Court of Appeal (WA)|2001-01-30|Before: Mr P, Pidgeon J, Ipp J, Wallwork J

Kheng v Secola & Ors [2001] WASCA 3 (30 January 2001)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : KHENG -v- SECOLA & ORS [2001] WASCA 3

Contract - Sale of land - Contract conditional on the approval of the Foreign Investment Review Board - Purchaser failing to use all reasonable endeavours to obtain that approval - Whether the default clause in the conditional contract operates so as to apply to the failure to use reasonable endeavours - Whether deposit forfeited

Gregory v MAB Pty Ltd (1989) 1 WAR 1

Jones v Walton [1966] WAR 139

McWilliams v McWilliams Wines Pty Ltd [1964] HCA 6; (1964) 114 CLR 656

Parissis v Etna (1998) VSC 124

Sandra Investments Pty Ltd v Booth [1983] HCA 46; (1983) 153 CLR 153

1 PIDGEON J: The question which has arisen in this appeal is whether a purchaser of land under a conditional contract of sale who fails to do all things reasonable on her part to bring the sale into effect forfeits her deposit.

2 On 14 December 1998, the appellant, a resident of Singapore, signed an offer addressed to the agent of the respondents in which the appellant offered to purchase from the respondents land at 7 Tuart Street, Applecross for a price of $1,620,000 of which $160,000 was to be paid by way of deposit. The offer was accepted by the respondents on the same day. The offer, when made, contained the terms of the proposed contract. Most were in printed form but clause 6 was written and read:

"This offer is conditional upon approval by the Foreign Investment Review Board within 45 days from acceptance hereof."

3 This approval was required under the Foreign Acquisitions and Takeovers Act 1975 (Cth) as the appellant was a resident of Singapore. It is not in issue and it would be the inevitable result that when the offer was accepted clause 6 would read that the contract was conditional on the approval referred to. Clause 5 provided that the deposit was to be held by the purchasers' solicitors in trust for the Vendor and Purchaser jointly. On 16 December the appellant paid the deposit to her solicitors who held it in trust pursuant to that clause.

4 The appellant's solicitors submitted an application for approval to the Foreign Investment Review Board. The Board issued a notice dated 10 February 1999 prohibiting the proposed acquisition of the land by the appellant as the General Manager of the Board was satisfied that the proposed acquisition would be contrary to the national interest. The appellant, on 5 March 1999, issued a writ claiming that the condition was not fulfilled and that the contract was terminated. The appellant claimed the return to her of the deposit. The respondents, in their defence and counterclaim, claimed that it was an implied condition of the contract that the appellant would use her best endeavours to obtain approval from the Board. It was claimed that she failed to do so and the appellant sought a declaration that the deposit was forfeited.

5 The issues joined were tried by Scott J. His Honour considered that the construction of clause 6 required the appellant to do all things reasonable on her part to obtain the approval of the Foreign Investment Review Board. He found that the appellant failed to comply with a known policy requirement of the Board as she refused to give an undertaking to spend a minimum of fifty percent of the acquisition costs on the development of the property. His Honour considered that an inference was open on the exhibits before him that, if the appellant had given that undertaking, it was likely that the Board would have approved the transaction. He found that the appellant was told of the requirement before she signed the offer. He held that the appellant failed to take the appropriate steps to comply with clause 6 of the contract by failing to provide the Foreign Investment Review Board with the necessary undertaking, notwithstanding the fact that she had been told of that requirement prior to entering into the contract. His Honour said that, as a consequence, the appellant was seeking to gain some advantage by deliberately failing to fulfil the requirements of a condition to bring the contract to an end. His Honour dismissed the appellant's claim for the return of the deposit and, on the counterclaim, made an order that the deposit was forfeited.

6 The evidence relating to the claim that the deposit was forfeited was that clause 6 required the approval to be obtained within 45 days of the acceptance of the offer. When this time had expired the respondents, on 2 February 1999, forwarded to the appellant a default notice specifying that the appellant had failed to use her best endeavours by failing to give the undertaking, and required this default to be remedied within 14 days. The notice set out the Board's policy of requiring the undertaking to which I have referred. The appellant did not comply with the notice. The Board on 10 February, which was before the 14 days referred to in the default notice had expired, issued the notice to which I have referred prohibiting the proposed acquisition of the land by the appellant. This notice issued under s 21A(2) of the Act. The respondents on 17 February 1999, that is after the 14 day period in the default notice had expired, issued a further notice terminating the contract on the basis that the appellant failed to remedy the default specified in the earlier notice. This second notice specified that the deposit was forfeited.

7 The grounds of appeal do not challenge his Honour's finding that it was an implied condition that the appellant should do all things reasonable on her part to obtain the approval. Nor do they challenge his Honour's finding that the appellant failed to do that. The principal ground claims that in the circumstances which arose the deposit was not forfeited. The ground and the submissions in support claim that the only remedy for the breach of the implied condition that the appellant do all things reasonable on her part is a claim for damages. The claim for the forfeiture of the deposit is under the default clause in the contract. It was submitted that this clause did not come into effect until the contract became unconditional.

8 The contract is a contract for the sale of land in the standard form with some additional clauses. The default clause being clause 19 so far as it relates to the forfeiting of the deposit reads:

19 Default

"(1) If the Purchaser is in default in performing or observing any obligation imposed on the Purchaser under the Contract or if the Purchaser repudiates the Contract, then the Vendor in addition to any other rights or remedies under the Contract or otherwise, may:

...

(d) subject to Condition 18 and if the Notice given pursuant to Condition 18 states that unless the relevant default is remedied within the time specified in the Notice, the Contract will or may be terminated, terminate the Contract and

(i) forfeit the deposit paid, except so much as exceeds 10 per cent of the Purchase Price (which excess, if any, is to be deemed for the purposes of this condition to be an instalment of the Purchase Price);

(ii) sue the Purchaser for damages for breach; and

..."

9 The remedy is subject to cl 18 requiring a notice to be given and the parts of this clause which are applicable read:

"(1) Except as otherwise specifically provided in these Conditions:

(a) the Vendor is not entitled to forfeit any money paid by the Purchaser or take or recover Possession of the Property on the ground of the Purchaser's default in performing or observing any obligation imposed on the Purchaser under the Contract; and

(b) neither the Vendor not the Purchaser is entitled to terminate the Contract on the ground of the other's default in performing or observing any obligation imposed on that other party under the Contract; unless

(i) the party not in default has first given to the party in default Notice in writing specifying the default complained of, which Notice must require that the default be remedied within the period stipulated in the Notice; and

(ii) the party in default fails to remedy the default within the period stipulated in that Notice.

(2) The period stipulated in the Notice in writing referred to in Condition 18(1) must not be less than 14 days from the date of service of that Notice. ...

...

(4) This Condition will not apply where either party repudiates the Contract."

11 The relationship between the parties must be determined by the terms of the contract itself, but certain general principles of construction have evolved in respect of contracts made subject to a condition. In Suttor v Gundowda Pty Ltd [1950] HCA 35; (1950) 81 CLR 418 the High Court was considering a contract for the sale of pastoral property shortly after the war when prices were controlled and it was necessary under the National Security (Economic Organisation) Regulations to have the consent of the Treasurer or his delegate to a transaction. The contract under consideration provided that in the event of the consent of the Treasurer not being obtained within two months of the contract date, or within a further period as might be mutually agreed upon, the contract should be deemed to be cancelled, and upon the vendor returning to the purchaser any deposit, neither party should be under any further liability to the other for any sum for damages costs or otherwise. The consent of the Delegate to the Treasurer was not given until 16 days after the date specified in the contract. The vendor claimed that the contract had come to an end at the conclusion of the two month period specified and he was not obliged to continue with the contract when the consent ultimately was given. The Court held that the particular clause making the contract conditional should be construed as making the contract not void but voidable and then considered the question on the facts of that case as to who could bring the contract to an end.

12 Latham CJ, Williams J and Fullagar J (at 440) in reaching the conclusion that the contract was voidable referred to the speech of Lord Atkinson in New Zealand Shipping Co Ltd v Société des Ateliers et Chantiers de France [1919] AC 1. His Lordship referred to two possible situations. The first was where a contract was made conditional on an event over which neither party would have any control. His Lordship then considered the situation where the contract was made conditional on an event which one or either of the parties, by his or her own act or omission, could bring about or could cause the failure of its being brought about. His Lordship said in that case the party, who by his own act or omission, causes the failure of the event cannot be permitted either to insist upon the stipulation in the clause, or to compel the other party, who is blameless, to insist upon it, because to permit the blameable party to do either would be to permit him or her to take advantage of his or her own wrong, in the one case directly, and the other case indirectly in a roundabout way, but in either way putting an end to the contract. Their Honours, after referring to these observations said that the provision was to be construed as making the contract not void, but voidable. Only the party who was not in default can avoid it and he or she may please himself whether or not this is done. Their Honours then considered the facts of the case they were then considering. They expressed the view that neither party was in default by reason of the failure of the Delegate to give his consent within the required time. Their Honours considered, nevertheless, that the principles discussed should apply and that the contract was voidable and they held that on the circumstances before them, the contract had not come to an end and could proceed.

13 In Gange v Sullivan [1966] HCA 55; (1966) 116 CLR 418 at 441, Taylor, Menzies and Owen JJ referred to Suttor v Gundowda Pty Ltd and said:

"Whilst the effect of a condition must in every case depend upon the language in which it is expressed and a decision upon the meaning of one condition cannot determine the meaning of a different condition, the authorities cited do show a disposition on the part of courts to treat non-fulfilment of a condition such as that here under consideration as rendering a contract voidable rather than void in order to forestall a party to a contract from gaining some advantage from his own conduct in securing, or contributing to, the non-fulfilment of a condition bringing the contract to an end."

14 In Perri v Coolangatta Investments Pty Ltd [1982] HCA 29; (1982) 149 CLR 537. Brennan J, (with whom Stephen J agreed) said (at 567), that the above passage stated the general principle.

15 As this was a case where the parties agreed to undertake obligations such as pay the deposit and to do all things reasonable to obtain the consent required, I consider, applying the general principles I have stated, that this is a contract which must be construed as being voidable. As the default was on the part of the appellant, it is voidable at the option of the respondents and until the contract is avoided they can require the terms to be carried to the extent it is possible to carry them out.

16 Mr Abbott, on behalf of the appellant, submitted that where a contract is made subject to a condition, the parties to the contract do not expect or promise that the contract will necessarily be performed and there is no promise that the conditions will be fulfilled. Performance is subject to the prior fulfilment of the condition which does not lie fully within the capacity of the parties to the contract. He referred to passages from Perri v Coolangatta Investments Pty Ltd which he claimed supported this. It was submitted further that until the condition is fulfilled there are no enforceable rights in the subject matter itself and neither party is obliged to complete the conveyance. A number of references were made to passages in Perri v Coolangatta Investments Pty Ltd. The High Court in that case was construing a stipulation in a contract for the sale of land which stipulation provided that the contract was subject to the purchasers completing the sale of another property. No time was stipulated in the contract as to when that sale was to be completed. The purchasers did not sell the other property and, as found by the trial Judge, were not taking reasonable steps to do so. The vendor, after a certain time, gave notice terminating the contract. The majority of the Court considered that the condition of the selling of the other property was to take place in a reasonable time and as the vendor had given notice after the expiration of the reasonable time, the contract had come to an end. The deposit was repaid to the purchasers.

17 Mr Abbott referred to certain remarks of Gibbs CJ (at 545). These were made by his Honour when he was discussing the question whether it was necessary for the vendor to give to the purchasers a notice to complete the contract before the vendor could give a notice bringing the contract to an end on the basis that the event basing the condition did not occur. Gibbs CJ said there was no requirement to give a notice to complete as the authorities, including Suttor v Gundowda Pty Ltd, showed that the contract may be terminated if the condition has not been fulfilled when the date arrives and it is unnecessary to give any prior notice to the other parties. His Honour went further and said it would be inappropriate to give a notice to complete on the facts of the case he was considering as the purchaser was not required to complete prior to the selling of the other property and had not promised to do so. It had been found that the purchasers did not make reasonable efforts to satisfy the condition, but despite this, it could not be said that had they made better endeavours, the property would have been sold. On the facts of that case they had not been bound to carry out the covenant to convey until such time as the property had been sold. Although the purchasers could use better endeavours, they were not bound to pay the purchase price until the sale of the other property had occurred and whether or not a person would buy the other property was a matter outside the purchasers' control. Brennan J (as he then was) said in another passage to which Mr Abbott referred (at 565) that neither party was entitled to a decree of specific performance until the event occurred or was waived by the purchaser.

18 It was submitted that passages such as these are authority for the proposition that while a party is bound to do such things as pay the deposit and use reasonable endeavours to make the contract unconditional there are, while the contract remains unconditional, no enforceable rights in respect of the actual subject matter of the contract. Accordingly it was submitted that although the appellant was bound to such things as pay the deposit and use reasonable endeavours to obtain the consent she was not bound to execute the transfer and pay for the land while the condition remained unfulfilled.

19 In my view the answer lies in construing the contract in order to determine whether the breach which in fact took place is a breach covered by the default clause. The appellant refused to do the very thing necessary to enable the Board to consider the matter thus bringing about the situation where consent must inevitably be refused. It was found and

it is not now challenged that she acted unreasonably by so refusing. In these circumstances the contract remains on foot until brought to an end by the respondents. Although the contract could not be performed by reason of the transfer not being able to go ahead, it was still open to the respondents to enforce other clauses, including the default clause, which remains part of the voidable contract. The question, therefore is whether or not the appellant's breach, as purchaser, is covered by the default clause. I have set the default clause out and it is in very wide terms. It applies to the situation of a purchaser being in default "in performing or observing any obligation on the purchaser under the contract". This is in terms wide enough to include both express and implied obligations and in my view, it would include the implied obligation under clause 6 to do all things reasonable on her part to obtain the necessary consent. This obligation, unlike the obligation in Perri's case, is not dependent on whether or not the Board gives its consent. It was an obligation required to be performed as soon as the contract was signed.

20 The respondents followed the procedures set out in the default clauses. The appellant took no steps to remedy the situation in the eight days or so up to the time the Board gave its notice. It would not be open to the appellant to say that she could not remedy the default within the remaining period of the notice by reason of the Board making its decision to prohibit the dealing. That situation was brought about by her own conduct and in any event, had she have given the undertaking required subsequent to the notice, the possibility of the Board reconsidering the matter was a possibility not excluded on the evidence. I consider that in these circumstances it is open to the vendors to give the notice of termination, which they did on 17 February 1999, forfeiting the deposit.

21 The other ground of appeal claims that his Honour erred in holding that it was common ground that the notice of default was required by the contract. The resolution of this ground would have no bearing on the outcome of the appeal.

23 IPP J: I have read the reasons of the Hon Justice Pidgeon. I am in agreement with those reasons and have nothing further to add.

24 WALLWORK J : I agree with the reasons for judgment of Pidgeon J.

Acquisitions and Takeovers Act 1975

Kheng v Secola & Ors [2001] WASCA 3

At a glance

Court

Decision date

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Judgment (45 paragraphs)

Kheng v Secola & Ors [2001] WASCA 3 (30 January 2001)

Parties

Legislation Cited (1)

Cases Cited (9)