J Cummins Pty Ltd v F & D Bonaccorso

THE COURT: The appellant, J Cummins Pty Ltd (Cummins) brought proceedings seeking rectification of an option agreement dated 6 October 2010 that it entered into with the respondent, F & D Bonaccorso Pty Ltd (Bonaccorso) and further seeking an order for specific performance of the agreement so rectified. In essence, the question in issue between the parties was whether they had agreed that the stated deposit of $1.4 million was payable in fact or whether it had been agreed between the parties that the deposit was to be treated as if paid, having regard to improvements that Cummins had effected to the property subject of the option agreement.

The trial judge was not persuaded that Cummins had established that there was a common intention the subject of the rectification claim at the time that the second option was entered into: at [127]. Accordingly, his Honour dismissed Cummins’ claim. In coming to that conclusion, the trial judge, at [107], made adverse credit findings in respect of the evidence of Mr John Hawkins, the principal of Cummins.

His Honour, at [108], also expressed reservations as to the reliability of the evidence given by Mr Frank Bonaccorso, one of the principals of Bonaccorso, and of the evidence given by Frank’s sons, Gary and Paul Bonaccorso. There was, however, a critical aspect of their evidence that the trial judge did accept, namely, their denial of Mr Hawkins’ evidence to the effect that it was agreed that Bonaccorso would be treated as having already paid a $1.4 million deposit and that Cummins would receive, after the first $4.3 million, the next $1.4 million out of the proceeds of a sale.

His Honour generally accepted the evidence of Mr Carl Buda, Bonaccorso’s solicitor: see at [110]. Documentary evidence by way of solicitor’s diary notes also supported his Honour’s conclusion.

Cummins has appealed against the trial judge’s rejection of its claim on the basis that his Honour erred in rejecting Mr Hawkins’ evidence: notice of appeal grounds 2 and 3. Cummins contended that his Honour’s rejection of Mr Hawkins’ evidence cannot be reconciled with the incontrovertible fact that by cl 11.2 of the option agreement Cummins was entitled to purchase the property for $4.26 million. See Fox v Percy [2003] HCA 22; 214 CLR 118.

If Cummins succeeds in displacing the trial judge’s credit findings in respect of Mr Hawkins’ evidence, it follows, on its argument, that his Honour ought to have found that the parties held the relevant common intention of treating the deposit of $1.4 million as having been paid: notice of appeal grounds 1, 5, 6 and 7.

Cummins accepted that if those credit findings are not displaced, it cannot succeed on the appeal. All other grounds of appeal were abandoned. Having regard, therefore, to the limited basis upon which the appeal was argued, it is not necessary to consider the legal principles governing the rectification of a contract. It is sufficient to note that there was no challenge to his Honour’s statement of principle, at [98] that, to make out its case for rectification, Cummins was required to establish, by clear and convincing proof, that the second option failed to give effect to a common intention held by the parties at the time it was entered into. See Ryledar Pty Ltd & Anor v Euphoric Pty Ltd [2007] NSWCA 65; 69 NSWLR 603 at [122]-[143] and [259]-[316]; Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; 76 NSWLR 603 at [444]-[461]; W & K Holdings (NSW) Pty Ltd v Laureen Margaret Mayo [2013] NSWSC 1063 at [66]-[68] and Lewis v Condon; Condon v Lewis [2013] NSWCA 204; 85 NSWLR 99 at [62].

Bonaccorso was the registered proprietor of a block of 12 units located in Strathfield in an area that was considered to have significant development potential. There were dealings between Bonaccorso and Cummins in 2009, at which time Cummins made offers to purchase the property for between $3.5 million and $3.7 million.

On about 13 November 2009, the parties entered into a Put and Call Option Agreement (the first option), which had been drafted by Mr Buda. The first option provided for the payment by Cummins of a call option fee of $50,000 and was exercisable up to and including 1 May 2010. The first option provided for a price that was defined to be $3.9 million plus a rental adjustment. (The contract attached to the first option specified a purchase price of $3.6 million. His Honour observed that the discrepancy was not explained nor is it relevant to the contract the subject of the present proceedings.)

The period for the exercise of the call option was extended by a Deed of Variation to 1 July 2010. Cummins did not exercise the call option in the first option by that date. The lawyers for each of the parties were advised that the parties had agreed to further extend the terms of the first option and Deed of Variation.

On 7 July 2010, Mr Buda forwarded a new Put and Call Option Agreement (the second option) together with a deed of rescission to Cummins’ solicitors, MCW Lawyers. Those solicitors returned the documents, executed by Mr Hawkins, to Mr Buda on 12 July 2010, without amendment. The second option provided for an increased purchase price of the units: see cl 11.2(b) below, and added two new sub-clauses to cl 11.4: see cl 11.4(c) and (d) below.

The terms of the second option as executed by Mr Hawkins, were, relevantly, as follows:

Clause 4 provided for the exercise of the Call Option, including, relevantly:

Clause 11 provided for the sale of residential lots as follows:

Between 20 July 2010 and 5 August 2010, there were negotiations between the parties in respect of costs that were to be included in the definition of Price. There were also discussions between the parties in respect of GST. In the result, the parties agreed to the definition of Price in the second option to be amended to read: “$5,700,000 + Outgoings (exclusive of GST) + Costs (exclusive of GST)”. A definition of Outgoings was also inserted.

Later, on 5 August 2010, Cummins’ solicitors sent an email to Mr Buda agreeing to the terms of the amendments and advising that the documents could be dated. The following day, 6 August 2010, the directors of Bonaccorso executed the second option agreement as amended together with the Deed of Rescission. The executed documents were forwarded to Cummins’ solicitors on 10 August 2010.

The second option provided for a Call Option Fee of $50,000. The period for the exercise of the option was from 6 August 2010 to 30 October 2010. The manner of exercise of the option was provided for in cl 4, as set out above at [13].

Cummins’ case is predicated upon an agreement having been reached between Mr Hawkins and Mr Frank Bonaccorso on or about 20 June 2010, when, according to Mr Hawkins, in the course of discussing various options relating to the property, there was a conversation in the following terms:

Cummins contended that the agreement was confirmed in a further conversation that occurred between then and 7 July 2010, but that the agreement, by oversight, was not embodied in the second option executed on 6 August 2010.

As indicated, Cummins recognised that it must overcome the trial judge’s credit findings against Mr Hawkins in order for its argument to succeed. The principal reason advanced as to why Mr Hawkins should have been believed was because, there being no evidence in the increase in the value of the property in mid-2010, Cummins’ entry into the second option was irrational unless there was some commercial understanding between parties outside the contract.

Bonaccorso submitted that there was no basis for appellate intervention. On its argument, the evidence pointed to there being no arrangement or agreement such that the parties had a common intention as alleged by the appellant. In particular, Bonaccorso submitted that the conversations that Mr Hawkins had with his solicitors and the instructions he gave them in the days leading up to 30 October, as evidenced in his solicitors’ diary notes and in email communications with its solicitor, was unchallenged evidence to the contrary and could lead to only one conclusion, namely, that there was no such common intention.

The first solicitor’s diary note upon which the respondent relied was dated 27 October 2010 in respect of an attendance by Ms Cathy Hart of MCW Lawyers on Mr Hawkins. The attendance seems to have been on the telephone. Relevantly, Ms Hart records:

There was a personal attendance on Mr Hawkins on the following day, 28 October 2010, by Ms Kim Mathieson of MCW Lawyers, who noted that Mr Hawkins had collected the front page of the contract for sale, the notice to exercise option and a nomination form. Ms Mathieson also recorded that Mr Hawkins had six buyers and Cummins was going to buy the other six. Ms Mathieson advised him that everything needed to be done by the following day.

On 3 November 2010, Ms Hart had a telephone conversation with Mr Buda who advised her that he had seen Mr Hawkins the previous Friday and that Mr Hawkins had said he wanted to exercise the option. Ms Hart responded that she had given Mr Hawkins the notice and had advised him that he needed to pay the deposit and sign the contract. Mr Buda responded that his client was “fairly relaxed” but that he wanted to have everything in order before his client returned from overseas.

On the same day, Ms Hart advised Mr Hawkins of her conversation with Mr Buda. Her note of the conversation with Mr Hawkins stated, relevantly:

Ms Hart also recorded that Mr Hawkins advised that if the other six buyers were not ready by the following day, they would “miss out” and Cummins would buy the 12 units.

On 26 October 2010, Ms Hart wrote to Mr Buda advising that Cummins or a nominee wished to exercise its rights to purchase the property pursuant to the second option. The letter concluded that further instructions would be sought from Mr Hawkins “in respect of the execution of the documents and compliance with clause 4 of [the second option] when he attends our office tomorrow”.

Mr Hawkins advised Ms Hart on 29 October that he had exercised the option and that Mr Buda had advised him to prepare a caveat to protect his interests under the contract. On 1 November 2010, a caveat was lodged on the title of the property by Cummins claiming an equitable interest pursuant to a contract for sale dated 20 October 2010.

On 7 December 2010, Mr Buda wrote to MCW Lawyers, as follows:

Ms Hart had a telephone attendance on Mr Hawkins on 15 December 2010. On that occasion, Mr Hawkins told her that he had spoken to Mr Buda who had advised him that he, Mr Buda, had put on record the current state of the matter and that he had been instructed to prepare a further amended deed. Mr Hawkins had requested Mr Buda to forward a letter to MCW lawyers advising that he had instructions to do so.

The matter remained unresolved between the parties and on 31 March 2011, Mr Hawkins advised Ms Mathieson that Bonaccorso were claiming that the option had not been exercised and they were “trying to get more money out of him”. Ms Mathieson reminded Mr Hawkins that on his instructions to them they were waiting for an amended deed from Mr Buda. She also told him that when he took the exercise of options documents to Mr Buda “he should have paid [the] deposit and signed [the] counterpart contract not just [the] front page of [the] contract”. She also advised him that they had not heard anything further from Mr Buda, although Mr Hawkins had advised them that an amended deed was being prepared. Ms Mathieson further recorded, “[Mr Hawkins] has a very uneasy feeling about the matter and thinks Bonaccorso [is] trying to get a lot more money from him for pty”.

On 1 April 2011, Ms Hart wrote to Mr Buda referring to the telephone attendances the previous year wherein Mr Buda had advised that he was preparing an amended agreement to reflect an extension of time, and noting that the agreement had not been received. She also observed that there had been continued communication between their respective clients and that Mr Hawkins believed that there continued to be a “full and friendly relationship with regard to the ongoing success of our mutual clients’ benefit”. She asked that, if that was not Mr Buda’s understanding, to “please advise us of his clients’ understanding”.

On the same day, Mr Hawkins had requested Ms Hart to do a search to check that his caveat was still registered. She ascertained that it was. In this conversation, Mr Hawkins again indicated to Ms Hart that he thought that the Bonaccorsos were going to say “no deal” and wanted more money. Ms Hart pointed out to him that the issue was that he had not exercised the option properly. Mr Hawkins said that was not correct as Mr Buda had not exchanged as he was going to amend the time in the Deed. Ms Hart then recorded:

The following communications then occurred between Mr Hawkins and his solicitors.

On 4 April 2011, Ms Mathieson made a diary note of a telephone attendance in which Mr Hawkins refuted Mr Buda’s claim that he had not exercised the option in accordance with its terms. He contended that he had provided Mr Buda with a counterpart contract and “maintain[ed] vendor has received [deposit] by way of money already spent by Cummins on improving [property] which is in excess of $200,000”.

On 5 April 2011 Ms Hart emailed Mr Hawkins enclosing a draft letter for his approval. She stated in the email:

The draft letter was in the following terms:

The letter that Ms Hart sent to Mr Buda was in materially the same terms as the draft except for a significant change made to para 3, which read:

There was also added to para 4 a statement that a caveat had been registered on 9 November 2010.

Mr Buda responded on 6 April 2011, stating that he was waiting for instructions. However, he stated that “this office never advised that contracts were exchanged”. MCW Lawyers responded on 12 April, contending that Mr Frank Bonaccorso had assured Mr Hawkins that “the agreement between our clients is binding as he has ‘given his word’”. Ms Hart requested that the counterpart contract be forwarded immediately and advised that if there was no response by the close of business that day, Cummins would have no alternative other than to issue a notice to complete.

Mr Buda’s last communication was a letter dated 14 April 2011, in which he stated his instructions were that no deposit or completed counterpart contract had ever been received and, as such, special condition 4.1(b) and (c) had not been satisfied, and that special condition 4.3 required “strict compliance of” special condition 4.1 for a valid exercise of the option. Mr Buda also advised that Mr Gary Bonaccorso was now the solicitor for Bonaccorso.

As Bonaccorso submitted, not once in any of the communications between Mr Hawkins and his solicitors did Mr Hawkins assert that credit in the sum of $1,400,000 million was to be given to Cummins in respect of the deposit having regard to improvements Mr Hawkins had made to the property. To the extent that any assertion of a credit was made, it was in respect of improvements of “more than $200,000”, an assertion first made on 4 April 2011 and in respect of a sum, that even in its approximation, was far less than the amount of the deposit specified in the option. In some respects, this accords with evidence given in cross-examination by Gary Bonaccorso, who stated that Mr Hawkins “didn’t even renovate the units because they were unfinished, so how could he justify an increase of 1.4 as a credit”.

Further, Mr Hawkins on 1 April 2011 told Ms Hart the deposit was $50,000. In the course of seeking instructions, Ms Hart had specifically asked Mr Hawkins whether there was an arrangement outside the contract. Mr Hawkins did not assert to her that there was any such arrangement. Bonaccorso rightly placed emphasis on the communication between Ms Hart and Mr Hawkins on 1 April 2011, in that when Ms Mathieson raised the question of the requirements of the payment of the deposit, Mr Hawkins did not resist that advice or otherwise indicate that some other agreement had been reached.

Another aspect of the dealings between the parties that told against Mr Hawkins’ version was that when the parties were renegotiating the terms of the second option, Mr Hawkins did not seek to have any amendment made to the deposit clause or to cl 4.1.

Thus, the diary notes and correspondence revealed that Cummins’ solicitor raised with Mr Hawkins on at least four occasions that the deposit was required to be paid at the time of exchange, twice without demur from Mr Hawkins and once when he asserted the deposit was a different amount. The first occasion was 27 October, just before the option expired, when Ms Hart reminded him he was required to pay the deposit. She reminded him again on 3 November, just after the option expired. On 31 March 2011, Mr Hawkins acknowledged that a deposit was payable, but asserted it was in the sum of $50,000. The question of an arrangement outside the contract was specifically raised with him on 1 April 2011. Mr Hawkins did not assert at that time that there was any such arrangement. The first time he contended that there was to be a credit for the deposit was 4 April 2011.

To the extent that Cummins relied upon the irrationality of entering into an agreement in which the price of the property had increased significantly in a short period of time, the evidence of Mr Gary Bonaccorso, that Mr Hawkins had a developer interested in the property at $7-8 million was to the contrary.

Having regard to this evidence, his Honour was justified in not accepting Mr Hawkins’ evidence of an arrangement outside the formal contract documents. Indeed, as his Honour remarked, at [103], the communications between Mr Hawkins and Cummins’ solicitors, and between the solicitors for each of the parties, “provide[d] no support whatsoever for Mr Hawkins’ account”.

There was also the absence of any documentary evidence supporting his version. In particular, Mr Hawkins’ evidence that he had complained to MCW Lawyers that the contract documentation provided by Mr Buda did not reflect the agreement as to the deposit, was not reflected in the diary notes of Ms Hart or Ms Mathieson. Given the apparent care with which the diary notes were kept, this would have been a most surprising omission. His Honour’s rejection of this aspect of Mr Hawkins’ evidence was also well based. His Honour catalogued other matters that cast grave doubt on Mr Hawkins’ version of events: see especially at [105]-[106].

It follows that the appellant has been singularly unsuccessful in overcoming the adverse credit findings of the trial judge. Apart from his own evidence, all the other evidence was inconsistent with there being any common intention that the deposit was to have been taken to have been paid by way of according to the appellant a credit in the amount of $1.4 million for work done on improvements on the property.

The appeal is dismissed with costs.