Empire Securities Pty Ltd v Miocevich - [2006] WADC 173

JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CIVIL

LOCATION: PERTH

CITATION: EMPIRE SECURITIES PTY LTD -v- MIOCEVICH & ANOR [2006] WADC 173

CORAM: STAVRIANOU DCJ

HEARD: 19 JUNE 2006, 29 JUNE 2006 (WRITTEN SUBMISSIONS)

DELIVERED : 27 OCTOBER 2006

FILE NO/S: CIV 1892 of 2005

BETWEEN: EMPIRE SECURITIES PTY LTD (ACN 055 640 376)
Plaintiff
AND
LEONARD STEVEN JAMES MIOCEVICH
MARGARET DENE MIOCEVICH
Defendants

Catchwords:

Contracts - General contractual principles - Construction and interpretation of contracts - Meaning of phrase "Colorbond shed"

Legislation:

A New Tax System (Goods and Services Tax) Act 1999 (Cth)

Result:

Judgment for defendants on counterclaim

Representation:

Counsel:

Plaintiff: Mr P G McGowan
Defendants: Mr W F Buckley

Solicitors:

Plaintiff: Hotchkin Hanly
Defendants: Hager & Partners

Case(s) referred to in judgment(s):

Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337
Maggbury Pty Ltd v Hafele Aust Pty Ltd (2001) 210 CLR 181
Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451
Toll (FGCT) Pty Ltd v Alphapharm (2004) 219 CLR 165

Case(s) also cited:

DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423

STAVRIANOU DCJ: This proceeding arises out of the sale by the defendants to the plaintiff of 3.45 hectares of rural land ("the land") in Gosnells.
There was a contract in writing between the parties concerning the sale of the land which did not proceed to settlement on the agreed date.
The plaintiff and the defendants each alleged, by claim and counterclaim in action CIV 2278 of 2003 originally commenced in the Supreme Court, that the delay in settlement was occasioned by the default of the other party.
The plaintiff's claim was dismissed on an interlocutory application in the Supreme Court on the 9 June 2004. The defendant vendors' counterclaim is for interest, outgoings and costs occasioned by reason of the delay in completion of the sale.
The determination of the defendants' counterclaim is dependent upon an interpretation of a special condition of the contract ("the special condition") which dealt with the removal by the defendants of a colorbond shed which had been erected on the land.
The above‑ground portion of the shed was removed prior to settlement but the concrete slab on which the shed stood ("the slab") was not removed. The issue is whether the special condition required removal of the slab.

Background

The plaintiff is a company involved in land subdivision associated with Ian Bruce McKellar who was a director of the plaintiff during the period to which this dispute relates.
The defendants purchased the land in 1984.
In 1987 the defendants started growing passionfruit on the land. To facilitate that operation a shed constructed of colorbond was erected on the land.
The shed was erected by a contractor who laid footings then affixed the walls of the shed to the footings. The dimensions of the shed were 10 metres by 8 metres. With the assistance of a friend the defendants laid a concrete floor inside the shed.
In 2002 the defendants appointed Dennis Murray to act on their behalf in relation to the sale of the land. Mr Murray was a real estate agent who had retired in 1995.
On 14 September 2002 the plaintiff and the defendants entered into a contract for sale of the land, by way of a written offer and acceptance ("the contract").
The contract contained the special conditions with respect to subdivision and the issue of titles, the effect of which was that the settlement date agreed was 17 June 2003.
The contract also contained the special condition numbered 9 in relation to removal of the shed by the defendants.
In April 2003 the defendants arranged for the removal of the walls and roof of the shed. This was done by cutting the structure away from the slab and footings. The slab was left in place.
On 21 May 2003 the plaintiff wrote to the defendants' solicitors in terms including:
". . .
2.GST
By facsimile received from your office dated 28 January 2003 your clients sought to elect the GST Margin Scheme post formation of the contract. The move to make such an election is a prima facie indication that your clients are so registered for GST.
By facsimile from your office dated 28 January 2003 your clients alleged that they were not registered for GST nor were they required to be registered for GST.
In reply to that assertion we forwarded to your office on 14 February 2003 a copy of a ATO website search of your clients' name which resulted in a finding that they were registered for GST with an ABN of 42 368 736 189.
We have had no reply in clarification of the GST situation. In the absence of any clarification we continue to hold the view that your client is registered for GST and must provide at settlement a Tax Invoice entitling Empire Securities Pty Ltd to an Input Tax Credit.
We would be pleased if you could provide a response in respect to Empire Securities Pty Ltd's view as to the GST position of your client and the requirement to provide an appropriate Tax Invoice at settlement."
On 16 June 2003 the solicitor for the defendants wrote a letter to the solicitor for the plaintiff. In that letter the defendants required confirmation that "at the settlement due tomorrow, your client will produce an appropriate Tax Invoice…". The plaintiff maintained that the tax invoice was required under the A New Tax System (Goods and Services Tax) Act 1999 ("the Act").
The defendants refused to produce a tax invoice and the settlement did not proceed on the agreed date of 17 June 2003.
From 16 June 2003 to 21 July 2003 there was further correspondence between the solicitors for the parties concerning the provision of a tax invoice and liability under the Act.
On 21 July 2003 the solicitors for the plaintiff wrote to the solicitors for the defendants concerning the slab in the following terms:
"An inspection by our client today of the site the subject of the Contract reveals that your client has not removed the floor slab which was integral to the shed required to be removed by your client prior to settlement. In addition, littered about the site nearby the partly removed shed are some disused whitegoods items or similar that no doubt were housed in the shed before the removal of the upper from of the shed.
Our client takes the view that the floor slab and the disused whitegoods items and the like must be removed from site before settlement."
On 24 July 2003 the solicitors for the defendants replied to the letter in the following terms:
"2.Contractual Issues
2.1Colorbond Shed
The contracts states:
The Vendor to remove colorbond shed from the Property prior to settlement
Our client has removed the colorbond shed and takes the view that the floor slab is not an integral part of the shed.
There are no obligations under the Contract to remove anything else from the property.
2.2Penalty interest
Your client's claim for penalty interest is unsupportable as your client refuses to settle in accordance with the terms of the contract, notwithstanding our various requests of you and your client's settlement agent to arrange settlement.
We reconfirm that our client has been ready, willing and able to settle since 14 July 2003 and will be claiming default interest as and from the 18 July 2003.
Unless satisfactory arrangements can be made for settlement of this matter by close of business Friday, 25 July 2003, we have been instructed by our client to take appropriate default action."
On 24 October 2003 the plaintiff commenced proceedings in the Supreme Court seeking specific performance of the contract and declaratory relief in relation to liability under the Act. The defendants filed a counterclaim asserting an entitlement to interest, outgoings and legal costs pursuant to the contract.
On 9 June 2004 the plaintiff's action was dismissed on an application by the defendants for summary judgment. Orders were made in the action on that date that:
"1.The plaintiff's claim be dismissed.
2.The Contract for Sale of Land by Offer and Acceptance dated 14 September 2002 between the Plaintiff and the Defendants be specifically performed and carried into execution within 21 days of the date of this order.
3.The parties be at liberty to apply upon 48 hours notice for further directions as to the implementation of this order.
4.The Plaintiff be given unconditional leave to defend that part of the Defendants' Counterclaim for a declaration that interest is payable at the rate of 12% per annum on the sum of $646,285.60 as and from 17 June 2003.
5.The Plaintiff pay the Defendants' costs of the application so far as it relates to the Defendants' claim for specific performance, otherwise, the costs of the application be in the cause."
The sale of land settled on 30 June 2004.

The pleadings

The Defendants' counterclaim is for interest, outgoings and legal costs. The claim is made pursuant to the contract. The interest claim is dependant upon the defendants being ready, willing and able to settle on the date fixed for completion. The defendants contend that, notwithstanding that the slab had not been removed by the 17 June 2003, they had complied with the special condition. It is also submitted that they were in any event, ready, willing and able to settle.
The plaintiff pleads that the defendants did not comply with the special condition by removing only the walls and roof of the shed, as the defendants were required to remove the slab. The plaintiff's contention is that because the defendants had not removed the slab prior to the settlement date, the defendants were not ready, willing and able to settle and accordingly there was no claim.
The defendants assert that the special condition was solely for their benefit and that they were accordingly entitled to waive the benefit of it. The plea is as follows:
"5A.The Defendants say further that clause 9 is solely for the benefit of the Defendants and the Defendants were entitled to waive the benefit of clause 9.
Particulars
(a)Clause 9 was written into the Contract by the Defendants' selling agent, Mr Dennis Murray at the express request of the first‑named Defendant on 14 September 2002 after the Contract was first executed by the Plaintiff; and
(b)On 14 September 2002, the first‑named Defendant informed Mr Dennis Murray that the first‑named Defendant might wish to remove the colourbond shed from the Land prior to settlement to give to his nephew."
The waiver is alleged to be implied from the following conduct of the defendants:
"(a)In April 2003 the Defendants caused to be removed the colourbond shed from the Land;
(b)On or about the same date, the Defendants gave the colourbond shed to their nephew; and
(c)By letter dated 14 July 2003 the Defendants' solicitors advised the Plaintiff's solicitors and its settlement agent that the Defendants were ready, willing and able to settle."

The contract

The contract in writing between the plaintiff and the defendants is dated 14 September 2002 and is constituted by a standard form Real Estate Institute of Western Australia Offer and Acceptance. Condition 3 of the contract incorporates the Law Society of Western Australia (Inc) and the Real Estate Institute of Western Australia (Inc) 2000 Joint Form of General Conditions for the Sale of Land ("the General Conditions").
There was a typewritten annexure to the contract which included reference to the plaintiff's proposed plan of subdivision of the land.
The special condition was handwritten on the reverse side of the Offer and Acceptance and was as follows:
"The vendor to remove colorbond shed from the property prior to settlement."
The defendant vendors' claim for interest is made pursuant to Condition 5.1 of the General Conditions which provides:
"5. Delay in Settlement
(1)If for any reason not attributable to the Vendor, settlement is not effected on or within 3 Business Days after the Settlement Date, the Purchaser must pay to the Vendor on settlement interest at the Prescribed Rate on the balance of the Purchase Price and other moneys payable on settlement calculated from and including the Settlement Date to but excluding the actual date of payment in full settlement of any claim the Vendor may have against the Purchaser arising from that delay. The Vendor's right to interest under this Condition is conditional upon the Vendor being ready willing and able to complete the sale at the Settlement Date and if the Vendor is not, the Vendor's right to interest only commences and runs from the day on which the Vendor is and continues to be so ready willing and able to complete the sale and the Vendor has given Notice in writing to the Purchaser or the Purchaser's Representative of that fact. The rights of the Vendor under this Condition are in addition to the rights of the Vendor under Condition 6(4)."
The defendants' claim for costs is made pursuant to Condition 20 of the General Conditions which provides:
"20. Cost and Stamp Duty
Each party shall bear its own legal and other costs and expenses but the Purchaser shall pay the stamp duty on the Contract and the fee on the registration of the transfer of the Land to the Purchaser. Any party in default shall pay all costs incurred by the other party in respect of the default and notices relating to the default and if settlement proceeds those costs and expenses are to be included in the 'other moneys' payable by the Purchaser at settlement pursuant to Condition 4(4)."

The evidence

Leonard Steven James Miocevich is a medical practitioner and gave evidence that the defendants had acquired the land in 1984 with the aim of growing passionfruit.
Two acres of passionfruit were planted and the shed constructed of Colorbond was erected on the land. Dr Miocevich's evidence was that about six months prior to negotiating the contract the defendants ceased farming passionfruit on the land.
During the trial, there was an objection to Dr Miocevich giving evidence as to his intentions in relation to the special condition concerning the colorbond shed. Counsel agreed that the objection should be dealt with in these reasons and I will do so later when considering the construction of the special condition.
The evidence of Dr Miocevich concerning the special condition was:
"Dr Miocevich, I think before you went out I was asking you about how the words of special condition 9 came to be in the contract. That's, 'The vendor is to remove colorbond shed from the property prior to settlement.' Can you tell his Honour about that?‑‑‑Yes, well, my wife Margaret – she has got a nephew who lives down the South‑West and Richard was looking for a shed, so when Dennis said to me, 'Is there anything on the property you want to keep?' I said, 'Yes. I'd like to donate that to Richard,' so I said, 'Write into the contract that I want to keep the colorbond shed,' and that I would removed the colorbond shed. I didn't say, 'Colorbond shed and slab.' I just wrote into it, 'I want to write in the colorbond shed.' "
Dr Miocevich agreed that the slab was a foundation for the shed.
Dennis Murray is a retired estate agent who was engaged by the defendants to act on the sale of the land. Mr Murray presented the defendants with an offer from the plaintiffs. When that offer was presented it did not contain the special condition.
He told me that the special condition concerning the Colorbond shed was added to the contract at the request of Dr Miocevich. His evidence was that the words were added because Dr Miocevich said his nephew wanted the shed and that he wanted the condition on the offer. He said that when he took the amended offer to the plaintiff Mr McKellar had said to him "That's very good because it saves us the cost of removing it…".
Ian Bruce McKellar is a director of the plaintiff. He told me that the plaintiff was engaged in the business of land subdivision. He gave evidence that he inspected the land in 2003 after the settlement date in the contract. He said that he saw a slab in the ground where a shed had been and that he inspected the slab and saw that the steel components which had been embedded in the slab had been severed.
He told me that he thought Condition 9 would save him the trouble of having to liquidate the shed and try and get value from it. He said it "was more of a situation where it saved him time or Empire time from having to deal with another issue on site".
He agreed that the purpose of the acquisition of the land was for subdivision and that he did not make it a term of the original offer that the defendants clear anything from the land. He agreed that he had seen the shed from an aerial photograph prior to July 2003 but it would only be speculation on his part at the time as to whether there could have been a slab in the shed.

Legal principles as to construction of Contracts

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. Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 109.
In Australian Broadcasting Commission (above) Gibbs CJ (at p 109) outlined the following general principles relating to the contractual interpretation :
"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 unreasonable, and notwithstanding that it may be 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.
Where the parties have recorded terms of their contract in a document, the parol evidence rule excludes the use of evidence of extrinsic terms which subtract from, add to, vary or contradict the language of a written instrument. In certain circumstances extrinsic evidence is admissible to assist in interpretation of an instrument."
In Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 the use which could be made of negotiations and surrounding circumstances in the process of interpretation was considered. Mason J (at page 352) said:
"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.
It is here that a difficulty arises with respect to the evidence of prior negotiations. 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 contract of the parties being inadmissible in aid of construction, though admissible in an action for rectification."

His Honour also considered the question of the actual intention of the parties as opposed to the presumed intention. In this regard he said:
"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.
There may perhaps be one situation in which evidence of the actual intention of the parties should be allowed to prevail over their presumed intention. If it transpires that the parties have refused to include in the contract a provision which would give effect to the presumed intention of persons in their position it may be proper to receive evidence of that refusal. After all, the court is interpreting the contract which the parties have made and in that exercise the court takes into account what reasonable men in that situation would have intended to convey by the words chosen. But is it right to carry that exercise to the point of placing on the words of the contract a meaning which the parties have united in rejecting? It is possible that evidence of mutual intention, if amounting to concurrence, is receivable so as to negative an inference sought to be drawn from surrounding circumstances."

Interpretation of the special condition

The interpretation of a written contract involves the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation they were in at the time of the contract: see Maggbury Pty Ltd v Hafele Aust Pty Ltd(2001) 210 CLR 181 at [11]. The process normally requires consideration of not only the text, but also the surrounding circumstances known to the parties, and the purpose and object of the transaction. Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451.
The evidence establishes that there was only one shed on the land. Its dimensions were 10 metres by 8 metres. It was used by the defendants as part of the operation of the passionfruit orchard.
The slab was laid as a floor in the shed. The shed was erected on footings and the concrete slab was then poured up to the edges. To remove the shed it had to be cut away from the footings and from the slab. To remove the slab required that it be broken up, and would have been of no value when removed.
The objective framework of facts within which the contract was made included the fact the plaintiff intended to use the land for the purpose of subdivision. The land was to be cleared by the plaintiff purchaser.
The special condition was written into the contract by the defendants' agent at the defendants' request.
The subjective beliefs or understandings of the parties about their rights and liabilities do not govern their contractual relations. Toll (FGCT) Pty Ltd v Alphapharm (2004) 219 CLR 165 at [40]. In the circumstances I do not accept that I can take account of the evidence of the subjective intention of the defendants concerning the shed. That evidence is inadmissible and I do not rely upon it.
Counsel for the plaintiff's submissions included the following in relation to interpretation of the special condition:
"The shed in this case in structure and nature necessarily involved the slab so that to remove the shed must involve removing that which was an integral part of it, witness the fact that in order to remove part of it was necessary to cut the shed off, as it were, at the concrete level and artificially take it away, when in its operation, substance and form, as had been the case since the mid‑80s, it had functioned in that integral and integrated way, so that's really the essence of what we say in relation to that…."
Whilst the concrete had been poured to the edges of the slab it was possible to remove the shed and leave the slab in situ, as in fact occurred. Removal of the slab required additional work to be done presumably at a cost. The defendants did not promise to remove the slab and thus leave that part of the land cleared. The only contractual promise made was to remove the "colorbond shed".
The special condition understood in the light of the surrounding circumstances and the purpose and object of the transaction meant that the defendants were not required to remove the slab. I find that, in removing the above ground section comprising the colorbond shed, they had complied with the special condition, and consequently were ready, willing and able to settle, as at the settlement date of the contract.

Legal costs

Condition 20 of the General Conditions incorporated into the contract, requires a party in default to pay all costs incurred by the other party in respect of the default and notices relating to the default.
The defendants' claim $23,062.71 for costs and rely upon invoices from their solicitors dated 29 August 2003 ($9,807.26), 10 November 2003 ($2,172.21), 16 December 2003 ($2,488.75) and 18 June 2004 ($8,574.50).
The invoice for $9,807.25 attaches an itemised statement. However there was no evidence in relation to the items. The items cover the period from 28 May 2003 to 15 August 2003. It is not possible to determine what particular items relate to the plaintiff's default. Further even if that were possible, there is no breakdown of individual items which would enable an assessment to be made of the reasonableness of the claim in relation to any particular item of work. The same difficulty arises in relation to each of the invoices.
The invoice for $2,172.21 dated 10 November 2003 contains a breakdown of time but does not identify with sufficient precision a relationship between the work done and the default.
The invoice for $2,488.75 dated 16 December 2003 is for the period 3 November 2003 to 10 December 2003. It contains references to "GST issues". There is no particularity and no time breakdown.
The invoice for $8,594.50 dated 18 June 2004 is styled "CIV 2278/2003" Empire Securities Ltd v Yourselves". It relates to the proceedings in the Supreme Court. It includes, as a disbursement, counsel fees relating to the action. An order has been made in the Supreme Court in the action and there will be orders in this action as to the costs of the action. I can see no basis for the claim in relation to this invoice. Costs will be recoverable in the action and I am not satisfied Condition 20 is an indemnity.
I am not satisfied on the evidence that any of the amounts claimed on the invoices are recoverable by virtue of Condition 20. There was insufficient evidence to enable me to make the necessary finding. I am not satisfied as to the reasonableness of the amounts claimed. The condition does not provide an indemnity in relation to costs and a party relying upon its terms must put evidence before the Court. The evidence was insufficient and I am not prepared to rely upon the invoices to establish the claim. Even if Condition 20 did provide an indemnity it still would have been necessary to establish that the amounts charged were reasonable both as to time spent and the charge made. As I have said I am not satisfied that is the case.
I do not allow the claim for costs pursuant to Condition 20.

Disposition of action

At trial, the principal issue was the interpretation of the special condition. I have determined that in removing the colorbond shed and leaving the slab on the land, the defendants had complied with the obligation imposed by the special condition.
Following the trial of the action the defendants provided a submission calculating interest, outgoings and legal costs. The calculations and entitlement to interest and outgoings are not as I was informed at trial to be in dispute in the event I construed the special condition as contended by the defendants.
The entitlement to legal costs was in issue. As I have said I am not satisfied that the defendants have made out a claim for costs pursuant to Condition 20.

Conclusion

There should be judgment for the defendants on the counterclaim.
I will hear the parties as to the orders to be made.