Gladio Pty Ltd v Buckworth

[2015] NSWSC 922

Supreme Court

New South Wales

Medium Neutral Citation:

Gladio Pty Ltd v Buckworth [2015] NSWSC 922

Hearing dates:

2 March 2015, 15 June 2015, 16 June 2015, 17 June 2015, 18 June 2015 and 19 June 2015

Decision date:

14 July 2015

Jurisdiction:

Equity Division

Before:

McDougall J

Decision:

Plaintiff to have judgment against first defendant for $145,000 plus interest. Judgment for second defendant and for cross-defendants. Costs reserved. Parties to bring in draft orders.

Catchwords:

CONTRACT – rescission – contract for sale of shares in company – where shares carried right to exclusive occupation of an apartment held in ‘company title’ – where cl 6.1 of the contract required the company to consent unconditionally to the transfer – where consent was given, provided that the purchaser accede to certain amendments to the ‘house rules’ – whether such consent sufficient for cl 6.1

 

CONTRACT – rescission – where cl 10(g) of the contract required company to keep proper records – whether cl 10(g) a condition or a mere warranty – where company failed to minute a decision to grant a revocable licence allowing the former shareholder to install an air-conditioning system – where purchaser had no means of ascertaining the existence of that licence or that it was revocable at will – whether purchaser entitled to rescind under cl 10(g)

 

EQUITY – innocent misrepresentation – where vendor at all material times had a copy of a letter setting out the terms of the licence – where vendor failed to disclose licence to purchaser – where a reasonable purchaser would assume the air-conditioning was included – whether vendor’s omission amounted to an implied representation that the air-conditioning was entirely ‘within Unit 20’ – whether it amounted to an implied representation the purchaser would have exclusive rights to use the air-conditioning

 

CONVEYANCING – requisitions – where vendor incorrectly answered requisition concerning the existence of licences – whether that requisition goes to title or merely to quality – where answer did not induce the purchaser to enter into the contract – where innocent misrepresentation in the context of requisitions was not fully argued
TRADE PRACTICES – misleading and deceptive conduct – whether sale of land occurred ‘in trade or commerce’

 

EQUITY – unconscionable dealing – where statutory unconscionability under s 21 of the Australian Consumer Law only applicable to acts ‘in trade or commerce’ – where general law unconscionability requires knowing exploitation of special disadvantage – where those elements not pleaded – finding of no unconscionability – relief against forfeiture sought on basis of same alleged unconscionability therefore also unavailable

 

CONTRACT – frustration – Frustrated Contracts Act 1978 (NSW) – whether change of house rules after contract and before settlement frustrated contract – where both the company’s articles of association and the house rules formed part of the background of the contract – where neither confined the ability of the company board to make amendments

 

TORT – negligence – purchaser’s alternative claim against company – where, after the earlier email granting approval conditionally, company suggested in later email that approval had not been given – whether purchaser vulnerable – whether company owed purchaser a duty of care to ensure its communications to the purchaser were accurate – construction of communications in their context – whether communications relied upon

 

TORT – negligence – company’s cross-claim against its managing agent – where agent owed company duties of care in tort and in contract – earlier email – whether agent breached its duties by neglecting to inform purchaser, as instructed, that final approval was conditional upon a successful interview with the company – whether damage caused by that email foreseeable – later email – whether agent breached its duties by failing to highlight to the company that the later email was inconsistent with the earlier email – where agent normally had no independent role in the drafting of correspondence – conveyancing searches – whether agent failed to make relevant documents available to purchaser’s searcher

 

EVIDENCE – admission of letters headed ‘without prejudice’ – where part of letter written to negotiate a settlement of the dispute – exclusion of that part under Evidence Act 1995 (Cth) s 131(1)(a) – where response letter did not relate to negotiation of settlement – admission of response letter – defendant’s resultant choice to withdraw objection to admission of earlier letter

  PROCEDURE – where defendant seeks to withdraw deemed admission – where material fact admitted through a drafting technique whereby defence was silent as to facts that were admitted – where defendant claims not to have understood the significance of the fact so admitted – where that position untenable on the evidence – withdrawal of admission refused

Legislation Cited:

Civil Liability Act 2002 (NSW)
Civil Procedure Act 2005 (NSW)
Competition and Consumer Act 2010 (Cth)
Corporations Act 2001 (Cth)
Environmental Planning and Assessment Act 1979 (NSW)
Evidence Act 1995 (NSW)
Fair Trading Act 1987 (NSW)
Frustrated Contracts Act 1978 (NSW)
Home Building Act 1989 (NSW)
Uniform Civil Procedure Rules 2005 (NSW)

Cases Cited:

Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Limited (2003) 214 CLR 51
Argy v Blunts & Lane Cove Real Estate Pty Limited (1990) 26 FCR 112
Astley v Austrust Ltd (1999) 197 CLR 1
Blomley v Ryan (1956) 99 CLR 362
Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 (2014) 313 ALR 408
Carpenter v McGrath (1996) 40 NSWLR 39
E v Australian Red Cross Society (1991) 27 FCR 310
Eighth SRJ Pty Ltd v Merity (1997) 7 BPR 15,189
Fletcher v Manton (1940) 64 CLR 37
Koompahtoo Local Aboriginal Land Council v Sanpine Pty Limited (2007) 233 CLR 115
Melbourne Stadiums Ltd v Sautner (2015) 317 ALR 665
O’Brien v Smolonogov (1983) 53 ALR 107
Roads and Traffic Authority v Dederer (2007) 234 CLR 330
Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359
Shone v Davies [2012] WASCA 83
Stanham v National Trust of Australia (NSW) (1989) 15 ACLR 87
Tepko Pty Ltd v Water Board (2001) 206 CLR 1
Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389
Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632

Category:

Principal judgment

Parties:

Gladio Pty Limited (Plaintiff)
Virginia Louise Buckworth (First Defendant)
Ashdown Home Units Pty Limited (Second Defendant)
Laser Cheque Pty Ltd t/as Sydney Company Title Management (Cross-Defendant)

Representation:

Counsel:
G Lucarelli (Plaintiff)
D E Grieve QC (First Defendant)
M A Izzo (Second Defendant)
P A Horvath (Cross-Defendant)

  Solicitors:
Minter Ellison (Plaintiff)
Hunt & Hunt (First Defendant)
Meridian Lawyers (Second Defendant)
Moray & Agnew (Cross-Defendant)

File Number(s):

2013/359269

Judgment

1. HIS HONOUR:   What should have been a simple claim for return of a deposit of $145,000.00 has given rise to a hearing extending over six days in this Court, occupying the attention of four separately represented parties. Litigation on that scale over such a sum defies common sense. It is very difficult to see how parties, properly advised and aware of their obligations under s 56 of the Civil Procedure Act 2005 (NSW), could have permitted matters to come to such a pass.

Nature of the case

2. The deposit was paid pursuant to a contract for sale of shares, ownership of which carried the right of exclusive occupancy of a “company title” home unit in a building, known as “Ashdown”, at Elizabeth Bay. The first defendant (Ms Buckworth) was the vendor. The plaintiff (Gladio) was the purchaser. The second defendant (Ashdown) is the proprietor of the land, and is the company, the shares in which were the subject of the contract for sale. The cross-defendant (SCTM) was Ashdown’s managing agent.

3. Gladio’s primary case is that it rescinded the contract for sale pursuant to an express right to do so. It brings alternative cases against Ms Buckworth alleging misleading or deceptive, or unconscionable, conduct. Alternatively, it says, the contract for sale was frustrated. Ms Buckworth cross-claims against Gladio (for damages for breach of contract) and against Ashdown (for indemnity, in the event that Gladio succeeded against her).

4. Gladio says, alternatively, that Ashdown owed it, and breached, a duty of care in relation to communications. There was also an alternative case brought against Ashdown, alleging misleading or deceptive conduct.

5. Ashdown joined its managing agent, SCTM, as a cross-defendant. Ashdown says that if it had some liability to Gladio, that liability arises out of acts or omissions of SCTM. In addition, Ashdown raises issues of proportionate liability, involving not only the parties to the litigation but also a legal searcher, EYEON Group Pty Ltd (Eyeon), which caused to be carried out pre-contractual searches of the records of Ashdown maintained by SCTM.

6. Those disputes generated three versions of a statement of a claim, and responsive pleadings (and of course the cross-claim pleadings). The final articulation of Gladio’s case is to be found in the Further Amended Statement of Claim (FASOC) filed on 12 May 2015. That is a prolix and absurdly over-complicated document. It comprised 16 prayers for relief and 142 paragraphs defined into 10 “Chapters”, one of which was subdivided into four “Divisions”.

7. The prolix and overly complex nature of the FASOC, and the corresponding complexity of the defences to it, make it impossible to attempt any more helpful distillation of the real issues in dispute than the brief and inadequate summary that I have given already. Thus, although with reluctance, I propose to deal with the matter by setting out the background (and mostly uncontroversial) facts, and then turning to the case against each of the defendants, and to the cross-claims. To the extent necessary, when I deal with the case against one or other of the defendants, and to the cross-claims. I will make such further findings of fact as are necessary to explain the conclusions to which I have come.

8. Once I have dealt with the issues between the parties, I shall deal with two interlocutory rulings. One is the ruling on the admissibility of documents, to which objection was taken on the basis of “settlement privilege” (Evidence Act 1995 (NSW), s 131). The other is an application made by Ms Buckworth for leave to withdraw an admission.

Background facts

9. Prior to 24 April 2009, Ms Buckworth and her then partner Ms Daley bought shares in the capital of Ashdown that gave them the exclusive right of occupancy of what was known as “unit 20” (which included a separate car parking space). At some time after April 2009, the relationship between Ms Buckworth and Ms Daley having broken down, Ms Daley transferred her interest in the shares in question to Ms Buckworth.

10. The previous owners of the shares, who were the vendors to Ms Daley and Ms Buckworth, had sought and obtained the consent of Ashdown to the carrying out of certain works. Those works included the construction of a pergola on a terrace located at the western end of unit 20, and the installation of air-conditioning. The ducting and some of the machinery for the air-conditioning were to be installed in the roof space above unit 20 – in what would be “common property” if the building were a strata title development.

11. It seems that the previous owners had made application to Sydney City Council for consent to those works. Of necessity, that application required the consent of Ashdown, which consent had been given. Although Ms Buckworth and Ms Daley wanted to have a pergola and air-conditioning, what they wanted varied from what had been approved. Accordingly, they had to make application for a variation to the existing consent (see s 96 of the Environmental Planning and Assessment Act 1979 (NSW)). That s 96 application required the consent of Ashdown.

12. On 24 January 2009, Ms Daley wrote to a member of the Board of Ashdown. She enclosed a “completed application request for Renovation”. That application disclosed the nature of the works as:

RELOCATION OF EXISTING APPROVED (BUT UNBUILT) TERRACE PERGOLA FROM NORTH TO SOUTH RUNNING, TO JUST LOCATED ON SOUTH SIDE

REINSTATEMENT OF AIR-CONDITIONING DA

13. The “affected areas”, as to the air-conditioning, were said to include the living room, the dining room, the main bedroom and the second bedroom. The “affected surfaces” were said to include the walls and the ceilings.

14. In response to a question “Do you wish to remove any walls in part or whole? (Please specify)” the reply was given:

ONLY TO FACILITATE THE AIR-CONDITIONING VENTS

15. Both Ms Buckworth and Ms Daley signed the application.

16. Documents attached to the application dealt with the change to the pergola. None of them seems to have referred specifically to the air-conditioning.

17. The application was considered at a meeting of Ashdown’s directors held on 31 March 2009. Item 6 of the minutes is in the following terms:

6.   Renovations Unit 20. Detailed drawings were tabled for consideration. The work involved includes the installation of air conditioning and a free standing pergola. As these items had been deleted by the previous Section 96 application it will be necessary for another Section 96 to be lodged with Council.

After discussion it was agreed:-

*   These renovations will not need to be presented to the shareholders as they were on the original Development Application approved by the shareholders,

* Permission be given for the lodgement of the Section 96 Application,

*   Luca Turnbull will be engaged to inspect the membrane when the pavers are removed and before the timber decking in [sic] installed,

*   Weir & Phillips, architects, to inspect the installation of the air conditioning in the roof space,

*   The shareholders will undertake to address any problems with the air conditioning such as noise but the Board of Directors reserve the right to withdraw the approval for the air conditioning if the problems can be resolved,

*   The pergola will not be attached to the building and will be held down by the timber decking,

*   All of the heavy planter pots will be removed from the roof deck.

18. On 24 April 2009, Ms Daley and Ms Buckworth wrote to Ashdown in the following terms:

Virginia Buckworth and Louise Daley, owners of shares in Ashdown Home Units Pty Limited relating to apartment 20, as part of the application for air-conditioning seek consent to utilise the roof space above our apartment to locate ducting and the compressor unit in accordance with the specifications that have been presented to the Board.

In making this application we acknowledge:

the space we seek to utilise for the above purpose is company property and not subject to any rights of exclusive use; and

in the event the company decides to use, for any purpose, all or part of the roof space within which the ducting and compressor unit is located, then we agree to remove these items as required, at our expense, and agree that we are not entitled to any compensation for the loss of use of this space and removal of those items.

We note that if any problems arise with the installation in the roofspace, we will be given the opportunity to resolve these issues, but that the Board of Directors reserves the right to withdraw approval for the air conditioning installation if problems continue.

We will locate the air conditioning items in the roof space as close as possible to the terrace at the Western end of the area, and should there prove to be noise disturbance to unit 21 from the operation of the air conditioning unit, we will install agreed acoustic separation.

We also note that this arrangement will also apply to any future shareholders of Unit 20, and that House Rules of Ashdown Home Units will be amended to include these conditions of approval.”

19. There is no evidence of any resolution that in terms accepts, or agrees to, that letter prior to 28 October 2013 (after the contract for sale between Ms Buckworth and Gladio was made and (purportedly) rescinded). On 28 October 2013, the Board resolved as follows:

House Rules:   The Board resolved that a new Rule 22 would be made as follows:

22.   AIR CONDITIONER FOR UNIT 20: Unit 20 was permitted to install an air-conditioner and related equipment on company property in the roof space above the apartment. The terms and conditions on which this permission was granted are set out in the letter (and documents accompanying the letter) dated 24 April 2009 attached as Appendix 1 to these Rules (Letter). As indicated in the Letter, the shareholder(s) of Unit 20 from time to time is (are) bound by the terms of the Letter.

Carried, with L. Roylance abstaining.

20. The abstaining director, Ms Roylance, gave evidence. She was the only person (at least, who gave evidence) who had been a director both in 2009 and 2013. She accepted that there was no record of any resolution, dealing with the letter of 24 April 2009, between the date that letter was written and 28 October 2013. Her attention was not (in this context) directed to the email dated 9 August 2013, to which I refer at [52], [53] below.

21. On 25 or 27 April 2009, Ashdown gave its consent to the s 96 application. It did so by affixing its common seal to the document. That was authorised by two directors, Ms Cannane and Mr Carter (on 25 April), and the company’s secretary, Ms McDonald (on 27 April). (The evidence suggests that the company secretary of Ashdown from time to time was an employee of whoever was its managing agent at the time.)

22. The works were in due course carried out. The installation of the air-conditioning involved, as I have said, the location of some machinery within the roof space of the building. The parties conducted the litigation on the basis that this was outside the boundaries of “unit 20”.

23. It was Ms Buckworth’s case that the ducting for the air-conditioning was located, at least in part, within the roof space. However, such evidence as there was on the point suggests that the ducting is located:

1. in some rooms, within a bulkhead that was constructed below the soffit of the ceiling; and

2. in other locations, in the walls of unit 20.

24. There were no drawings in evidence which would show the details of the air-conditioning installation. However, as a matter of common sense, it must be the case that even for the outlets located in the bulkheads to which I have referred, some ducting is likely to pass from the machinery through a part of the roof space to the ducting located within those bulkheads.

25. On 10 December 2012, Ms Buckworth leased unit 20 to Mr Robbiati. Mr Robbiati is the sole director and shareholder of Gladio. The lease to Mr Robbiati required, and had, the consent of Ashdown (given by its directors). It is apparent that, at least in the opinion of some of the directors and some of the residents of Ashdown, Mr Robbiati was not a satisfactory tenant. Apparently, his partner would from time to time visit him and bring with her a dog. It seems that the dog was given to barking (not an uncommon habit of the canine species, particularly when kept in confined spaces), and that its barking was a source of annoyance to other residents.

26. Ms Buckworth wanted to sell “unit 20”. Mr Robbiati was interested in buying it. Ultimately, on 16 July 2013, they made the contract for sale of shares that is the subject of this litigation.

27. For reasons that are unclear (and in any event are probably irrelevant), Mr Robbiati decided to buy the shares in the name of Gladio. He instructed a firm of solicitors, Day Legal, to act for Gladio. Mr Day of that firm had responsibility for the matter. Ms Buckworth instructed Hunt & Hunt. Mr Lane of that firm had responsibility on her behalf.

28. Before contracts were exchanged, Mr Day caused searches to be made by Eyeon. Eyeon retained an independent searcher, Ms Kritikos, to carry out searches of Ashdown’s records. Ms Kritikos did that, at the offices of SCTM, on 21 June 2013.

24. Gladio’s pleaded case was that the records made available to Eyeon on 21 June 2013 did not include the 24 April 2009 letter or any Board minute or other records relating to the air-conditioning in unit 20. It will be necessary to return to the detail of that evidence. However, for present purposes, it is enough to note that I find that the records made available to Ms Kritikos for inspection did include, in at least two places, copies of the letter of 24 April 2009; and included, further, a copy of the Board resolution of 31 March 2009, with item 6 in the terms set out at [17] above.

25. I do accept (and it was not challenged) that the report that Eyeon made to Day Legal did not include any reference to that letter or that resolution. It follows, and I find, that Mr Robbiati caused Gladio to enter into the contract for sale unaware of the terms of the letter of 24 April 2009. In particular, I find, Mr Robbiati caused Gladio to enter into the contract for sale unaware of the circumstances that (as that letter records):

1. Ashdown could require the air-conditioning equipment to be removed if it wished itself to use the roof space;

2. the approval for the air-conditioning installation could be withdrawn in the case of “problems” – either with the installation generally, or specifically with noise; and

3. the terms of “this arrangement” were to be reflected in the House Rules so as to make them applicable to future shareholders.

The contract for sale and subsequent developments

31. The contract for sale identified the subject matter of the sale as certain identified “Shares” in the capital of Ashdown. It recited that those shares:

… entitle the holder to the exclusive use and occupation of the home unit no. 20 and garage space 2 contained in the building situate at… Elizabeth Bay NSW (collectively referred to in the agreement as “Unit”).

32. By cl 4, a 5% deposit was payable, in the sum to which I have referred, direct to Ms Buckworth:

4.   Deposit

Upon the date of the making of this agreement the Purchaser will pay the Vendor a deposit of 5% of the Price being $145,000.00 which will be accounted to the Vendor forthwith and the balance of the Price must be paid to the Vendor’s solicitors in cash on completion or as they may otherwise direct in writing.

33. Clause 6.1 dealt with consent:

6.   Consent to transfer

6.1   Date by which consent to be obtained

This agreement is subject to the written consent of Ashdown Home Units Pty Limited ACN 000 176 009 (“the Company”) to the transfer of the Shares to the Purchaser. If consent is not obtained within 38 days from the date of the making of this agreement either party may by notice in writing to the other rescind this agreement and thereupon the deposit will be refunded to the Purchaser and upon return to the deposit neither party will have any claim on the other arising out of this agreement.

34. It was common ground on the pleadings that the last date for satisfaction of cl 6.1 was 23 August 2013.

35. Clause 9 dealt with Ashdown’s Constitution and “House Rules”:

9.   Memorandum and Articles of Association and House Rules

9.1   Copy attached

The Shares are held by the Vendor and sold subject to the provisions of the Memorandum and Articles of Association of the Company and the House Rules and a copy of each is attached to this agreement (“Articles of Association and House Rules”). The Purchaser has satisfied itself from its review of the Articles of Association and House Rules that on completion of the sale, ownership of the Shares will entitle the owner (subject to the provisions of the Articles of Association and House Rules and the Lease) to the exclusive right of use and occupancy of the Unit.

9.2   Purchaser review

The Purchaser acknowledges that prior to entering into this agreement it has satisfied itself as to the Articles of Association and House Rules of the Company.

9.3   No warranty

The Vendor discloses that it made application to the Company before the date of this agreement for a complete copy of the Articles of Association and House Rules, inclusive of any resolutions to vary or amend as may have been resolved by the Company from time to time. The copy of the Articles of Association and House Rules attached to this agreement were supplied by the Company to the Vendor in response to the Vendor’s request and the Vendor makes no warranty they are complete or accurate. The Purchaser must satisfy itself in regard to the completeness and accuracy of the Articles of Association and House Rules prior to entering this agreement and can make no claim, requisition, and objection or purport to rescind or terminate this agreement on the grounds of anything referred to in or arising from this clause.

36. Clause 10 set out a number of “conditions of sale”, including, relevantly:

10.   Conditions of sale acknowledged by vendor

The Vendor acknowledges and agrees that it is a condition of this agreement:

…

(g)   that the respective registers of members, directors and charges and all other books of the Company required by law to be kept by it are properly kept;

37. Clause 12 dealt with requisitions:

12.   Requisitions

All requisitions which the Purchaser is entitled to make will be made and delivered to the Vendor or their solicitor within 21 days of the date of the making of this agreement and all requisitions not so made shall be deemed to be waived. If the Vendor is unable or unwilling to comply with or remove any objective or requisition which the Purchaser has made and not waived within 14 days after the Vendor has given to the Purchaser written notice of intention to rescind this agreement the Vendor will be entitled to rescind this agreement and all money paid or given by the Purchaser will be refunded and the Vendor will not be liable to any sum for damage or expenses whatsoever.

38. The annexures to the contract for sale included the lease to Mr Robbiati, the Articles of Association of Ashdown, and the “Rules and Regulations” (or, as they were often called, “House Rules”). Relevant provisions of the Articles include articles 41, 118, 121 and 161:

41.   The right of members to transfer their shares shall be restricted as follows:-

(a)   Shares shall only be transferable in the groups specified in Articles 4 and 4(a).

(b)   The Directors may refuse to register any transfer of a group of shares upon which the Company has a lien.

(c)   No transfer shall be made to an infant or person of unsound mind but the Directors shall not be bound to enquire as to the age or soundness of mind of any transferee.

(d)   Deleted 25.9.72 New Article Substituting:

Companies Act, 1936,

Section 98.

Ashdown Home Units Pty. Limited

At the Annual General Meeting of the abovenamed company duly convened and held at the Mansions Hotel, Room 100, Kellett Street, Kings Cross on Monday, 25 September, 1972 the following alteration was made to the Articles of Association for the company.

“By deleting paragraph (d) of Article 41 and substituting the following new paragraph:

Subject to the provisions of Clauses (a) (b) (c) of this Article, the Directors may decline to register any transfer of shares to a transferee of whom they do not approve (and who they have not previously resolved is approved as suitable to be a member of the company) and shall not be bound to assign any grounds or reason for so declining. If the Directors refuse to register a transfer of any shares, they shall forthwith send to the transferee notice of their refusal as required by Section 97 of the Companies Act.”

DATED at Sydney this Twenty-fifth day of September, 1972.

P. C. ABRAHAMS

SECRETARY

118.   The Directors shall cause minutes to be duly entered in books provided for the purpose:-

(a)   Of the names of the Directors present at each meeting of the Directors and of any Committee of Directors.

(b)   Of all declarations made or notice given by any Director pursuant to the requirements of Section 129 of the Companies Act.

(c)   Of all orders made by the Directors and Committees of Directors.

(d)   Of all resolutions and proceedings of General Meeting and of

meetings of the Directors and Committees.

And any such minutes of any meeting of the Directors or any

Committee of the Company if purporting to be signed by the Chairman of such meeting or by the Chairman of the next succeeding meeting, shall be receivable as prima facie evidence of the matters stated in such minutes. The books containing the minutes of General Meetings shall be kept at the office and shall during business hours be open for the inspection of members.

…

121.   The Directors shall provide for the safe custody of the Seal and the Seal shall not be used except by the Authority of the Directors or a Committee of the Directors, and in the presence of at least two Directors who shall sign every instrument to which the Seal is affixed and every such instrument shall be countersigned by the Secretary or some other person appointed by the Directors.

…

161.   The Directors may from time to time make regulations for the efficient and economic conduct of the building known as “Ashdown” and a copy of such regulations and of any amendments from time to time thereto shall be forwarded to every shareholder or other the occupier for the time being of flats in the said building and such regulations shall have effect as if they had been incorporated in and formed part of these Articles.

39. As to the annexed House Rules, all that needs to be said is that they did not include any rule relating to the air-conditioning installation that serviced unit 20, nor did they contain any rule of the kind contemplated by the last paragraph of the 24 April 2009 letter.

40. No copy of that letter was annexed to the contract for sale. Nor was a copy of the relevant resolution of 31 March 2009 annexed. There was nothing in the contract that would have alerted Mr Robbiati or Mr Day to the existence of the letter, or to the terms of the resolution preceding it.

41. Day Legal made requisitions on title on 22 July 2013. Requisition 21 was as follows:

21.   If the Vendors have a lease or licence agreement with the company:-

(a)   an assignment of such lease or licence agreement, with the consent of the company endorsed and signed by the Vendors, must be handed over on completion, or    

(b)   a new lease or licence agreement between the company and the Purchasers, executed by the company, must be handed over at settlement.

(c)   Please provide us before settlement with the documentation for the Purchasers to sign.

42. Hunt & Hunt replied on 3 September 2013. The reply to requisition 21 was:

21.   The vendor does not have a lease or licence agreement with the company.

43. It is convenient to note at this point that Mr Lucarelli of Counsel, who appeared for Gladio, submitted that the 24 April 2009 either was, or evidenced the terms of, a licence to use what he called “common property” in connection with the unit 20 air-conditioning. Mr Grieve of Queens Counsel, who appeared for Ms Buckworth, maintained that requisition 21 was not a proper requisition on title, and hence that even if the reply were incorrect (which I do not think he conceded), nothing turned on it.

44. On 24 July 2013, Hunt & Hunt sought Ashdown’s consent to the transfer of shares from Ms Buckworth to Gladio. The letter and its attached documents made it clear that Mr Robbiati was the sole director and shareholder of Gladio. The letter said of him that:

… that gentlemen [sic] presently rents the property and he was previously approved by the company to occupy the premises as a tenant.

45. It is clear that the Board of Ashdown was concerned by the possibility of having Gladio as a shareholder, and Mr Robbiati as an “owner” / resident. Some of that concern at least appeared to relate to the “barking dog” issue. There was also a question, in the minds of some of the directors at least, as to whether Ashdown’s constitution permitted corporate shareholders.

46. By the end of the hearing, it was common ground between Ashdown, Ms Buckworth and Gladio that whether or not SCTM had actual authority to communicate, so as to bind Ashdown, matters such as (for example) approval or non-approval of applications to become a shareholder, it had at least ostensible authority to do so. It was equally clear that, on matters of any importance whatsoever, as between Ashdown and SCTM, the latter was only to communicate on the instructions of, and in the terms authorised by it, Ashdown. On important matters, the precise terms of the reply were communicated by Ashdown to SCTM, so that they could be cut and pasted into an email or letter by SCTM to whoever was to be the recipient of the communication.

47. On 31 July 2013, Mr Greene, an employee of SCTM, sent an email to Mr Lane. It was Ashdown’s practice to communicate through SCTM rather than direct. That email stated, so far as it is relevant:

We are the managing agents for Ashdown Home Units.

I have been informed by the directors of Ashdown Home Units that they are not prepared to accept the above transfer in its present form.

Ashdown Home Units Pty Ltd is unable to consider a request to transfer shares to a company, as it is clear in the Articles of Association that only a person can be a shareholder..

Please advise your client to change the entity of the proposed shareholder to a person.

Once this is done, and a fresh application is received, it will be considered in the normal manner with an interview to follow.

Please advise this position to your client and let me know the new arrangement.

48. Mr Lane responded swiftly, saying that he had to leave the office and would communicate further upon his return and after he had spoken to his client. The next day, Mr Lane replied in the following terms:​

…

We have reviewed the constitution of Ashdown Home Units Pty Ltd. We cannot see any reference in the constitution that prohibits a shareholder from being a corporation.

To the contrary, the constitution does indeed clearly provide for non-natural persons to hold shares and we draw your attention to:

the definition section in clause 1 whereby the term “person” also means a “corporation”; and

clauses 82 and 83 which set out the proxy requirements for a shareholder that is a corporation.

Copies of the above clauses are highlighted and attached to this email.

If, as you contend in the 3rd sentence of your email, “it is clear in the Articles of Association that only a person can be a shareholder” then could you please direct us to the relevant provision within the constitution that supports that position. We do not believe that is the case and this is clearly supported by the clauses in the constitution we have brought to your attention in the attached.

We would appreciate the executive reviewing its decision in light of the above and look forward to receiving a formal response to our client’s request for consent to the transfer of her shares.

Please also note that our client is incurring additional legal fees in having to deal with the position as presented in your email yesterday and we reserve her rights.

49. Not surprisingly, Mr Lane’s reply led to considerable discussion between the directors of Ashdown. Those directors included (I think this is a recognised collective noun) a quarrel of lawyers: highly experienced and well-regarded legal practitioners. One matter which arose out of those discussions was “an additional rule to cover shareholders who are not real persons”. In the course of those discussions, it seems that Mr Bell (a solicitor, and a director at the time) spoke to Mr Robbiati. Their conversation covered the following matters (email from Mr Bell to other directors of 2 August 2013):

…

I just spoke to Tarek.

1.   He said he is amenable to give an undertaking to comply with the rules as if her [sic] were a shareholder himself personally.

2.   He is unaware of the air conditioner unit agreement – I told him I would send him a copy of that.

3.   His partner has a dog when she comes from Melbourne. He said he might as well state now that he will be making an application for the dog. I told him we had amended the rules to prevent the board from having any power to permit dogs. I explained to him the problem we’ve had. No [sic] sure we resolved anything, but told him that dogs were a problem.

50. On 5 August 2013, Mr Lane emailed Mr Greene in the following terms:

…

I refer to our telephone conversation this morning and understand that the directors will consent to the share transfer on the proviso that the corporate shareholder director provides some agreement to be personally liable for levies etc.

As mentioned this morning, I am representing a client mid–conveyance and would appreciate if the [illegible – to the effect of “directors could”] clarify their position in writing as soon as possible.

51. Mr Greene forwarded that email to the Board for instructions. He was instructed to reply in terms to the following effect:

… it will require a change to the House Rules to accommodate the request for a corporate entity to buy shares in Ashdown. This at least is easier than a change to the Articles of Association. An out-of-course director’s meeting has been scheduled for Thursday 8 August to discuss a new rule to accommodate the request. Naturally the Board has taken legal advice to ensure the new rule or rules protect both the prospective purchaser and Ashdown…

A copy of the new rules will be sent to your promptly after the meeting. You can then send them to Mr Dale [sic; presumably, “Mr Day”].

52. On 9 August 2013, Mr Lee on behalf of the Board emailed Mr Greene, giving him instructions on the application by Gladio to become a shareholder. Those instructions were:

…

Last night the Board discussed the application by Gladio Pty Ltd to purchase shares and become a member of Ashdown. The Board has agreed to this purchase, as usual subject to interview, and therefore asks you to contact Mr Robbiati and ask him when he might be available for this interview.

The Board has amended two rules (15 has been tightened and 20 has been liberalised, both in the light of recent experience) and created two new ones (22 and 23). The new rules 22 and 23 were created specifically to accommodate Gladio Pty Ltd’s purchase of the shares. They are not especially noteworthy (and certainly not in the least oppressive) and are designed merely to satisfy the Board of continuity of current arrangements under the new ownership structure. Could you please inform Mr Robbiati’s solicitor of these changes and send him a copy of the amended rules.

Could you also please inform Chris Dale [sic] of this news and send him a copy of the amended rules for his information.

…

53. The attached House Rules read as follows:

22.   AIR-CONDITIONER FOR UNIT 20: Subject to the terms of a letter from the owners of that unit to the Board dated 24 April 2009, unit 20 was permitted to install an air-conditioner and related equipment on company property in the roof space above the apartment. In the event of any complaint or dispute (for example over noise), the owners of unit 20 are obliged either to remove or sound-proof the air-conditioner at their expense. The Board has the right to withdraw this permission at any time and the air-conditioner’s removal will be entirely at the expense of the owners of unit 20 if such permission is withdrawn.

23.   SHAREHOLDING BY A COMPANY: In the event that a company becomes a shareholder of Ashdown, whoever is a director of that company at the time of purchase shall be bound to comply with all Articles and Rules of Ashdown as if they were a shareholder. The director must provide full details of the purchasing company to the Board before any shares are registered in the name of the purchasing company. The only persons permitted to occupy the unit thus purchased are those who were directors or the immediate family of directors at the time of purchase. Thus the standard residence requirements of shareholders as outlined in the Articles and Rules apply to the directors of a company purchasing the shares.

54. Mr Greene did not comply precisely with the terms of the instructions given to him. On 9 August 2013, he emailed Mr Lane in the following terms:

…

Please be advised that the board of directors of Ashdown have given approval to the above sale proceeding provided you instruct your client of the amended rules and regulations here attached. (in particular to clause 23)

I hope this has cleared the obstacles to this conveyance matter.

…

55. Significantly, Mr Greene did not note that the “approval” was “as usual subject to interview”.

56. Ms Buckworth relies on SCTM’s email of 9 August 2013 as being a sufficient consent for the purposes of cl 6.1 of the contract for sale. Gladio says otherwise. It was not in dispute – at least, by the time of submissions – that if the email is to be characterised as a consent, it was, in all the circumstances, a consent binding on Ashdown notwithstanding that it went beyond, or did not reflect, the terms of the instructions given by Ashdown to SCTM.

57. On 12 August 2013 (9 August was a Friday and 12 August was the following Monday), Mr Lane forwarded SCTM’s email of 9 August 2013 to Mr Day, noting “that your client has been approved as transferee of the shares”.

58. Also on 12 August 2013, an employee of Day Legal sent two documents to Mr Greene to be executed by or on behalf of Ashdown. Mr Greene sent those documents on to Ashdown. He did so by forwarding an email chain which included Mr Lane’s email to Mr Day noting that Gladio had been approved as transferee of the shares. To jump ahead for a moment: some days later, on 22 August 2013, Mr Greene forwarded to the Board another email from Mr Lane, which included the comment that:

My client appreciates that the Board approved the transfer of her shares to Gladio…

59. Perhaps not surprisingly, Mr Day was concerned by the amendments to the House Rules by the inclusion of rules 22 and 23. He emailed Mr Lane on 16 August 2013 commenting among other things that:

It is disturbing, to say the least, that it appears that a number of the amendments to the Rules and Regulations which were not disclosed in the Agreement for Sale of Shares have been made specifically by the Board of Directors in response to the Purchasers [sic] request for consent to register the Transfer of Shares.

…

In the meantime, I reiterate that we reserve all of the Purchaser’s rights, including the right to rescind…

60. On 26 August 2013, Mr Day sent a further email to Mr Lane in which he “formally reiterate[d] the reservation of the Purchaser’s rights…”

61. Mr Lane’s position, as expressed in his email in reply, was simple:

Your client was approved as transferee of the shares on 9 August 2013 as confirmed by email from the company’s managing agent… which was forwarded to you on 12 August 2013.

The condition precedent in clause 6 of the contract was satisfied within the time provided by that clause.

62. There was further discussion and correspondence, both among the directors of Ashdown and between Day Legal and Hunt & Hunt. Ultimately, Gladio took the view that cl 6.1 had not been satisfied. It instructed Day Legal to give notice of rescission on its behalf. This Day Legal did on 26 September 2013. The notice recited the grounds to rescind as follows:

…

The Purchaser’s grounds to rescind the Agreement include:

1.   That the Company did not consent to the transfer of the Shares from the vendor to the Purchaser within the time and upon the terms specified in the Agreement,

2.   In the alternative, that the Company did not unconditionally consent to the transfer of the Shares from the Vendor to the Purchaser within the time and upon the terms specified in the Agreement,

3.   In the alternative, that the Rules attached to the Agreement were not the Rules of the Company as at 16 July, 2013,

4.   In the alternative, that the Vendor did not disclose in the Agreement that the Airconditioning System is located wholly outside the Apartment and no right to retain the Airconditioning System attaches to the Shares or the exclusive use and occupation of the Apartment,

5.   In the alternative, that the Vendor did not disclose the terms of the AC Agreement to the Purchaser in the Agreement or prior to 16 July 2013,

6. In the alternative, that the Agreement does not comply with the provisions of the Home Building Act 1989 and the Regulations made under that Act, and

7. In the alternative, that the Vendor has engaged in deceptive and misleading conduct in the terms of the Trade Practices Act 1974 and other NSW and Australian legislation.

63. The expression “the AC agreement” was a reference to what was (in Gladio’s view):

…

A written agreement between, inter alia, the Vendor [Ms Buckworth] and the Company [Ashdown] dated 24 April 2009… that the company could enforce the removal of the Airconditioning System at any time.

64. In turn, the “Airconditioning System” was said to be:

The airconditioning system, plant, condenser unit, fan unit and ducting which are a fixture to the Apartment… [which] is located wholly outside the Apartment and no right to retain the Airconditioning System attaches to the Shares for the exclusive use and occupation of the Apartment.

65. In passing, it might be wondered how something could be both “a fixture to the Apartment” and “located wholly outside the Apartment”; or how something which was “a fixture” could not be the subject of a right of exclusive use and occupation of that to which it was affixed.

66. The asserted claim under the Home Building Act 1989 (NSW) was not a matter that occupied any attention in the pleadings, nor time at the trial.

67. The notice of rescission made no reference to the breach of cl 10(g) which was pleaded and which was in issue at the trial. That breach, according to Mr Lucarelli, is to be found in the failure of Ashdown to minute and retain what he said must have been the decision, or resolution, of the Board to accept the terms of the 24 April 2009 letter.

68. Mr Lucarelli submitted that his client was entitled to rely on that breach of condition even though it had not been relied upon in the notice of rescission. He relied on the principles stated in Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359.

69. Mr Grieve did not accept that cl 10(g) stated a “condition” properly so called, breach of which could found a right of termination. He did not appear to dispute that, if the contrary view were to be taken, Gladio was entitled to rely upon it notwithstanding the failure to specify it in the notice of rescission. Since the parties proceeded on the basis that it was open to Gladio to rely on the Shepherd principle, it is not necessary to consider the extent to which that principle applies outside the situation of discharge by breach (see Dixon J in Shepherd at 377-378; and note the discussion in Melbourne Stadiums Ltd v Sautner (2015) 317 ALR 665 at [97] and following).

Validity of the notice of rescission

70. The principal bases on which Mr Lucarelli sought to uphold the rescission were that:

1. Ashdown had not given a consent, of the kind for which cl 6.1 calls, by 23 August 2013;

2. in any event, Gladio was entitled to “rescind” for breach of the condition stated in cl 10(g); and

3. alternatively, Gladio was entitled to rescind for innocent misrepresentation.

71. However, the notice of rescission (see at [62] above) set out a greater number of grounds (which did not include breach of the condition set out in cl 10(g)). I propose first to deal with those that were addressed at trial, in the order that they appear in the notice (grouping some together for convenience), and then to deal with the further pleaded grounds on which Gladio relied.

No sufficient consent?

72. Clause 6.1 provided that the agreement was subject to Ashdown’s written consent to the transfer of the subject shares to Gladio. It is not necessary to consider whether it was the agreement itself which was intended to be conditional, or the performance of the agreement up to and including completion. If consent were not obtained by the specified time (agreed to be 23 August 2013), either party had the right to rescind.

73. In my view, in calling for “written consent… to the transfer of the Shares” to Gladio, cl 6.1 required that there be an unambiguous and unqualified statement of consent. For example, a statement of consent “subject to interview” (which may be what the Board of Ashdown had instructed Mr Greene to convey) would not have satisfied cl 6.1.

74. The question is whether the email of 9 August 2013 communicated an unconditional approval to the contract. Mr Grieve submitted that it did. Mr Lucarelli submitted that it did not, both in terms and, in particular, when read against the background of the preceding email correspondence between Mr Lane and (through SCTM) Ashdown.

75. Mr Lucarelli submitted that everyone knew that Ashdown would not give consent to the transfer of shares until there had been an interview. The interview process had been intercepted, because of the debate as to whether Ashdown’s constitution provided for corporate shareholders.

76. Mr Lucarelli then submitted that, viewed against the background of the correspondence relating to that debate, the “approval” that was stated to have been given could only have been an approval of the concept of a sale to a corporate entity (i.e., a reversal of the directors’ initial view on that point). That was confirmed, Mr Lucarelli submitted, by the expression of a hope that “this has cleared the obstacles to this conveyance matter”.

77. The proper characterisation of the 9 August 2013 email must depend to some extent on the context in which it is to be placed. However, in my view, that context should be confined to matters of which both contracting parties – that is to say, Gladio as well as Ms Buckworth – had knowledge. As I have said, Mr Lane took the view that the 9 August 2013 email did communicate approval, and sent an email to Mr Day on 12 August 2013 informing him among other things that by the email (which Mr Lane forwarded), “your client has been approved as transferee of the shares”.

78. There is no suggestion that Mr Day was aware of the detail of, let alone provided with copies of, all the correspondence between Mr Lane and Ashdown (through SCTM) that preceded SCTM’s sending of its 9 August 2013 email.

79. When Mr Lane sought Ashdown’s consent to the transfer of shares to Gladio, he noted that the proposed transferee was a company of which Mr Robbiati was the sole director and shareholder; and that Mr Robbiati had previously been approved as a tenant in the building. That should be taken to suggest that Mr Lane was aware that, as Gladio was a corporate entity, the question of approval would need to be assessed by reference to the person who stood behind it and who would receive the benefit of residence conferred by the shares if they were transferred to Gladio.

80. In my view, the most significant matter of mutually known background which is referable to the proper construction of the 9 August 2013 email is article 41(d). I have set that out at [38] above. It grants the directors power to “decline to register any transfer of shares to a transferee of whom they do not approve (and who they have not previously resolved is approved and suitable to be a member of the company)”. By the terms of that paragraph, the essential question is approval of someone as a transferee of shares. Plainly enough, where the proposed transferee is a corporate entity, the question of approval would require consideration of the natural persons who stand behind the corporation, and who would benefit from the corporation’s exercise of the rights attached to the shares if the transfer were registered.

81. Mr Lucarelli submitted, in another part of his case, that Ashdown’s directors must have realised that contracts for the sale of shares in its capital would contain a provision, such as cl 6.1 of the contract for sale, making completion dependent on consent. I think that is correct. It is not necessary to find (and I do not find) that Ashdown’s directors knew of the precise terms of the contract for sale from Ms Buckworth to Gladio. It is enough to find, as I do, that they must have realised, had they turned their minds to the question, that the contract would be subject to their giving approval to the transferee.

82. Although those submissions were made in respect to another part of the case, they are in my view equally relevant to the present issue. That is because they focus attention on precisely what meaning is to be attributed to the giving of “approval to the above sale proceeding” as stated in the 9 August 2013 email. What would a reader of that email, armed with the mutually known background knowledge to which I have referred, make of that expression? In my view, that reader, knowing what cl 41(d) said as to the necessity of approval, would have understood that the approval that was given was an approval in terms of cl 41(d).

83. True it is that there were other matters in dispute which, if resolved one way, could prevent the sale from proceeding. But they were, for one reason or another, reasons why the Board might decide to decline to approve the transfer. Put perhaps less delphically, they were reasons why the Board, pursuant to the discretion conferred by article 41(d), might decline to approve of Gladio as a transferee.

84. Thus, in my view, the plain meaning of the 9 August 2013 email is that the directors, in exercise of a power vested in them to do so, have given approval to the sale proceeding – by inference, to completion. Although article 41 included three other reasons why the right to transfer shares was restricted, any person having knowledge of the mutually known background facts must have understood that the only power to approve was that contained in para (d). Thus, logically enough, such a person would have read the email as constituting an exercise (by granting approval) of the power to approve.

85. In my view, read in context, the email does signify objectively that the Board of Ashdown has resolved to approve Gladio as a transferee of shares in the capital of Ashdown. Further, in my view, that reading of the email would stand even if it were permissible to take into account those other matters of background, known only to Ms Buckworth, to which Mr Lucarelli referred in his submissions on this point.

86. As I have noted, Mr Lucarelli submitted also that any approval given was given on a proviso, which rendered it relevantly qualified, and thus not an unconditional approval of the kind for which cl 6.1 of the contract for sale called. I accept that submission.

87. What follows the statement of approval is a proviso:

… provided you instruct your client of the amended rules and regulations here attached. (In particular to clause 23).

88. That of itself cannot be regarded as a condition of approval. It is no more and no less than a requirement that Mr Lane (the addressee of the email) advise his client of those amended rules. In passing, one might think that it was more important for Mr Day to advise his client of those matters. However, I do not see anything of particular significance turning on this.

89. The proviso could not be regarded sensibly as a condition of approval, which if not satisfied would undo the approval or render it ineffectual. The Board would have no way of knowing whether “you” had ever “instructed” “your client” of the matters referred to. There is no basis for regarding something of which, by its nature, the Board could never be satisfied, as capable of amounting to a qualification on, or a condition possibly capable of undoing if not satisfied, the approval that had just been stated to be given.

90. However, that analysis is insufficient to dispose of the point. The real question is not whether the “proviso” itself should be regarded as some sort of condition. It is, rather, whether read as a whole the “proviso” indicated, objectively and with reasonable clarity, that there were further obstacles to be cleared before the Board would register the transfer to Gladio. In my view, read in that way, the email did indicate that there were further obstacles.

91. The starting point is that the email expressly related the “approval” that had been “given” to the “amended rules and regulations here attached”. It drew attention “in particular to clause 23”. In my view, considered objectively, the clear implication from the email as a whole (including the attachment) is that the approval incorporated, or was subject to the terms of, the new House Rule 23 (and, for that matter, the new House Rule 22).

92. House Rule 23 purported to state “the standard residence requirements of shareholders as outlined in the Article and Rules apply to the directors of a company purchasing shares”. However, in my view, the rule imposed conditions on corporate purchasers that were more onerous than those imposed on natural person purchasers.

93. Clause 4 of the Articles specified the rights given to shareholders: “the exclusive right subject to these Articles to use and occupy the flat” to which the shares were tied. It seems to me to be reasonably arguable that a natural person who held shares in Ashdown could “use” the relevant flat by (for example) permitting members of his or her family to reside there, and perhaps (again for example) by permitting others beyond the family to reside there, if they did so as part of a household including the shareholder. That use might also extend to permitting guests to reside in the flat.

94. However, where the shareholder is a corporation, “[t]he only persons permitted to occupy the unit… are those who were directors or the immediate family of directors at the time of purchase”. And the concept of “use” finds no mention in Rule 23.

95. Further, it seems to be reasonably clear that, for natural person shareholders, “use” may extend to letting in certain circumstances. That is covered by House Rule 20, which reads as follows:

20.   TENANTS:    Shares are intended for purchase by owner occupiers only and letting is not permitted. However, in certain extraordinary circumstances, after a period of not less than twelve months residence, shareholders may apply for, and if thought fit, receive approval to let to a tenant for a minimum of twelve months and a maximum of twenty four months. All proposed tenants must be interviewed and approved by the Board of Directors, after signing an agreement to abide by the Rules and Regulations of the Company. The shareholder will be required to lodge a refundable bond equivalent to one year’s maintenance levy with the company against any damage to the building by the tenant.

96. Where the shareholder is a corporation, there is only a right of occupation given to directors or their immediate family at the time of purchase. The word “use” does not appear. It seems to me to be at least arguable that, in the case of corporate shareholders, letting is not permissible even “in certain extraordinary circumstances” as contemplated by House Rule 20.

97. It is not necessary to consider whether the House Rules impermissibly restrict the rights granted by the articles: either generally, or specifically in the case of corporate shareholders. It is enough to note that, so far as the directors of Ashdown were concerned, their “approval to the… sale proceeding” was clearly intended to be given on the basis that House Rules 22 and, in particular, 23 applied to Gladio. Thus, in my view, properly read, the 9 August 2013 email is to be regarded as making the approval relevantly conditional.

98. Further, House Rule 22 imposed conditions on the enjoyment of the air-conditioning in unit 20. As I have said, the clear implication is that the approval given by the email of 9 August 2013 required Gladio to accept, and abide by, those conditions. It matters not that Ms Buckworth was similarly bound. The simple fact is that Gladio, and purchasers from it, would be equally bound.

99. Of course, it was open to the Board of Ashdown to make House Rules at any time. Provided they exercised their power to do so in good faith and for the benefit of the company as a whole, it is unlikely that any shareholder could challenge the exercise. Thus, if an unqualified approval had been given and Gladio become registered as a shareholder, it might have been open to the Board to make rules such as House Rules 22 and 23. But that is not the point. The point is that they did so between contract and settlement, and in substance required Gladio to acknowledge that the rights that it would acquire on registration were to be limited in the terms suggested by those rules.

96. Thus, in my view, the approval that was given was relevantly, and in an onerous way, conditional. It was not an approval sufficient to satisfy the requirements of cl 6.1 of the contract for sale.

Non-disclosure of the rules as at 16 July 2013

101. The House Rules attached to the contract for sale did not include rules 22 and 23. However, on the evidence, those rules were not made until about 8 August 2013. That is apparent from Mr Lee’s email of 9 August 2013 to Mr Greene, giving him instructions in relation to the question of approval. That email (see at [52] above) suggests that the rules were agreed at the Board meeting held “last night” – i.e., 8 August 2013.

102. It follows that this asserted ground for rescission is not made out.

Rescission for misrepresentation

103. The right was characterised as a right to rescind in equity for innocent misrepresentation.

104. The misrepresentation case proceeded on the basis that at all material times, Ms Buckworth had in her possession a copy of the letter of 24 April 2009. That was pleaded at FASOC [76]. It was not traversed. Although Ms Buckworth sought leave to withdraw the admission thereby taken to have been made, I refused to grant such leave. My reasons for doing so appear at [372] to [399] below.

105. Thus, among other things, Ms Buckworth’s evidence (taken only on her application for leave to withdraw the admission), that she did not have a copy of the letter in her possession at the relevant time, is not evidence for the purposes of the hearing before me. However, I add that even if it had been admitted for all purposes, I regard it as inherently unpersuasive, having regard to her cross-examination on the point. I shall return to this.

106. The submissions on this issue (and also on the related issue of misleading or deceptive conduct) at times appeared to be based on an unstated premise, that the subject matter of the sale was real estate. However, it is necessary to bear in mind that the subject matter was shares in Ashdown. Thus, what is important is the question of the rights attached to those shares. Subject to any limitation in the contract for sale, Gladio as purchaser would expect to have the unfettered and undiminished enjoyment of whatever those rights may be, under and subject to Ashdown’s constitution.

107. As I have pointed out at [93], article 4 makes it apparent that those rights are “the exclusive right subject to these articles to use and occupy the” relevant flat. There are additional rights given in respect of garage spaces (article 4 (a)) and further rights in respect of roof space (article 4(c), which in fact are part of the “unit 20” rights), but nothing turns on these additional rights.

108. The expression “the flat” is not defined. Clearly enough, the Articles proceed on the mutually understood basis that there were some 31 flats in the building, each separately numbered, and that rights of use and occupation that were given related to a particular numbered flat, the identity and location of which could be established by inspection.

109. It seems to me that the expression “the flat” must include not just the physical space (analogous to a strata lot; but the analogy is imperfect in the extreme) but also the benefits or, more broadly, advantages (and disadvantages) pertaining to it.

110. For example, each flat presumably has the benefit of electricity, water and (perhaps) gas. Of necessity, those benefits would be provided by services that come from outside the physical boundaries of the flat into the flat, terminating in light switches, power points, taps and the like. It would be fanciful to suggest that the rights conveyed by ownership of the shares did not include the rights to use water, electricity and (if available) gas.

111. At this point, and in reference to one of Mr Grieve’s submissions, it would be obvious that the wiring which conveyed electric power to light switches and power points, and the piping which conveyed water to taps, must in part come from locations outside the physical boundaries of the flat. The wiring presumably passes through walls or ceilings; likewise, perhaps, water pipes. But it could not be said, simply because the source of those amenities lay outside the physical boundaries of the flat, that the right to use them was self-evidently by way of licence only, at the entire discretion of the Board.

112. It may be accepted that air-conditioning falls into a somewhat different category to basic utilities such as electricity and water. Nonetheless, it was an obvious and attractive feature of unit 20:

1. that it enjoyed the benefit of air-conditioning;

2. which had been installed in what clearly appeared to be a permanent fashion.

113. By way of illustration of the second point, this is not simply a case where an air-conditioning unit was bolted to the external wall, and fed air into the apartment by means of piping drilled through the wall. The installation was sophisticated, involving as I have said ducting through a bulkhead, vents at the end of the bulkhead, and vents in other walls. One would not ordinarily expect that the benefit of that sophisticated built-in system could be lost at the discretion of the Board.

114. Mr Grieve submitted that the very fact that the air-conditioning installation was apparent to people in Mr Robbiati’s position, and should have been known to include ducting and other apparatus outside the boundaries of the flat itself, should be taken to convey that the benefit of the air-conditioning was available only at the discretion of the Board. I do not agree. On the contrary, in my view, someone who saw and appreciated the sophisticated nature of the installation would assume that it was a permanent feature of unit 20.

115. I turn to the pleaded implied representations. To my mind, each of them overstates the position. I shall start by setting out FASOC [83] to [86]:

[83]   By not disclosing the 24 April 2009 Letter to Gladio Ms Buckworth has impliedly represented to Gladio that all the necessary air-conditioning equipment servicing Unit 20 was entirely within Unit 20 or, that to the extent any such equipment was located on common property then the owner of the Shares had exclusive rights to use such common property for that purpose.

[84]   In the alternative, by not disclosing the 24 April 2009 Letter to Gladio Ms Buckworth has caused Gladio to assume that there was no fact, matter or circumstance that would or could enable the Board of Ashdown to require the owner of the Shares at its expense to dismantle and remove the necessary air-conditioning equipment servicing Unit 20.

[85]   In the alternative, by not disclosing the 24 April 2009 Letter to Gladio Ms Buckworth has caused Gladio to assume that all the necessary air-conditioning equipment serving Unit 20 was entirely within Unit 20, that to the extent any such equipment was located on common property then the owner of the Shares had exclusive rights to use such common property for that purpose.

[86]   At all material times prior to and as at 16 July 2013 Ms Buckworth knew or ought to have known that, according to the express terms of the 24 April 2009 Letter, the House Rules were to be amended so as to apply the terms of the 24 April 2009 Letter to successors in title from Ms Buckworth.

116. As to FASOC [83]: there could be no implied representation “that all the necessary air-conditioning equipment… was entirely within Unit 20”. On the contrary (and to this extent, I accept Mr Grieve’s submission), it must have been plainly apparent to Mr Robbiati that some at least of the equipment was located outside the physical boundaries of unit 20. I should note that the concept of the physical boundaries of unit 20 was not addressed in any detail in the course of submissions. Indeed, the submissions at one stage appeared to conflate that concept with the concept of a strata title lot: in other words, that “unit 20” was, relevantly, the cubic space defined by the inner surfaces of the ceilings, walls and floors. It is not necessary to pursue that question. Whatever “unit 20” might comprise, it would not ordinarily be thought to comprise the roof space above the flat (and no one submitted that it did).

117. Further (and still dealing with FASOC [83]), I do not think that there was an implied representation of “exclusive rights to use… common property”. I do not focus on the infelicity of the expression “common property” in this context. The point is, rather, that the representation overstates what in my view a hypothetical reasonable purchaser would be entitled to assume.

118. That purchaser would know that the subject matter of the sale was not real property (strata title or otherwise) but a parcel of shares. It would thus know that the substance of what was intended to be sold and bought was the rights attaching to those shares. The primary source of such rights is to be found in the Articles. In my view, the purchaser would be entitled to assume (for the reasons I have given) that the rights included the benefit of services such as utilities and, in this particular case, air-conditioning. However, the benefit of air-conditioning does not necessarily depend on some concept such as “exclusive rights to use… common property”. At most, the representation would be that all necessary permissions for the installation of equipment outside the boundaries of unit 20 had been given, and were not unreasonably revocable.

119. I turn to FASOC [84]. That does not in terms plead a representation. It pleads an assumption that Ms Buckworth is said to have caused Gladio to make. Even if this is to be understood as pleading a representation, again it overstates the case. I do not think that it would be reasonable for any intending purchaser to assume that there could be no circumstance that would justify Ashdown or its Board in requiring the removal of the air-conditioning equipment. I accept that a purchaser would have thought that removal could not have been required arbitrarily, capriciously or unreasonably. But that is not the pleaded case.

120. I turn to FASOC [85]. Again, in terms, that does not plead a representation but, rather, an assumption that Ms Buckworth is said to have caused Gladio to make. Treating it as a pleading of representation, it seems to me to suffer from the defects in FASOC [83] (which, accepting that [85] pleads an assumption rather than a representation, [85] otherwise mirrors).

121. Since the pleaded misrepresentation case assumes in effect that Gladio made the assumptions that are set out in FASOC [84], [85], it follows from what I have said that I do not regard those as assumptions that it was reasonable for Gladio to make in all the circumstances. And to the extent that the case is based on the representation pleaded at FASOC [83], I do not think that the representation is made out.

122. Accordingly, in my view, the pleaded case, that the rescission was justified on the basis on the alleged innocent misrepresentation, must fail.

Rescission based on incorrect answer to requisition

123. This is pleaded at FASOC [92A], which I set out (omitting its particulars):

92A.   Further, or in the alternative, upon receiving Ms Buckworth’s answers to Gladio’s requisitions on title Gladio was entitled to rescind the Share Sale Agreement for misrepresentation or alternatively treat that answer as a repudiation of the Share Sale Agreement, accept such repudiation and terminate the Share Sale Agreement.

124. The requisition and reply are set out at [41] and [42] above.

125. One important matter, which was not addressed in submissions, is whether, assuming (as I conclude) that the answer is incorrect (or, as Mr Lucarelli characterised it, “false”), Gladio would have been entitled to rescind.

126. As I have noted, Mr Grieve submitted that requisition 21 was not a requisition on title. That was so, he submitted, because it did not go to the title of that which was sold. It was, at most, a requisition as to quality.

127. Mr Grieve relied on well-known cases such as Fletcher v Manton (1940) 64 CLR 37 and Carpenter v McGrath (1996) 40 NSWLR 39. He placed particular reliance on the judgment of Young J in Eighth SRJ Pty Ltd v Merity (1997) 7 BPR 15,189. Those cases concerned contracts for the sale of land.

128. In Fletcher, the alleged defect was a demolition order made, by a government authority having power to do so, after the contract was made but before completion. In Carpenter, the alleged defect was the absence of building approval for improvements erected on land the subject of a contract for sale. In Eighth SRJ, the alleged defect was termite infestation (the significance of which was to be assessed against representations made by the vendor’s agent to the effect that minimum maintenance was required, and that the purchaser would not have to do any work). It was held in each case that the defect was one as to quality, not as to title.

129. Young J summarised the distinction between defects in title and defects in quality in Eighth SRJ at 15,193 as follows:

A very fine, but real, distinction exists between defects in title which entitle a person to rescind and defects in quality which do not.

What is a defect in title is difficult to define, but usually encompasses the situation where the vendor is unable to convey the full estate which it promised to convey to the purchaser. A defect in quality merely means that the purchaser obtains the appropriate title to the land but that there are some facts relating to the quality of the property sold which affects [sic] its value.

130. With the greatest of respect both to the learned judges who decided those cases and to Mr Grieve, I am not sure that the decisions are of any real assistance where the subject matter of the sale is not real estate but, rather, shares in a “company title” scheme. The subject matter of the sale in this case is not just the shares – pieces of paper or their digital equivalents – but the rights that attach to them under the Articles of Association, as amplified (or perhaps confined) by the House Rules. The question is therefore whether the particular thing that is said to be a defect in title goes in some way to those rights, so as to proscribe or limit the purchaser’s enjoyment of them.

131. That is no doubt an interesting question. Mr Grieve’s submissions did not really engage with it, because he rested his case on the basis of the real estate authorities to which I have referred. Mr Lucarelli’s submissions did not engage with it at all.

132. Mr Grieve’s submission appeared to proceed as if the subject matter of the sale were real estate. It was not. The subject matter of the sale was shares in a special purpose company. The shares assured the right of use and occupation of a designated flat. The question is, thus, what were the nature of (and limits upon) those rights? So framed, in my view, a requisition inquiring as to a lease or licence agreement which could affect or limit those rights was, in context, a requisition on title.

133. Even if I were wrong, and the requisition is not to be taken as one on title, the simple fact is, as I have noted, that Ms Buckworth answered it, and did so wrongly. She had in her possession at all relevant times a copy of the 24 April 2009 letter. She knew that it was an important legal document which would be highly material to any prospective purchaser, and that it was intended to bind any prospective purchaser (T114.1-.13):

Q.     You understood full well, when you signed this letter, that the terms of this letter were intended to bind any purchaser of your shares, correct?

A.     Correct.

Q.     Now let's just pause there.  You understood, didn't you, when you signed this letter that the terms of this letter were supposed to bind any purchaser of your shares, correct?

A.     Correct.

Q.     And that therefore you must have known when you signed this letter that this letter would be highly material to such any [sic] prospective purchaser of your shares, correct?

A.     Correct.

134. Further, Ms Buckworth agreed that to her knowledge the letter, intended as it was to bind any purchaser of her shares, formed part of her rights and obligations as a shareholder (T116.42-117.14):

Q.   Have I understood your evidence, Ms Buckworth, you've agreed with me have you not that you knew that this letter of 24 April 2009 was an important legal document, correct?

A.    Correct.

Q.    You knew it was intended to bind any purchaser of your shares, correct?

A.    Correct.

Q.    And you knew that the terms of this letter formed part of your rights and obligations as a shareholder of Ashdown, correct?

A.    Correct.

Q.    You knew that this letter was supposed to bind any purchaser of your shares, correct?

A.    Correct.

Q. You knew that the terms of this letter set out the basis upon which Ashdown consented to your section 96 application, correct?

A.    Yes.

Q.    You knew that this letter contained two independent bases upon which Ashdown could withdraw its consent, correct?

A.    Yes.

135. Ms Buckworth agreed that when the contract for sale was prepared, her solicitor asked for all documents relevant to the shares and to unit 20 (T133.45-.48). She gave the solicitor some documents, including those relating to the s 96 application. She did not give the solicitor a copy of the 24 April 2009 letter.

136. Ms Buckworth was asked about the requisitions on title. She said she knew that they (and answers to them) were “part of the normal processes of conveyancing”, and that “the answers to these requisitions had to be correct” (T138.20-.26). She knew, further, that it would be serious if an answer were wrong or incorrect (T138.47-.49).

137. Ms Buckworth agreed, further, that she received a copy of the requisitions from her solicitor at about the time they were made, and that she “needed to give [her] solicitor accurate and complete instructions in order to respond” (T139.1-.7).

138. Ms Buckworth did not accept the proposition that the letter of 24 April 2009 was “in fact a licence agreement with the company”, although she accepted that it was “an important agreement concerning [her] licence to use the roof space” (T140.3-.9).

139. In my view, the letter of 24 April 2009 was, or evidenced, a “licence agreement” between Ashdown and Ms Buckworth, for the purposes of requisition 21. Whether the letter is to be taken as an acceptance of the terms of the Board’s resolution of 31 March 2009, or whether it is to be taken as an offer that was accepted by implication or conduct, it sets out the terms on which Ashdown was prepared to permit Ms Buckworth (and, at the relevant time, Ms Daley) to use roof space that, on any view, was outside “unit 20”. That roof space, forming part of the realty, was vested in Ashdown. Ashdown had the right to use that, subject to the Articles, for the benefit of members as a whole. Any decision to permit one member to use part of that property, if it did not grant rights of exclusive use and occupation so as in law to amount to a lease, must be a “licence” as that term is understood both by ordinary English speakers and by lawyers.

140. Thus, in my view, the answer given to the requisition was wrong. I accept that it was given innocently, in the sense that Ms Buckworth did not, before giving instructions for the answer, consciously turn to the subject matter and decide to withhold relevant information from her solicitor. Mr Lucarelli did not contend that it constituted anything other than an innocent misrepresentation.

141. However, it was not a misrepresentation that preceded the making of the contract for sale. Thus it cannot be said to have induced Gladio to enter into the contract for sale.

142. The question of rescission for innocent misrepresentation based on the requisition was not argued in any detail. It was addressed in Mr Lucarelli’s opening written submissions, but not in his outline submissions handed up on the conclusion of the evidence. Mr Grieve addressed the point on the basis that there was no requisition on title and, hence, that there was no right to rescind.

143. In circumstances where the matter was not fully argued, and where its resolution is not necessary (as between Gladio and Ms Buckworth) I shall leave the point undecided. The relevant facts have been found (and are not to any extent controversial in any event). I have summarised each party’s submissions; and in any event, a more complete account of them is available from the written submissions and the transcript.

A.    Yes.

Q.    Do you accept that it is possible that (a) you did see that folder on 21 June 2013?

A.    It is possible.

Q.    And it is possible that when you inspected it on 21 June 2013 that the letter of 24 April was in the plastic sleeve there, isn't it?

A.    Possible, but I can't guarantee, I can't be certain.

340. More generally, Ms Kritikos accepted that she had no clear recollection of the inspection (and that is hardly surprising) (T22.35-23.3). It is not necessary to set that evidence out.

341. Ms Kritikos was also shown the buff minutes folder. Ms Kritikos agreed that it was possible that this was the file of minutes that she saw on 21 June 2013; it looked like it (T34.1-.10):

Q.    Ignoring anything post 21 July 2013, can you have a look at that file and indicate whether that is the file of minutes that you saw on 21 June 2013?

A.    It is possible, yes.

Q.    You certainly can't exclude the possibility that that is the folder of minutes that you saw on 21 July 2013?

A.    It looks like it.

Q.    Most likely?

A.    Yes.

342. Ms Kritikos said, and affirmed in cross-examination, that her usual procedure was to look at a company’s minute books for the previous five years. However, she said, she did not read every line of every minute, paying more attention to the more recent minutes (T24.28-.44).

343. Ms Cruz said, and I find, that the documents made available for Ms Kritikos to inspect included the buff minutes folder. Ms Kritikos said that if (as seemed to have been the case) the folder of minutes she was first shown only went back to 2011, she would have asked for earlier minutes (T26.11-.21). I have no doubt that other, older, folders of minutes would have been given to her in answer to that request.

344. Ms Kritikos was then shown a copy of the minutes of 31 March 2009. She accepted that she had “no particular recollection” of seeing that document on 21 June 2013.

345. That is of some significance, because those minutes were not among the records shown to Ms Kritikos for the purpose of swearing her affidavit, in respect of which she gave the evidence that I have summarised at [304] to [307] above. Thus, there was no evidence in chief from Ms Kritikos that those minutes were not among the records shown to her.

346. Although the minutes folder that was tendered only went back to 2011, Ms Kritikos’ evidence is that she would have asked for the earlier folder. Having regard to the evidence of system, I find that the earlier folder (that is to say, the folder which included minutes around the period 31 March 2009) would have included the minutes of 31 March 2009. Thus, I find, the records made available to Ms Kritikos for inspection did include those minutes.

347. Ms Kritikos agreed that those (31 March 2009) minutes were not referred to in the report that she furnished. She accepted that this could be for a number of reasons (T29.5-.33):

Q.    I think you will agree with me that these minutes aren't mentioned in your report?

A.    Correct.

Q.    That could be for a number of reasons, can I suggest to you. First, it might be that you just didn't read these minutes particularly closely, is that a possibility?

A.    Correct.

Q.    Or, that you didn't read minutes going as far back as 2009, is that another possibility?

A.    Board meeting minutes?

Q.    Yes, board meeting minutes?

A.    No, possibly, yes.

Q.    You would agree with me that ultimately whether you end up noting in your report something that comes out of the board meeting minutes of Ashdown is going to depend on you first of all reading a particular minute closely enough to appreciate that a matter in it might be significant, you would agree?

A.    Yes.

Q.    That would have to happen if you are going to pick it up?

A.    Correct.

Q.    If there are particular minutes you didn't read very closely which spoke about approvals for Unit 20, then you wouldn't end up being in a position to note those things in your report?

A.    Yes.

348. Considering the evidence on this point in its totality, and taking into account the concessions that Ms Kritikos made in cross-examination, I am satisfied, and find, that the letter of 24 April 2009 and the accompanying s 96 application were among the documents provided to Ms Kritikos for inspection on 21 June 2013. I find that there was a copy located in the blue documents folder and another copy located in the green correspondence folder. I find that both those folders were made available to Ms Kritikos for inspection on 21 June 2013.

349. I find, further, that the documents made available to Ms Kritikos for inspection on 21 June 2013 included the minutes of the directors’ meeting held on 31 March 2009.

350. It is possible that Ms Kritikos overlooked the significance of the letter of 24 April 2009. It is possible that she did not read it carefully in the correspondence folder, because of its date (and there are passages in her cross-examination that suggest that she paid more attention to recent rather than older documents). It is equally possible that she paid no attention to it in the blue “documents” folder because it was behind the print-out of the email from Ms Roylance to Ms Wood of 3 January 2013.

351. In the ordinary way, one would think that a sleeve marked “U20” would have attracted Ms Kritikos’ attention. However, for whatever reason, she appears to have overlooked it.

352. For those reasons I find that SCTM did not breach whatever duty it owed to Ashdown to make current records available for inspection on request.

Proportionate liability

353. As I have said, Ashdown raised a “proportionate liability” defence. Mr Izzo and Ms Horvath put competing submissions as to the way in which any liability on their respective clients should be carved up. Those submissions were recorded and transcribed.

354. The conclusions to which I have come make it unnecessary to express a conclusion on those submissions. Nor is there any point in doing so, since of necessity that would be an exercise based on entirely hypothetical circumstances.

Reasons for ruling: the letters of 16 and 19 September 2013

355. Mr Izzo objected to the tender of each of those letters. He did so because each was headed “without prejudice”, invoking s 131 of the Evidence Act.

356. For convenience, I set out s 131:

EVIDENCE ACT 1995 - SECT 131

Exclusion of evidence of settlement negotiations

(1)   Evidence is not to be adduced of:

(a)   a communication that is made between persons in dispute, or between one or more persons in dispute and a third party, in connection with an attempt to negotiate a settlement of the dispute; or

(b)    a document (whether delivered or not) that has been prepared in connection with an attempt to negotiate a settlement of a dispute.

(2)    Subsection (1) does not apply if:

(a)    the persons in dispute consent to the evidence being adduced in the proceeding concerned or, if any of those persons has tendered the communication or document in evidence in another Australian or overseas proceeding, all the other persons so consent; or

(b)    the substance of the evidence has been disclosed with the express or implied consent of all the persons in dispute; or

(c)    the substance of the evidence has been partly disclosed with the express or implied consent of the persons in dispute, and full disclosure of the evidence is reasonably necessary to enable a proper understanding of the other evidence that has already been adduced; or

(d)    the communication or document included a statement to the effect that it was not to be treated as confidential; or

(e)    the evidence tends to contradict or to qualify evidence that has already been admitted about the course of an attempt to settle the dispute; or

(f)    the proceeding in which it is sought to adduce the evidence is a proceeding to enforce an agreement between the persons in dispute to settle the dispute, or a proceeding in which the making of such an agreement is in issue; or

(g)    evidence that has been adduced in the proceeding, or an inference from evidence that has been adduced in the proceeding, is likely to mislead the court unless evidence of the communication or document is adduced to contradict or to qualify that evidence; or

(h)    the communication or document is relevant to determining liability for costs; or

(i)    making the communication, or preparing the document, affects a right of a person; or

(j)    the communication was made, or the document was prepared, in furtherance of the commission of a fraud or an offence or the commission of an act that renders a person liable to a civil penalty; or

(k)    one of the persons in dispute, or an employee or agent of such a person, knew or ought reasonably to have known that the communication was made, or the document was prepared, in furtherance of a deliberate abuse of a power.

(3)    For the purposes of paragraph (2)(j), if commission of the fraud, offence or act is a fact in issue and there are reasonable grounds for finding that:

(a)    the fraud, offence or act was committed; and

(b)    a communication was made or a document was prepared in furtherance of the commission of the fraud, offence or act;

the court may find that the communication was so made or the document so prepared.

(4)    For the purposes of paragraph (2)(k), if:

(a)    the abuse of power is a fact in issue; and

(b)    there are reasonable grounds for finding that a communication was made or a document was prepared in furtherance of the abuse of power;

the court may find that the communication was so made or the document was so prepared.

(5)    In this section:

(a)    a reference to a dispute is a reference to a dispute of a kind in respect of which relief may be given in an Australian or overseas proceeding; and

(b)    a reference to an attempt to negotiate the settlement of a dispute does not include a reference to an attempt to negotiate the settlement of a criminal proceeding or an anticipated criminal proceeding; and

(c)    a reference to a communication made by a person in dispute includes a reference to a communication made by an employee or agent of such a person; and

(d)    a reference to the consent of a person in dispute includes a reference to the consent of an employee or agent of such a person, being an employee or agent who is authorised so to consent; and

(e)    a reference to commission of an act includes a reference to a failure to act.

(6)    In this section:

"power" means a power conferred by or under an Australian law.

357. The letters must be placed in context. There was a raging dispute between Gladio and Ms Buckworth as to the former’s entitlement to rescind the contract for sale for non-disclosure, and (conversely) the latter’s right to insist on completion. That debate arose from the very belated disclosure of the letter of 24 April 2009, and the subsequent change in the House Rules, apparently, as to Rule 22, pursuant to the last paragraph of that letter.

358. Whilst Day Legal was waging a correspondence battle with Hunt & Hunt over this dispute, Mr Robbiati was pursuing directors of Ashdown in an attempt to find a solution. He had a conversation with Mr Bell on 9 September 2013, in which (among other things) House Rule 22 was discussed. The next day, 10 September 2013, SCTM sent Mr Robbiati a letter drafted by Mr Bell. That letter, among other things, noted that the directors were reviewing the Rule and solicited Mr Robbiati’s “views on the possibility of passing a rule which simply gives direct effect to the letter”.

359. The first letter to which Mr Izzo objected – the letter of 16 September 2013 – was written in reply to SCTM’s letter of 10 September 2013. In the letter, Mr Robbiati gave what in his view was the “brief background of the purchase transaction currently in flight [sic] for unit 20”, and replied “to the assertions contained in your letter in relation to my conversation with Mr Austin Bell of 9 September 2013”.

360. The letter of 16 September 2013 was plainly headed “WITHOUT PREJUDICE”. After the introductory paragraph that I have summarised, it dealt, in four numbered sections, with some four topics. The first section after that paragraph set out Mr Robbiati’s view of the “background”. The second section set out his account of the conversation with Mr Bell. Looking at the matter in terms of s 131, nothing up to and including the second (numbered) section of the letter could be regarded as “a communication… in connection with an attempt to negotiate a settlement of [a] dispute”.

361. The third section of the letter set out what (in Mr Robbiati’s view) were “the issues at hand”. There were three such issues: the process to be followed for Ashdown’s rules to be changed; “proper disclosure standards”; and “rule 22”.

362. The fourth section of the letter set out Mr Robbiati’s view as to a “proposed way forward”.

363. I do accept that, read together and in context, the third and fourth sections of the letter should be taken as articulating (in Mr Robbiati’s view at least) the issues on which he and Ashdown were “in dispute” for the purposes of s 131(1)(a) of the Evidence Act and a proposal “to negotiate a settlement of [that] dispute”. Thus, in my view, the third and fourth numbered sections of the letter should be excluded from the tender, under s 131(1)(a).

364. Implicit in that view is the proposition that the statutory proscription is capable of application to part only of a document such as a letter. That is to say, it is implicit in the view that I have set out that the “communication” may be part only of a document. I raised that with Mr Izzo in the course of argument. He accepted that it was correct.

365. Thus, in my view, where part of a letter dealing with several topics is a “communication” of the kind referred to in s 131(1)(a), the statutory proscription applies only to so much of the letter as is, or constitutes, that “communication”. There may be an exception, if the rest of the letter is so closely intertwined with the proscribed “communication” that it cannot be sensibly be separated out. However, that does not arise in the present case. As I have said, the letter contains an introductory paragraph, and then has some four discrete numbered sections.

366. Accordingly, I ruled that the third and fourth numbered sections of the letter should be excluded, but that the balance should be admitted.

367. SCTM’s letter of 19 September 2013 was written in reply to Mr Robbiati’s letter of 16 September 2013 (that is not expressly stated, but it was common ground that the later letter did reply to the earlier). Again, the letter of 19 September 2013 was clearly headed “WITHOUT PREJUDICE”.

368. The first two sentences of the letter read as follows:

We are instructed by the directors to respond to your letter as follows.

The directors do not propose to respond to each of the matters you raise in detail.

369. Nothing in the letter responded to, or commented on, the third and fourth sections of the letter of 16 September 2013. Nothing in the letter contained any communication proposing, or seeking to negotiate, a resolution of the issues that then existed between Mr Robbiati (or Gladio) and Ashdown. Although the letter was headed “WITHOUT PREJUDICE”, that was presumably because it was a reply to a letter similarly headed. In truth, there is nothing in the letter of 19 September 2013 that could conceivably fall within s 131(1)(a) of the Evidence Act.

370. The letter of 19 September 2013 was admitted into evidence accordingly.

371. Mr Izzo submitted later that, if the letters were to be admitted, he would prefer that the whole of the earlier letter be admitted. Accordingly, and accepting that he took this position based on the ruling I had given, the previously rejected portions of that letter – sections 3 and 4 – were also admitted into evidence.

Reasons for ruling: application for leave to withdraw admission

372. The admission, leave to withdraw which was sought, was made in respect of [76] of the Amended Statement of Claim (ASC) (the version preceding FASOC). To give some context to the debate, and to enable Ms Buckworth’s cross-examination on this topic to be understood, I set out the first three paragraphs of “Chapter V” of the ASC, which was headed “Rescission for misrepresentation”:

75.   At all material times prior to 16 July 2013 Ms Buckworth knew that Ashdown’s consent for her to use the roof area above Unit 20 to install the requisite air-conditioning equipment to enable Unit 20 to be air-conditioned was on the terms set out in 24 April 2009 letter.

76.   At all material times prior to 16 July 2013 Ms Buckworth had in her possession, custody or control a copy of the 24 April 2009 Letter.

77.   At all material times prior to 16 July 2013 Ms Buckworth knew or ought to have known the 24 April 2009 Letter was highly material to any prospect purchaser of Unit 20.

373. Chapter V continued for a further 17 paragraphs, but it is not necessary to set them out.

374. By her amended defence (filed in answer to the ASC) Ms Buckworth:

1. said nothing – remained silent – as to [75], [76]; and

2. said that she “does not admit paragraph 77 of the amended statement of claim”.

375. It is clear, comparing the ASC and the defence to it, that the drafting technique employed was such that, where an allegation of fact was admitted, nothing was said as to that allegation of fact. In those circumstances, there was a deemed admission of that material fact (UCPR r 14.26(1)). By way of example only of this deliberate drafting technique, the ASC alleged at [74] that “Ms Buckworth has failed to refund to Gladio the Deposit”. Plainly, that was correct. The Amended Defence was silent as to that paragraph. Plainly, the drafter of the defence intended that the deemed admission for which the Rules provide would be sufficient. The same may be said of numerous other allegations of material fact which were plainly correct, and hence (as I see it) were not traversed in the defence.

376. This analysis of the pleading technique is confirmed by an exchange of correspondence between Minter Ellison (acting for Gladio) and Hunt & Hunt (acting for Ms Buckworth) in May 2014. Minter Ellison wrote on 15 May 2014, stating among other things:

We note the Amended Defence does not plead to a number of paragraphs of the Amended Statement of Claim that are pleaded against your client. … by not pleading to those paragraphs…, your client is taken to have admitted them. We will be proceeding to trial on that basis.

377. Hunt & Hunt’s reply of 19 May 2014 said, as to this paragraph, that:

You may take it that we are aware of the relevant rules.

378. I infer both from the structure of the pleadings and from that exchange of correspondence that the decision not to plead to ASC [76] was deliberate.

379. Ms Buckworth agreed in cross-examination that she had read the ASC although, she said, not carefully (T83.26-.31). She understood that it included a complaint about non-disclosure of the letter of 24 April 2009 (T83.49-84.11). She knew that she needed to respond by way of defence (T84.25-.27).

380. Ms Buckworth was asked whether her solicitors specifically asked her about her possession of the 24 April 2009 letter, for the purpose of drafting her defence. She denied that. However, upon being shown a document, she did not stand by that evidence, and accepted that she had been asked about her possession of the letter (T84.29-85.22). Her evidence on this was a little bit confused but it ended in the following question and answer (T85.45-.47):

Q.     Did your solicitor ask you the question, namely, did you have a copy of the 24 April 2009 letter for the purposes of preparing your defence, yes or no?

A.     Yes.

381. The “solicitor” concerned did not give evidence. The obvious inference is that the instructions to him or her, in answer to the question asked of Ms Buckworth, were consistent with the non-traverse of ASC [76].

382. It might be noted that “Mr Grieve was closely involved with the drafting of [Ms Buckworth’s] defence” (T85.50-86.1). However, Mr Grieve did not give evidence as to the reasons why there was no traverse of ASC [76].

383. I should make it perfectly clear that I am not in any way critical of the decision, apparently taken deliberately, to “admit” non-contentious pleadings of material fact by the technique of not traversing them. On the contrary, the use of that technique spares the reader the task of ploughing through numerous paragraphs stating, in effect, “the defendant admits paragraph XXX of the amended statement of claim”. It enables the reader’s attention to be focused on those allegations of material fact that are either “not admitted”, or are denied; and on the additional substantive matters pleaded in answer to some of them.

381. On the evidence as I have summarised it, there is simply no explanation for the decision to “admit”, by not traversing, ASC [76]. The failure to explain what is now said to be a mistake is compounded because Ms Buckworth accepts that she was asked whether she had a copy of the letter in her possession, but did not say (either in her affidavit or in her oral evidence) that she told the solicitor she did not have a copy of the letter in her possession.

382. I should however note that Mr Grieve sought to re-examine on this topic. He asked (T93.7-.10):

Q.     You were shown a document which has been marked 8 for identification and you were then asked a question to the effect did your solicitor ask you whether you had a copy of the letter of 24 April 2009 to which you responded in the affirmative.  I ask you what was your answer to the solicitor's question?

386. Mr Lucarelli objected, on the basis that the re-examination did not arise from the cross-examination. The objection was in my view well-taken. Accordingly, I rejected the question.

387. The obvious inference, as the evidence stands, is that the answer that Ms Buckworth gave to the solicitor justified his or her decision not to traverse ASC [76]. In drawing that inference (as I do) I take into account that the solicitor has not been called to say that he or she was given an answer inconsistent with the non-traverse of that paragraph, and no explanation has been given for the failure to call that solicitor.

388. The significance of those matters is reinforced by the correspondence to which I have referred. Minter Ellison told Hunt & Hunt plainly and clearly that Gladio was going to trial on the basis of, among other things, the admissions on the pleadings.

389. Ms Buckworth said in her affidavit (in support of her notice of motion) that she was not aware of the significance of the deemed admission until Mr Lucarelli opened the case for the plaintiff. This aspect of her evidence was not attacked directly in cross-examination. However, that affidavit was read on the notice of motion. It was not admitted as evidence on the hearing; nor was the cross-examination on it.

390. In any event, that evidence (if it could be taken into account) would not assist Ms Buckworth. She agreed that she had been given a copy of Minter Ellison’s letter of 15 May 2014 at or about the time it was written, and had read it carefully. Likewise, she agreed that (probably) she would have received a copy of Hunt & Hunt’s reply of 19 May 2014 at or about the time it was written, and would have read and understood it (T89.32-91.14).

391. There is another relevant factor. Ms Buckworth affirmed an affidavit on 11 May 2014 which set out her evidence in support of her amended defence, and referred specifically to the ASC.

392. In para 3 of that affidavit, under the heading “Air-conditioning”, Ms Buckworth set out the circumstances in which the letter of 24 April 2009 had been drafted. She did not say, in that paragraph or elsewhere in the affidavit, that she did not have a copy of the letter.

393. Paragraph 4 of the affidavit dealt with the use (or non-use) of the air-conditioning. Paragraphs 5 and following turned to the ASC. In para 5, Ms Buckworth referred to ASC [77] and said that up until 16 July 2013 she “did not know or consider that the 24 April 2009 letter was “highly material to any prospective purchaser of unit 20”…” for reasons which she said had already been set out.

394. She gave the following evidence (T88.12-.37):

Q.   Please read paragraph 77 of the amended statement of claim and tell me when you have done so?

A.     I've read it.

Q.     You respond to that paragraph 77, do you not, in paragraph 5 of your affidavit of 11 May 2014, correct?

A.     Correct.

Q.     You respond to paragraph 77 by telling the Court that you did not consider the 24 April 2009 letter as highly material, correct?

A.     Correct.

Q.     It is the case, isn't it, that when you read paragraph 77 of the amended statement of claim you also read paragraph 76 of the amended statement of claim?

A.     Yes and there's an explanation for that.

Q.     The answer is yes, you read paragraph 76 of the amended statement of claim prior to swearing your affidavit of 11 May 2014, correct?

A.     Correct.

395. Having observed Ms Buckworth in the witness box, and having taken note of her insistence on answering – not always responsively – propositions that she thought were not correct, I have to say that I find it unlikely in the extreme that, having read ASC [76], she would not have mentioned it in her affidavit had she thought that what it said was incorrect. Again, she gave no evidence of having given instructions to the solicitor who assisted in the drafting of her affidavit (or to Mr Grieve, who apparently settled it) in relation to ASC [76]. Again, neither the solicitor nor Mr Grieve gave evidence on this issue.

396. The evidence does not support the proposition that the failure to traverse ASC [76] arose from a mistake on the part of the solicitor to whom Ms Buckworth gave instructions, or on the part of Mr Grieve who settled the amended statement of defence. The cumulative failures to deal with the material fact alleged in ASC [76] – first in the amended statement of defence, and next in the affidavit affirmed on 11 May 2014 – coupled with Ms Buckworth’s insistence on rigour and accuracy (as I perceived it in the witness box), make it very difficult to accept that the failure to traverse ASC [76] was the result of oversight or mistake.

397. In circumstances where Ms Buckworth’s solicitors were specifically warned, and where she understood, that Gladio was preparing for trial among other things on the basis of the admissions deemed to have been made, the want of any explanation whatsoever for the failure to traverse ASC [76] was, in my view, fatal to the application for leave to withdraw the admission.

398. I should add that even if Ms Buckworth had been permitted to answer the question referred to at [385] above, and had said in substance that she told the solicitor that she did not have a copy of the letter, my view would be no different. That would still leave totally unexplained the cumulative failures to traverse ASC [76], and to include in her affidavit of 11 May 2014 (or in any subsequent affidavit prior to the one sworn in support of the application for leave to withdraw the admission) what Ms Buckworth now says was the correct state of affairs – namely, that she did not have a copy of the letter of 24 April 2009 in her possession at any material time.

399. Further, bearing in mind the time at which and the circumstances in which the application was made, and the possible consequences for the hearing if leave to withdraw the admission were given, and taking into account the amount at stake, it seemed to me (as it still does) that, analysed in terms of s 56 of the Civil Procedure Act, 2005 (NSW) the interests of justice required that Ms Buckworth not be given leave to withdraw the admission. The inevitable result of that alteration to the litigious landscape would have been an application to adjourn, and perhaps an application for disclosure of documents. In all the circumstances, the additional cost and delay would have been totally unconscionable, and totally disproportionate to the amount at issue.

Conclusions and orders

400. Gladio is entitled to judgment against Ms Buckworth in the sum of $145,000.00, together with interest from the date of rescission (26 September 2013) to the date of judgment. Those parties are to prepare an agreed calculation of interest, including the “daily rate”, up to 28 July 2015.

401. Although Gladio sought declaratory relief as to its entitlement to have the deposit refunded, there is no utility in the grant of the declaration sought. Gladio’s right to the deposit will be sufficiently vindicated by the judgment for $145,000 plus interest in its favour.

402. Ashdown should have judgment in its favour on Gladio’s claim against it.

403. Each of the cross-defendants should have judgment in its favour on the cross-claim against it.

404. All questions of costs should be reserved (Mr Izzo expressly requested this, and I would have done so in any event).

405. I stand the proceedings over for entry of judgment and for directions on 28 July 2015 at 9:30am before me. The parties are to produce an agreed minute setting out the orders to be made in accordance with what I have just said. On that occasion, I will hear from the parties as to the best way of dealing with the costs disputes that are undoubtedly likely to arise.

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Decision last updated: 14 July 2015