Supreme Court of WA|2010-07-30|Before: Mr J, Ms P, Murphy J

SAS GLOBAL FORRESTDALE PTY LTD -v- TOWTON INVESTMENTS PTY LTD [2010] WASC 167 (30 July 2010)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : SAS GLOBAL FORRESTDALE PTY LTD -v- TOWTON INVESTMENTS PTY LTD [2010] WASC 167

Practice and procedure - Application for summary judgment - Nature of deposit - Provision of deposit by guarantee - Questions of construction - Whether there is a real question to be tried - Turns on own facts

Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309

Burt v Claude Cousins & Co Ltd [1971] 2 QB 426

Christie v Robinson [1907] HCA 19; (1907) 4 CLR 1338

Combe v Swaythling [1947] Ch 625

Cord Holdings Ltd v Camsan Pty Ltd (Unreported, WASC, Library No 920533, 20 October 1992)

Cordinup Resorts Pty Ltd v Terana Holdings Pty Ltd (1997) 143 FLR 18

Deeks v Little Morton Trading Pty Ltd (1995) 14 WAR 38

Fancourt v Mercantile Credits Ltd [1983] HCA 25; (1983) 154 CLR 87

Henderson v Curtis [2008] WASC 283

Howe v Smith (1884) 27 Ch D 89

Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61; (2007) 233 CLR 115

Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70; (2001) 210 CLR 181

McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; (2000) 203 CLR 579

Metropolitan Electric Supply Company v Ginder [1901] 2 Ch 799

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

O'Keefe & McKenna v Williams [1910] HCA 40; (1910) 11 CLR 171

Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451

Perry v Suffields Ltd [1916] 2 Ch 187

Peters (WA) Ltd v Petersville Ltd [2001] HCA 45; (2001) 205 CLR 126

SAS Global Forrestdalae 2 Ltd v Claycorp Investments Pty Ltd [2010] WASC 114

Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596

Theseus Exploration NL v Foyster [1972] HCA 41; (1972) 126 CLR 507

Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165

Van Der Hulst v Tainui Corporation Ltd [1998] 2 NZLR 359

Western United Ltd v Sheahan [2001] SASC 74

Westpac Banking Corporation v Thorpe (Unreported, WASC, Library No 970465, 18 September 1997)

1 The plaintiff applied for summary judgment for the specific performance of two contracts for the sale of land. The plaintiff is the seller and the defendant is the purchaser in each case.

2 Each contract was entered into on or about 20 November 2007. One contract was for the sale of proposed Lot 295 and the other contract was for the sale of proposed Lot 296 on plans attached to each contract identifying certain land in Forrestdale.

3 Each contract provided that the 'Settlement Date' would be 'within 14 days of the certificate of title being in order for dealing'. Each contract was a 'cash' contract. The certificate of title in respect of each proposed lot was issued on 24 August 2009. On 27 August 2009, the plaintiff notified the defendant of the issue of certificates of title. There is no dispute that, in the circumstances, settlement under each of the contracts was due on 10 September 2009. Settlement did not occur.

4 On 15 September 2009, the plaintiff sent what it described as a 'Default Notice' under each contract, requiring, in effect, the defendant to proceed to settlement within 10 business days.

5 On 15 October 2009, the defendant's solicitors wrote to the plaintiff's solicitors and advised that:

Pursuant to the terms of the Contracts settlement was to take place on 10 September 2009 ('Settlement').

Our client was at the time of entering into the Contracts in a position to obtain the necessary finance and meet all contractual obligations.

Due to changing financial circumstances our client is not now in a position to obtain the finance required to meet its obligations under the Contract.

Our client has made every effort to borrow the required funds, but has been unsuccessful. There is no prospect in the current circumstances of our client being able to obtain the finance to continue to Settlement.

The plaintiff construed the above letter as repudiatory.

6 On 19 October 2009, the plaintiff issued the writ herein and on 17 November 2009 filed its chamber summons for summary judgment and the requisite affidavit in support. Further affidavits were filed by each party prior to the hearing, but there is no material dispute on the facts. The plaintiff had pleaded, and sworn, that it was ready, willing and able to perform the contracts. The application was heard on 6 April 2010.

7 As noted below, the contracts required the provision of a deposit by way of bank guarantee. After the commencement of these proceedings, the plaintiff called on the bank guarantee on 14 December 2009. By letter dated 22 December 2009, the defendant wrote to the plaintiff and said that the plaintiff's call on the bank guarantee amounted, in effect, to a conversion of the deposit money and a repudiation of the contracts which the defendant said it accepted. The defendant thereby, it said, terminated the contracts.

8 The defendant, by its senior counsel, submitted that the defendant raised three triable issues in opposition to the application. First, it was said that the plaintiff, in calling on the bank guarantee in relation to the deposit, has arguably repudiated or breached the contract, thereby disentitling the plaintiff to relief (the guarantee issue). Secondly, it is said that the 'Default Notices' issued on 15 September 2009, were arguably not properly issued in accordance with the contracts and were thereby defective (the default notice issue). Thirdly, it is said that insofar as the plaintiff relies on the defendant's solicitors' letter of 15 October 2009 as repudiating the contracts, there is a serious issue to be tried as to whether the letter was repudiatory in nature (the repudiation issue).

9 Although not disclosed in the application for the hearing on 6 April 2010, the plaintiff had entered into a contract to sell lot 295 to another purchaser on 8 March 2010. The other contract settled on 3 May 2010 and following settlement, on the same day, the plaintiff dispatched a notice to the defendant, bearing the date 28 April 2010, terminating the contract with the defendant in relation to lot 295. These events (of settlement of the sale and termination in relation to lot 295) occurred after the hearing of the summary judgment application on 6 April 2010 and in the period in which reasons for judgment were being prepared. The plaintiff did not inform the court of these events. They were brought to the court's attention by the defendant. The matter then came back before the court for further directions in the light of these developments. In my view, the plaintiff's advisors should have notified the court of these developments. They say that there was no need to do so because whilst proceedings for specific performance were on foot, the plaintiff was not thereby necessarily precluded from later terminating the contract and claiming damages: Ogle v Comboyuro Investments Pty Ltd [1976] HCA 21; (1976) 136 CLR 444. Whether or not the plaintiff has properly exercised a right to terminate (which is not an issue for resolution in these reasons), the plaintiff in its submissions and evidence at the hearing had, nevertheless, gone to some length to aver that it remained ready, willing and able to perform the contracts and positively required orders for specific performance. That ceased to be true, in relation to lot 295, as from 3 May 2010, and the court should have been informed of the change by the plaintiff's solicitors.

10 On 14 May 2010, the application for summary judgment in relation to lot 295 was stayed until further order, and the application has proceeded, with further written submissions, in relation to lot 296.

11 The defendant initially contended that the two contracts were interdependent and that the sale of lot 295 affected relief in relation to lot 296.

12 It is common ground, now, that the two contracts were not interdependent. It is accordingly appropriate separately to determine the application for summary judgment for specific performance in relation to lot 296.

13 In Henderson v Curtis [2008] WASC 283, Beech J said [2]:

The principles relevant to the grant of summary judgment are not in doubt. Summary judgment will be granted only when there is no real question to be tried. Conflicts of evidence on affidavit are not to be determined in the context of an application for summary judgment. It is only in the clearest of cases, when there is a high degree of certainty about the ultimate outcome of the proceedings if it went to trial that summary judgment ought properly be granted: Agar v Hyde [2000] HCA 41; (2000) 201 CLR 552 [57]; Batistatos v Roads and Traffic Authority of New South Wales [2006] HCA 27; (2006) 226 CLR 256 [46].

14 Summary judgment should only be granted if there is no fairly arguable point to be brought forward: Theseus Exploration NL v Foyster [1972] HCA 41; (1972) 126 CLR 507, 514.

15 The power to order summary judgment is one that should be exercised with great care, and should never be exercised unless it is clear that there is no real question to be tried: Fancourt v Mercantile Credits Ltd [1983] HCA 25; (1983) 154 CLR 87, 99. The fact that the defendant has not positively established a defence does not mean that there may not be a question in dispute which ought to be tried: Cordinup Resorts Pty Ltd v Terana Holdings Pty Ltd (1997) 143 FLR 18, 20.

16 The overall legal burden of persuasion lies on the applicant for summary judgment, but the party showing cause assumes an evidentiary burden: Cordinup Resorts v Terana Holdings (24).

17 Whilst the court may determine any difficult question of law on such an application, it will, at least often, be appropriate to leave the determination of such questions for trial: cf Theseus Exploration NL v Foyster (514 - 515); Casella v Hewitt [2008] WASCA 13; (2008) 36 WAR 1 [36]; Western United Ltd v Sheahan [2001] SASC 74 [55].

18 Each contract is materially identical in its terms and was in the form of the standard REIWA contract for sale of land by offer and acceptance.

19 The schedule to the contract identified the purchase price and cl (iv) thereafter provided:

Manner of Payment: A deposit of [5%] of which $nil is paid herewith and $[5%] shall be paid within 7 days of acceptance to be held by [the seller] (the Deposit Holder). The balance of the purchase price shall be paid on the Settlement Date.

20 Clause 10 was a Special Condition and provided as follows:

Purchaser's Deposit will be a Bank Guarantee in favour of [the seller].

21 At the foot of page 2 of the contract, there was this provision:

CONVEYANCOR (Legal Practitioner/Settlement Agent)

The parties nominate their Representative named below to act on their behalf in respect to this transaction and consent to Notices being served to that Representative's facsimile number.

BUYER'S REPRESENTATIVE ... SELLER'S REPRESENTATIVE

... Mendelawitz Morton - 94818811

22 By cl 3 of the Conditions the contracts also incorporated provisions of the Joint Form of General Conditions for the Sale of Land, 2002 Revision (General Conditions).

23 The default notices were signed 'Mendelawitz Morton' and the signature appeared above the words 'Seller's Representative'. Underneath the reference to 'Seller's Representative' were the words 'Contact: John Cook'.

24 The defendant contends that the default notices were defective and of no force and effect because they were executed in the name 'Mendelawitz Morton'. The defendant says that cl 21.1(c) of the General Conditions requires that a notice be signed by the 'Party', or the 'Party's Representative'. The defendant refers to cl 26.1 of the General Conditions in which the word 'representative' is defined to mean, inter alia, a 'Legal Practitioner ... who has been properly appointed to act for a Party in relation to Settlement'. A 'Legal Practitioner' is also defined in cl 26.1 to mean a person who is defined as a legal practitioner and holds a licence to practice under the relevant legislation governing legal practitioners. In light of these provisions, the defendant contends that the default notices were defective in that:

(a) they were signed by 'Mendelawitz Morton', which is a firm name and is not a 'Legal Practitioner' and the notices were thereby not signed by the 'Party's Representative' for the purpose of cl 21.1(c); and

(b) there is evidence that Mendelawitz Morton had not been 'properly appointed to act for the seller in relation to Settlement' in that, in relation to the call upon the bank guarantee, the plaintiff informed the bank that Mendelawitz Morton 'have been appointed the company's solicitors and instructed to make demand under the Bank Guarantee'. The defendant said that this indicates that Mendelawitz Morton had not been 'properly appointed to act in relation to Settlement' as opposed to having been appointed to act in connection with the calling of the bank guarantee.

25 In my view, neither point raises a real question to be tried. Clause 21.1(c) requires a notice to be signed inter alia 'by [the] Party's Representative'. There is no definition of the term 'Party's Representative', which must be taken to mean the 'Representative' of the Party - in this case the 'Representative' of the seller. Whilst the definition of 'Representative' in cl 26.1 refers to, relevantly, 'a Legal Practitioner', by cl 26.5 references to the singular include the plural. Thus, relevantly, a notice may be signed by legal practitioners who have been properly appointed to act for a party in relation to settlement. Clause 21.1(c) of the General Conditions does not require the person signing the notice to sign in their own name as opposed to the name of the firm of which they are a member or employee. In light of the reference to 'SELLER'S REPRESENTATIVE' at the foot of page 2 of the contract for sale, the evidence is compelling that the partners of Mendelawitz Morton had been properly appointed to act for the seller in relation to settlement. There is no dispute that Mendelawitz Morton is a firm of solicitors. Both on the face of the default notices and in the context of the definition of 'SELLER'S REPRESENTATIVE', the inference is compelling that the default notices were signed by a partner of Mendelawitz Morton or by a person with the authority of the partners of Mendelawitz Morton.

26 There is, moreover, no evidence to the effect that the person who actually signed the notice on behalf of Mendelawitz Morton was not a legal practitioner (assuming that step be necessary). The inference is open that the default notices were signed by Mr Cook, counsel for the plaintiff in this application. Indeed, at the hearing, Mr Cook said that he did so, without objection from the defendant.

27 The letter of 14 December 2009 to which senior counsel for the defendant referred post-dated the default notices and sheds no immediate light on whether the person signing the default notices was a legal practitioner properly appointed to act in relation to settlement. More fundamentally, however, there is nothing to indicate that the plaintiff's authorisation of Mendelawitz Morton to make demand of the bank guarantee is inconsistent or mutually exclusive with the firm having been appointed to act for the seller in relation to settlement.

28 I see no real question to be tried in relation to the default notice issue.

29 The plaintiff had also pleaded repudiation in its statement of claim, but without pleading the facts said to constitute the repudiation. It should have done so, as summary judgment should not be given on an unpleaded basis, at least where the omission is one of substance. See SAS Global Forrestdalae 2 Ltd v Claycorp Investments Pty Ltd [2010] WASC 114 [66]; Westpac Banking Corporation v Thorpe (Unreported, WASC, Library No 970465, 18 September 1997). At the hearing the plaintiff indicated that it relied on the defendant's solicitor's letter of 15 October 2009 as constituting the pleaded repudiation.

30 The plaintiff contends, in effect, that even if the default notices were invalid, it was entitled to invoke cl 24.1(b) of the General Conditions for the purposes of seeking specific performance of the contracts in accordance with cl 24.2(b). Clause 24.1(b) applies where the buyer 'repudiates' the contract. I have found that the default notices were valid and, accordingly, it is unnecessary for the plaintiff to rely on this provision. In any event, in my view, it is clear that the letter from the defendant's solicitors dated 15 October 2009 amounted to a repudiation by renunciation. The test, relevantly, is whether the conduct of the defendant was such as to convey to a reasonable person in the plaintiff's position that the defendant was unwilling or unable to render substantial performance of the contract: Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61; (2007) 233 CLR 115 [44]. In circumstances where the time for settlement had passed, the defendant's response to the notice of default was to say, in effect, that it was unable to proceed with the contract. In my view, the letter constituted repudiation by renunciation.

31 On the substantive question here, there is no real question to be tried about whether the letter constituted repudiatory conduct. The facts of the alleged repudiation should, however, have been pleaded. There was no amendment to the pleading: cf Cord Holdings Ltd v Camsan Pty Ltd (Unreported, WASC, Library No 920533, 20 October 1992). I do not base my decision on this, however, as the application should be dismissed for the reasons indicated below.

32 The defendant contends, in effect, that in calling upon the bank guarantee on 14 December 2009, the plaintiff has subsequently repudiated the contract, which the defendant had accepted, thereby bringing the contract to an end. Alternatively, it says that the alleged breach is such as to disentitle the plaintiff to specific performance.

33 It is necessary to provide some background to the guarantee.

34 On 30 November 2007, Bendigo Bank Ltd issued an unconditional guarantee to pay the plaintiff the total of the amounts ascribed to the deposits in the contracts upon written demand. The guarantee expired on 31 March 2009.

35 A further guarantee was issued on 1 April 2009 in similar terms which provided for expiry on 30 September 2009.

36 A third guarantee in similar terms was issued on 28 September 2009, with an expiry date of 31 December 2009. The circumstances in which the plaintiff came to call upon the third guarantee are described in Mr Morton's affidavit sworn 19 February 2010. The effect of his uncontested evidence is that after the commencement of these proceedings, there were statements made by the solicitor for the defendant, and certain conduct of the defendant, from which the plaintiff inferred that the defendant would not renew the bank guarantee that was to expire on 31 December 2009. Mr Morton said, inter alia:

On 19 October 2009, the plaintiff commenced proceedings by way of writ indorsed with statement of claim and on 17 November 2009 the plaintiff issued a chamber summons for summary judgment on the basis that there is no defence.
On or about 26 November 2009, I was informed by Mr Cook and I verily believe it to be true that on 26 November 2009, Mr Oakley submitted to Master Sanderson in Master's Chambers, words to the effect that the defendant did not have the financial capacity to perform the subject Contracts and that this was the defendant's only 'defence'.
Subsequent to that time I made numerous telephone calls to the office of Wojtowicz Kelly Legal to attempt to speak to Gavin Kelly to try to engage in meaningful negotiations with respect to the Contracts given Mr Oakley's statements in Court and my real concern that Mr Oakley's statements in Court with respect to the defendant's financial situation were correct.
After speaking with Mr Kelly on two occasions soon after 26 November 2009, I was driven to leave several telephone messages for him over a period of 2 weeks.
Neither Mr Kelly nor Mr Oakley nor anyone else from the office of Wojtowicz Kelly Legal returned my calls or answered the messages that I had left.
Given Mr Oakley's statement in Court and my belief in the truth of that statement and given the fact that the defendant had effectively gone incommunicado, on or about 14 December 2009 I took instructions from Anthony John Beamish, a director of [the plaintiff], in relation to the 3rd Bank Guarantee.
On my advice to Mr Beamish, Mr Beamish on behalf of [the plaintiff] instructed me to organise for the 3rd Bank Guarantee to be called upon to crystallise the fund before the 3rd Bank Guarantee expired on 31 December 2009.

In regard to the timing of the call upon the 3rd Bank Guarantee, it was done in the context of the looming expiry date and the looming Christmas holiday period, formally starting for the firm of Mendelawitz Morton at close of business on 23 December 2009.
It is also my experience that it can take some time between a call upon a bank guarantee and payment upon it and that there can be complications with the process requiring time to sort it out.

37 It appears that the plaintiff did not write to the defendant on this occasion, as it had done on the previous occasions (which earlier requests were complied with), calling on it to renew the guarantee.

38 In calling on the guarantee, the plaintiff relied upon cl 1.10(b) of the General Conditions:

1.10 Payment of Deposit on Settlement

Subject to clause 24, each party authorises the Deposit Holder to pay the Deposit:

(a) to the Seller at Settlement; or

(b) to the Seller Representative before Settlement, but only for the purpose of enabling Settlement to occur.

39 Clause 1.10 is an exception to cl 1.7 of the General Conditions, which provides:

1.7 Direction to Deposit Holder

Subject to clause 1.10, unless each Party otherwise agrees in writing, a Party is not entitled to direct the Deposit Holder to pay the Deposit to any person before the earlier of:

(a) the Possession Date; and

(b) Settlement.

...

40 A 'Deposit Holder' is defined, in the first part of the definition in cl 26.1, to mean a 'Seller Agent' (defined as the real estate agent for the seller), or 'Seller Representative' (which is not a defined term but which, having regard to the definition of 'Representative', means legal practitioner or settlement agent appointed to act for the seller on settlement) 'to whom the deposit is paid'. The second definition of 'Deposit Holder' within cl 26.1 defines it to mean the real estate agent, solicitor or settlement agent who 'holds' the deposit.

41 Clauses 1.1 and 1.2 of the General Conditions refer to the payment of a deposit and the holding of a deposit.

Subject to clause 1.3, the Buyer must pay the Deposit to:

(a) the Seller Agent; or

(b) the Seller Representative; or

(c) if the Seller has not appointed a Seller Agent or a Seller Representative, then to the Seller.

(a) Subject to this clause, where the Deposit is paid to a Deposit Holder, the Deposit Holder must hold the Deposit as stakeholder.

(b) Where a Party contends that:

(1) the Contract has been terminated; and

(2) that Party is entitled to payment of the Deposit,

the following provisions of this clause will apply.

44 A deposit is not necessary to the validity of a contract for sale of land. In the absence of a stipulation in the contract in that regard, a seller cannot require a deposit, or any part of the purchase money, to be paid prior to completion: Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309, 321; Perry v Suffields Ltd [1916] 2 Ch 187, 191; Van Der Hulst v Tainui Corporation Ltd [1998] 2 NZLR 359, 362 - 363. A deposit provides an earnest of performance by the purchaser and is a guarantee of or security for performance by the purchaser: Brien v Dwyer [1978] HCA 50; (1978) 141 CLR 378, 385 - 387, 392, 398, 406. If a sale goes on, the deposit goes in part performance of the purchase money for which it is deposited, but if by the default of the purchaser the contract goes off, the deposit is forfeited by the purchaser unless the contract otherwise provides: Howe v Smith (1884) 27 Ch D 89, 95, 97 - 98, 101 - 103.

45 When the deposit is paid to an agent for the seller, and the deposit becomes recoverable by the purchaser, it is the seller, and not the agent, from whom the purchaser must recover the deposit, whether or not the agent has paid it over or accounted for it to the principal: Christie v Robinson [1907] HCA 19; (1907) 4 CLR 1338. The general principle is that, unless the deposit is paid to a stakeholder, the deposit is to be treated as if it has reached the hands of the seller: Grant v O'Leary [1955] HCA 33; (1955) 93 CLR 587.

46 On the other hand, where the deposit is paid to a third person as stakeholder, and it becomes repayable to the purchaser, it is recoverable from the stakeholder, and not from the seller: Combe v Swaythling [1947] Ch 625, 628. The stakeholder is 'under a duty to hold it in medio pending the outcome of a future event. He does not hold it as agent for the seller, nor as agent for the purchaser ... until the event is known, it is his duty to keep it in his own hands ...': Burt v Claude Cousins & Co Ltd [1971] 2 QB 426, 435 - 436.

47 The purpose of paying a deposit to a stakeholder is to ensure that it is in the hands of an independent person who will account to the seller if and when the seller becomes entitled to it. The purchaser, by paying the money in accordance with the terms of the contract, performs its part of the contract and is not bound to pay the sum again to the seller, as a condition precedent to conveyance, should the stakeholder default in accounting for the deposit to the seller: Grant v O'Leary (593 - 594).

48 Where a deposit is paid to an auctioneer, both the seller, and the auctioneer, become liable to the purchaser in the event that the purchaser becomes entitled to repayment of the deposit: Christie v Robinson (1347).

49 Subject to the terms of the contract, a purchaser who becomes entitled to the return of the deposit has a claim in restitution for total failure of consideration: Foran v Wight [1989] HCA 51; (1989) 168 CLR 385, 432, 438, 459; Zsadony v Pizer [1955] VicLawRp 78; [1955] VLR 496, 502.

Proper construction of the contract concerning the deposit

50 As noted earlier, the defendant submits that the plaintiff breached the terms of the contract concerning the deposit and that the breach constituted a repudiation. The defendant says it accepted the repudiation and terminated the contract, by way of a letter and termination notice dated 22 December 2009 sent by its solicitors to the solicitors for the plaintiff. The defendant proffers two possible constructions of the relevant provisions of the contract that, it says, support this submission.

51 First, the defendant contends that, on its proper construction, or by necessary implication, the contract contained a negative covenant to the effect that the plaintiff would not call upon the guarantee prior to settlement within the meaning of cl 3 of the General Conditions and that 'Settlement' under cl 3 contemplates an appointed time and place for completion of the contract to occur. It says that the proper construction of cl 3 of the General Conditions, and cl 1.7 and cl 1.10, cannot be considered in isolation from the proper construction of the contract as a whole. It also says that extrinsic evidence may be admissible in aid of construction.

52 The defendant contends that as the plaintiff called upon the bank guarantee prior to any appointed time and place for settlement, the plaintiff may not rely on cl 1.10(b), as it seeks to do, as there was no relevant 'Settlement' for which purpose the call might properly have been made.

53 Secondly, the defendant contends that there is, furthermore, uncertainty as to whether the guarantee could be called on even for the purposes of settlement, and that the parties may have intended that the purchaser would pay the full purchase price at settlement on the basis that the guarantee should be cancelled at settlement.

54 The questions raised by the above contentions involve a consideration of the proper construction of the contract and in particular the provisions concerning the application of the deposit.

55 The second contention can be dealt with relatively simply. Clause (iv) expressly required the 'balance' of the purchase price to be paid at settlement, which is consistent with the general law position referred to in [44] above. Consequently, I would not see this contention as arguable.

56 In relation to the first contention, none of the provisions in the General Conditions appear expressly to contemplate the provision of a deposit by way of a bank guarantee, and the term 'Deposit Holder' as it appears in certain provisions concerning a deposit, especially cl 1.1 and cl 1.2, does not, at least arguably, prima facie apply to the bank here.

57 On the other hand, in construing the contract as a whole, in cl 1.7 and cl 1.10 the references to 'Deposit Holder' and 'Deposit' are arguably capable of denoting, respectively, the bank guarantor and the guaranteed sum contemplated by schedule cl (iv) and Special Condition 10 of the contract. Arguably, the effect of those provisions is that the guarantee would only be called upon in the circumstances set out in cl 1.10 and the requirement that it be called upon only in those circumstances carried with it, by necessary implication, a term that it would not be called upon other than in those circumstances: Metropolitan Electric Supply Company v Ginder [1901] 2 Ch 799, 806.

58 I accept that it is at least arguable that cl 1.7 of the General Conditions precluded the seller from drawing upon the bank guarantee unless cl 1.10 of the General Conditions applied, and that cl 1.10 only permitted the application of the deposit at settlement, or prior to then for the purposes of completion of the contract, but only in the latter case in circumstances where a time and a place for settlement had been appointed or agreed.

59 The plaintiff, nevertheless, contends that on the proper construction of the contract, including the General Conditions referred to, alternatively by necessary implication, it was a term of the contract that if there was a risk that the purchaser would not preserve the operation of the bank guarantee pending settlement, the seller would be entitled to call upon the guarantee to preserve the fund. Whether or not there is a term to that effect on the proper construction of the contract or by necessary implication, is in itself, however, an arguable question. On the other hand, it may be that, rather than calling on the guarantee, the plaintiff ought to have sought an injunction to compel the defendant to renew the guarantee on the basis that the contract contained, at least arguably, implied terms of co-operation. Whether the facts supported a claim for breach of such a term would also be a matter for investigation. See generally O'Keefe & McKenna v Williams [1910] HCA 40; (1910) 11 CLR 171, 191; Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596, 607; and Peters (WA) Ltd v Petersville Ltd [2001] HCA 45; (2001) 205 CLR 126 [36] as to implied terms of co-operation.

60 Accordingly, I accept that it is arguable that the plaintiff breached an implied negative term of the contract in calling on the guarantee on 14 December 2009.

61 For the purposes of this analysis I assume, in the defendant's favour, that the call on the guarantee involved a breach of an implied negative covenant of the kind postulated by the defendant. The next question is whether it is arguable that the breach was repudiatory.

62 The term 'repudiation' is used in different senses. First, it may refer to renunciation of the contract. Secondly, it may refer to any breach of contract which justifies termination by the other party: Koompahtoo Local Aboriginal Land Council v Sanpine [44]. There are, relevantly, two circumstances in which a breach of contract may entitle the innocent party to terminate. The first is where the term breached is regarded as an essential obligation. Such an obligation is sometimes described as a condition. Whether a term is essential in this sense depends upon the proper construction of the contract. The second is where the breach, albeit of an intermediate term, is sufficiently serious to warrant termination by the innocent party.

63 In relation to whether a term is an essential term the plurality in Koompahtoo Local Aboriginal Land Council v Sanpine said:

It is the common intention of the parties, expressed in the language of their contract, understood in the context of the relationship established by that contract and (in a case such as the present) the commercial purpose it served, that determines whether a term is 'essential', so that any breach will justify termination [48].

64 The common intention of the parties to a contract is to be ascertained by reference to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contract is to be determined by what a reasonable person would have understood them to mean: Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165, 179, [40].

65 This normally requires a consideration of not only the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction, including the market in which the parties were operating: Toll (FGCT) v Alphapharm (179), [40]; Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451, 461 - 462, [22]; Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70; (2001) 210 CLR 181, 188, [11]; and McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; (2000) 203 CLR 579 [22].

66 The first question is whether, on the proper construction of the contract, the implied negative covenant could, at least arguably, be regarded as essential.

67 Whilst one might hazard an opinion about the apparent commercial essentiality or otherwise of such a term, I have nevertheless come to the view that it is not appropriate to attempt to ascertain the essentiality or otherwise of the (alleged) implied covenant in an evidential vacuum in this application. It seems to me that the essentiality of the term cannot be readily determined in a summary way. The parties chose a specifically crafted regime for the payment of the deposit. On balance, I have formed the view that this is unlike the case of Casella v Hewitt, where the majority upheld an award of summary judgment on the basis that the claim depended upon the proper construction of a provision of the joint form general conditions, for which no evidence was needed other than the (uncontested) material before the court: Casella v Hewitt [65] - [68], [91]. Rather, it appears to me this case is more in the category of Deeks v Little Morton Trading Pty Ltd (1995) 14 WAR 38 on the question of the appropriateness of summary disposition. In Deeks v Little Morton Trading the Full Court set aside an award for summary judgment on the basis that it could not be said, from an examination of the contract alone, and in the absence of contextual extrinsic evidence, that there was no real question of construction to be tried.

Whether plaintiff's conduct disentitles it to equitable relief

68 Finally, the defendant says that even if the alleged breach did not entitle it to terminate the contract, the breach involved, in effect, a wrongful application of the deposit money sufficiently serious to disentitle the plaintiff to equitable relief.

69 A plaintiff may be refused equitable relief if it is substantially in breach of the contract, even if the breach is not repudiatory, or it is not ready willing and able to perform its obligations under the contract. The maxim of clean hands applies to a suit for specific performance: Meagher RP, Heydon JD & Leeming MJ_, Meagher, Gummow and Lehane's_ Equity: Doctrines & Remedies (4th ed, 2002) [3-125], [20-115].

70 This does not mean, however, that the plaintiff, in order to succeed in the suit for specific performance, must show that it has, in the past, strictly and literally complied with all its obligations under the contract: Meagher, Heydon & Leeming, Equity Doctrines & Remedies [20-120].

71 In my view, it would be inappropriate to embark upon a summary disposition of this issue without having ascertained, as a matter of construction, the full significance to be attached to the (alleged) implied covenant. As indicated above, that question should be resolved at a trial, and not summarily.

72 For these reasons, I would dismiss the plaintiff's application in relation to lot 296.

Air Great Lakes Pty Ltd v K S Easter

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (127 paragraphs)

SAS GLOBAL FORRESTDALE PTY LTD -v- TOWTON INVESTMENTS PTY LTD [2010] WASC 167 (30 July 2010)

Proper construction of the contract concerning the deposit

Whether plaintiff's conduct disentitles it to equitable relief

Parties

Cases Cited (21)