Buckworth v Gladio Pty Ltd

[2016] NSWCA 54

Court of Appeal

Supreme Court

New South Wales

Medium Neutral Citation:	Buckworth v Gladio Pty Ltd [2016] NSWCA 54
Hearing dates:	19 November 2015
Date of orders:	23 March 2016
Decision date:	23 March 2016
Before:	Beazley P at [1] Bergin CJ in Eq at [2] Emmett AJA at [151]
Decision:	Appeal dismissed. The appellant is to pay the respondents’ costs of the appeal.
Catchwords:	CONTRACT – purchase of shares in company entitling exclusive use of apartment in company title building – contract requiring written consent of company to transfer of shares to purchaser – whether communication of “approval” satisfied provision of contract – whether the purchaser entitled to terminate contract by reason of breach of a condition that the company’s books not properly kept   CORPORATIONS – whether member of company entitled to sue company for damages for directors’ failure to record a resolution in relation to an aspect of approval by company to install air conditioning in vendor’s unit and in part of company property
Legislation Cited:	Corporations Act 2001 (Cth)
Cases Cited:	Ardlethan Options Ltd v Easdown (1915) 20 CLR 285 Bailey v New South Wales Medical Defence Union Ltd (1995) 184 CLR 399 Dungowan Manly Pty Ltd v McLaughlin [2012] NSWCA 180; (2012) 98 ACSR 62 Edmond v Ross (1922) SR (NSW) 351 Foss v Harbottle (1843) 2 Hare 461; 67 ER 189 Gladio Pty Ltd v Buckworth [2015] NSWSC 922 Houldsworth v City of Glasgow Bank (1880) 5 App Cas 317 Koompahtoo Local Aboriginal Land Council v Sampine Pty Limited (2007) 233 CLR 115 Moffatt v Farquhar (1877) 7 Ch D 591 State of Victoria v Hodgson & Ors [1992] VR 613 Transfield Shipping Inc v Mercator Shipping Inc [2008] UKHL 48; [2009] 1 AC 61
Category:	Principal judgment
Parties:	Virginia Louise Buckworth (Appellant) Gladio Pty Limited (1st Respondent) Ashdown Home Units Pty Limited (2nd Respondent)
Representation:	Counsel: DE Grieve QC (Appellant) G Lucarelli (1st Respondent) MA Izzo (2nd Respondent)   Solicitors: Christopher Lane & Associates (Appellant) Minter Ellison (1st Respondent) Meridian Lawyers (2nd Respondent)
File Number(s):	2015/247102
Publication restriction:	Nil
Decision under appeal	Court or tribunal: Supreme Court of NSW Jurisdiction: Equity Citation: [2015] NSWSC 922 Date of Decision: 14 July 2015 Before: McDougall J File Number(s): 2013/359269

HEADNOTE

[This headnote is not to be read as part of the judgment]

The appellant, Virginia Louise Buckworth, (as vendor) and the first respondent, Gladio Pty Limited, (as purchaser) entered into a contract for the sale of shares, ownership of which carried the right to exclusive occupancy of a company title home unit in a building owned by the second respondent, Ashdown Home Units Pty Limited (Ashdown).

Gladio rescinded the Contract on the basis, inter alia, that the requisite approval under clause 6.1 of the Contract had not been provided by Ashdown. At trial, Gladio succeeded against the appellant in seeking the recovery of the deposit on two bases: (1) that the requisite approval had not been given under clause 6.1 of the Contract; and (2) that even if approval had been given Gladio was entitled to rescind for breach of clause 10(g) of the Contract which contained a provision that the books of Ashdown required by law to be kept by it were properly kept.

The appellant appealed contending that the primary judge had erred in finding that the requisite approval had not been given and in finding a breach of clause 10(g) of the Contract. The appellant also contended that the primary judge erred in dismissing her cross-claim against Ashdown for indemnity.

Held:

(1)   Approval of the purchaser had been given by Ashdown and Gladio was not entitled to rescind the Contract under clause 6.1 of the Contract.

Bergin CJ in Eq [83]-[97], Beazley P agreeing [1] and Emmett AJA separately [163]-[164]

(2)   The primary judge did not err in finding that there had been a breach of clause 10(g) of the Contract entitling rescission or termination of the Contract.

Bergin CJ in Eq [98]-[128], Beazley P agreeing [1], Emmett AJA dissenting [165]-[174]

(3)   The primary judge was correct in dismissing the appellant’s cross-claim against Ashdown.

Bergin CJ in Eq [132]-[149], Beazley P [1]

Judgment

1. BEAZLEY P: I have had the advantage of reading in draft the reasons of Bergin CJ in Eq. I agree with her Honour's reasons and proposed orders.

2. BERGIN CJ in EQ: These proceedings arose out of a dispute in relation to whether the first respondent, Gladio Pty Ltd (Gladio), was entitled to the return of the deposit of $145,000 paid by it pursuant to a contract for the sale of shares (the Contract), ownership of which carried the right to exclusive occupancy of a company title home unit in a building known as “Ashdown” at Elizabeth Bay, New South Wales. The appellant, Virginia Louise Buckworth, was the vendor. Gladio was the purchaser. The purchase price was $2.9 million and the Contract provided for the payment of a 5% deposit. The second respondent, Ashdown Home Units Pty Ltd (Ashdown), is the proprietor of the land and is the company the shares in which were the subject of the Contract.

3. At the trial before McDougall J, Gladio, as plaintiff, made numerous claims against the appellant. Its claims of non-disclosure of rules (Red 136 [102]); innocent misrepresentation (Red 141; [122]); misleading or deceptive conduct (Red 150: [156]); relief against forfeiture on the grounds of unconscionable conduct (Red 160-161: [199]-[200]); and frustration of the Contract (Red 162: [207]) all failed. A further claim in relation to an incorrect answer to a requisition was found to be unnecessary to decide (Red 145: [143]).

4. Gladio succeeded against the appellant on two bases: (1) that the necessary approval had not been given by Ashdown sufficient to satisfy clause 6.1 of the Contract, thus entitling Gladio to rescind the Contract (Red 135 [100]); and (2) even if approval had been given Gladio was, in any event, entitled to rescind for breach of clause 10(g) of the Contract. It is from these findings and the consequential orders of the primary judge entering judgment for Gladio for $145,000 plus interest and the dismissal of the appellant’s Cross Claim against Ashdown for indemnity that the appellant appeals.

5. Sydney Company Title Management (SCTM) was Ashdown’s managing agent and its officer, Stuart Greene, dealt with this transaction on its behalf. Ashdown’s Cross-Claim against SCTM was dismissed by the primary judge and there is no appeal in respect of that dismissal.

Background

6. At some time prior to 2009 the appellant and her then partner, Ms Daley, acquired shares in Ashdown conferring the exclusive right of occupancy of the apartment in the Ashdown building known as “unit 20” together with a separate car parking space.

Air-conditioning of the unit

7. The previous owner of the shares had intended to carry out certain improvements to unit 20 which included the construction of a pergola over the external terrace and the installation of air conditioning. The ducting for the air conditioning was to be installed in the roof space above the unit. It is not in issue that the holders of the shares had no right of occupation of that roof space. However the previous owner had obtained Ashdown’s consent to the proposal and the approval of the requisite development application by the Sydney City Council. Those works had not been carried out when the appellant and Ms Daley acquired the shares. They proposed certain alterations to the earlier approval which required Ashdown’s consent to a variation of the development approval under s 96 of the Environmental Planning and Assessment Act 1979.

8. On 24 January 2009 Ms Daley sent a “completed application request for renovation” to one of Ashdown’s directors. That request was considered at a meeting of Ashdown’s Board on 31 March 2009 and was the subject of Minutes (the 31 March 2009 Minutes) which included the following:

Renovations unit 20. Detailed drawings were tabled for consideration. The work involved includes the installation of air conditioning and a free standing pergola. As these items had been deleted by the previous Section 96 application it will be necessary for another Section 96 application to be lodged with Council.

After discussion it was agreed:-

*   These renovations will not need to be presented to the shareholders as they were on the original Development Application approved by the shareholders,

* Permission be given for the lodgement of the Section 96 Application,

*   Luca Turnbull will be engaged to inspect the membrane when the pavers are removed and before the timber decking in [sic] installed.

*   Weir & Phillips, architects, to inspect the installation of the air conditioning in the roof space,

*   The shareholders will undertake to address any problems with the air conditioning such as noise but the Board of Directors reserve the right to withdraw the approval for the air conditioning if the problems can not be resolved,

*   The pergola will not be attached to the building and will be held down by the timber decking,

*   All of the heavy planter pots will be removed from the roof deck.

9. On 24 April 2009 the appellant and Ms Daley wrote a letter to Ashdown (the 24 April 2009 letter) in the following terms:

Virginia Buckworth and Louise Daley, owners of shares in Ashdown Home Units Pty Limited relating to apartment 20, as part of the application for air-conditioning seek consent to utilise the roof space above our apartment to locate ducting and the compressor unit in accordance with the specifications that have been presented to the Board.

In making this application we acknowledge:

-   the space we seek to utilise for the above purpose is company property and not subject to any rights of exclusive use; and

-   in the event the company decides to use, for any purpose, all or part of the roof space within which the ducting and compressor unit is located then we agree to remove these items as required, at our expense, and agree that we are not entitled to any compensation for the loss of use of this space and removal of those items.

We note that if any problems arise with the installation in the roofspace, we

will be given the opportunity to resolve these issues, but that the Board of

Directors reserves the right to withdraw approval for the air conditioning

installation if problems continue.

We will locate the air conditioning items in the roof space as close as possible

to the terrace at the Western end of the area, and should there prove to be

noise disturbance to unit 21 from the operation of the air conditioning unit, we

will install agreed acoustic separation.

We also note that this arrangement will also apply to any future shareholders

of Unit 20, and that House Rules of Ashdown Home Units will be amended to

include these conditions of approval.

10. On 25 or 27 April 2009 Ashdown gave its consent to the s 96 application by affixing its common seal to the document. The works were carried out and some of the equipment in the roof space was outside the boundaries of unit 20. At some time after April 2009 the appellant’s relationship with Ms Daley terminated and Ms Daley transferred her interest in the subject shares to the appellant.

Letting of the unit

11. On 20 December 2012 the appellant leased unit 20 to Mr Robbiati, the sole director and shareholder of Gladio. The Residential Tenancy Agreement was for the period 10 December 2012 to 9 December 2014. Ashdown consented to the lease to Mr Robbiati.

Decision to sell

12. The appellant subsequently decided to sell her shares to Mr Robbiati who decided to purchase them in Gladio’s name. Mr Robbiati instructed Mr Day of the firm Day Legal to act for Gladio in this transaction. The appellant instructed Mr Christopher Lane of Hunt & Hunt.

13. Before contracts were exchanged Mr Day caused searches to be made at the offices of SCTM. The independent searcher who was employed claimed that the records made available for inspection did not include the 31 March 2009 Minutes or the 24 April 2009 letter. The primary judge found that the records that were made available for inspection did include copies of the 24 April 2009 letter and the 31 March 2009 Minutes (Red 115 [29]).

The Contract

14. On 16 July 2013 the appellant and Gladio entered into the Contract. It provided relevantly as follows:

6   Consent to Transfer

6.1   Date by which consent to be obtained

This agreement is subject to the written consent of Ashdown Home Units Pty Limited ACN 000 176 009 (“the Company”) to the transfer of the Shares to the Purchaser. If consent is not obtained within 38 days from the date of the making of this agreement either party may by notice in writing to the other rescind this agreement and thereupon the deposit will be refunded to the Purchaser and upon return of the deposit neither party will have any claim on the other arising out of this agreement.

…

9.   Memorandum and Articles of Association and House Rules

9.1   Copy attached

The Shares are held by the Vendor and sold subject to the provisions of the Memorandum and Articles of Association of the Company and the House Rules and a copy of each is attached to this agreement (“Articles of Association and House Rules”). The Purchaser has satisfied itself from its review of the Articles of Association and House Rules that on completion of the sale, ownership of the Shares will entitle the owner (subject to the provisions of the Articles of Association and House Rules and the Lease) to the exclusive right of use and occupancy of the Unit.

9.2   Purchaser review

The Purchaser acknowledges that prior to entering into this agreement it has satisfied itself as to the Articles of Association and House Rules of the Company.

9.3   No warranty

The Vendor discloses that it made application to the Company before the date of this agreement for a complete copy of the Articles of Association and House Rules, inclusive of any resolutions to vary or amend as may have been resolved by the Company from time to time. The copy of the Articles of Association and House Rules attached to this agreement were supplied by the Company to the Vendor in response to the Vendor’s request and the Vendor makes no warranty they are complete or accurate. The Purchaser must satisfy itself in regard to the completeness and accuracy of the Articles of Association and House Rules prior to entering this agreement and can make no claim, requisition, and objection or purport to rescind or terminate this agreement on the grounds of anything referred to in or arising from this clause.

…

10.   Conditions of sale acknowledged by vendor

The Vendor acknowledges and agrees that it is a condition of this agreement:

…

(g)   that the respective registers of members, directors and charges and all other books of the Company required by law to be kept by it are properly kept;

…

12.   Requisitions

All requisitions which the Purchaser is entitled to make will be made and delivered to the Vendor or their solicitor within 21 days of the date of the making of this agreement and all requisitions not so made shall be deemed to be waived. If the Vendor is unable or unwilling to comply with or remove any objection or requisition which the Purchaser has made and not waived within 14 days after the Vendor has given to the Purchaser written notice of intention to rescind this agreement the Vendor will be entitled to rescind this agreement and all money paid or given by the Purchaser will be refunded and the Vendor will not be liable to any sum for damage or expenses whatsoever.

15. It was common ground that the last date for the provision of Ashdown’s written consent to the transfer of the shares to Gladio under clause 6.1 of the Contract was 23 August 2013.

Articles of Association

16. Ashdown’s Articles of Association (the Articles) included an amendment to article 41(d) that provided relevantly as follows:

[D]irectors may decline to register any transfer of shares to a transferee of whom they do not approve (and who they have not previously resolved is approved as suitable to be a member of the company) and shall not be bound to assign any grounds or reason for so declining. If the Directors refuse to register a transfer of any shares, they shall forthwith send to the transferee notice of their refusal as required by Section 97 of the Companies Act.

17. Article 118 provided as follows (Red 119):

The Directors shall cause minutes to be duly entered in books provided for the purpose:-

(a)   Of the names of the Directors present at each meeting of the Directors and of any Committee of Directors.

(b)   Of all declarations made or notice given by any Director pursuant to the requirements of Section 129 of the Companies Act.

(c)   Of all orders made by the Directors and Committees of Directors.

(d)   Of all resolutions and proceedings of General Meeting and of meetings of the Directors and Committees.

And any such minutes of any meeting of the Directors or any Committee of

the Company if purporting to be signed by the Chairman of such meeting or

by the Chairman of the next succeeding meeting, shall be receivable as prima

facie evidence of the matters stated in such minutes. The books containing

the minutes of General Meetings shall be kept at the office and shall during

business hours be open for the inspection of members.

18. The Articles also included the following:

Powers of Directors

119.   The management of the business of the Company shall be vested in the Directors, and the Directors may exercise all such powers and do all such acts and things as the Company is, by its Memorandum of Association or otherwise, authorised to exercise and do, and are not hereby or by statute directed or required to be exercised or done by the Company in General Meeting, but subject nevertheless to the provisions of the Companies Act, and of these presents, and to any regulations not being inconsistent with these presents from time to time made by the Company in General Meeting; provided that no such regulation shall invalidate any prior act of the Directors which would have been valid if such regulation had not been made.

…

161.   The Directors may from time to time make regulations for the efficient and economic conduct of the building known as “Ashdown” and a copy of such regulations and of any amendments from time to time thereto shall be forwarded to every shareholder or other [sic] the occupier for the time being of flats in the said building and such regulations shall have effect as if they had been incorporated in and formed part of these Articles.

Requisitions

19. On 22 July 2013 Day Legal made requisitions on title which included the following:

21.   If the Vendors have a lease or licence agreement with the company; -

(a)   an assignment of such lease or licence agreement, with the consent of the company endorsed and signed by the Vendors, must be handed over on completion, or

(b)   a new lease or licence agreement between the company and the Purchasers, executed by the company, must be handed over at settlement.

(c)   Please provide us before settlement with the documentation for the Purchasers to sign.

20. Hunt & Hunt replied to requisition 21 (by letter dated 2 September 2013) as follows:

21.   The vendor does not have a lease or licence agreement with the company.

Request for consent

21. On 24 July 2013 Mr Lane wrote to SCTM enclosing the appellant’s letter dated 20 July 2013 directed to SCTM and to the secretary of Ashdown. The enclosed letter recorded that the appellant had entered into the Contract and included the following:

The sole director and secretary of Gladio Pty Limited is Tarek Abou-Khater Robbiati who is the tenant presently occupying the above property and who was previously approved as a tenant of the property by the company.

A copy of an ASIC extract confirming the above is attached for your reference.

I make request for the consent of the company to the transfer of my shares to Gladio Pty Limited.

I have also requested that Mr Robbiati make contact with you to enquire as to what, if anything further, the company requires in order to grant its consent.

22. Mr Lane’s covering letter included the following:

We respectfully request the consent of the company to the transfer of our client’s shares in accordance with our client’s attached letter.

An obstacle to consent

23. The Board of Ashdown anticipated that there was a problem for a company, rather than an individual, becoming a shareholder. On 31 July 2013 Mr Greene wrote to Mr Lane, in terms that included the following:

We are the managing agents for Ashdown Home Units.

I have been informed by the directors of Ashdown Home Units that they are not prepared to accept the above transfer in its present form.

Ashdown Home Units Pty Ltd is unable to consider a request to transfer shares to a company, as it is clear in the Articles of Association that only a person can be a shareholder..

Please advise your client to change the entity of the proposed shareholder to a person.

Once this is done, and a fresh application is received, it will be considered in the normal manner with an interview to follow.

Please advise this position to your client and let me know the new arrangement.

24. On 1 August 2013 Mr Lane wrote to Mr Greene in terms that included the following:

We have reviewed the constitution of Ashdown Home Units Pty Ltd. We cannot see any reference in the constitution that prohibits a shareholder from being a corporation.

To the contrary, the constitution does indeed clearly provide for non-natural persons to hold shares and we draw your attention to:

the definition section in clause 1 whereby the term “person” also means a “corporation”; and

clauses 82 and 83 which set out the proxy requirements for a shareholder that is a corporation.

Copies of the above clauses are highlighted and attached to this email.

If, as you contend in the 3rd sentence of your email, “it is clear in the Articles of Association that only a person can be a shareholder” then could you please direct us to the relevant provision within the constitution that supports that position. We do not believe that is the case and this is clearly supported by the clauses in the constitution we have brought to your attention in the attached.

We would appreciate the executive reviewing its decision in light of the above and look forward to receiving a formal response to our client’s request for consent the transfer of her shares.

Please also note that our client is incurring additional legal fees in having to deal with the position as presented in your email yesterday and we reserve her rights.

25. On 5 August 2013 Mr Lane wrote by email to Mr Greene in terms that included the following:

I refer to our telephone conversation this morning and understand that the directors will consent to the share transfer on the proviso that the corporate shareholder director provides some agreement to be personally liable for levies etc.

As mentioned this morning, I am representing a client mid - conveyance and would appreciate if the directors could clarify their position in writing as soon as possible.

26. There was some movement in the Board’s approach to a corporation becoming a shareholder. On 5 August 2013 Mr Greene wrote by email to Mr Lane on the subject “Ashdown home Unit transfer sale apt20/90 Elizabeth Bay Rd Elizabeth Bay” in the following terms:

Please find a response from the Board of directors of Ashdown to help with your conveyance matter.

Quote:

The response is that it will require a change to the House Rules to accommodate the request for a corporate entity to buy shares in Ashdown. This at least is easier than a change to the Articles of Association. An out-of-course director’s meeting has been scheduled for Thursday 8 August to discuss a new rule to accommodate the request. Naturally the Board has taken legal advice to ensure the new rule or rules protect both the prospective purchaser and Ashdown Home Units Pty Ltd.

A copy of the new rules will be sent to you promptly after the meeting. You can then send them to Mr Dale (sic).

I hope this will assist you in the above matter.

27. On 6 August 2013 Mr Lane wrote by email to Mr Greene on the subject “20/96 Elizabeth Bay Road, Elizabeth Bay” in the following terms:

I refer to your email dated 5 August 2013.

The directors have no grounds to propose that an amendment to the Rules is required before a non-natural person may acquire shares in the company.

As I have clearly stated in my email dated 1 August 2013, the Articles of Association provide for shares to be held by a non-natural person and even set out the basis upon which such an entity may appoint a proxy.

My client has entered a contract for the sale of her shares and has rightly disclosed the Articles of Association and Rules in that contract as they stood as at the date of the contract.

The proposed assignee is a non-natural person, the appropriate request for consent to the transfer of shares has been made to the directors of the company and they are required to deal with that request responsibly and in accordance with the Articles.

I require an immediate response as to whether or not the assignee is approved to hold my client’s shares and reserve her rights if the directors embark upon any course of action that would jeopardise the sale of the shares.

28. Mr Greene forwarded Mr Lane’s communications to the Board for instructions. On 9 August 2013 a member of the Board wrote to Mr Greene giving him the following instructions:

Last night the Board discussed the application by Gladio Pty Ltd to purchase shares and become a member of Ashdown. The Board has agreed to this purchase, as usual subject to interview, and therefore asks you to contact Mr Robbiati and ask him when he might be available for this interview.

The Board has amended two rules (15 has been tightened and 20 has been liberalised both in the light of recent experience) and created two new ones (22 and 23). The new rules 22 and 23 were created specifically to accommodate Gladio Pty Ltd’s purchase of the shares. They are not especially noteworthy (and certainly not in the least oppressive) and are designed merely to satisfy the Board of continuity of current arrangements under the new ownership structure. Could you please inform Mr Robbiati’s solicitor of these changes and send him a copy of the amended rules.

Could you also please inform Chris Dale [sic] of this news and send him a copy of the amended rules for his information.

29. The attached House Rules were in the following terms:

22.   AIR-CONDITIONER FOR UNIT 20: Subject to the terms of a letter from the owners of that unit to the Board dated 24 April 2009, unit 20 was permitted to install an air-conditioner and related equipment on company property in the roof space above the apartment. In the event of any complaint or dispute (for example over noise), the owners of unit 20 are obliged either to remove or sound-proof the air-conditioner at their expense. The Board has the right to withdraw this permission at any time and the air-conditioner’s removal will be entirely at the expense of the owners of unit 20 if such permission is withdrawn.

23.   SHAREHOLDING BY A COMPANY: In the event that a company becomes a shareholder of Ashdown, whoever is a director of that company at the time of purchase shall be bound to comply with all Articles and Rules of Ashdown as if they were a shareholder. The director must provide full details of the purchasing company to the Board before any shares are registered in the name of the purchasing company. The only persons permitted to occupy the unit thus purchased are those who were directors or the immediate family of directors at the time of purchase. Thus the standard residence requirements of shareholders as outlined in the Articles and Rules apply to the directors of a company purchasing the shares.

Notification of “approval”

30. Mr Greene did not comply with his instructions. Instead on Friday 9 August 2013 he wrote to Mr Lane by email in the following terms:

Please be advised that the board of directors of Ashdown have given approval to the above sale proceeding provided you instruct your client of the amended rules and regulations here attached. (in particular to clause 23).

I hope this has cleared the obstacles to this conveyance matter.

31. Mr Greene did not refer to the Board’s agreement to the purchase being “as usual subject to interview”. It appears that at this stage Mr Greene made no direct contact with Gladio or its solicitors about this matter.

32. However on Monday 12 August 2013 Mr Lane wrote by email to Mr Day (enclosing Mr Greene’s email of 9 August 2013 and its attachments) in the following terms:

I have forwarded below the email I received from the managing agents for the company last Friday evening. Attached are the Rules as referred to in the email.

I note that your client was approved as transferee of the shares.

Please advise if you have any queries and I otherwise look forward to receiving the transfer in preparation for settlement.

33. On 16 August 2013 Mr Day wrote by email to Mr Lane complaining that the amended Rules affected the “right to enjoy the Property which relates to the shares the subject” of the Contract. Mr Day characterised the existence of some of the new Rules as a “defect in disclosure”. The email included the following:

It is disturbing, to say the least, that it appears that a number of the amendments to the Rules and Regulations which were not disclosed in the Agreement for Sale of Shares have been made specifically by the Board of Directors in response to the Purchasers [sic] request for consent to register the Transfer of Shares.

34. Mr Day concluded the email by reserving Gladio’s rights, including the right to rescind the Contract.

Requests to amend the House Rule

35. On 22 August 2013 Mr Lane wrote by email to Mr Greene in terms that included the following:

My client appreciates that the Board approved the transfer of her shares to Gladio Pty Limited.

When the confirmation of the approval was conveyed to me, you also provided a copy of the updated Rules & Regulations.

I note that a further rule 22 was added on 31 July 2013. This is after the date that my client exchanged contracts for the sale of her shares. My client, as the shareholder whose interest is impacted by rule 22, was not given any notice of the impending rule nor was she afforded the opportunity to make any representations as regards the implementation of such a rule at any meeting of the Board. This was all done when the company had knowledge that my client has entered a contract to sell her shares.

As you will appreciate, the imposition of a rule mid-contract for the sale of the shares that are directly impacted by the rule, has now created a serious legal issue for my client and the conveyance is in jeopardy.

36. Mr Lane enclosed a revised draft of House Rule 22 and requested that the Board give serious consideration to adopting it so that settlement could be effected.

37. On 26 August 2013 Mr Lane wrote by email to Mr Day in terms that included the following:

Your client was approved as transferee of the shares on 9 August 2013 as confirmed by email from the company’s managing agent … which was forwarded to you on 12 August 2013.

The condition precedent in clause 6 of the contract was satisfied within the time provided by that clause.

The Sale goes off

38. On 2 September 2013 Mr Lane sent a copy of the 24 April 2009 letter to Mr Day. On 3 September 2013 Mr Day responded to Mr Lane in the following terms:

Opening your email below and its attachment was the first time either I or the director of the Purchaser have seen or been aware of the attached letter dated 24 April 2009 sent by the Vendor ( and presumably her co-proprietor at the time ) to the Company.

As previously advised, the non-disclosure of this correspondence either prior to or in the Agreement for Sale of Shares constitutes an incontrovertible defect in the quality of and the right to use the Apartment, the use of which is attached to the ownership of the Shares.

Such non-disclosure clearly creates, amongst other rights, a right of rescission of the Agreement for Sale of Shares, and on behalf of the Purchaser we hereby identify and expressly reserve that right.

39. On 4 September 2013 Mr Lane wrote to Mr Day disagreeing with the proposition that Gladio was entitled to rescind and advising that he would attend on the following day at 3.00 pm to settle the purchase. This prompted a further email from Mr Day on 4 September 2013 which included the following:

For all of the reasons expressed in my previous correspondence to you, it is perfectly plain that the Vendor is not ready, willing and able to complete the Agreement, and is certainly not in a position to pass a clear title to the Shares, the exclusive use rights of the Apartment attaching to the Shares, the inclusions specified in the Share Sale Agreement and the fixtures within the Apartment.

Air conditioning system

In your email to me Monday 2nd September 2013 sent at 5.37 pm (that is less than 2 days ago!) you attached the letter from the Vendor to the company dated 24th April 2009 (the “Letter”). The Letter reveals with absolute clarity the Vendor’s knowledge and agreement with the Company that:

1.   The air conditioning system ducting and compressor unit are located wholly with [sic] the roof space of the Building.

2.   no exclusive use rights were being sought in respect of the retention of that equipment

3.   the Vendor agreed to remove those items at her own expense, and without compensation, if the Company so directed its removal

4.   and of paramount importance in relation to the transaction between our respective clients the Vendor’s agreement that her “arrangement” with the Company “will also apply to any future shareholders of unit 20”.

Notwithstanding the above, the letter was not provided to us until 2 days ago.

Moreover, the change of the Company Rules foreshadowed in the Letter was

not made until sometime after the date of exchange of Agreements, and was

not disclosed in the Agreement.

It is abundantly clear that the air conditioning system is and is intended to be

a fixture within the Apartment, the exclusive use of which attaches to the

Shares. As that fixture is located wholly outside the apartment, and wholly within the roof space occupied by the Company, the Vendor is clearly not in a position to pass title to the air conditioning system.

Consequently, the Vendor is not ready, willing and able to complete the Share Sale Agreement.

Any attempt by the Vendor to compel completion of the Agreement prior to the satisfactory resolution of all outstanding matters will be strenuously resisted by the Purchaser. It goes without saying that the Purchaser will not be accountable to the Vendor for any interest on the balance of purchase monies.

40. On 5 September 2013 Mr Robbiati had a conversation with the Chairman of Ashdown (Mr Lee) in relation to his concerns about House Rule 22. The upshot of this conversation was that Mr Robbiati would propose “new wording” for Rule 22 (Blue 991).

41. On 9 September 2013 Mr Robbiati had a rather unsatisfactory conversation with one of the directors of Ashdown (Mr Bell) whom he had contacted in an attempt to seek his support for a change to House Rule 22. It appears that by this time Mr Robbiati had proposed “new language” for the Rule that he described as a “compromise” to address the issue of noise and maintenance of the air conditioning in exchange for some certainty. Gladio was very concerned about the uncertainty that arose from the last sentence of House Rule 22 providing the Board with the “right” to withdraw its permission to use the roof space at any time with the consequence of the expensive removal of the air conditioning should such permission be withdrawn.

Notice to Complete

42. On 11 September 2013 Mr Lane wrote to Mr Day denying that the positioning of the air conditioning was a defect and advising that the vendor was ready, willing and able to transfer title to the shares. Also on 11 September 2013 the appellant’s solicitors served a Notice to Complete on Gladio and its solicitors. That Notice included reference to the Contract being conditional upon Ashdown’s consent to the transfer of shares to Gladio with the claim that the consent “was provided”. The Notice required completion at 3.00 pm on 27 September 2013.

43. Also on 11 September 2013 Mr Lane wrote to Ashdown referring to the previous correspondence in respect of the Board’s “unilateral imposition of Rule 22”. That letter included the following:

Rule 22, as drafted and resolved by the Board, does not reflect the terms that were submitted in the letter dated 24 April 2009 by the then owners of the property; our client and Ms Louise Daley, and which terms the Board accepted as being the terms under which the air-conditioning ducting could remain in the roof cavity area. That letter stated that the “House Rules of Ashdown Home Units would be amended to include these conditions of approval”.

44. In that letter Mr Lane noted that: the Board had not submitted any draft of the proposed Rule 22 to the appellant; there was no resolution in respect of the terms and conditions of the 24 April 2009 letter in the books and records of Ashdown; and the Board had an obligation to submit a draft of Rule 22 to the appellant and/or to ensure that Ashdown’s Rules were updated in a timely manner to accommodate terms “along those stipulated in Rule 22”. The letter continued:

We note that as late as yesterday the Board has issued a communique stating that “the fact that the Rule is expressed to the terms of the letter means that, to the extent to the terms of the Rule deviate from the terms of the letter, the terms of the letter prevail”.

We strongly disagree with the above proposition when Rule 22 states “the Board has the right to withdraw this permission at any time and the air conditioner’s removal will be entirely at the expense of the owners of unit 20 if such permission is withdrawn”. This final proviso deviates significantly from the 24 April 2009 letter and goes well beyond what was countenanced in that letter. If the current Rule 22 does not accord with the terms of the 24 April 2009 letter and the Board accepts (as it appears to do) that the terms of the letter prevail, then is it not reasonable to change the wording of Rule 22?

We can assure you that all recent attempts to approach the Board and have Rule 22 revisited have been done so on the basis that our client and the intending purchaser were attempting to reach a reasonable resolution on the issue of the air conditioning installation.

We are hereby instructed to seek:

1.   the immediate revocation of Rule 22; and

2.   submission of a draft Rule 22 that is proposed for ratification by the Board and which is drafted in accordance with the provisions of the 24 April 2009 letter

within 24 hours.

45. There was further correspondence between Mr Robbiati and the Board via SCTM. On 19 September 2013 SCTM wrote to Mr Robbiati on behalf of the directors of Ashdown in terms that included the following (Blue 1035):

The directors do not propose to respond to each of the matters you raise in detail. They do however note the following:

At the present point in time your company is not a shareholder. The transfer of shares to your company is not yet approved. The directors do not understand how, as a prospective shareholder, your company would have any right to be consulted about the rule changes.

In any event, the constitution of the company vests the function of making rules in the board. Whilst the directors may, and do, from time to time, decide to consult with shareholders, they do not as a general matter have any obligation to do so.

There can be no suggestion that there is any occasion to further consult with the current shareholder of unit 20 about a rule implementing the letter of 24 April 2009 because there is an agreement with the shareholder about the rule.

46. SCTM also advised that the Ashdown directors would be reconsidering the Rule and contacting the appellant about the revised Rule “not because they consider there is any legitimate complaint about the existing rule, but in the interests of good neighbourly relations”.

Decision to rescind

47. On 19 September 2013 Mr Robbiati wrote by email to Mr Day enclosing SCTM’s letter, instructing him to prepare a draft notice of rescission and observing:

What is interesting is that they are saying that the transfer of shares to Gladio is NOT approved by the Board of the Company, therefore this has implications in relation to the Notice to complete and the deadline of 28 September that was imposed on us by Virginia and Chris. I think we need to hold firm and reiterate that we are surprised at the assertion that the share transfer was not approved. We were told it was approved subject to the Rules which have been significantly amended, between signing and completion.

48. On 19 September 2013 Mr Day responded to Mr Robbiati noting amongst other things that the SCTM letter was “slightly positive” in that it advised that “you are not yet APPROVED as Transferee of the shares” and that this would be “persuasive if not conclusive” if the need to rescind the Contract arose.

49. On 26 September 2013 Day Legal wrote to Hunt & Hunt enclosing SCTM’s letter of 19 September 2013 contending that the Notice to Complete was “bad in substance and in form” because (as SCTM’s letter advised) no consent had been granted by Ashdown to register the transfer of shares in favour of Gladio.

Notice of Rescission

50. Also on 26 September 2013 Day Legal served a Notice of Rescission on Gladio’s behalf. That Notice referred to the 24 April 2009 letter as the “AC Agreement” between the appellant and Ashdown that Ashdown could enforce the removal of the air conditioning system at any time with a claim that the appellant did not disclose the AC Agreement to Gladio in the Contract or prior to 16 July 2013. The Notice included the following:

The Purchaser’s grounds to rescind the Agreement include:

1.   That the Company did not consent to the transfer of the Shares from the Vendor to the Purchaser within the time and upon the terms specified in the Agreement,

2.   In the alternative, that the Company did not unconditionally consent to the transfer of the Shares from the Vendor to the Purchaser within the time and upon the terms specified in the Agreement.

3.   In the alternative, that the Rules attached to the Agreement were not the Rules of the Company as at 16 July 2013,

4.   In the alternative, that the Vendor did not disclose in the Agreement that the Airconditioning System is located wholly outside the Apartment and no right to retain the Airconditioning System attaches to the Shares or the exclusive use or occupation of the Apartment,

5.   In the alternative, that the Vendor did not disclose the terms of the AC Agreement to the Purchaser in the Agreement or prior to 16 July 2013,

6. In the alternative, that the Agreement does not comply with the provisions of the Home Building Act 1989 and the Regulations made under that Act, and

7. In the alternative, that the Vendor has engaged in deceptive and misleading conduct in the terms of the Trade Practices Act 1974 and other NSW and Australian legislation.

A Board resolution

51. On 28 October 2013 the Board passed the following resolution (Blue 1078):

22.   AIR CONDITIONER FOR UNIT 20: Unit 20 was permitted to install an air-conditioner and related equipment on company property in the roof space above the apartment. The terms and conditions on which this permission was granted are set out in the letter (and documents accompanying the letter) dated 24 April 2009 attached as Appendix 1 to these Rules (Letter). As indicated in the Letter, the shareholder(s) of Unit 20 from time to time is (are) bound by the terms of the Letter.

Proceedings at first instance

52. The proceedings were commenced in November 2013. They were heard by the primary judge on 2 March 2015, and 15 to 19 June 2015. Judgment was delivered on 14 July 2015: Gladio Pty Ltd v Buckworth [2015] NSWSC 922 (the Judgment).

The Judgment

53. There are three aspects of the Judgment in respect of which the appellant appeals. The first is the primary judge’s conclusion that Ashdown did not provide the requisite consent under clause 6.1 of the Contract. The second is the primary judge’s conclusion that the appellant was in breach of clause 10(g) of the Contract. The third is the primary judge’s dismissal of the appellant’s cross-claim against Ashdown for contribution or indemnity in respect of her liability to Gladio. It is appropriate to focus on those areas of the Judgment and in addition, having regard to Gladio’s Notice of Contention (referred to later), to deal with the primary judge’s reasons in respect of Gladio’s unsuccessful claim that it was entitled to rescind the Contract on the basis of innocent misrepresentation.

No consent under clause 6.1 of the Contract

54. The first basis of the appellant’s appeal is the primary judge’s finding that Ashdown had not given the appropriate consent pursuant to cl 6.1 of the Contract by 23 August 2013. The primary judge said (Red 129):

73.   In my view, in calling for “written consent… to the transfer of the Shares” to Gladio, cl 6.1 required that there be an unambiguous and unqualified statement of consent. For example, a statement of consent “subject to interview” (which may be what the Board of Ashdown had instructed Mr Greene to convey) would not have satisfied cl 6.1.

55. The primary judge identified the question for determination as “whether the email of 9 August 2013 communicated an unconditional approval to the contract” (Red 130 [74]). His Honour said (Red 130):

77.   The proper characterisation of the 9 August 2013 email must depend to some extent on the context in which it is to be placed. However, in my view, that context should be confined to matters of which both contracting parties – that is to say Gladio, as well as Ms Buckworth – had knowledge.

56. The primary judge recorded that there was no suggestion that Mr Day was aware of the detail of all the correspondence between Mr Lane and Ashdown, through SCTM that preceded the 9 August 2013 email. His Honour continued (Red 131):

80. In my view, the most significant matter of mutually known background which is referrable to the proper construction of the 9 August 2013 email is article 41(d). I have set that out at [38] above. It grants the directors power to “decline to register any transfer of shares to a transferee of whom they do not approve (and who they have not previously resolved is approved and suitable to be a member of the company)”. By the terms of that paragraph, the essential question is approval of someone as a transferee of shares. Plainly enough, where the proposed transferee is a corporate entity, the question of approval would require consideration of the natural persons who stand behind the corporation, and who would benefit from the corporation’s exercise of the rights attached to the shares if the transfer were registered.

57. The primary judge accepted that it was not necessary for Ashdown’s directors to know of the precise terms of the Contract; rather, it was enough that the directors must have realised, had they turned their minds to the question, that the Contract would be subject to their giving approval to the transferee (Red 131 [81]). The primary judge then referred to the content of the 9 August 2013 email including the words “approval to the above sale proceeding” and continued (Red 131-132):

82.   … What would a reader of that email, armed with the mutually known background knowledge to which I have referred, make of that expression? In my view, that reader, knowing what cl 41(d) said as to the necessity of approval, would have understood that the approval that was given was an approval in terms of cl 41(d).

83.   True it is that there were other matters in dispute which, if resolved one way, could prevent the sale from proceeding. But they were, for one reason or another, reasons why the Board might decide to decline to approve the transfer. Put perhaps less delphically, they were reasons why the Board, pursuant to the discretion conferred by article 41(d), might decline to approve of Gladio as a transferee.

84.   Thus, in my view, the plain meaning of the 9 August 2013 email is that the directors, in exercise of a power vested in them to do so, have given approval to the sale proceeding – by inference, to completion. Although article 41 included three other reasons why the right to transfer shares was restricted, any person having knowledge of the mutually known background facts must have understood that the only power to approve was that contained in para (d). Thus, logically enough, such a person would have read the email as constituting an exercise (by granting approval) of the power to approve.

85.   In my view, read in context, the email does signify objectively that the Board of Ashdown has resolved to approve Gladio as a transferee of shares in the capital of Ashdown. Further, in my view, that reading of the email would stand even it if were permissible to take into account those other matters of background, known only to Ms Buckworth, to which Mr Lucarelli referred in his submissions on this point.

86.   As I have noted, Mr Lucarelli submitted also that in the approval given was given on a proviso, which rendered it relevantly qualified and thus not an unconditional approval of the kind for which cl 6.1 of the contract for sale called. I accept that submission.

58. The primary judge then referred to that part of the 9 August 2013 email which recorded “provided you instruct your client of the amended rules and regulations here attached. (In particular to clause 23).” (Red 133 [87]). His Honour then said (Red 133):

88.   That of itself cannot be regarded as a condition of approval. It is no more and no less than a requirement that Mr Lane (the addressee of the email) advise his client of those amended rules. In passing, one might think that it was more important for Mr Day to advise his client of those matters. However, I do not see anything of particular significance turning on this.

89.   The proviso could not be regarded sensibly as a condition of approval, which if not satisfied would undo the approval or render it ineffectual. The Board would have no way of knowing whether “you” had ever “instructed” “your client” of the matters referred to. There is no basis for regarding something of which, by its nature, the Board could never be satisfied, as capable of amounting to a qualification on, or a condition possibly capable of undoing if not satisfied, the approval that had just been stated to be given.

59. The primary judge held that this analysis was insufficient to dispose of the point and that “the real question is not whether the ‘proviso’ itself should be regarded as some sort of condition” and that (Red 133 [90]):

It is, rather, whether read as a whole the “proviso” indicated, objectively and with reasonable clarity, that there were further obstacles to be cleared before the Board would register the transfer to Gladio. In my view, read in that way, the email did indicate that there were further obstacles.

60. The primary judge said that the “starting point” was that the email “expressly related” to the approval that had been given to the amended rules and regulations, “in particular” clause 23. His Honour said (Red 133 [91]):

In my view, considered objectively, the clear implication from the email as a whole (including the attachment) is that the approval incorporated, or was subject to the terms of, the new House Rule 23 (and for that matter, the new House Rule 22).

61. The primary judge concluded that although House Rule 23 purported to state that the standard residence requirements of shareholders in the Articles applied to a director of a company purchasing shares in Ashdown, it imposed more onerous conditions on corporate purchasers (Red 134 [92]).

62. His Honour compared the residence requirements in the Articles with House Rule 23 noting that although in the Articles natural persons holding shares could permit others to “use” (a concept not found in House Rule 23) their unit corporate shareholders were limited to directors and their immediate family members at the time of purchase “occupying” the unit. His Honour also noted that although natural persons could apply for approval to let their units to a tenant corporate shareholders could not (Red 134-135 [93]-[96]). His Honour then said:

97.   It is not necessary to consider whether the House Rules impermissibly restrict the rights granted by the articles: either generally, or specifically in the case of corporate shareholders. It is enough to note that, so far as the directors of Ashdown were concerned, their “approval to the… sale proceeding” was clearly intended to be given on the basis that House Rules 22 and in particular, 23 applied to Gladio. Thus, in my view, properly read, the 9 August 2013 email is to be regarded as making the approval relevantly conditional.

98.   Further, House Rule 22 imposes conditions on the enjoyment of the air-conditioning in unit 20. As I have said, the clear implication is that the approval given by the email of 9 August 2013 required Gladio to accept, and abide by, those conditions. It matters not that Ms Buckworth was similarly bound. The simple fact is that Gladio, and purchasers from it, would be equally bound.

99.   Of course, it was open to the Board of Ashdown to make House Rules at any time. Provided they exercised their power to do so in good faith and for the benefit of the company as a whole, it is unlikely that any shareholder could challenge the exercise. Thus, if an unqualified approval had been given and Gladio become [sic] registered as a shareholder, it might have been open to the Board to make rules such as House Rules 22 and 23. But that is not the point. The point is that they did so between contract and settlement, and in substance required Gladio to acknowledge that the rights that it would acquire on registration were to be limited in the terms suggested by those rules.

100.   Thus, in my view, the approval that was given was relevantly, and in an onerous way, conditional. It was not an approval sufficient to satisfy the requirements of cl 6.1 of the contract for sale.

Breach of clause 10(g) of the Contract

63. The second basis of the appellant’s appeal is the primary judge’s conclusion that Gladio was entitled to rescind for breach of clause 10(g) of the Contract. That clause (extracted earlier) was an acknowledgement and agreement by the appellant that it was a condition of the Contract that the “respective registers of members, directors and charges and all other books of [Ashdown] required by law to be kept by it are properly kept”. The primary judge noted that this was not a ground for rescission that was alleged in the Notice of Rescission but that the parties had proceeded on the basis that it could be argued at trial (Red 150 [158]).

64. Gladio submitted at trial that there must have been some decision or resolution in respect of the 24 April 2009 letter because the installation of the air conditioning had proceeded, the owners had enjoyed the benefit of it and the Board had not required them to remove it. In those circumstances it was submitted that Ashdown was required to keep a minute of its decision and had not done so in compliance with s 251A(1)(c) of the Corporations Act 2001 (Cth) (Red 151 [161]). The appellant submitted that there was no evidence of any resolution or decision after the 24 April 2009 letter (and before the Board resolution of 28 October 2013) and therefore there was nothing that was required to be recorded in any minute (Red 151 [162]).

65. The primary judge said (Red 151-152):

164.   The first point to note is that the letter speaks in the present tense: Ms Buckworth and Ms Daley “seek consent to utilise the roof space”.   As Mr Lucarelli submitted, that is inconsistent with the existence of approval as at 24 April 2009. Likewise, the letter is in terms an “application”: something that would not be necessary had approval been given already.

165. Those linguistic considerations gain force when the letter is put in context. The only evidence of any prior decision of the Board is that contained in the minutes of 31 March 2013. The subject matter of the discussion was the application for approval to the renovations. The Board decided in principle to give approval (that follows, if from nothing else, from the resolution to give consent to the s 96 application). However, there were conditions that remained to be satisfied including, of present importance, the requirement “to address any problems with the air-conditioning such as noise” and the reservation of [the] right “to withdraw the approval… if the problems cannot be resolved”. Read in context, that seems that the consent that had been given was unconditional as to the renovations excluding the air-conditioning; but conditional (and revocable) as to the air-conditioning.

166.   Against that background, the letter dealing as it does specifically with the question of the air-conditioning, should be read as setting out the terms that Ms Buckworth and Ms Daley proposed, in order to satisfy the Board’s requirements. However, those terms go well beyond what is suggested by the resolution. It does not seem to me to be credible that Ms Buckworth and Ms Daley would have offered those extra terms unless there had been specific negotiations with the Board as to the form and content of what it was the Board would find acceptable.

167.   When the matter is put that way, it seems to me to be inescapable that either there was a “done deal” recorded in the terms of the letter (notwithstanding its language), or there was a decision by the Board after 24 April 2009 to accept the terms of the letter as setting out the basis on which the unit 20 shareholders from time to time could use the roof space for the purposes of their air-conditioning equipment. On either analysis, it seems to me, there must have been a “decision”, even if not formally resolved at a meeting, that the terms set out in the letter recorded the terms of use of the roof space for that purpose.

168. If that analysis is correct, there was, as referred to in s 251A(1), a resolution (perhaps of an informal kind, without a meeting), which was required to be minuted. It was not.

66. After observing that it was “quite extraordinary” for the matter to be left unattended for more than four years until October 2013, the primary judge noted that the Board did not resolve to accept the terms of the 24 April 2009 letter. Rather it resolved to pass the new House Rule 23 making the terms of the 24 April 2009 letter binding on successors in title to Ms Buckworth and Ms Daley (Red 153 [169]).

67. His Honour then dealt with the proper characterisation of clause 10(g) of the Contract. After referring to the plurality’s reference in Koompahtoo Local Aboriginal Land Council v Sampine Pty Limited (2007) 233 CLR 115 to Jordan CJ’s judgment in Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632 at 641-642 his Honour said:

178.   To my mind, both the observations of the plurality at [47], [48] and the observations of Jordan CJ that I have set out above suggest that if parties explicitly agree that a particular contractual term is to be treated as a condition, then, ordinarily at least, the Court will give effect to that agreement. This may be expressed, in terms of construction, by saying that, objectively, the intention of the parties that the term in question should be a “condition” is made manifest by their language.

179.   No doubt, there may be cases in which the Court might be justified as treating a so-called “condition” as a warranty only. That might be so, for example, if it were plain that the parties had not had the benefit of legal advice, and if they had used the words “term”, “condition”, “promise”, or “warranty”, and other such expressions, indiscriminately; and if it were plain, objectively, that the particular so-called “condition” was not, and had not been seen to be, essential. This is not such a case. The parties had the benefit of legal advice, of a high standard. The contract was drafted by Ms Buckworth’s solicitor and, presumably, approved by Gladio’s solicitor. The word “condition”, when used in a contract, has a meaning that is well-understood to lawyers. On any view, some of the covenants stated in cl 10 would be treated as “conditions” even if they had not been so described.

Breach of Clause 10(g)

165. Clause 10(g) of the Contract relevantly provided that Ms Buckworth acknowledged and agreed that it was a condition of the Contract that the respective registers of members, directors and charges, and all other books of Ashdown required by law to be kept by it, were properly kept. The Primary Judge considered that cl 10(g) stated a condition of the Contract, being a state of affairs the breach of which would give a right of termination. His Honour concluded that there was a breach of cl 10(g) and that, although it was not a breach relied on by Gladio as a basis for termination of the Contract, the breach was such that Gladio could have terminated the Contract by reason of the breach. In order to put his Honour’s conclusion into context, it is necessary to say something more about the background to his Honour’s conclusion.

166. On 31 March 2009, the directors of Ashdown passed a resolution as follows:

Renovations Unit 20. Detailed drawings were tabled for consideration. The work involved includes the installation of air conditioning and a freestanding pergola. As these items had been deleted by the previous section 96 application it will be necessary for another section 96 to be lodged with Council.

After discussion it was agreed:-

● These renovations will not need to be presented to the shareholders as they were on the original Development Application approved by the shareholders,

● Permission be given for the lodgement of the Section 96 Application,

● Luca Turnbull will be engaged to inspect the membrane when the pavers are removed and before the timber decking in [sic] installed,

● Weir & Phillips, architects, to inspect the installation of the air-conditioning in the roof space,

● The shareholders will undertake to address any problems with the air-conditioning such as noise but the Board of Directors reserve the right to withdraw the approval for the air-conditioning if the problems cannot be resolved,

● The pergola will not be attached to the building and will be held down by timber decking,

● All of the heavy planter pots will be removed from the roof deck.

(Orange, 18, B-L)

167. On 24 April 2009, Ms Buckworth and Ms Louise Daley, her then co-owner of the shares in Ashdown, wrote a letter to Ashdown in the following terms:

Virginia Duckworth and Louise Daley, owners of shares in Ashdown Home Units Pty Limited relating to apartment 20, as part of the application for air-conditioning seek consent to utilise the roof space above our apartment to locate ducting and the compressor unit in accordance with the specifications that have been presented to the Board.

In making this application we acknowledge:

● the space we seek to utilise for the above purposes company property and not subject to any rights of exclusive use; and

● in the event the company decides to use, for any purpose, all or part of the roof space within which the ducting and compressor unit is located then we agree to remove those items as required, at our expense, and agree that we are not entitled to any compensation for the loss of use of this space and removal of those items.

We note that if any problems arise with the installation in the roof space, we will be given the opportunity to resolve those issues, but that the Board of Directors reserves the right to withdraw approval for the air-conditioning installation if problems continue.

We will locate the air-conditioning items in the roof space as close as possible to the terrace at the Western end of the area, and should be approved to be noise disturbance to unit 21 from the operation of the air-conditioning unit, we will install agreed acoustic separation.

We also note that this arrangement will also apply to any future shareholders of Unit 20, and that House Rules of Ashdown Home Units will be amended to include these conditions of approval.

(Orange, 18/19, O-E)

168. The Primary Judge held that the terms of the letter of 24 April 2009, being in the present tense, and saying that the shareholders “seek consent to utilise the roof space”, gave rise to an inference that some further accord was reached as between Ms Buckworth and Ms Daley, on the one hand, and Ashdown, on the other, concerning the installation of air-conditioning equipment. His Honour considered the use of the present tense was inconsistent with the existence of approval as at 24 April 2009 and that use of the term “application” would not be necessary if approval had been given. His Honour also considered that the terms of the letter of 24 April 2009 went “well beyond” what was suggested by the resolution of 31 March 2009. His Honour did not consider that it was credible that Ms Buckworth and Ms Daley would have offered the extra terms contained in the letter unless there had been specific negotiations with the directors of Ashdown as to what would be acceptable.

169. There was no evidence of any communication passing between the directors of Ashdown, on the one hand, and Ms Buckworth and Ms Daley, on the other, between 21 March 2009 and 24 April 2009 concerning the proposal for installation of air conditioning. No question was asked of Ms Buckworth as to any such communication. There was no direct evidence that a decision was made by the directors after 31 March 2009. Rather, the primary judge drew an inference, from the terms of the letter, the differences between the letter and the resolution and the fact of the installation of air conditioning, that there must have been a “decision”, even if not formally resolved at a meeting, that the terms set out in the letter recorded the terms of use of the roof space. His Honour concluded that, in those circumstances, there must have been a resolution authorising an agreement in terms of the letter of 24 April 2009. Since there was no resolution authorising such an agreement recorded in the books of Ashdown, his Honour concluded that there was a breach of cl 10(g).

170. Ms Daley was present at the meeting of the directors of Ashdown held on 31 March 2009 and the relevant resolution appears to have been passed unanimously. The proposal approved on 31 March 2009 entailed the installation of air conditioning ducting within the roof space and the minutes refer to proposed inspection of the air conditioning in the roof space by architects. That suggests some specificity in relation to the proposal that was approved at the meeting and that there was no need for any further specification of what was proposed.

171. The use of the present tense in the letter is not inconsistent with the parties treating the resolution of 31 March 2009 as sufficient approval, in circumstances where the language of the resolution indicates that the directors had already agreed to the proposal. The use of the word “application” in the letter is also inconclusive.

172. The terms of the letter do no more than complement the reference in the minutes to the undertaking by Ms Buckworth and Ms Daley, as shareholders, to address any problems with the air conditioning, such as noise. The references in the letter reflect the awareness of Ms Buckworth and Ms Daley of the need to adopt measures to avoid problems with the air conditioning such as noise. The concluding paragraph of the letter does not add anything, in that it would be obvious that future owners of the relevant shares would be bound by the conditions of approval.

173. In response to the letter of 22 April 2009, Ashdown affixed its seal to the development application lodged with the Council later in April 2009. That does no more than suggest that Ashdown simply regarded the letter as confirmation by Ms Buckworth and Ms Daley that they accepted the essential terms of the resolution of 31 March 2009. The resolution was sufficient authority for Ashdown to accept the terms of the letter of 24 April 2009.

174. I do not consider that a comparison between the terms of the resolution of 31 March 2009 and the terms of the letter of 24 April 2009 supports the inference that there must have been further communication leading to a decision of the directors of a kind that was required to be recorded in the books and records of Ashdown. Such a comparison does not support the characterisation of the terms of the letter as going well beyond what was suggested by the resolution, as the primary judge held. There is no basis for inferring that there was another resolution, either formal or informal, of the directors that was not recorded in the minutes of meetings of directors of Ashdown. Therefore, no breach of cl 10(g) was established.

Conclusion

175. I consider that the primary judge erred in concluding that Gladio was entitled to rescind the Contract. The appeal should be allowed and the orders made by his Honour should be set aside. Ms Buckworth should pay Ashdown’s costs of the appeal. Gladio should pay Ms Buckworth’s costs of the appeal, which should include the orders she is required to pay to Ashdown. In lieu of the orders made by the primary judge, there should be an order that the proceedings brought by Gladio be dismissed with costs. The cross claim should also be dismissed with costs. The costs ordered to be paid by Ms Buckworth to Ashdown should be part of her costs of defending the proceedings.

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Decision last updated: 23 March 2016