Greenwood v Kingston Properties Pty Ltd

[2007] NSWSC 1108

CITATION:	Greenwood v Kingston Properties Pty Ltd [2007] NSWSC 1108
HEARING DATE(S):	27/8/07
JUDGMENT DATE :	9 October 2007
JURISDICTION:	Equity Division
JUDGMENT OF:	Young CJ in Eq
DECISION:	Plaintiffs entitled to final instalment of purchase price of $1 million plus interest as agreed in the contract.
CATCHWORDS:	CONVEYANCING [117]- Position of parties after completion- Other matters- Defendant buys property for $2.6 million- $1.6 million payable on completion- Balance payable when purchaser transfers or assigns interest in property- Defendant sets up trust and transfers its interest in subject property to new trustee before completion- Vendors later signed caveat naming new trustee as registered proprietor- Not an acquiescence in transfer- Outstanding purchase monies payable. ESTOPPEL [29]- Estoppel by convention- Not made out as no evidence of common assumption.
LEGISLATION CITED:	Partnership Act 1892
CASES CITED:	CTM Nominees Pty Ltd v Galba Pty Ltd (1982) 2 BPR 9588 Davis v Williams (2003) 11 BPR 21,313 DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties (NSW) (1982) 149 CLR 431 Great Western Railway v Bristol Corporation (1918) 87 LJ Ch 414 Hallifax Mortgage Services Ltd v Stepski [1996] Ch 207 Re South African Supply and Cold Storage Co [1904] 2 Ch 268 Re Transphere Pty Ltd (1984) 5 NSWLR 309 Waterman v Gerling Australia Insurance Co Pty Ltd (2005) 65 NSWLR 300
PARTIES:	John George Greenwood (P1) Joy Greenwood (P2) Kingston Properties Pty Limited (D)
FILE NUMBER(S):	SC 2106/06
COUNSEL:	J R Wilson SC (P) I E Davidson and E Ito (D)
SOLICITORS:	Lea Smith (P) Patey & Murphy (D)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

YOUNG CJ in EQ

Tuesday 9 October 2007

2106/06 – GREENWOOD v KINGSTON PROPERTIES PTY LTD

JUDGMENT

1 HIS HONOUR: This is an unusual conveyancing case. On 13 February 2004, the plaintiffs and the defendant entered into a contract in the 2000 edition of the standard form by which the plaintiffs sold their property at 46 Medowie Road, Medowie to the defendant. The price was noted on the first page of the contract as $2,600,000.00 with a deposit of $80,000.00.

2 Clauses 38, 40 and 42 of the contract were as follows:

“ 38. Price
38.1 The purchaser will pay to the vendor on completion of this contract part of the price being $1,600,000.00 (less any deposit paid).
38.2 The balance of $1,000,000.00 will be paid by the purchaser to the vendor in accordance with clause 40.
40. Balance of the Purchase Price
40.1 If the date of gazettal of the rezoning of the land in accordance with clause 39.1 or 39.3 is no later than 5 years after the date of completion of this contract then the purchaser will pay the vendor the balance of the price on or before the date 30 days after the date of gazettal of the rezoning of the land.
40.2 If the purchaser completes a contract for the sale of the land to another party or otherwise transfers or assigns all or part of its legal or beneficial interest in the land no later than 5 years after the date of completion of this contract then the purchaser will on or prior to that transfer or assignment pay the vendor the balance of the price ($1,000,000.00) together with all interest on that amount then accrued but unpaid irrespective of whether the land has been rezoned or not.
42. Caveat
42.1 The vendor may lodge a Caveat at LPI-NSW against the title to the land recording its interest pursuant to this contract following completion of the contract pending the rezoning and payment of the balance of the price.
42.2 The vendor acknowledges it will consent promptly as Caveator, when requested by the purchaser, to registration of any documents necessary to enable the purchaser to become registered proprietor of the land and including a first registered mortgage over the land securing an amount not exceeding $1,600,000.00 plus interest and costs as required by the purchaser.”

3 Clause 45.1 provided that the purchaser’s obligations under clauses 39, 40, 41 and 43 and the vendor’s rights under 42, 44 and 45 would not merge on completion.

4 The plaintiffs say, and the defendant denies, that they are entitled to be paid the balance of the purchase price of one million dollars plus interest under cl 40.2 of the contract.

5 The proceedings were heard by me on 27 August 2007, Mr J R Wilson SC appearing for the plaintiffs and Mr I E Davidson and Ms E Ito for the defendant. I am indebted to all of them for their assistance.

6 The contract is a very odd one in some respects. In particular, it names the price as $2.6 million and merely postpones the final $1 million. It never goes so far as to say the price is to be reduced to $1.6 million if none of the events specified in clause 40 take place. The liability to pay the extra million dollars thus appears always to have been a liability on the purchaser. However, awkward questions may have arisen if one of the events had not happened before 8 April 2009, but that is not a matter with which I need concern myself.

7 The contract was to be completed by 26 March 2004. However, it was in fact completed on 8 April 2004 which was Maundy Thursday.

8 On 31 March 2004, the defendant and others entered into a deed entitled “Deed of Retirement and Appointment of Trustee”. Recitals A and B of that deed were as follows:

“A. By Deed dated 13 February 2004 between Suzanne Veronica Griffin as Settlor and Kingston Properties Pty Limited ACN 003 305 539 as Trustee (‘the Trust Deed’) a Trust known as Kingston Medowie Unit Trust (‘the Trust’) was settled.
B. Kingston Properties Pty Limited ACN 003 305 539 was appointed as Trustee of the Trust pursuant to Clause 2.1 of the Trust Deed.”

The deed then provided that Kingston Properties Pty Ltd retired as trustee and the unit holders replaced it with Kingston Medowie Pty Ltd. It would seem that the only unit holders at that date were Kingston Pacific Pty Ltd and Comos Pty Ltd.

9 Despite the recitals, there is not one mention in the contract between the parties to the present proceedings that the defendant was holding the property as any sort of trustee. Indeed, the settlor only set up the Kingston Medowie Unit Trust by a deed which just happens to bear the same date as the contract between the parties in the present case.

10 On the settlement of the conveyance on 8 April 2004 at about 4 pm, three transfers were handed to the ANZ Bank’s representative, the ANZ Bank being the incoming mortgagee. First, there was a transfer of a road widening strip from the plaintiffs to the local council. Secondly, there was a transfer from the plaintiffs to the defendant. Thirdly, there was a transfer from the defendant to Kingston Medowie Pty Ltd.

11 At this point I need to digress and deal with the legal representation of the parties.

12 I would infer from the evidence that it was the defendant and its agents that solicited the plaintiffs to sell their land, rather than the plaintiffs listing their land with an agent to attract purchasers. After negotiations, the plaintiffs were induced to think that if they employed the same solicitors as the purchaser, there would be a saving in costs. They then retained Messrs McDonald Johnson of Newcastle.

13 Mrs Greenwood gave evidence that it was represented to them that two separate solicitors would act independently for the parties. Essentially this happened (though not completely), a Mr Peter Owens who describes himself in correspondence as “Accredited Specialist Property Law” acted for the purchaser and Mr Jim Griffiths, a partner in the firm, assisted by a Ms Lee-Anne Dimmock, a solicitor then employed by that firm, acted for the vendors. If ever one were prejudiced against the same firm of solicitors acting for both vendor and purchaser, this case would strongly reinforce that prejudice.

14 One of the things that happened in the solicitors’ office about which I was told relatively little, was that it would seem that after the clients had signed and exchanged the contract, the solicitors altered it specifically in respect of clause 40. The contract was only signed on the front page which made this easy to do.

15 Although it is not completely clear, it would seem that what happened was that the form of clause 40.2 as it originally appeared in the contract, probably due to computer malfunction, was gobbledygook. Whilst one can understand why the solicitors would wish to remedy this, they still had no authority to substitute something which was not in the contract as signed by both parties.

16 In one sense this alteration does not matter because it could not have prejudiced either party. Indeed, both parties have accepted for the purpose of this litigation the version that now appears. However, it must be said again, because evidently it needs to be said again, that solicitors have no authority to alter documents signed by the client without the solicitors having a power of attorney to do so; see eg CTM Nominees Pty Ltd v Galba Pty Ltd (1982) 2 BPR 9588.

17 After Easter 2004, there was considerable activity in the office of McDonald Johnson. According to the defendant’s chronology, Mr Owens “wrote to the solicitor for the plaintiffs referring to the plaintiffs’ ability to register a caveat in accordance with clause 42.”

18 The letter is a rather remarkable letter. It is dated 13 April 2004, it is on McDonald Johnson’s letterhead and is signed “Yours faithfully McDonald Johnson”. It is addressed to “McDonald Johnson Lawyers”. It gives Mr Griffiths and Ms Dimmock’s reference. The letter from McDonald Johnson to themselves says that, and I summarise, “as at the date of the contract Kingston Properties Pty Ltd acted as a trustee. Prior to completion it resigned as the trustee and was replaced by Kingston Medowie Pty Ltd. If the plaintiffs register a caveat in accordance with clause 42, various other consents would need to be obtained.”

19 However, on the same day, by inter-office memorandum to Lee-Anne Dimmock, Mr Owens said this:

“Please ensure the caveat is not registered without first providing to me the consent in writing of the Greenwoods … so that if the caveat is registered before the transfer and the mortgage to ANZ Banking Group Limited then registration of the caveat will not interfere with registration of … transfer by Kingston Properties Pty Limited to Kingston Medowie Pty Limited.”

20 By an internal memorandum in reply, Ms Dimmock said she was seeking “our clients’ further instructions” pursuant to special condition 42. However, she returned a residential tenancy agreement, the landlord being specified as Kingston Properties Pty Ltd.

21 On 14 April, McDonald Johnson wrote to the ANZ Bank’s solicitors requesting that the transfers be lodged as soon as possible so that the caveat would not affect them.

22 On 16 April 2004, Ms Dimmock wrote to the plaintiffs merely enclosing what she called “1. Consent by Caveator; and 2. Real Property Act form of Mortgage”. The latter document was in fact a form of caveat. There was not one word of explanation that the consent which the Greenwoods were being asked to sign was not in accordance with clause 42 of the contract. A reminder letter was sent on 6 May. However, on 3 May, in front of the local chemist, Mr Gavin Smith, the plaintiffs signed a caveat. The document was not the same as sent by Ms Dimmock in April. It named as the registered proprietor Kingston Properties Pty Ltd. However, it appears that later someone altered this to Kingston Medowie Pty Ltd on the first, but not the second page.

23 On 22 July 2004, the solicitors sent to the plaintiffs yet another form of caveat. This time the registered proprietor was noted as Kingston Medowie Pty Ltd. On the second page of the caveat the parties to the contract for the sale of land were said to be “John George Greenwood and Joy Greenwood (as vendor) and Kingston Medowie Pty Ltd ACN 108 465 523 (as purchaser).” The plaintiffs signed this document on 13 September 2004.

24 However, this lastmentioned caveat was never used. Instead, on about 23 August 2004, a document was lodged with the Registrar General and numbered Caveat AA893480U, this being the May caveat, but it would appear on the first page that a law stationer has crossed out the word “Properties” after “Kingston” and written in “Medowie” and has changed the ACN number as well as writing in the new reference to title.

25 The second alteration has no implications. However, the first is just quite beyond the capacity of a solicitor or law stationer to effect. There was never any reference to the vendors about that amendment, but it appears with initials in the margin, presumably those of a law stationer, as if the plaintiffs had signed it.

26 Mr Davidson, who appeared for the defendant, appeared shocked when I called the caveat as lodged a forgery, but it was not the document which the vendors signed. It was proffered to the Registrar General as a genuine document, which it was not. However, as in Davis v Williams (2003) 11 BPR 21,313 (CA) at 21,327, the forgery had no effect on the parties’ rights.

27 It is to be remarked on, however, because it is surprising that a firm of solicitors which claims to have amongst its partners, accredited property law specialists, would allow such a thing to happen. It is also surprising, especially in view of some of the submissions that Mr Davidson made in this case, doubtless on instructions, that documents were sent to the vendors as clients of the firm with traps in them without one word of explanation or one word of warning as to the traps which might be being put in their paths by their own solicitors.

28 All this is disturbing, but by the bye. The principal question is whether, under clause 42 of the contract, in the light of the transfer from Kingston Properties Pty Ltd to Kingston Medowie Pty Ltd, clause 42 had been triggered.

29 There has been considerable analysis recently of what happens when one transfers a trustee’s interest in property leaving the beneficial interest in place. M H McLelland J said in Re Transphere Pty Ltd (1984) 5 NSWLR 309, 311:

“What is significant for present purposes is the imprecision of the notion that absolute ownership of property can properly be divided up into a legal estate and an equitable estate. An absolute owner holds only the legal estate, with all the right and incidents that attach to that estate. Where a legal owner holds property on trust for another, he has at law all the rights of an absolute owner but the beneficiary has the right to compel him to hold and use those rights which the law gives him in accordance with the obligations which equity has imposed on him by virtue of the existence of the trust. Although this right of the beneficiary constitutes an equitable estate in the property, it is engrafted onto, not carved out of, the legal estate.”

30 In DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties (NSW) (1982) 149 CLR 431, 474, Brennan J said:

“An equitable interest is not carved out of a legal estate but impressed upon it.”

31 When property the subject of a trust is conveyed, probably the proper analysis is that it is not just a bare legal estate which is conveyed and the beneficial interest remains the same, but rather that the beneficiaries’ rights against the original trustee cease, the whole of the congerie of rights which make up a legal fee simple are passed to the transferee and eo instanter with that, a new equitable obligation arises against the new trustee. Because the way in which most stamp duty legislation is phrased, usually it is unnecessary to analyse this transaction closely, as only a nominal duty is imposed.

32 It is not necessary in the instant case to go to that length of analysis. This is because the clause says explicitly:

“If the purchaser completes a contract for the sale of the land to another party [it did not, there was no sale] or otherwise transfers or assigns all or part of its legal or beneficial interest in the land …”.

33 Thus, unless one of the arguments of Mr Davidson hold water, there is a clear transfer of the legal interest in the land. I thus turn to the arguments that Mr Davidson proffered.

34 The first was that the clause only applied if there was a transfer no later than five years after the date of completion and that in the instant case the transfer was before completion. I would reject this argument. I do this for a number of reasons. First of all, the purpose of clause 40 was that the full purchase price was payable on rezoning, and that the purchaser could not escape paying by transferring the land to someone else. A transfer being held up the purchaser’s sleeve as at the date of completion would effectively stymie the vendor and this can hardly be what the parties intended when they made the contract. Secondly, there is no commencing date set out in clause 40.2 as to the period for which the full purchase price was payable, merely the latter end of it. There is no logical reason why one should not construe clause 40.2 as imposing an obligation which commenced on exchange and would cease on 8 April 2009.

35 In this connection, it must be noted that this is not a contract where the price was $1.6 million with an extra million dollars to be paid in certain circumstances, rather, it was a contract for a purchase of $2.6 million, $1.6 million to be paid on completion and the balance “in accordance with clause 40”. Although there is some suggestion in the negotiations that it was only on rezoning that the “extra million” was to be paid, that is not how the contract was drawn. There is no provision for the extra million dollars to abate and it would be a nice question to consider whether clause 40 merely contains a moratorium on the payment of the million dollars, which would have to be paid in any event no later than 8 April 2009. I do not have to deal with that point, and indeed, it was not argued before me by either side.

36 It may be possible to construe clause 40 as making the payment of the final million contingent on rezoning with clause 40.2 to be construed as merely a back-up provision. There is some vague support in clause 42 for this, but no-one argued this possibility before me, though I did mention it during submissions.

37 Mr Davidson’s second and indeed principal argument was that there had been a subsequent agreement whereby the plaintiffs had agreed that Kingston Medowie Pty Ltd would be treated for all purposes as the purchaser in lieu of the original purchaser, and alternatively, that there was a conventional estoppel pursuant to which the same result came about.

38 The former argument to a great degree depends on the fact that the final form of caveat was sent to the plaintiffs noting that the purchaser was Kingston Medowie rather than Kingston Properties, that the plaintiffs then signed it before a Justice of the Peace and ergo have acknowledged that Medowie was the purchaser.

39 The fact that the documents were sent to the Greenwoods, people with no legal or commercial training, without any explanation by their solicitor, that their evidence shows that they did not appreciate that there was such a change (indeed, Mrs Greenwood said that if they had, they would never have agreed to it) makes it impossible to my mind for me to find that there was a recognition by the vendors of a change of purchaser. Even if it was possible for me to find it, I would not find it on the facts.

40 The third submission is that on the true construction of clause 40.2, in the light of surrounding circumstances known to both parties (including their solicitors), clause 40.2 was not intended to catch the execution of this transfer document which was an integral part of the completion of the contract.

41 Part of the vice of this submission are the words in brackets “including their solicitors”. I do not accept the proposition that where a developer purchaser strongly suggests to the vendor that the vendor use its solicitors, that the acquiescence of those solicitors can be attributed to the vendor as showing the vendor’s intention.

42 There is no indication in the contract itself that the purchaser is buying as trustee of any sort of trust. Furthermore, there is no evidence or, if I have overlooked some inference I might possibly make, I have not sufficient material to draw any inference, that the plaintiffs ever had any intention that the transfer was an integral part of completion of the contract or that it was, in fact, an integral part of the completion of the contract. In any event, it must always be remembered that intention in this context is not to be confused with the subjective intention of one or more parties. As Lord Shaw said in Great Western Railway v Bristol Corporation (1918) 87 LJ Ch 414, 424, it is illegitimate “to confuse evidence of a writer’s intention as such, with the intention conveyed by the words which he employed. The latter alone is legitimate.” See also Lewison, The Interpretation of Contracts, 3rd ed, 2004, para 2.03.

43 There are, of course, cases where the exact words of a clause seem to have been fulfilled, yet that was not in accordance with the intention of the parties. A prime example is where there is a triggering event in a contract of a resolution being passed to wind the company up and a resolution to wind up is passed as part of a reconstruction process; see eg Re South African Supply and Cold Storage Co [1904] 2 Ch 268, 282. However, in the instant case, clause 40.2 is so worded that it expressly covers not only sales but also any transfer of even part of its legal interest apart from transfer of all or part of its legal or beneficial interest in the land then the clause will be triggered. Accordingly, I reject this submission.

44 The fourth submission is that one can use the surrounding circumstances to assist in the construction of clause 40.2. I was referred to recent authorities which justified the view that one could look to surrounding circumstances far more widely than one used to when looking at “ambiguity” as the result of recent decisions of the High Court and the Court of Appeal.

45 However, it is not necessary in this case to look at the authorities giving guidance as to when one is able to look at surrounding circumstances because it seems to me that whatever the ambit of the rule is, the surrounding circumstances, as at the date of the contract, do not assist at all. Apart from the fact that the trust deed bears the same date as the exchange of contracts, there is nothing at all to show that the unit trust was connected with the sale, or even if it was, that the vendors knew about it. The fact that the developer’s solicitors, who became the vendors’ solicitors, were well aware that this was going to happen, does not seem to me itself to constitute a surrounding circumstance which affects the vendors.

46 The fifth proposition is that there is a conventional estoppel. Mr Davidson submits in paras 53 and following of his written submissions, that even apart from the caveat which was actually signed in September 2004 (but never lodged) showing that Kingston Medowie Pty Ltd was the registered proprietor -

“55. Due to the mutually manifested agreement or understanding of the subject matter of the Contract on or before 8 April 2004, and the mutual adoption of such assumed or conventional state of facts understood by both the plaintiffs and the defendants after 8 April 2004 until at least July 2005, the defendant submits that the plaintiffs are now estopped from claiming from the defendant the sum of $1 million (or any part thereof) referred to in clause 38.2 and clause 40 of the Contract and are estopped from claiming any interest on such sum.
56. This is a compelling case where the defendant can rely on a conventional estoppel to ‘trump’ what the plaintiff submits would otherwise be the proper construction of the Contract. …
57. …. the defendant submits that the detriment from permitting the plaintiffs now to move away from the assumptions accepted until late in 2005 would be plain.”

47 The date of July 2005 is where the plaintiffs first made the claim for the extra million dollars.

48 Mr Davidson referred me to a number of cases including Waterman v Gerling Australia Insurance Co Pty Ltd (2005) 65 NSWLR 300.

49 Both counsel accepted that conventional estoppel is to be considered as a form of common law estoppel rather than equitable estoppel. It depends on both parties making a common assumption. There is no acceptable evidence which would enable me to find that the vendors had an assumption that the purchaser was to be the Medowie company.

50 I must note that it was finally recognised by everybody that what I am trying is a pure case at common law. The plaintiffs sue for debt under a contract and the defendant defends on the basis of the construction of the contract or because of conventional estoppel. There is thus really no room for principles of notice as might apply if there were equitable interests involved or questions of priority.

51 However, Mr Davidson at one stage was driven to submit that because the vendors’ solicitor was a partner of the purchaser’s solicitor, then if the purchaser’s solicitor knew fact X, (X mainly being the fact that the new company had been formed to be a replacement trustee of a unit trust over the property) then, by virtue of the Partnership Act 1892, the vendors’ solicitors in the firm also had knowledge of that fact, and as the vendors’ solicitors had knowledge of that fact, so therefore did the vendors.

52 This, with great respect, is an absurd proposition. First, it is irrelevant because this is not a case where equitable doctrines of notice are applicable. Secondly, if it were relevant, it would be a perfect reason why vendors and purchasers should never have the same solicitor. Even where notice of a solicitor is notice to his or her client, there must be the same transaction and I would have considered that where a solicitor has notice of a fact as the vendor’s solicitor, that does not also give him notice as the purchaser’s solicitor. Indeed, cases such as Hallifax Mortgage Services Ltd v Stepski [1996] Ch 207 support what I have just said.

53 It seems to me that the submission that there is an operative conventional estoppel fails in limine as “mutual adoption” of the facts is not established merely because the firm of solicitors acting for both parties had an understanding between the various members of the firm. The alleged common assumption appears to be that the transfer from one trustee of the unit trust to another would not come within clause 40.2. There is no material to show that the plaintiffs made that assumption or that any solicitor within McDonald Johnson of Newcastle had any authority to make or promulgate agreeing in such an assumption to the defendant.

54 In any event, detriment is required as Waterman shows and I cannot see any detriment here.

55 Mr Davidson says that the detriment is that had the common assumptions not been made it would not have made the transfer. However, the appointment of the new trustee had already taken effect from 31 March 2004.

56 There was nothing in the conduct of the vendors which could have only occurred on or after completion which could have affected that transaction one whit.

57 Despite Mr Davidson’s earnest submissions, I just cannot see how this can possibly be a case of an operative conventional estoppel. Accordingly, in my view, the defence based upon conventional estoppel fails.

58 The sixth defence was that the transfer to Kingston Medowie Pty Ltd did not transfer a legal interest in the property to Kingston Medowie. However, the evidence is quite clear that the original transfer was in favour of the defendant and then there was a second transfer from the defendant to Kingston Medowie. That second transfer must have transferred the legal estate in accordance with the authorities to which I have referred to earlier.

59 Finally, at my invitation Mr Davidson put in supplementary submissions on 5 September 2007. With respect, these submissions did not deal with the point that was concerning me which is one that I have already noted. I do not consider that the additional submissions raise any matter not already dealt with in earlier submissions which I have covered in what I have said above.

60 It follows that the plaintiffs are entitled to the final instalment of the purchase price of $1 million plus interest as agreed in the contract. I will stand the matter over for short minutes to be brought in as to the exact amount of the verdict. I will list the matter before me at 9.30 am on 18 October but should some other date better suit counsel, provided my Associate is notified the week before, the date can be changed.

61 I should conclude by noting that once again this case shows the inadvisability of the one firm of solicitors acting for both parties. I have expressed surprise at some of the corners which were cut impermissibly. However, although I would not have expected a firm which includes specialists in property law to have allowed these things to occur, I should make it clear that there was no occasion where the plaintiffs would appear to have suffered any damage as a result of what I euphemistically will call corner cutting.

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