Lesdor Properties Pty Limited v Cordon Investments Pty Limited and Ors; Cordon Investments Pty Limited and Ors v Lesdor Properties Pty Limited

[2013] HCATrans 60

[2013] HCATrans 060

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S193 of 2012

B e t w e e n -

LESDOR PROPERTIES PTY LIMITED

Applicant

and

CORDON INVESTMENTS PTY LIMITED

First Respondent

GHASSAN GHOSN

Second Respondent

HABIB GHOSN

Third Respondent

Office of the Registry
  Sydney  No S196 of 2012

B e t w e e n -

CORDON INVESTMENTS PTY LIMITED

First Applicant

GHASSAN GHOSN

Second Applicant

HABIB GHOSN

Third Applicant

and

LESDOR PROPERTIES PTY LIMITED

Respondent

Applications for special leave to appeal

HAYNE J
BELL J
KEANE J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 15 MARCH 2013, AT 9.35 AM

Copyright in the High Court of Australia

____________________

MR T.S. HALE, SC:   May it please the Court, I appear with my learned friend, MR M.S. WHITE, for the applicant in S193/2012 and the respondent in S196/2012.  (instructed by Solari & Stock Lawyers)

MR F. CORSARO, SC:   May it please the Court, I appear with my learned friend, MR B.C.A. BRADLEY, for the respondents in S193/2012 and the applicants in S196/2012.  (instructed by CCS Legal Pty Ltd)

MR HALE:   Your Honours, the special leave question raises the extent and width of what is often referred to as the unreasonable exceptional test in Bellgrove v Eldridge.  As your Honours know, Bellgrove v Eldridge establishes that in an action for damages for breach of contract for defective work, the measure of damages is the amount required to remedy the defects but that is subject to the qualification referred to as the unreasonableness exception, that is, it is subject to the qualification that not only must remedial work undertaken be necessary to produce conformity with the contract but that it also must be a reasonable course to adopt.  That is, if undertaking the remedial work would be an unreasonable course to adopt, the cost of the remedial work is not compensable as damages.

This case raises two issues, whether the fact that the defective work is to be remedied on land subsequently transferred to a third party, here the common property of the subsequently registered strata plan is relevant to the reasonable exception and, if so, how.  Secondly, whether or not the innocent party actually intends to carry out the remedial work with the damages that it may be awarded is relevant to the reasonable exception and if so, how.

HAYNE J:   Those sound like issues of fact relevant to the application of a principle which you do not challenge.  If leave went, would you seek to have us reformulate the principle?

MR HALE:   We would only insofar as it was necessary to take into account the issue of what the Court of Appeal refers to as intervening events to the extent that that might be relevant.

HAYNE J:   I think, Mr Hale, we need, to use a petrochemical term, put you against the hot pipe.  The question is would you have us depart in any respect from what was held in Bellgrove or later in Tabcorp?

MR HALE:   No, we would not. 

HAYNE J:   If that is right, why should we take it?  Does it not become then a case about the minor premise and the facts of the particular case?

MR HALE:   The reason why this goes beyond simply the question of whether the remedial work is reasonable or unreasonable is because, we would say, of the uncertainty that has now been created by the Court of Appeal’s expansion of the unreasonable test both in relation to the intention to use the damages to undertake the rectification work and, secondly, the consequence of transferring the land.

The approach of the Court of Appeal, we say, has the effect of broadening the test, so here the wronged property developer is deprived of the cost of the remedial works simply because he has not – or it has not - established an intention.  That is to say, it adds ‑ to use the damages for the rectification works, it adds another dimension to the issue which hitherto had not existed which means there is uncertainty as to what needs to be proved.  Secondly, it also causes that uncertainty because the strata subdivision has been registered and the defects are now on the common property.

We would contend in relation to both of those questions that uncertainty has considerable impact within building disputes.  For example, one thing we do know when it comes to property developers and builders constructing, for example, a residential tower or indeed office space with the idea of ultimately selling those units that units are sold off the plan.  There are likely – there is going to be a need for the strata plan to be registered.  There is going to be common property.  There is in all likelihood a possibility that there will be building disputes in relation to the common property.  If the Court of Appeal’s decision stands then it has the consequence that there must be considerable doubt as to what the property developer needs to do.

HAYNE J:   Where, most conveniently, do we find what you say is the error in the Court of Appeal’s reasoning?  Can you point to a particular paragraph as encapsulating the error?

MR HALE:   In our submissions?

HAYNE J:   Yes.

MR HALE:   It is to be found on application book 244 at paragraph 16 over the page.

HAYNE J:   I know that is what you say.  What I was looking for is where in the reasons of the Court of Appeal?

MR HALE:   I am sorry.  The reasons of the Court of Appeal are to be found at application book 232.

HAYNE J:   Yes.  Where do they go wrong?

MR HALE:   Where they go wrong is 232 to 233.  Firstly, at paragraph 227 there is a concentration on a finding of whether or not the principles of Lesdor had in fact established an intention to carry out the rectification work as being of a significant issue.  Then, at paragraph 228 on page 232 is the reference to the fact that the strata plan had been registered and the common property transferred.  Then, if we look at paragraph 230 at the bottom of page 233, over to page 234, is the ratio of the decision which at 234 it is contended, or it is held, that to carry out the work would be unreasonable because, as we see going back to the beginning of the paragraph, “the lack of intention to carry out the rectification work” which we contend is contrary to established authority.

Secondly, the transfer of the property from Lesdor to the owners corporation which, again, we say is contrary to established principle and thirdly, lack of evidence that the defect is affecting the use which, again, is established contrary to Bellgrove v Eldridge, the illustration of a building owner entitled to have a room, for example, painted the contracted colour rather than some others.

BELL J:   Mr Hale, can I just ask you this, at application book 229 paragraph 215 the Court refers to the reasons of the primary judge by reference to the decision in Westpoint Management for the proposition that if supervening events meant that the innocent party to the contract cannot carry out rectification work that it cannot be found that rectification work is reasonable to achieve the objective, do you take issue with that?

MR HALE:   Yes, we do, for two reasons.  Firstly, the lower level, it goes too far because if we see - and if I could take your Honours to Westpoint in the materials at paragraph 62 on page 26.  It goes further than Westpoint even if Westpoint is correct, but we see towards the end of the paragraph after referring to the various authorities, it is said that:

In these cases the rectification work could not be carried out –

could not be carried out –

because of supervening events, and established that the plaintiff had not been deprived of the benefit of performance –

So those were cases which were limited to the circumstances where, in effect, the work could not be carried out by way, for example - and in most of those cases - where there had been a breach of contract but a subsequent order, either by the Court or a counsel requiring additional work.  On one view of it, that would sit with Bellgrove v Eldridge because to suggest that someone would do the work with the idea that it would immediately be demolished to comply with another order, on one view of it might be consistent with the approach in Bellgrove v Eldridge.  So, what the Chief Justice has done in the present case is extend the principle well beyond that in Westpoint but also the question arises as to whether Westpoint is correct or the extent to which impossibility of performance is relevant to the issue.

KEANE J:   Mr Hale, with respect, I think you are being a little bit hard on the Court of Appeal here.  If one looks at application book 244, your paragraph 16, the criticism is that:

the Court of Appeal and the primary judge concentrated on Lesdor’s intention to carry out the work as if that in itself was a matter determinative of the reasonableness of the rectification work.

If one looks at the reasons at page 233 paragraph 230 what the Chief Justice says it is:

The combination of the lack of intention to carry out the rectification work, the transfer of the property from Lesdor to the owners corporation and the absence of any evidence that the defects were affecting the use and occupation of the building or the common property leads, in my opinion, to the conclusion that it would be unreasonable to carry out the work –

Now, that looks to me like the expression of a conclusion about reasonableness taking into account three factors, each of which on the authorities is relevant and a conclusion based on relevant factors, if you like.  I mean, it just seems to me that this is an example of a case where a number of features of the case are regarded and in combination produce a conclusion as to reasonableness.

MR HALE:   We would take issue with that because the starting point, as Bellgrove v Eldridge identifies, and indeed Tabcorp, is the starting point is to look at the necessary rectification work and whether it is reasonable to undertake it.  So, here one looks at whether or not it is reasonable to undertake the remedial work to the defective work on the common property, some of which is quite significant.  There were five significant issues identified.  We are really only talking about five issues.  So, what the Court of Appeal, in our submission, consistent with the authorities, should have looked at is whether in the circumstances actually doing the work would in fact be reasonable.

Instead of doing that, what the Court has, in effect, looked at is whether in the circumstances it is reasonable to award damages, in that sense.  That might be a bit harsh.  But if we look at it, the fact that a “lack of intention to carry out the rectification work” - as I have already said in Bellgrove v Eldridge - intention whether to use the damages is not relevant.  It is up to the party itself whether it wants to spend the money or not because to do otherwise, of course, to decline damages is, in effect, to undercut the bargain and gives the wrongdoer the advantage.  So, that factor is, in our respectful submission, not relevant.

Intention has been discussed in a number of authorities in New South Wales.  Many would say in a heterodoxical fashion in relation to some of the more recent authorities.  Intention, at its highest, can only be to determine whether or not the work is unreasonable, for example, the fact that there is an intention not to do it might, in fact, confirm that it would be unreasonable to do it, for example, the Bellgrove v Eldridge example of the new bricks rather than the old bricks.  Secondly, “the transfer of the property . . . to the owners corporation” cannot be, in our respectful submission, relevant.  It has been long held authority to that effect.

KEANE J:   It can be relevant, not decisive.

MR HALE:   No, well it can have but as I think your Honour, in your guise in the Court of Appeal of Queensland, in UI International v Interworks and we make reference to this in our submission.  It has long been held that the sale of real property which is defective structure does not preclude the recovery of damages.  Again, it does not turn on the change of circumstances; it really turns on whether the work is reasonable or unreasonable in the circumstances.

The third factor is, effecting the use and occupation of the building or common property.  That is, as I have submitted, is not or cannot be, certainly of itself, a relevant factor.  Here, there can be no doubt as the primary judge has found in relation to these five issues, that what was built was substantially different from that contracted for.  So, when one looks at those three factors, then one, in our respectful submission, would see that the reasoning is contrary to the established principles.

If I might finally add this, one of the advantages of this case, it being a building case of a kind, is that somewhat unusually perhaps, the facts are within a relatively narrow compass.  They are not complex.  There are five matters which are the subject of clear findings, particularly by the primary judge.  So, it will not have that added complexity which would usually accompany a building case and therefore, in that sense, it is an appropriate vehicle to determine these issues.

HAYNE J:   Thank you, Mr Hale.  Yes, Mr Corsaro.

MR CORSARO:   Your Honours, it is common ground that the starting point for the assessment of damages for breach of a contract for building work is the holding of this Court in Bellgrove v Eldridge.  The applicants do not seek to challenge what was said by this Court in that case.  Nor do they seek to modify the principles as they are there stated.  In the result, if special leave were granted it would involve no more than the application or elaboration of principles long established in the particular factual context of this case.

Your Honours, that would of itself not be a matter that would attract the grant of special leave ordinarily and especially where the Court has relatively recently had occasion to reaffirm and review those principles in Tabcorp.  The qualification of the prima facie measure in Bellgrove that the remedial work be both necessary and reasonable in any particular case is a question of fact as your Honour Justice Hayne, I think, made plain.  Lesdor, in effect, seeks by this application to challenge the findings of fact made by the Court below that the remedial work was neither reasonable nor necessary given the particular circumstances of the dispute between the parties.

Accordingly, your Honours, there is no principle of universal application.  Resolution of the proposed appeal will turn on specific factual findings made by the Court of Appeal and the primary judge.  There is no matter of public importance.  The matters have been established and reviewed in Tabcorp.  The findings that his Honour Justice Keane took my learned friend to that is the Chief Justice’s judgment at appeal book 233, 45, we with respect, concur with a finding which relied on a combination of factors relevant to the qualification in Bellgrove.  The “lack of intention to carry out the rectification work” was one.  There is no challenge, as we understand it that lack of intention can be relevant to that issue.

Indeed, it was considered below and, I think, there is a passage in the Court of Appeal’s judgment that confirms that there was no submission put to the Court of Appeal that a lack of intention to carry out the rectification work was, in fact, not relevant to the particular qualification in Bellgrove.  The second matter was “the transfer of the property . . . to the owners corporation” and the third was:

the absence of any evidence that the defects were affecting the use and occupation of the building or the common property –

That is, no lack of amenity.  Can I deal, your Honours, with each of those three factors, firstly, “the lack of intention”?  Contrary to the oral submissions, Bellgrove does not stand for the proposition that intention to carry out rectification work is quite immaterial as has been put to this Court – quite immaterial to the concept of reasonableness.  The passage relied on from Bellgrove is concerned with whether a person may or may not use the judgment sum to acquit the damage or some other means.

However, that does not mean, with respect, your Honours, that the evidence of intention to undertake rectification work or not is not relevant to the appropriate measure of damage.  There is no error in principle in

Westpoint.  His Honour Justice Giles there considered if a matter truly went to reasonableness whether or not the plaintiff will carry out the rectification work was relevant and was consistent with Bellgrove and nothing in Tabcorp and nothing in Bellgrove and nothing from any of the cases to which our learned friends rely establishes the contrary.

Can I turn to the next issue, the transfer of property?  The applicant relies, your Honours, on the judgment of his Honour Justice Gibbs as his Honour then was and Director of War Service Homes.  Even in that particular case which related to the transfer of ownership, his Honour said:

If the owner subsequently sold the building, or gave it away, to a third person, that would not affect his accrued right -

True, it is, we do not challenge that and it is not an issue of accrued rights in this case.  There is no doubt that his Honour’s statement as a statement going to accrued rights would be undoubtedly correct, but the following points are relevant. 

Firstly, Lesdor does not address how many of the subject defects have manifested at the time of the divestment.  Secondly, what we are concerned with here, your Honours, is the proper measure of damages, not accrued rights.  Thirdly, in that case, his Honour, with whom the other members of the Full Court agreed, further provided that the fact of the sale might be one of the circumstances that would have to be considered in relation to the question whether it would reasonable to affect the remedial work, not determinative, as his Honour Justice Keane put to my learned friend but, again, relevant.  There is no error in the trial judge’s judgment.  There is no error in the Court of Appeal in taking each of those matters - taking them in combination and determining that, as a matter of fact, it was not reasonable. 

Can I say something lastly about the absence of evidence as to lack of amenity which is raised by our learned friend in the submissions, a number of factors relevant to that particular proposition?  Firstly, your Honours, the referee’s findings were accepted by the primary judge.  The referee expressly found that none of the five, what my friend calls “major issues” I think, or “issues”, prevented occupation and Lesdor had tenanted the building shortly after it took possession.  There was no issue with access, safety or use of the building, no loss of amenity.  For all of these reasons, your Honours, we respectfully submit it is inappropriate that your Honours grant leave.  They are our submissions, thank you, your Honour.

HAYNE J:   Yes, thank you Mr Corsaro.  Yes, Mr Hale.

MR HALE:   A few matters in reply, I think.  Firstly, on the question of amenity as I have earlier indicated, that cannot be, in our respectful submission, relevant to the ultimate issue of itself as to whether it is reasonable to undertake the works.  We see in the findings of the primary judge, just by way of example, if we go to application book 47.  We see at paragraphs 126 and 127 an example being the first significant issue.  Now, of itself, that may not mean that the building cannot be occupied, but what it demonstrates is that what was built was something significantly different from that contracted for which you see in paragraph 126 ‑ ‑ ‑

HAYNE J:   That, surely, is the premise for the whole debate.  We understand that what you got was not what you contracted for, but what is to be allowed for that?  There was no attempt to mount a case which said, look, if this common area had been constructed differently we would have been able to let at a higher price, we would have sold at a higher price.  That was not the case made, was it?

MR HALE:   No, no, it was not.  The case made was ‑ ‑ ‑

HAYNE J:   We did not get what we contracted for.

MR HALE:   And from our point of view, it does not do the job.  That is to say that pedestrians cannot go from the commercial centre through the office space to go up the road at Wandella.  We have got something different.  We have got, in one of the instances, steel which was not treated the way it might have been so as to prevent rust so there is a lesser quality.  We have a footpath which has been constructed in a different way which gives rise to difficulties.  All of those are matters which the builder contracted to provide and did not provide, and the fact of the matter that it may mean that it does not affect the ability to occupy but what it does do, undoubtedly, it affects the look of the common property and, therefore, can reflect ultimately on value, but that is not the issue.  It is to get the bargain.

The other issue was on the issue of intention.  It is correct that I did concede there may be circumstances in which intention to use the damages may be relevant, but only in a very confined fashion, namely because it may indicate that the discrepancies are so trivial, as it were, that the owner would not bother himself to have them rectified.  The example was given, I think, in the Westpoint Case.  That was the analysis in Westpoint.  It goes – intention is only relevant to the question whether it is reasonable to do the work.

But we still come back to what was said in Tabcorp about the reasonable exception is only satisfied in fairly exceptional circumstances and that two established instances are identified in Tabcorp where the innocent party is merely using a technical breach to secure an uncovenanted

profit which could not be said to be this case.  Secondly, the expenditure to rectify the defects is out of all proportion to the benefit obtained.  That is not this case.

HAYNE J:   Thank you, Mr Hale.  As I indicated to counsel at the outset we will go at once to the second application before we dispose of the first.

MR CORSARO:   As your Honours will have seen, this special leave application raises three matters.  Your Honours, the first of those matters concerns whether this Court’s reasons for refusing special leave in Jireh should be taken as having conclusively determined that by reference the true rule enunciated by Sir Anthony Mason in Codelfa, the existing principles of contractual construction in Australia required textual ambiguity before a court can refer to surrounding circumstances in aid to construction of a written agreement.  Your Honours, it is now thirty years since this Court decided Codelfa. 

There has been a great deal of jurisprudence in the intermediate courts of appeal in Australia, and as your Honours are well aware in the English and American courts since, which adopt a more commercially purposive and contextual approach. 

HAYNE J:   I would not want you to think those are not loaded terms, Mr Corsaro.

MR CORSARO:   They are, your Honour.  I accept that totally.

HAYNE J:   That is what advocates are paid for.

MR CORSARO:   Not according to his Honour Justice Keane.  Your Honour missed that.

HAYNE J:   But let it be assumed, (a) that there is a difference; (b) that you are right to say that we should not look past what was said in Codelfa.  How would you get to a different result in this case?

MR CORSARO:   May I come to that, your Honours?  Firstly, can I indicate that your Honour, sat on Sturesteps with his Honour Justice Gummow last year and refused, I think on an application for special leave, the very point which I am urging on the special leave application today.  I think it is relevant, if I may, to come to that point but I might just spend one or two moments getting there.  I hope your Honour will be patient with me in doing it.

HAYNE J:   Good.

MR CORSARO:   Your Honour, the second matter which is raised is whether it is appropriate for this Court to grant leave to either reconsider what was said in Codelfa as a true rule as to the admission of evidence of surrounding circumstances.  Or, alternatively, at the very least, to provide clear guidance as to how the Court’s earlier judgments should be reconciled in the light of Jireh. 

Your Honours have, in the papers, the judgment of Justice Pullen in the Western Australian Supreme Court in McCourt v Cranston because with respect the issue which has fallen out since Jireh is neatly, with respect to his Honour, encapsulated by his Honour Justice Pullen’s decision in that particular case.  May I invite your Honours to go to paragraph 20 of the judgment?  It is behind tab 1.  Paragraphs 13 to 26 of the judgment are, in fact, relevant but may I just highlight some of the features of what his Honour said.  At 20, his Honour said this:

Until recently, it was possible to read Paribas and Toll and Royal Botanic as meaning that even without ambiguity, evidence of surrounding facts and the object or aim of the transaction was admissible.  This is what other intermediate courts of appeal thought they meant:  see for example Franklins Pty Ltd v Metcash TradingLtd [2009] NSWCA 407; (2009) 76 NSWLR 603 [17]; MBFInvestments Pty Ltd v Nolan [2011] VSCA 114 [198] – [2-3].

I think both of those are cases are referred to on the special leave application in Jireh.  At 21:

However, in the brief reasons of the High Court in Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45 [5] the members of that court (Gummow, Heydon & Bell JJ), did not accept that its earlier decisions may be read in that way.

His Honour then returns to this theme at 22:

None of the statements in Paribas, Toll, Wilkie or Ansett were preceded by a qualification that a contract had to be ‘ambiguous or susceptible of more than one meaning’ before evidence of surrounding circumstances could be received.  Many judges around Australia did not appreciate that there was such a qualification.  However the reasons in Jireh require courts to consider whether the statements in those cases should be read with that qualification; ‘until’ the High Court embarks upon ‘a reconsideration’ of Codelfa: see Jireh –

That is our second matter that is raised on the application –

In doing so, courts will have to consider whether the pronouncements in Jireh were ratio or ‘seriously considered dicta’ –

So that is one issue which requires clarification as his Honour, with respect, brings out and his Honour there refers to “Farah” and “Say‑Dee” –

In that respect, consideration will have to be given to whether a set of reasons of the High Court dismissing an application for special leave have anything more than persuasive value –

Reading on, your Honour – I am sorry, I will stop there and your Honours can see what his Honour says, so we say that is the point of significance.  We have also included in the papers behind tab 2, the opening address of Sir Anthony Mason who, of course, was the author of the true rule in Codelfa, given in a paper delivered at the 20th anniversary of the journal of contract law. 

Whilst we acknowledge that extra curial statements of that type concerning the principles of contractual construction are of questionable persuasive value, we rather think that it might be relevant that Sir Anthony, in that case, has at least indicated what he intended Codelfa to mean and that is instructive.  Your Honours will see at page 3 – can I take your Honours quickly to it?  At the top of the page, line 3, I invite your Honours to read from the word “Ambiguity” to the end of the paragraph ending “interpretation and rectification”.  I will not read it on to the record unless your Honours want me to.

BELL J:   Accepting the significance of the point, can we come back to Justice Hayne’s question, how would the bottom line be different here?

MR CORSARO:   Yes.  Can I deal with now?  Cordon’s case below, your Honours, was that the word “completion” in the relevant context, it had appeared textual within the deed, was susceptible to more than one meaning in two ways.  The first is a result of textual ambiguity, the traditional ambiguity of the type that would come within Jireh, and that I will come to in a moment and indicate how we got to that particular submission.

The other, your Honours, was by reference to what a reasonable commercial person in the position of the parties would expect, and the resort to the surrounding circumstances as an aid in construction when the words were susceptible to one meaning, in the latter case we submitted was where completion had to be construed, even though textually perhaps not ambiguous by reference to what reasonable commercial men engaged in a venture of developing a substantial multilevel mixed commercial and residential development, what they would take the word “completion” as meaning, whether they would take it as meaning referable to defects and omissions that did not impact on the aim, namely, the quick registration of a strata plan for the purposes of sale of the units for the acquittal of the loan or whether they would take it operating in that market where ordinarily, as your Honours would know, completion is not seen as completion in that sense, as meaning completion for all purposes, especially in circumstances where they had negotiated up to that point a proposed building contract and where, under the terminology of the deed, there was a defect’s liability, which permitted defects to be rectified at a later time.

So we say that is why it would make a difference because we would say the completion would then have had the meaning for which we contended below, namely the state of the building which resulted in a strata plan being issued, the council issuing a certificate of occupation, the strata plan then issuing and being able to be registered with the sale of the units with a subsequent period for rectification of what was left.  What we have called loosely and perhaps incorrectly, a two‑stage rectification process.  Especially in circumstances where the commercial framework is understood ‑ ‑ ‑

HAYNE J:   Can I just interrupt you because I do not think I have yet quite grasped the two competing meanings or perhaps I have not sufficiently grasped the meaning that you would have the word “completion” bear.  Do you say that “completion” in this context was to be construed as meaning completed to the point of issue of certificate of occupancy?

MR CORSARO:   Yes, your Honour.

HAYNE J:   Why would you construe the word “completion” in that way when it was open to the contracting parties to say that X is to happen upon issue of certificate of occupancy?

MR CORSARO:   The textual ambiguity ‑ ‑ ‑

HAYNE J:   I am not interested in how you get there, but why ‑ ‑ ‑

MR CORSARO:   I am sorry, I misunderstood your Honour.

HAYNE J:    ‑ ‑ ‑ would you construe “completion” as meaning issue of certificate of occupancy when that is a perfectly well understood, I think not uncommon, phrase found in building contracts?

MR CORSARO:   Yes.  As the trial judge and as the Court of Appeal considered the word “construction” textually within clauses 15 and I think 13.3, they construed it as meaning the complete and overall completion of all items in the building, what we have loosely called in the submissions “defect free”.  Now, perhaps that is not an apt description, but I suppose, your Honour, that illustrates it.  We say it was susceptible to two meanings, that might have been one, but the other one viewed contextually by reference to the market, which is to take up your Honour Justice Hayne’s point, namely, it is well understood in the building industry that one does not have that sort of completion.  So we said there are two ambiguities, the first textual, and that is by reference to 21 and the existence of a defects liability period which envisaged later rectification of defects, and secondly by reference to the market.

We say, your Honours, that if we be right in Codelfa either on review or as we, with respect, believe it ought be construed as allowing a reference to construction based on context, we would have emerged, we would have thought, at the outset of the case below and presumably we should have emerged from the Court of Appeal with a determination that completion meant as we maintained.  Your Honours, there are two other factors that I think I have not mentioned.  The first was that at the time of the joint venture deed the parties had negotiated a building contract involving that two‑stage process of completion as part of the joint venture arrangements.  The Court of Appeal, your Honours, simply did not have regard to that fact.  The trial judge did make relevant findings; can I take your Honours to those?  In the application book page 31, paragraphs 79 and 80:

I do not think that it is legitimate to construe the deed that the parties did make by reference to, or so as to be in conformity with, a building contract that they did not make.  I accept that it is likely that, at least during their negotiations, the parties intended their obligations to be governed both by the deed (which would set out their respective rights and responsibilities as joint venturers) and by a building contract (which would set out their specific rights and responsibilities in relation to the building work).

If I could pause there, what then merged was one document setting out both -

I accept, too, that there is no explanation of the sudden disappearance, from the contemplated documentation, of the building contract; or of the failure to require a building contract to be executed.  But I am concerned with what the parties did, not with what they might have done.

That was, with respect, a significant setting in which the deed was executed.  His Honour then says this:

80In the absence of evidence, it is open to infer either that the parties overlooked that they had intended to execute a building contract (I would have thought, an unlikely position, given that each was legally represented) or that, for some reason, they decided not to execute a building contract.

What was omitted, we think, and should have been included, was the proposition that what happened was the one contract then served both purposes and because the Court of Appeal merely had regard to the textual ambiguity his Honour the Chief Justice simply saw the word “completion” as unambiguous.

BELL J:   I am sorry, Mr Corsaro, but the primary judge took into account considerations respecting the commercial arrangements between the two that suggested to him it was by no means uncommercial for “completion” to bear its ordinary meaning.  This is at application book 33, paragraphs 85 and following.

MR CORSARO:   I am sorry, your Honour, what was that passage?

BELL J:   Application book 33, paragraphs 85 and 86.

MR CORSARO:   Yes, his Honour certainly considered it was not unreasonable to construe it in that way, but that with respect, your Honour, was not the test, the test is what was the right construction and the right construction – I am sorry, your Honour.

BELL J:   I am sorry, Mr Corsaro, I am just drawing your attention to it because, again, it seems to come back to this question of whether one would, in the circumstances of this case arrive at a different result even if there is significance for the broader point.

MR CORSARO:   We think there would be, and can I just take up that point?  What, in our respectful submission, his Honour the trial judge failed to do, and we do not find any reference to it in his Honour the Chief Justice’s decision simply because he approached it in a slightly different way omitting any reference to the context because of Jireh and because of his view that there was no textual ambiguity. 

What his Honour failed to do was - although acknowledging the negotiations about the building contract, although acknowledging that one would expect that in a case where we have a joint venture involving building works you would have a building contract - what his Honour failed to do, with respect to his Honour, was to recognise that the negotiations of the separate instrument were relevant to the presumed intention of what the word “completion” meant, and if the building contract, as typically it does, contains provisions of a two‑stage completion process, even though not completed, we would say consistent with Codelfa that circumstance was relevant to the presumption, the presumed intention as to what “completion” would mean. 

If Cordon is correct, if the applicant is correct and if the appeal is granted and “completion” was as it is submitted below, namely not a complete carrying out of all of the building work to perfection, what I have called, again, perhaps inelegantly, “defect‑free completion”, then it has this consequence:  Firstly the respondent was in breach in failing to execute and deliver the strata plan for registration to permit the sale of the completed units.  In other words the obligation had been triggered and we ought to have had the strata plan that is the first point.

Secondly, the only mechanism, your Honours, for paying down the loan facility which had been obtained for the purposes of construction was the sale of the residual lots and the contractual responsibility for sale rested with the applicant, Cordon.  Whilst this would not distract this Court on appeal if appeal be granted, it would be the subject of a remitter because there have been no findings made as to the effect of the respondent’s breach on Cordon’s ability to perform its obligations.  Namely, your Honours do not have - in any factual finding - the trial judge did not enter into the arena in determining what would have flowed if in fact the concept of completion was as we contended. 

So there would have to be a remitter.  The Cordon position below was that it had been prevented or hindered in performing the obligations relevant to the acquittal of the loan facility by reference to Lesdor’s failure to execute and deliver the strata plan.  Now, your Honours, I have been on my feet a while so can I just say something very simply about the third matter?  The third matter that arises in this application – and I will do so as briefly as I can – concerns the way in which the Court of Appeal dealt with the doctrine of substantial performance in deciding that complete performance of the building works were required, namely, that there were to be no defects, irrespective of how minor, before the respondent’s obligation to execute and deliver the strata plan was triggered.

Our proposition and the issue on appeal is this; in an entire contract, the requirement to complete building works is considered as a term of the contract ordinarily.  They are considered as a term but not a condition, and certainly not a condition going to the root of the contract.  It appears that the Court of Appeal disregarded the doctrine of substantial completion in its operation to building obligations and the obligations of clause 15 of the joint venture deed because his Honour the Chief Justice regarded the complete satisfaction of the building obligations as conditions precedent. 

We contended that they were terms and thus the doctrine of substantial performance applied. 

The applicant submits that this was a mis‑categorisation and the applicant’s obligations under the joint venture were essentially in the nature of a building contract.  We think that that emerges clearly from the tenor of the joint venture deed.  The delivery and execution of the strata plan was a step in that process, your Honours, and it was an important step in the process of the applicant actually receiving payment for the works it had carried out.  In other words, the applicant’s remuneration for building a building was actually going to be from the sale of the units after the registration of the strata plan and a number of sales had been made off the plan and its profit component and largely the remuneration came from that process. 

So the registration of the strata plan was a first step.  The doctrine of substantial completion should therefore have applied.  That was our contention and certainly our contention on this application viewing the entire performance of that obligation to construct as a term rather than a condition.  We otherwise rely on our written submissions.  Thank you, your Honours.

HAYNE J:   Thank you, Mr Corsaro.  Yes, Mr Hale.

MR HALE:   Your Honours, this of course was not a building contract but a joint venture agreement of an unusual kind, as your Honours have seen, owner of the land wanting refurbishment, and the builder being paid ultimately out of the sale of certain of the units.  So it was an unusual contract, not a standard building contract, in which both parties were represented by solicitors and there were negotiations between them which ultimately led to the execution, or at least the agreement and execution, of the deed expressing the arrangements between the parties.

Now, what my learned friend is seeking to do has been in substance identified already in the passages from the primary judge’s judgment at pages application book 31 and 32.  What he is in effect arguing is that what might be said pre‑contractual negotiations and the context of pre‑contractual negotiations might somehow find their way into the interpretation or construction of the finally concluded agreement which is something inconsistent with established authority.  Perhaps the way the primary judge puts it best is at the beginning of paragraph 79 at page 31:

I do not think that it is legitimate to construe the deed that the parties did make by reference to, or so as to be in conformity with, a building contract that they did not make.

So what in substance the extrinsic facts sought to be relied upon are failed negotiations for another agreement.  Now, on its terms one would assume, as I have already identified, that the solicitors acting intended and the parties intended that the document that was agreed identified the agreement between the parties on all aspects.  There has been no rectification sought, as I understand it, and so one looks to the text itself, and the Chief Justice did not see it necessary to look at the circumstances in which extrinsic circumstances, background facts, might need to be taken into consideration, as we see from page 109 of the application book.  I am sorry, not page 109, at page 169 at 52.  He identified the principles although did not feel it necessary to apply those principles, but we see at about line 38, having in mind Western Exports, he said:

At least in the case of ambiguity, resort can be had to the surrounding circumstances –

It was not as if he made any specific determination on that controversy, but when one looks at the text of the agreement, it is on its face, in our submission, reasonably straightforward and clear.  At page 161, paragraph 28, is the contentious paragraph – contentious clause – which is:

Cordon shall at its own expense use its best endeavours to have the Strata Plan approved –

We then go, the definition of strata plan we find at page 158 at about line 38:

means the Strata Plan which will be created upon registration . . . by Cordon’s surveyor upon completion of the Building Works.”

Then we see the building works are defined further up the page, which:

means the construction work comprised in the Plans and Specifications necessary to construct the Building –

The building is defined at the top of the page, which is by reference to “the Plans and Specifications”.  So even the use of the strata plan means that, or imports, that the building works have in fact been completed and that is a word of ordinary meaning.  Then we see it reinforced, going back to page 161 in clause 15:

as expeditiously as possible following completion of the Building Works –

Now, there is no reason ‑ ‑ ‑

KEANE J:   Mr Hale, is not the strongest point for you on this that as one sees at 159, paragraph 24, that completion – we know what completion is - completion by reference to the promise in 5.1:

(a)      The works will be completed in accordance with the plans and specifications.

It is not about what everyone knows.  It is actually the promise here is:

The works will be completed in accordance with the plans and specifications.

That is the promise. 

MR HALE:   Exactly, that is the promise, and that was the approach of the Court of Appeal.  That also was the approach of the primary judge.  What is proposed is to look at pre‑contractual negotiations or a failed arrangement in order to alter what we would say is the clear meaning of the agreement.  As to the second matter which is the substantial performance, as it is clear from Hoenig v Isaacs, that is purely a matter of statutory construction, not of general principles.

HAYNE J:   Yes, Mr Corsaro.

MR CORSARO:   Briefly, your Honours, the trial judge’s findings as to the commercial inconvenience not being all one way which are in the passages that your Honour Justice Bell referred me to a little while ago were made by his Honour absent due regard to the important circumstance of the negotiations of the building contract.  If one were to go to ‑ ‑ ‑

HAYNE J:   Well, Mr Corsaro, you say that negotiations are important.  No doubt they were to the parties at the time they made their agreement.  What do we get out of negotiations ever?

MR CORSARO:   There are three things, with respect, that we would put.  Firstly, we get a surrounding circumstance and the market and we get two people with knowledge working within a context of a building contract that typically has completion in the two stage process.

HAYNE J:   And they then sign up to a particular set of words.

MR CORSARO:   True, one cannot say that they did not but, your Honours, we say that the fact that they had negotiated was an important factor.  Secondly, although it is true, all building contracts, your Honours Justice Keane, have completion to the plans and specifications.  That is the ultimate objective.  What is important is not the fact that ultimately it had to be completed.  It is whether or not completion involved a one or two‑stage process, namely, for the purposes of handing over the strata plan completion was such as to result in something being left to be taken up in the defects liability period.

KEANE J:   Building contracts familiarly contain those provisions. 

MR CORSARO:   Yes, your Honour.

KEANE J:   In this case, the parties did not make a building contract and they had actually negotiated about making one.  The interesting thing about that is that in Codelfa Justice Mason at 352 at the bottom over to 353 mentioned the one situation in which you can use extrinsic circumstances of actual intention – actual intention – and that is where the parties negotiate about a position and then choose not to pursue it.  If one is to make anything of the parties’ failure to conclude a building contract, or to incorporate the sort of provisions you are talking about in this case, then it is that they deliberately decided not to in the absence of any evidence that would support a claim for rectification.  So even allowing reference to the extrinsic circumstances, the case gets worse for you.

MR CORSARO:   With respect, no because we put it this way.  True it is that they did not sign and one has no explanation as to why they did not sign, but that means that two obligations that they envisaged at the time of the contract, namely, a building provision that would have a formalised set of rules and a building contract that would ordinarily have this two‑stage process, converted itself to one agreement containing all of the provisions.  The question that we respectfully put arises on this application is this.  In circumstances where there was textual ambiguity, and I omitted to refer your Honours to this, there were provisions in the specifications which are referred to in the trial judge’s reasons at application book 32.25. 

There were specifications referred to in the actual tenor of the joint venture agreement which referred to this concept of practical completion.  His Honour saw that and did not regard those documents as, in fact, relevant to the construction point, and we put them forward as relevant to the textual ambiguity point.  So you had a joint venture agreement that had specifications that made reference to a two‑step process.  You had a building contract being negotiated which in the building industry ordinarily has the two‑stage process. 

The parties declined to move forward on the building contract and assume all of those responsibilities under the joint venture agreement.  The question then becomes what was the presumed intention of the parties as to the meaning of the word “completion”.  Was it a one‑stage process?  Was it a two‑stage process?  There is no doubt it meant ultimately taking the

building to its final state by reference to the plans and specifications.  All building contracts have that, but was there a concept of completion to a particular stage of the type that we maintain, namely fit for a certificate of occupancy for the strata plan of stage one with a defects liability period under clause 21 stage 2.  That was really the upshot and that is how we put it.  Thank you, your Honours.

HAYNE J:   We will adjourn for a time to consider the course we take in these matters.

AT 10.34 AM SHORT ADJOURNMENT

UPON RESUMING AT 10.39 AM:

HAYNE J:   In the application by Lesdor Properties Pty Ltd, the applicant does not seek to challenge the principles established in Bellgrove v Eldridge (1954) 90 CLR 613, as applied more recently in Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272. It seeks to submit that those principles were not properly applied to the particular facts and circumstances of this case in determining whether remedial work was both necessary and reasonable – see Bellgrove v Eldridge (1954) 90 CLR 613 at 619. That is a question of fact and is not a question suitable to a grant of special leave. We are not persuaded that it is shown to be in the interests of justice in the particular case that there be a grant of special leave to appeal. Accordingly, special leave is refused and refused with costs.

In the matter of Cordon Investments Pty Limited v Lesdor Properties Pty Limited, we are not persuaded that the applicant would enjoy prospects of demonstrating that the actual construction of the parties’ agreement adopted by the Court of Appeal was wrong, that are sufficient to warrant a grant of special leave.  Special leave to appeal is refused and again refused with costs.

The Court will adjourn to reconstitute.

AT 10.40 PM THE MATTER WAS CONCLUDED