Consolidated Credit Network v Illawarra Retirement Trust

Branir Pty Ltd & Others v Owston Nominees (No 2) Pty Ltd and Another (2001) 117 FCR 424 Carpenter v McGrath (1996) 40 NSWLR 39 Consolidated Credit Network Pty Ltd v Illawarra Retirement Trust (No 1) [2005] NSWSC 1004 Equuscorp Pty Ltd & Another v Glengallan Investments Pty Ltd (2004) 218 CLR 471 CASES CITED : Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 Shepherd v Felt & Textiles of Australia Ltd (1931) 45 CLR 359 State Rail Authority of NSW v Heath Outdoor Pty Ltd (1986) 7 NSWLR 170 Thomas v Hollier (1984) 156 CLR 152 Tropical Traders Ltd v Goonan (1964) 111 CLR 41

Consolidated Credit Network Pty Ltd - Plaintiff/First Cross-Defendant Illawarra Retirement Trust Limited - First Defendant/First Cross-Claimant PARTIES : Shield Underwriting Agencies Pty Ltd - Second Defendant Lumley General Insurance Limited - Second Cross-Defendant

C Harris SC - Plaintiff/First Cross-Defendant COUNSEL : G.O. Blake SC - First Defendant/First Cross-Claimant No Appearance - Second Defendant

Levitt Robinson - Plaintiff/First Cross-Defendant Russell McLelland Brown - First Defendant/First Cross-Claimant SOLICITORS : No Appearance - Second Defendant Turks Legal - Second Cross-Defendant

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION EQUITY LIST

4250/05 CONSOLIDATED CREDIT NETWORK AS TRUSTEE FOR THE CCN TRUST OF EDGECLIFF CENTRE v ILLAWARRA RETIREMENT TRUST & ANOR JUDGMENT 1 HIS HONOUR: At the conclusion of the hearing of this matter on 29 September 2005 I made orders dismissing the plaintiff's claim. I also made certain orders which the first defendant had sought, in a cross-claim which it brought against the plaintiff. Those orders were made on the basis that I would provide reasons later. These are those reasons. 2 The plaintiff entered a contract to purchase land from the first defendant on 8 June 2004. The first defendant served a Notice of Termination of that contract on 21 July 2005. The plaintiff took the view that that termination was invalid, and in its claim sought specific performance of the contract, or alternatively damages. The first defendant, by its cross-claim, sought a declaration that the termination was valid, that a caveat which the plaintiff had placed on the land be withdrawn, that the plaintiff pay it a portion of the deposit which was unpaid, and that the plaintiff pay to it certain damages, and interest. On the first day of the hearing, orders were made settling the claim against the second cross-defendant. There has been no appearance by the second defendant, and the plaintiff did not press for any relief against that defendant. 3 The contract fixed a completion date of 31 March 2005. The purchase price was $3.32m. The deposit was stated to be $332,000. Special Condition 9 required 5% of the purchase price to be paid by way of deposit on the making of the contract, and the balance of the deposit on or before completion. Clause 9.4 said: "If the Vendor becomes entitled to receive the deposit by way of forfeiture the Vendor is entitled to recover from the purchaser the whole of the 10% deposit." 4 There was a provision which enabled the purchaser to pay the deposit by providing a bond from a reputable insurance company. The purchaser availed itself of that opportunity, and provided bonds totalling $166,000, which expired on 9 April 2005. 5 On 31 March 2005 the vendor and the purchaser entered an Ancillary Agreement, which extended the settlement date to 30 June 2005, and provided for the purchaser paying interest on the whole of the purchase price at 9.5% pa from 1 April 2005 to the date of settlement. The deposit bonds were extended, to expire on 9 October 2005. This date was chosen not because there was pessimism about whether the contract would actually complete on or before 30 June 2005, but because the insurer issuing the bond would not extend it for any less than a six month period. 6 By the end of May 2005 the purchaser had informed the vendor that it was proposing to enter a joint venture for the development of the land, and requested that settlement be further postponed until a development consent had issued. The vendor was prepared in principle to agree to that proposal. 7 Mrs Elizabeth Winterbottom acted as the solicitor for the vendor in this transaction. Levitt Robinson acted as the solicitors for the purchaser. In the course of this conveyancing transaction letters were exchanged between the solicitors either by facsimile, or as attachments to emails, so that receipt of the letter was virtually simultaneous with its sending. 8 On 31 May 2005 Mrs Winterbottom sent to Levitt Robinson a draft of a proposed Second Ancillary Agreement, to further amend the contract for sale. That draft was of a tripartite agreement, between the purchaser, the vendor, and Mortgage House, the proposed joint venturer of the purchaser. It made provision for the extension of the settlement date to "on or before 21 days after the date of issue by Eurobodalla Shire Council of the development consent". It also provided that the purchaser or Mortgage House would pay forthwith to the vendor the sum of $166,000, on the basis that that 5% deposit was immediately released to the vendor. Upon receiving that payment, the vendor would return to the purchaser the two deposit bonds which it held totalling $166,000. 9 By no later than 10 June 2005, Mrs Winterbottom had let it be known, in a way which came to the purchaser's attention, that there were at least two other purchasers who would be interested in the property at the same price as it was being sold to the plaintiff, and that her view was that if the plaintiff was serious about the property, it would be advisable for it to move as quickly as possible. There were in fact two prospective purchasers, each interested in a different part of the land, and together interested in the whole of the land. 10 On 17 June 2005 Mortgage House informed Mr Winkler, of the purchaser, that it did not wish to proceed with the proposed joint venture. 11 On 27 June 2005 Mrs Winterbottom wrote to Levitt Robinson noting that the purchaser had not executed and returned the second collateral agreement, and that in consequence settlement was due on 30 June 2005. She enclosed a settlement statement made up to that date. She also warned that if settlement did not take place on the due date she was instructed to serve a 14-day Notice to Complete, and said again that there was another purchaser ready to purchase the property. At that time, Mrs Winterbottom was engaged in negotiating the details of new contracts to purchase the land, with the solicitors for the prospective new purchasers. 12 By 30 June 2005 a second draft of the proposed Second Ancillary Agreement had been prepared, but not executed. On 30 June 2005 Mrs Winterbottom wrote to Levitt Robinson saying: "If settlement does not take place today or the signed second version of the agreement extending the time for settlement is not received today and the cheque paid to the agent, I have instructions to serve a Notice to Complete."

The cheque referred to in this letter was (as Mr Winkler understood) the cheque for $166,000, which was 5% of the deposit. 13 When the matter did not settle on 30 June 2005, Mrs Winterbottom served a Notice to Complete, which appointed 3.00pm on Tuesday, 19 July 2005 at the Sydney Settlement Centre in Hunter Street as the time and place for completion. 14 On 13 July 2005 Mrs Winterbottom wrote to Levitt Robinson, saying: "I understand that our clients are endeavouring to negotiate an extension of time for the settlement of the abovementioned sale. I enclose a further ancillary agreement embodying the terms upon which my client is prepared to extend the time for settlement. Please note that an extension of time will only be granted if the agreement is signed and the cash deposit paid before expiry of the Notice to Complete." 15 The draft of the ancillary agreement enclosed in that letter included the following clause 3: "The Purchaser has requested the Vendor to allow further time for settlement of the sale and the Vendor hereby agrees to withdraw the Notice to Complete and to extend the time for settlement to 7th September, 2005 ("the latest settlement date") upon condition that on or before expiry of the Notice to Complete: (a) the Purchaser signs this second ancillary agreement; and (b) the Purchaser pays to the Vendor forthwith the sum of $166,000.00, being the amount of the 5% deposit payable on the making of the primary contract ("the 5% deposit")."

The agreement went on to make provision for the 5% deposit being treated as immediately released to the vendor. 16 There was no response to that letter for some days. On 18 and 19 July 2005 there was a flurry of activity, which is at the heart of the dispute in this case. 17 Mr Brent Wilson, a solicitor employed by Levitt Robinson, had been given the conduct of this file for the purchaser on 18 July 2005 or very shortly before. At 2.15pm on 18 July 2005 he telephoned Mrs Winterbottom. By that time the purchaser was trying to organise a joint venture with a new joint venture partner. The following conversation occurred: WILSON: "CCN's joint venturer will pay the 5% deposit in cash for the extension of time, but would like the Contract for Sale rescinded in exchange for a new Contract for Sale with a new company purchaser called 10 Napier Street Strathfield Pty Ltd. Otherwise the provisions of the Contract are to be the same." WINTERBOTTOM: "I will obtain instructions." 18 In making that finding, I have accepted almost completely the evidence which Mrs Winterbottom gives on that topic. The only respect in which I do not accept her evidence on that topic is that in her affidavit evidence she said that Mr Wilson said that "CCN's joint venturer will pay the 5% deposit in cash in exchange for the extension of time …". Mrs Winterbottom is a meticulous note taker, who takes notes of telephone conversations as they occur, and records the time of the conversation correct to the last minute. She has practiced as a solicitor since 1964 or 1965, at first in England, but in NSW from September 1974. Conveyancing has been a reasonable proportion of her practice during that time. In the witness box she struck me as being meticulous, very alert to the nuances of what was said, and quick on the uptake. I find her a most impressive witness. Almost all of her evidence about the dealings between herself and Mr Wilson are supported by her contemporaneous notes. As well, in a way which I will explain later, her account of events fits better with the probabilities of the situation than does Mr Wilson's account, in those respects where their evidence ultimately differed. 19 I am not persuaded that the "in exchange" phrase occurred in the first conversation on 18 July 2005, because it is not referred to in her file note, and was in a portion of her evidence which Mr Wilson denied. As well, if the "in exchange" had actually been said, it should have meant that Mr Wilson had an extremely clear appreciation that the payment of the deposit was the price of the extension of time, which would make it difficult to accept that the discrepancies between his evidence and that of Mrs Winterbottom were the result of honest mistake on his part. When I do not find that those discrepancies are anything other than the product of an honest mistake, that means that the inherent probabilities are against the words "in exchange" having been said. 20 Mr Wilson's evidence is that in this conversation he said: "We are instructed that CCN's joint venturer would like the Contract for Sale to be in the name of the new company. The 5% deposit will be paid on exchange of the new Contract between your client and the new purchaser."

I do not accept that evidence. If those words had been said to Mrs Winterbottom, she would have appreciated that no money would necessarily be paid in the immediate future, and would have found that proposal quite unacceptable. 21 At 3.34pm on 18 July 2005 Mr Wilson telephoned Mrs Winterbottom again, and the following conversation ensued: WILSON: "What's happening?" WINTERBOTTOM: "IRT does not appear to have any difficulty with rescission of the contract so long as the deadlines are met. Would CCN be willing to sign the Second Ancillary Agreement and pay the $166,000 on receipt of a letter from me setting out IRT's agreement to rescind the present Contract for Sale on the written request of CCN and to enter into a new Contract for Sale simultaneously?" WILSON: "CCN will make the purchase price for the new Contract of Sale $3.32 million together with $78,000 for vendor duty. WINTERBOTTOM: "I would prefer the purchase price to be $3.32 million and interest from the 1st April 2005 to the new Contract for Sale date and a special condition for the purchaser to pay the vendor duty if its payable. I also want a special condition for the payment of interest from 20th July 2005 to the date of settlement on 95% of $3.32 million." WILSON: "I will get instructions."

That account is supported completely by Mrs Winterbottom's contemporaneous file note. 22 Mr Wilson gives evidence that he did not say the sentence attributed to him beginning "CCN will make the purchase price …", but rather said: "As you are aware, we act for CCN, not the new purchaser. CCN won't be paying any money, but we understand from our client that the new purchaser will pay $166,000 on exchange of the contract. If the Vendor duty was payable, then we are instructed from our client that the new purchaser will pay the $78,000."

That account is not supported by any file note. 23 Mrs Winterbottom would have found the proposal that the purchaser pay nothing, but obtain an extension of time on the basis that, at some completely indeterminate time in the future, the new purchaser might be prepared to exchange contracts and thereupon pay a deposit, to be a completely unacceptable proposal. 24 At 4.40pm on 18 July 2005 Mr Wilson telephoned Mrs Winterbottom again, and the following conversation ensued: WILSON: "The new purchaser will pay $166,000, but does not want it to be released until the new Contract for Sale is signed. He wants it held in your trust account." WINTERBOTTOM: "I do not have a trust account, but will agree to Levitt Robinson holding $166,000.00 in your trust account until the new Contract for Sale is signed." WILSON: "CCN does not wish to sign the Second Ancillary Agreement." WINTERBOTTOM: " CCN must sign the Second Ancillary Agreement before noon tomorrow and the $166,000.00 be deposited in the trust account by then. Otherwise, there will be no extension of time. Also, on exchange of the new Contract for Sale the interest on the 5% deposit from 1 April 2005 to the date of exchange must be paid to IRT." WILSON: "I will seek instructions."

The only portion of this account which Mr Wilson disputes is the first sentence attributed to him. However, his alternative version does not differ in substance from it. 25 The first two sentences of the last block of speech attributed to Mrs Winterbottom in that conversation (which I have italicised) make her attitude crystal clear. 26 At 5.13pm on 18 July 2005 Mrs Winterbottom telephoned Mr Wilson, and told him that she had instructions to proceed along the lines they had discussed. 27 At 5.45pm on 18 July 2005 Mrs Winterbottom faxed a letter to Mr Wilson. It said: "I refer to our telephone conversations this afternoon and to CCN's request that the existing contract for sale between IRT and CCN ("the first contract") be rescinded and a new contract for sale entered into between IRT and 10 Napier Street Strathfield P/L ("10 Napier Street") ("the second contract"). I am instructed that IRT agrees to the request on the following conditions: 1. The 2nd ancillary agreement to the first contract shall be signed by CCN and faxed to me before noon on 19th July, 2005. 2. The sum of $166,000.00 shall be paid into Levitt Robinson's trust account before noon on 19th July, 2005 (to be held in escrow pending exchange of the second contract) and Levitt Robinson shall confirm receipt of that sum to me by fax before noon on 19th July, 2005. 3. IRT and CCN shall enter into an agreement ("the rescission agreement") rescinding the first contract as soon as possible after 19th July, but exchange of the rescission agreement shall take place simultaneously with exchange of the second contract. 4. The second contract shall be entered into between IRT and 10 Napier Street as soon as possible after 19th July, 2005, which shall be in the form of the standard NSW contract for Sale of Land, 2000 edition and shall contain: a. the provisions set out in the first contract as amended by the first and second ancillary agreements to that contract, so far as they are still relevant; b. a special condition that if IRT is required to pay Vendor duty on the second contract, 10 Napier Street will reimburse it that sum; c. a special condition that interest will be paid to IRT by 10 Napier Street at settlement at the rate of 9.5% on the sum of $3,154,000.00 calculated from 1st April, 2005 up to and including the date of settlement. 5. At the time of exchange of the second contract, the sum of $166,000.00 held in Levitt Robinson's trust account shall be released to IRT and also at exchange 10 Napier Street will pay to IRT a sum representing interest on the $166,000.00 at the rate of 9.5% calculated from 1st April, 2005 up to and including the date of exchange. 6. CCN shall pay the reasonable legal costs incurred by IRT in connection with the preparation and exchange of the rescission agreement and the second contract. Please confirm as soon as possible that these are acceptable to CCN and 10 Napier Street."

The draft of the Second Ancillary Agreement which was the current one at this time was the draft which Mrs Winterbottom had sent on 13 July 2005, which in its terms made provision for the $166,000 being paid "to the Vendor forthwith" . Thus, there was a discrepancy between that draft, and the letter, as the letter made provision for the $166,000 to be paid to Levitt Robinson's trust account, and not released to the vendor until exchange of contracts. 28 That letter did not come to Mr Wilson's attention until the next morning. He telephoned Mrs Winterbottom at 9.55am on 19 July 2005, and the following conversation ensued: WILSON: "CCN will sign the Second Ancillary Agreement on the terms set out in your letter, but they want clause 4(c) arranged so that the interest is part of the purchase price from 1 April 2005 to 7 September 2005." WINTERBOTTOM: "Will CCN pay the GST on the extra purchase price?" WILSON: "I will obtain instructions. Will the bonds be handed over on release of the deposit?" WINTERBOTTOM: "Yes, and I will amend the letter." 29 Mrs Winterbottom amended her letter of the previous day, and sent it by facsimile to Mr Wilson. The cover page of the facsimile pointed clearly to the amendments which had been made: "Herewith an amended letter setting out the conditions of rescission and new contract. I have slightly amended 4a. to show the settlement date and I have amended 4c to add the interest to the purchase price. I have tried to explain [how] we get to the new purchase price. I have also added the deposit guarantee bond exchange into clause 5. I trust that it will sort itself out now." 30 The letter with those revisions read: "I refer to our telephone conversations this afternoon and to CCN's request that the existing contract for sale between IRT and CCN ("the first contract") be rescinded and a new contract for sale entered into between IRT and 10 Napier Street Strathfield P/L ("10 Napier Street") ("the second contract"). I am instructed that IRT agrees to the request on the following conditions: 1. The 2nd ancillary agreement to the first contract shall be signed by CCN and faxed to me before noon on 19th July, 2005. 2. The sum of $166,000.00 shall be paid into Levitt Robinson's trust account before noon on 19th July, 2005 (to be held in escrow pending exchange of the second contract) and Levitt Robinson shall confirm receipt of that sum to me by fax before noon on 19th July, 2005. 3. IRT and CCN shall enter into an agreement ("the rescission agreement") rescinding the first contract as soon as possible after 19th July, but exchange of the rescission agreement shall take place simultaneously with exchange of the second contract. 4. The second contract shall be entered into between IRT and 10 Napier Street as soon as possible after 19th July, 2005, which shall be in the form of the standard NSW contract for Sale of Land, 2000 edition and shall contain: a. the provisions set out in the first contract as amended by the first and second ancillary agreements to that contract, so far as they are still relevant subject to clauses 4.b. and c. below and with the settlement date of 7th September, 2005; b. a special condition that if IRT is required to pay Vendor duty on the second contract, 10 Napier Street will reimburse it that sum; c. the purchase price in the second contract shall be the sum of $3,465,170.00. This is the original purchase price of $3,320,000.00 plus the sum of $145,170.00, which represents the interest which would have been payable to IRT by CCN at settlement of the first contract, as amended, at the rate of 9.5% on the sum of $3,154,000.00 calculated from 1st April, 2005 up to and including 7th September, 2005, the new date for settlement under the first contract as amended (ie 160 days), but in fact calculated at the rate of 10.5% so as to include the equivalent of GST payable on that interest when added to the purchase price in the second contract. 5. At the time of exchange of the second contract, the sum of $166,000.00 held in Levitt Robinson's trust account shall be released to IRT and also at exchange 10 Napier Street will pay to IRT a sum representing interest on the $166,000.00 at the rate of 9.5% calculated from 1st April, 2005 up to and including the date of exchange. On release of the sum of $166,000.00 and payment of the interest referred to in this clause to IRT, IRT will hand to CCN the deposit guarantee bonds which it presently holds. 6. CCN shall pay the reasonable legal costs incurred by IRT in connection with the preparation and exchange of the rescission agreement and the second contract. Please confirm as soon as possible that these are acceptable to CCN and 10 Napier Street." 31 I have shown in italics the additions to the previous day's letter. As well, some words were omitted from the end of Clause 4c of the previous day's letter. 32 Virtually immediately, at 11.46am, Mr Wilson faxed to Mr Winkler that letter, and the version of the Second Ancillary Agreement which he had received on 13 July 2005. 33 At 2.27pm on 19 July 2005 Mr Wilson forwarded another copy of the Second Ancillary Agreement to Mr Winkler. His covering letter on that facsimile requested Mr Winkler to "also fax us evidence of the electronic transfer in respect of the $166,000.00 when that task is completed.". 34 At 3.00pm on 19 July 2005 Mrs Winterbottom was at the settlement room at Hunter Street which had been nominated in the Notice to Complete. At 3.30pm Mr Wilson telephoned her there, and the following conversation ensued: WILSON: "CCN has signed the Second Ancillary Agreement and is faxing it to me. I will walk down with it, but I will let you know when I have received it. 10 Napier Street wants the $166,000.00 in its solicitor's trust account. Its solicitor is Mr Ishak at P & A Solicitors. Their telephone number is 9763 5550." WINTERBOTTOM: "I am not happy with that arrangement. I will ring Mr Ishak." 35 Mrs Winterbottom then telephoned Mr Ishak, and the following conversation ensued: WINTERBOTTOM: "My name is Elizabeth Winterbottom and I act for Illawarra Retirement Trust. I understand that you act for 10 Napier Street Strathfield Pty Limited and that it wishes the $166,000.00 which it is paying to go into your trust account." ISHAK: "But we have no trust account." WINTERBOTTOM: "Neither do I. I feel that the money should be paid into the agent's trust account." ISHAK: "I agree." 36 At 4.50pm on 19 July 2005 Mr Wilson telephoned her, and the following conversation ensued: WILSON: "I have the fax of the Second Ancillary Agreement signed by CCN. I am on my way to the settlement room." WINTERBOTTOM: "I'll be here." 37 At about 5.00pm on 19 July 2005 Mr Wilson arrived at the settlement room. He had with him faxed copies of Mrs Winterbottom letter of 19 July 2005, and of the Second Ancillary Agreement. The version of the Second Ancillary Agreement which he had contained a handwritten amendment which had been made to Clause 3(b), so that, immediately after the figure "$166,000.00" appeared the words "in accordance with paragraph 5 of the letter of Elizabeth Winterbottom dated 19 July 2005." Mr Winkler had also amended the documentation in several places. Alongside various of the references to the purchaser he had inserted wording to make clear that the purchaser was acting as trustee for something called the CCN Trust. He had amended Clause 6 of Mrs Winterbottom's letter so that it was 10 Napier Street which had the obligation to pay the reasonable legal costs of IRT, not CCN. Mr Winkler had initialled each of the alterations so made, had signed each page of the draft agreement of 13 July 2005 and Mrs Winterbottom's letter of 19 July 2005 at its foot, and immediately above his signature at the final page of Mrs Winterbottom letter of 19 July 2005 he had written "above is acceptable". Mr Wilson showed the amendments which had been made in this fashion to Mrs Winterbottom, and she hand copied the amendment to paragraph 3(b) of the Second Ancillary Agreement onto a version which had been signed by the vendor. The solicitors then handed each other the copy of the Second Ancillary Agreement which had been executed by their respective client. A conversation then ensued as follows: WINTERBOTTOM: "Has the money been paid?" WILSON: "No, as far as I am aware." WINTERBOTTOM: "I have instructions to exchange the Second Ancillary Agreement upon condition that the money is paid into the agent's trust account before noon tomorrow. I must stress that it is very urgent that the money is paid by that time. It is an integral part of the agreement that the money be paid in conjunction with the Second Ancillary Agreement." WILSON: "I will talk to my client." 38 Mr Wilson's account of the conversation differs from the version of Mrs Winterbottom's, which I have accepted, in that his recollection is that, instead of the long passage of speech which I have set out above from Mrs Winterbottom, she said: "Look this deposit simply must be paid. It is fundamental to my client. If it is not paid, my client will terminate the contract. Given the lateness of the hour, it simply must be paid into the agent's trust account before noon tomorrow."

In other words, Mr Wilson's version of the story does not have Mrs Winterbottom saying that the exchange itself was conditional upon the money being paid into the agent's trust account the following day. 39 While Mrs Winterbottom did not have a specific file note of that conversation, at 8.15pm on 19 July 2005 she wrote to Mr Wilson, saying: "I refer to my attempted settlement of this matter this afternoon in conformance with the Notice to Complete, as the deadline for a signed copy of the second ancillary agreement to IRT's contract for sale to CCN and the payment of the sum of $166,000.00 had passed. I note the eventual production by you of a faxed signed copy (4 ¼ hours late), but no payment of $166,000.00. I confirm that the second ancillary agreements were "exchanged" on condition that the $166,000.00 was paid this afternoon or tomorrow a.m. (ie before noon) to the agent L.J. Hooker Hotel & Tourism, Level 7, 58 Pitt Street, Sydney 2000 (ref. Graeme Hennessy, tel. 02 9252 5300), to be held in its trust account, pending exchange of a contract for sale to 10 Napier Street Strathfield P/L. I must stress, however, that it has always been an integral part of IRT's agreement to a further extension of time for settlement after 30th June, 2005, that the $166,000.00 be paid in conjunction with the signing of a further ancillary agreement. Leeway was given this afternoon in this connection on account of the confusion, albeit that the problem was not raised until very late this afternoon, as to where the money should be paid. This problem was resolved before the second ancillary agreements were "exchanged". Accordingly, this letter is to inform your client, and confirm once again, that payment of the $166,000.00 is an essential term of the agreement between it and IRT. If payment is not made to the agent (see above) before noon tomorrow, 20th July, 2005, the non-payment will be regarded as a breach of an essential term of the agreement between the parties, giving rise to an immediate right for IRT to terminate the contract. It should be added that, throughout this transaction your client has been exceedingly dilatory in the performance of any of its obligations under the contract for sale - even those requested by it - and this latest instance is particularly deprecated. Further delays will not be acceptable."

That letter fills the function of a contemporaneous diary note by Mrs Winterbottom, which confirms her version of the story. 40 Mr Wilson made a file note of the events at the settlement room. It is dated 19 July 2005. Expanding some abbreviations which he used, it reads: "Attendance on Mrs Winterbottom to exchange Extension Deed. Gave Elizabeth fax copy of Deed signed by Winkler with my amendment. Discussed amendment. Said deal was that purchaser had indicated I was instructed, that money would be paid as deposit on exchange of contract. Pointed to relevant clause in Elizabeth's letter. Said that [was] how money was to be paid. She asked if we had received money. Said would follow up with client. She amended her copy of document and we exchanged. She received fax copy and I received her original. She then said that she wanted confirmation that deposit had been paid to agent's account and wanted money paid by 12.00pm next day. It was of fundamental importance to her client and otherwise her client would terminate the deed. 41 This note goes, it seems to me, to when it was that, on Mr Wilson's instructions, the amount of money which was paid would take on the character of a deposit. The substance of the arrangement arrived at, it seems to me, was that both parties well understood that Mrs Winterbottom was insistent upon $166,000 being paid to the agent's trust account by noon on 20 July 2005, but that amount, while it was an essential indication of good faith that it was the intention of the parties to exchange the new contract, would only become a deposit under the contract once exchange of that new contract occurred. That way of viewing it is, it seems to me, consistent with the fact that it was only upon exchange of the new contract that the vendor would return the deposit bonds it then held. Mrs Winterbottom and Mr Wilson did not explicitly address the question of for whom the $166,000 would be held on trust, in the agent's trust account, and the evidence seems to show that they had different subjective understandings on that topic - Mrs Winterbottom believing that the money would be held on trust for the vendor, and Mr Wilson subjectively believing that the money would be held on trust for the party which had paid it, prior to exchange. Those differing subjective beliefs do not enter into deciding what the true contractual arrangement was between the parties - the true contractual arrangement between the parties depend upon what they said and did, to the knowledge of each other, not upon their private thoughts. 42 On 20 July 2005 Mr Wilson wrote back to Mrs Winterbottom, saying: "I refer to your letter of 19 July 2005. We are now instructed that the sum of $166,000 was deposited into our trust account at approximately 4.45pm by Ten Napier Street Strathfield Pty Limited, to be held in accordance with its instructions. We have not received confirmation of receipt of these monies from our bank at this time, but will immediately advise you if such confirmation comes to hand." 43 The "your letter of 19 July 2005" to which this was a reply was Mrs Winterbottom's letter of 8.15pm on 19 July 2005. Significantly, Mr Wilson did not contradict the account which Mrs Winterbottom gave in that letter of the events at the settlement room, or her assertions about what arose from those events. Just as failure to answer a letter at all may amount to an admission if there are circumstances which render it more reasonably probable that a man who denied the assertions made against him in the letter would answer those assertions than that he would not (Thomas v Hollier (1984) 156 CLR 152 at 157 per Gibbs CJ) so failure by a solicitor to deny a version of events set out in a letter by the solicitor on the other side of a transaction can amount to an admission that those assertions are correct, if the circumstances are such that denial of an incorrect account would ordinarily be expected. Mrs Winterbottom's account, in her letter of 8.15pm on 19 July 2005, of the events of that afternoon is the sort of statement one would ordinarily expect the solicitor on the other side of the transaction to deny very promptly, and in writing, if it was indeed incorrect. 44 Even though Mr Wilson had been instructed that $166,000 had been deposited into his trust account prior to 5.00pm on 19 July 2005, those instructions were incorrect. The $166,000 was not deposited into Levitt Robinson's trust account, nor into LJ Hooker's trust account, at any time. It took a while - as I shall recount - for relevant people to realise that those instructions were incorrect. 45 Mr Maurice Hennessy (known as Graeme) was the real estate agent at LJ Hooker who had been involved in the auction which resulted in the contract of sale between the plaintiff and the first defendant. He was also the real estate agent who had put the prospective new purchasers of the land in contact with the vendor. 46 At about 9.20am on 20 July 2005 Mr Hennessy telephoned Mrs Winterbottom, and the following conversation ensued: HENNESSY: "Mr Winkler has just rang me and said that he has paid but that he understood it needs to be paid into LJ Hooker's trust account. Mr Winkler asked me to fax him details of LJ Hooker's trust account so that he can pay the money into Hooker's trust account. I will do but I think Mr Winkler is lying about the cash being in Levitt Robinson's trust account yesterday." WINTERBOTTOM: "Keep me posted." 47 Shortly prior to 10.15am Mrs Winterbottom telephoned Mr Hennessy, and said: WINTERBOTTOM: "Franklin Winkler has said he will withdraw the money from Levitt Robertson's trust account and place it in the trust account of LJ Hooker Hotel & Tourism. Would you please advise Mr Winkler of the details of your trust account. Can you please also advise Mr Winkler that unless the funds are received by midday a notice of termination of the contract will be invoked." HENNESSY: "I'll get my secretary to attend to it straight away."

Mr Hennessy then prepared a facsimile. 48 That facsimile was sent from the office of LJ Hooker to Mr Winkler at 10.15am on 20 July 2005. 49 The fax set out details of the full name of the corporation which conducted the relevant LJ Hooker agency, and details of its bank account. The fax continued: "These are our trust account details to which the agreed sum should be transferred by no later than midday today 20th July 2005. Should the funds not be received by midday, a Notice of Termination of the contract will be invoked." 50 Between 10.30am and 11.30am on 20 July 2005 Mr Winkler telephoned Mr Hennessy, and the following conversation ensued: WINKLER: "I am sorry I haven't returned your calls. I will be placing the deposit in your trust account as directed before 12 o'clock today." HENNESSY: "Thanks very much, we'll wait and see." 51 At 12.15pm on 20 July 2005 Mrs Winterbottom telephoned Mr Hennessy. He was at the time away from his office. She enquired whether the money had been paid. Mr Hennessy told her that he would go to an office where he could get access to a computer, where he could check whether any money had been paid into the trust account, and would let her know. He called into one of the LJ Hooker franchisee offices, discovered from the computer that no payment of $166,000 had been paid into the trust account on that day, and telephoned his secretary and asked her to pass on that information to Mrs Winterbottom. The secretary did so at 12.30pm. 52 It was at 12.41pm that Mrs Winterbottom received the letter from Mr Wilson, which is set out at para [42] above. 53 At 12.55pm Mr Wilson telephoned Mrs Winterbottom, and the following conversation ensued: WILSON: "I am confirming the information in my fax, but I haven't got information from our bank. We will keep trying and let you known as soon as possible." WINTERBOTTOM: "I look forward to hearing from you." 54 At 2.35pm on 20 July 2005 Mrs Winterbottom telephoned Mr Wilson, and the following conversation ensued: WINTERBOTTOM: "When, if, you are able to confirm receipt of $166,000.00. Please would you confirm by fax - (a) that you have it; and (b) that you will hold it in escrow on behalf of IRT pending exchange of the new Contract for Sale with 10 Napier Street." WILSON: "I cannot give you the trust account number but the account is with St George Bank and the BSB number is 112879." 55 On 21 July 2005 at 12.30pm Mrs Winterbottom endeavoured to telephone Mr Wilson, but was informed by the receptionist at Levitt Robinson the Mr Wilson was at lunch. Mr Wilson phoned back at 2.55pm on 21 July 2005, and the conversation was: WILSON: "Nothing has been paid into trust account, but I have received a copy of a fax sent by 10 Napier Street to the agent. I will fax you a copy." WINTERBOTTOM: "I will wait to receive it." 56 At 3.02pm on 21 July 2005 Mrs Winterbottom received the promised copy of the fax sent by 10 Napier Street to the agent. Though that fax from the agent is dated 21 July 2005, it bears a fax transmission header showing it as having been sent by Mr Winkler on 20 July 2005 at 4.40pm. Other fax transmission headers, and handwritten notations on the letter suggest it has a date of origin of 21 July 2005. It seems to me more likely that Mr Winkler's fax header did not imprint the correct date and time. 57 The letter in question was not signed. A handwritten notation on it referred to it as "draft letter to Mr Winkler faxed at 1.00pm 21/07/05." It referred to 10 Napier Street "having made a tentative proposal for the purchase" of the property, that it agreed to deposit $166,000 into LJ Hooker's trust account as a holding deposit, and continued: "… · New contract for sale to be created by the vendor's solicitors with our details as purchasers, setting out the terms of the sale. This contract to be forwarded to our Conveyancers office to review by no later than Wednesday 27th July 2005. · Under no circumstances is the deposit of $166,000.00 to be released to any authority, trust or the vendors directly, but it is to remain in your trust account pending agreement between the parties. · In the event that the parties do not reach an agreement in this matter, then you will be directed to return the said deposit paid by us within two business days. Please confirm your agreement and understanding of the terms of this letter and advise us accordingly so that we can prepare the deposit." 58 It was at 4.30pm on 21 July 2005 that Mrs Winterbottom sent the Notice of Termination of the contract by facsimile to Mr Wilson. It said: "I have been instructed to advise that the Vendor has elected to terminate contract dated 8th June, 2004, as amended, for the sale of the abovementioned property because of the Purchaser's breach of an essential term of the agreement between the parties, namely, failure to pay the sum of $166,000.00 as agreed, or at all, within the time specified in my letter to you of 19th July, 2005 - ie before noon on 20th July, 2005." 59 On 22 July 2005 the Vendor exchanged contracts with the new purchasers, to sell the land to those new purchasers for the same total purchase price as had been agreed between the plaintiff and the first defendant. The Plaintiff's Position 60 The plaintiff contends that the handwritten amendment which was made to the Second Ancillary Agreement had the effect of incorporating into it only paragraph 5 of the letter of 19 July 2005. The plaintiff points to the fact that Clause 3 of the Second Ancillary Agreement (para [15] above) is an agreement to withdraw the Notice to Complete, not to extend it. Further, when the condition of agreeing to withdraw the Notice to Complete was that certain events would happen on or before expiry of the Notice to Complete, time was not said to be of the essence for the performance of those conditions. Further, the effect of incorporation of Clause 5 of the letter of 19 July into Clause 3b of the Second Ancillary Agreement was to require the sum of $166,000 to be paid on exchange of the new contract. Thus, the plaintiff contends, the effect of the Second Ancillary Agreement, as varied by the incorporation of paragraph 5 of the letter of 19 July 2005, was to withdraw the Notice to Complete, and extend the time for settlement of the contract to 7 September 2005, on condition that the plaintiff paid $166,000 to the first defendant at the time when the first defendant entered into a new contract to sell the subject property to 10 Napier Street Strathfield Pty Ltd. There was no condition requiring the plaintiff to pay $166,000 to the first defendant's agent by noon on 20 July 2005. Indeed, it was only after there had been an exchange of the counterparts of the document that Mrs Winterbottom said anything at all to Mr Wilson about money being paid into the agent's trust account. Prior to exchange Mrs Winterbottom had agreed in principle with Mr Ishak that the money should be paid into the agent's trust account, but that agreement was not one that the purchaser was party to. 61 Thus, the plaintiff contends, it was not in breach of the Second Ancillary Agreement when it failed to make any payment to the agent by noon on 20 July 2005, and the first defendant was not entitled to terminate the contract as it purported to do on 21 July 2005. 62 An alternative submission of the plaintiff is that even if the Second Ancillary Agreement contained a term requiring payment of $166,000 by noon on 20 July 2005, the contract did not provide that time was essential in relation to that payment. Thus, it says, the failure to make the payment may have entitled the first defendant to damages, but did not entitle the first defendant to terminate the contract. 63 For either of these reasons, the plaintiff contends that the contract has not been effectively terminated, and hence that the plaintiff is entitled to have it specifically performed, or alternatively to recover damages for its breach. 64 I do not accept that the effect of the handwritten words in Clause 3(b) of the Second Ancillary Agreement is to incorporate by reference only Clause 5 of the letter of 19 July 2005. Clause 5 of the letter of 19 July 2005 contains the expression "the sum of $166,000 held in Levit Robinson's trust account", and meaning should be given to those words. The meaning is ascertained from Clause 2 of the letter of 19 July 2005. Indeed, given that both the documents which Mr Winkler had signed were shown to Mrs Winterbottom immediately before the exchange, the whole of both those documents needs to be taken into account in deciding the contractual significance of the exchange. 65 Even if it were appropriate to regard any contractual relations on the terms of the Second Ancillary Agreement as arising at the moment of exchange of the counterparts, there has been no operative agreement entered for the vendor to withdraw the Notice to Complete. That is because any agreement to withdraw the Notice to Complete had two preconditions. Those preconditions were ones which needed to be met on or before expiry of the Notice to Complete. While the Notice to Complete had nominated 3:00pm on 19 July 2005 as the time to complete, and the counterparts were not exchanged until around 5:00pm on 19 July 2005, the better view is that by their conduct the parties treated the Notice to Complete as not having expired. Thus, at the time of exchange of the counterparts, the precondition that the purchaser sign the Second Ancillary Agreement had been performed. 66 On the assumption on which I am operating, the second precondition required there to be a sum of $166,000 which had been paid into Levitt Robinson's trust account. That precondition was not satisfied at the time of exchange, and never came to be satisfied prior to the termination notice being served. Thus, the agreement to withdraw the Notice to Complete never came into operation. 67 In my view, however, treating any contractual relations as springing into being at the moment of exchange is, in this instance, an unduly mechanistic approach to contract formation. It is clear that both Mrs Winterbottom and Mr Wilson were in regular communication with their respective clients. Mr Wilson is not shown to have had instructions, at the time of the meeting, to agree to any proposal about paying the money into LJ Hooker's account by noon the next day, but it is apparent, from Mr Winkler's communications with Mr Hennessy on 20 July 2005, that a requirement that the money be paid to the agent by noon that day was communicated to Mr Winker and that he acted as though the purchaser was bound by that requirement. In my view, when, at the meeting at which exchange occurs, a solicitor says that the exchange is being effected only upon a certain condition, then the exchange does not become effective to bring a contract into existence until that condition has been satisfied. Thus, in my view, the preferable analysis of the situation is that, notwithstanding that there was a physical exchange of documents on 19 July 2005, that physical exchange did not result in a contract coming into existence then and there, and would not result in a contract coming into existence until the condition on which the exchange was made was fulfilled. In the present case, that condition never was fulfilled. In my view, the parties, by their conduct, have treated the Notice to Complete as still on foot. Further, it was still on foot at the time the Notice of Termination was sent. 68 Mr Harris SC, for the plaintiff, points out that the Notice of Termination does not say that the reason for the termination is that completion has not occurred within the time limited by the Notice to Complete, either in its original form or in any extended form. Rather, it says that the reason is: "breach of an essential term of the agreement between the parties, namely failure to pay the sum of $166,000.00 as agreed, or at all, within the time specified in my letter to you of 19 July 2005 - ie, before noon on 20 July 2005." 69 In writing that letter, it seems that Mrs Winterbottom was working on the approach to contract formation which I have described as being unduly mechanistic. However, if a party terminates a contract for one reason, which is not a good reason, but has available another reason for termination, which is a good reason, it is possible to justify the termination by reference to the good reason - Shepherd v Felt & Textiles of Australia Ltd (1931) 45 CLR 359. 70 Objection was taken to evidence being given of the various conversations and letters passing between Mrs Winterbottom and Mr Wilson in the time before the exchange of the counterparts of the Second Ancillary Agreement on 19 July 2005. That objection was based on the parol evidence rule. Mr Harris contended that, in accordance with that rule, it was not possible to vary or supplement the written agreement by reference to material not appearing in it. However, as McHugh JA said in State Rail Authority of NSW v Heath Outdoor Pty Ltd (1986) 7 NSWLR 170 at 191, and Allsop J (with whom Drummond and Mansfield JJ agreed) repeated in Branir Pty Ltd & Others v Owston Nominees (No 2) Pty Ltd and Another (2001) 117 FCR 424 at 506, the parol evidence rule has no operation until it is first determined that there is an agreement, and that the terms of the agreement are wholly contained in writing. I admitted the evidence on the basis that the use, if any, that could be made of it could be the subject of argument. In my view, the evidence should be treated as admitted without restriction in the case. I have taken that evidence into account in holding that the exchange of counterparts of the Second Ancillary Agreement did not amount to the entering of an agreement which was then and there, and without more, binding. 71 Mr Harris drew my attention to Equuscorp Pty Ltd & Another v Glengallan Investments Pty Ltd (2004) 218 CLR 471. In that case, parties who had executed a written loan agreement wished to contend that the document did not contain the real agreement, and that, rather, the real agreement had been entered orally. Gleeson CJ, McHugh, Kirby, Hayne and Callinan JJ at 483 rejected that argument, saying: "The respondents each having executed a loan agreement, each is bound by it. Having executed the document, and not having been induced to do so by fraud, mistake or misrepresentation, the respondents cannot now be heard to say that they are not bound by the agreement recorded in it. The parol evidence rule, the limited operation of the defence of non est factum , and the development of the equitable remedy of rectification, all proceed from the premise that a party executing a written agreement is bound by it. Yet fundamental to the respondent's case that the operative agreements between the parties were wholly orally, and reached earlier than the execution of the written agreements, was the proposition that the written agreements subsequently executed not only may be ignored, they must be. That is not so. Having executed the agreement, each respondent is bound by it unless able to rely on a defence of non est factum , or able to have it rectified."

In my view, that passage does not preclude the view of the facts of this case, which seems to me to be the correct one. 72 As is made clear by Tropical Traders Ltd v Goonan (1964) 111 CLR 41 at 53-54 per Kitto J, the granting of an extension of time to comply with an obligation concerning which time is of the essence does not, without more, take away the essentiality of the time for performance of the event. See also, to similar effect, Menzies J at 60-61, and Sheller JA in Carpenter v McGrath (1996) 40 NSWLR 39 at 57-58. 73 Even if the exchange had been effective to create contractual relations, the conditions which were contained in Clause 3 of the Second Ancillary Agreement were conditions precedent to the coming into operation of the agreement to withdraw the Notice to Complete and extend the time for settlement. Those conditions were ones which were required to be fulfilled before the expiry of the Notice to Complete - a time which was itself essential, and remained essential even though it had been extended. There was no contractual obligation on the purchaser to fulfil, or cause to be fulfilled, either of the conditions set out in Clause 3. If a condition precedent to an obligation is not a promissory condition, but is one which stipulates that it is to be performed by a particular time, failure to perform the condition by that time can entitle a party to terminate the contract, without the need for service of any notice making time essential: Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 at 546 per Gibbs CJ, 569-70 per Brennan J (with whom Stephen J agreed). Thus, even if a contract had been entered into in terms of the Second Ancillary Agreement, there would be no need for the vendor to serve a Notice to Complete before rescinding that agreement on the ground that a condition precedent had not happened within the time stipulated for it to happen. 74 I have referred earlier to the inherent probabilities favouring Mrs Winterbottom's account of such facts as are disputed between her and Mr Wilson. The situation that the vendor was in was that the contract had been long extended, it had alternative purchasers waiting to exchange, and was about to acquire an accrued right to terminate the contract with the plaintiff. It seems inherently unlikely that it would agree to give up its right to terminate the contract with the plaintiff, on the basis that a new contract might be entered with 10 Napier Street at some time in the future, without at the least the practical show of good faith involved in making a payment, very soon, of a significant sum of money to a trust account. The fact that Mr Winkler pretended that money had been paid into Levitt Robinson's trust account on 19 July 2005, and told Mr Hennessy of his intention to transfer that money to LJ Hooker's trust account on 20 July 2005, suggests that the purchaser was well aware of this situation as well. 75 It is for these reasons that I have held that the termination of the contract was effectively carried out. Availability of Specific Performance 76 Even if I had concluded that the termination had not been effectively carried out, I would not have made an order for specific performance of the contract. There was simply no evidence that the plaintiff was ready willing and able to perform the contract. Establishing, either by an admission on the pleadings, or by evidence, that it is ready willing and able to perform the contract is an essential prerequisite to a plaintiff obtaining an order for specific performance: Consolidated Credit Network Pty Ltd v Illawarra Retirement Trust (No 1) [2005] NSWSC 1004. The Purchaser's Cross-Claim 77 Clause 9 of the Contract for Sale provides that, where a vendor terminates the contract, the vendor can: "9.1 keep or recover the deposit (to a maximum of 10% of the price); 9.2 hold any other money paid by the purchaser under this contract as security for anything recoverable under this clause - 9.2.1 for 12 months after the termination ; or 9.2.2 if the vendor commences proceedings under this clause within 12 months, until those proceedings are concluded; and 9.3 sue the purchaser either - 9.3.1 where the vendor has resold the property under a contract made within 12 months after the termination , to recover - · the deficiency on resale (with credit for any of the deposit kept or recovered and after allowance for any capital gains tax or goods and services tax payable on anything recovered under this clause); and · the reasonable costs and expenses arising out of the purchaser's non-compliance with this contract or the notice and of resale and any attempted resale; or 9.3.2 to recover damages for breach of contract." 78 The first defendant's cross-claim seeks damages under Clause 9.3.1 of the contract. The vendor has established that it has suffered loss in consequence of the purchaser's non-compliance with the contract, in the form of paying rates on the property for longer than it would have paid them if the contract had been performed, and paying legal expenses in connection with the termination of the contract, and the entering into of the new contracts with the new purchasers of the land. It will not be known, however, whether the payment of those amounts results in the vendor sustaining a net loss in consequence of the purchaser's breach, until it is known whether the contracts entered with the new purchasers will settle in accordance with their terms. If the new contracts settle in accordance with their terms, the likelihood is that, given that the new contracts are for the same purchase price as the contract with the plaintiff, the vendor will not, taking into account the amount of the deposit bonds which it is entitled to receive in consequence of the termination being held good, and its right to recover the other 5% of the deposit as damages for the purchaser's breach, suffer any net loss. It is for that reason that I have stood the proceedings over, to a date by which it should be known whether the new contracts have settled in accordance with their terms, for the purpose of deciding whether anything further needs to be done about the quantification of the vendor's claim for damages. 79 It is for these reasons that I made the orders actually made at the conclusion of the hearing, namely: "1. A declaration that on 21 July 2005 the first cross-claimant validly terminated the Contract for the Sale of Land 2000 edition dated 8 June 2004 between first cross-claimant as vendor and the first cross-defendant as purchaser in respect of the parcels of land described in Folio 1/789898 of the Register maintained under the Real Property Act 1900 (NSW) ( Register ) and known as 147 Princes Highway, Narooma and Folio A/414808 of the Register and known as 1 Marine Drive, Narooma ( CCN Contract ) as amended by Agreement dated 31 March 2005 between the first cross-claimant as vendor and the first cross-defendant as purchaser ( First Ancillary Contract ). 2. I order the first cross-defendant to withdraw caveat dealing AB64587G by 11.00am Tuesday, 4 October 2005. 3. I order the first cross-defendant to pay to the cross-claimant the sum of $166,000 being the balance of the deposit under the CCN Contract as amended by the first ancillary contract. 4. An order that the first cross-defendant pay to the cross-claimant the amount recoverable under clause 9.3.1 of the CCN Contract as amended by the First Ancillary Agreement and reserve for further consideration the question of whether it should be referred to an Associate Judge to assess the amount of damages. 5. I order the first cross-defendant to pay the cross-claimant interest on the sum of $166,000 referred to in order 3, at the rates stipulated pursuant to section 94(1) Supreme Court Act 1970 and section 100 Uniform Civil Procedure Act 2005, from 21 July 2005 to the date of entering of judgment. 6. I reserve for further consideration the question of whether interest pursuant to section 94(1) Supreme Court Act 1970 and section 100 Uniform Civil Procedure Act 2005 should run on any sum payable for damages under clause 9.3.1 of the Contract. 7. I order the Amended Summons be dismissed. 8. I order that orders 1-7 be entered forthwith. 9. I order the plaintiff to pay the costs of the first defendant of the proceedings to date. 10. I order that order 9 not be entered without a further specific order authorising it. 11. I reserve to the plaintiff leave to argue that order 9 ought be revoked or amended in light of the reasons which are given." **********

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