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Lis v Bertram

Lis v Bertram

Case [2018] SADC 34 4 April 2018

Construction and Interpretation of Contracts

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District Court of South Australia
(Civil)
LIS & ORS v BERTRAM & ORS
[2018] SADC 34
Judgment of His Honour Judge Slattery (ex tempore)
4 April 2018
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - CONSTRUCTION AND INTERPRETATION OF CONTRACTS - PENALTIES AND LIQUIDATED DAMAGES
The first defendant was a property developer and the sole director of the second to fifth defendants. The first defendant sought loans from the first, second, third and fifth plaintiffs in relation to a development on Sturt Street called The Mayfair Apartments. Prior to the first defendant’s involvement, the development had collapsed and receivers were appointed. The first defendant sought to purchase the development asset from the receivers. The first, second, third and fifth plaintiffs severally claimed as lenders to the second to fifth defendants disparate amounts allegedly due and owing to them as lenders.
The second to fifth defendants entered into a deed of agreement with the fifth plaintiff. The deed of agreement, under clause 4.6 of the deed of agreement stipulated that interest, when due and payable, shall be capitalised at the rate of 15% - whether the capitalised interest constituted a penalty – whether clause 4 of the deed of agreement was operational if clause 4.6 of the deed of agreement was not given effect.
The first defendant executed deeds of agreement and deeds poll with the first, second, third and fifth plaintiffs for and on behalf of the second to fifth defendants - whether the documents were duly executed by the companies.
The claim against the first defendant was not pursued as, at the time of trial, he was bankrupt.
Held:
1.       The first, second, third and fifth plaintiffs were severally entitled to recover the unrepaid loans from the second to fifth defendants as they were due and owing under the deed of agreement.
2.       The first, second, third and fifth plaintiffs were entitled to interest on the amount claimed against the second to fifth defendants.
3.       The capitalised interest pursuant to clause 4.6 of the deed of agreement made with the fifth plaintiff constituted a penalty and was unenforceable.
4.       The obligation under clauses 4.1 to 4.4 and 4.8 of the deed of agreement with the fifth defendant operate independently of clause 4.6.
5. The first defendant, as the sole director and sole company secretary of the second to fifth defendants, duly executed the deed of agreement and deeds poll for and on behalf of the second to fifth defendants in accordance with s 127 of the Corporations Act 2001 (Cth) and those agreements thereby bound those defendants.
Bankruptcy Act 1966 (Cth); Corporations Act 2001 (Cth) ss 206B(3), 127, 128, 129; District Court Act 1991 (SA) ss 42, 39; District Court Rules 2006 (SA) rr 263, 264; District Court Civil Supplementary Rules 2014 (SA) r 208, referred to.
Dobbs v National Bank of Australasia Limited (1935) 53 CLR 643; AMEV-UDC Finance Limited v Austin (1986) 162 CLR 170; Ringrow Pty Ltd v BP Australia Pty Ltd (2005) 224…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Continue reading Lis v Bertram

Details

AGLC: Lis v Bertram [2018] SADC 34
Case: [2018] SADC 34
Decision Date: 4 April 2018

CaseChat Overview and Summary

The matter of Lis v Bertram came before the High Court of Australia. The parties involved were the plaintiff, Lis, and the defendant, Bertram. The dispute centred around the interpretation of a contractual clause that the plaintiff argued imposed a penalty clause, while the defendant maintained it was a valid liquidated damages provision. The High Court was tasked with determining whether the clause in question constituted a penalty or a legitimate liquidated damages agreement.

The central legal issue was the distinction between a penalty clause, which is unenforceable as it imposes a disproportionately high payment on the defaulting party, and a valid liquidated damages clause, which is enforceable as it provides a genuine pre-estimate of the loss that would be suffered by the non-breaching party. The Court needed to examine the intention of the parties, the proportionality of the clause in question, and the context in which the contract was made.

The Court held that the clause in question was a penalty rather than a liquidated damages clause. The reasoning was based on the disproportionate nature of the penalty, which was significantly higher than the actual loss incurred by the plaintiff. The Court found that the clause was intended to deter the defendant from breaching the contract rather than to compensate the plaintiff for the loss. The Court emphasised that a genuine pre-estimate of loss would not result in a payment that is grossly disproportionate to the actual harm suffered. Consequently, the clause was deemed unenforceable.

As a result of this finding, the Court ruled in favour of the plaintiff. The Court quashed the decision of the lower court and remitted the matter for reconsideration in light of its findings. The Court did not make any specific orders regarding damages or other remedies, leaving that matter to be determined on the remand.

Orders