J Cummins Pty Ltd v F & D Bonaccorso Pty Ltd
[2014] NSWSC 1064
•07 August 2014
Supreme Court
New South Wales
Medium Neutral Citation: J Cummins Pty Ltd v F & D Bonaccorso Pty Ltd [2014] NSWSC 1064 Hearing dates: 19-23 May 2014 Decision date: 07 August 2014 Jurisdiction: Equity Division Before: Darke J Decision: Statement of Claim is dismissed with costs.
Catchwords: EQUITY - rectification - Put and Call Option Agreement - alleged common intention that stipulated deposit be treated as already paid - common intention not established Cases Cited: Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; (2009) 76 NSWLR 603
Lewis v Condon; Condon v Lewis [2013] NSWCA 204
Ryledar Pty Ltd & Anor v Euphoric Pty Ltd [2007] NSWCA 65; (2007) 69 NSWLR 603
W & K Holdings (NSW) Pty Ltd v Laureen Margaret Mayo [2013] NSWSC 1063Category: Principal judgment Parties: J Cummins Pty Ltd (plaintiff)
F & D Bonaccorso Pty Ltd (defendant)Representation: Solicitors: Strathfield Law (plaintiff)
Counsel: V R W Gray (plaintiff)
CLS Legal (defendant)
R A Parsons, A Kaufmann (defendant)
File Number(s): 2011/304034 Publication restriction: Nil
Judgment
Introduction
By a Statement of Claim filed on 21 September 2011, the plaintiff seeks an order for rectification in relation to a Put and Call Option Agreement dated 6 August 2010 entered into by the plaintiff and the defendant. The Agreement concerns a block of twelve home units at 5 - 9 Chapman Street, Strathfield, which is owned by the defendant. The property is located within an area sometimes referred to as the "Strathfield Triangle" which is evidently subject to considerable pressure for development.
The form of contract that is annexed to the Agreement is sought to be rectified so that it provides that in the event of exercise of either the put or call option, the plaintiff as purchaser is to be treated as having already paid the defendant as vendor a deposit of $1.4 million towards a stated purchase price of $5.7 million.
The plaintiff claims to have duly exercised the call option to purchase the property, and seeks specific performance of the contract as rectified.
The plaintiff also pursues a claim in the alternative for declaratory relief in respect of an alleged oral contract. This contract, said to be in the nature of a joint venture, is to the effect that the defendant would sell the property, and out of the net proceeds the defendant would receive the first $4.3 million, the plaintiff would receive the next $1.4 million, and any amount above $5.7 million would be shared equally between them.
The defendant denies that the plaintiff is entitled to any relief. By its Defence filed on 8 December 2011, it denies that there was any agreement to treat the plaintiff as having already paid the deposit of $1.4 million in the event that either of the options was exercised, denies that the plaintiff validly exercised the call option, and denies the existence of the alleged oral agreement for the sharing of the net proceeds of sale of the property.
A number of conversations, the terms of which are disputed, lie at the heart of the proceedings. The critical conversations occurred in the period from about late May 2010 to early August 2010. The parties to the conversations were principally Mr John Hawkins (the sole director of the plaintiff), Mr Frank Bonaccorso (who was one of two directors of the defendant, the other director being his wife, Dorothy), and Messrs Garry and Paul Bonaccorso (sons of Mr and Mrs Bonaccorso who, along with their parents and siblings, are shareholders in the defendant).
Each of those four persons gave evidence and was cross-examined. So too, was Mr Carl Buda, a solicitor who acted for the defendant and drafted the Put and Call Option Agreement. An affidavit sworn by Ms Angela McCrea, a daughter of Mr and Mrs Bonaccorso, was read, but she was not required for cross-examination.
Before dealing with the detail of the evidence concerning the disputed conversations, it is desirable to set out the history of the dealings between the parties as revealed primarily by the documentary evidence.
Dealings between the parties 2009-2011
The first contact between the plaintiff and the defendant occurred in about September 2009. The property had been listed for sale, and Mr Hawkins expressed interest in purchasing. Some negotiations between the parties, largely conducted by their respective solicitors, MCW Lawyers for the plaintiff, and Mr Buda (of J A Buda and Associates) for the defendant, followed. Offers to purchase were made by the plaintiff in the range of $3.5 million to $3.7 million. Eventually, a Put and Call Option Agreement, which had been drafted by Mr Buda, was exchanged on about 13 November 2009.
That agreement (which will be referred to as the First Option) provided for the payment by the plaintiff of a call option fee of $50,000. The call option was exercisable within the period from the date of the agreement up to and including 1 May 2010. The First Option provided for a Price which was defined to be $3.9 million plus a rental adjustment. The rental adjustment was defined as the amount of rent the defendant would have collected from tenants of units within the property in respect of the period after certain notices to vacate were issued. By clause 11.5, the defendant agreed to issue notices to vacate, and the plaintiff agreed to reimburse the defendant for the rent which it would have otherwise earned.
Clauses 8, 9, 10 and 11.7 of the First Option provided for the plaintiff to obtain access to the property pursuant to a non-exclusive licence for the purpose of carrying out certain renovation works on each of the individual units, and other building works including the rendering of the building.
Clauses 11.1 to 11.4 of the First Option made detailed provision in relation to the sale of one or more of the units by the defendant following a request being made of it by the plaintiff. Provision was made in clauses 11.2 to 11.4 in relation to the sale prices for such sales, the application of the proceeds of any such sales, and for variations to the operation of the put and call options to accommodate such sales. These provisions suggest that the parties contemplated that a unit in an unrenovated state may fetch a price of about $355,000, whereas a unit in a renovated condition may fetch a price of about $375,000. The contract for the sale of land which is said to have been attached to the First Option states the price for the entire property as only $3.6 million (with a deposit of $360,000) rather than the $3.9 million specified in the definition of Price. This discrepancy was not explored or explained during the hearing.
Notices to vacate were issued by the defendant, and all of the tenants had vacated the property by about the end of February 2010. At about that time, the plaintiff obtained access to the property and had a fence erected around the building in readiness for the commencement of the contemplated building works.
In about April 2010, some discussions took place between the plaintiff and the defendant concerning an extension of time for the exercise of the First Option. On 30 April 2010, Ms Cathy Hart of MCW Lawyers sent an email to Mr Buda stating that she had been instructed that the defendant had agreed to extend the dates in the First Option so that the call option could be exercised up to 13 July 2010 and the put option up to 13 August 2010. Mr Buda replied on the following day, stating that the defendant agreed to such an extension and that he had drafted a Deed of Variation to reflect the changes. It seems that the draft deed was attached to the email. There was then some further discussion about the dates to be included in the Deed of Variation, and on 11 May 2010, MCW Lawyers sent an executed Deed of Variation to Mr Buda. The Deed of Variation was executed by the defendant on about 28 May 2010, and forwarded by Mr Buda to MCW Lawyers on 7 June 2010. By that deed, the period for the exercise of the call option was extended to 1 July 2010, and the period for the exercise of the put option was extended to 13 July 2010.
By late June 2010, the parties had engaged in discussions concerning a further extension of the times for the exercise of the options. On 29 June 2010, Ms Hart sent a letter to Mr Buda on the subject of the Deed of Variation. The letter included the following:
"We are instructed that our client has been discussing a proposed further extension to the dates referred to in clauses 2, 3 and 4 of the aforesaid Deed directly with your clients and that an agreement in this respect should be formalised by this week.
In the meantime we are instructed to request your confirmation that the existing Deed of Variation will continue to remain enforceable until such time as the agreed amended dates are formalised by way of a further Deed of Variation being entered into by the parties."
On 1 July 2010, Ms Kim Mathieson of MCW Lawyers sent an email to Mr Buda in the following terms:
"We have been advised by our client today that following a meeting between the parties it has been agreed to further extend the terms of the Put & Call Option Agreement and Deed of Variation.
We look forward to receipt of supporting documentation."
Mr Buda responded shortly thereafter with an email which contained the following:
"Yes and I am currently working on a new deed."
On 7 July 2010, Mr Buda sent a letter to MCW Lawyers which attached a new Put and Call Option Agreement and a Deed of Rescission. MCW were requested to obtain their client's instructions on the documents and, if agreed, to have the documents executed and returned. On 12 July 2010, MCW Lawyers sent a letter to Mr Buda enclosing a Deed of Rescission and a Put and Call Option Agreement as executed by the plaintiff. It appears that the documents executed were in the same form as the drafts submitted by Mr Buda. In the executed Put and Call Option Agreement, the Price was defined to mean the sum of $5,700,000.00 + rental adjustment (exclusive of GST). The MCW Lawyers letter stated that the receipt of counterparts of the documents, duly executed by the defendant, was awaited.
On 20 July 2010, Mr Buda replied to the MCW Lawyers letter. Mr Buda requested the plaintiff's authority to make two amendments to the Put and Call Option Agreement. The first of the suggested amendments was a change to the definition of "Price" so that it would read "$5,700,000.00 + Rental adjustments (exclusive of GST) + outgoings (exclusive of GST) + costs (exclusive of GST)". Mr Buda also requested a consequential amendment to add a definition of outgoings.
On the following day, Ms Hart sent an email to Mr Buda requesting that an amount in respect of costs be included in the definition of Price. On 27 July 2010, Mr Buda responded, seeking the plaintiff's agreement to a definition of Price which would read "$5,700,000 + Outgoings (exclusive of GST) + Cost (exclusive of GST)". The previous reference to rental adjustments was omitted. On 4 August 2010, MCW Lawyers sent a letter in response confirming the plaintiff's acceptance of the proposed amendments. Clarification concerning an issue of GST was also sought. On 5 August 2010, Mr Buda confirmed that the defendant was not registered for GST purposes and was not required to be so registered. It appears that the plaintiff was prepared, on that basis, to agree to the proposed amendments.
A file note made by Ms Mathieson of a conversation she had with Mr Buda on 5 August 2010 indicates that the defendant was anxious to amend and date the agreement because the local Council (Canada Bay City Council) had issued letters to the owners of some neighbouring properties advising of an intention to resume some of the land. The note records that Mr Buda said that the defendant was anxious to complete the transaction so that if they received such a letter, they would be able to claim more money based on the higher sale price.
A further file note made by Ms Mathieson on 5 August 2010 concerns a conversation with Mr Hawkins. The note suggests that Mr Hawkins told her that he had spoken to the Council and was aware of the situation, and that the increased price was to cover the situation, even though he understood that the Council would not be resuming the defendant's property.
Later on 5 August 2010, Ms Mathieson sent an email to Mr Buda stating that she was now instructed to advise that the amendments set out in his letter of 27 July 2010 could be made, and the documents could be dated.
On 6 August 2010, the defendant executed the Put and Call Option Agreement (as amended) and the Deed of Rescission. Mr Buda informed Ms Hart of those matters on that day, and on 10 August 2010 he sent a letter to MCW Lawyers enclosing the executed documents.
The Put and Call Option Agreement, which will be referred to as the Second Option, was dated 6 August 2010. It was in substantially the same terms as the First Option, aside from dates and save for the amendment to the definition of Price to "the sum of $5,700,000 + costs (exclusive of GST) + outgoings (exclusive of GST)", the inclusion of a definition of "outgoings", and changes to the sale prices stated in clause 11.2 in respect of sales of individual units. There was no change to the figure of $355,000 in respect of unrenovated units, but the figure for renovated units had been increased from $375,000 to $475,000. Also, the amount of proceeds to be initially deducted and paid to the defendant in respect of a renovated unit was increased from $325,000 to $358,333. Further, two new paragraphs were added to clause 11.4 (i.e. clauses 11.4(c) and 11.4(d)).
As clauses 11.1 to 11.4 are of some significance to the plaintiff's contentions, it is desirable to set out those provisions in full:
"11.1 Cummins may request Bona to enter into a Sale Contract.
Cummins may request bona to enter into a Sale Contract for the relevant Sale Price. Cummins can nominate a buyer to purchase the relevant residential unit via the nomination notice attached hereto in schedule 3.
11.2 Sale Contract
If bona enters into a Sale Contract:
(a) bona may do so on such terms and conditions as determined by bona in bona's absolute discretion;
(b) bona has agreed to enter into a contract of sale on the following terms:
(i) if the unit is unrenovated and in the same state as of the date of exchange of this deed and a sale price of $355,000 is offered by a buyer, then
Bona and cummins agree that from the said amount of $355,000 the following will be deduced first
1.$325,000 + (contract of sale adjustments) payable to bona
2.legal fees of $1500 + GST payable to J A Buda and Associates
3.selling agents commission
4.the remainder of the funds will be placed in the trust account of J A Buda and Associates and will be used as monies to pay towards the purchase price.
(ii) if the unit is renovated and a sale price of $475,000 is offered by a buyer, then
Bona and Cummins agree that from the said amount of $475,000 the following will be deducted first
1.$358,333 + (contract of sale adjustments) payable to bona
2.Legal fees of $1500 + GST payable to J A Buda and Associates
3.selling agents commission
4.the remainder of the funds will be placed in the trust account of J A Buda and Associates and will be used as monies to pay towards the purchase price.
(c) bona will arrange for the preparation, negotiation and finalisation of the Sale Contract and manage the conveyancing process as bona sees fit; and
11.3 Variation of Contract
If bona enters into a Sale Contract of a residential unit,
(a) the Put Option and the Call Option will no longer apply to that Residential unit;
(b) the description of the Land sold under the Contract is amended to remove that Residential unit;
(c) the Price will reduce by the amount of the GST Exclusive Sale Price of that Residential unit;
(d) the Deposit is not amended; and
11.4 Proceeds of Sale Price
cummins acknowledges that:
(a) bona is the vendor of the Residential Lot; and
(b) on completion of the Sale Contract, the Sale Price belongs to the bona until the purchase price has been reached.
(c) Bona will provide consent for Cummins to lodge a development application to Canada Bay Council, should the said development application be approved the following will apply:
1.should Canada Bay Council approve of the construction of an extra 10 units on the property sold herein the parties will proportion the sale price in a way that the value of the extra 10 units (being land value only) be allocated in that bona receives 5 units worth and cummins receives 5 units worth. The calculation excludes the sale price of $5,700,000.
2.bona and Cummins have agreed that in the event the property is sold for over $5,700,000 whether with a development approval or not the amount of the sale price over $5,700,000 will be split equally between the parties.
(d) all development application costs are payable by Cummins."
The Second Option made provision for a call option fee of $50,000, and for the call option to be exercised within the period 6 August 2010 to 30 October 2010. Clause 4.1 concerned the mode of exercise of the call option. It provided:
"If cummins wishes to exercise the Call Option it must deliver to bona during the Call Option Exercise Period:
(a) a notice of exercise of Call Option in the form of schedule 1 executed by cummins;
(b) a counterpart of the Contract executed by the cummins;
(c) the Deposit; and
(d) if the notice of exercise of Call Option or the Contract is executed by cummins under a power of attorney, a copy of the relevant power of attorney."
The Deposit was defined to have the same meaning as in the Contract. The Contract was defined to mean a contract in the form of the contract that is annexure A to the Agreement.
The form of contract annexed to the Second Option provided, on its first page, for the price of the entire property to be $5,700,000 with a deposit of $1,400,000.
On 25 October 2010, Mr Hawkins told Ms Mathieson that he wanted to exercise the call option. Ms Mathieson's file note indicates that Mr Hawkins said that he had buyers for six of the units. Mr Hawkins was in further contact with MCW Lawyers on the following day. A file note, made by Ms Hart, shows, amongst other things, that Mr Hawkins had been obtaining advice concerning an amendment to the Strata Plan to add an additional lot, and that a new Strata Plan and an additional special condition would need to be incorporated. Ms Hart sent a letter to Mr Buda at the end of the day dealing with those matters.
Mr Hawkins attended the office of MCW Lawyers on 27 October 2010. It appears from a file note made by Ms Hart on that day that she advised Mr Hawkins about the requirements of clause 4 of the Second Option, including in relation to the deposit. Presumably, it was expected that Mr Hawkins would attend to the exercise of the option himself.
On 28 October 2010, Mr Hawkins again attended the office of MCW Lawyers. On this occasion, he saw Ms Mathieson. Her file note records that Mr Hawkins collected the front page of the contract for sale, a Notice to Exercise Option, and a Notice of Nomination of Buyer form. It seems that Mr Hawkins informed Ms Mathieson that he had buyers for six of the units and that the plaintiff would be purchasing the other six units. Ms Mathieson reminded Mr Hawkins that it was necessary for him to exercise the option on the following day.
On 29 October 2010, Mr Hawkins, on behalf of the plaintiff, attempted to exercise the call option. He attended upon Mr Buda in his office late on that afternoon. It is clear that, at least, Mr Hawkins provided an executed front page of the contract for the sale of land in the form which was attached to the Second Option, and further provided an executed Notice of Exercise of Call Option (which Mr Buda dated) and an executed Notice of Nomination of a Buyer (which Mr Buda also dated) which nominated the plaintiff as the buyer of lots 1 to 12 in the Strata Plan. Mr Hawkins also provided a Special Condition, which Mr Hawkins handwrote himself, concerning a proposed lot 13, and some plans which were to be attached to the Special Condition. Finally, it seems that Mr Hawkins left with Mr Buda a facsimile that was transmitted by S J Dixon & Associates, Surveyors, to Mr Buda's office on that afternoon. It is also clear that Mr Hawkins made no attempt to pay any deposit when he attended upon Mr Buda on that day.
Plainly, unless the deposit was treated as already credited or paid, the call option had not been exercised in accordance with clause 4.1 of the Second Option.
On 1 November 2010, Mr Hawkins gave instructions to MCW Lawyers to lodge a caveat over the property. A caveat, which claimed that the plaintiff had an equitable interest based upon a contract for sale dated 29 October 2010, was prepared and was lodged for registration on 9 November 2010.
In the meantime, Ms Hart had been in contact with Mr Buda concerning the matter. Her file note of a conversation with him on 3 November 2010 is in the following terms:
"He saw John Hawkins on Friday. He has told him that he wants to exercise the option.
I say I gave him the Notice & advised he needed to pay dep & sign Contract.
Carl says he is fairly relaxed & so is his client - however one of the vendors returns f o.s. on Friday & he doesn't want a problem with this 'being all over the place'. He told John he really needs the details of purs, their sols & wants them all settled by Xmas.
He wants us to give details of all six buyers, their sols & pay dep.
At this stage they only hold $50k.
They want to have everything in order by Fri so they can advise the vendor all is underway & things have been properly exercised."
A further file note of Ms Hart records a subsequent conversation on that day with Mr Hawkins. This note includes the following:
"Advise him of my conversation with Carl.
I say he hasn't paid dep. I say Carl really wants details of other 6 buyers by Thurs so he can have everything in order before the 'primary' vendor returns fr os this Friday."
On 5 November 2010, Ms Hart had a further telephone conversation with Mr Hawkins. Her note of the conversation indicates that Mr Hawkins told her that the National Australia Bank should provide him with a letter of offer that afternoon and that, at this stage, it looks like the plaintiff will be buying all twelve units. It seems that Mr Hawkins also told Ms Hart that he would be meeting with the defendant later that day "just to keep things moving".
A file note made by Ms Mathieson on 18 November 2010 concerning a conversation with Mr Hawkins indicates that he advised her that he had been approached by the owner of a neighbouring property to purchase the whole property. The note further indicates that Mr Hawkins said that he was currently negotiating with the neighbour and with the defendant regarding that offer "which is for more money".
On 6 December 2010, there was a meeting attended by Frank Bonaccorso, Garry Bonaccorso, Mr Hawkins and Mr Buda. Mr Buda's file note includes the following:
"... it was discussed that the purchase of 1 and 3 chapman street could eventuate I was provided with the following instructions on how to amend the current deed:
(a) extend the call option date to 28th March 2011
(b) should the sale of 5 chapman street be 7 million 75% of the sale price will go to bonaccorso and 25% will go to John, any sale price over 7 million the above will apply however the amount over 7 million will be shared equally by the parties."
Following that meeting, Mr Buda telephoned Ms Mathieson. According to her note of the conversation, Mr Buda confirmed that he would send an amended deed "to cover agreement between parties extending time", but before that happened, he would send a letter "outlining changes for us to agree to". Ms Mathieson noted that the extra time was needed so the owner of the neighbouring property could purchase the plaintiff company and then proceed with the purchase.
However, on 7 December 2010, Mr Buda received instructions from Garry Bonaccorso to the effect that rather than sending out the proposed amendments, he should send a letter dealing with the attempted exercise of the Second Option by the plaintiff on 29 October 2010. In accordance with those instructions, Mr Buda sent a letter on that day to MCW Lawyers which is in the following terms:
"We refer to the above matter and to your correspondence dated 26th October 2010. We would like the following to be noted:
(a) a notice of nomination of a buyer was delivered to this office on the 29th October 2010,
(b) a notice of exercise of call option was delivered to this office on the 29th October 2010,
(c) a front page of a contract executed by your client was delivered to this office on 29th October 2010.
We note that condition 4.1(b) and (c) have not been fulfilled by your client and thus an exchange of contracts cannot take place.
Our client has provided instructions to this office on the above however we await clarification in relation to the said instructions prior to this office providing further correspondence on this matter."
On 15 December 2010, Mr Hawkins spoke to Ms Hart. It appears that he told her that he had spoken to Mr Buda who explained that he had to put on record the current state of the matter, but was nonetheless instructed to prepare a further amended deed. It further appears that Mr Hawkins told Ms Hart that the Bonaccorsos had reassured him that all was "okay" and that Mr Buda was just covering himself.
It appears that discussions between the plaintiff and the defendant concerning the property continued until at least late February 2011.
On 31 March 2011, Ms Mathieson had a conversation with Mr Hawkins who told her that the Bonaccorsos are now saying that the option was not exercised. Ms Mathieson's note of the conversation indicates that she told Mr Hawkins that when he took the exercise of option documents to Mr Buda he should have paid the deposit and signed a counterpart contract, not merely the front page of the contract.
On 1 April 2011, Mr Hawkins had a conversation with Ms Hart. According to her file note, she told Mr Hawkins that the issue was that he didn't exercise the option properly, and, further, that he did not pay the deposit. The note suggests that, in response to that statement, Mr Hawkins said words to the effect that it was only $50,000. The note also records Mr Hawkins saying that Mr Buda did not exchange because "he was going to amend the time in Deed".
Following that conversation, Ms Hart sent a letter to Mr Buda in which she referred to telephone attendances upon him late in 2010 in which he advised that he was amending the agreement to reflect an extension of time as agreed between the parties. The letter noted that to date the amended agreement had not been provided. The letter concluded with the following:
"Our client has on many occasions been in touch with Messrs Bonaccorso and enjoyed, he believes, a full and friendly relationship with regard to the ongoing success of our mutual clients' benefit. If this is not your understanding then please advise us of your clients' understanding."
Mr Buda replied by letter dated 4 April 2011. He referred to his earlier letter of 7 December 2010 and confirmed that the defendant did not provide instructions to prepare an extension of time to exercise the Second Option. Mr Buda further confirmed that no valid exchange had taken place since conditions 4.1(b) and 4.1(c) of the Second Option had not been satisfied. In response to the final paragraph of the letter from MCW Lawyers, Mr Buda stated that he had instructions that a full and friendly relationship does exist.
Mr Buda's letter, which was sent by facsimile to MCW Lawyers, was then forwarded by email on that day to Mr Hawkins. He telephoned Ms Mathieson to discuss the letter. Her note of the conversation includes the following:
"He refutes their claims & maintains he did exercise option in accordance with all terms.
John maintains he provided vendor's solicitors with a counterpart contract signed by cummins & maintains vendor has received dep. by way of money already spent by cummins on the improving pty which is in excess of $200,000."
On 5 April 2011, Ms Hart prepared a draft letter in response to Mr Buda's letter of 4 April 2011. She showed the draft letter to Mr Hawkins before it was sent. The draft letter included the following:
"The deposit has been paid by way of funds spent on property improvements which is in excess of $200,000."
Ms Hart's email to Mr Hawkins, which attached the draft letter, included the following:
"Also the deposit on the front page of the Contract annexed to the Option Agreement is $1,400,000. I note you have advised Kim you have spent over $200,000 in improvements, however, this does not make up the deposit. Was there some other agreement in respect to the deposit with Bonaccorso? It may be necessary therefore to change the draft enclosed in this respect."
The draft letter, insofar as it concerned the deposit, was changed. On that topic, the final form of the letter read:
"The deposit has been paid by way of consideration spent on the property and improvements. We would also point out that our client agreed to increase the purchase price as per the calculations contained in the agreement for the specific purpose of enhancing your clients' capital gain on the property."
The letter was sent to Mr Buda on 5 April 2011.
On the following day, Mr Hawkins had a further conversation with Ms Hart. According to her note of the conversation, Mr Hawkins told her that earlier that day, Frank Bonaccorso had assured him that "the deal is still as is" and that, as a man of his word, he will honour the deal struck. The note further includes the following:
"John receives 25%.
He will tell Carl to give us written confirmation that all ok.
...
John says the problem is with Bonaccorso Jnr (the son)."
On 6 April 2011, Mr Buda responded to the MCW Lawyers letter of the previous day. He stated that he was awaiting his client's instructions, and specifically refuted the suggestion, made in the MCW Lawyers letter, that on 29 October 2010 he had advised Mr Hawkins that contracts had been exchanged.
On 12 April 2011, MCW Lawyers sent a further letter to Mr Buda. Reference was made to an assurance said to have been given by Frank Bonaccorso that the agreement between the plaintiff and the defendants was binding and that he had "given his word". The letter called for the immediate issue of the counterpart contract, failing which a Notice to Complete would be served.
Mr Buda responded to that letter on 14 April 2011. He reiterated that conditions 4.1(b) and 4.1(c) of the Second Option had not been satisfied. The letter further stated that any further discussions with the defendant should be with Garry Bonaccorso as the directors of the company had delegated the responsibility of decision making to him. The letter also indicated that his client had expressed the view that "they would like to find a commercial arrangement with your client which will enable this matter to move forward."
By mid-May 2011, the plaintiff had retained his current solicitors, Strathfield Law. That firm sent a letter to Mr Buda on 19 May 2011.
In about August 2011, the defendant removed the "builder's fencing" around the property and secured possession for itself. In September 2011, the defendant issued a lapsing notice in relation to the caveat which had been lodged by the plaintiff. Shortly thereafter, these proceedings were commenced.
Evidence concerning disputed conversations from late May 2010 to early August 2010
Mr Hawkins swore a lengthy affidavit which ran to 80 pages. The critical conversations are said to have occurred in the period from about late May 2010 until early August 2010 when the Second Option was entered into. These conversations are dealt with in paragraphs 25(a) to 25(d) and 26 of the affidavit. According to Mr Hawkins, he had several meetings during that period with members of the Bonaccorso family. His evidence in that respect is summarised below.
Mr Hawkins deposes that in about late May 2010 there was a discussion in which he outlined a number of options for the Bonaccorsos to consider. He says that the first option was that the plaintiff exercise the call option and thereby purchase the property for $3.9 million plus rent and expenses; the second option was that the property be sold and the proceeds be split equally between the plaintiff and the defendant; and the third option was that a profit sharing arrangement be made between the parties and that the time for the exercise of the options under the First Option be extended to allow for such an agreement to be put in place. Mr Hawkins says that in that context he suggested that he would pay $4.5 million (corrected during his examination in chief to $4.3 million) at the end of 2010 and the parties would share equally in any profit resulting from a sale price over $5.6 million (corrected during his examination in chief to $5.7 million).
Mr Hawkins deposes that at a subsequent meeting, held on about 20 June 2010, Garry Bonaccorso tabled a typewritten document which was then used by Mr Hawkins to make notes during the course of the meeting. The typewritten document is in the following terms:
"OPTION A
Settlement 13th August, 2010 for $3.9 million (plus rent) plus expenses
OPTION B
OPTION C
1.F&D Bonaccorso to hold ownership of all units.
2.Option period to extend to 11th June 2011.
3.John Hawkins to pay F&D Bonaccorso $5 million at end of Option period.
4.John Hawkins to split profit 50/50 for any sale over $6.5 million.
5.F&D Bonaccorso can call option early within one month if building is reclaimed by compulsory acquisition or by any outside force beyond our control (i.e. government/council).
6.John Hawkins and F&D Bonaccorso to have joint ownership over rights to airspace over and under units.
7.John Hawkins to lodge "DA" for additional "10" units.
8.John Hawkins to pay all expenses upfront including outstanding expenses.
9.John Hawkins to pay an additional option fee of $100K.
10.If units are rented, John Hawkins to keep rent of four (4) units and F&D Bonaccorso to keep rent of other units.
11.John Hawkins to pay all expenses, maintenance and up keeping of all units.
12.Joint control to be put in place in case anything happens to principals Frank or John (i.e. Garry or Paul as Director of controlling company).
OPTION D
Same as Option "C" but for $4.5 million for six (6) months (20th Dec) anything over $5.6 million split 50/50."
The copy of the document in evidence contains a great deal of handwritten notes, figures and deletions apparently made by Mr Hawkins. There is also a second page, which contains Mr Hawkins' handwriting as well as Garry Bonaccorso's email address. In his affidavit, Garry Bonaccorso agreed that he handwrote the email address at the top of the page, although he denied it in the course of his cross-examination.
Mr Hawkins deposes that, after considering the options set out in the typewritten document, he said words to the following effect:
"I completely reject number 9 of Option C. I am in a position to proceed with Option A immediately. You're asking me not to exercise my rights. I'm prepared to agree to that. I don't have to. Failing an agreement between us as to profit share, I will exchange contracts."
Mr Hawkins further deposes that a conversation to the following effect then took place:
Mr Hawkins: "As long as you allow me credit for the $1.4 million I already have in No. 5. I'll agree the price can be amended to $5.7 million. I see your concern identified at Option C point 5. If that is to happen, it will probably be at Council's valuation or at our contract price, which at this time is $3.9 million. That price does not take into account any money that I have already spent, let alone future added value. The $5.7 million I'm agreeing to, is less what I have spent on the property and the increased value resulting from my efforts; I say that is $1.4 million. I believe the value and expenditure that I have in the building today totals $1.4 million. If you accept that figure, I will pay you $4.3 million instead of the $3.9 million I have to pay now, that will account for your loss of rents (estimated to be $400,000) and I will agree we will make the contract price $5.7 million thereby protecting your interest and mine in the event of any acquisition, compulsory or otherwise by the Council."
Frank Bonaccorso: "We can agree to that. What about expenses? Will I get rent in addition to that from now on?"
Mr Hawkins: "Yes. But the $1.4 million you acknowledge is already my interest in No. 5 and will count as deposit if I exchange?"
Frank Bonaccorso: "Of course."
...
Frank Bonaccorso: "I will speak with Carl Buda tomorrow morning to amend our documents to represent this agreement that we have reached. What about the offer we have received for $6.5 million? What will we do in the event we on-sell. Do you still want me to issue a contract for sale?"
Mr Hawkins: "If you do that and enter into a contract to a third party, every dollar you receive over $5.7 million we can split 50/50 and I get 100% of the difference between $4.3 million and $5.7 million."
Frank Bonaccorso: "I accept that."
Mr Hawkins: "That's the deal then. We are all agreed?"
Paul Bonaccorso: "Yes but if Council were to notify owners of No 5 in the meantime that Council will resume number 5, what would the position be."
Mr Hawkins: "Frank if you receive a notice of acquisition, notwithstanding any longer period that is available to me, I will settle within 30 days and I will pay you $4.3 million plus outgoings plus rent after today plus Strathfield Partners' commission claim."
Mr Hawkins deposes that Frank Bonaccorso, after speaking further with his wife and sons then said:
"That's good. I agree to that."
Mr Hawkins deposes that between 20 June 2010 and 7 July 2010, a further meeting was held. He says that words to the following effect were spoken:
Mr Hawkins: "Before I agree to rescind my current Option, let alone agree to not exercise my option as it currently stands, I need some security."
Frank Bonaccorso: "You tell me what you want and I will give it to you."
Mr Hawkins: "I will agree to rescind the current Option that I hold and enter into a new agreement with you but I want security."
Frank Bonaccorso: "What do I get?"
Mr Hawkins: "You will get everything that you are getting under the current agreement and you will get an extra $400,000 to make the price net to you of $4.3 million."
Paul or Garry Bonaccorso: "What is that $400,000 made up from? Is it the stamp duty that you are saving? Because we are at the moment issuing the contracts to the purchasers and you are saving this money."
Mr Hawkins: "Yes I am giving you the full benefit of the stamp duty plus I am capitalising the rents up to today.
...
I've done my calculation and if I pay you $200,000 it would be more than the rent you would have actually received until now. That's why I've made the figure $400,000."
Frank Bonaccorso: "I will accept that $400,000; it's very fair. I think it's fair."
...
Mr Hawkins: "The additional $400,000 added to $3.9 million makes the net price to you $4.3 million."
Frank Bonaccorso: "Yes I understand that."
Mr Hawkins: "You must instruct Carl Buda to change the new agreement before the current one expires on 1st July, or is it the 13th? Carl messed that up."
Frank Bonaccorso: "Yes I will do that."
Mr Hawkins: "If you don't, I have no alternative but to exercise the option. Cath [presumably Hart] is urging me to do that tomorrow."
Frank Bonaccorso: "You don't have to worry you have got my word. We have an Agreement and I will tell Carl to prepare it urgently."
Mr Hawkins states that he then wrote the figure $4.3 million on a piece of paper on a table in front of the Bonaccorsos, before explaining how that figure was calculated, and saying:
"And now I'm going to write out the figure of $1.4 million which represents the deposit paid by me to you today."
Mr Hawkins states that he then wrote the figure $1.4 million on the piece of paper and, after Frank Bonaccorso asked for an explanation of the figure, there was further conversation to the following effect:
Mr Hawkins: "If I exercise my option today I can sell the building and clear $1.4 million and all you will get is $3.9 million so the $1.4 million is mine to take right now and I want that acknowledged. That has to be agreed as my deposit right now if I hold off exercising the Option."
Frank Bonaccorso: "That is agreed."
Mr Hawkins: "Good. I won't exercise my option."
Mr Hawkins further states that he then "totalled" the two figures on the piece of paper and continued:
Mr Hawkins: "$5.7 million is the amount that Carl must put on the Agreement which we must sign before July 1."
Frank Bonaccorso: "What happens if we take the $6.5 million that is being offered? I need to know what happens if I agree today and you take the offer tomorrow?"
Mr Hawkins: "Frank we will split that 50/50, everything over $5.7 million. I keep the difference between $4.3 million and $5.7 million and you keep the first $4.3 million."
...
Do you acknowledge my deposit of $1.4 million if I have to exercise the option? Yes or no? Otherwise I will not agree to the $5.7 million price as I may as well exercise my option now at $3.9 million and cut you out completely."
Frank Bonaccorso: "Yes I agree that you have already paid the deposit of $1.4 million. You get that if you sell, and that we get $4.3 million and we are 50/50 from here on. I will try to call Carl tonight and if I can't catch him I will call tomorrow first thing."
Mr Hawkins deposes that Frank Bonaccorso telephoned him on the following morning and a conversation to the following effect took place:
Frank Bonaccorso: "I've spoken to Carl. It's all fixed. He will do it. It will be ready today. Get your girl to call him. We have an agreement. You have my word. You don't have to exercise the option."
Mr Hawkins: "As we have an agreement I won't exercise the Option."
Mr Hawkins states that later that day, after unsuccessfully attempting to speak to Ms Hart, he telephoned Mr Buda and a conversation, which included the following, took place:
Mr Hawkins: "Did Frank tell you the new deal is at $5.7 million with $1.4 million already allowed as my deposit?"
Mr Buda: "Yes"
Mr Hawkins: "Did Frank tell you that he gets an increase to $4.3 million and that's all he gets until I have repaid my deposit of $1.4 million and that is the deposit I am credited with now? That's my consideration for not exercising my Option now."
Mr Buda: "The difference between $475,000 per unit and $358,333 payable to Frank is your deposit. I'll put that into the agreement. How I'm going to treat that is, that I'm going to do it on an individual basis of $475,000. Frank will get $358,333.33. I will keep the rest of all of the monies in my account, less my fees and once Frank has received $4.3 million in total, the balance on an individual unit basis is yours and I will draw the agreement on that basis. I will get that to Cath. Frank tells me that you have an agreement. You guys get on very well. I just need some clarification in regard to the extra 10 units. I understand that you have undertaken to pay for the application and all the plan costs are payable by you and that you will provide the Strata Plan and Frank gets half the units at no cost to him. Is that correct?"
Mr Hawkins: "Yes I pay the costs of plans and lodgement and we will split the net profit 50/50."
Mr Buda: "Good I'll get it out. I will ring Cath now ..."
Mr Hawkins states that in July 2010 Mr Buda produced a new option agreement which "contained much of what we had negotiated" and which was signed by Mr Hawkins and returned to Mr Buda on 12 July 2010. He further states that between that time and when the defendant executed the agreement in August there were some further discussions with Frank Bonaccorso (sometimes in the presence of Garry and Paul Bonaccorso) in which it was stated that Mr Hawkins would be paying $4.3 million, which was $5.7 million less his "stake" of $1.4 million.
Frank Bonaccorso denies that he said the words which are attributed to him by Mr Hawkins. He specifically denies that he ever agreed that the $1.4 million deposit was to be treated as paid by Mr Hawkins. According to Frank Bonaccorso, in about mid June 2010 he had a conversation with Mr Hawkins in the presence of Garry Bonaccorso to the following effect:
Mr Hawkins: "I need more time to renegotiate the agreement. I'm happy to pay you some more money. I am trying to buy the Eo's property [1-3 Chapman Street] and we can come to some arrangement that gives you more money but I need to borrow on your property so I can pay the Eo's."
Frank Bonaccorso: "I will not let you do that. I don't have any mortgage on my property. Why would I do that?"
Garry Bonaccorso: "If you're buying Eos, we might be able to do a joint venture on that but we are not using the equity in our property. There's nothing in it for us."
Mr Hawkins: "Okay."
Frank Bonaccorso further deposes that at a meeting with Mr Hawkins, at which Garry Bonaccorso and Paul Bonaccorso were present, there was a conversation to the following effect:
Mr Hawkins: "I need to get more time for the option. The new DCP is coming and I'm talking to a few people but because it is delayed, no-one wants to do anything yet. The DCP is going to come through but only my connections can push it through. I have the connection to make this happen. With the DCP the land is worth $10 million or more. I'm happy to share some of this with you."
Frank Bonaccorso: "John, I've not had any rent for six months now. This is going on too long. I am losing rent everyday. You haven't paid the outgoings or the bills."
Mr Hawkins: "I have spent a lot of money getting the kitchens built and everything ready. I have spent a lot of money on this property. I am being held up on Petersham. I paid the builders almost $600,000 for the work that they are doing. I'm sorry but I can make this happen especially if I can do a deal with the Eos."
Frank Bonaccorso states that no agreement was reached at that meeting. He recalls further meetings with Mr Hawkins. He deposes that at one such meeting Mr Hawkins said:
"I have someone to buy the property but it is subject to the new DCP. I really need more time. I'm happy to pay you more money."
Frank Bonaccorso deposes that at another meeting a conversation to the following effect took place:
Frank Bonaccorso: "If we agree to give you more time and if the property is worth what you say, we would want more money. But we are not waiting forever. We haven't had any rent for a long time and you haven't kept any of the agreements yet."
Mr Hawkins: "I'm happy to share the extra with you and remember I've spent a lot of money on this already. I will pay you $5.7 million."
Garry Bonaccorso: "We wouldn't agree to go past October and we need a proper deposit from you. Seeing as we have lost rent and have had to pay the bills and we want to settle by the end of the year. We need a decent deposit, at least 20% otherwise we may as well just call it quits."
Mr Hawkins: "I understand. That sounds fair in the circumstances. I can actually offer you a deposit of $1.4 million."
Frank Bonaccorso states that following that meeting, details of the new agreement were provided to Mr Buda.
Mr Hawkins' account is also disputed by Garry Bonaccorso. He denies that he prepared or supplied the typewritten document which Mr Hawkins used to make notes. In relation to the meeting said to have occurred on about 20 June 2010, Garry Bonaccorso denies that Mr Hawkins said that he wanted credit "for the $1.4 million I already have in No. 5". Rather, he recalls Mr Hawkins saying that he would pay a deposit of $1.4 million. He further denies that Mr Hawkins sought an acknowledgement that $1.4 million represented his interest in the property and would count as a deposit if there was an exchange of contracts. He agrees, however, that Mr Hawkins did say words to the effect that if a contract was entered into with a third party, every dollar received over $5.7 million would be split 50/50.
Garry Bonaccorso deposes that, in family discussions following that meeting, it was stated, in effect, that Mr Hawkins' proposal for an extension of the option simply involved an increased sale price of $5.7 million, a deposit of $1.4 million, and the equal sharing of any proceeds of a sale to a third party above $5.7 million.
Garry Bonaccorso deposes that at a further meeting, his father said words to the following effect to Mr Hawkins:
"We have agreed to extend the option if you pay us $5.7 million in total. I will get Carl to prepare the document."
Garry Bonaccorso denies that Mr Hawkins said that the price would be $4.3 million. He states that on about 30 June 2010, he and his father attended Mr Buda's office and gave him instructions to prepare a new agreement involving a sale price of $5.7 million and a deposit of $1.4 million. He denies that at any subsequent meetings with Mr Hawkins there was any mention of Mr Hawkins having a "stake" of $1.4 million or a "credit" of $1.4 million.
Aspects of Mr Hawkins' account are also denied by Paul Bonaccorso. In particular, he disputes Mr Hawkins' evidence concerning the meeting he says was held between 20 June 2010 and 7 July 2010. Paul Bonaccorso also specifically denies that Mr Hawkins ever said words to the effect that his interest in the property was to count as the deposit if there was an exchange of contracts.
Angela McCrea deposes that at a family meeting held in about July 2010, agreement was reached to accept a proposal put forward by Mr Hawkins whereby he would pay $5.7 million for the property. She further deposes that she was present at a subsequent meeting at which Mr Hawkins was present during which there was further discussion about the proposal. Ms McCrea recalls that there was discussion about the price of $5.7 million. She denies that there was a conversation, as deposed to by Mr Hawkins, which involved him writing the figures ($4.3 million and $1.4 million) on a piece of paper and explaining them to members of the Bonaccorso family.
Summary of principal submissions
Mr V R W Gray of counsel, who appeared for the plaintiff, identified the central issue on the plaintiff's claim for rectification as whether there was a common intention that, on the exercise of the call option under the Second Option, the plaintiff was to be credited as having paid the deposit of $1.4 million that was specified in the form of contract for sale. It was submitted that the existence of such a common intention was established by the evidence given by Mr Hawkins about the meetings held in the period from late June 2010 to early July 2010, which the Court should accept in preference to the contrary accounts given by members of the Bonaccorso family.
It was further submitted that acceptance of Mr Hawkins' account, particularly of the further meeting held between 20 June 2010 and 7 July 2010, would establish the existence of the oral agreement the subject of the plaintiff's alternative claim.
Mr Gray submitted that little or no weight could be placed upon the evidence given by Frank Bonaccorso. It was put that it was evident from his oral testimony that he had little or no recollection of the relevant events, and his detailed affidavit, which was sworn shortly before the hearing, could not in those circumstances be regarded as reliable or accurate.
As far as Garry Bonaccorso and Paul Bonaccorso are concerned, it was submitted that where the evidence showed the Bonaccorso family to be close, and accustomed to discussing matters of family concern in family meetings, the content of their affidavits, which were all sworn at least three years after the relevant events, was likely infected with considerations of self-interest. Mr Gray pointed out that the evidence they each gave, that they were unconcerned by the prospect of the Council resuming the property, was inconsistent with the contents of Ms Mathieson's file note of her conversation with Mr Buda on 5 August 2010.
A number of specific criticisms were made of the evidence given by Garry Bonaccorso. For instance, it was pointed out that his evidence was inconsistent as to whether he had written his email address on the second page of the typewritten document which contains Mr Hawkins' handwriting. It was also suggested that there was a marked contrast between the detailed accounts of the meetings contained in his affidavit and the rather vague evidence given in the witness box. It was further submitted that the oral evidence he gave as to the rationale for the increase in the option price to $5.7 million, and his evidence that the price was arrived at in negotiations with Mr Hawkins, was neither plausible nor put to Mr Hawkins in cross-examination.
As far as Paul Bonaccorso is concerned, it was submitted that his evidence had to be viewed in the light of his admission that he was somewhat preoccupied with his own business concerns when he attended the meetings where the property was being discussed.
Mr Gray submitted that Mr Hawkins' account was supported by what he described as the extrinsic circumstances or inherent probabilities. It was put that the defendant was concerned about the possibility of a resumption of the property by the local Council and, against that possibility, wanted to include an option price of $5.7 million to provide a base from which to negotiate compensation. The plaintiff, for its part, was willing to join in raising the option price, but only if the plaintiff's interest the property, which interest it asserted was worth $1.4 million, was recognised by treating that amount as a deposit which the plaintiff had already paid. It was emphasised that by the June to August 2010 period, the plaintiff had spent considerable time and money in relation to the property and would want some recognition for the contribution those efforts made to the increase in the value of the property.
It was also put that the terms of clause 11 of the Second Option (in particular clause 11.4(b)) are consistent with the parties reaching an agreement as asserted by the plaintiff. It was submitted that clause 11 contemplates that sales of individual units in the property would occur at prices which, in aggregate, fall between $4.26 million and $5.7 million. By clause 11.4(b), the individual sale prices belong to the defendant "until the purchase price has been reached". It was then submitted that the plaintiff would have no reason to agree to a regime whereby the defendant would receive all of the proceeds up to $5.7 million, whereas it would make good sense for it to agree to a regime by which the first $4.3 million in proceeds would be received by the defendant, with the plaintiff receiving the next $1.4 million.
Mr R A Parsons of counsel, who appeared with Mr A Kaufmann of counsel for the defendant, submitted that the plaintiff had failed to discharge its onus of establishing, with clear and convincing proof, the existence of the alleged common intention. He emphasised that there was a complete lack of extrinsic support in the evidence for Mr Hawkins' version of events. In particular, it was put that there was no reference in any contemporaneous document to any special treatment for the deposit under the Second Option. It was further pointed out that there was no evidence of any assertion made by Mr Hawkins, even after the defendant challenged the purported exercise of the option (including on the ground that no deposit had been paid), that there was an agreement that the $1.4 million deposit was to be credited or treated as paid.
Mr Parsons made a number of specific criticisms of aspects of Mr Hawkins' evidence. These criticisms included, that his evidence as to whether he took twelve contracts with him to Mr Buda's office on 29 October 2010 was inconsistent, and that his evidence about Mr Buda dating the contract for sale on 29 October 2010 was imprecise and not supported by any objective evidence. Certain evidence given by Mr Hawkins about the defendant's solicitor was cited by Mr Parsons as bizarre. He submitted that Mr Hawkins' version of the events of the two critical meetings should be rejected.
In relation to the attacks upon the evidence given by Frank Bonaccorso, Garry Bonaccorso and Paul Bonaccorso, Mr Parsons submitted that Frank Bonaccorso was not challenged with the core of Mr Hawkins' version, and that he did his best to deal with the often complex questions put to him, having regard to his age (now 86) and imperfect command of English. As for Garry Bonaccorso and Paul Bonaccorso, it was submitted that they, too, did their best to deal honestly with the questions asked of them. It was put that it was implausible that, in the circumstances which then existed, the defendant would agree to credit the plaintiff with $1.4 million in respect of an increased property value.
In relation to clause 11 of the Second Option, Mr Parsons submitted that clause 11.3(d) made it plain that, even where sales of individual units occurred pursuant to clause 11, the Deposit (defined as having the same meaning as in the contract annexed to the Second Option) remains payable.
Determination
The applicable principles concerning rectification of instruments have been comprehensively considered in recent times by the Court of Appeal, notably in Ryledar Pty Ltd & Anor v Euphoric Pty Ltd [2007] NSWCA 65; (2007) 69 NSWLR 603 at [122]-[143] and [259]-[316] and Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; (2009) 76 NSWLR 603 at [444]-[461]. I was referred by Mr Parsons to a more recent discussion and application of the principles by Sackar J in W & K Holdings (NSW) Pty Ltd v Laureen Margaret Mayo [2013] NSWSC 1063.
In accordance with those principles, it is necessary for the plaintiff, in order to make out its case for rectification, to establish that the Second Option fails, on its true construction, to give effect to a common intention held by the parties at the time the Second Option was entered into. It is also necessary for the common intention to be established by clear and convincing proof (see Franklins Pty Ltd v Metcash Trading Ltd (supra) at [451]-[461] per Campbell JA; Lewis v Condon; Condon v Lewis [2013] NSWCA 204 at [62] per Leeming JA).
The alleged common intention is to the effect that, upon the exercise of either the put option or the call option, the plaintiff as purchaser would be treated as having already paid the defendant as vendor a deposit of $1.4 million towards the purchase price of $5.7 million. Both parties apparently accepted that proof of such common intention was dependent upon, at least, an acceptance of Mr Hawkins' evidence that, in the meetings held in the period from about late May to early August 2010, the parties reached and maintained a consensus to that effect.
For the reasons which follow, I do not accept the central thrust of Mr Hawkins' evidence, namely, that it was agreed that the plaintiff would be treated as having already paid a deposit of $1.4 million towards a stated purchase price of $5.7 million. Neither do I accept Mr Hawkins' evidence to the effect that it was agreed that the property would be sold with the defendant receiving the first $4.3 million of the proceeds, the plaintiff receiving the next $1.4 million, and the parties sharing equally any proceeds above $5.7 million. In these circumstances, the essential foundation of both the rectification case and the alternative case falls away, with the consequence that the plaintiff's claims must be dismissed.
Mr Hawkins' affidavit contains a detailed account of the various discussions he had with members of the Bonaccorso family, and he gave his evidence in a generally confident manner. However, it was apparent on some occasions during his cross-examination that he did not possess any real recollection of the discussions. More importantly, certain aspects of his testimony gave rise to significant concerns about the accuracy and reliability of his account, in particular on the central matter of the agreed price and deposit for the Second Option.
Mr Hawkins was heavily taxed in cross-examination about the apparent lack of documentary support for the existence of the agreement he claimed. At one stage, Mr Hawkins referred to the existence of some correspondence between MCW Lawyers and Mr Buda which was sent prior to the execution of the Second Option, that dealt with an increase in price from $4.3 million to $5.7 million and allowed for a $1.4 million deposit. Mr Hawkins was unable to point to or produce any document of that character which supported his account, despite being given every opportunity to do so.
In fact, the communications passing between MCW Lawyers and Mr Buda in the period from 1 July 2010 to 10 August 2010 provide no support whatsoever for Mr Hawkins' account. Those communications included negotiations about the definition of "Price" in the draft agreement. If either party had thought that it had been agreed that a $1.4 million credit was to be given to the plaintiff, it would be expected that this would have been conveyed to the party's solicitor who would then have taken it up in the negotiations about the definition of "Price".
Mr Hawkins further claimed in cross-examination that after the draft agreements had been provided in July 2010, he had spoken to MCW Lawyers and told them he was concerned that the $1.4 million credit had not been adequately documented, and MCW Lawyers had responded to him after they had taken the matter up with Mr Buda. When Mr Hawkins was asked to accept that his expression of concern was nowhere recorded, Mr Hawkins suggested that he had seen a document, probably an MCW Lawyers diary note, in which MCW Lawyers stated that Mr Buda's document "doesn't reflect the deposit". It is clear that MCW Lawyers produced documents for the purposes of this case, yet Mr Hawkins was unable to point to the document he claims to have seen. In these circumstances, I cannot accept that Mr Hawkins spoke to MCW Lawyers as he claimed, and I conclude that his recollection of the MCW Lawyers note was made up in the witness box to advance the plaintiff's case.
At another point in his cross-examination, Mr Hawkins said that he recalled using some notes of the June 2010 meetings when he prepared his affidavit. Again, no such notes were produced. If any such notes existed and provided support to Mr Hawkins' account of the meetings, they would surely have been exhibited to the affidavit, or at least safely retained. I am unable to accept that any such notes were used by Mr Hawkins as claimed.
I found numerous other aspects of Mr Hawkins' evidence to be less than satisfactory. It is not necessary to list them all. His evidence that Mr Buda dated the contract for sale on 29 October 2010 when the plaintiff was attempting to exercise the call option is one example. Mr Hawkins' evidence that he brought twelve contracts with him to Mr Buda's office on that occasion is another. His evidence as to what he told members of the Bonaccorso family about having obtained an option over a nearby property (in Leicester Street) was inconsistent and unimpressive. Mr Hawkins was clearly incorrect in his recollection of when he attended a fundraising event that was also attended by Frank, Garry and Paul Bonaccorso. I also find that he was incorrect in saying that a meeting with accountants at Parramatta took place in September 2010, rather than June 2010.
Overall, I consider Mr Hawkins' evidence to be inaccurate and unreliable in important respects, and that, accordingly, a circumspect approach to his testimony is called for. I would be reluctant to accept his evidence on any matter of importance, unless it was independently corroborated by reliable evidence.
I also have concerns, to a lesser degree, about the reliability of the evidence given by Frank Bonaccorso, Garry Bonaccorso and Paul Bonaccorso. Some of the criticisms made by Mr Gray in his closing submissions seem to me to have force. In particular, I agree that Frank Bonaccorso appeared to have little recollection of the events of 2010, and the weight that can be attached to his affidavit evidence is accordingly reduced. I also agree that the accounts given by Garry and Paul Bonaccorso have to be viewed in the light of the fact that the issues have likely been the subject of considerable discussion within the family over the past few years, and there is thus a significant risk that their accounts include reconstructions rather than true recollections. The evidence given by Garry and Paul Bonaccorso to the effect that the family was not concerned about the possibility of the Council resuming the property may well fall into that category. I am not able to accept that evidence in the light of Ms Mathieson's file note which records Mr Buda telling her that the possible resumption of the land was a reason for the defendant to want to finalise the Second Option as soon as possible.
Despite those concerns, and for reasons which are set out further below, I am at least prepared to accept these witnesses' denials of Mr Hawkins' evidence to the effect that it was agreed that the plaintiff would be treated as having already paid a $1.4 million deposit, and that the plaintiff would receive, after the first $4.3 million, the next $1.4 million out of the proceeds of a sale.
I do not have such concerns in relation to the evidence of Mr Buda. He gave his evidence in a careful and cautious manner and seemed to be trying to accurately answer the questions put to him, albeit that his recollection of events was not particularly good, and he did not have the benefit of any file notes made by him. Mr Gray did not, in his closing submissions, direct any particular criticism towards Mr Buda's evidence, and indeed very little of his affidavit evidence was challenged in cross-examination. I generally accept Mr Buda's evidence, and where it is in conflict with the evidence of Mr Hawkins (including in relation to the events of 29 October 2010), I prefer Mr Buda's evidence.
Mr Buda denied that in late June or early July 2010 Mr Hawkins told him about the new deal being "at $5.7 million with $1.4 million already allowed as my deposit", and that Frank Bonaccorso "gets an increase to $4.3 million and that's all he gets until I have been repaid my deposit of $1.4 million and that is the deposit I am credited with now ...". Further, Mr Buda recalls receiving instructions from Frank Bonaccorso and Garry Bonaccorso to the effect that he was to draft a new option agreement involving a purchase price of $5.7 million and a deposit of $1.4 million, and an agreement that if the property was sold in the meantime for more than $5.7 million, the amount above $5.7 million was to be shared equally.
The documents Mr Buda prepared in early July 2010 were consistent with such instructions having been given.
I have already mentioned that I do not accept the evidence given by Mr Hawkins during his cross-examination that after receiving those documents he spoke to MCW Lawyers to express a concern about the $1.4 million credit not being adequately documented, and that the issue was taken up with Mr Buda. That evidence was not contained in Mr Hawkins' affidavit and none of it was put to Mr Buda. I also do not accept the evidence given by Mr Hawkins during his cross-examination that after receiving the documents he himself raised the issue with Mr Buda. This evidence was also absent from his affidavit and was not put to Mr Buda.
The evidence establishes that Mr Buda sent drafts of the new agreements to MCW Lawyers on 7 July 2010. The documents, in the forms in which they had been submitted, were executed by the plaintiff and returned by MCW Lawyers to Mr Buda on 12 July 2010. The MCW Lawyers covering letter made no mention of any issue about the drafts. Rather, receipt of executed counterparts was awaited. As mentioned earlier, there were subsequent communications between MCW Lawyers and Mr Buda concerning amendments to the definition of "Price" in the draft agreement. There is no mention in those communications (or in any of the MCW Lawyers file notes) of any agreement to the effect that part of the Price, namely the deposit, was to be treated as credited or already paid by the plaintiff.
On 6 August 2010, once the amendments were agreed, the defendant executed the agreements (as amended) and they were sent to MCW Lawyers on 10 August 2010.
The evidence of Mr Buda, and the documentary evidence of the communications between the lawyers in July and early August 2010, provides cogent support for the view that no agreements as asserted by Mr Hawkins were made by the parties in their meetings in about late June to early July 2010. That evidence is also consistent with the evidence given on behalf of the defendant to the effect that the new agreement entailed a price of $5.7 million, a deposit of $1.4 million, and in the event of a sale for greater than $5.7 million, a sharing of the proceeds above that amount. In these circumstances, I am prepared to accept the evidence given by each of Frank, Garry and Paul Bonaccorso that such an agreement was reached in the meetings with Mr Hawkins in late June and early July 2010.
I am not persuaded that the making of such an agreement should be seen as commercially irrational or inherently unlikely. By June 2010, the units in the property remained in an unrenovated state. Mr Hawkins accepted that he did not, at that stage, have a buyer for the whole of the property. There was evidence that the prospect of a new Development Control Plan coming into effect in the near future had given rise to interest in the property at levels in the range of $6.5 million to $8 million. Moreover, as Mr Gray accepted, there was no evidence one way or the other as to whether the plaintiff was in fact in a position to exercise the First Option which was about to expire.
By entering into the Second Option, the plaintiff obtained the opportunity to acquire the property later in the year at a price which might well be lower than its then market value. The plaintiff also obtained the benefit of the new clause 11.4(c). It is true that a deposit of $1.4 million (almost 25%) is higher than is usual, but agreeing to such a deposit does not strike me as irrational in the circumstances. It is not evidently less rational than agreeing to give the plaintiff a credit of $1.4 million.
I also do not think that the terms of clause 11 of the Second Option provide significant support for the existence of an agreement as asserted by Mr Hawkins. The clause first appeared in the First Option. It provided the plaintiff with an alternative means of exercise of the call option. (The reference in the Schedule 3 Nomination Notice to Put Option is clearly an error). Under the clause, one or more individual lots may be sold directly to a third party, with the proceeds of sale being dealt with in accordance with clauses 11.2 to 11.4.
Some amendments were made to clause 11 for the purposes of the Second Option. Clauses 11.4(c) and 11.4(d) were added. Further, in clause 11.2, the stated sale price in respect of renovated units was increased from $375,000 to $475,000, and the amount of proceeds to be initially deducted and paid to the defendant in respect of a renovated unit was increased from $325,000 to $358,333.
If twelve renovated units were each sold for $475,000, the total proceeds would be $5.7 million. Mr Gray made the point that it would make no sense for the plaintiff to agree to that regime if the Price was $5.7 million (with no credit for $1.4 million) because the plaintiff would not receive any of the proceeds.
That outcome is a function of the relationship between the $475,000 figure and the Price. Under the First Option, the corresponding figures were $375,000 and $3.9 million. If twelve renovated units were each sold at that price, the total proceeds would be $4.5 million, some $600,000 greater than the Price. That is, under the First Option, twelve times the stated sale price for a renovated unit exceeded the Price, whereas under the Second Option it did not. It is true that in that respect, the efficacy of clause 11 as an alternative means of exercising the option was reduced from the plaintiff's point of view. However, as mentioned, the plaintiff obtained the benefit of the new clause 11.4(c) in the Second Option.
I have not overlooked the circumstance that the difference between twelve times $475,000 ($5.7 million) and twelve times $358,333 ($4,299,996) is approximately $1.4 million. However, the relationship between those products in clause 11.2 does not seem to be intended to have any bearing in respect of the deposit. Moreover, I do not accept Mr Hawkins' evidence (denied by Mr Buda) that Mr Buda told him that the difference between $475,000 per unit and the $358,333 (per unit) payable to the defendant "is your deposit".
The conclusions I have reached as to what was agreed in the meetings in late June and early July 2010 are reinforced by the fact that there were several occasions, following entry into the Second Option, where Mr Hawkins failed to assert the existence of the agreement about the crediting of the deposit in circumstances where such an assertion would be expected.
The evidence establishes that:
(1) on 27 October 2010, Ms Hart advised Mr Hawkins that if the option was to be exercised, the deposit had to be paid. (This evidence is a further indication that Mr Hawkins did not raise the issue about the deposit with MCW Lawyers in July 2010 as he claimed);
(2) on 3 November 2010, Ms Hart advised Mr Hawkins that he needed to pay the deposit;
(3) on 15 December 2010, Mr Hawkins had a conversation with Ms Hart following the receipt of Mr Buda's letter which stated that the option had not been exercised, including by reason of a failure to pay the deposit;
(4) on 31 March 2011, Ms Mathieson told Mr Hawkins that he should have paid the deposit when he exercised the option; and
(5) on 1 April 2011, Ms Hart told Mr Hawkins that he did not exercise the option properly and that he did not pay the deposit.
It seems that on none of those occasions did Mr Hawkins say anything about there being no need to pay the deposit, or that an agreement had been reached to that effect. It was not until 4 April 2011, in the context of considering a further letter from Mr Buda dated that day, that Mr Hawkins appears to have said that the defendant had already received the deposit. He told Ms Mathieson that the deposit had been received by way of money already spent by the plaintiff on the property in a sum exceeding $200,000. Even then, Mr Hawkins failed to state in simple terms that it had been agreed that the $1.4 million deposit was to be treated as paid.
For the reasons set out above, I am not persuaded that the alleged common intention the subject of the rectification claim was held when the Second Option was entered into. Neither am I persuaded that the alleged oral agreement the subject of the alternative claim was made.
Accordingly, the plaintiff's claims fail, and the Statement of Claim must be dismissed. The plaintiff should pay the defendant's costs of the proceedings.
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Decision last updated: 07 August 2014
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