New South Wales Supreme Court CITATION : PACIFIC PREMIUM FUNDING v SIERRA HOLDINGS [2004] NSWSC 713 HEARING DATE(S) : 23 July 2004 JUDGMENT DATE : 13 August 2004 JURISDICTION: EQUITY JUDGMENT OF : McDougall J DECISION : See para [99] of judgment CATCHWORDS : CONTRACT - where plaintiff financed payment of insurance premium - where default is repayment - where deed of "settlement" negotiated - where defendant agreed to pay settlement sum - where defendant agreed to execute mortgage in favour of plaintiff - where plaintiff seeks specific performance of settlement agreement - where settlement agreement binding and enforceable - formation of contract - intention to be bound - whether settlement agreement binding only as a deed - subjective understanding of the parties - whether settlement agreement binding as a deed - whether documents "delivered" - whether intention of parties that documents binding upon execution and not only on formal exchange - whether plaintiff's threatened commencement of winding-up proceedings without further notice a repudiation of settlement agreement - whether deed of settlement not enforceable as mortgage where deed of settlement unstamped - Duties Act 1997 Corporations Act 2001 LEGISLATION CITED : Duties Act 1997 Conveyancing Act 1919 Eccles v Bryant and Pollock [1948] Ch 93 Allen v Carbone (1975) 132 CLR 528 Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1998) 18 NSWLR 540 Masters v Cameron (1954) 91 CLR 353 Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd & Ors (1986) 40 NSWLR 622, 628 Sinclair, Scott & Co v Naughton (1929) 43 CLR 310, 317 CASES CITED : GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631, 634 Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9251 The Council of the Upper Hunter County District v Australian Chilling and Freezing Co Limited (1968) 118 CLR 429, 437 Hillas & Co Ltd v Arcos Ltd (1932) 147 LT 503, (1932) All ER 494 Manton v Parobolic Pty Ltd (1985) 2 NSWLR 361 Hooker Industrial Developments Pty Ltd v Trustees of the Christian Brothers [1977] 2 NSWLR 109, 118-119 Xenos v Wickham (1867) LR 2 HL 296 Neoform Developments & Interiors Pty Ltd v Town and Country Marketing Pty Ltd (2002) 49 ATR 625 PARTIES : PACIFIC PREMIUM FUNDING PTY LIMITED- (Plaintiff) SIERRA HOLDINGS PTY LIMITED - (Defendant) FILE NUMBER(S) : SC 3009/04 COUNSEL : N Cotman SC (Plaintiff) B Coles QC with J Johnson (Defendant) SOLICITORS : Conway Maccallum (Plaintiff) Kemp Strang (Defendant) PACIFIC PREMIUM FUNDING PTY LIMITED v SIERRA HOLDINGS 3009/04 INDEX to JUDGMENT Paragraph Introduction 1 The facts 2 The issues 30 Mr Fairfull's credit 33 The evidence of Mrs Fairfull 38 The relevant principles 40 Complete agreement reached by 1 April 2004 49 Was the oral agreement intended to be legally binding? 52 Was a binding agreement made on 19 April 2004? 56 The stamp duty point 88 Conclusion 97 IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION McDOUGALL J 13 August 2004 3009/04 PACIFIC PREMIUM FUNDING PTY LIMITED v SIERRA HOLDINGS PTY LIMITED JUDGMENT 1 HIS HONOUR: The Plaintiff (Pacific) was owed money by a company associated with Mr David Fairfull. Pacific had served a statutory demand on that company and was in a position to wind it up. Mr Fairfull did not want that to happen. He negotiated an agreement with Pacific that, in exchange for security to be given by the defendant ("Sierra"- another company controlled by Mr Fairfull) and other matters, Pacific would stay its hand for a number of months. The agreement was recorded in a number of documents, including a deed of settlement and a mortgage to be given by Sierra to Pacific. Mr Fairfull signed those documents in his own right and on behalf of Sierra and others. He sent copies of the signed documents by facsimile transmission to Pacific's solicitors. Pacific says that the documents thereby became binding and that it is entitled to enforce the mortgage that, under the terms of the deed of settlement, Sierra agreed to give. Sierra says that the documents did not become binding upon it, and that they were not intended to become binding until there was a formal exchange. Stripped to its essentials, the question for decision is whether someone who has obtained the substantial benefit of an agreement negotiated in good faith is bound to pay the price. Resolution of that question requires close attention to the facts and documents. The facts 2 The plaintiff ("Pacific") finances the payment of insurance premiums. In October 2003, it provided credit to I.O.F./Modular Offices (MFG) Pty Ltd ("IOF") to enable it to pay workers' compensation and other insurance premiums. By mid December 2003, IOF was in default. On about 23 February 2004, Pacific served a statutory demand for payment on IOF (under s 459E(2)(e) of the Corporations Act 2001). IOF did not, and could not, comply with that demand. 3 Mr Fairfull, one of two directors and the chief executive officer of IOF and an associated company, IOF Australia Pty Ltd (together "the IOF companies"), thereafter negotiated with Pacfic's solicitors for Pacific to extend time for payment of the debt. The agreement was accurately reflected (there is a presently irrelevant exception) in a document styled "Deed of Settlement" that Mr Fairfull signed on behalf of the IOF companies, himself and the defendant ("Sierra") on 19 April 2004. The terms negotiated were: (1) That an amount of $17,000 be paid forthwith (this was paid by mid March 2004, and was not referred to in the deed of settlement). (2) IOF agreed that it owed Pacific the "Settlement Sum" of $192,346.30. (3) Mr Fairfull and Sierra agreed to assume liability for the due payment of that settlement sum. (4) Sierra agreed to execute a mortgage over real property owned by it and not further to encumber that property or increase the amount secured by the first mortgage over it. (5) Pacific agreed to allow up until 30 June 2004 for payment of the settlement sum and to "withdraw" the statutory demands. (6) Upon the settlement sum being paid and all other obligations being satisfied, the parties would release and discharge each other from all claims relating to the debt. 4 The documents signed by Mr Fairfull on 19 April 2004 included not only the deed of settlement but a mortgage to be given by Sierra to Pacific and a number of certificates and other documents connected with that mortgage. 5 It is apparent that negotiations were in substance complete by 1 April 2004 (by which date the amount of $17,000 had been paid). On 1 April 2004, Pacific's solicitor, Ms Jane Good (who had negotiated on behalf of Pacific with Mr Fairfull) of Brand Partners, sent to Mr Fairfull's solicitor, Mr Marcel Kalfus of Holding Redlich, by e-mail "the settlement documents which reflect the agreement reached between our clients". Ms Good emphasised that "these documents need to be executed urgently". Apparently with the consent of Mr Kalfus, Ms Good also sent the documents by e-mail to Mr Fairfull saying, "I need them signed urgently can you forward them on to your solicitor." 6 Mr Kalfus undertook to review the documents and "advise of any necessary amendments shortly". He expected that once that was done and "execution copies" were provided, his client would sign the documents forthwith. 7 On 5 April 2004, Mr Kalfus requested confirmation of the amount of the settlement sum and a number of amendments to the documents. Three days later, he was provided with clean and marked up copies of amended documents. In the covering e-mail, Mr Tino Dal Negro, a solicitor in the employ of Brand Partners working under the supervision of Ms Good, noted that Mr Fairfull was to sign the documents on 13 April 2004 (in his personal capacity and on behalf of the other "IOF parties"). (The IOF parties were defined in the deed of settlement as including the IOF companies, Mr Fairfull and Sierra.) Mr Dal Negro noted that "[o]ur client will enforce its right under the expired statutory demands if you have not confirmed with us that the documentation has been executed by 4 pm on Tuesday 13 April 2004." He requested also that "the necessary certificates e-mailed to you by Jane Good … are also signed as required, and returned to us along with the other executed documentation." 8 There was an exchange of e-mails between Messrs Kalfus and Dal Negro, in the course of which Mr Kalfus said that Mr Fairfull "has always shown a willingness to sign docuemts [sic] in accordance with his agreement with your client", and Mr Dal Negro said that Pacific "simply wishes to finalise the deal with your client, in preference to taking winding-up proceedings … ". In response, Mr Kalfus asserted that "[a]t no stage has either our client or this firm delayed completion of this matter." At some stage, the managing director of Pacific became involved and sent an e-mail to Mr Kalfus saying that "[t]he thing you need to do is sort the documents out & get them signed … on the agreed arrangements NO Further Delay!! [sic]". 9 That exchange of e-mails occurred on 8 April 2004. On the same day, Mr Kalfus wrote to Mr Fairfull requesting further instructions and noting that the requirement for further information "is, at this time, delaying the finalisation of this matter." 10 On 13 April 2004, Mr Kalfus advised Mr Fairfull that "it would appear the documentation is in order subject to your instructions in relation to" a number of matters. He requested Mr Fairfull to make "urgent arrangements … to attend our offices as soon as possible, and if possible today, to execute the Deed and Mortgage". 11 On 14 April 2004, Mr Fairfull advised Mr Kalfus that he would either sign the documents in Canberra "tomorrow" or come to Sydney on 16 April 2004 for that purpose. 12 Brand Partners sent final copies of the documents to Mr Kalfus on 15 April 2004, and he passed them on to Mr Fairfull. Mr Kalfus told Ms Good that he was awaiting Mr Fairfull's advice "as to when he will be signing these documents tomorrow and his prompt return of same to us". 13 Notwithstanding all that had happened, Mr Fairfull did not sign the documents by 16 April 2004. Accordingly, Mr Dal Negro sent an e-mail to Mr Kalfus advising that Pacific "cannot tolerate any further delay and is now questioning whether your client intends executing the documentation at all." Mr Kalfus' assistant, Ms Beryl Henderson, spoke to Mr Fairfull. Her file note records that she "advised Pacific going ballistic and he must sign first thing Monday & fax a copy of the signed docs to Brand Partners. He undertook to do this" (emphasis in original). Ms Henderson confirmed this request by e-mail on 19 April 2004. 14 On 19 April 2004, Mr Fairfull attended a solicitor in Canberra, Mr Graeme Finlayson. Mr Fairfull took with him a copy of the draft deed of settlement and of the annexure to the mortgage (being part of the documents that had been e-mailed to him). Mr Fairfull signed the deed of settlement in his own capacity in front of Mr Finlayson and Mr Finlayson witnessed his signature. (The document records that Mr Fairfull "signed sealed and delivered" it.) Mr Fairfull also signed the deed in the places provided for execution by the IOF companies and Sierra. Mr Finlayson did not witness Mr Fairfull's signatures on behalf of those companies. The common seals of the IOF companies were not, then or later, affixed to the deed. 15 Mr Fairfull returned to his office and printed out other documents that had been sent to him, including the draft mortgage from Sierra to Pacific and a number of declarations and other documents to go with it. He signed the mortgage and a number of the other documents. He did not affix the common seal of Sierra to them, nor was his signature witnessed by anyone else. No one else signed the documents. 16 Sierra's constitution provided for there to be at least one and not more than ten directors. As at 19 April 2004, Mr Fairfull was the sole director of Sierra. However, as at 19 April 2004, the IOF companies had two directors, Mr Fairfull and a Mr John Welsh. Mr Welsh did not sign the deed of settlement or any other document. 17 On 19 April 2004, Mr Fairfull sent a copy of the signed deed of settlement, a copy of the mortgage and a copy of the declarations and other documents that he had signed by facsimile transmission to Ms Good at Brand Partners. The documents sent by him did not include the memorandum referred to in the mortgage. Thereafter, Mr Fairfull sent the original documents signed by him to Mr Kalfus by express post. 18 On a number of occasions in the weeks following 19 April, Mr Kalfus and Ms Henderson pressed Mr Fairfull to send them fully and correctly signed copies of the relevant documentation. Mr Fairfull avoided speaking, or chose not to speak, to them until, on 10 May 2004, he advised Mr Kalfus that consideration was being given to "putting IOF into VA or Receivership" and, until that question was decided, "he will not return the documents". Mr Fairfull agreed that he "went dead on the line so far as not returning … the certificates … ". (T 19.10) It might be noted that, over this time, Brand Partners had been pressing Mr Kalfus to send them the original, complete and correctly signed documents. 19 On 11 May 2004, Mr Kalfus discussed the matter with Mr Fairfull. Mr Kalfus' file note reads as follows (omitting formal parts): "Asked how he wanted to handle the situation as I have to tell Brand Partners something. He asked if Pacific cd. enforce the documents. He sd. he had faxed the signed documents to Melbourne. I sd. that Brand cd take the view that Pacific has an equitable mortgage or simply proceed winding up. I sd. he wd. either have to instruct me to advise Brand of what is going on or withdraw my instructions. He sd. he wd. withdraw instructions." [Brand Partners carried on their practice from Melbourne.] 20 Mr Fairfull denied that a conversation in those terms occurred on 11 May 2004. He said that the conversation occurred on 18 May 2004. I do not accept his denial. I accept that Mr Kalfus' file note accurately records the substance of the discussions that took place between him and Mr Fairfull on 11 May 2004. 21 On 12 May 2004, Mr Kalfus advised Ms Good that his retainer had been withdrawn. 22 On 17 May 2004, Brand Partners wrote to IOF, stating that unless the original documents were received by 5 pm 18 May 2004, winding-up proceedings would be commenced "without further notice". 23 On 18 May 2004, Brand Partners wrote to Mr Fairfull, requesting him to send the original signed documentation by courier and stating: "If we do not receive your written undertaking by the deadline stated above, we hold instructions to commence Court proceedings seeking specific performance of the Deed of Settlement." 24 On 18 May 2004, notwithstanding the termination of retainer, Mr Kalfus had another conversation with Mr Fairfull. Mr Kalfus' file note reads: "Advised him of phone call rec'd from Jane Good. Told him I wd. have to tell JG we have no instructions to return docs. He sd. that is OK. He instructed not to return the mortgage to Brand Partners. He sd. he will not give the mortgage now. He sd under the circumstances he is reniging [sic] on the deal." (emphasis in original) 25 Mr Fairfull said in cross-examination that the instructions from him set out in this file note were conveyed on 11 May 2004. I do not accept his evidence on that point. I accept Mr Kalfus' file note as an accurate record of the substance of the discussion that took place between him and Mr Fairfull on 11 May 2004. 26 On "18 May April [sic] 2004", Mr Kalfus returned to Mr Fairfull "such of the duly executed security documentation as was previously forwarded to this office" and suggested that he contact Ms Good. 27 There was some acrimonious correspondence between Brand Partners and Holding Redlich. Brand Partners were complaining, in effect, of having been misled. Holding Redlich denied the allegation. Nothing turns on it. 28 On 25 May 2004, the IOF companies appointed voluntary administrators pursuant to s 436A of the Corporations Act. 29 The property that was referred to in the Sierra mortgage had been sold. The nett proceeds of sale after allowing for costs, commission and the discharge of the first mortgage amounted to $164,674.84. That amount has been paid into court to abide the outcome of these proceedings. The issues 30 Pacific by its amended summons sought specific performance of the deed of settlement, requiring Sierra to execute a mortgage over the relevant land and deliver that mortgage to Pacific. It sought judgment in the settlement sum of $192,346.30; an order that the money paid into court be paid out to it together with interest; or, in the alternative, damages for breach of contract in the amount paid into court. 31 In oral submissions, Pacific's case was put three ways. It said: (1) There was a complete agreement made no later than 1 April 2004, when Mr Fairfull and Ms Good had negotiated all the terms of the agreement that was later recorded (with the exception of the payment of $17,000 up front) in the deed of settlement and that that agreement was intended to be immediately binding. (2) Alternatively, a binding agreement came into effect when Mr Fairfull signed the deed of settlement, mortgage and other documents and sent them by facsimile transmission to Brand Partners. (3) Alternatively, Sierra is estopped from denying that a binding agreement came into force by those means on 19 April 2004. 32 Sierra submitted that the case for Pacific was founded on the deed of settlement and that it was not open to Pacific to rely on a case formulated in either the first or the third way set out above. It submitted that no binding agreement came into effect until the deed of settlement was executed under seal by all parties and delivered. It submitted, further, that in this case delivery would not be effected simply because (for example) Mr Fairfull sent copies of some documents by facsimile transmission to Brand Partners, or sent the original signed documents to Holding Redlich; Sierra submitted, in accordance with Eccles v Bryant and Pollock [1948] Ch 93 and Allen v Carbone (1975) 132 CLR 528, that no binding contract would come into existence until there had been an exchange of contracts. As to this point, Sierra submitted, basing itself on Allen, that it was appropriate to take into account the subjective understanding of the parties. Alternatively, Sierra submitted, any agreement that had been concluded (so as to become legally binding) had been repudiated when, on 17 May 2004, Brand Partners threatened to institute winding-up proceedings "without further notice" if the original mortgage documents were not received by 5 pm, 18 May 2004; and that this repudiation had been accepted, so as to bring to an end any legally binding agreement. Finally, Sierra submitted, the deed of settlement had not been stamped as a mortgage and was therefore not enforceable as a mortgage (Duties Act 1997, s 211(1)). Mr Fairfull's credit 33 Mr Fairfull said in his affidavit and at times in his cross-examination that, in substance, it was at all material times his understanding and belief that nothing would become binding upon him and his companies unless and until there was a formal exchange of signed documents. 34 Mr Fairfull referred to his experience in business over a number of years during which, he said, he had been involved in a number of transactions where exchange of contracts was the means by which the parties entered into legally binding relations. He said that he understood that, in sending the signed documents to Brand Partners, he was merely giving them "a sign of my good faith at that time, to show that I was not delaying matters and was then still intending to proceed towards settlement of this transaction …" (affidavit sworn 18 June 2004, para 26). 35 I do not accept Mr Fairfull's evidence as to his belief or understanding in relation to this transaction. He was not, in my assessment, an impressive witness. By his own account, he was behaving in an underhand and dishonest way towards Pacific. He was prepared to take the benefit of the agreement that, as he agreed, he had negotiated whilst at the same time reserving to himself (without communicating a hint to his own solicitor, let alone Pacific) the right not to tender performance in exchange. He was prepared to put his own solicitor into an untenable position, and must have appreciated that he was doing so. 36 In this context, Mr Fairfull acknowledged that he knew that the mere fact that after 19 April 2004 he considered he was at liberty to change his mind (as he claimed he then believed he was free to do) "would be a most important matter for consideration by Pacific and by its solicitors"; that if he communicated that attitude to them "they would or may move against [his] companies immediately"; and that this "was something [he] did not want to happen" (T 20.45-55). 37 In a number of respects, Mr Fairfull's evidence was inconsistent with contemporaneous documents (for example, Mr Kalfus' file notes of 11 and 18 May 2004). Mr Kalfus had no reason to do anything other than record, as accurately as the circumstances allowed, the substance of the relevant discussions. Further, as I will show, Mr Fairfull's alleged understanding, that the ceremony of exchange was necessary before he entered into legally binding relations with Pacific, is inconsistent with the understanding of his solicitor at the time. Unlike Mr Fairfull, the solicitor had no interest in pretending to have an inaccurate understanding of when it was that the parties entered into legally binding relations. Mr Kalfus was not called by Sierra to explain his file notes, or the matter to which I refer in paras [72] to [75] below. The evidence of Mrs Fairfull 38 Mr Fairfull's wife, Mrs Deborah Fairfull, swore an affidavit on 17 June 2004. Objection was taken to that affidavit on the ground of relevance and I admitted it subject to objection, with the question of relevance to be argued in final submissions. 39 Nothing was put in final submissions to suggest that the affidavit was in any way relevant to any issue in the proceedings. Accordingly, I reject it. The relevant principles 40 In Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540, Gleeson CJ (with whom Hope and Mahoney JJA agreed), pointed out at 548 the distinction between reaching agreement upon the terms necessary in law to constitute a contract, and making a concluded (and legally enforceable) bargain. 41 Mr Cotman SC, who appeared for Pacific, contended that by 1 April 2004 the parties had settled upon all the terms of their bargain, and that they intended that their bargain should become immediately binding upon them. He said that the case fell within either the first or second of the categories identified in Masters v Cameron (1954) 91 CLR 353. 42 The parties in their submissions referred to the well known formulation of Dixon CJ and McTiernan and Kitto JJ in Masters at 360. Their Honours referred to three categories of circumstances that might exist when parties had concluded negotiations but intended that there should be a formal contract. In two categories, their Honours said, the parties were bound immediately. In the third category, they were not. Their Honours said: "Where parties who have been in negotiation reach agreement upon terms of a contractual nature and also agree that the matter of their negotiation shall be dealt with by a formal contract, the case may belong to any of three classes. It may be one in which the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect. Or, secondly, it may be a case in which the parties have completely agreed upon all the terms of their bargain and intend no departure from or addition to that which their agreed terms express or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document. Or, thirdly, the case may be one in which the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract". 43 In addition, as McLelland J pointed out in Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd & Ors (1986) 40 NSWLR 622, 628, there is a fourth class of case, additional to those three, that was recognised by Knox CJ and Rich and Dixon JJ in Sinclair, Scott & Co v Naughton (1929) 43 CLR 310, 317. Their Honours described this fourth case as one where the parties were immediately bound: "... one in which the parties were content to be bound immediately and exclusively by the terms which they had agreed upon whilst expecting to make a further contract in substitution for the first contract, containing, by consent, additional terms". 44 McHugh JA in GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631, 634 described the decisive issue as one of objective intention: "…the decisive issue is always the intention of the parties which must be objectively ascertained from the terms of the document when read in the light of the surrounding circumstances ...". 45 In XIVth Commonwealth Games, Gleeson CJ at 549 stated that "[w]here … the communications which the parties have exchanged are in writing, the question of their "intention" is, prima facie, to be resolved objectively and as a matter of construction of the relevant documents". At 550, his Honour referred to the search for objective intention and the material from which that might be gathered: "The case involves the objective determination of the intention of the parties from a consideration of a series of communications exchanged by them in the context of their dealings over a period of time. In those circumstances it is both appropriate and necessary to have regard to the commercial circumstances surrounding the exchange of communications and, in particular to the subject matter of those communications: Allen v Carbone (1975) 132 CLR 528 at 531-532. Furthermore, as was noted earlier, it is proper to have regard to communications between the parties subsequent to the date of the alleged contract to the extent to which those communications throw light upon the meaning of the language which is being considered for the purpose of determining whether it expresses an intention one way or the other upon the critical matter. At the least, such subsequent communications will often form part of the context in which the particular exchanges in question are to be evaluated." 46 It appears from what his Honour said at 550 that internal communications or statements of the subjective intention were "not particularly helpful even if admissible". Specifically, his Honour thought, they might be relevant as an admission but in that case "it will often be necessary to identify with some care the fact which is said to have been admitted." As his Honour noted, this assumes that the case does not involve subjective matters involving the actual state of mind of a party, such as mistake, misrepresentation, duress or undue influence: a topic discussed by McLelland J in Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9251. 47 In searching for the intention of the parties, it is important to bear in mind the approach taken by Barwick CJ in The Council of the Upper Hunter County District v Australian Chilling and Freezing Co Limited (1968) 118 CLR 429, 437. His Honour warned that (in searching for the intention of the parties), the court should avoid a "narrow or pedantic approach… particularly in the case of commercial arrangements". 48 The approach commended by Barwick CJ was not novel, as indeed his Honour recognised by referring to the decision of the House of Lords in Hillas & Co Ltd v Arcos Ltd (1932) 147 LT 503, (1932) All ER 494, where Lord Tomlin said at 512, 499, that the courts should seek to construe agreements so that "without violation of essential principle, the dealings of men may as far as possible be treated as effective, and ... the law may not incur the reproach of being the destroyer of bargains". Complete agreement reached by 1 April 2004 49 It is clear that by 1 April 2004, Ms Good and Mr Fairfull had negotiated the essential terms of the agreement that was subsequently documented in the deed of settlement. That is why, on 1 April 2004, Ms Good sent draft documents to Mr Fairfull. 50 It is correct to observe that drafting changes were expected to be and were made thereafter, and that some questions remained to be satisfied. (On Pacific's side, these questions included some assessment of the value of the property offered as security, and a consideration of the trust deed pursuant to the terms of which Sierra held that property. On Mr Fairfull's side, they included satisfying himself as to the validity of the amount claimed.) 51 However, neither the further enquiries that were made, nor the drafting changes that were made to the documentation, demonstrate that the agreement had not been fully negotiated. Mr Fairfull himself acknowledged as much in his cross-examination. He said that it was his understanding, following his discussions with Ms Good, that Pacific was not going to proceed with the winding up of the IOF companies, and that it was going to accept deferred payment of the debt upon the basis that he had become personally liable and that Sierra had offered security (T 14.15-.45). He acknowledged that the documents that he signed on 19 April reflected accurately "the original arrangements as [he] had made in broad terms with Ms Good and refinements that had been introduced by Mr Kalfus" (T 14.5). Was the oral agreement intended to be legally binding? 52 I do not think that the parties intended to be bound by the oral agreement that was concluded between Ms Good and Mr Fairfull. First, Mr Fairfull had not had, but would obviously require, legal advice upon the documentation that was propounded in pursuance of the negotiations. It could hardly be suggested that he would be bound to whatever documents Pacific's solicitors might produce. 53 Second, the agreement involved the giving of a mortgage over real property. Pacific by its solicitors would know, even if Mr Fairfull did not appreciate, that a mortgage should be in writing, and that there were requirements of form to be satisfied. 54 Third, the need for the parties to satisfy themselves of matters such as the value of the property, the amount secured by the first mortgage, the terms of the trust deed and the amount claimed by Pacific, indicate that the agreement was "in principle" only. 55 Fourth, a suggestion that the oral negotiations produced a concluded and legally binding agreement is, I think, inconsistent with the correspondence and conduct of the parties thereafter, as I have recounted it in paras [5] to [13] above. Was a binding agreement made on 19 April 2004? 56 Sierra submitted that the parties intended that legally binding relations should come into existence only on formal exchange of signed documents. Pacific submitted that the settlement deed and mortgage became binding on Sierra when Mr Fairfull, having signed them on its behalf as sole director, sent them by facsimile transmission to Brand Partners. 57 In support of, or as a development of, its submission as to the necessity for exchange, Sierra pointed to the fact that the parties had chosen to record their agreement in the form of a "deed". It referred to Manton v Parabolic Pty Ltd (1985) 2 NSWLR 361. In that case, Young J traced the history of deeds. He referred to it as the common law's "particular ritual, act or instrument by which a person can notify the community that he most solemnly means what he is doing as being binding on him": at 367. Thus, he said, "the substantial requirement of a deed is that it be intended by the party who does it to be the most solemn indication to the community that he really means to do what he is doing": ibid. He said that "a deed is the most solemn act that a person can perform with respect to a particular property or contract involved, and the form of that deed is as laid down by the law from time to time": at 367-368. In the present circumstances, however, the solemnity of what was required has to be considered in light of Mr Dal Negro's requirement (see para [7] above) that Mr Fairfull sign the documents on behalf of the IOF Parties – without reference, apparently, to the need for any second signature in the case of the IOF companies, or for the affixing of the common seal in the case of any of the companies. That, no doubt, is why Mr Fairfull did not find it necessary to affix the common seals of those companies to the deed of settlement (see the portion of his evidence extracted in para [59] below). 58 It may be accepted that a deed performs the functions, and has the qualities, ascribed to it by Young J in Manton. But that is not to the point. The point is: is the deed of settlement binding upon Sierra as a deed? Alternatively, is the mortgage binding upon Sierra? 59 Mr Fairfull's evidence (T 18.5-.30) on this point is instructive: "Q. Let me press you on this. When you signed the documents on 16 and 19 April 2004, I suggest to you you did so with the intention of doing all that you could to bind yourself and the companies to the transaction, didn't you? A. Yes. Q. And as far as you were concerned when the documents left your hands, you had, in fact, done all that you could do to effectively bind the companies to the transaction, is that right? A. I was really waiting Marcel's review to understand that, but yes. Q. And you say in your affidavit that you did not, for example, affix the common seal to the Sierra documents because you did not consider they need the seal? A. I wasn't sure, no. Q. But, in any event, as you understood your signature on the Sierra document on the face of it was sufficient to bind Sierra? A. I wasn't sure, but yes. Q. Certainly no one had told you, for example, go and find the common seal for Sierra and affix it to the documents? A. No, it occurred to me at the time, but no." 60 I deal in para [71] below with "Marcel's review". 61 Mr Fairfull had signed the deed in the presence of a witness. He had signed it as sole director of Sierra. He had signed it as one of the two directors of the IOF companies. Further, Mr Fairfull had signed the mortgage as the sole director of Sierra. 62 There is no doubt that the execution of the deed of settlement by Mr Fairfull personally, and by him for Sierra, was capable of fulfilling the relevant requirements for execution of a document as a deed. In his case, the document was expressed to be signed, sealed and delivered; and it was signed by him in the presence of a witness: Conveyancing Act 1919 (NSW), s 38. In Sierra's case, the document was signed by its sole director: Corporations Act 2001, s 127. 63 The question is, therefore, whether the documents were "delivered" when Mr Fairfull sent them (or copies of them) by facsimile transmission to Brand Partners. In my judgment, they were. Whether delivery has occurred is a question of fact, to be resolved by reference to the intention of the person said to have delivered it: Hooker Industrial Developments Pty Ltd v Trustees of the Christian Brothers [1977] 2 NSWLR 109, 118-119. 64 In Xenos v Wickham (1867) LR 2 HL 296, Blackburn J said, at 312, that whilst no particular technical form of words or acts is necessary to render an instrument the deed of the parties who have sealed it, there must be "acts or words sufficient to shew that it is intended by the party to be executed as his deed presently binding on him…". As his Lordship pointed out, handing over the document was "[t]he most apt and expressive mode of indicating such an intention" but, as he said, "any other words or acts that sufficiently shew that it was intended to be finally executed will do as well". 65 If the parties' intention was that an agreement in terms of the deed should come into existence when it was signed (and delivered), and that exchange was not necessary, then Mr Fairfull's act in sending copies of the documents by facsimile transmission to Brand Partners could hardly have been intended to achieve anything else than show them, and through them the plaintiff, that he and Sierra "had executed the document as their deed presently binding on them". 66 In my judgment, the intention of the parties was that the documents should be become binding upon execution and not only upon formal exchange. There are a number of indications why this is so. 67 The agreement reached was to defer payment of a debt that had become payable at least by 23 February 2004 (when the statutory demand was served) and, in all likelihood, considerably earlier. Pacific's statement of account shows that a cheque in payment of an instalment was dishonoured on 16 December 2003, and that three further cheques were dishonoured during January 2004 (the dates are indistinct on the copy of the statement of account that is in evidence). The agreement that was struck gave Mr Fairfull and his companies the time that was required to raise funds by the sale of real property (either being, or including, Sierra's property that was to be mortgaged to Pacific). Pacific clearly regarded the agreement that was negotiated between Mr Fairfull and Ms Good prior to 1 April 2004 as being something that required to be documented in writing, in a binding way, as a matter of urgency: see, for example, the e-mail from Pacific's managing director to Mr Kalfus of 8 April 2004 (para [8] above). By 16 March 2004, Ms Henderson's assessment, which she conveyed to Mr Fairfull, was that Pacific was "going ballistic" and required Mr Fairfull to sign the documents "first thing Monday & fax a copy … to Brand Partners" (see para [13] above). 68 As I have noted in para [7] above, Mr Dal Negro required Mr Fairfull to sign the documents both in his personal capacity and on behalf of the other IOF Parties. It is apparent from this that Pacific, through Brand Partners, was prepared to accept execution on behalf of all IOF Parties, and not just those (Mr Fairfull himself and Sierra) where signature by one person would suffice. This is an indication of the urgency that Pacific attached to receipt of documents signed so as to show the acceptance by Mr Fairfull and his companies of the agreement embodied therein. That is, I think, inconsistent with the idea that Mr Fairfull and his companies were not to become bound to those agreements until there had been a formal exchange of contracts. 69 The events that I have just described occurred in the context of increasingly terse e-mails passing from Brand Partners to Holding Redlich, enquiring when the documents would be signed and suggesting that Mr Fairfull was, in the vernacular, dragging the chain. I find it very difficult to accept that Pacific would have been prepared, on top of the delay that had occurred, to participate in a "stately sarabande", the first step of which was not to be taken until there had been a formal exchange of contracts. 70 Equally, and despite his protestations to the contrary, I think that Mr Fairfull must have understood this. Pacific was in a position to proceed to wind up IOF. Mr Fairfull, as he acknowledged, did not want that to happen. It was important, as he acknowledged, to persuade Pacific to stay its hand. The agreement that he had negotiated with Ms Good achieved this. I do not accept that he would have been prepared to take the chance, once he had signed the documents, that Pacific might decide not to proceed. Mr Fairfull ultimately decided that he did not want to throw good money after bad. However, even then, he was not prepared to allow the IOF companies to go into liquidation. That is why, after 19 April, he dragged matters out (by not providing correctly and completely signed copies of all documents to Mr Kalfus) whilst he came to a concluded view that he would not perform the agreement, and made arrangements to put the IOF companies into voluntary administration. 71 Mr Fairfull sought to justify his belief in the need for a formal exchange of contracts by referring to the supposed need for Mr Kalfus to review the documents. However, that review was not as to any matter of substance; because in Mr Fairfull's understanding, and in his understanding of Mr Kalfus' views, the documents accurately reflected the transaction that had been negotiated (T 17.15-.20). The requirement for Mr Kalfus to review the signed document was to ensure that Mr Fairfull "had executed them properly", because he was "concerned to ensure that the documents actually bound [him] and [his] companies to the transaction" (T 17.25-.30). In my view, the state of mind reflected in those answers is a long way from the professed state of mind, asserting belief or understanding as to the need for formal exchange of contracts to bring the parties into a legally binding relationship on the terms of the deed of settlement. 72 Quite apart from Mr Fairfull's self interested protestations, there is evidence of Mr Kalfus' understanding. On 4 May 2004, Mr Kalfus wrote to Mr Fairfull referring to his repeated (and apparently unsuccessful) attempts to contact Mr Fairfull by telephone. He said: "We are now being pressed by Brand Partners in relation to these documents and must advise that if we do not receive the Schedules back in the appropriate form by return they may well declare you to be in default." 73 It is an available, and I think proper, inference from this letter that Mr Kalfus understood that there was a legally binding contract between the Fairfull parties and Pacific: if there were no legally binding contract, then there was nothing in relation to which a declaration of default could be made. The letter further shows that, in Mr Kalfus' understanding, there was a legally binding relationship notwithstanding that the deed of settlement had not been executed, on behalf of the IOF companies, by their second director, Mr Welsh. His only concern was in relation to what he had earlier described in the letter as "the incorrectly signed Schedules attaching to the Deed of Settlement"; and his only request was for those Schedules to be "re-executed … and … couriered to our office immediately". I repeat that Sierra did not call Mr Kalfus. 74 When Mr Kalfus spoke to Mr Fairfull on 11 May 2004, Mr Fairfull asked if Pacific could "enforce the documentation". (I note that Mr Fairfull denied that he made this request on 11 May. As I have said, I do not accept this denial. I think that Mr Fairfull appreciated that a truthful answer would have indicated an understanding on his part, as at 11 May 2004, that there was a legally binding contract between him and his companies and Pacific.) Mr Kalfus' advice was that Pacific could "take the view that" it had "an equitable mortgage". Alternatively, he said, Pacific could proceed with the winding up of the IOF companies. The equitable mortgage could only arise if the deed of settlement were, or had become, binding on Sierra once Mr Fairfull signed it (and the mortgage) on Sierra's behalf and sent it (and the mortgage) by facsimile transmission to Brand Partners. 75 Further, in this context, in the subsequent meeting of 18 May 2004, Mr Kalfus' file note recorded Mr Fairfull's position as being that "under the circumstances he is reniging [sic] on the deal". Mr Fairfull denied saying that to Mr Kalfus; but I am satisfied that he said words to the effect that Mr Kalfus recorded. If there had been no legally binding contract in existence, and if a legally binding contract was only to come into existence on exchange of documents, then Mr Fairfull had a choice whether or not to proceed; he did not need to "renege". 76 There is also some evidence that Brand Partners thought that a legally binding contract was in place. On 18 May 2004, Brand Partners wrote to Mr Fairfull. (They had been advised that Holding Redlich no longer acted for him.) They noted that "Pacific has not received the original mortgage signed by you and required to be provided to Pacific under the Deed of Settlement". They required his "urgent written undertaking" that he would immediately send the original mortgage documents by courier. They said that proceedings would be commenced "seeking specific performance of the Deed of Settlement" if that undertaking were not received by the specified time. 77 Mr Coles QC, who appeared with Mr Johnson of counsel for Sierra, laid stress on the letter of 17 May 2004 from Brand Partners to IOF. That letter threatened commencement of winding-up proceedings without further notice if the original mortgage documents were not received by a specified deadline. It was submitted that this letter was inconsistent with belief in a presently binding contract on the terms of the deed of settlement. Alternatively, it was submitted, it was inconsistent with the terms of the deed (specifically, the requirement under clause 12 to withdraw the statutory demand) and was therefore a repudiation. 78 I do not accept those submissions. The deed of settlement required the mortgage to be given "upon signing". If there were a legally binding contract in existence on the terms of the deed of settlement as at 17 May 2004, Sierra was in breach of that contract because it had not provided the signed mortgage; and calling for delivery of the signed mortgage was no more than calling for performance of the contract. It was open to Pacific to take the view that Sierra had repudiated the contract between them. If Pacific did take that view then, subject to acceptance of the repudiation as discharging the contract, it was free to take the step that it had threatened. There is no basis for concluding that the letter of 17 May 2004 is a repudiation by Pacific of its obligations under the deed. 79 There is, however, a more significant point. There is no evidence that Sierra (or any other of the IOF Parties) purported to accept what was alleged to be repudiatory conduct on the part of Pacific as discharging the contract that, allegedly, was repudiated. The very next day, Pacific indicated its intention to enforce the deed of settlement if Sierra did not perform. Any implied repudiation contained in the letter of 17 May 2004 was withdrawn the following day, at a time when there had been no acceptance. (Indeed, the absence of any purported acceptance might well indicate that no one considered the letter to be inconsistent with, let alone a repudiation of, the deed of settlement.) 80 Sierra's submissions gave close attention not only to the solemn nature of a deed, but also to the terms of the particular deed. It stressed the fact that the deed "does not envisage as does for example a contract for sale of land, or a contract of the loan of money, it is not envisaged as an executory document. That is to say, it does not contain an agreement later to be performed by some further or subsequent steps" (T 38.20). 81 I do not think that this is an accurate characterisation of the deed. But if it were, then it would not detract from the proposition that the deed was intended to have effect upon execution and delivery, and that the act of Mr Fairfull in sending a copy of the signed deed (and mortgage) to Brand Partners by facsimile transmission on 19 April 2004 was a sufficient delivery. 82 Some of the obligations imposed by the deed are of present effect: for example, the obligation of Sierra under clause 4, the undertaking by the IOF parties of joint and severable liability for the settlement sum and Pacific's agreement to withdraw the statutory demands "on and from the date of this deed". 83 But others are not: including the obligation of the IOF parties to pay the settlement sum by 30 June 2004, and the obligation of the parties to release each other once the IOF parties have performed their obligations in full. 84 It is certainly correct to say, as Mr Coles submitted, that the obligations under the deed were bilateral (regarding the IOF parties as one "side"), not unilateral. In particular, the obligation of Pacific under clause 12 to withdraw the demands, and the conditional obligation of Pacific under clause 7 to release the IOF parties, were fundamental to the purpose sought to be achieved by the deed. But those considerations do not mean that the deed was only intended to come into effect on exchange. At most, they mean that once the IOF parties had become bound to the deed (by executing it under seal and delivering it), and once Sierra had performed its contemporaneous obligation to deliver the signed mortgage, Pacific was required to execute and deliver a counterpart. 85 The obligations of Sierra under clause 4 to execute the mortgage and not further encumber the property were expressed to arise "[u]pon the signing of this deed". That is some indication that the parties intended the act of signing (and delivering) the deed, rather than a formal exchange of the deed, as being sufficient to bring into operation the covenants binding the party that signed it. 86 Sierra laid stress on the fact that Pacific did not provide it with a signed copy of the deed until 3 June 2004 (after these proceedings had been commenced). It may be observed that Sierra had refrained – I have no doubt, deliberately – from calling for a copy of the deed prior to that date. However, I have no doubt that, if Sierra had called for a copy of the deed from Pacific, it would have been provided. That is consistent with the view that was expressed in Brand Partners' letter of 18 May 2004 threatening the commencement of proceedings for specific performance. 87 Sierra further laid stress on the circumstance that the deed had not been fully executed on behalf of the IOF companies. That is correct; but at the same time, I have no doubt that Mr Fairfull, as he said (see para [59]), thought that he had done sufficient to bind the IOF companies to the transaction. Equally, I have no doubt that he intended to convey this to Pacific when he sent the documents by facsimile transmission to Brand Partners on 19 April 2004. The stamp duty point 88 The copy of the deed of settlement that was in evidence does not appear to have been stamped, or marked as exempt from stamping. However, the facsimile copy of the mortgage sent by Mr Fairfull to Brand Partners on 19 April 2004 was stamped on 21 May 2004, as securing an amount of $192,346. 89 Sierra objected to the tender of the copy of the deed of settlement, relying on s 304 of the Duties Act. The point was that the deed of settlement itself was (on Pacific's case) an equitable mortgage, and therefore, within s 304(1), "[a]n instrument that effects a dutiable transaction or is chargeable with duty … ". 90 Pacific did not proffer an undertaking in either of the forms referred to in Part 36 r 10B. 91 Consistent with its attitude in relation to the tender of a copy of the deed, Sierra relied upon a defence under s 211(1) of the Duties Act, whereby a mortgage on which duty is required to be paid is enforceable only to the extent of the amount secured by the mortgage on which duty has been paid. 92 It might be thought that Sierra's position, both in relation to admissibility and in relation to enforceability, was less than principled bearing in mind that, by s 207 of the Duties Act, it was the party that was liable to pay mortgage duty. However, this does not relieve me of the obligation to consider the submission. 93 Mr J T Johnson, junior counsel for Sierra, submitted that the problems under ss 304 and 211 were not cured by the fact that the mortgage had been stamped. That was said to be "irrelevant", although the underlying basis of the asserted irrelevancy was not discussed. 94 In Neoform Developments & Interiors Pty Ltd v Town and Country Marketing Pty Ltd (2002) 49 ATR 625, Young CJ in Eq concluded at 628-629 [31] that "when one is dealing with mortgages it is s 211 that one applies rather than the general provisions of s 304, which gives way in the case of mortgages". On that analysis (upon which Mr Johnson relied), the fact that the copy mortgage has not been stamped is not "irrelevant". It is a copy of the very mortgage agreed to be given by the deed; and, if the deed is to be regarded as an equitable mortgage, it is the agreement to give the mortgage that has this effect. In those circumstances, I think, the mortgage on which duty is required to be paid has been paid, as securing the sum of $192,346. I therefore conclude that, if the mortgage is otherwise enforceable (at law or in equity) then s 211 does not deprive it of force. 95 Further, following the analysis of Young CJ in Eq in Neoform, s 304 does not require the tender of the deed to be rejected. 96 Belatedly – after these reasons had been finalised – Brand Partners made further written submissions on the stamp duty point. (At the conclusion of the hearing, I reserved leave to Pacific to address further on the question of stamp duty.) Brand Partners submitted that the deed of settlement was not dutiable. In general, a deed is not dutiable simply because it is a deed. Where, however, a dutiable transaction is effected by a deed the position, I think, would be different. But I do not need to express a concluded view. There are two reasons. First, nothing in the submissions changes the analysis in para [94] above. Second, there was furnished with the submissions a copy of the deed of settlement. It had been submitted to the Office of State Revenue and marked "NO DUTY PAYABLE". This disposes entirely of the stamp duty point. Conclusion 97 In my judgment, Pacific has made out its entitlement to an equitable mortgage in accordance with the deed of settlement. It is agreed that any rights that Pacific may have had as mortgagee attach to the money held in Court. Pacific is therefore entitled to the relief that it seeks in relation to that money. Further, because the mortgage is effective in equity, it is entitled to judgment against Sierra for the principal sum secured. 98 No submissions were put as to interest, but in principle Sierra should have interest at the contractual rate of 10% per annum from 30 June 2004 (see clause 9(a) of the deed). 99 I make the following orders: (1) Direct entry of judgment in favour of the plaintiff against the defendant in the sum of $192,436.30 together with interest on that sum at the rate of 10% per annum from 30 June 2004 until the date of entry of judgment. (2) Order the amount of $164,674.84 paid into court pursuant to orders made in these proceedings on 25 June 2004, together with any interest thereon, to be paid out to the plaintiff. 100 I will hear the parties on costs. ****** Last Modified: 08/20/2004 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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