JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: ZHOU -v- CARATTI [2022] WASC 363
CORAM: ALLANSON J
HEARD: 6 OCTOBER 2022
DELIVERED : 2 NOVEMBER 2022
FILE NO/S: CIV 1390 of 2014
BETWEEN: LIANGZHANG ZHOU
Plaintiff
AND
ALLEN CARATTI
Defendant
Catchwords:
Contract – Where plaintiff invested and entered Investment Agreement with company carrying out development – Where plaintiff appointed director of company and issued with redeemable preference shares to the value of his investment – Where defendant guaranteed due and punctual payment by the company of the amount payable on redemption of the shares – Where company did not redeem shares – Whether redemption of shares under the Investment Agreement was conditional on plaintiff engaging in day to day management of the company – Whether defendant’s obligation under guarantee dependent on shares being redeemed
Legislation:
Corporations Act 2001 (Cth)
Result:
Judgment for the plaintiff
Category: B
Representation:
Counsel:
| Plaintiff | : | E Hensler |
| Defendant | : | J Schoombee & AP Rumsley |
Solicitors:
| Plaintiff | : | Hopgoodganim Lawyers (Perth) |
| Defendant | : | Alan Rumsley |
Cases referred to in decision:
Apparel Group Pty Ltd v Bettina Liano Pty Ltd [2014] NSWSC 670
Black Box Control Pty Ltd v TerraVision Pty Ltd [2016] WASCA 219
Brighton v Australia and New Zealand Banking Group Ltd [2011] NSWCA 152
Bunbury Foods Pty Ltd v National Bank of Australasia Ltd (1984) 153 CLR 491
EDWF Holdings 1 Pty Ltd v EDWF Holdings 1 Pty Ltd [2010] WASCA 78
Federal Commissioner of Taxation v Coppleson (1981) 39 ALR 30
GL Nederland (Asia) Pty Ltd v Expertise Events Pty Ltd [1999] NSWCA 62
Halvorson v Birkenhead Super Pty Ltd atf Birkenhead Superannuation Benefits Fund [2021] QCA 211
Harman Nominees Pty Ltd v Leighton Shores Pty Ltd [2012] WASCA 189
Heesh v Baker [2008] NSWSC 711; (2008) 67 ACSR 192
Horsell International Pty Ltd v Divetwo Pty Ltd [2013] NSWCA 368
Kandelka Management Pty Ltd v Pisces Group [2009] FCA 1379; (2009) 76 ACSR 113
Luxer Holdings Pty Ltd v Glentham Pty Ltd [2007] WASCA 209; 35 WAR 254
Sandbank Holdings Pty Ltd v Durkan [2010] WASCA 122
ALLANSON J:
Introduction
The plaintiff, Liangzhang Zhou, invested in Parliament Place Pty Ltd in relation to a land development that company was carrying out. He was issued redeemable preference shares to the value of his investment. The shares were redeemable by Parliament Place within a specified time.
The defendant, Allen Caratti, guaranteed due and punctual payment by Parliament Place of the amount payable on redemption of the shares.
Parliament Place did not redeem the shares and, eventually, went into administration.
Mr Zhou now sues on the guarantee.
Mr Caratti denies liability under the guarantee, primarily on the basis that his liability only arose on the redemption of the shares.
The…
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- AGLC
- Zhou v Caratti [2022] WASC 363
- Case
- [2022] WASC 363
- Decision Date
CaseChat Overview and Summary
The central legal issue before the court was the interpretation of the contractual terms in the Investment Agreement and the Guarantee. Specifically, the court needed to decide whether the guarantee provided by Mr Caratti was perpetual or limited to a fixed term. The court also had to consider whether the contra proferentem rule applied in this case and whether surrounding circumstances could be relied upon to interpret the contract.
The court, in its reasoning, held that the principles of interpreting commercial agreements require a focus on the language used by the parties, the context of the contract, and its commercial purpose. The court emphasised that reliance on surrounding circumstances must be balanced with fidelity to the contractual text. The court found that the contra proferentem rule did not apply in this case due to the equivocal evidence regarding who prepared the agreement and the lack of remaining ambiguity after applying other aids to construction. The court concluded that the proper interpretation of the agreements was achieved by reading them together, and that the guarantee was limited to a fixed term, not perpetual.
As a result of the court's decision, the guarantee provided by Mr Caratti was found to be limited to a fixed term, and not perpetual as argued by Mr Zhou. The court dismissed Mr Zhou's claims against Mr Caratti and ordered that the guarantee was not perpetual but limited to the fixed term as stated in the agreement.
Orders
Orders of the court
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Background
Background to the litigation
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Evidence
Evidence Before The Court
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Decision
Reasons for decision
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Ratio Decidendi
Legal Principle Established
The principles governing the interpretation of commercial agreements are well settled.[4] The court must consider the language used by the parties in the contract, the circumstances addressed by the contract, and the commercial purpose or objects to be secured by the contract. Reliance on surrounding circumstances must be tempered by loyalty to the text. With limited exceptions - such as patent absurdity or mistake (none of which apply in the present case) - the contractual language cannot be construed as having a meaning that it cannot reasonably bear.[5][4] Electricity Generation and Retail Corporation trading as Synergy v EIT Kwinana Partner Pty Ltd [2022] WASCA 3; Black Box Control Pty Ltd v TerraVision Pty Ltd [2016] WASCA 219 [42]; Sino Iron Pty Ltd v Mineralogy Pty Ltd [2019] WASCA 80.[5] Harman Nominees Pty Ltd v Leighton Shores Pty Ltd [2012] WASCA 189 [82]. Counsel for Mr Caratti sought to rely also on the contra proferentem rule, on the basis that the Investment Agreement was prepared by, or on behalf of, Mr Zhou. The 'rule' does not assist in the present case. First, the evidence is equivocal as to who prepared the agreement and whether certain clauses only may have been prepared or advanced on behalf of Mr Zhou - primarily those clauses providing for his participation in management. It is agreed on the pleadings that Ms Wu, on behalf of Mr Zhou, liaised with the solicitor for Parliament Place regarding Mr Zhou's investment and for the purposes of finalising the then proposed investment agreement.[6][6] Statement of Claim [6]; Defence [6]. Second, as Campbell JA said in Brighton v Australia and New Zealand Banking Group Ltd (Giles and Hodgson JJA agreeing):It is a striking feature of the case law that has invoked a 'contra proferentem rule' that judges have often used the term with little or no explanation, and in ways that are not consistent. One of the ways in which that 'rule' has been said to operate is that it operates against the interests of the person who confers a benefit by the disputed words in a document (North v Marina [2003] NSWSC 64; (2003) 11 BPR 21,359 at [57]-[72], and esp [62]-[65]), while another has been that it operates against the interests of a person who receives a benefit under the disputed words in a document (ibid at [66]-[68]).[7][7] Brightonv Australia and New Zealand Banking Group Ltd [2011] NSWCA 152 [99]. Third, the rule of construction contra proferentem applies 'only when, having applied all other aids to construction, ambiguity remains'.[8] The surest guide to the meaning of the agreements is the application of the accepted principles for the construction of commercial agreements.[8] GL Nederland (Asia) Pty Ltd v Expertise Events Pty Ltd [1999] NSWCA 62 [27]; Sandbank Holdings Pty Ltd v Durkan [2010] WASCA 122 [34]. The Investment Agreement and the Guarantee were made at about the same time, and each refers to the other. In construing them, they should be read together to ascertain their proper construction and legal effect.[9][9] EDWF Holdings 1 Pty Ltd v EDWF Holdings 1 Pty Ltd [2010] WASCA 78 [104].