Mulherin v Moorooka Shoppingtown Nominees P/L
[2000] QCA 214
•6 June 2000
SUPREME COURT OF QUEENSLAND
CITATION: Mulherin v Moorooka Shoppingtown Nominees P/L & Anor [2000] QCA 214 PARTIES: HENRY DESMOND MULHERIN
(defendant/appellant)
v
MOOROOKA SHOPPINGTOWN NOMINEES PTY LTD ACN 009 908 105
(plaintiff/respondent)
TERENCE JAMES KILMARTIN
(defendant to claim for contribution/respondent)FILE NOS: Appeal No 8944 of 1999
SC No 9682 of 1996DIVISION: Court of Appeal PROCEEDING: General Civil Appeal ORIGINATING COURT: Supreme Court at Brisbane
DELIVERED ON: 6 June 2000 DELIVERED AT: Brisbane HEARING DATE: 17 May 2000 JUDGES: Pincus JA, Muir and Holmes JJ
Judgment of the CourtORDER: Appeal dismissed. Order that the appellant pay the respondent Moorooka Shoppingtown Nominees Pty Ltd’s costs of and incidental to the appeal to be assessed on an indemnity basis CATCHWORDS: CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – whether obligation to pay moneys arose under a Deed of Indemnity – clarifying clause should not be read subject to the clause clarified – whether unfair and lacking in commerciality
Australian Broadcasting Commission v Australasian Performing Right Association (1972-3) 129 CLR 99, considered
COUNSEL: P A Keane QC SG with I Erskine for the appellant
G A Thompson SC for the respondentSOLICITORS: Carl Blumen for the appellant
Ebsworth & Ebsworth for the respondent
THE COURT: This is an appeal against a judgment given for the plaintiff, Moorooka Shopping Town (Nominees) Pty Ltd, against the defendant/appellant, Henry Desmond Mulherin, in the sum of $202,500.00, together with interest and costs.
The outcome of the appeal depends on the construction of cl 2.1 of a Deed of Indemnity dated 27 July 1994 between Moorooka, Kilcor Management Pty Ltd and the appellant and one Terence Kilmartin as guarantors of the obligations of Kilcor.
In its Statement of Claim, Moorooka relevantly alleged that –
(a) Kilcor became liable under cl 2.1.1 of the Deed to pay Moorooka $405,000;
(b) Kilcor, in breach of its obligation, failed to pay;
(c) Kilmartin and the appellant, as guarantors of Kilcor’s obligations under the Deed became obligated to make the payment to Moorooka;
(d) Kilmartin paid the sum of $202,500, being one half of the sum owing by Kilmartin and the appellant and, in a deed of settlement, Moorooka consented not to sue him in respect of the remaining moneys;
(e) the appellant failed to pay his half share of the $405,000.
Clause 2 of the Deed of Indemnity provides –
“PAYMENTS BY KILCOR/MOOROOKA
2.1For the purpose of allaying any questions as to the continuation of Kilcor’s obligation pursuant to Clause 4.3(c) of the Risk Participation Deed, Kilcor acknowledges that it is obliged to and confirms that it shall pay to Moorooka $500,000.00 as follows:-
2.1.1$405,000.00 on the earlier of completion of the Development Agreement referred to in Clause 4.3(c) of the Risk Participation Deed and two years from the settlement of the Wynnum Plaza Sale Contract; and
2.1.2in satisfaction of the remaining $95,000.00 Kilcor acknowledges that as at completion of the Wynnum Plaza Sale Contract it does not have any claim over or against any monies presently held by Moorooka or against Moorooka in respect thereof.
2.2Moorooka shall on the Date for Completion (as that term is defined in the Wynnum Plaza Sale Contract) pay to Kilcor $95,000.00.
2.3Kilcor shall on the Date for Completion (as that term is defined in the Wynnum Plaza Sale Contract) pay to Moorooka the following sums:-
2.3.1$500.00 being the amount paid by Moorooka on account of the Vendor’s costs of and incidental to the sale pursuant to Clause 40 of the Wynnum West Tavern Land Contract; and
2.3.2$23,064.96 being the agreed known Project Expenses incurred by Moorooka up to and including 30 June 1994.”
It is common ground that no “Development Agreement” was entered into. At first instance the appellant’s submission that, as no Development Agreement had been entered into, no obligation to pay arose under cl 2.1, was rejected.
We agree with the conclusion of the learned primary judge that, on a literal construction, cl 2.1 requires payment of the sum of $405,000 to Moorooka two years from the settlement of the Wynnum Plaza Sale Contract whether or not the Development Agreement referred to in cl 2.1.1 has come into existence.
Mr Keane QC SG, who appeared for the appellant, did not argue to the contrary, although submitting that a literal construction rendered one element of the timing provision of the clause irrelevant so as to subvert the evident intention of the parties that, subject to a two year limit, payment should be made on completion of the Development Agreement. He sought to avoid the consequences of such a construction by arguing that cl 2.1 must be construed in the light of cl 4.3 of the Risk Participation Agreement. The central thrust of the argument was that cl 4.3(c) should be construed as if it provided “Kilcor will be entitled to enter into a Development Argument with the Purchase and then [i.e. after the agreement has been entered into] shall pay to Moorooka $500,000 on the earlier of completion of the Development Agreement and …”.
The argument was developed in the following manner. That part of cl 4.3(c) which asserted that Kilcor was “entitled” to enter into a Development Agreement referred to in cl 4.3(c) did not appear to give expression to the parties’ intentions. Such an entitlement could not be created or conferred by Moorooka, it not being a party (actual or prospective) to the proposed Development Agreement. Nor did Kilcor obtain any consideration (in the loose sense of a real or substantial benefit) in return for its promise to pay. If, however, the provision were to be construed as requiring payment after the entering into of a Development Agreement, Kilcor would stand to obtain a benefit, namely the possibility of making profits from the carrying out of the Development Agreement, and the provision would thus make commercial sense. Whereas, on a literal construction of the provision, Kilcor, effectively, would be paying $500,000 for nothing.
Reliance was placed on the following passage from the judgment of Gibbs J in Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1972-1973) 129 CLR 99 at 109 -
“It is trite law that the primary duty of a court in construing a written contract is to endeavour to discover the intention of the parties from the words of the instrument in which the contract is embodied. Of course the whole of the instrument has to be considered, since the meaning of any one part of it may be revealed by other parts, and the words of every clause must if possible be construed so as to render them all harmonious one with another. If the words used are unambiguous the court must give effect to them, notwithstanding that the result may appear capricious or unreasonable, and notwithstanding that it may be guessed or suspected that the parties intended something different. The court has no power to remake or amend a contract for the purpose of avoiding a result which is considered to be inconvenient or unjust. On the other hand, if the language is open to two constructions, that will be preferred which will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust, ‘even though the construction adopted is not the most obvious, or the most grammatically accurate’, to use the words from earlier authority cited in Locke v Dunlop (1888) 39 Ch D 387, at p 393, which, although spoken in relation to a will, are applicable to the construction of written instruments generally; see also Bottomley’s Case (1880) 16 Ch D 681, at p 686.”
It was submitted that the construction arrived at at first instance failed to take these principles into account.
Before discussing the merits of those submissions, it is desirable to explain more of the background against which they are made.
The Risk Participation Deed referred to in cl 2.1 was entered into on 16 July 1994 by the parties to the Deed of Indemnity and two others. The Risk Participation Deed recited that –
(a) Moorooka was the registered proprietor of the Wynnum Plaza shopping centre land;
(b) Moorooka proposed to refurbish and expand the Wynnum Plaza shopping centre and to acquire and rezone certain additional property for the purpose of establishing additional parking areas for the redeveloped centre;
(c) Kilcor agreed to provide funding to meet two-thirds of the costs of the project and to assist Moorooka in procuring the additional property;
(d) Macquarie Bank agreed to provide banking facilities to Kilcor to enable it to provide funding for the project;
(e) the appellant and Mr Kilmartin agreed to guarantee the performance by Kilcor of its obligations under the Deed;
(f) Moorooka offered to Kilcor a share of “the project surplus” for the project in consideration of Kilcor’s providing such funding and project management.
Clause 4.3 of the Risk Participation Deed provides –
“4.3 Property Offer prior to 31 July 1994
The parties agree that on or before 31 July 1994 the Management Committee will approve any unconditional Property Offer which at least meets the following criteria:
(a)Sale Price: the aggregate of $16.5 million for the Existing Centre and Project Expenses incurred (including any part of the consideration of $300,000 paid in relation to the Additional Property and all costs (including stamp duty) in relation to such acquisition).
(b)Deposit: 5%; and
(c)Settlement: Sale price to be paid within 60 days on transfer of the Property, and
(d)Additional Property: Moorooka to transfer or assign to the purchaser the benefit of the contract for the purchase of the Additional Property by Moorooka from Falcove,
in which case the obligations of the parties hereunder (and in particular the obligation pursuant to Clauses 3.1 and 3.2) shall be suspended pending completion or termination of such contract of sale.
Should a contract of sale be completed consequent upon such a Property Offer the parties agree that notwithstanding any other provision of this agreement:(a)Moorooka and Kilcor shall be entitled to reimbursement/repayment of any funding provided pursuant to Clause 3.1.(a)(i) or Clause 3.1.(a)(ii) in priority to any other payment from the proceeds of sale.
(b)Moorooka will notwithstanding the provisions of Clauses 5, 7 and 9 be entitled to the balance proceeds of sale to the exclusion of Kilcor and the Bank;
(c)Kilcor will be entitled to enter into a Development Agreement with the Purchaser and shall pay to Moorooka $500,000 on the earlier of completion of the Development Agreement and 2 years from settlement of the sale resulting from the Property Offer;
(d)Kilcor shall be responsible to make reasonable compensation to the Bank for its involvement in the project at completion of the Development Agreement; and
(e)The parties agree that this Risk Participation Agreement shall then be at an end and no party shall have any further claim against any other except pursuant to this Clause and Clause 3.11.”
“Property Offer” is defined in cl 1.1 of the Deed as meaning –
“… an offer to Moorooka to purchase or to acquire an option to purchase the Redeveloped Centre or any part thereof.”
“Development Agreement” is not defined in the Deed. It was submitted on behalf of the appellant that it meant merely an agreement to develop or further develop the Wynnum Plaza Shopping Centre entered into by Kilcor with the purchaser of that property under a contract resulting from a “Property Offer”. The respondent did not advance any argument to the contrary.
The Deed of Indemnity, by recitals B and C, and by referring to the Wynnum Plaza Sales Contract instead of repeating the reference in cl 4.3(c) to “the sale resulting from the property offer”, treats the Wynnum Plaza Sale Contract as being “a contract of sale” for the purposes of cl 4.3(c). It was common ground that the Wynnum Plaza Sale Contract met the description of “contract of sale”.
Clause 4.3 is not without its puzzling aspects but we are unable to accept the appellant’s construction. Clause 2.1 is the provision to be construed. The guarantee in cl 5 of the Deed of Indemnity is of the obligations of Kilcor under the Deed. It is true that it commences with the words, “For the purpose of allaying any questions as to the continuance of Kilcor’s obligation pursuant to cl 4.3(c)” and thus, implicitly, suggests that cl 4.3(c) continues in effect.
It is plain, however, that the parties to the Deed of Indemnity perceived a need to re-state Kilcor’s obligation under cl 4.3(c) so as to avoid uncertainty and dispute as to the content of that obligation. That being the case, it would be a surprising result if, in order to ascertain the nature and extent of the obligation expressed in the clarifying provision, one had to read it as subject to the provision being clarified. There are other considerations which militate against the appellant’s construction.
On any view of it, cl 2.1.2 operates irrespective of whether a Development Agreement is completed or even entered into. The obligation to pay money contained in each of clauses 2.2 and 2.3 is triggered by the arrival of the “Date for Completion” as defined in the Wynnum Plaza Sales Contract. The existence within cl 2.1 of two other obligations to pay moneys which arise without reference to the Development Agreement does not support an argument that cl 2.1 should be construed as making the obligation to pay dependent on the completion of the Development Agreement. It may be noted that the $95,000 required to be paid under cl 2.2 and the $405,000 payable under cl 2.1.1 make up the sum of $500,000 expressed to be payable by the introductory words of cl 2.1.
The introductory words of the clause suggest the creation of an unqualified obligation to pay. The balance of the clause has the appearance of a provision directed to the manner of fulfilment of the obligation as opposed to a provision which may qualify or even avoid the obligation. In our view, the obligation imposed by cl 2.1 on Kilcor to pay Moorooka $500,000 is clearly and unambiguously expressed.
It is further urged that, on the construction at first instance, cl 2.1 of the Deed of Indemnity read in the light of cl 4.3 of the Risk Participation Deed, has the unlikely result that Kilcor became entitled to pay Moorooka a sum representing a share of the benefit of a Development Agreement, to the benefit of which it had no entitlement.
This submission, based on unfairness and lack of commerciality, is supported by the fact that, on the face of the documents, Kilcor became obliged to pay Moorooka a sum representing a share of the benefit to be derived from a Development Agreement, although, at the time the obligation was undertaken, Kilcor was not party to such an agreement and thus not entitled to benefit from it. Mr Thompson SC, who appeared for the respondent, submitted that the learned primary judge was right in concluding that the clause benefited Kilcor by making it plain that Kilcor, as a joint venturer with Moorooka, might for its sole benefit enter into an agreement with the purchaser of the shopping centre free of any potential claims by Moorooka based on fiduciary obligations. It might be thought unlikely, as a matter of first impression at least, that this, in itself, would justify the assumption of such an obligation by Kilcor. However, even on the appellant’s argument, Kilcor accepted an obligation to pay Moorooka $500,000 no later than two years from the settlement of the Wynnum Plaza Sale Contract. If a Development Agreement was entered into, Kilcor took the risk that it would not result in a profit for Kilcor or that, having been entered into, it might be terminated for breach or other reason prior to its completion.
There is evidence that at the date of the Risk Participation Deed, Kilcor believed that it had a secure commitment from Mercantile Mutual to enter into a Development Agreement from which it stood to make substantial profits. Kilcor commenced an action in the Supreme Court against Mercantile Mutual in relation to that company’s failure to enter into a Development Agreement. In a statement of claim delivered on 22 August 1995, Kilcor alleged that –
(a) in or about March 1994 Kilcor and Mercantile agreed, subject to contract, that Mercantile would purchase the shopping centre and Mercantile and Kilcor would enter into a Development Agreement in the sum of $10,250,000 contemporaneously with the entering into of a contract of sale for the shopping centre;
(b) prior to 7 July 1994 Mercantile Mutual executed a contract for the purchase of the shopping centre and a document under which Mercantile agreed, inter alia, to appoint Kilcor as developer for the shopping centre site and under which both parties agreed to “expeditiously negotiate in good faith for the purposes of producing a Development Agreement.
In any event, the argument based on unfairness and lack of commerciality loses a great deal of its force when it is appreciated that, prior to the entering into of the Deed of Indemnity on 27 July 1994, Moorooka’s solicitors had stated in writing that cl 4.3(c) of the Risk Participation Deed did not make payment of the sum of $500,000 dependent on the entering into by Kilcor of a Development Agreement. Moorooka, to Kilcor’s knowledge, refused to accept any such limitation on the obligation. It is likely that Kilcor shared Moorooka’s view as to the proper construction of cl 4.3(c). But, even if it did not, it is plain that it was alert to the possibility that such a construction might be found to be correct. With that knowledge, it proceeded to execute the Deed of Indemnity.
We would order that the appeal be dismissed and that the appellant pay the respondent Moorooka Shoppingtown Pty Ltd’s costs of and incidental to the appeal to be assessed on an indemnity basis. Such basis is appropriate having regard to the terms of the Deed of Indemnity.
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