Reported Decision : (1999) NSW ConvR 55-917 New South Wales Supreme Court CITATION : Elias v Bova & 2 Ors [1999] NSWSC 840 CURRENT JURISDICTION : Common Law Division FILE NUMBER(S) : 11758/98 HEARING DATE(S) : 17 August 1999 JUDGMENT DATE : 23 August 1999 George Farah Elias (Plaintiff) John Bova (First Defendant) PARTIES : Paula Bova (Second Defendant) Robert Y C Huang (Third Defendant) JUDGMENT OF : Master Harrison Mr W Hodgekiss (Plaintiff) COUNSEL : Mr D L Warren (First & Second Defendants) Mr M Sahade (Third Defendant) E Frederick & Co of Lidcombe (Plaintiff) Galluzzo Golotta SOLICITORS : (First & Second Defendants) George Loupos & Associates (Third Defendant) CATCHWORDS : Set aside statement of claim ; Conveyancing Act 1919 (NSW) - s 66ZG; Dismissal - Part 13 5 SCR) ACTS CITED : Conveyancing Act 1919 (NSW) - s 66ZG Air Services Australia v Zarb (unreported, Rolfe AJA 26 August 1998) Dey v Victorian Railway Commissioners (1948-49) 78 CLR 62 General Steel Industries Inc v Commissioner for Railways (1964) 112 CLR 125 Webster & Anor v Lampard (1993) 177 CLR 598 Eccles v Bryan [1948] 1 Ch 93 Domb & Anor v Isoz (1980) 1 Ch 548 CASES CITED : Sindel Georgiou (1984) 154 CLR 661 The Prudential Assurance Co Ltd v Lorenz & Ors Knights Industrial Reports Vol II October 1971 to March 1972 at 72 Gersham v Manitoba Vegetable Producers' Marketing Board 69 DLR (3d) 1977 at 114 Contribution Fund of Australia v Hunt (1982) 44 ALR 365 Gibson v Parkes District Hospital (1991-92) 26 NSWLR 9 Torquay Hotel Co Ltd v Cousins (1969) 2 Ch 106 Emerald Constructions Co v Lowthian [1966] 1 WLR 691 Lumley v Gye [1843-60] All ER 208, 2 El & BL 216, 116 ER 749 DECISION : See para 33 15 THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION MASTER HARRISON MONDAY, 23 AUGUST 1999 11785/98 - GEORGE FARAH ELIAS v JOHN BOVA & 2 ORS JUDGMENT (Set aside statement of claim - s 66ZG Conveyancing Act 1919 (NSW) Dismissal - Part 13 r 5 SCR) 1 MASTER: By notice of motion filed 22 March 1999 the third defendant seeks that the statement of claim be set aside as against him pursuant to s 66ZG of the Conveyancing Act 1919 (NSW) or alternatively that the statement of claim be dismissed pursuant to Part 13 r 5 of the Supreme Court Rules. The plaintiff did not rely on any affidavit evidence. The third defendant relied on his affidavit sworn 12 June 1998, the affidavit of Robert Yong Cong Huang and that of the first and second defendants' solicitor Ross Anthony Golotta sworn 17 June 1998. 2 By statement of claim filed 26 February 1999, the plaintiff pleads that he is a real estate entrepreneur and developer. The first and second defendants John Bova and Paul Bova respectively have been at all relevant times the owners of the property known as 19B George Street Burwood being Lot 1 DP321365 folio identifier No 1/321365 (the property). The third defendant Robert Huang is an accountant and a real estate developer. 3 The first and second defendants throughout the period April and May 1998 represented to the plaintiff that upon the plaintiff executing an option agreement (the option) and making payment in accordance with the terms of the option that the first and second defendants would enter into an option in the same terms with the plaintiff. It is alleged against the first and second defendant that they were in breach of a contract and that they engaged in false and misleading conduct. On 21 July 1998 Justice Young noted that the plaintiff is no longer seeking specific performance. 4 Paragraph (12) of the statement of claim refers to the third defendant. It alleges that the third defendant knew that the option had been entered into by the plaintiff wrongfully and with intent to injure the plaintiff procured and induced the first and second defendants to break their respective agreements with the plaintiff and to refuse to perform or to further perform. The plaintiff claims that as a consequence he lost the benefit of the option and lost the profit that he would otherwise have made and has been greatly injured in his business and has been put to considerable trouble, inconvenience and expense and has thereby suffered loss and damage. 5 For the purposes of this application, I find the following facts. (1) The plaintiff attended his solicitor Mr Fredericks and executed the option agreement as between the plaintiff on the one part and the first and second defendants on the other. (2) Arrangements were made for exchange to take place on 8 May 1998 at 9.30 am at Mr Golotta's office (the solicitor for the first and second defendants). (3) On 8 May 1998 the plaintiff went directly to Mr Golotta's office and was told by his secretary that Mr Golotta was not available. The plaintiff asked if the first and second defendants were in attendance. He was informed that they would be arriving a little later. (4) Mr Golotta's secretary told the plaintiff to leave the documents with her and she would get the first and second defendants to sign them. (5) While the plaintiff was present in the solicitor's office the first defendant telephoned. The plaintiff a heard a response from the secretary saying "Yes, Mr Elias is here personally. He has paid us the cheque and everything is okay. We will see you soon." Mr Golotta, in his affidavit confirms that on 8 May 1998 an option signed by the plaintiff and a cheque in the sum of $10,000 was delivered to his office. (6) A receipt of payment was handed to the plaintiff. The secretary assured him that she would get the documents signed and sent to his solicitor. (7) On 10 May 1998 John Bova signed a deed on his behalf and on behalf of his brother Paul Bova with Mr Huang in which they as vendors agreed to sell the property to Mr Huang as purchaser for the sum $700,000. Mr John Bova received a cheque for $10,000 from Mr Huang in accordance with paragraph (2) of that deed. (8) On 11 May 1998 Mr Golotta received a fax from the plaintiff's solicitor asking when he would be in a position to exchange the option agreement. (9) On 11 May 1998 the first and second defendants attended Mr Golotta's office and signed their copy of the option preparatory to an exchange. (10) On 11 May 1998 Robert Pignataro telephoned the plaintiff and said "Congratulations, the documents have been executed." 6 In relation to summary judgment Part 13 r 5 of the Supreme Court Rules provides: "(1) Where in any proceedings it appears to the Court that in relation to the proceedings generally or in relation to any claim for relief in the proceedings - (a) no reasonable cause of action is disclosed; (b) the proceedings are frivolous or vexatious; or (c) the proceedings are an abuse of the process of the Court, the Court may order that the proceedings be stayed or dismissed generally or in relation to any claim for relief in the proceedings." 7 In a recent decision in Air Services Australia v Zarb (unreported, 26 August 1998) Rolfe AJA found it useful to remind himself of the highly demanding test imposed on a party seeking summary judgment. His Honour referred to Dey v Victorian Railway Commissioners (1948-49)78 CLR 62, General Steel Industries Inc v Commissioner for Railways (1964) 112 CLR 125 and Webster & Anor v Lampard (1993) 177 CLR 598. I have reproduced some of the passages quoted. 8 In General Steel Barwick CJ, who heard the application alone, referred to Dixon J's passage quoted above at p 130. He then stated: "Although I can agree with Latham CJ in the same case when he said that the defendant should be saved from the vexation of the continuance of useless and futile proceedings, in my opinion great care must be exercised to ensure that under the guise of achieving expeditious finality a plaintiff is not improperly deprived of his opportunity for the trial of his case by the appointed tribunal. On the other hand I do not think that the exercise of the jurisdiction should be reserved for those cases where argument is unnecessary to evoke the futility of the plaintiff's claim. Argument, perhaps even of an extensive kind, may be necessary to demonstrate that the case of the plaintiff is so clearly untenable that it cannot possibly succeed." 9 Barwick CJ also said: "It is sufficient for me to say that these cases uniformly adhere to the view that the plaintiff ought not to be denied access to the customary tribunal which deals with actions of the kind he brings, unless his lack of cause of action - if that be the ground on which the Court is invited, as in this case, to exercise its powers of summary dismissal - is clearly demonstrated. The test to be applied has been variously expressed; 'so obviously untenable that it cannot possibly succeed'; 'manifestly groundless'; 'so manifestly faulty that it does not admit of argument'; 'discloses a case which the Court is satisfied cannot succeed'; 'under no possibility can there be a good cause of action'; be manifest that to allow them' (the pleadings) 'to stand would involve useless expense." 10 More recently in Webster & Anor v Lampard (1993) 177 CLR 598 Mason CJ, Deane and Dawson JJ reinforced the rigorous testing stating, at p 602: "The power to order summary judgment must be exercised with 'exceptional caution' and 'should never be exercised unless it is clear that there is no real question to be tried."' 11 According to Rolfe AJA in Zarb: "The demanding nature of the test is in no way lessened in circumstances where there are the potential for difficult factual and legal issues to arise. Rather, as the decision in Webster made clear, it is heightened: see also Wickstead & Ors v Browne (1992) 30 NSWLR 1 and Esanda Finance Corporation Limited v Peat Marwick Hungerfords (1997) 188 CLR 241." 12 The third defendant submitted that the statement of claim should be dismissed because firstly, the option agreement is void pursuant to s 66ZG of the Act because there was no exchange of counterparts, one of which had to be signed by the purchaser and the other had to be signed by the vendor and secondly, on the undisputed facts, the plaintiff had not exchanged a contract with the first and second defendants, so tort of interference with a contract does not arise and therefore there is no cause of action. The plaintiff submitted that firstly it is unclear what the word "exchange" means in s 66ZG of the Act; secondly, the parties agreed to a methodology for exchange to take place and thirdly, the law is developing so that the tort of interference with a contract may extend to cover a "non formulated contract". 13 I turn to section 66ZG of the Conveyancing Act which provides: "Option void in certain circumstances (1) An option granted for the purchase of residential property is void: (a) unless it is granted by way of exchange of counterparts, one of which is signed by the purchaser and the other signed by the vendor, or (b) if it is exercisable within 42 days after it is granted or, if a different period is prescribed, within that period. (1A) Subsection (1) (a) does not render an option void if it was granted, without an exchange of counterparts, before the commencement of the amendment made to this section by the Conveyancing Amendment Act 1997 and it was signed in duplicate by both parties. (2) If an option is void under this section, section 66ZE applies as if an effective notice of rescission of the option had been served under this Division, except that: (a) the purchaser is not liable to the forfeiture provided for under that section, and (b) that section has effect as if it provided that the whole of the consideration paid in relation to the option and the whole of any deposit paid in relation to the purchase of the property are payable to the purchaser." 14 In relation to the exchange of contract, the parties referred to Eccles v Bryan [1948] 1 Ch 93 Domb & Anor v Isoz (1980) 1 Ch 548 and Sindel v Georgiou (1984) 154 CLR 661. In Eccles, it was decided that an exchange occurred when there was a meeting of solicitors in the office of one of them (usually the vendor's office) and two signed engrossments were physically passed between them so the purchaser had possession of a copy signed by the vendor and the vendor had a copy signed by the purchaser. The exchange is the crucial and vital fact which brings the contract into existence. Without exchange, there is no contract. Lord Greene also discussed exchange by post. 15 In Domb it was held that exchange by telephone can only take place after both vendor and purchaser sign contracts in identical form (subject to the question of rectification, which can apply to any contract) so that there is no doubt about the terms of the contract. Exchange by telephone can only take place when a contract signed by a client is in the physical possession of his own solicitor or in the possession of the solicitor on the other side who agreed to hold that part to the order of the despatching solicitor. 16 In Sindel, the High Court cited Eccles as authority for exchange by post and Domb as authority for constructive exchange by telephone. The issue in Sindel was whether the parties were bound by the exchange of non-identical counterparts of a contract. In Sindel the High Court looked at the intention of the parties intended to be bound by the exchange of non-identical counterparts. 17 From the facts as previously stated, on 8 May 1998 the plaintiff executed his counterpart of the option agreement. On 10 May 1998, the first and second defendants entered into an agreement for sale with the third defendant for the same property. Three days later on 11 May 1998, the first and second defendants signed their counterpart of the option agreement. The only evidence that related to an exchange occurring is where Mr Pignataro the agent of the plaintiff, telephoned the plaintiff to say "congratulations the documents have been exchanged" although it is not clear the source of his knowledge. The solicitor for the first and second defendants refers to the first and second defendants signing the option preparatory to exchange. 18 At trial, both Mr Pignataro and Mr Golotta would give evidence and be cross examined on the issue as to whether there had been an exchange of contracts. The plaintiff's argument that the option agreement had been exchanged is a weak one. However the statement of claim should not be struck out as I cannot conclude that the plaintiff's case is hopeless particularly where there may be disputed evidence on the issue as to whether an exchange occurred. For these reasons I am of the view that the statement of claim should not be struck out on the basis that it is void under s 66ZG of the Act. 19 In relation to the plaintiff's submission that the parties agreed on a methodology for exchange to take place, the plaintiff's evidence at its highest is that Mr Golotta's secretary told the plaintiff to leave the documents and she would get the first and second defendants to sign them. While she may have said that she would arrange for the signing of the contract, there is no evidence that she made any arrangement for the exchange of the counterparts. This proposition is hopeless. 20 In relation to the plaintiff's third submission concerning the development of the tort, the plaintiff referred to two cases namely The Prudential Assurance Co Ltd v Lorenz & Ors Knights Industrial Reports Vol II October 1971 to March 1972 at p 72 and a Canadian Court of Appeal decision of Gersham v Manitoba Vegetable Producers' Marketing Board 69 DLR (3d) 1977 at p 114. 21 In summary judgment applications where the law is ripe for development, Master Allen (as he then was) in Contribution Fund of Australia v Hunt (1982) 44 ALR 365 at pp 373-374 said: "…It is not by any means rare in the history of the development of the common law that a high appellate court, in enunciating a novel development in the law, albeit one avowedly based on a miscellany of old cases, has chosen to use general words of imprecise limits in meaning to facilitate the arrival, in later cases, of the final form of the development without the need to overrule what earlier had been stated. That being so I am of opinion that a court at first instance should be particularly astute not to risk stifling that development of the law by summarily throwing out of court actions in respect of which there is a reasonable possibility that it will be found, in the development of the law, still embryonic, that a cause of action does lie. The risk of injustice to the plaintiff, which summary termination of his claim would entail, is real. One cannot predict, with firm assurance, what the future holds as the final formulation of the new development." 22 This passage was quoted with approval by Justice Badgery-Parker in Gibson v Parkes District Hospital (1991-92) 26 NSWLR p 9 at 35. 23 It is difficult to conceive that there can be an interference with contractual relation if there is no contract in existence. The plaintiff's case is that the option agreement was exchanged on 11 May 1998 yet the third defendant alleged interference ended on 10 May 1998 when he entered into a contract for the purchase of the same property with the first and second defendants. 24 In relation to the tort of interference with contractual relations, the plaintiff referred to Torquay Hotel Co Ltd v Cousins (1969) 2 Ch 106. In Cousins, Lord Denning MR stated that there were three elements of the tort. They are: (i) There must be interference in the execution of an existing contract. The interference is not confined to the procurement of a breach of contract. It extends to a case where a third person prevents or hinders one party from performing his contract, even though it be not a breach. (ii) The interference must be deliberate. The person must know of the contract or, at any rate, turn a blind eye to it and intend to interfere with it - see Emerald Constructions Co v Lowthian [1966] 1 WLR 691. (iii) The interference must be direct. 25 The torts major role has been in area of trade rivalry and labour relations but now applies to all kinds of contractual relations including commercial contracts. 26 Lorenz concerned industrial action taken by a union. The plaintiff was a well known insurance company who employed over 11,000 agents to collect premiums from policy holders. Every district agent entered into a service agreement with the plaintiff regulating his or her duties. One of those duties was to account for the premiums which he collected and remit them to the plaintiff. The union sent a circular letter which instructed the agents to bank the moneys but not to remit them to the plaintiff. There was no issue in this case as to whether the plaintiff and the district agents had a "non formulated" contract. The plaintiff's agents had signed service agreements in place. The decision of Lorenz does not reflect a development in the law that would assist the plaintiff's case. 27 In Gersham the facts are that the plaintiff went to work for the Stella Company (the company) for $250 per week with an understanding that he would become a part owner through the purchase of the shares at a price which had not been fully settled at the time of the defendants interference. The plaintiff has a contract of employment with the company. 28 The learned trial judge found on evidence that the action of the defendant board forced the Stella company to discharge the plaintiff without adequate notice and forced the cancellation of the proven arrangement they had regarding selling shares to the plaintiff. The trial judge followed the principles set out in Lumley v Gye [1843-60] All ER Rep 208, 2 El & BL 216, 116 ER 749. In doing so he said [65 DLR (3d) 181 at p 189 [1976] 2 WLR 432] that the tort of interfering in contractual relationships covers not only interference but also interference with an existing contractual relationship but also interference where "there was an agreement to enter into a contract". 29 The Court of Appeal said that the trial judge's language suggested that the tort of unlawfully interfering in contractual relationships extends to interference with the formation of such relationships. The Court of Appeal held that it might have been error, if the learned trial judge had asserted as a general proposition that the tort of unlawfully interfering in contractual relationship extends to interference with the formation of such relationship. But the language of the learned judge was geared to the factual situation confronting him and must be so appraised. The Court of Appeal stated: "on the evidence in this case, there was one relationship with Stella and its shareholders. Here a contractual relationship already existed in respect of the employment. An incident or aspect of that relationship was the likelihood or prospect of the plaintiff acquiring a share interest in the company. What the plaintiff lost by the defendant's wrongful interference was not the opportunity for the formation of a contract but rather the opportunity to extend his already existing contractual relationship of employment into one that would include acquisition of shares. Into that respect this case from Allen v Flood et al . and the Crofter's case, supra. The case before us is, therefore, not one in which it is necessary to hold that a defendant is liable for interfering with an agreement to agree." 30 Thus the plaintiff loss by the defendant's wrongful inference was not the opportunity for the formation of a contract but rather the opportunity to extend an already existing contractual relationship. 31 In the case before me there is nothing to suggest that the plaintiff already had an existing contractual relationship with the first and second defendants. Hence the opportunity to extend his already existing contractual relationship does not arise. This case does not assist the plaintiff's submission that the case law is developing to cover "non formulated contracts". 32 It is my view that the plaintiff's case as currently pleaded does not establish the cause of action and should be dismissed. However in the exercise of my discretion the third defendant should be given a further opportunity to replead his case. The current statement of claim should be struck out as against the third defendant. Costs should follow the event. An amended statement of claim which repleads a cause of action or causes of action is to be filed and served within 21 days. The plaintiff should pay the costs of the motion. 33 The orders I make are: (1) The statement of claim is struck out as against the third defendant. (2) An amended statement of claim which repleads a cause of action or causes of action against the third defendant is to be filed and served within 21 days. (3) The plaintiff is to pay the third defendant's costs of the notice of motion filed 22 March 1999. ********** Last Modified: 08/24/1999 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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