Fuller v Albert

[2021] NSWCA 88

Court of Appeal

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

Fuller v Albert [2021] NSWCA 88

Hearing dates:

30 November 2020

Date of orders:

18 May 2021

Decision date:

18 May 2021

Before:

Macfarlan JA at [1];
Brereton JA at [2];
Emmett AJA at [3]

Decision:

Order that:

1.   The appeal be allowed.

2.   The orders made by the primary judge on 14 July 2020 be set aside.

3.   The proceedings be remitted to the Equity Division for further determination in accordance with these reasons.

4.   The First and Second Respondents pay the Appellant’s costs of the appeal.

5.   The notice of motion filed on 11 November 2020 be dismissed, with costs to be the costs of the parties at first instance.

Catchwords:

CONTRACTS — implied terms — terms implied in fact — necessity — numerous alternative possible constructions — agreement constituted by combination of oral, written and implied terms

CONTRACTS — termination — repudiation of contract — acceptance of repudiation — allegations of fraud — whether terms of conversation amounted to repudiation — significance of pleadings inconsistent with terms of contract as later alleged

MORTGAGES AND SECURITIES — mortgages — duties, rights and remedies of mortgagor — equity of redemption — mortgage over company share — contractual right to redemption extinguished on default — whether equitable right to redemption survived in spite of delay

Legislation Cited:

Limitation Act 1969 (NSW)

Cases Cited:

Cherry v Steele-Park (2017) 96 NSWLR 548; [2017] NSWCA 295

Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337; [1982] HCA 24

Hawkins v Clayton (1988) 164 CLR 539; [1988] HCA 15

Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623; [1989] HCA 23

Rinehart v Hancock Prospecting Pty Ltd [2019] HCA 13; 366 ALR 635

Texts Cited:

Codex of Justinian, 8.34.3, 8.33

WW Buckland, A Textbook of Roman Law: From Augustus to Justinian (3rd rev ed, 1963, Cambridge University Press)

Category:

Principal judgment

Parties:

Eric Andrew Fuller (Appellant)
Kerry Albert (First Respondent)
Sandra May Albert (Second Respondent)
Matcove Pty Ltd (Third Respondent)

Representation:

Counsel:
D L Cook SC (Appellant)
C R Newlinds SC with M E Hall (First and Second Respondents)
No appearance (Third Respondent)

Solicitors:
Crowther Sim Lawyers (Appellant)
Pure Legal (First and Second Respondents)

File Number(s):

2020/182084

Publication restriction:

Nil

 Decision under appeal 

Court or tribunal:

Supreme Court of New South Wales

Jurisdiction:

Equity – Corporations List

Citation:

[2020] NSWSC 625

[2020] NSWSC 897 (Costs)

Date of Decision:

25 May 2020
14 July 2020

Before:

Black J

File Number(s):

2017/213055

HEADNOTE

[This headnote is not to be read as part of the judgment]

The appellant and the first respondent are the sole directors of a company, the third respondent. With members of their families, they respectively held 60% and 40% of the company’s shares. In 2017, the appellant commenced proceedings over two disputes regarding the company’s affairs.

The first dispute concerned a block of land that the company acquired in 1993. Around that time, the directors discussed an arrangement for each to personally acquire from the company a relatively small parcel subdivided from the larger block. The company would develop the remainder. In 2005, the company subdivided the land in two and approved transfer of the smaller lot to the respondent. The respondent signed a contract of sale and transfer with a stated consideration of $175,000 yet paid no money to the company. No further subdivision occurred to provide the appellant with a lot.

The appellant sought specific performance of the subdivision and transfer of his lot pursuant to an alleged agreement of 2003, pleading five terms, (a)–(e), that were party written, partly implied and partly oral. The alleged consideration for the transfer was the directors taking steps to further finance and develop the remaining land.

The primary judge accepted elements of the alleged contract but found that it did not create an obligation to cause a subdivision and transfer of lots. Moreover, his Honour considered that a conversation between the directors and a third party in 2016, after which the respondent paid $175,000 to the company, constituted a repudiation of any such agreement.   

The second dispute concerned a loan of $170,000 made in 2013 by the respondent to the appellant that was secured by a mortgage over a portion of the appellant’s equity in the company. The loan was not repaid and, in 2014, the company resolved to transfer the mortgaged share to the second respondent.

The appellant claimed that the mortgaged share was held for him on trust or subject to an equity of redemption and sought orders that the share be delivered up or transferred.

The primary judge found the loan arrangement created a security interest, but determined that the appellant was not now entitled to redemption of the share on account of, inter alia, the long period of time since the loan was not repaid.

The appellant appealed and the respondent filed a notice of contention reagitating certain submissions made before the primary judge.

The issues on appeal were:

1. Whether the primary judge erred in construing the alleged agreement.

2. Whether the alleged agreement was repudiated or otherwise now unenforceable.

3. Whether the mortgaged share was subject to an equity of redemption.

The Court (Macfarlan JA at [1], Brereton JA at [2] and Emmett AJA at [92]), allowing the appeal, held:

As to issue (i), per Emmett AJA (Macfarlan JA and Brereton JA agreeing)

1. The primary judge erred in concluding that the contract created no binding obligation along the lines of pleaded terms (a) and (d). Each of the two directors mutually promised that, when required by the other, he would co-operate in causing the company to take such steps as were reasonably open to effect the excision and transfer of the two parcels: [36]–[37]

As to issue (ii), per Emmett AJA (Macfarlan JA and Brereton JA agreeing)

1. The conversation in 2016 did not amount to repudiation as there was no demand for payment for the lot transferred to the respondent. The assertion was that the respondent’s conduct in signing documents indicating a transfer price of $175,000 for the lot he received was, in circumstances where it was transferred for no monetary consideration, tantamount to a sham. That was not altered by his subsequent payment of $175,000 in 2016: [43]–[44]

2. Although the appellant initially made allegations in his original statement of claim inconsistent with the existence of the agreement as later pleaded, their denial by the respondent did not amount to acceptance of a repudiation: [45]

3. The various defences contended in the notice of motion of variation, completion, waiver, release, abandonment, estoppel, limitation and laches are not established: [47]–[60]

As to issue (iii) per Emmett AJA (Macfarlan JA and Brereton JA agreeing)

1. The loan arrangement constituted an agreement to give a legal mortgage that was perfected by the eventual transfer of legal title to the share. Although the contractual right to redemption ended upon the appellant’s default on the loan, his equity of redemption continued to be recognised in equity: [73]–[75]

2. Despite the appellants failure, inter alia, to initially formulate his claim for relief as a claim for redemption, in the interests of finality it is appropriate to order the taking of accounts between the parties and for the retransfer of the mortgaged share upon payment: [76]–[87]

Judgment

1. MACFARLAN JA: I agree with Emmett AJA.

2. BRERETON JA: I agree with Emmett AJA.

3. EMMETT AJA:

Introduction

This appeal is concerned with two quite separate disputes that arise out of the affairs of the third respondent, Matcove Pty Ltd (Matcove). One dispute is concerned with arrangements for subdivision of a parcel of land situated on the Pacific Highway, Moonee Beach, New South Wales (the Property). The parties to the first dispute are Matcove, the appellant, Mr Eric Fuller (Mr Fuller), and the first respondent, Mr Kerry Albert (Mr Albert). The other dispute is concerned with a mortgage of a share in the capital of Matcove (the Mortgaged Share) by Mr Fuller to the second respondent, Mrs Sandra Albert (Mrs Albert).

4. Mr Fuller commenced proceedings in the Corporations List of the Equity Division of the Supreme Court seeking relief in relation to both disputes (the Proceedings). On 14 July 2020, for reasons published on 25 May 20201 and 14 July 2020,[1] a judge of the Equity Division, sitting in the Corporations List (the primary judge), ordered that the proceedings be dismissed and that Mr Fuller pay the costs of Mr Albert, Mrs Albert and certain other defendants. No order as to costs was made against Matcove. Several other parties were joined as plaintiffs and defendants in the proceedings in the Equity Division. However, it is unnecessary to deal with the position of those other parties, since they are not parties to this appeal.

   1. See In the matter of Matcove Pty Limited [2020] NSWSC 625 (the Primary Judgment).

Background

5. Mr Fuller and Mr Albert are the only directors of Matcove. They and members of their respective families originally held shares in Matcove, as to 60%, by Mr Fuller and his children and, as to 40%, by Mr Albert, Mrs Albert and their children. At the time of the hearing before the primary judge, by reason of the transfer of the Mortgaged Share, to which reference will be made below, the shares in the capital of Matcove were held as to one half by each of Mr Fuller and his family and Mr Albert and his family.

6. The Property is in the area of Coffs Harbour City Council (the Council) and Matcove purchased the Property in 1993. At that time, the Property was undeveloped. The purchase of the Property by Matcove had been financed by a loan to Matcove, which was secured by a mortgage of the Property. That loan was subsequently refinanced from a loan of $400,000 by a different lender to Moonee Developments Pty Ltd (Moonee Developments), a company owned by the same shareholders and in the same proportions as Matcove. Moonee Developments was formed for the purpose of carrying out a proposed development of the Property. Guarantees were provided by each of Mr Albert and Mr Fuller for 50% of the amount borrowed by Moonee Developments. Matcove guaranteed to the new lender repayment of the loan by Moonee Developments. Matcove’s obligation under the guarantee was secured by a mortgage over the Property and a general security interest. The funds advanced to Moonee Developments were applied partly in repayment of the original loan to Matcove to purchase the Property and partly in the development of the Property by Moonee Developments.

7. At the time of the purchase of the Property, Mr Fuller and Mr Albert discussed possible arrangements whereby each would acquire from Matcove a parcel of land forming part of the Property and the balance would be the subject of a development application. Their intentions at that stage were that each would acquire his parcel for a consideration other than the payment of a price in money. The discussions were to the effect that Mr Albert would acquire a parcel near a creek at the back of the Property and Mr Fuller would acquire a parcel at the front of the Property, with a frontage on the Pacific Highway, from which a service station could be operated.

8. In 1998, Mr Albert arranged for Matcove to lodge a development application to have the Property subdivided to create a separate parcel, which was to be transferred to him. In February 2004, Matcove lodged a development application in respect of a subdivision to create a parcel for Mr Fuller on the western side of the creek running through the Property. However, Mr Fuller asked the Council to delay determination of that development application pending preparation of a submission. In May 2004, the Council informed Mr Fuller that the determination of his application would be suspended pending the determination of Matcove’s application for a subdivision of the Property, to create the parcel that was to be transferred to Mr Albert.

9. In November 2005, the Council gave the necessary approvals for the subdivision of the Property into two lots, being one lot having an area of 12.922 ha (Lot 1) and a second lot having an area of 1.293 ha (Lot 2). On 8 December 2005, a special meeting of Matcove approved the transfer of Lot 2 to Mr Albert and Mrs Albert for the price of $175,000, on the basis that the costs associated with the transfer would be paid by them. Subsequently, a contract for sale of Lot 2 by Matcove to Mr Albert and Mrs Albert was signed (the Contract for Sale) and a transfer of Lot 2 from Matcove to Mr Albert and Mrs Albert as purchasers was executed. Each recorded that the consideration for the sale and transfer was $175,000. Mr Albert and Mrs Albert received legal advice in respect of the documentation just referred to, which appears to have been intended to record what was then understood to be the value of Lot 2 for stamp duty purposes. However, the price referred to in the documentation was not paid at that time. I shall return to the matter of the price below.

10. In 2009, Matcove lodged an application for a major project consisting of the subdivision of Lot 1 into residential lots. That application was to be determined by the Minister for Planning. In January 2010, the Council invited Mr Fuller to withdraw his development application in respect of his proposed lot and indicated that it would refuse his application if it was not withdrawn. Mr Fuller did not apply for any further development approval for subdivision of the Property. However, he lodged a development application to build a house on the Property, which was rejected by the Council because of the approval that had been sought for the substantial subdivision of the Property, which was then before the Department of Planning.

Payment by the Alberts

11. On 1 December 2016, a significant meeting took place in Mr Albert’s office. The meeting was attended by Mr Albert, Mr Fuller, Mr James King and Mr Matthew Bailey. Mr King introduced himself as a private investigator. Mr Bailey was an employee of Mr Albert’s accountancy practice. According to Mr Albert, whose evidence was accepted by the primary judge, conversation then ensued for about 40 minutes.

12. The conversation on 1 December 2016 was in part to the following effect:

“King:   Did you pay for your block of land where you are living?

Albert:   No, I didn’t have to.

King:   Oooh but it says on the contract 35 days. That’s fraud. You have stolen a block of land from the Company.

Albert:   [to Fuller] Will you tell the guy I didn’t have to pay for the block of land.”

Mr Fuller shrugged his shoulders and the discussion continued as follows:

“Albert:   [Mr Fuller] you were to get another block of land yourself - correct and you would not be required to pay for it either as part of our arrangement, correct?

Fuller:   That’s right.

Albert:   So what is your problem?

King:   I’m going to report this matter to the police and they will take it from there. You are in a spot of bother.

Albert:   Mate, legally that property has been transferred correctly and [Mr Fuller] has signed off on it and that is the end of it.

King:   So what, you’re a solicitor now are you?

Albert:    Yeah mate, I’m a solicitor, a dentist, a carpenter, a builder[,] I’m whatever you want me to be.

King:    Can’t you read. It says 35 days.

Albert:    Jim you are not going to like how this ends but you can all leave now.”

13. Mr Albert said that Mr King continued to speak to Mr Bailey and that he, Mr Albert, had a conversation with Mr Fuller to the following effect:

“Albert:   Can we just sit down. What is this about?

Fuller:   This is all about the share transfer and the value you placed on it.

Albert    You have the opportunity to value it and buy it back any time, today or tomorrow if you want it back. I would also like you to pay me back the $200,000 you owe the office at the same time please.”

Mr Fuller merely shrugged. At the end of the meeting on 1 December 2016, Mr Albert asked Mr Fuller to wait a minute to speak to him and Mr Bailey started to usher Mr King out of the room. Mr King asked Mr Bailey to confirm what had been said during the meeting but Mr Bailey was trying to listen to what Mr Albert and Mr Fuller were saying to each other. Mr Bailey said that the following exchange took place:

“Fuller:    I accept there was an agreement for each of us to get a block of land.

Albert:    And neither of us had any obligation to pay for that block, correct?

Fuller:    Of course not.”

14. On 2 December 2016, Mr King sent an email to Mr Bailey setting out a version of the conversation that had taken place on 1 December 2016. Mr Bailey responded later in the day, saying that he had heard Mr Albert say to Mr Fuller:

“You knew of our agreement with the separation of the blocks?”

to which Mr Fuller replied:

“[O]f course.”

Mr Bailey said that Mr Albert then said to Mr Fuller:

“[W]ell you had no intention of paying for your block at the time either?”

to which Mr Fuller replied:

“[O]f course not.”

15. On 21 December 2016, a sum of $175,000 was transferred from an account named “KA&Co Business Loan” to Moonee Developments. The narrative on the payer’s account said, “Lot 2 Moonee” and the narrative on the payee’s account said “Land KASA”.

16. On 21 December 2016, Messrs Fishburn Watson O’Brien, who were acting for Mr Albert and Matcove, wrote to Messrs Crowther Sim Lawyers, who were acting for Mr Fuller. The letter referred to a general meeting of Matcove convened by Mr Albert. On 9 January 2017, Crowther Sim wrote to Fishburn Watson O’Brien in response to the letter of 21 December 2016 asserting that there were defects in the notice convening the proposed general meeting of Matcove. Crowther Sim Lawyers wrote again to Fishburn Watson O’Brien expressing the view that the proposed meeting had not been properly called because of defects in the notice. Fishburn Watson O’Brien replied later on 10 January 2017, saying that the general meeting did not proceed and that Mr Fuller would shortly receive notice of a new meeting. The letter then said:

“In the meantime, I can advise that, last year, Mr Albert paid $175,000 to Matcove in respect of Lot 2.”

17. There was no evidence as to the accounting treatment of the payment of $175,000 made to Moonee Developments. It appears to have been treated as a payment by the Alberts to Matcove.

The Proceedings

18. On 25 September 2017, Mr Fuller filed a statement of claim in the Proceedings (the Original Statement of Claim). In the Original Statement of Claim, Mr Fuller sought, relevantly:

• a declaration that the beneficial ownership of the issued share capital of Matcove is 60% as to Mr Fuller and his family and 40% as to Mr Albert and his family;

• a declaration that the beneficial ownership of the issued share capital of Moonee Developments is 60% as to Mr Fuller and his family and 40% as to Mr Albert and his family;

• an order that the register of members of Matcove and Moonee Developments be corrected to record the ownership of issued share capital as set out above;

• a declaration that, by reason of Mr Albert’s breach of his duties as a director of Matcove, whereby he transferred Lot 2 to himself and Mrs Albert, Mr Albert and Mrs Albert hold Lot 2 on constructive trust for Matcove, or alternatively, are liable to account to Matcove; and

• an order that Mr Albert and Mrs Albert do all such things and execute all such documents as to transfer Lot 2 to Matcove, free of any encumbrances.

19. Mr Fuller subsequently resiled completely from the allegations made in the Original Statement of Claim and filed an amended statement of claim on 15 May 2019 (the Amended Statement of Claim). In the Amended Statement of Claim, Mr Fuller sought, relevantly, the following relief:

• a declaration that Mrs Albert holds the ordinary share purportedly transferred to her by Mr Fuller on trust for him, alternatively, as mortgagee subject to the equity of redemption;

• an order that Mrs Albert transfer or take all necessary steps to deliver up the share to Mr Fuller;

• a declaration that a contract dated 18 February 2003 in relation to the Property is valid and enforceable and ought to be specifically performed;

• an order that the agreement of 18 February be specifically performed; and

• damages, equitable compensation or equitable damages or an account in lieu of specific performance.

The Amended Statement of Claim then made allegations in relation to the two disputes identified above. It is convenient to deal with each dispute separately.

Contract for the transfer of land

20. In the Amended Statement of Claim, Mr Fuller made allegations that might fairly be restated as follows:

1. On 18 February 2003, Mr Fuller, Mr Albert and Matcove entered into an agreement for the purposes of each of Mr Fuller and Mr Albert acquiring one residential building parcel from Matcove (the Agreement). The Agreement was partly oral, partly implied and partly written. To the extent that the Agreement was written, it was to be found in a document in the terms set out in Appendix 1 to these reasons (the Document).

2. Mr Fuller and Mr Albert entered into the Agreement individually and on behalf of Matcove.

3. The terms of the Agreement were as follows:

   (a)   Each of Mr Fuller and Mr Albert would acquire from Matcove, in consideration of Mr Fuller and Mr Albert taking steps further to develop the Property and financing such development, a block of land, which would be subdivided from the Property;

   (b)   the size of Mr Fuller’s and Mr Albert’s blocks of land would be in proportion to their respective interests in Matcove, namely, 60:40;

   (c)   the location of Mr Fuller’s and Mr Albert’s blocks of land would be roughly as depicted in a diagram included in the written part of the Agreement;

   (d)   each of Mr Fuller and Mr Albert would cause each of their respective blocks of land to be subdivided from the Property and cause Matcove to transfer to Mr Fuller and Mr Albert their respective blocks; and

   (e)   the timing of the subdivision of Mr Fuller’s and Mr Albert’s blocks would take place at the convenience of Mr Fuller or Mr Albert.

4. In or about 2005, and in performance of the Agreement, Mr Fuller and Mr Albert caused the Property to be subdivided into Lot 1 and Lot 2 to allow Lot 2 to be transferred to Mr Albert.

5. Mr Fuller allowed and caused Matcove to transfer Lot 2 to Mr Albert in reliance upon the terms of the Agreement.

6. The Agreement subsists and continues to bind Matcove and Mr Albert.

7. Mr Fuller is and has at all times been ready, willing and able to perform the Agreement.

8. In the premises, Mr Fuller is entitled to specific performance by Mr Albert and, to the extent necessary, Matcove, of the Agreement or, damages in lieu thereof.

9. In the alternative, it is unconscionable for Mr Albert to retain the benefit of Lot 2 in circumstances where:

   (a)   Mr Fuller acted to his detriment in incurring expenses in taking steps to develop the Property and to finance the development;

   (b)   in reliance upon the Agreement, Mr Fuller acted to his detriment in allowing Matcove to transfer Lot 2 to Mr Albert;

   (c)   the transfer of Lot 2 to Mr Albert has diminished the value of Mr Fuller’s shareholding in Matcove; and

   (d)   by reason of Mr Albert’s refusal to perform the Agreement, Mr Fuller has not received his parcel of land.

10. In the premises, Mr Fuller is entitled to equitable compensation from Mr Albert equal to the current value of Lot 2.

    21. Before the primary judge, Mr Albert disputed that there was a contract in the terms alleged by Mr Fuller. He also asserted that, if there was an arrangement along those lines, there was no intention to create legally binding obligations. The primary judge found that the formality of the Document indicated an intention to enter legal relations. There is no challenge by Mr Albert to that finding. Mr Albert also contended that any alleged contract was void for uncertainty. His Honour was satisfied that the Document was sufficiently certain, except possibly as to the consideration payable by Mr Fuller and Mr Albert for their respective parcels. There was no challenge to that conclusion in the appeal.

The Agreement

22. The oral part of the Agreement, as alleged by Mr Fuller, was based on the evidence of Mr Albert, which the primary judge accepted as credible and reliable, or was common ground. In his affidavit of 9 February 2018, Mr Albert said that, in or around 1992, Mr Fuller telephoned him and told him that there was a property for sale near the creek on the highway at Moonee and asked whether Mr Albert would be interested in “coming in” with him. They subsequently met at the Property prior to Christmas 1992. At the time, they had a conversation as follows:

“Albert:   Any residential development is many years off. This looks very long term and will have no return only outgoings until a sale. You can’t afford it. I’m interested because I would like to live down the back on the creek. I would want to build a home on the creek and carve off a block for myself. If that was agreeable to you I would be interested in buying it with you.

Fuller:    Okay. Well I would like a service station down the front on the highway so we could each get a block for our own purposes.

Albert:   Perfect! We could carve off a block at the back by the creek for my home and you could carve off a block for your petrol station on the highway for your purposes and we could develop and sell the rest down the track.

Fuller:   Pacific Highway southbound is in need of a petrol station. I’ll grab this as it will be the first service station before Coffs so sounds like a good earner so that suits me.

Albert:   We will have to borrow the lot [by which I meant the purchase price and development expenses] [sic] together on an interest only basis. Borrowing will not be easy as the land has no income and your business is not showing any profit.

Fuller:      Okay then let’s see what we can do.”

23. In 1998, the Roads and Traffic Authority made an announcement that there would be a dual carriageway past the frontage of the Property. That negated any chance for Mr Fuller to build a service station at the front of the Property because the speed limit would not permit a turnoff. At that time, Mr Albert and Mr Fuller had a conversation, in which Mr Albert told Mr Fuller about the announcement, to which Mr Fuller responded with words to the effect:

“Oh well, I’ll just have to have a block to build a house down the front like you.”

In or about 1998, Mr Fuller and Mr Albert had a meeting and had a conversation to the following effect:

“Albert:   I would like to proceed with a DA for my house block up the back by the creek as we discussed. I'll do the DA in the name of Matcove. I will of course pay all of the associated costs.

Fuller:      Sure I’ll do one for my block soon too.”

Mr Albert said in his affidavit that he told Mr Fuller that he would pay all of the associated costs with the development application because it was his understanding, based on their agreement, that he would become the legal owner of the subdivided parcel.

24. The primary judge accepted that the task of construction involved ascertaining the meaning that the Document would convey to a reasonable person having all the background knowledge that would be reasonably available to the contracting parties at the time the of the contract. That requires consideration of the language used in the Document, the surrounding circumstances known to the parties and the purposes or objects sought to be secured by the Agreement as alleged. [2]

    2. See In the matter of Matcove Pty Limited [2020] NSWSC 897.

25. The primary judge accepted that pleaded terms (b), (c) and (e) of the alleged Agreement were made out. His Honour considered that pleaded term (a) of the Agreement was established but with the qualification that “would” should be read not as creating an obligation to acquire the relevant land but as recording that the parties intended that each of them could do so. His Honour observed that the part of pleaded term (a) of the Agreement that was oral was the reference to the consideration, for which Mr Fuller relied on the evidence of Mr Albert. His Honour concluded that it was the parties’ common understanding or expectation, within their informal arrangements, that the relevant lots were to be transferred for no further payment, at least until Mr King asserted to the contrary on Mr Fuller’s behalf and, after Mr Albert and Mrs Albert had paid the sum of $175,000 for Lot 2.

26. Importantly, the primary judge concluded that alleged term (d) was not made out. His Honour considered that the question of whether pleaded term (d) arose depended upon whether or not it was necessary to give business efficacy to the arrangement and was not so obvious that it “goes without saying”. [3] His Honour did not consider that the requirement of necessity was satisfied given the availability of several alternative terms that would reflect a reasonable, but different, balancing of the interests of the parties in respect of the stated objective of the arrangement.

    3. See Rinehart v Hancock Prospecting Pty Ltd [2019] HCA 13; 366 ALR 635 at [44]; Cherry v Steele-Park (2017) 96 NSWLR 548; [2017] NSWCA 295 at [46] and [72].

27. The primary judge concluded that the preamble at the beginning of the Document did not have any promissory content and was no more than a record of the parties’ purpose, namely, that each would acquire one residential building site from Matcove and carve that parcel from the Property. His Honour held that there was no doubt that each had that purpose “at the relevant time”, being around when Matcove acquired the Property. It was also their intention at the time when the Document was dated and when it was signed, apparently in January 2004, notwithstanding that it is expressed to be signed on 18 February 2003. While his Honour did not consider that that statement of purpose had any promissory content, the use of the phrase “other terms” suggests that what precedes that statement was also regarded as a “term” of the arrangement recorded in the Document.

28. Paragraph 1 of the Document is not expressly limited in time. Accordingly, the proposed excision by way of subdivision of the Property could be deferred into the indefinite future by either party, and indeed, until after the approvals for any other subdivision of the Property had been sought. While the primary judge accepted that paragraph 1 identified when the subdivision would occur, whereby the two building blocks would be excised from the Property, his Honour considered that paragraph 1 did not expressly impose any obligation on either party to bring about that result.

29. The primary judge accepted that paragraph 2 of the Document recorded the intention of the parties concerning access but did not impose any obligation on either party to bring about the connection of public roads. Paragraph 3 refers to “the natural owners”, which his Honour appears to have assumed meant the parties. His Honour considered that neither “individual block costs” nor “joint utilities/costs” were within the scope of a potential sharing agreement. With respect to paragraph 4, his Honour accepted that the reference to the areas being “roughly depicted” on the plan on the Document should be regarded as having a similar content to “approximately”. His Honour considered that it would be possible for the Court to determine whether any particular block proposed by either party complied with the statement that it was “roughly depicted” on the plan, set out in the Document.

30. Pleaded term (d) is very much linked to pleaded term (a) and it is convenient to deal with them together. Notwithstanding the view expressed by the primary judge as to the preamble of the Document, pleaded term (a) can be derived from the preamble. There may be some question about the propriety of the directors in appropriating to themselves assets of their company. On the other hand, pleaded term (a) alleges consideration in the form of Mr Fuller and Mr Albert taking steps to develop the Property and financing that development.

31. Mr Albert accepted that there will ordinarily be an implied obligation on the parties to a contract, whereby each party has an obligation to co-operate with the others to achieve contractual objectives, particularly where the contract requires or envisages co-operation and involves an ongoing business arrangement. However, Mr Albert asserted that no such obligation was pleaded or alleged. His Honour concluded that, where several alternative terms were reasonable, the implication of one of them, to the exclusion of the others, is not necessary for the reasonable or effective operation of a contract of the particular nature in the circumstances of the particular case. [4]

    4. See Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 347; [1982] HCA 24.

32. The primary judge considered that the parties, in balancing their respective interests, could reasonably have recognised that it would be imprudent for Matcove, still less its directors jointly or individually, to accept an unqualified obligation to deliver a subdivision that they could not achieve without third party approvals. His Honour accepted that neither Mr Fuller nor Mr Albert could himself “cause” excision of the relevant parcel from the Property by subdivision, since that depended upon approval by the Council or the Minister for Planning in relation to the relevant subdivision. While his Honour accepted that they could have chosen to accept such an absolute obligation, they did not do so. His Honour considered that that fact emphasised that it was neither obvious nor necessary that they should do so.

33. The primary judge was not persuaded that pleaded term (d) could be implied in any agreement because the particular term contended for by Mr Fuller was neither necessary nor obvious. Further, his Honour held, the implication of pleaded term (d) was not necessary for the reasonable or effective operation of a contract of the particular nature in the circumstances of the particular case. His Honour considered that that resulted from the existence of several alternative terms that might have reflected an appropriate balancing of the interests of the parties in the circumstances. His Honour considered that, where there are multiple alternatives for such a clause, and several of them are reasonable, then no particular version of that clause is so obvious that it goes without saying or that it is necessary for the operation of the contract.

34. On the other hand, the primary judge considered that that would not have prevented the parties reaching agreement, not only as to their common purpose, but also as to the obligations that they would assume in order to bring about that purpose. However, his Honour considered that it did have the consequence that, to do so, the parties had to determine for themselves which of several approaches would best achieve their contractual purpose, where several approaches were available and no single approach was either obvious or necessary to the exclusion of the alternative. His Honour therefore concluded that no term can be implied to make a choice between reasonable alternatives that the parties did not make for themselves. That is a curious conclusion. The result is that, notwithstanding that the parties intended to enter into legally binding relations, there was, in effect, no content in their contractual promises.

35. It is not necessarily clear that Matcove was intended to be bound by any agreement. Thus, although the Document recited that Mr Fuller and Mr Albert were in fact directors of Matcove, they did not purport to sign as directors or on behalf of Matcove. Nevertheless, if the arrangement is to be given binding force, it should logically be understood as an agreement to which Matcove, as well as each of Mr Fuller and Mr Albert, is a party.

36. Further, whether or not Matcove was intended to incur an obligation, it is fair to read the Document as a promise by each of Mr Fuller and Mr Albert that he will take whatever steps are reasonably within his power to effect the excision from the Property of the parcels chosen by each of them and the transfer of those parcels to Mr Fuller or Mr Albert as the case may be. That is the essence of pleaded term (d).

37. Putting aside the question of consideration as between Matcove, on the one hand, and Mr Fuller and Mr Albert, on the other, I consider that it is clear enough that each of Mr Fuller and Mr Albert mutually promised that, when required by the other, he would co-operate in causing Matcove to take such steps as were reasonably open to it to achieve the stated purpose. That is the essence of pleaded terms (a) and (d). Whether there was a breach by Mr Albert of such a promise is, of course, a different question. Further, the question of whether such a promise could be the subject of an order for specific performance is also a different question. However, I consider that the primary judge erred in concluding that there was no binding obligation along the lines of pleaded terms (a) and (d) arising from the Document, in the context of the oral communications referred to above.

Mr Albert’s Defences

38. In their defence, the defendants denied the allegations made in the Amended Statement of Claim, as set out above, and made counter-allegations that may be restated as follows:

• An agreement had been reached between Mr Albert and Mr Fuller as to the terms on which Mr Albert and Mr Fuller would receive subdivided parts of the Property from Matcove for no payment;

• That agreement was subsequently varied between the parties;

• The terms of the agreement included that Mr Albert would proceed with lodging a development application first and prior to Mr Fuller;

• The agreement already in place, which was recorded in the Document, was subsequently superseded or varied:

• by the preparation, drafting, revision, lodgement and subsequent amendments, with Mr Fuller’s consent and involvement, of Development Application SSD7198 with respect to Lot 1 of the Property (the Lodging of DA SSD198); and

• in December 2016, when Mr Fuller demanded that Mr Albert pay for Lot 2 and Mr Albert paid in accordance with that demand (the Demand).

• Any agreement between Mr Fuller and Mr Albert pursuant to which the Property would be subdivided and parts of the Property transferred to Mr Albert and Mr Fuller without payment to Matcove was completed and at an end by 6 January 2010, when Mr Fuller’s development application for subdivision was rejected;

• Any agreement between Mr Fuller and Mr Albert pursuant to which the Property would be subdivided and parts of the Property transferred to Mr Albert and Mr Fuller without payment to Matcove:

• was varied by the Demand and payment by Mr Albert in accordance with the Demand and by the lodging of DA SSD7198; or

• was repudiated by Mr Fuller by reason of the Demand and the lodgement of DA SSD7198 and the allegations made in the Original Statement of Claim

such that Mr Fuller is no longer entitled to receive a subdivided part of the Property and Mr Albert is under no obligation to cause the same;

• By making the Demand and being involved in the lodgement of DA SSD7198 and by making the allegations in the Original Statement of Claim:

• Mr Fuller waived or abandoned any entitlement to receive a subdivided part of the Property and any obligation on Mr Albert to cause the same;

• Mr Fuller elected in favour of Matcove’s receipt of the payment in accordance with the Demand thereby increasing the land subject to DA SSD7198 and rejected an entitlement to receive a subdivided part of the Property;

• Mr Fuller unilaterally released Mr Albert from any obligation to cause the subdivision of the Property and receipt of part of the Property by Mr Fuller;

• by making the Demand and being involved in DA SSD7198 and making the allegations in the Original Statement of Claim, Mr Fuller represented that he was not entitled to and did not wish to receive a subdivided part of the Property and that Mr Albert was under no obligation to cause the same, Mr Albert and Matcove relied on that representation of the debt and, accordingly, Mr Fuller is estopped from resiling from that representation.

Repudiation

39. Mr Albert contended that, even if there was a binding contractual arrangement along the lines of pleaded terms (a), (b), (c), (d) and (e), that contract was repudiated by Mr Fuller and that repudiation was accepted by Mr Albert. Mr Albert also contended that Mr Fuller had waived or abandoned his rights under any contract, although his Honour considered that those defences added little to the allegation of repudiation. Mr Albert contended that Mr Fuller’s conduct in connection with the allegations made in December 2016 by Mr King and the Original Statement of Claim amounted to repudiation of any contract containing pleaded terms (a), (b), (c), (d) and (e). In particular, Mr Albert relies on the alleged insistence by Mr Fuller that Mr Albert pay for Lot 2 in accordance with the Contract for Sale.

40. The primary judge accepted that repudiation of a contract is a serious matter, not to be found or inferred lightly and involves an expressed unwillingness or inability to render substantial performance of a contract. [5] His Honour considered that Mr Fuller’s conduct at the December 2016 meeting and in surrounding correspondence, in permitting Mr King to allege that the transfer of Lot 2 by Matcove to Mr Albert and Mrs Albert constituted fraud, amounted to a repudiation of the pleaded terms of the Agreement. His Honour considered that the fact that Mr Fuller may have acknowledged to Mr Bailey the existence of the Agreement, as alleged, or its terms, as pleaded, at the same time as permitting Mr King to allege that it amounted to fraud is not to the point. His Honour considered that the position that Mr Fuller permitted Mr King to take at the meeting in December 2016 manifested an intention no longer to be bound by a critical term of the Agreement, as pleaded, namely, that the transfer of the parcels to Mr Albert and Mr Fuller was to take place for the consideration stated in pleaded term (a) and, by necessary implication, would not require further payment of a price by Mr Albert or Mr Fuller.

    5. See Hawkins v Clayton (1988) 164 CLR 539 at 571–573; [1988] HCA 15.

41. The primary judge considered that a reasonable person, in the position of Mr Albert, would plainly view Mr Fuller’s conduct as radically inconsistent with the pleaded terms and as a refusal by Mr Fuller to recognise or comply with those terms. His Honour considered that acceptance of the repudiation was obvious enough in that Mr Albert and Mrs Albert subsequently paid the consideration of $175,000 stated in the Contract for Sale and in the transfer of Lot 2. His Honour considered that the repudiation was accepted when Mr Albert took the understandable view that, if Mr Fuller would not recognise any right on Mr Albert’s part to a transfer of Lot 2 without payment, Mr Albert would not recognise any corresponding right of Mr Fuller.

42. The involvement of Mr King and the role that he played is not entirely clear. Mr King did not give evidence. Nevertheless, it is clear enough that he was speaking on behalf of Mr Fuller at the meeting in December 2016.

43. However, as Mr Fuller contends, it is important to have regard to precisely what Mr King said. He did not assert that the price referred to in the Contract for Sale and in the transfer of Lot 2 was owing by Mr Albert and Mrs Albert to Matcove. Mr King did not demand payment of the price of $175,000. Nor did Mr Fuller demand payment. Rather, Mr King’s assertion was that there was impropriety on the part of Mr Albert, and, for that matter, Mr Fuller, in being parties to what was tantamount to a sham. That is to say, the Contract for Sale and the transfer were brought into existence to reflect an obligation to pay a price of $175,000 in circumstances where the parties had no intention that that price would be paid. It appears that there was discussion between Mr Albert and his legal advisers to the effect that the transfer should reflect the value of Lot 2 for the purposes of assessing stamp duty. If the transfer were expressed to be for no consideration, or for the consideration pleaded in paragraph (a), the Stamp Duties office would have required independent evidence of the value of Lot 2 for the purposes of assessing ad valorem duty.

44. The reason for Mr Albert making the payment of $175,000 is curious. Thus, on his version of events, he and Mr Fuller acknowledged at the December 2016 discussion that their intention was for the respective parcels to be transferred without payment of any price. Mr Albert gave evidence that, by reason of the conversations that had taken place at the meeting on 1 December 2016, he felt “intimidated and confused”. He said that that was the first time he had ever heard any suggestion of his having to pay for Lot 2 and decided that the best course of action, given that there appeared to be a dispute, was to pay the agreed consideration specified in the Contract for Sale. He said that he hoped, by doing so, to avoid any protracted dispute in relation to his “family home”. That is not an acceptance of a repudiation by Mr Fuller.

45. On the other hand, the allegations made in the Original Statement of Claim appear to be quite inconsistent with the terms of the Agreement pleaded in the Amended Statement of Claim. Nevertheless, there was no acceptance of such a repudiation by Mr Albert. Rather, by his defence to the Original Statement of Claim, he denied the allegations made by Mr Fuller in the Original Statement of Claim.

46. A repudiation is the evincing of the intention no longer to be bound by a contractual promise. In further answer to the allegation of repudiation, Mr Fuller asserts that, by December 2016, all obligations on his part had been performed. That is to say, there was no outstanding obligation for him to evince the intention not to perform. Mr Albert had received the benefit of all of the promises made by Mr Fuller to co-operate in causing Matcove to take steps reasonably open to it to effect the subdivision of the Property and transfer of the relevant parcel to Mr Albert and Mrs Albert. It may well be that steps were required to be taken by Mr Fuller to achieve the transfer of a relevant parcel to him. However, he had no obligation to do so. The evidence does not support a conclusion that he evinced an intention no longer to be bound by any unperformed obligation.

Variation, Waiver, Release, Abandonment and Estoppel

47. Having regard to the conclusion reached in relation to repudiation, the primary judge did not consider that it was necessary to deal with the other defences outlined above. However, his Honour addressed the defences briefly. His Honour observed that the defendants relied on the same facts in support of legal propositions formulated in the various alternative defences.

48. The primary judge considered that the Agreement, if it was otherwise enforceable, was not completed as at 6 January 2010 as alleged by the defendants, in circumstances where Mr Fuller had not received the benefit of the Agreement at that date. His Honour considered there was substantial force in the submission made on behalf of Mr Fuller that the matters alleged by the defendants did not identify any particular variation of the Agreement, as evidenced by the Document, and raised the same issues as the allegation that Mr Fuller had abandoned the Agreement or his rights. His Honour inclined to the view that the Agreement did not specify whether any payment was required by Mr Fuller or Mr Albert in respect of their respective lots. His Honour inclined to the view that the matters alleged by the defendants did not give rise to any variation of the Agreement, as evidenced by the Document. However, his Honour considered the position taken by Mr King, on Mr Fuller’s behalf, at the December 2016 meeting, was fundamentally inconsistent with the position being advanced by Mr Fuller in the proceedings that no payment was required in respect of either of the lots.

49. The primary judge was also inclined to conclude that the defences of waiver or abandonment added little to the defendant’s allegation of repudiation. His Honour also inclined to the view that the defence of release did not raise any matter that was not raised in respect of the questions of waiver and abandonment. Further his Honour observed that no consideration was given or promised by Mr Albert for any alleged release. His Honour also considered that the defence of estoppel would not be established because the evidence did not establish the alleged representation by Mr Fuller that he was not entitled to and did not wish to receive a subdivided part of the Property or that Matcove was under no obligation to cause that subdivision.

50. By notice of contention filed on 17 November 2020, Mr Albert contended that the decision of the primary judge should be affirmed on the following alternate bases:

• the alleged Agreement was superseded or varied;

• the alleged Agreement was waived or abandoned by Mr Fuller; and

• the alleged Agreement was not enforceable as there was a unilateral release by Mr Fuller.

51. In their written submissions in support of the notice of contention, the respondents relied upon the same facts and conduct to support the defences of waiver, abandonment, unilateral release and that the alleged Agreement had been superseded or varied. The facts and conduct relied on were described in their submissions as follows:

• the fact that Mr Fuller never prepared, lodged or sought Mr Albert's consent in respect of an application for subdivision of the Property;

• since the early 2000s Mr Fuller had been involved in the preparation of DA SSD7198 on behalf of Matcove, which was conduct entirely inconsistent with the maintenance of any entitlement to land within Lot 1 of the Property for himself;

• Mr Fuller instructed his solicitors to send a letter of 17 August 2016, reported the matter to the police and authored his own correspondence to Matcove shareholders in February 2017; and

• Mr Fuller brought these proceedings originally alleging fraud, breach of fiduciary duty and directors’ duties and knowing receipt, alleged to arise from the acquisition of Lot 2 for no payment and without the knowledge or consent of Mr Fuller.

52. In support of those contentions, the respondents relied on their submissions to the primary judge. In response, Mr Fuller also relied upon his submissions to the primary judge.

53. In their written submissions to the primary judge, the respondents asserted that, depending upon the construction of the Document, any contract said to arise out of it had been completed. They said that the attempt in 2004, ultimately unsuccessful in January 2010, by Mr Fuller to obtain his own block of land or dwelling constituted a completion of any obligations said to arise under the Document for the parties to cause a “subdivision” of a block to Mr Fuller to take place. Equally, the respondents said, the Document had been varied by the subsequent conduct of the parties and Mr Fuller’s unsuccessful attempt to obtain a development application. It was said that the variations were supported by consideration, most prominently being the increase in value of Lot 1 by reason of a development application maximising more land available for residential development. The submission asserted that no such varied agreement was sued upon by Mr Fuller.

54. It is somewhat difficult to understand the respondents’ contentions in relation to completion and variation. It may be that, on the construction of the Document adopted above, the obligations of Mr Fuller were complete. However, it could not be said that the obligations of Mr Albert were complete, in so far as Mr Fuller had not obtained a parcel as contemplated by the terms of the Document.

55. It is difficult to discern precisely what allegation is made by the respondents as to a variation of the contractual arrangements between the parties. There is no formulation of a varied contract or of a contract that superseded the existing arrangements. The defence does not indicate the nature of the variation alleged or attempt to particularise in any way the terms of the varied agreement. For example, it is not pleaded by the respondents that the agreement between the parties was varied to provide that Mr Fuller and Mr Albert would pay a sum of money to Matcove as consideration for the transfer by Matcove of a parcel to each of them. The contention does not appear to add anything to the contention that any contractual arrangement still in force was abandoned by Mr Fuller.

56. The respondents’ written submissions to the primary judge also contended that the conduct of Mr Fuller could be characterised as a waiver or abandonment by him of any entitlement to his own block of land. The submissions contended that it was plain from the conduct of the parties that neither intended that their agreement would be further performed, based on an objective assessment of the conduct of the parties, having regard to the length of time that had elapsed during which neither Mr Fuller nor Mr Albert attempted to perform or called upon the other to perform a subdivision.

57. Of course, there is no reason for Mr Albert to call upon anyone to perform. The balance of the Agreement that required performance was for the benefit of Mr Fuller. Mr Albert had obtained the benefit of the Agreement from his point of view, subject to the question of the payment made by him. The contention that Mr Albert’s conduct in paying the sum of $175,000 is consistent only with abandonment says nothing about the conduct of Mr Fuller. It may be that the respondents were asserting that the Agreement was varied in some fashion whereby the parties agreed that a consideration was to be paid for the parcel of land. However, no such allegation is contained in the defence or elsewhere. I do not consider that Mr Fuller’s conduct, as described above, constituted an abandonment by him of any entitlement to receive a transfer of his own block of land.

58. The respondents also contended to the primary judge that Mr Fuller’s conduct constituted a unilateral release by him of any obligation that Mr Albert still had under the agreement evidenced by the Document. The contention was based on Mr Fuller’s insistence in the Original Statement of Claim that Mr Albert had no entitlement to Lot 2 of the Property. The respondents also asserted that Mr Fuller should have insisted upon his rights at the meeting on 1 December 2016 when, as they say, he asserted that Mr Albert had no entitlement to Lot 2 for no consideration. They asserted that Mr Albert raised the entitlement of Mr Fuller to his own block of land and that Mr Fuller’s failure to insist on his own block and maintaining that Mr Albert had no basis or entitlement to Lot 2 of the Property constituted a unilateral release of any obligation that Mr Albert may have had to cause Mr Fuller’s subdivision of a block from the Property. However, while here is clearly considerable tension between there being an agreement in the terms alleged by Mr Fuller in the Amended Statement of Claim and the allegations made in the Original Statement of Claim, I do not consider that that amounts to a release any more than it amounts to abandonment.

Limitation and Laches

59. Once it is accepted that there was no repudiation, abandonment, release or variation of the Agreement, as was alleged by Mr Albert in his defence to the Amended Statement of Claim, the operation of the Limitation Act 1969 (NSW) depends upon when there was a breach of the Agreement. There was no breach until Matcove or Mr Albert failed to perform the obligations imposed upon them by the Agreement. There is no evidence of any request or demand on the part of Mr Fuller for Matcove or Mr Albert to perform their obligations until shortly prior to the commencement of the proceedings. Whenever any such request or demand was first made, it is clear that it was made within the limitation period prior to the filing of the Amended Statement of Claim. I do not consider that a limitation defence has been established.

60. Further, I do not consider that the circumstances alleged by Matcove and Mr Albert in their defences amount to laches. Laches may well be based upon lack of diligence and activity in making a claim. However, mere delay is insufficient to constitute laches. Rather, any delay must be characterised as being unreasonable so as to prejudice the other party. Further, it is a defence to a claim in equity and not a defence to a claim for damages for breach of contract. Neither Matcove nor Mr Albert has pointed to any specific prejudice suffered by either of them as a consequence of any delay on the part of Mr Fuller in bringing his claim. For the reasons indicated below, there may well be difficulties with specific performance. However, laches would not be an answer to a claim for damages for breach of contract.

Relief for Breach of Contract

61. The net effect of the conclusion reached by the primary judge is an imbalance in the respective rights and entitlements of Mr Albert and Mr Fuller. That is to say, Mr Fuller had received nothing. That, of course, may partly be because of his failure to take steps earlier at the time when Mr Albert took steps for the transfer of his parcel. On the other hand, Mr Albert acquired a parcel in accordance with the pleaded agreement. While, some 10 years after the acquisition, he paid a sum of $175,000, there was no suggestion of a promise by Mr Albert to pay that sum and there was no demand for the payment to be made.

62. It may be that Mr Albert has a remedy against Matcove for recovery of the sum of $175,000, on the basis that it was a payment made under a mistake or under duress in some way. That was not in issue in the proceedings and that question is not presently before this Court. Further, it has not been argued that an obligation to do equity, on Mr Fuller’s part, would involve procuring repayment of the sum, or giving credit for it, possibly because the payment appears to have been voluntary, albeit mistaken, and not in response to a demand.

63. While Mr Fuller did not repudiate the pleaded agreement, it is clear enough that Mr Albert has now repudiated it by purporting to accept Mr Fuller’s alleged repudiation. Mr Albert has evinced a clear intention not to be bound by the pleaded contract. On the other hand, Mr Fuller certainly has not accepted that repudiation. Mr Albert’s conduct, however, may justify Mr Fuller’s application for specific performance of any unperformed term of the pleaded contract. That raises the question of whether an order for specific performance is appropriate or whether the appropriate relief is damages for breach of contract either by Mr Albert alone or by Mr Albert and Matcove together.

64. There are difficulties in granting the relief of specific performance sought by Mr  Fuller. Apart from the difficulty in identifying the parcel of land that should be excised from the Property and transferred to Mr Fuller, questions may arise as to the steps that need to be taken in order to achieve the further subdivision of the Property. For example, it might be found that planning or regulatory constraints mean that the Agreement was incapable of performance or was frustrated. Those matters have not been the subject of evidence.

65. In the circumstances, the appropriate course would be to remit the Proceedings to the primary judge for inquiry as to whether orders for specific performance are practicable. If his Honour concludes that they are not, it would be necessary to embark on an inquiry as to the damages suffered by Mr Fuller by reason of the failure by Mr Albert and Matcove to take such steps as are reasonably open to effect a further subdivision of the Property in order to excise a parcel that would satisfy Mr Fuller’s entitlement under the Agreement as pleaded.

66. If, in the course of that inquiry, it became apparent that the Agreement was incapable of performance or was frustrated, it might be found that Mr Albert’s breach caused no damage since, by the time he was called on to perform his obligations, subdivision was no longer able to be achieved in any event. On the other hand, if specific performance is not practicable, Mr Fuller may well have an equitable charge on the Property, for an amount equivalent to 150% of the value of Mr Albert’s lot, having regard to the 60:40 relationship in the Agreement. On the basis that Mr Albert’s parcel was worth $175,000 in 2005, Mr Fuller would have a charge for an amount equivalent to $262,500 plus interest. Those considerations would be for the primary judge to take into account after hearing from the parties.

The Mortgaged Share

67. In late May and early June 2013, Mr Fuller sought the assistance of Mr Albert in obtaining a loan of the sum of $100,000. A payment of $170,000 was subsequently made to Mr Fuller, part of which was applied in part payment of accounting fees owed to Mr Albert’s accounting firm by Mr Fuller and entities associated with Mr Fuller. Mr Fuller subsequently signed a deed of loan, a transfer of a share in Matcove and a general security deed in respect of the transaction. The deed of loan relevantly provided as follows:

“[Mr] Albert and [Mrs] Albert agree to loan [Mr] Fuller and related entities One [indistinguishable] Thousand Dollars ($100,000) and current debtor and Work in Progress (WIP) amount [sic] owed [indistinguishable] Albert & Co to 3 June 2013 (not less than Seventy Thousand Dollars ($70,000)) for invest [sic] [indistinguishable] as [Mr] Fuller sees fit.”

68. The deed of loan also provided for the giving of security over the Mortgaged Share. The deed of loan provided that, if the principal amounts, totalling $170,000, were not repaid by 1 December 2013, the Mortgaged Share was to be transferred from Mr Fuller to Mrs Albert on that date. A transfer of the Mortgaged Share from Mr Fuller to Mrs Albert was executed by Mr Fuller and dated 4 June 2013.

69. Mr Fuller did not repay the amount due under the deed of loan on 1 December 2013. The minutes of a meeting of the directors of Matcove attended by Mr Albert and Mr Fuller on 1 August 2014 records a resolution to approve the transfer of one share in Matcove from Mr Fuller to Mrs Albert with effect from 1 August 2014 and that notification of the transfer be lodged with the Australian Securities and Investments Commission (the Commission). On 18 August 2014, notice of the transfer of the Mortgaged Share from Mr Fuller to Mrs Albert was lodged with the Commission. Thereafter, the parties treated Mr Albert and his family, on the one hand, and Mr Fuller and his family, on the other, as having a half interest each in Matcove.

70. It was common ground that the sum of $170,000 was advanced to Mr Fuller, of which $70,000 was applied as part payment for accounting fees owing to Mr Albert’s firm by Mr Fuller and entities with which he was associated or which he controlled. However, before the primary judge, Mr Albert and Mrs Albert did not accept that the transfer of the Mortgaged Share by Mr Fuller to Mrs Albert was by way of mortgage as security for a loan. The primary judge accepted the contentions advanced on behalf of Mr Fuller that the arrangements were in the nature of a mortgage and that the provision for the transfer of the Mortgaged Share to Mrs Albert was “a remedy for default”, in effect perfecting the security. There is no challenge to the conclusion reached by the primary judge that the arrangements between Mr Fuller, on the one hand, and Mr Albert and Mrs Albert, on the other, in relation to the Mortgaged Share constituted a creation of a security interest.

71. The primary judge then considered Mr Fuller’s claim for redemption. His Honour concluded that Mr Fuller was not entitled to an order for redemption of the Mortgaged Share and that it was neither unfair nor unconscionable in all the circumstances for Mrs Albert to retain the Mortgaged Share. His Honour advanced three reasons for reaching that conclusion. The first was the delay over a long period in repayment of the loan secured by the mortgage, although his Honour acknowledged that the payment of interest at Court rates would compensate Mrs Albert for that delay so long as interest payable by Mr Fuller at those rates is no less than the interest paid by Mr Albert and Mrs Albert on their home loan over that period. The second reason was that Mr Fuller had not offered any adjustment to compensate Mrs Albert for additional monies contributed to loan repayments by Matcove proportionate to the increase in shareholding that arose from the transfer of the Mortgaged Share to Mrs Albert. His Honour could see no reason why the Court should formulate or impose an additional condition that Mr Fuller takes steps that he had not previously offered to take “in order to establish an equity of redemption”. His Honour considered that the fact that Mr Fuller had not himself addressed that matter tended against any unconscionability or unfairness in Mrs Albert’s retaining the Mortgaged Share.

72. The third reason was that Mr Fuller had made no offer to pay Mrs Albert’s costs attributable to the Proceedings in such amount as may properly be payable. His Honour considered that such costs would properly be payable, both because the Proceedings arose from Mr Fuller’s default in repayment of the loan over a very long period of time and because Mrs Albert reasonably defended the Proceedings. His Honour said that, had he been otherwise persuaded that an order for redemption should be made, he would have deferred making such an order until Mr Fuller had paid, and not merely promised to pay, the amounts referable to the principal of the loan, the interest and an estimate of costs of the Proceedings.

73. The arrangement described above constituted agreement to give a legal mortgage, which was perfected by the registration of the transfer to Mrs Albert, giving her legal title to the Mortgaged Share. There was a proviso for redemption whereby, if Mr Fuller repaid the advance on 1 December 2013, he would be entitled to a re-transfer of legal ownership of the Mortgaged Share and discharge of the security. However, his default brought the contractual right to redeem to an end. Nevertheless, in equity, his proprietary interest in the Mortgaged Share, namely, his equity of redemption, continued to be recognised.

74. The equity of redemption, recognised by the Lord Chancellor in English law, was derived from the doctrine introduced into Roman law by the Praetor, who recognised that a mortgagor’s right to redeem was more than a mere contractual right. Thus, in the case of a transfer of ownership of property in Roman law subject to a fiducia cum creditore, the transferee could not derive any benefit from the mortgaged property beyond the secured debt and interest and expenses. The mortgagee could not become owner, free from the fiducia, even through an intermediary. An agreement that the mortgagee would have no right to sell was void although, under Roman law, the mortgagee’s power of sale was hedged around with increasing statutory restrictions and the mortgagee’s right of absolute foreclosure of the equity of redemption was in later law legislated almost out of existence. [6]

    6. See Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623 at 643, 657–659; [1989] HCA 23.

75. Under Roman law, as under the common law, the equity of redemption continues until such time as there is either foreclosure of the equity of redemption, by order of the Court, or the valid exercise of a power of sale by the mortgagee. Neither has occurred in the present case. It must follow, therefore, that Mr Fuller’s equity of redemption continues on foot. The question is whether Mr Fuller has yet proffered sufficiently appropriate undertakings or assurances to obtain an order for redemption of the Mortgaged Share.

76. Ultimately, the dispute concerning redemption appears to turn on deficiencies in the prayers for relief in the Amended Statement of Claim and the failure of Mr Fuller to offer to pay and compensate Mrs Albert for all losses and outgoings she had suffered and incurred by reason of the default in repayment of the secured indebtedness on 1 December 2013. In that regard, it is necessary to have regard to the communications between the parties on the question of redemption.

77. On 28 February 2020, Crowther Sim Lawyers wrote to Pure Legal, who were acting for Mr Albert and Mrs Albert. By that letter, Crowther Sim Lawyers said, relevantly, as follows:

“Our client, Mr…Fuller offers to redeem the share held by [Mrs] Albert as mortgagee which our client pledged as security for the loan made by M[r]s Albert.

We presently hold funds in trust to cover the repayment amount of the debt in respect of which the security was provided, that is $170,000 plus interest.

Please provide us with alternative dates and times in the next 14 days for us to attend at your offices or any other convenient location to settle the debt by way of a bank cheque and the precise amount required as at the relevant date. Please also provide us with a form of the transfer of the share proposed by M[r]s Albert to be provided in exchange for the aforementioned cheque as well as a copy of the share certificate itself.”

78. Pure Legal responded on 12 March 2020 saying that they would respond to the substance of the letter of 28 February 2020 as quickly as possible but in the meantime asked “what interest component” Crowther Sim Lawyers held in trust and how that figure had been calculated. Crowther Sim Lawyers replied on 20 March 2020 saying, relevantly, as follows:

“Your client is obliged, as mortgagee, to provide the payout figure and the interest he claims he is entitled to. If he overstates that amount, the consequences are that he will be exposed to a costs order in the redemption proceedings. Accordingly, we do not intend to respond to your interrogatory, save to state that we are confident that we have sufficient funds in place to redeem the proper amount due on the mortgage.”

79. On 24 March 2020, Pure Legal replied as follows:

“We do not agree with the assertions contained [in your letter of 20 March 2020] and are surprised and disappointed by what appears to be an unreasonable refusal to confirm how much money you have in trust. Without such specification your offer does not constitute an open, unconditional tender.

Although we dispute any characterisation of us as mortgagee in possession we note you have never requested payout figures from our client. On our calculation using a pre-judgment interest rate pursuant to the UCPR the interest figure is $67,900. Cost of litigation to date in relation to this share issue are on a conservative basis $75,000. Therefore can you please confirm your client has $312,900 in total in your trust account within 3 days.

In terms of our substantive response to your correspondence we confirm we are in the process of obtaining counsel advice and consulting with our client as expeditiously as possible. You will of course appreciate, given the present circumstances, it is not possible to achieve this as expeditiously as may be the case under normal circumstances.”

80. On 26 March 2020, Crowther Sim Lawyers responded to the letter from Pure Legal of 24 March 2020 saying, relevantly, as follows:

“We reject your suggestion that your client is entitled to seek payment of costs.

We again state that whilst there is no obligation under the loan or the security to pay interest, and without accepting that our client is liable to pay such interest, our client will pay out the amount contended for by your client on the basis that your client refuses to redeem the share without such payment and reserves his right to seek to recover overpayment in the proceedings as monies had and received by your client.

Our client accepts that, by redeeming the share, your client’s rights to argue for costs incurred in the present proceedings insofar as they may relate to this issue remain reserved.

Our client requires that your client now nominate a place and time for the share to be redeemed on the basis of payment set out above.”

81. Pure Legal wrote again to Crowther Sim Lawyers on 27 March 2020 in response to the letter of 26 March 2020. Pure Legal said, relevantly, as follows:

“We maintain our position that our client is not a mortgagee in possession and the principles of equity of redemption do not apply. We shall maintain that argument at hearing. Nothing that is said in this or in any following open correspondence ought to be taken as any sought [sic] of acknowledgement or admission that your client is entitled to redemption.

Nonetheless, we are willing to openly correspond on the basis of your suggestion that your client can have the share transferred to him if he is prepared to pay an appropriate amount as if it was an exercise of the equity of redemption. For that to be the case and for your offer to constitute an unconditional open tender attracting the principles of equity of redemption it is necessary for your client to pay:

.   The principal amount in question;

.   Interest;

.   Costs.

Our letter of 24 March 2020 set out the quantum of interest claimed by our client and the basis on which it is mathematically calculated (being the pre-judgment interest rates in accordance with the UCPR). We also provided the reasonable and conservative estimate of legal costs associated with the share transfer issue in the current proceedings incurred to date.

With respect to your reservation of rights as to any “overpayment” of interest, of course, if in the end it be demonstrated that there was an “overpayment” our client accepts that she would be obliged to repay that money.

We note costs, as referenced above, include legal costs incurred in the current proceedings to date in relation to the share transfer issue. We have provided a reasonable and conservative estimate of such costs in our letter of 24 March 2020. If you disputed the quantum put forward by us, again and as in the case of interest, we state that any amount shown to be overpaid would be repayable to your client and our client would agree to putting any amount that is disputed, on reasonable grounds, into a separate trust account until termination of such a dispute …

However, none of the above seems particularly relevant given we read your letter of 26 March 2020 to be a refusal to pay any legal costs at all. For obvious reasons, our client would not accept the tender of any amount calculated on that basis. Nor do we understand upon what grounds the inclusion of legal costs could be disputed by your client.

Accordingly, our client does not accept that you have tendered an appropriate amount that would activate the equity of redemption even if the equity was available. Your offer is rejected and the share will not be transferred.

Finally, we note that since the share was transferred to our client both our client and the company Matcove Pty Ltd have operated on the basis that our client was the owner of the shares and costs for the development have been allocated proportionally. Can you please confirm that your client accepts a necessary consequence if any redemption were to occur would be reversing of all such amounts as recorded in the books and records of Matcove Pty Ltd from our client to your client?

We otherwise reserve our rights, maintain that our client is the owner of the share and not a mortgagee in possession and your client has still failed to ever make an unconditional open tender capable of attracting the principles of equity of redemption. In particular, your client should not assume our client will continue to deal with your client upon the above bases and reserves all her rights to argue she is not a mortgagee in possession and the equity of redemption does not apply and allow the Court to determine the question.”

82. In the course of final address, the primary judge asked counsel for Mr Fuller whether the position was that there would be no offer to pay Mrs Albert’s costs of the Proceedings in so far as they were concerned with redemption, whatever they might properly be. Counsel for Mr Fuller responded that that was not the position and said that Mr Fuller would ask that his Honour make it a condition of redemption that costs be paid and accepted that that would be a proper condition of any redemption. His Honour repeated the question as to whether there was an offer to pay the costs of the redemption in connection with the request for redemption. Counsel for Mr Fuller responded that he would obtain instructions to that effect and asked that his Honour proceed on the basis that that was an offer that would be made. Later, counsel for Mr Fuller confirmed that he had instructions to offer, as part of the offer to redeem, that Mr Fuller pay the costs of the Proceedings. Counsel said, however, that, in so far as costs are discretionary, the primary judge should disallow Mrs Albert her costs, for the reason that she continued to deny the equity of redemption.

83. Mr Fuller’s written submissions to the primary judge included the following:

“To the extent that [Mrs Albert] has paid a greater share of the costs since 2014, these are de minimis and [Mr Fuller] would accept a condition of the redemption that he pay those amounts to [Mrs Albert] in addition to the amount due under the loan, together with interest.

…

[Mr Fuller] has made an offer to redeem, unconditionally. It is [Mrs Albert] who refuses the offer and insists on an estimate of her costs in defending these proceedings of $95,000.

…

Whether [Mr Fuller] has any liability to pay [Mrs Albert’s] costs in these proceedings is the very issue that has to be determined once [Mr Fuller’s] claims are adjudicated upon. It cannot reasonably be suggested that [Mr Fuller] offer to pay whatever costs [Mrs Albert] claims in these proceedings to have incurred in the face of her persistent denial of his entitlement to redeem the share.”

84. The primary judge refused an order for redemption, principally, on the basis of the delay on Mr Fuller’s part in repayment of the amount secured by the mortgage of the Mortgaged Share. However, that delay is compensated for by the offer to pay interest at UCPR rates. Delay alone would not be sufficient to extinguish the equity of redemption prior to the valid exercise of a power of sale of the mortgaged property or an order for foreclosure by the Court. It follows that his Honour erred in refusing an order of redemption on the basis of delay. The other matters upon which his Honour relied in refusing relief were dealt with in the offers made in the course of the hearing before the primary judge.

85. In addition, in the course of the hearing before this Court, Mr Fuller proffered an offer in the following terms:

“1.   [Mr] Fuller offers to redeem the share in Matcove Pty Ltd transferred to [Mrs] Albert pursuant to the General Security Deed 2013 (mortgage) on the basis that:

a.   He will repay the amount advanced under the loan of $170,000;

b.   He will pay interest on the amount of $170,000 from the date that the funds were advanced at the Court rate or the rate incurred by [Mrs] Albert on funds that she borrowed to make the advance, whichever is the greater;

c.   He will pay [Mrs] Albert's costs of the redemption suit, in the proceedings below and on appeal, as assessed or agreed, on an indemnity scale;

d.   He will pay any and all costs arising out of [Mrs] Albert's holding of his share from the date of transfer to date of transfer to him;

e.   He will pay whatever other amounts are found to be due on the taking of an account under the mortgage.

2.   [Mr] Fuller further offers, as the price of the equity, to:

a.   Pay into Court the sum of $170,000 together with a provision for interest of $72,313, being interest at the Court rate from 1 June 2013 to 1 December 2020 within 14 days;

b.   Pay into Court such further amounts as the Court determines to provide for the obligations in [1] above within 14 days of such determination;

c.   Submit to an order for the taking of an account of all the amounts due the mortgage and to pay the amount so determined;

d.   Submit to any further condition as the Court might impose upon him as the price of the equity of redemption.”

86. One of the difficulties with Mr Fuller’s claim for relief is that it was not formulated as a claim for redemption. However, in the interests of ensuring finality as to the dispute concerning redemption, it would be appropriate to order the taking of accounts as between Mr Fuller, as mortgagor, and Mrs Albert, as mortgagee and to order that, upon payment by Mr Fuller within 21 days of the amount found to be owing, Mrs Albert re-transfer the Mortgaged Share to Mr Fuller.

86. Questions may arise on the taking of accounts as to the costs of these proceedings appropriately attributable to Mr Fuller’s default. It is relevant that, in the proceedings before the primary judge, Mrs Albert and Mr Albert denied that the arrangement described above constituted a security. It would follow that the inquiry as to the account would need to address the costs properly attributable to the redemption of the Mortgaged Share.

Conclusion

88. In relation to the first dispute, I have concluded that there was a binding contractual arrangement involving Mr Fuller, Mr Albert and Matcove substantially in the terms of the Agreement as pleaded in the Amended Statement of Claim. However, I have concluded that the appropriate course is for the Proceedings to be remitted to the primary judge for consideration of the practicability of specific performance or, alternatively, for assessment of damages.

89. On 11 November 2020, Mr Albert and Mrs Albert filed a notice of motion seeking, inter alia, leave to rely on an affidavit of Mr Albert that was sworn on the same date. The purpose of the evidence was to provide potentially relevant material for the Court should it determine to order specific performance. On 16 November 2020, the Registrar of the Court of Appeal made the following orders:

“1. Note that the [Mr Fuller] does not oppose the evidence subject to reserving the right to put on evidence in reply.

2. [Mr Fuller] to file and serve affidavits in reply by 20/11/2020.

…

5. Motion otherwise stood over to the hearing.”

90. On 20 November 2020, Mr Fuller filed an affidavit of Mr Jason Wasiak that was sworn on the same date. In the course of the hearing, Macfarlan JA admitted each of the affidavits subject to the objections of the parties and noted that they were read as arguably relevant to any re-exercise by the Court of a discretion to order specific performance. In the light of the foregoing, the notice of motion should be dismissed.

91. In relation to the dispute concerning redemption of the Mortgaged Share, I have concluded that Mr Fuller is entitled to redemption and that an inquiry should be directed for the purposes of determining the just amount that should be paid by Mr Fuller in order to effect redemption of the Mortgaged Share.

92. The orders that I would propose are therefore as follows:

1. The appeal be allowed.

2. The orders made by the primary judge on 14 July 2020 be set aside.

3. The Proceedings be remitted to the Equity Division for further determination in accordance with these reasons.

4. The first and second respondents should pay the appellant’s costs of the appeal.

5. The notice of motion filed on 11 November 2020 be dismissed, with costs to be the costs of the parties at first instance.

**********

APPENDIX 1

Endnotes

Amendments

19 May 2021 - At [32] The words "did not accept" deleted and replaced with "considered"

Decision last updated: 19 May 2021