Definity Clinic v AMD Rifat
[2021] VSC 325
•7 June 2021
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
PROPERTY LIST
S ECI 2018 02498
| DEFINITY CLINIC HOLDINGS PTY LTD (ACN 621 388 298) ATF DEFINITY CLINIC HOLDINGS TRUST | Plaintiff |
| v | |
| A.M.D RIFAT HOLDINGS PTY LTD (ACN 106 065 516) | Defendant |
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JUDGE: | MOORE J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 23-26 March 2021, 19 May 2021. |
DATE OF JUDGMENT: | 7 June 2021 |
CASE MAY BE CITED AS: | Definity Clinic v AMD Rifat |
MEDIUM NEUTRAL CITATION: | [2021] VSC 325 |
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CONTRACTS – Contract for sale and purchase of property – Where parties did not settle on property – Whether plaintiff purchaser entitled to repayment of deposit – Where special condition of contract made contract conditional upon defendant vendor ‘obtaining a medical permit for two (2) practioners (sic)’ – Where defendant vendor obtained a permit for no more than two people to provide health services – Case turns upon proper construction of special condition – Special condition properly construed required defendant vendor to obtain permit that would allow plaintiff purchaser to use the property as it intended – Plaintiff purchaser entitled to repayment of deposit – Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337, applied – Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104, applied – Apple & Pear Australia Ltdv Pink Lady America LLC [2016] VSCA 280, applied – Lopes v Taranto [2018] VSCA 288, applied.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr D F McAloon | DW Fox Tucker Lawyers |
| For the Defendant | Mr T P Mitchell | Mills Oakley |
HIS HONOUR:
Dr Bruce Heideman is a cosmetic surgeon. In 2017, he and his wife, Dr Jennifer Chia, decided to relocate from Adelaide to Melbourne to establish a cosmetic surgery practice. After seeing an advertisement online, they decided to seek to establish their practice at 2-6 Oban Street, South Yarra (the property).
A.M.D Rifat Holdings Pty Ltd (AMD) was (and remains) the owner of the property. AMD is an entity associated with the De Luca Property Group operated by Tony De Luca and his son Anthony De Luca. The property is part of a larger residential and commercial development of 2-12 Oban Street completed by the De Luca Property Group in 2016.
On 31 August 2017, Dr Heideman and Dr Chia entered into a conditional contract of sale with AMD to purchase the property (the first contract). They did so through their corporate entity, Definity Clinic Holdings Pty Ltd (Definity). The contract was terminated in late September 2017 because Definity was unable to secure finance.
Definity and AMD entered into a second contact to purchase the property on 27 October 2017 (the contract). Dr Heideman and Dr Chia executed the contract on behalf of Definity and signed a Deed of Guarantee in relation to Definity’s obligations under it. Definity paid a deposit of $135,000, being 10% of the total purchase price of $1,350,000.00. Settlement was to occur on 18 January 2018.
When the contract was entered into, the permitted use of the property under the applicable local planning scheme was as a café. Importantly, the contract was subject to special condition 3.1 which had been inserted by hand and which stated:
This contract is subject to and conditional upon vendor obtaining a medical permit for the premises for two (2) practioners [sic]. This will be done at the purchasers [sic] costs and will be payable upon invoice. Settlement will occur 14 days from when permits are issued or on the 18th January 2018 which ever is earlier.
The central controversy in this proceeding is the proper construction of the words ‘medical permit for the premises for two (2) practioners [sic]’ appearing in this special condition.
On 31 May 2018, the City of Stonnington (the Council) issued an Amended Planning Permit in respect of the property which relevantly included the following condition (the May permit):
[t]he Medical Centre at [the Property] must have no more than two (2) people providing health services within the premises, with a maximum of six (6) patients attending the Medical Centre each day. The Medical Centre must only operate between 8am and 7pm Monday to Saturday.
Definity’s position is that the May permit does not satisfy special condition 3.1. It refused to settle the contract and, on 28 November 2018, commenced this proceeding seeking repayment of the deposit it had paid under the contract.
AMD rescinded the contract on 29 January 2019 because of Definity’s failure to pay the balance of the purchase price. By counterclaim, it seeks a declaration that it is entitled to the forfeiture of the deposit, as well as damages for Definity’s wrongful repudiation of the contract.[1] It also contends that, by reason of the Deed of Guarantee which Dr Chia and Dr Heideman signed and another general condition in the contract, both Dr Chia and Dr Heideman are personally liable for any amounts that Definity is ordered to pay in this proceeding.
[1]It was an agreed fact that the current value of the property is $1,127,500. AMD seeks damages in the sum $122,585.15 or, alternatively $65,000 if a different approach to the calculation of loss is adopted.
It was agreed that the following five issues arise for determination:[2]
[2]At the commencement of the trial, two further issues concerning the implication of a term into the contract were identified and agreed. Those claims were not pressed by Definity in closing submissions.
1. Was special condition 3.1 of the contract satisfied?
2.If special condition 3.1 of the contract was satisfied, did the contract contain an implied term that A.M.D Rifat would act reasonably and in good faith and would not undermine the agreement reached with the plaintiff reflected in the terms of the contract (the good faith term)?
3.If ‘yes’ to Issue 2, did A.M.D Rifat, by reason of the allegations in paragraph 22 of the amended statement of claim, breach the good faith term or otherwise repudiate the contract?
4.If special condition 3.1 of the contract was satisfied and the contract did not contain the good faith term or, if it did, it was not breached, did A.M.D Rifat suffer any loss by reason of Definity not completing the purchase of the property and, if so, what is the quantum of that loss?
5. Are the directors of Definity personally liable in respect of any loss suffered by A.M.D Rifat identified in Issue 4?
For the reasons which follow, the answer to Issue 1 is ‘no’. The remaining issues do not therefore arise for determination. However, in the event of an appeal, my findings of fact below are not confined to those which may be relevant to Issue 1. Before recording my findings of fact, in the following paragraphs I set out my observations in relation to the witnesses who gave evidence at trial. [3]
[3]In addition to the lay witnesses referred to above, expert evidence was also received from two certified practising valuers, Craig Veljkovic and Les Brown, in the form of a joint report and a report from Les Brown dated 8 December 2020.
General observations about witnesses
Definity led evidence from Drs Chia and Heideman who are the directors of Definity. They are married and are both medical practitioners. Dr Heideman is a cosmetic surgeon. He had completed cosmetic surgery training by the middle of 2017 when he and Dr Chia were living in Adelaide with their family. Dr Chia was then working as a general practitioner in the area of skin cancer medicine and also provided surgery services and cosmetic procedures.
Overall, I found both Drs Chia and Heideman to be unreliable witnesses. Except where corroborated by the evidence of other witnesses, or from documentary evidence, I am generally unwilling to accept their evidence.
Dr Chia’s evidence about her dealings with Tony De Luca and Anthony De Luca, as well as with the representative of the agent retained by AMD to market and sell the property, Paul Pellegrino, at times appeared to be a reconstruction which was significantly influenced by the nature of Definity’s claims in this proceeding. For example, she repeatedly expressed her evidence about the purpose of purchasing the property and discussions to that end with AMD and its representatives by using the phrase ‘cosmetic surgery centre’. The consistency in the use of that language in Dr Chia’s oral evidence is in sharp contrast to the evidence of the written communications.[4]
[4]The expression ‘cosmetic surgery centre’ only appears once (and in a particular context) in the volume of email correspondence sent by Drs Chia and Heideman to AMD and its representatives in the period before the contract was entered into: see [38] below.
Dr Chia was also argumentative and repetitive in her evidence in asserting that the reference to a ‘medical permit’ meant a ‘cosmetic surgery centre’. There is force in the submission made by AMD that Dr Chia’s memory of events has been overlaid by perceptions of self-interest. As McClelland CJ in Eq observed in Watson v Foxman:[5]
human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience.
[5](1995) 49 NSWLR 315, 319.
Counsel for AMD referred to other examples which I accept highlight the unsatisfactory nature of the evidence given by Dr Chia and which confirm why the written record is generally to be preferred to her oral evidence.
(a) Dr Chia denied the suggestion that Definity was careful to protect itself with the engagement of experts and consultants. However, when she was cross-examined about Definity’s engagement of a particular property valuation firm, at first she said it was her husband who was responsible for that engagement, and only accepted that it was a possibility he did so. Dr Chia insisted that she knew nothing about the firm. However, the documents in evidence indicate that she received at least four emails which included references to Definity’s engagement of independent valuers for the purpose of submitting an offer to purchase the property.
(b) Dr Chia gave contradictory evidence about Definity’s engagement of architects in relation to the purchase of the property. She first accepted that Definity had engaged an architect informally, through a friend, and that it was Adam Tugendhaft. Her evidence about why Definity terminated Mr Tugendhaft’s engagement contradicted the contemporaneous communications. Despite Dr Chia saying in emails at the time that Mr Tugendhaft could not provide vital information, under cross-examination she sought to blame Mr Pellegrino. She denied that Mr Tugendhaft’s inability to provide further information was a cause of the first contract being terminated, and stated that it had nothing to do with Mr Tugendhaft. This evidence contradicted her own emails to Mr Pellegrino on 26 September 2017, and her email to Mr De Luca on 28 September 2017, less than one week after the contract was terminated.
Overall, the written record is to be preferred to Dr Chia’s oral evidence about relevant events.
Counsel for AMD advanced a number of criticisms of Dr Heideman’s evidence. Although some of these complaints were either not borne out on a fair reading of the evidence, or were overstated or incorrect, the following two are well-founded.
Dr Heideman was cross-examined about a quotation and a proposal in relation to the property provided by Contour Consultants Aust Pty Ltd (Contour), town planning consultants.[6] The document was provided to Dr Heideman by Anthony De Luca. The first sentence of the document is contrary to Definity’s case in that it describes the quotation as being for ‘obtaining approval for the use of the land as a medical centre’. When asked if he approved the proposal, Dr Heideman’s evidence was that he only read the quoted price and did not read this opening sentence. Having then given evidence that he was ‘simply paying what came through’, Dr Heideman was unable to identify the price for Contour’s services. Later, Contour agreed to discount the price for its services and set out its anticipated revised fees for ‘the medical centre application letter’ in an email which went to Dr Heideman and which he approved.[7] In giving that approval, Dr Heideman’s evidence was that he was only responding to ‘an application for a permit’. In my assessment, these aspects of Dr Heideman’s evidence are implausible and were an attempt by him to downplay his knowledge about the contents of documents which were unhelpful to Definity’s case.
[6]Referred to in [53] below.
[7]Referred to in [54] below.
In his evidence, Dr Heideman complained that he was insufficiently involved in the application process for a planning permit. However, in early 2018, he did provide a direct response to a request for information from the Council and then complained when the permit conditions replicated the information he provided.[8] When asked about the request for information, Dr Heideman did not accept the obvious fact that he knew that his response would be provided to Council. He initially stated that he did not know what the response would be used for. It was only after numerous questions from counsel that he conceded what was self-evident, namely, that Contour might use his answers as part of the application for a permit. Dr Heideman’s unwillingness to make concessions contrary to Definity’s case reflects poorly on his credibility.
[8]Referred to in [58]–[62] below.
In addition to these unsatisfactory aspects of his evidence, Dr Heideman’s memory was shown to be unreliable by his withdrawal of his oral evidence about communications with Mr Pellegrino on 27 September 2017, which evidence was shown to be inconsistent with the documentary record.
Although the above criticisms concern discrete parts of Dr Heideman’s evidence, they reflect adversely on his credibility as a witness. Overall, I am cautious to accept his evidence where it is not corroborated by other independent witnesses, or by relevant documents.
AMD led evidence from Tony De Luca, Anthony De Luca and Paul Pellegrino.
Tony De Luca is a director of AMD. He has worked in finance and business for approximately 40 years, specialising in project financing and property development. Over the last 14 years, he has developed a number of properties through his business, the De Luca Property Group.
Although I accept that Tony De Luca generally sought to assist the Court by doing his best in answering the questions asked of him, I am unwilling to place particular weight on his evidence, except where it is corroborated by other witnesses or documentary evidence. This is because his recollection of events and conversations was limited and at times plainly wrong[9] and because his sometimes argumentative approach as a witness suggested that his recollection and narration of events was, to some extent, tainted by a sense of grievance in relation to the events which have transpired between Definity and AMD.
[9]For example, Tony De Luca gave evidence that Dr Heideman ‘was doing the negotiations with council of what he required as a medical centre’ and that Dr Heideman (not AMD) applied for the May planning permit. This contradicts Anthony De Luca’s evidence on these issues.
Anthony DeLuca is the son of Tony DeLuca. He is the operations director of the De Luca Property Group and was a company director of AMD between 1 March 2013 and 2 May 2018. He has been involved in property development, mostly of a residential nature, for about 20 years.
Anthony De Luca was an unimpressive witness. He was unable to provide credible answers to straightforward questions about important matters. For example, in his evidence-in-chief, he answered ‘no’ to the question, ‘Do you recall the purchasers or either Dr Heideman or Dr Chia giving you any explanation about what the carrying on of their business involved?’. So implausible was his answer to this question in light of the other evidence before the Court, that it prompted the following question and response which was, at best, confusing and, at worst, evasive:
And is your answer to that it didn't occur or you can't recall whether it occurred?---I don't believe - well, it didn't occur. I can't recall it occur - occurring or discussing - or discussing it.
Further, although Anthony De Luca’s evidence was that he coordinated medical permit applications in relation to the sale of the property, his evidence about the process associated with that application was, for the most part, notably vague and unclear.
Anthony De Luca’s evidence about the meeting which occurred between the parties in October 2017[10] was of no assistance. He was confused in his evidence several times and his evidence was often couched in hypothetical terms or based on assumptions. This may have reflected his admission that that he did not ‘know the detail’ because he could not recall much of the discussion at the meeting. He also appeared, on occasion, to wrongly equate his failure to positively recall something with it not occurring.
[10]See [50] below.
I also accept the submission made on behalf of Definity that Anthony De Luca’s explanation for sending the emails to Contour on 18 October 2017 referring to ‘four practitioners’[11] was entirely unsatisfactory. In the course of a very confusing passage of his evidence, Anthony De Luca could not actually recall what prompted this request, he often hypothesised about why or how things occurred and the explanations he proffered shifted and changed as he was pressed for further explanations by counsel.
[11]See [51] below.
For these reasons, in the absence of independent corroboration, I am unwilling to accept any evidence given by Anthony De Luca in relation to controversial matters.
Paul Pellegrino is employed by Chadstone Shopping Centre in retail leasing. In July 2017, he worked as a senior sales and leasing executive for Knight Frank Australia (Knight Frank) which AMD had engaged to sell the property.
Although Mr Pellegrino’s recollection of events was at times limited, this is unsurprising given the nature of his role with Knight Frank and his limited, but important, involvement in the events relating to the sale of the property. Mr Pellegrino was a witness of truth who did his best to assist the Court in answering the questions asked of him. As the only lay witness without an interest in the outcome of the proceeding, I place particular weight on his evidence.
The facts
The general factual context in which the agreed issues arise for determination is set out below. In light of my observations about the witnesses, my findings of fact are, to a significant extent, based on the documentary evidence and the evidence given by Mr Pellegrino.
The property had not been sold prior to completion of the Oban Street development and had proven difficult to sell after the development was completed. AMD engaged Knight Frank to market it for sale. Dr Chia saw it advertised online in June 2017. On 26 June 2017, she sent a text message to Mr Pellegrino asking for details about it. Another real estate agent who worked with Mr Pellegrino responded to Dr Chia’s inquiry. Dr Heideman and Dr Chia visited Melbourne and inspected the property on about 7 July 2017.
After this visit, Mr Pellegrino was Dr Chia and Dr Heideman’s point of contact with the real estate agency in relation to the property. However, because of difficulties in contacting Mr Pellegrino, Dr Chia contacted Anthony De Luca directly, having found his contact details on the internet. Dr Chia confirmed to Anthony De Luca her and Dr Heideman’s interest in purchasing the property, but only if there was a ‘change of use’ to allow it to be used for medical purposes. Anthony De Luca assured her that such a change of use would not be an issue and that he would get back to Dr Chia regarding the planning permit. Two other smaller properties in the Oban Street development were, or had been, used by medical professionals.
On 18 July 2017, Anthony De Luca sent an email to Dr Chia and Dr Heideman in relation to the property stating that:
… our town planner is very confident to achieve a change of use for the café space. Medical is a permitted use for the area and it shouldn’t be difficult [sic] process. …
The same day, Dr Heideman emailed Mr Pellegrino thanking him for his ‘assurance and commitment to changing the permitted use to medical’ and that ‘[w]e are keen to proceed forward to offer’.
About a month later on 16 August 2017, Dr Heideman sent an email to Mr Pellegrino and Anthony De Luca in which he referred to an independent assessment and valuation having been undertaken of the property and of another property in the Oban Street development. He made a conditional offer to purchase both properties. The offer was subject to finance and:
… subject to obtaining Council permits for the entire 233 sq.m receiving medical use approval. We would also require granted permission from the body corporate to undertake all internal fitout work for a cosmetic surgery centre without undue delay or inconvenience.
Dr Heideman’s offer was rejected and Mr Pellegrino made a counter offer in an email sent later on 16 August 2017. Mr Pellegrino stated that the following terms were acceptable:
· Obtaining a medical permit for both suite 1 and suite 2– vendor will facilitate at purchasers [sic] cost.
· Obtaining necessary and regulatory approval from body corporate for fit out and associated use of medical consulting suite.
Dr Heideman rejected the counter offer and made a further revised offer to purchase both properties in an email sent to Mr Pellegrino on 21 August 2017 in which he stated:
We have invested considerable time and effort and expense in undertaking the appropriate due diligence. As we have stated from the outset this property is only of any value to us if the entire 233 sq.m is available and approved for medical use.
A meeting attended by Dr Chia, Dr Heideman, Anthony De Luca and Tony De Luca was held at the offices of De Luca Property Group on 30 August 2017. During this meeting, Drs Heideman and Chia informed Anthony and Tony De Luca that the purchase of the property was only of interest to them if it could be used as a cosmetic surgery; that they would both be working at the practice to be established at the property; and that they required a change of use of the property from café to medical. It was Anthony De Luca’s understanding, either from what was said at the meeting or from earlier communications, that Drs Heideman and Chia were ‘plastic surgeons’.
Dr Chia and Dr Heideman met Mr Pellegrino at the property the next day, 31 August 2017. This was their second inspection of the property. In the course of the inspection, Dr Heideman told Mr Pellegrino that his principal work was liposuction and that he intended to conduct liposuction at the property. Mr Pellegrino understood from this and previous communications with Drs Chia and Heideman that they required a permit change for the property, or else they would not proceed with the purchase.
During the inspection of the property, Mr Pellegrino produced a contract of sale[12] and filled in the relevant details. Dr Chia and Dr Heideman signed the contract. It included a term that it was subject to finance as well as the following special condition 3.1 which Mr Pellegrino wrote by hand:
This contract is conditional upon the vendor obtaining a medical permit for the premises for two (2) practitioners. This will be done at the purchasers [sic] cost.
Although not expressed in identical terms, it was uncontroversial that this condition was in substance the same as special condition 3.1 set out in [5] above.
[12]Being the ‘first contract’ to which I have referred earlier.
On 21 September 2017, Dr Heideman sent Mr Pellegrino an email updating him in relation to the current position in respect of the property. He stated that they were still waiting on approval from their finance provider for the purchase of the property. He continued:
This has been centred around the assessment of the building being fit for purpose. Whilst the permit change with Council remains an outstanding concern and condition, an equally important issue has been allowable clinic design and the indorsement from the department of health regarding the legality of operating a liposuction facility from the premises.
Mr Pellegrino forwarded Dr Heideman’s email to Tony and Anthony De Luca.
On 26 September 2017, Dr Chia informed Mr Pellegrino by email that their finance company had withdrawn its support for the purchase of the properties because of the lack of a ‘Medical Permit’ and because the architect with whom they had been dealing had been unable to confirm vital information. She stated that a new architect had been engaged and had indicated that the properties were suitable ‘for the facility we are trying to build’, but that the ‘lack of a Medical Permit continues to remain a major stumbling block’. She reiterated the importance of obtaining a ‘Medical Permit for Oban Street … ASAP’.
Dr Heideman and Mr Pellegrino also exchanged emails on 26 and 27 September 2017 in which they canvassed the possibility of the properties the subject of the first contract being leased, rather than purchased. Dr Heideman stated ‘sale or lease, nothing is going to happen if we don’t present a medical permit ASAP’. Mr Pellegrino responded, ‘Don’t you worry about the permit, it will be organised once we take all the necessary steps as discussed’.
On 27 September 2017, Dr Chia also told Mr Pellegrino by email that a formal letter was required stating that a medical permit had been applied for and that a new contract was required setting out the expected date of the approval of the permit. Mr Pellegrino responded setting out the process which AMD required to be followed involving the proposed leasing of the properties, including the engagement of town planners ‘to have a change of use’ and that new contracts would be subject to finance and ‘obtaining a medical permit’. Dr Heideman emailed Mr Pellegrino saying that the process outlined by Mr Pellegrino was acceptable.
By late September 2017, the parties had become frustrated in their communications which had become characterised by conflict and disagreement. On 28 September 2017, Dr Chia and Tony De Luca exchanged emails about the proposed purchase or leasing of the properties the subject of the first contract. Dr Chia referred to leasing or buying the properties being conditional on ‘obtaining a medical permit’ and that ‘the premises is of no use to us if a medical permit cannot be obtained’. On 2 October 2017, Tony De Luca said to Dr Chia in an email:
Clearly, until you sign the Contract of Sale and Lease we will not lodge any paperwork relating to a Medical Permit subject to what was stated in my previous email. Please understand that we cannot go forward until you give me confirmation that you are going to proceed either by the Contract of Sale or Lease. If you confirm the above and payment of the Medical Permit costs, as agreed with Anthony, then we think it will take between 60-90 days to acquire such a permit. Please also understand that there would be a condition in the Contract and Lease that if we do not supply you a Permit everything would be null and void
On 4 October 2017, Dr Chia was able to inform Tony De Luca that their lenders were in the process of obtaining finance pre-approval to purchase the properties such that the sale would only be subject to AMD obtaining ‘a medical permit for 2 practitioners’. Tony De Luca responded positively, indicating that information would be provided about the cost to change ‘to a medical permit and with the allowance of 2 practitioners to practise in that space’.
A meeting between Drs Chia and Heideman and Tony and Anthony De Luca was held at the De Luca Property Group’s office on 9 October 2017. The accounts of what was said in the meeting provided by Drs Chia and Heideman on the one part and Tony and Anthony De Luca on the other part, were significantly different. However, I consider that it is more likely than not that, during the meeting, Drs Chia and Heideman spoke at some length of their intention to undertake cosmetic surgery at the property. At this general level, I prefer the evidence of Drs Chia and Heideman in relation to this meeting because their evidence was generally consistent and because it was apparent from the evidence of Anthony and Tony De Luca that their recollection of the meeting was very limited. This is unsurprising given that the meeting occurred late in a course of dealings towards the purchase of the property which was a unique and significant event for Drs Chia and Heideman, but which had no special significance to Tony and Anthony De Luca. My finding is also consistent with the fact that, on 21 September 2017, Dr Heideman sent an email to Mr Pellegrino, which was provided to Tony and Anthony De Luca, in which he referred to an important outstanding issue in relation to the proposed purchase of the property being the obtaining of an ‘indorsement from the department of health regarding the legality of operating a liposuction facility’ from the property.[13]
[13]See [44] above.
On 18 October 2017, Anthony De Luca contacted representatives of Contour. Anthony De Luca sought advice about the prospects of obtaining the Council’s planning approval in relation to the property ‘to medical with 4 practitioners’. A representative of Contour responded indicating that the use was ‘manageable’, but the parking assessment would be critical. Anthony De Luca further responded by email stating that ‘I tried for 3 practitioners as per our discussion however they will only sign up with the 4’.
As I have already noted, Definity and AMD entered into the contract on 27 October 2017. Dr Heideman and Dr Chia executed the contract on behalf of Definity and signed a Deed of Guarantee in relation to Definity’s obligations under it.
On 30 October 2017, Anthony De Luca provided Drs Heideman and Chia with a copy of a quote from Contour in relation to the proposed change in use for the property. The materials provided to Drs Chia and Heideman included an earlier email sent by Mr De Luca to Contour seeking a quote in relation to the property ‘to change the use to medical for 2 practitioners’. Contour’s quotation was expressed to be for ‘obtaining approval for the use of the land as a medical centre’.
Anthony De Luca then sought, on Dr Heideman’s request, to negotiate a discount on Contour’s fees. Contour agreed to the request and in an email set out its anticipated revised fees for ‘the medical centre application letter’. Dr Heideman responded, ‘Sounds fine. Please proceed’.
On 1 December 2017, Contour lodged with the Council an application to amend the planning permit which applied to the property. The amendment sought was to permit the use of the property ‘for the purpose of a Medical Centre comprising two practitioners’, with hours of operation of 7am–7pm, Monday–Saturday and two onsite car spaces.
As has been noted, it was a term of the contract that settlement would occur on 18 January 2018. An amended planning permit had not however been issued by that date. Settlement of the contract did not occur. There is no evidence that either party requested that settlement occur.
On 31 January 2018, Contour requested further information from Anthony De Luca about the application made to Council for an amendment to the planning permit for the property. Contour sought additional information on the proposed use of the property ‘as a medical centre including the type of health services to be provided and details on the operation of the medical centre, including the number of clients, length and frequency of appointments and whether appointments will have to be pre-arranged or will be on “walk in” basis’.
Anthony De Luca forwarded this request to Dr Heideman who relevantly responded:
The medical centre is to be a day procedure unit. On a consultation day there will be no more than 6 patients on a day all spaced an hour apart. On procedure days there will be 3 patients max attending, with one patient staying most of the day …
Anthony De Luca forwarded Dr Heideman’s response to Contour, who in turn provided that information to the Council on 7 February 2018.
On 6 March 2018, Dr Heideman directly contacted Shayne Linke of Contour seeking an update about the progress of the permit application in relation to the property.
On 26 April 2018, Danielle Di Pietro of Contour informed Dr Heideman by email that the Council officer who was preparing a notice of decision to grant a planning permit had indicated that conditions including the following would be included in an amended permit:
· No more than 2 practitioners on site at any one time.
· No more than 6 patients on site at any one time.
· Operating hours to be confined to 8 am to 7pm seven days a week which is consistent with the existing Condition of the permit relating to the other medical centres.
…
Dr Heideman responded stating, ‘That is somewhat positive I guess, but I am finding the timeline rather ridiculous …’.
The following day on 27 April 2018, Council issued a notice of decision in relation to the application to amend the planning permit in relation to the property (the notice of decision) which gave effect to a change of use of the property from café, to medical centre. It notified an amendment to the existing permit condition to provide as follows:
The Medical Centre at 2-6 Oban Street (Tenancy G.01) must have no more than two (2) people providing health services within the premises, with a maximum of six (6) patients attending the Medical Centre each day. The Medical Centre must only operate between 8am and 7pm Monday to Saturday.
When Contour provided the notice of decision to Dr Heideman on 27 April 2018, he responded as follows by email that day:
The wording of the conditions is quite a bit different to your last email.
In particular this entire time the amendment has been based on two practitioners. Now the wording is saying two people providing health services. This is not the same thing. Two medical practitioners will require the assistance of other staff to provide health services, otherwise it is completely untenable.
On Saturday 28 April 2018, having received this email from Dr Heideman, Anthony De Luca sent an email to Contour (but not Dr Heideman), seeking urgent advice and stating that ‘It was my understanding that this was not the case. This will certainly stop the sale of the premises’. He then sent an email to Dr Heideman stating, ‘It is my understanding that other staff members providing assistance to the two practitioners are allowed. I will chase this up and get an answer on Monday’.
Later on 28 April 2018, Dr Heideman told Anthony De Luca by email that some of the conditions in the notice of decision were unacceptable including because they would ‘prevent the registration of the facility with the Department of Health … and prevent the safe provision of medical services’. He proposed a meeting to clarify these issues. A meeting between Dr Heideman and representatives of Contour in relation to the notice of decision occurred on 2 May 2018.
As has been noted, Council issued the May permit in respect of the property on 31 May 2018. It included the condition contained in the notice of decision referred to in paragraph [61] above.
When the May permit was provided to Dr Heideman on 1 June 2018, he told representatives of Contour by email, copied to Anthony De Luca, that it was not acceptable. He stated that he had previously said that the conditions in the permit ‘would not allow us to operate our medical business. I specifically said that we could not proceed with the permit application or sale with those conditions on the permit’. He stated that he had ‘expressly pointed out that I did not wish to be in a position where completion of sale was expected with the issuing of the conditional permit, as the conditions rendered it financially untenable and would not allow medical registration with the Department of Health’.
Later on 1 June 2018, Anthony De Luca sent an email to representatives of Contour, but not to Dr Heideman, stating that he wanted to discuss the matter urgently. He continued:
I understand this could be a small matter for you, however this is now massive problem for me as the purchaser has now backed out of the sale. I’ve waited 5 months to get this permit and to find out now that it is not evenly (sic) close to what is needed for the sale is really disappointing. I don’t think I could have been any clearer with what we required. …
Between 4 and 7 June 2018, Contour and Council exchanged emails in relation to Dr Heideman’s concerns in relation to the May permit. Mr Linke sought to arrange a meeting with Council, to be attended by representatives of Definity and AMD, to discuss these concerns. On 8 June 2018, Council told Contour that it was happy to meet, but specifically requested that the ‘prospective operator’ of the property be present ‘because there appears to be some mis-communication [sic] regarding the detail of … how they propose to use the land’. As it happened, the solicitors for Definity also sent a letter to AMD’s solicitors on 8 June 2018 requesting that AMD organise and facilitate a meeting between Drs Heideman and Chia, Mr Linke and Council to seek to amend the May permit.
On the same day, 8 June 2018, Definity’s solicitors sent an email to Mr Linke of Contour, copied to Anthony De Luca, setting out Definity’s position that the May permit was not suitable for a medical permit to be obtained from the Department of Health and Human Services and that Definity had previously made Contour aware that the planning permit would not satisfy the Health Services (Private Hospitals and Day Procedure Centres) Regulations 2013 (SA). The email also stated that Definity was agreeable to arranging a meeting with Council to assist in amending the May permit so that it would allow Definity to obtain a medical permit in accordance with the above regulations, on conditions including that representatives of Definity be present at the meeting.
Mr Linke responded to Definity’s solicitor by email on 12 June 2018, copied to Anthony De Luca. He stated:
For full and complete certainty can you please provide me with written instructions as to what your client’s requirements are in relation to the planning permit. They have not been conveyed to me clearly. Your client when asked as to what conditions of planning permit would be acceptable has not been forthcoming, simply stating that the conditions as they stand are unacceptable. When pressed they have advised that they would need to seek your advice.
I cannot provide full disclosure to the Council of the Health Services (Private Hospitals and Day Procedure Centres) Regulations 2013 (SA) (the Regulations) as requested by you in 4.4 below as I am not familiar with those Regulations. Nor am I familiar with the term “Medical Permit”, other than what might be commonly referred to as a Medical Centre Permit, under the provisions of the Stonnington Planning Scheme. I am not familiar with the process or requirements of obtaining a ‘Medical Permit’ nor can I find reference to that term under the Regulations that you refer to.
Your further instructions prior to a meeting with Council are therefore requested.
In reply, the solicitor for Definity stated by email sent on 13 June 2018, copied to Anthony De Luca, that, other than on one occasion in respect of a minor matter, Contour had never directly sought instructions from Definity regarding the required planning permit for the property. In order ‘to avoid doubt’, the solicitor specified the following information and requirements for the purposes of obtaining an amended planning permit in order for a medical permit to be sought which accorded with the special condition:
(a)Our client will be operating a Day Procedure Centre with two (2) principal medical practitioners, providing surgical services simultaneously. The primary surgical services at the Day Procedure Centre are to be, but not limited to, liposuction, fat grafting and other cosmetic surgical procedures. To build and operate such a facility requires accreditation and registration with the Department. The licensing requirements to obtain a medical permit are provided in guidelines both from the Department and the Health Services (Private Hospitals and Day Procedure Centres) Regulations 2013 (Vic) (the Regulations), which we attach for your reference.
… Under the Health Practitioner Regulation National Law, health practitioner means an individual who practises a health profession. It follows that, health profession means the following professions, and includes a recognised specialty in any of, amongst others, the following professions: medical and nursing. …
(b)The suitability of the building and location forms an integral part of the submissions to the Department, in order to obtain the Medical Permit, and therefore the first step requires the required planning permit approval with due regard to the location, building and operational requirements of a Day Procedure Centre.
…
(d)In order to provide the services described in paragraph 5(c) above, … the following is required:
(i)Two (2) receptionists;
(ii)Seven (7) perioperative nurses (3.5 per operating room);
(iii)One (1) laser therapist;
(iv)One (1) dermal therapist;
(v)One (1) massage therapist;
(vi)Two (2) Anaesthetists.
(e)In light of the requirements described in paragraph 5(d) above, on a standard operational day there will be 16 staff onsite.
(f)The Day Procedure Centre intends to provide the abovementioned services six (6) days per week.
(g)Given the nature of surgical services and in order to provide the appropriate duty of care to the patients, 24 hour 7 days a week access to the Premises is required, in order to respond appropriately to patient requirements when the need arises …
(h)The Premises must also have:
(i)secure car parking for all staff, as well as adequate parking for visiting patients;
...
(i) The Premises is required to also provide secure access for:
(i) the storage and removal of medical waste;
(ii) the removal and supply of linen; and
(iii) the supply and storage of medical gases.
The email from Definity’s solicitor continued:
You refer to the commonly used term of a “Medical Centre Permit” under the Stonnington Planning Scheme, however, as our client has made it clear to the Vendor (which we understand was then passed on to your office) via an email from Bruce Heideman, that it was to be a “day procedure centre” and not a medical centre. It is evident from the current Planning Permit that you have represented to the Council that the Premises will be used as a general medical centre, rather than a Day Procedure Centre.
Definity’s solicitor reiterated the need for a meeting with Council to be arranged as a matter of urgency.
Having received this email from Definity’s solicitor, Mr Linke asked Anthony De Luca by email whether ‘all this‘ had been disclosed to him, stating that Contour had never been provided with the information and that it was not consistent with what had previously been provided by Dr Heideman. Mr Linke also asked Mr De Luca whether he still wanted to proceed with ‘the meeting tomorrow’.
Anthony De Luca said that the information had never been disclosed to him and that it was ‘a clear tactic to prevent settlement’. He continued, ‘I think it would be wise to continue with the meeting to obtain the best permit we can get as they may not settle and I’ll have to go to market’.
On 13 June 2018, Mr Linke also sought clarification from Definity’s solicitor about what constitutes a ‘medical permit’, from which authority such a permit would be obtained and the process for doing so. Definity’s solicitors rejected any need to provide the clarification requested, stating that Contour had all the relevant information necessary to arrange a meeting with Council and requesting advice as a matter of urgency about when the meeting would take place. Soon after receiving this email from Definity’s solicitors, Mr Linke asked Anthony De Luca by email: ‘Do we have any obligation to advise [the solicitor’s] clients of tomorrow’s meeting?’
A meeting between representatives of Contour and the Council in relation to the property occurred on or about 14 June 2018. Anthony De Luca also attended the meeting. None of Dr Heideman, Dr Chia, or Definity’s solicitors were notified of the meeting. Anthony De Luca did not tell them about it because he did not think they would “go to that meeting with the right intention” and believed they had “changed their position”. He believed that they would not have “got the right outcome for everyone in question” if they had attended the meeting.
Because she had not heard anything further from the De Luca Property Group about the progress of seeking changes to the May permit, on 21 June 2018, Dr Chia made an enquiry directly of the Council about the planning permit in relation to the property. On 22 June, she emailed the Council saying that, on her understanding of the conversation the previous day, the requirements associated with a day procedure centre meant that the planning permit application should have been for a private hospital, rather than for a medical centre.
On 29 June 2018, Contour submitted to Council a proposal to amend the planning condition in the May permit by deleting the reference to a maximum of six patients attending the medical centre each day.
On 4 July 2018, Definity’s solicitors made a written demand of AMD that it repay the deposit of $135,000 paid by Definity in relation to the purchase of the property. The demand was made on the expressed basis that Council had confirmed that the planning permit required by Definity was unattainable and that Definity would not settle the contract because the special condition had not been satisfied.
On 10 August 2018, the solicitors for Definity served on AMD’s solicitors a notice that time was of the essence in relation to the obligation on AMD under the contract to satisfy the ‘medical permit condition’ within 120 days. On the same day, the solicitors for AMD informed Definity’s solicitors that, in its view, AMD had satisfied the special condition by the issuance of the May permit and that AMD required Definity to complete settlement within 14 days.
On 25 October 2018, Council gave notice of its decision to amend the planning permit in relation to the property in terms consistent with the application made by Contour on 29 June 2018 referred to in [78] above.[14]
[14]The decision also varied the hours of operation referred to in the May permit from 8am to 7pm Monday to Saturday to 7am to 7pm Monday to Saturday.
As I have noted, Definity commenced this proceeding on 28 November 2018 seeking repayment of the deposit it had paid under the contract.
On 29 November 2018, Council issued a further amended planning permit in respect of the property which removed the six-patient cap and extended opening hours to between 7am to 7pm, Monday to Saturday.
Issue 1: Was special condition 3.1 of the contract satisfied?
The answer to Issue 1 depends upon the proper construction of special condition 3.1 of the contract[15] and in particular the words ‘… medical permit for the premises for two (2) practitioners …’. The competing arguments about the true construction of those words was the central issue at trial.
[15]Set out in [5] above.
Principles of construction
The general principles which apply to the construction of written contracts were set out by the High Court in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd:[16]
The rights and liabilities of parties under a provision of a contract are determined objectively,[17] by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose.[18]
In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean.[19] That enquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract.[20]
Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning.[21]
However, sometimes, recourse to events, circumstances and things external to the contract is necessary. It may be necessary in identifying the commercial purpose or objects of the contract where that task is facilitated by an understanding “of the genesis of the transaction, the background, the context [and] the market in which the parties are operating”.[22] It may be necessary in determining the proper construction where there is a constructional choice. …
Each of the events, circumstances and things external to the contract to which recourse may be had is objective. What may be referred to are events, circumstances and things external to the contract which are known to the parties or which assist in identifying the purpose or object of the transaction, which may include its history, background and context and the market in which the parties were operating. What is inadmissible is evidence of the parties’ statements and actions reflecting their actual intentions and expectations.[23]
Other principles are relevant in the construction of commercial contracts. Unless a contrary intention is indicated in the contract, a court is entitled to approach the task of giving a commercial contract an interpretation on the assumption “that the parties … intended to produce a commercial result”.[24] Put another way, a commercial contract should be construed so as to avoid it “making commercial nonsense or working commercial inconvenience”.[25]
[16](2015) 256 CLR 104, 116–17 [46]–[51].
[17]Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640, 656 [35].
[18]Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337, 350 (citing Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989, 995–996; [1976] 3 All ER 570, 574), 352. See also Sir Anthony Mason, “Opening Address”, Journal of Contract Law, vol 25 (2009) 1, at p 3.
[19]Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640, 656 [35].
[20]Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640, 656–7 [35].
[21]Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337, 352. See also Sir Anthony Mason, “Opening Address”, Journal of Contract Law, vol 25 (2009) 1, at p 3.
[22]Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640, 657 [35], citing Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337, 350, in turn citing Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989, 995–6; [1976] 3 All ER 570, 574.
[23]Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337, 352; Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989, 995–6; [1976] 3 All ER 570, 574.
[24]Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640, 657 [35], citing Re Golden Key Ltd [2009] EWCA Civ 636, [28].
[25]Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640, 657 [35], citing Zhu v Treasurer (NSW) (2004) 218 CLR 530, 559 [82].
As stated by Ferguson CJ and McLeish JA in Apple & Pear Australia Ltdv Pink Lady America LLC after referring to the first three paragraphs from the above extract from Mount Bruce, ‘at least where the contractual language is ambiguous or susceptible of more than one meaning, evidence of events, circumstances and things external to the contract is permissible.[26] The Court of Appeal later observed in Lopes v Taranto, that ‘in every case and whether or not there is ambiguity in the language, the Court should have regard to objective evidence of facts known to both parties as to commercial purpose’.[27] In the search for the parties’ contractual intention in the case of commercial arrangements, ‘no narrow or pedantic approach is warranted’.[28] Post-contractual conduct is, however, inadmissible in the task of contractual construction.[29]
[26][2016] VSCA 280, [231].
[27][2018] VSCA 288, [71] and see also [66].
[28]As stated by Barwick CJ in Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429, 437, referred to by Warren CJ and McLeish JA in National Australia Bank v Rose [2016] VSCA 169, [73]. See also: Nettle JA in McMahon v National Foods (2009) 25 VR 251, at 283 [77] (Neave and Dodds-Streeton JJA agreeing); Peppers Hotel Management Pty Ltd v Hotel Capital Partners Ltd (2004) 12 BPR 22,879, 22,892 [68] (McColl JA).
[29]Adaz Nominees Pty Ltd v Castleway Pty Ltd [2020] VSCA 201, [70(qq)].
Although a commercial contract is to be construed to give a commercial result and to avoid ‘making commercial nonsense or working commercial inconvenience’,[30] that does not allow the Court to construe a document to give a more ‘balanced operation if an interpretation different to that dictated by the language were adopted’.[31] The courts are ‘not authorised under the guise of construction to make a new contract for the parties at odds with the contract to which they have agreed’.[32] As the Court of Appeal stated in Apple & Pear Australia Ltd v Pink Lady America LLC:
[W]hile a court should construe a commercial contract to avoid absurdity it is not part of its role to construe an agreement that otherwise has an explicable commercial result in a manner that increases the commercial benefits to one party to the agreement.[33]
In construing a contract to give a commercial result, it also is not to be overlooked that ‘business common sense is a topic on which reasonable minds may differ’.[34]
[30]See above in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (n 16).
[31]Jireh International Pty Ltd t/as Gloria Jean’s Coffee v Western Exports Services Inc [2011] NSWCA 137, [55].
[32]Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544, 579–80 [98] (Nettle J).
[33]Apple & Pear Australia Ltd v Pink Lady America LLC (n 26) [152] (Tate JA with whom Ferguson and McLeish JJA agreed].
[34]As stated by the Victorian Court of Appeal in Adaz Nominees Pty Ltd v Castleway Pty Ltd (n 29) [70(nn)] referring to Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181, 198 [43] (Gleeson CJ, Gummow and Hayne JJ). See also Peppers Hotel Management Pty Ltd v Hotel Capital Partners Ltd (n 28) 22,892–3 [72], 22,899 [124], [127].
The ‘true rule’ referred to by Mason J in Codelfa and discussed by the High Court in Mount Bruce and the other authorities to which I have referred is as follows:[35]
The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning. Generally speaking facts existing when the contract was made will not be receivable as part of the surrounding circumstances as an aid to construction, unless they were known to both parties, although, as we have seen, if the facts are notorious knowledge of them will be presumed.
[35]Codelfa Construction Pty Ltd v State Rail Authority (NSW) (n 18) 352.
His Honour then referred to the ‘difficulty [which] arises with respect to the evidence of prior negotiations’:[36]
Obviously the prior negotiations will tend to establish objective background facts which were known to both parties and the subject matter of the contract. To the extent to which they have this tendency they are admissible. But in so far as they consist of statements and actions of the parties which are reflective of their actual intentions and expectations they are not receivable. The point is that such statements and actions reveal the terms of the contract which the parties intended or hoped to make. They are superseded by, and merged in, the contract itself. The object of the parol evidence rule is to exclude them, the prior oral agreement of the parties being inadmissible in aid of construction, though admissible in an action for rectification.
Consequently when the issue is which of two or more possible meanings is to be given to a contractual provision we look, not to the actual intentions, aspirations or expectations of the parties before or at the time of the contract, except in so far as they are expressed in the contract, but to the objective framework of facts within which the contract came into existence, and to the parties’ presumed intention in this setting. We do not take into account the actual intentions of the parties and for the very good reason that an investigation of those matters would not only be time consuming but it would also be unrewarding as it would tend to give too much weight to these factors at the expense of the actual language of the written contract.
[36]Ibid.
Definity’s submissions on construction
Definity’s submissions proceeded from the premise that, because the written terms of the contract do not assist in ascertaining the intended operation of special condition 3.1, recourse to the surrounding circumstances is necessary.
It was contended that the communications between the parties which preceded the execution of the contract supported the conclusion that the term ‘medical permit’ in special condition 3.1, was a term which was used by the parties as a shorthand reference for an amended planning permit that would enable the property to be utilised for the provision of medical services of the type and scope that Definity wished to provide from the property. Definity had disclosed to AMD that Drs Heideman and Chia were a surgeon and doctor respectively and that both wished to provide cosmetic medical services, including liposuction, from the property. This was the construction of special condition 3.1 which Definity urged me to adopt.
Definity submitted that the commercial purpose of special condition 3.1 was readily discernible: to protect it as the prospective purchaser by ensuring that, for the purchase to proceed, AMD must obtain a permit which would allow Definity’s intended use of the property – the provision of cosmetic medical services, including liposuction, by its two medical practitioners.
In support of this construction, Definity correctly submitted that Anthony De Luca accepted in his evidence that:
(a)he expressed to Drs Heideman and Chia his confidence that he would obtain a ‘medical permit’ for the property and understood the significance for the prospective purchasers of obtaining such a permit;
(b)when obtaining a planning permit, it was necessary to obtain a permit that fit the intended use;
(c)he gave assurances to Drs Heideman and Chia that the medical permit that could be obtained in respect of the property would be fit for their intended use;
(d)he knew that Dr Heideman was a cosmetic surgeon;
(e)the fact that Definity intended to undertake liposuction on the property was disclosed in email correspondence; and
(f)he understood that both Drs Heideman and Chia intended to operate from the property.[37]
[37]In his evidence, Anthony De Luca confirmed that he ‘assumed’ that both Drs Heideman and Chia intended to operate from the property.
Definity submitted that a telling consideration in support of its asserted construction of special condition 3.1 is that such a construction was productive of no commercial risk for AMD. The costs of seeking an amended planning permit were to be met by Definity. If a permit that met its requirements was obtained, the property would be sold in accordance with the contract at a price agreeable to AMD. If, however, a permit that met Definity’s requirements was not obtained, the property would be retained by AMD. In circumstances where AMD expected that the amended permit would be obtained in a matter of weeks and where the property had been difficult to sell, making a sale conditional upon a permit being obtained that met Definity’s intended use was not commercially disadvantageous to AMD.
Definity argued that, on its construction of special condition 3.1, the clause provided a necessary measure of protection for Definity. On 2 October 2017, before the contract was entered, Tony De Luca had said to Dr Chia that, ‘Please also understand that there would be a condition in the Contract and Lease that if we do not supply you a Permit everything would be null and void’. In circumstances where Definity was not the owner of the property and therefore had no authority to deal with the Council in relation to it, Definity necessarily ceded responsibility for obtaining the medical permit to AMD. In that situation, if AMD did not obtain a permit that was consistent with Definity’s requirements, the parties could not be taken to have intended that Definity would be required to proceed with the purchase or that, if Definity did not proceed, it would forfeit the deposit paid.
Definity also argued that, if special condition 3.1 was constructed in the manner contended for by AMD, it would follow that any change of permitted use to medical centre which allowed for two persons to provide ‘health services’ would be sufficient to satisfy the condition. Such a result would, Definity argued, result in a commercial nonsense. For example, on AMD’s approach, special condition 3.1 would be satisfied if the amended permit only permitted two persons to provide health services on a single day of the week or, only during limited hours on multiple days.[38]
[38]Definity also sought to rely on the fact that AMD’s position that the May permit satisfied the special condition was not the position AMD adopted at the time. This post-contractual conduct is inadmissible in the task of determining the proper construction of special condition 3.1.
Definity argued that the reference in special condition 3.1 to ‘two (2) practitioners’ was a reference to Drs Heideman and Chia as they were the two medical practitioners that would be providing cosmetic surgery services, including liposuction.
Definity sought to emphasise that aspect of the May permit which contained a prohibition on more than two people ‘providing health services’. It was submitted that this prohibition was incompatible with two medical practitioners operating a cosmetic medical practice, including the provision of liposuction, where such a clinic operated by two medical practitioners would necessarily entail additional persons, such as nurses, anaesthetists and receptionists, providing health services.
AMD’s submissions on construction
AMD submitted that, properly construed, special condition 3.1 required a change of use of the property to a medical centre. The May permit satisfied the special condition because it allowed:
(a)the property to be used as a medical centre, rather than as a café - it was therefore a permit that allowed a medical use, and as such was a ‘medical permit’; and
(b)two people to provide health services – clearly, those people could be, and most likely would be, medical practitioners.
By securing the May permit, AMD had accordingly obtained a ‘medical permit for two practitioners’ as required by special condition 3.1.
In terms of the extent to which regard might properly be had to the surrounding circumstances in construing special condition 3.1, counsel for AMD accepted that the background facts and commercial purpose of the contract could be taken into account in the task of construction. However, they could only be taken into account for the purpose of resolving the ambiguity in special condition 3.1.
AMD also accepted that the phrase ‘medical permit’ in special condition 3.1 was ambiguous. Its submissions on the construction of special condition 3.1 focused on the word ‘permit’. It advanced two propositions which were correctly drawn from the evidence which were said to be relevant to the task of construction: (a) that both Definity and AMD understood the ‘permit’ to be something that would be issued by the Council; and (b) that nobody from Definity or AMD knew anything about the kind of permit that would be required to conduct a cosmetic surgery practice.
AMD submitted that it followed from these propositions that it was not an objective fact known to both parties that a particular class of planning permit was required for Definity to carry on its intended business at the property; the evidence was to the opposite effect. Because neither party knew anything about the kind of permit that would be required to conduct a cosmetic surgery practice, no objective background facts could permissibly be taken into account to construe special condition 3.1. So, for example, the fact that Dr Heideman was a cosmetic surgeon – something known by both parties — was not a fact to which regard could be had in the task of construction because there was no link between that fact and the type of permit required; no-one was aware of the consequence in relation to planning permit requirements of the fact that Dr Heideman was a cosmetic surgeon. Because no party had any understanding about the permit requirements in relation to the property, there was no proper basis to examine the pre-contractual dealings as an aid in construing special condition 3.1.
In its written submissions, AMD also submitted the Court should not consider any of the evidence as to the surrounding circumstances in relation to the issue of construction because it offended the parol evidence rule.
Alternatively, if the Court had regard to the evidence of the surrounding circumstances in which the contract was made, AMD submitted that the expression ‘medical permit’ in special condition 3.1 was shorthand for a change of permitted use to medical centre. AMD referred to what was described as the genesis of the transaction between the parties said to be the email from Anthony De Luca sent to Drs Heideman and Chia on 18 July 2017 in which he referred to there being confidence in achieving a ‘change of use’ and that ‘[m]edical is a permitted use for the area and it shouldn’t be difficult’. This was acknowledged and accepted by Dr Heideman in an email the same day. AMD submitted that what was known at the time was that the only medical use which was permitted was as a medical centre. There was no suggestion in the evidence that AMD was to obtain some other type of permit, or any suggestion by Definity that it required anything else, or that it required AMD to make enquiries to achieve something which was fit for their purpose.
Having accepted Anthony De Luca’s use of the terminology ‘medical’ in his email on 18 July 2017, on 16 August 2017 Dr Heideman made an indicative offer, contingent on obtaining ‘medical use approval’. Reliance was placed on the confirmatory response from Mr Pellegrino on the same day accepting a term of ‘obtaining a medical permit’, being the language used in the first contract. Before the contract was signed, on 27 September 2017, Definity’s financier clarified that it would provide funding on the basis that the contract was conditional on ‘granting of permits for use as a medical clinic’. In circumstances where the contract was then entered into a month later without any relevant change in the written correspondence, it was submitted that the only open construction of the expression ‘medical permit’ was as a change of permitted use to medical centre.
AMD submitted that the evidence about Definity wanting additional staff or practitioners to operate at the premises referred to in [51] was not receivable by the Court as surrounding circumstances as it offended the ‘true rule’. This evidence was said to be evidence of one party’s expectations or aspirations that did not find their way into the concluded written bargain. I accept this submission in respect of the findings set out in [51] above. As stated by Gordon J in Construction Forestry Mining Energy Union v Bovis Lend Lease Pty Ltd, although ‘the Court may consider extrinsic evidence … it may only do so to establish the mutual understandings of the parties forming the background to the transaction, not the back-and-forth of the parties in concluding the transaction’.[39]
[39][2008] FCA 1669, [15] (original emphasis). See also Adaz Nominees Pty Ltd v Castleway Pty Ltd (n 29) [70(pp)] (Whelan JA and Riordan AJA).
Counsel for AMD also submitted that the construction of special condition 3.1 advanced by Definity was an approach which wrongly gave primacy to Definity’s commercial purpose and was not an objective purpose the parties had in entering into the transaction. Due regard needed to be given to AMD’s commercial interest in the transaction, being to sell the property. The Court should not be too ready to impose its own measure of commercial good sense in construing the contract.
AMD submitted that, in substance, the construction of special condition 3.1 advanced by Definity was that it required AMD to obtain a permit that was fit for its purpose. AMD argued that not only was there no adequate disclosure by Definity of its purpose, this construction was very different to the words used in the contract. It was open to Definity to have sought a term in the contract requiring that the ‘medical permit’ be fit for its intended use of the property, or alternatively, a term providing that AMD supply a permit for the operation of a private hospital. Definity did not, however, proceed in either of those ways. It was submitted that no support could be found in the surrounding circumstances for construing special condition 3.1 as requiring AMD to obtain a fit for purpose permit. Such a case would require, so it was submitted, evidence about reliance and knowledge, of which there was none. AMD argued that it would be unsound for the Court to now construe special condition 3.1 as if Definity and AMD had proceeded on such a basis. It was said that this highlighted the way in which Definity was attempting to rely on extrinsic evidence to rewrite the contract in a way which was more commercially advantageous to it.
AMD argued that the Court should not construe the contract in the manner contended for by Definity in circumstances where it did not take steps to identify the particular type of planning permit it required and where it would be unlikely that Definity would ever be able to obtain a permit of the type it sought for this property. The correct approach was instead to have regard to the circumstances that a ‘medical permit’ was sought early in the parties’ dealings in July 2017; there was a type of medical permit which permitted the operation of a medical centre; that was a usage which already applied in the development; and AMD had indicated to Definity that it was straightforward to obtain such a permit.
AMD also sought to emphasise that, although it knew Dr Heideman was a cosmetic surgeon, a cosmetic surgeon can conduct their practice in a number of different ways, including in consulting rooms and in places where medical operations and procedures are performed. It was therefore not unreasonable for AMD to proceed on the basis that Definity sought only to establish consulting rooms at the property. The May permit, which allowed use as a medical centre, would have been sufficient for that purpose.
AMD contested Definity’s submissions about the allocation of risk associated with the proposed acquisition of the property. As to Definity’s argument illustrated by reference to the hypothetical example of the obtaining of an amended planning permit for two persons to provide health services only on a single day or for very limited hours, AMD submitted that, because that was a matter which was never discussed between the parties as being a necessary precondition before the contract was entered into, the responsibility would lie with Definity in not having asked for what it needed and it would therefore accordingly be stuck with those conditions.
Consideration
The application of the principles of construction to the task of construing special condition 3.1 is informed by two particular aspects of this case which were common ground between the parties.
First, both parties agreed that special condition 3.1 contains ambiguity, at least in respect of the meaning of the words ‘medical permit’. Definity further submitted that the reference to ‘two practitioners’ is also ambiguous. I accept this submission. The word ‘practitioner’ does not have a fixed or certain meaning. Neither special condition 3.1, nor the remainder of the text of the contract provide any assistance in determining whether the ‘practitioners’ are of a medical, or some other, background or qualification.
As is clear from the authorities, the existence of ambiguity may permit consideration of the surrounding circumstances in determining the proper construction of special condition 3.1. In Retirement Services Australia (RSA) Pty Ltd,[40] the Court of Appeal warned against examining evidence of surrounding circumstances before considering the contentious terms of a written contract.[41] However, in this case, the second important matter to note which bears upon the task of construction is that the parties were agreed that the text of the contract provides no assistance in determining the proper construction of the special condition. The contract was a standard form contract for the conveyance of land; special condition 3.1 was inserted by hand by Mr Pellegrino. It is a case where ‘recourse to events, circumstances and things external to the contract’ is necessary to determine the proper construction of special condition 3.1.[42] However, contrary to the submissions made on behalf of AMD, the surrounding circumstances which bear upon the proper construction of special condition 3.1 which I set out in [119]–[120] are not based on evidence the receipt of which offends the parol evidence rule.
[40]Retirement Services Australia (RSA) Pty Ltd v 3143 Victoria St Doncaster Pty Ltd [2012] VSCA 134 (RSA).
[41]Ibid [66].
[42]Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (n 16) 117 [49].
The submission central to AMD’s case – that, because neither party knew anything about the type of permit that would be required to conduct a cosmetic surgery practice, there are no objective background facts which can properly be taken into account in construing special condition 3.1 – is rejected for several reasons.
First, it proceeds from an unduly narrow focus on the word ‘permit’ in the expression ‘medical permit for … two (2) practitioners’ and ignores the ambiguity inherent in the word ‘practitioners’ to which I have referred.
Secondly, even focusing on the word ‘permit’, the submission is artificial and divorced from the reality in which the parties dealt with each other. Both parties understood that the ‘permit’ to which special condition 3.1 referred was something issued by the Council. Yet, it is also clear that there does not exist a generic or uniform ‘medical permit’. As illustrated by two other premises in the development and as confirmed by Tony De Luca in his evidence, such permits are bespoke, in small or large ways, and are tailored to particular premises and uses. What was meant by the ‘medical permit’ referred to in special condition 3.1 must necessarily be determined by reference to the surrounding circumstances.
Thirdly, as counsel for Definity argued, AMD’s submission wrongly equates knowledge in respect of a particular matter with intention. The reality that the parties did not know the specific type of planning permit which would be required for a cosmetic surgery practice to be carried on at the property does not necessarily preclude a consideration of the surrounding circumstances as illuminating an objectively ascertainable common intention as to the purpose of special condition 3.1. In every case, whether or not there is ambiguity, the Court should have regard to objective evidence of facts known to both parties as to commercial purpose.[43]
[43]Lopes v Taranto (n 27) [71].
The framework of facts known to the parties within which the contract came into existence and which bear upon the construction of special condition 3.1 was as follows. AMD had developed the property, which had a permitted use as a café, but had been unsuccessful in selling it. Dr Heideman and Dr Chia, a cosmetic surgeon and medical practitioner from Adelaide, were interested in purchasing the property to operate a cosmetic surgery, including to undertake liposuction from it, and at which they would both work.
As the owner of the property, only AMD had authority to deal with Council in relation to changing its permitted use. Anthony De Luca expressed confidence to Drs Heideman and Chia that he would obtain a ‘medical permit’ for the property. Two other premises in the development already were used for medical purposes. Securing a medical permit was very important to Drs Heideman and Chia; they were only interested in purchasing it if it could be used as a cosmetic surgery. Anthony De Luca assured them that the medical permit that could be obtained in respect of the property would be fit for their intended use.
Seen objectively from the vantage point of these circumstances known to the parties from their dealings in the period leading up to the making of the contract, in making the sale of the property conditional upon AMD ‘obtaining a medical permit for the premises for two (2) practitioners’, it is apparent that the purpose of special condition 3.1 was to protect Definity from being bound to proceed to purchase the property if it could not use it in the manner in which it intended, namely, for the provision of cosmetic medical services, including liposuction, by its two medical practitioners.
AMD’s submission that a ‘medical permit’ was, in effect, any planning permit which allowed a medical use, cannot be reconciled with these surrounding circumstances. It is also a construction which would be conducive of commercial nonsense or, at least, commercial inconvenience, as it would mean that the contract could become unconditional upon AMD obtaining planning permission which did not permit Definity to conduct its intended operations at the property, in circumstances where that was its only intention in purchasing the property, as AMD well knew. Such a construction would in effect deprive special condition 3.1 of its commercial purpose.
In contrast, construing the reference to ‘medical permit’ in special condition 3.1 as requiring a planning permit that would enable the property to be utilised for the provision of medical services of the type and scope that Definity wished to provide from the property, is a construction which is conducive of a commercial result, including for AMD whose primary commercial interest in its dealings with Definity, it may be accepted, was to sell the property. In accordance with special condition 3.1, although responsibility for the obtaining of the ‘medical permit’ rested on AMD, the associated costs would be borne by Definity. If a planning permit was obtained which would enable the property to be utilised for Definity’s intended purpose, the contract would become unconditional and the sale would proceed at a price agreed by the parties. If a permit for a medical use was obtained, but was one which would not enable the property to be used for Definity’s intended purpose, although the contract would not complete, AMD would retain the property, the value of which would presumably have been enhanced by the securing of an additional permitted use at no cost to it. In these circumstances, there is force in Definity’s submission that its construction of special condition 3.1, being a construction with which I agree, is not associated with any significant commercial risk.
It was uncontroversial that, in light of the construction of special condition 3.1 which I have adopted, it must follow that the condition was not satisfied by the obtaining of the May permit. Definity is accordingly entitled to recover the deposit that it paid under the contract and AMD’s counterclaim must fail.
Disposition
In light of my conclusion in respect of Issue 1, it is unnecessary to address the remaining issues.
The parties are to submit any proposed minute of consent orders giving effect to these reasons for judgment, including in relation to costs, within 14 days. In the absence of agreement in respect of those matters, the parties are to file within 14 days short submissions on costs (no longer than three pages) and proposed orders to give effect to these reasons for judgment.
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