Fatseas v Fatseas bht Basha

By Notice of Motion filed on 1 April 2022 [1] the first defendant, Mr John Fatseas, by his tutor, Mr Gerard Basha, seeks a declaration that a document called “Heads of Agreement” executed by the parties at a mediation on 26 May 2021 constitutes a binding contract between Mr Fatseas, and his nieces, the plaintiff, Ms Stella Fatseas and the second defendant, Ms Maria Fatseas.

It is now common ground that the Heads of Agreement does constitute such a legally binding contract.

A question has arisen as to the proper construction of the Heads of Agreement.

For convenience, and without intending any disrespect, I will adopt the parties’ practice of referring to each other by their given names.

The background to the matter is set out in the recitals to the Heads of Agreement as follows:

It must follow from these recitals, and the parties’ agreement that they are bound by the terms of the Heads of Agreement that these proceedings have settled on such terms. The parties’ rights and obligations in relation to the matters hitherto agitated in the proceedings are now governed, for better or for worse, by the terms of the Heads of Agreement.

The construction issue arises in relation to cll 19 to 22 of the Heads of Agreement, which clauses are in the following form:

The question is whether John’s obligation to pay the “Settlement Sum” was, as stated in cl 19, simply to pay the sum by 26 November 2021; or whether that obligation was qualified by cl 20.

It has been correctly observed that:

The High Court has said:

It is common ground that the Heads of Agreement should be construed by reference to “the contract alone”. Neither Mr Pesman SC, who appeared with Mr Alexander for Stella, or Mr Wallis, who appeared for John, [4] sought to adduce extrinsic evidence in support of their submissions on construction.

The relevant context is specified in recital 9(c) which states that an issue in the proceedings, now compromised, was whether John holds the Hillsdale Property “beneficially for the estate as to one half”. If that was so, Stella, as the administratrix would have been entitled to call on John to account to the estate for that half interest and, if need be, seek to enforce the estate’s entitlements by, for example, having trustees for sale appointed under s 66G of the Conveyancing Act 1919 (NSW). That is the relevant right compromised in cll 19-22 of the Heads of Agreement.

Clauses 19 and 20 do not sit happily together. Both are expressed in mandatory terms.

Clause 19 contains what appears to be an unconditional obligation that John pay the Settlement Sum to Stella by 26 November 2021; albeit without an obligation to pay interest.

Yet cl 19 is followed by cl 20 which provides that if “John does not pay the Settlement Sum by 26 November 2021” then interest would accrue at the specified rate and the Settlement Sum “shall become payable” as there set out; on the earlier of three months following John’s death or upon completion of the sale of the Hillsdale Property.

Unless cl 20 is to be completely ignored, it must be read as bespeaking the parties’ intention that John’s obligation under cl 19, seemingly unconditional when viewed in isolation, is in fact subject to the qualification specified in cl 20.

It is true, as Mr Pesman submitted, that if this were the parties’ intention, they could have expressed themselves more simply by providing, in one clause, that John would pay the Settlement Sum on his death or on the sale of the Hillsdale Property whichever came first.

But I must construe the words the parties did use. Acceptance of Mr Pesman’s submission that the Heads of Agreement imposed on John an unconditional obligation to pay the Settlement Sum by 26 November 2021 would render cl 20 otiose.

The parties must have intended that cl 20 have work to do, and that work must be, in effect, to give John an option as to whether to pay the Settlement Sum by 26 November 2021; albeit at the cost of paying interest from 26 November 2021 if the Settlement Sum was not paid by that date.

Mr Pesman submitted that the clauses should be read as imposing on John an obligation to use his best endeavours to pay the Settlement Sum by 26 November 2021 and submitted that cll 19 and 20 could be read in harmony by construing cl 20 as applying only if John died during the six month period between the date of the Heads of Agreement and 26 November 2021. I do not see how the words the parties have used permit the Heads of Agreement to be so construed.

In my opinion, cl 22 takes the matter no further, as the question of whether the Settlement Sum is paid “in accordance with the Heads of Agreement” depends upon the question of construction to which I have referred.

It is true that cl 22 is a little repetitive, in that it speaks of the Hillsdale Property being sold if the Settlement Sum was not paid in accordance with the Heads of Agreement, whereas cl 20 speaks of the Settlement Sum becoming payable on the earlier of such a sale or John’s death. However, cl 22 would have work to do if John did not sell the Hillsdale Property in his lifetime and the Settlement Sum was not paid within three months’ following John’s death.

My conclusion is that, on the proper construction of the Heads of Agreement: