Gladio Pty Ltd v Buckworth

1. [1]

   HIS HONOUR: What should have been a simple claim for return of a deposit of $145,000.00 has given rise to a hearing extending over six days in this Court, occupying the attention of four separately represented parties. Litigation on that scale over such a sum defies common sense. It is very difficult to see how parties, properly advised and aware of their obligations under s 56 of the Civil Procedure Act 2005 (NSW), could have permitted matters to come to such a pass.

Nature of the case

1. [2]

   The deposit was paid pursuant to a contract for sale of shares, ownership of which carried the right of exclusive occupancy of a “company title” home unit in a building, known as “Ashdown”, at Elizabeth Bay. The first defendant (Ms Buckworth) was the vendor. The plaintiff (Gladio) was the purchaser. The second defendant (Ashdown) is the proprietor of the land, and is the company, the shares in which were the subject of the contract for sale. The cross-defendant (SCTM) was Ashdown’s managing agent.

2. [3]

   Gladio’s primary case is that it rescinded the contract for sale pursuant to an express right to do so. It brings alternative cases against Ms Buckworth alleging misleading or deceptive, or unconscionable, conduct. Alternatively, it says, the contract for sale was frustrated. Ms Buckworth cross-claims against Gladio (for damages for breach of contract) and against Ashdown (for indemnity, in the event that Gladio succeeded against her).

3. [4]

   Gladio says, alternatively, that Ashdown owed it, and breached, a duty of care in relation to communications. There was also an alternative case brought against Ashdown, alleging misleading or deceptive conduct.

4. [5]

   Ashdown joined its managing agent, SCTM, as a cross-defendant. Ashdown says that if it had some liability to Gladio, that liability arises out of acts or omissions of SCTM. In addition, Ashdown raises issues of proportionate liability, involving not only the parties to the litigation but also a legal searcher, EYEON Group Pty Ltd (Eyeon), which caused to be carried out pre-contractual searches of the records of Ashdown maintained by SCTM.

5. [6]

   Those disputes generated three versions of a statement of a claim, and responsive pleadings (and of course the cross-claim pleadings). The final articulation of Gladio’s case is to be found in the Further Amended Statement of Claim (FASOC) filed on 12 May 2015. That is a prolix and absurdly over-complicated document. It comprised 16 prayers for relief and 142 paragraphs defined into 10 “Chapters”, one of which was subdivided into four “Divisions”.

6. [7]

   The prolix and overly complex nature of the FASOC, and the corresponding complexity of the defences to it, make it impossible to attempt any more helpful distillation of the real issues in dispute than the brief and inadequate summary that I have given already. Thus, although with reluctance, I propose to deal with the matter by setting out the background (and mostly uncontroversial) facts, and then turning to the case against each of the defendants, and to the cross-claims. To the extent necessary, when I deal with the case against one or other of the defendants, and to the cross-claims. I will make such further findings of fact as are necessary to explain the conclusions to which I have come.

7. [8]

   Once I have dealt with the issues between the parties, I shall deal with two interlocutory rulings. One is the ruling on the admissibility of documents, to which objection was taken on the basis of “settlement privilege” (Evidence Act 1995 (NSW), s 131). The other is an application made by Ms Buckworth for leave to withdraw an admission.

Background facts

1. [9]

   Prior to 24 April 2009, Ms Buckworth and her then partner Ms Daley bought shares in the capital of Ashdown that gave them the exclusive right of occupancy of what was known as “unit 20” (which included a separate car parking space). At some time after April 2009, the relationship between Ms Buckworth and Ms Daley having broken down, Ms Daley transferred her interest in the shares in question to Ms Buckworth.

2. [10]

   The previous owners of the shares, who were the vendors to Ms Daley and Ms Buckworth, had sought and obtained the consent of Ashdown to the carrying out of certain works. Those works included the construction of a pergola on a terrace located at the western end of unit 20, and the installation of air-conditioning. The ducting and some of the machinery for the air-conditioning were to be installed in the roof space above unit 20 – in what would be “common property” if the building were a strata title development.

3. [11]

   It seems that the previous owners had made application to Sydney City Council for consent to those works. Of necessity, that application required the consent of Ashdown, which consent had been given. Although Ms Buckworth and Ms Daley wanted to have a pergola and air-conditioning, what they wanted varied from what had been approved. Accordingly, they had to make application for a variation to the existing consent (see s 96 of the Environmental Planning and Assessment Act 1979 (NSW)). That s 96 application required the consent of Ashdown.

4. [12]

   On 24 January 2009, Ms Daley wrote to a member of the Board of Ashdown. She enclosed a “completed application request for Renovation”. That application disclosed the nature of the works as:

5. [13]

   The “affected areas”, as to the air-conditioning, were said to include the living room, the dining room, the main bedroom and the second bedroom. The “affected surfaces” were said to include the walls and the ceilings.

6. [14]

   In response to a question “Do you wish to remove any walls in part or whole? (Please specify)” the reply was given:

7. [15]

   Both Ms Buckworth and Ms Daley signed the application.

8. [16]

   Documents attached to the application dealt with the change to the pergola. None of them seems to have referred specifically to the air-conditioning.

9. [17]

   The application was considered at a meeting of Ashdown’s directors held on 31 March 2009. Item 6 of the minutes is in the following terms:

10. [18]

    On 24 April 2009, Ms Daley and Ms Buckworth wrote to Ashdown in the following terms:

11. [19]

    There is no evidence of any resolution that in terms accepts, or agrees to, that letter prior to 28 October 2013 (after the contract for sale between Ms Buckworth and Gladio was made and (purportedly) rescinded). On 28 October 2013, the Board resolved as follows:

12. [20]

    The abstaining director, Ms Roylance, gave evidence. She was the only person (at least, who gave evidence) who had been a director both in 2009 and 2013. She accepted that there was no record of any resolution, dealing with the letter of 24 April 2009, between the date that letter was written and 28 October 2013. Her attention was not (in this context) directed to the email dated 9 August 2013, to which I refer at [52], [53] below.

13. [21]

    On 25 or 27 April 2009, Ashdown gave its consent to the s 96 application. It did so by affixing its common seal to the document. That was authorised by two directors, Ms Cannane and Mr Carter (on 25 April), and the company’s secretary, Ms McDonald (on 27 April). (The evidence suggests that the company secretary of Ashdown from time to time was an employee of whoever was its managing agent at the time.)

14. [22]

    The works were in due course carried out. The installation of the air-conditioning involved, as I have said, the location of some machinery within the roof space of the building. The parties conducted the litigation on the basis that this was outside the boundaries of “unit 20”.

15. [23]

    It was Ms Buckworth’s case that the ducting for the air-conditioning was located, at least in part, within the roof space. However, such evidence as there was on the point suggests that the ducting is located:

    1. (1)

       in some rooms, within a bulkhead that was constructed below the soffit of the ceiling; and

    2. (2)

       in other locations, in the walls of unit 20.

16. [24]

    There were no drawings in evidence which would show the details of the air-conditioning installation. However, as a matter of common sense, it must be the case that even for the outlets located in the bulkheads to which I have referred, some ducting is likely to pass from the machinery through a part of the roof space to the ducting located within those bulkheads.

17. [25]

    On 10 December 2012, Ms Buckworth leased unit 20 to Mr Robbiati. Mr Robbiati is the sole director and shareholder of Gladio. The lease to Mr Robbiati required, and had, the consent of Ashdown (given by its directors). It is apparent that, at least in the opinion of some of the directors and some of the residents of Ashdown, Mr Robbiati was not a satisfactory tenant. Apparently, his partner would from time to time visit him and bring with her a dog. It seems that the dog was given to barking (not an uncommon habit of the canine species, particularly when kept in confined spaces), and that its barking was a source of annoyance to other residents.

18. [26]

    Ms Buckworth wanted to sell “unit 20”. Mr Robbiati was interested in buying it. Ultimately, on 16 July 2013, they made the contract for sale of shares that is the subject of this litigation.

19. [27]

    For reasons that are unclear (and in any event are probably irrelevant), Mr Robbiati decided to buy the shares in the name of Gladio. He instructed a firm of solicitors, Day Legal, to act for Gladio. Mr Day of that firm had responsibility for the matter. Ms Buckworth instructed Hunt & Hunt. Mr Lane of that firm had responsibility on her behalf.

20. [28]

    Before contracts were exchanged, Mr Day caused searches to be made by Eyeon. Eyeon retained an independent searcher, Ms Kritikos, to carry out searches of Ashdown’s records. Ms Kritikos did that, at the offices of SCTM, on 21 June 2013.

21. [29]

    Gladio’s pleaded case was that the records made available to Eyeon on 21 June 2013 did not include the 24 April 2009 letter or any Board minute or other records relating to the air-conditioning in unit 20. It will be necessary to return to the detail of that evidence. However, for present purposes, it is enough to note that I find that the records made available to Ms Kritikos for inspection did include, in at least two places, copies of the letter of 24 April 2009; and included, further, a copy of the Board resolution of 31 March 2009, with item 6 in the terms set out at [17] above.

22. [30]

    I do accept (and it was not challenged) that the report that Eyeon made to Day Legal did not include any reference to that letter or that resolution. It follows, and I find, that Mr Robbiati caused Gladio to enter into the contract for sale unaware of the terms of the letter of 24 April 2009. In particular, I find, Mr Robbiati caused Gladio to enter into the contract for sale unaware of the circumstances that (as that letter records):

    1. (1)

       Ashdown could require the air-conditioning equipment to be removed if it wished itself to use the roof space;

    2. (2)

       the approval for the air-conditioning installation could be withdrawn in the case of “problems” – either with the installation generally, or specifically with noise; and

    3. (3)

       the terms of “this arrangement” were to be reflected in the House Rules so as to make them applicable to future shareholders.

The contract for sale and subsequent developments

1. [31]

   The contract for sale identified the subject matter of the sale as certain identified “Shares” in the capital of Ashdown. It recited that those shares:

2. [32]

   By cl 4, a 5% deposit was payable, in the sum to which I have referred, direct to Ms Buckworth:

3. [33]

   Clause 6.1 dealt with consent:

4. [34]

   It was common ground on the pleadings that the last date for satisfaction of cl 6.1 was 23 August 2013.

5. [35]

   Clause 9 dealt with Ashdown’s Constitution and “House Rules”:

6. [36]

   Clause 10 set out a number of “conditions of sale”, including, relevantly:

7. [37]

   Clause 12 dealt with requisitions:

8. [38]

   The annexures to the contract for sale included the lease to Mr Robbiati, the Articles of Association of Ashdown, and the “Rules and Regulations” (or, as they were often called, “House Rules”). Relevant provisions of the Articles include articles 41, 118, 121 and 161:

9. [39]

   As to the annexed House Rules, all that needs to be said is that they did not include any rule relating to the air-conditioning installation that serviced unit 20, nor did they contain any rule of the kind contemplated by the last paragraph of the 24 April 2009 letter.

10. [40]

    No copy of that letter was annexed to the contract for sale. Nor was a copy of the relevant resolution of 31 March 2009 annexed. There was nothing in the contract that would have alerted Mr Robbiati or Mr Day to the existence of the letter, or to the terms of the resolution preceding it.

11. [41]

    Day Legal made requisitions on title on 22 July 2013. Requisition 21 was as follows:

12. [42]

    Hunt & Hunt replied on 3 September 2013. The reply to requisition 21 was:

13. [43]

    It is convenient to note at this point that Mr Lucarelli of Counsel, who appeared for Gladio, submitted that the 24 April 2009 either was, or evidenced the terms of, a licence to use what he called “common property” in connection with the unit 20 air-conditioning. Mr Grieve of Queens Counsel, who appeared for Ms Buckworth, maintained that requisition 21 was not a proper requisition on title, and hence that even if the reply were incorrect (which I do not think he conceded), nothing turned on it.

14. [44]

    On 24 July 2013, Hunt & Hunt sought Ashdown’s consent to the transfer of shares from Ms Buckworth to Gladio. The letter and its attached documents made it clear that Mr Robbiati was the sole director and shareholder of Gladio. The letter said of him that:

15. [45]

    It is clear that the Board of Ashdown was concerned by the possibility of having Gladio as a shareholder, and Mr Robbiati as an “owner” / resident. Some of that concern at least appeared to relate to the “barking dog” issue. There was also a question, in the minds of some of the directors at least, as to whether Ashdown’s constitution permitted corporate shareholders.

16. [46]

    By the end of the hearing, it was common ground between Ashdown, Ms Buckworth and Gladio that whether or not SCTM had actual authority to communicate, so as to bind Ashdown, matters such as (for example) approval or non-approval of applications to become a shareholder, it had at least ostensible authority to do so. It was equally clear that, on matters of any importance whatsoever, as between Ashdown and SCTM, the latter was only to communicate on the instructions of, and in the terms authorised by it, Ashdown. On important matters, the precise terms of the reply were communicated by Ashdown to SCTM, so that they could be cut and pasted into an email or letter by SCTM to whoever was to be the recipient of the communication.

17. [47]

    On 31 July 2013, Mr Greene, an employee of SCTM, sent an email to Mr Lane. It was Ashdown’s practice to communicate through SCTM rather than direct. That email stated, so far as it is relevant:

18. [48]

    Mr Lane responded swiftly, saying that he had to leave the office and would communicate further upon his return and after he had spoken to his client. The next day, Mr Lane replied in the following terms:​

19. [49]

    Not surprisingly, Mr Lane’s reply led to considerable discussion between the directors of Ashdown. Those directors included (I think this is a recognised collective noun) a quarrel of lawyers: highly experienced and well-regarded legal practitioners. One matter which arose out of those discussions was “an additional rule to cover shareholders who are not real persons”. In the course of those discussions, it seems that Mr Bell (a solicitor, and a director at the time) spoke to Mr Robbiati. Their conversation covered the following matters (email from Mr Bell to other directors of 2 August 2013):

20. [50]

    On 5 August 2013, Mr Lane emailed Mr Greene in the following terms:

21. [51]

    Mr Greene forwarded that email to the Board for instructions. He was instructed to reply in terms to the following effect:

22. [52]

    On 9 August 2013, Mr Lee on behalf of the Board emailed Mr Greene, giving him instructions on the application by Gladio to become a shareholder. Those instructions were:

23. [53]

    The attached House Rules read as follows:

24. [54]

    Mr Greene did not comply precisely with the terms of the instructions given to him. On 9 August 2013, he emailed Mr Lane in the following terms:

25. [55]

    Significantly, Mr Greene did not note that the “approval” was “as usual subject to interview”.

26. [56]

    Ms Buckworth relies on SCTM’s email of 9 August 2013 as being a sufficient consent for the purposes of cl 6.1 of the contract for sale. Gladio says otherwise. It was not in dispute – at least, by the time of submissions – that if the email is to be characterised as a consent, it was, in all the circumstances, a consent binding on Ashdown notwithstanding that it went beyond, or did not reflect, the terms of the instructions given by Ashdown to SCTM.

27. [57]

    On 12 August 2013 (9 August was a Friday and 12 August was the following Monday), Mr Lane forwarded SCTM’s email of 9 August 2013 to Mr Day, noting “that your client has been approved as transferee of the shares”.

28. [58]

    Also on 12 August 2013, an employee of Day Legal sent two documents to Mr Greene to be executed by or on behalf of Ashdown. Mr Greene sent those documents on to Ashdown. He did so by forwarding an email chain which included Mr Lane’s email to Mr Day noting that Gladio had been approved as transferee of the shares. To jump ahead for a moment: some days later, on 22 August 2013, Mr Greene forwarded to the Board another email from Mr Lane, which included the comment that:

29. [59]

    Perhaps not surprisingly, Mr Day was concerned by the amendments to the House Rules by the inclusion of rules 22 and 23. He emailed Mr Lane on 16 August 2013 commenting among other things that:

30. [60]

    On 26 August 2013, Mr Day sent a further email to Mr Lane in which he “formally reiterate[d] the reservation of the Purchaser’s rights…”

31. [61]

    Mr Lane’s position, as expressed in his email in reply, was simple:

32. [62]

    There was further discussion and correspondence, both among the directors of Ashdown and between Day Legal and Hunt & Hunt. Ultimately, Gladio took the view that cl 6.1 had not been satisfied. It instructed Day Legal to give notice of rescission on its behalf. This Day Legal did on 26 September 2013. The notice recited the grounds to rescind as follows:

33. [63]

    The expression “the AC agreement” was a reference to what was (in Gladio’s view):

34. [64]

    In turn, the “Airconditioning System” was said to be:

35. [65]

    In passing, it might be wondered how something could be both “a fixture to the Apartment” and “located wholly outside the Apartment”; or how something which was “a fixture” could not be the subject of a right of exclusive use and occupation of that to which it was affixed.

36. [66]

    The asserted claim under the Home Building Act 1989 (NSW) was not a matter that occupied any attention in the pleadings, nor time at the trial.

37. [67]

    The notice of rescission made no reference to the breach of cl 10(g) which was pleaded and which was in issue at the trial. That breach, according to Mr Lucarelli, is to be found in the failure of Ashdown to minute and retain what he said must have been the decision, or resolution, of the Board to accept the terms of the 24 April 2009 letter.

38. [68]

    Mr Lucarelli submitted that his client was entitled to rely on that breach of condition even though it had not been relied upon in the notice of rescission. He relied on the principles stated in Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359.

39. [69]

    Mr Grieve did not accept that cl 10(g) stated a “condition” properly so called, breach of which could found a right of termination. He did not appear to dispute that, if the contrary view were to be taken, Gladio was entitled to rely upon it notwithstanding the failure to specify it in the notice of rescission. Since the parties proceeded on the basis that it was open to Gladio to rely on the Shepherd principle, it is not necessary to consider the extent to which that principle applies outside the situation of discharge by breach (see Dixon J in Shepherd at 377-378; and note the discussion in Melbourne Stadiums Ltd v Sautner (2015) 317 ALR 665 at [97] and following).

Validity of the notice of rescission

1. [70]

   The principal bases on which Mr Lucarelli sought to uphold the rescission were that:

   1. (1)

      Ashdown had not given a consent, of the kind for which cl 6.1 calls, by 23 August 2013;

   2. (2)

      in any event, Gladio was entitled to “rescind” for breach of the condition stated in cl 10(g); and

   3. (3)

      alternatively, Gladio was entitled to rescind for innocent misrepresentation.

2. [71]

   However, the notice of rescission (see at [62] above) set out a greater number of grounds (which did not include breach of the condition set out in cl 10(g)). I propose first to deal with those that were addressed at trial, in the order that they appear in the notice (grouping some together for convenience), and then to deal with the further pleaded grounds on which Gladio relied.

3. [72]

   Clause 6.1 provided that the agreement was subject to Ashdown’s written consent to the transfer of the subject shares to Gladio. It is not necessary to consider whether it was the agreement itself which was intended to be conditional, or the performance of the agreement up to and including completion. If consent were not obtained by the specified time (agreed to be 23 August 2013), either party had the right to rescind.

4. [73]

   In my view, in calling for “written consent… to the transfer of the Shares” to Gladio, cl 6.1 required that there be an unambiguous and unqualified statement of consent. For example, a statement of consent “subject to interview” (which may be what the Board of Ashdown had instructed Mr Greene to convey) would not have satisfied cl 6.1.

5. [74]

   The question is whether the email of 9 August 2013 communicated an unconditional approval to the contract. Mr Grieve submitted that it did. Mr Lucarelli submitted that it did not, both in terms and, in particular, when read against the background of the preceding email correspondence between Mr Lane and (through SCTM) Ashdown.

6. [75]

   Mr Lucarelli submitted that everyone knew that Ashdown would not give consent to the transfer of shares until there had been an interview. The interview process had been intercepted, because of the debate as to whether Ashdown’s constitution provided for corporate shareholders.

7. [76]

   Mr Lucarelli then submitted that, viewed against the background of the correspondence relating to that debate, the “approval” that was stated to have been given could only have been an approval of the concept of a sale to a corporate entity (i.e., a reversal of the directors’ initial view on that point). That was confirmed, Mr Lucarelli submitted, by the expression of a hope that “this has cleared the obstacles to this conveyance matter”.

8. [77]

   The proper characterisation of the 9 August 2013 email must depend to some extent on the context in which it is to be placed. However, in my view, that context should be confined to matters of which both contracting parties – that is to say, Gladio as well as Ms Buckworth – had knowledge. As I have said, Mr Lane took the view that the 9 August 2013 email did communicate approval, and sent an email to Mr Day on 12 August 2013 informing him among other things that by the email (which Mr Lane forwarded), “your client has been approved as transferee of the shares”.

9. [78]

   There is no suggestion that Mr Day was aware of the detail of, let alone provided with copies of, all the correspondence between Mr Lane and Ashdown (through SCTM) that preceded SCTM’s sending of its 9 August 2013 email.

10. [79]

    When Mr Lane sought Ashdown’s consent to the transfer of shares to Gladio, he noted that the proposed transferee was a company of which Mr Robbiati was the sole director and shareholder; and that Mr Robbiati had previously been approved as a tenant in the building. That should be taken to suggest that Mr Lane was aware that, as Gladio was a corporate entity, the question of approval would need to be assessed by reference to the person who stood behind it and who would receive the benefit of residence conferred by the shares if they were transferred to Gladio.

11. [80]

    In my view, the most significant matter of mutually known background which is referable to the proper construction of the 9 August 2013 email is article 41(d). I have set that out at [38] above. It grants the directors power to “decline to register any transfer of shares to a transferee of whom they do not approve (and who they have not previously resolved is approved and suitable to be a member of the company)”. By the terms of that paragraph, the essential question is approval of someone as a transferee of shares. Plainly enough, where the proposed transferee is a corporate entity, the question of approval would require consideration of the natural persons who stand behind the corporation, and who would benefit from the corporation’s exercise of the rights attached to the shares if the transfer were registered.

12. [81]

    Mr Lucarelli submitted, in another part of his case, that Ashdown’s directors must have realised that contracts for the sale of shares in its capital would contain a provision, such as cl 6.1 of the contract for sale, making completion dependent on consent. I think that is correct. It is not necessary to find (and I do not find) that Ashdown’s directors knew of the precise terms of the contract for sale from Ms Buckworth to Gladio. It is enough to find, as I do, that they must have realised, had they turned their minds to the question, that the contract would be subject to their giving approval to the transferee.

13. [82]

    Although those submissions were made in respect to another part of the case, they are in my view equally relevant to the present issue. That is because they focus attention on precisely what meaning is to be attributed to the giving of “approval to the above sale proceeding” as stated in the 9 August 2013 email. What would a reader of that email, armed with the mutually known background knowledge to which I have referred, make of that expression? In my view, that reader, knowing what cl 41(d) said as to the necessity of approval, would have understood that the approval that was given was an approval in terms of cl 41(d).

14. [83]

    True it is that there were other matters in dispute which, if resolved one way, could prevent the sale from proceeding. But they were, for one reason or another, reasons why the Board might decide to decline to approve the transfer. Put perhaps less delphically, they were reasons why the Board, pursuant to the discretion conferred by article 41(d), might decline to approve of Gladio as a transferee.

15. [84]

    Thus, in my view, the plain meaning of the 9 August 2013 email is that the directors, in exercise of a power vested in them to do so, have given approval to the sale proceeding – by inference, to completion. Although article 41 included three other reasons why the right to transfer shares was restricted, any person having knowledge of the mutually known background facts must have understood that the only power to approve was that contained in para (d). Thus, logically enough, such a person would have read the email as constituting an exercise (by granting approval) of the power to approve.

16. [85]

    In my view, read in context, the email does signify objectively that the Board of Ashdown has resolved to approve Gladio as a transferee of shares in the capital of Ashdown. Further, in my view, that reading of the email would stand even if it were permissible to take into account those other matters of background, known only to Ms Buckworth, to which Mr Lucarelli referred in his submissions on this point.

17. [86]

    As I have noted, Mr Lucarelli submitted also that any approval given was given on a proviso, which rendered it relevantly qualified, and thus not an unconditional approval of the kind for which cl 6.1 of the contract for sale called. I accept that submission.

18. [87]

    What follows the statement of approval is a proviso:

19. [88]

    That of itself cannot be regarded as a condition of approval. It is no more and no less than a requirement that Mr Lane (the addressee of the email) advise his client of those amended rules. In passing, one might think that it was more important for Mr Day to advise his client of those matters. However, I do not see anything of particular significance turning on this.

20. [89]

    The proviso could not be regarded sensibly as a condition of approval, which if not satisfied would undo the approval or render it ineffectual. The Board would have no way of knowing whether “you” had ever “instructed” “your client” of the matters referred to. There is no basis for regarding something of which, by its nature, the Board could never be satisfied, as capable of amounting to a qualification on, or a condition possibly capable of undoing if not satisfied, the approval that had just been stated to be given.

21. [90]

    However, that analysis is insufficient to dispose of the point. The real question is not whether the “proviso” itself should be regarded as some sort of condition. It is, rather, whether read as a whole the “proviso” indicated, objectively and with reasonable clarity, that there were further obstacles to be cleared before the Board would register the transfer to Gladio. In my view, read in that way, the email did indicate that there were further obstacles.

22. [91]

    The starting point is that the email expressly related the “approval” that had been “given” to the “amended rules and regulations here attached”. It drew attention “in particular to clause 23”. In my view, considered objectively, the clear implication from the email as a whole (including the attachment) is that the approval incorporated, or was subject to the terms of, the new House Rule 23 (and, for that matter, the new House Rule 22).

23. [92]

    House Rule 23 purported to state “the standard residence requirements of shareholders as outlined in the Article and Rules apply to the directors of a company purchasing shares”. However, in my view, the rule imposed conditions on corporate purchasers that were more onerous than those imposed on natural person purchasers.

24. [93]

    Clause 4 of the Articles specified the rights given to shareholders: “the exclusive right subject to these Articles to use and occupy the flat” to which the shares were tied. It seems to me to be reasonably arguable that a natural person who held shares in Ashdown could “use” the relevant flat by (for example) permitting members of his or her family to reside there, and perhaps (again for example) by permitting others beyond the family to reside there, if they did so as part of a household including the shareholder. That use might also extend to permitting guests to reside in the flat.

25. [94]

    However, where the shareholder is a corporation, “[t]he only persons permitted to occupy the unit… are those who were directors or the immediate family of directors at the time of purchase”. And the concept of “use” finds no mention in Rule 23.

26. [95]

    Further, it seems to be reasonably clear that, for natural person shareholders, “use” may extend to letting in certain circumstances. That is covered by House Rule 20, which reads as follows:

27. [96]

    Where the shareholder is a corporation, there is only a right of occupation given to directors or their immediate family at the time of purchase. The word “use” does not appear. It seems to me to be at least arguable that, in the case of corporate shareholders, letting is not permissible even “in certain extraordinary circumstances” as contemplated by House Rule 20.

28. [97]

    It is not necessary to consider whether the House Rules impermissibly restrict the rights granted by the articles: either generally, or specifically in the case of corporate shareholders. It is enough to note that, so far as the directors of Ashdown were concerned, their “approval to the… sale proceeding” was clearly intended to be given on the basis that House Rules 22 and, in particular, 23 applied to Gladio. Thus, in my view, properly read, the 9 August 2013 email is to be regarded as making the approval relevantly conditional.

29. [98]

    Further, House Rule 22 imposed conditions on the enjoyment of the air-conditioning in unit 20. As I have said, the clear implication is that the approval given by the email of 9 August 2013 required Gladio to accept, and abide by, those conditions. It matters not that Ms Buckworth was similarly bound. The simple fact is that Gladio, and purchasers from it, would be equally bound.

30. [99]

    Of course, it was open to the Board of Ashdown to make House Rules at any time. Provided they exercised their power to do so in good faith and for the benefit of the company as a whole, it is unlikely that any shareholder could challenge the exercise. Thus, if an unqualified approval had been given and Gladio become registered as a shareholder, it might have been open to the Board to make rules such as House Rules 22 and 23. But that is not the point. The point is that they did so between contract and settlement, and in substance required Gladio to acknowledge that the rights that it would acquire on registration were to be limited in the terms suggested by those rules.

31. [100]

    Thus, in my view, the approval that was given was relevantly, and in an onerous way, conditional. It was not an approval sufficient to satisfy the requirements of cl 6.1 of the contract for sale.

32. [101]

    The House Rules attached to the contract for sale did not include rules 22 and 23. However, on the evidence, those rules were not made until about 8 August 2013. That is apparent from Mr Lee’s email of 9 August 2013 to Mr Greene, giving him instructions in relation to the question of approval. That email (see at [52] above) suggests that the rules were agreed at the Board meeting held “last night” – i.e., 8 August 2013.

33. [102]

    It follows that this asserted ground for rescission is not made out.

34. [103]

    The right was characterised as a right to rescind in equity for innocent misrepresentation.

35. [104]

    The misrepresentation case proceeded on the basis that at all material times, Ms Buckworth had in her possession a copy of the letter of 24 April 2009. That was pleaded at FASOC [76]. It was not traversed. Although Ms Buckworth sought leave to withdraw the admission thereby taken to have been made, I refused to grant such leave. My reasons for doing so appear at [372] to [399] below.

36. [105]

    Thus, among other things, Ms Buckworth’s evidence (taken only on her application for leave to withdraw the admission), that she did not have a copy of the letter in her possession at the relevant time, is not evidence for the purposes of the hearing before me. However, I add that even if it had been admitted for all purposes, I regard it as inherently unpersuasive, having regard to her cross-examination on the point. I shall return to this.

37. [106]

    The submissions on this issue (and also on the related issue of misleading or deceptive conduct) at times appeared to be based on an unstated premise, that the subject matter of the sale was real estate. However, it is necessary to bear in mind that the subject matter was shares in Ashdown. Thus, what is important is the question of the rights attached to those shares. Subject to any limitation in the contract for sale, Gladio as purchaser would expect to have the unfettered and undiminished enjoyment of whatever those rights may be, under and subject to Ashdown’s constitution.

38. [107]

    As I have pointed out at [93], article 4 makes it apparent that those rights are “the exclusive right subject to these articles to use and occupy the” relevant flat. There are additional rights given in respect of garage spaces (article 4 (a)) and further rights in respect of roof space (article 4(c), which in fact are part of the “unit 20” rights), but nothing turns on these additional rights.

39. [108]

    The expression “the flat” is not defined. Clearly enough, the Articles proceed on the mutually understood basis that there were some 31 flats in the building, each separately numbered, and that rights of use and occupation that were given related to a particular numbered flat, the identity and location of which could be established by inspection.

40. [109]

    It seems to me that the expression “the flat” must include not just the physical space (analogous to a strata lot; but the analogy is imperfect in the extreme) but also the benefits or, more broadly, advantages (and disadvantages) pertaining to it.

41. [110]

    For example, each flat presumably has the benefit of electricity, water and (perhaps) gas. Of necessity, those benefits would be provided by services that come from outside the physical boundaries of the flat into the flat, terminating in light switches, power points, taps and the like. It would be fanciful to suggest that the rights conveyed by ownership of the shares did not include the rights to use water, electricity and (if available) gas.

42. [111]

    At this point, and in reference to one of Mr Grieve’s submissions, it would be obvious that the wiring which conveyed electric power to light switches and power points, and the piping which conveyed water to taps, must in part come from locations outside the physical boundaries of the flat. The wiring presumably passes through walls or ceilings; likewise, perhaps, water pipes. But it could not be said, simply because the source of those amenities lay outside the physical boundaries of the flat, that the right to use them was self-evidently by way of licence only, at the entire discretion of the Board.

43. [112]

    It may be accepted that air-conditioning falls into a somewhat different category to basic utilities such as electricity and water. Nonetheless, it was an obvious and attractive feature of unit 20:

    1. (1)

       that it enjoyed the benefit of air-conditioning;

    2. (2)

       which had been installed in what clearly appeared to be a permanent fashion.

44. [113]

    By way of illustration of the second point, this is not simply a case where an air-conditioning unit was bolted to the external wall, and fed air into the apartment by means of piping drilled through the wall. The installation was sophisticated, involving as I have said ducting through a bulkhead, vents at the end of the bulkhead, and vents in other walls. One would not ordinarily expect that the benefit of that sophisticated built-in system could be lost at the discretion of the Board.

45. [114]

    Mr Grieve submitted that the very fact that the air-conditioning installation was apparent to people in Mr Robbiati’s position, and should have been known to include ducting and other apparatus outside the boundaries of the flat itself, should be taken to convey that the benefit of the air-conditioning was available only at the discretion of the Board. I do not agree. On the contrary, in my view, someone who saw and appreciated the sophisticated nature of the installation would assume that it was a permanent feature of unit 20.

46. [115]

    I turn to the pleaded implied representations. To my mind, each of them overstates the position. I shall start by setting out FASOC [83] to [86]:

47. [116]

    As to FASOC [83]: there could be no implied representation “that all the necessary air-conditioning equipment… was entirely within Unit 20”. On the contrary (and to this extent, I accept Mr Grieve’s submission), it must have been plainly apparent to Mr Robbiati that some at least of the equipment was located outside the physical boundaries of unit 20. I should note that the concept of the physical boundaries of unit 20 was not addressed in any detail in the course of submissions. Indeed, the submissions at one stage appeared to conflate that concept with the concept of a strata title lot: in other words, that “unit 20” was, relevantly, the cubic space defined by the inner surfaces of the ceilings, walls and floors. It is not necessary to pursue that question. Whatever “unit 20” might comprise, it would not ordinarily be thought to comprise the roof space above the flat (and no one submitted that it did).

48. [117]

    Further (and still dealing with FASOC [83]), I do not think that there was an implied representation of “exclusive rights to use… common property”. I do not focus on the infelicity of the expression “common property” in this context. The point is, rather, that the representation overstates what in my view a hypothetical reasonable purchaser would be entitled to assume.

49. [118]

    That purchaser would know that the subject matter of the sale was not real property (strata title or otherwise) but a parcel of shares. It would thus know that the substance of what was intended to be sold and bought was the rights attaching to those shares. The primary source of such rights is to be found in the Articles. In my view, the purchaser would be entitled to assume (for the reasons I have given) that the rights included the benefit of services such as utilities and, in this particular case, air-conditioning. However, the benefit of air-conditioning does not necessarily depend on some concept such as “exclusive rights to use… common property”. At most, the representation would be that all necessary permissions for the installation of equipment outside the boundaries of unit 20 had been given, and were not unreasonably revocable.

50. [119]

    I turn to FASOC [84]. That does not in terms plead a representation. It pleads an assumption that Ms Buckworth is said to have caused Gladio to make. Even if this is to be understood as pleading a representation, again it overstates the case. I do not think that it would be reasonable for any intending purchaser to assume that there could be no circumstance that would justify Ashdown or its Board in requiring the removal of the air-conditioning equipment. I accept that a purchaser would have thought that removal could not have been required arbitrarily, capriciously or unreasonably. But that is not the pleaded case.

51. [120]

    I turn to FASOC [85]. Again, in terms, that does not plead a representation but, rather, an assumption that Ms Buckworth is said to have caused Gladio to make. Treating it as a pleading of representation, it seems to me to suffer from the defects in FASOC [83] (which, accepting that [85] pleads an assumption rather than a representation, [85] otherwise mirrors).

52. [121]

    Since the pleaded misrepresentation case assumes in effect that Gladio made the assumptions that are set out in FASOC [84], [85], it follows from what I have said that I do not regard those as assumptions that it was reasonable for Gladio to make in all the circumstances. And to the extent that the case is based on the representation pleaded at FASOC [83], I do not think that the representation is made out.

53. [122]

    Accordingly, in my view, the pleaded case, that the rescission was justified on the basis on the alleged innocent misrepresentation, must fail.

54. [123]

    This is pleaded at FASOC [92A], which I set out (omitting its particulars):

55. [124]

    The requisition and reply are set out at [41] and [42] above.

56. [125]

    One important matter, which was not addressed in submissions, is whether, assuming (as I conclude) that the answer is incorrect (or, as Mr Lucarelli characterised it, “false”), Gladio would have been entitled to rescind.

57. [126]

    As I have noted, Mr Grieve submitted that requisition 21 was not a requisition on title. That was so, he submitted, because it did not go to the title of that which was sold. It was, at most, a requisition as to quality.

58. [127]

    Mr Grieve relied on well-known cases such as Fletcher v Manton (1940) 64 CLR 37 and Carpenter v McGrath (1996) 40 NSWLR 39. He placed particular reliance on the judgment of Young J in Eighth SRJ Pty Ltd v Merity (1997) 7 BPR 15,189. Those cases concerned contracts for the sale of land.

59. [128]

    In Fletcher, the alleged defect was a demolition order made, by a government authority having power to do so, after the contract was made but before completion. In Carpenter, the alleged defect was the absence of building approval for improvements erected on land the subject of a contract for sale. In Eighth SRJ, the alleged defect was termite infestation (the significance of which was to be assessed against representations made by the vendor’s agent to the effect that minimum maintenance was required, and that the purchaser would not have to do any work). It was held in each case that the defect was one as to quality, not as to title.

60. [129]

    Young J summarised the distinction between defects in title and defects in quality in Eighth SRJ at 15,193 as follows:

61. [130]

    With the greatest of respect both to the learned judges who decided those cases and to Mr Grieve, I am not sure that the decisions are of any real assistance where the subject matter of the sale is not real estate but, rather, shares in a “company title” scheme. The subject matter of the sale in this case is not just the shares – pieces of paper or their digital equivalents – but the rights that attach to them under the Articles of Association, as amplified (or perhaps confined) by the House Rules. The question is therefore whether the particular thing that is said to be a defect in title goes in some way to those rights, so as to proscribe or limit the purchaser’s enjoyment of them.

62. [131]

    That is no doubt an interesting question. Mr Grieve’s submissions did not really engage with it, because he rested his case on the basis of the real estate authorities to which I have referred. Mr Lucarelli’s submissions did not engage with it at all.

63. [132]

    Mr Grieve’s submission appeared to proceed as if the subject matter of the sale were real estate. It was not. The subject matter of the sale was shares in a special purpose company. The shares assured the right of use and occupation of a designated flat. The question is, thus, what were the nature of (and limits upon) those rights? So framed, in my view, a requisition inquiring as to a lease or licence agreement which could affect or limit those rights was, in context, a requisition on title.

64. [133]

    Even if I were wrong, and the requisition is not to be taken as one on title, the simple fact is, as I have noted, that Ms Buckworth answered it, and did so wrongly. She had in her possession at all relevant times a copy of the 24 April 2009 letter. She knew that it was an important legal document which would be highly material to any prospective purchaser, and that it was intended to bind any prospective purchaser (T114.1-.13):

65. [134]

    Further, Ms Buckworth agreed that to her knowledge the letter, intended as it was to bind any purchaser of her shares, formed part of her rights and obligations as a shareholder (T116.42-117.14):

66. [135]

    Ms Buckworth agreed that when the contract for sale was prepared, her solicitor asked for all documents relevant to the shares and to unit 20 (T133.45-.48). She gave the solicitor some documents, including those relating to the s 96 application. She did not give the solicitor a copy of the 24 April 2009 letter.

67. [136]

    Ms Buckworth was asked about the requisitions on title. She said she knew that they (and answers to them) were “part of the normal processes of conveyancing”, and that “the answers to these requisitions had to be correct” (T138.20-.26). She knew, further, that it would be serious if an answer were wrong or incorrect (T138.47-.49).

68. [137]

    Ms Buckworth agreed, further, that she received a copy of the requisitions from her solicitor at about the time they were made, and that she “needed to give [her] solicitor accurate and complete instructions in order to respond” (T139.1-.7).

69. [138]

    Ms Buckworth did not accept the proposition that the letter of 24 April 2009 was “in fact a licence agreement with the company”, although she accepted that it was “an important agreement concerning [her] licence to use the roof space” (T140.3-.9).

70. [139]

    In my view, the letter of 24 April 2009 was, or evidenced, a “licence agreement” between Ashdown and Ms Buckworth, for the purposes of requisition 21. Whether the letter is to be taken as an acceptance of the terms of the Board’s resolution of 31 March 2009, or whether it is to be taken as an offer that was accepted by implication or conduct, it sets out the terms on which Ashdown was prepared to permit Ms Buckworth (and, at the relevant time, Ms Daley) to use roof space that, on any view, was outside “unit 20”. That roof space, forming part of the realty, was vested in Ashdown. Ashdown had the right to use that, subject to the Articles, for the benefit of members as a whole. Any decision to permit one member to use part of that property, if it did not grant rights of exclusive use and occupation so as in law to amount to a lease, must be a “licence” as that term is understood both by ordinary English speakers and by lawyers.

71. [140]

    Thus, in my view, the answer given to the requisition was wrong. I accept that it was given innocently, in the sense that Ms Buckworth did not, before giving instructions for the answer, consciously turn to the subject matter and decide to withhold relevant information from her solicitor. Mr Lucarelli did not contend that it constituted anything other than an innocent misrepresentation.

72. [141]

    However, it was not a misrepresentation that preceded the making of the contract for sale. Thus it cannot be said to have induced Gladio to enter into the contract for sale.

73. [142]

    The question of rescission for innocent misrepresentation based on the requisition was not argued in any detail. It was addressed in Mr Lucarelli’s opening written submissions, but not in his outline submissions handed up on the conclusion of the evidence. Mr Grieve addressed the point on the basis that there was no requisition on title and, hence, that there was no right to rescind.

74. [143]

    In circumstances where the matter was not fully argued, and where its resolution is not necessary (as between Gladio and Ms Buckworth) I shall leave the point undecided. The relevant facts have been found (and are not to any extent controversial in any event). I have summarised each party’s submissions; and in any event, a more complete account of them is available from the written submissions and the transcript.

Misleading or deceptive conduct

1. [144]

   The factual material relied upon to support Gladio’s claim that Ms Buckworth had engaged in misleading or deceptive conduct related, in substance, to her failure to disclose the 24 April 2009 letter before making the contract for sale. In that respect, it covered the same ground as the (pre-contractual) evidence relied upon in support of the claim for rescission for innocent misrepresentation.

2. [145]

   Although the source of the prohibition against misleading or deceptive conduct was not expressly mentioned in the FASOC, it was clear that Gladio relied on s 18 of the Australian Consumer Law (Schedule 2 to the Competition and Consumer Act 2010 (Cth), which has effect as a law of New South Wales by s 28 of the Fair Trading Act 1987 (NSW)).

3. [146]

   The immediate problem with reliance on s 18 is that it proscribes misleading or deceptive conduct “in trade or commerce”. Mr Lucarelli pointed to two matters as engaging that requirement:

   1. (1)

      that, because the sale was subject to Mr Robbiati’s tenancy, it was a sale of an income-producing asset; and

   2. (2)

      that the purchaser, Gladio, was a corporation.

4. [147]

   There have been numerous cases that consider the reach of the expression “in trade or commerce”. An early but important (for present purposes) decision is that of the Full Court of the Federal Court of Australia in O’Brien v Smolonogov (1983) 53 ALR 107. That case related to the sale of land. The appellants offered a number of parcels of land for sale. The respondents were interested in buying one of those parcels. The respondents asserted that, in a telephone conversation, one of the appellants made misleading or deceptive statements about the land. The primary judge held that the sale was conducted in trade or commerce. The Full Court disagreed. Their Honours, after considering a number of cases including many from the United State of America, concluded that the sale had not taken place in trade or commerce. They said at 113–114:

5. [148]

   In Argy v Blunts & Lane Cove Real Estate Pty Limited (1990) 26 FCR 112, Hill J concluded that the sale of a residence, whether by private treaty or by auction and whether personally or through a real estate agent, was not something done in trade or commerce. His Honour applied the reasoning of the Full Court in O’Brien.

6. [149]

   By contrast, in Shone v Davies [2012] WASCA 83, the Court of Appeal of the Supreme Court of Western Australia came to the conclusion that the relevant sale was sufficiently connected to activities of a trading or commercial nature so as to warrant the conclusion that it occurred “in trade or commerce”.

7. [150]

   Murphy JA (with whom Martin CJ and, relevantly, Buss JA agreed) considered the words “in trade or commerce” and their application at [102] and following. His Honour identified at [105] some eight matters that, at the time the sale was made, the respondents relied upon to justify the conclusion that it occurred in trade or commerce. His Honour agreed. His reasons are found at [108], [111] and [112] (omitting footnotes):

8. [151]

   In essence, his Honour found that the context in which the transaction was effected and the way in which it was effected – specifically, by the grant of options – gave it a commercial character and removed it “from the ordinary sale and purchase of a home”.

9. [152]

   In this case, the subject matter of the contract for sale was shares in a company. No doubt there will be cases where the sale of shares does have a commercial character, so as to be something done in trade or commerce. But in this case, the shares carried with them, and were to be bought for the purpose of assuring to Gladio, the right of use and occupation of a home unit. In substance (and I think that the question of characterisation must depend on substance rather than form or technicality), what was sold and bought was a residence. In substance, Ms Buckworth agreed to sell her residence and Gladio agreed to buy it. Gladio did not buy it for commercial exploitation. It was not put to Mr Robbiati that (for example) he was to pay a commercial rent which would assure a commercial return to Gladio on the very substantial amount of money that it was required to pay to acquire the shares.

10. [153]

    Nor do I see any relevance in the fact that the sale was expressly subject to Mr Robbiati’s tenancy. The property was not sold as an income–producing asset; as I have said, it was not put to Mr Robbiati that he intended, through Gladio, to exploit the income–generating potential of unit 20. It was sold so that Mr Robbiati could continue to enjoy, as “owner” (through Gladio) rather than as tenant, the benefits of use and occupation of unit 20.

11. [154]

    The reason for making the contract for sale subject to Mr Robbiati’s tenancy was, presumably, to ensure that, since his title as tenant would not merge in his title as owner on completion (because he was not to become the owner), Gladio could not object to the tenancy.

12. [155]

    In my view, the sale is exactly analogous to the sale of someone’s own residence discussed in Argy, and is a transaction of a private and non-commercial character. Nor do I think that this conclusion changes simply because the purchaser is a company controlled by the individual who proposes to reside in the property, the right to occupy which goes with the subject matter of the sale.

13. [156]

    It follows that s 18 of the Australian Consumer Law has not been engaged. The claim based on misleading or deceptive conduct must fail.

14. [157]

    There is no need to analyse the facts to see whether or not there were misleading or deceptive conduct. The relevant facts appear from what I have said already. There is no need to lengthen these reasons by analysing those facts through the statutory lens.

Rescission for breach of cl 10(g)

1. [158]

   As I have said, this was not a ground for rescission alleged in the notice. However, Mr Lucarelli submitted, on well-known principles, that his client was entitled to rely upon it. Mr Grieve did not appear to contest that proposition. Mr Grieve did however submit that cl 10(g) was not to be regarded as a “condition” of the contract, properly so called.

2. [159]

   The essence of Gladio’s case on this point is that there must have been some decision or resolution by the directors of Ashdown to accept the terms proposed by Ms Buckworth and Ms Daley in the 24 April 2009 letter. That followed, Mr Lucarelli submitted, because the letter was not in terms referable to the resolution of 31 March 2009. Rather, he submitted, it was a submission of the terms that Ms Buckworth and Ms Daley proposed, in order to satisfy the requirement, specified in the minutes of 31 March 2009, for “[t]he shareholders [to] undertake to address any problems with the air-conditioning such as noise…”.

3. [160]

   The first point that Mr Lucarelli made was that the letter of 24 April 2009 went well beyond this requirement. It did of course undertake to deal with problems, both generally and in relation to noise. As to problems generally, it acknowledged that the approval could be withdrawn “if problems continue”. And as to noise, it agreed that if necessary “we will install agreed acoustic separation”. However, Mr Lucarelli submitted, the letter went further in at least two ways. First, it acknowledged as a separate matter that the air-conditioning must be removed, at the expense of the shareholders, if the company decided to use the roof space for its own purposes. Second, it specified that the arrangement was to apply to future shareholders and that the House Rules would be amended accordingly.

4. [161]

   In those circumstances, Mr Lucarelli submitted, there must have been some decision or resolution, because the installation had proceeded, Ms Buckworth and Ms Daley had enjoyed the benefit of the air-conditioning, and the Board had not required them to remove it. In those circumstances, Mr Lucarelli submitted, Ashdown was required to keep a minute, and had not done so. He relied on s 251A(1)(c) of the Corporations Act 2001 (Cth).

5. [162]

   Mr Grieve submitted that there was no evidence of any decision or resolution, and hence that there was nothing was that required to be recorded by way of minute. He submitted that the question had not been addressed until, admittedly belatedly, the Board turned to it on 28 October 2013. Since that resolution was passed well after the contract for sale was made, nothing turned on it in Mr Grieve’s submission. (His submission would also deal with the alternative date propounded at [101] above.)

6. [163]

   Although it is not necessary to decide the point, I shall do so, as it was fully argued. It seems to me, on reflection (and contrary to my initial view), that the position for which Mr Lucarelli contends is correct.

7. [164]

   The first point to note is that the letter speaks in the present tense: Ms Buckworth and Ms Daley “seek consent to utilise the roof space”. As Mr Lucarelli submitted, that is inconsistent with the existence of approval as at 24 April 2009. Likewise, the letter is in terms an “application”: something that would not be necessary had approval been given already.

8. [165]

   Those linguistic considerations gain force when the letter is put in context. The only evidence of any prior decision of the Board is that contained in the minutes of 31 March 2013. The subject matter of the discussion was the application for approval to the renovations. The Board decided in principle to give approval (that follows, if from nothing else, from the resolution to give consent to the s 96 application). However, there were conditions that remained to be satisfied including, of present importance, the requirement “to address any problems with the air-conditioning such as noise” and the reservation of right “to withdraw the approval… if the problems cannot be resolved”. Read in context, that seems that the consent that had been given was unconditional as to the renovations excluding the air-conditioning; but conditional (and revocable) as to the air-conditioning.

9. [166]

   Against that background, the letter, dealing as it does specifically with the question of the air-conditioning, should be read as setting out the terms that Ms Buckworth and Ms Daley proposed, in order to satisfy the Board’s requirements. However, those terms go well beyond what is suggested by the resolution. It does not seem to me to be credible that Ms Buckworth and Ms Daley would have offered those extra terms unless there had been specific negotiations with the Board as to the form and content of what it was the Board would find acceptable.

10. [167]

    When the matter is put in that way, it seems to me to be inescapable that either there was a “done deal” recorded in the terms of the letter (notwithstanding its language), or there was a decision by the Board after 24 April 2009 to accept the terms of the letter as setting out the basis on which the unit 20 shareholders from time to time could use the roof space for the purposes of their air-conditioning equipment. On either analysis, it seems to me, 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 for that purpose.

11. [168]

    If that analysis is correct, there was, as referred to in s 251A(1), a resolution (perhaps of an informal kind, without a meeting), which was required to be minuted. It was not.

12. [169]

    I should add that it would be quite extraordinary if the matter were left unattended for more than four years, until 13 October 2013. And when the Board did turn its attention (in my view, again) to the question, it did not deal with the terms of the letter of 24 April 2009 at large. It did not, for example, resolve to accept those terms. What it did was, relevantly, to pass the new House Rule 23, which formalised the last matter referred to in the letter: namely, attempting to make the terms of the letter binding on successors on title to Ms Buckworth and Ms Daley.

13. [170]

    I turn to the proper characterisation of cl 10(g).

14. [171]

    Mr Grieve submitted that, in contrast to other paragraphs of cl 10, para (g) was not to be characterised as a condition. He relied on the decision of the High Court of Australia in Koompahtoo Local Aboriginal Land Council v Sanpine Pty Limited (2007) 233 CLR 115.

15. [172]

    Mr Lucarelli submitted that the parties had contracted that each of the provisions of cl 10 was to have the status of “condition” and that it should be construed accordingly.

16. [173]

    Although I have set out cl 10(g) above, it is convenient at this point to set out the whole of the clause:

17. [174]

    When one looks at the various paragraphs of cl 10, it is apparent that many of them, quite apart from the parties’ express designation of them as “conditions”, are of such significance that they would be so regarded in any event. For example (and this by no means an exhaustive list), para (c) – that Ashdown will own the land and that its interest will be relevantly unencumbered; and para (d) – that Ashdown will neither be in nor liable to be placed in liquidation.

18. [175]

    The plurality in Koompahtoo (Gleeson CJ, Gummow, Heydon and Crennan JJ) dealt with the question, whether a contractual term should be treated as a condition or a warranty, in the context of breach entitling termination. At [47], their Honours noted that a breach by one party would entitle the other to terminate “where the obligation with which there has been failure to comply has been agreed by the contracting parties to be essential”. Their Honours’ noted that “[s]uch an obligation is sometimes described as a condition”.

19. [176]

    Their Honours referred to the judgment of Jordan CJ in Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632 at 641–642. In the course of those reasons, Jordan CJ said that:

20. [177]

    Although the plurality in Koompahtoo qualified some aspects of what Jordan CJ said in that passage, they did say at [48] that:

21. [178]

    To my mind, both the observations of the plurality at [47], [48] and the observations of Jordan CJ that I have set out above suggest that if parties explicitly agree that a particular contractual term is to be treated as a condition, then, ordinarily at least, the Court will give effect to that agreement. This may be expressed, in terms of construction, by saying that, objectively, the intention of the parties that the term in question should be a “condition” is made manifest by their language.

22. [179]

    No doubt, there may be cases in which the Court might be justified as treating a so-called “condition” as a warranty only. That might be so, for example, if it were plain that the parties had not had the benefit of legal advice, and if they had used the words “term”, “condition”, “promise”, or “warranty”, and other such expressions, indiscriminately; and if it were plain, objectively, that the particular so-called “condition” was not, and had not been seen to be, essential. This is not such a case. The parties had the benefit of legal advice, of a high standard. The contract was drafted by Ms Buckworth’s solicitor and, presumably, approved by Gladio’s solicitor. The word “condition”, when used in a contract, has a meaning that is well-understood to lawyers. On any view, some of the covenants stated in cl 10 would be treated as “conditions” even if they had not been so described.

23. [180]

    In my view, the Court should not in this case disregard the clear intention of the parties, manifested objectively by the language of cl 10 read in context, that each of the “conditions” stated in it was to be treated as a condition in the sense described by the plurality in Koompahtoo, and by Jordan CJ in Tramways, in the passages quoted above.

24. [181]

    In any event, in the context of an agreement for sale of shares, ownership of which gave the right of exclusive occupation of a home unit, I see no reason for treating para (g) in any different way to the other paragraphs of cl 10. The subject matter of the sale is the rights attaching to shares, not real estate. In a very real sense, it seems to me, a purchaser of shares in a company such as Ashdown has a very real and substantial interest in knowing that registers, books and records, which may record matters affecting the extent of and encumbrances or limitations on those rights, are properly kept.

25. [182]

    It is common experience, and was not in dispute in this case, that prospective purchasers in the position of Gladio will (usually if not always) cause searches of the company’s records to be made before entering into the contract. The purpose of such searches is to give the prospective purchaser information as to factors that might adversely affect either the value of the shares or the enjoyment of the rights attached to them. The efficacy of such searches depends in part on the extent to which resolutions and the like are recorded in the company’s books and records. Of course, such searches cannot be guaranteed to produce that result: either because they may fail to turn up something which was available to be seen (as, it will be seen, is in my view what happened in this case), or because the relevant material was not required to be recorded in the company’s books and records.

26. [183]

    Making those allowances, it remains the fact that, so far as possible, it is of great importance to prospective purchasers that, in relation to the company’s books and records, what they see is what they get. So regarded, the condition stated in para (g) fits neatly into the scheme of cl 10 as a whole.

27. [184]

    However one deals with the question, the result in my view is that cl 10(g) did state a condition of the contract: that is to say, a state of affairs, breach of which would give a right of termination. The word “breach” is inapt, since cl 10(g) imposed no obligation on Ms Buckworth. It is, nonetheless, 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).

28. [185]

    Accordingly, were it necessary to do so, I would conclude that Gladio was entitled to “rescind” (or terminate) for breach of cl 10(g). Whether rescission or termination is the correct concept depends on the proper characterisation of cl 10(g), and the consequences of “breach” (in the sense just explained). It is unnecessary to pursue this.

Unconscionability; relief against forfeiture of deposit

1. [186]

   It is convenient to consider these two claims together, because Mr Lucarelli put the claim for relief against forfeiture of the deposit on the basis that Ms Buckworth’s conduct had been unconscionable to the point where, in conscience, she could not retain the deposit.

2. [187]

   Mr Lucarelli relied both on unconscionability under the general law and on “statutory” unconscionability – that is, s 21 of the Australian Consumer Law.

3. [188]

   Again, the conduct relied upon is the conduct that I have discussed in connection with the claim for rescission for innocent misrepresentation. I am not sure whether Mr Lucarelli intended to include the evidence relating to requisition 21 and the answer. For reasons that will become apparent, it matters not to my conclusions whether that is or is not included within the range of material relied upon.

4. [189]

   So far as s 21 is concerned, there is again the requirement that the conduct must have been engaged in “in trade or commerce”. For the reasons I have given, the conduct upon which Mr Lucarelli relied was not conduct “in trade or commerce”.

5. [190]

   As to general law unconscionability (and leaving aside s 20 of the Australian Consumer Law, which again imports the requirement of “in trade or commerce”), the concept imported by the equitable doctrine of unconscionability is the knowing exploitation of special disadvantage.

6. [191]

   Mr Lucarelli submitted (I think) that there was no requirement to demonstrate special disadvantage, in the sense in which the authorities use that expression. He relied on the decision of the Court of Appeal of this State in Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389. Mr Lucarelli relied in particular on what Allsop P said at [291]. His Honour observed that the word “unconscionable” involved concepts such as “a high level of moral obloquy” or must be “irreconcilable with what is right or reasonable”.

7. [192]

   His Honour was talking of statutory unconscionability: the equivalent of s 21 of the Australian Consumer Law. That is apparent from [291] itself, where his Honour observed that “the concept of unconscionable in this context is wider than the general law and the provisions are intended to build on and not be constrained by cases at general law and equity”.

8. [193]

   Nothing in the reasons of Allsop P in Tonto Home Loans suggests that the general law requirement for knowing exploitation of special disadvantage has gone by the board.

9. [194]

   There was no pleading of circumstances that created the necessary relationship of special disadvantage (or the knowing exploitation of that disadvantage). Mr Lucarelli did not seek to identify any such circumstances in his submissions. Accordingly, unless there has been some unheralded change in the equitable doctrines relating to unconscionability, these aspects of Gladio’s case must fail.

10. [195]

    I directed Mr Lucarelli’s attention to the decision of the High Court in Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Limited (2003) 214 CLR 51. In that case, Gleeson CJ surveyed the authorities in his reasons from [6] to [14]. It is enough to say that I think the formulation given by Kitto J in Blomley v Ryan (1956) 99 CLR 362 at 415 remained, so far as Gleeson CJ was concerned, the touchstone:

11. [196]

    After citing that passage with evident approval at [13], Gleeson CJ said at [14] that:

12. [197]

    At [15], his Honour confirmed the importance of the requirement that there be not merely “disadvantage” but, in the relevant sense, “special disadvantage”:

13. [198]

    In joint reasons, Gummow and Hayne JJ likewise emphasised the requirement for special disadvantage and knowing exploitation, at [55]:

14. [199]

    In circumstances where neither special disadvantage nor knowing exploitation was pleaded, and where the evidence that might support the existence of both those requirements was not addressed in submissions, I conclude that the case based on equitable unconscionability must fail.

15. [200]

    As I have said, Mr Lucarelli put the case for relief against forfeiture fairly and squarely upon unconscionability. Accordingly, that claim too fails.

Frustration

1. [201]

   Mr Lucarelli relied also on the Frustrated Contracts Act 1978 (NSW).

2. [202]

   The asserted act of frustration was the Board’s act in resolving to make House Rules 22 and 23 after the contract was made and before it was completed. Mr Lucarelli submitted, in substance, that this had the effect of altering, in a way that was highly disadvantageous to his client, the rights that it had contracted to buy and their value.

3. [203]

   I do not accept the submission. True it is that the contract for sale was made on the basis of (and included a warranty as to) the articles of association, and the House Rules, as they stood at 16 July 2013. However, there is nothing the articles or in the House Rules that confines the ability of the Board to make new House Rules simply because a shareholder has entered into, but has not completed, a contract for sale of the shares that he or she holds. On the contrary, it is implicit that the power to make and amend House Rules can be exercised at any time. The parties must be taken to have contracted with the knowledge that this could occur.

4. [204]

   Once it is accepted that the contract was made on a basis which involved recognition of the fact that the House Rules might be amended between contract and completion, there is no warrant for regarding some amendments as frustrating, and others as not.

5. [205]

   Of course, Gladio could have sought to protect itself. It could have required (for example) a warranty that there would be no amendments to the articles or the House Rules before the date of completion. It is not uncommon in contracts for the sale of shares to see a term to the effect that certain matters are warranted to be correct (or are agreed to be conditions of sale) both at the date of contract and up until and at the date of completion.

6. [206]

   Whether or not that degree of commercial sophistication should be imputed to their parties (and bearing in mind that each of them had very capable legal advice, there is no reason not to do so), the simple fact is that the risk of amendment of the House Rules is necessarily implicit in the contract, and thus ought not be regarded as an event of frustration.

7. [207]

   Finally (on this issue) and fundamentally, nothing in those House Rules made further performance of the contract for sale impossible.

Gladio’s claims against Ashdown

1. [208]

   The first pleaded claim that was pressed was that set out in the FASOC, chapter 9. Two duties of care were pleaded, at FASOC [122], [123]:

2. [209]

   However, it is apparent from FASOC [127] that the only duty of care said to have been breached is that pleaded at [122]:

3. [210]

   The letter of 10 September 2013 was sent by SCTM to Mr Robbiati. There is no doubt that it was sent on the instructions on Ashdown; indeed, I think, it was drafted by Mr Bell.

4. [211]

   At one point in that letter (the purpose of which was to set out Ashdown’s position in relation to the letter of 24 April 2009, and to invite discussions as to the form of House Rules 22 and 23), SCTM (or Ashdown through SCTM) said:

5. [212]

   At the end of that letter, SCTM (or Ashdown) said:

6. [213]

   The letter of 19 September 2013 responded to a letter sent by Mr Robbiati on 16 September 2013. In that letter, Mr Robbiati set out his view of the relevant background circumstances, and what he said was the substance of a conversation with Mr Bell. He then identified what he said were “the issues at hand” and proposed a way of dealing with those issues.

7. [214]

   The letter of 19 September 2013 stated that “the directors do not propose to respond to each of the matters you raise in detail”. Having said that, it made a number of points. The first was:

8. [215]

   Since both those letters were said to be “without prejudice”, there was an argument as to their admissibility. I give my reasons for concluding that the letters should be admitted in part (and explain why, ultimately, they were received in full) at [355] to [371] below.

9. [216]

   In essence, Gladio’s case was that each of the letters amounted to a negligent misstatement because it said (either by necessary implication or expressly) that the transfer of shares to Gladio had not been approved, whereas in truth it had been approved.

10. [217]

    Of course, this sits less than squarely with Gladio’s primary case: namely, that there was no sufficient approval. However, the claim against Ashdown was brought in the alternative to the claim against Ms Buckworth. For that reason, the claim against Ashdown does not really arise for consideration. Nonetheless, I propose to continue what I have started, and deal with it.

11. [218]

    Ashdown’s first line of defence was that it owed no duty of care to Gladio. In my view, that submission was well-founded. On any view, the duty alleged is one to avoid the suffering of pure economic loss. Vulnerability, as a touchstone of the existence of such a duty, has been recognised very recently in Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 (2014) 313 ALR 408.

12. [219]

    Mr Lucarelli did not contest the proposition that vulnerability, in the relevant sense, was necessary for the duty of care pleaded in FASOC [122]. He did however submit that the duty of care pleaded in FASOC [123] was founded on express assumption of responsibility and known reliance, and submitted that this was a separate basis for finding the existence of a duty of care. As I have observed, the only pleaded and particularised breach is of the duty of care pleaded in FASOC [122].

13. [220]

    Mr Izzo of Counsel, who appeared for Ashdown, referred to the decision of the High Court in Tepko Pty Ltd v Water Board (2001) 206 CLR 1. In that case, Gleeson CJ, Gummow and Hayne JJ (who with Gaudron J formed the majority) dealt with the concept of assumption of responsibility and known reliance at [47] to [49]. Their Honours said that, if the law were to impose a duty of care on someone who provides information or advice, there were two particular matters that must be demonstrated. The first was that the speaker did realise, or the circumstances should be such that the speaker ought realise, that the recipient proposed to act on the information or advice in connection with some serious matter. The second factor was that it must be reasonable in all the circumstances for the recipient to seek advice and to rely upon it when given.

14. [221]

    In my view, Gladio was not relevantly vulnerable. It knew that it could not become registered as owner of the shares unless the Board approved it, and directed registration of the transfer to it. It knew that Board approval could not be taken for granted. (This must be so a fortiori in the particular case, where to Mr Robbiati’s knowledge a number of residents had expressed concern at aspects of his use of the premises during his tenancy.) Thus, Gladio must have known that the contract between it and Ms Buckworth needed to contain provisions that would protect it in the event that approval was withheld. The contract did in fact contain such a provision.

15. [222]

    If (as Ms Buckworth submitted) the Board had given approval to Gladio as a purchaser, for the purposes of article 41(d), then that was the end of the matter. Thus, if the email of 9 August 2013 did constitute an approval, the requirements of cl 6.1 would have been satisfied. I say that because, if approval had been given, it could not later be withheld or withdrawn (except perhaps – I need express no view – in circumstances such as fraud). This follows from para (d) itself which, when empowering the directors to decline to register a transfer to a transferee of whom they do not approve, excludes from the power to decline those whom they have “previously resolved is approved as suitable to be a member of the company”.

16. [223]

    However, if it were thought that there were some risk that approval once given might be taken away, it would have been a simple matter to word cl 6.1 by including a requirement that the approval once given should not be withdrawn or retracted. That was not done – perhaps because the lawyers recognised that once approval was given, that was the end of the matter.

17. [224]

    Regardless, the question is whether there was relevant vulnerability. Mr Lucarelli pointed out, correctly, that his client was dependent on Ashdown to make a decision, and submitted that it was “vulnerable” to intimations of a change in that decision. Again, I do not agree. As I have said, that is something that could have been covered in the contract for sale were it thought to be a real problem.

18. [225]

    Further, if there were intimations that the Board proposed to withdraw an approval that had been given, Gladio was well able to deal with that situation. It had ready access to legal advice, and ready access to Ashdown’s Articles of Association.

19. [226]

    Thus, in my view, Ashdown owed no duty of care to Gladio.

20. [227]

    It follows that the claim in negligence must fail for this reason. However, in my view, it must also fail on the facts. There are at least four reasons for this.

21. [228]

    First, the letters do not say in terms that any approval that had been given has been withdrawn. The letter of 10 September 2013 is premised on the absence of final approval, but does not state that the approval which (on Ms Buckworth’s case) had been given, was withdrawn.

22. [229]

    The letter of 19 September 2013 makes the point that Gladio is not a shareholder (unarguably correct), and states that the transfer has not been approved. Again, it does not say that any approval given is withdrawn.

23. [230]

    In substance, each of those letters attributes a particular characterisation to SCTM’s 9 August 2013 email. Neither says that if approval were given by that email, it was revoked.

24. [231]

    The second and related reason is that, objectively, the letters did not mis-state the position at all, because on the view to which I have come of the email of 9 August 2013, there was no approval for the purposes of cl 6.1. Translating that into the dispute between Gladio and Ashdown, there was no sufficient approval, so that the statements as to absence or want of approval were not inaccurate. Nor is that analysis affected because, subjectively, Ashdown’s position (or the position of its directors) at the time was that there was no complete or final approval, because there had been no interview.

25. [232]

    The third reason is that in my view, Mr Robbiati did not rely on the statements in those letters. Further, if he did so rely, it could not have been reasonable.

26. [233]

    If the 9 August 2013 email did amount to a sufficient approval for the purposes of cl 6.1, Mr Robbiati or his legal advisers must have appreciated that, on the proper construction of article 41(d), it was not open to Ashdown to revoke that approval. If they overlooked this aspect of article 41(d), that is not something for which Ashdown should bear responsibility.

27. [234]

    Mr Robbiati’s evidence of reliance was exiguous; and what little there was, was not credible. The starting point is that the letter of 10 September 2013 was not even mentioned in the notice of rescission. This suggests that it could not have figured in the thinking that led to the giving of that notice. Indeed, when Mr Robbiati replied to the 10 September letter on 16 September 2013, he did not make any reference to the assertion that approval had not been given.

28. [235]

    Mr Robbiati’s affidavits made no mention of reliance on either or both of the letters as a factor in his decision to cause Gladio to rescind the contract for sale. The only evidence on the issue to which Mr Lucarelli could point came out in cross-examination. Although Mr Lucarelli relied on that evidence, it was in my view directed to a different issue.

29. [236]

    Mr Robbiati said that he did not believe Gladio had received consent to the transfer of the shares (T70.6-.11):

30. [237]

    If that were his state of mind, the letters of 10 and 19 September could have had no effect but to confirm it.

31. [238]

    A little later in his cross-examination, Mr Robbiati equivocated on this point. He was questioned about an email he sent on 19 September 2013 to Mr Day. In that email, Mr Robbiati forwarded to Mr Day the letter of 19 September 2013. He said of it:

32. [239]

    Of course, Mr Robbiati’s primary position was that there was no approval; that the email of 9 August 2013 did not give approval. Clearly, it could be thought that what he said, in the paragraph of his email of 19 September that I have just set out, was inconsistent. He suggested first of all that he was confused, and that his email of 19 September should not be read as suggesting that he knew or believed that Gladio had been approved as a purchaser (T74.10-.34). However, he accepted that his email to Mr Day “probably… should be read” as saying that he had been told that the transfer was approved subject to the House Rules. Nonetheless, he maintained at the end of this passage of his cross-examination that he found it “highly ambiguous”. I set out the whole of this passage of his evidence (T74.10-75.39):

33. [240]

    I interpolate that, if this were Mr Robbiati’s understanding at the time then, properly advised (as to article 41(d)), he could not rationally have regarded either of the September letters as withdrawing or revoking approval. A fortiori, he could not rationally have relied on those letters as a ground for rescinding on the basis of want of approval.

34. [241]

    Mr Robbiati then gave the following evidence, which Mr Lucarelli said was evidence of reliance (T75.45-76.19):

35. [242]

    When one puts that passage in context, it is in my view clear that Mr Robbiati was accepting the proposition that one of the grounds given for rescission was the statement contained in the letter of 19 September 2013 to which his attention had been drawn. That is a long way from saying that, subjectively, he relied on the truth of that statement as a basis for rescinding the contract.

36. [243]

    To my mind, this whole passage of Mr Robbiati’s evidence is lacking in credibility. Mr Robbiati impressed me as an intelligent man. I think that he perceived the conflict between his primary case and his email to Mr Day of 19 September 2013, and that he sought to tailor his answers to accommodate that difficulty.

37. [244]

    As I have said, Mr Robbiati gave no evidence in chief to the effect that, subjectively, he relied on the letter of 19 September 2013 (or on the earlier letter, or on them both) as a factor that led him to cause Gladio to rescind the contract for sale. If that were his case, it should have been supported by evidence in chief so that Ashdown in particular could have an adequate opportunity of meeting it. In those circumstances, and repeating my observations as to the lack of credibility of this aspect of his evidence, I do not think that evidence directed to a different purpose, which in any event does not squarely confront the issue, should be accepted as sufficient to prove reliance.

38. [245]

    Mr Izzo submitted that Gladio would have rescinded the contract for sale in any event, regardless of the question of consent or the purported withdrawal of a consent that had purportedly been given. That is correct. However, as Mr Lucarelli submitted, if the reasons for rescission did include (contrary to my finding) reliance on the letters of 10 and 19 September 2013, the fact that there were other causal factors would not break the chain of causation.

39. [246]

    The fourth reason why, in any event, Gladio’s claim in negligence fails is based on Mr Izzo’s “Tepko” submission. It is necessary to identify the purpose for which the letters were sent, and the context in which they were sent, to see whether Ashdown should have realised that Gladio intended to rely on the communications and the purposes for which Gladio would rely. That will inform both Ashdown’s appreciation of the significance of what it was saying and analysis of the question of reasonableness.

40. [247]

    The letters were sent to and fro in the course of the parties’ discussion of the letter of 24 April 2009 and House Rule 22. Mr Robbiati’s concern, and complaint, was that his enjoyment of the benefit of the air-conditioning might be curtailed summarily and for any reason. The directors of Ashdown were seeking to meet that concern. No doubt, that is why they invited Mr Robbiati to submit a form of rule that would be acceptable to him.

41. [248]

    It was in that context that Ashdown sought to make the point that, as a prospective shareholder only, Gladio had no right to be consulted when House Rule 22 was made. The thrust of its correspondence was directed at rebutting Mr Robbiati’s complaints about non-consultation. It was not directed at questioning whether or not approval had been given at all (and I accept, as Mr Izzo submitted, that subjectively the directors did not believe that unconditional approval had been given at that point).

42. [249]

    It may be correct to say that, in relation to the air-conditioning, the directors should have realised that Mr Robbiati might rely and act upon what they said. It could not be correct to say that they should have realised that he would rely and act upon it for a totally different purpose: namely, to rescind the agreement because approval to the transfer had not been given.

43. [250]

    Before leaving the topic of negligence, I should note that Mr Izzo submitted that Gladio did not suffer loss by reason of the rescission. He relied on the fact that, on 12 November 2013, the directors resolved to honour the terms of the 9 August 2013 email, and waived the interview requirement. That decision was communicated to Mr Day on 12 November 2013. It said, among many other things:

44. [251]

    The notice of rescission was given on 26 September 2013. Once that notice was given, Mr Lane sent an email to Mr Greene referring to the notice and to the email of 9 August 2013. He said:

45. [252]

    However, on the same day, Mr Lane wrote to Mr Day, stating that Ms Buckworth treated the notice of rescission as a repudiation, and terminated the contract for that repudiation and forfeited the deposit.

46. [253]

    If the notice of rescission did constitute a repudiation of the contract for sale (and for the reasons I have given, it did not) then the acceptance of that repudiation and termination in reliance upon it brought the contract for sale to an end. Accordingly, by 12 November 2013, there was in that hypothetical universe no extant contract for sale which could have been performed.

47. [254]

    Were it necessary to decide, I would conclude in any event that the claim against Ashdown must fail.

48. [255]

    Gladio said, in the alternative, that the facts relied upon in support of its negligence case against Ashdown gave rise to a claim for misleading or deceptive conduct. Again, that claim invoked s 18 of the Australian Consumer Law.

49. [256]

    In my view, the relevant actions of Ashdown, in causing the letters of 10 and 19 September 2013 to be sent, did not amount to conduct in trade or commerce.

50. [257]

    Ashdown was the proprietor of the home unit complex. Its function was to maintain and manage the building for the amenity of residents. It did not make a profit from that activity. Ashdown acted gratuitously in dealing with the consideration of Gladio’s application, and in its correspondence with Gladio more generally. It derived no revenue from that activity.

51. [258]

    In not dissimilar circumstances, in E v Australian Red Cross Society (1991) 27 FCR 310, Wilcox J said that the gratuitous supply of blood to hospitals was not something done in trade or commerce (at 350). To my mind, that is the position in this case also.

52. [259]

    Were I wrong in this, I would conclude, nonetheless, that the conduct in question was not misleading or deceptive. In essence, the reasons follow from what I have said.

53. [260]

    First, when one considers the context in which the letters were sent, they were dealing with the dispute over the air-conditioning and House Rules 22 and 23. They were not dealing with the question of whether the Board of Ashdown had approved Gladio as a purchaser. The statements contained in the letters as to want of approval should be read in that context.

54. [261]

    Second, if it were Gladio’s position and understanding that approval had been given under article 41(d), it must have appreciated that the approval could not in effect be revoked (again, with the possible exception of circumstances such as fraud; and I stress that there is no suggestion of fraud in this case). Thus, it could not have been reasonable for Gladio to rely on the statements as to want of approval in determining to act as it did, and give notice of rescission.

55. [262]

    Third, and again for the reasons I have given, Gladio did not in fact rely on those statements for that purpose. If that were its case, it was incumbent on Mr Robbiati to give evidence in chief directed to reliance. He did not do so. And this cannot be said to be a case where it was obvious, or likely, or intended, that Mr Robbiati would rely on those statements for the purpose of rescinding the contract for sale on the ground of want of approval.

56. [263]

    I should note that Gladio had alleged also a separate duty of care, to comply with its statutory obligations and obligations under the articles to keep proper records of resolutions and the like, to make all such minutes available for inspection, and to make available for inspection the letter of 24 April 2009. That was part of the withdrawn claims pleaded in chapter 10 of FASOC. It is not necessary to consider it, although for the reasons I give below, I conclude that both the minutes of 31 March 2009 and the letter of 24 April 2009 were made available for inspection to Ms Kritikos.

Ashdown’s defence of compromise

1. [264]

   Ashdown submitted that it had reached a binding agreement for compromise with Gladio. It sought, by notice of motion, specific performance of that alleged agreement.

2. [265]

   The evidence was confined to three affidavits made by the solicitors involved: two by Mr Dillon, for Ashdown; and one by Mr Super, for Gladio.

3. [266]

   There was no cross-examination of either deponent.

4. [267]

   The only issue was whether the “deal” that undoubtedly they struck was one intended to be immediately binding, or intended to become binding only on the execution of formal documents giving effect to it.

5. [268]

   Since there is no dispute as to the facts, and the evidence falls within a very narrow compass, I will not take this matter any further.

Ms Buckworth’s cross-claim against Gladio

1. [269]

   Ms Buckworth cross-claimed against Gladio for damages for breach of contract. That cross-claim was withdrawn during the trial.

Ms Buckworth’s cross-claim against Ashdown

1. [270]

   Ms Buckworth seeks contribution or indemnity from Ashdown, in the event (which has happened, or will in due course happen) that Gladio’s claim against her succeeds. Her cross-claim is based on terms alleged to be found in what she calls the “constitutional contract”: the contract between her and Ashdown formed pursuant to s 140 of the Corporations Act. As the case was put in final submissions, some four separate terms were relied upon: two implied, and two express.

2. [271]

   As to the alleged implied terms, the starting point seems to me to be that the Court should be slow to imply terms into such a contract. The reasons why this is so were explained by Young J in Stanham v National Trust of Australia (NSW) (1989) 15 ACLR 87 at 90–91.

3. [272]

   The first reason that his Honour gave was that “it is far more difficult to imply a term in a case where parties have purportedly spelt out their rights and obligations in an extensive set of articles than it is where there is only a very summarised version of such rights and obligations”.

4. [273]

   The second reason given was that “it is customary in corporations to place very great store on the actual wording of each of the articles and very often parties govern themselves on the exact grammatical construction of each individual article”.

5. [274]

   The third reason given was the power of companies to amend their constitutions by special resolution. His Honour said that for this reason even if “there is a defect in the rules rather than imply a term the Court may very well leave the parties to have the majority pass the appropriate resolution”.

6. [275]

   In the present case, two of the implied terms relied upon relate to topics that are expressly dealt with in the articles.

7. [276]

   The first implied term is said to be that Ashdown would maintain records such as the 24 April 2009 letter and other records relating to the unit 20 roof space. However, the articles deal with record-keeping in article 118. In my view, bearing in mind both the general principles relating to implication of contractual terms and the specific matters relevant to corporations to which Young J referred in Stanham, the Court should not imply a term additional to, although dealing with the same general topic covered by, article 118.

8. [277]

   The second implied term is said to be that the Board must, on receipt of a reasonable request for transfer of shares, hold a meeting and promptly resolve to approve the transfer. It may be accepted that when a request for approval is received, the Board should deal with it promptly. As I have said, it is clear that the individual members of the Board would have appreciated that contracts for the sale of shares in the capital of Ashdown typically required consent to be given by a particular date (although there is no reason to think that they knew of the precise provisions and date in the contract between Ms Buckworth and Gladio). However, to say that the Board was required promptly to pass a resolution approving the transfer is inconsistent with article 41(d). That article expressly (and without any express qualification) permits the Board to refuse to register a transfer to a person who has not previously been approved and of whom it does not approve.

9. [278]

   The third term relied on is an express one: namely, the provision of article 41(d), to which I have referred already, to the effect that the Board cannot refuse to approve someone who it has previously resolved to approve as a suitable member of the company.

10. [279]

    In this context, too, I note that the correspondence relied upon did not purport to refuse or withdraw approval; it noted that approval had not yet been given. There was thus no breach of article 41(d). Mr Grieve did not submit that the approval of Mr Robbiati as a tenant meant that the Board could not withhold approval of Gladio as a shareholder.

11. [280]

    The fourth term relied on is article 118. However, the case misconstrues that article. It was said that article 118 imposes an obligation on Ashdown to keep minutes of meetings of directors. That is not correct. The obligation is imposed on the directors. If the directors fail to perform that obligation, that failure might be actionable at the suit of Ashdown. However, there would be no contractual right in members to have the article enforced, let alone a remedy in damages for alleged breach. I refer again to the decision of Young J in Stanham, at 90. His Honour said:

12. [281]

    In this case, the line is not at all difficult to draw. It is plain that article 118 confers no right on individual members.

13. [282]

    For those reasons (which do not exhaust the whole of the arguments on the point) Ms Buckworth’s cross-claim against Ashdown must fail.

Ashdown’s cross-claim against SCTM

1. [283]

   The premise of this cross-claim was that Gladio succeeded in its case against Ashdown. Since I have concluded that its case fails, it follows that the cross-claim should be dismissed. However, since the facts are not clear, I will deal with it as briefly as may properly be done.

2. [284]

   The case that Ashdown advanced against SCTM was summarised in para 64 of Mr Izzo’s closing written submissions. I set out that paragraph, omitting the footnoted reference to Astley v Austrust Ltd (1999) 197 CLR 1:

3. [285]

   I accept that SCTM owed the duties alleged (and this was not in dispute). The question is, did it breach them:

   1. (1)

      by sending the 9 August 2013 email without stating that the approval was subject to interview?

   2. (2)

      By sending the letters of 10 and 19 September 2013 without first warning Ashdown that they were inconsistent with the terms of the 9 August 2013?

4. [286]

   There was also a question as to whether SCTM had breached its duties to Ashdown by failing to make available to Ms Kritikos the letter of 24 April 2009.

5. [287]

   Ms Horvath of Counsel, who appeared for SCTM, submitted (and I agree) that the 9 August 2013 email should be viewed in context. Much of that context has been set out already. She submitted that it should have been apparent to everyone, including Mr Robbiati, from that context that the Board had not intended to waive, nor had it waived, the requirement for an interview.

6. [288]

   The starting point for analysis is that Mr Greene did not act in accordance with his instructions when he sent the 9 August 2013 email, because he did not include in it a statement that the approval was subject to interview. Whether or not Mr Lane (or for that matter Mr Day) should have appreciated that the approval would in any event be subject to interview is beyond the point. Mr Greene was given an express instruction to state that the approval was subject to interview. This he failed to do.

7. [289]

   Further, Mr Greene was made aware a few days later (on 12 August 2013) that both Mr Lane and Mr Day regarded SCTM’s 9 August 2013 email as evidencing approval of Gladio as the transferee of the shares. That awareness must have come from Day Legal’s email to Mr Greene of 12 August 2013 forwarding documents to be completed or executed by Ashdown. That was sent as part of a chain of emails which included Mr Lane’s email to Mr Day earlier on 12 August 2013, forwarding Mr Greene’s email of 9 August 2013, and noting “that your client has been approved as transferee of the shares”.

8. [290]

   Mr Greene forwarded the documents onto Ashdown for execution. He did not tell Ashdown that both Ms Buckworth and Gladio took the view that Gladio had been approved as transferee. He did not disabuse Hunt & Hunt or Day Legal of the notion that unconditional approval had been given. He did not tell them that he had made a mistake, and that the approval had been given subject to interview. Had he done so, there was ample time for the interview to be conducted prior to 23 August 2013.

9. [291]

   Ms Horvath’s submissions addressed s 5B of the Civil Liability Act 2002 (NSW). There is no doubt that s 5B (and succeeding sections) are relevant: see s 5A. Ms Horvath submitted that the relevant risk of harm was “that Ashdown would suffer loss if SCTM did not identify in the 9 August email that the approval was subject to interview” (compare Gummow J in Roads and Traffic Authority v Dederer (2007) 234 CLR 330 at [59]).

10. [292]

    In my view, that may misdescribe the relevant risk of harm. The risk of harm may be that Ashdown would suffer loss if Ms Buckworth and Gladio proceeded on the assumption that unconditional approval had been given, rather than that the approval was subject to interview. However, in the event, I am not sure that it matters whether what I have just said is the correct characterisation of the risk, or whether it is to be characterised as Ms Horvath submitted it should be.

11. [293]

    In terms of s 5B(1)(a), the foreseeable risk of harm, following from the failure to disclose that the approval was subject to interview, was that Ashdown would be held to an unconditional approval: that is to say, that it would be required to accept as an “owner” / occupant, someone whom it had not been able to interview and of whom it might well disapprove. To my mind, that risk was not insignificant, and was one against which precautions could easily have been taken. However, even if Ashdown had lost the opportunity of interviewing Mr Robbiati, and even if it were forced to accept him as an “owner” / occupant, it is difficult to see how any recoverable loss could have followed from those matters. (One might think that the more likely loss would have been suffered by SCTM: being dismissed, for failing to comply with its instructions, as a result of which Ashdown was saddled with an “owner” / occupant of whom it did not, subjectively, approve.)

12. [294]

    Were it necessary to decide the point, I would conclude that SCTM did owe a duty of care to Ashdown, to take reasonable precautions to ensure that the email of 9 August 2013 accurately reflected the instructions given by Ashdown to SCTM. However, it would not follow from that the foreseeable damages flowing from breach of that duty would include such amount (if any) as Ashdown might be ordered to pay to Gladio or Ms Buckworth, as the case may be, arising out of the termination of the contract for sale.

13. [295]

    The second alleged duty relates to the letters of 10 and 19 September 2013. Ashdown says that SCTM should have appreciated that the statements in those letters, concerning the want of approval, was inconsistent with the actual position.

14. [296]

    Cutting to the chase, I do not accept that there was such a duty. The reason is simple. The two statements as to want of approval formed part of longer and more complex letters. The letters were dealing (and SCTM should have seen them as dealing) not with approval, but with a different question: namely, the disputes in relation to air-conditioning and House Rule 22.

15. [297]

    Further, SCTM had passed on to the directors of Ashdown both its own email of 9 August 2013 and a letter from Mr Lane asserting that, by reason of that email, unconditional approval had been given for the shares to be transferred to Ashdown.

16. [298]

    The directors of Ashdown included a number of lawyers. One would expect that they would read with some care correspondence passed onto them, particularly where that correspondence related to something that was quite clearly the subject matter of dispute. In my view, Mr Greene and through him SCTM were entitled to think that they had sufficiently apprised Ashdown of the view that consent had been given, and were not required to point out specifically the import of the correspondence that Mr Greene had passed on to the directors.

17. [299]

    In addition, it is clear that the relationship between Ashdown and SCTM was that, in all matters of significance, Ashdown would give instructions to SCTM, extending to drafting letters for SCTM to cut and paste and then send out on its own letterhead. The suggestion that it was part of SCTM’s functions to vet such letters to ensure that they were accurate is not persuasive.

18. [300]

    Of course, if SCTM were left to draft the letters as it chose, or at its discretion, very different considerations might apply. In those circumstances, SCTM might come under some duty to ensure that letters sent out by it on behalf of Ashdown were accurate, or reflected accurately what (to SCTM’s knowledge) had occurred. But this is not such a case.

19. [301]

    The next aspect of the cross-claim relates to what SCTM did when it made available to Ms Kritikos, for her inspection, the documents of Ashdown. Ms Kritikos is the sole director of a company known as Searches R Us Pty Ltd. She worked as a contractor to Eyeon. Eyeon retained Ms Kritikos’ company to search the records of Ashdown. There is no doubt that Ms Kritikos attended Ashdown’s premises at Willoughby on 21 June 2013, and that she there inspected records that were made available to her.

20. [302]

    Ms Kritikos gave evidence of her “usual procedure” when performing such an inspection (affidavit sworn 28 May 2014, paras 8 to 10):

21. [303]

    Ms Kritikos said that when she went to SCTM’s offices, she spoke to the receptionist and was directed to an area where she was given “hard-copy documents relating to the Ashdown building in general”. She did not recall being provided with a file specially relating to unit 20. That is not surprising, since SCTM did not maintain files for individual units in complexes under its management.

22. [304]

    For the purpose of swearing her affidavit, Ms Kritikos was provided with a number of documents. Of present relevance, the documents shown to her included the s 96 application and the letter of 24 April 2009. As to the first document, Ms Kritikos said that she did not recall seeing it, but that her usual practice was to take note of “DAs” (development applications).

23. [305]

    Ms Kritikos said that she was “quite certain” that the letter of 24 April 2009 was not among those shown to her when she inspected records on 21 June 2013. She said that she would have taken note of it because it related specifically to unit 20; it stated in essence that the air-conditioning might have to be removed; and it stated that the arrangements would be binding on successors on title. Ms Kritikos said, further, that as a matter of practice, had she seen that letter, she would have included it in her report.

24. [306]

    Ms Kritikos said, of various other documents that were shown to her for the purpose of swearing her affidavit, that it is likely that, had she seen them, they would have prompted her to carry out further investigations, even if they might not have been annexed to her report.

25. [307]

    Ms Kritikos said in para 34 of her affidavit:

26. [308]

    SCTM called four witnesses. The first was Ms Wood. She was the founder and principal of SCTM until 3 December 2012. On that date, she sold two businesses, including SCTM, to a company known as Prudential Investment Company of Australia Pty Ltd (PICA). Ms Wood worked as a consultant to PICA for six months after the sale, until 14 May 2013.

27. [309]

    Up until 14 May 2013, SCTM had carried on its business from offices at Rockdale. On 14 May 2013, it moved to the Willoughby premises.

28. [310]

    Ms Wood gave evidence of system. She said that she instructed her staff to maintain the filing system that she instituted. That system included the following features:

    1. (1)

       all records for one company (such as Ashdown) were kept and stored together under that company’s name.

    2. (2)

       She did not keep a separate folder for each unit in a company title building.

    3. (3)

       Documents were stored in coloured folders, according to the nature of the document. Correspondence was kept in green folders, minutes of meetings were kept in buff folders, and “documents” were kept in blue folders.

    4. (4)

       What Ms Wood called “documents” included “documents that were ongoing such that we might need to look at them in the future… plans, signed agreements, articles of association, House Rules, survey reports and anything that was a legal document”.

    5. (5)

       Within the blue documents folder, relevant documents were grouped together and placed in a clear plastic sleeve.

    6. (6)

       When a folder became full, a new folder was started, maintaining the colour coding system.

    7. (7)

       Older correspondence (green) folders were stored in boxes.

    8. (8)

       All emails were printed out and placed in the correspondence folder; correspondence was filed in that folder in the order it was received.

    9. (9)

       Documents were not retained in filing trays; staff were instructed to file them promptly and appropriately in the relevant folder in the order it was received.

29. [311]

    I accept Ms Woods’ evidence generally. Specifically, I accept her evidence of system and that she sought to ensure that her staff followed that system.

30. [312]

    Ms Wood said that SCTM took over the management of Ashdown from a company known as Fay McDonald & Associates (FMA) on 29 June 2009. When that happened, FMA handed over the records of Ashdown that were in their possession. Shortly after the handover, Ms Wood said, and I accept, that she refiled the records according to the system that I have described.

31. [313]

    Ms Wood was provided with the documents that had been shown to Ms Kritikos for the purpose of swearing her affidavit. She said that she had no recollection of seeing any of them (and this is hardly surprising). However, she said, had those documents been among the ones she received from FMA, she would have filed them according to her system.

32. [314]

    Ms Wood was given a plastic sleeve holding documents. I am satisfied that the plastic sleeve was taken from Ashdown’s records maintained by SCTM: specifically, from the blue documents folder. The plastic sleeve had “U20” written in the top right hand corner. Ms Wood identified that as her handwriting.

33. [315]

    The first document in the plastic sleeve was a printout of an email from Ms Roylance (then a director of Ashdown) to Ms Wood. The email referred to documents that Ms Roylance had given to Mr Lloyd of SCTM (who, at that time, had responsibility within SCTM for managing Ashdown’s affairs). The email asked Ms Wood to forward a copy of what Ms Roylance described as “the original of an agreement signed by Virginia Buckworth and Louise Daley regarding the addition of a timber structure on the penthouse terrace”, with the attached “copy of the DA variation”.

34. [316]

    Ms Wood wrote on the printout of the email:

35. [317]

    “MB” was a reference to Ms Wood, who for business purposes used her former name Muriel Barrass.

36. [318]

    Ms Wood gave evidence, which I accept, that, based on her usual practice, it is likely that she received the email, and arranged for the documents to be copied and sent to Ms Roylance. She then said that “following which, in accordance with my usual practice, I would have filed the plastic sleeve of [documents] in Ashdown’s “documents file”.

37. [319]

    SCTM produced the original files and they were tendered. It was not suggested that they had been disturbed, or otherwise molested, before they were produced. The documents to which Ms Wood referred (the documents in the plastic sleeve) were located between a letter dated 22 October 2013 (which was below the relevant sleeve) and a certificate issued on 23 May 2014 (which was above the relevant sleeve). The explanation for that is I think to be found in the evidence of Mr Greene.

38. [320]

    On the topic of records and their inspection, Mr Greene’s evidence was as follows. First, he substantially confirmed Ms Wood’s evidence as to the way in which documents were filed and kept. I might add that this evidence was confirmed by the other witnesses called for SCTM, Ms Cruz and Mr Lloyd, neither of whom was required for cross-examination.

39. [321]

    Mr Greene said that on 18 September 2013, he received an email from Mr Bell asking for confirmation that the letter of 24 April 2009 was filed among Ashdown’s records. Mr Greene said that he searched through what he called the “Boxed Records” – that is to say, older records which had effectively been “archived” and stored in cardboard boxes. Those boxes, he said, were kept close to SCTM’s reception desk. Mr Greene found a copy of the 24 April 2009 letter in those records.

40. [322]

    On 8 November 2013, another member of Ashdown’s Board, Mr Peter Barakate, inquired if the 24 April 2009 was, as Mr Greene put it, “on SCTM’s files which are available for inspection by searchers”.

41. [323]

    Mr Greene then spoke to Ms Cruz. He ascertained that the records provided to searchers were the current records: namely, the coloured folders to which I have referred. Mr Greene then reviewed all those records. He found the 24 April 2009 letter in the “U20” sleeve in the blue folder, together with the print-out of the email from Ms Roylance to Ms Wood and the s 96 application.

42. [324]

    Mr Greene’s evidence suggested that the blue folder was not maintained chronologically, and that it was from time to time taken apart and refiled. He gave the following evidence (T189.45-191.8):

43. [325]

    Ms Cruz gave affidavit evidence that, once the SCTM business was sold to PICA, she worked solely for SCTM in what she called “client support”. Her duties included booking inspections of records, preparation of the records for inspection, and general administrative support. In addition, she was SCTM’s receptionist after the sale to PICA.

44. [326]

    Ms Cruz said that the system for filing company title records that Ms Wood had instituted was maintained after the move to Willoughby, and has been maintained up to the present time.

45. [327]

    Ms Cruz gave evidence of her usual practice at inspections. That practice included the following matters:

    1. (1)

       she would take the current records for the building from the place where they were stored and placed them on a desk that was allocated for the inspection;

    2. (2)

       she would print out certain financial and other records and place them with the documents for inspection;

    3. (3)

       when the searcher arrived, Ms Cruz would take the searcher to the place where the documents were located and leave him or her there to do the work;

    4. (4)

       after about 15 minutes, Ms Cruz would inquire of the searcher whether he or she required any further information.

46. [328]

    Ms Cruz said that most searchers completed the task within two hours.

47. [329]

    I am satisfied, on the basis of Ms Cruz’s evidence, that the current records for Ashdown, including the coloured folders to which I have referred, were made available to Ms Kritikos for inspection on 21 June 2013.

48. [330]

    Mr Lloyd, a former employee of SCTM, gave evidence by affidavit. He was from mid-2009 until early December 2012 the person within SCTM who had responsibility for managing Ashdown’s affairs. He confirmed Ms Wood’s evidence of system.

49. [331]

    Mr Lloyd from time to time attended meetings of Ashdown’s Board. He recalled attending a Board meeting in early December 2012. His diary confirmed the date as 6 December (and Ms Roylance agrees that he attended a meeting on that date). It was at that meeting that Ms Roylance said she handed over documents including the 24 April 2009 letter and the s 96 application. Although Mr Lloyd had no recollection of being given those documents, he said that if he were given them, he would have placed them in the current green correspondence folder, which it was his practice to take to meetings.

50. [332]

    A green correspondence folder for Ashdown was tendered. It included a copy of the letter of 24 April 2009 together with the s 96 application. Those documents appear between a letter dated 11 December 2012 (immediately before the 24 April 2009 letter) and a letter of 16 January 2013 (immediately after it). Bearing in mind Ms Wood’s evidence of system – specifically, that correspondence folders were maintained chronologically – I find that the particular copy of the letter of 24 April 2009 (with the s 96 application) was placed in the correspondence folder between those two dates. I say that because I accept that the particular copy of the letter (with the s 96 application) was given to Mr Lloyd on 6 December 2013.

51. [333]

    It was not suggested to any of SCTM’s witnesses that the correspondence folder had been dismembered or molested, or that the copy of the letter of 24 April 2009 had been placed there at some later date.

52. [334]

    The evidence of SCTM’s present and former employees (including Ms Wood within that category) suggests very strongly that copies of the letter of 24 April 2009 and s 96 application were located within the records of SCTM in three locations when Ms Kritikos carried out her inspection on 21 June 2013. Specifically:

    1. (1)

       one copy was located within the blue documents folder;

    2. (2)

       another copy was located within the green correspondence file; and

    3. (3)

       another copy was located within a box containing older, or archived, correspondence.

53. [335]

    There is no dispute, and I find, that the blue and green folders were made available to Ms Kritikos for her inspection. Equally, there is no dispute, and I find, that the archive boxes were not made available, although they would have been made available had Ms Kritikos asked for them.

54. [336]

    Ms Kritikos was shown a number of folders, including a blue folder relating to insurance (which is of no present relevance), and also the blue documents folder in which, at the present time at least, there is the “U20” sleeve and the documents to which I have referred within it. Of that folder, Ms Kritikos gave the following evidence (T35.19-36.14):

55. [337]

    At this point, I note that although Ms Kritikos could not recall seeing or “sighting” this folder – seemingly, she had no recollection one way or another – I find, on the basis of the substantially unchallenged evidence for SCTM to which I have referred, that it was among the records made available for her inspection on 21 June 2013.

56. [338]

    Ms Kritikos was then shown the green correspondence folder. She could not recollect if it was one of the folders that she looked at (T36.45), although she did inspect correspondence included in a folder which contained plastic sleeves (T36.47-.37.5). I find that she was given the green correspondence folder to inspect.

57. [339]

    Ms Kritikos gave the following evidence in relation to the correspondence folder (T37.7-.19):

58. [340]

    More generally, Ms Kritikos accepted that she had no clear recollection of the inspection (and that is hardly surprising) (T22.35-23.3). It is not necessary to set that evidence out.

59. [341]

    Ms Kritikos was also shown the buff minutes folder. Ms Kritikos agreed that it was possible that this was the file of minutes that she saw on 21 June 2013; it looked like it (T34.1-.10):

60. [342]

    Ms Kritikos said, and affirmed in cross-examination, that her usual procedure was to look at a company’s minute books for the previous five years. However, she said, she did not read every line of every minute, paying more attention to the more recent minutes (T24.28-.44).

61. [343]

    Ms Cruz said, and I find, that the documents made available for Ms Kritikos to inspect included the buff minutes folder. Ms Kritikos said that if (as seemed to have been the case) the folder of minutes she was first shown only went back to 2011, she would have asked for earlier minutes (T26.11-.21). I have no doubt that other, older, folders of minutes would have been given to her in answer to that request.

62. [344]

    Ms Kritikos was then shown a copy of the minutes of 31 March 2009. She accepted that she had “no particular recollection” of seeing that document on 21 June 2013.

63. [345]

    That is of some significance, because those minutes were not among the records shown to Ms Kritikos for the purpose of swearing her affidavit, in respect of which she gave the evidence that I have summarised at [304] to [307] above. Thus, there was no evidence in chief from Ms Kritikos that those minutes were not among the records shown to her.

64. [346]

    Although the minutes folder that was tendered only went back to 2011, Ms Kritikos’ evidence is that she would have asked for the earlier folder. Having regard to the evidence of system, I find that the earlier folder (that is to say, the folder which included minutes around the period 31 March 2009) would have included the minutes of 31 March 2009. Thus, I find, the records made available to Ms Kritikos for inspection did include those minutes.

65. [347]

    Ms Kritikos agreed that those (31 March 2009) minutes were not referred to in the report that she furnished. She accepted that this could be for a number of reasons (T29.5-.33):

66. [348]

    Considering the evidence on this point in its totality, and taking into account the concessions that Ms Kritikos made in cross-examination, I am satisfied, and find, that the letter of 24 April 2009 and the accompanying s 96 application were among the documents provided to Ms Kritikos for inspection on 21 June 2013. I find that there was a copy located in the blue documents folder and another copy located in the green correspondence folder. I find that both those folders were made available to Ms Kritikos for inspection on 21 June 2013.

67. [349]

    I find, further, that the documents made available to Ms Kritikos for inspection on 21 June 2013 included the minutes of the directors’ meeting held on 31 March 2009.

68. [350]

    It is possible that Ms Kritikos overlooked the significance of the letter of 24 April 2009. It is possible that she did not read it carefully in the correspondence folder, because of its date (and there are passages in her cross-examination that suggest that she paid more attention to recent rather than older documents). It is equally possible that she paid no attention to it in the blue “documents” folder because it was behind the print-out of the email from Ms Roylance to Ms Wood of 3 January 2013.

69. [351]

    In the ordinary way, one would think that a sleeve marked “U20” would have attracted Ms Kritikos’ attention. However, for whatever reason, she appears to have overlooked it.

70. [352]

    For those reasons I find that SCTM did not breach whatever duty it owed to Ashdown to make current records available for inspection on request.

Proportionate liability

1. [353]

   As I have said, Ashdown raised a “proportionate liability” defence. Mr Izzo and Ms Horvath put competing submissions as to the way in which any liability on their respective clients should be carved up. Those submissions were recorded and transcribed.

2. [354]

   The conclusions to which I have come make it unnecessary to express a conclusion on those submissions. Nor is there any point in doing so, since of necessity that would be an exercise based on entirely hypothetical circumstances.

Reasons for ruling: the letters of 16 and 19 September 2013

1. [355]

   Mr Izzo objected to the tender of each of those letters. He did so because each was headed “without prejudice”, invoking s 131 of the Evidence Act.

2. [356]

   For convenience, I set out s 131:

3. [357]

   The letters must be placed in context. There was a raging dispute between Gladio and Ms Buckworth as to the former’s entitlement to rescind the contract for sale for non-disclosure, and (conversely) the latter’s right to insist on completion. That debate arose from the very belated disclosure of the letter of 24 April 2009, and the subsequent change in the House Rules, apparently, as to Rule 22, pursuant to the last paragraph of that letter.

4. [358]

   Whilst Day Legal was waging a correspondence battle with Hunt & Hunt over this dispute, Mr Robbiati was pursuing directors of Ashdown in an attempt to find a solution. He had a conversation with Mr Bell on 9 September 2013, in which (among other things) House Rule 22 was discussed. The next day, 10 September 2013, SCTM sent Mr Robbiati a letter drafted by Mr Bell. That letter, among other things, noted that the directors were reviewing the Rule and solicited Mr Robbiati’s “views on the possibility of passing a rule which simply gives direct effect to the letter”.

5. [359]

   The first letter to which Mr Izzo objected – the letter of 16 September 2013 – was written in reply to SCTM’s letter of 10 September 2013. In the letter, Mr Robbiati gave what in his view was the “brief background of the purchase transaction currently in flight [sic] for unit 20”, and replied “to the assertions contained in your letter in relation to my conversation with Mr Austin Bell of 9 September 2013”.

6. [360]

   The letter of 16 September 2013 was plainly headed “WITHOUT PREJUDICE”. After the introductory paragraph that I have summarised, it dealt, in four numbered sections, with some four topics. The first section after that paragraph set out Mr Robbiati’s view of the “background”. The second section set out his account of the conversation with Mr Bell. Looking at the matter in terms of s 131, nothing up to and including the second (numbered) section of the letter could be regarded as “a communication… in connection with an attempt to negotiate a settlement of [a] dispute”.

7. [361]

   The third section of the letter set out what (in Mr Robbiati’s view) were “the issues at hand”. There were three such issues: the process to be followed for Ashdown’s rules to be changed; “proper disclosure standards”; and “rule 22”.

8. [362]

   The fourth section of the letter set out Mr Robbiati’s view as to a “proposed way forward”.

9. [363]

   I do accept that, read together and in context, the third and fourth sections of the letter should be taken as articulating (in Mr Robbiati’s view at least) the issues on which he and Ashdown were “in dispute” for the purposes of s 131(1)(a) of the Evidence Act and a proposal “to negotiate a settlement of [that] dispute”. Thus, in my view, the third and fourth numbered sections of the letter should be excluded from the tender, under s 131(1)(a).

10. [364]

    Implicit in that view is the proposition that the statutory proscription is capable of application to part only of a document such as a letter. That is to say, it is implicit in the view that I have set out that the “communication” may be part only of a document. I raised that with Mr Izzo in the course of argument. He accepted that it was correct.

11. [365]

    Thus, in my view, where part of a letter dealing with several topics is a “communication” of the kind referred to in s 131(1)(a), the statutory proscription applies only to so much of the letter as is, or constitutes, that “communication”. There may be an exception, if the rest of the letter is so closely intertwined with the proscribed “communication” that it cannot be sensibly be separated out. However, that does not arise in the present case. As I have said, the letter contains an introductory paragraph, and then has some four discrete numbered sections.

12. [366]

    Accordingly, I ruled that the third and fourth numbered sections of the letter should be excluded, but that the balance should be admitted.

13. [367]

    SCTM’s letter of 19 September 2013 was written in reply to Mr Robbiati’s letter of 16 September 2013 (that is not expressly stated, but it was common ground that the later letter did reply to the earlier). Again, the letter of 19 September 2013 was clearly headed “WITHOUT PREJUDICE”.

14. [368]

    The first two sentences of the letter read as follows:

15. [369]

    Nothing in the letter responded to, or commented on, the third and fourth sections of the letter of 16 September 2013. Nothing in the letter contained any communication proposing, or seeking to negotiate, a resolution of the issues that then existed between Mr Robbiati (or Gladio) and Ashdown. Although the letter was headed “WITHOUT PREJUDICE”, that was presumably because it was a reply to a letter similarly headed. In truth, there is nothing in the letter of 19 September 2013 that could conceivably fall within s 131(1)(a) of the Evidence Act.

16. [370]

    The letter of 19 September 2013 was admitted into evidence accordingly.

17. [371]

    Mr Izzo submitted later that, if the letters were to be admitted, he would prefer that the whole of the earlier letter be admitted. Accordingly, and accepting that he took this position based on the ruling I had given, the previously rejected portions of that letter – sections 3 and 4 – were also admitted into evidence.

Reasons for ruling: application for leave to withdraw admission

1. [372]

   The admission, leave to withdraw which was sought, was made in respect of [76] of the Amended Statement of Claim (ASC) (the version preceding FASOC). To give some context to the debate, and to enable Ms Buckworth’s cross-examination on this topic to be understood, I set out the first three paragraphs of “Chapter V” of the ASC, which was headed “Rescission for misrepresentation”:

2. [373]

   Chapter V continued for a further 17 paragraphs, but it is not necessary to set them out.

3. [374]

   By her amended defence (filed in answer to the ASC) Ms Buckworth:

   1. (1)

      said nothing – remained silent – as to [75], [76]; and

   2. (2)

      said that she “does not admit paragraph 77 of the amended statement of claim”.

4. [375]

   It is clear, comparing the ASC and the defence to it, that the drafting technique employed was such that, where an allegation of fact was admitted, nothing was said as to that allegation of fact. In those circumstances, there was a deemed admission of that material fact (UCPR r 14.26(1)). By way of example only of this deliberate drafting technique, the ASC alleged at [74] that “Ms Buckworth has failed to refund to Gladio the Deposit”. Plainly, that was correct. The Amended Defence was silent as to that paragraph. Plainly, the drafter of the defence intended that the deemed admission for which the Rules provide would be sufficient. The same may be said of numerous other allegations of material fact which were plainly correct, and hence (as I see it) were not traversed in the defence.

5. [376]

   This analysis of the pleading technique is confirmed by an exchange of correspondence between Minter Ellison (acting for Gladio) and Hunt & Hunt (acting for Ms Buckworth) in May 2014. Minter Ellison wrote on 15 May 2014, stating among other things:

6. [377]

   Hunt & Hunt’s reply of 19 May 2014 said, as to this paragraph, that:

7. [378]

   I infer both from the structure of the pleadings and from that exchange of correspondence that the decision not to plead to ASC [76] was deliberate.

8. [379]

   Ms Buckworth agreed in cross-examination that she had read the ASC although, she said, not carefully (T83.26-.31). She understood that it included a complaint about non-disclosure of the letter of 24 April 2009 (T83.49-84.11). She knew that she needed to respond by way of defence (T84.25-.27).

9. [380]

   Ms Buckworth was asked whether her solicitors specifically asked her about her possession of the 24 April 2009 letter, for the purpose of drafting her defence. She denied that. However, upon being shown a document, she did not stand by that evidence, and accepted that she had been asked about her possession of the letter (T84.29-85.22). Her evidence on this was a little bit confused but it ended in the following question and answer (T85.45-.47):

10. [381]

    The “solicitor” concerned did not give evidence. The obvious inference is that the instructions to him or her, in answer to the question asked of Ms Buckworth, were consistent with the non-traverse of ASC [76].

11. [382]

    It might be noted that “Mr Grieve was closely involved with the drafting of [Ms Buckworth’s] defence” (T85.50-86.1). However, Mr Grieve did not give evidence as to the reasons why there was no traverse of ASC [76].

12. [383]

    I should make it perfectly clear that I am not in any way critical of the decision, apparently taken deliberately, to “admit” non-contentious pleadings of material fact by the technique of not traversing them. On the contrary, the use of that technique spares the reader the task of ploughing through numerous paragraphs stating, in effect, “the defendant admits paragraph XXX of the amended statement of claim”. It enables the reader’s attention to be focused on those allegations of material fact that are either “not admitted”, or are denied; and on the additional substantive matters pleaded in answer to some of them.

13. [384]

    On the evidence as I have summarised it, there is simply no explanation for the decision to “admit”, by not traversing, ASC [76]. The failure to explain what is now said to be a mistake is compounded because Ms Buckworth accepts that she was asked whether she had a copy of the letter in her possession, but did not say (either in her affidavit or in her oral evidence) that she told the solicitor she did not have a copy of the letter in her possession.

14. [385]

    I should however note that Mr Grieve sought to re-examine on this topic. He asked (T93.7-.10):

15. [386]

    Mr Lucarelli objected, on the basis that the re-examination did not arise from the cross-examination. The objection was in my view well-taken. Accordingly, I rejected the question.

16. [387]

    The obvious inference, as the evidence stands, is that the answer that Ms Buckworth gave to the solicitor justified his or her decision not to traverse ASC [76]. In drawing that inference (as I do) I take into account that the solicitor has not been called to say that he or she was given an answer inconsistent with the non-traverse of that paragraph, and no explanation has been given for the failure to call that solicitor.

17. [388]

    The significance of those matters is reinforced by the correspondence to which I have referred. Minter Ellison told Hunt & Hunt plainly and clearly that Gladio was going to trial on the basis of, among other things, the admissions on the pleadings.

18. [389]

    Ms Buckworth said in her affidavit (in support of her notice of motion) that she was not aware of the significance of the deemed admission until Mr Lucarelli opened the case for the plaintiff. This aspect of her evidence was not attacked directly in cross-examination. However, that affidavit was read on the notice of motion. It was not admitted as evidence on the hearing; nor was the cross-examination on it.

19. [390]

    In any event, that evidence (if it could be taken into account) would not assist Ms Buckworth. She agreed that she had been given a copy of Minter Ellison’s letter of 15 May 2014 at or about the time it was written, and had read it carefully. Likewise, she agreed that (probably) she would have received a copy of Hunt & Hunt’s reply of 19 May 2014 at or about the time it was written, and would have read and understood it (T89.32-91.14).

20. [391]

    There is another relevant factor. Ms Buckworth affirmed an affidavit on 11 May 2014 which set out her evidence in support of her amended defence, and referred specifically to the ASC.

21. [392]

    In para 3 of that affidavit, under the heading “Air-conditioning”, Ms Buckworth set out the circumstances in which the letter of 24 April 2009 had been drafted. She did not say, in that paragraph or elsewhere in the affidavit, that she did not have a copy of the letter.

22. [393]

    Paragraph 4 of the affidavit dealt with the use (or non-use) of the air-conditioning. Paragraphs 5 and following turned to the ASC. In para 5, Ms Buckworth referred to ASC [77] and said that up until 16 July 2013 she “did not know or consider that the 24 April 2009 letter was “highly material to any prospective purchaser of unit 20”…” for reasons which she said had already been set out.

23. [394]

    She gave the following evidence (T88.12-.37):

24. [395]

    Having observed Ms Buckworth in the witness box, and having taken note of her insistence on answering – not always responsively – propositions that she thought were not correct, I have to say that I find it unlikely in the extreme that, having read ASC [76], she would not have mentioned it in her affidavit had she thought that what it said was incorrect. Again, she gave no evidence of having given instructions to the solicitor who assisted in the drafting of her affidavit (or to Mr Grieve, who apparently settled it) in relation to ASC [76]. Again, neither the solicitor nor Mr Grieve gave evidence on this issue.

25. [396]

    The evidence does not support the proposition that the failure to traverse ASC [76] arose from a mistake on the part of the solicitor to whom Ms Buckworth gave instructions, or on the part of Mr Grieve who settled the amended statement of defence. The cumulative failures to deal with the material fact alleged in ASC [76] – first in the amended statement of defence, and next in the affidavit affirmed on 11 May 2014 – coupled with Ms Buckworth’s insistence on rigour and accuracy (as I perceived it in the witness box), make it very difficult to accept that the failure to traverse ASC [76] was the result of oversight or mistake.

26. [397]

    In circumstances where Ms Buckworth’s solicitors were specifically warned, and where she understood, that Gladio was preparing for trial among other things on the basis of the admissions deemed to have been made, the want of any explanation whatsoever for the failure to traverse ASC [76] was, in my view, fatal to the application for leave to withdraw the admission.

27. [398]

    I should add that even if Ms Buckworth had been permitted to answer the question referred to at [385] above, and had said in substance that she told the solicitor that she did not have a copy of the letter, my view would be no different. That would still leave totally unexplained the cumulative failures to traverse ASC [76], and to include in her affidavit of 11 May 2014 (or in any subsequent affidavit prior to the one sworn in support of the application for leave to withdraw the admission) what Ms Buckworth now says was the correct state of affairs – namely, that she did not have a copy of the letter of 24 April 2009 in her possession at any material time.

28. [399]

    Further, bearing in mind the time at which and the circumstances in which the application was made, and the possible consequences for the hearing if leave to withdraw the admission were given, and taking into account the amount at stake, it seemed to me (as it still does) that, analysed in terms of s 56 of the Civil Procedure Act, 2005 (NSW) the interests of justice required that Ms Buckworth not be given leave to withdraw the admission. The inevitable result of that alteration to the litigious landscape would have been an application to adjourn, and perhaps an application for disclosure of documents. In all the circumstances, the additional cost and delay would have been totally unconscionable, and totally disproportionate to the amount at issue.

Conclusions and orders

1. [400]

   Gladio is entitled to judgment against Ms Buckworth in the sum of $145,000.00, together with interest from the date of rescission (26 September 2013) to the date of judgment. Those parties are to prepare an agreed calculation of interest, including the “daily rate”, up to 28 July 2015.

2. [401]

   Although Gladio sought declaratory relief as to its entitlement to have the deposit refunded, there is no utility in the grant of the declaration sought. Gladio’s right to the deposit will be sufficiently vindicated by the judgment for $145,000 plus interest in its favour.

3. [402]

   Ashdown should have judgment in its favour on Gladio’s claim against it.

4. [403]

   Each of the cross-defendants should have judgment in its favour on the cross-claim against it.

5. [404]

   All questions of costs should be reserved (Mr Izzo expressly requested this, and I would have done so in any event).

6. [405]

   I stand the proceedings over for entry of judgment and for directions on 28 July 2015 at 9:30am before me. The parties are to produce an agreed minute setting out the orders to be made in accordance with what I have just said. On that occasion, I will hear from the parties as to the best way of dealing with the costs disputes that are undoubtedly likely to arise.