CONNELL v DFC of T

Judges: Franklyn J

Owen J
Parker J

Court:
Full Court of the Supreme Court of Western Australia

Judgment date: 24 May 1996

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Owen J

I have read the reasons to be published by Franklyn J. I agree with his Honour's reasons. I wish to say briefly why I have come to this conclusion.

A large part of the factual background has been common ground throughout this dispute. Lawrence Robert Connell (``Mr Connell'') and Elizabeth Joan Connell (``Mrs Connell'') together constituted a partnership called LR Connell and Partners (``the Partnership''). Rothwells Ltd advanced funds to a company called Valgas Pty Ltd (``Valgas'') and in due course secured repayment of the advance by registered mortgage securities over land. Rothwells Ltd assigned to the Partnership all monies payable by Valgas to Rothwells and the benefit of the mortgage securities. When the Partnership sought repayment of the monies Valgas denied liability and a dispute arose. The Partnership issued a writ claiming repayment of the monies. The plaintiff is described in the writ as ``LR Connell and Partners''. Settlement negotiations ensued between the Partnership and Valgas. On 10 March 1994 the solicitors for Valgas wrote to the solicitors for the Partnership making an offer of settlement. The letter is headed: ``LR Connell and Partners v Valgas Pty Ltd & Others: Supreme Court Action No 1184 of 1991''. By a facsimile transmission of the same date the solicitors for the Partnership accepted the offer.

On 11 March 1994 a formal deed (in these proceedings called ``the Main Deed'') was executed recording the terms of the settlement. The Main Deed is expressed to be made by Mr Connell and Mrs Connell (referred to in the Main Deed as ``the Connells'') but with no express reference to the Partnership. The terms of settlement required Valgas to pay a total of $555,000 (``the settlement sum'') to the Connells on certain conditions.

On 10 March 1994 the respondent had served on Valgas notices under s 218(1) of the Income Tax Assessment Act 1936 requiring Valgas to pay to the respondent any monies due by Valgas to Mr Connell or Mrs Connell. It was common ground that if the settlement sum was due to Mr Connell and Mrs Connell in their individual capacities it would be caught by the terms of the notices but if it was payable to the Partnership it would not. This development obviously caused those representing the Connell interests to re-examine the terms of the Main Deed. In April 1994 Mr Connell and Mrs Connell on the one hand and Valgas on the other hand entered into a deed called ``the Supplemental Deed''. This document referred to the Main Deed and provided that notwithstanding anything contained in the Main Deed all references to ``the Connells'' in the Main Deed were to be interpreted as a reference to the Partnership. The document was expressed to be supplemental to the Main Deed and to have effect from the date of the Main Deed. It is also recited that ``at all times it was the intention of the parties that the expression `the Connells' where used in the Main Deed should mean [ the Partnership], the plaintiffs in the action''.

Valgas then commenced interpleader proceedings and the orders the subject of this appeal were made in those proceedings. There was a trial of two issues. First, whether the settlement sum was payable to the appellants under the Main Deed or to the respondent under the notices. Secondly, whether the appellants entered into the Main Deed in their individual capacities or as partners in the Partnership and

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ATC 4518

whether the Main Deed required rectification to give effect to the finding on that issue. The learned trial Judge found that the agreement constituted by the exchange of correspondence on 10 March 1994 had been entered into by Mr Connell and Mrs Connell as partners in the Partnership but that the Main Deed effected a variation of that agreement such that Mr Connell and Mrs Connell contracted as individuals rather than as partners. His Honour also found that the Supplemental Deed effected a further variation of either or both of the initial agreement and the Main Deed by substituting the Partnership for the individuals and further that the grounds for rectification of the Main Deed had not been made out. It followed that Valgas was obliged to pay the settlement sum to the respondent under the notices.

The appeal raises two broad issues. The first is simply a question of construction: are the terms of the Main Deed such as to embrace Mr Connell and Mrs Connell as partners in the Partnership or do they mean that those persons contracted in their individual capacities? The second issue assumes that the Main Deed must be construed in the way found by the trial Judge and then asks whether grounds for an order of rectification have been made out.

There is no doubt that the indebtedness of Valgas (before 10 March 1994) was to the Partnership, not to the individuals. Similarly, it is not in doubt that the initial agreement constituted by the exchange of correspondence was between Valgas on the one hand and the Partnership on the other.

The construction of a contract is a question of law for the court to determine. The professed object of the court is to discover the intention of the parties from the words of the instrument. It is a trite proposition that in construing a contract the court considers the whole of the instrument. Generally speaking it is not permissible to go outside the words which are set down in the document. However, evidence of surrounding circumstances is admissible to assist in the interpretation of a contract if the language is ambiguous or susceptible of more than one meaning.

The Main Deed refers to Action 1184 of 1991 and it is an ineluctable proposition that the fundamental purpose of the document was to record the terms upon which those proceedings were to be settled. The combatants in those proceedings were the partners and Valgas. It is true that a combination of the description of the parties at the commencement of the document and the description of the parties in the schedule refers only to ``Lawrence Robert Connell and Elizabeth Joan Connell'', with no express reference to the Partnership. However, the recitals indicate that the ``parties'' agreed to settle ``the disputes between them'' on the terms set out in the deed. There is nothing in the Main Deed or, to the extent that it would be relevant, in the evidence to show that there were any ``disputes'' between the parties other than the dispute the subject of Action 1184 of 1991.

The settlement sum was a debt due to the partnership. Clause 2 of the Deed provides, relevantly:

``... Valgas shall pay to the Connells the Settlement Sum in full and final satisfaction of the Connell's claims in the Action and in full and final satisfaction of all actions, suits, causes of action, claims and demands whatsoever which the Connells now have or at any time hereafter may have... against Valgas.''

[italics added]

This, it seems to me, is the context in which the Main Deed falls to be construed. The obligation of Valgas was to pay the settlement sum to ``the Connells'' in satisfaction of ``the Connell's claims in the Action''. The context dictates that this must be a reference to the Partnership because it was only in their capacity as partners that Mr Connell and Mrs Connell had claims against Valgas in the action. Further support for this construction is to be found in clause 3, which describes how the action is to be resolved, and clause 4(b)(ii), which obliges ``the Connells'' to discharge encumbrances over the land concerned. Again, there is nothing in the Main Deed or in the evidence to suggest that ``the Connells'' held securities over the land other than as partners. Regard must then be had to the definitions in clause 1 of the Main Deed. The definitions incorporate the following:

``In this Deed... (unless such interpretation is excluded by or contrary to the context):

...

`the Connells' includes each of the parties so described above and their and each of their personal representatives transferees and assigns.''

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ATC 4519

Even if this definition is taken to be a reference to Mr Connell and Mrs Connell jointly and to each of them severally rather than to them as partners in the Partnership it is a definition that ``includes'' them in the various guises contemplated by the words used and is expressly made subject to the context. At the risk of repeating what I have already said, in my view the context is the settlement of the dispute in which they were involved as partners. I think the proper construction of the Main Deed is that it envisages the settlement sum being paid and received by the Partnership and the partners doing certain things necessary to effect the finalisation of the action.

In my opinion the appropriate answer to the first part of question 2(b) in the interpleader is that the appellants entered into the Main Deed in the capacity as partners in the Partnership, just as they had entered into the initial agreement constituted by the exchange of correspondence. It would follow that the answer to question 2(a) is that the settlement sum is payable to the appellants under the Main Deed rather than to the respondent under the s 218 notices.

This makes it unnecessary to consider the question of rectification. The Supplementary Deed was not strictly necessary but entered into as a precautionary measure, given the anticipated dispute between the respondent and the appellants following service of the notices. The unusual aspect of this is that the opposition to rectification comes not from a party to the contract in respect of which rectification is sought but from a third party affected by the outcome. Denial of rectification would necessarily carry with it a finding that the Supplementary Deed, in so far as it provided that the intention of the parties had been to recognise the partners as contracting parties from the inception of the arrangement, did not truly reflect the position. It is hard to see how that finding could be made unless it also were to be found that Valgas and officers associated with Valgas were party to a false representation in the Supplementary Deed. There is nothing in the document or in the evidence which points in that direction and it would not be a conclusion which a court would readily reach. Otherwise, there is little that I can usefully add to what Franklyn J has said about the Supplementary Deed and about rectification.

I too would allow the appeal and hear counsel as to the orders that should be made.