Hookway v Hookway
[2024] TASFC 3
•27 May 2024
[2024] TASFC 3
| COURT: | SUPREME COURT OF TASMANIA (FULL COURT) |
| CITATION: | Hookway v Hookway [2024] TASFC 3 |
| PARTIES: | HOOKWAY, STIRLING MATHEW |
| v | |
| HOOKWAY, TAMZIN PETA | |
| FILE NO: | 2414/2022 |
| JUDGMENT | |
| APPEALED FROM: | Blow CJ |
| DELIVERED ON: | 27 May 2024 |
| DELIVERED AT: | Hobart |
| HEARING DATE: | 15 November 2022 |
| JUDGMENT OF: | Pearce J, Brett J, Martin AJ |
| CATCHWORDS: |
Contracts – General contractual principles – Matters not giving rise to binding contracts – Vagueness and
uncertainty – Uncertain promises - Whether failure to specify essential terms makes contract void for
uncertainty – Failure to specify caused failure to fulfill party intentions – Contract void – Appeal
dismissed.
Aust Dig Contracts [6]
Legislation:
Testators Family Maintenance Act 1912
Cases:
Anaconda Nickel Ltd v Tarmoola Australia Pty Ltd [2000] WASCA 27; (2000) 22 WAR 101
Australian and New Zealand Banking Group Ltd v Frost Holdings Pty Ltd [1989] VR 695
Barbudev v Eurocom Cable Management Bulgaria Eood & Ors [2012] EWCA Civ 548
BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266
Gange v Sullivan [1966] HCA 55; (1966) 116 CLR 418
Hansen Yuncken Pty Ltd v Parliament Square Hobart Landowner Pty Ltd [2021] TASFC 11
Hookway v Hookway [2016] TASSC 28
Minister for Immigration v SZVFW [2018] HCA 30, 264 CLR 54
Perri v Coolangatta Investments Pty Ltd [1982] 149 CLR 517 56 ALJR 445
Sandra Investments Proprietary v Booth [1983] HCA 46; (1983) 153 CLR 153
Warren v Coombes [1979] HCA 9; (1979) 142 CLR 531
REPRESENTATION:
Counsel:
Appellant: B McTaggart SC Respondent: K Cuthbertson SC
Solicitors:
Appellant: Mills Oakley Respondent: Douglas & Collins
| Judgment Number: | [2024] TASFC 3 |
| Number of paragraphs: | 49 |
Serial No 3/2024
File No: 2414/2022
STIRLING MATHEW HOOKWAY v TAMZIN PETA HOOKWAY
| REASONS FOR JUDGMENT | FULL COURT |
PEARCE J
BRETT J
MARTIN AJ
27 May 2024
Orders of the Court:
Appeal dismissed.
Serial No 3/2024
File No: 2414/2022
STIRLING MATHEW HOOKWAY v TAMZIN PETA HOOKWAY
| REASONS FOR JUDGMENT | FULL COURT PEARCE J 27 May 2024 |
1 I agree with Brett J.
2 No 3/2024
File No: 2414/2022
STIRLING MATHEW HOOKWAY v TAMZIN PETA HOOKWAY
| REASONS FOR JUDGMENT | FULL COURT BRETT J 27 May 2024 |
2 The parties to this appeal, to whom I will refer by their first names, are siblings, and the only residuary beneficiaries of the estate of their late father, Peter Hookway. They have been involved in complex litigation with each other about the estate since his death. In December 2018, they reached a settlement, the terms of which were recorded in a document entitled "Heads of Agreement". The settlement was intended to deal with all aspects of their dispute. In due course, Tamzin brought an action against Stirling seeking a declaration that the agreement contained in the document was void and unenforceable. Stirling counterclaimed seeking an order for specific performance. On 21 July 2020, Blow CJ upheld Tamzin's claim and dismissed the counterclaim. His Honour determined that, although the parties had intended the agreement to be binding, it was "void, unenforceable and of no effect" because it was incomplete and hence lacked sufficient certainty to constitute a valid and enforceable contract. In particular, it did not deal with matters essential for its operation.
3 Stirling has now appealed from this judgment. For the reasons which I set out below, I have concluded that the appeal is without merit and should be dismissed.
Factual Background
4 Peter Hookway died on 24 July 2006. He is survived by his defacto spouse Renate, his children, Tamzin and Stirling, and his grandchildren, Tamzin's daughter and Stirling's children. He left a substantial estate which contained assets with a value in excess of $10m on the basis of assessments made in 2006. At that time, the estate had debts totalling $634,400, but this did not include the estate's liability for personal income tax, or any provision for the costs of administration of the estate. Neither of these sums have since been quantified, and the evidence establishes that no tax returns have since been lodged with the ATO. According to the evidence of Timothy Levis, the corporate solicitor of the Public Trustee, who is administering the estate, lawyers and accountants are currently working through the taxation issues, towards a final assessment of the estate's current taxation liability. It can be inferred that the taxation liability will be substantial.
5 The assets of the estate consist of a number of pieces of real property which Peter Hookway either owned outright or in which he had a partial interest. He also had a substantial and controlling interest in four family companies. The remaining assets of the estate consist of cash investments, in particular term deposits and other bank accounts, together with various items of personal property, including a motor vehicle, livestock, furniture and art. The estate also has an entitlement arising from an unresolved claim for compensation by reason of the compulsory acquisition of a portion of certain pieces of real property.
6 The litigation to which this appeal relates arises from and is part of a complicated and ongoing dispute between Tamzin and Stirling concerning the estate and their respective personal interest in various assets of the estate, in particular pieces of real estate and the family companies. The dispute has often manifested in specific pieces of litigation, some of which have been resolved by judgment, and others which remain unresolved. In 2008, a claim by Renate under the Testators Family Maintenance Act 1912 was resolved on the basis that she was paid $1.8m from the residuary estate. In 2012, three family companies were wound up by the Federal Court on the application of Tamzin, and Mr Barry Hamilton was appointed as the liquidator of each company. That remains the situation at the present time.
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7 In 2016, Estcourt J determined litigation between Tamzin and Stirling concerning the validity of Peter Hookway's last will. The result of this litigation was an order that there be a grant of letters of administration, with a will dated 13 June 2006 annexed, to the Public Trustee: Hookway v Hookway [2016] TASSC 28. Under this will, Tamzin and Stirling are entitled to the residuary estate in equal shares. There are no other residuary beneficiaries. This order followed his Honour's finding of invalidity in respect of a subsequent will executed by Mr Hookway, which still left the residuary estate to Tamzin and Stirling, but which included a significant devise to his grandchildren.
8 Although the June 2006 will provides for a number of specific bequests to others, these are relatively modest, and it is clear that the bulk of the value of the estate is contained within the residue, which will be shared equally between the parties. Despite this, the dispute has continued. On 4 December 2018, the parties engaged in mediation and, at its conclusion, signed a document entitled "Heads of Agreement". It is uncontroversial, and obvious from the terms of that document in any event, that it was intended to resolve all outstanding matters of dispute between them. The learned primary judge found that the parties intended the Heads of Agreement to constitute a binding agreement, notwithstanding that the document expressed an intention to reflect its terms "in a more formal document to be executed" at a later date. A further document has not been executed, but the primary judge's finding as to the parties' intention to conclude an agreement immediately binding upon them is not challenged by either of them in this appeal.
The proceedings at first instance
9 Tamzin's claim at first instance sought declaratory relief that the Heads of Agreement was "void, unenforceable or legally ineffective". There were a number of bases pleaded to support the claim, but, of consequence, was an argument that the agreement was "incomplete and/or uncertain in its operation". Stirling disputed the claim of invalidity, and counterclaimed for specific performance of the agreement.
10 The primary judge upheld Tamzin's claim, and granted a declaration that the agreement is "void and unenforceable or otherwise legally ineffective". His Honour dismissed Stirling's counterclaim. The determinative finding was the absence of agreement on matters which were "essential, fundamental and critical" to the agreement. I will consider his Honour's reasoning in more detail later in these reasons, but, in short, his Honour concluded that:
•
All aspects of the agreement were interdependent. That is, the parties intended that the agreement, the purpose of which was to settle all aspects of their longstanding dispute, would only achieve that intention if it was performed in full. This was a patently correct conclusion, having regard to the content and context of the Heads of Agreement, and again is unchallenged in this appeal.
•
At least two aspects of the Heads of Agreement were subject to implied conditions precedent, which were entirely contingent on the decisions and actions of others, and hence there was inherent uncertainty as to whether either or both could be carried into effect. Because the finding as to the interdependent nature of the agreement meant, in effect that severance of any part of it was not available, the failure of one or both would result in the inability of the Heads of Agreement to fulfil the intention of the parties to settle their dispute completely.
•
The Heads of Agreement did not deal, at all, with the consequences of the failure of one or both contingencies. In particular, it did not specify whether the agreement would automatically terminate or be voidable at the election of one or both parties. It also did not deal with the situation in which there had been partial performance by one or both parties prior to the failure of an unrelated term, and how the complexities arising in that situation would be resolved.
4 No 3/2024
•
His Honour concluded that, in the particular circumstances of this case, agreement about such matters was essential to the operation of the agreement, and the failure to include same in the Heads of Agreement left it incomplete and, therefore uncertain. Hence, the agreement was invalid.
The appeal
11 The grounds of appeal are as follows:
"1 The primary judge erred by finding the agreement was incomplete in all the
circumstances.2 The primary judge erred by determining the agreement was incomplete based on a hypothetical case that was unlikely to happen. 3 The primary judge erred by granting declaratory relief based on a hypothetical case that was highly unlikely to happen. 4 The primary judge erred by failing to determine that the agreement was terminable by either party if an important contingency were not fulfilled. 5 The primary judge erred by failing to determine whether, on the construction most favourable to the plaintiff, the agreement was incomplete even if the highly unlikely hypothetical event did happen. 6 The primary judge erred by failing to imply contractual terms to give business efficacy to the agreement in all the circumstances. 7 The primary judge erred by failing to take into account adequately or at all the express terms of the agreement which required the parties to cooperate to give effect to the terms of settlement."
12 It is uncontroversial that the nature of the appeal as a rehearing requires the identification of error on the part of the primary judge. The grounds attack aspects of the reasoning of the primary judge, but in a case such as this, the appealable error will be identified, if it exists, in the final decision. This is the correctness standard of appellate review explained in Warren v Coombes [1979] HCA 9; (1979) 142 CLR 531 at 552:
"The duty of the appellate court is to decide the case – the facts as well as the law – for itself.
In so doing it must recognise the advantages enjoyed by the judge who conducted the primary. But if the judges of appeal consider that in the circumstances the primary judge was in no better position to decide the particular question than they are themselves, or if, after giving full weight to his decision, they consider that it was wrong, they must discharge their duty and give effect to their own judgment."
13 In Minister for Immigration v SZVFW [2018] HCA 30, 264 CLR 54, Gageler J observed that the correctness standard is applicable in cases, unaffected by the application of a discretion, in which there is only one "unique outcome":
“The course of High Court authority since Warren v Coombes has accordingly
proceeded on a consistent understanding of how the line of demarcation is to be drawn between those of a primary judge's conclusions which attract the correctness standard of appellate review reaffirmed in that case and those which attract the deferential standard applicable to appellate review of an exercise of judicial discretion. Without excluding the potential for other considerations to affect the standard of appellate review in a particular category of case, the understanding provides a principled basis for making at least the principal distinction.
The line is not drawn by reference to whether the primary judge's process of reasoning to reach a conclusion can be characterised as evaluative or is on a topic on which
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judicial minds might reasonably differ. The line is drawn by reference to whether the legal criterion applied or purportedly applied by the primary judge to reach the conclusion demands a unique outcome, in which case the correctness standard applies, or tolerates a range of outcomes, in which case the House v The King standard applies. The resultant line is not bright; but it is tolerably clear and workable."
14 This approach is reflected in the grounds of appeal. Despite the existence of seven grounds, senior counsel for the appellant, Mr McTaggart SC, conceded during the hearing of the appeal, without contrary argument from senior counsel for the respondent, Ms Cuthbertson SC, that all of the grounds merge in the first ground, which is that the primary judge erred by "finding the agreement was incomplete". It can be accepted that the balance of the grounds attempt to identify aspects which illustrate or have played a role in the reasoning that led to the final erroneous conclusion, but do not, of themselves, constitute determinative error.
15 Of course, as was made clear in Warren v Coombes, the nature of an appeal by way of rehearing requires this Court to conduct a "real review" of the evidence at first instance and of the primary judge's reasons, to determine whether the correct conclusion has been reached. In this appeal, there are no disputed questions of fact, nor any argument about the correctness of the underlying law applied by the primary judge. Ultimately, his Honour's determination depended upon construction of the Heads of Agreement and identification of invalidity based on a finding that the agreement was incomplete, because terms essential for its operation had not been agreed by the parties and these could not be implied into the agreement. A critical aspect of the primary judge's reasoning was that the essential nature of such terms made them necessary to establish the agreement's validity. These are matters upon which this Court is able to reach its own conclusion, and there will be only one correct outcome. Hence, the correctness standard is applicable.
An incomplete agreement
16 A valid contract will only arise if it includes all terms regarded by the parties or the law as essential to achieve legally binding relations. In my respectful view, the primary judge correctly summarised the relevant principles at paragraphs 27 and 28 of his decision as follows:
"An incomplete agreement is not legally effective: Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd (1982) 149 CLR 600 per Gibbs CJ, Murphy and Wilson JJ at 604. An agreement is incomplete if an essential, fundamental or critical term is left out: Thorby v Goldberg (1964) 112 CLR 597 per Menzies J at 607; Austra Tanks Pty Ltd v Running [1982] 2 NSWLR 840 per Wootten J at 843; Western Broadcasting Services v Seaga [2007] UKPC 19 at [19]. As Gageler J said in Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd [2016] HCA 26, 260 CLR 1, at [57]:
'... a contract can arise only if parties have reached a present agreement 'upon all the terms which they regarded or the law requires as essential for the formation of legally binding relations', it being 'implicit in the very notion of consensus that the minds of the parties should have met in praesenti and not merely that it is hoped or expected that they will meet in futuro'. [Footnotes omitted.]
It is clear that the parties intended the Heads of Agreement to constitute a legally binding contract. In that situation, a court must do its best to give effect to the parties' intention, despite any difficulties of interpretation: Scammell (G) & Nephew Limited v Ouston [1941] AC 251 at 268; York Air-Conditioning and Refrigeration (A/sia) Pty Ltd v Commonwealth (1949) 80 CLR 11 at 26; Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429 at 436-437; Meehan v Jones (1982) 149 CLR 571 at 578, 589."
17 I will give further consideration to the question of what constitutes an "essential" term later in
these reasons.
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18 Of course, when assessing whether an agreement is complete, it is necessary to take into account the entire agreement, including both express and implied terms. Implied terms can sometimes deal with the omission of express agreement about particular matters. The question as to whether a term is implied into a contract will depend upon the application of well settled principles. A term can be implied by law or by fact. In this case, the former is not relevant, but the primary judge correctly considered the latter. Once again, his Honour's statement of the prerequisites for the implication of a term, as a matter of fact, are correctly explained in paragraph 37 of the decision:
"The prerequisites for the existence of an implied term are as stated in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 by Lord Simon of Glaisdale, Viscount Dilhorne and Lord Keith of Kinkel at 283:
'... for a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that 'it goes without saying'; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.'"
19 The question of implication of terms according to the principles set out in BP Refinery Western Port Pty Ltd v Shire of Hastings, is part of the process of construction of the overall agreement. Logically, it is impossible to determine whether the agreement is complete until it has been properly construed, including by the implication of terms where appropriate. However, as his Honour noted, the law will not permit the implication of a term solely on the basis that it will fill a gap left in the outcome of the negotiations between the parties and, in that way, make an incomplete agreement into an enforceable contract. See Australian and New Zealand Banking Group Ltd v Frost Holdings Pty Ltd [1989] VR 695 per Kaye J, with whom Marks and Teague JJ agree. In other words, the process of construction comes first, taking into account the obligation of the court to do its best to give effect to the intention of the parties, and any assessment of incompleteness is to be made thereafter. It is apparent that the primary judge correctly followed this methodology, by construing the agreement, implying terms where appropriate and then determining whether the agreement dealt with all essential and critical matters. In this case, the primary judge determined that it did not.
20 This Court should adopt the same methodology. This is consistent with its obligation to conduct a "real review" of the evidence, and to conclude whether the primary judge reached the correct conclusion.
21 The principles which apply in construing a contract such as this are also not in dispute. These principles were conveniently summarised by the Court of Appeal of Western Australia in JKC Australia LNG Pty Ltd v CH2M Hill Companies Ltd [No 2] [2020] WASCA 112, drawing upon principles stated by the High Court in Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7 251 CLR 640 [35], Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37 256 CLR 104 paras 46-52:
"1
The rights and liabilities of parties under a provision of a contract are determined objectively by reference to its text, context (the entire text of the contract) and purpose.
2
In determining the meaning of the terms of a commercial contract it is necessary to ask what a reasonable business person would have understood the terms to mean. That enquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purposes or objects to be secured by the contract.
3
The court approaches the task of giving a commercial contract an interpretation on the assumption that the parties intended to produce a commercial result - one which makes commercial sense. (This has been said to require that the
7 No 3/2024
construction to be placed on the relevant provision be consistent with the commercial object of the agreement.) Thus a commercial contract should be construed so as to avoid it making commercial nonsense or working commercial inconvenience."
22 See also Hansen Yuncken Pty Ltd v Parliament Square Hobart Landowner Pty Ltd [2021] TASFC 11 per Martin AJ, with whom Wood and Geason JJ agreed, at [15].
Construction of the Heads of Agreement
23 As I have noted, the primary judge found, as a matter of fact, that the Heads of Agreement were intended by the parties to constitute a binding contract, and were not intended to be subject to execution of a further agreement. This finding is not challenged in this appeal, and in any event, in my view constitutes the only possible conclusion. In this regard, I have regard not only to the intention actually expressed in the agreement itself, but also the nature and terms of what was agreed, within the context of the underlying disputes, as well as terms which clearly indicate that the parties wished to resolve all outstanding matters between them.
24 The relevant principles make it clear that a court construing an agreement can only appropriately do so by considering the context in which the agreement was reached by the parties. The context of this agreement was a mediation and resulting Heads of Agreement intended to comprehensively deal with and bring to an end the long running dispute between Tamzin and Stirling. The finality which the parties intended to achieve by the agreement can be well understood by having regard to the underlying context that ultimately they shared the residuary estate equally. The context critically includes the fact that the underlying dispute was complex and related to various interests in companies and pieces of real estate and was characterised by several unresolved pieces of litigation. The Heads of Agreement attempted to deal with these individual components of the dispute comprehensively. In order to better illustrate this, it is worth setting out the Heads of Agreement in full:
"HEADS OF AGREEMENT
It is intended that these heads of agreement shall be binding and that the terms will be reflected in a more formal document to be executed prior to 14 December 2018.
All issues between Tamzin and Stirling are resolved on the following terms.
1 All proceedings between Tamzin and Stirling be discontinued with no order as to costs.
2 The Kennedy Drive land be divided between Tamzin and Stirling as per the plan attached and marked Option "6" (with no right of way). Stirling shall take the land to the west and Tamzin the land to the east. An easement be granted in the south east corner for services to benefit the land taken by Tamzin. ·
3 The land to the south of the highway be transferred to Stirling.
4 Tamzin and Stirling shall cooperate to ensure the prompt transfer of properties.
5 Tamzin and Stirling cooperate and instruct Barry Hamilton to take Hookway Aerospace out of liquidation. Any distribution to shareholders shall be paid equally between Tamzin and Stirling. Upon that occurring the shares in Hookway Aerospace be transferred to Tamzin. Stirling shall resign as a director.
6 Tamzin shall be entitled to the physical assets of Hookway Aerospace save for those on the list attached to these heads of agreement plus any fencing materials.
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7. Tamzin and Stirling shall jointly give a direction to Barry Hamilton to immediately pay the sum of $160,000 to Tamzin in repayment of her loan on the basis that the proceeding commenced by him shall be discontinued with no orders as to costs.
8 Tamzin shall be entitles (sic) to the personal effects and chattels of the Estate, save for 6 bottles of Grange and 8 dozen bottles of Cognac and any others set out in the attached list.
9 Tamzin shall not pursue Stirling for the costs of the appeal to the Court of Appeal.
10 The proceeds of the Land Compensation Case shall be divided according to the ownership of that land as at the date of acquisition.
11 Stirling and Tamzin shall make a joint request to the Public Trustee to make distributions from the Estate as follows; $200,000 to each of Tamzin and Stirling, the next $350,000 to Tamzin to be paid net of tax and thereafter the balance of the Estate to be divided 50/50 with no further adjustments sought by either Tamzin and Stirling.
12 Stirling acknowledges that Tamzin is the registered proprietor of 451 Churchill Avenue and he makes no claim in respect of that property.
13 The parties will cooperate to give effect to the Terms of Settlement including in seeking the consent of the Public Trustee and liquidator of Hookway Aerospace.
14 Pending subdivision (and unless the Liquidator of HA otherwise decides) Tamzin and Stirling will continue to lease the Kennedy Drive properties through Hookway Aerospace.
15 Stirling is to construct the boundary fence and any necessary gate at his expense between east and west.
16 Tamzin and Stirling shall equally pay the rates, insurance and land tax of Meaden Street which property shall be held by them for the beneficial use of their mother. An annual amount intended to cover the expenses shall be paid by Tamzin and Stirling on 1 January each year to Renate Hookway."
25 In the proceedings before the primary judge, there was argument about a number of matters dealt with in this document, but ultimately his Honour was concerned about three clauses in particular. There has been no attempt on this appeal to re-agitate any aspect of the Heads of Agreement other than those identified by his Honour.
26 The aspects of the agreement which concerned the primary judge are contained in paragraphs 2, 5 and 7. His Honour spent some time in respect of the construction and implication of terms relevant to these aspects of the agreement, and much time was taken in argument in the appeal concerning these matters. I will examine the construction of these terms before proceeding further.
27 In respect of clause 2, as the primary judge correctly observed, the subdivision referred to in that clause will require approval of a plan of subdivision by the relevant planning authority. In my view, application of the relevant principles for implication of a term means that it goes without saying that approval of the relevant subdivision as a condition precedent to performance of the terms of clause 2 and the cooperation of the parties in respect of the achievement of that approval, are terms which should be implied into the contract. It is inconceivable that this would not have been understood and intended by the parties, and it is necessary in any event to provide business efficacy with respect to the agreement. The primary judge's ultimate conclusion proceeded on this basis. Clause 13 can also be construed as requiring the necessary cooperation between the parties to achieve that outcome.
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28 The proper construction of clauses 5 and 7 pose more difficulty. As the primary judge correctly concluded, achievement of the outcomes specified in these terms, will ultimately require the cooperation and agreement of the liquidator, Mr Hamilton, and the approval or order of the Federal Court. This certainly includes the termination of liquidation of the company, Hookway Aerospace. As his Honour noted at [14]:
"Similarly, Mr Hamilton does not literally have the power to 'take Hookway Aerospace out of liquidation'. The Federal Court of Australia has a discretionary power to terminate the winding up of the company pursuant to s 482(1) of the Corporations Act. The liquidator of a company may apply for such an order under s 482(1A)(a). In deciding whether to grant such an application, the Federal Court will consider the interests of creditors, the liquidator, the contributories and the public: Re Warbler Pty Ltd (in liq) (1982) 6 ACLR 526; Dubolo Pty Ltd v Codrington Investment Corp Pty Ltd (1998) 26 ACSR 723 at 725."
29 In relation to paragraph 7, the primary judge correctly observed that the parties were not entitled to give a legally binding direction to the liquidator concerning payment of the funds of the company. In evidence, Mr Hamilton said that he did not see any difficulty with compliance with paragraph 7 but when tested under cross-examination, agreed that payment of such a sum would depend upon the existence of priority creditors, the financial position of the company and generally his obligation to act in the best interests of the corporation. The taxation question in particular remains unresolved, and according to Mr Levis is the "most significant issue" affecting whether the companies, including Hookway Aerospace, remain in liquidation. Mr Hamilton said in evidence that the company was in a solvent position because of the recent payment of rent to it, but he seems to have come to this conclusion without detailed consideration of the potential taxation liability. In any event, the point is that the payment to Tamzin is not as simple as Mr Hamilton simply acceding to a direction from the parties.
30 It is clear that the primary judge was concerned about the use of the word "immediately" in paragraph 7. At paragraph 39, his Honour said this:
"Clause 7 of the Heads of Agreement requires the parties to 'jointly give a direction to Barry Hamilton to immediately pay the sum of $160,000 to Tamzin in repayment of her loan'. [My emphasis.] But for the parties' use of the word 'immediately', I might very well have concluded that the Heads of Agreement was a valid and binding contract, containing implied terms making performance conditional upon various events taking place."
31 The appellant argued that all that was agreed in paragraph 7 was that the parties would give the joint direction to the liquidator. It was argued that there is no question of uncertainty arising from compliance with this clause, because it will be fulfilled upon provision of the direction. The parties would have been well aware that compliance with the direction depended on the contingencies referred to by the primary judge, including the consent of the liquidator, and, accordingly, actual payment was not required to complete the agreement. Alternatively, "immediate" should be construed as "within a reasonable time", and the consent of the liquidator should be implied as a condition precedent.
32 With one qualification, I agree with the primary judge's interpretation of this clause, and reject the argument of the appellant. It is obvious, in my view, that the required direction to Mr Hamilton was a machinery provision designed to achieve the underlying purpose of the provision, which was the immediate payment of the said sum to Tamzin. There could be no other reason for the insertion of the word "immediately" into that clause. Had the parties intended that Mr Hamilton pay that sum within a reasonable time or when reasonably able to do so, the clause would have said that. It is obvious to me when that provision is considered in the context of the balance of the settlement of various disputes, that the intention was that Tamzin would be immediately paid that money. While clause 13 makes it clear that the parties anticipated the need for the consent of the liquidator to the payment, I do not agree with the submission that it should be inferred that the parties would have thought through the potential
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implications and considerations involved in providing such consent. There was no evidence to support
such a proposition, nor can it be inferred from the terms of the Heads of Agreement.33 The qualification I refer to is the linkage in the text of clause 7 between the payment of the said sum to Tamzin and the discontinuance of the proceedings commenced by the liquidator against Stirling. The only reasonable and proper interpretation of the clause is that the parties intended that Tamzin would be paid the said money immediately and that at that time or within a reasonable time thereafter, but with certainty, the proceedings commenced by the liquidator against Stirling would be discontinued. As was demonstrated in the proceedings before the primary judge, the discontinuance of such an action would require not only the agreement of the liquidator, but also the leave of the Federal Court. Without analysing this question in any great detail, Mr Hamilton summed up the situation in cross-examination by conceding the need for the Federal Court's leave, and acknowledging the uncertainty of that outcome. Such uncertainty is real. The cross-examination also established that the action was based upon Stirling's possible breach of his statutory and fiduciary duties as a director by taking money from the company and using it for his own purposes. It is likely that a court considering this question would be concerned about such matters.
34 None of these issues require detailed consideration or resolution in this appeal, beyond the inescapable conclusion that the legal reality is that Mr Hamilton was not going to be able to "immediately" pay the relevant money to Tamzin. Even if ultimately he became able to do so, there would clearly be a delay. The primary judge identified this as a critical question in paragraph 40:
"Since the parties have no power to give Mr Hamilton directions, cl 7 could properly be construed as requiring them to make a joint request for him to make an immediate payment of $160,000 from the funds of Hookway Aerospace. It is clear from the pleadings that it is common ground that cl 7 was a fundamental term. The Heads of Agreement are silent as to what the consequences would be in the highly likely event of Mr Hamilton, if requested to do so, not making an immediate payment of $160,000. There are several possibilities that the parties could have agreed upon:
• That the contract would automatically terminate if he failed or refused to make the payment. • That the contract could be terminated by either party within a reasonable time after his refusal or failure to make the payment. • That the contract would be neither terminated nor voidable, but that the time for payment of the $160,000 would be postponed."
35 At paragraph 42 and 43 his Honour explained the significance of the contingencies inherent in both the subdivision (clause 2) and the payment to Tamzin and the associated discontinuance of the action against Stirling:
"Applications for permits for subdivisions routinely take months. Similarly, an application for the termination of the winding up of Hookway Aerospace could be expected to take months, given the involvement of three other companies and the complexity of that company's affairs. If Mr Hamilton were to make an immediate payment of $160,000 to Tamzin from the funds of Hookway Aerospace, it is possible that a permit for the proposed subdivision might be refused, or that an application for the termination of the winding up of Hookway Aerospace might fail, or that some other event might prevent the full implementation of the plans embodied in the Heads of Agreement. It is clear that those arrangements, or at least the principal arrangements, were intended to be interdependent. However the Heads of Agreement are silent as to the consequences of important contingencies not being fulfilled. In the event of a subdivision permit being refused, or an application for the termination of the winding up being refused, the document does not say whether the agreement would automatically be at an end, or whether it would be terminable by either party. Further, in that situation it does not say whether the $160,000, if Tamzin had received it, was to be refunded by her. It is by no means obvious whether the parties intended their
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agreement to terminate automatically or to be terminable if an important contingency were not fulfilled, nor whether Tamzin would be entitled to retain the $160,000, as the proceeds of the repayment of a loan debt, or whether she would be obliged to refund it.
These shortcomings in the parties' document do not arise from ambiguities that can be overcome by interpreting provisions in the agreement. They arise because the parties did not address and reach agreement upon questions that were likely to arise if others did not make decisions that they hoped for. It is not possible to give effect to their intention to make a binding contract by implying contractual terms because, in relation to some fundamental aspects of their arrangements, it is impossible to formulate terms that are so obvious that they go without saying."
36 It is apparent from these conclusions that the matters which his Honour regarded as essential and critical for the purpose of a valid agreement were the consequences of the failure of an implied condition precedent. In respect of the payment to Tamzin, it seems that it is inevitable that that condition would fail, in the sense that there would not be an "immediate" payment.
37 This analysis brings me to what I regard as the critical question in this appeal. The uncertainty identified by the primary judge did not lie in the implied and express terms of the agreement. The means by which the parties intended to settle their diverse and long running dispute were clear enough. However, the satisfaction of the conditions precedent to clauses 2, 5 and 7 were out of the hands of the parties. They were entirely contingent on the decisions of others. His Honour construed these conditions as not just affecting performance of the specific requirements of the clause to which they directly related, but each condition was precedent to the performance of the entire agreement. This construction was clearly correct, having regard to the interdependent nature of the agreement. It is obvious from the context and purpose of the agreement that it will only settle the dispute if all aspects of the agreement are carried into effect.
38 His Honour was clearly correct to conclude that the agreement did not expressly address the consequences of the failure of one or more of the conditions precedent, both in terms of the question of termination, and the practical consequences of partial performance of other aspects of the agreement in the event of termination. It was in this respect that the primary judge found the agreement to be fatally incomplete. This conclusion is only correct if agreement on those matters can be regarded as essential to the achievement of a legally binding agreement. This appeal turns on that question.
An essential term
39 As already noted, the general proposition is that a valid agreement must contain all terms regarded by the parties or which the law requires as essential for the formation of legally binding relations. Of course, that general proposition does not identify with precision what is essential, as opposed to some lesser category of importance, which can be left to later agreement and will not affect the validity of the agreement. In Anaconda Nickel Ltd v Tarmoola Australia Pty Ltd [2000] WASCA 27; (2000) 22 WAR 101, Ipp J (with whom Pidgeon J agreed) discussed this distinction at [29], by quoting an English judge's analysis of what is not "essential":
"It does not follow that any omission will make a contract incomplete or uncertain in the sense of rendering it invalid. It is only the omission of an essential term that will have that effect. As to the meaning of "essential" in this context, the following words of Lloyd LJ (with whom the other members of the Court of Appeal agreed) in Pagnan SpA v Feed Products Ltd [1987] 2 Lloyd's Rep 601 (at 619) are helpful:
'It is sometimes said that the parties must agree on the essential terms and that it is only matters of detail which can be left over. This may be misleading, since the word 'essential' in that context is ambiguous. If by "essential" one means a term without which the contract cannot be enforced then the statement is true: the law cannot enforce an incomplete contract. If by "essential" one means a term which the parties have agreed to be essential for the formation of a binding
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contract, then the statement is tautologous. If by "essential" one means only a term which the court regards as important as opposed to a term which the court regards as less important or a matter of detail, the statement is untrue. It is for the parties to decide whether they wish to be bound and, if so, by what terms, whether they are important or unimportant. It is the parties who are, in the memorable phrase coined by the Judge, 'the masters of their contractual fate'. Of course, the more important the term is the less likely it is that the parties will have left it for future decision. But there is no legal obstacle which stands in the way of the parties agreeing to be bound now while deferring important matters to be agreed later. It happens every day when parties enter into so- called 'heads of agreement'."
40 A matter critical to the workability of the agreement may be regarded as essential if it is necessary to ensure the achievement of the agreement's underlying purpose, notwithstanding that it is not legally essential. Common examples are agreement as to price or the subject matter of a contract of sale or sufficient detail as to the works required by a construction contract. In determining this question, it is necessary to consider the underlying intention and purpose of the parties in reaching the agreement. An agreement, the terms of which can be carried into effect on its face, may still be incomplete to the point of invalidity if it is not sufficiently certain to give effect to the intention of the parties. See, for example, Barbudev v Eurocom Cable Management Bulgaria Eood & Ors [2012] EWCA Civ 548.
Is the specification of the consequences of non-fulfilment of a condition precedent essential?
41 Conditions precedent are a common contractual term. The decided cases dealing with their interpretation, operation and consequences of non-fulfilment seem to relate almost exclusively to contracts which concern a single transaction, such as the sale of land. In such cases, the condition is often inserted for the benefit of one party and compliance is in the hands of that party, notwithstanding that the decision upon which compliance depends will often be made by another. A contract for sale of land, conditioned upon approval of finance and/or the sale of another property owned by the purchaser is a typical example.
42 It is common for such contracts to expressly provide for the consequences of non-fulfilment. However, this is not always the case. The High Court decision of Perri v Coolangatta Investments Pty Ltd [1982] 149 CLR 517 56 ALJR 445, concerned a contract for the sale of land which contained a condition precedent that the contract was subject to the purchasers completing a sale of their existing property. Time was not fixed for compliance with the condition, nor for settlement of the contract itself. The contract did not specify the consequences of non-fulfilment. The High Court by majority held that upon the non-fulfilment of the condition, in this case established by the expiry of a reasonable time for its fulfilment and assuming that there has not been earlier waiver by the purchaser, that either party, if not in default, can elect to treat the contract as at an end. It is apparent from the reasoning of the members of the majority that this conclusion was a necessary implication arising from the contingent nature of the condition and its intended operation as a condition precedent to performance of the contract.
43 The cases also demonstrate that express provision in the contract as to the consequences of non- fulfilment will not always determine the outcome in that event. For example, it is well established that a condition precedent included in the contract solely for the benefit of one party may be waived by that party in the event of non-fulfilment, whereby the contract will remain on foot, irrespective of express provision for the consequences of non-fulfilment. Gange v Sullivan [1966] HCA 55; (1966) 116 CLR 418; Perri v Coolangatta Investments Pty Ltd per Gibbs CJ at 543; Sandra Investments Proprietary v Booth [1983] HCA 46; (1983) 153 CLR 153 per Gibbs CJ at 158-159. In Gange v Sullivan, the condition precedent in question required planning approval of the use of the land for certain purposes. The contract specified that in the event that approval was not granted "this Contract shall be deemed to be at an end and all moneys paid by the purchaser to the vendor shall be refunded". Despite what would appear to be clear and express provision for automatic termination, all members of the Court held that the non-
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fulfilment rendered the contract voidable at the option of either party. Taylor, Menzies and Owen JJ
expressed their view about this question in this way at [16]:"It was argued for the appellant that the condition did not mean that the contract was brought to an end automatically when the council had not granted approval by 31st May. Suttor v. Gundowda Pty. Ltd. [1950] HCA 35; (1950) 81 CLR 418 , together with other cases, was relied upon to support the conclusion that non-fulfilment of the condition did not of itself bring the contract to an end but did no more than render the contract voidable at the instance of a party not responsible for the non-fulfilment of the condition. Whilst the effect of a condition must in every case depend upon the language in which it is expressed and a decision upon the meaning of one condition cannot determine the meaning of a different condition, the authorities cited do show a disposition on the part of courts to treat non-fulfilment of a condition such as that here under consideration as rendering a contract voidable rather than void in order to forestall a party to a contract from gaining some advantage from his own conduct in securing, or contributing to, the non-fulfilment of a condition bringing the contract to an end. Accordingly, notwithstanding that the language of the condition here is susceptible of meaning that the contract came to an end if 31st May passed without the council's approval, we are prepared to treat non-fulfilment of the condition as rendering the contract voidable rather than void. So understood, non-fulfilment of the condition could, in the absence of default contributing thereto, be relied upon by either party as a ground for determining the contract."
44 These comments were cited with approval in Perri by Brennan J, with whom Stephen J agreed.
45 These authorities would seem to support the appellant's argument that specification of the consequences of non-fulfilment of a condition precedent is not an essential requirement of a binding contract. Such a question is a matter determined by the courts upon subsequent litigation as a matter of construction, and, as demonstrated by the cases cited, will often not be conclusive in any event. However, the authorities are also clear that every case will depend upon its own facts and circumstances. In this case, there are some significant points of distinction from the cases referred to above. The intention of the parties to resolve all aspects of their dispute by an interdependent set of diverse actions, subject to multiple, yet practically independent, conditions precedent, and the consequent finding that the failure of any condition precedent would relate to performance of the whole agreement, are critical points of distinction. Further, there can be no question of either party being entitled to a unilateral waiver of a condition precedent. In such a case, a real question does arise as to whether the contract would be voidable at the option of one party or automatically terminated upon failure of a condition precedent.
46 Of itself, this question may not render specification of the consequence an essential term of this agreement. However, when combined with the practical implications which might result from partial performance, including those identified by the primary judge, I am of the view that his Honour reached the correct conclusion. The almost certain failure of the "immediate payment" required by clause 7, and the dependence of other conditions on decisions of a planning authority and a court, meant that failure of one or more conditions precedent was a real prospect. The fundamental purpose of the agreement was to achieve a final and comprehensive settlement in order to bring this long running dispute to an end. This purpose could not be achieved by an agreement which had the potential to fall at the first hurdle, and where the consequences of such failure, and consequent practical problems had not been considered or dealt with by the agreement. Rather than achieve its fundamental purpose, the problems arising from an agreement which lacked such terms were more likely to create further areas of dispute. Accordingly, I am of the view that the primary judge correctly concluded that terms dealing with such questions were in the circumstances and context of this agreement, essential to the creation of a binding legal agreement. In their absence, the contract was "void, unenforceable and of no effect".
47 As already discussed, these reasons deal with the correctness of his Honour's decision, which deals with ground 1 and the balance of the grounds merged into it. In my view, this includes ground 3 which raises a point concerning the availability of declaratory relief. The argument supporting this
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ground is confined to the point that such relief should not be granted to decide questions which are "purely hypothetical", and not necessary to resolve real controversy between the parties. There is no question that this statement of general principle is correct, but in the light of the above analysis, the argument is clearly misconceived and inapplicable. The finding that the agreement was invalid because it was incomplete, and hence unable to achieve a binding contract, was not a hypothetical matter. The argument seems to be based on the factual probability of the failure of a condition precedent, but this was a matter related to the essential nature of the missing terms, not the ultimate question resolved by the decision. In any event, the findings which I would uphold leave no room for arguments concerning hypothetical and unlikely scenarios. The appellant's counsel was correct to concede that all grounds including ground 3 merged in ground 1.
48 For these reasons, I would dismiss the appeal.
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File No: 2414/2022
STIRLING MATHEW HOOKWAY v TAMZIN PETA HOOKWAY
| REASONS FOR JUDGMENT | FULL COURT MARTIN AJ 27 May 2024 |
49 I agree that the appeal should be dismissed for the reasons given by Brett J.
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