Paulyn Investments Pty Ltd atf Makin Family Trust v PP and BM Pty Ltd atf Macquarie Trust
[2006] QSC 77
•13 April 2006
SUPREME COURT OF QUEENSLAND
CITATION:
Paulyn Investments Pty Ltd atf Makin Family Trust v PP & BM Pty Ltd atf Macquarie Trust [2006] QSC 077
PARTIES:
PAULYN INVESTMENTS PTY LTD as trustee of the Makin Family Trust (ACN 097 296 609)
(applicant)
v
PP & BM PTY LTD as trustee of the Macquarie Trust (ACN 000 723 142)
(respondent)FILE NO/S:
BS6426 of 2005
DIVISION:
Trial Division
PROCEEDING:
Trial
ORIGINATING COURT:
Supreme Court at Brisbane
DELIVERED ON:
13 April 2006
DELIVERED AT:
Brisbane
HEARING DATE:
24 March 2006
JUDGE:
Muir J
ORDER:
The application is dismissed with costs to be assessed on the standard basis, including reserved costs, if any.
CATCHWORDS:
CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – Where contract for purchase of land – Where special conditions of contract – Where special condition provided for adjustment of purchase price contingent upon amendment to legislation – Where legislation amended – Whether special condition applied – Whether purchase price should be adjusted
Land Tax Act 1915 (Qld), s 3AA
Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191, cited
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337, cited
Homburg Houtimport BV v Agrosin Private Ltd [2004] 1 AC 715, applied
Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749, cited
Pacific Carriers Ltd v BNP Paribas [2004] 78 ALJR 1045, cited
Reardon Smith Line Ltdv Hansen-Tangen [1976] 1 WLR 989, cited
Sirius International Insurance Co (Publ) v FAI General Insurance Ltd [2004] 1 WLR 3251, applied
Thiess Services Pty Ltd v Mirvac Qld Pty Ltd [2005] QSC 364, applied
Toll (FBCT) Pty Limited v Alphapharm Pty Limited (2004) 219 CLR 165, appliedCOUNSEL:
R J Anderson for the applicant
R M Derrington SC for the respondentSOLICITORS:
Sambrook Grant for the applicant
Bennett & Philp for the respondent
The point in issue
The applicant is the purchaser under a contract entered into with the respondent for the sale and purchase of a commercial building on land at 12 Marine Parade, Southport, called “The Seabank Centre”. The parties differ as to the meaning to be given to clause 15 of the special conditions of the Contract, which provides for an adjustment to be made to the purchase price in the event of an alteration to the rate of land tax payable in respect of the land.
Clause 15 of the Contract
“15 LAND TAX REVIEW ADJUSTMENT
(a) Application of this Special Condition
If the land tax payable in respect of Lot 1 on RP 192127 for the 2005/2006 financial year (calculated on the basis that:
(i)the unimproved value of Lot 1 on RP 192127 on which land tax is to be calculated is $8,400,000.00; and
(ii)any announcement by or on behalf of the Queensland government regarding a modification of the manner of calculation of land tax in respect of, inter alia, the 2005/2006 financial year is in force),
is less than $151,200.00 this special condition will apply.
(b) Adjustment
At completion of this Contract an adjustment shall be made in favour of the Vendor. The amount of such adjustment shall be calculated in accordance with the following formula:
($151,200.00-NLT) x Purchase Price
$2,322,106.00
where:
"NLT" means the land tax payable in respect of Lot 1 on RP 192127 for the 2005/2006 financial year (calculated on the basis that:
(i)the unimproved value of Lot 1 on RP 192127 on which land tax is to be calculated is $8,400,000.00; and
(ii)any announcement by or on behalf of the Queensland government regarding a modification of the manner of calculation of land tax in respect of, inter alia, the 2005/2006 financial year is in force).
(c)Retention
If the Vendor and the Purchaser can not calculate or agree on the amount of the adjustment referred to in paragraph (b) as at the date of completion of this Contract (for any reason including uncertainty regarding the matters set out in paragraph (b)(ii)) at completion of this Contract) the Purchaser shall deposit the Retention Amount into the trust account of the solicitor for the Vendor.
The Retention Amount is calculated in accordance with the following formula:
$50,000.00 x Purchase Price
$2,322,106.00
The Vendor and the Purchaser irrevocably authorises the solicitor for the Vendor to invest the Retention Amount on the terms and conditions set out in Standard Commercial Condition 6 except that the Purchaser shall be entitled to all interest on the Retention Amount.
Upon calculation of the amount referred to in paragraph (b), the solicitor for the Vendor is irrevocably authorised by the Vendor and the Purchaser to:
(i)pay the adjustment amount (as calculated in accordance with paragraph (b)) of the Retention Amount to the Vendor;
(ii)return the balance (if any) of the Retention Amount to the Purchaser; and
(iii)on forward the interest on the Retention Amount to the Purchaser.
If the adjustment referred to in paragraph (b) is an amount greater than the Retention Amount, the Purchaser shall pay to the Vendor an amount equal to such adjustment amount less the Retention Amount within 14 days of written demand by the Vendor.
If the adjustment referred to in paragraph (b) can not be calculated as at the date 6 months after the date of settlement of this Contract, the solicitor for the Vendor shall return the Retention Amount to the Purchaser. If after return of the Retention Amount the adjustment referred to in paragraph (b) can be calculated, the Purchaser shall pay to the Vendor an amount equal to such adjustment amount within 14 days of written demand by the Vendor.
(d)Additional Adjustment
The adjustment referred to in this special condition is in addition to the adjustment of land tax required under the Standard Commercial Conditions”.
The applicant’s argument
Special condition 15 has no application as:
(a) It is a pre-condition to its operation that the unimproved value of lot 1 on which land tax is to be calculated is $8,400,000;
(b) The “unimproved value” of the land for land tax purposes is not $8,400,000; and
(c) Clause 15(a)(ii) operates only where a “modification of the manner of calculation of land tax” for the relevant period had come into force before completion, and that did not occur.
In support of these contentions, Mr Anderson, who appeared for the applicant, advanced the following arguments. Clause 15(a)(ii) is obviously a variable and (i) should be regarded as a variable as well i.e., it applies only if it comes about that the unimproved value of the land on which land tax is to be calculated is in fact $8,400,000. Subclause (a) commences with the words “If the land tax payable … calculated on the basis that…” The sub-clause is then separated into two parts. That assists the conclusion that sub-clause (a)(i) deals with a variable rather than a fixed formula. Also, the introductory words suggest that the clause is addressing an actual circumstance which may arise.
Circumstances under which the Contract was entered into
The property was offered for tender at the end of March 2005. The unimproved value of the land as at 30 June 2004 was $8,400,000. Tenders closed on 29 April 2005 and the applicant’s tender was accepted on 4 May 2005. A contract for the sale and purchase of the land then came into existence. The parties agreed on some alterations to that contract which are of no particular relevance for present purposes and the Contract was entered into on 24 June 2005.
On about 7 June 2005, the rate of land tax was reduced from 1.8 percent to 1.5 percent. There had been public speculation for some time concerning the possibility of reductions in the land tax rate as a result of pressure by the Federal Government on State Governments to reduce State taxes consequent upon the introduction of the Goods and Services Tax.
At the time of the Contract, the Seabank Centre was fully tenanted or virtually so. The Contract contained a lease schedule listing the tenancies, initial rent, current rent, particulars of rent reviews and outgoings.
The purchase price for the property was $30,263,000 and the Contract made provision for adjustment to the price under rent guarantees provided in respect of certain tenancies. There were other adjustments to the price required to be made if certain rent increases were not obtained by the purchaser. The effect of the provisions was to provide the purchaser with a specified level of return on the property.
Relevant principles of construction
I will take the liberty of repeating some passages from my reasons in Thiess Services Pty Ltd v Mirvac Qld Pty Ltd:
The role of the court in construing a contract is to “ascertain and give effect to the intentions of the contracting parties”.[1] That intention, to be determined objectively, is “what a reasonable person would have understood [the words of the contract] to mean”. And to ascertain 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.[2]
[1]Homburg Houtimport BV v Agrosin Private Ltd [2004] 1 AC 715 at 737.
[2]Toll (FGCT) Pty Limited v Alphapharm Pty Ltd (2004) 219 CLR 165 at 179.
Lord Wilberforce stated the latter principle a little differently in Reardon Smith Line Ltdv Hansen-Tangen[3] in the following passage referred to with approval by Mason J in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales[4] and by the Court in Pacific Carriers Ltd v BNP Paribas:[5]
“In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating.”
[3][1976] 1 WLR 989 at 995-996.
[4](1982) 149 CLR 337 at 350.
[5][2004] 78 ALJR 1045 at 1050, 1051.
In Sirius International Insurance Co (Publ) v FAI General Insurance Ltd[6] Lord Steyn, referring in particular to the passage from the reasons of Lord Diplock in Antaios Compania Naviera SA v Salen Raderierna,[7] referred to above, remarked on the existence of “a shift from literal methods of interpretation towards a more commercial approach”. In that regard he referred to Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd[8] in which he explained the rationale of this approach as follows:
“In determining the meaning of the language of a commercial contract … the law … generally favours a commercially sensible construction. The reason for this approach is that a commercial construction is more likely to give effect to the intention of the parties. Words are therefore interpreted in the way in which a reasonable commercial person is hostile to technical interpretations and undue emphasis on niceties of language.”
[6][2004] 1 WLR 3251.
[7][1985] AC 191, 201.
[8][1997] AC 749, 771.
Lord Steyn (in Sirius) added:
“The tendency should therefore generally speaking be against literalism.”
Lord Walker, also in Sirius, cautioned against undue literalism, observing:
“Meticulous verbal analysis of this paragraph is not appropriate, at any rate not to the exclusion of common sense, or its commercial context.”…” [9]
[9][2005] QSC 364 at [39]-[43].
The construction of clause 15
I am unable to accept the applicant’s construction. The parties intended by clause 15(a) that there be a calculation of land tax in respect of the land on the basis of an assumed unimproved value of $8,400,000. The applicable land tax rate was to be the rate of land tax announced by the Queensland Government as the new rate to come into force, should there be such an announcement. Otherwise, the rate was to be that actually in force at the relevant time.
That construction, it seems to me, is the more obvious literal construction of the clause. On the other hand, if the applicant is correct, the clause would have effect only in the fairly remote circumstance that the land tax rate was changed so that the unimproved value of the land on which land tax to be calculated was $8,400,000.
Under the Land Tax Act 1915, land tax is assessed on the lesser of the unimproved value of the land that applies for the relevant financial year and the average unimproved value of the land for that financial year. The average is taken from the average of the unimproved value for the financial year in question and the unimproved values in the previous two financial years.[10] Consequently, unless the current valuation is less than the average of the current valuation and that of the two previous years, the land tax would be assessed on the average. In this case, in order to produce an average of $8,400,000, the unimproved value for the 2005-2006 would have had to have been $10,600,000.
[10]s 3AA Land Tax Act 1915.
The background to the parties’ contractual dealings does not hint at the possibility that they may have wished to make provision for the unlikely contingency that the 2005-2006 assessment would have been $10,600,000.
I note that in the course of his submissions, Mr Anderson ceased to rely on any argument based on clause 15(a)(ii).
Conclusion
For the above reasons, I find against the construction put forward by the applicant. The application is dismissed with costs to be assessed on the standard basis.
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