Supreme Court of WA|2008-11-14|Before: Mr P, Kechnie J

DEVELOPMENTS (WA) PTY LTD -v- WHITTLE-HERBERT [2008] WASC 261 (14 November 2008)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : DEVELOPMENTS (WA) PTY LTD -v- WHITTLE-HERBERT [2008] WASC 261

BETWEEN : DEVELOPMENTS (WA) PTY LTD (ACN 008 952 252)

Real property - Contract for purchase of land - Standard conditions - Subject to finance approval - Approval not obtained in time - Immediate right to termination - Whether exercised - Affirmation of contract - Waiver - Estoppel - Words and phrases 'immediate'

1 This is another case about the Finance Approval conditions in a contract for the sale of land. On 23 July 2004, Mr Whittle-Herbert thought he was about to buy an investment unit, no 4, at a development at 41 George Street, Midland. Four years later the development has been completed. He is yet to get possession. The developer/vendor brings action to declare that any contract between it and Mr Whittle-Herbert is at an end. Mr Whittle-Herbert brings action against the vendor for specific performance seeking the transfer of Unit 4 into his name. Each party raises a variety of legal issues as to why they should succeed, but at the heart of this action is the construction of the Finance Approval clause of the standard Contract For Sale of Land by Offer and Acceptance.

2 In summary, the vendor asserts that conditions for Finance Approval were not met within due time and it belatedly, but effectually, brought the contract to an end. Mr Whittle-Herbert denies that he failed to comply with Finance Approval and asserts further that in any event the vendor is estopped from acting under the contract or alternatively that the vendor waived its rights to terminate the contract.

3 There are subsidiary questions relating to damages if Mr Whittle-Herbert should succeed, although the parties are agreed that, should an assessment of damages be necessary, the value of the unit for that purpose is $350,000. Mr Whittle-Herbert's offer was to purchase the unit for $189,000.

4 By agreement between the parties and because of the many common issues, Mr Whittle-Herbert's case was heard at the same time as the case of the purchaser of Unit 3, Mr Leslie Matthew Price (see Developments (WA) Pty Ltd v Price [2008] WASC 260). There are some differences between the two cases, the most marked of which is that Mr Price received what he asserts to be Finance Approval within the time specified in the agreement (albeit just within), whereas Mr Whittle-Herbert's purported Finance Approval was beyond the '30 days' limit specified in the contract. I shall deal with the common legal principles in this judgment and incorporate them by reference into Mr Price's case.

5 Both Mr Whittle-Herbert and Mr Price are seeking equitable remedies. There is an issue as to whether they are and, if so, at what time they were, ready, willing and able to settle, but the vendor accepts that Mr Whittle-Herbert and Mr Price have engaged in no conduct which would disentitle them to equitable relief.

6 The evidence at trial was principally based on a book of agreed documents. Mr Whittle-Herbert gave evidence in accordance with a witness statement and was cross-examined. By consent, a witness statement of a senior assessment officer with the ANZ Bank, Mr Gino Domenico Riva, was tendered. Mr Colin Paine, a licensed real estate agent, who was at the material time the agent for the vendor, also gave evidence. His evidence was common to the cases of Mr Whittle-Herbert and Mr Price. There was an objection on the grounds of relevance to pars 48 to 60 of his witness statement. The objection was made after the vendor had abandoned one of the legal bases for its claim for a declaration. I indicated that I would rule on the objection in the course of the judgment and give reasons for my ruling. The vendor's counsel was permitted to cross-examine Mr Paine in relation to the content of the paragraphs under objection.

7 I formed a positive impression of Mr Whittle-Herbert and nothing in the course of his cross-examination persuades me to reject his account of material matters. That said, the case really does largely revolve around the construction of documents, which are not themselves in dispute, and around the timing of various events, which are also not materially disputed.

8 There was an attack upon the credibility of Mr Paine on the basis of some animus between he and the persons who stand in the shadows of the vendor, Mr Peter Tilli and Mr Joseph Tilli. Mr Paine was questioned whether he had a financial interest in the outcome of the case, in that he would finally get commissions in respect of Units 3 and 4. He no longer works for the real estate agency that acted as broker, has no trailing commission agreement and, in any event, thought it would be unlikely that he would receive any money. I have no reason to doubt his evidence on this or indeed any other matter and accept it.

9 On 23 July 2004, Mr Whittle-Herbert entered into a standard form offer for a contract for sale of land which incorporated the Joint Form of General Conditions for the Sale of Land. Annexure 'A' to the contract recited that the land was known as 'Proposed Unit 4, 14 [sic] George Street Midland'. The title details were unavailable at that time. The purchase price was $189,000. The contract contained the standard Finance Approval clause set out below with the following matters added in:

Lender: Any lender of purchasers choice.

Latest Time: 4.00pm on the date within 30 days of acceptance.

Amount of Loan: $195,000.

10 The increase in the amount of loan over the value of the property was explained by Mr Whittle-Herbert as being Mr Paine's suggestion to cover stamp duty.

11 The offer was accepted on 27 July 2004 which meant that the last day for approval was 30 days from that date (26 August 2004).

12 Because the unit was being bought 'off the plan' an annexure to the contract provided for a number of matters including the fact that it was subject to formal contract.

13 On 9 August 2004, Mr Whittle-Herbert paid the vendor's real estate agent the sum of $1,000 as deposit.

14 The Finance Approval clause is part of the standard Contract for the Sale of Land by Offer and Acceptance:

1.1 This Contract is conditional upon Finance Approval being obtained before the Latest Time.

1.2 The Purchaser shall:

(a) make an application for Finance Approval to at least one Lender using, if required by the Lender, the Property as security;

(b) use best endeavours to obtain Finance Approval and if required in writing by the Vendor or the Vendor's Agent provide evidence in writing of the making of an application in good faith for Finance Approval, any loan offer made, and the reasons for the Purchaser not accepting any loan offer made;

(c) on receipt of the Finance Approval immediately notify in writing the Vendor or the Vendor's Agent whereupon the condition in paragraph 1.1 will then be satisfied.

(a) the Purchaser is notified by the Lender that the application for Finance Approval is rejected; or

(b) no Finance Approval is obtained then the Purchaser shall immediately notify the Vendor or the Vendor's Agent of such rejection or no receipt as the case may be, and provide evidence in writing of the rejection.

1.4 UNLESS the Purchaser has waived this condition and communicated such waiver in writing to the Vendor or the Vendor's Agent prior to the Latest Time, then if:

(a) the condition in paragraph 1.1 is not fully satisfied, and

(b) the Purchaser has complied with paragraphs 1.2(a), 1.2(b) and 1.3 THEN this Contract shall be deemed to have come to an end without the necessity of either party giving to the other notice to that effect. The deposit and all other monies (if any) paid pursuant to this Contract shall then be refunded to the Purchaser (less all bank and government charges) and there shall be no further claim under this Contract by either party in law or in equity against the other.

1.5 If the Purchaser fails to notify the Vendor or the Vendor's Agent in accordance with 1.2(c) or 1.3 the Purchaser shall be in default and the Vendor may without prejudice to any other remedies and rights available immediately terminate the Contract by notice in writing to the Purchaser.

1.6 This clause shall operate for the benefit of both the Vendor and the Purchaser except that the Purchaser by waiving the Purchaser's rights pursuant to this clause at any time before the Latest Time shall be deemed to have received Finance Approval.

DEFINITIONS

1.7 In this Contract the following shall apply:

'Finance Approval' means an offer to lend made by the Lender on reasonable terms and conditions or an approval of a finance application by the Lender to the Purchaser, by the Latest Time for a loan of an amount not less than the Amount of Loan shown below. An approval that is subject to the Lenders usual Terms and Conditions shall be deemed to be Finance Approval.

'Lender' means either the Lender nominated below (if any) or any other Lender acceptable to the Purchaser.

16 Counsel for the vendor did not press any argument that the contract automatically came to an end pursuant to cl 1.4(b).

17 A Finance Approval clause enables a purchaser some time to raise funds secure in the knowledge that the property will not be sold to another while the purchaser is raising funds. Once a purchaser notifies the vendor that there has been Finance Approval, a purchaser is locked into the contract with all the consequences that may bring in the event of default.

18 In the event of a failure to notify the vendor of Finance Approval or lack thereof, the vendor may 'immediately' terminate the contract by notice in writing to the purchaser. The only notification, which hardly qualifies as 'immediate', was sent by West End Settlements, the vendor's settlement agency, to Norfolk Settlements, the purchaser's settlement agency, on 22 February 2005 as follows:

Dear Sir/Madam,

We refer to the abovementioned transaction and advise that we have now been notified by the vendor that the contract for this transaction is now at an end. Please arrange for the stamp duty cancellation form to be forwarded to this office for vendor's completion.

Should you have any queries, please do not hesitate to contact the undersigned.

19 No refund of any moneys paid by Mr Whittle-Herbert by way of deposit was then or is now forthcoming.

20 Mr Whittle-Herbert's evidence (the gist of his somewhat patchy recollection) is that the amount of $195,000 stated to be the amount of loan on the offer was because Mr Paine advised him that on the purchase price of $189,000 the stamp duty for Unit 4 would be approximately $6,000.

21 This is not an unreasonable explanation and although I think little turns on it, I nevertheless accept Mr Whittle-Herbert's recollection of the gist of the conversation as sufficiently accurate for me to act upon it.

22 Following the acceptance of the offer to purchase Unit 4, Mr Whittle-Herbert made contact with a finance broker who recommended that he apply to the ANZ Bank for finance in the sum of $179,550, being 95% of the purchase price as this was the maximum 'loan value ratio'.

23 Although $179,550 was less than the balance of the purchase price, Mr Whittle-Herbert says it was not an issue as he knew he had then, and in the future would have, sufficient funds available to pay the difference. At the time, he had on deposit the sum of $100,000 at the National Australia Bank. The loan application was submitted to the ANZ Bank on or about 27 August 2004.

24 On about 30 August 2004, Mr Whittle-Herbert was told that his application had been approved and that proved to be the case. The application was approved subject to certain conditions which Mr Riva, the ANZ Bank senior assessment officer, deposed were the usual terms and conditions required by ANZ in relation to a conditional loan approval in the year 2004. He further stated there was nothing unusual in the ANZ requiring the five conditions referred to in the faxed form (exhibit 8) being dealt with prior to the loan being unconditionally approved and thereafter advanced. The five conditions are indeed the standard conditions one would expect. In a fax dated 31 August 2004, Mr Whittle-Herbert's mortgage brokers, Mortgage & Finance Professionals Pty Ltd, faxed through to Mr Paine, the vendor's agent who was employed by BW Backhouse & Associates, a copy of the ANZ fax it had received with comments:

Please find attached conditional approval for Ross Whittle-Herbert.

Mr Whittle-Herbert has been advised that he needs to provide us with the outstanding documentation as requested by the bank. (exhibit 9)

25 The next day, 1 September 2004, BW Backhouse & Associates sent a copy of the ANZ Bank fax to West End Settlements, then acting for the vendor, with a covering note:

Please find attached the finance approval for the purchase of Lot 4/41 George St Midland. (exhibit 10)

26 Far from an immediate termination of the contract by notice in writing, the next development was a letter from West End Settlements to the purchaser's conveyancing agency, Norfolk Conveyancing, on 14 September 2004 as follows:

With reference to the abovementioned property, we wish to advise that the Certificate of Title is approximately three months away from issuing.

We will keep you informed on the progress of this dealing. (exhibit 11)

As the purchase of Unit 4 was an off the plan purchase and it was going to take some time for Unit 4 to be constructed, I took steps to maintain my financial capacity to settle. I requested that my finance broker keep all my loan approvals current so that ANZ could finance the purchase of Unit 4 once the Contract was ready to settle.

On a periodic basis, my finance broker would submit new application forms to ANZ. ANZ would then issue renewed loan approvals to me.

28 In December, Mr Whittle-Herbert received another loan approval, dated 3 December 2004, from ANZ Bank in terms similar to the earlier one.

29 After the letter which purported to terminate the contract was received, dated 22 February 2005, I accept that Mr Whittle-Herbert took steps to keep the loan approval current. Mr Riva's evidence is that the ANZ was ready to advance a loan to Mr Whittle-Herbert to settle on the purchase of Unit 4/41 George Street, Midland. The duplicate certificate of title issued on 4 October 2005.

30 There was an objection to Mr Whittle-Herbert's evidence relating to the renting of the unit. At one point counsel was advancing a submission about contempt of court relating to the breach of an undertaking in related caveat proceedings. In the event, the contempt issue was not pressed. I uphold the objection to the evidence on the grounds of relevance.

31 Mr Whittle-Herbert was cross-examined as to whether, between 1 and 8 March 2005, he had any piece of paper from either his finance broker or from the bank in which they addressed their decision on the off the plan purchase. He agreed he did not and that he had no piece of paper indicating that he had Finance Approval in place. I have taken this evidence into account but, having regard to the evidence of Mr Riva, admitted without objection, and the evidence of Mr Whittle-Herbert, the probabilities are that Mr Whittle-Herbert has had Finance Approval since 30 August 2004: Widodo v Hamdan [2008] WASCA 113 [27], [28].

32 It will be recalled that Mr Paine, though called by Mr Whittle-Herbert, was at the material time working for the vendor's real estate agent. He gave evidence that through his employer he met Joseph Tilli and Peter Tilli who were officers of Primestyle Pty Ltd trading as Primestyle Homes, the developers of 41 George Street, Midland. Joseph Tilli was the general manager and financial controller of the plaintiff company. Because he was known by the Tillis to be a real estate agent specialising in off the plan sales, Mr Paine was asked to carry out the off the plan sales of the George Street development. On 4 August 2003, BW Backhouse & Associates was appointed to act as the listing agent.

33 Mr Paine explained how there was a two-stage process of contracts involved in a sale of off the plan developments. First, he prepared what he described as a 'preliminary contract' for execution by the buyer and the seller comprising:

(a) a contract for sale of land by offer and acceptance (incorporating by reference the 2000 joint form of general conditions),

(b) a document titled 'Annexure A' - which set out a number of special conditions, and

(c) a document titled 'Annexure B' - which attached the basic specifications and plans for the unit being sold, without measurements and details.

By clause 1(a) of Annexure A to the 'preliminary contracts', the 'preliminary contracts' were subject to the execution of a 'formal contract' within 180 days.

The 'formal contract' was the second part to the contract papers for the Cannington Development and the Midland Development.

From my involvement in this project, I am aware that the reason the contract papers were prepared in two parts, firstly with a 'preliminary contract' and secondly with a 'formal contact [sic] contract', was that at the time the 'preliminary contracts' were being entered into, only basic plans and specifications for the units in the developments were available. At the time that the Price and Whittle-Herbert contracts were signed, the final plans and specifications were still being drawn up, their 'formal contract' would incorporate the final plans and specifications for the unit in question.

34 Mr Paine was aware of the conditions of the Strata Titles Act 1985 (WA), including the requirement of a Form 28 Disclosure Statement which must have attached to it certain information.

35 This information had not been prepared by the time of the preliminary contracts as it was intended by the vendor that they would be prepared at the time of the 'formal contract'.

36 Mr Paine prepared the contract for Mr Whittle-Herbert and witnessed it. He was present when Mr Tilli, on behalf of the vendor, accepted the offer and signed it. There were objections to the relevance of Mr Paine's evidence globally and specifically. I overrule the global objection. Mr Paine's evidence is part of the narrative as to what occurred between the signing of the offer and the letter advising the contract was at an end. The evidence is relevant to the issue of affirmation, waiver and estoppel.

37 I uphold the specific objection to references to the Cannington Development, particularly pars 49 - 52, 55 - 58. Because the vendor has abandoned its case and argument on what I describe as the formal contract issue, pars 59 and 60 are now irrelevant.

38 I uphold objection to the reference to the Cannington Development in pars 64 and 65.

39 The reference to the Cannington Development is not relevant to the construction of the contract with Mr Whittle-Herbert or to any act which may indicate an affirmation of the contract or a waiver of the right to terminate.

40 From this account of the evidence, I make the following findings:

(i) The parties entered into a contract for the sale and purchase of unit 4, 41 George Street, Midland when it was accepted on behalf of the vendor on 27 July 2004.

(ii) $1,000 deposit paid by defendant on 9 August 2004.

(iii) The contract was conditional upon Finance Approval being obtained before 4.00 pm on 26 August 2004.

(iv) Finance approval was not obtained until 30 August 2004.

(v) Finance approval was notified by the purchaser to the vendor through its estate agent on 31 August 2004.

(vi) The vendor did not immediately terminate the contract by notice in writing to the purchaser.

(vii) The vendor did not and has not refunded the deposit of $1,000 which had been paid. The vendor has at all times retained the deposit.

(viii) The vendor through its agent, West End Settlements, on 14 September 2004, represented that the vendor-purchaser relationship was continuing.

(ix) On 22 February 2005, the vendor, indicated to the purchaser that the contract for the transaction 'is now at an end'.

(x) Mr Whittle-Herbert has at all times, from 31 August 2004, been in a position to finance the purchase of Unit 4. He has been ready, willing and able to do so.

(xi) Mr Whittle-Herbert has not behaved so as to disentitle equitable relief.

41 Finance approval clauses are no strangers to the court: Widodo v Hamdan [2008] WASCA 113; Neate v Parfit [2006] WASC 121.

Did the vendor acquire rights under cl 1.5 to immediately terminate the contract by notice in writing to the purchaser?
Did the vendor exercise that right?
Did the vendor by its conduct waive any right to terminate the contract?
Did the vendor affirm the continuation of the contract?
Is the vendor estopped from denying that the contract has been terminated?

43 It is not in issue that the 'subject to finance' clause is a condition precedent to the performance of the contract. It is not a condition precedent to the formation of the contract.

44 Finance Approval was not obtained and the vendor was not notified of Finance Approval before the Latest Time. Nor did Mr Whittle-Herbert waive his rights before the Latest Time. He did notify the vendor of receipt of Finance Approval but did so after the Latest Time. What then flows from this? After the Latest Time the right of the vendor to immediately terminate the contract under cl 1.5 crystallised. The word 'immediately' is an adverb which modifies the verb 'terminate'. The action of termination is modified by the adverb so that the power given is a power to immediately terminate, not a power to terminate at any time.

45 Clause 1.5 operates for the benefit of both vendor and purchaser (cl 1.6). Obviously the chief beneficiary is the vendor. Where the purchaser is otherwise in default under the general conditions, notice must be given to enable the purchaser an opportunity to remedy the default. Clause 1.5 gives the vendor an immediate right to terminate without notice. However, the clause also has benefit for a purchaser. The contract does not come to an end on the failure to obtain Finance Approval by the Latest Time. Often, vendors and purchasers will continue the contract. By the requirement for immediacy of termination, the purchaser is protected. If no immediate termination is forthcoming, the purchaser may well continue efforts to arrange Finance Approval and may otherwise disadvantage himself or herself entering into binding arrangements with a finance provider. Time is of the essence but in the case of cl 1.5, that simply allows the immediate trigger of termination. The outer limits of immediate termination need not be explored by me because, whatever they may be, termination six months later is not 'immediate termination'.

46 If the power is not exercised immediately what then occurs? The purchaser remains in default. After the Latest Time the purchaser cannot unilaterally comply with the condition precedent (although, of course, the vendor may waive the condition or otherwise affirm the contract).

47 Although the vendor may lose the right to terminate if not exercised immediately, the vendor is not left without remedy. The vendor may issue a default notice under cl 18 of the General Conditions. This accords with what was said by Lord Atkinson in New Zealand Shipping Co Ltd v Societe des Ateliers et Chantiers de France [1919] AC 1 at 9, followed in Suttor v Gundowda Pty Ltd [1950] HCA 35; (1950) 81 CLR 418:

If one party has by his default brought about the happening of the event, the other party alone has the option of avoiding the contract. If the event has happened without default on either side then either party may avoid the contract. But neither need do so, and, if one party having a right to avoid it does not clearly exercise that right the other party may enforce the contract against him. [441]

48 This quotation is completely apposite to the General Conditions if the word 'immediately' replaces 'clearly'.

49 In this case no notice was given by the vendor to the purchaser requiring the purchaser to remedy the default. The vendor has not repaid the deposit. The vendor lost the power to terminate when it did not exercise that power immediately. Applying Suttor v Gundowda the purchaser can enforce the contract against the vendor. In this sense the present facts can be distinguished from Donaldson v Bexton [2006] QCA 559; (2007) 1 Qd R 525, a case upon which counsel for the vendor placed great reliance. In Donaldson v Bexton the relevant term provided:

(A) This contract is subject to and conditional upon the Buyers entering into a binding and enforceable contract of sale on terms satisfactory to them for the sale of their property ... within thirty (30) days from the date of this contract herein, failing which this contract will be at an end.

50 After more than 30 days, the purchaser purported to waive the benefit of the contract but the vendor asserted that the contract was at an end because of the failure of the condition.

51 The Court of Appeal held that the clause was to be construed as rendering the contract voidable by either party. At [55] Keane JA said:

The respondents were not bound to elect to determine the contract immediately upon becoming entitled to do so.

52 This is an essential factual difference between the present case and Donaldson v Bexton.

53 Because the contract continues and the vendor has never given notice of default, the purchaser has a right to enforce the contract.

Conclusion on the construction of the contract

54 I conclude that the vendor had a right to immediately terminate the contract and the purchaser had a corresponding right to immediate notice in writing. As the vendor did not exercise its right in accordance with the contract, the right was lost. Mr Whittle-Herbert's action must succeed.

55 On the assumption, however, contrary to what I have just held, the right to termination was not lost, I will consider the alternative submissions put forward on behalf of Mr Whittle-Herbert.

56 Inaction in exercising a right to terminate does not necessarily amount to affirmation. Whether it does depends on its duration and the terminating party's conduct during the interval. The relevant facts I have found are that five days after the Latest Time, the vendor was advised that Finance Approval had been obtained.

57 I interrupt here to deal with an argument put forward by the vendor in relation to what I will describe as the quality of the Finance Approval. In my opinion the argument is misconceived. Once the purchaser notifies the vendor of Finance Approval (in this case out of time), then, absent action to terminate the contract, the contract becomes unconditional and imposes an obligation on the purchaser to complete on the due date whether or not finance had actually been obtained: Widodo v Hamdan per EM Heenan AJA [48] - [50]. The sufficiency of the Finance Approval is not a matter of contractual concern to the vendor.

58 The next development was the letter from the vendor's settlement agent to the purchaser's settlement agent on 14 September 2004.

59 From the purchaser's viewpoint nothing further happened until a bolt out of the blue in February 2005 announcing that the contract was at an end. However, from the standpoint of the vendor, its representatives, the Messrs Tilli, never specifically refused to provide Mr Paine with the final plans and specifications and the necessary Strata Titles Act documents. They said they were coming, but they were waiting on this or that.

60 I adopt as a sufficient statement of the law, that of Owen J in Kirk Contractors Pty Ltd v Lasnom Pty Ltd (Unreported, WASC, Library No 950262):

Speaking in general terms where a contract is voidable and a party at whose option it is voidable acts in such a way as to indicate that the person regards himself or herself as bound by the contract there is an affirmation and the person cannot afterwards avoid the contract. (33)

61 This is consistent with Carr v J A Berriman Pty Ltd [1953] HCA 31; (1953) 89 CLR 327 per Fullagar J:

If time is of the essence, and the promise is not performed on the day, the promisee is entitled to rescind the contract, but he may elect not to exercise that right, and an election will be inferred from any conduct which is consistent only with the continued existence of the contract. ... If time is not originally of the essence, or, time being originally of the essence, the right to rescind for non-performance on the day is lost by election, the promisee can, generally speaking, rescind only after he has given a notice requiring performance within a specified reasonable time, and after non-compliance with that notice. (348)

62 So also, in Tropical Traders Ltd v Goonan [1964] HCA 20; (1964) 111 CLR 41 per Kitto J:

Any act done by it and consistent only with continuance of the contract on foot the law would hold to constitute an election against rescinding; and an election once made could not be retracted. But the appellant was not bound to elect at once. It might keep the question open, so long as it did nothing to affirm the contract and so long as the respondent's position was not prejudiced in consequence of the delay. ... Not that election is a matter of an intention. It is an effect that the law annexes to conduct which would be justifiable only if an election had been made one way or the other. (55)

63 I accept that conduct to constitute an affirmation or an election to continue the contract must be unequivocal, consistent only with the exercise of the right to continue and inconsistent with the exercise of the right to terminate.

64 Having regard to the facts I have found in [40](v), (vi), (vii), but particularly from the period of 27 July 2004 to February 2005, I find that the vendor has unequivocally affirmed the contract. Its conduct is a clear election against rescinding the contract to the point where its purported rescission in February 2005 is of no effect. By its conduct on 31 August 2004 and following, the vendor has clearly indicated that it regarded the contract as remaining on foot, notwithstanding the late notification of Finance Approval.

65 In Shakibaee v Chan (2001) 24 WAR 97; [2001] WASC 60 Owen J in a passage which I accept, said:

The law seems to be that a right to waive a condition continues beyond the expiry of the period within which the condition falls to be fulfilled so long as a contract continues on foot. [53]

66 The same facts that support the affirmation of the contract by the vendor also support the waiver of the right to terminate the contract for failure to obtain Finance Approval within the specified time.

67 In my opinion, the vendor is also estopped from insisting on its right to terminate under the contract. The vendor allowed seven months to pass between the receipt by it of financial approval and the purported termination. An election to terminate the performance of a contract must be made within a reasonable time (Champtaloup v Thomas (1976) 2 NSWLR 264 at 273).

68 During that time the letter of 14 September 2004 represented to the purchaser that the contract was on foot. The vendor has not refunded the deposit. Those representations to the purchaser indicate an acceptance that the finance condition had been fulfilled. The uncontradicted evidence of Mr Whittle-Herbert, which I accepted, is:

At no time did Mr Paine or anyone else on behalf of the plaintiff contact me or my settlement agent, Norfolk Conveyancing, to advise me that there was a problem with my ANZ loan approval fulfilling the finance condition in the contract. I did not receive a notice from the vendor terminating the contract. I did not receive a refund of the deposit I had paid. I therefore took that as being confirmation from the plaintiff that I had fulfilled the finance condition in the contract that that the contract was unconditional and would proceed to settlement.

As a result of what I took to be confirmation from the plaintiff that I had fulfilled the finance condition in the contract and that the contract was unconditional and would proceed to settlement, I did not seek to purchase an alternative property to Unit 4.

I would have invested in or around September 2004 in a property of a similar specification and value as Unit 4 had I been informed by the plaintiff that I had not fulfilled the finance condition in the contract and that the contract would not be proceeding to settlement.

69 I find that there has been reliance on the representation that the contract continued and that the vendor is estopped from denying the contract.

70 For the various reasons I have set out, I find that the purchaser Mr Whittle-Herbert is entitled to relief in his action. There are three alternatives. The first, which Mr Whittle-Herbert seeks, is an order for specific performance requiring the purchaser to restore the property and all fixtures and fittings, including curtains and carpets, to its condition at the time of practical completion. This is opposed by the vendor who says that if specific performance is to be ordered, there should be an order simply that the contract be specifically performed.

71 The third alternative is to award damages which, in light of the agreement of the value of the unit, would be the sum of $161,000.

72 True it is that Mr Whittle-Herbert's intention was to lease the premises and might therefore have expected a degree of wear and tear by this time. It is argued by the vendor that all he has lost is effectively the right to lease the premises for the first time in a pristine condition. However, what he bargained for was the property in its condition as at practical completion. But for the vendor's denial of Mr Whittle-Herbert's contractual rights, that is what he would have received.

73 I conclude that I should grant a decree of specific performance requiring the vendor to return the property to its condition as at practical completion.

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : DEVELOPMENTS (WA) PTY LTD -v- WHITTLE-HERBERT [2008] WASC 261 (S)

HEARD : 29 AUGUST, 19 SEPTEMBER & 21 NOVEMBER 2008

BETWEEN : DEVELOPMENTS (WA) PTY LTD (ACN 008 952 252)

Decree of specific performance - Return of property to state at practical completion - Turns on own facts

Defendant entitled to offset cost of restoration from purchase price

1 McKECHNIE J: Judgment in this matter was delivered on 14 November 2008. At that time I made an order for specific performance. At [73] I concluded that I should grant a decree of specific performance requiring the vendor to return the property to its condition as at practical completion.

2 Proceedings were then adjourned for a week in an effort to have the parties agree as to what would be required. A site inspection took place on 18 November 2008. Present were Mr Joseph Tilli, Mr Papas, Mr Wilkie, Mr Price, Mr Whittle-Herbert, Mr Clack and the solicitor Mr Reid. The parties were unable to agree.

3 This morning the matter was listed for final orders. Mr Whittle-Herbert's hearing for final orders took place at the same time as that involving Mr Price: Developments (WA) Pty Ltd v Price [2008] WASC 260(S). The defendant adduced evidence by way of affidavit from Mr Whittle-Herbert, Mr Clack and Mr Reid, who produced photographs. In response, the plaintiff produced an affidavit from Mr Tilli essentially annexing a report from Mr Wilkie and a further report from Mr Papas.

4 The parties were in agreement that some remedial work needed to be undertaken in order to comply with my order. However, despite the relatively small amount of money in dispute and the opportunity afforded to them to make one last effort to agree on a sensible approach by my adjourning for a time this morning, the parties were still unable to agree.

5 I heard submissions and also took oral evidence from Mr Pietro Tilli who was cross-examined. In summary, counsel for Mr Whittle-Herbert contended that the relationship between the parties had broken down absolutely and that what was required was a determination of the amount required to bring the property into a state of practical completion and that that sum be abated from the settlement figure.

6 Counsel for the plaintiff, in summary, contended that there was a legitimate dispute between the parties as to the appropriate amount to be paid for rehabilitation of the properties, settlement should proceed and the dispute referred to a referee.

7 Having considered the evidence in the affidavit and the evidence orally given by Mr Tilli, I am in a position to resolve the dispute and will do so. As I said at [72] of the judgment, what the defendant, Mr Whittle-Herbert, bargained for was the property in its condition as at practical completion. But for the vendor's denial of Mr Whittle-Herbert's contractual rights, that is what he would have received.

8 The issue is not then one of making good damage, but restoring the property to the condition it would have been in at practical completion. In respect of some damage there may be no material difference. When it comes to matters such as painting, however, what is required is not the possibility of repainting to match but an actual match.

10 Mr Clack was engaged by Mr Whittle-Herbert. Mr Clack swore an affidavit that he is a building consultant and carries on the business known as Australian Standards Building Inspection Consultants. He is a qualified A-class builder and registered builder and has been carrying out building inspections for approximately 15 years. His estimate as to the costs of undertaking the work is based on his experience as a registered builder and building consultant and being aware of the standard rates charged for such work in the building industry.

11 Mr Whittle-Herbert deposed that he had asked Mr Clack to identify the work needed to return the unit to the condition it would have been upon practical completion. Mr Clack's report, following his inspection, makes detailed comment as to external and internal areas and what is required. He made a series of recommendations and estimated costs as follows:

Pre-paint walls and ceilings including plaster patch $3000.00
Alternative structural re-enforced repair to

12 Mr Whittle-Herbert noted, among other defects, numerous marks on the carpets in several rooms that appear to have stained the carpet. As a result, he attended at Carpet Call Floor Centre, Willetton, and received a quote for the cheapest hardwearing carpet in stock for laying in an investment residential property. The quote is annexed to his affidavit. He used a floor plan of the property which is the same in essential aspects as that in Mr Price's unit.

13 He also received two quotations for painting, one being for $5,720 inclusive of GST, and the other for $5,500 inclusive of GST. It can be seen then that Mr Clack's estimates have support at least in relation to painting estimates.

14 Mr Wilkie was engaged by the plaintiff. He is a consulting engineer. There is no affidavit from Mr Wilkie but his report is attached to the affidavit of Mr Tilli. Mr Wilkie says:

I have perused the report provided by [Mr Clack] and do not disagree with the defects listed, although my list Australian Standards Building Inspections Consultants has minor differences. However, I disagree with the work required to remedy and the cost thereof and that some marking to walls is washable.

15 There is then little dispute as to the list of defects. Mr Wilkie did not comprehensively comment on matters raised by Mr Clack but did so selectively. In relation to the ceiling, Mr Clack said at page 5:

Gyprock sheeting glued to softwood ceiling frame with sheet joints visible to be re-topped to side bedroom, family room over kitchen area, including making good painted patches adjoining kitchen. Cornice edge cut back and made good along garage side and laundry side of family room.
Make good cornice joints on laundry wall of family room.
Ceiling surface shows slight sagging delaminations along family, laundry/sliding door resulting in cornice movement. Family room ceiling to be propped, and lag supports over ceiling joist.

16 His recommendations in relation to ceilings at page 6 are:

Ceilings to be repainted to match exiting (sic) after repair and rectification. [It should be 'existing'].

17 Mr Wilkie does not comment on the repair to the ceiling but merely says:

18 I accept then Mr Clack's summary of the condition of the ceilings and accept also that to return the property into appropriate condition will require the ceilings to be repainted to match.

Painted plaster with marks visible throughout.
Cracked surface plaster under cornice to garage side of family room near air conditioner and along laundry and store room walls.
Plaster stained behind toilet cistern lid.

Wall paint finish unacceptable to wash/remove marks requires full repaint in washable finish.

1.2 Many of the very minor marks on the walls are removable and in any event not all walls are marked or require repainting.

22 This suggests some walls require repainting and does not deal with the specific descriptions given by Mr Clack.

23 Mr Clack described the external gutters as follows:

Due to oxidization external metal gutters, fascias, downpipes and meter box to be washed down and repainted to gloss finish.

2.4 Cleaning of external gutter fascia, down pipes and meter boxes is required. Painting is not required.

25 As Mr Wilkie does not disagree with Mr Clack's list of defects, I accept that there is oxidisation. I accept Mr Clack's view that painting is required due to the oxidisation. Mr Wilkie's report is entitled, 'Remedial Action Required Prior to Handover, Units 3 and 4, 41 George Street, Midland'. It is not clear whether he understood the standard to which that remedial action should be taken. There is no evidence that he knew the order of the court. Mr Tilli's affidavit does not take the matter further.

26 Mr Wilkie has provided an estimate of the costs in the sum of $2,800. He does not disclose any relevant expertise in the estimation of costs, unlike Mr Clack or indeed Mr Tilli, to whom I will shortly refer. I am satisfied that Mr Clack has relevant expertise to make an estimate of building costs, and have noted previously that his estimate, at least in relation to painting, finds close support in the quotations received. I do not consider there is any evidence that Mr Wilkie is appropriately qualified to estimate costs as a consulting engineer, and as a result I do not find his evidence as to costs persuasive.

27 Mr Papas would appear to be a real estate property representative. He does not deal in any detail with his inspections of unit 3 or 4 other than saying:

The general presentation of each villa shows only nominal wear and tear and is so negligible that minor issues would only ever arise as a matter for concern.

The interiors of units 3 and 4 are very good with virtually NO wear and tear on carpeting, and the regular steam cleaning of these by the tenants attests to the presentation. I have no issue as far as this is concerned as the carpets are of a commercial grade hard wearing and visually as 'near to new' in appearance as possible.

28 There is no evidence of any qualifications that Mr Papas might have in respect of building inspection. I do not accept his evidence in preference to that of Mr Clack, especially in the detail that Mr Clack has identified.

29 A handwritten notation on Mr Wilkie's statement says: 'Carpets are in as new condition'.

30 On the other hand, as I have said, Mr Whittle-Herbert has deposed as to numerous marks on the carpets in several rooms, that appear to have stained the carpet.

31 Mr Papas specifically refers to wear and tear. He does not refer to stains on the carpets, although implicitly his comment about steam cleaning may refer to the stains.

32 However, his statement, and that of Mr Wilkie as to the condition of the carpets, is not supported on oath, whereas Mr Whittle-Herbert's observations are. They are to some degree confirmed by Mr Clack. I prefer the evidence of Mr Whittle-Herbert as it is on oath.

33 Mr Peter Tilli gave evidence. He was not at the inspection and does not appear to have conducted a formal inspection of the properties for some considerable time. I am not even sure whether he has been in the properties in the last 12 months. He was shown a series of photographs of the inspection taken by Mr Reid, solicitor for the defendant, and invited to comment and provide estimates of the possible costs that he might incur in repairing, or in some cases as a hypothetical to illustrate the point, replacing various defects illustrated in the photographs or referred to by Mr Clack. It is fair to say that his estimates were substantially lower than the general estimation provided by Mr Clack, although not so low in painting.

34 There are a number of difficulties with Mr Tilli's evidence. The first and most obvious is that he was not at the inspection on 18 November 2008. His comments as to damage and other matters where they conflict with those of Mr Clack I discount. The photographs, with great respect to the photographer, are not of such quality that would enable anything more than a general impression to be gained as to what they depict, so I accept Mr Clack's evidence as to what he observed and what is required to bring the units back to a state equivalent to that of practical completion.

35 Mr Tilli denied a suggestion by cross-examining counsel that his estimates were based on a patch-up job rather than a return to the state as at practical completion. I would not go so far in the criticism of his evidence. He was called upon to support what counsel for the plaintiff asserted in closing was an exorbitant difference in the figures supplied by Mr Clack and the actual costs of repair.

36 However, I accept the evidence of Mr Clack as to his observations which are substantially agreed with by Mr Wilkie. I accept that he is qualified to make an estimate of costs, unlike Mr Wilkie. Mr Tilli is also qualified to make an estimate of repairs but necessarily, because of a lack of inspection, has been reduced to doing so on a speculative basis, without observing for himself the nature and extent of damage or marks. I accept the evidence of Mr Clack as persuasive and satisfactory. I reject the evidence of Mr Tilli as substantially speculative.

37 True it is that the plaintiff might have the facilities to complete the work that needs to be done at a slightly lower cost than by Mr Whittle-Herbert engaging independent contractors. However, the plaintiff has got itself into the position by not transferring the property at the time of practical completion and has had since then to get the property into order.

38 Specifically, it has had since last Friday, (14 November) particularly since last Tuesday (the date of the inspection), to put forward a realistic proposal to do the work, although I acknowledge this may not be a very practical outcome because of the breakdown between the parties. Litigation should, as far as possible, and subject to appeal rights, be final. The plaintiff proposes an ultimate determination by a referee. The orders that the plaintiff proposes will not lead to finality but merely to further dispute and further costs.

39 Everyone agrees that some money needs to be expended. The defendant says the sum is $17,930.

40 Mr Wilkie says $2,800. The plaintiff's proposal is in effect for an arbitration over the sum of $14,130 after the parties have already incurred great costs in caveat proceedings and in the main action. The case of Jarndyce v Jarndyce comes to mind. There must be an end.

41 I am satisfied that the evidence produced by the defendant as to the estimate of the costs of restoring the property to practical completion is reasonable. To give effect to my order for specific performance for the property and its condition as at practical completion I will order the sum of $17,930 be deducted from the price payable by the defendant to the plaintiffs at settlement.

(1) The agreement dated 27 July 2004 between the plaintiff and the defendant ('contract') whereby the plaintiff agreed to sell and the defendant agreed to purchase Unit 4, 41 George Street, Midland, being the portion of land known as lot 4 on strata plan 45936, being the whole of the land comprised in certificate of title volume 2601, folio 438 ('property') be specifically performed and carried into execution.

(2) Settlement of the sale of the property will take place on or before 4.00 pm on Friday, 5 December 2008.

(3) Settlement will take place in accordance with the contract (except as to cl 3 of annexure A).

(4) It is declared that the defendant is entitled to have the property and all fixtures and fittings (including curtains and carpets) restored to their condition at the time of practical completion. To give effect to this declaration it is ordered that the defendant is entitled to deduct the sum of $17,939 (inclusive of GST) from the balance otherwise owing under the contract at settlement.

(6) In respect of Supreme Court action CIV 1692 of 2005 ('caveat action') in which the defendant in this action was plaintiff and the plaintiff in this action was the first defendant:

(b) The plaintiff (in this action) pay the costs of the defendant (in this action), including any reserve costs, such costs to be taxed in default of agreement.

(7) The plaintiff pay the defendant's costs of this action including all reserved costs.

DEVELOPMENTS (WA) PTY LTD -v- WHITTLE-HERBERT [2008] WASC 261 (14 November 2008)

At a glance

Court

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Before

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Judgment (171 paragraphs)

DEVELOPMENTS (WA) PTY LTD -v- WHITTLE-HERBERT [2008] WASC 261 (14 November 2008)

Legislation Cited (1)

Cases Cited (6)