Abrath v North Eastern Railway Company [1883] 11 QBD 440

Erley Pty Ltd v Gunzburg Nominees Pty Ltd, unreported; FCt SCt of WA; Library No 980153; 3 April 1998

Paltara Pty Ltd v Dempster (1991) 6 WAR 85

Tozer, Kemsley and Millbourn (Australasia) Pty Ltd v Collier's Interstate Transport Service Ltd [1956] HCA 6; (1956) 94 CLR 384

1 MALCOLM CJ: In my opinion this appeal should be dismissed for the reasons to be published by Steytler J with which I am in entire agreement.

2 PIDGEON J: I have had the advantage of reading in draft the reasons to be delivered by Steytler J. I agree with them and for the reasons he gives I would dismiss the appeal.

3 STEYTLER J: This is an appeal against the award, by a District Court Judge, of an amount of $58,963.83 in favour of the plaintiffs, being damages claimed by them arising out of what they alleged to be a breach of contract on the part of the respondents.

4 The respondents owned a house in East Fremantle. On 21 November 1995 they agreed to sell it to the appellants for $330,000. The sale agreement ("the agreement") had as one of its conditions that by Tuesday 21 November 1995 the Melville branch of Challenge Bank should approve the granting to the appellants of a loan of $170,000. The appellants were required, by cl 1.2 of the agreement, to use their best endeavours to obtain the loan. By cl 1.4 if, notwithstanding those best endeavours, the application for the loan was rejected or not approved by the specified date then, unless the appellants had waived the condition in writing, the agreement was deemed to have come to an end.

5 The agreement incorporated the 1994 Joint Form of General Conditions for the Sale of Land prepared jointly by the Law Society of Western Australia (Inc) and the Real Estate Institute of Western Australia (Inc). Clause 19(1)(d) of those general conditions made it a condition of the agreement that if the appellants were in default in performing or observing any obligation imposed upon them under the agreement, or if they repudiated it, then the respondents, in addition to any other rights or remedies under the agreement or otherwise, were entitled to terminate the agreement, forfeit the deposit paid and sue the appellants for damages. That clause also entitled the respondents, in that event, to resell the property and, if the resale was settled within 12 months following the date of termination, to recover from the appellants as liquidated damages the amount of any deficiency arising from that resale and all expenses incurred by the respondents after giving credit for the deposit if that deposit had been forfeited.

6 The learned trial Judge found that the appellants breached the agreement by failing to use their best endeavours to obtain the loan and that the respondents were consequently entitled to terminate the agreement, as they did. The damages which were awarded to the respondents encompassed wasted auction costs (the property had been proposed to be auctioned at the time at which the appellants bought it), the amount of the deficiency realised upon a resale of the property within 12 months and various other expenses, including interest paid on a mortgage which had been taken out over the property by the respondents.

7 The appellants had inspected the property on 18 November 1995 when it was open for inspection under what was referred to as the "auction process". On that day the appellants made an unconditional offer to purchase the property for $300,000. There followed some negotiations culminating in an offer, by the appellants, made on Sunday 19 November at about 8.00 pm in terms whereof the appellants offered to pay to the respondents $330,000 subject, this time, to their being able to obtain a loan to aid in the purchase of the property. However, they said that "they could do finance overnight". An offer and acceptance was typed up on the Sunday night and executed by the respondents on the following day.

8 There was some dispute as to who had suggested the very short period within which finance was to be approved. According to the respondents and their real estate agent for the sale of the property, Maggie Shanklin, it was the first appellant, Mr Fay, who suggested it. Ms Shanklin said that Mr Fay told her that he did a "lot of work" with Challenge Bank in Melville through a broker and that it would not take long to get finance approval. Mr Fay, on the other hand, said that it was the respondents who required that finance be approved in that short time because of the looming auction. However there was no issue as to the fact that, when the terms of the document which had been typed up on the Sunday night were made known to the respondents, they said that they would accept that offer and that if the appellants wanted more time they "would be happy to extend that".

9 On Monday 20 November there were some communications between Ms Shanklin and Mr Fay. Ms Shanklin also had some dealings with Mr Kim Brealey, a finance broker who had been retained by the appellants.

10 The learned trial Judge found that on the following day Mr Fay telephoned Ms Shanklin and told her that he was not happy with the "finance package presented to him ... and therefore the deal was off". Ms Shanklin said, and his Honour accepted, that she told Mr Fay that if he needed more time to arrange finance or if he wished to consider vendor finance those options were open to him but that he was not interested in pursuing them.

11 The learned trial Judge found that all that the appellants did in discharge of their obligations to attempt to obtain finance was to speak to Mr Brealey on the telephone and ask him if he could obtain finance on their behalf. The evidence disclosed that Mr Brealey had previously acted on behalf of the appellants in arranging funds on their behalf. Mr Fay said in evidence that his wife's income at the time of the agreement was about $35,000 per annum and that his own was "possibly around the same" and that this information was provided to Mr Brealey. However he provided no documentation to Mr Brealey, in the form of tax returns or otherwise, to substantiate his income. He said that Mr Brealey told him that he would not be able to arrange a loan of $170,000 through Challenge Bank as Mrs Fay's income was insufficient to meet that bank's requirements and Mr Fay's unsubstantiated income would not be taken into account by it. Mr Fay said that he and his wife consequently decided to look around for another property and, on the same day, bought one for the sum of $260,000, having arranged to borrow an amount of $125,000.

12 It emerged during the trial that Mr Brealey had made no written finance application to Challenge Bank in respect of a loan of $170,000. Rather, he did no more than telephone the mortgage broker unit of that bank and was told, as he had expected, that the bank would not be prepared to provide the requested finance. However, Mr Brealey's enquiry was based solely upon Mrs Fay's income of $35,000 per year. He did not rely, at all, upon the income of Mr Fay.

13 Mr Fay was then working as a home renovator and tiler. He operated his own business. When Mr Fay was asked why his income was not included in his application for finance he said that banks would not "accept self-employed people when ... applying for finance".

14 I have mentioned that Mr Fay said, in the course of his evidence, that his income had been approximately $35,000 per annum (albeit he also said, at one point, that it had averaged around $25,000 per annum). However it emerged, after the trial had been adjourned so as to enable further and better discovery to be given in respect of documents relating to Mr Fay's income, that, according to his tax returns, he had in the 1994/1995 year, received an income of $15,014 and, in the financial year preceding that, an income of about $12,000.

15 Mr Fay's 1993/1994 tax return was signed in April 1995 and was consequently available to him, albeit it may have been in his accountant's possession, had he wished to make use of it in support of his application for finance. However he did not, as I have said, provide a copy of it to Mr Brealey.

16 Mr Brealey, in his evidence, emphasised, according to the learned trial Judge, that Mr Fay was unable to provide any substantiation of his income that would be acceptable to the bank but agreed that tax returns or the like would have given the bank some material upon which to base a decision. Mr Brealey said that if Mr Fay's income had been included in support of the application for finance and if that income had been in the order of $25,000 or more (this being a figure put to him in the course of cross-examination) this would "most certainly" have been likely to have made a difference. However, the learned trial Judge said that Mr Brealey was never asked, no doubt because that evidence from Mr Fay had not yet been received, whether an income of $15,000 or $12,000 would have made a difference. Mr Fay did not give that evidence until he was recalled after the adjournment.

17 The learned Judge found, on the strength of these findings, that there was "a failure" on the part of Mr Fay in that he failed to provide adequate information to Mr Brealey about his own income and made no effort to bring his own income "into the equation". His Honour said that that factor alone was sufficient for him to conclude that Mr Fay failed to do all that was reasonably necessary on his part in order to obtain finance. His Honour went on to say:

"The plaintiffs assert that if the bank had been acquainted with all of the financial information and, specifically, if Mr Fay's income had been included, then it is likely the application would have been successful.

There is no direct evidence about this because, as I have commented, at the time Brearley [sic] was in the witness box Mr Fay's evidence had been that his income during the relevant year was about $25,000, and not the $15,000 that his then current tax return mentioned. Thus Brearley [sic] was never asked whether $15,000 extra income would have made a difference.

That state of affairs is of course entirely the fault, in my view, of the defendants.

Counsel for the plaintiffs submitted that the burden of proof is upon the defendants to show that if application for finance had been formally and properly made with all the relevant information provided, that it would not have succeeded. I accept that proposition and it seems to me that the defendants have not succeeded in discharging that burden. In my view the plaintiffs are entitled to damages for breach of contract."

18 The grounds of appeal, as they were proposed to be amended during the course of the appeal, are to the following effect:

"1. The Learned Judge erred in failing to find that the Appellants met their obligation by their telephone application to the broker Brearley [sic] and that it was not reasonably necessary to provide Mr Fay's past tax returns. The Learned Judge should have found:

(a) the 1994 return (and previous returns) showed Mr Fay had no likely assessable income of any amount sufficient to bring the Fay's [sic] within the bank lending criterion adduced by Mannolini and Brearley [sic].

(b) the 1994 and 1995 tax returns and the evidence of Fay and Brearley showed Mr Fay had no established or reliable ongoing source of annual income and thereby no capacity to make future periodic loan repayments and that it was reasonable for the Fay's [sic] to not rely on it.

2. The Learned Judge erred in failing to find that the onus remained throughout on the Plaintiffs to show that the tax returns were a guide to the Appellants' future capacity to make loan repayments."

19 Because the grounds were proposed to be amended in this way in order to bring them into line with the manner in which the appeal was argued, and because counsel for the respondent raised no strong opposition to the amendments, I would allow the amendments. I will consequently deal with the amended grounds of appeal.

20 I will deal, firstly, with the second of those grounds.

21 The first point which might be made in respect of it is that the learned trial Judge did not refer to any onus as regards proof of the fact that the tax returns were a guide to the appellants' future capacity to make loan payments. He said only that the burden of proof was upon the appellants to show that a proper application, "made with all relevant information provided ... would not have succeeded". It was that onus which, he found, the appellants had failed to discharge.

22 There was no real dispute as to the proposition that the appellants carried the onus of establishing that they had, in fact, used their best endeavours to obtain the loan.

23 Clause 1.4 of the agreement which, as I have said, provided that the agreement was "deemed to have come to an end" if, the purchaser having used best endeavours to obtain the loan, the loan was rejected or not approved on or before the specified date and there had been no waiver, provided what was, in effect, a condition subsequent (cf Zieme v Gregory [1963] VicRp 34; [1963] VR 214 at 222; Tait v Bonnice [1975] VicRp 9; [1975] VR 102 at 103; Kathopoulos v Bjelica Investments Pty Ltd (1979) 25 ALR 309 at 317; Clark v Refeld (1981) 25 SASR 246 at 266, 283 and F J & R J Hug Pty Ltd v Orlando [1982] WAR 99 at 105). While the utility of the distinction between a condition precedent to completion and a condition subsequent in agreements of this kind has been doubted (see Meehan v Jones [1982] HCA 52; (1982) 149 CLR 571 at 582, per Gibbs CJ, and Mason J, at 592) there is support for the proposition that it does bear upon the issue of onus and that it is for a plaintiff to prove the fulfilment of a condition precedent whereas it is for a defendant to show that an obligation has been discharged by the fulfilment of a condition subsequent. (See The Glendarroch [1894] P 226; Stoney v Eastbourne Rural District Council [1927] 1 Ch 367 at 377; Zieme v Gregory, supra, at 223 and cf Swanton, " 'Subject to Finance Clauses' in Contracts for the Sale of Land" (1984) 54 ALJ 633 at 693). Whatever may be the utility of the distinction it seems clear that the purchasers, in this case, sought to bring themselves within an exemption and, that being so, it was for them to show that they fell within it. There is a considerable body of authority to support that proposition. See Barber v Crickett [1958] NZLR 1057 at 1061; Eastmond v Bowis [1962] NZLR 954 at 961; Knotts v Gray [1963] NZLR 398 at 401; Martin v MacArthur [1963] NZLR 403 at 405; Mulvena v Kelman [1965] NZLR 656 at 662 (where the condition in question was classified as a condition precedent); Zieme v Gregory, supra, at 223 - 224 and Brauer & Co (Great Britain) Ltd v James Clark (Brush Materials) Ltd [1952] 2 All ER 497 at 501 but cf Atherton v Flodine [1959] Qd R 364 at 371).

24 The learned trial Judge, in accepting the proposition that the burden of proof was upon the appellants to show that if their application for finance had been "properly made with all the relevant information provided ... it would not have succeeded" was saying no more than that they bore the burden of bringing themselves within the exemption. They could only do so by establishing that they did, in fact, use their best endeavours to obtain the loan from Challenge Bank. That, in turn, required them to prove that their application for finance was supported by such information as might ordinarily be required if the application was to be approved or, if that was not done, to prove that the provision of the relevant information would have made no difference and that the application for finance would not, in any event, have been approved.

25 There is consequently no substance to this ground of appeal.

26 That brings me, next, to the first ground of appeal which is, as I have said, to the effect that the learned trial Judge should have found that the appellants had discharged their onus.

27 I am not persuaded that the learned trial Judge made any mistake in that respect.

28 Counsel for the appellants relied primarily upon the evidence of Mr Fay, that of Mr Brealey and, to a lesser extent, that of Mr Nello Mannolini who was, in 1995, a senior credit manager at Challenge Bank.

29 Mr Fay said that he had worked as a renovator during the four or five years leading up to the making of the agreement. While, he said, he was occupied mainly in the renovation of the homes in which he and his family lived he also did "small amounts of bathroom renovations in between". He expressed some reluctance in saying what he had earned in each of those years because, he said, he had given all of the "documentations" to his accountant. When pressed, he at first said, as I have previously mentioned, that his income was possibly "around" $35,000 at the time of making the agreement but later said that he estimated that, over a period of three years prior to 1995, he earned approximately $25,000 per year.

30 However, as I have also mentioned, when recalled to give evidence after the adjournment to which I have earlier referred, he was shown his income tax return for the year ended June 1994. This was signed by him on 6 April 1995. It showed that the partnership of "T & V Fay", which was the vehicle for his renovating business, had paid to him a salary of $12,000. His income tax return, after deducting various expenses (including such expenses as $2,750 for his motor vehicle, $570 for drycleaning and $1,500 for his home office) showed a taxable income of $5,373.

31 His main business activity was described as tiling and the estimated gross business income was shown as $219,000. However this sum, he said, was comprised primarily of profits derived from the sale of a renovated home.

32 His income tax return for the year ended 30 June 1995 was prepared only after he had entered into the agreement. However, he said, all his documents and records relating to that income had, at the time of the agreement, been sent by him to his accountant. That return reflected, as I have said, a total income of $15,014 and, after deducting expenses (including petrol, repairs and maintenance of $750, dry cleaning of $570 and home office costs of $104) gave rise to a taxable income of $13,013. That return shows a total business income of $383,779 which, once again, was comprised primarily of the proceeds of the sale of a renovated home.

33 The schedule of business expenses which accompanied the return shows that $607 was spent on advertising, indicating that Mr Fay was active in seeking work outside that involving the renovation and sale of the houses in which he lived. That schedule also shows that $2508 was spent on motor vehicle expenses.

34 Mr Fay acknowledged that over the period from May 1994 until February 1996 (being a period covered by various invoices which were tendered in evidence) he incurred a number of expenses on tiling and renovating jobs other than the work carried out on the homes in which he lived. When asked whether he was able to apportion "what relates to what" in respect of his invoices he said that he was not. However he reiterated on a number of occasions that all of the information had been provided to his accountant.

35 He said in evidence that Mr Brealey had asked him for "an up-to-date record of the tax returns ... within two or three days" but said that he was unable to provide these documents. Not only did his evidence establish that he did not provide Mr Brealey with his tax return for the year ended 30 June 1994 (or for any prior year), it also established that he did not provide Mr Brealey with any documentation at all with respect to his income over the preceding 12 months. When asked if he knew that Mr Brealey was, in giving him advice with respect to the availability of finance, relying upon his wife's income, he said: "Well, I had known, yes, because I had no documentation, up-to-date documentation, and Mr Brealey seemed to want up-to-date records of what I was doing." In saying that he had no documentation Mr Fay appeared, in the light of his other evidence referred to above, to be saying that he did not have it because it was with his accountant.

36 He also acknowledged, not surprisingly, that if his broker had been able to obtain a loan in respect of the purchase of the property the subject of the agreement "based on ... some means of relying upon ... [Mr Fay's] income" he would have "accepted such a loan".

37 Mr Brealey confirmed, in his evidence, that Mr Fay was unable to provide "any financial statements showing that he had an income". He said that, because Mr Fay's income "could not be substantiated", it was not "going to be accepted by the bank". He said that Mr Fay had given no reason for his inability to provide him with documentation evidencing his income. Indeed he acknowledged, during the course of cross-examination, that he had asked Mr Fay what his income was and been told only that the latter could provide him with nothing to verify his income. When asked whether, if Mr Fay had been able to provide "accountant's books and taxation returns", this would have been acceptable to the bank he responded by saying: "As far as assessment from the bank, that gives them something to assess, yes."

38 Mr Brealey was asked whether "capital gain based income is acceptable or might be acceptable" to a bank and responded by saying that it would only be acceptable if there were "accountant's records or the financial accounts showing that that is the case ... ". While he also later said that he did not believe that the bank would accept income "of a one-off nature" this answer must be taken together with his earlier answer and considered in the light of Mr Fay's evidence that he had on more than one occasion renovated and then sold houses in which he lived and that this practice produced an ongoing source of income for him together with that derived from other jobs. Moreover Mr Brealey did not know (and, as I have mentioned, Mr Fay did not say) what percentage of Mr Fay's income was ascribable to renovations of his own homes and what to other jobs (although it seems plain that the renovations to his own homes had been the principal source of his gross income).

39 I have already mentioned that Mr Brealey said that if Mr Fay was able to establish that he had received an income of around $25,000 to $35,000 per annum this would "most certainly" have been likely to have made a difference to the bank's attitude to the loan. When later asked what would have been the position if a "$20,000 income [from Mr Fay] was brought to account ... which could be verified" he said that he believed that this would have secured the appellants the loan of $170,000 which they sought from Challenge Bank. There was, as the learned trial Judge said, no evidence at all as to what would have been the bank's attitude had Mr Fay's actual income been disclosed to it and had that income been supported by documentation of the kind to which I have referred.

40 Mr Mannolini's evidence was, as the learned trial Judge said, of limited utility. He was able to say no more than that in "basic terms" the lending guidelines of Challenge Bank, in 1995, were such that "the amount of debt should not be more than about 33 per cent of ... all the commitments" and that the amount of the loan should be no more than 80 per cent of the value of the property.

41 It seems to me to be quite plain, from all of this evidence, that, notwithstanding that Mr Fay had, or had access to, his tax return for the year ended 30 June 1994 and those for prior years, these were not made available to Mr Brealey. Nor did Mr Fay make any attempt to provide Mr Brealey with copies of the documents which had been made available by him to his accountant and which evidenced his income for the tax year ended 30 June 1995.

42 There was, consequently, never any opportunity for the bank to consider this material (or a statement from Mr Fay's accountant) in considering whether or not to lend to the appellants the amount sought by them being an amount which, self-evidently, they would have accepted had the money been made available to them.

43 It was, in all of these circumstances, open to the learned trial Judge to conclude, as he did, that the appellants had failed to discharge their onus.

44 There being no substance to this ground of appeal also, I would dismiss the appeal.