Golden Oceans (NSW) Pty Ltd v Evewall Pty Ltd

Golden Oceans (NSW) Pty Ltd v Evewall Pty Ltd - [2009] NSWSC 674 - NSWSC 2009 case summary — Zoe

[13]

1 REIN J: The defendant, Evewall Pty Ltd ("the vendor"), owns a property at 6 Wine Country Drive Cessnock ("the property") and entered into a contract for the sale of the property to the plaintiff, Golden Oceans (NSW) Pty Ltd ("the purchaser"), on 29 September 2008 ("the contract"). The consideration payable was $3.74 million. Contracts were exchanged on 29 September 2008 with a $200,000 deposit being paid on that date as part of a specified $374,000 deposit (see clause 39 at pp 21 and 23A of Exhibit A). The contract arose as a result of a put and call option but nothing arises from that aspect. 2 Mr Neil Wallace is a director of the vendor and the solicitor acting for the vendor on the conveyance was initially Mr King and then Mr Flaherty. Mr Glenn Carroll is a director of the purchaser and the solicitor acting for the purchaser on the conveyance was Ms Bennett of Bilbie Dan. Mr Wallace and Mr Carroll are the only persons (other than the solicitors) who represented the vendor and purchaser respectively in respect of the transaction. 3 The purchaser, by its Amended Summons, seeks specific performance of the contract. 4 The vendor, by Notice of Termination served on 27 February 2009, claims to have terminated the contract and seeks an order that the amount of $200,000 paid has been forfeited by the purchaser and seeks to recover the remaining $174,000 expressed to be part of the deposit. It also seeks to recover as damages holding costs and charges as well as an amount of $44,000 agreed to be paid by the purchaser in return for an extension of time until 20 February 2009 to which I refer below. It claims against Mr and Mrs Carroll on a guarantee given by them in connection with the contract for sale. 5 Although initially there was an argument advanced by the purchaser that the Notice to Complete issued on 2 December 2008 was invalid, that argument was abandoned (correctly, in my view). That Notice required completion by 31 December 2008. 6 There is no dispute that at the purchaser's request the vendor agreed to extend the time for completion from 31 December 2008 to 20 February 2009. There is no dispute that at all times in the past the purchaser was unable to complete because it was reliant on borrowed funds and those funds were not available at any relevant time. It was the vendor's case that in fact there had been an intermediate extension from 31 December 2008 to 20 January 2009 sought and agreed to by the purchaser before 20 February 2009 was agreed to. Other than its relevance to credit there is no significance as to this point given the acceptance by both parties that prior to 31 December 2008 a new date of 20 February 2009 was agreed upon in return for a payment of $40,000 plus GST by the purchaser to the vendor: see p 130 of Exhibit A. 7 I will set out the vendor's version of what occurred from 9 February to 27 February 2009 based upon Mr Wallace's evidence and the documentary evidence (all page references are to Exhibit A): (1) On 9 February the vendor's solicitor (Mr Flaherty) wrote by email to the purchaser's solicitor (Ms Bennett) enquiring whether the purchaser "will be in a position to settle this matter on 20 February 2009 when the Notice to Complete is due to expire": see p 140A. (2) On 9 February Ms Bennett asked Mr Carroll for instructions: see p 140A. (3) On 12 February Mr Flaherty sought a response to his earlier email and said: "The Notice to Complete expires next Friday. Kindly forward your settlement figures as soon as possible.": see p 141. (4) On 12 February Ms Bennett wrote to Mr Carroll seeking "urgent instructions": see p 141A. (5) On 12 February Ms Bennett informed Mr Flaherty that she was awaiting instructions: see p 112. (6) On 13 February Mr Wallace told Mr Flaherty that he had had discussions with the other side and that they had mentioned they might need a week but that there had been no deal: see p 143. (7) Between 16 and 20 February Mr Wallace was attending at the John Hunter Hospital for dialysis tests and training on new equipment: see para 4(j) of Mr Wallace's affidavit of 13 May 2009 ("Mr Wallace's second affidavit"). (8) On 16 February Mr Carroll told Ms Bennett that he tried to contact Mr Wallace "with regards to extensions of time for the contract". He asked Ms Bennett to request an extension of time adding "I would imagine 6 - 8 weeks would be needed as a minimum": see p 143A. (9) On 17 February Bilbie Dan wrote to Mr Flaherty: "We refer to previous correspondence and confirm the Notice to Complete will expire at 4.00pm on 20 February 2009 . Our client has experienced considerable difficulty obtaining the lender's confirmation of their readiness to settle as scheduled. We are instructed to request an extension of time for compliance with the Notice to Complete for eight (8) weeks." (emphasis in original): see p 145. (10) On 17 February Mr Flaherty contacted Mr Wallace who denied that Mr Carroll had sought an extension but said that he would be having a discussion with him on the Thursday (i.e. 19 February): see p 146. Mr Flaherty advised Mr Wallace to request the sum of $40,000 now and any extra on settlement. (11) On 17 February Mr Flaherty wrote "I refer to your letter of today and am instructed that my client is having a meeting with yours on Thursday for discussion of the matter.

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Please let me know when you have met with the vendor and the outcome of that meeting as soon as possible.": see p 153B. (17) On 20 February at 11:17am Mr Carroll replied to Ms Bennett: "I am meeting with [Mr Wallace] at 2:30pm.": see p 153B. (18) Mr Wallace met with Mr Carroll not on 20 February but on 21 February 2009. He says that he had the following conversation with Mr Carroll: "GC: It looks like the Section 96 Application won't get before Council until April, rather than March. NW: Glenn, tell me straight, what is the position with your finance? GC: It's still a long way off. Can you give me until 10 April? NW: You put me in a difficult position. I've had to borrow some money to run my business because of the delays in you settling. I'm not prepared for this to go on indefinitely. GC: How about I pay $100,000 on top of the price at settlement, inclusive of interest. NW: I couldn't agree to that here and now. I would have to have a look at it, but it doesn't sound like you're offering anything in real terms. Work out your best proposal and have your Solicitor put it to mine in writing. Remember that the notice to complete now expires on Tuesday." See Mr Wallace's second affidavit at para 4(k). (19) On 23 February at 2:18pm Ms Bennett wrote to Mr Carroll: "could you confirm urgently the outcome of your meeting with the vendor on Friday 20 February 2009.": see p 154. (20) On the same day, Mr Carroll replied via email saying: "Extension to 10/04/09. Interest to be paid plus balance to 100K extra. For example, if penalty interest is $45,000 the purchase price will increase by $55,000 to a total of $100K.": see p 155. (21) Ms Bennett took that email to mean that the vendor and purchaser had agreed on a new date for completion and sought Mr Flaherty's response. (22) Mr Wallace says he rang Mr Carroll on 24 February and said: "NW: I'm not prepared to accept what you offered on Saturday. By 10 April the interest will be a lot more than the $100,000 that you offered. You will have to come up with something to get your extension. I proposed the $40,000 when you got the extension in December. This time, you put an offer to me.

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It was sent at 2:27pm: see p 158. (27) Mr Flaherty called Ms Bennett at 2:45pm on receipt of the letter and said that the $100,000 "does not even cover interest". (28) Mr Flaherty contacted Mr Wallace, who told him that what was asserted in the letter from Bilbie Dan was what Mr Carroll had offered but had been rejected by Mr Wallace: see Mr Wallace's second affidavit at para 4(k). Mr Flaherty's note is to similar effect. (29) Mr Flaherty then phoned Ms Bennett and told her that his instructions were that the vendor's conditions for an extension were that $200,000 would be payable immediately and $100,000 payable on settlement with interest continuing to accrue; that the offer in the letter was way short of what Mr Wallace understood was under discussion, since $90,000 in interest had already accrued; that his instructions were to let the Notice to Complete stand, terminate the contract and the parties could renegotiate a purchase price. He requested that Ms Bennett "speak to her client and confirm": see p 159A. (30) Ms Bennett then wrote to Mr Carroll setting out the terms upon which the vendor was prepared to grant an extension to 10 April 2009. Having done so she pointed out to Mr Carroll: "As discussed, if you are not able to comply with the Notice to Complete issued by the vendor the vendor can terminate the Contract. Upon such termination the deposit paid by you under the Contract is forfeited to the vendor. We note in this regard you have paid a reduced deposit in the amount of $200,000.00. You will be liable to pay the balance of the 10% deposit on valid termination of the Contract by the vendor. In addition to recovering the deposit the vendor may also commence proceedings against you to recover any deficiency on resale together with any costs and/or damages. Would you please contact our office urgently with your instructions, having regard to the Notice to Complete which expires at 4:00pm today.": see pp 159B - 159C. (31) She sent the letter at 3:21pm to Mr Carroll. (32) At 3:30pm Ms Bennett left a message for Mr Carroll to ring her back as soon as possible: see p 159D. (33) At 4:05pm Mr Carroll rang back and in the course of the discussions Ms Bennett told him that interest at $1000 day meant that interest was almost $100,000 already, so an offer of $100,000 "won't cut it". She discussed with Mr Carroll the vendor's right to terminate. Mr Carroll said that he would contact Mr Wallace and let him know: see p 159D. (34) On 25 February Mr Carroll told Ms Bennett that he had left messages for Mr Wallace but had not heard back. Ms Bennett said she would contact the vendor's solicitors and tell them the clients were having further discussions. She did so at 12:52pm: see 159E. (35) On 25 February Mr Flaherty wrote to Ms Bennett noting that he had been instructed that Mr Carroll had had no further discussions with Mr Wallace. He indicated: "Your client having failed to comply with the Notice to Complete, my client is now considering its position and I expect to have further instructions and advise you of the same by the end of the week.

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"(i) the nature of the proceeding; (ii) whether the occasion for calling the further evidence ought reasonably to have been foreseen; (iii) the consideration of fairness that the defendant is entitled to know all of the evidence he has to meet in taking forensic decisions as to cross-examination and the nature and extent of the evidence he will himself adduce on the matters in question; (iv) the extent to which the plaintiff has embarked upon calling evidence on the issue in question in its case in chief; (v) the importance of the issue on which the further evidence is sought to be adduced to the pleaded issues in the case; (vi) the degree of relevance and probative value of the further evidence sought to be adduced and its potential to involve an undue waste of time; (vii) the prejudice to the defendant in terms of delay in the completion of the proceeding and the consequential costs; (viii) the public interest in the timely conclusion of litigation; (ix) what explanation is offered by the plaintiff for not having called the evidence in chief." 23 This approach was implicitly approved by Einstein J in The Movie Network Channel Pty Ltd v Optus Vision Pty Ltd [2009] NSWSC 132 at [8]. 24 These proceedings are a claim by the purchaser for specific performance of a contract for the sale of land. The purchaser was permitted to maintain a caveat on the land the effect of which was to prevent the vendor from offering the property for sale and selling it to a third party: see Golden Oceans (NSW) Pty Ltd v Evewall Pty Ltd [2009] NSWSC 486 per Brereton J on 30 April 2009. There was evidence on the application for expedition concerning Mr Wallace's health. He has had kidney failure and is on dialysis: see the affidavit of Mr Robert King of 29 May 2009 in support of expedition and annexure "A" thereof. 25 In my view, given that Mr Carroll's first affidavit said nothing about the note, the second affidavit provided very little explanation for the change in evidence and the appearance of the note and given the clear contest as to the content of the conversation as originally deposed in Mr Carroll's first affidavit which is established by Mr Wallace's affidavit of 13 May, the prospect of a challenge to the authenticity of the note should have been envisaged. 26 I think the vendor was entitled to know all of the evidence that it was to meet concerning the notebook. I am conscious of the argument that if Mr Wallace, in asserting that Mr Carroll had no notebook with him at the 7 March meeting and that Mr Carroll did not write at the table, was untruthful in so asserting, in a sense, he should not gain a benefit by his dishonesty, but the truth or falsity of this evidence is not established and I think there is an element of unfairness in his not having had all of the purchaser's evidence before having to give his own version. 27 This is not a case involving any misapprehension of the facts or law. There was no decision not to call the evidence from Ms Gilbert, rather there was a failure to be aware of it or obtain it. 28 There is a prejudice to the defendant in terms of delay. The case would have to be delayed for at least six weeks due to Ms Oakley's and my own unavailability and there is evidence which points to an inability of the purchaser to compensate the defendant for any damages arising from its inability to complete and doubts as to whether Mr Carroll could so do. Mr Williams pointed out that there was no evidence of any buyer in the wings. Given the currency of the proceedings that is hardly surprising and is likely to result from the inability of the vendor to market the property. 29 There is, as Austin J noted in ASIC v Rich (supra at [22]), a public interest in the conclusion of litigation. 30 The remaining questions (v) and (vi) identified by Austin J are ones of considerable significance here. 31 The potential significance of the evidence already given by Mr Carroll relating to 7 March is that if accepted:

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The question on this aspect is: did Mr Wallace say the words attributed to him by Mr Carroll? Mr Carroll's version of the agreement claimed to have been made on 7 March does not establish any firm agreement as to the extension of time (and the diary note only reinforces the absence of a firm agreement). Further, the purchaser's case was that the agreement to extend to 10 April was made on 21 February, not 7 March: see plaintiff's list of issues and outline of submissions dated 19 June 2009. Mr Carroll's assertion that Mr Wallace accepted on 7 March that he had agreed on 21 February to an extension to an imprecise date when Mr Wallace had already had his solicitor terminate the contract for sale is somewhat unlikely. The conversation of 21 February, on Mr Carroll's version, does not evidence an agreement that settlement would be on 10 April. I leave aside for the moment the question of whether in assessment on its true construction the conversation was Mr Carroll merely enquiring whether if Mr Carroll was able to obtain $100,000 that would be acceptable to Mr Wallace, but in Mr Carroll's version of what Mr Wallace accepted on 7 March, Mr Carroll has Mr Wallace agreeing that the extension of time was to 10 April and not that 10 April was a minimum or target date, to be further discussed when the Council has assessed the section 96 application. 32 If I assume for the moment that Ms Gilbert's evidence is accepted, Ms Gilbert was not a party to the conversation. Her evidence as it stands does not establish that Mr Carroll was the person who she saw writing in early March, as she would have to identify him (and Mr Wallace as well). Her evidence does not establish what the person she observed writing was writing in or on. If there is no evidence that Mr Wallace met other persons at the café at around that time, if she is able to positively identify Mr Carroll as the man she saw and if her recollection is found to be reliable it would undermine Mr Wallace's denial that Mr Carroll wrote anything in front of him and undermine Mr Wallace's credibility more generally. It would not establish that what Mr Carroll or Mr Wallace said is what Mr Carroll wrote. Even if I was positively persuaded that Mr Wallace had been untruthful in denying that Mr Carroll was using a writing pad it would not establish that the rest of his evidence was untruthful: see Steinberg v Federal Commissioner of Taxation (1975) 134 CLR 640 at 694-695 per Gibbs J on the significance of lies, and see Raso v NRMA Insurance Ltd (Court of Appeal, 14 December 1992, unreported) and Thompson v GIO (Supreme Court of New South Wales, Rolfe J, 15 June 1994, unreported). 33 There is foreshadowed by the vendor the possibility of another witness who will undermine Ms Gilbert's evidence with the prospect that the existence or absence of the notebook will be no clearer than based on the evidence of Mr Wallace and Mr Carroll. I will elaborate further on these matters shortly but there are problems with the purchaser's case and with Mr Carroll's evidence that do not stem from whether he was writing at the table when he met Mr Wallace and whether or not the note was a fabrication, some of which I have already touched upon in [10] and [31].

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45 The purchaser is not ready nor able to complete the contract due to the lack of funds and if I am correct in concluding that the purchaser is not entitled to specific performance of the contract due to an inability to complete as at the commencement of the proceedings, or even now, then even accepting the formation of a loose agreement to extend time to April, as Mr Carroll asserts, the inability to complete then and now even 8 months after the date for completion, constitutes a level of delay that is so unreasonable in the circumstances as to amount to a repudiation of the contract by inability to perform which the vendor would be entitled to accept: Tsoa-Lee v Urban Property Consultants Pty Ltd [1983] 1 NSWLR 569. 46 I must now deal with the question of whether the contract was validly terminated by the vendor and I turn first to consider the credibility of Mr Wallace and Mr Carroll. 47 Mr Carroll's credit was very significantly attacked by Ms Oakley on a number of bases, which I accept: (1) If there had been a concluded agreement on 21 February it is strange indeed that when Mr Flaherty told Ms Bennett that the vendor did not agree with Mr Carroll's version no more was said about it. (2) None of the notes of Ms Bennett's conversations with Mr Carroll up to 18 March record any subsequent assertions of a concluded agreement even when she discussed the vendor's right to terminate, although Mr Carroll asserts he did refer to it: see T56.35. There was no response of that kind when she sent Mr Carroll a copy of Mr Flaherty's letter of 25 February 2009 (at p 160): see pp 161A and 161C of Exhibit A. Mr Carroll told Ms Bennett in response to Mr Flaherty's letter of 25 February: "I will confirm in the next 24 hours whether I will have the money to pay Neil as per last letter… I will consider my position with Neil in the same time and consider coming back very aggressively, as he needs the $200K as much as I want the property.": see p 161C of Exhibit A. (3) Mr Carroll apparently did not instruct Ms Bennett to send a letter reiterating that an agreement had been reached: see T61 - T62, and he did not assert that he did say that to Ms Bennett on 25 February: see T61. The only explanation for not having done so was "because Neil had asked for more": see T61.23. (4) Whilst Ms Bennett understood Mr Carroll's email of 23 February to be a statement of the agreement claimed to have been reached since it was a response to her query "can you confirm urgently the outcome of your meeting", it is not expressly worded as "it was agreed". On its own, I would place little significance on that, but when coupled with other matters it is more significant. (5) Mr Carroll instructed Ms Bennett not to mention the $40,000: see T52, and he said that the reason for that is that "it had already been agreed to": see T58.50. He agreed that the letter sent by Ms Bennett (at p 157 of Exhibit A) reflected his instructions and did not indicate that he accepted he had to pay the $100,000 on top of the $44,000 already agreed to. The words which Mr Carroll attributes to himself in para 20 of his first affidavit are ambiguous and given his instructions to Ms Bennett it would seem deliberately so. (6) There was an earlier occasion (on 12 December 2008) when Mr Carroll had told Ms Bennett that he had an agreement for extension but his affidavits have provided no support for such an agreement: see T33.

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(4) the vendor and purchaser's solicitors understood that their clients both wanted that opportunity to meet and that practically the time for settlement had to be postponed at least for a few days to enable the possible agreement to be explored and reached. 59 In my view, the extension of time to 24 February was the subject of implicit agreement - with one party hoping he could bargain for a much longer period within that short period. I think it is confirmatory of the understanding of the parties that the purchaser's solicitor told the purchaser on 24 February that he had to settle that day if he could not obtain agreement to a further extension. I note Mr Carroll's agreement that the letter at p 147 of Exhibit A reflected his understanding: see T47.40. I think it is a case where there was an agreement to extend time so that discussions could occur: see Empirnall Holdings Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523 at 535 per McHugh JA dealing with the formation of contract, but which involved similar principles. Whether the vendor was ready, willing and able 60 The purchaser disputed that the vendor was ready, willing and able to complete on 24 February. The vendor's solicitor sought particulars of that assertion and none were provided until the morning of the trial. Mr Warren indicated that the absence of a tax invoice (necessary under the contract for sale: see Special Condition 36 at p 23 of Exhibit A) meant that the vendor could not have completed on 24 February. 61 Ms Oakley, having had very short notice of this point, called Mr King her instructing solicitor. Mr King did not have conduct of the conveyancing file in February 2009 but he had had involvement of it in 2008 (up until 28 November 2008) and he has had many years of conveyancing experience. He said that the practice in relation to conveyancing is that the purchaser's solicitor provides to the vendor's solicitor a settlement sheet in advance of settlement. The solicitor will then check the document and, if correct or with such necessary adjustments, will then prepare a tax invoice with the client's tax file number and the amount of the consideration. Additional amounts such as the $40,000 plus GST payable for the first extension would be included. He said that it would take "moments" to prepare the documents. 62 Mr Wallace was cross examined about the tax invoice. He said he would have prepared it on behalf of the vendor. He admitted that he had not done so because he had no indication that settlement was or could take place on 24 February. 63 I think it is obvious that, had the purchaser's solicitor contacted Mr Flaherty to fix a time for settlement on 24 February, as would have been usual, the invoice could have readily been prepared by the vendor or its solicitor. The certificate of title for the property was held by the solicitor, the transfer document had already been sent signed by the vendor's solicitor to the purchaser's solicitor and the property was unencumbered so no mortgagees were involved in the settlement. Thus the only step required on behalf of the vendor was the provision of the document as no settlement sheet had been provided by the purchaser's solicitor. It does not matter that Mr Wallace would normally prepare the tax invoice - it could have been prepared by him very quickly and sent electronically to Mr Flaherty and Mr Flaherty, in accordance with normal conveyancing practice, could also have prepared it. 64 Mr Warren drew my attention to Union Eagle Limited v Golden Achievement Limited [1997] AC 514, a case in which a courier had arrived with the cheque 10 minutes late. Accepting that time for completion is essential, the present case is not one where the purchaser turned up cheque in hand, ready to settle and the tax invoice had not been prepared; it is a case where the purchaser could not settle and did not attempt to do so, and the vendor could. The case of Mearns v Parris Holdings Pty Ltd (1994) 6 BPR 13,677 per Santow J (as his Honour then was) offers support for the contention that it is the date in a Notice to Complete which is essential not the hour, but I do not think it is necessary to consider whether there is any conflict between Union Eagle and Mearns. 65 In my view, the vendor was ready, willing and able to complete as at the time specified. I do not think that the fact that no tax invoice was actually prepared shows that it was not. 66 It follows that in my view the vendor was entitled to terminate by Notice on 27 February. It follows in my view that in accordance with the contract, the vendor is entitled to the deposit and to any holding costs incurred to date. This leads to a further issue. 67 The vendor seeks the payment of the balance of the deposit ($174,000) not paid. The purchaser resists that payment on the basis that it is a penalty. Mr Warren referred me to Luu v Sovereign Developments Pty Ltd [2006] NSWCA 40, [2006] NSW Conv R 56-146 and Ianello v Sharpe [2007] NSWCA 61 which support the proposition that the fact that the parties have called a payment 'a deposit' is not determinative of whether an amount is a penalty. However, as Ms Oakley pointed out, the courts have long accepted that a 10% deposit forfeited in the event of a plaintiff's failure to complete is not a penalty: see Workers Trust & Merchant Bank Ltd v Dojap Investments Ltd (1993) AC 573, and see Manufacturers House Pty Ltd v Ashington No 147 Pty Ltd [2005] NSWSC 767 at [54] - [60] and see CCH Conveyancing Law and Practice at [7-220]. 68 In my view the fact that the vendor did not insist on the payment of all the deposit on exchange does not turn the contractual obligation to pay the amount specified as a deposit (and in total 10% of the purchase price) into a penalty. 69 There is no dispute that there was a binding agreement to extend time to 20 February 2009 in return for a payment of $44,000 (inclusive of GST). The purchaser contends that this payment is also a penalty. I do not think that an amount agreed to be added to the purchase price in consideration of an extension of time to complete is a penalty, particularly since there was evidence that interest was accruing to the debit of the vendor at almost $1000 a week. The difficulty is, however, that if it was agreed to be added to the purchase price or paid on settlement, the contract was terminated and the amount would fall into the general pool of damages. No claim for general damages is maintained other than in respect of the items listed below. 70 A claim for agent's commission on resale and advertising and legal costs was abandoned by the vendor. This leaves various holdings costs, such as Council rates, of which there is evidence and which will need to be calculated up to the date of judgment.

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Judgment (127 paragraphs)

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