Ramana Hotels Pty Ltd v Luxon

[2005] QSC 104

SUPREME COURT OF QUEENSLAND

CITATION:

Ramana Hotels Pty Ltd v Luxon & Anor [2005] QSC 104

PARTIES:

RAMANA HOTELS PTY LTD (ACN 085 574 002)
(applicant)
v
GERARD ANTHONY LUXON
(first respondent)
NQ OMEGA MANAGEMENT PTY LTD (ACN 088 148 823)
(second respondent)

FILE NO/S:

44 of 2005

DIVISION:

Trial

PROCEEDING:

Application

ORIGINATING COURT:

Supreme Court at Cairns

DELIVERED ON:

20 April 2005

DELIVERED AT:

Cairns

HEARING DATE:

6 April 2005

JUDGE:

Jones J

ORDER:

1. Declare that the applicant has rescinded the written agreement dated 21 December 2004 between the applicant and the first respondent for sale of land described as Lot 32 on Registered Plan 701141, County of Nares, Parish of Cairns.
2. Order that the second respondent repay the deposit of $50,000 to the applicant, and the first respondent pay to the applicant interest of $542.46 calculated at the rate of 9% per annum from 28 January 2005.
3. Order that the first respondent pay the costs of the applicant of and incidental to the proceeding to be assessed on the standard basis, unless agreed otherwise.

CATCHWORDS:

CONTRACTS – contractual condition – where applicant terminated contract on the basis of condition of contract – construction of condition – whether termination valid


PROCEDURE – miscellaneous procedural matters – where respondent submits matter should be dealt with by claim – where respondent has not shown an evidentiary basis for refuting applicant’s affidavit material – dealing with matter by application is appropriate

Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70
Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002] HCA 5
Ogle v Comboyuro Investments Pty Ltd (1976) 136 CLR 444

COUNSEL:

Mr D Morzone for the applicant
Mr M Jonsson for the first respondent

SOLICITORS:

Miller Harris for the applicant
Gadens Lawyers for the first respondent

Introduction

1. This is an application by Ramana Hotels Pty Ltd (“Ramana”) for rescission of a contract for purchase of land from Gerald Luxon (“the respondent”) and refund of the deposit of $50,000.  Ramon Mander (“Mander”) is the sole director of Ramana.  NQ Omega Management (“the second respondent”) is joined as a stakeholder and it takes no part in the proceedings.

1. On 21 December 2004 Ramana entered into a contract with the respondent to purchase land.  The land in question is described as Lot 32 on Registered Plan 701141, County of Nares, Parish of Cairns.  The purchase price was $2.5 million, of which on 21 December 2004 Ramana paid the second respondent NQ Omega Management Pty Ltd (“Omega”) a deposit of $50,000 in part payment of the purchase price. The contract was subject to conditions, the relevance of which will be described in greater detail below.  On 19 January 2005 Ramana notified the respondents’ solicitors that it was terminating the contract pursuant to one such condition.[1]  On 20 January 2005 Ramana purported to withdraw its notice to terminate the contract.[2]  On 21 January 2005 Ramana again notified the respondents’ solicitors of its termination of the contract.[3] 

   [1] Ex MLV-1 to affidavit of Mark Valente sworn 11 March 2005

   [2] Ex MLV-4 to affidavit of Mark Valente sworn 11 March 2005

   [3] Ex RM-2 to affidavit of Ramon Mander sworn 1 Feb 2005

1. Ramana relies on Special Condition 1 of the contract as entitling it to rescind the contract.  The respondent argues that the matters relied upon by Ramana to terminate the contract do not fall within the ambit of that condition (“the condition issue”).  The respondent suggests that the relief sought should not be determined in a summary way.  Rather the matter ought to have been litigated by a claim (“the procedural issue”).  Finally the respondent argues that Ramana’s election to rescind on 19 January and purported withdrawal of the rescission on 20 January meant Ramana lost its rights to rely upon the condition to terminate again on 21 January (“the election issue”).

The condition issue

1. The condition issue is essentially one of the proper construction of the contractual terms.  The relevant condition is expressed as follows[4]:-

This contract is subject to and conditional upon the purchaser being entirely satisfied with the outcome of its due diligence investigations on the land and improvements constructed thereon within 30 days from the date appearing in item A (“the due diligence period”).  Such investigations include (but are not limited to) the removal or relocation of the Ergon transformer, the removal of the land from the Environmental Management Register and the requirements of the Cairns City Council in relation to the redevelopment and proposed use that the purchaser intends to conduct upon the land.  The vendor consents to the purchaser conducting its due diligence investigations and will promptly sign such documents and papers and do all acts and things (at no expense to the vendor) as the purchaser reasonably requires to facilitate the conduct of those investigations.  If the purchaser is not entirely satisfied with the outcome of its due diligence investigations, it will notify the vendor of that within 2 business days of the expiration of the due diligence period in which event, this contract will be at an end, all deposit monies will be refunded to the purchaser and neither party shall raise any claim or objection against each other.

[4] Ex RM-1 to affidavit of Ramon Mander sworn 1 Feb 2005

1. The respondent argues for a limited construction.  He submits the condition’s specific reference to the land and improvements – the Ergon transformer, the Environmental Management Register and the requirements of the Cairns City Council – limit the ambit of the condition to matters pertaining only to the land and improvements constructed thereon.  Ramana argues that the Court should adopt a broader construction of the condition. 

1. Ramana explained its reasons for terminating the contract in a letter written by Mander to “Dennis” of Omega dated 18 January 2005.[5]  The letter identifies three problems with the property.  Due to this letter’s importance in the outcome of this application I have reproduced relevant extracts below:

   [5] Ex RM-4 to affidavit of Ramon Mander, sworn 11 March 2005

Dennis,
In the last few days a number of problems have become apparent….
Firstly, after two builders have reviewed the site and I have dealt with various other parties including Ergon, my budget for the basic conversion of the property has been exceeded by over $250,000.  There is no one cause for this overrun…
Secondly, while the DA was of no direct benefit to me, I had assumed that it would have increased the valuation of the site and hence a bank’s willingness to lend.  This is definitely NOT the case…The likely valuation of the site is less than $2.0m, and probably around $1.75 or $1.8m…
Finally, and most importantly, the likely value of a completed “shell”… [Mander then describes various calculations arriving at a rental value for the completed shell.]
Accordingly, I can not in all conscience pay $2.5m for 49 The Esplanade, as this would guarantee me a loss of around $500,000.

1. Ramana expanded on its reasons in an affidavit of Mander dated 21 March 2005, filed in the Court Registry on 22 March 2005.

1. The key question for determination is whether the investigations undertaken by Ramana which led to its termination of the contract fall within the definition of “due diligence investigations” in Special Condition 1.

1. The definition of “due diligence investigations” is very broad on its face. The investigations “include (but are not limited to)” the specific items.  The High Court in Maggbury Pty Ltd v Hafele Australia Pty Ltd[6] explained interpretation of a written contract as involving:

the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.

[6] [2001] HCA 70 at para [11] per Gleeson CJ, Gummow and Hayne JJ.

1. While the law clearly permit the Court to examine extrinsic material when construing contractual terms, the Court must first look at the plain meaning of the terms.  Only if they are not clear must the Court refer to extrinsic materials: Royal Botanic Gardens and Domain Trust v South Sydney City Council.[7] In my view the terms that qualify the definition of “due diligence investigations” are clear on their face.

   [7] [2002] HCA 5 per Kirby J at paras [69] – [70]

1. The High Court in Maggbury also found that:

if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense.[8]

[8]Maggbury Pty Ltd v Hafele Australia Pty Ltd 2001] HCA 70 at para [43] per Gleeson CJ, Gummow and

Hayne JJ.

1. The High Court qualifies that principle by indicating that “what in respect of a particular contract comprises "business commonsense", as an apparently objectively ascertained matter, may itself be a topic upon which minds may differ.”[9] 

   [9] Ibid

1. In this case, giving the term “due diligence investigations” its plain meaning does not mean the words necessarily flout business commonsense.  Counsel for the respondent suggests that reading the term on its face virtually transforms a contract for sale into an option contract.  This does not militate against business commonsense – in fact it makes excellent business commonsense for the applicant. 

1. In any event the references to the Ergon transformer, Council approvals and other specific matters cannot but be indirect references to the property’s valuation.  Those matters directly affect the land value: if correct and Council approvals are not obtained, the land value will drop; if the Ergon transformer is expensive to relocate, development costs  will rise.  Viewed in that context the words “include (but are not limited to)” quite reasonably encompass other matters that pertain to land valuations. 

1. I therefore conclude that the investigations referred to by Mander in his letter of 18 January 2005 fall within the ambit of “due diligence investigations”.  As he was not entirely satisfied with the outcome of those investigations, on behalf of Ramana he was entitled to terminate the contract pursuant to Special Condition 1.

The election issue

1. Ramana elected to terminate the contract on 19 January 2005. On 20 January 2005  Ramana purported to revive the contract.  Counsel for the respondent argues that upon revoking the election to terminate on 20 January 2005, the contract was reinstated, but without the benefit of Special Condition 1 that had already been “spent” the day before. 

1. The law is clear that an election to terminate a contract is final: Ogle v Comboyuro Investments Pty Ltd.[10]  As Ramana validly terminated the contract on 19 January 2005, its attempt to revoke its election on 20 January 2005 was no more than an offer to treat.  It was then for the respondent to determine whether to enter into a new contractual relationship.  He did not do so.  The second purported termination was merely an empty gesture.

[10] (1976) 136 CLR 444 at 451. See also Meng Leong Development Pte Ltd v Jip Hong Trading Co Pte Ltd

[1985] AC 511.

The procedural issue

1. The respondent’s final argument is that this matter should not be dealt with by application but by claim where it would be open to him to challenge evidence as to various features of Ramana’s conduct.

1. The respondent submits that he needs to adduce evidence as to whether Ramana discharged its implied obligation to do all things necessary to inform itself as to the costs of relocation of the Ergon transformer.  He also argues that they need to adduce evidence as to whether Ramana’s opinion regarding the costs of relocation of the Ergon transformer were honest.  These submissions are based on an affidavit of Mr Fitzmaurice, an Ergon employee.[11]  The respondent suggests there may be other considerations and circumstances which might lead to a conclusion that Ramana did not act in good faith.

   [11] Affidavit of Russel Fitzmaurice, sworn 21 March 2005

1. I have already found above that Ramana was entitled to terminate the contract because it was not satisfied for broader reasons than the cost of relocating the Ergon transformer.  Ramana has provided evidence of its investigations. The opinions based on the results of those investigations appear reasonable in all the circumstances.  If the respondent wishes to contend otherwise, he must show some evidentiary basis for so doing.  The summary procedure allows the opportunity to adduce evidence to identify a triable issue.  This must go further than mere assertion of fact or the identification of types of inquiry that might be made.  Uncertainty about the cost of relocating the Ergon transformer is not a sufficiently compelling ground to require a civil trial, the outcome of which ultimately depends upon the bona fides of Ramana’s expressed opinion. The respondent has simply not raised any evidentiary basis upon which such a finding might be challenged and so his arguments must fail.

1. The respondents also submit that they ought to be given the opportunity to challenge evidence as to whether Ramana exercised its discretion to terminate honestly, and whether it was exercised for a proper purpose.

1. The respondent had an opportunity in the application to raise at least a primary basis on which he could challenge the facts alleged by Ramana.  In my view he did not indicate any facts or circumstances to indicate that a closer examination of the facts of this matter would be fruitful.  On the material placed before me I am satisfied that the determination of the relevant issues in a summary way is appropriate.

Conclusion

1. I am satisfied that the matters relied upon to support Ramana’s rescission fall within the ambit of the condition, and that the election to terminate was valid and final.  It follows that the second respondent must return the deposit to Ramana.

Orders

1. I make the following orders:-

1. Declare that the applicant has rescinded the written agreement dated 21 December 2004 between the applicant and the first respondent for sale of land described as Lot 32 on Registered Plan 701141, County of Nares, Parish of Cairns.
2. Order that the second respondent repay the deposit of $50,000 to the applicant, and the first respondent pay to the applicant interest of $542.46 calculated at the rate of 9% per annum from 28 January 2005.
3. Order that the first respondent pay the costs of the applicant of and incidental to the proceeding to be assessed on the standard basis, unless agreed otherwise.