Commercial contracts often evolve quickly. Early discussions, informal arrangements, then a more “formal” document prepared under time pressure. A recurring question in disputes is whether those documents should be read together, and whether later agreements really replace earlier ones.
The New South Wales Court of Appeal’s decision in Balout v Dobro Dosle Pty Ltd [2025] NSWCA 275 is a clear warning that courts will start, and usually finish, with the words actually used, even where the outcome is harsh for one party.
For business owners, investors and developers, this case shows how payment obligations, forfeiture clauses and replacement agreements are interpreted in practice.
Who was involved and what was the deal?
Mr and Mrs Balout owned a large property at 127 Castle Hill Road, West Pennant Hills (“Property 127”), which they believed could be rezoned and sold for a substantial profit. Mr Joseph Touma was an investor who proposed to fund rezoning costs and assist with the eventual sale.
The first agreement: July 2014
On 23 July 2014, Mr Touma and Mr Balout signed a handwritten agreement (the “July Agreement”). Under that document:
- Mr Touma would loan $140,000 to allow Mr Balout to repay an existing debt;
- Mr Touma would fund rezoning costs and living expenses up to $20,000 per month; and
- if the property sold for more than $16 million, Mr Touma would be repaid all funds advanced plus $1 million.
Importantly, the July Agreement expressly stated that a more formal agreement would be prepared.
The second agreement: August 2014
That formal agreement was executed on 1 August 2014 (the “August Agreement”). It was expressed to be between the Balouts and an “Investor” (a company later found not to exist, though this did not affect the outcome).
The August Agreement contained several key differences:
- The investor agreed to fund “the sum of $20,000 per month”, from the date of the agreement until sale or completion of Property 127, not merely expenses up to that amount (clause 4.1(a)).
- A strict forfeiture clause provided that if the investor failed to make payments and failed to rectify the default within two months of being notified, the investor would forfeit all rights to any return (clause 4.2).
- When the property was sold, the investor would receive repayment of funds advanced plus either $1 million or 50% of sale proceeds above $22 million (whichever was greater) (clause 5(d)).
Notably, the August Agreement did not refer to the $16 million threshold contained in the July Agreement.
What went wrong?
Although the $140,000 loan was paid, Mr Touma only made two monthly payments of $20,000, in November and December 2014. No further payments were made.
In late 2014, Mr Balout raised the missed payments. Mr Touma acknowledged that “double payments” would be made later to catch up, but those payments never occurred.
In mid-2015, the Balouts negotiated directly with a developer and entered into a Put and Call Option Deed to sell Property 127 for $19.5 million, without Mr Touma’s involvement.
After further disputes, the parties entered into a Deed of Settlement in July 2015 under which Mr Touma was repaid $180,000, and the August Agreement was released. Despite this, Mr Touma later sued for the $1 million success fee.
The trial decision, and the problem
At first instance, the trial judge held that:
- the July and August Agreements should be read together; and
- the obligation to pay $20,000 per month was not a fixed obligation, but depended on need or request.
On that basis, the judge found that the forfeiture clause had not been triggered and that the $1 million was payable.
The Court of Appeal disagreed.
Key issue 1: should the two agreements be read together?
The Court of Appeal held that there was no basis to read the July and August Agreements as operating together.
The August Agreement did not refer to the July Agreement, and its execution objectively indicated an intention to replace and formalise the earlier handwritten document.
Critically, counsel for Mr Touma had abandoned reliance on the July Agreement at trial, a fact the Court regarded as significant. The Court emphasised that where a later agreement covers the same subject matter but uses different language and different thresholds, the later agreement will ordinarily govern.
Key issue 2: was the $20,000 a fixed monthly obligation?
Yes.
The Court held that clause 4.1(a) of the August Agreement imposed a clear, fixed obligation to pay $20,000 per month. The wording, “the sum of $20,000 per month”, was materially different from the July Agreement’s reference to expenses “not exceeding” $20,000.
There was no textual basis for implying that payments depended on requests, proof of need, or discretion. The fact that payments were actually made in fixed monthly amounts reinforced that interpretation.
Key issue 3: forfeiture means forfeiture
Once the fixed payment obligation was established, the operation of the forfeiture clause followed logically.
Clause 4.2 required three things:
- failure to make the required payments;
- notification of default; and
- failure to rectify within two months.
All three occurred.
The Court rejected arguments that:
- notification had to be in writing; or
- repeated notices were required for ongoing defaults.
The clause was described as “clear and simple”, and there was no room to soften its operation by reference to commercial sympathy or hindsight. As a result, Mr Touma forfeited his entitlement to the $1 million success fee.
Why this matters for business owners and investors
This case highlights several practical lessons:
- Later agreements usually replace earlier ones unless they clearly say otherwise.
- Courts enforce the words used, not what parties later say they intended.
- Fixed payment clauses are taken seriously, if you agree to pay a set amount, failure to do so can have severe consequences.
- Forfeiture clauses operate strictly and can eliminate otherwise valuable entitlements.
For businesses entering funding, investment or development arrangements, this decision underscores the importance of careful drafting and disciplined compliance with payment obligations.
At Elton, we focus on ensuring that contracts say exactly what our clients intend, and that those intentions will hold up when tested in court.