Stirling Properties Limited v Yerba Pty Limited [1987] ACTSC 59 (25 August 1987)

SUPREME COURT OF THE ACT

STIRLING PROPERTIES LIMITED v. YERBA PTY. LIMITED
S.C. No. 752 of 1987
Contract

COURT

IN THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Miles C.J.(1)

CATCHWORDS

Contract - construction of - payment of sum - payment by personal cheque - whether compliance with contract - whether payment in legal tender necessary - whether necessity for payment in legal tender waived.

Contract - construction of - payment of sum - whether payment in law a unilateral or bilateral act. Money - legal tender - payment of sum by personal cheque - whether payment in legal tender required - whether payment by personal cheque compliance with contract - commercial reality.

Chitty on Contracts Vol. 1 25th ed. paragraphs 1420 and 1436

Wright v. Reed 1 TR 554 in 1790

Miller v. Race (1758) 1 Burr 452

George v. Cluning (1979) 28 ALR 57

Paynter v. Williams (1983) 2 VR 377

Re Parker (1985) 79 FLR 338

New Zealand Shipping Co. Ltd. v. Societe Des Ateliers Et Chantiers De France [1997] UKHL 17; (1919) AC 1

HEARING

CANBERRA
25:8:1987

ORDER

A declaration that the plaintiff by notice in writing dated 25 June 1987 validly exercised the option granted to it by deed of 24 December 1985 to acquire from the defendant 5,000,000 units in the Stirling Property Trust.

Upon payment by the plaintiff of the purchase price by midday on 26 August 1987 the defendant forthwith deliver up to the plaintiff duly executed transfer of such units together with the certificates relating thereto.

The defendant, pending payment by the plaintiff of the purchase price and delivery by the defendant to the plaintiff of the said transfer and certificates in accordance with Order 2 hereof, be restrained from:-

(i) dealing with or otherwise disposing of the said

units; and

(ii)exercising or purporting to exercise any voting
or other rights attached to the said units.

The defendant pay the plaintiff's costs of these proceedings, including

costs reserved on 29 June 1987.

DECISION

This is a claim for specific performance and consequent orders for the transfer of units in an investment trust called the Stirling Property Trust. A subsidiary of the plaintiff (Stirling) is the manager of the Trust.

2. In March 1985 it was resolved that a number of units and options to purchase units in the Trust should be issued to the public. There was a "shortfall" upon the issue of the units and underwriters arranged for five million units to be taken up by a nominee company.

3. Negotiations took place between Stirling and the defendant (Yerba) and a company associated with Yerba, Scandinavian Pacific Investments Limited (SPIL), later known as Duke Securities Limited (Duke). The negotiations were directed towards the Yerba/SPIL interests acquiring the units held by the underwriters. These negotiations ended in agreement embodied in two formal documents executed on 24 December 1985. The parties to one (the principal agreement) were Stirling and SPIL. The parties to the other (the option agreement) were Stirling and Yerba.

4. It is appropriate to refer to the provisions of these agreements. First the principal agreement. It recites that at the request of Stirling, SPIL procures Yerba to enter into an agreement with underwriters for the purchase of five million shares in the Trust. It provides that Stirling will pay SPIL a fee of $375,000 and that it will deposit with SPIL a total of $2.875 million.

5. Clause 2.1 of the agreement provides as follows:

"2 Terms of Deposits

The deposits referred to in sub-clauses 1.3 and 1.4
("the Deposits") shall be held by SPIL subject to the
following conditions:

2.1 subject to sub-clause 1.3 the Deposits shall be
released by SPIL to Stirling forthwith upon
receipt of a written request from Stirling:

2.1.1 at any time after the expiration of two
(2) years from the date of the deposit;

2.1.2 upon the exercise by Stirling or other
termination of the option referred to in
sub-clause 3.1;

2.1.3 upon forfeiture of the Units; or

2.1.4 upon the occurence of an event of
default."

6. Clause 3 of the principal agreement is in the following terms:

"3. Option Agreement

In consideration of the making of the Deposits and the
payments set out in sub-clauses 1.1 and 1.2 SPIL shall
procure Yerba to:

3.1 lodge the certificates in respect of the Units
together with a duly executed transfer of the
Units with Stirling to secure the repayment of
the Deposits;

3.2 grant an option to Stirling, or its nominee, to
purchase the Units in substantially the terms of
the option set out as Schedule 1;

and SPIL hereby guarantees all of the obligations of
Yerba pursuant to the said option agreement and agrees
to indemnify Stirling in respect of any loss or damage
incurred by it by reason of any default by Yerba in
carrying out its obligations under the said option
agreement."

7. Now the option agreement. It is in the same terms as Schedule 1 to the principal agreement. The option agreement recites that Yerba is registered or entitled to be registered as the holder of five million units in the Trust. It provides that Yerba grants to Stirling an option to purchase the units for a purchase price determined in accordance with a formula provided.

8. Clause 2 of the option agreement is as follows:

"2. The option may be exercised by the Grantee by notice

in writing delivered to the Grantor at any time prior
to its termination in accordance with clause 6 (sic).
Notice may be sent by prepaid security post or by
telex and where sent by post shall be deemed to have
been received on the third business day in the place
of receipt after posting and where sent by telex on
the first business day in the place of receipt after
transmission. For the purposes of this clause
"business day" shall mean a day on which the banks as
defined in section 5(1) of the Banking Act 1959 (as
amended) are open for the full range of banking
business in both Melbourne and Canberra."

9. The parties agree that the reference to clause 6 was intended to be a reference to clause 7.

10. Clause 3 of the option agreement provides for calculation of the purchase price, but goes on to provide that where SPIL has failed or refused to repay amounts deposited with it by Stirling pursuant to the provisions of the principal agreement then the purchase price shall be $1 only.

11. Clause 4 of the option agreement provides that the parties acknowledge that the certificates in respect of the units are being held by Stirling together with a transfer, and that, upon exercise of the option and payment of the purchase price to Yerba, Stirling may complete the transfer and lodge it together with the certificates with the trustee or manager of the Trust for registration.

12. Clause 7 of the option agreement provides as follows:

"7. This Option shall terminate upon:

7.1 the sale or other disposition of the Units by the
Grantor provided that the Grantor shall not sell
or otherwise dispose of the Units other than with
the consent of the grantee, which consent shall
not be unreasonably withheld, and provided
further that where the Units are sold for a
consideration which after deduction of all
reasonable selling expenses is in excess of the
Purchase Price applicable at the date upon which
the Units are so sold one-quarter of any such
excess is forthwith paid to the Grantee;

7.2 the expiration of two (2) years from the date
hereof;

7.3 SPIL repaying all moneys deposited with it by the
grantee pursuant to an agreement of even date
between the Grantee and SPIL."

13. Both the principal agreement and the option agreement provide that their terms should be governed and construed in accordance with the laws of the Australian Capital Territory and that the parties submit to the jurisdiction of this Court.

14. In accordance with the principal agreement Stirling paid the fee of $375,000 and deposited a total sum of $2.875 million with SPIL and procured Yerba to purchase the units. Stirling delivered to Yerba certificates relating to three million of the units and retained the certificates relating to the remaining two million units.

15. There is a limited area of dispute on the facts surrounding the purported exercise of the option by Stirling. The plaintiff relied upon the evidence of its secretary, Mr Jonathan Chapman. The defendant relied upon the evidence of a director, Mr Michael Andrew Ramsden. Evidence was given by way of affidavit in the first instance. Both deponents submitted to cross-examination. Having observed both witnesses in the witness box I prefer the evidence of Mr Chapman where it conflicts with that of Mr Ramsden. I find the relevant facts to be as follows:

1. At about 12.40 pm on 25 June 1987 Mr Ramsden arrived

unannounced at Stirling's offices at 405 Collins
Street, Melbourne and gained access to the office of
Mr Chapman. He identified himself and stated that he
was from Duke Securities and that the purpose of his
visit was to collect some unit certificates in the
name of Scandinavian Pacific. Mr Chapman had no
immediate recollection of the matter and said so.
Mr Ramsden said that he had a cheque for $2.875
million to repay the deposit with Duke Securities.
Mr Chapman was surprised that a cheque for such a
large amount would be proferred to him in such
circumstances. He recollected that there had been
transactions between Stirling and SPIL but he could
not recollect the details. He was reluctant to accept
the cheque because he had no precise knowledge as to
what it represented. He expressed that reluctance and
that reason to Mr Ramsden. Mr Chapman was
apprehensive as to his own position if he accepted the
cheque. He told Mr Ramsden that he was not in the
habit of refusing money and added that the scrip for
the units would be at the bank. Mr Ramsden handed
the cheque to Mr Chapman, Mr Chapman glanced at the
cheque and noticed that it was not a bank cheque. He
did not read the details on the cheque. Mr Chapman
handed the cheque back to Mr Ramsden and said that he
would speak to other people in the company regarding
settlement of the matter and would telephone
Mr Ramsden later that afternoon. Mr Ramsden then left
the office.

2. At about 2.00 pm a letter was sent by Duke, signed by

Mr Ramsden, to a company called Aust-Wide Management
Limited in Sydney, purporting to confirm the sale on
behalf of Yerba, of five million Stirling Property
Trust units for a total consideration of $6.15
million, and nominating Friday 26 June 1987 as the
date for settlement. Objection was taken on behalf of
the plaintiff to admitting this letter into evidence.
It was allowed into evidence on the basis that it was
capable of affording support to Mr Ramsden's account
of what had happened, in that Mr Ramsden was not
likely to have sent the letter unless his account of
what had happened was accurate. The document is in my
view no less capable of being simply a self-serving
document. It supports a belief on the part of
Mr Ramsden that what had happened at 12.40 pm had
terminated the option granted to Stirling, but I do
not find that proof of that belief is in itself of any
probative weight on the factual issue as to what had
happened.

3. Between about 3.00 pm and 3.30 pm Mr Ramsden tried to

telephone Mr Chapman. On the first two occasions he
was told that Mr Chapman was at a meeting and on the
final occasion was told that Mr Chapman was
unavailable.

4. At about 3.40 pm Mr Ramsden returned to the Stirling

offices and attempted to give the cheque to a person
in the reception area. She refused to accept it. A
person engaged by Stirling in sales or marketing also
refused to accept the cheque. At about 4.10 pm
Mr Ramsden left the premises of Stirling, still in
possession of the cheque.

5. At about 3.50 pm whilst Mr Ramsden was at Stirling's

premises, a letter from Stirling arrived at the
premises of Yerba, also in Collins Street, Melbourne.
The letter said:-

"We refer to the agreement dated 24 December 1985
between our companies in relation to the five
million contributing units in the Stirling
Property Trust.

In accordance with clause 2. of the option
agreement, we hereby exercise our option to
purchase the five million contributing units
(which have since become fully paid) for a price
of $1.20 per fully paid unit in accordance with
clause 3. of the option agreement.

We would be grateful for acknowledgement of this
notice."

6. At about 4.30 pm Mr Ramsden once again returned to the

premises of Stirling and left the cheque with the
receptionist. He was out the door before the
receptionist could hand it back to him.

7. At about 5.20 pm Stirling caused a letter accompanied

by the cheque to be delivered to Duke's offices.

8. At about 8.00 pm Duke caused a letter to be delivered

to Stirling in which a chronology of the afternoon's
events was set out and which went on to say:

"The purported notice of exercise of the option
which was delivered this afternoon is not
accepted. In the first place it arises from what
we consider to be the deceptive conduct on the
part of officers of your company. In the second
place your company cannot claim to exercise the
option after having refused to accept repayment
of the deposit. Thirdly the notice was not
served in accordance with the option agreement.
We demand on behalf of Yerba the immediate return
of the scrip relating to the five million units
and advise if they are not delivered up to this
office by 10.00 am tomorrow (26 June 1987) we
shall make immediate application to the Supreme
Court for the recovery."

The letter concluded with a paragraph stating that:

"As there is no point in continuing to run up and
down Collins Street with unopened envelopes we
will hold your funds in trust on your behalf
until you request them."

16. The issue raised on the originating summons is whether Stirling validly exercised the option in accordance with clause 2. of the option agreement by means of the letter delivered at approximately 3.50 pm, or whether at that stage the option had already been terminated in accordance with clause 7.3 of the option agreement by payment by Duke of the monies deposited with Stirling. It was not contended that the notice exercising the option had not been properly served. Counsel for each of the parties took the view, if I understood them correctly, that the issue boiled down to the question whether in clause 7.3 of the option agreement the words "pursuant to an agreement" qualified the word "repaying" or qualified the word "deposited". However I do not think that the real issue is to be identified in that way. The option agreement provided in clause 7.3 that the option should terminate upon SPIL repaying all monies deposited with it by Stirling, so that the question to be addressed is whether there was in fact a repayment by SPIL of the monies deposited with it by Stirling. I am unable to see that the word "repaying" has any different meaning depending upon whether it is qualified by the words "pursuant to an agreement" or not. In order to determine whether there was a repayment I think it is necessary to look at the terms of both documents and to the circumstances of the transactions.

17. It was submitted on behalf of the plaintiff that on a proper construction of the principal agreement SPIL had no right to repay the money on deposit without a request from the plaintiff Stirling or without the consent of Stirling. To the same end it was argued that "the commercial reality" behind the transactions was that it did not make sense of the agreement that SPIL should be entitled to repay the deposits at its whim. It is sufficient to say, with respect to this part of the argument on behalf of Stirling, that neither the terms of the agreement nor the commercial background to the transactions requires the principal agreement to be construed subject to an implied term that SPIL was entitled to repay the deposits to Stirling only upon notice or with Stirling's consent.

18. The next submission on behalf of Stirling was that a tender of the cheque drawn on Duke was insufficient to discharge any obligation to make payment. It was submitted that a creditor is not bound to accept payment of a debt except in "cash or legal tender", the two terms, according to the submission, meaning the same thing. In a sense the argument begs the question as to whether there is a form of tender recognised by law apart from a tender of cash. Whatever is or was the situation regarding coin of the realm and banknotes in England, legal tender in Australia includes the tender of notes issued by the Reserve Bank of Australia, see s. 36 of the Reserve Bank Act 1959, and coin issued by the Treasurer, see s. 16 of the Currency Act 1965.

19. It is clear that generally speaking a creditor is under no obligation to accept a negotiable instrument, even a bank cheque, in payment of a debt, see Chitty on Contracts Vol. 1 25th Ed. paragraphs 1420 and 1436. Nevertheless the rule is subject to two qualifications. The parties may by agreement specify a mode of payment otherwise than by legal tender, and a creditor may waive the right to payment by legal tender. Counsel cited a long line of authority to support these propositions, going back to Wright v. Reed 1 TR 554 in 1790, and even in that case the court made reference to an earlier decision of Lord Mansfield in 1758 in Miller v. Race 1 Burr 452. More recent authorities in Australia include George v. Cluning (1979) 28 ALR 57, a decision of the High Court, Paynter v. Williams (1983) 2 VR 377 and Re Parker (1985) 79 FLR 338.

20. In George v. Cluning Barwick C.J. at p 59, after remarking that the agreement in that case contemplated the transmission of moneys by post, went on to say that to construe an agreement like that in modern times as requiring legal tender to effect payment would require very precise indications to that effect. Mason J., as he then was, and with whom Aitkin J. agreed said at p 62-3

"In my opinion the appellant, through his solicitors,
by receiving the respondent's personal cheque without
objecting to it on the ground that it did not
constitute legal tender, must be taken to have
accepted the cheque as payment of the amount for which
it was drawn. The practice of giving and accepting
personal cheques in payment of debts and liabilities
is now so widespread that there is a general
expectation on the part of persons making payments
that a personal cheque, given in payment of a debt or
liability, will be accepted unless the payee objects
before or at the time of receipt that the cheque does
not constitute legal tender. To my mind the law was
correctly stated in two Canadian decisions - Wexelman
v. Dale (1917) 35 DLR 557 and Laidlaw v. Rehill (1943)
4 DLR 429 - where it was decided that a personal
cheque, though not legal tender, was a sufficient
payment if not objected to on that account."

21. George v. Cluning (1979) 28 ALR 57 illustrates that, in modern conditions and without specific provision in the contract, parties to a commercial transaction may expect to pay and to be paid by cheque but that the entitlement to pay by cheque and the obligation to receive payment by cheque is not absolute. The payee may waive the right to be paid in cash and if the payee accepts tender of a cheque without objection to its form the payee is deemed in the language of the old law to have "waived" the right to payment in cash. Similarly if the payee rejects the tender of the cheque for a reason other than the form of the tender the payee is deemed in the terms of the modern law to have declined to exercise his or her right to object to payment in that form and hence to have waived the right to payment in cash.

22. Refusal to accept payment by cheque on some express ground other than the form of payment is considered to constitute a waiver of objection. In the present case nothing was said by Mr Chapman or anyone else on behalf of Stirling on the afternoon of 25 June 1987 which in any way raised an objection to the form of tender. Mr Chapman's reason for refusing was simply that he did not know enough about the transaction to which the cheque related. If he had been offered cash presumably he would have rejected it for the same reason, or at least the reason given would have been no more or less valid. In the light of the authorities I conclude that Mr Chapman's failure to object to the form of the tender is fatal to the plaintiff's argument that the cheque did not constitute a valid tender

23. The third submission on behalf of the plaintiff was that even if the proferring of the cheque was a valid tender, as I hold that it was, there was nevertheless no payment in accordance with clause 7.3 of the option agreement. Counsel for Yerba submitted that payment is in law a unilateral act on the part of the payer and that Duke had in effect the right to force payment upon an unwilling Stirling. Counsel for Stirling submitted the contrary, namely that payment is a consensual act, or perhaps more precisely a bilateral act, involving acceptance as well as tender. No authority was cited on either side for these propositions. I think that neither proposition is universally valid, that what is decisive depends upon what is within the contemplation of the parties, that in some contractual situations the debtor may be entitled to effect payment by a method which keeps the creditor entirely unaware of the fact of payment and that in others the knowledge and even approval of the creditor may be necessary before the payer can effect payment.

24. That there is a difference between tender and payment is clear. A plea of tender may not be raised to an action unless the amount tendered is paid into Court, Order 26 Rule 1. A plea of payment on the other hand is a plea in full discharge and satisfaction.

25. Counsel for the defendant did not go so far as to suggest that merely leaving a cheque in the reception area of the Stirling premises in an envelope constituted a valid payment. He relied on the facts established that not only had Mr Ramsden gained entry to Mr Chapman's office but that he had succeeded in getting the cheque into Mr Chapman's hands and having Mr Chapman look at it, even if Mr Chapman did not read it before he handed it back. In those circumstances, according to the submission, payment was consummated and the handing back of the cheque on the part of Mr Chapman to Mr Ramsden created a mere bailment whereby Mr Ramsden or Yerba or Duke or all or any of them became bailee of the cheque on behalf of Stirling. The submission involves I think a concession that had Mr Chapman had the presence of mind to expressly raise the objection that payment should be in cash and not by means of a cheque then payment would not have been effected. This seems to me to be a wholly unreal situation and illustrates the untenable nature of the submission put on behalf of Yerba.

26. Nevertheless there was further reliance on behalf of Yerba upon a principle that a person cannot take advantage from his or her own wrong doing. This principle is said to be enshrined in New Zealand Shipping Co. Ltd v. Societe Des Ateliers Et Chantiers De France [1997] UKHL 17; (1919) AC 1, and perhaps it is no more than a refinement of the principle of logic that a person who has brought about a particular result cannot rely upon the proposition that somebody else has brought it about. The principle being as much a principle of common sense as a principle of law should be applied in a common sense sort of way. I doubt whether it can convert a non-payment into a payment. What it might mean in a particular set of circumstances is that a creditor who has prevented a debtor from effecting payment should not be permitted to behave as if payment had not occurred and thereby to gain some consequent advantage. In circumstances of that nature, the creditor has to be under an obligation to accept the payment proferred. There is nothing in the contract in this case authorising the method of payment which Yerba sought to adopt. The method of payment includes not only the form of the money or monies worth tendered but also the time and place of tender. I do not think that at the time of the making of the contract either party contemplated that payment of the deposit of $2.875 million might be effected by somebody from Duke or SPIL turning up unannounced in the office of Stirling's secretary and leaving a cheque drawn on Duke for that amount. Mr Chapman observed in evidence that he was surprised that someone would turn up at his office unannounced with a cheque for $2.875 million. He might have been more surprised if someone had arrived with cash and he might have been even more apprehensive about his own position if he had accepted cash. Mr Ramsden's opening announcement as to the purpose of his visit was that he had come to collect some certificates, not to repay money on deposit. It is conceded that if Mr Chapman had uttered an objection to the form of the tender before giving the cheque back to Mr Ramsden then the tender would have been ineffective. I think that the tender and momentary acceptance of the cheque in the circumstances amounted neither to a payment nor to conduct which should be treated as if it were a payment within the New Zealand Shiping Company principle.

27. In my view there was no reason why Stirling was not entitled to exercise the option which it did by delivering the letter to Yerba at 3.50 p.m. on that eventful afternoon of 25 June 1987. It would appear that it was the attempted payment by Duke which promoted Stirling to take the step of exercising the option and obtaining whatever advantange that was to be had by doing so but I see no reason why Stirling was not entitled to act in that way.

28. I propose to make a declaration in the terms of paragraph 1. and an order in terms of paragraph 2 of the originating summons of 26 June 1987. However I shall hear the parties on costs and any other consequential orders.