Entitlement to terminate the contract
80 In the first judgment the trial judge identified as the second of the four reasons -
"11. …
(2) As at the date of completion on 1 September 2003, the roof was not in fact in good condition and the vendor could not have completed."
81 His Honour dealt with this reason by reference to his decision in relation to the first reason -
"46(2) This point is much the same as the previous point except that one is directed to the time of completion rather than the time of issuing the notice to complete. It seems to me that for the same reason as I have given under (1) that the point fails."
82 Translating what his Honour had said to an answer to the second reason, it appears that his Honour considered that the vendor was entitled to terminate the contract on 2 September 2003 notwithstanding any breach of cl 7.1.1 of the lease because any consequential breach of cl 24.4.3 of the contract was not a substantial breach; and as well, it seems on the basis that the obligation to pay damages remained notwithstanding completion, because the breach of cl 24.4.3 was not a breach which affected the vendor's readiness, willingness and ability to complete the contract.
83 The purchaser submitted that in the correspondence prior to 1 September 2003, and in the notice to complete of 7 August 2003 itself, the vendor had taken the stance that it was not obliged to attend to the roof of the church. It said that the vendor was therefore not ready and willing to perform its own obligations under the contract and could not terminate the contract for failure by the purchaser to complete. The vendor's submissions did not clearly respond to the purchaser's submissions, save for taking issue with breach of cl 7.1.1 of the lease and cl 24.4.3 of the contract and saying that any breach was de minimis.
84 The first question is whether the vendor was in breach of cl 7.1.1 of the lease. What was required under the vendor's obligation to the tenant?
85 The words "good condition and serviceable repair" in cl 7.1.1 of the lease, when applied to the roof as one of the identified components of the building (roof, ceiling, external walls and floor), in their ordinary meaning called for a roof which did not permit water entry. A roof is meant to keep the rain out. The obligation was in the nature of a covenant to repair, as shown by the word "maintain", and what was required to fulfil it had to pay regard to the age and nature of the building and its state of repair at the commencement of the lease. But a covenant to keep in repair covers putting in repair having regard to such matters, see for example, Proudfoot v Hart (1896) 25 QBD 42, and a roof in good condition and serviceable repair was one which would keep the rain out.
86 At the least, the vendor was obliged to carry out repairs of the kind described in the correspondence in August 2003, such as sealing points of water entry with silicone at fastenings and screws and repositioning and sealing flashings. However, on the evidence of Mr Lyons the roof was beyond repair. It had to be replaced. Mr Lyons' report was proximate to the completion date, and that the roof was beyond repairs of the kind carried out by the vendor's plumbers gains some support from the fact that, despite the repairs on 4 August 2003, there was water entry on 23-24 August 2003. The water entry may not have been great, but it was attributed to the old fastenings and screws and the integrity of the roof was plainly enough such that more band-aid repairs would be necessary. Did the vendor's obligation extend to replacement of the roof, in order to maintain it in good condition and serviceable repair?
87 Repair under a covenant to repair can involve renewal; it is a question of degree. In Lister v Lane (1893) 2 QB 212 it was held that a tenant was not obliged completely to underpin a house build on mud without foundations in order to prevent further deterioration. In Torrens v Walker (1906) 2 Ch 166 it was held that a tenant was not obliged to replace walls which the ravages of time were causing to crumble. But in Lurcott v Wakeley (1911) 1 KB 905 the Court firmly rejected that deterioration from age or the elements whereby replacement was necessary was outside a covenant to repair, and regarded these as rather special cases.
88 It was held in Lurcott v Wakeley that replacing an external wall which had been condemned, its condition being caused by old age, was within a tenant's covenant to repair. Cozens-Hardy MR said (at 914) that the replacement of the wall would not change the character or nature of the building, and -
"It seems to me that we should be narrowing in a most dangerous way the limit and extent of these covenants if we did not hold that the defendants were liable under covenants framed as these are to make good the cost of repairing this wall in the only sense in which it can be repaired, namely, by rebuilding it according to the requirements of the county council."
89 Buckley LJ said (at 923-4) -
"'Repair' and 'renew' are not words expressive of a clear contrast. Repair always involves renewal; renewal of a part; of a subordinate part. A skylight leaks; repair is effected by hacking out the putties, putting in a new ones, and renewing the paint. A roof falls out of repair; the necessary work is to replace the decayed timbers by sound wood; to substitute sound tiles or slates for those which are cracked, broken or missing; to make good the flashings, and the like. Part of a garden wall tumbles down; repair is effected by building it up again with new mortar, and, so far as necessary, new bricks or stone. Repair is restoration by renewal or replacement of subsidiary parts of a whole. Renewal, as distinguished from repair, is reconstruction of the entirety, meaning by the entirety not necessarily the whole but substantially the whole subject-matter under discussion . I agree that if repair of the whole subject-matter has become impossible a covenant to repair does not carry an obligation to renew or replace. That has been affirmed by Lister v Lane and Wright v Lawson. But if that which I have said is accurate, it follows that the question of repair is in every case one of degree, and the test is whether the act to be done is one which in substance is the renewal or replacement of defective parts, or the renewal or replacement of substantially the whole." [emphasis added]
90 In Lindsay v Federal Commissioner of Taxation (1961) 106 CLR 377 these cases were referred to, with particular approval of Lurcott v Wakeley, in distinguishing between repair and renewal for taxation purposes. The Court adopted at 394 the passage from the reasons of Buckley LJ emphasised in the extract last set out.
91 Lurcott v Wakeley was described as the leading case, and applied, in Brew Bros Ltd v Snax (Ross) Ltd (1970) 1 QB 612. It was cited in Glasshouse Investments Pty Ltd v MPJ Holdings Pty Ltd [2005] NSWSC 456 at [71] for repair involving "some sort of renewal". There are many cases on different forms of words, and they show that a constraint in holding that a tenant's covenant to repair requires replacement is that the landlord should not gain by improvement at the tenant's expense. But that restraint does not apply to a landlord's obligation such as that under cl 7.1.1 of the lease. The plain purpose is that the tenant shall have a roof, ceiling, external walls and floors making up a habitable building, if necessary by replacement of one of those components if it is not in good condition and substantial repair.
92 On the evidence of Mr Lyons, the roof of the church could be repaired only by replacement. It was no doubt a major component of the building, but one which cl 7.1.1 specifically identified as a subject of the landlord's obligation. The character of the church would not be changed by replacement of the rusted roofing material and provision of new ridge capping and flashing. In my opinion, the vendor's obligation to the tenant extended to replacement of the roof.
93 The next question is whether the vendor was in breach of cl 24.4.3 of the contract. To repeat the critical words, the vendor had to comply with any obligation to the tenant under the lease "to the extent it is to be complied with prior to completion". There was apportionment between the vendor and the purchaser of compliance with the landlord's obligations to the tenant, but was it necessary that the compliance by the vendor with the obligations apportioned to it be prior to completion?
94 The critical words identified the compliance required of the vendor, but did not say that the compliance had to be prior to completion. They were matched by like words in cl 24.4.4, which plainly enough were not prescriptive that the purchaser had to comply after completion: prescription that the purchaser had to comply after completion was pointless, because it had to be so. This suggested that the words in cl 24.4.3 were also not prescriptive that the vendor had to comply prior to completion, which gained some support from the express provision in cl 24.5 that the rights under the clause - under cl 24.4.3 as well as under cl 24.4.4 - continued after completion. It is significant that cl 24.5 refers to "rights under this clause", not to an entitlement to damages.
95 In my opinion, it was open to the vendor to bring about compliance after completion. Accordingly, although as at the completion date the vendor had not replaced the roof of the church, it was not then in breach of cl 24.4.3 of the contract.
96 Before going further, I should refer to the contention in the vendor's notice of contention that special condition 32.2 of the contract "operated to remove any breach in respect of the property's condition derived from the lease". The submissions did not particularly amplify the contention. I do not think special condition 32.2, or special condition 52 so far as obliging the purchaser to accept the roof of the church in its condition as at 6 November 2002, overrode cl 24.4.3 of the contract. The purchaser took the buildings on the property generally in their then condition and state of repair, but cl 24.4.3 made particular provision for compliance with obligations to the tenants. The provisions had to be read together so far as possible. To the extent that compliance required that the vendor improve the condition or state of repair of a building, the general acceptance of the condition and state of repair was qualified, and the purchaser was entitled to performance of the specific promise in cl 24.4.3. As later indicated, however, cl 32.2 is material to identifying the subject-matter of the contract
97 The vendor had nonetheless made plain enough that it was not going to carry out further repairs to the roof. It was not going to bring about compliance after completion. Although it was not then in breach of cl 24.4.3, for the purposes of the purchaser's submissions it was not ready and willing to replace the roof in that it rejected any obligation to do more than it had done.
98 Thus I come to the purchaser's submission that the vendor could not terminate the contract because it was not ready and willing to perform its own obligations under the contract. The purchaser relied on passages in Foran v Wight (1989) 168 CLR 385; it is necessary, however, to go beyond the particular passages.
99 In Foran v Wight at 417 Brennan J said -
"Where the respective obligations of parties to a contract are mutually dependent and concurrent, the primary rule is that neither party who fails to perform his obligation when the time for performance arrives can rescind for the other party's failure at that time to perform his obligation. Each party's obligation is conditional on performance by the other; neither can complain of non-performance by the other when the condition governing the other's obligation goes unfulfilled."
100 The respective obligations in that case were the obligation of a vendor to deliver a conveyance and the obligation of a purchaser to pay the price on completion. Brennan J had prefaced the general statement with reference to those obligations, and their concurrency and mutual dependency is well established, see Foran v Wight at 396 per Mason CJ, 433 per Deane J, 450-1 per Dawson J and 455 per Gaudron J and cases there cited. The concurrent and mutually dependent obligations there in question are an instance of a wider class of dependent promises, where the performance of its promise by one party is a condition precedent to the performance of its promise by the other party. For example, if the vendor must submit the conveyance but has not done so, it cannot call upon the purchaser to complete: Foster v Anderson (1908) 16 OLR 565. On the other hand, in Roadshow Entertainment Pty Ltd v (ACN 053 006 269) Pty Ltd (1997) 42 NSWLR 463 timely payment for products supplied under a distribution agreement was not a condition precedent to continued supply: at 479. Whether one promise is dependent on another is a matter of construction of the contract.
101 For the purchaser's reliance on the statement by Brennan J, it was necessary that performance of its promise to complete by payment of the purchase price was dependent on performance of the vendor's promise in cl 24.4.3 of the contract. I do not think that is so.
102 The vendor was obliged to convey title to the land, which would carry with it the improvements, but special condition 32.2 indicated that improvements in a particular state of repair was not part of the subject-matter of the sale; compare Ping v Pearce Paradise Pty Ltd (1982) 2 BPR 97125 at 9426, where the post-contract dilapidations were such that the property became "substantially different in quality and value from the property the subject of the contract". Clause 24.4.3 did not change this, its purpose being apportionment of the obligations to the tenants and performance of the obligations so apportioned rather than assurance that the improvements would be in a particular state of repair as at the completion date. The vendor's failure to comply with obligations to the tenant did not detract from the subject-matter of the sale, and the vendor could convey perfectly good title to the land notwithstanding that it had not complied with those obligations. Further, as I have earlier said, cl 24.4.3 was not prescriptive that the vendor had to comply prior to completion, and cl 24.5 provided that rights under the clause continued after completion: cf Ray v Davies (1909) 9 CLR 160 at 166 per Griffith CJ, holding that an obligation to execute a mortgage after being put in possession could not be mutually dependent with the obligation to put in possession.
103 It is not consistent with cl 24.5 that compliance by the vendor with the obligations to the tenants prior to completion was a condition precedent to performance of the purchaser's obligation to complete by payment of the purchase price. The vendor's rejection of any obligation to do more than it had done did not on dependent promise grounds relieve the purchaser from its obligation to complete.
104 In Foran v Wight at 424 Brennan J further said -
"Where a party claims to be entitled to rescind an executory contract on account of the other party's repudiation (whether by way of anticipatory breach or incapacity), the first party must show not only the other's repudiation but his own readiness and willingness up to the time of rescission to perform his essential obligations under the contract: Rawson v Hobbs [(1961) 107 CLR 466 at 480-1]. Readiness or willingness imports capacity to perform as well as disposition to perform: De Medina v Norman [(1842) 9 M & W 829 at 827; 152 ER 1129]. Since a party's right to rescind an executory contract for the other party's repudiation is limited to cases where the first party is ready and willing to perform, neither party is treated as without fault where both would be at fault were the contract to continue until the time for performance arrives."
105 Brennan J was speaking of readiness and willingness when terminating for repudiation prior to the time for performance, when particular considerations arise, rather than readiness and willingness at the time for performance. Even then, his Honour referred to readiness and willingness to perform essential terms.
106 More directly as to readiness and willingness at the time for the other party's performance, in Roadshow Entertainment Pty Ltd v (ACN 053 006 269) Pty Ltd at 479-80 this Court said -
"As a general rule, a party in breach of a non-essential term is not prevented from rescinding for a fundamental breach or repudiation by the other party: see J W Carter, Breach of Contract , 2nd ed (1991) at 347 and Halsbury's Laws of Australia , vol 6, "Contract" (1992) par 110-9520, by the same author. The question is whether there is an exception or qualification to this general rule which prevented Roadshow from rescinding. Such an exception or qualification might exist if there were a causal relationship between the breaches of non-essential terms by the party attempting to rescind, and the fundamental breach relied upon: see Nina's Bar Bistro Pty Ltd (formerly Mytcoona Pty Ltd) v MBE Corporation (Sydney) Pty Ltd (at 614, 620-621, 632); and compare Suttor v Gundowda Pty Ltd (1950) 81 CLR 418 at 440-442."
107 See now Carter on Contract, para 37-190, and Bahr v Nicolay (No 2) (1988) 164 CLR 604 at 619-20 and Highfern Pty Ltd v Sibbles (1987) 2 QdR 667, in which a vendor was held entitled to terminate notwithstanding that it retook possession in breach of the contract on the basis that the breach was not of an essential term.
108 If breach of a non-essential term does not preclude termination, unwillingness and unreadiness to perform a non-essential obligation could not do so. The juridical basis or bases for breach of an essential term, or unwillingness and unreadiness to perform it, bringing inability to terminate may need some exploration. This is not the case for it, and it would be unwise to embark on an exploration in the absence of submissions on the point. It is sufficient that, as shortly explained, the vendor's obligation under cl 24.4.3 of the contract was not an essential obligation.
109 It should be noted that breach by a vendor may bear upon whether the vendor can obtain specific performance against the purchaser, but despite a vendor's failure in performance the vendor may be entitled to specific performance with compensation to the purchaser: for example, Ray v Davies; Dyster v Randall (1926) Ch 932. It is not consistent with this that any breach by the vendor entitles the purchaser to decline to complete. So in Mehmet v Benson (1965) 113 CLR 295, in which it was argued that a purchaser should not have specific performance because its breach meant that it was not ready and willing to perform its part of the contract, Barwick CJ said at 307-8 -
"That the plaintiff was in default in payment of the instalments of the price and of the interest on the unpaid balance of it (time not being of the essence) though relevant to that question does not establish that he was not in the relevant sense ready and willing to perform the contract. If it were otherwise a purchaser in substantial default of inessential terms could never be granted specific performance. Indeed, the significance of the distinction between essential and inessential terms is derived from the fact that a person in breach of inessential terms may be granted specific performance. " ... A plaintiff in equity may even have actually broken his contract in the letter and yet succeed, if the substance remains": per Isaacs and Rich JJ. in Fullers' Theatres Ltd. v. Musgrove .