Supangat v Byrnes [2010] HCATrans 302 (12 November 2010)

Last Updated: 16 November 2010

[2010] HCATrans 302

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Brisbane No B48 of 2010

B e t w e e n -

NANANG SUPANGAT

Applicant

and

TENNYSON BYRNES

Respondent

Application for special leave to appeal

CRENNAN J
KIEFEL J

TRANSCRIPT OF PROCEEDINGS

FROM CANBERRA BY VIDEO LINK TO BRISBANE

ON FRIDAY, 12 NOVEMBER 2010, AT 1.15 PM

Copyright in the High Court of Australia

MR N.J. THOMPSON: If it please the Court, I appear for the applicant. (instructed by Woods Prince Lawyers)

MR J.A. GRIFFIN, QC: If it please the Court, I appear for the respondent. (instructed by Blake Dawson Lawyers))

CRENNAN J: Thank you. You have a question here about the proper construction of an instalment contract and a dissenting judgment in the Court of Appeal that you wish to urge upon us as correct?

MR THOMPSON: Fundamentally, I wish to urge that there are a few decisions of the High Court, starting with McDonald v Dennys Lascelles Ltd (1933) which was not referred to in the judgment that the Court of Appeal relied upon, which was the Automatic Fire Sprinklers Case, also a judgment of Sir Owen Dixon. The point is really fundamentally – and I will go through it in detail here – but there is a presumption in a contract for a sale as Sir Owen Dixon said in McDonald v Dennys Lascelles where performance of payment of the purchase price and transfer are due on the same day, there is a presumption that those two things are interdependent. I do not think that would surprise anyone.

But in McDonald v Dennys Lascelles, which was not referred to in the Court of Appeal’s decision, it was said that that presumption can be, as it were, set aside where those two things are not concurrent under the terms of the contract. So in this case and I will come to it very briefly just to try and answer your Honour Justice Crennan’s question, here, nothing was said in the contract, which was part of six emails, nothing was said about transfer really. There was no term, no express term of any kind. So this case is really a stronger case than the normal one for a contract for the sale of land.

KIEFEL J: Is it important to your argument that the terms of the agreement spoke of payment by instalments?

MR THOMPSON: Yes, because it is really most important that the payment of the purchase price – let us call it purchase price for the moment - there is an underlying matter which makes it a bit more complex than that, but there were dates clearly laid down in the contract for payment of those instalments. There was no question about that, but nothing substantive about the transfer. One would have thought that is a stronger case than what Sir Owen Dixon said - - -

KIEFEL J: So do you say that they were supported by the promise to transfer?

MR THOMPSON: They were, but - - -

KIEFEL J: They did not require an exchange at the end?

MR THOMPSON: That is right. They were not interdependent and at the very worst – and I think I put this in the application itself – the ones leading up to the final payment certainly were not interdependent. But I suppose at any point the purchaser could have said “I require the conveyancing to be done”, and even brought into time, but that was never done. So I probably have gone ahead of myself in this, but just to answer the fundamental point, because it was also expressed in the application I discussed whether what was really done here was the implication of a term that the payment of the purchase money in its various parcels and the transfer of the whole of the interests, whether that was really imposition of a term.

Now, I suppose at some point construction and imposition of the term must be a kind of spectrum. But really the principal point I am making here and that the applicant makes is that there is a decision of McDonald v Dennys Lascelles which really applies very strongly here and perhaps is an even stronger situation in the contract. That is a decision of the High Court. There cannot be any suggestion that Sir Owen Dixon, in expressing himself in the Automatic Sprinklers Case, intended that he was disavowing what he said earlier, 10 or 13 years earlier. Then McDonald v Dennys Lascelles, that particular passage, was taken up by Chief Justice Mason in - - -

KIEFEL J: In your application for special leave you are not relying upon the absence of any guiding principle here. Your case is really that there is a misapplication of principle to the facts of this case. Is that right?

MR THOMPSON: No, it is probably both because there is an important principle here about - - -

KIEFEL J: But it has been decided upon. You have - - -

MR THOMPSON: Not quite. To be absolutely precise, not quite, because in McDonald v Dennys Lascelles they spoke about the time for transfer and payment of particular instalments being on different dates in the contract itself. Here there is nothing in the contract itself. So it is really one step further in a way which, I would submit, is a stronger situation. There is a principle, a broader principle to be decided here, but one would have thought if it was not decided in the way the applicant says then that would undercut two earlier important High Court decisions.

CRENNAN J: I think you are also going to go to a decision of Justice Mason as he then was in Perri’s Case, is that where you were going?

MR THOMPSON: No, I was not intending to go there. It was more Sunbird v Maloney where he quoted the passage which I am relying upon in McDonald v Dennys Lascelles. Before I do go on, I have given a copy of this diagram to my learned friend, or it has been sent to him as I assume. It is not meant to be contentious, but I wonder if I could give you a diagram of the entities because in the ultimate I think it does not matter so much because it is looking at the terms of the emails. But it might assist with any confusion about the various entities, because it is a fairly complex structure.

CRENNAN J: Mr Griffin, are you content with that course?

MR GRIFFIN: Yes, your Honour.

CRENNAN J: Thank you.

MR THOMPSON: I do not think it is contentious, your Honour.

CRENNAN J: Yes, well we have that.

MR THOMPSON: Your Honour, the diagram is intended to help your Honours to understand what was being sold by the applicant, who I will mostly call Dr Supangat, to the respondent who I will mostly call Mr Byrnes. The case involves a commercial contract of sale of interest in the joint venture. The joint venture was to be run through a holding company by a corporate trustee of a unit trust in New Zealand. You can see that from the diagram. It was not a contract for the sale of goods or an employment contract or even a contract for the sale of land, which were the types of contract discussed by Justice Dixon in Automatic Fire Sprinklers v Watson.

CRENNAN J: I think it was for the sale of the interest and that was referred to as a share in the email, was it not?

MR THOMPSON: Yes, that was a word the parties used or at least one of the parties used, “share”. But these were laymen, as I will come to and this structure was set up by a lawyer and an accountant. It is a fairly complicated one involving trusts, but the trial judge found rightly that transfer of share meant something, which would exclude the Supangat family beneficiaries from interests in the trust. Anything which would achieve that would achieve the object of the contract. Your Honour, there is no dispute about the facts.

CRENNAN J: What is the relationship between the Tennyson family and Mr Byrnes?

MR THOMPSON: That is my mistake, your Honour, Tennyson Byrnes family. It was the Byrnes - Mr Byrnes’ family and he was Tennyson Byrnes and there was Dr Supangat’s family. So that is my error. The case is, in effect, a contract to be found in a series of emails written by two businessmen who were in legal terms laymen sent between December 2004 and February 2005. As I said they may not have themselves fully understood the complex underlying tax-driven structure prepared by a solicitor recommended by Mr Byrnes’ accountant.

The holding company, Pacific Rim Management Pty Ltd – I call it Pacific Rim – which was owned by the New Zealand trust company had entered into a contract dated 15 September 2004 to buy shares in Eastern Stones and Minerals, the owner of a granite quarry. I call that ESAM. That is at the bottom of the diagram.

Under that agreement Pacific Rim was given an option by the owners of ESAM to purchase that company, which had to be exercised within nine months. In the interim, Dr Supangat and Mr Byrnes were entitled to run the quarry as ESAM’s directors so as to decide about its commercial viability and whether they would ultimately purchase it. Both parties had invested capital by way of loans in the mine of approximately $450,000 by the time that the emails were exchanged. It had been run by both of them for some time.

By that stage a fundamental disagreement had arisen between the applicant and the respondent about how the quarry was to be run. The parties agreed that one party had to take over the operation and, in effect, refund the other’s capital contribution of $450,000. It was agreed in emails that Mr Byrnes would pay out Dr Supangat by instalments. So in the emails it was agreed that the price was to be $450,000, with the first payment being $150,000. In the emails Mr Byrnes agreed to make that first payment in the first week of February and pay the balance of $300,000 by monthly instalments of $50,000 thereafter.

Under the agreement Dr Supangat immediately relinquished control of the project to Mr Byrnes. No instalments were ever paid by Mr Byrnes to Dr Supangat and nor did Mr Byrnes ever seek any transfer of any interest from Dr Supangat although he said in one of the emails, that of 7 January 2005, that he would get the lawyers who set up the structure – they are the words he used – to organise Dr Supangat’s resignation as a director. Nothing in relation to the transfer of any share was sought by Mr Byrnes from Dr Supangat and nothing was paid under the agreement by Mr Byrnes.

At the instance of Mr Byrnes, Pacific Rim elected to terminate its agreement regarding ESAM on 25 May 2005. That is four to five months after the agreement. Any interest or share held by Dr Supangat in the joint venture thereby became worthless. So for more than six months of the agreement Mr Byrnes had enjoyed control of the project to the exclusion of Dr Supangat, but had not paid one instalment of the agreed price.

The trial judge, the applicant submits correctly, gave judgment for the applicant for the instalments in the sum of $450,000. The majority of the Court of Appeal - Justice Atkinson, who thought the appeal should be dismissed, dissented - found that the payment of all the instalments and the procurement of the transfer of the interest of a Supangat beneficiary’s – this is to quote Chief Justice de Jersey’s words – were “mutually conditional or interdependent obligations”.

Thus, until the transfer had actually been procured it was found that Dr Supangat had no right to any instalment or any part of the purchase money. This is to be found in ground 5 discussed by the Chief Justice on pages 42 and 43 of the application book. Justice of Appeal Chesterman agreed with the Chief Justice about this ground, but found on another ground being that of common mistake and that is on page 51.

But, it is submitted, the ruling ground of the majority has to be on the issue of mutually concurrent or interdependent obligations, which the Chief Justice called ground 5. There was nothing in the emails which set or suggested a timetable for the transfer of the interests of the Supangat beneficiaries. It is true the Mr Byrnes – I said this earlier – had, of 7 January, written about the lawyers organising something. Dr Supangat wrote in his email of 2 February of his hope that the paperwork to transfer his share could be finalised at the end of February. But at no stage did Mr Byrnes require Dr Supangat to do anything about the transfer or even resign as a director, although he had already relinquished participation in the control of ESAM.

Where the parties have made no provision in their agreement for the interdependence – this is express provision for the interdependence of transfer of the interest and payment of all or part of the purchase money – absent something like those things being on the same day, it is submitted it would be a remarkable thing for a court to construe their words to achieve such an effect, a quite remarkable thing.

The Chief Justice relied on the judgment of Justice Dixon in Automatic Fire Sprinklers, which was a master and servant case, which is a very peculiar sort of entity for the purposes, quite different from a sale contract because there the question was, if you were wrongly terminated by your employer were you entitled to sue?

KIEFEL J: I think Justice Dixon referred to the consideration in that context being paid for performance. That is the point, is it not?

MR THOMPSON: That is right and so if you are wrongly terminated the law regards it as the employer has a kind of entitlement to sever the relationship. Once you do that the remedy for the employee is damages and not, as it were, instalments – that is a very odd way of looking at it – of salary.

CRENNAN J: Wages, yes, and that is Automatic Fire Sprinklers v Watson [1946] HCA 25; (1946) 72 CLR 435?

MR THOMPSON: That is right. That is the one they relied on. No mention of McDonald v Dennys Lascelles. But as I said Sir Owen Dixon had already pointed out in McDonald v Dennys Lascelles that the general rule is displaced when a contrary intention is shown and he said that:

it seems established by authority that a contrary intention is sufficiently shown in all cases in which by the express terms of the contract the purchase money or any part thereof is made payable on a fixed day, not being the agreed day for the completion - - -

CRENNAN J: That is [1933] HCA 25; (1933) 48 CLR 457.

MR THOMPSON: That is right. Do you want me to turn up the page, your Honour?

CRENNAN J: No, and I think you are quoting from page 476?

MR THOMPSON: Probably. It is in my submissions.

CRENNAN J: I am just mentioning this for the transcript.

MR THOMPSON: Thank you, your Honour. I would suggest where there is nothing in the contract about the date of transfer, a fortiori, there is an even stronger case to say that these matters are not interdependent. As I have said nothing was said about McDonald v Dennys Lascelles in that case, although things have certainly been said about that in the Maloney Case and in the New South Wales Court of Appeal decisions, which are the most significant ones which I refer to.

One of those and I must say, of course, what has happened in Sunbird and McDonald v Dennys Lascelles is the most important thing. But there is a case in the Court of Appeal, which is about the termination of a joint venture, which is not a sale of land contract and they import the ideas there. So I would submit that unintentionally or not the judgments of the majority in the Court of Appeal departed from a long and respectable line of authority in this Court, dating back 80 years.

It has also departed from the legal approach with traditional principles of exemplary sense and, might I say, their approach lacks the logic, clarity and analytical elegance of the approach of Sir Owen Dixon. If you read that and read – I think the Chief Justice said it was simply inconceivable. Well, why is it inconceivable? It is submitted that the Court of Appeal decision - - -

CRENNAN J: I think that gets back to a point Justice Kiefel was making with you that, in essence, you are complaining about the misapplication of the principle to the particular facts of the case.

MR THOMPSON: Yes, perhaps partly unintentionally, your Honour. I said something about the implied terms. This has been treated as a question of construction, but at a certain point you would have to say where there is nothing to construe, no words to use, that an implied term must have been implied to make this construction work. But that is a lesser point than the fundamental thing, which is about how executory contracts are considered, as far as interdependence of obligations of both parties are concerned. It is a simple uncomplicated point, but a very important one, in my submission. They are my submissions.

CRENNAN J: Thank you. Yes, Mr Griffin.

MR GRIFFIN: Your Honours, what caused the majority to depart from the usual construction in relation to instalment contracts in the present case was that that contract was not a contract for the sale of real or personal property. The applicant was only one beneficiary in a discretionary trust of which various family members, and various companies with which he was associated, were likewise potential beneficiaries. At least some of the companies were Indonesian companies.

Now, because the applicant did not own at least most of the interests that needed to be transferred, the contract could be sustained only if construed as a contract of the type that the applicant ultimately pleaded and one sees that pleading at the top of page 50 of the application book. If I could take your Honours to it. The relevant subparagraph relating to transfer of ownership is subparagraph (ii), and one sees that the applicant pleaded that what the parties agreed was that Dr Supangat:

should do all that was necessary to procure the transfer of the interests held by the –

various beneficiaries to Mr Byrnes –

so as to thereby exclude any interest –

of the Supangat beneficiaries in the trust. Now, that was the agreement pleaded and it was that agreement that the trial judge found to have been made. The majority in the Court of Appeal held that in the case of such an agreement, viewed objectively, there could not be a common understanding that money would be payable in exchange for the mere promise on the part of the applicant to take all the necessary steps to transfer the interests. The majority held that the only realistic construction was that the money was to be payable in exchange for the actual transfer of the interests.

In those circumstances, the fact that the respondent had stated in emails that he would send instalments making up the full contract price of $450,000 at stipulated times did not compel the conclusion that the parties had agreed that the promises to pay these instalments were made on the basis that those payments would be enforceable irrespective of the applicant’s success in procuring the transfer of the interests. Those statements - - -

CRENNAN J: How does the concurrence and interdependence work in practice? Do you say that the mutual intention was that exchange was to take place after all the instalments had been paid? A conveyance of the interest, I should say.

MR GRIFFIN: Yes. The instalments were being paid, but the instalments were being made in accordance with Mr Byrnes’ stated intention to set up the amount which had to be paid in exchange for all the things that Dr Supangat had to do. They are statements in emails, not in a formal contract document, and they can readily be so construed. They can be viewed as an expression of an intention to pay these amounts progressively with a view to having them applied to Dr Supangat when he, likewise, had done the various things that he was required to do.

KIEFEL J: Can I just be clear about that point you made before, Mr Griffin? Are you saying that the parties should be understood to have had some doubt about the ability to transfer the interests or to recognise that there might be some problems in that regard?

MR GRIFFIN: Yes, and that is what Justice Chesterman said, for example. It was incipient in the arrangement - - -

KIEFEL J: Could you direct me to the passage his Honour - - -

MR GRIFFIN: Yes, I will. It is at paragraph [82], your Honour, page 48:

Such a promise carries with a hint of unreliability. The respondent could not himself transfer the interests of others, nor could he compel those others to transfer their interests, or execute an irrevocable exclusion as beneficiary . . . The result is that the respondent’s promise contained an incipient warning that it may go unperformed.

KIEFEL J: But elsewhere I think there is reference to the fact that the parties did not really understand the machinery.

MR GRIFFIN: That is right.

KIEFEL J: From which it might be possible to infer that they proceeded upon an assumption that what was done could be undone, and that simply the lawyers would take care of it.

MR GRIFFIN: That is one interpretation. They certainly had a misunderstanding as to what their legal position was, but the fact is that Dr Supangat did not own most of the interests in respect of which he was contracting and of course it accords with general principle that the contract has to be viewed objectively and has to be construed against that significant background circumstance.

There were also features in the emails themselves which were inconsistent with the proposition that the parties contemplated that Dr Supangat would be able to sue separately on the instalments, which is what the proposition against us is. Justice Chesterman drew attention to these at paragraph [85] of his judgment, which is also at page 48 of the application book. Your Honours see at paragraph [85] that he says that Dr Supangat had said in an email of 2 February 2005 that:

he hoped to “finalise the . . . paper works (sic) to transfer my share . . . by the end of February”, the month when the first instalment of the purchase price was to be paid. Earlier, on 15 December 2004 the respondent had proposed to the appellant that he take “over our share for . . . $450,000 . . . ” –

As his Honour Justice Chesterman said:

There is a slight indication in these exchanges that the payment was for the transfer.

That is, the payment of the entire $450,000. Your Honours, the statements of Justice Dixon in McDonald v Dennys Lascelles about instalments of purchase money being separately recoverable before the date of the relevant conveyance expressly relate to contracts for the sale of land. The contract in question here was not a contract for the sale of land. In fact it was not a contract for the sale of any relevant interest in property at all. That is because the applicant had, at best, only a marginal interest in the property with respect to which he was seeking to contract.

Now, as one of a number of potential beneficiaries under a discretionary trust, as Justice Chesterman said, he held no beneficial trust in any part of the trust estate. His only interest was to have the trust property properly administered, which was an interest in the trustee honestly exercising his discretion.

CRENNAN J: Were those beneficiaries all members of his family?

MR GRIFFIN: They were mainly members of his family, but they included a number of companies with which he was associated, and those companies had people with interests in them who were not members of his family.

CRENNAN J: Thank you.

MR GRIFFIN: So he could have transferred his own interest as discretionary beneficiary to Mr Byrnes, or at his discretion, but he could not transfer the interests of his wife, his relatives, or the companies. The only way in which the interests could be transferred was to procure the interests or to have all of these people and entities make the transfer. He, of course, could not transfer the interests of others, and nor could he compel those others to transfer their interest.

There was, therefore, a very realistic prospect that, for one reason or another, he would not succeed in procuring a transfer of the interests, and it does not stand to reason that a person seeking to acquire title to all of the interests would agree to be liable for the purchase money or any part of it until the interests were transferred at a settlement, and it was against that background that these decisions as to how the contract ought to be construed were taken.

So, your Honours, not only was the contract in question not a formal contract like a contract for the sale of land, it was made by an exchange of emails between two businessmen and in such circumstances the statement of intention by Mr Byrnes to pay amounts of money at particular times can far more readily be construed as merely that, namely, a statement of intention to make those payments. It is a very large step in those circumstances to construe the situation as one in which there was a common understanding that if any particular instalment was not paid on the date nominated Dr Supangat could proceed to sue Mr Byrnes for that unpaid instalment.

Even in a formal contract for the sale of land, promises to pay instalments of the price in advance of the date of completion may be construed as not binding a purchaser to pay such amounts on the nominated dates. Our learned friend has referred to the Privy Council decision in Mayson v Clouet. In that case a contract for the sale of land provided that a deposit should be paid immediately, that two instalments of cash being 10 per cent of the rest of the agreed price should be paid at certain dates and that the balance of the price should be paid within 10 days of the production of a certificate that buildings on the land had been completed.

Now, the purchaser paid the deposit and paid the two instalments but failed to pay the balance of the price at the stipulated time. The vendor rescinded the contract and forfeited the deposit. The purchaser brought an action claiming a return of the instalments and it was held that notwithstanding that the purchaser was the defaulting party, he was entitled to recover the instalments since the contract distinguished between the deposit and the instalments and expressly provided that in the event of default on the part of the purchaser, the deposit was to be forfeited.

The contract thus made no provision that the instalments were to be forfeited but made a specific provision that the deposit would be. On that footing, the Privy Council held that the purchaser was entitled to recover the instalments and the Privy Council interpreted the promise to pay instalments on the basis that they were not, in the circumstances, an independent promise supported by the vendor’s promise to complete. In such circumstances, the vendor could not have sued the purchaser had he not paid one or both of the instalments.

So that is a case in which the terms of the contract itself were such that the promise to make instalments was not independently enforceable. Here, it is not so much the terms of the contract, rather it is the circumstances that existed at the time that the contract was made that compels that conclusion as both Justice de Jersey and Justice Chesterman held.

Your Honours, my friend has said that the court did not refer to McDonald v Dennys Lascelles but the court was well aware of the principles relating to instalments and the usual construction of instalment contracts or contracts where there is a promise to pay instalments. That is apparent from what Chief Justice de Jersey said at page 44, paragraph [58]. He said:

I say this notwithstanding the specification in the agreement of a program for payment by instalments. The inferred intention was nevertheless that the monies be payable in exchange in effect for the transfer of the share in the full sense.

So the facts of the matter were very carefully examined by the court. The well-established principles in the cases, both to contracts generally and to instalment – or contracts involving promises to pay by instalments – the principle was carefully looked at and it was held by the majority for what, I would submit, is a fairly obvious reason that in this case the promise to pay the instalments could not be viewed as an independently enforceable promise. They are my submissions, if the Court pleases.

CRENNAN J: Thank you, Mr Griffin.

MR THOMPSON: I just have on thing to say, your Honour. If one looks at page 14 of the application book at paragraph [55] of the judgment of Justice Lyons, and I just might read out some of it:

It may have been enough that the beneficiaries in the Trust, who were associated with Supangat, surrender their interests in order to give effect to it. I am satisfied that the evidence of Mr Reynolds, Mrs Kusmali (Supangat), Mr Kirshnabudi and Melissa Supangat, established that it was extremely unlikely that any potential beneficiary in Dr Supangat’s family would have opposed any transfer of the Byrnes family interest. It is clear that there was no prospect of the existing arrangement succeeding, given the different views of Supangat and Byrnes.

KIEFEL J: Now, in the Court of Appeal judgment, Mr Griffin has taken us to references to there being some risk about the ability to transfer. If special leave were granted, would you be arguing that that is incorrect and would you be taking the Court to the facts relating to that?

MR THOMPSON: Well, your Honour, I will answer it this way. There is nothing wrong with a party agreeing to sell something which is not his or hers. When one sells something one does not warrant you are the owner of the property. It is what happens at the point of performance, when you have to perform. So it is hard to see, given that principle, and I do not have any authority but I think it is a tried principle - - -

KIEFEL J: But I think this has more to do with how the Court approaches what was probably in the parties’ minds and this appears to have been quite influential to the Court of Appeal.

MR THOMPSON: Well, it has been quite influential in the judgment of Justice of Appeal Chesterman, but it does not seem to have been influential elsewhere. But I suppose it is something that might part of the process if leave were given. But given what is found there and given the fact that you can sell something, perfectly legally which is not yours, it is hard to see that

some risk which the parties were not even aware about, or perhaps were not aware about, could be used to construe the contract so as to imply a term, or to construe the contract as to treat the promises as being interdependent. So I have answered your question, your Honour.

KIEFEL J: Yes, thank you.

MR THOMPSON: That is the best I can do, I think.

CRENNAN J: We are not satisfied that there is sufficient doubt about the correctness of the majority decision of the Court of Appeal such as would warrant a grant of special leave. Special leave to appeal is refused.

MR GRIFFIN: I am instructed to ask for costs, if the Court pleases.

MR THOMPSON: I cannot resist that, your Honour.

CRENNAN J: Yes, special leave to appeal is refused with costs.

MR GRIFFIN: Thank you.

CRENNAN J: The Court will adjourn to 10.15 on 30 November next.

AT 1.53 PM THE MATTER WAS CONCLUDED