Hall v Foster

Supreme Court of NSW|2011-03-03|Before: Tamberlin AJ

Judgment 1This case concerns the rights of parties under a Contract for the Sale of land at Mount Kembla made on 17 October 2000 between the plaintiffs as purchasers and the defendants as vendors. The land is Lot 2 in a plan annexed to the contract in a proposed subdivision at Araluen Avenue, Mount Kembla in the Local Government Area of the City of Wollongong. The proposed Lot 2 has an area of 2.585 hectares and Lot 1 in the proposed subdivision has an area of 40 hectares. The sale included a rural dwelling erected some time after 1984 to which extensions were made after July 1995. 2When the matter came on for hearing on 28 February 2011 an application was made to appoint the first defendant, Mr Roland Foster, to represent the estate of his mother, the second defendant, who died in November 2010. After considering the evidence and hearing submissions on the following day, I made an order appointing the first defendant to represent the estate of his mother in circumstances where, although the mother had left a will, probate had not yet been granted. 3Under the applicable planning legislation, registration of the subdivision plan required development consent from Wollongong City Council (the Council) which was obtained on 9 April 2001. 4Special condition 3 of the contract provided that the sale was conditional upon the registration of a plan of subdivision of the existing Lot 1 in Deposited Plan 588781 creating a new Lot 2 substantially in accordance with an annexed plan within 12 months from the date of the contract. The contract was also conditional upon the registration of a prohibition against the further creation of allotments from the residue and the registration of an easement in the nature of a right of carriageway to provide access to the land sold over the residue of Lot 1. 5Special condition 4 is of central importance and provides: "4. The parties will each use their best reasonable endeavours to satisfy Special Condition 3 above, and at no expense to the Purchaser. If despite such endeavours Special Condition 3 above is not satisfied then either party may by written notice rescind this contract, whereupon the provisions of clause 19 shall apply, subject however to any following Special Conditions. ... The Purchaser cannot object to any variation in dimensions of the land hereby sold ... if such variation does not exceed 5%." (Emphasis added.) 6Clause 19 refers to rescission of the contract and provides: " 19 Rescission of contract 19.1 If this contract expressly gives a party a right to rescind , the party can exercise the right - 19.1.1 only by serving a notice before completion; and 19.1.2 in spite of any making of a claim or requisition , any attempt to satisfy a claim or requisition , any arbitration, litigation, mediation or negotiation or any giving or taking of possession. 19.2 Normally , if a party exercises a right to rescind expressly given by this contract or any legislation - 19.2.1 the deposit and any other money paid by the purchaser under this contract must be refunded; 19.2.2 a party can claim for a reasonable adjustment if the purchaser has been in possession; 19.2.3 a party can claim for damages, costs or expenses arising out of a breach of this contract; and 19.2.4 a party will not otherwise be liable to pay the other party any damages, costs or expenses." 7Special condition 5 also provided for completion to take place within 8 weeks of the satisfaction of special condition 3. That condition has never been satisfied. 8Special condition 6 entitled the purchaser to possession of the land at a rental of $1 per annum until completion. If completion were to be delayed beyond five years from the date of the contract without fault on the part of the purchaser, then the purchaser was entitled to retain possession of the land at a rental of $1 per annum until the expiration of a further period of at least 5 years. 9The purchase price was $510,000 of which $385,000 described as a "deposit" was to be paid on the date of contract and the balance of $125,000 on completion. 10By special condition 9 provision was made for a mortgage to be granted by the vendor to the purchaser over the whole of Lot 1 to secure the deposit. By special condition 10, on completion of the contract the purchaser was to pay to the vendor the balance of the purchase moneys less the interest paid or payable by the vendor under the mortgage between exchange and completion in return for a discharge of the mortgage given under special condition 9.

CLAIMS 11The plaintiffs seek a declaration that the defendants have failed to use their best reasonable endeavours to perform their obligations under the contract together with a declaration that a notice of rescission of contract dated 17 December 2004 given by the defendants is void. Originally the plaintiffs sought specific performance and in the alternative damages. On the hearing the claim for specific performance was abandoned and the case proceeded on the claim for damages on the ground that there had been a repudiation by the vendors. The plaintiffs also seek orders that the defendants pay the plaintiffs the sums due under the contract and interest and costs. 12In response, the defendants claim that despite using their "best reasonable endeavours" they were unable to register the subdivision plan within the 12-month period, or at all, and were entitled to rescind under special condition 4. They say they validly rescinded the contract by the notice of rescission of 17 December 2004. The defendants also say that as at the rescission date, they offered to repay the advance of $385,000 secured by the mortgage together with interest and that they were entitled to redeem upon their offering to reimburse the plaintiffs for any repairs and improvements effected by them to the premises so that interest ceased to run from that time. They also deny they are indebted to the plaintiffs for any amount. 13By their cross-claim, the defendants seek an order that the plaintiffs provide a discharge of the mortgage on the ground that they had and have a right to redeem the mortgage. They also claim that they are entitled to possession of the premises and seek a writ for possession and damages. 14The issues in this matter are as follows: (1) Whether in the circumstances the defendants used their "best reasonable endeavours" in accordance with special condition 4 to obtain registration of the subdivision plan as required by special condition 3. (2) Whether the defendants were entitled to rescind the contract for sale in reliance on the notice of rescission of 17 December 2004 or at all. (3) If the defendants were not entitled to rescind, whether the notice of rescission amounted to a repudiation of the contract. (4) Whether there was an offer to redeem the mortgage by the defendants which the plaintiffs were required to accept. (5) What, if any, damages or payments should be ordered or paid to either party.

OVERVIEW 15The factual background is not substantially in issue because the events and circumstances are identified in the documents in evidence and communications before me and the main issues turn on the characterisation of the conduct in the circumstances. 16On 29 September 2000 the defendants by their planning agent, Forbes Rigby Pty Ltd (Forbes), lodged an application for development consent for the subdivision referred to in the contract. The application was accompanied by a Statement of Environmental Effects prepared by Forbes. This stated that the land is irregularly shaped and dominated by two narrow ridgelines converging to the west which have moderate to steep side slopes which are well vegetated. The northern dwelling on the site is accessed by an all-weather right of way extending from Araluen Avenue and postal services are also delivered from that avenue. The southernmost dwelling, erected sometime after 1984, is accessed by a private access way which connects with the Mount Kembla Ring Track which connects to Cordeaux Road about 800 metres further to the west. The Mount Kembla Ring Track is a public road owned by the Council. Forbes, in their main statement addressed the subject of bushfire risk and rights of way and concluded that the bushfire threat should be no greater by reason of the subdivision. 17Three weeks after lodgement of the development application, on 17 October 2000, the contract was entered into and the payment of $385,000 deposit was made by the plaintiffs. On the same day, the parties executed a mortgage to secure the $385,000 as provided for in special condition 9 of the contract. 18On 28 November 2000, as a consequence of statements by the Council concerning bushfire risks, Forbes engaged Mr Axel von Krusenstierna, a bushfire consultant to comment on the likely bushfire impacts of the proposed subdivision. In his letter of engagement Forbes stated that they agreed with the consultant that the current dwelling on proposed Lot 2 was in a precarious position being sited at the top of a ridge at the head of a long, steep, heavily vegetated gully. They said that in their own previous study prepared for local landowners they had indicated a medium-high bushfire risk for the site but they recorded that in their current Statement of Environmental Effects they did not think that having regard to the proposed access for emergency bushfire purposes the bushfire threat would be any greater by reason of the subdivision. 19On 30 November 2000, Mr von Krusenstierna expressed the view that the southern dwelling was surrounded by bushland with high fuel loads which on the south-eastern side of the dwelling was less than 5 metres from the side of the building. The dense vegetation and steep slopes adjacent to the dwelling placed it in a high hazard area. He said that the Council, in its management plan, had indicated that the bushfire hazard around the southern dwelling was moderate but the consultant considered this was due to a mistaken classification of the surround vegetation as "rainforest". He expressed the view that a reasonable level of fire protection could not be provided for a dwelling on the site of the existing southern dwelling but that the access to the southern part of the land could be improved and the dwelling relocated to a much better position. He canvassed the question of access and fire protection in some detail and considered there should be a two-wheel drive all-weather emergency access route across the proposed Lot 1 to Araluen Avenue for residents on the proposed Lot 2. He considered that the existing dwelling on new Lot 2 should be abandoned in favour of a safer location to the west where it would be able to comply with current standards for fire protection. This indicates that there was concern prior to the grant of development consent about bushfire danger in respect of Lot 2 but the conclusion reached was that the problem could be minimized by relocation of the dwelling on Lot 2. 20Between late 2000 and early 2001 there were further communications between Forbes and the Council in relation to bushfire considerations and access. On 26 February 2001 Forbes notified the Council that they would do what they could to improve the situation via the subdivision through improved access and servicing considerations. 21On 9 April 2001 the Council issued its conditional development consent to the subdivision. It imposed a condition relating to all-weather access for fire-fighting equipment and improvements to services to the dwellings. The consent was for a two-year period which could be extended with Council approval. In addition it was a requirement of the consent that a Construction Certificate had to be obtained before any work commenced on the property. Of particular relevance is condition 6 relating to access which is in these terms: "ACCESS 6. The developer must construct an all-weather accessway suitable for fire appliances from Araluen Avenue to the southern most dwelling on proposed Lot 2 . The accessway must be a minimum of 5 metres wide and where possible a 2 metre strip each side kept clear of shrubs, bushes and long grass. In this regard tree branches must be lopped where they will obstruct a fire appliance. The accessway must be capable of supporting a fully loaded fire appliance (28 tonnes or 8 tonnes per axle) . In this regard, the existing concrete strips may be incorporated into the design of the accessway on the provision that written certification is submitted from a suitable qualified Civil and/or Structural Engineer stating that the driveway strips are capable of supporting a fully loaded fire appliance (28 tonnes or 8 tonnes per axle). Details of the accessway, including plan views, long-sections, cross-sections and the effect of adjoining land must be submitted with the Construction Certification Application for approval by the Certifying Authority. (Emphasis added.) 22After notification of the consent, the Council wrote to the defendants on 17 May 2001, because it appeared that illegal works had been carried out on the property by Mr Foster in breach of the condition which required the prior issue of a Construction Certificate before commencing work. 23On 23 May 2001, Forbes wrote to the Council stating that Mr Foster was happy to assist with resolving the matter by submitting a formal application to the Council for a Construction Certificate as soon as possible. In fact an application for a Construction Certificate was not made until 29 November 2002. 24On 26 September 2001, Forbes wrote to the Council in relation to condition 6 seeking a modification of that condition involving a reduction in width from 9 metres (5 metres wide with 2 metres clearance either side) to 4 metres' clearance in all directions. The letter also pointed out that the proposed track design for the access route could not achieve the maximum grade of 17 per cent as required by the NSW Fire Brigade due to the physical restrictions of the site. They enclosed an application to modify the development consent and a copy of a drawing together with the application fee. A copy of this letter was sent to Mr Foster. 25By 17 October 2001 on expiry of the 12-month period from the date of contract the plan of subdivision had not been registered. However, no decision was made at that time by either party to rescind on the ground that special condition 3 had not been fulfilled. Mr Foster and Forbes thereafter continued to negotiate with the Council to obtain the modification of the consent and registration of the plan. As a consequence of the non-rescission and subsequent conduct, the contract should be taken to have been affirmed and thereafter it continued in force on the basis that it was conditional on registration of the plan within a reasonable time after 17 October 2001. 26On 13 December 2001 the Council issued a notice of determination of the application to modify the consent. The condition of access in the modified consent was varied to read as follows: "ACCESS 6. The developer must construct an all-weather accessway for emergency evacuation and fire appliance , from Araluen Avenue to the southern most dwelling on proposed Lot 2. The accessway must be a minimum of 4 metres overall clearance in all directions and kept clear of shrubs, bushes and long grass. In this regard tree branches must be lopped where they will obstruct a fire appliance. (Amendment No. 1 - dated 12 December, 2001) The accessway must be capable of supporting a fully loaded fire appliance (28 tonnes or 8 tonnes per axle) . In this regard, the existing concrete strips may be incorporated into the design of the accessway on the provision that written certification is submitted from a suitable qualified Civil and/or Structural Engineer stating that the driveway strips are capable of supporting a fully loaded fire appliance (28 tonnes or 8 tonnes per axle). Where accessway grades exceed 1 in 6, appropriate signs are to be erected advising of the excessive grade before ascent and descent points where the excessive grades commence. (Amendment No. 1 - dated 12 December, 2001) Details of the accessway, including plan views, long-sections, cross-sections and the effect on adjoining land must be submitted with the Construction Certificate Application for approval by the Certifying Authority. (Emphasis added.) 27It should be noted that the relevant variations are indicated in bold on the new condition 6 and also in condition 16(viii) which was modified to read: "Restriction-as-to-user over proposed Lots 1 and 2 that restricts vehicular access by NSW Fire Brigade and NSW Rural Fire Service fire appliances to those sections of the all-weather accessway equal to or less than 1 in 6. ( Amendment No. 1 - dated 12 December, 2001 )." 28On 8 April 2002 the solicitors for the defendants wrote to the solicitors for the plaintiffs referring to the exchange of contracts stating that at the time of exchange the defendants and their consultants had been led to believe, by officers of the Council, that the proposed subdivision would be a "minor DA" involving predictable but modest expense and capable of approval well within a 12-month period. They stated that the Council in approving the development consent imposed unforeseen conditions some of which were regarded by the consultants as impracticable, impossible or illegal. They noted that the defendants persisted in negotiating with the Council and had obtained a modified consent with new conditions. They referred to the fact that the new conditions required the construction of an access way for fire-fighting purposes without any prior warning or consultation. They noted that Mr Foster estimated that approximately $50,000 additional funding would be required to comply with the Council's current set of conditions which could take up to 12 months to fulfil and that their client, Mr Foster, had not budgeted for such a large additional sum nor did he contemplate paying on-going interest on the advance secured by the mortgage. They stated that they had advised the defendants that they were entitled to rescind the contract and that they proposed to do so in the near future unless the matter could be resolved. They proposed two alternatives. First, that the plaintiffs fund the remaining cost of the development, secondly the possible grant to the plaintiffs of a lease not exceeding five years. 29On 11 April 2002 the solicitors for the plaintiffs recorded that in Forbes' Statement of Environmental Effects in September 2000 they specifically referred to the creation of a right of way to Araluen Avenue for emergency bushfire purposes and that therefore the need for access for such equipment was foreseeable and anticipated. The plaintiffs considered the conditions to be reasonable and necessary in the light of reports by experts highlighting the fire risk to the property. 30There was further correspondence between the parties up to 12 June 2002 and also advice was sought from counsel by the defendants resulting in a facsimile of 12 June 2002 from the solicitors for the defendants stating that the defendants had been advised to proceed with the subdivision. There is also a diary note by Mr Hall dated 14 July 2002 recording a conversation with Mr Foster in which Mr Foster acknowledged he must complete the contract and that he owed Forbes $25,000 and "was going to see them tomorrow to get things moving". 31On 17 September 2002 Forbes wrote to Mr Foster confirming that they had received instructions to undertake the technical investigations for a two-lot subdivision. 32The application for the Construction Certificate was not sent to the Council for a further two-and-a-half months, that is to say not until 29 November 2002. There is no evidence that Mr Foster took any steps to procure the earlier submission of the application for a Construction Certificate, the necessity for which had been stated in the development consent of 9 April 2001. 33On 12 December 2002 the Council wrote to Forbes insisting that the defendants had an obligation to satisfy the requirement that the access way be capable of supporting a fully loaded fire fighting vehicle of 28 tonnes or 8 tonnes per axle. The Council stated that if the defendants wished to delete this condition from the development consent, an amended development application was required and noted that a geotechnical report and sediment control plan as required by the conditions of modified approval had not yet been lodged. The substance of this communication from the Council was notified to Mr Foster shortly thereafter. 34On 19 December 2002 the Council repeated this suggestion in relation to the Construction Certificate and the need to comply with the condition concerning the access. 35No further steps were thereafter taken by Mr Foster or Forbes to amend the access requirements of the modified development consent despite this warning. 36On 9 April 2003 the development consent lapsed as the two-year period had expired and the development had not commenced. A notification to both the original development consent and the modified consent had stated that the duration of the development consent could be extended to three years with the approval of the Council but no attempt was made by Mr Foster or Forbes to extend the two-year period. 37The next event was that Mr Foster obtained a geotechnical assessment from Coffey Geosciences Pty Ltd on 26 June 2003 in relation to slope stability in the vicinity of the proposed access way and as to the measures which could be taken in relation to construction of the access way and erosion control measures. 38On 25 August 2003 the Council notified Forbes that because the development consent had expired, and a 12-month extension to the approval had not been sought, the Construction Certificate would be refused if extenuating circumstances were not demonstrated by Friday, 29 August 2003. The evidence is that this warning was conveyed to Mr Foster shortly after 25 August 2003. 39No action was taken by Mr Foster, as a consequence of this notification, to preserve the development consent as suggested by the Council. 40In fact the development consent was not refused until 3 October 2003 about six weeks after the statement by the Council that an immediate application to extend could be made within five days from 25 August if extenuating circumstances were shown. The formal refusal was expressly based on the fact that the development consent for subdivision had expired. 41On 10 November 2003 Mr Foster wrote to the plaintiffs stating that since the initial development application he had incurred additional expenses of $35,000 in consulting fees alone in attempting to deal with the difficulties imposed by the Council's conditions of consent and related matters so that he was in a position where he was unable to meet his most basic day-to-day living expenses. 42On 29 February 2004 Mr Foster instructed Forbes to cease working on the project and without any further action having been taken over the next six months, on 17 December 2004, the solicitors for the defendants wrote to the plaintiffs' solicitors purporting to rescind the contract and asking for details of amounts owing under the mortgage. The purported rescission was expressed to be based on special condition 4 and clause 19 of the contract both of which are referred to in [5] and [6] above. 43On 3 February 2005 the solicitors for Mr Foster wrote seeking to redeem the mortgage for $385,000. This was rejected. 44On 7 February 2005 the solicitors for the plaintiffs rejected the claim that there had been a rescission and insisted on performance of the contract by the defendants. This was rejected on behalf of the defendants by letter dated 14 February 2005. 45On 20 November 2008 the statement of claim was filed in these proceedings. 46When the matter came on for hearing before me the plaintiffs elected to accept the notice of rescission as a repudiation of the contract and to terminate the contract and sue for damages thereby foregoing the claim for specific performance and pursuing the claim for damages which had been made in the alternative in the statement of claim.

SUBMISSIONS 47The defendants' case is essentially that advanced in a letter from their solicitors of 18 January 2005 to the plaintiffs' solicitors which recites the history of the matter which in substance I have outlined earlier. 48I note that the Council advised Forbes on 26 February 2001 that bushfire issues were relevant to the development application because the houses had been built for sometime before such issues would have been properly considered and that the Council had since changed its position in relation to the stringency of its bushfire requirements. This change of position was said not to have been anticipated or expected by the defendants or by Forbes. 49The defendants say that the development consent conditions of 9 April 2001 were unusual and unreasonable on their face, and that they led to unforeseen delays in achieving registration, thereby rendering the proposed subdivision commercially unviable. These conditions included the condition as to access and although some other conditions are referred to in the letter, the critical condition is that relating to access for fire fighting equipment. The defendants submit that this condition as to construction of the access road to the required standard was unforeseen notwithstanding references by Forbes in their Statement of Environmental Effects as to bushfires which accompanied the development application. That statement refers to a history of the access and emergency access to the dwellings on the property. They point out that on 8 May 2001 the defendants obtained a quote for construction of a concrete driveway which was only part of the work required to be undertaken pursuant to the conditions. They rely on the history of the matter as set out earlier as a basis for their case that all "best reasonable endeavours" had been made by them to obtain development consent prior to the rescission and that the Council conditions and its treatment of the application made the proposal unviable. A similar position is taken in relation to the condition of the modified consent of which the defendants became aware on or about 13 January 2002. 50By the letter of 17 December 2004, in addition to purporting to rescind the contract the defendants informed the plaintiffs that they were in a position to pay them upon provision of a discharge of mortgage the sum of $385,000 secured by the mortgage together with interest payable under it and an unspecified amount in relation to costs, repairs and improvements made by the plaintiffs and approved by the defendants in accordance with special condition 8. The defendants also sought details of interest payable under the mortgage to that day and details of the repairs. 51In these circumstances, the defendants claim that as at 17 December 2004 they were entitled to redeem the mortgage and that thereafter the plaintiffs were not entitled to interest on the mortgage amount and they contend that the plaintiffs were not entitled to treat the notice of rescission by the defendants as a repudiation of the contract. They say that pursuant to s 93(1) of the Conveyancing Act 1919 (NSW), the defendants as mortgagors had an entitlement to redeem the property although the time appointed for redemption had not yet arrived. 52The plaintiffs' case is simply that the defendants were not entitled to serve the notice of rescission and that service of such notice was a breach of contract amounting to a repudiation which has been accepted by the plaintiffs and as a consequence the contract has been terminated. The plaintiffs say they are entitled to sue for damages including repayment of the principal sums owing under the contract and damages for loss of bargain for the increased value of the property. There is evidence in the form of a valuation as at 20 October 2010 that the proposed Lot 2, together with improvements, was worth $1,250,000 at that date. 53The plaintiffs also say that they are entitled under the terms of the mortgage to interest on the mortgage up to the date of judgment. 54A total claim is made of $1,663,922.82 comprised as follows: (a)Value of the property had the contract been performed: $1,250,000; (b)Interest under the mortgage on the deposit of $385,000 up to the date of judgment, which they have calculated to 28 February 2011 as: $425,841.58; (c)Amounts owing under the contract for repairs and improvements: $72,010; (d)Interest on repairs and improvements at the Court rate up to the date of judgment, which they have calculated to 28 February 2011 as: $41,071.24; (e)Less the balance of the purchase price had the contract been performed: $125,000.

LEGAL PRINCIPLES 55The precise language used in rescission clauses is of particular importance in circumstances such as the present where it is sought, for example, to have a plan registered within a certain time with a right to rescind if the necessary consents and registration are not achieved within the period, after the use of best endeavours. 56In some cases the obligation is to take "all reasonable steps" to register the plan within a certain time. In other cases the obligation is to use "best endeavours" or "best reasonable endeavours". Where the reference is to "all reasonable steps" it is only necessary for the rescinding party to show that there was a reasonable step and in fact it was not taken. If the step was not taken then it cannot be said that all reasonable steps had been taken: see Wardy v Hardy [2002] NSWCA 215. 57On the other hand where the expressions "best endeavours" or "best reasonable endeavours" are used the emphasis is on the attempts made by the party or parties obliged to achieve the result. Where an independent agent is retained, such as a town planner or consultant, the "best reasonable endeavours" will include taking steps to check and ensure that the reasonable measures are taken by the agent to procure the result. The pursuit of the measures to achieve the outcome cannot be abdicated to the independent agent. There remains a continuing obligation on the party liable to perform the obligation to follow through by communication and instructions to the consultant by following up the requirements of the local planning authority in cases where a planning requirement is imposed by the legislation such as in the present case. 58In his work The Standard Contract for Sale of Land in New South Wales , Peter Butt, 2 nd ed, 1998 at [28.5], Professor Butt describes the obligation to use "best endeavours" as follows: "The vendor must pursue the application for registration with reasonable diligence . This includes following up the progress of the application with the authority in question , and where the contract imposes a short time for securing registration, advising the authority of the need for urgency. The vendor must take all reasonable steps to overcome objections or rebuffs received along the way from the relevant authorities; this is all the more so where the vendor's application has been rejected or delayed because the vendor has failed to follow the appropriate procedures for making applications. In some circumstances it will be appropriate for the vendor to adopt a 'tread softly' approach with an obstructive authority, pursuing negotiation rather than confrontation, so as not to provoke the authority into refusing the application. However, absent some clear impropriety or error in the attitude of or reasons expressed by the authority in question, the vendor need not pursue avenues that are clearly 'pointless'. Also, it is unlikely that the vendor need go so far as to press for the reversal of a refusal properly made and firmly expressed, or to take court proceedings to reverse a refusal properly made. For example, normally the vendor need not appeal to the Land and Environment Court against the council's refusal (proper or its face) to approve the plan, or appeal to the Supreme Court against the Registrar-General's refusal (proper on its face) to register the plan." (Footnotes omitted.) 59While it is necessary to show that the "best reasonable endeavours" have been used it is not necessary to show that had a particular step been taken it would have produced the outcome sought. It is sufficient if there is a reasonable possibility that it might have the desired outcome and it is this possibility that makes the step one the obliged party should have taken. 60In Hawkins v Pender Bros Pty Ltd [1990] 1 Qd R 135 at 151, the Full Court of Queensland cited a passage from the judgment of Lord Justice Buckley in IBM United Kingdom Ltd v Rockware Glass Ltd [1980] FSR 335 at 343 in which his Lordship said in relation to a best endeavours clause: "... the plaintiffs as covenantors are bound to take all those steps in their power which are capable of producing the desired results, namely the obtaining of planning permission, being steps which a prudent, determined and reasonable owner, acting in his own interest and desiring to achieve that result would take..." 61In relation to the affirmation of the contract after the 12-month period expired and the question of whether there had been an election or affirmation of the contract, the relevant principles are set out in Sargent v ASL Developments Ltd [1974] HCA 40; (1974) 131 CLR 634 at 655-656 as follows: " ... A person is said to have a right of election when events occur which enable him to exercise alternative and inconsistent rights, i.e. when he has the right to determine an estate or terminate a contract for breach of covenant or contract and the alternative right to insist on the continuation of the estate or the performance of the contract. It matters not whether the right to terminate the contract is conferred by the contract or arises at common law for fundamental breach - in each instance the alternative right to insist on performance creates a right of election. ... Essential to the making of an election is communication to the party affected by words or conduct of the choice thereby made and it is accepted that once an election is made it cannot be retracted." 62In Yeung v Desnor Pty Ltd (1989) 5 BPR 11,343, Waddell CJ in Eq, in relation to a best endeavours clause, said at 11,345: "... It is my opinion that the requirement that the defendant should use its best endeavours to procure early registration of the strata plan meant, so far as getting the building work completed was concerned, that the defendant should have done everything it reasonably could to achieve this as quickly as was reasonably possible. Clearly enough, whether the defendant in fact did so is a question of fact." 63There was some discussion before me as to the onus of proof in a case where a party relies on failure to comply with a best endeavours clause. I was referred to the decision of Hodgson J in Earle Cameron (Industrial) Pty Ltd v Comprador Properties Pty Ltd (1987) 3 BPR 9657 at 9664 where his Honour observed: " ... It may be that the question of onus really is a matter of construction of each particular contract. However, the cases to which I earlier referred seem strongly to suggest that in the absence of any clear indication to the contrary, the onus does lie on the party seeking to take advantage of the condition to escape from the contract. I think I should follow those cases, and find that the onus lay on the plaintiff in this case. If the decision in Strati cannot be distinguished on the basis of the terms of the particular contract being there considered, I consider that I should not follow that decision." 64The reference by his Honour is to Strati v Jag Investments Pty Ltd (1980) 1 BPR 9600 at 9606. In that case McLelland J held that in a case where the vendor was seeking to rely on non-fulfilment of the condition the onus of proving that the vendor breached the implied obligation to take reasonable steps lay on the purchaser. 65In the case before me in the final result the question of onus is not of significance because I am clearly satisfied on the evidence that best reasonable endeavours have not been used by the defendants. I note that the relief claimed in this case by the plaintiffs includes a positive declaration that the defendants have failed to use their best reasonable endeavours to perform their obligations under the contract and cl 9 of the pleadings and particulars of the statement of claim expressly alleges that immediately prior to 17 December 2004, the defendants had failed to use their best reasonable endeavours to satisfy the conditions of the relevant special condition. In those circumstances, my view is that the onus of establishing failure to use best endeavours rests on the plaintiffs on the principle that "he who asserts must prove". In this case, the plaintiffs assert the failure and therefore in my view the onus lies on them to make good the assertion.

EVIDENCE 66Mr Hall was called to give evidence and was cross-examined by Mr Foster, but his evidence was not diminished in any significant way as a result of the cross-examination. Mr Foster was also called and cross-examined. 67Where there is any conflict of evidence between the terms of conversations alleged by Mr Hall and Mr Foster I prefer the evidence of Mr Hall because he made contemporary notes of those conversations at the time which have not been shown to be inaccurate whereas Mr Foster relied primarily on his recollection of events which took place over seven years ago. 68There is no suggestion in this case that the evidence of anyone was knowingly inaccurate. 69There was expert evidence from Mr Wetherall, a town planner as to the reasonableness of the conditions and having regard to his report and the accompanying documents I am satisfied that the Council in imposing the condition as to the standard of construction of the access way had proper regard for the need for access by fire tenders in the light of bushfire concerns and dangers in the area. There is nothing in the condition on its face or in the circumstances before me which would tend to show that it was a condition which was manifestly unreasonable. I accept the evidence of Mr Wetherall that the condition was a reasonable requirement on its face which could not be said to have been unanticipated by owners of the land in that area who were desirous of making a subdivision application. The nature of the terrain and the vegetation as indicated in evidence point to the need for adequate protection in relation to bushfires. Indeed the concerns and dangers with respect to bushfires in relation to this land had been previously expressly adverted to by the town planning consultants Forbes in an earlier report made by them. 70It should be noted that the conditions had been modified in December 2001 to meet the expressed concerns of Mr Foster. 71Mr Wetherall was cross-examined by Mr Foster about his evidence as to the reasonableness of condition 6 in relation to the access way and his evidence was not diminished in any way as a result of the cross-examination. 72There is also a valuation report in evidence by Mr James Sharpe, a registered valuer, of proposed Lot 2 for the purpose of assessing the current valuation of the proposed lot on the assumption that the plan of subdivision was registered within 12 months of the contract and that the land was compliant with the conditions of development consent imposed in April 2001. The valuation of the land as at 20 October 2010 was estimated to be $1,250,000. The land value was assessed at $1.1 million and the balance related to improvements on the property. 73This is the only evidence as to value before me. It has not been challenged in cross-examination. I therefore assess the plaintiffs' claim on the ground that this represents the present value of the property. The valuation states that property prices in the area have been stable and therefore it is not necessary for present purposes to make any adjustment in respect of the period since the date of valuation to the date of the judgment. Mr Sharpe was not required for cross-examination. 74The central issue is not so much whether the condition imposed by the Council as to access could have been anticipated or was usual or reasonable, but rather whether Mr Foster used his best reasonable endeavours to either meet that condition or have it varied or set aside in order to obtain registration prior to the date of the purported rescission.

Rescission 75The first question is whether the defendants were entitled to rescind the contract. At the expiry of 12 months after the date of contract, namely after 17 October 2001 the plan had not been registered as provided for by special condition 3. Accordingly, at that time under special condition 4 upon the parties each using their best reasonable endeavours either party could, by written notice, have rescinded. This right was not exercised by either party and it is clear that the defendants decided to affirm the contract. There is evidence of the defendants' efforts to obtain registration of the plan for some time after 17 October 2001 and of statements made to Mr Hall which I accept as having been made to the effect that the defendants were proceeding with the contract. 76After 17 October 2001 the contract, not having been rescinded remained on foot but it remained conditional on registration of the plan with an implied term that the plan be registered within a reasonable time. The obligation to continue to use best reasonable endeavours to obtain registration remained in force. Registration of the plan remained essential to completion of the contract because it was the registration that created Lot 2 which was the subject matter of the sale. 77As a consequence thereafter the parties were each obliged to use their best reasonable endeavours to obtain registration within a reasonable time period and any right to rescind thereafter under special condition 4 was dependent on the use of such endeavours. 78There is no suggestion in this case that the plaintiffs in any way failed to take reasonable steps to obtain registration of the plan. The issues turns on the conduct of the defendants, who seek to escape from the contract and the question is whether they used their best reasonable endeavours to obtain registration within a reasonable time so as to entitle them to rescind. 79In the circumstances of this case, as outlined above, I am satisfied that the vendors did not use their best reasonable endeavours up to and after the notice of rescission was sent on 17 December 2004. 80Although the defendants made some substantial efforts from time to time to obtain registration I am not satisfied that these actions met the requirements that they use their best reasonable endeavours. By March 2004 they had abandoned their attempts to obtain registration. This was eight to nine months before the purported notice of rescission. 81In particular they failed to take the following reasonable steps to obtain registration. 82First, they and their agent, Forbes, did not seek an amendment of the development consent in a timely manner in relation to the access conditions despite having been informed by the Council the this was an appropriate way to proceed. 83Secondly, they did not take steps in a timely manner to ensure that Forbes promptly lodged the application for a Construction Certificate. They were told by Forbes that lodgement of the Construction Certificate was imminent in September 2002, but in fact it was not lodged until 29 November 2002. There is no indication of any significant efforts being made by Mr Foster in relation to expediting this lodgement. Indeed, on 7 May 2002 Mr Hall's solicitors informed the solicitors for Mr Foster that before work could commence the defendants would have to apply for a Construction Certificate addressing all conditions of consent. Then they requested that the application for the Construction Certificate be made within the next seven days. It was not lodged until November 2002 and the development consent for the subdivision according to its terms was to expire on 9 April 2003. Therefore, time was becoming critical. 84Thirdly, the defendants allowed the development consent to expire on 9 April 2003 despite a clear notification on the consent and the modified consent that it would expire in two years from 9 April 2001 unless an application were made to extend it for a further year. 85Fourthly, they did not seek an extension of the development consent after being informed by Forbes shortly after 25 August 2003 that they could seek an extension if they could show "extenuating circumstances" as notified by the Council. They were aware of the indication by the Council that such an application could be made. The Council did not in fact refuse the Construction Certificate until 3 October 2003 which was more than five weeks after Mr Foster was informed that an application could be made for extension of the development consent and that if this were not done then the Construction Certificate would be refused. 86Fifthly, the defendants did not make a fresh development application or take any further action to obtain registration of the plan from February 2004 to the date of the purported rescission on 17 December 2004, a period of more than six months. 87I note that Mr Foster carried out work on the premises in May 2001 and August 2003 without having a Construction Certificate which led to action by the Council to stop the work on the basis that the work was therefore illegal. This course of conduct did not assist his relationship with the Council with respect to the subdivision of the property and no doubt a considerable amount of time and effort was unnecessarily expended on this issue with the Council. 88I have taken into account that Mr Foster retained Forbes to make and progress his application up to his decision not to retain them any further in February 2004. However, I am not persuaded that he used his best reasonable endeavours to follow up with them and press for progress of the application and registration of the plan. 89I am satisfied on the evidence that the probability is that by the end of March 2004 Mr Foster did not wish to proceed with the sale having regard to the difficulties which had arisen, particularly in respect of access for fire vehicles. 90Because the notice of rescission in December 2004 clearly indicated the intention to treat the contract as at an end and since it was exercised in breach of special condition 4 of the contract I am satisfied that the sending of the notice amounted to a repudiation of the contract.

Redemption of mortgage 91The defendants claim that in December 2004 they sought to redeem the mortgage which they were entitled to do and thereafter they contend no interest is payable in respect of the mortgage. 92The letter of 17 December 2004 accompanying the notice of rescission stated that the defendants would give the plaintiffs a bank cheque for $385,000 being the deposit paid and comprising the advance together with a bank cheque for interest payable under the mortgage to that date and a cheque in respect of the cost of repairs and improvements made to the property by the plaintiffs. The letter further requested the details of interest payable under the mortgage until discharge. The letter also expressed an understanding on behalf of the defendants that the plaintiffs had paid approximately $60,000 in respect of the cost of repairs and improvements mentioned in special condition 8 of the contract. 93A purported offer to redeem the mortgage was again made by letter from the defendants' solicitors on 3 February 2005 and on 7 February the plaintiffs rejected the claim of rescission and affirmed that the contract remained on foot. 94On 16 February 2005 the defendants' solicitors on instructions refused to withdraw the notice of rescission and indicated an intention to seek a declaration that the contract had been validly rescinded. They did not do so until 24 February 2009 when the cross-claim was filed. 95I do not accept the submission by the defendants that they were entitled to redeem the mortgage as claimed because pursuant to special condition 10 of the contract the obligation of the plaintiffs to discharge the mortgage would only occur on completion of the contract and this has not taken place. The contract has remained on foot up to the date of the hearing when a decision was made not to seek specific performance but to claim damages. The amount of $385,000 I note is described in the contract as a deposit and therefore it would normally be accountable on settlement. 96I reject the submission that the defendants were entitled to redeem the mortgage as claimed by them. As a consequence, I also reject the defendants' submission that no interest is payable after 17 December 2004.

Damages 97Having regard to the uncontradicted evidence of Mr Sharpe I am satisfied that the value of the property should be taken as $1,250,000. 98I am satisfied that there is interest payable under the mortgage on the deposit of $385,000 up to the date of judgment. According to cl 2 of annexure A of the mortgage, interest is payable in arrears calculated at three-month intervals at the Reserve Bank cash rate plus two per cent. According to cl 3, default in payment under cl 2 means the unpaid interest is to be compounded with the principal amount. Mr Hall swore an affidavit on 25 February 2011, in which he made calculations as to the amount of interest owing under the mortgage to 28 February 2011. He calculated that as at that date an amount of $425,841.58 was owed. The evidence in Mr Hall's affidavit is of the Reserve Bank cash rates during the relevant period (which I do not consider to be controversial) and calculations on that basis. I accept his evidence as to the interest owing up to 28 February 2011. There remains outstanding the amount of interest payable between 28 February 2011 and the date of this judgment. 99I am satisfied that allowance should be made in respect of the balance of the purchase price that would have been paid by the plaintiffs if the contract had been performed, namely the amount of $125,000. 100Pursuant to special condition 8 I am satisfied from the evidence of Mr Hall that the appropriate figure to allow in respect of repairs and improvements is an amount of $72,010, plus interest at the prejudgment Court rate up to the date of judgment.

CONCLUSION 101I therefore find that the plaintiff has succeeded on the statement of claim. Given the outstanding issue of interest between 28 February 2011 and the date of judgment, I am not in a position to make any orders at this time as to the total amount presently owed to the plaintiffs. 102I propose to dismiss the cross-claim with costs and to order the defendant to pay the costs of this proceeding.

ORDERS 103The Court:

Directs the parties to bring in short minutes to give effect to these reasons.
Orders the cross-claim be dismissed with costs.

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: 18 April 2011

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