Cahill v Kiversun Pty Ltd
[2017] VSC 641
•29 November 2017
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
S ECI 2016 01231
| BETWEEN: | |
| PETER JOSEPH CAHILL | Plaintiff |
| AND | |
| KIVERSUN PTY LTD (ACN 006 035 570) | Defendant |
| S ECI 2016 01256 | |
| BETWEEN: | |
| MOLONGLO GROUP (AUSTRALIA) PTY LTD (ACN 109 342 547) | Plaintiff |
| AND | |
| PETER JOSEPH CAHILL | First Defendant |
| AND | |
| REGISTRAR OF TITLES | Second Defendant |
---
JUDGE: | Kennedy J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 16, 18, 19, 20, 23 and 30 October 2017 |
DATE OF JUDGMENT: | 29 November 2017 |
CASE MAY BE CITED AS: | Cahill v Kiversun Pty Ltd; Molonglo Group (Australia) Pty Ltd v Cahill & Anor |
MEDIUM NEUTRAL CITATION: | [2017] VSC 641 |
CONTRACT – Vendor and purchaser – Whether binding agreement for the sale of land – validity of execution – Whether a conditional offer – Whether intention to be bound – Consideration – Construction of terms
CONTRACT – Whether vendor disentitled from relying on non-compliance with condition by reason of prevention principle
CONTRACT – Availability of specific performance – Appropriate form of order
TRADE AND COMMERCE – Australian Consumer Law – Whether representations made and/or whether misleading or deceptive – Whether reliance in any event
---
In proceeding S ECI 2016 01231
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr A P Rodbard-Bean | Aitken Partners |
| For the Defendant | Dr C G Button | Mills Oakley |
In proceeding S ECI 2016 01256
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Ms T N Spencer Bruce | King & Wood Mallesons |
| For the First Defendant | Mr A P Rodbard-Bean | Aitken Partners |
HER HONOUR:
These two proceedings concern a dispute regarding the purported sale of commercial land at 112 – 118 Rokeby Street in Collingwood (Rokeby Street Property) by a vendor, Kiversun Pty Ltd (Kiversun) to two separate purchasers: first to Mr Peter Cahill on 15 July 2016; and second to Molonglo Group (Australia) Pty Ltd (Molonglo) on 4 August 2016.
The two prospective purchasers claim that Kiversun is bound to sell the Rokeby Street Property to them in circumstances where Kiversun has purported to terminate the alleged contract with Mr Cahill. Both purchasers have also lodged caveats over the Rokeby Street Property.
In proceeding S ECI 2016 01231 relating to Mr Cahill’s claim (Cahill Proceeding), Mr Cahill seeks an order for specific performance of his agreement against Kiversun primarily relying on an ‘Agreement to Purchase’ document dated 15 July 2016 (Agreement to Purchase); alternatively, he seeks damages for alleged misrepresentations pursuant to Schedule 2 of the Competition and Consumer Act 2010 (Cth) (Australian Consumer Law) (alleging contraventions of ss 18 and 30) and/or specific performance of the Agreement to Purchase.
In proceeding S ECI 2016 01256 (Molonglo Proceeding), Molonglo seeks an order for the removal of Mr Cahill’s caveat,[1] while Mr Cahill in turn seeks an order (by Counterclaim) for the removal of the Molonglo caveat.[2]
[1]Such an application would ordinarily be determined on the basis of a prima facie case and balance of convenience: see Lawrence & Hanson Group Pty Ltd v Young [2017] VSCA 172, [36]-[38]. However, because the proceeding was heard together with the Cahill Proceeding, the issues will be finally determined.
[2]Although the Registrar of Titles was a second defendant in this proceeding, he took no part in the proceeding: see letter dated 4 November 2017 filed in the Molonglo Proceeding on 8 November 2016 by Mr Chris McRae, Registrar of Titles, advising of an intention not to appear in the Molonglo Proceeding.
A crucial issue in both proceedings was therefore whether or not Mr Cahill had established that Kiversun had entered into a binding and specifically enforceable contract for the sale of the Rokeby Street Property. By reason of this common issue, both proceedings were heard together pursuant to orders made on 10 March 2017.
In fact, Counsel for Molonglo fairly conceded that, if Mr Cahill could show an immediately binding contract for the sale of property which was specifically enforceable, it would follow that the Molonglo caveat ought be removed.[3]
[3]Transcript of Proceeding (30 October 2017) 704.
Both Kiversun and Molonglo allege that the Agreement to Purchase is not a binding contract for the sale of property for various reasons. In particular, the issues which arise are whether:
· it was duly executed by Kiversun;
· it lacks consideration;
· it is only a conditional offer;
· an objective intent to create legal relations is in existence; and
· it is a binding contract to negotiate only.[4]
[4]Which was not pleaded or alleged by Mr Cahill: Transcript of Proceeding (23 October 2017) 582.
Kiversun also alleged that, even if the Agreement to Purchase was binding, that it was under no further obligation to deal with Mr Cahill by reason of the failure of Mr Cahill to comply with a condition (to return a proffered contract of sale not more than 5 business days after receipt). However, Mr Cahill alleges that Kiversun is not entitled to rely on the non-compliance with the condition in circumstances where Kiversun effectively disabled compliance with that condition.
Accordingly, a further issue arose as to whether Kiversun disabled compliance with the said condition. In order to determine this issue, it was also necessary to first determine what the terms of any alleged binding contract were.
Finally (in relation to the contract claim), two further issues arose in terms of remedy as follows:
· whether specific performance ought to be refused given, in particular, that Mr Cahill had not demonstrated that he was ready, willing and able to perform the alleged contract even if it existed; and
· the appropriate form of order.
In terms of the misrepresentation claim, the Court had ordered that the matter be set down for trial on all issues, save for the quantification of any damages to be awarded under ss 236 and 237 of the Australian Consumer Law.[5] Accordingly, the major issues to be determined was whether any of the alleged representations were made; whether they were false; and /or whether there was reliance.[6]
[5]Order 2 of the Order of Kennedy J dated 10 March 2017.
[6]See also the document entitled ‘Defendant’s Note on Scope of Initial Trial’ dated 18 October 2017, which was agreed to by the parties.
WITNESSES
The following witnesses were called on behalf of Mr Cahill:
(a) Mr Peter Cahill;
(b) Mr Brett Simpson, formerly an estate agent of Vision Real Estate;
(c) Mr Timothy Bindley, director of Vision Real Estate;
(d) Mr Pasquale Franzese, expert witness on the issue of ‘ready willing and able’; and
(e) Mr John O’Grady, expert witness.
Mr Cahill presented as an impressive, straightforward witness who was ready to make concessions appropriately. Although some criticism was made about his evidence on the topic of a meeting of 4 August 2016, I did not find this to be justified.
Mr Simpson and Mr Bindley were subpoenaed witnesses who had engaged separate lawyers. Although there was some criticism as to whether they acted at all times on behalf of the vendor, no general challenge was made to their credit. Mr Simpson was a straightforward witness. Mr Bindley also presented as generally reliable, save for some emotion at times which was apparently caused by his views that the solicitors for Kiversun and Molonglo had wrongfully sought to engineer their way out of a contract. I have generally accepted their evidence.
The evidence of Mr Franzese will be referred to in more detail below.
The evidence of Mr O’Grady was sought to be adduced on the application of the prevention principle. It was to the effect that the value of the Rokeby Street Property was substantially reduced from $10 million to $6.2 million under the form of contract proffered by the vendor (which included a 5-year lease at a rent nominated by the vendor). His evidence was adduced subject to an objection on relevance grounds. It was also criticised, inter alia, on the basis that he did not provide adequate data to support the comparable sales he relied upon. In the result, as will be seen below, I have not found it necessary to have regard to his evidence.
Kiversun provided outlines of evidence for a number of witnesses and opened on the basis that they would be called. These were the following:
(a) Mr George Paraskevakis, director of Kiversun;
(b) Mrs Bruna Paraskevakis, director of Kiversun; and
(c) Mr John Vlahopoulos, accountant for Kiversun.
However, on the fifth day of the trial, Counsel announced that they would not be called. No explanation was provided for this position.
In the result, the only other witness called was Mr Nicholas Kalogeropoulos, a director of Molonglo. He claimed to be unable to recollect relevant matters and was at times unresponsive. This may be partly explicable on the basis that he claimed that Mr Phillip Rushby, a former director of sales for Molonglo, was primarily responsible for dealings in this matter (who was not called). However, I have generally not relied on the evidence of Mr Kalogeropoulos unless it was supported by objective evidence.
In terms of the evidence generally, the parties consented to a large volume of documentation being tendered. The chronology below is based on this documentation, bearing in mind (as was properly emphasised by Counsel) that different parts of the evidence would only be admissible on some issues only. I have therefore sought to identify which evidence has been relied upon in analysing each particular issue.
FACTUAL NARRATIVE
Preliminary
Mr Cahill is an experienced property developer and managing director of Domain Hill Property Group Pty Ltd with some 30 years’ experience in property development. He is a valuer by profession, holds an estate agent’s licence, and is an Associate of the Property Institute of Australia and the Real Estate Institute of Victoria. He is also a graduate of the Australian Institute of Company Directors and is a guest lecturer at RMIT University to students undertaking degrees in Property, Valuation and Construction.
Mr Simpson and Mr Bindley were both real estate agents. Both had worked as estate agents for some 30 years, including a period together at Vision Real Estate. Mr Simpson had recently left Vision Real Estate to work as a director of Gray Johnson. Mr Cahill had had regular dealings with both Mr Simpson and Mr Bindley over the years, including by way of buying and selling properties, as well as the management of properties.
Kiversun had two directors: Mr George Paraskevakis and his wife, Mrs Bruna Paraskevakis. There was little evidence as to what precise business Kiversun was conducting, other than that it had a ‘manufacturing department’ which was located at the Rokeby Street Property. It also appeared that Mr Paraskevakis wanted to retire, which led to the decision to sell the Rokeby Street Property.
Molonglo was a family business established in the 1960s, which was active in Australia as well as in Athens and London. A Molonglo entity owned a property which was adjacent to the Rokeby Street Property at 77–89 Rupert Street, Collingwood.
The Rokeby Street Property is approximately 3,000 square metres located in a ‘Commercial 2’ Zone. According to Mr Simpson, there is a very old tin shed on the site (which was a ‘pull down’), as well as three older-style brick warehouses (dated from the 1960s or 1970s). His evidence was that the ‘highest and best use’ was development, stating that, although you could keep part of it ‘for the moment’ to lease out, it was ‘not going to stack’ as a rental investment. This appeared to be the subject of some challenge from Mr Kalogeropoulos, who claimed that Molonglo ‘would have contemplated’ a 5-year lease. However, he also generally accepted that the ‘best and highest use’ was for commercial development. In the result, the contract actually signed by Molonglo with Kiversun (Molonglo Contract) also provided for month-to-month tenancies only post-settlement.
Pre-signing
The evidence of Mr Simpson was that he had approached Mr Paraskevakis after he sold a neighbouring property some 15 years earlier, and that he continued to have contact leading up to the events of 2016.
Mr Simpson and Mr Paraskevakis had a conversation in early 2016 wherein Mr Paraskevakis said that he was now considering selling the Rokeby Street Property as he was going to retire and had someone in the family to take over the business. He was looking for around $10 million. Consistent with his evidence about the state of the Rokeby Street Property, the evidence of Mr Simpson was that the property should be proposed to potential purchasers as a ‘development site’.
They also had a conversation about the tenancies as follows:
We did have some discussions in regards to that. The tenancies were monthly tenancies. George had explained to me that the buildings were all on monthly tenancies and I think he was leasing the building back to himself, one company to another, which is normal. One of the other buildings he had leased to a family member but again, that was a monthly tenancy.
Mr Simpson then telephoned Mr Cahill. According to Mr Cahill, Mr Simpson described the Rokeby Street Property as being about 3,000 square metres in a Commercial 2 Zone. Further, that there were some existing short-term leases in place as it was occupied by an associated party of the owner (Steptoe & Son), as well as a family member, such that the property could be bought on a ‘going concern’ basis.
As explained by Counsel for Mr Cahill (and generally accepted by the parties[7]), the purchase of a property on a ‘going concern’ basis required that there be a lease in place so that there would be no liability for GST. The lease did need to be for any particular length of time.
[7]See Defence to Second Further Amended Statement of Claim dated 19 October 2017, [8(b)(iii)], [8(b)(v)] (Cahill Proceeding) (Defence to SFASOC); Outline of Submissions of the Defendant dated 9 October 2017, [27(a)] (Cahill Proceeding); Amended Reply and Defence to Counterclaim dated 19 October 2017, [7(c)(iii)], [7(c)(iv)] (Molonglo Proceeding); Molonglo’s Outline of Closing Submissions dated 27 October 2017, pp 15-6 (Molonglo Proceeding).
Mr Simpson also said that there could be a long term settlement of up to two years so that the owner could relocate and that the owner was looking for something in the order of $10 million.
By correspondence dated 5 February 2016, Mr Cahill made an offer to purchase the Rokeby Street Property at $7.55 million (on a ‘going concern basis’) and ‘subject to existing tenancies’.
Mr Simpson took the offer to Mr Paraskevakis who said that the price was not enough.
Subsequent to this, another interested party, Camlen Pty Ltd (Camlen), made offers of $9.05 million and $9.25 million.
The evidence of Mr Simpson was that these offers were also rejected. However, in the course of rejecting them, Mr Paraskevakis told Mr Simpson that if he was going to sell, he would sell at $9.65 million. Mr Simpson said that he believed both his purchasers would pay this price and in order to get a better price, it was appropriate to take it to the ‘highest best bid process’ (where both buyers would be given the opportunity of putting their highest and best offer) which Mr Paraskevakis said was a good idea.
On Monday, 11 July 2016, Mr Simpson called Mr Cahill and advised him that the property was ‘live’; and that someone else had made an offer, so Mr Cahill should make a further offer. Mr Cahill’s evidence was that he asked if there would be a ‘highest and best bid process’ and was told this would probably be the case, though Mr Simpson had to go back to Mr Paraskevakis.
14 July 2016
Consistent with a diary note of Mr Simpson, on 14 July 2016 at 10.00 am, he inspected the Rokeby Street Property with a representative of Camlen.
The estate agent’s Authority
The evidence of Mr Simpson is that, after this inspection, he asked Mr Paraskevakis to sign an exclusive sale authority in favour of Vision Real Estate (Authority), which he had prepared in advance. He claimed that Mr Paraskevakis told him that it was only required to be signed by him. This evidence was criticised by Kiversun, who suggested that it was improbable that Mr Simpson would question who needed to sign the Authority, given that he already believed Mr Paraskevakis to be the owner. However, I did not find Mr Simpson’s actions to be improbable in circumstances where it was very important for him to clarify Mr Paraskevakis’ authority in order to secure his commission.
The Authority is dated 14 July 2016 and signed by Mr Paraskevakis and Mr Simpson. It denotes the agent as Vision Real Estate Pty Ltd with the identity of the vendor’s name given as ‘to be advised’ over the Rokeby Street Property address. The evidence of Mr Simpson was that he inserted this detail as the form could not be printed off otherwise. The vendor’s price was said to be $9.65 million with an exclusive authority period of 14 days and a continuing authority of 7 days.
Kiversun suggested that the Authority was not really executed on 14 July 2016, but rather at the meeting of 15 July 2016, described below. Further, that the diary entry of 14 July 2016 was consistent with this, given it related to the events of 15 July 2016. However, the handwritten notes contained in the diary were not recorded contemporaneously, nor did they clearly identify which date they related to. Rather, as Mr Simpson explained, the notes inserted on the 14 July 2016 page of his diary were recorded later when problems starting arising in this matter on 5 August 2016. He therefore, not having much experience of diary notes, simply opened his diary to a page with a Rokeby Street reference and just ‘blurted out’ what was on his mind.
The evidence of Mr Simpson as to the date of the Authority was otherwise consistent with the date on the document and also to some evidence of Mr Cahill. Thus, the evidence of Mr Cahill was that Mr Simpson rang him on 14 July 2016 and said ‘we are good to go’. He had a ‘commitment’ from Mr Paraskevakis to sell and that he had ‘authority’ to ‘do the deal’ and the highest and best bid would be successful.
There is also no contrary evidence from Mr Paraskevakis to the effect that the Authority was executed on 15 July 2016. Rather, I am able to, and do, infer that his evidence would not have assisted Kiversun.[8]
[8]Jones v Dunkel (1959) 101 CLR 298.
It follows that, to the extent it is material, I accept that the Authority was executed on 14 July 2016.
The challenge made by Kiversun is in any event of no consequence. Thus, even if the agent’s authority was not effectively given on 14 July 2016, it was uncontested that, by 15 July 2016, the directors of Kiversun had effectively armed Mr Simpson with a signed Agreement to Purchase in the name of Kiversun ‘c/ Vision Real Estate’ as well as the Authority dated 14 July 2016. Such actions suggest that the Authority (of Vision Real Estate) was clearly adopted by Kiversun,[9] such that Kiversun effectively ratified Mr Simpson’s authority as from 14 July 2016.[10]
Outcome of ‘highest and best bid process’
[9]Leybourne v Permanent Custodians Ltd [2010] NSWCA 78, [132] (Leybourne) citing Eastern Construction Co Ltd v National Trust Co Ltd (1914) AC 197, 213 (Lord Atkinson).
[10]Ratification has retrospective effect, such that the agent is treated by the principal as having had the requisite authority at the time the act was carried out: G E Dal Pont, Law of Agency (LexisNexis Butterworths, 3rd ed, 2012) 123 [5.40]; Jones v Peters [1948] VLR 331, 335; Leybourne [2010] NSWCA 78, [131].
The evidence of Mr Simpson was that the ‘highest and best’ bid process initially expired at 12.00 pm, but that it was extended to 2.00 pm.
Camlen put in a letter of offer at $9.81 million.
Mr Cahill also provided a letter of offer at $9.9 million (on a going concern basis) by handing it to Mr Bindley (prior to 2.00 pm). The offer was a typed document, which included a deposit of 10% of which 5% was payable on exchange of contracts and a further 5% payable in 12 months with the balance of the purchase price to be paid in 24 months from the date of the contract. The offer was also said to be subject to a number of conditions, including that the purchaser buys ‘subject to existing tenancies’. The correspondence finished: ‘I look forward to your response and to receipt of contracts and/or sale agreement signed by the Vendor’.
Mr Cahill also handed Mr Bindley a copy of a draft ‘agreement’ with his handwritten annotations. This was based on a standard Vision Real Estate pro forma ‘Agreement to Purchase’ document, which Mr Bindley had earlier provided to Mr Cahill. The evidence suggested that Mr Cahill included a change which included specific reference to ‘existing tenancies’ (at cl 6). It also appeared that Mr Simpson subsequently made some other alterations to make the document consistent with the terms of the offer.
Later on 14 July 2016, Mr Simpson telephoned Mr Paraskevakis who was away in the country and unable to meet with him. Mr Simpson told Mr Paraskevakis about the content of the two offers and highlighted that they were $250,000 over his price. Mr Paraskevakis said that this was terrific.
The unchallenged evidence of Mr Simpson was that he told Mr Paraskevakis that once you go through the highest and best bid process and obtain a final offer, that people expect for the contract to be signed and documented that day. It was therefore important to be able to tell the highest bidder that he was the ‘successful purchaser.’ He then asked if it was okay to tell Mr Cahill that he has ‘got it’ to which Mr Paraskevakis said: ‘Yes, absolutely. Tell him that it’s his and that my word is my bond.’
Mr Simpson then telephoned Mr Cahill and said ‘congratulations you have bought the property. The vendor has accepted your offer’. Mr Cahill said this was terrific but asked if the vendor had signed off. Mr Simpson said that he had not, but that he was meeting Mr Paraskevakis next morning and that there would be no problem. He had been given the ‘all clear’ from Mr Paraskevakis to tell Mr Cahill that he had bought the Rokeby Street Property and that Mr Paraskevakis had said to him ‘his word is his bond’.
Under cross-examination, Mr Cahill fairly conceded that he still wanted Mr Paraskevakis to sign because verbal agreements in the real estate business ‘don’t count very much’.
Signing of Agreement to Purchase: 15 July 2016
On 15 July 2016 at 10.30 am, Mr Simpson met with Mr Paraskevakis at the Rokeby Street Property. His wife/co-director (Mrs Paraskevakis) and accountant (Mr Vlahopoulos) were also there.
The evidence of Mr Simpson was that he had the (revised) Agreement to Purchase with him and that he read through all the details to George [Paraskevakis] and John [Vlahopoulos] and George’s wife and explained ‘each of the points’. In particular, he pointed out to them that the Agreement to Purchase was ‘binding on the vendor’. He also asked for copies of the leases and was told by Mr Vlahopoulos that he was ‘not sure where those leases are but if we can find them we will include them. If we can’t find them, then we will perhaps prepare it so that we can add it to the section 32 when it arrives’.
After that discussion, Mr Vlahopoulos said that he had a query regarding capital gains tax (CGT) and that he wanted to seek some advice. He then took a photograph of the Agreement to Purchase with his mobile phone and sent it away for advice (consistent with a copy of a text message to Mr Harry Giannakidis at Mills Oakley (MO) of the same date). Mr Vlahopoulos then told them that he was unable to get hold of the person and they waited for a while. He then said, given he was unsure when the person would call back, that it would be ‘ok to sign the contracts’ as long as Mr Simpson held them and did not get the purchaser to sign them until Mr Simpson had confirmation from Mr Vlahopoulos’ office. Mr Paraskevakis also said that this sounded ‘okay’.
Mr Paraskevakis then said that he wanted to change the time for payment of the deposit balance (to 3 months, instead of 12 months) in order to have funds earlier to buy another property. Mr Simpson also asked about the name that the ownership was in. Mr Paraskevakis told him that it was Kiversun and also said that ‘he was the only one that was required to sign’.
Handwritten alterations were then made by Mr Simpson (to record the alteration in the deposit and the names of the vendor/purchaser).
Mr Paraskevakis then initialled the deposit change and also signed the Agreement to Purchase. Present in the room at the time of signing were Mr Simpson, Mr Paraskevakis, Mrs Paraskevakis, and Mr Vlahopoulos.
Later that day, Mr Simpson got a call from Mr Vlahopoulos’ office advising that everything was ‘clear and we were good to sign’.
In the late afternoon, Mr Simpson then met with Mr Cahill. Mr Cahill initialled one amendment and signed the Agreement to Purchase.
According to Mr Cahill, he asked what was the ‘big idea’ of the vendor changing the deposit terms. Mr Simpson said that he was sorry about that, but that the ‘accountant got involved’ and they wanted additional money for another acquisition. Mr Cahill said that he would not let the deal fall over because of this.
There was also a discussion prior to execution about tenancy arrangements. The evidence of Mr Cahill was that in the Agreement to Purchase, it just said ‘subject to existing tenancies’ and that he asked Mr Simpson what the nature of the ‘existing tenancies’ were. Mr Simpson’s response was:
… that he had spoken to the accountant at length. The accountant had told him unequivocally, I think was the word he used, that the leases were all monthly tenancies and that the leases, they needed to find the documentation to verify the leases and if they couldn’t find the documentation to verify the monthly leases they would construct monthly leases for the section 32, or words to that effect.
The evidence of Mr Cahill was also that he asked about whether they had any information on the rental and was told that they did not have any information yet on the rental, but they would be able to find it out quickly. He also said to Mr Simpson that the rental figure was largely academic if they were buying a property on a monthly tenancy.
Mr Cahill then countersigned the Agreement to Purchase.
Turning to the terms of the document executed, it was entitled ‘Agreement to Purchase Rokeby St, Collingwood’ (in bold capitalisation) and was between Kiversun as Vendor ‘c/- Vision Real Estate’ and Mr Cahill and/or Nominee as purchaser. The property was identified as ‘112–118 Rokeby Street Collingwood Vic 3066’ with the purchase price expressed as $9,900,000 (on a going concern basis, i.e. on the basis that GST was not payable). The deposit was provided to be 10% of the purchase price of which 5% was payable on the exchange of contracts and a further 5% payable in 3 months (with the reference to 12 months struck out and initialled by both parties). Settlement was 24 months from the signing of the Contracts.
There then followed a range of Special Conditions (SC). Given the significance of this document, they are extracted in full as follows:
1.This offer is conditional upon the purchaser’s solicitor’s approval of the final contract of sale and Section 32 Vendor Statement documentation. The contract documentation providing it is complete must be returned to the agent signed by the purchaser along with the balance of the deposit no more than 5 business days after the purchaser receives the contract of sale documentation from the vendor. The vendor may withdraw from the sale and all monies will be refunded to the purchaser in full if not returned within this 5 business day period.
2.DEVELOPMENT ACTIVITIES
The Vendor agrees to grant the Purchaser and associated consultants reasonable access to the Property to complete any Town Planning process inclusive of surveying the site and buildings, environmental studies and testing and any other associated activities (Development Activities).
The Purchaser agrees to ensure that the Development Activities do not interfere with the tenant’s quiet enjoyment of the Property.
The Vendor agrees to permit any Town Planning process or application by way of consent or signing any application made by the Purchaser.
The Vendor agrees to permit any council or planning development advertising required to achieve a Town Planning Permit.
The Purchaser agrees all Development Activities costs will be at the expense of the Purchaser.
3. CONFIDENTIALITY
The terms and conditions contained herein will remain confidential to the parties and their agents.
4. NOMINATION
The Purchaser may nominate a substitute or additional purchaser but the named Purchaser remains personally liable for the due performance of all the Purchaser’s obligations under this Agreement.
5. SIGNATURE AUTHORISATION
The person executing this Agreement of Purchase acknowledges and agrees that in accordance with the Corporations Act 2001 they are entitled to enter this Agreement on behalf of the party they sign for.
6.The Purchaser buys subject to existing tenancies. All tenancies are to be on a net rental basis with the Lessee paying all outgoings.
The document is said to be executed ‘on behalf of the Purchaser’ by Mr Cahill and ‘on behalf of the Vendor’ by Mr Paraskevakis both on 15 July 2016.
The evidence was that Mr Simpson also requested some deposit at the beginning of the meeting on 15 July 2016. When Mr Cahill asked how much was wanted, he was told ‘$10,000 or $20,000’. Mr Cahill said that this was fine, but then forgot to provide it. He did however, provide $10,000 later on 20 July 2016, as well as a further amount of $485,000 on 5 August 2016, which was deposited into the Vision Real Estate trust account.
Save for the reference of the Agreement to Purchase to Mr Giannakidis for CGT advice on 15 July 2016, there was no involvement of solicitors in the negotiations for, and settling of, the terms of the Agreement to Purchase. In fact, the first contact made by Mr Cahill with solicitors was in his correspondence of 1 August 2016, below. MO was also not formally engaged until after 22 July 2016 (the date of a formal letter of engagement).
Molonglo
Meanwhile, (unknown to Mr Cahill at the time) at some point from about mid-July 2016, it appears that Mr Paraskevakis was also conducting negotiations with Molonglo through Mr Adrian Boutsakis of Teska & Carson Real Estate (Teska & Carson). According to Mr Kalogeropoulos, they were working towards creating heads of agreement by around 20 July 2016. Thus he provided a draft agreement to Mr Boutsakis by email of 21 July 2016 (with a price of $10 million) though he was ‘not sure’ if it was ever provided to Mr Paraskevakis.
The evidence of Mr Kalogeropoulos was that he in fact met with Mr Paraskevakis at the Rokeby Street Property on Monday, 25 July 2016. He knew that Mr Paraskevakis was ‘the person to speak to in relation to the sale of this site’. He also ‘expressed his disappointment’ as it had become apparent that Mr Paraskevakis had entered into ‘some other arrangement’.
In any event, on 27 July 2016 at 11.31 am, MO emailed King & Wood Mallesons (KWM) (solicitors for Molonglo) a contract of sale with a price of $10.15 million (on a going concern basis) inserted (Molonglo Draft Contract), together with a s 32 vendor’s statement (s 32 statement).
The evidence of Mr Kalogeropoulos was that this price came ‘unannounced’ and they had been waiting to see what price Mr Paraskevakis would put in. However, he was happy with this price and thereafter gave instructions to his lawyers that ‘[y]ou are getting paid a lot of money. You need to finalise this. There are other things to do’.
The Molonglo Draft Contract included a clause which the parties agreed was a standard MO clause regarding termination (at cl 6.1). This provided for an option for the vendor to terminate at any time without paying any damages in the event it was restrained from completing by injunction, caveat or otherwise (the relevant termination clause).
The Molonglo Draft Contract also included a clause regarding leases (Molonglo lease clause) which read:
12.2 Vendor to prepare lease of the Property
(a) The Vendor will at its own cost and prior to the Settlement Date, prepare and submit a Lease for the approval of the Purchaser whereby the Vendor grants a Lease of the whole of the Property to a third party (which is a Related Body Corporate of the Vendor).
(b) The Lease must be:
(i) at an agreed market rent;
(ii) a monthly tenancy; and
(iii) must provide for ‘warehouse/factory’ use.
(c)The Vendor must arrange for two original Leases to be properly executed by the Tenant and the Vendor and provide one executed Lease to the Purchaser at Settlement.
On 29 July 2016, Molonglo officers attended KWM’s offices and signed the execution page of the contract of sale between Kiversun and Molonglo on behalf of Molonglo. They asked for it to be held in escrow pending final agreement being reached.
On 28 July 2016, MO forwarded a copy of the Agreement to Purchase executed by Mr Cahill to Ms Simone Menz of KWM (with his name and price deleted).
On Saturday, 30 July 2016 at 2.00 pm, Ms Menz emailed Ms Catherine Marino and copied in Mr Anthony Brearley (both of MO), stating:
Anthony, Catherine
Just a heads up that our client would like to proceed with the proposal that Anthony and I discussed yesterday. Please let me know if you have had any further thoughts on this.
I am working on the form of contract that can be used for this purpose (in mark-up against the first version of the contract that you issued to me).
Do you have contact details for the purchaser, so that the contract documentation could be issued to the purchaser on Sunday night? (I don’t need them - just needed to check that you have them or, if not, that you will be able to get them from the agent before Sunday night)
I have also prepared some amendments to the contract that we had agreed, to reflect the proposal (so that essentially your client would sign a conditional contract with our client, and that contract becomes unconditional if and when the other purchaser does not comply with the requirements of the Agreement to Purchase).
At 4.04 pm that day, Mr Brearley emailed Ms Menz and confirmed that Kiversun ‘has agreed … to proceed as we discussed’.
On 31 July 2016 at 11.20 am, Ms Menz emailed to Mr Brearley a contract of sale (both a clean version and a version in track changes) for the purpose of Mr Brearley providing that contract of sale to Mr Cahill.
The first two paragraphs of that email read as follows:
As foreshadowed, attached is the form of contract which we request be sent to the purchaser named in the Agreement to Purchase tonight (so that the 5 business day period can run its course during this coming week).
It is provided in mark-up, so that you can see the changes to the form of contract you initially sent to us. A clean version is also attached so that it can be completed and forwarded to that purchaser.
Critically, this version provided by KWM (as compared to the form of contract that MO had originally forwarded to Molonglo, i.e. the Molonglo Draft Contract) included a substantial reworking of the lease clause (at cl 13) so that such a lease was no longer a monthly lease, but rather a 5-year lease with an early surrender right in favour of the tenant only (on five business days’ notice) and at a market rent nominated by the vendor.
31 July 2016
On Sunday, 31 July 2016 at 3.04 pm, Mr Brearley emailed to Mr Cahill a draft contract of sale which was purportedly ‘reflecting the Heads of Agreement’ (MO Proffered Draft Contract). The s 32 statement was also forwarded later at 5.07 pm.
Mr Cahill did not open those emails until Monday, 1 August 2016 (whilst experiencing some difficulties with the download link provided by MO) which meant that his solicitors had until 8 August 2016 to approve the final contract (being five business days after receipt).
The MO Proffered Draft Contract appears to be in substantially the same form which had been forwarded by KWM to MO on 31 July 2016. In particular, it provided for a special condition regarding the lease, cl 13 (Cahill lease clause), which included cls 13.1 and 13.2 as follows:
13.2 Vendor to prepare lease of the Property
(a) The sale of the Property is subject to the existing tenancies (which are currently in place but not formally documented), and the Vendor will at its own cost and prior to the Settlement Date, prepare and submit a Lease for the approval of the Purchaser whereby the Purchaser must grant a Lease of the whole of the Property to a third party (which is a Related Body Corporate of the Vendor) immediately following Settlement.
(b) The Lease must:
(i)be at an effective market net rent nominated by the Vendor and included in the instrument of Lease by the Vendor;
(ii)be on a net rental basis, so that the Tenant is responsible for reimbursement to the landlord of Council rates, land tax (on a single holding, non-absentee owner, non-trust basis) and premiums for insurance required to be effected by the landlord under the Lease;
(iii)have a commencing date of the date on which is not later than when Settlement occurs;
(iv)be for a term of 5 years from the Day of Sale, with an early surrender right in favour of the tenant which is exercisable on 5 business days’ notice by the tenant to the landlord;
(v)not impose any obligation on the Tenant to carry out any repair and maintenance or capital or structural works to the Property; and
(vi)provide for ‘warehouse/factory’ use or any other use permitted by Law.
(c)The Vendor will issue two original Leases to the Purchaser 5 Business Days prior to the Due Date, and the Purchaser must arrange for the two original Leases to be properly executed by the Purchaser as prospective landlord and returned to the Vendor at least 2 Business Days prior to the Due Date. The Vendor must procure the two original Leases to be signed by the Tenant and provide one executed Lease to the Purchaser at Settlement.
(emphasis added)
‘Day of sale’ was defined as the day both parties had signed the contract (on the cover page).
The draft also included the relevant termination clause (at cl 7), which provided an option for the vendor to terminate at any time without paying any damages in the event it was restrained from completing by injunction, caveat or ‘otherwise’.
Mr Cahill’s evidence about the Cahill lease clause was that:
· cl 13.2(b)(i) which provided for an effective market rent ‘nominated by the vendor’ was the most commercially absurd thing he had ever seen;
· cl 13.2(b)(iv) meant that not only would he not have access to the Rokeby Street Property for 5 years with an unknown rent, but that the tenant had this highly unusual exit opportunity with five business days’ notice;
· cl 13.2(c) was a peculiar clause given it would prohibit a valuer from valuing a property, which needed to be done somewhere between 3 and 6 months prior to settlement.
Overall, Mr Cahill claimed that the Cahill lease clause would ‘turn the whole deal on its head’. Given that the highest and best use of the Rokeby Street Property was as a development site, it followed that having such a lease in place meant that its value was significantly lower.
Mr Cahill’s evidence about the termination clause was that it involved a risk that was never discussed and was totally unacceptable. In so saying, he highlighted that (as a developer), he could incur significant costs in designs and planning submissions (up to $400,000) notwithstanding that he would have exposure in case the vendor terminated. He said that it was an extraordinary clause that he had never seen before.
Under cross-examination, Mr Cahill agreed that cl 7 was unacceptable. He said that he ‘hypothetically’ would not have signed the MO Proffered Draft Contract even with monthly leases as he would have sought to negotiate cl 7 down to a more commercially sensible clause.
He claimed that he would not have signed the MO Proffered Draft Contract because, not only did it not reflect the deal they did, but it would have been ‘commercial suicide’ and he did not believe that anyone would have done it.
In re-examination, Mr Cahill also explained that the 5-year lease blew the holding costs of the project ‘right out’ given the attractiveness of the deal was that, soon after settlement, he could get access to the Rokeby Street Property to start development if there were only monthly tenancies in place.
After receiving the MO Proffered Draft Contract on 1 August 2016, Mr Cahill forwarded it on to his solicitor at Aitken Partners, as well as to Mr Bindley and Mr Simpson.
On 2 August 2016, Mr Bindley met with Mr Cahill and discussed the MO Proffered Draft Contract. Mr Bindley said that he had never seen such a condition like the relevant termination clause (cl 7) before and that no prudent purchaser would sign with that. They also discussed the 5-year lease term in the Cahill lease clause, which was not consistent with the monthly tenancies and also gave a right of termination to the tenant, but not the vendor. They thought that it might be there to support the going concern exemption and discussed that, as long as there was some termination clause that the purchaser could also initiate, that would probably be okay.
Meanwhile, on 2 August 2016, the Molonglo Draft Contract was close to finalisation. Thus, on 3 August 2016, an exclusive sale authority was given by Kiversun to Teska & Carson. It was executed by Mr Paraskevakis alone.
On 3 August 2016 at 4.35 pm, a MO file note recorded Mr Boutsakis saying:
10 am tomorrow- Adrian to collect from George
Want to pull pin tonight (second purchaser)
4 August 2016
On 4 August 2016, Molonglo signed a contract for the sale of the Rokeby Street Property with Kiversun (the Molonglo Contract) at a price of $10.15 million (on a going concern basis). Molonglo had instructed its lawyers to affix the execution page already signed to the final agreed version of the contract.
The Molonglo Contract provided:
(a) that the contract was conditional on a ‘third party’ (Mr Cahill) failing to sign contract documentation or pay the deposit within five business days of his receipt of the relevant contract documentation (cl 13). A $50,000 indemnity for legal costs and expenses was provided by Molonglo to Kiversun, if Kiversun failed to so sign with Mr Cahill (cl 13(d)(iii));
(b) a maximum 120-day extension period to enable the vendor to remove any injunction, caveat or other restraints (cl 6). This was a substantially renegotiated form of the relevant termination condition proffered to Mr Cahill in the MO Proffered Draft Contract; and
(c) a cl 12 regarding the lease which was substantially similar to the original Molonglo lease clause, save that the lease was to be ‘for a term expiring on the date that is one month after the Settlement Date and thereafter a monthly tenancy’ (cl 12.2(b)(ii)).
On 4 August 2016, Mr Cahill and Mr Simpson met to prepare a contract to forward to MO (First Cahill Draft Contract). It was suggested that Mr Cahill’s evidence about this meeting was ‘contrived’ to match something in the pleading (at paragraph 9) which suggested that Mr Simpson, as agent for Kiversun, presented the relevant contract. It appeared that Mr Simpson did indeed ‘present’ at least part of the document (including a standard REIV lease) (consistent with the pleading). However both men readily made concessions that this was not done on behalf of the vendor. Thus Mr Simpson accepted that the changes made were generally at Mr Cahill’s request. Mr Cahill also fairly accepted that he expected that Mr Simpson would take the newly-created contract back to the vendor’s solicitors and that Mr Simpson had never claimed to have authority from the vendor to amend the terms of the contract documentation. In all the circumstances, I do not accept the criticism of Mr Cahill, who in my view was simply seeking to accurately portray what physically occurred.
On 4 August 2016 at 11.40 am, Mr Simpson sent Mr Brearley of MO a copy of the First Cahill Draft Contract as amended and also advised that the balance of the deposit was paid.
The Cahill lease clause was substantially deleted as described below. Further, other changes were:
· the relevant vendor termination clause (cl 7) was struck out;
· the word ‘reasonable’ was added to cl 8.2(a)(v) (regarding vendor’s costs relating to nomination);
· a clause allowing for marketing signage was added; and
· ‘Plus GST’ was struck out.
In relation to cl 13, a lease with a 5-year term was attached. However, it included a special condition that after 31 August 2018 (i.e. at settlement), the lessor or the lessee had the right to terminate the lease by giving 14 days’ written notice.
On 4 August 2016 at 3.04 pm, Mr Brearley emailed Mr Simpson and advised that the reference to GST must stay in case GST was payable. Further, that he would review the other amendments and then obtain instructions from his client. He stated that ‘[t]he contract is now very different as submitted and may not be acceptable to my client’.
There is evidence that at 3.05 pm, Mr Brearley phoned Ms Kate George of KWM. The KWM diary note includes the following entry:
tomorrow we reject all.
Hopefully p1 tells us to go away
5 August 2016 to 8 August 2016
By email on 5 August 2016 at 8.00 am, Mr Brearley wrote to Mr Cahill as follows:
Hi Peter
I am writing to you direct as you have not put your lawyers [sic] details in the amended contract of sale.
Your offer to purchase the property under the terms of the contract of sale as amended are rejected by my client.
The agreement to purchase is now terminated for two reasons:
1. Your offer is deemed a new offer to purchase (which now replaces the agreement to purchase) and this is not accepted by my client; and
2. The approval of the contract of sale without amendment has not occurred.
I will direct the agent to refund your deposit.
Please feel free to call me if you would like to discuss.
On 5 August 2016, Mr Bindley then rang Mr Brearley querying what was ‘going on’. Mr Brearley told him that Mr Paraskevakis ‘want[s] to sell it but he doesn’t want to sell it to your buyer’. Mr Bindley asked him if he had another offer and was told ‘I can’t confirm that but you read between the lines’. Mr Simpson then went to speak to Mr Paraskevakis, who eventually said that he had a higher offer, but that his lawyer was trying to get out of the deal.
Later on 5 August 2016 at 4.33 pm, Aitken Partners (on behalf of Mr Cahill) wrote to MO rejecting the proposition that their suggestions constituted a ‘new offer to purchase’ in circumstances where a completely new 5-year lease arrangement had been sought to be introduced, notwithstanding representations made that the Rokeby Street Property was subject to monthly tenancies at a market rent. Further, that five business days had not passed since their client received the proposed contract. In any event, that Mr Cahill was prepared to reinsert the ‘plus GST’ term and make the contract subject to the existing monthly tenancies. The letter from Aitken Partners enclosed a second signed contract of sale with the ‘plus GST’ included; cl 7 struck out; and cl 13 simply reading ‘subject to existing monthly tenancies’ (Second Cahill Draft Contract).
On 8 August 2016 at 9.06 am, Mr Brearley emailed Aitken Partners and advised that the amendments by Mr Cahill were not acceptable and that ‘unless [Mr Cahill] is willing to accept the contract as supplied by our office [on 31 July 2016] by the close of business today the vendor gives notice that he will withdraw from the sale and will direct the agent to refund the deposit monies’.
On that day at 2.42 pm, Aitken Partners wrote to MO requiring that Kiversun execute the Second Cahill Draft Contract and reserving the right to demand specific performance.
Later that day, Mr Cahill lodged a caveat over the Rokeby Street Property.
Post 8 August 2016
On 9 August 2016, Molonglo lodged a caveat over the Rokeby Street Property.
On 10 August 2016, Mr Cahill advised Mr Simpson and Mr Bindley that he was meeting with his barrister to commence proceedings against the vendor. The evidence of Mr Bindley was that he told this to Mr Brearley of MO, and that Mr Brearley said to him ‘will he take money to get out of the contract’, to which Mr Bindley said ‘no he won’t. It’s not going away’.
On 16 August 2016, Kiversun prepared and executed a further contract of sale with Mr Cahill for $10 million (without cl 7 and with cl 13 reading ‘subject to monthly tenancies’) and gave it to Mr Simpson to pass to Mr Cahill. Mr Simpson provided the contract to Mr Cahill. However, Mr Cahill refused to sign this contract on legal advice (the Molonglo caveat having been lodged in the interim).
On 3 October 2016, MO wrote to Vision Real Estate advising that the Agreement to Purchase had lapsed and instructing Vision Real Estate to return the deposit to Mr Cahill.
On 5 October 2016, MO wrote to Aitken Partners stating that no binding agreement was reached and, to the extent it was, the sale was conditional on execution of a binding document within 5 business days – which had not been done. To the extent it was not done already, MO stated that the Agreement to Purchase was terminated and Mr Cahill’s caveat should be removed.
The Cahill Proceeding commenced on 12 October 2016, followed by the Molonglo Proceeding which commenced on 3 November 2016.
CONTRACT CLAIM
Whether a binding contract for transfer of property
Kiversun and Molonglo submitted that the Agreement to Purchase was a conditional offer. Alternatively, if it was an agreement for the sale of land, it was not intended to be binding immediately.
In any event, there was no good consideration, and it was not binding due to its defective execution.
Each of these issues are thereby addressed below.
Execution
Kiversun and Molonglo highlighted that the Agreement to Purchase was executed by only one director. They submitted that the execution did not come within s 127 of the Corporations Act 2001 (Cth) (Corporations Act) and that there was no express authority given to Mr Paraskevakis to execute the Agreement to Purchase; nor was there any evidence of an implied grant of actual authority or ostensible authority which involved a representation by Kiversun.
However, Mr Cahill alleged that Mr Paraskevakis had express or implied authority to enter into the Agreement to Purchase under s 126(1) of the Corporations Act; alternatively, that there was ostensible authority.
Principles
In Junker v Hepburn (Junker), Hammerschlag J helpfully summarised the relevant principles as follows:[11]
[11](2010) 28 ACLC 10-009, [39]-[48] (citations omitted). Junker has been approved in the appeal decision of Colin R Price & Associates Pty Ltd v Four Oaks Pty Ltd [2017] FCAFC 75, [148].
The authority of an agent may be:
a actual (either express or implied) where it results from a manifestation of consent that the agent should represent or act for the principal expressly or impliedly made by the principal to himself; or
b apparent, where it results from such a manifestation made by the principal to third parties.
The rules concerning actual and apparent authority apply where the principal is a company. They are supplemented by provisions of the Act where companies are concerned. The usual starting point in any consideration of a director’s actual authority is the constitution of the company, which invariably provides for directors’ powers. Express actual authority of a director usually derives from the constitution of the company or from some antecedent act such as a resolution of the board of directors.
Implied actual authority is the authority which the law regards as having been given to an agent because of the interpretation put by the law on the relationship and dealings of the two parties. The Court’s inquiry concerns the intention of the principal in conferring authority on the agent.
Ordinarily, where a company has more than one director, a single director does not have authority to bind it. A director’s normal power is to bind the company only by joining with other directors in a collective resolution of the board of directors.
An implied grant of actual authority can result from acquiescence in the course of behaviour by persons who have actual authority to delegate. For example, if directors as a board stand by whilst a single director enters into transactions outside his or her authority, the board’s acquiescence in that course of dealing can constitute the grant, by implication, of actual authority to enter into those transactions.
In Equiticorp Finance Limited (in liq) v Bank of New Zealand (1993) 32 NSWLR 50 at 134, Clarke JA and Cripps JA said in relation to implied actual authority:
A recent example of the application of the principle in Australia is to be found in Brick and Pipe Industries Ltd v Occidental Life Nominees Pty Ltd [1992] VicRp 68; [1992] 2 VR 279, where (at 360-361) the Appeal Division of the Supreme Court of Victoria applied Hely-Hutchinson v Brayhead Ltd. In the joint judgment there was a finding of implied actual authority in relation to one Goldberg to manage the business and to hold out a person as secretary who was in fact not the secretary. The facts and circumstances there relied upon to justify such a finding included the following: Goldberg had actual control over the group of companies and invariably asserted control over each of the companies in the group; Goldberg was known as the alter ego of group companies; Goldberg made decisions for the group companies; there was no evidence that he found it necessary to refer to any board to seek approval for the course of action he proposed; the boards in question had never previously attempted to interfere with his action; Goldberg had obtained board approval of transactions to which he had already committed Brick and Pipe without first seeking authorisation from the board; and that individual directors in evidence confirmed the acquiescence of board members in the activity of Goldberg which culminated in completed transactions for which the board gave no prior approval. One final and, perhaps, decisive element in the scope of the authority the court was prepared to find vested in Goldberg, was that: ‘... in most, if not all, cases, the transactions committed assets of Brick and Pipe or its subsidiaries as security for borrowings by other Goldberg companies’.
Whether authority is to be implied and, if so, the scope of the authority implied is, in our view, to be found in a close analysis of the evidence before the court which is relied upon to support the implication of actual authority.
The authors of Company Directors: Principles of Law and Corporate Governance (2005), LexisNexis Butterworths at par 3.41, citing Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 opine that to confer implied actual authority there would have to be not only the acquiescence of the individual board members but evidence of communication by word or conduct of their respective consents to one another and to the agent.
Apparent or ostensible authority is conferred where a principal represents that another has authority. The principal will be bound as against a third party by the acts of that other person within the authority which that person appears to have, though the principal had not in fact given that person such authority or had limited the authority by instructions not made known to the third party.
Ostensible authority often coincides with, but sometimes exceeds, actual authority. For instance, when a board appoints a managing director, they may expressly limit his authority, but his ostensible authority will include all the usual authority of a managing director. The company is bound by his ostensible authority in his dealings with those who do not know of the limitation.
An ordinary individual director of a company does not have ostensible authority to bind it. Directors can act only collectively as a board and the function of an individual director is to participate in decisions of the board. In the absence of some representation made by the company, a director has no ostensible authority to bind it.
Sections 126 and 127 of the Corporations Act further provide:
126 Agent exercising a company's power to make contracts
(1) A company's power to make, vary, ratify or discharge a contract may be exercised by an individual acting with the company's express or implied authority and on behalf of the company. The power may be exercised without using a common seal.
(2) This section does not affect the operation of a law that requires a particular procedure to be complied with in relation to the contract.
127 Execution of documents (including deeds) by the company itself
(1) A company may execute a document without using a common seal if the document is signed by:
(a) 2 directors of the company; or
(b) a director and a company secretary of the company; or
(c)for a proprietary company that has a sole director who is also the sole company secretary—that director.
(2)A company with a common seal may execute a document if the seal is fixed to the document and the fixing of the seal is witnessed by:
(a) 2 directors of the company; or
(b) a director and a company secretary of the company; or
(c) for a proprietary company that has a sole director who is also the sole company secretary—that director.
(3)A company may execute a document as a deed if the document is expressed to be executed as a deed and is executed in accordance with subsection (1) or (2).
(4) This section does not limit the ways in which a company may execute a document (including a deed).
Authority
The Agreement to Purchase was not executed by Kiversun in accordance with sub‑ss 127(1) or 127(2) of the Corporations Act.
However, consistent with Mr Cahill’s submissions, a question arises as to whether there was an implied grant of actual authority resulting from acts of acquiescence within the meaning of the principles cited above.
In this respect, Kiversun highlighted that in Junker (as quoted above) there is a reference to the opinion of the authors of Company Directors: Principles of Law and Corporate Governance that there might also need to be evidence of ‘communication by words or conduct’ of the relevant consent – not just acquiescence.[12]
[12]R P Austin, H A J Ford, I M Ramsay, Company Directors: Principles of Law and Corporate Governance (LexisNexis Butterworths, 2005) 157 [3.41], citing Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480, 501 (Diplock LJ).
This opinion has been cited recently by the Full Court of the Federal Court in Colin R Price & Associates Pty Ltd v Four Oaks Pty Ltd,[13] where it is stated that a finding of implied actual authority usually requires more than acquiescence. Nevertheless, Dal Pont has suggested that there is general acceptance in Australia that authority may be implied from acquiescence (alone).[14] In so doing, he cites, inter alia, the decision of the Victorian Court of Appeal in Brick and Pipe Industries Ltd v Occidental Life Nominees Pty Ltd (Brick and Pipe)[15] (which is also cited by Hammerschlag J in the passage from Junker above).
[13][2017] FCAFC 75, [151].
[14]See Dal Pont, above n 9, 186-7 [8.42] and authorities cited therein.
[15][1992] 2 VR 279.
In Brick and Pipe, an issue arose as to whether a single director had authority on behalf of the company to hold out that a Mr Furst was the secretary of that company, when he had not been validly appointed as such. The issue arose in circumstances wherein Mr Goldberg, the single director, did not disagree with or qualify an assurance given by a financial controller that Mr Furst was in fact a secretary. The Court found that Mr Goldberg did have such actual authority, noting that he had ‘assumed the role of managing director with the acquiescence of the members of the board of directors who regarded him as the “owner” of Brick and Pipe’.[16] The Court also found that the finding of the trial judge that the act of ‘remaining silent’ (when the assurance was given) was to be regarded as ‘concurring in the assurance’ was justified on the evidence.[17]
[16]Ibid 361 (emphasis added). The facts and circumstances of Brick and Pipe are set out in the passage from Equiticorp Finance Limited (in liq) v Bank of New Zealand (1993) 32 NSWLR 50, 134 (Clarke and Cripps JJA) (Equiticorp) quoted in the excerpt of Junker above.
[17]Brick and Pipe [1992] 2 VR 279, 362.
In the light of the approach in Brick and Pipe, as well as the other authorities cited by Dal Pont, acquiescence would appear to suffice. However, as stated in Equiticorp Finance Limited (in liq) v Bank of New Zealand (Equiticorp), whether authority is to be implied is to be found in a ‘close analysis of the evidence’,[18] rather than the reciting of any particular formula.
[18](1993) 32 NSWLR 50, 134 (Clarke and Cripps JJA).
Returning to this case, then, there is much evidence that Mr Paraskevakis exercised substantial control over the affairs of Kiversun, with no evidence that he found it necessary to refer to his wife for approval of the actions that he took. Such actions included entry into negotiations to sell the Rokeby Street Property (both with Mr Cahill and Molonglo), as well as the execution of the authorities to act with real estate agents (both with Vision Real Estate and Teska & Carson).
Insofar as the execution of the Agreement to Purchase itself is concerned, there is also direct evidence that Mrs Paraskevakis stood by while Mr Paraskevakis signed the document in circumstances where she (and he) had been told that it was binding.
It is also significant that Mrs Paraskevakis has not given evidence to explain or contradict the evidence of her acquiescence in this way. In such circumstances, it may be inferred that her evidence would not have assisted Kiversun and that very little will be enough to establish acquiescence.[19]
[19]Jones v Dunkel (1959) 101 CLR 298; see also Junker (2010) 28 ACLC 10-009, [68].
In any event, the evidence extends beyond acquiescence. Thus there was more than a mere ‘standing by’ while the execution took place. Instead, the evidence was that Mrs Paraskevakis failed to say anything (by way of correction or otherwise) when Mr Paraskevakis explicitly stated that ‘he was the only one that was required to sign’. In such circumstances, I am satisfied that the failure to correct this explicit statement is akin to a ‘concurring’ (similar to Brick and Pipe) which constitutes sufficient ‘conduct’, should ‘conduct’ be required.
It follows that I accept that Mr Paraskevakis had implied authority to execute the Agreement to Purchase so as to bind Kiversun pursuant to s 126 of the Corporations Act.
It is unnecessary in such circumstances to consider whether Mr Paraskevakis also had any ostensible authority.
Instruments Act
Kiversun also submitted that, as a consequence of the ‘ineffective execution’ of the Agreement to Purchase, the requirements for writing set out in s 126 of the Instruments Act1958 (Vic) (Instruments Act) were not met. Molonglo submitted that, as previously addressed in its submission (in a section dealing with agency and execution), the Agreement to Purchase was not ‘signed by the person to be charged’ (Kiversun) or ‘by a person lawfully authorised in writing by that person’ (i.e. Mr Paraskevakis was not authorised in writing by Kiversun).
No authority was advanced in support of these submissions and the matter was not addressed in oral submission.
Section 126(1) of the Instruments Act provides as follows:
126 Certain agreements to be in writing
(1) An action must not be brought to charge a person upon a special promise to answer for the debt, default or miscarriage of another person or upon a contract for the sale or other disposition of an interest in land unless the agreement on which the action is brought, or a memorandum or note of the agreement, is in writing signed by the person to be charged or by a person lawfully authorised in writing by that person to sign such an agreement, memorandum or note.
I consider that the Agreement to Purchase was executed by the ‘person to be charged’, namely Kiversun, rather than Mr Paraskevakis, for the purposes of this provision in circumstances where Kiversun, as a company, can only manifest its actions and intentions by the actions of human beings.[20]
[20]Black v Smallwood (1966) 117 CLR 52, 61 (Windeyer J).
Thus, although a distinction is drawn in the Corporations Act between an ‘agent’ exercising company’s powers (in s 126) and execution by the company itself (in s 127), in each case it is still a contract of the company.
This matter was recognised in the decision of the High Court in MYT Engineering Pty Ltd v Mulcon Pty Ltd (MYT),[21] which was a case concerned with whether there had been execution by the relevant company of a deed of company arrangement where the document was not sealed in accordance with the company’s articles. In finding that there was execution by the company, the majority (constituted by Gleeson CJ, Gaudron, Gummow and Hayne JJ) made reference to provisions in the relevant Corporations legislation to words such as ‘on behalf of’ and observed:
But the reference in such provisions to a contract being made ‘on behalf of’ the company should not be permitted to obscure the fact that the person who signed the contract did so as ‘executant of the will’ of the company. Thus, although distinction is to be drawn between ‘a case where the execution of a document by a company is effected by the subscription of the company's name followed by the signature of a director or directors as such and the case where the document is executed by an agent on behalf of a company’, in each case the contract is the company's contract.[22]
[21](1999) 195 CLR 636.
[22]Ibid 647-8 [22].
Support for such a conclusion is also to be found in a decision of the Full Court of the Supreme Court of New South Wales in Richardson v Landecker (Richardson).[23]
[23](1950) 50 SR (NSW) 250.
That case concerned a lease signed by a Mr Hutchinson, who was one of three directors of the registered proprietor and also the manager of the company, with the company’s name printed on the document at the place of the signature. It had been submitted that the lease was inoperative because Mr Hutchinson signed as agent only in circumstances where s 23C(1)(a) of the Conveyancing Act 1919 (NSW) provided that no interest in land could be disposed of except by writing signed by the person conveying the same or by his agent thereunto lawfully authorised in writing.
Street CJ, who delivered the judgment of the Court, rejected this submission finding that the lease ‘was not executed by an agent for the company in the sense indicated by s 23C. It was executed by the company itself’. His Honour also emphasised that the company required some ‘human agency’ to manifest its intention and stated that Mr Hutchinson’s authority was not disputed.[24] The matter was also covered by s 348(1)(b) of the relevant Companies Act1936 (NSW), which specifically permitted Mr Hutchinson to sign the contract for the company.
[24]Ibid 259.
In the decision of the Supreme Court of Victoria in Maxwell v Moorabool Developments Pty Ltd,[25] Habersberger J rejected a similar submission made under s 126 of the Instruments Act to the effect that a director (Mr Scott) was an agent who was not authorised in writing to execute a document on behalf of his principal. His Honour cited, inter alia, Richardson and MYT and found that written authority was not required under the Instruments Act where a contract was not executed by an individual, but rather by the company (its execution being authenticated by Mr Scott's signature).[26]
[25][2004] VSC 392.
[26]Ibid [253].
I am therefore satisfied that the execution by Mr Paraskevakis (acting with the company’s implied authority) was an execution by Kiversun as ‘the person to be charged’ in circumstances where the contract was Kiversun’s contract.
It follows that the Agreement to Purchase was executed by Kiversun.
Whether only a conditional offer / Whether intention to be bound
Submissions
Mr Cahill submitted that the Agreement to Purchase constituted a binding agreement and that the case was on all fours with Niesmann v Collingridge (Niesmann),[27] which was an example of the ‘second class’ in Masters v Cameron.[28] Alternatively, that it was in the ‘fourth class’.
[27](1921) 29 CLR 177.
[28](1954) 91 CLR 353, 360.
He emphasised references in the Agreement to Purchase which supported this construction, including references to ‘agreement’, ‘buys’, ‘withdraw’ and ‘obligations’. He also highlighted that there were several express obligations immediately created under SC 2, SC 3 and SC 4.
Finally, he highlighted a number of other surrounding circumstances, which allegedly supported his construction.
Kiversun submitted that the Agreement to Purchase only constituted a conditional offer.
Kiversun also submitted that there was no intention to be immediately bound, citing a range of authorities for this proposition. In particular, Kiversun highlighted that the ‘agreement’ involved the sale of real estate, noting that there were many statements of caution in the cases concerning real estate. The absence of a s 32 statement was also a strong indicator that the parties did not intend to be bound. It also submitted that the involvement of lawyers was significant, particularly where, as here, they were doing more than merely formalising a set of agreed terms.
Finally, it was significant that Mr Cahill was only committed to part with his money once contracts were exchanged.
Molonglo also submitted that only an offer was made.
In terms of an ‘intention to be bound’, Molonglo relied on similar matters highlighting that the context was a real estate transaction of high value, placing particular weight on a number of authorities – including, in particular, Seventh Shar Nominees Pty Ltd v Hortico Pty Ltd (Seventh Shar Nominees)[29] and Al Azhari v 27 Scott Street Pty Ltd (Al Azhari).[30]
[29][2000] VSC 155.
[30][2017] VSC 600.
Molonglo suggested that the Agreement to Purchase fell within the third class of Masters v Cameron. Alternatively, it was a binding contract to negotiate a formal contract (which, as conceded, was not part of Mr Cahill’s pleaded case and did not entitle him to the specific performance he sought).
Principles
In Masters v Cameron, the parties signed a document by which the respondent agreed to sell certain farming property to the appellants ‘subject to the preparation of a formal contract of sale which shall be acceptable to my solicitors on the above terms and conditions’.[31]
[31](1954) 91 CLR 353.
The High Court, consisting of Dixon CJ, McTiernan and Kitto JJ, held that the document did not constitute a binding contract. In reaching that conclusion, the Court identified three classes of ‘agreements’ which may arise when parties agree that the matter shall in future be dealt with by way of a formal contract:
Where parties who have been in negotiation reach agreement upon terms of a contractual nature and also agree that the matter of their negotiation shall be dealt with by a formal contract, the case may belong to any of three classes. It may be one in which the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect. Or, secondly, it may be a case in which the parties have completely agreed upon all the terms of their bargain and intend no departure from or addition to that which their agreed terms express or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document. Or, thirdly, the case may be one in which the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract.[32]
[32]Ibid 360.
The High Court further stated:
The question depends upon the intention disclosed by the language the parties have employed, and no special form of words is essential to be used in order that there shall be no contract binding upon the parties before the execution of their agreement in its ultimate shape.[33]
[33]Ibid 362.
A fourth ‘category’ has been subsequently identified, namely cases in which the parties were content to be bound immediately and exclusively by the terms which they had agreed upon, while expecting to make a further contract in substitution for the first contract containing, by consent, additional terms.[34]
[34]NurisvanInvestment Ltd v Anyoption Holdings Ltd [2017] VSCA 141, [103] (Nurisvan), citing Sinclair Scott & Co v Naughton (1929) 43 CLR 310, 317; Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622, 628; on appeal in GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631, 634 (McHugh JA; Kirby P and Glass JA in agreement); Lucke v Cleary (2011) 111 SASR 134, 149–50 [57]–[58] (Stanley J).
However, it is important to bear in mind that the categories were not intended to be exhaustive or strict and that the issue of classification ought not be allowed to obscure the real task of ascertaining the intentions of the parties.[35]
[35]Moffatt Property Development Group Pty Ltd v Hebron Park Pty Ltd [2009] QCA 60, [37] (Keane JA; McMurdo P and Atkinson J agreeing) (Moffatt); Nurisvan [2017] VSCA 141, [103]; J & G Knowles and Associates Pty Ltd v Crowncross Pty Ltd [2010] VSC 227, [4] (Knowles).
Rather, in determining whether the Agreement to Purchase constituted a binding contract to sell the Rokeby Street Property, the critical issue is always the intention of the parties, which must be ascertained objectively from the terms of the document, construed in the context of the surrounding circumstances.[36]
[36]Nurisvan [2017] VSCA 141, [106].
Relevant surrounding circumstances include what was passing between the parties,[37] but not the subjective views of the parties themselves.[38]
[37]See Seventh Shar Nominees [2000] VSC 155, [29].
[38]Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95, 105-6 [25] (Gaudron, McHugh, Hayne and Callinan JJ); Verrocchi v Messinis [2016] VSC 490, [32].
Further, regard may be had to the parties’ subsequent communications in determining whether a binding contract was in fact formed. Regard may be had to the parties’ subsequent communications: (1) in order to see what was important or essential to the transaction; (2) as admissions; and (3) as probative of the parties’ contractual intention.[39]
Whether a conditional offer
[39]Queensland Phosphate Pty Ltd v Mark Anthony Korda and Craig Peter Shepard (as joint and several liquidators of Legend International Holdings Inc (in liq)) [2017] VSCA 269, [37] citing Sagacious Procurement Pty Ltd v Symbion Health Ltd [2008] NSWCA 149, [99]–[106] and Nurisvan [2017] VSCA 141, [77].
Kiversun relied on the express reference to ‘offer’ in SC 1. It further alleged that there was a practice in the real estate industry by which unconditional offers are conveyed by intending purchasers signing a formal contract of sale (citing the terms of the Authority). Finally, that this characterisation was consistent with the fact that the Agreement to Purchase does not oblige Kiversun to take the step of providing any documentation to Mr Cahill.
Molonglo also highlighted that the Agreement to Purchase bound Mr Cahill to nothing, given that he was free to approve or reject proffered documentation on an unfettered basis. Further, that the title of the document and the signature of Mr Paraskevakis did not convert the document into an agreement for sale. Rather, the document was entitled agreement to ‘purchase’ with Mr Paraskevakis’ signature denoting nothing more than an acknowledgement of Mr Cahill’s offer.
It should first be noted that no evidence as to the alleged ‘general practice’ referred to by Kiversun was cited despite the fact that three qualified real estate agents gave evidence. I also did not find the reference to the definition of ‘sold’ in the Authority of assistance in resolving the proper construction of the Agreement to Purchase. Thus, this enables an agent to claim commission if the property is ‘sold’ (item 1). The particular definition of ‘sold’ is then defined as the result of obtaining a ‘binding offer’. The definition of ‘binding offer’, then, includes an offer signed by the purchaser in a contract of sale which would result in an enforceable contract if signed by the vendor, regardless of whether the vendor had signed or not (cl 1.3.1).
This is hence unhelpful in circumstances where the vendor has actually executed the Agreement to Purchase.
The more important feature identified is the express reference to ‘offer’. However, there are a number of matters which weigh against the document as a whole reading as if it is only an offer.
First, contrary to the submissions above, it is highly significant that the document is executed on behalf of the vendor. Contrary to the submission of Molonglo, the execution of a document entitled ‘Agreement to Purchase’ by the vendor suggests more than an acknowledgment of an offer.
Second, it is significant that Mr Cahill had already provided an offer on substantially similar terms the previous day, the terms of which had been conveyed to Mr Paraskevakis in the context of the ‘highest best bid process’. The signing by both parties of an ‘agreement’ objectively tends to suggest something more than that another offer (on the same basis) was being repeated (and acknowledged).
Third, not only does the title suggest that the document is intended to constitute an agreement, but there are other references which suggest that the document is intended to constitute an ‘agreement’ (e.g. at SC 4 and SC 5). It could not be intended that the purchaser would have obligations ‘under this agreement’ (as in SC 4) if the document was intended to be only an offer.
Finally, and most significantly, there is the reference to the ‘offer’ in SC 1, which provides that ‘[t]his offer is conditional upon the purchaser’s solicitor’s approval of the final contract of sale and [s 32 statement]’.
At first blush, this may be seen to support the proposition that the Agreement to Purchase is only an offer. However, SC 1 also provides for a corresponding right for the vendor to ‘withdraw from the sale’ if the documentation (approved by the purchaser’s solicitor) is not returned within the relevant five business day period.
There is no need to provide for a right to ‘withdraw from the sale’ if the document was intended to constitute an offer only. Further, it cannot be intended that there be an agreement in existence for the purposes of the vendor’s right to ‘withdraw’ (if the relevant documentation is not returned) but not a contract for the purposes of the purchaser’s rights (if the documentation is not approved).
In such circumstances, the reference to ‘this offer is conditional upon’ in the document plainly means ‘this contract’ in circumstances where the offer has clearly been accepted by reason of the execution of the document. This is similar to the reasoning utilised in the case of Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (Baulkham Hills).[40]
[40](1986) 40 NSWLR 622, 629.
I am therefore satisfied that, consistent with the other matters cited already, the Agreement to Purchase is intended to constitute a contract, albeit one subject to contingent conditions concerning the settling of a further formal contract. Whether the settling of the formal contract was a condition of the formation of the contract remains to be determined below.
Whether intended to be binding
The fact that the transaction involves a real estate transaction of considerable value may weigh against an intention that the parties be immediately bound, as does the absence of a s 32 statement and the absence of a deposit ‘up front’.
However, the relevant intention is the key, regardless of the subject matter, magnitude or complexity of the transaction.[41]
[41]Ibid 634.
Further, although it is true that entry into a contract for the sale of land in the absence of a s 32 statement may carry a risk of prosecution (see s 32L(c)), the absence of a s 32 statement is not fatal in and of itself. In fact, s 32K(3) provides for circumstances in which a binding contract might be rescinded, which suggests that there can be circumstances in which a contract will be in existence even though a s 32 statement has not been provided. Moreover, there is no suggestion that the parties had legal advice prior to the execution of the Agreement to Purchase. This may be contrasted with the situation in Al Azhari,[42] wherein both parties had retained legal advisors to attend a mediation. It was in that context that Almond J came to the view that reasonable business people ‘so advised’ would not have intended to enter into a binding agreement in contravention of the Sale of Land Act 1962 (Vic).[43]
[42][2017] VSC 600.
[43]Ibid [51].
Having had an opportunity to observe the demeanour of Mr Simpson, I am not convinced that he appreciated the difference between ‘short term’ and ‘monthly’. In any event, it is sufficient that, as at 15 July 2016 (prior to signing), Mr Vlahopoulos had spoken to Mr Simpson (with the apparent approval of Mr and Mrs Paraskevakis) about ‘monthly’ leases.
Accordingly, the evidence before this Court suggests that it was known to both parties that the tenancies were monthly tenancies. Although I have had regard to oral conversations in making this finding, this was solely for the purposes of consideration of the matters known to both parties so as to properly construe a written term. In such circumstances, the reliance on the oral conversation by Mr Cahill in his Second Further Amended Statement of Claim was unnecessary since he only needed to plead the written agreement. Given this written agreement was already pleaded (and gave rise to the central issue of construction in the case), no amendment is needed. However, if it was necessary, I would give leave to Mr Cahill to amend to rely on the written agreement alone.[69]
[69]In circumstances where: (1) the terms of the agreement were already pleaded; (2) the matter was addressed by Counsel; and (3) the reference to the oral conversation only served to give unnecessary notice of relevant evidence.
In any event, the defence based on s 126 of the Instruments Act fails.
I am also satisfied that the concept of ‘existing tenancies’ in the Agreement to Purchase was a reference to monthly tenancies. There was further nothing to suggest that such tenancies contained the extra terms proffered by Kiversun in the Cahill lease clause.
Prevention principle
Submissions
Kiversun pleaded that if the Agreement to Purchase was binding, it was under no further obligation to deal with Mr Cahill given that he did not sign the MO Proffered Draft Contract and Mr Cahill’s solicitor did not approve that contract and the s 32 statement within five business days of 1 August 2016.[70]
[70]Defence to SFASOC, [8(b)(ix)] and [8(b)(x)]; see also Statement of Claim dated 3 November 2016 (Molonglo Proceeding), [11]‑[13].
In return, Mr Cahill alleges:
· that Kiversun cannot take advantage of its own ineffective measures to comply with its contractual obligations;
· that Kiversun’s default in breaching its duty to cooperate and its duty of good faith have deprived Mr Cahill of a ‘substantial chance’ that the conditions in the Agreement to Purchase would have been fulfilled;
· that Kiversun cannot exercise the rights of rescission it purported to exercise on 4 August 2016; and/or
· that Kiversun made it impossible for Mr Cahill to agree to the MO Proffered Draft Contract provided on 31 July 2016.[71]
[71]Reply to Defence to the Amended Statement of Claim dated 18 October 2017, [2] (Cahill Proceeding); Further Amended Defence and Counterclaim dated 19 October 2017, [10EA] (Molonglo Proceeding).
In particulars, he further relied on the behaviour of Kiversun from 15 July 2016 until 4 August 2016, during which time it:[72]
[72]Ibid.
· secretly negotiated with Molonglo to sell the Rokeby Street Property to Molonglo whilst the Agreement to Purchase was still on foot using the services of another real estate agent, Teska & Carson;
· instructed its lawyers to draft the sale documentation contemplated by the Agreement to Purchase with terms which it knew, or reasonably assumed, would be unacceptable to Mr Cahill and his lawyers (citing the termination clause and the Cahill lease clause);
· instructed its lawyers to refuse to negotiate with Mr Cahill in relation to terms set out above and then to purport to terminate the Agreement to Purchase when Mr Cahill and his lawyers, as was expected, objected to the MO Proffered Draft Contract provided to Mr Cahill; and
· executed a contract of sale with Molonglo (Molonglo Contract) during the period in which it was obliged to negotiate with Mr Cahill in good faith and fairly concerning the terms of the sale documentation and whilst the Agreement to Purchase was still on foot.
In submissions, Mr Cahill submitted that Kiversun had breached its obligation of good faith and its obligation to cooperate to enable the other party to have the benefit of the contract. In particular, he cited the MO Proffered Draft Contract provided on 31 July 2016, which purported to (but did not) reflect the terms of the Agreement to Purchase.
He alleged that Kiversun could not take advantage of a state of things it had produced. In so saying, he relied on the ‘prevention principle’, citing some remarks of McHugh JA in GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (GR Securities).[73]
[73](1986) 40 NSWLR 631, 637.
Kiversun denied that it breached the duty to cooperate in providing the draft on 31 July 2016 in circumstances where:
(a) there was nothing to prevent there being a 5-year lease with no term in the contract for monthly leases. Mr Cahill’s other concerns (e.g. as to timing of the lease available relative to settlement) were not the subject of the contract. The only mutually known circumstances was that he wanted to buy on a going concern basis which could be done just as well with a 5-year lease;
(b) clause 7 was a standard MO clause. The duty to cooperate did not preclude Kiversun from proffering a contract containing such a clause where the Agreement to Purchase expressly contemplated the exchange of further contracts.
Kiversun submitted that it did not otherwise make it impossible (regardless of breach), given that there was a distinction between ‘impossible’ and commercially unattractive. Thus the principle did not encompass situations where it was merely commercially unattractive to comply with a condition.
Further, even if the Cahill lease clause was offered in breach of contract, it did not matter because Mr Cahill would not have signed a contract with cl 7 anyway, so the case fails for causation.
Finally, even if the Agreement to Purchase did not allow Kiversun to proffer a contract which included additional or different terms, Mr Cahill waived compliance with any such requirement by himself engaging in a process of negotiation (which also included a 5-year lease).
Molonglo made similar submissions. In particular, it suggested that the inclusion of cl 7 was not inconsistent with the Agreement to Purchase. Further, that the Agreement to Purchase was silent about the other terms of the lease which were to be created such that the terms proffered could not be inconsistent. They were also not commercially unreasonable in any event given the evidence of Mr Kalogeropoulos that a 5-year lease would be suitable for some developers.
Principles
The rationale for the ‘prevention principle’ is that a person cannot take advantage of the existence of a state of things which he has produced himself. The prevention principle is described in an early decision of the High Court in Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd (Peter Turnbull),[74] which has subsequently been cited by the High Court in the joint judgment in Park v Brothers.[75]
[74](1954) 90 CLR 235; see also N Seddon, R Bigwood and M Ellinghaus, Cheshire and Fifoot: Law of Contract (LexisNexis Butterworths, 10th ed, 2012) (Cheshire & Fifoot) [21.27].
[75](2005) 222 ALR 421, 433 [42] (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ).
In Peter Turnbull, Dixon CJ said:
… it was always the law that, if a contracting party prevented the fulfilment by the opposite party to the contract of a condition precedent therein expressed or implied, it was equal to performance thereof… But a plaintiff may be dispensed from performing a condition by the defendant expressly or impliedly intimating that it is useless for him to perform it and requesting him not to do so. If the plaintiff acts upon the intimation it is just as effectual as actual prevention.[76]
[76]Peter Turnbull (1954) 90 CLR 235, 246-7 (Dixon CJ) (citations omitted).
In GR Securities, McHugh JA summarised the principle as applying where one party to a contract makes it ‘impossible for a condition of the contract to be fulfilled’.[77]
[77](1986) 40 NSWLR 622, 637.
More recently, in Joseph Street Pty Ltd v Tan (Joseph Street),[78] the Victorian Court of Appeal described the principle in the following terms:
It is well established that a party wishing to rescind cannot take advantage of its own ineffective or inefficient measures to comply with its contractual obligations, and that where a vendor’s default has deprived the purchaser of a “substantial chance” that the condition would have been fulfilled, the vendor cannot exercise the right of rescission.[79]
[78](2012) 38 VR 241.
[79]Ibid 257 [47] (Warren CJ, Nettle JA and Cavanough AJA).
The principle was also recently examined by Riordan J in Hera Project Pty Ltd v Bisognin (No 3) (Hera Project)[80] and Simcevski v Dixon.[81]
[80][2017] VSC 268, [105]-[109].
[81][2017] VSC 197, [62]-[63].
The acts or omissions of prevention may be in breach of the contract, including the implied duty to cooperate, although preventative acts may also extend to conduct which does not constitute a breach.[82]
[82] Hera Project [2017] VSC 268, [108], citing SMK Cabinets v Hili Modern Electrics Pty Ltd [1984] VR 391, 395‑6 (Brooking J; Starke and Kaye JJ agreeing).
Further, although the effect of prevention is to preclude reliance on the condition, it is not always the case that the condition is taken to have been fulfilled for all purposes. Rather, the consequence of the act of prevention may be that the relevant term transforms from one requiring performance at a specified time to one requiring performance within a reasonable time.[83]
[83]Hera Project [2017] VSC 268, [106].
The legal burden of proving the fact and effect of the alleged acts of prevention rests with the party so asserting.[84]
Resolution
[84]Ibid [109].
I am satisfied that Kiversun breached its duty to cooperate in two ways.
First, the provision of a contract which contained the Cahill lease clause (cl 13). Not only did this clause include a 5-year lease which contradicted the term that there were monthly leases, the clause sought to impose further terms which were not the subject of the Agreement to Purchase. Although it was open to Kiversun to attempt to negotiate further terms, such terms were only to be included by way of negotiated agreement. However, rather than negotiating, Kiversun sought to terminate on 5 August 2016 (despite the fact that the time period had not expired), and then sought to ‘withdraw’ on 8 August 2016 in circumstances where no attempt was made to remove the Cahill lease clause or to modify it in any way.
Regardless of whether the term was commercial or not, the attempt to impose cl 13 on Mr Cahill (without any negotiation) thereby breached the duty to cooperate.
It is unnecessary in such circumstances to consider whether cl 13 so reduced the value of the Rokeby Street Property as to effectively amount to a different bargain (consistent with the evidence of Mr O’Grady). It is sufficient that the form of cl 13 went beyond the terms of the bargain and was actually inconsistent with it.
Second, the provision concerning termination (cl 7). This might have been a ‘standard’ MO clause but it was also not contained in the Agreement to Purchase. Although, again, it may have been appropriate to seek to supplement the original agreement, once objection was made to it, it was incumbent on Kiversun to either remove it or attempt to negotiate further. It did neither.
I am satisfied that the above acts both individually and/or cumulatively deprived Mr Cahill of a substantial chance of meeting the condition that he return the executed final documentation within the relevant five business days.
Mr Cahill gave direct extensive evidence as to why he did not sign by reason of the inclusion of the two clauses. Although his reasons for not signing may have included ‘commercial’ reasons, I am satisfied that the inclusion of – and failure to negotiate – each of these two terms played at least some part in why he did not do so.
In fact, the only complaint made about causation was that the alleged default arising from the proffered Cahill lease clause did not deprive Mr Cahill of a substantial chance because he would not have signed a contract of sale containing cl 7 anyway.
The actual evidence of Mr Cahill on this was that, he ‘hypothetically’ most likely would not have signed the agreement even with monthly leases. He would instead have sought to negotiate cl 7 down to a more commercially sensible clause. Two points may be made about this evidence. First, it provides direct evidence that the imposition of cl 7 contributed to the failure of the condition. Second, it says nothing whatsoever about the impact of the Cahill lease clause. Given the strength of his evidence on the Cahill lease clause cited already, I am satisfied that this also contributed to the failure of the condition.
The surrounding objective evidence also supports the direct evidence of Mr Cahill. Thus, I am of the view that the inclusion of the two clauses was objectively likely to bring about the non-compliance with the condition. In particular, the inclusion of (and refusal to negotiate) a clause which provided for a 5-year lease at a market rent ‘nominated by the Vendor’ and with an early surrender right ‘in favour of the tenant’ was objectively likely to induce Mr Cahill to refuse to sign. Equally, the inclusion of a clause that provided for a right of termination to the vendor (only) at any time without damages. The latter might have been a ‘standard’ clause, but it is telling in this regard that Molonglo never signed an agreement which contained such a clause, nor was it asked to sign an agreement with the relevant lease clause.
It is unnecessary to consider whether what was done by Kiversun was done in breach of the alleged obligation of good faith. However, the evidence suggests that the relevant actions were taken by Kiversun – with the assistance of Molonglo’s lawyers – as part of a commercial strategy calculated to bring about the non-compliance with the condition (and make the higher-priced Molonglo contract unconditional). Such evidence includes the variance in the form of contract proffered to Mr Cahill as compared to Molonglo; the reference to ‘we reject all’ in the 4 August file note; as well as the consequent wholesale rejection of any of Mr Cahill’s suggestions with consequent attempts to terminate. Such an inference is also strengthened in circumstances where no one, including any lawyer, was called by Kiversun.[85]
[85]Jones v Dunkel (1959) 101 CLR 298.
In any event, regardless of intent, I am satisfied that the conduct of Kiversun had the requisite effect, namely, that it effectively prevented Mr Cahill from returning the signed contract within five business days after receipt.
Insofar as the ‘waiver’ submission is concerned, the condition being relied upon by the vendor is a condition in favour of Kiversun (namely that it be entitled to withdraw in certain prescribed circumstances). The concept of waiver is therefore misplaced in circumstances where Mr Cahill is not seeking to terminate. In any event, there was nothing to stop either the vendor or the purchaser from trying to negotiate additional terms which could be the subject of further agreement, and Mr Cahill cannot be criticised for so doing.
It follows that I am not satisfied that Kiversun can take advantage of the non-compliance with the condition that the final executed contract be returned within the relevant time. Instead, it remains under an obligation to deal with Mr Cahill and was not entitled to terminate the Agreement to Purchase.
Remedy
Specific performance
Ready, willing and able
In their pleadings, Kiversun denied the allegation that Mr Cahill was and remains ready willing and able to perform.[86] Molonglo did not admit the matter.[87]
[86]Defence to SFASOC, [13].
[87]Amended Reply and Defence to Counterclaim dated 19 October 2017, [14] (Molonglo Proceeding).
In submissions, Molonglo alleged that Mr Cahill did not provide relevant financial information for the Court to adequately assess his likelihood of obtaining finance, and thus, pursuant to the rule in Jones v Dunkel,[88] the Court should draw the inference that any material Mr Cahill could have put before the Court would not have assisted his case. Further that, as Dr Franzese did not have access to all of the information which a lender would consider – for example, a statement of assets and liabilities, a profit and loss statement, and a credit history – his evidence ought to be given no weight.
Evidence
[88](1959) 101 CLR 298.
The expert evidence of Mr Cahill’s ability to obtain finance was contained in an Expert Witness Report of Dr Franzese dated 21 August 2017 (Expert Witness Report), a Supplementary Expert Witness Report of Dr Franzese dated 13 October 2017 (Supplementary Expert Witness Report), and the cross-examination of Dr Franzese regarding these reports.
Dr Franzese was an expert witness with experience in banking, finance and funds management. From 1982 until the present, Dr Franzese has had continuous experience in banking and finance, with a particular focus on property development and property finance. This included 11 years as a property finance manager. He holds numerous academic qualifications in business and finance, including a Bachelor of Commerce, an MBA, and a PhD in real estate. He was a straightforward witness who was ready to make appropriate concessions.
In his first report, Dr Franzese opined that Mr Cahill had ‘good prospects’ to apply for and obtain finance from a Tier 1 lender; ‘very good’ prospects in respect of a Tier 2 lender; and ‘excellent prospects’ with a Tier 3 lender.
He noted that a bank would typically consider five ‘c’s of lending before undertaking an assessment utilising this criteria.[89] He highlighted Mr Cahill’s track record. This demonstrated loan repayment capacity in the completion of 26 past projects (including 14 with NAB in the range of $2 million to $60 million, and one with the ANZ Bank at $14 million). Further, that he had two current projects with exclusive financing through Tier 1 and Tier 2 lenders. Mr Cahill had also consistently and successfully raised and/or contributed equity to satisfy lender requirements.
[89]The five ‘c’s of lending were listed as: (1) character of client; (2) capacity to meet commitments; (3) capital available; (4) collateral security available to secure loan commitments; and (5) conditions of loan.
Dr Franzese was also of the view that Mr Cahill would have sufficient information to commence the loan application process, and that the likely time of when he would actually make a formal approach would be within 3 to 6 months prior to settlement.
He concluded in the Expert Witness Report:
I am of the opinion that based on the documentation provided to me and my expert knowledge of the practices and policies of banks and other lenders, I believe that Cahill is likely to obtain finance for acquisition of the subject property.
(emphasis added)
His reasons included Mr Cahill’s track record, as well as the characteristics of the ‘well located’ Rokeby Street Property.
In his Supplementary Expert Witness Report, Dr Franzese opined that the personal bank statements of Mr Cahill for the last two or three years were not relevant since he was a property developer, and the primary underlying asset for a property developer is the subject project – with the key risk for the lender the strength (or otherwise) of the subject property development. He further opined that the documentation that was available gave him more comfort to support the conclusions in his first report such that Mr Cahill was what he called a ‘Tier 1 borrower’. By that, he meant that his ability to be considered by the four major banks as a credible property developer borrower applicant (though also a candidate to obtain development finance from Tier 2 and 3 lenders).
Under cross-examination, he conceded that banks were getting more conservative at the present time. He further accepted that there were a range of documents he did not have but which a lender would wish to see. He accepted that he had not guaranteed that Mr Cahill would get the finance. However, he confirmed that his report was based on ‘likelihood’. He further did not resile from the conclusions in his reports. To the contrary, he confirmed that he had formed an opinion in his report about the ‘likelihood’ of Mr Cahill obtaining finance. He also described the case as relatively clear-cut given Mr Cahill was a ‘tier 1 borrower’.
The evidence of Mr Cahill in regard to his financial capacity was that he knew that he would have the financial resources to complete the acquisition or he would not have signed the Agreement to Purchase. Further, that he would never risk $1 million of his own money if he was not confident that he was going to get the rest of the money. In cross-examination, Mr Cahill provided information about his usual financing methods, but conceded that he had no firm commitments for finance in regard to this project and had not yet submitted any funding applications. Mr Cahill’s evidence was that it was too soon in the life of the project to make such applications, and these would normally be submitted three to six months prior to settlement.
Resolution
In Masters v Belpate Pty Ltd,[90] Hodgson CJ in Eq noted that:
The readiness, willingness and ability required to justify an order for specific performance does not require that the purchasers have a concluded arrangement with a bank to provide the balance of the purchase price, much less that they have the amount of the balance of the purchase price in a bank account. What is required is readiness, willingness and ability to proceed to completion within the general time frame contemplated by the contract.[91]
[90](2001) 10 BPR 18,527.
[91]Ibid 18,544 [95].
Thus, what is important is not Mr Cahill’s current financial situation, but rather his ability to obtain finance within the 24-month period before settlement.
In terms of the alleged absence of evidence, the evidence of both Dr Franzese and Mr Cahill was that funding applications for such projects would not normally be submitted until three to six months prior to settlement. Dr Franzese specifically noted that he had not reviewed the financial records or assets/liability statement but that he did not really regard such a review as necessary given the format of the contract of sale. Further, that given the time when it would be assessed, Mr Cahill’s financial standing and other financial information would be more relevant to a lender at the time a formal application was made given it was at this time that the lender would formally review capacity. More significantly, he maintained his opinion that Mr Cahill was likely to obtain funding despite the alleged absence of documentation.
In such circumstances, it is not appropriate that any inference be drawn from the absence of further financials.
Overall, there was the coherent plausible evidence of a well-qualified expert – who maintained his views under cross-examination – that Mr Cahill was likely to obtain finance. Further, this opinion was not the subject of challenge by evidence of any other expert or otherwise. Finally, the evidence of Dr Franzese was generally consistent with Mr Cahill’s evidence as well as his own track record (which also included the payment of the deposit funds of $495,000 in this particular case).
I am thereby satisfied that Mr Cahill is likely, on the balance of probabilities, to be ‘ready, willing and able’ to perform the contract, including by paying the purchase price upon settlement.
I am also generally satisfied that it is appropriate to order specific performance in this case. In particular, I am satisfied that, given the construction of the Agreement to Purchase identified above, there is sufficient mutuality (in particular where Mr Cahill does not have an unfettered right to decide whether or not to agree to the relevant final contract as alleged by Molonglo).
Form of order
The plaintiff proposed a form of order which required Kiversun to deliver a signed form of final contract to Mr Cahill in the form of the contract of 5 August 2016 (save that the settlement date is 24 months from the date of signing).
Kiversun and Molonglo however opposed this form of order suggesting, inter alia, that it included terms that were not the subject of the alleged Agreement to Purchase.
Kiversun instead proposed that the order should be framed similarly to the order in J & G Knowles and Associates Pty Ltd v Crowncross Pty Ltd,[92] with a direction for a conveyance on conditions and with a two-year settlement from mid-July 2016. Further, that there could be further terms as may be agreed by negotiation but if nothing further occurred within such time, that the parties would be stuck with the basics.
[92][2010] VSC 227.
It is not appropriate that Kiversun be bound by obligations not the subject of the Agreement to Purchase. To this end, I also accept the submission of Kiversun that the obligations of Mr Cahill should not be treated as having been satisfied for all purposes. Instead, I accept that an order generally of a type proposed by Kiversun is appropriate (on the basis that the contract is still on foot)[93] save that, consistent with the Agreement to Purchase (and subject to any agreement to the contrary) the time of settlement is to be 24 months from the signing of the final contract.
[93]See Joseph Street (2012) 38 VR 241, 259 [56]-[57].
I have therefore included an appropriate form of order at the end of these Reasons.
CLAIM UNDER AUSTRALIAN CONSUMER LAW
As conceded by Counsel for Cahill, there was no need to consider the case under the Australian Consumer Law if he was successful in his contract claim.[94]
[94]Transcript of Proceeding (30 October 2017) 586.
Accordingly, I will express a brief summary of my views only in relation to this case.
Mr Cahill alleged that, immediately prior to the Agreement to Purchase, Kiversun made the following representations:[95]
[95]SFASOC, [20] (Cahill Proceeding); Further Amended Defence and Counterclaim, [18] (Molonglo Proceeding).
(a) Vision Real Estate had the exclusive sales authority to sell the Rokeby Street Property;
(b) it was willing to sell the Rokeby Street Property for a figure of $9.6 million;
(c) the sale of the Rokeby Street Property was ‘live’ and that another party had submitted an offer to buy the property and Mr Cahill should make his ‘highest and best bid’ to buy the property;
(d) it would be fair to both parties who were dealing with Vision Real Estate and Kiversun during the highest and best bidding process;
(e) that the existing tenancies at Rokeby Street Property were all short term, monthly tenancies;
(f) it would act in good faith and deal fairly with Mr Cahill in and about all matters concerning the sale agreement if he was the successful bidder for the Rokeby Street Property;
(g) if he was the successful bidder for the Rokeby Street Property, Kiversun would enter into a sale agreement that was immediately binding upon the parties but:
(i) the terms of which would be later restated in a more formal agreement which was no different in effect; or alternatively,
(ii) that the parties could make a further contract in substitution for the first contract containing, by consent, further terms.
Putting the question of whether Kiversun was acting in ‘trade or commerce’ to one side, my findings in relation to each of these representations is as follows.
In relation to representation (a), any representation was not misleading. Thus, Vision Real Estate did have an exclusive authority effective from 14 July 2016.
In relation to representation (b), the evidence of Mr Cahill was that he was told that George ‘will sell the property’ for either $9.6 million or $9.65 million (he could not remember which) but that he was also told that the highest ‘best bid’ would be successful. In such circumstances there was no clear statement that he was willing to sell at $9.6 million as alleged. In any event, reliance is not established in circumstances where Mr Cahill himself fairly conceded that oral statements did not count for much in real estate and in circumstances where any representation was overtaken by the execution of the actual agreement on 15 July 2016 (at $9.9 million).
In relation to representation (c) it was not false given the highest and best offer process took place.
In relation to representation (d), there was no evidence that any such representation was made.
In relation to representation (e), the representation was not false given the evidence is that the tenancies were monthly tenancies.
In relation to representations (f) and (g), there was no evidence that any such representations as pleaded were made at all.
It follows that no claim based on misleading or deceptive conduct was established.
CONCLUSION
Subject to hearing from the parties regarding costs, the orders of the Court will be:
(a) In proceeding S ECI 2016 01231 (Cahill Proceeding):
(iii) Declare that the plaintiff as purchaser and the defendant as vendor are bound by the agreement made by them as constituted and contained in the Agreement to Purchase dated 15 July 2016.
(iv) The defendant’s solicitors are to provide a form of final contract within 10 business days of the date of this order for approval by the plaintiff’s solicitors. That final contract may only contain additional terms if the parties have agreed to the same.
(v) The plaintiff’s solicitors are to return the signed final contract documentation, together with any amount outstanding in respect of the first 5% deposit payment, no more than five business days after the receipt thereof.
(vi) Subject to the payment of all monies due upon the sale, the defendant convey to the plaintiff title to the Rokeby Street Property being the land described in Volume 10341 Folio 081.
(vii) The defendant pay the plaintiff’s costs of the proceeding on a standard basis to be taxed in default of agreement.
(viii) Liberty to apply.
(b) In proceeding S ECI 2016 01256 (Molonglo Proceeding):
(i) The claim is dismissed.
(ii) The second defendant is ordered pursuant to s 90(3) of the Transfer of Land Act 1958 (Vic) to remove Caveat AN003586Q forthwith from the land described in Volume 10341 Folio 081.
(iii) The plaintiff pay the costs of the first defendant in relation to the proceeding on a standard basis to be taxed in default of agreement.
(1977) 180 CLR 266, 283, which is that: ‘(1) it must be reasonable and equitable; (2) it must be
necessary to give business efficacy to the contract, so that no term will be implied if the contract is
effective without it; (3) it must be so obvious that “it goes without saying”; (4) it must be capable of
clear expression; (5) it must not contradict any express term of the contract.’
10
26
0