APPEALED FROM: Blackley Investments Pty Ltd v Burnie City Council

[2008] TASSC 74

Conveyancing - The contract and conditions of sale - Consent or approval of third parties - Planning approval - Obligation of purchaser to apply for rezoning and planning permit - Express right of purchaser to rescind if rezoning or permit refused - Right of purchaser to keep contract on foot.

Sandra Investments Pty Ltd v Booth [1983] HCA 46; (1983) 153 CLR 153, followed.

Perri v Coolangatta Investments Pty Ltd [1982] HCA 29; (1982) 149 CLR 537, distinguished.

Judgment Number: [2009] TASSC 63

BLACKLEY INVESTMENTS PTY LTD v BURNIE CITY COUNCIL

BLACKLEY INVESTMENTS PTY LTD v BURNIE CITY COUNCIL

1 I agree that the appeal should be upheld for the reasons given by Blow J.

BLACKLEY INVESTMENTS PTY LTD v BURNIE CITY COUNCIL

2 This appeal concerns the interpretation of a contract for the sale of some land owned by the respondent council at Camdale. The council entered into a contract to sell the land to the appellant company. The land was and is zoned "Industrial" under the Burnie Planning Scheme 1989. Both parties intended that the purchaser would undertake a housing development on the land. The planning scheme prohibits such developments in areas zoned Industrial, but they are not prohibited in areas zoned "Residential A" if a planning permit is granted. The contract therefore required the purchaser to make a combined application under the Land Use Planning and Approvals Act 1993 ("the LUPA Act"), s43A, for a change of zoning and a planning permit. It also contained a provision allowing the purchaser to rescind the contract if that application was unsuccessful. The application was unsuccessful, but the purchaser decided not to rescind the contract. The company wished to proceed with the purchase, and still does. But the council did not want to proceed. It claimed that, as a result of the s43A application having been unsuccessful, the contract was at an end. In the alternative, it claimed to have the right to terminate the contract, and purported to do so. The purchaser sued the council for specific performance. That action went to trial, and was dismissed: Blackley Investments Pty Ltd v Burnie City Council [2008] TASSC 74. This is an appeal by the purchaser from that judgment.

3 The purchaser's principal contentions are fairly simple. It entered into a contract for the purchase of the land. The contract does not say anything to the effect that the sale is to proceed to completion only if the rezoning and the granting of a planning permit take place. The contract deals with the possibility of an unsuccessful outcome of the s43A application, gives the purchaser a right to rescind in that situation, and gives no corresponding right to the vendor. In those circumstances, the purchaser contends that the contract remains on foot, that the council had no power to terminate it, and that the learned trial judge should have ordered specific performance.

4 The council contends that the contract ought to be interpreted as a conditional one, whereby neither party was obliged to proceed to completion unless the s43A application was successful. Alternatively, it contends that the contract contained an implied term to the effect that the council would be entitled to terminate the contract in the event that the s43A application was unsuccessful. The learned trial judge accepted those contentions, and dismissed the action accordingly.

5 In more detail, the facts of this case are as follows:

•

The land in question is a little over three hectares of waterfront land that lies between the high water mark of Bass Strait and a railway line, immediately east of the mouth of the Cam River.

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The parties entered into their contract on 2 December 2003.

•

The s43A application was lodged with the council on 29 June 2004. After receiving it, the council resolved to initiate a draft amendment to the planning scheme.

•

On 21 July 2006 the Resource Planning and Development Commission ("the RPDC") decided to reject the draft amendment and refuse the requested permit pursuant to the LUPA Act, ss41(b) and 43H(1)(d). To put it simply, this meant that the s43A application was unsuccessful.

•

Under cl 15.12.2(b) of the contract, the purchaser was allowed to rescind the contract, by written notice given to the council, within 21 days after the RPDC rejecting the necessary amendment under s41(b). The clause actually referred to s42(b), which does not exist. The parties obviously meant to refer to s41(b), which empowers the RPDC to reject a draft amendment of a planning scheme.

•

The purchaser did not give written notice to the council rescinding the contract within 21 days after 21 July 2006.

•

On 18 August 2006, 28 days after the RPDC's decision, the solicitors for the council wrote to the purchaser advising that the council considered the contract "as having lapsed, come to an end or otherwise automatically terminated". They went on to say:

"Alternatively, if that has not occurred, then Council gives notice that it rescinds the contract."

•

On 6 September 2006 the solicitors for the purchaser wrote back to the council's solicitors, rejecting the assertion that the contract had lapsed or come to an end in some other way, saying that the purchaser did not accept that the council was entitled to rescind the contract, electing to affirm the contract, and forwarding a notice to complete.

•

Instead of relying on the notice to complete, the purchasers sued for specific performance. The writ was filed on 6 December 2006.

1">6 An application under the LUPA Act, s43A, is a combined application for the amendment of a planning scheme and the issue of a planning permit under s51. A permit under s51 is needed for any development that a council has a discretion to permit or refuse. A s43A application is made to the relevant planning authority. In this case the planning authority was the council, which also happened to be the vendor. When a s43A application is made, the planning authority has to decide whether to initiate an amendment of the planning scheme pursuant to the LUPA Act, s33(3). Under s43A(2), it has the power to consider the application for a planning permit at the same time. If the planning authority agrees to initiate the amendment, the eventual decision to amend the planning scheme can only be made by the RPDC.

7 There are a number of ways in which a s43A application can have an unsuccessful outcome:

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The planning authority might decide not to initiate an amendment of the planning scheme: s33(3).

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Before any draft amendment of the planning scheme is placed on public exhibition, the planning authority might refuse to grant the requested permit: s43F(1)(b)(ii).

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After the preparation of a draft amendment by the planning authority, the RPDC might reject the draft amendment: s41(b). If that happens, the RPDC must refuse the requested permit: s43H(1)(d). Those things happened in this case.

•

The RPDC might decide to approve the draft amendment, but to refuse the permit: s43H(1)(b)(i).

The law as to the interpretation of the contract

8 The fundamental principles applicable to the interpretation of this contract were summarised by Gibbs J (as he then was) in Australian Broadcasting Commission v Australian Performing Rights Association Ltd [1973] HCA 36; (1973) 129 CLR 99 at 109 as follows:

"It is trite law that the primary duty of a court in construing a written contract is to endeavour to discover the intention of the parties from the words of the instrument in which the contract is embodied. Of course the whole of the instrument has to be considered, since the meaning of any one part of it may be revealed by other parts, and the words of every clause must if possible be construed so as to render them all harmonious one with another. If the words used are unambiguous the court must give effect to them, notwithstanding that the result may appear capricious or unreasonable, and notwithstanding that it may be guessed or suspected that the parties intended something different. The court has no power to remake or amend a contract for the purpose of avoiding a result which is considered to be inconvenient or unjust. On the other hand, if the language is open to two constructions, that will be preferred which will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust, 'even though the construction adopted is not the most obvious, or the most grammatically accurate' ...".

9 That passage was cited by the learned trial judge. She made no error as to the applicability of those principles. The relevant principles have been reaffirmed many times. See, for example, Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451 and Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 at 179. This appeal raises the question of whether the relevant principles were correctly applied to the interpretation of the contract in this case. To decide that, it is necessary to consider a number of the clauses in the contract, as well as its context.

10 Clause 8.1 provided that the purchase price was $1,000,000 plus GST.

11 Clause 8.2 provided for payment of the purchase price to be made in three stages. First, a non-refundable deposit of $20,000 plus GST was payable upon the signing of the contract. A "further deposit" of $30,000 plus GST was payable within seven days after the lodgement by the purchaser of the s43A application. Clause 8.2(c) provided that the balance was payable on settlement.

"9.1 The Agreement must be settled within 90 days of a planning permit for the Development being issued as a result of the s43A application becoming effective in accordance with s431."

Under s43I, if there has been a s43A application, and the RPDC has decided to approve the relevant draft amendment, and a permit is confirmed or granted as a result, that permit takes effect on the date of the RPDC's approval or such later date as is specified in the permit.

13 On behalf of the council, Mr O'Farrell SC made a submission to the effect that this clause fixed a time for settlement in the event of the s43A application being successful; that no provision of the contract fixed a time for settlement in the event of the s43A application being unsuccessful; and that this gave a strong indication that the parties intended the obligation to perform the contract to be contingent upon the application being unsuccessful.

14 On behalf of the purchaser, Mr Brett submitted that this clause should not be regarded as indicating any such intention. Contracts for the sale of land are often silent as to when completion is to take place, or as to when it is to take place if certain events occur or do not occur.

15 Clause 14 of the contract contains the following relevant sub-clauses:

"14.1 The Purchaser's proposed development of the Property ('the Development') is as an integrated development of medium density housing comprising at least 70 dwelling units on individual fee simple titles or strata titles or a mix of both together with a small retail development and a restaurant or coffee shop. The maximum height of any building is not to exceed 3 storeys, but there is to be a mix of storey heights."

"14.4 The Purchaser acknowledges that Council has only agreed to sell the Property to the Purchaser on the basis that the Purchaser will complete at least half of the Development in accordance with the terms of this agreement and that the provisions of clause 16 are reasonable to ensure the Purchaser's compliance with that requirement of Council."

16 Clause 16 imposed detailed obligations on the purchaser as to the construction of the proposed development after settlement. I will return to cl 16 later.

17 Clearly cl 14.4 indicates that the only reason the council agreed to sell the land to the purchaser was that it wanted the proposed housing development to go ahead. Mr O'Farrell SC submitted that this supported the argument that the parties did not intend the contract to proceed if the development could not proceed. Mr Brett submitted that it was open to the parties to make whatever provision they chose as to what their rights and obligations would be if the s43A application was unsuccessful. It was open to them to make a contract whereby, in that situation, the purchaser had the right to rescind and, if it did not rescind, both parties would be obliged to proceed to completion. According to Mr Brett's submissions, that is what the parties did.

18 Clause 15 dealt with matters relating to planning approval. By cl 15.1, the parties acknowledged that the proposed development was prohibited under the planning scheme. Clause 15.4 required the purchaser to promptly obtain from certain government departments and Tasrail their likely "requirements" for conditions on any planning permit for the development with respect to traffic access from the Bass Highway, the crossing of the railway line, and environmental issues, including penguin habitation protection. Clause 15.6 allowed the purchaser to rescind the contract if it considered that any such requirements were so expensive that they jeopardised a conservative estimate of the financial viability of the development.

"15.12 The Purchaser may rescind this agreement by written notice given to the Council within 21 days of any the [sic] following events:

15.12.1 the Council does not agree to the s43A application to the effect that s43B does not apply; or

15.12.2 the Resource Planning and Development Commission;

(a) refuses the planning permit in accordance with s43H(b)(i); or

(b) rejects the planning scheme amendment in accordance with s42(b) [sic]; or

15.12.3 the planning permit is not issued and is not effective within 12 months from the date on which the Purchaser lodges the s43A application; or

15.12.4 subject to clause 15.13, the Purchaser considers that any of the conditions are unacceptable."

Clause 15.13 went on to list six situations in which conditions were to be regarded as acceptable for the purpose of cl 15.12.4. The contract did not expressly empower the council to do anything upon any of the events listed in cl 15.12 occurring.

20 As I have said, this clause contained detailed provisions requiring the purchaser to proceed with the proposed development after settlement. However cl 16.1 began with the following words:

"16.1 Subject to clauses 16.3 and 16.4 the Purchaser must complete the following parts of the Development in respect of which the planning permit is granted, including infrastructure and landscaping ('the Approved Development") within the following time periods ...".

Because of those introductory words, cl 16 could only operate in respect of parts of the development "in respect of which the planning permit is granted". If no planning permit was granted, cl 16 could not operate at all. If the outcome of the s43A application was that only parts of the development could proceed, cl 16 was to apply to those parts.

21 Obviously cl 16 was based on premises that the transaction would proceed to completion, and that a planning permit would be granted. Mr O'Farrell SC argued that this was an indication that the parties did not intend the contract to proceed to completion if the s43A application were unsuccessful. On the other hand, Mr Brett argued that the parties intended that the sale would proceed to completion even if only part of the development received planning permission, and that this was an indication that the parties did not intend the contract to terminate automatically, or to be terminable by the council, if the s43A application were wholly unsuccessful.

22 As the council of a municipal area, the council had a duty "to facilitate and encourage the proper planning and development of the municipal area in the best interests of the community": Local Government Act 1993, s20(1)(b). It had responsibilities under the LUPA Act. It was selling public land. The land was valuable. As it was prime coastal land, members of the public were likely to be very interested in what was done with it. The council was obliged to further the objectives of the planning scheme. It was bound by the State Coastal Policy. It was submitted that these sorts of factors strengthened the argument that the parties intended the sale not to proceed if the s43A application were unsuccessful, and that the contract should be interpreted accordingly.

23 Mr O'Farrell SC relied on the decision of the High Court in Perri v Coolangatta Investments Pty Ltd [1982] HCA 29; (1982) 149 CLR 537. That case concerned a conditional contract, which its parties were not obliged to perform unless a particular event occurred. He submitted that this contract was also a conditional contract, and that the parties were not obliged to perform it unless the s43A application was successful.

24 In my view that is plainly wrong, and the reasons it is wrong are very simple. It is clear from cl 15.12 that the parties addressed the possibility that, at one stage or another, the s43A application would fail. But they did not include a clause in their contract making the obligation to proceed to completion conditional upon the s43A application being successful. They gave the purchaser a right to rescind. That was a right that the purchaser was not obliged to exercise. The parties cannot have intended the contract to terminate automatically upon the failure of the s43A application since giving the purchaser a right of rescission would have been unnecessary in that situation. The fact that only the purchaser, and not the council, was given an express right of rescission shows that the parties intended only the purchaser to have such a right.

25 In my view this case is indistinguishable from Sandra Investments Pty Ltd v Booth [1983] HCA 46; (1983) 153 CLR 153. In that case, a contract for the sale of land was "subject to and conditional upon" the approval by a municipal council of a plan of subdivision on terms and conditions satisfactory to the purchaser within six months from the date of the contract. There was a clause giving the purchaser the "option" of cancelling the contract if the approval was not obtained. The approval was not obtained within the six-month period, but the purchaser purported to waive the condition. The vendor argued that the condition was not solely for the benefit of the purchaser, that the purchaser was therefore not entitled to waive it, and that the vendor had the right to treat the contract as being at an end. Gibbs CJ, with whose reasons Mason, Murphy and Brennan JJ agreed, based his decision not on waiver, but on the fact that there was a clause that provided that the purchaser, at its option, could cancel the contract. At 158, his Honour said:

"The plain implication is that if the purchaser does not choose to cancel the contract the vendor has no right to treat it as being at an end."

26 It is true that this contract is silent as to when completion is to occur if the s43A application is unsuccessful and the contract is not rescinded. But there is a general rule that a contract is to be performed within a reasonable time if no time is expressly limited, unless there are indications to the contrary: Reid v Moreland Timber Co Pty Ltd [1946] HCA 48; (1946) 73 CLR 1 at 13. In Sandra Investments Pty Ltd v Booth (supra) at 164, Wilson J, who delivered a separate judgment agreeing with the orders proposed by the other members of the Court, said that, where the council approval was not forthcoming and the purchaser nevertheless elected to carry on with the contract, "there must be implied in the contract an obligation on the parties to proceed to completion within a reasonable time." In the present context, both parties were obliged to complete the contract within a reasonable time after the expiry of the 21 days within which the purchaser was entitled to rescind.

27 It is true that my interpretation of the contract might result in the purchaser or some subsequent owner of the land proceeding with a development quite unlike that originally proposed, perhaps even one that the council would not consider to be in the best interests of the community. However that is a necessary consequence of the wording of the contract and the failure of the s43A application. Of course the council still has discretionary powers under the planning scheme as the relevant planning authority under the LUPA Act, and any change of zoning would still require the approval of the RPDC after processes involving public consultation and probably a public hearing.

28 In my view the contract did not contain an implied term entitling the council to terminate the contract in the event that the s43A application was unsuccessful. The prerequisites for the existence of an implied term were formulated by Lord Simon of Glaisdale, Viscount Dilhorne and Lord Keith of Kinkel in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 283, as follows:

"... for a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that 'it goes without saying'; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract."

The same test has subsequently been applied by the High Court ever since Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337.

29 It was open to these parties to decide for themselves what was to happen if the s43A application was unsuccessful, and the purchaser still wanted to proceed with the purchase. It was open to them to agree that, in that situation, the transaction was not to proceed. And it was open to them to make a contract whereby, in that situation, the purchaser had the right to decide whether or not the transaction was to proceed. A contract of the latter type does not lack business efficacy. That is to say, the contract that the parties made is perfectly effective without an implied term entitling the council to rescind, following the failure of the s43A application, if the purchaser were to choose not to rescind. For that reason, I think the suggested implied term is not so obvious that "it goes without saying".

30 For these reasons, I believe the learned trial judge erred in holding that the parties were not obliged to proceed to completion unless the s43A application was successful, and in holding that the contract contained an implied term that entitled the council to terminate it if the s43A application was unsuccessful.

31 In my view the grounds of appeal, which I need not detail, should all succeed.

32 At the trial, at which no oral evidence was received, there do not appear to have been any agreed facts or tendered documents relating to the question whether the purchaser was at all material times ready, willing and able to complete. Also, there may have been fall-back arguments advanced on behalf of the council that were not dealt with in the learned trial judge's reasons and not mentioned at the hearing of the appeal. I would therefore invite counsel to make further submissions as to the disposition of the appeal.

BLACKLEY INVESTMENTS PTY LTD v BURNIE CITY COUNCIL

33 I agree with the reasons for judgment of Blow J.