Sui v Fang

IN THE SUPREME COURT OF VICTORIA

AT MELBOURNE
COMMON LAW DIVISION
PROPERTY LIST

S ECI 2020 01818

BETWEEN:

GUANGYI SUI	Plaintiff
-and-
YUJIE (FORMERLY XIANG) FANG	First Defendant
FAN HUI	Second Defendant

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JUDGE:	John Dixon J
WHERE HELD:	Melbourne
DATE OF HEARING:	29 , 30, 31 March, 1 April 2022
DATE OF JUDGMENT:	9 June 2022
CASE MAY BE CITED AS:	Sui v Fang
MEDIUM NEUTRAL CITATION:	[2022] VSC 300

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CONTRACTS – Construction – Proper interpretation of agreement in respect of residential property – Ambiguity evident on analysis of text, context and purpose of agreement – Evidence of surrounding circumstances external to the terms of the agreement admitted to resolve ambiguity – No novel point of principle.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr M Young SC	Dixon Holmes
For the Defendants	Mr T Sowden	Conlan Cummings Lawyers

TABLE OF CONTENTS

Introduction........................................................................................................................................ 1

Factual background........................................................................................................................... 1

Construction...................................................................................................................................... 21

Plaintiff’s submissions................................................................................................................ 22
Defendants’ submissions........................................................................................................... 24

Relevant principles concerning construction of agreements.................................................. 27

Resolution of the construction of the agreement....................................................................... 32

Plaintiff’s loss................................................................................................................................... 45

Counterclaim..................................................................................................................................... 47

Rectification...................................................................................................................................... 48

Conclusion......................................................................................................................................... 48

HIS HONOUR:

Introduction

At the heart of this proceeding lies the issue of the proper construction of a sale agreement (the ‘agreement’) in respect of a residential property in Illoura Avenue, Ringwood East, Victoria (the ‘property’).

The defendants, Yujie (formerly, Xiang) Fang and Fan Hui, purchased the property at auction to develop townhouses on the land. A mere two weeks later, at a profit of $145,000, they transferred the rights under the sale contract to the plaintiff, Guangyi Sui.

The agreement, drafted in Chinese by the parties themselves, contemplated certain development plans for the property and tasked the defendants with applying to the local council for approval of the plans in exchange for a fee. The defendants obtained council approval for a development of three townhouses on the property, but for townhouses with a much smaller floor area than the plaintiff anticipated. The plaintiff elected not to develop the land, and instead on-sold the property, with the approved plans, at a loss.

The plaintiff claimed from the defendants the difference between the proceeds of the on-sale, and the total amount he paid for or expended on the property. The plaintiff claimed he is entitled to recover his losses from the defendants, who guaranteed that a particular development plan with floor areas of 620 m² would be approved by council. The defendants claimed that the agreement contained no such guarantee or indemnity. The defendants counterclaimed for the development application fee, as an entitlement under the agreement.

Factual background

At trial it was common ground that:

(a) On 24 September 2016, the defendants purchased the property at auction from an unrelated third party.

(b) On 10 October 2016, the defendants entered into the agreement with the plaintiff to transfer to him the benefit of the sale contract. The consideration for this transfer was $245,500, comprising $100,500 reimbursement for the deposit and $145,000 as a transfer fee. The plaintiff became responsible for paying the balance of the purchase price.

(c) Clauses 3, 5 and 6 of the agreement in Chinese, when translated into English, read as follows:

Three:
After the settlement of the property, the transferor promises to immediately apply for council approval to build new properties, that is, demolish the old house on the original property and build three new townhouses. A design plan that is reasonable and meets the requirements of a local city council in Melbourne shall be issued by a professional designer entrusted by the transferor (three villas must have separate car access and garages). The approval fee of AUD 35,000 shall be paid by the transferee to the transferor and paid off after the application for a planning permit is approved. (Payment shall be made into the following company's account: BSB: #### # Account: #### ## Account Name: S & W Homes Pty Ltd). The transferor will help the transferee rent out the property after obtaining the government approval, and the rent will be transferred to the transferee (if permitted by law).
Five:
The application period for approval is 12 months from the 15th of February 2017. If the transferor fails to provide the transferee with the government approval for the construction of three new townhouses beyond this time limit, the transferee shall have the right to sell the property while the transferor shall pay an interest of 4% to the transferee for the 12 months commencing after the 15th of February 2017, less the rental income of the old property. If the property cannot be sold under special circumstances, the transferor shall unconditionally refund the full amount and all the tax costs and corresponding losses to the transferee.
Six:
Other matters:
This contract comes into effect by being signed online via the computer. It shall be signed and kept by both parties, one copy for each. The copy to the transferee shall be accompanied by the original property purchase contract and a copy of the design drawing. The other copy to the transferor shall be a copy of this contract and the original contract as well as a copy of the design drawing. This contract shall have legal effect upon signing.
- Any other expenses other than those set forth herein shall be borne by the transferee
-All documents and costs required for the property to be settled on the 15th of February 2017 shall be borne by the transferee
- For matters not covered herein, supplementary agreement may be signed by both parties by fax or online. Both are valid documents.

(d) The design drawing and feasibility study exchanged between the parties on the day following the agreement consisted of 8 sheets. Sheets 4 – 6 set out a concept design for three townhouses with separate car access and garages, with dwelling one having a total floor area of 205 m², dwelling two having a total floor area of 207 m², and dwelling three having a total floor area of 196 m², a total floor area for the development of 608 m². The budget or feasibility study showed floor areas of 220, 220, and 180 m²respectively, a total floor area for the development of 620 m². Further analysis of the presumed intention of the parties in respect of the concept design is set out later.

(e) On 15 February 2017, Australia Ocean Pty Ltd (‘Australia Ocean’), as trustee for the plaintiff’s family trust, completed the sale contract.

(f) On 23 March 2018, the defendants obtained a development approval for construction of townhouses on the property with a total floor area of 440 m². The plaintiff did not pay the defendants the approval application fee as contemplated under cl 3 of the agreement.

(g) On 21 October 2019, Australia Ocean sold the property for $950,000. The defendants did not pay the plaintiff any money to compensate for the loss he suffered on the on-sale.

The crux of the dispute in this case was what happened between these dates, the meaning of the operative terms of the agreement, and whether the agreement should be rectified.

All three participants gave evidence. Their accounts of the events were broadly similar. The main difference lay in precisely what Mr Fang told Mr Sui in the negotiations leading up to signing the agreement, and whether that was relevant to and may inform the meaning of cl 5 of the agreement.

At trial, detail in the chronology of events emerged, as set out below. There was some factual dispute as is indicated. To a certain extent, my findings could be based on contemporaneous documents, but there were a number of important conversations occurring face-to-face or by WeChat. Where there was conflict between the evidence of the witnesses, I preferred the evidence of Mr Sui, who appeared to have a better recollection of these conversations that was consistent with the documents. Mr Sui gave his evidence directly in response to the questions he was asked, readily conceding when he could not recall particular detail.

For the defendants, Mr Fang, in particular, appeared evasive and failed on numerous occasions to directly respond to straightforward questions. With much greater frequency that Mr Sui, he claimed a lack of memory when pressed on the detail of significant conversations. My overall conclusion was that Mr Fang was significantly less reliable in his recall of events when compared with the documents and the other witnesses. Mr Fang also sought to respond to cross examination about what special circumstances were contemplated, by raising suggestions that had not been raised in his evidence in chief. This defensive response did him little credit.

Mr Hui had no direct contact with Mr Sui until after the agreement was made, having agreed with Mr Fang that he would be the sole contact with Mr Sui. Mr Hui was active in drafting the agreement. The explanation that each gave for the form of the initial draft of cl 5, prepared by Mr Hui – that it was a talking point for negotiations to which they would never agree - was not credible. Mr Hui, as with Mr Fang, gave a number of non-responsive discursive answers when under cross-examination.

On 5 October 2016, Mr Sui met Mr Fang at the offices of a migration agent and lawyer, Ms Liu, introduced through a mutual friend.

(a) Mr Fang maintained that his mutual friend introduced him to Mr Sui who was interested in permanent residency in Australia. Mr Fang suggested that, to improve his prospects, Mr Sui invest in property in Australia. Mr Sui asked Mr Fang whether he had any property that could be developed and Mr Fang suggested the property to Mr Sui.

(b) Mr Sui conceded he was interested in obtaining permanent residency, but he denied that he was interested in developing the property to improve his chances of doing so. He said his interest in the property was just to make profit.

(c) Whether and to what extent the plaintiff’s interest in obtaining residency informed his motivation to purchase the property was irrelevant.

(d) Mr Fang said that he did not have any professional designs or construction budgets for the property available when he met with Mr Sui. He had received oral advice from an architect prior to the auction of the property that a development of three townhouses of approximately 620 m² was possible and this was what he had conveyed to Mr Sui. Because the defendants had not yet paid the architect a deposit at that point, Mr Hui explained that he did not have the design drawings or a budget in his possession.

On 6 October 2016, Mr Sui and Mr Fang inspected the property and later that day they discussed the property further.

(a) Mr Sui claimed Mr Fang had in his possession on 5 or 6 October 2016, and showed to him, professional designs and a construction budget for a development at the property. The plans were for three townhouses with a total floor area of 620 m². Mr Sui claimed that he told Mr Fang he was interested in purchasing the property from him, but only on condition that if local government approval for a size of 620 m²was not obtained, Mr Fang pay as compensation the difference between the re-sale price and the purchase price plus taxes and fees, with interest. In addition, because he was a foreigner, Mr Sui could not hold property indefinitely in Australia, and the development approval must be obtained within 12 months from March 2017. Mr Sui also stated he was not aware of how local council approval worked and relied on Mr Fang’s expertise. He said Mr Fang did not tell him that the conceptual design may have to change depending on what the local council stipulated.

(b) There was no other evidence supporting Mr Sui’s allegation that the design plans were shown to him prior to concluding the agreement. I was not persuaded that Mr Sui did see the concept design drawing and before the agreement was concluded, but that was of no consequence. Clause 3 of the agreement says ‘a design plan that is reasonable and meets the requirements of a local city council in Melbourne shall be issued by a professional designer’. The agreement contemplated designs to be submitted for council approval that were yet to be either prepared or finalised. The agreement expressly incorporated a particular design that was not was shown to Mr Sui in written form as he claimed. There was evidence, set out below, that the concept design and the feasibility study were discussed in some depth before the agreement was concluded. In addition, Mr Fang sent later on the day of, but after, the agreement was made, drawings and a budget to Mr Sui in a written form consistent with what was discussed. Clause 6 provided that ‘the copy [of the contract] to the transferee shall be accompanied by a copy of the design drawing’.

Later on 6 October 2016, after Mr Sui met a conveyancer to deal with the transfer of the property, he spoke by telephone with Mr Fang.

(a) Mr Sui said he reiterated to Mr Fang that if council approval was not obtained within 12 months, he would sell the property and the defendants must pay for any losses he suffered, with 4% interest. He said it was a condition that approval be obtained for a development of townhouses with a floor area of 620 m². Mr Sui claimed Mr Fang agreed to give these guarantees and did not say he had to consult his business partner, Mr Hui, before doing so. Mr Fang also told Mr Sui that the defendants had been in the small real estate development business for years and they had a construction and selling team that could develop the property for him.

(b) Mr Fang agreed in evidence that Mr Sui had indeed asked for these guarantees. He also stated that when Mr Sui asked him whether he would get the requisite planning permit, he said, ‘we’re confident we will get it’, nominating a period of 6 – 9 months. Asked by Mr Sui to nominate a period that he was comfortable with, Mr Fang said he told Mr Sui that they would likely get development approval within the 12 month period ‘but no promises’. When Mr Sui pushed for a guarantee in respect of the timing and the floor area of the development, Mr Fang said he needed to first discuss it with Mr Hui. Mr Fang said that this was the first development project that he and Mr Hui had embarked upon. He was not, however, asked whether he had said this, or something to the contrary, to Mr Sui during this meeting.

(c) Mr Sui’s counsel put to Mr Fang that Mr Sui had suggested an alternative to the defendants providing an indemnity for losses upon the re-sale of the property to a third party, in the form of the defendants agreeing to buy back the property at the original price if the planning permission was not obtained on time. Mr Fang confirmed that Mr Sui presented this as an alternative option but that Mr Fang did not agree to it.

(d) I accept that Mr Sui required a guarantee in respect of the transaction, in the event that the development approval was not obtained, either in the form of an obligation on the defendants to buy the property back from Mr Sui, or for Mr Sui to sell the property and recoup any shortfall from the defendants. Although Mr Sui maintained Mr Fang agreed to provide these guarantees, Mr Fang said he did not agree and needed to consult his partner, Mr Hui.

(e) This conflict need not be resolved, as it is clear from the exchanged drafts that followed that the parties had not reached any kind of final agreement at this meeting. Further negotiations took place, and varying versions of the agreement were exchanged. The plaintiff’s version of what was discussed at this meeting was not what appeared in the ensuing drafts of the agreement. For example, despite Mr Sui’s evidence that he insisted on a guarantee if he had to sell the property in the event approval was not obtained, the next draft did not include such a guarantee and the parties continued to negotiate on this issue.

Between 8 and 10 October 2016, the parties exchanged a number of versions of the agreement.

(a) On 8 October 2016 at 8:19am, Mr Fang emailed a first draft of the agreement, drafted by Mr Hui. Mr Fang’s email, which was in Chinese, stated:

I have perfected the contract. Please check it. Call me any time with questions.

The relevant draft clauses provided as follows:
Three:
After the property is handed over, it is eligible to apply for council approval to build three new town house properties. The approval fee of AUD $35,000 shall be paid by the buyer to the transferor within three days after the approval application is approved.
…
Five:
The approval application period is 12 months from 15/02/2017. If the approval cannot be issued beyond this time, the buyer needs to transfer the property back to the transferor (and pay the relevant Stamp Duty). The transferor is required to refund the buyer’s money including the 12-month interest from 15/02/2017 after deducting the rental income of the property. (The interest rate is based on the average interest rate of residential loans of the four major banks in Australia).

(b) At 8:48am that same day, Mr Fang emailed Mr Sui again, stating:

Apologies Mr Sui, it has been revised and perfected, the previous one is invalid, and this one is the main one. Thanks

The agreement attached to this email was the same as above, save that in cl 3, Mr Fang had entered the payment details for the entity that was to receive the development application fee.

(c) The defendants both stated that the draft agreements they submitted were based on what they had understood Mr Sui wanted, save that they asserted that they did not intend to agree to the first draft. It was, according to them, just a starting point or basis for negotiations. Mr Hui stated that he was also against providing the 12-month time limit for the permit approval but that Mr Sui had insisted upon it and the architect had given them confidence this would be possible. Mr Hui conceded that he was aware Mr Sui wanted a guarantee for all of his risk if the permit was not obtained but he refused to agree to this as it would leave the defendants too exposed and would not be fair.

(d) The plaintiff’s counsel submitted that the defendants’ version of the negotiations was incredible. At best for the defendants, if Mr Fang had said at the last meeting with Mr Sui that he was not prepared to give a buy-back guarantee without checking with Mr Hui, then by sending this draft, the plaintiff would have thought from the draft submitted to him, Mr Hui was prepared for the defendants to offer the refund guarantee. Counsel submitted, with some force, that the defendants’ evidence that this was just a ‘starting point’ was contrary to the email communications and that it was implausible they would have sent a draft they had no intention of agreeing to.

(e) The second email at 8:48am fortified this submission. Both covering emails indicated the defendants intended to be bound by the drafts. They never stated that the draft was submitted for discussion purposes only or anything to that effect. The parties agreed there were contemporaneous WeChat or telephone communications between them prior to signing the agreement, but they were not in evidence. I doubt that the defendants were communicating with Mr Sui simultaneously about the first draft that they prepared, because not long after, Mr Sui responded with a substantially different version of the agreement.

(f) Pausing at this point, I would have been prepared to find that the defendants were willing to agree to some form of buy-back provision. However, that was not the end of negotiations. Mr Sui did not just accept this clause as proffered by the defendants. He amended it. The fact that the defendants may have agreed to a buy-back provision in that early draft has limited bearing on the interpretation of the final clause.

(g) At 9:17am that same morning, Mr Sui responded with a significantly amended version of the agreement. His email stated:

We think the assignment contract should be the content in the attachment. I have made a comprehensive consideration
I can’t open your complete contract
I suggest that my text content should be better
Keep in touch vi phone

The relevant clauses read as follows:
Three:
After the transfer of this property, the transferor promises to apply for council approval to build a new property immediately. Not only demolish the old houses on the original property to build three new townhouses, the reasonable and design drawings that meet the requirements of the local government in Melbourne will be issued by the transferor to find a professional designer (the three villas must have separate car passages and garages), the design drawings need to be approved by the transferee before it can be submitted to the government for approval. The approval fee of AUD $35,000 shall be paid by the buyer to the transferor after the approval application is approved.
…
Five:
The approval application period is 12 months from 15/02/2017. If the transferor cannot submit the property approval for the new three town houses to the transferee government after this time, the transferee has the right to sell the property, and the transferor needs to pay the transferee after 15/02/2017. 4% interest from the beginning of the 12-month period (4% interest until the date of sale) less rental income for the period of the old property. If the property cannot be sold under special circumstances, the transferee will unconditionally refund the full amount and all tax charges and corresponding losses to the transferee.

(h) Mr Sui’s introduction of this concept of ‘special circumstances’ qualifying the defendants’ refund obligation created ambiguity that lay at the heart of the dispute that developed.

(i) Mr Fang stated that Mr Sui introduced the term ‘special circumstances’ and it was discussed between them over WeChat. The parties communicated several times during the course of their dealings through WeChat, but neither party could tender any of these messages in evidence, although both parties gave evidence about the content of these messages. Mr Fang said Mr Sui told him that he wanted to make sure the property could be sold and so it was very important to him to add this ‘special circumstances’ requirement. Mr Fang stated he could not remember or explain what Mr Sui understood by that requirement.

(j) Mr Fang’s own understanding of the term was somewhat inconsistent. At first he claimed that a ‘special circumstance’ would include that Mr Sui was not able to get a good price for the property. He later stated that it did not refer to the price of the property, but instead some kind of natural disaster or pandemic that might prevent the sale. He said it could not refer to price because the market always changes and they could not control the price. Later, Mr Fang said that in fact they did not know what ‘special circumstances’ meant at the time but guessed it meant a pandemic or natural disaster.

(k) Mr Fang explained that Mr Sui added the ‘special circumstances’ qualifier to the buy-back option in the draft (i.e. that if development approval was not obtained, the defendants would buy back the property from Mr Sui). Asked in cross examination whether he was surprised that Mr Sui removed the buy-back option in cl 5, and replaced it with the right to sell the property and obtain a refund from the defendants under special circumstances, Mr Fang answered, ‘From my understanding, it’s the same and it’s more – it’s more protect[ion] for Sui afterwards.’ He repeated that ‘[b]uy back or refund is the same’.

(l) Mr Hui conceded that residential property in Melbourne can normally be sold unless there are serious problems with the property, and that it would just be a question of the price. He also agreed that obtaining development approval would, under normal circumstances, increase the price. However, he maintained that it is hard to know what special circumstances are being referred to in cl 5 and that he did not understand the meaning of the provision, other than that it was introduced by Mr Sui to protect himself. Mr Hui said he agreed to it because Mr Sui insisted on it, and there was no risk on their side.

(m) Mr Hui rejected the idea that by making these amendments to the draft, Mr Sui had removed the buy-back provision and replaced it with only an option to sell the property and claim an indemnity from the defendants. Mr Hui said there were negotiations going on between Mr Fang and Mr Sui on WeChat at the time about what Mr Sui wanted, which were relayed to him and which resulted in the 9:17am draft. Mr Hui claimed that it was clear to everyone at the time that the defendants did not agree they would pay Mr Sui the gap between the resale and the purchase price for the property and so the parties negotiated back and forth and came up with that version.

(n) Mr Hui said the buy-back provision remained in the clause but was qualified, and would only be triggered ‘if the property cannot be sold under special circumstances’. This remained what he described as a kind of buy-back option. The words ‘unconditional refund’ were the same as a buy-back, except that a condition must first be fulfilled in that the property could not be sold under special circumstances, but it could otherwise be sold. Mr Hui reiterated that Mr Sui was free to sell the property whenever he wanted but it was never the defendants’ intention to pay for any shortfall between the selling price and purchase price and that Mr Sui was fully aware of that. He said, ‘So if these conditions are fulfilled then in fact it’s the same as what Mr Sui would get for monetary value point of view as a buy-back. That’s what I said. We agreed to this format because [it] is a more fair condition to a blanket buy-back condition which Mr Sui wanted to have, which we never agreed to.’

(o) Mr Hui explained that cl 5 was in two parts. The first was about planning approval. If the defendants did not get approval, then they would have to pay 4% interest on the purchase price, if they could not deliver such approval in 12 months. The second part was if Mr Sui could not sell the property, then they would buy it back.

(p) At 1:33pm that same day (8 October 2016), Mr Fang replied to Mr Sui:

Please check the completed property transfer contract. If there is no problem, you can directly sign it back to me, and we will sign it and send it to your lawyer. Please feel free to call me if you have any questions.

(q) At 4:33pm, Mr Fang sent another draft to Mr Sui. The relevant clauses read:

Three:
After the transfer of this property, the transferor promises to apply for council approval to build a new property immediately. Not only demolish the old houses on the original property to build 3 new townhouses, the reasonable and design drawings that meet the requirements of the local government in Melbourne will be issued by the transferor to find a professional designer (the three villas must have separate car passages and garages) , the approval fee of AUD $35,000 will be paid by the transferee to the transferor after the approval application is approved. (Enter the company account BSB: #### Account: #### Account name: S&W Homes Pty Ltd).
Five:
The approval application period is 12 months from 15/02/2017. If the transferor cannot submit the property approval for the new three townhouses to the transferee government after this time, the transferee has the right to sell the property, and the transferor needs to pay the transferee after 15/02/2017. 4% interest from the beginning of the 12-month period net of rental income during the period of the old property. If the property cannot be sold under special circumstances, the transferee shall unconditionally refund the transferee the full amount and all taxes and expenses and corresponding losses.

Mr Fang said the amendment in this version of cl 5 was introduced by the defendants to take out the requirement that the 4% interest to be paid must be paid up until the property is sold. They changed this to interest for one year. Mr Hui confirmed that the defendants would only agree to pay one year of interest and took out the obligation to pay interest until the property was sold, because they were not in control of the sale of the property and Mr Sui could elect not to sell the property for years.

(r) At 6:01pm, Mr Fang emailed Mr Sui, relevantly stating:

We have read the revised email, there is no problem, you can sign it and send it back to us, we will sign it and send it back to you! …

(s) At 7:12pm, Mr Sui replied to Mr Fang:

Please accept attachments

The attached draft contract was the same as 4:33pm version, save that in cl 5, the word ‘shall’ was changed to ‘will’.

(t) At 8:40pm, Mr Sui sent Mr Fang another draft of the agreement. This was the same as the 7:12pm version, save that the full stop just before ‘4%’ in cl 5 was removed and replaced with the word ‘onwards’.

(u) The next day, 9 October 2016, at 8:19pm, Mr Sui emailed Mr Fang stating that he had signed the agreement:

Please accept the property transfer contract in the attachment, please write the international remittance from abroad to your company in English tomorrow, including the swft number, etc. I have signed it, waiting for your signature, from Manzhouli Jinyuda The Economic and Trade Co., Ltd will pay you the money, and the balance will be paid to you when the formal contract is signed.

(v) On 10 October 2016, at 12:06pm, Mr Fang sent Mr Sui the signed version of the agreement:

I have signed the contract with my partner. Please check attachment. Then just follow the normal procedure! Please send me the payment receipt by email after payment is made.

(w)At 6:19pm that same day, Mr Fang emailed design drawings and a feasibility study for the proposed development to Mr Sui, stating:

This is the conceptual design and feasibility report just sent by the designer.
Three townhouses with 4/4/3 bedrooms respectively
Indoor area of 220/220/180 square meters respectively
Price of $4500/1 square meter
The construction cost of $1400/1 square meter is all hardcover rooms.
The final profit is about 690,000 Australian dollars before tax
About $505,000 after tax!
Profit over 40%
Check it out!

(x) I am satisfied that this communication merely confirmed the substance of the earlier discussions and was sent to comply with the obligation recorded in cl 6 of the agreement that a copy of the design drawing was incorporated into and formed part of the agreement.

Between 15 October 2016 and the end of December 2016, Mr Sui paid the defendants amounts totalling $245,500.

On 30 October 2016, Mr Sui incorporated Australia Ocean.

On 21 November 2016, the parties signed a supplementary agreement to change the recipient account details in cl 4 of the agreement.

On 1 December 2016, the Foreign Investment Review Board (‘FIRB’), approved Mr Sui’s application to develop the Ringwood property as a residential property. The approval was granted on condition that the dwelling is demolished and replaced with multiple dwellings, not rented out prior to demolition and redevelopment, that construction of the dwellings must be completed within 4 years of the date of the notice, and that council approves the proposed redevelopment. Although it was common ground that Ms Sui needed FIRB approval, the evidence did not establish whether these conditions were expected or understood by the parties, or any of them, when the agreement was negotiated and made.

On 13 February 2017, Mr Fang sent revised drawings and a development budget to Mr Sui. They exchanged WeChat messages about the revised plans. Mr Fang’s email stated:

The following attachments are the approved design plans and feasibility reports confirmed by all designers and the government.
I have seen it all here. There is no problem with the cost reduction and the profit has increased to 610,000 Australian dollars.
If the problem is not serious, please reply to me, and will instruct the designer to directly submit all the government materials and wait for the approval on the day of delivery

On 14 or 15 February 2017, Mr Sui and Mr Fang communicated over WeChat about the reduction in floor area in the development plans. Mr Sui noted from the drawings that the gross floor area of the development had decreased to 511 m^2,and that if approved he would ‘lose money’ because the value of the property will be less. He stated that everyone in Australia knows that in assessing residential development opportunities value is directly proportional to townhouse size.

Mr Fang assured him the new drawings were better in that they avoided certain construction risks and unnecessary fees, and the reduction in size reduced construction costs such that the profit would increase. Mr Sui did not accept that, because, he said, he could not fully understand the impact on the expenses side of the budget and a size of 620 m² was an integral part of the agreement. Mr Sui said he did not know that the profit projection from the budget that Mr Fang supplied was just an estimate and that he trusted Mr Fang’s expertise and experience in small property development.

Mr Sui nevertheless agreed to continue with the agreement and did not seek to terminate it on the basis of the reduction in floor area to 511 m².

On 15 February 2017, Mr Sui came to Melbourne. The development application was lodged with council.

In July or August 2017, Maroondah City Council rejected the application for the 511 m²plans. Its report stated that it considered the construction of three large double-storey dwellings that will be bulky and intrusive in the streetscape and for abutting properties failed to respond to the design guidelines of the area. The Council noted the loss of three significant canopy trees and the detrimental impact on an adjoining significant tree. The Council also concluded there was insufficient space for replacement landscaping throughout the site to maintain the landscape character of the area.

Sometime in September 2017, the defendants appointed new architects to prepare different plans to submit for approval. Mr Hui explained that they then sought feedback from the Council as to why the application was rejected and obtained the report I have just noted.

On 8 September 2017, the defendants communicated with Mr Sui by a WeChat teleconference.

(a) Mr Sui said that during this meeting, Mr Fang told him the Council had forced them to amend the design drawings and plans in order to obtain approval and that the resulting plans were for only two dwellings with a total size of 440 m². Mr Sui refused to accept the amended plans and insisted that the defendants buy back the property and, if they could not, he will have to sell it. Mr Sui said Mr Fang responded by saying they did not have sufficient cashflow to buy the property back.

(b) Mr Fang said that the new architect was also at this meeting. They discussed Council’s position on the application and how development approval might be secured. The new plans, which were for three smaller townhouses or two larger ones, were put to Mr Sui at the meeting, but that he refused to accept them. The meeting ended with Mr Sui saying they have to obtain the development approval for three townhouses within the 12 month deadline.

(c) Mr Hui said the architect explained that the two options presented to Mr Sui were the only ones likely to be accepted by Council. He said the defendants were worried about getting Council approval of the new plans within the 12 month timeframe and wanted more time. Mr Sui’s response was to refuse both the new plans and the extension of time. He said that as Council had not approved 511 m² it was pointless to grant an extension for the defendants to attempt to obtain the original approval that he expected. He asked the defendants to buy back the property plus to pay back all the money Mr Sui had incurred. Mr Hui told Mr Sui they did not have money to buy back the property, and that anyway this was not what the agreement provided. The agreement said the buy-back option was only available when Mr Sui could not sell the property. Mr Hui told Mr Sui that he thought it was a good thing to obtain the planning permission for the smaller size, because the property could then be sold with the permit. Mr Hui said he offered to waive the $35,000 application fee if Mr Sui agreed to give a three to six month extension of time for the approval. Mr Sui refused.

On 22 September 2017, the defendants again communicated with Mr Sui by WeChat teleconference.

(a) Mr Sui said the defendants again asked for an extension of time to get the development approval from Council, which he refused because even with more time the defendants were unable to obtain the originally agreed upon approval for 620 m². Mr Sui told Mr Fang he misled Mr Sui by telling him, before he signed the agreement, that he would be able to build three two-storey dwellings with a total size of 620 m². The property value had then decreased because this could not be obtained. If Mr Sui had known this, he would not have purchased the property. Mr Fang replied that the agreement did not say anything about 620 m², to which Mr Sui responded that before they signed the agreement they had many communications in person and via telephone and reached common ground that the agreement was based on the drawings of 620 m² and the budget. The drawings and budget were an ‘undetachable part’ of the agreement. Mr Fang told Mr Sui that the property would be better with the development approval and that under the circumstances they would waive the lodgement fee and the property could just be sold with the development approval. According to Mr Sui, Mr Fang said the property could be sold at a good price and all three of them would be winners. Mr Sui said the defendants told him that it was better to sell the property with the approval than without it, so he had no choice but agree to obtaining the approval.

(b) Mr Fang’s evidence was that he asked for an extension of six months in exchange for waiving the development approval fee but that Mr Sui refused.

(c) Mr Hui stated that Mr Sui told them they have to deliver what they promised him or pay Mr Sui the loss.

(d) The meeting ended with no agreement.

On 26 September 2017, Mr Fang and Mr Sui exchanged further WeChat messages. Mr Sui said Mr Fang told him that if they do not lodge the new reduced development approval plans, Council would not approve the application. Mr Fang stated he did not have the cashflow to buy back the property and suggested that they get development approval and sell the property. Mr Sui told Mr Fang that he had misled him but that he had no choice but to sell the property. He told him to finish getting approval for the property but that he would insist on his rights and obligations in the agreement. He told Mr Fang they would catch up again after 15 February 2018.

Mr Sui recalled a WeChat exchange with the defendants on 15 February 2018 during which he was told that the application was being considered by Council. He was told again that the construction size had been decreased to 440 m² and Mr Sui repeated that he had been misled about this but that he had no choice but to sell the property.

Mr Fang said that at some point in February 2018, Maroondah City Council issued a notice of decision to grant a permit in respect of the smaller development plan of 440 m² to his architect, who forwarded it to him. Mr Fang says he then sent this notice to Mr Sui through WeChat. This notice was not tendered.

On 27 February 2018, Mr Sui emailed Mr Fang:

This is an agreement between you and me, and you promise to process DA, which generally takes 6-9 months. You and I agreed that DA must be provided to me before February 15, 2018. This is the deadline … you must pay me 4% fine of the full amount. Today is February 23. You have no provided a formal DA approval. You have already breached the contract. According to the agreement, please pay 46,000 Australian dollars. Pay me, please send DA to my mailbox.

Mr Sui’s evidence was that he calculated this amount as 4% of $1.15million. This was the same value as the purchase price plus transfer fee.

On 23 March 2018, Council issued a development approval for the 440 m² development to the defendants. The notice of decision, dated 23 March 2018, was tendered in evidence, but without the plans in respect of which approval was given, which were never seen by the court. That same day, Mr Fang and Mr Sui exchanged WeChat messages about the approval.

On 27 March 2018, Mr Hui emailed Mr Sui attaching the Council’s notice of decision to grant the planning permit for three double storey-dwellings on the property. The email’s subject line was ‘Fwd: RE Notice of Decision and invoice’. It read:

Attached is the final council file. The content is consistent with the information we confirmed on February 13, 2018, and the relevant commitments are also fulfilled. If you have any questions you can ask the team to contact council directly.

On 23 April 2018, Mr Hui emailed Mr Sui attaching a planning permit.

Mr Sui said he did not receive a copy of the development approval before mid-April 2019. However, he confirmed receiving the above email. He explained that he received legal advice that this was just a ‘notice’ and did not constitute a formal development approval certificate.

Mr Fang confirmed in his evidence that he never sent Mr Sui anything, during the course of 2018, that set out the actual floor area or any plans of the approved development. No plans were attached to either the approval notice or the permit. Mr Fang said he also never discussed the size of the approved dwellings with Mr Sui in 2018, and that he himself was not entirely sure what the final approved floor area was.

Mr Hui also confirmed that he never sent the approved plans to Mr Sui, and did not tell him the ultimate floor area that was approved. He said that they walked Mr Sui through the plans prior to submitting them for approval, during the meeting with the architect in September 2017. Mr Hui suggested it was unnecessary to provide the approved plans because it was public information that could be obtained from Council.

In August 2019, Mr Sui appointed a local real estate agent to sell the property. Mr Sui could not recall whether he told either of the defendants that he was selling the property but later said ‘it seems that I made a phone call to them’. Later Mr Sui confirmed he could not remember whether he made this phone call, but then claimed that he did discuss the sale with the defendants at some point, telling them that the purchase price he expected was not very high. When it was put to him that no such conversation happened, he said, ‘It should have happened but I really can’t remember clearly’.

Mr Hui said Mr Sui never told him the property would be sold, and he learned of it when he received a summons from Mr Sui instituting this action. Mr Fang also said that Mr Sui never told him he was going to sell the property. He found out that the property had been sold when the agent called him in October 2019.

The property was advertised for sale with development plans.

On 21 October 2019, Australia Ocean completed the sale of the property for a purchase price of $950,000. The contract of sale attached development plans dated 6 December 2017, that appear to have been obtained from Council directly. Those attached plans were a version of the plans created after the meeting in September 2017 with the architect. Mr Hui said the September plans were only amended slightly in an inconsequential way after receiving feedback from Council. He confirmed he never provided Mr Sui with the final approved plans.

On 25 October 2019, Mr Sui wrote to the defendants informing them of the sale of the property and demanding that they pay $452,296 pursuant to cl 5 of the agreement.

Construction

While there are two slightly different English translations of the agreement, the plaintiff’s counsel, in opening submissions, stated that the plaintiff was content to adopt the English translation provided by the defendants’ translator. That is the version set out above at [5(c)]. The alternative translation of cl 5, which is the critical clause, provided by the plaintiff’s translator, does not appear to assist in resolving the questions before the court. For completeness, I set it out with the variations noted by the change from italics (defendants’ version) to underlining (plaintiff’s version):

The period for application approval is 12 months from the 15th of February 2017 [5/02/2107]. If the transferors fail to provide the transferee with the [obtain] government approval for the construction of three new townhouses beyond this time limit [building 3 adjoining villas within that time], the transferee shall have [has] the right to sell the property, while [and] the transferors shall [must] pay an interest of 4% [4% interest] to the transferee for the 12 months commencing after the 15th of February 2017, less the rental income of the old property [from 15/02/2107 for 12 months less any rental income earned on the property]. If the property cannot be sold under special circumstances [in special circumstance that the property cannot be sold], the transferors shall unconditionally refund the full amount and all the tax costs and corresponding losses to the transferee [pay to the transferee all moneys paid by the transferee and all tax charges and other related losses].

However, as the trial was conducted on the defendants’ translation (italics), no evidence was led on which version of the translation was more precise or otherwise preferable. I cannot sensibly draw any inferences by comparison of the translations and I will disregard the plaintiff’s translation (underlining).

Plaintiff’s submissions

The plaintiff’s submitted that, on a proper construction of cl 5 of the agreement, the defendants indemnified the plaintiff in respect of any financial loss the plaintiff suffered on resale of the property. In the alternative, the clause should be rectified to include such an indemnity, as the evidence showed that this was the parties’ true intention, or at least that this was Mr Sui’s intention of which the defendants were aware or to which they turned a blind eye.

The English version reads poorly in translation and should be understood with that in mind. Clause 5 should be understood to mean that if the defendants did not obtain the necessary approval by 15 February 2018, then the plaintiff had the right to sell the property and the defendants shall pay interest of 4% to the plaintiff for 12 months commencing 15 February 2017, less the rental income of the old property. However, the owner always has the right to sell the property, and the sentence must be understood to be referring to Mr Sui’s ‘right’ to obtain, at the time of sale, from the defendants, the difference between 4% interest for 12 months on the total amount outlaid by the transferee and the rent received.

The final sentence of cl 5 - ‘If the property cannot be sold under special circumstances, the transferor shall unconditionally refund the full amount and all tax costs and corresponding losses to the transferee’ – is confusing and makes little sense. The difficulty is that it is not clear what the clause contemplated the ‘special circumstances’ to be. The plaintiff submitted that given this ambiguity the court must consider a commercially sensible purpose for the provision and may have regard to evidence of surrounding circumstances. Because the property could always be sold, and only the price would be in issue, the clause must be directed at a situation in which the property was sold by the plaintiff without a particular price being achieved. From a commercial perspective the clause must have been directed at the plaintiff not achieving a resale of the property by which he could at least recoup his financial outlay.

The intent evident from the words ‘refund the full amount and all the tax costs and corresponding losses to the transferee’ was that the plaintiff would recoup his financial outlay in relation to the transaction, if the sale price was deficient in this respect, as if the plaintiff had never entered into the transaction. The defendants would make up any shortfall on a resale.

The plaintiff submitted that while this may seem like an onerous indemnity, the defendants obtained a profit of $145,000 on a contract of sale made only a couple of weeks earlier, on the outlay of a partial deposit of $100,500, a significant windfall. The initial feasibility study projected a profit of $810,740. An indemnity was, when the agreement was struck, a low risk and the property was likely to increase in value over time, also mitigating the risk of an indemnity.

The plaintiff asked the court to eschew an interpretation of cl 5 that sees it as two alternative options – the plaintiff could either sell the property and claim compensation, or insist that the defendants buy back the property. Rather, the clause should be read all together. The second sentence gives the plaintiff the right to sell and claim penalty interest in certain circumstances, namely 15 February 2018 passed without Council approval as required under the agreement and Mr Sui sold and suffered an overall loss. If there was no loss on the sale, there were no ‘special circumstances’ and all Mr Sui was entitled to was 4% interest on the purchase price and transfer fee, but if there was a loss he was indemnified under the third sentence of cl 5.

Put another way, the indemnity becomes relevant when Mr Sui sells the property in those circumstances. If this results in a shortfall, he can recoup the loss from the defendants. The first two sentences define the ‘special circumstances’ and the third sentence defined the consequences. Mr Sui agreed that he could not keep the property and claim compensation from the defendants. In support of this construction, the plaintiff noted the alternative translation of cl 5 - ‘pay to the transferee all moneys paid by the transferee and all tax charges and other related losses’ – was in substance the same obligation.

The expression ‘refund the full amount’ cannot connote a buy-back, because the concept of a buy back was earlier rejected during negotiations. Mr Sui submitted that the defendants’ interpretation was problematic, because as a buy-back the provision was incomplete. The court would need to imply a further provision that the title to the property be transferred back to the defendants, as provided for in the very first draft of the agreement, but such a provision fell away in negotiations and did not appear in the text of the final form of the agreement.

The plaintiff submitted I should reject the defendants’ claim that a contract of indemnity should be construed in favour of the party giving the indemnity, as a rule that only applies in the context of a loan contract where the guarantor is indemnifying a borrower in favour of the lender. That is a principle of the law of guarantee. In this case the indemnity is given by the principal obligor and it is not a guarantee or suretyship. The clause sets out the consequence of the defendants’ failure to meet their contractual obligations and the cases and principles cited by the defendants are inapplicable.

Defendants’ submissions

The defendants contended that the meaning of the agreement is unambiguous, albeit that the wording is ‘infelicitous’. Clause 5 covers a number of contingencies, each contained in a separate sentence.

(a) The first contingency was that the defendants provide the development approval by 15 February 2018, enabling the plaintiff to either sell or develop the property, but in either case, he would not have any claim against the defendants.

(b) The second contingency was that the defendants failed to obtain approval by 15 February 2018. In that case, the plaintiff had the right at his own election to sell the property and claim 4% interest from the defendants for 12 months (I interpolate to suggest that rate was presumably applied to the purchase price of the property and the transfer fee).

(c) The third contingency, applying only in the event that the property could not be sold ‘under special circumstances’, was that the defendants were liable for all moneys paid by the plaintiff including taxes and related losses. The clause does not express an indemnity of the kind advanced by the plaintiff. If the third sentence were an indemnity for all loss incurred by the plaintiff in selling the property, then the second sentence would become redundant. The second sentence deals with the plaintiff’s election to sell; the third deals with his election to enforce a buy-back of the property.

The defendants submitted that the apparent ambiguity arising from the use of the term ‘special circumstances’ could be resolved. They claimed that ‘special’ simply meant, per its dictionary definition, something unusual or uncommon, or exceptional in character, quality or degree. Accordingly, the third sentence could read: ‘In the unlikely event that the transferee cannot sell the property the transferor must compensate the transferee for his loss’. In other words, the circumstance that was special was that the plaintiff could not sell the property.

The defendants submitted that if the clause were ambiguous, it was drafted in its current form by the plaintiff and should be construed contra proferentem, because it is a contract of indemnity.[1]
[1]‘The instrument is described on the cover sheet as a “Deed of Guarantee and Indemnity”. The settled principle in Australia governing the interpretation of contracts of guarantee and indemnity has been stated by this Court in authorities the most recent of which is found in the joint reasons in Andar Transport Pty Ltd v Brambles Ltd. The principle is that a doubt as to the construction of a provision in such a contract should be resolved in favour of the surety or indemnifier. It is implicit in this that the doubt may arise not only from the uncertain meaning of a particular expression but from its apparent width of possible application’: Bofinger v Kingsway Group Limited (2009) 239 CLR 269, 292 [53] (citation omitted).

Further, it was inherently unlikely, if assessed from the perspective of reasonable business people in the defendants’ shoes and possessed of their knowledge of the circumstances, that the defendants would have agreed to be burdened with the entire risk of the project; that the plaintiff would be at liberty to sell the property whenever he chose to, at whatever price he felt appropriate, and that he could then charge them whatever the difference was plus all expenses and taxes, as well as interest thereon until the sale.

The defendants argued that the agreement made no mention of the size of the development for which approval was to be obtained. There was no contractual obligation to secure approval for three townhouses of an area of approximately 620 m². Clause 3 provided that the defendants would immediately apply for a permit to demolish the existing dwelling and construct three new townhouses (each with its own driveway and garage) which complied with the legal requirements as stipulated by the Melbourne local government. Clause 6 required the plans to comply with local government requirements. The drawing and budget relied on by the plaintiff was not a contractual document.

The defendants conceded that they did not deliver the contemplated development approval before 15 February 2018, as required by the agreement. However, time was not of the essence in the agreement and the plaintiff did not elect to make it of the essence. The defendants maintained that ultimately, approval was obtained, and was communicated to Mr Sui on 4 April 2018. Mr Sui did not terminate the agreement prior to that time.

Relevant principles concerning construction of agreements

In Codelfa Construction Pty Ltd v State Rail Authority of NSW, Mason J held that:

The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning …
It is here that a difficulty arises with respect to the evidence of prior negotiations. Obviously prior negotiations will tend to establish objective background facts which were known to both parties and the subject matter of the contract. To the extent to which they have this tendency they are admissible. But in so far as they consist of statements and actions of the parties which are reflective of their actual intentions and expectations they are not receivable. The point is that such statements and actions reveal the terms of the contract which the parties intended or hoped to make. They are superseded by, and merged in, the contract itself. The object of the parol evidence rule is to exclude them, the prior oral agreement of the parties being inadmissible in aid of construction, though admissible in action for rectification.
Consequently when the issue is which of two or more possible meanings is to be given to a contractual provision we look, not to the actual intentions, aspirations or expectations of the parties before or at the time of the contract, except in so far as they are expressed in the contract, but to the objective framework of facts within which the contract came into existence, and to the parties' presumed intention in this setting. We do not take into account the actual intentions of the parties and for the very good reason that an investigation of those matters would not only be time consuming but it would also be unrewarding as it would tend to give too much weight to these factors at the expense of the actual language of the written contract.[2]

[2](1982) 149 CLR 337, 352 (‘Codelfa’).

When this court recently considered this ‘true rule’ of evidence in Siemens Gamesa Renewable Energy Pty Ltd v Bulgana Wind Farm Pty Ltd,[3] Riordan J concluded that in High Court decisions subsequent to Codelfa, the Court continued to endorse the ‘true rule’ that it was essential to identify ambiguity in the language of the contract before the court may have regard to the surrounding circumstances, and that these circumstances cannot be considered to contradict an unambiguous expression in the contract.[4] Riordan J also rehearsed the well-established principles of construction in commercial contracts,[5] and it is convenient to now set out his Honour’s analysis.
[3][2020] VSC 126.
[4]Ibid [93]-[98].
[5]Ibid [87] and the authorities cited therein. See also Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104, 116-17 [46]-[52].

In construing terms of a commercial contract, the court asks what a reasonable businessperson, in the position of the parties, would have understood those terms to mean. In ascertaining this, the court applies the following principles:

(a) The terms are construed objectively and the subjective intentions of the parties are irrelevant.

(b) The objective approach requires reference to the text and its ordinary meaning, together with the context – the entire text of the contract including matters referred to in the text – and the purpose. These matters are ordinarily identified by reference to the contract alone. However, evidence of mutually known objective background circumstances relevant to purpose is admissible, no matter how clear the ordinary meaning of the words. Identification of purpose may allow admission of evidence of the genesis of the transaction, the background, the context and the market in which the parties are operating.

(c) Unless a contrary intention appears in the contract, the court is entitled to approach interpretation on the assumption the parties intended a commercial result and should construe it so as to avoid commercial nonsense. However, the court does not weigh into the commerciality of the agreement, and business common sense is a topic on which reasonable minds may differ.

(d) If after this process, the language of the contract is ambiguous or susceptible to more than one meaning, evidence of surrounding circumstances external to the contract is admissible to assist in interpreting the contract.

(e) Surrounding circumstances are events, circumstances and things external to the contract which are known to the parties or which assist in identifying the purpose or object of the transaction. This may include its history, background and context and the market in which the parties were operating.

(f) Post contractual conduct is inadmissible to construe the terms of the contract. However, the parties’ subsequent communications may be relevant to determine whether the parties intended to enter into a binding contract.

Despite the above rules, evidence of surrounding circumstances may be admissible to establish that:

(a) an expression has a particular meaning in business custom or usage;

(b) a particular interpretation was either rejected or accepted by the parties; or

(c) the contract should be rectified.

Further, at common law, a court may supply, omit or correct words to avoid absurdity or inconsistency.

The role of post-contractual conduct in construction of a contract requires some more attention as there was some emphasis on such conduct in this case.

In FAI Traders Insurance Co Ltd v Savoy Plaza Pty Ltd,[6] this Court explained that ‘[a]ny general principle that the conduct of the parties after a contract has been made may be used as throwing light on its meaning would be uncertain in its operation and mischievous in its effect.’ Brooking J went on to state:

The view which a party to a contract takes of its effect has no bearing on its construction, whether that view is made manifest by conduct or by express statement and whether that view is sought to be proved by evidence of conduct (including statements) or by direct evidence of state of mind given in the litigation by the party to the contract. As a matter of legal principle, I can see only one basis on which the subsequent conduct of a party to a contract might be said to bear on its interpretation so as to support a general principle that evidence of conduct by the parties under a contract might be used in its interpretation. That is the principle which allows admissions by words or conduct made by a party to litigation or his predecessor in title to be used against him. There is some support for the view that the matter of conduct under a contract as bearing on its interpretation should be considered in terms of admissions …
The construction of a written contract is a question of law . . . Where . . . the question of law is one of the construction of a written contract that is before the court, it seems to me that the court will derive no as opposed to little assistance in determining that question from the fact that one party or his predecessors in title has made an informal admission on the question. As a matter of strict analysis I would venture the suggestion that the admission, while theoretically available for use, is not admissible because it could not be given any weight at all by the court in construing the contract. It could be given weight if the question for the court was that of the subjective intention of the parties, for a party knows what he intended, but that is not the question . . . The fact of the admission is too remote to be admissible.[7]

[6](1993) 2 VR 343, 350.

[7]Ibid 351.

As to the use of surrounding circumstances to ascertain whether the parties rejected a particular interpretation, in Codelfa, Mason J stated:

There may perhaps be one situation in which evidence of the actual intention of the parties should be allowed to prevail over their presumed intention. If it transpires that the parties have refused to include in the contract a provision which would give effect to the presumed intention of persons in their position it may be proper to receive evidence of that refusal. After all, the court is interpreting the contract which the parties have made and in that exercise the court takes into account what reasonable men in that situation would have intended to convey by the words chosen. But is it right to carry that exercise to the point of placing on the words of the contract a meaning which the parties have united in rejecting? It is possible that evidence of mutual intention, if amounting to concurrence, is receivable so as to negative an inference sought to be drawn from surrounding circumstances.[8]

[8]Codelfa (1982) 149 CLR 337, 352-3.

As to the time by which approval was to be obtained, s 41 of the Property Law Act 1958 (Vic) provides that where an agreement does not stipulate that time is of the essence then the rules of equity apply. This presumption is that ‘equity’s treatment of the time stipulation as inessential [i]s to be adopted in deciding the position at law between the parties’, regardless of whether the plaintiff claims common law or equitable relief.[9]
[9]Hewitt v Debus [2004] NSWCA 54, [96], construing the equivalent provision, Conveyancing Act 1919 (NSW) s 13. See also Tropeano v Riboni [2005] VSC 229, [118].

A time stipulation is relevant to the available remedy. Breach of an essential term gives rise to the right to terminate.[10] Delay in performance in breach of a contractual term can attract a right to damages as that entitlement does not depend on the essentiality of the term in question.
[10]Associated Newspapers Ltd v Bancks (1951) 83 CLR 322, 322.

The High Court explained the applicable principle in Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd:

In considering the legal consequences flowing from a breach of contract, it is necessary to remember that (i) the breach may extend to all or to some only of the promises of the defaulting party, (ii) the promises broken may be important or unimportant, (iii) the breach of any particular promise may be substantial or trivial, (iv) the breach may occur or be discovered (a) when the innocent party has not yet performed any or some of the promises on his part, or after he has performed them all, and (b) when the innocent party has received no performance from the defaulting party, or has received performance in whole or in part; and to remember also that the resultant rights of the innocent party and the nature of the remedies available to him may depend upon some or all of these matters.
The nature of the promise broken is one of the most important of the matters. If it is a condition that is broken, ie, an essential promise, the innocent party, when he becomes aware of the breach, has ordinarily the right at his option either to treat himself as discharged from the contract and to recover damages for loss of the contract, or else to keep the contract on foot and recover damages for the particular breach. If it is a warranty that is broken, ie, a non-essential promise, only the latter alternative is available to the innocent party: in that case he cannot of course obtain damages for loss of the contract.[11]

[11](2007) 233 CLR 115, 137 [47], citing Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632, 641-2.

In this case, establishing whether time was of the essence, in order to determine materiality or whether cl 5 was a fundamental term of the agreement, is not relevant to the question of damages or loss suffered for failure to substantially perform cll 3 and 5 of the agreement. The plaintiff did not seek to terminate the agreement on the basis of breach of an essential term or ‘condition’. The plaintiff seeks damages suffered from the breach of an alleged indemnity, triggered – according to the plaintiff – when the defendants failed to obtain development approval for the property on time, and in substantially the same form as the concept plans provided when the agreement was entered into and forming part of it. The defendants seek damages arising from the plaintiff’s failure to pay the defendants a development approval fee, triggered – according to the defendants – when they delivered any development application approval for three townhouses (regardless of size) and at any point in time while the agreement was ongoing.

There is no special rule concerning the interpretation of indemnities of the kind in issue in this case. The principle the defendants sought to invoke - that an indemnity should be interpreted strictly and, in the event of ambiguity, in favour of the indemnifier – pertains only to an indemnity given by a third party.[12] The principle applies to the operation of guarantees and indemnities that ‘are designed to satisfy a liability owed by someone other than the guarantor or indemnifier to a third person’.[13] The clause is to be interpreted in accordance with the ordinary principles of contractual interpretation.
[12]Andar Transport Pty Ltd v Brambles Ltd (2004) 217 CLR 424, 433-7.
[13]Ibid 437 [23].

Those principles are not readily discernible as the authorities have developed two main formulations, one that concentrates on who put the clause forward and the other that concentrates on who benefits from the clause.[14] That said, the contra proferentem principle is not applied unless there is ambiguity and as a rule of last resort,[15] and the court should first examine the background and commercial purpose of the agreement.[16]
[14]As Campbell J observed in North v Marina (2003) 11 BPR 21,359, 21,375 [67]-[68].
[15]CE Heath Underwriting & Insurance (Australia) Pty Ltd v Edwards Dunlop & Co Ltd (1993) 176 CLR 535, 538
[16]AWB (International) Ltd v Tradesman International (Pvt) Ltd [2006] VSCA 210, [24].

As will appear from the following reasoning, and accepting that Ms Sui drafted cl 5 and that he benefits from it, I am satisfied that the agreement can be construed and the objectively presumed intention of the parties understood through consideration of the text, context, and purpose of cl 5 and the agreement, in the broader context of evidence of surrounding circumstances external to the agreement that assist in identifying and understanding that context and purpose. The justice of the case does not demand resort to the contra proferentem principle.

Resolution of the construction of the agreement

The first question to be answered is whether the agreement is clear and unambiguous, and capable of construction with regard only to its text, purpose and context. I am satisfied that cl 5 of the agreement contains ambiguities but it can be properly construed by regard not only to its text, purpose and context, but with the assistance of admissible background facts.

Although the defendants maintained that the agreement is unambiguous, I cannot accept this submission. Even on the interpretation they advanced, they made certain presumptions and read in words that were not there. This included:

(a) reading into cl 5 that 4% interest would accrue on ‘the purchase price plus the transfer fee’;

(b) in the alleged buy-back provision in cl 5, that the property would be transferred back to the defendants upon a refund of the full amount;

(c) the defendants argued that the meaning of ‘special circumstances’ was ‘in the unlikely event that the property cannot be sold’, which requires adopting a meaning that the words do not ordinarily bear.

On either party’s version, the agreement does not speak for itself.

The agreement, and in particular cl 5, is capable of bearing a number of different meanings. It is ambiguous and evidence as to the surrounding circumstances is admissible. Prior negotiations that establish objective background facts known to both parties and the subject matter of the agreement become relevant. Statements and actions of the parties that reflect their intention or expectations are not receivable. I must assess the objective framework of facts and the parties’ presumed intentions in this setting.

In interpreting cl 5, I must take an objective approach with reference to the text, its context within the agreement as a whole, the purpose of the agreement and the commonly-known background facts, including the market in which the parties were operating. The subsequent conduct of the parties, after they concluded the agreement, is irrelevant to this exercise. Plainly, the parties intended a commercial result. It was commonly understood that the object of the transaction was to enable a property development to be completed to earn a profit on the sale of the three townhouses. That is why the defendants initially purchased the property, although they took their profit through the quick sale to the plaintiff. It is also the reason why the plaintiff made the agreement with them. He saw his profit, as the defendants well knew, as coming from completing a development of the property.

From the evidence set out above, the following objective facts were known to the parties at the time the agreement was concluded:

(a) The purpose of the agreement was to transfer the property from Mr Fang and Mr Hui to Mr Sui, so that Mr Sui could develop three townhouses on the property and then sell them off at a profit.

(b) Mr Fang and Mr Hui would be responsible for obtaining the development approval.

(c) They were required to secure approval by 16 February 2018. It was important that approval be secured by this date.

(d) The architect who prepared the concept designs gave the parties confidence, but not a guarantee, that the development approval could be obtained.

(e) The floor area of the development was anticipated to be roughly around 608 – 620 m².

(f) If the Council approved the development, as was represented to Mr Sui and documented in the concept design and the feasibility study, then Mr Sui was likely to develop the property, but was not obliged to do so.

(g) Mr Sui, as the owner of the property, was only constrained in exercising his ownership rights by any conditions that might be dictated by the FIRB. He was at liberty to sell the property at any time or to develop the property at any time.

(h) If the property was not to be developed, Mr Sui could not simply retain the property indefinitely.

(i) The property, being a residential property in Ringwood, Melbourne, would, barring some disaster, be capable of being sold regardless of whether the development went ahead. The price achieved, however, might be less than the defendants initially paid for it.

(j) The value of the property once developed would likely exceed its undeveloped value and the costs of the development.

(k) One purpose of the agreement was to protect Mr Sui to some extent from financial loss in the event that Mr Fang and Mr Hui, who were in control of the process while he was in China, did not succeed in securing development approval.

On the question of construction, evidence as to the intentions of Messrs Sui, Fang and Hui is inadmissible. Similarly, evidence of what they did after the agreement was executed, and the demands made on one another, are irrelevant to this enquiry. I have put such evidence from my mind until, if necessary, I consider the rectification claim.

Having stated the approach I am taking and the context in which I make my assessment, I discern that a reasonable business person in the position of the parties would have understood cl 5 to bear the following meaning.

(a) ‘The period for application approval was 12 months from the 15^th of February 2017.’ The defendants agreed to secure a development approval, meeting the terms of the agreement, within the nominated 12-month period, and the plaintiff agreed to pay the defendants a $35,000 fee (per cl 3). Assuming the defendants discharged that obligation, Mr Sui intended to then develop and sell the property – but he was not obliged by the agreement to undertake the development. He could sell the property with the approved development plans. Irrespective of his return from the sale(s) achieved by either option, he would not have any claim against the defendants if they discharged that obligation.

(b) I pause to point out that this did not happen. It was not in dispute that the approval was not obtained by the agreed time. As I will shortly explain, I have found, resolving the dispute between the parties, that the approval ultimately obtained from the Council did not correspond with the design concept the agreement provided for, such that a breach of the agreement occurred that triggered the remainder of the clause that provided for the consequences of such breach.

(c) Each of the conditions that trigger the consequences set out in the remainder of cl 5, requires further analysis to which I will return in a moment. Before doing so, I note the consequences specified were:

(i) Mr Sui has the right to sell the property;

(ii) The defendants must ‘pay an interest of 4%’ to the transferee for the 12 months commencing after the 15^th of February 2017 less any rental income earned on the property;

(iii) If the property cannot be sold under special circumstances, the transferors shall unconditionally refund the full amount and all the tax costs and corresponding losses to the transferee.

(d) This clause of the agreement dealt with three risks that might have arisen either conjunctively or disjunctively. Objectively assessed and presuming the parties intended a commercial result, these three risks are identified as being: first, delay in obtaining development approval; secondly, not obtaining any development approval; and thirdly, not obtaining a development approval in the terms contemplated by the agreement.

(e) The first risk, that of delay, was expressly contemplated by the terms of the agreement. It was a triggering condition for the operation of, at the very least, the 4% interest penalty of cl 5. Considering relevant broader context, apart from being relevant to the expected profit that could be earned in undertaking the development project, the defendants carefully evaluated the time limit Mr Sui sought to impose by inquiries of their advisers. I am satisfied that the time limit of 12 months was recognised by both parties as an important, but not an essential, term. In this context, cl 3 must also be read with cl 5. The defendants promised to ‘apply immediately’ for the approval and to obtain it from the Council by 15 February 2018.

(f) The second and third risks can be considered together. These risks were also contemplated by the express terms of the agreement as a triggering condition for the operation of the balance of cl 5. Objectively assessed in the broader context, the risk was in contemplation that a development approval, left by the plaintiff in the control of the defendants and their advisers, might not be obtained at all, or granted in different terms to what was represented in the design drawings and feasibility study. The risk that the Council might not approve the development in the terms contemplated, raises the issue of precisely what was, objectively speaking, addressed in the agreement about the terms of the development approval.

What exactly was the contemplated development approval identified by the agreement?

(a) The plaintiff submitted it was something substantially similar to the 600+ m² floor area concept design drawings exchanged by the parties later on the same day the agreement was signed. There was a factual dispute as to whether design drawings and a feasibility study were provided in some written form to Mr Sui when the project was first discussed on 6 October 2016. I accept the defendants’ evidence that the design drawings and feasibility study were not then available because the architect had not been put in funds, although the defendants had discussed the development opportunities for the property with the architect when they purchased the property. I am persuaded that Mr Fang informed Mr Sui of the proposed design for a development and mentioned the proposed gross floor area, although I do not accept that the documents were available at their initial meeting. Relevantly, it is clear that those documents became available on 10 October 2016. Plainly, they were anticipated as on 9 October 2016 and the parties agreed by cl 6 that they formed part of the agreement. Clause 6 relevantly read:

The copy of the transferee shall be accompanied by the original property purchase contract and a copy of the design drawing. The other copy to the transferor shall be a copy of this contract and the original contract as well as a copy of the design drawing.

(b) The description of the development approval that the defendants agreed to provide was not limited to the description in cl 3, as the defendants submitted. They contended that the approval only had to meet precisely what was stated in cl 3 of the agreement, namely: ‘to build three new townhouses’; ‘a design plan that is reasonable and meets the requirements of a local city council in Melbourne’; ‘three villas must have separate car access and garages’. As long as this was achieved, an approval would satisfy the agreement. If the parties had intended for square meterage to be provided for, they would have included the size in the agreement.

(c) I do not accept the defendants’ submission.

The agreement expressly incorporated the design drawings and a feasibility study that referred to a particular-sized design, namely one with a combined floor area of 600+ m². The townhouses depicted in the concept drawings otherwise reflected the design specifications noted in cl 3. The defendants did not guarantee that this design, with its precise specifications, would be approved by Council and the risk that approval might not be granted was contemplated by the parties. That said, just because the design was subject to Council approval did not mean that a development of any size would suffice if approved by the Council. Both the incorporated design drawings and the feasibility study, and the surrounding circumstances, show that the parties had in mind townhouses of a size that would attract a purchase price to generate a sufficient profit to make the development worthwhile and justify the cost of completing the contract of sale and the transfer (and approval) fees. So much is evident from:

(a) The purpose of the agreement being for Mr Sui to have the opportunity to make a profit substantially as contemplated by the feasibility study. That study assessed the projected income of the project based on anticipated prices of the completed townhouses by reference to a gross floor area of 620 m² at a value of $4,500 per m².

(b) The design, described as 620 m² but which was approximately 608 m²when documented, was a critical element of discussions prior to signing the agreement.

(c) The parties agreed by cl 6 to explicitly reference the design drawings and feasibility study in the agreement as was formally documented and the documents were exchanged on the day after the agreement.

(d) Mr Sui entrusted to the defendants and their advisers for valuable consideration the process of obtaining development approval.

(e) The value of the three completed townhouses would be affected by their size, with the parties accepting that the smaller townhouses were worth less than what was originally contemplated.

As a matter of proper construction, when the agreement referred to three new townhouses, of reasonable design that met the requirements of a local city council in Melbourne, and with separate car access and garages, this also meant townhouses substantially, albeit not exactly, of a size that the parties commonly contemplated as reflected in the documents incorporated into the agreement, viz. designs with a combined gross floor area of 600+ m².

A substantial departure from this size would not meet the description of the development approval that the defendants had agreed to obtain. The defendants accepted that the outcome of the development approval process with the Council carried risk and sought advice about that risk before completing the agreement. It was in that context that they agreed to obtain the approval described in the agreement.

I am satisfied that each of the triggering breaches occurred, the development approval was not obtained within the 12 month period and the approval did not meet the description of the development approval that the defendants had agreed to obtain.

The first two consequences of breach provided for by cl 5 as set out above are clear. Mr Sui has the right to sell the property. A property owner always has the right to sell the property. That he did so was not in contest. Mr Sui had agreed to defer his right to sell the property for 12 months while the defendants applied for the development approval. That was the necessary consequence of the agreement. But once the reserved period passed, Mr Sui’s right to sell was explicit. What the words of this clause contemplated were the consequences if he exercised his right to sell when no development approval, or an approval that did not meet the requirements of the agreement, had been obtained.

It was commercially sensible for the parties to provide for compensation for deferring the exercise of that right, if the defendants failed to obtain the approval and the agreement expressly and unambiguously provided the remedy. Mr Sui, if he sold the property, as he has, is entitled to claim interest. The 12-month period during which interest runs is from 15 February 2017 to 14 February 2018 and the rate of interest is 4% per annum. While the rate and the term during which it was payable are clear, the agreement was not explicit about the principal sum on which interest may be claimed, but identification of the parties’ presumed intention presents no difficulty.

Construing this term objectively on the basis that the parties intended a commercial result, interest is payable on the capital sum held for the period in question, pending the supply of the development approval. In other words, interest is payable on the value of the property assessed by reference to the price paid by Mr Sui. That sum is $1,005,937.63, paid under the original contract of sale, and $144,806.73, paid as a transfer fee to the defendants. Interest would not be payable on transaction costs necessarily incurred for Mr Sui to acquire the property, absent an express statement of agreement that such amounts be capitalised as part of the value of the property. Transaction costs include stamp duty, conveyancing fees, the FIRB application fee and the land registration fee. The express entitlement for the defendants to net off any rental income (although there was none) makes clear that interest is also payable on outgoings paid in respect of the property. However, no outgoings were paid until the last day of that period when $446.74 was paid for a water bill. This payment need not be brought to account.

By 15 February 2017, when interest commences to run, the following sums were paid by or on behalf of Mr Sui.

Date Purpose of payment Amount

11 October 2016 Part transfer fee $2,512.50

2 November 2016 Part transfer fee $135,143.52

3 November 2016 Part transfer fee $7,150.71

11 November 2016 Part deposit $50,250.00

24 November 2016 Part deposit $50,250.00

15 February 2017 Balance of purchase price $905,437.63

Total $1,150,744.36

The plaintiff’s entitlement to interest is four percent of this total, the sum of $46,029.77.

So much for the delay. What remains to be considered is the proper construction of the final sentence of cl 5. ‘If the property cannot be sold under special circumstances, the transferor shall unconditionally refund the full amount and all the tax costs and corresponding losses to the transferee.’ This was not a buy-back provision. That concept was not acceptable to the defendants. The plaintiff so fundamentally altered the buy-back provision in the draft circulated at 8:19am that no reasonable person could think that it was intended to be retained. The key part of the provision contemplating a transfer back to the defendants had been removed. If (the relevant) development approval was not obtained, Mr Sui had to sell the property.

This sentence is ambiguous. It is not immediately apparent what the parties meant by ‘sold under special circumstances’. It could mean that the remainder of the sentence is applicable only where the property is not sold at all, as the defendants contended or, alternatively, it could identify that the remainder of the sentence applied where the property is sold but not under particular conditions in the contemplation of the parties. Likewise, ‘refund the full amount and all the tax costs and corresponding losses’ is ambiguous or uncertain in its expressed meaning.

The parties submitted that this sentence could be construed in quite different ways. The defendant submitted that a residential development opportunity in suburban Melbourne can usually be sold, unless the sale is restricted by an unrealistic reserve price or there is some unexpected circumstance like a natural or other disaster affecting the property or the market. I reject their contention that the term ‘special circumstances’ refers to some unusual or uncommon circumstances of an exceptional character that caused the property to become unsaleable.

Having regard to both the context and purpose of the agreement and the surrounding circumstances external to it set out above, I am satisfied that the expression ‘sold under special circumstances’ must be construed by reference to particular circumstances that form part of the transaction between the parties, being those that might affect the return to be achieved by sale of the property. The special circumstances, objectively assessed, are plain: the development approval must be obtained, the development as approved must comply with the agreement, and with particular regard to the evidence of surrounding circumstances external to the agreement, the property be saleable for a price that would enable Mr Sui to break even or make a profit on the project. When the property was not sold under these conditions, the consequences agreed by the remainder of the third sentence were enlivened.

This construction gives the clause a commercially sensible purpose consistent with the objective facts, established by reference to evidence of surrounding circumstances. The plaintiff correctly submitted that because the property could always be sold, and only the price would be an issue, the clause must be directed at a situation in which the plaintiff’s return from the development project was compromised or eroded by the defendants’ failure to discharge their agreed obligations.

From the plaintiff’s commercial perspective, recouping his financial outlay in those circumstances was a prudent condition. The defendants claimed this was not a commercial interpretation and they would never have undertaken so much risk; they would not have guaranteed the fact that the approval would be provided in a particular form or that a certain price would be reached on re-sale of the property, because those factors were too variable.

What is commercial is something on which reasonable minds may differ. Viewed from the defendants’ commercial perspective, a reasonable business person would consider that the defendants accepting a degree of risk was warranted because it persuaded the plaintiff to agree to a transaction that earned for the defendants the substantial return to be had on the investment that they made over a very short period of time. Their gross profit was approximately $145,000 after return of an investment of $100,500 for a period of about three weeks. The risk that they might be called upon to indemnify the plaintiff for a loss on resale was, based on what the parties knew or believed, objectively speaking, at the time, a low risk.

The balance of the last sentence in cl 5, defined the extent of the financial obligation imposed by the agreement on the defendants, if the property could not be sold a reasonable time after the expiry of the period for the defendants to obtain the development approval, either with a development approval meeting the terms of the agreement or as developed townhouses. As I have noted, the notion of a buy-back option was expressly considered and rejected in negotiations.

To interpret the balance of the sentence literally and thus impose an obligation upon the defendants to refund the full amount of all monies paid by Mr Sui in connection with the property and all the tax costs and corresponding losses, without bringing into account the proceeds of a sale, would amount to commercial nonsense. This was always a project that contemplated the ultimate sale of the property in some form. While the property could not be sold under the special circumstances as objectively construed by the agreement, it was nonetheless sold and the clause becomes commercially sensible if the obligation upon the defendants when they failed to achieve the ‘special circumstances’ is ameliorated by bringing the net proceeds of the sale into account. The use of the term ‘losses’ in that sentence, when considered in both the context of the whole of the agreement and the evidence of the surrounding external circumstances, precludes any construction that would entitle the plaintiff to any windfall profit. That would be the consequence if the plaintiff was not obliged to bring the price achieved on resale into account.

Plainly, it made good commercial sense for the plaintiff to insist that where the defendants failed to discharge their obligations to obtain a development approval in the terms contemplated within the period that was contemplated, forcing the plaintiff to face the prospect of a loss on the transaction, that the plaintiff should be refunded ‘the full amount’. The full amount cannot mean all money Mr Sui expended in respect of the property because the clause goes on to identify ‘and all the tax costs and corresponding losses’. This distinction is important and is objective context supporting the conclusion that the presumed intent of the parties was, that what was to be refunded was the purchase price Mr Sui paid for the property, $1,150,744.36.

All the ‘tax costs and corresponding losses’ is, objectively assessed, a reference to transaction and holding costs. The notion of ‘corresponding losses’ must contemplate losses that correspond to ‘the full amount’ that Mr Sui paid to the defendants for the property and to the taxes and costs incurred: the transaction costs. Additionally, the context lends support to the commercially sensible construction that the proceeds of the resale be brought to account. The loss that corresponds to the notion of refund of the full amount is the loss remaining after the net sale proceeds are deducted from the costs of acquisition. Objectively and sensibly assessed, this presumed intention mitigated some of the perceived risk for the defendants. If they obtained development approval of some description before the property was on-sold, they would likely mitigate the plaintiff’s loss, as the property could at least be sold with some development plans increasing its value, albeit that this is not what ultimately transpired.

The plaintiff has proved, in accordance with the agreement as I have construed it, the following loss:

Purchase price $1,005,937.63

Transfer fee $144,806.73

Sub-total $1,150,744.36

Stamp duty/surcharge $125,625.00

Conveyancer’s fees re: initial purchase $1,000.00

Land registration fee $2,445.00

Sub-total $1,279,814.36

Council rates $7,240.74

Water rates $1,318.81

Sub-total $1,288,373.91

Less net proceeds on resale[17] $925,961.64

Total $362,412.27
[17]Purchase price $950,000, less agent’s commission and advertising $21,509.58, less conveyancer’s fees $2,528.78.

Together with the interest, the plaintiff’s recoverable loss pursuant to cl 5 is $408,442.04.

I need to say a little more concerning some subsidiary arguments raised by the parties.

Plaintiff’s loss

The defendants claimed that because the property was not purchased by the plaintiff himself, but by Australia Ocean, the corporate trustee of his family trust, and because Australia Ocean and another Chinese corporate entity, Manzhouli Jinyuda Economic and Trade Co. Ltd (‘Manzhouli’), paid the purchase and transfer costs, that the loss was suffered by those entities, and the plaintiff had no cause of action against the defendants. The defendants submitted that Australia Ocean is not a party to the agreement or to the proceeding but it performed the agreement and suffered the loss now claimed by the plaintiff.

The plaintiff contended he borrowed the deposit funds from Manzhouli, which made the payment. There was no evidence of any loan agreement between the plaintiff and either of these entities, and it was unclear how, if Australia Ocean was the ultimate beneficiary of the payment, the plaintiff can claim this amount against the defendants.

If the plaintiff paid for the property from his personal bank account to Australia Ocean, then the plaintiff has a claim against Australia Ocean for repayment of that loan. The loans to Australia Ocean were identified in the balance sheet of the company as a non-current liability and the property is recorded as its asset. Australia Ocean suffered any loss and remains indebted to the plaintiff. The plaintiff has not suffered any loss but may have a claim against Australia Ocean for repayment of his loan account.

The plaintiff argued that the agreement makes repeated reference to a family trust to be set up by the plaintiff that would be the purchaser of the property. The fact that his corporate trustee, Australia Ocean, carried out the obligations contemplated under the agreement, could not give rise to a situation where the indemnity in cl 5 does not operate. The only commercially-sensible construction of cl 5 is as a reference to all monies paid by the plaintiff and any entity associated with the plaintiff. It would not make sense for the plaintiff to agree to a contract that did not cover all of the costs associated with the transaction, merely because they were paid for by the Manzhouli company. That is particularly so where, as the parties knew, international financial transactions in large sums from China were needed and cannot be lawfully transacted by individuals, absent special circumstances.

In any event, the plaintiff contended that he suffered the losses in question as he personally funded the purchase of the property through the vehicle of Australia Ocean and his family trust. The loan accounts in the balance sheets for Australia Ocean show that he has not been repaid and is out-of-pocket by a sum in excess of the shortfall in the property sale price. These accounts were not effectively challenged. Any obligation resting between the plaintiff and Australia Ocean in connection with the loan account and any recovery of moneys in this proceeding is not as matter for the defendants.

I find that there is no merit in the defendants’ submission that it was not the plaintiff who suffered the loss in this case, and that he must recover his loans from Australia Ocean and/or Manzhouli. It was contemplated in the terms of the agreement and in the correspondence around the time the agreement was concluded, that the relevant payments under the agreement would be made on Mr Sui’s behalf through these entities, but that only Mr Sui would be party to the agreement. The defendants’ submission would have effectively precluded Mr Sui from enforcing his rights under the agreement because the parties that could suffer any loss arising out of the transaction, i.e. Australia Ocean and Manzhouli, could not maintain any claim as they were not privy to the agreement. The defendants also used corporate entities. This was what the parties intended.

Counterclaim

The defendants counterclaimed for the approval fee of $35,000, pursuant to cl 3 of the agreement.

The defendants claimed that because time was not of the essence in cl 5, the agreement did not stipulate the floor area of the requisite development approval, and because development approval was obtained by 23 March 2018, prior to the sale of the property, the development fee of $35,000 is due and payable to the defendants.

The defendants argued that the alleged waiver in the WeChat messages had not been proved and any defence in estoppel would be unsuccessful because there has been no detrimental reliance on the alleged waiver. The defendants’ evidence was that the circumstances constituting a waiver was an offer to waive the fee on the basis of an extension of time in which to obtain the approval. The plaintiff refused the extension.

The plaintiff submitted there were two defences. First, he contended that the fee was never earned. The approval contemplated in cl 3 was, as discussed earlier, an approval for an area of approximately 600+ m² and this was not obtained, nor was any approval obtained in the nominated period. Secondly, the defendants waived the fee during WeChat messages exchanged on 22 September 2022. They sought the approval for their own purposes; to mitigate the loss they might be required to indemnify.

There is no merit in the defendants’ counterclaim. As I found above, the ‘three new townhouses’ contemplated in cll 3 and 5 were to be substantially in the form discussed between the parties prior to concluding the agreement and identified in the agreement through the incorporation of the design drawings and the feasibility study. It is unnecessary to determine the permissible limits of a departure from the concept design, because on any view a gross floor area of 440 m² was a dramatic departure from around 600+ m² as was contemplated, and documented, by the parties. When that area is factored into the feasibility study, the project becomes marginal or loss making. The approval fee was only due to be paid if the contemplated planning permit was obtained by 16 February 2018. That did not occur in this case, within the 12 month period or at all. No approval fee is due. No question of waiver arose.

Rectification

In the alternative, the plaintiff contended that cl 5 of the agreement should be rectified to include the ‘indemnity provision’. In the light of my findings as to the proper construction of the agreement, it is not necessary that I determine this alternative claim.

Conclusion

The judgment of the court is that the defendants pay the plaintiff $408,442.04.

The plaintiff also claimed interest and good cause was not shown as to why I should not award damages in the nature of interest at the rate for the time being fixed under s 2 of the Penalty Interest Rates Act1983 (Vic) from the commencement of the proceeding on 20 December 2019 to the date of the judgment, over and above the principal sum awarded.[18] I invite the plaintiff to submit a note of the calculation of this sum.
[18]Supreme Court Act 1986 (Vic) s 60.

I will hear from counsel on the question of costs.

Date	Purpose of payment	Amount
11 October 2016	Part transfer fee	$2,512.50
2 November 2016	Part transfer fee	$135,143.52
3 November 2016	Part transfer fee	$7,150.71
11 November 2016	Part deposit	$50,250.00
24 November 2016	Part deposit	$50,250.00
15 February 2017	Balance of purchase price	$905,437.63
Total	$1,150,744.36

Purchase price	$1,005,937.63
Transfer fee	$144,806.73
Sub-total	$1,150,744.36
Stamp duty/surcharge	$125,625.00
Conveyancer’s fees re: initial purchase	$1,000.00
Land registration fee	$2,445.00
Sub-total	$1,279,814.36
Council rates	$7,240.74
Water rates	$1,318.81
Sub-total	$1,288,373.91
Less net proceeds on resale[17]	$925,961.64
Total	$362,412.27

[2022] VSC 300

9 June 2022