Pinnacle Investments Pty Ltd (admin apptd) (recr & man apptd) v Crathan
[2005] VSC 57
•11 March 2005
82
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 6373 of 2003
| PINNACLE INVESTMENTS PTY LTD (ACN 091 518 302) (Administrator Appointed) (Receivers and Managers Appointed) (Agents for the Mortgagee in Possession) | Plaintiff |
| v | |
| ANSBERT CRATHAN | Defendant |
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JUDGE: | Balmford J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 17, 18, 21 and 22 February 2005 | |
DATE OF JUDGMENT: | 11 March 2005 | |
CASE MAY BE CITED AS: | Pinnacle Investments v Crathan | |
MEDIUM NEUTRAL CITATION: | [2005] VSC 57 | |
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Contract – Licence Agreement – Notice purporting to terminate – Validity of notice –How “Reasonable recipient” would interpret notice in particular context - Central Pacific (Campus) Pty Ltd v Staged Developments Australia Pty Ltd (1998) V ConvR 54-575 - Cately v Watson (1983) V ConvR 54-003 - Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] 3 All ER 352.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr RM Garratt QC with Mr D Bailey | Herbert Geer & Rundle |
| For the Defendant | Mr A Flower with Mr M Vellas | Chiodo & Madaferri |
HER HONOUR:
Introduction
In this proceeding, commenced by a writ issued on June 2003, the plaintiff (“Pinnacle”) seeks payment by the defendant (“Mr Crathan”) of a total sum of $835,151.26 pursuant to a guarantee entered into by him on 20 December 2002 whereby (in summary) he guaranteed the due performance by Soiltech Australia Pty Ltd (“Soiltech”) of its obligations under a Licence Agreement made between Soiltech and Pinnacle on 20 December 2002 (“the Licence Agreement”) and undertook to pay to Pinnacle any moneys owing to Pinnacle under the Licence Agreement in respect of which Soiltech might be in default.
In 2000 Pinnacle purchased a property known as 600 Sunbury Road, Bulla, (“the land”) which had formerly been used as a quarry, and accordingly was seen as suitable for a landfill site. The purchase was financed by a loan from St George Bank (“the bank”), which took as security a fixed and floating charge over the assets and undertaking of Pinnacle and a mortgage over the land, both dated 16 June 2000.
On or about 25 October 2000 Pinnacle entered into an agreement with Soiltech (“the 2000 agreement”) for Soiltech to operate on the land a landfill facility for the acceptance of low-level contaminated soil waste and other wastes approved by the Environment Protection Authority (“the EPA”). It appears that later there was some dispute as to the continuing effectiveness of the 2000 agreement, but it is not necessary for me to consider that issue.
On 9 May 2001 the EPA issued to Pinnacle a Licence under section 20 of the Environment Protection Act 1970 (“the Act”) relating to the management of the deposit on the land of low-level contaminated soil waste and waste acid sulfate soil. Clause 3.10 of the Licence provided for the payment to the EPA quarterly in arrears of landfill levies which were payable at the rate per tonne of soil deposited which was provided for in Schedule D of the Act from time to time. Section 24 of the Act provided for the payment in respect of the Licence of an annual licence fee calculated in accordance with that section.
There were thus two classes of payment to be made to the EPA, namely landfill levies under clause 3.10 of the Licence and licence fees under section 24 of the Act. Because there are other relevant payments unrelated to the EPA and also described as “licence fees” (as to which see [9] below) it is convenient, for the avoidance of confusion, to refer, incorrectly, to the Licence issued under section 20 of the Act as a “Permit” and to the licence fees payable under section 24 as “permit fees”.
On 8 October 2002, Pinnacle being in default under the mortgage of the land, the bank served on Pinnacle a notice to pay under that mortgage.
On 26 November 2002, Pinnacle being in default under the charge over its assets and undertaking, Mr Carson and Mr Martin (“the receivers”) were appointed by the bank as receivers and managers of the property of Pinnacle under that charge, whereupon the charge crystallised.
It became apparent to the receivers that the land was the primary tangible asset owned by Pinnacle and that it was more valuable as an operating landfill with the EPA permit than as a non-operating potential landfill property. Accordingly they began negotiations with Soiltech with a view to entering into an agreement between Pinnacle and Soiltech for Soiltech to operate the landfill pursuant to the EPA permit. Those negotiations culminated in Pinnacle and Soiltech entering into the Licence Agreement referred to in [1] above with effect from 26 November 2002. Mr Crathan was the sole director of Soiltech and provided the guarantee and indemnity on which this proceeding is brought.
The Licence Agreement provided that in consideration of payment in advance to Pinnacle of a monthly licence fee of $50,000 plus GST, Soiltech was licensed to conduct the landfill operation in accordance with the Licence Agreement. That Agreement provided for various payments to be made by Soiltech. It was required by clause 6.7 to conduct and maintain the landfill operation in accordance with all EPA and Department of Natural Resources and Energy requirements and licences, and to pay monthly to the EPA all levies payable as described in [4] above. It was required by clause 13 to pay all costs and expenses relating to the landfill operation, including the EPA permit fees also described in [4] above. Clauses 10 and 13 provided for payment by Soiltech of insurance premiums. Finally, clause 18 provided for the payment of a security deposit of $50,000 by Soiltech to Pinnacle at the outset of the agreement and this was done.
The plaintiff claims the following amounts, details of the calculations being provided in the witness statements of Mr Carson and of Mr Sutherland, who was at the time a member of Mr Carson’s staff.
Outstanding licence fees under the Licence Agreement $165,500.00
Outstanding EPA permit fees and landfill levies $100,306.91
Outstanding EPA landfill levies $552,899.35
Insurance premium $16,445.00Total $835,151.26
The Submissions of the Defendant
Mr Flower, for the defendant, did not challenge the calculation of those amounts. He disputed liability for the insurance premium, and made submissions which were disputed by Mr Garratt, for the plaintiff, as to the use to be made of the security deposit should the plaintiff be successful. These issues are considered further at [34] and [36] below.
Mr Flower’s principal submission, however, was that the Licence Agreement had been terminated with effect from about 1 March 2003 by a letter (“the 29 January letter”) written to Mr Martin on behalf of Soiltech by its solicitor, Mr Madaferri, on 29 January 2003. As a result of that termination, he submitted, the effect of clause 2.3 of the Licence Agreement was that the relationship between the parties fell to be governed by the 2000 Agreement referred to in [3] above. Mr Crathan’s guarantee related only to the Licence Agreement, and accordingly was terminated on the termination of the Licence Agreement. Thus, in Mr Flower’s submission, Mr Crathan was not liable for any default of Soiltech which occurred after that termination. The only default which occurred before that date, he submitted, related to the sum of $23,051.62, being the EPA levies for February 2003; and that amount could be deducted from the security deposit which had been paid by Soiltech to Pinnacle. On that basis the defendant denied liability for any amount claimed in this proceeding.
Thus the essential issue in this case is whether the 29 January letter was effective to terminate the Licence Agreement. Relevant provisions of the Licence Agreement are:
1.1Definitions
In this Agreement
.. .
Appointment Date means 26 November 2002 being the date when the Receivers and Managers were appointed receivers and managers of Pinnacle
.. .
Operator means [Soiltech]
.. .
Term means the term contemplated in Clause 3 commencing on the Appointment Date
2.3 Reservation of Rights
Each of Pinnacle and the Operator specifically reserve their rights (if any) under any previous agreements between the Parties upon the cessation or termination of this Agreement.
3.1 Appointment Date
This Agreement commences on the Appointment Date.
3.2 Expiry Date
This Agreement shall continue until:
(a)either Party ends this Agreement upon giving 30 days’ notice in writing of its intention to do so, expiring on any day;
. . .
and for so long thereafter as shall reasonably be necessary in order to properly complete the finalisation of Operations but in any event such finalisation must be completed by the Operator no later than 30 days after this Agreement has ended.
22Notices
22.1Any notice or other communication to or by either Party shall be:
.. .
(b)addressed to the address of the recipient shown in this Agreement or to such other address as it may have notified the sender;
.. .
22.4For the purposes of this Agreement, the address for service of notices is as follows:
If to Pinnacle:
Carson & McLellan
Level 45, Nauru House
80 Collins Street
Melbourne Victoria 3000Attention: Ian Carson & Nicholas Martin
And To:
Herbert Geer & Rundle
Level 21
385 Bourke Street
Melbourne Victoria 3000Attention Julie Armstrong
. . .
23General Provisions
23.7This Agreement constitutes the entire agreement between the Parties and shall take effect according to its tenor notwithstanding any prior agreement in conflict or at variance with it or any correspondence or documents relating to the subject matter of this Agreement which may have passed between the Parties before its execution.
The relevant paragraphs of the 29 January letter read:
Unless Soiltech can get an unequivocal commitment from you that the property can be sold to Soiltech for a price at least equal to the Valuation or at the price set by the offer from Soiltech to you, Soiltech will not continue co-operation with your office and the Licence will cease forthwith.
Kindly note that unless we have a response from you by 12.00 noon Thursday 30th of instant then all negotiations between the parties will come to an end.
Mr Flower conceded that the 29 January letter did not expressly provide for 30 days’ notice of termination as required by clause 3.2(a) of the Licence Agreement. However, he submitted that clause 3.2(a) had a self-executing effect, so that unless the notice contained in the 29 January letter was withdrawn, the Licence Agreement would come to an end at the end of 30 days. He relied upon the decision of the House of Lords in Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd.[1] That case related to the service by a tenant of notices determining two leases. The notices were expressed to expire on a date which was one day short of the date provided in the leases for the expiry of such a notice. The majority[2] held that the construction of the notices had to be approached objectively, and the question was how a reasonable recipient would have understood them, bearing in mind their context. A reasonable recipient with knowledge of the terms of the leases would have been left in no doubt that the tenant wished to determine the leases on the date provided.
[1][1997] AC 749
[2]Lords Steyn, Hoffman and Clyde, Lords Goff of Chievely and Jauncey of Tullichettle dissenting
Lord Steyn said:[3]
The question is not how the landlord understood the notices. The construction of the notices must be approached objectively. The issue is how a reasonable recipient would have understood the notices. And in considering this question the notices must be construed taking into account the relevant objective contextual scene. . . . First, in respect of contracts and contractual notices the contextual scene is always relevant. Secondly, what is admissible as a matter of the rules of evidence under this heading is what is arguably relevant. But admissibility is not the decisive matter. The real question is what evidence of surrounding circumstances may ultimately be allowed to influence the question of interpretation. That depends on what meanings the language read against the objective contextual scene will let in. Thirdly, the inquiry is objective: the question is what reasonable persons, circumstanced as the actual parties were, would have had in mind. It follows that one cannot ignore that a reasonable recipient of the notices would have had in the forefront of his mind the terms of the leases. (emphasis in the original)
. . . It is important not to lose sight of the purpose of a notice under the break clause. It serves one purpose only: to inform the landlord that the tenant has decided to determine the lease in accordance with the right reserved. That purpose must be relevant to the construction and validity of the notice. Prima facie one would expect that if a notice unambiguously conveys a decision to determine a court may nowadays ignore immaterial errors which would not have misled a reasonable recipient.
. . . Even if such notices under contractual rights reserved contain errors they may be valid if they are “sufficiently clear and unambiguous to leave a reasonable recipient in no reasonable doubt as to how and when they are intended to operate:” . . . That test postulates that the reasonable recipient is left in no doubt that the right reserved is being exercised. It acknowledges the importance of such notices. The application of that test is principled and cannot cause any injustice to a recipient of the notice.
[3]at 767-768
As to the contextual scene in the present case, Mr Flower referred to:
1.the evidence of Ms Armstrong, the solicitor for Pinnacle, in cross-examination that Soiltech wanted the Licence Agreement to operate only for a short time, because it intended to purchase the land through an associate;
2.the (in my view inconclusive) evidence of Mr Martin and Mr Carson in cross-examination that the receivers were concerned to minimise their potential liability to the EPA;
3.the inclusion in the Licence Agreement of clause 2.3, so that the Licence Agreement would “overlay” the 2000 agreement, rather than replacing it;
4.the statement by Mr Madafferi in a letter of 10 February 2003 to the receivers that the notice contained in the 29 January letter had not been withdrawn;
5.An affidavit sworn by Mr Carson on 18 July 2003 in an associated proceeding wherein he deposes that Mr Madaferri had informed him on 14 February that Soiltech intended to terminate the Licence Agreement from the end of February.
He submitted that a reasonable recipient, approaching objectively the construction of the 29 January letter, and with those contextual matters in mind, would have understood that letter as manifesting an intention to terminate the Licence Agreement in accordance with clause 3.2(a) thereof. On the principle established in Mannai, that letter was to be interpreted as having its intended effect.
The Submissions of the Plaintiff
Mr Garratt in reply submitted that the decision of the majority in Mannai was not the law of Australia. The correct principle was set out in the words of Lord Goff, in dissent:[4]
The fact that the landlord realises that the tenant intended to take advantage of his rights under the proviso, but has only failed through some mistake to give the required notice, is irrelevant. The simple fact is that the tenant has failed to use the right key which alone is capable of turning the lock.
[4]at 753-4
He went on to refer to a number of Australian cases. In Central Pacific (Campus) Pty Ltd v Staged Developments Australia Pty Ltd[5] the Court of Appeal was concerned with a rescission notice given under Table A of the Transfer of Land Act 1958 which was said by the appellants to be ambiguous. The court dismissed the appeal. Callaway JA, with whom Buchanan JA agreed, said that he “would reserve for another day the question whether, and if so in relation to what kinds of notice” Mannai should be followed.[6] Ormiston JA emphasised that the decision of the Court did not depend upon the application of the decision of the majority in Mannai, although noting that if he had been inclined to see some irremediable error in the notice, then it might have been necessary to consider the effect of that decision. He said:[7]
Originally I was inclined to the opinion that the notice given by the vendor was imprecise in both form and substance. In the end, however, I have concluded that the defects relied upon by the appellants are of no consequence and the meaning of this notice is sufficiently clear for the recipients to have been in no real doubt as to the claimed default, as to what the vendor required them to do and as to when that should be done. For this purpose one may properly adopt the test expounded by Brooking, J. in Catley v Watson (1983) V ConvR 54-003 at p. 62,115, as applied by Tadgell, J. in DWJ Holdings Pty Ltd. v Carrideo (1990) V ConvR 54-361 and by Marks, J. in Chelmaness Pty Ltd. v Tridalet Nominees Pty. Ltd. (1991) V ConvR 54-399:
[A] notice . . . is not valid unless it is, in relation to its essential features as required by [the relevant] condition, clear and unambiguous. By this I mean, not that its import must be clear beyond the slightest peradventure, but that its terms must be such that a reasonable person, having given it fair and proper consideration, would be left in no doubt as to its meaning. A notice is not unequivocal, in the sense that such notices are required to be unequivocal in relation to their essential contents, if a reasonable person, having considered the notice as a whole, fairly and properly, might entertain a doubt as to its meaning in relation to some essential matter, even though he would form in his mind a preference for one view, rather than the other, of what the notice was intended to convey. It must be possible to say that, after the appropriate consideration, any doubts that may have arisen would be quieted and the purchaser would not be left in any uncertainty as to the meaning of the notice.
[5](1998) V ConvR 54-575
[6]at 66,903 and 66,909.
[7]At 66,902
In Bolaro Pty Ltd v McRae[8] Vincent J was concerned with the operation of a notice given under Table A of the Transfer of LandAct 1958 which did not comply with the requirements of that Act. While noting the adoption of a less strict approach by the House of Lords in Mannai, and the views of Ormiston JA in Central Pacific (Campus) he concluded that he “should adopt the strict approach traditionally followed”.[9]
[8][1998] VSC 10
[9]at 9
Finally, Campbell J in Robinson v Becata Pty Ltd[10], was concerned with a notice of rescission under a contract of sale at common law. After an extensive examination of authorities as to several types of unilateral notice His Honour concluded:[11]
. . . a common theme runs through the cases concerning these various types of unilateral notice, to do with the approach taken to construing the notices. For all of them, an effective notice is one which conveys its message (whatever that message might be ) clearly and distinctly to a reasonable reader in the position of the recipient of the notice. Being “in the position of the recipient” involves, in particular, having the knowledge of the circumstances surrounding the transaction in which the notice is given which the recipient has or ought to have.
[10][2004] NSWSC 310
[11]at [49]
As to formality, Mr Garratt pointed out that the 29 January letter does not comply with the formal requirements of clause 22.4 of the Licence Agreement as to service of notices, in that it was sent only to the receivers and not to Herbert Geer and Rundle in addition, as required by that clause. (It is not suggested that any other address had been notified by Pinnacle to Soiltech.) Thus it is apparent that, in sending that letter, Soiltech “has failed to use the right key which alone is capable of turning the lock” in terms of the extract in [19] above from the judgment of Lord Goff in Mannai. That finding is sufficient to determine the issue before me, if I am to adopt, like Vincent J in Bolero “the strict approach traditionally followed”. However, the matter can be looked at in another way.
Mr Garratt submitted that, considering the 29 January letter in the light of the passage cited in [20] above from the judgment of Brooking J in Catley v Watson, a reasonable reader in the position of the recipient of the 29 January letter would have concluded that the two relevant paragraphs (set out in [14] above) were not intended as a notice terminating the Licence Agreement, but as a negotiating ploy. That submission needs to be considered, as Campbell J points out, in the context of the surrounding circumstances, being in this case the negotiations between the parties leading up to the sending of that letter, of which the reasonable reader in the position of the recipient would be aware. I do so to the extent that the nature of those negotiations can be gleaned from the material before the Court, which is clearly incomplete. [12]
[12]see [28] below
The background to the 29 January letter begins with a letter from Mr Martin to Mr Madaferri on 29 November 2002 in which Mr Martin invited Soiltech to make an offer to purchase the land and raised certain other matters, including the need for payment of moneys owing to the EPA, the need for appropriate public liability insurance and a request for an accounting of moneys paid by Soiltech in respect of the land.
On 5 December 2002 Mr Madaferri wrote to Mr Martin with an offer that Soiltech would procure a purchaser for the land for $5.6 million plus moneys owing to the second mortgagee. On 6 December Mr Martin replied, asking for more details of the offer, and raising similar issues to those raised by him earlier. On 9 December Mr Madaferri replied with details of the offer and stating that his client was not prepared to provide the accounting information requested by the receivers.
On 9 January 2003 Mr Madaferri wrote to Mr Martin expressing his concern that the EPA might suspend the permit enabling landfill operations to be carried out on the land and stating that his client was now proposing to pay out the moneys owing to the bank and take action in respect of other associated parties, and that that offer would remain open until 12 noon on 13 January.
Mr Martin wrote to Mr Madaferri on 28 January, referring to a conversation on 23 January and requesting that the accounting records of Soiltech be made available for inspection as a matter of urgency. The last paragraphs of that letter read:
Additionally, I place you on notice that the non-delivery to date of the various documentation sought previously (refer my correspondence dated 19 December 2002 and 15 January 2003 and that of my solicitors, Herbert Geer and Rundle, dated 6 and 14 January 2003) constitutes defaults pursuant to the Licence Agreement.
I await your reply.
I note that none of the correspondence referred to in that extract is in the material before the Court, but nothing turns on that.
The 29 January letter begins by stating that Mr Madaferri’s recollection of the conversation of 23 January is “quite different to” the recollection of Mr Martin. The letter goes on to refer to the reiteration of the offer of Soiltech to pay out the bank (which offer was said on 9 January to remain open until 13 January), the provision of accounting information to assist in the preparation of a valuation of the land, and Soiltech’s concern at the continuation of the Licence Agreement, “which was supposed to be entered into for the purposes of facilitating a quick sale of the property, at all times, hopefully to our client, however as you have always maintained with no guarantee of such a sale to our client, so that a Valuation could be undertaken to ensure that you, as Receivers, have acted in the best interest of all potential interested parties”. The letter then states that the information that the receivers intend to place the property on the open market is making it extremely difficult for Soiltech to continue to leave its offer open. Then follow the two paragraphs on which the defendant relies.
I accept the submission of Mr Garratt set out in [23] above. Each of the two relevant paragraphs of the 29 January letter, considered in the context of the correspondence, including the balance of the 29 January letter itself, is in my view intended and expressed as a spur to the receivers to produce the commitment which is sought. The writer is threatening action, with a view to expediting the negotiations which had continued since the appointment of the receivers in late November. And, as Mr Garratt pointed out, the threats were effective, in that a meeting between the parties was held the following day, and negotiations continued. The correspondence which I have described seems to me to lead more directly to the relevant paragraphs of the 29 January letter than do the matters referred to by Mr Fowler and set out in [17] above; although the first of those matters is certainly significant.
In any case neither of the two paragraphs relates in any way, either expressly or impliedly, to the terms of clause 3.2(a). The first paragraph is expressed to be conditional on the happening of a future event, but the term within which that paragraph is to operate is not defined; at what point in time is it to be decided that the “unequivocal commitment” has not been given, so that “the Licence will cease forthwith” ? Given the remoteness of that paragraph from the terms of clause 3.2(a), it is not, in my view, possible to imply into it a period of 30 days. The second paragraph is expressed to be conditional on the happening of a different future event, the absence of which is to produce a result which is the cesser of negotiations, not the termination of the Licence Agreement. The 29 January letter is thus very different, in its relation to the provision which is claimed to authorise it, from the notices given by the tenant in Mannai, where the only matter in issue was the incorrect date. It is not necessary for me to consider the application of Mannai to the case before me.
It cannot be said, in terms of the passage cited in [20] above from Catley v Watson, that the two relevant paragraphs of the 29 January letter, that they constitute a notice which is “in relation to its essential features as required by [clause 3.2(a)], clear and unambiguous” .
Accordingly I find that the 29 January letter was not effective to determine the Licence Agreement, and thus the defendant is liable to the plaintiff on the guarantee.
Insurance
In the correspondence between the receivers and Mr Madafferi beginning with the letter of 29 November 2002 referred to at [25] above the receivers stated that they had been advised by their insurance broker that Soiltech’s public liability policy did not extend for the benefit of Pinnacle as owner of the land and asked for evidence that the cover had been appropriately extended. Despite a number of reminders this was not done, and in a letter of 21 February 2002 Mr Carson advised Soiltech that he had taken out additional cover as property owner at a cost of $15,125. Mr Flower submitted that Soiltech was not required by the Licence Agreement to pay that amount and accordingly it was not payable by Mr Crathan under the guarantee.
However, clause 10(2)(b) of the Licence Agreement provides that with two exceptions, which do not include public liability, the insurances which Soiltech is required to effect thereunder are to be “in the names of [Soiltech], Pinnacle and the [receivers] for their respective rights, interests and liabilities”. Schedule 2 requires Soiltech to take out and maintain inter alia “Operations and Public Liability Insurance to a minimum cover of $10M. I note that the amount claimed by the plaintiff as “insurance costs”[13] is $16,445, not $15,125, but that amount, as I have said, was not challenged by Mr Flower, and I assume that there was some additional cost relating to insurance of which I am unaware.
[13]see [10] above
Security Deposit
Mr Flower submitted that the security deposit of $50,000 paid by Soiltech see [9] above) should be taken into account in the calculation of damages. However, Mr Garratt referred to section 52(1) of the Supreme Court Act 1986 as entitling Mr Crathan, should he pay the debt of Soiltech, to have the security deposit assigned to him.
Conclusion
For the reasons given, there will be judgment for the plaintiff in the amount claimed. Counsel may wish to make submissions as to costs.
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