Alexus Pty Ltd v Pont Holdings Pty Ltd [2000] NSWSC 1171 | Case summary

1 HIS HONOUR: The plaintiff as vendor and the defendant as purchaser entered into an agreement to buy 3/10 St Georges Crescent Drummoyne. The contract was in the 1996 edition of the standard form. The purchase price was $1,250,000 with a 10% deposit. The cover sheet of the contract, when defining "inclusions" marked the word "jetty". 2 The contract was subject to a series of special conditions. Special condition 29 provided for notices to complete. Paragraph 29.1 reads as follows: "If either party is unable or unwilling to complete by the completion date, the other party shall be entitled at any time after the completion date to serve a notice to complete making the time for completion essential. Such notice shall give not less than 14 days notice after the day immediately following the day on which the notice is received by the recipient of the notice. A notice to complete of such duration is considered by the parties to be reasonable and sufficient to render the time for completion essential." 3 The completion date was defined as the 42nd day after the date of the contract (18 June 1999) so that notices to complete could be issued, in appropriate circumstances, after 30 July 1999. 4 Special condition 42A is as follows: "The vendor grants to the purchaser the licence to occupy the premises commencing on the date of this contract and terminating upon completion or prior to such date if this contract is validly rescinded. The purchaser agrees to pay a licence fee of $NIL per week, payable fortnightly in arrears …". 5 The special condition at the heart of this dispute is special condition 45. The plaintiff's chief executive says that he was completely ignorant that such a clause existed but this is a matter of no moment because it is clearly part of the contract. However, there is also included in the contract a two page handwritten document apparently written by the vendor's selling agent, which affects the construction of special condition 45. The special condition and the two handwritten pages are (warts and all) as follows: "45. The vendor warrants that it will obtain approval from the Waterways Authority to install and construct a second jetty to the foreshore of the common property and will cause the owner's corporation to grant and mark exclusively the use of the second jetty to the purchaser and that the by-law required to pass the exclusive use to the purchaser will be secured prior to completion on this contract in favour of the purchaser by procuring an irrevocable power of attorney from the owners of Lot 1 & 2 in the strata plan. "Such by law passed in the same manner and agreed for the benefit of the proprietor of Lot 1 in the Strata Plan in accordances with annexure A of this contract." (The handwritten document): " Special condition No 45 The vendor & purchaser agreed that in the event of the vendor obtain approval of the water way authority for the installation & construction of a second jetty that the vendor will cause the owners corp the pass a by law convert exclusive use of the 2nd jetty to the purchaser & subject to such approval the purchaser should then pay vendor 1,250 an additional $50,0000 - above that contract price. The vendor and successor agreed that the exclusive use of the second jetty shall will be carried out in the same manner as the exclusive use by-law which the vendor as contractor & undertaken to give the purchaser lot (1) the sp. in accordance with annexure (A) of this contract." 6 There were three lots in the strata plan. Lot 1 had previously been sold to the Messrs Touma, Lot 2 remained owned by the vendor. In order for the by-laws to be amended the vote of the owners of Lot 1 had to be obtained. The material shows that the Messrs Touma demanded $30,000 as the price of their consent which the vendor was not prepared to pay. Accordingly, the by-law was not passed and indeed approval from the Waterways Authority does not appear to have been pursued. 7 On 10 August 1999 the plaintiff gave the defendant a notice to complete. The response was that the vendor had not complied with special condition 45 and was in no position to give a notice to complete. After correspondence between the solicitors, a second notice to complete was given on 13 December 1999. This met with the same response. 8 A third notice to complete was given on 12 January 2000 requiring completion by 28 January 2000. When this was not complied with, the vendor purported to terminate the contract and forfeit the deposit by notice dated 1 February 2000. The notice also purported to terminate the licence of the purchaser under special condition 42A. 9 The vendor commenced the present proceedings for a declaration that it had validly terminated the contract and forfeited the deposit on 7 June 2000. It subsequently appeared that for reasons which no-one seems to understand, the deposit was in fact returned to the purchaser. The vendor's summons was then amended to claim that the purchaser should pay this sum to the vendor. The summons also included a claim for mesne profits. 10 The purchaser filed a cross claim originally seeking rectification of the contract in respect of a reduction of the purchase price if the jetty was not obtained. On 1 December 2000 the purchaser's counsel abandoned the claim for rectification and pressed for an order for specific performance indicating that his client was prepared to complete the whole contract as soon as possible. 11 The principal matter for determination is the true construction of special condition 45 in the light of the handwritten memorandum. 12 Mr Cashion SC who appeared with Mr Stomo for the plaintiff, put that special condition 45 was not a condition precedent to completion but a mere warranty which sounded only in damages. 13 Mr Walton SC for the defendant, contended that the special condition was a condition precedent to completion and thus the vendor was not entitled to give a notice to complete. It followed that the contract was still on foot and should be specifically performed. 14 In riposte, Mr Cashion SC put that there was no evidence that the purchaser was ready, willing and able to complete the contract. 15 "Warranty" is a word with a breadth of meaning. In Finnegan v Allen [1943] KB 425, 430 Lord Greene MR said: " 'Warranty' is one of the most ill-used expressions in the legal dictionary, but in its essence it is contractual in nature…". 16 The ordinary meaning of "warranty" is "promise" and one should not confuse this ordinary meaning with the subsidiary meaning of a term of a contract which is not as fundamental as a condition. In Oscar Chess Ltd v Williams [1957] 1 WLR 370, 374 Denning LJ said: "I use the word 'warranty' in its ordinary English meaning to denote a binding promise. Everyone knows what a man means when he says 'I guarantee it' or 'I warrant it' or 'I give you my word on it'. He means that he binds himself to it. That is the meaning it has borne in English law for 300 years… . During the last 50 years, however, some lawyers have come to use the word 'warranty' in another sense. They use it to denote a subsidiary term in a contract as distinct from a vital term which they call a 'condition'. In so doing they depart from the ordinary meaning, not only of the word 'warranty' but also of the word 'condition' ". 17 Accordingly I do not favour Mr Cashion SC's contention that in special condition 45 the word "warrants" leads to the view that the vendor's obligation does not go to the heart of the contract, but is a subsidiary term of the contract. In my view it has its ordinary meaning which is "promise". However, ordinarily a promise given by warranty is of an existing fact, such as that beans are of best quality or that a ship is seaworthy. Here, the promise is that the vendor will obtain an approval. Ultimately all this means is probably that it would be more difficult to establish a breach. The jetty was included as part of the property sold, the vendor has promised to see that it is properly and lawfully constructed and, were it not for the handwritten insert, in my view if the vendor could not fulfil that promise it might not be in a position where it could it was ready, willing and able to complete the contract so as to be able to give a notice to complete. 18 The next question then is does the insertion of the handwritten document alter the position? The intent of the insertion is that if the vendor fulfils its promise the purchaser is to pay a further $50,000 (although the insertion contains an additional zero, the intention is fairly clear). Does the insertion mean that the parties have agreed that if the warranty is not fulfilled the only consequence will be that the vendor does not obtain the additional $50,000? 19 The use of the past tense in the insertion and the heading on the insertion being "Special Condition No 45" show that the parties intended that the handwriting was not an additional condition but was explanatory of what they had already agreed in the words of special condition 45. It does not seem to me that it was intended to abrogate anything that the purchaser was to obtain under special condition 45. In my view it is insufficient to transmute the vendor's obligations in such a way that it can demand completion, merely forfeiting the $50,000 bonus. This is reinforced by the fact that the jetty is included in the contract. 20 A party to a contract for the sale of land is only entitled to give a notice to complete if that party is ready, willing and able at the date when the notice is given to proceed to completion at the expiry of the notice: McNally v Waitzer [1981] 1 NSWLR 294; Caleo Bros Pty Ltd v Lyons Bros (Aust) Pty Ltd (1980) 1 BPR 9496, 9499. For brevity, I will use the term "readiness" to comprehend being ready, willing and able to complete. 21 What readiness means in this context is the same concept as readiness for the purpose of granting specific performance (McNally v Waitzer supra). 22 One must distinguish between essential and non-essential obligations. Lack of readiness to perform an essential obligation ordinarily leads to inability to give a notice to complete or to force specific performance. However, this is not ordinarily the case where the obligations concerned are inessential; see Measures Bros Ltd v Measures [1910] 2 Ch 248, 260-1; Dyster v Randall & Sons [1926] Ch 932 and Bahr v Nicolay (No 2) (1988) 164 CLR 604. 23 There are some provisions in a contract which merely sound in damages and even a vendor in breach may still force completion. An example is Prosper Homes Ltd v Hambros Bank Executor & Trustee Co Ltd (1979) 39 P & CR 395, 401. In that case the sale of a commercial property was subject to leases and the leases were not as disclosed in the contract. This was a matter which merely sounded in damages and did not prevent completion. 24 On the other hand, where there is a substantial defect and the purchaser is entitled to an abatement of the purchase price it is not open to the vendor to give a notice to complete or to force specific performance without at least offering compensation: see Ping v Pearce Paradise Pty Ltd (1982) 2 BPR 9419, 9426, a case where the vendor was in breach of its duty to take reasonable care of the property between contract and completion. Other examples are cases where the vendor has promised to build a house on the property sold and there have been grave defects in the building; see Tildesley v Clarkson (1862) 30 Beav 419; 54 ER 951 and Doyle v East [1972] 1 WLR 1080. 25 In some cases this rule will be affected by clause 6 of the standard contract where there is an error or misdescription in the contract and the purchaser must claim compensation before completion or not at all: Abraham v Mallon (1975) 1 BPR 9157. The present clause purports to cover substantial errors and misdescriptions. However, it does not appear to me that clause 6 can apply in the instant case; indeed, the contrary has not been argued. 26 A vendor who is unable to fulfil a contract according to its tenor may be able to escape the consequences by seeking specific performance with compensation for deficiency. It is unnecessary to explore this in the present case as there was no mention of compensation in this sense either in the notice to complete or otherwise. 27 Thus, one comes to the situation that the vendor cannot show the appropriate readiness at the time when it issued its notice to complete. It was thus not entitled to issue the notice to complete of 12 January 2000 and the attempted rescission of 1 February 2000 is ineffective. 28 Thus the vendor's claims must be dismissed. 29 The contract is still on foot and the purchaser seeks to enforce it. It is now over a year since the completion date. The purchaser has been in possession with a licence fee of nil and the question arises as to whether the vendor is entitled to some compensation for delay. Special condition 30 provided that interest would be payable by the purchaser at 12.5% if the purchaser does not complete the purchase by the completion date without default by the vendor. This contractual provision appears to me to override any equitable right to compensation. As the vendor could not comply with special condition 45 it cannot say that completion was deferred as a matter without its default, thus the vendor is not entitled to compensation. 30 There remains the submission that the purchaser has not shown itself ready, willing and able. The evidence does suggest that the purchaser is what is popularly called "a $2 company", but otherwise there is no material one way or the other. 31 Strictly speaking, readiness must be averred and it should be formally stated in an affidavit. However, in more recent years this requirement has been relaxed (see eg Darter Pty Ltd v Malloy [1993] 2 Qd R 615) and if a party vigorously seeks specific performance of a contract for the sale of land which is still in force and is prepared to complete in a short period of time, that in the absence of contrary material is sufficient to establish readiness. 32 Accordingly the purchaser is entitled to an order for specific performance. 33 I thus:

Alexus Pty Ltd v Pont Holdings Pty Ltd

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