Court dismisses claims in dispute over unit sale agreement

The central issue in this case was whether the deed of agreement was delivered by the defendants. The SMSF trustee, KPE Superannuation Fund Pty Ltd (KPE), contended that that it was and the first and second defendants contended that it wasn’t.

In the instance that the Court determined that the deed was delivered, KPE sought various relief including an order that the first and second defendants pay an amount of $1,195,000 pursuant to the deed and an order for the sale of a property in Jindabyne owned by the second defendant pursuant to an equitable charge granted under the deed as security for amounts payable to the plaintiff.

This case involved a unit trust called the QRM unit trust, established in June 2019 with QRM Holdings Pty Ltd as trustee.

The initial unitholders were One Tempe Holdings Pty Ltd with 100 units, and Two Tempe Holdings Pty Ltd with 200 units. Two Tempe Holdings was the first defendant in this case. Not long afterwards, Two Tempe acquired the 100 units held by the other unitholder so that Two Tempe became the sole unitholder in the trust.

On 27 June 2019, QRM Holdings entered into a contract to purchase a property at Tempe, NSW for $7,400,000. The trustee paid a deposit of $740,000 to the vendor, which was an unrelated entity, of which $81,400 was subsequently refunded to the trustee. The completion date under the contract was 27 May 2020.

Unitholders agreement

In October 2019, KPE acquired 149 units in the trust from Two Tempe for a purchase price of $149 pursuant to a unit sale agreement dated 10 October 2019.

This gave KPE a 49.67 per cent interest in the trust with Two Tempe holding the remaining 50.33 per cent interest.

At the time of KPE’s acquisition of its 149 units, it entered into an agreement entitled ‘unitholders agreement’ with Two Tempe, the trustee and Mr Quinn, the sole director of Two Tempe and the trustee. The unit holders agreement governed the rights and obligations of KPE and Two Tempe under the trust.

One of the clauses in the unit holders agreement, clause 6.1, provided that the trustee was authorised to require the unitholders to make loans to the trustee from time to time to provide working capital on a pro rata basis by way of unitholder loans.

The term ‘unitholder loan’ was defined to mean “the loans made by the unitholders and in the amount set out in Schedule 4 or as otherwise notified to the trustee from time to time.”  Schedule 4 set out the amount of $1,195,000 as a loan amount.

Between 14 October 2019 and 31 January 2020, KPE advanced approximately $1.1 million to the trustee in respect of this loan. There was a disagreement between the parties about the precise amount of this loan.

Clause 6.2 of the agreement stated that the trustee was authorised to require the unitholders to contribute towards the balance of the purchase price payable under the contract, in addition to their unitholder loans.

Under clause 6.3 Mr Quinn granted a charge to KPE over a Jindabyne property as security for the trustee’s obligation to repay KPE’s unitholder loan (but without undertaking a personal obligation to repay that loan) and consented to KPE lodging a caveat in respect of that charge.

In the period up to the scheduled completion date of the contract of 27 May 2020, Mr Quinn unsuccessfully approached two potential lenders seeking to obtain finance to fund the balance of the purchase price and consequently the trustee was unable to complete the contract on 27 May 2020.

On 28 May 2020 the vendor issued a notice to complete requiring settlement to occur on 12 June 2020, making time of the essence.

On 1 June 2020, Mr Quinn told the directors of the SMSF trustee, Paul Ellems and his wife, that the financier was going to be MaxCap Group Pty Ltd and that they would “each need to put in about $800,000” as he had been unable to find a loan for the whole amount.

This was a reference to the shortfall between the loan provided by the financier and the balance of the purchase price payable on completion of the contract.

Mr Ellems and Mr Quinn had another conversation on or around 3 June in which Mr Quinn repeated his insistence that it would be necessary for KPE put in approximately $800,000 to enable the Trustee to complete the purchase.

At around the same time, Mr Ellems told Mr Quinn that KPE did not wish to continue its involvement with the project and wanted to exit the trust. Mr Quinn proposed that KPE sell its units in the Trust back to Two Tempe.

Unit sale agreement

On 3 June, Mr Quinn sent instructions to his solicitor Mr Manca to prepare an agreement for the purchase of the units held by KPE in the trust by Two Tempe and a “side agreement” under which Mr Quinn would agree to pay the unitholder loan in six months’ time when a construction finance facility would be available to replace the MaxCap facility. Mr Manca prepared drafts of the unit sale agreement and the deed which he sent by email to Mr Quinn on the evening of 3 June 2020.

Mr Quinn and Mr Manca gave evidence of a conversation between them on 10 June 2020 in the meeting in Mr Manca’s office during which Mr Quinn signed the unit sale agreement and the deed.

In their evidence they said that in this conversation Mr Quinn told Mr Manca that KPE had to contribute half of the funding shortfall or the contract would not complete, and that Mr Quinn would sign the unit sale agreement and the deed and leave them with Mr Manca who would hold onto them until Mr Ellems paid his share of the funding shortfall.

The plaintiff submitted that Mr Quinn objectively intended to be bound by the deed immediately and unconditionally at the time he executed it (on behalf of Two Tempe and in his personal capacity) in Mr Manca’s office on 10 June 2020.

 Justice Richmond stated that the communications between Mr Quinn and Mr Ellems from 1 June to 11 June 2020 show that the unit sale agreement and the deed were part of an ongoing commercial negotiation between them as to the terms on which KPE would exit the trust.

“Throughout the period from 1 June to 11 June 2020 Mr Quinn had repeatedly communicated to Mr Ellems that KPE was required to contribute its share of the funding shortfall to allow the trust to complete the purchase under the contract,” Justice Richmond noted.

“Mr Ellems’ communicated position to Mr Quinn as at 10 June 2020 was that KPE would be in a position to contribute its share of the funding shortfall if, among other things, KPE was given a mortgage over the Jindabyne property and a deed was executed giving KPE a 50 per cent share of the profit on the sale of the Tempe Property. Mr Quinn was resisting both of those requirements but was still insisting on 10 June that it was necessary for KPE to contribute a further amount of approximately $800,000 to enable the purchase to go ahead.”

Justice Richmond also highlighted the context in which the deed was signed.

“It was part of the arrangement by which KPE would exit the trust at a time when the trustee was seeking to complete the contract, but had a funding shortfall of approximately $1.6 million,” he noted.

Mr Quinn’s communicated position to Mr Ellems as at 10 June 2020 was that unless KPE contributed half of this amount, the purchase would not complete and the trust would lose its deposit of $658,600.

In addition, Mr Quinn considered that there was a profit of some $3 million to be realised from the increase in value of the Tempe Property between the time of contract and completion and that opportunity would be lost if the contract did not complete.

“Indeed in that situation, Two Tempe would (if the deed and the unit sale agreement were binding unconditionally) hold a 100 per cent unitholding in a trust with no assets and Two Tempe and Mr Quinn would have a liability to pay $1.195 million to KPE in respect of KPE’s unitholder loan (for which Two Tempe and Mr Quinn would otherwise have no personal liability, as the charge under cl 6.3 of the unitholders agreement was merely a security for a liability of a third party, the trustee),” said Justice Richmond.

“It would be illogical for Mr Quinn, an experienced property developer, to agree to repurchase KPE’s units in the trust and effectively assume a personal obligation to repay the KPE’s unitholder loan unless the trust was able to acquire the Tempe Property.”

“Put another way, it made no commercial sense for Two Tempe and Mr Quinn to assume a personal liability to pay $1.195 million to KPE in circumstances where Two Tempe’s investment in the trust was worthless (as would be the case if the contract was not completed).”

KPE, the plaintiff, submitted that as the deed was expressed to be signed, sealed and delivered by Mr Quinn this raised a strong presumption that the deed was delivered by him and furthermore, he signed it with the necessary formality before his solicitor, Mr Manca.

Justice Richmond stated that while it is true that the deed was expressed to be signed, sealed and delivered by Mr Quinn and that these words raise a rebuttable presumption that delivery occurred, they are equivocal as to whether the deed was delivered unconditionally or in escrow.

“I have concluded that there was delivery in escrow,” he said.

The plaintiff also submitted that Mr Manca’s act of dating the deed when Mr Quinn signed it, bearing in mind that his practice was not to date a document until it was binding, was strong evidence that Mr Manca believed the Deed to be binding, particularly as he backdated it to an earlier date (5 June 2020) after the deed had, apparently, already been executed by KPE.

Justice Richmond stated that Mr Manca’s intention was not the issue.

"Rather, it is Mr Quinn’s objective intention which is relevant and in circumstances where Mr Quinn did not instruct Mr Manca to date the document (which he did not), Mr Manca’s act of dating has little or no significance,” he explained.

“Second, the dating of a deed is not necessary for it to be binding but where a date is inserted it may be presumed to be the date of delivery unless the presumption is rebutted. However, the dating of a deed does not, without more, indicate whether it is binding immediately and unconditionally, or alternatively conditionally. In the present case I have concluded that the latter is the correct conclusion.”

The plaintiff also submitted that the fact that when Mr Quinn signed the deed it had already been signed by KPE favours the finding that Mr Quinn intended to be bound when he signed it for Two Tempe and in his personal capacity.

“In my view, the fact that KPE had already signed the deed has no bearing on Mr Quinn’s objective intention when he signed it and is entirely consistent with an objective intention that he would be bound by the deed subject to [certain conditions],” he stated. 

Conclusion 

The Court had to determine whether by giving instructions to Mr Manca on 10 June 2020 to send copies of the unit sale agreement and the deed as signed by him earlier that day to the licensed conveyancer acting for the Ellems, Ms Jurgens, Mr Quinn evinced an intention that Two Tempe and he would be bound unconditionally by those documents.

Justice Richmond concluded that this was not the case.

“First, Mr Manca’s email to Ms Jurgens clearly reiterates the requirement that Mr Quinn has been insisting upon since early June that KPE must contribute approximately $800,000 to the funding shortfall to enable the contract to be completed,” he explained.

He also noted Mr Quinn's evidence in cross-examination that he gave his instructions to Mr Manca to send the signed unit sale agreement and deed to Ms Jurgens in words to the effect: “Send it, if that’s what they require to have a look at.”

“The context in which this statement was made is Ms Jurgen’s email that day (which Mr Quinn had seen) which requested that certain documents (including these two documents signed by Mr Quinn) be provided by Mr Manca, upon receipt of which ‘Mr Ellems will be in a position to contribute to funds for settlement’,” Justice Richmond stated.

“Given that context, Mr Quinn’s instructions are not an indication of an intention to be unconditionally bound by the deed and the unit sale agreement.”

Justice Richmond also stated that Mr Manca’s email was not expressed as an exchange of counterparts of the deed but rather as the provision of documents which Ms Jurgens had requested as part of a proposal and that Mr Manca’s email made explicit, when doing so, that the condition regarding KPE’s contribution to the funding shortfall of approximately $800,000 was still required by Mr Quinn.

“While the provision to the other party of a signed deed without any express qualification may lead to an inference that it is delivered, here there is an express qualification in the final paragraph of the email. Further it is significant that Mr Manca did not at any time send copies of the unit sale agreement and deed signed by Mr Quinn to Minter Ellison, [the lawyers acting for MaxCap] which is consistent with the qualified nature of the provision of these documents to Ms Jurgens,” he stated.

Justice Richmond concluded that Two Tempe and Mr Quinn delivered the deed and the unit sale agreement in escrow, the condition being that they would be bound by those deeds on KPE contributing its share of the funding shortfall of $830,984.64 so that the completion of the Contract could occur.

“As that condition was not satisfied and is not capable of being satisfied, neither the deed nor the unit sale agreement is binding on Two Tempe or Mr Quinn,” he stated.

The proceedings were dismissed with costs.