Balog v Crestani [1975] HCA 16; (1975) 132 CLR 289 (22 May 1975)

HIGH COURT OF AUSTRALIA

BALOG v. CRESTANI [1975] HCA 16; (1975) 132 CLR 289

Vendor and Purchaser

High Court of Australia
McTiernan(1), Gibbs(2) and Jacobs(3) JJ.

CATCHWORDS

Vendor and Purchaser - Sale of land - Default by purchaser - Right of vendor to terminate the contract and sue for damages or resell and recover deficiency - Time not of essence - Notice to complete by fixed date - Statement that in default of compliance vendor will exercise his power under contract without further notice - Effect.

HEARING

Sydney, 1975, April 22; May 22. 22:5:1975
APPEAL from the Supreme Court of New South Wales.

DECISION

May 22.
The following written judgments were delivered:-
McTIERNAN J. The appellant and the respondent entered into a contract for the sale of five acres of land at Bossley Park in New South Wales. The appellant was the purchaser and the respondent the vendor. The contract was in the form approved by the Law Society of New South Wales and the Real Estate Institute of New South Wales (1972 ed.) and cl. 16 of the contract is in the following terms:

"If the Purchaser defaults in the observance or performance
of any obligation imposed on him under or by virtue of this
agreement the deposit paid by him hereunder, except so much of
it as exceeds 10% of the purchase price, shall be forfeited to the
Vendor who shall be entitled to terminate this agreement and,
thereafter either to sue the Purchaser for breach of contract or
to resell the property as owner and the deficiency (if any) arising
on such resale and all expenses of and incidental to such resale
or attempted resale and the Purchaser's default shall be
recoverable by the Vendor from the Purchaser as liquidated
damages provided that proceedings for the recovery thereof be
commenced within 12 months of the termination of this
agreement. The Vendor may retain any money paid by the
Purchaser on account of the purchase other than the deposit
money forfeited under this clause as security for any deficiency
arising on a resale or for any damages or compensation
(including any allowance by way of occupation fee or for rents or
profits from a Purchaser who has been in possession of the
property or in receipt of the rents or profits thereof) awarded to him
for the Purchaser's default provided that proceedings for the
recovery of such damages or compensation be commenced
within 12 months of the termination of this agreement." (at p291)
2. The contract was dated 20th December 1972, but had not been completed twelve months later. On 20thDecember 1973, the respondent served on the appellant and his solicitors a notice to complete which recited the history of the transaction and proceeded to state that the respondent required completion on 4th January 1974. The notice to complete was in these terms:

"WHEREAS by Contract dated 20th December, 1972
ANTONIO CRESTANI agreed to sell and TIBOR BALOG agreed
to purchase for the sum of Ninety five thousand dollars
($95,000.00) the freehold property situate in the Municipality of
Fairfield, Parish of St. Luke and County of Cumberland being
Lot 3 in Section D in Deposited Plan No. 6934 and being the
whole of the land comprised in Certificate of Title Volume 5386
Folio 170 AND WHEREAS the said Contract provided for
completion to take place on or before the 30th March, 1973
AND WHEREAS the said TIBOR BALOG did not complete by the
said date AND WHEREAS by Notice to Complete dated the 23rd
July, 1973 and the said ANTONIO CRESTANI required the said
TIBOR BALOG to complete the said Contract by the 7th August,
1973 AND WHEREAS the said TIBOR BALOG did not so complete
AND WHEREAS by Notice to Complete dated 24th October,
1973 the Vendor further required the said TIBOR BALOG to
complete the said Contract by the 13th November, 1973 AND
WHEREAS the said TIBOR BALOG did not so complete AND
WHEREAS by a further Notice to Complete dated 13th
November, 1973 the Vendor required the said TIBOR BALOG to
complete the said Contract by the 4th December, 1973 AND
WHEREAS the said TIBOR BALOG failed to so complete AND
WHEREAS the said TIBOR BALOG despite numerous requests for
completion made by the Vendor's Solicitor on his behalf has
neglected to complete the said Contract and to pay the balance
purchase monies as is provided in the said Contract THEREFORE
TAKE NOTICE that the Vendor requires the said TIBOR BALOG
to tender a Transfer complying with the said Contract and to
pay the balance of purchase monies by 12.00 noon on the 4th
day of January, 1974 and in this respect time shall be of the
essence AND FURTHER TAKE NOTICE that the Vendor appoints
Friday, 4th day of January, 1974 at 12.00 noon at the offices of
the Commercial Banking Company of Sydney Limited, Branch
Securities, 343 George Street, Sydney as the date, time and
place of completion AND FURTHER TAKE NOTICE that if the said
Contract is not fully and finally completed by the said time, then
the Vendor will exercise his power under the Contract without
further notice." (at p292)

3. Completion did not take place on 4th January 1974 and the respondent gave the appellant notice that in the circumstances he intended to exercise his right under cl. 16 of the contract to terminate the contract and treat the deposit as forfeited. (at p292)

4. The appellant thereafter sought a declaration in the Supreme Court of New South Wales that the respondent was not entitled to give the appellant notice purporting to be a notice to complete and that the notice was void and of no effect. The Supreme Court (Holland J.) refused to make such a declaration and the appellant appealed to this Court. (at p292)

5. The sole argument put before this Court by the appellant was that the respondent was not entitled to exercise his right under cl. 16 of the contract, and that the notice to complete of 20th December 1973 was void and of no effect, because it failed to identify specifically the effect of non-compliance by the appellant with the requirements of the notice to complete. It was claimed that the words "the Vendor will exercise his power under the Contract without further notice" were ambiguous and unclear and that the notice to complete was deficient in form for this reason. (at p292)

6. In my opinion, the words challenged as ambiguous, when considered in the context of the previous history of the transaction, clearly indicate an intention on the part of the respondent to terminate the agreement and to retain the deposit as provided by cl. 16. I find that the use of the word "his" in the phrase "his power under the Contract" refers the purchaser to cl. 16 of the contract and to the power thereby conferred upon the vendor. The respondent was therefore entitled to take the action he took on 4th January 1974. (at p292)

7. For these reasons I would dismiss the appeal. (at p292)

GIBBS J. On 20th December 1972, by a contract in writing, the respondent agreed to sell and the appellant to purchase a parcel of land at Bossley Park for a price of $95,000. By the combined effect of cl. 1 and the 1st sch. to the contract the appellant was required to pay a deposit of $9,500 upon the signing of the contract and the balance of the purchase price in cash on completion, which the Schedule provided should take place on or before 30th March 1973. The contract was in a form approved by the Law Society of New South Wales and the Real Estate Institute of New South Wales. By cl. 16 it was provided as follows:

"If the Purchaser defaults in the observance or performance
of any obligation imposed on him under or by virtue of this
agreement the deposit paid by him hereunder, except so much of
it as exceeds 10% of the purchase price, shall be forfeited to the
Vendor who shall be entitled to terminate this agreement and
thereafter either to sue the Purchaser for breach of contract or
to resell the property as owner and the deficiency (if any) arising
on such resale and all expenses of and incidental to such resale
or attempted resale and the Purchaser's default shall be
recoverable by the Vendor from the Purchaser as liquidated
damages provided that proceedings for the recovery thereof be
commenced within 12 months of the termination of this
agreement . . . "

Clause 20 provided as follows:

"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 to him;
(b) neither party shall be liable to pay the other any sum for
damages costs or expenses; and
(c) if the Purchaser is or has been in occupation or in receipt
of the rents or profits of the property he shall account for or
pay to the Vendor the net rents and profits received or a fair
occupation rent for the property (whichever is the greater)
until the date of rescission but the Vendor shall give the
Purchaser credit for any interest paid by the Purchaser and
any resulting balance payable by the Purchaser may be
deducted by the Vendor from the deposit and other moneys
before returning the same to the Purchaser."

An express right to rescind in certain circumstances was given by cll. 15 and 17 of the contract but those clauses have no application to the circumstances of the present case. The contract nowhere provided that time was of the essence of the contract. (at p293)

2. The deposit was duly paid, but the contract was not completed on or before 30th March 1973. Eventually, the respondent's solicitors began to press the appellant for completion and gave no fewer than three notices - dated respectively 23rd July 1973, 24th October 1973 and 13th November 1973 - requiring the contract to be completed. It is unnecessary to refer to the form of the earliest notice; the two later notices were in similar terms - they recited that the respondent was ready, willing and able to complete the contract and required the appellant to complete the contract, tender a transfer complying with the contract and pay the balance of purchase moneys within twenty-one days from the date of the notice, and stated that "in this respect time is hereby made of the essence of the aforementioned Contract". Each of these notices concluded by stating that if the appellant failed to comply with the notice and complete the purchase by the date mentioned "the vendor will then forfeit the moneys paid by you as deposit pursuant to the said Contract or resell the property as owner and claim from you the deficiency (if any) arising on such resale and all expenses incidental to such resale or attempted resale in accordance with Clause 16 of the said Contract and seek such other relief as he may be entitled to by Law". This was a confused and inaccurate statement of the rights of the respondent under cl. 16, but the notices nevertheless ought to have conveyed the intention of the respondent to treat the contract as at an end if they were not complied with. After the latest of these notices was given, the parties and their solicitors met, on 20th November 1973, and reached agreement on certain matters which were recorded in a document described as "Heads of Agreement". They resolved that the existing contract be rescinded and that such rescission should take place contemporaneously with the settlement of a new contract of sale. This new contract was to be for the sale of the land for a consideration of $105,000. They agreed that the notice to complete dated 13th November 1973 be rescinded and that exchange and settlement of the new contract of sale be effected on 4th December 1973. It was held by the learned primary judge that the agreement reached on 20th November 1973 amounted to a waiver of the notice given on 13th November 1973, but was not intended to affect the contract of 20th December 1972 unless and until a further formal document was executed. This finding is not challenged. In fact no new contract was ever executed. On 3rd December 1973 the respondent's solicitors forwarded a new form of contract for execution by the appellant, and suggested that settlement take place on 11th December; having received no reply they telephoned the appellant's solicitors on 10th December 1973, and in the course of a discussion the latter solicitors said: "Our client does not wish to proceed with the purchase and he wishes to break the contract." On 20th December 1973 the respondent gave to the appellant a further notice to complete. This notice read as follows:

"WHEREAS by Contract dated 20th December, 1972
ANTONIO CRESTANI agreed to sell and TIBOR BALOG agreed
to purchase for the sum of Ninety five thousand dollars
($95,000.00) the freehold property situate in the Municipality of
Fairfield, Parish of St. Luke and County of Cumberland being
Lot 3 in Section D in Deposited Plan No. 6934 and being the
whole of the land comprised in Certificate of Title Volume 5386
Folio 170 AND WHEREAS the said Contract provided for
completion to take place on or before the 30th March, 1973
AND WHEREAS the said TIBOR BALOG did not complete by the
said date AND WHEREAS by Notice to Complete dated the 23rd
July, 1973 the said ANTONIO CRESTANI required the said
TIBOR BALOG to complete the said Contract by the 7th August,
1973 AND WHEREAS the said TIBOR BALOG did not so complete
AND WHEREAS by Notice to Complete dated 24th October, 1973
the Vendor further required the said TIBOR BALOG to complete
the said Contract by the 13th November, 1973 AND WHEREAS
the said TIBOR BALOG did not so complete AND WHEREAS by a
further Notice to Complete dated 13th November, 1973 the
Vendor required the said TIBOR BALOG to complete the said
Contract by the 4th December, 1973 AND WHEREAS the said
TIBOR BALOG failed to so complete AND WHEREAS the said
TIBOR BALOG despite numerous requests for completion made
by the Vendor's Solicitor on his behalf has neglected to
complete the said Contract and to pay the balance purchase
monies as is provided in the said Contract THEREFORE TAKE
NOTICE that the Vendor requires the said TIBOR BALOG to
tender a Transfer complying with the said Contract and to pay
the balance of purchase monies by 12.00 noon on the 4th day of
January, 1974 and in this respect time shall be of the essence
AND FURTHER TAKE NOTICE that the Vendor appoints Friday,
4th day of January, 1974 at 12.00 noon at the offices of the
Commercial Banking Company of Sydney Limited, Branch
Securities, 343 George Street, Sydney as the date, time and
place of completion AND FURTHER TAKE NOTICE that if the said
Contract is not fully and finally completed by the said time, then
the Vendor will exercise his power under the Contract without
further notice."

This notice also was not complied with; the appellant's solicitor said that he would not settle because the notice was invalid. On 7th January 1974 the respondent's solicitors gave notice that because of the appellant's failure to complete on 4th January 1974 the respondent exercised his rights under cl. 16 of the contract and forfeited the deposit and terminated the agreement. On 11th January 1974 the appellant issued a summons claiming, inter alia, specific performance of either an alleged contract made on 20th November 1973 or the contract of 20th December 1972. The summons came before Holland J. who dismissed it and on a cross-claim entered by the respondent declared that the contract dated 20th December 1972 had been validly terminated by the respondent. He held that the respondent is entitled to forfeit the deposit and gave him liberty to apply in relation to any claim for damages or in respect of any deficiency on resale. (at p296)

3. Before us it was submitted on behalf of the appellant that the notice to complete dated 20th December 1973 was deficient in form and ineffective. It was conceded that the appellant's delay in carrying out his part of the contract entitled the respondent to give notice requiring performance within a reasonable time and that the time which the notice allowed for performance was reasonable, but it was said that the notice was bad because it did not distinctly state the consequences of a failure to comply with it. Therefore, it was submitted, the respondent had no right to rescind the contract. (at p296)

4. Where a contract contains a promise to do something within a particular time, but time is not of the essence of the contract, the failure by one party to fulfil his promise within the stipulated time does not entitle the other party to rescind the contract; in those circumstances, "the promisee can, generally speaking, only rescind after he has given a notice requiring performance within a specified reasonable time and after non-compliance with that notice". Carr v. J.A. Berriman Pty. Ltd. [1953] HCA 31; (1953) 89 CLR 327, at pp 348-349 . The authorities that deal with the application of these rules to contracts for the sale of land very strongly suggest, even if few of them actually decide, that to be effective the notice requiring performance must inform the party to whom it is given that the party giving it will treat the contract as at an end if the notice is not complied with. In Sugden on Vendors and Purchasers, 14th ed., at p. 268, the principle was thus stated:

"Where time is not made of the essence of a contract by the
contract itself, although a day for performance is named, of
course neither party can strictly make it so after the contract;
but if either party is guilty of delay, a distinct written notice by
the other, that he shall consider the contract at an end if it be not
completed within a reasonable time to be named, would be
treated in equity as binding on the party to whom it is given."

Similar words appear in many cases, and it is usual to describe a notice given for this purpose as a notice limiting the time at the expiration of which the party giving it "will treat the contract as at an end" if the notice has not been complied with: see, e.g., Taylor v. Brown (1839) 2 Beav 180, at p 183 (48 ER 1149, at p 1150) ; Green v. Sevin (1879) 13 Ch D 589, at pp 599-600 ; Stickney v. Keeble (1915) AC 386, at pp 418, 423 ; Ajit v. Sammy (1967) 1 AC 255, at p 258 ; Perry v. Sherlock (1888) 14 VLR 492, at pp 507-508 ; and Lenneberg v. McGirr (1919) 19 SR (NSW) 83, at p 86 . Of course it is not necessary that the notice should use any particular form of words; it is the substance of what it conveys that matters. For example, it will obviously be sufficient to state that if the notice is not complied with, the party giving the notice will treat the contract as abandoned (Stickney v. Keeble (1915) AC 386 ) or will rescind it (Canning v. Temby [1905] HCA 45; (1906) 3 CLR 419, at p 431 ) or will put an end to it (Wendt v. Bruce [1931] HCA 9; (1931) 45 CLR 245, at p 257 ), and there is no reason to doubt that it will be sufficient for a vendor, under a contract similar in form to that in the present case, to give notice that upon non-compliance he will terminate the agreement and either sue the purchaser for breach of contract or resell the property as owner and recover the deficiency, if any, arising on such resale. However, it must be regarded as doubtful whether a notice would be effective if it stated that upon non-compliance the party giving it might treat the contract as at an end, but might on the other hand seek to have it specifically performed. Since the object of the notice is to limit the time for performance, and to indicate to the party in default that he will be in breach of an essential obligation if he delays further, it is understandable that it should be thought to be an objection to the validity of a notice that it suggests that, notwithstanding a failure to complete within the specified time, the party giving the notice might still perform the contract. That an ambiguous notice of this kind would be bad is suggested by the manner in which the rule is generally stated, and by two decisions on the words of particular notices. In Reynolds v. Nelson (1821) 6 Madd 18 (56 ER 995) , a notice given by the vendor asked the purchaser to complete within a specified time and went on to say, "if you make default in the premises, I shall consider you as refusing to perform your agreement, and act accordingly". As to this, Sir John Leach V.C. observed (1821) 6 Madd, at p 26 (56 ER, at pp 998-999) :

"The notice given in this case was not that the defendant
would consider the contract at an end if it was not completed
within the time, but that he would consider its not being
completed within the time as equivalent to a refusal to perform it,
and would act accordingly; but whether he would act as if the
contract were abandoned, or would act by filing a bill for a
specific performance, he leaves wholly in doubt."

The notice was accordingly held to be ineffective, although there were other circumstances in the case that contributed to that conclusion. A somewhat similar decision was given more than a century later in Smith v. Hamilton (1951) Ch 174 , where the notice read as follows:

"The vendors have instructed us that they cannot agree to an
extension of time to complete and that they reserve all their
rights under the contract of sale. They are, however, prepared
without prejudice to delay exercising such rights until the 19th
instant. We should be glad to hear from you with a date for
completion forthwith."

In that case also there were other grounds for holding the notice to be ineffective, but Harman J. appeared to consider that the notice was insufficient in form. He said (1951) Ch, at p 182 :

"That letter did no more than to say: 'We stand on our
contractual rights, but we will not seek to exercise them until April
19'. It had not the effect of making time an essential part of the
contract if it was not so before; it merely stated that the vendor
stood on his contractual rights. Of course a vendor may rely on
his contractual rights: the question is what they are."

On the other hand, in Gostown Pty. Ltd. v. Pryor (1970) 92 WN (NSW) 882 , Helsham J. held a notice to be effective notwithstanding that it stated that upon non-compliance the vendor would either declare all moneys paid by the purchaser forfeited and rescind the contract or resell the property, or alternatively apply to the Supreme Court for an order directing specific performance of the contract of sale. In reaching this decision, Helsham J. followed and applied a dictum in O'Brien v. Dawson (1941) 41 SR (NSW) 295, at p 304 , where Jordan C.J. (enlarging somewhat the traditional statement of the rule) said:

"The time prescribed by such a notice must be reasonable;
and the notice must state with reasonable explicitness what it is
that is being required to be done . . . and that if it be not done
within the time prescribed the party who has given the notice
will treat the contract as at an end, or will treat himself as
entitled to put an end to it."

Today, when adherence to form is not generally much esteemed, it may be thought that it ought to be enough that a party requires performance within a specified reasonable time, and indicates that he will rely on his rights if the other party fails to comply with his requirement, although a prudent solicitor may prefer to use the accepted formula rather than face the prospect of litigation. However, it is unnecessary to resolve this question since for reasons which I shall give I consider that the notice in the present case is sufficient in form however the rule is stated. (at p298)

5. It is commonly said that the time limited by a proper notice becomes, by virtue of the notice, of the essence of the contract. Indeed such a limitation of time binds the giver of the notice as well as the recipient: Finkielkraut v. Monohan (1949) 2 All ER 234 ; Quadrangle Development and Construction Co. Ltd. v. Jenner (1974) 1 WLR 68; (1974) 1 All ER 729 . Thus it is natural to refer to the notice as one making time of the essence of the contract (see, e.g.,Neeta (Epping) Pty. Ltd. v. Phillips [1974] HCA 18; (1974) 131 CLR 286, at pp 298-299 ). But this is to speak of the intended effect of the notice rather than of its form. Clearly a notice which makes no reference to time being of the essence of the contract is not bad for that reason alone - see, e.g., the notice in Stickney v. Keeble (1915) AC, at p 390 . On the other hand there appears to be no decision that establishes that the inclusion of a statement that in respect of the date specified in the notice time shall be of the essence of the contract would be enough in itself to render the notice effective. The whole of a notice would have to be considered in pronouncing upon its efficacy, but the inclusion of words making time of the essence of the contract would go far towards making clear the purpose of the notice and rendering it effective. (at p299)

6. The notice given in the present case concludes by stating that if the contract is not completed within the stipulated time, the respondent "will exercise his power under the Contract without further notice". It was submitted on behalf of the appellant that this simply meant that the respondent intended to exercise whatever power the law might give him in relation to the contract, and that it would be consistent with the notice that he intended to seek specific performance of the contract. An alternative submission made was that even if the power referred to was one expressly given by the contract itself, the notice did not make it clear what power was intended to be referred to; eventually, however, it had to be conceded that this argument was untenable because the only power expressly conferred by the contract that would be applicable in the circumstances would be that conferred by cl. 16. The meaning of the notice must, of course, be determined upon a consideration of all its provisions; it would be wrong to consider what its concluding words, standing alone, would convey. The notice commences with a recital of the previous notices which did indicate with sufficient clarity an intention on the part of the respondent to rescind upon a failure to comply with them. The notice then proceeded to require the appellant to tender a transfer and pay the balance of purchase moneys by a specified time and to state that "in this respect time shall be of the essence". The only purpose of including those words could be to confer on the respondent a right to rescind the contract if the appellant did not tender the transfer and pay the balance within the time mentioned. Viewed in this context the concluding words could not reasonably be understood as an intimation of an intention to seek specific performance. If that was all that the respondent sought it was unnecessary for him to give the notice at all. The words "his power under the Contract" suggest that it is intended to refer to a particular power controlled or governed by the contract and available to be exercised by the respondent. The reference to one power, rather than to all the rights, under the contract, conveys a meaning different from that attributed to the notice in Smith v. Hamilton (1951) Ch 174 . When the concluding words of the contract are considered in the context provided by the whole of the notice it sufficiently appears that the power mentioned is that which is given by the contract to the respondent in the event of a default by the appellant in the performance of his contractual obligations - that is, the power conferred by cl. 16. On the whole, therefore, I have reached the conclusion that upon a fair reading of the notice its concluding words could only reasonably be understood as an intimation of an intention to exercise the powers given by cl. 16 of the contract, or in other words to treat the contract as at an end. Once this conclusion is reached it follows that the notice was effective and that the respondent was entitled to rescind the contract. (at p300)

7. The learned primary judge was therefore correct in the conclusion that he reached and the appeal should be dismissed. (at p300)

JACOBS J. I agree that the appeal should be dismissed. I have read the reasons prepared by Gibbs J. and I agree with them. (at p300)

ORDER

Appeal dismissed with costs.