Christiansen v Klepac

THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

1 HIS HONOUR: On 8 July 1998 the plaintiffs agreed to purchase a unit, to be built by the defendant, on land 5-7 Macquarie Place Mortdale. The contract was in the 1996 edition of the standard form. The purchase price was $270,000 with a 5 percent deposit. Special condition 3 of the contract required the vendor to use his best endeavours to procure registration of the necessary strata plan within 12 months from the date of the contract. Various versions of the contract say 6, 12 or 18 months, but it is common ground now that the contract should say 12 months. Printed clauses 28.2 and 28.3 of the contract are relevantly as follows: Clause 28.2: The vendor must do everything reasonable to have the plan registered within 12 months after the date of this contract, with or without any minor alteration to the plan or any document to be lodged with the plan validly required or made under legislation. Clause 28.3: If the plan is not registered within that time and in that manner -

28.3.1 the purchaser can rescind; and 28.3.2 The vendor can rescind, but only if the vendor has complied with clause 28.2. 2 Clause 19 of the contract fleshes out what is meant by the word "rescind", and notes that "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." 3 The term "normally" is defined in clause 1 of the contract as "subject to any other provision of this contract." 4 The contract was out of the ordinary in the sense that the vendor was also the builder of the unit. The special conditions took account of this and provided by special condition 15 that there was a schedule of standard finishes and that the purchaser might require the vendor to make alterations and would pay for them. As with most building contracts, there were extras requested from time to time. Some of these were as a result of suggestions from the plaintiffs and others suggestions by the defendant which were adopted by the plaintiffs. Some of these are referred to in paragraphs 292 and 293 of the defendant's affidavit. 5 The strata plan was not registered within 12 months of the contract and in fact was only registered on 8 November 1999. 6 On 29 September 1999 the solicitor for the vendor purported to give a notice of rescission. That notice, omitting recitals which are not currently relevant, provides as follows: "AND WHEREAS despite doing everything reasonable to procure the registration of the plan, the Vendor has been unable to procure registration within the period set by the Contract. Clause 28 gives the Vendor a right to rescind the Contract if the Vendor has satisfied clause 28.2. NOW WE HEREBY GIVE YOU NOTICE that pursuant to our rights under clause 28 WE HEREBY rescind the Contract for the Sale of Land dated 8 July 1998. ... The Vendor is prepared to make reasonable allowance for the cost of the works carried out on the property by the Purchaser pursuant to clause 19.2.1 of the Contract. The Vendor estimates the amount to be allowed to be $5,000.00, subject to verification from the Purchasers of the value of the works carried out. DATED 29 September 1999." 7 The plaintiffs say that the rescission was invalid and seek specific performance of the contract. The defendant seeks to defend the rescission. The parties agreed that a question be stated for separate determination before other issues in the case. That question is "Whether, on the assumption that a right to rescind arose on 9 July 1999, in the events that have happened between 8 July 1999 and 29 September 1999, the defendant was precluded from rescinding or terminating a contract between himself and the plaintiffs dated 8 July 1998 by the operation of the doctrines of (a) waiver; (b) election; or (c) estoppel." 8 The case on the separate point really comes down to a question of fact which can be simply stated but which is difficult to evaluate. The simple question is whether, as a result of the defendant's conduct between 8 July and 29 September 1999, he elected to treat the contract as on foot by conduct which amounted to an unequivocal assertion that he affirmed the contract. Alternatively, whether such conduct gave rise to a proprietary estoppel which would give the plaintiffs some equitable relief against his purported rescission. 9 Essentially, the basic facts are agreed, but there is a disputed question of fact as to when some of the relevant events occurred. The evidence, to a great degree, was from witnesses who gave their evidence from memory. They were not affected much by cross-examination. However such cross-examination had to take the form of "I put it to you that you are mistaken when you say it happened on the Xth of June, what do you say?" This sort of cross-examination rarely achieves results. 10 The documentary evidence and the independent evidence of Mr Guest make me sure that the plaintiffs' version of the times is correct. It is strange that the defendant, as a graduate builder did not have documentary material as to when various things occurred in his building program and relied merely on assertions. The assertions of the plaintiffs seem to be supported by documentation. 11 Essentially, there were four acts of the defendant which the plaintiffs say amount to an unequivocal act of election, either singly or together. First, that on 14 July 1999 they purchased tiles for the splashback on the kitchen, which the defendant installed without comment. Secondly, that on 14 July 1999 or thereabouts special wardrobes were ordered from Stegbar. These were not standard under the contract and were extras which the plaintiffs requested. Thirdly, on 15 July 1999 the plaintiffs spent $80 on a deadlock which the defendant installed. And fourthly, that on about 20 July 1999 the plaintiffs spent some thousands of dollars on pavers which were not standard and which were laid by an independent contractor. Mr Sanderson for the plaintiffs says that these matters, which occurred after the middle of July, can only be explained by the defendant's conduct showing unequivocal election to proceed with the contract. 12 On the other hand, Miss Lane for the defendant says that one has to be very careful about this sort of case. She says that really the authorities show that there are three positions in which a person, such as the defendant, can find himself: (a) that the person has elected to avoid the contract; (b) that that person has elected not to avoid the contract; or (c) that that person is in a position where he has not yet made any election; see Clough v London and North Western Railway Co (1871) LR 7 Ex 26, 35; Abram Steamship Co Ltd v Westville Shipping Co [1923] AC 773, 787. Miss Lane submits that the defendant was in a position where he was permitted to do acts which were consistent with the contract whilst he made up his mind whether or not he would affirm or rescind. 13 The evidence suggests that, at least by mid-July, the defendant was aware that he had a right to rescind, though his solicitor told him that there was some problem as to whether the contract allowed him to rescind after 12 or 18 months. In paragraph 296 of the defendant's affidavit he says, "I resolved to exercise my right to rescind the contract, but to offer the plaintiffs an opportunity to purchase the unit for the sum of $290,000 inclusive of all extra work I had done at their request in relation to the subject unit." If that evidence is to be accepted then it would seem that, as soon as the solicitor advised, the defendant did make up his mind to elect to rescind. In the light of that evidence it is rather difficult to accept the submission that he was in a position where he had not yet made up his mind one way or the other. However, it is possible to take that stance because if a person works out their attitude in their own mind, but does not communicate what is in his or her mind, then the objective state of affairs may be that no election has been made one way or the other. 14 It is certainly common ground that there was an attempt, particularly on 11 August 1999, by the defendant to obtain $290,000 for the property. The female plaintiff says, "On the morning of 11 August 1999 Morten went to discuss the front courtyard with the Defendant. When he came home Morten told me that John Klepac had asked for $290,000 for the unit (including our extras) or as far as he was concerned the contract was over." 15 The male plaintiff says that on that day the defendant asked him to come away so the two of them could talk together and said, "Morten, I don't know how to say this", he paused and then started to talk about the cost of building the block and that he was not running a charity and said, "I have to get an extra $20,000 for the unit otherwise I will have to pull out of the contract." The male plaintiff asked what was included in the $20,000 and the defendant said the extra cost for the kitchen was $5,000. The male plaintiff said "You previously quoted me $2,200" and asked the defendant to look him in the eye and tell him that he was now telling the truth. The defendant said he was. The male plaintiff got very upset and stormed out of the building because he felt the defendant was lying to him. 16 That was very unfortunate because it has made someone out of pocket some $60,000 for legal costs. It is always better, in these building negotiations, to negotiate rather than come anywhere near a court. However, because the parties could not agree, the matter is now before the Court for determination. 17 Up until that conversation on 11 August 1999 the defendant seems to have gone about his work in the normal manner, including building in the personal property of the plaintiffs into his building. The defendant did not make manifest any other view as to his position on the contract, that is apart from the conversation of 11 August, which is to a great degree confirmed by paragraph 297 of the defendant's affidavit and the four acts that I have already mentioned. The defendant says that he then got confirmatory legal advice and issued the notice of rescission on 29 September 1999. 18 The authorities are clear that the conduct that must be proved by a plaintiff to establish election (sometimes called waiver) "must be unequivocal in the true sense of the word". The conduct must be capable of one construction only, namely that X has chosen to forego its rights: Wilken and Villiers, Waiver Variation and Estoppel (John Wiley & Sons, Chichester, 1998) p 48. That succinctly states the law. More authoritative, but longer, statements to much the same effect come from the leading cases of Tropical Traders Ltd v Goonan (1964) 111 CLR 41, 55; Sargent v ASL Developments Pty Ltd (1974) 131 CLR 634 and Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) (1993) 182 CLR 26. 19 It is useful to see how those principles are fleshed out in cases other than the leading cases. It is clear that a person has a reasonable time to make up his or her mind as to whether to exercise the right of rescission so long as that person does nothing to affirm the contract and so long as the respondent's position is not prejudiced by delay: Tropical Traders at page 55. Secondly, the act of election can be by words or conduct, but the conduct must be unequivocal and referable only to keeping the contract on foot. It would not appear to be a matter of relevance that a party suffered detriment. 20 Miss Lane is correct in her submissions that the mere fact that a person does an act, which he or she does because the contract is on foot, does not necessarily amount to an election to keep the contract on foot. What Mahoney JA says in Champtaloup v Thomas [1976] 2 NSWLR 264, 278 and which he repeats in another form in Kapamadjian v Assandra Developments Pty Ltd (1994) 6 BPR 13,373, 13,374 shows that that is so. As his Honour said in that latter case, during the period where a person is making up his or her mind the position may in a practical sense be intolerable if some rights under the contract cannot continue to be exercised; "Thus, in the case of a contract for a lease of a home unit high in a building, the innocent party may have the right to continue to use the lift to the unit only if the contract remains on foot. It would, I think, be wrong to hold that the mere fact of the use of the lift during the consideration of the position necessarily imputed an election not to rescind and to continue the contract in existence." 21 It is also true that those words have particular significance when there is a situation such as we have at the present where, if the contract was on foot, the builder would be continuing to build with a view to having the contract completed and the purchaser paying their purchase money. But if the contract had been terminated, he would also continue to build so as to sell on the open market. 22 I have looked at the case of Hansen v Fayle (1971) 24 LGRA 22 and reread my own decision in Zuker v Straightlace Pty Ltd (1986) 11 NSWLR 87, especially at 92 and following. It is clear from that second decision, as well as from the Abram Steamship Company case at page 779, that election to affirm may be gathered from a series of acts put together and it is not conclusive that any of the acts were of themselves trivial. However, the triviality of the acts involved may easily affect the inferences to be drawn from them. 23 Essentially, then, the matter is a question of fact. Has the defendant, by his actions, particularly the four matters that I have mentioned earlier shown an intention unequivocally to confirm the contract so that by 29 September it was out of his power to elect the other way and rescind? 24 Were it not for two matters I would have thought that on the whole of the conduct in the factual matrix there was no such election. This is because of the fact that the defendant was building the units in any event so that one would expect business to go on as usual. Thus, the mere fact that some things were happening in the unit originally contracted to be sold to the plaintiffs even if they related to items specially requested by the plaintiffs was not of great significance. 25 However, two matters must be thrown into the mix. The first is that the defendant says that he took the view that he would rescind unless he could persuade the plaintiffs to go higher with their purchase price. However, he did nothing for about a month and then on 11 August 1999 it must have become clear to him that the plaintiffs were not going to be coming to the party so far as the extra purchase price was concerned. Although he had advice as to his rights in mid-July he did nothing except get further legal advice for about six weeks. 26 Mr Sanderson says that I really should not believe the defendant on this. His evidence as to dates was unreliable. Further the fact that his counsel makes the submission that he had not made a decision about rescission yet his affidavit says he did make that decision, but then he did not communicate the decision for over a month, makes, Mr Sanderson submits, it rather difficult to accept his evidence. There is something in that submission. The evidence generally is, however, that the defendant was intending to seek a higher price from early July and I should accept that the defendant had the continuing intention of seeking a higher price. Furthermore, the delay and what happened does not really seem to have affected the plaintiffs to any degree. It is not a case like Hansen v Fayle where, because of one party's delay, the others went to expense and put their affairs in a particular order. 27 The second matter is that some of the plaintiffs' personal property, including the splashback tiles worth about$300, the deadlock of $80 and in another sense, the pavers, were affixed to the premises and became part of the defendant's property when the plaintiffs had paid the money themselves and only had their property installed on the basis that it would revert to them when the contract was completed as they expected. Miss Lane says that the amounts involved in connection with a contract involving quarter of a million dollars are trivial matters and so they are in one sense. But, as I have said, trivial matters cannot necessarily be ignored when one is assessing the whole of the defendant's conduct. 28 Mr Sanderson says that the fact that the defendant went ahead and installed those items is just inconsistent with him rescinding and that he only could have installed those items, other than in circumstances where there was a wrongful conversion, if he had elected to continue with the contract. 29 Mr Sanderson also submits that if one believes the defendant that he was only doing these things so that a higher price could be forced upon the plaintiffs that in itself must amount to an election to treat the contract as on foot. I was first attracted by that proposition, but, on more thought have rejected it. Indeed, one might have thought that the defendant would have been in a stronger position if he had declined to put items in the unit and had taken the view that he would rescind the contract because the mere fact that they had purchased the items would be prejudicial, rather than the actual fact that the defendant installed them, especially as the defendant at all times indicated that he was prepared to make an allowance for the cost of what had been put in. All the evidence suggests that $5,000 was the maximum of what would have to be allowed. 30 As I say it is a rather difficult question of fact to analyse. I have to be convinced, on the balance of probabilities, that the defendant's acts evinced an unequivocal election to affirm the contract before 29 September. Although there are some factors, such as those I have already discussed, which point in that direction it seems to me on the whole of the balance of the evidence that there was no election to affirm. 31 So far as estoppel is concerned, different considerations arise. The estoppel is really proprietary estoppel, that is that there is an expectation engendered by the acts of the defendant and in those circumstances it would be unconscionable to permit the defendant to withdraw from the contract. There is no need to reconsider the facts. The only detriment - and detriment is relevant here - that the plaintiffs suffer by way monetary loss was the $5,000 which was paid out for supplies, if I can put it that way, and which the defendant has offered to refund. Mr Sanderson submitted that the loss was in fact greater than that and there was the expectation, but there is very little evidence of this at all. It seems to me that if there had been a case of proprietary estoppel the only relief which the Court would give to merely aid against the unconscionable conduct of the defendant would be $5,000 with a charge over the property to secure it. The defendant has offered to refund the $5,000 in any event so that assuming there was a proprietary estoppel equity would not give any relief. 32 To put it another way, on any estoppel the Court would not injunct the defendant from rescinding or terminating the contract on 29 September 1999. Accordingly I answer each part of the separate question "No", and order the plaintiffs pay the costs of the separate question. The matter is stood over to 3 May 2001 at 9.50 am. **************

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