Gunns Limited v Balani Pty Ltd

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FEDERAL COURT OF AUSTRALIA

Gunns Limited v Balani Pty Ltd [2011] FCA 431

Citation: Gunns Limited v Balani Pty Ltd [2011] FCA 431
Parties: GUNNS LIMITED (ACN 009 478 148) v BALANI PTY LTD (ACN 122 390 738) and PSAL LIMITED (ACN 118 825 120)
File number: TAD 54 of 2010
Judge: MARSHALL J
Date of judgment: 4 May 2011
Catchwords:

CONTRACT – purchase of land – purchase price paid – conditions precedent to completion including grant of subdivision – right of cancellation by either party if conditions precedent not satisfied – right to recover purchase price

EQUITY – equitable lien – right of purchaser paying purchase price for land – registered mortgage – prior notice to mortgagee

TRADE PRACTICES – cross-claim – Trade Practices Act 1974 (Cth) ss 52 and 53A – contravention by lodgement of a priority notice – declaration sought – loss required – Federal Court of Australia Act 1976 (Cth) s 21
Legislation: Federal Court of Australia Act 1976 (Cth) s 21
Land Titles Act 1980 (Tas)
Trade Practices Act 1974 (Cth) s 51AA, s 52, s 53A
Cases cited: Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd (2006) 156 FCR 1
Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 Codelfa Constructions Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337
Perpetual Trust Co Limited v Smith (2010) 186 FCR 566 Kimberley NZI Finance Ltd v AR Barr Investments Pty Ltd [1990] FCA 54
Barry v Heider (1914) 19 CLR 197
Bahr v Nicolay (No 2) (1988) 164 CLR 604
Frazer v Walker [1967] 1 AC 569
Watson Stores (Interstate) Limited v Maher (1988) 164 CLR 387
Ainsworth v Criminal Justice Commission (1992) 175 CLR 564
Dates of hearing: 28 and 29 March 2011
Place: Melbourne (via video link to Hobart)
Division: GENERAL DIVISION
Category: Catchwords
Number of paragraphs: 106
Counsel for the Applicant: Mr S McElwaine
Solicitor for the Applicant: Shaun McElwaine & Associates
Counsel for the Respondents: Mr C Gunson
Solicitor for the Respondents: Galilee Solicitors

IN THE FEDERAL COURT OF AUSTRALIA

TASMANIA DISTRICT REGISTRY

GENERAL DIVISION

TAD 54 of 2010
BETWEEN:

GUNNS LIMITED (ACN 009 478 148)
Applicant
AND:

BALANI PTY LTD (ACN 122 390 738)
First Respondent

PSAL LIMITED (ACN 118 825 120)
Second Respondent

JUDGE:

MARSHALL J

DATE OF ORDER:

4 MAY 2011

WHERE MADE:

MELBOURNE (VIA VIDEO LINK TO HOBART)

THE COURT ORDERS THAT:

On the cross-claim:

1.There be no order on the cross-claim, save as to costs.

2.The applicant pay the respondents’ costs of the cross-claim, to be taxed in default of agreement. 

On the substantive application:

1.The parties file and serve proposed orders to give effect to these reasons for judgment on or before 18 May 2011. Such proposed orders are to be accompanied, if necessary, by brief outlines of argument in support of the making of such proposed orders.

2.The proceeding is adjourned to a directions hearing at 11:00 am on 20 May 2011 in Hobart.

Note:Settlement and entry of orders is…

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Details
Case
[2011] FCA 431
Decision Date

CaseChat Overview and Summary

Gunns Limited brought an action against Balani Pty Ltd, seeking to establish an equitable lien over certain land it had purchased from Dingemanse but which had not yet been subdivided and conveyed. The land was subject to existing mortgages, and Balani sought to register a further mortgage over the land. Gunns argued that it was entitled to an equitable lien over the land it had purchased and paid for, which would take priority over Balani’s interest as mortgagee. The case was heard in the Supreme Court of Tasmania. The primary legal issues revolved around whether the contract between Gunns and Dingemanse established an equitable lien in Gunns' favour, whether a term should be implied into the agreement to recognise Gunns' interest in the land, and whether Balani and PSAL engaged in unconscionable conduct. The court examined the contract's terms, the surrounding circumstances known to the parties, and the objective intention of the parties at the time of the contract.

The court concluded that the agreement between Gunns and Dingemanse did not establish an equitable lien in Gunns' favour that would survive the registration of Balani's mortgage. The court found that the contract did not contain any express provision guaranteeing the performance of Dingemanse's obligations by Balani or providing that Gunns would have priority over Balani in the event of a default. The court also held that no term should be implied into the agreement to recognise Gunns' interest in the land. The court found that while the surrounding circumstances indicated the parties' objective intention to secure Gunns' interest in the land, there was no express or implied term in the contract that would establish an equitable lien in Gunns' favour. The court further found that Balani and PSAL had not engaged in unconscionable conduct in their dealings with Gunns.

The court ordered that there be no order on the cross-claim, except for costs, and that Gunns pay Balani’s costs of the cross-claim. The proceeding was adjourned to a directions hearing to allow the parties to file and serve proposed orders giving effect to the court's reasons for judgment.

Orders

Orders of the court

On the cross-claim:

1. There be no order on the cross-claim, save as to costs.

2. The applicant pay the respondents’ costs of the cross-claim, to be taxed in default of agreement.

On the substantive application:

1. The parties file and serve proposed orders to give effect to these reasons for judgment on or before 18 May 2011. Such proposed orders are to be accompanied, if necessary, by brief outlines of argument in support of the making of such proposed orders.

2. The proceeding is adjourned to a directions hearing at 11:00 am on 20 May 2011 in Hobart.

Note:

Background

Background to the litigation

The primary issue for determination in the proceeding is whether the agreement between Gunns on the one hand and Balani and PSAL on the other hand gave rise, in all the circumstances, to an equitable lien in Gunns of such a nature so as to have Gunns’ interest in the land it purchased survive notwithstanding the registration of Balani and PSAL as mortgagees on the relevant land title. Other issues raised concern whether a term should be implied into the agreement to give effect to recognition of Gunns’ interest in the land and whether Balani and PSAL have engaged in unconscionable conduct in their dealings with Gunns about the land.FACTUAL BACKGROUND (by reference to documentary evidence) On 27 October 2008, Dingemanse and Gunns entered into a contract whereby Dingemanse agreed to sell and Gunns agreed to buy about 136 hectares of Dingemanse’s Forest Lodge property comprising, Lots 1 and 2 on a proposed plan of subdivision. The purchase price of $400,000 was payable and paid on the exchange of the contract. Clause 3 of the contract provided that the contract was to be completed 14 days after the fulfilment of the last of the conditions precedent to completion (set out in cl 4(1) of the contract). Clause 4(1)(d) of the contract referred to the relevant municipal authority (“Break O’Day Council”) granting Dingemanse a permit to sub-divide the Forest Lodge property. Clause 4(1)(f) provided that if within 6 months of the date of the contract a separate title did not issue for Lots 1 and 2, either party had the right to cancel the agreement with Gunns being entitled to recover the full purchase price paid by it to Dingemanse. Clause 24.1 of the agreement provided that:The Vendor agrees that if this Contract does not complete for any reason, other than the Purchaser’s wilful default, that the Vendor will return the purchase price to the Purchaser. At the time Gunns purchased the property the land was subject to registered mortgages in favour of the Bank of Western Australia and two individuals. On 26 March 2009, a mortgage in favour of National Australia Bank (“NAB”) was lodged but not registered under the Land Titles Act 1980 (Tas) (“the State Act”). On 27 May 2009, Gunns filed a caveat with the Tasmanian Land Titles Office (“the Titles Office”) on the land it purchased. However, the Titles Office could not register the caveat until 19 October 2009, after the time in which NAB could have registered its interest as a mortgagee had expired. When NAB failed to register its interest in the permitted time Gunns’ caveat became registerable. By email dated 17 September 2009, solicitors acting for Dingemanse advised Gunns’ then solicitors, Shields Heritage, that Mr Dingemanse (a director of Dingemanse) was re-financing some of his properties. The email said that the new financiers (the respondents) wanted Gunns’ consent for the registration of second and third mortgages on the Forest Lodge properties. The reference to the second and third mortgages pre-supposed that NAB would register its first mortgage interest. The email observed that Gunns’ caveat was, at that stage, still not registered.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

Full text does not contain this section.

Ratio Decidendi

Legal Principle Established

Mr Gunson contends that if the parties intended to guarantee the performance of Dingemanse’s obligations under the contract by the respondents including the refund of the purchase price, specific wording to that effect would have been expected. The same applies to a lack of express agreement that Gunns would have priority over the respondents in the event that the respondents exercised their powers of sale.THE CONTRACT CLAIM - CONSIDERATION It appears not to be in contest that in construing commercial contracts the Court is entitled to take into account the “surrounding circumstances” or the “factual matrix”; see Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd (2006) 156 FCR 1, [2006] FCAFC 144, at [46] per Weinberg J, at [98] per Kenny J and at [251], per Lander J. As Weinberg J said in Lion Nathan at [46], the requirement to take into account the surrounding circumstances “is so in all cases, even if the words at issue are not ambiguous, or susceptible of more than one meaning”. At [51] his Honour considered that regard should be had “to context ahead of ambiguity”, consistently with the views expressed by the High Court in Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 and previously in Codelfa Constructions Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337. At [53], Weinberg J referred to the “fundamental principle that the rights and liabilities of the parties to a contract are to be determined objectivity”. His Honour continued:It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. Importantly, Lander J said at [251]:It is not clear and settled law that the meaning of commercial contracts and documents is to be determined objectively. To determine the objective intention of the parties regard must be had, of course, to the words in the document themselves, but regard should also be had to all of the surrounding circumstances which were known to the contracting parties at the time the document was created including the underlying purpose and object of the commercial transaction. (Emphasis added.) What were all the surrounding circumstances known to the parties as at 6 October 2009, including the underlying purpose of their agreement? The critical surrounding circumstances were:·The respondents wished to do business with Dingemanse by offering it loans.·The respondents knew at the time of offering to advance loans to Dingemanse that NAB was likely to have a first mortgage interest over the subject land.·The respondents knew about Gunns’ interest in two lots of a proposed subdivision of land held by Dingemanse at Forest Lodge Road.·The respondents knew that Gunns had contracted with Dingemanse to purchase Lots 1 and 2 and that it had paid Dingemanse the purchase price upon the signing of the uncompleted contract.·In assessing whether to advance loan funds to Dingemanse, the respondents excluded Lots 1 and 2 of the Forest Lodge Road land from their valuation of the land Dingemanse offered as security for the loan.·The respondents would not have advanced loans to Dingemanse if Gunns did not consent to the respondents’ interests as mortgagees being registered under the State Act.·In assessing their risk in advancing the loans to Dingemanse the respondents excised from their concern or interest the two lots which they understood would revert in title to Gunns upon the completion of its contract with Dingemanse.·Neither Gunns nor the respondents contemplated that Dingemanse would not eventually complete the contract it had with Gunns.·Gunns would not have consented to have the respondents recognised as registered mortgagees if the consequence would be that it lost its right to recover the purchase price for Lots 1 and 2.·It may reasonably be inferred that when Gunns consented to the respondents being registered mortgagees and the respondents gave their acknowledgements to Gunns, it was not in the contemplation of any party that Gunns was at risk (in the event of a default by Dingemanse) of not securing the repayment of the purchase price for Lots 1 and 2, or so much of that purchase price that may be realised by a sale of those lots.