Warwick Cinema Syndicate Pty Ltd as trustee for Warwick Cinema Syndicate Trust v Man Kan as trustee for the Kan Family Trust

[2011] WASC 37

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION:   WARWICK CINEMA SYNDICATE PTY LTD AS TRUSTEE FOR WARWICK CINEMA SYNDICATE TRUST -v- MAN KAN AS TRUSTEE FOR THE KAN FAMILY TRUST [2011] WASC 37

CORAM:   CORBOY J

HEARD:   3 FEBRUARY 2011

DELIVERED          :   15 FEBRUARY 2011

FILE NO/S:   CIV 2892 of 2010

BETWEEN:   WARWICK CINEMA SYNDICATE PTY LTD AS TRUSTEE FOR WARWICK CINEMA SYNDICATE TRUST

Plaintiff

AND

MAN KAN AS TRUSTEE FOR THE KAN FAMILY TRUST
First First Defendant

MUI FUNG AS TRUSTEE FOR THE KAN FAMILY TRUST
Second First Defendant

FAIRPARK INVESTMENTS PTY LTD AS TRUSTEE FOR THE FAIRPARK PROPERTY TRUST UNIT HOLDERS
Second Defendant

SUNJET PTY LTD AS TRUSTEE FOR THE SUNJET UNIT TRUST
Third Defendant

TRANSVILLE HOLDINGS PTY LTD AS TRUSTEE FOR THE TRANSVILLE UNIT TRUST
Fourth Defendant

SNOWRANGE NOMINEES PTY LTD AS TRUSTEE FOR THE SNOWRANGE UNIT TRUST
Fifth Defendant

FONG CHONG HOON AS TRUSTEE FOR THE F HOON FAMILY TRUST
Sixth Defendant

GOLDEN SUN GROUP INVESTMENTS PTY LTD
First Seventh Defendant

IVYSKY PTY LTD
Second Seventh Defendant

WARWICK ENTERTAINMENT CENTRE (RECEIVER AND MANAGER APPOINTED) AS TRUSTEE FOR THE WARWICK ENTERTAINMENT CENTRE UNIT TRUST
Eighth Defendant

Catchwords:

Contract - Construction of trust deed - Absurd result if deed read literally

Legislation:

Nil

Result:

Declarations as to the effect of trust deed granted

Category:    B

Representation:

Counsel:

Plaintiff:     Mr M D Howard SC

First First Defendant     :     Mr D Barich

Second First Defendant     :     Mr D Barich

Second Defendant     :     Mr D Barich

Third Defendant     :     Mr D Barich

Fourth Defendant     :     Mr D Barich

Fifth Defendant     :     Mr D Barich

Sixth Defendant     :     Mr D Barich

First Seventh Defendant     :     No appearance

Second Seventh Defendant  :     No appearance

Eighth Defendant     :     Ms M Dean

Solicitors:

Plaintiff:     DLA Phillips Fox

First First Defendant     :     Fiocco's Lawyers

Second First Defendant     :     Fiocco's Lawyers

Second Defendant     :     Fiocco's Lawyers

Third Defendant     :     Fiocco's Lawyers

Fourth Defendant     :     Fiocco's Lawyers

Fifth Defendant     :     Fiocco's Lawyers

Sixth Defendant     :     Fiocco's Lawyers

First Seventh Defendant     :     No appearance

Second Seventh Defendant  :     No appearance

Eighth Defendant     :     Mallesons Stephen Jaques

Case(s) referred to in judgment(s):

Energy World Corporation Ltd v Maurice Hayes & Associates Pty Ltd [2007] FCAFC 34

Fitzgerald v Masters (1956) 95 CLR 420

Saxby Soft Drinks Pty Ltd v George Saxby Beverages Pty Ltd [2009] NSWSC 1486

CORBOY J: 

Introduction

1. Warwick Cinema Syndicate Pty Ltd (WCS) is the trustee of the Warwick Cinema Syndicate Trust (WCS Trust).  The trust was created by the Warwick Cinema Syndicate Trust Deed (Trust Deed), made on 23 February 1999 between Westpoint Management Pty Ltd (Westpoint) and each of the defendants (who were described in the deed as the 'original unit holders').  Westpoint was initially appointed trustee; it was removed and WCS was appointed as trustee by a deed made on 3 April 2007.

2. Clause 4 of the Trust Deed concerns the term of the trust.  In particular, cl 4.1 provides that:

   Term of Trust

   The Trust begins on the Commencement Date and terminates on the earlier to occur of:

   (a)the date which is 12 years from the Commencement Date;

   (b)the date which the Trustee determines to be the Vesting Date in accordance with cl 4.4,

   but it must in any event terminate on the date eighty years from the Commencement Date.

3. The term 'Commencement Date' is defined by cl 1.1 of the deed to mean the date of the deed.  The 'Vesting Date' is defined to mean the date of termination of the Trust under cl 4.1.

4. Clause 4.4 of the Trust Deed provides that:

   Vesting Date

   (a)The Vesting Date will be determined as follows:

   (1)At any time prior to the date 11 years and six months after the Commencement Date, the Trustee may send a notice, which must be accompanied by all information that Holders would reasonably require to evaluate the proposal, to each Holder asking the Holder to advise whether the Holder wishes the Trust to continue for the further period (of not more than 12 years) specified in the notice or to terminate the Trust.

   (2)If a Holder does not so advise the Trustee in writing within 2 months of the date of the notice, the Holder will be deemed to be in favour of termination; and

   (3)If 75% or more Holders at the date 12 years from the Commencement Date are in favour of termination, the Trust will continue for the period specified in the notice and the Vesting Date will be the last day of that extended period.

5. WCS has applied by originating summons for declarations that:

   (a)pursuant to cl 4.1 of the WCS Trust Deed, the Trust terminates on the later to occur of:

   (i)the date which is 12 years from the Commencement Date;

   (ii)the date which the Trustee determines to be the Vesting Date in accordance with cl 4.4;

   (b)pursuant to cl 4.4(a)(3), if 75% or more Holders at the date 12 years from the Commencement Date are in favour of the Trust continuing, the Trust will continue for the period specified in the notice and the Vesting Date will be the last date of that extended period (the reference to 'the notice' being to the notice sent by the Trustee under cl 4.4(a)(1)) .

6. Alternatively, WSC seeks to have the Trust Deed rectified so that it has the effect stated in those declarations.     

7. The declarations sought are as to what WCS contends is the effect of     cl 4.1 and 4.4, properly construed.  On the construction of the Trust Deed contended for by WCS, cl 4.1 is to be read as if the word 'later' appeared instead of 'earlier' and cl 4.4(a)(3) is to be read as if the words 'the Trust continuing' appeared instead of the word 'termination'.

8. The originating summons was heard on 3 February 2011.  At the completion of the hearing I indicated that I would make declarations in the terms sought by WCS.  These are my reasons for making those declarations.

The evidence

1. WCS's originating summons was supported by an affidavit sworn by Jeffrey Laurence Herbert on 24 November 2010.  Mr Herbert is a director of WCS.  An affidavit of service sworn by Shane Hedley Shaw on 29 November 2010 was also received into evidence and three documents were provided during the hearing:  a company search for the seventh defendant (which was received as an exhibit), a document entitled 'Westpoint Property Investment Syndication ‑ Warwick Cinema Syndication Trust' and a document entitled 'Warwick Cinema Syndication Trust ‑ Offering Information Pack'.

2. In his affidavit, Mr Herbert stated that:

   (a)the Trust Deed was drawn by Freehills;

   (b)WCS's solicitors had spoken to the partner of that firm who was responsible for supervising the preparation of the deed;

   (c)the partner concerned had inspected his firm's file and advised that it did not contain any information that was relevant to the issues raised by the originating summons.

3. Senior counsel for WCS, at the request of counsel for the eighth defendant, brought to my attention statements in the documents concerning the 'Warwick Cinema Syndication Trust' that related to the term of the trust.  Those statements do not accord with the provisions of the Trust Deed as drawn.  

4. It was stated in the document entitled 'Westpoint Property Investment Syndication ‑ Warwick Cinema Syndication Trust' that the term of the 'syndication' was '12 years, reviewed after 5 years'.  The offering information pack made the following statements under the heading 'term of the investment':  'the Manager has chosen the maximum term of 12 years for the Syndicate to allow maximum flexibility in managing the property cycles'; 'after five years, unitholders will be consulted on the future strategy for the property' and 'the term of the Syndicate may also be extended with the consent of all the unit holders'.  The pack included a draft of the Trust Deed.  Clauses 4.1 and 4.4 were in identical terms to the deed as made.

5. It may be inferred from their contents that the documents concerning the 'Warwick Cinema Syndication Trust' were prepared prior to the making of the Trust Deed.  However, I do not consider that the documents are relevant to the question of construction that is raised by the wording of the deed having regard to their nature and contents.

The position of the defendants

1. Mr Herbert stated in his affidavit that on 11 August 2010, WCS sent notices to each of the defendants pursuant to cl 4.4 of the WCS Trust Deed seeking their permission to extend the Vesting Date of the trust for a further period of 12 years (the initial 12 year period referred to in cl 4.1(a) of the Trust Deed being due to expire on 23 February 2011).  The first to sixth defendants responded to the request by indicating that they agreed to the Vesting Date of the Trust being extended for a further period of 12 years.  The seventh defendant returned the notice indicating that it favoured terminating the Trust.  The eighth defendant (to whom receivers and managers have been appointed) did not return the notice.  Consequently, 75% of the unit holders were in favour of the Trust continuing for a further period of 12 years for the purpose of cl 4.4(a) of the Trust Deed.

2. Consistent with their response to the notices distributed by WCS, the first to sixth defendants appeared at the hearing of the originating summons to advise that they supported the construction of the Trust Deed contended for by WCS.  The seventh defendant did not enter an appearance to the originating summons nor did it appear at the hearing (Mr Shaw's affidavit was tendered as proof of service of the originating summons).  The eighth defendant appeared at the hearing and indicated that it neither consented to nor opposed the making of declarations in the terms sought by WCS.

The relevant principle of construction

1. In Fitzgerald v Masters (1956) 95 CLR 420, a contract for the sale of an interest in land contained several provisions relevant to the sale and then specified (by cl 8) that 'the usual conditions of sale in use or approved by the Real Estate Institute of New South Wales relating to sales by private contract of land held under the Crown Land Act shall so far as they are inconsistent herewith be deemed to be embodied herein' (emphasis added).

2. Dixon CJ and Fullagar J stated at 426 ‑ 427:

   There is a superficial difficulty in cl 8, because it purports to incorporate a set of conditions so far as they are inconsistent with what has been specifically agreed upon.  No real difficulty, however, is created.  Words may generally be supplied, omitted or corrected, in an instrument, where it is clearly necessary in order to avoid absurdity or inconsistency.  Here it would be indeed absurd to suppose that the parties, having expressed their agreement on a number of special and essential matters, should intend to incorporate by reference terms inconsistent with what they had specially agreed upon.  What they must clearly have intended is to incorporate a set of general conditions except so far as they were inconsistent with what they had specially agreed upon, and cl 8 must be read as if it said 'consistent' or 'not inconsistent'. (original emphasis)

3. The principle of construction identified in Fitzgerald v Masters is discussed at 10.35 of Cheshire & Fifoot's Law of Contract (edited by NC Seddon and MP Ellinghaus; 9th Australian ed, 2008, Lexis Nexis Butterworths).  There it is observed that modern appellate decisions have given new life to the principle expressed by Dixon CJ and Fullagar J in Fitzgerald v Masters and that its application has 'since been extended beyond the mere correction of obvious and minor errors to the open modification of important provisions in commercial contracts'.  Similarly, the learned authors of Meagher Gummow & Lehane's Equity:  Doctrines and Remedies (4th ed, 2002, Lexis Nexis Butterworths) note at [26‑040] that, 'courts both of law and of equity regularly insert, delete, alter and interpret words in such a fashion as to make the document sensible, without necessary recourse to any doctrine of rectification'.

4. The principle involves construing the document and as such, it does not depend on proof of a mistake in recording the parties' agreement.  It applies whenever it is established that unintended and absurd consequences follow from the application of the literal meaning of the words used.

5. The principle was applied by Brereton J in Saxby Soft Drinks Pty Ltd v George Saxby Beverages Pty Ltd [2009] NSWSC 1486 to read a provision in a trust deed as though the vesting day for the trust occurred on the 'later' of two events, rather than on the 'shorter' of those events as the relevant clause of the deed stated. His Honour concluded that 'this case falls clearly within the territory described by Dixon CJ and Fullagar J' (in Fitzgerald v Masters) [11].  The similarity between the circumstances of that case and this matter is obvious and like Brereton J, I have no hesitation in concluding that the Trust Deed ought to be construed as if the word 'later' appeared in cl 4.1 instead of 'earlier' and the words 'the Trust continuing' appeared in cl 4.4(a)(3) instead of the word 'termination'. 

6. Clause 4.4 provided for the possible extension of the term of the Trust beyond 12 years.  Accordingly, it would be absurd if cl 4.1 provided that the Trust terminated on the earlier of two events where:

   (a)the first event was the expiry of a period of 12 years from the Commencement Date; and

   (b)the second event was the possible extension of the term of the Trust beyond that period pursuant to cl 4.4.

7. Similarly, cl 4.4(a)(3) produces an absurd result if read literally ‑ the Trust would continue notwithstanding that 75% or more Holders were in favour of termination.  That absurdity and the fact that the balance of the clause expresses the effect of the vote in terms of the continuation of the Trust, indicate that the reference to termination does not reflect what was clearly intended to be the effect of the provision.  The interpretation contended for by WCS is also the only way in which cl 4.4(a) can operate in conformity with cl 4.1.

8. The intention of the parties is clear and the result of construing the document literally according to the words used is an absurdity.  It is plain what the correct wording should be to give effect to the parties' intention (refer Energy World Corporation Ltd v Maurice Hayes & Associates Pty Ltd[2007] FCAFC 34 [11] ‑ [12]) and the document is to be construed accordingly.

9. WCS is entitled to the declarations sought; they declare the effect of the Trust Deed as a matter of construction.