Pateman v Daw Koh
[2007] WASCA 85
•30 APRIL 2007
PATEMAN & ANOR -v- DAW KOH & ANOR [2007] WASCA 85
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2007] WASCA 85 | |
| THE COURT OF APPEAL (WA) | |||
| Case No: | CACV:112/2005 | 2 NOVEMBER 2006 | |
| Coram: | ROBERTS-SMITH JA PULLIN JA BUSS JA | 30/04/07 | |
| 34 | Judgment Part: | 1 of 1 | |
| Result: | Appeal allowed | ||
| A | |||
| PDF Version |
| Parties: | DELMA KAYE PATEMAN DELMA KAYE PATEMAN in her capacity as Executor and Trustee of the Estate of EDNAH DAW JANICE DAW KOH RONDA MAY JAMIESON |
Catchwords: | Contracts Construction of written contracts Proper construction of a "deed of sale and coownership" of real property Ambiguity in the deed Admissibility of extrinsic evidence Real property Tenancy in common s 126 of the Property Law Act 1969 (WA) |
Legislation: | Law of Property Act 1925 (UK) Property Law Act 1969 ( WA), s 4, s 126 The Partition Act 1878 (WA) |
Case References: | Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 Home Building Society Ltd v Pourzand [2005] WASCA 242 Johnstone v Knight [2006] QCA 322 Jumbo King Ltd v Faithful Properties Ltd [1999] 3 HKLRD 757 Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd (2005) 56 ACSR 263 Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd (2006) 156 FCR 1 Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181 Nullagine Investments Pty Ltd v Western Australian Club Inc (1993) 177 CLR 635 Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 Williams v Legg (1993) 29 NSWLR 687 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA TITLE OF COURT : THE COURT OF APPEAL (WA) CITATION : PATEMAN & ANOR -v- DAW KOH & ANOR [2007] WASCA 85 CORAM : ROBERTS-SMITH JA
- PULLIN JA
BUSS JA
- First Appellant
DELMA KAYE PATEMAN in her capacity as Executor and Trustee of the Estate of EDNAH DAW
Second Appellant
AND
JANICE DAW KOH
RONDA MAY JAMIESON
Respondents
(Page 2)
ON APPEAL FROM:
Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA
Coram : SIMMONDS J
Citation : KOH & ANOR -v- DELMA KAY PATEMAN in Her Personal Capacity & ANOR [2005] WASC 172
File No : CIV 1898 of 2000
Catchwords:
Contracts - Construction of written contracts - Proper construction of a "deed of sale and coownership" of real property - Ambiguity in the deed - Admissibility of extrinsic evidence
Real property - Tenancy in common - s 126 of the Property Law Act 1969 (WA)
Legislation:
Law of Property Act 1925 (UK)
Property Law Act 1969 ( WA), s 4, s 126
The Partition Act 1878 (WA)
Result:
Appeal allowed
Category: A
(Page 3)
Representation:
Counsel:
First Appellant : Mr S Owen-Conway QC & Mr D Barker
Second Appellant : Mr S Owen-Conway QC & Mr D Barker
Respondents : Mr M R B Hemery
Solicitors:
First Appellant : Chalmers Legal Studio
Second Appellant : Chalmers Legal Studio
Respondents : Talbot & Olivier
Case(s) referred to in judgment(s):
Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99
Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337
Home Building Society Ltd v Pourzand [2005] WASCA 242
Johnstone v Knight [2006] QCA 322
Jumbo King Ltd v Faithful Properties Ltd [1999] 3 HKLRD 757
Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd (2005) 56 ACSR 263
Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd (2006) 156 FCR 1
Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181
Nullagine Investments Pty Ltd v Western Australian Club Inc (1993) 177 CLR 635
Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165
Williams v Legg (1993) 29 NSWLR 687
(Page 4)
1 ROBERTS-SMITH JA: I agree with the reasons of Buss JA.
2 PULLIN JA: I agree with Buss JA.
3 BUSS JA: This appeal is concerned, primarily, with the proper construction of a deed described as a "deed of sale and co-ownership" dated 14 August 1992 ("the Deed") and made between Ednah Daw ("Ednah"), who was described as the "Vendor", and the first appellant, Delma Kaye Pateman ("Delma") and the second-named respondent, Ronda May Jamieson ("Ronda"), who were together described as the "Purchasers".
The background facts
4 Delma, Ronda and the first-named respondent, Janice Daw Koh ("Janice") are the daughters of Ednah, who died on 20 August 1998.
5 At all material times before on or about 22 September 1992, Ednah was the registered proprietor of the real property known as 49 Sulman Avenue, Salter Point ("the Land"). There were improvements on the Land, including a house. The house had been the family home. Ednah and her husband (the parties' father) had lived there between 1959 and 1979. They separated in 1979 and were divorced in 1985. Ednah's husband lived in the house from 1979 until he died in 1987. After his death, Ednah resumed living in the house.
6 On or about 14 August 1992, Ednah, Delma and Ronda executed the Deed, pursuant to which Ednah agreed to sell and Delma and Ronda agreed to purchase the Land for $200,000.
7 As at 14 August 1992, the market value of the Land was $425,000.
8 The Deed included these terms:
(a) Delma and Ronda were to pay the purchase price of $200,000 to Ednah, first, by a payment of $100,000 within seven days after the execution of the Deed and, secondly, by payment of the balance on the completion date.
(b) The completion date was stated to be 14 days after the earliest of the following events:
(i) approval being obtained for the subdivision of the Land in accordance with cl 12 of the Deed;
- (ii) the sale of the Land to a third party;
(iii) the third anniversary of the date of execution of the Deed;
(iv) the transfer of either purchaser's interest in the Land to the other purchaser.
- (c) By cl 13, it was "agreed between the parties that in the event the Land is sold to any third party" then the net proceeds of sale would be applied, relevantly, as to one-third in payment to Ednah, with the balance to be shared equally between Delma and Ronda.
9 On or about 22 September 1992, Ednah transferred the Land to Delma and Ronda as tenants in common in equal shares and the transfer was registered under the Transfer of Land Act1893 (WA).
10 On or about 13 October 1992, the then Department of Planning and Urban Development approved the subdivision of the Land in accordance with a plan annexed to the Deed upon specified conditions including the demolition of the house.
11 By Ednah's last Will, made on 4 January 1993:
(a) Delma was appointed the executor of her estate; and
(b) the balance of her estate, after the payment of specific bequests, funeral expenses and just debts, was divided equally between Delma, Ronda and Janice.
12 By a written contract dated 15 January 1993, Ronda sold her interest in the Land to Delma for $100,000.
13 As at 8 March 1993, the market value of the Land was $434,000.
14 In or about late 1997, Delma sold the Land to Lyndon John Lewis for $1,168,000. On 12 January 1998, Mr Lewis became the registered proprietor.
15 As at 12 January 1998, the market value of the Land was $925,000. Between 14 June 1992 and 31 December 1997 various improvements and renovations to the Land were carried out at a cost of $150,000. If the improvements and renovations had not been carried out, the market value of the Land as at 12 January 1998 would have been about $775,000.
(Page 6)
16 Delma did not pay to Ednah during her lifetime one-third of the net proceeds derived from the sale of the Land to Mr Lewis.
17 As I have mentioned, on 20 August 1998, Ednah died. On 8 November 1999, probate of her last Will was granted.
18 Delma, in her capacity as executor of Ednah's estate, has not brought to account, for the benefit of the estate, one-third of the net proceeds of the sale to Mr Lewis, or any sum on that account.
The provisions of the Deed
19 An understanding of the issues of construction requires the provisions of the Deed to be set out at some length.
20 In the Deed, it was recited that:
(a) Ednah had agreed to sell and Delma and Ronda had agreed to purchase the Land for the "purchase price"; and
(b) Upon completion of the sale, "the parties" had agreed to hold the Land as "beneficial tenants in common in the Proportions" upon the terms of the Deed.
21 The operative part of the Deed provides, relevantly, as follows:
"1. Definitions
In this Deed, including the Recitals, unless the contrary intention appears:
1.1 'the Building' means the building situated on the Land;
1.2 'the Buyer' means whichever of the parties receives a Notice of Sale from the other party pursuant to clause 7.1 herein;
1.3 'the Completion Date' means the date specified in item 1 of the Schedule;
1.4 'the Execution Date' means that date mentioned in item 2 of the Schedule;
…
(Page 7)
- 1.6 'the Land' means the land described in item 3 of the Schedule;
1.7 'Lot 1' means that portion of the Land shown as Lot 1 on the Plan;
1.8 'Lot 2' means that portion of the Land shown as Lot 2 on the Plan;
1.9 'Notice to Buy' means the Notice to Buy given by the Purchasers to the Vendor under clause 7.2 herein;
1.10 'Notice to Proceed' means the Notice to Proceed given by the Vendor to the Purchasers under clause 9 herein;
1.11 'Notice of Sale' means the Notice of Sale given by the Vendor to the Purchasers under clause 7.1 herein;
1.12 'the Plan' means the Plan annexed to this Deed;
1.13 'the Proportions' means those proportions for each of the parties specified in item 4 of the Schedule hereto;
1.14 'the Purchase Price' means the sum specified in item 5 of the Schedule;
1.15 'Registrar' means the officer of the Land Titles Office authorised to sign diagrams or plans as approved diagrams or plans for the purpose of registration at the Land Titles Office;
1.16 'Restrictive Covenant' means a restrictive covenant in the usual form whereby the Proprietor of Lot 2 covenants with the Proprietor of Lot 1 not to build any structure of a height greater than 16.42 metres above the Australian Height Datum;
1.17 'the Seller' means whichever of the parties gives the other party a Notice of Sale pursuant to clause 7.1 herein;
1.18 'Subdivision Costs' means all the costs of completing the subdivision of the Land in accordance with clause 12 including the demolition of the Building, the connection of all utilities and services required pursuant to any
- approval of subdivision by any authority, survey costs, application and Titles Office fees;
- 1.19 'the Valuer' means the Valuer appointed pursuant to clauses 8.2 or 8.3 herein;
1.20 where the context so admits the expressions 'the Vendor' and 'the Purchasers' include the personal representatives, estates and successors in the title of the Vendor and the Purchasers;
1.21 words importing any gender include all genders;
1.22 words importing the singular include the plural and vice versa;
1.23 where any party comprises more than one person the obligations and liabilities of that party under this Deed shall be joint and several obligations and liabilities of those persons;
…
2 Sale and Purchase
2.1 The Vendor shall sell and the Purchasers shall purchase the Land free of encumbrances.
2.2 The consideration for the Land is the Purchase Price.
2.3 The sale and purchase of the Land will be completed and the Purchase Price will be paid by the Purchasers to the Vendor in the manner described in item 6 of the Schedule.
2.4 The Vendor is selling the Land as beneficial owner.
2.5 With effect from the Completion Date the Purchasers are entitled to the exclusive use, possession, occupation and enjoyment of the Land and the Building PROVIDED THAT all rents, monies and profits from the Land will be shared by the parties in the Proportions.
…
(Page 9)
- 2.8 The Purchasers are purchasing the Land as tenants in common in the Proportions.
2.9 The provisions of this Deed shall not merge on completion of the transfer of the Land insofar as they remain to be performed.
3. Covenants Between the Purchasers
The Purchasers covenant with each other that:
3.1 All rates, taxes, fees, levies, bills, charges, outgoings and other expenses whatsoever payable or incurred in connection with the Land will be paid and contributed by the Purchasers jointly in the Proportions.
3.2 A proper set of accounts will be kept by the Purchasers recording all payments, expenses and other monies paid or payable, and all monies received or receivable in respect of the Land. The parties shall have free access to such accounts, records and papers at all times and shall be at liberty to make such extracts therefrom as they may think fit.
3.3 They will abide by all terms and conditions whatsoever of this Deed;
3.4 They will punctually pay all monies which they respectively are required to pay under the terms of this Deed;
3.5 They will be just and faithful to each other and will at all times give to each other full information and truthful explanations of all matters relating to the Land;
3.6 They will at all times observe and perform all restrictions, covenants, conditions and stipulations affecting the Land;
3.7 Provided they both approve the nature and costs of the improvements they will contribute to the costs of any improvements to the Land in the Proportions.
4. Charges and Encumbrances
(Page 10)
- Prior to the completion of clause 12.2 the Purchasers will not without the prior written consent of the other:
4.1 give any security or promise for the payment of money on account of the Land;
4.2 enter into any bond or become bail or surety for any person or knowingly cause or suffer to be done anything whereby the Land may be endangered;
4.3 mortgage or charge their share in the Land or create any lien or interest thereover;
4.4 draw, accept or endorse any bill of exchange or promissory note on account of the Land;
4.5 sell, transfer, assign, sublet, lease or otherwise dispose of or alienate their share or interest in the Land or any part thereof;
5. General Indemnity
Each Purchaser will indemnify and hold the other party indemnified at all times in respect of all losses and expenses whatsoever incurred by virtue of:
5.1 Any failure to pay costs, expenses or any other monies for which that party is responsible under the terms of this Deed;
5.2 Any other breaches whatsoever of the terms of this Deed.
6. Restriction on Sale
Prior to completion of clause 12.2 neither Purchaser will sell, or attempt to sell, their respective interests in the Land to third parties for a period of three years from the Execution Date without the prior written consent of the other party.
7. Notice of Sale
7.1 If after the expiry of three (3) years from the Execution Date either of the parties desires to enforce the trust for sale to which the Land is subject or to dispose of their
- beneficial interest in the Land that party ('the Seller') shall give a Notice of Sale in writing to the other party ('the Buyer') offering to sell the whole of the beneficial interest of the Seller in the Land to the Buyer.
- 7.2 Within one month of being given a Notice of Sale the Buyer shall give a Notice to Buy in writing to the Seller indicating a desire to purchase the beneficial interest of the Seller in the Land.
8. Valuation
8.1 The parties will attempt to reach an agreement on the value of the beneficial interest of the Seller in the Land on the open market as though the Land was vacant at the date of the Notice to Buy.
8.2 If agreement has not been reached within one month of the date of service of the Notice to Buy then the parties shall jointly instruct an independent valuer ('the Valuer') to make a valuation of the beneficial interest of the Seller in the Land on the open market as though the Land were vacant at the time of the valuation, binding on the parties at the joint expense of the parties.
8.3 If the parties are unable to agree on the appointment of the Valuer within six weeks of the date of service of the Notice to Buy then either of the parties may forthwith apply to the President or Principal Officer Bearer for the time being of the Real Estate Institute of Western Australia (Inc.) to appoint the Valuer.
8.4 The Valuer shall be deemed to act as an expert and not as an Arbitrator.
9. Notice to Proceed
From the date when such valuation has been communicated to the parties the Seller shall within seven days give a Notice to Proceed in writing to the Buyer indicating whether he or she is prepared to proceed with the sale of the Land at the price determined by the Valuer.
10. Payment of Amount of Valuation
(Page 12)
- If the Seller gives Notice to Proceed the Buyer shall have thirty (30) days to pay the amount of the valuation to the Seller upon which the Seller shall execute a Transfer of his or her beneficial interest in the Land free from all encumbrances created by the Seller.
11. Time Limits
If either of the parties fails to comply with the above time limits the other shall be entitled to enforce the trust for sale without further notice.
12. Subdivision
12.1 Forthwith on the Execution Date, or as soon thereafter as is reasonably possible, the Purchasers will:
12.1.1 apply to the State Planning Commission for its approval to a subdivision of the Land in accordance with the Plan and will use their best endeavours to obtain such approval and to have any necessary diagram or plan of subdivision signed or initialled by or on behalf of the Registrar as an approved diagram or plan in the Land Titles Office;
12.1.2 comply with any conditions imposed by any authority in respect of the approval including the demolition of the Building.
12.2 Forthwith on any diagram or plan of subdivision being signed or initialled by the Registrar as aforesaid the parties will effect a partition of the Land as follows:
12.2.1 the first named Purchaser will transfer to the second named Purchaser all their right title and interest whatsoever in Lot 1 in fee simple free of encumbrances,
12.2.2 the second named Purchaser will transfer to the first named Purchaser all their right title and interest whatsoever in Lot 2 in fee simple free from all encumbrances,
- 12.2.3 the first named Purchaser will grant the Restrictive Covenant for the benefit of Lot 1.
- 12.3 In the event that the first application to the State Planning Commission is not approved then as soon thereafter as is reasonably possible but not less frequently than on each anniversary of the Execution Date, the parties will make a further application to the State Planning Commission for its approval to a subdivision of the Land in the manner hereinafter described and all the provisions of this clause 12 shall to such subsequent application or applications mutatis mutandis apply.
12.4 All costs and expenses whatsoever incurred in connection with the subdivision of the Land and without limiting the generality of those words including the Subdivision Costs will be borne and paid by the parties in the Proportions.
12.5 In the event that after the third anniversary of the Execution Date:
12.5.1 the State Planning Commission's approval is not obtained to a subdivision of the Land; and
12.5.2 a party has given a Notice of Sale to the other party pursuant to clause 7.1 herein; and
12.5.3 no Notice to Buy is given by the Buyer in accordance with clause 7.2 herein or the Buyer informs the Seller in writing that they do not wish to purchase the Seller's beneficial interest in the Land
THEN AND ONLY THEN the Seller may apply to the Supreme Court of Western Australia for partition of the Land pursuant to Section 126 of the Property Law Act 1969.
13. Sale to Third Parties
It is agreed between the parties that in the event the Land is sold to any third party then the proceeds of sale will be applied in the following manner and priority:
(Page 14)
- 13.1 Payment of Agent's commission and auction expenses (if any) due on the sale;
13.2 Payment of legal costs of the sale;
13.3 Payment to the Vendor of one third (1/3) of the balance of the proceeds of sale;
13.4 Payment of the balance to the Purchasers in the Proportions.
…
16.2 The provisions of Section 126 of the Property Law Act 1969 (as amended) are hereby expressly excluded from, and do not apply to, this Deed, the Land and the interest of the parties in the Land.
…
20. Captions
The captions and headings to the clauses in this Deed are for index purposes only and this Deed is to be read and construed without reference to the said captions and headings.
…
THE SCHEDULE
Item 1: The Completion Date
Fourteen (14) days after the earlier of the following events:
(i) approval for the subdivision of the Land in accordance with clause 12;
(ii) the sale of the Land to any third party;
(iii) the third anniversary of the Execution Date;
(iv) the transfer of either Purchaser's Proportion to the other Purchaser.
Item 2: The Execution Date
(Page 15)
- The 14th day of August 1992
Item 3: The Land
All that piece of land being part of Lot 257 on Plan 5137, the whole of the land in Certificate of Title Volume 21 Folio 382A
Item 4: The Proportions
Delma Kaye Pateman: one undivided half share
Ronda May Jamieson: one undivided half share
Item 5: The Purchase Price
Two hundred thousand dollars ($200,000.00)
Item 6: Manner of Payment
The Purchase Price shall be paid as follows:
(i) the sum of ONE HUNDRED THOUSAND DOLLARS ($100,000.00) within seven (7) days of the Execution Date;
(ii) the balance, namely the sum of ONE HUNDRED THOUSAND DOLLARS ($100,000.00) on the Completion Date.
… "
The proceedings including the pleaded claim and the pleaded defence
22 Janice and Ronda brought proceedings in the Supreme Court against Delma personally and in her capacity as executor and trustee of Ednah's estate.
23 In their statement of claim, Janice and Ronda alleged, relevantly, that Delma was obliged, under cl 13 of the Deed, to pay to Ednah one-third of the net proceeds of the sale of the Land to Mr Lewis. Janice and Ronda also pleaded, relevantly, that Delma, in her capacity as executor and trustee of Ednah's estate, had failed to call in or account for or distribute to the beneficiaries entitled under Ednah's last Will, one-third of the net proceeds of that sale. Janice and Ronda claimed declaratory and other relief.
(Page 16)
24 Delma pleaded several distinct defences. First, Delma denied that cl 13 of the Deed applied to her sale of the Land to Mr Lewis. Secondly, Delma alleged that in or about January 1993 the parties to the Deed orally agreed that it should be "abandoned". Thirdly, Delma alleged that, as a result of Ronda having sold her interest in the Land to Delma, the performance of the Deed became "impossible", alternatively the primary purpose of the Deed was "frustrated without any fault on the part of Delma … and the [Deed] was thereby frustrated", and Delma was discharged from further performance. Fourthly, Delma alleged that Janice and Ronda were estopped from denying that the Deed had been abandoned or from claiming any of the net proceeds of the sale of the Land to Mr Lewis. Fifthly, Delma alleged that in the event that she was obliged to call in or account for or distribute to the beneficiaries entitled under Ednah's last Will, one-third of the net proceeds of sale, which was denied, she had a right of set-off in respect of expenses and outgoings allegedly incurred in connection with the house on the Land, between March 1993 and January 1998, in the total amount of $546,977.03.
The learned trial Judge's judgment and reasons
25 The learned trial Judge, Simmonds J, accepted the submissions made on behalf of Janice and Ronda as to the proper construction of cl 13 of the Deed. His Honour held that cl 13 applied to Delma's sale of the Land to Mr Lewis and that Ednah's personal representatives were entitled to one-third of the net proceeds of sale.
26 The learned Judge concluded, at [81], that "no abandonment or termination of the Deed" had been made out.
27 The learned Judge rejected the submissions made on behalf of Delma to the effect that the performance of the Deed had become "impossible", alternatively that the Deed had become "frustrated". His Honour held that Delma had not been discharged from further performance of the Deed.
28 The learned Judge decided that Delma's plea of estoppel was without merit.
29 The learned Judge held that Delma did not have a right of set-off, as alleged. His Honour said, at [130] - [131]:
"That contractual entitlement of the Vendor is, it seems to me, to the share, determined as cl 13 provides, of the net proceeds, calculated as that clause provides. Clause 13 provides no set-
(Page 17)
- off or reduction for any value enhancement the result of expenditure by a Purchaser.
It follows that there is no set-off as against Ednah's estate of any amount in respect of the enhancement of the value of the Property, the result of expenditures by [Delma]. This is a result that follows from the bargain the parties struck, as recorded in the terms of cl 13."
30 The learned Judge entered judgment for Janice and Ronda. His Honour made declarations and orders, relevantly, as follows:
"1. On the sale and settlement of the property situate at 49 Sulman Avenue, Salter Point (Property) from [Delma] to Lyndon John Lewis on 12 January 1998 [Delma] became a debtor to the late Ednah Daw in the sum of $380,382.97, being one-third of the proceeds of the sale and settlement of the Property (after deducting agent's commission and legal costs) (Judgment Sum);
2. On and from 8 November 1999, being the date of a grant of probate of the estate of the late Ednah Daw (Estate), [Delma] as executrix of the Estate has held the Judgment Sum for and on behalf of the beneficiaries of the Estate;
3. [Delma] account to the beneficiaries of the Estate for the Judgment Sum, whether before or after her appointment as executrix of the Estate."
Grounds of appeal
31 The grounds of appeal allege, in substance, that:
(a) the learned Judge erred in his construction of cl 13 of the Deed; in particular, his Honour should have held that cl 13, properly construed, did not apply to Delma's sale of the Land to Mr Lewis (ground 1);
(b) the learned Judge erred in law in deciding that "there was no abandonment or termination of the Deed" (ground 2);
(c) the learned Judge erred in law in deciding that Delma's plea of estoppel was without merit (ground 3);
(Page 18)
- (d) the learned Judge erred in law in holding that Delma was not entitled to a right of set-off in respect of the total amount she had expended on the Land, alternatively, the amount by which the value of the Land had increased as a result of that expenditure (ground 4).
32 Senior counsel for Delma accepted, in the course of argument before this Court, that if Delma succeeded on ground 1 of the appeal then it would be unnecessary to deal with the other grounds in that they are predicated on the assumption that the learned Judge's construction of cl 13 of the Deed is correct.
Ground 1: the proper approach to construction
33 The general principles to be applied in the construction of written contracts are set out in the judgment of Gibbs J in Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 109 - 110:
"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). Further, it will be permissible to depart from the ordinary meaning of the
(Page 19)
- words of one provision so far as is necessary to avoid an inconsistency between that provision and the rest of the instrument. Finally, the statement of Lord Wright in Hillas & Co. Ltd. v. Arcos Ltd ((1932) 147 L.T. 503, at p. 514), that the court should construe commercial contracts 'fairly and broadly, without being too astute or subtle in finding defects', should not, in my opinion, be understood as limited to documents drawn by businessmen for themselves and without legal assistance (cf. Upper Hunter County District Council v. Australian Chilling and Freezing Co. Ltd ((1968) 118 C.L.R. 429, at p. 437))."
34 The construction of a written contract is concerned with ascertaining what a reasonable person would have understood the parties to mean. Consideration should ordinarily be given not only to the language of the document, but also to the surrounding circumstances known to the parties, and the apparent purpose and object of the transaction. See Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, where Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ said, at 179 [40]:
"This Court, in Pacific Carriers Ltd v BNP Paribas ((2004) 218 CLR 451), has recently reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined. It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction (Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 461 - 462 [22])."
- Also see Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181 at 188 [11]; Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 461 - 462 [22]; Jumbo King Ltd v Faithful Properties Ltd [1999] 3 HKLRD 757 at 773 - 774.
(Page 20)
35 In Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd (2005) 56 ACSR 263, Finn J referred, at 276 - 277 [78] - [79], to the controversy as to whether evidence of surrounding circumstances is admissible in the construction of ordinary contracts only if it first appears that the language of the contract is ambiguous or whether such evidence is admissible at the outset, without it first appearing that the contractual language is ambiguous, for the purpose of construing the contract in its context. As his Honour noted, this controversy has focused on the proper interpretation to be given to the observations of Mason J in Codelfa Construction Pty Ltd v State Rail Authority(NSW) (1982) 149 CLR 337 at 352, that:
"The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning. …"
- Finn J decided, at 277 [78] - [79], that the controversy was resolved by the decision in Pacific Carriers and that the High Court had accepted the broader view of admissibility. His Honour observed:
"The approach to contractual construction affirmed in Pacific Carriers marks another step in the convergence in organising principles governing the construction of contracts and of statutes. … While what constitutes 'context' for the purposes of statutory construction and 'surrounding circumstances' (or 'the matrix of facts') for contractual construction will differ significantly given the differing end purposes of construction in each case, what is common to both is the recognition that meaning is contextual: what a document or statute conveys to a reasonable person is what, against the relevant background, the words used by the parties in one case, the legislature in the other, would reasonably be understood to have meant …"
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- Kenny J at 21 - 22 [98] - [100] and per Lander J at 48 [238], 50 - 51 [250] - [254].
37 It is unnecessary, in this appeal, with respect, to express an opinion on the correctness of the approach of Finn J and the Full Court of the Federal Court in Lion Nathan. See, in this context, and compare, the observations in Home Building Society Ltd v Pourzand [2005] WASCA 242 at [25] - [33]; Johnstone v Knight [2006] QCA 322 at [17] - [18].
Ground 1: aspects of a tenancy in common
38 A tenancy in common is a form of co-ownership under which each tenant has a distinct but undivided share in the property. Tenants in common may hold unequal shares. The four unities of a joint tenancy may be present in a tenancy in common, but only unity of possession is essential. Unity of possession entitles each tenant to the undivided possession of the whole of the property, but no tenant may exclude any other tenant from the enjoyment of any part of the property. There is no right of survivorship.
39 Section 126(1) of the Property Law Act1969 (WA) provides:
"Where in an action for partition the party or parties interested, individually or collectively, to the extent of a half share or upwards in the land to which the action relates request the Court to direct a sale of the land and a distribution of the proceeds, instead of a division of the land between or among the parties interested, the Court shall, unless it sees good reason to the contrary, direct a sale accordingly."
- Section 4 of the Property Law Act repealed ThePartition Act 1878 (WA).
40 The legislative history of s 126 of the Property Law Act was summarised by Toohey J (who dissented in the result) in Nullagine Investments Pty Ltd v Western Australian Club Inc (1993) 177 CLR 635 at 665 - 666:
"In Bray v Bray ((1926) 38 CLR 542), where the language of s 4(1)(b) of the Partition Act 1900 (NSW) was virtually identical to s 126(1) of the Act, Knox CJ said (ibid, at p 545):
'So far as I can see, the object of the Act was to provide an alternative remedy to partition. ... I think that it is clear that ... what the Court has to consider is which is the better course for all parties between two alternatives,
- namely, is it better that there should be a partition or that there should be a sale, and the onus of showing that partition is better, where the owners of more than one half of the property desire a sale, is upon the person opposing a sale.'
- And Higgins J said ((1926) 38 CLR, at p 546):
'I regard a sale as an alternative to a partition and not to the status quo.'
The weight of authority leads inevitably to the conclusion that s 126 is concerned with the options available to the Court and that the words 'unless it sees good reason to the contrary' are directed at the power to order sale as opposed to partition (See Pitt v Jones (1880), 5 App Cas 651; Bray v Bray; De Campo Holdings Pty Ltd v Cianciullo, [1977] WAR 56; Martin-Smith v Woodhead, [1990] WAR 62). At common law one co-owner could not insist upon partition of the land. The right to compel partition derived from the statutes of partition of 1539 and 1540 (32 Hen VIII c 1 and 32 Hen VIII c 32. See also The Partition Act 1696 (UK) (8 & 9 Will III c 31) and The Real Property Limitation Act 1833 (UK) (3 & 4 Will IV c 27), s 36). Partition was often impracticable or inconvenient; nevertheless the courts held that there was no power to refuse that statutory remedy (Parker v Gerard (1754), Amb 236 [27 ER 157]; Baring v Nash (1813), 1 V & B 551, at p 554 [35 ER 214, at p 216]; Patel v Premabhai, [1954] AC 35, at p 42).
In consequence the remedy of sale was introduced by The Partition Act 1868 (UK) (31 & 32 Vict c 40) and by comparable legislation in the Australian colonies (For example, The Partition Act 1878 (WA)). But sale was made available as an alternative to partition; the courts were obliged to grant the remedy of sale unless there was good reason not to do so and to direct partition instead (Re Cordingley (Deceased) (1948), 48 SR (NSW) 248, at p 249). Where a discretion to refuse any relief has been held to exist, it has been because the language of the legislation clearly points to the existence of such a discretion (For instance, Ngatoa v Ford (1990), 19 NSWLR 72 where s 66G(4) of the Conveyancing Act 1919 (NSW), which provides that the court 'may' appoint trustees for the purposes of a statutory trust for sale, was held to confer a limited discretion
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- on the court to refuse to make such an order). Section 126 of the Act is substantially similar to provisions contained in The Partition Act 1878 (WA) and no such discretion may be found in its language. The only discretion is that to which reference has already been made, namely, to refuse sale and to order partition for 'good reason'."
41 Section 126(1) and the other provisions of Pt XIV of the Property Law Act are to be compared to and contrasted with those provisions of the Law of Property Act 1925 (UK) which reformed the law relating to co-ownership. The effect of the English legislation was explained by the Court of Appeal of New South Wales in Williams v Legg (1993) 29 NSWLR 687 at 692:
" … in England the 1925 property legislation, in broad and not completely accurate language, changed common ownership in land from an entitlement to a beneficial interest in the land, to a beneficial interest in the income of the land pending sale and in the proceeds eventually arising from the sale. The scheme was in cases of co-ownership to impose statutory trusts to sell the land, with power to postpone the sale, and to hold the rents and profits until sale, and the ultimate proceeds of sale upon trust to give effect to the beneficial and equitable rights of those interested in the land: see s 34 to s 35 of the Law of Property Act 1925 (UK) and Cheshire, The Modern Law of Real Property, 6th ed (1949) at 558; Megarry and Wade, The Law of Real Property, 5th ed (1984) at 436-439. Section 30 of the Law of Property Act provided that, if the trustee for sale refused to sell, a person interested might apply to the court for an order directing sale 'and the court may make such order as it thinks fit'. It could scarcely be doubted that the court had a discretion as to whether or not to make such an order. In Re Buchanan- Wollaston's Conveyance; Curtis v Buchanan-Wollaston [1939] Ch 738, the Court of Appeal held that the provisions of the Law of Property Act did not override contractual restrictions on sale. On an application under s 30 by a co-owner, who had contracted to deal with land in a particular way, the court would not make an order which produced a result inconsistent with the applicant's contractual obligations. A court of equity, when asked to enforce a trust for sale 'whether one created by a settlement or a will or one created by the statute, must look into all the circumstances of the case and consider whether or not, at the particular moment and in the particular circumstances when
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- the application is made to it, it is right and proper that such an order should be made' (per Greene MR at 747). The other members of the court agreed."
- The Western Australian provisions are similar to statutory provisions in some Australian jurisdictions, but are materially different from statutory provisions in other Australian jurisdictions. For example, ss 66G of the Conveyancing Act 1919 (NSW) is materially different in that it empowers the Court, on the application of any one or more co-owners of real property, to appoint trustees to hold the property on a statutory trust for sale or on a statutory trust for partition.
42 In Nullagine Investments, two tenants in common in equal shares of land entered into an agreement which contained a provision (cl 4(b)) that prohibited each of them from disposing of its interest in the land without first offering it to the other. The High Court held, by a majority (Deane, Dawson and Gaudron JJ, Brennan and Toohey JJ dissenting) that cl 4(b) applied only to a disposition by one of the parties of its interest and not to a disposition of the complete freehold interest in the Land, and, in consequence, cl 4(b) did not prohibit one of them from making application under s 126(1) of the Property Law Act for an order for partition or sale of the Land. The majority also held that it was unnecessary to decide whether an agreement which precluded an application under s 126(1) in all circumstances would be an invalid restraint on alienation. Deane, Dawson and Gaudron JJ said, at 661:
"It is unnecessary that we consider whether the provisions of cl 4(b) would, if they had the effect for which the Club contends, be invalid on public policy grounds for the reason that they would be contrary to the policy to be discerned in partition statutes such as s 126 of the Property Law Act or for the reason that they would purport to impose an unreasonable and unjustifiable restraint on alienation. It was not argued on behalf of the respondent Club that, if neither cl 4(b) nor some implied term constituted a contractual preclusion of an application for an order for sale, the order for sale made by [the primary judge] should nonetheless not be restored."
Ground 1: the sale and purchase under the Deed
43 By cl 2 of the Deed, Ednah agreed to sell and Delma and Ronda agreed to purchase the Land for $200,000. Delma and Ronda agreed to purchase as tenants in common in equal shares. Completion of the sale and purchase was to be effected on the "Completion Date".
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Ground 1: the Completion Date under the Deed
44 In cl 1 of the Deed, the term "Completion Date" was defined to mean the date specified in item 1 of the Schedule to the Deed.
45 Item 1 of the Schedule specified that the Completion Date was, in effect, the date which was 14 days after the first to occur of the following:
"(i) approval for the subdivision of the Land in accordance with clause 12;
(ii) the sale of the Land to any third party;
(iii) the third anniversary of the Execution Date;
(iv) the transfer of either Purchaser's Proportion to the other Purchaser."
46 Each of pars (i), (ii) and (iv) of item 1 of the Schedule referred to an event which was not certain to occur. Paragraph (iii), however, referred to a fixed date, namely, the third anniversary of the date of execution of the Deed. The Completion Date therefore had to occur, at the latest, on the date which was 14 days after the third anniversary of the date of execution.
47 The contingency in par (i) of item 1 of the Schedule, namely, approval for the subdivision of the Land in accordance with cl 12, is dealt with in the detailed provisions of that clause which, among other things, required Delma and Ronda to apply for subdivisional approval. The contingency in par (ii) of item 1 of the Schedule, namely, the sale of the Land to any third party, is referred to in cls 6 and 7 (and, of course, cl 13) of the Deed. The contingency in par (iv) of item 1 of the Schedule, namely, the transfer of Delma's or Ronda's share in the Land to the other of them, is contemplated under the right of preemption contained in cl 7 of the Deed.
48 It is necessary to consider more closely each of the contingencies in pars (i), (ii) and (iv) of item 1 of the Schedule, in the context of the relevant provisions of the Deed, before embarking upon an analysis of cl 13.
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Ground 1: approval for the subdivision of the Land in accordance with cl 12
49 By cl 12.1, Delma and Ronda were obliged, on the date of execution of the Deed, or as soon as reasonably possible after that date, to apply to the State Planning Commission (as the Western Australian Planning Commission was then known) ("the Commission") for its approval to a subdivision of the Land in accordance with the plan annexed to the Deed. The plan depicts the subdivision of the Land by the creation of two lots, each with an area of 605 square metres. The boundary between the proposed lots passes through the house. There is a note on the plan to the effect that the house is to be demolished. Clause 12.1 also obliged Delma and Ronda to use their best endeavours to obtain the Commission's approval and to obtain the approval of the Registrar of Titles to a diagram or plan of the subdivision. Further, cl 12.1 required Delma and Ronda to comply with any conditions imposed in connection with the approval of the subdivision, including any condition with respect to the demolition of the house.
50 Clause 12.2 provided, in effect, that if the Commission approved the subdivision and the Registrar signed or initialled an approved diagram or plan of the subdivision, then the Land would be partitioned. Ronda would be entitled to the whole of the fee simple estate in the proposed lot which is marked "Lot 1" on the plan annexed to the Deed, and Delma would be entitled to the whole of the fee simple estate in the lot which is marked "Lot 2" on that plan. Clause 12.2 also provided for Delma to execute a restrictive covenant not to build any structure on Lot 2 of a height greater than 16.42 metres above the Australian Height Datum. The evident purpose of the restrictive covenant was to protect the view of the Swan River from Lot 1.
51 By cl 12.3, in the event that the first application to the Commission was unsuccessful, Delma and Ronda were obliged, as soon as reasonably possible but not less frequently than on each anniversary of the date of execution of the Deed, to make a further application for the Commission's approval to the proposed subdivision.
52 Clause 12.5 is significant. It provided that if, after the third anniversary of the date of execution of the Deed:
(a) the Commission's approval had not been obtained to the proposed subdivision; and
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- (b) Delma or Ronda had given a "Notice of Sale" to the other of them under cl 7.1, but the recipient of the notice had not given a "Notice to Buy" in accordance with cl 7.2 or the recipient had informed the person giving the notice that she did not wish to purchase that person's beneficial interest in the Land,
- then, and only then, the person who had given the "Notice of Sale" could apply under s 126(1) of the Property Law Act "for partition of the Land". It is apparent, on a fair reading of cl 12 in the context of the Deed as a whole and from the statutory prohibition against subdivision of the Land without the Commission's approval (see s 20 of the Town Planning and Development Act 1928 (WA) (repealed)), that the reference in cl 12.5 to applying under s 126(1) for partition of the Land means applying for an order for partition or sale. I should mention that, for reasons I give at [57] - [58] below, when considering cl 7, a "Notice of Sale" could only be given by Delma or Ronda (and not Ednah), and a "Notice to Buy" could only be given by whichever of Delma or Ronda had received a Notice of Sale from the other (and not by Ednah).
53 Clause 12 and the other provisions of the Deed indicate that the primary object or aim of Delma and Ronda, and the contemplation of the parties (including Ednah), was that the Land should be subdivided, if possible. If the subdivision had occurred, then the tenancy in common between Delma and Ronda would have determined upon the transfer to Delma of Lot 2 and the transfer to Ronda of Lot 1.
54 Finally, I note, in relation to cl 12, that the clause did not prohibit or restrict a sale by Delma and Ronda as co-owners of the Land, or a sale by either of them of her undivided share as a tenant in common, to a third party, at any time, if both Delma and Ronda agreed to the sale.
Ground 1: cls 6 and 7: restrictions on the sale of the Land to a third party and Delma's and Ronda's right of preemption
55 Clause 6 provides:
"Prior to completion of clause 12.2 neither Purchaser will sell, or attempt to sell, their respective interests in the Land to third parties for a period of three years from the Execution Date without the prior written consent of the other party."
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- The reference in cl 6 to "the other party" is to the other "Purchaser". In other words, neither Delma nor Ronda will sell, or attempt to sell, relevantly, without the prior written consent of the other of them.
56 The effect of cl 6 was that, during the three-year period after the date of execution of the Deed, each of Delma and Ronda was prohibited from selling, or attempting to sell, her interest in the Land to a third party, without the prior written consent of the other of them, unless subdivision had occurred pursuant to cl 12.2 so that Lot 2 had been transferred to Delma and Lot 1 had been transferred to Ronda. The prohibition in cl 6 did not apply after Delma and Ronda had ceased to be co-owners. It applied only:
(a) during the three-year period after the date of execution of the Deed; and
(b) while Delma and Ronda continued to hold the Land as tenants in common.
57 Clause 7.1 provides:
"If after the expiry of three (3) years from the Execution Date either of the parties desires to enforce the trust for sale to which the Land is subject or to dispose of the beneficial interest in the Land that party ('the Seller') shall give a notice of sale in writing to the other party ('the Buyer') offering to sell the whole of the beneficial interest of the Seller in the Land to the Buyer."
- The reference in cl 7.1 to "either of the parties" desiring to enforce "the trust for sale" or to dispose of their beneficial interest in the Land, is to the "Purchasers"; that is, to Delma and Ronda. The reference in cl 7.1 to "the other party" to whom the "Notice of Sale" must be given, is to the Purchaser who does not give the Notice of Sale.
58 In other words, cl 7.1, and the other provisions of cls 7, 8, 9, 10 and 11, applied as between Delma and Ronda. Ednah did not have any rights or obligations under those provisions. The definitions of "Notice to Buy", "Notice to Proceed" and "Notice of Sale" in cl 1 contain patent errors to the extent they refer to "the Vendor" (that is, Ednah).
59 The expression "the trust for sale" in cl 7.1 is also referred to in cl 11 of the Deed. The concept of a "trust for sale", in the context of a tenancy in common, was introduced into those provisions of the English Law of Property Act 1925 which superseded the English Partition Act 1868 as amended by the English Partition Act 1876. See Cheshire & Burn's,
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- Modern Law of Real Property (15th ed, 1994) at 224 - 228. As I have mentioned, a statutory trust for sale, in relation to property in co-ownership, but in terms which are materially different from the English Law of Property Act, is to be found in the legislation of some Australian jurisdictions; for example, the Conveyancing Act 1919 (NSW). However, in Western Australia, s 126(1) and the other provisions of Pt XIV of the Property Law Act, do not recognise or provide for a "trust for sale". The references to "the trust for sale" in cls 7.1 and 11 of the Deed are based upon a misunderstanding of Pt XIV of the Property Law Act, and should be construed as references to the relief which the Supreme Court may grant in a partition action under s 126(1).
60 Clause 7.1 did not apply during the three-year period after the date of execution of the Deed. It was unnecessary for cl 7.1 to apply during that period in that cl 6 prohibited each of Delma and Ronda from selling, or attempting to sell, her interest in the Land to a third party within the three-year period after the date of execution of the Deed, without the prior written consent of the other of them, unless subdivision had occurred pursuant to cl 12.2. Also, cl 7.1 did not apply if the Land had been subdivided pursuant to cl 12.2. The references in cl 7.1 to "the trust for sale" and to either Delma or Ronda desiring to dispose of her "beneficial interest in the Land" demonstrate that the clause applied only while the Land was in co-ownership.
61 Accordingly, by cl 7.1, if, after the expiry of three years from the date of execution of the Deed, and while the Land was in co-ownership, Delma or Ronda:
(a) desired to commence a partition action under s 126(1) of the Property Law Act; or
(b) desired to sell or otherwise dispose of her beneficial interest in the Land to a third party,
- then, on the occurrence of either of those events, the person who desired to commence a partition action or to sell or otherwise dispose of her beneficial interest in the Land was obliged to give a Notice of Sale to the other co-owner. The rights and duties of the parties consequent upon the giving of a Notice of Sale were governed by cls 7.2, 8, 9, 10 and 11.
62 Nothing in cls 6 and 7 (or, for that matter, cls 8, 9, 10 and 11) prohibited or restricted a sale by Delma and Ronda as co-owners of the Land, or a sale by either of them of her undivided share as a tenant in
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- common, to a third party, at any time, if both Delma and Ronda agreed to the sale.
Ground 1: cls 3 and 4
63 Clause 3 of the Deed contained covenants between Delma and Ronda in relation to the Land and their dealings with each other as co-owners. Clause 4 of the Deed prohibited each of Delma and Ronda from, relevantly and in effect, creating any encumbrance over her interest in the Land or selling, transferring, leasing or otherwise disposing of all or any part of her interest in the Land, without the prior written consent of the other of them, unless the Land had been subdivided in accordance with cl 12.2. It is plain that cls 3 and 4 applied, as between Delma and Ronda, only while the Land was in co-ownership.
Ground 1: cl 16.2
64 By cl 16.2 of the Deed, it was provided that:
"The provisions of Section 126 of the Property Law Act … are hereby expressly excluded from, and do not apply to, this Deed, the Land and the interest of the parties in the Land."
- Plainly, however, cl 16.2 was subject to the specific provisions of the Deed which permitted Delma or Ronda to commence a partition action. See cls 7.1, 11 and 12.5.
Ground 1: sale by agreement as between Delma and Ronda
65 Nothing in the Deed precluded a sale and transfer from Delma or Ronda to the other of them of her interest in the Land pursuant to an agreement made independently of the Deed.
66 Clause 7 was predicated on the assumption that Delma and Ronda had not entered into an agreement independently of the Deed for the sale and purchase by one to the other of her interest in the Land. Clause 6 restricted a sale of Delma's or Ronda's interest in the Land to third parties, but did not restrict a sale by one to the other.
Ground 1: cl 13
67 Clause 13 of the Deed has several features:
(a) No express time limit, in relation to the operation of the clause, is stipulated. The clause simply states that "in the event the Land is sold to any third party", the net
- proceeds of sale are to be applied in the manner and priority specified.
- (b) The clause has a passive sentence structure. The event which gives rise to the operation of the clause is the sale of the Land to a third party. The clause does not, however, specify or identify the vendor or the potential class of vendors.
(c) The clause refers to the sale of "the Land" without expressly stating whether the clause is concerned solely with the sale of the whole freehold estate as distinct from an undivided interest.
(d) The payment of the balance of the net proceeds of sale is to be made to the "Purchasers" (that is, Delma and Ronda) in the "Proportions". The expression "the Proportions" is defined in cl 1 and item 4 of the Schedule to mean, in relation to each of Delma and Ronda, "one undivided half share".
68 The evident intention of the parties embodied in cl 13 is to be discerned in the context of the following surrounding circumstances (or matrix of facts), which were known to each of them as at the date of execution of the Deed:
(a) When the Deed was executed, Ednah was aged 80.
(b) The Deed recorded an agreement between a mother and two of her daughters.
(c) The Land had been the family home for many years.
(d) When the Deed was executed, each of the parties believed, as was the fact, that the market value of the Land was about $400,000.
(e) Notwithstanding that the parties believed, correctly, that the market value was about $400,000, they agreed upon a purchase price of $200,000.
(f) The contemplation of the parties was that the Land should, if possible, be subdivided between Delma and Ronda, but the parties appreciated that subdivisional approval might not be obtained and, in consequence,
- made other provision for the disposition by the sisters or either of them of the whole of the Land or an individual share.
- Those surrounding circumstances are either apparent from a perusal of the Deed, or were established by uncontested evidence at the trial. The proper construction of cl 13, for the purpose of determining the critical issue in the appeal, is ambiguous or susceptible to more than one meaning and, therefore, irrespective of the correct interpretation of the observations of Mason J in Codelfa (see [35] above), the surrounding circumstances which I have identified are admissible as an aid to construction.
69 Clause 13.4 is a telling provision in determining the critical issue of construction. It provides, in effect, that the balance of the net proceeds of a sale to which cl 13 applies are to be allocated between Delma and Ronda in equal shares. Such a provision is reasonable and equitable, and to be expected, where there has been a sale by co-owners. It would, however, be remarkable if the parties to the Deed (in particular, Delma and Ronda) had intended that:
(a) a sale by one sister of her lot, after subdivision pursuant to cl 12.1, and with or without significant improvements having been constructed by the seller on her lot; or
(b) a sale by one sister of the whole of the Land after she had acquired the other sister's share for value,
- would require the seller to share the balance of the net proceeds of sale with her sister.
70 I am therefore of the opinion that:
(a) Clause 13 applies only to a sale of the Land by Delma and Ronda to a third party while the Land is in co-ownership.
(b) Clause 13 does not apply after Delma and Ronda have ceased to hold the Land in co-ownership; for example -
(i) after the Land has been subdivided pursuant to cl 12.1;
(ii) after Delma or Ronda has transferred her undivided interest in the Land to the other of them
- pursuant to the right of preemption contained in cl 7; or
- (iii) after Delma or Ronda has transferred her undivided interest in the Land to the other of them pursuant to an agreement made independently of the Deed or pursuant to a sale ordered by the Supreme Court in a partition action (commenced as permitted by the Deed) under s 126(1) of the Property Law Act.
71 It is not surprising that the parties should have made provision in cl 13 for Ednah to receive one-third of the net proceeds of any sale of the Land by Delma and Ronda, as co-owners, to a third party, in addition to the purchase price payable to Ednah under the Deed. First, a sale by Delma and Ronda, as co-owners, to a third party would mean that the contemplation of the parties, as at the date of execution of the Deed, that the Land would be subdivided pursuant to cl 12.2, if possible, had not been realised. Secondly, subdivision pursuant to cl 12.2 or a sale by Delma or Ronda to the other of them would indicate that the Land, which had been the family home for many years, was likely to remain in the ownership of a family member for a significant period, whereas a sale of the Land by Delma and Ronda, as co-owners, to a third party would probably occur reasonably soon after the date of execution of the Deed. Thirdly, when the parties executed the Deed they believed, as was the fact, that the purchase price was about one-half of the market value of the Land. If the Land were to be disposed of by Delma and Ronda, as co-owners, to a third party, reasonably soon after the date of execution of the Deed, it would be understandable that Ednah should have a proportion of the net proceeds of that sale for her own use and benefit (including for the purpose of disposition under her Will).
72 My opinion that cl 13 applies only to a sale of the Land by Delma and Ronda to a third party, while the Land is in co-ownership, makes it unnecessary to decide whether the operation of cl 13 is, by implication, subject to a time limit. The point was, however, argued and it is appropriate that I express my view.
73 I consider it most unlikely that the parties to the Deed would have intended that cl 13 should apply in perpetuity. They do not appear to have contemplated that Delma and Ronda would hold the Land in co-ownership indefinitely. Indeed, cls 6 - 12 indicate to the contrary.
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74 Item 1 of the Schedule to the Deed, which specifies the Completion Date, reveals that the parties believed that:
(a) approval for the subdivision of the Land in accordance with cl 12 (par (i) of item 1);
(b) the sale of the Land to any third party (par (ii) of item 1); and
(c) the transfer of either Purchaser's share in the Land to the other Purchaser (par (iv) of item 1),
- might occur either within the three-year period after the date of execution of the Deed or after that period. The occurrence of each of the contingencies in pars (i), (ii) and (iv) of item 1 was uncertain. By par (iii) of item 1, however, the Completion Date had to occur, at the latest, 14 days after the third anniversary of the date of execution.
75 In my opinion, a reasonable person would understand the reference in cl 13 to a sale of the Land to a third party to be a sale by Delma and Ronda, as co-owners, to a third party on or before the Completion Date, as determined in accordance with item 1 of the Schedule. In other words, the operation of cl 13 is, by implication, confined to a sale to a third party which occurs, at the latest, within three years after the date of execution of the Deed.
76 The learned Judge was, with respect, in error in holding that cl 13 applied to the sale by Delma to Mr Lewis. Ground 1 of the appeal has been made out.
Grounds 2, 3 and 4
77 As I have mentioned, grounds 2, 3 and 4 are predicated on the assumption that the learned Judge's construction of cl 13 of the Deed is correct. I have held that his Honour's construction of cl 13 was, with respect, erroneous, and that Delma should succeed on ground 1. In the circumstances, it is unnecessary to deal with grounds 2, 3 and 4.
Conclusion
78 I would allow the appeal.
114