New South Wales Supreme Court CITATION : VOTRAINT No. 1046 P/L v UREN [1999] NSWSC 464 CURRENT JURISDICTION : EQUITY FILE NUMBER(S) : 1280/99 HEARING DATE(S) : 22/4/99 JUDGMENT DATE : 22 April 1999 PARTIES : VOTRAINT No. 1046 Pty Ltd v Peter UREN & Anor JUDGMENT OF : Bryson J COUNSEL : N. Kidd for the plaintiff G. Colman for the defendant. Stewart Levitt & Co for the plaintiff. SOLICITORS : Quinn & Quinn for the first defendant. Blake Dawson Waldron for the second defendant. CATCHWORDS : CONTRACTS FEE AGREEMENT - inconsistency of provisions - ambiguity as to party - whether subsidiary or parent company was lessee; - promise of fee contingent on execution of lease - whether contingency fulfilled - exact compliance required - tenancy at will not exact compliance - contingency not fulfilled - decision on constriction of particular documents. DECISION : Refer Paragraph 31 of judgment. - 11 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION BRYSON J Thursday, 22 April, 1999 1280/99 - VOTRAINT No. 1046 PTY LTD -v- PETER UREN & ANOR JUDGMENT 1 HIS HONOUR : This litigation arises out of a Fee Agreement between the plaintiff and the first defendant of 22 October 1997 which is contained in Ex A. 2 The context is that the plaintiff and the first defendant were in negotiations and had agreed for the plaintiff to purchase land owned by the first defendant; a lessee referred to as Tasman was in occupation and negotiations were in train for the first defendant to lease a small part of the land to Optus Communications Limited (or it may be a subsidiary of Optus Communications Limited), and in association with that to obtain a partial surrender of the Tasman lease. 3 There already were some arrangements, not dealt with in detail in the evidence, for Telstra to maintain equipment on the land. The land to be leased to Optus is said to contain twenty square metres and to adjoin the land leased to Telstra. As well as the lease of twenty square metres, there was need to make access arrangements. 4 The plaintiff, as purchaser, was to take over the negotiations set in train between the first defendant and Optus, and was to seek to obtain the benefit of negotiations which were then in progress and of the contemplated lease to Optus. 5 The Fee Agreement established the terms on which the first defendant would support the continuing negotiations between the plaintiff and Optus and the plaintiff would pay a fee to the first defendant on success. The fee was to be $35,000 and by clause 5.3 of the Fee Agreement, Messrs Blake Dawson Waldron would hold that amount from completion of the purchase as stakeholder and as security for the payment of the fee. 6 The second defendant, Mr Kaplan, is a solicitor who was joined as a party to represent Messrs Blake Dawson Waldron in their capacity as stakeholders. He has left the litigation because under orders made on 4 March 1999 the plaintiff had leave to discontinue against him and Messrs Blake Dawson Waldron paid $35,000 into Court. Mr Kaplan has taken no further part in the litigation since the payment in. 7 The Fee Agreement of 22 October 1997 includes these provisions. In clause 1 "Definitions and Interpretation," Clause 1.1 contains the following definitions: "Optus" means Optus Communications Limited; "Proposed Lease" means a proposed lease with Optus of the premises on substantially the same terms as the terms set out in the Schedule." 8 The Schedule contains particulars of the rent, rent increases, lease period and other terms and conditions. It is not contended that the arrangements made by the plaintiff with Optus, so far as they have gone, have involved any material change in provisions relating to rent, rent increases and lease period. The Schedule concludes by stating: "Other terms and conditions as set out in draft lease for collocating Telstra Corporation Tower, a copy of which is annexed" 9 The annexure is a draft lease which bears the date 5 September 1997. In fact, the draft does not mention Optus Communications Limited; the lessee referred to in the draft was Optus Mobile Pty Limited. 10 In the substantial provisions of the lease the first defendant agreed to continue his negotiations pending completion (clause 2) and the plaintiff agreed to take over the negotiations with Optus after completion; the first defendant agreed to provide the plaintiff with assistance in the negotiations. 11 Clause 3.2 stated: "Votraint shall continue such negotiations with Optus in good faith with a view to entering into the proposed lease." 12 Clause 3.2 is an important provision because, in a way, it interacts with provisions relating to entitlement to a fee. 13 Clause 4 dealt with the need for the plaintiff to deal with Tasman with a view to obtaining its agreement to surrender a part of its lease, and the plaintiff agreed to use all reasonable endeavours in that regard. 14 By Clause 4.2, the first defendant acknowledged the significance of obtaining Tasman's agreement. 15 Clause 5 "Payment of Fee" is as follows: "5.1 Upon Votraint accepting a lease executed by Optus in the form of the Proposed Lease and a surrender of lease executed by Tasman for the partial surrender of its lease as referred to in clause 4, Votraint will pay to Uren the Fee PROVIDED THAT if the rent, the rent increases or the term of the executed lease differ from the details in the Schedule then the Fee shall be an amount equal to 31.7 per cent of the total rental payable during the term of the lease executed by Optus. 5.2 If the events referred to in clause in 5.1 do not occur by 31 August 1998, this Agreement shall terminate and Votraint shall be under no obligation to pay to Uren the Fee notwithstanding that it may enter into the Proposed Lease after that date. 5.3 As security for the payment of the Fee, Votraint agrees on completion of the purchase of the Land to pay to its solicitors, Blake Dawson Waldron, as stakeholder, a sum equal to the Fee to be paid as follows: (a) to Uren under clause 5.1; or (b) to Votraint after 31 May 1998. PROVIDED THAT if prior to that date, Votraint provides to Uren evidence that Tasman will not agree to a partial surrender of its lease on terms set out in clause 4.1 the stakeholder may refund the monies to Votraint after giving to Uren or its solicitors notice of its intention to do the same". 16 Clause 5.3 explains the earlier presence of Mr Kaplan and his firm as stakeholder. As appears from Clause 5.3, the security was to exist only until 31 May 1998, whereas the events which might bring about payability of the fee were to occur by 31 August 1998. The effect is that the security was to exist only for part of the time during which the contingencies might have been fulfilled; after 31 May 1998, the first defendant had no entitlement to security but he still might come to be entitled to payment of the fee. 17 An obvious circumstance attending Clauses 5.1 and 5.2 was the degree of control that the plaintiff had over the fulfilment of the contingencies upon which the fee was payable and the susceptibility of the first defendant's prospective entitlement to inaction or deliberately subversive behaviour by the plaintiff. This contingency was dealt with by clause 3.2, the good faith obligation. 18 The issues raised by the amended summons and the cross- claim do not extend to any claim for breach of the good faith obligation which, I would think, if broken, would give rise to an entitlement to damages, at the highest. On my understanding of the expressions in the agreement, breach of the good faith obligation would not interact directly with the contingencies in Clause 5 on which the fee is payable; it is not a condition of the defeasance of payability in Clause 5.2 or of any other defeasance that the good faith obligation should have been kept, and this points towards the view that the available remedy for breach of the good faith obligation would be a damages claim. 19 Counsel showed me an agreement between the parties which narrowed the issues so as to leave any claims relating to the good faith obligation, clause 3.2, out of consideration in the present proceedings. That agreement may have some implications for the further conduct of the parties but I must leave that to them. 20 The plaintiff claims a declaration that the plaintiff is entitled to a fee of $35,000. This is a rather distorted expression, the point of what is claimed, as the assertion that the defendant is not entitled to the fee. The plaintiff also claims an order that the sum of $35,000 now in Court be paid to it. The cross-claim, which I gave the first defendant leave to file (although it has not yet been filed) will claim a declaration that the plaintiff is obliged to pay the first defendant the fee and also an order for the payment of the money in Court to the first defendant which would achieve satisfaction of the alleged obligation. 21 Negotiations relating to a grant by the plaintiff of a lease to Optus proceeded with painful slowness and a series of complications, contributed to very significantly by the three-cornered nature of the negotiations and the need to involve Tasman. 22 It seems that from the beginning the documents under consideration showed the proposed lessee as Optus Mobile Pty Limited. Solicitors undertaking the plaintiff's conveyancing business called on 24 November 1997 (see page A20) or perhaps on 25 November 1997 (see page A21) for a guarantee and required that the obligations of the lessee should be guaranteed by the parent company of Optus Mobile Pty Limited. This was refused on 26 November 1997 (see page A23), in lofty terms, and negotiations continued on the basis that the lessee was to be Optus Mobile Pty Limited. 23 After much correspondence and vicissitudes the form of the documents came to be agreed and on 27 January 1999 the solicitors representing Optus forwarded a stamped and executed lease (and the arrangements had been changed so as to provide for two leases for successive periods) and also fees for the of mortgagee's consent. The arrangements attending the lease were not then completed but they have proceeded. It is not clear to me that they are yet entirely complete, but it can be confidently expected that they will be completed. 24 It was contended by counsel for the plaintiff that one of the contingencies on which payability of the fee depends which has not occurred is that the lessee is or is to be Optus Mobile Pty Limited. On the literal terms and plain expression of the principal clause in the Fee Agreement the contingency in Clause 5.1 relates to execution of a lease by Optus which is defined as Optus Communications Limited, and of course that has not happened. However, it is necessary to look at the whole of the Fee Agreement to understand what it means, including which company was referred to as Optus, and the Fee Agreement includes the annexure, the draft lease which plainly nominated Optus Mobile Pty Limited as the lessee. 25 Clause 5.1, the clause referring to Optus, refers to the form of the proposed lease, and by addressing the definition of "Proposed Lease," the Schedule and the annexed copy of a draft lease, that can be seen to be a proposed lease to Optus Mobile Pty Limited. There is an internal inconsistency in the express provisions of the Fee Agreement in this respect. The parties were plainly not using language identifying Optus with a high degree of precision. If precision had been thought of as important and it had been thought of as significant for the parties' obligations that the parent should be the lessee and that a subsidiary should not be the lessee, there is a high probability that the terms of the agreement would have reflected this. That the parties spoke in terms in which one Optus company was to be the lessee at one place and another Optus company was to be the lessee at another place shows that the exact identity of the lessee was not of prominent importance. 26 In my view, I should attribute greater weight to references identifying the lessee in the draft lease than to the references identifying the lessee in clause 5.1 and the interpretation section. The draft lease is, in my view, much likelier to represent what the parties really had in contemplation for the identity of the lessee. 27 The defendant's counsel contended that the later course of dealings, in which solicitors' correspondence setting out the parties' positions and contentions did not include this point and that the point had no reflection during the long period of negotiations, supported his reading. I do not think that it does. On the terms of the Fee Agreement itself it should be understood that acceptance of a lease by Optus Mobile Pty Limited fulfils the contingencies. 28 The defendant's counsel's contentions with respect to fulfilment of the contingencies on which the fee is payable were to the effect that clauses 5.1 and 5.2 are concerned with what was to happen in substance, and that there had to be a lease arrangement in place for the occupation of the property. He contended that the date of occupation by the proposed lessee was the critical date and said that the contingency was fulfilled when under an arrangement in correspondence Optus actually went into occupation and its operations on site began about February 1998. The defendant's counsel contended that occupation and not signing a document is the critical event. By 31 August 1998 there had actually been a proposed lessee in occupation and paying rent for almost six months, and counsel contended that this fulfilled what had been contemplated and that the plaintiff had got what was expected, that is, the benefit of the negotiations that the first defendant had in train at the time of the sale. 29 In my opinion, the events to which counsel referred do not constitute events fulfilling the contingencies in Clause 5.1. The terms of clause 5.1 do not contemplate an informal arrangement such as was made in correspondence for Optus to go into possession pending completion of a lease. It is not at all clear what tenant right Optus had by August 1998. It appears to have been no more than a tenancy at will, as I cannot see in the correspondence that any material and binding agreement to grant a lease then existed. Even if it had existed, the terms of clause 5.1 do not refer to an agreement for lease but to formalities; they refer to accepting a lease and to the lease being one then executed by Optus. There was also to be a surrender executed by Tasman and that had not happened at any time in 1998. 30 In my view the payability of the fee depends on the exact fulfilment of the conditions stated. This is not a matter where it can be said that it is enough to fulfil the substance of the obligation. In any event the substance of the obligation could not be said to have been fulfilled by 31 August 1998. The cut-off point when the opportunity to achieve entitlement to the fee came to an end is drawn sharp and clear by the terms of clause 5.2; if the events to which it referred did not occur by the stated date the Fee Agreement then terminated, and the consequences laboriously spelled out by clause 5.2 came about, that is, the plaintiff was under no obligation to pay the fee and was under no obligation notwithstanding that it later entered into the proposed lease. 31 The orders are: 1. I declare that the first defendant is not entitled and cannot now become entitled to payment of the fee of $35,000 referred to in clause 5 of the Fee Agreement between the plaintiff and the first defendant dated 22 October 1997. 2. I order that the moneys paid into Court in pursuance of the order of 4 March 1999 by Messrs Blake Dawson Waldron, solicitors, together with any interest since payment in be paid out of Court to the plaintiff. 3. I order that the first defendant pay the plaintiff's costs of the plaintiff's claim. 4. The cross-claim is dismissed with costs. ********* Last Modified: DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.