Buckworth v Gladio Pty Ltd

1. [1]

   BEAZLEY P: I have had the advantage of reading in draft the reasons of Bergin CJ in Eq. I agree with her Honour's reasons and proposed orders.

2. [2]

   BERGIN CJ in EQ: These proceedings arose out of a dispute in relation to whether the first respondent, Gladio Pty Ltd (Gladio), was entitled to the return of the deposit of $145,000 paid by it pursuant to a contract for the sale of shares (the Contract), ownership of which carried the right to exclusive occupancy of a company title home unit in a building known as “Ashdown” at Elizabeth Bay, New South Wales. The appellant, Virginia Louise Buckworth, was the vendor. Gladio was the purchaser. The purchase price was $2.9 million and the Contract provided for the payment of a 5% deposit. The second respondent, Ashdown Home Units Pty Ltd (Ashdown), is the proprietor of the land and is the company the shares in which were the subject of the Contract.

3. [3]

   At the trial before McDougall J, Gladio, as plaintiff, made numerous claims against the appellant. Its claims of non-disclosure of rules (Red 136 [102]); innocent misrepresentation (Red 141; [122]); misleading or deceptive conduct (Red 150: [156]); relief against forfeiture on the grounds of unconscionable conduct (Red 160-161: [199]-[200]); and frustration of the Contract (Red 162: [207]) all failed. A further claim in relation to an incorrect answer to a requisition was found to be unnecessary to decide (Red 145: [143]).

4. [4]

   Gladio succeeded against the appellant on two bases: (1) that the necessary approval had not been given by Ashdown sufficient to satisfy clause 6.1 of the Contract, thus entitling Gladio to rescind the Contract (Red 135 [100]); and (2) even if approval had been given Gladio was, in any event, entitled to rescind for breach of clause 10(g) of the Contract. It is from these findings and the consequential orders of the primary judge entering judgment for Gladio for $145,000 plus interest and the dismissal of the appellant’s Cross Claim against Ashdown for indemnity that the appellant appeals.

5. [5]

   Sydney Company Title Management (SCTM) was Ashdown’s managing agent and its officer, Stuart Greene, dealt with this transaction on its behalf. Ashdown’s Cross-Claim against SCTM was dismissed by the primary judge and there is no appeal in respect of that dismissal.

6. [6]

   At some time prior to 2009 the appellant and her then partner, Ms Daley, acquired shares in Ashdown conferring the exclusive right of occupancy of the apartment in the Ashdown building known as “unit 20” together with a separate car parking space.

7. [7]

   The previous owner of the shares had intended to carry out certain improvements to unit 20 which included the construction of a pergola over the external terrace and the installation of air conditioning. The ducting for the air conditioning was to be installed in the roof space above the unit. It is not in issue that the holders of the shares had no right of occupation of that roof space. However the previous owner had obtained Ashdown’s consent to the proposal and the approval of the requisite development application by the Sydney City Council. Those works had not been carried out when the appellant and Ms Daley acquired the shares. They proposed certain alterations to the earlier approval which required Ashdown’s consent to a variation of the development approval under s 96 of the Environmental Planning and Assessment Act 1979.

8. [8]

   On 24 January 2009 Ms Daley sent a “completed application request for renovation” to one of Ashdown’s directors. That request was considered at a meeting of Ashdown’s Board on 31 March 2009 and was the subject of Minutes (the 31 March 2009 Minutes) which included the following:

9. [9]

   On 24 April 2009 the appellant and Ms Daley wrote a letter to Ashdown (the 24 April 2009 letter) in the following terms:

10. [10]

    On 25 or 27 April 2009 Ashdown gave its consent to the s 96 application by affixing its common seal to the document. The works were carried out and some of the equipment in the roof space was outside the boundaries of unit 20. At some time after April 2009 the appellant’s relationship with Ms Daley terminated and Ms Daley transferred her interest in the subject shares to the appellant.

11. [11]

    On 20 December 2012 the appellant leased unit 20 to Mr Robbiati, the sole director and shareholder of Gladio. The Residential Tenancy Agreement was for the period 10 December 2012 to 9 December 2014. Ashdown consented to the lease to Mr Robbiati.

12. [12]

    The appellant subsequently decided to sell her shares to Mr Robbiati who decided to purchase them in Gladio’s name. Mr Robbiati instructed Mr Day of the firm Day Legal to act for Gladio in this transaction. The appellant instructed Mr Christopher Lane of Hunt & Hunt.

13. [13]

    Before contracts were exchanged Mr Day caused searches to be made at the offices of SCTM. The independent searcher who was employed claimed that the records made available for inspection did not include the 31 March 2009 Minutes or the 24 April 2009 letter. The primary judge found that the records that were made available for inspection did include copies of the 24 April 2009 letter and the 31 March 2009 Minutes (Red 115 [29]).

14. [14]

    On 16 July 2013 the appellant and Gladio entered into the Contract. It provided relevantly as follows:

15. [15]

    It was common ground that the last date for the provision of Ashdown’s written consent to the transfer of the shares to Gladio under clause 6.1 of the Contract was 23 August 2013.

16. [16]

    Ashdown’s Articles of Association (the Articles) included an amendment to article 41(d) that provided relevantly as follows:

17. [17]

    Article 118 provided as follows (Red 119):

18. [18]

    The Articles also included the following:

19. [19]

    On 22 July 2013 Day Legal made requisitions on title which included the following:

20. [20]

    Hunt & Hunt replied to requisition 21 (by letter dated 2 September 2013) as follows:

21. [21]

    On 24 July 2013 Mr Lane wrote to SCTM enclosing the appellant’s letter dated 20 July 2013 directed to SCTM and to the secretary of Ashdown. The enclosed letter recorded that the appellant had entered into the Contract and included the following:

22. [22]

    Mr Lane’s covering letter included the following:

23. [23]

    The Board of Ashdown anticipated that there was a problem for a company, rather than an individual, becoming a shareholder. On 31 July 2013 Mr Greene wrote to Mr Lane, in terms that included the following:

24. [24]

    On 1 August 2013 Mr Lane wrote to Mr Greene in terms that included the following:

25. [25]

    On 5 August 2013 Mr Lane wrote by email to Mr Greene in terms that included the following:

26. [26]

    There was some movement in the Board’s approach to a corporation becoming a shareholder. On 5 August 2013 Mr Greene wrote by email to Mr Lane on the subject “Ashdown home Unit transfer sale apt20/90 Elizabeth Bay Rd Elizabeth Bay” in the following terms:

27. [27]

    On 6 August 2013 Mr Lane wrote by email to Mr Greene on the subject “20/96 Elizabeth Bay Road, Elizabeth Bay” in the following terms:

28. [28]

    Mr Greene forwarded Mr Lane’s communications to the Board for instructions. On 9 August 2013 a member of the Board wrote to Mr Greene giving him the following instructions:

29. [29]

    The attached House Rules were in the following terms:

30. [30]

    Mr Greene did not comply with his instructions. Instead on Friday 9 August 2013 he wrote to Mr Lane by email in the following terms:

31. [31]

    Mr Greene did not refer to the Board’s agreement to the purchase being “as usual subject to interview”. It appears that at this stage Mr Greene made no direct contact with Gladio or its solicitors about this matter.

32. [32]

    However on Monday 12 August 2013 Mr Lane wrote by email to Mr Day (enclosing Mr Greene’s email of 9 August 2013 and its attachments) in the following terms:

33. [33]

    On 16 August 2013 Mr Day wrote by email to Mr Lane complaining that the amended Rules affected the “right to enjoy the Property which relates to the shares the subject” of the Contract. Mr Day characterised the existence of some of the new Rules as a “defect in disclosure”. The email included the following:

34. [34]

    Mr Day concluded the email by reserving Gladio’s rights, including the right to rescind the Contract.

35. [35]

    On 22 August 2013 Mr Lane wrote by email to Mr Greene in terms that included the following:

36. [36]

    Mr Lane enclosed a revised draft of House Rule 22 and requested that the Board give serious consideration to adopting it so that settlement could be effected.

37. [37]

    On 26 August 2013 Mr Lane wrote by email to Mr Day in terms that included the following:

38. [38]

    On 2 September 2013 Mr Lane sent a copy of the 24 April 2009 letter to Mr Day. On 3 September 2013 Mr Day responded to Mr Lane in the following terms:

39. [39]

    On 4 September 2013 Mr Lane wrote to Mr Day disagreeing with the proposition that Gladio was entitled to rescind and advising that he would attend on the following day at 3.00 pm to settle the purchase. This prompted a further email from Mr Day on 4 September 2013 which included the following:

40. [40]

    On 5 September 2013 Mr Robbiati had a conversation with the Chairman of Ashdown (Mr Lee) in relation to his concerns about House Rule 22. The upshot of this conversation was that Mr Robbiati would propose “new wording” for Rule 22 (Blue 991).

41. [41]

    On 9 September 2013 Mr Robbiati had a rather unsatisfactory conversation with one of the directors of Ashdown (Mr Bell) whom he had contacted in an attempt to seek his support for a change to House Rule 22. It appears that by this time Mr Robbiati had proposed “new language” for the Rule that he described as a “compromise” to address the issue of noise and maintenance of the air conditioning in exchange for some certainty. Gladio was very concerned about the uncertainty that arose from the last sentence of House Rule 22 providing the Board with the “right” to withdraw its permission to use the roof space at any time with the consequence of the expensive removal of the air conditioning should such permission be withdrawn.

42. [42]

    On 11 September 2013 Mr Lane wrote to Mr Day denying that the positioning of the air conditioning was a defect and advising that the vendor was ready, willing and able to transfer title to the shares. Also on 11 September 2013 the appellant’s solicitors served a Notice to Complete on Gladio and its solicitors. That Notice included reference to the Contract being conditional upon Ashdown’s consent to the transfer of shares to Gladio with the claim that the consent “was provided”. The Notice required completion at 3.00 pm on 27 September 2013.

43. [43]

    Also on 11 September 2013 Mr Lane wrote to Ashdown referring to the previous correspondence in respect of the Board’s “unilateral imposition of Rule 22”. That letter included the following:

44. [44]

    In that letter Mr Lane noted that: the Board had not submitted any draft of the proposed Rule 22 to the appellant; there was no resolution in respect of the terms and conditions of the 24 April 2009 letter in the books and records of Ashdown; and the Board had an obligation to submit a draft of Rule 22 to the appellant and/or to ensure that Ashdown’s Rules were updated in a timely manner to accommodate terms “along those stipulated in Rule 22”. The letter continued:

45. [45]

    There was further correspondence between Mr Robbiati and the Board via SCTM. On 19 September 2013 SCTM wrote to Mr Robbiati on behalf of the directors of Ashdown in terms that included the following (Blue 1035):

46. [46]

    SCTM also advised that the Ashdown directors would be reconsidering the Rule and contacting the appellant about the revised Rule “not because they consider there is any legitimate complaint about the existing rule, but in the interests of good neighbourly relations”.

47. [47]

    On 19 September 2013 Mr Robbiati wrote by email to Mr Day enclosing SCTM’s letter, instructing him to prepare a draft notice of rescission and observing:

48. [48]

    On 19 September 2013 Mr Day responded to Mr Robbiati noting amongst other things that the SCTM letter was “slightly positive” in that it advised that “you are not yet APPROVED as Transferee of the shares” and that this would be “persuasive if not conclusive” if the need to rescind the Contract arose.

49. [49]

    On 26 September 2013 Day Legal wrote to Hunt & Hunt enclosing SCTM’s letter of 19 September 2013 contending that the Notice to Complete was “bad in substance and in form” because (as SCTM’s letter advised) no consent had been granted by Ashdown to register the transfer of shares in favour of Gladio.

50. [50]

    Also on 26 September 2013 Day Legal served a Notice of Rescission on Gladio’s behalf. That Notice referred to the 24 April 2009 letter as the “AC Agreement” between the appellant and Ashdown that Ashdown could enforce the removal of the air conditioning system at any time with a claim that the appellant did not disclose the AC Agreement to Gladio in the Contract or prior to 16 July 2013. The Notice included the following:

51. [51]

    On 28 October 2013 the Board passed the following resolution (Blue 1078):

52. [52]

    The proceedings were commenced in November 2013. They were heard by the primary judge on 2 March 2015, and 15 to 19 June 2015. Judgment was delivered on 14 July 2015: Gladio Pty Ltd v Buckworth [2015] NSWSC 922 (the Judgment).

53. [53]

    There are three aspects of the Judgment in respect of which the appellant appeals. The first is the primary judge’s conclusion that Ashdown did not provide the requisite consent under clause 6.1 of the Contract. The second is the primary judge’s conclusion that the appellant was in breach of clause 10(g) of the Contract. The third is the primary judge’s dismissal of the appellant’s cross-claim against Ashdown for contribution or indemnity in respect of her liability to Gladio. It is appropriate to focus on those areas of the Judgment and in addition, having regard to Gladio’s Notice of Contention (referred to later), to deal with the primary judge’s reasons in respect of Gladio’s unsuccessful claim that it was entitled to rescind the Contract on the basis of innocent misrepresentation.

54. [54]

    The first basis of the appellant’s appeal is the primary judge’s finding that Ashdown had not given the appropriate consent pursuant to cl 6.1 of the Contract by 23 August 2013. The primary judge said (Red 129):

55. [55]

    The primary judge identified the question for determination as “whether the email of 9 August 2013 communicated an unconditional approval to the contract” (Red 130 [74]). His Honour said (Red 130):

56. [56]

    The primary judge recorded that there was no suggestion that Mr Day was aware of the detail of all the correspondence between Mr Lane and Ashdown, through SCTM that preceded the 9 August 2013 email. His Honour continued (Red 131):

57. [57]

    The primary judge accepted that it was not necessary for Ashdown’s directors to know of the precise terms of the Contract; rather, it was enough that the directors must have realised, had they turned their minds to the question, that the Contract would be subject to their giving approval to the transferee (Red 131 [81]). The primary judge then referred to the content of the 9 August 2013 email including the words “approval to the above sale proceeding” and continued (Red 131-132):

58. [58]

    The primary judge then referred to that part of the 9 August 2013 email which recorded “provided you instruct your client of the amended rules and regulations here attached. (In particular to clause 23).” (Red 133 [87]). His Honour then said (Red 133):

59. [59]

    The primary judge held that this analysis was insufficient to dispose of the point and that “the real question is not whether the ‘proviso’ itself should be regarded as some sort of condition” and that (Red 133 [90]):

60. [60]

    The primary judge said that the “starting point” was that the email “expressly related” to the approval that had been given to the amended rules and regulations, “in particular” clause 23. His Honour said (Red 133 [91]):

61. [61]

    The primary judge concluded that although House Rule 23 purported to state that the standard residence requirements of shareholders in the Articles applied to a director of a company purchasing shares in Ashdown, it imposed more onerous conditions on corporate purchasers (Red 134 [92]).

62. [62]

    His Honour compared the residence requirements in the Articles with House Rule 23 noting that although in the Articles natural persons holding shares could permit others to “use” (a concept not found in House Rule 23) their unit corporate shareholders were limited to directors and their immediate family members at the time of purchase “occupying” the unit. His Honour also noted that although natural persons could apply for approval to let their units to a tenant corporate shareholders could not (Red 134-135 [93]-[96]). His Honour then said:

63. [63]

    The second basis of the appellant’s appeal is the primary judge’s conclusion that Gladio was entitled to rescind for breach of clause 10(g) of the Contract. That clause (extracted earlier) was an acknowledgement and agreement by the appellant that it was a condition of the Contract that the “respective registers of members, directors and charges and all other books of [Ashdown] required by law to be kept by it are properly kept”. The primary judge noted that this was not a ground for rescission that was alleged in the Notice of Rescission but that the parties had proceeded on the basis that it could be argued at trial (Red 150 [158]).

64. [64]

    Gladio submitted at trial that there must have been some decision or resolution in respect of the 24 April 2009 letter because the installation of the air conditioning had proceeded, the owners had enjoyed the benefit of it and the Board had not required them to remove it. In those circumstances it was submitted that Ashdown was required to keep a minute of its decision and had not done so in compliance with s 251A(1)(c) of the Corporations Act 2001 (Cth) (Red 151 [161]). The appellant submitted that there was no evidence of any resolution or decision after the 24 April 2009 letter (and before the Board resolution of 28 October 2013) and therefore there was nothing that was required to be recorded in any minute (Red 151 [162]).

65. [65]

    The primary judge said (Red 151-152):

66. [66]

    After observing that it was “quite extraordinary” for the matter to be left unattended for more than four years until October 2013, the primary judge noted that the Board did not resolve to accept the terms of the 24 April 2009 letter. Rather it resolved to pass the new House Rule 23 making the terms of the 24 April 2009 letter binding on successors in title to Ms Buckworth and Ms Daley (Red 153 [169]).

67. [67]

    His Honour then dealt with the proper characterisation of clause 10(g) of the Contract. After referring to the plurality’s reference in Koompahtoo Local Aboriginal Land Council v Sampine Pty Limited (2007) 233 CLR 115 to Jordan CJ’s judgment in Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632 at 641-642 his Honour said:

68. [68]

    The primary judge outlined the essential features of the appellant’s cross-claim against Ashdown for contribution or indemnity based on what the appellant described as the “constitutional contract”, being the contract with Ashdown pursuant to s 140 of the Corporations Act (Red 176 [270]). The primary judge rejected the appellant’s claims in respect of certain alleged implied terms (Red 176-178 [271]-[277]) and in respect of an alleged breach of Article 41(d) (Red 178 [278]-[279]). The primary judge also rejected the appellant’s claim in respect of Article 118 and the appeal is limited to this aspect of the Judgment. The primary judge’s reasons in this regard are as follows (Red 178-179):

69. [69]

    The primary judge referred in particular to paragraph [83] of the pleading in which it was alleged that by not disclosing the 24 April 2009 letter to Gladio the appellant had impliedly represented to it that all the necessary air-conditioning equipment servicing unit 20 was entirely within unit 20 or, to the extent any such equipment was located on common property, then the owner of the shares had exclusive rights to use such common property for that purpose. His Honour concluded that there could be no such implied representation as it must have been plainly apparent to Mr Robbiati that at least some of the equipment was located outside the physical boundaries of unit 20 (Red 139 [116]). His Honour also concluded that there was no implied representation of any exclusive right to use the common property and was satisfied that the pleaded representation overstated what a hypothetical reasonable purchaser would be entitled to assume (Red 139 [117]). His Honour said (Red 140 [118]):

70. [70]

    The primary judge then referred to the alternative claims in the pleading that by failing to disclose the 24 April 2009 letter to Gladio the appellant had caused Gladio to assume: (i) that there was no fact, matter or circumstance that would or could enable the Board to require the owner of the shares at its expense to dismantle and remove the air-conditioning equipment servicing unit 20; or (ii) that all the necessary air-conditioning equipment servicing unit 20 was entirely within unit 20 and to the extent that it was located on common property then the owner of the shares had exclusive rights to use the common property for that purpose (Red 139 [115]).

71. [71]

    His Honour observed that these were not allegations of representations but rather assumptions and even if they were to be understood as representations they overstated the case. His Honour said (Red 140 [119]):

72. [72]

    His Honour concluded that the pleaded case that the rescission of the Contract was justified on the basis of alleged innocent misrepresentation must fail (Red 141 [122]).

73. [73]

    The appellant filed her Notice of Appeal on 24 August 2015 and an Amended Notice of Appeal on 18 September 2015. Gladio filed its Notice of Contention on 7 September 2015. Ashdown filed its Notice of Contention on 8 October 2015.

74. [74]

    The appeal was heard on 19 November 2015 when Mr DE Grieve QC appeared for the appellant, Mr G Lucarelli, of counsel, appeared for Gladio and Mr MA Izzo, of counsel, appeared for Ashdown.

75. [75]

    Grounds of Appeal 1 to 3 relate to the appellant’s contention that the primary judge’s conclusion that the approval conveyed in the 9 August 2013 email did not satisfy the requirements of clause 6.1 of the Contract because it was given subject to a condition that Gladio accept and agree to be bound by certain House Rules made by Ashdown’s directors was erroneous.

76. [76]

    Ground of Appeal 4 relates to the appellant’s contention that the primary judge erred in concluding that Gladio was entitled to rescind or terminate the Contract on the basis that the appellant was in breach of clause 10(g) of the Contract.

77. [77]

    Ground of Appeal 5 relates to the appellant’s contention that the primary judge erred in dismissing her cross-claim against Ashdown for contribution or indemnity for her liability to Gladio. The necessity to deal with this Ground of Appeal depends upon the outcome of Grounds of Appeal 1 to 4.

78. [78]

    Gladio contended that the primary judge’s conclusion that Gladio was entitled to rescind the Contract ought to be upheld on the basis that the 9 August 2013 email could not be characterised as a consent under clause 6.1 of the Contract but is rather a statement by Ashdown that it was now prepared to allow a sale of shares to a corporate entity.

79. [79]

    Gladio also relied upon the primary judge’s findings that the appellant was in breach of clause 10(g) of the Contract as an available basis to validly rescind or terminate the Contract and recover its deposit.

80. [80]

    In the event that this Court overturns the primary judge’s construction of the 9 August 2013 email and finds that it was a consent for the purposes of clause 6.1 of the Contract but upholds Gladio’s right to rescind or terminate for breach of condition of clause 10(g) of the Contract, Gladio seeks an order remitting the matter back to the primary judge for assessment of Gladio’s damages.

81. [81]

    Gladio also claims an entitlement to rescind the Contract on the grounds of innocent misrepresentation. Gladio relied upon the primary judge’s conclusion that the appellant’s conduct in failing to disclose the 24 April 2009 letter and her silence concerning the terms upon which unit 20 enjoyed the air-conditioning conveyed positive representations that were narrower than those pleaded. It is contended that Mr Robbiati’s unchallenged evidence that Gladio would not have entered into the Contract had it known the true position means that Gladio would have succeeded had either of the narrower representations been pleaded. Gladio also contended that the primary judge implicitly found that Gladio’s predominant reason for rescinding the Contract was the non-disclosure of the terms upon which the unit could continue to enjoy air-conditioning (Red 172 [245]). In those circumstances, Gladio seeks to uphold the primary judge’s orders for return of the deposit on the basis that it was entitled to and did in fact rescind the Contract for innocent misrepresentation, being the narrower misrepresentations found by the primary judge (Red 217).

82. [82]

    Ashdown’s Notice of Contention responded to the appellant’s Ground of Appeal 5 in relation to the primary judge’s dismissal of the Cross-Claim against Ashdown. Ashdown contended that it was not open to the primary judge to make the orders sought by the appellant in the Cross-Claim because the appellant’s liability to Gladio did not arise naturally from any breach of Article 118 and it would not have been in the reasonable contemplation of the parties as a probable result of a breach of Article 118.

83. [83]

    The real issue for determination in respect of Grounds of Appeal 1 to 3 is whether the primary judge correctly construed the 9 August 2013 email in finding that there was no approval sufficient to satisfy clause 6.1 of the Contract.

84. [84]

    The Contract was conditional upon the “written consent” of Ashdown “to the transfer of the Shares to the Purchaser” being given by (the agreed date) 23 August 2013, failing which either party could rescind with the deposit being refunded (cl 6.1).

85. [85]

    The 9 August 2013 email from Ashdown’s agent SCTM (Mr Greene) to the appellant’s solicitor (Mr Lane), repeated here for convenience, was in the following terms (Blue 203):

86. [86]

    The “above sale” was a reference to the subject line in the email “20/96 Elizabeth Bay Road, Elizabeth Bay” rather than an express statement in the language of clause 6.1 of the Contract that Ashdown consented to the transfer of the shares to Gladio. The words “provided you instruct your client of the amended rules and regulations here attached. (in particular to clause 23)” were referred to at trial as “the proviso” (Red 132 [86]; 133 [89]). The reference to “your client” was a reference to the appellant, she having sought Ashdown’s consent to the transfer of her shares to Gladio by letter dated 20 July 2013 and her solicitor having sought Ashdown’s consent in his letter of 24 July 2013.

87. [87]

    The “amended rules and regulations” attached to the email included House Rules 22 and 23. The reference in the email “in particular to clause 23” was a reference to House Rule 23 (“Shareholding by a Company”) that provided, amongst other things: that the director of a corporate shareholder “shall be bound to comply with the Articles and Rules of Ashdown as if they were a shareholder”; that only directors or those who were the immediate family of directors at the time of the purchase of the shares were permitted to occupy the purchased unit; and that the standard residence requirements of shareholders in the Articles applied to the directors of the company purchasing the shares.

88. [88]

    Ashdown’s initial advice to the appellant (through her solicitor) was that under its constitution it was not possible for a corporation to become a shareholder. After further debate with the appellant’s solicitor, Ashdown’s position changed. It accepted that it was possible for a corporation to become a shareholder and House Rule 23 “in particular” was clearly to accommodate this new circumstance.

89. [89]

    House Rule 22 was in a different category. It was not necessitated by the advent of a corporate shareholder. It arose out of the 24 April 2009 letter which recorded that House Rules “will be amended to include” what was referred to in the letter as “these conditions of approval”. House Rule 22 referred to the 24 April 2009 letter as the basis upon which the appellant had been permitted to install the air-conditioning equipment in the roof space. It also referred to the requirement for the “owners” to sound proof the air-conditioner or remove it at their expense if there were to be any complaints or disputes about it. It also referred to Ashdown’s “right to withdraw this permission at any time” and that the removal of the equipment was to be “entirely at the expense of the owners”.

90. [90]

    The primary judge construed the 9 August 2013 email in the context of matters that were at that time known to both the appellant and Gladio, the most significant of which his Honour concluded was Article 41(d) granting the directors power to decline to register any transfer of shares to a transferee of whom they did not approve (Red 131 [80]). His Honour observed that where the proposed transferee was a corporation, the question of approval would require consideration of the natural persons standing behind the corporation (Red 131 [80]). His Honour was satisfied that Ashdown’s directors must have realised (had they turned their minds to it) that the Contract would be subject to them giving approval to the transferee (Red 131 [81]). His Honour regarded these matters as relevant in considering what meaning should be attributed to the expression “approval to the above sale proceeding” in the 9 August 2013 email (Red 131 [82]). His Honour was satisfied that a reader (armed with the mutual background knowledge) would understand the expression as “an approval in terms of cl 41(d)”; that the plain meaning of the email was that the “directors, in exercise of the power vested in them to do so, have given approval to the sale proceeding – by inference, to completion”; and read in context, the email signified “objectively that the Board of Ashdown has resolved to approve Gladio as a transferee of shares in the capital of Ashdown” (Red 132 [85]).

91. [91]

    However the primary judge then recorded his acceptance of Gladio’s submission that the proviso relevantly qualified the approval so that it was not an unconditional approval as required by clause 6.1 of the Contract (Red 132 [86]. Although concluding that the “proviso” could not be regarded as a “condition of approval” (Red 133 [88]-[89]), his Honour was satisfied that it “indicated, objectively and with reasonable clarity, that there were further obstacles to be cleared before the Board would register the transfer to Gladio” (Red 133 [90]) and that it “incorporated, or was subject to the terms of, the new House Rule 23 (and for that matter, the new House Rule 22)” (Red 133 [91]). His Honour concluded that: the approval was given on the basis that House Rule 22, and in particular House Rule 23, applied to Gladio and that such approval (to the sale proceeding) was “relevantly, and in an onerous way conditional” (Red 135 [100]); the approval required Gladio to accept and abide by the House Rules and to acknowledge that the rights that it would acquire were to be limited in the terms suggested by the House Rules (Red 135 [98]-[99]); and it was not an approval sufficient to satisfy clause 6.1 of the Contract (Red 135 [100]).

92. [92]

    The “starting point” of the primary judge’s reasoning leading to the conclusion that the 9 August 2013 email required Gladio to accept and abide by the House Rules and to acknowledge that the rights that it would acquire were to be limited in the terms suggested by the House Rules, was that the email “expressly related” the “approval” to the “amended rules and regulations” (Red 133 [91]). This relationship led his Honour to conclude that the approval incorporated or was subject to the terms of the new House Rules and it was clearly intended that they applied to Gladio (Red 135 [97]). The next step in his Honour’s reasoning was that because Ashdown made the new House Rules after the Contract was exchanged but before its settlement, Ashdown required Gladio to acknowledge that the rights that it would acquire were to be limited in the terms suggested by the House Rules (Red 135 [99]). His Honour did not record to whom Gladio was required to provide the acknowledgement. However the irresistible inference is that it was required to give the acknowledgement to Ashdown as a condition of the approval for transfer of the shares. The primary judge then concluded that the approval was conditional and did not satisfy clause 6.1 of the Contract.

93. [93]

    The primary judge’s focus at the “starting point” on the approval being expressly related to the House Rules resulted in an emphasis in his Honour’s reasoning that in my view led to an error in concluding that the approval was conditional.

94. [94]

    There was nothing in the proviso requiring Gladio to be “instructed of the amended rules and regulations”. The proviso was limited to the appellant being so instructed. Ashdown did not require anything from Gladio. Nor did it require anything from the appellant. It only required the appellant’s solicitor to “instruct” or inform the appellant, on one view of it as a matter of courtesy, that the new House Rules had been made. It was not a communication that required the appellant to notify Gladio. That was left to the appellant. Whether the appellant or Gladio still wished to proceed with the sale was a matter for them. There was no requirement for Gladio to acknowledge that it would be bound by the new House Rules. If it proceeded to complete its purchase and became a shareholder it would be bound to comply with any validly made House Rules as any other corporate shareholder would be so bound. His Honour’s earlier conclusion that the proviso could not be regarded as a “condition of approval” (Red 133 [88]-[89]) was correct. I respectfully disagree with his Honour’s later conclusion that the approval was conditional.

95. [95]

    I am satisfied that the 9 August 2013 email cannot reasonably be construed as a conditional approval that was not sufficient to satisfy the requirements of clause 6.1 of the Contract. I am satisfied that Grounds of Appeal 1 to 3 are made out.

96. [96]

    It is not necessary to deal with the appellant’s other contentions in respect of these Grounds of Appeal, for instance, that the House Rules were ultra vires and therefore the approval could not be relevantly qualified and that the primary judge proceeded on an erroneous basis of a supposed term that Ashdown would not make House Rules between exchange and settlement of the Contract. The real question is one of construction of the contents of the email.

97. [97]

    Gladio’s contention that it is not possible to characterise the email as a consent under clause 6.1 of the Contract because it was merely a statement by Ashdown that it was then willing to allow a transfer to a corporate shareholder was referred to by the primary judge in his consideration of the contents of the 9 August 2013 email (Red 130 [76]). His Honour’s conclusions impliedly, and correctly, rejected this contention. Such rejection is supported by the context in which the 9 August 2013 email was created and sent. The appellant and her solicitor had each written to the Board, on 20 and 24 July 2013 respectively, requesting the Board’s consent to the transfer of the shares to Gladio. Indeed, by email on 6 August 2013, the appellant’s solicitor reiterated to the Board (via SCTM) that an appropriate request for consent to the transfer of the appellant’s shares had been made which the directors were “required to deal with” both “responsibly and in accordance with the Articles”. The appellant’s solicitor sought “an immediate response as to whether or not the assignee is approved to hold my client’s shares”. The 9 August 2013 email was the communication immediately following the request of 6 August 2013. Put in context, the response given by Ashdown could not reasonably be read as a general statement that it would allow a corporation to become a shareholder. It was a response to the specific requests for consent to the transfer of the appellant’s shares to Gladio. In these circumstances the matter for which Gladio contends in its Notice of Contention in this regard is not made out.

98. [98]

    Pursuant to clause 10(g) of the Contract, the appellant agreed that it was a condition of the Contract that the books that the law required Ashdown to keep were “properly kept”. Ashdown has a statutory obligation to keep minute books in which it records, amongst other things, proceedings and resolutions of directors’ meetings, and resolutions passed by directors without a meeting: Corporations Act 2001 s 251A(1)(b) and (d).

99. [99]

    Gladio’s case at trial depended on it establishing that clause 10(g) was a condition, a breach of which would entitle it to rescind or terminate the Contract. It also depended on it proving that Ashdown’s “books”, in particular its minutes, had not been “properly kept” in so far as they did not record a decision or resolution that had been made that affected the rights attaching to the relevant shares.

100. [100]

     Gladio’s case at trial was that there must have been a decision or resolution made by the Board in response to the “application” in the 24 April 2009 letter in which it approved the installation of the air-conditioning in unit 20 and the roof space above the unit. The appellant’s case was that the 31 March 2009 Minutes properly documented the Board’s approval of the installation of the air-conditioning and there was nothing further that was required to be recorded in the Minutes to satisfy Ashdown’s statutory obligation under s 251A of the Corporations Act.

101. [101]

     The 31 March 2013 Minutes recorded that: the work proposed in unit 20 included the installation of air-conditioning; permission was given for the lodgement of the s 96 application in respect of the air-conditioning work; named architects were to “inspect the installation of the air-conditioning in the roof space”; the shareholders “will undertake to address any problems with the air-conditioning such as noise”; and the Board reserved the right “to withdraw the approval for the air-conditioning” if the problems could not be solved.

102. [102]

     A reasonable reading of the 31 March 2009 Minutes conveys that the shareholders of unit 20: (1) were granted approval to install an air-conditioning system in unit 20; (2) were granted permission to install some of the air-conditioning equipment in the roof space subject to inspection by the named architects; (3) were granted permission to lodge the s 96 application for the installation of the air-conditioning system; and (4) that Ashdown’s grant of the permission and approval both in respect of the installation of the air-conditioning in unit 20 and in the roof space could be withdrawn if “problems” that had arisen (including noise) could not be resolved.

103. [103]

     The 24 April 2009 letter recorded that the appellant and Ms Daley “as part of the application for air-conditioning seek consent to utilise the roof space” above unit 20 for the installation of equipment “in accordance with the specifications” that had been presented to the Board. The letter then recorded the appellant and Ms Daley’s acknowledgment that: (a) the roof space in which the air-conditioning equipment was to be located was company property and not subject to any rights of exclusive use; (b) that if Ashdown decided to use the roof space for any purpose, they agreed to remove the equipment as required at their expense and agreed they had no entitlement to compensation for the loss of use of the roof space or the cost of removal of the equipment; and (c) if “problems” arose with the installation the appellant would be given the opportunity to “resolve these issues” and that if the “problems continue” the Board could withdraw its “approval for the air-conditioning”. The letter also recorded the appellant’s and Ms Daley’s “note” that the arrangements would apply to any future owners of unit 20 and that House Rules would be amended to “include these conditions of approval”.

104. [104]

     The reference in the 24 April 2009 letter to the seeking of “consent to utilise the roof space” is rather curious particularly having regard to the fact that on a reasonable reading of the 31 March 2013 Minutes there was an agreement or consent to use the roof space. This is clear from the requirement recorded in the Minute that the named architects were to inspect the installation in the roof space. The acknowledgement in the letter that the roof space was not subject to any rights of exclusive use stated the obvious. The real controversy relates to the further acknowledgement that the appellant and Ms Daley understood that (irrespective of any complaints about the air conditioning) if Ashdown decided to use the company property in the roof space they would have to remove the air-conditioning equipment at their expense, without any compensation for the loss of the use of the space or the expense for removal of the equipment.

105. [105]

     The primary judge compared the 31 March 2009 Minutes and the 24 April 2009 letter. His Honour regarded the use of the present tense in the expression “seek consent to utilise the roof space” in the letter as being “inconsistent with the existence of approval” as at the date of the letter (Red 151 [164]). His Honour also regarded the characterisation of the letter as an “application” as unnecessary if approval had already been given (Red 151 [164]). His Honour was satisfied that these “linguistic considerations” gained force when the letter was put in context (Red 151 [165]).

106. [106]

     His Honour was satisfied that the terms of the 24 April 2009 letter went “well beyond” what was suggested in the Minutes and that there must have been specific negotiations with the Board as to the form and content of what it was that the Board would find acceptable. His Honour found that: there must have been a “decision” that was a “resolution (perhaps of an informal kind without a meeting)” that the letter recorded the terms of use of the roof space for that purpose; that the resolution was of the kind referred to in s 251A(1) of the Corporations Act necessary to be recorded in the Minutes; and it was not (Red 152 [167]-[168]).

107. [107]

     The primary judge was satisfied that a purchaser of shares in Ashdown had “a very real and substantial interest” in knowing that books and records that may record matters affecting those rights were properly kept (Red 156 [181]). His Honour found that clause 10(g) was a condition of the Contract the breach of which would give a right of termination. Although his Honour expressed the view that the word “breach” was inapt, because clause 10(g) did not impose an obligation on the appellant, he regarded it as a convenient term to use to “describe the non-existence of the state of affairs prescribed by, or non-satisfaction of the requirement stated in, cl 10(g)” (Red 157 [184]). His Honour concluded:

108. [108]

     The appellant contended that the primary judge erred in reaching this conclusion because: (a) the 31 March 2009 Minutes sufficiently recorded Ashdown’s decision to permit the installation of the air conditioning; and (b) the primary judge’s opinion that the 24 April 2009 letter went well beyond what was provided for in the Minutes was speculative, unfounded in the evidence and reflected an unnecessarily legalistic approach to Ashdown’s administrative affairs.

109. [109]

     The aspects of the letter that went “well beyond” the content of the Minutes were identified by counsel for Gladio and recorded by the primary judge as: (1) that it was acknowledged in the letter as a “separate matter” that the air-conditioning must be removed at the expense of the shareholders, if Ashdown decided to use the roof space for its own purposes; and (2) that the arrangement was to apply to future shareholders and that the House Rules would be amended accordingly (Red 151 [160]).

110. [110]

     The 31 March 2009 Minutes contained approval for the owners of unit 20 to utilise the roof space for the air-conditioning equipment unless there were complaints or disputes about it that could not be resolved. There was no express statement or resolution in the 31 March 2009 Minutes that the owners of unit 20 could be required to remove the equipment from the roof space irrespective of any unresolvable complaint or dispute about it.

111. [111]

     The additional matter not covered by the Minutes but referred to in the 24 April 2009 letter was that the owners would have to remove the air conditioning (pay for its removal and have no compensation for the loss of the roof space or the cost of the removal) if the Board decided to use the roof space.

112. [112]

     The second matter, namely, the fact that the arrangements would apply to future shareholders and the House Rules would be amended accordingly, is not as significant as the first. A reasonable reading of the 31 March 2009 Minutes is that the reference to shareholders would include shareholders from time to time.

113. [113]

     Ultimately the sole factual finding which was challenged by the appellant under this Ground of Appeal is that at some time after 24 April 2009 the Directors of Ashdown decided to accept the terms of the 24 April 2009 letter (a decision which took the form of a resolution that ought to have been minuted but was not).

114. [114]

     It did not seem “credible” to his Honour that the appellant and Ms Daley would have offered the extra terms found in the 24 April 2009 letter (and not in the 31 March 2009 Minutes) unless there had been specific negotiations with the Board as to the form and content of what the Board would find acceptable (Red 152 [166]). The appellant submitted that this was an entirely speculative opinion and that it should not have been entertained because no question was asked of the appellant as to what, if anything, had passed between her (and/or Ms Daley) and the directors between 31 March 2009 (the date of the Minutes) and 24 April 2009 (the date of the letter). It was submitted that the 31 March 2009 Minutes strongly suggest that the so-called specific negotiations referred to by the primary judge simply did not occur.

115. [115]

     The appellant submitted that it was immaterial that the request expressed in the first paragraph of the 24 April 2009 letter was in the present tense (which the primary judge considered to be significant) because Ashdown had plainly already agreed to the installation of the air conditioning on 31 March 2009. It was submitted that for the same reason the primary judge’s attribution of significance to the word “application” in the letter is of no moment and does not support the inference that “specific negotiations” took place. Similar submissions were made in respect of the other parts of the letter. Finally, it was submitted that the concluding paragraph of the 24 April 2009 letter is little more than a statement of the obvious; and whether or not any House Rules (even if valid) were necessary or appropriate, the terms of the arrangement were such that plainly they would apply to future owners.

116. [116]

     The appellant also relied upon Ashdown’s conduct on 25 or 27 April 2009 in affixing its seal to the s 96 application. It was submitted that this suffices to demonstrate that it regarded the 24 April 2009 letter as confirmation of the acceptance of the essential terms set out in the 31 March 2009 Minutes.

117. [117]

     The appellant also submitted that it was implicit in the resolution passed at the meeting on 31 March 2009 that the appellant and Ms Daley were to have Ashdown’s permission or licence to use the roof space for the installation of air-conditioning equipment. It was submitted that the fact that the letter was written after the meeting of 31 March 2009 does not of itself suffice to warrant the inference that there had been specific negotiations with the Board as to the form and content of what was acceptable to it. The appellant contended that it is at least equally probable that the appellant and Ms Daley considered that it would be “good housekeeping” to place on record their agreement to the essential terms set out in the 31 March 2009 Minutes. The appellant also submitted that Ashdown’s right to revoke its permission that it had granted was amply expressed in the 30 March 2009 Minutes. It was also submitted that the notion that the arrangement recorded in the Minutes would apply to future shareholders of unit 20 was self-evident.

118. [118]

     These submissions are powerful but for the contention that Ashdown’s right to revoke the permission was amply expressed in the 31 March 2009 Minutes. At the time of the 31 March 2009 meeting Ashdown granted a licence or permission to the appellant and Ms Daley that was recorded as being revocable on the limited ground that if problems arose and could not be resolved. There was nothing in the Minutes about Ashdown reserving its right to revoke the permission irrespective of any problems. That was a matter that was significant and different and important to any shareholder owner of unit 20.

119. [119]

     The appellant submitted that there were no questions asked of the appellant as to what, if anything, had passed between the directors and herself or Ms Daley between 31 March 2009 and 24 April 2009 and that there was no other evidence of any such communication. However, Gladio and Ashdown pointed to the following cross-examination of Ms Roylance, a former director of Ashdown during the period 4 December 1999 to 17 March 2014 (Black 153):

120. [120]

     Ms Roylance was then shown the 24 April 2009 letter and was cross-examined further as follows (Black 154):

121. [121]

     Ms Roylance was then shown the Minutes recording the 28 October 2013 resolution referred to earlier and was cross-examined as follows (Black 154-155):

122. [122]

     This evidence, in particular the last answer, was available to support the primary judge’s conclusion that there had been a decision made in terms of the 24 April 2009 letter, such letter containing the additional basis upon which Ashdown could require the removal of the equipment from the roof space irrespective of any complaints being made about the air conditioning.

123. [123]

     Gladio submitted that the primary judge was correct in concluding that the terms of the 24 April 2009 letter went beyond what was authorised in the 31 March 2009 Minutes.

124. [124]

     It is clear from the 31 March 2009 Minutes that the Board had given permission to the appellant (and Ms Daley) to install the air-conditioning system and to use the roof space to locate some of the equipment. It is also clear from those Minutes that permission was granted to lodge the s 96 application to include the installation of the air conditioning system in the renovations. The Minutes recorded the appellant’s willingness to undertake to address any problems with the air-conditioning “such as noise” and the Board’s reservation of its right to withdraw the approval for the air-conditioning “if the problems cannot be resolved”.

125. [125]

     The additional or further matters in the 24 April 2009 letter included the acknowledgement by the appellant that if Ashdown decided to use the roof space for any purpose (irrespective of any complaints or disputes) she (and Ms Daley) agreed to remove the equipment as required; to pay for the removal; and to have no right to any compensation for loss of the use of the roof space or for the cost of removal.

126. [126]

     It is not clear when this new arrangement was reached. However the primary judge concluded that it must have been the subject of discussions between the appellant (and/or Ms Daley) and Ashdown with a “decision” by Ashdown that it would approve the installation on that basis.

127. [127]

     The resolution of 28 October 2013 recorded that the installation of the air conditioning in unit 20 and in the roof space “was permitted”. That resolution also recorded that the terms and conditions on which the permission “was granted” was set out in the 24 April 2009 letter. That resolution makes clear that there was agreement between the appellant and Ashdown after the 31 March 2009 Minutes which extended to the additional matters found in the 24 April 2009 letter and not recorded in the Minutes. It was open to the primary judge to conclude that there had been a decision made after 31 March 2009 which had not been recorded in any Minute of Ashdown’s directors either at a meeting or informally. His Honour was entitled to conclude that this absence could appropriately be described as a failure to properly keep the books and records of the company. It was therefore open to the primary judge to find that there had been a “breach” of clause 10(g) of the Contract entitling rescission or termination of the Contract.

128. [128]

     Ground of Appeal 4 has not been made out.

129. [129]

     Having found that Gladio was entitled to rescind the Contract because of a lack of consent under clause 6.1, the primary judge concluded that it was not necessary to pursue the question of the “proper characterisation” of clause 10(g) of the Contract (albeit that his Honour had found that it was a “condition” of the Contract) to decide whether rescission or termination of the Contract was the “correct concept” (Red 157 [185]).

130. [130]

     In anticipation of the appellant succeeding on Grounds of Appeal 1 to 3 and failing on this Ground of Appeal, Gladio sought an order remitting the matter to the primary judge for the assessment of its damages. Gladio’s case at trial in respect of the breach of clause 10(g) of the Contract was pleaded on the basis that a breach entitled it to rescind the Contract with an entitlement to the refund of the deposit. Although there was a general “alternative” claim for “damages”, Gladio’s claim in the body of the pleading dealing with the breach of clause 10(g) of the Contract was limited to the return of the deposit. In these circumstances, it is not appropriate to remit the matter.

131. [131]

     It is also unnecessary to deal with Gladio’s contention that the primary judge’s orders should be upheld on the basis that it was entitled to rescind the Contract for innocent misrepresentation. However had it been necessary to consider this contention I am of the view that having regard to the manner in which Gladio pleaded its case it would have had difficulty in succeeding on this basis.

132. [132]

     The appellant has succeeded on Grounds of Appeal 1 to 3 but has failed on Ground of Appeal 4. In those circumstances, it is necessary to address Ground of Appeal 5 in which the appellant contends that the primary judge fell into error in dismissing her Cross-Claim against Ashdown for contribution or indemnity in respect of her liability to Gladio.

133. [133]

     This Ground of Appeal is limited to the dismissal of the appellant’s Cross-Claim in which she relied upon a breach of Article 118 as the basis for claiming an entitlement to sue Ashdown for damages. Article 118 provides that the “directors shall cause minutes” of, amongst other things, “all resolutions” to be entered in books provided for that purpose. The primary judge held that under Article 118 the obligation was on the directors (not on Ashdown as had been contended by the appellant); any failure to keep the minutes might be actionable at the suit of Ashdown; and that there was no contractual right in a member of Ashdown to a remedy in damages for alleged breach of the Article (Red 178-179 [280]).

134. [134]

     The appellant accepted that the contract embodied in Ashdown’s constitution is one between Ashdown and each of its members; Ashdown and its directors and secretary; and between each member: Corporations Act s 140. The appellant also accepted that Article 118 imposed a contractual duty on the directors to maintain the books as stipulated but submitted that Ashdown itself owed a duty to its members to ensure that the directors discharged their obligation. It was submitted that Ashdown held the benefit of the directors’ obligations to it for the benefit of its members and that the obligation in Article 118 was no more than collateral to Ashdown’s statutory duty under s 251A of the Corporations Act.

135. [135]

     In support of the appellant’s contention of an entitlement to sue Ashdown for contribution and indemnity for her liability to Gladio, reliance was placed on Dungowan Manly Pty Ltd v McLaughlin [2012] NSWCA 180; (2012) 90 ACSR 62; Moffatt v Farquhar [1976] 7 Ch D 591; and Ardlethan Options Limited v Easdown (1915) 20 CLR 285. There was no suggestion that the claim for contribution or indemnity was in any way relevantly different from a claim for damages against the company. The parties addressed their submissions in respect of a claim for damages against the company. The appellant also contended that the provisions of s 247E of the Corporations Act support such an entitlement.

136. [136]

     Dungowan Manly Pty Ltd v McLaughlin involved the redevelopment of the subject apartment building to which the McLaughlins had not consented. The articles of association provided that any abridgement, variation, restriction or release of rights conferred by article 3 could only occur by way of unanimous resolution.

137. [137]

     At first instance it was held that the McLaughlins’ rights under article 3 had been affected by the redevelopment in a limited way (the amenity of their home unit had been affected by the construction of a car stacker immediately below their unit); the company was in breach of the contract contained in the articles of association by proceeding without a unanimous resolution; and the McLaughlins were entitled to bring an action for damages for breach of contract against the company. Damages were awarded and calculated on the basis that if the company had not breached the contract it would have purchased the McLaughlins’ shares at the relevant time for $950,000. The trial judge calculated the recoverable damages as the difference between that figure and the estimated value of the shares at that time with a two thirds discount: McLaughlin v Dungowan Manly Pty Ltd [2010] NSWSC 187 at [647].

138. [138]

     On appeal it was held that the redevelopment as a whole (rather than to the limited extent) “materially altered the characteristics of the building” in which the McLaughlins’ unit was situated, “with the consequence that the character and amenity of their unit was materially altered”; and that the company breached the contract by proceeding without the McLaughlins’ consent: per Macfarlan JA at 82 [90] (with whom Bathurst CJ agreed at 63 [1]; Beazley JA (as her Honour then was) dissenting on the extent of the affectation on the amenity of the home unit but otherwise agreeing at 64 [9]). The damages awarded at first instance (except for the discount) were accepted: per Macfarlan JA at 86 [110].

139. [139]

     Although agreeing with Macfarlan JA, Bathurst CJ noted that the trial judge’s conclusion that a contravention of s 140 of the Corporations Act gave rise to a claim for damages for breach was not challenged on appeal. The Chief Justice observed that there was “some doubt” whether the statutory contract formed by s 140 of the Corporations Act gave rise to a claim for damages for breach (at 63 [3]).

140. [140]

     In addition to reliance upon the Chief Justice’s expression of doubt, Ashdown also referred to the “unusual” nature of the statutory contract as described by McHugh and Gummow JJ in Bailey v New South Wales Medical Defence Union Ltd (1995) 184 CLR 399 at 435-436 including: that the terms of the contract are variable from time to time without agreement of both parties to that variation; there is no jurisdiction in equity to rectify the contract; and direct enforcement by a member of “rights” under such a contract against the company may have to overcome obstacles placed in its path by the rule in Foss v Harbottle (1843) 2 Hare 461; 67 ER 189.

141. [141]

     Ashdown submitted that the other cases relied upon by the appellant in this regard are distinguishable. Ardlethan Options Ltd v Easdown (1915) 20 CLR 285 concerned a breach of an article entitling a member to a share certificate. Moffatt v Farquhar (1877) 7 Ch D 591 concerned a breach of an article entitling a member to transfer a share to a person approved by the board of the company.

142. [142]

     It was also submitted that the appellant’s reliance on s 247E of the Corporations Act takes the matter no further. That section reversed the rule in Houldsworth v City of Glasgow Bank (1880) 5 App Cas 317, that prevented a subscriber for shares, while remaining a member of the company, recovering damages from the company for misrepresentation in connection with the subscription: see Austin and Black’s Annotations to the Corporations Act (LexisNexis 2010) at [2F.247E]. This section is not engaged where there is no claim at all because the asserted claim is one based on an alleged failure to comply with the provision of the statutory contract created by s 140 of the Corporations Act which does not confer an individual right on a member.

143. [143]

     The present case is not a claim of the type with which the Courts were concerned in the cases relied upon by the appellant. In the present case Ashdown’s directors were obliged to keep the minutes stipulated by Article 118. The appellant’s case at trial depended on the express terms of Article 118 and the previously pleaded case that there was an implied term was abandoned (Red 72). Article 118 relates to the administration of the company. The express obligation was imposed on the directors. The only obligation imposed on Ashdown by Article 118 was to keep the books containing the minutes of general meetings available for inspection at the office during business hours. The question of whether such a failure by Ashdown to make the books available would be amenable to a suit for damages by a member does not need to be decided but Bathurst CJ’s caution expressed in Dungowan Manly Pty Ltd v McLaughlin suggests not. This case is not a vehicle for a decision generally as to whether a member of a company may sue the company for damages by reason of a breach of the contract established by s 140 of the Corporations Act. It is necessary to focus on the issues in this particular case.

144. [144]

     Gladio was a stranger to the constitutional contract between Ashdown and the appellant. The appellant chose to enter into the Contract pursuant to which she provided Gladio with a basis for termination of the Contract, the terms over which Ashdown had no control. The particular terms of the Contract (but for the assumption that any contract for the sale of shares would be subject to Ashdown’s consent) were not known to Ashdown. Ashdown cannot be liable to the appellant in such circumstances: Transfield Shipping Inc v Mercator Shipping Inc [2008] UKHL 48; [2009] 1 AC 61 per Lord Hope at [36]; Lord Rodger at [62] (Baroness Hale agreeing at [93]) and Lord Walker at [86].

145. [145]

     The directors failed to record a minute (until October 2013) of the new terms of the arrangement contained in the 24 April 2009 letter. The limit on the enjoyment of the air conditioning system was well known to the appellant irrespective of the existence of the minute. However the directors’ failure was the basis upon which Ashdown was then placed in the position of its books not being properly kept. Pursuant to the contract created by s 140 of the Corporations Act, Ashdown may have pursued the directors for their failure to carry out the appropriate administrative obligations they had to it, but the appellant could not do so.

146. [146]

     In support of its Notice of Contention Ashdown submitted that it is one thing to have a requirement in a contract that books and records generally are properly kept but it is another thing entirely to attribute to the parties an intention and understanding that if a minute is not taken of a particular resolution that this will have the effect of putting a vendor in breach of a contract that they had independently entered into with the purchaser. It was submitted that such a consequence is not one that either flows naturally from the breach or one that the parties could be said to have held in their reasonable contemplation. These submissions have force.

147. [147]

     Ashdown also submitted that in any event, in a breach of contract case the defendant has to put the plaintiff into the position it would have been if the contract had been performed. If the Contract had been performed the minute would have been kept, there would have been a record of the arrangements relating to the air-conditioning in respect of unit 20; Gladio would never have entered into the Contract; and the appellant would never have received the deposit in the first place and there would not be such a loss.

148. [148]

     There was no error in the primary judge’s analysis of Article 118 and the dismissal of the Cross-Claim.

149. [149]

     Ground of Appeal 5 is not made out.

150. [150]

     The orders that I propose are that the appeal should be dismissed and the appellant should pay the respondents’ costs of the appeal.

151. [151]

     EMMETT AJA: The question in this appeal is whether the first respondent, Gladio Pty Ltd (Gladio), was entitled to rescind a contract (the Contract) for the sale to Gladio by the appellant, Ms Virginia Buckworth (Ms Buckworth), of shares in the capital of the second respondent, Ashdown Home Units Pty Ltd (Ashdown). The shares entitle the holder to rights of occupation in respect of Unit 20 in an apartment building owned by Ashdown. On 26 September 2013, Gladio purported to rescind the Contract. Ms Buckworth asserted that the rescission was a repudiation of the Contract and, accordingly, purported to terminate the contract and to forfeit the deposit of $145,000 paid under the Contract by Gladio.

152. [152]

     Gladio commenced proceedings against Ms Buckworth and Ashdown in the Equity Division of the Supreme Court, in which it claimed a declaration that the Contract had been validly rescinded and an order that Ms Buckworth repay to it the sum of $145,000. Relevantly for present purposes, Ms Buckworth filed a cross-claim against Ashdown in which she claimed an order that Ashdown indemnify her for any liability that she may be found to have to Gladio.

153. [153]

     On 28 July 2015, for reasons published on 14 July 2015, a judge of the Equity Division (the Primary Judge) directed judgment for Gladio against Ms Buckworth in the sum of $145,000, together with interest. His Honour also directed judgment for Ashdown in the claim by Gladio and directed the entry of judgment for Ashdown in the cross-claim by Ms Buckworth. By notice of appeal filed on 24 August 2015, Ms Buckworth appealed to this Court from those orders. She filed an amended notice of appeal on 18 September 2015.

154. [154]

     Clause 6.1 of the Contract provided that the Contract was subject to the written consent of Ashdown to the transfer of the shares to Gladio and that, if consent was not obtained within 38 days from the date of the making of the Contract, either party may rescind the Contract, whereupon the deposit was to be refunded. Clause 10(g) of the Contract relevantly provided that Ms Buckworth acknowledged and agreed that it was a condition of the Contract that the respective registers of members, directors and charges, and all other books of Ashdown required by law to be kept by it, were properly kept.

155. [155]

     The Primary Judge held that Ms Buckworth failed to satisfy cl 6.1. His Honour also held that Ms Buckworth was in breach of cl 10(g). The failure to satisfy cl 6.1 was the ground upon which Gladio purported to rescind the Contract. His Honour also held that, even if that were not a justification for the rescission of the Contract, the failure to comply with cl 10(g) would have been sufficient basis for rescission by Gladio.

156. [156]

     In her grounds of appeal, Ms Buckworth challenges the correctness of those findings by the primary judge. She also contends that, if failure to comply with cl 10(g) is the basis upon which she is found to be liable to Gladio, she is entitled to be indemnified by Ashdown in respect of that liability.

Factual Background

1. [157]

   On 24 July 2013, Ms Buckworth’s solicitors wrote to Sydney Company Title Management (SCTM), the managing agent of Ashdown, attaching a letter requesting consent from Ashdown for the transfer of Ms Buckworth’s shares to Gladio. In the letter, which was dated 20 July 2013, Ms Buckworth said that she wished to advise that she had entered into a contract for the sale of her shares to Gladio and provided particulars of Gladio and its sole director. The letter made a formal request for the consent of Ashdown to the transfer of Ms Buckworth’s shares to Gladio.

2. [158]

   On 31 July 2013, SCTM wrote to Mr Lane, Ms Buckworth’s solicitor, saying that the directors of Ashdown were not prepared to accept the transfer in its present form. SCTM said that Ashdown was unable to consider a request to transfer shares to a company, as it was clear in its constitution that “only a person” could be a shareholder. Mr Lane responded on 1 August 2013, saying that he had reviewed the constitution of Ashdown and could see no reference that prohibited a corporation from being a shareholder. Mr Lane drew attention to various provisions of the constitution that he said made that clear.

3. [159]

   On 5 August 2013, Mr Lane wrote to SCTM again, referring to a telephone conversation that morning and saying that he understood that the directors would consent to the transfer of shares on the proviso that the director of the corporate shareholder provide some agreement to be personally liable for levies. Mr Lane asked that the directors of Ashdown clarify their position in writing as soon as possible. SCTM responded later on 5 August 2013, saying that the response from the directors of Ashdown was that they would require a change to the “house rules” of Ashdown to accommodate the request by a corporate entity to buy shares in Ashdown. A special meeting of directors was scheduled for 8 August 2013 to discuss a new rule to accommodate the request.

4. [160]

   On 6 August 2013, Mr Lane sent an email to SCTM, saying that the directors had no grounds to propose that an amendment be required before a non-natural person may acquire shares in Ashdown. Mr Lane said that his client had entered into a contract for the sale of the shares and had disclosed the constitution and rules as they stood as at the date of the Contract. He requested immediate responses as to whether or not the proposed assignee was approved to hold Ms Buckworth’s shares and reserved her rights if the directors were to embark upon any course of action that would jeopardise the sale of the shares.

5. [161]

   On 9 August 2013, SCTM sent an email to Mr Lane saying that the directors of Ashdown “have given approval to the above sale proceeding provided you instruct your client of the amended rules and regulations here attached”. SCTM expressed the hope that the response had “cleared the obstacles to this conveyance matter”.

6. [162]

   The amended rules attached to the email of 9 August 2013 contained r 23, which dealt with shareholding by a company in the following terms:

Conditional Consent

1. [163]

   The Primary Judge held that there was a clear implication that the approval given by the email of 9 August 2013 required Gladio to accept, and abide by the amended rules. His Honour observed that it was open to the directors of Ashdown to make “house rules” at any time and held that the fact that they did so between contract and settlement, in substance requiring Gladio to acknowledge that the rights that it would acquire on registration would be limited in the terms suggested by the rules, meant that the approval that was given was relevantly, and in an onerous way, conditional. It was therefore, his Honour held, not an approval sufficient to satisfy the requirements of cl 6.1 of the Contract.

2. [164]

   The email of 9 August 2013 was addressed to Ms Buckworth and not to Gladio. It could simply constitute no more than a statement that the directors were informing a member of Ashdown that the “house rules” had been amended in a way that could affect her position as vendor under a contract to sell her shares. I do not consider that there is any basis for implying that a condition of Ashdown’s giving approval to the transfer of the shares to Gladio was that Gladio accept and abide by the amended “house rules”. I consider that, in the context of the exchange, as noted above, it is clear that the email of 9 August 2013 was an unconditional consent to the transfer of Ms Buckworth’s shares to Gladio.

Breach of Clause 10(g)

1. [165]

   Clause 10(g) of the Contract relevantly provided that Ms Buckworth acknowledged and agreed that it was a condition of the Contract that the respective registers of members, directors and charges, and all other books of Ashdown required by law to be kept by it, were properly kept. The Primary Judge considered that cl 10(g) stated a condition of the Contract, being a state of affairs the breach of which would give a right of termination. His Honour concluded that there was a breach of cl 10(g) and that, although it was not a breach relied on by Gladio as a basis for termination of the Contract, the breach was such that Gladio could have terminated the Contract by reason of the breach. In order to put his Honour’s conclusion into context, it is necessary to say something more about the background to his Honour’s conclusion.

2. [166]

   On 31 March 2009, the directors of Ashdown passed a resolution as follows:

3. [167]

   On 24 April 2009, Ms Buckworth and Ms Louise Daley, her then co-owner of the shares in Ashdown, wrote a letter to Ashdown in the following terms:

4. [168]

   The Primary Judge held that the terms of the letter of 24 April 2009, being in the present tense, and saying that the shareholders “seek consent to utilise the roof space”, gave rise to an inference that some further accord was reached as between Ms Buckworth and Ms Daley, on the one hand, and Ashdown, on the other, concerning the installation of air-conditioning equipment. His Honour considered the use of the present tense was inconsistent with the existence of approval as at 24 April 2009 and that use of the term “application” would not be necessary if approval had been given. His Honour also considered that the terms of the letter of 24 April 2009 went “well beyond” what was suggested by the resolution of 31 March 2009. His Honour did not consider that it was credible that Ms Buckworth and Ms Daley would have offered the extra terms contained in the letter unless there had been specific negotiations with the directors of Ashdown as to what would be acceptable.

5. [169]

   There was no evidence of any communication passing between the directors of Ashdown, on the one hand, and Ms Buckworth and Ms Daley, on the other, between 21 March 2009 and 24 April 2009 concerning the proposal for installation of air conditioning. No question was asked of Ms Buckworth as to any such communication. There was no direct evidence that a decision was made by the directors after 31 March 2009. Rather, the primary judge drew an inference, from the terms of the letter, the differences between the letter and the resolution and the fact of the installation of air conditioning, that there must have been a “decision”, even if not formally resolved at a meeting, that the terms set out in the letter recorded the terms of use of the roof space. His Honour concluded that, in those circumstances, there must have been a resolution authorising an agreement in terms of the letter of 24 April 2009. Since there was no resolution authorising such an agreement recorded in the books of Ashdown, his Honour concluded that there was a breach of cl 10(g).

6. [170]

   Ms Daley was present at the meeting of the directors of Ashdown held on 31 March 2009 and the relevant resolution appears to have been passed unanimously. The proposal approved on 31 March 2009 entailed the installation of air conditioning ducting within the roof space and the minutes refer to proposed inspection of the air conditioning in the roof space by architects. That suggests some specificity in relation to the proposal that was approved at the meeting and that there was no need for any further specification of what was proposed.

7. [171]

   The use of the present tense in the letter is not inconsistent with the parties treating the resolution of 31 March 2009 as sufficient approval, in circumstances where the language of the resolution indicates that the directors had already agreed to the proposal. The use of the word “application” in the letter is also inconclusive.

8. [172]

   The terms of the letter do no more than complement the reference in the minutes to the undertaking by Ms Buckworth and Ms Daley, as shareholders, to address any problems with the air conditioning, such as noise. The references in the letter reflect the awareness of Ms Buckworth and Ms Daley of the need to adopt measures to avoid problems with the air conditioning such as noise. The concluding paragraph of the letter does not add anything, in that it would be obvious that future owners of the relevant shares would be bound by the conditions of approval.

9. [173]

   In response to the letter of 22 April 2009, Ashdown affixed its seal to the development application lodged with the Council later in April 2009. That does no more than suggest that Ashdown simply regarded the letter as confirmation by Ms Buckworth and Ms Daley that they accepted the essential terms of the resolution of 31 March 2009. The resolution was sufficient authority for Ashdown to accept the terms of the letter of 24 April 2009.

10. [174]

    I do not consider that a comparison between the terms of the resolution of 31 March 2009 and the terms of the letter of 24 April 2009 supports the inference that there must have been further communication leading to a decision of the directors of a kind that was required to be recorded in the books and records of Ashdown. Such a comparison does not support the characterisation of the terms of the letter as going well beyond what was suggested by the resolution, as the primary judge held. There is no basis for inferring that there was another resolution, either formal or informal, of the directors that was not recorded in the minutes of meetings of directors of Ashdown. Therefore, no breach of cl 10(g) was established.

Conclusion

1. [175]

   I consider that the primary judge erred in concluding that Gladio was entitled to rescind the Contract. The appeal should be allowed and the orders made by his Honour should be set aside. Ms Buckworth should pay Ashdown’s costs of the appeal. Gladio should pay Ms Buckworth’s costs of the appeal, which should include the orders she is required to pay to Ashdown. In lieu of the orders made by the primary judge, there should be an order that the proceedings brought by Gladio be dismissed with costs. The cross claim should also be dismissed with costs. The costs ordered to be paid by Ms Buckworth to Ashdown should be part of her costs of defending the proceedings.