Court of Appeal Supreme Court New South Wales

• Medium Neutral Citation: Schwartz v Hadid [2013] NSWCA 89
• Hearing dates: 14 March 2013
• Decision date: 03 May 2013
• Before: Basten JA at [1]; Macfarlan JA at [12]; Meagher JA at [66]

Decision

Orders in the Joint Venture Proceedings No 2011/226988:

(1) Grant Dr Schwartz leave to appeal.

(2) Direct that the Notice of Appeal filed by him on 28 November 2011 stand as his Notice of Appeal.

(3) Appeal allowed.

(4) Set aside the judgment entered in favour of Mr Hadid at first instance and the order made at the same time that Dr Schwartz pay Mr Hadid's costs of the proceedings to date.

(5) Judgment for Dr Schwartz in the proceedings.

(6) Order Mr Hadid to pay Dr Schwartz's costs of the proceedings at first instance and on appeal.

(7) Grant Mr Hadid a certificate under the Suitors' Fund Act 1951, if he is qualified.

Orders in the Loan Proceedings No 2010/99772:

Mr Hadid's cross-appeal is dismissed with costs.

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

• Catchwords: CONTRACTS - construction and interpretation of contracts - use of extrinsic evidence - Deed of Agreement contained clause that appellant had 'agreed at his discretion to buy one or more properties' - whether recourse to a prior proposal and oral negotiations permitted in construction of the Deed of Agreement - whether language of deed ambiguous - whether proposal and conversations were mutually known surrounding circumstances - whether contract was partly in writing and partly oral - whether recital in Deed of Agreement incorporated any prior agreement; CONTRACTS - consideration - alleged variation of a loan agreement - whether variation agreement supported by consideration - whether there was a practical benefit that sufficed as consideration
• Legislation Cited: Suitors' Fund Act 1951; Supreme Court Act 1970
• Cases Cited: ABC v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540; Agricultural and Rural Finance Pty Ltd v Gardiner [2008] HCA 57; 238 CLR 570; Ansett Transport Industries (Operations) Pty Ltd v The Commonwealth [1977] HCA 71; 139 CLR 54; Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; 129 CLR 99; Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; 149 CLR 337; Cohen v iSoft Group Pty Ltd [2012] FCA 1071; Cordon Investments Pty Ltd v Lesdor Properties Pty Ltd [2012] NSWCA 184; Delaforce v Simpson-Cook [2010] NSWCA 84; 78 NSWLR 483; DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423; Ermogenous v Greek Orthodox Community of SA Inc [2002] HCA 8; 209 CLR 95; Ex parte Dawes; In re Moon (1886) 17 QBD 275; Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; 76 NSWLR 603; Greer v Kettle [1938] AC 156; Grundt v Great Boulder Proprietary Gold Mines Ltd [1938] HCA 58; 59 CLR 641; Home Building Society Ltd v Pourzand [2005] WASCA 242; Jireh International Pty Ltd v Western Exports Services Inc [2011] NSWCA 137; Larkin v Girvan (1940) 40 SR (NSW) 365; Lion Nathan Australia Pty Ltd v Cooper's Brewery Ltd [2006] FCAFC 144; 156 FCR 1; Maggbury Pty Ltd v Hafeli Australia Pty Ltd [2001] HCA 70; 210 CLR 181; Masterton Homes Pty Ltd v Palm Assets Pty Ltd [2009] NSWCA 234; 261 ALR 382; MBF Investments Pty Ltd v Nolan [2011] VSCA 114; Miwa Pty Ltd v Siantan Properties Pte Ltd [2011] NSWCA 297; Musumeci v Winadell Pty Ltd (1994) 34 NSWLR 723; OneSteel Manufacturing Pty Ltd v BlueScope Steel (AIS) Pty Ltd [2013] NSWCA 27; Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; 218 CLR 451; Prenn v Simmonds [1971] 1 WLR 1381; Ralph v Diakyne Pty Ltd [2010] FCAFC 18; Schwartz v Hadid [2011] NSWSC 1041; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; 219 CLR 165; Vella v Ayshan [2008] NSWSC 84; ANZ Conv R ¶8-013; Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45; 86 ALJR 1; Wigan v Edwards (1973) 47 ALJR 586; Wilkie v Gordian Runoff Ltd [2005] HCA 17; 221 CLR 522; Williams v Roffey Bros & Nicholls (Contractors) Ltd (1991) 1 QB 1
• Texts Cited: N Seddon, R Bigwood with M Ellinghaus, Cheshire & Fifoot Law of Contract, 10th Australian ed (2012) LexisNexis Butterworths; J W Carter, Contract Law in Australia, 6th ed (2013) LexisNexis Butterworths
• Category: Principal judgment
• Parties: Jerry Schwartz (Appellant/Cross-Respondent); Albert Hadid (Respondent/Cross-Appellant)
• Representation: Counsel: B W Walker SC/J Sleight (Appellant/Cross-Respondent); N C Hutley SC/S Keizer (Respondent/Cross-Appellant); Solicitors: Neville & Hourn Legal (Appellant/Cross-Respondent); Mahony Taren Lawyers (Respondent/Cross-Appellant)
• File Number(s): 2012/33515

Decision under appeal

• Jurisdiction: 9111
• Citation: Jerry Schwartz v Albert Hadid; Albert Hadid v Jerry Schwartz [2011] NSWSC 1041
• Date of Decision: 2011-09-06 00:00:00
• Before: McDougall J
• File Number(s): 2010/99772 and 2011/226988

HEADNOTE

[This Headnote is not to be read as part of the judgment]

This judgment relates to appeals in two separate proceedings, the Joint Venture Proceedings and the Loan Proceedings.

In the Joint Venture Proceedings, the appellant, Dr Schwartz, entered into a Deed of Agreement with the respondent, Mr Hadid, whereby he "agreed at his discretion to buy one or more properties" at Cranbourne in Victoria as part of a joint venture with Mr Hadid. Prior to this deed being executed, Dr Schwartz and Mr Hadid had conversations about buying one property and taking out options over, or buying, another two, and Mr Hadid submitted a written proposal. Dr Schwartz bought one of the properties and subsequently refrained from attempting to purchase, or obtain an option to purchase, the other two. Mr Hadid brought proceedings for breach of contract, claiming that the deed, properly construed using the conversations and proposal, imposed an obligation on Dr Schwartz to buy or option the other two properties. Alternatively, it was submitted that the proposal and the conversations supplemented the Deed of Agreement, such that it was partly in writing and partly oral, or there was a complete prior agreement.

In the Loan Proceedings, the Dr Schwartz lent $260,000 to Mr Hadid's interests. Mr Hadid raised a defence to Dr Schwartz's claim for repayment that he reached an agreement with Dr Schwartz that the loan would not be repaid until one or other of various business transactions, including the joint venture over the Cranbourne land, matured into profit.

The proceedings were heard together by McDougall J sitting in the Commercial List. By judgment of 6 September 2011, his Honour found in the Joint Venture Proceedings that Dr Schwartz was liable to Mr Hadid for breach of contract, with damages to be assessed, and in the Loan Proceedings that Dr Schwartz was entitled to judgment against Mr Hadid for $260,000 plus interest. The unsuccessful parties appealed.

In the Joint Venture Proceedings

Held: by Macfarlan and Meagher JJA (Basten JA dissenting) allowing the appeal, that no contractual obligation was imposed on Dr Schwartz to purchase or obtain an option to purchase either of the two properties, whether by the contract constituted by the Deed of Agreement or otherwise ([9], [32], [45]-[50], [98], [105]).

In the Loan Proceedings

Held: (1) by the Court dismissing the appeal, that even if Dr Schwartz agreed to extend the term of the loan, that variation was not supported by consideration and was accordingly unenforceable ([2], [59]-[60], [119]).

(2) by Meagher JA, with Basten JA agreeing and Macfarlan JA not deciding, that there were errors by the primary judge in relation to matters which were material to his conclusion that there was no variation agreement ([2], [115]).

Judgment

1 BASTEN JA: The background to the two separate actions which have become the subject of the appeal and cross-appeal is set out in the judgments of Macfarlan JA and Meagher JA. Mr Hadid had sued Dr Schwartz for reneging on a land purchase proposal; he was successful before the trial judge, McDougall J: Schwartz v Hadid; Hadid v Schwartz [2011] NSWSC 1041. Because Dr Schwartz was appealing from an interlocutory judgment (which determined liability but left damages to be assessed) he required leave. I would grant leave but dismiss the appeal.

2 Dr Schwartz had successfully sued Mr Hadid in relation to a loan. Mr Hadid purported to cross-appeal. He was entitled to appeal as of right, had he done so within time. No objection was raised to the procedure adopted. Treating the cross-appeal as an appeal, I agree that it should be dismissed, for the reasons given by Macfarlan JA and Meagher JA. I would support the following orders:

(1) To the extent necessary, waive any requirement that the appeal be brought by a notice of appeal and not a notice of cross-appeal and treat the notice as filed within time.

(2) Dismiss the appeal.

(3) Order that Mr Hadid pay Dr Schwartz' costs of the cross-appeal.

3 With respect to Dr Schwartz' appeal, I agree with the statement of principles in the reasons of Meagher JA. However, I take a different view as to the application of those principles to the facts of the case. With one qualification, I would accept the approach of the trial judge.

4 The qualification relates to the manner in which the trial judge took into account "the investment proposal", as set out in Mr Hadid's letter to Dr Schwartz of 8 June 2007, set out at [16] below, without deciding whether it was a document of contractual standing: at [26]. In my view, both the proposal and the subsequent conversation in "about mid July 2007", set out at [17] below, were part of the contract between the parties, which was only partly recorded in the deed set out at [20] below. Reference to these exchanges is necessary to identify the nature of the arrangement. As explained by Meagher JA, the terms of the deed were at least ambiguous and, more accurately, subject to multiple elements of uncertainty. The earlier exchanges between the parties constituted more than contextual material which can be relied upon to resolve ambiguities; they contained the substance of the agreement.

5 When Mr Hadid approach Dr Schwartz with the proposal, he identified four properties comprising in total 80 acres. The largest single property, referred to as site A, was already owned by a company associated with Mr Hadid. In combination with the other three properties, Mr Hadid considered that the land would be attractive to a large developer, as it was situated at Cranbourne, on the south-east perimeter of Melbourne. Development of the area was part of a local government expansion plan. Mr Hadid's investment proposition was straightforward:

"The proposal is to buy B, C & D, sell them in one line as soon as possible and split the net profits. A is already owned by our consortium. The plan is to first buy B [then] buy or option C & D. C & D have no road access [except] via A & B. If we buy B [then] we have both access ways to C & D. B & C are for sale. D would negotiate seeing they would have limited options."

6 Mr Hadid gave evidence of his discussions with the owners of the three sites. The owner of B was not prepared to give an option, but was prepared to sell for $900,000.

7 There were two documents in evidence dated 23 August 2007. One was a deed between Dr Schwartz and the secretary of the pastoral company which owned B, agreeing a purchase price of $850,000, to be paid in two tranches. The second was the deed between Dr Schwartz and Mr Hadid the subject of the present proceedings. As Meagher JA explains, Dr Schwartz was to provide the finance and would bear the risk of any loss. Mr Hadid was responsible for introducing the deal and negotiating the terms of any purchases and, in due course, the sale of the land. Once Dr Schwartz agreed to buy B, Mr Hadid was locked in: he could not take his business proposal elsewhere. That fact no doubt explained the timing of the formal "deed" between them.

8 The arrangement was subject to a number of contingencies. There were both 'front-end' and 'back-end' contingencies. The front-end contingencies were twofold. One was whether Dr Schwartz would purchase the properties outright, or would take options only, which could be on-sold to or exercised in favour of subsequent purchasers. On either approach, the primary contingencies were the prices to purchase the sites, although if options were to be obtained, the periods of the options would need to be sufficient to allow Mr Hadid to negotiate the on-sale of the land. The back-end contingencies included the identification of interested developers, the price and terms of the sale, including the timing, which would affect the holding costs.

9 While Dr Schwartz was not committed to the expenditure of unlimited funds, he was not free to refuse to purchase C and D, so long as Mr Hadid negotiated prices broadly in line with the expectations revealed in the proposal. That such an agreement involved contingencies was reflected in the various references in the deed to Dr Schwartz' "discretion". However, there was an agreement that Dr Schwartz would purchase if Mr Hadid was able to negotiate terms within the scope of the proposal, which he did, at least with respect to B and the larger of the two sites, namely D.

10 The trial judge noted at [34]:

"It is common ground that, if the deed were otherwise enforceable, Dr Schwartz breached it by withdrawing, and refusing to continue with the purchase of or taking of options over sites C and D."

11 This statement depends on the further conclusion, already accepted by the trial judge, that Dr Schwartz was bound to purchase the sites. That finding should be accepted, in the terms explained above. Accordingly, the finding as to the liability for damages to be assessed was not in error. The appeal should be dismissed.

12 MACFARLAN JA: This judgment relates to appeals in two separate proceedings between former friends and business partners, Dr Jerry Schwartz and Mr Albert Hadid. The first proceedings concern the acquisition of property at Cranbourne in Victoria ("the Joint Venture Proceedings") and the second relate to a loan of $260,000 made by Dr Schwartz to Mr Hadid's interests ("the Loan Proceedings").

13 The proceedings were heard together by McDougall J sitting in the Commercial List. By judgment of 6 September 2011, his Honour found in the Joint Venture Proceedings that Dr Schwartz was liable to Mr Hadid for breach of contract, with damages to be assessed, and in the Loan Proceedings that Dr Schwartz was entitled to judgment against Mr Hadid for $260,000 plus interest. The unsuccessful parties have appealed.

THE JOINT VENTURE PROCEEDINGS

The factual circumstances

14 Mr Hadid gave evidence as follows of his dealings with Dr Schwartz in relation to the Cranbourne transaction. His evidence was not relevantly challenged in cross-examination, nor was it contradicted by any evidence from Dr Schwartz.

15 In his affidavit of 7 April 2011 Mr Hadid described the inception of the dealings as follows:

"13 In or about mid 2007 I had a conversation with Mr Schwartz and his former partner, Lilliane, to the following effect:

Me: 'There is an opportunity to purchase three blocks of land next to an existing block of land [at Cranbourne] which my family owns as part of a joint venture with Vicbuy Pty Limited as trustee for the Melbourne Unit Trust'.

Lilliane: 'I have friends that could buy those properties and enter into a joint venture with you or your family and you could all make a profit'.

14 Lilliane then turned to Mr Schwartz and said words to the following effect:

'Jerry, why don't you buy the three blocks of land that Albert is talking about? It sounds like a good opportunity for both of you'.

15 Mr Schwartz and I then discussed the opportunities to acquire and sell the land surrounding the Cranbourne Land. A summary of a proposal, prepared by me for Mr Schwartz and dated 8 June 2007, to purchase the land surrounding the Cranbourne Land is annexed hereto and marked 'A'. Mr Schwartz subsequently said to words to the following effect:

'I will need to see the land'".

16 The document dated 8 June 2007 (the "Proposal") to which Mr Hadid referred described the properties and their locality, indicating that there were four sites, A of 35 acres, B of 5 acres, C of 20 acres and D of 20 acres. It then said:

"The proposal is to buy B, C & D, sell them in one line as soon as possible and split the net profits. A is already owned by our consortium. The plan is to first buy B than buy or option C & D. C & D have no road access accept [sic] via A & B. If we buy B [then] we have both access ways to C & D. B & C are for sale. D would negotiate seeing they would have limited options.

Land size A+B+C+D = 80 acres. 80 acres offered in one line to one of the majors is a serious proposition. We believe we will sell for $200k per acre. Therefore the site will sell for approx $16m.

I believe B, C & D can be purchased for $4.7m. We can sell for $8 to $9m. The profits are $4.3m within 6 to 12 months possibly less.

Strategy: We pay $4/500k on B. We option C & D".

17 In his affidavit of 16 August 2011, Mr Hadid gave further evidence as follows:

"20 In or about mid July 2007 Mr Schwartz and I had a conversation to the following effect:

Mr Schwartz: 'The Cranbourne proposal is a clever opportunity, pick them up before they are zoned and flick them to the developers now, it gives every one a layer of profit'.

Me: 'It is about being at the right place at the right time. It will take about two to three years to zone, some say four. It is a good time to pick up good deals and sell them to developers who land bank [sic]' .

Mr Schwartz: 'So we can option the 3 lots and flick them after?'

Me: 'We can option the bigger two parcels but Ted Cooper wants to sell his 5 acres'.

Mr Schwartz: 'I will buy the 5 acre lot and at my choice decide whether I buy or option the other two. Are they all happy to sell?'

Me: 'Yes, very much so. I have spoken to all 3 of them on two occasions, they are waiting on me to get back to them. I had Stephen Fahry talk to them as well. At the moment we have them at a good price. I calculate we can buy all 3 for 4.7 million. The owner of the 5 acres played hard ball, he wanted $1 million but has now agreed to accept $900,000. The other two we can buy or option. I spoke with Els Van Soest, her family own the 20 acres that runs on Vicbuy's border, and to Doug McTier, he and his wife own the other 20 acres. They are both keen to sell as long as they see a serious deposit or an option fee of $200,000 for the Van Soests and $150,000 for the McTiers'.

Mr Schwartz: 'Like I said I will buy the 5 acres and decide whether to option or purchase of the other two [sic]. Have you tested the market?'

...

Mr Schwartz: 'I am satisfied with our discussions, we can do this, profits are split 50:50, as we buy or option them, I will hold the land in my name, OK?'

Me: 'Yes'".

18 In his affidavit of 7 April 2011, Mr Hadid deposed further as follows:

"16 In about August 2007 Mr Schwartz and I travelled to Victoria and inspected the Cranbourne Land and the three vacant blocks surrounding it. Mr Schwartz said [sic] and I had a conversation to the following effect:

Mr Schwartz: 'I will buy the 3 lots, let's be smart. You negotiate the purchase of the 5 acre lot first, once we buy the 5 acres we will have control over the two entry points and this way we can buy the two 20 acres lots at a cheaper price. I agree to buy all three properties, you handle the day to day and we'll split the profit 50/50'.

Me: 'You get 50% of the profits from the sale of the three properties, I will get the other 50%'.

Mr Schwartz: 'That makes good sense, if we combine the three lots of 45 acres with the Vicbuy lot which is 35 acres we can sell all 80 acres in one line and split the profits with Vicbuy pro-rated on a proportion on 35/45 and you and I would split the profits on the 45 50/50'.

Me: 'Like I said, unless we sell the 45 acres separate, but I think it is going to be more attractive if we sell them all in one line'".

19 In his affidavit of 16 August 2011, he deposed:

"21 In or about August 2007, shortly after Mr Schwartz and I returned from Victoria, I met with Mr Schwartz and we had a conversation to the following effect:

Me: 'I am pressing on with our agreement to buy the 3 properties at Cranbourne. Once Ted Cooper's property is exchanged we should buy the other two. Why not do what you initially agreed to do, that is, buy or option all three now?'

Mr Schwartz: 'Stop worrying, I said the deal is done, we will buy the three. Exchange with Cooper then we control the gateway'.

Me: 'I suggested you buy one, then the other two. You know I have made a reasonable deal with the other 2 owners, you have the choice to option or purchase now instead of risking it'.

Mr Schwartz: 'Exchange the 5 acres first, there is no risk as we are in control. We will not lose them, as they will be land locked, then I can decide whether I purchase or option the other 2 sites. I might pay a fee to put them on hold and then flick them, saving stamp duty. We will need advice on that so we do not get caught. Once we have the 5 acres, we will buy the other two'.

Me: 'I can get all 3 of them for $4.7m if we buy now. I have their word, they are ready to sell. Don't sit on it for too long'.

Mr Schwartz: No we will do it straight after exchanging with Ted. I do not want to risk the other two till we have the 5 acres. There is a good profit. Let's secure the gateway first. Even if we pay more later to buy or option, or we pay a holding fee, we will still do well. I know you will negotiate a good deal. Even at $6m, the return is good'".

20 On 23 August 2007, Mr Hadid and Dr Schwartz signed a "Deed of Agreement" in the following terms:

"Deed of Agreement

This Deed is made on the 23 day of August 2007.

BETWEEN Mr Albert Hadid and or his nominees 'Albert' AND Jerry Schwartz and or his nominee/s 'Jerry'

RECITALS AS AGREED

1.1 Jerry and Albert are friends and wish to enter into this business arrangement.

1.2 Jerry has agreed at his discretion to buy one or more properties at Junction Village Cranbourne Victoria "Properties".

1.3 Albert has introduced Jerry to the properties and will negotiate the purchase and sale of the properties at Jerry's discretion.

THE PARTIES AGREE:

1. All terms in this deed are strictly confidential between the parties and may only be discussed with the parties and their lawyers and accountants.

2. Jerry will purchase the properties in entities he is comfortable with.

3. Jerry agrees whilst he is the sole Director and shareholder, he is holding 50% of the shares in the entities that own the properties in trust for Albert pursuant to this Deed.

4. On sale of the properties Jerry will first as a priority deduct the following:

1. All capital contributions he makes.

2. All reasonable money or interest costs relating to the capital contributed by Jerry.

3. All costs relating to the properties including but not limited to interest, accounting costs, Stamp duty costs, Land tax costs (if any), legal costs, DA costs and any other direct costs incurred by the properties.

5. After deduction of the amounts mentioned in clause 4 above Jerry will pay as directed by Albert 50% of all the net profit".

21 Mr Hadid said that on behalf of Dr Schwartz he "subsequently" entered into negotiations with Mr Ted Cooper who acted on behalf of the owner of Site B and that, again "subsequently", Dr Schwartz "and or his nominee/s" entered into an agreement with the owner of that property to purchase it for $850,000. The written agreement relating to that transaction was nevertheless dated 23 August 2007 which is the same date as that which the Deed of Agreement bears. It is not clear whether the agreement with Mr Cooper was in fact signed on that day.

22 Subsequently Dr Schwartz refrained from attempting to purchase Sites C and D. Mr Hadid claimed that this constituted a breach of contract and commenced the present proceedings claiming damages from Dr Schwartz.

The judgment at first instance

23 The primary judge first rejected an argument, which is not pursued on appeal, that the Deed of Agreement between the parties was not intended to be legally binding.

24 On issues of whether the Deed of Agreement was void for uncertainty and its proper construction, the primary judge reached the following conclusions:

"24 The first point of difficulty arises from clause 1.2, and, in particular, the reference to 'discretion'. As a matter of language, that could mean, as Mr Sleight [counsel for Dr Schwartz] submitted, that Dr Schwartz had a discretion as to whether to buy one, or two, or three of sites B, C and D. Mr Sleight submitted that Dr Schwartz could be obliged to do no more than buy one of those sites; and, that since he had done so (because he did proceed with the purchase of site B), any legal obligation was thereby fulfilled.

25 Mr McCulloch [counsel for Mr Hadid] submitted that the discretion that was given was whether to buy the sites (or some of them) or whether to take options to buy them. In support of that, he relied both on the conversations that led up to the making of the deed and on the terms of the investment proposal.

26 In my view, taking into account the investment proposal, at least as a matter of context (I do not need to decide whether, as Mr McCulloch submitted in one of his iterations of Mr Hadid's case, it was a document of contractual standing) the discretion given relates to the 'buy or option' part of the investment proposal. What the parties were considering was that site B should be bought, because the effect of so doing would be to 'landlock' sites C and D. The effect of that would be to put the owners of sites A and B in the box seat in any negotiations for the purchase of sites C and D. Clearly, that is what the parties had in mind. As the investment proposal stated, if site B were bought then both ways of access to sites C and D were tied up. The proposal contemplated that the owners of sites C and D would have to negotiate, stating in particular that site D 'would have limited options'.

27 In those circumstances, I think, it is appropriate to construe the deed as requiring Dr Schwartz to buy site B but then, at his discretion, either to buy or to take options over sites D and C. That gives business sense to the language of the deed and ensures that it is consistent with the proposal that the parties had been discussing. There is no doubt that the hypothetical reasonable person in the position of the parties, knowing what they knew, would have taken into account the terms of the investment proposal in seeking to understand what, objectively, the parties meant to achieve by clause 1.2 of the deed".

25 Having concluded that clauses 2, 3, 4 and 5 were not too uncertain for enforcement, his Honour summarised his conclusions as follows:

"30 Thus, when one reads together the investment proposal and the deed, the following points emerge:

(i) the parties are identified, although with discretion to operate through nominees or (in the case of Dr Schwartz) other controlled entities;

(ii) the properties that are referred to in the deed are identified, taking into account what is stated in the investment proposal and the diagram referred to in it;

(iii) the joint venture itself is identified; it is first to buy site B (the key site) and then to buy or take options over sites C and D; and then to onsell those sites, preferably consolidated with site A and thus in conjunction with Vicbuy, to some major developer;

(iv) the overall price structure is defined, by reference to the investment proposal which suggested a total investment of $4.7 million for the three sites B, C and D (I interpose to note that Mr Hadid was able to negotiate prices that would fit within this cap);

(v) the division of responsibilities was agreed; and

(vi) the consideration, or more properly the rewards to flow to each party, were agreed.

31 On that basis, as I have said, I think that the discretion referred to in clause 1.2 is limited to the 'buy or option' proposal identified for sites C and D, and that the deed has sufficient content to be sufficiently certain to be enforceable.

...

34 It is common ground that, if the deed were otherwise enforceable, Dr Schwartz breached it by withdrawing, and refusing to continue with the purchase of or taking of options over sites C and D.

35 In those circumstances, it follows in my view that Dr Schwartz is liable for damages to be assessed".

Leave to appeal

26 As liability only, and not damages, was determined by the judgment at first instance, the decision was interlocutory and Dr Schwartz requires leave to appeal (see s 101(2)(e) of the Supreme Court Act 1970). Moreover, he needs an extension of time for the filing of his summons seeking leave to appeal as it was not filed within the prescribed period. Mr Hadid has not advanced any reasons why an extension of time and leave to appeal should be refused. As the delay has been adequately explained and as, for the reasons given below, Dr Schwartz's challenge to the judgment has merit, in my view an extension of time and leave to appeal should both be granted. As the leave application and the appeal were heard concurrently, the Court can proceed to determine the appeal immediately.

Issues on appeal

27 On appeal, Dr Schwartz contended that the primary judge's conclusion that paragraph 1.2 of the Deed of Agreement imposed a contractual obligation upon him to buy, or at least attempt to buy, Sites C and D was erroneous. He submitted that his Honour had wrongly had recourse to the written Proposal of 8 June 2007 (see [16] above) and conversations between the parties for the purpose of construing the Deed of Agreement.

28 In response, Mr Hadid contended that the primary judge's approach was correct because ambiguity in paragraph 1.2 justified recourse to the Proposal and the conversations to assist in determining its meaning. In the alternative, Mr Hadid submitted, in support of a Notice of Contention filed by him, that consideration of the Proposal and conversations was justified as they formed part of the contract between the parties, that being partly in writing (comprising the Proposal and Deed of Agreement) and partly oral.

The contract if constituted by the Deed of Agreement alone

29 The primary judge recognised that, read literally, paragraph 1.2 "could mean" that Dr Schwartz had a discretion as to whether to buy one, or two, or three of Sites B, C and D (Judgment [24]). He did not however adopt that view as the proper construction of paragraph 1.2. He found that the paragraph obliged Dr Schwartz to acquire Sites B, C and D but, at least in the case of Sites C and D, gave him a discretion whether to do so by buying outright or by securing options. He said that this gave "business sense to the language of the deed" and ensured that its construction was "consistent with the proposal that the parties had been discussing" (Judgment [27]). It is apparent from his Honour's reference to the Proposal in [26] and the parties' discussions in [27] that his Honour took both into account in construing paragraph 1.2.

30 It is convenient first to consider the correctness of his Honour's construction of paragraph 1.2 upon the assumption (much in dispute) that he was entitled to take these matters into account.

31 Considering the issue on this assumption, it is notable that the primary judge did not indicate how the language of paragraph 1.2 was capable of accommodating the construction he adopted. As I pointed out in Jireh International Pty Ltd v Western Exports Services Inc [2011] NSWCA 137 at [55]:

" ... So far as they are able, courts must of course give commercial agreements a commercial and business-like interpretation. However, their ability to do so is constrained by the language used by the parties. If after considering the contract as a whole and the background circumstances known to both parties, a court concludes that the language of a contract is unambiguous, the court must give effect to that language unless to do so would give the contract an absurd operation. In the case of absurdity, a court is able to conclude that the parties must have made a mistake in the language that they used and to correct that mistake. A court is not justified in disregarding unambiguous language simply because the contract would have a more commercial and businesslike operation if an interpretation different to that dictated by the language were adopted".

(see also Miwa Pty Ltd v Siantan Properties Pte Ltd [2011] NSWCA 297 at [18]).

32 In conformity with these principles, it was not permissible for the primary judge to adopt what he perceived to be a business-like meaning of paragraph 1.2 unless that construction was open on the language of the clause (or, which is not suggested in the present case, unless adoption of the literal meaning of the clause would give rise to an absurdity). His Honour recognised that, taken literally, paragraph 1.2 could mean that Dr Schwartz had a discretion whether to buy one, or two or three of Sites B, C and D but did not suggest that it could, if again taken literally, mean that his only discretion was whether, in fulfilling an acquisition obligation, to buy outright or obtain options. In my view, the latter construction was not open upon the language of the provision. Paragraph 1.2 does not use the word "option". The words "at his discretion" immediately follow, and in my view qualify, the word "agreed". I consider that the language is plain in indicating that Dr Schwartz's agreement did not involve the assumption by him of any obligation to buy the properties. Even if the words "agreed at his discretion" indicated otherwise, his obligation would only have been to buy "one or more" of the properties. As he purchased Site B, he complied with any such obligation.

33 I do not consider that any other part of the Deed of Agreement suggests that a different approach should be taken to the construction of paragraph 1.2. In particular, I do not consider that the use of the words "at Jerry's discretion" in paragraph 1.3 supports Mr Hadid's submissions. Those words qualify the reference to Mr Hadid negotiating the purchase and sale of the properties and simply indicate that he is to do so in accordance with Dr Schwartz's directions.

34 As a result, even if consideration of the Proposal and the conversations between the parties were permissible and they gave a clear indication that at the time the Proposal was signed and the conversations occurred they intended that Dr Schwartz would assume a binding obligation to purchase the properties, paragraph 1.2 could not be construed to impose such an obligation because its language does not require or permit such a construction. The conclusion would thus be that the parties intent at the time of, and manifested by, their later written agreement differed from, and superseded, the intent that they had earlier had during the course of their negotiations.

35 I note that the construction of paragraph 1.2 at which I have arrived does not render the agreement an obviously unbusinesslike one. Indeed, the opposite appears to be the case. In effect, the Deed of Agreement, as I construe it, provides that in consideration of Mr Hadid's introduction of the proposal to Dr Schwartz and the exercise of Mr Hadid's negotiating skills, he is to be entitled to 50 per cent of the profit from the purchase and sale of the properties if Dr Schwartz decides to purchase them. Furthermore, it is inherent in Mr Hadid's contrary submissions that Dr Schwartz should be understood as having intended to assume an obligation to buy the properties without restriction as to the price that he might have to pay for them. Clear contractual words would in my view be required to justify such a seemingly unbusinesslike construction being adopted.

36 As Dr Schwartz succeeds on the point to which I have already referred, the questions of whether, for the purposes of construction, recourse was permitted to the Proposal and conversations and whether, if it was, they assisted in the construction of paragraph 1.2 do not strictly arise. Nevertheless, my views in relation to them are as follows.

37 The decision of three justices of the High Court in Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45; 86 ALJR 1 on an application for special leave to appeal from the decision of this Court in Jireh International v Western Export Services indicates the existence of an issue as to whether ambiguity needs to be found in a written contract before recourse can be had to mutually known circumstances to assist in construction of the contract. In Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; 76 NSWLR 603, this Court held that it was not. In Western Export Services, Gummow, Heydon and Bell JJ stated at [3] that intermediate appellate courts are nevertheless bound by Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; 149 CLR 337 to apply the contrary proposition. It is unnecessary in the present case to consider the authority of Western Export Services v Jireh International on this point as in my opinion the particular circumstances relied upon in the present case were not mutually known "surrounding circumstances" in the conventional sense and were not so available.

38 Contrary to Mr Hadid's submissions, the recourse that he sought that the Court have to the Proposal and conversations was not for the purpose of ascertaining the "factual background known to the parties at or before the date of the contract, including evidence of the 'genesis' and objectively of the 'aim' of the transaction" (Codelfa at 348 citing Prenn v Simmonds [1971] 1 WLR 1381 and at 351 citing DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 at 429). For this purpose, the "aim" in the present case could not reasonably be regarded as more specific than the acquisition and resale at a profit of the identified properties in Victoria. An issue as specific as whether one of the parties assumed a legally binding obligation to purchase the properties is well outside that concept.

39 In effect, Mr Hadid contended that the Court should have regard to pre-contractual communications for the purpose of revealing what provisions the parties intended to include in their later written contract, in particular as to the imposition of an obligation of purchase on Dr Schwartz. The taking of such a step would be inconsistent with the following well-known statements of principle in Codelfa:

"It is here that a difficulty arises with respect to the evidence of prior negotiations. Obviously the prior negotiations will tend to establish objective background facts which were known to both parties and the subject matter of the contract. To the extent to which they have this tendency they are admissible. But in so far as they consist of statements and actions of the parties which are reflective of their actual intentions and expectations they are not receivable. The point is that such statements and actions reveal the terms of the contract which the parties intended or hoped to make. They are superseded by, and merged in, the contract itself. The object of the parol evidence rule is to exclude them, the prior oral agreement of the parties being inadmissible in aid of construction, though admissible in an action for rectification.

Consequently when the issue is which of two or more possible meanings is to be given to a contractual provision we look, not to the actual intentions, aspirations or expectations of the parties before or at the time of the contract, except in so far as they are expressed in the contract, but to the objective framework of facts within which the contract came into existence, and to the parties' presumed intention in this setting. We do not take into account the actual intentions of the parties and for the very good reason that an investigation of those matters would not only be time consuming but it would also be unrewarding as it would tend to give too much weight to these factors at the expense of the actual language of the written contract" (at 352 per Mason J).

40 In the language of Mason J, the parties' conversations and the written Proposal in the present case may have revealed the terms of the contract which they, at that time, intended or hoped to make but these communications were "superseded by, and merged in, the contract itself". Whilst it was permissible to use extrinsic evidence to identify the properties to which the Deed of Agreement referred and, in the general sense which I have described, the aim of the transaction, it was not permissible to use those communications to determine whether Dr Schwartz had assumed an obligation to purchase. Subject to the argument, to which I refer below, that the Deed of Agreement was not intended to be a complete statement of the parties' contractual arrangements, the question of whether Dr Schwartz assumed any purchase obligation was, whether on the view stated in Franklins v Metcash Trading or that in Western Export v Jireh International, to be determined by reference to the language of the Deed of Agreement, considered against the background of only the limited extrinsic evidence that I have identified.

41 The good sense behind the rule precluding evidence of prior negotiations is illustrated by the circumstances of the present case. Whilst some of Dr Schwartz's statements were expressed in terms of an agreement to purchase, the context in which they were made, and the fact that they were followed by the execution of a formal Deed of Agreement, renders it unlikely that they were intended to give rise to a legally binding obligation, as distinct from constituting statements of his then intent. Frequently, as I consider to be the case here, it is not until the communications have culminated in a written agreement that the parties' contractual intentions can be discerned.

42 For these reasons I consider that Dr Schwartz's primary submission, relating to the basis on which the primary judge found against him, is well-founded.

Whether the contract was partly in writing and partly oral

43 Mr Hadid's alternative submission was that the contract was partly in writing (constituted by the written Proposal and the Deed of Agreement) and partly oral (comprising the conversations to which I have referred at [15], [17], [18] and [19] above). The primary judge did not consider this argument as he found in Mr Hadid's favour on his primary submission.

44 The following principles stated by Campbell JA (with the concurrence of Allsop P and Basten JA) in Masterton Homes Pty Ltd v Palm Assets Pty Ltd [2009] NSWCA 234; 261 ALR 382 at [90] are of present relevance:

• "When there is a document that on its face appears to be a complete contract, that provides an evidentiary basis for inferring that the document contains the whole of the express contractual terms that bind the parties".
• "It is open to a party to prove that, even though there is a document that on its face appears to be a complete contract, the parties have agreed orally on terms additional to those contained in the writing".
• "Where a contract is partly written and partly oral, the terms of the contract are to be ascertained from the whole of the circumstances as a matter of fact".

45 In my view the Deed of Agreement in the present case appears on its face to be a complete statement of the terms of the parties' contract.

46 There are several matters that indicate this is the case. First are the document's title and the fact that the parties chose the formality of a deed to record their agreement. Secondly, paragraph 1.1, in referring to the parties' desire "to enter into this business arrangement", suggests that the terms of the arrangement are to be found in the document. Thirdly, the essential elements of a sensible business arrangement appear to be specified in the Deed of Agreement (albeit in informal terms), without any obvious omission.

47 Consideration of the terms of the written Proposal and the conversations between the parties does not in my view suggest that the Deed was not intended to be a complete statement of the parties' bargain. The former is in the nature of an introduction, not purporting to record any agreement, and is not couched in promissory terms. With the possible exception of Dr Schwartz's statements to the effect that he agreed to purchase the subject properties, the latter did not include any agreements that were arguably contractual. Moreover, for the reasons I gave in [41] above, I do not conclude that Dr Schwartz's statements about purchase were intended to be contractual. Of particular importance is the parties' subsequent entry into a formal written agreement.

48 Moreover, even if they were intended to be contractual at the time they were made, and came to form part of a contract that was partly in writing and partly oral, in my opinion they were, as a matter of construction of that hybrid contract, superseded in their effect by the provision of the Deed of Agreement (paragraph 1.2) dealing expressly (and differently) with the same subject matter. As I have indicated earlier (see [32]), the language of paragraph 1.2 is clear in indicating that Dr Schwartz was not, by that provision, assuming a legally binding obligation to purchase any of the properties. The fact that arguably he may earlier have made statements indicating otherwise does not in my view qualify or change the meaning of the Deed of Agreement which, even if it were not the only statement of the parties' contractual intentions, was certainly the last, and entitled to precedence for that reason.

49 Mr Hadid submitted that because paragraph 1.2 was described as a recital and referred in the past tense to an agreement by Dr Schwartz, an agreement on the same subject matter that was discernable from the prior discussions was incorporated in the clause and took precedence over the words appearing in it.

50 I do not accept this submission. I do not consider that any particular importance can be attached to the word "RECITALS" as it is followed immediately by the words "AS AGREED" and there is then a section commencing "THE PARTIES FURTHER AGREE" (emphasis added). It seems to me that paragraphs 1.1 to 1.3 simply record preliminary aspects of the parties' arrangements. The statement in paragraph 1.2 that "Jerry has agreed at his discretion to buy ... " does not indicate that recourse is to be had to earlier discussions to determine what Dr Schwartz agreed to do. The clause itself states what the parties agree to be the nature and extent of Dr Schwartz's agreement. That was their last word on the topic and this did not show an intention to impose on Dr Schwartz a legally binding obligation to purchase the properties.

51 For these reasons, Mr Hadid's attempt to support the primary judge's decision on different grounds to those given by the primary judge fails.

Orders in Joint Venture Proceedings

52 As Dr Schwartz has been successful in demonstrating that the primary judge was in error in finding in favour of Mr Hadid in the Joint Venture Proceedings, I propose the following orders in those proceedings:

(1) Grant Dr Schwartz leave to appeal.

(2) Direct that the Notice of Appeal filed by him on 28 November 2011 stand as his Notice of Appeal.

(3) Appeal allowed.

(4) Set aside the judgment entered in favour of Mr Hadid at first instance and the order made at the same time that Dr Schwartz pay Mr Hadid's costs of the proceedings to date.

(5) Judgment for Dr Schwartz in the proceedings.

(6) Order Mr Hadid to pay Dr Schwartz's costs of the proceedings at first instance and on appeal.

(7) Grant Mr Hadid a certificate under the Suitors' Fund Act 1951, if he is qualified.

THE LOAN PROCEEDINGS

53 At first instance (and on appeal) it was common ground between the parties that in October 2007 Dr Schwartz lent $260,000 to Mr Hadid's interests. The primary judge resolved an issue as to the identity of the borrowing entity by holding that the loan was made to Mr Hadid, rather than a company named Vicbuy Pty Limited. That finding was not challenged on appeal.

54 The primary judge went on to reject a defence raised by Mr Hadid to Dr Schwartz's claim for repayment of the loan that, by way of variation to the original arrangements for repayment, Mr Hadid "reached an agreement with Dr Schwartz that the loan would not be repaid until one or other of various business transactions, including the joint venture over the Cranbourne land, matured into profit" (Judgment [45]). On appeal, Mr Hadid mounted a strong challenge to the reasoning given by the primary judge in support of his conclusion that no such agreement was made. However, in light of my conclusion that there was no consideration to support the alleged variation agreement, it is unnecessary to deal with that challenge.

No consideration to support loan variation agreement

55 In both written and oral submissions at first instance, Dr Schwartz submitted, albeit without elaboration, that the alleged loan variation agreement, if made (which was in issue), was unenforceable for want of consideration. He took the same point in his written submissions on appeal, again without elaboration. He was given leave at the appeal hearing to file a Notice of Contention formalising his reliance on the point, and again by leave, the parties subsequently filed written submissions dealing with it. Having found that no loan variation agreement was made, the primary judge did not deal with the consideration argument.

56 Mr Hadid gave the following affidavit evidence of the alleged loan variation agreement:

"In or about May 2008 I had a conversation with Mr Schwartz to the following effect:

Me: 'Vicbuy is due to pay me back the $260,000 when they refinance on 11 August 2008. I have taken responsibility for the $260,000 loan. I will need that money when Vicbuy repays it in August. Also, can I get that $70,000 from you?'

Mr Schwartz: 'When will you repay the $260,000?'

Me: 'You know I don't have a regular income. It has to come out of a sale, perhaps when we buy the two remaining Cranbourne lots and resell them'.

Mr Schwartz: 'Ok you can repay it from whatever comes first, when we resell the 5 acres we bought from Ted Cooper, Vicbuy sells its land, from commissions you receive on Bali, or you start receiving income from the shopping centre'.

Me: 'Ok'" (affidavit of 7 April 2011, [34]).

57 In his written submissions on appeal, Mr Hadid relied upon the following passage in his cross-examination to indicate that there was consideration for the loan variation agreement:

"Q. ... Nowhere in your affidavit does Mr Schwartz say to you words to the effect that he does not need the $260,000, does he?

A. I'm not sure.

Q. You read those affidavits through, didn't you?

A. When?

Q. You've read your affidavit--

A. Yes, I did, sir.

Q. And if Mr Schwartz had said to you, 'I don't need the $260,000', that would be a matter that would be important to your case, wouldn't it?

A. No, with a qualification, sir.

Q. I just put it to you that Mr Schwartz has never indicated to you that he didn't need the money, has he?

A. No, he did. He indicated to me that I could keep the money as part of my expenses because I was working with him almost full-time, sir.

Q. Mr Hadid, can you listen to my question. My question is that Mr Schwartz has never indicated to you that he had no need of the $260,000, has he?

A. He did.

Q. When did he do that, sir?

A. Around about May 2008 before we went overseas" (Transcript pp 14 - 15).

58 Mr Hadid's submissions implicitly recognised that the alleged loan variation agreement would be unenforceable for want of consideration if nothing more occurred than that Dr Schwartz told Mr Hadid that he could repay the loan at a later date than had previously been agreed. Mr Hadid, however, submitted that it was sufficient to render their alleged agreement enforceable that Dr Schwartz would obtain "a practical benefit" from his agreement to defer repayment. The "practical benefit" was said to be:

"[T]he fact that Mr Schwartz would continue to have Mr Hadid working for him almost full-time as a result of agreeing that Vicbuy Pty Ltd could pay the $260,000 to Mr Hadid and Mr Hadid could retain those funds in order to defray his own expenses (incurred as a result of working for Mr Schwartz) until the occurrence of certain defined events" (Submissions dated 18 March 2013, [12]).

59 As support for this proposition, Mr Hadid relied upon the decisions in Musumeci v Winadell Pty Ltd (1994) 34 NSWLR 723 (at 746 - 8), Vella v Ayshan [2008] NSWSC 84 (at [18]) and Cohen v iSoft Group Pty Ltd [2012] FCA 1071 (at [144]). In the first of these cases, Santow J applied principles stated in Williams v Roffey Bros & Nicholls (Contractors) Ltd (1991) 1 QB 1 to the effect that a contractual variation agreement involving the promise by one party to a contract of an additional payment or benefit in return for the other party's performance of his or her contractual obligation may be enforceable if the promisor obtains a practical benefit from the arrangement. The principles are referred to in J W Carter, Contract Law in Australia, 6th ed (2013) LexisNexis Butterworths [6 - 48] and N Seddon, R Bigwood with M Ellinghaus, Cheshire & Fifoot Law of Contract, 10th Australian ed (2013) LexisNexis Butterworths at [4.35].

60 The present is not an appropriate case in which to discuss the validity or extent of those principles as the parties' submissions did no more than refer to them. It is sufficient to conclude, as I do, that the principles are inapplicable in the present case because the evidence concerning the alleged variation agreement did not identify any benefit that the parties contemplated that Dr Schwartz would obtain as a result of the alleged loan variation beyond that to which he was entitled under the original loan agreement. There was, for example, no promise by Mr Hadid to continue working for Dr Schwartz "almost full-time" (or at all), nor was there any indication in the evidence that if Dr Schwartz extended the time for repayment that that work would be likely to occur (even if not promised by Mr Hadid).

61 The present case is thus distinguishable from Williams v Roffey Bros where a builder agreed to pay a carpentry subcontractor an additional sum to improve the then doubtful prospects of the subcontractor completing agreed work in accordance with the subcontract. Likewise, it is distinguishable from Musumeci v Winadell where a lessor made a rent concession with a view to enhancing the capacity of the tenants to stay in occupation and perform their lease obligations. These authorities provide no support for a proposition that there was consideration for the present alleged oral variation agreement in a circumstance where there was not even any evidence that Dr Schwartz contemplated, or a reasonable person in his position would have contemplated, deriving a benefit from the extension of the time for repayment.

62 For these reasons, even if the alleged oral variation agreement was in fact made, it was unenforceable for want of consideration.

Estoppel

63 In the alternative to his assertion that there was consideration for the alleged oral variation agreement, Mr Hadid submitted that Dr Schwartz was estopped from resiling from his promise to defer repayment of the loan because Mr Hadid acted in reliance on the promise. The submissions referred to evidence of work that Mr Hadid continued to do for Dr Schwartz after the date of the alleged agreement but did not suggest that there was evidence that Mr Hadid did this work in reliance on Dr Schwartz's promise. The submissions also asserted that, in reliance on Dr Schwartz's promise, Mr Hadid had applied to other purposes, funds that he would, but for Dr Schwartz's promise, have used to repay Dr Schwartz. Again, however, no reference was given to any evidence of Mr Hadid that he acted in reliance on Dr Schwartz's promise.

64 In the absence of evidence of conduct of Mr Hadid in reliance on Dr Schwartz's alleged promise, Mr Hadid's estoppel defence fails.

Orders

65 As Mr Hadid did not establish the existence of any enforceable loan variation agreement, or an estoppel, the loan made to him by Dr Schwartz was repayable in accordance with its original terms. These entitled Dr Schwartz to the judgment that the primary judge entered in his favour. Accordingly, the appeal in the Loan Proceedings should be dismissed. As that appeal was brought by way of Notice of Cross-Appeal in Court of Appeal proceedings 2012/33515, the appropriate order, in addition to those proposed above in relation to the Joint Venture Proceedings, is that Mr Hadid's cross-appeal is dismissed with costs.

66 MEAGHER JA: On 6 September 2011 McDougall J delivered an ex tempore judgment in respect of two claims: Schwartz v Hadid [2011] NSWSC 1041. The first was brought by the respondent (Mr Hadid) against the applicant (Dr Schwartz) for damages for breach of an agreement made in August 2007. It was alleged that in pursuit of an investment opportunity introduced by Mr Hadid, Dr Schwartz agreed to buy, and subsequently re-sell, parcels of land near Cranbourne in Victoria on the basis that Mr Hadid would receive 50 per cent of the net profit from that sale. Dr Schwartz acquired one of those parcels of land but did not proceed to purchase any others. Mr Hadid alleged this was in breach of their agreement. The primary judge upheld Mr Hadid's claim, with damages to be assessed. Because that judgment was interlocutory, Dr Schwartz required leave to appeal from it. His summons seeking leave was not filed within time, although a notice of intention to appeal and notice of appeal were filed within the time limits which would have applied had there been an appeal as of right. Dr Schwartz seeks leave to appeal and an extension of the time for making that application. Mr Hadid does not oppose the granting of leave and does not suggest that he has suffered prejudice by reason of any delay in the making of that application.

67 The second claim was brought by Dr Schwartz against Mr Hadid for repayment of a loan of $260,000. The primary judge rejected Mr Hadid's assertion that there was an agreement to defer repayment of the loan and entered judgment against him for $260,000 plus interest. Mr Hadid has filed a cross-appeal against that judgment. No point is taken that this appeal should have been brought in separate proceedings because the judgment appealed from was given in different proceedings from those in which the first claim was made.

68 Because the proposed appeal and the cross-appeal concern different claims and give rise to distinct issues, they must be dealt with separately. I will deal with Dr Schwartz's appeal first.

Dr Schwartz's appeal

The relevant facts

69 In about June 2007, Mr Hadid brought to the attention of Dr Schwartz an opportunity to buy, and consolidate for on-sale, vacant land near Cranbourne. That land was adjacent to land (site A) already owned by Vicbuy Pty Ltd (Vicbuy) as trustee of the Melbourne Unit Trust, the majority of the units in which were held by a discretionary trust controlled for the benefit of Mr Hadid's family. Site A adjoined three further parcels of land (sites B, C and D). There was road access to sites A and B. The only road access to sites C and D was via sites A or B.

70 On 8 June 2007, Mr Hadid gave Dr Schwartz a document which described the opportunity to buy sites B, C and D and to re-sell them at a profit. That document (referred to by the primary judge as the "investment proposal") stated:

"The subject site is one of the fastest growing municipality in Victoria. It is 35 minutes from Melbourne city. Growth demand in residential and retirement properties is very high. The region has developed some of the best facilities for sports, education, recreation, transport and other facilities.

The site has all the services available, Bitumen road, concrete footpath and kerbs, it has road links on two sides. On the Craig Rd side there are residential houses. The site is surrounded on its boundaries by a nursing home, a retirement village, residential properties and beautiful gardens.

The property is part of a deliberate local government expansion development plan. There are 3 stages. Stage 1 has finished. Stage 2 is next and is where these properties are located.

There are 4 subject sites, see diagram provided.

A=35 acres / B=5 acres / C=20 acres / D=20 acres

The proposal is to buy B, C & D, sell them in one line as soon as possible and split the net profits. A is already owned by our consortium. The plan is to first buy B th[e]n buy or option C & D. C & D have no road access [ex]cept via A & B. If we buy B th[e]n we have both access ways to C & D. B & C are for sale. D would negotiate seeing they would have limited options.

Land size A + B + C + D = 80 acres. 80 acres offered in one line to one of the majors is a serious proposition. We believe we will sell for $200k per acre. Therefore the site will sell for approx $16m.

I believe B, C & D can be purchased for $4.7m, We can sell for $8 to $9m. The profits are $4.3m within 6 to 12 months possibly less.

Strategy: We pay $4/500k on B. We option C & D."

71 Mr Hadid and Dr Schwartz inspected the land and had conversations concerning Mr Hadid's proposal in July and August 2007. Mr Hadid's evidence was that in a conversation in about mid-July, Dr Schwartz indicated that he would buy site B and at his choice "decide whether I buy or option the other two". At the conclusion of that conversation Dr Schwartz said "I am satisfied with our discussions. We can do this. Profits re split 50:50, as we buy or option them, I will hold the land in my name. OK?", to which Mr Hadid responded in the affirmative. Mr Hadid gave evidence of two conversations in about August 2007. In the first, Dr Schwartz said he would buy the three sites, with Mr Hadid to negotiate the purchase of site B first. Dr Schwartz said "I agree to buy all three properties, you handle the day to day and we'll split the profit 50/50". In a second conversation there was further discussion about whether Dr Schwartz would buy or option the three properties at the one time or purchase site B and then purchase or take an option over the remaining sites. Dr Schwartz responded that he did not want to "risk the other two till we have" site B.

72 By late August 2007, Dr Schwartz had agreed to purchase site B for $850,000. On 23 August 2007 an agreement between Dr Schwartz "and/or his nominee/s" and the owner of that property was executed. On the same day the Deed of Agreement (the Deed), upon which Mr Hadid primarily relies, was executed. It was in the following terms -

"RECITALS AS AGREED

1.1 Jerry [Mr Schwartz] and Albert [Mr Hadid] are friends and wish to enter into this business arrangement.

1.2 Jerry has agreed at his discretion to buy one or more properties at Junction Village Cranbourne Victoria "Properties"

1.3 Albert has introduced Jerry to the properties and will negotiate the purchase and sale of the properties at Jerry's discretion.

THE PARTIES FURTHER AGREE:

1. All terms in this deed are strictly confidential between the parties and may only be discussed with the parties and their lawyers and accountants.

2. Jerry will purchase the properties in entities he is comfortable with.

3. Jerry agrees whilst he is the sole Director and shareholder, he is holding 50% of the shares in the entities that own the properties in trust for Albert pursuant to this Deed.

4. On sale of the properties Jerry will first as a priority deduct the following:

1. All capital contributions he makes

2. All reasonable money or interest

3. All costs relating to the properties including but not limited to interest, accounting costs, Stamp duty costs, Land tax costs (if any), legal costs, DA costs and any other direct costs incurred by the properties.

5. After deduction of the amounts mentioned in clause 4 above Jerry will pay as directed by Albert 50% of all net profit."

73 Following execution of that deed Mr Hadid continued negotiating "to buy or option" sites C and D. Subsequently, Dr Schwartz determined not to proceed to purchase, or take an option over, either of those parcels of land. Mr Hadid alleged that in these circumstances Dr Schwartz was in breach of an agreement to purchase and re-sell those sites.

The decision of the primary judge

74 Mr Hadid's case was that there was an agreement which required Dr Schwartz to purchase site B and either purchase or take options to purchase sites C and D, and then to sell them and pay him 50 per cent of the net profit. That agreement was alleged to be partly written and partly oral; the writing being the Deed and the investment proposal and the oral part the conversations in July and August 2007 referred to above. Before the primary judge it was also argued that this agreement was wholly constituted by the Deed. The primary judge upheld Mr Hadid's claim upon the latter basis: [26], [27]. In so doing, his Honour had regard to the content of the investment proposal as part of the context in which that agreement had been made: [26], [27], [30].

75 His Honour considered that by recital cl 1.2 Dr Schwartz had agreed that he would buy site B and, at his discretion, also buy or enter into options to purchase, sites C and D. He did so on the basis that this would give "business sense to the language of the deed and [ensure] that it is consistent with the proposal that the parties had been discussing": [27], [31]. That obligation was subject to an implied term that it be performed within a "reasonable time": [32]. The primary judge also held that by operative cl 2 it had been agreed that Dr Schwartz could purchase those properties, or take options to purchase them, either in his own name or "in the name of some company": [28]. His Honour described the arrangement as recorded in the Deed, when read with the investment proposal, as a "joint venture" whose "overall price structure" was defined by reference to that proposal: [30].

Issues in Dr Schwartz's appeal

76 In the way the primary judge addressed Mr Hadid's claim, the first issue is whether he erred in construing the Deed as requiring that Dr Schwartz purchase, or take options to purchase, more than one of the properties, and specifically either of sites C or D. Dr Schwartz says that in its operative provisions the Deed only deals with what it was agreed would happen when he purchased one or more than one of the Cranbourne properties. The "business arrangement" which was the subject of the Deed was that any purchase could be by a corporate entity; that in that event 50 per cent of the shares in that entity would be held on trust for Mr Hadid so as to secure his entitlement to share in any net profit following sale; and that Mr Hadid was entitled to a share of any net profit calculated in accordance with cl 4 of the Deed.

77 Dr Schwartz submits that the primary judge erred in the way he construed cll 1.2 and 2. It is said that his Honour impermissibly used surrounding circumstances evidence (specifically as to the content of the investment proposal) to add to and contradict the language of cl 1.2. Finally, it is said that if, as a matter of construction, the Deed included an undertaking by Dr Schwartz to purchase sites C or D, that undertaking was not sufficiently certain to be enforceable.

78 Mr Hadid supports the primary judge's conclusion as to the construction of the Deed. The expression "the properties" as used in cll 1.3, 2, 3 and 4 refers to each and all of sites B, C and D. Clause 2 provides that Dr Schwartz "will" purchase those properties. In this context, cll 1.2 and 1.3 are concerned with the exercise by Dr Schwartz of a discretion as to the "means" (primarily, outright purchase or option) by which he is to purchase each property. In ordinary language "buy" includes to acquire by option. Accordingly, the reference in cl 1.2 to "his discretion to buy one or more properties" is a reference to a discretion to buy or acquire by option exercisable in respect of all of the properties. Alternatively, Mr Hadid contends that there was an express agreement, made before the Deed was executed, that Dr Schwartz would purchase site B and purchase or option sites C and D. That agreement is said to have been made by the conversations in July and August 2007. This alternative argument is the subject of a Notice of Contention. Mr Hadid does not press the further argument, which is also the subject of that Notice, that there was an implied term of the Deed to that effect.

The construction of the Deed

79 It is convenient to start with the Deed and the way in which it was construed by the primary judge. It is a commendably brief document apparently prepared by Mr Hadid without the input of lawyers retained for either of the parties. It describes the parties as "friends" and records that they wish to enter into a "business arrangement". As that "arrangement" is one to be entered into by the Deed, it is best understood as being a reference to the further agreements made by the Deed rather than to any agreement described in it as already having been made. This is consistent with the Deed's structure which first sets out "RECITALS AS AGREED" and then records, under the words "THE PARTIES FURTHER AGREE", agreements made by the Deed itself. The clauses which follow purport to record what is to happen in relation to "properties" purchased, including with respect to the sale of those properties, and provide for how Mr Hadid's 50 per cent of the "net profit" is to be calculated.

80 As Campbell JA observes in Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; 76 NSWLR 603 at [379]-[380], although there is a common and longstanding practice of including recitals in an agreement, those recitals can be of various kinds including "statements of the factual background to the transaction, statements of the intention or object of the parties in entering the transaction, or statements that the parties (or one or other of them) have agreed to do or will do certain acts". Because that is so and because the task of a court is to interpret the particular document in dispute, statements that recitals should always be treated in some particular way when construing an agreement must "be treated with caution, and as subject to the context in which they were uttered". This is particularly so where the recitals appear in a fairly informal and brief document drafted without the assistance of lawyers. In such circumstances the principles which are based upon there being a recognised distinction between recitals and operative provisions, and which provide for the use which may be made of the former to construe the latter, have to be approached with considerable caution. That said, it is, relevant to record some of those principles.

81 Recitals often set out aspects of the background or context to the transaction which is the subject of the agreement. Used in that way, they are available to assist in the interpretation of the operative provisions, often recording the object or purpose of the agreement as identified by the parties. However, as Allsop P noted in OneSteel Manufacturing Pty Ltd v BlueScope Steel (AIS) Pty Ltd [2013] NSWCA 27 at [63], ordinarily the recitals do not control the interpretation of the operative provisions when those provisions are clear and unambiguous. The relevant approach was stated succinctly by Lord Esher MR in Ex parte Dawes; In re Moon (1886) 17 QBD 275 at 286:

"If the recitals are clear and the operative part is ambiguous, the recitals govern the construction. If the recitals are ambiguous, and the operative part is clear, the operative part must prevail. If both the recitals and the operative part are clear, but they are inconsistent with each other, the operative part is to be preferred."

82 Even in a well-drafted agreement, the recitals may by their terms and the context in which they appear provide a basis for inferring or implying a covenant or promise. For example, as Mason J observed in Ansett Transport Industries (Operations) Pty Ltd v The Commonwealth [1977] HCA 71; 139 CLR 54 at 72 "where in the recitals to a deed or an agreement it is acknowledged that the parties have agreed to do, or will do, certain acts, a promise to do those acts will be read into the agreement in the absence of an express promise to that effect".

83 The recitals may also give rise to an estoppel in respect of specific facts stated and adopted as the basis of a transaction, provided that the facts as stated are "certain, clear and unambiguous": Greer v Kettle [1938] AC 156 at 170-171. It was not argued before the primary judge or in this Court that the recitals in cll 1.2 or 1.3 give rise to estoppels between the parties as to the making or existence of earlier binding agreements between them.

84 The principal provisions which it is contended should be construed as giving rise to an obligation in Dr Schwartz to purchase all of the properties are cll 1.2 and 2. The primary judge construed cl 1.2 as "requiring" Dr Schwartz to purchase site B and, at his discretion, to purchase or take options to purchase over sites C and D: [27]. He construed cl 2 as giving Dr Schwartz the "right" to purchase the properties in his own name or in the name of a company: [28]. A number of questions arise as to the construction of these provisions. Is the "discretion to buy" in cl 1.2 the same discretion as that referred to in cl 1.3? Is the discretion to buy one or more than one of the properties or to buy any or one or more of the properties? How is the existence of that discretion to be reconciled with the statement in cl 1.3 that Mr Hadid "will negotiate the purchase" of the properties and the statement in cl 2 that Dr Schwartz "will purchase the properties". Does "properties" refer to any of or all of the properties? Clause 2 is in the form of a statement as to what it is agreed "will" happen. But is it a statement that Dr Schwartz will purchase all of the properties and do so in relation to each via "entities he is comfortable with"? Or is it to be understood only as a statement of what will happen in the event that Dr Schwartz purchases any of the properties? The language which the parties have used is in these and other respects susceptible of more than one meaning.

85 Because the language is ambiguous or susceptible of more than one meaning, it is unnecessary to take up Mr Hadid's invitation to consider whether this Court was correct to conclude in Franklins Pty Ltd v Metcash Trading Ltd that on the current state of High Court authority, the identification of ambiguity is not a pre-condition to examining evidence of surrounding circumstances: see Franklins Pty Ltd v Metcash Trading Ltd at [14]-[18], [63], [388]; MBF Investments Pty Ltd v Nolan [2011] VSCA 114 at [197]-[202]; Home Building Society Ltd v Pourzand [2005] WASCA 242 at [25]-[32]; Lion Nathan Australia Pty Ltd v Cooper's Brewery Ltd [2006] FCAFC 144; 156 FCR 1 at [46], [51]-[52], [238]; Ralph v Diakyne Pty Ltd [2010] FCAFC 18 at [46], [47]; Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45; 86 ALJR 1 at [2]-[5]; and Cordon Investments Pty Ltd v Lesdor Properties Pty Ltd [2012] NSWCA 184 at [52]. For the same reason, Dr Schwartz's submission that the primary judge was not entitled to have regard to evidence of surrounding circumstances known to the parties must be rejected. However, it remains necessary to consider whether his Honour made impermissible use of material answering that description.

86 The correct approach to the construction of a commercial contract, such as the Deed, is discussed in Franklins Pty Ltd v Metcash Trading Ltd, esp at [19]. The underlying task remains one of construing the words which the parties have used. In construing the language in question, regard must be had to the other parts of the text so that, as far as possible, the various provisions are given a consistent or congruent operation: Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; 129 CLR 99 at 109; Wilkie v Gordian Runoff Ltd [2005] HCA 17; 221 CLR 522 at [16]). The meaning to be ascribed to the language adopted by the parties is to be assessed objectively, in the sense that it is not governed by the subjective beliefs or understandings of the parties, but rather by what a reasonable person would understand by the use of that language: Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; 219 CLR 165 at [40]. In a commercial context that usually requires that the preferred meaning is that which makes commercial sense and gives effect to the aims and purposes of the parties, to the extent that they can be identified legitimately from the text and context. Of course, minds may differ as to what constitutes "business common sense" in a particular case: Maggbury Pty Ltd v Hafeli Australia Pty Ltd [2001] HCA 70; 210 CLR 181 at [43]. In the end, it remains the position that the meaning ascribed to the language must be an available one, albeit adopting an approach to construction which is not "narrow or pedantic". Reference to notions of commercial or business common sense does not permit "judicial rewriting" of an agreement in disregard of the language which the parties have adopted: Australian Broadcasting Commission v Australasian Performing Right Association Ltd at 109; Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; 149 CLR 337 at 352; Jireh International Pty Ltd v Western Exports Services Inc [2011] NSWCA 137 at [55].

87 In addressing the construction of the relevant provisions of the Deed, it is convenient to start with a consideration of the operative clauses other than cl 2. Clause 3 assumes that properties may be acquired by companies with a share capital and, in that event, provides that Dr Schwartz will hold 50 per cent of the shares "in trust" for Mr Hadid "pursuant to this Deed". The latter words and the terms of cl 5 are consistent with any such beneficial interest being extinguished upon the payment to Mr Hadid of 50 per cent of the net profit calculated in accordance with cl 4. Construed in this way, cl 3 would provide a form of security to Mr Hadid with respect to the performance of Dr Schwartz's obligations under cll 4 and 5, at least where a property is owned by a company with a share capital.

88 Clause 2 requires Dr Schwartz to purchase the properties in "entities he is comfortable with". Those entities could include an entity to which cl 3 would apply. The primary judge did not construe the reference to such entities as limited to a company with a share capital. Nor did either of the parties submit that cl 2 should be given that construction. If it was construed in that way, cl 2 would require that any property purchased by Dr Schwartz be held by a company to which cl 3 could apply. If "entities" in cl 2 is not given that limited interpretation, it nevertheless operates, in the event that Dr Schwartz purchases any property, to permit that purchase to proceed other than in his name. Mr Hadid argues that the expression "the properties" used in cll 1.3, 2, 3 and 4 refers to each and all of the three relevant sites. The meaning to be given to that expression must take account of the language of cl 1.2 and the context in which it is used in cll 1.3, 2, 3 and 4. As used, the expression is capable of referring to any of the properties, not only to each and all of them.

89 One matter of significance which arises from the terms of the operative clauses is that whilst Mr Hadid is to receive 50 per cent of the net profit from the purchase and sale of properties, and may be given a beneficial interest to secure that entitlement, he is not required to make any contribution to any acquisition, or to contribute in any way to any shortfall, in the event that the exercise of purchase and sale is unprofitable. Under the "business arrangement" recorded in those clauses, Dr Schwartz bears the whole of the risk of loss.

90 Reference must then be made to cll 1.2 and 1.3. Two matters of context are relevant when considering those provisions. The agreement for the purchase of site B bears the same date as the Deed and it is accepted that at the time the Deed was made Dr Schwartz had decided to proceed to purchase site B on terms which had been negotiated with its owner by Mr Hadid. The other matter is that whilst the investment proposal recorded that the plan was to buy site B and then to "buy or option" sites C and D, the recommended strategy was to "option" those two sites. That proposal contemplated that any such option would be exercised or assigned at the time of any on-sale. There does not appear to have been any dispute or difference between the parties as to the particular means by which any property might be acquired or on-sold.

91 Clause 1.2 contains the expression "at his discretion" and cl 1.3 the expression "at Jerry's discretion". In ordinary language a discretion is a right to decide something or act according to one's judgment. In cl 1.2, the parties are not likely to have made or recorded the making of an agreement, the very existence or continued existence of which was in the discretion of Dr Schwartz. For that reason, the words "at his discretion" in that clause ought not be read as qualifying the word "agreed" which immediately precedes them. The only other subject matter which the clause identifies as for the decision or judgment of Dr Schwartz is whether to buy "one or more properties". That choice is between buying one or buying more than one property. That Dr Schwartz was recognised as having such a choice was consistent with his having agreed the terms upon which he would buy site B. It remained for him to decide whether to buy sites C and D. This is an interpretation of the clause urged by Dr Schwartz.

92 Another available interpretation is that the discretion was whether to buy any of or one or more of the properties. That interpretation is more favourable to Dr Schwartz but would not lead to any different outcome in these proceedings. In my view, the first of these interpretations more closely reflects the language used. Neither is the interpretation adopted by the primary judge and urged by Mr Hadid. His Honour considered that the discretion given was in relation to each of the properties and the "buy or option" part of the investment proposal: [26]. On that basis he construed cl 1.2 as recording the existence of an agreement, already made or to be inferred, that Dr Schwartz would buy site B and then, at his discretion, buy or take options over sites C and D: [27]. His Honour construed the words "at his discretion to buy one or more properties" as meaning 'at his discretion to purchase or enter into an option to purchase all of the properties'.

93 There are significant difficulties with the construction adopted by the primary judge. The language of the clause makes no reference to any choice arising between purchasing or entering into an option to purchase particular properties. The primary judge's reasoning for adopting the interpretation he did was that the investment proposal proffered a choice between purchasing or entering into an option to purchase sites C and D. That is so, although ultimately the proposal suggests a strategy which in terms is "we option C and D". At the same time the proposal does not require that Dr Schwartz bind himself in advance to purchase or enter into options to purchase all of the properties irrespective of the price at which or other terms on which they might be acquired. In adopting this construction, the primary judge seeks to give effect to what is said to be the actual intention or expectation of the parties as recorded in the investment proposal in a way which necessarily contradicts the language of the clause. That is an impermissible use of evidence of surrounding circumstances.

94 The construction adopted by the primary judge requires Dr Schwartz "at his discretion, either to buy or to take options over sites D and C": [27]. An agreement in those terms would not secure an outcome likely to have been sought by either of the parties. From Dr Schwartz's perspective, having agreed to purchase site B, it is not likely that he would have wanted to be bound to purchase the remaining properties without first agreeing parameters as to the terms of those purchases. From Mr Hadid's perspective, an obligation to enter into an option to purchase did not necessarily mean that the property would be purchased although it may have increased the likelihood that that would occur. Mr Hadid's argument recognised this difficulty and contended that the discretion went to the "means" of acquiring each of the properties for on-sale. Thus, a discretion in terms described as one "to buy one or more properties" is to be construed as one as to the "means" by which all of the properties had to be purchased. The language used is not capable of conveying that as a possible meaning.

95 When addressing the construction of cll 1.2 and 2, the primary judge did not address the interpretation of cl 1.3. That clause provides that Mr Hadid "will negotiate the purchase and sale of the properties". The closing words "at Jerry's discretion" introduce a qualification to Mr Hadid's doing so. It is necessary to identify the subject matter of that discretion. That subject matter could be whether Mr Hadid would negotiate at all the purchase or sale of any particular property. That construction is unlikely as the business arrangement contemplated that Mr Hadid would be remunerated on a basis which took into account the net profit earned on the purchase and sale of all or any of the properties. If the words "at Jerry's discretion" were intended to operate with respect to that subject matter, they might more naturally have appeared before the words "will negotiate". The only other matter which could be the subject of Dr Schwartz's discretion was the negotiation of the "purchase and sale of the properties" using that expression to refer to the terms of purchase and sale. That way of construing the clause would make clear that whilst Mr Hadid was to undertake the negotiations in relation to any purchase and sale, the terms offered, accepted or rejected were "at Jerry's discretion".

96 It was argued on behalf of Mr Hadid that the discretion in cl 1.3 was of the same kind as the discretion in cl 1.2. It was directed to the "means" of purchase and sale and no more. When used in cl 1.3 it could not refer to an unfettered discretion to buy or sell all or any of the properties because cl 1.2 recorded an agreement to buy at least one property and cll 4 and 5 assumed a subsequent sale of that property. This argument assumes that the subject matter of the discretion referred to in cl 1.2 is the same as that referred to in cl 1.3. That is not the case. Clause 1.2 describes a discretion to buy one or more than one property. The existence of such a discretion is not inconsistent with the existence of a discretion as to the terms on which any such purchase should occur. Nor is the existence of a discretion of the latter kind inconsistent with an obligation to buy or sell a particular property. If there is such an obligation, a discretion as to the terms of purchase or sale must be exercised in a way which ultimately results in its performance. Whilst the existence of the obligation operates as a constraint upon the exercise of the discretion, it does not have the consequence that there is no discretion to exercise in any process of negotiation, either of purchase or sale.

97 The construction of cll 1.2 and 2 adopted by the primary judge, and urged by Mr Hadid, imposes an obligation on Dr Schwartz to purchase two additional properties in circumstances where he is to finance those purchases and bear any loss incurred on their re-sale. That obligation is not subject to any agreement as to the prices at or times by which those properties are to be purchased. The construction contended for by Dr Schwartz imposes no obligation upon him to purchase sites C or D but provides for the position on the basis that, as was expected, he would purchase at least one of the properties. Dr Schwartz having committed to purchasing site B, the prospect of profit from Mr Hadid's proposal provided a sufficient incentive for the parties to enter into an arrangement on the basis that Mr Hadid would be remunerated from any net profit earned on the sale of that and any of the other properties which Dr Schwartz thereafter decided to purchase.

98 Taking these various considerations into account, it is my view that the primary judge erred in construing the Deed, and specifically cl 1.2, as requiring Dr Schwartz either to purchase, or take an option to purchase over, each of sites C and D. The language of cl 1.2 describes an agreement that Dr Schwartz at his discretion purchase one or more than one of the three properties. Consistent with that being the construction of that provision, cl 2 provides, in relation to any or the properties that Dr Schwartz does purchase, that he do so in an entity "he is comfortable with". Where used in cll 2, 3 and 4, the expression "the properties" refers to any of the properties and, in context, is a reference to any property purchased in accordance with the agreement described in cl 1.2.

The existence of any earlier binding agreement

99 It remains to consider Mr Hadid's alternative argument that there was an express agreement made by the conversations between the parties in July and August 2007. By that agreement Dr Schwartz undertook to purchase the three properties and Mr Hadid agreed to handle the negotiations for the purchase and sale of those properties in return for 50 per cent of the profits from their on-sale. This argument is made on the assumption that cl 1.2 on its proper construction does not evidence or record such an agreement. To the extent that cl 1.2 properly construed is inconsistent with there having been an earlier oral agreement to that effect, it is submitted that the terms of cl 1.2 should be regarded as a failure on the part of the parties accurately to "express what they believed was a concluded agreement".

100 For the parties to have made a binding agreement to that effect they must have reached agreement upon such terms as were legally necessary to constitute the contract argued for, and also to have intended to make a binding contract: see, for example, ABC v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 548. Whether they intended to make a binding contract upon reaching consensus depends upon what was objectively conveyed by their words and conduct: Ermogenous v Greek Orthodox Community of SA Inc [2002] HCA 8; 209 CLR 95 at [25]; Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; 218 CLR 451 at [22]. Here, as in ABC v XIVth Commonwealth Games Ltd, those considerations are related. The parties are not likely to have intended to create legal relations if they had not reached agreement on such terms as in the circumstances they considered necessary to be covered by their agreement. The best evidence of what the parties here considered necessary to be the subject of a binding agreement is to be found in the terms of the Deed. The matters it addressed included how the 50 per cent profit share would be calculated and the security which Mr Hadid should have for performance of Dr Schwartz's promise to pay that profit share. With these observations in mind, it is necessary to consider the evidence.

101 The evidence relied upon as establishing an earlier binding agreement is contained in Mr Hadid's affidavits of 7 April 2011 (paras 15 and 16) and 16 August 2011 (paras 20 and 21). That evidence is of one conversation in July and two in August 2007 in which Mr Hadid and Dr Schwartz discussed in some detail various aspects of the written investment proposal. It is not necessary to set that evidence out in detail. It was not contradicted by Dr Schwartz, who did not give evidence before the primary judge. The first conversation concluded with an exchange as follows:

Dr Schwartz: "I am satisfied with our discussions, we can do this, profits are split 50:50, as we buy or option them, I will hold the land in my name. OK?"

Mr Hadid: "Yes".

102 The second conversation occurred on an inspection of the land in about August 2007. It included an exchange to the following effect:

Dr Schwartz: "I will buy the three lots, let's be smart. You negotiate the purchase of the five acre lot first, once we buy the five acres we will have control over the two entry points and this way we can buy the two twenty acre lots at a cheaper prices. I agree to buy all three properties, you handle the day to day and we'll split the profit 50/50."

Whilst the substance of this exchange indicates a measure of consensus between the parties, the fact that the conversation took place in these terms is consistent with a continuing dialogue as to the commercial terms upon which they might proceed with the proposal. The terms of this second conversation do not suggest that the parties regarded themselves as legally bound to do anything as a result of the first conversation. Nor was there anything said in this second conversation which distinguishes it from the earlier conversation, so as to provide a basis for concluding that by the second conversation they intended to create legal relations.

103 The third conversation included an exchange as follows:

Mr Hadid: "I'm pressing on with our agreement to buy the three properties at Cranbourne. Once Ted Cooper's property is exchanged we should buy the other two. Why not do what you initially agreed to do, that is, buy or option all three now?"

Dr Schwartz: "Stop worrying, I said the deal is done, we will buy the three. Exchange A with Cooper and then we control the gateway."

And later:

Dr Schwartz: "Exchange the five acres first, there is no risk as we are in control. We will not lose them as they will be landlocked, then I can decide whether I purchase or option the other two sites. ... Once we have the five acres, we will buy the other two."

104 The same observations may be made about the third conversation as have been made about the first and second. In none of those conversations did the parties address the matters which were subsequently the subject of agreement in the Deed. The terms of the Deed itself confirm that those matters had not been the subject of any earlier agreement.

105 In these circumstances, Mr Hadid's argument that there was an earlier binding agreement with Dr Schwartz must be rejected. They had not reached agreement on all of the terms they considered necessary to be covered by any legally binding agreement and were not to be taken to have intended to bind themselves on the terms of any more limited consensus reached in their earlier conversations. The absence of consensus on matters which their subsequent agreement indicated they regarded as necessary to be covered, the nature of their continuing dialogue on the commercial terms of their arrangement, the absence of any language indicating that they intended in that dialogue to enter into legal relations and the fact that when they did intend to do so they recorded their agreement in writing, are each matters which stand against the conclusion that the parties should be taken to have intended to make a binding agreement before they executed the Deed. For these reasons, Mr Hadid's contention that there was any earlier agreement must fail.

Conclusion in relation to Dr Schwartz's appeal

106 Dr Schwartz's application for an extension of the time for applying for leave to appeal should be granted, leave to appeal should be granted and Dr Schwartz's appeal should be allowed. Mr Hadid should pay Dr Schwartz's costs before the primary judge and of the appeal and have a certificate under the Suitors' Fund Act 1951, if he is qualified.

Mr Hadid's appeal

The relevant facts

107 In October 2007 an amount of $260,000 was advanced to Vicbuy on the terms of a written loan contract which provided for its repayment on or before 11 August 2008. In proceedings commenced in the District Court, Dr Schwartz sought to recover that amount from Mr Hadid and Vicbuy. He alleged that Mr Hadid was liable as guarantor of a loan to Vicbuy or as the party to whom the loan had been made. In his defence Mr Hadid denied that he was liable to pay Dr Schwartz the amount claimed. He also alleged, in the alternative, that if he was otherwise liable, the time for repayment had been varied by an oral agreement made in May 2008 that repayment was not required until Mr Hadid "was in receipt of certain funds to do so".

108 By the time of the hearing before the primary judge, Mr Hadid had admitted that he was liable for repayment of the loan, subject only to the time for repayment having been varied. Mr Hadid maintained that in a conversation with Dr Schwartz in about May 2008 he indicated that he would not be able to repay the loan in August 2008 and suggested that repayment be deferred until it could be made from the proceeds of one of the transactions in which he and Dr Schwartz were engaged. According to Mr Hadid, Dr Schwartz responded:

"Ok you can repay it from whatever comes first, when we resell the 5 acres we bought from Ted Cooper, Vicbuy sells its land, from commissions you receive on Bali, or you start receiving income from the shopping centre."

to which Mr Hadid responded "OK".

109 Dr Schwartz contested the existence of any agreement to vary the time for repayment of the loan. The primary judge resolved that controversy in favour of Dr Schwartz. He did not accept Mr Hadid's evidence as to there being any such variation. He said:

"[45] ... I do not accept that aspect of Mr Hadid's evidence. His evidence on the loan account has been inconsistent. Thus, when the proceedings were initially commenced in the District Court (they were transferred to this Court when Mr Hadid brought his own proceedings in this Court), Mr Hadid defended the proceedings on the basis that there was no loan. That is not the position that he takes in this Court. Further, in the District Court, Mr Hadid sought to support that defence by putting on a statement that was intended to serve as his evidence in chief which simply denied the making of the loan. He said totally inconsistently with what he now admits in this Court, that "no money was lent to me by the plaintiff".

[46] Further, in my view, this aspect of Mr Hadid's evidence is improbable even in its own terms. On Mr Hadid's evidence, the question of repayment arose because Dr Schwartz said that he was short of cash and needed the money back. To suggest, as Mr Hadid does, that in those circumstances Dr Schwartz, having made the request, would promptly agree to defer repayment until the never-never time of collection on the various business deals, is not in my view consistent with the probabilities objectively viewed.

[47] In this context, taking into account all the matters to which I have referred and my very strong impression that Mr Hadid would take say whatever is expedient in relation to the loan, I conclude there was no agreement as alleged to defer repayment."

110 Having so concluded, the primary judge did not go on to consider the question whether any such variation agreement was unenforceable for want of consideration moving from Mr Hadid. That issue had been raised by Dr Schwartz, without any elaboration, in written and oral submissions before the primary judge.

Issues in Mr Hadid's appeal

111 There are two issues raised in this appeal. The first is whether the primary judge's conclusion that there was no variation agreement was based upon erroneous findings made at [45] and [46] of his reasons. The second is whether, if the challenge to that conclusion is upheld, the primary judge's judgment in favour of Dr Schwartz should nevertheless stand because any such variation agreement was unenforceable for want of consideration. For that reason, Mr Hadid would have no defence to the action to recover the loan moneys. This second question was formalised by a notice of contention filed by Dr Schwartz at the conclusion of oral argument.

Did the primary judge err in concluding that there was no agreement as to variation?

112 Mr Hadid challenges the primary judge's conclusion that there was no agreement to defer repayment. That conclusion was based, at least in part, on the matters referred to at [45] and [46] of his Honour's reasons. As to the matter at [45], Mr Hadid submitted that the position which he took when proceedings were initially commenced in the District Court was not inconsistent with the position he maintained at the time of the hearing before the primary judge. The primary judge's observations to the contrary were not justified. As to the second matter, Mr Hadid submitted that the primary judge's finding (at [46]) that in May 2008 the question of repayment arose because Dr Schwartz had said to Mr Hadid at that time that he was short of cash, and needed to be repaid, was contrary to Mr Hadid's evidence and not justified.

113 Each of these submissions should be accepted as correct for reasons which may be stated briefly. As to the first matter, Mr Hadid filed a sworn statement before the proceedings were transferred from the District Court. In that statement he denied that any money had been lent to him by Dr Schwartz. In cross-examination before the primary judge he explained that he had made that denial on the advice and urging of his solicitor, whose advice was that any loan had been made by a company controlled by Dr Schwartz rather than by Dr Schwartz personally. At the same time, by his defence, Mr Hadid had pleaded the oral variation made in May 2008. The primary judge, earlier in his reasons, recorded that the material which Dr Schwartz relied upon to prove the advance showed that it was made by a company "controlled by him": [37], [40]. His Honour also observed (at [44]) that it was unnecessary for him to resolve the question whether "the fact that the loan was made by Dr Schwartz's family company ... [posed] some impediment to Dr Schwartz recovering it in his own name". These observations taken with Mr Hadid's explanation for the denial in the statement which was filed in the District Court, and the fact that the variation agreement had been pleaded early in the proceedings, demonstrate that the position which Mr Hadid took when the proceedings were initially commenced was not inconsistent with, and certainly not totally inconsistent with, the position which he maintained at the time of the hearing before the primary judge. Notwithstanding that there was a question as to the identity of the party who had made the loan, so as to provide a justifiable basis for denying the claim which was made, Mr Hadid had subsequently conceded that he was personally liable to Dr Schwartz subject only to the issue as to the variation agreement, which had been raised and maintained from a very early stage in the proceedings.

114 As to the second matter, Dr Schwartz conceded in argument that his Honour's observations (at [46]) were erroneous and based upon evidence of Mr Hadid which was not about a conversation which occurred in May 2008, but rather a subsequent conversation which occurred in May 2009.

115 These errors of the primary judge were in relation to matters which were material to his conclusion that there was no variation agreement. For that reason, Mr Hadid's challenge to that conclusion must be upheld. Ordinarily, that would require that this Court set aside the judgment in favour of Dr Schwartz and remit the matter for rehearing as it is not one in relation to which this Court can substitute its own finding for that of the primary judge, which also involved issues of credit. However, as is noted above, Dr Schwartz seeks to uphold the judgment in his favour on the basis that any variation agreement was or would have been unenforceable for want of consideration. Written submissions which address that contention were exchanged between the parties. Mr Hadid argues that the agreement was supported by consideration and, in the alternative, that Dr Schwartz is estopped from denying such a binding agreement. Dr Schwartz contests each of those arguments.

Was any variation supported by consideration and is Dr Schwartz estopped from denying an enforceable variation agreement?

116 Mr Hadid relies upon an agreement to vary the existing loan agreement which he accepted otherwise bound him to repay the advance by 11 August 2008. It was necessary for him to show that he gave consideration for that agreement to vary: Agricultural and Rural Finance Pty Ltd v Gardiner [2008] HCA 57; 238 CLR 570 at [96]. The general rule is that a promise to do something which the promisor is already bound to do by a prior enforceable contract with the promisee, is not good consideration. For that rule to apply it is necessary that the thing promised should be that which the promisor is already bound to do, and no more, and that there should be no dispute that he is bound to do it. If there has been a genuine dispute as to whether the promisor is bound under his existing contract to do what he promises to do by his new promise, and the new promise is given in an otherwise enforceable agreement which effects a compromise of that dispute, the new agreement constitutes an enforceable contract: Larkin v Girvan (1940) 40 SR (NSW) 365 at 367-368; Wigan v Edwards (1973) 47 ALJR 586 at 594.

117 Mr Hadid submits that this rule does not apply if, as a result of receiving the promise to perform the existing contractual obligation, the promisee (Dr Schwartz) obtains a practical benefit. Reference is made to Musumeci v Winadell Pty Ltd (1994) 34 NSWLR 723 at 747; Vella v Ayshan [2008] NSWSC 84; ANZ Conv R ¶8-013 at [18]; and Cohen v iSoft Group Pty Ltd [2012] FCA 1071 at [144]. In Musumeci, Santow J undertook a detailed consideration of the English Court of Appeal decision in Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1, where it was held (esp at 15-16, 23) that the general rule is avoided where the promisor in fact obtains a benefit or "obviates a disbenefit".

118 The practical benefit which it is said Dr Schwartz obtained as a result of Mr Hadid's promise to repay the loan at a later point in time is described in Mr Hadid's written submissions as follows:

"... Mr Schwartz would continue to have Mr Hadid working for him almost full-time as a result of agreeing that Vicbuy Pty Ltd could pay the $260,000 to Mr Hadid and Mr Hadid could retain those funds in order to defray his own expenses (incurred as the result of working for Mr Schwartz) until the occurrence of certain defined events."

119 This argument must be rejected. The practical benefit described above does not and will not result from Mr Hadid's promise to perform his existing contractual obligation or his performance of that obligation. It would arise, if at all, as a result of Mr Hadid's continuing to work for Dr Schwartz. However, Mr Hadid made no promise to that effect. Had he done so it may have provided sufficient consideration for an agreement to defer the time for repayment. For these reasons the exception to the general rule on which Mr Hadid relies could not apply.

120 Mr Hadid also argues that following the variation agreement made in May 2008 he continued to provide consultancy services to Dr Schwartz and retained the $260,000 repaid to him by Vicbuy in August 2008. In each case he says he did so in reliance upon Dr Schwartz's promise to defer repayment of the loan.

121 In order to justify an entitlement to a promissory estoppel Mr Hadid would have to establish that he changed his position on the faith of Dr Schwartz's promise to extend the time for repayment. The relevant detriment is that which Mr Hadid as promisee would suffer as a result of his change of position in reliance on Dr Schwartz's promise, if Dr Schwartz was permitted to resile from that promise: Grundt v Great Boulder Proprietary Gold Mines Ltd [1937] HCA 58; 59 CLR 641 at 674-675; Delaforce v Simpson-Cook [2010] NSWCA 84; 78 NSWLR 483 at [1], [6], [42], [43]. There is no evidence that the conduct to which Mr Hadid refers was undertaken in reliance on Dr Schwartz's promise to extend the time for repayment. In the absence of such evidence, it cannot be found or inferred that the conduct was undertaken in reliance on that promise. For that reason, Mr Hadid's estoppel argument also must be rejected.

Conclusion in relation to Mr Hadid's appeal

122 Mr Hadid's appeal should be dismissed because Dr Schwartz's contention that any loan variation agreement was or would have been unenforceable for want of consideration should be upheld and because Mr Hadid's argument that he was entitled to an estoppel should be rejected. For those reasons Mr Hadid's appeal brought by way of cross-appeal, should be dismissed and Mr Hadid should pay Dr Schwartz's costs of that cross-appeal.

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Decision last updated: 03 May 2013