Karfoal Pty Ltd v Lorence

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

3183/00 KARFOAL PTY LTD v JOAN CONSTANCE LORENCE JUDGMENT 1 The facts are in short compass and are not in dispute. The plaintiff seeks a declaration that a contract for sale of land was validly rescinded and an order for the return of the deposit or for its repayment under the Conveyancing Act 1919, s 55(2A). 2 The contract for sale was dated 14 March 2000 between the late Gedeon Lorence ("Deceased") and the defendant as vendors and the plaintiff as purchaser of a property known as the Bath Arms Hotel at Burwood for $4,050,000 apportioned as to $2,500,000 to land, building, fixtures and licence, $50,000 to plant and equipment, $1,400,000 to goodwill and $50,000 to agent's commission. The sale also included saleable stock of the business on hand at the date of completion at market value on that day. The deposit paid by the plaintiff was $400,000. The completion date was 3.00 pm on 8 May 2000. Special condition 11 provided that in the event of a failure to complete on that date either party was entitled to issue a notice making time of the essence of the contract and requiring completion to be effected within a period of not less than 14 days from the date of service of the notice. The hotelier's licence was in the name of the Deceased when the contract was executed. Special condition 14 provided that completion was conditional upon the Licensing Court of New South Wales granting a provisional transfer of the hotelier's licence to the plaintiff or its nominee on completion. 3 The deceased died on 16 April 2000. Probate of his will was granted to Francis Sidney Ellis on 11 August 2000. The defendant was entitled to the residue of the estate after payment of pecuniary bequests and costs of administration. Special condition 10 of the contract for sale provided that if either party died, the other party might at any time rescind the contract by notice in writing. 4 Business requisitions on title asked whether the premises, business or operator of the business were required to be licensed, whether the issue of a permit was necessary and whether any consents were necessary. The solicitors for the vendors responded on 17 April 2000 that the vendors relied on the contract for sale and the purchaser should rely on its own inquiries. The letter containing the answers to the requisitions also stated that the Deceased had died the previous day. 5 On 12 May 2000 the solicitors for the defendant informed the solicitors for the plaintiff that the vendors held the freehold of the hotel as joint tenants, the freehold including the inventory, licence, goodwill and stock and stated that the defendant was thus the owner of the freehold including the inventory, licence, goodwill and stock and that the current licensee of the premises was Ben Trafford Morpeth. A licence information search a few days before the contract for sale was executed showed the Deceased as licensee but showed the Deceased and the defendant as business, licence and premises owners. Land Titles Office searches of December 1999 showed the Deceased and the defendant as joint tenants of the property. 6 On 15 May 2000 the defendant's solicitors delivered to the plaintiff and to the plaintiff's solicitors a notice to complete appointing 2.30 pm on 31 May 2000 and making time of the essence. On 31 May 2000 the plaintiff's solicitors requested an extension of time to 2.30 pm on 14 June 2000 to which the defendant agreed. 7 The plaintiff had sought finance from National Australia Bank to fund the purchase. Fredrick Michael Paul O'Connor, a director of the plaintiff, was cross-examined. He agreed that he was the guiding hand of the plaintiff. He said the plaintiff was let down by the bank. He had provided a business plan and had asked the bank manager not to lend money for the deposit if the bank was not to lend sufficient funds to enable the plaintiff to settle. The bank provided the plaintiff with the deposit and Mr O'Connor believed that it would provide the necessary funds to settle the contract for sale. On 13 June 2000 he gave instructions to his solicitors to issue a notice of rescission. When he gave those instructions, he knew that the bank would not provide funds to enable the plaintiff to complete on 14 June 2000. The notice of rescission was served before 2.30 pm on 14 June 2000. It claimed the right to rescind because of the death of the Deceased in terms of special condition 10 of the contract for sale. The plaintiff failed to complete the contract at 2.30 pm on that day and the defendant served a notice of termination of the contract and forfeited the deposit. 8 The plaintiff argues that the defendant was not entitled to give the notice to complete on 15 May 2000. It was argued that the defendant was not able to complete the contract at the appointed time because the legal personal representative of the Deceased was a necessary party to transfer title to some of the assets the subject of the contract for sale and probate had not issued to Mr Ellis. It was argued that the defendant could not at the appointed time transfer the hotelier's licence in accordance with special condition 14. It was also argued that the defendant was in default of the contract for sale because the answers to requisitions on business title set out above were insufficient. 9 I do not have to decide this issue because the plaintiff did not rely on any of these arguments to ground the notice of rescission. It was based solely upon special condition 10 of the contract for sale. In any event the arguments are, in my view, misconceived. Since the evidence was that all the assets the subject of the contract for sale were held by the Deceased and the defendant as joint tenants, the entire title to those assets vested in the defendant upon the death of the Deceased. 10 Counsel for the plaintiff submitted that I should give little weight to the solicitor's letter of 12 May 2000 stating the basis upon which the property was held. He submitted I should not regard that evidence as overcoming what was submitted to be a rebuttable presumption that partnership assets are held in undivided shares with no right to survivorship. The proposition was said to derive from Re Fuller's Contract [1933] 1 Ch 652. The authority does not support the proposition. Counsel was correct in submitting that the proper inference to be drawn from the facts was that the Deceased and the defendant were conducting business in partnership. The licence search material together with the solicitor's letter supports that conclusion. In Fuller's Contract it was held that partnership land held by some surviving partners as joint tenants in trust for the partners was held subject to the statutory trusts set out in the Law of Property Act 1925 (UK) and the survivors could make good title as trustees for sale upon those trusts. The trust for sale is superimposed upon and does not affect the tenure upon which partnership property is held so far as outsiders are concerned. The Partnership Act 1892, s 20(2) provides: "… the legal estate or interest in any land which belongs to a partnership shall devolve according to the nature and tenure thereof, and the general rules of law thereto applicable, but in trust so far as is necessary for the persons beneficially interested in the land under this section."

In Re Bourne [1906] 2 Ch 427 at 432-433 Romer LJ said: "It is to be borne in mind that the real interest of the partnership in real estate is of a personal character, because wherever the legal estate may be, whether it is in the partners jointly or in one partner or in a stranger it does not matter, the beneficial interest in the real estate belongs to the partnership, with an implied trust for sale for the purpose of realizing the assets for the purpose of giving to the two partners their interests when the partnership is wound up and an account taken."

In Fuller's Contract at 656, Luxmoore J, as he then was, said of this passage: "I think Romer LJ was only pointing out that the beneficial interest in real estate belonged to the partnership, that is, to those persons who constituted the partnership, and that those persons were together entitled to the partnership property. Of course, as between the partners, the partnership property must be dealt with in a particular way, but so far as all the rest of the world is concerned, there is no limitation on the interests of the partners…." Contrary to the submission of counsel, partnership property is often held under a joint tenancy and the rules of survivorship apply. In Rees v Duncan [1900] VLR 520 it was held that upon the dissolution of a partnership by death, the jointly held assets of the partnership vested in the surviving partners by survivorship and all of them needed to join in vesting any of the assets in the legal personal representative of the deceased partner. I see no reason to reject the evidence contained in the solicitor's letter of 12 May 2000. Its contents are consistent with the information contained in the various searches. The result is that when the notice to complete was given, the defendant was in a position to pass title on the date specified for completion. 11 The Liquor Act 1982, s 42 applies where a license is current and, to the exclusion of the licensee, the owner of the licensed premises comes into possession of them. Counsel for the plaintiff accepted that this provision applied to the defendant with respect to the hotelier's licence in the name of the Deceased when he died. Section 42(2A) provides that the owner of the licensed premises is taken to be the licensee for 28 days or the day on which an application is made under s 42(2) whichever should first occur. Section 42(2)(a) provides that application for a transfer of the licence may be made where the licensed premises are the subject of a lease or contract with the owner pursuant to which the licence is exercised, by the owner of the premises. Section 61(3) entitles the Licensing Court of New South Wales to make a provisional grant of an application under s 42. It was common ground that a provisional grant was made to Mr Morpeth. Section 61(4)(c) provides that the provisional grant ceases to have effect unless it is confirmed by the Licensing Court before the lodging of an application by the transferor for a transfer of the licence to a different transferee. It was submitted on behalf of the defendant that she was in a position to affect the conditional granting of a provisional transfer of the hotelier's licence to the plaintiff or its nominee before 31 May 2000 by lodging a further application for the transfer of the licence to that person. Section 61(5) provides that subject to s 61(4), the provisional grant of an application has the same effect as a grant of an application under s 61(1). It would appear to have been open to the defendant to satisfy special condition 14 of the contract for sale by causing Mr Morpeth to make the necessary application. In my view the plaintiff has failed to establish that the defendant could not transfer the hotelier's licence so as to comply with special condition 14 by the time appointed for completion in the notice of 15 May 2000. 12 A party giving a notice making time of the essence must be free of default by way of breach or antecedent relevant delay (Neeta (Epping) Pty Ltd v Phillips [1974] 131 CLR 286). In Winchombe Carson Trustee Co Ltd v Ball- Rand Pty Ltd [1974] 1 NSWLR 477, Wootten J held a vendor who issued a notice to complete to be in default for failure to answer certain requisitions until the letter enclosing the notice to complete. In Neeta (Epping) at 300 the High Court observed that answers to requisitions in the form: "purchaser should satisfy itself", were inadequate. Counsel for the plaintiff relied upon these authorities to found the argument that the defendant was not entitled to issue the notice to complete. The inadequacy of the answers to requisitions in Neeta (Epping) was conceded. I do not regard that decision or Winchombe Carson as determinative of the matter before me. The adequacy of answers to requisitions must be determined in context and, in particular, in light of the conditions of contract. In this case special condition 14 of the contract for sale dealt with the questions of licence, registration and consent and, in my view, the defendant was entitled to answer the requisitions by reference to the contractual terms. I am, in consequence, of the view that if it were necessary for me to decide the issue, the plaintiff has not made out a case that the defendant was not entitled to issue the notice to complete on 15 May 2000. 13 The plaintiff's case for entitlement to issue the notice of rescission was based upon an alleged inability to complete. If a party by notice renders time of the essence but is unable to perform its contractual obligations in time, the other party may rely on the repudiation and rescind the contract (Dainford Ltd v Yulora Pty Ltd [1984] 1 NSWLR 546). Be that as it may, the plaintiff did not rely on such an alleged repudiation by the defendant. Furthermore, for the reasons set out above, I am of the view that the plaintiff has not established an inability upon the part of the defendant to complete at the appointed time. The notice of rescission was based solely upon special condition 10 of the contract for sale. That provision relates not only to death but also to other disentitling circumstances. It is in the following terms: "If at any time prior to completion of this contract either party should die or become mentally ill or be declared bankrupt or, being a company, be wound up or go into liquidation, or should a receiver or receiver and manager of either party be appointed the other party may at any time rescind this contract by notice in writng to the solicitors referred to in this contract as acting for the first referred party and this contract will be at an end and the provisions of clause 19 shall apply."

In my view the provision cannot be enlivened on the basis of the death of one of the joint tenants of the assets the subject of sale. The provision is aimed at a death that creates an impediment to the fulfilment of contractual obligations. The defendant having succeeded to the entirety of the title in the assets the subject of the contract for sale, the death of the Deceased did not give rise to any impediment. The obligations under the contract devolved upon the defendant as survivor and she alone was liable therefore ( Re Maria Anna and Steinbank Coal and Coke Company (1875) LR 20 Eq 585). There was no impediment to her ability to complete. In my view the plaintiff was not entitled to issue the notice of rescission. 14 Clause 9 of the contract for sale provided that if the purchaser did not comply with the contract in an essential respect the vendor could terminate it by serving a notice and after the termination keep or recover the deposit. In my view the defendant was entitled to issue the notice of termination of 14 June 2000 and to forfeit the deposit. 15 The Conveyancing Act 1919, s 55(2A) provides that in every case where the court refuses to grant specific performance of a contract, or in any proceeding for the return of a deposit, the court may, if it thinks fit, order the repayment of any deposit with or without interest thereon. In Lucas & Tait (Investments) Pty Ltd v Victoria Securities Ltd [1973] 2 NSWLR 268 it was held that a court has a discretion under the section in every case where the purchaser seeks to recover money paid by way of deposit under a contract of sale which cannot be destroyed by the exercise by the vendor of the right to forfeit the deposit. Nevertheless, Street CJ in Eq said at 272 that the section does not give a court an overall discretionary supervision of monetary adjustment between parties to a contract under which a deposit was paid but which has terminated: 'A vendor who forfeits a deposit in strict enforcement of his legal rights is not to be deprived of it under s 55(2A) unless it is unjust and inequitable to permit him to retain it.'

It was submitted on behalf of the plaintiff that where a notice to complete is given in circumstances where a vendor is unable to complete at the appointed time, relief should be given under the section because of the non-performance of contractual terms ( SA Mearns v Parris Holdings Pty Ltd (1994) 6 BPR 13,677 at 13,685). Because of the view I take of the ability of the defendant to complete, that authority is of no assistance. 16 In Tsekos v Finance Corporation of Australia Ltd [1982] 2 NSWLR 347 at 357 a lack of disclosure was relied upon by Rath J in the exercise of his discretion under the section. The defendant had notice of an intention to resume the land in question which was not disclosed to the plaintiff. Counsel for the plaintiff submitted that there was a failure on the part of the defendant to disclose that there had not been a grant of probate of the will of the Deceased. Of course, Tsekos is not authority for the proposition that any failure to disclose a fact will justify an exercise of discretion in favour of an order. Each case is to be judged upon its own facts. In this case the plaintiff's solicitor was alerted to the death of the Deceased the day after he died. Furthermore, the grant of probate was irrelevant in the situation where all the assets in question were held jointly and title passed to the defendant. 17 In Kylsilver Pty Ltd v One Australia Pty Ltd [2001] 10 BPR 18,545 at 18,550 the fact that the defendant suffered no loss by the termination of the contract and realised about twice the balance of deposits as a windfall gain was a circumstance which led to the exercise of discretion in favour of an order in that case. On 26 July 2000 the defendant exchanged contracts for the re-sale of the property to Roc International Pty Ltd which settled on 8 September 2000. The purchase price was $4,400,000, that is $350,000 in excess of the price under the contract with the plaintiff. In cross-examination Mr O'Connor revealed that while the plaintiff initially held 40% of the shares in this company, it was unable to put up the $400,000 required of it for settlement of the re-sale and was forced to assign its interest elsewhere. The submission was that in light of the fact that the defendant suffered no damage and, on the contrary, received an increased sale price for the property, the forfeiture of the deposit should be regarded as a windfall gain and I should exercise my discretion in favour of the plaintiff on that basis. I decline to do so. There was nothing unconscionable in the conduct of the defendant with respect to the contract. The problems suffered by the plaintiff stem from the failure of the National Australia Bank to provide the necessary finance. That is not a matter in which the defendant played any part. The plaintiff's purported notice of rescission failed for the reasons set out above. The plaintiff failed to complete the contract and there is, in my view, nothing unjust or inequitable in the defendant's exercise of her contractual rights to forfeit the deposit. 18 At the conclusion of his address, counsel for the plaintiff sought leave to further amend the summons to include a claim for damages. The application was opposed. I indicated that I would grant leave on the basis that the paramount consideration in determining an application of this sort is the justice of the situation (Queensland v JL Holdings Pty Ltd (1996-1997) 109 CLR 146 at 155). I indicated that I would impose a condition that the plaintiff bear the costs in any event of any inquiry as to damages. The plaintiff must pay the defendant's costs of the present hearing. I direct the parties to bring in short minutes of orders to give effect to these reasons for judgment.

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