| JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA LOCATION : PERTH CITATION : DELENA INVESTMENTS PTY LTD -v- TERENSDALE PTY LTD [2011] WADC 124 CORAM : BRADDOCK DCJ HEARD : 8 JUNE 2011 DELIVERED : 12 AUGUST 2011 FILE NO/S : APP 13 of 2011 MATTER : IN THE MATTER of the District Court (Appeal) Rules BETWEEN : DELENA INVESTMENTS PTY LTD First Appellant
GEOFFREY JOHN OLDFIELD
Second Appellant
WASIL NICHOLI POLIWKA
Third Appellant
AND
TERENSDALE PTY LTD
Respondent
(Page 2)
ON APPEAL FROM:
Jurisdiction : MAGISTRATES COURT OF WESTERN AUSTRALIA Coram : MAGISTRATE HAMILTON File No : ALB GCLM 147 of 2009 Catchwords: Appeal from Magistrates Court - Construction of contract - Contract for the sale of a rent roll - Costs Legislation: Magistrates Court (Civil Proceedings) Act 2004, s 25, s 31 Result: Appeal dismissed in part
Costs remitted to the magistrate for determination according to law Representation: Counsel:
First Appellant : Mr T J Palmer
Second Appellant : No appearance
Third Appellant : No appearance
Respondent : Mr J Garas
Solicitors:
First Appellant : HHG Legal Group
Second Appellant : Not applicable
Third Appellant : Not applicable
Respondent : Albany Legal Pty Ltd
(Page 3)
Case(s) referred to in judgment(s):
Australian Broadcasting Corporation v Australasian Performing Right Association Ltd (1993) 129 CLR 99
Mabelle Nominees Pty Ltd t/as Automatic Solutions v Roberts [2011] WADC 50
Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451
Passella v Hewitt [2008] WASCA 13
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165
(Page 4)
1 BRADDOCK DCJ: On 9 August 2008 the parties entered into a contract for the sale of a rent roll as a going concern. The first appellant (Delena) was to purchase the rent roll, the second and third appellants (Mr Oldfield and Mr Polikwa) were directors of the first appellant and guarantors under the contract. The respondent (Terensdale) was the vendor of the rent roll.
2 On 27 February 2009 Terensdale lodged a general procedure claim in the civil jurisdiction of the Albany Magistrates Court, claiming damages for breach of contract against the appellants. The amount claimed was $8,554 plus interest and costs pursuant to s 25 of the Magistrates Court (Civil Proceedings) Act 2004. 3 On 22 November 2010, Magistrate Hamilton delivered judgment in the Magistrates Court at Albany. She gave judgment for Terensdale, ordering that Delena pay Terensdale's costs to be agreed, or if not agreed, taxed. 4 The magistrate described the case as 'having had a protracted progress through the court'. The parties finally agreed that there was one question in issue for the court to determine, being the proper construction of the contract. The parties agreed a statement of facts and also agreed that the only evidence to be put before the court was the contract and its schedule. They filed written submissions and the magistrate considered the matter, without an oral hearing, prior to 22 November 2010. 5 On 13 December 2010 the appellants lodged a notice of appeal, containing four grounds as follows: 1. The Honourable Magistrate erred in law in failing to give effect to the plain and ordinary meaning of words of the contract between the Respondent and the Appellants (the 'Contract') when construing the Contract. (a) The Honourable Magistrate erred in law by: (Page 5)
fees were actually payable by the owners at the date of settlement; (b) The Honourable Magistrate ought to have given effect to the plain and ordinary meaning of the words of the Contract and concluded that: (i) clause 3.1.1(b) of the Contract required the First Appellant to pay to the Respondent a purchase price for commercial properties calculated on the basis of $1.50 for each $1.00 (exclusive of GST) of annual management fee, as at the date of settlement; (ii) clause 1.1(c) of the Contract defined the term 'management fees' to mean the management fees payable by the owners of the properties; and (iii) therefore, the purchase price due pursuant to clause 3.1.1(b) of the Contract was to be calculated by reference to the management fees actually payable by the owners at the settlement date and not by reference to management fees identified in Schedule 1 to the Contract irrespective of whether or not any management fees were actually payable by the owner at the date of settlement. 2. Further and alternatively, the learned Honourable Magistrate erred in law in failing to construe the Contract contra proferentem.
Particulars
(Page 6)
(iii) preferred the construction of the Contract argued for by the Appellants. 3. Further and alternatively, the Honourable Magistrate erred in law by failing to properly identify the intention of the parties apparent from the terms of the Contract and by failing to construe the Contract accordingly.
Particulars
(Page 7)
4. Further, the Honourable Magistrate erred in law by awarding the Respondent its costs of the Proceedings.
Particulars
(a) The Honourable Magistrate erred in law in ordering the Appellants to pay the Respondent's costs of the Proceedings; and (b) The Honourable Magistrate ought to have concluded that given the amount in issue, pursuant to section 25(5) of the Magistrates Court (Civil Proceedings) Act 2004 (WA), she lacked the jurisdiction to order the Appellants pay the Respondent's costs absent the circumstances identified in section 31(3) of that Act, none of which applied in the case before her Honour. 6 Terensdale contested the appeal and also, on 7 June 2011 filed a notice of contention, not in accordance with the rules. The notice of contention alleged that: The decision should be affirmed on the ground that the term 'Management Fee' defined in cl 1.1(c) of the contract is not properly imported into cl 3.1.1, and that the annual 'management fee' for the purpose of calculating the purchase price under cl 3.1.1 was the 'Annual Fee' listed in schedule 1 for all the properties, except those properties where there was no signed management authority in favour of the first appellant by 31 October 2008, of at least 12 months duration. 7 Upon the application of Terensdale leave to file the notice, at the hearing of this appeal, counsel for the Delena argued that the leave should not be granted, on the grounds that the proposition put was inconsistent with the principal argument of Terensdale. 8 I granted leave to file the notice of contention, on the ground that there was no prejudice, as the matter had been decided on the papers, and the proposition went directly to the interpretation of a contractual term, which Delena conceded could be adequately dealt with in argument. 9 The agreed facts before the magistrate were to the following effect: (Page 8)
(a) Terensdale agreed to sell to Delena Terensdale's rent roll business; (b) Oldfield and Poliwka agreed to guarantee Delena's obligations under the contract; (c) Delena agreed to pay Terensdale the purchase price; (d) clause 3.1.1(b) of the contract provided that the purchase price for commercial properties was $2.50 per $1.00 per annum management fee (exclusive of GST); (e) the settlement date was schedule to be 1 September 2008; (f) the purchase price was to be paid by instalments with: 4. Prior to 4 November 2008 Delena had paid Terensdale the sum of at least $165,580 (the first instalment). 5. On 4 November 2008 Delena paid Terensdale the sum of $43,884.42 (the second instalment). 6. On 7 January 2009 Delena paid Terensdale a further sum of $43,884.42 (the third instalment). 7. The rent roll included 48 storage units (the storage units). 8. Item 7 of the management authority for each of the storage units stated: 'The management fee is 7% of gross collections per annum plus GST'. 9. At the settlement date 44 of the storage units have not been leased (the unleased units). 10 Whatever other matters had been in dispute between the parties, by the time the magistrate was asked to decide the remaining issue, there was consensus that the matter for determination was the construction of the contract and specifically, whether the unleased 'units', referred to in pars 7 and 9 of the agreed facts, had any price ultimately attached to them, to be included in the purchase price, due to their unleased state. (Page 9)
11 Terensdale's position was that the unleased units did form part of the rent roll and were included in the purchase price. The price was to be ascertained by way of reference to cl 3 of the contract. It was argued that it was immaterial whether or not they were leased or unleased at the time of settlement. On the other hand, Delena's position was that, unleased they were generating no management fees payable to the owners and thus no price would attach to them. 12 The magistrate noted that she had called upon the parties to clarify a number of points and to ask would they consent that the court be provided with a copy of a management authority as defined in cl 1.1(b) of the contract, which was done. There was, however, no issue concerning the admission of extrinsic evidence before the magistrate or on appeal. There was no dispute, before the magistrate or on appeal about the general principles to be applied in the construction of contracts. Rather, it was asserted that the magistrate failed to give effect to the plain and ordinary meaning of the words of the contract (ground 1) and failed properly to identify the intention of the parties apparent from the terms of the contract and construe the contract accordingly (ground 3). 13 The notice of appeal was not argued as three specific grounds, the tenor of the appeal was construction, on the basis of the ordinary meaning of the words in context. 14 In the construction of a contract such as this, the task is to determine what a reasonable person would understand by the language in which the parties have expressed their agreement, having regard not only to the text, but also the commercial purpose and the objects of the contract; (Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 [40]; Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 [22] and Passella v Hewitt [2008] WASCA 13 [31] (McLure P)). 15 Further, the general principles to be applied in the construction of written contracts are set out in the judgment of Gibbs J in Australian Broadcasting Corporation v Australasian Performing Right Association Ltd (1993) 129 CLR 99 where it was said that: It is trite law that the primary duty of a court in construing a written contract is to endeavour to discover the intention of the parties from the words of the instrument in which the contract is embodied. Of course the whole of the instrument has to be considered, since the meaning of any one part of it may be revealed by other parts, and the words of every clause must if possible be construed so as to render them all harmonious one with another. If the words used are unambiguous the court must give effect to them, notwithstanding that the result may appear capricious or (Page 10)
unreasonable, and notwithstanding that it may be guessed or suspected that the parties intended something different. The court has no power to remake or amend a contract for the purpose of avoiding a result which is considered to be inconvenient or unjust. On the other hand, if the language is open to two constructions, that will be preferred which will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust, 'even though the construction adopted is not the most obvious, or the most grammatically accurate', to use the words from earlier authority cited in Locke v Dunlop (1888) 39 Ch Div 387 at p 393 which, although spoken in relation to a will, are applicable to the construction of written instruments generally; see also Bottomley's Case (1880) 16 Ch Div 681 at p 686. Further, it will be permissible to depart from the ordinary meaning of the words of one provision so far as is necessary to avoid an inconsistency between that provision and the rest of the instrument. Finally, the statement of Lord Wright in Hillas & Co Ltd. v Arcos Ltd. (1932) 147 LT 503 at p 514, that the court should construe commercial contracts 'fairly and broadly, without being too astute or subtle in finding defects', should not, in my opinion, be understood as limited to documents drawn by businessmen for themselves and without legal assistance (cf Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd. (1968) 118 CLR 429 at p 437 (109 - 110)). 16 The magistrate observed (at AB 10): Clearly we have a contract between two commercial entities involving the purchase of a rent roll, the objective aim of the purchaser clearly being to enter into the management of rental or leased properties in the City of Albany for commercial financial gain and to secure the prospect of that gain for a period of time. 17 The magistrate considered the entire contract commencing with its definitions and interpretation section, looking specifically at the words 'properties', 'property', 'purchase price', 'purchaser', 'management authority' and 'management fee', all of which terms are defined. Specifically, she noted that cl 1.1(f) defines the purchase price to mean: 'The price to be paid by the purchaser to the vendor pursuant to clause 3'. Clause 3, which reads: The price payable for the rent roll shall be calculated as follows:
'As per the settlement date the purchaser will pay to the vendor the following moneys for the properties in accordance with clause 3.2 and 3.3.'
The magistrate noted that the properties referred to in cl 3 were those properties defined in cl 1, as being properties listed in sch 1 to the contract. (Page 11)
18 The dispute circles around cl 3.1.1(b), which deals with the price for the commercial properties. For those commercial properties, the price was set at $1.50 per $1.00 per annum management fee (exclusive of GST). 19 Clause 3.1.2 states that the anticipated purchase price would be $331,160, exclusive of GST, was based upon the properties as at the date referred to in sch 1. 20 The magistrate considered, in construing the terms of the contract, the meaning of 'anticipated purchase price', and how that figure had been calculated. She formed the view that it was a mathematical calculation for the residential properties, the commercial properties and the strata management properties as listed in sch 1, and applying the multiplier set out in subparagraphs (a), (b) and (c) to cl 3.1. 21 There is an unresolved discrepancy of $929.01, which the magistrate noted upon calculating the figures as she described. She considered whether that discrepancy bore any relation to the dispute between the parties, which was whether the unleased commercial units were to be included or excluded from the price. She formed the view that the discrepancy had no bearing upon the issue, and that it was an arithmetical error made by whoever computed the anticipated purchase price in cl 3.1.2. 22 At the hearing of the appeal, neither counsel argued that the magistrate was in error on this point, nor did anybody explain the discrepancy. There were 44 unleased properties, which, if the management fee in respect of each of those per annum was $127.40, multiplied by a factor of 1.5, were clearly included in the anticipated purchase price, after making allowance for the discrepancy. She concluded, correctly in my view, that the mathematical formula produced the anticipated purchase price using the formula in par 3.1 and the details in sch 1. 23 Clause cl 3.7 of the contract provides: For the purposes of calculating the Purchase Price, the Purchaser shall not be required to make any payment for a Property which: (i) does not have a signed Management Authority in favour of the Purchaser by no later than 31 October 2008; and (ii) does not have a signed Management Authority which is of at least 12 months duration from the Settlement Date. (Page 12)
24 Clause 3.8 provides that those properties for which the purchaser is not required to make payment in accordance with cl 3.7, will not form part of the rent roll or the purchase price. 25 The magistrate expressed the view (AB 12) that the wording of cl 3.7 was clear and unambiguous. It made it apparent that the purchaser would not be required to pay for any property that did not have a signed management authority in favour of the purchaser, but made no reference to any distinction between leased and unleased properties. The appellants had argued that the contract provided for the purchase price to be calculated as a percentage of the management fees paid rather than a fixed price. The magistrate had regard also to cl 5.1, which placed an obligation on the vendor to use its best endeavours to arrange for management authorities to be made out in favour of the purchaser in an acceptable form. This would mean, in reality, that an authority in favour of the purchaser was required whether or not those management authorities related to properties that were generating an income. 26 The magistrate concluded, in those circumstances, that there was a real commercial value in the unleased properties where management authorities were signed in favour of the purchaser. The owners of those properties were then obliged to pay management fees for a specified period into the future. There were rights and obligations created by management authorities that had a real commercial value to any purchaser in the marketplace. The magistrate's view was that on a proper construction of the contract, the calculation of the purchase price was to be ascertained by reference to that commercial advantage. She formed the view, as argued by Terensdale, that the purchase price is calculated by direct reference to the management authorities signed in favour of the purchaser, whether or not the property in question is leased or unleased (AB 13). 27 On appeal, Terensdale placed emphasis on the word 'payable' in cl 1.1(c) which is the definition of management fee: 'Management Fee' means the management fees (and no other fees) payable by the Owners in respect of their Properties specified in the Rent Roll. 28 Delena referred to the same clause, but put the emphasis on the words 'specified in the rent roll'. Delena's argument was that the plain meaning was to be tested against the contract as a whole, cl 3 being a mechanism for arriving at a price, and that the unleased units were of a different value. Delena argued that cl 3.7 and cl 3.8 were to remove certain authorities that did not have the required assignment or for the (Page 13)
required period, removing those unlikely to generate income. It was conceded that the contract was for the purchase of goodwill. 29 Terensdale argued that there were two substantial questions; whether there was any ambiguity in cl 3 and, if there were, how was it to be resolved in all the circumstances of the contract and its objectives. According to Terensdale the starting point was cl 1.1(f), defining the purchase price as that sum to be paid under cl 3. Clause 3 provided the mechanics of calculation by reference to the properties in the rent roll, calculated an anticipated purchase price, set out the dates for payment, and certain other conditions, such as the giving over of possession, and excluded any property from the purchase price where the benefit of the management of that property was not transferred to the purchaser. Terensdale's argument was ultimately that the contract provided a method for calculating a fixed price, within its own terms, subject only to those properties for which signed authorities could not be produced on 31 October 2008. 30 The contract is entitled 'Contract of Sale of Rent Roll as a Going Concern'. The rent roll is defined to mean 'the residential, commercial and strata management properties managed by the Vendor and particularised in Schedule 1' (cl 1.1(h)). Clause 1.1(d) and 1.1(e) defined 'properties' and 'property' respectively as those properties listed in sch 1. It is quite apparent that the document described as sch 1 is integral to the contract, as would be expected where the purchase is of a rent roll. Schedule 1 is in effect a representation of the properties on that rent roll. 31 The value of a rent roll to a purchaser is the ability to benefit from the exclusive authority to act as managing agent, for the premises set out in sch 1. The quantum of that potential benefit is to be determined by virtue of such management fees as are payable in respect of the properties under the management authorities. Hence, in cl 3, different multipliers are applied to different types of property, the fees being a percentage of the rental income, which was not disputed being 7% in relation to the commercial properties. 32 Unhappily, the terms of sch 1 are not totally consistent with the terms of the contract (AB 68) where in the final column of sch 1 the relevant figures are described as an 'annual fee'. For the units in this dispute, the schedule shows a weekly rent of $35 per unit, yielding an annual rent of $1,820, and an annual fee of $127.40, respectively. (Page 14)
33 The only exclusions expressed in the contract from this basis of calculation, are those already referred to in cl 3.7, which removes properties where a suitable management agreement was not secured for the purchaser by the given date. There is no mechanism, at all in the contract, consistent with the purchase price being by reference to the monies actually received for any property. There is no mechanism for any accounts to be rendered, and such mechanism as exists for exclusion of properties is consistent with the sale of the right to manage the property, for such benefit as may be derived from it, rather than any consideration of the earnings of individual properties, at any particular time. 34 The contract is to be construed in its commercial context and according to the nature of the contract. The phrase 'management fee per annum' in relation to the commercial properties, in cl 3.1.1(b), clearly relates to the properties appearing in sch 1, by virtue of the definition clause. The whole tenor of the contract, and 'management fee' in the contract is clearly that which is specified in the rent roll as being payable by the owners in respect of their properties, as per cl 1.1(c). In my view, it matters not whether the term 'Management Fee' in cl 3.1.1(b) is capitalised so as to indicate a reference to the definition in cl 1.1(c), because the fees referred to can only be those relating to the earnings of the properties in sch 1. The phrase 'payable by the owners' is not to be read in isolation without reference to the entire phrase in cl 1.1(c); 'payable by the owners in respect of their property specified in the rent roll'. It is not a matter of emphasis, but a matter of construction of the entire descriptive phrase, which may be lacking in elegance, but whose meaning, in its context, is clear. 35 In this contract, sch 1 is the key from which the fixed price is to be determined, and which enabled an 'anticipated purchase price' to be inserted in cl 3.1.2, albeit with an arithmetical error. The mechanism for the removal of properties, where an acceptable management agreement was not signed, is entirely consistent with that mechanism producing a fixed price. The absence of any provision for accounting for monies actually received, as at the settlement date, bears out the correctness of this construction.
Conclusion 36 For those reasons, the learned magistrate did not err in the construction of the contract. The contract is for the sale of a rent roll by reference to the properties on the schedule to the contract, so long as there were, at 31 October 2008, appropriate signed management agreements in (Page 15)
favour of the purchaser. In my view, the precise income generated by each property at the date of settlement was immaterial. Accordingly, grounds 1 and 3 of the notice of appeal are not made out. Given the lack of ambiguity in the contract ground 2, raising consideration of the 'contra proferentem rule' does not require separate consideration. It was not proved in argument although not formally abandoned.
Costs 37 Upon the decision, counsel for the Terensdale sought costs (AB 14). Counsel for Delena raised s 25 of the Magistrates Court (Civil Proceedings) Act and the quantum of the claim. The magistrate said that it was a general procedure claim 'as opposed to a minor case and in those circumstances there can be an application for costs'. Neither counsel nor the court referred to the provisions of s 31 of the Magistrates Court (Civil Proceedings) Act. The magistrate went on to state: It is not my understanding that it precludes an application for costs particularly when it is filed as a general procedure claim and it has been litigated by legal representatives throughout the course of its history in the court. So I will entertain the application for costs. Of course I can always stand to be corrected in some other jurisdiction. Without further discussion, or submission, a costs order was made as set out above. 38 Costs in the Magistrates Court, where a small claim is litigated as a general procedure claim, was considered recently in the decision of Mabelle Nominees Pty Ltd t/as Automatic Solutions v Roberts [2011] WADC 50 (Eaton DCJ). 39 Section 31 of the Act provides that a successful party to a minor case is entitled to an order under s 25(1) in relation to 'allowable costs', but not in relation to the party's other costs (legal costs) in the case, unless the court is satisfied that because of the existence of exceptional circumstances an injustice would be done to the successful party if that party's other costs were not ordered to be paid or the unsuccessful party's claim or defence was wholly without merit. 40 Terensdale's claim was below the minor case jurisdictional limit, and the amount recovered, exclusive of costs, was within that limit. In those circumstances, Terensdale was not entitled to costs, other than the allowable costs unless the magistrate was satisfied that, because of the existence of exceptional circumstances, an injustice would be done to the (Page 16)
successful party if the costs were not to be ordered to be paid, or the unsuccessful party's defence was wholly without merit. 41 It appears from the transcript (AB 14 – 15) that the magistrate was correct that an application for costs was not precluded, but she did not turn her mind to the appropriate test under s 31 of the Act. Instead, she referred simply to the fact that there had been legal representation throughout the matter. She said she would entertain an application for costs, but did not invite further submissions. 42 In my view, she did not consider the appropriate test, no submissions were made on the issues of exceptional circumstances, injustice or the unsuccessful party's case being entirely without merit. Ground 4 of the notice of appeal has been made out. The magistrate was in error to order costs in absence of any consideration of the relevant test under s 31. 43 No submissions were made on the relevant factors, and as the matter proceeded before the magistrate on agreed facts, and there is nothing before this court from which any determination on costs issues could properly be made. Accordingly, the appeal on the substantive matter is dismissed, but the matter is remitted to Magistrate Hamilton for determination according to law. I will hear the parties further as to costs of the appeal.
|