Greydae P/L v Malilane P/L [2002] VSC 170

5. On 6 December 1999 Mr Robertson lodged caveat W464498F on the title to protect his equitable interest as purchaser.

8. On 13 June 2000 Mr Robertson nominated the plaintiff, Greydae Pty Ltd, as substitute purchaser to take a transfer of the property upon settlement. Unless it be necessary to distinguish between them I shall refer to Mr Robertson and Greydae collectively as "the purchaser".

11. This litigation concerns the vendor's assertion that the contract has been terminated. It has been brought by Greydae as substitute purchaser to substantiate the claim of the caveator to an interest in the land pursuant to s. 89A(3) of the Transfer of Land Act 1958. No point was taken before me that the caveator is in fact Mr Robertson, the parties, sensibly enough, being content to litigate the real issue as to the continuing existence of the contract of sale.

14. The trial was conducted upon affidavit; there was no real contest as to the facts. The affidavits filed and relied upon were that of the vendor's solicitor, Timothy David Kelly sworn 22 April 2002, that of Mr Robertson sworn 26 April 2002, paragraph 12 only of the affidavit of the purchaser's solicitor, Joseph Katz sworn 18 April 2002 and his further affidavit sworn 26 April 2002, and the affidavit of Mr Katz' conveyancing clerk, Elissa Marie Robertson sworn 26 April 2002. None of the deponents was cross-examined. One further exhibit was tendered, the general conditions of the contract of sale which are incorporated in the sale note.

17. It appears from these affidavits that the contract of sale imports the provisions of Table A of the Seventh Schedule of the Transfer of Land Act 1958 including cll. 5 and 6 the relevant part of which is in the following terms.

"5. Time shall be of the essence of this contract. However, if either party defaults under this contract the offended party shall not be entitled to exercise any of his rights arising out of the default other than his right to sue for money then owing until he has served the offender with a written notice specifying the default and his intention to exercise his rights unless the default is remedied and the proper legal costs occasioned by the default and any interest demanded are all paid within fourteen days of service of the notice and the offender fails to comply with the notice. 6. (1) Where the default has been made by the purchaser and is not remedied all monies unpaid under this contract shall become immediately payable and recoverable at the option of the vendor. (2) If the notice also states that unless the default is remedied the contract will be rescinded pursuant to this condition then if the default is not so remedied the contract shall thereupon be rescinded."

It appears also to be uncontroversial that, after a history of dealings which I shall refer to below, a settlement time was appointed for noon on 22 December 2000. No representative of the purchaser attended at this time and at 3.05 pm on the same day a document purporting to be a notice of rescission given pursuant to cl. 6 was served on each of Greydae, Mr Robertson and their solicitors. The 14-day period mentioned in the notice of rescission expired on 5 January 2001. By fax dated 9 January 2001 the solicitors for the vendor advised the solicitors for the purchaser that the contract of sale had been rescinded and on 12 January 2001 they invoked the procedure under s. 89A of the Transfer of Land Act. In response to a notice from the Registrar of Titles the purchaser commenced this proceeding to substantiate the caveat.

22. As is customary the Registrar of Titles did not appear.

25. Many of the issues raised in the pleadings were resolved between counsel. It was accepted by them that, if I should find that the contract of sale remained on foot, the caveat should remain and that I should order specific performance upon terms to be determined in due course. If, on the other hand, I should find that the contract of sale has been determined, the caveat should be removed and the deposit forfeited. And so, the matter for consideration becomes whether the contract of sale has on 5 January 2001 been terminated upon the effluxion of a 14-day notice of rescission given on 22 December 2000 or by acceptance by the vendor on 9 January 2001 of the purchaser's repudiation.

28. In the course of their opening counsel for the vendor identified the outstanding issues for my determination:

(a) Whether time had ceased to be of the essence on 22 December 2000 when the notice of rescission was given.

(b) Whether the notice of rescission was effective.

(c) Whether the purchaser on 9 January 2001 had repudiated the contract of sale entitling the vendor then to terminate it by acceptance.

34. It is necessary now that I trace briefly the events from June 2000. As I have mentioned, the purchase price of $2.5M was to be paid as to $500,000 by six payments between 25 November 1999 and 24 March 2000 and the balance of $2M upon settlement on 26 June 2000.

37. By deed of variation dated 20 March 2000 entered into between Mr Robertson and the vendor the terms of payment were modified: the price was increased to $2,507,500 and was to be paid by a deposit of $250,000, of which $100,000 had been already paid, on or before 27 March 2000 and the balance of $2,257,500 upon settlement on 26 June 2000 or earlier by agreement. Subject to other modifications to the contract of sale with which I am not concerned, the parties ratified and confirmed the contract of sale. Time for performance, therefore, remained of the essence. The balance of the deposit was paid on 27 March 2000.

40. The purchaser failed to settle on 26 June 2000. Subsequently, the parties negotiated a second variation deed dated 12 July 2000 under which the settlement date was extended to 18 August 2000. In consideration for this extension the purchaser agreed to pay on or before this extended date $62,719.03 being penalty interest to that date including a sum for potential GST liability in the event that the deposit was forfeited. The purchaser also agreed to reimburse the vendor for its costs and expenses incurred by reason of the default. In other respects, the contract of sale was confirmed. Settlement was therefore due by 18 August 2000 and time remained of the essence.

43. Settlement did not take place on the extended date. Some days before 18 August 2000 the purchaser requested a second extension of the date for completion and on 14 August 2000 the vendor counter-offered to extend the settlement date to 17 November 2000, subject to certain conditions. These conditions were eventually accepted by the purchaser on 17 August 2000. They included the payment of interest in advance to 17 November and legal costs which were fixed at $68,665.11 and $1,500 (on account), respectively. Under the terms of the counter-offer these conditions were to be satisfied by 4.00 pm on 18 August 2000. In the course of the negotiations at this time it appeared that on 15 August 2000 Greydae had entered into a contract of sale with one Richard Glenn Healey to sell to him part of the land being Lot 2 on a proposed plan of sub-division 438373R with a settlement date of 17 November 2000 or 14 days after notice of registration of the plan of sub-division, whichever was later.

46. The purchaser failed to comply with the conditions of the second extension agreement and on 21 August 2000 the vendor gave a first notice of rescission, asserting as the breach the purchaser's failure to pay the balance under the contract of sale on 18 August 2000. The 14-day period specified in that notice expired on 4 September 2000. By letter dated 29 August 2000 the solicitors for the vendor wrote offering two alternative solutions for the purchaser to avoid rescission:

(a) the purchaser settle the contract of sale by 4 September 2000; or

(b) the purchaser pay the interest of $68,665.11 and the vendor's legal costs which were fixed at $1,760 by 4.00 pm on 4 September 2000, in which event the settlement date would be extended to 17 November 2000.

By fax dated 31 August 2000 the purchaser accepted option (b).

52. The purchaser failed to make the agreed payments on 4 September 2000. Nevertheless, the vendor by fax of 5 September 2000 agreed to extend to 5.00 pm on that day the time for fulfilment of the payment conditions.

55. The purchaser failed to make the agreed payments on 5 September but did so on 6 September and this was accepted by the vendor. The second extended date for completion was therefore, 17 November 2000 and time remained of the essence.

58. In the beginning of November the parties readied for settlement on 17 November. It appears from the correspondence that the solicitors for the purchaser had prepared an application to lodge the plan of sub-division. By letter of 3 November 2000 they asked the vendor to endorse its consent on their application. After a follow up fax of 9 November 2000 the solicitors for the vendor wrote on 10 November 2000 alleging delay on behalf of the purchaser in attending to the plan of sub-division and asserting that the applicant for its registration would have to be their client, the vendor, as the registered proprietor of the land. It will be recalled that the contract of sale to Healey provided for settlement 14-days after notification of the registration of the plan of sub-division. On 10 November no application for registration had been lodged. Indeed, it was not lodged until 20 November 2000.

61. The purchaser failed to settle on 17 November 2000, the second extended settlement date, and on 21 November 2000 the solicitors for the vendor threatened to give a second notice of rescission unless 28 days' penalty interest and legal costs were paid by 4.00 pm on Wednesday 22 November. The requirement for payment of interest is important and I set it out in full:

"An amount equivalent to 28 days penalty interest is paid to our trust account. If settlement occurs before the expiration of the 28 day period a credit will be given to your client for the extra payment. If settlement occurs after the 28 day period, additional interest will be required."

By fax dated 22 November the solicitors for the purchaser sought an extension to Friday 24 November to comply with these conditions. This was refused.

66. The purchaser failed to accept the conditions or to make the payment by 22 November 2000, and on 23 November 2000 a second notice of rescission was served. This notice recited as the breach the non-payment of the balance on 17 November 2000. The 14-day period specified in the notice expired on 7 December 2000.

69. By fax dated Sunday 26 November 2000 the solicitors for the purchaser protested about the service of this second notice of rescission and proposed that the penalty interest and costs be not paid until settlement. The solicitors for the vendor replied on 27 November 2000 stating that, if the interest and costs were paid by Wednesday 29 November they would withdraw the second notice of rescission. These sums amounted to $23,053.36. The response of the purchaser's solicitors was to forward on the stipulated date $12,000 only, "in part payment of the interest and costs which our client has agreed to pay". A further cheque for $11,035.36 was paid on 30 November 2000. Notwithstanding this late payment and the minor insufficiency of the payment, the solicitors for the vendor accepted the cheques as sufficient compliance with their requirements of 21 November 2000. The second notice of rescission was withdrawn.

72. It was contended on behalf of the purchaser that, at this stage, time for completion had ceased to be of the essence. When the second extended settlement date had passed, the parties continued to negotiate in the expectation that settlement would take place soon but on an undetermined date. It seems to have been contemplated that settlement would occur within 28 days of the 21 November letter because interest for that period was demanded as a condition of not giving the second notice of rescission. This may, as a matter of calculation, indicate an expectation that settlement would take place on 19 December, that is, 28 days after the second extended settlement date. But even this is tentative only because the requirement of the 21 November letter, which I have set out above, contemplates that settlement might occur, consistent with the proposal then made, before or after the 28-day period has expired. Accordingly, the essential character of the obligation to pay the balance had been waived. I agree. The evidence shows that the vendor, by making the proposal of 21 November 2000 and by accepting on 5 December 2000 the payments made on 29 and 30 November 2000, waived the contractual stipulation that time for completion was of the essence.[1]

75. This conclusion has the consequence that the essential character of the time for payment for the balance of the price was no longer applicable unless and until it was restored as, for example, by the giving of reasonable notice.[2] This, of course, says nothing about the underlying obligation of the purchaser to pay the balance. This obligation endures but, in this case, no date was fixed for its performance in the letter of 21 November or in the correspondence which followed it. This was apparently a matter of concern for the vendor, for its solicitors wrote to their counterparts on the 15 December 2000 pressing for a settlement date and warning that if immediate arrangements were not made a further notice of rescission would be issued "in order to bring this matter to a conclusion".

78. It was submitted on behalf of the vendor that this letter had the effect or reinstating the essential nature of the obligation to settle. This cannot be correct. I assume for present purposes that the occasion for giving such a notice had arisen. In order to restore this character of the obligation to pay the balance, the notice must indicate an intention to rescind in default of compliance and give the recipient a reasonable time to do so[3]. Such a notice must give the other party a limited time to perform its obligation, for the requirement of such a notice is that it fix a new time for performance and that this time be sufficiently remote to give to the recipient a reasonable time to adjust to the new situation and to comply[4]. The letter of 15 December does none of these things.

81. The solicitors for the purchaser, however, responded positively. By fax dated 18 December 2000 they proposed that settlement take place at noon on Friday 22 December 2000 and requested the necessary information for this to occur. Over the succeeding two days these arrangements were finalised so that settlement was agreed to take place at that time at the office of the solicitors for the vendor. To my mind the purchaser in this way bound itself to settle on this date which may therefore be seen as a third extended settlement date. But the time for this was not of the essence.

84. The purchaser did not attend at the time and place for settlement. By fax received at that time the purchaser's solicitors advised that their client was not in a position to settle because its financier was not able to do so. They expressed an expectation that the financier "should be in a position to effect settlement next Friday 29 December 2000". Once again, the purchaser was in breach of contract. On the same day, the vendor served a third notice of rescission. The 14-days mentioned in this notice expired on 5 January 2001.

87. It does not appear that the purchaser responded to this notice. It did not take any step to pursue the suggested 29 December settlement. Mr Katz, in his affidavit of 26 April 2002, says that he did nothing because he formed the view that the notice of rescission was defective and he and his client decided not to alert the vendor as to this for fear it might "move swiftly to rectify the situation and the defects". On 9 January 2001 the solicitors for the vendor wrote in these terms:

"Further to our letter and the Rescission Notice dated December 22 2000 we confirm that the Contract for Sale in this matter has now been rescinded. As a result of the rescission your client's interest in the land has been extinguished."

The letter went on to demand the removal of the caveat within 48 hours. Their application pursuant to s. 89A of the Transfer of Land Act for the removal of the caveat was lodged in the Office of Titles on 12 January. Following the Registrar of Title's notice this proceeding was commenced on 20 February 2001 but not served until 5 April 2001.

92. Given my conclusion that the obligation of the purchaser to settle in December was not then of the essence of the contract, the third notice of rescission was an ineffective invocation of the termination procedure under cl. 6[5]. Even so, it may be that the notice of rescission may itself have the effect of restoring the essential character of the obligation to settle and of restoring the right to rescind for the purchaser's failure to do so. This it may do if the conditions for giving such a notice exist and, further, that the notice fixes a new time for completion and that the time allowed for completion is in all the circumstances reasonable[6].

95. As to the entitlement of the vendor to give a notice restoring time as an essential term, I have no doubt that the vendor was so entitled. The purchaser was in breach of its obligation to complete so that the right to give a notice to complete then existed[7]. In any event, the sorry history of defaults and broken promises on the part of the purchaser during the preceding six months, especially in the period from November, shows that the purchaser was, on 22 December 2000, guilty of unreasonable delay in settling. If I am wrong, therefore, in concluding that the purchaser had a contractual obligation to complete on 22 December 2000, the right to give the notice making time of the essence nonetheless existed following its failure to settle on that day[8].

98. I turn now to the notice of rescission to determine whether it met the formal requirements of a notice making time again of the essence. Counsel for the purchaser made two complaints about the document. The first, that it did not specify the breach, does not arise in the present context. In any event, I am satisfied that, on a fair reading, the recipient would be in no doubt that the breach alleged in the notice is that specified in recitals G, H, I and J which followed the recitals which set out the extensions of the date for settlement to 17 November 2000. These recitals are in the following terms:

"G. The Contract was further varied by the agreement to extend the settlement date on the basis of payments made by the Purchaser to the Vendor on account of interest and costs. H. The parties made an appointment to settle for 12 Noon on 22nd December 2000. I. Robertson & Greydae Pty. Ltd. or their representatives failed to attend at settlement and through their solicitors Kalus Kenny have advised that settlement cannot as yet proceed. J. Robertson and Greydae have made default under the terms of the Contract and Deeds of Variation and agreements as to the extended settlement date in that they have failed to pay the Balance."

102. The part of the notice relied on as fixing a fresh date for settlement is cl. 1 which is in these terms:

"1. The Vendor specifies the said default and intends to exercise the Vendor's rights and remedies under the Contract unless: 1.1 The said default is remedied; and 1.2 The proper legal costs occasioned by it (which are noted at $350.00), are paid within 14 days of service of this notice."

106. It was contended on behalf of the purchaser that a reasonable person reading this notice, having given it fair and reasonable consideration, would be left in some doubt as to whether and what time was fixed by the notice for remedying the default, that is for paying the balance due under the contract of sale[9]. I am entirely unpersuaded by this submission. The document, when read as a whole, in such a way by a person upon whom it was served, namely Greydae, Mr Robertson and also their solicitors who had acted throughout the transaction, clearly indicated that the default was to be remedied within the 14-day period.

109. Furthermore, I am satisfied that, in the circumstances, 14 days was a reasonable time for the purchaser to be required to settle the contract. I should say in fairness to the purchaser that it did not contend that this period was not reasonable.

112. The consequence of this is that on 5 January when the 14-day period expired the vendor was entitled to treat the purchaser as having repudiated the contract of sale and to accept this repudiation[10]. This it did by letter of 9 January. The contract of sale was thereupon terminated. Given the concessions mentioned in paragraph [8] above, the vendor was then entitled to forfeit the deposit and is entitled to have the caveat removed.

115. I will hear counsel as to the terms of the orders to give effect to these conclusions and as to costs.

[1] See Mehmet v Benson [1965] HCA 18; (1965) 113 CLR 295 at 303, per Barwick CJ (McTiernan concurring) and at 310, per Windeyer J; Thornton v Bassett [1975] VicRp 41; 1975 VR 407 at 421, per Pape J.

[2] Mehmet v Benson [1965] HCA 18; (1965) 113 CLR 295 at 303, per Barwick CJ.

[3] Thornton v Bassett [1975] VicRp 41; [1975] VR 407 at 423, per Pape J.

[4] Mehmet v Benson [1965] HCA 18; (1965) 113 CLR 295 at 310, per Windeyer J.

[5] Mehmet v Benson [1965] HCA 18; (1965) 113 CLR 295 at 303, per Barwick CJ.

[6] Poort v Development Underwriting (Victoria) Pty Ltd (No. 2) [1977] VicRp 52; [1977] VR 454 at 461, per FC.

[7] Louinder v Leis [1982] HCA 28; (1982) 149 CLR 509 at 511-3, per Gibbs CJ and at 524, per Mason J.

[8] Louinder v Leis [1982] HCA 28; (1982) 149 CLR 509 at 523-7, per Mason J.

[9] See Catley v Watson (1983) V ConvR 62,109 at 62,115, per Brooking J (1981).

[10] Poort v Development Underwriting (Victoria) Pty Ltd (No. 2) [1977] VicRp 52; [1977] VR 454 at 462.