Contract - General contractual principles - Construction and interpretation of contracts - Implied terms - Generally - Business efficacy - Vendor of land must permit access for the purpose of valuation.

BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266; Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd [1986] HCA 14; (1986) 64 ALR 481, applied.

National Mutual Life Association of Australasia Limited v Chris Poulson Insurance Agencies Pty Ltd (No 4) 11/1998; Chris Poulson Insurance Agencies Pty Ltd v National Mutual Life Association of Australasia Limited 40/1999, considered.

Conveyancing and Law of Property Act 1884 (Tas), s39.

Judgment Number: [2003] TASSC 131

1 The applicant seeks resolution of a dispute with the respondent concerning a contract for the sale of land in accordance with the Conveyancing and Law of Property Act 1884 ("the Act"), s39, which relevantly provides:

"39 - A vendor or purchaser of real or leasehold estate, or their representatives respectively, may at any time apply in a summary way to a judge in chambers in respect of any requisitions or objections, or any claim for compensation, or any other question arising out of or connected with the contract, not being a question affecting the existence or validity of the contract, and the judge shall make such order upon the application as to him shall appear just, and shall order how and by whom all or any of the costs of and incident to the application shall be borne and paid."

2 The provision permits the consideration of the terms of a valid contract, including one which a party contends has been terminated. It is similar to the Property Law Act 1974 (Qld), s70, the impact of which was considered by the Queensland Court of Appeal in Imperial Bros Pty Ltd v Ronim Pty Ltd [1998] QCA 444 in which the court stated at 5:

"... that the words of the exception are directed to excluding recourse to the provision where there is an issue as to whether or not there was ever a valid contract, and not to a situation where one party contends that a contract, accepted as valid originally, has subsequently been terminated. That was the approach taken on comparable legislation in Nowak v Linton [1960] WAR 2, 3 per Virtue J, and in Re MacDonald [1989] 2 Qd R. 29, 33 per Dowsett J."

(See also In the matter of An Application Pursuant to the Conveyancing and Law of Property Act 1884, s39; Rooke v John Fuglsang Constructions Pty Ltd 1/1995.)

3 The section limits the remedy available and, accordingly, the orders sought are restricted to:

"1 A declaration that the contract of sale made on or about 30th May 2002 between the applicant as purchaser and the respondent as vendor for the sale and purchase of Unit 2/7 Grace Court, Glenorchy contains an implied term to the effect that, in order to facilitate the performance of the contract the vendor must allow a valuer, on behalf of the purchaser's financier access to the property, in order to allow the purchaser to attempt to obtain finance as required by clause 4.1(b) of the contract.

2 For the purpose of performing the implied term in paragraph 1, within 14 days, the respondent allows a valuer appointed on behalf of the purchaser's financier access to the property.

3 The time for compliance by the applicant with clause 4.1(b) of the contract is extended to a time determined by the Court."

The question "arising out of the contract" is the interpretation of a standard form of contract for the sale of real estate and, in particular, the clause relating to the obtaining of finance.

4 On 31 May 2002, the parties entered into a contract for the sale of the respondent's land for the purchase price of $93,500, of which the sum of $2,000 was provided to the estate agent as the deposit. The contract provided, as a condition precedent, that the purchaser obtain finance for the amount of $85,000 within 14 days of the date of the contract. The contract was to be completed within 30 days of the confirmation of the "finance" clause.

5 On 3 June, the applicant applied to the Connect Credit Union for a loan of money to enable him to complete the purchase. On 5 June, he was advised that the loan "had been approved to proceed with this purchase, but this approval was subject to an inspection of the property by Connect Credit Union's property valuer." On the same day, Daryl Timms, a registered valuer, was retained by the Credit Union to undertake a valuation of the property for the purpose of ascertaining:

"... the value of the property as security for a mortgage loan to prospective purchaser ...".

"The instructions I received from Mr Stanwix were to arrange access of the property via White's Real Estate, who were the selling agents of the property. On the 5th June 2002 I contacted Charmaine White by telephone to arrange access of the property. I was advised by Ms White that I could not have access as the owner Gary Norman Toomey had taken back his keys to the property and had instructed the agency that he was no longer selling the Unit at 2/7 Grace Court in Glenorchy."

6 On 13 June, the valuer again attempted to gain access to the property, but was told by Ms White that access was refused.

7 Attempts by the applicant's solicitors to discuss the matter with Avery Partners, the solicitors named in the contract as acting for the vendor, were unsuccessful and concluded with a brusque reply, handwritten on the enquiring letter.

"We don't act for Toomey. Please contact him directly."

8 On 17 June, the applicant's solicitors wrote to the respondent advising him that finance had been conditionally approved "awaiting only a valuation by his financial institution" and requesting him to instruct the estate agent to "allow access for the purpose of a valuation". The respondent replied by letter faxed by Ms White on 18 June, stating:

"Ref: your letter dated 17 TH June 2002 sent to me. Firstly, Mr Keal has never acted on my behalf. I had not in fact heard from Mr Keal until letter was received by me about some inspection of which I had no knowledge of [sic]. I went to see Mr Keal (of, Avery Partners) and he told me that he didn't don't know what was going on and it's [sic] seems something was stuff... up. On the 12TH June 2002 I then went to see Ms Charmaine, of Whites Real Estate, she was under the impression that Avery Partners were acting for Grubb.

In fact I have never been asked to make my residence, available for inspection in ... by any valuer, or anybody apart from your threatening letter, which has increased my stress and anxiety level for which I am being treated by medication.

I will take my problems about certain aspects of this matter to the appropriate authorities upon my return.

I suggest that you contact the estate agent, because I cannot understanding while [sic] I have not been asked about an inspection, and if I have not been asked I certainly have not been given the opportunity to refuse. So, who has been refusing to allow an inspection. Certainly not me.

It is my intention to go to the Tasman Peninsula for a few days, and should return on or about Tuesday the 25TH of June 2002.

If contacted in a co-operative manner I am sure a full valuation could be arranged on my return.

And certain anomalies may be corrected before my return. So that this matter may be resolved in a civilised manner and not in a threatening manner, which in turn effects my health.

9 The terms of the letter contradict the statement attributed to Ms White of 5 June that the respondent "had taken back his keys to the property" and had instructed the agency that "he was no longer selling the unit". It is not necessary to resolve the difference, since the outcome is the same. Either the vendor had determined on 5 June that he would not complete the contract, or the agent had misled the valuer and the respondent had agreed to access for the purpose of valuation, subject to suitable arrangements.

10 Further letters were forwarded to the respondent by the applicant's solicitors, but were unanswered. On 2 July, the applicant's solicitors spoke with the respondent. In his affidavit, Garth Stevens deposed:

"My notes that I made at the time of the conversation reveal that he told me that the contract with Mr Grubb was signed subject to Mr Toomey obtaining finance to purchase a new residence, and I informed him that the contract did not say that. He replied that he would need to sought [sic] this out with the agent. I also arranged with him for an inspection of the property for 4pm Thursday 4th July 2002 for a valuation of his property. During the conversation Mr Toomey said words to the effect that 'I won't be moving, I will burn the place down first'."

11 Further negotiations between the solicitors for the applicant and respondent commencing on 2 July were unproductive. The position adopted by the respondent is succinctly stated by his solicitors in their letter of 9 April 2003, which states, in part:

"Further to our letter of the 4th April 2003 we confirm that we have now had the opportunity to discuss your latest letter with our client.

On the basis of those instructions we maintain our view that there was never any contractual obligation upon our client to allow your client to inspect our client's premises. There is nothing in the contract that you can point to or indeed that any one can point to which establishes that obligation and in the circumstances our client will not be acceding to your client's demands in this matter.

We do not have instructions to accept service of any proceedings nor do we wish to venture an opinion as to what the nature of your application should be. Clearly that is a matter for your client. What is certain however is that our client will be seeking costs if your client proceeds with any application to the Court."

13 (1) A valid contract was entered into by the parties on 31 May 2002.

(2) The applicant has made reasonable efforts to obtain finance.

(3) Conditional approval of finance has been granted, subject to valuation.

(4) All reasonable steps have been taken to obtain access to the property for the purpose of effecting a valuation.

(5) Access has at all times been refused by the respondent and his agent.

14 The applicant contends that the Court ought determine that a right of access for the purpose of valuation is a term of the contract by implication:

(2) as a matter of fact on the evidence in this case;

15 On the hearing of the application, the applicant sought to read into evidence the affidavits of three valuers to the effect that it is an accepted custom with the sale of real estate in Tasmania:

"... for a vendor who has sold their property to a purchaser, subject to the finance clause 4.1 (b), for the vendor to make the property available to the purchaser's financer or to a valuer appointed by the purchaser's financer for the purposes of an inspection to assist with ascertaining whether finance should be approved under the clause 4.1(b) in the standard contract."

and further that valuation ordinarily requires an indoor inspection which takes on average some 30 - 60 minutes.

16 The respondent objected to the reception of the evidence. The evidence was admitted. The Evidence Act 2001, ss77, 79 and 80, relevantly provide:

"77 - The opinion rule does not apply to evidence of an opinion that is admitted because it is relevant for a purpose other than proof of the existence of a fact about the existence of which the opinion was expressed.

79 - If a person has specialised knowledge based on the person's training, study or experience, the opinion rule does not apply to evidence of an opinion of that person that is wholly or substantially based on that knowledge.

80 - Evidence of an opinion is not inadmissible only because it is about -

17 The evidence is relevant to the issue of whether a term ought be implied through custom which permits access. (National Mutual Life Association of Australasia Limited v Chris Poulson Insurance Agencies Pty Ltd (No 4) 11/1998.)

18 The evidence of the valuers is based on experience and practice within a trade or area of commerce. It is relevant to the operation of contracts of sale and the method employed within the profession or discipline, and incidental to the law of mortgages and the sale of land. It is not of the nature of advocacy of a particular position (Clark v Ryan [1960] HCA 42; (1960) 103 CLR 486) and comes within the appropriate tests stated by the High Court in Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd [1986] HCA 14; (1986) 64 ALR 481 and Transport Publishing Company v Literature Board of Review [1956] HCA 73; (1956) 99 CLR 111 (see also Arnotts Limited v Trade Practices Commission (1990) 97 ALR 555 at 594 - 596; National Mutual Life Association v Poulson (supra)). For these reasons the evidence was admitted.

"(a) that, unless disclosed in this Contract, there are no restrictions on the use of the Property at this date which may hinder or prevent the Purchaser from using the Property for the purpose of a residential dwelling.

(b) that the Connect Credit Union makes available to the Purchaser a loan of Eighty Five Thousand ($85,000.) upon terms currently available in transactions of a similar nature within 14 days of this date.

The Purchaser must use all reasonable endeavours to fulfil the conditions precedent in clause 4.1(b) and 4.1(c) within the time allowed for doing so.

4.3 The Purchaser may waive the benefit of any conditions precedent in clause 4.1.

4.4 If the Purchaser does not give unconditional notice of fulfilment or waiver of each condition precedent in clause 4.1(b) and 4.1(c):

(a) in one of the ways described in clause 13; and,

(b) before the time for fulfilment of each condition expires,

then the Vendor may treat this Contract as at an end."

20 Counsel for the respondent contends that cl 4 imposes obligations on the purchaser only, or that at least cl 4(a) permits only inspection of public records, and nowhere is there imposed an obligation on the vendor to permit physical inspection. Counsel for the applicant contends that cl 4(a) would permit access to determine whether the building was structurally sound or whether the building was hazardous through non-observance of statutory requirements. It would appear that the common law has long drawn a distinction between an inspected and uninspected building. The text Dart on the Law of Vendors and Purchasers 5ed, vol I, states at 137:

"If the intending purchaser do not rely upon the particulars or statements of the vendor, but examine the property in person or by his agents, he cannot, in the absence of direct fraud, contend that he is deceived by the representations of the vendor as to any point upon which he has thus tested their accuracy (see Attwood v Small, [1838] EngR 515; 6 Cl & F 232; see the judgment in Clapham v Shillito, 7 Beav 149; and Jennings v Broughton, [1853] EngR 745; 17 Beav 234; 5 De GM & G 126); but if the misrepresentation be of such a nature as not to be apparent on a personal inspection, and the purchaser relies upon it, the mere fact of his having examined the property does not necessarily make the contract binding upon him (Denny v Hancock, LR 6 Ch Ap 1)."

21 The respondent had accepted the term and was aware that the purchaser was intending to borrow over 90 per cent of the purchase money in order to complete the contract.

22 The applicant contends that cl 4(b) ought be construed as containing a term permitting access by a person acting on behalf of the purchaser to ascertain whether there is sufficient value in the property to secure the interest of an intended mortgagee and that such a term ought be implied by virtue of law, fact and/or custom. The applicant has taken all necessary steps to satisfy the condition (Suttor v Gundowda Pty Ltd [1950] HCA 35; (1950) 81 CLR 418; Meehan v Jones [1982] HCA 52; (1982) 149 CLR 571) and it is not necessary to consider the distinctions drawn between a condition precedent and subsequent which arise depending upon whether a person is attempting to maintain or set aside a contract (Simon v Fowler [1960] Tas SR (NC 2) 185). A "subject to finance clause" is one solution to the problem of how a purchaser ensures that he has bound the vendor to sell the property at the agreed price so that he, the purchaser, cannot be "gazumped" while, at the same time, providing himself with an escape route or life jacket in case he is unable to make arrangements for the satisfactory loan to finance the purchase. (See generally "Subject to Finance" Clauses in Contract for the Sale of Land, Swanton (1984) 58 ALJ 633 and cases noted therein; Re Gibbins (1915) 11 Tas LR 41). It has been described as a "contingent" condition since it is one which is not certain to occur. Here the terms are not uncertain nor illusory (Loftus v Roberts (1902) 18 TLR 532; Meehan v Jones (supra)). The purchaser is required to act in good faith and is subject to an implied obligation to make all reasonable efforts to obtain finance (Perri v Coolangatta Investments Pty Ltd [1982] HCA 29; (1982) 56 ALJR 445; Meehan v Jones (supra)) which, in turn, requires the performance of mutually co-operative acts (Electronic Industries Ltd v David Jones Pty Ltd [1954] HCA 69; (1954) 91 CLR 288 at 298; CSS Investments Pty Ltd v Lipman Pty Ltd (1987) 76 ALR 463).

23 The dominant principle underlying the implication of a contractual term might well be the obligation to exercise good faith in its performance, from which the subsidiary obligations arise. In Renard Constructions ME Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234, Priestly JA accepted the proposition that the law did imply a term that the powers conferred by the contract had to be exercised reasonably. He considered that implication arising from "reasonable exercise" accorded with current standards of contracts. He observed at 263 - 264:

"Good Faith. The kind of reasonableness I have been discussing seems to me to have much in common with the notions of good faith which are regarded in many of the civil law systems of Europe and in all States in the United States as necessarily implied in many kinds of contract. Although this implication has not yet been accepted to the same extent in Australia as part of judge-made Australian contract law, there are many indications that the time may be fast approaching when the idea, long recognised as implicit in many of the orthodox techniques of solving contractual disputes, will gain explicit recognition in the same way as it has in Europe and in the United States."

24 In Asia Pacific Resources v Forestry Tasmania 101/1997, Underwood J stated at 9 that in his opinion "a duty of good faith and fair dealing in ... performance and ... enforcement" was not part of the common law of Australia.

25 The terms "good faith and fair dealing" might not themselves form a basis for the implication of a particular term, but the more specific tests, as stated by the High Court in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 might themselves be derived from a wider conceptual approach. That approach was referred to by Sheller JA in Alcatel Australia v Scarella (1998) 44 NSWLR 349 in which he approved of the decision in Renard Constructions (supra) and noted with approval similar statements made in Hughes Bros Pty Ltd v Trustees of Roman Catholic Church (Archdiocese of Sydney) (1993) 31 NSWLR 91 and Service Station Association Ltd v Berg Bennett & Associates Pty Ltd [1993] FCA 445; (1993) 45 FCR 84. The classic tests for the recognition of an implied term are those stated by the Privy Council in BP Refinery (supra), stated at 283 to be:

"... for a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that 'it goes without saying'; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract."

(See also Chris Poulson Insurance Agencies Pty Ltd v National Mutual Life Association of Australasia Limited 40/1999.)

26 Clause 4(b) of the contract is a common term used in agreements for the sale of land. The condition is that the purchaser will use all reasonable endeavours to obtain sufficient finance to enable completion of the contract. It is self-evident from the term that the purchaser is seeking the provision of that finance from a third person, usually an institution or professional lender. It is usual for the finance provider to require security for the loan, usually provided by mortgage. A mortgage attaches to the land and affords the mortgagee a legal and equitable interest. A prudent lender would require satisfaction that there existed a valid title to the land and that its value would be sufficient, in the event of default, to secure the loan. That satisfaction requires evaluation, usually provided by one with skill and expertise in the area of valuation which, in turn, might require inspection of the property. In order to provide business efficacy, a term implicit in the clause is that the vendor permit access for the purpose of valuation. The term is necessary to make the contract work and is so obvious that it goes without saying (Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (supra), the court at 489). The respondent had prevented access to the property within the time permitted to the applicant to obtain finance.

27 Whilst the High Court has recently rejected an approach based on bare unconscionability as discussed in Legione v Hateley [1983] HCA 11; (1983) 152 CLR 406 in determining respective rights of default and termination in cases involving "time of essence" and "subject to finance" clauses (Tanwar Enterprises Pty Limited v Cauchi [2003] HCA 57; Romanos v Pentagold Investments Pty Limited [2003] HCA 58), it recognises the interest of a purchaser to an equitable right to have the vendor honour the bargain (see also Heydon, Equitable Aid to Purchasers in Breach of Time-Essential Conditions (1997) 133 LQR 385). That interest cannot be protected without enabling the purchaser to inspect the property and, if necessary, to have a valuation undertaken which, in turn, might require access. A purchaser, especially in relation to land held under the Land Titles Act, might require inspection of the land to check its dimensions as against a sealed plan, or ensure that easements such as drainage and right of way are in the designated areas. A purchaser might require confirmation that the structure in fact accords with legislative and planning requirements. A vendor ought not be permitted to frustrate or rescind a contract by means of refusal to permit inspection. The term ought be implied by reason of "efficacy".

28 It is not necessary to consider the remaining bases of the applicant's claim.

29 The application seeks orders ancillary to the declaration as permitted by the Act, s39. It is appropriate that the same time frame be stated, as it will put the parties in the same position (excepting the weekend) as of the date of denial of access. Accordingly, there will be a declaration that:

(1) A declaration that the contract of sale made on or about 30 May 2002 between the applicant as purchaser and the respondent as vendor for the sale and purchase of Unit 2/7 Grace Court, Glenorchy contains an implied term to the effect that, in order to facilitate the performance of the contract, the vendor must allow a valuer, on behalf of the purchaser's financier, access to the property, in order to allow the purchaser to attempt to obtain finance as required by clause 4.1(b) of the contract.

(2) For the purpose of performing the implied term in paragraph 1, from the date of this order, the respondent allows a valuer appointed on behalf of the purchaser's financier access to the property.

(3) The time for compliance by the applicant with clause 4.1(b) of the contract is extended to 14 days as and from the date of this order.