M.K. & J.A. Roche Pty. Ltd. & Ors. v. Metro Edgley Pty. Ltd. & Anor. [2005] NSWCA 39

M.K. & J.A. Roche Pty. Ltd. & Ors. v. Metro Edgley Pty. Ltd. & Anor. [2005] NSWCA 39 - NSWCA 2004 case summary — Zoe

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GROUNDS OF APPEAL 35 Roche and the Guarantors appeal on the following grounds: CONSTRUCTION His Honour erred in finding that Clause 2A(b) of the Development Contract was required to be construed as making the Development Contract not void but voidable. 2. His Honour erred in failing to construe the Development Contract in accordance with its clear, natural and unambiguous meaning. 3. His Honour erred in failing to deal with or give reasons with respect to the following arguments put to his Honour with respect to construction of Clause 2A(b) of the Development Contract: (a) the meaning and effect of a contractual provision depends on the particular words used and if they are unequivocal then there is no room for deviation; (b) the word "automatically", which means "self moving or self acting; mechanical or occurring independently of volition", must render the phrase "automatically rescinded and of no force and effect" as meaning void and not voidable at the instance of a party; (c) to construe "automatically rescinded" as meaning voidable was inconsistent with the Sunset Date since it would permit the Development Contract to extend beyond the Sunset Date; and (d) the Development Contract distinguishes between automatic rescission and rescission pursuant to a right of rescission, which indicate the parties intended "automatically rescinded and of no force and effect" as meaning void and not voidable at the instance of a party. 4. His Honour erred in failing to find that by reason of the non satisfaction of the conditions precedent in Clause 2A(a) of the Development Contract, the contract had been automatically rescinded. 5. His Honour erred in finding that notice of rescission by the First Appellant was required to bring the Development Contract to an end notwithstanding the terms of the Development Contract. 6. His Honour erred in not finding that at least one of the conditions that had not been satisfied was outside of the control of the parties. 7. His Honour erred in not finding that the correct principle to be applied was that a party relying on non-satisfaction of a condition precedent would not be permitted to rely on it only if such non satisfaction was caused by that party. 8. His Honour erred in not finding that the Development Contract was automatically rescinded given that: (a) conditions precedent were not satisfied; (b) at least one of such conditions was (and so accepted by the Respondents) outside the control of the Appellants; and (c) it was not alleged by the Respondents that any condition had not been not satisfied as a consequence of anything done or not done by the Appellants.

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ESTOPPEL 17. His Honour erred in finding that the facts before the court justified a finding in favour of the First Respondent reached under the rubric of waiver meaning 'estoppel'. 18. His Honour erred in failing to identify the nature of the 'estoppel', the legal elements making up the 'estoppel' or the facts relied upon that established those elements. 19. His Honour erred in failing to identify the assumption made by the Respondents and from which the Appellants were not permitted to resile. 20. His Honour erred in failing to identify the part played by the Appellants in the adoption of the (unidentified) assumption. 21. His Honour erred in failing to identify the acts or omissions of the Respondents which were based upon the (unidentified) assumption. 22. His Honour erred in failing to identify the detriment which would be suffered by the Respondents if the Appellants were allowed to set up rights against them inconsistent with the (unidentified) assumption. 23. His Honour failed to identify the basis upon which it would be unfair or unjust if the Appellants were left free to ignore the (unidentified) assumption. 24. His Honour erred in failing to find that the Appellants played no part in the adoption of an assumption by the Respondents that the Development Contract remained on foot after 31 March 2004. 25. His Honour erred in failing to find that the Respondents did not engage in any material acts or omissions between 1 April and 21 May 2004 in reliance on an assumption that the Development Contract remained on foot after 31 March 2004. 26. His Honour erred in failing to find that the Respondents would suffer no relevant detriment if the Appellants were permitted to assert that the Development Contract was automatically rescinded and of no force and effect after 31 March 2004. 27. His Honour erred in failing to find that it would not be unfair or unjust for the Appellants to be permitted to assert that the Development Contract was automatically rescinded and of no force and effect after 31 March 2004.

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GUARANTEES 30. His Honour erred in failing to deal with the Second Appellants Amended Defence to the Amended Cross Claim insofar as it related to discharge of the guarantees. 36 Metro and Multiplex cross-appeal on the following grounds: 1. His Honour should have concluded, based on all of the evidence, that at the meeting on 2 March 2004 the Cross Respondents/Appellants were told by the Cross Appellants/Respondents that the time for the conditions precedent to be fulfilled was extended. 2. His Honour erred in concluding in paragraph 78 of his judgment that there was not a great deal that came forward in terms of a proper foundation for an attack on the credit of any of the witnesses called by either party and that any attacks upon credit of each of the material witnesses were mounted on "disparate grounds, none of them was of sufficient weight to enable a positive finding on the critical issue". 3. His Honour should have found, based on all of the evidence, that the evidence proffered by the various witnesses called on behalf of the Cross Respondents/Appellants to the effect that nothing at all was said at the meeting on the topic of an extension of time, was false. 4. In those circumstances his Honour should have concluded that there had been an oral verification of any extension of time the effect of which was either/or: (a) to found an estoppel by representation; (b) a representation which entitled the Cross Appellants/Respondents to relief under the Trade Practices Act; (c) amounted to an oral variation of the primary contract; and/or (d) was sufficient conduct to extend the time for performance of the conditions precedent. 37 Metro and Multiplex also rely on a Notice of Contention containing the following grounds: 1. The facts as found by his Honour were sufficient to justify a finding of conventional estoppel, the effect of which would be to preclude the Appellants from asserting that the time for performance of the conditions precedent had not been validly extended.

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CONSTRUCTION OF CLAUSE 2A Submissions 39 Mr. Hammerschlag SC for the appellants submitted that, in holding that the non-fulfilment of the conditions precedent did not give rise to an automatic rescission, the primary judge had relied on what was said in Suttor v. Gundowda Pty. Limited (1950) 81 CLR 418 at 440-442, to the effect that, where a contractual provision is to the effect that a contract is void upon the happening of an event that may be caused by the default of one party, then the provision is to be construed as making the contract voidable at the option of a party who is not in default. However, Mr. Hammerschlag submitted, the question was one of construction and must depend on the particular words of the particular contract: see Sandra Investments Pty. Ltd. v Booth (1983) 153 CLR 153 at 161 and 165. A contract could be construed as providing for automatic termination even though the event could possibly be caused by the default of one party, and that party could be precluded from taking advantage of the clause by direct application of the principle that a party cannot be permitted to take advantage of its own wrong: see Rudi's Enterprises Pty. Ltd. v. Jay (1987) 10 NSWLR 568 at 576-580. 40 Mr. Hammerschlag submitted that the wording of cl.2A(b), and in particular the use of the word "automatically", was such as to plainly exclude the need for a notice. This was also supported by the inclusion in the agreement of a Sunset Date: the primary judge's construction would mean that, if the Developer had extended the date to the Sunset Date, the agreement would continue beyond the Sunset Date unless one or other party gave a Notice of Termination, and that could not have been intended. It was also supported by the circumstance that the agreement itself distinguishes between automatic rescission and rescission pursuant to a right of rescission: see cl.5(d). The construction was also supported by the circumstance that the Developer, and only the Developer, is given the right to extend the deadline. 41 Mr. Newlinds SC for the respondents submitted that most of the elements of the conditions precedent were within the control of one or both parties. Accordingly, the primary judge was correct to apply what was said in Suttor. Mr. Newlinds also referred to New Zealand Shipping Co. Ltd. v. Société des Ateliers et Chantiers de France [1919] AC 1, at 4, 9, 12-13 and 15; Meehan v. Jones (1982) 149 CLR 571 at 591-2; and Sandra Investments.

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Decision 42 In my opinion, the first question to be considered is whether Suttor establishes a principle of law to be applied irrespective of the apparent intention of the parties, or rather establishes a principle to guide the construction of a contract, which can give way to sufficiently clear expressions of intention to the contrary. I say at once that in my opinion it is the latter. 43 Suttor concerned a contract for the sale of a pastoral property that provided that, in the event of the consent of the Treasurer not being obtained within two months of the date of contract or such further period as might be mutually agreed upon by the parties, the contract should be deemed to be cancelled. The High Court held that the non-receipt of the Treasurer's consent by the relevant date did not effect an automatic cancellation of the contract because the relevant clause should be construed as making the contract not void but voidable, the question of who might avoid it depending upon the event. The following reasoning appears in the joint judgment of Latham CJ, Williams J and Fullagher J at 440-442: In the second place, although cl.12 in terms provides for an automatic avoidance of the contract on the occurrence of a specified event, that is (even if no agreement for an extension of time were made) by no means the end of the matter. The effect of contractual provisions of this character was discussed and explained in New Zealand Shipping Co. Ltd. v. Societe des Ateliers et Chantiers de France . Lord Atkinson said:- "It is undoubtedly competent for the two parties to a contract to stipulate by a clause in it that the contract shall be void upon the happening of an event over which neither of the parties shall have any control, cannot bring about, prevent or retard. For instance, they may stipulate that if rain should fall on the thirtieth day after the date of the contract, the contract should be void. Then if rain did fall on that day the contract would be put to an end by this event, whether the parties so desire or not. Of course, they might during the currency of the contract rescind it and enter into a new one, or on its avoidance immediately enter into a new contract. But if the stipulation be that the contract shall be void on the happening of an event which one or either of them can by his own act or omission bring about, then the party, who by his own act or omission brings that event about, cannot be permitted either to insist upon the stipulation himself or to compel the other party, who is blameless, to insist upon it, because to permit the blameable party to do either would be to permit him to take advantage of his own wrong, in the one case directly, and in the other case indirectly in a roundabout way, but in either way putting an end to the contract."

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Where the event in question is one which cannot occur without default on the part of one party to the contract, the position is clear. The provision is then construed as making the contract not void but voidable: only the party who is not in default can avoid it, and he may please himself whether he does so or not. In the present case the happening of the event (not obtaining the Treasurer's consent) may be brought about by failure on the part of either party to take certain necessary steps (provision of particulars by the vendor or making of application by the purchaser) to obtain the Treasurer's consent, or it may be brought about without any default on the part of either party. In fact, although there was some argument to the contrary, it was, we think, brought about without any default on the part of either party. Such a case is perhaps not quite so clear as the simpler case where the event cannot occur without default on one side or the other. But we are of opinion that the New Zealand Shipping Case requires the same construction to be given to the contract in both classes of case. The provision in question is to be construed as making the contract not void but voidable. The question of who may avoid it depends on what happens. If one party has by his default brought about the happening of the event, the other party alone has the option of avoiding the contract. If the event has happened without default on either side, then either party may avoid the contract. But neither need do so, and, if one party having a right to avoid it does not clearly exercise that right the other party may enforce the contract against him. This is, we think, the view of Lord Shaw and Lord Wrenbury in the New Zealand Shipping Case, and it is consistent with what was said by Lord Finlay L.C. The language of Lord Atkinson may perhaps be regarded as expressing a different view, but we doubt whether his Lordship had in mind the precise point which arises here and which did not arise in the New Zealand Shipping Case. Although the effect of a provision in a contract may differ according to the events which happen, its construction cannot differ according to the events which happen. If "void" means "voidable," it means "voidable" whatever happens. It cannot very well mean "voidable" if an event happens through the default of one party, and "void" if the event happens without default by either party. 44 That passage could be read as setting out a principle of law rather than a mere guide to construction, but to so read it would in my opinion be against very well-established principles concerning the construction of contracts, including the principle that, if words used in a contract are unambiguous, the Court must give effect to them: Australian Broadcasting Commission v. Australasian Performing Rights Association (1973) 129 CLR 99 at 109. The passages referred to earlier in Sandra Investments are to similar effect. Accordingly, I respectfully agree with what Samuels JA (with the concurrence of Priestly JA and McHugh JA) said in Rudi's Enterprises, particularly in the following passage at 579: I cannot think that the Court in Suttor intended to lay down the proposition that parties could not stipulate for automatic termination of a contract save upon the occurrence of an event which, objectively, lay beyond their control. Effect must be conceded to the parties' intention. 45 Thus, as asserted in Rudi's Enterprises, where the parties have clearly stipulated for automatic termination upon the occurrence of an event which could occur either without the default of either party or with the default of one or other party, and if the event occurs through the default of one party, then, although in general terms this would mean automatic termination, the party whose default caused the event can be prevented from taking advantage of this by direct application of the principle that a party cannot take advantage of its own wrong, rather than through construing the contract contrary to its clear meaning. 46 I appreciate that, in some circumstances, this could give rise to uncertainty. If one has such a contract and the invalidating event occurs through the default of one party, that party will be in doubt as to whether performance of the contract is or is not required of it, unless some notice is given by the party not in default. However, I do not think this consideration does more than generally support the Suttor approach to construction. 47 In my opinion, the Suttor principle of construction applies most powerfully if the invalidating event can occur only through a breach of contract by one or other party. The lesser the likelihood that the disabling event occur through the breach of one or other party, as distinct from some cause outside the control of the parties, the less powerfully does the principle apply. In the case of cl.2A of the Development Contract, it appears that there are many matters outside the control of the parties that could cause the non-fulfilment of the conditions precedent. So in my opinion, the Suttor principle does not apply at full strength. In my opinion, the wording of cl.2A(b), and particularly the use of the word "automatically", clearly shows that the parties' intention, as manifested by the words they chose, was that the contract would be automatically rescinded and that no notice was required; and that intention should prevail in the construction of the contract. 48 However, I would add that this conclusion is subject to the effect of the respondents' argument based on conventional estoppel, raised by their Notice of Contention; and for that reason I will address questions that arise only if the contract was not automatically rescinded.

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Submissions 58 Mr. Hammerschlag submitted that the conduct of Roche after 31 March 2004 amounted at its highest to a recognition of the contract, and was not conduct justifiable only if an election had been made to affirm the contract, and certainly could not be characterised as a communication to Metro of such an election. The primary judge identified only two pieces of evidence showing conduct justifiable only if an election had been made to affirm the contract, namely concessions by the Roche brothers that between 31 March and 21 May 2004 both parties conducted themselves as if the contract was still on foot, and Mr. Accardo's evidence that the work carried out by Metro after 31 March 2004 related directly to the Roche fit-out. The first matter did not amount to identification of conduct justifiable only if an election had been made to affirm the contract; and evidence as to what Metro did could not amount to an election by Roche, particularly having regard to Mr. Jago's evidence that all construction-related issues arising from the impact of the Roche fit-out on the base building work, other than one minor matter, were resolved by 19 March. 59 Furthermore, he submitted, even if there had been an election not to terminate the contract on the basis that the conditions precedent had not been satisfied by 31 March, this did not amount to an election not to terminate the contract because the conditions precedent had not been satisfied by (say) 21 May 2004. 60 Mr. Hammerschlag also submitted that cl.48 of the Development Contract provided that none of the terms of the contract should be waived without the prior consent in writing of Roche; and since no such consent was given, no conduct of Roche could amount to a waiver of its right to avoid the contract for failure of the conditions precedent. 61 Mr. Newlinds submitted that there was conduct by Roche between 31 March and 21 May 2004 which was justifiable only if an election had been made to affirm the contract, namely communication by their architects to the builder changing the plans giving rise to changes to the building works; the absence of any communication to prevent the building works continuing so as to give effect to Roche's plans and to changes agreed upon prior to 31 March 2004; site meetings attended by Roche's architects in which arrangements were made concerning the future progress of the work; and communications between the solicitors for the parties dealing with the conditions precedent, causing legal costs to be incurred by the respondents as well as the appellants.

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Decision 62 In my opinion, the relevant principle is that stated by Mason J in Sargent v. ASL Developments Ltd. (1974) 131 CLR 634 at 658: If a party to a contract, aware of a breach going to the root of the contract, or of other circumstances entitling him to terminate the contract, though unaware of the existence of the right to terminate the contract, exercises rights under the contract, he must be held to have made a binding election to affirm. Such conduct is justifiable only on the footing that an election has been made to affirm the contract; the conduct is adverse to the other party and may therefore be considered unequivocal in its effect. The justification for imputing to the affirming party a binding election in these circumstances, though he be unaware of his alternative right, is that, having a knowledge of the facts sufficient to alert him to the possibility of the existence of his alternative right, he has acted adversely to the other party and that, by so doing, he has induced the other party to believe that performance of the contract is insisted upon. It is with these considerations in mind that the law attributes to the party the making of a choice, though he be ignorant of his alternative right. For reasons stated earlier the affirming party cannot be permitted to change his position once he has elected. 63 The question of Roche's awareness of the circumstances giving rise to the right to treat the contract as at an end was not specifically addressed by the primary judge. Roche's evidence was that it knew of its right to treat the contract as at an end on 10 May 2004, so that if conduct amounting to an election between that time and 21 May 2004 had been identified, that would it seems have amounted to a binding election. However, the judgment did not identify relevant conduct within that period of about eleven days. 64 In his evidence in the case, Michael Roche at one stage conceded that he was aware from 31 March 2004 that the condition numbered (iii) in cl.2A had not been satisfied, and was also aware that no written notice of extension of time beyond 31 March 2004 had been given. In circumstances where Michael Roche was the person most concerned on behalf of Roche with the matter, that evidence, if accepted, may have satisfied the requirement stated in Sargent that the party know of circumstances giving rise to the right to terminate the contract. However, the primary judge made no finding on this. 65 I am inclined to think that the matters referred to by Mr. Newlinds, although not specifically referred to by the primary judge, would be sufficient to satisfy the other aspect of the requirements referred to in Sargent. The attending at site meetings, making arrangements for the continuation of works in accordance with plans approved by Roche, the notification of a change of plans, and the continued procuring of co-operation by the respondents to achieve satisfaction of the conditions precedent (involving the incurring of legal costs), all seem to be matters adverse to the respondents to which Roche would have had no entitlement but for the continued operation of the contract. However, again, there is the difficulty that there is no express finding on these matters by the primary judge. 66 I do not think the other points raised by Mr. Hammerschlag succeed. The contract cannot fully take effect unless and until conditions precedent are satisfied; but I am inclined to think that the right to rescind for non-satisfaction of the conditions precedent, prior to the Sunset Date, is tied to the particular date specified in cl.2A(b) or any extended date; that is, that if the right to rescind for non-satisfaction of the conditions precedent by that date is lost, there is no right to rescind prior to the Sunset Date, unless the Developer in the meantime gives notice in writing of some other date prior to the Sunset Date. As regards cl.48 and waiver, I am inclined to think that this clause does not preclude the operation of the doctrine of election, which, although sometimes loosely referred to as waiver, is in my opinion a different concept. 67 For reasons I will give, the matter will have to be the subject of further first-instance consideration; so in my opinion the appropriate course is to refer this aspect back for specific determination of whether the two requirements for election set out in the passage from Sargent quoted above are satisfied in this case.

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CONVENTIONAL ESTOPPEL Submissions 68 Mr. Newlinds submitted that there was a conventional estoppel or common assumption estoppel which had the effect of preventing Roche from asserting that the contract automatically came to an end on 31 March 2004. Quite independently of whether Roche knew of circumstances falling within cl.2A, the primary judge's finding that both parties continued between 31 March 2004 and 21 May 2004 to conduct themselves as if the contract was still on foot gave rise to a common law estoppel by assumption to the effect that the contract was not automatically terminated on 31 March 2004. Mr. Newlinds referred to the following passage from Con-Stan Industries Australia Pty. Ltd. v. Norwich Winterthur Insurance (Australia) Ltd. (1986) 160 CLR 226 at 244-5: Estoppel by convention is a form of estoppel founded not on a representation of fact made by a representor and acted on by a representee to his detriment, but on the conduct of relations between the parties on the basis of an agreed or assumed state of facts, which both will be estopped from denying. The existence of an estoppel based on a convention between the parties has often been recognized: Thompson v. Palmer; Grundt v. Great Boulder Pty. Gold Mines Ltd; Legione v. Hateley; Amalgamated Investment & Property Co. Ltd (In liq.) v. Texas Commerce International Bank Ltd.; Spencer Bower and Turner, Estoppel by Representation 3rd ed. (1977), pp. 157-177. But in our opinion the doctrine has no application to the present case for two reasons. First, there is no estoppel unless it can be shown that the alleged assumption has in fact been adopted by the parties as the conventional basis of their relationship: Dabbs v. Seaman. In the absence of proof of custom, there is no evidence that the parties adopted the alleged assumption. Secondly, just as estoppel by representation requires a representation of fact, so too estoppel by convention requires the assumed state of affairs to be an assumed state of fact: Greer v. Kettle; Spencer Bower and Turner, Estoppel by Representation 3rd ed., pp. 167-168

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Decision 71 The first matter to be considered is whether there is still an all-or-nothing common law estoppel, distinct from the equitable estoppel under which the appropriate relief is the minimum relief required to do equity and avoid unconscionable conduct. In my opinion, having regard to the comments in Giumelli referred to by Mr. Newlinds, it is appropriate for this Court to proceed on the basis that there is still an all-or-nothing doctrine of common law estoppel by representation and conventional estoppel. I also accept that there can be such an estoppel as to rights and not merely as to facts: see Eslea and Heggies, and cases there cited. 72 However, I do not accept Mr. Newlinds' submission that reliance and detriment are not essential for the existence of conventional estoppel. The passage from Con-Stan refers inter alia to Grundt v. Great Boulder Proprietary Gold Mines Ltd. (1937) 59 CLR 641, in which Dixon J makes it clear that the relevant principle is that "the law should not permit an unjust departure by a party from an assumption of fact which he has caused another party to adopt or accept for the purpose of their legal relations" (at 674), this involving both (1) action such that the party relying on the estoppel would suffer a detriment if the other party were afterwards allowed to set up rights inconsistent with the assumption; and also (2) that the party against whom the estoppel is asserted "must have played such a part in the adoption of the assumption that it would be unfair or unjust if he were left free to ignore it" (at 675). See also Thompson v. Palmer (1933) 49 CLR 507 at 547. In my opinion, common law estoppel by representation or conventional estoppel still requires that the party relying on the estoppel must have "placed himself in a position of significant disadvantage if departure from the assumption be permitted": see Verwayen at 444. 73 In the present case, the primary judge did find to the effect that both parties acted on the assumption that the contract had not automatically come to an end on 31 March 2004; so that, if Metro would be at significant disadvantage if departure from the assumption were permitted, and if Roche played such a part in the adoption of the assumption that it would be unfair to permit Roche to depart from it, then the elements of conventional estoppel would be made out. 74 Accordingly, in order to determine the applicability of this doctrine, it would be necessary for there to be findings as to whether there was significant detriment to Metro arising from the adoption of the assumption between 31 March 2004 and 21 May 2004, and whether Roche played such a part in the adoption of that assumption that it would be unfair or unjust now to permit a departure from that assumption; and the primary judge did not make those findings. 75 If these findings (of detriment, and Roche's part in adoption of the assumption) are made, the result would in my opinion be that Roche is estopped from asserting that the Development Contract was automatically rescinded on non-satisfaction of the conditions precedent by 31 March 2004. The estoppel would not of itself preclude Roche from asserting that non-fulfilment of the conditions by 31 March 2004 was a basis for rescinding the contract, because the estoppel would go only to the continuing existence of the contract, not to its immunity from rescission. However, if the election to affirm the contract was also established, as discussed above, this would mean that the contract could not have been rescinded by notice on 21 May 2004. 76 Accordingly, in my opinion the matter should be referred back for first-instance consideration of both conventional estoppel and election. The respondents would need to succeed on both these issues to succeed in the case, because if they do not succeed on conventional estoppel, then automatic rescission would have taken effect; while if they do not succeed on election, the notice of 21 May 2004 would have been effective. Because the case could go to the High Court, it would also be appropriate for the judge to reach a view on what would be the appropriate remedy if there is now just one over-arching doctrine of estoppel, under which the appropriate relief is the minimum required to prevent injustice. 77 I would add that, in my opinion, cl.48 of the contract dealing with waiver does not exclude the operation of conventional estoppel.

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Cases Cited (18)