APPEALED FROM: Blackley Investments Pty Ltd v Burnie City Council (No 2) [2010] TASSC 48

Equity - Equitable remedies - Rescission - Mistake - Unilateral mistake - Contract for sale of land - Vendor's mistaken belief contract conditional upon rezoning approval - Purchaser aware of mistake and did not correct it.

Taylor v Johnson [1983] HCA 5; (1983) 151 CLR 422, distinguished.

W Scott, Fell & Co Ltd v Lloyd [1906] HCA 79; (1906) 4 CLR 572, applied.

Estoppel - Estoppel by conduct - Promissory estoppel - Particular cases - Contract for sale of land - Vendor's mistaken belief contract conditional upon rezoning approval - Purchaser aware of mistake and did not correct it.

Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7; (1988) 164 CLR 387, distinguished.

Thompson v Palmer [1933] HCA 61; (1933) 49 CLR 507, referred to.

Judgment Number: [2011] TASFC 6

BLACKLEY INVESTMENTS PTY LTD v BURNIE CITY COUNCIL (NO 2)

2 Judgments on the claim and counterclaim set aside.

3 Order that judgment be entered for the appellant against the respondent for damages pursuant to the Supreme Court Civil Procedure Act 1932, s11(13)(a), to be assessed, such assessment to be listed before the Associate Judge provided he is available.

BLACKLEY INVESTMENTS PTY LTD v BURNIE CITY COUNCIL (NO 2)

1 I agree with the reasons for judgment of Blow J and the orders he proposes.

BLACKLEY INVESTMENTS PTY LTD v BURNIE CITY COUNCIL (NO 2)

2 This is the second Full Court appeal concerning 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 contained clauses requiring the purchaser, if that application was successful, to undertake a substantial part of the proposed housing development. 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, but the council did not wish to proceed. The council 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.

3 The unfortunate history of the litigation is as follows:

•

The action went to trial before Tennent J. Her Honour held that, once the s43A application was unsuccessful, the council had the right to terminate the contract, and that it had done so. The action was dismissed: Blackley Investments Pty Ltd v Burnie City Council [2008] TASSC 74.

•

The purchaser appealed, and was successful. This Court, differently constituted, held that the refusal of the s43A application neither brought the contract to an end nor entitled the council to terminate it: Blackley Investments Pty Ltd v Burnie City Council [2009] TASSC 63. However, although the appeal was successful, this Court was not in a position to determine what the outcome of the action should be. There were issues between the parties that had not been the subject of findings by the learned trial judge or argument before the Full Court, eg an issue as to whether the purchaser was ready, willing and able to complete the purchase. This Court therefore ordered on 12 August 2009 that the action be remitted to a judge for determination.

•

Thereafter the remitted proceedings were dealt with by the same judge. On 21 September 2009 her Honour allowed the council to make extensive amendments to its defence. Amongst other things she allowed the council to plead a defence of unilateral mistake, the basis of which is discussed below, even though it had been content to go to trial the previous year without pleading such a defence. The council also made a counterclaim, seeking a declaration to the effect that it had validly rescinded the contract on the basis of mistake, and an order for the cancellation of documents.

•

There was a second trial of the action over four days commencing on 28 June 2010. Her Honour once again dismissed the action: Blackley Investments Pty Ltd v Burnie City Council (No 2) [2010] TASSC 48. She made a declaration that the council had lawfully rescinded the contract, holding that it had been entitled to do so on the basis of unilateral mistake. Her Honour based her orders on a conclusion that the council entered into the contract with a mistaken belief that the contract would be at an end if the s43A application was unsuccessful. Her Honour did not determine all of the issues between the parties. She did not address an estoppel defence pleaded by the council, nor did she address the issue as to whether the purchaser was ready, willing and able to complete the contract.

•

The purchaser has again appealed. The parties have agreed that, if the appeal succeeds to the extent that the Court must determine whether to order specific performance or to award damages in lieu of specific performance, the Court need not order specific performance, but that there should instead be an award of damages.

4 It is good that the parties wish to avoid a third trial. It is a pity that there was a second trial, particularly in the light of the High Court's comments in Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 239 CLR 175. However none of the grounds of this appeal relate to the order granting leave to amend the defence in September 2009.

5 When the learned trial judge dismissed the purchaser's action for the second time, she made findings of fact to the following effect:

•

When the council entered into the contract it believed, wrongly, that completion of the contract was conditional upon the purchaser successfully obtaining approval to enable it to complete the proposed development.

•

When the council entered into the contract it believed, wrongly, that, if the purchaser was unable to obtain the necessary approval, there would be no completion of the contract.

•

The purchaser company, by its directors Mr and Mrs Blackley, knew that circumstances existed which indicated that the council was entering into the contract under some serious mistake or misapprehension.

•

The purchaser had a "fall-back position", involving the development of the land for industrial purposes if the proposed residential development was not approved, which its directors made no mention of at all to the council before the contract was signed.

•

The directors of the purchaser company either knew or ought to have known that the council entered into the contract believing it was conditional upon the proposed development being approved.

•

The council only agreed to sell the land to the purchaser on the basis that it would get the proposed development, or at least a substantial portion of it.

•

There was no direct evidence of any conscious decision by the directors of the purchaser company not to tell the council of their intentions prior to signing the contract.

•

The "only inference to be drawn from the evidence is that their failure to do so, in circumstances where they had to have been aware the Council would react adversely to such advice, was an omission they knew might ultimately benefit them."

6 The purchaser has chosen not to challenge any of those findings of fact in this appeal. It now contends, rightly in my view, that, even on the facts as found, the council was not entitled to rescind the contract, and is still bound by it.

7 Her Honour made no finding of fraud, of misrepresentation, of any special relationship obliging the purchaser to disclose any of its thinking during the pre-contractual negotiations, of sharp practice, or of misleading or deceptive conduct on the part of the purchaser. None of those matters were pleaded.

8 Ground 1 of the amended grounds of appeal asserts that the learned trial judge erred "in her formulation of the legal principle as to rescission in equity for unilateral mistake".

9 Unilateral mistake is a species of mistake that occurs when one party is mistaken, and the other party either knows of the mistake or must be taken to know of it. The leading Australian case on the subject is Taylor v Johnson [1983] HCA 5; (1983) 151 CLR 422. In that case a vendor granted an option for the purchase of some land, mistakenly believing that the price was $15,000 per acre rather than $15,000 in total, when the purchaser was aware of that mistake. The unmistaken purchaser had been aware of the vendor's mistake, set out to take advantage of it, and induced her to grant the option to him for the purchase of the land at the total price of $15,000. The New South Wales Court of Appeal set aside the contract. The purchaser unsuccessfully appealed to the High Court. In the majority judgment at 432, Mason ACJ, Murphy and Deane JJ said:

"The particular proposition of law which we see as appropriate and adequate for disposing of the present appeal may be narrowly stated. It is that a party who has entered into a written contract under a serious mistake about its contents in relation to a fundamental term will be entitled in equity to an order rescinding the contract if the other party is aware that circumstances exist which indicate that the first party is entering the contract under some serious mistake or misapprehension about either the content or subject matter of that term and deliberately sets out to ensure that the first party does not become aware of the existence of his mistake or misapprehension."

10 What their Honours said in that passage was not intended to be an exhaustive statement as to what conduct entitles a mistaken party to relief: Leibler v Air New Zealand Ltd [1999] 1 VR 1 at par[68]; Eroc Pty Ltd v Amalg Resources NL [2003] QSC 74 at par[46].

11 No question arises in this appeal as to the distinction between the rescission of a contract by a court and the rescission of a contract by a party who has the right to elect to rescind. There is ample authority that rescission is ordinarily the act of a party: Abram Steamship Co Ltd v Westville Shipping Co Ltd [1923] AC 773 at 781; Alati v Kruger [1955] HCA 64; (1955) 94 CLR 216 at 224.

12 It is significant that the mistake found to have been made by the council did not relate to a fundamental term of the contract. There was no mistake as to what was being sold, the price, the obligations of the purchaser to make and pursue a s43A application, or the contractual obligations of the purchaser as to the development of the site after completion in the event of a permit having been granted. The mistake related to the rights of the council in the event that, contrary to the desire of both parties, the s43A application was rejected. It was a mistake as to what the rights of the parties would be if a particular contingency, desired by neither of them, eventuated.

13 The reported cases as to the availability of rescission for unilateral mistake all appear to relate to essential or fundamental aspects of the contracts in question. Garrard v Frankel [1862] EngR 371; (1862) 30 Beav 445, 54 ER 961 concerned a substantial mistake by a lessor as to the annual rent for a property. Harris v Pepperell (1867) LR 5 Eq 1 concerned a mistake as to what land was included in a conveyance. Torrance v Bolton (1872) LR 8 Ch App 118 related to a mistaken belief that a contract was for the purchase of a freehold interest in land, not an equity of redemption. Bloomer v Spittle (1872) LR 13 Eq 427 concerned a mistaken belief by a purchaser that a conveyance of land to him did not provide for a reservation of minerals to the vendor. Paget v Marshall (1884) 28 Ch D 255 concerned a mistake as to whether the first floor of a particular building was included in a lease. Tutt v Doyle (1997) 42 NSWLR 10 concerned a transfer to two purchasers of more land than they contracted to purchase. There do not appear to be any reported cases in which rescission was ordered because of a mistake as to the terms of a contract falling outside the description used in Taylor v Johnson, namely "a serious mistake about its contents in relation to a fundamental term".

14 It is also significant that the learned trial judge did not make any finding that the purchaser or its directors did anything to ensure that the council did not become aware of any mistake by it as to the contents of the contract. Counsel for the council referred this Court to a number of pieces of evidence as to what the purchaser's directors, Mr and Mrs Blackley, said and wrote in the months leading up to the contract. It is not necessary to analyse that body of evidence in detail. There was no suggestion that they did anything that was objectively misleading or potentially misleading. There was no evidence that they said or did anything that misled, or might have misled the council, or that might have prevented the council from becoming aware of a mistake on its part. On the facts as found, they simply remained silent about such a mistake.

15 The learned trial judge concluded that the council had been entitled to rescind the contract because of its unilateral mistake without making any finding of unconscionable conduct on the part of the purchaser, and without there being any evidence that the purchaser said or did anything of relevance to that mistake.

16 As a general rule, a party to contractual negotiations is not obliged to disclose to any other party to the negotiations facts unknown to that other party which, if known, might influence the stance that that other party takes. That was made clear in Smith v Hughes (1871) LR 6 QB 597, which concerned a contract for the sale of oats. The seller provided the buyer with a sample. The buyer wanted old oats, and mistakenly believed that the oats in the sample were old. The seller was aware of that mistake, had done nothing to induce it, and did nothing to correct it. At 604, Cockburn CJ said this:

"Mr Justice Story, in his work on Contracts (vol i s 516), states the law as to concealment as follows:- 'The general rule, both of law and equity, in respect to concealment, is that mere silence with regard to a material fact, which there is no legal obligation to divulge, will not avoid a contract, although it operate as an injury to the party from whom it is concealed.' 'Thus,' he goes on to say (s 517), 'although a vendor is bound to employ no artifice or disguise for the purpose of concealing defects in the article sold, since that would amount to a positive fraud on the vendee; yet, under the general doctrine of caveat emptor, he is not, ordinarily, bound to disclose every defect of which he may be cognizant, although his silence may operate virtually to deceive the vendee.' 'But,' he continues (s 518), 'an improper concealment or suppression of a material fact, which the party concealing is legally bound to disclose, and of which the other party has a legal right to insist that he shall be informed, is fraudulent, and will invalidate a contract.' Further, distinguishing between extrinsic circumstances affecting the value of the subject-matter of a sale, and the concealment of intrinsic circumstances appertaining to its nature, character, and condition, he points out (s 519), that with reference to the latter, the rule is 'that mere silence as to anything which the other party might by proper diligence have discovered, and which is open to his examination, is not fraudulent, unless a special trust or confidence exist between the parties, or be implied from the circumstances of the case.' In the doctrine thus laid down I entirely agree."

17 W Scott, Fell & Co Ltd v Lloyd [1906] HCA 79; (1906) 4 CLR 572 concerned an action for breach of a contract for the sale and delivery of coal. The seller failed to deliver, and was sued on the contract by the buyer. The seller pleaded a defence of fraud, alleging that the buyer knew, and did not disclose, facts which suggested that the seller would be unable to get coal, for the supply to the buyer, from his usual source. The High Court unanimously held that the buyer had no obligation to disclose the facts known to it. All three judges referred with approval to the judgment of Cockburn CJ in Smith v Hughes (above): Griffiths CJ at 577; Barton J at 582; and Isaacs J at 584.

18 The leading English authority on the point is Bell v Lever Brothers Ltd [1931] UKHL 2; [1932] AC 161. In that case Lever Brothers entered into contracts with two senior executives, agreeing to pay them substantial sums as compensation for terminating their services. They had both engaged in misconduct which would have justified Lever Brothers in terminating their employment without such compensation, but the company was unaware of their misconduct, and they did not disclose it. The House of Lords, by majority, held that they were not obliged to disclose their misconduct, and that the company was not entitled to rescission of the compensation agreements. Lord Atkin cited Smith v Hughes (above) with approval at 220 - 222. Lord Thankerton referred at 231 - 232 to "the general rule" which does not impose a duty of disclosure, noting that there are exceptions in relation to insurance contracts, cases of trustee and cestui que trust, and cases of a company issuing a prospectus and an applicant for shares. Lord Blanesburgh agreed with Lord Atkin and Lord Thankerton as to this point and others at 199.

19 That case has been regarded in the High Court as authority for the proposition that, except in relation to contracts which are uberrimae fidei, neither party to a contract is obliged to disclose facts material to the decision of the other party whether to enter into that contract: Concut Pty Ltd v Worrell [2000] HCA 64; (2000) 75 ALJR 312 at par[36] (Gleeson CJ, Gaudron and Gummow JJ).

20 In Lam v Ausintel Investments Australia Pty Ltd (1989) 97 FLR 458, which was a Trade Practices Act case concerning misleading and deceptive conduct, Gleeson CJ, with whom Samuels AJA and Meagher JA agreed, said at 475:

"... where parties are dealing at arms' length in a commercial situation in which they have conflicting interests it will often be the case that one party will be aware of information which, if known to the other, would or might cause that other party to take a different negotiating stance. This does not in itself impose any obligation on the first party to bring the information to the attention of the other party, and failure to do so would not, without more, ordinarily be regarded as dishonesty or even sharp practice. It would normally only be if there were an obligation of full disclosure that a different result would follow. That could occur, for example, by reason of some feature of the relationship between the parties, or because previous communications between them gave rise to a duty to add to or correct earlier information."

21 The contract in question in this case was not a contract uberrimae fidei. There was no fiduciary or special relationship between the parties. The purchaser and its directors had not provided incorrect, incomplete or misleading information as to the terms of the contract, and therefore were under no duty to add to or correct earlier information. As is customary, the contract was drawn by the solicitor for the vendor. If the council made a mistake, it was a mistake as to the effect, if certain events came to pass, of the contract that its own solicitor had prepared.

22 A court of equity may grant relief for unilateral mistake only where it would be unconscionable for the unmistaken party to take advantage of the mistake. In Torrance v Bolton (above) at 124, James LJ, with whom Mellish LJ agreed, made it clear that relief in relation to unilateral mistake was available in that case in "the ordinary jurisdiction of the Court to deal with them [ie contracts for sale and purchase of lands] as it deals with any other instrument or any other transactions, in which the Court is of the opinion that it is unconscientious for a person to avail himself of the legal advantage which he has obtained". That statement by was approved by Mason ACJ, Murphy and Deane JJ in Taylor v Johnson (above) at 431.

23 On the hearing of this appeal, we were referred to a number of cases as to what does and does not amount to unconscionable conduct, attracting the intervention of courts of equity, in particular circumstances. I do not think I need to refer to any more of those cases. The purchaser and its directors were under no obligation, in pre-contractual negotiations, to correct any mistake which they identified on the part of the council as to what its contractual position would be if the s43A application failed. They remained silent about that matter at all material times. There was no circumstance that made it unconscionable for them to remain silent about that matter. Because there had been no unconscionable conduct on the part of the purchaser, the council was not entitled to rescind the contract on the basis of unilateral mistake.

24 The learned trial judge overlooked the need for there to have been unconscionable conduct on the part of the purchaser, involving something more than silence in relation to the council's mistake, before the council could be held to have validly rescinded the contract. In my view ground 1 must succeed on that basis. The learned trial judge was wrong to conclude on that basis that the council had lawfully rescinded the contract. She was wrong to make a declaration to that effect. She was wrong to dismiss the purchaser's action on that basis.

Incorrect characterisation of the unilateral mistake

25 Ground 2 of the amended grounds of appeal asserts that the learned trial judge erred "in her characterisation of the unilateral mistake of the respondent".

26 The council pleaded, in par28A(b)(i) of its amended defence, that it entered into the contract "under the mistaken belief that it had only agreed to sell the property to the plaintiff on condition that ... the plaintiff would obtain an amendment to the Planning Scheme and a planning permit for the development". That is to say, it pleaded that it mistakenly believed that it had entered into a conditional contract, which it would not have to complete if the s43A application failed. The council's general manager, Mr Arnold, gave evidence of a mistaken belief to that effect.

27 Counsel for the purchaser made submissions to this Court to the effect that a number of passages in the reasons for judgment indicated that the learned trial judge dismissed the action on the basis of the council having made a mistake as to whether the contract conferred a contractual right to have the proposed development completed, as distinct from the mistake that the council pleaded. For example, in par[66] of her reasons, her Honour said:

"Here, the overwhelming evidence is that the Council wanted the development identified in the contract, and had only agreed to sell the land to the Company on the basis it would get that development or at least a substantial portion of it."

28 However, in my view, nothing said by the learned trial judge indicates any error or confusion as to what mistake the council pleaded or made. I think her Honour was simply referring to the desires of the council at the time of the pre-contractual negotiations as part of the reasoning that led her to conclude that a mistake as to the council's rights if the s43A application failed was a sufficiently significant mistake for the remedy of rescission to be available. In my view ground 2 should fail.

29 Ground 3 of the amended grounds of appeal asserts that the learned trial judge erred "in declaring that the respondent [ie the council] had lawfully rescinded the contract absent inquiry as to restitutio in integrum or alternatively whether the appellant [ie the purchaser] had materially altered its position".

30 Ground 4 asserts that her Honour erred "in permitting the respondent [ie the council] to rescind the contract unconditionally, that is to say without requiring that it effect restitution to the appellant [ie the purchaser] for expenditure by it in reliance upon the contract".

31 These two grounds concern two types of expenditure by the purchaser: (a) the payment of deposit moneys; and (b) the payment of expenses relating to the s43A application and the proposed development. The contract required two payments of deposit money totalling $50,000. Those payments were made in full by the purchaser, and have never been refunded by the council.

32 Rescission is available in equity only if restitution in integrum is possible. That was made very clear by the High Court in A H McDonald & Co Pty Ltd v Wells [1931] HCA 24; (1931) 45 CLR 506. In that case, at 512, the Court (Rich, Starke and Dixon JJ) said:

"But rescission requires restitutio in integrum and it cannot be granted unless the parties can be restored substantially to the position which they occupied before the transaction was entered upon. No doubt it is not necessary to restore them precisely, and Courts of equity give relief by way of rescission when by the exercise of their powers they can do practically what is just in the restoration of the parties. ... But the entire transaction must be rescinded ...".

33 The purchaser has engaged different counsel since the second trial of the action. At that second trial, it seems nobody mentioned restitution. The council should have pleaded, as one of the facts alleged to have entitled it to rescind the contract, that full restitution was possible. It seems that counsel for the purchaser did not argue at the trial that, if the council were held to have lawfully rescinded on the basis of unilateral mistake, then the contract was rescinded ab initio, with the result that the purchaser was entitled to have the deposit moneys refunded. The learned trial judge published her reasons for judgment on 27 October 2010, but did not make final orders until 13 days later, in order to give the parties an opportunity to consider what consequential orders they should seek. No consequential order for the refund of the deposit moneys was sought. No point as to restitution was taken until the amended grounds of appeal were formulated.

34 The Court was informed during the hearing of the appeal that the council conceded that the deposit moneys should be refunded to the purchaser.

35 So far as the purchaser's expenditure on the s43A application and the proposed development is concerned, there is no need to look any further than Brown v Smitt [1924] HCA 11; (1924) 34 CLR 160. In that case the High Court considered what types of expenditure could, and could not, be recovered when a court of equity makes orders to effect restitution in conjunction with the rescission of a contract. In the majority judgment, at 165 - 166, Knox CJ, Gavan Duffy and Starke JJ said:

"And putting the parties in the position they were in before the contract, replacing them in statu quo, does not involve replacing them in the same position in all respects, but only in respect of the rights and obligations created by the contract which is rescinded. A party, in case of rescission, cannot ask the Court to award him compensation for all collateral losses which he may have sustained by reason of the fact that he entered into the contract, such as losses incurred in carrying on a business ... but only such compensation as will restore the status quo ante in relation to the subject matter of the contract."

36 In that case a purchaser had entered into a contract to purchase a farm, entered into possession, made improvements to the property, and incurred losses carrying on a business on the land. It was held that the business losses were collateral losses, and that a court of equity could therefore not award compensation in respect of them by way of restitution. Isaacs and Rich JJ dissented in relation to the claim relating to improvements, but said nothing about the claim in respect of business losses.

37 The view taken by the majority in that case in relation to collateral losses is consistent with the view taken by Bowen LJ in Newbigging v Adam (1886) 34 Ch D 582 at 592 - 594, and by Farwell J in Whittington v Seale-Hayne (1900) 82 LT 49.

38 It follows from Brown v Smitt that, assuming the rescission to have been valid, the purchaser is not entitled to recover any expenditure apart from the deposit moneys by way of restitution. Its losses resulting from expenditure relating to the s43A application and the proposed development can only be regarded as collateral losses. Ground 4 relates only to the purchaser's collateral losses, and must therefore fail. Insofar as ground 3 relates to those collateral losses, it must also fail. Insofar as ground 3 relates to the deposit moneys, there is no need for it to be determined because of the council's concession that those moneys should be refunded.

39 The council contends that, if some or all of the grounds of appeal are made out, the appeal should still be dismissed on the basis that the purchaser, by reason of its conduct, is estopped from relying on a construction of the contract whereby it is now entitled to complete the purchase.

40 The council contends that an estoppel arises by reason of facts and circumstances as follows:

•

The council adopted an assumption as to the terms of its legal relationship with the purchaser, in that it assumed that the contract was conditional upon the s43A application being approved, so that the contract would be at an end if that application was rejected.

•

The purchaser induced or acquiesced in the council's adoption of that assumption.

•

The council acted in reliance on its assumption.

•

The purchaser knew or intended that the council would act in reliance on that assumption.

•

The council will suffer detriment if the assumption is not fulfilled.

41 Counsel for the council relied on the following passage in the judgment of Dixon J (as he then was) in Grundt v Great Boulder Proprietary Gold Mines Ltd [1937] HCA 58; (1937) 59 CLR 641 at 674 - 675:

"The principle upon which estoppel in pais [ie by conduct] is founded is that the law should not permit an unjust departure by a party from an assumption of fact which he has caused another party to adopt or accept for the purpose of their legal relations. This is, of course, a very general statement. But it is the basis of the rules governing estoppel. Those rules work out the more precise grounds upon which the law holds a party disentitled to depart from an assumption in the assertion of rights against another. One condition appears always to be indispensable. That other must have so acted or abstained from acting upon the footing of the state of affairs assumed that he would suffer a detriment if the opposite party were afterwards allowed to set up rights against him inconsistent with the assumption. In stating this essential condition, particularly where the estoppel flows from representation, it is often said simply that the party asserting the estoppel must have been induced to act to his detriment. Although substantially such a statement is correct and leads to no misunderstanding, it does not bring out clearly the basal purpose of the doctrine. That purpose is to avoid or prevent a detriment to the party asserting the estoppel by compelling the opposite party to adhere to the assumption upon which the former acted or abstained from acting. This means that the real detriment or harm from which the law seeks to give protection is that which would flow from the change of position if the assumption were deserted that led to it. So long as the assumption is adhered to, the party who altered his situation upon the faith of it cannot complain. His complaint is that when afterwards the other party makes a different state of affairs the basis of an assertion of right against him then, if it is allowed, his own original change of position will operate as a detriment. His action or inaction must be such that, if the assumption upon which he proceeded were shown to be wrong and an inconsistent state of affairs were accepted as the foundation of the rights and duties of himself and the opposite party, the consequence would be to make his original act or failure to act a source of prejudice."

42 It is important to focus on the word "unjust" in the first sentence of that passage. His Honour went on, at 676, to explain when a departure from an assumption would be regarded as unjust by referring to, and quoting from, his earlier judgment in Thompson v Palmer [1933] HCA 61; (1933) 49 CLR 507 at 547, where he said the following:

"Whether a departure by a party from the assumption should be considered unjust and inadmissible depends on the part taken by him in occasioning its adoption by the other party. He may be required to abide by the assumption because it formed the conventional basis upon which the parties entered into contractual or other mutual relations, such as bailment; or because he has exercised against the other party rights which would exist only if the assumption were correct ...; o_r because knowing the mistake the other laboured under, he refrained from correcting him when it was his duty to do so_ or because his imprudence, where care was required of him, was a proximate cause of the other party's adopting and acting upon the faith of the assumption; or because he directly made representations upon which the other party founded the assumption. But, in each case, he is not bound to adhere to the assumption unless, as a result of adopting it as the basis of action or inaction, the other party will have placed himself in a position of material disadvantage if departure from the assumption be permitted." [My emphasis.]

43 On the facts as found, the purchaser had no duty to correct the council as to the mistake it was labouring under. That was because it had not done anything to induce or foster the council's mistaken belief, or to take improper advantage of that belief.

44 Counsel for the council also relied on Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7; (1988) 164 CLR 387. In particular, he relied on the following passage in the judgment of Brennan J (as he then was) at 428 - 429:

"In my opinion, to establish an equitable estoppel, it is necessary for a plaintiff to prove that (1) the plaintiff assumed that a particular legal relationship then existed between the plaintiff and the defendant or expected that a particular legal relationship would exist between them and, in the latter case, that the defendant would not be free to withdraw from the expected legal relationship; (2) the defendant has induced the plaintiff to adopt that assumption or expectation; (3) the plaintiff acts or abstains from acting in reliance on the assumption or expectation; (4) the defendant knew or intended him to do so; (5) the plaintiff's action or inaction will occasion detriment if the assumption or expectation is not fulfilled; and (6) the defendant has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise. For the purposes of the second element, a defendant who has not actively induced the plaintiff to adopt an assumption or expectation will nevertheless be held to have done so if the assumption or expectation can be fulfilled only by a transfer of the defendant's property, a diminution of his rights or an increase in his obligations and he, knowing that the plaintiff's reliance on the assumption or expectation may cause detriment to the plaintiff if it is not fulfilled, fails to deny to the plaintiff the correctness of the assumption or expectation on which the plaintiff is conducting his affairs."

45 There is no evidence, and there was therefore no finding, that the purchaser actively induced the council to adopt an assumption that it would remain bound by the contract if the s43A application was rejected and the purchaser wished to proceed with its purchase. However the council contends, as I understand it, that the purchaser should be held to have induced the council to adopt that assumption, or should be treated as if it induced the council to adopt that assumption, in accordance with the final sentence of the passage I have just quoted. The council contends that the assumption can be fulfilled only by a diminution of the purchaser's rights; and that the purchaser, knew that the council's reliance on the assumption would or might cause detriment to the council through it entering into the contract and incurring expenditure in relation to the s43A application and the proposed development.

46 However I do not think anything Brennan J said in Waltons Stores should be interpreted as meaning that an estoppel can arise against a party to a contract who, in the pre-contractual negotiations, has remained silent about a material fact that he or she had no obligation to disclose. That is to say, I do not think anything said by Brennan J in that case should be regarded as suggesting that the general rule referred to in Smith v Hughes, W Scott, Bell & Co Ltd v Lloyd, and Bell v Lever Brothers Ltd must be displaced by the operation of the doctrine of estoppel. That general rule and those cases were not referred to at all in Waltons Stores.

47 The basis for what Brennan J said, in the passage quoted above, about a defendant who has not actively induced the plaintiff to adopt an assumption nevertheless being held to have done so, is evident from the preceding paragraph of his Honour's judgment, at 428, where his Honour said this:

"Silence will support an equitable estoppel only if it would be inequitable thereafter to assert a legal relationship different from the one which, to the knowledge of the silent party, the other party assumed or expected: see Ramsden v Dyson (1866) LR 1 HL, at pp 140-141; Svenson v Payne [1945] HCA 43; (1945) 71 CLR 531 at pp 542 - 543; Willmott v Barber (1880) 15 Ch D 96, at pp 105-106.. What would make it inequitable to depart from such an assumption or expectation? Knowledge that the assumption or expectation could be fulfilled only by a transfer of the property of the person who stays silent, or by a diminution of his rights or an increase in his obligations. A person who knows or intends that the other should conduct his affairs on such an assumption or expectation has two options: to warn the other that he denies the correctness of the assumption or expectation when he knows that the other may suffer detriment by so conducting his affairs should the assumption or expectation go unfulfilled, or to act so as to avoid any detriment which the other may suffer in reliance on the assumption or expectation. It is unconscionable to refrain from making the denial and then to leave the other to bear whatever detriment is occasioned by non-fulfilment of the assumption or expectation."

48 None of the cases referred to by his Honour in that passage related to silence or non-disclosure during the negotiation of contracts. Ramsden v Dyson (1866) LR 1 HL 129 concerned a tenant who built on land that he leased, expecting that the landlord would be willing to grant him a lease for a term of 60 years. Svenson v Payne [1945] HCA 43; (1945) 71 CLR 531 concerned a lease granted by a life tenant, for a term longer than he had power to grant, and a remainderman who took no action after becoming aware of the life tenant having exceeded his limited powers of leasing. Willmott v Barber (1880) 15 Ch D 96 concerned an allegation that a landlord had remained silent, knowing that a sub-lessee was spending money on certain property as the result of a mistaken belief that the lessee had the right to assign the head lease to him without the written consent of the landlord.

49 Earlier in his judgment, at 427, Brennan J quoted with approval the first two sentences of the passage that I have quoted above from the judgment of Dixon J in Thompson v Palmer. He did so without any comment about the situation where one party, knowing the mistake that the other party laboured under, refrained from correcting him when it was his duty to do so. There is nothing in the other judgments in Waltons Stores to suggest that that case should be regarded as having any impact on the general rule as to silence in contractual negotiations.

50 The facts in that case were different in one very important respect from the facts as found in this case. In that case the conduct of the estopped party, Waltons Stores, went beyond mere silence. Waltons, through its solicitors, induced some landowners to assume that it would enter into a lease of their property, on terms that had been agreed, and that the exchange of contracts would be a mere formality. In reliance on that assumption, the landowners demolished a building and began building another one. The landowners' false assumption that Waltons would enter into the lease was induced by conduct on the part of Waltons' agents in the course of negotiations. It was therefore unconscionable for Waltons later to deny the truth of the landowners' assumption.

51 On the facts as found in this case, the purchaser had no duty to correct the council's mistake. It must follow that its silence could not give rise to an estoppel in accordance with the principles discussed in Waltons Stores. It could hardly be the case that, after the rejection of the s43A application, its decision to rely on its common law contractual rights was not unconscionable for the purpose of the law as to unilateral mistake, but was unconscionable for the purpose of the law as to estoppel. In my view the purchaser was not estopped from relying on the proper construction of the contract, whereby it is entitled to complete its purchase.

Was the purchaser ready, willing and able to complete?

52 As I have said, the purchaser pleaded that it was ready, willing and able to complete the purchase; the council denied that; and the learned trial judge did not determine that issue at either of the two trials.

53 A plaintiff seeking specific performance must be ready and willing to perform its obligations under the contract at the time when the proceedings are instituted: Gurney v Gurney (No 2) [1967] NZLR 922 at 925. The writ seeking specific performance was filed on 6 December 2006, within months after the rejection of the s43A application. It is abundantly clear from the history of this litigation that the purchaser must have been very willing to proceed with the purchase. However findings also need to be made as to its capacity to complete. It was a "two dollar company". The unpaid balance of the purchase price was $950,000.

54 The approach to be taken to fact-finding in relation to this sort of issue was explained by Barwick CJ in Mehmet v Benson [1965] HCA 18; (1965) 113 CLR 295 at 307 as follows:

"The question as to whether or not the plaintiff has been and is ready and willing to perform the contract is one of substance not to be resolved in any technical or narrow sense. It is important to bear in mind what is the substantial thing for which the parties contract and what on the part of the plaintiff in a suit for specific performance are his essential obligations."

55 Mr Blackley gave evidence at the second trial to the effect that he and his wife had a number of properties and very little debt. It seems likely that he was referring not just to properties in their names but also to properties owned by entities controlled by them. He gave evidence to the effect that he had confidence in obtaining the necessary finance either from the ANZ Bank or from an interstate investor, Mr Caratti, who also gave evidence confirming his willingness to cause finance to be provided. On the basis of their evidence, I think this Court should find on the balance of probabilities that the purchaser was able to obtain the necessary finance to complete its purchase. A finding should be made that the purchaser was ready, willing and able to complete.

56 A mistake or a misrepresentation which would not be a ground for rescission will sometimes be a good defence to an action for specific performance: Re Bannister (1879) 12 Ch D 131 at 142; Hope v Walter [1900] 1 Ch 157. The second of those cases is a good example. It concerned the sale of a leased property. Neither the vendor nor the purchaser knew that the premises were being used as a brothel, but this was discovered before completion. The English Court of Appeal refused specific performance. There was legislation whereby the lessor of a brothel could be fined.

57 However, when a defendant relies on mistake as a defence to an action for specific performance, such a defence will ordinarily succeed only in cases of hardship. In Tamplin v James (1880) 15 Ch D 215 at 221, James LJ said, speaking of the discretionary refusal of specific performance:

"...for the most part the cases where a Defendant has escaped on the ground of a mistake not contributed to by the Plaintiff, have been cases where a hardship amounting to injustice would have been inflicted upon him by holding him to his bargain, and it was unreasonable to hold him to it."

58 That passage was cited as "the general rule governing the exercise of the discretion" by the High Court (Rich, Dixon and Williams JJ) in Slee v Warke [1949] HCA 57; (1952) 86 CLR 271 at 278.

59 In this case the council would not suffer financial hardship if it were held to its bargain. If it were compelled to complete its sale, it would receive the balance of the purchase money, and would be no worse off than if the s43A application had been successful and the purchaser had proceeded to completion. It is true that the council would not have the satisfaction that it hoped to receive from the development of the site for housing purposes, as contemplated in the contract, but that is very different from hardship.

60 In my view there is no sound discretionary basis for the purchaser to be refused all relief. It has established all the facts that it needs to establish in order for the Court to make an order for the specific performance of the contract. By virtue of the Supreme Court Civil Procedure Act 1932, s11(13)(a), the Court has a discretion to award damages instead of ordering specific performance. It is now common ground that damages should be awarded by this Court in lieu of specific performance if it is held that the purchaser is entitled to relief.

61 For the reasons stated above, I would allow the appeal, set aside the judgment on the claim and the judgment on the counterclaim, and order that judgment be entered for the appellant purchaser against the respondent council for damages pursuant to the Supreme Court Civil Procedure Act, s11(13)(a), to be assessed, and for the dismissal of the counterclaim.

62 Counsel requested that any such assessment of damages should be listed before the Associate Judge. I would direct that the assessment be listed before him, provided he is available.

BLACKLEY INVESTMENTS PTY LTD v BURNIE CITY COUNCIL (NO 2)

63 I have had the advantage of reading the reasons for judgment of Blow J. I agree with those reasons and the orders that he proposes.