Gloxinia Investments Limited v Low & Anor

Judgment 1On 18 October 2010, the plaintiff as vendor and the defendants as purchasers entered into a contract to purchase a unit at Double Bay for $2.1 million. The contract was in the 2005 edition of the standard form with a large number of special conditions. 2Clause 15 provided that "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." Special Condition 31.1 provided that "The completion date is 18 November 2010." 3The deposit was paid on 18 October 2010 to the vendor's agent. On 19 November 2010 the purchasers issued a Notice to Complete making time of the essence of the contract and requiring completion by 4.00 pm on 6 December 2010. There is no contest that that Notice to Complete was validly issued and binding on both parties. 4Completion did not take place on, or before, 6 December 2010. 5On 8 December, 2010, the vendor's then solicitors issued a Notice which they intended to operate as a notice to terminate the contract for breach. I will deal with this notice in detail in due course. 6Later on 8 December 2010 the purchasers replied with a counter Notice of Termination of the contract for the vendor's alleged breach, ie its repudiation of the contract by wrongfully giving its Notice of Termination. 7The vendor resold the property after an appreciable delay, but within a year and it now sues to recover the loss on resale plus other alleged losses. The purchasers cross claim for return of the deposit. 8I heard the proceedings on 18 and 20 November 2013 when Mr A A R Vincent appeared for the plaintiff and Mr J C Giles and Mr C W Brown appeared for the defendants. 9The principal point involved in this case is whether the vendor was entitled to give a notice of termination on 8 December 2010 and the consequences that would flow if it was so entitled. 10However, before I consider that matter, I need to deal with a preliminary point which neither set of counsel had at the forefront of their arguments, but needs to be considered briefly. 11Clause 9 of the contract provides: 9. Purchaser's default If the purchaser does not comply with this contract (or a notice under or relating to it) in an essential respect, the vendor can terminate by serving a notice. After the termination the vendor can - 9.1 keep or recover the deposit (to a maximum of 10% of the price); 9.2 hold any other money paid by the purchaser under this contract as security for anything recoverable under this clause - 9.2.1 for 12 months after the termination; or 9.2.2 if the vendor commences proceedings under this clause within 12 months, until those proceedings are concluded; and 9.3. sue the purchaser either - 9.3.1 where the vendor has resold the property under a contract made within 12 months after the termination, to recover - the deficiency on resale (with credit for any of the deposit kept or recovered and after allowance for any capital gains tax or goods and services tax payable on anything recovered under this clause); and the reasonable costs and expenses arising out of a purchaser's non-compliance with this contract or the notice and of resale and any attempted resale; or 9.3.2 to recover damages for breach of contract. ("Terminate" is defined as "terminate this contract for breach".) 12I should also set out part of special condition 49 which is as follows:- 49.3 Indemnity The purchaser indemnifies the vendor against any liability or loss arising from, and any Costs incurred in connection with, the purchaser's default under this contract or the purchaser's breach of warranty, including legal Costs on whichever is the higher of a full indemnity basis or solicitor and own client basis. 49.10 No merger The warranties (except those implied by law) and agreements...in this contract do not merge on completion. 13The relevant part of the document issued by the vendor's then solicitors on 8 December 2010, provides as follows: Notice of termination of contract for the sale of land ... We refer to the contract for sale of the abovementioned Property between the Vendor and Purchasers dated 18 October 2010 (the "Contract") Background The Vendor was ready, willing and able to complete the Contract by the time and date appointed in the Notice to Complete dated 19 November 2010. ... The Purchasers have not complied with the Contract in an essential respect, namely failure to comply with the Notice, upon which the Vendor relies. Notice 1 Without prejudice to any of the rights of the Vendor, the Vendor hereby exercises its right to terminate the Contract in accordance with clause 9 of the Contract. 2 The Vendor hereby exercises the right to keep the deposit paid by the Purchasers under the Contract in accordance with clause 9 of the Contract. 3 The Vendor reserves the right to exercise all or any of the Vendor's other rights under clause 9 of the Contract or otherwise. 14There are obvious difficulties with the vendor's document. 15Clause 9 of the contract gives a vendor an election in circumstances where the purchaser fails to complete the contract, or otherwise breaches it in an essential manner, and, consequently, the vendor terminates. Assuming for the moment that the purchaser was in such default, then the vendor must first choose whether or not to affirm the contract and if it does not, whether it will rely on cl 9.3.1 or alternatively sue for damages for breach of contract under cl 9.3.2. The rights are inconsistent. Indeed, cl 9.3 requires such an election to be made by its use of the word "either". 16In the instant case, it is clear that the vendor did not wish to affirm the contract. Thus, one must look to see what election if any it made between the rights given to it in cl 9.3.1 or cl 9.3.2. 17We here meet a difficulty in that there is inconsistent use of vocabulary in the texts and in some of the decided cases on the analysis of the situation where a contract gives an option to a party should the other party be in default. 18It is clear from cases such as Shevill v Builders Licensing Board [1982] HCA 47; (1984) 149 CLR 620 that there is a clear distinction between a person taking advantage of a provision in a contract which terminates the parties' primary obligations, but then provides secondary obligations and the case of a person discharging a contract for breach and suing for damages. In the former case, the secondary rights become enforceable, in the latter there can be damages for loss of bargain. See also Shevill v Builders Licensing Board (1980) 2 BPR 9,662 (CA), per Samuels JA (in dissent, but justified in the High Court) at 9,669 and Mahoney JA at 9,671 and Honner v Ashton (1979) 1 BPR 9,478 at 9,485 per Mahoney JA 19The proper analysis of cl 9.3.1 is that whilst the primary rights and obligations under the contract have ceased, secondary rights and obligations under the contract have come into play and, if the vendor elects to exercise its secondary rights under cl 9.3.1, it is still suing under the contract. 20Under cl 9.3.2, the situation is different: the vendor is suing for breach. However, even here, the vendor would be suing under the contract. As Lord Wright said in Heyman v Darwins Ltd [1942] AC 356 at 379, when a person exercises his or her right to rescind a contact after the other party has repudiated it, "the contract is ended by the rescission but only so far as concerns future performance. It remains alive for the awarding of damages either for previous breaches or for the breach which constitutes the repudiation." (See also Samuels JA in Shevill at 9,669). As Professor J W Carter says in his Breach of Contract (LexisNexis Butterworths, 2011) at 83 a "right to terminate" is a shorthand expression to describe the right in a promisee to terminate his performance of the contract, and it brings about the termination or discharge of the parties' unperformed (primary) obligations, but the contract remains as the source of the right to damages. 21The rights given to the vendor under cl 9 of the contract are, as I have said, inconsistent rights. What the vendor is entitled to under the two sub-clauses, differs. Under cl 9.3.1, it is entitled to be recompensed for the deficiency in resale plus relevant expenses. Under cl 9.3.2, it gets damages for the difference in value between the contract price and the resale price of the land (plus some incidental expenses). 22The vendor must make an election, and once it has made its election it is bound by it. The election must be made unequivocally and must be communicated to the purchasers although, so long as it comes to the notice of the purchasers, it does not have to be communicated by the vendor: see Sargent v ASL Developments Ltd [1974] HCA 40; (1974) 131 CLR 634 at 646 per Stephen J and at 655-656 per Mason J; Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) (1993) 182 CLR 26 at 30 and 38-9. 23Generally speaking, a notice that is given "without prejudice" does not constitute an unequivocal election. In Haynes v Hirst (1927) 27 SR (NSW) 480 per Long Innes J: A party cannot, except in strictly limited class of cases, protect himself against the legal consequences of his act by stating that he does them without prejudice. No one, for instance, would suggest that a person could protect himself against liability for a breach of promise of marriage by taking the precaution of making the offer without prejudice. ... In plain language a man can only elect once, and once he has elected he is bound by his election and cannot again avail himself of his former option, merely because he claimed in the first instance to exercise his election without prejudice. A man, having eaten his cake, does not still have it, even though he professed to eat it without prejudice. 24In commenting on this and other cases, the authors of Butterworths' Conveyancing Service New South Wales at 1,136 [11431] (as inserted by service 174) wisely say: If a party to the contract who has a right to rescind so conducts himself that he indicates that he is treating the contract as subsisting, he will be precluded from exercising the right to rescind it. It is of the essence of an election that the party electing is confronted with two mutually exclusive courses of action between which he must, in fairness to the other party, make his choice. The election must be unequivocal in the sense that it is consistent only with the exercise of one of the two sets of rights and inconsistent with the exercise of the other. An election therefore involves abandoning a right which is available. 25Thus it is not possible both to say that one is terminating a contract and also to say that one reserves the right to exercise all or any of the vendor's other rights. 26The matter is important, indeed in Tiplady v Gold Coast Carlton Pty Ltd [1984] FCA 152; (1984) 3 FCR 426 at 465 Fitzgerald J in the Federal Court said that it is vital to maintain the distinction. It is vital in the instant case because the right which the plaintiff pursues is the right under cl 9.3.1. That right is only exercisable under the contract if (a) the purchaser does not comply with the contract in an essential respect; and (b) the vendor has terminated by serving a Notice. Was the document issued by the former solicitors therefore a Notice of Termination? 27Just looking at the Notice, one would think that it failed to be a Notice of Termination because it was not an unequivocal election between two inconsistent rights. Rather, it purported to be without prejudice and to reserve all rights. 28However, one must look at the pleadings in the case. The purchasers' Statement of Cross-Claim says in paragraph 15.1: On or about 8 December 2010: The Cross-Defendant served a notice of termination on the Cross-Claimants. 29In paragraph 16: The Cross-Claimants terminated the Contract by service of the notice of termination and by reason of the Cross-Defendant's failure to complete by 6 December 2010, or the notice of termination served by the Cross-Defendant constituted a repudiation of the Contract which the Cross-Claimants have accepted. 30Those inconsistent allegations in paragraph 16 were duly verified, which is a bit odd. It does seem to me that, read together, the paragraphs go no further than to indicate that the Notice purported to "terminate the contract", whatever those words mean. The Statement of Cross-Claim does not necessarily accept that the contract came to an end by the Notice. When Mr Giles first put that proposition to me, I was not attracted to it. However, on more mature consideration, it may be correct. 31As I have already noted, when a vendor elects to exercise its rights under cl 9.3.1 what is terminated are the primary duties and obligations under the contract rather than the contract in its entirety. The contract remains in force to deal with the secondary obligations. The purchasers can be excused for putting their case in the way they have in their pleading, because the vendor's Notice actually says that it exercises its right to terminate the contract. In cl 1 of the Contract the word "terminate" is defined as "terminate this contract for breach". In view of this confusion of terms, one would need to read the chapeau to cl 9 as meaning "terminate the primary rights and obligations of the contract for breach". 32Were it necessary to do so, I would find that the vendor has not validly elected to exercise its option to resell and claim the deficiency on resale and associated losses. If the vendor had established a breach justifying termination, it would be entitled to damages, principally being the difference between the contract price and the value of the property as at the date of breach. Unfortunately, there is no evidence as to the latter. 33In any event, I would be reluctant to decide the case on the above point as it was not a point taken by the parties until the court pointed it out to them. I have spent a little time on it because I believe the point needs to be kept firmly in mind by conveyancers in the future. 34The principal point in the case is whether the purchaser was in breach so as to entitle the vendor to terminate the contract. 35The Notice to Complete made time of the essence for both parties, completion being fixed for 6 December 2010. 36On completion, it was necessary for the vendor to have complied with all the pre-conditions of the contract and to be in a position to hand over a transfer of the property free from encumbrances and for the purchasers to pay the purchase money. 37The vendor may have been able to hand over the transfer, but there is no doubt that it was not able to comply with its obligations under Schedule 2 on 6 December. 38Special condition 32.1 of the Contract headed "Vendor's Works" reads as follows: The vendor agrees that prior to completion it will, at the vendor's cost, attend to the works as agreed between the parties and recorded in Schedule 2. 39Schedule 2 contains five headings namely Fluorescent Light, Bathroom Vanities, Laundry, Kitchen, and Toilet Lights and makes very specific provisions as to what is to be installed in those areas including nominating the type of tap, the type of dryer and the position of lights. 40The background is that the purchasers were a doctor and his wife who intended moving from Perth to Sydney to take up a new appointment. Although the reason for haste in completion, which was due to the doctor's proposed move, was not made known to the vendor, it is quite clear on the evidence that the vendor was told that the wife, the second defendant, suffered from arthritis and other problems which required the changes to be made in the standard completion as was set out in Schedule 2. It is also quite clear that the vendor was unable on 6 December to provide the actual items in every respect noted in Schedule 2. However it took the course of saying that it could do so within a short time or it could provide very suitable substitutes or the matter was de minimis and that the purchaser could rely on a claim for compensation under the Contract. 41In his submissions Mr Vincent put that what the vendor had to show on 6 December was that it was ready, willing and able to complete the Contract and one did not take account of matters de minimis and on this basis the vendor was so ready. 42He relied on the decision of the Court of Appeal in McNally v Waitzer [1981] 1 NSWLR 294 and other cases that followed it. 43McNally v Waitzer was mainly concerned with the pre-conditions for giving a Notice to Complete. When that case was decided it was commonly thought amongst conveyancers that as at the date of giving the Notice to Complete one must have complied with all the provisions of the Contract that needed to be complied with prior to completion. The Court of Appeal in McNally v Waitzer made it clear that all one had to do as at the date of giving the Notice to Complete was to be ready, willing and able to have done all of those things by the time of the expiry of the Notice. However it is true that at 303-304 Hutley JA makes it clear that in some respects what was being said also applies to the time of completion and pointed out that there may be some things that have to be done under the Contract which cannot be done before actual completion such as obtaining Ministerial consent to the sale. 44There are other cases such as my decision in Alexus Pty Ltd v Pont Holdings Pty Ltd [2000] NSWSC 1171; (2000) 10 BPR 18,371 and which Barrett J to an extent followed in Golding v Vella [2001] NSWSC 567; (2001) 10 BPR 18,919 which suggests that as at the time of completion the vendor must be ready, willing and able to complete, but that problems de minimis do not effect readiness, willingness and ability. So in the Golding case the vendor's builder gave evidence that when one is building a dwelling one does not put in expensive PC items until the last moment because they may be stolen or vandalised so that it is a practice to put them in on the day of completion. 45However, I must point out that some matters which may appear to be trivial are not classed by the courts as falling within the de minimis rule. The clearest illustration is the case of a person who turns up five or ten minutes late for a settlement, see Union Eagle Ltd v Golden Achievement Ltd [1997] AC 515, a decision of the Privy Council which was followed by the Queensland Court of Appeal in Re Ronim Pty Ltd [1999] QCA 444; [1999] 2 Qd R 172, although an exception to the rule requiring prompt settlement was created in the latter case where the computer of the Land Titles Office is not working. 46Sir Edward Fry in his Treatise on the Specific Performance of Contracts (Stevens and Sons, 6th edn, 1921) at 436 [923] states that to obtain an order for specific performance a plaintiff "must show performance of - (i) All conditions precedent, (ii) The express and essential terms of the contract, (iii) Its implied and essential terms, and (iv) All representations made at the time of the contract on the faith of which it was entered into: but he need not show performance of (v) Non-essential terms, (vi) The terms of a collateral contact, or (vii) Terms of which the defendant has prevented or waived the performance." 47Where there is a condition precedent-nowadays often called a contingent condition-there must be exact performance of the condition; a vendor who is merely ready willing an able to perform it has not satisfied the test: Williams v Brisco (1882) 22 Ch D 441, Tricontinental Corporation Ltd v HDFI Ltd (1990) 21 NSWLR 689 (CA) at 703-4 per Samuels JA. 48The question then is whether the vendor's obligation under Special Condition 32.1 is a promissory condition or a contingent condition. This is often a tricky question, the answer to which depends on a close analysis of the language used by the parties: McTier v Haupt [1992] 1 VR 653 and see N C Seddon, R A Bigwood and M P Ellinghaus, Cheshire and Fifoot Law of Contract (LexisNexis Butterworths, 10th Aust edn, 2012) at 1027-1028. 49There is not that much in the formal contract that points strongly one way or the other. Special Condition 32 uses the word "will". The special conditions appear to have been carefully drafted. If one trawls through them, one sees careful use of words such as "may", "must" "shall be entitled" and the like which make one give the word "will" in condition 32 some real semantic significance and this tends towards viewing special condition 32 as a contingent condition. 50There are not stated any consequences of a non performance of the clause. If there is a breach, it is difficult to estimate the damages, if non performance is a breach of warranty. Possibly the damages would only be the diminution in value of the whole property. 51However, when one goes to the factual matrix, it becomes relatively clear that this is a contingent condition. It is common ground that Dr Lee made it clear to the vendor's representative on more than one occasion that it was vital for his wife's health that the items in the Second Schedule had to be installed. 52Thus I find that cl 32 is a contingent condition. Completion of the contract was contingent upon it. It was not complied with by 6 December and the vendor was unable to complete on that date. It was thus not justified in terminating the contract and the purchasers were entitled to treat the vendor's action in purporting to terminate as a repudiation. 53I should add that, even if I were in error in classifying the condition as a contingent condition, it would on the facts of this case fall into the category (iv) referred to in Fry, that is, a provision which the vendor realised the purchasers had entered into the contract on the faith of it being performed, cf Beaumont v Dukes (1821) Jac 422; 37 ER 910. In the present case the vendor was acquainted of the importance of the items in the Second Schedule both before and after the contracts were exchanged. 54Thus the vendor's claim must fail and the purchasers are entitled to a refund of their deposit and to have the vendor pay the costs of these proceedings. 55It follows that it is unnecessary to consider the question as to whether the vendor has validly elected to take the deficiency on resale as its compensation. The reasons given in [26] supra tend to suggest that there was no effective election and that accordingly if the vendor was entitled to relief its damages would be based on the difference between the contract price and the value of the unit as at the date of breach. The judge would have to estimate this latter sum as there is no reliable evidence on the point. 56The results of conveyancing cases of this type often depend on very fine distinctions, as does this one. It was a pity that the vendor did not accede to suggestions that settlement be postponed for a few days rather than insist on completion on 6 December. However, on that matter, it made its election and is bound by it. 57I would ask counsel for the defendants to bring in short minutes reflecting these reasons, which can be brought into Chambers if agreed otherwise in Court by arrangement with my Associate on a day next week suitable to counsel.