Beverley Yule v Darcy Smith

Supreme Court of NSW|2013-02-28|Before: Sackar J

Proceedings 1The defendant, the applicant on the motion filed on 14 August 2012, seeks an order pursuant to s 73 of the Civil Procedure Act 2005 that the proceedings be dismissed and for other orders so as to give effect to a settlement recorded in a document described as "Heads of Agreement" executed by the parties on 21 May 2010 (Heads of Agreement). The plaintiff (respondent), in her points of defence dated 13 September 2012, for various reasons opposes the relief sought by the defendant. 2These proceedings turn substantially upon a proper construction of the "Heads of Agreement". It became apparent in oral argument that there were issues which were additional to those initially canvassed, and it was therefore necessary for the parties to prepare supplementary written submissions to address these issues.

Background Facts 3In the substantive proceedings 2008/278833 the plaintiff makes a claim against the defendant for an adjustment of interests in property pursuant to s 20 of the Property (Relationships) Act 1984. 4The parties attended a two day mediation of the substantive proceedings on 20 and 21 May 2010. At the conclusion of the mediation they executed the Heads of Agreement, which was in the following terms: Heads of Agreement Yule & Smith - 2857 of 2008 1. That within 3 months the Defendant transfer to the Plaintiff all of his right, title and interest in the property at ** **** ****, North Gosford [(the Property)], unencumbered with all council and water rates paid and land tax paid. 2. That the Defendant provide to the Plaintiff, the following: 2.1 stamped DA plans for the Property within 21 days; 2.2 a letter from Gosford Local Council certifying that the DA for the Property is still current within 21 days, and 2.3 a letter from Gosford Local Council certifying that there has been practical/physical commencement of the Property within 21 days; 2.4 a bank cheque for $150,000 made payable to the Plaintiff or as she may direct in writing at the same time the Property is transferred to the Plaintiff pursuant to paragraph 1. 3. That the plaintiff indemnifies the Defendant from and in respect of all actions, claims, suits and demands as may be made against the Defendant by Corrinn Westley in relation to moneys loaned by Corrinn Westley to the Defendant. 4. That the Plaintiff and the Defendant release the other from all debts owing from one to the other, including any obligation of the Defendant to account to the Plaintiff for profits received by him or paid to him (or at his discretion) arising from any partnership venture. 5. That the Plaintiff releases the Defendant and the following from all claims in respect of any monies whatsoever owed to the Plaintiff howsoever arising: 5.1 DP Smith Enterprises Pty Ltd; 5.2 DP Smith (Holdings) Pty Ltd; 5.3 DP Smith (Homes) Pty Ltd; 5.4 Bayside Estate Pty Ltd; 5.5 JOLMS Pty Ltd; 5.6 DP Smith Superannuation Fund; 5.7 BA Yule & DP Smith Superannuation Fund; 5.8 Smith Superannuation Fund. 6. That there be no order as to costs. NOTATION: Noted that neither party may seek the entry of orders in accordance with these Heads of Agreement until compliance by the Defendant with paragraphs 2.1 to 2.7 inclusive herein. 5Sometime in 2010 the parties were in disupte about whether and if so to what extent the Heads of Agreement had been complied with. 6In proceedings before Macready AsJ (Yule v Smith [2011] NSWSC 598), whilst it appears the parties did not dispute that clauses 2.1 and 2.4 had been complied with, the controversy was whether or not clauses 2.2 and 2.3 had been complied with. 7Amongst other things the defendant asserted that there had been compliance by reason of certain letters which issued from Gosford City Council dated 6 Febraury 1996 and 31 May 2010. The defendant was successful on all issues before his Honour. The plaintiff lodged an appeal to the Court of Appeal. 8In the Court of Appeal (Yule v Smith [2012] NSWCA 191), Sackville AJA (with whom Macfarlan JA and Young AJA agreed) held that clauses 2.2 and 2.3 of the Heads of Agreement required first that the Development Consent in relation to the Property was still current and secondly that the work on the Property had physically commenced. 9It was found that the effect of providing Ms Yule with the letters of the Council dated 6 February 1996 and 31 May 2010 was that Mr Smith had complied with clause 2.3 (i.e. certifying physical commencement of development) but not with clause 2.2 (i.e. currency of development approval) of the Heads of Agreement. 10The Court of Appeal was only asked to decide whether the orders made by Macready AsJ should be set aside, and it held that whilst the correspondence provided by the defendant satisfied clause 2.3 of the Heads of Agreement the defendant had not (as at the date of the hearing before Macready AsJ) complied with clause 2.2 (see [63] to [66] and [72]). 11Further letters have now issued from Gosford City Council dated 14 June 2012, 13 July 2012 and 24 July 2012. The defendant asserts that clause 2.2 of the Heads of Agreement (subject to any issue regarding the time for performance) has now been complied with by reason of these letters. 12The defendant contends that Gosford City Council has now stated unequivocally (in the letters) that the Development Consent number 13497 given in relation to the Property is still in effect valid and current, and he seeks an order enforcing the Heads of Agreement. 13The plaintiff contends that despite these further letters, clause 2.2 has not been complied with, and the defendant cannot enforce the Heads of Agreement.

Submissions 14The defendant submitted that the Heads of Agreement should be regarded as creating an immediately binding agreement. He accepts that he breached the 21 day time stipulation in clause 2.2 but submits that it was not essential and was never intended to be so. Further, he submits that irrespective of whether the time stipuation is essential, the plaintiff has not elected (and does not even now elect) to terminate, and the defendant has, in the meantime complied with his obligations under clause 2.2, thereby depriving the plaintiff of the entitlement she might otherwise have had to terminate the Heads of Agreement. 15The plaintiff contends that by reason of the "NOTATION" at the end of the Heads of Agreement, enforcement of the agreement by either party was subject to a contingency, namely, that the defendant was to provide the relevant documents stated in clauses 2.1 to 2.3 within 21 days. 16The plaintiff contends that as the defendant has breached an essential time stipulation, he cannot comply with the Heads of Agreement. Further, she contends she has not waived the obligation on the defendant to comply within the time stipulated. She submits she is therefore "entitled to avoid" the Heads of Agreement without notice to the defendant. In oral argument, counsel for the plaintiff sought to distinguish "avoiding the agreement" from an election to terminate the Heads of Agreement, and expressly disavowed termination during oral argument. However, in her supplementary written submissions, the plaintiff has changed her position considerably, stating: The Plaintiff now accepts that there is no difference at law between treating the contract "as at an end" or no longer capable of being binding under Perri or treating the contract as having been terminated. If a contract is to be treated "as at an end" it is correct to say that the contract has been terminated in some way. 17The plaintiff therefore contends that the defendant is not entitled to enforce the Heads of Agreement, and seeks dismissal of this notice of motion.

Discussion 18As oral argument developed, counsel for the plaintiff indicated that there are two separate grounds on which plaintiff contends that defendant is not entitled to the relief sought: (1)the plaintiff is entitled to "avoid" the Heads of Agreement (though without terminating it) as a result of the defendant's breach of what is alleged to be an essential time stipulation in clause 2.2; (2)the letters most recently procured by the defendant from Gosford City Council still fail to satisfy clause 2.2, as the signatories of the letters lacked authority to provide certification. 19A third ground was also raised during oral argument, namely, whether the defendant should be disentitled from enforcing the Heads of Agreement on the basis that doing so would constitute a "taking advantage" of his own breach.

Has the Heads of Agreement been terminated? 20Initially Ms Yule in paragraph 11 of her written submissions contended that on a proper construction of the Heads of Agreement, the obligation of the defendant under clause 2.2 was either: "(a) a condition precedent to the performance of the contract; or (b) a condition precedent to the formation of a contract." 21In oral argument, the plaintiff expressly abandoned her submission in paragraph (b). It is therefore uncontested that a binding contract did in fact come into existence at the point of execution. The next question is whether the defendant has breached the Heads of Agreement in an essential respect. 22When this matter was before the Court of Appeal, Young JA commented (at [81]): Since there will clearly be further contention...I should express the hope that more attention will be paid to the vital distinctions in the area of what might be called conditions precedent. The term "condition precedent" was too loosely used in argument before us. It is necessary to distinguish between a condition precedent to contract and a condition precedent to performance, between what is a condition and what is a contingency and between a condition precedent and concurrent condition. Then it is necessary to assess the consequences of failure to comply with the condition which may be that there is no contract, it may be that the contract will not be specifically performed, but that there will be a remedy in damages, or it may be that insistence on performance is premature... 23In order to identify and apply the legal principles relevant to the case before me, it is necessary to be clear about this terminology. A contingency is merely an event on the occurrence (or non-occurrence) of which an obligation to perform, or the existence of a contract, may depend. The word "condition" or "condition precedent" is sometimes used to describe a contractual term that states or provides for a contingency. However, the word "condition" is of course distinguishable when it is used to describe a type of contractual term under the tripartite classification. 24Sometimes a party to the contract will be made responsible under the contract to procure the fulfilment of a contingency (or condition), but sometimes the contingency (or condition) is something which is out of the control of the parties to the contract (e.g. the actions of a third party or an event beyond their control). Conditions of the former type are described as promissory conditions because a party has promised to bring about the fulfilment of the condition, whereas conditions of the latter type are described as non-promissory. 25As mentioned, where a contract contains a condition precedent, the non-fulfilment of the condition precedent results in either there being no contract (i.e. a condition precedent to contract), or alternatively no obligation to perform (i.e. condition precedent to performance). Which of the two actually occurs in a given case depends on the intention of the parties (see discussion by Einstein J in African Minerals Ltd v Pan Palladium Ltd [2003] NSWSC 268 from [48]). 26The expression "condition subsequent" refers to an event the occurrence of which terminates either an existing contractual relationship, or the obligation of one or more parties to perform. However, as noted by various text writers, the distinction implied by the words "precedent" and "subsequent" is largely semantic, as most conditions precedent can be expressed as conditions subsequent (and vice versa). Similarly, Gibbs CJ observed in Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 (at 541): ... if the words "precedent" and "subsequent" are to make sense they must be connected with a definite point of reference; since they express a relationship in time, the question which must be asked is "Precedent to what? Subsequent to what?" However, provided the effect of a condition is clearly understood, its classification may be merely a matter of words. 27In the present case, the parties accept that the Heads of Agreement was binding from the time of execution. Clause 2 is therefore not a condition precedent to formation. The issue is whether it is a condition precedent to performance. In other words, was the fulfilment of clause 2 a condition subsequent to the formation of the Heads of Agreement? Adopting what Gibbs CJ said in Perri v Coolangatta Investments Pty Ltd (at 543): ...it probably does not matter in the present case whether the condition is described as "precedent" or "subsequent", provided that it is understood that its non-fulfilment did not prevent a binding contract from coming into existence. 28Whether clause 2 is a condition precedent to performance is a question of construction. The notation at the bottom of the document makes the "entry of orders in accordance with [the] Heads of Agreement" conditional on the performance by Mr Smith of his obligations under paragraphs "2.1 to 2.7 inclusive". As noted by Mr Muston, counsel for the applicant, the releases and indemnities provided under clauses 3 to 5 are not expressed by any clause in the contract to be conditional on Mr Smith's performance of his obligations under clause 2. 29However, it is difficult to see what purpose the handwritten notation would serve unless Mr Smith's obligations were conditions precedent to the performance of Ms Yule's obligations. It would be entirely unnecessary for the parties to seek court orders "in accordance with [the] Heads of Agreement" if the releases and indemnities provided for under the Heads of Agreement were immediately operative on execution. If that was the case, the parties could simply seek orders that the proceedings be dismissed, with no order as to costs, seeing that the balance of the terms of their settlement would be recorded in the Heads of Agreement. It is therefore readily apparent from the face of the document that the parties intended that the various releases and indemnities would only operate by the force of court orders to be entered at some future date. 30In my opinion, the better view is that the obligations under clause 2 were conditions precedent to the performance of the balance of the parties' obligations under the Heads of Agreement. 31The consequence flowing from the classification of the obligations under clause 2 as conditions precedent would be as stated by Hodgson JA (with whom Allsop ACJ and Beazley JA agreed) in Meares Nominees Pty Ltd v Permanent Custodians Ltd [2009] NSWCA 235 (at [26]): ...where a condition precedent specifies a time for its performance, time is of the essence. 32In Perri v Coolangatta Investments Pty Ltd at Gibbs CJ said (at 545): where a conditional contract fixes the date by which the condition is to be fulfilled the contract may be terminated if the condition has not been fulfilled when that date arrives, and ... it is unnecessary to give any prior notice to the other party. 33This principle applies to both promissory and non-promissory conditions precedent. His Honour then went on to consider whether the principle applies where the contract does not fix the time for fulfilment of the condition and it accordingly must be performed within a reasonable time. In that context, Gibbs CJ said (546): when the time has elapsed for performance of a condition which is not a promissory condition, but a condition precedent to the obligation to complete a contract of sale, either party, if not in default, can elect to treat the contract as at an end if the condition has not been fulfilled or waived, and that it is not necessary to first give a notice calling on the party in default to complete the contract or fulfil the condition...subject to any sufficient indication of a contrary intention in the words of the contract itself. 34Applying these principles, a number of findings can be made. First, Mr Smith's obligations under clause 2 of Heads of Agreement were, as I have found, conditions precedent to performance. The time for fulfilment of the conditions was fixed by the contract as 21 days. Secondly, the 21-day period was an essential time stipulation. Thirdly, as a result, Mr Smith's failure to perform his obligations under clause 2.2 within 21 days from the date of execution constituted a breach for which Ms Yule was entitled to terminate without giving prior notice of her intention to do so. I also note that the debate during oral submissions as to whether there is a difference between a party, on the one hand, treating the contract as at "an end" and, on the other hand, electing to terminate the contract, is of no substance. Both parties accepted in their further written submissions that no such distinction exists. 35However, these conclusions do not mean that the Heads of Agreement automatically came to an end. Termination does not take place automatically. It would only occur if Ms Yule elected to do so (Rudi's Enterprises Pty Ltd v Jay (1987) 10 NSWLR 568 at 576-580, per Samuels AP with whom McHugh and Priestley JJA agreed). 36Although the issue was not raised in the pleadings or in the written submissions provided by the parties before the hearing, it very quickly became apparent during oral argument that whether or not Ms Yule had actually exercised her entitlement to elect to terminate the Heads of Agreement was critical to the determination of the present proceedings. 37It is clear, and counsel for Mr Smith said he did not contest, that Ms Yule at no point elected to affirm the Heads of Agreement following Mr Smith's breach. However what is not so clear is whether Ms Yule has elected to terminate it. After reading the pleadings and submissions on behalf of the Plaintiff, I had some difficulty identifying whether or not the Plaintiff was asserting that she had elected to terminate. Perhaps this difficulty arose from the now withdrawn submission about the existence of a distinction between avoiding a contract or treating it at an end, and electing to terminate it. 38In written submissions provided before the hearing, the Plaintiff argued she "was entitled to avoid the Heads of Agreement", but did not expressly plead that an election to terminate had been made. At the hearing, the Plaintiff expressly disavowed a plea that she had elected to terminate the Heads of Agreement. In her further written submissions, the Plaintiff changed her position and finally sought to place reliance on certain conduct as constituting an election to terminate. 39In Immer (No 145) Pty Ltd v Uniting Church In Australia Property Trust (NSW) [1993] HCA 27; (1993) 182 CLR 26 the following comments were made: A party can only be held to have elected "if he has so communicated his election to the other party in clear and unequivocal terms" ... [per Deane, Toohey, Gaudron and McHugh JJ at 39] An act amounting to an election must be unequivocal (Matthews v. Smallwood (1910) 1 Ch 777, at p 786; P Samuel and Co. Ltd. v. Dumas (1924) AC 431, at p 477; Brown v. Smitt [1924] HCA 11; (1924) 34 CLR 160, at p 168; Elder's Trustee and Executor Co. Ltd. v. Commonwealth Homes and Investment Co. Ltd. [1941] HCA 31; (1941) 65 CLR 603, at p 616). Where a contract can be terminated at the option of a promisee, the right to terminate is not necessarily lost by the promisee doing any act consistent with the continuance of the contract. If the act is also consistent with the reservation of a right to terminate in certain events, the right to terminate is not lost by the doing of the act. [per Brennan J at 30] 40Similarly, in the earlier case of Sargent v ASL Developments Ltd (1974) 131 CLR 634, Stephen J (with whom McTiernan ACJ agreed) said (at 646): The words or conduct ordinarily required to constitute an election must be unequivocal in the sense that it is consistent only with the exercise of one of the two sets of rights and inconsistent with the exercise of the other. 41It emerges clearly from the authorities that where a party to a contract is faced with a sufficiently serious breach by another party which entitles the innocent party to terminate the contract, the words or conduct required to constitute an election by the innocent party to either affirm or to terminate, must be by unequivocal, and consistent only with the right elected. I also note that whether or not a party has made an election is determined objectively. It is "an effect which the law annexes to conduct which should be justifiable only if an election had been made one way or the other" (Tropical Traders Ltd v Goonan (1964) 111 CLR 41 at 55). 42It is necessary to consider whether the Plaintiff, by words or conduct, has at any relevant time made an election to terminate. First, she relied on a letter dated 19 August 2010 (this letter was admitted into evidence as "Exhibit R3" at the commencement of the hearing) as constituting her election to terminate the Heads of Agreement. The relevant substance of the letter is as follows: 1. On 21 May 2010, our respective clients signed a document entitled "Heads of Agreement". 2. Our client does not admit that the document amounts to a valid or enforceable agreement. 3. However, on the assumption that it does, we make the following observations. 43The letter then goes on to make a number of observations about the progress of the proceedings. The quoted lines are the "high water mark" of anything that might be thought to amount to an election to terminate. In my opinion, the letter does not constitute an election to terminate. Rather than asserting that the agreement was at an end, the letter simply states that Ms Yule "does not admit" that there is one. Clearly, it remained open for Ms Yule to change her position, had she wished to do so, and seek enforcement of the agreement. To borrow the words of Stephen J, the substance of the letter is not "consistent only with the exercise of [the right to terminate] and inconsistent with the exercise of the [right to affirm]". The true character of the letter is a reservation of position rather than an election. 44Secondly, it was suggested during oral argument that if a party commenced proceedings alleging that a contract was terminated, that would constitute the requisite unequivocal conduct. It is clear as a matter of principle that the commencement of proceedings is conduct which may involve an election (see Perri at 570 and Ogle v Comboyuro Investments Pty Ltd (1976) 136 CLR 444 at 460). However, in the present case, the substantive proceedings in which the Plaintiff seeks an adjustment of interests in property pursuant to s 20 of the Property (Relationships) Act 1984 were commenced before the mediation and before the execution of the Heads of Agreement. Therefore the commencement of these proceedings cannot constitute the relevant election. 45Third, the Plaintiff seeks to reply on her conduct during the proceedings before Macready AsJ as constituting an election to terminate. In those proceedings it was the Defendant who sought, by notice of motion, enforcement of the Heads of Agreement. Ms Yule did not commence the proceedings. However, she did defend the proceedings and initiated the appeal to the Court of Appeal. However, even in her defence before Macready AsJ and in the proceedings in the Court of Appeal, she does not appear to have alleged that the agreement was terminated, at an end, or not on foot. As counsel for the Plaintiff proposed, her conduct could equally have amounted to an assertion that, at present, the agreement was not enforceable because the Defendant had not yet complied with clause 2.2. 46Fourth, the Plaintiff seeks to rely on her conduct during the current notice of motion as constituting an election to terminate. During oral argument before me, the Plaintiff expressly disavowed any plea of termination. The following exchange took place: HIS HONOUR: [D]o you say that your client has terminated this agreement? BYRNE: Yes. HIS HONOUR: When and how? BYRNE: By conduct, by first of all the letter I go back one step. Mr Muston seems to be shifting the onus onto us to establish that we have somehow terminated the agreement. HIS HONOUR: I'm not fussed at the moment about who bears onus on what issue. I am interested if you say that your client has terminated the agreement and I would like to know what the evidence is based upon. You say it's the letter 2 August 2010. BYRNE: I don't wish to use the word "terminate". It has a particular legal meaning. We say our client has shown an intention that she's not bound by the agreement once the 21- HIS HONOUR: ...Do you say that the legal position that your client is in is that the agreement has in fact been terminated or is it on foot. What is its status? BYRNE: The contract is no longer on foot at least parts of it that require- 47It is apparent from this exchange that there is no conduct or words, even at the hearing, which can be described as unequivocal for the purposes of an election to terminate. Having twice put the question directly to the Plaintiff's counsel, and in light of the response I received, I agree with the Defendant's submission that "even on the hearing of this application, Ms Yule has been unwilling to assert that the Heads of Agreement has actually been terminated". 48Until now, the position which Ms Yule has taken could be consistent with a decision to resist enforcement of the Heads of Agreement pending proper performance by Mr Smith of his obligations under clause 2. To this point, the Plaintiff's conduct is equivocal. It is difficult to see how Ms Yule's conduct could be characterised as being "consistent only with the exercise of [the right to terminate]" (emphasis added). It is therefore my view that Ms Yule has not exercised her right to elect to terminate the Heads of Agreement. Her position thus far seems to be as described by Mason J in Sargent v ASL Developments Ltd (at 656): A person confronted with a choice between the exercise of alternative and inconsistent rights is not bound to elect at once. He may keep the question open, so long as he does not affirm the contract or continuance of the estate and so long as the delay does not cause prejudice to the other side. An election takes place when the conduct of the party is such that it would be justifiable only if an election had been made one way or the other... 49Brennan J cited these comments with approval in the later decision of Immer (No 145) Pty Ltd v Uniting Church In Australia Property Trust. 50What then is the status of the arrangement between the parties where there has been a serious breach giving rise to a right to terminate, and the non-breaching party has not made an election either to affirm or to terminate? In Immer (No 145) Pty Ltd v Uniting Church In Australia Property Trust, Deane, Toohey, Gaudron and McHugh JJ approved the following comment made by Meagher JA at an earlier stage in the same litigation (at 39): On [the date of breach, the non-breaching party] could have taken one of three courses: it could have rescinded the deed, but it did not do that; it could have done nothing at all, in which case its contractual right of rescission would have survived; or it could have taken the course, inconsistent with the first of those courses, of keeping the deed on foot. 51Deane, Toohey, Gaudron and McHugh JJ also approved (at 41) the following comment which appeared in The Law Relating to Estoppel by Representation by Spencer Bower and Turner: It is of the essence of election that the party electing shall be 'confronted' with two mutually exclusive courses of action between which he must, in fairness to the other party, make his choice. 52The principles which therefore emerge from the above cases appear to be: (1)where a party to a contract has a right to elect to terminate or affirm the contract, they need not elect at once, and they may keep the question open; (2)the time at which they must make an election is when they are "'confronted' with two mutually exclusive courses of action"; and (3)until such time as an election is made, the right to elect to terminate survives. 53In the present case, it appears to me that Ms Yule has "[kept] the question open", right up until the present proceedings before me, and she now seeks to plead termination of the Heads of Agreement in submissions prepared after the hearing. The issues therefore, I think, come down to two questions: (1)is it open for Ms Yule to assert termination for the first time as a defence to proceedings in which Mr Smith is seeking to enforce the Heads of Agreement? (2)now that Mr Smith has procured, before the hearing of this motion, the further letters from Gosford City Council, is Ms Yule prevented from resisting the Plaintiff's plea for specific performance by pleading termination? 54In Chapman v Greater Midwest Insurance Pty Ltd [1981] 1 NSWLR 479, Yeldham J considered these issues in the context of a contract of insurance, where the insurer had the right to elect whether to rescind a contract of insurance on the basis of non-disclosure or misrepresentation, or to affirm it. His Honour said (at 485-488): It is plain from many authorities which I have consulted that, where it is the plaintiff in an action who has the right to elect to avoid a contract, whether it be one of insurance or otherwise, the mere service of originating process evidencing an intention to disaffirm it, is in itself a sufficient election and has the consequence of avoiding the contract. ... The question whether an indication, not in the originating process, but in the plea or other statement of defence, that the defendant disaffirmed the contract was sufficient, without more, to avoid it at the election of that defendant, is a matter of much more difficulty. ... The contract in the present case was, of course, partly executed in that the plaintiff had paid the premium. On the part of the defendant, it was wholly executory. ... [T]he reason for denying to an insurer in an action such as the present, where the consideration moving from the insured has been executed, the right to rely upon a statement made for the first time in its defence that it disaffirms the policy has no logical basis to support it. ... But I would also decide that, in such circumstances, the insurer may rely upon the defence as an act of election to avoid the contract, upon a more substantial ground. That ground is that there is not in truth... any rule which limits the right to disaffirm the contract in the defence to cases where such contract is wholly executory... All the judges of the Court of Exchequer Chamber, in a judgment delivered by Mellor J [in Clough's case (1871) LR 7 Exch 26], [said] that they could not see the principle or discover the authority for saying that it was necessary that there should be a declaration of intention to rescind prior to the plea being filed... ... Clough's case (1871) LR 7 Exch 26, was referred to for this proposition in Nicholas v Thompson [1924] VLR 554, at p 582 in a judgment delivered by McArthur J in which Cussen ACJ and Weigall AJ, concurred... [I]t was there nowhere suggested that it was only where the contract was wholly executory that a defendant might rely upon the relevant statement in his plea. ... The result of my consideration of the foregoing authorities is twofold. In the first place, because an insurer who avoids a contract of insurance on the ground of non-disclosure of material facts is not obliged, as a condition entitling him to do so, to refund the premium, the principle (if it be one) that a plea or defence may be relied upon as the act evidencing an intention to disaffirm is confined to contracts which are wholly executory, has no application in the case of such contracts. In the second place, and in reliance in particular upon Clough's case (1871) LR 7 Exch 26, I do not think that the principle is in any event limited to wholly executory contracts. Thus it becomes necessary to examine whether the defences raised by the defendant in the present matter are themselves sufficient to evidence an intention to avoid the contract of insurance, or whether they merely amount to a statement that the particular claim will not be paid, the continuance of the policy as a valid one being assumed... 55In The Law of Rescission (2008) by Dominic O'Sullivan, Steven Elliot and Rafal Zakrzewski, the authors made comments to similar effect (at [11.40]), relying mainly on English authorities to make good their propositions. 56However, even accepting that a plea for termination can properly be made for the first time in a defence, in my view, the Plaintiff's attempt to now assert that the contract is at an end would be too late if I find that the Plaintiff has, in the meantime fulfilled the condition under clause 2.2. I base my views on the following passages in Perri at 545 per Gibbs CJ: [In the cases of Gange v Sullivan (1966) 116 CLR 418 and Suttor v Gundowda Pty Ltd (1950) 81 CLR 418] [t]he non-fulfilment of the condition gave the party not in default a right to avoid the contract, but if that party did not exercise the right the other party might enforce the contract against him. In Suttor v. Gundowda Pty. Ltd. the attempt to cancel the contract was made too late, since the condition had been fulfilled in the meantime. 57Gibbs CJ also stated in his conclusion at 547: By instituting the proceedings [i.e. proceedings alleging termination of the relevant agreement], before the condition had been either fulfilled [i.e. fulfilled by the party in breach] or waived, the respondent sufficiently evidenced its election to avoid the contract. [My interpolation in square brackets.] 58It emerges clearly from both of these comments that the Chief Justice considered that if proceedings alleging termination had been brought after the party in breach had fulfilled its obligations thereby remedying the breach, it may be open for the party no longer in breach to seek specific performance. 59In Suttor v Gundowda Pty Ltd (1950) 81 CLR 418, Latham CJ, Williams and Fullagar JJ were considering a clause in a contract for the sale of pastoral property which provided that if the Treasurer's consent was not obtained by a certain time, the contract should be deemed to be cancelled. Their Honours relevantly stated at 441-442: The provision in question is to be construed as making the contract not void but voidable. The question of who may avoid it depends on what happens. If one party has by his default brought about the happening of the event, the other party alone has the option of avoiding the contract. If the event has happened without default on either side, then either party may avoid the contract. But neither need do so, and, if one party having a right to avoid it does not clearly exercise that right, the other party may enforce the contract against him... ... Before the defendant's solicitor purported to cancel the contract the consent in writing of the Treasurer to the transfer [i.e. the relevant condition precedent in that case] had been obtained on 5th January, 1948, and the cancellation was therefore too late. [My interpolation in square brackets.] 60Accordingly, subject to my determination of whether the fresh letters from Gosford City Council satisfy clause 2.2, there appears to be no jurisdictional impediment to ordering enforcement of the Heads of Agreement (the question of whether I should exercise my discretion to so order is a separate issue).

Do the further letters satisfy clause 2.2? 61In mid-2012, Mr Smith's solicitors obtained from Gosford City Council three letters, dated 14 June 2012, 13 July 2012 and 24 July 2012, in alleged satisfaction of clause 2.2 of the Heads of Agreement. Ms Yule contends that these letters do not satisfy clause 2.2. As I understand, the basis of her contention was not based on a deficiency in the substance of the letter, but on the alleged lack of authority of the respective signatories to provide such letters "certifying" the relevant state of affairs for the purposes of clause 2.2 of the Heads of Agreement. 62In support of her contention, counsel for Ms Yule tendered during the hearing a document which was publicly available on Gosford City Council's website, entitled "Delegation of Authority - Master Schedule" (this was marked "Exhibit R2"). The Plaintiff later, by consent, tendered a copy of the register (Delegation Register) which was current at the time the further letters from Gosford City Council were signed. The Delegation Register, in summary, delegates a broad scope of authority to the General Manager of the Council, and then specifies the further delegation of various functions by the General Manager to various staff members (by reference to their position titles). The delegations set out in the Delegation Register were said to be made in accordance with sections 377 to 381 of the Local Government Act 1993. Generally, those sections provide that a council has the power to delegate to its general manager all but the functions listed in s 377(1), and that the general manager in turn has the power under s 378 to delegate his or her own functions (except for the power of delegation) to any person or body. 63One of the functions the subject of a delegation was the power to "Sign Documents", which bore the descriptor: To sign and certify any Deed, Notice, Order, Contract, Agreement or any other thing whether legal or administrative except where the document must be signed by the General Manager. 64The delegation of this function was made to the "Director, Corporate Services" and the "Director, Environment & Planning". None of the three letters recently procured by Mr Smith was signed by an individual bearing either of those titles, and counsel for Ms Yule argued that the three letters recently procured by Mr Smith from Gosford City Council therefore fail to satisfy clause 2.2. For the reasons that follow, this argument should not be accepted. 65First, the delegation of the particular power to "Sign Documents" related to documents of the description quoted above. These nature of the documents was to bring into existence legally binding obligations. This is very different from a mere "certification", which simply provides confirmation of an existing state of affairs or an existing legal obligation. 66Secondly, each of the three letters were signed in different capacities, namely "Advisor Planning", "Advisor - Planning Development" and "Manager Development", and according to the Delegation Register, the power to "determine applications (including amendment and review of applications)" was given to "Manager, [E&P] - Development" and "Planner, [E&P] - Development" among others. The close resemblance between the titles of the signatories and the titles of the positions specified in the Delegation Register suggests that it is probable that the signatories had the authority to determine applications. As a matter of logic, it is likely that it would follow that persons in such positions would also have the authority to simply confirm existing determinations. 67In the language of the Court of Appeal, these three letters provided "an express assurance by the Council that it considered the development consent to be in force" (at [70]), they were "more...than an implication in a letter dealing with a separate topic" (at [70]), and thereby satisfied the "obvious commercial purpose of the certification" (at [71]) provided for in the Heads of Agreement.

Is Mr Smith taking advantage of his own breach? 68It was also raised during oral argument whether this was a case in which Mr Smith, having breached clause 2.2, would now, by seeking to enforce the Heads of Agreement, be taking advantage of his own breach. There is a clear line of authority which prevents a party, generally, in breach of contract to take advantage of his or her own breach (see discussion in Ruthol Pty Ltd v Tricon (Australia) Pty Ltd (2005) 12 BPR 23,923; [2005] NSWCA 443 at [19]-[25] per Giles JA, with whom Santow JA and Hunt AJA agreed; see also Suttor v Gundowa Pty Ltd (1950) 81 CLR 418 at 441). After reviewing the English and Australian authorities on this issue, Lewison and Hughes in The Interpretation of Contracts in Australia (2012) state (at [7.09]): It seems clear that in Australia, and England and Wales, the principle is applied as a principle of construction which may be displaced by the words of a contract, rather than as a rule of law applied irrespective of the intention of the parties. 69However it appears that Mr Smith's application to enforce the Heads of Agreement does not amount to "a taking advantage" in the sense proscribed in Ruthol Pty Ltd v Tricon (Australia) Pty Ltd and the relevant authorities cited in that case. It is not Mr Smith's breach of the Heads of Agreement which now makes it possible for him to seek enforcement of the contract. Rather, the present situation is one which falls within what Giles JA described in [22]: ...[A] party in breach of contract may be precluded from relying on a contractual entitlement arising from the breach, but will not be precluded from relying on a contractual entitlement which does not arise from the breach 70The final issue which arises is whether I should exercise my discretion under s 73 of the Civil Procedure Act 2005 to give effect to the Heads of Agreement.

Exercise of discretion 71If I were called upon to exercise a discretion I would do so recognising that the last thing that is in the interests of the parties and the dictates of justice more generally is to perpetuate this litigation which after all was commenced as long ago as 2008. There is every prospect that the evidence will need updating before any hearing date could be allocated. Leaving aside the existence of contemporaneous records, memories fade and therefore the hearing would likely be conducted in most unsatisfactory environment of any hearing. 72I am conscious that Mr Smith has, it seems, waited approximately two years before seeking to enforce the Heads of Agreement. However, in my view, the authorities establish that mere delay would not of itself provide sufficient ground to resist an application to enforce the Heads of Agreement. A decree of specific performance was granted by the High Court in Fitzgerald v Masters (1956) 95 CLR 420 twenty six years after the cause of action arose. Dixon CJ and Fullagar J (at 433) held that there were no circumstances apart from delay for refusing relief, thereby holding that mere delay of itself cannot constitute laches. This view has now been endorsed by the New South Wales Court of Appeal in Savage v Lunn (CA(NSW), Handley, Sheller JJA and Sheppard AJA, 9 March 1998, unreported). 73I would therefore exercise my discretion under s 73 of the Civil Procedure Act and order that the relief sought in the motion be granted, and that proceedings number 2008/278833 be dismissed. 74I will hear the parties on costs and would invite them to have the matter re-listed for that purpose.

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: 21 March 2013

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