PARTIES: J BOAG & SON BREWING LTD ACN 009 573 899

TITLE OF COURT: SUPREME COURT OF TASMANIA (FULL COURT)

Contracts - General contractual principles - Discharge, breaches and defences to action for breach - Repudiation and non-performance - Election and rescission - Loss or waiver of right to rescind - General principles of doctrine of election - Extent of knowledge necessary to make effective election.

Sargent v ASL Developments Ltd [1974] HCA 40; (1974) 131 CLR 634; Khoury v Government Insurance Office of New South Wales [1984] HCA 55; (1984) 165 CLR 622, applied.

Commonwealth v Verwayen (1990) 170 CLR 394, referred to.

Judgment Number: [1999] TASSC 118

3 In lieu, it is ordered that there be judgment for the appellant against the respondent for damages to be assessed.

1 This appeal concerns a contract for the sale of the Beach Hotel, Burnie. The contract contained a condition precedent with respect to the provision of finance for the purchase. The learned trial judge found that:

(1) the condition precedent was not satisfied within the prescribed time;

(2) the purchaser (the first named respondent) was not estopped from denying that this condition was satisfied; and

(3) the purchaser had not waived the operation of this condition precedent.

2 No attack is made on the first two findings. Ground 1 of the notice of appeal asserts that the third finding was erroneous and ground 2 complains that error of law occurred by reason of a failure to give sufficient reasons for making that finding. The only other ground in the notice of appeal concerns an award for interest upon an order for the return of the deposit of $25,000. There is also a cross-appeal in which the respondent alleges that the learned trial judge erred in allowing the appellant to amend its statement of claim.

3 The facts as found by the learned trial judge and not in issue on the appeal, are that on 5 February 1997, the appellant entered into an agreement for the sale of the Beach Hotel, Burnie for $1,910,000, plus stock. The agreement provided for the payment of a deposit of $25,000 to the estate agent as stake holder. It further provided that the "settlement date" was 21 days after satisfaction of the condition precedent on which date the first named respondent was to pay $225,000 and enter into possession. The balance purchase price was to be paid on completion, which it was agreed would occur on 20 January 1998. The agreement provided that the first named respondent would lease the hotel from the appellant between the settlement date and the completion date. Special provision was made with respect to the payment for stock. The second and third named respondents were parties to the contract for sale by way of guarantors for the first named respondent.

4 Clause 5.2(b) of the contract was the relevant condition precedent. It provided:

"The following matters are conditions precedent to the completion of this agreement:

(b) That LEX NOMINEES PTY LTD ACN 073 985 903 makes available to the Purchaser, who must use reasonable endeavours to obtain the same, a loan to a maximum of $800,000 upon terms currently available in transactions of a similar nature within fourteen days of the date of this agreement."

5 As the contract was made on 5 February 1997, the time within which the condition precedent had to be satisfied expired on 19 February 1997. With respect to this condition precedent, the learned trial judge found that time was of the essence and there is no complaint about that finding. See Aberfoyle Plantations Ltd v Cheng [1960] AC 115.

6 The parties engaged solicitors. The appellant instructed Messrs Dobson Mitchell & Allport of Hobart, and the respondents, the second and third of whom lived in Queensland, instructed a firm of solicitors from Brisbane. Miss French had carriage of the matter for the appellant and Miss Nguyen had carriage of the matter for the respondents.

7 The solicitor for the finance company named in the condition precedent, a Mr Triscott, gave evidence. He said that he practised exclusively in the area of private mortgage lending. By a letter dated 31 January 1997, Mr Triscott wrote to the second and third named respondents and their wives, under the heading:

"PROPOSED PRIVATE LOAN FACILITY $800,000 OR 70 PER CENT OF THE VALUATION WHICHEVER IS THE LOWER."

8 The letter made it clear that the proposed loan was subject (inter alia) to valuations being obtained of three properties owned by the second and third respondents and their wives which were being offered up to secure repayment of the loan. Arrangements were made to obtain these valuations, but they were not to hand by 19 February 1997. Accordingly, the learned trial judge found that, "as [the condition precedent] was not in fact fulfilled on or by that day, the contract did not, on that day, become binding". No complaint is made about that finding. On the hearing of the appeal counsel agreed that the contract remained on foot, notwithstanding that the condition precedent was not fulfilled by the due date. They were correct to do so. See Perri v Coolangatta Investments Proprietary Limited [1982] HCA 29; (1982) 149 CLR 537; Sandra Investments Proprietary Limited v Booth [1983] HCA 46; (1983) 153 CLR 153. The condition expressed in cl 5.2(b) was for the benefit of the respondents and they were entitled to rescind the contract on 19 February 1997 as the condition had not then been fulfilled. See Perri (supra); Sandra Investments (supra); Suttor v Gundowda Pty Ltd [1950] HCA 35; (1950) 81 CLR 418; Gange v Sullivan [1966] HCA 55; (1966) 116 CLR 418 at 441.

9 On 19 February 1997, Miss Nguyen telephoned Miss French and told her that finance had not yet been confirmed. She requested an extension of time for another week to enable confirmation to be obtained. Miss French said that she would get instructions about this and accordingly, spoke to an officer of the appellant. He advised Miss French that he would make some inquiries and telephone her back with an answer to the request for more time.

10 However, two days later, 21 February 1997, before the appellant had responded to the request for more time, Miss Nguyen telephoned Mr Triscott to find out if finance had been confirmed. She did so because the second respondent called to see her. After speaking to Mr Triscott, Miss Nguyen telephoned Miss French. The substance of these conversations is reproduced in a note that Miss Nguyen dictated shortly after the events occurred. The note is set out in the reasons for judgment. I reproduce it below:

"Attendance on Don Gough [the second respondent] who came into the office to sign documents and find out progress.

He requested that I contact Paul Triscott to find out whether finance has been approved.

I spoke to Paul Triscott who wanted further documents to be supplied, namely searched for all the properties that will be mortgaged, and also a management agreement as he was concerned that Brian [the third respondent] has not had any hotel experience.

I asked Paul Triscott whether finance had been approved and he replied that it was. He said that it was OK to let the vendors solicitors know that finance had been approved.

I called Brian Downs to let him know that finance had been approved but we were still waiting for Paul Triscott to get back to us on the exact figure. I also mentioned that we need to perform property searched as requested by Paul Triscott. Brian said that it was OK to go ahead. He asked me to raise the issue of the cost the second valuation with Paul Triscott.

I contacted Sarah French and left a message that finance had been approved.

Received a telephone call from Sarah French to find out the settlement date. She proposed 10/3/97 and I informed that Don was working on Monday 7/3/97. She said that she would inform her clients and await to hear from us.

I prepared a management agreement and arranged for Don to sign tomorrow."

11 However, the last of the valuations did not come to hand until 25 February 1997 and when it did, it appeared that the valuation of at least one of the properties was lower than expected and the maximum amount of finance that Mr Triscott's company was prepared to lend was $730,000. Miss Nguyen became aware of this on 25 February 1997 and that day telephoned Miss French. The content of that conversation is recorded in Miss French's note as follows:

"... finance has only come in at $730,000.00 rather than $800,000 based on the valuation. She says the settlement may be delayed. I say that she has already confirmed the condition relating to finance to me and I have advised my client. Also we take the view that the contract is unconditional and will expect completion within that time frame. She says yes that they are still aiming to settle on the 10th but she needs to check with her client."

12 Miss French then discussed this with an officer of the appellant and in result wrote the same day to Miss Nguyen in these terms:

"I refer to our telephone conversation of 25th February 1997.

I note that you advised me on 21st February 1997 that finance had been confirmed in accordance with clause 5.2(b) of the Sale Agreement.

On that basis we subsequently discussed a settlement date of between Monday the 10th of March 1997 and Wednesday the 12th of March 1997.

The Vendor requires settlement on or before Wednesday the 12th of March, being twenty one days from the date upon which the condition relating to finance was to be confirmed.

Please advise as soon as possible whether you require settlement before that date.

13 In the months that followed, the respondents made several attempts to obtain finance, but all were unsuccessful. Neither party made any move to bring the contract to an end until 26 June 1997 when Miss French sent the first named respondent a notice to complete on or before 11 July 1997. The response was a letter from the respondents' solicitors dated 2 July 1997 advising that "our client has elected to terminate the contract and is willing to release your client from his contractual obligations under that contract of sale dated 5 February 1997".

14 At the trial, counsel for the appellant argued (inter alia) that on 21 February 1997, the respondents waived the requirement that the condition precedent be fulfilled by Miss Nguyen advising Miss French that finance had been approved. The learned trial judge rejected this proposition upon the basis that when Miss Nguyen advised that finance had been approved, she was ignorant of the fact that it had not been approved in accordance with the terms of cl 5.2(b). The learned trial judge held that there could be no waiver unless the respondents knew at the time of the telephone conversation on 21 February 1997 that the condition precedent had not been fulfilled. In his reasons for judgment, the learned trial judge said at 10:

"The purchaser and its agent, Miss Nguyen, were ignorant of the existence of the right to avoid the contract in the circumstances as they existed on 21 February because they believed the condition had been fulfilled. They were ignorant therefore of facts which could have given rise in law to a right to rely on the non-fulfilment of the condition. The representation that it had been fulfilled may have created an estoppel if the vendor had altered its position in reliance upon it, but it does not constitute a waiver of the purchasers' right to avoid the contract by reason of a fact the plaintiff did not then know. To constitute a waiver, the purchasers would have to have known that the condition was not fulfilled, thus making the contract voidable at its instance and to have intentionally acted to forego that right. That is not the case here. The purchasers did not intentionally abandon any right to rely on non-fulfilment of cl 5.2(b) by mistakenly indicating through its agent that that clause had been fulfilled."

15 Grounds 1 and 2 of the notice of appeal are directed to that passage in the reasons for judgment.

16 On behalf of the appellant, Mr Blow QC submitted that:

* On 19 February 1997, when cl 5.2(b) was not fulfilled, the respondents acquired the right either to terminate the contract by giving notice to the appellant, or to proceed with the contract without the requirement that the condition precedent be satisfied.

* The respondents, by their agent, Miss Nguyen, knew the facts which gave rise to these alternative rights when Miss Nguyen telephoned the appellant's agent on 21 February 1997 and advised that finance had been approved.

* By so advising Miss French, the respondents, by their agent, Miss Nguyen, waived the requirement that the condition precedent be fulfilled. This was so whether or not she so advised under a mistaken belief that the finance in the terms prescribed by cl 5.2(b) had been approved.

* Accordingly, the learned trial judge erred in concluding that at the time of the telephone conversation on 21 February 1997, the respondents did not know that the condition precedent had been fulfilled as that knowledge was acquired on 19 February 1997.

* Alternatively, an examination of the relevant evidence shows that on 21 February 1997 Miss Nguyen knew that at that time finance in the terms prescribed by cl 5.2(b) had not been confirmed and the learned trial judge's finding of fact to the contrary was an error.

17 In response to these arguments, Mr Weld, for the respondents:

* Accepted that on 19 February 1997 the respondents acquired the right either to terminate the contract by giving notice to the appellant, or to proceed with the contract without the requirement that the condition precedent be satisfied, but submitted:

* That the words of Miss Nguyen uttered on 21 February 1997, that finance had been approved, were not sufficiently unequivocal to constitute waiver and further, because Miss Nguyen did not say words to the effect that finance was approved on or before 19 February 1997, her words that finance had been approved could not constitute a waiver of cl 5.2(b).

* Further, that the learned trial judge was correct when he found that on 21 February 1997, Miss Nguyen did not have the requisite knowledge to make an effective election.

* Further and/or alternatively, there was no waiver because the appellant did not act to its detriment in consequence of Miss Nguyen's telephone conversation of 21 February 1997.

* Alternatively, there is in law no doctrine of waiver per se, and as the appellant only pleaded waiver, it could not now argue that on 21 February 1997, the respondents, by their agent Miss Nguyen, elected to proceed with the contract.

18 There is no doubt that "waiver" is a term that has been used rather loosely. In Sargent v ASL Developments Ltd [1974] HCA 40; (1974) 131 CLR 634, Mason J (as he then was) said at 655:

"Any discussion of the principles governing the circumstances in which a party's words or conduct may preclude him from exercising a legal right which he possesses is beset with difficulties. They have their origin in the differences to be found in the various doctrines (election, waiver and estoppel) which may come into operation and in the differing concepts which each doctrine has at times been thought to embrace."

19 Mason J then reviewed some of the earlier authorities and said, also at 655:

"It will make for greater certainty, therefore, if the present cases are regarded as cases of election. 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."

See also Lord Wright's dictum in Ross T Smyth v T D Bailey and Son [1940] 3 All ER 60 at 70.

20 The existence of waiver as a separate doctrine was considered at some length in Commonwealth v Verwayen (1990) 170 CLR 394. In that case, Mason CJ said at 406:

"As often as not, the term 'waiver' is used to describe the result of the application of various principles rather than to designate a particular legal concept or doctrine. The consequence is that the expression 'waiver' has been the subject of robust criticism, notably by Dr Ewart in his work Waiver Distributed, (1917); see also Bysouth v Shire of Blackburn and Mitcham (No 2) (1928) VLR 562 at p 579; Larratt v Bankers and Traders' Insurance Co (1941) 41 SR (NSW) 215 at p 226; Kammins Ballrooms Co Ltd v Zenith investments (Torquay) Ltd, [1971] AC, per Lord Diplock at pp 882-883. This is because 'waiver' is an imprecise term capable of describing different legal concepts, notably election and estoppel.

It has been doubted that waiver exists as a defence or answer in any case except where it is used as an alternative designation for some other defence or answer, for example, election, estoppel or new agreement: Bysouth, per Lowe J at p 579. Generally speaking, as Jordan CJ pointed out in Larratt (at pp 226-227), an existing legal right is not destroyed by mere waiver in the sense of an express or implied intimation that the person in whom the right is vested does not intend to enforce it: see Mulcahy v Hoyne [1925] HCA 17; (1925) 36 CLR 41 per Isaacs J at pp 55-56; Atlantic Shipping and Trading Co v Louis Dreyfus and Co (1922) 2 AC 250 per Lord Sumner at pp 261-262. In these cases, unless consideration is present, something in the nature of an election or an estoppel is required."

"'Waiver' is an imprecise term and is used to describe what is done in a variety of circumstances rather than to assert any particular legal process. However, where it is not used in the sense of election between mutually exclusive alternatives, if it has any identifiable legal consequence, it is generally indistinguishable from estoppel." [Emphasis added].

"In my view, waiver, by that name, has a role to play. And it is a role which involves no confusion with variation of contract or promissory estoppel. It may be seen as a form of election between inconsistent rights, in the former of the categories mentioned by Mason J in Sargent, at p 655. Election implies that a choice must be made between two rights which are mutually exclusive."

23 However, Toohey J did treat waiver as a process by which a party is prevented from raising a defence, but did not, unlike the Chief Justice, treat it as depending upon an estoppel. McHugh J said at 497:

"Some of the cases which debar 'a person from raising a particular defence to a claim against him', however, stand outside the categories of election, contract and estoppel. They are sui generis. They are cases where a statute has conferred a right on A, subject to the fulfilment of a condition for the benefit of B, and B has waived the condition by taking the next step in the course of procedure without insisting on A fulfilling the condition. In my opinion, the true basis of the decisions in these cases is that, where the existence of a statutory right depends upon the fulfilment of a condition precedent, a person entitled to insist on the fulfilment of that condition may dispense with its compliance unless it is enacted for the benefit of the public, and that person will be held to have waived compliance with the condition if he or she knowingly takes or acquiesces in the taking of a subsequent step in the course of procedure laid down by the statute after the time for the other person to fulfil the condition has passed. These cases are also, to a certain extent, anomalous. They should be strictly confined so as not to conflict with the more established doctrines of election, contract and estoppel."

24 Gaudron J took the view, at 486, that a party may not waive a statutory right in which the public have a general interest. In Freshmark Ltd v Mercantile Mutual Insurance (Australia) Limited [1994] 2 Qd R 390, Dowsett J at 396 took up the task of analysing the views of the members of the Court in Verwayen on the subject of waiver and reached the conclusion at 403:

"The better view is that a mere indication of an intention not to rely upon contractual rights will not generally constitute a waiver sufficient to bar a future action to enforce such rights. Waiver should not be seen as an alternative weapon to estoppel in the war against the doctrine of consideration. However, where a party elects between alternative rights available under a contract, such election will usually be final."

25 It might be said that there is doubt about whether waiver is a doctrine that has operation independent of contract, estoppel or election. It is an interesting debate, but academic for the purposes of this appeal, for there is no doubt that this is a case involving election. Mr Weld did not submit to the contrary. However, he did submit that the appellant is precluded from obtaining any relief arising out of any election that the first named respondent may have made because election was not pleaded. The statement of claim, par23 pleads that "the first defendant has waived the operation of the condition precedent in cl 5.2(b) of the agreement". However, there is no doubt that the whole case was conducted upon the basis that the claimed waiver arose out of the alleged election by the respondents on 21 February 1997 not to rescind the contract but to proceed with it. If the appellant's pleader is to be criticised for using the word "waived" instead of "elected," then he or she is in good company. A cursory reading of the judgments of the High Court in cases involving election show that their Honours use "waiver" interchangeably for "election". See, eg, Perry v Coolangatta Investments Pty Ltd (supra) at 553, 560 and Sandra Investments Pty Ltd v Booth (supra) at 159. Mr Weld did not submit that the respondents did not understand at trial, that the plea in the statement of claim, par23 was waiver by election nor that any unfairness would arise from entertaining Mr Blow's submissions on election. There is no substance in Mr Weld's submission that as the appellant only pleaded waiver, it can not now argue that an election was made on 21 February 1997.

26 As Stephen J said in Sargent v ASL Developments Limited (supra) at 641, "The doctrine of election as between two inconsistent legal rights is well established ...". A description of the doctrine of election is succinctly stated in Sargent's case by Mason J (as he then was) at 655 - 656, where his Honour said:

"A person is said to have a right of election when events occur which enable him to exercise alternative and inconsistent rights, ie, 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. (at p655)

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 (R v Paulson [1921] 1 AC 271, at p 284; Tropical Traders Ltd v Goonan [1964] HCA 20; (1964) 111 CLR 41, at p 55)."

27 Detriment by the other party has no role to play in the doctrine of election in Australia. It is confined to the doctrine of estoppel. This is quite clear from the following passage taken from the judgment of Stephen J in _Sargent'_s case at 646 - 647:

"It may be that in very many of the decided cases involving election some detriment to the other party can be discovered on an examination of the facts but the authorities in this Court are consistent in their silence as to detriment, regarding the elector's act of disaffirmation or adherence to the contract as itself completing the election without more (Craine's Case (1920) 28 CLR, at pp 325-326 ; Fullers' Theatres Ltd v Musgrove [1923] HCA 12; (1923) 31 CLR 524, at pp 540-541; Elder's Trustee Case (1941) 65 CLR, at pp 616-617, 618 ; Tropical Traders Ltd v Goonan (1964) 111 CLR, at p 55). Perhaps Newbon v. City Mutual life Assurance Society Ltd [1935] HCA 33; (1935) 52 CLR 723 throws most light upon the matter. There this Court dealt with two distinct issues, election and estoppel, and their treatment of the former, when contrasted with that accorded to the latter, satisfies me that no question of detriment was thought to be a necessary ingredient in election. (at p647)"

28 Knowledge of the relevant facts by the party seeking to make the election is an essential element in the doctrine. See Sargent's case per Stephen J at 642 et seq and per Mason J (as he then was) at 656 et seq. Statements to the like effect are to be found in Wallace v Hermans [1974] HCA 42; (1974) 131 CLR 672; Elder's Trustee and Executor Co Ltd v Commonwealth Homes & Investment Co Ltd [1941] HCA 31; (1941) 65 CLR 603 at 617; O'Connor v S P Bray Ltd (1936) 36 St R (NSW) 248.

29 Relevant to the resolution of this appeal is the question of what knowledge is necessary in order to make an effective and binding election. Is it necessary to have knowledge of the facts that give rise to the right to make an election and knowledge of the existence of the legal right arising from those facts, or only the former? In the early case of Craine v Colonial Mutual Fire Insurance Co Limited [1920] HCA 64; (1920) 28 CLR 305, the Court held, at 326, that a "waiver" (clearly referring to an election) must be intentional in the sense that it indicates an intention to treat the matter as if the condition did not exist and that knowledge was necessary before it could be said that this had been done and an election made. However, the nature and extent of the requisite knowledge was not explored in that case. In Sargent's case, Stephen J carefully analysed the authorities after Craine's case, both here and in the United Kingdom. As he observed (642), "the authorities are somewhat at variance". Having examined the authorities, his Honour considered that a distinction may perhaps be drawn between cases involving contract and cases not involving contract. He observed, at 645 that this distinction may provide a measure of reconciliation between conflicting authorities and said:

"Where election is in question between contracting parties and, as in these appeals, the contract itself confers the inconsistent rights there can be no question whether a party had knowledge of his choice of rights. He is deemed to know the terms of his own contract and the rights it confers, at all events he cannot take advantage of his own ignorance (L'Estrange v F Graucob Ltd (1946) 2 KB 394, at pp 403, 406); moreover he must take his contract as bearing whatever meaning the court will assign to it when it is called upon to interpret it, he is bound 'by the interpretation which a court of law may put upon the language of the instrument.' (Stewart v Kennedy, per Lord Watson [1890] UKHL 1; (1890) 15 App Cas 108, at p 123)."

30 His Honour concluded this part of his reasons for judgment by saying at 645:

"In the present appeals I conclude that, contrary to the appellants' contentions, all that need be established in order for the doctrine of election to apply is knowledge by the vendors of the facts giving rise to inconsistent legal rights; the appellants are to be taken to know of their rights of rescission conferred by cl 16 and, of course, of their right to enforce the contracts according to their terms."

31 McTiernan ACJ agreed with the reasons for judgment of Stephen J. At 658, Mason J, the remaining member of the Court, reached the same conclusion when he said:

"If a party to a contract, aware of a breach going to the root of the contract, or of other circumstances entitling him to terminate the contract, though unaware of the existence of the right to terminate the contract, exercises rights under the contract, he must be held to have made a binding election to affirm."

32 The proposition laid down in Sargent's case concerning the nature and extent of the knowledge necessary to make an effective election was subsequently applied in Wallace v Hermans (supra) and Khoury v Government Insurance Office of New South Wales [1984] HCA 55; (1984) 165 CLR 622 at 633 - 634. The same proposition was enunciated (obiter dictum) by Lord Diplock in Kammins Ballrooms Co Ltd v Zenith Investments (Torquay) Ltd [1971] AC 850 when he said at 883:

"We are not concerned in the instant appeal with the first type of waiver. This arises in a situation where a person is entitled to alternative rights inconsistent with one another. If he has knowledge of the facts which give rise in law to these alternative rights and acts in a manner that is consistent only with his having chosen to rely on one of them the law holds him to his choice even though he was unaware that this would be the legal consequence of what he did".

33 I might add that his Lordship went on to say that this is sometimes called waiver.

34 Application of the foregoing to the present appeal leads to the conclusion that on 19 February 1997 the respondents, by their agent, Miss Nguyen, knew the facts that gave them the right to either rescind the contract or proceed with it. These facts were that at the expiry of the time prescribed for the fulfilment of cl 5.2(b), finance had not been approved in accordance with the terms of that clause. No additional fact was necessary in order to give rise to the inconsistent rights. The request to extend time for the fulfilment of cl 5.2(b), made the day that time for fulfilment of the condition expired, had no effect on the existence of the right because the appellant had not acceded to the request prior to the conversation on 21 February. The inconsistent rights existed unaffected by anything that Miss Nguyen was told after 19 February by Mr Triscott or by the second and third named respondents about the approval of finance. Even if the prescribed finance had in fact been approved on 25 February, or even if Miss Nguyen honestly, but mistakenly believed that to have been the case, these facts were irrelevant to the creation of the inconsistent rights for these arose on 19 February by reason of the failure to satisfy cl 5.2(b) by that date. Accordingly, I have reached the conclusion that the learned trial judge fell into error when he concluded:

"The purchaser and its agent, Miss Nguyen, were ignorant of the existence of the right to avoid the contract in the circumstances as they existed on 21 February because they believed the condition had been fulfilled. They were ignorant therefore of facts which could have given rise in law to a right to rely on the non-fulfilment of the condition."

35 I must confess to having some difficulty in understanding Mr Weld's submission that "waiver would only have occurred if [Miss Nguyen] had said [on 21 February 1997] that finance had been approved within the 14 days period". This submission, like most of those he advanced in support of the judgment, was undisciplined by any note in his written outline. Waiver or election is concerned with rights that arise, in this case, from the terms of the contract. The right that accrued to the respondents from the non-fulfilment of cl 5.2(b) was either to rescind the contract or proceed with it. Election is not concerned with waiver of the clause itself, but the rights that flow from it. It is true, as Mr Weld also submitted, an effective election must be unequivocal. However, Miss Nguyen's telephone conversation with Miss French on 21 February 1997 is not open to any construction other than that the respondents will proceed with the contract. In my opinion ground 1 of the appeal is made out.

36 A pre-trial order was made that the issue of liability be tried before the issue of damages and accordingly, there has been no trial of the latter issue. On the hearing of the appeal counsel agreed that if ground 1 of the notice of appeal succeeded and the cross-appeal failed, the appropriate order to make would be that the judgment be set aside and in lieu thereof judgment be entered for the appellant against the respondents for damages to be assessed.

37 Having reached the conclusion that ground 1 is established for the reasons advanced, it is unnecessary to consider Mr Blow's other submission in support of that ground viz, that the learned trial judge made an erroneous finding of fact with respect to Miss Nguyen's knowledge when she telephoned Miss French on 21 February 1997. Although it is also unnecessary to consider ground 2, which alleges that there were insufficient reasons given for the judgment, I would dismiss it. The relevant principles are set out in the well-known and now often quoted passage from Pettitt v Dunkley [1971] 1 NSWLR 376 at 382. It is unnecessary to set it out again. With respect to the extent of the duty to give reasons for judgment, I venture to repeat a passage from a judgment of mine in Australian Securities Commission v Shreuder (1994) 14 ASCR 614 at 620 in which I said, after reviewing some of the authorities, that the obligation was to:

"1 Make findings with respect to the essential facts relied upon by the [the parties] relevant to the [issues].

2 Where the evidence with respect to those facts was in dispute or unclear, state the basis for making such findings.

3 Where appropriate, state what inferences he drew from the facts found and where necessary, the basis for drawing such inferences.

4 To expose the reasoning process which resulted in the orders made to the scrutiny of the parties and any appellate court."

38 The learned trial judge canvassed all the issues that were raised by the pleadings, including the one that is the subject of this appeal. He set out in some detail the important parts of the evidence and where the evidence was in conflict, made findings and expressed reasons for making those findings. One of those findings was that on 21 February, Miss Nguyen believed that the finance had been approved in the terms prescribed by cl 5.2(b). It might well be argued, as indeed it was by Mr Blow QC on the second limb of ground 1 of the notice of appeal, that that finding was erroneous. Some of the exhibits and the evidence indicate that at the time Miss Nguyen telephoned Miss French on 21 February, she knew that finance had not been approved because the final valuations were not to hand. This is reflected in Miss Nguyen's note which was set out by the learned trial judge and is reproduced in these reasons for judgment. That note says in part:

"I called Brian Downs to let him know that finance had been approved but we were still waiting for Paul Triscott to get back to us on the exact figure." [emphasis added]

39 It is as I say, unnecessary to decide whether this finding was erroneous, but any complaint that the learned trial judge failed to give adequate reasons for making it is without foundation. It is not incumbent upon a trial judge to set out the whole of the evidence in his reasons for judgment. It is sufficient if he refers to the material parts and, where there is conflict, to resolve that conflict with reasons. This the learned trial judge did more than adequately and accordingly, I would dismiss ground 2.

41 The cross-appeal alleges that error occurred by the making of an order permitting the appellant to amend its statement of claim, par3. The order was made during the closing address of counsel for the respondents.

42 The original statement of claim, par3, alleged that the contract was entered into on or about 5 February 1997. That plea was admitted by the defence. At the commencement of the trial, the appellant was given leave to amend par3 in the following terms:

"By a written agreement dated the On or about 5th February 1997 between the plaintiff and the defendants entered into a written agreement ('the agreement'), in which amongst other things, the plaintiff agreed to sell and the first defendant agreed to purchase the premises. (The plaintiff will refer to the agreement at the trial of this action for its full terms and effect. A copy of the agreement may be inspected at the offices of the plaintiff's solicitors.)

The agreement was constituted by an exchange of counterparts. One counterpart was executed by the defendants and mailed by the defendants' solicitors Messrs Grays Lawyers to the plaintiff's solicitors Messrs Dobson Mitchell & Allport on or about the 6th February 1997. The other counterpart was executed by the plaintiff and mailed by the plaintiff's solicitors to the defendants' solicitors on or about the 25th February 1997."

43 No consequential amendment was then made to the defence and the trial proceeded until the closing addresses with amended par3 of the statement of claim admitted by the defence. However, it was common ground on the hearing of the appeal that although the pleading was not consequentially amended during the course of the trial, the amended statement of claim par3, was in issue.

44 The facts surrounding the making of the contract are set out in the learned trial judge's reasons for judgment. On 4 February 1997, Miss French sent a sale agreement to the solicitors for the respondents "which is to be photocopied and to have the lease previously sent annexed to it as Annexure A and the list of chattels annexed as Annexure B". Miss French's letter proceeded:

"... the agreement and each annexure page are to be executed by the purchaser and returned to me by Wednesday 5th February."

45 On 5 February 1997, the respondents signed the agreement and sent the execution page to the appellant's solicitors as requested. The deposit was sent at the same time. The contract signed by the respondents bears the date 5 February 1997. The seal of the appellant company was affixed to its copy of the contract on 13 February and thereafter it was signed by two of the directors, but neither of them could remember on what date this was done. This copy of the contract also bears the date 5 February 1997, but it was not dispatched to the appellant's solicitors until on, or shortly before, 25 February 1997.

46 The learned trial judge found that the terms of the agreement were those evidenced by the document dated 5 February 1997 and that the contract came into existence when the appellant's offer made by Miss French on 4 February 1997 was accepted the following day by the respondents' signatures to the agreement and the dispatch of the execution page by facsimile.

47 His Honour's finding was entirely in accord with the closing submissions made on behalf of the respondents. Counsel submitted:

"That might lead one to ask what is the agreement. In my submission it's not an agreement entered into by an exchange of contracts at all [as is alleged by the amended statement of claim, par3] what occurred was that there was, if you wish to analyse it in fundamental terms, an offer by the plaintiff by the tender of the draft contract ... which was accepted and communicated by my client [the respondents] to the plaintiff's solicitors and that made the contract in my submission. It was not an exchange of contracts. It did not satisfy any of the requirements of an exchange of contracts so as to constitute the contract."

48 At trial, counsel for the respondents' argument was that there was a contract; that it was made on 5 February 1997 (as originally pleaded in the statement of claim and admitted by the defence); that the plea was changed to allege that the contract was made on 25 February by an exchange of parts; the appellant was bound by its plea and therefore the whole action should fail.

49 There was a short adjournment during the course of counsel for the respondents' closing address, and upon resumption, counsel for the appellant applied to amend the statement of claim. The proposed amendment was to add at the end of the particulars under par3:

"In the alternative the agreement was constituted by an offer made by a fax from Dobson Mitchell & Allport to Gray's Lawyers dated 4 February 1997 and an acceptance consisting of a fax from Gray's Lawyers to Dobson Mitchell & Allport dated 5 February 1997 and/or by Gray's Lawyers mailing to Dobson Mitchell & Allport on the 6 February 1997 a form of sale agreement executed by the defendants."

50 The application was opposed. The proposed amendment sought to plead in the alternative, that which counsel for the respondents had just submitted was the correct version of events. There was no suggestion that the appellant' s case be reopened. Counsel for the respondents claimed prejudice in that he had not been able to cross-examine Miss French and another witness about "their intentions as to this aspect", but he agreed with the learned trial judge's observation made to him:

"Well I understood you to be virtually adopting the position that what is now pleaded was the true position. That the draft was an offer which was accepted by the signature of the counterpart by your client and its dispatch to the vendor's solicitors."

51 The reality is that the respondents suffered no prejudice by the making of the order of amendment. The amendment was a reversion in the alternative, to the original plea which the respondents admitted. The argument put at trial against the amendment was that by the amendment made at the start of the trial, the appellant had "nailed their colours to the mast" and the respondents were entitled to avoid any liability that might arise from the terms of the undisputed contract simply because it had been pleaded that it came into existence on 25 February and not, as shown by the undisputed evidence, on 5 February 1997. The obligation of the learned trial judge was to make all such amendments to the pleadings as may be necessary for the purpose of determining the real questions in controversy between the parties, provided that in so doing no injustice is caused to the other party. See Rules of Court, O31, r1. The learned trial judge gave (in part) the following reasons for permitting the amendment to be made:

"I must say I have difficulty seeing prejudice to the defendants in permitting the amendment Mr Weld submits that he is no longer in a possession [sic] to explore, by cross-examination or by the adducing of evidence, what the intentions of the parties was, but if one excludes an intention to enter into an agreement by way of exchange of counterparts I cannot see any other factual basis for the creation of the contract. All the relevant documentary material would appear to be in evidence and Mr Weld's submissions so far appear to me to involve an acceptance that the contract was constituted in this way. Certainly no other way has been suggested, nor has it been suggested that there was no binding contract at all. By its defence as it stood at the commencement of the trial the defendants admitted the original paragraph three of the statement of claim which, while not in identical form to the proposed amendment, effectively mirrored it."

52 The principles governing appellate intervention with respect to the exercise of a judicial discretion are well settled and need not be set out here. They appear in the Supreme Court Civil Procedure Act 1932, s45(1) and in the well known cases of Cranssen v R [1936] HCA 42; (1936) 55 CLR 509 and House v R [1936] HCA 40; (1936) 55 CLR 499. No relevant error in the exercise of the learned trial judge's discretion to amend the statement of claim, par3 has been demonstrated. Indeed, it might well be said that error would have occurred if the order had not been made as no judge acting reasonably and properly instructed as to the law, could have done other than grant the application for amendment.

53 There is no substance in the cross-appeal and I would dismiss it.

54 For the foregoing reasons I would allow the appeal, dismiss the cross-appeal and order that the judgment be quashed and in lieu thereof judgment be entered for the appellant against the respondents for damages to be assessed.

55 For the reasons given by Underwood J, I agree that the appeal should be allowed and the cross-appeal dismissed and that it should be ordered that the judgment be quashed and in its place, there be judgment for the appellant against the respondents for damages to be assessed.

56 I have had the advantage of reading in draft form the reasons for judgment of Underwood J and agree with both his reasoning and conclusions reached in relation to the appeal and cross-appeal.

57 I would allow the appeal, dismiss the cross-appeal and order that the judgment be quashed and in lieu thereof, judgment be entered for the appellant against the respondents for damages to be assessed.