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[1978] HCA 12
High Court of Australia
1978-04-26
Aickin JJ, Jacobs JJ
Original judgment source is linked above.
High Court of Australia Stephen, Mason, Jacobs, Murphy and Aickin JJ. DTR Nominees Pty Ltd v Mona Homes Pty Ltd [1978] HCA 12
ORDER Appeal allowed as to part and order of the New South Wales Court of Appeal varied accordingly by omitting so much thereof as orders that the suit be referred back to the Equity Division for assessment of the damages claimed by the present respondents. Appeal otherwise dismissed without order as to costs of this appeal.
This is a case in which, as so often happens, the parties to a contract, having placed conflicting interpretations upon it, have claimed to rescind it on the ground that the other party has repudiated and renounced it. The controversy arises out of the provisions of special condition 4 of a contract of sale dated 12th November 1973 by which the appellant agreed to sell and the respondents agreed to purchase for $128,700 certain land at Fairfield, near Sydney, described in the contract as "being Lots 1 to 9 inclusive in the Vendors Plan of Sub-division a copy of which is annexed hereto and marked with the letter "A" ". There were thirty-five lots in the annexed plan of which the nine lots sold were shown as facing The Horsley Drive, an existing road. The plan also showed a number of proposed roads, including one which separated lots 5 and 6. In addition, it showed three proposed public reserves. Special conditions 4 and 5 in the contract provided:
Special condition 6 provided that the property was sold subject to restrictions on use to be created either upon "registration of the said plan of subdivision as a deposited plan" or a covenant to be entered into on completion, particulars of the restrictions being set out in the condition. In special condition 8 it was provided:
(a) the Purchaser shall not be obliged to complete prior to registration of the Vendor's plan of sub-division of which the property sold forms part
Special condition 9 provided that the appellant would complete the kerbing and guttering of lots 1 to 9 fronting The Horsley Drive prior to completion and would make electricity, water and sewerage services available to each lot prior to completion.
A deposit of $12,870 was payable on the signing of the contract. Subject to special condition 9, the balance of the purchase price was payable in cash on completion to take place within fourteen days of written notification being sent by the appellant's solicitors to the respondents' solicitors that the plan of subdivision in respect of the subject land had been registered and in this respect time was expressed to be of the essence of the contract. Time was not made of the essence in any other respect.
The appellant had not lodged the plan of subdivision referred to in special condition 4 at the time of the making of the contract. However, it had lodged a plan of subdivision of the whole, indicating that it sought approval of so much of the subdivision as related to the nine lots, that is the subdivision of the whole into the nine lots and two other lots comprising the balance of the land. In this plan a proposed public reserve at the south became lot 10 and the remainder of the land, including the proposed roads and another public reserve, were left unsub-divided as lot 11. This subdivision was approved by the Fairfield Council on 9th October 1973, prior to the making of the contract. A plan to give effect to this approval was lodged with the Registrar-General on 25th February 1974 and was registered on 7th June 1974.
The appellant considered that, according to the construction which it placed upon the contract, it was entitled to subdivide the land in two stages. In the first stage it intended to subdivide the land so as to provide the nine lots the subject of the sale. In the second stage it would subdivide the balance of the land so as to provide the remaining lots in the plan annexed to the contract.
The appellant had taken steps to effect the subdivision of the balance of the land. Application for council approval was made on 23rd October 1973, a fortnight after the stage 1 subdivision was approved and some three weeks before the contract was signed. Stage 2 was approved by the council on 13th December 1973. The primary judge found that, due to alterations in the proposed route of an expressway, it became necessary to vary the stage 2 plan and that plan as amended was approved by the council on 5th April 1974, but there is some doubt as to whether the evidence establishes this fact.
On 31st January 1974, in response to an inquiry on behalf of the respondents, the appellant's solicitors informed the respondents' solicitors that the primary application under the Real Property Act, 1900 N.S.W., as amended, had been lodged before Christmas and that the plan of subdivision had not yet been lodged. On 7th June 1974 the appellant's solicitors advised that the primary application and the deposited plan would be registered that day. On 14th June they confirmed that registration of both documents had taken place on 7th June. They asserted that settlement should take place within the time set out in the first schedule to the contract. This was disputed by the respondents' solicitors who claimed, by letter dated 20th June 1974, that the first schedule only applied subject to special condition 9 and that therefore unless the kerbing and guttering and the electricity, water and sewerage services were available before 21st June 1974 time would no longer be of the essence of the contract. They stated that the respondents were not prepared to complete until special condition 9 had been complied with and the roadway between lots 5 and 6 had been constructed. On 28th June the respondents' solicitors sent their requisitions. On 4th July the appellant's solicitors stated that the kerbing and guttering had been completed and that the services referred to would be finalized within ten days. They stated that the area between lots 5 and 6 was simply land owned by the appellant and had nothing to do with the contract of sale to the respondents.
On 19th July the respondents purported to rescind the contract on the ground that the plan lodged on 25th February 1974 was not a plan comprehended by the contract and that it constituted a repudiation of the contract by the appellant. The evidence does not establish that the respondents knew that the plan lodged was different from the plan called for by the contract, and it must be taken that the respondents were unaware of its true character until a time shortly before the date on which they purported to rescind the contract.
On 25th July the appellant's solicitors informed the respondents' solicitors that the appellant considered that the rescission was a wrongful repudiation of the contract, that the appellant accepted the repudiation and rescinded the contract itself, forfeiting the deposit and reserving its rights in respect of damages.
The respondents instituted an action in the Supreme Court of New South Wales seeking a declaration that they had validly rescinded the contract. The essence of their case was that the plan lodged on 25th February 1974 constituted a repudiation and renunciation of the contract. Alternatively they alleged that by the letters to which we have referred the appellant repudiated the contract. The respondents then averred that they accepted the renunciation and rescinded. By its defence the appellant denied that the plan was other than the plan called for by the contract. It also denied that it had renounced the contract and it cross-claimed seeking a declaration that it had validly rescinded and that the deposit was forfeited.
held that the expression "the relevant plan of subdivision" in special condition 4 was used to mean something different from the plan of subdivision annexed to the contract. His Honour went on to find as a fact
that at the time of entering into the contract the parties were aware that the total subdivision was to be carried out in stages. Against this background the interpretation of the words in special condition 4, "the relevant plan of subdivision", as meaning the plan of subdivision relevant to the nine lots in the contract, which seems to me the preferable construction on a mere reading of the contract without a knowledge of background facts, becomes overwhelmingly compelling. His conclusion therefore was that there was no breach of contract by the appellant.
With great respect to his Honour, it is very difficult to see how this interpretation of the contract can be sustained. The first sentence of special condition 4 states that the plan of subdivision, a copy of which is annexed, has been lodged with the Council, the inference being that it was lodged by way of application for approval of the subdivision which it described. The second sentence of the condition then imposes an obligation on the appellant "with all due dispatch to comply with the conditions of approval of the Council and to have the relevant plan of subdivision lodged for registration as a deposited plan". In this context it is apparent that "the relevant plan of sub-division" is the plan of subdivision as approved by the council consequent upon the application for approval made in respect of the contract plan of subdivision. This is confirmed by special condition 8 (a) which specifically negates any obligation on the part of the respondents to complete prior to registration of "the Vendor's plan of sub-division of which the property sold forms part".
As Hutley J.A observed in the Court of Appeal, there was no reason to suppose that the plan embodying the subdivision as approved by the Council would correspond precisely with the plan as lodged. Some departures might be expected in the normal course of events and it was to the possibility of discrepancies between the plan as lodged (the contract plan) and the plan as approved that the provisions of special condition 5 were directed. So understood the two conditions made good and practical sense.
The primary judge seems to have been misled by what he describes as "background" evidence as to the understanding of the parties, evidence which he appears to have used for the purpose of construing the contract. This evidence in our view did not establish "that at the time of entering into the contract the parties were aware that the total subdivision was to be carried out in stages". There was no evidence that the respondents were informed that a two-stage subdivision was intended and Mr. Staff for the appellant conceded, and correctly conceded, that there was no evidence which would justify the attribution of knowledge of that fact to the respondents.
Since there was no evidence of a circumstance (known to both parties) that there were to be two stages of subdivision and consequently two plans of subdivision, evidence of the intentions of one party was not admissible in aid of the interpretation of the written contract. A court may admit evidence of surrounding circumstances in the form of "mutually known facts" "to identify the meaning of a descriptive term" and it may admit evidence of the "genesis" and objectively the "aim" of a transaction to show that the attribution of a strict legal meaning would "make the transaction futile" (Prenn v. Simmonds [1] ). But it cannot receive oral evidence from one party as to its intentions and construe the contract by reference to those intentions.
The only plan of subdivision within the common contemplation of the parties was that annexed to the contract and the contract fell to be construed accordingly. Since only one plan was in common contemplation it is not possible to identify any other plan as "the relevant plan". The conclusion must follow that the differences in terminology which are to be detected in the contract do not disclose an intention that there should be a registration of any plan of subdivision other than a plan of the whole in accordance with the annexure.
On the interpretation which we had given to special condition 4 the appellant was in breach of contract. Instead of lodging with the council the contract plan of subdivision providing for subdivision into the thirty-five lots and proceeding expeditiously to comply with the council's conditions and to register that plan as approved by the council it only sought and obtained approval of a subdivision of the nine lots sold and obtained registration of a plan embodying that limited subdivision. In the Court of Appeal, Hutley J.A. (with whom Samuels J.A. agreed) held that this amounted to a breach of an essential term of the contract for the reasons that special condition 4 imposed an obligation on the appellant which was to be carried out "with all due dispatch" and that it enabled either party to rescind the contract if the plan was not lodged for registration as a deposited plan within twelve months from the date of the contract.
We have some difficulty in perceiving how these provisions sustain the conclusion that the obligation to do things "with all due dispatch" is an essential term the breach of which gives rise to a right of rescission, though the circumstances essential to an exercise of the express right to rescind have not taken place. First, time was not of the essence of the contract except in a respect which is not presently relevant. And in the absence of such a provision we fail to see how a stipulation calling for action to be taken expeditiously of itself constitute an essential term. Secondly, the presence of the express right to rescind in the event of non-registration within twelve months indicates that mere failure to act expeditiously was not in itself a breach of an essential term. Indeed, the terms of the express right to rescind indicate that the appellant had some latitude in the matter in that in the ultimate analysis so long as the plan was registered within twelve months the contract was to remain on foot.
Whether a term of a contract is essential or not is a question of construction which is to be answered with due regard to the general nature of the contract considered as a whole and to its particular terms. See Tramways Advertising Pty. Ltd. v. Luna Park (N.S.W.) Ltd. [2] , where Jordan C.J. said:
The test of essentiality is whether it appears from the general nature of the contract considered as a whole, or from some particular term or terms, that the promise is of such importance to the promisee that he would not have entered into the contract unless he had been assured of a strict or a substantial performance of the promise, as the case may be, and that this ought to have been apparent to the promisor: Flight v. Booth [3] ; Bettini v. Gye [4] ; Bentsen v. Taylor, Sons & Co. [No. 2] [5] ; Fullers' Theatres Ltd. v. Musgrove [6] ; Bowes v. Chaleyer [7] ; Clifton v. Coffey [8] . If the innocent party would not have entered into the contract unless assured of a strict and literal performance of the promise, he may in general treat himself as discharged upon any breach of the promise, however slight. This statement of the law, which was approved in Associated Newspapers Ltd. v. Bancks [9] , emphasizes that the quality of essentiality depends for its existence on a judgment which is made of the general nature of the contract and its particular provisions, a judgment which takes close account of the importance which the parties have attached to the provision as evidenced by the contract itself as applied to the surrounding circumstances. Once this is understood, there is no sufficient foundation for holding that the respondents would not have entered into the contract had they known that the appellant had not lodged the contract plan of subdivision and that it would not proceed expeditiously thereafter. We know that the respondents were willing to accept a right to rescind conditioned by the events mentioned in special condition 4. 1. (1938) 38 S.R. (N.S.W.) 632, at pp. 641-642. 2. (1834) 1 Bing. (N.C.) 370, at p. 377 [131 E.R. 1160, at pp. 1162-1163]. 3. (1876) 1 Q.B.D. 183, at p. 188. 4. [1893] 2 Q.B. 274, at p. 281. 5. (1923) 31 C.L.R. 524, at pp. 537-538. 6. (1923) 32 C.L.R. 159. 7. (1924) 34 C.L.R. 434, at pp. 438, 440. 8. (1951) 83 C.L.R. 322, at p. 337.
Quite apart from this aspect of the matter the respondents' case as pleaded in pars 5, 5A and 6 of its amended statement of claim was not one of rescission for actual breach of essential term, but one of rescission for repudiation and renunciation for so-called "anticipatory breach". Their case is accordingly to be considered on that footing. The relevant question therefore is whether the events which we have recounted evidence an intention on the part of the appellant to repudiate or renounce the contract or more precisely whether such an intention is to be inferred from those events.
For the respondents it was submitted that such an intention should be inferred from the appellant's continued adherence to an incorrect interpretation of the contract. It was urged that the appellant, because it was acting on an erroneous view, was not willing to perform the contract according to its terms. No doubt there are cases in which a party, by insisting on an incorrect interpretation of a contract, evinces an intention that he will not perform the contract according to its terms. But there are other cases in which a party, though asserting a wrong view of a contract because he believes it to be correct, is willing to perform the contract according to its tenor. He may be willing to recognize his heresy once the true doctrine is enunciated or he may be willing to accept an authoritative exposition of the correct interpretation. In either event an intention to repudiate the contract could not be attributed to him. As Pearson L.J. observed in Sweet & Maxwell Ltd. v. Universal News Services Ltd. [10] :
In the last resort, if the parties cannot agree, the true construction will have to be determined by the court. A party should not too readily be found to have refused to perform the agreement by contentious observations in the course of discussions or arguments 1. [1964] 2 Q.B. 699, at p. 734.
In this case the appellant acted on its view of the contract without realizing that the respondents were insisting upon a different view until such time as they purported to rescind. It was not a case in which any attempt was made to persuade the appellant of the error of its ways or indeed to give it any opportunity to reconsider its position in the light of an assertion of the correct interpretation. There is therefore no basis on which one can infer that the appellant was persisting in its interpretation willy nilly in the face of a clear enunciation of the true agreement.
Mr. Meagher for the respondents valiantly submitted that the appellant did not bona fide believe that the contract was to be interpreted as authorizing the two-stage subdivision which it implemented. Indeed, he suggested that the interpretation was so irrational and ill founded as to compel the inference that the appellant did not bona fide believe in it. We cannot accept that this is so - after all, the primary judge, mistaken though he was, thought that this was the correct view of the contract. In any event, on the evidence this Court would not be justified in finding that the appellant acted otherwise than in accordance with a bona fide belief as to the correctness of the interpretation which it sought to place upon the contract. Consequently it is a case of a bona fide dispute as to the true construction of a contract expressed in terms which are by no means clear (see Asprey J.A. in Satellite Estate Pty. Ltd. v. Jaquet [11] ). In these circumstances the Court is not justified in drawing an inference that the appellant intended not to perform the contract according to its terms or that it repudiated the contract. That being so, the respondents were not entitled to rescind the contract for "anticipatory breach" as they purported to do by their notice of 19th July 1974.
But the question remains whether the appellant was entitled to rely on this ineffective rescission of the contract by the respondents as itself a repudiation of the contract and thereupon to rescind as it purported to do by its letter of 25th July 1974. This is the question raised by the cross-action. In our opinion the appellant could not rely on the respondents' purported rescission as a repudiation. The respondents purported to rescind only upon the basis that the appellant would not complete the contract as correctly interpreted. They were in error in regarding themselves as entitled to rescind at the stage when they purported to do so but they were not in error in their interpretation of the contract. The actions of the parties must now be considered in the light of the true interpretation of the contract. The purported rescission of 19th July did not evince an intention not to proceed with the contract correctly interpreted; it did no more than evince an intention not to proceed with the contract on the basis of the incorrect interpretation then being advanced by the appellant. That cannot be regarded as a repudiation which would entitle the appellant to rescind when it was itself the party in error. A party in order to be entitled to rescind for anticipatory breach must at the time of rescission himself be willing to perform the contract on its proper interpretation. Otherwise he is not an innocent party, the common description of a party entitled to rescind for anticipatory breach, and indeed could profit from his misinterpretation of the contract, as the appellant seeks to do in this case when it claims forfeiture of the deposit and damages. By insisting on its incorrect interpretation of the contract to the point of claiming to rescind because the respondents were relying on the different but correction interpretation, the appellant by that stage showed that "definitive resolve or decision against doing in the future what the contract" [required] which is referred to by Dixon C.J. in Rawson v. Hobbs [12] . Whether or not the respondents could by then have rescinded certainly the appellant could not do so.
The appellant never accepted that the contract be performed according to its correct interpretation and thus the facts are different from those in Lennon v. Scarlett & Co. [13] . There a plaintiff had, after the making of the contract, sought to insist on additional terms. The defendant then called off negotiations, in effect purporting to rescind. It was held that the attempt by the plaintiff to add new terms did not amount to a repudiation. It was further held that the defendant had repudiated. But the difference between that case and the present case is that there the plaintiff, after the defendant's purported rescission, offered to complete the contract on its true terms. The defendant declined to do so. By that time the plaintiff was willing to complete the contract according to its true terms and he could therefore treat the defendant's act as a repudiation and could rescind accordingly.
Thus the contract in the present case was still on foot on and after 25th July 1974. Neither party had effectively rescinded. But there can be no doubt that by 5th December 1974, when these proceedings were commenced, neither party, whatever may have been their reasons, regarded the contract as being still on foot. Neither party intended that the contract should be further performed. In these circumstances the parties must be regarded as having so conducted themselves as to abandon or abrogate the contract. The position is similar to that with which Isaacs J. dealt in Summers v. The Commonwealth [14] . The plaintiff did not succeed in his action for damages for breach of contract, but on the other hand the defendant had not rescinded. Time passed during which neither party took any steps to perform the contract. It was held that the parties had so conducted themselves as mutually to abandon or abrogate the contract.
A consequence of this abandonment and abrogation was held by Isaacs J. [15] to be that the deposit was returnable. Likewise the deposit is returnable by the appellant to the respondents in the present case. The respondents claimed return of the deposit in their statement of claim but not upon the basis that the contract had been abandoned. However, that was not the basis of the claim in Summers and yet the order was made. The position there was somewhat different as it was a trial in the original jurisdiction of this Court. Nevertheless, to remit the case to the Supreme Court would be to add needlessly to expense. The position which now arises is not dissimilar to that with which Dixon C.J. dealt in Rawson v. Hobbs [16] . In all the circumstances it appears to be the best course to allow to stand so much of the order of the New South Wales Court of Appeal as ordered return of the deposit but with no particular order for payment of interest.
We would therefore allow the appeal in so far as it was ordered that the suit be referred back to the Equity Division for assessment of the damages claimed by the respondents but would otherwise dismiss the appeal. There should be no order for costs in respect of the appeal to this Court.
The appellant/vendor ("D.T.R.") and the respondents/purchasers ("Mona Homes") were parties to a land development contract. During the course of performance, the parties asserted completely opposed interpretations of D.T.R.'s obligation under the contract. The obligation was (as Mona Homes contended) to develop the land by one subdivision into thirty-five lots. D.T.R. claimed that it was entitled to develop the land in stages, and in breach of its obligations had obtained registration with the council of a subdivision of nine lots. Mona Homes described D.T.R.'s asserted view as one which no reasonable person could honestly hold.
Mona Homes rescinded and claimed damages. D.T.R. treated this notice of rescission as a repudiation and itself rescinded and claimed damages.
In proceedings brought by Mona Homes in the Supreme Court of New South Wales for a declaration that they had validly rescinded (D.T.R. made a cross-claim for a declaration that it had validly rescinded), the major point of contention was the construction of the contract. The primary judge, Wootten J. upheld D.T.R.'s contentions on the meaning of the contractual obligations and upheld its claim to rescind. This was reversed by the New South Wales Court of Appeal which accepted Mona Homes' contentions and upheld their claim to rescind as valid. In my opinion, Mona Homes' interpretation of the contractual obligations is correct. It is unnecessary to add to what is said in the joint reasons of Stephen, Mason and Jacobs JJ.
The majority of the Court of Appeal held that D.T.R. had broken an essential term of the contract and referred to Jordan C.J.'s statement in Tramways Advertising Pty. Ltd. v. Luna Park (N.S.W.) Ltd. [17] (which was approved in Associated Newspapers Ltd. v. Bancks [18] ):
The test of essentiality is whether it appears from the general nature of the contract considered as a whole, or from some particular term or terms, that the promise is of such importance to the promisee that he would not have entered into the contract unless he had been assured of a strict or a substantial performance of the promise, as the case may be, and that this ought to have been apparent to the promisor: Flight v. Booth [19] ; Bettini v. Gye [20] ; Bentsen v. Taylor Sons & Co. [No. 2] [21] ; Fullers' Theatres Ltd. v. Musgrove [22] ; Bowes v. Chaleyer [23] ; Clifton v. Coffey [24] . If the innocent party would not have entered into the contract unless assured of a strict and literal performance of the promise, he may in general treat himself as discharged upon any breach of the promise, however slight. 1. (1938) 38 S.R. (N.S.W.) 632, at pp. 641-642. 2. (1951) 83 C.L.R. 322, at p. 337. 3. (1834) 1 Bing. (N.C.) 370, at p. 377 [131 E.R. 1160, at pp. 1162-1163]. 4. (1876) 1 Q.B.D. 183, at p. 188. 5. [1893] 2 Q.B. 274, at p. 281. 6. (1923) 31 C.L.R. 524, at pp. 537-538. 7. (1923) 32 C.L.R. 159. 8. (1924) 34 C.L.R. 434, at pp. 438, 440.
This "test" is so vague that I would not describe it as a test. It diverts attention from the real question which is whether the nonperformance means substantial failure to perform the contractual obligations. The inquiry into the motivation for entry into the contract is not the real point. Numerous purchasers may enter into similar contracts with widely different motives. What does it matter if Mona Homes would have entered the contract even if the terms were as D.T.R. claimed them to be? However, Mona Homes did not found their entitlement to rescind on breach by D.T.R. of an essential term. Rather they claimed that what D.T.R. did, and what it said it would do, in purported performance, amounted to a repudiation of the contract. This is a question of fact. The history has been set out in the joint judgment.
Mona Homes were entitled to a performance by D.T.R. of its obligations. It is irrelevant whether D.T.R.'s asserted interpretation of its obligations is one that no reasonable person could honestly hold; in this respect this case is to be distinguished from cases which involve a contract of service or other continuing relationship where such considerations may be crucial. Once the proper construction of the obligations is established, it is clear that D.T.R.'s partial performance and its intended performance was not what was promised and not substantially what was promised. D.T.R. has insisted through to this Court on its right to perform in a way which was not on the proper interpretation a performance of its obligations. At the time of the notice of rescission by Mona Homes, it had become apparent from D.T.R.'s conduct and assertions that D.T.R. did not intend to perform the contract substantially according to its correct interpretation (even if this was through an honest but mistaken view by D.T.R.). Mona Homes were then entitled to be relieved from their obligations. They were entitled to rescind as they did and to claim damages.
I have had the advantage of reading the joint reasons for judgment of Stephen, Mason and Jacobs JJ. with which I am in complete agreement. I have nothing to add.
DTR Nominees Pty Ltd
Mona Homes Pty Ltd