Fekala Pty. Ltd. v. Castle Constructions Pty. Ltd. [2002] NSWCA 297

Court of Appeal (NSW)|2002-08-07|Before: Beazley JA, Hodgson JA, Santow JA, Windeyer J

CITATION : Fekala Pty. Ltd. v. Castle Constructions Pty. Ltd. [2002] NSWCA 297 FILE NUMBER(S) : CA 40222/02 HEARING DATE(S) : 7 August 2002 JUDGMENT DATE : 7 August 2002

PARTIES : Fekala Pty. Limited - appellant Castle Constructions Pty. Limited - respondent JUDGMENT OF : Beazley JA at 1; Hodgson JA at 2; Santow JA at 41

LOWER COURT JURISDICTION : Supreme Court - Equity Division LOWER COURT ED 3812/01 FILE NUMBER(S) : LOWER COURT Windeyer J JUDICIAL OFFICER :

COUNSEL : Mr. B. Skinner for appellant Mr. D. Officer QC with Mr. D.L. Warren for respondent SOLICITORS : Nugent Wallman & Carter, Edgecliff for appellant Day Dockrill, Neutral Bay for respondent CATCHWORDS : CONTRACTS - CONVEYANCING - Vendor and purchaser - Notice to complete - Whether party giving a notice to complete can deny its validity - Whether party giving a notice to complete can unilaterally extend the time limited by the notice - Need for notice making time of the essence to be explicit - Whether vendor's notice to complete waived submission of transfer. Abela v. Lawnside Holdings Pty. Ltd. [1988] NSWConvR 55-430 Falconer v. Wilson [1973] 2 NSWLR 131 Finkielkraut v. Monohan [1949] 2 AllER 234 CASES CITED: Halfpenny v. Wilson (1967) 87 WN(Pt.1)(NSW) 547 Louinder v. Leis (1982) 149 CLR 509 Merns v. Parras Holdings Pty. Ltd. [1994] NSWConvR 55-705 Quadrangle Development & Construction Co. Ltd. v. Jenner [1974] AllER 729 Suttor v. Gundowda Pty. Ltd. (1950) 81 CLR 418 DECISION : Appeal dismissed with costs.

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40222/02 ED 3812/01

BEAZLEY JA HODGSON JA SANTOW JA

Friday 6 September 2002 FEKALA PTY. LIMITED V. CASTLE CONSTRUCTIONS PTY. LIMITED Judgment 1 BEAZLEY JA: I agree with the reasons of Hodgson JA as set out below. 2 HODGSON JA: Proceedings were commenced in the Equity Division on 1st August 2001 by the respondent Castle Constructions Pty. Limited (the Purchaser) against the appellant Fekala Pty. Limited and others (the Vendors) in relation to a contract for sale by the Vendors to the Purchaser of property at Eastwood. The proceedings initially sought declarations as to what was included in the sale; but on 29 August 2001, the Purchaser gave notice that it terminated the contract, and by an Amended Summons (later further amended) the Purchaser claimed a declaration that the contract had been terminated, return of the deposit, and damages. By a cross-claim in the proceedings, the Vendors sought specific performance and damages, and alternatively a declaration that they were entitled to the deposit. 3 Windeyer J gave judgment in the proceedings on 26 February 2002, and on 1 March 2002 made orders granting the relief sought by the Purchaser (including an enquiry as to damages) and dismissed the Vendors' cross-claim. The Vendors appeal to this Court from those orders.

FACTS 4 The contract was entered into on 28 June 2001, in the form of the 2000 edition of the Standard Contract for the Sale of Land. The Vendors were named as "Fekala Pty. Limited and others as mortgagees exercising power of sale pursuant to registered mortgage No.6152594". The contract was signed on behalf of the Vendors by their solicitor: no issue is now raised by reason of that circumstance. The completion date was specified as the 42nd day after the contract date, which was in fact 9 August 2001. The price was $3 million, with a deposit of $300,000.00. 5 The names of the Vendors were set out in Annexure A to the contract. There were 37 mortgagees holding as tenants in common in unequal shares. One of the mortgagees named in the mortgage and in the annexure was "Valerie Winifred Colburt". She had in fact died on 20 April 2001, and probate of her will was granted to Jennifer Gai Davies and Ian Leslie Colburt on 22 June 2001. The solicitors for the Purchaser were not informed of this matter at any time by the solicitors for the Vendors, and did not become aware of it until they made a search of the title on 24 August 2001: a transmission application had been registered by then, apparently at some time after 30 July 2001. 6 Clauses 4 and 15 of the standard form of the contract provided as follows: 4. Transfer 4.1 Normally, the purchaser must serve the form of transfer at least 14 days before the completion date. 4.2 If any information needed for the form of transfer is not disclosed in this contract, the vendor must serve it. 4.3 If the purchaser serves a form of transfer and the transferee is not the purchaser, the purchaser must give the vendor a direction signed by the purchaser personally for this form of transfer.

Completion date The parties must complete by the completion date and, if they do not, a party can serve a notice to complete if that party is otherwise entitled to do so. 7 An additional cl.32 drafted for the particular contract provided as follows: 32 Despite any rule of law or equity to the contrary, the vendor and the purchaser agree that any notice to complete given by the vendor to the purchaser under this contract shall be reasonable as to time if a period of 14 days from the date of service of the notice is allowed for completion. 8 On 19 July 2001, the solicitors for the Vendors wrote to the solicitors for the Purchaser concerning a dispute about what was included in the sale, and that letter concluded with the following two paragraphs: We look forward to your requisitions on title together with the memorandum of transfer in due course, bearing in mind that we have to obtain signatures of numerous mortgagees, some of whom is inter-state and some of whom live in the country.

We note that settlement of this matter is due to take place on 9th August 2001. 9 On 7 August 2001, the solicitors for the Vendors wrote again to the solicitors for the Purchaser, as follows: We refer to our letter of 19th July and to the subsequent Supreme Court proceedings.

We note that we have not received the purchaser's requisitions on title nor have we received a transfer document notwithstanding the fact that the settlement is to take place on 9th August.

As we mentioned in our letter of 19th July, the transfer document will have to be executed by numerous mortgagees and accordingly we require the transfer document as a matter of urgency.

May we hear from you. 10 On 14 August 2001, the solicitors for the Vendors gave a Notice to Complete to the solicitors for the Purchaser, in the following terms: Notice to Complete Contract for the Sale of Land The Vendors require you to complete the contract for sale of land at 7 Rowe Street, Eastwood, New South Wales, being Folio Identifier 10/786746, at 3.00pm on Wednesday 29 August 2001 at the offices of Nugent Wallman & Carter, Solicitors at 388 Edgecliff Road, Woollahra, New South Wales. The time of 3.00pm is of the essence. In the event that you fail to complete at that time and place, the Vendors will regard themselves as entitled to terminate the said contract for sale. 11 The solicitors for the Purchaser responded by a letter dated 20 August 2001, claiming that items included in the sale had been removed, and asserting as follows: Until such time as the vendors reinstate the fixtures removed from the Property, the vendors are not ready and willing to transfer to the purchaser the Property, which the vendor agreed to sell and the purchaser agreed to purchase. Accordingly the vendors Notice is invalid. Our client disputes the vendors right to issue the Notice, and the effect of the Notice itself. 12 On 27 August 2001, the solicitors for the Purchaser wrote to the solicitors for the Vendors as follows: I enclose: 1. Draft settlement statement as at 29 August 2001. 2. Copy of Section 66 Certificate. 3. Copy of Section 603 Certificate. 4. Transfer.

I note that the sum of $300,000.00 will have to be retained by the agent in regard to the claim for compensation that was made in our letter of 20 August 2001. On settlement, instead of a normal Order on the Agent. we will provide a letter from ourselves to the agent directing them to hold $300,000.00 in trust as stakeholder under the contract until the claim for compensation has been determined.

In addition, I enclose a copy of Identifier 10/786746 obtained on 24 August 2001.

I note the Property is being purchased with vacant possession but that the Property is still subject to Lease 6152595. That Lease needs to be removed from the Register prior to completion. 13 The form of transfer enclosed with this letter named as vendors the persons noted as mortgagees on the copy of the mortgage held by the solicitors for the Purchaser. Later on, on 27 August 2001, the solicitors for the Purchaser sent a further letter to the solicitors for the Vendors in the following terms: We refer to the Transfer sent to you this morning.

We note that Annexures A and B to the Transfer have been done on the basis that the Mortgagees are as noted in the Mortgage. We subsequently note there has been a Notice of Death number 6628741B registered in relation to the death of Kurt Herbert Mandl and also a Transmission Application number 7813116 registered whereby the interest of Valerie Winifred Colburn now stands in the name of Jennifer Gai Davies, and Ian Leslie Colburt.

We have re-typed Annexures A and B which are now enclosed. Would you please check that the correct Transferors are shown.

It is common ground that nothing turns on the matter concerning the death of Mr. Mandl referred to in that letter. 14 There was evidence from the solicitors for the Vendors, apparently accepted by the primary judge, that they could not then obtain the signatures of all the Vendors in time to settle on 29 August; and that in fact, using all possible diligence, they did not obtain those signatures until 11 September. 15 On 28 August 2001, the solicitors for the Vendors sent a letter to the solicitors for the Purchaser as follows: We refer to our notice to complete dated 14th August 2001 calling for completion to take place on 29th August 2001.

We hereby advise that we waive the requirement for your client to complete at 3.00pm on Wednesday 29th August 2001 at the offices of Nugent Wallman & Carter, solicitors at 388 Edgecliff Road, Woollahra.

The vendors now require you to complete the contract for sale of land at 7 Rowe Street, Eastwood New South Wales being folio identifier 10/786746 at 3.00pm on Wednesday 12th September 2001 at the offices of Nugent Wallman & Carter at 388 Edgecliff Road, Woollahra.

We note that time will not cease to be of the essence.

In the event that you fail to complete at that time & place the vendors will regard themselves as entitled to terminate the said contract of sale. 16 The solicitors for the Purchaser responded the same day, as follows: We refer to your letter of today's date and your subsequent telephone conversation with Mr Dockrill of this office.

In relation to your claim for interest for late completion, we are instructed as follows:

Our client maintains that, when your client issued the Notice to Complete, the Vendors were not ready, willing and able to transfer the subject matter of the sale (i.e. at the very least, and without limiting the generality thereof, fixtures have been removed from the subject property, hence one of the reasons for our client's claim for compensation). The Vendors are in breach of the Contract.

As a result of the removal of fixtures (amongst other items removed from the property after exchange of Contracts), the Vendors should have offered compensation for the removal by the Vendors of the fixtures that form part of the subject matter of the sale.

Accordingly, it is the Vendors that are in default and not the Purchasers. Therefore, your claim for interest must be waived.

Kindly also forward to us a copy of the Transfer that will be handed to us on settlement for our approval. 17 The solicitors for the Vendors wrote again on 29 August 2001, as follows: We acknowledge receipt of your 2 letters each dated 27th August enclosing inter alia a transfer document collected by us on 2nd August 2001. We note our Notice to Complete dated 14th August called for completion on 29 August.

We draw your attention to clause 4.1 of the subject contract which states as follows: "Normally, the purchaser must serve the form of transfer at least 14 days before the completion date."

You will appreciate that your transfer requires 37 separate signatures.

We refer to our letter of 19th July in which we stated: "We look forward to your requisitions on title together with the memorandum of transfer in due course, bearing in mind that we have to obtain signatures of numerous mortgagees, some of whom are interstate and some of whom live in the county."

We wrote to you again on 7th August 2001 requesting the transfer in which we stated: "We note that we have not received purchaser's requisitions on title nor have we received a transfer a document notwithstanding the fact that the settlement is to take place on 9th August.

As we mentioned in our letter of 19th July, the transfer document will have to be executed by numerous mortgagees and accordingly we require the transfer document as a matter of urgency."

We reserve our rights in relation to your late delivery of the transfer. 18 A solicitor for the Purchaser attended for settlement at the office of the solicitors for the Vendors on 29 August 2001, but the Vendors were unable to settle because there was not yet a transfer signed by all the Vendors. The Purchaser then gave notice of termination of the contract.

PRIMARY JUDGE'S DECISION 19 The primary judge dealt with three issues: 1. Can a party giving a Notice to Complete unilaterally extend time for compliance? 2. Whether the Purchaser was precluded from terminating the contract, because it had failed to submit a transfer as required by cl.4.1; and whether the Vendors' failure to comply with cl.4.2 in relation to the mortgagee Colburt bore on this question. 3. Whether by serving a Notice to Complete without reference to submitting a transfer, the Vendors had waived any breach of cl.4.1. 20 The primary judge answered the first question no, on the ground that a Notice to Complete was binding on both parties. He answered the first part of the second question no, because of the Vendors' breach of cl.4.2, in that information needed for the form of transfer, namely the fact of the death of the mortgagee Colburt and the grant of probate to her two executors prior to the contract, was not disclosed in the contract and was not supplied by the Vendors to the Purchaser. It was therefore not necessary to determine the third question, but in any event, the primary judge decided that the Vendors did waive the breach of cl.4.1 by serving the Notice to Complete. Accordingly, the primary judge found that the Purchaser's termination of the contract was effectual.

GROUNDS OF APPEAL 21 In this appeal, the Vendors relied on the following grounds: 1. His Honour erred in accepting that the Notice to Complete was valid in circumstances where he accepted that the vendor was in breach of clause 4.2. it being the case that the vendor's breach of 4.2 rendered the notice invalid for want of any right in the vendor to issue such a notice.

His Honour ought to have placed reliance upon the facts that- a. the purchaser disputed the validity of the (invalid) notice b. before the time indicated in the notice the vendor communicated to the purchaser that it did not require performance in accordance with the (invalid) notice.

His Honour ought to have found that the purchaser was without any right to terminate for non-performance by the vendor in accordance with the notice to complete because of non-performance was brought about by the purchaser's breach in failing to arm the vendors with the means to do its part (i.e. provide the vendor with a transfer).

His Honour erred in finding that the vendor had waived the requirements of cl.4.1

His Honour ought to have found that the vendor's act of issuing a notice to complete was made with the intention of obtaining performance from a reluctant obligor in breach of its obligation to provide a transfer and not with a view to any rescission. 22 The Vendors have in fact re-sold the property, and do not seek specific performance, but forfeiture of the deposit and costs.

SUBMISSIONS 23 The primary submission of Mr. Skinner for the appellants (Vendors) concerned an issue not raised below, namely the validity of the Vendors' own Notice to Complete. Mr. Skinner submitted that, because the primary judge found that the Vendors were in breach in failing to perform cl.4.2, he was bound to find that the Notice to Complete was invalid. Mr. Skinner submitted that the Vendors should not be precluded from raising this issue, merely because they failed below to make a submission to that effect in reply to the Purchaser's submissions, as an alternative to the Vendors' primary submission. The matter would have been unaffected by any additional evidence. 24 Next, Mr. Skinner submitted that the primary judge placed too much weight on the Vendors' breach of cl.4.2, and too little on the Purchaser's breach of cl.4.1. In fact, the Purchaser should be estopped from relying on the strict terms of the Notice to Complete because of its breach of cl.4.1, in submitting the transfer two days before the expiry of the Notice to Complete, particularly when it was plain from the Vendors' solicitors' letters of 19 July and 7 August, and the need to obtain 37 signatures, that this was far too little time for the Vendors to be ready to complete. The Purchaser should not be permitted to take advantage of its own wrong. 25 Mr. Skinner submitted that, in so far as the primary judge considered that the Vendors had waived compliance with cl.4.1 by service of the Notice to Complete, that finding was inconsistent with the Vendors' insistence contained in its letters of 19 July and 7 August, and also with the circumstance that the Purchaser did not consider that such waiver had occurred, since it did submit a transfer on 27 August. 26 Finally, Mr. Skinner submitted that, although there was authority that a Notice to Complete binds both parties (Quadrangle Development & Construction Co. Limited v. Jenner [1974] 1 AllER 729), there was no authority against the proposition that a party giving a Notice to Complete can, a reasonable time before expiry of the notice, give notice extending the time. Mr. Skinner submitted that a person entitled to give a Notice to Complete because of the other party's breach of contract was entitled to extend the time limited by the notice, particularly if the conduct of the other party made it impossible for the person giving the notice to settle in the time specified. 27 Mr. Officer QC for the respondent (Purchaser) submitted that the Vendors should not be permitted to claim, for the first time on appeal, that their own Notice to Complete was invalid. The case of Abela v. Lawnside Holdings Pty. Limited [1988] NSWConvR 55-430 showed that a person giving a Notice to Complete could be estopped from denying its validity, particularly by the other party acting to its detriment in giving a Notice of Termination upon expiry of the Notice to Complete. If the question had been raised below, evidence could have been given by the Purchaser as to what it would have done, but for the Vendors' express or implied assertions that their Notice to Complete was valid. 28 In any event, he submitted, by giving a Notice to Complete requiring settlement, but making no reference to the submission of a transfer, the Vendors waived the requirement of compliance with cl.4.1: see Falconer v. Wilson [1973] 2 NSWLR 131 at 144-5. In those circumstances, the Vendors' own breach of cl.4.2 became irrelevant, and there was no basis for holding that the Notice to Complete was invalid. 29 As regards the submission that the Vendors could extend the time specified in the notice, Mr. Officer submitted that a Notice to Complete binds both parties, and the giver of the notice cannot waive compliance with it: Finkielkraut v. Monohan [1949] 2 AllER 234, Halfpenny v. Wilson (1967) 87 WN(Pt.1)(NSW) 547, Quadrangle Developments, Merns v. Parras Holdings Pty. Limited [1994] NSWConvR 55-705, Falconer. Although none of these cases expressly dealt with a notice given in advance purporting to extend the time, the principle was that the notice bound both parties as if it were a term of the contract, and therefore could be extended only by consent. Any other view would introduce great uncertainty: for example, it would raise a question as to how long before the specified time would the notice extending the time have to be given. 30 Finally, Mr. Officer submitted that, in any event, the Vendors could not seek forfeiture of the deposit in this appeal. At no time had they purported to rescind. In any event, until such time as the primary judge's decision was overturned, the Vendors were bound by the primary judge's finding that there had been no repudiation by the Purchaser.

DECISION 31 In my opinion, the Vendors should not now be permitted to allege invalidity in their own Notice to Complete. As shown by Abela, had the Vendors made this allegation below, it would have been open to the Purchaser to allege estoppel, and to lead further evidence in support of that allegation. 32 It is true that on 20 August 2001, the Purchaser asserted that the Notice to Complete was invalid; and that it impliedly repeated this assertion on 28 August. But on 29 August, the Purchaser demonstrated that it was ready, willing and able to complete and then it purportedly terminated the contract. Even if it be contended by the Vendors that the Purchaser could not then be relying on any representation by the Vendors, because the Vendors had by then extended the time for compliance with the Notice to Complete, it would have been open to the Purchaser to lead evidence that, despite the Purchaser's assertions of 20 August and 28 August, it did act in reliance on the Vendors' assertions that its Notice to Complete was valid, and that it correctly determined that, in those circumstances, particularly where the Vendors were still insisting that time was of the essence, the Vendors could not unilaterally extend the time from that specified in the notice. 33 In all the circumstances, this is a matter where evidence could have altered the situation, so it is not a case where the new argument should be permitted on appeal: see Suttor v. Gundowda Pty. Limited (1950) 81 CLR 418 at 438. 34 In any event, I do not think this submission could have succeeded. When the Notice to Complete was given, the time for completion specified in the contract had passed. The Purchaser was in breach of cl.4.1, in circumstances where the Purchaser could not claim that its breach was caused by any breach of cl.4.2 by the Vendors: the Purchaser did not know about the Vendors' breach until 24 August. By giving the Notice to Complete on 14 August, requiring completion on 29 August, in my opinion the Vendors waived compliance with cl.4.1. As stated by Mahoney J in Falconer at 145, a notice making time of the essence must state with reasonable explicitness what it is that it requires to be done. If the Vendors were still requiring the Purchaser to comply with cl.4.1, that is, to submit a transfer at least 14 days before completion, the notice would have meant that the transfer should be submitted the following day, that is on 15 August. In my opinion, the more reasonable interpretation of the notice is that it required only completion, waived the submission of the transfer, and proceeded on the basis that the Vendors would themselves prepare a transfer which they would then have executed in time for completion. On that construction, the Vendors' breach of cl.4.2 became irrelevant, and there was no basis for saying that the Notice to Complete was invalid. 35 I note that one aspect of the judgment of Mahoney J in Falconer was disapproved by the High Court in Louinder v. Leis (1982) 149 CLR 509 at 522-4, but that disapproval did not relate at all to the principles I have referred to. 36 Turning to the other points argued, my opinion that by serving the Notice to Complete, the Vendors waived compliance with cl.4.1, means that the Vendors cannot rely on the late submission of the transfer to excuse their failure to settle on the day appointed by the Notice to Complete. In any event, in the circumstances of this case, the prudent thing for the Vendors to have done would have been to prepare a form of transfer and have it executed to ensure that the Vendors were in a position to settle at the time they had specified. 37 Although no previous case has dealt with the situation where a party giving a Notice to Complete has purported to extend the time specified in it, the matter is I think determined by the principle that both parties are bound by a valid Notice to Complete, once it has been given. In addition, as pointed out by Mr. Officer, any other view would be productive of great uncertainty. Presumably, any notice extending the time would have to be given a reasonable time before the time specified, producing real questions as to what would be a reasonable time. Once a Notice to Complete has been given, the other party would presumably feel obliged to incur whatever trouble and expense was necessary to comply with it, which could be wasted if the party giving the Notice to Complete could simply extend the time which it specified. 38 For these reasons, in my opinion the appeal should be dismissed. It is not necessary to express any view as to Mr. Officer's submission that the Vendors, having re-sold the property, cannot now claim forfeiture of the deposit. 39 The order I propose is: appeal dismissed with costs. 40 The respondent sought an order for indemnity costs on the basis of an exchange of correspondence, in which the respondent invited the consent of the appellant to the appeal being dismissed with an order for costs in the respondent's favour. On the whole, I do not think this justifies any special order as to costs. 41 SANTOW JA: I agree with Hodgson JA.

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