PCM Nominees (No 2) Pty Ltd v Brighton Bay Developments Pty Ltd
[2006] VSC 351
•27 September 2006
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL LIST
No. 2000 of 2006
F5929
| PCM NOMINEES (NO.2) PTY LTD (ACN 088 205 234) | Plaintiff |
| v | |
| BRIGHTON BAY DEVELOPMENTS PTY LTD & ORS (ACN 085 975 901) | Defendants |
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JUDGE: | Whelan J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 5-7, 13 September 2006 | |
DATE OF REASONS: | 27 September 2006 | |
CASE MAY BE CITED AS: | PCM Nominees v Brighton Bay Developments | |
MEDIUM NEUTRAL CITATION: | [2006] VSC 351 | |
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CONTRACT – Interpretation - Whether a vendor must transfer a partial interest in a property at settlement when one of four co-purchasers does not produce a transfer – Whether the co-purchasers who did produce transfers are in default - Whether evidence of pre- and post-contractual dealings admissible.
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337
FAI Insurance Traders Co Ltd v Savoy Plaza Pty Ltd [1993] 2 VR 343
Ryan v Textile Clothing and Footwear Union of Australia [1996] 2 VR 235
Collins Hill Group Pty Ltd v Trollope Silverwood and Beck Pty Ltd
Spunwill Pty Ltd v BAB Pty Ltd (1994) 36 NSWLR 290
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr N. Mukhtar, Q.C. with Mr P. Nicholas | Clayton Utz |
| For the First Defendant | Mr M. N. Connock | Minter Ellison |
| No appearance by or on behalf of the Second, Third and Fourth Defendants |
TABLE OF CONTENTS
Introduction......................................................................................................................................... 2
The genesis of the transaction......................................................................................................... 3
The relevant agreements................................................................................................................... 4
The Sale Contract........................................................................................................................... 4
Other agreements.......................................................................................................................... 7
Variations....................................................................................................................................... 9
Events after execution........................................................................................................................ 9
ASIC proceedings............................................................................................................................ 10
The competing contentions............................................................................................................ 11
PCM............................................................................................................................................... 11
Brighton Bay................................................................................................................................ 13
Applicable legal principles............................................................................................................. 14
Contentions concerning default.................................................................................................... 16
Analysis of competing contentions............................................................................................... 17
Conclusions....................................................................................................................................... 21
HIS HONOUR:
Introduction
The plaintiff (“PCM”) and the second (“People First”), third (“Podesta”) and fourth (“Ambridge”) defendants entered into a series of inter-related agreements with companies related to or associated with Primelife Corporation Limited (“Primelife”) concerning the acquisition and construction of retirement village apartments and related facilities in Bay Street, Brighton.
One of the agreements was a contract of sale of real estate dated 30 June 1999 (the “Sale Contract”). PCM, People First, Podesta and Ambridge executed the Sale Contract as the “Purchaser”. The defendant (“Brighton Bay”) executed as vendor. The contract specified in relation to each of the respective “Purchaser” companies a percentage interest, being PCM “as to 47.2625%”, People First (then named Mainpoint Enterprises (Aust) Pty Ltd) “as to 8.75%”, Podesta “as to 38%”, and Ambridge “as to 5.9875%”.
When the time for settlement under the Sale Contract arrived all the companies comprising the Purchaser submitted executed transfers for their respective percentage interests except Ambridge. Ambridge is deregistered.
PCM says Brighton Bay must transfer 47.2625% of the land, upon which the retirement village has now been constructed, to it. Brighton Bay says it cannot be compelled to transfer anything less than 100% of the land after the provision to it of a transfer signed by all the companies comprising the Purchaser.
PCM and Brighton Bay appeared and argued the matter. The other defendants did not appear at the trial. There is a related proceeding in which People First is the plaintiff and PCM, Podesta, Ambridge and Brighton Bay are defendants. That proceeding was originally to be heard with this proceeding, but that trial was vacated at People First’s request and with the consent or acquiescence of the other parties.
The genesis of the transaction
Kevin Munro is now the sole director of PCM. He is a lawyer. His firm is Kevin Munro and Associates. He practises mainly in tax law. In 1998 Mr Munro and an associate, Mr David McLeod, became involved in forming a syndicate to invest in retirement villages. This involvement was associated with the perceived taxation advantages of such investments as set out in a taxation ruling, TR94/24.
By an agreement bearing the date 19 October 1998, drafted by Kevin Munro and Associates, a partnership called the “Aged Care Facility Partnership No. 2” was formed. That agreement provided that the object of the partnership was to conduct a business, which was defined to include “the acquisition, development and management of an aged care facility proposed to be acquired at 663–669 and 689–691 Malvern Road Toorak Victoria or such other facility of a similar standard and size”. According to Mr Munro’s supplementary witness statement (exhibit P3), PCM was appointed as nominee for that partnership on 29 June 1999.
As at 29 June 1999 Mr McLeod was also a director of PCM. According to Mr Munro’s witness statement (exhibit P2), on 29 June 1999 he and Mr McLeod came to Melbourne to sign documents to acquire the Toorak property. They met the then chief executive of Primelife, Mr Ted Sent. Mr Sent told them he had “good news and bad news”. The bad news was they could not buy the Toorak property. The good news was they could buy a share in another project. Mr Sent offered one which Mr Munro said did not interest them. Mr Munro’s witness statement then relevantly reads:
“Sent then said he could offer us a property in Brighton.. . . He asked us ‘How much of it do you want?’ McLeod said that we would take a share in the Brighton property equal to the funds that were to be used for the purchase of the Toorak property.”
Mr Munro’s witness statement then states that, as directors of PCM, Mr McLeod and he signed the Sale Contract with Brighton Bay, a profit share agreement with Brighton Bay, and a marketing and management agreement with Prime Life Management Services Pty Limited (“PLMS”).
There is no evidence as to how People First, Podesta and Ambridge became involved in the Brighton project. There is no evidence of any association, save for that embodied in the relevant agreements themselves, between the four companies comprising the Purchaser under the Sale Contract.
The relevant agreements
The three agreements executed by Mr Munro and Mr McLeod consequent on the 29th June 1999 dealings all bear the date 30 June 1999. The agreements have characteristics which suggest urgent preparation.
The Sale Contract
The Sale Contract provides for the construction of retirement village apartments and related facilities on the Brighton property and for the acquisition of the property by the four companies comprising the Purchaser.
In the Sale Contract the notice concerning the cooling off period and the general conditions appear twice. The two versions of the general conditions are not identical. Clause 2.3 appears in the second version but not the first. What appears as clause 9.3 in the first version appears as an unnumbered provision in the second. The differences do not affect any of the provisions relied upon by the respective parties before me. The duplication is an indication of possible urgent preparation.
Under the Sale Contract, the “Vendor sells and the Purchaser buys both the Property and the Chattels for the price and upon the conditions set out…”
The “Purchaser” is defined in the special conditions by reference to the Particulars of Sale. The Particulars of Sale describe the “Purchaser” by naming the four companies, giving their addresses, and then specifying a percentage for each of them. In PCM’s case the percentage is “as to 47.2625%”.
The “Property” is defined as the “Land”, in turn defined by reference to the Particulars of Sale, and the “Building”, defined by reference to the facility “to be erected upon the Land by the Vendor”. The “Land” is defined as “All that land” comprised in the specified certificates of title.
General condition 9.1 incorporates Table A of the Seventh Schedule of the Transfer of Land Act 1958. General condition 13 provides that the instrument of transfer required by general condition 12 of Table A must be provided by the purchaser to the vendor or the vendor’s solicitor at least 10 days prior to settlement. Clause 12.1 of special condition 12 requires delivery of “the Transfer duly executed by the Purchaser” not less than five business days prior to the due date for payment of the Residue (as defined). General condition 10 provides that the special conditions have priority in case of a conflict. General condition 12 of Table A requires the vendor to deliver such registrable instrument or instruments of transfer as will enable the purchaser to become registered as proprietor upon “payment of all purchase and other moneys payable by the purchaser”.
The Particulars of Sale are poorly formatted. This is a further indication of the possibility of urgent preparation. The price provided for is $40,000,000. The “Residue” is $30,000,000, which is said to be payable in accordance with special condition 10. The “Deposit” is $10,000,000. No provision is made for when this is payable. The “Settlement Date” is the “date upon which vacant possession of the Property and Chattels must be provided, namely, upon acceptance of title and payment of the whole of the Residue”.
A number of the special conditions provide for the construction of the retirement facility. Those provisions are not relevant to the dispute which has now arisen. The retirement facility has been constructed.
Special condition 8 concerns the Deposit. It regulates the holding and release of the Deposit. This provision was varied by a subsequent deed to which I will refer. Clause 8.3 provides that if the Vendor rescinds the contract as a result of a default by the Purchaser then the Vendor is entitled to retain the Deposit in full.
Special condition 9 provides that the Residue must be paid 14 days after the “Purchaser is served with a copy of the Certificate of Completion”.
Special condition 10 provides that upon the Settlement Date the Vendor will loan to the Purchaser an amount equal to the Residue to be applied by the Purchaser in paying the Residue. The loan is to be interest free and is to be secured by a mortgage referred to as the “V Mortgage”. The “V Mortgage” is defined to mean the mortgage annexed to the Sale Contract. The annexed mortgage has been signed by the four companies comprising the Purchaser and by Brighton Bay.
Provision is made in special condition 11 for Brighton Bay to raise finance on the security of the Property. Clause 11.8 is a provision directed towards ensuring that the Purchaser does not incur personal liability in relation to this finance. The clause refers to both the “Purchaser” and to “any of the Partners”. The expression “Partners” is defined to mean “the persons, corporations and entities in respect of whom any of the named Purchasers is an agent or nominee for”. This is one of a number of references to “Partners” in the documentation.
I have already referred to one of the provisions in special condition 12, clause 12.1, which governs the delivery by the Purchaser of an executed transfer five business days prior to payment of the Residue. Clause 12.2 of special condition 12 provides that if the Purchaser fails to deliver the duly executed transfer “the Purchaser shall be deemed to have made default in payment of the Residue”. Clause 12.4 provides, amongst other things, that at settlement the “Purchaser must pay to the Vendor the Residue”.
Special condition 16 makes provision for a number of circumstances of a miscellaneous character. Clause 16.12 is important. It provides as follows:
“The Vendor acknowledges that each of the companies comprising the Purchaser are not in partnership and the liability is limited to their respective percentage tenant in common interest.”
Special condition 18 provides that the “creation” of the Sale Contract is subject to and does not become binding unless on or prior to the date of the contract two conditions have been fulfilled. They are execution and exchange of a Marketing and Management Agreement and execution and exchange of a Profit Share Agreement. Those contracts were executed and exchanged. They each bear the date 30 June 1999.
Other agreements
The V Mortgage names as Mortgagor the four companies comprising the Purchaser, without specifying any percentage interests in relation to them, and names Brighton Bay as Mortgagee. The principal sum is $30,000,000. The mortgage contains special conditions pursuant to which, amongst other things, repayment is to be made out of the receipts from residents of the retirement facility (special condition 2), and the Mortgagee’s recourse is limited (special condition 5). One of those limitations (clause 5.2) is that neither the Mortgagor nor any of the “Partners” is to have any personal liability in respect of repayment of the advance. The Mortgagee’s recourse in respect of any failure to repay is limited to the Land (clause 5.1). In the V Mortgage the expression “Partners” is defined as having the same meaning as in the Sale Contract. Thus, in accordance with the definition in the Sale Contract, it refers to persons on whose behalf the Purchaser/Mortgagor companies may be acting. There is also a definition in the V Mortgage of the expression “Percentage Several Liability”. It is defined to mean “the percentage several liability of each of the Partners as specified in the Sale Contract”. There is no percentage several liability of the “Partners” as defined specified in the Sale Contract. The defined expression “Percentage Several Liability” is then used in provisions of the special conditions relating to substitute finance (clause 2.6). The provisions concerning “Partners” must involve an error of some kind, but I cannot say what it is.
The Profit Share Agreement defines the four companies which comprise the Purchaser under the Sale Contract as the “Principal”. Under this agreement, the Principal agrees to pay to Brighton Bay 50% of the “Profit”. The “Profit” is defined, in substance, as earnings before interest and tax of the “Business”. The “Business” is defined as “the business to be operated by the Principal from the Property, being the provision of a retirement village aged accommodation facility”. The “Property” is the property the subject of the Sale Contract. Amongst other things, under the Profit Share Agreement the Principal is restricted in its ability to deal with the Business (clause 8). If the Sale Contract is lawfully terminated in respect of a breach by the Principal, the Principal is deemed to be in breach of the Profit Share Agreement as well (clause 17.3).
The Profit Share Agreement also has provisions in relation to “Partners”. The Profit Share Agreement defines “Partners” as “the persons, corporations or entities named in the Sale Contract”. Clause 18.11 provides that the Principal warrants and represents it is entering into the Profit Share Agreement as a nominee of the Partners in the proportions of their percentage several liabilities specified “in the schedule the Sale Contract”[sic]. Clause 18.11 then continues:
“Notwithstanding any other provision of this Agreement, the percentage several liability of each Partner is the only liability of each Partner.”
The only proportions specified in the Sale Contract are those specified in the Particulars of Sale referable to the Purchaser/Principal companies themselves. Again, it seems there has been an error of some kind in the provisions concerning “Partners”.
The Management and Marketing Agreement also names the four companies comprising the Purchaser under the Sale Contract as the “Principal”. The other party to this agreement is PLMS. Under this agreement, PLMS agrees to provide advice and assistance in relation to the “Business”, which is defined in the same way as in the Profit Share Agreement, and also agrees to market the “Apartments” (which expression is defined to mean “the retirement village to be developed on the Property”), to supervise and co-ordinate management of the Business, to carry out the Principal’s obligations under any Loan/Licence Agreements (arrangements with residents), to provide personnel to attend meetings with residents, and to recruit and employ staff. Again, if the Sale Contract is lawfully terminated as a result of a breach by the Principal, the Principal is deemed to be in breach of this agreement (clause 17.2). The agreement contains a similar provision in relation to “Partners” to that contained in the Profit Share Agreement (clause 19.10).
Variations
By deeds bearing the date 5 November, 1999 the Sale Contract, the Profit Share Agreement, and the Marketing and Management Agreement were respectively varied.
The Sale Contract was varied so as to make provision for payment dates for the Deposit. As varied, the Deposit was payable as to the sum of $4,423,000 on the date of the Sale Contract and as to the balance of $5,577,000 on 5 November, 1999. The provisions of clause 8.2 of special condition 8, concerning release of the Deposit were also varied. The varied provision provided, amongst other things, for Brighton Bay to provide to the Purchaser a bank guarantee in the sum of $5,000,000. Special condition 18 was also varied so as to provide for the simultaneous execution of the Marketing and Management Agreement, the Profit Share Agreement, and the V Mortgage. A new clause 22 was added. It is relevant only in that it concerns the transfer documentation and is expressed in the plural - “Transfers”.
The variations to the Profit Share Agreement and the Marketing and Management Agreement are not of significance in the context of this proceeding.
Events after execution
The Deposit has been paid in full. According to documents in evidence before me (Exhibit P1, p 493-5), PCM paid $4,726,250 of the $10,000,000 deposit; $1,876,426 being paid from two solicitors’ firms’ trust accounts and $2,849,824 being “commission contras”. The “commission contras” were referrable to a number of projects. The Brighton Bay commission was $661,675, being 3.5% of $18,905,000 which is 47.2625% of $40,000,000. This is all set out in the documents in evidence. The 3.5% commission was calculated on the proportion of the total purchase price referrable to PCM. The commission is 14% of the proportion of the cash contribution (the Deposit), the balance of the purchase price being the subject of limited recourse vendor finance.
Three bank guarantees totalling $5,000,000 dated respectively 10 March 2000, 20 March 2000 and 20 March 2000 were provided to the four companies constituting the Purchaser. Each of those bank guarantees specified the respective percentage “entitlement” of each company by reference to the percentages provided for in the Sale Contract.
Construction of the retirement village was undertaken. On or about 2 May 2005 a Certificate of Completion was issued. Thereafter, the Settlement Date under the Sale Contract was extended by agreement until 30 September 2005.
On 18 November 2005 PCM, People First and Podesta delivered to Brighton Bay three signed transfers, each for their respective stipulated interests. Ambridge did not deliver, and has not delivered, a transfer.
No point was made in the proceeding before me as to the timing of the provision of the signed transfers.
Brighton Bay has refused to settle with PCM and with the other two companies comprising the Purchaser who did provide signed transfers. Brighton Bay advised them that settlement would not occur unless all the parties “constituting the Purchaser” complied with their obligations.
ASIC proceedings
The Australian Securities and Investments Commission (“ASIC”) has instituted proceedings in the Federal Court alleging that the involvement of Primelife, PLMS, Brighton Bay, PCM and People First in the “Brighton Bay Plaza Aged Care Facility” constituted the operation by them of a managed investment scheme in contravention of s 601ED(5) of the Corporations Act 2001 and seeking the winding up of that scheme. ASIC was notified of this proceeding (and the related proceeding) and appeared at a directions hearing on 24 March 2006. In a written outline handed up on that occasion counsel for ASIC expressed concern at the possibility of relief being granted which might further what ASIC contends is a contravening scheme and at the possibility of a finding as to the nature of the association between the four companies comprising the Purchaser which might be inconsistent with a subsequent finding on that issue in the Federal Court proceeding. ASIC did not seek to be made a party to this proceeding, nor did it submit that this proceeding should be stayed. In oral submissions counsel for ASIC suggested resolution of the parties’ legal rights in this proceeding might facilitate any subsequent winding up ordered in the Federal Court. I am mindful of the matters ASIC raised. At the trial I indicated that I would not make orders in this proceeding until ASIC had had the opportunity to consider the orders proposed and to make further submissions if it wished to do so.
The competing contentions
PCM
In its amended statement of claim PCM alleges that on a proper construction of the Sale Contract:
(a)it is a composite agreement embodying four separate contracts between Brighton Bay and each of the four companies by which they each agreed severally to buy a specified percentage interest in the property;
(b)clause 16.12 of the Sale Contract means, as it says, that the liability of each of the four companies is limited to their “respective percentage tenant in common interest”; and,
(c)“liability” in clause 16.12 means liability for any obligation incurred under the Sale Contract, including the obligation to pay the purchase price and to deliver a transfer.
The relief claimed in the amended statement of claim is a declaration that the transfer of land delivered by PCM to Brighton Bay “constituted performance of its obligations under clause 12.1 of the sale contract” and an injunction requiring Brighton Bay to execute the transfer so delivered. At the hearing PCM did not seek that relief. Instead it sought declarations in the following terms:
“A.A declaration that the sale contract is a composite agreement embodying a contract between the first defendant, Brighton Bay Developments Pty Ltd, and the plaintiff, PCM Nominees (No. 2) Pty Ltd, under which the plaintiff agreed to buy from the first defendant, and the first defendant agreed to sell to the plaintiff a 47.2625% share in the land described in certificate of title volume 10829 folio 929.
B.A declaration that in order to perform clause 12.1 of the sale contract and clause 12 of Table A of the Transfer of Land Act, the plaintiff is required to deliver to the first defendant in registrable form a transfer which will enable the plaintiff to become registered as a proprietor of a 47.265% share of the land as tenant in common.”
In submissions counsel for PCM maintained that the fundamental question was: “what did the plaintiff agree to buy and what did the vendor agree to sell to it?” In this respect counsel for PCM placed primary reliance upon the description of the Purchaser, and in particular upon the “as to” specified percentage interest, and upon the provisions of clause 16.12.
The submission was developed by reference to the following matters:
1.It was submitted that the factual matrix and an examination of the genesis of the contract supported PCM’s construction. I have set out already the evidence that was given as to the dealings between Mr Munro, Mr McLeod and Mr Sent.
2.It was submitted that clause 12.1 (concerning delivery of the “Transfer”) is not a provision directed at the substantive determination of rights but is rather a machinery provision.
3.The Sale Contract nowhere expressly provides that 100% of the land and nothing less can be transferred.
4.Clause 16.12 was said to be expressed in “strong language”. It was submitted that the term “liability” in that clause should not be given a narrow meaning but should rather be construed to mean all obligations under the contract.
5.It was submitted that Brighton Bay’s position was not commercially rational. If correct, it means that each purchaser’s position is dependant upon the others. This was submitted to be inconsistent with clause 16.12, and inconsistent with the absence of any provision protecting individual purchasers against a failure to perform by one of their number.
6.It was submitted that Brighton Bay’s position produces an outcome which is manifestly unjust, as default by one purchaser means that all must “face rescission and loss of the deposit”.
7.It was submitted that the vendor’s position would be preserved by PCM’s approach as it would retain “an interest that is as saleable as it was when the parties entered into the contract”.
Brighton Bay
The principal submissions made on behalf of Brighton Bay may be summarised as follows:
1.The Sale Contract provides for the sale of the entire property. This is made clear in the introductory provisions, in the definitions, and throughout the provisions of the contract.
2.The description of the “Purchaser” by reference to four different companies and specified percentages is in itself unremarkable and is “an every day occurrence in circumstances where a property is purchased jointly”.
3.Brighton Bay’s only obligation is to convey the Property, not a part of it. It is only obliged to convey the Property upon full payment of a single purchase price. The purchase price itself is constituted by a single Deposit (made by two payments pursuant to the variation) and a single Residue.
4.Brighton Bay’s construction is “reinforced” by the deed of variation.
5.The V Mortgage cannot operate consistently with its terms if partial interests in the land are to be transferred.
6.The Profit Share Agreement and the Marketing and Management Agreement contemplate only a sale of the Property in its entirety. They are unworkable if there is partial transfer.
Applicable legal principles
The parties did not differ upon the proper approach to the construction of commercial contracts. Meaning is to be determined objectively. The contact is to be interpreted in the way a reasonable person would understand the language in which the parties have expressed their agreement. In the search for the parties’ objectively determined common intention, no narrow or pedantic approach is warranted. The law generally favours a commercially sensible construction.
The parties differed on the use that could be made of pre-contractual dealings and of post-contractual dealings and events.
In relation to pre-contractual dealings, counsel for PCM sought to rely on the evidence of the dealings between Mr Munro and Mr McLeod on the one hand and Mr Sent on the other as revealing the “genesis of the transaction”. It was submitted that this use was permissible and in that respect particular reliance was placed upon the judgment of Mason J (as he then was) in Codelfa Construction v State Rail Authority of New South Wales.[1] It was submitted on behalf of Brighton Bay that the evidence was not admissible as what was being attempted was to rely on evidence not of the factual matrix but rather of the negotiations. I ruled that the evidence was admissible. In my view it does reveal the commercial purpose or genesis of the contract and reliance upon it is permissible to that limited extent.
[1](1982) 149 CLR 337 at 350.
Counsel for PCM also sought to rely upon evidence of post-contractual dealings and events. In particular, PCM sought to rely on the fact that the bank guarantees provided pursuant to the varied provision governing the Deposit were given in terms which specified separate percentage entitlements reflecting those provided for in the Sale Contract.
I permitted the evidence of post-contractual conduct to be led so as not to preclude PCM from making the submissions it foreshadowed.
The Court of Appeal has made it clear that the position in Victoria is that evidence of later conduct is inadmissible for the purpose of interpreting a contract.[2] The only qualification to this general principle is that post-contractual conduct might be an appropriate means in a particular case of drawing inferences in the conventional way as to relevant circumstances existing before or at the time of the making of the contract.[3]
[2]FAI Insurance Traders Co Ltd v Savoy Plaza Pty Ltd [1993] 2 VR 343; Ryan v Textile Clothing and Footwear Union of Australia [1996] 2 VR 235 and Collins Hill Group Pty Ltd v Trollope Silverwood and Beck Pty Ltd [2002] VSCA 205 (“Collins Hill Group”).
[3]The existence of this qualification was suggested by Ormiston JA in Collins Hill Group at [44].
Counsel for PCM’s submission in relation to the post-contractual conduct dwelt at some length on the decision of Santow J in Spunwill Pty Ltd v BAB Pty Ltd.[4] In my view that decision is not consistent with the position laid down in Victoria on this issue by the Court of Appeal.
[4](1994) 36 NSWLR 290.
Counsel for Brighton Bay submitted that the evidence of post-contractual conduct was being relied upon here as nothing more than a “demonstration” of what PCM asserts to be the correct interpretation of the contract. I agree. The manner in which the evidence was sought to be used does not fall within the suggested qualification to the prohibition upon reliance on evidence of post-contractual conduct. In my view this evidence cannot be used as an aid to construction. In any event, given that PCM’s proportion of the deposit, and presumably the others as well, was paid in the specified proportions, it is unsurprising the bank guarantees reflect those proportions. I do not think the evidence would advance PCM’s argument on construction even if admissible for that purpose.
The argument before me proceeded upon unstated legal assumptions as to the position of co-owners. The parties did not address submissions to this issue, but it seems to me that it is important to be clear about the position of co-owners amongst themselves in the absence of agreement. The term “co-owner” embraces both joint tenants and tenants in common. Here it is clear that the four companies comprising the Purchaser are intended to be tenants in common and, it seems to me, it is equally clear that if Brighton Bay is required to transfer less than 100% of the Property then it will become a tenant in common with the company or companies to whom the partial transfers are made.
The relevant general principles as to the position between co-owners, which I have substantially drawn from the third edition of Bradbrook, MacCallum and Moore: Australian Real Property Law,[5] appear to me to be as follows:
1.Each co-owner is entitled to possession of the whole of the land.
2.No co-owner can claim exclusive physical possession of any particular portion of the land.
3.Each co-owner has an interest which can be dealt with.
4.A co-owner may grant a lease of that co-owner’s interest and the grantee will gain the co-owner’s right to enjoy possession of each and every part of the land but in common with the non-granting co-owners. Non-granting co-owners cannot be excluded from possession, but they also cannot interfere with the possession of the tenant of a granting co-owner.
5.Where an encumbrance is granted by one co-owner that encumbrance will be enforceable against the other co-owners if it does not interfere with the rights of the others to possession of the land.
[5]Adrian Bradbrook, Susan MacCallum and Anthony Moore, Australian Real Property Law (3rd ed, 2002) [10.04] [10.13] [11.21-11.23].
Contentions concerning default
As the matter was argued before me, both Brighton Bay and PCM maintained that if Brighton Bay’s construction was correct, then the Purchaser, including PCM, was in default, by virtue of the failure to provide a transfer or transfers for the whole of the land, and was consequently vulnerable to rescission and loss of the Deposit.
This approach, taken by both PCM and Brighton Bay, enabled PCM to submit that Brighton Bay’s construction produced an outcome which was not commercially sensible and which was incompatible with clause 16.12.
Brighton Bay in its amended defence at paragraph 24(3) positively asserts that:
“The Purchaser (as defined) under the Sale Contract is in breach of the Sale Contract by reason of its failure to deliver an instrument of transfer in relation to the entirety of the Land within the time specified in Special Condition 12.1 of the Sale Contract or at all.”
Having considered the matter, I reconvened the hearing to give counsel the opportunity to address submissions to the possibility that Brighton Bay was correct in contending it did not have to transfer partial interests, but that PCM was not in default given the provisions of clause 16.12. After being given time to consider that possibility, counsel for PCM and Brighton Bay both adhered to the position that if Brighton Bay’s construction was accepted PCM was in default. PCM’s counsel maintained this was a reason why Brighton Bay’s construction should not be accepted. Brighton Bay’s counsel maintained this was a reason why clause 16.12 must be given a more restrictive construction than that contended for by PCM. PCM’s counsel also submitted that the Court should strive to avoid an outcome which would produce a “stalemate”.
Analysis of competing contentions
It seems that only a short time elapsed between the commercial arrangement reached between Mr Munro, Mr McLeod and Mr Sent on 29 June 1999 and the execution of the relevant contracts, which all bear the date 30 June 1999, save for the V Mortgage which is undated but which is annexed to the Sale Contract. This circumstance may explain the duplication in the Sale Contract, the poor formatting, and the confusing provisions concerning “Partners”. It may also explain the failure to expressly address the circumstance which has now arisen whereby one of the companies comprising the Purchaser cannot or will not execute and produce to the vendor a transfer of the land.
PCM’s case that Brighton Bay must transfer a 47.2625% interest to it is in substance founded on three principal matters. First, it is said that the fundamental question is: “What did the plaintiff agree to buy and what did the vendor agree to sell to it?” The answer is said to be found in the specified “as to” percentages, particularly when seen in the context of the genesis of the transaction as revealed by the dealings with Mr Sent on 29 June 1999. Secondly, it is said that clause 16.12 of the special conditions means that each of the companies comprising the Purchaser has separate obligations and each has promised its own separate performance. The Sale Contract, it is said, can be described as a composite agreement embodying four separate contracts. Finally, it is said that Brighton Bay’s construction leads to an outcome which is manifestly unjust and not commercially sensible.
The fundamental question as posed by PCM admits of only one answer because it confines itself to PCM and asks what the vendor sold “to it”. The fundamental question as posed by Brighton Bay might be: “What did Brighton Bay sell?” Whilst the specified percentages make it clear that the companies comprising the Purchaser were to purchase as tenants in common in the specified portions, that circumstance does not in itself require a conclusion that Brighton Bay was disposing of anything less than its entire interest. I do not find the evidence of the genesis of the transaction to be of much assistance in this respect. The evidence in that regard is consistent with PCM’s approach, but it is not inconsistent with Brighton Bay’s construction, and it is perhaps most consistent with a conclusion that the entire issue which has now arisen was overlooked.
As to clause 16.12, Brighton Bay in its submissions sought to limit its operation. It submitted that clause 16.12 is to be construed as only limiting each company’s liability for damages or other amounts that may be recovered if the Sale Contract is breached.
I do not think clause 16.12 is to be limited in the manner contended for by Brighton Bay. In my view PCM’s construction of clause 16.12 is correct. The ordinary meaning of a “liability” is an obligation.[6] In my view, by clause 16.12 Brighton Bay acknowledges that the companies comprising the Purchaser are not in partnership and agrees that their individual obligations are limited to their respective tenant in common interests. Thus, the obligation to deliver a duly executed transfer as provided for in special condition 12 is an obligation on each company comprising the Purchaser to provide a duly executed transfer of its tenant in common interest, and the obligation to pay the Residue at settlement is an obligation on each to pay its respective portion of that Residue (which will be vendor financed and secured by the V Mortgage).
[6]Macquarie Dictionary (4th ed, 2005) 822. (Definition 1. ‘an obligation, especially for payment; debt or pecuniary obligations (opposed to asset).’)
Brighton Bay also submitted that even if PCM’s construction of clause 16.12 was accepted, that did not entail a conclusion that Brighton Bay was required to do anything other than to transfer the entirety of the Property upon payment in full of the Residue.
The third principal foundation of PCM’s case is the asserted unjust and uncommercial outcome produced by Brighton Bay’s construction.
PCM’s submission in this respect was based upon the proposition (propounded by Brighton Bay as well) that Ambridge’s failure to comply with special condition 12 results in a position whereby all the companies comprising the Purchaser are in default, as provided for in clause 12.2, and are all liable to potential loss of the Deposit under clause 8.3. This is what Brighton Bay contends is the position in its amended defence.
I do not accept that. Once it is accepted that clause 16.12 means that each of the companies comprising the Purchaser has a separate obligation to provide an executed transfer it must be concluded that those who do so are not in default under clause 8.3 or otherwise.
My conclusion accordingly is that even if Brighton Bay’s construction is accepted PCM is not in default. The unjust consequence for which PCM contends does not follow.
Notwithstanding this conclusion, clause 16.12 remains a strong factor in favour of PCM’s construction. But there are other factors which, taken together, are stronger.
First and foremost, the separate disposition of less than the entire Property for less than payment of the entire Residue is inconsistent with the terms of the Sale Contract.
In this respect I particularly refer to:
●the provision on the front page of the contract whereby the Vendor sells and the Purchaser buys the “Property”, and the definition of the “Property” as previously quoted;
●general condition 13.1 and general condition 12 of Table A, to which I have earlier referred;
●the Particulars of Sale in the references made to the “Land”, the “Price”, the “Deposit” and the “Residue”, and in the reference to the “Settlement Date” as being the date upon which “vacant possession” is to be provided upon acceptance of title and payment of the “whole of the Residue”;
●clause 2.2 of general condition 2, special condition 2, special condition 3 and clause 16.10 of special condition 16 in their references to the delivery, purchase and hand over of the “Property” as defined;
●special condition 9 concerning payment of the “Residue” as defined;
●special condition 10 concerning the vendor loan of an amount equal to the “Residue” as defined, and;
●clause 12.4 of special condition 12 insofar as it requires payment of the “Residue” as defined at settlement.
Secondly, the V Mortgage, which is provided for in, and is annexed to, the Sale Contract, is inconsistent with separate settlements. The mortgage provides for an advance of the entire Residue to all the companies comprising the Mortgagor.
Finally, the terms of the Profit Share Agreement and the Marketing and Management Agreement (the execution and exchange of which were originally conditions precedent to the Sale Contract, and whose simultaneous execution was then expressly provided for in the variation deed) are inconsistent with separate transfers and with the retention of a partial interest in the property by Brighton Bay. The Profit Share Agreement is premised upon the operation of the “Business” by the four Purchaser companies as the Principal alone. The Marketing and Management Agreement to which Brighton Bay is not a party is inconsistent with the existence of a co-owner who is not a party to the agreement, who cannot be excluded from possession of any part of the entire property, and who could sell, lease or encumber its interest.[7]
[7]I have not overlooked s 28A of the Property Law Act 1958, but that does not adequately address the problem.
It seems to me that Brighton Bay’s construction whereby it is not required to settle in the absence of duly executed transfers for the entire Property and upon payment in full of the entire Residue must be accepted.
Conclusions
My conclusions are:
1.Brighton Bay cannot be required to settle in the absence of executed transfers from all the companies comprising the Purchaser and payment of the entire Residue.
2.Under special condition 12, and clause 12 of Table A, PCM’s obligation is to deliver to Brighton Bay in registrable form a transfer of a 47.2625% share in the land as tenant in common. PCM has performed this obligation. It is not in default.
These conclusions mean that PCM is not entitled to a declaration of the kind sought in paragraph A of the relief sought at trial but may be entitled to a declaration of the kind sought in paragraph B. I will hear the parties, and ASIC, further on the issue of relief.
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