Eastgate Properties P/L v J Hutchinson P/L [2005] QSC 196

SUPREME COURT OF QUEENSLAND CITATION: Eastgate Properties P/L v J Hutchinson P/L [2005] QSC 196 PARTIES: EASTGATE PROPERTIES PTY LTD (ACN 099 706 215) (plaintiff) v J HUTCHINSON PTY LTD (ACN 009 778 330) (defendant) FILE NO: S8870 of 2003 DIVISION: Trial Division PROCEEDING: Trial ORIGINATING COURT: Supreme Court at Brisbane DELIVERED ON: 30 June 2005 DELIVERED AT: Brisbane HEARING DATE: 14, 15 and 17 June 2005 JUDGE: Muir J ORDER: CATCHWORDS: DEED – ESCROW – ALTERATION OF DEED AFTER EXECUTION – where deed formulated to remedy defendant builder’s encroachment of neighbouring lots and plaintiff’s failure to pay defendant – where meeting took place and defendant demanded payment of full amount arising under contract, mortgage and deed – where dispute as to construction of deed – whether deed abandoned – whether deed delivered as deed or escrow – whether existence of condition precedent that prevented deed coming into existence MORTGAGES – RIGHTS AND LIABILITIES OF MORTGAGOR AND MORTGAGEE – where defendant appointed receivers and managers as a result of plaintiff’s breach of deed – where plaintiff alleges appointment caused it loss and damage – whether defendant waived plaintiff’s breaches of the deed and as a consequence defendant’s action void – whether moneys paid by plaintiff to defendant moneys paid under duress and returnable to plaintiff CONTRACTS – CONSIDERATION – WHAT AMOUNTS TO CONSIDERATION – EXISTING OBLIGATION OR -- 1 of 28 -- 2 DUTY – where meeting took place between plaintiff and defendant wherein an oral agreement reached as to operation of deed – where dispute as to content and effect of agreement after the event – whether there was a variation of contractual terms – whether what was promised was an existing obligation or duty – whether valuable consideration by the defendant to the plaintiff for the alleged variation Land Sales Act 1984 (Qld) Administration of the Territory of Papua and New Guinea v Daera Guba (1973) 130 CLR 353, André et Compagnie SA v Marine Transocean Ltd (The Splendind Sun) [1981] QB 694 Avenhouse v Hornsby Shire Council (1998) 44 NSWLR 1 Bellamy v Debenham (1890) 45 Ch D 481, Berry v British Transport Commission [1962] 1 QB 306 Central Estates (Belgravia) Ltd v Woolgar [1971] 3 All ER 647, Cockburn v Edwards (1881)18 Ch D 449, DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 Ficom SA v Sociédad Cadex Ltd [1980] 2 Lloyds Rep 118 Fitzgerald v Masters (1956) 95 CLR 420 Gange v Sullivan (1966) 116 CLR 418 GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631, Hobartville Stud Pty Ltd v Union Insurance Co Ltd (1991) 25 NSWLR 358, Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11, Lustre Hosiery Ltd v York (1935) 54 CLR 134, Marminta Pty Ltd v French [2003] QCA 541, Masters v Cameron (1954) 91 CLR 353, Maynard v Goode (1926) 37 CLR 529, Meates v Attorney-General [1983] NZLR 308, Monarch Petroleum ML v Citco Australia Petroleum Ltd [1986] WAR 310, Paal Wilson & Co A/S v Partenreederei Hannah Blumenthal (The Hannah Blumenthal) [1983] 1 AC 854, Pearl Mill Co Ltd v Ivy Tannery Co Ltd [1919] 1 KB 78, Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537, Sportsvision Australia v Tallglen Pty Ltd (1998) 44 NSWLR 103, Summers v The Commonwealth (1918) 25 CLR 144, Suttor v Gundowda Pty Ltd (1950) 81 CLR 418, Tait v Bonnice [1975] VR 102, Thomas v Hollier (1984) 156 CLR 152, Thorby v Goldberg (1964) 112 CLR 597, Vroon BV v Foster’s Brewing Group [1994] 2 VR 32, Wigan v Edwards (1973) 47 ALJR 586, -- 2 of 28 -- 3 Young v Tibbets (1912) 14 CLR 114, Zieme v Gregory [1963] VR 214 COUNSEL: P E Hack SC with A Musgrave for the plaintiff D R Cooper SC with D Quayle for the defendant SOLICITORS: Lynch & Company for the plaintiff MacGillivrays for the defendant Introduction [1] The plaintiff owner sues to recover damages allegedly suffered by it as a result of the defendant builder’s tardy rectification of an encroachment of the building works onto adjoining land and arising from an allegedly wrongful demand and appointment of receivers under a mortgage given by the plaintiff to the defendant to secure the contract price. [2] The plaintiff is a company formed by its directors Garry Reichert, Ian George and Revon King for the purpose of acquiring, developing and selling six parcels of land at Lytton Road, Murarrie (“the Land”). They held all the shares in the capital of the plaintiff through companies which they respectively controlled. Messrs George and King, who had the day to day management of the plaintiff and of the subject development, had a falling out with Mr Reichert which gave rise to difficulties in obtaining finance. That dispute led to litigation which was commenced on 23 July 2004. [3] The parcels comprising the Land were amalgamated and re-subdivided into three freehold titles and a strata title complex consisting of eight units. The defendant builder was engaged to construct buildings on the site and commenced work at about the end of August 2002. On or about 6 March 2003, the defendant delivered a progress claim to the plaintiff for $1,678,944. Before and after the delivery of the claim, the defendant pressed for the execution of a building contract and Messrs King and George eventually signed a contract in respect of the works on 20 March 2003. By then the bulk of the works had been completed and their value was some millions of dollars. [4] No payment was forthcoming in respect of the progress claim and Mr Quinn, managing director of the defendant, and Mr Norton, the defendant’s finance director, met with Mr George to discuss the works and, in particular, how and when the defendant was to be paid. A considerable number of discussions in that regard took place between Mr George and Mr Quinn between the end of March 2003 and 28 May 2003 when Messrs Norton and Quinn met with Mr George at the offices of the plaintiff’s solicitors. Mr Quinn handed over engrossments of the proposed building contract and of a proposed mortgage over the Land and requested that they be executed. The former (“the Building Contract”), which provided for a contract price of $3,785,274, was executed by the parties in the defendant’s office on 29 May 2003. The mortgage (“the Mortgage”) was executed at the same time. [5] On 11 June 2003 the project certifier issued a certificate of classification for the building. A copy of it was delivered by the defendant to the plaintiff under cover of a letter dated 13 June. Under the special conditions in Schedule 2 of the Building -- 3 of 28 -- 4 Contract the plaintiff was obliged to pay “the contract price together with any other entitlements provided for in [the] contract” within 30 days of 11 June. [6] Surveyors retained by the plaintiff discovered on 11 June 2003 that the building constructed by the defendant on the development’s proposed lot 10 encroached onto an adjoining lot and that the building constructed by the defendant on proposed lot 14 encroached on the common property of two different adjoining bodies corporate. [7] At about this time, in a telephone conversation, Mr George informed Mr Quinn of the encroachments and said that they had to be dealt with before payment would be made, but he added that the defendant should not worry too much about the encroachments as they were just a logistical matter that “happens all the time”. He also said words to the effect that the encroachment had saved his [Mr George’s] “bacon” as the plaintiff had not secured finance and the encroachment issue would give the plaintiff the further time needed by it. In a letter of 19 June 2003 to the defendant, Mr George, on behalf of the plaintiff, claimed that the certificate of classification was invalid as a result of the encroachments and requested confirmation by the defendant that it would not rely on the certificate of classification “until such time as the defects within the works have been rectified”. [8] The encroachments affecting the proposed lot 10 were removed by the defendant by 10 July 2003 leaving the encroachment affecting the proposed lot 14. [9] Between 19 June 2003 and 6 August 2003, Mr Quinn had a number of discussions with Mr George concerning the encroachment problem and the moneys outstanding under the Building Contract. Mr Quinn consistently asserted that the defendant would fix the encroachment but that its existence did not affect the defendant’s entitlement to payment. He pressed for payment. Mr George, for his part, was insisting that the encroachment had to be fixed before payment would be made. [10] On 4 July 2003, at a meeting between Mr Quinn and Mr George, Mr George requested Mr Quinn to “hang in there”, saying, in effect, that he and King would triumph over Reichert and “see the defendant paid”. He said, in effect, that the encroachment was not “the big ticket item” and that Reichert was the cause of the real difficulties in the way of payment. [11] On 6 August 2003 the plaintiff and the defendant entered into a deed with a view to resolving their difficulties. The Deed recited, inter alia: (a) The plaintiff’s obligation under the Building Contract to pay to the defendant the contract price within 30 days of the issue of a Certificate of Classification to the plaintiff concerning the Estate; (b) The contract price and agreed variations; (c) That a certificate of classification dated 12 June 2003 was issued to the plaintiff; (d) That the defendant claimed to be entitled to be paid by the plaintiff $3,957,428 excluding GST on 12 July 2003; (e) The defendant’s failure to construct the works wholly on the Eastgate land; (f) That the plaintiff disputed the defendant’s claim for payment “on the basis of the encroachment referred to in recital H”; and (g) That the parties had agreed to “resolve the matter in accordance with the terms of this deed”. -- 4 of 28 -- 5 [12] The Deed then made provision for: (a) Payment of $3,785,275 (including GST) by the plaintiff to the defendant within 21 days of the date of the Deed; (b) Withdrawal of a caveat lodged over the Land by the defendant; (c) Rectification of the encroachment and payment by the defendant of compensation costs and expenses in relation thereto; (d) Payment of the balance contract price; (e) The plaintiff to make application for finance in a sum sufficient to enable the plaintiff to pay the defendant $4,353,171. [13] “Formal written approval” of such application for finance was to be provided by the plaintiff to the defendant within 10 business days from the date of the Deed. [14] In breach of the terms of the Deed the “formal written approval” of the finance application referred to in clause 5 of the Deed was not obtained from the nominated financier, the National Australia Bank Ltd, and a copy of such approval was not provided to the defendant within the time required by clause 5 or at all. Nor did the plaintiff pay the defendant the sum of $3,785,275 required to be paid by 27 August. [15] On or about 10 September 2003, the defendant became aware that the plaintiff had obtained or was in the process of obtaining finance approval in the sum of $4,821,465 of which $3,785,275 had been earmarked for payment to the defendant. Mr Norton calculated that there would be a shortfall of approximately $300,000 in the amount payable to the defendant under the Deed. This prompted the defendant to serve a notice on the plaintiff on 5 September 2003 demanding payment of $3,785,275 “which was due on the 27 th August 2003”. [16] Mr Quinn contacted Mr George and arranged for a meeting to be held at the offices of Lynch & Co. It may also have been the case that Mr Hutchinson, the defendant’s Chairman of Directors, made a separate approach to Mr King in that regard. [17] On 16 September 2003, Messrs Quinn, Hutchinson, Norton and Ms Williams, on behalf of the defendant, and Messrs King and George on behalf of the plaintiff, met at the offices of Lynch & Co. Ms Williams was the defendant’s finance manager. What took place at that meeting is central to the resolution of the major issue in dispute in these proceedings and is considered in detail later. [18] On 17 September 2003 the defendant’s solicitors wrote to the plaintiff alleging that at the meeting the previous day there was agreement that: (a) The defendant would be paid $4,130,000 from the funds expected to be drawn down by the plaintiff on 19 September; (b) The balance of moneys owing under the Deed of $223,171 and interest of $112,976.42 would be payable on the earlier of there being sufficient proceeds of sale of land in the Estate to satisfy the debt or the receipt of a GST refund anticipated by the plaintiff; (c) The provision by the defendant to the plaintiff of specified documents would extinguish the former’s obligation under the Deed to rectify the encroachment. [19] The Mortgage was lodged for registration on 22 August 2003 and registered on 28 August 2003. [20] The plaintiff paid the defendant $3,785,275 on 22 September 2003. -- 5 of 28 -- 6 [21] The defendant’s solicitors forwarded a number of documents to the plaintiff’s solicitors on 25 September and claimed that their provision fulfilled their client’s obligation to rectify the encroachment. [22] On 6 October 2003 the defendant served on the plaintiff a demand for payment by 9am on 7 October 2003 of $737,201.35 allegedly owing under the Building Contract, the Mortgage and the Deed. The demand was not complied with by the plaintiff and the defendant, on 7 October 2003, appointed receivers in respect of the Land pursuant to the Mortgage. The deed of appointment recited that the plaintiff/mortgagor was in default under the Mortgage. [23] The receivers attempted to take possession of the Land on the date of their appointment and the plaintiff brought an application to this court to restrain them from entering into possession and from taking any other steps as receivers and managers. On 10 October 2003 the receivers undertook to refrain from taking any steps in relation to the Land as receivers and managers. [24] By a letter from the defendant’s solicitors to the plaintiff’s solicitors dated 9 January 2004, the defendant demanded payment by the plaintiff of $942,494.71 as a condition of the release of the Mortgage. That sum was paid under protest by the plaintiff on 14 January 2004 and the Mortgage was released. The plaintiff’s claims [25] In breach of clause 7 of the Deed, the defendant failed to undertake all steps necessary to rectify the encroachment within 30 days of 6 August 2003. [26] In consequence of such breach or, alternatively, in consequence of the encroachment, the plaintiff was unable to register the strata plan in respect of lot 14 until 30 January 2004 and was unable to register a survey plan for lot 12 until 13 November 2003. [27] But for the encroachment and/or breach of clause 7, the plaintiff would have been able to register the relevant survey plans no later than 20 June 2003 and would have been able to effect earlier settlements of a number of contracts of sale of land in the development. [28] The appointment of receivers and managers on 7 October 2003 was void and in consequence thereof the plaintiff suffered loss and damage: (a) In engaging security guards at a cost of $11,511.50; and (b) In legal costs of $30,624.10 incurred in proceedings to restrain the receivers and managers from taking possession and to restrain the defendant from taking steps to enforce the Mortgage. [29] The demand on 9 January 2004 by the defendant for payment of $942,494.71 as a condition of release of the Mortgage was unlawful and the moneys were paid under protest. Consequently, such moneys are moneys had and received by the defendant to the use of the plaintiff. [30] The plaintiff claims in respect of the above matters: (a) Payment of the sum of $942,494.71; (b) Payment of the sum of $42,135.60 being the total of $11,511.50 and $30,624.10; and (c) $275,373.12 damages for breach of contract. -- 6 of 28 -- 7 [31] It was acknowledged in the course of the trial that $567,896, an amount accepted by the plaintiff as payable under the Deed, had to be deducted from the sum of $942,494. The claim advanced for moneys had and received was thus $374,598. The allegations in the defence [32] The parties did not comply with the terms of the Deed in a number of substantial respects and, as a consequence, it was abandoned by no later than 27 August 2003. [33] Alternatively, the Deed was discharged and no longer bound the parties from a time no later than 27 August 2003. In the further alternative, it was delivered in escrow and did not take effect. [34] Because of the conduct of the plaintiff in: failing to notify the solicitors for the defendant despite three requests of the amount of stamp duty payable on the contacts for the sale to the plaintiff of the encroachment lands until on or about 11 February 2004; the delivery of applications for exemption under the Land Sales Act1 to the solicitors for the plaintiff on about 3 September 2003; the delivery to the solicitors for the plaintiff of the notice of development application for SP157341 on or about 25 September 2003; and the preparation of reconfiguration plans for the encroached land by the plaintiff’s surveyors on or about 20 September 2003, the plaintiff elected to accept performance by the defendant of its obligations pursuant to the Deed after the time stipulated for such performance and waived compliance with the strict time limits imposed thereunder. [35] The plaintiff and the defendant orally varied the terms of the Deed on 16 September 2003 with effect that “upon the provision by the solicitors for the defendant to the solicitors for the plaintiff of executed contracts between the owners of the encroached land, as vendors, and the plaintiff, as purchaser, and the other documents discussed between the parties on 16 September 2003 the defendant’s obligations pursuant to clause 7 of the …Deed would be deemed discharged”. [36] The required documents were delivered on 25 September 2003 and the defendant’s obligations in respect of clause 7 of the Deed ceased. [37] The conduct of the defendant and the encroachment had no material effect on the date of registration of the subject strata plans as they were incapable of earlier registration. [38] Alternatively, if the strata plans were delayed in registration by reason of the encroachment, the delay was not caused by the conduct of the defendant but was caused by the failure of the plaintiff and/or its solicitors to act expeditiously. [39] The plaintiff was entitled to demand payment of $737,201.35 by virtue of clause 6 of the Deed and the acknowledgement of indebtedness in the sum of $567,896 in a deed of priority entered into between the plaintiff, the defendant and others on 22 September 2003. [40] The defendant was entitled to appoint receivers and managers pursuant to the Mortgage by virtue of breaches of the Deed and pursuant to the deed of priority. 1 1984 (Qld). -- 7 of 28 -- 8 Was the Deed held in escrow pending the obtaining of approval for finance in accordance with clause 5? – the defendant’s contentions [41] The defendant contends that although the Deed was delivered it was an escrow and not delivered as a deed. It was intended to take effect only upon the approval for finance being obtained under clause 5. The following reasons are advanced in support of this contention: (a) The words “… it is a condition of this Deed …” in clause 5 and the fact that everything else in the Deed is predicated upon its fulfilment; (b) The knowledge of the parties that the plaintiff had a history of broken promises concerning the provision of finance; the fact that moneys under the Building Contract were payable to the defendant irrespective of whether the encroachments were rectified and the minor nature of the encroachments; (c) The Deed imposes mutual obligations the subject of express time stipulations all preconditioned on funding being available to the plaintiff. If the Deed took effect as such the defendant would have been able to wind up the plaintiff within 21 days of the date of the Deed for an admitted debt; and (d) Such conditional operation is to be inferred from the terms of the Deed and in particular the interrelated timings of the various matters to be performed under the Deed. Construction of the Deed [42] Clauses 5, 7, 8 and 9 of the Deed provide: “5. Eastgate Finance Application Eastgate shall make formal application for finance in a sum sufficient to pay Hutchinsons its full claim under the Building Contract of $4,353,171.00 (including GST) upon the execution of this Deed and shall keep Hutchinsons informed of the progress of such application. It is a condition of this Deed that formal written approval to this application is issued by the National Australia Bank Ltd (‘the financier’) and a copy of same is provided by Eastgate to Hutchinsons within ten (10) business days (or sooner), from the Date of this Deed. 7. Rectification of Encroachment Hutchinsons shall undertake all such steps as are necessary to rectify the encroachment referred to in recital H so as to permit the registration of the strata plan for lots 1-8 cancelling Lot 14 on proposed SP 146462 and Lots 98 and 99 on proposed SP 157341 (‘the strata plan’) within thirty days of the date hereof and Hutchinsons shall pay for all compensation, costs, charges and expenses associated with the rectification of the encroachment including but not limited to legal fees, registration fees, surveyors fees and stamp duty. 8. Payment of Balance of Contract Price Eastgate shall authorise the payment to Hutchinsons directly by its financier of the balance of the contract price immediately upon Hutchinson discharging its obligations under Clause 7. 9. No action by Hutchinson Hutchinsons shall refrain from: - -- 8 of 28 -- 9 (a) registering its mortgage (b) taking any action against Eastgate pursuant to its mortgage; (c) commencing any proceedings or making any demand upon Eastgate seeking the payment of any monies under the Building Contract; - until 21 days after the date of this Deed after which time it shall be at liberty to take such action as it deems necessary against Eastgate to recover any monies that it alleges are owing to it by Eastgate pursuant to the Building Contract.” [43] The contention that “everything else in the Deed is predicated” upon fulfilment of clause 5 is not borne out by scrutiny of its terms. Clause 4 obliges the defendant to give access to the works to the plaintiff “from 27 July 2003”. That provision operates immediately upon execution of the Deed. [44] Clause 10 has a similar operation and there would appear to be no good reason why the obligation in clause 1 should be tied to the performance of obligations under another clause or clauses. Also, the obligation to pay $3,785,275 in clause 2 is absolute and not conditional upon finance being obtained. The stipulation in the last sentence of clause 5 does not operate as a condition precedent. Rather, it makes plain that, in the event of non-performance of the subject obligations, the defendant has a right of termination. That is the way terms of this nature are normally construed. [45] As Mason J pointed out in Perri v Coolangatta Investments Pty Ltd,2 the court tends to favour a construction which leads to the conclusion that a particular stipulation is a condition precedent to performance, as against a construction which leads to a conclusion that the stipulation is a condition precedent to the formation or existence of a contract. His Honour observed: “In most cases it is artificial to say, in the face of the details settled upon by the parties, that there is no binding contract unless the event in question happens. Instead, it is appropriate in conformity with the mutual intention of the parties to say that there is a binding contract which makes the stipulated event a condition precedent to the duty of one party, or perhaps of both parties, to perform. Furthermore, it gives the courts greater scope in determining and adjusting the rights of the parties. For these reasons the condition will not be construed as a condition precedent to the formation of a contract unless the contract read as a whole plainly compels this conclusion.” [46] Also clauses of this nature are normally construed as provisions entitling the innocent party to terminate by notice in the event of non-fulfilment. 3 [47] A deed, as the plaintiff contends, may be delivered as an escrow or to be held in escrow4 but the matters discussed above show that the defendant’s argument that the Deed was delivered as an escrow is fanciful. 2 (1982) 149 CLR 537 at 552-553. 3 See eg Perri v Coolangatta Investments Pty Ltd at 553; Suttor v Gundowda Pty Ltd (1950) 81 CLR 418 at 440-442; Gange v Sullivan (1966) 116 CLR 418; Zieme v Gregory [1963] VR 214 and Tait v Bonnice [1975] VR 102. 4 See eg, Monarch Petroleum ML v Citco Australia Petroleum Ltd [1986] WAR 310 at 357. -- 9 of 28 -- 10 [48] In oral argument, it was contended that clause 9 supported the defendant’s contentions in that, upon the expiration of 21 days from the date of the Deed, the defendant was entitled, not merely to recover the sum of $4,353,171 claimed by the defendant but “any moneys that [the defendant] alleges are owing … [under] the Building Contract”. But it does not appear to me that this clause assists the defendant. It assumes that the Deed continues to operate after the times provided for in clause 5 have expired. [49] There is some difficulty in reconciling clause 9 with other provisions of the Deed, including clause 8. Clause 9, literally construed, permits the defendant to pursue any claims open to it in respect of the Building Contract after the expiration of 21 days from the date of the Deed, irrespective of whether the plaintiff has performed its obligations under the Deed. It may be faintly arguable that clause 8 makes payment of the balance of the contract price conditional upon performance by the defendant of its obligations under clause 7. [50] Properly construed however, clause 8 has no such effect. Clause 9 requires the defendant to postpone registering and relying on the mortgage to be granted under clause 6 and from pursuing the plaintiff further in relation to moneys owing under the Building Contract for a period of 21 days from the date of the Deed. Clause 8 does not prevent the defendant from requiring payment of the balance contract price until the requirements of clause 7 have been satisfied. It is a provision linked with clause 5 and cannot operate if finance is not obtained under that clause. It merely obliges the plaintiff to facilitate payment in the manner stipulated in the clause once there is compliance with clause 7. By clause 8, the defendant did not abandon its long asserted position that its right to payment of the whole of the moneys due under the Building Contract was not affected by the encroachment. That is made clear by clause 9. Was the Deed abandoned by the parties? [51] The defendant contends that the Deed, if not an escrow, was abandoned within 30 days of 6 August 2003 because of non-compliance with its strict time limits or, if an escrow, was rendered incapable of becoming binding. 5 [52] In order to show that a contract has been abandoned by conduct, it is generally necessary to show conduct which gives rise to a clear inference that one party does not wish to proceed with the contract and that the other has consented6 , or that neither party intends to perform its obligations under it and does not so perform7 , or that both parties have not performed their obligations and consider them at an end.8 [53] In determining what inference is to be drawn from the relevant facts regard must be had to what a reasonable person would conclude from the parties’ words and acts.9 [54] The evidence provides direct support for the conclusion that the parties regarded the Deed as remaining on foot and that a reasonable person in possession of the relevant 5 Monarch Petroleum ML v Citco Australia Petroleum Ltd [1986] WAR 310 at 357. 6 Marminta Pty Ltd v French [2003] QCA 541 at [21] and [22] 7 DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 at 434. 8 Summers v The Commonwealth (1918) 25 CLR 144 at 151-152. 9 André et Compagnie S.A. v Marine Transocean Ltd (The Splendid Sun) [1981] QB 694 at 713 and Paal Wilson & Co A/S v Partenreederei Hannah Blumenthal (The Hannah Blumenthal) [1983] 1 AC 854 at 915-6. -- 10 of 28 -- 11 facts would have reached a like conclusion. For example, the defendant made demands under it on 5 September 2003 for payment of the sum of $3,785,275. At the meeting of 16 September, Mr George spoke in terms of the Deed and no one asserted that the Deed had ceased to operate. Quite the contrary, Mr Hutchinson was asserting breach of its provisions by the plaintiff and seeking an assurance about the way in which the defendant’s obligation under clause 7 might be satisfied. The letter from the defendant’s solicitors to the plaintiff of 17 September 2003 acknowledges the continued operation of the Deed as does another such letter of 19 September 2003. [55] Additionally, a demand for payment made by the defendant on 6 October 2003 was made in reliance, inter alia, on the Deed. There was no abandonment of the Deed at relevant times. Were the receivers duly appointed? [56] The Mortgage secured $3,997,960 and moneys due and payable from time to time by the plaintiff to the defendant under the Building Contract. The Building Contract was described in the schedule as being “a Collateral Document” but elsewhere in the schedule 10 “Collateral Documents” was defined so as to include any “… Deed, or other agreement under which any Debtor either alone or together with any other person agrees with the Mortgagee in any way”. The term “Debtor” included reference to the plaintiff. Accordingly, the Deed is a “Collateral Document” for the purposes of the Mortgage. [57] Under clause 6.1 there is an event of default where: the plaintiff defaults in the performance of any term in the Mortgage or in any collateral document;11 any indebtedness or obligation of the plaintiff to the defendant is not met when due;12 or the plaintiff breaches any undertaking given to the defendant or “any condition imposed by [the defendant] in agreeing to anything”.13 [58] Clause 6.2 empowers the mortgagee, in the event of default, to demand and require immediate payment of the mortgage debt and to appoint receivers to the mortgaged land “despite any omission, neglect, delay or waiver of the right to exercise the option [to exercise rights under clause 6.2] and without liability for loss”. [59] There had been breaches by the plaintiff of clauses 2 and 5 of the Deed. It is argued on behalf of the plaintiff that these breaches were waived. I doubt that this was so in either case. The defendant did not act on them to terminate the Deed and there was a waiver in that limited sense, but the breaches had been committed and gave rise to claims by the defendant for damages for breach of contract. The obtaining of approval for finance did not cease to be of relevance, as without it, clause 8 could not operate. Even apart from these matters, interest under the Building Contract accrues daily on moneys owed but unpaid and the interest must be paid on the last day of each month. Clause N 15.3 provides: “The interest is calculated daily, from the date the money should have been paid. The interest must be paid on the last day of each month. If interest due on the last day of a month is not paid, it is immediately capitalised and added to the money outstanding.” 10 Clause 1.1. 11 Clause 6.1(a) 12 Clause 6.1(b). 13 Clause 6.1(k). -- 11 of 28 -- 12 [60] By operation of clause 9 of the Deed, the defendant became free to claim interest on any unpaid portion of the moneys due under the Building Contract as from 12 July 2003, 30 days from the date of issue of the certificate of classification. Even if, contrary to my view, the defendant could not, by virtue of clauses 7 and 8, charge interest on the balance contract sum of $567,896, there would appear to be no good reason why it could not claim and recover interest on the sum of $3,785,275 until its payment on 22 September 2003. Under clause 9 the defendant also became entitled to pursue its claims for $3,785,275 and the balance of the contract price. [61] For the above reasons, I find that the plaintiff’s claims concerning the appointment of receivers cannot be made out. [62] The nature of the claims advanced, however, call for additional comment. The plaintiff claims in respect of the appointment of receivers: (a) $11,511.50 paid to a security service to secure the premises from the intrusion of receivers; and (b) $30,624.10 by way of legal costs incurred in relation to the appointment of the receivers. [63] The legal fees appear to relate to costs incurred in interlocutory steps in these proceedings. Mr Graham, a costs assessor who made an assessment of the subject fees, swore to his assessment being in respect of “file number 03156 (‘litigation file’) to determine the solicitor and own client legal fees and costs incurred by the plaintiff in proceedings to restrain the receivers and managers from taking possession of the Eastgate land and to restrain the defendant from taking steps to enforce its mortgage”. No authority was cited by the plaintiff for the proposition that a party to a proceeding may recover costs in the proceeding as a head of damage and the proposition is inconsistent with authority. 14 Was any loss suffered through the defendant’s delay in removing the encroachment? – the contention that no sales of any lots could have been effected until release of the defendant’s mortgage and resolution of the dispute with Reichert - the plaintiff’s argument [64] The defendant contends that, as at 12 June 2003, the plaintiff had not secured funding to meet its obligations to the defendant and that there was no prospect of it doing so by early July 2003. The principal reason, it is said, for such inability was the dispute with Reichert which was not resolved until 6 August 2003. It is further submitted that the encroachment did not have any material effect on the ability of the plaintiff to secure funding and that this is borne out by the fact that finance was secured once that dispute was resolved. [65] The inability to secure finance meant that the earliest the plaintiff could have sold lots in the land affected by the encroachment was late September 2003, but the defendant had its Mortgage over that land supported by a consent caveat. It would not have permitted any sales to occur until it was paid and Yellowrock Pty Ltd (“Yellowrock”) would also have insisted on payment out of its mortgage. The encroachment is a red herring. That is how it was always regarded by Mr Hutchinson. 14 Cockburn v Edwards (1881)18 Ch D 449; Hobartville Stud Pty Ltd v Union Insurance Ltd (1991) 25 NSWLR 358 at 365; Berry v British Transport Commission [1962] 1 QB 306 and Avenhouse v Hornsby Shire Council (1998) 44 NSWLR 1 at 33-37. -- 12 of 28 -- 13 Consideration of the plaintiff’s argument [66] It is reasonably clear that the dispute with Reichert made it difficult for the plaintiff to secure finance and I find that until the dispute was resolved substantially on about 6 August 2003 the plaintiff was seriously handicapped in its ability to secure finance. Even if finance could have been obtained, it is probable that there would have been considerable delays. In one of his affidavits Mr George swore: “There was little point in resolving the encroachment problem with the defendant unless the dispute with Yellowrock could also be settled so that the existing titles could be utilised as security for finance.” [67] The deed of compromise entered into on 6 August 2003 between Yellowrock, Reichert, George, King and their respective companies and Eastgate Properties Pty Ltd (“Eastgate”) contemplated that Yellowrock be repaid out of sales of lots in the estate after payment to the defendant of $4,353,171, payment by Eastgate to any of the parties to the deed of compromise of any sums expended by such parties for the benefit of Eastgate and payment by Eastgate of its costs, charges and its expenses in developing the Estate. [68] Despite the entering into of the deed of compromise, troubles with Mr Reichert continued. It was a term of the loan agreement for the finance negotiated with Australian Unity Funds Management Limited that Mr Reichert give a guarantee. He declined to do so. Yellowrock registered its mortgage after entering into the deed of compromise and that also stood in the way of finance. Messrs King and George alleged that this was in breach of the terms of the deed of compromise, [69] On 19 September 2003 the plaintiff instructed its solicitors to commence proceedings against Yellowrock for specific performance of the deed of compromise to enable the refinancing to proceed. An accommodation with Yellowrock was reached that day and the refinancing proceeded. [70] The evidence of the surveyor Mr O’Brien shows that the subject plans were not lodged with the Council until 31 July 2003. The plaintiff in June, July, August and for much of September 2003 had insufficient funds to discharge its obligations to the defendant and Yellowrock. The plaintiff’s contention that the defendant was not entitled to payment under the Deed or under the Building Contract until the encroachment was removed is erroneous. Because of the dispute with Mr Reichert, which was not compromised until 6 August 2003, and because of the defendant’s entitlement to payment secured by the Mortgage, the plaintiff was not in a position to settle sales of land in the Estate other than on terms dictated by the defendant and Yellowrock. [71] The evidence suggests that Mr Reichert would not have abandoned readily a means of bringing pressure to bear on Messrs George and King, and there is no doubt that the defendant was most anxious to secure payment. It is likely that the defendant would have required any proceeds of sale to be applied in satisfaction of the plaintiff’s obligations to it in consideration of any partial release of the Mortgage. The consequences of these findings are discussed later. The 16 September 2003 meeting – introductory observations -- 13 of 28 -- 14 [72] There is considerable controversy as to precisely what was said in some critical respects in the course of the meeting on 16 September. There is general agreement, however, between the witnesses as to what happened in the first part of the meeting. Mr Hutchinson and Mr George were the most active participants. Mr Hutchinson expressed concern about the plaintiff’s ability to pay all of the moneys payable to the defendant in respect of the works and asked how the plaintiff intended to comply with its obligations under the Deed. He said that the defendant would be presenting an account for about $250,000 on account of interest and legal costs and asked how the plaintiff was going to pay those moneys. The discussion became heated. Mr Hutchinson threatened the appointment of receivers to the plaintiff and said words to the effect that he was having receivership documents delivered, to which Mr George responded with words to the effect, “If that’s what you want to do serve your documents. Bring it on”. [73] Mr Hutchinson left the room for a while to speak to the defendant’s solicitors over the telephone. In his absence, there was discussion between those remaining about the defendant’s interest calculations. [74] After Mr Hutchinson’s return to the meeting the defendant’s obligations to remedy the encroachment was discussed. Mr Hutchinson pressed Mr George to identify precisely what matters were required to satisfy the defendant’s obligations under the Deed in that regard. [75] The critical difference between the competing versions of the conversations given by those present at the meeting is whether, as the defendant contends, Mr George agreed that the provision of certain documents would satisfy the defendant’s obligations under the Deed or whether, as the plaintiff asserts, Mr George continued to insist on compliance with the terms of the Deed. Also of relevance is whether there was agreement varying the components of the contract price payable under the Deed and agreement on the right of the defendant to be paid interest on the moneys outstanding under the Building Contract. Mr George’s account of the meeting [76] After Mr Hutchinson’s return to the meeting, his conduct was more conciliatory. There was discussion about costs and interest. Mr George rejected the prospect of the plaintiff paying any of the defendant’s legal costs, but asked Mr King whether he would be happy to consider the interest claim. Mr King replied in the affirmative. Further recalculations were made by Mr Norton. Discussion then returned to “the impending refinance” of the defendant with Mr Hutchinson saying he wanted to establish the moneys available to the defendant as a result of it. Mr Hutchinson pressed for the plaintiff’s agreement to pay the defendant $4,130,000 on settlement of the “refinance transaction” but Mr George insisted that payments would have to be made in accordance with the Deed, asserting that the balance of moneys payable under the Deed were not yet due. [77] Mr Hutchinson then explained the current state of affairs relating to rectification of the easement and said that he was waiting for contracts from the bodies corporate which would not be available until “Thursday at the earliest” but that “he had got everything else done”. Mr Hutchinson asked for agreement that “if he supplied all of the rectification documents together with the contracts that this would satisfy [the defendant’s] obligations under the Deed”. Mr George said: -- 14 of 28 -- 15 “Provided that we have all of the documents required to be lodged in registrable form I would not require Hutchinsons to wait until all the plans had registered in order to satisfy their obligations and that it was not our intention to treat Hutchinsons harshly or unfairly in relation to the rectification of the encroachment.” Mr Hutchinson said words to the effect: “OK, that’s fine”. [78] Towards the end of the meeting, Mr Hutchinson again pressed for confirmation that the defendant would be entitled to interest and to payment of $4.13 million from the plaintiff when the encroachment was fixed. Mr George responded that the plaintiff “would be proceeding in accordance with the Deed” [79] In cross-examination, Mr George agreed that Mr Hutchinson may have said that he could get the material required to rectify the encroachment to him by the end of the following week. He subsequently said that he did not deny that this was said but had no recollection of it. Mr King’s version [80] In his affidavit evidence Mr King said, in substance, that he had read Mr George’s affidavit and was in agreement with Mr George’s account of events. In oral evidence he said that he had re-read Mr George’s affidavit prior to the trial. He agreed that Mr George said at the meeting that “he would pay $4.13 million from the drawdown”. He accepted that the drawdown was due on about 22 September and that Mr Hutchinson was insistent “about being told what it was that was required of him to rectify the encroachment”. [81] He professed a recollection of Mr George saying “on a couple of occasions… we would like you to comply with the Deed and we want everything done within the Deed”. He also professed a recollection of Mr George saying “on a number of occasions”, “we want you to stick to the Deed”. [82] He agreed with the proposition put to him in cross-examination that “Mr Hutchinson said to you that all the documents that we have been discussing would be available to be given to your company by the end of the following week because the body corporate meetings were being held on the 24 or 25 of September”. The documents to which the question referred were minutes of meetings of the bodies corporate which owned the land the subject of the encroachment, subdivisional plans capable of registration and possibly, an exemption from the requirements of the Land Sales Act 1984 (Qld) or from stamp duty. He also answered “yes” to the question “…he did say, that he’d give you the documents you needed by the end of the following week”. Mr Quinn’s account [83] Mr Hutchinson pressed for “some clear indication of what was going to be made available to the defendant at settlement”. Mr George responded that the Deed required the defendant to rectify the encroachment and that had not yet occurred. Mr Hutchinson queried what was required under the Deed and discussion ensued. Mr Hutchinson pressed Mr George to be specific as to what was needed to meet the defendant’s requirements in relation to encroachment, in response to which Mr George said words to the effect, “the things we need are the signed contracts from the adjoining owners and the signed subdivisional plans and perhaps the stamp duty -- 15 of 28 -- 16 exemption documents …”. Mr George stated that the subdivisional plans must be in registrable form. Mr George confirmed that “once those things were available the defendant’s obligations under the Deed would have been discharged”. [84] Mr George agreed that the plaintiff pay $4,130,000 by 19 September 2003 and $223,171 by 25 September 2003. In cross-examination Mr Quinn said that the latter payment was conditional upon provision of “the encroachment documents” [85] In his oral evidence, Mr Quinn said that at one stage of the meeting Mr George said words to the effect that he would be happy to consider a claim for interest but at the end of the meeting agreed to pay the interest at the conclusion of the project. [86] He said that Mr Hutchinson on three or four occasions insisted “that we clearly identify what was required to ensure that Hutchinsons had fulfilled its obligations under the Deed” and that in response Mr George confirmed that what was required was signed contracts from the adjoining owners and signed subdivisional plans. [87] He added that on one occasion or possibly two prior to the end of the meeting he summarised what was required in that regard and that “we all left the meeting in agreement”. [88] Mr Quinn conceded that on the basis of his understanding of how interest should be calculated the amount payable by the plaintiff would have been $47,315 rather than the $112,976 now claimed to be the agreed sum.15 Mr Quinn made a note in the course of the meeting in which, under the heading “Outcome” he wrote: “$4,130,000 (Friday) $ 223,171 (25/9/03) $4,353,171 (Total under Deed) * out of proceeds of Eastgate sales) (ie first sale) ) waiting approx 6 weeks or ) (i.e. end Oct)” upon receipt of GST ) [89] At the top of the page linked to the writing “(25/9/03)”, by a line, he wrote; “* signed contracts * signed subdivisional plans * application for exemption from “Stamp Duty”.” Mr Quinn explained in cross-examination that this asterisked list was of “the documents that were required to satisfy the encroachment issue”. Mr Norton’s evidence [90] In his affidavit evidence Mr Norton said that at a time at which Mr Hutchinson was absent from the meeting, Mr George said that $4,130,000 would be available to the defendant from the finance to be provided by Perpetual Trustees and that the balance payable under the Building Contract would be paid either from a GST refund which the plaintiff expected to receive soon or out of the proceeds of settlement of the first contract of sale of a lot in the Estate. 15 T 109. -- 16 of 28 -- 17 [91] Mr Hutchinson pressed Mr George to specify what was required in relation to the encroachment. “Mr George answered to the effect that if the defendant provided the contracts of sale and the subdivisional plans, the plaintiff would be satisfied”. [92] Mr Norton made a note at the time of the meeting in which he made various interest calculations which showed interest on the sum of $3,957,428 from 30/7/03 to 19/9/03 totalling $112,976.41. The note also contained this writing: “Original amount % $4,358,171 Available $4,130,000 $228,171 payable 19/9/03 out of GST payment and or first sale proceeds on or before 31/10/03 Interest by the end of November.” [93] In the course of the meeting, Mr Quinn wrote on the top of the page on which contained the above writing: “Theoretically, shouldn’t it apply from 27 August to date of settlement (ie 1 mth) Shouldn’t interest (%) be 15% ÷ 3785275 ÷ 12.” [94] Mr Quinn accepted in the course of cross-examination that the figure of $3,785,275 was the figure required to be paid by clause 6 of the Deed and that the date was the date by which such moneys were payable under the Deed. [95] Mr Norton did not mention in his affidavit any agreement to pay interest being reached at the meeting of 16 September, but in cross-examination he asserted a recollection of such an agreement. Mr Norton disagreed with Mr Quinn’s understanding of how the interest should be calculated. He regarded it as payable under the Building Contract from a date 30 days from the date of issue of the certification of classification. He accepted that in the course of the meeting, Mr George said words to the effect that the plaintiff was placing reliance on the Deed. [96] Mr Hutchinson asked on numerous occasions about what was required to fulfil the defendant’s obligations in relation to the encroachment. Mr George replied “if you give me the contracts of sale together with the subdivisional plans that would be sufficient”. [97] The balance moneys of $223,000 were to be paid from sales of property or from the GST refund to be received no later than 31 October. [98] The sum of $4,130,000 was to be paid on 19 September. Ms Williams’ Evidence [99] Ms Williams, in her affidavit evidence, recalls discussion about “interest payable under the Building Contract”. Mr Norton made some calculations in that regard which Mr George rejected. “The question of interest was left on the basis that the plaintiff would consider any claim for interest payable under the Building Contract.” She recalls Mr Hutchinson saying that the defendant wanted to be paid -- 17 of 28 -- 18 for $4,130,000 when the loan settlement occurred and his asking Mr George what was to be done for the balance. Mr George replied that the balance of $223,171 would be paid to the defendant either from a GST refund which Mr George said was due on or about 31 October 2003 or from proceeds of sale of some of the lots. [100] She wrote a diary note at the time of a meeting. Under the heading “Outstanding Items:-” appeared: “- interest - legal fees - holding funds in trust. – how is this?” [101] Further on in the note she wrote: “Settlement $4,130,000 Balance $ 223,171 $4,353,171 23-25 Sept repayment due c return GST – 6 weeks say 31/10/03 dsales proceeds – 7 days after titles issued” [102] She explained that the “Outstanding items” part of the document was written whilst the meeting was in progress. The day after the meeting, Ms Williams wrote a file note in respect of the meeting which stated, inter alia: “In summary the following was agreed: . At settlement we received $4,130,000 . deed of priority to cover the balance which is: . $223,171 (remaining under the deed) . $112,946 (interest under the Building Contract to 9/9/2003) $336,117” [103] Mr George said that interest calculated by Mr Norton was far too high and that “he would consider interest as per the Building Contract”. She recalls agreement as to the payment of $4.13 million on settlement with the balance to be paid out of settlement proceeds or from a GST payment due on 31 October. She does not recall Mr George saying that the drawdown would be made in accordance with the Deed. Mr Hutchinson’s account [104] Mr Hutchinson recalls that after he returned to the meeting, having made a telephone call or telephone calls, he said words to the effect, “You guys can’t meet the conditions of the Deed … You can’t pay us. What are you going to do?” He demanded to know what moneys the plaintiff was going to receive from the drawdown of funds from Perpetual Trustees. There was discussion around this point and he said that the defendant wanted the $4.13 million which Mr George had said was becoming available. He asked Mr George what was needed to meet the defendant’s obligations under the Deed and was told that it would be sufficient if the defendant provided the contracts of sale for the encroached areas and the subdivisional plans in registrable form. Mr George affirmed that when those things were provided the defendant’s “obligations will be at an end”. Mr Hutchinson said that all of the material would be available by the end of the following week. -- 18 of 28 -- 19 [105] He concedes that Mr George said words to the effect that he was happy to consider the payment of interest.16 He does not recall Mr George saying words to the effect that the Deed covers what the defendant is to receive on settlement. In response to the question “He certainly said throughout the meeting that he was placing reliance on the terms of the Deed”. He responded, “I don’t think that’s correct. He had to not place reliance on the terms of the Deed because he couldn’t meet it”. [106] In pressing Mr George on what was required to satisfy the defendant’s obligations in relation to encroachments under the Deed, he was “trying to make sure that … we were supplying exactly what [Mr George] wanted to meet that deed… He said the two things he wanted, not all of the documents, he wanted the contracts for the sale of the land and he wanted the subdivisional plans in registrable form”. [107] In relation to the interest question, he said “I saw Steve [Norton] and Greg [Quinn] doing calculations and sorting it out with Ian and then they … said it was sorted out”. The parties’ communications after the meeting [108] The morning after the meeting, Mr Quinn, together with Mr Norton and Ms Williams, had a conference call with their solicitor, Mr McLeod of MacGillivrays, in which they instructed him as to the contents of the consensus reached at the meeting. Those instructions were contained in a letter dated 17 September from MacGillivrays to Mr George. [109] The letter asserted that agreement had been reached at the meeting on five matters, each of which was addressed in a separate numbered paragraph. Paragraph 1 states that $4,130,000 was to be paid at the settlement of the drawdown of the plaintiff’s loan funds “anticipated for Thursday or Friday of this week”. Paragraphs 2 and 4 provided that the balance of the moneys payable under the Deed, plus interest of $112,976.42 calculated up to 19 September, would be payable on the earlier of settlement of the “required number of sales to repay the balance moneys … after the first mortgagee takes 55% of the sale price in each transaction” and the receipt of GST refund moneys “from the ATO relating to this project”. [110] Paragraph 3 provides: “On and from the drawdown of funds, interest will continue to be payable on any unpaid monies at the rate prescribed under the Building Contract.” [111] In respect of the encroachment problem, paragraph 5 provides: “Your company has agreed, that upon the relevant meetings of the bodies corporate taking place (set at the 24 th and 25th of this month), in relation to authorising the execution of the Contracts dealing with the encroached land (and all ancillary documents) and those documents being provided to your solicitors, your client will be deemed to have discharged its obligations under clause 7 of the Deed between your Company and our client. Your Company will then take responsibility for finalising both of those transactions. Our client will pay any disbursements within 48 hours of being requested to do so …” 16 T 137. -- 19 of 28 -- 20 [112] Contrary to the letter, Mr Quinn confirmed in cross-examination that the payment of $223,171 was dependent on provision of the encroachment documents by 25 September.17 [113] The plaintiff’s solicitors communicated with the defendant’s solicitors on 18 September 2003 by a facsimile transmission which contained a demand that the defendant release its mortgage as “the refinance transaction is due to be completed at 12 noon tomorrow” and threatened legal proceedings. No mention was made of the 17 September letter or of the assertions in it. [114] The solicitors for the plaintiff responded to the 17 September letter in a letter of 22 September written on Mr George’s instructions. The letter denied that agreement had been reached “on items 1, 2 and 3” in the letter. It was asserted that what was agreed was that “settlement of the draw down would proceed in accordance with the deeds that are drawn between your client and the company”. There was the further explanation that: “It would not be possible for our clients to vary the arrangements of these deeds without a meeting of the company resulting in a resolution of the Board of Directors to vary these arrangements. With regard to payment to your client of $4,130,000 our client was asked to hazard an estimate of how much would be available from the advance in surplus funds, assuming settlement of the advance by 19 September 2003.” The letter did not refer expressly to item 5 in the plaintiff’s solicitor’s letter. [115] On 25 September 2003 the defendant’s solicitors under cover of two letters of that date provided the plaintiff’s solicitors with contracts for the sale of the land the subject of the encroachment, transfer documents, survey plans, notices of Development Application, moneys on account of anticipated Brisbane City Council fees and moneys on account of applications for exemption under the Land Sales Act18. [116] The letter asserted that the documents provided discharged the defendant’s obligations under clause 7 of the Deed. The plaintiff’s solicitors wrote back on 29 September stating that the defendant’s obligation “under clause 8 (sic) of the Deed was to rectify the encroachment”. The defendant’s solicitors responded to that letter on 1 October 2003 reaffirming the defendant’s position in relation to the agreement alleged by it. Consideration on the defendant’s contentions as to the alleged encroachment agreement [117] In addresses much was made by counsel for the defendant of the failure of the plaintiff’s solicitors to specifically refute the assertions of agreement in the defendant’s solicitor’s letters of 17 September and 1 October. It is submitted that this failure, unexplained by evidence, “constitutes an admission that the agreement contended for in the letter of 17 September 2003 was struck”. Lustre Hosiery Pty Ltd v York,19 Young v Tibbetts20 and Thomas v Hollier21 are cited as authority for the proposition. 17 T 112. 18 1984 (Qld). 19 (1935) 54 CLR 134 at 143. -- 20 of 28 -- 21 [118] The 1 October letter is of no moment for present purposes. The plaintiff’s solicitor’s letter of 29 September clearly denied the existence of the agreement alleged by the defendant and there was no need to repeat the denial in every subsequent item of correspondence. [119] The failure of the plaintiff’s solicitor’s letter of 22 September to expressly respond to the allegation of an agreement concerning clause 7, however, does provide some support for the defendant’s case. So too does the delay in responding to the allegations in the 17 September letter despite the plaintiff’s solicitors having written to the defendant’s solicitors on 18 September, as the matters raised in the 17 September letter were highly pertinent to the distribution of funds expected to become available on the drawdown expected on 22 September. [120] A possible explanation for the lack of a specific response to the allegations of an agreement concerning the encroachment is the assertion in the 22 September letter that the “arrangements of these deeds could not be varied without a meeting of the company…”. It is curious though that the letter of 22 September, whilst specifically addressing payments to be made after drawdown of the loan and the accruing of interest, did not address the encroachment matter, which also concerned obligations which continued after the drawdown. A possible further explanation is that Messrs King and George did not regard the encroachment and the manner of its removal as being of much importance in the scheme of things. That conclusion also adds some support to the defendant’s case. [121] The 17 September letter would have assisted to the plaintiff’s argument more if paragraph 5 had stated more precisely what Mr Quinn recorded during the meeting of 16 September as being the contents of the agreement in relation to the encroachment. The letter makes no reference to signed subdivisional plans or any application for exemption from stamp duty, unless these documents come within the expression “ancillary documents”. [122] An additional argument advanced on behalf of the defendant is that the plaintiff’s conduct after 1 October 2003 is consistent with the existence of the agreement alleged by the defendant. On or about that date, the plaintiff’s solicitors took over the work of obtaining and registering all documents necessary to bring about the extinguishment of the encroachment. It is submitted that it is inconceivable that, if the agreement for which the defendant contends was not made at the 16 September meeting, there would not have been strident complaints and even court proceedings by the plaintiff to enforce the defendant’s compliance with its obligations. [123] There is little force in this argument. The defendant, by its solicitor’s letters of 25 September 2003, made it plain that the defendant was asserting that its obligations under clause 7 of the Deed were at an end. A letter from the plaintiff’s solicitors of 29 September 2003 asserted the plaintiff’s position in relation to clause 7, set out in some detail the losses which the plaintiff contended would flow from the defendant’s breach and stated: “We urge your client to resolve the encroachment problem on an urgent basis”. The defendant’s response in its solicitor’s letter of 1 October 2003 was to reaffirm the defendant’s contention that it had no further obligations under clause 7 and to suggest that the plaintiff “immediately proceeds (sic) with the purchase transactions, as agreed” in order to mitigate further losses. 20 (1912) 14 CLR 114 at 121, 122. 21 (1984) 156 CLR 152 at 157. -- 21 of 28 -- 22 The plaintiff thus had no reason to believe that the defendant would take any further steps to perform obligations in accordance with the unvaried form of clause 7. The plaintiff’s case in relation to the alleged encroachment agreement. [124] The following matters are the most significant of those put forward as reasons militating against a finding in favour of the defendant. 1. The unlikelihood that there would be such an agreement, having regard to the disagreement with Mr Reichert who was not present at the meeting and the assertion in the letter of 22 September that a meeting of the Board of Directors was necessary to vary “the arrangements of these deeds”; 2. The unlikelihood that Messrs King and George would have abandoned an agreement generous to Eastgate by virtue of the fact that it deferred the obligation to pay $567,896 until Hutchinson had rectified the encroachment. That concession would have exposed Eastgate “to the real risk of being in default and the appointment of receivers without getting any benefit in return”; 3. Neither Mr George nor Mr King disputes the fact that there was a discussion about the documents required to remove the encroachment but their evidence does not support the existence of the alleged agreement. Nor does the evidence of any of the defendant’s witnesses. The most useful documentary evidence in support of the defendant’s case is Mr Quinn’s diary note which makes reference to three categories of documents but it does not state the fact of agreement; 4. Mr Quinn’s professed recollection is suspect having regard to the “scant detail in his affidavit of 10 October 2003” in which he addressed the issue of the agreements allegedly made in the 16 October meeting but did not refer expressly to the encroachment agreement; 5. The evidence in relation to the alleged agreement as to liability to pay interest is inconsistent and does not support the existence of such an agreement. Its relevance is that it highlights the absence of consensus amongst the defendant’s witnesses on a topic of “perhaps equal importance and makes it impossible to accept … the much greater unanimity between the [defendant’s] witnesses on the encroachment aspect of the conversation at the meeting”; 6. Ms Williams, while asserting the existence of such an agreement, cannot give the substance of any relevant conversation and does not refer to the agreement in her detailed diary note of 17 September; 7. Even if there was an agreement such as that alleged, it is not supported by valuable consideration moving from the defendant to the plaintiff. Consideration of the plaintiff’s arguments [125] I do not consider that there is much force in the points made in relation to Mr Reichert or the want of a board meeting. By the time of the meeting, the deed of compromise had been entered into or was about to be executed. At the end of the meeting, Mr Hutchinson asked “what about Reichert’s mortgage” to which Mr George responded that he would “get it off” by court proceedings if necessary and that he would “sort that out”. The evidence does not establish that at this stage of the affairs of Eastgate the directors were holding formal meetings of the Board or, for that matter, involving Mr Reichert in deliberations such as those under consideration. -- 22 of 28 -- 23 [126] The unlikelihood of Eastgate’s giving up the advantage of deferring payment of $567,896 until the defendant’s compliance with clause 7 (if such advantage existed) may be explicable by the evidence which strongly suggests that Mr George did not regard the encroachment as presenting any particular problem. It is likely that he saw it as more of a bargaining chip. There is no evidence that Mr King regarded the encroachment as being particularly problematic or detrimental to Eastgate’s interests. I think it likely that discussion at the meeting persuaded Messrs George and King that the production of the documents necessary to cure the encroachment problem was imminent and that nothing more than a few formalities were required. They were put under considerable pressure in the course of the meeting. They had been stalling in respect of Eastgate’s obligations to make payments to the defendant for many months. Eventually, they were forced to enter into the Building Contract. Subsequently, they executed the Deed and by the time of the meeting Eastgate was in substantial breach of its obligations under it. Mr Hutchinson was threatening to appoint receivers to Eastgate and that threat was no doubt perceived by Messrs George and King as both real and imminent. I consider it unlikely that Messrs George and King did not have real concerns that, despite Mr George’s display of bravado, the defendant would act on the threat unless it emerged from the meeting with some concrete assurances concerning payment of the outstanding moneys. [127] It was not the case that the defendant was unable to obtain payment of the balance contract price and other moneys owing to it without satisfying its obligations under clause 7 of the Deed. The defendant had its rights under clause 9. Clause 8 conferred no benefit on the defendant if, as appeared to be the case, there were no further loan moneys to be drawn down from which the balance contract price could be paid. [128] I do not consider that Mr Quinn’s cursory treatment in his affidavit of 10 October 2003 of conversations in the 16 September meeting is of much significance. His evidence was that the affidavit was completed as a matter of urgency and reference to it reveals that he took the course of swearing to the contents of the meeting by affirming the allegations in the defendant’s solicitor’s letter of 17 September. [129] I accept that there is a degree of inconsistency between the accounts of witnesses called on behalf of the defendant concerning the alleged agreement to pay interest. Although I accept that some of the defendant’s representatives believed that there was an agreement as to the payment of interest, I am not confident that any such agreement was reached. I think it probable, however, that Mr George made a number of conciliatory assertions about the payment of interest so as to lead those present to the view that a claim for interest would not present a difficulty. The fact that an agreement in that respect was alleged in the letter of 17 September along with the other matters assists the plaintiff’s argument. On the other hand, the fact that Mr George denies an agreement to pay the sum of $4,130,000 on draw down of the finance tells against Mr George’s credibility. Mr King’s evidence supports the existence of an agreement in this respect as does the evidence of Messrs Hutchinson, Quinn, Norton and Williams. I find that there was such an agreement. In my view, the weight of the evidence is against the conclusion that the meeting produced a result which amounted to little more than “business as usual” under the Deed. Conclusions in relation to the encroachment agreement -- 23 of 28 -- 24 [130] Mr George’s primary account of events at the meeting is contained in his affidavit sworn on 10 October 2003. The meeting was thus reasonably fresh in his mind when the affidavit was sworn. Much of its contents were accepted as accurate or broadly accurate by Messrs Quinn and Norton and by Ms Williams. Their recollections, however, supported to a degree by contemporaneous writings, varied from Mr George’s account in some critical respects. Mr George said in cross- examination, in effect, that he could not now remember what was discussed in the second half of the meeting but that the contents of his affidavit would have been his best recollection at that time. [131] What the affidavit represents, however, is a version of events calculated to put a favourable gloss on matters from the plaintiff’s perspective. It was unlikely to, and I find it does not, intentionally record conversations and events at the meeting which Mr George regarded as harmful to the case the plaintiff was mounting at the time. I consider also that Mr George’s references to the Deed in the course of the meeting were unlikely to have arisen from any genuinely held belief on his part that the terms of the Deed were being or ought to be observed. The plaintiff had been in serious breach of its terms from within days of its having been entered into. Also, as I have pointed out, the defendant held the Mortgage and was able to exercise its powers under it. It also had freedom of action under clause 9. Additionally, I consider it likely that Mr George did not regard an agreement, particularly an oral one, as imposing an absolute constraint on the plaintiff’s freedom of action should the plaintiff not be able to meet its terms. [132] Mr King had very little recollection of the events of the meeting and, in my view, much of the recollection he professed to have was formed or influenced by discussion with Mr George and his reading of Mr George’s affidavits. I find that each of Ms Williams and Messrs Quinn, Norton and Hutchinson gave their evidence carefully and to the best of their respective recollections. [133] Mr Hutchinson strongly pressed for two things, payment from the moneys to be drawn down in the near future of as much as the plaintiff could possibly make available and certainty in relation to the scope of the acts the defendant had to perform in order to comply with clause 7 of the Deed. Discussion identified that there would be $4,130,000 available to satisfy the plaintiff’s obligations to the defendant. Mr Quinn’s diary note records the payment of that sum on Friday of that week as one of the “outcomes” of the meeting. I find that his note of the documents to be provided in respect of the encroachment recorded what was summarised by him and accepted by Messrs George and King as the documents required to fulfil the defendant’s obligations in relation to the steps to be taken under clause 9, to rectify the encroachment except that he failed to record that the plans were to be in registrable form and that the documents were to be delivered on or before 25 September. [134] The day after the meeting Ms Williams recorded an agreement that at settlement the plaintiff would receive $4,130,000. Ms Williams’ diary note and subsequent typed note of the meeting do not deal expressly with the encroachment agreement but, as she explained, that was not a matter within her sphere of interest. If, however, she had regarded clause 7 of the Deed as imposing a constraint on payment of the balance moneys due under the Building Contract or Deed, the likelihood is that some mention would have been made of that fact. -- 24 of 28 -- 25 [135] The question of whether a binding contract resulted from negotiations between parties is to be determined by reference to the intention of the parties “disclosed by the language the parties have employed”.22 [136] McHugh JA in GR Securities v Baulkham Hills Private Hospital Pty Ltd23 expressed the question for determination this way: “However, the decisive issue is always the intention of the parties which must be objectively ascertained from the terms of the document when read in the light of the surrounding circumstances”. Those observations were made in respect of a written agreement but, with appropriate adaptations, they apply equally to oral agreements. [137] Also, the question of whether a binding agreement has been concluded is not always capable of resolution by attempting to draw out of oral or written exchanges a discrete offer and acceptance. [138] In Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd 24 McHugh JA, with whose reasons Hope and Mahoney JJA agreed, said: “It is often difficult to fit a commercial arrangement into the common lawyers’ analysis of a contractual arrangement. Commercial discussions are often too unrefined to fit easily into the slots of ‘offer’, ‘acceptance’, ‘consideration’ and ‘intention to create a legal relationship’ which are the benchmarks of the contract of classical theory. In classical theory, the typical contract is a bilateral one and consists of an exchange of promises by means of an offer and its acceptance together with an intention to create a binding legal relationship ...” [139] In Vroon BV v Foster’s Brewing Group,25 Ormiston J referred to the following passage from the judgment of Cooke J in Meates v Attorney-General26 with approval: “I would not treat difficulties in analysing the dealings into a strict classification of offer and acceptance as necessarily decisive in this field, although any difficulty on that head is a factor telling against a contract. The acid test in a case like the present is whether, viewed as a whole and objectively from the point of view of reasonable persons on both sides, the dealings show a concluded bargain.” [140] Having regard to these principles and the facts discussed, I find that there was a binding agreement as alleged by the defendant. [141] I find that the plaintiff and the defendant varied clause 7 of the Deed by agreeing that the defendant’s obligation to “undertake all such steps as are necessary to rectify the encroachment” so as to permit registration of the relevant plans would be satisfied by delivery to the defendant’s solicitors on or before 25 September 2003 of: 22 Masters v Cameron (1954) 91 CLR 353 at 362. 23 (1986) 40 NSWLR 631. 24 (1988) 5 BPR 11 at 11,117-11,118. 25 [1994] 2 VR 32 at 82-3. 26 [1983] NZLR 308 at 337. -- 25 of 28 -- 26 (a) Contracts of sale to the plaintiff of the land the subject of the encroachment and memoranda of transfers; (b) Signed plans of subdivision in respect of the said land; (c) Appropriate forms of application from exemption from stamp duty; all, where appropriate, in registrable form. Was there consideration for the encroachment agreement? [142] It is argued on behalf of the plaintiff that the defendant was seeking to substitute a lesser obligation for a greater one and that that, on the authorities, does not constitute the provision of valuable consideration. [143] If the defendant promised to do no more than perform an existing duty under the Deed, subject to my later observations, there would be no valuable consideration.27 But that was not the case here. The defendant’s obligation under clause 7 was capable of being satisfied in a variety of ways. For example, the encroachment could be rectified by obtaining easements over the land on which the building encroached or it could be satisfied by acquisition of that land. That is the course which the defendant proposed to follow. [144] The varied agreement substituted for the defendant’s promise in clause 7 an obligation different in content which gave or was capable of giving a tangible benefit to the plaintiff. It acquired title to the land the subject of the encroachment and thereby avoided the necessity of acquiring and keeping in existence an easement or easements over that land. It also obtained certainty as to the documentation to be provided in order to satisfy the obligation. Having regard to the fact that time had ceased to be of the essence, it obtained certainty or greater certainty concerning the time within which the defendant’s obligations were to be performed. The fact that Mr George may have been mistaken as to the general efficacy of the subject documentation is immaterial for present purposes.28 I find that there was valuable consideration for the defendant’s promise. [145] It is relevant also that the subject promise was given as part of a compromise under which the plaintiff agreed to pay $4,130,000 upon drawdown of the proposed loan and under which the time within which the balance of the contract price was to be paid was altered. The plaintiff gained a benefit from this re-arrangement of obligations. Conclusion [146] The two letters from the defendant’s solicitors to the plaintiff’s solicitors dated 25 September 2003 do not list amongst their contents any forms of application for exemption from stamp duty. But there was no issue during the trial about the absence of these documents and any failure to provide them. Such failure, if it occurred, would not affect the outcome of these proceedings. If such documents were not provided, in breach of the defendant’s obligations under the 16 September agreement, it is not suggested that there would have been any difficulty in the plaintiff mitigating its loss by providing them almost immediately. Also, the defendant would have been relieved of any further obligation to provide them by the plaintiff’s conduct. 27 Wigan v Edwards (1973) 47 ALJR 586 at 594. 28 Ficom SA v Sociédad Cadex Ltd [1980] 2 Lloyds Rep 118 at 132. -- 26 of 28 -- 27 [147] The plaintiff’s case for additional interest incurred by Eastgate to its financiers, as a result of delay in registration of titles, is based on the allegation that but for the encroachment, relevant plans of subdivision would have been able to have been registered no later than 20 June 2003, sales of lots in the Estate could have been settled much earlier than in fact happened and moneys would have been available to reduce borrowings. [148] No delays were caused by any breach by the defendant of the terms of clause 7 of the Deed after 25 September 2003. And the evidence does not establish that were it not for the encroachment the relevant plans would have been registered no later than 20 June 2003 or that settlements of sales could have taken place in accordance with the timetable put forward in paragraph 16A of the Statement of Claim. The reasons for these conclusions are set out earlier in these reasons. [149] In my view it is not possible to determine from the evidence what additional interest was incurred or paid by Eastgate to its financiers for any period between the date on which the subdivisional plans for the Land ought to have been registered were it not for the encroachment and other dates of possible relevance, namely, the date of the Deed, 25 September 2003 and the date on which registration was finally effected. Accordingly, I find that the claim for additional interest has not been made out. [150] The claim for $39,507 on account of additional moneys payable to Yellowrock fails for the reasons already explained and because it is based on the erroneous premise that the defendant was not entitled to payment on 14 January 2004 because it had not rectified the encroachment. [151] Nothing in the agreement reached on 16 September relieved the defendant from its obligation to “pay for all compensation, costs, charges and expenses associated with the rectification of the encroachment”. [152] The plaintiff’s claims for the cost of rectifying the encroachment were the subject of evidence by Mr George, who swore that the costs claimed were paid by Eastgate. Mr Graham, a costs assessor, calculated those costs at $15,869.51. The task undertaken by him was to assess the plaintiff’s solicitor’s encroachment file “to determine their solicitor and own client legal fees and costs incurred by the plaintiff in rectifying the encroachment”. [153] It is argued on behalf of the plaintiff that its obligations in relation to the encroachment came to an end on 25 September 2003 and that, in consequence, the claim must fail. That argument assumes that the agreement reached on 16 September relieved the defendant of any obligation to pay the costs of removal of the encroachment. The agreement did not have this effect. Neither the words used by those at the meeting nor the letter of 17 September 2003 suggest that the parties contemplated releasing the defendant from an obligation to pay the costs of bringing about the extinguishment of the encroachment. The letter acknowledges a continuing obligation on the part of the defendant to pay disbursements incurred in relation to the encroachment. Accordingly, this ground of defence fails. Although the general rule is that the subsequent conduct of the parties cannot be used for the purpose of construing their contract;29 the letter is relevant to the determination of 29 Maynard v Goode (1926) 37 CLR 529 at 538 and Administration of the Territory of Papua and New Guinea v Daera Guba (1973) 130 CLR 353. -- 27 of 28 -- 28 what was said on 16 September. It also constitutes an admission against interest concerning an agreed term. 30 [154] The only other argument advanced in respect of this claim is that: “(a) The material does not reveal what work in fact the costs relate to; (b) Mr Lynch has not sworn to the work which underlies the claim, that it in fact relates to rectifying of the encroachment for the relevant period and that it was in fact reasonable; and (c) Mr Garrett was not the subject of cross-examination on the point.” [155] Mr Graham swears to having been employed as a solicitor in private practice and to having worked as a costs assessor since 1966. He swears that the work undertaken by him was to assess costs “incurred by the plaintiff in rectifying the encroachment”. He further swears that he had regard to material in Lynch & Co’s litigation file “which comprised of work undertaken by the plaintiff’s solicitors in rectifying the encroachment”. [156] Mr Garrett, a costs assessor who gave evidence on behalf of the defendant, swears that he has perused Mr Graham’s affidavit and that: “(a) it is impossible to say if the costing of the files of the solicitors for the plaintiff are accurate because there is insufficient detail in the assessment performed by Mr Graham; (b) secondly, it is also impossible to say if the work to which the costs assessment relates was reasonable because again, there is insufficient detail to make the judgment.” [157] Neither costs assessor was cross-examined. Plainly, substantial costs including substantial registration fees, stamp duty and other outlays were incurred and were paid. The evidence of Mr Graham and the lack of evidence from Mr Lynch may leave a bit to be desired by way of strict proof but, in my view, the evidence is sufficient to establish the plaintiff’s claim. At the very least, it establishes the outlays set out in Mr Graham’s material. Accordingly, I find this component of the plaintiff’s claim has been made good. [158] I have dealt with the claims based on the alleged unlawful appointment of receivers. [159] The claim of $374,598 for moneys had and received must fail for the reasons given earlier. [160] I will hear the parties in relation to any formal orders to be made and on the question of costs. My tentative view is that there should be no order as to costs. The plaintiff’s success was very limited – it lost on most issues including the most substantial. On the other hand the defendant failed on a number of issues and, in my view, some of its arguments were singularly lacking in merit. 30 Sportsvision Australia v Tallglen Pty Ltd (1998) 44 NSWLR 103 at 115-116. -- 28 of 28 --