Greencapital Aust Pty Ltd v Pasminco Cockle Creek Smelter Pty Ltd

Court of Appeal (NSW)|2019-03-14|Before: Leeming JA, Stevenson J

N Hutley SC, D McLure SC, D Habashy (Appellant) N O'Bryan SC, D Tynan (Respondent)

Solicitors: Kennedys Lawyers (Appellant) Minter Ellison (Respondent) File Number(s): 2018/388022 Publication restriction: Nil Decision under appeal Court or tribunal: Supreme Court of New South Wales Jurisdiction: Commercial List, Equity Division Citation: [2018] NSWSC 1956 Date of Decision: 14 December 2018 Before: Stevenson J File Number(s): 2018/208684

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

Judgment

LEEMING JA: A conditional contract for the sale of land conferred rights upon each of the vendor Pasminco and the purchaser Greencapital to rescind the contract by written notice if the conditions precedent were not satisfied by the "Sunset Date", 30 June 2017. By an amending deed, the parties extended the Sunset Date to 30 June 2018, and also conferred a further right upon Greencapital in the event that the conditions precedent remained unsatisfied by that date. This new right entitled Greencapital, by giving written notice, to "step-in" and assume responsibility for causing the conditions precedent to be satisfied by 30 June 2019.
The main issue in this appeal is one of construction. It is whether Greencapital's new step-in right qualified Pasminco's right to rescind. That question arises where it was common ground that the conditions precedent were not satisfied, and on (Sunday) 1 July 2018 Pasminco served a notice purporting to exercise its right of rescission, while on (Monday) 2 July 2018 Greencapital served a notice purporting to exercise its right to step in. The primary judge held the parties had agreed to a "first past the post" regime, and that Pasminco "got in first", such that its notice was effective to rescind the contract.
The appeal also presents an issue of frustration. Against the possibility that Greencapital's appeal succeeded, Pasminco by notice of contention renewed its submissions (which had been rejected by the primary judge) that the contract was in any event frustrated by the making of an amendment to State Environmental Planning Policy No 55 ("SEPP 55"), which imposed a new fetter upon the power to grant consent to a subdivision of the land (which was one of the conditions precedent).

Factual background

The factual background is uncontroversial.
A lead and zinc smelter formerly operated on Pasminco's land from 1897. From around 1913 there was also a fertiliser factory on the land, under separate ownership. Pasminco acquired the fertiliser site in 2014.
Pursuant to the Contaminated Land Management Act 1997 (NSW), the Environmental Protection Authority made a declaration in 2002 that the land was significantly contaminated, followed by a remediation order in 2003. The remediation order required Pasminco to remediate the land. Pasminco obtained approval from the Minister for Planning on 27 February 2007 pursuant to (former) s 75J of the Environmental Planning and Assessment Act 1979 (NSW) to remediate the site, involving the construction of a containment cell and the application of a public positive covenant under s 88E of the Conveyancing Act 1919 (NSW) which would inter alia "require the ongoing maintenance, funding and monitoring" of the containment cell (condition 8.8). The approval contemplated completion of all remediation works within 8 years, albeit with the possibility of extension (condition 1.4). Neither the funding nor the s 88E covenant has been put in place more than 12 years later.
On 23 December 2015, the parties entered into a contract for the sale of land known as the "Phase 2 Subdivision". The purchase price was $14,000,000 with a deposit of $2,100,000. The land the subject of that contract does not presently exist as a separate parcel, but is identified by reference to a subdivision plan annexed to the contract. That plan states that the land comprises some 51 hectares towards the south and the west of the containment cell. The same plan shows "Lot 50", which is further again to the south, comprising some 15 hectares.
The contract was in the form of the standard 2005 Law Society contract for the sale of land, which made provision in cl 21 under the heading "Time limits in these provisions": "21.1 If the time for something to be done or to happen is not stated in these provisions, it is a reasonable time. 21.2 If there are conflicting times for something to be done or to happen, the latest of those times applies. 21.3 The time for one thing to be done or to happen does not extend the time for another thing to be done or to happen. 21.4 If the time for something to be done or to happen is the 29th, 30th or 31st day of a month, and the day does not exist, the time is instead the last day of the month. 21.5 If the time for something to be done or to happen is a day that is not a business day, the time is extended to the next business day, except in the case of clause 2 (deposit). 21.6 Normally, the time by which something must be done is fixed but not essential."
Clauses 30-49 were part of the contract, but had been negotiated by the parties as opposed to appearing in the standard Law Society form. Clause 30 defined "Sunset Date" to mean 30 June 2017. Clause 37, which is central to this litigation, in the form it took when the contract was exchanged, relevantly provided: "37.1 Contract conditional (a) This contract is conditional on satisfaction of the conditions precedent in this clause 37. (b) If the conditions precedent are not satisfied by the Sunset Date, either party may, by notice in writing to the other before the conditions precedent are satisfied, rescind this contract and in that case: (1) the vendor must refund the deposit to the purchaser; and (2) neither party will have any claim on the other in connection with this contract, except claims for antecedent breach."
Subclauses 37.2-37.7, which comprised the remainder of cl 37, contained various conditions precedent. Subclause 37.3 was as follows: "37.3 Phase 2 Subdivision Plan This contract is conditional on registration of the Phase 2 Subdivision Plan (as it may be modified in accordance with the terms of this contract)."
The Phase 2 Subdivision Plan was the plan of subdivision annexed to the contract referred to above, subject to any change permitted by the contract.
On 21 December 2016, Pasminco and Greencapital entered into a "Deed of Contract Amendment" which amended the contract (and another contract for the sale of land between the same parties also entered into on 23 December 2015, known as the "Lot 50 Contract"). The deposit was reduced from $2,100,000 to $700,000, while the deposit for the Lot 50 Contract was increased from $450,000 to $1,850,000. Pasminco was authorised to direct the deposit holder to transfer the sum of $1,400,000 from the surplus deposit account of the contract to be held on trust as a deposit for the Lot 50 Contract.
The definition of "Sunset Date" in both contracts was changed by replacing "2017" by "2018". The Sunset Date thus became 30 June 2018. Most significantly for present purposes, cl 37 was amended by adding new subclause 37.8: "37.8 Conditions Precedent not achieved (a) If the Conditions Precedent herein have not been achieved by 30 June 2018, the purchaser may by notice in writing to the vendor elect to do all necessary things to achieve the Conditions Precedent. (b) If the purchaser serves notice under clause 37.8(a): (1) the purchaser will assume responsibility for the achievement of the Conditions Precedent; (2) the purchaser will pay and be responsible for any cost incurred in connection with the Conditions Precedent; (3) on completion, the vendor will reimburse to the purchaser the proper and reasonable third party costs incurred by the purchaser in relation to the Conditions Precedent provided those costs are substantiated by producing copies of tax invoices issued by consultants or Authorities, incurred solely and exclusively in connection with the Conditions Precedent; (4) the Sunset Date in clause 30 will be extended to 30 June 2019; and (5) the vendor, at no cost to the purchaser, will promptly provide to the purchaser: (A) a list (and contact details) of all consultants and contractors engaged in connection with the unsatisfied conditions precedent; and (B) copies of all contracts, plans, drawings, reports and other similar documents in the vendor's possession or control, necessary for the purchaser to continue the process of satisfying the conditions precedent. And the vendor shall assign to the purchaser, or shall arrange for the appropriate parties to assign to the purchaser all rights, title and interest in the copyright and intellectual property of all plans drawings reports and other similar documents held by the vendor and/or its consultants and contractors in relation to satisfying the Conditions Precedent including but not limited to survey plans, engineering plans, draft subdivision plans, draft storm water drainage plans and landscape plans. If the relevant right cannot be assigned, the vendor will procure the grant to the purchaser of a royalty-free, irrevocable licence to use."
It was admitted on the pleadings that the Conditions Precedent were not completed by the (amended) Sunset Date, 30 June 2018, which was a Saturday.
On Sunday 1 July 2018, and again on Monday 2 July 2018, Pasminco purported to exercise its right under cl 37.1 to rescind. For its part, later on Monday 2 July 2018, and again on Tuesday 3 July 2018, Greencapital purported to exercise its step-in right under cl 37.8. The notices were served by email and, in the case of the first, by facsimile. There was no dispute as to the form of the notices, or the manner of their service, or the times at which service was effected.
On 31 August 2018, an amendment to State Environmental Planning Policy No 55 - Remediation of Land (NSW) was made, which by cl 22 prevented the Council from consenting to any significant development on the land unless the Planning Secretary certified that, in her opinion, "adequate arrangements are in place for the perpetual care of", relevantly, the Containment Cell.

Procedural background

Greencapital commenced proceedings in the Commercial List of the Equity Division of this Court on 6 July 2018. There was a hearing on 3 and 4 December 2018, with judgment delivered on 14 December 2018: Greencapital Aust Pty Ltd v Pasminco Cockle Creek Smelter Pty Ltd (subject to Deed of Company Arrangement) (No 3) [2018] NSWSC 1956. Orders were made on 18 December 2018 dismissing the proceedings but putting in place interlocutory relief restraining Pasminco from selling or otherwise dealing with the land the subject of the contract.
The primary judge addressed the questions of construction at [38]-[72] of his judgment. His Honour's reasoning is, if I may say so, commendably clear, and reflected the submissions advanced before him.
First, the primary judge rejected the submission that the effect of cl 21.5 was that the rights under cll 37.1 and 37.8 did not arise until the first business day after the Sunset Date, namely, Monday 2 July 2018. His Honour said that cl 21.5 could have no application to the rights under cll 37.1 and 37.8, because there was no time limit attached to those rights. "The exercise of any of those rights was not 'something to be done' or 'to happen' by any particular time" (at [46]). Rather those rights could be exercised at any time after the passing of the Sunset Date, and once they arose, there was no cause for the time of their exercise to be extended, because no time limit attached to the right.
Secondly, his Honour rejected the submission that by reason of cl 21.1, Greencapital was entitled to a reasonable time to decide whether to step in. His Honour said that cl 21.1 contemplated a clause where a party must cause something "to be done" or "to happen", but where the time for that something "to be done" or "to happen" had not been stated. The primary judge noted that there were numerous such clauses in the contract. In such a case, cl 21.1 imposed a reasonable time to do the thing, or for the thing to happen. However, cl 21.1 did not have the effect of permitting a party a "reasonable time" to exercise a right. As his Honour put it at [58], cl 21.1 is a clause of limitation, not permission.
Thirdly, his Honour rejected a further submission that the effect of the contract was to extend the Sunset Date to Monday 2 July 2018, with the result that because Greencapital had exercised a right after that date (on Tuesday 3 July 2018), its step-in notice was valid. This submission turned on the idea that Pasminco was obliged to do what was reasonably necessary to cause the Conditions Precedent to be satisfied by the Sunset Date, and because that day was not a business day, the effect of cl 21.5 was to extend the time for performance until (the end of) Monday 2 July 2018. His Honour rejected this based on the specificity of the special conditions, notably the precise nomination by the parties of a particular date as the Sunset Date, which prevailed over the general conditions in cl 21.5.
Fourthly, the primary judge rejected a submission that a "race" between the parties to first exercise their inconsistent rights was not the proper construction. His Honour concluded at [69]-[71]: "But this appears to me to be precisely what the parties agreed. Originally, each party had the right to rescind if the conditions precedent were not met by the Sunset Date. By the amendment Greencapital was given the inconsistent right to step in, exercisable at the same time. The parties' rights are irreconcilable. Rescission by Pasminco would necessarily prevent a step in by Greencapital. A step in by Greencapital would necessarily prevent a rescission by Pasminco. My conclusion is that the parties agreed to a 'first past the post' regime."
The primary judge dealt with Pasminco's submission that the contract had been frustrated at [119]-[143]. His Honour rejected the submission that cl 22 of SEPP 55 was a radically different requirement from the obligations to which Pasminco was already subject, having regard to the terms of the project approval, and the practical effect that any development of the site required the approval of the Environmental Protection Authority and the Director-General of the planning department: at [127]-[129]. His Honour also rejected the submission that the obligation to establish a fund to pay for the future maintenance and management of the containment cell, which Pasminco contended would exceed $22 million, was something which had not been contemplated at the time. Indeed, his Honour noted at [141] that Pasminco's administrators had estimated that approximately $21.5 million would have to be invested to fund the future maintenance and management of the containment cell.
I pass over the aspects of his Honour's judgment which are not challenged on appeal, noting only that at [172]-[192] his Honour addressed, hypothetically having regard to his conclusions on construction, some of the issues which would arise if specific performance were ordered.

The appeal

By its amended notice of appeal, Greencapital contends that Pasminco's right of rescission was qualified by its right under cl 37.8 to elect within a reasonable time to step in and achieve the conditions precedent. Alternatively, it submits that Pasminco could not validly rescind the contract until after 2 July 2018. A further ground of appeal directed to the rejection by the primary judge of Greencapital's claim that it was unconscientious for Pasminco to exercise its right of rescission was abandoned at the commencement of oral submissions.
By notice of contention, Pasminco seeks to uphold the orders on the basis that the contract was frustrated, principally by reason of the amendment to SEPP 55.
It was common ground that if either ground of appeal succeeded and the notice of contention failed, then this Court could not resolve all questions of the appropriate relief to which Greencapital was entitled. For one thing, the effective exercise of Greencapital's step-in right gave it until 30 June 2019 to seek to have the conditions precedent satisfied, and it may well have been hindered from achieving that objective within that timeframe by the litigation. Both parties accepted that this Court should remit the proceedings to the Equity Division for the determination of such further relief as may be appropriate.

Submissions on construction

Mr Hutley SC, who with Mr McLure SC and Mr Habashy appeared for Greencapital, advanced two submissions on construction. Both submissions commenced with the uncontroversial points that the right to "step-in" was expressed to be available at the same time as Pasminco's right to rescind, and each was destructive of the other. It was put that there was nothing in the contract or the deed of amendment to suggest that it was within the objective contemplation of the parties that the valuable right conferred by cl 37.8 could be defeated by either a "race" to give competing notices or the accident of which party received the other's notice first. To that unbusinesslike result was added the consideration that the "race" was one which commenced at midnight on a Saturday night. Rather, the conflict between the two contractual rights was resolved by requiring there to be a reasonable time before the exercise of the right of rescission, in order to enable the exercise of the step-in right.
That primary submission was buttressed by a somewhat more elaborate argument, which may not have been advanced before the primary judge, turning upon the effect of cl 37.8(b)(4). That clause provided that "the Sunset Date in clause 30 will be extended to 30 June 2019" in the event that the step-in rights were exercised by the purchaser. The submission was that the effect of that clause was that the parties were to be taken to have agreed with retrospective effect for the Sunset Date to be altered for all purposes, including for determining the validity of a rescission notice under cl 37.1. Thus, in the event that Pasminco exercised its right of rescission under cl 37.1 shortly after the Sunset Date, there was the chance that, within a reasonable time, Greencapital might exercise its step-in right, which would have the consequence that the condition in cl 37.1(b) "if the conditions precedent are not satisfied by the Sunset Date" was no longer satisfied (because the Sunset Date had been altered to 30 June 2019). It was submitted by Mr Hutley that that construction was not inconsistent with cl 37.1(b)(2), because although that clause provided that following serving a notice of rescission, "neither party will have any claim on the other", it did not stand in the way of the later exercise of a power granted by the contract. This further submission supported the construction whereby, so it was put, "objectively, a commercial result is produced which gives real content to the obviously negotiated right under cl 37.8 [which] removes the absurdity of the race at midnight".
It will be seen that this refinement of the submission turned upon the distinction in the opening words of cll 37.1(b) and 37.8(a): the former referred to the conditions precedent not being satisfied by the Sunset Date; the latter referred to the conditions precedent not being achieved by 30 June 2018.
Greencapital's alternative submission turned upon cl 21.5 and its operation on the achievement of the conditions precedent by the Sunset Date. Mr Hutley acknowledged that there was no contractual obligation on the vendor to achieve satisfaction of the Conditions Precedent. However, he submitted that that did not prevent the application of cl 21.5 to the rights conferred by cl 37. Insofar as cl 21.5 was ambiguous, it was submitted that "the time for something to be done or to happen" was to be read in a similar fashion to the words in cl 29.2. Clauses 29.1 and 29.2 stated: "29.1 This clause applies only if a provision says this contract or completion is conditional on an event. 29.2 If the time for the event to happen is not stated, the time is 42 days after the contract date."
It will be recalled that cl 21.5 provided "21.5 If the time for something to be done or to happen is a day that is not a business day, the time is extended to the next business day, except in the case of clause 2 (deposit)."
The 42 day period in cl 29.2 was plainly enough a reference to a period within which something was to happen, and so it was put that cl 21.5, bearing in mind its similar language, was to be read in the same way. It followed that cl 21.5 was not confined to clauses which imposed a requirement, and thus the date upon which the conditions precedent in cl 37 were to be performed became the next business day, namely, Monday 2 July 2018. That in turn meant that the first day after which the conditions precedent had not been satisfied was Tuesday 3 July 2018. Because Greencapital was the first party to give notice of its election after 2 July 2018, which it did on the morning of Tuesday 3 July 2018, it was effective.
Mr O'Bryan SC, who appeared with Mr Tynan for Pasminco, noted that some of the submissions advanced by Mr Hutley had not been made below, but accepted, very sensibly, that as they were simply submissions as to the proper construction of the contract, he could not object to that course being taken.
Mr O'Bryan commenced with reference to correspondence between the parties' solicitors in June 2018, on the basis that that was relevant to the construction of the amending deed, in the absence of any correspondence preceding its execution some 18 months earlier.
He submitted that the contract as originally entered into contained two rights conferred upon the parties to rescind, either of which could be exercised at any time, and that when it was amended to confer the step-in right, there was nothing untoward in there being a competition between vendor and purchaser as to who would exercise one of those rights. Mr O'Bryan opposed the submission that the new right conferred upon the purchaser might require some implication qualifying the vendor's existing right of rescission, in order that the new right might be capable of effective exercise. To the contrary, he maintained that there should be no such implication: "[T]his sophisticated purchaser well understood that the power of rescission still existed. It did not seek to bargain away the vendor's power of rescission. So it entered into, we submit, knowingly and willingly, a contract in which these inconsistent rights might be exercised and the question would be simply who exercised first and whether or not the extension of time periods in cl 21 might or might not affect when those rights arose."
It was said that a "first mover" advantage was familiar in commerce and that technological change meant that there was nothing uncommercial or unexpected about a provision which could be engaged by either party in the instants after midnight on Saturday 30 June 2018. Emphasis was given to the certainty of 30 June being a date after which either party was free to exercise its powers: "[I]t is entirely consistent with a contractual matrix in which both parties understand 30 June 2017 or 18 in each case, is a fixed and certain date and in those circumstances, we submit it is not at all uncommercial for them both to be anticipating that if those conditions precedent are not satisfied by that date, one or either of them might act, thereafter, more or less immediately."

Consideration of submissions on construction

First, it was common ground on the pleadings, at trial and on appeal, that the words "are not satisfied by the Sunset Date" involved examining whether the conditions precedent had been satisfied at any time until midnight on Saturday 30 June 2018. That is to say, the parties accepted that "by" the Sunset Date meant "on or before" the Sunset Date. I proceed on that basis, passing over whether they might have required satisfaction of the Conditions Precedent no later than the day preceding the Sunset Date. (The potential ambiguity of the expression "by [a date]" was noted by Lindgren J, with reference to earlier decisions, in Tio v Minister for Immigration and Multicultural and Indigenous Affairs (2003) 126 FCR 185; [2003] FCAFC 53 at [15], to which may be added the majority and minority approaches to a notice to vacate "by July 31" in Munro (JH) Ltd v Vancouver Properties Ltd [1940] 3 WWR 26. As it happens, the ultimate result will be unaffected by this point.)
Secondly, when a contract confers a power to do something, it is ordinarily construed as a power to do the thing within a reasonable time. As Dixon J said in Reid v Moreland Timber Company Pty Ltd (1946) 73 CLR 1 at 13; [1946] HCA 48, "[a]n implication of a reasonable time when none is expressly limited is, in general, to be made unless there are indications to the contrary". There were no contrary indications in the contract, and indeed cl 21.1 is, if anything, confirmatory of the position. The fact that exercise of the power conferred by cl 37.8 had to occur within a reasonable time was not controversial in this litigation. Likewise, it was accepted that its purported exercise on Monday 2 July 2018 had occurred within a reasonable time.
Thirdly, and contrary to Mr O'Bryan's opening oral submission, the June 2018 correspondence is irrelevant to construction. None of that correspondence sheds light on the parties' objectively manifested intentions in December 2016. In Agricultural and Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570; [2008] HCA 57 at [35] Gummow, Hayne and Kiefel JJ, with the concurrence of Heydon J, endorsed Lord Reid's statement in James Miller & Partners Ltd v Whitworth Street Estates (Manchester) Ltd [1970] AC 583 at 603: "... it is not legitimate to use as an aid in the construction of [a] contract anything which the parties said or did after it was made."
The Court was not taken to any evidence of the negotiations leading to the execution of the Deed of Contract Amendment in December 2016, and so it is unnecessary to consider the use which could be made of such material: cf Cherry v Steele-Park (2017) 96 NSWLR 548; [2017] NSWCA 295.
The principal difficulty with acceptance of Pasminco's construction is that the rights conferred by cl 37.1 in favour of the vendor are diametrically opposed to the new rights conferred by cl 37.8 in favour of the purchaser. One is destructive of the other. In terms of their legal effect, the exercise by one party of its right necessarily disentitles the other party from exercising its right. Further, looking at the position commercially, in precisely those circumstances where it would be rational for the purchaser to step in and attempt to achieve the satisfaction of the conditions precedent, it is likely also to be rational for the vendor to seek to rescind the contract.
It seems doubtful to me that the boilerplate provisions as to time in cl 21 will have much role to play in reconsidering the conflict between cll 37.1 and 37.8. The essential problem is that, as amended, the contract confers mutually inconsistent powers upon each party, with each right expressed to be available if the conditions precedent are not satisfied by the Sunset Date. It seems difficult to see how general clauses which provide for a reasonable time when no time is stated, and extending times on weekends and non-existent days at the end of months having fewer than 31 days, will address the problem of conflict between similarly worded and similarly structured clauses which conferred mutually destructive rights.
The Deed of Contract Amendment conferred a new power upon Greencapital. It may be inferred that that new power was part of a commercial bargain, other aspects of which extended the time for achieving the conditions precedent by 12 months, and altered the amount of deposit which was to be taken to have been paid by Greencapital for the land (as opposed to the Lot 50 land). It was not contended that the new power was, at least potentially, anything other than a valuable additional right.
If the construction for which Pasminco contends be correct, then the new valuable additional right conferred on Greencapital was apt to be destroyed by the prompt exercise by Pasminco of its existing right of rescission.
This is not merely a case where a conclusion that the parties' objectively manifested intention in a commercial contract was to confer rights which were apt to involve a race immediately after midnight on a Saturday night is improbable or impracticable, although I would reject Pasminco's submission that there is nothing uncommercial about such a situation. It is hardly to be expected that the efficacy of provisions in a commercial contract should turn on the happenstance of which party achieves service first, especially if that is to occur in the minutes or seconds after midnight on a Saturday. On Pasminco's approach the outcome of the race might depend on whose internet connection was working more effectively between midnight and 12:01 am.
But the unlikelihood of the construction for which Pasminco contends is all the greater, since what is involved is the potential destruction of a new right, solemnly bargained for and included in an amending deed. Not lightly would a court reach a construction whereby that new valuable right bargained for could be entirely destroyed by the prompt exercise of the existing right of rescission.
Further, it is to be borne in mind that this is a contract for the sale of land. While it is a conditional contract, the underlying purpose is to effect a transfer of title, upon satisfaction of the conditions. The premise of the new right conferred by cl 37.8 was to give the purchaser the opportunity to seek to achieve satisfaction of the conditions precedent, in circumstances where the vendor had failed to do so. Bearing in mind the parties' underlying purpose of effecting a sale, that is a further reason why the new right conferred by cl 37.8 should not be construed so as to render it liable to destruction by the vendor's exercise of a power of rescission a minute or a second after midnight on Saturday 30 June 2018.
Pasminco submits, correctly, that there is an absence of words reconciling the two inconsistent rights. However, contrary to Pasminco's submission, it does not follow that the parties are thereby taken to have agreed to a first past the post regime. Pasminco's submission begs the question. The question is whether there is an implication qualifying the right of rescission. That question is not answered by pointing to the absence of express language.
Greencapital's primary construction is to be preferred. Pasminco's conflicting right to rescind is qualified by the obligation to provide a reasonable time within which Greencapital may exercise its right to step in. That conclusion is readily reached by applying orthodox principles of construction.
It is axiomatic that the contract (which is to say, the contract as amended) is to be construed as a whole. That principle "requires effect to be given to each provision of the document having regard to the others, and reflects a presumption that the various provisions were intended to operate together to achieve a specific purpose or purposes": Tempe Recreation (D.500215 and D.1000502) Reserve Trust v Sydney Water Corporation (2014) 88 NSWLR 449; [2014] NSWCA 437 at [53], citing P Herzfeld, T Prince and S Tully, Interpretation and Use of Legal Sources - The Laws of Australia, Thomson Reuters 2013, p 504.
It is settled law that, as Sackville AJA said in Park v Murray Irrigation Ltd [2018] NSWCA 166 at [79], "a conflict between apparently inconsistent provisions is to be resolved on the basis that one provision qualifies the other and, hence, both have meaning and effect". In Re Media, Entertainment and Arts Alliance; Ex parte Hoyts Corporation Pty Ltd (1993) 178 CLR 379 at 386-387; [1993] HCA 40, the High Court explained that the principle was an aspect of the general rule that an instrument must be read as a whole. The same point was made in Chapmans Ltd v Australian Stock Exchange Ltd (1996) 67 FCR 402 at 411, where Lockhart and Hill JJ said: "It is an elementary proposition that a contract will be read as a whole giving weight to all clauses of it, where possible, in an endeavour to give effect to the intention of the parties as reflected in the language which they have used. A court will strain against interpreting a contract so that a particular clause in it is nugatory or ineffective, particularly if a meaning can be given to it consonant with other provisions in a contract."
Those principles sustain the conclusion that Pasminco's right to rescind was qualified by Greencapital's new right to step in, to be exercised within a reasonable time after 30 June 2018. That is consistent with Mr Hutley's further submission, to the effect that upon the exercise of the step-in right, the parties are to be taken to have postponed the "Sunset Date" with the result that any notice of rescission served by the vendor is no longer valid because cl 37.1 is no longer satisfied. However, I would not place any great weight upon that submission, which draws such force as it has from the difference in the references to "Sunset Date" in cl 37.1 and "30 June 2018" in cl 37.8. In this contract, which in Mr Hutley's words "wasn't exactly an achievement in elegance", I would not readily accept that the different reference to the time by which the conditions precedent were to be achieved produced so significant a consequence.
Rather, the conclusion that Pasminco's right under cl 37.1 is qualified by Greencapital's right under cl 37.8 is supported principally by (a) the improbability and impracticality of the "race" to which the competing construction involves, (b) the need to give efficacy to the separately negotiated new valuable right enjoyed by Greencapital and (c) the orthodox approach that inconsistent provisions are construed as one qualifying the other.
For those reasons, which reflect submissions which may not have been advanced so prominently to the primary judge as they were in this Court, Greencapital's construction is the true construction of the contract as amended. Rather than a "race" after midnight on 30 June 2018 to exercise a right to rescind or a right to step in, irrespective of any purported exercise by Pasminco of its right to rescind, Greencapital had a reasonable time to exercise its right to step in. Greencapital validly exercised that right by notice on Monday 2 July 2018, notwithstanding the purported notice of rescission previously served by Pasminco.

Submissions on frustration

Pasminco accepted that it needed to establish that the contract had become incapable of being performed because the circumstances in which performance was called for would render it a thing radically different from that which it had undertaken: Davis Contractors Ltd v Fareham UDC [1956] AC 696 at 729, approved in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 357; [1982] HCA 24. It relied on the formulation of principle by Nettle JA in oOh! Media Roadside Pty Ltd v Diamond Wheels Pty Ltd (2011) 32 VR 255; [2011] VSCA 116 at [70]: "[A] contract is not frustrated unless a supervening event: a) confounds a mistaken common assumption that some particular thing or state of affairs essential to the performance of the contract will continue to exist or be available, neither party undertaking responsibility in that regard; and b) in so doing has the effect that, without default of either party, a contractual obligation becomes incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract."
Pasminco submitted that the insertion of new cl 22 into SEPP 55 was not foreseeable when the contract was entered into. There was a debate in the written submissions, which was not developed orally, as to the test of foreseeability, which may be passed over. Pasminco's principal submission was that cl 22 effected a radical change, insofar as it altered the approach Pasminco would have to take to remediating the selling of the land. It emphasised that previously, significant parcels of land had been "excised" from the liabilities and obligations attached to the contamination notice and the remediation order, and were sold to third parties. These appear to have included parcels known as the "Cardiff West Site", the "Bunnings Site" and the "World Headquarters Site".
It was said that "[t]he insertion of clause 22 of SEPP 55 has fundamentally changed the commercial landscape in which Pasminco has been operating to achieve the Phase 2 subdivision." Substantially the same change appeared in the draft conditions of consent issued by the local council on 9 May 2017.
Pasminco emphasised the cashflow consequences upon it in both its written and oral submissions. It had previously contemplated using the proceeds of sale to finance the remaining steps in the remediation, and it pointed to statements made on its behalf that the obligation to provide funding to manage and monitor the containment cell in perpetuity could not be satisfied until the sale of land was completed.
Further, Pasminco pointed to the possibility of something akin to the "moral risk" encountered by an insurer, insofar as Greencapital might not negotiate with the regulators in order to achieve satisfaction of the conditions precedent, and look to it for reimbursement of the cost pursuant to cl 37.8. Pasminco acknowledged that it could not be established that Greencapital would spend more money than it would have in order to achieve compliance, but it invited the Court to infer that, because of Greencapital's right to be indemnified for any "proper and reasonable" third party costs, it would spend more money.
Pasminco also submitted that the requirements now imposed by cl 22 were broader, insofar as they imposed obligations over all of the land, including land which was not the subject of the contract.
It is not necessary separately to summarise Greencapital's submissions on frustration. Their essence will be clear from what follows.

Consideration of submissions on frustration

Pasminco has for many years been obliged to remediate the entirety of the land. The history to date has been one of non-compliance with the conditions imposed by the terms of the project approval originally granted in 2007, and the seeming intent of the remediation notice issued in 2003. That is not said in order to convey that there has been a breach by Pasminco. It may be that the delay has occurred through modification of those terms, or the obtaining of extensions of time, coupled with "excising" parts of the land from the declaration and remediation order under the Contaminated Lands Management Act 1997. It may also be that the non-achievement of the funding in perpetuity and the registration of a s 88E covenant have occurred with the permission or at least the acquiescence of the relevant authorities.
The point is not to ask whether Pasminco has breached its obligations under any environmental law or project approval. The point is to observe that the requirement upon Pasminco to remediate the entirety of the site, including provision of funds to maintain and monitor the containment cell in perpetuity, is a requirement to which Pasminco has long been subject. It was certainly within the contemplation of the parties to the contract for sale of land in 2015.
It was not suggested that the standard of remediation required of Pasminco had changed since 2002 and 2003. The obligation that Pasminco supply a fund so as to generate income for the perpetual upkeep and management and monitoring of the containment cell was in existence no later than February 2007 when approval of its Part 3A project was granted. By December 2017, Pasminco had identified the sum of $21.5 million to generate income of $812,600 per annum to meet budgeted management and maintenance costs of the containment cell.
For reasons which were not explained by the evidence, Pasminco was granted approval to build the containment cell without putting in place a s 88E covenant. Mr McLure, who addressed on this aspect of the appeal on behalf of Greencapital, submitted that "the introduction of the amendment to SEPP 55 was designed to achieve the requirements of the project approval by another means". That submission may be sound. But it is not necessary to go so far in order to resolve this appeal. It is sufficient to conclude that the amendment to SEPP 55 and the draft condition of consent proposed by the Council did not cause Pasminco's performance of its obligations under the contract to be radically different from what it had undertaken in 2015.
Contrary to Pasminco's submissions that cl 22 was an unforeseen eventuality, it is entirely foreseeable than when a polluter fails to remediate its land, further steps will be put in place to oblige it to perform its obligations. True it is that Pasminco has previously been permitted to "excise" parts of its land from the liabilities imposed by declarations and notices under the Contaminated Land Management Act. I would not regard an inability to exercise those powers so as to defeat the erstwhile obligations to remediate as being a radically different circumstance such as to amount to frustration.
Another way of making that point is to observe that on no view was it a fundamental aspect of the parties' contract that Pasminco would be permitted to obtain a subdivision before satisfying the conditions of project approval.
Finally, the consideration that Greencapital in the exercise of its rights under cl 37.8 enjoyed a right of indemnity, and might be less frugal in achieving satisfaction of the conditions precedent, is not to the point. That was precisely what was agreed in the amending deed. It is not a circumstance pointing to frustration.
I respectfully agree with the rejection by the primary judge of Pasminco's claim that the contract has been frustrated.

Orders

For those reasons, the appeal should be allowed, and orders 2, 3 and 4 (dismissing the proceedings, and as to costs and the return of the deposit) made on 18 December 2018 should be set aside, and in lieu thereof, there should be declaratory relief as sought in the Commercial List Summons based on the efficacy of Greencapital's 2 July notice. It was accepted that the interlocutory relief ordered against Pasminco on that date would be automatically discharged by orders allowing the appeal. It was not suggested that further interlocutory relief was required, in the event that this Court found Greencapital's notice to be valid.
In accordance with the parties' common approach, the matter should be remitted to the Commercial List for the working out of appropriate ancillary relief in light of the current position, some 9 months after the exercise of the step-in rights.
Costs of the appeal should follow the event. The discretion as to costs at first instance must be re-exercised. However, special costs orders were made at first instance, reflecting matters (the abandonment of some issues, and a notice of motion filed on the Secretary of the Department of Planning and Environment) as to which no submissions were made. Indeed, it appears that the underlying materials are not in the appeal books. In circumstances where the matter has to return to the Commercial List in any event, the most efficient course would seem to be to reserve any dispute about the costs at first instance to that Court. However, if there is good reason for this Court to resolve that dispute, the parties are at liberty to apply, within 14 days, for further orders from this Court, in accordance with UCPR r 36.16.
I propose these orders:
Appeal allowed.
Set aside orders 2, 3 and 4 made on 18 December 2018, and in lieu thereof, declare that (a) the purported notices of rescission dated 1 and 2 July 2018 served by Pasminco are invalid, and (b) the notice of election dated 2 July 2018 served by Greencapital is valid and effective.
Remit the proceedings to the Commercial List for such further orders as may be appropriate.
Pasminco to pay the costs of Greencapital of the appeal.
SACKVILLE AJA: I agree with the orders proposed by Leeming JA and with his Honour's reasons.
The issue of construction presented in this appeal is in substance whether the right of election conferred by the appellant (Greencapital) should be given priority over the conflicting right of the respondent (Pasminco) to rescind the contract. As Leeming JA has explained, that issue should be resolved in favour of Greencapital because its right was created by the Deed of Contract Amendment, which inserted Special Condition 37.8 into the Contract.
The parties to the Deed of Contract Amendment must be taken to have intended that Greencapital's right of election would not be rendered illusory by Pasminco exercising its right of rescission before Greencapital had a chance to make the election contemplated by cl 37.8. It is important to remember that under the terms of the Contract as amended by the Deed of Contract Amendment Pasminco's right of rescission would arise in the very circumstances and at precisely the same time as Greencapital's right of election.
EMMETT AJA: The principal question in this appeal is whether a contract (the Contract) between the respondent as seller (the Vendor) and the appellant as buyer (the Purchaser) relating to land at Cockle Creek (the Land) was validly rescinded by the Vendor. A secondary question, if the Contract was not validly rescinded, is whether it was frustrated by amendments made to State Environmental Planning Policy No 55 - Remediation of Land (SEPP 55).
By the Contract, which was made 23 December 2015, the Vendor agreed to sell and the Purchaser agreed to buy the Land for the price of $14,000,000. The Contract contained standard printed clauses as well as special conditions. Special condition 37 effectively provided that completion of the Contract was to be conditional on the satisfaction of several conditions precedent set out in cl 37. There were conditions precedent relating to registration of a plan of subdivision, the issue of a Site Audit Statement and the dedication of certain land as public road. Clause 37 relevantly provided that, if the conditions precedent were not satisfied by the Sunset Date, either party would be entitled, by notice in writing to the other before the conditions precedent were satisfied, to rescind the Contract. The term Sunset Date was defined as 30 June 2017.
On 21 December 2016, the Vendor and Purchaser entered into a deed of contract amendment (the Amending Deed), which varied the Contract, relevantly, by changing the definition of Sunset Date to 30 June 2018 and by adding cl 37.8. Clause 37.8(a) relevantly provided that, if the conditions precedent had not been achieved "by 30 June 2018", the Purchaser would be entitled, by notice in writing to the Vendor, to elect to do all necessary things to achieve the conditions precedent. Under cl 37.8(b), if the Purchaser served such notice, the Purchaser was to assume responsibility for the achievement of the conditions precedent and the Sunset Date was to be extended to 30 June 2019. In addition, the Purchaser was to pay and be responsible for any cost incurred in connection with the conditions precedent, but on completion the Vendor was to reimburse the Purchaser the proper and reasonable third party costs incurred by the Purchaser in relation to the conditions precedent.
The conditions precedent were not satisfied by 30 June 2018, which was a Saturday. At 8.26am on Sunday 1 July 2018, the Vendor forwarded to the Purchaser by email a notice of rescission under the Contract. At 10.02am on 2 July 2018, the Vendor forwarded the rescission notice to the Purchaser by email again. At 4.45pm on 2 July 2018, the Purchaser forwarded to the Vendor by email notice of exercise of its election under cl 37.8 of the Contract. On 3 July 2018, the Purchaser again forwarded its notice of election to the Vendor. The second notice of rescission and the second notice of election were given because of cl 21.5 of the Contract, which relevantly provided that, if the time for doing something to be done or to happen is a day that is not a business day, the time was to be extended to the next business day. Business day was defined as any day except a bank or public holiday throughout New South Wales or a Saturday or Sunday.
In proceedings brought in the Commercial List of the Equity Division, the Purchaser contended that the rescission notices were ineffective because they were given before it had had a reasonable opportunity to exercise the right conferred by cl 37.8. A judge of the Equity Division (the primary judge) concluded that the Vendor was entitled to rescind the Contract and dismissed the proceedings commenced by the Purchaser. The primary judge also concluded that, if the Contract had not been validly rescinded, it had not been frustrated. The Purchaser has now appealed to this Court.
The question of whether the Contract was validly rescinded by the Vendor depends upon the proper construction of the Contract, as amended by the Amending Deed. The Contract was entered into by the parties in the expectation that it would be completed according to its terms. For the benefit of the Purchaser, completion of the Contract was made conditional and provided a consensual mechanism for the Contract to be brought to an end if the conditions were not satisfied by the Sunset Date. Those provisions were very significantly altered by the Amending Deed, which conferred a significant right on the Purchaser, namely, to assume responsibility for ensuring the satisfaction of conditions that had not been satisfied by the Sunset Date, as amended by the Amending Deed.
The Vendor contended, and the primary judge held, that the parties contemplated by the Contract, as amended, that there could be a race, following the expiration of the Sunset Date, between them as to whether the Vendor could give notice of rescission or the Purchaser could give notice of election, before the other. If the Vendor were to be entitled, as it contends and as the primary judge held, to give notice of rescission under cl 37 immediately following the expiration of the Sunset Date, the right conferred by cl 37.8 would become virtually illusory.
I consider that such a consequence would be quite an uncommercial effect that was not contemplated by the parties. That is to say, for the Purchaser to have a realistic right under the new cl 37.8, it was entitled to a reasonable time to give notice of its election. It has not been suggested on behalf of the Vendor that the notices of election given by the Purchaser on 2 July 2018 and 3 July 2018 were not given within a reasonable time. I agree with Leeming JA, for the reasons proposed by his Honour, that the notices of election under cl 37.8 were effective to extend the Sunset Date to 30 June 2019. In those circumstances, the purported notices of rescission given by the Vendor were ineffective.
It is not easy to follow the contention on behalf of the Vendor as to the alleged frustration of the Contract. It was not suggested that the effect of SEPP 55 was to impose a greater financial burden on the Vendor. At most, it appears to be suggested that its effect may be that the order of steps needed to be taken in order to satisfy the conditions precedent may have been varied. However, a detailed analysis of the obligations imposed by the major project approval granted in respect of the Land indicates that the effect of SEPP 55 was to do no more than impose as obligations the terms and conditions that were imposed by the major project approval. SEPP 55 did not change or alter the burden imposed on the Vendor if it was to achieve satisfaction of the conditions precedent, let alone one that can be described as a fundamental or radical change to its obligations. It was required both under the express terms of the Contract and under the general law to take all reasonable steps that were necessary for it to take in order to have the conditions precedent satisfied. I agree with Leeming JA, for the reasons proposed by his Honour, that the primary judge made no error in concluding that the Contract was not frustrated.
It follows that the appeal should be allowed. I agree with the orders proposed by Leeming JA.

Amendments 27 March 2019 - [84]: First sentence, "Purchaser" changed to "Vendor" [85]: Fourth sentence, "he" changed to "the" [86]: Fourth sentence, "development consent" changed to "major project approval" DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 27 March 2019

At a glance

Court

Decision date

Before

Source

Judgment (13 paragraphs)

Parties

Legislation Cited (4)

Cases Cited (19)

Cited By (8)