Hookway v Hookway
[2020] TASSC 36
•21 July 2020
[2020] TASSC 36
COURT: SUPREME COURT OF TASMANIA
CITATION: Hookway v Hookway [2020] TASSC 36
PARTIES: HOOKWAY, Tamzin Peta
v
HOOKWAY, Stirling Mathew
FILE NO: 754/2019
DELIVERED ON: 21 July 2020
DELIVERED AT: Hobart
HEARING DATE: 19 November 2019
JUDGMENT OF: Blow CJ
CATCHWORDS:
Contracts – General contractual principles – Offer and acceptance – Agreements contemplating execution of formal document – Whether concluded contract – Heads of Agreement – Intended to be concluded contract – Parties intended actions to be taken by non-parties – No express terms as to consequences if such actions not taken – No implied terms so obvious as to go without saying – Not a concluded contract.
Thorby v Goldberg (1964) 112 CLR 597; Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd (1982) 149 CLR 600; Austra Tanks Pty Ltd v Running [1982] 2 NSWLR 840; Western Broadcasting Services v Seaga [2007] UKPC 19; Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd [2016] HCA 26, 260 CLR 1; Aotearoa International Ltd v Scancarriers A/S [1985] 1 NZLR 513; ANZ Banking Group Limited v Frost Holdings Pty Ltd [1989] VR 695, referred to.
Aust Dig Contracts [37]
REPRESENTATION:
Counsel:
Plaintiff: S B McElwaine SC
Defendant: T Mitchell
Solicitors:
Plaintiff: Douglas & Collins
Defendant: Mills Oakley
Judgment Number: [2020] TASSC 36
Number of paragraphs: 44
Serial No 36/2020
File No 754/2019
TAMZIN PETA HOOKWAY v STIRLING MATHEW HOOKWAY
REASONS FOR JUDGMENT BLOW CJ
21 July 2020
The plaintiff, Tamzin Hookway, is the sister of the defendant, Stirling Hookway. I will take the liberty of referring to them by their first names. For years they have been involved in a complicated dispute with one another about the assets of their late father's residuary estate, and the assets and liabilities of four family companies. In August and December 2018 they attended mediation sessions. As a result they reached a settlement and signed a document entitled "Heads of Agreement" that was dated 4 December 2018.
That document began with the following statement:
"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."
No such formal document has been executed. Both parties accept that the Heads of Agreement was intended to constitute a binding and enforceable contract. However Tamzin contends that the parties did not succeed in creating a binding and enforceable contract. She has brought this action, seeking a declaration that the Heads of Agreement is "void, unenforceable or otherwise legally ineffective". Stirling contends that it is a binding and enforceable contract. He has counterclaimed, seeking orders for specific performance.
Tamzin's principal contention is that when the parties agreed upon the terms of the Heads of Agreement, they did not turn their minds to certain contingencies and that, as a result, the terms of their agreement are so incomplete that no valid or enforceable contract has been created.
Background
The parties' father, Peter Hookway, died on 24 July 2006. There was a dispute as to the validity of a will that he signed on the previous day. Estcourt J held that that document was not a valid will, and ordered 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.
For Probate purposes, the assets of the father were valued at over $10 million, and debts totalling $674,400 were disclosed. The latter figure includes $370,000 for GST, and $120,000 for Capital Gains Tax on a particular property, but excludes the estate's liability for personal income tax, which has not been quantified. The father's de facto wife made a claim under the Testator's Family Maintenance Act 1912 which was settled, with the result that she was paid $1.8 million out of the residuary estate in 2008.
The family companies involved in the dispute between the parties are named Hookway Aerospace Pty Ltd, MID Pty Ltd, Ballyvergan Pty Ltd, and Sol-Rio Pty Ltd. In 2012 Tamzin successfully applied to the Federal Court of Australia for each of those companies to be wound up on the just and equitable ground pursuant to s 461(1)(k) of the Corporations Act 2001 (Cth). Mr Barry Hamilton was appointed as the liquidator of each company. He is still in that role. He gave evidence at the trial of this action.
The Kennedy Drive land
There are provisions in the Heads of Agreement concerning about 19 hectares of land at Kennedy Drive Cambridge. That land presently comprises three separate parcels. Two of those parcels are held by Tamzin and Stirling as tenants in common in equal shares. Tamzin is the registered proprietor of a one half interest as tenant in common in the third parcel. The other half share in the third parcel forms part of the estate of the parties' father, who left it to Stirling.
Clauses 2, 3 and 4 of the Heads of Agreement relate to that land. They read as follows:
"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 [sic] to ensure the prompt transfer of properties."
The subdivision to which cl 2 relates may not be undertaken without the grant of a discretionary planning permit pursuant to s 57 of the Land Use Planning and Approvals Act 1993 by the Clarence City Council. The Council is incapable of granting such a permit unless there is an application for such a permit that complies with ss 80 to 86 of the Local Government (Building and Miscellaneous Provisions) Act 1993 and the provisions of the applicable planning scheme.
The Heads of Agreement is not expressed to be conditional upon the Council granting the required permit. It contains no provisions as to what is to happen if such a permit is not granted.
The Clarence City Council was not a party to the Heads of Agreement. Tamzin contends that cl 2 is a fundamental term, and that it is invalid and unenforceable as a result of the Council not being a party and there being no provision as to the consequences of a permit not being granted.
Hookway Aerospace Pty Ltd
Clauses 5, 6 and 7 of the Heads of Agreement relate to Hookway Aerospace Pty Ltd. They read as follows:
"5 Tamzin and Stirling cooperate [sic] 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.
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."
The parties do not literally have the right to "instruct" Mr Hamilton to do anything. At most, they may request him to exercise his powers under the Corporations Act in particular ways. 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.
In a report to creditors dated 13 December 2018, Mr Hamilton set out calculations which showed that there would be returns to shareholders if the winding up of all four companies was terminated. However, according to the figures in that report, there would be a deficiency of over $100,000 if the winding up of Hookway Aerospace alone was terminated. The funds for any returns to shareholders would have to come from Ballyvergan Pty Ltd.
Clause 7 does not expressly state where the $160,000 to be immediately paid to Tamzin is intended to come from. Having regard to its context, it seems clear that the parties intended that Mr Hamilton was to make that payment from the funds of Hookway Aerospace. As at 30 November 2018 he was holding funds of that company amounting to $933,388. However any distribution of funds to the creditors of that company must be subject to the priority payment requirements of s 556 of the Corporations Act. At the trial it was put to Mr Hamilton that he was not in a position to pay the $160,000 immediately. He responded that he would seek legal advice before immediately paying that money. It is clear that it would be inappropriate for him to make such payment immediately. At present Hookway Aerospace is insolvent and its tax liabilities have not been quantified. It seems likely to remain insolvent unless and until funds are made available from Ballyvergan Pty Ltd.
Clause 7 also speaks of a proceeding commenced by Mr Hamilton being discontinued with no orders as to costs. That is a reference to action 1777/2016 in this Court, in which Mr Hamilton, as liquidator of Hookway Aerospace, sued Stirling, alleging that he was indebted to Hookway Aerospace in the sum of $158,162.65, having unilaterally paid some $160,000 to himself from the assets of that company. Tamzin contends that any decision by Mr Hamilton to discontinue that action would require the approval of the Federal Court pursuant to s 477(2A) of the Corporations Act. That section requires a liquidator not to compromise a debt to a company without the approval of the court if the debt is of the size alleged. The discontinuation of the action could be regarded as a compromise, as distinct from a capitulation, on the basis that it was being discontinued in consideration of the promises made in the Heads of Agreement by Stirling for the benefit of Tamzin. No doubt approval of the discontinuation could be sought in the same proceeding as orders for the termination of the winding up of the four companies. Unless and until funds are made available from Ballyvergan to pay debts of Hookway Aerospace, it is likely that Mr Hamilton will not be willing to discontinue the action against Stirling.
The Heads of Agreement is not expressed to be conditional upon the termination of the liquidation of Hookway Aerospace, nor upon the liquidator being willing and able to deliver physical assets of that company to Tamzin, pay her $160,000, and/or discontinue his action against Stirling. The document contains no provision as to what is to happen if any of those things do not eventuate.
Tamzin contends that cls 5, 6 and 7 of the Heads of Agreement are fundamental terms, and that they are invalid and unenforceable because of the matters I have referred to.
Distributions from the father's estate
Clause 11 of the Heads of Agreement reads as follows:
"11Stirling 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."
No tax returns for the estate of the parties' father have been lodged with the Australian Taxation Office since the return for the financial year ending 30 June 2008. However the estate has derived taxable income and made taxable capital gains since that date. The tax liability of the estate has not been quantified. Interest and penalties are likely to be payable in respect of unpaid tax. It follows that the Public Trustee may be unwilling to distribute $750,000 from the funds of the estate to the parties as contemplated by cl 11.
Tamzin contended at the trial that the Public Trustee had no legal obligation to distribute the estate otherwise than in accordance with the terms of the June 2006 will. She contended that cl 11 was a fundamental term of the Heads of Agreement, and that it was invalid and unenforceable because of the matters I have referred to. There is nothing in the Heads of Agreement as to what is to happen if the Public Trustee is unwilling to distribute the funds of the estate otherwise than in accordance with the terms of the will, under which the parties are entitled to the residuary estate in equal shares.
I am surprised that Tamzin took any point as to cl 11. Once a deceased estate is fully administered, the residuary beneficiaries hold proprietary interests in the remaining assets of the estate: New Zealand Insurance Co Ltd v Commissioner of Probate Duties [1973] VR 659; Perpetual Trustee Co Ltd v Commissioner of Stamp Duties (NSW) [1977] 2 NSWLR 472. Tamzin and Stirling are the only residuary beneficiaries. They have the capacity to make a contract pursuant to which their interests in the residuary estate will be changed from half shares to unequal shares. Upon a final distribution of the residue of the estate, the Public Trustee would then be obliged to effect a distribution in accordance with the ownership of the residue, as varied. If there were any doubt as to the authenticity or validity of a contract said to have effected such a variation, the appropriate course would be for the Public Trustee to apply to this Court for directions.
Lease of the Kennedy Drive land
Clause 14 of the Heads of Agreement reads as follows:
"14Pending subdivision (and unless the Liquidator of HA otherwise decides) Tamzin and Stirling will continue to lease the Kennedy Drive properties through Hookway Aerospace."
Part of the land at Kennedy Drive Cambridge was leased to Hookway Aerospace Pty Ltd in December 2008. That company sublet parts of the leased land to sub-tenants. Mr Hamilton has been receiving substantial amounts by way of rent from sub-tenants who were referred to at the trial as Undercover Parking and Zinfra. The head lease expired on 16 December 2018.
Tamzin contends that cl 14 is a fundamental term of the Heads of Agreement, and that it is invalid and ineffective because it contains no provisions as to what is to happen if the Public Trustee becomes unwilling to continue the current leasing arrangements. As I said earlier, the land at Kennedy Drive is held in three parcels. Tamzin and Stirling are the registered proprietors of two of those parcels, as comprised in folios of the register volume 146586 folio 3 and volume 250819 folio 1, being 94 and 88 Kennedy Drive respectively. The registered proprietors of the third parcel, which is comprised in volume 157368 folio 1 and known as 78 Kennedy Drive, are the late Peter Hookway and Tamzin. The land leased to Hookway Aerospace comprises part of the two parcels of which Tamzin and Stirling are the registered proprietors. None of the leased land forms part of the estate of Peter Hookway. The submissions of Tamzin's counsel as to cl 14 were misconceived.
Incomplete, ineffective and unenforceable contracts
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.
Implied terms
Stirling contends that the fulfilment of a number of conditions was something that the parties contemplated as being conditions precedent to the performance of certain terms of the agreement. For example, he contends that either party would acquire the right to terminate the agreement if the Clarence City Council decided not to grant a permit for the subdivision.
There are a number of reported cases in which contracts have been held to contain implied terms that performance was conditional upon a contingency being fulfilled. In Butts v O'Dwyer (1952) 87 CLR 267, the owner of some land leased it for five years and granted the lessee an option to purchase. There was legislation that provided that neither a lease nor an option were valid without the consent of the Minister for Lands, which had not been obtained. The High Court held that the lease and the option were valid, but subject to an implied obligation on the part of the lessor/grantor to do all things reasonable on his part to obtain the Minister's consent, and ordered specific performance in relation to that obligation. It was made clear that further relief in the nature of specific performance would not be granted if the Minister did not give his consent.
McWilliam v McWilliams Wines Pty Ltd (1964) 114 CLR 656 concerned a contract for the sale of a leasehold property. There was legislation that required the consent of a statutory authority to any transfer of the lease. The High Court held that the contract was subject to an implied term that the sale was subject to the consent of the statutory authority.
It is perhaps appropriate to consider whether the Heads of Agreement contained implied terms that performance of the parties' contractual promises was to be conditional upon (a) the grant of a planning permit for the subdivision by the Clarence City Council, (b) the making of an order terminating the winding up of Hookway Aerospace, and perhaps other contingencies, or implied terms that the parties were to be discharged from their obligations if those contingencies were not fulfilled.
Counsel for Tamzin submitted that that would not be a correct approach, relying on Aotearoa International Ltd v Scancarriers A/S [1985] 1 NZLR 513 and ANZ Banking Group Limited v Frost Holdings Pty Ltd [1989] VR 695. Aotearoa International was a case that went to the Privy Council. It appears from the judgment of their Lordships, delivered by Lord Roskill, at 556, that they concluded that the parties had not intended to enter into a legally binding agreement. However his Lordship said in obiter dicta, at 556:
"But the first question must always be whether any legally binding contract has been made, for until that issue is decided a Court cannot properly decide what extra terms, if any, must be implied into what is ex hypothesi a legally binding bargain, as being both necessary and reasonable to make that legally binding bargain work. It is not correct in principle, in order to determine whether there is a legally binding bargain, to add to those terms which alone the parties have expressed, further implied terms upon which they have not expressly agreed and then by adding the express terms and the implied terms together thereby create what would not otherwise be a legally binding bargain."
That passage was quoted with approval by Kaye J, with whom Marks and Teague JJ agreed, in ANZ v Frost Holdings at 702. His Honour said:
"However the law does not permit a court to imply a term into a bargain between parties for the purposes of making their bargain an enforceable contract."
That case arose out of an action for damages for breach of contract. Frost Holdings contended that it had entered into a contract with the ANZ Bank for the production and supply of calendars featuring Australian paintings, but the parties had not agreed on the price, or upon matters of quality, size, style, design and content. At first instance, a judge held that there was a binding and enforceable contract that included an implied term for the payment of a reasonable price, and "a higher price as would be reasonable in the event that the defendant stipulated a larger or better quality calendar than was originally specified by the plaintiff": at 702.
Gray J considered those two authorities in Australian & International Pilots Association v Qantas Airways Limited [2008] FCA 1972, 179 IR 200. He concluded, at [80]:
"The danger of taking the proposition expressed by Kaye J at face value is obvious. Such a proposition could lead to arguments akin to those about whether the chicken came before the egg, or the egg before the chicken. Was there already an agreement, so that it could be supplemented by an implied term to give if efficacy, or was there no binding agreement because there was no express agreement about the subject matter of the implied term? In my view, Kaye J intended to mean no more than that the parties must have agreed to be bound by the obligations they have expressed in their negotiations, before the question whether a term can be implied to give that agreement efficacy can be addressed."
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."
Butts v O'Dwyer (above) and McWilliam v McWilliams Wines Pty Ltd (above) were both cases in which it was asserted that contracts were void for illegality, not incompleteness. If the law requires implied terms to be ignored when deciding whether a contract is void for incompleteness, but not when considering whether a contract is void for illegality, the result would be absurd. Parties would need only to plead incompleteness to be assured of victory. Further, it makes no sense to ignore the existence of implied terms when, by their very nature, they are so obvious that they go without saying. I therefore consider that there are strong reasons for concluding that Kaye J was correct in the view that he expressed in relation to Aotearoa International and ANZ v Frost Holdings.
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.
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.
None of these possibilities is so obvious that it goes without saying. In Shirlaw v Southern Foundries (1926) Limited [1939] 2 KB 206, MacKinnon LJ said at 227:
"Prima facie that which in any contract is left to be implied and need not be expressed is something so obvious that it goes without saying; so that, if, while the parties were making their bargain, an officious bystander were to suggest some express provision for it in their agreement, they would testily suppress him with a common, 'Oh, of course'."
It is by no means obvious which alternative the officious bystander would have chosen in this case.
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 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.
Conclusion
For these reasons, I will make an order declaring that the "Heads of Agreement" dated 4 December 2018 and executed by the parties is void, unenforceable, and of no effect. There will be judgment for the plaintiff on the counterclaim.
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