Carbone v Metricon Homes Pty Ltd - [2018] NSWCA 296 - NSWCA 2018 case summary — Zoe

NSWNSWCA

Carbone v Metricon Homes Pty Ltd

[2018] NSWCA 296

Court of Appeal (NSW)|2018-06-01|Before: Meagher JA, Payne JA, White JA

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At a glance

Source facts

Court

Court of Appeal (NSW)

Decision date

2018-06-01

Before

Meagher JA, Payne JA, White JA

Catchwords

[1982] HCA 24 Commissioner of Taxation (Cth) v Reliance Carpet Co Pty Ltd (2008) 236 CLR 342

Source

Original judgment source is linked above.

Catchwords

[1982] HCA 24 Commissioner of Taxation (Cth) v Reliance Carpet Co Pty Ltd (2008) 236 CLR 342

Judgment (8 paragraphs)

[1]

Background

Ms Carbone, was the owner of land in Edmondson Park and had development approval for subdivision of the land into residential allotments. On or about 23 June 2015 Ms Carbone and Metricon entered into deeds of put and call option in relation to 30 proposed lots in the subdivision. Separate deeds were entered into in respect of each lot. The appeal concerns nine such lots in relation to which Metricon rescinded the deeds. There is now no dispute that it was entitled to do so. Under each of the deeds Metricon paid a fee of $20,000 called a Call Option Fee. The effect of clause 2.1(c) of each deed of put and call option set out below at [23], was that if the plan of subdivision were not registered by 23 September 2016 either party could rescind the deed. The plan of subdivision was not registered by 23 September 2016. On 26 September 2016 Metricon gave notice of rescission of the nine deeds of put and call option. Metricon successfully contended that on rescission of the deeds the Call Option Fee was returnable to it.
The primary judge dealt with other claims that are not the subject of appeal. Metricon exercised its call option to purchase three lots and nominated three parties to enter into contracts for sale of those lots with Ms Carbone. Clause 10.2 of the deed provided that upon a valid exercise of the call option or a valid nomination of the call option, the Call Option Fee was refundable to the purchaser, provided certain conditions of the deed had been complied with. The primary judge found that Metricon was entitled to a refund of its Call Option Fee in respect of those lots where it had exercised the call option and nominated a purchaser. There is no appeal from that finding.

[2]

Terms of the Deed

The issue depends upon the construction of the put and call option deed. The critical provisions are clauses 2.1(c) and 10. The deed provided as follows: "1. Consideration and grant of Call Options 1.1 Call Option In consideration of the payment of the Call Option Fee by the Purchaser to the Vendor, the Vendor as beneficial owner grants to the Purchaser an Option on the terms set out in this Deed for the Purchaser to purchase the Property for the price and on the terms set out in the Contract. 2. When to exercise the Call Option 2.1 Call Option The Purchaser may exercise the Call Option during the period: (a) Commencing at 9.00 a.m. on the Business Day immediately following the day forty two (42) days after the date of this agreement; (b) Ending on the later of 5.00 p.m. on the fourteenth (14th) day after the Vendor provides to the Purchaser's solicitor a notice that the plan of subdivision being annexure 'A' has been lodged with Land and Property Information (LPI) NSW; and (c) Completion of this Deed is subject to and conditional upon the registration of the Plan of Subdivision ('Draft Plan') and any section 88B instrument ('Draft Instrument') by the Department of Lands, Land and Property Information Division (LPI). In the event that the Draft Plan and Draft Instrument are not registered within fifteen (15) months of this Deed (sunset date), then either party may rescind this Deed by notice in writing to the other party. The Purchaser's right of rescission under this clause can only be exercised within 14 days after the sunset date. If the Purchaser does not exercise the Purchaser's right to rescind within such time. the Purchaser's right of rescission immediately lapses. The Purchaser has no right arising out of the failure to register the plan of subdivision by the sunset date other than rescission of this Contract. 3. How to exercise a Call Option 3.1 Procedures when the Purchaser exercises a Call Option If the Purchaser wants to exercise the Call Option, the Purchaser must deliver to the Vendor's Solicitor during the period which the Call Option may be exercised according to clause 2.1 ('when to exercise the Call Option'): (a) a notice of exercise of option in the form of annexure 'A' executed by the Purchaser; and (b) the Contract completed with particulars of the Purchaser and executed by the Purchaser with the 10% deposit under the Contract. (c) the balance of the deposit in the sum of 10% of the Purchase Price as shown on the Contract annexed to this Option agreement in the form of annexure 'C' and if the Purchaser is exercising the Call Option; (d) a Certificate under s66W of the Conveyancing Act 1919. 4. Nominee 4.1 At the same time the Purchaser exercises the Call Option in accordance with clause 3 it may nominate a nominee ("Nominee") to enter the Contract subject to the provisions of this clause 4. 4.2 If the Purchaser wants to exercise the Call Option and nominate a Nominee and it is not in subsisting breach of this Deed the Purchaser must deliver to the Vendor's Solicitor no later than 10 business days prior to the end of the period during which the Call Option may be exercised according to clause 2.1; (a) a notice of exercise of option in the form of annexure 'D' executed by the Purchaser; (b) the Contract completed with the particulars of the Nominee and executed by the Nominee; (c) a cheque for the 1 0% deposit under the Contract; (d) a cheque in favour of the Vendor's solicitor for $1,000.00 being the Vendor's reasonable legal costs of complying with is obligations under clause 4.3; and (e) a Certificate under s66W of the Conveyancing Act 1919 (f) satisfactory written evidence including but not limited to the production of written finance approval of the ability of the nominee to pay the balance of the purchase price. 4.3 Within 5 business days of receipt of the documents in clause 4.2, the Vendor must acting reasonably either approve or refuse the Nominee as the purchaser under the Contract for Sale and advise the Purchaser in writing of its approval or refusal. 4.4 If the Vendor approves the nominee or otherwise fails to provide a written response to the Purchaser within the time period specified in clause 4.3, time of which is of the essence, the Call Option and appointment of nominee is deemed to have occurred on the date of submissions of the documents referred to in clause 4.2. 4.5 For the avoidance of doubt, if a Contract between the Vendor and any Nominee is lawfully rescinded or terminated by the Vendor, the Vendor is still entitled to exercise the Put Option in accordance with this Deed. 5. Consideration and Grant of Put Options 5.1 Put Option In consideration of the payment of the Put Option Fee by the Vendor to the Purchaser, the Purchaser grants to the Vendor an option on the terms set out in this deed to require the Purchaser to purchase the Property for the price and on the terms set out in the Contract. 6. When to exercise a Put Option 6.1 Put Option The Vendor may exercise the Put Option between 5.00 p.m. on the Call Option Expiry Date as defined in clause 2.1(b) and a further two (2) months after the expiration of the Call Option Expiry Date. ... 9. Binding agreements 9.1 Contracts binding on Vendor If the Purchaser or the Nominee validly exercises the Call Option, the Contract is binding on the Purchaser/Assignee and Vendor from the time the Vendor receives the items set out in clause 3.1 ('Procedures when the Purchaser exercises a Call Option'). 9.2 Contracts binding on Purchaser or Assignee If the Vendor exercises the Put Option, the Contract is binding on the Vendor and Purchaser or the Assignee from the time the Purchaser or the Assignee receives the items set out in clause 7.1 ('Procedures when the Vendor exercises a Put Option'). 9.3 Vendor must date and deliver binding Contracts When the Vendor receives a Contract signed by the Purchaser or the Assignee: (a) the Purchaser or the Assignee authorises the Vendor to date, and the Vendor agrees to date, the Contract with the date on which the Vendor receives the items set out in clause 3.2 ('Procedures when the Purchaser exercises a call Option'), and (b) within five (5) Business Days after receipt of the items set out in those clauses, the Vendor agrees to deliver to the Purchaser or Assignee a counterpart of the Contract completed with particulars of the Vendor in its capacity as vendor or purchaser (as appropriate), executed by the Vendor and dated the same date as the Contract delivered by the Vendor to the Purchaser or the Assignee under those clauses. ... 10. Call Option Fee 10.1 Forfeiture of Call Option Fee In the event that the Purchaser and or Nominee default under the terms and conditions of this Deed then the Call Option Fee, which is paid to the Vendor pursuant to this Deed, or has been refunded to the Purchaser, is to be forfeited to the Vendor, or repaid by the Purchaser to the vendor in the event of a default by the Purchaser and/or Assignee. The Vendor shall be entitled to the Call Option Fee, as at the date of default and notwithstanding any action by the Vendor to terminate or rescind this Deed or Contract (annexure 'C'). 10.2 Refund of Call Option Fee The Vendor agrees that upon a valid exercise of the Call Option, or a valid nomination of the Call Option, the Call Option fee is refundable to the Purchaser, provided all of the conditions of Clause 2, 3 and 4 have been complied with. 10.3 Costs The Purchaser agrees to pay the Vendor's solicitors the sum of $1,500.00 plus GST in relation to the Vendor's legal costs for the grant and assignment of the Call Option on exchange of this Deed. 10.4 Non-merger This clause shall not merge at the expiry of either the Call or Put Option period, and the rights accruing to the Vendor shall continue until compliance with these clauses is met. ... 15. Interpretation 15.1 Definitions These meanings, in any form, apply unless the contrary intention appears. Assignee means any party validly nominated by the Purchaser, who is capable of legally exercising the Purchaser's rights. ... Assignor means the Purchaser under this Deed. Call Option means the Call Option. Call Option fee means the sum of Twenty Thousand Dollars ($20,000.00). Call Option Period means: (a) Commencing at 9:00 a.m. On the Business Day immediate following the day forty two (42) days after the date of this agreement; and (b) Ending on the later of 5:00 p.m. On the fourteenth (14th) day after the Vendor provides to the Purchaser's solicitor notice that the plan of subdivision has been lodged with Land and Property Information (LPI) NSW. Contract means the form of contract comprised in annexure 'C'. Deed means this form of the Deed of Put and Call Options. ... Plan of subdivision means the plan attached to the Contract and comprising annexure 'A'. Property means the property described in the Contract (annexure 'C') and referred to as proposed Lot 3303 in an unregistered plan of subdivision and part of 30 Jardine Drive, Edmondson Park NSW 2174 known as Folio Identifier 33/29317. ... Put Option means the Put Option granted by the Vendor to the Purchaser under clause 4.1 [sic] ('Put Option'). Put Option Fee means One Dollar ($1.00). ... 15.3 Headings Headings (including those in brackets at the beginning of paragraphs) are for convenience only and do not affect the interpretation of this deed." (Black 267-269, 270, 271, 273, 274)
Attached to the deed were four annexures. Annexure A was a notice of exercise of call option. Annexure B was a notice of exercise of put option. Annexure C was the contract for sale of land. Annexure D was a notice of assignment.
The contract for sale of land that was Annexure C included the standard general conditions of sale of the 2005 edition of the contract and additional special conditions. The standard conditions of sale included the following definitions: "normally subject to any other provision of this contract; rescind rescind this contract from the beginning; terminate terminate this contract for breach."
Clause 19 of the general conditions provided: "19 Rescission of contract 19.1 If this contract expressly gives a party a right to rescind, the party can exercise the right - 19.1.1 only by serving a notice before completion; and 19.1.2 in spite of any making of a claim or requisition, any attempt to satisfy a claim or requisition, any arbitration, litigation, mediation or negotiation or any giving or taking of possession. 19.2 Normally, if a party exercises a right to rescind expressly given by this contract or any legislation - 19.2.1 the deposit and any other money paid by the purchaser under this contract must be refunded; 19.2.2 a party can claim for a reasonable adjustment if the purchaser has been in possession; 19.2.3 a party can claim for damages, costs or expenses arising out of a breach of this contract; and 19.2.4 a party will not otherwise be liable to pay the other party any damages, costs or expenses." (Black 291)
Clause 49.2 provided: "49. Subdivision ... 49.2 Completion of this Contract is subject to and conditional upon the registration of the plan of Subdivision ('Draft Plan') and any section 88B instrument ('Draft Instrument') by the Department of lands, land and Property Information Division (LPI). In the event that the Draft Plan and Draft Instrument are not registered within fifteen (15) months of the contract date (sunset date), then either party may rescind this contract by notice in writing to the other party in which the provisions of clause 19 will apply. The Purchaser's right of rescission under this clause 49.2 can only be exercised within 14 days after the sunset date. If the purchaser does not exercise the Purchaser's right to rescind within such time, the Purchaser's right of rescission immediately lapses. The Purchaser has no right arising out of the failure to register the plan of subdivision by the sunset date other than rescission of this Contract in accordance with 49.2. ..."

[4]

Reasons of the primary judge

The primary judge rejected a submission by Ms Carbone that clause 10 set out the only scenario in which call option fees were to be refunded. His Honour noted that the clause did not so state and a rescission following non-registration of the draft plan was outside the scenarios set out in clauses 10.1 and 10.2 of the deed and that the question of the refund is properly to be determined by interpreting clause 2.1(c).
The primary judge dealt with the principal submissions that were repeated on appeal as follows: "69 The next question is whether the 'right of rescission' referred to in Clause 2.1(c) of the Deed gives the right in the plaintiff to call for the return of the call option fees following the exercise of the right. The defendant says it does not because those fees are the cost of obtaining the option. The plaintiff submits that there is such an entitlement because that entitlement should be seen to be analogous to the return of a deposit where a contract for the sale of land is rescinded through the failure to achieve a condition precedent through the fault of neither contracting party. 70 The plaintiff relies on Perri v Coolangatta Investments Pty Ltd (1982) 41 ALR 441 which I have discussed above, where the High Court confirmed the right to the return of the deposit where a condition precedent did not occur. However, it was submitted by the plaintiff that such a right existed in any contract where a deposit was paid not merely a contract for the sale of land, as the principle was one of general application where no default occurred by either party. ... 72 It is clear, as the defendant submits, that 'rescind' can have different meanings including a contractual right to put an end to a contract: reply submissions paragraph 83. The real issue is whether the right to rescind in the present case, occurring where there is no fault and the non-occurrence of a condition precedent to the performance of the Deed, gave an entitlement to demand the return of the deposit whether the right to rescind was one ab initio or not. Many of the authorities relied on by the defendant in her submissions used the term 'rescind' in the context of a termination for breach. See defendant's reply submissions at paragraphs 85-101. The correct position is stated by Dixon J in McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 at 476-77 where his Honour makes a distinction between a breach situation where a contract is not regarded as being rescinded 'as from the beginning' and the situation where conduct occurs which affects the contract's formation such as fraud. The current situation fits into neither category as here there is rescission but because of the non-occurrence of a condition precedent. 73 In my view, the argument of the plaintiff on this issue should be preferred for the following reasons: (a) There is no suggestion that the failure to register the draft plan and draft instrument occurred through default by the defendant. The position may be seen to be similar to that in Perri, above, which, although it dealt with a contract for the sale of land, also considered a condition precedent which was analysed in the scenario where there was no default by either party. Wilson J clearly indicated that in those circumstances the purchaser was entitled to obtain a return of the deposit; (b) Although a contract for the sale of land is, as submitted by the defendant, different to an option, in my view the right to request the return of the call option fee arises through the plaintiff's right of rescission referred to in Clause 2.1(c) which was exercised; (c) I also note that Clause 2.1(c) clearly indicates that the rescission is a rescission of the Deed itself not of any more limited step taken under the Deed; (d) If the defendant's argument was correct, then the defendant could take no steps at all to obtain registration of the draft plan and draft instrument, rely on the final sentence in Clause 2.1(c) to protect her from a suit arising out of the failure to register the plan of subdivision, and keep the call option fee for each Deed. That would be a surprising commercial result particularly when 30 options are involved; (e) Further, Clause 2.1(c) contemplates that either party may rescind the Deed by notice in writing to the other party. Accordingly, if the defendant's argument were correct, the defendant could immediately take steps following the failure to register the draft plan and draft instrument within 15 months of the Deed, to herself rescind the Deed. It would be surprising in this scenario, where the defendant prevented further action by the plaintiff, that it was intended by the parties that the defendant could keep the call option fee for each lot rescinded by her; (f) In my view, the better construction of the clause is that the right to rescind in the case where neither party is at fault should also give rise, in the case of those particular lots, to a right in the plaintiff to require the return of the call option fee for those lots the subject of the exercise of the right of rescission. That construction appears fair to the parties as neither is at fault; it recognises that the right of rescission could be exercised by either party after the sunset date; and it appears consistent with the normal contractual rights arising from a rescission of a contract where a deposit or similar payment has been made. 74 In reaching this conclusion I have taken into account the defendant's forceful arguments that an option is different to a contract for the sale of land; that this option in particular has a limitation in Clause 10 in relation to the refund of the call option fees: that no right of refund is expressly mentioned in Clause 2.1(c) and the effect of the last sentence in Clause 2.1(c). However, taking into account all the matters, in my view the plaintiff's construction is to be preferred."

[5]

Appellant's submissions

Ms Carbone submitted that the primary judge erred by approaching the interpretation of the deed as if it were a contract for the sale of land, which it is not. She repeated the submission made before the primary judge that the option fee was the consideration for the grant of the option and the converse was also true, that is, consideration for the payment of the Call Option Fee had been provided by the grant of the option. The fact that the Draft Plan and Draft Instrument had not been registered by the sunset date did not mean that Metricon did not substantially enjoy the benefit of the grant of the option. By contrast, in a contract for the sale of land, the deposit is part-payment for the purchase price for the land so that if a party is entitled to rescind the contract from the beginning the purchaser will be entitled to the return of the deposit, subject to claims that the vendor might have against the purchaser.
Ms Carbone submitted that the primary judge erred in characterising the refund of the Call Option Fee as a return of a deposit. She submitted that it was incongruous that the Call Option Fee should have to be refunded upon rescission of the deed in accordance with clause 2.1(c) despite Metricon's having been granted an exclusive period (up to at least 15 months) to purchase the property on the terms contained in the contract annexed to the deed and despite her being required to take all reasonable steps to obtain registration of the Draft Plan and the Draft Instrument on or before the sunset date. She submitted that the Court should be reluctant to conclude that a party would agree to grant a call option on such terms.
In oral submissions Mr Hale SC who appeared with Mr Robertson for Ms Carbone referred to McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 at 475-477, to illustrate the difference between a contract for the sale of land and the grant of an option. The difference is clear, but distinguishing McDonald v Dennys Lascelles Ltd does not assist the resolution of the constructional choice in this case.
Mr Hale also submitted that in clause 2.1(c) "rescind" and "rescission" meant to bring the deed to an end but not as from the beginning. Mr Hale distinguished between rescission contemplated by clause 2.1(c) and a rescission of a contract arising from matters relating to its formation where a consequence of rescission would be a refund of the Call Option Fee. A rescission under clause 2.1(c) did not affect the validity or formation of the deed. He submitted that there was no reference in clause 2.1(c) as to what was to happen to the option fee if the deed were rescinded by either party, and therefore the clause should not be construed as meaning that the money had to be refunded.
In answer to questions from the bench Mr Hale said that if (contrary to his submission) rescission in clause 2.1(c) meant rescission from the beginning, the last sentence of that clause meant that Metricon had no right to recover the Call Option Fee. He submitted that if a contract of sale had been entered into and the Draft Plan and Draft Instrument had not been registered within 15 months of the contract date, and the purchaser exercised a right of rescission under clause 49.2 of the contract of sale, then the purchaser would have no right to recover the deposit. He did not elaborate on these submissions. Rather, he submitted that "rescind" did not mean rescind from the beginning.
Mr Hale submitted that in clause 2.1(c) the reference to "Completion of this Deed" referred to the time when the parties were bound by the terms of the contract for sale. He submitted that if the call option were exercised prior to registration of the plan of subdivision the vendor did not become bound by the contract for sale unless and until she signed the contract for sale. She was not required to be bound by the contract for sale unless and until the plan of subdivision was registered.
Non-fulfilment of the condition that completion of the deed was conditional on registration of the Draft Plan and Draft Instrument by the sunset date does not automatically avoid the contract, but would do so only if either party elected to rescind, that is avoid, the contract upon the Draft Plan and Draft Instrument not being registered within 15 months of the deed (Gange v Sullivan (1966) 116 CLR 418 at 441; Suttor v Gundowda Pty Ltd (1950) 81 CLR 418 at 442; Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 at 544-545). If the purchaser exercised the call option prior to registration of the plan of subdivision then the purchaser would have waived its right to rescind. It is certainly arguable that the vendor could not be deprived of her right to rescind on non-satisfaction of the condition in clause 2.1(c) unless she also waived her right to rescind by signing and returning the contract for sale. That is, I accept that it is at least arguable that clause 9.1 is conditional on registration of the Draft Plan and Draft Instrument unless both parties waive their rights under clause 2.1(c). But whether that is so or not does not answer the question for decision. The real question is what are the parties taken to have intended to have been the consequences of the rescission under clause 2.1(c)? Was it only that the parties would be relieved of obligations of future performance or did it include the obligation to refund the option fee?

[6]

Consideration

The learned authors of J D Heydon, M J Leeming and P G Turner, Meagher Gummow and Lehane's Equity: Doctrines and Remedies (2015, 5th ed LexisNexis Butterworths) identify five senses of "rescission", namely, termination of the contract by one party as a consequence of the other party's repudiation or breach; rescission pursuant to a contractual term entitling a party to bring the contract to an end; rescission at common law, e.g. for fraudulent misrepresentation or duress; rescission in equity by order of the court where equity regards the contract as having been improperly procured, e.g. for breach of fiduciary duty or other unconscionable conduct; and rescission as a statutory remedy (at [25-005-25-030]).
Clause 2.1(c) falls into the second category, "When the parties themselves have provided for the determination of the contract on a given contingency, the consequences flow altogether from their contractual stipulation and are governed by their intention, either actual or imputed." (Westralian Farmers Ltd v Commonwealth Agricultural Service Engineers Ltd (in liq) (1936) 54 CLR 361 at 379 per Dixon and Evatt JJ).
The contract that was an annexure to the deed defined the terms "rescind" and "terminate". Rescission meant to rescind the contract from the beginning. Clause 19.2 of the general conditions of contract provided that subject to any other provision of the contract if a party exercised the right to rescind expressly given by the contract, the deposit and any other money paid by the purchaser was to be refunded and a party could claim for damages arising out of a breach of the contract, but would not otherwise be liable to pay the other party damages, costs or expenses.
In clause 10.1 of the deed the parties used both the expressions "terminate" and "rescind" if the purchaser or a nominee were in default under the terms and conditions of the deed. In that event the vendor was expressly entitled to retain the Call Option Fee at the date of default. As Metricon submitted and Mr Hale conceded, this clause would be otiose if Ms Carbone's construction were correct and the option fee became her property absolutely. The option fee would not need to be forfeited, except for the situation in clause 10.2 whereby the option fee was refundable to the purchaser if the call option were validly exercised. Mr Hale accepted that this was so, but submitted that clause 10.1 was inserted for more abundant caution.
The condition in clause 2.1(c) was a condition to completion of the deed of option similar to the non-promissory condition in Perri v Coolangatta Investments Pty Ltd. In that case, it was conceded that if the vendor had validly rescinded the contract by instituting proceedings, the deposit was returnable to the purchaser. That was not a matter in issue at any stage of the proceedings (Coolangatta Investments Pty Ltd v Perri (1980) 1 BPR 97,053 at 3). Ms Carbone submitted that that was explicable by the fact that the deposit was a part-payment for the purchase price for the transfer of the land and hence had to be returned once the consideration for the transfer of the land had failed by the contract having been rescinded. This is a legitimate point of distinction.
The consequence of rescission for failure of the contractual condition depends upon the construction of the contract. Metricon did not sue for the return of the option fee as money had and received for a consideration that had failed. The consideration for the grant of the option did not fail. Metricon could have exercised the option to acquire the land and it would only be if Ms Carbone had exercised her right to rescind prior to 7 October 2016 (being 14 days after the sunset date) that Metricon would not have had the benefit of the option. Further, any separate restitutionary claim would be excluded by the last sentence of clause 2.1(c).
Ms Carbone submitted that the primary judge failed to ascribe any meaning to the term "rescission" and "rescind" in clause 2.1(c) and that on one reading of his reasons, in particular at [72] quoted above at [31], rather than interpreting clause 2.1(c) his Honour was in fact deciding whether an implied term should be read into the deed to the effect that Metricon was entitled to the return of the deposit if the deed were rescinded pursuant to that clause. She submitted that that would be an undoubted error since the necessary conditions for the implication of a term in a written contract were not satisfied (referring to BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 282-283).
This criticism is misplaced. The primary judge correctly identified the issue as being whether the right to rescind on the non-occurrence of the condition precedent to the performance of the deed gave an entitlement to demand the return of the deposit, whether the right to rescind was one ab initio or not. That enquiry is orthodox (Westralian Farmers Ltd v Commonwealth Agricultural Service Engineers Ltd (in liq) cited at [40] above). It raises the question of implication not from considerations of business efficacy or usage but from the express words of the contract (Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153; [2001] NSWCA 61 at [28]). This is a process of construction. If as a matter of construction the Call Option Fee was returnable upon rescission of the contract under clause 2.1(c) then the return of the fee was not a right separate from the right of rescission, but part of it.
The use of the word "rescind" rather than "terminate" in conveyancing transactions has a generally understood meaning of rescind from the beginning (Butt, The Standard Contract for Sale of Land in New South Wales (2nd ed, Law Book Co 1998 at [19.2] p 790). That is how "rescind" is defined in the contract of sale which is an annexure to the deed. That is the sense in which "rescind" is used in clause 10.1 where it is used in juxtaposition to "terminate". Consistency requires the same usage in clause 2.1(c). The express provision in clause 10.1 for forfeiture of the fee to the vendor if the purchaser were in default would be otiose if the vendor were in any event entitled to retain the fee. These considerations point to the conclusion that, as a matter of construction, upon rescission the Call Option Fee was refundable to the purchaser.
This is not an uncommercial result. The vendor was responsible for completing the work to enable the plan of subdivision to be registered. It is true that Metricon derived commercial benefit from the fee paid, but the vendor would have been entitled irrevocably to the fee if the plan had been registered in time. The fact that the fee might have to be refunded if the plan were not registered in time was an incentive to the vendor to ensure that it was.
For these reasons I agree with the conclusion of the primary judge and in substance with his Honour's reasons.

[7]

Notice of Contention

Metricon filed a notice of contention that the primary judge ought to have taken into account extrinsic material as establishing objective facts known to both parties and as establishing a subject matter of the contract which supported its construction.
The extrinsic material consisted of correspondence between March and May 2015 between the solicitors for Ms Carbone and Metricon and Colliers who were acting for Metricon. The matters for negotiation included the amount of the option fee to be paid by Metricon and whether or not the fee would be refundable. The correspondence concluded with a letter from BCP Lawyers acting for Metricon commenting upon a draft of the deed and the draft contract for sale. They said: "Clause 2 - Our client requires a clause similar to the clause 49.2 of the Contract for Sale. If the Draft Plan and Draft Instrument are not registered by the sunset date, the Purchaser may rescind and the Call Option Fee is refunded to the Purchaser."
Barclays Law Group acting for Ms Carbone responded as follows: "(c) Agreed. The additional clause 2.1(c) will read: Completion of this Deed is subject to and conditional upon the registration of the Plan of Subdivision ('Draft Plan') and any section 88B instrument ('Draft Instrument') by the Department of Lands, Land and Property Information Division (LPI). In the event that the Draft Plan and Draft Instrument are not registered within fifteen (15) months of the contract date (sunset clause), then either party may rescind this Deed by notice in writing to the other party. The Purchaser's right of rescission under this clause can only be exercised within 14 days after the sunset date. If the Purchaser does not exercise the Purchaser's right to rescind within such time, the Purchaser's right of rescission immediately lapses. The Purchaser has no right arising out of the failure to register the plan of subdivision by the sunset date other than rescission of this Contract."
This proposed clause was adopted and became clause 2.1(c) of the deed, subject to changing the words "contract date" to "this deed". In a rectification suit the correspondence would be powerful evidence of the parties' mutual subjective intention that the intended effect of clause 2.1(c) was that the Call Option Fee would be refundable upon rescission under that clause. But evidence of the parties' subjective intentions cannot be used to construe the contract. It is only in so far as the negotiations establish objective matters known to the parties such as by establishing the commercial purpose or object of the transaction, its background or context that evidence of the negotiations can be used to assist in the construction of the clause (Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 352; [1982] HCA 24; Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 at [50]).
The primary judge said that he had reached his conclusion as to the construction of the deed without taking into account this correspondence. His Honour said it was unclear whether the correspondence constituted evidence of surrounding circumstances admissible to assisting interpretation of the contract, or which established objective facts known to both parties and the subject matter of the contract (at [75]).
Like the primary judge I prefer to express no opinion on this issue. The division of opinion in this Court in Cherry v Steele-Park (2017) 96 NSWLR 548; [2017] NSWCA 295 shows that the question is not free from difficulty. The majority reasoning of the Court in that case (Leeming JA at [60]-[67] and [91]-[92] with whom Gleeson JA agreed) might support Metricon's submission. Neither party referred to this Court's decision in Cherry v Steele-Park. Because it is unnecessary to resolve this question and it was not the subject of full argument, I prefer to express no view on it.
For these reasons I propose that the appeal be dismissed with costs.

Parties

Applicant/Plaintiff:

Carbone

Respondent/Defendant:

Metricon Homes Pty Ltd

Legislation Cited (1)

Conveyancing Act 1919(NSW)

Cases Cited (34)

Solicitors: Barclays Law Group (Appellant) BCP Lawyers & Consultants (Respondent) File Number(s): 2017/307239 Decision under appeal Court or tribunal: District Court of New South Wales Jurisdiction: Civil Citation: [2017] NSWDC 256 Date of Decision: 14 September 2017 Before: Dicker SC DCJ File Number(s): 2016/352216

Per Meagher JA, Payne JA agreeing (2) The vendor was entitled to recover the call option fees upon rescission even if such recovery depends upon a total failure of consideration and notwithstanding the concluding sentence of cl 2.1(c): [9]-[14] Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32; Baltic Shipping Co v Dillon (1993) 176 CLR 344; Kettlewell v Refuge Assurance Co [1908] 1 KB 545; Coastal Estates Pty Ltd v Melevende [1965] VR 433 applied.

The sense of rescission

In isolation, the word "rescind" and its derivatives are notoriously ambiguous: Andrews v Australia and New Zealand Banking Group Ltd (2012) 247 CLR 205; [2012] HCA 30 at [33]. They may relevantly refer either to the prospective discharge of executory rights and obligations under a contract (termination) or to the treatment of a contract as never having been formed (rescission ab initio): McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 at 476-477 (Dixon J); Johnson v Agnew [1980] AC 367 at 392-393 (Lord Wilberforce); Commissioner of Taxation (Cth) v Reliance Carpet Co Pty Ltd (2008) 236 CLR 342; [2008] HCA 22 at [2]. An entitlement to rescind in either sense may arise by operation of law: cf Davis Contractors Ltd v Fareham UDC [1956] AC 696 at 728-729 (Lord Radcliffe) (frustration); Alati v Kruger (1955) 94 CLR 216 at 222 (Dixon CJ, Webb, Kitto and Taylor JJ) (fraudulent misrepresentation). But a contract may also expressly confer an entitlement in identified circumstances either to terminate or to rescind ab initio: Tudor Developments Pty Ltd v Makeig (2008) 72 NSWLR 624; [2008] NSWCA 263 at [86] (Handley AJA), citing Sargent v ASL Developments Ltd (1974) 131 CLR 634 at 639 (Stephen J, McTiernan ACJ agreeing), 653 (Mason J). As Dixon and Evatt JJ explained in Westralian Farmers Ltd v Commonwealth Agricultural Service Engineers Ltd (1936) 54 CLR 361 at 379: When the parties themselves have provided for the determination of the contract on a given contingency, the consequences flow altogether from their contractual stipulation and are governed by their intention, either actual or imputed.
The consequences intended to flow from Metricon's exercise of its entitlement under cl 2.1(c) depend on the meaning of "rescind" in that clause. In resolving that issue, this Court is bound to prefer "a construction supplying a congruent operation to the various components": Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522; [2005] HCA 17 at [16] (Gleeson CJ, McHugh, Gummow and Kirby JJ). Clause 49.2 in the special conditions of each sale of land contract was identical to cl 2.1(c) in each deed except for the substitution of "Contract" for "Deed". It thus provided that either party could "rescind" the contract for sale in the event that a draft plan and instrument were not registered within 15 months of the contract date. (One discrepancy arising from this substitution, which was not explained in argument, was that the time for registration under cl 2.1(c) would expire before that under cl 49.2, each deed being executed before any contract for sale.) Clause 1 of the standard form of each contract defined "rescind" as "rescind this contract from the beginning" and "terminate" as "terminate this contract for breach". Two considerations follow.
First, insofar as the deed and annexed contract for sale are components of a single document, the ambiguous word "rescind" would be presumed to have the same meaning in cl 2.1(c) of the former as in cl 49.2 of the latter: Re Birks [1900] 1 Ch 417 at 418 (Lindley LJ), cited in Brunswick Corporation v Baker (1916) 21 CLR 407 at 417; Buick v Equity Trustees Executors and Agency Co Ltd (1957) 97 CLR 599 at 612 (Fullagar J); cf Watson v Haggitt [1928] AC 127 at 130 (Lord Warrington), cited in Robbins v Federal Commissioner of Taxation (1973) 129 CLR 332 at 339 (Walsh J). On any view, that presumption applies within the deed as between cl 2.1(c) and cl 10.1, which distinguishes between termination and rescission in the contract for sale by referring to "any action by the Vendor to terminate or rescind this Deed or Contract".

Recovery of the option fees

The claim to those fees was pleaded, and upheld, as one for the recovery of an amount agreed to be repaid: Judgment [79]-[80]. Before this Court, Metricon submitted that its entitlement to recovery of the option fee was inherent in the contractually agreed remedy of rescission ab initio, by which the contract was treated as "never having been made". Ms Carbone denied that entitlement by submitting that the consideration for the call option fee did not totally fail (and she was thus not unjustly enriched) because Metricon obtained the benefit of the call option for the agreed period. That submission presupposes that a principle of restitution - either applicable by operation of law or implicit in the parties' agreement - made a total failure of consideration essential to any recovery of each call option fee. Even if that is so, the submission should be rejected because it relies on an incorrect understanding of yet another legal term with several meanings, namely "consideration": Guinness Mahon & Co Ltd v Kensington and Chelsea Royal London Borough Council [1999] QB 215 at 236 (Robert Walker LJ).
In Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32 at 48, Viscount Simon LC observed that, "when one is considering the law of failure of consideration and of the quasi-contractual right to recover money on that ground, it is, generally speaking, not the promise which is referred to as the consideration, but the performance of that promise". Were it otherwise, his Lordship continued, "there could never be any recovery of money, for failure of consideration, by the payer of the money in return for a promise of future performance". Notwithstanding the disagreement of Lord Atkin (at 53), that formulation has been widely approved in English and Australian law: Baltic Shipping Co v Dillon (1993) 176 CLR 344 at 350-351 (Mason CJ), 389 (McHugh J); Goss v Chilcott [1996] AC 788 at 797. It may be seen as an application of a wider principle identifying "failure of consideration" with "the failure to sustain itself of the state of affairs contemplated as a basis for payments [a claimant] seek[s] to recover": see Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516; [2001] HCA 68 at [103]-[104] (Gummow J).
In any event, Viscount Simon LC's formulation explains two decisions significant to this case. In Kettlewell v Refuge Assurance Co [1908] 1 KB 545, an insured sued for premiums paid under a policy of life insurance renewed in reliance upon fraudulent representations by the insurer's agent. The insurer submitted that the insured "was not entitled to rescind the contract, for she had received a benefit under it", namely "the benefit of being covered by the policy, and of the chance of receiving the money if the event insured against had happened": at 547 (Manisty KC and Nield). The Court of Appeal rejected that submission. Lord Alverstone CJ (with whom Sir Gorell Barnes P agreed) observed (at 549) that "it is not right to speak of a mere risk of that kind, which has not produced any benefit in fact to the assured, as being a part performance of the contract". The decision was appealed on other grounds but affirmed by the House of Lords: Refuge Assurance Co v Kettlewell [1909] AC 243.