, gave evidence) would have been any different if the pleading had been amended at some appropriate time prior to the hearing.
I accept, of course, that the opening submissions would have been put differently. But neither Mr Walker nor Mr Ogborne submitted that he was unable to meet, at the level of principle, the case sought to be made: that liability derived directly, from the deed, and not indirectly, through the contract for sale. Indeed, Mr Walker addressed that very issue, on the basis that, contrary to his stated position, the question of the proper construction of the deed, standing by itself, was in issue. So, too, did Mr Ogborne; although he said repeatedly, and correctly, that on the case as pleaded, the real question related to the contract for sale.
I note also, at this point, that in each of his various list responses up until the last version filed on 10 February 2012 (but apparently not served until 20 February 2012), Mr Moylan had admitted, that he was liable as a guarantor for any damage flowing from any breach of contract by Wallalong. Thus, I would infer that until shortly before the hearing, Mr Moylan prepared on the basis that he was a guarantor and that the real question was one of any liability that Wallalong might have to Mr Bone. There was no explanation of how the late change in his list response could have caused any different course to be taken in preparation which depended on a narrow and critical view of the relevant allegations in para 48 of Mr Bone's list statement.
Again, Mr Tomkins in his list response has put in issue both whether, on the proper construction of the deed, he guaranteed Wallalong's obligations to Mr Bone and whether, on the proper construction of the contract for sale, he did so. It follows, in my view, that the issues raised by Mr Tomkins (or understood by him as arising) include whether the deed, as opposed to the contract, imposes any liability. Thus, having regard to the terms of his list response, I would infer that Mr Tomkins had prepared on the basis that liability as a guarantor was to be considered both under the deed and under the contract for sale.
In those circumstances, I conclude that Mr Bone should have leave to amend in the manner sought. It follows that, in dealing with the issues, I will (so far as it is relevant) proceed on the basis that para 48 is shorn of the words "it was a term of the Contract that".
Relevant provisions of the contract
The contract for sale was in the standard form at the time (the 2000 edition) with special conditions. Wallalong was referred to in the contract by its then name, River Island Property Holdings Pty Limited. Nothing turns on the subsequent change of name.
The purchase price was $10 million. The deposit was $1 million. The deposit was to be released to Mr Bone forthwith upon exchange (see special condition 7(a)).
By cl 28.5 of the contract, because the land was a lot in an unregistered plan (see cl 28.1), the completion date was "the later of the completion date and 21 days after service of the notice" of registration of the plan of subdivision. By special condition 8, the period of 21 days in cl 28.5 was amended to 14 days. The completion date stated on the first page of the contract was 42 days after exchange.
By cl 9, the balance of the purchase price was to be paid as to $2 million on completion. The balance of $7 million was to be advanced by Mr Bone to Wallalong, on the security of a first registered mortgage back over the subject land. The terms of that mortgage were adequately described in an annexure.
Special condition 4 provided for interest to be payable if completion did not occur within 14 days after the completion date. It reads:
4.If completion does not take place within 14 days after the completion date, and if the Vendor is not at fault THEN:
(a)the purchaser must pay interest on the unpaid balance of the price at the rate of Ten per centum (10%) per annum calculated daily from and including the completion date to, but excluding, the actual date of completion;
(b)the interest must be paid on completion;
(c)the Vendor is not obliged to complete unless that interest is paid;
(d)interest payable pursuant to this Clause is a genuine pre-estimate of the Vendor's loss as a result of the Purchaser's failure to complete in accordance with the Contract; and
(e)the right to interest does not limit any other rights the Vendor may have as a result of the Purchaser's failure to complete in accordance with the Contract.
Clause 16 dealt with completion. It included provision for the place of completion. It reads, relevantly, as follows:
16 Completion
...
Place for completion
16.11Normally, the parties must complete at the completion address, which is -
16.11.1if a special completion address is stated in this contract and the mortgagee would usually discharge the mortgage at a particular place - that place; or
16.11.2if none is stated, but a first mortgagee is disclosed in this contract and the mortgagee would usually discharge the mortgage at a particular place - that place; or
16.11.3in any other case - the vendor's solicitor's address stated in this contract.
16.12The vendor by reasonable notice can require completion at another place, if it is in NSW, but the vendor must pay the purchaser's additional expenses, including any agency or mortgagee fee.
16.13If the purchaser requests completion at a place that is not the completion address, and the vendor agrees, the purchaser must pay the vendor's additional expenses, including any agency or mortgagee fee.
In the events that happened, cls 16.11.1 and 16.11.2 did not apply.
As I have noted, there was a form of mortgage annexed to the contract. That mortgage provided, among other things, that the principal would be repaid on 2 March 2006, and that in the meantime interest would be payable on the principal at the rate of 8% per annum.
There was annexed to the contract a copy of a caveat lodged by a company known as YACF Pty Limited (YACF). That caveat was disclosed in a title search that was also annexed to the contract. The caveat stated that the interest protected was:
Right of First Refusal to Purchase the subject property.
The right was said to arise by virtue of a contract for sale of other land made between Mr Bone as vendor and YACF as purchaser on 18 August 1997.
To divert for a moment: that other contract did indeed give YACF a right of refusal to purchase the land that was sold to Wallalong, and it was agreed that YACF could lodge a caveat to protect its interest under the right of first refusal. Perhaps by some drafting oversight, the right of first refusal was unlimited as to time.
The deed of variation
On 26 July 2005, Mr Bone's solicitors (Schofield Muir) gave notice to Wallalong's solicitors (Turnbull Hill) that the relevant plan of subdivision had been registered. It followed, as the parties agreed, that the completion date was 9 August 2005.
After negotiations that had commenced prior to 9 August 2005, the deed of variation was made on 16 August 2005. It was said to be a deed made between Mr Bone and Wallalong. It recited the making of the contract for sale; registration of the deposited plan and notification thereof; and that completion had been due 14 days after notification.
Recital e reads as follows:
e.River Island has requested Bone to vary the terms of the Contract as regards the completion date, which Bone has agreed to do on condition that the Contract is otherwise varied to provide for certain monies to be paid by River Island to Bone and on condition that the Directions of River Island jointly and severally guarantee to Bone the performance by River Island of its obligations under the Contract as so varied.
Clause 1 of the deed amended special condition 8 of the contract, to specify 9 February 2006 as the completion date. It did so by making consequential changes to cl 28 of the contract. Clause 1 of the deed reads as follows:
1.Special Condition 8 of the Contract is amended to now read as follows in lieu of its current wording:
"Clause 28.5 of this Contract is amended by deleting the words "21 days" and inserting, in lieu thereof, the words "9th February, 2006". Clause 28.5 of the Contract is further amended by deleting the words "after service of notice.";
By cl 2 of the deed, special condition 12 was "hereby inserted in the contract". The effect was that interest was to run on the $7 million that was to have been the subject of vendor finance from 10 August 2005 to the varied completion date. Obviously enough, the intention of special condition 12 (as it is convenient to call it) was to compensate Mr Bone, at the rate provided by the mortgage, for being without the use of the $7 million for the time in question.
Clause 3 of the deed provided that a further special condition, known as special condition 13, was "hereby added" to the contract. The effect of that special condition was to provide for interest on the $2 million (that should have been paid to Mr Bone on completion on 9 August 2005) at the rate of 20% per annum from 10 August 2005 "until the earlier of 9 February 2006 and the date this contract is actually completed". In the event, 9 February 2006 was the relevant date.
Clause 4 of the deed is the one providing for the guarantee obligation. It reads as follows (omitting subclause b of the proposed special condition, which deals with time, forbearance and the like):
4.A further Special Condition (No.14) shall be hereby added to the Contract to read as follows:- "14. a. The Directors of River Island, namely Christopher Alexander Moylan, Mark Edward Wilkes and Leonard John Tomkins ('the Guarantors"), hereby jointly and severally guarantee to the Vendor the due payment of all monies due by the purchaser to the vendor under the terms of this contract and the due performance, observance and fulfilment by the purchaser of all obligations and provisions contained or implied in this contract and on the part of the purchaser to be performed, observed and fulfilled.
...
The deed was executed by Wallalong by its authorised officers, Messrs Moylan and Tomkins.
The deed then provided that it should be "SIGNED SEALED AND DELIVERED by the Guarantor...", naming, sequentially, each of Mr Moylan, Mr Wilkes and Mr Tomkins.
It is common ground that each of those directors did sign against the provision for his signature, and that his signature was witnessed by Ms Amanda Sweeney.
No varied form of contract for sale was brought into existence, in the sense that no formal contract for sale, varied in accordance with cls 1 to 4 of the deed and executed by Mr Bone and Wallalong as vendor and purchaser and the directors as guarantors, was brought into existence.
First issue: was Mr Bone in a position to serve a notice to complete on 15 February 2012
The parties' submissions
The proposition that Mr Bone was not able to serve a valid notice to complete was advanced by Mr Ogborne, and adopted by Mr Walker. (This, and the other issues relating to the validity of the notice of termination, were not expressly raised by Mr Moylan in his list response, but it was common ground at the hearing that the matter should proceed on the basis that this group of issues was in play between all active parties.)
Mr Ogborne referred to what he said was an incorrect answer to requisitions on title given by Mr Bone. That requisition, to the extent that it is in evidence (and it may well be incomplete), reads as follows:
20.Agreements or disagreements affecting the property
a.Is the vendor aware of any agreements with anyone else affecting the property? (Such as sharefarming, timber getting, trail-bike riding).
b.Are there any legal proceedings pending or not concluded that involve the property in any way?
The reply given to this requisition was "no".
Mr Ogborne relied on the existence of the right of first refusal under the YACF contract. This, he submitted, was an agreement with someone else affecting the property.
Decision
The starting point of the analysis is that the existence of the claimed right of first refusal was disclosed in the contract for sale. It was disclosed because a title search drew attention to the existence of the caveat; a copy of the caveat itself was part of the contract; and the caveat disclosed in precise detail the agreement under which the right of first refusal arose.
Thus, although the answer was incorrect, it cannot be said that the existence of the right, and of the agreement under which it arose, had been concealed.
It is also apparent from the evidence that Schofield Muir gave some attention to the right of first refusal. They wrote to Turnbull Hill on 22 December 2004. Relevantly, the letter stated:
Notice in accordance with the special condition was posted by express post to the Solicitors acting for YACF Pty. Ltd. on the 29th November, 2004 and consequently would have been received on the 30th November, 2004, or the 1st December, 2004 at the latest. Consequently the date for the exercise by YACF of its "right of first refusal" expires at the latest today. We confirm that the vendor has not received any notice by YACF exercising its right and indeed the vendor has been informed by a Director of that company that YACF Pty. Ltd. does not intend to do so.
On 6 January 2005, Turnbull Hill wrote, effectively agreeing that the contract for sale proposed between Mr Bone and Wallalong should be exchanged by 1 February 2005. In fact, as I have noted, the contract was exchanged some days before that date.
In those circumstances, it is obvious that the incorrect answer could not have mislead Wallalong or its solicitors. The latter at least had been aware from before the date of exchange of the existence of the right of first refusal and the agreement under which it arose. There is no reason why that knowledge should not be imputed to Wallalong.
Thus, even if the right of first refusal, or the agreement under which it wrote, fell within requisition 20, I would conclude that the answer given would not of itself have disentitled Mr Bone from giving notice to complete on 15 February 2010. In this context, it may be noted that YACF had in fact withdrawn its caveat some months, if not years, prior to that date.
In any event, I think that the answer was appropriate to the first subparagraph of the requisition (referring to "any agreements with anyone else affecting the property") on its proper construction. The requisition is cast in the present tense. It seems to me to require information as to agreements, of the kind specified, in existence, or effective, at the date the requisition was made. Alternatively, and putting the matter at its highest, it could be construed to refer to agreements in existence, and effective, at the date of the contract and thereafter.
On any view, the agreement with YACF was in existence at the date the contract was made and at the date the requisition was made. But it was not relevantly effective, because YACF had been offered the right of first refusal and had declined to exercise it, and the contract between Mr Bone and Wallalong was exchanged within the relevant period after that refusal had been communicated.
Thus, in any event, and were it necessary to do so, I would conclude that the answer given was not, at the time it was given, incorrect having regard to the proper construction of the requisition.
Second issue: was Mr Bone ready willing and able to complete on 12 March 2010?
Factual basis of this issue
The notice to complete specified, among other things, a date, time and place for completion, and the consequences of non-completion in accordance with the notice. I set out the relevant paragraphs (paras 1, 2, 3 and 4):
1.The Vendor is ready, willing and able to complete the Contract for the sale of land dated 28 January 2005 as varied by Deed of Variation dated 16 August 2005 of the property at Lot 221 in DP 1083907 known as Lot 221 Clarence Street Wallalong, New South Wales.
2.You are required to complete the purchase and to pay the balance of the purchase money and interest on or before 3pm on Friday 12 March 2010, and in this respect time is of the essence of the Contract.
3.The Vendor appoints 3pm on Friday 12 March 2010 at the office of Bank of Western Australia at 1/165 Lambton Road, Broadmeadow, New South Wales as the time and place for completion.
4.If you fail to complete the Contract as required by this notice, the Vendor will be entitled to terminate the Contract.
On 11 March 2010 Schofield Muir wrote to Turnbull Hill in relation to completion. Omitting formal parts, that letter reads:
We refer to the above matter and confirm that the Vendor is ready, willing and able to complete the sale of the above property at 3:00pm on Friday 12 March 2010 at the offices of Espreon, level 5, 77 Castlereagh Street Sydney.
We enclose the following:
1.Correspondence to Wallalong Investments Pty Ltd dated 10 March 2010;
2.Original executed Transfer on loan pending completion, for stamping purposes and returnable on demand;
3.Settlement Adjustment Sheet;
4.Cheque direction.
We would appreciate it if you might acknowledge receipt and confirm your readiness to proceed to settlement.
We note that the contract as varied by the Deed provides for the parties to enter into a mortgage and agistment agreement and we would appreciate it if you might ensure that upon settlement executed documentation is provided to us.
The letter was hand delivered at about 2:10pm on 11 March 2010, and copies were delivered to the directors in various ways.
Mr Bone's representatives attended at the offices of Espreon at the time indicated. So did his bank, the outgoing mortgagee. No one attended for Wallalong.
The parties' submissions
There were a number of arguments raised in connection with Mr Bone's ability to complete on 12 March 2010. The first related to the place of completion. Mr Ogborne submitted that Wallalong's obligation was to complete "as required by this notice". That meant, he submitted, that completion was required not only by the time made essential but also at the place specified. Any other completion would not be completion "as required by this notice".
Mr Ogborne did not go so far as to submit that the effect of the notice to complete was to make essential not only the time but also the place for completion. He submitted, simply, that the notice required completion according to its terms, and that unless Mr Bone, too, had been ready to complete according to the terms of the notice, then he could not rely on any failure to do so on the part of Wallalong.
I note (if it is relevant) that there was no suggestion that Wallalong had attempted to complete, either in accordance with the terms of the notice or in accordance with the terms of the letter of 11 March 2010.
Ms Cheeseman relied on cl 16.12 of the contract. She submitted that, notwithstanding the terms of the notice to complete, it was open to Mr Bone to specify another address for completion, provided he gave reasonable notice and paid any additional expenses to be incurred by Wallalong.
Mr Ogborne accepted that cl 16.12 had not been exhausted by the exercise of the right given by it in the notice to complete. He submitted, however, that the right given by cl 16.12 did not apply where the place for completion had been specified in a notice to complete which required completion in accordance with its terms.
Decision
The obligation of the parties under the contract is to complete by the completion date. See cl 15. If they do not do so, the party not in breach may serve a notice to complete on the other. See, again, cl 15.
Because the sale was of a lot in an unregistered plan, cl 28 applied. By cl 28.5, as modified by special condition 8, and in the events that happened, the completion date was 14 days after service of notice of registration of the deposited plan.
The obligation to complete by the completion date (cl 15) is not essential. However, a valid notice to complete will have the effect of making it essential. In terms of the contract, what the notice to complete should do is fix a fresh completion date and make that fresh completion date essential; or make the obligation to complete on that fresh completion date essential.
In this case, the notice to complete sought to do a number of things. It specified the completion date as 12 March 2010, and further specified "on or before 3:00 pm" on that day. It made the time thus specified of the essence.
Further, the notice contained an appointment for completion: 3:00 pm on 12 March 2010, at the specified address of Mr Bone's financier. That was not among the obligations in terms made essential by the notice.
Finally, the notice stated that if Wallalong did not complete "as required by this notice", Mr Bone would be entitled to terminate the contract.
I do not think that the notice purported to make the place of completion essential. It is difficult to see how Mr Bone could have been entitled to do that in any event. But the notice clearly distinguished between fixing the completion date (and a time on that date by which completion must occur) as essential, on the one hand, and the appointment of a time and place for completion on the other.
Thus, as a matter of construction of the notice, I think that the requirement to complete "as required by this notice", read in context, was doing no more than adverting to the need to complete by the time that had been made essential. To put it another way, the purpose of that particular paragraph of the notice was to make it plain that Mr Bone required Wallalong to comply with the time of the essence obligation for completion. As the notice then said, failure to do so would entitle Mr Bone to terminate. I do not think that the notice should be read as requiring completion at the specified place and nowhere else.
The varied (or purportedly varied) appointment for completion maintained the time of 3:00 pm. Thus, even if 3:00 pm were part of what had been made essential, the variation did not affect that. On this analysis, the question is, what in all the circumstances was a reasonable period of notice varying the appointed place for completion.
There is authority that, where a contract makes time (a specified day) of the essence and the parties thereafter by agreement appoint a time (on the essential day) for completion, the inability of one party to complete at the appointed time will not necessarily entitle the other forthwith to terminate (or "rescind"): particularly where the failure is one that can rectified within whatever reasonable part of the appointed day remains. See ex parte Robertson [1983] 1 Qd R 526. There is also authority that, where a notice to complete that is otherwise valid includes an invalid nomination of a place for settlement, and that nomination is incapable of being severed from the balance of the notice, the notice itself will be invalid. See Wright v Featherstone (1984) Q ConvR ¶54 - 118.
I do not regard those principles as having any direct relevance to the question with which I am faced. However, as to the second of those cases, it cannot be said that the requirement to complete at a particular place is inseverable unless, as Mr Ogborne contended, the requirement to complete in accordance with the requirements of the notice rendered the nomination of a place for completion inseverable from the rest of the notice. That in turn depends on the interaction between the notice and the conditions of the contract itself.
If, then, the question is approached as a matter of construction of the contract, I think that the contractual power given by cl 16.12 did remain available to Mr Bone in the circumstances. What the notice to complete does (if effective) is to make the time for completion essential. But it is a notice given under, and in relation to, the contract for sale. It seeks the performance of the contract for sale. It does not abrogate the other rights given to Mr Bone, as vendor, by the contract for sale; nor indeed other rights given to Wallalong, as purchaser.
The effect of the notice to complete is to require performance of the contract for sale. The notice is given invoking the contract. It has no force apart from the contract. How, then, can the effect of giving the notice be to render ineffective, or suspend, an express provision of the contract?
In the absence to authority (and none was cited), I would conclude, at the level of principle, that the contractual power conferred by cl 16.12 remained available, notwithstanding the terms of the notice to complete.
However, what cl 16.12 authorises is "reasonable notice" to vary the place of completion. In this case, completion was due on 12 March 2010, in Broadmeadow (which is near the city of Newcastle) at 3:00 pm. The notice purporting to invoke cl 16.12 (if it did) was given a little over 24 hours earlier. Accepting, as an obvious point, that there is no great difficulty in travelling from Newcastle to Sydney, it does not follow that 24 hours' notice of change of place is necessarily reasonable. Nor can the question of reasonableness be assessed by reference to the known fact that there are settlement agents who can appear at settlements that are remote from the location of the parties.
It is also necessary to take into account the fact of giving the notice to complete. On the conclusion to which I have come, the notice was validly given. There is no doubt that it allowed sufficient time (the contract specified that a minimum of 14 days' notice should be given). The consequences of failure to complete in accordance with the requirements of the notice were obvious, and significant. The deposit would be forfeited, and Wallalong would be liable for damages (which on the parties' then state of knowledge might prove to be, and which on Mr Bone's case were, substantial). Further, the directors might be liable pursuant to their guarantees. (In this case, I repeat that Mr Moylan had admitted consistently, until shortly before the hearing, that he was liable as guarantor for any loss sustained by Mr Bone by reason of any breach of contract on the part of Wallalong.)
If Wallalong were attempting to prepare for settlement, it would have needed to alert its financier (there is no doubt that the parties were well aware that Wallalong would require substantial financial assistance to enable it to complete the contract). Presumably, any such preparation would have been undertaken on the basis that the place of settlement was Broadmeadow. I have some doubt that it is reasonable to expect a financier, at late notice, to switch its arrangements (if it is capable of doing so) to accommodate settlement not at the place hitherto understood, but in a different city (admittedly, one that is easy to reach by road, rail or air). This is so, particularly, I think where the consequences of any slip-up on the part of Wallalong as purchaser were likely to be, and probably considered to be, drastic.
Thus, I do not conclude, in all the circumstances, that the letter of 11 March 2010 gave reasonable notice of the alternative place for settlement. On that conclusion, it was necessary for Mr Bone to attend at the place for settlement appointed by the notice for complete. He did not do so. As a result, he was not ready, willing or able to complete in accordance with the terms of the notice.
Mr Ogborne submitted, in any event, that the letter of 11 March 2010 should not be read as the exercise of a right under cl 16.12. There is force in this. The letter does not in terms purport to appoint a place for settlement. What it does, in terms, is to "confirm" arrangements. The fact is that the arrangements confirmed were not the arrangements made. It is unnecessary to express a concluded view on this point.
Mr Ogborne submitted, in addition, that Mr Bone was not in a position to complete on 12 March 2010 because he was not able to produce a signed and stamped transfer. That appears to be correct at the level of fact. It appears from the letter of 11 March 2010 that the transfer, executed by Mr Bone, had been lent "pending completion " for stamping purposes. The "loan" was expressed to be "returnable on demand". It may be that, in the circumstances, it should be implied that there was an obligation, based on notions of good faith and cooperation in the performance of contracts, for Wallalong's solicitors to produce the stamped contract on completion. But if such an obligation should not be implied, then, for this reason also, Mr Bone would not have been in a position to complete in accordance with the notice.
Mr Ogborne also pointed to the fact that it was only on 11 March 2010 that a settlement sheet was forwarded and directions were given for the drawing of cheques. He submitted that this was insufficient notice for cheques to be drawn in very substantial sums (as is evident from the letter itself). He submitted that the court could take notice of the fact that it took financial institutions some days to prepare themselves for settlement. There was no evidence directed to this point, and I am not sure that the inability of financial institutions to bestir themselves to act swiftly is something that is so notorious that the court can take notice of it.
Nonetheless, and harking back to the question of whether reasonable notice was given, I do think that the late giving of a settlement statement and cheque directions is something else to be taken into account in support of the conclusion that I have reached on that issue.
Accordingly, I conclude that Mr Bone was not in a position to complete, or ready, willing and able to complete, in accordance with the notice.
Third issue: did Mr Bone validly terminate the contract?
It follows from my conclusions on the previous issue that the notice of termination was not valid. It follows, in turn, that Mr Bone is not entitled to damages from Wallalong for loss of the bargain constituted by the contract for sale of land, as varied.
Fourth issue: did the directors give effective guarantees of Wallalong's obligations to Mr Bone?
Factual basis for this issue
Since Ms Cheeseman relied on the background to the execution of the deed of variation, I will set out some of the history. On 20 July 2005, Turnbull Hill wrote to Schofield Muir referring to "direct discussions" between their "respective clients". Turnbull Hill put a proposal that some six months be allowed for Wallalong to pay the $2 million that was to be paid on completion, on condition that it carry interest at 20% per annum whilst unpaid.
As I have said, notice of registration of the deposited plan was given on 26 July 2005, and the date for settlement was therefore 9 August 2005.
On 3 August 2005, Turnbull Hill wrote a further letter to Schofield Muir, putting a more detailed proposal:
(1)the completion date to be extended for six months to 9 February 2006;
(2)interest on the $7 million that was to be the subject of vendor finance to run at 8% per annum over that six month period; and
(3)interest on the sum of $2 million to run at 20% per annum over that period.
On 4 August 2005, Schofield Muir replied stated that Mr Bone would agree to the proposed variation "on condition that the obligations of the purchaser pursuant to the varied Contract are guaranteed by the three directors of the purchaser company (who we note are to be the guarantors of the mortgage back to the vendor)." The letter asked for Turnbull Hill to submit a proposed deed of variation "including the personal guarantees referred to above".
On 10 August 2005, Turnbull Hill submitted a draft deed of variation. They said that once the terms were agreed, they would "have our client company and its directors execute the Deed".
There is no material difference between the draft deed and the form of the deed that was ultimately executed. No doubt, that is because, on 12 August 2005, Schofield Muir advised Turnbull Hill "that the vendor agrees to the provisions contained in the draft deed".
The "exchange" (as it was called; more accurately, "delivery") of the deed was completed by correspondence on 16 August 2005.
Against that background, it is to be noted that the deed was intended, as between the parties thereto namely Mr Bone and Wallalong, to give effect to the variation referred to in recital e. It provided for amendments to be made, in effect forthwith or by virtue of the deed, in accordance with clauses, 2 and 3 of the deed. As I have noted, the wording of cl 4 is somewhat different, although again the use of the word "hereby" suggests that the amendment to the contract for sale was intended to be effected forthwith, upon delivery of the deed.
The directors were not parties to the deed. Nor had they been parties to the contract for sale, although as Schofield Muir had pointed out, the terms of the contract for sale obliged them to guarantee Wallalong's obligations to Mr Bone under the mortgage back to him. Nonetheless, the directors each executed the deed, in the manner that I have set out at [52] above.
The parties' submissions
Mr Walker submitted that the use of the word "Guarantor" in each of the execution provisions was not intended to suggest that each of the directors was signing so as to give a guarantee. He said that it did no more than pick up the defined term "Guarantor" in cl 4 (or special condition 14).
In my view, the very fact that each of the directors signed against the description "Guarantor" is a recognition that the execution was referrable to cl 4, and thereby to special condition 14. In those circumstances, I think, it is open to read the deed as containing an acknowledgment by each of the directors that he gave the guarantee for which cl 4, or special condition 14, provided.
Mr Walker submitted that the directors were not parties to the contract for sale. That is correct. Thus, they could not be bound by any of the terms of the contract for sale. But it does not follow that they were not bound by the terms of the deed of variation, to the extent that it referred to them and to the extent that they accepted the burdens that it appeared to impose on them. Whether the document did so, and whether they accepted those burdens, are the real questions arising on this issue.
Mr Walker submitted that there was no consideration for any promise to agree. That submission appeared to be based on the proposition that if there were consideration, it did not flow to the directors. I do not accept the submission. Mr Bone gave consideration: the extension of time offered to Wallalong, and the at least implicit promise not to enforce what otherwise would have been his rights, on default, under the contract for sale over the period of that extension of time. That forbearance was good consideration, and it was consideration moving from Mr Bone. That is sufficient to dispose of the argument, and it is not necessary to consider whether in any event, as regards each of the guarantors, the document was a deed.
Mr Ogborne submitted that it appeared from the terms of the deed that a further document, the varied contract for sale, was to be brought into existence. It would only be on signature and exchange of that document, he submitted, that any guarantee obligation could attach.
Ms Cheeseman submitted that the deed should be given a business-like interpretation. She submitted that it was clear that the parties intended the deed, upon delivery, to give present effect to what had been agreed (as set out in recital e), and that the defects of form did not mean that it could not do so.
Decision
The real question is, looking at the document as a whole and taking into account as much as the parties objectively knew of the circumstances in which it came to existence, what did they intend to effect, relevantly, by cl 4 of the deed and by what in my view are the directors' several express acknowledgments of cl 4? In my view, looking at the document as a whole in the circumstances in which it was made, the answer is that the directors each intended, by his execution of the deed as a "Guarantor", to give to Mr Bone a guarantee on the terms set out in cl 4.
The commercial purpose of the deed was to extend time, upon conditions as to interest and upon a condition as to personal guarantees. The structure and wording of the deed could have been a lot clearer. For example, each of the directors could have been made a party, and the covenants in the deed could have been more clearly expressed, as to the parties between whom they were intended to operate. But in the circumstances, where the intention is clear, on an objective reading of the document, and where that intention can be given effect without doing violence to either the language or the form of the document, I think that the court's function is to assist the parties to achieve their objective and not to record, with regret, that they failed to do so.
It is, in my view, clear in context that the parties (including the directors) intended the deed to have present or immediate effect, upon delivery. The amendments were to be treated as having been made by the deed. So, too, the guarantees were to be treated as having been given under the deed. No further documentation was thought to have been required.
Assuming (as appears to be correct, but it is not necessary to express a concluded view) that the directors were not parties to the deed, it does not follow that they were not parties to a simple contract on the terms set out in cl 4 of the deed. The inelegance of the machinery should not be seen as obviating that result. And as I have said, Mr Bone gave consideration for the guarantees.
I conclude that each of the directors did agree, by his execution and delivery of the deed of variation to be bound by the guarantee obligation contained in cl 4.
Fifth issue: construction of the contract for sale as varied
The question debated between the parties was whether special condition 4 operated in the events that have occurred.
The scheme of the contract, as varied by the deed, is clear. The completion date is fixed at 9 February 2006. From after the date when completion should have occurred - 9 August 2005 - Mr Bone is entitled to interest in accordance with special conditions 12 and 13.
Special condition 4 continues to be of effect. It talks of "the completion date". Thus, by force of the deed, special condition 4 operates from 14 days after 9 February 2006.
Mr Ogborne submitted that special condition 4 only applied "if the Vendor is not at fault", and that Mr Bone was relevantly at fault. This depended on his submissions as to the incorrect answer given to requisition 20.
In any event, I think, the submission is misdirected. In my view, the concept of fault, means "fault in relation to the failure to complete". In other words, where completion has not occurred within 14 days from 9 February 2006, Mr Bone is entitled to interest pursuant to special condition 4 unless he was at fault in relation to that failure to complete.
It was not suggested that Mr Bone was in any way at fault in relation to the failure to complete on 9 February 2006. It was plain, in the event, that the failure to complete occurred simply and only because Wallalong could not raise finance.
Thus, I conclude that, on its proper construction, the proviso "if the Vendor is not at fault" has no application, on the facts, up until 12 March 2010.
Sixth issue: quantification of damages
On the conclusions to which I have come, Mr Bone has not made out a case for damages for loss of bargain. In any event, the evidence as to the amount of those damages was sparse. Mr Bone had relied on the report of a valuer, Mr Hadley. I rejected that report, for reasons that I gave on 23 February 2012 ([2012] NSWSC 137).
There was no other direct evidence of the value of the property as at 12 March 2010.
The parties' submissions
Ms Cheeseman sought to rely on:
(1)a reference to a value of $6.5 million in a letter from Wallalong to Mr Bone dated 18 January 2006;
(2)a reference to a value of $5.5 million in a letter from Turnbull Hill to Schofield Muir dated 26 May 2008; and
(3)the fact that receivers appointed by Mr Bone's bank had sold the property, in his name, for $3.3 million by a contract for sale made on 9 December 2011.
Ms Cheeseman submitted that, in those circumstances, I could infer that the value of the property had declined from 28 January 2005 to 9 December 2011. Mr Walker and Mr Ogborne submitted to the contrary.
Decision
Even if such an inference could be drawn, it would not assist in fixing a value for the property as at 12 March 2010. Any attempt to estimate a value at that date would involve no more than speculation. There is no rational basis on which any such value could be derived. In circumstances where the party bearing the onus of proof has failed to adduce evidence of value, the court should not be left to draw some inference on vague and unsatisfactory materials.
In any event, I am not satisfied that the letters in question can bear the weight that Ms Cheeseman sought to put upon them. The first letter said, relevantly, that "the valuation at Wallalong [which is where the subject land was located] has come back at $6.5 million for the land as is". That letter was written by Wallalong. It was signed by Mr Moylan and copied to, among others, Messrs Tomkins and Wilkes. But the letter does no more than give a statement, in summary form, of the conclusions of an unidentified valuer, made on unidentified assumptions and on an unknown valuation methodology, at some time not specified but presumably reasonably close to the date when the letter was written. It is a statement of fact as to the contents of that valuation, not an admission capable of binding any of the defendants that the valuation represents the true value, at the time, of the subject property.
Similar comments can be made about the second letter.
There are two relevant aspects to that letter. The first is that it asserts that the "respective client's [sic] believe" that the total parcel of land of which the subject land forms part "is valued at well in excess of $20 million". By contrast, it points to a bank valuation at $12,800,000.00. The subject land is approximately 43% of the overall parcel.
If the value were $20 million then the pro rata value to be ascribed to the subject land would be of the order of $8.6 million. If the value were "well in excess of $20 million", the pro rata figure would be proportionately greater, and might even approach the sum of $10 million. (A conclusion that the subject land was worth $10 million would ascribe to the overall parcel a value of about $23,300,000.00.)
To the extent that the letter continues to refer to the bank valuation, and the subject land, it says:
Using the banks [sic] ultra conservative valuation of $12,800,000.00, the land to be sold to [Wallalong] will only have a value of $5,500,000.00...
Again, I do not see this as any sort of admission that the land is worth only $5.5 million. On the contrary, I think, the letter is doing no more than comparing, to the parties' view as to the value of the land, the figure that would be applicable to it if an alternative and "ultra conservative valuation" were used, on a pro rata basis.
Thus, I see neither letter as supporting any inference as to value at the relevant time, or as constituting an admission by any of the defendants as to the value of the land at the respective times the letters were written.
That leaves the sale on 9 December 2011. The sale appears to have been well advertised. It was by expressions of interest. The contract that was exchanged was with a company known as Bushsalt Developments Pty Ltd. That company was controlled by Mr Bone, although nothing turns on this. The sale was conducted by receivers appointed by Mr Bone's financier, and no doubt they did their best, through the marketing campaign disclosed by the evidence, to procure a proper price.
Thus, at most, the evidence supports an inference that the value of the land has declined, by about two-thirds, from January 2005 to December 2011. That does not assist, in anyway, the drawing of an inference as to value as at 12 March 2010.
For those reasons, I would have concluded, had it been necessary to do so, that Mr Bone had failed to establish any loss of bargain damages.
The claims for unpaid interest and other matters
However, Mr Bone has proved that he sustained losses up until 12 March 2010. Since those losses were sustained by reason of Wallalong's non-performance of the interest obligations under special conditions 4, 12 and 13, they are recoverable regardless of the fact that the contract has come to an end by reason of Mr Bone's repudiation and Wallalong's acceptance thereof.
There was no dispute as to the calculation of interest. The figures are:
(1)pursuant to special condition 4: $3,824,383.56;
(2)pursuant to special condition 12: $282,301.37; and
(2)pursuant to special condition 13: $201,643.84.
The only issue is as to the first amount. That was calculated up until the date of termination. Since I have concluded that Mr Bone failed to complete the contract in accordance with the notice given by him, the amount should be recalculated up until 12 March 2010. The difference will not be significant.
Mr Bone claimed, and should have, interest on the sums set out in [144] (as recalculated, in respect of the first of those sums) from their respective due dates until the date of entry of judgment. See s 100 of the Civil Procedure Act 2005 (NSW). The respective dates from which those sums accrue interest under s 100 are:
(1)13 March 2010, for the first sum; and
(2)10 February 2006, for the second and third.
Mr Bone claimed, in addition, damages for additional legal expenses incurred by him, and holding charges.
The damages referable to additional legal expenses that Mr Bone claims relate to advice taken and actions performed in response to the repeated delays in completion. However, they are claimed only by consequence of the notice of termination, not by consequence of the earlier breaches of the contract.
In my view, even if there had been a valid termination, the legal expenses would not flow from that. They would flow from the earlier breaches. In any event, they are not recoverable under the cause of action that has been pleaded.
The claim for holding charges relates to rates and the like. Again, they became payable not as a result of the termination but as a result of earlier, unpleaded, breaches. They are not recoverable.
In any event, I would conclude that special condition 4, imposing a liability for interest in the event of failure to complete, represents the parties' agreed pre-estimate of damages flowing from failure to complete, and thus that it subsumes, among other things, holding charges.
Mr Bone has retained the deposit paid under the contract. It appears to be common ground that the deposit should be set off against any damages otherwise payable.
The cross-claims
Mr Moylan and Mr Tomkins have sought contribution from each other and from Mr Wilkes. I do not know if the cross-claims are pursued. If they are, they should be addressed in the orders to be brought in in accordance with what follows.
The principles are clear. Where a creditor obtains judgment against the principal debtor and guarantors of the principal obligation, it may enforce the judgment against any or all of the judgment debtors, up to the full amount of the judgment. It is not compelled to proceed against the principal debtor before claiming against the guarantors, or to claim from the guarantors rateably.
However, where one of several guarantors pays more than his or her rateable share of the guaranteed obligation, he or she is entitled to be exonerated, by the others, to the extent of the overpayment.
In the present case, Mr Bone is entitled to enforce as he sees fit the judgment to which, in my view, he is entitled. If any of the directors pays more than one third of the total amount payable under the judgment, he is entitled to be exonerated by the others.
In those circumstances, as a matter of principle, Mr Moylan and Mr Tomkins are entitled to declarations, on their cross-claims, as to their right of exoneration.
My present view is that the right of exoneration becomes enforceable only upon payment of more than the rateable share. That would bear upon the form of any declaration. However, counsel may address on this.
Orders
I stand the proceedings over to 10:00am on 26 March 2012 to enable the parties to bring in short minutes of order to give effect to these reasons. I will deal then with any arguments as to costs.
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Decision last updated: 11 April 2012
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