Rian Financial Services Pty Limited v Alfred Investment Projects Pty Limited [1988] ACTSC 13 (11 March 1988)

SUPREME COURT OF THE ACT

RIAN FINANCIAL SERVICES PTY. LIMITED v. ALFRED INVESTMENT PROJECTS
PTY LIMITED
S.C. No. 913 of 1985
Vendor and Purchaser

COURT

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

CATCHWORDS

Vendor and Purchaser - contract of sale of land - failure to complete contract by stipulated date - notice to complete issued but withdrawn by vendor - conversation between solicitors - whether time became of the essence - unreasonable delay/conduct by purchaser - whether vendor could treat contract as abandoned by purchaser.

Penn v. Lord Baltimore (1750) 1 Ves Sen 444

Legione and Another v. Hateley [1983] HCA 11; (1983) 152 CLR 406

Ciavarella v. Balmer [1983] HCA 26; (1983) 153 CLR 438

Lindgren & Ors., Contract Law in Australia, 1986

J.W. Carter, Breach of Contract 1984 p 433

Hongkong Fir Shipping Co. Ltd. v. Kawasaki Kisen Kaisha Ltd. (1962) 2 QB 26

Establissements Chainbaux S.A.R.L. v. Harbormaster Limited (1955) 1 Lloyd's Reports 303

Michael Realty Pty. Ltd. v. Carr (1977) 1 NSWLR 553 at 567

Georgiou v. Sindel (1982) 1 NSWLR 435 at 453

Ogle v. Comboyuro Investment Pty. Ltd. [1976] HCA 21; (1976) 136 CLR 444

HEARING

CANBERRA
11:3:1988

ORDER

There be judgment for the defendant with costs.

DECISION

This a suit for specific performance of a contract for sale of land situated at 45 Erin Street, Queanbeyan, New South Wales.

2. No point was taken as to jurisdiction. Although the land is situated outside the Territory and the proper law of the contract appears to be the law of New South Wales, this Court has jurisdiction to grant the relief sought: Penn v. Lord Baltimore (1750) 1 Ves Sen 444. It was not suggested that in any material respect the law of New South Wales differs from the law of the Territory.

3. The defendant as vendor entered into a written agreement with the plaintiff as purchaser on 12 June 1984. The agreement was in the standard Agreement for Sale of Land - 1982 Edition produced by the Law Society of New South Wales and the Real Estate Institute of New South Wales. A number of special conditions were inserted into the agreement.

4. Amongst the standard conditions were the following:

"19. If this agreement is rescinded (as distinct

from terminated) pursuant to any express
right to rescind (as distinct from a right to
terminate) conferred by this agreement, the
rescission shall be deemed to be a rescission
ab initio, and

(a) the deposit and all other money paid by
the Purchaser hereunder shall be
refunded; and

(b) neither party shall be liable to pay the
other any sum for damages, costs or
expenses; provided that

(i) this exoneration shall not apply to
the extent that any such damages,
costs or expenses arose out of a
breach of any term or condition
contained or implied in this
agreement; and

(ii) where the Purchaser has lawfully
received the benefit of possession,
such other adjustment as is just
and equitable in consequence of
such possession, shall be made
between the parties.

21. (a) Service of any notice or document under
or relating to this agreement;

(i) may be effected as provided in
s.170 of the Conveyancing Act,
1919;

(ii) shall be sufficient service on a
party if effected on the solicitor
for the party in any manner
provided in that section;

(iii) may be effected and shall be
sufficient service on a party and
that party's solicitor, if
addressed to such solicitor and
delivered to an appropriate place
in the facilities of a document
exchange system in which the
recipient solicitor has receiving
facilities; and such notice or
document shall be deemed to have
been received by such party and
that party's solicitor on the
second business day following the
date on which it was first
delivered to such place;

(b) a notice given or document signed or
served on behalf of any party by that
party's solicitor shall be deemed to
have been given, signed or served by
that party personally."

5. Amongst the special conditions were the following:

"10. Completion of this contract shall take place
on 31st October 1984. If completion shall
not have taken place on that date either
party may serve on the other a written notice
requiring completion to take place within 14
days after the date of such notice and any
such notice may provide that time shall be
thereupon deemed to be of the essence of the
contract.

11. Completion of this agreement is conditional
on and subject to the Purchaser entering into
a mortgage with the Vendor on the terms and
conditions set out in the Memorandum of
Mortgage a copy of which is annexed hereto
and marked with the letter 'B".

12. (a) This Agreement is conditional upon the
consent of the Queanbeyan City Council
being given to the construction on the
subject property of eight two-bedroom
units.

(b) The Purchaser shall on or before 29th
June 1984 at his own expense make the
necessary application to the relevant
authorities for such consent.

(c) If consent is refused either party may
rescind the Agreement in accordance with
the provisions of clause 19 hereof.

(d) If the consent is granted subject to any
condition with which either party may be
unable or reasonably unwilling to
comply, that party may subject to the
proviso hereunder give to the other
notice in writing that the conditional
consent is unacceptable to him and the
consent shall be deemed to have been
refused PROVIDED THAT where either party
considers that consent has been granted
subject to a condition with which he is
unable or reasonably unwilling to
comply, he shall within seven (7) days
of receiving notice of such condition,
give notice to the other party of such
fact. If within a further fourteen (14)
days thereafter the other party shall,
at his absolute discretion, elect to
comply with or perform such condition or
indemnify the other party in respect of
the cost of his complying with or
performing
such condition, such other party
shall not be entitled to give notice in
writing that the conditional consent is
unacceptable to him and the consent
shall be deemed to have been given.

(c) If such consent shall not have been
given by 31st October 1984 the Agreement
shall be at an end and the provisions of
clause 19 hereof shall apply."

6. It was common ground at the hearing that the consent of the Queanbeyan City Council referred to in clause 12(a) of the special conditions was a reference to consent to development approval and not to building approval. Accordingly, there was an obligation on the purchaser to make application to the Queanbeyan City Council for development approval on or before 29 June 1984. In fact the plaintiff through its solicitor, Mr. Charles Filgate Giles, did not make the application for development approval as agreed, but on 14 September 1984 Mr. Giles sent to Mr. Farrell, a real estate agent acting for the vendor, an application for development approval with a request for the document to be endorsed with the consent of the vendor and lodged at the offices of the Council by the vendor.

7. By letter dated 18 January 1985 the vendor through its solicitors purported to rescind the agreement, pursuant to clause 19 and clause 12(c) (sic) of the special conditions, on the ground that the consent of the Queanbeyan City Council had not been received by 31 October 1984. The notice of rescission attached to the letter was dated 22 January 1985. In fact the approval of the Council had been given the day before, 21 January 1985. On 1 February 1985 Mr. Giles replied to the letter contesting the validity of the notice of rescission on several grounds. He drew attention to the fact that the notice purported to be given by a company called Miletus Pty. Ltd. as the vendor, a company which apparently had a beneficial interest in the land in question. He also drew attention to the alleged failure to give fourteen days notice of intention to rescind as required by clause 4 of the special conditions. He contended further that the requirements of clause 12(c) (sic.) had been waived "by the express oral agreements" made between the parties through their representatives. He claimed that on or about 11 January 1985 he had delivered a copy of the final development plans to Mr. Farrell who accepted them for and on behalf of the vendor. Mr. Giles drew attention to the grant of development approval on 21 January 1985. It is common ground that the reference to clause 12(c) was intended to be a reference to clause 12(e).

8. On 6 February 1985 the vendor's solicitors replied to Mr. Giles, withdrawing the notice of 22 January 1985, accepting the return of the cheque for $500 for the deposit, noting "that the above action is taken on the basis of your agreement to vary the terms of the contract to pay the vendor the full purchase price of the block forthwith" and seeking "immediate confirmation that you will be able to settle on or before 20 February 1985".

9. On 11 February 1985 Mr. Giles spoke to Mr. Haslem, solicitor for the vendor, and said that he expected that the purchaser would be able to settle on or about 20 February "but it could be a bit later". Mr. Haslem agreed to this course, but stated that he wanted to obtain the transfer at an early date so that he could be certain of obtaining the execution by the vendor prior to settlement. On 18 February 1985 Mr Giles replied, enclosing a memorandum of transfer for execution with a request "for its immediate return in anticipation of settlement" and remarking that settlement might be delayed beyond 20 February 1985 to a date "shortly thereafter", because of a rearrangement of finance relating to a number of transactions. The letter stated that it was envisaged that the transactions "will be settled, along with the Erin Street purchase, within 7-14 days hereof".

10. It was at about this time that disciplinary proceedings were commenced against Mr. Giles in this Court by the Law Society of the Australian Capital Territory. On 1 March 1985 the Court ordered that Mr. Giles' name be removed from the roll of barristers and solicitors and that his right to carry on practice be restricted to the winding-up and disposal of his practice.

11. The restriction of the right of Mr. Giles to practice came to the notice of Mr. Haslem who took the view that he was thenceforth dealing with Mr. Giles as a director of the purchaser company and not as the solicitor. The view may have been mistaken in that Mr. Giles, although apparently controlling the plaintiff company, was not a director of it. Furthermore, the terms of his restricted right to practice nevertheless entitled him to continue to act until the completion of the purchase of the land at Erin Street. It appears to have been assumed that although the contract was subject to the law of New South Wales, Mr. Giles in acting for the purchaser was doing so as a legal practitioner of the Australian Capital Territory. In any event Mr. Haslem formed the view that it would be "negligent" to send to Mr. Giles in advance of settlement a form of transfer executed by the vendor. The relevance of Mr. Haslem's opinion is a matter which I shall discuss below.

12. On 6 March 1985 Mr. Haslem wrote to Mr. Giles, noting that settlement had not yet been "proposed" and stating that "unless a definite date for settlement is set down, such date being prior to 15 March 1985, we are to exercise our client's rights under the contract immediately".

13. There is an issue as to whether this letter was ever received by Mr. Giles or received on behalf of the purchaser. Mr. Giles gave evidence that it had not been so received and that there was no other person but himself who could be expected to have received the letter on behalf of the plaintiff company. This latter item of evidence was not challenged and I accept it. It was submitted on behalf of the plaintiff purchaser that sub-clause 21(a) of the written agreement of 12 June 1984 made exclusive provision for the mode of service of notice of documents relating to the contract and that the letter of 6 March 1985 was not served in accordance with the section. In my view sub-clause 21(a) did not have that effect. The provisions of sub-clause 21(a) are set out earlier in these reasons for judgment. In my view the use of the word "may" in paragraph (i) of sub-clause 21(a) is to be contrasted with the use of the word "shall" in paragraph (ii) and indicates that the provision for mode of service is facultative only and not obligatory. In my view personal delivery is not excluded as a method of service. In any event, the letter was properly served in accordance with the provisions of s.170(1)(b) of the Conveyancing Act 1919 (NSW) which provides for service "at the last known place of abode or business in or out of New South Wales of the person to be served". On the evidence the address at 40 Mugga Way was the last known place of abode or business of the plaintiff. I accept Mr. Haslem's evidence that the procedure for postage carried out within his firm was one which had not within his experience resulted in any failure of delivery. I am therefore satisfied that the letter arrived at its destination at 40 Mugga Way which was the registered office and last known place of business of the purchaser as well as being the residence apparently of Mr. Giles and his family. It was also the place where Mr. Giles carried on his limited right to practice.

14. There is also a possibility, in my view, that upon arrival at its destination the letter either became lost or was overlooked because of the pressure upon Mr. Giles at the time relating to the winding-up of his practice as a solicitor and to the financial and organizational difficulties that had become pronounced at that stage. I nevertheless conclude that Mr. Giles and hence the plaintiff purchaser was fixed with knowledge of the contents of the letter.

15. On 20 March 1985 a letter attaching a notice of rescission on behalf of the vendor was delivered to the premises at 40 Mugga Way. The notice made reference to the agreement of 12 June 1984 and stated that the vendor "pursuant to clause 12(c) rescinds and terminates the above contract and returns the deposit paid".

16. Mr. Giles replied to the letter and to the notice by letter of 22 March 1985 denying the right of the vendor to terminate the agreement, stating that the purchaser was ready, willing and able to settle and stating that settlement was impossible without the vendor executing the transfer. Further letters were sent by Mr. Giles on later dates expressing similar views and he placed a caveat on the title. The attitude expressed throughout the correspondence on behalf of the purchaser was that it was always willing and ready to complete the purchase, subject to the executed transfer being delivered to Mr. Giles so that it could be stamped before the date fixed for settlement.

17. According to the evidence of Mr. Haslem, which I accept, some time shortly after 20 March 1985 Mr. Giles telephoned to protest at the letters of rescission. Mr. Haslem explained that Mr. Giles had been asked to settle by 20 February, and then by 15 March 1985, that the vendor was not prepared to wait any longer and had instructed Mr. Haslem to rescind. Mr. Giles responded by saying that he had been waiting for the transfer and could not settle without it.

18. It should be observed that in adopting the tactic which he did adopt, Mr. Haslem was not completely accurate in stating what his client's instructions were, because under cross-examination he conceded that a difference of opinion arose amongst the directors of the vendor company as to whether the proposed sale to the plaintiff should be allowed to proceed. Mr. Woodger, the director who apparently had the last say, had told Mr. Haslem that in view of the events which had transpired the company "was not going to sell to Giles". Mr. Haslem conceded in cross-examination that this effectively prevented him as solicitor for the vendor from attempting to fix a precise date for settlement.

19. Mr. Giles claimed in his evidence, as he did in correspondence after the receipt of the notice of rescission of 20 March 1985, that he was unable to nominate a settlement date because he did not have an executed transfer from the vendor. Mr. Haslem stated that, apart from any question of instructions, he would not, as solicitor for a vendor, prior to settlement send a transfer executed by the vendor to a person acting on behalf of the purchaser who was not a solicitor and that by the end of February he regarded Mr. Giles as having ceased to be a solicitor. From then on Mr. Haslem regarded Mr. Giles as acting only in the capacity of a director of the purchaser company. In this respect Mr. Haslem's assumption was not entirely correct in that Mr. Giles was, according to the court order of 1 March 1985, still entitled to practice in relation to the winding-up of current matters. Accordingly, Mr. Giles was entitled to continue to act as the purchaser's solicitor until the completion of the purchase.

20. Nevertheless, I think that Mr. Haslem's attitude was a proper one. Neither Mr. Giles nor anyone else on behalf of the plaintiff informed Mr. Haslem of the terms of the court order. It was open to the purchaser to appoint another solicitor if it wanted to avoid the difficulties attendant upon Mr. Giles' suspension from practice. Mr. Giles might have used the opportunity to inform persons with whom he was dealing on behalf of clients that he was entitled to continue to deal with them in respect of current matters. He did not seek to use any such opportunity. On the contrary he seems to have disappeared from the scene. Mr. Haslem found it impossible to contact Mr. Giles by telephone and unsuccessfully sought him out at restaurants and like places where he had previously encountered Mr. Giles.

21. I accept the evidence that in normal circumstances the practice in the Territory was that the vendor's solicitor would deliver an executed transfer to the purchaser's solicitor for execution and stamping (assuming that there was no prior contract which had been stamped) at a time in advance of the expected settlement date in order to meet the requirements of a mortgagee, who might not be prepared to advance the mortgage monies forming the purchase price or part of it without sighting a transfer duly stamped and executed by the purchaser as well as by the vendor. However, in my view it was not appropriate to follow that practice where (as Mr. Haslem reasonably believed) the purchaser was acting as if in person and not through a solicitor bound by the rules of professional conduct to hold the document in escrow until the time of settlement. In any event, whatever the practice, it did not comprise part of the terms of the contract. I see no basis for any argument that before the defendant was entitled to fix a date for settlement, it was obliged to deliver a duly executed transfer to the plaintiff or to someone on the plaintiff's behalf. Indeed, apart from what was said in Mr. Giles' letter of 18 February 1985 the point was never taken until the hearing. The purchaser simply asserted after notice of rescission that receipt of an executed transfer in advance of settlement was necessary before settlement could take place.

22. I return to the point that Mr. Haslem conceded in his evidence that there was some difficulty in his instructions at this late stage in that one of the directors of the vendor company wanted to proceed with the sale whereas the other, who apparently had control, had told Mr. Haslem that "the company was not going to sell to Giles". In those circumstances Mr. Haslem took the course of treating the contract as abandoned, rather than one which could not be rescinded until there had been a failure to comply with a notice to complete.

23. In my view, by 20 March 1985 the vendor was entitled to treat the contract as abandoned by the purchaser.

24. This is not a case in which the purchaser can successfully contend that the vendor was disentitled from serving a notice to complete because the vendor itself was in breach. Nor, on the other hand, is it a case where time had been made of the essence of the contract, so that the purchaser in default will, for failure to complete, be denied specific performance: see Legione and Another v. Hateley [1983] HCA 11; (1983) 152 CLR 406. Nevertheless, it is important to recognize that the purpose of a notice to complete is not restricted to effecting completion of the sale: Ciavarella v. Balmer [1983] HCA 26; (1983) 153 CLR 438, and hence that failure to comply with a notice to complete is not the only way in which the conduct of a purchaser may indicate to a vendor that the purchaser does not intend to honour the purchaser's obligations under the contract. This point is made in Lindgren & Ors., Contract Law in Australia, 1986 where the authors state at para. 1954:

"Generally speaking, where time is not essential
the promisor's breach of the time stipulation
does not give rise to a right to terminate unless
the promisee first serves a notice requiring
performance within a reasonable time. There are,
however, two exceptions to this rule."

25. The two exceptions are, first, where the promisor is guilty of unreasonable delay in the performance of an express time stipulation either because the breach has had serious consequences for the promisee or because the delay amounts to a repudiation of obligation on the part of the promisor, and second, where the promisee terminates on the ground of anticipated unreasonable delay.

The authors go on to comment:
"A promisee's decision to terminate without
notice for breach of a non-essential time
stipulation certainly exposes him to
considerable risks, since it must be difficult
to prove that the promisor was so placed that he
would not have complied with a reasonable
notice. It is therefore a 'perilous' course to
take."

26. A similar view is expressed by J.W. Carter, Breach of Contract 1984 p.433 where the author states as follows:

"Where a promisee elects to continue performance
after a breach of the promisor's main obligation
under a contract his election does not imply a
willingness to be eternally bound by a contract
which will not be performed. The promisee is
still entitled to receive the promisor's
performance, and if the promisor fails to comply
with a notice allowing a reasonable time for
performance, the promisee's right to terminate
revives notwithstanding that, in a sense, the
promisor has merely failed to remedy his prior
breach. Moreover, as was explained earlier, if
it is clear that the promisor cannot (or will
not) perform, the promisee may be able to justify
termination, without first serving notice, on the
basis that performance of the contract has become
substantially different from that intended by the
parties." (My emphasis)

27. The reference to earlier explanation is to a discussion at p.197 of the decision in Hongkong Fir Shipping Co. Ltd. v. Kawasaki Kisen Kaisha Ltd. (1962) 2 QB 26 in which the general principle may be found that a promisee may, without notice, terminate a contract where the promisor's breach of the term, irrespective of the nature of the term, is sufficiently serious. The author takes the view that the fact that the common law permits a promisee to serve a notice making time of the essence does not operate to exclude termination without notice under the Hongkong Fir doctrine. If the author's view is correct, as I think it is, then a promisee may terminate without notice so long as the delay on the part of the promisor is unreasonable.

28. Carter also notes at p.197 that where the promisee neither waits for the effluxion of a reasonable period of time, nor gives notice making time of the essence, the promisee can nevertheless justify termination if he can prove that the promisor would have been unable to comply with a notice allowing a reasonable time for performance. If this is the case the failure to give notice can be disregarded: see Etablissements Chainbaux S.A.R.L v. Harbormaster Limited (1955) 1 Lloyd's Reports 303, compare Michael Realty Pty. Ltd. v. Carr (1977) 1 NSWLR 553 at 567 and Georgiou v. Sindel (1982) 1 NSWLR 435 at 453.

29. Carter agrees with Lindgren that to terminate without giving notice is a dangerous course and that regard should be had to the general character of the contract so that in conveyancing contracts delay may be so common that it must be particularly prolonged before it can be regarded as unreasonable. Regard may also be had to the object of performance so that delay will be unreasonable once the object or purpose is defeated, because it will render performance substantially different from that intended by the parties. The value of performance is also a relevant factor. The evidence in the present case shows that the value of the land had increased substantially between the time of the contract and the time of its purported termination. The delay occurred without fault on the part of the vendor. Delay in completion was to the advantage of the purchaser because the greater the lapse in time until settlement the greater the increase in value over the price the purchaser had agreed to pay for it.

30. An extension of time for a definite period will not necessarily give rise to an election to continue performance, particularly if the promisor has been told that failure to perform within the extended time will result in termination: see Carter at p 1070. Further, Ogle v. Comboyuro Investment Pty Ltd. [1976] HCA 21; (1976) 136 CLR 444 establishes that where a right to fix a time for settlement has been waived, either party can revive the right by serving notice requiring settlement within a reasonable time, and the other party's failure to comply with the notice can be treated as a repudiation of its obligation. Equally, in my view, the promisee should be able to terminate without notice if it is clear that the promisor cannot or will not perform.

31. I turn now to apply the principles of law and equity above stated to the facts as found. The parties were each under an obligation at law under clause 10 of the contract to complete the purchase by 31 October 1984. The same clause 10, however, provided in effect that time was not to be of the essence until 14 days after service of a notice to complete. I am not satisfied that the vendor waived its legal right to completion by the date fixed by the contract, but the vendor's rights in law did not affect the purchaser's right in equity immediately after 31 October 1984 to be given a notice to complete before the vendor could seek to enforce its rights. The notice of rescission given by the vendor dated 22 January 1985 was withdrawn. It is not necessary to rule on its validity or its effect. It is sufficient to state that it was withdrawn in circumstances which led the vendor reasonably to believe that settlement would take place by 20 February 1985. Settlement did not take place on that date. The delay was not due to any fault on the part of the vendor. The further delay between then and 20 March 1985 was not due to the fault of the vendor. It was, in my view, due to the conduct of Mr. Giles acting on behalf of the purchaser. The delay was unreasonable. The conduct of Mr. Giles was such as to lead Mr. Haslem, acting on behalf of the vendor, to conclude reasonably that the purchaser did not intend to be bound by the provisions of the contract. I make that assessment notwithstanding that one of the directors of the vendor company had expressed the view in the later stages that the sale to the plaintiff should not be allowed to proceed. The purchaser was not entitled to receive in advance of settlement an executed memorandum of transfer. It was the purchaser and not the vendor who stood to gain financially by standing by and allowing postponement of the fulfilment of its obligation under contract. In my view, the delay arose from unreasonable conduct on the part of the purchaser and was such as to entitle the vendor by 20 March 1985 to treat the contract as abandoned. The vendor was therefore entitled to terminate the contract as at 20 March 1985 without the necessity of a notice to complete. The purchaser is not entitled to a decree of specific performance or any other relief. There will be judgment for the defendant with costs.