Justice v Wright
[2012] NSWSC 638
•13 June 2012
Supreme Court
New South Wales
Medium Neutral Citation: Justice v Wright [2012] NSWSC 638 Hearing dates: 5 June 2012 Decision date: 13 June 2012 Jurisdiction: Equity Division Before: Windeyer AJ Decision: Value of one-half share of property equal to one-half total value of property.
Catchwords: CONTRACTS- general contractual principles- construction and interpretation of contracts- valuation of interest of co-owner.
CONTRACTS- general contractual principles- construction and interpretation of contracts- provision for expert determination by appointment if parties not in agreement- whether reasonable for appointed expert to require indemnity clause.Cases Cited: Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 Category: Principal judgment Parties: Alexander Greig Justice (Plaintiff)
Anna Pedersen Wright (First Defendant)
Graham Charles Wright (Second Defendant)Representation: Counsel:
C R C Newlinds SC and B Koch (Plaintiff)
Alfred J Morgan & Son (Plaintiff)
C D Freeman (Defendants)
Solicitors:
Streeterlaw (Defendants)
File Number(s): 2011/325415
Judgment
HIS HONOUR: The plaintiff, Alexander Greig Justice (Mr Justice) holds a one-half share in a property known as 149 Wirreanda Road, Ingleside, which is Lot 149 in Deposited Plan No 752046 (the Property) as tenant in common with Anna Pedersen Wright and Graham Charles Wright (the Wrights) who hold the other one-half share between themselves as joint tenants.
Mr Justice was prior to 26 October 2007 sole registered proprietor of the property, which has an area of about 8 acres. In 2007 Mr Justice agreed to sell to the Wrights a one-half interest in the property. In anticipation of this sale the parties entered into a Deed of Agreement and Indemnity dated 26 October 2007 to regulate rights as between themselves and to set out a procedure to be adopted if one party wished to sell that party's interest.
The clauses of the agreement relevant to the present dispute are the following:
"1.7 If the other party wishes to exercise their right to purchase the other half share of the property it shall be on the following terms and conditions:
(a) The proprietor wishing to exercise the right to purchase shall provide written notice to the other party of their intention to purchase the half share of the property within 28 days of the date of the written offer being made by the selling party.
(b) The price of the half share to be sold shall be determined by a valuation obtained from a licensed valuer. The party wishing to sell must obtain before the commencement of the 28 days an independent valuable (agreeable to the other party) or in the absence of agreement, a valuation from a valuer nominated by the President of the Real Estate Institute of New south Wales. The cost of the valuation is to be borne equally by the parties.
(c) The completion period for the sale shall be 90 days from the date on which the purchaser gives written notice of their intention to exercise their right to purchase.
1.8 If the other party does not wish to purchase then the whole of the property shall be placed on the market for sale with a real estate agent to be agreed between the parties. If the parties cannot agree on a real estate agent then the agent shall be appointed by the President for the time being of the Real Estate Institute of NSW."
It can readily be seen that the agreement is not perfect because the clauses set out are clearly intended to operate if one tenant in common wishes to sell, but the deed contains no such express term. Nevertheless, it is clear what was intended, and Mr Justice and the Wrights have proceeded on the basis that when one or the other wishes to sell the clauses will take effect.
In late 2009 Mr Justice informed Dr Anna Wright that he wished to sell. She responded in January 2010 that the Wrights intended to purchase and that she would organise a valuer. The Wrights nominated a valuer whom Mr Justice rejected then Mr Justice nominated one whom the Wrights rejected. In accordance with the required procedure, the President of the Real Estate Institute of NSW was asked to nominate a valuer. Mr Kremer, legal counsel for the Institute, responded by letter of 4 March 2011 which included the following paragraphs:
"As a professional association, the Institute provides a service to members of the public by making appointments of independent valuers and agents. The President's role is to make an offer of appointment which is subject to acceptance by the valuer or agent to whom the appointment is made.
The valuer or agent appointed by the President is made subject to such terms and conditions which such individual valuer or agent shall prescribe, and these terms and conditions are subject to negotiation directly between the parties requesting the appointment, and the valuer or agent."
In addition in that letter, an administration fee was sought. This was paid on 24 March. The President nominated Mr Stephen Eccleston of BEM Property Consultants Pty Ltd as valuer.
On 5 April 2011, Mr Eccleston wrote to the solicitors for each party. His letter set out terms and conditions upon which he said he would accept appointment. The conditions included his fee and some other matters not in contention and then under a heading "Valuers Indemnity", included the following:
"It is noted that the applicants have reached an impasse regarding the appropriate market value of the property.
Both parties acknowledge that the determining Valuer's decision in respect to the market value will be final and binding upon the parties.
1. In consideration of Steve Eccleston accepting the appointment and agreeing to undertake the market value Determination Mr Alexander Justice agrees to:
1.1 release Steve Eccleston and BEM Property Consultants Pty Ltd hold them harmless from and against all liability which Steve Eccleston and/or BEM Property Consultants Pty Ltd has or may have or but for the operation of this clause would have in connection with the Rental Determination and/or services provided in connection therewith.
1.2 indemnify and keep indemnified Steve Eccleston and BEM Property Consultants Pty Ltd from and against all liability, costs, expenses of damages (including without limitation the time of Steve Eccleston and/or BEM Property Consultant's Pty Ltd personnel) paid or incurred by Steve Eccleston and/or BEM Property Consultants Pty Ltd in connection with any claim brought by or on behalf of Mr Alexander Justice in respect of the market value determination and/or services provided in connection therewith.
2. Clause 1 shall apply to all conduct of Steve Eccleston and BEM Property Consultants Pty Ltd whether or not such conduct constitutes a breach of contract, negligence and/or breach of any other standard prescribed by Statute. However, it shall not apply:
2.1 in the case of fraud or wilful misconduct on the part of Steve Eccleston and/or BEM Property Consultants Pty Ltd.
2.2 to the extent that it would be void or inoperative by reason of the Trade Practices Act 1974.
3. Liability of Steve Eccleston and BEM Property Consultants Pty Ltd for a breach of a condition or warranty implied into the contract by the Trade Practices Act 1974 is limited to, at the discretion of Steve Eccleston and BEM Property Consultants Pty Ltd:
3.1 the supplying of the services again;
3.2 the payment of the cost of having the services supplied again."
This has some obvious mistakes in it such as Rental Determination but nothing turns on that.
It seems the solicitors for Mr Justice were happy to accept the terms, but the solicitors for the Wrights objected to the indemnity term. They asked that this be deleted. Mr Eccleston responded saying that the "hold harmless clause" was a standard condition BEM Property Consultants Pty Ltd inserted in all such determination matters, and as he did not wish to vary it, he declined to accept the appointment.
At the same time as the solicitors for the Wrights wrote to Mr Eccleston about the indemnity clause, they sent to the solicitors for Mr Justice a draft of the letter proposed to be sent to Mr Eccleston as a joint instruction from the parties. That draft included a request to undertake a valuation "of 50% of the above property" and under the heading "Valuation" said:
"The valuer is requested to value the 50% of the property to be sold. Please note carefully the terms of the clause above under which the appointment of the valuer has been made."
It seems that this flagged to the solicitors for Mr Justice that the intention was that the valuer would not value the one-half interest as 50% of the total value but as an interest separate from the whole.
By summons filed on 12 October 2011 the plaintiff seeks the following:
"1. A declaration that the Deed of Agreement and Indemnity ('the Deed') made 26 October 2007 between the parties is valid and subsisting.
2. A declaration that on the proper construction of the Deed and in the events that have happened, the independent valuer for the purpose of clause 1.7(b) is Mr Steve Eccleston.
3. A declaration that on the proper construction of the Deed, Mr Eccleston is to value a one half share of the property defined in the Schedule by reference to firstly, valuing the market value of the whole property without reference to the Deed and then dividing that value in half."
They then seek the following order and substitute it for order 4 in the summons:
"4. Order that the parties jointly direct Mr Eccleston to provide a valuation prepared in accordance with declaration 3 by each signing and returning to Mr Eccleston a copy of his letter dated 5 April 2011 which is annexure "M" to the affidavit of the plaintiff sworn 30 September 2011."
Other orders are sought but they need not be considered at this stage.
By cross claim, the defendants seek the following:
"1. A declaration that on the proper construction of clause 1.7(b) of the Deed of Agreement and Indemnity dated 26 October 2007 between the cross-claimants and cross-defendant ('Deed'), the value of the half share of the property known as 149 Wirreanda Road, Ingleside ('Property') is to be determined on the basis of the estimated amount for which a 50% interest in the Property should exchange on between a willing buyer and a willing seller in an arm's-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently, and without compulsion.
2. A declaration that on the proper construction clause 1.7(b) of the Deed, the cross-claimants and cross-defendant are not obliged to accept the appointment of any valuer who requires a release and indemnity or 'hold harmless clause' in respect of all liability in the preparation and provision of a valuation.
3. An order that clauses 1.7 and 1.8 of the Deed be specifically enforced."
It follows from this that the main issues to be decided in this action are:
(1) Whether on the proper construction of the Deed the valuer is to determine the value of the one-half interest of Mr Justice as being one-half of the total value of the property or whether the declaration sought in paragraph 1 of the cross claim should be made;
(2) Whether or not the Wrights are obliged to accept the appointment of a valuer who requires a "hold harmless" type clause.
I should say at the outset that none of the parties suggest that the first issue should be left to a valuer to decide. They wish the court to determine the proper basis for the valuation after which the other question can be determined.
Construction
The task of the court is to determine the objective intentions of the parties from the words used. The words are to be given their ordinary meaning unless that would lead to an absurd result. An uncommercial or surprising result is not an absurd result. It is of course, clear, that if clause 1.8 is activated and the whole property sold, then each party will receive one-half of the net proceeds of sale subject, in this case, to the agreement that net proceeds of sale are to be determined before any amount due to the National Australia Bank is deducted, that mortgage debt being the responsibility of the Wrights. The question is whether the wording of clause 1.7 brings about a different result.
The argument of the Wrights assumes a sale on the open market of a one-half interest as tenant in common of the property would bring a lesser figure than one-half of the value of the whole. Expert evidence of a Mr Dempsey, a qualified real estate valuer, supports this, or at the least states that the figures could be different. That opinion was not challenged and is, I would have thought, obvious.
The important facts to bear in mind in this case are that there is only one purchaser; that purchaser is not an outsider; and that the result of a completed purchase will be that the purchaser will hold the whole property. Thus if the purchaser is entitled to purchase the vendor's one-half share for less than one-half of the value of the whole, the purchaser will obtain a benefit. Do the words require this result?
Without resort to any material other than the words I consider the plain meaning is that advanced by the plaintiff. The parties hold as tenants in common in equal shares. A half share in a property or for instance an apple is in ordinary parlance one half of the whole. On any basis the ordinary meaning of the words is not that advanced by the Wrights, at least when the purchaser holds the other half-share. However, while I do not think the matter is open to doubt if there were an ambiguity then it is open to the Court to look at the context in which the words are used and the obvious purpose of the agreement: Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 at 352.
The purpose of the agreement was:
(a) to provide a mechanism whereby if one party wished to sell, the other had the right to purchase, but there was no right to sell to an outsider; and
(b) to provide a method of disposal if the party entitled to purchase did not wish to do so, and in such a case to prevent recourse to s 66G of the Conveyancing Act 1919, yet to prevent sale to an outsider. If there can be no sale to an outsider it would seem strange if price was to be determined by the amount which such an outsider might pay for the one-half interest. That cannot have been the intention.
I have no difficulty in coming to the conclusion that the objective intention of the parties gathered from the words used in the context of the agreement in which the words appear were that value to be determined under clause 1.7 is one-half of the total value of the property.
Is the Appointment Binding?
The appointment of the valuer was made in accordance with the contract. The appointee valuer set certain conditions upon which he would accept appointment. That was expected as the letter from the legal counsel of the Institute pointed out and could be subject to negotiation between the valuer and the parties involved. To the extent that negotiation took place, it was unsuccessful. Counsel for the plaintiff pointed out that the whole process could be stultified by one party objecting to any condition if the argument of the defendant as to the indemnity provision was correct. For instance, one of the parties might say that a fee proposed to be charged was unreasonable. For that reason the plaintiff says that if there is some such objection, the onus must be on the objector to show unreasonableness, and there is no such evidence. I think that must be correct. I should add that while on first sight I thought the condition surprising, on further consideration I do not think it is when the limitations upon the indemnity are taken into account. I note that the work Expert Determination: J Kendall, 3rd ed (2001) at p 104 recommends that such a provision be inserted and that the model expert determination agreement of the London Centre for Dispute Resolution in Appendix 1 of that work includes a clause much wider than that put forward by Mr Eccleston,but of course that does not determine the matter.
It seems to me that in circumstances where parties have agreed to expert determination and the method of appointment of the expert in case of disagreement, there is much to be said for the view that they rely on the appointor to appoint a qualified expert and that there should be no risk or encouragement of further litigation, even litigation against that expert. On this issue again I find for the plaintiff.
I should add that counsel for the defendants did suggest that the construction question be decided first, so that further consideration could be given by the parties to the appointment question. I gained the impression that the objection to the indemnity was really to preserve rights if the construction question were decided by the expert and that there may be no concern about that the indemnity in view of the construction decision. It seemed to be suggested that what I should do is to decide the construction question and then to stand the matter over for a very short time. However, I was not asked to determine the construction point as a separate question and I have stated my decision on the indemnity question. In these circumstances I can proceed to make the orders sought by the plaintiff and dismiss the cross claim but I will stand the matter down to enable the parties to discuss the orders. In any event the plaintiff's counsel asked for his possible claim for damages to be stood over as no decision could be made on whether to pursue such claim until the value was determined. That is a proper course to take in the circumstances. As
I will not be here I will order that any question of damages be determined by an Associate Judge.
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Decision last updated: 13 June 2012
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