defendant. The plaintiffs’ Statement of Claim was to be dismissed; the Court was to declare the contract terminated, order possession and payment of rent and mesne profits (subject to credit for payments),...
Key principles
A vendor may validly serve a notice to complete after the contractual completion date only if, among other things, the vendor is ready, willing and able to perform and has not...
Although the defendant's notice to complete was valid, by the completion deadline both parties insisted on conditions or payments not required by the sale contract. Both...
Special Condition 41.1 required an occupation certificate only in respect of alterations or additions carried out immediately before or after entry into the Option Deed. It did...
A purchaser's roof claim could fall within the claims procedure in cl 7 even though it arose under the Option Deed, because it had a logical connection with the sale contract....
Issues before the court
Was the Notice to Complete validly issued on 22 January 2020?
Did either party repudiate the sale contract, and could the defendant terminate?
Plain English Summary
The plaintiffs had occupied the property for years under an option deed and later exercised their option to buy it. Completion failed because the parties disagreed about extra settlement payments and whether Kumar had to provide an occupation certificate. The Court found the notice requiring completion by 6 February was valid, but neither side was prepared to complete strictly on the sale contract's terms. Both sides repudiated. Kumar could end the contract by accepting the plaintiffs' repudiation, but because she too was not ready to perform, she could not keep the deposit or claim damages. The separate tenancy continued under the Residential Tenancies Act until 3 June 2020, after which occupation attracted mesne profits. The judgment also rejected Kumar's alternative termination and rescission grounds.
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Did cl 12.7 of the Option Deed independently permit termination?
Was rescission available under cl 7.1 for the roof claim?
Jason and Mia Lavigne occupied Somna Kumar's Bellevue Hill property from January 2015 under a Deed of Put and Call Option made on 19 December 2014. The deed gave them a call option to purchase the property and a right to occupy it during a defined Occupation Period. It also set rent at $52,000 per annum and provided for Deferred Rent of $227,000 per annum, calculated for the period of occupation and payable in accordance with cl 12.6.
The plaintiffs exercised the call option on 9 December 2019. That created a contract for sale at a price of $12 million, with completion due 20 January 2020. The deed and sale contract sat alongside a consultancy arrangement between related companies. Disputes had accumulated over rent, consultancy payments, the use of the $600,000 Security Amount, and expenses said to have been incurred on repairs, particularly to the slate roof. The judgment describes many communications about attempts to “square up” those accounts, but does not decide every disagreement between the parties.
A major disputed roof claim emerged during preparations for settlement. The plaintiffs initially proposed a $195,000 allowance, then sought $275,000, later reduced to $251,800. The vendor disputed that the plaintiffs could deduct those amounts. The parties also disagreed about which payments were due at settlement under the sale contract and which arose under the Option Deed or Consultancy Deed.
Completion did not happen on 20 January. Kumar served a Notice to Complete on 22 January, requiring completion by 5 pm on 6 February. The plaintiffs maintained that an occupation certificate was required under Special Condition 41.1. Kumar denied that the condition required the certificate in the circumstances. Settlement did not occur on 6 February. Kumar then served a notice on 11 February purporting to terminate and, alternatively, rescind the sale contract.
The judgment’s result was not a simple victory for either side. Darke J found the notice to complete valid, but also found that both parties repudiated their completion obligations. Kumar could accept the plaintiffs’ repudiation and bring the contract to an end. However, because Kumar was also not ready, willing and able to perform on the relevant terms, she could not recover the $600,000 deposit or damages. The Court rejected her alternative reliance on cl 12.7 and cl 7.1. It ordered relief concerning possession, rent, mesne profits and caveats. The plaintiffs’ claim for specific performance was dismissed.
Why the court decided this way
The first question was whether Kumar had been entitled to serve the Notice to Complete. The Court applied the principle that a party seeking to make time essential must be ready, willing and able to perform and must not be in relevant default. The notice itself had to be considered together with the prior dealings and settlement statements.
Kumar's statements included amounts outside the sale contract. The plaintiffs were not obliged by that contract to pay all those amounts as part of the sale price. But Darke J did not treat the January settlement sheets, by themselves, as an unequivocal statement that Kumar would refuse to transfer the property unless the extra amounts were paid. The parties had contemplated dealing with payments under related agreements as part of a broader settlement process. The plaintiffs too had proposed adjustments across the different arrangements. The Notice to Complete did not state that Kumar would convey only if the disputed amounts were paid. The Court therefore held the notice valid.
That finding did not determine whether either side was ready to complete on 6 February. The Court separately examined what each side was insisting upon by then. It found the plaintiffs firmly maintained that completion depended on provision of an occupation certificate. On the Court’s construction, Special Condition 41.1 did not require one for the work identified by the plaintiffs. Their insistence on the certificate was therefore an insistence on a condition not required by the sale contract.
Kumar, meanwhile, indicated through the PEXA settlement process that $13,296,462.40 was required. That figure included the $12 million purchase price and other amounts, including items the Court found were not payable by the plaintiffs on completion of the sale contract. Some items were said to be owed under separate arrangements, and a consultancy debt would have been owed between companies rather than by the plaintiffs personally. Darke J considered that Kumar was insisting on amounts not payable by the plaintiffs on completion, whether under the sale contract or otherwise.
The Court concluded that both parties were prepared to complete only on their preferred terms, not on the terms the sale contract required. It found both had repudiated their completion obligations. Kumar could nonetheless accept the plaintiffs’ repudiation to end the contract. In addressing that point, the Court relied on the distinction discussed in Sharjade Pty Ltd v Commonwealth between termination that discharges future performance and obtaining further relief. A party not ready and willing may be able to accept a repudiation and end future obligations, but cannot thereby establish an entitlement to damages or other relief requiring proof of readiness and willingness. Kumar accepted that if this approach applied, she could not recover the deposit or damages. Darke J agreed.
The Court construed Special Condition 41.1 by its words and context. It concerned an occupation certificate “with regard to” alterations or additions carried out “immediately prior to and after” entry into the Option Deed. Darke J rejected the plaintiffs’ proposed reading that would have required a certificate for earlier works under existing development consent as well. The plaintiffs’ identified works, bricking up a doorway and constructing a pergola, were not works they were permitted to undertake under the Option Deed’s process for Grantee’s Works. The Court held that Kumar was not obliged to provide a certificate for those works.
Before and after state of the law
The judgment applies existing authorities rather than announcing a wholesale change in doctrine. Before this decision, the cited NSW cases already stated that a vendor serving a notice to complete must be an innocent party, not relevantly in default, and ready, willing and able to perform. Darke J applied that framework from McNally v Waitzer, Carrapetta v Rado and Barrak Corporation Pty Ltd v Jaswil Properties Pty Ltd.
The decision illustrates that a demand for additional settlement amounts does not automatically invalidate a notice to complete. Its effect depends on context, including whether the vendor communicated an unequivocal refusal to perform the actual contract unless additional sums were paid. Darke J distinguished the facts from situations where a vendor's communicated position showed adherence to a different contract or a different price. The judgment also stresses that the notice's terms matter: this notice did not itself state that payment of the disputed extra amounts was a condition of conveyance.
The termination analysis draws on Foran v Wight and Sharjade Pty Ltd v Commonwealth. Darke J treated the question of ending future contractual obligations as distinct from claims for damages or other relief. The judgment applies that distinction to the unusual situation where both parties repudiated. The party accepting the other’s repudiation need not necessarily be ready and willing merely to terminate; a claimant seeking further relief must meet the relevant readiness and willingness requirement.
On cl 7 claims, the decision applies Nassif v Caminer. It confirms that a claim can have the necessary logical connection with a sale contract even if it arises under a separate agreement. It also distinguishes the question whether a claim is capable of falling within cl 7 from the separate question whether, objectively, the purchaser invoked that procedure. The Court further explained that a waiver under cl 7.1.3 is limited to the contractual claims procedure and does not necessarily extinguish the claim at large.
On tenancy, the Court applied Hudson v Arap 1 Pty Ltd in construing s 8(1)(f) of the Residential Tenancies Act 2010 (NSW). The exclusion applies where the right to occupy is conferred by the sale contract itself. Here, the right came from the earlier Option Deed, and the sale contract came into existence nearly five years later.
The judgment cannot establish the state of the law after 21 August 2020. It does not provide later appellate treatment or subsequent decisions. Its discussion is grounded in authorities available to Darke J at the time and the conclusions reached in this case.
Key passages with plain-English translation
The Court stated that the Notice to Complete was “validly issued” and effective to make time essential for completion by 6 February. In plain English, Kumar was entitled to set a final completion date by serving the notice, despite the parties’ unresolved disputes at that point. That finding did not mean Kumar could insist on any amount she chose at settlement or that the plaintiffs had no answer to the later termination.
The central finding was that both sides’ conduct showed an intention to complete only on a basis different from what the sale contract required. In practical terms, the plaintiffs would not complete without the occupation certificate, while Kumar sought settlement funds that included amounts the Court found were not payable by the plaintiffs on completion. Each party’s position obstructed completion on the contract’s terms.
The Court said Kumar could terminate by accepting the plaintiffs’ repudiation, but was “not entitled to recover the deposit under the contract or sue for damages for its breach.” The distinction is important: termination ended the parties’ future obligations under the sale contract, but did not give Kumar a right to keep the deposit or obtain damages when she was not herself ready, willing and able to perform.
On the roof claim, the Court said waiver under cl 7.1.3 was not necessarily a waiver “at large.” In plain English, the plaintiffs could waive the right to have the claim dealt with under the contract’s special claims process without necessarily abandoning the underlying claim under the Option Deed. The Court nevertheless found that Kumar had no right to rescind under cl 7.1, both because the plaintiffs had not objectively invoked that process and because they had waived the claim for its purposes.
On the occupation right, the Court focused on the source of the right, not simply the fact that the parties later had a sale contract. The Option Deed gave the plaintiffs their right to occupy. The sale contract came later. For that reason, the sale-agreement exclusion in s 8(1)(f) did not displace the Residential Tenancies Act.
Finally, Darke J described the roof agreement as an agreement for an amount to be paid or credited on settlement. Once the sale contract was terminated, that settlement-based arrangement “falls away.” The Court also found that later conduct showed the parties no longer intended to perform that agreement: the plaintiffs pursued a larger claim, while the defendant denied being bound.
What fact patterns trigger this precedent
The notice-to-complete reasoning is relevant where a sale contract is linked to option deeds, consultancy arrangements or other agreements, and the parties seek to include related payments in settlement calculations. The judgment shows why the details matter: a settlement sheet may be part of negotiation rather than a final, unequivocal refusal to perform the sale contract. The language of the notice and the parties’ communications before service are particularly significant.
The repudiation analysis is relevant where completion fails because each side insists on a condition or payment that the court later finds is not required by the contract. This judgment shows that the party serving a valid notice to complete may still lack readiness and willingness by the deadline. It also shows that both parties can repudiate, and that termination may have a different consequence from entitlement to damages or the deposit.
The construction of Special Condition 41.1 is relevant to clauses requiring certificates for work undertaken within a defined period. The Court paid attention to the temporal words, the identified subject matter of the certificate, the surrounding deed provisions and whether the purchaser’s works had been authorised under those provisions. The result was specific to the wording and facts before it.
The cl 7 analysis is relevant where a purchaser asserts a claim connected to the property or sale but says it arises under a separate agreement. The judgment separates three questions: whether the claim is logically connected to the sale contract; whether the purchaser objectively invoked the cl 7 process; and whether any waiver applies only to that process or more broadly.
The tenancy reasoning is relevant where the parties’ right to occupy predates the sale contract and is created by a separate option or occupation deed. The source and timing of the occupancy right affected whether s 8(1)(f) applied. The judgment also involved a periodic tenancy and a notice specifying a termination date 90 days after it was given.
How later courts have treated it
The supplied judgment contains no later judicial history for Lavigne v Kumar. It does not identify subsequent cases that followed, distinguished, applied or criticised its holdings. It would therefore be unsupported to state how later courts have treated this decision.
The judgment itself explains its reliance on earlier authorities. Carrapetta v Rado supplied the framework for assessing a party’s readiness, willingness and ability to serve a notice to complete. The Court considered Carne v Debono and Oakglade Investments Ltd v Dhand when assessing whether settlement statements showed an unequivocal position. It distinguished the circumstances before it from Oakglade, where the vendor’s communicated position was found to adhere to different contracts and prices.
For repudiation, Darke J considered Foran v Wight and applied the distinction expressed in Sharjade Pty Ltd v Commonwealth between ending future obligations and obtaining further relief. For cl 7, the Court applied Nassif v Caminer. For the Residential Tenancies Act exclusion, it applied Hudson v Arap 1 Pty Ltd. These are the precedent relationships the judgment establishes; it does not establish what subsequent courts did with Lavigne itself.
Still-open questions
The judgment left several matters unresolved or unnecessary to decide. It did not determine the parties’ competing claims about every amount said to arise under the Option Deed or Consultancy Deed. The Court explained that the result on termination did not depend on deciding those disputes in full.
The Court found that the roof claim could have had a logical connection with the sale contract, but did not finally determine the merits or value of the underlying claim outside the cl 7 process. It also did not decide the plaintiffs’ suggested conventional estoppel concerning roof replacement, because no such estoppel was pleaded. The alleged agreement for a $195,000 settlement allowance was found to have been abandoned or abrogated through subsequent conduct and, in any event, to fall away when the sale contract was terminated.
The Court did not decide whether Kumar’s continued reliance on the Notice to Complete after 27 January would independently have barred rescission under cl 7.1. That issue was unnecessary after the Court found the cl 7 procedure had not been invoked and, alternatively, that the claim had been waived for cl 7 purposes.
The judgment determined that the plaintiffs’ periodic tenancy ended on 3 June 2020 and set mesne profits at $5,875 per week from 4 June until possession. It did not record the eventual date possession was delivered or the final arithmetic of all rent, mesne profits and credits. It directed the parties to bring in short minutes of order and attempt to agree costs.
The judgment also does not address how later courts treated its conclusions. Any assessment of subsequent authority would require sources beyond the judgment supplied here. This is general legal information, not legal advice. Zoe can make mistakes. Before acting on this, relying on it, or using any draft, have a qualified Australian lawyer check it.
Catchwords
[2016] NSWCA 32
Carne v Debono [1988] 1 WLR 1107
Carrapetta v Rado (2012) 16 BPR 30,997
Judgment (13 paragraphs)
[1]
ally v Waitzer [1981] 1 NSWLR 294
Michael Realty Pty Ltd v Carr [1977] 1 NSWLR 553
Nassif v Caminer (2009) 74 NSWLR 276; [2009] NSWCA 45
Neeta (Epping) Pty Ltd v Phillips (1974) 131 CLR 286
Oakglade Investments Ltd v Dhand [2012] EWCA Civ 286
Sharjade Pty Ltd v Commonwealth (2009) 15 BPR 28,443; [2009] NSWCA 373
Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359
Category: Principal judgment
Parties: Jason Lavigne (First Plaintiff/First Cross-Defendant)
Mia Lavigne (Second Plaintiff/Second Cross-Defendant)
Somna Kumar (Defendant/Cross-Claimant)
Representation: Counsel:
Mr G A Sirtes SC with Mr B Le Plastrier (Plaintiffs/Cross-Defendants)
Mr S Lawrance with Ms C Ernst (Defendant/Cross-Claimant)
The plaintiffs in these proceedings are Jason Lavigne and Mia Lavigne. The defendant is Somna Kumar. The proceedings are concerned with a property in Victoria Road, Bellevue Hill.
The parties entered into a Deed of Put and Call Option on 19 December 2014 ("the Option Deed"). Pursuant to the Option Deed the defendant, as Grantor, gave the plaintiffs, as Grantee, a call option to purchase the property. The call option was open to be exercised during a period which ended on 19 December 2019. The Option Deed further provided, inter alia, that the plaintiffs could go into occupation of the property during a defined Occupation Period upon various terms and conditions. The plaintiffs and their children moved into the property on 13 January 2015, and they have remained in occupation ever since.
The plaintiffs exercised the call option on 9 December 2019, so a contract for the sale of the property, between the defendant as vendor and the plaintiffs as purchaser, thereupon came into effect. The price was $12 million. Under the terms of the contract, completion was due on 20 January 2020. However, completion did not then occur, and on 22 January 2020 the defendant served a Notice to Complete that called for completion to occur by 5:00pm on 6 February 2020. Arrangements were made by the parties for a settlement to occur on that day using the PEXA platform, but completion did not take place. The parties were in dispute about various matters, including as to whether the defendant was obliged to provide an Occupation Certificate, as to what amounts were due and owing pursuant to the Option Deed or other agreements involving the parties, and as to what adjustments were required to be made on settlement.
On 11 February 2020 the defendant served a Notice of Termination and Rescission whereby she purported to terminate the contract for sale on various grounds (including pursuant to a provision of the Option Deed), and in the alternative purported to rescind pursuant to cl 7.1 of the contract.
The plaintiffs dispute the validity of the termination and rescission. By their Amended Statement of Claim they claim that the contract remains on foot, and seek orders in the nature of specific performance. The plaintiffs also make a claim for damages for breach of cl 12.4(e) of the Option Deed, and alternatively another agreement said to have been made in September 2019, due to the failure of the defendant to pay for the repair or the replacement of the roof of the property or pay an amount to the plaintiffs for that purpose.
The defendant maintains that she validly terminated the contract for sale. By her Cross-Claim she seeks a declaration to that effect, as well as an order for recovery of the $600,000 deposit payable under the contract. In the alternative, the defendant seeks a declaration that she validly rescinded the contract for sale. The defendant also seeks to recover an amount of Rent pursuant to the Option Deed, possession of the property, damages (in the nature of mesne profits), and orders for the withdrawal of two caveats the plaintiffs have lodged against the title to the property.
[4]
The Option Deed
By cl 2 of the Option Deed, the defendant as Grantor granted to the plaintiffs as Grantee an option to buy the property on the terms of a contract the form of which was annexed to the deed. That form of contract employed the 2005 edition of the Real Estate Institute/Law Society standard form, as amended and supplemented by a number of Special Conditions. It is only necessary at this point to note that the front page of the contract refers to a completion date being 42 days from the contract date; a price of $12 million; and a deposit of $600,000.
Clause 3.2 of the Option Deed provides for the plaintiffs to pay a Security Amount of $600,000 to the defendant on execution of the Option Deed. The Security Amount was to become part of the deposit under the contract if either the put option or the call option was exercised (see cl 3.4(b)). The Security Amount was intended to be invested in accordance with cl 3.5, which relevantly provides:
3.5 Investment of Security Amount
(a) The Grantor and Grantee must use best endeavours to agree on the Bank to invest the Security Amount and any other monies payable under this agreement together with the terms and conditions such as term, interest rate and fees.
(b) The Grantor and the Grantee must direct the Grantee's Solicitor to invest the Security Amount (at the risk of the party who becomes entitled to it) in an interest bearing account with a bank in NSW, payable at call, with interest to be reinvested.
(c) On Completion, interest will be paid to the Grantor and Grantee equally, after deduction of all proper government taxes or financial institution charges or other charges.
(d) If this agreement is rescinded or terminated, interest after deduction of all proper government taxes or financial institution charges or other charges will be paid to the party not in breach of this agreement.
…
Clause 5.1 relevantly provides:
5.1 Existing Development Consent
(a) The Grantor and Grantee acknowledge and agree that the Grantor has obtained the Existing Development Consent for the Existing Works.
(b) The Grantee must on reasonable notice and at reasonable times grant to the Grantor and the Grantor's Employees and Agents access to the Property to undertake and complete the Existing Works.
(c) If the Grantor determines to undertake the Existing Works, then otherwise directed by the Grantee, the Grantor must carry and complete the Existing Works:
(i) in a proper and workmanlike manner;
(ii) only in accordance with the Existing Development Consent, all approvals and laws; and
(iii) at the Grantor's Cost.
Existing Development Consent is defined in cl 1.1 to mean certain development approvals (and an approved modification) that were obtained in 2008.
[5]
The contract for sale
As already noted, the contract for sale, which came into existence on 9 December 2019, is based upon the 2005 edition of the Real Estate Institute/Law Society standard form. It is not necessary to refer to those standard clauses here, except to note that cl 7.1.1 was amended by Special Condition 30.1 so as to refer to claims that exceed 1% of the price rather than 5% of the price. Clause 7 of the contract is set out later in these reasons in connection with the defendant's alternative claim that she rescinded the contract pursuant to cl 7.1.
The following Special Conditions should be noted:
31.1 The property together with appurtenances thereto is sold in its present state of repair and the purchaser acknowledges that he buys the property relying on his own inspection, knowledge and enquiries and that he does not rely on any warranties or representations made to him by or on behalf of the vendor. The purchaser shall not call upon the vendor to carry out any repairs whatsoever in relation to the property sold.
…
35.1 If this contract is not completed by the time stipulated in the contract then at any time thereafter either party shall be entitled to give the other party a Notice to Complete requiring completion of this contract within a period of not less than fourteen (14) days after the service of such Notice (being fourteen (14) days exclusive of the day of service but including of the last day prescribed by the Notice to Complete) and making time of the essence of this Contract and such period of fourteen (14) days for all purposes shall be deemed a reasonable time. The party serving a Notice to Complete shall be entitled to withdraw any Notice to Complete issued pursuant to this clause and subsequently issue a further Notice in lieu thereof. If the vendor issues a Notice to Complete in accordance with his rights under this contract, the purchaser must pay to the vendor on completion an additional sum of $275.00.
…
36.1 Without prejudice to the vendor's rights under this contract, should the purchaser not complete on the date for completion specified herein by reason of the purchaser's default, then in addition to the balance of purchase moneys and all other moneys payable by the purchaser to the vendor hereunder, the purchaser shall also pay to the vendor as liquidated damages upon completion, interest on the balance of purchase price at the rate of ten percent (10%) per annum, calculated on daily rates from the completion date (or, if the vendor is not ready to complete on that date, from such later date on which the vendor is ready willing and able to complete) and up to the date of completion actually takes place, such interest to be paid by the purchaser to the vendor on completion. Such interest shall form part of the balance of purchase moneys and be paid on completion as an essential term of this contract.
…
37.1 It is an essential term of this contract that, if completion does not take place by 4:00pm on the completion date then despite any other provision of this contract, the date on which the calculation of adjustments for rates, taxes and outgoings (but not rents or other income) between the parties is to be based is the earlier of the completion date or the date on which completion actually takes place.
…
41.1 Prior to completion the vendor shall provide to the purchaser an interim or final occupation certificate pursuant to section 109C of the Environmental Planning and Assessment Act 1979 with regard to the alterations and additions recently carried out to the property immediately prior to and after the entering into of the option between the vendor and the purchaser dated [ ].
[6]
Summary of relevant events prior to exercise of the call option
The property had been unoccupied for some months prior to the entry into the Option Deed. The defendant and Mr Jayaraj had moved to London.
The plaintiffs paid the $600,000 Security Amount to their solicitors, HWL Ebsworth, at around the time of entry into the Option Deed.
It appears that from about the time the plaintiffs moved into the property in January 2015, various repair works were undertaken, including to the slate roof. It is apparent that most of these works were paid for by the plaintiffs, at a not insignificant cost. Further repairs to the roof were undertaken in May 2015 following a severe hail storm which dislodged numerous slates. I note that despite those repairs, it appears that problems with roof leaks continued thereafter following episodes of rain.
In May 2015 Mr Lavigne prepared (and sent to Mr Jayaraj) a spreadsheet which included Mr Lavigne's allocation of costs as between the plaintiffs (referred to in his 11 May 2015 email as "us") and Mr Jayaraj and Ms Kumar (referred to in the email as "you guys"). Mr Lavigne invited a discussion about the situation.
At around this time Mr Jayaraj, with assistance from Mr Lavigne, was pursuing an insurance claim in respect of damage to the roof.
On 21 December 2015 Mr Lavigne sent another spreadsheet to Mr Jayaraj. Mr Lavigne stated in his covering email that he was "currently out of pocket" more than $33,000.
In March 2016, Mr Lavigne paid for some further urgent roof repairs that seemed to have been required following some storm damage that occurred in January 2016.
In June 2016, Mr Lavigne took steps to withhold the monthly payment of Rent under the Option Deed and the monthly payment for services under the Consultancy Deed "as an effective repayment" towards the amount said to be owing. It appears that he withheld another monthly payment under the Consultancy Deed in August 2016.
Emails passing between Mr Lavigne and Mr Jayaraj on 30 May 2016 reveal that there was some arrangement between them to the effect that Mr Lavigne would "fund the ongoing repairs" until June 2016. These emails also show that Mr Jayaraj accepted that Mr Lavigne would withhold payments in June 2016.
It further appears that at about that time some arrangement was made between Mr Lavigne and Mr Jayaraj to the effect that the interest that had been earned upon the $600,000 Security Amount would be released "to cover some of the maintenance costs".
[7]
Summary of relevant events following exercise of the call option
The respective solicitors, Mr Garrett and Mr Murray, evidently had a telephone conversation about numerous issues on 9 December 2019. They exchanged emails about those issues on 10 December 2019 (Mr Murray) and 18 December 2019 (Mr Garrett). It is clear that what was described as the "$195,000 roofing allowance" remained contentious. On 18 December 2019 Mr Garrett stated, in relation to that issue:
During the course of this year the parties investigated the cost of the replacement of the roof. Your client could not find a suitable contractor or supplier to replace the roof for a better price than that identified by our clients and our clients previously agreed to accept a reduced price of $195,000 as a compromise down from $275,000 - your client accepted that lower amount and submitted a settlement adjustment calculation including this amount.
Our client has withdrawn this concession and now requires a full allowance for this amount for roofing, plus there are roof, sewer and other repairs that our client had agreed to absorb as part of that concession that will now require to be adjusted against the vendor at settlement. A detailed summary is being prepared.
Another contentious issue was the extent to which the plaintiffs were required to make payments under the Consultancy Deed and payments under the Option Deed for rent. Mr Murray stated on 10 December 2019 that these amounts were outstanding and should be paid immediately. On 18 December 2019 Mr Garrett responded on that issue in the following terms:
After alerting your client to the intention to exercise the option our clients held off exercising the option to allow your client time to deal with your Foreign Resident Withholding Tax issues.
In doing this the parties reached several agreements including a 30 November settlement date (if possible) and all payments were to terminate on that date.
The parties also specifically agreed that if the settlement were delayed by reason of your client's needs that our clients would only be required to pay the same as our funding costs in lieu of the rental and Service Agreement fees. This is also reflected in the vendor's own detailed settlement sheet. In reliance on these specific arrangements our clients held back their intended exercise of the option.
On 23 December 2019 Mr Murray informed Mr Garrett that he had spoken with his client at length, and would meet with the client early in the New Year to review all the issues, before contacting Mr Garrett again. On 9 January 2020, in advance of a meeting scheduled to occur on the following day with his client, Mr Murray requested Mr Garrett to advise, in the event of completion occurring on 20 January 2020:
1. What amount your clients claim should be set off against the purchase price to cover the roof repair claims your clients make, and
2. If that amount is not agreed, what amount your clients would seek to be set aside from the purchase price as a fund to cover a later dispute resolution process to determine the outstanding claim?
[8]
Was the contract for sale terminated by the defendant on 11 February 2020?
In approaching the question whether the defendant's purported termination of the contract for sale was valid and effective, it is necessary to first consider whether the Notice to Complete served on 22 January 2020 was effective to make time of the essence in respect of the obligation to complete.
Clause 15 of the contract provides that the parties must complete by the completion date, and if they do not, "a party can serve a notice to complete if that party is otherwise entitled to do so". The completion date was 20 January 2020, being the date 42 days from the contract date of 9 December 2019. As completion did not occur by 20 January 2020 the defendant could serve a Notice to Complete if she was "otherwise entitled to do so".
A party to a contract for sale is generally entitled to serve a Notice to Complete after the contractual date for completion has passed provided the party is an innocent party not relevantly in default, and ready, willing and able to perform its obligations as and when they are required to be performed up to and including completion (see McNally v Waitzer [1981] 1 NSWLR 294 at 296-7 and 303-304; Carrapetta v Rado (2012) 16 BPR 30,997; [2012] NSWCA 202 at [20]-[27]; Barrak Corporation Pty Ltd v Jaswil Properties Pty Ltd (2016) 18 BPR 35,759; [2016] NSWCA 32 at [33]-[35]). In Carrapetta v Rado (supra) Barrett JA (with whom Beazley P and Hoeben JA agreed) stated at [27]:
Case law thus makes it plain that the party seeking to make time of the essence must be an "innocent" party who is not "in default" or "in breach" and is "ready, willing and able" to proceed to completion in accordance with the contract. The underlying concept is that a party who gives a notice to complete and thereby calls on the other party to adhere to the contract must be in a state of both present and prospective adherence to the contract. When it is the vendor who serves the notice, he or she must be seen to be willing and able to perform, on the day the notice fixes for completion, the obligations that the vendor is required to perform on completion - predominantly, in a "cash on completion" case such as the present, the obligation of delivering a clear title in return for the money that the contract requires the purchaser to pay in cash on completion - and to have adopted up to the time of service of the notice a stance consistent with that future performance. If the vendor is in breach of contract when the notice is given, he or she is not in such a state of willingness and ability. Likewise, if the vendor has taken and made known an uncompromising stance that he or she will not deliver title on completion except in return for payment of a sum greater than that required by the contract, that vendor will be "in default" (or "in breach") and not be "innocent" or relevantly "ready, willing and able" because the unequivocal stance inconsistent with the contract bespeaks lack of adherence in the nature of anticipatory breach.
[9]
Was the contract for sale rescinded by the defendant on 11 February 2020?
Similarly, it is not strictly necessary to deal with the defendant's alternative argument that she rescinded the contract pursuant to cl 7.1. Again, the defendant accepted that if the contract was so rescinded she would not be entitled to recover the deposit. However, I will briefly express my views on this issue also.
Clause 7 of the printed terms of the contract for sale provides:
7 Claims by purchaser
The purchaser can make a claim (including a claim under clause 6) before completion only by serving it with a statement of the amount claimed, and if the purchaser makes one or more claims before completion -
7.1 the vendor can rescind if in the case of claims that are not claims for delay -
7.1.1 the total amount claimed exceeds 5% of the price;
7.1.2 the vendor serves notice of intention to rescind; and
7.1.3 the purchaser does not serve notice waiving the claims within 14 days after that service; and
7.2 if the vendor does not rescind, the parties must complete and if this contract is completed -
7.2.1 the lesser of the total amount claimed and 10% of the price must be paid out of the price to and held by the depositholder until the claims are finalised or lapse;
7.2.2 the amount held is to be invested in accordance with clause 2.9;
7.2.3 the claims must be finalised by an arbitrator appointed by the parties or, if an appointment is not made within 1 month of completion, by an arbitrator appointed by the President of the Law Society at the request of a party (in the latter case the parties are bound by the terms of the Conveyancing Arbitration Rules approved by the Law Society as at the date of the appointment);
7.2.4 the purchaser is not entitled, in respect of the claims, to more than the total amount claimed and the costs of the purchaser;
7.2.5 net interest on the amount held must be paid to the parties in the same proportion as the amount held; and
7.2.6 if the parties do not appoint an arbitrator and neither party requests the President to appoint an arbitrator within 3 months after completion, the claims lapse.
By Special Condition 30.1 the figure of 5% in cl 7.1.1 was amended to read 1%.
The defendant referred to the decision of the Court of Appeal in Nassif v Caminer (2009) 74 NSWLR 276; [2009] NSWCA 45 in which a clause in the same terms was considered. It was submitted, based on that decision, that:
1. a claim does not need to be a claim arising out of the contract in order to be a "claim" within the meaning of cl 7; it is sufficient that the claim has some logical connection with the contract (see at [43] and [74]);
2. a claim will not be a "claim" within the meaning of cl 7 if the claim is one that the contract precludes the purchaser from making (see at [39] and [74]); and
3. once the cl 7 process is initiated by the purchaser, the clause is prescriptive as to the process to be followed, and imposes rights and obligations upon both vendor and purchaser (see at [76]-[77]).
[10]
Consequences of the termination of the contract
I have found that the defendant validly terminated the contract for sale on 11 February 2020 so as to discharge the parties from further performance, but she is not entitled to recover the deposit under the contract or sue for damages for its breach.
However, the defendant claims that she is entitled to recover amounts of Rent due to her under the Option Deed, and she seeks damages (in the nature of mesne profits) in respect of the plaintiffs' failure to vacate the property.
Under the Option Deed, Rent of $52,000 p.a. was payable by the plaintiffs, by equal monthly instalments in advance, throughout the Occupation Period (see cl 12.2 and the cl 1.1 definition of Rent). The Occupation Period is defined in cl 1.1 such that it ends on the earlier of the date:
1. the Contract completes;
2. twenty-one (21) days after this Agreement is terminated or rescinded; and
3. twenty-one (21) days after the Contract is terminated or rescinded.
In the events that have happened, the Occupation Period came to an end on 4 March 2020 (i.e. twenty-one days after the contract was terminated).
There seems to be no dispute that the plaintiffs have not paid the Rent under the Option Deed from 1 December 2019.
The plaintiffs contend that the tenancy conferred by the Option Deed is a residential tenancy agreement within the meaning of s 13 of the Residential Tenancies Act 2010 (NSW). On that basis the plaintiffs submit that they were entitled to remain in occupation until the tenancy was terminated in accordance with the provisions of that Act. The defendant submitted that the plaintiffs' tenancy is not a residential tenancy agreement because s 8(1)(f) of the Residential Tenancies Act operates to exclude it. Section 8(1)(f) provides that the Act does not apply to an agreement for the sale of land that confers a right to occupy residential premises on a party to the agreement.
I do not think that the defendant's submission is correct. It was held in Hudson v Arap 1 Pty Ltd [2015] NSWCA 126 that the exemption in s 8(1)(f) only applies if the relevant right to occupy is conferred by the contract for sale of land itself (see at [26]-[28] and [34] per Bathurst CJ, with whom Bergin CJ in Eq agreed). The plaintiffs' right to occupy was conferred by the Option Deed entered into on 19 December 2014, not the contract for sale that came into existence almost five years later when the call option was exercised.
[11]
Other matters
The plaintiffs pleaded an estoppel against the defendant based on what Mr Lavigne claims was said and agreed by Mr Jayaraj in their conversation on 4 November 2019. I accept Mr Lavigne's evidence about this conversation.
It is alleged that the plaintiffs, in reliance upon what was said by Mr Jayaraj, did not proceed to exercise the call option at about that time. The option was not in fact exercised until 9 December 2019, after it became apparent to Mr Lavigne that the defendant was resiling from what was agreed on 4 November 2019. The plaintiffs allege that they will suffer detriment if the defendant is permitted to resile, because they will be faced with increased claims for Deferred Rent and Occupancy Payments. However, in circumstances where the contract for sale has been validly terminated, the plaintiffs will not face any claim for Deferred Rent. Deferred Rent would only be claimed by the defendant in conjunction with completion of the contract. As for Occupancy Payments, the only claim made by the defendant is for Rent under the Option Deed. No claim is made by the defendant for the other component of Occupancy Payments, being fees under the Consultancy Deed. No such claim could be made by the defendant against the plaintiffs as none of them are parties to that deed.
It is difficult to see how the plaintiffs will suffer any real detriment in relation to the claim for Rent. Even if it is accepted that the delay of approximately 5 weeks in exercising the option caused the completion date under the contract to be delayed for an equivalent period, such that Rent became payable for an additional period of about 5 weeks, the extra payment is only about $5,000. In any event, this is not a case of a delayed completion. Completion did not occur, the contract has been terminated, and the plaintiffs have remained in occupation. Moreover, the Rent that is payable by the plaintiffs for the period from 1 December 2019 to 3 June 2020, at the rate of $1,000 per week, is substantially lower than current market rent. In my opinion, no estoppel is made out that would prevent the defendant from claiming Rent under the Option Deed. I should add that the alleged estoppel faced the further difficulty that no evidence was adduced from Mia Lavigne as to reliance.
The plaintiffs also made a claim for damages for alleged breaches of cl 12.4(e) of the Option Deed. It was accepted, however, that the plaintiffs would never incur the costs the subject of the claim if the defendant validly terminated the contract for sale. The costs the subject of the claim are primarily the costs of replacing the roof on the property. Even if the defendant was in breach of cl 12.4(e) by failing to arrange and pay for works to the roof (or any other works), the plaintiffs have not and will not suffer a loss measured by what those works would cost. The same is true in respect of any breach by the defendant of cl 5.2 by failing to undertake any Capital Repairs (as defined). Clause 5.2 was referred to in the plaintiffs' submissions but was not the subject of any pleading. I do not propose to deal with any claim for breach of that provision.
[12]
Conclusions
The defendant has established that she validly terminated the contract for sale. A declaration to that effect should be made. The defendant is not, however, entitled to recover the $600,000 deposit. The defendant is entitled to an order for possession of the property. The defendant is further entitled to recover Rent in accordance with the Option Deed for the period from 1 December 2019 to 3 June 2020; and mesne profits for the period from 4 June 2020 until possession is given, at the rate of $5,875 per week. Those sums are subject to credit being given to the plaintiffs for amounts paid by them pursuant to the orders of the Court made on 27 March 2020 and 9 April 2020. Orders should also be made for the plaintiffs to withdraw the caveats they have lodged against the title to the property (see cl 13.2 of the Option Deed). The plaintiffs' Statement of Claim must be dismissed.
The parties are directed to confer and bring in Short Minutes of Order within 14 days to give effect to these reasons. The parties should also attempt to reach agreement on the appropriate order to be made in respect of costs.
[13]
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 21 August 2020
The plaintiffs’ Statement of Claim was to be dismissed; the Court was to declare the contract terminated, order possession and payment of rent and mesne profits (subject to credit for payments), and require withdrawal of the caveats. The defendant was not entitled to the deposit or damages. The parties were directed to bring in short minutes and attempt to agree costs.
The narrative set out above is a much simplified overview of the issues raised in the proceedings. The matter is complicated by the fact that at about the time the Option Deed was entered into in December 2014, a Consultancy Deed appears to have been entered into between Inajay Pty Ltd, a company associated with the defendant and her husband (Joseph Jayaraj), and Mammamia.com.au Pty Ltd, a company associated with the plaintiffs. This agreement, read with what has been described as the "side letter" dated 18 December 2014, provides for Inajay Pty Ltd to provide certain services in the nature of strategic and corporate advice over a five year term in return for fees of $286,000 plus GST per annum. It should be noted that the "side letter" included provisions that appear to bear upon matters the subject of the Option Deed, notably the Security Amount of $600,000 which was itself intended to serve as the deposit under the contract for sale that would come into existence in the event that either the put option or the call option was exercised. The matter is further complicated by the fact that in the period from early-2015 until late-2019 there were numerous communications (both written and verbal) between Mr Lavigne and Mr Jayaraj about various aspects of the transactions that had been entered into. The plaintiffs allege that some of these communications resulted in binding agreements being made with, or provide the basis for an estoppel against, the defendant.
A great deal of evidence was adduced about these communications, but it is neither necessary nor desirable to provide what would be a lengthy, detailed narrative of their content. It is sufficient to refer to pertinent aspects of these dealings insofar as they bear upon each of the particular issues that are dealt with below.
Before turning to those issues it is convenient to refer to the salient provisions of the Option Deed, and the contract for sale.
Clause 5.2(a) provides:
5.2 Capital Repairs
(a) Subject to the Grantor obtaining any approvals required by Council, the Grantor must carry and complete the Capital Repairs:
(i) in a proper and workmanlike manner;
(ii) in accordance with all approvals and laws;
(iii) subject to clause 5.2(c), at the Grantor's Cost; and
(iv) as soon as practicable.
Capital Repairs is defined in cl 1.1 to mean:
Capital Repairs means:
(a) subject to any Tree Preservation Orders issued by Council and approval from Council, cutting back the Tree branches and if agreed by both Parties removal of the Tree;
(b) repair/replacement of door leading to sub-basement storage area;
(c) repair of loose slate roof tiles;
(d) subject to any Tree Preservation Order issued by Council and approval by Council, vista pruning of camphor laurel trees on boundary of 93 Victoria Road in accordance with Council guidelines;
(e) any other costs and expenses to reasonably maintain the Property prior to completion that are not the obligation of the Grantee.
Clause 5.3 contained an acknowledgement by the defendant that the plaintiffs may lodge a Development Application for the approval of a modification, alteration or renovation of the property, such works being defined as "Grantee's Works". It is common ground that no such Development Application was lodged by the plaintiffs.
Clause 6 deals with the exercise of the call option. There is no dispute that it was validly exercised on 9 December 2019. By cll 7.1 and 7.2, the contract annexed to the deed thereby became binding upon the parties (even in the event that the defendant failed to deliver an executed counterpart of the contract).
Aspects of cl 12 assume some significance in the case. It provides:
12 Licence for occupation
12.1 Right to occupy
The Grantor grants to the Grantee and where applicable, the Grantee's Employees and Agents a lease to occupy the Property during the Occupation Period for the purpose of residential accommodation and if applicable to undertake the Grantee's Works.
12.2 Rent
(a) The Grantee must pay the Rent to the Grantor by equal monthly instalments in advance.
(b) The Grantee must pay:
(i) the first instalment of Rent on the first day of the Occupation Period; and
(ii) thereafter an instalment of the Rent on the first day of the each subsequent month of the Occupation Period.
(c) If necessary, the Grantor and Grantee must apportion the first and last instalments of the Rent on a daily basis.
12.3 Insurance
The Grantee must maintain insurance for public liability in the sum of at least $20 million in respect of any one claim and otherwise in the form of a standard public risk policy. That policy must be in the name of the Grantee as principal and must note the interest of the Grantor.
12.4 Holding costs payable by Grantor
The Grantor is responsible for, and must pay to the relevant Authorities the following costs for the Property up to and including Completion (collectively Outgoings):
(a) If the Grantor determines to undertake the Existing Works, the cost of the Existing Works and any charges payable to a third party including Council for the Existing Works;
(b) Council rates and water access rates (but not water usage which is payable by the Grantee);
(c) land tax;
(d) building insurance; and
(e) structural or capital repairs, modifications or replacement (unless the need for such works is caused by or required due to any conduct, acts or omissions by the Grantee or the Grantee's Employees and Agents).
12.5 Maintenance by Grantee
The Grantee must keep the Property in good and substantial repair (including garden, pool and air conditioning maintenance) having regard to its condition at the commencement of the Occupation Period except for:
(a) fair wear and tear;
(b) repairs arising out of an event beyond the control of the Grantee; and
(c) any repairs, renovations, alterations, modifications or replacement required to be undertaken by the Grantee in accordance with this agreement.
12.6 Deferred Rent
On exercise of either the Put Option or the Call Option, the Grantee must pay to the Grantee's solicitor, no later than 42 days prior to Completion, the Deferred Rent for the period from the commencement of the Occupation Period to Completion calculated on a daily basis AND on completion of the Contract the Deferred Rent is to be paid to the Grantor or as the Grantee directs.
12.7 Termination
The Grantor may terminate the Contract if the Deferred Rent is not paid on time in accordance with clause 12.6.
12.8 No merger
Clauses 12.1 and 12.6 do not merge on completion of this agreement.
Occupation Period is defined in cl 1.1 to mean:
Occupation Period means the period commencing on 14 January 2015 or such earlier date agreed by the Grantor and Grantee and ends on the earlier of the date:
(a) the Contract completes;
(b) twenty one (21) days after this Agreement is terminated or rescinded; and
(c) twenty one (21) days after the Contract is terminated or rescinded.
Rent is defined to mean $52,000 per annum.
Deferred Rent is defined to mean $227,000 per annum and is additional to and not a part of the Deposit and the Purchase Price.
I interpolate that the defendant relies upon cl 12.7 of the Option Deed as a basis for her termination of the contract for sale.
Clause 13 of the Option Deed provides:
13 Caveats
13.1 Grantee may lodge caveat
The Grantee may lodge a caveat over the certificate of title for the Property to protect the Grantee's interest in accordance with this agreement.
13.2 Grantee to withdraw caveat
If the Grantee has lodged a caveat to protect its interest under this agreement, the Grantee must withdraw that caveat:
(a) within five (5) Business Days of this agreement being rescinded or terminated; or
(b) if neither the Call Option or Put Option is exercised, within five (5) Business Days after the end of the Put Option Period.
Finally, cl 18.3 provides that the agreement may only be varied or replaced by an agreement executed by the parties; cl 18.9 is an "entire understanding" provision; and cl 18.10 requires the parties to act in good faith in relation to the agreement and the contract for sale.
The Security Amount that had been paid to HWL Ebsworth was later invested in a term deposit with the Bank of Queensland that matured on 10 August 2016. There is evidence that Mr Jayaraj gave an instruction that half of the interest be paid into an account he and (as was accepted) the defendant held with the ANZ Bank. However, for some reason not clearly revealed in the evidence, all of the funds (totalling $626,879.73) were transferred into the ANZ Bank account on 10 August 2016. This fact was not revealed by Mr Jayaraj in his email to Mr Lavigne on 20 August 2016. In that email, Mr Jayaraj referred only to receiving interest of $26,879.73.
Mr Lavigne gave evidence that it was not until August 2017 that he found out that the entire Security Amount had been released. Ms Kumar gave evidence that she did not find out about the transfer (nor the fact that her husband had not returned the money) until around June 2018. She said she was upset and angry when she found out. Mr Jayaraj was not called to give evidence.
The absence of the Security Amount was discovered by HWL Ebsworth in August 2017. Mr Garrett, then of that firm, sent an email to Mr Jayaraj on 14 August 2017 calling upon him to immediately return the deposit to the firm's trust account. In his emails in reply, Mr Jayaraj did not initially say anything about having received the entire $600,000 amount, but did so in his email of 23 August 2017 where he stated that the funds "were indeed received at my end and as suspected, swept into a linked loan account last August".
Mr Lavigne in his email to Mr Jayaraj later on 23 August 2017 stated that the plaintiffs were "going to hold off on monthly payments until the trust account has been made whole again".
It appears that shortly thereafter, monthly payments, at least under the Consultancy Deed, ceased for a period. Ms Kumar gave evidence that there were no Consultancy Deed payments received between August 2017 and August 2019. In cross-examination, Mr Lavigne accepted that twenty-five payments each of $26,216.66 (totalling more than $655,000) were withheld. He accepted that three payments of Rent totalling $13,200 were withheld, so that by September 2019 in excess of $678,000 had been withheld on account of Mr Jayaraj's retention of the Security Amount.
It should be noted at this point that on 13 May 2018 (during the period of suspension of the Consultancy Deed payments) Inajay Pty Ltd, the entity entitled to such payments, was de-registered. The company remains in that state.
In any event, by about June 2019 Mr Jayaraj was telling Mr Lavigne that the $600,000 "has effectively been absorbed" and that monthly payments should be resumed.
Over the next few months, Mr Lavigne and Mr Jayaraj engaged in a great deal of communication (predominantly by way of email) over a range of issues concerning the property. At different times each described the discussions as being in the nature of a process of "squaring up". One of the issues discussed related to the question of replacement of the roof. Other issues included the (notional) calculation of interest on the deposit, and the calculation of interest on amounts of payments withheld. Speadsheets were prepared, and many lengthy emails were sent about these, and other, matters.
The plaintiffs claim that in the course of these communications an agreement was reached on about 2 September 2019 to the effect that a sum of $195,000 would be paid by the defendant (or allowed to the plaintiffs on settlement of their purchase) towards the cost of replacing the roof. In this regard, the plaintiffs rely upon the evidence given by Mr Lavigne about a lengthy telephone conversation he had with Mr Jayaraj on 2 September 2019, and a number of emails that were exchanged between the pair on 3 September 2019. The defendant denies that any concluded agreement was reached, and says that even if there was an agreement, it had been brought to an end through the conduct of the parties by 18 December 2019.
On 31 October 2019 Mr Garrett (now of Unsworth Legal) notified Mr Jayaraj that the plaintiffs had instructed him to move promptly towards settlement, with 29 November 2019 an indicative date.
From about early November 2019, Mr Lavigne and Mr Jayaraj engaged in discussion about various matters that concerned the settlement of the sale of the property. The plaintiffs contend that during a telephone conversation on 4 November 2019 the plaintiffs agreed to delay exercising the call option, so as to afford the defendant more time to get her taxation position in order (essentially by obtaining a clearance in respect of foreign residents withholding tax), on the basis that if settlement was not achieved by the end of November, the plaintiffs would thereafter pay until settlement, or at the latest 20 December 2019, only a daily amount of rent of $236. This conversation is claimed to give rise to an estoppel against the defendant.
By 11 November 2019 the defendant had retained Mr Murray of Watson Mangioni to act for her on the transaction.
On 20 November 2019 Mr Lavigne and Mr Jayaraj had a conversation using WhatsApp. The conversation included discussion about the Deferred Rent. Mr Lavigne says that Mr Jayaraj expressed his agreement to "the $195,000 for the roof replacement we agreed back in September, and occupation rent post 30 November is to be $236 per day". Later on 20 November 2019, Mr Lavigne and Mr Jayaraj exchanged emails (and spreadsheets) in relation to amounts that would be payable on settlement.
On 22 November 2019, Mr Jayaraj sent an email to Mr Lavigne which suggested that payments for December would be $18,172 for "rent & consulting". On 24 November 2019 Mr Lavigne sent an email in which he complained that Mr Jayaraj was departing from an agreement reached in good faith. Mr Lavigne suggested that if Mr Jayaraj wanted to "shift goodwill aside and play specifically to our agreement" he [Mr Lavigne] would "have to add back unavoidable repair charges that I said I would, for goodwill purposes, attempt to shoulder".
Mr Lavigne and Ms Kumar had a telephone conversation on 25 November 2019 about settlement and the associated issues. This was the first time the pair had spoken. There are some differences between their respective versions of the conversation, but it seems clear that Ms Kumar expressed the view that she thought it would not be fair if she had to pay the cost of a new roof, and Mr Lavigne said, in effect, that the matter had already been agreed. The pair exchanged emails about that matter, and other matters, on 28 November 2019 and 3 December 2019, and the respective solicitors were seemingly involved, but there was no resolution.
The call option was exercised by the plaintiffs on 9 December 2019.
Later on 9 January 2020 Mr Garrett responded:
1. $275,000.00; and
2. $315,000
Mr Murray then sought, and obtained, Mr Garrett's confirmation that it was the plaintiffs' position:
that for completion of the transfer of the property to occur (say) on 20 January 2020, without a retention for later mediation, [the plaintiffs] would require $275,000 to be deducted from the price.
On 13 January 2020 Mr Murray sent an email to Mr Garrett that included the following:
We note that the Purchasers have made a claim for a deduction from the purchase price of $275,000.00 for roof repairs.
Pursuant to clause 7.1 of the Contract for Sale the Vendor hereby gives notice to the Purchasers that unless the Purchasers' claim exceeding 1% of the purchase price is waived within 14 days after the date of service of this notice, the Vendor intends to rescind the Contract for Sale pursuant to clause 7.1.
Mr Garrett responded on 14 January 2020 in the following terms:
Having considered the issues involved we take the view that your purported notice is misconstrued [sic] and comment as follows:
1. Our clients' entitlement to the payment of capital costs for the Property arises under clause 12.4 of the Option of 19 December 2014 (Option) and survives completion of the option (clause 12.8);
2. These provisions are not replicated in the Contract for Sale of Land (Contract) and stand alone;
3. The suggested adjustment at settlement is not claimed as an adjustment under the exchanged Contract for Sale of Land of 9th December 2019 (Contract);
4. The 'adjustment' was simply suggested in the manner that it was so that it be taken into account as a convenience in resolving all issues between the parties. In the same vein, your client's entitlement to the Deferred Rent under clause 12.6 of the Option has also been included in the prior calculations of draft adjustments; and
5. For the avoidance of any doubt our clients withdraw any further suggestion of an adjustment under the Contract and will submit the adjustment under a separate calculation of adjustments under the Option.
Please confirm the withdrawal of your purported notice under clause 7.1 of the Contract within 48 hours failing which our clients have instructed us to seek orders from the Court regarding the invalidity of the purported notice and other outstanding issues between the parties.
In the interim we will be continuing the preparations for the settlement on 20th January 2020.
On 15 January 2020 Mr Murray sent an email to Mr Garrett in response, which included the following:
1. We do not accept that the notice issued is misconstrued. Our client contends that your clients' claim quantified at $275,000 in respect of the roof is a claim for the purposes of clause 7.1 of the Contract. It is a claim for a reduction of the consideration flowing to our client under the Contract.
…
3. A notice under clause 7.1 of the Contract having been issued, your clients must unequivocably [sic] waive the relevant claim, failing which our client is entitled to exercise the right of rescission contained in clause 7.1. Please clearly confirm that the claim is waived to the extent that it constitutes a claim for the purposes of clause 7.1 of the Contract, failing which our client reserves her rights to rescind the Contract (and her other rights).
On 16 January 2020 Mr Garrett sent an email to Mr Murray in which he stated that the plaintiffs' position regarding the validity of the notice under cl 7.1 "remains unaltered" and their instructions are to proceed as foreshadowed in the 14 January 2020 email.
On 17 January 2020 Mr Murray sent an email to Mr Garrett which included the following:
As foreshadowed, and on a without prejudice basis, I attach draft settlement adjustments for 20 January.
The draft settlement adjustments took the form of a Settlement Sheet which referred, under the heading "Payable by Purchaser", to a purchase price of $12 million less deposit of zero, leaving $12 million as "balance purchase money". Beneath that figure were various other amounts payable by the purchaser including Deferred Rent of $1,147,204, Interest on Deposit of $45,000, 3% Interest on Deposit of $6,968, and Occupancy Payment Arrears (from 1 December 2019 to 20 January 2020) of $46,338. The total amount payable by the purchaser on settlement was stated to be $13,269,422.10.
On 20 January 2020 Mr Garrett sent an email in response to Mr Murray's 17 January 2020 email, in the following terms:
These adjustments are not agreed by the purchasers and settlement cannot take place today on this basis.
We will be submitting an amended settlement adjustment sheet shortly.
Later on 20 January 2020 emails were exchanged between Ms Walker (a lawyer working with Mr Garrett on the matter) and Mr Murray in relation to the calculation of $45,000 for Interest on Deposit. Completion did not occur on 20 January 2020, which, being the date 42 days from the contract date, was the date for completion in accordance with the terms of the contract.
On 21 January 2020 Mr Murray sent an email that attached revised settlement adjustments. The email stated that the defendant was ready, willing and able to complete the matter on the terms of the contract. The attached Settlement Sheet did not include any amounts for Interest on Deposit or 3% Interest on Deposit. Deferred Rent was now stated to be $1,147,814.20 and Occupancy Payment Arrears (to 21 January 2020) were stated to be $47,246.59. The total amount payable by the purchaser was now stated to be $13,218,955.67.
On 22 January 2020 Mr Murray served a Notice to Complete upon the plaintiffs and Mr Garrett. The notice, dated 22 January 2020, was in the following terms:
Watson Mangioni as Solicitors for Somna Lala Kumar (Vendor) gives you notice that:
1. The Vendor is ready willing and able to complete the Contract for the Sale of Land dated 9 December 2019 of the property known as 101 Victoria Road, Bellevue Hill NSW 2023 being Lot B in Deposited Plan 376570 (Contract).
2. The Vendor requires you to complete the sale on or before 5pm on 6 February 2020 and in this respect time is to the [sic] essence of the Contract.
3. The Vendor appoints 2pm on 6 February 2020 via PEXA as the time and place for completion.
4. If you fail to complete this Contract as required by this Notice the Vendor may terminate the Contract and exercise its rights.
Also on 22 January 2020, Mr Garrett sent an email to Mr Murray in the following terms:
We refer to prior correspondences regarding the calculation of settlement adjustments. Our clients have taken further advice and have instructed us to send this further correspondence regarding the alleged claim under the Contract which has been the subject of your client's purported notice under clause 7.1.
We maintain our clients' suggested adjustment was not claimed as an adjustment under the exchanged Contract, but was suggested as a convenient way to resolve the issues between the parties at settlement. Further, we maintain the view our clients' entitlement to capital works costs arises exclusively under the Option and that these rights stand alone.
Our clients view of the proper interpretation of the Option and the Contract on these points is unaltered but, without admission, and to the extent your client contends that our clients have made a claim for a deduction under the Contract, our clients formally waive such a claim. So that there is no uncertainty this letter is a notice pursuant to clause 7.3 of the Contract.
We will correspond with you shortly regarding settlement and proper adjustments under the Contract and separately under the Option.
On 24 January 2020 Mr Garrett sent an email to Mr Murray in the following terms:
We refer to our correspondence of 22nd January 2020 and now submit our Settlement Adjustment Sheet for adjustments of the purchase price under the Contract and our Claims Payment Sheet for the relevant payments due under the Option.
Our clients are ready willing and able to complete the purchase and have been since 30 November 2019.
As regards your client's settlement sheet, the amounts included in relation to Deferred Rent ($1,147,814.20) and the Occupancy Payment Arrears ($47,246.59) are not amounts that are payable pursuant to the conveyancing Contract. Those amounts are payable pursuant to other contractual arrangements. Whilst we are instructed that our clients will make such payments (although we note they dispute the amount of those payments), they do not form part of monies payable to the "Vendor". They should be removed from your settlement sheet.
We are happy to discuss or explain any of them if that will assist.
As indicated, a Settlement Sheet and an Option Claims Sheet, were attached. Amounts payable by the purchaser for Interest on Deposit, 3% Interest on Deposit, and Occupancy Payment Arrears were included only in the Option Claims Sheet. The Option Claims Sheet also included, as an amount payable by the vendor, a claim for Capital Repairs for $275,000. That is clearly the claim made by the plaintiffs in respect of the roof.
On 29 January 2020 Mr Garrett sent a further email in which he enquired whether the defendant was ready, willing and able to settle on the basis of the Settlement Sheet and the Option Claims Sheet.
On 30 January 2020 Mr Murray replied to Mr Garrett's email of 24 January 2020. The reply was in the following terms:
With respect, we do not accept that your clients were ready, willing and able to complete the purchase and have been since 30 November 2019. Your clients' mortgagee was only invited to join the PEXA workspace on 23 January and only accepted such invitation on 24 January. No settlement date has been accepted by the Purchaser and no Mortgage or Transfer documents created.
Your division of the amounts payable on settlement into a Settlement Adjustment Sheet under the Contract and a Claims Payment Sheet under the Option does not affect the amounts required to be paid by the Purchaser on completion.
In relation to the matters which are said to be in dispute we note as follows:
1. Clause 12.6 of the Option provides for Deferred Rent "for the period from the commencement of the Occupation Period to Completion calculated on a daily basis". Under clause 12.7, the Contract may be terminated if the Deferred Rent is not paid on time, namely on completion of the Contract.
2. Clause 12.2 of the Option requires Rent to be paid by equal monthly instalments in advance for the Occupation Period. Absent termination or rescission of the Option or the Contract the Occupation Period expressly ends when "the Contract completes".
3. The payments under the Services Agreement are expressly payable until such time as settlement of the Contract occurs as the Services Agreement terminates on settlement of the Contract.
4. There is no contractual basis for your clients to unilaterally claim $275,000.00 for capital repairs and we note that to the extent that claim is a claim under clause 7.1 of the Contract it has expressly been waived by the Purchaser. In any event, the amount you claim is not within clause 5.2 of the Option which expressly deals with "repair of loose slate roof tiles" as the relevant species of Capital Repairs and is not contemplated by clause 12.4(e) of the option which is limited by the introductory words to clause 12.4 for payments to "relevant Authorities" and, in any event, does not specify on what basis repairs or replacement are to be determined. Your clients are not entitled to the cost of a new roof.
5. Additionally, late settlement interest under Special Condition 36.1 of the Contract is running at the rate of 10% per annum calculated on daily rates.
The Vendor continues to rely upon the Notice to Complete and, failing completion in accordance with the terms of the Contract prior to expiry of that Notice reserves all her rights, including, without limitation, rights in relation to any essential breaches of the Contract.
The reference to the Services Agreement is evidently intended as a reference to the Consultancy Deed.
Mr Garrett responded by email on 31 January 2020. Under the heading "Freezing Order" he stated that the plaintiffs required an amount, calculated as $437,138.99, "to be set aside from the amount payable at settlement in relation to the Option Deed". It was stated that unless that was agreed to by 3 February 2020, the plaintiffs intended to commence proceedings to seek a freezing order.
The defendant did not agree to the setting aside of any funds. This was made known by Mr Murray in an email sent on 3 February 2020. Mr Garrett replied to that email later on that day. Mr Garrett stated that the plaintiffs proposed "a simultaneous payment of the contract sum (as adjusted) under the Contract for Sale of Land and a payment of the monies claimed and payable under the Option". Mr Garrett's email continued:
Once again we point out that there is no obligation to pay the monies you refer to, such as the Deferred Rent, under the Contract for Sale of Land.
It is agreed however, that there is a simple (if not mere) obligation to pay them (as calculated under the Option) at the same time as completion of the Contract for Sale of Land, and as such, they are subject to adjustment for other funds due under that same Option.
On another issue of importance, our clients have realised in the last few days, and have alerted us today, of the failure by your client to meet the obligations of clause 41 of the Contract for Sale of Land - if your client relies on her Notice to Complete we await supply of the Certificate of Occupation before its expiry.
Given the above response there is no value in commenting on your email of 4:45pm and the suggested settlement adjustments attached.
The reference to the email of 4:45pm is a reference to an email in which Mr Murray had provided "updated settlement adjustments". The attached Settlement Sheet included, as amounts payable by the purchaser, $1,157,948.09 for Deferred Rent, $62,160.92 for Occupancy Payment Arrears, and $52,459.02 for Late Settlement Interest. The total amount stated to be payable on settlement by the purchaser was $13,296,462.40.
On 4 February 2020 Mr Murray sent an email to Mr Garrett in relation to the Occupation Certificate issue. He stated:
In relation to the Occupation Certificate, as your clients are well aware, Council require the removal of a non-structural wall separating a large upstairs bedroom into 2 children's bedrooms and removal of a door handles [sic] from wood and glass patio doors adjacent to the downstairs kitchen, before the Certificate can be issued.
We are instructed that, our respective clients agreed that the vendor not undertake those works as the purchasers wished those items to remain (with a view to having them approved in a S.96 application to include additional works desired by your client). The obtaining of the Occupation Certificate would have required access to the property for removal of the non-structural wall and the door handles and the finalisation of the outstanding Development Approval and associated benefits. The purchasers did not want that work performed.
Our client's approvals remain on foot for that purpose (and the outstanding bonds are an agreed adjustment in the settlement figures).
Your client has clearly waived the provision of an Occupation Certificate and cannot rely on Special Condition 41 in the manner you suggest.
On 5 February 2020 Mr Garrett sent an email to Mr Murray in which the waiver argument was described as hopeless, and it was stated that the defendant ought not to have issued the Notice to Complete in circumstances where she was "plainly not ready, willing and able to complete this conveyance". A further demand was made for an Occupation Certificate, and it was stated that the preparations for settlement being made "are subject to your client complying with clause 41.1 of the contract for sale". Also on 5 February 2020, the plaintiffs paid the stamp duty in respect of the contract in an amount of almost $780,000.
The Notice to Complete called for completion by 6 February 2020. It was envisaged that any settlement would occur using the PEXA platform. It appears that the vendor's solicitor was indicating, via the platform, that funds of $13,296,462.40 were required to settle. That amount accorded with the Settlement Sheet provided by Mr Murray on 3 February 2020. It further appears from documents recording entries in the PEXA system that shortly after 9:30am on 6 February 2020, the purchaser's solicitor "updated the Funds Required to Settle to $13,296,462.40". It does not seem to be disputed that the plaintiffs then had funds available to them in at least that amount.
The plaintiffs commenced these proceedings later on 6 February 2020. At about 2:00pm an urgent application was made ex parte for orders including an injunction to restrain the defendant from terminating the contract for sale, and an order in the nature of a freezing order. The application was refused, although orders were made for short service. In the course of the application the Court was informed that the plaintiffs were ready, willing and able to settle but for the issue concerning the Occupation Certificate. The settlement, which it seems had been booked to take place at 4:00pm on that day, did not proceed. Emails exchanged between Mr Murray and Mr Garrett shortly prior to 2:00pm indicate that Mr Garrett advised Mr Murray that the plaintiffs "are not proposing to settle the purchase this afternoon".
On 7 February 2020 Mr Garrett sent an email to Mr Murray which referred to the commencement of the proceedings, and various issues in relation to the Option Deed and the Consultancy Deed. A revised Option Claims Sheet was attached. According to that sheet, the claim for Capital Repairs had been reduced from $275,000 to $251,800.
On 11 February 2020 Mr Murray served upon the plaintiffs and Mr Garrett a Notice of Termination and Rescission of Contract. The notice included the following:
Failure to pay deposit
2. Clause 2.2 of the Contract required you to pay the deposit of $600,000 on the making of the Contract. You have failed to pay this deposit and it remains outstanding. Accordingly, the vendor has a right of termination pursuant to clause 2.5 of the Contract. We give you notice that the vendor terminates the Contract pursuant to clause 2.5 of the Contract and that the Contract is entirely at an end.
Failure to pay deferred rent
3. Under clause 12.7 of a Put and Call Option agreement dated 19 December 2014, the Contract is terminable if Deferred Rent (as defined in the Option) is not paid to your solicitor 42 days prior to completion of the Contract and not paid on completion of the Contract. You have failed to pay the Deferred Rent and as a result of that failure we give you notice that the vendor terminates the Contract and that the Contract is entirely at an end.
Failure to complete at the time specified in the Notice to Complete
4. The Contract was due for completion on 6 February 2020. We refer to the Notice to Complete dated 22 January 2020, which required you to complete the Contract on 6 February 2020, and made time of the essence of the Contract. By reason of your failure to complete on that date, the vendor terminates the Contract such that the Contract is entirely at an end.
5. As a result of the defaults in paragraphs 2, 3 and 4, the vendor terminates the Contract. The vendor seeks payment to it of the deposit, and will also hold you responsible and liable for any deficiency in price and for all costs, charges and expenses occasioned by any resale of the property.
Claims made under the Contract exceed 1 per cent
6. On 9 January 2020, you made a claim for a sum of $275,000. That sum exceeds 1 per cent of the purchase price. By notice dated 13 January 2020 the vendor required you to waive that claim within 14 days which you failed to do. As a result of that failure, we give you notice that, in the alternative to termination and in the event that this notice is otherwise ineffective to terminate the Contract, the vendor rescinds the Contract pursuant to clause 7.1 of the Contract.
I note in passing that the defendant abandoned during the hearing any reliance upon a failure to pay the Deposit.
On 3 March 2020 Mr Biggs of Watson Mangioni sent an email to Mr Garrett which included the following:
We refer to your letter dated 20 February 2020, in which, you assert, inter alia, that your clients are in occupation of the Property under a residential tenancy.
Our client does not accept that your clients' tenancy is governed by the Residential Tenancies Act 2010 (NSW) (the Act). The Act does not apply to an agreement for the sale of land that confers a right to occupy residential premises on a party to the agreement: see s8(1)(f).
Your clients have no right to occupy the property. Your clients were required to vacate the property immediately following the termination of the contract for the sale of the land on 12 February 2020.
Nonetheless, in the event that the Act applies, our client hereby gives notice that any residential tenancy within the meaning of the Act will terminate with effect from Saturday, 4 April 2020.
If for any reason that notice is ineffective by reason of the existence of a periodic tenancy within the meaning of the Act, we hereby give notice that any periodic tenancy will terminate with effect from Wednesday, 3 June 2020.
As noted earlier, the plaintiffs have remained in occupation of the property. They also maintain caveats against the title to the property.
The plaintiffs submitted that the defendant was not in a position to serve a Notice to Complete on 22 January 2020 for two reasons, namely:
1. the defendant's insistence on payment at settlement of amounts not due under the contract for sale; and
2. the defendant's failure to provide an Occupation Certificate in accordance with Special Condition 41.1 of the contract for sale.
As to the first reason, the plaintiffs pointed to the Settlement Sheet sent by Mr Murray on 21 January 2020 which sought to claim at settlement amounts due under the Option Deed and the Consultancy Deed, being Deferred Rent of $1,147,814.20 (payable under the Option Deed) and Occupancy Payment Arrears of $47,246.59 (a combination of Rent payable under the Option Deed and fees payable under the Consultancy Deed). The plaintiffs submitted that under the terms of the contract for sale, in particular cl 16.7, the plaintiffs were not obliged to pay those amounts on settlement because they were neither part of the purchase price, or other amounts payable by them under the contract for sale. So much may be accepted; the plaintiffs were not bound under the terms of the contract for sale to pay those amounts on settlement. Any obligation to pay those amounts arose outside that contract.
The plaintiffs submitted that the defendant thereby adopted an illegitimate approach to settlement which wrongly treated the contract for sale, the Option Deed and the Consultancy Deed "as one indissoluble body of rights and obligations". The defendant is thus said to have adopted a stance that was not consistent with a willingness and ability to perform on the day fixed for completion the obligations she was required to perform on completion. Put another way, the defendant, was said to be using the settlement process as a tool to extract payments not due under the contract for sale, and this demonstrated a prospective unwillingness to complete the contract for sale in accordance with its terms. It was submitted that these conclusions are reinforced by the fact that the amounts claimed were in dispute, and that any amounts payable under the Consultancy Deed would be owed not to the defendant but to Inajay Pty Ltd, a company which was de-registered on 13 May 2018 and had remained so ever since.
The defendant submitted that at the time the Notice to Complete was issued, she was ready and willing to proceed to completion of the contract for sale. It was submitted that the Settlement Sheets that had been sent by Mr Murray had to be understood in the context in which they were provided, including the contemplation of the parties that various payments outside the contract for sale would or could be made (or be the subject of adjustments) on the settlement which was envisaged to take place using the PEXA platform. It was submitted that there was never any dispute about the amount payable under the contract for sale. The defendant submitted that, viewed objectively, her conduct did not evince an intention to only proceed with the settlement on terms that departed from the terms of the contract for sale.
Both parties placed reliance upon the judgment of Barrett JA in Carrapetta v Rado (supra) where his Honour discussed the submission of settlement figures or settlement statements in relation to the serving of a Notice to Complete. In the course of the discussion Barrett JA referred to two English decisions, namely, Carne v Debono [1988] 1 WLR 1107 and Oakglade Investments Ltd v Dahnd [2012] EWCA Civ 286. In relation to the former, Barrett JA stated at [55]-[57]:
In Carne v Debono, Sir Nicholas Browne-Wilkinson V-C, said (at 1112), with the concurrence of Stuart-Smith LJ:
"Although it is a customary step in conveyancing procedure that completion statements should be sent and agreed so that the parties should be clear well in advance of the date of completion what their respective obligations are, so far as I am aware, that is merely a matter of practice and not of law. So far as the authorities drawn to our attention are concerned, there is no legal obligation on a solicitor to provide a settlement statement."
His Lordship also said:
"There being no contractual obligation to provide a completion statement, in my judgment, it is not a repudiation by the vendor if in the settlement statement he asks for more than that to which he is entitled. So to hold would give rise to great disputes in vendor/purchaser matters since the exact calculation of the purchase money is often a matter of some difficulty. The completion statement is often the subject of negotiation between the parties to arrive at the correct figure."
On this view, submission of a settlement statement by one party entails no more than a request for confirmation (or otherwise) that the receiving party agrees with the calculation set out in the statement.
In relation to the latter decision, Barrett JA cited (at [60]) the judgment of Mummery LJ (with whom Richards LJ and Rimer LJ agreed) as follows:
The focus of the question whether the notices to complete were valid must turn on the object and terms of those notices construed in their contractual setting. The notices required Mr Dhand to complete contracts different from the contracts that he had in fact entered into with the defendants. That is because the prices that the defendants were requiring him to pay for the Properties according to the settlement statements, which were followed by the notices, were different from the prices that he had in fact agreed to pay. The prices were based on what the defendants wrongly alleged were successful bids by him at the auction on 24 May to buy the Properties at increased reserve prices rather than on what were stated to be the settled prices in the Underwriting Agreements of 21 May.
Barrett JA noted (at [61]) that the important finding in Oakglade Investments Ltd v Dahnd (supra) was that the vendor had, by delivery of settlement statements before the service of Notices to Complete, demonstrated that it adhered not to the contracts that the court found had been made but to non-existent contracts at higher prices.
Barrett JA continued (at [67]):
For the practical reasons stated by the Vice-Chancellor in the passage in Carne v Debono set out at [56] above, a court should be very slow to conclude that a party who delivers a settlement statement thereby intends to adopt a particular construction of the contract unequivocally and to the exclusion of all other possibilities. But even if, in this case, the respondent should be regarded as having embraced a view of the contract at odds with the "concession", that had no effect upon the validity of the notice to complete. Any commitment to an incorrect version of the contract had not been communicated by the respondent before service of the notice to complete. The present facts are different, in that respect, from those of the Oakglade case. The things that the respondent had done before serving the notice to complete have already been identified. They are set out at [29] to [34] above. She had raised a question about the efficacy of the handwritten amendments and reserved her rights in that respect. She did not adopt a position that was wedded to 12% rather than 8%. In fact, in the letter of 21 November 2011, her solicitors said that she relied on the terms of the contract - thus implying that she accepted the contract, whatever its true construction might be. The notice to complete her solicitors served, unlike the notice in the Neeta (Epping) Pty Ltd case, did not refer to any interest component or imply a willingness to complete only if interest not properly payable was in fact paid.
The circumstances of the present case strike me as somewhat unusual. They differ in significant respects from those present in each of the cases referred to above. The relationship between the parties was not simply that of vendor and purchaser under a contract for sale. The parties to the contract for sale were also parties to the Option Deed, and entities related to the parties were parties to the Consultancy Deed. The parties were in dispute about various matters relating to those deeds, in particular as to amounts said to be payable in accordance with their provisions.
There is an evident connection between the contract for sale and a number of those provisions. From about June 2019, Mr Lavigne and Mr Jayaraj had been engaged in discussion about the numerous issues that had arisen in relation to the agreements. There were attempts to achieve a "squaring up", but resolution had not been reached when the call option was exercised. Thereafter, many of the issues became the subject of communications between Mr Murray and Mr Garrett.
The submission by Mr Murray of the Settlement Statements on 17 January 2020 and 21 January 2020 should be seen in their overall context, which includes the matters mentioned above. The context also includes:
1. the advice of Mr Garrett on 9 January 2020 that the plaintiffs claimed a right to set off against the purchase price an amount of $275,000 in respect of the cost of roof repairs; and
2. the advice of Mr Garrett on 14 January 2020 that the claim, which arose under the Option Deed, should be the subject of an adjustment at settlement "as a convenience in resolving all issues between the parties", and that the defendant's entitlement to Deferred Rent should be treated in the same way.
Mr Murray described the Settlement Sheet he sent on 17 January 2020 as "draft settlement adjustments". It contemplated a settlement at which payments in addition to those required under the contract for sale itself would be made by way of adjustments. That is no different in principle to that which the plaintiffs were proposing. In my view, the provision of that Settlement Statement should be regarded as in the nature of a request for confirmation, or otherwise, that the plaintiffs agreed that settlement could occur on that basis.
The plaintiffs responded on 20 January 2020, stating that those adjustments were not agreed, and that they would be shortly submitting an amended settlement adjustment sheet. Before that occurred, Mr Murray sent the Settlement Sheet on 21 January 2020, described as "revised settlement adjustments". The amounts for Interest on Deposit and 3% Interest on Deposit were no longer included as adjustments to be made (in favour of the defendant). That was something of a concession on the part of the defendant. The Settlement Sheet retained the amounts for Deferred Rent and Occupancy Payment Arrears.
Whilst the Settlement Sheet was not described as being in the nature of a draft, it was submitted at a time when an amended settlement adjustment sheet of the plaintiffs was apparently pending. I would add that there was no suggestion that the plaintiffs were no longer pressing any claim in respect of the roof, and no suggestion that they no longer considered it appropriate that it be the subject of adjustment at settlement.
It is appropriate in my view to regard the provision of the Settlement Sheet on 21 January 2020 as intended to be part of a negotiation between the parties as to what amounts would be payable at a settlement that would involve amounts in addition to those payable under the contract for sale itself. The notion of a settlement of that character is readily understandable in circumstances where at least the Deferred Rent was required by cl 12.6 of the Option Deed to be paid on completion of the contract for sale (and where cl 12.7 of the Option Deed provided that the defendant may terminate the contract for sale if the Deferred Rent is not "paid on time in accordance with clause 12.6"). Moreover, the notion was one that appears to have originated from the plaintiffs.
It may be accepted that the Settlement Sheet sent on 21 January 2020 contained amounts, in addition to the Deferred Rent, that were not payable under the contract for sale. However, viewed in the manner which I consider is appropriate, the submission of the Settlement Sheet should not be regarded as the taking by the defendant of an uncompromising or unequivocal stance that was inconsistent with a readiness, willingness and ability to proceed to completion in accordance with the terms of the contract for sale. There was in reality no dispute about what had to be paid under the contract for sale, and indeed no apparent dispute as to the amount of the Deferred Rent. As for other payments required under the other related agreements, there would be time for the parties to seek to resolve their differences and agree upon a suitable manner of effecting payment, possibly by adopting the approach suggested by the plaintiffs. I do not think that it ought be concluded that the defendant had exhibited an uncompromising stance to the effect that she would only convey the property to the plaintiffs in return for payment of amounts in addition to that required by the contract for sale. The conduct of the defendant following the service of the Notice to Complete does not in my view compel a different conclusion. It is true that in the exchanges that followed the Notice to Complete, the defendant did not move away from the position that Occupancy Payment Arrears should be paid on settlement in an amount calculated in the manner favoured by the defendant. However, these exchanges do not establish that the defendant's position should be regarded as having been set in stone by the time the Notice to Complete was served. I note that no suggestion to that effect was put to Ms Kumar in the witness box (cf Oakglade Investments Ltd v Dahnd (supra) at [18]).
I would add that the terms of the Notice to Complete itself (unlike the position in Neeta (Epping) Pty Ltd v Phillips (1974) 131 CLR 286 at 301-2) did not state or imply that the defendant would only complete the contract for sale if amounts not due to her under the contract were paid. The terms of the notice do not show that the defendant was not willing to complete in accordance with the terms of the contract.
The second reason advanced as to why the defendant was not in a position to serve a Notice to Complete on 22 January 2020 was the defendant's failure to provide an Occupation Certificate in accordance with Special Condition 41.1. Special Condition 41.1 provides:
Prior to completion the vendor shall provide to the purchaser an interim or final occupation certificate pursuant to section 109C of the Environmental Planning and Assessment Act 1979 with regard to the alterations and additions recently carried out to the property immediately prior to and after the entering into of the option between the vendor and the purchaser dated [ ].
The meaning and effect of Special Condition 41.1 is relevant not only to this issue but also to the question whether the plaintiffs, who later insisted upon the provision of an Occupation Certificate, thereby repudiated the contract.
The Occupation Certificate contemplated by the condition is one "with regard to" certain alterations and additions carried out to the property. These are alterations and additions carried out within a particular period of time being "immediately prior to and after the entering into of the option between the vendor and the purchaser…". That should be construed as a reference to the Option Deed.
It is the defendant's position that no alterations or additions were carried out that fell within the terms of Special Condition 41.1, and thus an obligation to provide an Occupation Certificate did not arise. The defendant gave evidence to the effect that extensive renovations were undertaken in 2008, and further works, including the installation of a swimming pool, were undertaken between October and December 2009. The defendant deposed that a temporary internal dividing wall was constructed in about September 2011, and some drainage works were undertaken in about mid-2013. She deposed that she did not authorise any alterations or additions to the property after mid-2013, and was not aware of any alterations or additions since that time. The defendant deposed that between September 2014 and February 2015 some internal painting was carried out and repairs to the slate roof and box gutters were undertaken, but none of that work involved alterations or additions to the property. That evidence was not challenged.
In the course of preparation for the hearing, a consent order was made on 24 April 2020 requiring the plaintiffs to identify what, if any, alterations or additions they relied upon for the purpose of Special Condition 41.1. The answer given by the plaintiffs referred to two pieces of work said to have been undertaken by them in April 2015 and May 2015, namely, the bricking up and rendering over a doorway, and the construction of a pergola. These items of work were also specified in paragraph 27 of the plaintiffs' Defence to Cross-Claim. Mr Lavigne conceded in the witness box that the pergola had not actually been constructed until sometime between August 2017 and December 2018. However, in opening submissions, the plaintiffs contended that Special Condition 41.1 should be interpreted "as embracing work already done under the existing development consent plus any further work done immediately before or after entry into the Option". Counsel for the defendant complained in opening that it was not open to the plaintiffs to run that case because it departed from the deliberate course they had taken. The plaintiffs did not subsequently seek to amend. The plaintiffs contended that the argument they sought to raise concerning the construction of Special Condition 41.1 did not involve any departure from the pleadings.
It is not necessary to resolve that dispute as I have concluded that the plaintiffs' suggested construction of Special Condition 41.1 cannot be accepted. In my opinion, the language of Special Condition 41.1 is such that reasonable business persons in the position of the parties would have understood that an obligation to provide an Occupation Certificate would only arise where alterations or additions had in fact been carried out to the property "immediately prior to and after" the entry into the Option Deed. Unless works of that character were carried out within that period, there could not be any Occupation Certificate "with regard to" such works. The required subject matter of the Occupation Certificate would be absent. I accept that it may be the case, as submitted by the plaintiffs, that an Occupation Certificate provided pursuant to Special Condition 41.1 would by reason of the applicable legislative requirements also concern works apart from the alterations and additions carried out within the requisite period. However, I do not think that the condition would be understood to mean that an Occupation Certificate would have to be provided with regard to work already done under the existing development consent plus any further work done immediately before or after entry into the Option Deed. That construction is at odds with the ordinary meaning of the words of the condition which are focused upon works carried out within that particular period of time.
That difficulty is not in my view overcome by reference to the circumstances known to the parties at the time the Option Deed was entered into, which is when the terms of Special Condition 41 were agreed upon and included in the contract that was annexed to the deed. Those circumstances include:
1. in about 2008 and 2009 the defendant had undertaken works pursuant to the development consent (see email from Mr Jayaraj on 9 December 2014);
2. a report from Yellamo Building Certifiers dated 19 August 2014 indicated that in two respects the works were inconsistent with the approved plans, and would need to be assessed for compliance prior to a final inspection. The report further stated that the buildings cannot be occupied until an Occupation Certificate has been issued;
3. the plaintiffs were considering the possibility of undertaking their own renovations to the property (see emails from Mr Lavigne to Mr Jayaraj on 6 November 2014 and 16 November 2014, and emails from Mr Jayaraj to Mr Lavigne on 8 November 2014 and 1 December 2014 - I accept that Mr Jayaraj was authorised by the defendant to negotiate with the plaintiffs concerning the terms of the transaction); and
4. the terms of the proposed Option Deed, which included provisions for the defendant to determine to complete the Existing Works (see cl 5.1); the plaintiffs to lodge an application for approval to undertake Grantee's Works (see cll 5.3, 5.4 and 12.1); and for the defendant to assign her intellectual property rights in respect of the Existing Development Consent (see cl 5.5).
Those circumstances indicate that the parties contemplated that there might be further alterations or additions made to the property pursuant to either the Existing Development Consent, or a new Development Consent obtained by the plaintiffs in respect of Grantee's Works. It is curious as to why the expression "immediately prior to and after" was chosen, but it was evidently chosen deliberately, and it clearly excludes works undertaken as long ago as 2008 or 2009.
I am unable to accept the submission of the plaintiffs that Special Condition 41.1 simply requires the vendor to provide an Occupation Certificate prior to completion. It is true that the parties were aware, from the Yellamo report, that some of the works that had previously been undertaken were not in accordance with the approved plans, and that no Occupation Certificate had been obtained in respect of those works. However, had it been the intention that an Occupation Certificate be provided in respect of those works, it would have been a simple matter to include words to that effect. Instead, the parties chose words which focus upon works that may be carried out at a different time.
In addition, I agree with the submission made by the defendant to the effect that the alterations and additions the subject of Special Condition 41.1 are works carried out in accordance with the provisions of the Option Deed. Under the deed, the plaintiffs were permitted, as part of their right to occupy during the Occupation Period, to undertake the Grantee's works. The Option Deed did not otherwise confer upon the plaintiffs any permission to undertake alterations or additions to the property. As mentioned earlier, it is common ground that the plaintiffs did not lodge any Development Application, and thus there were no Grantee's Works able to be undertaken. It follows that neither the bricking up of the doorway nor the construction of the pergola were permitted under the Option Deed. That is so even if, as appears to be the case, those works were in accordance with the existing development consent, and thus not illegal. In my view, the parties should not be taken to have intended that the defendant would be obliged to provide an Occupation Certificate with regard to alterations or additions carried out by the plaintiffs outside the terms of the Option Deed, and without otherwise obtaining the defendant's consent for the carrying out of the works.
There is no suggestion that the defendant's consent was obtained before the works were carried out, and she gave unchallenged evidence that prior to the commencement of the proceedings she was unaware that the plaintiffs had bricked up the doorway and constructed the pergola. It would be an odd result if the plaintiffs in these circumstances could call upon the defendant, even at the last moment, to provide an Occupation Certificate prior to completion.
Accordingly, even if the bricking up of the doorway in April 2015, or the construction of the pergola in 2017 or 2018, were regarded as alterations and additions carried out "immediately prior to and after" the entering into of the Option Deed, it is my opinion that the defendant was not obliged to provide an Occupation Certificate with regard to them prior to completion of the contract for sale. It cannot therefore be concluded that the existence of an obligation under Special Condition 41.1 to provide an Occupation Certificate prior to completion meant that the defendant, on 22 January 2020, was not in a state of readiness, willingness and ability to proceed to completion on the day fixed for completion by the Notice to Complete.
For the above reasons, neither the provisions of Special Condition 41.1, nor the stance that had been adopted by the defendant, as exemplified by the Settlement Statements submitted on 17 January 2020 and 21 January 2020, support a conclusion that the defendant was not in a position to serve a Notice to Complete on 22 January 2020. In my opinion, the Notice to Complete was validly issued, and was effective to make time of the essence for completion of the contract to take place by 6 February 2020.
In that regard, the Notice to Complete operates to bind both parties (see Falconer v Wilson [1973] 2 NSWLR 131 at 143). Time was made of the essence for the performance of the interdependent obligation to complete the contract for sale.
Both parties expressed the view that they were ready, willing and able to complete. The defendant made that statement in the Notice to Complete itself. The plaintiffs made a similar statement in Mr Garrett's letter of 24 January 2020.
In that letter, Mr Garrett maintained, correctly in my view, the distinction he had earlier made between amounts payable under the contract for sale and amounts "payable pursuant to other contractual arrangements". He indicated that the plaintiffs were willing to make such other payments, presumably at the time completion occurred, although it was noted that the amount of those payments was disputed. Mr Murray, in his response of 30 January 2020, stated that this "division of the amounts payable on settlement into a Settlement Adjustment Sheet under the Contract and a Claims Payment Sheet under the Option does not affect the amounts required to be paid by the Purchaser on completion".
The parties remained in dispute as to various amounts said to be payable pursuant to the "other contractual arrangements". For example, there was a dispute about the amount of Rent payable under the Option Deed, and the amount of fees payable under the Consultancy Deed (which the parties seemed to treat as being in the character of occupancy payments); and there was dispute about whether the defendant had a liability under the Option Deed in respect of the roof. In these circumstances, the plaintiffs suggested that funds be set aside pending determination of these disputes, but this was rejected by the defendant on 3 February 2020.
On that day, Mr Garrett raised the issue concerning Special Condition 41.1. It was asserted that the defendant was required to provide an Occupation Certificate. This was denied by Mr Murray on 4 February 2020, but the plaintiffs firmly maintained their position, and Mr Garrett stated on 5 February 2020 that the plaintiffs' preparations for settlement were subject to the provision of an Occupation Certificate in compliance with Special Condition 41.1. I have found that the defendant was not obliged to provide any Occupation Certificate pursuant to Special Condition 41.1. In my opinion, the plaintiffs were propounding an incorrect understanding of what the contract required and were, moreover, firmly indicating to the defendant that they were only prepared to settle on that basis. That position accorded with that which was conveyed to the Court on 6 February 2020. The plaintiffs in fact declined to settle the contract for sale on 6 February 2020, having informed the defendant accordingly shortly before 2:00pm on that day.
The defendant's stated position, as reflected on the PEXA platform, was that $13,296,462.40 was payable by the plaintiffs on settlement. That amount of course included various amounts that were not payable under the contract for sale, where the outstanding purchase price was $12 million. Those amounts included Deferred Rent (calculated at $1,157,948.09 up to 6 February 2020) which was payable under cl 12.6 of the Option Deed on completion of the contract for sale. Mr Murray had stated on 30 January 2020 that the division of amounts "payable on settlement" into a Settlement Sheet for the contract and an Option Claims Sheet for the Option Deed "does not affect the amounts required to be paid by the Purchaser on completion". However, the amounts sought by the defendant included items that (even if due and payable) were not made payable on completion, such as Rent under cl 12.2 of the Option Deed, and fees payable under the Consultancy Deed. (These items were seemingly included in the $62,160.92 claimed as Occupancy Payment Arrears.) Moreover, any amount payable under the Consultancy Deed would not be an amount owed by the plaintiffs. It would be an amount owed by Mamamia.com.au Pty Ltd to Inajay Pty Ltd, an entity that was no longer in existence. The defendant was thus indicating to the plaintiffs that she was prepared to settle on the basis that substantial amounts were paid to her that were not payable by the plaintiffs on completion of the contract for sale, whether under that contract or otherwise. That stance was not in accordance with the terms of the contract for sale. (The same point could be made in relation to the plaintiffs to the extent that they were indicating a preparedness to settle only on the basis of their Settlement Sheet and Option Claims Sheet.)
It would have been open to the plaintiffs to show a willingness to tender the purchase price (subject only to adjustments allowed for under the contract for sale), and the amount of the Deferred Rent (also due on completion), and call for the title to be conveyed in return. Similarly, it would have been open to the defendant to show a willingness to convey the title in return for the payment of those amounts. Both parties failed to do so, insisting instead upon their own preferred course.
In these circumstances it seems to me that as at 6 February 2020, the day fixed for completion by the Notice to Complete, neither side was ready, willing and able to perform their obligations under the contract for sale. The conduct of both sides, prior to and extending into that day, evinced an intention to perform their obligations concerning completion only on a basis that was not in accordance with what the contract required. Both the plaintiffs and the defendant can thus be seen to have repudiated their obligations concerning completion.
The defendant claims that she was entitled to terminate the contract on 11 February 2020 on grounds that include the plaintiffs' repudiation in refusing to complete unless an Occupation Certificate was provided (see Cross-Claim paragraphs 28 and 34(a)). That ground was not relied upon in the Notice of Termination and Rescission of Contract, but it can be relied upon now if it is shown that it existed at the time of the termination (see Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359 at 371, 373 and 377-8).
The obligations of the parties to complete a contract for the sale of land are regarded as interdependent and concurrent. Thus, a failure to perform is not generally regarded as a breach unless the other party has itself tendered performance (see Michael Realty Pty Ltd v Carr [1977] 1 NSWLR 553 at 571; Frankcombe v Foster Investments Pty Ltd [1978] 2 NSWLR 41 at 48; cited in Sharjade Pty Ltd v Commonwealth (2009) 15 BPR 28,443; [2009] NSWCA 373 at [55]). Nevertheless, where a party has repudiated its obligations concerning completion, it seems that it remains open to the other party to accept the repudiation and thereby bring the contract to an end even if the party accepting the repudiation is not itself in a position of readiness, willingness and ability to perform its obligations.
That was the conclusion expressed in obiter dictum by Deane J in Foran v Wight (1989) 168 CLR 385 at 437-8 where his Honour said:
In these circumstances, it is strictly unnecessary that I express any view on the question whether one party to a contract is precluded from rescinding it by accepting a repudiation of the contract by the other party if he is not in a position to prove that he is, or but for the repudiation would have been, ready willing, and able to perform the contract. However, in view of the discussion of that question in other judgments, it would seem desirable that I indicate that, notwithstanding some statements of authority to the contrary, I do not accept the proposition that a party must incur the expense necessary to put himself in a position where he can positively demonstrate actual or potential readiness and willingness to perform a contract before he can accept the repudiation of the other party and thereby rescind. In my view, that proposition is unjustified by either principle or common sense. Absence of actual or potential readiness or willingness to perform a contract will prima facie preclude a successful action against the other party for specific enforcement of the contract or for the recovery of damages for its breach. It does not, of itself, preclude rescission of the contract by acceptance of the other party's repudiation. Were it otherwise, the law would require the useless and futile expenditure by an innocent party of whatever time, effort or money was necessary to place himself in a position where he could positively demonstrate actual or potential ability to perform a contract in order to be able to bring it to an end on the ground that it had already been repudiated by the other party. Indeed, it is difficult to see why, as a matter of principle or common sense, actual breach or even repudiation by one party to a contract should prevent that party from rescinding the contract by accepting a repudiation of the contract by the other party. Put differently, it is difficult to see why the law should insist that, even though both parties to a contract have repudiated it, the contract must hang like an albatross around their necks unless and until they can reach a new agreement about its termination. The point can be illustrated by the hypothetical example of express repudiation by each party to a contract followed by acceptance of the other's repudiation and unilateral rescission of each of them. How can it be said that, in those circumstances, the law continues to require that each perform the contract?
In Sharjade Pty Ltd v Commonwealth (supra) at [60]-[73], Hodgson JA carefully analysed this aspect of Foran v Wight (supra), including the expression of differing opinions in obiter dicta by Mason CJ (at 406-7) and Dawson J (at 452), which were themselves based upon what was said by Stephen, Mason and Jacobs JJ in DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 at 433. At [62], Hodgson JA stated that in his opinion the view expressed by Deane J was correct. His Honour continued at [64] and [68]:
In my respectful opinion, the support given in Foran by Mason CJ and by Dawson J to the proposition from DTR, and similar views expressed in Foran by Brennan J, are weakened by a failure to carefully keep distinct three questions:
(1) the availability of termination to put an end to obligations to perform a contract in the future;
(2) availability of termination plus a cause of action for at least nominal damages; and
(3) availability of termination plus a cause of action for substantial damages for loss of the bargain.
…
As a matter of principle, it seems to me that the view of Deane J is preferable. If the only question is whether a purported termination is effective to put an end to the contract so as to discharge both parties from future performance, then anticipatory breach by one will justify termination by the other whether or not the latter is ready and willing to perform. However, if the latter wants to obtain any relief on the basis of the termination, beyond mere discharge of future obligations, then as part of its cause of action it must prove readiness, willingness and ability. It is no longer necessary to explicitly allege this (UCPR 14.10), but if it is put in issue, the onus lies on the plaintiff to prove it in order to establish such a cause of action.
Applying these principles to the present case, it is my opinion that it was open to the defendant on 11 February 2020 to accept the plaintiffs' repudiation of the contract for sale, and thereby terminate the contract so as to discharge both parties from future performance. However, the conclusion that the defendant was herself not in a position of readiness, willingness and ability to perform her obligations under the contract has the consequence that she cannot obtain any relief beyond the discharge of future obligations. Counsel for the defendant accepted that if the principles as stated by Hodgson JA in Sharjade Pty Ltd v Commonwealth (supra) were applied, and if the Court found that the defendant was not relevantly ready, willing and able to perform her obligations under the contract, the defendant could not sue for damages and would not have an entitlement to recover the deposit.
I think that is correct. I therefore conclude that the contract for sale was terminated by the defendant on 11 February 2020 on account of the plaintiffs' repudiation, but she is not entitled to recover the deposit under the contract or sue for damages for its breach.
The above conclusion does not depend upon the correctness or otherwise of the competing contentions of the parties concerning amounts said to be due under the Option Deed and the Consultancy Deed. The plaintiffs' repudiation essentially rests upon their insistence upon an Occupation Certificate, and the defendant's lack of readiness, willingness and ability essentially rests upon her insistence upon payment of substantial amounts that were not payable by the plaintiffs on completion of the contract for sale, whether under that contract or otherwise.
It is not strictly necessary to deal with the defendant's alternative argument that she terminated the contract pursuant to cl 12.7 of the Option Deed. The defendant accepted that if the contract was terminated in that way she would not be entitled to recover the deposit. However, I will briefly express my views on the issue.
It may be recalled that cl 12.7 of the Option Deed provides that the Grantor (the defendant) may terminate the Contract (the contract for sale) if the Deferred Rent is not paid on time in accordance with cl 12.6. Clause 12.6 provides:
On exercise of either the Put Option or the Call Option, the Grantee must pay to the Grantee's solicitor, no later than 42 days prior to Completion, the Deferred Rent for the period from the commencement of the Occupation Period to Completion calculated on a daily basis AND on completion of the Contract the Deferred Rent is to be paid to the Grantor or as the Grantee directs.
As completion of the contract for sale did not occur, I do not think it can be said that there was any failure on the part of the Grantee (the plaintiffs) to pay the Deferred Rent on time in accordance with the second limb of cl 12.6. The defendant did not submit to the contrary. Rather, she submitted that there was a right to terminate under cl 12.7 if the Deferred Rent was not paid under the first limb of cl 12.6 within the time specified. On that basis, there would be a right to terminate if the plaintiffs failed to pay their solicitor, by no later than 42 days prior to Completion, the Deferred Rent for the period from the commencement of the Occupation Period to Completion. There is no dispute that the plaintiffs have not made any payment of Deferred Rent to their solicitor.
The defendant advanced a number of reasons in support of her construction of cl 12.7, including that the first limb of cl 12.6 would serve no useful purpose if the right to terminate concerned only the second limb. There is some force in that point, although the first limb might in some circumstances be the subject of specific enforcement. Nevertheless, I think the better view is that put forward by the plaintiffs, namely, that "paid" in cl 12.7 should be read as "paid to the Grantor". It seems to me unlikely that reasonable persons in the position of the parties would have understood that the defendant could terminate the contract for sale merely because the plaintiffs failed to pay the Deferred Rent to their own solicitor no later than 42 days prior to Completion. I note that on 30 January 2020 Mr Murray, in addressing cl 12.7, seemed to regard the relevant failure to pay on time to be a failure to pay on completion of the contract. For these reasons, I am of the view that the defendant was not entitled to terminate the contract on 11 February 2020 pursuant to cl 12.7 of the Option Deed.
I would add that I do not accept the plaintiffs' submission that the absence of an "interdependency clause" linking the Option Deed with the contract for sale meant that no right to terminate the contract could arise under cl 12.7. I agree that there is no conceptual difficulty in treating the contract for sale as subject to a power of termination that is contained in the Option Deed. The parties to the contract for sale are parties to the Option Deed, and by that instrument they may make provision for the terms and conditions that are to operate in respect of the contract. Clause 12.7 clearly expresses an intention that in certain circumstances the defendant may terminate the contract.
The defendant submitted that the plaintiffs' claim (made on 9 January 2020) to set off against the purchase price the sum of $275,000 in respect of the cost to repair the roof was a claim within the meaning of cl 7. It was put that the claim had a logical connection with the contract, involving its very subject matter, and it was accepted that it was not a claim the making of which was excluded by the terms of the contract (noting, however, that Special Condition 31.1 contained an acknowledgment that the property was sold in its present state of repair, and precluded the plaintiffs from calling upon the defendant to carry out any repairs in relation to the property). The defendant then submitted that despite the service by her on 13 January 2020 of a notice of intention to rescind, the claim was not waived by the plaintiffs. It was put that on 21 January 2020 the plaintiffs merely purported to waive the claim as a claim "under the contract", which it never was in any event, and continued to press the claim, as shown in the Settlement Sheet provided by Mr Garrett on 24 January 2020 and the plaintiffs' conduct thereafter. It was submitted that the 14 day period under cl 7.1 expired on 27 January 2020, so the defendant was thereafter entitled to rescind the contract.
The plaintiffs submitted that the roof claim was not a claim under cl 7 because it was not brought by the plaintiffs as purchasers under the contract for sale but rather as Grantee under the Option Deed. It was submitted that, in any event, on 22 January 2020 notice was given pursuant to cl 7.1.3 waiving the roof claim "insofar as that claim arose under the Sale of Land Contract and not under the Option". This was said to be reflected in the subsequent inclusion of the amount for the roof in the Option Claims Sheet. Finally, it was submitted that it was not open to the defendant to rescind because she sought completion of the contract, and only sought to rescind after completion did not occur.
Clause 7 establishes a procedure for the resolution of claims that are made by the purchaser before completion. The procedure is one that is initiated, or invoked, by the purchaser (see Nassif v Caminer (supra) at [76]-[77] per Sackville AJA). I agree with the submissions of the defendant that a claim can be a claim within the meaning of cl 7 even if it does not arise out of the contract itself, and that it is sufficient that the claim has some logical connection with the contract (see Nassif v Caminer (supra) at [43] per Macfarlan JA). In my opinion, the claim by the plaintiffs in respect of the roof of the property the subject of the contract, which claim arose under the Option Deed and was stated to justify a set-off against the purchase price under the contract, was a claim of a type that could be made by the plaintiffs pursuant to cl 7. Furthermore, I am prepared to accept that the bringing of the claim pursuant to cl 7 was not precluded by the terms of Special Condition 31.1.
It is next necessary to consider whether the plaintiffs in fact made the claim pursuant to cl 7. This does not depend upon the subjective intentions of the plaintiffs (or their solicitor). The question whether the plaintiffs made the claim for the purposes of cl 7 must be determined objectively by considering their conduct in that regard. It is necessary to consider the particular circumstances in order to reach a conclusion as to whether the plaintiffs invoked the cl 7 procedure. This issue did not arise in Nassif v Caminer (supra) where it was clear that the purchaser was intending to make a claim under cl 7.
As stated by Macfarlan JA in Nassif v Caminer (supra) at [59], cl 7 does not specify any particular form for a claim, but it is at least sufficient if the claim identifies its general nature and amount. The general nature and amount of the plaintiffs' claim in respect of the roof was described in Mr Garrett's emails of 18 December 2019 and 9 January 2020. In the first of his emails of 9 January 2020, Mr Garrett confirmed that the plaintiffs claimed that $275,000 should be set-off against the purchase price to cover the roof repair claims; and that if the amount could not be agreed, the plaintiffs would want $315,000 set aside from the purchase price as a fund to cover a later dispute resolution process to determine the claim. In the second of his emails on 9 January 2020, Mr Garrett confirmed to Mr Murray:
that for completion of the transfer of the property to occur (say) on 20 January 2020, without a retention for later mediation, [the plaintiffs] would require $275,000 to be deducted from the price.
I note that in these communications no reference was made to cl 7 of the contract. The reference to a "dispute resolution process" is equivocal, but the reference to a "later mediation" seems not to be a reference to the procedure laid down in cl 7. Mr Murray nonetheless interpreted the conduct of the plaintiffs as amounting to the making of a claim pursuant to cl 7. His email of 13 January 2020 was expressed to be a notice of intention to rescind within cl 7.1.2.
Mr Garrett's response on 14 January 2020 was to the effect that the notice was misconceived in circumstances where the plaintiffs' claim arose under the Option Deed, and the suggested adjustment at settlement was not claimed as an adjustment under the contract for sale. Mr Garrett's understanding of the scope of cl 7 may have been unduly narrow, but his response suggests that there had been no intention on the part of the plaintiffs to make a claim pursuant to cl 7 and thus initiate the procedure that is there prescribed.
In my view, the cl 7 procedure was not invoked by the plaintiffs in respect of the roof claim. Viewed objectively, their conduct does not show an intention to proceed in that fashion.
Even if it could be said that a claim had been made under cl 7, it is my view that the plaintiffs waived the claim for the purposes of cl 7.1.3. After the receipt of the defendant's notice of intention to rescind, Mr Garrett stated on 14 January 2020 that the plaintiffs "withdraw any further suggestion of an adjustment under the Contract". On 15 January 2020 Mr Murray pressed Mr Garrett to clearly confirm that the claim is waived "to the extent that it constitutes a claim for the purposes of clause 7.1 of the Contract". Mr Garrett initially reaffirmed the position he had put on 14 January 2020. Later, in his email of 22 January 2020, Mr Garrett stated that to the extent the defendant contended that the plaintiffs have made a claim for a deduction under the contract, the plaintiffs "formally waive such a claim", and further that the letter was a notice pursuant to cl 7.3. (The reference to cl 7.3 is an obvious error. It is plain that Mr Garrett was intending to refer to cl 7.1.3.) It was clearly intended that any claim made under cl 7.1 was waived.
The defendant submitted that the plaintiffs were nonetheless pursuing a claim in an amount that exceeded 1% of the price, and were demanding that an amount be withheld from the purchase price on account of the claim. It was submitted that in those circumstances it could not be said that the plaintiffs had waived the claim. However, it seems to me that the waiver of a claim pursuant to cl 7.1.3 involves only a waiver of the claim as a claim under cl 7. It is not a waiver of the claim at large, such as would finally preclude the bringing of the claim apart from the procedure established under cl 7, which is a particular mechanism for the determination of claims that are made before completion. In my opinion, even if the plaintiffs had made a claim under cl 7 in respect of the roof, the plaintiffs had waived that claim by 22 January 2020. Despite that waiver, it remained open to the plaintiffs to pursue the claim otherwise than under cl 7 of the contract, although not in a way that was inconsistent with their obligations under the contract for sale.
It follows from the above that the defendant did not have any entitlement to rescind the contract pursuant to cl 7.1. I do not propose to deal with the further argument that the defendant's conduct after 27 January 2020, in continuing to rely upon the Notice to Complete which called for completion to occur by 6 February 2020, amounted to an election which would in any event preclude the defendant from exercising any right to rescind under cl 7.
The plaintiffs' tenancy, being a residential tenancy agreement that was a periodic agreement, not a fixed term agreement, was able to be terminated by the defendant giving a notice that specifies a termination date that is not earlier than 90 days after the date the notice is given (see s 85 of the Residential Tenancies Act). That was done by the notice given on 3 March 2020, which specified that any periodic tenancy will terminate with effect from 3 June 2020.
It appears to be accepted on both sides that in these circumstances the plaintiffs would be obliged to continue to pay Rent pursuant to the Option Deed (at the rate of $52,000 p.a.) up to and including 3 June 2020. The plaintiffs are thus bound to pay Rent at that rate in respect of the period from 1 December 2019 to 3 June 2020.
On the conclusions I have reached, the plaintiffs were not entitled to remain in occupation after 3 June 2020. It is appropriate that they pay an amount by way of mesne profits for their occupation since 3 June 2020.
Based on the opinion of the jointly retained valuer (Mr Russ), who assessed the current market rental value of the property as at 29 June 2020 at between $5,750 and $6,000 per week (depending upon whether certain improvements were included, some but not all of which appear to be in the nature of fixtures), I think it would be appropriate for the plaintiffs to pay mesne profits at the rate of $5,875 per week from 4 June 2020 until possession. The plaintiffs are of course entitled to be credited the amounts they have paid pursuant to interlocutory orders made by the Court on 27 March 2020 and 9 April 2020 in respect of the plaintiffs' occupation of the property.
It is also appropriate that an order for possession be made in favour of the defendant. The plaintiffs should be allowed a reasonable period in order to vacate the property.
In these circumstances it is not strictly necessary to deal with the expert evidence that was called concerning the condition of the slate roof. I will state, however, that I would not be prepared to accept the curtly expressed opinion of Mr Rimmer, who was called by the plaintiffs, that it was obvious that the slate roof was in a very poor condition and requires replacement. The opinion was not supported by detailed reasoning. Further, Mr Rimmer had been asked, in his letter of instruction, to operate on the assumption that the slate roof requires replacement, and to provide an estimate of the cost of replacing it. That instruction tends to undermine the confidence that might otherwise be placed in Mr Rimmer's opinion.
The defendant adduced evidence on this topic from Mr Joannides and from Mr Hall. The three experts were each cross-examined, but only briefly. Primarily based on my reading of the reports of the three experts, I prefer the opinions of Messrs Joannides and Hall, each of whom appears to have conducted a thorough and detailed assessment of the condition of the roof. Each expressed opinions to the effect that it was not necessary to replace the entire slate roof, although various repairs were required or recommended.
Lastly, the plaintiffs made an alternative claim for $195,000 in respect of the roof. That is the amount said to have been agreed between Mr Lavigne and Mr Jayaraj on about 2 September 2019. In this regard, I accept Mr Lavigne's evidence about the content of the lengthy conversation he had with Mr Jayaraj on 2 September 2019. During that conversation consensus was reached on an amount of $195,000 to be "claimed for the roof on settlement", subject to Mr Jayaraj finding a lower quote for works that would yield a lower figure. This agreement was reached in return for Mr Lavigne agreeing to make a monthly payment. Mr Lavigne made the payment (of $16,697.67) on 3 September 2019. The making of an agreement to this effect is further evidenced by the content of the emails that were exchanged between Mr Lavigne and Mr Jayaraj on 3 September 2019. I note that those emails refer to some other issues that were left unresolved. However, I do not think that the agreement in relation to the figure of $195,000 was conditional upon agreement being reached on those other matters. Further, I do not regard the agreement as being in the nature of a variation of the Option Deed, such as would be required by cl 18.3 to be in writing and executed by the parties.
I accept the submissions of the plaintiffs to the effect that Mr Jayaraj at least had the ostensible authority of the defendant to make the agreement on her behalf. She had placed Mr Jayaraj in a position to negotiate with the plaintiffs on all manner of issues concerning the property since late-2014. That the defendant had been content to allow Mr Jayaraj to assume that role is supported by the fact that when the defendant first spoke to Mr Lavigne on 25 November 2019, in a conversation that included discussion about the $195,000 agreement, she did not complain that her husband had no authority to make such an agreement. Her complaint concerned the fairness of the agreement. I am also prepared to infer, from the lengthy course of dealings between Mr Lavigne and Mr Jayaraj, that Mr Lavigne had the authority of Mia Lavigne to make the agreement on behalf of them both. Despite the lack of direct evidence on the issue, I consider that the inference is an available one having regard to the domestic relationship between the plaintiffs, and the subject matter of the dealings which Mr Lavigne alone had with Mr Jayaraj over a lengthy period concerning the home of the plaintiffs and their children.
However, the agreement reached concerned an amount that would be paid or credited to the plaintiffs on the settlement of the contract for sale. The agreement falls away in circumstances where, as I have found, the contract for sale has been terminated. This appeared to be accepted by the plaintiffs. In addition, enforcement of the agreement would in any event be problematic due to the subsequent conduct of the parties. By 10 December 2019 Mr Murray was clearly asserting that the $195,000 roofing allowance was not agreed. On 18 December 2019 Mr Garrett, in response, stated that the $195,000, described as a "concession", had been withdrawn by the plaintiffs, who now required a full allowance for this amount for roofing. The plaintiffs thereafter maintained a claim for $275,000, and later $251,800. The plaintiffs allege that the agreement was repudiated by the defendant. I think that is correct. The plaintiffs do not go on to allege that they accepted the repudiation so as to bring the contract to an end. The defendant submitted that any agreement came to an end either by acceptance of the defendant's repudiation, or by the parties simply abandoning the contract. In my view, the conduct of the parties from December 2019 showed that neither intended that the agreement be further performed. In the face of the defendant's refusal to be bound by the agreement, the plaintiffs cast the agreement aside and chose to pursue a larger claim with respect to the roof. The pursuit of that claim was inconsistent with the continued existence of the agreement. The conduct of the parties was such as to amount to an abandonment or abrogation of the contract (see DTR Nominees Pty Ltd v Mona Homes Pty Ltd (supra) at 434). I do not propose to deal with the suggested conventional estoppel, said by the plaintiffs to have arisen in relation to an obligation upon the defendant to pay the plaintiffs the cost of roof replacement. No such estoppel was pleaded.