Fu Tian Fortune Pty Ltd v Park Cho Pty Ltd

[2018] NSWCA 282

Court of Appeal

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:	Fu Tian Fortune Pty Ltd v Park Cho Pty Ltd [2018] NSWCA 282
Hearing dates:	12 November 2018
Date of orders:	23 November 2018
Decision date:	23 November 2018
Before:	Macfarlan JA at [1] Gleeson JA at [2] Barrett AJA at [3]
Decision:	(1)   Appeal dismissed. (2)   The appellants pay the respondent’s costs of the appeal.
Catchwords:	LAND LAW – conveyancing – contract for sale – novation – whether contract was novated so that the second appellant replaced the first appellant as purchaser – whether second appellant merely exercised a right to nominate another transferee   CONTRACTS – formation – novation – requirements for effective novation of contract by substitution of party
Legislation Cited:	Conveyancing Act 1919 (NSW) Corporations Act 2001 (Cth)
Cases Cited:	ALH Group Property Holdings Pty Ltd v Chief Commissioner of State Revenue (2012) 245 CLR 338; [2012] HCA 6 Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153; [2001] NSWCA 61 Chambers v Manchester and Milford Railway Co (1864) 5 B & S 588; 122 ER 951 Earl of Egmont v Smith (1877) 6 Ch D 469 Ferguson v Wilson (1866) LR 2 Ch App 77 Fightvision Pty Ltd v Onisforou (1999) 47 NSWLR 473; [1999] NSWCA 323 Fu Tian Fortune Pty Ltd v Park Cho Pty Ltd [2018] NSWSC 528 Gangemi v Osborne [2009] VSCA 297 Lord v Trippe (1977) 51 ALJR 574 Masters v Cameron (1954) 91 CLR 353; [1954] HCA 72 McMahon v National Foods Milk Ltd (2009) 25 VR 251; [2009] VSCA 153 Meehan v Jones (1982) 149 CLR 571; [1982] HCA 52 Motel Marine Pty Ltd v IAC (Finance) Pty Ltd (1964) 110 CLR 9; [1964] HCA 7 Olsson v Dyson (1969) 120 CLR 365; [1969] HCA 3 Pavlovic v Universal Music Australia Pty Ltd (2015) 90 NSWLR 605; [2015] NSWCA 313 Pintrach v Deputy Commissioner of Taxation [2018] FCAFC 79 Trust Company of Australia Ltd v Commissioner of Stamp Duties [2001] QCA 278; (2001) 47 ATR 418 Trust Company of Australia Ltd v Commissioner of State Revenue [2003] HCA 23; (2003) 77 ALJR 1019 Vickery v Woods (1952) 85 CLR 336; [1952] HCA 7
Texts Cited:	Peter Butt, “Purchaser ‘or nominee’” (1997) 71 ALJ 12 Samuel Stoljar, “Discharge by novation” (1964) UQLJ 5
Category:	Principal judgment
Parties:	Fu Tian Fortune Pty Ltd (First Appellant) De Fu Zhang (Second Appellant) Park Cho Pty Ltd (Respondent)
Representation:	Counsel: E White (Appellants) N Kirby (Respondent)   Solicitors: Legal Point Lawyers (Appellants) Vinci Lawyers (Respondent)
File Number(s):	2018/192226
Decision under appeal	Court or tribunal: Supreme Court of New South Wales Jurisdiction: Equity Citation: [2018] NSWSC 528 Date of Decision: 24 May 2018 Before: Slattery J File Number(s): 2017/140558

Judgment

1. MACFARLAN JA: I agree with Barrett AJA.

2. GLEESON JA: I agree with Barrett AJA.

3. BARRETT AJA: In vendor and purchaser proceedings determined on 24 May 2018[1] , a central issue was whether a contract for the sale of land formed by exchange of contracts in the conventional way had later been novated so that the rights and obligations originally created between the named vendor and the named purchaser became instead rights and obligations between that vendor and a substituted purchaser to the exclusion of the named purchaser. Slattery J held that there had been an effective novation. [2] On that basis and because the substituted purchaser defaulted in performance of the contract, it was ordered that the deposit be forfeited to the vendor and that the substituted purchaser pay damages of $100,000 to the vendor.

   1. Fu Tian Fortune Pty Ltd v Park Cho Pty Ltd [2018] NSWSC 528.

   2. Other issues not relevant to this appeal were also litigated.

4. In this Court, the sole issue raised by the grounds of appeal is the correctness of the decision that there had been an effective novation.

Facts in outline

5. On 18 March 2016 the respondent, Park Cho Pty Ltd (“Park Cho”), as vendor and the second appellant, De Fung Zhang (“Mr Zhang”), as purchaser entered into a contract for the sale and purchase of commercial property at Belmont for a price of $3,088.000. [3] A deposit of $308,800 was paid by Mr Zhang. Solicitors acted for both parties on the exchange of contracts and the transaction as a whole. Joun Lawyers (“JL”) were the solicitors for Park Cho. Legal Point (“LP”) acted for Mr Zhang.

   3. The contract was in the form of the 2005 edition approved by the Law Society of New South Wales and the Real Estate Institute of New South Wales, supplemented by special conditions.

6. On the day the contract was made, JL, acting for Park Cho, emailed Mr Zhang’s solicitors referring to the exchange of contracts and asking whether Mr Zhang would agree to release of the deposit to Park Cho. The email continued:

“We would also like to state that we will be more than happy to change the purchasing entity's details on the front page. Please advise us if the need arises and we shall inform you of the procedure.

We feel comfortable shall be best to safeguard the interest of both parties [sic].”

7. On 5 April 2016, LP, on behalf of Mr Zhang, emailed JL saying that their client was “not going to agree to release of the deposit at this stage”. The email also said:

“As previously agreed, the purchaser’s name is to be amended as below:

Fu Tian Fortune Pty Ltd (ACN 611 503 256) as trustee for Fu Tian Fortune Investment Family Trust, [address], Kingsford, NSW 2032.

Please confirm with us if you have any further concerns.”

8. By return email of 5 April 2016, JL said:

“As far as the change of entity is concerned there are no issues and we thank you for the advise [sic].

As far as the formalities are concerned in relation to effecting the change I shall advise shortly.

We also note your advice in relation to our request for early release of deposit.

We shall get back to you as soon as possible.”

9. There was no further communication between Park Cho and Mr Zhang (or their respective solicitors) regarding what the last email described as “the change of entity”.

10. Fu Tian Fortune Pty Ltd (“Fortune”) came into existence on 1 April 2016. Mr Zhang was its sole director. The company was obviously unable to perform any function before that date. [4] No formal steps were ever taken to effect substitution of Fortune for Mr Zhang as purchaser under the contract of 18 March 2016.

    4. While some submissions before the primary judge and in this Court made general reference to provisions of the Corporations Act 2001 (Cth) concerning pre-registration contracts, there was not (and could not be) any contention that Mr Zhang had contracted in such a way that Fortune succeeded to the pre-existing contract upon its registration.

11. The contract was due to be completed on 29 April 2016. Completion did not take place on that day or at all. On 4 May 2016, Park Cho served a notice to complete. The notice was addressed to Fortune and served on LP. The notice required completion by 19 May 2016. On 31 May 2016, Park Cho served a notice of termination. That too was addressed to Fortune and served on LP.

The Equity Division proceedings

12. Almost a year later, on 10 May 2017, Fortune commenced proceedings by which it sought a declaration that the contract for sale remained on foot between Park Cho and Fortune and an order for the specific performance of that contract. Fortune was, at that point, the sole plaintiff. Mr Zhang was later added as a plaintiff and the claims for relief were amended significantly. The principal claim became a claim for a declaration that the contract of 18 March 2016 between Park Cho and Mr Zhang was valid and binding and that Mr Zhang was entitled to have it specifically performed. There were then alternative claims as follows:

1. a claim by Mr Zhang to recover the deposit from Park Cho;

2. a claim for a declaration and order for specific performance of a contract between Park Cho and Fortune; and

3. a claim by Fortune for recovery of the deposit.

13. The central issue before the primary judge was framed by him in these terms (at [43]):

“It was accepted on all sides that no formal document discharged Mr Zhang from his liability as purchaser under the contract for sale, discharged the old contract for sale, and remade a contract for sale as between Park Cho and Fortune. But the issue for trial rather was whether given the mutual conduct of the parties the Court should infer that a novation occurred. Park Cho contended that the inference of a novation should be drawn in all the circumstances and Fortune and Mr Zhang contended that it should not.”

The primary judge’s findings

14. After examining the terms of the emails of 18 March 2016 and 5 April 2016 and noting that they constituted the only evidence of communications on the subject of novation, the primary judge said (at [51]):

“The terms of these emails are a basis to infer: (1) that a previous conversation had occurred between the solicitors in which some agreement about the substitution of Fortune in place of Mr Zhang had occurred; and (2) that the vendor, Park Cho, consented to the substitution – ‘as far as the change of entity is concerned, there are no issues’.”

15. The inference that there had been some previous conversation between solicitors regarding substitution of purchaser (drawn from the emails themselves) was said to be supported by evidence given by Park Cho’s principal (Ms Park) about something that she had been told by Park Cho’s solicitor (Mr Lee of JL) on 4 April 2016, that is, the day before the exchange of emails referred to at [7] and [8] above. Ms Park testified that she was told by Mr Lee that he (Mr Lee) had received from Mr Zhang’s solicitors (LP) a formal request that the purchaser be replaced by a company. Ms Park replied, “OK, I’m fine with that”; and Mr Lee said, “I will replace the purchaser with the company so that the company takes the place of Zhang; this means that the purchaser will now be the company”. Ms Park’s response was: “OK, go ahead”.

16. After referring to this evidence, the primary judge said (at [53]):

“This conversation represents clear evidence of consent by Park Cho to the change of purchaser. It seems to be unconditional and not dependent upon the execution of a further document. But Mr Lee had communicated in his email of 5 April that before the change of purchaser could take place ‘I shall advise shortly’ as ‘far as the formalities are concerned in relation to affecting the change’. That statement seemed to signal that Mr Lee thought something else more formal should be done beyond that email itself in order to give effect to his instructions from Mr Park before the change of purchasers would be legally effective.”

17. The primary judge then referred to several further matters as follows:

1. The only part of the exchanged contract in evidence (being the part signed by the vendor and received by the purchaser on exchange) had been changed by deletion of the name of Mr Zhang as purchaser and insertion of Fortune’s name. His Honour inferred that someone acting on the purchaser’s behalf had made that alteration after exchange.

2. While correspondence between the solicitors before 5 April 2016 identified Mr Zhang as purchaser, the title on the purchaser’s solicitors’ correspondence changed around mid-April 2016. Letters from them dated 13 April 2016 and 22 April 2016 were headed “Fu Tian Fortune Pty Limited purchase from Park Cho Pty Limited”.

3. A form of transfer was served by LP on behalf of the purchaser on 22 April 2016. The form of transfer named Park Cho as transferor and Fortune as transferee.

4. On 29 April 2016, Fortune lodged a caveat on the title to the property claiming an interest as purchaser under the contract for sale dated 18 March 2016. In connection with the lodgement of the caveat, Mr Zhang made a statutory declaration describing himself as the sole director of Fortune and stating that Fortune had “good and valid claims to the estate or interest” claimed.

5. On 16 May 2016, LP wrote to JL about several matters that had arisen in relation to the matter. The letter was headed, “Fu Tian Fortune Pty Ltd purchase from Park Cho Pty Ltd”, as was a follow-up letter of 18 May 2016.

6. JL replied by letter dated 18 May 2016 using the same heading.

7. Park Cho served a notice to complete on 4 May 2016. The notice identified Park Cho as the vendor and was addressed:

“To the purchaser, Fu Tian Fortune Pty Ltd (ACN 611 503 256)

And to the purchaser’s solicitor, Legal Point Lawyers & Attorneys of Suite 804, 265 Castlereagh Street, Sydney 2000.”

The notice commenced:

“The vendor is ready, willing and able to complete the conveyance from [sic] you of the property known as [address] Belmont in accordance with the contract for sale of land dated 18 March 2016”.

8. Completion did not occur on the day fixed by Park Cho’s notice to complete. On 31 May 2016, Park Cho gave notice terminating the contract. The notice was addressed:

“To the purchaser, Fu Tian Fortune Pty Ltd (ACN 611 503 256)

And to the purchaser’s solicitor: Messrs Legal Point”,

The notice commenced:

“By contract for the sale of land dated 18 March 2016 of [address] Belmont, NSW 2280 Park Cho Pty Ltd agreed to sell to Fu Tian Fortune Pty Ltd of 1 [address] Kingsford, NSW 2032 and it agreed to purchase the property being the whole of the land in title reference known as [address] Belmont NSW (property) for $3,088,000”.

The primary judge’s decision

18. The primary judge said (at [74]) that the effect of novation “is to discharge the original contract between two parties (the continuing party and the outgoing party) and to substitute it with a new contract between the continuing party and a new party (the incoming party)”. That incoming party must, his Honour said, “perform the contractual obligations, bear the contractual liabilities and is entitled to the contractual benefits (under the new contract) that were formerly the province of the outgoing party under the original contract”; and:

“Put simply, the rights, obligations and liabilities of the outgoing party are extinguished and the rights, obligations and liabilities of the incoming party are substituted in their place.”

19. Turning to the authorities, his Honour noted, referring to Vickery v Woods (1952) 85 CLR 336; [1952] HCA 7 (per Dixon J at CLR 345), that “the crux of novation is intention” in the form of consent by way of tripartite agreement; and that the intention may be express or, importantly for the case before him, may be implied from the circumstances. He referred, in that connection, to Fightvision Pty Ltd v Onisforou (1999) 47 NSWLR 473; [1999] NSWCA 323 the circumstances of which he saw as similar to those before him in that the purported novation had occurred with a degree of informality through a course of dealing. This Court there concluded that there was no basis for disturbing the trial judge’s conclusion that a novation had occurred – a conclusion reached by reference to, inter alia, the content of conversations between the parties and the “overwhelmingly consistent pattern of conduct” in which they had engaged. The primary judge also referred to McMahon v National Foods Milk Ltd (2009) 25 VR 251; [2009] VSCA 153 and to a statement (at [77]) that regard must be had to the totality of the parties’ dealings and the inferences that can be drawn from them.

20. The primary judge then proceeded to apply the principles to the facts. He said (at [78]) that “the overwhelmingly consistent pattern of conduct between these parties from very shortly after 5 April 2016 supports the inference that a novation had occurred without further conditions and that all parties were content to treat Fortune and not Mr Zhang as the purchaser”. His Honour saw nothing in the parties’ mutual dealings from very shortly after 5 April 2016 to suggest that that “either side of the contract” had any doubt that Fortune had become the purchaser in place of Mr Zhang. Park Cho’s notice to complete and notice of termination had been given to the correct entity, being Fortune. There had been a novation. Park Cho’s actions by way of and in consequence of the giving of notice to complete to Fortune had therefore been effective.

Grounds of appeal

21. None of the factual findings made by the primary judge is challenged on appeal. The sole ground of appeal is that his Honour erred in deciding that there had been a novation of the contract because:

1. there was no rescission of the contract;

2. there was no consideration supporting any purported rescission; and

3. there was no contract for the sale of the property made between Park Cho and Fortune in substitution for Mr Zhang.

The nomination argument

22. Fortune argued in this Court, as it had below, that there had been no novation because the true characterisation of events was that Mr Zhang, as purchaser, merely exercised a right to nominate Fortune as the entity to which Park Cho was to convey the property in fulfilment of the contractual obligation it owed to Mr Zhang. There was no suggestion that the contract described the purchaser as Mr Zhang “or nominee”. But even in the absence of some such feature of the contract, it was submitted, the purchaser enjoyed such a right of nomination.

23. This may be accepted as an abstract proposition. In Lord v Trippe (1977) 51 ALJR 574, Aickin J referred (at 582) to the common conveyancing practice of providing in the contract that the transfer is to be made to the purchaser or its nominee, so that the purchaser has power to substitute a different transferee (as distinct from a different contracting party) and the vendor becomes bound to transfer to the nominee upon payment of the balance of purchase moneys and compliance with other provisions of the contract. Aickin J continued:

“Indeed a purchaser under a contract of sale which contains no such express provision may, in the absence of special circumstances, require the vendor to transfer to some third party nominated by him. As Jessell MR said in Egmont v Smith (1877) 6 Ch D 469 at p 474, 'An ordinary contract of sale is not only to convey to the purchaser, but to convey as the purchaser shall direct.’”

24. The right of nomination thus enjoyed by a purchaser under a contract not containing any express “or nominee” provision is often referred to as a “common law right”. [5] It was so described by the Queensland Court of Appeal in Trust Company of Australia Ltd v Commissioner of Stamp Duties [2001] QCA 278; (2001) 47 ATR 418 (at [22]). [6] The distinction between, on the one hand, exercise of the right of nomination and, on the other, both assignment and novation of the contract was explained by the Queensland court by means of the following extract from a case note by Peter Butt[7] :

“If the purchaser exercises the right, the vendor must transfer the property to the nominee instead of to the purchaser. However, a nomination does not substitute the nominee as the purchaser. The parties to the contract remain the vendor and the purchaser. If the purchaser breaches the contract, it is to the purchaser that the vendor must look for recourse, not the nominee: Nguyen v Taylor (1992) 27 NSWLR 48 at 60. In this regard, a nomination is to be contrasted with an assignment of the contract. An assignee becomes entitled to all the purchaser's rights under the contract, once notice has been given to the vendor: Shaw v Harris (No 2) (1992) 3 Tas R 167 at 207. A nomination is also to be contrasted with a novation of the contract. A novation substitutes a new contract for the old one: Olsson v Dyson (1969) 120 CR 365 at 389.''

5. In Earl of Egmont v Smith (1877) 6 Ch D 469, the case referred to by Aickin J, Jessel MR said of a clause conferring an express right of nomination that it “does not exceed the ordinary law”.

6. A “common law right” of nomination will, of course, not be available if expressly or impliedly excluded by the contract. An appeal to the High Court from the decision of the Queensland Court of Appeal in Trust Company of Australia Ltd v Commissioner of Stamp Duties [2001] QCA 278; (2001) 47 ATR 418 was allowed because the facts of the case were found to be inconsistent with the existence of the common law right: Trust Company of Australia Ltd v Commissioner of State Revenue [2003] HCA 23; (2003) 77 ALJR 1019.

7. Peter Butt, “Purchaser ‘or nominee’” (1997) 71 ALJ 12 at 12.

25. The essence of the matter was identified by Mason J in Meehan v Jones (1982) 149 CLR 571; [1982] HCA 52 when he said (at CLR 594) that “the purchaser's nominee does not become a contracting party; the vendor and the purchaser continue to be the sole contracting parties, the nominee being the person who takes title by the conveyance or transfer”.

26. In the present case, the contract did not identify the purchaser as Mr Zhang “or nominee”. But it did expressly contemplate the possibility that Mr Zhang might direct transfer by Park Cho to a third party. Clause 4.1 required the purchaser to serve the form of transfer on the vendor at least 14 days before the completion date. Clause 4.3 then provided:

“If the purchaser serves a form of transfer and the transferee is not the purchaser, the purchaser must give the vendor a direction signed by the purchaser personally for this form of transfer.”

27. It was thus made clear that the purchaser who had entered into the contract could, in conformity with clause 4.1, tender a form of transfer naming a transferee other than himself. But that right or ability of the purchaser was not exercisable unless the purchaser gave to the vendor a direction complying with clause 4.3, that is, a direction “signed by the purchaser personally for this form of transfer” (being the form of transfer naming the other transferee).

28. Clause 4.3 recognised but, at the same time, regulated the exercise of the purchaser’s right to nominate a transferee. The “common law right” was qualified accordingly. In the absence of “a direction signed by the purchaser personally”, any attempt by the purchaser to compel the vendor to convey to another person would fail and the vendor would not be bound to transfer to a transferee other than the purchaser. The express terms of the contract stipulated a particular and exclusive method of exercising the right of nomination. [8]

    8. The requirement in clause 4.3 that the direction be “signed by the purchaser personally” raises a question that it is not necessary to address on this appeal, namely, whether such a direction can be given by a purchaser that is a corporation. It has been said that a corporation, of its nature, “cannot act in its own person, for it has no person” (Ferguson v Wilson (1866) LR 2 Ch App 77 at 89) and must always act through agents, even when its common seal is used (Chambers v Manchester and Milford Railway Co (1864) 5 B & S 588; 122 ER 951): see Motel Marine Pty Ltd v IAC (Finance) Pty Ltd (1964) 110 CLR 9; [1964] HCA 7 at CLR 13-14.

29. Because there was not, on any view, compliance with clause 4.3, Fortune’s argument that it had merely exercised a right to nominate a transferee by direction is untenable. It therefore becomes necessary to determine whether, as the primary judge found, the case was in truth one of novation.

Novation – principles

30. A statement of the nature of novation and of the elements that constitute it is found in the judgment of French CJ, Crennan, Kiefel and Bell JJ in ALH Group Property Holdings Pty Ltd v Chief Commissioner of State Revenue (2012) 245 CLR 338; [2012] HCA 6 at [12]:

"A novation, in its simplest sense, refers to a circumstance where a new contract takes the place of the old. It is not correct to describe novation as involving the succession of a third party to the rights of the purchaser under the original contract. Under the common law such a description comes closer to the effect of a transfer of rights by way of assignment. Nor is it correct to describe a third party undertaking the obligations of the purchaser under the original contract as a novation. The effect of a novation is upon the obligations of both parties to the original, executory, contract. The enquiry in determining whether there has been a novation is whether it has been agreed that a new contract is to be substituted for the old and the obligations of the parties under the old agreement are to be discharged."

31. Where, as here, there are two parties to the original contract (vendor and purchaser), a novation by which a new purchaser is introduced in the place of the original purchaser will not be established unless it is found that a subsequent “tripartite agreement” (to adopt the expression used by all members of the High Court in Olsson v Dyson (1969) 120 CLR 365; [1969] HCA 3 [9] ) was made among the two original parties and the incoming party (that is, the substituted purchaser). Essential elements of the tripartite compact are: first, agreement by the substituted purchaser with the vendor that, upon the vendor’s releasing the original purchaser from his obligation to purchase, the substituted purchaser will accept and perform, as against the vendor, the obligation to purchase undertaken at inception by the original purchaser (including, of course, the obligation to pay the balance of the purchase moneys); second, agreement by the vendor with the substituted purchaser both to sell to the substituted purchaser and to accept the substituted purchaser’s promise to perform the purchase obligation in place of the original purchaser’s; and third, agreement between the vendor and the original purchaser with the concurrence of the substituted purchaser, that the purchase obligation undertaken by the original purchase at inception is discharged.

    9. Barwick CJ at 369, Kitto J (Menzies and Owen JJ agreeing) at 376, Windeyer J at 391.

32. Also essential is an intention of the vendor to discharge the original purchaser. In earlier times, scholars struggled with that aspect. Often, a party agreeing to accept a substituted obligor would not expressly release the original obligor, with the result that the true position may have been that each obligor was under the obligation. [10] That matter was addressed in some detail by Windeyer J in his dissenting judgment in Olsson v Dyson (above). After referring to the way that Roman law had dealt with the “difficulty” of finding extinguishment of the original obligation of the departing party, Windeyer J said (at CLR 390):

“However, the requirements of our law are satisfied by a tacit agreement to extinguish the former obligation, and this is inferred when an inconsistent obligation is by agreement substituted.”

10. Samuel Stoljar, “Discharge by novation” (1964) UQLJ 5.

33. This statement concerning inference was expressly approved by the plurality in ALH Group Property Holdings Pty Ltd v Chief Commissioner of State Revenue (above) at [31] where it was pointed out that the same approach had been sanctioned by Dixon J in Vickery v Woods (above) at CLR 345:

“Rescission and novation ultimately depend on intention, and here none existed in fact and nothing was done from which such an intention must necessarily be implied.”

34. In the present case, therefore, if it is found that Park Cho had, with Mr Zhang’s acquiescence, agreed to accept the promise of Fortune to perform in place of Mr Zhang, so that an obligation to Park Cho inconsistent with Mr Zhang’s came into existence by agreement, that finding will be sufficient to ground a further finding that Park Cho released Mr Zhang.

Novation – assessment

35. The main factual matters that the primary judge took into account on the novation issue are mentioned at [6] to [8] and [14] to [17] above. To those may be added, perhaps merely by way of emphasis, some further details drawn from the evidence. First, on 24 March 2016 (six days after exchange of contracts), LP submitted requisitions on title under cover of a letter to JL headed “Zhang – Purchase from Park Cho Pty Ltd”. JL provided answers to requisitions by letter dated 27 April 2016 headed “Park Cho Pty Ltd Sale to Fu Tian Fortune Pty Ltd”. Second, the letters of 4 May 2016 and 31 May 2016 from JL to LP enclosing the notice to complete and the notice of termination respectively were headed “Park Cho Pty Ltd Sale to Fu Tian Fortune Pty Ltd”. Third, in an affidavit of 10 May 2017, the solicitor for the then sole plaintiff (Fortune) referred to the contract of 18 March 2016 between Park Cho and Mr Zhang and said:

“The name of the purchaser was subsequently changed by agreement with the vendor from Mr Zhang’s name to that of Fu Tian Fortune P/L.”

36. Mr Zhang was asked in cross examination about a passage in his own affidavit that was not read in the plaintiffs’ case and was in terms identical with those just quoted from the solicitor’s affidavit. The cross examination concentrated for some time on conversations between Mr Zhang and his solicitor and culminated in answers by Mr Zhang that he had seen a copy of the contract with Fortune’s name in it as purchaser and that he understood from the solicitor that the vendor had agreed to Fortune becoming the purchaser of the property.

37. In addition, of course, it is significant that the proceedings were commenced by Fortune alone by means of the summons filed on 10 May 2016. The statement of claim adding Mr Zhang as a plaintiff and propounding the thesis that he was in truth the purchaser was not filed until more than two months later (on 28 July 2016).

38. In the light of the evidence and for the reasons that follow, the primary judge correctly held that there had been an effective novation.

39. The statement in JL's email of 18 March 2016, within hours after exchange of contracts, that "we will be more than happy to change the purchasing entity's details on the front page" indicates that the possibility of later substitution of a new purchaser had been discussed even before the contract was made. Although the reference was, in an uninformed and simplistic way, to changing the “purchasing entity's details on” the document, the intention can only have been that a new “purchasing entity" was to replace the “purchasing entity” who had been party to the then recent exchange of contracts. For someone sitting alone simply to take a pen to the document and cross out one name and write another in its place would achieve nothing. The solicitors, although using inapt language, obviously intended to refer to some legally meaningful result – a result, it must be emphasised, that is shown to have been approved by their clients. The evidence of Ms Park (at [15] above) and that of Mr Zhang (at [36] above) establishes that substitution of a new purchaser for Mr Zhang was agreed by Park Cho, by Mr Zhang and, through him, by Fortune. Because he was Fortune's sole director, it had no mind but his. It can only have been Mr Zhang who agreed to JL’s informing LP on 5 April 2016 that “the purchaser’s name” was to be “amended to” the “name” of Fortune.

40. The solicitors’ emails of 5 April 2016 not only identified Fortune as the entity to be substituted as purchaser but also evidenced an agreement among all three persons that Fortune was to purchase instead of Mr Zhang. In response to the statement in LP’s email that “the purchaser’s name is to be amended to” that of Fortune, JL said that there were “no issues” regarding “the change of entity”. Consensus had been reached. The objection (faintly taken by counsel for the appellants) that solicitors cannot be assumed to have authority to contract for their clients is overcome by the evidence that JL and LP acted in accordance with the wishes of their respective clients in exchanging the 5 April 2016 emails. It is true that the emails referred to "formalities . . . in relation to effecting the change" and indicated that JL would identify these “formalities” at a future time. But all essential elements of the agreement (including, crucially, the identity of the substituted purchaser) were settled by the 5 April 2016 emails and JL confirmed on that day that there were “no issues” regarding the change. If one approaches the matter by reference to the categories of agreement considered in Masters v Cameron (1954) 91 CLR 353; [1954] HCA 72 at CLR 360, it is seen to be within the first category, that is, where the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, while at the same time proposing to have the terms restated in a fuller and more precise way which is not different in effect. In such a case, the agreement is immediately binding.

41. That the intention on the purchasing side (that is, the intention of Mr Zhang and Fortune) was to be immediately bound by the exchange of emails on 5 April 2016 was demonstrated by later events. Requisitions on title had been submitted by LP on 24 March 2016 under the heading "Zhang - Purchase from Park Cho Pty Ltd".  But subsequent letters sent by JL (dated 13 April 2016, 22 April 2016, 16 May 2016 and 18 May 2016) all identified Fortune as the purchaser. In that way, Mr Zhang and, through him, Fortune, demonstrated their acceptance of an ongoing intention to be bound by the substitution of Fortune for Mr Zhang as purchaser. They did so, moreover, in a way that showed the intention to be of immediate effect even in the absence of the undefined "formalities" to which JL had referred. Mr Zhang and Fortune confirmed that stance when they caused Fortune alone not only to lodge the caveat claiming an interest as purchaser under the 18 March 2016 contract (which the caveat identified as a contract made between Park Cho as vendor and Fortune as purchaser) but also to commence proceedings by the summons filed on 10 May 2017. [11]

    11. A submission by counsel for the appellants that the naming of Fortune in the caveat and the summons was explicable as an “error” must be rejected as neither supported by any evidence nor referable to any ground of appeal.

42. On the selling side of the transaction, Park Cho too showed acceptance of an ongoing intention to be bound by the substitution of Fortune for Mr Zhang despite the absence of the "formalities". It did so not only in the way its solicitors framed correspondence but also (and in particular) by the terms of the notice to complete and the notice of termination. These, like the caveat lodged by Fortune, referred to the contract of 18 March 2016 as a contract between Park Cho as vendor and Fortune as purchaser.

43. As this Court confirmed in Pavlovic v Universal Music Australia Pty Ltd (2015) 90 NSWLR 605; [2015] NSWCA 313 at [65], the question whether, in circumstances of this kind, an immediately binding contract has been formed is to be determined by reference to what each party by words and conduct would have led a reasonable person in the position of the other party to believe with regard to the commercial context and surrounding circumstances of the parties’ dealings. The court will pay attention to the parties’ subsequent actions in answering that question. The inference that an immediately binding contract has been formed will be drawn with particular confidence if the parties have conducted themselves in a way that, on balance, must be referable to the existence of a binding contract of the type alleged. [12]

    12. Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153; [2001] NSWCA 61 at [25]; Gangemi v Osborne [2009] VSCA 297 at [185]; Pintrach v Deputy Commissioner of Taxation [2018] FCAFC 79 at [162].

44. Given that, as Dixon J said in Vickery v Woods (above), “the crux of novation is intention” and that, as is emphasised by the decisions in Fightvision Pty Ltd v Onisforou (above) and McMahon v National Foods Milk Ltd (above), regard is to be had to the totality of the relevant conduct and dealings and the inferences to be drawn from them, the answer in this case is clear. From at least mid-April 2016, all actions of Park Cho, Mr Zhang and Fortune were entirely consistent with Fortune’s having become subject to the purchase obligation and Park Cho having, with Mr Zhang’s acquiescence, agreed to accept the promise of performance by Fortune. An obligation inconsistent with Mr Zhang’s came, by agreement, to supersede Mr Zhang’s. That, for reasons discussed, is sufficient to ground a finding that Park Cho released Mr Zhang and that Fortune became bound (and entitled) as sole purchaser in his place. [13]

    13. Counsel for the appellant submitted that the writing requirement arising under s 54A of the Conveyancing Act 1919 (NSW) was not satisfied in relation to a contract between Park Cho and Fortune. No ground of appeal is addressed by that submission which, in any event, cannot be accepted. The whole of the solicitors’ correspondence commencing with the emails of 5 April 2016 and undertaken with the respective parties’ consent constituted or included a sufficient note or memorandum.

Disposition

45. Orders should be made as follows:

1. Appeal dismissed.

2. The appellants pay the respondent’s costs of the appeal.

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Endnotes

Amendments

23 November 2018 - At [16] (8) first line of quote "CAN" changed to read "ACN"

23 November 2018 - Amendment corrected to read: At [17] (8) first line of quote - "CAN" amended to read "ACN"

Decision last updated: 23 November 2018