CAG v Cheruku and Kosaraju
[2020] VCC 13
•29 January 2020
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
Case No. CI-19-01630
| CAG COMPANY PTY LTD (ACN 155 257 855) | Plaintiff |
| v | |
| REVATHI SHIRISHA CHERUKU | First Defendant |
| and | |
| NITHIN KOSARAJU | Second Defendant |
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JUDGE: | HER HONOUR JUDGE MARKS | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 2 December 2019 | |
DATE OF JUDGMENT: | 29 January 2020 | |
CASE MAY BE CITED AS: | CAG v Cheruku and Kosaraju | |
MEDIUM NEUTRAL CITATION: | [2020] VCC 13 | |
REASONS FOR JUDGMENT
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CONTRACT – whether licence fee payable on proper construction of clause in contract of sale – meaning of ‘allows’ – what reasonable businessperson would have understood clause to mean: Mount Bruce Mining Pty Limited v Wright Prospecting Pty Limited (2015) 256 CLR 104 at [47].
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APPEARANCES: | Counsel | Solicitors |
| For the plaintiff | Mr S Hopper | Lennon Lawyers |
| For the defendants | Mr A Silver | Welner Lawyers |
HER HONOUR:
The plaintiff agreed to sell its Coburg North property to the defendants in February 2019, for $1.37 million, with settlement to take place some seven months later, on 1 September 2019. The contract of sale included the following handwritten clause, which was added by the plaintiff’s real estate agent and initialled by the defendants when they signed the contract of sale on 9 February 2019:
The Vendor allows the purchaser to take possession of the property under
leaseLICENCE agreement on the March 20th March [sic] 2019 at $700 per week until Settlement.The plaintiff countersigned the contract of sale three days later, on 12 February.
Settlement eventually occurred on 2 September 2019 and the defendants moved in. They did not take possession before settlement.
Relying on the handwritten term, the plaintiff says that the defendants owe it $16,500 (and interest): $700 per week from 20 March 2019 until settlement. The defendants say they do not owe anything under that clause.
The question I am asked to decide is whether the plaintiff is entitled to $16,500 (and interest) as a result of the handwritten clause. (A counterclaim had been brought, and other issues pleaded, but this was the agreed issue by the commencement of trial.)
The plaintiff submits that the clause is ambiguous. It says that it could mean that the $700 per week payment it sets out was mandatory (payable regardless of whether the defendants took possession before settlement) – or that it was permissive (only payable if the defendants took possession before settlement.)
Where a clause is ambiguous and there is a constructional choice as to how it is interpreted, that ambiguity may be resolved by considering pre-contractual negotiations in order to establish the parties’ objective intentions: see Mount Bruce Mining Pty Limited v Wright Prospecting Pty Limited (2015) 256 CLR 104 at [46] – [50]. The plaintiff submits that the pre-contractual negotiations establish that the parties’ objective intentions were that payment was mandatory. It argues that the fact the defendants did not take possession is irrelevant: the fee provided for by the clause was payable in any event as a fee for the opportunity to take possession.
The defendants, on the other hand, say the handwritten clause is not ambiguous. They say it is clear. It permits the defendants to enter the property under a licence agreement but it does not compel them to do so, nor does it create a liability to pay if they have not entered the property before settlement.
They say that if they are wrong about that, and the clause is ambiguous, then the pre-contractual negotiations establish that the defendants agreed to consider taking possession under a licence agreement before settlement, but did not agree that they would do so.
Finally, they say that in any event, after the contract of sale was signed the plaintiff did not offer the defendants possession of the property on or after 20 March 2019 on the basis of the handwritten clause. Instead, days after the contract of sale was signed, the plaintiff produced a document with the heading, ‘Licence Agreement’, which it wanted them to sign. It contained terms that had not been discussed, and which the defendants did not agree to, and they never signed it. The plaintiff then issued these proceedings, seeking at that stage ‘specific performance’ of the contract of sale such that the defendants be ordered to sign the Licence Agreement. The defendants submit that in the circumstances, after signing the contract of sale they were never offered possession of the property solely on the basis of the handwritten clause. So that even if the plaintiff’s construction of the clause was right, the fee claimed as a result of the handwritten clause did not become payable.
For the reasons set out below, I find the fee did not become payable. I will give judgment for the defendants.
No possession offered solely on basis of handwritten clause
The plaintiff’s case must fail because the fee it claims did not become payable even if its preferred construction of the handwritten clause is correct.
As set out above, the plaintiff submits that the handwritten clause is ambiguous. It submits that, on its favoured construction, the clause permits the defendants to take possession of the plaintiff’s property from 20 March 2019 and the fee for that permission was $700 a week from 20 March 2019 until settlement. It submits that the fee was payable for that permission regardless of whether they took possession.
Mr Hopper, counsel for CAG, submitted:
So imagine it like this: on 20 March the vendor hands the keys to the purchaser but the purchaser never actually goes to the property. What the purchaser is paying for is to have the keys so that they can go there if they want to.
But after the contract of sale had been executed, the plaintiff did not give the defendants permission to take possession of the property – or make possession of the property available to them – on the basis of the handwritten clause. If the proper construction of the clause is that the defendants were liable to pay the fee simply for having permission to take possession, it follows that if possession was not then made available to them, no fee is payable.
Put another way – adopting Mr Hopper’s hypothetical above – on 20 March the plaintiff did not hand the keys to the defendants. If ‘what the purchaser is paying for is to have the keys so they can go there if they want to’, and the purchaser did not ‘have the keys’, then they could not ‘go there if they want to.’
After the contract of sale was signed, the plaintiff proceeded on the basis that the defendants were required to sign a further agreement, described as a ‘Licence Agreement’ which included extensive terms not provided for in the contract of sale.
Nearly two weeks after the contract of sale was signed, the plaintiff’s solicitor sent a document entitled ‘Licence Agreement’ to the defendants’ conveyancer for the defendants’ consideration, seeking any proposed amendments so it could be finalised before 20 March.
On 5 March 2019, the defendants’ conveyancer wrote back to the plaintiff’s solicitor:
Purchaser has requested the commencement of licence agreement date to be amended to 01/05/2019 as there are works need to be done such as window blinds and shower screens needs [sic] to be installed before occupying the property and due to Easter coming up, all the contractors are busy and unable to do works in next 2-3 weeks.
Please amend the license agreement and resend it for signing.
The defendants’ conveyancer wrote again a week later, on 12 March 2019, asking for the amended Licence Agreement so that he could get it signed, and asking for confirmation that the plaintiff would agree to provide early access to the property to fix the shower screens and blinds.
Later that day, the plaintiff’s solicitor wrote back indicating that the plaintiff did not agree to amend the Licence Agreement so that it would take effect from 1 May 2019, and asking for the signed Licence Agreement to be sent.
The defendants’ conveyancer responded three quarters of an hour later, setting out work that the defendants said needed to be completed before occupancy, and continuing:
We understand from the special condition of the contract that purchaser is under no such obligation to sign the licence agreement but purchaser is willing to assist considering the circumstances and hence requesting the amendment to licence agreement to 15/04/19. [sic]
On 13 March 2019, the plaintiff’s solicitor wrote to the defendants’ conveyancer:
Our client will not accept your proposed amendment to the Licence Agreement such that it commences on 15 April 2019.
…
Please confirm that your client will sign the Licence Agreement with the commencement date as at 20 March 2019. Obviously, if your client does not move in until a later date, that is entirely a matter for your client.
…
Please confirm that your client will sign the Licence Agreement failing which we hold instructions to issue an application seeking specific performance of the agreement. ...
On 19 March 2019, the defendants’ conveyancer responded:
Purchasers has instructed our office that settlement will occur as per the contract on 01/09/19. Purchasers will be taking the possession of the property after the settlement has taken place.
Purchasers are not obliged to sign the licence agreement as per the General and Special Conditions of the contract, the special condition in the contract states that Vendor Allows the purchaser to take possession under licence agreement, it is nowhere noted that purchasers must take possession under licence agreement.
The next morning, on 20 March, the plaintiff’s solicitor wrote asking if the defendants’ conveyancer had instructions to accept service. At 4:27pm, the defendants’ conveyancer wrote again.
…Purchaser is not obliged to sign the licence agreement as per the contract but I have received instructions from my client that she will consider signing the licence agreement when the following 6 issues (see email below) will be rectified, which were promised with the licence agreement when it was offered.
Please advise our office as soon as the issues stated in email below has [sic] been fixed/rectified and I will present the licence agreement for my client for signing.
…
That email forwarded an email the first defendant had sent at 3:35pm that day to the defendants’ conveyancer. The ‘Peter’ she refers to is the plaintiff’s real estate agent.
...
The reason I did not sign the licence agreement as I do not agree with some of the clauses.
Firstly I was advised by my agent the following and I was given the licence agreement after they made me sign the contract hence I do not wish to agree with the licence agreement.
1. I was advised by Peter on multiple occasions the property would be fully cleaned inclusive of the pool.
2. All appliances would be in working condition.
3. I was advised this house has refrigerated cooling and is in working condition.
4. Clause no 7 is where I have been asking my agent to clarify from the day I received this document and he advised he would speak with the vendor and revert back to me and he never did.
5. All furniture to be removed and an empty house to be given at the time inspection.
6. Due to these above reasons not been addressed I have requested for an extension until May 1st (negotiable) I want to move into this house asap however the above was not delivered as promised and hence this request to resolve the above issues as per my discussion with Peter.
I am requesting my vendor to consider the above and make necessary changes and I am happy to sign the licence agreement as of 20th of March. But if the property is not ready to be occupied how can I agree to the terms they set without my consent.
On 25 March 2019 at 2:20pm, the plaintiff’s solicitor responded to the defendants’ conveyancer:
1. The real estate agent denies such representations. Furthermore, and in any event, the property will be fully cleaned which is the convention with respect to any handover of a property and your clients will be entitled to a final inspection;
2. Denied. If in fact the real estate agent made such representations, they do not derogate from the legal obligations on your clients to comply with the contractual arrangements, i.e. the purchase of the property conditional on the Licence Agreement as at 20 March 2019;
3. Denied. To the extent that your clients relied on representations from the real estate agent, they do not derogate from their legal obligations. Once again, the real estate agent denies making any such representations in any event;
4. For the purposes of clarity, the real estate agent acts for the vendor. The reference by your clients to “my agent” is mystifying. Furthermore, our office has been in constant communication with the real estate agent for the number of reasons and we are astounded that your clients are indicating that he has not been staying in touch with them. We are in fact advised that your clients have indicated on a number of occasions that they would be attempting to negotiate the Licence Agreement. We also understand that your clients inspected the property on 5-6 occasions prior to purchase and the allegations being made are nothing more than “a try on”. On this aspect, we also understand that your clients indicated to Linda Sadik (who was engaged by our office to sell the furniture) that they were endeavouring to negotiate the date for the commencement of the Licence Agreement;
5. Noted, and the property is vacant and ready as it has been well prior to 20 March 2019;
6. Our client will not agree to an extension particularly given the communications between our respective offices that have increased costs that we will look to your clients for.
As a courtesy to your clients, our Mr Lennon will attend the property in the next day or so (at the cost of the vendor) to ensure that it is available for handover. This is entirely unnecessary and had your clients expended their efforts on meeting their contractual obligations inclusive of moving in on 20 March 2019, these issues would have been resolved well before now.
As we have said in previous communications, your clients did nothing other than sit on their hands from the date of the signing of the contract until very recently.
Should we fail to receive confirmation by 12 pm tomorrow I.e. 26 March 2019 that your client will sign the Licence Agreement and advise as to the handover, we shall issue proceedings for specific performance. …
On 10 April 2019, the plaintiff instituted these proceedings. The statement of claim included an allegation, at paragraph 5(c), that there were terms of the contract of sale that:
on and from 20 March 2019 until Settlement, the Defendants would take possession of the Property pursuant to a Licence Agreement (hereinafter referred to as “the Licence Agreement”) whereby the Defendants would pay to the Plaintiff a weekly licence fee of $700 commencing on 20 March 2019 and payable until Settlement.
PARTICULARS
A copy of the Licence Agreement is in the possession of the Plaintiff's solicitors and may be inspected by appointment at their offices by prior appointment during business hours.
At paragraph 8 of the statement of claim, reference was made to a copy of the proposed Licence Agreement being emailed to the defendants’ conveyancer on 27 February 2019.
It was then alleged that in breach of the contract of sale, the defendants ‘have failed and/or refused to execute the Licence Agreement, whether on the terms proposed by the Plaintiff under cover of the said email dated 27 February 2019 or at all’. Loss and damage was claimed, as was specific performance of the contract of sale.
It is apparent from the history set out above that the plaintiff did not offer the defendants possession of the property on or from 20 March 2019 based on the handwritten clause. On the contrary, they issued proceedings seeking to force the defendants to sign the Licence Agreement.
It was not until trial that the plaintiff claimed that $16,500 was due to it as a debt because of the handwritten clause.
As submitted by the defendants in written submissions:
17. The terms of the draft Licence Agreement include the following terms which purport to impose obligations on the defendants which are not contained in the Contract of Sale:
a.in paragraph 3 - an obligation to vacate within 48 hours' notice and any failure to remove all personal property within the notice period would result in all such personal property vesting in the licensor who may dispose of it at their sole discretion;
b.in paragraph 5 - an obligation to obtain and provide evidence of insurance on the property as accepted by the licensor;
c.in paragraph 6 - adjustments of rates and taxes will take place from occupation not settlement;
d.in paragraph 7 - licensee accepts the condition and state of repair as at occupation and effectively carries the risk of loss or damage, contrary to clause 24 of the general conditions of sale;
e.in paragraph 11, the licensee to arrange reconnection of utilities at their own expense, despite the disclosures in paragraph 8 of the Vendor's Statement that the utilities are connected.
18. Even if the court were to find that the 'licence term' created an obligation upon the defendants, there could be little controversy that no amount could be payable if the plaintiff did not make the property available for pre-settlement possession on the terms of the Contract of Sale.
19. As the 'licence term' provides that payment is for possession, the onus rests with the plaintiff to prove that it was ready, willing and able to give possession on the terms of the Contract of Sale.
20. The:
a.insistence by the plaintiff for the defendants to execute the Licence Agreement;
b.the lack of any invitation by the plaintiff for the defendants to take possession without executing the Licence Agreement;
c.the lack of any demand for money, ever;
d.and the fact the plaintiff pleaded a requirement to enter into a Licence Agreement rather than a claim in debt.
all make it open to the court to find that there is no evidence the plaintiff was ready, willing and able to give possession to the defendants other than on the terms of the Licence Agreement, which, for the reasons above, the defendants were not obliged to take. [citations omitted]
The plaintiff submitted that there was no evidence to show that the defendants had asked the plaintiff for possession on the basis of the handwritten clause. That is so. However, it is for the plaintiff to show, on the balance of probabilities, that it has established the precondition to the debt claim it now pursues.
It has not. On its construction of the handwritten clause, in order to succeed on its claim it needs to establish that after the contract of sale was executed it offered the defendants possession based on that clause. It needs to show it was ready, willing and able to offer possession – without requiring as a further condition of possession that the defendants agree to further conditions not contemplated in the contract of sale. It did not show that.
Although it is not necessary for me to construe the clause, given that even on the plaintiff’s construction its case must fail, I will briefly indicate my view. It is that the clause is unambiguous. The word 'allows' is clearly permissive. The Macquarie Dictionary (online at 2 December 2019) relevantly states that it means:
to grant permission to or for; permit: to allow a student to be absent; no smoking allowed.
The word ‘allows’ in the context of the clause has the effect that the plaintiff gives permission for the defendants to take possession on 20 March 2019 under licence at a $700 weekly fee until settlement. The obligation to pay arises only if the defendants take possession, which they are allowed to do. The clause does not provide that the defendants 'must' or 'shall' or ‘agree to’ take such possession, or that they must pay the fee in any event. I consider that the plaintiff’s construction – that the fee is for permission to take possession, rather than for actually taking possession – is strained. It is not what the reasonable businessperson would have understood the clause to mean: see Mount Bruce Mining Pty Limited v Wright Prospecting Pty Limited (2015) 256 CLR 104 at [47].
The proper construction of the clause is that the plaintiff is giving the defendants the opportunity to take possession of the property under licence from 20 March 2019, at the cost of $700 per week until settlement if they take possession.
Given these findings, I do not need to consider what the pre-contractual negotiations establish as to the parties’ objective intentions. For completeness, however, I indicate that I would have been satisfied on the balance of probabilities that the objective intentions of the parties were that the defendants be permitted to take possession on 20 March 2019 under licence at a $700 weekly fee until settlement.
I found both witnesses who gave evidence of the negotiations to be endeavouring to be truthful. Mr Sowersby, the real estate agent, was clear that he did not remember much of what had been said, though he recalled a conversation occurred about a licence agreement in general terms. He said there was no way known he would have allowed his vendor to ‘take a sale with an option of maybe getting $700 a week’. He commented: ‘She’s signed the document. So she’s agreed on it’. Ms Cheruku, the first defendant, gave detailed, if rather confused, evidence of what she said she recalled being said. However, I am not satisfied that she actually remembered what was said in the detail she gave (as opposed to reconstructing what she now thought had occurred then).
The best evidence of what occurred is contained in the final text sent by the first defendant to the plaintiff’s agent on the morning of 9 February 2019 (before the handwritten clause was inserted into the contract of sale by the agent, and the contract signed by the defendants, later that day). The text said:
March 20th move on lease to new property
Rent - $700/ week
Settlement no earlier than sep1st [sic]
If they agree we will look to consider
Or current contract settlement to be as is with a price of 1.35m to settle on sep 1st.
Points to be noted
Work for Rev & Nithin
Blinds in the new house
Shower screens
Additional air con to be added
prepare my existing home for rent
It is difficult to make sense of aspects of this text. But I am satisfied that the first defendant’s words, ‘if they agree we will look to consider’, indicate that she was stating that if the plaintiff agreed to permit the defendants to move into the property at $700 per week from 20 March, the defendants would consider moving in for that fee. I accept the first defendant’s evidence that she told the agent around this time that the defendants already had a house and did not want to pay for two residences unless they could find a tenant for their current one; and her evidence that there was some benefit to the defendants to move in early if they were able to start making repairs prior to settlement.
Conclusion
I will give judgment for the defendants.
I direct the parties to consider the costs orders that should be made as a result of these reasons. If the parties cannot agree and require a costs hearing, it will be listed.
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Certificate
I certify that these 11 pages are a true copy of the reasons for judgment of her Honour Judge Marks, delivered on 29 January 2020.
Dated: 29 January 2020
Samantha Marinic
Associate to Her Honour Judge Marks
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