Geoghegan v Stankovich

[2008] NSWDC 289

CITATION:	Geoghegan v Stankovich [2008] NSWDC 289
HEARING DATE(S):	November 5 - 6, 2008
JUDGMENT DATE:	12 December 2008
JURISDICTION:	Civil
JUDGMENT OF:	Murrell SC DCJ
CATCHWORDS:	CONTRACTS - general contractual principles - parties - discharge, breach and defences to action for breach - RESTITUTION - general principles
CASES CITED:	BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266 Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337. Roxborough v Rothmans of Pall Mall Australia Limited (2001) 208 CLR 516 Toll (FGCT) Pty Limited v Alphapharm Pty Limited (2004) 219 CLR 165.
PARTIES:	Geoghegan Stankovich
FILE NUMBER(S):	469/07
COUNSEL:	Mr Tregenza Mr Hall

Background

1. Mr and Mrs Stankovich owned a 2.14 ha unserviced "bush block" in an outer Sydney suburb undergoing significant development. The block was burdened by a mortgage securing a loan from the Commonwealth Bank of Australia (CBA). Mr and Mrs Stankovich were having difficulty in meeting their repayment commitments. It was anticipated that the block would be subdivided. On 28 October 1996, Mr and Mrs Stankovich entered a deed (‘the deed’) with Mr Geoghegan, a friend of Mr Stankovich. Mr Geoghegan was to meet the CBA loan repayments. In return, he was to receive a benefit when the block was subdivided.

2. On 13 January 1997 the first CBA mortgage was discharged and a second CBA mortgage was entered, naming Mr Geoghegan and his wife as borrowers. In July 2000, the second CBA mortgage was discharged and the loan was refinanced through Suncorp-Metway Limited (Suncorp). Mr Stankovich and Mr Geoghegan still believed that the property would be developed. The Suncorp mortgage named Mr and Mrs Stankovich and Mr and Mrs Geoghegan as borrowers. Mr Geoghegan made all necessary loan repayments to the CBA and Suncorp, either from an account that he held with his wife or as a direct deduction from his wages.

3. The block has never been subdivided. Although Mr Stankovich has "devoted his life" to the project, at least since 2004 Mrs Stankovich has opposed any subdivision. Mr and Mrs Stankovich have separated.

4. On 7 March 2006, Mr Geoghegan wrote to Mr and Mrs Stankovich and purported to exercise an entitlement under the deed to require that Mr and Mrs Stankovich subdivide the block and provide him with two allotments, one containing a villa. On 3 August 2006, Mr Geoghegan purported to make time of the essence. He issued a notice that claimed that it was a term of the deed that Mr and Mrs Stankovich "would take such steps as were necessary to implement the proposed subdivision within a reasonable time or, alternatively, within four years of the date of the Deed." The notice required that, within 60 days of the date of service of the notice, Mr and Mrs Stankovich make application for approval of a plan of subdivision.

5. On 15 November 2006, Mr Geoghegan terminated the agreement, asserting that Mr and Mrs Stankovich had repudiated it.

6. In these proceedings, Mrs Stankovich filed a Notice of Appearance; submitting to the making of all orders and judgment, save as to costs. An order for judgment has been entered against her.

7. It is agreed that, as varied in 1997 and 2000 by the substitution of a different mortgage, the agreement continued in accordance with the deed until November 2006.

The Deed

8. The deed contains the following recitals:

"B. At the present time the land is not subdivided but it is anticipated by the parties to this deed that approval will be given by Baulkham Hills Shire Council for the future subdivision of the property.
C. Stankovich has agreed to transfer to Geoghegan a lot in the proposed subdivision in consideration for Geoghegan making repayments on Stankovich's existing mortgage from Commonwealth Bank Eastwood and Geoghegan discharging that mortgage in full when the subdivision is registered by the Land Titles Office."

9. It provides as follows.

"1(a) In consideration for the payment by Geoghegan to Stankovich in the sum of One hundred and twenty five thousand dollars ($125,000) or such other amount as is owing as at the date of the discharge of the existing mortgage secured over the property by the Commonwealth Bank of Australia whichever is the lesser, Stankovich HEREBY AGREES to transfer to Geoghegan a lot in the proposed subdivision of the property on the issue of the lots in the subdivision.
...
(b) Geoghegan covenants and agrees with Stankovich that he shall be responsible for repayment of the loan secured from the Commonwealth Bank of Australia ...

6. Provided the land is developed Stankovich and Geoghegan agree that the Property shall be developed in accordance with the terms of this Deed or otherwise dealt with pursuant to the terms of this Deed:
In the event that Stankovich as not developed the Property at the expiry of four (4) years from the date of this Deed then either they shall enter into a variation of the terms of this Deed to extend its operation or the provisions of Clause 8 and Clause 9 shall apply.
Stankovich and Geoghegan agree that if the property is allowed to be developed for medium density development prior to the expiry of four (4) years from the date hereof then Stankovich agrees to negotiate initially with a developer for the developer to develop the property by constructing a medium density development. In consideration for Mr Geoghegan giving up his entitlement to a lot in the subdivision Geoghegan shall be entitled to receive one allotment from the subdivision of the property upon which shall be constructed at the cost of the developer in a proper and workmanlike manner two (2) villa homes each containing two (2) bedrooms having either Torrens or Strata title. ... ; or
(c) If the land cannot be developed in a joint venture as forecast in 6 (b) above after negotiations within the period of four (4) years then Stankovich covenants with Geoghegan that, if Geoghegan wishes to exercise this right, Stankovich shall construct on an allotment in the subdivision of the property upon which will be constructed one villa together with one additional lot upon which may be constructed a villa; ...

8. In the event that Geoghegan wishes to withdraw from the provisions of this Deed then Stankovich agrees to repay to Geoghegan the amount of all repayments made by Geoghegan plus 20% of that amount."

Issues

10. The issues to be addressed are:

(i) What was the true scheme of the deed?

(ii) Was the agreement subject to an implied contractual term that Mr and Mrs Stankovich take reasonable steps to secure a subdivision?

(iii) Did Mr Geoghegan "withdraw" from the agreement pursuant to clause 8?

(iv) Quantification of the monies owed to Mr Geoghegan.

The Scheme of the Deed

11. The parties firmly expected that the block would be subdivided. Recitals B and C refer to the anticipated "future subdivision" and to the "proposed subdivision". The parties hoped that, once subdivided, the block would be developed profitably. Clause 6(b) deals with the circumstance that, within four years of October 1996, the block was developed by way of medium density development. However, the deed contains no express obligation to subdivide or develop the block.

12. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean: Toll (FGCT) Pty Limited v Alphapharm Pty Limited (2004) 219 CLR 165.

13. Under clause 1(a) of the deed, upon issue of the lots in a subdivision, one lot was to be transferred to Mr Geoghegan.

14. Under clause 6(b), if the property was both subdivided and developed by way of medium density development, Mr Geoghegan could elect to forego his entitlement to a lot in the subdivision in favour of receiving an allotment containing two villa homes (presumably constructed by the developer of the medium density development).

15. Mr Geoghegan pleaded that, upon the proper construction of clause 6(c), if the land could not lawfully or practically be developed as a medium density development, then Mr Geoghegan was entitled to require the Mr and Mrs Stankovich to subdivide the land and transfer two lots to him (paragraph 13 of the further amended statement of claim). That is not the effect of the express terms of clause 6(c).

16. The express terms of clause 6(c) are clear. Under clause 6(c), if the property was subdivided but there was no medium density development within four years, Mr Geoghegan could elect to receive a lot (presumably, the lot to which he was entitled under clause 1(a) upon which Mr Stankovich would construct a villa plus a further lot upon which a villa could be constructed (presumably, at Mr Geoghegan's expense).

17. If the block was not developed (including, presumably, the circumstance that it was neither subdivided nor developed), then the parties could agree to extend the term of the deed (in the expectation that subdivision/development would proceed within the extended period) or, pursuant to clause 8, Mr Geoghegan could "withdraw" from the deed and receive the amount of his mortgage repayments plus 20%. It is unclear whether the entitlement to "withdraw" was subject to the implied proviso that the right could not be exercised within four years or could only be exercised upon reasonable notice, but that issue did not arise in these proceedings.

18. As the block has been neither subdivided nor developed, clauses 1(a) and 6(b) and (c) have not been activated.

An Implied Contractual Term?

19. Mr Geoghegan belatedly argued that it was an implied term of the agreement that Mr and Mrs Stankovich would take reasonable steps within a reasonable time to effect some sort of subdivision.

20. Mr Stankovich argued that the proposed term could not be implied because the nature of the subdivision could not be identified with adequate precision.

21. The conditions necessary to ground an implied term were summarised by the majority in BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266 and adopted in Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337. An implied term must be reasonable and equitable, necessary to give business efficacy to the contract, so obvious that it "goes without saying", capable of clear expression and reasonably certain operation, and must not contradict any express term of the contract.

22. The tenor of the deed is that the parties wish to benefit financially from subdivision and development of the block. To give business efficacy to the agreement, it is necessary to imply a term that Mr and Mrs Stankovich would take reasonable steps within a reasonable time to secure a subdivision. As to the nature of the subdivision, the other terms of the contract indicate that it was to be a subdivision that would support medium density development or, failing that, a subdivision that was likely to be profitable.

23. However, there is a dearth of evidence about whether the block was capable of subdivision and the nature of any subdivision that might reasonably have been approved. There was no evidence from a town planner or other suitably qualified expert.

24. I decline to imply the suggested term because, while it "goes without saying" that the parties must have intended something of the sort, the term is incapable of clear expression and is not reasonably certain in its operation.

25. Had a term been implied, it would then have been necessary to consider whether it had been breached.

26. The conduct of Mr and Mrs Stankovich must be viewed jointly. Under the deed, they are one party. Mr Stankovich remained anxious to progress the project and took some steps to do so. In 2003/2004, some services were connected to the block. The evidence makes passing reference to a development loan of $430,000, to the preparation of a contour map and plans, and to the presence of second-hand building materials on site. Mr Stankovich did not give evidence. Applying the rule in Jones v Dunkel, I infer that he could not establish efforts beyond those general matters. At least from about 2004, Mrs Stankovich was opposed to subdivision of the block and refused to sign documents, although the nature of those documents was not elucidated. There was no evidence as to the steps required to secure a subdivision. It is likely that the vague evidence suggesting that Mr and Mrs Stankovich failed to take reasonable steps to secure subdivision would have been insufficient to establish breach of a contractual term of the type suggested (even if that term could be identified with precision).

27. As the suggested term cannot be implied, Mr and Mrs Stankovich did not breach the term, there was no consequent repudiation and there was no basis for Mr Geoghegan to terminate the agreement on the basis of such repudiation.

Clause 8: Withdrawal

28. Mr Stankovich contended that, in purporting to terminate the agreement on the basis of repudiation, Mr Geoghegan did not "withdraw from the provisions of (the deed)" in accordance with clause 8.

29. "Withdraw" is a wide expression. The New Shorter Oxford English Dictionary defines it as meaning, inter alia "Refrain from proceeding with (a course of action, a proposal, etc.)" and "remove oneself". The Macquarie Dictionary Third Edition definitions include "to draw back or away; take back; remove".

30. Clause 8 does not place any restriction on the timing or manner of withdrawal. There is no precondition to withdrawal. The expression "withdrawal" encompasses unilateral withdrawal with or without reason and consensual withdrawal. I do not consider that the expression is ambiguous or sufficiently doubtful to necessitate a consideration of the surrounding circumstances. However, the circumstance that Mr Geoghegan entered the agreement both as a friend who wished to help out Mr Stankovich and as a business partner is consistent with a contractual intention that he could withdraw whenever and however he chose.

31. I find that Mr Geoghegan "withdrew" from the agreement when he purported to terminate it and thereafter ceased making mortgage repayments.

Quantification of Mr Geoghegan's Claim

32. The parties had agreed that, up to 15 November 2006, Mr Geoghan and/or Mrs Geoghegan made mortgage repayments in the sum of $85,706.43, but Mr Geoghegan now claims that the figure to December 2006 is $113,041.43. Mr Stankovich has not agreed with that sum.

33. In relation to a sum of approximately $18,000 paid since November 2006, Mr Stankovich conceded that, if Mr and Mrs Geoghegan call for repayment of the monies by way of restitution, the claim must be met. Mr Stankovich contended that Mr Geoghegan could not succeed if he alone made the claim as some monies were paid from an account in the joint names of Mr and Mrs Geoghegan. A claim for restitutionary relief alleging that the recipient of monies was unjustly enriched must be made by those who paid the monies: Roxborough v Rothmans of Pall Mall Australia Limited (2001) 208 CLR 516.

34. While the source of earlier repayments is unclear, both prior to November 2006 and after that date, the repayments on the Suncorp loan were by way of payroll deduction by Mr Geoghegan's employer. Consequently, Mr Geoghegan alone can recover those monies.

35. I direct that the parties prepare short minutes consistent with these reasons.