Pua Hor Ong v Wu You Yang Pty Ltd - [2008] SASC 365

SUPREME COURT OF SOUTH AUSTRALIA
(Appeal from a Master: Civil)
PUA HOR ONG & ORS v WU YOU YANG PTY LTD & ORS
[2008] SASC 365
Judgment of The Honourable Justice Kourakis
22 December 2008
REAL PROPERTY - TORRENS TITLE - CAVEATS AGAINST DEALINGS
The respondents sought orders that caveats filed by the appellants over several parcels of land be removed - a Master of the Supreme Court held that the appellants had not established a prima facie case that they held an equitable mortgage over the land - the appellants appealed against that decision - whether the appellants could establish a prima facie case - where the balance of convenience lies - whether the caveats should be retained.
Held: The appellants have established a prima facie case that they held an equitable mortgage over the land - where the caveator establishes a prima facie case, the balance of convenience is likely to favour retention of the caveats - in all of the circumstances of the case the balance of convenience favours the maintenance of the caveats - appeal allowed.

CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - CONSTRUCTION AND INTERPRETATION OF CONTRACTS
MORTGAGES - MORTGAGES AND CHARGES GENERALLY - THE MORTGAGE - COVENANTS - FOR PAYMENT OF INTEREST - RATE
The parties entered into a joint venture to develop the land in question - a dispute arose and the appellants wanted to quit the joint venture - the parties agreed that the appellants' interest in the joint venture would be converted to a loan - the interest rate was agreed to be "calculated in line with (or according to or in accordance with)" the interest rates of "Australian banks" - whether that clause was so uncertain so as to render the agreement invalid - whether the interest clause, which was said to be the root cause of the loan agreement's uncertainty, could be construed with sufficient certainty to justify the preservation of the caveats or whether the loan agreement was intended to have contractual force irrespective of the inefficacy of the interest clause.
Held: It is arguable that the parties to the loan agreement intended the interest clause to refer to the median of the commercial rates available from Australian banks on a commercial loan for a period of just over five months with no payment of capital or interest in the interim - on that construction there was a sufficiently certain formula for ascertaining a single interest rate - it is also reasonably arguable that the parties intended to be bound by the agreement even if their attempt to fix an interest rate by the operation of the interest rate clause were to fail - appeal allowed.
Real Property Act 1886 s 191(d), referred to.
Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57, applied.
Talbot v Talbot [1968] Ch 1; South Sydney Council v Royal Botanic Gardens [1999] NSWCA 478; Hall v Busst (1960) 104 CLR 206; Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429; Wenning v Robinson [1964-5] NSWR 614; F & G Sykes (Wessex) Ltd v Fine Fare Ltd [1967] 1 Lloyd's Rep 53; British Bank for Foreign Trade Ltd v Novinex Ltd [1949] 1 KB 623; Meehan v Jones (1982) 149 CLR 571; Tonelli v Komirra Pty Ltd [1972] VR 737; Kabwand Pty Ltd v National Australia Bank Ltd [1989] ATPR 40-950; Perpetual Nominees Ltd v Parist Holdings Pty Ltd [2005] NSWSC 1345; Cross v National Australia Bank Ltd (Unreported, Federal Court of Australia, Drummond J, 29 April 1994), discussed.
Cini v Pets Paradise Franchising (SA) Pty Ltd [2008] SASC 287; Custom Credit Corporation Ltd v Ravi Nominees Pty Ltd (1992) 8 WAR 42; Ong v Wu You Yang Pty Ltd (Unreported, Supreme Court of South Australia, Judge Burley, 24 October 2008); G Scammell & Nephew Ltd v HC & JG Ouston [1941] AC 251; Godecke v Kirwan (1973) 129 CLR 629; Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 76 ALRJ 436; Attorney-General v Barker Bros Ltd (1976) 2 NZLR 495; May & Butcher Ltd v The King [1934] 2 KB 17; Fitzgerald v Masters (1956) 95 CLR 420, considered.

PUA HOR ONG & ORS v WU YOU YANG PTY LTD & ORS
[2008] SASC 365
KOURAKIS J
Introduction

This is an appeal from a decision of a Master that caveats lodged by the appellants over a number of parcels of land on Gouger Street Adelaide (the Gouger Street land) be removed. I will refer to the appellants, who had lodged the caveats, as the defendants. I will refer to the respondents in these reasons as the plaintiffs.
The plaintiffs sought orders that the caveats be removed pursuant to s 191(d) of the Real Property Act 1886 which provides:
the registered proprietor or any other person claiming estate or interest in the land may, by summons, call on any caveator, including the Registrar-General, to attend before the Court to show cause why the caveat should not be removed; and the Court may, after allowing the parties a reasonable opportunity to be heard, make such order as appears just in the circumstances; (if the caveator does not appear in response to the summons, the Court may, if satisfied that the summons was duly served, proceed to hear and determine the application in the caveator's absence).
It is accepted by both the plaintiffs and the defendants that the discretion conferred by s 191(d) of the Real Property Act 1886 is to be exercised in accordance with principles which are analogous to those which govern the exercise of the discretion to grant an interlocutory injunction.[1] In Australian Broadcasting Corporation v O’Neill[2] Gummow and Hayne JJ explained those principles in this way:
The relevant principles in Australia are those explained in Beecham Group Ltd v Bristol Laboratories Pty Ltd. This Court (Kitto, Taylor, Menzies and Owen JJ) said that on such applications the court addresses itself to two main inquiries and continued:
‘The first is whether the plaintiff has made out a prima facie case, in the sense that if the evidence remains as it is there is a probability that at the trial of the action the plaintiff will be held entitled to relief ... The second inquiry is ... whether the inconvenience or injury which the plaintiff would be likely to suffer if an injunction were refused outweighs or is outweighed by the injury which the defendant would suffer if an injunction were granted’.
By using the phrase "prima facie case", their Honours did not mean that the plaintiff must show that it is more probable than not that at trial the plaintiff will succeed; it is sufficient that the plaintiff show a sufficient likelihood of success to justify in the circumstances the preservation of the status quo pending the trial. That this was the sense in which the Court was referring to the notion of a prima facie case is apparent from an observation to that effect made by Kitto J in the course of argument. With reference to the first inquiry, the Court continued, in a statement of central importance for this appeal:
‘How strong the probability needs to be depends, no doubt, upon the nature of the rights [the plaintiff] asserts and the practical consequences likely to flow from the order he seeks’.[3] (footnotes omitted)
[1] Cini v Pets Paradise Franchising (SA) Pty Ltd [2008] SASC 287 at [48]; Custom Credit Corporation Ltd v Ravi Nominees Pty Ltd (1992) 8 WAR 42 at 48.
[2] (2006) 227 CLR 57.
[3] Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57 at 81-2, [65].
Gleeson CJ and Crennan J expressed their agreement with the reasons of Gummow and Hayne JJ in this way:
The principles were discussed, for example, in Chappell v TCN Channel Nine Pty Ltd (a decision referred to by Crawford J in a passage quoted above), National Mutual Life Association of Australasia Ltd v GTV Corporation Pty Ltd, and Jakudo Pty Ltd v South Australian Telecasters Ltd. As Doyle CJ said in the last-mentioned case, in all applications for an interlocutory injunction, a court will ask whether the plaintiff has shown that there is a serious question to be tried as to the plaintiff's entitlement to relief, has shown that the plaintiff is likely to suffer injury for which damages will not be an adequate remedy, and has shown that the balance of convenience favours the granting of an injunction. These are the organising principles, to be applied having regard to the nature and circumstances of the case, under which issues of justice and convenience are addressed. We agree with the explanation of these organising principles in the reasons of Gummow and Hayne JJ, and their reiteration that the doctrine of the Court established in Beecham Group Ltd v Bristol Laboratories Pty Ltd should be followed.[4] (footnotes omitted)
[4] Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57 at 68, [19].
The defendants support the caveats on the ground that they hold an equitable mortgage over the Gouger Street land as security for the payment of money owing under a written loan agreement. The Master held that the defendants had not established a prima facie case, in the sense explained in the above passages, that the loan agreement was sufficiently certain to be contractually binding. The agreement includes a clause that purports to charge interest on the loan. For the reasons that follow, I hold that the defendants have shown a sufficient likelihood that the interest clause, which was said to be the root cause of the agreement’s infirmity, can be given a sufficiently certain meaning to justify the preservation of the caveats. The defendants have also established a prima facie case that the loan agreement was intended to have contractual force irrespective of the efficacy of the interest clause.
The evidence
A number of affidavits were received into evidence in the proceedings before the Master. The following is a consolidated summary of the several deponents’ accounts of the relevant events. The plaintiffs, Mr Ong and Ms Lee, are equal shareholders and the only directors of the corporate plaintiffs. The plaintiffs acquired the Gouger Street land in July 2006. The purchase was first financed through Bank SA. The plaintiffs then refinanced with Westpac using a commercial bill facility. The loan from Westpac was secured by a first registered mortgage over the Gouger Street land. The Gouger Street land was valued as of 6 October 2005 at $10 million. The land has been cleared in preparation for the construction of apartment buildings, but no construction has yet commenced. I will refer to the proposed construction of the apartments as the development project.
On 22 February 2008 the plaintiffs entered into a joint venture agreement with the defendants. Clause 3 of the joint venture agreement records the agreement of the parties that the value of the development project is $15 million. After taking into account the Westpac loan, the net equity is agreed to be $7.5 million. By clause 4 the defendants agree to buy a half interest in the development for $3,750,000. The joint venture agreement (clause 5) records that as of 22 February 2008 the defendants had made payments of $3,030,000, leaving a balance of $720,000 to pay. That balance was paid on the execution of the joint venture.
Mr Huang is a director of the second defendant. He deposed that payments were made even before the joint venture agreement was drawn up on the basis that Mr Ong had asked him to “board the train first and buy the ticket later”. The defendants made the substantial payments to which I have referred on that basis from 26 September 2007.
Pursuant to clause 4 of the joint venture agreement, on payment of the purchase price the defendants were entitled to half of the estate right, title, benefit and interest in the land and the development project as tenants in common in equal shares with the plaintiff. Clause 9 burdens the defendants with a liability (as against the plaintiffs) for one half of the Westpac loan. Notwithstanding the value of the development project agreed by clause 3, clause 16 provides that the equity of the parties in the development project would be adjusted to reflect any variation between that agreed valuation and an audit report that was to be prepared by an independent accountant. That report was to be provided by 31 March 2008.
Clause 13 provides that if a party to the agreement defaults in making its contribution to the operating costs, the equity already contributed is to be treated as a loan to the other party with interest to be calculated from the date of default at the rate of 15 per cent per annum, calculated on a daily basis but payable monthly.
For some months following the execution of the joint venture agreement the defendants contributed to the ongoing operating costs. The total further contribution of the defendants before their relationship with the plaintiffs broke down, in the way that I am about to describe, was $776,000.
By May 2008 Mr Huang had become concerned that the defendants were yet to be registered as proprietors of the Gouger Street land. He started to doubt the credibility and reliability of Mr Ong and Ms Lee. He also doubted the reliability of the costs that the plaintiffs had attributed to the development project, particularly for the demolition of the existing buildings.
A meeting was held between representatives of the plaintiffs and defendants on 22 May 2008. At that meeting there was much debate over the plaintiffs’ failure to provide an audit report. Mr Ong and Ms Lee took the view that it was sufficient that they provide the financial statements of the corporate plaintiffs. They maintained that any due diligence should be arranged, and paid for, by the defendants. The minutes taken of that meeting record that ultimately Mr Ong and Ms Lee agreed to provide the defendants with audit reports of all the corporate plaintiffs on or before 22 June 2008. It was agreed that the plaintiffs would bear the expenses of the preparation of the audit report. Any necessary adjustment to the parties’ respective contributions, either by the defendants making further payments to secure their half interest, or by the plaintiffs returning any overpayment to the defendants, was to take place within seven days thereafter.
The parties also discussed whether a single management company in which they would be equal shareholders was a more appropriate vehicle through which to manage the development project than the transfer of an interest in the Gouger Street land to the defendants. Paragraph [5] of the minutes records that:
Upon the date of issue of the audit reports, party A shall issue new shares to party B to the effect that party B or their respective nominees will become the shareholders of the companies of party A holding 50 per cent of the total issued shares within seven days.
The plaintiffs obtained an auditor’s report dated 20 June 2008 and provided it to the defendants. The auditor reported that $15,755,705 had been spent on the development project as at the date of the joint venture agreement on 22 February 2008, and that subsequently a further sum of $520,915 was expended. The correspondence between the parties that followed the provision of the report proceeded on the basis that if that figure stood the defendants would be required to make a further payment to secure their half interest in the development project. However, the defendants took the position that the financial position reported by the auditor should be adjusted for various items identified by their solicitor in a letter dated 26 June 2008. The defendants contended that by reason of those adjustments they were entitled to one half of the shares in the corporate plaintiffs without making any further payment. By letter dated 4 July 2008 the plaintiffs took the opposing view that the defendants were required to pay a further amount of $638,310, which is one half of the amount by which the expenditure on the development project to that time exceeded the provisional amount of $15,000,000 specified by the contract.
On 25 July 2008 a meeting was held in Hong Kong to attempt to resolve the dispute that had broken out. Even though Mr Ong in his affidavit, takes issue with the extent of Ms Lee’s authority to negotiate on behalf of the plaintiffs, for the purposes of this appeal it is accepted that there is a prima facie case that she was so authorised. Ms Lee was accompanied by her son, a solicitor, Mr Lau. Mr Huang and Mr Kuang, the husband of Ms Wu, represented the defendants. Ms Wu is a director of the first defendant. Mr Ma, a solicitor who is said to be a friend of Mr Huang, also attended. There are some differences between the accounts of the various deponents, but the following picture of the meeting emerges from the affidavits filed in this matter.
During the meeting Mr Huang expressed dissatisfaction with the way Mr Ong was managing the development project. Mr Kuang alleged that Mr Ong was “unable to honour his words”. Mr Kuang complained that Mr Ong had not treated him fairly as a shareholder and had not been respectful. Mr Kuang was concerned that the project costs were not accurate. Mr Huang and Mr Kuang told Ms Lee that they wanted to “get out of the joint venture”. They wanted the money they had invested repaid with an interest rate of 20 per cent per annum until payment was made. Ms Lee responded that she and Mr Ong would not agree to their demand. Mr Huang and Mr Kuang became angry. Mr Kuang threatened lengthy and expensive court proceedings if an agreement was not reached. In an attempt to find an alternative solution to the impasse Ms Lee informed them that she would be prepared to remain in the joint venture if they bought out Mr Ong. Mr Kuang and Mr Huang insisted on repayment of their contributions. Ms Lee then complained that the interest rate was too high. Mr Huang responded that he would accept the 15 per cent interest rate referred to in clause 13 of the joint venture agreement.
The meeting was a protracted one. It took place over a period of about eight hours. Mr Lau and Ms Lee occasionally left the meeting room. Towards the end of the meeting Ms Lee suggested that agreement might be possible if the interest rate was reduced. Mr Huang said that he would “accept bank interest” or the “lending rate of Australian banks” if payment were made by 31 December 2008. A question arose as to when the interest should be calculated from. Mr Huang deposed that Mr Lau suggested that the interest should be calculated from the day when the funds were injected into the project in order to be fair to the defendants. Mr Lau prepared a document to reflect agreement on those terms. It was written in Chinese. It was signed by Ms Lee, Mr Huang and Mr Kuang. Three translations of the Chinese text were exhibited to affidavits received in this matter.
The agreement is headed, depending on the translation, “A framework agreement for reconciliation between party A and party B” and “skeletal compromise agreement”. In one translation the terms of the agreement are introduced with the words “the Parties are (sic) hereby covenant and agree as follows”. The first clause of the agreement records that all of the defendants’ investments in the development project “are converted to” (or “changed to” or “deemed to be”) a loan. Further clauses of the agreement provide that the loan is to be secured by a second mortgage over the Gouger Street land. The final clause of the agreement records that it was reached by “consensus after friendly discussion” and provides that a formal agreement containing “[fine] details” shall be confirmed and prepared in a formal agreement by the lawyers acting for the parties.

At the core of the dispute on this appeal is the proper construction and effect of the second clause of the agreement, which provides for the payment of interest (the interest clause). The plaintiffs contend that the provision is uncertain and that therefore no binding agreement was made for the conversion of the equity to a loan. The defendants contend that they have shown a prima facie case that the agreement is sufficiently certain to be binding. The three translations of the interest clause which are in evidence are as follows:
Interest incurred on the loan from the time of investment to the time of repayment shall be calculated in line with the interest rate used by Australian banks.
The interest between the period of drawn-down and repayment of the loan is calculated according to commercial lending rate of Australian banks.
The interest of the loan from the time when the loan is put in until it is repaid shall be calculated in accordance with the interest rate of the loan charged by the banks in Australia.[5]
[5] Ong v Wu You Yang (Unreported, Supreme Court of South Australia, Judge Burley, 24 October 2008) at [19].
The issues
The plaintiffs’ contention that the loan agreement is indisputably void by reason of the uncertainty in the interest clause raises two separate but related issues. The first is whether the defendants have made out a prima facie case that the interest clause is, in itself, sufficiently certain to be a binding term of the agreement. I will refer to that issue as the internal certainty issue. The second is whether, even if the interest clause is too uncertain to be binding, the remaining terms of the agreement, and in particular, the conversion of the equity to a secured loan, are contractually binding.
The proceedings before the Master appear to have addressed only the internal certainty issue. The Master determined that issue adversely to the defendants. The Master did not address the second issue. It does not appear to have been argued before him. The issue involves questions of law arising, largely, out of the construction of the document in the context of surrounding circumstances over which there is relatively little dispute. It has not been suggested that the plaintiff would suffer any prejudice if I were to consider the second issue on this appeal. I will therefore deal with both issues.
The cases
It is necessary to consider the authorities on which the defendant relies in some detail. However, the following general propositions can be accepted. First, if the parties to an arrangement have merely undertaken to attempt to agree to a term that is essential to the transaction they propose they are not contractually bound to the proposed transaction.[6] This proposition is probably no more than a matter of definition because “essential” here means, I think, that the parties do not intend to be bound unless and until that term is agreed. It may be that the parties have nonetheless made a binding contract to negotiate in good faith, but the law will not bind them to the substantive transaction for which they are yet to agree upon what might be called the “make or break” term or terms. Secondly, the actual content of the mutual obligations of the parties need not expressly appear in their agreement. The parties to a contract may agree a formula for the ascertainment of an essential obligation or obligations. If the application of that formula to the real world is capable of yielding a sufficiently certain expression of the mutual obligations of the parties, then again the contract is binding.[7] Thirdly, an agreement is sufficiently certain and binding even where the parties have agreed to empower an independent person to determine an essential term or terms of their transaction. In those circumstances the precise content of the obligation to be determined by the independent person might be unknown when the contract is made, but the agreement between the parties is binding because it provides a mechanism by which the extent of their mutual obligations can be ascertained.[8]
[6]    Kabwand Pty Ltd v National Australia Bank Ltd [1989] ATPR 40-950 at 50-380; G Scammell & Nephew Ltd v HC & JG Ouston [1941] AC 251 at 268; Godecke v Kirwan (1973) 129 CLR 629 at 646-7.
[7]    Tonelli v Komirra Pty Ltd [1972] VR 737.
[8]    Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429; F & G Sykes (Wessex) Ltd v Fine Fare Ltd [1967] 1 Lloyd’s Rep 53.
The defendants’ primary contention is that the interest clause provides a formula that is capable of yielding a particular interest rate. Alternatively, the defendants contend that the interest clause is in effect an agreement to instruct the parties’ solicitors to determine between themselves an interest rate, which is to be included in the loan agreement they will be instructed to draw up pursuant to clause 5.
In my discussion of the cases to which I am about to turn it will appear that it is important to focus not only on the words of the impugned provision but the subject matter on which it is intended to operate. In my view the same word or phrase might be too uncertain to be contractually binding in its application to one factual matrix, but yield a sufficiently certain result in its application to another.
I deal first with several authorities where a wide discretion to fix a price for the assignment of an interest in land has been held to be sufficiently certain. Those cases are, in my view, in a special class because the nature of land and the market in which it is sold is such that it has a readily ascertainable market value. Moreover, the courts have for a long time exercised statutory jurisdictions in which they have developed a body of principles by which the value of land is to be determined. Accordingly, if the clause fixing the consideration can be construed to be a reference to the market value of the interest in land which is sold it is likely to be sufficiently certain.
In Talbot v Talbot[9] the Court of Appeal considered a clause in a will by which the testator directed that two of his sons should have the option of purchasing the farms on which they lived together with some land which went with them “at a reasonable valuation”. It was directed that the proceeds on the sale of the farms were to fall into residue and be divided equally among all of his children. The Court held that the options were not so uncertain so as to be void. The Court held that in the absence of any machinery provided by the will itself it would undertake the task of ascertaining a reasonable price for the farms. Harman LJ referred to extensive authority supporting the proposition that an agreement to sell land at a “fair valuation” or “at a fair price” is sufficiently certain.
[9] [1968] Ch 1.
In South Sydney Council v Royal Botanic Gardens[10] it was held that a lease that enabled the landlord to determine the increase in the annual rent of the leased premises was certain because the landlord was bound to have regard to certain specified and objectively verifiable matters.
[10] [1999] NSWCA 478 confirmed on appeal in Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 76 ALJR 436.
There are nonetheless limits to the court’s capacity to provide certainty even in the case of contracts for the sale of an interest in land. In Hall v Busst[11] the High Court held that an option to purchase land for a fixed sum “to which shall be added the value of all additions and improvements to the said property since the date of purchase by the grantor … and from which shall be subtracted the value of all deficiencies of chattel property and a reasonable sum to cover depreciation of all buildings and other property on the land” was void for uncertainty.[12]
[11] (1960) 104 CLR 206.
[12] (1960) 104 CLR 206 at 225 per Fullagar J.
Dixon CJ said:
I am aware that it is said … that it is enough if a contract for the sale of land stipulates expressly or impliedly that the price shall be the fair value. … But that could only be when a recognized value or standard of value measuring the price existed. It would be, so it seems to me, as absurd to apply this to an island off the coast of Queensland as it would be to apply it to a great modern city building. In any case it is not a price consisting of the fair value of land that we are dealing with.[13]
[13] Hall v Busst (1960) 104 CLR 206 at 216-7. See also Fullagar J at 222-3.
The passage of time, the maturing of the property market and the development of principles of valuation have made the task of valuing city buildings and Queensland islands less daunting than it seemed to Dixon CJ in 1960. However, the underlying principle is no less valid. In the same case Menzies J conducted a review of the cases that were said to establish the proposition that executory contracts for the sale of goods were binding even where no price was fixed, because the law would imply an agreement to pay a reasonable price. The following passage, in which Menzies J expresses his conclusion, illuminates a general principle which emphasises the relationship between the terms of the price fixing clause and the subject matter on which it operates:
This review of the authorities most favourable to the contention that where no price is fixed the law implies that the price will be what the goods are reasonably worth, does not justify the proposition that in all cases a promise to pay a reasonable price or a reasonable sum is sufficiently certain to give an agreement for sale legal efficacy. … Where there is an established market for the commodity the subject of a bargain, a promise to pay the fair value would probably be sufficiently certain: and this is, I think, the sense of Lord Tomlin's statement in Hillas and Co Ltd v Arcos Ltd.: ‘That’ (i.e. ‘of fair specification) ‘is something which if the parties fail to agree can be ascertained just as much as the fair value of a property’. Where, however, the property is of a special character, different considerations may apply, and I am not satisfied, for instance, that there could be either specific performance or damages in the event of a failure to deliver a picture disputedly attributed to Vermeer which was the subject of an agreement to sell at a reasonable price. If it had to, a court could, of course, decide the value of such a picture, but to do so it would have to hear and weigh the evidence for and against authenticity as well as to take into consideration evidence of value. The very process that such a determination would involve would seem to indicate that an agreement to buy the picture for a reasonable price would be no more than an agreement to pay what the court should fix as its value. I am inclined to think such a bargain would be no contract and that before delivery a court would not undertake its enforcement.[14] (emphasis added, footnotes omitted)
[14] Hall v Busst (1960) 104 CLR at 234-5.
The next group of cases concern contracts for the sale of goods and services. In Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd[15] the High Court considered a term in a contract for the supply of electricity that allowed the supplier to vary the price of supply by notice in writing if its “costs shall vary in other respects than as has been hereinbefore provided”. It is important to immediately observe that the contract there in question provided for arbitration in the event of a dispute over the variation claimed by the supplier. It was held that the arbitration clause was wide enough to cover a dispute as to any variation in the initial charges, and that the costs of the supplier were, as a matter of fact, ascertainable even though the contract had not expressly identified them. Accordingly the Court held that the term was sufficiently certain and the agreement binding.
[15] (1968) 118 CLR 429.
The following passage in which Barwick CJ emphasises the function of the Court to search for the intention of the parties is of general application. Barwick CJ said:
But a contract of which there can be more than one possible meaning or which when construed can produce in its application more than one result is not therefore void for uncertainty. As long as it is capable of a meaning, it will ultimately bear that meaning which the courts, or in an appropriate case, an arbitrator, decides is its proper construction: and the court or arbitrator will decide its application. The question becomes one of construction, of ascertaining the intention of the parties, and of applying it. … So long as the language employed by the parties … is not ‘so obscure and so incapable of any definite or precise meaning that the Court is unable to attribute to the parties any particular contractual intention, the contract cannot be held to be void or uncertain or meaningless. In the search for that intention’, no narrow or pedantic approach is warranted, particularly in the case of commercial arrangements. Thus will uncertainty of meaning, as distinct from absence of meaning or of intention, be resolved.[16]
[16] Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429 at 436-7.
In Wenning v Robinson[17] the New South Wales Court of Appeal held that a term in a contract for the sale of a business that provided for a sale price of “£1,350 together with stock at valuation” was sufficiently certain for the agreement to be binding. The Court held that “at valuation” meant a fair valuation. The business sold in Wenning was a “frock shop”. Walsh J explained that a reasonable price could be fixed for the stock having regard to certain objective factors “such as the condition of the stock, the price which had been paid for it, and the fact that it would be taken over with the goodwill of the business which was being sold as a going concern”.[18] Walsh J doubted that there was a common law rule, analogous to s 14(1) of the Sale of Goods Act 1923 (NSW), which required a “purchaser” to pay a reasonable price where the parties had failed to fix a price, that applied to executory contracts.[19]
[17] [1964-5] NSWR 614.
[18] Wenning v Robinson [1964-5] NSWR 614 at 619.
[19] Wenning v Robinson [1964-5] NSWR 614 at 617-8.
In F & G Sykes (Wessex) Ltd v Fine Fare Ltd[20] an agreement by which the plaintiffs agreed to breed and provide chicks to nominated growers was held to be contractually binding even though the number of chicks to be provided was expressed to be “not less than 30,000 per week nor more than 80,000 per week during the first year of the agreement and thereafter such other figures as may be agreed between the parties”. Importantly this agreement too provided for a reference to an arbitrator in the event that there was a dispute between the parties.
[20] 1967] 1 Lloyd’s Rep 53.
In British Bank for Foreign Trade Ltd v Novinex Ltd[21] the Court of Appeal of England implied a term to pay a reasonable commission on oilskin suits bought by the defendants from clients of the plaintiff’s. The defendants had also undertaken to “cover you with an agreed commission on any other business transacted with your friend”. The Court held that the defendants were liable to pay a reasonable commission in a case where the plaintiffs had provided the defendants with contacts, from whom the defendants had subsequently bought other goods. The trial Judge in that case, Denning J, had come to the opposite conclusion. In my view the decision of the Court of Appeal in Novinex could be said to represent the high water mark of judicial attempts to give effect to barely concluded agreements.
[21] [1949] 1 KB 623.
In my view the robust approach taken in some of the older cases to ascertain the reasonable value of consumer goods or services must now be viewed with some caution. It must be remembered that national economies were in the past much more closed and closely regulated than they are now. The almost infinite variety of goods that are, in modern times, available to perform the same function because of the marketers’ need for product differentiation makes it more difficult than it once was to value many consumer goods. On the other hand, markets in some commodities have become more mature and standardised, so that like land markets, value may be ascertainable as a question of fact.
A problem of uncertainty in a very different context was considered by the High Court in Meehan v Jones.[22] In that case the High Court considered the validity of a contract for the sale of land which was expressed to be subject to the purchaser receiving approval for finance on satisfactory terms and conditions and in an amount sufficient to complete the purchase. It will be observed that the very wide discretion conferred on the purchaser was not to determine the price or conditions of the sale itself. They were expressly and precisely agreed. The purchaser’s satisfaction with the terms on which he was offered finance was a condition precedent on which performance depended. It was held that the condition was certain and the contract binding. Mason J held that the clause should be construed so that the purchaser was relieved from performance “only in the event that, acting honestly, or honestly and reasonably, he is unable to obtain suitable finance”.[23] Mason J continued:
There is in this formulation no element of uncertainty -- the courts are quite capable of deciding whether the purchaser is acting honestly and reasonably. The limitation that the purchaser must act honestly, or honestly and reasonably, takes the case out of the principle that: " ... where words which by themselves constitute a promise are accompanied by words which show that the promisor is to have a discretion or option as to whether he will carry out that which purports to be the promise, the result is that there is no contract on which an action can be brought." See Thorby v. Goldberg, [at p. 605], citing Loftus v. Roberts, [at p. 534], Placer Development Ltd. v. The Commonwealth, [at pp. 359-361], cited by Gibbs J. in Godecke v. Kirwan. The judgment of the purchaser as to what constitutes finance on satisfactory terms is not an unfettered discretion -- it must be reached honestly, or honestly and reasonably.[24] (footnotes omitted)
[22] (1982) 149 CLR 571.
[23] Meehan v Jones (1982) 149 CLR 571 at 589.
[24] Meehan v Jones (1981) 149 CLR 571 at 589-90.
In support of his conclusion Mason J drew an analogy with contracts for the delivery of goods expressed to be subject to the buyer approval or the satisfactory condition of the goods. Such contracts have been held to be valid. The contractual obligations in those contracts and the contract in Meehan, depend on the existence of a fact or circumstance that is susceptible of proof, even if the proof is circumstantial, as it must be where the circumstance is the state of mind of one of the parties. There is an important distinction between those contracts and contracts which confer an unfettered discretion on one party to determine the content of the obligations of the other. In the former the honest or reasonable satisfaction of the party is the fact on which the contractual obligations are dependent. In the latter it is not the existence of a state of mind that is in question but the exercise of a discretion. If that discretion is unfettered by any objectively ascertainable limits the Court could only determine the dispute by an exercise of arbitral power and not by construing the contract and applying it to the facts as found by it.
I now turn to consider several cases that have considered clauses imposing an interest rate on money owing.
Tonelli v Komirra Pty Ltd[25] concerned the sale of land under a contract that provided that the interest rate payable on the outstanding purchase money should be one quarter per cent above “the current bank overdraft rate”. Smith J held that that phrase did not refer to a rate of interest currently charged by banks for loans of a certain size or class but to the uniform bank overdraft rate prescribed and published from time to time by the Reserve Bank. Smith J appears to have proceeded on the assumption that if the former construction had been adopted the clause would have been void for uncertainty because, on the evidence in that case, the rate which banks charged their customers on loans was fixed by negotiation with each borrower. It was not, on the evidence, possible to identify a rate as the rate currently charged by banks for any particular size or class of loan.[26] On the other hand, it was accepted that at the relevant time the Reserve Bank, with the approval of the Commonwealth Treasurer, published a uniform maximum bank overdraft interest rate. Smith J held that it was to that rate that the term in the contract referred. Tonelli is a paradigm of the application of the second general proposition to which I earlier referred.
[25] [1972] VR 737.
[26] Tonelli v Komirra Pty Ltd [1972] VR 737 at 741.

In Kabwand Pty Ltd v National Australia Bank Ltd[27] the interest clause there in dispute provided for payment of interest at “15.25 per cent but subject to the bank at its discretion varying the rate conforming with general movements in the bank’s interest rates”. The clause was held to be sufficiently certain to be binding. If, as a matter of fact, the bank in that case had a history of adjusting the interest rates on its various loans in a uniform and consistent manner, it is readily apparent that the limitation on the bank’s discretion expressed in that clause was capable of objective determination. However, the court’s decision was not expressly related to that factual circumstance. Before leaving Kabwand I observe that it was not submitted in that case that if the interest clause was uncertain there could be no concluded bargain as to the principal of the loan.[28]
[27] [1989] ATPR 40-950.
[28] Kabwand Pty Ltd v National Australia Bank Ltd [1989] ATPR 40-950 at 50-380.
In Perpetual Nominees Ltd v Parist Holdings Pty Ltd[29] it was contended that the following clause was bad for uncertainty:
[The Bench mark rate is defined as]The rate as determined by the lender on 1 December 2004 and then as redetermined by the lender quarterly on or about the first business days of January, April, July and October in each year. The lender will (but without having any obligations to do so) when determining and redetermining the Bench Mark rate refer to the level at which 90 day bank bill products have been trading by the major Australian trading bank rounded up to the nearest five basis points.[30]
[29] [2005] NSWSC 1345.
[30] Perpetual Nominees Ltd v Parist Holdings Pty Ltd [2005] NSWSC 1345 at [25].
Brereton J held that the words “but without having any obligation to do so” could not be read down. The effect was therefore to leave the determination of the interest rate to one of the parties and without any “Kabwand like” restriction on the way in which that power was to be exercised. Brereton J held that it was impossible to read into the interest clause a limitation that the bank’s determination be “fair and reasonable” in the face of express reservation of its discretion in the interest clause.[31]
[31] Perpetual Nominees Ltd v Parist Holdings Pty Ltd [2005] NSWSC 1345 at [35].
I think that the following principles can be distilled from authorities to which I have referred. First, where the parties to a commercial arrangement intended to reach a concluded bargain or believed that their agreement was capable of execution, courts should strive to give their agreement a construction that is sufficiently certain to be contractually binding. Secondly, a term will be sufficiently certain if its effective operation depends on a fact, circumstance or state of affairs that is susceptible of proof. Put in another way, the second proposition is that an agreement is contractually binding if its terms, properly construed, yield a certain result when applied to the facts and circumstances on which the agreement operates.
Internal consistency of the interest clause
The primary submission of the defendant is that the interest clause should be construed to be a reference to the interest charged by Westpac in July 2008 to commercial loans. For the reasons that follow I hold that that construction of the interest clause is not arguable. First it is inconsistent with the plain words of the written agreement. The interest clause refers to Australian banks and not any particular bank, let alone Westpac. The use of the plural cannot be regarded as a slip. The parties to that agreement would have known that there was more than one Australian bank. Nothing was said in the meeting of 25 July 2008 that would support that construction. Secondly, if the parties had intended the interest clause to be a reference to the commercial interest rates charged by the very same bank that had already advanced the money for the development project they are likely to have said so. Moreover, if that were their intention it is difficult to see why they did not nominate the interest rate that was charged on the very loan the joint venturers were equally liable to repay.
The alternative construction put by the defendant is that the interest clause is a reference to the “reasonable commercial lending rate (as at July 2008) assessed by reference to market rates offered by Australian banks for commercial loans of this kind”. The first difficulty with that proposition is that the interest rate charged by a lender must reflect both the “cost” of the money to it and the risk of non-recovery. The risk of non-recovery is in turn affected by the security offered. The plaintiffs submit that the failure of the interest clause to specify the security given for the “commercial loan” leaves the rate radically uncertain.
In my view it is at least arguable that the circumstances in which the agreement was made are capable of resolving this, and a number of other, uncertainties in the application of the interest clause. In Royal Botanic Gardens and Domain Trust v South Sydney City Council[32] Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ explained that a court was not constrained to have regard only to internal lingustic considerations in construing a commercial contract in this way:
In Codelfa, Mason J (with whose judgment Stephen J and Wilson J agreed) referred to authorities which indicated that, even in respect of agreements under seal, it is appropriate to have regard to more than internal linguistic considerations and to consider the circumstances with reference to which the words in question were used and, from those circumstances, to discern the objective which the parties had in view. In particular, an appreciation of the commercial purpose of a contract:
‘presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating.’
Such statements exemplify the point made by Brennan J in his judgment in Codelfa:
‘The meaning of a written contract may be illuminated by evidence of facts to which the writing refers, for the symbols of language convey meaning according to the circumstances in which they are used.’[33]
[32] (2002) 76 ALJR 436.
[33] Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 76 ALJR 436 at 439, [10].
The security offered by the plaintiffs to the defendants for the loan is a second mortgage on the Gouger Street land. It is at least arguable that the enquiry as to the interest rate applicable to the commercial lending rates of Australian banks must proceed on the assumption that second mortgage security is offered over the Gouger Street land. It follows that I reject the plaintiffs submission that there is unacceptable uncertainty because the interest clause does not spell out the level of security. Nor is it necessary to speculate on the nature of the development for which the notional commercial loan is made. It can be implied from the subject matter of the loan agreement itself that the notional commercial loan offered by Australian banks must be taken to be for the purpose of acquiring full ownership of the development project. The same approach can be taken on the question of personal guarantees. To the extent that the defendants had any recourse to the personal plaintiffs, that too must be assumed for the purpose of applying the interest clause. Such an approach is at least arguable.
I would approach the problem of the term of the loan that must be assumed in a similar way. The parties intended the capital and interest to be repaid in December. The commercial loans that must be identified are therefore loans for a period of just over five months with no payment of interest or capital in the interim. Given the nature of the loan, it is arguable that it is the interest rates in July 2008 for loans of that duration that must be identified, and not the variable monthly rates that were charged thereafter.
However, there is yet a further obstacle to giving the interest clause a certain operation. For the purposes of this application I think I can take judicial notice of the fact that there are many forms of commercial lending. The defendants have not adduced evidence to the contrary and they must show a prima facie case if there be one. Commercial bill facilities are but one method. The bills may be rolled over at different intervals. Other forms of lending may be agreed with interest payable in advance or arrears and at different intervals. The defendants have not led evidence to show that in the circumstances contemplated by this agreement there is but one form of available commercial loan, or even that there are very few forms of commercial loans available. The interest rate applicable to the array of loans which are commercially available is likely to vary greatly. There will be further variations to rates from one financial institution to another. The difficulty for the defendants is that the agreement does not expressly provide for the selection of one particular interest rate from the many possible commercial rates. I would reject the defendants’ submission that the problem is solved by simply reading in the word “reasonable”. This is not a case where there is a developed market for a standardised product. The expression “reasonable value” may meaningfully refer to the market value of an interest in land or a standardised commodity in a developed market. However, no sensible meaning can be given to the expression “reasonable commercial interest rate” where there are so many different financial products on offer at different rates from different institutions. The method Mr Wells QC suggested that a court might adopt to determine the reasonable commercial interest rate offered by Australian banks effectively described the selection of an average or median rate. In one sense the average may be described as a reasonable rate, but it is not clear to me why a rate a little higher or lower than the average could not also be described as a reasonable rate.
Although I doubt that the implication of the word “reasonable” would allow a court to identify a single rate, I am persuaded that it is arguable that the parties themselves intended the interest clause to refer to the median rate for commercial loans, with the security and for the purpose that I have identified, available from Australian banks. I think that result can be reached by a method that is more closely anchored to the contextual and textual considerations than by implication of the heavily relied on concept of reasonableness.
In my view it is reasonably arguable that the expression “calculated in line” (and the like expressions “according to” and “in accordance with” in the other translations) requires the calculation of the median rate for commercial loans of the type that I have identified. The expression “drawing a line” is commonly understood to mean the identification of the mean position around which disparate data can be evenly placed. I do not know whether the Chinese words that on translation yielded the English expression to which I have referred are also capable of such a meaning. Nonetheless, I think that for the purposes of the application I can only proceed on the English translations.
The contextual matters that support what in my view is at least an arguable construction are these. Firstly, it can be accepted that the parties well knew that Australian banks would offer a range of interest rates depending on the particular financial product that was provided. Equally they can be expected to have known that the variations over the relatively short period of the loan and the notional second mortgage security to which I have referred would not be large.
It is arguable that in those circumstances if the parties had been asked on 25 July 2008 how their lawyers were to determine which one of the various interest rates charged by Australian banks should be included in the formal documentation they would have responded by saying that they expected a line to be drawn through the various rates and the median rate identified. That is to say that it is likely that they intended to “split the difference” between such small percentage variations as there may be in the interest rate market for equivalent loans to that made by the defendants to the plaintiffs.
It is also at least theoretically possible that they would have said that they had no formula in mind and that they intended their solicitors to solve that problem between themselves. That construction is the further alternative position put by the defendants. However, I think that construction unlikely. It would be an unusual course to adopt for parties to give their solicitors, whose essential function and duty is to act on their instructions, such an independent role. Moreover, it must be asked what would happen if the solicitors stubbornly refused to move from their position. It is no answer to say that in that event the parties would instruct them to be sensible because the very premise of this construction is that the solicitors have been freed from their duty to follow instructions. Even more fundamentally if the parties responded to the enquiry that they intended that they would reach agreement about which particular bank commercial rate to apply in due course and advise the solicitors accordingly, the interest clause would again be radically uncertain. Although I think it an unlikely construction that the parties intended their solicitors to act as arbitrators, it is unnecessary for me to determine whether this construction is reasonably arguable because of my conclusion that the interest clause arguably can be given a construction that provides a sufficiently certain formula for ascertaining a single interest rate.
Contract binding without interest clause
Finally I shall consider whether it is arguable that the agreement to convert the equity to a loan is binding even if the interest clause itself is uncertain.
If a court is satisfied that the real intention of the parties was to enter into an immediate and binding agreement then the Court will do its best to give effect to that intention.[34] However, if the parties never intended to enter into a binding agreement without first agreeing the particular terms of their bargain, then no contract can come into existence unless and until those terms are agreed.[35]
[34] Attorney-General v Barker Bros Ltd (1976) 2 NZLR 495 at 496; G Scammell & Nephew Ltd v HC & JG Ouston [1941] AC 251.
[35] May & Butcher Ltd v The King [1934] 2 KB 17.
Where a term of an agreement is found to be uncertain it is said that a question of “severance” arises and that a court may “save” the contract by severing the offending part or parts from the agreement.[36] The use of the word “severance” may distract from the real question. It suggests that a court for one reason or another excludes a term from the agreement of the parties or in some way reduces the content of their agreement to something less than that which the parties had agreed. To my mind the better approach where a term is found to be uncertain is to ask whether “the parties did not intend to contract unless effect could be given” to the uncertain clause.[37]
[36] NC Sneddon, Cheshire and Fifoot’s Law of Contract (9th ed, 2008) p 271 [6.17] citing Fitzgerald v Masters (1956) 95 CLR 420.
[37] Fitzgerald v Masters (1956) 95 CLR 420 at 427 per Dixon CJ and Fullagar J; at 437-8 per McTiernan Webb and Taylor JJ.
It seems to me that to apply that test to the facts of this case it is necessary to ask whether, if the parties were told that they had failed to agree on the charging of interest because of the way in which the interest clause was expressed, they would have responded “well the deal is off then unless and until we agree on a rate”. For the following reasons it is at least arguable that neither the plaintiffs nor the defendants would have responded in that way. It is arguable that they would have responded that they had most certainly agreed on the conversion of the equity to a loan and that they would have to negotiate the applicable interest rate, if any, as best they could.
On the assumption that the plaintiffs had agreed to convert the equity to a loan, they are, for obvious reasons, unlikely to have claimed that the deal was off. The agreement without any applicable interest rate is even more favourable to them.
In my view it is reasonably arguable that the defendants too would not claim that there was no agreement at all. From the way in which the meeting of 25 July 2008 progressed it is clear that it was important to the defendants to secure agreement to repayment of the money that they had invested. Arguably the interest was a secondary consideration. In any event they would have had a reasonable expectation that agreement might still be reached on the interest rate. On the assumption that the interest clause did not impose a binding formula or mechanism to establish the applicable interest rate, it arguably imposed an obligation to negotiate in good faith. The defendants would still have wielded significant bargaining power in those negotiations. The defendants had threatened legal action for misleading conduct in the discussions with Ms Lee on 25 July 2008. They could still pursue that action notwithstanding the agreement to convert the equity to a loan, and the loss of interest on the money they had invested could be claimed as an item of loss and damage in that action. For those reasons it is arguable that the defendants would not have taken the position that the deal was off. They would have been very happy to have extricated themselves from the development project with or without interest.
I would find that on the assumption that the interest clause is not binding it is arguable that just as with the joint venture project, the parties had boarded the train first with the intention of buying the ticket (or interest rate) later.
A similar approach was taken by Drummond J in Cross v National Australia Bank Ltd.[38] In that case the impugned clause of the loan agreement empowered the bank to recover interest on arrears of rent payable to the bank in accordance with a lease finance arrangement on expensive printing equipment. The relevant clause provided that the bank could recover interest “at such rate as is determined by the bank from time to time”. It was not suggested in Cross that that expression could be read as a reference to the bank’s own published benchmark rates. Drummond J described the clause as “a clear example of a provision which reserves the fixing of a substantial obligation entirely to the discretion of the bank as one of the two contracting parties”.[39] Drummond J described the term as “illusory”. He continued however:
But it cannot be said that the parties did not intend to contract unless effect could be given to this particular stipulation as to interest; although it is capable, depending on the rate the bank in it’s uncontrolled discretion elects to apply, of imposing a heavy burden on the company, it is marginal to the basic objects which each party sought to achieve by the lease agreement, viz, access by the company to the leased goods in return for payment to the bank of the cost to it of acquiring those goods and of interest thereon at the rate agreed at the outset and built into the instalment payments. I would therefore regard the provision of cl22(bb) relating to the payment of interest as severable. The remainder of cl22 would thus operate and apply to the company, in the events which have happened to pay arrears of rental and accelerated future instalments of rental, but for the fact that the clause is void as a penalty.[40]
[38] Cross v National Australia Bank Ltd (Unreported, Federal Court of Australia, Drummond J, 29 April 1994).
[39] Cross v National Australia Bank Ltd (Unreported, Federal Court of Australia, Drummond J, 29 April 1994) at 42.
[40] Cross v National Australia Bank Ltd (Unreported, Federal Court of Australia, Drummond J, 29 April 1994)at 42.

It follows that it is reasonably arguable that the parties intended to be bound by the remainder of the agreement even if their attempt to fix an interest rate by the operation of the interest clause were to fail.
Balance of convenience
The purpose of a caveat is to protect the interest the caveators claim to have in land. It is in the very nature of an interest in land in that it prevails over other lesser or later interests. However, the rights enjoyed by a person who holds an interest in land can be defeated if the statutory protection afforded by notification on the title is denied the caveator. For those reasons, where a caveator establishes a prima facie case, the balance of convenience is likely to favour retention of the caveat.[41]
[41] Nexus Mortgage Securities v Mawson KLM Holdings and Starmaker (No 51) Pty Ltd (1997) 193 LSJS 474 at 479-80; Cini v Pets Paradise Franchising (SA) Pty Ltd [2008] SASC 287 at [51].
In this case the plaintiffs do not contend that they will be prejudiced if the caveats are allowed to stand. They are attempting to refinance the development project but the caveats are not presently impeding that course. The defendants have indicated that they would consent to the mortgage of a financier other than Westpac taking priority over the equitable mortgage protected by the caveat. In all of the circumstances the balance of convenience favours the maintenance of the caveats.
For these reasons I would allow the appeal and set aside the orders of the Master. Subject to the undertakings given by the defendants and filed on 16 October 2008, I propose not to make any order on the plaintiffs’ application. If the plaintiffs should encounter a difficulty in refinancing the development project, or if for any other reason the maintenance of the caveats causes them prejudice, they may renew their application. I therefore grant them liberty to apply and adjourn the further hearing of the summons to a date to be fixed.