Kyong Holdings Pty Limited v Anqueline Pty Ltd (No 2)

[2010] NSWSC 727

CITATION:	Kyong Holdings Pty Limited v Anqueline Pty Ltd (No 2) [2010] NSWSC 727
HEARING DATE(S):	11 June 2010
JUDGMENT DATE :	5 July 2010
JURISDICTION:	Equity Division
JUDGMENT OF:	Lindgren AJ
DECISION:	1. Judgment for Anqueline for the amount of the Consulting Fee and interest from 20 March 2009 to the date of judgment (see the recent Practice Note SC Gen 16). Mr and Mrs Pacanowski are liable as guarantors under cl 4.1 of the Kyong Heads of Agreement. 2. The plaintiff/cross-defendant must pay the costs of the defendants/cross-claimants.
CATCHWORDS:	CONTRACT - express and implied terms - duty to co-operate and to ensure other party gets the benefit it was intended to get from performance and achievement of purpose of contract - breach consisting of taking of steps which prevented other party from becoming entitled to consulting fee.
LEGISLATION CITED:	Evidence Act 1995 (Cth) Superannuation Industry (Supervision) Act 1993 (Cth)
CATEGORY:	Principal judgment
CASES CITED:	Armory v Delamirie (1722) 1 Str 505; 93 ER 664 Burger King Corporation v Hungry Jack’s Pty Ltd (2001) 69 NSWLR 558 Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 Secured Income Real Estate (Australia) Ltd v St Martin’s Investments Pty Ltd (1979) 144 CLR 596 Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359
TEXTS CITED:	Macquarie Dictionary Oxford English Dictionary
PARTIES:	Kyong Holdings Pty Limited (Plaintiff/Cross-Defendant) Anqueline Pty Limited (First Defendant/First Cross-Claimant) Paul Zavlasky (Second Defendant/Second Cross-Claimant) Estate Operations Pty Limited (Third Defendant/Third Cross-Claimant) David Pacanowski (Second Cross-Defendant) Mazine Pacanowski (Third Cross-Defendant) Capricorn Developments Pty Limited (Fourth Cross-Defendant)
FILE NUMBER(S):	SC 288267/09
COUNSEL:	B Oslington QC with him B Zipser (Plaintiffs/Cross-Defendants) B Rayment QC with him M Gollan (Defendants/Cross-Claimants)
SOLICITORS:	Charles G Roth (Plaintiffs/Cross-Defendants) Galloways (Defendants/Cross-Claimants)

- 31 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

LINDGREN AJ

MONDAY 5 JULY 2010

2009/288267 KYONG HOLDINGS PTY LTD v ANQUELINE PTY LTD (NO 2)

JUDGMENT

INTRODUCTION

1 HIS HONOUR: This proceeding concerns implied contractual duties of good faith and co-operation as well as the construction of express terms.

2 The plaintiff, Kyong Holdings Pty Ltd (Kyong), a company associated with David Pacanowski and Maxine Pacanowski, contracted to purchase land at Marrickville from ACPP Industrial Pty Ltd (ACPP) (the Kyong Contract). At Kyong’s instigation, on 20 March 2009:

Kyong and ACPP rescinded the Kyong Contract;

a fresh agreement for sale of the land to another Pacanowski company, Capricorn Developments Pty Ltd (Capricorn) was entered into (the Capricorn Contract); and

the Capricorn Contract was completed.

3 The effect of the rescission was that the first cross-claimant, Anqueline Pty Ltd (Anqueline), a company associated with the second cross-claimant, Paul Zavlasky, was deprived of its entitlement to a “consulting fee” said to amount to over $1,200,000 (the Consulting Fee) under a contract between Anqueline and Kyong (Kyong Heads of Agreement). The Kyong Heads of Agreement provided that the Consulting Fee was not to be payable if Kyong’s solicitor should give notice that the Kyong Contract had been rescinded (as he did).

4 By their amended cross-claim, Anqueline and Mr Zavlasky sue Kyong, Mr and Mrs Pacanowski and Capricorn. Anqueline sues Kyong for the Consulting Fee itself, or in the alternative for damages for breach of express and implied terms of the Kyong Heads of Agreement. The terms are promises to act in good faith and to use its (Kyong’s) best endeavours to comply with the spirit and intention of the Kyong Heads of Agreement (express term) and promises to act in good faith, to do all things necessary to enable the other parties to have the benefit of that contract, and to do nothing to deprive them of the benefit of it (implied terms). Mr Zavlasky sues for damages for breach of similar express and implied terms. Mr and Mrs Pacanowski are sued as guarantors and they and Capricorn are sued as persons who brought about the breaches by Kyong.

5 Kyong had paid $200,000.00 on account of the Consulting Fee to Anqueline’s solicitor, Marcel Kalfus, who paid it into Court. As plaintiff, Kyong seeks an order that that amount with interest be paid to it.

FACTS

6 On 28 September 2007, ACPP granted to Anqueline the exclusive right for a period of 70 days “to conduct a Due Diligence Investigation” on the commercial viability of redeveloping ACPP’s land at 74 Edinburgh Road, Marrickville. Apparently this included an option for Anqueline to purchase part of the land or to require ACPP to sell that part to Anqueline’s nominee. It was always contemplated that any contract would be subject to subdivision approval creating the subject allotment, with the remainder of the site being retained by ACPP.

7 In November 2007 Mr Zavlasky had discussions with Mr Pacanowski who expressed interest in purchasing for a price which was in fact $45.00 per square metre higher than the price ($715 plus GST per square metre) at which he was entitled to require ACPP to sell.

8 On 6 December 2007 a first Heads of Agreement document was entered into. The parties were: Mr and Mrs Pacanowski; another of their companies, DHP Properties Pty Ltd (DHP); Mr Zavlasky; Anqueline; and another of Mr Zavlasky’s companies, Estate Operations Pty Ltd (Estate Operations) (DHP Heads of Agreement).

9 Subsequently, Mr Pacanowski requested that Kyong be substituted for DHP. It is common ground that the parties to the DHP Heads of Agreement rescinded that contract and on 21 December 2007 executed the Kyong Heads of Agreement document in its place.

10 It is the Kyong Heads of Agreement on which the present claim is based and I will not give an account of the provisions of the DHP Heads of Agreement.

11 By the Kyong Heads of Agreement Anqueline undertook to nominate Kyong to ACPP as the purchaser and Kyong agreed to be Anqueline’s nominee (cl 1.1). The subject property was proposed Lot 1 of two lots in a proposed plan of subdivision (I will call it “Lot 1”). Completion of the contract of sale between ACPP as vendor and Kyong as purchaser (the Kyong Contract) was said to be subject to ACPP’s registering the plan of subdivision creating Lot 1 (Recital B). Clause 1.2(a) provided that Kyong must pay to Anqueline the Consulting Fee which was equal to the product of $45.00 and the number of square metres in Lot 1. In cl 1.2(a) Lot 1 was referred to as “Approved Land” but, as noted above, the subdivision creating it was yet to be approved. Clause 1.2(b) dealt with the calculation of the Consulting Fee.

12 Clause 1.3 provided for the time and manner of the payment of the Consulting Fee. It distinguished between $200,000 which was payable on the date on which Kyong entered into “the Contract Documents” (these were the Kyong Contract and a certain Deed of Covenant restricting the use to be made of Lot 1) to Anqueline’s solicitor to be held by him in trust; a sum of $300,000 which was payable upon completion of the Kyong Contract; and the balance of the Consulting Fee which was payable three months after such completion. In both of these last two cases payment was to be made to Anqueline itself by the operation of cl 1.2.

13 Clause 1.3 also addressed the two possibilities of the Kyong Contract being on the one hand completed and on the other hand rescinded.

14 Clauses 1.2(a), 1.3, 1.4, 1.5, 1.6 and 11 of the Kyong Heads of Agreement were as follows:

1.2 (a) Kyong must pay to Anqueline a consulting fee (Consulting Fee) for its consulting services in relation to the Property equal to the produce of $45.00 and the area in square metres of the Property actually approved by the relevant local council and any other consent authority for subdivision sold pursuant to the Contract Documents (Approved Land) plus GST.
(b) …
1.3 (a) Subject to clause 1.4 the Consulting Fee must be paid by Kyong in the following manner:-
(i) $200,000 on the date that Kyong enters into the Contract Documents which amount must be paid to the Kalfus Legal trust account and held in trust and invested by 16 January 2008 with a bank in NSW in an interest bearing account pending completion of the Contract Documents Kyong
(ii) $300,000 upon completion of the Contract Documents; and
(iii) the balance of the Consulting Fee is payable 3 months after the date of completion of the Contract Documents.
(b) All dates specified in this clause 1.3 for payment of instalments of the Consulting Fee are essential dates and all amounts specified for such instalments are exclusive of GST.
(c) If any instalment on account of the Consulting Fee is not paid on or before the due date for its payment, then the full balance of the Consulting Fee remaining unpaid, immediately becomes payable to Anqueline and recoverable by it as a liquidated debt in any court of competent jurisdiction.
(d) Upon being notified in writing by Kyong’s solicitor, Charles G. Roth, of completion of the Contract Documents the amount held in trust pursuant to clause 1.3(a)(i) shall be paid to Anqueline together with one half of the interest credited and/or accrued thereon and the balance of the interest paid to Kyong.
(e) Upon receipt of written notice from Charles G. Roth of rescission of the Contract Documents the amount held in trust pursuant to clause 1.3(a)(i) shall be paid to Kyong together with the whole of the interest credited and/or accrued thereon.
1.4 Despite anything to the contrary contained or implied in this Heads of Agreement, if after it enters into the Contract Documents, Kyong sells or otherwise disposes to any third party of either its interest in the Contract Documents or (following completion of the Contract Documents) all or part of the Approved Land including without limitation by way of:
(a) sale, whether on terms or not;
(b) the granting of a call and/or a put call option;
(c) entering in a joint venture agreement of any kind;
(d) entering into a profit share agreement or arrangement; or
(e) if there is a change of control of Kyong (either as to management or ownership) (together Disposition Events )
then so much of the Consulting Fee remaining unpaid and outstanding, upon the occurrence of any of such Disposition Events, immediately is payable to Anqueline.
1.5 In the event that Kyong is the developer of the construction of industrial units ( Industrial Units ) on the Approved Land ( Development ) Zavlasky shall be entitled to purchase an industrial unit in the Development having a gross floor area of no greater area than 300 sq m unit at a price equivalent to $2,000 per sq m of gross floor area plus GST provided Zavlasky gives to Kyong written notice of his intention and nominates the specific industrial unit no later than 180 days after the commencement of construction and enters into a contract for sale within 30 days of receipt of a contract for sale in respect of the industrial unit.
1.6 Subject to clause 1.8 Estate Operations shall be granted the exclusive right to market and sell the Industrial Units, with the exception of those retained by Kyong or any associated company for long term investment for a period up to 120 days from the date of commencement of construction ( Initial Period ) at a fee of 2.0% plus GST. Kyong must notify Estate Operations in writing ( Construction Notice ) of commencement of construction of the Development not less than 30 days prior to such commencement occurring and the Initial Period will commence from the date of commencement of construction specified in the Commencement Notice or the actual date of commencement of construction of Development, whichever is the later date.
…
11. Good Faith
Each party must act in good faith towards all other parties and use its best endeavours to comply with the spirit and intention of this Heads of Agreement.”

15 Clause 1.8 (referred to in cl 1.6) provided that the grant of marketing rights to Estate Operations was subject to Estate Operations’ demonstrating to Kyong reasonably satisfactory due progress in connection with its marketing program following the grant of development consent.

16 On the same date, 21 December 2007, ACPP as vendor and Kyong as purchaser entered into the Kyong Contract in respect of Lot 1. A copy of the proposed plan of subdivision creating Lot 1 was attached to the Kyong Contract. The Kyong Contract was subject to and conditional upon ACPP’s obtaining the necessary development approval to subdivide the land into two lots shown on the plan, including Lot 1, and to registration of the plan. Special condition 36.8(a) provided, in substance, that if ACPP was unable to obtain subdivision approval or if the final plan of subdivision should not be registered by 30 June 2009, either party might rescind the Kyong Contract by notice to the other party. Clause 36.8(b) also gave Kyong a right of rescission if there was a variation to the plan of subdivision of a certain defined magnitude.

17 The sum of $200,000.00 was paid by or on behalf of Kyong to Anqueline’s solicitor, Mr Kalfus, who paid it into an investment cash account at St George Bank Ltd.

18 On the Kyong Contract, the purchaser’s solicitor was shown as “Kalfus Legal”. In fact, Mr Kalfus, practising as “Kalfus Legal”, had been representing Anqueline in the negotiation of the documentation, with Charles Roth, the solicitor, for Kyong. On the hearing it was suggested that Mr Zavlasky had been anxious to ensure that ACPP did not know of the existence of Kyong – a purchaser which was prepared to pay $45.00 per square metre above the price that Mr Zavlasky had agreed upon with ACPP. On 7 January 2008, Mr Kalfus wrote to Minter Ellison (Minters), the solicitors representing ACPP, advising them that Mr Roth had “taken over the carriage of this matter on behalf of the Purchaser” and he gave them Mr Roth’s contact details.

19 On 14 May 2008, the Marrickville Council issued a notice of development approval in respect of the proposed subdivision creating Lot 1. On 28 May 2008, Mr Kalfus wrote to Mr Roth enclosing a copy and suggesting that he seek from Minters confirmation that the terms of the approval were satisfactory to ACPP. Apparently they were, as subsequent events show.

20 From 2 June 2008 to 4 July 2008 there was correspondence between Mr Roth and Mr Kalfus in which:

Mr Kalfus urged Mr Roth to press Minters to advance the sale;
Mr Kalfus, with Kyong’s consent, began corresponding directly with Minters; and
Mr Roth ultimately advised that Kyong had withdrawn its consent to his doing so.

21 On 28 July 2008 there was a meeting between Messrs Pacanowski, Andrew Bloore of Smart Super Pty Ltd and Bernard Edelstein, Chartered Accountant, at which Mr Pacanowski complained that he was not getting certain “tax advantages” that Mr Bloore had foreshadowed. Mr Bloore said that the problem lay in Mr Pacanowski’s having used Kyong as the purchaser.

22 In the period 16 to 23 September 2008, there were discussions concerning superannuation, tax and other aspects of the identity of Kyong as purchaser involving variously Mr Pacanowski, Mr Roth and Mr Geoff Stein, a lawyer who specialised in superannuation matters. In his affidavit made on 9 June 2010, Mr Roth states at para 17:

17. At and subsequent to the meeting …, I formed the view (and continued to hold the view throughout) that:-
(a) Kyong as trustee of the Capricorn Eleven Pty Limited Superannuation Fund could not proceed with the purchase of the Marrickville property as it would become a non-complying fund within the meaning of the Superannuation Industry (Supervision) Act 1993 (“the Act”) because the purchase was not for the purpose of acquiring an asset within the meaning of the Act.
(b) There would be no utility in Kyong transferring the Marrickville property or the benefit of the First Contract for Sale [this was the Kyong Contract] to a bare trustee for the purpose of meeting other requirements of the Act for the same reason as set out in (a).
(c) As Kyong as trustee of the Capricorn Eleven Pty Limited Superannuation Fund could not proceed with the purchase of the Marrickville property and was at risk of liability for substantial damages on a suit by the vendor if it did not proceed with the purchase, Kyong had to reach some agreement with the vendor to extricate itself from the First Contract for Sale.
(d) One option was to transfer the Marrickville property or the benefit of the First Contract for Sale to another purchaser. However, there was substantial risk that this option would result in the transfer being subject to ad valorem stamp duty in addition to ad valorem stamp duty payable on the First Contract for Sale.
(e) The most commercially expedient way of resolving the difficulties and avoiding the risk of double stamp duty (which would be a costly exercise where ad valorem stamp duty would be over $850,000 on each occasion) was for agreement to be reached with the vendor to rescind the First Contract for Sale and for a new Contract for Sale to be entered into with another purchaser.

Mr Roth discussed his opinions with Mr Pacanowski.

23 On 30 October 2008, the Commonwealth Bank of Australia emailed Mr Pacanowski with details of finance available.

24 In the period August to December 2008, Mr Pacanowski negotiated with ACPP a reduction in the purchase price, rescission of the Kyong Contract and the making of a new contract of sale with a different Pacanowski company as purchaser in place of Kyong.

25 On 23 December 2008, Mr Kalfus wrote to Mr Roth advising that his client understood that Kyong had negotiated with ACPP for a reduction in the purchase price and for other variations. He said that Mr Zavlasky did not consent; complained that Mr Pacanowski had ceased communication with Mr Zavlasky; and reminded Mr Roth of the provisions of clauses 1.4 and 11 of the Kyong Heads of Agreement (set out at [14] above). Mr Roth replied “without prejudice” on 12 January 2009 simply advising that he was instructed to inform Mr Kalfus that his client relied on the contract. In cross-examination Mr Pacanowski denied that he had been deliberately avoiding contact with Mr Zavlasky and failed to return his telephone calls.

26 On 13 January 2009, Mr Kalfus wrote to Mr Roth alleging that Mr Pacanowski had asked Mr Zavlasky two months earlier to accept the $200,000.00 already paid in full satisfaction of Anqueline’s entitlement to the Consulting Fee. He referred to the amount of the Consulting Fee as being $1,252,745.00

27 By a “Replacement Deed” dated 16 January 2009, Kyong retired as trustee of a certain “Capricorn Eleven Pty Limited Superannuation Fund” which was said to have been created on 28 June 1982 and Capricorn Eleven Superannuation Pty Ltd was appointed as trustee in its place. In addition to the retiring trustee and the new trustee, Mr and Mrs Pacanowski were parties to the Replacement Deed.

28 On 16 March 2009, Mr Roth wrote to Mr Kalfus advising him that the purchaser would be Capricorn instead of Kyong. On the same day, and again on 19 March 2009, Mr Kalfus asked Mr Roth to confirm that his client would pay the balance of the Consulting Fee which Mr Kalfus again asserted amounted to $1,262,745.00 inclusive of GST (the balance, after deduction of the sum of $200,000 paid, being $1,062,745.00). On 17 March 2009 Mr Kalfus forwarded to Mr Roth Anqueline’s tax invoice for $1,262,745.00 including GST of $114,795.00.

29 On 19 March 2009, Mr Roth forwarded to Mr Kalfus a copy of a Deed of Variation dated 30 December 2008 between ACPP and Kyong which reduced the price and changed the scheduled completion date under the Kyong Contract. Mr Roth’s covering letter advised that the Kyong Contract was to be rescinded and replaced with a contract with Capricorn as purchaser.

30 By a separate letter also dated 19 March 2009 Mr Roth enclosed a copy of a Deed of Rescission between ACPP and Kyong. By the Deed of Rescission those parties agreed that the Kyong Contract was cancelled and rescinded simultaneously with the execution of the Capricorn Contract. As noted at [2] above, ACPP and Capricorn entered into (and completed) the Capricorn Contract on 20 March 2009. That date was therefore the date of rescission of the Kyong Contract. By his letter, Mr Roth, on behalf of Kyong, called upon Mr Kalfus to remit the sum of $200,000.00 plus accrued interest.

THIS PROCEEDING

31 On 3 April 2009, Kyong launched this proceeding against Mr Kalfus. Mr Kalfus made a payment into Court. Anqueline, Mr Zavlasky and Estate Operations were substituted for him as defendants. The cross-claim was originally brought by Anqueline, Mr Zavlasky and Estate Operations against Kyong, Mr and Mrs Pacanowski and Capricorn. Estate Operations has ceased to be a party, either as third defendant or as third cross-claimant.

Constructions of Express Terms – Clauses 1.3 and 1.4

32 Clause 1.4 of the Kyong Heads of Agreement (set out at [14] above) dealt with the possibility that Kyong might sell or otherwise dispose of either its interest in the Contract Documents or, after completion, all or part of Lot 1 itself, to a third party. In the absence of cl 1.4:

if the sale or other disposition was of Kyong’s interest in the Contract Documents, that is to say, if it preceded completion, Kyong’s obligations to pay both the sum of $300,000.00 and the balance of the Consulting Fee would not be activated; and
if the sale or other disposition occurred within the period of three months following completion, in which case the sale or disposition would, of course, be of Lot 1 or of part of it, Kyong’s obligation to pay the balance of the Consulting Fee only would not be activated.

(see cl 1.3(a) set out at [14] above).

33 Clause 1.4 was intended to counter both disadvantages by accelerating the obligation to pay to Anqueline the whole of the amount of the Consulting Fee. The importance of cl 1.4 is marked by its opening words: “Despite anything to the contrary contained or implied in the Heads of Agreement.”

34 The first issue touching the construction of cl 1.4 relates to the words “and outstanding”. I do not accept the cross-defendants’ argument that use of those words means that it is only amounts that had accrued due and payable by the time of the sale or other disposition that cl 1.4 made immediately payable to Anqueline.

35 Paragraphs (i), (ii) and (iii) of cl 1.3(a), unaided by cl 1.4, create actionable obligations to pay, respectively, the sum of $200,000, the sum of $300,000 and the balance of the Consulting Fee, upon the happening in each case of the relevant triggering event. The construction suggested by the cross-defendants would not achieve the object of cl 1.4 of ensuring that Anqueline was paid the full Consulting Fee.

36 In my view, the composite expression “so much of the Consulting Fee remaining unpaid and outstanding” refers to so much of the balance of the entire Consulting Fee of some $1,200,000.00 as had not been paid to Anqueline at the time of the sale or other disposition in question. I explain below why this is so.

37 On one view, it is not productive to search for a distinction between “unpaid” and “outstanding”. The relevant dictionary definitions of “outstanding” include “that continues in existence; that remains unsettled, unpaid, etc.” (Macquarie Dictionary) and “That continues in existence or remains to be dealt with; esp (of a sum of money) unsettled, unpaid” (OED). The drafter of the document may have thought that the word “unpaid” standing alone might be understood to refer only to those parts of the Consulting Fee that had fallen due for payment but had not in fact been paid by Kyong. On one view, in cl 4.1 the word “outstanding” simply directs attention to a larger amount, not all of which had in fact been paid, the only reasonable construction being that that larger amount is the entire Consulting Fee of some $1,200,000. I return to the expression “unpaid and outstanding” at [50] – [52] below.

38 The second issue touching the construction of cl 1.4 concerns the expression “third party”. I reject Kyong’s submission that the expression is to be read down so as to refer only to a party independent of Mr and Mrs Pacanowski and therefore did not include Capricorn. The shareholders in Kyong and Capricorn were, in different combinations, Mr Pacanowski, Mrs Pacanowski, members of their family and companies associated with them. In my opinion, the expression was apt to include Capricorn. The meaning of “third party” as used in cl 1.4 is any person, a sale or disposition to whom or which might, in the absence of that clause, have the effect of preventing one or more of the triggering events specified in cl 1.3(a) from occurring. As appears below, however, my view that “third party” included Capricorn is not necessary to my decision.

39 The third issue of construction touching cl 1.4 relates to the concept of sale or other disposition.

40 Clause 2 of the Deed of Rescission was as follows:

On the date that the Vendor and the New Purchaser execute the New Contract of Sale, the Current Contract of Sale is simultaneously cancelled and rescinded and the Vendor and the Purchaser;
(a) surrender all of their respective rights, title and interest in the Current Contract of Sale; and
(b) release each other from all obligations, liabilities, claims and demands in respect of the Current Contract of Sale; and
(c) must immediately authorise the Stakeholder to release:
(i) the Deposit to the Purchaser;
(ii) half the interest earned on the Deposit under the Current Contract for Sale (after deduction of all property government taxes and financial institution charges and other charges) to the Purchaser; and
(iii) half the interest earned on the Deposit under the Current Contract for Sale (after deduction of all property government taxes and financial institution charges and other charges) to the Vendor.

41 By the opening words, the parties rescinded the Kyong Contract as at and from, in the event, 20 March 2009. By para (a) Kyong surrendered its rights, title and interest in the Kyong Contract to ACPP. By para (b) it released ACPP from all obligations, liabilities, claims and demands in respect of the Kyong Contract. By para (c) Kyong abandoned its claim to half the interest earned on the sum of $1,466,825 which was the amount of the deposit paid under the Kyong Contract, which half it undertook to direct the stakeholder under that contract, CB Richard Ellis, to pay to ACPP (the interest earned was to be paid to ACPP and Kyong in equal shares). In my opinion that rescission, surrender, release, and agreement constituted an “other disposition” by Kyong of its interest in the Kyong Contract, and therefore in the “Contract Documents”, to ACPP within cl 1.4 of the Kyong Heads of Agreement.

42 It is clear that the concept of sale or other disposition in cl 1.4 of the Kyong Heads of Agreement is not to be read down by reference to paras (a) – (e) within that clause. The words “without limitation” are sufficient to make that clear. In fact, as noted below, those paragraphs show that the concept is to be understood expansively.

43 The parties were attempting in cl 1.4 to devise a formula that would ensure that Anqueline’s entitlement to be paid the Consulting Fee could not be defeated by Kyong and that it would be accelerated upon the voluntary taking by Kyong of any steps that would prevent a triggering event from occurring. That this is so is shown by the nature of some of the “Disposition Events” described in the clause. In particular, para (e) catches a change of control of Kyong – a circumstance that would not be “a sale” or an “other disposition” according to the ordinary meaning of those terms.

44 The meaning of the words “dispose of” depends on the particular context in which and purpose for which they are used. The broad construction that they should receive for the reasons given above suggests that they should embrace the rescission, surrender, release and agreement provided for in cl 2 of the Deed of Rescission.

45 The contrary argument apparently depends on the fact that the effect of the rescission, surrender, release and agreement is that Kyong’s interest in the Contract Documents would cease to exist: the surrender and release would not leave ACCP holding what had been Kyong’s interest in the Contract Documents.

46 I do not think that this feature prevents the transaction between Kyong and ACPP from being a disposal by Kyong to ACPP within the broad meaning of that concept in cl 1.4.

47 In Cadorange Pty Limited v Tanga Holdings Pty Ltd (1990) 20 NSWLR 26, a contract for the sale of land was rescinded by agreement so that a substituted contract could be entered into. Young J inferred that the purpose was to avoid a fine under the Stamp Duties Act 1920 (NSW) for late stamping. His Honour held that for the purposes of s 368 of the Companies (New South Wales) Code, the agreement to discharge the first contract so as to set up the second one itself constituted a “disposition of property” by the vendor company (which was in liquidation). His Honour described what the vendor company had done by saying that it “gave up its rights to recover the purchase price under the first contract, extinguished its obligation to part with its land and became involved in an agreement to set up the second contract” (at p 31). The circumstances are the converse of, but similar mutatis mutandis to, those of the present case. A difference is that unlike cl 4.1, s 368 did not speak of a disposition “to” a person: it referred only to a “disposition of the property of the company”. I do not think that this difference matters.

48 The disposition by Kyong of its interest in the Contract Documents to ACPP effected by the Deed of Rescission on 20 March 2009 was a situation for which cl 1.4 made specific provision. Clause 1.4 prevails if it is inconsistent with cl 1.3(e) because cl 1.4 begins with the words “Despite anything to the contrary contained or implied in this Heads of Agreement”.

49 Under cl 1.4 the whole of the Consulting Fee became immediately payable to Anqueline on 20 March 2009, when, by the Deed of Rescission, Kyong disposed of its interest in the Contract Documents to ACPP.

50 There is a question as to how this can be said to be so in relation to the sum of $200,000 held by Mr Kalfus. One view is that it is not an amount that is “unpaid and outstanding” but that it is implied that it and any interest earned by it were to be paid by Mr Kalfus to Anqueline. In support, it is to be noted that Mr Kalfus could not have been intended to hold the sum of $200,000 indefinitely or to refund it to Kyong.

51 An alternative and I think preferable view, however, is that “unpaid” means “not paid by Kyong” whereas “outstanding” means “outstanding to Anqueline”. According to this view, the words “and outstanding” catch the sum of $200,000. Those words would have no work to do if the sale or other disposal occurred after completion but within the three month period, since upon the giving by Mr Roth of notice of completion the sum of $200,000 would have been paid by Mr Kalfus to Anqueline. But where, as here, the sale or disposal preceded completion the words would have work to do not performed by the word “unpaid”.

52 Whether by reason of an implied term or the construction of the expression “and outstanding” just mentioned, the sum of $200,000, like the remainder of the Consulting Fee, became payable to Anqueline on 20 March 2009.

53 According to the construction outlined above, Mr Zavlasky recovers nothing in respect of any loss of opportunity of purchasing one industrial unit under cl 1.5. The Kyong Heads of Agreement always allowed Kyong to sell or otherwise dispose of its interest in the Contract Documents or of Lot 1 itself so that Kyong would not be the developer of the industrial units. Kyong’s disposal to ACPP without having constructed the industrial units rendered cl 1.5 inoperative – a result that the Kyong Heads of Agreement accepted.

Clause 11 and implied terms

54 It is not disputed that the Deed of Rescission dated 19 March 2009 was effective to rescind the Kyong Contract on 20 March 2009. Importantly, the hypothesis underlying the following discussion is that, contrary to my conclusion above, cl 1.4 was not activated because the rescission did not involve a disposition of Kyong’s interest in the Contract Documents to ACPP.

55 I reach the conclusion below that on this hypothesis by entering into the Deed of Rescission and instructing Mr Roth to notify Anqueline of the rescission, Kyong breached cl 11 of the Kyong Heads of Agreement and the implied obligation not to deprive Anqueline of the benefit it was intended to get from a performance and achievement of the purpose of that contract, namely, payment of the entire Consulting Fee. The rescission had the effect that there would never be a completion of the Kyong Contract or an expiry of the three month period thereafter. The rescission and the giving by Mr Roth of written notice of it meant that Mr Kalfus would never be required by cl 1.3(d) to pay the sum of $200,000 held by him over to Anqueline.

56 It will be recalled that cl 11 obliged, relevantly, Kyong to “act in good faith towards all other parties and use its best endeavours to comply with the spirit and intention of this Heads of Agreement”. The cross-claimants devoted little, if any, time to this provision. Rather they emphasised Kyong’s implied obligation not to take steps calculated to deny to them the benefits they were intended to derive from the Kyong Heads of Agreement. This is understandable: I doubt that in the circumstances of the case, cl 11 takes matters any further than the implied terms. The provision within cl 11 that Kyong undertook to “use its best endeavours to comply with the spirit and intention” of the Kyong Heads of Agreement is apt to embrace an obligation to use best endeavours to ensure that Anqueline and Mr Zavlasky derived the benefit they were respectively intended to derive from that contract and not to prevent them for doing so. Where I refer below to the obligation imposed by cl 11 on Kyong I should be understood to refer to nothing more or less than that obligation.

57 Clause 11 obliged Kyong not, by its own voluntary act, to bring about a rescission of the Kyong Contract, thereby providing the basis for the giving of a notice by Mr Roth under cl 1.3(e) and preventing completion of the Kyong Contract from taking place. Clause 11 is to be read in the light of the fact that there was a particular rescission that the parties had in mind – that which would follow an inability to obtain subdivision approval. It may be that other forms of rescission would have been consistent with a due performance of cl 11, such as a rescission by Kyong upon its discovering that fraudulent representations had been made to it by ACPP prior to the making of the Kyong Contract. I need not discuss hypothetical rescissions by Kyong that might have been consistent with cl 11 and the implied terms. It suffices to say that in my view, a consensual rescission instigated by Kyong to serve its commercial interests was inconsistent with them.

58 In relation to implied terms, the cross-claimants rely, inter alia, on a course of authority in the law of contract which the cross-defendants do not, and could not reasonably, dispute. The implied terms in question have positive and negative aspects.

59 The positive aspect is a contracting party’s duty to do all things reasonably necessary to ensure that the contract is performed and its purpose achieved, and, in particular, to ensure that the other contracting party gets the benefit that that party was intended to get from a performance of the contract and the achievement of its purpose.

60 The negative aspect is a contracting party’s duty not to prevent such performance or achievement of purpose, and, in particular, not to prevent the other party from getting the benefit that that party was intended to get from such performance and achievement.

61 For these propositions the cross-claimants referred to the well known authorities, Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359 at 378-379 per Dixon J; Secured Income Real Estate (Australia) Ltd v St Martin’s Investments Pty Ltd (1979) 144 CLR 596 at 607-608 per Mason J; and Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 64.

Preliminary observations on the Kyong Heads of Agreement

62 In large part, the Kyong Heads of Agreement document was directed to ensuring that Kyong paid Anqueline the Consulting Fee, although Anqueline and Mr Zavlasky also undertook to do certain things (see cll 1.1, 2.1, 3.1(b), 3.3, 3.5, 3.7).

63 By reason of cl 11 and the implied obligations of the kinds referred to in [58] – [61] above the Pacanowski parties to the Kyong Heads of Agreement, and in particular Kyong, had a duty not to prevent performance of the Kyong Heads of Agreement and achievement of the purpose of that contract by preventing Anqueline from becoming entitled to the Consulting Fee.

64 Although in terms it was notification by Kyong’s solicitor Mr Roth that was to entitle Anqueline under cl 1.3(d) or Kyong under cl 1.3(e) to payment of the sum of $200,000.00 held by Mr Kalfus, Mr Roth did not have a freestanding discretion to give such a notice. It was not suggested that the eventuality was the giving of notice by Mr Roth otherwise than in accordance with the true facts or otherwise then in accordance with Kyong’s instructions. Moreover, it was not suggested that Mr Roth had in fact given notice under cl 1.3(e) otherwise than on Kyong’s instructions.

65 As noted earlier, the Kyong Heads of Agreement referred in Recital B to the fact that completion of the Kyong Contract was, inter alia, subject to ACPP’s procuring registration of the plan of subdivision creating Lot 1, and that cl 1.2(a) referred to the necessity of approval of the proposed subdivision. In addition, apparently the form of the Kyong Contract, and therefore of special condition 36.8(a) referred to earlier, was before the parties to the Kyong Heads of Agreement when that document was executed.

66 It follows that the particular species of rescission that the parties to the Kyong Heads of Agreement had in mind was a rescission that would follow an inability to obtain subdivision approval. This fact is relevant to identification of “the spirit and intention” of cl 1.3(e) of the Kyong Heads of Agreement. But Kyong instigated the consensual rescission that in fact occurred and instructed Mr Roth to give written notice of it for reasons of its own commercial interests. Prima facie, in doing so it breached cl 11 and its implied obligations: the rescission prevented Anqueline from becoming entitled to the Consulting Fee. The ambit of the concept of “rescission of the Contract Documents” in cl 1.3(e) is to be understood in a manner consistent with cl 11 and the implied terms. Clause 11 suggests as much

67 The cross-defendants submit, first, that the rescission was not the exercise by Kyong of a right given to it by the Kyong Heads of Agreement. They submit that Kyong’s obligations under the Kyong Heads of Agreement could not fetter its conduct under the Kyong Contract. The first answer to this submission is that the consensual rescission was not the exercise of a right given by the Kyong Contract either. It was an agreement made independently of that contract but by the parties to it and by reference to it.

68 Clause 11 and the implied obligation restricted Kyong’s permissible range of conduct. Once Kyong entered into the Kyong Heads of Agreement, it was required to conduct itself so as not to prevent Anqueline from deriving its intended benefit from that contract. Instigating and effectuating the consensual rescission of the Kyong Contract and instructing Mr Roth give notice of it fell squarely within the range of conduct that cl 11 and the implied term denied to Kyong.

69 The cross-defendants next submit that cl 11 and the implied terms would impermissibly impose obligations on Kyong that are inconsistent with an express term, cl 1.3(e), of the Kyong Heads of Agreement. The cross-defendants rely on Burger King Corporation v Hungry Jack’s Pty Ltd (2001) 69 NSWLR 558 at [172], [173].

70 I accept, of course, that in construing cl 11 it is necessary to take into account the rest of the Kyong Heads of Agreement, that the express terms of a contract, properly understood, prevail over a disposition to imply terms in fact, and that any implied terms in law must be applied so as to “fit” the express terms, properly understood. In the present case, there is no inconsistency. Clause 1.3(e) is still capable of operating according to its terms, in relation, for example, to a rescission consequent upon a failure to obtain subdivision approval. As the present case shows, however, there can be a rescission which will be the direct result of a breach of an implied term of the contract. Clause 1.3(e) did not say that the amount held in trust was to be paid to Kyong with interest no matter what the nature of the rescission or the background to it. The implied term on which the cross-claimants rely could not be allowed to lead to a result inconsistent with a hypothetical cl 1.3(e) expressed in sufficiently wide terms to be inconsistent with that implied term. By including cl 11 the parties to the Kyong Heads of Agreement themselves acknowledged that they may not have covered every possible contingency in the express terms of their contract, including cl 1.3(e).

71 Finally, the cross-respondents submit that if, contrary to their primary submission, Kyong was fettered in some way in connection with rescinding the Kyong Contract and instructing Mr Roth to give notice of its rescission, yet the fetter did not apply in the present case because:

5. … Kyong was unable to complete the purchase of the Marrickville property for two reasons.
(a) First, s 62(1) of the Superannuation Industry (Supervision) Act 1993 (Cth) (“the SISA”) provides that each trustee of a regulated superannuation fund must ensure that the fund is maintained solely for certain prescribed purposes. Contravention of s 62(1) results in:
i) the superannuation fund being a non-complying superannuation fund for the purposes of the Income Tax Assessment Act 1997 (Cth) (“the ITAA”) (see ss 37, 42A and 45 of the SISS), which in turn has taxation consequences under Division 295 of the ITAA; and
ii) the trustee of the superannuation fund (ie Kyong) being exposed to civil and criminal penalties (see s 62(2) of the SISS Act).
If Kyong had completed the purchase of the Marrickville property, this would have given rise to a contravention of s 62(1) of the SISS.
(b) Second, Kyong was unable to borrow enough money to complete the purchase of the Marrickville property.
6. Although, as explained in the affidavits of David Pacanowski and Charles Roth, it was possible to substitute another company in the group of companies controlled by Mr Pacanowski as purchaser of the property, there was a substantial risk of ad valorem stamp duty of over $850,000 being payable by Kyong and also by the substituted purchaser.

72 There are several answers to these submissions. The first is that I am not satisfied that Kyong purchased as trustee of a superannuation fund at all. There is no mention of that capacity of Kyong in the Kyong Contract, the Kyong Heads of Agreement, or the Deed of Rescission. In cross-examination Mr Pacanowski said that while Kyong was the trustee of a superannuation fund, it also owned property beneficially (units at Balmain which it leased out). That is to say, Kyong had a dual aspect, that of trustee and non-trustee.

73 It is not to the point that Mr Pacanowski or Mr Roth may have asserted to Mr Zavlasky or Mr Kalfus that Kyong was purchasing “as trustee”. There is a question as to what such a statement would mean in the absence of such words in the Kyong Contract. The assertion may have been right or wrong. But in any event, the Zavlasky parties did not consent to contract on the basis that Anqueline’s entitlement to the Consulting Fee would be in some way circumscribed by such a matter of domestic concern to the Pacanowski parties. If Kyong, as trustee of a superannuation fund, had a right of indemnity out of the fund in respect of its liability as purchaser, that was a matter of no interest to Anqueline.

74 Finally, on the cross-defendants’ own case, by the Replacement Deed Kyong retired as trustee of the particular superannuation fund which they propose as relevant on 16 January 2009, that is to say, prior to the rescission. The new trustee of that fund, the Capricorn Eleven Pty Limited Superannuation Fund, namely, Capricorn Eleven Superannuation Pty Limited, which was appointed on 16 January 2009, did not participate in the rescission.

75 Second, I have referred to the statutory provisions to which the cross-defendants refer in para 5(a) of their submissions set out above. They have not attempted to explain how, by completing the Kyong Contract or selling or otherwise disposing of Lot 1 or of Kyong’s interest in the Contract Documents within cl 1.4, Kyong would have contravened s 62(1) of the Superannuation Industry (Supervision) Act 1993 (Cth) and incurred civil and criminal penalties.

76 Third, I am not satisfied that Kyong was unable to borrow enough money to complete the purchase of Lot 1. In the first place, its related company, Capricorn, was able to complete the purchase of Lot 1. So far as the evidence reveals, Kyong could have done so too, but perhaps on more commercially onerous terms. In any event, Kyong could have performed the Kyong Heads of Agreement, not by completing the purchase, but by selling or otherwise disposing of its interest in the Contract Documents or in Lot 1 itself within cl 1.4.

77 Fourth, for what relevance it may have, it should be recorded that the cross-defendants’ case is not that Kyong was unaware, when entering into the arrangements of 19 and 20 March 2009 with ACPP, the significance of that arrangement for Kyong’s liability to pay the Consulting Fee. Mr Pacanowski said that he knew that the rescission might relieve Kyong of that liability of more than $1,200,000 and that this was a result for which he hoped. Whatever the position may have been when he initially approached ACPP concerning the rescission, I infer that by the time it took place the securing of this advantage formed at least part of Mr Pacanowski’s motivation in participating in the rescission. However, this finding is not necessary to my decision. Even if it did not form part of Mr Pacanowski’s motivation the result would be the same. The issue of breach of cl 11 and of the implied terms is to be decided as an objective matter, not a subjective one.

78 Fifth, Kyong submits that it did not breach cl 11 or the implied obligation incumbent on it because its course of action was not capricious but well founded in its own commercial interests. It is one thing, senior counsel for Kyong submitted, to choose a course that preserves the benefit of the contract for the other party where there is no detriment to the party making the choice; it is another thing altogether to do so when that course involves such a detriment. I do not accept that Kyong’s motivation and commercial interests signify that Kyong did not breach cl 11 and the implied terms. Clause 11 and the implied terms are not limited in their operation to situations in which performance and observance of them is not detrimental to the party bound by them.

Damages - Anqueline

79 If Kyong had not breached cl 11 and the implied terms, the Kyong Heads of Agreement would have remained on foot.

80 There is more than one way in which Kyong might then have performed the Kyong Heads of Agreement. It might have done so by completing the purchase from ACPP, and then either developing Lot 1 by construction of the industrial units or doing nothing with Lot 1 or selling it to a third party. Again, it might have not completed the purchase but sold or otherwise disposed of its interest in the Contract Documents to a third party. In any of these situations, it would have incurred a liability to Anqueline for the Consulting Fee. The measure of Anqueline’s damages is the amount of the Consulting Fee, no matter which course Kyong chose.

Damages – Mr Zavlasky

81 Mr Zavlasky has not shown that he suffered any loss by reason of Kyong’s breaches of cl 11 and the implied terms of the Kyong Heads of Agreement.

82 I referred above to various ways in which Kyong might have conducted itself consistently with cl 11 and the implied terms. Kyong did not undertake to construct industrial units on Lot 1. Kyong is entitled to have the question of any loss suffered by Mr Zavlasky approached on the hypothesis that it performed its obligations under the Kyong Heads of Agreement in one of the ways that avoided liability to Mr Zavlasky.

83 In any event, I am not satisfied on the evidence that Kyong would have done as Capricorn did – subdivide Lot 1 into five lots, obtain approval for the construction on one of the lots of 39 industrial units with a view to constructing them; and attempt to sell the other four lots with a view to funding the construction. Mr Pacanowski said that he was far from achieving this objective. The rather confusing evidence as to problems that Kyong was facing if it completed the purchase suggests that it may have preferred to sell.

84 If I approach Mr Zavlasky’s claim on the alternative assumption that Kyong would have done what Capricorn has done, Mr Zavlasky’s claim still does not succeed. What follows is based on this assumption.

85 Mr Zavlasky did not lead evidence from an appropriately qualified person of the value per square metre that an industrial unit not exceeding 300 square metres, or of a particular industrial unit among the 39 proposed that he would have nominated, as constructed on Lot 1. The value of the industrial units would depend to some extent on the nature and quality of their construction. But, as noted below, this evidentiary difficulty was not insurmountable.

86 Mr Zavlasky sought to rely on a Kyong document. This consisted of a table listing the 39 units for which approval had been obtained by Capricorn and their areas and “retail values”. The document was headed “Retail Value Analysis” and was stated on its face to have been prepared by a person named Leon Fredkin. Mr Fredkin was not called. The words “please check all assumptions” appeared at the top left had corner of the document. In evidence Mr Pacanowski referred to the figures in the document as “asking prices”. I accept that they were either estimates of “values” in some unexplained sense or of suggested asking prices.

87 In the absence of evidence from Mr Fredkin of his qualifications and experience, his reasoning processes and the significance of the amounts stated by him, I directed under s 136 of the EvidenceAct 1995 (Cth) that the use to be made of the document was limited in that it not be used as evidence of value, on the ground that that use often would be unfairly prejudicial to the cross-defendants. The document was, however, some evidence of the industrial units proposed to be constructed by Capricorn. More than one of the 39 industrial units had a floor area not exceeding 300 square metres. Mr Zavlasky did not give evidence as to which of these units he would have nominated by written notice under cl 1.5.

88 Senior Counsel for Mr Zavlasky referred to the famous case of Armory v Delamirie (1722) 1 Str 505; 93 ER 664. That was the case in which a chimneysweeper’s boy found a jewel and took it to the defendant goldsmith to find out what it was. The goldsmith’s apprentice delivered back the socket without the jewel. What value was to be placed on the jewel for the purpose of the measure of damages for the loss suffered by the loss of the ring? Pratt CJ directed the jury that unless the defendant produced the jewel and showed that it was not of the finest water, the jury must presume against him that it was.

89 I do not find the case helpful. The fact that the industrial units have not been built is hardly to be equated with the goldsmith’s failure to produce the jewel in terms of moral culpability. More importantly, however, in Armory v Delamirie several in the trade gave evidence of what a jewel of the finest water would be worth. Mr Zavlasky has led no expert evidence of what an industrial unit having a gross floor area no greater than 300 square metres on Lot 1 would be worth.

90 For the above reasons, Mr Zavlasky has not proved that he had suffered any loss by reason of the breach of cl 11 and the implied terms.

91 It was submitted for Mr Zavlasky that I should declare that Capricorn is bound to give effect to cl 1.5. The declaration would be a declaration that if and when Capricorn ever builds industrial units on the site, it must give effect to cl 1.5. Kyong would have been, and Capricorn still is, at liberty to decide to sell rather than to develop the site at all.

92 I put to one side the fact that the amended statement of cross-claim does not claim the declaration: it claims only damages. I should not make the declaration in a situation in which Mr Zavlasky has not shown that he has suffered any loss. To make the declaration sought would contravene the principle that all aspects of the dispute should be resolved now. Damages should and could have been, assessed once and for all if the issue had been properly addressed in evidence (that is to say, if expert evidence had been led establishing loss). It is true that the assessment of damages would have been difficult but it would not have been impossible. A valuer may have had to give a range of values depending on the quality of construction. The Court could have determined on an amount for the loss of opportunity suffered by Mr Zavlasky.

CONCLUSION

93 There should be judgment for Anqueline for the amount of the Consulting Fee and the judgment should include interest from 20 March 2009 to the date of judgment (see the recent Practice Note SC Gen 16). Mr and Mrs Pacanowski are liable as guarantors under cl 4.1 of the Kyong Heads of Agreement. The plaintiff/cross-defendants must pay the costs of the defendants/cross-claimants. I will direct the parties to bring in short minutes of the orders to be made, consistently with the above reasons, including an amount for interest down to judgment.

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