Data Transfer Services Pty Ltd v White

[2023] NSWCA 16

Court of Appeal

Supreme Court

New South Wales

• Summary available
• Amendment notes

Medium Neutral Citation:

Data Transfer Services Pty Ltd v White [2023] NSWCA 16

Hearing dates:

9 February 2023

Decision date:

16 February 2023

Before:

Ward P; Leeming JA; Griffiths AJA

Decision:

Appeal dismissed, with costs.

Catchwords:

ESTOPPEL – estoppel by deed – Deed of Loan and Guarantee acknowledged receipt from lender of $2,000,000 and borrower’s indebtedness – where no amount paid – whether mere fact of non-payment precluded lender from relying on estoppel – where evidence established sale of business by lender’s companies to borrower had formerly involved vendor finance and was replaced by separate loan agreement from lender – where no case for rectification or rescission was made out – lender entitled to rely on estoppel by deed

Legislation Cited:

Common Law Procedure Act 1899 (NSW), s 95

Corporations Act 2001 (Cth), s 182

Judicature Act 1873 (UK)

Supreme Court Act 1970 (NSW), ss 57, 59, 61

Cases Cited:

BTI 2014 LLC v Sequana SA [2022] UKSC 25; [2022] 3 WLR 709

Compagnie FrancaiseD'Assurance Pour le Commerce Exterieur t/as Coface Australia v Sims Group Australia Holdings Ltd [2013] NSWCA 418

Cousens v Grayridge Pty Ltd [2000] VSCA 96

Doe d Hiscocks v Hiscocks (1830) 5 M & W 364; 151 ER 154

Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544; [2017] HCA 12

Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7

Goodman v Gallant [1986] Fam 106

Goodtitle d Edwards v Bailey (1777) 2 Cowp 597; 98 ER 1260

Greer v Kettle [1938] AC 156

Helmich and Taylor v Thorpe and Strathdee [1997] 3 NZLR 86

Kinsela v Russell Kinsela Pty Ltd (in liq) (1986) 4 NSWLR 722

Pink v Lawrence (1978) 36 P & C R 98

White v Data Transfer Services Pty Ltd (No 2) [2022] NSWSC 963

Wilson v Wilson [1969] 1 WLR 1470

Category:

Principal judgment

Parties:

Data Transfer Services Pty Ltd (First Appellant)
Maher Mina (Second Appellant)
John Anthony White (Respondent)

Representation:

Counsel:
Mr R Marshall SC with M J Heath (Appellants)
Mr J S Emmett SC with M T Fernandes (Respondent)

Solicitors:
Matthews Folbigg Pty Ltd (Appellants)
Fortis Law Group (Respondent)

File Number(s):

2022/00223082

Publication restriction:

N/A

 Decision under appeal 

Court or tribunal:

Supreme Court of New South Wales

Jurisdiction:

Equity – Commercial List

Citation:

[2022] NSWSC 963

Date of Decision:

20 July 2022

Before:

Williams J

File Number(s):

2020/48713

HEADNOTE

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

Mr John Anthony White as lender, Data Transfer Services Pty Ltd (“DTS”) as borrower and Mr Maher Mina as guarantor entered into a Deed of Loan and Guarantee on 22 August 2014. Clause 2.1 provided that DTS had received $2 million from Mr White and was indebted to him for that amount. DTS failed to make any monthly instalments in breach of the Deed, and Mr White sued on the Deed for the outstanding amounts.

It was common ground that DTS never received $2 million from Mr White. On that basis, DTS and Mr Mina denied the indebtedness acknowledged in cl 2.1. Mr White argued that the Deed reflected a vendor-finance aspect of a larger transaction whereby DTS would complete its acquisition of a business owned by companies controlled by Mr White for approximately $5,500,000, and that he was entitled to rely on an estoppel created by the Deed.

The principal issue on appeal was whether cl 2.1 created an estoppel by deed so as to preclude DTS and Mr Mina from denying receipt of the $2 million and from denying the indebtedness to Mr White.

The Court (Ward P, Leeming JA and Griffiths AJA) held, dismissing the appeal:

1. Where parties to a deed have chosen deliberately to enter into a transaction on a counterfactual basis, there will be no occasion for equity to intervene and deny one party’s entitlement to rely upon the estoppel generated by the counterfactual statement in the deed: [28]-[41].

Greer v Kettle [1938] AC 156, Helmich and Taylor v Thorpe and Strathdee [1997] 3 NZLR 86, Cousens v Grayridge Pty Ltd [2000] VSCA 96, considered and applied.

2. There was no basis for equity to deny Mr White’s entitlement to rely upon the estoppel created by the Deed in circumstances where the parties had agreed to proceed on the counterfactual basis that the consideration of $2 million under the Deed was to be advanced through Mr White procuring a reduction of the purchase price of the business: [39].

Judgment

1. THE COURT: Data Transfer Services Pty Ltd and its sole director Mr Maher Mina appeal from a judgment against them in the amount of $2,340,000 in favour of the respondent Mr John Anthony White, following a three day trial in the Commercial List of this Court: White v Data Transfer Services Pty Ltd (No 2) [2022] NSWSC 963. The first appellant was differently named at the time, but it is convenient to refer to it as “DTS”.

2. Mr White as Lender, DTS as Borrower and Mr Mina as Guarantor entered into a Deed of Loan and Guarantee witnessed by the solicitors acting for each side and dated 22 August 2014. Mr White sued on the Deed, which provided in cl 2.1, under the heading “Advances”:

The Borrower agrees with the Lender that subject to the terms of this Deed the Borrower has at the Commencing Date received from the Lender an amount equal to the Facility Limit and that the Borrower is indebted to the Lender for an amount equal to the Facility Limit.

3. “Facility Limit” was defined as $2,000,000. “Advance” was defined to mean “any drawdown of the Facility and any payment or liability which is deemed to be an Advance”. The “Commencing Date” was defined to mean 1 September 2014, some ten days after the Deed was executed. Repayments were required in the amount of $200,000 on or by 10 September 2014 and the balance by $25,000 monthly instalments commencing on 1 February 2015. Clause 6 made the obligations of the lender subject to the delivery by the borrower on or before the commencing date of the “Current Security”. Current Security was defined to mean:

Fixed and Floating Charge over the assets being purchased by [DTS] from JW Mailing Services Pty Ltd ABN 12 120 202 539 and J&S Mailing Services Pty Ltd ABN 42 119 449 482 under a written sale of business agreement.

4. At the forefront of the appellants’ submissions in this Court, and their defence at trial, was the fact that DTS never received $2 million from Mr White, either on 22 August when the Deed was executed, or on 1 September 2014 when cl 2.1 stated that an amount equal to the Facility Limit was received. On that basis they denied the indebtedness acknowledged in cl 2.1 of the Deed which Mr Mina had executed on his own and his company’s behalf.

5. At the forefront of Mr White’s case at trial, and his defence of this appeal, was that he was entitled to rely on an estoppel created by the Deed, and that while it was true that equity would, in principle, permit DTS and Mr Mina to depart from what was stated in the Deed, no case had been established for that to occur. That was because the Deed reflected the agreement reached between the parties, which was that it was in substance the vendor-financed aspect of a larger transaction whereby Mr Mina’s company would complete its acquisition of a business owned by companies controlled by Mr White for $5.5 million, having already acquired some of the assets of the business. Hence the references in the definition of “Current Security” to “assets being purchased” and the “written sale of business agreement”. Because the Deed was found to have correctly encapsulated the parties’ bargain, there was no occasion for equity to relieve DTS and Mr Mina from the estoppels it created.

6. The primary judge upheld Mr White’s claims. We have concluded that her Honour was correct, essentially for the reasons she gave. The most convenient course is to summarise the most important documentary evidence relied on by her Honour and the most important aspects of her Honour’s reasoning, after which the grounds of appeal may conveniently be addressed. We acknowledge at the outset that her Honour’s analysis was considerably more detailed and appropriately so, especially in light of the challenges to the credit of each of Messrs White and Mina. The much more limited challenges made on appeal have enabled us to adopt a more concise approach.

Factual background – 2013

7. For many months Messrs White and Mina and solicitors retained by each of them had been negotiating the sale of a mailing services business operated by JW Mailing Services Pty Ltd and J&S Mailing Services Pty Ltd to Mr Mina’s company. Mr White was, at all times after 18 October 2013, the sole director of both companies. He was also the sole shareholder of JW Mailing Services. He and his wife Sharon (who worked in the business) were equal shareholders of J&S Mailing Services.

8. There was no challenge to the existence of negotiations in the second half of 2013, nor that Mr Mina advised Mr White that his position was complicated because the assets of his marriage were affected in divorce proceedings that were then pending. Nor was there any challenge to the finding by the primary judge that by October 2013 agreement was reached as to price of around $5.5 million, comprising $4 million for the business and $1.5 million attributable to equipment: at [31].

9. In December 2013 a draft contract for the sale of business was sent by Mr White’s solicitor to Messrs White and Mina specifying a price for the sale of business of $5.5 million and including special condition 5.1 which involved the vendor companies providing financing to the purchaser in the amount of $2.5 million.

10. On 11 December 2013, Mr Mina signed a letter which her Honour described as “the commitment document” and sent it to, among others, Mr White’s solicitor in the following terms:

Dear John,

I Maher Mina will commit to purchasing the Business from you (JW Mailing Pty Ltd),

I’m unable to proceed with this purchase till the 20 February due to current situation with Family court matter which is due to [settle] on the 20^th February 2014,

I will approach the CBA and Westpac to fund the purchase price discussed with and formalized in the contract late February 2014,

During the Months of December and January we will work together to relocate the machinery and the operation from Blacktown to Parramatta and, 
commit to working together till the funding takes place early in the new year,

It is understood that all assets of JW Mailing will remain the property of JW Mailing till the purchase price is paid in full,

…

Factual Background – 2014

11. The primary judge recorded at [45] that it was common ground that by the end of January 2014 the plant and equipment of the business had been moved from Mr White’s business premises in Blacktown to Mr Mina’s business premises in North Parramatta and the staff were working out of the North Parramatta premises. This was consistent with the statement in the commitment document concerning the relocation from Blacktown to Parramatta of the business machinery and operation.

12. On 13 June 2014 Mr Mina sent to his broker, and the solicitors acting for the parties exchanged between each other, an executed contract for the sale of business signed by Mr Mina on behalf of DTS. That agreement by handwritten amendment altered the price to $5,460,000 with completion 21 days after the date of contract. This contract included, once again, special condition 5.1 which provided for vendor financing in the sum of $2.5 million. Mr Mina made it plain in his email to his broker that it was dependent upon his obtaining finance (the broker was dealing with at least two banks on Mr Mina’s company’s behalf): “Please see attached at long last a copy of the final contract signed but not exchanged till approval is received”. At around this time documents suggested that there was agreement that $40,000 of the price be allocated to trading stock: see at [51].

13. On Monday 18 August 2014 a substantially different draft contract for the sale of business was exchanged between the solicitors acting for the parties. This draft specified a price of $2,650,000 and deleted special condition 5.1 which had made provision formerly for vendor finance. There was competing testimonial evidence about the reason for the marked reduction in price. The primary judge rejected Mr Mina’s account that he was very concerned about the true value of the business, that he was no longer prepared to pay the price previously discussed, that he did not require vendor finance and that he signed the Deed to “placate” Mr White and to stop him from carrying out his threat to cease negotiations, and that “I had formed the view that if vendor finance was not required and I was in a position to pay the purchase price in full by other means, the Deed of Loan and Guarantee would thereby be of no effect.” In cross-examination he said that he was “intimidated” into signing the Deed. All this evidence was rejected by the primary judge as follows at [83]-[84]:

I reject Mr Mina’s evidence referred to … above because it is entirely inconsistent with the explanation that he provided to Mr Gough at the time, as recorded in Mr Gough’s contemporaneous file note. In cross-examination, Mr Mina said that he had no memory of giving Mr Gough the instructions recorded in the file note but did not deny doing so. Mr Mina’s allegation of “intimidation” is inconsistent with the objective facts that, by 22 August 2014, Mr Mina and DTS had had the benefit of the White Business plant and equipment and revenue since January 2014 without having paid a cent for the business. It is unsurprising that Mr Mina was beginning to feel some commercial pressure from Mr White to take steps towards implementing the transaction that Mr Mina had committed to in December 2013. That does not constitute intimidation. As referred to … above, Mr White and the Vendors were contemplating exercising their legal rights if the transaction did not proceed. Mr Mina had received independent legal advice from Mr Gough throughout the negotiations and signed the Deed on 22 August 2014 after consulting Mr Gough.

In addition, the effect of Mr Mina’s evidence, if it were to be accepted, is that Mr White simply accepted without objection or protest a reduction of the previously discussed purchase price by more than 50 per cent unilaterally determined by Mr Mina and communicated to Mr White on 18 August 2014. As senior and junior counsel for the plaintiff submitted, it is inherently improbable that Mr White would have behaved in that way, rather than re-taking possession of the White Business as he had foreshadowed on 28 May 2014.

14. Mr Gough was the solicitor acting for Mr Mina, and his file note dated 22 August 2014 concerned the execution of the Deed, to which we shall return. There was no challenge on appeal to the rejection of Mr Mina’s evidence.

15. Negotiations as to the terms of the sale of business agreement continued thereafter and, critically for the purposes of ground 3 of this appeal, Mr White caused his vendor companies to execute a revised sale of business contract with a purchase price of $2,650,000 on 28 August 2014.

16. It seems that neither DTS nor Mr Mina executed thereafter a counterpart of that revised sale of business contract. It was common ground that DTS or Mr Mina paid $2 million to Mr White’s companies on 2 September 2014 and paid the further sum of $1 million to those companies on 12 September 2014.

17. The solicitors continued to be involved until late October 2014, exchanging on 16 October 2014 a “Settlement Adjustment Sheet”. Mr Mina’s solicitor stated at this time that “in total, my client has paid $3,040,000 so far being $3m towards the price and $40,000 for stock”. However, it seems that DTS never executed a sale of business agreement for the business it acquired.

18. The primary judge found Mr Mina to be a “most unsatisfactory” witness, but further that the inconsistencies in his evidence were not wholly attributable to the inevitable unreliability of recalling events some seven or eight years beforehand, but also extended to giving untruthful evidence, including what her Honour found to have been false evidence in relation to the file note prepared by Mr Mina’s solicitor on 22 August 2014: at [20]. Her Honour also made an unfavourable assessment of Mr White’s evidence: at [19]. No challenge was made on appeal to any of her Honour’s adverse assessments of the witnesses at trial.

19. Having discounted the testimonial evidence, her Honour gave weight to the contemporaneous documents, reproducing Mr Gough’s file note mentioned above in full at [70]. The file note most relevantly records the following:

I had a conference with Mark Mina on Friday 22 August 2014 as follows:

•   Mark said that he is getting a lot of pressure from John White to start to sign some documentation because all of the assets in effect have been transferred to Mark long ago and we are still yet to exchange the Sale of Business Agreement.

•   Mark said that John is setting the deadline of 12.00pm today to have a Deed of Loan signed otherwise John is threatening to get Court orders to shut Mark down and reclaim his assets.

•   Mark therefore is under commercial pressure to get the Deed of Loan signed.

•   The way Mark explained it to me is as follows:

1.   The purchase price and the allocation of that between goodwill and plant and equipment is to remain as per the Sale of Business Agreement.

2.   In addition, Mark is going to pay John $2 million.

3.   This is to be reflected in a Deed of Loan – in essence it’s a paper document because Mark is not actually receiving $2 million from John, however, he is agreeing to repay that so when you add that to the Sale of Business Agreement amount, that gives you a total figure of $5.1 million including stock.

4.   I advised Mark that I am not giving any taxation advice as far as that is concerned and Mark understands that there is an issue here about reducing the amount of stamp duty that is payable which is a fraud on the OSR and I also have concerns about what the true value of the assets are if its being structured this way – nonetheless, Mark wants to proceed down this path.

5.   I explained to Mark that they haven’t provided me with the Deed of Charge to sign albeit the Deed of Loan requires that document to be signed.

6.   I said to Mark that ideally you would have an unsecured loan because you are not paying stamp duty on the loan amount, however, John would never go for that in my view therefore as and when the time comes for signing the Charge, Mark is going to be up for stamp duty on that document of $10,011.

7.   I explained to Mark that he has got three months from the time of signing the Deed of Charge and the Sale Agreement to pay the relevant stamp duty on both of those documents.

8.   We went through the schedule to the Deed of Loan that John had provided and there are a couple of items where we debated back and forth but the final version is that that I emailed to Mark on the morning of 22 August 2014 and which I will hand deliver to him so he can get it signed by 12.00pm that day. (emphasis added)

20. The file note records in numbered paragraphs 2 and 3 an understanding that the $2 million in the Deed to be executed that day reflected part of the price for the businesses being sold by Mr White’s companies to Mr Mina’s company. The file note does not explain why the $5.5 million price previously agreed to was reduced to $4,650,000 (the sale of business price (excluding stock) and the $2 million lent by Mr White) but there was evidence to which her Honour referred at [71] to “a $500,000 discount” which had been negotiated.

21. As noted above, it was common ground that in fact no funds were advanced by Mr White to DTS either on 22 August 2014, when the Deed was executed, or on 1 September 2014, the nominated Commencement Date.

The reasons of the primary judge

22. Mr White sued on the basis of cl 2.1 creating an estoppel by deed so as to preclude the appellants from denying receipt of the $2 million and from denying the indebtedness to Mr White. Her Honour referred to the different approaches at common law and in equity to receipt clauses contained in a deed in Greer v Kettle [1938] AC 156 at 171-172, Cousens v Grayridge Pty Ltd [2000] VSCA 96 at [57]-[58] and Helmich and Taylor v Thorpe and Strathdee [1997] 3 NZLR 86. In the latter case it was said that the “exception” pursuant to which equity permits a party to challenge an acknowledgement in a deed:

has nothing to do with cases in which the parties have deliberately adopted the fiction of an antecedent payment as a convenient formula for defining an executory obligation to make a real payment in the future. In a case of that sort it is pointless to inquire into the question whether the antecedent payment was in fact made. Of course it was not. It was never intended to be. It is nothing more than a fiction deliberately adopted as a means of defining future obligations.

23. The primary judge expressed the applicable principle as follows at [119]:

Where the parties have deliberately adopted the incorrect statement in the deed, there is no mistake that has resulted in the failure of the deed to conform to the parties’ true agreement. Thus, rectification in equity is not available: Simic v New South Wales Land and Housing Corporation (2016) 260 CLR 85; [2016] HCA 47 at [103] (Gageler, Nettle and Gordon JJ). Nor does the fiction, without more, provide a basis for rescission of the deed. Thus, the fact that the payment acknowledged in the deed has not in fact been made does not destroy the estoppel, to adopt the language of Lord Maugham in Greer v Kettle.

24. Her Honour applied that principle, accepting Mr White’s submission that both parties would, armed with knowledge of the background to the transaction, have understood cl 2.1 of the Deed as referring to “a facility that was yet to be provided in the form of a reduced purchase price payable to the Vendors on the basis that a significant component of the previous agreed purchase price that was to be the subject of vendor finance would be paid … to Mr White under the Deed … rather than paid to the Vendors”: at [125]. That conclusion turned on her Honour’s construction of cl 2.1, which was addressed, quite elaborately, at [124] as follows:

A reasonable businessperson placed in the position of the parties would have known that:

(1)   DTS and Mr Mina had signed a contract to purchase the White Business for $5,460,000 on 13 June 2014 with the benefit of vendor finance of $2,500,000, thereby communicating to Mr White their willingness to be bound by that contract subject only to approval being received from an external lender of an additional loan that DTS required over and above the vendor finance in order to complete the purchase for $5,460,000;

(2)   at the time that DTS and Mr Mina signed the contract referred to above, Mr White and Mr Mina had been negotiating for the sale of the White Business to DTS (or one of Mr Mina’s companies) at a price of approximately $5,500,000 for approximately one year, the plant and equipment and staff of the White Business had been moved into Mr Mina’s business premises in January 2014 on the basis of Mr Mina’s commitment to purchase the White Business at that price and Mr Mina had effectively taken over the operation of the business and had been receiving the revenue from the business since January 2014;

(3)   subsequently, DTS and Mr Mina sent to the solicitors for Mr White and the Vendors a revised unsigned contract on 18 August 2014 stipulating a purchase price of $2,650,000 and with no provision for vendor finance;

(4)   Mr White is the principal behind the Vendors who were to provide the finance of $2,500,000 under the contract signed by DTS and Mr Mina on 13 June 2014;

(5)   neither Mr White nor the Vendors questioned or objected to the reduction in the purchase price to $2,650,000 proposed in the revised contract sent to the solicitors for Mr White and Vendors on 18 August 2014;

(6)   nor did Mr White or the Vendors question or object to the removal of the vendor finance clause from the revised contract received by their solicitors on 18 August 2014, notwithstanding that they were aware of the ongoing difficulties faced by Mr Mina at that time in securing external finance for DTS’s proposed acquisition of the White Business;

(7)   on 22 August 2014, Mr White (as lender), DTS (as borrower) and Mr Mina (as guarantor) entered into a Deed of Loan and Guarantee pursuant to which DTS and Mr Mina acknowledged in clause 2.1 that DTS had received $2,000,000 from Mr White;

(8)   Mr White had not paid and the parties did not intend that he would pay $2,000,000 to DTS;and

(9)   Mr White caused the Vendors to execute the revised contract with the purchase price of $2,650,000 on 28 August 2014, after the parties entered into the Deed of Loan and Guarantee containing the acknowledgment in clause 2.1. (footnotes omitted)

The appeal to this Court

Grounds of appeal

25. The second and third grounds of this appeal challenged the construction given to cl 2.1 by the primary judge in [125]. There was no challenge to the correctness of the nine matters reproduced above upon which her Honour relied in reaching that construction. Ground 2 maintained that her Honour had been wrong to rely on any of those contextual matters in the course of construing cl 2.1. Ground 3 separately challenged her Honour’s reliance on sub-paragraph (9), which post-dated the execution of the Deed.

26. Because cl 2.1 accurately reflected the bargain between the parties, her Honour found that there was no basis for equity to intervene to relieve against the estoppel created by cl 2.1. The first and principal ground of appeal challenges that reasoning above asserting that there was no consideration, present or future, on the part of Mr White, who therefore could not rely upon the exception stated in Helmich and Taylor.

27. It was said that the “exception” in Helmich and Taylor was only applicable where there was consideration, and here there was none. As developed in written and oral submissions, this turned on the proposition that Mr White was separate from the companies which were the vendors of the business, notwithstanding that he was their sole director and sole shareholder (or sole shareholder and one of two equal shareholders the other being his wife). It was therefore not for him to reduce the price to be paid for the companies’ business, and indeed that by purporting to do so, there was the spectre of him breaching his fiduciary and statutory obligations owed to each company. More generally, it was put that “equity” would not permit Mr White to enforce a debt which was fictitious.

Principles applicable to estoppel by deed

28. The appellants’ submissions misapprehend the operation of the common law rules and equitable principles in this area, which are well-settled in this country.

29. First, a receipt clause contained in a deed binding the parties would, without more, give rise to an estoppel binding the parties at common law. Lord Mansfield said, “No man shall be allowed to dispute his own solemn deed”: Goodtitle d Edwards v Bailey (1777) 2 Cowp 597 at 600-601; 98 ER 1260. The doctrine originally applied to operative provisions and was extended to recitals, as Lord Maugham explained in Greer v Kettle at 168-169. The party estopped was unable to adduce evidence that the money had not in fact been received. To the foregoing there was an exception at common law if the deed were fraudulent or illegal: Greer v Kettle at 171.

30. Secondly, much more significant than the limited exceptions at common law was the different approach in equity. Equity had a jurisdiction to rectify deeds which necessarily called for evidence of the parties’ actual bargain which had not been incorporated in the deed. Equity also had a jurisdiction to set aside deeds on other bases including innocent misrepresentation. Evidence that no money had been received, notwithstanding the estoppel at common law, was admissible in equity to support an entitlement to rectification. Likewise, evidence that a recital or other statement in the deed was untrue was admissible to establish an equitable right to rescind the deed. (Of course, it was also open to the other side to adduce evidence in response, to the effect that the Deed had been executed by the parties well knowing that the position was not as stated in the Deed, in order to deny any entitlement to rectification or recission: see further the sixth point below.)

31. Thirdly, when a common law court had no jurisdiction to hear and determine an equitable defence based on rectification or rescission, those defences were vindicated by a common injunction from chancery. After the Judicature reforms, when the same court would hear and determine the plaintiff’s claim in debt and the defendant’s equitable defence, the position in equity prevailed. (Lord Maugham referred in Greer v Kettle at 172 to this occurring after the Judicature Act 1873 (UK), as does the Victorian Court of Appeal in Cousens at [58], although strictly speaking earlier reforms authorised common law courts to have regard to equitable defences, and in New South Wales for many years prior to 1972 an action in the Common Law Division could be met by an equitable defence. For most of the twentieth century, s 95 of the Common Law Procedure Act 1899 (NSW) was the source of that entitlement. Since 1972, in accordance with what Lord Maugham said in Greer v Kettle, defendants have been able to rely on equitable defences in the same proceeding pursuant to ss 57, 59 and 61 of the Supreme Court Act 1970 (NSW) which are the relevant local counterparts to the Judicature Act 1873 (UK).)

32. Fourthly, it was not necessary for the defendant (who would once have had to commence a separate suit in chancery), to put on a cross-claim in the proceedings commenced by the plaintiff in order to establish an equity to rectify or rescind the deed. At least in simple cases, this could be done by way of defence.

33. The result was stated by Lord Maugham in Greer v Kettle at 172, in terms reproduced and applied by the primary judge:

[I]n all those cases where the party against whom an estoppel by deed is sought to be raised has a right to rectification which would, so to speak, destroy the alleged estoppel, or a right to rescission on equitable grounds, he has an answer to the estoppel which would not have been open to him at common law.

34. This Court (Ward JA, Barrett JA and Sackville AJA agreeing) said in Compagnie Francaise D'Assurance Pour le Commerce Exterieur t/as Coface Australia v Sims Group Australia Holdings Ltd [2013] NSWCA 418 at [96] that:

after entry into the Deed of Release 7 Steel would not, as against Sims on an action in relation to the subject matter of the deed, be able to deny that the four disputed invoices were “outstanding” (at least without seeking rectification of the deed for, say, common mistake - Brooke v Haymes (1868) LR 6 Eq 25; Greer v Kettle [1938] AC 156,171; Wilson v Wilson [1969] 1 WLR 1470; McCathie v McCathie [1971] NZLR 58 CA, 70-1; or otherwise seeking some form of equitable relief).

35. Fifthly and critically, it is quite wrong to conflate the propositions that (a) equity would admit evidence directed to establishing an entitlement to rectification or rescission and (b) if a case for rectification or rescission was made out, the plaintiff could not rely on the estoppel, with the conclusion for which the appellants contend, namely, that in all cases where a recital or other provision in a deed was shown to be incorrect it did not give rise to an estoppel. The question in such a case is not whether the recital or provision is incorrect. It is whether the party has made out an entitlement in equity to relief. That is the force of the qualification in the statement of principle by Ward JA reproduced above. That is why Buckley J said in Wilson v Wilson [1969] 1 WLR 1470 at 1474 that the deed must be “rectifiable”. That is why Buckley LJ said with the agreement of Everleigh LJ and Sir John Pennycuick in Pink v Lawrence (1978) 36 P & C R 98 at 101-2 that “there must be established those circumstances which would make rectification the appropriate remedy”. That is why Slade LJ writing for the Court of Appeal in Goodman v Gallant [1986] Fam 106 said at 117:

In these circumstances the overwhelming preponderance of authority, including the three decisions of this court in Wilson v Wilson [1963] 1 WLR 1470, Leake (formerly Bruzzi) v Bruzzi [1974] 1 WLR 1528 and Pink v Lawrence (1977) 36 P & CR 98, in our judgment both entitle and oblige us to hold that, in the absence of any claim for rectification or rescission, the provision in the conveyance declaring that the plaintiff and the defendant were to hold the proceeds of sale of the property “upon trust for themselves as joint tenants” concludes the question of the respective beneficial interests of the two parties in so far as that declaration of trust, on its true construction, exhaustively declares the beneficial interests.

36. That result reflects the interaction between the rules of the common law and the principles of equity.

37. Sixthly, in cases where parties have chosen deliberately to enter into a transaction on a counterfactual basis, there will be no occasion for rectification or rescission. And of course parties may determine as between themselves to be bound on a counterfactual basis. There is nothing necessarily improper about such a course. Common examples include the backdating of a legal lease to the time when a tenant actually obtained possession, or parties agreeing by way of compromise of a dispute that their contract is taken to have commenced on a particular date. Of course, there are also occasions where producing a document which is factually false may be fraudulent or dishonest. Understating the consideration for the transfer of property may result in a fraud upon the revenue (and indeed Mr Gough was conscious of the potential implications for stamp duty purposes of what he described as the “paper document” in the present case; to be clear, the transcript records an undertaking that the Office of State Revenue would be notified when the documents in this trial were tendered).

38. All this emphasises the distinction between the correctness of the recital or provision in the deed, and whether equity would permit one party to rely upon the estoppel generated by the counterfactual statement in the deed.

39. Where, as the primary judge found, the parties have agreed to proceed on a counterfactual basis, then there is no basis for rectification in equity, and thus no basis for equity to deny Mr White’s entitlement to rely upon the estoppel created by the Deed. That is the short answer to the entirety of this appeal.

40. In submissions, this was described as “the exception to the exception” in reliance upon what had been said in Helmich and Taylor. Fisher J’s admirably clear ex tempore judgment does not use that concept, although his Honour refers to the “receipt exception”. His Honour, with respect correctly, said that equity had nothing to do in a case where parties had deliberately contracted on a counterfactual basis. We agree. Rather than treating this as “an exception to an exception”, it may be better to identify the question as whether some basis exists at law or in equity (more usually, the latter) which will prevent the prima facie entitlement of a party to rely on an estoppel in a deed.

41. Accordingly, and contrary to the appellants’ submissions, there is no basis for confining what was said in Helmich and Taylor to cases where parties had provided “real” or “actual” consideration. The question is whether they could make out a basis in equity to deny the availability to Mr White of the estoppel in his favour based on their execution of the Deed formally stating that DTS was indebted to him.

42. We would not accept the appellants’ submissions as to the nature of conflict in any event. The separate legal identities of Mr White and his companies may be acknowledged, but that does not stand in the way of his giving valuable consideration in order to procure the companies’ acceptance of a $2 million reduction in purchase price. Submissions were made of Mr White’s fiduciary obligations to his companies and (in this Court although not at first instance) of the possibility of contraventions of s 182 of the Corporations Act 2001 (Cth). But there is nothing in the facts to cast any doubt upon Mr White’s ability to control a general meeting to authorise the sole director to receive some of the consideration for the sale of the business personally. Contrary to a submission made orally, there is no suggestion in the evidence of any creditors having, in August 2014, an interest in the company in the way described in Kinsela v Russell Kinsela Pty Ltd (in liq) (1986) 4 NSWLR 722 and more recently in BTI 2014 LLC v Sequana SA [2022] UKSC 25; [2022] 3 WLR 709 so as to require the director to have regard to the interests of creditors when procuring a reduction in the price. Reliance was placed on the fact that somewhat more than three years after the event the company of which Mr White was sole director and shareholder was wound up pursuant to a creditor’s resolution. That fact falls far short of establishing that Mr White could not lawfully cause his company to reduce by $2 million the price of the business it was selling and simultaneously cause the purchaser to pay the $2 million to Mr White personally. (It is unnecessary to consider the position which would arise if the appellants had in fact made out a case of breach of duty on the part of Mr White.)

Second and third grounds

43. The second ground was that her Honour erred in relying upon the matters set out extensively in her judgment in construing what was said to be the plain and unambiguous receipt acknowledgement clause in cl 2.1. The appellants’ essential point was that there was no occasion to have regard to the context to alter the ordinary meaning of the clause.

44. First, even if her Honour had adopted an incorrect construction of cl 2.1, that would not affect the outcome until and unless equity disentitled Mr White from relying upon the estoppel created by the clause and binding DTS and Mr Mina.

45. The appellants were, in accordance with settled principle, permitted to adduce evidence of the fact that, contrary to what was said in the Deed, they did not receive $2 million in support of their claim that equity would not permit Mr White to rely upon the recital. However, that occurred in a context where, as a matter of fact, the price to be paid to the vendors was reduced by $2 million being the amount which DTS agreed to pay, separately, to Mr White. The admissibility of the evidence that there was no payment was an aspect of entertaining Mr Mina’s case that no moneys were in fact lent and he had renegotiated the price downwards by $2 million or alternatively had been improperly pressured into executing the Deed. The primary judge rejected that case (which is in the teeth of a number of documents, not least Mr Mina’s solicitor’s file note concerning which her Honour found that Mr Mina gave false evidence). There is no challenge to that rejection.

46. The ultimate question is whether Mr Mina and DTS have made out a case in equity to relieve them from the effect of the estoppel created by the Deed. The rejection of Mr Mina’s renegotiation case means that they failed to do so. That is dispositive of the appeal.

47. This ground extended to a submission made in written submissions in reply asserting that the Deed fell to be construed only by reference to the four corners of the 13 page document, relying on Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7. To the extent that this submission amounted to an overturning of more recent decisions upholding resort to surrounding circumstances or context in the first instance in order to determine whether the document bore a “plain meaning”, senior counsel confirmed that the submission was merely formal. The appellants’ submission paid no regard to what had been said more recently by the High Court in for example Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544; [2017] HCA 12 at [16]:

It is well established that the terms of a commercial contract are to be understood objectively, by what a reasonable businessperson would have understood them to mean, rather than by reference to the subjectively stated intentions of the parties to the contract. In a practical sense, this requires that the reasonable businessperson be placed in the position of the parties. It is from that perspective that the court considers the circumstances surrounding the contract and the commercial purpose and objects to be achieved by it. (footnotes omitted)

48. The primary judge expressly relied on that formulation of principle, which in turn expressly cited Electricity Generation Corporation v Woodside Energy Ltd on which the appellants’ submission was based.

49. But in any event we would be disinclined to accept the submission. Clause 2.1 is an example of a clause which considered in isolation bears a straightforward meaning. However, it is part of a document which refers to the ongoing negotiations (“assets being purchased”) between the parties, and to a written sale of business agreement. Even on the narrowest approach to the admissibility of extrinsic evidence, evidence was admissible to identify the subject matter of the Deed. Lord Abinger CB said, in a case concerning extrinsic evidence relating to the subject matter of a will, “To understand the meaning of any writer, we must first be apprised of the persons and circumstances that are the subjects of his allusions or statements … All the facts and circumstances therefore, respecting persons or property, to which the will relates, are undoubtedly legitimate, and often necessary evidence, to enable us to understand the meaning and application of his words”: Doe d Hiscocks v Hiscocks (1830) 5 M & W 364 at 368; 151 ER 154 at 156. The evidence which demonstrated that the parties had been in negotiations to buy Mr White’s companies’ business, and had when the Deed was executed agreed on price and had transferred some of the assets to Mr Mina’s premises, made it quite plain that the Deed was one part of a wider transaction. Further, although Mr White’s companies executed a sale of business agreement, and DTS and Mr Mina executed various draft documents, DTS and Mr Mina never executed a sale of business agreement in its final form; instead, having acquired the assets and paid just over $3 million, Mr Mina chose to leave the documents pursuant to which his company acquired the business unexecuted.

50. In short the position was that the Deed referred on its face to a related transaction involving DTS as purchaser, which was effected informally, and parts of which (the transfer of assets to Mr Mina’s premises) had already been effected. In those circumstances, we apprehend that even on the narrowest approach, extrinsic evidence was admissible to identify the related transaction. But nothing turns on any of this, because even if the primary judge misconstrued cl 2.1 and it means precisely what it says, the appellants must lose unless they can in Lord Maugham’s words “destroy” the estoppel created by the deed.

51. Ground 3 was a separate challenge to construction based upon reliance upon the execution on 28 August 2014 of the sale of business agreement. For the reasons already articulated, that ground must also be dismissed. First, the sale of business agreement executed by Mr White’s companies identified the subject matter over which a charge was to be given as a condition of Mr White’s obligation in cl 2.1. Secondly, even if the sale of business agreement were not admissible on the issue of construction, the appellants made no attempt to explain how any different construction would be reached if regard could only be had to the matters identified in [124(1)-(8)] but not [124(9)]. Thirdly, even if the construction upheld by the primary judge were incorrect, the appeal must be dismissed unless the appellants are entitled to relief in equity, and standing in the way of that are the findings of fact as to the terms on which the business was to be transferred to DTS from which no appeal has been brought.

Orders

52. For those reasons, her Honour’s reasons were correct. The appeal should be dismissed, with costs.

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Amendments

24 August 2023 - deleted "of" after "comprising" in the last sentence of [8] so it reads "comprising $4 million"

- deleted "upon" after "relied" in the second sentence of [25] so it reads "her Honour relied in reaching"

- deleted "the" before "application" in the quotation in [49] so it reads "the meaning and application of his words"

Decision last updated: 24 August 2023