Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd

Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd - [1989] HCA 23 - HCA 1988 case summary — Zoe

[26]

Clause 15.7 has more significance. The first part of the clause specifically provides that the obligations of Capalaba and Laurinda (a) are not conditional or in any way dependent upon the preparation and execution of the lease and (b) are not affected by any default or delay in the preparation and execution of the lease. The second part of the clause provides that, despite non-completion of the lease, from and after the date of commencement and throughout the term of the lease, each party will be bound to perform all its obligations in the deed and the lease. The effect of the provision referred to as (b) above is that the obligations of Laurinda under the deed continue unaffected, notwithstanding any delay on the part of Capalaba in preparing or executing the lease. The second part of the clause plainly imports that non-completion of the lease is not in itself a legitimate ground or justification for Capalaba or Laurinda refusing to perform its obligations under the deed or the lease. Laurinda submits that those obligations necessarily include the obligations imposed on Capalaba by cl. 6 which, according to the argument, extend to the registration of the lease or at least the delivery of a registrable lease. But the obligations mentioned in the second part of cl. 15.7, which were to continue to bind the parties, are those which bind the parties in their character as lessor and lessee respectively. They do not include the obligation to complete the lease (which extends to the delivery of a registrable lease) under cl. 6. As the object of the provision is to ensure that the lessor-lessee relationship between the parties is to continue to subsist for such time as the lease remains uncompleted, the provision does not incorporate in the obligations to which it refers the obligation to complete the lease. The word "non-completion" is not defined and there is no basis for confining it or, for that matter, "delay" in the first part of the clause, to circumstances beyond the control of Capalaba. Indeed, it may be that the second part of cl. 15.7 was inserted in the deed with a view to preserving to Capalaba some flexibility in completing the formal lease. Be that as it may, cl. 15.7 recognized that, notwithstanding non-completion, the agreement constituted by the deed continued to be binding so as to create an equitable lease, the agreement being capable of specific performance: York House Pty. Ltd. v. Federal Commissioner of Taxation [1] ; see also Moore v. Dimond [2] .

[65]

A right in one party to rescind a contract will arise when the other party repudiates a contract generally, but it may also arise when the other party repudiates a term of the contract. A right to rescind depends on the importance of the term repudiated. Here, the subject of the agreement was the granting of a legal lease for a term of six years. The implied promise by Capalaba to procure registration of an appropriate instrument was thus at the heart of the agreement. It was a promise of such importance to the promisee that it would not have entered into the contract unless it had been assured of substantial performance and this ought to have been apparent to the promisor. It answered the criterion of an essential promise in the sense that an outright repudiation of the promise would have entitled Laurinda to rescind. The criterion of an essential promise which I have stated in terms relevant to the present case is derived from the criterion expressed by Jordan C.J. in Tramways Advertising Pty. Ltd. v. Luna Park (N.S.W.) Ltd. [24] and frequently adopted in this Court, most recently in Ankar Pty. Ltd. v. National Westminster Finance (Australia) Ltd. [25] , but I have modified it by using the term "substantial performance" rather than the usual formula of "a strict or a substantial performance". The modification is necessary when, no day for performance being stipulated and the subject matter of the promise not being such as to require strictly timeous performance, time is not of the essence of the promise either in law or in equity: Canning v. Temby [26] ; Louinder v. Leis [27] . When time is not of the essence, the promisee must have been willing to enter into the contract without an assurance that the promise would be performed strictly, albeit with an assurance that the promise would be performed substantially. Thus, Laurinda would not have been entitled either at law or in equity to rescind the contract as soon as a reasonable time for procuring registration had elapsed. As Griffith C.J. said in Canning v. Temby [28] :

[76]

The Shopping Centre opened on 1 December 1985. That was the commencing date of the term of the proposed lease. Capalaba's solicitors had written on 28 November 1985 to advise that Capalaba had executed the lease and a copy would be sent "shortly". On 3 January 1986 Laurinda paid to Capalaba's solicitors the costs of and incidental to stamping and registration. On 14 March 1986 Laurinda asked for a copy of the lease and, by reply dated 25 March 1986, Capalaba's solicitors advised that the lease had been executed by Capalaba, that the solicitors expected it to be returned "in the not too distant future" and that they would provide Laurinda "with its stamped parts of the documents as soon as we are able to". The solicitors' expectation was not realized. Laurinda heard nothing further from them, despite Capalaba's learning in April 1986 that Laurinda wished to dispose of its business. Then the letter of 21 August 1986 required Capalaba "to complete registration within fourteen days from the date hereof". The letter was delivered to Capalaba's solicitors on 22 August. There was no evidence that Laurinda had earlier demanded or been refused performance by Capalaba of its obligation to stamp and register the lease. Laurinda had been put into and left in peaceful possession of the premises. Clause 15.7 of the agreement for lease kept the obligations of lessor and lessee on foot despite any default or delay in the preparation or execution of the lease. In these circumstances, delay in the stamping and registration of the lease long after a reasonable time has expired is not as indicative of repudiation as would be a delay in completing a contract of sale of land. At the time when the letter of 21 August 1986 was written, it could not reasonably have been inferred from Capalaba's delay in stamping and registering the lease that it did not intend to be bound by its promise to register the lease. Does its failure to stamp and register within the fourteen days allowed by the letter of 21 August tip the balance? The answer depends on whether the letter was an effective notice to complete, and there were two reasons advanced for holding that it was not.

[93]

The innocent party who makes time of the essence of a contract by an effective notice to complete within a nominated time is bound by the notice in the sense that the time nominated for completion becomes of the essence for him as well as for the defaulting party: see, e.g., Quadrangle Development and Construction Co. Ltd. v. Jenner [62] ; Balog v. Crestani [63] . If - where completion involves action on his part - the innocent party himself fails to complete within that time, the other party will be able to take account of the then existing circumstances in determining whether to rescind the contract or to institute proceedings for its enforcement. The party giving the notice enjoys the like advantage since he may waive his right to terminate the contract for non-compliance with the requirements of the notice and bring proceedings for specific enforcement of the contract. This mutuality of the respective positions of the parties accords with equitable principle and the interdependent character of the contractual obligations involved. That being so, it would be anomalous if equity were to require that a notice to complete should unequivocally state that the party giving it will, in the stipulated circumstances, treat the contract as at an end in a context where it is unnecessary that he have any such unequivocal intention at the time of giving the notice and where, even if he had such an unequivocal intention at that time, he might subsequently waive the right to treat the contract as at an end and bring proceedings for its enforcement. Moreover, it is somewhat difficult to see why, as a matter of bare principle, a notice fixing a time for completion or performance does not, in the absence of other grounds for termination, constitute a repudiation of the contract if it unequivocally states that the party giving the notice will, on the expiry of what is subsequently held to be an unreasonably short period, act on the basis that the contract is at an end. True it is that these difficulties will be avoided or overcome if such an unequivocal statement in a notice to complete or perform is read as not meaning what it says but as being subject to an implied qualification that the party giving the notice will not treat the contract as at an end at all unless he both desires and is entitled to rescind at the expiry of the time which the notice fixes (cf. Woodar Investment Development Ltd. v. Wimpey Construction U.K. Ltd. [64] ). However, such distortion of the ordinary meaning of words serves only to illustrate the undesirability and potentially misleading consequences of a requirement that a notice to complete contain such an unequivocal statement. The notions of fairness and good conscience which inspire the traditional doctrines of equity point strongly against any such inflexible requirement.

[127]

Although there is much criticism of the terms used (see, e.g., Jane Swanton, Discharge of Contracts for Breach, Melbourne University Law Review, vol. 13 (1981), p. 69) and suggestions that the terms may give expression to distinctions lacking any real difference (see, e.g., Kirby P. in J. & C. Reid Pty. Ltd. v. Abau Holdings Pty. Ltd. [75] ) the generally accepted formulation of the relevant law is that a party to a contract may elect to bring the obligations arising under that contract to an end in the event of repudiation, fundamental breach or breach of an essential term by the other party to the contract: see Shevill v. Builders Licensing Board [76] ; Stern v. McArthur [1] ; J. W. Carter, Breach of Contract (1984), pp. 60-61. For reasons founded in equitable principle, failure to perform an obligation which is otherwise fundamental or essential on a stipulated date or, if no date be stipulated, within a reasonable time does not entitle the other party to bring the contractual obligations to an end unless the time of performance is expressly or impliedly made essential by the contract or is made essential by an effective notice to complete: Carr v. J. A. Berriman Pty. Ltd. [2] ; Louinder v. Leis [3] ; Stern v. McArthur [4] . Given the difficulty inherent in the idea that a notice to complete can add to or alter the effect of a contractual stipulation, there is much to be said for the view that failure to comply with a notice to complete (whether that failure is on the part of the giver or the recipient) is properly to be seen as evidence of unwillingness or inability to perform the contract and hence as amounting to repudiatory conduct: see Louinder v. Leis [5] , per Mason J.; per Brennan J. [6] . See also Stern v. McArthur [7] , per Brennan J. If that be so, requirements as to form and time for an effective notice to complete are no more than those which are necessary in the particular circumstances of the case to constitute non-compliance with the notice evidence of unwillingness or inability to perform the contract, a view which seems to be implicit in Balog. Because I have formed the view that the lessor's delay coupled with failure to make adequate response to the letter of 21 August constitute repudiation entitling the lessee to terminate the obligations under the agreement, it is unnecessary to decide whether that letter constitutes an effective notice to complete. However, I should say that, in my view, neither the failure to effect registration of the lease nor the failure to tender a registrable lease within the time limited by that letter could be characterized as repudiatory conduct. Put in other words, the time limited by the letter was not sufficient to constitute failure to register the lease or failure to tender a registrable lease within that time evidence of unwillingness or inability to perform the contract.

[129]

The present matter has at all stages been conducted on the basis that the agreement between the lessor and the lessee did not make time essential for the delivery of a registrable lease. That assumption is open to question. In Perri v. Coolangatta Investments Pty. Ltd. [8] Mason J. pointed out that "[t]here is a natural reluctance on the part of courts to classify a provision which looks to the happening of an event within a reasonable time as one which makes time of the essence, more particularly when that time is implied and is not expressed". As his Honour then pointed out "it is undesirable that the rights of the parties should rest definitively and conclusively on the expiration of a reasonable time, a time notoriously difficult to predict". The force of these observations is obvious, but the observations do not deny the possibility of a provision being so construed, including by resort to necessary implication. In the context of the construction I would adopt of cl. 15.7 of the deed one particular factor suggests that such an implication might properly be made in the present case. The lessee's obligations contained in the deed were the subject of a guarantee embodied in that deed. Clause 15.7 of the deed imported the obligations of the lessee set out in the annexed form of lease, and those obligations are thus the subject of the guarantee contained in the deed, although, it seems, they would on execution and completion of the lease, become the subject of the separate guarantee in the deed of guarantee bearing date 8 October 1985. While the lease remained unregistered - as it must if there were delay or default in execution or if it remained uncompleted - the guarantors' rights of subrogation were limited to those rights of the lessee flowing from the deed. In the event of registration those rights would extend to the lessee's rights flowing from the registered lease. This consideration and the special nature of the relationship between creditor and surety (as to which see Ankar Pty. Ltd. v. National Westminster Finance (Australia) Ltd. [9] ) are persuasive indications of the essentiality of the delivery of a registrable lease within a reasonable time of the commencement date specified in cl. 6.1 of the deed. The fact that these matters were not advanced in support of the essentiality of delivery of a registrable lease within a reasonable time does not deprive them of all significance: they provide part of the context in which the lessor's conduct falls for characterization as repudiatory or otherwise.

At a glance

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Decision date

Before

Source

Judgment (135 paragraphs)

Parties