Court of Appeal Supreme Court New South Wales

• Medium Neutral Citation: Adicho v Dankeith Homes Pty Ltd [2012] NSWCA 316
• Hearing dates: 21 September 2012
• Decision date: 28 September 2012
• Before: Meagher JA at [1]; Sackville AJA at [31]; Tobias AJA at [32].

Decision

(1) Appeal dismissed.

(2) The appellant to pay the respondent's (Dankeith's) costs of the appeal.

[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: CONTRACT - formation - sale of land - whether intention to create legal relations - exchange of written contracts - agreement as to payment of deposit not reflected in written contracts - whether evidence established exchange not intended to have ordinary legal consequences; CONTRACT - collateral agreement as to deposit - unenforceable because inconsistent with contract for sale - ineffective as parol variation of contract required to be in writing
• Legislation Cited: Conveyancing Act 1919; Fair Trading Act 1987; Trade Practices Act 1974
• Cases Cited: Agricultural and Rural Finance Pty Ltd v Gardiner [2008] HCA 57; 238 CLR 570; Allen v Carbone [1975] HCA 14; 132 CLR 528; Brien v Dwyer [1978] HCA 50; 141 CLR 378; Damon Compania Naviera S.A. v Hapag-Lloyd International S.A. [1985] 1 WLR 435; Dowling v Rae [1927] HCA 5; 39 CLR 363 at 371-379; Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2004] HCA 55; 218 CLR 471; Ermogenous v Greek Orthodox Community of SA Inc [2002] HCA 8; 209 CLR 95; Esanda Ltd v Burgess [1984] 2 NSWLR 139; Fitzgerald v Masters [1956] HCA 53; 95 CLR 420 at 426-427; Hoyt's Pty Ltd v Spencer [1919] HCA 64; 27 CLR 133; Maybury v Atlantic Union Oil Co Ltd [1953] HCA 89; 89 CLR 507; Neeta (Epping) Pty Ltd v Phillips [1974] HCA 18; 131 CLR 286; Phillips v Ellinson Brothers Pty Ltd [1941] HCA 35; 65 CLR 221; Sharrment Pty Ltd v Official Trustee in Bankruptcy (1988) 18 FCR 449; Sindel v Georgiou [1984] HCA 58; 154 CLR 661; Suttor v Gundowda Pty Ltd [1950] HCA 35; 81 CLR 418; Tallerman & Co Pty Ltd v Nathan's Merchandise (Victoria) Pty Ltd [1957] HCA 10; 98 CLR 93; Water Board v Moustakas [1988] HCA 12; 180 CLR 491
• Category: Principal judgment
• Parties: John Adicho (Appellant); Dankeith Homes Pty Ltd (First Respondent); Graeme Bruce Dougherty t/as Dougherty & Smith (Second Respondent)
• Representation: Counsel: R K Newton (Appellant); D H Murr SC, Ms M M Fraser (First Respondent); No appearance (Second Respondent); Solicitors: Edmond Khoury Solicitors (Appellant); Noel F Bracks & Company (First Respondent); No appearance (Second Respondent)
• File Number(s): 2008/320073

Decision under appeal

• Date of Decision: 2011-05-04 00:00:00
• Before: Rolfe DCJ
• File Number(s): 2008/5319

Judgment

1 MEAGHER JA: On 14 August 2007 contracts for the sale of eight units (five two-bedroom townhouses and three three-bedroom villas) in a development at Ingleburn were exchanged by solicitors acting for the appellant (Mr Adicho) as purchaser and the respondent (Dankeith) as vendor. In relation to each unit, the exchanged contracts were signed by or on behalf of those parties and the exchanged counterparts were in identical terms. Each contract provided for a deposit of ten per cent of the sale price to be paid on the making of the contract. No deposit was paid on the exchange of any of the contracts.

2 Each of the contracts was due for completion on 25 September 2007 which was six weeks after the date of exchange. No settlement occurred on that date. Dankeith served notices to complete on 18 October 2007. They were not complied with. Negotiations then proceeded between the principal of Dankeith, Mr Heckenberg, and Mr Adicho. Those negotiations continued through to January 2008. On 24 January 2008 Dankeith served fresh notices to complete. They were not complied with. On 14 February 2008 Dankeith terminated each of the contracts for breach.

3 Dankeith sold the eight units. Those sales were completed by March 2009. Dankeith then commenced proceedings against Mr Adicho for damages for breach of each contract. It also sued the solicitor who had acted for it in relation to the sales, Mr Dougherty, alleging that he had been negligent in failing to ensure that the ten per cent deposits were paid on exchange.

4 Dankeith claimed $285,500 by way of damages from Mr Adicho; $258,500 representing the difference between the contract prices and sale prices of seven of the eight units and $27,000 being the amount of the deposit payable but unpaid in respect of unit 3: Damon Compania Naviera S.A. v Hapag-Lloyd International S.A. [1985] 1 WLR 435.

5 In his judgment delivered on 4 May 2011, Rolfe DCJ (the primary judge) held that Mr Adicho was in breach of each of the contracts in failing to complete in accordance with the notices dated 24 January 2008. He awarded Dankeith interest of $79,940 and entered judgment against Mr Adicho for $365,440.

6 When addressing that claim and the claim made against the solicitor, the primary judge found that before contracts were exchanged it had been agreed orally between Mr Heckenberg and Mr Adicho that the deposit payable on exchange under each contract should only be $500: [41], [85], [91]. In making that finding the primary judge preferred the evidence of Mr Dougherty and, to a lesser extent, Mr Adicho, to that of Mr Heckenberg, who he described as a wholly unreliable witness with an extremely poor recollection of events: [41], [86].

7 The primary judge held, however, that any collateral agreement to that effect (made in consideration of Mr Adicho entering into each of the contracts for sale) was not effective because its terms were inconsistent with the written terms of each of those contracts: [38].

Issues in this appeal

8 Mr Adicho appeals against that judgment. By his amended notice of appeal, he contends that the primary judge erred in the following respects:

(1)  in holding that by their exchange of the eight contracts Dankeith and Mr Adicho were to be taken to have intended to enter into legal relations (ground 1);

(2)  in holding that the oral agreement as to the deposit could not be enforced; and in failing to hold that Mr Adicho was not required to complete the written contracts as distinct from those contracts as varied by that oral agreement (grounds 2, 4 and 5);

(3)  in holding that the oral agreement as to the deposits could not be relied upon because it was not in writing (ground 3);

(4)  in not transferring the proceedings to the Supreme Court so that Mr Adicho could bring a cross-claim seeking rectification of the contracts; and in not permitting Mr Adicho to file a cross-claim alleging misleading or deceptive conduct on the part of Dankeith (grounds 6, 7 and 8);

(5)  in relation to inferences drawn or not drawn from the failure of Mr Adicho or Dankeith to call a witness, Mr Owen (grounds 9 and 10).

9 The orders sought on appeal are that the judgment in favour of Dankeith against Mr Adicho be set aside and that there be a judgment and verdict for him on Dankeith's claim.

10 In argument before this Court, Mr Adicho abandoned reliance on grounds 6, 7 and 8. That was not surprising in view of the fact that no applications to transfer the proceedings or to file a cross-claim had been made to the primary judge. Mr Adicho also conceded that if he failed on ground 1 he could not obtain the orders sought by the amended notice of appeal, even if he was successful on grounds 2, 3, 4 and 5. That concession was correctly made. If the oral variation of the contracts was legally effective, it could only result in a reduction of the judgment against him by $2,000 plus interest; that being, in relation to unit 3, the difference between the ten per cent deposit of $27,000 (which would not be recoverable if the variation of contract was effective) and the damage suffered for breach of $25,000 (which would remain recoverable even if it was varied). Because success on these grounds could have that consequence, I propose to deal shortly with them notwithstanding the concession made in argument.

11 In response to grounds 2, 3, 4 and 5, Dankeith, by a notice of contention, says that the primary judge erred in finding that there was an oral agreement as to the payment of a $500 deposit under each contract.

12 There was a separate appeal by Dankeith from the primary judge's decision in relation to Mr Dougherty's liability to it. That appeal has been settled and Mr Dougherty did not participate in the appeal as between Dankeith and Mr Adicho notwithstanding that he was named as second respondent in the amended notice of appeal.

Application to argue point not raised below

13 In this Court, Mr Adicho sought to argue that the notices to complete dated 24 January 2008 were invalid because they required payment on completion of "the balance of purchase money", which was said to be a reference in each case to the purchase price less the deposit, whereas special condition 1 of each contract required that a lesser amount (equal to 65 per cent of the purchase price) be paid on completion. It was argued that each notice called for more than the contract required and for that reason was not effective: see Neeta (Epping) Pty Ltd v Phillips [1974] HCA 18; 131 CLR 286 at 301-302.

14 That argument was not put or sought to be put before the primary judge or by the amended notice of appeal or in the written submissions to this Court. Dankeith opposed Mr Adicho being given leave to raise the argument for the first time on appeal because it could possibly have been met by calling evidence. That possibility cannot be dismissed as without foundation. In the circumstances, the point cannot be raised for the first time on appeal: Suttor v Gundowda Pty Ltd [1950] HCA 35; 81 CLR 418 at 438; Water Board v Moustakas [1988] HCA 12; 180 CLR 491 at 497. For that reason I agreed in the order refusing Mr Adicho leave to argue this point.

Intention to create legal relations (ground 1)

15 Mr Adicho argues that he and Dankeith did not by the exchange of written contracts on 14 August 2007 intend thereby to create legal relations. He says that at that time there were three respects in which the written contracts did not reflect the actual agreement of the parties and that those contracts were only exchanged because Dankeith was being pressed by its banker, ANZ, to repay funds. In particular, he points to the primary judge's finding (at [97]) that the "exchange of contracts was very important to the plaintiff because it kept the ANZ Bank at bay for the time being". In those circumstances, Mr Adicho contends that the parties should not be taken to have intended that they would be bound upon the exchange of contracts.

16 The requirement that there be an intention to create legal relations is not concerned with the uncommunicated subjective motives or intentions of the parties. The intention it describes is that which "would objectively be conveyed by what was said or done, having regard to the circumstances in which those statements and actions happened": Ermogenous v Greek Orthodox Community of SA Inc [2002] HCA 8; 209 CLR 95 at [25]. It is possible that there was no intention to create legal relations, notwithstanding that a transaction takes the form of a legally effective transaction, if the parties' expressed intention is that it should not have its apparent or any legal consequences: see Sharrment Pty Ltd v Official Trustee in Bankruptcy (1988) 18 FCR 449; Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2004] HCA 55; 218 CLR 471 at [46]. Evidence may be received as to what was said or done to show that what takes the form of a legally effective transaction was not intended to have any legal consequences: Esanda Ltd v Burgess [1984] 2 NSWLR 139 at 145, 146, 153.

17 In exchanging identical counterpart contracts, Mr Adicho and Dankeith adopted the usual method for making a legally binding contract for the sale of real estate in New South Wales: Allen v Carbone [1975] HCA 14; 132 CLR 528 at 533; Brien v Dwyer [1978] HCA 50; 141 CLR 378 at 391; Sindel v Georgiou [1984] HCA 58; 154 CLR 661 at 666, 667. Those exchanges were preceded by negotiations conducted between solicitors acting for each of them. The primary judge was correct to conclude that by their conduct in exchanging contracts, Mr Adicho and Dankeith objectively conveyed that each intended to be legally bound by the terms contained in the documents exchanged.

18 The evidence of what was said and done before exchange did not support a conclusion that it was their common intention that the exchange should not give rise to legally binding agreements. The respects in which it is said the written contracts did not reflect the agreement of the parties are as to the amount of the deposit, as to when it had to be paid and as to when Mr Adicho had to provide a bank guarantee to secure the repayment to the vendor of a loan of 35 per cent of the purchase price.

19 The fact that the parties had an oral agreement as to the payment of the deposit and this agreement was not reflected in the written contracts which were exchanged does not indicate that the parties did not intend by the exchange to create legal relations. As the primary judge observed at [97], it suited Dankeith to "leave the ANZ Bank in the dark" about the arrangement which had been struck with Mr Adicho. The ANZ Bank may have adopted a different approach if it had known of any agreement as to payment of a smaller deposit. If the position had been that the parties did not intend the exchange to create any legal relations, it would not have been necessary for them to come to any oral agreement addressing a matter such as the payment of the deposit.

20 Special condition 3 of each contract did provide that a bank guarantee securing the balance of the purchase price should be provided "on exchange". Before the primary judge, Mr Dougherty said, and it was accepted, that this should have said "on settlement", and was an error because it did not reflect what had been agreed with Mr Adicho's solicitor. If that failure of the writing to reflect the antecedent common intention of the parties could not have been resolved as a matter of construction of the contracts (see, for example, Fitzgerald v Masters [1956] HCA 53; 95 CLR 420 at 426-427), it was capable of being remedied by rectification. The evidence did not suggest that it was the parties' intention that they would not be bound by an exchange of contracts if the contract by mistake or otherwise did not accurately and fully record their agreement to the extent they intended that it should.

21 Mr Adicho's evidence was only consistent with his having an expectation that the exchanged contracts would be binding and effective, albeit subject to the variation of the deposit which he had agreed with Mr Heckenberg. He said that he "would not have entered into a contract" (Black 344C) if there was no oral agreement about the payment of the deposit. He denied that the contracts were a "sham document that would be put before" the bankers (Black 344W). He agreed that once he had signed the contracts, he was bound by them unless they were subsequently changed by mutual agreement (Black 346D). He accepted that after the exchange of contracts he was "bound" until "things changed" (Black 349S). None of this evidence indicated that anything had been said or done between the parties which showed they did not intend to create legal relations.

22 For these reasons the primary judge did not err in rejecting Mr Adicho's argument that the parties did not intend by their exchange of contracts to create legal relations.

23 This conclusion is not affected by the argument in relation to grounds of appeal 9 and 10. It is not submitted or apparent that any inference drawn or capable of being drawn from the fact that Mr Owen was not called as a witness, is relevant to or could affect the outcome of this argument.

24 Because of the concession made by Mr Adicho, it follows that the appeal should be dismissed. Nevertheless, as indicated above, I will deal shortly with the arguments in relation to grounds 2, 3, 4 and 5.

Oral agreement not enforceable (grounds 2, 4 and 5)

25 The relevant principle is stated in Hoyt's Pty Ltd v Spencer [1919] HCA 64; 27 CLR 133 at 147 and restated by Dixon CJ, Fullagar and Taylor JJ in Maybury v Atlantic Union Oil Co Ltd [1953] HCA 89; 89 CLR 507 at 517 in the following terms:

"... A collateral agreement made in consideration of a main agreement cannot effectively subsist unless it is consistent with the main agreement. Once an agreement is made in writing it is treated, unless the parties are shown otherwise to intend, as the full expression of their obligations. If it is established that the writing was intended to contain only part of a fuller agreement it may be otherwise. That, however, is not the present case. But it may be established that an entirely separate agreement was made by the parties. One of them may give a collateral promise in consideration of the other entering into the principal agreement. But if such a collateral agreement is to have effect as a contract it must be consistent with the provisions of the main agreement, the making of which by the other party provides the consideration. If the promise sought to modify, control or restrict the principal agreement it would detract from the very consideration which is alleged to support the promise."

26 The primary judge did not err in concluding that the collateral agreement alleged by Mr Adicho was inconsistent with the contracts for sale of land: [38]. Each of those contracts provided for a deposit equal to ten per cent of the price. By cl 2.2, subject to any other provision of the contract, the purchaser was to pay that deposit on the making of the contract. The only other relevant provision of each contract was special condition 12 which provided:

"Should the deposit herein be reduced and ... should the purchasers' default in the observance or performance of any obligation which would entitle the Vendor to claim the said deposit the full ten per cent (10%) will immediately become due and payable to the Vendor".

27 The agreement contended for by Mr Adicho was inconsistent with each of the contracts in two respects. First, it provided for the payment, in each case, of a deposit of $500 on the making of the contract whereas the contracts provided for the payment of a deposit of ten per cent of the purchase price at that time. Secondly, whereas the oral agreement provided for a deposit of $500 which could be forfeited, under each contract the amount which could be forfeited was equal to ten per cent of the purchase price. That was so even if the purchaser had agreed to accept payment of a lesser sum on exchange.

Oral agreement required to be in writing (ground 3)

28 This issue does not strictly arise because the collateral agreement contended for was unenforceable as inconsistent with the terms of the written contracts. However, the primary judge did not err in concluding that any oral agreement varying each contract for sale of land could not be relied upon because it was not in writing as required by s 54A(1) of the Conveyancing Act 1919: [36].

29 Any arrangement which amounts to a parol variation of a contract required to be in writing is ineffective either to enable the contract as varied to be enforced or to prevent the original contract being enforced. See Phillips v Ellinson Brothers Pty Ltd [1941] HCA 35; 65 CLR 221 at 243-244; Dowling v Rae [1927] HCA 5; 39 CLR 363 at 371, 379; Tallerman & Co Pty Ltd v Nathan's Merchandise (Victoria) Pty Ltd [1957] HCA 10; 98 CLR 93 at 113, 122-123; Agricultural and Rural Finance Pty Ltd v Gardiner [2008] HCA 57; 238 CLR 570 at [74].

Conclusion

30 The following orders should be made:

(1)  Appeal dismissed.

(2)  The appellant to pay the respondent's (Dankeith's) costs of the appeal.

31 SACKVILLE AJA: I agree with Meagher JA.

32 TOBIAS AJA: I agree with Meagher JA.

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Decision last updated: 28 September 2012