Diakos v Mason

Case [2010] SASCFC 37

SUPREME COURT OF SOUTH AUSTRALIA

(Full Court)

DIAKOS v MASON

[2010] SASCFC 37

Judgment of The Full Court

(The Honourable Justice Duggan, The Honourable Justice Gray and The Honourable Justice Kelly)

24 September 2010

CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - CONSTRUCTION AND INTERPRETATION OF CONTRACTS - PENALTIES AND LIQUIDATED DAMAGES - GENERAL PRINCIPLES

EQUITY - GENERAL PRINCIPLES - UNCONSCIONABILITY, UNCONSCIONABLE DEALINGS AND OTHER FORMS OF EQUITABLE FRAUD - GENERALLY

Appeal following a trial in the District Court with respect to a claim in contract - respondent was a tenant in a retail shopping centre owned by the appellant - to allow the appellant to redevelop the shopping centre, the parties entered into a deed agreement concerning the temporary relocation of the respondent's business - whether Judge in error in finding that a clause in the relocation deed which required payment of $250,000.00 did not amount to a penalty - whether Judge in error in rejecting allegation that respondent had acted unconscionably.

Held: appeal dismissed - clause of relocation deed, properly construed, imposed an obligation on appellant to pay $250,000.00 on the failure of an occurrence of a specified event - clause not a penalty clause - claim of unconscionable conduct was advanced at trial on a different basis to that advanced on appeal - in any event, the evidence suggests that a claim of unconscionability should be rejected.

BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266; O’Dea v All States Leasing System (WA) Pty Ltd (1983) 152 CLR 359; Legione v Hateley (1983) 152 CLR 406; Commercial Bank of Australia v Amadio (1982) 151 CLR 447; Australian Competition & Consumer Commission v Samton Holdings Pty Ltd (2002) 117 FCR 301; Campbell Discount Co Ltd v Bridge [1962] AC 600; Export Credits Guarantee Department v Universal Oil Products Co [1983] 1 WLR 399; AMEV-UDC Finance Ltd v Austin (1986) 162 CLR 170; Interstar Wholesale Finance Pty Ltd v Integral Home Loans Pty Ltd (2008) 257 ALR 292; Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387; University of Wollongong v Metwally (No 2) (1985) 59 ALJR 481; Wade v Australian Railway Historical Society (SA Division) t/as Steamranger (2000) 77 SASR 221; Coulton v Holcombe (1986) 162 CLR 1; Jones v Dunkel (1959) 101 CLR 298; First East Auction Holdings Pty Ltd v Mimi Ange [2010] VSC 72, considered.

WORDS AND PHRASES CONSIDERED/DEFINED

"penalty clause"

DIAKOS v MASON
[2010] SASCFC 37

Full Court:       Duggan, Gray and Kelly JJ

  1. DUGGAN J:         In my view the appeal should be dismissed.  I agree with the reasons prepared by Gray J.

    GRAY J.

  2. This is an appeal following a trial in the District Court with respect to a claim in contract.

    Introduction

  3. Phillip Mason, the plaintiff and respondent, conducted a post office and newsagency business on leased premises at Prospect Road, Prospect.  He sued George Diakos, the defendant and appellant, seeking payment pursuant to the…

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AGLC
Diakos v Mason [2010] SASCFC 37
Case
[2010] SASCFC 37
Decision Date

CaseChat Overview and Summary

The appeal concerned a dispute between George Diakos (appellant) and Phillip Mason (respondent) regarding a relocation deed. Mr Mason, a tenant operating a post office and newsagency, had entered into the deed with Mr Diakos, the owner of a retail shopping centre, to facilitate the temporary relocation of his business during redevelopment. The central issues on appeal were whether the trial judge erred in finding that a clause requiring the payment of $250,000 did not constitute a penalty, and whether the trial judge erred in rejecting an allegation of unconscionable conduct by Mr Mason.

The court was required to determine the proper construction of a clause within the relocation deed, specifically whether it imposed an obligation on the appellant to pay $250,000 upon the failure of a specified event, and if so, whether this constituted an unenforceable penalty. Additionally, the court had to consider the claim of unconscionable conduct, examining whether the respondent had acted in such a manner as to warrant the refusal of relief.

The Full Court of the Supreme Court of South Australia dismissed the appeal. The court reasoned that, when properly construed, the clause in question imposed a contractual obligation on the appellant to pay $250,000 if a specified event did not occur. The court held that this clause was not a penalty clause. Furthermore, the court found that the claim of unconscionable conduct was advanced on a different basis on appeal than at trial, and in any event, the evidence did not support a finding of unconscionability.

Orders

Orders of the court

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Background

Background to the litigation

Phillip Mason, the plaintiff and respondent, conducted a post office and newsagency business on leased premises at Prospect Road, Prospect. He sued George Diakos, the defendant and appellant, seeking payment pursuant to the terms of a relocation deed. An issue in the trial was whether a clause of the relocation deed, requiring payment of $250,000.00, amounted to a penalty and as such was unenforceable. The trial Judge concluded that the term did not amount to a penalty. Another issue in the trial concerned an allegation that Mr Mason should be refused relief as he acted unconscionably. The Judge rejected this allegation. The Judge’s conclusions on these two issues were the subject of complaint on the appeal. Background In about 1976 Mr Diakos acquired the Prospect Road premises. The premises comprised a supermarket and specialty shops. Mr Mason leased one of the speciality shops from Mr Diakos at which he conducted the post office and newsagency business. Mr Diakos decided to substantially redevelop the entire premises. It appears that Mr Diakos had agreed with Coles Myer that it would operate a Coles supermarket as the principal tenant at the redeveloped site. The redevelopment works required the temporary relocation of Mr Mason’s post office and newsagency business. It was Mr Diakos’ plan that once the redevelopment was completed, the post office and newsagency business would again occupy a speciality shop at the premises. These plans led to negotiations between Mr Diakos and Mr Mason. Mr Diakos, an architect, was an experienced businessman. He controlled an entity, Sokaid Pty Ltd, which held land and premises nearby on Prospect Road. The negotiations involved the suggested temporary relocation of the post office and newsagency to the Sokaid premises while the redevelopment took place. Once completed the post office and newsagency would return to the redeveloped premises. An agreement was reached. Almost 12 months later a relocation deed was executed. The dispute at trial related to the meaning and effect of the relocation deed. Following the negotiations, the agreement mentioned above was entered into between Mr Mason’s family trust, Mr Diakos and Sokaid. The agreement was signed by Mr Mason on 30 August 2005 and by Mr Diakos on 5 September 2005. The agreement addressed the essential terms of the relocation and return. It was agreed that the post office and newsagency was to operate from the nearby premises owned by Sokaid. The agreement included a lease between Mr Mason’s family trust and Sokaid of the nearby premises from the date of relocation to the date of return to the redeveloped premises. The agreement also set out the terms and conditions of a proposed lease between Mr Mason and Mr Diakos following the proposed return to the redeveloped premises. In that respect there was to be a 10 year lease with two five year options to renew. A clause of the agreement said to be of relevance to the present dispute was in the following terms:The Lessor undertakes not to lease premises in the development to another Newsagent or Lotto Agent.The Lessor warrants that Coles Myer will be the anchor tenant (a Coles Supermarket) in the new development no later than 31st December 2006. Penalty payable by the Lessor to the Lessee shall be an amount of $250,000 including GST. Naturally this is conditional upon the Lessee vacating the existing premises before the 1st of October 2005.

Evidence

Evidence Before The Court

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Decision

Reasons for decision

An argument was advanced that a Jones v Dunkel[22] inference should have been drawn against the plaintiff, as he failed to present his wife as a witness. In my view the circumstances identified by the trial Judge[23] fully justified the approach taken. In my view there is no substance to this complaint. [22] Jones v Dunkel (1959) 101 CLR 298.[23] See Mason v Diakos [2009] SADC 55 at [50]-[51], where the Judge reasoned: The defendant requested that I draw an adverse inference for the failure to call Mrs Mason to give evidence about the meeting between the plaintiff and defendant on 20 August 2006 [counsel on appeal agreed that this should read 2005]. Whilst it may have been helpful to have Mrs Mason’s evidence, the defendant’s evidence on the topic of what was or was not discussed at that meeting is so unclear that I am uncertain what inference I am being invited to draw. The usual inference is that the evidence would not have assisted the plaintiff. Presumably in these circumstances the defendant invites the inference that Mrs Mason would have negatived the plaintiff’s evidence that the amount of $250,000 was discussed and the circumstances in which it was discussed. The defendant’s evidence on this topic was however so unsatisfactory that it is not possible for me to say what he contends was discussed at that meeting. In his evidence in chief he appears to have agreed that it was discussed and yet, in cross-examination and re-examination he resiled from this. In any event it is not necessary to resolve this issue because plainly, at some stage, the defendant and plaintiff agreed a payment of $250,000 if Coles did not move into the premises by 31 December 2006. No matter how reluctantly the defendant agreed to that payment and no matter what the timing or circumstances of that agreement it culminated in the inclusion of clause 4.11 in the deed. The circumstances in which the clause was negotiated do not assist in its interpretation. Conclusion I would dismiss the appeal. KELLY J: I would dismiss the appeal. I agree with the reasons of Gray J.

Ratio Decidendi

Legal Principle Established

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