Bavulo Pty Limited v Zhang Property Pty Limited

Supreme Court of NSW|2024-07-18|Before: Peden J

Judgment

This is a purchaser and vendor dispute about whether the defendant vendor's notice to complete and notice of termination were valid or not. The plaintiff purchaser seeks declarations that they were not and an order for specific performance of the contract.
There are no facts in dispute; instead, the issues are the proper construction of the contract and the legal effect of the steps taken by the parties.
By contract for the sale and purchase of land standard 2022 edition dated 23 December 2022, the vendor agreed to sell to the plaintiff a strata title unit in Strathfield. The contract was subject to a registered lease. There is no dispute that completion was to take place on 3 July 2023.
On 16 January 2023, the purchaser's solicitors sought information about rent, outgoings, bond money and the bank guarantee.
On 3 February 2023, the vendor's solicitors forwarded responses to the queries from the real estate agent, who managed the property. I note that the provision of that information appeared to be in accordance with clause 24.3.2 of the contract, which required the vendor to serve on the purchaser any information about the tenancy "reasonably requested by the purchaser before or after completion". Further, pursuant to clause 24.3.1, the vendor authorised the purchaser to "have any accounting records relating to the tenancy inspected and audited and to have any other document relating to the tenancy inspected". The purchaser never took up that option.
On 20 February 2023, the purchaser's solicitors sent to the vendor's solicitors requisitions on title, as included in the contract. Requisition 55 provided (emphasis added): Please confirm that on completion you will hand to us: … (e) notices of attornment …
On 22 February 2023, the vendor provided answers to requisitions, including in relation to that requisition: … Noted subject to the Contract. Settlement will be electronic via PEXA.
In the answer to requisitions, further information was given about rent, outgoings and a bond. The vendor also indicated that it was not aware of any existing breaches.

Was vendor able to issue notice to complete?

The relevant principles concerning the construction of contracts, including contracts for the sale of land, are not in dispute: see eg Mount Bruce Mining Pty Limited v Wright Prospecting Pty Limited (2015) 256 CLR 104 at [46]-[52] (French CJ, Nettle and Gordon JJ).
Clause 15 of the contract provides that the parties must complete by the date for completion and, if they do not, a party can serve a notice to complete if that party is otherwise entitled to do so. Here, it is common ground that the parties did not complete by 3 July 2023. The defendant was therefore entitled to issue a notice to complete on 4 July 2023 if it was "otherwise entitled to do so". The central issue to be determined is whether the vendor was "entitled to do so".

Principles of validity of notices to complete

The principles concerning the validity of notices to complete have been explained in various authorities.
The onus of proving the validity of a notice to complete rest with the party relying on its validity: see Sandpiper Kooragang Pty Ltd v Fortis Products Pty Ltd (2020) 19 BPR 40,689; [2020] NSWSC 1256 (Sandpiper v Fortis) at [64] (Darke J) and the authorities cited therein.
In cases where the contract contains a non-essential stipulation as to time, three requirements must be met for a valid notice to complete to be issued: 1. First, the purchaser must be in breach of the contract or guilty of unreasonable delay: Neeta (Epping) Pty Ltd v Phillips (1974) 131 CLR 286 at 299 (Barwick CJ and Jacobs J). 2. Second, the vendor must not be in breach, and must be ready, willing and able to complete at the time identified in the notice: Carrapetta v Rado (2012) 16 BPR 30,997; [2012] NSWCA 202 (Carrapetta v Rado) at [27] (Barrett JA, Beazley and Hoeben JJA agreeing). 3. Third, the notice to complete must stipulate a reasonable time for completion: Sindel v Georgiou (1984) 154 CLR 661 at 670 (Mason, Murphy, Wilson, Brennan and Dawson JJ).
Here, the dispute concerns the second requirement, and what types of breach render a vendor not ready, willing and able. The operation of this requirement was described by Hutley JA in McNally v Waitzer [1981] 1 NSWLR 294 at 304: The requirement that the party giving the notice to complete should be ready, willing and able has obviously been derived from traditional equity pleading of a suit for specific performance and should be given a similar meaning. The allegation of readiness does not mean that the plaintiff has satisfied all that he has been required to do to complete. … Readiness and willingness is negatived by proof that the party seeking to enforce the contract has done something inconsistent with his obligations under the contract and which has not been or is incapable of rectification … The correct rule, in my opinion, is simply that a vendor who is in default in respect of things which up until then should have been done cannot give a notice to complete, but he can give notice to complete prior to performing all those other things which he has to perform in order to complete the contract.
In McNally v Waitzer at 300-301, Hutley JA also observed that trivial breaches of contract by the vendor, and breaches which have been waived by the purchaser, will not disentitle a vendor from issuing a notice to produce.
Further, in Carrapetta v Rado at [25], Barrett JA endorsed Young CJ in Eq's statement of principle in Malouf v Sterling Estates Development Corporation Pty Ltd [2002] NSWSC 920 (Malouf v Sterling) at [36], which was not disturbed on appeal in Sterling Estates Development Corp Pty Ltd v Malouf (2003) 58 NSWLR 685, that a vendor will only be entitled to a notice to complete (emphasis added): (a) if it is free from any relevant breach of contract which may have provided the purchaser a good excuse not to complete by the due date; and (b) it is able to proceed to completion and deliver to the purchaser all the purchaser is entitled to under the contract no later than the expiry of the notice to complete
In Carrapetta v Rado at [27], Barrett JA further stated: … When it is the vendor who serves the notice, he or she must be seen to be willing and able to perform, on the day the notice fixes for completion, the obligations that the vendor is required to perform on completion - predominantly, in a "cash on completion" case such as the present, the obligation of delivering a clear title in return for the money that the contract requires the purchaser to pay in cash on completion - and to have adopted up to the time of service of the notice a stance consistent with that future performance. If the vendor is in breach of contract when the notice is given, he or she is not in such a state of willingness and ability. Likewise, if the vendor has taken and made known an uncompromising stance that he or she will not deliver title on completion except in return for payment of a sum greater than that required by the contract, that vendor will be "in default" (or "in breach") and not be "innocent" or relevantly "ready, willing and able" because the unequivocal stance inconsistent with the contract bespeaks lack of adherence in the nature of anticipatory breach.
In HG & R Securities Pty Ltd v Sayer (2009) 14 BPR 27,045; [2009] NSWSC 427 (HG & R v Sayer) at [98], Ward J (as the President then was) explained the principle in another way: The requirement that the giver must be free of relevant default was considered in Neeta and in Collingridge v Sontor (1997) 141 FLR 440. The nature of a breach which disentitles the issuer of notice to complete was said to be one which is relevant to or connected with the securing of completion (Neeta). In Collingridge v Sontor it was said that a party's breach disentitles that party from giving a notice to complete only where it goes to time or to completion. (So, for example, in Lindgren, Time in the Performance of Contracts (2nd ed) it is said that a party's breach will not preclude that party from giving a valid notice to complete where the breach has ceased to be of any operative effect in the progress towards completion or cannot reasonably be said to be the cause of the other party's failure to complete.)
The vendor in that case had failed to comply with a special condition requiring it to provide a tax invoice to the purchaser 7 days prior to settlement. Ward J rejected a submission that breach of this non-essential term prevented the issuing a valid notice to complete, since there was nothing to suggest that the vendor's breach "impeded the purchaser's ability to settle": at [104].
Her Honour also rejected a submission that the vendor's failure to respond to a requisition for the provision of cheque directions prevented a valid notice to complete. Again, her Honour was not persuaded that "this in any way prevented the purchaser from attending settlement or delayed completion": [105].
Darke J explained the principle in a similar fashion in Sandpiper v Fortis at [70].
The fact a vendor's obligations continue up to and after completion may also support the validity of a notice to complete. In Chandos Developments Pty Ltd v Mulkearns (2008) 13 BPR 25,321; [2008] NSWCA 62 (Chandos v Mulkearns), for example, the contract for sale required the vendor/lessor to undertake repairs to the roof of the subject property in accordance with an obligation owed under an existing lease. Under the contract for sale, the vendor was required to comply with any obligations under the lease "to the extent it is to be complied with by completion". However, the parties' rights under this clause were also said to "continue after completion".
Giles JA (Beazley and McColl JJA agreeing) rejected a submission that a notice to complete issued by the vendor was invalid, since the vendor had not at that stage repaired the roof. Insofar as the vendor's obligation was to repair the roof "by completion", his Honour considered the vendor was not in breach of contract at the time the notice was issued, since the obligation could still be met before or at completion: at [78]. Because the obligation was expressed to "continue after completion", his Honour also found that satisfaction of the obligation was "not a condition precedent to performance of the purchaser's obligation to complete by payment of the purchase price": at [103].
See also Barrak Corporation Pty Ltd v Jaswil Properties Pty Ltd (2016) 18 BPR 35,759; [2016] NSWCA 32.
Below I consider each of the alleged breaches to determine if they meant the vendor was not entitled to issue the notice to complete on 4 July 2023.

No service of notice of attornment - clauses 24.4.3

The purchaser submitted that the admitted failure by the vendor to provide a notice of attornment before it issued the notice to complete is the "primary basis" on which the notice to complete is invalid.
There does not appear to be any previous judicial consideration of the construction of clause 24.4.3 in the 2022 standard contract. The current form is different to the previous edition, which did not include a time frame for the provision of the notice of attornment. Now, the clause specifies that a vendor must provide the notice "at least 2 business days" before completion.
In Santangelo v Yates Holdings Victoria Pty Ltd (2022) 20 BPR 42,615; [2022] NSWSC 397, a vendor, bound by the earlier edition of the standard form contract, had failed to provide a notice of attornment before completion and the purchaser submitted that was a basis for a finding a notice to complete was invalid. Slattery J considered that the combined effect of the operation of the clauses and requisitions involved in that case was to permit the delivery of notices of attornment and rental bond transfers a reasonable time after completion: at [59]-[63]. One clause relevant to that conclusion was clause 20.8, which preserved after completion the purchaser's right under clause 24 to receive the notice of attornment.
While the contract before me is different, I reach the same conclusion as Slattery J for the following reasons. I consider that the proper construction of clause 24.4.3 of the 2022 standard contract, read together with other clauses, does not mean that if the notice of attornment has not been provided at least 2 days before scheduled settlement, the vendor is not ready, willing and able and cannot issue a notice to complete.
The following other clauses are significant to this construction: 1. Clause 21.6 provides that "normally, the time by which something must be done is fixed but not essential". The obvious effect of that clause is that time in clause 24.4.3 is not essential. 2. Clause 20.8 provides that rights under various clauses, including clause 24, continue after completion. Clause 20.12 provides that each party "must do whatever is necessary after completion to carry out the party's obligations under this contract". These clauses anticipate that performance of clause 24 may occur after completion, and tell against a construction that a breach of clause 24.4.3 was intended to amount to a breach "which may have provided the purchaser with a good excuse not to complete by the due date": Malouf v Sterling at [36]. 3. Clause 24.4.3 anticipates the notice being held in escrow, which further demonstrates that the notice has no practical work to do until after completion, and is not therefore a pre-requisite to completion.
The notice of attornment is necessary for a purchaser, so that the tenant must thereafter pay rent to it (see eg s 125 Conveyancing Act 1919 (NSW)). However, because of the requirement to adjust the final purchase price, it is apparent that the purchaser's interests are protected, even if the notice of attornment is not received on time. The vendor would be required to pay any sums received from the tenant after completion to the purchaser, because special condition 52.6(b) provides that "the purchaser will be entitled to all lease moneys payable from the date" after completion. See also clause 14.2.
I do not consider the promise to provide the notice of attornment could have any effect on the purchaser completing on time: see eg Chandos v Mulkearns; HG & R v Sayer. It was not a pre-condition to completion.
It may also be that the purchaser waived any requirement for the notice of attornment to be provided earlier than settlement by requisition 55. For example, it did not raise the apparent inconsistency between the timing in clause 24.4.3 and the requisition attached to the contract (which may have been based on the previous standard contract). However, no pleading or submissions were made concerning waiver and I make no finding in that regard.

Failure to carry out adjustments - clauses 14.2 and 52.6

I accept that both parties were obliged to work out adjustments. Clause 14.2 provides: The parties must make any necessary adjustments on completion; and - 14.2.1 the purchaser must provide the vendor with adjustment figures at lease 2 business days before the date for completion; and 14.2.2 the vendor must confirm the adjustment figures at least 1 business day before the date for completion.
Special condition 52.6 provides: Rent and all other moneys paid or payable to the vendor by tenants or occupants of the property ("lease moneys") will be apportioned on completion between the vendor and the purchaser in the following manner … (c) if any lease moneys are in arrears, the purchaser will allow those arrears to the vendor.
As noted above, in January and February 2023, the purchaser sought and received information from the vendor to calculate adjustments concerning payments under the lease. Despite the express entitlement to do so contained in clauses 23 and 24, the purchaser never sought updated figures, or sought to access the relevant books and records closer to settlement. Nevertheless, on 30 June 2023, the purchaser proffered adjustment figures to the vendor and uploaded them to PEXA. The vendor agreed with the purchaser's adjustments on 3 July 2023. Therefore, the purchaser appears to have been prepared to proceed on the basis that it had sufficient information to provide the adjustment figures to the vendor, in apparent compliance with clause 14.2.1, despite the rights to more information pursuant to clauses 23 and 24.
I do not accept that it was incumbent upon the vendor to carry out the original adjustment calculations independently of the purchaser, who was contractually obliged pursuant to clause 14.2.1 to provide them to the vendor. The contract provided the means by which the purchaser could obtain all the relevant information for that task.
The vendor had agreed with the purchaser's figures. If there was an error in the figures, which is what the purchaser now appears to assert, then it may have been open to the parties to make adjustments after completion, by reason that clauses 20.8 and 20.12 required continued performance of the obligations under clause 14. I consider special condition 52, which also related to adjustments, was intended by the parties to also survive termination.
Further, because pursuant to clause 52.6(c) unpaid rent was to be adjusted in favour of the vendor, not the purchaser, it would not necessarily be the case that the purchaser was prejudiced by a failure (if there was one) to properly adjust the rent as at 3 July 2023, such that the purchaser's ability to complete at that time was impacted.
The plaintiff submitted that clauses 14.2 and 52.6 also required the vendor to make arrangements for the "transfer of the rental bond". However, the contract does not include any clause requiring such an obligation, and the lease does not include a "rental bond". No submission was made concerning special condition 52.9, which provides that the vendor assigns effective from completion to the purchaser "all its rights under each guarantee, indemnity, warranty… under any of the existing tenancies".

Failure to notify of breaches of lease - clause 52.7

Special condition 52.7 provides: The vendor will immediately notify the purchaser or the purchaser's solicitor in writing of any breach of any term or condition of which it becomes aware by a tenant or occupant under any existing tenancy. If requested in writing by the purchaser, the vendor will immediately serve on the tenant a notice under section 129 of the Conveyancing Act … (where appropriate to give a notice), and will immediately (or upon expiry of the notice) re-enter the property or commence proceedings for possession.
I refused to allow into evidence two large volumes of documents, said to be relevant to whether the tenant had from time-to-time paid rent late or in instalments, not sanctioned by the lease. The parties had been notified by the Court at the pre-trial directions hearing of the expectation to minimise the volume of documents through agreed facts. No attempt had been made to do so before the hearing.
The parties tendered a few documents from the tenant ledger and receipts of payment of rent. The purchaser submitted that the documents demonstrate that the tenant had paid in a manner contrary to the lease.
The vendor accepted that statement of fact, but submitted that the documents did not demonstrate there was a relevant breach at the time of expected completion on 3 July 2023. However, that was not the substance of the purchaser's complaint. Instead, it was that the vendor had failed to notify the purchaser of the breaches that had been occurring, and that was a serious matter, because the purchaser was deprived of the opportunity to seek to have the vendor issue a notice to the tenant pursuant to s 129 Conveyancing Act. Here, because the issue was delayed payment of rent, s 129 may not have been relevant.
The particular form of breach is not relevant to the question of construction, but provides an example of how clause 52.7 may be breached, and supports the conclusion that it was not intended a breach would allow the purchaser to resist completion.
I do not consider a breach of clause 52.7 would be a matter that would entitle the purchaser to resist completing the contract. That clause only has operation if, between exchange and completion, a tenant breached the lease. However, at all times, the purchaser was able to determine if there was such a breach. Before exchange, the purchaser was required to rely upon its own enquiries pursuant to clause 36.1. After exchange, pursuant to clauses 23 and 24 the purchaser was entitled to obtain all documentation concerning the lease and strata scheme.
As noted above, the rights of the purchaser in relation to receipt of rent after completion were not prejudiced by a failure to notify of a breach of the lease concerning payment of rent. I do not accept that the vendor's failure to notify of a breach of lease was so serious that it would entitle the purchaser to resist completion.

Conclusion

For the reasons above, I consider the notice to complete was effective when issued.

Was the vendor entitled to terminate?

As noted above, by the morning of 19 July 2023, the purchaser had indicated it would not be completing the contract later that afternoon. Before that, the purchaser had not provided the vendor with any adjustment figures, nor provided any communication that it would comply with its settlement obligations on 19 July 2023.
The notice of termination issued on 20 July 2023 gave the failure to comply with the notice to complete as the only ground justifying termination. The purchaser challenges the validity of the notice to complete as the only basis to resist the termination.
In those circumstances, I do not consider relevant the purchaser's reliance on cases including Foran v Wight (1989) 168 CLR 385, or Cole v Raykir Holdings Pty Ltd [2019] NSWSC 1017 at [74] (Darke J).
For the reasons above, I consider the vendor was entitled to terminate relying on the failure of the purchaser to complete on 19 July 2023 as required in the notice to complete.

Conclusion and orders

For the reasons above, the vendor was entitled to terminate the contract and retain the deposit. The statement of claim must be dismissed and the deposit released to the vendor.
I therefore make the following orders: 1. Statement of claim dismissed. 2. Parties are to direct the holding agent to release the deposit to the defendant. 3. Plaintiff to pay the defendant's costs as agreed or assessed.

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: 23 July 2024

Conveyancing Act 1919(NSW)ss 125, 129

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