Khattar v Hills Shoppingtown Pty Ltd (subject to a Deed of Company Arrangement)

[2022] NSWSC 363

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

Khattar v Hills Shoppingtown Pty Ltd (subject to a Deed of Company Arrangement) [2022] NSWSC 363

Hearing dates:

31 January 2022, 1, 3, 9, 10, 11, 21 February 2022, 2 March 2022

Decision date:

30 March 2022

Jurisdiction:

Equity - Expedition List

Before:

Sackar J

Decision:

See paras [188]-[190]

Catchwords:

CONTRACTS — Construction — Interpretation — Use of recital in construction of deed — Relevance of the deeds being signed as settlement for a probate dispute

CONTRACTS — Termination — Repudiation of contract — Whether in the event of repudiation the plaintiffs had elected to affirm the contract by seeking specific performance

CONTRACTS — Damages — Whether plaintiffs suffered loss as a result of defendants’ breach

Legislation Cited:

Civil Procedure Act 2005 (NSW)

Corporations Act2001 (Cth)

Cases Cited:

ASIC v Carey (No 6) (2006) 153 FCR 509

Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99

Auzcare Pty Ltd v Idameneo (No 123) Pty Ltd (2015) 91 NSWLR 581

Australian Conservation Services Pty Ltd v Liladel Holdings Pty Ltd (2017) 12 ACTLR 124

Baba v Sheehan (2021) 151 ACSR 452; [2021] NSWCA 58

Beswick v Beswick [1968] AC 58

Cherry v Steele-Park (2017) 96 NSWLR 548

Clark v Macourt (2013) 253 CLR 1

Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337

Coulls v Bagot’s Executor and Trustee Co Limited (1967) 119 CLR 460

Cousens v Grayridge Pty Limited [2000] VSCA 96

Cypjayne Pty Ltd v SverreRodskog [2009] NSWSC 301

Danckert v Tonkin [2015] NSWSC 1570

de L’Isle v Knight [2021] NSWSC 809

Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640

Ex parte Dawes; In re Moon (1886) 17 QBD 275

First Church of Christ, Scientist, Brisbane as Trustee Under Instrument 702027154 v Ormlie Trading Pty Ltd [2003] QSC 351

Foran v Wight (1989) 168 CLR 385

Galafassi v Kelly (2014) 87 NSWLR 119

Gartside v IRC [1968] AC 553

Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1

GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd (2003) 128 FCR 1

Greer v Kettle [1938] AC 156

Honner v Ashton [1980] ANZ ConvR 343

Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) (1993) 182 CLR 26

Jireh International Pty Ltd t/as Gloria Jean’s Coffee v Western Exports Services Inc [2011] NSWCA 137

Jones v Dunkel (1959) 101 CLR 298

Kennon v Spry (2008) 238 CLR 366

Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115

Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623

Lepcanfin Pty Ltd v Lepfin Pty Ltd (2020) 102 NSWLR 627

Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494

Masters v Cameron (1954) 91 CLR 353

Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104

NCON Australia v Spotlight Pty Ltd [2012] VSC 604

O’Brien v Dawson (1942) 66 CLR 18

Onward Building Society v Smithson [1893] 1 Ch 1

Oracle New Zealand v Price Waterhouse Administration [1996] ANZ Conv Rep 295

Palliser Ltd v Fate Ltd [2019] EWHC 43 (QB)

Pavlovic v Universal Music Australia Pty Ltd (2015) 90 NSWLR 605

Pioneer Mortgage Services Pty Ltd v Columbus Capital Pty Ltd [2015] FCA 1067

PW & Co v Milton Gate Investment Ltd [2004] 1 Ch 142; [2003] EWHC 1994 (Ch)

Ramsey Food Processing Pty Ltd v Tomlinson [2014] NSWCA 237

Realtek Holdings Pty Ltd v Wetamast Pty Ltd [2019] NSWSC 1869

Re Smith [1928] Ch 915

Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603

Said v Butt [1920] 3 KB 497

SAS Trustee Corporation v Miles [2018] HCA 55

Satellite Estate Pty Ltd v Jaquet (1968) 71 SR (NSW) 126

Seddon v Senate (1810) 13 East 63; 104 ER 290

Sellars v Adelaide Petroleum (1994) 179 CLR 332

Shevill v The Builders Licensing Board (1982) 149 CLR 620

Sibbles & Anor v Highfern Proprietary Limited (1987) 164 CLR 214

Silverbrook Research Pty Ltd v Lindley [2010] NSWCA 357

Super 1000 Pty Ltd and Others v Pacific General Securities Ltd and Others [2008] NSWSC 1222

Total Transport Corp v Arcadia Petroleum Ltd [1998] 1 Lloyd’s Rep 351

Tsaprazis and Ors v Goldcrest Properties Pty Ltd and Ors [2000] NSWSC 206

Wollongong Coal Ltd v Gujarat NRE India Pty Ltd (2019) 100 NSWLR 432

Wright v Stevens [2018] NSWSC 548

Zoobury Pty Ltd v Cariste Pty Ltd [2022] NSWSC 18

Texts Cited:

J W Carter, Carter’s Breach of Contract (2011, Sydney, LexisNexis Butterworths)

J D Heydon, Heydon on Contract (2019, Sydney, Thomson Reuters)

Category:

Principal judgment

Parties:

Carol Khattar (first plaintiff)
Hills Shoppingtown Pty Ltd (subject to a deed of company arrangement) (first defendant)
Maria Fayad (second defendant)
Joseph Khattar (third defendant and cross-claimant)
Sam Fayad (cross-defendant)

Representation:

Counsel:
A Leopold SC, P Knowles (plaintiffs)
A Vincent (second defendant)
M Condon SC (third defendant and cross-claimant)
S Stanton, M Klooster (cross-defendant)

Solicitors:
O’Loughlin Westhoff (plaintiff)
Madison Marcus (second defendant)
Sage Solicitors (third defendant and cross-claimant)
HBA Lawyers (cross-defendant)

File Number(s):

2020/270245

Publication restriction:

N/A

Judgment

1. These proceedings involve a dispute relating to agreements between the first, second and third plaintiffs (being Carol Khattar and her two daughters) and the second and third defendants (Maria Fayad and Joseph Khattar respectively), first entered into on 21 October 2016. There is also a cross-claim brought by the third defendant Joseph Khattar against the first cross-defendant Sam Fayad, the husband of Maria Fayad (the second defendant).

2. The agreements, recorded in two separate deeds, were made in relation to units from the development owned by the first defendant (Hills Shoppingtown). A further deed was signed in 2019 in relation to acknowledged breaches of those initial deeds by the second and third defendants. Hills Shoppingtown is now subject to a deed of company agreement and was not an active participant in these proceedings.

3. The plaintiffs allege that the defendants had an obligation to transfer 20 units (Units) from a development owned by Hills Shoppingtown (Development) to a trust known as GK3 Trust which, under the agreements, would eventually be controlled by the plaintiffs. The plaintiffs assert that the defendants did not do so and are, consequently, in breach of their obligations.

4. Although not a party to these proceedings, GK3 Pty Ltd (receivers and managers appointed) (GK3) was the trustee of the George Khattar Family Trust No 3 (GK3 Trust) of which the plaintiffs were discretionary beneficiaries. GK3 held 20% of the Development along with four other trusts (in partnership).

Factual Background

Overview

5. In 1993, the first plaintiff (Carol) married the late Mr George Khattar - the brother of the second and third defendants. The first plaintiff had two children with Mr George Khattar born in 2001 and 2003, who are the second and third plaintiffs in this case.

6. Mr George Khattar died in 2010. In 2011, the second and third defendants were issued with the Grant of Probate of the will of their late brother George, which had been executed in 2002.

7. The late Mr George Khattar had left his estate to the first, second and third plaintiffs. His estate included a 25% shareholding in Hills Shoppingtown and a 100% shareholding in GK3.

8. In November 2015, the first, second and third plaintiffs together commenced proceedings in the Supreme Court of New South Wales in relation to the administration of the estate by the second and third defendants, Maria and Joseph (Probate Proceedings).

9. The Probate Proceedings were settled by agreement in writing in accordance with the terms of two deeds - the Deed of Settlement and the Deed of Agreement signed by the parties on 21 October 2016. The settlement of those Probate Proceedings was approved by Lindsay J on 25 October 2016 (Document Book (“DB”) p 418).

10. The terms of one of those agreements namely the Deed of the Agreement required the defendants, the plaintiffs have submitted, to amongst other things cause Hills Shoppingtown to complete the Development, including the strata sub-division, by 21 June 2018.

11. The plaintiffs also asserted that the second and third defendants were required to facilitate the acquisition by GK3 as the trustee of the GK3 Trust of an unencumbered interest in the 20 Units in the Development which had been selected by the plaintiffs. Each of the plaintiffs were and are discretionary objects of the GK3 Trust.

12. The plaintiffs have submitted that the defendants did not transfer the Units within 20 months as specified in the Deed of Agreement, nor was the strata plan registered or the units left unencumbered. A Deed of Acknowledgement was executed on 1 August 2019 in which the defendants acknowledged their breaches and agreed to pay monthly payments and organise the transfer of the Units.

13. The plaintiffs submitted that the monthly payments due under the Deed of Acknowledgement were not made on 1 May 2020, 1 June 2020, 1 July 2020 and 1 August 2020. These proceedings were subsequently commenced by the plaintiff on 17 August 2020. Hills Shoppingtown entered into external administration on 31 December 2020 and became subject to a deed of company agreement on 26 February 2021. These payments have since been made and this aspect of the plaintiffs’ claim is therefore no longer in dispute.

The Relevant Agreements

14. Below is a summary of the most important documents relied on in the proceedings.

15. First was the Summary of Agreement dated 23 July 2016 (Core Court Book (‘CCB’) p 515) which sets out a summary of the agreement reached between the parties in the settlement of the Probate Proceedings, that Summary of Agreement specifies:

Agreement Deal = $20m + 12 Bounty Avenue, Castle Hill property

…

5. Remainder of $20mil deal to be provided in property. 20 units (or equal value) in Hills Shoppingtown development – Executors to work out way in which property can be transferred to GK3 Pty Ltd atf George Khattar Family Trust No. 3. If not Hills Shoppingtown properties, then other properties will be provided to the same value.

6. Carol to become director/shareholder of GK3 Pty Ltd (i.e. to take control of the trustee company of George Khattar Family Trust No. 3). Trust Deed to be amended to provide that Carol Georgia and Alana are discretionary beneficiaries of trust, and Carol would become the Appointor under the Trust. This is subject to the Executors obtaining tax advice with respect to the transfer of property through the trusts.

7. Carol will pick out the units of the Hills Shoppingtown development.

…

16. Second was the Deed of Settlement (CCB pp 516-549) and Deed of Agreement (CCB pp 550-785) both dated 21 October 2016.

17. The Deed of Settlement contains recitals as follows.

…

I. On 23 July 2016, Carol and Sam Fayad (on behalf of the Executors) signed a document headed “Summary of Agreement reached in principle on 23 July 2016 (3:45pm)”.

J. Without admission, the parties have agreed to enter into this binding Deed to settle all disputes relating to the administration of the Estate, the Beneficiary Allegations and the Proceedings and to enable the administration of the Estate to come to an end.

…

18. The Deed of Settlement sets out the agreement between parties, being the plaintiffs (Beneficiaries) and the second and third defendants (Executors), in relation to the payment of money – specifically the payment of $1,211,000.00 of legal costs (cl 4.1(a)) and the payment of distributions from the estate under cl 4.2 set out below.

4.2 Payment of Distributions from the Estate

The parties agree that for the purposes of settlement, the Executors are authorised to administer the Estate by any means and at its sole and absolute discretion, subject to their obligations at law and in equity, including the disposal of any assets and payment of any liabilities, subject to procuring the following net payments to the Beneficiaries:

(a) The Executors shall pay to Carol as to 50% and as to the other 50% to Jason and Carol as trustee of the George and Alana Trust”

(i) $2,200,000 paid in twenty (20) equal monthly instalments of $110,000 commencing fourteen (14) days after the date in which the Court has approved this Deed, and shall be paid on the monthly anniversary of the first payment;

(ii) $139,000 on or before fourteen (14) days from the date of approval of this Deed;

(iii) $1,500,000 on or before 30 November 2016;

$153,501.48 within seven (7) days from the date of the final monthly instalment pursuant to Clause 4.2(a)(i) of this Deed, with interest to accrue from the date of the Deed until the transfer of this amount at the rate prescribed by Section 100 of the Civil Produce Act 2005 (NSW).

(b) Subject to Clause 7 of this Deed, the Beneficiaries agree that the payments detailed in this Clause 4.2 represent he agreed proceeds that will arise from distribution of the Estate free from any Tax and encumbrance, and represents complete satisfaction of the entitlements of the Beneficiaries from the Estate.

(c) The Executors must pay the Beneficiaries the Settlement Sum in accordance with Clause 4.1 and 4.2, irrespective of whether the net proceeds procured from the Administration of the Estate equates to or is less than the Settlement Sum.

19. The Deed of Agreement sets out the agreement between the Executors and Beneficiaries in relation to the acquisition of Units from the Hills Shoppingtown Development by the Beneficiaries. The recitals to the Deed of Agreement are as follows.

A. The Deceased died on 29 April 2010.

B. The Will appointed the Executors as executors of the Estate. The Will nominated the Beneficiaries with their respective beneficial entitlements as:

(i) Carol – fifty per cent (50%); and;

(ii) Georgia and Alana – fifty per cent (50%) joint beneficial entitlement.

C. On 13 April 2011, the Supreme Court of New South Wales granted probate of the Will to the Executors.

D. At the time of the Deceased’s death, the Estate consisted of various assets and liabilities.

E. The Hills Shoppingtown Property is not an asset of the Estate.

F. The GK3 Trust does not form part of the Estate.

G. The Beneficiaries commenced the Proceedings against the Executors and made various allegations against the Executors with respect to the administration of the Estate.

H. The Executors are defending the Proceedings.

I. The Parties have agreed to settle the Proceedings in accordance with the Deed of Settlement and in accordance with this Deed.

J. On 23 July 2016, Carol (on behalf of the Beneficiaries) and Sam (on behalf of the Executors) signed a document headed “Summary of Agreement reached in principle on 23 July 2016 (3:45pm)”.

K. Without admission, and in consideration of a resolution of the Dispute and settlement of the Proceedings, the Executors have agreed to transfer the Units to GK3 free of any encumbrance.

20. The Deed of Agreement contains the specific obligations of the Executors, and the rights of the Beneficiaries, in relation to the acquisition of the Units in the Development, as extracted below.

3.3 GK3

…

(f) Sam undertakes that he will perform all acts in accordance with and in compliance with the obligations set out in this Deed, and shall do so in the best interest of the Beneficiaries.

3.4 Acquisition of Units

(a) The Executors agree to facilitate GK3 acquiring an unencumbered interest in the Units. The Executors shall have sole and absolute discretion, subject to their duties at law and in equity, in determining the mechanism of GK3 acquiring the land, whether by partition, transfer or otherwise;

(b) The Executors agree that prior to entering into this Deed, the Executors have sought the consent of the JV Companies to facilitate the action required in accordance with Clause 3.4(a) of this Deed.

(c) The Beneficiaries and Hills Shoppingtown agree to assist with and perform all acts and sign all documents to effectively comply with their obligations pursuant to this Clause 3.4(a) of this Deed.

(d) The Parties acknowledge that an acquisition of the Units by GK3 irrevocably constitutes a surrender of any further entitlement or interest GK3 has, had or might have in Hills Shoppingtown, the Hills Shoppingtown Property, or the Unincorporated JVA. In this regard, the Parties agree to do all things necessary to formally document such surrender, which may include the assignment of GK3’s interest to the remaining JV companies (or their nominees).

3.5 Value of Units

(a) The Parties acknowledge that the agreed value of the Units as set out in Schedule A is $15,346,498.42.

…

3.7 Insufficient Properties

(a) If for whatever reason any or all of the Units are notable to be acquired or unable to be acquired within twenty (20) months from the date of this Deed, the Executors shall cause other properties owned by relation Corporations (as that term is defined in the Corporations Act) and chosen by the Beneficiaries in their absolute discretion, from a selection of units as proposed by the Executors and/or by Sam Fayad (“the Replacement Units”) to be transferred to GK3 to the value of the shortfall being the difference between the value of the Units and the value of the Units not otherwise acquired by GK3 in accordance with this Deed. The value of such Replacement Units shall be determined by a registered valuer as chosen by the Beneficiaries in their absolute discretion and as valued as at the date of this Deed.

(b) The Replacement Units shall be transferred on or before fourteen (14) days from the date Carol gives notice of the shortfall.

(c) The Executors can elect to pay any such shortfall amount in cash based upon the applicable current value of any respective Unit.

(d) The Parties acknowledge that an acquisition of Replacement Units by GK3 and/or receipt of a cash payment for any shortfall amount shall be on the same basis and have the same effect as cl 3.4(d) of this Deed.

3.8 Obligations of the Executors to ensure completion of the Units

(a) The Executors shall cause Hills Shoppingtown to complete the building development and strata subdivision of Hills Shoppingtown in a timely manner (no more than 20 months) and to a proper standard and quality, and with all keys and other security devices handed over at settlement and with the benefit of any warranties in relation to the building works and the fit-out, and in strict compliance with this Deed and with the plans in Schedule A.

(b) The Executors shall cause Hills Shoppingtown to notify the Beneficiaries within 7 days, time being “of the essence”, of the registration of the strata plan and the registration of the Beneficiaries as registered proprietors of the units.

(c) The Executors shall on or before the date of this Deed procure the Hills Shoppingtown Undertaking as set out at Schedule B.

(d) The Parties acknowledge that the release provided by the Beneficiaries to the Executors in relation to Hills Shoppingtown, in accordance with the Deed of Settlement, shall be subject to Hills Shoppingtown complying with its obligations in accordance with the Hills Shoppingtown Undertaking and in accordance with this Deed.

(e) The Executors must procure the acquisition of the Units within 28 days of registration of the strata plan.

3.9 Security for the Obligations of the Executors

As security for the obligations of the Executors as set out herein:

(a) The Beneficiaries are at liberty to commence proceedings against the Executors for recovery of any losses or damages occasioned by any breach of this Deed.

(b) The Executors shall provide the Hills Shoppingtown undertaking as set out in Schedule B.

(c) If the Executors are in breach of any provision under this Deed, the Beneficiaries are required to issue a Notice, providing the Executors with no less than fourteen (14) days to remedy the breach.

21. Third was the Deed of Acknowledgement dated 1 August 2019 (CCB pp 786-791) which contained recitals as follows:

A. The Parties entered into the Deed of Agreement made on 21 October 2016 (“Agreement Deed”).

B. The Executors and Hills Shoppingtown acknowledged that they are in breach of the Agreement Deed.

C. The Parties have negotiated and the Beneficiaries have agreed to withhold enforcement of their rights pursuant to the Agreement Deed subject to the due performance of the Executors of the obligations contained in this Deed.

22. Relevantly, cl 2 of the Deed of Acknowledgement is set out below.

…

2. Extension of transfer dates

(a) The Executors and Hills Shoppingtown acknowledge that they are in breach of the Agreement Deed, including but not limited to clause 3.7(a) and clause 3.8(a) (Executor Breach).

(b) The Beneficiaries will not exercise their rights arising from the Executor Breach subject to the strict performance of each of the following terms:

(i) the Executors and Hills Shoppingtown will make the following payments to the Beneficiaries:

(1) $351,869.00 plus $48,800.25 (incurred by Carol on account of legal costs), totalling $400,669.25, to Carol, on the date of 1 August 2019;

(2) $175,934.50 to the trustees of the Georgia and Alana Trust, on trust for Alana Khattar, on the date of 1 August 2019;

(3) $175,934.50 to Georgia Khattar on the date of 1 August 2019;

(4) $12,566.75 to the trustees of the Georgia and Alana Trust, on trust for Alana Khattar, monthly, commencing on 1 August 2019, with each subsequent payment to be made on the first day of each month until the earlier of compliance with the obligations as amended with Clause 3.7(a) and Clause 3.8(a) of the Agreement Deed or [sic] 1 August 2020;

(5) $12,566.75 to Georgia Khattar, monthly, commencing on 1 August 2019, with each subsequent payment to be made on the first day of each month until the earlier of compliance with the obligations as amended with Clause 3.7(a) and Clause 3.8(a) of the Agreement Deed or [sic] 1 August 2020;

(6) $25,133.50 to Carol, monthly, commencing on 1 August 2019, with each subsequent payment to be made on the first day of each month until the earlier of compliance with the obligations as amended with Clause 3.7(a) and Clause 3.8(a) of the Agreement Deed or 1 August 2020; and

(7) compliance with all other obligations under the Agreement Deed, including clause 3.4(a) of the Agreement Deed as amended by clause 2(c) of this Deed.

Legal Principles

23. There are a number of legal principles at play which both the plaintiff and the defendant have invoked throughout the course of these proceedings. I have briefly set out the relevant principles below.

Construction

24. A commercial contract is to be construed by reference to the language used by the parties, the circumstances known to them and the commercial purpose or objects to be secured by the contract (Lepcanfin Pty Ltd v Lepfin Pty Ltd (2020) 102 NSWLR 627 at [80] per Bell P (Payne JA and McCallum JA agreeing) citing Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 (“Electricity Generation Corporation”) at [35] and Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104 at [47]). This is reflective of the objective approach to determining the rights and liabilities of parties to a contract involving “the meaning of the terms of a commercial contract [being] determined by what a reasonable businessperson would have understood those terms to mean” (Electricity Generation Corporation at [35]).

25. In de L’Isle v Knight [2021] NSWSC 809 (“de L’Isle v Knight”), Gleeson J discussed the principles governing the construction of commercial contracts as follows:

[74] …An objective approach is to be adopted in determining the rights and liabilities of parties to a contract. The contract is to be construed by what a reasonable businessperson would understand it to mean. That requires consideration of the language used by the parties, the surrounding circumstances known to them, and the commercial purpose or objects to be secured by the contract: Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 at [35]; see also Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 at [46]–[52]; Victoria v Tatts Group Ltd [2016] HCA 5; (2016) 90 ALJR 392 at [51]; Simic v New South Wales Land and Housing Corporation (2016) 260 CLR 85; [2016] HCA 47 at [18] and [78].

[75] Regard can be had to the surrounding circumstances objectively known to the parties: Codelfa at 352 (Mason J). However, care must be exercised in considering evidence of negotiations between the parties. Evidence of negotiations is inadmissible for the purpose of construction insofar as it is no more than evidence of what the individual parties were subjectively trying to do when they negotiated the language of their agreement. Negotiations may be considered only to the extent that they identify mutually known facts which form part of the background to the transaction: Codelfa at 354. As Heydon and Crennan JJ said in Byrnes v Kendle (2011) 243 CLR 253; [2011] HCA 26 at [98]:

… evidence of pre-contractual negotiations between the parties is inadmissible for the purpose of drawing inferences about what the contract meant unless it demonstrates knowledge of “surrounding circumstances”. (Citation omitted.)

26. Generally, the principles applicable to the construction of deeds do not differ from those applicable to the construction of simple contracts – see J D Heydon, Heydon on Contract (2019, Sydney, Thomson Reuters) at [8.70] citing Seddon v Senate (1810) 13 East 63; 104 ER 290 at 74 (East), 295 (ER) and Total Transport Corp v Arcadia Petroleum Ltd [1998] 1 Lloyd’s Rep 351 at 362.

Recitals

27. Traditionally, a different approach might be thought to exist for the interpretation of recitals in deeds as opposed to contracts which has been stated by Lord Esher MS in Ex parte Dawes; In re Moon (1886) 17 QBD 275 at 286:

If the recitals are clear and the operative part is ambiguous, the recitals govern the construction. If the recitals are ambiguous, and the operative part is clear, the operative part must prevail. If both the recitals and the operative part are clear, but they are inconsistent with each other, the operative part is to be preferred.

28. More recently, Gleeson J summarised the proper approach to recitals in de L’Isle v Knight, where his Honour noted:

[103]…is explained in Schwartz v Hadid [2013] NSWCA 89, where Meagher JA said at [80], referring to the analysis of Campbell JA in Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603; [2009] NSWCA 407 at [379]-[380]:

As Campbell JA observes in Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; 76 NSWLR 603 at [379]-[380], although there is a common and longstanding practice of including recitals in an agreement, those recitals can be of various kinds including "statements of the factual background to the transaction, statements of the intention or object of the parties in entering the transaction, or statements that the parties (or one or other of them) have agreed to do or will do certain acts". Because that is so and because the task of a court is to interpret the particular document in dispute, statements that recitals should always be treated in some particular way when construing an agreement must "be treated with caution, and as subject to the context in which they were uttered".

[104] Subsequently, in Lachlan v HP Mercantile Pty Ltd (2015) 89 NSWLR 198; [2015] NSWCA 130, the Court of Appeal (Bathurst CJ, Beazley P and McColl JA) said at [52]-[53]:

[52] A recital is part of a deed or agreement, usually set out as a statement or series of statements prior to the operative part of the deed or agreement. It can serve a variety of functions, including providing the factual background to the transaction and stating the parties’ intentions or object in entering into the transaction: Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; 76 NSWLR 603. In that case, Campbell JA, in a detailed review of the authorities, examined the manner in which recitals may be used for the purposes of the construction of the deed or agreement in which they appeared.

[53] As his Honour pointed out, at [380], although not part of the operative provisions of the deed or agreement, a recital may be used as an aid to construction. There is well-established authority that a recital can be used to construe a provision of a deed or agreement that is ambiguous. Relevantly for present purposes, his Honour further observed, at [380](4), that recent authorities supported the proposition:

[380(4)]…that recitals can provide a means of proving background facts that are themselves legitimate aids to construction. They can be at the least an admission by the party to the deed of the truth of the matter stated, under the general law concerning evidence. (Citations omitted.)

[105] If the language of a release is broader than indicated by a recital, then it should not be read down: Crossman v Sheahan [2016] NSWCA 200 at [235]-[236] (Ward JA, Payne JA agreeing); Chacmol Holdings Pty Ltd v Handberg [2005] FCAFC 40 at [91]-[92]; Karam v ANZ Banking Group Ltd [2001] NSWSC 709 at [406] (appeal allowed on other issues: Australia and New Zealand BankingGroup Ltd v Karam (2005) 64 NSWLR 149; [2005] NSWCA 344).

29. In Onesteel Manufacturing Pty Ltd v Bluescope Steel (AIS) Pty Ltd (2013) 85 NSWLR 1 at [63], Allsop P (with whom Macfarlan and Meagher JJ agreed) stated (original emphasis):

The recitals to the agreement set out those aspects of the background that give explanation to the transaction. There may be other background facts, but the recitals reveal the background chosen by the parties by way of the identification of relevant context. The recitals can assist in interpretation of operative provisions, though they do not control the latter’s operation when clear and unambiguous … ”.

Surrounding Circumstances

30. The question of whether prior negotiations can be used in construing a commercial contract has been considered in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 (‘Codelfa’), Cherry v Steele-Park (2017) 96 NSWLR 548 (‘Cherry v Steele-Park’) and Zoobury Pty Ltd v Cariste Pty Ltd [2022] NSWSC 18 (‘Zoobury’).

31. In Codelfa at 352, Mason J discussed the limitations of using evidence of prior communications to construe a commercial contract:

Obviously the prior negotiations will tend to establish objective background facts which were known to both parties and the subject matter of the contract. To the extent to which they have this tendency they are admissible. But in so far as they consist of statements and actions of the parties which are reflective of their actual intentions and expectations they are not receivable. The point is that such statements and actions reveal the terms of the contract which the parties intended or hoped to make. They are superseded by, and merged in, the contract itself. The object of the parol evidence rule is to exclude them, the prior oral agreement of the parties being inadmissible in aid of construction, though admissible in an action for rectification.

Consequently when the issue is which of two or more possible meanings is to be given to a contractual provision we look, not to the actual intentions, aspirations or expectations of the parties before or at the time of the contract, except in so far as they are expressed in the contract, but to the objective framework of facts within which the contract came into existence, and to the parties' presumed intention in this setting. We do not take into account the actual intentions of the parties and for the very good reason that an investigation of those matters would not only be time consuming but it would also be unrewarding as it would tend to give too much weight to these factors at the expense of the actual language of the written contract.

32. In Cherry v Steele-Park at 562 [60]-[65], Leeming JA discussed the principles in relation to using the evidence of surrounding circumstances in the process of construction, extracted below.

[60] In some cases (and only where it is relevant — see below) construction is legitimately assisted by evidence of surrounding circumstances. An example is the point made by Gleeson CJ in International Air Transport Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151; [2008] HCA 3 at [8]:

“[8] … This is a case in which the Court’s general understanding of background and purpose is supplemented by specific information as to the genesis of the transaction. The Agreement has a history; and that history is part of the context in which the contract takes its meaning.” (Footnote omitted)

[61] Counsel for the appellants pointed to decisions in this court in which this had occurred. One instance may be seen in Lahoud v Lahoud [2009] ANZ ConvR 9-032; [2009] NSWSC 623 at [446], where Ward J (as her Honour then was) applied what had been said by Beazley JA (as her Honour then was) in Boreland:

“[446] In Boreland, Beazley JA treated (at [72]) the fact of a known and communicated desire of one party as a relevant objective fact. Here, I think what emerges from the evidence of the conversation between Victor and Joseph Lahoud on the morning of 6 February 2001 is that the provision for an audit was included in the Terms of Settlement in circumstances where Joseph Lahoud had expressed disbelief as to the profit attributed by his brother to the Cammeray project. The relevant objective fact is that the parties were seeking a mechanism by which any doubts or concerns by the parties as to the profit could be independently resolved.”

[62] Essentially the same reasoning was applied in Angas Securities Ltd. Sackville AJA, with whom McColl JA agreed, said at [112] that:

“[112] … the correspondence between the parties evidencing the arrangement is an objective fact that formed part of the surrounding circumstances that can be taken into account in construing the Deed of Release.”

I made the same point at [16]–[21].

[63] The same distinction between the inadmissibility of one party’s uncommunicated belief and the legitimacy of using a letter of offer as an aid to the construction of a release later entered into was made by Sackville AJA (with the agreement of Beazley P and White JA) in Taouk v Assure (NSW) Pty Ltd [2017] NSWCA 227 at [106]:

“[106] The submissions made on Mr Taouk’s behalf at times seemed to suggest that the surrounding circumstances that can be taken into account include the negotiations between the parties preceding execution of the Variation Deed, even if the negotiations reveal only the parties’ subjective intentions. Clearly, however, it is only the objective circumstances known to both parties that can be considered in construing the Variation Deed.”

[64] In the present case, I regard the initial proposal in the email of 19 May 2014 as analogous with the evidence of the party’s communicated desire contained in an undisputed conversation in Boreland, with the evidence of the conversation explaining the reasons for the audit mechanism in Lahoud v Lahoud, and with the letter of offer in Angas Securities Ltd. I am also conscious that the subsequent emails, especially insofar as they reflect the negotiating positions of the parties, are less clearly within this area of admissible evidence of objective surrounding circumstances. However, neither party submitted, either at trial or on appeal, that the correspondence between the solicitors should be treated differentially. Because ultimately nothing turns on this point for the purposes of this appeal, I take the matter no further.

[65] It is true that this distinction, as repeatedly formulated in recent decisions of this court, might be thought to cut across two aspects of the objective surrounding circumstances which bear very different characters. On the one hand there is evidence as to the negotiating position of the parties; on the other there is evidence as to the objective background facts known to both of them. Lord Wilberforce drew the distinction in Prenn v Simonds [1971] 1 WLR 1381 at 1385:

“… evidence of negotiations … ought not to be received, and evidence should be restricted to evidence of the factual background known to the parties at or before the date of the contract, including evidence of the ‘genesis’ and objectively the ‘aim’ of the transaction.”

[66] This distinction was reviewed, but maintained, in Chartbrook Ltd v Persimmon Homes Ltd [2009] AC 1101; [2009] UKHL 38. But the resolution, at least in this country, is as stated by Mason J in Codelfa at 352:

“Obviously the prior negotiations will tend to establish objective background facts which were known to both parties and the subject matter of the contract. To the extent to which they have this tendency they are admissible. But in so far as they consist of statements and actions of the parties which are reflective of their actual intentions and expectations they are not receivable.”

That passage also well illustrates that although reference is made to “admissible” and “receivable”, what is meant is the use of such evidence.

33. In Zoobury at [120]-[122], extracted below, Parker J explains the relevance of identifying a specific construction issue that necessitates referring to evidence of prior negotiations.

[120] In support of this argument, counsel relied on the Court of Appeal decision in Cherry v Steele-Park (2017) 96 NSWLR 548. That case concerned the interpretation of a guarantee given by the directors of a company which was purchasing land. The guarantee was given as part of a variation agreement under which the time for completion was extended and the company was to make an additional payment on top of the purchase price under the original contract. The question was whether the guarantee covered the whole of the company’s obligations or only the obligation to make the additional payment.

[121] Correspondence between the parties in the course of negotiations suggested that the commercial purpose of the guarantee had been to secure the company’s obligation to make the additional payment; this had been the only obligation mentioned in the correspondence. Counsel for the director guarantors sought to rely on the correspondence to support their argument on construction. White JA considered that the correspondence was inadmissible on the construction issue. But Leeming JA, with whom Gleeson JA agreed, held that it was, although in the end that did not overcome the language of the agreement, which was held to extend to all of the company’s obligations.

[122] In Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337, Mason J referred to what he described as a “difficulty” with using evidence of prior negotiations to construe a commercial contract (at 352):

Obviously the prior negotiations will tend to establish objective background facts which were known to both parties and the subject matter of the contract. To the extent to which they have this tendency they are admissible. But in so far as they consist of statements and actions of the parties which are reflective of their actual intentions and expectations they are not receivable. The point is that such statements and actions reveal the terms of the contract which the parties intended or hoped to make. They are superseded by, and merged in, the contract itself. The object of the parol evidence rule is to exclude them, the prior oral agreement of the parties being inadmissible in aid of construction, though admissible in an action for rectification.

Consequently when the issue is which of two or more possible meanings is to be given to a contractual provision we look, not to the actual intentions, aspirations or expectations of the parties before or at the time of the contract, except in so far as they are expressed in the contract, but to the objective framework of facts within which the contract came into existence, and to the parties' presumed intention in this setting. We do not take into account the actual intentions of the parties and for the very good reason that an investigation of those matters would not only be time consuming but it would also be unrewarding as it would tend to give too much weight to these factors at the expense of the actual language of the written contract.

Analysis of Leeming JA’s judgment shows that his Honour did not intend to cast any doubt on the principles stated by Mason J in this passage. At [66] the judgment actually quoted the first three sentences of the passage. In his reasoning at [60]-[67] Leeming JA pointed out that, consistently with those principles, in some circumstances a communication between the parties can itself be admissible as part of the matrix of fact where it shows the “aim” or “genesis” of the transaction; his Honour considered that the communications in question fell into this class (or at least the initial proposal did, and there was no argument that subsequent communications should be treated differently).

There may be a question about how far the receipt of evidence of negotiations between the parties goes when it is said to be relevant because it discloses the “aim” or “genesis” of the ultimate contract. If the negotiations were oral, there may be a factual contest about what was said. Even where the negotiations were in writing, there may be an argument that it is necessary to refer to further matters of background, or earlier dealings between the parties, to put them into proper context. It might be thought that these are precisely the sort of collateral enquiries that the parol evidence was designed to exclude. But there was no need to consider this in Cherry (note, however, the comments at [67]). As will be seen, I have not found it necessary to do so in the present case either.

As Leeming JA pointed out in Cherry at [89]-[90], where a party seeks to have evidence admitted as part of the matrix of fact for the purposes of construction, that party ought to be able, readily and precisely, to identify how that evidence bears on the construction issue. It follows that it is critical to identify what the construction issue is.

Repudiation

34. In Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115 (“Koompahtoo”) the High Court referred to repudiation in the sense of a breach of contract justifying termination by the other party as “failure of performance” (at 136). It was clarified that there are two relevant circumstances in which breach of contract may justify termination, including the breach of an essential term (at 136) and a sufficiently serious breach of a non-essential term (at 138). The other type of repudiation was termed “renunciation”, the test for which is “whether the conduct of one party is such as to convey to a reasonable person, in the situation of the other party, renunciation either of the contract as a whole or of a fundamental obligation under it” (at 135).

35. In Shevill v The Builders Licensing Board (1982) 149 CLR 620 (“Shevill”) at 625-626 (references omitted), Gibbs CJ stated that:

…a contract may be repudiated if one party renounces his liabilities under it – if he evinces an intention no longer to be bound by the contract or shows that he intends to fulfil the contract only in a manner substantially inconsistent with his obligations and not in any other way…

36. Further, at 626, Gibbs CJ distinguished between the right to terminate for fundamental breach and the right to terminate for repudiation as elaborated on by Mahoney JA in Honner v Ashton [1980] ANZ ConvR 343:

In Honner v. Ashton, Mahoney J.A. said that he thought that the right to terminate for fundamental breach should be seen as, in principle, distinct from the right to terminate for repudiation. For present purposes, it is immaterial whether repudiation and fundamental breach are treated as separate categories, for in either case the innocent party can rescind the contract and recover damages to compensate him for the failure to perform the contractual obligations. Counsel for the respondent, in their alternative argument, sought to bring the case within this principle. A third situation in which a right to rescission arises is where there has been a breach of a fundamental or essential term of the contract.

37. In Satellite Estate Pty Ltd v Jaquet (1968) 71 SR (NSW) 126 (at 140) the Court commented on the test to determine whether repudiation (in the sense of renunciation) had occurred. The question is to ask whether it should be concluded that one party acted in such a way as to evince an intention not to carry out the contract. That intention may be inferred from conduct and it is a question of fact, the answering of which may involve consideration of the nature of the contract and all circumstances of the case (see also Dainford Ltd v Smith (1985) 155 CLR 342 at 366).

38. In Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623 (“Laurinda”) at 634, Mason CJ outlined the requisite intention for repudiation to arise:

There is a difference between evincing an intention to carry out a contract only if and when it suits the party to do so and evincing an intention to carry out a contract as and when it suits the party to do so. In the first case the party intends not to carry out the contract at all in the event that it does not suit him. In the second case the party intends to carry out the contract, but only to carry it out as and when it suits him. It is much easier to say of the first than of the second case that the party has evinced an intention no longer to be bound by the contract or to fulfil it only in a manner substantially inconsistent with his obligations and riot in any other way. But the outcome in the second case will depend upon its particular circumstances, including the terms of the contract. In some situations the intention to carry out the contract as and when it suits the party may be taken to such lengths that it amounts to an intention to fulfil the contract only in a manner substantially inconsistent with the party's obligations and not in any other way.

39. Further, at 658 of Laurinda, Deane and Dawson JJ highlighted that an objective approach must be taken:

An issue of repudiation turns upon objective acts and omissions and not upon uncommunicated intention. The question is what effect the lessor's conduct "would be reasonably calculated to have upon a reasonable person” (per Lord Herschell L.e., Carswell v. Collard; Forslind v. Bechely-Crundall). It suffices that, viewed objectively, the conduct of the relevant party has been such as to convey to a reasonable person, in the situation of the other party, repudiation or disavowal either of the contract as a whole or of a fundamental obligation under it.

40. In Galafassi v Kelly (2014) 87 NSWLR 119 at 136-137 [79]-[83], Gleeson JA (Bathurst CJ and Ward JA agreeing) explained the relevant principles as follows.

This is not to suggest that the innocent party may in all cases change his or her mind after affirming the contract. The position is correctly stated by Mr Sumption QC, as he then was, sitting as a deputy High Court judge in Safehaven Investments Inc v Springbok Ltd (1996) 71 P & CR 59 at 68, where he observed, in reference to the analysis in Johnson v Agnew:

“It does not follow from this analysis that the innocent party may in all cases change his mind after affirming the contract. If, for example, after he had affirmed it, the repudiating party’s conduct suggested that he proposed to perform after all, then that party’s previous repudiation is spent. It had no further legal significance. If, on the other hand, the repudiating party persists in his refusal to perform, the innocent party may later treat the contract as being at an end. The correct analysis in this case is not that the innocent party is terminating on account of the original repudiation and going back on his election to affirm. It is that he is treating the contract as being at an end on account of the continuing repudiation reflected in the other party’s behaviour after the affirmation.” (Emphasis added)

80 Similarly in Ogle v Comboyuro Investments Pty Ltd at 461 the High Court (Gibbs, Mason and Jacobs JJ) said:

“If a party has by his conduct shown and continues to show an intention never to complete the contract, especially where his conduct by express act or by implication is not consistent with an intention to perform the contract pursuant to any judgment for specific performance, then it must be open to a vendor to rescind even if there is current an action for specific performance. If there is a further breach of an essential term or some further conduct amounting to a repudiation while the action for specific performance is pending, the existence of the action will not then prevent the vendor electing to rescind but he will on such an election lose the right which he previously had to specific performance and will be limited to damages for the breach.” (Emphasis added)

81 In Holland v Wiltshire (1954) 90 CLR 409 a vendor had not accepted a repudiation of the contract conveyed by the purchasers’ solicitor and had insisted on performance by giving the purchasers notice of 17 March to complete by 28 March. At 420–421 Kitto J noted that after this clear election the right of the vendor to end the contract because of the repudiation conveyed by the purchasers’ solicitor was plainly gone, but went on to observe:

“[I]t is at least clear that the express refusal through the solicitor to go on with the matter, though the vendor lost by his election the right to terminate the contract by reason of it, remained as a fact in the history of the matter and gave an unmistakeable colour to the continued inactivity of the purchasers after receiving the vendor’s ultimatum. The only possible inference was that the purchasers were refusing, deliberately and finally, to complete the purchase. Consequently, when 28th March had gone by, the contract unquestionably stood repudiated by the purchasers, and the vendor, if his patience should become exhausted at any time while the repudiation continued, was entitled to treat the contract as no longer binding upon him … But, when the plaintiffs found that the defendants were inflexible, and would not perform the contract at all, they had, in my opinion, a right to treat it as at an end and to bring an action for its breach. It would indeed be strange if the plaintiffs by trying to persuade the defendants to perform their contract were to lose their right to sue for its non-performance when their patience was exhausted.” (Emphasis added)

82 This statement of Kitto J was approved in Ogle v Comboyuro Investments Pty Ltd at 458–459.

83 In summary, the legal significance of commencing proceedings for specific performance is as follows — a vendor who elects to sue for specific performance is not thereby precluded from later terminating the contract and claiming damages for the continued refusal by the purchaser to complete if the purchaser, after the institution of the proceedings, either committed a breach of an essential term of the contract or otherwise evinced an intention to no longer be bound by the contract: see generally RP Meagher, JD Heydon and MJ Leeming, Meagher, Gummow and Lehane’s Equity: Doctrines and Remedies (4th ed, 2002, Butterworths) at [20–265].

84 It follows in the present case that whilst the institution of proceedings for specific performance on 20 January 2012 may be taken as an affirmation of the Contract by the Vendor, the effect of the findings of the primary judge in relation to the Purchasers’ conduct after the institution of proceedings was such that the Vendor was entitled to accept the Purchasers’ continuing repudiatory conduct and terminate the Contract as she did on 24 April 2012.

Election

41. When a party seeks specific performance of a contract, this may be seen as that party making a choice to not accept the other party’s repudiatory breach and, consequently, to not terminate the contract (Galafassi at [73]). However, “at the heart of election is the idea of confrontation which in turn produces the necessity of making a choice” (Gleeson JA in Galafassi at [74] citing Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) (1993) 182 CLR 26 at 42. Where a party makes a choice to terminate a contract, then that conduct leaves no doubt to the choice being made and the course being taken. However, a party acting on the basis that the contract remains on foot can do so “without necessarily being confronted with the necessity of making a choice to either terminate or affirm the contract” (Gleeson JA in Galafassi at [74] citing Immer at 42-43). In Galafassi at [75], Gleeson JA explains that “[t]he institution of proceedings for alternative remedies (including relief of an equitable nature) is not an election by the promisee in favour of either remedy. The very purpose of seeking alternative relief is to keep the promisee’s options open: see J W Carter, Carter’s Breach of Contract (2011, Sydney, LexisNexis Butterworths) at [10–58].” In other words, entertaining the possibility that the contractual promises can still be enforced does not preclude the promisee from nevertheless rescinding the contract and recovering damages for the promisor’s failure to perform their contractual obligations.

Damages

42. Loss of bargain damages are intended to put the promisee in the same situation as they would have been had the promise been performed, see Clark v Macourt (2013) 253 CLR 1 at [106]-[110].

43. If the promise is not a promise to receive a benefit, but to receive the chance of a benefit, then a promisee can sue to be compensated for the “loss of a commercial chance or opportunity” recoverable “when the contract as a whole … is such as to promise an opportunity or chance to obtain a benefit and, in other cases, where the loss of a business of commercial opportunity is the consequence of a breach of contract and the loss of opportunity or chance falls within the rules of remoteness in contract” (Silverbrook Research Pty Ltd v Lindley [2010] NSWCA 357 per Allsop P at [2] with Beazley JA agreeing).

44. Damages for breach of contract should be assessed as at the date of breach according to the “ruling principle” in Clark v Macourt (2013) 253 CLR 1 at [109] set out by Keane J with whom Hayne, Crennan and Bell JJ agreed:

The value to be paid in accordance with the ruling principle is assessed at the date of breach of contract, not as a matter of discretion, but as an integral aspect of the principle, which is concerned to give the purchaser the economic value of the performance of the contract at the time that performance was promised.

Submissions

Plaintiffs’ Submissions

45. The plaintiff made both oral and written submissions before the Court. The written submissions were set out primarily in documents titled ‘Plaintiffs’ Written Outline of Opening Submissions’ dated 26 January 2021 (Plaintiffs’ Opening Submissions), ‘Plaintiffs’ Written Closing Submissions’ dated 3 February 2022 (Plaintiffs’ Closing Submissions) and, finally, ‘Plaintiffs’ Supplementary Note on Stamp Duty’ dated 21 February 2022 (Plaintiffs’ Stamp Duty Submissions).

46. The plaintiffs summarised their claim as follows (Plaintiffs’ Opening Submissions, [18]).

The plaintiffs’ claim is straightforward. They sue to recover damages for the loss of the bargain struck under the Deed of Agreement. If the Deed of Agreement had been performed they would have been beneficially entitled to the Promised Units or the Replacement Units (or, at the very least, had control of those units through their complete control of GK3). That was a valuable right conferred on the plaintiffs under the deed. Under the terms of the Deed of Agreement, the Promised Units have an agreed value, which the defendants are bound by contract to adhere to, or alternatively are estopped from disputing, of $15,346,498.42.

47. Joseph, the third defendant, elected not to read his affidavit and Maria, the second defendant, elected not to read the affidavit of her husband Mr Sam Fayad, also the cross-defendant, which she had filed and served. Therefore, in determining the issues, the plaintiffs submitted that the Court should proceed in accordance with Jones v Dunkel (1959) 101 CLR 298 on the basis that the evidence of Joseph would not have assisted his own case and that the evidence of Sam would not have assisted Maria’s case (Plaintiffs’ Closing Submissions, [9]).

Construction

48. The plaintiffs submitted that when construing the Deed of Agreement and Deed of Acknowledgement the Court should consider the factual background in the matter. In particular, the plaintiffs submitted that the Court should be able to take into consideration the Recitals to the Deed of Agreement and the initial Summary of Agreement. Further, the plaintiffs submitted that the Court is entitled to take into consideration the fact that the Deed of Agreement arose out of a compromise of personal claims made by the plaintiffs against Maria and Joseph and was approved by Lindsay J of this Court as being in the best interests of Georgia and Alana, the second and third plaintiffs.

49. The plaintiffs submitted that the factual background was not essential to construing the Deed of Agreement which they contended is clear (Plaintiffs’ Closing Submissions, [10]-[11]). The plaintiffs submitted that this factual background is however useful to identifying the failure of the defendants to transfer the Units to GK3 as the plaintiffs’ loss, as the promise was made in the context of the settlement of the Probate Proceedings, as discussed further below regarding the plaintiffs’ submissions on loss and damages.

Breach of the Deed

50. The plaintiffs submitted that the second and third defendants (Maria and Joseph) breached the Deed of Agreement by failing to fulfil their obligations under cl 3.8(a) by failing to cause the first defendant to complete the Development and register the strata plan. The plaintiffs submitted that Maria and Joseph acknowledged these breaches in cl 2(a) of the Deed of Acknowledgement (CCB p 787).

51. The plaintiffs submitted that the second and third defendants breached their obligation under clause 3.8(e) of the Deed of Agreement to procure the acquisition by GK3 as trustee for the GK3 Trust of unencumbered interests in the 20 units in the Development within 28 days of registration of the strata plan. The plaintiffs also submitted that the second and third defendants failed to provide replacement units under clause 3.7(a) of the Deed of Agreement. The plaintiffs submitted that the above-mentioned breaches are not genuinely in issue as these obligations were never fulfilled (Plaintiffs’ Closing Submissions, [4]). To the extent that these obligations could not be fulfilled because the second and third defendants lacked the relevant authority or control over the Development, the plaintiffs submitted that the inability to perform at the time of performance is a breach of contract and the evincing an inability to perform prior to the time for performance constitutes repudiation, citing Foran v Wight (1989) 168 CLR 385 at 423-424 (Plaintiffs’ Closing Submissions, [4]).

52. The plaintiffs submitted that on 15 July 2021 the plaintiffs treated the above breaches as repudiatory, accepted the repudiation and elected to terminate the Deed of Agreement and sued for damages for loss of bargain. Furthermore, the plaintiffs submitted that the defendants “are proceeding on the misapprehension that they are absolved from any breach if they can show that they were “unable” in all the circumstances to fulfil their contractual obligations and/or if their breaches or [sic] outside their control” (Plaintiffs’ Opening Submissions, [2]).

53. The plaintiffs rejected the contention that they were genuinely offered replacement units in satisfaction of cl 3.7 by Mr Sam Fayad or the other defendants (T 192/40-47). In oral submissions, the plaintiffs pointed to documentary evidence in which the plaintiffs requested cash in lieu for the value of the undelivered Units or replacement units which the Executors were able to offer them per cl 3.7(c) (T 193/45 – 194/46).

54. The plaintiffs submitted that there was a repudiation by the defendants of the Deed of Agreement. The plaintiffs submitted that the decision to “initially seek alternative remedies of damages and specific performance does not necessarily constitute a binding election to affirm the contract”, citing Ailakis v Olivero (No 2) [2014] WASCA 127 at [178]-[186] (Plaintiffs’ Opening Submissions, [23]). The plaintiffs submitted they did not subsequently elect to affirm the Deed of Agreement by pursuing a claim for specific performance, but rather submitted that their claim was the “institution of proceedings for alternative and inconsistent remedies”, which is not an election citing Galafassi at [75] (Plaintiffs’ Closing Submissions, [24]). The plaintiffs also submitted that even if the claim for specific performance constitutes an election, the repudiation was continuing in that Joseph and Maria continued in their non-performance of the Deed of Agreement, which was subsequent repudiation, citing Galafassi at [79]-[83]. The plaintiff submitted that it is irrelevant that Maria and Joseph “may have retained a subjective desire to perform their obligations (although Joseph in fact gave no evidence to that effect) despite their inability to do so because… inability is not an excuse but rather an indicium of anticipatory breach and repudiation” (Plaintiffs’ Closing Submissions, [27]).

50. Furthermore, the plaintiffs submitted that the admission in cl 2(a) of the Deed of Acknowledgment by Maria and Joseph that they were in breach of cl 3.8(a) of the Deed of Agreement is an admission that is the subject of estoppel by deed, citing Ramsey Food Processing Pty Ltd v Tomlinson [2014] NSWCA 237 at [101] in which Emmett JA (with whom Meagher and Ward JJA agreed) stated that:

Estoppel by deed is a rule of evidence founded on the principle that a solemn and unambiguous statement or engagement in a deed must be taken as binding as between parties to the deed and their privies. A party to a deed, and the privies to that party, will be estopped from adducing evidence to contradict a statement contained in that deed.

56. The plaintiffs submitted that although that case was subject to a successful High Court appeal, no issue was raised before the High Court about the scope of estoppel by deed. The plaintiffs further cited Auzcare Pty Ltd v Idameneo (No 123) Pty Ltd (2015) 91 NSWLR 581 at [8(a)] and [20]. See the Plaintiffs’ Closing Submissions at [3(a)].

Loss and Damages

57. The plaintiffs submitted that they have personally suffered loss by reason of the defendants’ failure to transfer the Units and have standing to sue for damages. The plaintiffs point to the fact that the Deed of Agreement was entered into as a way of providing to the plaintiffs a “substantial part of their inheritance” and the covenants were therefore for their benefit as opposed to GK3’s (Plaintiffs’ Opening Submissions, [20]). Further, the express preservation of the Beneficiaries (being the plaintiffs, not GK3) right to sue under the Deed of Agreement in clause 3.9(a) provides further evidence that the plaintiffs are entitled to sue for breach of the Deed of Agreement and to recover any damages flowing from that breach citing Wollongong Coal Ltd v Gujarat NRE India Pty Ltd (2019) 100 NSWLR 432 at [69]-[70].

58. Further, the plaintiffs submitted that the plaintiffs would have had, if the Deed of Agreement were fully performed, practical control over GK3, the GK3 trust and the Units (or any replacement units), citing Australian Conservation Services Pty Ltd v Liladel Holdings Pty Ltd (2017) 12 ACTLR 124 at [22] (Mossop J) and Baba v Sheehan (2021) 151 ACSR 452; [2021] NSWCA 58 at [9]-[17] (Brereton JA) (Plaintiffs’ Opening Submissions, [21], and Plaintiffs’ Closing Submissions, [6(a)]). Citing the decision of Jagot J in Pioneer Mortgage Services Pty Ltd v Columbus Capital Pty Ltd [2015] FCA 1067, the plaintiffs submitted that “whilst legal title in the transferred units would pass to GK3 as Trustee, that would be in circumstances in which the Plaintiffs would also obtain complete control of the GK3 Trust and could therefore, following such transfer, deploy the units in whatever way they wished” (Plaintiffs’ Closing Submissions, [33]). They also rejected the contention that GK3 should be a party, arguing that the relief sought does not affect the legal rights and interests of GK3 because the plaintiffs sue for their own loss.

59. Throughout these proceedings, parties made various submissions about what Carol would have done had the second and third defendants fulfilled their obligations, namely whether she would have really transferred the units into the GK3 Trust and whether she would have distributed the units to herself and her daughters, given the potential stamp duty implications. The plaintiffs submitted that Carol’s evidence that she would have been willing to do whatever was necessary to ensure that her daughters were provided for financially, along with her accountant Mr Jason Malkoun’s evidence, was “objectively probable” (Plaintiffs’ Closing Submissions, [51]). Regardless of whether stamp duty was $550,000 as the plaintiffs submitted or whether it was $1,000,000, the relative price was only 3.7% or 6.7% of the total asset value which would have been a prudent financial decision to ensure the assets were protected (given the financial liabilities of GK3 and related entities including Hills Shoppingtown).

60. The plaintiffs submitted that they should receive damages for loss of bargain, as opposed to loss of chance or opportunity. The plaintiffs submitted that they were promised control of the GK3 Trust including its interest in the units which were to be transferred, not the chance of control (Plaintiffs’ Closing Submissions, [56]).

61. Given the plaintiffs were suing for the loss of their bargain, they submitted the damages should be assessed as “the economic value of the performance of the contract at the time that performance was promised” (Clark v Macourt (2013) 253 CLR 1 at [109]), which they say was by July 2018 at the latest. The plaintiffs submitted that what Carol would or should or could have done immediately following having entire control of GK3 Trust in July 2018 is not relevant to the assessment of damages. In their view, the value of the contract to the plaintiffs was the agreed value in cl 3.5 of the Deed of Agreement of $15,346,498.42.

62. Furthermore, on the question of whether the Executors are somehow indemnified against the assets of the estate, the plaintiffs submitted that the Deed of Agreement clearly contemplates personal liability, citing Super 1000 Pty Ltd and Others v Pacific General Securities Ltd and Others [2008] NSWSC 1222 (T 144/3-46).

Stamp Duty

63. The plaintiffs filed a supplementary note relating to the stamp duty issues dated 21 February 2022 referred to above (Plaintiffs’ Stamp Duty Submissions) in which they responded to the defendants’ submissions that Carol suffered no personal loss because she would not have as a matter of practicality transferred the units out of GK3 Trust because that transfer would have attracted stamp duty which the third defendant estimates to be $1,051,670.00.

64. The plaintiffs submitted that their primary position is that the amount of stamp duty is ultimately irrelevant. The plaintiffs argued that they suffered loss immediately upon the second and third defendants’ failure to transfer the units to the GK3 Trust over which the plaintiffs were to have complete control under the agreement (Plaintiffs’ Stamp Duty Submissions, [3]).

65. The plaintiffs further submitted, even if the question of stamp duty was relevant, the Court has insufficient evidence before it to make a proper assessment of the amount of stamp duty applicable – such as to consider whether it would be exempt (s 57) or discounted (s 25(1)) respectively of the Duties Act 1997 (NSW).

Second Defendant’s Submissions

66. The second defendant made oral submissions at the hearing and written submissions in three documents the first dated 28 January 2022 (Second Defendant’s Opening Submissions) and then in submissions dated 7 February 2022 (Second Defendant’s Closing Submissions) and submissions dated 10 February 2022 (Second Defendant’s Further Closing Submissions).

67. The second defendant submitted that the plaintiffs’ claim against Maria cannot succeed as Maria has not breached the Deed of Agreement and, even if the plaintiffs succeed in establishing that denied breach, the plaintiffs have not suffered any loss or damage in respect of which Maria is liable (see the conclusion of the Second Defendant’s Opening Submissions, [38]-[40]).

Construction

68. The second defendant argued that the court should have particular regard to principles of construction that:

1. The Court cannot rely upon context and purpose to give words a meaning which they cannot bear, citing Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603 at [108]-[109] (Second Defendant’s Opening Submissions, [17(c)]).

2. The Court is not justified in disregarding unambiguous language simply because the contract may have a superior commercial and businesslike operation that an interpretation which is different to that dictated by the language, citing Jireh International Pty Ltd t/as Gloria Jean’s Coffeee v Western Exports Services Inc [2011] NSWCA 137 per Macfarlan JA at [55]-[56] (Second Defendant’s Opening Submissions, [17(d)]).

3. If words are unambiguous, the Court must give effect to them, citing Gibbs J in Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at [109] and Edelman J in SAS Trustee Corporation v Miles [2018] HCA 55 at [64] (Second Defendant’s Opening Submissions, [17(e)]).

69. The second defendant submitted that her obligation (alongside the third defendant’s) in relation to the transfer of the Units was to “facilitate GK3 acquiring an unencumbered interest in the Units” under cl 3.4(a) of the Deed of Agreement. The second defendant submitted that this obligation should be construed as an obligation “to help or make easier the process of GK3 acquiring such an interest. The obligation is not to ensure or guarantee the transfer of that interest. The use of the clear unambiguous language of the infinitive use of the verb “facilitate” must be given effect in the interpretation of the obligation imposed upon the Executors” (Second Defendant’s Opening Submissions, [20]).

70. The second defendant submitted that, by contrast, the language used in clause 3.7(a) in relation to the obligation to provide replacement units of “shall cause” indicated that the obligation should be interpreted as requiring the executors to ensure that the acquisition of replacement units takes place (rather than merely help with or make easier that process) (Second Defendant’s Opening Submissions, [21]).

Breach

71. The second defendant, Maria Fayad, claimed that she had not breached her obligation to facilitate GK3 acquiring an unencumbered interest in the Units as Maria “was not a director of Hills Shoppingtown at the relevant times and therefore had no control over the affairs of Hills Shoppingtown” so, consequentially “[s]he could not, as a matter of practicality or otherwise, compel Hills Shoppingtown to transfer the Units to GK3, nor does the Deed of Agreement compel her to cause Hills Shoppingtown to transfer the Units to GK3” (Second Defendant’s Opening Submissions, [4](a)(i)).

72. Further, as described above, the second defendant submitted that the obligation to facilitate the acquisition was to be construed as merely as obligation to “help or make easier”, rather than a mandatory obligation to cause the acquisition. Therefore, the second defendant submitted that they had no obligation to cause the transfer of the Units to GK3, that they did not fail to facilitate the process and that no pleaded lack of facilitation was asserted by the plaintiffs (Second Defendant’s Opening Submissions, [23]).

73. Secondly, the second defendant submitted that the plaintiffs were offered alternative units and rejected that offer in May or June 2020, according to the Affidavit of Sam Fayad dated 17 November 2021 at [45]-[54]. Therefore, the second defendant contended that the obligation to provide replacement units was not breached.

Loss and Damages

74. The second defendant further asserted that regardless of whether she did breach her obligations in relation to the acquisition by GK3 of the Units, any damages claim by the plaintiffs “ignores the fact that the GK3 Trust has significant liabilities to third parties that would have to be discharged prior to any distribution to the plaintiffs so that there would be no property to distribute to the plaintiffs” (Second Defendant’s Opening Submissions, [4](a)(ii)). The second defendant highlighted that GK3 had significant liabilities prior to the Deed of Agreement and that the Deed of Agreement contains no obligation “on the Executors or any other person with respect to the net asset position of GK3” (Second Defendant’s Opening Submissions, [4](a)(ii)).

75. The second defendant asserted that the plaintiffs contributed to their own loss by appointing the first plaintiff Carol and her accountant Jason Malkoun as directors of GK3 and had Sam Fayad temporarily removed which resulted in GK3 to materially breach a facility agreement with a funder of the Development carried out by Hills Shoppingtown which, she submitted, “ultimately resulted in and / or contributed to the appointment of a receiver by the funder over GK3” which “prevented Hills Shoppingtown from being able to transfer the Units to GK3”: (Second Defendant’s Opening Submissions, [6](c)). The second defendant therefore submitted that the plaintiffs have by reason of the conduct of the first plaintiff and Mr Malkoun brought about the failure of GK3 to acquire the Units which is the clause of their claimed loss, citing Alexander v Cambridge Credit Corporation Ltd (1987) 9 NSWLR 310.

76. The second defendant submitted that the loss suffered by the plaintiffs was caused by their own conduct by preventing Hills Shoppingtown from being capable of transferring the Units to GK3 and by rejecting the offer of alternative units from Sam Fayad.

77. The second defendant submitted that even if the Executors had breached the Deed of Agreement, the plaintiffs have suffered no loss themselves as the units were to be transferred to GK3 (Second Defendant’s Opening Submissions, [8]). The second defendant submitted that the plaintiffs’ claim must be limited to a claim for loss of opportunity (Second Defendant’s Opening Submissions, [30]), referring to Sellars v Adelaide Petroleum (1994) 179 CLR 332, Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 and Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494 (see the Second Defendant’s Opening Submissions, [31]-[35]). The second defendant submitted that the plaintiffs lost no opportunity or, alternatively, no opportunity of value (Second Defendant’s Opening Submissions, [36]).

78. The second defendant submitted that the plaintiffs’ claim for damages must be limited to the value of their rights in relation to the GK3 Trust, as that value represents the economic value of the performance of the contract at the time it was promised. The second defendant submitted that, because the GK3 Trust was a non-exhaustive discretionary trust, then the plaintiffs had no proprietary legal or equitable interest in the trust fund, citing the decision of Hallen J in Wright v Stevens [2018] NSWSC 548 at [210], the decision of French J (as his Honour then was) in ASIC v Carey (No 6) (2006) 153 FCR 509 at [21], [26]-[30], and the decision of Brereton J (as his Honour then was) in Cypjayne Pty Ltd v Sverre Rodskog [2009] NSWSC 301. The second defendant further submitted that the beneficiaries did not have a proprietary legal or equitable interest in the trust fund, though they have a right to due administration of the trust, citing Re Smith [1928] Ch 915; Gartside v IRC [1968] AC 553; Jacob’s Law of Trusts in Australia, 5th ed, 649 [2315]) (Second Defendant’s Further Closing Submissions, [12]). The economic value to the plaintiffs as beneficiaries of the GK3 Trust was said by the second defendant to be nil (Second Defendant’s Further Closing Submissions, [13] and at T 151/42-152/30).

79. The second defendant made various submissions regarding the economic value of the plaintiffs’ eventual control of the GK3 Trust contemplated by the agreements. The second defendant submitted that at the date of breach, because the parties had not completed all their obligations pursuant to the Deed of Agreement including the registration of the strata plan and the transfer of units, then GK3 (which at the time had Sam Fayad as the sole director) could not be removed as trustee of the GK3 Trust pursuant to clause 3.2(c)(i). The second defendant submitted that, therefore, the plaintiffs had no direct or indirect control of the trustee of the GK3 Trust then all they had was “a right to due consideration and to due administration of the trust but it is difficult to value those rights when the beneficiary has no present entitlement and may never have any entitlement to any part of the income or capital of the trust” (quoting French CJ in Kennon v Spry (2008) 238 CLR 366 at [77]-[78]).

Third Defendant’s Submissions

80. The third defendant Joseph Khattar made oral submissions at the hearing and written submissions in a document titled ‘Submissions of the third defendant’ dated 28 January 2022 (Third Defendant’s Opening Submissions) and a further document dated 7 February 2022 (Third Defendant’s Closing Submissions) and another document dated 2 March 2022 (Third Defendant’s Further Closing Submissions).

Construction

81. The third defendant submitted at [3] of the Third Defendant’s Opening Submissions that the fact that GK3 is not a party to the Deed of Agreement is “fatal” to the success of the plaintiffs’ case in seeking to enforce an agreement to have the Units transferred to GK3. The third defendant submitted that the rights arising out of the Deed of Agreement belong to GK3 and can only be enforced by GK3, who cannot enforce them as they are not a party (Third Defendant’s Opening Submissions, [39]-[42]).

82. The third defendant submitted that neither the Deed of Agreement nor the Deed of Acknowledgment should be construed by reference to the Summary of Agreement (Third Defendant’s Opening Submissions, [15]). The third defendant argued that the express acknowledgement was an agreement in principle, there is no unqualified acceptance of the terms, citing, as an example, First Church of Christ, Scientist, Brisbane as Trustee Under Instrument 702027154 v Ormlie Trading Pty Ltd [2003] QSC 351, [28] and quoting Oracle New Zealand v Price Waterhouse Administration [1996] ANZ Conv Rep 295 at 297, where Mackay J reasoned “[t]o regard an agreement in principle as binding would be to deprive the qualifying words “in principle” of any meaning at all” (Third Defendant’s Opening Submissions, [12]). Further, the third defendant highlighted that the Deed of Agreement itself stipulates that all pre-contractual negotiations would be superseded and excluded by the Deed (cl 7.7) and that the Deed contains the entire agreement (cl 7.12).

Breach of the Deed

83. The third defendant submitted that the word “facilitate” in cl 3.4(a) meant to “render easier the performance of an action or the attainment of a result” which was satisfied by the Executors procuring an undertaking form Hills Shoppingtown (Third Defendant’s Opening Submissions, [16]-[18]). In light of the context of 3.4(a), the second defendant submitted that cl 3.8(a) and cl 3.4(a) should be construed to mean in their context that the Executors were required “to merely use reasonable endeavours to bring about the completion of the development” (Third Defendant’s Opening Submissions, [27]).

84. The third defendant submitted that clause 3.7(a) is void for uncertainty because it refers to “other properties owned by related Corporations (as that term is defined in the Corporations Act)” (Third Defendant’s Opening Submissions, [29]). However, that term is not in fact defined in the Corporations Act2001 (Cth) and, therefore, the third defendant submitted that “no sensible construction can be placed on it, with the result that the clause is void for uncertainty” (Third Defendant’s Opening Submissions, [30]). In any case, the third defendant submitted that even if replacement units were provided under cl 3.7(a), Carol rejected Sam Fayad’s offer to take other units elsewhere (Third Defendant’s Opening Submissions, [32]).

Estoppel by Deed

85. At [33]-[38] of the Third Defendant’s Opening Submissions, the third defendant argued that they are not estopped from denying any breach of the Deed of Agreement having regard to the concessions made in the Deed of Acknowledgement. Specifically, the third defendant submitted:

1. Alana, the third plaintiff, is not a party to the Deed of Acknowledgement.

2. There can be no claim for estoppel against the Executors because the term “related Corporations” in clause 3.7(a) prevented the clause from being clear enough to give rise to an estoppel, citing Onward Building Society v Smithson [1893] 1 Ch 1, 14; Greer v Kettle [1938] AC 156, 170-171 and Neuberger J in PW & Co v Milton Gate Investment Ltd [2004] 1 Ch 142; [2003] EWHC 1994 (Ch).

101. It seems to me that although cl 3.7 contemplates a possibility that, notwithstanding the express obligations undertaken by the Executors under cl 3.8, the Units in the Hills Shoppingtown or all of the twenty may not be available there is in my view an express obligation on the part of the Executors to make up the difference somehow some way. That is in my view the obvious intention of the “Parties”. Schedule B to this agreement is a rather strange document. For a $1 consideration Hills Shoppingtown undertook in effect to undertake the building work and acquisition of the Units by GK3.

102. The mandatory obligations in cl 3.8 relate to the building work, registration of the strata plan, “procuring” the undertaking proffered in Schedule B by Hills Shoppingtown and the acquisition of the Units within 28 days of the registration of the strata plan.

103. Clause 3.8(d) is however a somewhat strange provision. It states that the release provided by the Beneficiaries under the Deed of Settlement to the Hills Shoppingtown in that document is contingent on Hills Shoppingtown complying with its undertaking in Schedule B to the Deed of Agreement. But cl 9.2 of the Deed of Settlement (the release provision) says nothing of the Deed of Settlement of the undertaking in Schedule B to the deed.

104. Again in cl 3.9 of the Deed of Agreement the Beneficiaries are given the right to sue for any breach of the deed.

105. The obligation to “facilitate” or to “cause” certain things to happen together with the requisite releases assumes positive obligations on the part of the Executors in return for a settlement of the Probate Proceedings and any claim the Beneficiaries may have.

106. It is common ground that there was a continued failure to pay the agreed monies and as a result a Deed of Acknowledgment was entered into between the parties in July 2019.

107. This deed acknowledged a breach on the part of the parties of the “Agreement Deed” so called which was clearly intended to be a reference the Deed of Agreement, (see recitals A and B).

108. Importantly in cl 1.3 there is an acknowledgment that the second and third defendants here were to be liable not just as trustees but also in their personal capacity.

109. In particular there is an admission that the parties, which included Hills Shoppingtown were in breach of cls 3.7(a) (Replacement Units) and 3.8(a) (completion of the building development and subdivision in a in a timely manner) but without any limitation to what may otherwise amount to breaches.

110. This deed also provided for a revised payment schedule (cl 2(b)(i)) and other matters in return for which the Beneficiaries would not exercise their rights arising from any breaches. The deed also gave further time for the defendants to meet their respective obligations.

111. In sum total although not without some level of ambiguity the original deeds were obviously meant to be read together. That is partly due to the fact that they both settled aspects of the same dispute although the definition of dispute differs between the two deeds but in my view not in any material way.

112. The Deed of Settlement does not of course deal with the Units only with the payment of certain amounts (including legal costs) and the transfer of property. Part of the bargain also involved the change of control of GK3.

113. The Deed of Agreement, on the other hand with the addition of Hills Shoppingtown as a party, deals with the transfer of Units as agreed and as specified in schedule A which along with cl 3.5 fixes the agreed value of the units at $15,346,498.42.

114. But if those Units were not available in part or in whole within the time specified then Executors were obliged to “cause” to be made available to the Beneficiaries which they could in their absolute discretion chose for the purposes of transfer to GK3.

115. Apart from the different subject matter there is no particular reason why there needed to be two deeds. That said I am of the view that construed as a whole the two deeds give rise to promises personally by each of the Executors to pay the amounts specified in each agreement. More particularly it cannot be correct in my view that if for whatever reason units could not in part or in whole be made available in discharge of the agreed value then the Executors would not personally be liable for a debt for the amount outstanding. Quite specifically it was recognised by the parties that the Beneficiaries would have available to them an action in damages if there was a breach of the deed, the most obvious of which would be a failure to effect by whatever means the transfer of the units valued at the agreed value of the shortfall, (cl 3.9, therein described as losses or damages). It is to be noted that a similar provision is to be found in the Deed of Settlement at cl 4.3(a). And in both cases it is said that any such action is to be against the Executors. The Deed of Acknowledgement makes abundantly clear in my view that if the payment of any monies as agreed or the units have not been transferred then the whole of the amounts set out in cl 2(b)(i) become payable. In my view the better view of that clause is that in context it preserves the right to claim damages which apart from the specific amounts identified in that subclause it expressly preserves the right to sue for “losses or damages” accruing because the Executors have failed to effect the transfer of all or some of the units.

116. One phrase that does not find its way into any of the clauses and it could have been if that was the level of obligation, is the term “reasonable endeavours”. For example the Probate Proceedings was not to be settled only if the Executors did their best to effect a transfer of the units and failed. This is not a case about the doctrine of frustration and there is nothing logically in my view to distinguish the Executors’ obligation to pay the sums specified or pay as damages of loss the shortfall in the agreed value of the untransferred and or unacquired units.

117. The whole point in fixing the agreed value of the units in cl 3.5 of the Deed of Agreement is in part at least so the parties could easily calculate the shortfall if that were necessary.

118. In addition the Probate Proceedings were settled and dismissed and the settlement approved on the basis that an amount of around $20m was to be paid. In other words the settlement was on the basis of the payment in total of $20m and the mechanism in part was that a substantial proportion of the settlement monies was to made up by 20 units amounting to around $15m. The Executors have had the benefit prior to final payment of having the litigation dismissed.

119. The defendants failed also to comply with cl 3.7(a) of the Deed of Agreement. The plaintiffs have never had offered to them any “Replacement Units” in accordance with this clause.

120. The evidence supports the conclusion that Sam, it seems on behalf of the defendants did discuss the possibility of acquiring Replacement Units in a complex in Merrylands but although Carol expressed interest Sam never provided any details and none were ever offered. In any event their breach of cl 3.7(a) was admitted in the Deed of Acknowledgment in cl 2(a).

121. The second defendant has said in her affidavit of 17 November 202 that for example that she was not a director of Hills Shoppingtown and hence there was no breach and that she could not accelerate the construction. That evidence is in my view simply irrelevant. She signed the Deeds on the basis she well understood her obligations and she has simply not performed them as promised. Her conduct is clearly repudiatory.

122. On 15 July 2021 as they were entitled the plaintiffs accepted the breaches discussed above as repudiatory and elected to terminate the Deed of Agreement.

123. An issue arose at trial as to whether Carol would have brought about a transfer of the Units from the GK3 Trust to herself and her children. To some extent I regard that as a red herring for reasons which follow.

124. First, Carol with the support of her accountant Jason Malkoun have had since 2016 complete control of GK3 as they have since that time been the sole Appointors in respect of the GK3 Trust. In that year they entered a Deed of Retirement and Appointment with the first and second defendant. As a result those defendants retired as Appointors. After that Carol and the accountant had the power at all times to remove the Trustee and appoint any Trustee. Carol and the accountant between them owned 100% of the shares in GK3 and controlled the Board of Directors.

125. Although Sam is still a director of GK3 he is obliged to retire as a director within 7 days of the acquisition of Units by GK3 (cl 3(a)(i) of the Deed of Agreement) and would if there had not been breaches by the defendants, retired by July 2018. I accept the evidence given by Mr Malkoun that he would have had it been necessary used his role as Appointor to remove GK3 as the Trustee of the GK3 Trust and replace it with a Trustee of Carol’s choosing. In my view the assets and income of the Trust could have been distributed to the plaintiffs each of whom was a beneficiary or a child of a beneficiary. The Trustee of the GK3 Trust has pursuant to cl 4 and cl 6 of the Trust Deed power to distribute capital and make payments as it thought fit to any beneficiary.

126. In summary in my view there is no serious construction issue confronting the plaintiffs. For the reasons set out above the obligations on the part of the defendants were clear. They were party to the settlement of the personal claims of the plaintiffs in the Probate Proceedings with the ultimate court approval. This background and context is important in considering whether the plaintiffs have suffered losses for which they can sue the defendants.

127. On the question of repudiation there is no doubt in my mind that the conduct of the defendants evinced an intention or inability to substantially perform the contract. Objectively viewed the conduct of the defendants was tantamount to a renunciation of either the contract as a whole or a fundamental obligation under it. Here by the time the proceedings were commenced (on 17 September 2020) the defendants were more than 2 years overdue in the fulfillment of their contractual obligations under the Deed of Agreement. Objectively neither defendant evinced any interest let alone any real ability to perform their obligations. The fundamental obligation under the Deed was to ensure as I see it to transfer the unencumbered Units to GK3 or replacement units to the same value.

128. The claim for specific performance was accompanied by a clearly pleaded alternative claim for loss of bargain damages. In commencing the proceedings as formulated the plaintiffs made it abundantly plain they were pursuing alternative and inconsistent remedies which in my view they were perfectly entitled to do. In circumstances such as this it would not be appropriate fairly to describe the plaintiffs’ position as having unequivocally affirmed the Deed.

129. Obviously the pursuit of loss of bargain damages proceeds upon the underlying assumption of the termination the performance of the contract. In my view the institution of proceedings where alternative and inconsistent remedies are sought cannot without more amount to an election in favour of either remedy.

130. It is put by the plaintiffs that even in the circumstances of their commencing the proceedings on 17 September 2020 the repudiation is a continuing one in that since that date the second and third defendants “persisted or continued” in their non-performance of the Deed of Agreement. However in addition a fresh act of repudiation occurred when they failed to procure the acquisition of the Units within the twenty eight days of the registration of the strata plan under cl 3.8(e) which was registered on 3 November 2020. There can be little doubt that the acquisition (unencumbered) of the Units as promised and when promised was a fundamental obligation which the two defendants persisted on a continual basis in breaching.

131. In any event administrators were appointed to the first defendant on 31 December 2020 and it was in a parlous financial position and as appears from the Report to Creditors exposes that it had liabilities of nearly $1 billion. On 5 January 2021 the first defendant’s secured creditor Persephone enforced its security over the Development.

132. The second defendant through solicitors on 13 January 2021 made it clear she was in no position to facilitate a transfer the Units and could do nothing in that regard. The first defendant in administration was in the same position and it could not transfer the Units as Persephone had exercised its security in relation to the development. Whilst there may have been very good legal and commercial reasons for not doing so the defendants remained in continual breach after the commencement of the proceedings.

133. In that circumstance it was in my view open to the plaintiffs to accept that repudiation (as they did on 15 July 2021) and proceed only with the claim for damages for the loss of the bargain.

134. The response to the plaintiffs’ claim in damages is manyfold. It is contended the plaintiffs have suffered no loss, have no standing to sue or as beneficiaries of the GK3 Trust only have the interest of a beneficiary under a discretionary trust.

135. In my view each of the defences are misconceived. First the plaintiffs are not suing to recover the legal interest in the Units. They are on the other hand suing for the loss of their contractual bargain which they struck. It was a promise to transfer the Units to GK3 which was of value to the plaintiffs (in an agreed sum). The control of GK3 and hence its assets was an express part of the bargain struck. The promises were made to the plaintiffs not to GK3 and GK3 was of course not a party to any agreement.

136. As the various Recitals make clear the transfer of the Units was in consideration for the settlement of the plaintiffs’ personal claims against the first and second defendants as Executors.

137. And cl 3.9(a) of the Deed of Agreement expressly preserved the “beneficiaries” right to sue for the recovery of any “losses or damages” occasioned by any breach of the Deed. There can therefore be little if any doubt that the plaintiffs are personally entitled to sue for the loss of the benefit of the bargain.

138. This notion is fortified by reference to the Deed of Acknowledgment in cl 2(b)(i). It is clear that breach of this Deed by the defendants leads to the amounts becoming immediately payable to the “Beneficiaries” as a debt. The Deed makes it clear that the plaintiffs personally can recover the relevant amounts. It follows in my view that the Deeds were intended in the event of default to provide a remedy to the plaintiffs personally to recoup any losses occasioned by reason of the failure to transfer the selected Units.

139. Here it is clear the parties contemplated that whilst legal title in the Units would pass to GK3 as Trustee that would occur in circumstances in which the plaintiffs were as part of the bargain gain complete control of the GK3 Trust and could therefore after transfer deploy the Units in any way they saw fit. They could have simply if they chose for example wound up the trust and distributed the assets which would have included the Units. It is cannot be gainsaid that the transfer of the Units was thought no doubt to be commercially convenient option on everyone’s part as the mechanism to settle the Probate Proceedings. It is with respect to those representing the defendants untenable to suggest the plaintiffs suffered no loss in being deprived of their bargain under the Deed of Acknowledgment because the transfer was being made to GK3 (for their benefit and at their direction).

140. For that reason I also reject the proposition that the proceedings were improperly constituted because GK3 was not a party. The simple reason is that what the suit was about was the enforcement of the plaintiffs’ contractual rights which they have sought to enforce and not those of GK3. In any event it is incumbent in my view upon any person who wishes to assert that a suit is improperly constituted to raise that issue with the court the first moment it occurs to the party that an additional party is required to be joined. I accept that this depends upon when it occurs to the party concerned and it should be raised with the court as part of the party’s duty pursuant to ss 56, 57 and 58 of the Civil Procedure Act 2005 (NSW) otherwise the party seeking belatedly to take the point may be seen to have acquiesced and ought as a matter of fairness precluded from raising it. If the point is going to be run that the suit is improperly constituted, then the appropriate application should be made.

141. There appears to be a further argument that the plaintiffs have suffered no loss because they would have been the subject of guarantees and charges in favour of lenders and whatever other obligations GK3 owed as a joint venture partner.

142. I see none of those considerations as relevant. It was promised by the defendants that they would secure the transfer unencumbered the relevant Units to GK3. It was of no business or concern of the defendants what the position of GK3 was. All that mattered was their relinquishing control over GK3 to permit the plaintiffs to decide what they would or for that matter could do with the Units. In other words the plaintiffs did not have to prove those matters as a condition to the transfer.

143. The plaintiffs lost their contractual bargain in that the Units as agreed (and at an agreed price) were not transferred unencumbered. The defendants’ obligations dealt with all sides of the matter, to “facilitate” the acquisition by GK3 of the Units and to “cause” Hills Shoppingtown to transfer them. And “unencumbered” meant that the defendants assumed a contractual obligation to put GK3 (notwithstanding its financial obligations) into a position where it could receive them “unencumbered” which in turn in my view obliged the defendants to perform their obligations under the Deed so that GK3 could indeed receive the Units in that form which is reflective of the terms and the purpose of the Deed of Agreement.

144. Further the date for the assessment of damages for breach of contract is the date of the breach not at the date of the termination by acceptance of the repudiation. It is the economic value of the performance of the contract at the time when the performance was intended to occur. In my view the date of the breach was 25 June 2018. At that stage GK3 had a liability under a facility advanced by ANZ. The subsequent crippling facility entered into with Persephone and SCL is not in my view relevant.

145. I accept the evidence of Carol that she would have caused GK3 as Trustee of the GK3 Trust to distribute the Units to herself and her daughters. Of course I also accept as she conceded she would have taken advice on the transfers including the issue of stamp duty. I regard the potential liability for stamp duty as one of a number of red herrings raised by the defendants.

146. I accept Carol would as she said in her evidence have taken the course that was needed to protect “her girls”. I also accept that Mr Malkoun would have assisted Carol to have given effect to the best way to deal with the Units and attended to whatever necessary formalities needed to be attended to. It is not to be ignored that the Units had a value of approximately $15m. It seems to me, and it was not for good reason, that it was put to Carol that she did not have the means to pay whatever the stamp duty might be (that is $500,000 to $1m). Whilst Carol accepted unsurprisingly she would have to consider what liabilities GK3 might have had nothing was put to her that there was any particular liability or obligation that would have stood in the way her being able to make the distribution of the Units. The defendants in my view entirely unconvincingly sought to raise a series of red herrings in this regard.

101. The defendants submitted that this case should properly be seen as one of loss of a chance or opportunity and damages assessed accordingly. I do not agree. The plaintiffs simply sue for the loss of the bargain they were promised by the defendants and simply seek to be placed in the same situation with respect to damages they would have been in had the promises been performed. As part of the promises made, they were promised unencumbered Units and complete control of GK3 after the Units were transferred to it. I do not consider that so explained the plaintiffs claim can properly be characterised as a loss of an opportunity. I accept that it still remains a matter for the court to assess the appropriate award of damages.

102. Here there is no doubt the plaintiffs were by reason of the defendants’ breaches deprived of the benefit of the transfer of the twenty unencumbered shares to GK3 which was the Trustee of a trust the plaintiffs would have entirely controlled within 28 days of the registration of the strata plan which would have occurred at the latest in July 2018. Later events in particular those identified by the defendants as to why for example there were difficulties or issues which the plaintiffs may or may not be called upon to resolve are simply not to the point. It is the value of those contractual rights as at July 2018 not some other issues that may or may not have arisen at a later point in time. What the plaintiffs may or may not have done was a matter for them entirely with advice from the appropriate professional if required.

103. There is no mystery here as the parties have agreed a value for the shares or their replacements at the amount in cl 3.5(a) at $15,346,498.42. That was the agreed value of the twenty Units which were specifically identified with values attributed to each but if a shortfall was to occur that was the yardstick agreed by the parties in making quite express what the monetary obligations were on the part of the defendants to make good as it were. I see no reason why the defendants should now be given any discount at all on that figure because the clause so easily could have been drafted to reflect the parties’ views regarding some market value component (in the event of some market downturn was to be taken into account).

104. There are a number of miscellaneous issues that require attention.

105. First in this case leaving aside the usual indemnity that may be, the defendants in my view have incurred a liability to beneficiaries as a result of their own default by reason of their contractual breaches and they would in my view not be entitled to any indemnity from the assets of the trust. Their liability was as a result of their own wrongdoing hence an indemnity in their favour does not arise.

106. The next issue raised by the defendants is whether cl 3.7 is void for uncertainty because the expression in cl 3.7(a) of the Deed of Agreement, “related Corporations” is in fact not as asserted a definition to be found in the Corporations Act 2001 (Cth). First even if correct it does not detract from the defendants’ primary obligations which they have breached. It must be said that if the clause is void for uncertainty it can it seems to me to be readily severable. It provides an independent and alternative means by which the defendants could perform their contractual obligations. It should also be noted that the clause is largely for the benefit of the defendants because it as I have observed provides them with an alternative method of funding their obligations.

107. Of course the defendants acknowledge pursuant to the Deed of Acknowledgment that they were in breach of cl 3.7(a) and as a result I am of the view they are precluded from asserting its uncertainty. In any event I am not satisfied such a clause fits within the known categories of uncertainty. The question is what might the words convey to a reasonable person having the requisite background knowledge. Read as a whole I consider the term “related Corporations” means related to Hills Shoppingtown.

108. Although the Corporations Act has no definition of “related Corporation” it does have two definitions of “related body corporate” and “related entity”. From materials tendered before me Hills Shoppingtown does not appear to have had any related body corporate until 27 September 2018 but from other materials Hills Shoppingtown appears to have had some “related entities” which were registered proprietors of properties within strata plans. I am not entirely certain that that information could be said to be a surrounding circumstance. However the more sensible commercial approach to construction is that the parties agreed to give the defendants an alternative means by which they could satisfy their contractual obligations. In other words if there was at the relevant time there was a related body corporate whose units could be offered to make up a shortfall the defendants were able to take advantage of that situation. In any event in my view such uncertainty as does exist is not able to be relied upon by the defendants as they were themselves in breach of the agreement and I do not consider they should be permitted to rely upon any such argument.

Cross-Claim

182. The cross-claim consists of the third defendant’s submissions that, on various grounds, the cross-defendant as a director of Hills Shoppingtown should be liable or indemnify the defendants for any amounts that they may owe to the plaintiffs.

183. I agree with the cross-defendant that insufficient evidence has been put before the Court to make any findings in relation to the cross-claim. At hearing, neither Joseph Khattar or Sam Fayad, the cross-claimant and cross-defendant respectively, were subject to cross examination. There was very little evidence raised in relation to the cross-claim, particularly in relation to the alleged promises or obligations owed by the cross-defendant to the cross-claimant.

184. The cross-claimant first claims that there is a breach of contract by the cross-claimant. The cross-defendant correctly submits that they were not party to the Deed of Agreement or Deed of Acknowledgement. The explicit reference to the cross-defendant in cl 3.3(f) of the Deed of Agreement states that “Sam undertakes that he will perform all acts in accordance with and in compliance with the obligations set out in this Deed, and shall do so in the best interest of the Beneficiaries”. Sam had no obligations under the Deed of Agreement, which he was not a party to. There can be no breach. Further evidence would be required to pursue a claim that the parties intended the cross-defendant to have enforceable obligations under the Deed of Agreement.

185. The claim for estoppel cannot be successful. Insufficient evidence has been raised regarding the “mutual assumption” contended by the cross-claimant. The mention of Sam in cl 3.3(f) of the Deed of Agreement does not suffice. As the cross-defendant submitted “the terms of the Deed of Agreement alone cannot establish the pleaded mutual assumption that Sam was personally obliged to perform all acts in accordance with and in compliance with the Deed and shall do so in the best interests of the Plaintiffs” (Cross-Claimant’s Closing Submissions, [20.2]).

186. The third defendant submitted, as cross-claimant, that Sam Fayad the cross-defendant should be liable as a “contract-breaker and/or tortfeasor” for the same loss and is therefore “obliged to contribute towards to [sic] the discharge of that common liability” (Cross-Claimant’s Opening Submissions, [18]). There was insufficient evidence to prove the elements of tortious interference inducing breach of contract. Furthermore, the difficulty is that the Units were due to be transferred by June or July 2018. The pleaded alleged conduct relates to Sam causing Hills Shoppingtown to breach the Deed of Agreement in November 2018 and June 2020 through refinancing arrangements. As explained by the cross-defendant, “it is difficult to see how any conduct Sam engaged in in his capacity as director of the Company in November 2018 and/or June 2020 is of any import whatsoever in light of the pleaded case” (Cross-Defendant’s Closing Submissions, [27.4]).

187. The second and third defendants entered into an agreement with the plaintiffs to settle the Probate Proceedings. Whether the second and third defendants, as part of that agreement, agreed to do anything which relied on third parties complying with that agreement does not affect the liability of the second and third defendants.

Decision

188. In light of my reasons above, I would propose first to make an order in accordance with paragraph [6] of the Further Amended Statement of Claim filed 9 August 2021 for “[d]amages for breach of the Deed of Agreement by the second and third defendants”. My understanding is that paragraph [6A] of the Further Amended Statement of Claim is no longer relevant. In accordance with paragraph [64] of the Further Amended Statement of Claim I would also make further orders as to the appropriate award of damages, including any amount of interest. I will hear further submissions on the proposed form of those orders in due course.

189. Secondly, I would dismiss the third defendant’s cross-claim.

190. Thirdly, I would determine all questions of costs insofar as they cannot be agreed.

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Amendments

31 March 2022 - name of cross-defendant lawyers amended

Decision last updated: 31 March 2022