HEADNOTE
[This headnote is not to be read as part of the judgment]
The appellants, Mr and Mrs Galafassi, entered into a contract dated 30 September 2011 to purchase a residential property in Paddington from the respondent, Mrs Kelly. The purchase price under the contract was $6,350,000, of which the purchasers paid a 5% deposit ($317, 500). The date fixed for completion under the contract was 30 December 2011.
On the morning of 30 December 2011 the purchasers' solicitors advised that the purchasers did not have the funds necessary to enable them to complete and that they would not be able to proceed with the purchase. The vendor responded that she did not accept the purchasers' apparent repudiation and intended to institute proceedings for specific performance. On 4 January 2012 the purchasers' solicitors again advised that the purchasers were not financially capable of completing the contract and that they would be unable to comply with an order for specific performance. On 20 January 2012 the vendor commenced proceedings in the Equity Division of the Supreme Court seeking orders for specific performance and, in the alternative, damages.
On 24 January 2012 Mrs Galafassi sent an email to the vendor and her husband apologising for their failure to complete. The email explained that the purchasers had been unable to sell their own home and had instead agreed to a property swap arrangement with the vendor of a different property, and in the process they had lost all their savings, meaning that they were unable to go through with the purchase. On or about 24 February 2012 Mrs Galafassi sent a further email again stating that there was no way they could comply with an order for specific performance if such an order was granted because they did not have the means to raise the funds to complete. The email suggested that the vendor should attempt to resell the property and might achieve a better result if she did so.
On 21 March 2012 the Supreme Court gave directions for the matter to continue on pleadings. In accordance with those directions the vendor filed a statement of claim on 17 April 2012 seeking an order for specific performance and, in the alternative, damages.
On 24 April 2012 the vendor served a notice of termination of the contract on the purchasers, purporting to accept their repudiation. The basis for termination identified in that notice was the content of correspondence from the purchasers of 30 December 2011 and 4 January 2012. On the same day the vendor entered into a contract for sale of the property to a Mr Ball for $5,500,000. This contract was completed on 30 May 2012.
On 6 June 2012 the vendor filed an amended statement of claim seeking damages for breach of contract including the deficiency on resale, special condition interest, and the payment of the vendor's liability for land tax for 2012. The purchasers by their amended defence denied that they had repudiated the contract and had been unwilling and unable to perform the contract, and argued that some of the correspondence on which the vendor relied was sent "without prejudice" and was inadmissible. The purchasers contended that the vendor had elected to affirm the contract and therefore the vendor's purported termination was wrongful and amounted to repudiation by the vendor. In the alternative the purchasers argued that the vendor had failed to mitigate her loss in exercising the power of resale. The purchasers also contended that they were not liable for special condition interest or land tax.
The primary judge:
1 found that the emails of 24 January and 24 February were admissible because they were not an attempt to negotiate a settlement and therefore did not fall within s 131(1) Evidence Act 1995 (NSW), or alternatively that the exception in s131(2)(g) applied so as to make both emails admissible;
2 found that there was a clear continuing act of repudiation by the purchasers in their communications, as they had indicated that they could not complete, had no intention of completing, and had put it beyond their power to complete;
3 held that service of a notice to complete was not a prerequisite of a right to terminate in the present case;
4 held that even if the vendor had elected to affirm the contract, the commencement of proceedings for specific performance and filing of pleadings did not preclude a subsequent claim for damages for breach of contract in circumstances where there was continuing repudiation by the purchasers;
5 found that the vendor made reasonable efforts to minimise her loss and took reasonable care in selling the property for the price which she did;
6 found that the vendor's claim for special condition interest and payment of land tax could be recovered as part of the deficiency on resale under cl 9.3.1. Alternatively the primary judge found that land tax would be recoverable as an expense flowing from the purchasers' default.
The purchasers appealed. The key issues on appeal were 1) whether the vendor's termination of the contract was valid; 2) the admissibility of the emails of 24 January and 24 February; 3) whether the vendor failed to mitigate her loss on resale; and 4) whether the vendor was entitled to special condition interest and reimbursement for land tax liability.
Appeal allowed in part. The Court held, per Gleeson JA (Bathurst CJ and Ward JA agreeing) that:
1 The appellants' challenge to the primary judge's finding that there was a clear continuing act of repudiation was unsuccessful. The purchasers' communications of 4 January, 24 January, and 24 February constituted clear statements of the purchasers' inability and unwillingness to perform the contract. These were also statements of existing fact and were a continuing representation unless and until they were withdrawn or modified, which did not occur. As such the conduct of the purchasers amounted to continuing renunciation of their contractual obligations. Further, the primary judge was correct to find that there was factual inability to perform. On the purchasers' own evidence they were "wholly and finally disabled" from completing the contract: at [59]-[70].
Considered: Shevill v Builders Licensing Board [1982] HCA 47; 149 CLR 620; Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd [1989] HCA 23; 166 CLR 623; Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61; 233 CLR 115; Universal Cargo Carriers Corporation v Citati [1957] 2 QB 401; K&K Real Estate Pty Ltd v Adellos Pty Ltd [2010] NSWCA 302; Rawson v Hobbs [1961] HCA 72; 107 CLR 466; Almond Investors Ltd v Kualitree Nursery Pty Ltd [2011] NSWCA 198.
2 Although an election between inconsistent rights once made is irrevocable, a vendor who elects to sue for specific performance is not thereby precluded from later terminating and claiming damages in circumstances where the purchaser, after the institution of the proceedings, either committed a further breach of an essential term of the contract or otherwise evinced an intention to no longer be bound by the contract. The purchasers' unretracted declarations of inability and unwillingness to perform remained as a fact in the history of the matter and gave an unmistakeable colour to their continued inactivity, such as to convey to a reasonable person in the position of the vendor renunciation of the contract as a whole as at 24 April 2012: at [71]-[91].
Considered: Sargent v ASL Developments Ltd [1974] HCA 40; 131 CLR 634; Agricultural and Rural Finance Pty Ltd v Gardiner [2008] HCA 57; 238 CLR 570; Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) [1993] HCA 27; 182 CLR 26; United Australia Ltd v Barclays Bank Ltd [1941] AC 1; Baxter v Obacelo Pty Ltd [2001] HCA 66; 205 CLR 635; Tropical Traders Ltd v Goonan (1964) 111 CLR 41; Ogle v Comboyuro Investments Pty Ltd [1976] HCA 21; 136 CLR 444; Johnson v Agnew [1980] AC 367; Safehaven Investments Inc v Springbok Limited (1996) 71 P & CR 59; Holland v Wiltshire [1954] HCA 42; 90 CLR 409; Champtaloup v Thomas [1976] 2 NSWLR 264.
3 There is no need for a notice to complete to be issued before termination where there has been repudiation by a party of its obligations under the contract, and not merely delay in performance: at [92]-[110].
Considered: Michael Realty Pty Ltd v Carr [1977] 1 NSWLR 553; Georgiou v Sindel [1982] 1 NSWLR 435; Ogle v Comboyuro Investments Pty Ltd [1976] HCA 21; 136 CLR 444; Ciavarella v Balmer [1983] HCA 26; 153 CLR 438; Taylor v Raglan Developments Pty Ltd [1981] 2 NSWLR 117; Rian Financial Services Pty Ltd v Alfred Investment Projects Pty Ltd (1988) 90 FLR 215; Gold Coast Oil Co Pty Ltd v Lee Properties Pty Ltd [1985] 1 Qd R 416; Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61; 233 CLR 115; Angus v Kinraid [1988] ANZ ConvR 129; Proctor v Chahl [2008] NSWSC 1252; Carr v J A Berriman Pty Ltd [1953] HCA 31; 89 CLR 327; Highmist Pty Ltd v Tricare Ltd [2005] QCA 357.
4 The appellants' challenges to the primary judge's approach to the question of mitigation of loss and to his finding that there was no failure to mitigate loss on resale were unsuccessful. In the present case the purchasers claimed that the vendor was subject to a duty to exercise the power of resale in a reasonable manner, arising either as an implied term of the contract or under the so-called common law duty to mitigate loss. The vendor accepted at trial that there was a duty to mitigate. The primary judge concluded that the result in this case would be the same on either basis, and approached the matter on the basis of a common law duty. On appeal the purchasers accepted that the result would be the same on either basis. As such there was no material error in the approach taken by the primary judge. In any event the evidence did not establish that the vendor had failed to take reasonable care in selling the property for the price that she did or in making reasonable efforts to minimise her loss: at [149]-[173].
Considered: Jampco Pty Ltd v Cameron (No 2) (1985) 3 NSWLR 391; Rothenberger Australia Pty Ltd v Poulsen [2003] NSWSC 788; 58 NSWLR 288; Hansmar Investments Pty Ltd v Perpetual Trustee Co Ltd [2007] NSWSC 103; 61 ACSR 321; Bydand Holdings Pty Ltd v Pineland Property Holdings Pty Ltd [2009] NSWSC 1159; Karacominakis v Big Country Developments Pty Ltd & Ors [2000] NSWCA 313.
5 The appellants' challenge to the primary judge's finding that the vendor was entitled to special condition interest was successful. The vendor had elected to make a claim calculated under cl 9.3.1 for liquidated damages rather than a claim for damages under the general principles for breach of contract. The starting point in assessing the deficiency on resale is the price of the first contract if it had been completed according to its terms. In this case the payment of special condition interest was contingent upon completion. Since completion never occurred, special condition interest should not be included as part of the price under the first contract. In this respect the primary judge erred in following the reasoning in Zografakis v McCarthy at [21]: at [174]-[195], [203].
Considered: Zografakis v McCarthy [2007] NSWSC 144; Palasty v Parlby [2007] NSWCA 345; Tiplady v Gold Coast Carlton Pty Ltd (1984) 54 ALR 337; Rothenberger Australia Pty Ltd v Poulsen [2003] NSWSC 788; 58 NSWLR 288; Jampco Pty Ltd v Cameron (No 2) (1985) 3 NSWLR 391; Johnson v Perez [1988] HCA 64; 166 CLR 351; Hoskins v Rule [1952] NZLR 827; J Boag & Son Brewing Ltd v Bridon Investments Pty Ltd (2001) 10 TAS R 26; Carpenter v McGrath (1996) 40 NSWLR 39; Advanced Commercial Finance Ltd v Aarons (1996) 7 BPR 14,523; Hearse v Pallister [2008] NSWSC 504; Taylor v Raglan Developments Pty Ltd [1981] 2 NSWLR 117; Buchanan v Dunstan [2007] NSWSC 248; 13 BPR 24,521; Sunbird Plaza Pty Ltd v Maloney [1988] HCA 11; 166 CLR 245; McDonald v Dennys Lascelles Ltd [1933] HCA 25; 48 CLR 457.
6 The appellants' challenge to the primary judge's finding that the vendor was entitled to reimbursement for land tax was unsuccessful. To the extent that the primary judge relied upon the reasoning in Zografakis v McCarthy at [21], his Honour erred. However the primary judge also correctly relied, in the alternative, upon the reasoning in Jampco Pty Ltd v Cameron (No 2) in holding that the vendor's liability for land tax was a reasonable cost or expense "arising out of the purchaser's non-compliance with this contract" as referred to in the second limb of cl 9.3.1, and therefore the vendor was entitled to be reimbursed for that liability: at [196]-[202].
Considered: Zografakis v McCarthy [2007] NSWSC 144; Jampco Pty Ltd v Cameron (No 2) (1985) 3 NSWLR 391; Rossco Developments Pty Ltd v O'Halloran (1980) 29 ACTR 1.
Held, per Gleeson JA (Ward JA agreeing), that:
7 The primary judge correctly held that s131(1) of the Evidence Act was not applicable to the emails of 24 January and 24 February, as these communications were not in connection with "an attempt to negotiate a settlement" of a dispute: at [111]-[134].
Considered: Liu v Fairfax Media Publications Pty Ltd [2012] NSWSC 1352; Silver Fox Co Pty Ltd v Lenard's Pty Ltd (No 3) (2004) 214 ALR 621; Barrett Property Group Pty Ltd v Dennis Family Homes Pty Ltd (No 2) [2011] FCA 276; 193 FCR 479; Field v Commissioner for Railways (NSW) [1957] HCA 92; 99 CLR 285; GPI Leisure Corporation Ltd (in Liq) v Yuill (1997) 42 NSWLR 225; Coshott v Burke [2013] FCA 513; Korean Airlines Co Ltd v Australian Competition and Consumer Commission (No 3) [2008] FCA 701; Seven Network Ltd v News Ltd [2006] FCA 343; Apotex Pty Ltd v Les Laboratoires Servier (No 5) [2011] FCA 1282.
Held, per Gleeson JA (Bathurst CJ and Ward JA agreeing):
8 The primary judge correctly held, in the alternative, that the exception in s131(2)(g) was applicable because the Court would likely be misled as to whether there was continuing repudiatory conduct by the purchasers after the institution of the proceedings if the communications were not admitted. The exception in s131(2)(i) would also have applied as the disputed communications related to the vendor's contractual right to terminate for repudiatory conduct after the institution of proceedings: at [135]-[148].
Considered: Barrett Property Group Pty Ltd v Dennis Family Homes Pty Ltd (No 2) [2011] FCA 276; 193 FCR 479; Brown v Commissioner of Taxation (2001) 187 ALR 714; Mulkearns v Chandos Developments Pty Ltd (No 4) [2005] NSWSC 511; Nader v Sutherland Shire Council [2008] NSWCA 265; McFadden v Snow (1952) 69 WN (NSW) 8; Atlas Financial International Ltd v Nortbale Pty Ltd [2011] NSWSC 815; Payne v Rowe [2012] NSWSC 685; Glass v Demarco [1999] FCA 482; Pihiga Pty Ltd v Roche [2011] FCA 240; 278 ALR 209; Tenstat Pty Ltd v Permanent Trustee Australia Ltd (1992) 28 NSWLR 625.