Markovsky v Teplitsky

1. [1]

   The plaintiff, Mrs Lynelle Markovsky, is the widow and executrix of the estate of the late Mr Boris Markovsky. Mr Markovsky died on 12 December 2020. I will refer to Mrs Markovsky as “the Executrix”.

2. [2]

   Mr Markovsky and the first defendant, Mr Michael Teplitsky, were cousins. For convenience, and without intending any disrespect, I will refer to them by their given names, Boris and Michael.

3. [3]

   Boris and Michael were both born in Odessa in Ukraine.

4. [4]

   Boris obtained qualifications in engineering in Odessa and worked there in the building industry before coming to Australia in about 1989 at the age of 32. After coming to Australia, Boris lived with Michael’s family, who by then had also emigrated to Australia.

5. [5]

   Michael was then working in the real estate industry. Between about 1989 and 1994 Michael and Boris discussed the possibility of working together in a property development business.

6. [6]

   Over the following years, Boris and Michael participated in property development projects through the following entities:

7. [7]

   During this period Boris and Michael were both directors and, either directly or ultimately, equal shareholders in those companies.

8. [8]

   From about 2015 Boris and Michael had disagreements, in particular about the appropriate level of borrowing against their commonly held corporate investments. During that period they did not purchase new property development projects jointly but worked to complete their existing projects.

9. [9]

   On 18 May 2018, Boris and Michael, as well as the companies referred to at [6] above, executed a “Deed of Agreement”.

10. [10]

    In an affidavit sworn in earlier proceedings Boris deposed:

11. [11]

    Now, by Summons filed on 11 May 2022, the Executrix seeks:

12. [12]

    The Executrix contends that Michael, Zone Developments and Spring Street Property Group are obliged to take these steps by reason of the terms of the Deed.

13. [13]

    Resolution of the claim requires a conclusion as to the proper construction of the Deed.

14. [14]

    Michael accepts that the Deed is valid and binding on the parties to it. However, Michael disputes that, on its proper construction, the Deed obliges him, Zone Developments or Spring Street Property Group to transfer to the Executrix the shares or lots.

15. [15]

    The language of the Deed is difficult.

16. [16]

    As Mr Epstein SC, who appeared with Mr Tsang for the Executrix submitted:

17. [17]

    That carefully expressed submission understates matters somewhat.

18. [18]

    The critical provisions upon which the Executrix relies are cll 1.3, 2.4 and 4.6 which provide that the “parties have agreed” that Boris “has the commercial and economic ownership” of the Spring Street Lots, the Zone Lots, Curlewis Street Investments and the property owned by that company in Curlewis Street.

19. [19]

    There are corresponding provisions providing that Michael “has the commercial and economic ownership” of the remaining Zone lots, all but one of the remaining lots in the property at Spring Street, Roscoe Street Investments and the property owned by that company in Roscoe Street.

20. [20]

    The Executrix’s contention is that the parties’ agreement that Boris had such “commercial and economic ownership” bespeaks the parties’ intention that:

21. [21]

    My conclusion is that, whatever else the Deed means, it does not have the effect contended for by the Executrix.

22. [22]

    Mr Henry SC, who appeared for Michael, submitted that cll 1.3, 2.4 and 4.6 are void for uncertainty. I do not find it necessary to decide whether or not that is so. It is sufficient, in my opinion, to conclude that the clauses do not have the effect contended for by the Executrix.

23. [23]

    For the reasons set out below, it appears to me that Boris and Michael set out in the Deed the rights that they intended would follow from their agreement that each had the “commercial and economic ownership” of the relevant assets. Whether either could enforce any of those rights is not a matter that arises for consideration in these proceedings.

Principles concerning construction

1. [24]

   Mr Epstein and Mr Tsang, in their written submissions, referred to a great many authorities concerning the proper construction of commercial documents.

2. [25]

   This is, however, a case where it is particularly important to focus on the words actually employed by the parties in the Deed.

3. [26]

   As has been correctly stated,

4. [27]

   The leading modern statement about the importance of context and purpose is found in the reasons of French CJ, Nettle and Gordon JJ: [8]

5. [28]

   Mr Epstein and Mr Tsang pointed to the matters I have set out at [3] to [10] above, and in particular Boris’s statement that the Deed was a culmination of “extensive negotiations about separating our investments”, as being “things external to the contract” relevant to the construction of the Deed.

6. [29]

   However, I do not find these matters of assistance in construing the Deed. Accepting that Boris and Michael meant for the Deed to record the terms on which they intended to “separate” their investments, it is to the words they actually used that attention must be paid.

The Spring Street Lots

1. [30]

   I will deal first with the Spring Street Lots.

2. [31]

   The “Operative provisions” concerning the Spring Street Lots were contained in cl 1 of the Deed as follows:

3. [32]

   As I have said, the Executrix’s contention is that the effect of cl 1.3 of the Deed, in which the parties agreed that Boris had the “commercial and economic ownership” of the Spring Street Lots, is that Spring Street Property Group must transfer to Boris the Spring Street Lots identified therein. It must follow, if that contention be correct, that the effect of cl 1.2 is that Spring Street Property Group must transfer to Michael the lots there identified.

4. [33]

   Recital C of the Deed provides, relevantly, that:

5. [34]

   There is no suggestion in the recital that the parties agreed to transfer their interest in Spring Street Property Group, or the Spring Street Lots. [9] On the contrary, the recital states that Boris and Michael agreed to “confirm and verify” their “respective interests”; that is, their existing interests.

6. [35]

   There are established rules about the way in which recitals should be used to interpret the operative part of an agreement:

7. [36]

   Here, the recital is clear. The parties are confirming and verifying existing interests in the assets referred to. Indeed, in their written submissions, Mr Epstein and Mr Tsang accepted that this language was “more consistent with recording an existing state of affairs rather than bringing into existence a new state of affairs”. To the extent that cl 1.3 [11] is ambiguous, it is governed by the recital and should not be read as having the effect of changing the parties’ interests.

8. [37]

   Turning to the particular wording in cl 1 of the Deed, cl 1.1 provides that Spring Street Property Group “owns” the property in Spring Street.

9. [38]

   Mr Epstein submitted orally that cll 1.2 and 1.3 were intended by the parties to vary the position stated in cl 1.1.

10. [39]

    For the reasons I have set out, I do not accept that submission. The parties do not state in either provision that they intended to vary the position as stated in cl 1.1. Further, the parties’ agreement that Boris had the “commercial and economic ownership” of the Spring Street Lots bespeaks the parties’ intention that the “commercial and the economic ownership” of those Lots was something short of legal ownership; which, according to cl 1.1 of the Deed was to remain with Spring Street Property Group.

11. [40]

    Mr Epstein submitted that the language used by the parties in cl 1.3 [12] was itself that of a recital and pointed to the statement by Mason J in Ansett Transport Industries (Operations) Pty Ltd v The Commonwealth [13] that:

12. [41]

    Mr Epstein submitted that the parties’ agreement in cl 1.3, that Boris had the “commercial and economic ownership” of the Spring Street Lots, bespeaks the parties’ intention that such “commercial and economic ownership” of the Spring Street Lots be transferred to Boris. [14]

13. [42]

    However, Mr Epstein’s submission begs the question of what the parties agreed to do consequential upon their agreement that Boris had the “commercial and economic ownership” of the Spring Street Lots.

14. [43]

    As I set out below, later provisions in cl 1, particularly cll 1.5.1 and 1.5.3, show that the parties set out, in the Deed itself, what they saw as being the consequences of Boris having the “commercial and economic ownership” of the Spring Street Lots. [15]

15. [44]

    Further, later subclauses in cl 1 are inconsistent with cl 1.3 having the effect that Spring Street Property Group was obliged to transfer the Spring Street Lots to Boris. [16]

16. [45]

    The first clauses dealing with what the parties appear to have contemplated as being the consequence of Boris and Michael having the “commercial and economic ownership” referred to in cll 1.3 and 1.2 are cll 1.5.1 and 1.5.2(a).

17. [46]

    Those clauses are not clearly drafted but appear to provide that each of Boris and Michael could “separately mortgage their respective Lots”. This must be the Spring Street Lots in the case of Boris and the lots referred to in cl 1.2 in the case of Michael. The clauses appear to contemplate that, if required by either Boris or Michael, Spring Steet Property Group would grant a lender to Boris or Michael a “non recourse mortgage” over “their respective Lots” to secure a loan to either Boris or Michael. That is, presumably, a mortgage under which Spring Street Property Group would not, but Boris and Michael would, be liable; but not “beyond the Lots”, [17] whatever that may mean.

18. [47]

    I see these provisions as providing an example of a consequence that the parties saw as flowing from their agreement that Boris and Michael have the “commercial and economic ownership” of the lots in question. They appear to be designed to deal with the disagreements between Boris and Michael about the level of borrowing against their jointly owned properties, to which I referred at [8] above.

19. [48]

    The provisions cannot be reconciled with the proposition that cl 1.3 entitled Boris, and thus now entitles the Executrix, to call for the transfer of the Spring Street Lots. [18] If Boris was entitled to call for transfer of the Spring Street Lots, there would be no need to make provision in the Deed for him to “mortgage” them.

20. [49]

    Clause 1.5.2(b) appears to be an agreement that Boris or Michael must procure that, if they caused Spring Street Property Group to execute such a mortgage, any lender not be able to appoint a receiver (presumably to the lot in question) without giving “the other shareholder” notice. That provision would also not be necessary if, as the Executrix contends, “the other shareholder” was entitled to become the owner of the relevant lots by reason of cll 1.2 and 1.3.

21. [50]

    Clause 1.5.3 provides, first, that Boris and Michael may “retain their share of the net income from their Lots”. Again, the reference to “their Lots” must be to the lots in respect of which, by cll 1.2 and 1.3, they have agreed they each have “commercial and economic ownership”. Thus, in effect, Boris and Michael agreed that the other could retain rent or other income able to be derived from “their Lots”.

22. [51]

    This again shows that Boris and Michael turned their minds to what the consequences would be of each having “commercial and economic ownership” of the respective lots; something different to, and short of, an entitlement to legal ownership of those lots.

23. [52]

    Clause 1.5.3 goes on to provide that Boris and Michael could “retain” the sales proceeds “from the sale of their respective Lots”. That provision would not be necessary were each to have an entitlement to call on Spring Street Property Group to transfer “their respective Lots” to them; and proceeds upon the assumption that, until any sale, the lots remained owned by Spring Street Property Group, as is expressly stated in cl 1.1.

24. [53]

    This second entitlement in cl 1.5.3 is, in any event, subject to cl 1.5.5, which requires both Boris and Michael to retain “in the account of Spring Street [Property Group]” an amount on account of Spring Street Property Group’s “tax liability” in relation to the sale. Again, this provision is consistent only with Spring Street Property Group remaining the owner of the property.

25. [54]

    Finally, cl 1.5.4 provides that “a float of 20% of the income” from Spring Street Property Group’s property “is to be retained in the bank account of Spring Street [Property Group]”. That again is consistent only with Spring Street Property Group retaining the lots and is inconsistent with Spring Street Property Group having an obligation to transfer to Boris or Michael the lots referred to in cll 1.2 and 1.3 of the Deed.

26. [55]

    For these reasons, the words used by the parties show that they turned their mind to what would follow from their agreement that Boris and Michael have the “commercial and economic ownership” of the lots referred to in cll 1.2 and 1.3; namely the rights set out in cll 1.5.1 to 1.5.3.

27. [56]

    It may be difficult to give precise meaning to those entitlements. Their precise ambit does seem uncertain. It may be difficult for Boris or Michael to enforce them.

28. [57]

    But it cannot follow from these matters that the Deed be given a meaning that its words do not permit, and which would contradict its express terms.

The Zone Lots

1. [58]

   The “Operative provisions” concerning Zone Developments were contained in cl 2 of the Deed as follows:

2. [59]

   As can be seen, and subject to one matter, the provisions made in cl 2 of the Deed concerning Zone Developments correspond to those provided for in cl 1 concerning the Spring Street Property Group. [19]

3. [60]

   The sole difference in cl 2 is that cl 2.5.2 records that Zone Developments had granted a mortgage to an unnamed lender “across all the lots owned by Zone”. There is no suggestion in the Deed that the mortgage was to be discharged. On the contrary, cl 2.5.2 provided that the loan would “be split 50/50” between Boris and Michael, presumably so that Boris and Michael would equally assume responsibility for half of Zone Developments’ obligations under the mortgage. Again, this is consistent only with Zone Developments remaining the legal owner of the Zone Lots, as is stated in terms in cl 2.1.

4. [61]

   Thus, I come to the same conclusions concerning the Zone Lots as I have concerning the Spring Street Lots.

Curlewis Street Investments

1. [62]

   In the Deed, Boris’s and Michael’s rights concerning Curlewis Street Investments are dealt with together with their rights concerning Roscoe Street Investments.

2. [63]

   Recital C to the Deed provides:

3. [64]

   Under the heading “Operative provisions”, the Deed provided, relevantly to Curlewis Street Investments:

4. [65]

   Just as cl 1.1 provides that Spring Street Property Group “owns” the property at Spring Street and cl 2.1 provides that Zone Developments “owns” the property at Surry Hills, cl 4.2 provides that Roscoe Street Investments “owns” the property at Roscoe Street and Curlewis Street Investments “owns” the property at Curlewis Street.

5. [66]

   Clauses 4.5 and 4.6 provide that the “parties have agreed” that Michael has the “commercial and economic ownership” of Roscoe Street Investments and the Roscoe Street Property and Boris has the “commercial and economic ownership” of Curlewis Street Investments and the Curlewis Street Property.

6. [67]

   Clause 4.7 provides that the shareholdings in both Roscoe Street Investments and Curlewis Street Investments “are to remain as they are”. On the face of it, this provision is a complete answer to the Executrix’s contention that the Deed should be construed as obliging Michael to transfer his shareholding in Curlewis Street Investments to Boris.

7. [68]

   In their written submissions, Mr Epstein and Mr Tsang accepted that:

8. [69]

   I do not see how cl 4.7 could be read that way. The clause does not say that shareholdings in the two companies will “remain as they are” until a future event. And the clause goes on to provide that “from the date of this Deed” Boris “is to be” the sole director of Curlewis Street Investments and Michael “is to be” the sole director of Roscoe Street Investments. The clause thus contemplates matters that will not change (the shareholdings) and matters that will in the future change (the directorships). In those circumstances I can see no room for construing cl 4.7 in the manner proposed by Mr Epstein and Mr Tsang.

9. [70]

   Subclauses 4.8.1 and 4.8.2 are equivalent to cll 1.5.1 and 1.5.2 and cll 2.5.3 and 2.5.4 and, like the latter clauses, appear to set out what the parties meant when they said that Boris and Michael would have the “commercial and economic ownership” of the companies in question.

10. [71]

    Clause 4.8.2(b) contemplates, in terms, the possibility that Boris or Michael (the example is given only of Boris) might “need to sign share mortgages” over their shares in Curlewis Street Investments or Roscoe Street Investments, as the case may be. That provision is consistent only with the shareholdings remaining “as they are”; as is expressly stated in cl 4.7. The clause is also inconsistent with the suggestion that cl 4.6 gave Boris the right to require Michael to transfer to him his shares in Curlewis Street Investments.

11. [72]

    Clause 4.8.4 appears to provide that if either the property owned by Roscoe Street Investments or Curlewis Street Investments was sold then, and only then, Boris and Michael must transfer their shares in the relevant company to the other. Whatever that means, it is inconsistent with Boris having a present entitlement to call on Michael for his shares in Curlewis Street Investments.

Conclusion

1. [73]

   On its proper construction, the Deed does not require Michael to transfer his shares in Curlewis Street Investments to the Executrix, nor to require Zone Developments or Spring Street Property Group to transfer the identified lots to the Executrix.

2. [74]

   As I have said, it is not, in those circumstances, necessary for me to decide whether cll 1.3, 2.4 and 4.6 are void for uncertainty, and thus liable to be severed from the Deed as contemplated by cl 7.7. [20]

3. [75]

   Nor is it necessary for me to decide whether specific performance of the promises in the Deed ought be denied by reason of any want of consideration for the promises.

4. [76]

   I will make a declaration that the Deed is valid and binding on the parties. Otherwise, the Summons is dismissed with costs.