Sargood (Vic) Pty Ltd v Switzerland Investments Pty Ltd
[2009] VSC 577
•11 December 2009
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 6734 of 2009
| SARGOOD (VIC) PTY LTD (ACN 090 939 745) | Plaintiff |
| v | |
| SWITZERLAND INVESTMENTS PTY LTD (ACN 006 220 917) and CHARLES JOHN DAVIS | First Defendant Second Defendant |
No. 7333 of 2009
| SWITZERLAND INVESTMENTS PTY LTD (ACN 006 220 917) and CHARLES JOHN DAVIS | First Plaintiff Second Plaintiff |
| v | |
| SARGOOD (VIC) PTY LTD (ACN 090 939 745) and PAUL ANDREW WEBSTER | First Defendant Second Defendant |
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JUDGE: | BYRNE J | |
WHERE HELD: | Melbourne | |
DATES OF HEARING: | 10, 11 August and 3, 4 December 2009 | |
DATE OF JUDGMENT: | 11 December 2009 | |
CASE MAY BE CITED AS: | Sargood (Vic) Pty Ltd v Switzerland Investments Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2009] VSC 577 | |
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Sale Of Land – Contract of Sale – time of the essence – purchaser failed to pay substantial instalment of price –vendor’s rescission – whether failure excused by reason of vendor’s breach – purchaser seeks specific performance – whether purchaser ready and willing to perform its obligations – relief against forfeiture.
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APPEARANCES: | Counsel | Solicitors |
| For Sargood and Mr Webster | Mr R Garratt QC | Maddocks |
| For Switzerland and Mr Davis | Mr N Frenkel | MGA Lawyers |
HIS HONOUR:
This litigation concerns a rural property of some 4400 acres situate at and known as 324 Switzerland Road, Yea, and being the land more particularly described in certificate of title Volume 10155 folio 702. The land is used for cattle and cropping and, more recently, as to part, for the mining of sand and gravel. Associated with the land are the following valuable licences or authorities which are presently of importance:
(a)Annual Diversion Water Licence No 7074360 dated 20 July 1997 issued pursuant to the Water Act 1989.
(b)Ground Water Licence No 7074328 dated 1 July 1999 issued pursuant to the Water Act 1989.
(c)Work Authority No 516 dated 20 August 1999 granted under the Extractive Industries Development Act 1995. This work authority is an authority granted to the owner; it does not run with the land.
The land had since 1953 been held by the family of Charles John Patterson Davis, the secondnamed defendant in proceeding No. 6734 of 2009 and the secondnamed plaintiff in proceeding No. 7333 of 2009. Prior to 31 March 2004 it was registered in the name of Switzerland Investments Pty Ltd, a Davis family company.
In March 2004 Mr Davis required funds to meet his creditors. The mortgagee, National Australia Bank Ltd, had entered into possession of the land. He therefore negotiated an agreement, with Paul Andrew Webster whereby Switzerland sold the land for $2,700,000 to Sargood (Vic) Pty Ltd, the trustee of a Webster family trust. The sale was a little unusual, inasmuch as Mr Davis was granted a licence for three years to remain in possession of the homestead area where he lived and also of that part of the land which was used by him or his company for quarrying or for access to the quarry.[1] The two water licences were to be transferred to Sargood upon settlement.[2] Furthermore, the contract contained a provision whereby the vendor might require the purchaser to resell the land to it within three years for $3.7m.[3]
[1]Clause 3.
[2]Clause 7.
[3]Clause 4.
On 17 April 2007 Switzerland gave notice of its intention to repurchase the land in terms of the buy-back provision of the contract. The validity of this notice was challenged, and Switzerland on 9 May 2007 commenced in this Court proceeding No 2023 of 2007 to enforce the buy-back agreement. A defence and counterclaim was filed and on 29 August 2008 the parties entered into terms of settlement resolving their disputes.
Under the terms of settlement, Sargood entered into a new contract of sale to sell the land to Switzerland for a sum which might[4] total $5.2m. The payment schedule under the contract of sale was as follows:
·a deposit of $75,000 upon signing of the contract of sale
·a first payment of $3.775m upon settlement
·a second payment of $750,000 by 30 June 2009, or a larger sum if paid by instalments
·a third payment of $600,000 payable by four instalments of $150,000 each extending to 30 June 2013
[4]The total price varied, depending upon the payment schedule at the election of Switzerland – contract of sale cl 2.
The contract of sale was drawn up as part of a settlement of disputes between the parties. These disputes included allegations that Switzerland and Mr Davis did not have the funds to make the repurchase. It was for this reason, said Philip Grant Jones, the solicitor acting for Sargood, that there was inserted in the terms a strict provision to operate in the event that Switzerland failed to make payment in full of the first payment of $3.775m. This provision is in the following terms:
3.2If, having paid the Deposit on or before the Deposit Date in accordance with clause 3.1 of these Terms of Settlement, the Plaintiff fails for any reason to make payment in full of the First Purchase Sum or otherwise fails to carry out any of its obligations under clause 4 of these Terms of Settlement within 14 days of service of a written notice from the First Defendant (or the Defendants Solicitors) requiring compliance with these Terms of Settlement, then:
3.2.1the Purchaser acknowledges that the Deposit will be forfeit to the First Defendant and that the Purchaser shall have no right to claim a refund of the Deposit or any compensation in relation to the forfeiture of such Deposit;
3.3.3the obligations of the parties, other than the obligations under clause 2 and clause 3 of these Terms of Settlement will be of no further effect;
3.3.3 the New Contract of Sale shall be automatically rescinded; and
3.2.4the Plaintiff and Davis shall vacate the Property and remove all plant and equipment of the Plaintiff from the Property within 40 days after the Settlement Date.
Perhaps for the same reason, the parties included in the contract of sale the following clause 11:
11. Delivering the Transfer
The Instrument of Transfer referred to in Condition 12 of Table A duly executed by the Purchaser shall be delivered by the Purchaser to the Vendor’s Solicitors no less than fourteen (14) days prior to the settlement date. The Purchaser shall be deemed to have made default in payment of the balance of the Price if such duly executed Instrument of Transfer is not delivered at least fourteen (14) days prior to the settlement date such default being deemed to commence on the settlement date and terminate upon the expiry of fourteen (14) days from the date upon which the Instrument of Transfer is received by the Vendor’s Solicitors.
The terms also contained a provision that time was of the essence.[5]
[5]Terms of settlement clause 10.6.
The contract of sale provided that the settlement date was the date upon which title was to be accepted and transferred to the purchaser and upon which Switzerland would be entitled to rents and profits. Under the terms of settlement, the settlement date was fixed at 2 February 2009.[6] The contract also provided that Sargood was permitted to remain in possession after settlement as lessee of Switzerland.[7] It contained, too, the usual provision that the parties execute and deliver all documents as are required or desirable to give effect to the contract of sale.[8] It will be apparent that, upon settlement date, a substantial portion of the contract price would remain unpaid. The obligation of Switzerland to pay the second and third payments was to be secured in a number of ways:[9]
·a second mortgage of the land in favour of Sargood
·a charge over the two water licenses (‘the water charge’) and
·a charge over the rights of Mr Davis to the work authority (‘the work authority charge’)
[6]Clause 1.
[7]Clause 4.
[8]Clause 9.
[9]Clause 4.
The settlement of the contract of sale, therefore, required that there be prepared the mortgage, a lease by Switzerland in favour of Sargood and the water charge and the work authority charge. The lease was to be in the form annexed to the terms of settlement. The mortgage was to be a second mortgage ranking after the first mortgage held by the ANZ Bank in the sum of $4.3m, plus interest, plus costs. The mortgage, the water charge and the work authority charge were to be in reasonable form and prepared by the solicitors for Sargood and Mr Webster.[10]
[10]Clause 1 (definitions).
The events which followed the execution of the terms and the contract of sale are not in dispute. The deposit was paid; the first payment of $3.775m due on 2 February 2009 was not. Thereupon, Sargood served two notices of default on 3 February 2009 and 29 April 2009 respectively, requiring completion within 14 days. Neither notice was complied with and on 17 February 2009 Sargood rescinded the contract of sale. The circumstances leading to the non-settlement of the contract of sale on 2 February 2009 are in dispute, as is the entitlement of Switzerland to specific performance of the contract of sale, and that of Sargood to determine the contract of sale and to forfeit the deposit.
This dispute has provoked two proceedings. In Proceeding No. 6734 of 2009, Sargood seeks against Switzerland and Mr Davis possession of the land.
In proceeding No. 7333 of 2009, the plaintiff, Switzerland, has filed a statement of claim relying upon the failure of Sargood to provide the water charge, the work authority charge, a lease and a mortgage as constituting breaches of contract and also as a breach of the vendor’s implied duty of good faith. No loss is alleged by reason of these breaches and no relief is sought as a consequence of them.
Next, it is said that, by rescinding the contract of sale, the vendor and Mr Webster have acted unconscientiously. Particulars of this conduct are not very satisfactory.
[Switzerland] and [Mr Davis] refer to and repeat the matters set out above [in the statement of claim].
[Sargood] and [Mr Webster] have embarked upon a campaign to prevent [Switzerland] and [Mr Davis] from carrying out their part of the Agreement.
[Mr Davis] has lived at the [Switzerland] property all his life. [Mr Davis] has worked at the [Switzerland] property all his life. [Switzerland] and/or [Mr Davis] have contributed approximately $3m to improvements at the [Switzerland] property.
This allegation, too, goes nowhere in the statement of claim. The relief sought is specific performance and relief against forfeiture.
As the two proceedings unfolded at trial, the complaint about the non-provision of the lease disappeared. I was left with the contention that the vendor’s solicitors had not prepared the mortgage, the water charge and the work authority charge and did not submit them before settlement to the purchaser, Switzerland. This meant that the purchaser was unable to produce them to its financier in support of its finance application.
The case of Sargood was that on 5 December 2009, Mr Davis on behalf of Switzerland indicated that Switzerland would be unable to settle on the appointed date and that this inability existed then and still exists.
There is also an issue as to Switzerland’s claim for relief against forfeiture.
The proceedings first came before me in the Practice Court on 14 July 2009. It appeared to me then that the issue was of narrow compass and that there was a degree of urgency. Accordingly, I gave directions with a view to the matters being tried before me in August.
I should mention that the trial was conducted upon affidavit. A substantial issue was whether Switzerland had available funds to settle on 2 February 2009 and is presently willing and able to settle. Mr Davis, in support of the contention that Switzerland was able to settle, said in an affidavit sworn on 22 June 2009 that he had ‘received approval from the Commonwealth Bank to the effect that $3.775m funding would be given if I am able to provide them with the required documentation. A letter of offer will be issued shortly.’ In a further affidavit sworn on 14 July 2009 he produced as Exhibit CJD1 ‘a true copy of the letter from the Commonwealth Bank dated 13 June 2008’. This document was a letter of offer on Commonwealth Bank letterhead containing an offer to lend $4.16m, apparently signed by one Joseph Nicolazzo, describing himself as relationship manager. The letter was of significance, not only because it showed that funds were available, albeit some months after the due date, but also because the documentation required by the bank in the letter of offer included the water charge and the work authority charge. On Day 1 of the trial counsel for Sargood sought to proffer and rely upon an affidavit of Mr Nicolazzo in which he denied that this was his letter, that it was signed by him or that he held the position of relationship manager with the Commonwealth Bank.
This appeared to be a matter of such significance that I gave leave to Sargood to file the affidavit and adjourned the trial after the other evidence had been given to enable counsel for Switzerland to address the fresh issue. After some delay, the trial was resumed on 3 December 2009 and Mr Nicolazzo and also Shant Allekion from the Commonwealth Bank of Australia were called by Sargood to give evidence and were cross-examined. In the rather unusual circumstances of the case I told counsel for Switzerland and Mr Davis that I would permit them to call any evidence on this issue in response. No evidence was called.
The Purchaser’s Failure to Settle
It is clear that on 2 February 2009, Switzerland failed to settle. It is clear, too, that Sargood had failed to prepare and execute the mortgage, the water charge and the work authority charge as required by the agreement.
The case of Switzerland is that these three security documents were required to be produced, not on the due date for settlement, but some time before this so as to enable it to arrange its finance for settlement. This obligation was said to arise, not from the terms of the contract of sale, but from the vendor’s implied obligation not to prevent the purchaser from performing its obligations under the contract.
According to Mr Davis, there occurred two telephone conversations with Mr Webster, the first in mid-November 2008 and the second in December 2008. In the first conversation Mr Davis told Mr Webster that, having regard to the difficulties of the world financial market at the time, credit was all but frozen. He then told Mr Webster that they ‘would need to work together to achieve settlement by the end of January 2009’.[11] Mr Davis did not give evidence of any response.
[11]In his affidavit of 13 July 2009 he says that these words were spoken in a conversation after 5 December 2008.
Mr Davis gave evidence of further conversations with Mr Webster which took place by telephone on a Friday some time later and again by telephone on 17 December 2008. His account of these further conversations was that they were to the same effect, except that on the last occasion, Mr Webster said that there would be no extension of the settlement date of 2 February 2009. In his oral evidence Mr Davis’ recollection of the exchange on 17 December 2008 was this:
What did he say?---He said to me that settlement would have to occur by – this is the way he spoke, his recollection was 2 February 2009.
What did you say?---I said to him, no, I didn’t think – whilst technically that was the settlement date, I said to him I believed there was a two week default period and I intimated to him that given the circumstances, the lateness of the application, that we would need that time.
What do you mean the lateness of the application?---Because of the financial market crisis. It was impossible, four of the top US banks had virtually gone bust, the federal government had guaranteed the deposits of all of the major banks, the bank wasn’t interested in talking to me or virtually anyone else, and for that reason I hadn’t made application at that point.
Mr Davis said this, too, in an affidavit sworn 13 July 2009:
During the period December 2008 and March 2009, I had a number of meetings with Paul Webster the secondnamed defendant and on many occasions I requested from Paul Webster copies of the documentation referred to in clauses 4.3-4.6 of the Terms of Settlement, in order for my financier to examine and satisfy themselves to proceed with financing the property. I refer to paragraphs 62, 63 & 64 of my affidavit sworn 22 June 2009.
An examination of the 22 June affidavit to which he refers shows that the witness was speaking of conversations held after the due date for settlement – on 7 and 12 February 2009 and a few days thereafter. Furthermore, his account of these conversations in his 22 June affidavit does not include any request for the security documents.
Mr Webster, when asked about the late 2008 telephone conversations, said that he had no recollection of them. He accepted, however, that Mr Davis had told him on occasions that ‘things are really tough’.
I conclude from this that, as between Mr Davis and Mr Webster, there was no request that the three security documents be produced before the due date for settlement. I find that Mr Davis in these conversations indicated no more than that he was having difficulty raising money for the settlement.
Mr Davis first said that during January 2009 he had various discussions with the ANZ Bank with respect to finance for the settlement of the contract of sale. He said that he had on 9 January 2009 instructed his finance broker, Rod Stuart, to forward to the bank a copy of the contract of sale, the terms of settlement and the grazing and cropping license. He said that the bank was concerned that its mortgage security should have priority over the mortgage to the vendor and that he, Mr Davis, instructed his solicitors to request from the solicitors for Sargood the security documents in order to allay the concerns of the bank. It appears that his evidence as to the bank’s concern was in fact hearsay since it later appears that he had no personal contact with the bank until about 21 January. No request for the documents was made by his solicitors, at least prior to their letter of 30 January 2009. No evidence was led from his solicitor, Ivan Andolfatto of MGA Lawyers who was handling the conveyancing matter for the purchaser and for Mr Davis. It seems that the solicitors either ignored his instruction or that he did not give the instruction. No witness from the ANZ Bank was called to say that it had in fact this concern or as to what would have been its position with respect to the loan application had the security documents been provided.
Mr Davis first told me that he had but one conversation with Jan Howells, the bank officer handling the matter, and that this was about 21 January 2009 when he sent to her a statement of his financial position. It appears that the application did not detain the bank very long, because on 23 January Mr Davis advised Mr Andolfatto that he ‘had hit a brick wall with funding’ and that there should be a meeting. No meeting with Sargood or its representatives was convened.
The position, then, on the eve of 30 January 2009 may be summarised as follows. Switzerland did not have finance from the ANZ Bank to settle on 2 February. There is no evidence of the reason why the bank declined finance. Switzerland was in default of its obligation to pay the price in terms of clause 11 of the contract of sale by reason of its failure to deliver the instrument of transfer of land. I infer that any evidence which might have been given by Mr Andolfatto of events in January would not have assisted the case of Switzerland. Mr Davis had in December 2008 indicated that he would have difficulty in settling. In these circumstances, I infer that Sargood and its solicitors might reasonably have concluded that settlement would not take place on the due date.
The next step was Mr Andolfatto’s letter of 30 January faxed to Mr Jones of Maddocks at 12.10 pm. In this letter Mr Andolfatto on behalf of Switzerland says this (omitting formal parts):
Our client has been frustrated in concluding funding to enable settlement by February 2, 2009.
Mortgage Documentation
Our prospective banker has sought clarification on a number of matters contained in the terms of settlement and Contract of Sale pertaining to the securitisation sought by the Vendor, to better secure its position, pursuant to the sale of the Property. Those issues include the following:
1.The provision of the charge over the water rights and or entitlements (water charge);
2.The provision of a charge over our clients work authority (Work Authority Charge);
3.The grazing & cropping lease (Grazing & Cropping Lease).
It will not be possible to effect settlement until these issues are satisfactorily resolved. As required by the Terms of Settlement, please provide a copy of the proposed water charge document and Work Authority Charge document, to enable examination by our proposed financier.
Additionally, In this regard we would also ask to see the securities referred to in clauses 4.3, 4.4 and 4.6 of the Terms of Settlement, which it is noted was to be prepared by your client for examination and execution by our client in anticipation of Settlement.
…
Our client is aware that Settlement is imminent. This letter is to bring to your client’s attention a number of matters that have become apparent over the past few months particularly with the backdrop of the current world financial crisis and the credit freeze that has affected the Australian landscape.
Our client has instructed to seek an extension of time to enable its funding to be finalised, and also to enable the bank to examine and consider the securities required by your client to complete Settlement of the Contract of Sale.
We would be pleased if you could consider our clients request.
Mr Jones said that he received this letter on the afternoon[12] of Friday 30 January, the last working day before the date for settlement. He said that some of the documents which Mr Andolfatto asked for in the letter had already been prepared and had been forwarded to him. He accepted that other documents had not been prepared but he said that they could have been prepared reasonably quickly, within a day or so. Mr Jones said, too, that settlement could have been effected within a short period after 2 February. It could have been done within the 14 day period before rescission could take place. He said, however, that he gave no instruction for the preparation of these documents because it came as no surprise to him that the settlement was not going ahead. I accept this evidence and conclude that the circumstances, as they then stood, entitled him to be of that mind.
[12]Pursuant to cl 3.2, set out above at para [6] above.
At 10.37 am on Monday 2 February the solicitors for Sargood responded to the letter of 30 January confirming that Switzerland would not be in a position to effect settlement on that day. In response to the allegation in the letter of 30 January that the Switzerland’s banker had sought clarification with respect to the security documents, an assertion which the evidence in this case has shown to be false, Mr Jones responded as follows:
You state that your client’s banker has sought copies of the proposed charge over Water Rights, the proposed charge over the Work Authority Charge and copy of the Grazing and Cropping Lease. Your client already has the grazing and cropping lease which was attached in schedule 1 to the Terms of Settlement.
Please provide to us a copy of the letter from your client’s banker seeking copies of the charges over the Water Rights and the Work Authority and advising of the status of your client’s application for funding. Our client is loath to incur the further expense of instructing use to prepare further security documents in the absence of confirmation from your client’s banker that the funding of your client has been approved subject to production of these documents. Moreover we would wish to discuss with your client’s banker any priority agreement or other arrangements which may be required to put the securities in place. Any discussions with your client’s banker or the production of any documentation will be entirely without prejudice to our client’s rights under the Terms of Settlement.
A copy of the banker’s letter was not in evidence. None has been discovered. I conclude that no such evidence exists. In any event, if the sticking point with the bank loan application was the failure of Mr Davis to satisfy the bank’s concern regarding the security documents or if there had been a request from the banker, I would have expected him or someone on his behalf to have asked the solicitors for the vendor to provide them prior to 30 January or, at least, shortly thereafter to enable the settlement to proceed.
Mr Stuart, the finance broker for Switzerland, was not called as a witness. Ms Howells, too, was not called to give evidence as to the position of the ANZ Bank. A letter from her dated 10 August 2009 was tendered in evidence without objection. It says only this:
In January 2009, a new application for funding was made to ANZ to assist with the purchase of property situate 324 Switzerland Road, Yea, Victoria, 3717. The request for funding was declined.
I conclude from this that Mr Davis made an application for finance sometime after January 2009 and that it was unsuccessful. I do not find that the reason for this was the non-provision of the security documents. It may be that the reason was the reluctance of the bank to make the loan in the then prevailing financial conditions and in the light of the financial position of Mr Davis and Switzerland. But I make no finding as to this last matter.
The Purchaser’s Capacity to Settle
It is clear that the purchaser did not have the support of the ANZ Bank for the purpose of settling. Two other documents in evidence might also bear on this issue.
First is a letter dated 4 February 2009 from Jagg Transport addressed to Mr Davis and Switzerland, which came into evidence in rather unusual circumstances. I set the letter out in full:
Dear Charles
Following inspection of the Switzerland property and quarry, and 29 August 2008 settlement documentation you provided me with I am able to provide funding of $4.3 for settlement of this property under the sale contract, subject to satisfactory review of all mortgage and charge documentation which is to be provided by the vendor.
You have agreed to pay the vendor, in addition to the property settlement amount of $3.85m, an extra $750,000 or $1,150,000 over time, and agreed to provide security to the vendor over the property, water licence and quarry work authority. The ranking of this security is unclear under the terms of settlement in relation to the water licence and quarry work authority.
The quarry probably has more value than the land. It will be important to review the security documentation to make sure the mortgage/charge I require is first ranking over both the property certificate of title volume 10155 folio 702, the water licences and quarry work authority no 516.
Yours truly
Scott Garner – Director
It seems that this letter was produced by the solicitors for Switzerland for the solicitors for Sargood in the course of the trial – on the evening of 10 August. I do not know the terms of any information as to this letter or as to its provenance which were given by the solicitors for Switzerland to Sargood’s solicitors. In any event, counsel for Sargood had the letter when they resumed cross-examination of Mr Davis on 11 August, for it was shown to him. It emerged that the letter had been the subject of discussions between Mr Davis and Mr Garner on 9 August, the day before the commencement of the trial. Mr Davis said this:
I spoke with Mr Garner on the 9th, the day before this current proceeding commenced, this hearing, and I said, could I have this letter we have talked about, what you’ve offered to do since early February in helping with the money which you have in part with your investors. I said the letter could be beneficial, and it was sent through, obviously, whatever time, at 8 pm on the 9th.
The letter was in fact drafted in the course of this discussion. Cross-examining counsel then tendered the letter as Exhibit 6.
I make the following findings as to this letter. It was not created on the date it bears; it was brought into existence on 9 August 2009 for the purpose of the litigation. Having regard to the facts that I have no knowledge of how the document was described or passed between the solicitors, and having regard to the circumstances of its use at trial, I make no finding that it was deployed by Mr Davis in an attempt to mislead the court. He has displayed on other occasions an imperfect understanding of the evidentiary limitations of documents and this may well have been such an occasion. Mr Garner was not called. I infer that any evidence he might have given would not have assisted Switzerland. I do not make a finding that finance for settlement was available from Jagg Transport or Mr Garner in February or at any time.
On 18 February 2009 the solicitors for Switzerland wrote to the solicitors for Sargood in response to a letter of the same date threatening rescission. The letter of the solicitors for Switzerland spoke of relief against forfeiture. It went on to make two statements:
Our client believes it can settle within 90 days in view of the current environment to which it is subjected.
Our client has a funding letter of approval confirming the availability of funds to complete settlement. We will provide you with a copy upon its receipt.
The first statement has not been supported by any evidence tendered at trial. The second statement is false. No letter of approval was in evidence; it was not said that any such letter then existed. I conclude that the solicitors had been given inaccurate instructions.
The second document is the letter dated 13 July 2009 from the Commonwealth Bank to which I have already referred. The letter is addressed to Mr Davis and Switzerland. It is in these terms:
Dear Charles,
LETTER OF OFFER
I am pleased to advise that the Commonwealth Bank has approved your Better Business Loan – Variable rate totalling $4,160,000
Borrower: Switzerland Investments Pty Ltd ACN 006 220 917
Guarantor: Charles John Davis Family Trust
This approval is subject to the terms and conditions outlined in this Letter of the Offer, the attached Terms and conditions for Commercial Lending Facilities and the Fees and charges Schedule. Please take the time to read these documents carefully before returning the signed Acceptance of Offer Document.
The Facility is subject to annual review.
DETAILS OF PROPOSED FACILITY:
LOAN AMOUNT:
$4,160,000
LVR:
80% of Valuation
TERMS:
Twenty (20) years.
LOAN TYPE:
Full Doc – Purchase
INTEREST RATES:
7.45% indicative variable p.a. (First 24 months I/O, thereafter revert to P&I)
REPAYMENTS:
Monthly in advance
SECURITY:
First registered mortgage over Vol 10155 Folio 702 Crown Allotment A Parish of Switzerland, 324 Switzerland Road Yea VIC 3717; a Fixed and Floating charge over Switzerland Investments Pty Ltd, Grazing Licences, Mining, Mining Licence(s), Water Licence(s), water rights, grazing and cropping lease, Work Authority, Second Mortgage. Subject to review and approval of security documentation by Sargood (Vic) Pty Ltd otherwise in accordance with Terms of settlement entered into between the parties dated 29 August 2008. The security documents include Charge over water rights, Charge over the Work Authority, Grazing and Cropping Lease and the Second Mortgage document. No commitment is given or implied that the Bank will refinance the residual balance at the Facility maturity date.
On behalf of the Commonwealth Bank, it has been my pleasure to assist you with this finance. If you wish to discuss any aspect of the Letter of Offer or any other issues, please do not hesitate to contact me.
Yours Sincerely
Joseph Nicolazzo
Relationship Manager
Mob: 0402446630
Mr Davis said that in early June 2009 he approached the bank and had a lengthy meeting with Mr Nicolazzo at its office in Nepean Highway Brighton. This was the only meeting which Mr Davis had with Mr Nicolazzo. Some two and a half weeks later, Mr Nicolazzo sent to him, care of Mr Andolfatto, a letter dated 19 June which is in terms similar to that of 13 July. It included the formal letter reproduced below and three pages setting out details of the loan (which were not altogether consistent with the loan described in the formal letter) and a fees and charges schedule. These attached documents contain a loan application number. The principal difference between the formal letter of 19 June and that of 13 July is the description of the security which in the earlier letter is in these terms:
Dear Charles,
LETTER OF OFFER
I am pleased to advise that the Commonwealth Bank has approved your Better Business Loan – Variable rate totalling $4,160,000
Borrower: Switzerland Investments Pty Ltd ACN 006 220 917
Guarantor: Charles John Davis Family Trust
This approval is subject to the terms and conditions outlined in this Letter of the Offer, the attached Terms and conditions for Commercial Lending Facilities and the Fees and charges Schedule. Please take the time to read these documents carefully before returning the signed Acceptance of Offer Document.
The Facility is subject to annual review.
DETAILS OF PROPOSED FACILITY:
LOAN AMOUNT:
$4,160,000
LVR:
80% of the valuation
TERMS:
Twenty (20) years.
LOAN TYPE:
Full Doc – Purchase
INTEREST RATES:
7.45% indicative variable p.a.
REPAYMENTS:
Monthly in advance
SECURITY:
First registered mortgage over 702 Parish of Switzerland, Switzerland Road Yea VIC 3717; a Fixed and Floating charge over Switzerland Investments Pty Ltd, Grazing Licences, Mining Charge, Mining Licence, Water Licences, and Work Authority.
On behalf of the Commonwealth Bank, it has been my pleasure to assist you with this finance. If you wish to discuss any aspect of the Letter of Offer or any other issues, please do not hesitate to contact me.
Yours Sincerely
Joseph Nicolazzo
Relationship Manager
Mr Davis on 22 June swore his affidavit of that date in which he stated that he had received approval from the Commonwealth Bank for a loan of $3.775m ‘if I am able to provide them with the required documentation. A letter of offer will be issued shortly’. In fact, the letter of 19 June was for a greater sum. This letter had previously issued. When pressed with this discrepancy, Mr Davis said that it might have been received after 22 June notwithstanding its date. Given his evidence that it may have been sent to Mr Andolfatto, this might have been cleared up if the solicitor had been called to give evidence.
Mr Davis said that upon reading the Commonwealth Bank letter of 19 June he detected some errors in it. These included his incorrect address and the misdescription of the security. There were also inconsistencies between the terms of the loan as set out in the letter and those in the terms of the annexures. Mr Davis said that he noted them on a copy of the bank’s letter and discussed them with Mr Nicolazzo. He said that Mr Nicolazzo agreed with the errors and said that he would reissue the letter. Meantime, Mr Davis had his office employee, Terry Hosking, forward the letter without annotations by fax to Mr Andolfatto on 24 June 2009. The note on the coversheet reads, ‘Have a look at this and let me know’. It may be that a second copy of the letter with Mr Davis’ annotations was also sent to Mr Andolfatto on a date unknown, since the copy in evidence bears Mr Hoskings’ notation: ‘Attention Ivan’.
On 14 July 2009 at 12.43 pm, Mr Nicolazzo sent to Mr Andolfatto a revised version of the letter of offer this time dated 13 July in the terms which I have set out. The address of the customer was changed slightly and the security description changed substantially. Furthermore, the words in parenthesis beside the interest rate were inserted. Other discrepancies between the letter and the attached terms were not addressed. This document was then exhibited to Mr Davis’ affidavit of 14 July 2009. I should mention, too, that on that day the Switzerland application came on for hearing in the Practice Court.
Then there was the evidence of Mr Nicolazzo. He said that he, or perhaps his company, Consolidated Securities and Investments Pty Ltd (‘CSI’) was a contractor for the Commonwealth Bank. In ordinary terms, he or his company appears to have been a spotter for the bank. He would find a prospective borrower and introduce them to the bank and, if a loan was made, would be paid a fee or commission. He had a colleague engaged in similar business as CSI whose name was James Tsouvelis. Mr Nicolazzo said that he recalled having discussions with Mr Davis in or about June 2009 regarding funding. The nature of the funding sought was such that it would have to be passed to the Commonwealth Bank commercial division. Neither he nor Mr Tsouvelis was authorised to offer funding of the kind sought by Switzerland. He said that he did not prepare or sign the Commonwealth Bank letter of 19 June 2009. He denied also preparing or signing the amended version of this letter dated 13 July 2009. He denied that the changes were introduced by him as directed by Mr Andolfatto. Again, the failure to call Mr Andolfatto on this topic is a matter of significance.
The second witness called by Sargood on this topic was Shant Allekion. Mr Allekion is a relationship manager in the Corporate Financial Services Branch of the Commonwealth Bank and has been a bank employee since about 2004. His evidence was that the letter of 19 June 2009 and that of 13 July 2009 were not authentic bank documents. He explained why this is so and I accept his evidence. He said that the loan number on the June version of the letter does not refer to a loan on the bank records. His evidence was unshaken in cross-examination and I accept it as reliable.
I conclude from this that the letter offered in evidence by Mr Davis as evidence of the availability of funds to settle the contract of sale is false. Mr Davis did not give or lead evidence in contradiction or explanation of the evidence offered by Mr Nicolazzo or Mr Allekion. It follows from this, first, that I do not accept the Commonwealth Bank letter of 13 July does not advance the contention of Switzerland that the Commonwealth Bank was prepared to advance the money necessary to settle either on 2 February 2009 or thereabouts or now. I further conclude that the letter does not advance the contention of Switzerland that a lender such as a bank would require to see the water charge and the work authority charge. It is not necessary that I find who forged the bank document and I do not do so.
It was put to Mr Davis that the letter of 13 July 2009 was a forgery and that he knew this to be the case. Put bluntly, it was put to him that his evidence on this matter and on the matter of the loan offer from the Commonwealth Bank generally was false and false to his knowledge. I was asked to make such a finding.
I am, of course, mindful of the implications of such a finding. I am to decide issues of fact in this case on the balance of probabilities, but bearing in mind the principle in Briginshaw v Briginshaw.[13] I have considered the remarkable evidence attending the preparation of the letter of 13 July 2009 and its production. I was invited to and do draw a Jones v Dunkel[14] inference from the absence of any evidence from Mr Andolfatto. I have had regard to the evidence of Mr Davis upon other issues in this trial and how he presented the evidence of absent witnesses as his own.[15] I am aware of his distress at the prospect that he might lose a property which has been in his family for some time, a property in which he has a considerable financial and emotional investment. I recall his readiness to impute base motives to Mr Webster and others and to make allegations which were unwarranted and irrelevant.[16] I have observed, too, that Mr Davis gave his evidence in many respects in an off-hand and even flippant manner. But I do not draw any conclusion from this as it may well be a product of his personality or nervousness rather than of some more sinister reason.
[13](1938) 60 CLR 336
[14](1959) 101 CLR 298
[15]As for example, his evidence as to the ANZ Bank loan in January 2001.
[16]For example, that Mr Webster was putting about false stories to damage his commercial reputation.
In all the circumstances, I am driven to conclude that his evidence with respect to the Commonwealth Bank letter of 13 July 2009 is not to be accepted. This carries with it the conclusion that his evidence on any topic in this case is to be approached with the gravest suspicion and great caution.
I conclude that the failure of Switzerland to settle on the appointed day and thereafter, including up to the present, has been due to its inability to raise the necessary funds to do so. It was and is not due to any breach of the obligation of Sargood to provide the security documents. Mr Davis and Switzerland had made statements to Mr Webster as to the difficulties of raising finance, had failed to call for the security documents in January, and, generally, had not taken any steps towards settling the contract of sale prior to the appointed day. This led Sargood and its solicitors reasonably to conclude that settlement could not take place on 2 February 2009. Accordingly, Sargood was not required on that day to tender the security documents or other documents required for the settlement.
This is sufficient to dispose of this case. Nevertheless, in deference to the submissions of counsel, I will venture my views upon the other pleaded issues.
I reject the contention that Sargood acted unconscientiously in rescinding the contract of sale. The contentions advanced in support of this were, in effect, that Mr Webster has sought to undermine Mr Davis’ or Switzerland’s commercial credit in or about 2007 in various ways. Without expressing any views about the correctness of these allegations, I am of opinion that they do not render their rescission unconscientious. It may be that Mr Webster was content to pick up a bargain under the settlement agreement at that time. The fact remains that Switzerland was then in breach of its obligation to pay the instalment and, under the terms of settlement, it had agreed that in such event the deposit was forfeited and the sale rescinded. And time was of the essence. Sargood did not contribute in any way to the failure of Switzerland to make the agreed payment. There is nothing unconscientious in Sargood holding Switzerland to its bargain.[17]
[17]See Tanwar Enterprises Pty Ltd v Cuachi (2003) 217 CLR 315, 324.
The claim of Switzerland for relief against forfeiture must also fail. The default which gives rise to the termination of the contract was the non-payment of nearly $4m. This is a substantial part of the consideration. There is really no reason advanced which would render it inequitable for Sargood to insist upon the terms of its bargain. Switzerland is not able to pay the outstanding instalment and does not offer to do so. There is no circumstance which would incline me to grant the leave sought. More fundamentally, the relief is not available in a case such as the present where the purchaser is in breach and the contract has been rescinded for that breach.[18]
[18]Tanwar Enterprises Pty Ltd v Cuachi (2003) 217 CLR 315, 334.
It follows from this that the claims from Switzerland and Mr Davis must fail. I propose the following orders:
Proceeding No. 6734 of 2009
1. There be an order for possession of the land.
2.The defendants pay the plaintiff’s costs of the proceeding including reserved costs.
Proceeding No. 7333 of 2009
1. There be judgment for the defendants.
2.The plaintiffs pay the defendants’ costs of the proceeding including reserved costs.
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