Monaco v Panucci

[2005] NSWSC 1131

CITATION:	Monaco v Panucci [2005] NSWSC 1131
HEARING DATE(S):	6 September 2005
JUDGMENT DATE :	6 September 2005
JUDGMENT OF:	Brereton J
DECISION:	Notice to complete is valid; application dismissed: see [36].

CATCHWORDS:	CONVEYANCING - Vendor and Purchaser - Notice to complete - where parties are co-owners, and purchasers are purchasing from themselves and defendant - whether purchasers entitled to insist on vendor contributing to costs of sale - whether notice by purchasers to complete to defendant and not themselves also as vendors is sufficient
LEGISLATION CITED:	Contracts Review Act (NSW)
CASES CITED:	Depsun Pty Limited v Tahore Pty Limited (1990) ANZ ConvR 334
PARTIES:	Lucio Monaco (plaintiff) Salvatore Panucci & Gabriella Panucci (first & second defendants) Personal Finance Services Pty Ltd (third defendant)
FILE NUMBER(S):	SC 4443/03
COUNSEL:	J Levingston (plaintiff) G Burton SC (first & second defendants)
SOLICITORS:	Otto Stichter & Associates (plaintiff) Romano Lawyers (first & second defendants) Brown Wright Stein (third defendant)

LOWER COURT JURISDICTION:

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

BRERETON J

Tuesday 6 September 2005

4443/03 Lucio Monaco v Salvatore Panucci & Gabriella Panucci

JUDGMENT (ex tempore - revised 23 November 2005)

1 HIS HONOUR: The plaintiff, Lucio Monaco, and the first defendants, Salvatore Panucci and Gabriella Panucci, are together the registered proprietors of a property at 158 Norton Street, Leichhardt, as tenants in common, Mr Monaco as to a three eighths share and the Panuccis as to a five eighths share. Mr Monaco alleges that upon a refinancing of the Norton Street property for $620,000, which he says was its then full value, he was named as the sole borrower, with the Panuccis as guarantors only, without his knowledge or consent. The Panuccis contend otherwise, and say that Mr Monaco fully understood that he was to be the primary obligor in return for services, benefits and rights which he obtained at that time. The rights and wrongs of this particular dispute do not fall for determination at present.

2 Mr Monaco wishes to terminate the relationship between himself and the Panuccis - whether it be a one of partnership as he contends, or one of co-ownership as the Panuccis contend. He has brought these proceedings against the Panuccis, claiming damages for the loss of a share of the rent and profits generated by the property, to which share he says he was or ought to have been entitled.

3 While these proceedings have been pending, the parties reached an agreement for the sale in the meantime of the Norton Street property. As a result of that agreement, the property was submitted to sale by public auction, and the Panuccis purchased it at that auction. Differences have arisen between Mr Monaco and the Panuccis as to how the costs of sale are to be borne between them in the events which have happened. The Panuccis have caused a notice to complete to be given to Mr Monaco which expires on Friday 9 September, and by motion filed yesterday, 5 September, Mr Monaco seeks a declaration that that notice to complete is of no effect. The proceedings before me, though interlocutory in form are, therefore, in the nature of a vendor and purchaser summons and involve the determination on a final basis of the rights of the parties relevant to the notice to complete.

4 The interim agreement of the parties that the property be sold was contained in a document entitled Termination Agreement, which was annexed to a minute of consent orders, in accordance with which orders were made on 19 November 2004 by a Registrar. Relevantly, those orders merely noted that the parties agreed to the annexed terms. The annexed document recited that the parties had agreed in the terms which followed.

5 Clause 1 provided that the parties had agreed that LJ Hooker at Haberfield be appointed selling agent to act on the joint instructions of the solicitors for the parties and not on the separate instructions of either party personally; that the reserve price for the auction would be $1.15 million plus GST; that each party had the right to bid at the auction "with payment to be as specified in 2 below", and that if the property were passed in, it may then be offered for sale by private treaty at a price not below the reserve.

6 Clause 2, which is fundamental to the present dispute, was as follows:

2. The parties agree that payment by a party as successful bidder will be as follows, to the intent that the current mortgagee is discharged on completion of sale, the property and its net sale proceeds are preserved pending the outcome of the proceedings, and an incoming mortgagee is protected:
(a) If the defendants or either of them or parties associated with them is or are the successful bidder then, except as provided in c below:

(i) the maximum amount required to be paid on completion is the amount required to discharge the current mortgage;

(ii) the title to the property will be registered in the purchaser’s name;

(iii) any mortgagee of the purchaser is entitled to register its mortgage; and

(iv) a caveat will be lodged preventing dealing with the property except by the purchaser’s mortgagee until further order in the proceedings.
(b) If the plaintiff or parties associated with him is or are the successful bidder then, except as provided in c below:
(i) the maximum amount required to be paid on completion is 5/8 of the purchase price or the amount required to discharge the current mortgage, whichever is greater;
(ii) any balance between 5/8 of the purchase price and the amount required to discharge the current mortgage will be paid into an account controlled jointly by the solicitors for the plaintiff and the solicitors for the defendants;

(iii) the title to the property will be registered in the purchaser’s name;

(iv) any mortgagee of the purchaser is entitle dot register its mortgage;

(v) a caveat will be lodged preventing dealing with the property except by the purchaser’s mortgagee until further order in the proceedings.
(c) Notwithstanding a or b and as obligations not covered by the regime in a and b:

(i) the parties are liable to pay the entire amount of selling agent’s commission and costs and expenses of the sale including any applicable duties and taxes and any adjustments on completion;

(ii) the selling agent’s commission and vendor’s costs and expenses in respect of the sale, and any adjustment on completion, will be deducted from sale proceeds received on completion in the usual way; and

(iii) the purchaser, including if the purchaser is a party, is liable to pay the entire amount of any GST and stamp duty payable in respect of purchase.

7 Clause 3 made provisions about a lease to a tenant of the property, and is not relevant for present purposes.

8 The auction took place on 12 July 2005, when the property was sold to the Panuccis for $1,320,000, with a deposit of $49,500, leaving a balance purchase price of $1,270,500. The existing mortgage on the property secures a debt of about $627,000, so the equity in the property is about $692,000.

9 On 15 July 2005, the Panuccis' solicitors, Romano Lawyers, sent a fax letter to Mr Monaco's solicitor, Otto Stichter & Associates, referring to the result of the auction on 12 July 2005, noting they had requested the agent to provide full details of his commission and the expenses of sale, and continuing:

and we will prior to completion request from you a cheque from your client for three eighths of the selling agent’s commission, vendor’s costs and expenses in respect of the sale and any adjustments on completion as provided in the Orders made on 19 November 2004.
Mr & Mrs Panucci will have to pay five eighths of that amount.
The above expenses will include our costs of acting on the sale as agreed and after complete of the sale, we will ensure that your Tax invoice of 17 January 2005 is attended to.

10 Also on 15 July 2005, Romano Lawyers sent a further fax to Otto Stichter & Associates noting that the vendor exit duty on Mr Monaco's 3/8ths share, being $495,000, was $11,137.50, and requesting a bank cheque payable to the Office of State Revenue for that amount.

11 On 10 August 2005, by fax letter from Romano Lawyers to Otto Stichter & Associates, the Panuccis pointed out that the contract provided that settlement should take place on or before 23 August 2005.

12 On 17 August 2005, by fax letter to Otto Stichter & Associates, Romano Lawyers submitted a draft transfer and other appropriate documentation and requested:

Would you please return to us the following as a matter of urgency.

1. Transfer duly executed together with a cheque made payable to the Office of State Revenue in the amount of $11,137.50 for Vendor Exit Duty.

2. The Lease in duplicate duly executed by your client.

3. A bank cheque made payable to L J Hooker Haberfield in the amount of $13,045.50 being your client’s 3/8ths share.

4. A cheque made payable to Romano Lawyers in the amount of $1,608.75 being your client’s 3/8ths share of our Tax Invoice.

5. A cheque made payable to the Office of State Revenue in the amount of $294.89 for Land Tax.

6. A cheque made payable to Leichhardt Municipal Council for $929.70 for Council Rates.

7. A cheque made payable to Sydney Water in the amount of $56.50 being for Water Rates.
Do not hesitate to contact us if you require any clarification.

13 The enclosures with that letter included an adjustment calculation showing how the amounts for land tax, council rate arrears and water rates were calculated and apportioned between Mr Monaco and the Panuccis, and the appropriate invoices and vouchers proving the amounts of those taxes and rates.

14 On the same day, 17 August, Otto Stichter & Associates responded by fax to Romano Lawyers, relevantly as follows: "We have previously advised that all payments due should be taken out of the deposit and proceeds of the sale".

15 On 19 August 2005, by fax letter to Otto Stichter & Associates, Romano Lawyers disputed that any previous advice to that effect had been given and repeated that arrangements had been made to settle the matter on Tuesday, 23 August in accordance with the contract. By e-mail dated 19 August 2005, to Romano Lawyers, Otto Stichter & Associates disputed that they had not previously advised as to the deduction of the vendor exit tax and other costs of sale from "monies held", but did not identify any previous communication in which such advice had been given. They continued that they had discussed the fax with counsel, who had not yet heard, so it was said, from counsel for the Panuccis, but "We are instructed to advise that our client seeks your client's consent to a variation of the order so as to permit payment of the monies to be paid from monies held. If your client agrees, an order can be prepared and leave sought to have such order made in chambers. Alternatively cheques can be available on settlement by agreement to pay those monies". It was foreshadowed that if agreement were not forthcoming, a variation would be sought to "the order" by an urgent motion.

16 On 22 August 2005, Romano Lawyers forwarded by e-mail a letter to Otto Stichter & Associates, which was as follows:

Further to your email of today, we advise that Order 2(a)(i), provides that the maximum amount required to be paid on completion is the amount required to discharge the current mortgage.
The amount required to discharge the current mortgage is $627,647.70.
The deposit paid by the Panuccis of $49,500.00 will be used towards that amount. The Panuccis will be providing the balance of $578,147.70.
Order 2(c)(i) provides that the parties are liable to pay the entire amount of the selling agent’s commission and costs and expenses of the sale including any applicable duties and taxes and any adjustments on completion.
The Vendor Exit Duty payable on $495,000.00 being 3/8ths of $1,320,000.00 is $11,137.50.
We have already forwarded to you adjustment calculations which set out the appropriate amounts payable by the parties in respect of rates and land tax.
The agent’s commission and expenses amounts to $34,788.00. your client’s share is $13,045.50 and the Panuccis’ share is $21,742.50.
Our costs and disbursements amount to $4,290.00 and your client’s share is $1,608.75 and the Panuccis’ share is $2,681.25.
The cheques required from your client are therefore as follows:
1. Office of State Revenue $11,137.50
2. L J Hooker Haberfield $13,045.50
3. Romano Lawyers $1,608.75
4. Office of State Revenue $294.89
5. Leichhardt Municipal Council $929.70
6. Sydney Water $56.50
Please advise as a matter of urgency that these cheques will be provided today so that arrangements can be made for the matter to be finalised tomorrow.

17 There was then further e-mail correspondence between the parties' solicitors and counsel, none of which ultimately affects the position.

18 Also on 22 August, by fax from Gadens Lawyers to Romano Lawyers, particulars of the amount required to discharge the existing mortgage - namely $627,405.70 - were provided.

19 On 25 August, Trinity Legal, who at least at that stage assumed the conduct of the conveyance for the Panuccis in their capacity as purchasers, wrote to Romano Lawyers, who were acting for the vendors pursuant to a "toss of the coin" arrangement between them and Mr Monaco's solicitors, enclosing a notice to compete addressed to Luciano Romano and to Mr Romano's lawyers, and giving notice in Trinity Legal's claimed capacity as solicitors for the Panuccis as purchasers, that the purchaser was ready and willing to complete the contract and required completion on Friday, 9 September 2005, making time of the essence in that respect.

20 On 21 August 2005, Otto Stichter & Associates forwarded to Romano Lawyers a draft notice of motion and foreshadowed the present application.

21 On 5 September 2005, Mr Levingston, who appears for Mr Monaco, obtained leave to file in Court, returnable instanter, a notice of motion dated 5 September 2005. The hearing proceeded on a final basis on the afternoon of 5 September and today.

22 The notice of motion claimed the following relief:

1. A Declaration that the Notice to Complete dated 25 August 2005 concerning the property known as 158 Norton Street, Leichhardt sent by the first and second respondents to the applicant is invalid.

2. An Order setting aside the said Notice to Complete.

3. An Order that the first and second respondents proceed to complete the Contract for sale of the Property without any financial contribution by the applicant to the sale other than from his share of the proceeds from the sale of the Property.

4. An Order that the sum of $312,000 or such other amount as the Court may determine (the Sum) be preserved pending the outcome of the proceedings between the parties by depositing the Sum into an interest bearing deposit in the names of the applicant and the first and second respondents, and not to be released other than by agreement of the parties or order of the Court.
5. Further or other orders.
6. Costs.

23 Initially, it appeared that there were three main issues to be decided: first, whether the Panuccis were entitled to give a notice to complete in circumstances that they were insisting on Mr Monaco contributing three eighths of the cost of sale upon completion; secondly, whether the notice to complete was invalid by reason of being addressed only to Mr Monaco, one of the vendors and not to all three vendors; and, thirdly, whether an order to the effect of claim 4 in the notice of motion should be made to preserve the proceeds of sale pending the final determination of the substantive proceedings. As the hearing proceeded, however, the third issue fell away when Mr Burton SC, who appears for the Panuccis, offered an undertaking that the Panuccis would not permit the amounts secured by the mortgage to the incoming mortgagee to exceed $630,000, whereupon Mr Levingston did not press for the relief in claim 4.

24 Accordingly, the first issue for determination is whether the Panuccis were entitled to give the notice to complete. The only basis upon which it is suggested that they were not entitled to do so is, as I understood it, that they were not ready, willing and able themselves to complete in accordance with the terms of the contract, by reason of their insistence upon a contribution from Mr Monaco of three eighths of the costs of sale and the whole of the vendor exit duty. This means that the essential question is whether the Panuccis are entitled, in the events which have happened, to insist on Mr Monaco making such a contribution to the costs of sale, or whether their insistence is based upon an incorrect construction of the binding arrangements between them.

25 Although Mr Levingston has argued that, the interim agreement of the parties of November 2004 being an interlocutory settlement, the Court retains power in the interests of justice to vary its interlocutory order, the relevant arrangements here are contained not in orders made by the Court, but in an agreement made by the parties, the terms of which have merely been noted by the Court. That agreement has then been acted upon by the parties in submitting the property to sale. In those circumstances, I do not agree that there is a power to vary the terms of an agreement between the parties, short of resort to jurisdiction such as that conferred by the Contracts Review Act, which no one suggests is applicable in this case. Even if there were such power, in circumstances where I am asked to decide on a final basis a vendor and purchaser dispute over a notice to complete, it would in my opinion as a matter of discretion be wholly inappropriate to vary the terms of an agreement between the parties which has been acted upon to this point. Accordingly, I approach the matter on the basis that it is a question of construction of the November 2004 agreement.

26 About that agreement the following aspects are notable. First, clause 1(e), which confers on each party the right to bid at auction, provides that (presumably in the event of a party exercising that right) payment is to be as specified in clause 2. Then, clause 2 envisages, by subclause (a), the event that the Panuccis are the successful bidder, and by subclause (b), the event that Mr Monaco is the successful bidder. Thirdly, there is a symmetry between the words "paid on completion" in clause 2(a)(i) and in clause 2(c), and the words "received on completion" in clause 2(c)(ii). Fourthly, clause 2(a), like clause 2(b), excepts from these provisions the particular obligations which are governed by clause 2(c), which are said to operate "notwithstanding (a) or (b)" and "as obligations not covered by the regime in (a) and (b)".

27 In the events which have happened, the Panuccis having been the successful bidder, it is clause 2(a) which applies. It follows from clause 2(a)(i) that the maximum amount required to be "paid on completion" is the amount required to discharge the current mortgage, which the evidence shows to be $627,405.70. That amount, of course, exceeds three-eighths of the selling price, and therefore exhausts the amount which would otherwise have been payable directly to Mr Monaco. As a result of the combined operation of the provisions that the property will be registered in the name of the Panuccis as purchasers, that their incoming mortgagee may register its mortgage, that a caveat will be lodged preventing dealing with the property except by the purchaser's mortgagee until further order, and the undertaking which Mr Burton has today proffered, the remaining equity in the property of some $692,000 will remain available to satisfy whatever amount, if anything, is ultimately found properly to be due to Mr Monaco upon completion of the proceedings.

28 The provisions of clause 2(a)(iv) give Mr Monaco at least a contractual right to sustain a caveat [Depsun Pty Limited v Tahore Pty Limited (1990) ANZ ConvR 334, (McLelland J)]. In my opinion, given the overall scheme of the November 2004 agreement, it goes further and recognises that Mr Monaco is to retain an equitable interest in the property, either as an unpaid vendor, or by way of security for whatever might become due to him upon the outcome of the substantive proceedings.

29 Clause 2(c) of the agreement operates additionally to clause 2(a). The obligations which it imposes are obligations which are not covered in, but are additional to, those imposed by clause 2(a). By providing that "the parties" are liable to pay the entire amount of selling agent's commission and costs and expenses of the sale and applicable duties and taxes and any adjustments on completion, it imposes an obligation on the parties ratably according to their interest in the property to pay the costs of sale and adjustments. The use of the phrases "paid on completion", in clause 2(a)(i) and "received on completion" in clause 2(c)(ii) suggest that the words "on completion" in clause 2(c)(i) are also concerned with the time for payment of all the costs and expenses referred to in that clause, and do not qualify only the words "any adjustments". But whether or not that be the position, it is clear from clause 2(c)(i) that Mr Monaco as to three-eighths and the Panuccis as to five-eighths are liable to pay the expenses referred to in that clause.

30 Mr Levingston, however, draws attention to clause 2(c)(ii), providing as it does that commission and costs and expenses and adjustments on completion are to be deducted from the sale proceeds received on completion. In interpreting this clause, the concluding words "in the usual way" are instructive. Selling agent's commission, vendor's costs and expenses and adjustments are usually deducted from the proceeds of sale, if those proceeds are sufficient to provide for them as well as for discharge of any mortgage. But if the proceeds of sale are insufficient, then the vendor has to pay them. In the events contemplated by clause 2(b) - if Mr Monaco had been the successful bidder - and because he would have to pay five-eighths of the purchase price at least, there would have been an excess of proceeds received on completion over and above the amount required to discharge the mortgage, and in that circumstance, clause 2(c)(ii) would have required that out of that surplus, the various expenses be paid. But it cannot do so in circumstances when the sale proceeds received on completion - which, in the events which have happened, are limited to the amount required to discharge the current mortgage - are insufficient to permit it. Mr Levingston suggested that the appropriate course was that directions for the payment of cheques be given to the purchaser, including directions for the payment of cheques for each of these costs of sale. However, that would result in the Panuccis alone and not Mr Monaco paying the entire amount of the costs of sale, and would be contrary to clause 2(c)(i). Moreover it would involve the Panuccis being required to pay, on completion, amounts in excess of the amount required to discharge the current mortgage, contrary to clause 2(a)(i).

31 In my judgment the proper construction of clause 2(c)(ii) is that it operates so long as the proceeds received on completion are sufficient to enable the costs of sale to be paid from them over and above and after discharge of the mortgage. Where, as is the case in the events which have happened, the sale proceeds received on completion are insufficient for that purpose, then the parties must contribute, according to their respective shares in the property, to those expenses. It follows that the Panuccis are entitled to insist on Mr Monaco contributing three-eighths of the costs of sale, and the whole of the vendor exit duty (because the amount of duty assessed is attributable only to his three-eighths share), and, therefore, that the Panuccis are not proceeding on an incorrect construction of the contract in issuing the notice to complete whilst insisting that Mr Monaco contribute three-eighths of the costs of sale. Thus, the Panuccis have established that they are ready, willing and able to settle in accordance with the contractual terms. Accordingly, the first issue is resolved adversely to Mr Monaco.

32 The remaining question is whether the notice is invalid because it is addressed to only one of the vendors. As Mr Levingston points out, it is addressed only to Mr Monaco, but it is given on behalf of the Panuccis. Neither counsel has been able to find any authority which casts light on the sufficiency of a notice addressed to one only of several vendors. It is well established, however, that a notice to complete, once given, binds the giver as well as the recipient of the notice. In this case, the Panuccis, as well as being the other vendors, are the purchasers. They are parties to the notice as givers of the notice. The other party to the contract, Mr Monaco, is a party to the notice as the recipient of the notice.

33 Mr Levingston argued that in circumstances where a notice was given only to one of several vendors, others could frustrate or prevent completion, so that the notice should be regarded as invalid. But as in this case all the parties to the contract are also parties to the notice and bound by it, whether as givers or recipients, that argument does not have force. Were the Panuccis to attempt to dispute the notice on the basis that it was not given to them as well as by them, they would be estopped from doing so. In my opinion, therefore, the notice is not invalid by reason of failing to nominate the Panuccis as well as Mr Monaco as an addressee of the notice.

34 It follows that both grounds relied on by Mr Monaco for impugning the notice to complete fail. As I have said, the claim for an order preserving Mr Monaco's interest in the proceeds is not pressed in the light of the undertaking which has been given.

35 So far as the question of costs is concerned, the only success which Mr Monaco has had is in eliciting an undertaking, which was offered as soon as the nature of the issue raised became apparent. Mr Levingston has been unable to point me to any request before proceedings for any such undertaking, or indeed for any information which might have been germane to the giving of any such undertaking. Even if I were persuaded that but for the undertaking, some order to the effect claimed in paragraph 4 of the motion would have been made - and I am far from so persuaded - the circumstance that no request was made for any such undertaking or anything like it prior to proceedings would be a powerful argument against any costs order being made in favour of Mr Monaco.

36 Accordingly, I make the following orders:

1) Upon the first and second defendants by their counsel undertaking to the Court that they will not increase or suffer or permit to be increased the amount secured on the property situate at and known as 158 Norton Street, Leichhardt in excess of $630,000, order that the motion filed on 5 September 2005 be dismissed.

2) Order that the plaintiff pay the defendants' costs of the motion.

37 In my opinion this was a discrete issue, in respect of which there might well have been an argument that it should have been brought by separate summons in separate proceedings, and not as an interlocutory application. Whether or not that is the case, it is a separate, discrete and severable issue, and it is appropriate to order that the defendants have liberty to proceed to assessment forthwith in respect of the costs order which I have made. I so order.

38 So far as the application for indemnity costs is concerned, the cases in which such an order is appropriate, though not confined, are typified or characterised by the presence of some impropriety or unreasonableness in the proceedings, whether they be an abuse of process because they are doomed to fail, or because there has been improper conduct in their institution or prosecution, or there has been an adequate offer of settlement, so that the further prosecution of the proceedings has been totally unnecessary.

39 None of those requirements are met in this case. True it is that Mr Monaco has ultimately failed, but I cannot say that this is a case in which his position was entirely unarguable. I decline to make an order that the costs which he must pay be assessed on an indemnity basis.

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