Bruce Hunter Spencer and Faye Alison Talbot v Gary Thomas Chipperfield and Trevor John Withers [1989] ACTSC 54 (15 November 1989)

SUPREME COURT OF THE ACT

BRUCE HUNTER SPENCER and FAYE ALISON TALBOT v. GARY THOMAS
CHIPPERFIELD and TREVOR JOHN WITHERS
S.C. No. 388 of 1986
Contract

COURT

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

CATCHWORDS

Contract - buyer and seller - leasehold interest - action for return of deposit and for damages - approval of finance a condition of contract - right of parties to rescind in absence of such approval.

Roach v. Bickle [1915] HCA 80; (1915) 20 CLR 663

Brown v. Heffer [1967] HCA 40; (1967) 116 CLR 344

Perri and Another v. Coolangatta Investments Proprietary Limited [1982] HCA 29; (1982) 149 CLR 537

Suttor v. Gundowda Proprietary Limited [1950] HCA 35; (1950) 81 CLR 418

Gange v. Sullivan [1966] HCA 55; (1966) 116 CLR 418

Cheshire & Fifoot (5th Australian edition)

HEARING

CANBERRA
15:11:1989

Counsel for the plaintiffs: Mr. T. Johnstone

Solicitors for the plaintiffs: O'Connor Harris Solicitors

Counsel for the defendants: Mr. A. Hogan

Solicitors for the defendants: Barrads Solicitors

ORDER

The defendants be entitled to treat as forfeited by the plaintiffs the deposit of $7,400 referred to in clause 2 and schedule item 8 of the contract between the parties dated 15 November 1985.

The plaintiffs within 21 days authorise the stakeholder, Leader Real Estate Pty. Ltd., to pay to the defendants the sum of $3,700 held by it.

The plaintiffs within 21 days pay to the defendants pursuant to Special Condition 28 of the said agreement between the parties the balance of the deposit of $3,700.

This relief be granted subject to the defendants' solicitors, within seven days, filing an amended counter-claim in the terms allowed at the hearing.

DECISION

This is an action by the plaintiffs (the buyers) against the defendants (the sellers) for return of a deposit paid pursuant to a contract (the contract) for the purchase of a leasehold interest in land, together with damages for breach of that contract. In addition to passing title to the lease (a lease from the Commonwealth), the contract obliges the sellers to complete the construction of "improvements" on the land, but nothing turns on this aspect.

2. The contract bears date 15 November 1985, but it appears that there was no exchange until 22 November 1985.

3. The contract is in the standard form in use in the Australian Capital Territory, with some Special Conditions added. The Schedule provides in Item 8:
" $

Purchase price (1) Crown Lease 74,000.00
(2) Goods (if any) Nil
(3) TOTAL PURCHASE PRICE 74,000.00
(4) Less deposit 7,400.00
(5) Balance payable on
completion 66,600.00"

4. Schedule Item 13 provides as follows:

"Item 13 Amount Lender Date for Approval
First Mortgage $70,300 C.B.S. 7/12/85"

5. Some of the relevant provisions of the contract should be set out in full. They are as follows:

"17. Finance Conditions
(1) If Schedule Item 13 is completed this
agreement is subject to each of the
Lenders set out in that Item approving
on the usual terms of approval of that
Lender a loan in an amount no less than
and in the priority set out in that Item
at a rate of interest and on terms usual
for that Lender for loans similar to the
subject loan.
(2) This agreement is also subject to the
consent of each Lender to all subsequent
mortgages and, where appropriate, to the
consent of the Minister under the City
Area Leases Ordinance 1936.
(3) The Buyer may at any time notify the
Seller that he waives the benefit of
this clause.
(4) The Buyer shall forthwith (if he has not
previously done so) make all such
applications for finance and diligently
pursue the same and do all such acts,
matters and things and supply all such
information, certificates and valuations
as may be necessary or desirable for the
purpose of obtaining the necessary
approvals and consents within the
allowed time.
(5) The Buyer shall have until the Date for
Approval or such further time as the
Buyer may request and the Seller may
hereafter in writing allow ("the allowed
time") within which to obtain the
necessary approvals and consents.
(6) The Buyer shall notify the Seller in
writing within the allowed time whether
or not he has obtained all the necessary
approvals and consents. Where the Buyer
is in default under this sub-clause the
provisions of clause 20 shall apply
however the time limited by sub-clause
19(6) to rectify the default shall be
not less than 7 days.
(7) Where within the allowed time the Buyer
has not obtained all the necessary
approvals and consents -
(a) the Buyer, if he is not in default
under either sub-clause (4) or (6),
at any time thereafter, or
(b) the Seller at any time thereafter
(even if the Buyer has after the
allowed time obtained all the
necessary approvals and consents)
may, by notice in writing rescind this
agreement and thereupon the provisions
of clause 21 shall apply except that the
sum of $100.00 shall be withheld from
the deposit and shall be accounted for
by the stakeholder to the Seller and
retained by the Seller towards legal
costs."
"19. Notice to Complete and Default Notice
.....
(5) Where one party is in default in the
observance or performance of any
obligation on him under or by virtue of
this agreement (other than failure to
complete) the other party may at any
time thereafter give to the party in
default a notice in writing to rectify
the default ("default notice").
(6) A default notice shall
(a) specify the default and call upon
the party to rectify the default
within a period being not less than
7 days after the service of the
notice (excluding the date of
service) and
(b) state that it is given pursuant to
this clause.
....."
"20. Termination of Agreement
Buyer in default
(1) Subject to the provisions of clause 19,
if the Buyer defaults in the observance
or performance of any obligation imposed
on him under or by virtue of this
agreement the Seller may forfeit the deposit
paid by the Buyer, except so much of it
as exceeds 10% of the Total Purchase
price, the Seller may terminate this
agreement and thereafter may either
(a) sue the Buyer for breach of
contract, or
(b) resell the Crown Lease and Goods (if
any) as owner.
....."
"21 Rescission of Agreement
If this agreement is rescinded (as distinct
from terminated) pursuant to any expressed
right to rescind (as distinct from a right to
terminate) conferred by this agreement the
rescission shall be deemed to be a rescission
from the beginning and
(a) the deposit and all other money paid by
the Buyer hereunder shall be refunded to
him and
(b) neither party shall be liable to pay the
other any sum for damages, costs or
expenses."
Special Condition No. 28 -
"Notwithstanding Clause 2 hereof the Seller shall
accept as a deposit the sum of $3,700 on the
signing hereof. However should there be default
in this Agreement and the deposit be forfeited,
then the Buyer shall immediately pay the balance
of the deposit to the Seller's solicitors."

6. It may be observed at this stage that the word "deposit" as used in the contract is somewhat ambiguous. The "deposit" payable by the buyers to the stakeholder pursuant to sub-clause 2(1) and Schedule Item 8(4) is $7,400. Notwithstanding clause 2, the sellers are obliged by Special Condition 28 to "accept as a deposit" the sum of $3,700, and in the event of default, the buyers are obliged to immediately pay "the balance of the deposit to the sellers' solicitors". Counsel for the sellers restricted their claim to $7,400. Whether this sum is properly categorised as the deposit, or as to $3,700 being the amount of the deposit and as to $3,700 being damages, is a somewhat academic question on which neither counsel sought to be heard.

7. There was no oral evidence in the case, which falls to be determined upon the pleadings, the contract itself and the correspondence between the parties.

8. The facts may be shortly stated. The buyers, in accordance with Special Condition No. 28, paid $3,700 to a stakeholder, Leader Real Estate Pty. Ltd. Some time prior to 7 December 1985 (the date for approval under Schedule Item 13) the lender declined to approve the buyers' application for a loan to purchase the Crown lease. On 7 January 1986 the buyers' solicitors wrote to the sellers' solicitors advising that "finance has not been approved" and that they were "instructed to rescind the Agreement for Sale". There was further correspondence between the solicitors and on 24 February 1986 the sellers' solicitors wrote to the buyers' solicitors requiring provision of a duly stamped transfer on or before 27 February 1986. In their reply dated 28 February 1986 the buyers' solicitors asserted that the agreement had been frustrated by the failure of the lender to approve finance to the buyers and that the buyers had failed to notify the sellers within the time limited by clause 17(6) of the refusal of the lender to approve finance to the buyers. The letter continued as follows:

"The consequence of the buyers default set out
above was that the buyers lost the right to
rescind under Clause 17(7). This left the seller
with ample time and opportunity to establish
whether the buyers had or had not complied with
Clause 17(4). The seller then had the right:-
(a) to terminate the Agreement for the buyers
failure to comply with Clause 17(4) if the
seller could prove that, or
(b) to rescind under Clause 17(7)."

9. The letter concluded by stating that in the event of the sellers rescinding, the buyers would accept the return of the deposit and take no further action.

10. On 4 March 1986 the sellers' solicitors wrote to the buyers' solicitor, in effect, joining issue and enclosing a default notice issued under clause 19 of the contract.

11. The default notice relied upon the alleged failure of the buyers to tender to the sellers for their execution the appropriate transfer of the Crown lease in registrable form within 14 days of 13 February 1986. The default notice went on to call upon the buyers to rectify the default by 12 March 1986, time to be of the essence. The default notice concluded to the effect that in the event of non-compliance by the buyers, the sellers would, pursuant to clause 20, terminate the agreement, forfeit the buyers' deposit, resell the property and claim from the buyers the deficiency in price (if any) on such resale and all costs and other expenses. On 14 March 1986 the sellers' solicitors wrote to the buyers' solicitors noting the buyers' failure to comply with the default notice and enclosing a formal notice of termination of the contract. The notice of termination claimed as forfeit the deposit (or that part of it paid to the stakeholder) and claimed the payment of $3,700 forthwith, being the balance of the deposit at that stage unpaid. The notice also reserved the right to sue for damages.

12. It is submitted on behalf of the buyers that sub-clause 17(1) was so fundamental to the relationship between the parties that in the event of an absence of approval of finance by the lender (and assuming that the buyers had used their best endeavours to obtain finance pursuant to clause 17(4)) then neither party was under an obligation to complete the purchase. It was submitted that until such approval of finance, the contract was "inchoate", a term which apparently gained favour in Roach v. Bickle [1915] HCA 80; (1915) 20 CLR 663 and which was used by Windeyer J. in Brown v. Heffer [1967] HCA 40; (1967) 116 CLR 344 at p 351.

13. However, in my view, if the arrangements were truly "inchoate", it would be so because some condition needed to be fulfilled before the relationship gave rise to enforceable rights and duties on the part of the buyers and sellers. To that extent, an "inchoate" contract is a contradiction in terms: the relationship cannot be a contractual one unless and until it loses its inchoate character: see the judgment of Mason J. (as he then was) in Perri and Another v. Coolangatta Investments Proprietary Limited [1982] HCA 29; (1982) 149 CLR 537 at pp 551-552.

14. In my opinion the present contract did not fall into this sort of category. The language of clause 2 and Special Condition 28 in particular clearly indicate that the parties intended to enter into rights and obligations prior to and regardless of the approval of finance. Further, sub-clause 17(4) imposes upon the buyers the duty to use their best endeavours to obtain finance, a duty which must arise prior to the granting or refusal of finance. Further, the provisions relating to the deposit and to rescission are inconsistent with the notion that until finance is approved there is no contract.

15. The alternative submission for the buyers was that the approval of finance was a condition of the performance of the contract and that in the absence of the approval of finance then neither the buyers nor the sellers were obliged to complete. If neither party is obliged to complete, then, according to the argument, either party is according to general principle entitled to rescind.

16. Counsel for the buyers sought to place reliance on Perri. However, I do not think that anything in that case goes to support the case presented on behalf of the buyers. The case was concerned with a sale of property pursuant to a contract which contained a provision that "this contract is entered into subject to the purchasers completing a sale of their property" and questions arose as to the obligation of the purchaser to make reasonable efforts to sell the property within a certain time period. There is discussion in the judgments about conditions precedent and conditions subsequent. Counsel for the buyers in the present case submitted that Special Condition 28 made the granting of finance a condition precedent to the obligation to perform on the part of both buyers and sellers (a submission which was in the alternative to the suggestion that until finance was granted there was no contract at all). The judgments of the Justices of the High Court, however, are clear in their message that the attempt to classify contractual terms as conditions precedent or subsequent is of little assistance in determining their meaning and effect. In the words of Gibbs C.J. at p 541.

".... provided the effect of a condition is understood,
its classification may be merely a matter of words."

After discussing the right to treat a contract as at an end when time has elapsed for performance of a condition which is not a promissory condition, the Chief Justice observed at p 546 that:

"What I have said is, of course, subject to any
sufficient indication of a contrary intention in
the words of the contract itself."

17. So it is then that the present case is to be decided according to the terms of the contract itself.

18. In the present case the parties themselves provided for the time during which fulfilment of the condition of the obtaining of approval of finance was to occur. They further provided for the consequences, or at least some of the consequences, of non-fulfilment of this condition. In particular the terms of the contract give both the buyers and the sellers the right to rescind where the buyers have not obtained the necessary approval for finance within the allowed time. However, the buyers are precluded from exercising that right if they are in default of sub-clause 17(4) (the best endeavours clause) or sub-clause 17(6) (requiring the buyers to notify the sellers in writing within the allowed time whether or not approval for finance had been obtained). Subject to those two restrictions imposed on the buyers either party is entitled to exercise the right to rescind at any time after the expiry of the allowed time.

19. It was submitted on behalf of the buyers that the non-approval of finance restricted the remedy of the sellers to rescission pursuant to sub-clause 17(7). It is to be observed that that sub-clause incorporates the provisions of clause 21 relating to the rescission of the agreement which in turn requires the refund of the deposit to the buyers (less $100 to be retained by the sellers towards legal costs). Counsel for the sellers, on the other hand, submitted that the rights of the sellers where the buyers are in default are not eliminated or cut down by the provisions of sub-clause 17(7). In particular, counsel for the sellers relied on sub-clause 6(2) which obliges the buyers to tender to the sellers for execution the appropriate transfer of the Crown lease in registrable form within 14 days from the date referred to as "the starting date" which is in the present case the date for approval of finance, that is to say 7 December 1985.

20. According to decisions such as Suttor v. Gundowda Proprietary Limited [1950] HCA 35; (1950) 81 CLR 418 and Gange v. Sullivan [1966] HCA 55; (1966) 116 CLR 418, a contract is not automatically discharged by non-fulfilment of a condition that governmental approval is to be obtained within a specified period. The non-fulfilment was regarded as giving either party (if not in breach) a right to terminate which was exercisable by election. In the latter case, in the judgment of Taylor Menzies & Owen JJ. at p 441:

"Whilst the effect of a condition must in every
case depend upon the language in which it is
expressed and a decision upon the meaning of one
condition cannot determine the meaning of a
different condition, the authorities cited do show
a disposition on the part of courts to treat
non-fulfilment of a condition such as that here under
consideration as rendering a contract voidable
rather than void in order to forestall a party to
a contract from gaining some advantage from his
own conduct in securing, or contributing to, the
non-fulfilment of a condition bringing the
contract to an end."

21. In Perri Mason J. said at p 554:

"If on non-fulfilment neither party exercises the
right to terminate, the contract continues on foot."

22. The authors of Cheshire & Fifoot (5th Australian edition) make the comment at para 2205 that if a provision that a contract "shall be deemed to be at an end" (as in Gange) or "deemed to be cancelled" (as in Suttor) "is not enough to produce automatic termination, it is evident that parties who wish to achieve such a result will have to be very explicit indeed."

23. In my view, the submission on behalf of the sellers is correct. The contract does not oblige the sellers to rescind in the absence of the approval of finance, whether or not the buyers have carried out their obligation to use their best endeavours to obtain finance or to inform the sellers of the approval or non-approval of finance. The buyers are given certain limited rights to rescind in the event of the non-approval of finance and I am unable to see how the failure of the buyers to exercise that right to rescind entitles the buyers to compel the sellers to rescind. In my view, if the buyers have not exercised their limited right to rescind then the sellers are entitled to treat the contract as still on foot. In particular, they are entitled to call for the tender of a registrable transfer of the Crown lease, in accordance with sub-clause 6(2), failing which, the buyers being in default, the sellers may proceed to terminate the agreement pursuant to clause 20.

24. It follows that the sellers have terminated the agreement by the giving of all necessary notices (and by the failure of the buyers to comply with those notices). Accordingly the sellers are entitled, under sub-clause 20(1) to the return of the deposit and damages for breach of contract. As I have already indicated, however, the sellers limit their claim to return of the $3,700 already paid as part of the deposit to the stakeholder and to the remaining $3,700, whether that latter sum is regarded as damages or as the balance of the deposit.

25. In accordance with these findings, the relief sought by the buyers as plaintiffs in the statement of claim is refused. The relief sought by the sellers as defendants in the amended counter-claim is granted in part in terms of paragraphs 1(f)(g)(h) of the amended counter-claim respectively, that is to say, I make the following declaration and orders:
1. A declaration that the defendants are entitled to treat

as forfeited by the plaintiffs the deposit of $7,400
referred to in clause 2 and schedule item 8 of the
contract between the parties dated 15 November 1985.

2. An order that the plaintiffs within 21 days authorise

the stakeholder, Leader Real Estate Pty. Ltd., to pay
to the defendants the sum of $3,700 held by it, and

3. An order that the plaintiffs within 21 days pay to the

defendants pursuant to Special Condition 28 of the said
agreement between the parties the balance of the
deposit of $3,700.

26. This relief is granted subject to the defendants' solicitors, within seven days, filing an amended counter-claim in the terms allowed at the hearing.

27. Unless the parties wish to be heard, I propose to order that the plaintiffs pay the defendants' costs.