5 Ridge Pty Limited v Tryname Pty Limited

Supreme Court of NSW|2017-04-04|Before: Pembroke J, Knoll AM

Solicitors: Deutsch Partners - for the plaintiff Konstan Lawyers - for the defendant File Number(s): 2016/109536

Introduction

The plaintiff was the purchaser pursuant to a contract for sale of land dated 17 December 2015. The defendant was the vendor. On 2 March 2016 the defendant terminated the contract. On 4 April 2016 the plaintiff terminated the contract. The underlying dispute between the parties related to the exercise of an option by one of the tenants in the property which was the subject of the contract for sale.

The Facts

The sequence of events appears to have commenced on 23 November 2015. On that date Mr Demlakian, the principal of the defendant, wrote to the agent Mr Lowry. He informed Mr Lowry that: I also had a chat with the main tenants as their exercise of option dates are all coming up with the negotiation period with the prospective purchasers and note they are all happy to stay for the extended periods shown. I trust this additional certainty with rentals and increases provides sufficient compensation to the purchasers as we are not going to reduce the purchase price but are obviously embarrassed. Again, all I can do is apologise as it has taken me all day to check and make sure it is correct and speak to the other tenants to get certainty across the board.

Section 55(2A) Conveyancing Act

The disputes between the parties related to questions of construction of the contract, rectification and the application of s 55(2A) of the Conveyancing Act 1919 (NSW). That section provides that in any proceedings for the return of the deposit 'the Court may, if it thinks fit, order the repayment of any deposit with or without interest thereon'. It applies notwithstanding the validity of the defendant's termination.
This is not one of those cases where evidence of the resale of the property by the vendor or the price which it achieved in doing so was relevant. There was no evidence about those matters. The issue is not whether the defendant has obtained a windfall. The issue is one of misrepresentation. There is no doubt about the primary importance to the plaintiff of the exercise of the option for the relevant lease.
Mr Miron was a careful and impressive witness. I entirely accept his evidence on this issue, both as to misrepresentation and particularly as to reliance. The defendant also accepted the importance of the exercise of option, at least until the dispute arose. The confirmation of sale document prepared by the agent, and signed by Mr Demlakian on behalf of the defendant, stated that the 'attached Tenancy Schedule dated 30 November 2015 is to form the basis of the negotiated deal'.
The pleaded ground for the application of s 55(2A) is misrepresentation. It was fully addressed in the evidence and submissions. I am satisfied as a matter of fact that there was misrepresentation and that Mr Miron relied on and was induced to enter into the contract for sale by reason of it. The gist of the misrepresentation waGs that the contract was 'subject to the two retail tenants exercising their options'. Mr Miron's belief and his reliance were reasonable and understandable in the circumstances. This is not a case like Nassif & Ors v Caminer [2009] NSWCA 45 where the most that the Court could say was that the misrepresentation claim was 'reasonably arguable': [69].
Whether or not the plaintiff is entitled to succeed on its contentions as to the proper construction of cl 2.1 or cl 11.2 or cl 11.3 or whether there was any defect in the service of the notice to complete, I have concluded that the plaintiff should succeed on its claim pursuant to s 55(2A).
Misrepresentation by a vendor has often been held to be relevant to the exercise of the statutory discretion pursuant to s 55(2A). Two recent examples include Statewide Developments Pty Ltd v Higgins [2011] NSWCA 35 and Havyn Pty Ltd v Webster [2005] NSWCA 182. Each of those cases involved misrepresentation by a vendor and the subsequent exercise of its contractual rights. In Statewide the primary judge was Barrett J. He held that: [132] By taking the course thus contractually available to it, however, the vendor dishonoured the representations made by it (through both display of model and the agent's representative) that had understandably been taken into account by the purchaser as an important consideration in deciding to buy the particular property for the particular price.
He then concluded: [133] That to my mind amply justifies an order under s 55(2A) that the purchaser should have the deposit restored to him. It would be unjust or inequitable to allow the vendor to have the benefit of the deposit when it had acted (admittedly in exercise of a contract right) to undermine an important part of the circumstances that had induced the purchase to contract with it as he did.
See Higgins v Statewide Developments Pty Ltd [2010] NSWSC 183.
In the Court of Appeal, Sackville AJA applied the same principles. He said: [81] The vendor did not dispute that a misrepresentation by a vendor or its agent if acted upon by a purchaser is a material factor which can be taken into account in determining whether an order for the return of the deposit should be made: Havyn Pty Ltd v Webster [2005] NSWCA 182. The vendor submitted that the primary judge had erred in failing to consider whether provisions of the contract, specifically the purchaser's acknowledgment in special condition 40 that he had not replied on any representations, negated or counteracted the purchaser's evidence of reliance.
At the conclusion of his judgment Sackville AJA said: [92] ... his Honour had already found (at [133]) that circumstances existed which 'amply justified' an order for return of the deposit and that it would be unjust or inequitable to allow the vendor to have the benefit of the deposit when its own conduct had undermined matters that induced the purchaser to enter into the contract.
In Hayvn, Santow J also addressed the question of misrepresentation by a vendor. He said: [164] The vendor for its part was willing further to extend the date for settlem ent but only if it was released from any claim for misrepresentation... The vendor terminated the contract, relying on its contractual rights; its conduct was not in any way inequitable or unconscionable (to the extent to which that is relevant to s 55(2A). [165] I do not accept that the mere fact that the purchaser has affirmed the contract induced by the misrepresentation requires the Court to deny discretionary relief... While the misrepresentation may be out of the picture, and the right to rescind at law lost for the purposes of contractual doctrines of breach, repudiation and discharge by termination, I do not think that the misrepresentation thereby becomes irrelevant to the exercise of a statutory discretion under s 55(2A).
Finally, Santow J concluded: [171] The vendor was legally entitled to terminate as it did and the purchaser was imprudent to rely on its apparent contrary belief but I am of the view that in the light of the foregoing circumstances, I should order the deposit to be returned in the exercise of my discretion according to the justice of the case. The purchaser's conduct may have been tactically imprudent, but it was not unreasonable. The vendor's conduct was entirely legal and could not be said to be unconscionable or inequitable (so far as those concepts have relevance), but it was considerably less reasonable given the context of the misrepresentation having come to light.
A third relatively recent decision is Nassif v Caminer to which I have made passing reference. In that case there was an illuminating difference in the reasoning of Macfarlan JA and Sackville AJA. Macfarlan JA first emphasised that a deposit is an earnest of performance and that the Court 'should not take an approach to ordering the return of deposits under s 55(2A) which weakens the proper function of the deposit in providing a sanction so that the purchasers treat the making and completing of contracts with due seriousness'.
He then continued, however at [67]: Two factors present here lead me to the view that the Court's discretion should be exercised in favour of the making of an order for the return of the deposit.
He explained those factors in the following paragraphs: [69] The second matter is the representations that were made prior to entry of the parties into the contract...her Honour did not find it necessary to say more than that it was reasonably arguable that the representations constituted a misleading or deceptive conduct. However, the conclusion should in my view be reached that on the evidence before her the representations to the effect that the tenant was secure and only one month in arrears were misleading or deceptive... [70] It is not necessary for the purpose of the exercise of discretion under s 55(2A) to predict what would have been (or perhaps might be) the outcome of any separate proceedings brought by the purchaser claiming damages for misleading or deceptive conduct particularly as to reliance and damages. It is sufficient for present purposes to say that the conduct which I regard as misleading or deceptive was plainly about a matter that was of considerable significance to the purchaser. [71] It would not in my view be a just and equitable outcome of the dealings which occurred between the parties for the vendors to be entitled to retain the deposit which was paid by the purchaser. The act of the purchaser, which I regard as a repudiation, was founded on conduct of the vendors about a very important matter concerning the property being conduct which I consider the purchaser was justified in regarding as misleading or deceptive.
Sackville AJA was concerned about the quality of the evidence of the misrepresentation, but did not differ as to the applicable principle. He said: [94] In the circumstance of the present case I do not think that the representations said to have been made on behalf of the vendors prior to the purchaser's entry into the contract provide a sound basis for an order requiring the vendors to return the deposit. The proceedings determined by the primary judge were not intended to resolve the purchaser's claim that he was entitled to damages by reason of the vendor's contraventions of the Fair Trading Act. [95] The purchaser's summons made no reference to s 55(2A) of the Conveyancing Act... In any event the factual question addressed by her Honour was not whether there had been misleading or deceptive conduct by or on behalf of the vendors but whether the purchaser had made his claim for damages in good faith and on a reasonable and proper basis. There was no occasion in the proceedings at first instance to resolve finally the allegation of misleading and deceptive conduct. [96] In my view neither the findings made by the primary judge nor the evidence adduced at trial can fairly be used to attribute responsibility to the vendors for misleading and deceptive conduct that influenced the actions of the purchaser. Her Honour was not asked to make findings to this effect.
The criticisms made by Sackville AJA in that case do not apply in this case. As I have said, the issue of misrepresentation was pleaded and fully addressed. I am satisfied that both misrepresentation and reliance have been proved. I should add that I am conscious of the warning by the High Court of Australia in Romanos v Pentagold Investment Pty Ltd (2003) 217 CLR 367 - a case not directly concerned with the application of s 55(2A). The Court said at 375: Equity does not intervene in such a case to reshape contractual relations in a form the Court thinks more reasonable or fair where subsequent events have rendered the situation of one side more favourable than the other side.
Nonetheless, the statutory discretion available to a court pursuant to s 55(2A), although not unlimited, is broad. Respected Judges of this division have often stated that a liberal approach should be adopted to its application. In Lucas and Tait (Investments) Pty Ltd v Victoria Securities Ltd [1973] 2 NSWLR 268, Street CJ in Eq expressed his agreement with the 'liberal approach to the jurisdiction conferred by the section' at [272] and expressly declined to state 'where the boundaries of the discretion are to be drawn' at [273]. He was mirroring the approach taken by Jacobs J in Horne v Zebra Motor Inn Pty Ltd (unreported 12 September 1963).
And the same approach was applied by Mahoney JA in Nelson v McDonald (unreported 27 November 1972), who said: There are no words of limitation expressed in the section and it would, therefore, not be right in my view to impart a gloss which would have the effect of preventing a purchaser from recovering a deposit in any case where a vendor has rescinded because of a repudiation by a purchaser.
I have reached the view that the exercise of my discretion in this case in favour of the plaintiff on the ground of the defendant's misrepresentation in the particular circumstances is in accordance with principle and consistent with precedent. I should add that this is not one of those cases where the plaintiff did not in fact rely on the misrepresentation but was content to place his trust in the terms of the contract, whatever meaning those terms might be found to have. Such circumstances sometimes occur. But in this case Mr Miron did not abdicate his reliance in favour of his solicitor's drafting skill. He maintained a clear belief before and after the contract was signed that the defendant had agreed that the contract was 'subject to the two retail tenants exercising their options'.
In essence, Mr Miron understood and believed that absent the exercise of the relevant retail options, the deposit would not only not be released to the defendant, but that the contract would not be required to be completed. He held that belief on reasonable grounds because of what was conveyed by Mr Demlakian and his agent Mr Lowry. It was, as Mr Miron understood, it the 'basis of the contract'.

Issues of Construction: Clause 2.1

I will address the contractual construction issues briefly. The contextual evidence which I have set out at length provides assistance in identifying the genesis, object and purpose of the amendment to cl 2.1. It also assists in identifying the mischief that the amendment was designed to redress. The principles of construction are well known but they are sometimes difficult to apply in a given case. In Electricity Generation Corporation v Woodside Energy Limited [2014] HCA 7 French CJ, Hayne, Crennan and Kiefel JJ explained the principle as follows at [35]: The meaning of the terms of a commercial contract is to be determined by what a reasonable business person would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding 'of the genesis of the transaction, the background, the context [and] the market in which the parties are operating'. As Arden LJ reserved in Re Golden Key Ltd, unless a contrary intention is indicated, a Court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption 'that the parties... intended to produce a commercial result'. A commercial contract is to be construed so as to avoid it, 'making commercial nonsense or working commercial inconvenience'.
On the defendant's construction of cl 2.1, its object was only to benefit the defendant. On that approach 2.1 merely provided for the early release of the deposit and the accrual of interest in favour of the defendant. But the context made clear that the object was not that. Rather it was the protection of the plaintiff in the light of its stated concern about the status of the Rusty's Café lease. The defendant's construction not only ignores that object and purpose but renders the language of cl 2.1 meaningless and devoid of effect.
On the defendant's approach the vendor will always get the deposit. The plaintiff's approach applies the language used by the parties in accordance with its terms. As the option for the relevant lease was not obtained, it follows in accordance with cl 2.1 that the defendant was not entitled to the deposit. The parties could not have sensibly intended that contrary to the language of cl 2.1 the defendant should have the deposit if the lease option was not obtained.
Nor could they have sensibly intended that completion should nonetheless occur, but that the defendant should not receive the deposit. The plaintiff's construction is the natural construction and makes cl 2.1 workable. The defendant's construction gives rise to serious difficulties of application and further uncertainty. I well understand the concern of counsel for the plaintiff to emphasise that prior negotiations should not be used to the extent that they are merely reflective of the actual intentions and expectations of the parties; that they do no more than reveal the terms of the contract which the parties intended or hoped to make; and that they are superseded by and merged in the contract itself: Codelfa Construction Pty Limited v State Rail Authority of New South Wales [1982] 149 CLR 337 at 352.
That is an important consideration, which I am the first to acknowledge. But this is not such a case and the warning in Schwartz v Hadid [2013] NSWCA 89 at [38] does not have any relevant application in this case. In fact, the contextual evidence during the period prior to 17 December does not reveal the terms of the contract which the parties intended or hoped to make. It reveals their object and purpose and it explains the genesis of the amendment to cl 2.1.

Clauses 11.2 and 11.3

Clause 11.2 was not amended. It has always provided that the purchaser cannot make a claim or requisition or rescind or terminate or delay completion 'as a result of any matter or thing referred to or arising from the special condition 11'. There was no negotiation over any suggested change to that provision. The complication that has arisen is that the vendor warranties clause proposed by Mr Nasr was incorporated in cl 11 and numbered 11.3. That was Mr Kotowicz's work. It was agreed to by Mr Nasr. Its natural consequence is that the prohibition on the purchaser making a claim "as a result of any matter or thing referred to or arising from this special condition 11" also applies to the warranty in cl 11.3.
The relevant warranty is that 'in respect of each of the leases referred to in the Tenancy Schedule annexed to this contract...each of the leases is subsisting'. There was no real issue of construction. It is not possible in the light of the clear language of cl 11.2 and 11.3 to reach a result that avoids the effect of the prohibition on the making of a claim.
The question which really arises is whether cl 11.3 should be rectified simply by renumbering it, so that it becomes a freestanding clause. The remedy of rectification requires proof of an identical actual intention by the parties which is inconsistent with the effect which the executed instrument has, in some clearly identifiable way. The true intention of the parties must be sufficiently precise and specific to displace the hypothesis arising from the execution of the document that it expressed their true intention: Commissioner of Stamp Duties NSW v Carlenka Pty Limited (1995) 41 NSWLR 329.
At the factual level the question is whether, when Mr Kotowicz responded to Mr Nasr's request for the incorporation of the vendor warranties clause that he proposed, and did so by simply incorporating it into cl 11 - to which Mr Nasr agreed - was that a mistake? Did each of the parties, through their solicitors, actually intend that the vendor warranties clause should be freestanding and operate independently of the prohibition against making certain claims in cl 11.2.1?
I am afraid to say that the subjective intentions of the parties, in particular the intentions of Mr Demlakian and Mr Miron, not to mention the intentions of Mr Nasr and Mr Kotowicz, were not fully canvassed on this issue in the evidence. Indeed, they were hardly explored. Their precise intentions as to what they intended would be the effect of the vendor warranties clause, was not something about which I can be safely satisfied. The rectification claim appeared to occupy a secondary position in the presentation of the case. I therefore do not feel able to order the rectification which the plaintiff seeks.

Notice to Complete

There is one final issue which, in the circumstances, does not matter. However, I should express some brief reasons. The plaintiff contended that the notice to complete was invalid because it was served less than 14 days prior to the nominated date for settlement and therefore failed to meet the requirements of a valid notice prescribed by cl 3.1 of the special conditions of the contract.
The practical reason why the notice was not served until less than 14 days prior to the nominated date, is that it was sent initially by facsimile to the wrong fax number and by post to the wrong address. This was entirely the fault of Mr Kotowicz, the defendant's solicitor. The result was that it was not actually received until two days later, namely on 17 February 2016. By that date there were fewer than 14 days before the nominated date for completion.
Clause 9.2 of the special conditions provides that when a facsimile is sent to the facsimile number of a party's solicitor on the contract, it is deemed to be served on that party. However, cl 9.2 does not state when a facsimile sent to the facsimile number on the contract is deemed to be received. On its own, it does not assist in determining when the 14 day period commenced to run.
Clause 9.4 does prescribe when a document sent by facsimile is deemed to be received. It states that the document is received 'on the business day on which it is received'.
Clause 9.1 also prescribes when a document sent by facsimile is deemed to be received. It is subject to the preamble to cl 9 which makes clear that it is to be read in addition to standard cl 20.6.5. Clause 9.1 only applies in respect of a facsimile that is served for the purposes of standard cl 20.6.5. The standard cl 20.6.5 provides that a facsimile is not deemed to be served if it is not received and that in the result a facsimile that is not received, is not 'served if sent' for the purposes of cl 9. The result is that cl 9.1 has no effect in relation to such a facsimile. For those reasons the plaintiff is entitled to succeed in its contention that the notice to complete was invalid.

Indemnity Costs

The plaintiff seeks indemnity costs on the basis of an offer of compromise dated 27 June 2016. The plaintiff succeeded on all issues, other than cl 11.3. It is true that the express reliance on s 55(2A) of the Conveyancing Act and the apparent reliance on cl 2.1 were only included in the amended statement of claim which was filed in Court on 28 March 2017. However, the plaintiff also succeeded on the issue of the validity of the notice to complete and would have been entitled to succeed in the proceedings even if the amendments were not made to the statement of claim.
It is an important principle of policy that losing parties should face the consequence of having to pay the costs of the successful party. That policy encourages compromise and discourages unmerited defences and claims. An aspect of that policy is that the Courts encourage parties and their solicitors to think seriously about proceeding after an offer of compromise has been made.
In this case the offer of compromise was made nine months ago. If it had been accepted, the defendant would be in a significantly better position than it is now and the Court would not have been troubled with the conduct of this hearing. And time would have been available for other litigants to have their disputes determined and resolved.
The defendant has failed. It has failed on all but one issue. It could have accepted the offer of compromise in June or July last year. It does not matter that two of the issues on which the plaintiff succeeded were introduced late in the proceedings. I therefore order the defendant to pay the plaintiff's costs on an indemnity basis from 28 June 2016.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 07 April 2017

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