McRae & Anor v Bolaro Pty Ltd [2000] VSCA 72

[2000] VSCA 72

Court of Appeal (Vic)|2000-05-05|Before: ORMISTON, CHARLES and CALLAWAY, JJ.A.

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Source facts

Court

Court of Appeal (Vic)

Decision date

2000-05-05

Before

ORMISTON, CHARLES and CALLAWAY, JJ.A.

Source

Original judgment source is linked above.

Judgment (54 paragraphs)

[1]

[2000] VSCA 72

[2]

CONTRACT - Vendor and purchaser - Repudiation - Anticipatory breach - Actual breaches - Reliance on ineffective notice pursuant to General Conditions 5 and 6 of Table A - Whether purchasers evinced intention no longer to be bound - Whether affirmation of contract by serving ineffective notice - Whether failure to pay interest breach of essential term - Whether breach accepted by vendor consisted only of actual breach or also of anticipatory breach - Whether "abandonment" of contract by both parties.

[3]

The appellants appeal from a judgment of a judge of the trial division for damages for breach of a contract of sale of land arising from what was held to be the repudiation of that contract by the appellant purchasers. Implicit in the appeal, although not explicit except to the extent to be inferred from the nature of the orders sought, is likewise an appeal from the effective refusal of the judge to make orders on the counterclaim in favour of the appellants and his refusal to order the respondent vendor to repay all amounts of principal so far paid by the appellants to the respondent. The primary issue in the appeal arises out of the failure of the appellants as purchasers to make certain interest payments and their expression through their solicitors of an inability to make those payments, and arguably any other payments, under the rescheduled contract of sale whereby they agreed to purchase the respondent vendor's cattle property in South Gippsland on terms for the price of $3.5M. The appellants failed to pay one instalment of interest, saying that they had insufficient funds to pay, which led the respondent to serve what purported to be a notice of rescission. The appellants on advice did not make any payment in response to the notice but, after they failed to pay a second instalment of interest and again professed inability to pay, the respondent took the present proceedings relying on both the failure to comply with the notice and repudiation generally. The learned judge held the notice to be ineffective, as requiring too short a period to remedy the default, but held that the appellants had repudiated the contract and thus were liable in damages for what was in effect a shortfall on the resale of the land. The appellants appeal against those findings and the judgment, while the respondent by notice of contention seeks also now again to assert that the notice was effective. It will thus be seen that all the questions raised on this appeal go primarily to the question whether in one way or another the appellants repudiated their obligations under the contract. It will be convenient, at least for future reading, if I describe in the following summary of facts the appellants as "the purchasers" and the respondent as "the vendor".

[13]

"Our clients understand your client's position and have been most grateful of his assistance throughout, and in particular in granting the terms of the second Variation of Contract. At the time the variation was agreed upon it was intended, and indeed appeared, to give our clients the opportunity and time to sell their Yarrawonga properties and part of Bolaro to produce some capital to pay to your client and at the same time reduce our client's interest commitments. It was also hoped that the beef industry would pick up enabling our clients to improve their position from an income point of view. Unfortunately our clients have not had a change of fortune. The Yarrawonga properties [which were two houses and one house allotment] which were estimated to have a value of up towards $500,000 at the time 'Bolaro' was purchased have not been sold. Two attempts have been made to auction the house without a bid being offered and no offers have been made since that time ... The possible sales of part of Bolaro have also come to nothing. ... Once again the wet winter has not helped and the continued slump in beef cattle prices has no doubt contributed to a loss of confidence in the market. At this time our clients are at a loss to make a suggestion which may be acceptable to your client. They share your client's high regard for 'Bolaro' and would dearly love to be able to continue there. On the other hand they are presently earning very little income from the property and the capital which had been set aside to cover the interest which we have been paying over the past six months or so is rapidly running out. While there will be sufficient in hand to pay the interest due at the end of September there will not be sufficient to cover the next month's interest. Our clients cling to the hope that possibly the summer will bring a sale of the Yarrawonga properties and possibly part or parts of 'Bolaro'. Their only option is to ask that the interest due be accrued for a period of up to six months in the hope that something positive will happen in that time. We are not sure whether your client will be in a position to forgo the interest for this period. As our clients have paid $1,200,000 in capital then hopefully your client's equity would not be put at risk. We would be most grateful if you could convey the above proposal to your client. If it is not acceptable then our clients would be grateful of any suggestion of an alternative course of action which your office or your client may suggest which may be acceptable to your client." (Emphases added.)

[20]

"Although we have now been able to contact our clients and discuss the matter with them we have not been able to obtain clear instructions as it is a devastating situation for them. Unfortunately your client's request as to the production of books, records, income tax returns and sworn statements within 48 hours could simply not be met. Our clients' Accountant is away until after Christmas and the records are not up to date. Quite apart from this we are unsure why your client would require the information sought. Our clients' asset position has been previously detailed to your client. Apart from the properties at Yarrawonga our clients have the equity in approximately 1000 head of cattle along with their equity in "Bolaro", which is of course known to your client. In view of the fact that your client is clearly not in a position to wait any longer, our clients now accept the position that one way or the other "Bolaro" will have to be sold. We have advised them that in the absence of any arrangements to the contrary your client could take action to have them evicted from the property and then arrange for the property to be resold. We have pointed out to our clients that they could resist the legal action which would delay the matter for many months. However, this is not our clients preferred course of action. This would almost certainly benefit no one (apart from the legal people) in the long run. Our clients have farmed in South Gippsland for all of their lives and in view of the lower real estate values and the abysmal cattle market they are faced with the possibility of losing the greater portion, if not all, of their assets. The prospect of being evicted from the property and having to dump all the cattle on a poor market is, not surprisingly, of great concern to them. As we stated earlier we do not have clear instructions but we feel that a far better result could be achieved from the sale of the property if it were to be sold while our clients remained in possession of the property. This would also enable them to unload their cattle more slowly and hopefully to better advantage_. Our clients' concern now is to try to save something from the wreck to enable them to make a fresh start._ If higher values for the property can [be] realised then it would obviously be of benefit to our clients and your client's position would not be prejudiced. It would seem that an arrangement to sell on amicable terms could not be achieved without a meeting taking place to sort out the details. Could we once again request of your client that such meeting take place? If you client is not in a position to agree to this then we are at a loss to know what other suggestion to make." (Emphases added.)

[22]

It should here be noted that, although the vendor as respondent contends that the letters speak for themselves, the appellant purchasers relied on what they asserted in evidence, which was not the subject of any cross-examination, that they were merely unable at the time to pay the agreed interest payments and, by implication at least, that they would have been able to pay the last two payments of principal pursuant to the terms of the second variation. So it was said by Mr McRae that they were unable to pay the interest payment for October "because we did not have the ready funds to make payment and were hoping that we could negotiate a further variation to the contract to give us more time to pay". They were disappointed that the vendor would not enter into further negotiations but Mr McRae denied that they were "unable or unwilling to perform the contract", so that he insisted that, "at all times we were anxious to do so". He admitted that he was anxious to achieve further extensions of time for payment so that they could more easily perform their obligations but "at no time did we regard ourselves as being unable to perform the contract, whereby we would be deprived of its benefit", whatever precisely that might mean. He maintained also that, if a valid notice of rescission had been given so that it was necessary to raise the money to pay interest so as to keep the contract on foot, "we could have and would have done so. We could have done so in a number of ways which had not at that time been considered in detail ...". They had not considered these matters because the notice given was invalid and until a further notice was served time would not run against them. He stated that they could have sold cattle "in November 1995" (sic) for approximately $240,000. They could have obtained money by agisting cattle on "Bolaro" itself so that they might have received income of about $5,000 per week. Likewise he referred to the Yarrawonga properties as being a source of funds, including the house property, which was subsequently sold for $270,000, and $200,000 from the other two blocks of land. Thus he said in his witness statement:

[29]

From the judgment and those orders the purchasers have appealed to the Court of Appeal. Some nine grounds are relied upon which may be summarised in this way. Apart from a general and unspecified ground that the judgment was against the evidence and the weight of the evidence, a number of grounds asserted that the learned judge was in error in particular ways. In ground 2 it was asserted that he erred in finding that the purchaser had repudiated the contract and, "alternatively", in finding that the vendor had accepted the purchaser's repudiation on 5 December 1996. By ground 3 it was asserted that the judge should have found that, by serving the notice of rescission the vendor had affirmed the contract and was precluded from accepting as a repudiation any anticipatory breach occurring before the breach relied on in the notice; in particular such affirmation should have been found from the service of a notice calling upon the purchasers to pay the October 1996 instalment of interest; and that in consequence of the abandonment of reliance upon an anticipatory breach, the parties' rights "thereafter were governed only by the actual breach and its consequences". The fourth ground asserted that the judge wrongly found that the purchasers' failure to pay interest pursuant to the contract constituted a repudiation thereof. Fifthly it was said that the judge should have found that the failure to pay interest was not "a breach of an essential term of the contract" and thus could not amount to repudiation. In the sixth place, the purchasers assert that the judge wrongly found that the vendor had accepted the repudiation on 5 December 1996, which would appear to be a repetition of ground 2(b). The seventh ground raised questions as to the evidence and the alleged failure of the learned judge to give any or any adequate consideration to the "unchallenged evidence" of the purchaser McRae and his solicitor that the purchasers would have had sufficient assets to pay "interest and arrears". Likewise ground 8 asserted that the judge failed to pay any or any sufficient regard to the letters from the purchasers' solicitors, the purpose of which was, allegedly, to "obtain an indulgence". By the ninth ground the purchasers contended that the learned judge should have found that, by serving a defective notice of rescission and refusing afterwards to perform the contract, the vendor had repudiated the contract and that repudiation had been accepted; alternatively that the judge should have found that the parties had abandoned the contract in the circumstances.

[44]

Further, the purchasers have argued that the service of an invalid notice of rescission amounted in the present circumstances to a repudiation of the contract by the vendor. This remarkable proposition is said to flow from decisions such as Lund v. McWaters[5] and Amman Aviation Pty. Ltd. v. The Commonwealth[6]. No such broad proposition can be distilled from those cases, although in particular circumstances an act by which a party might seek to rescind a contract may be inconsistent with its intending that the contract remain on foot. No such intention can here be inferred, the vendor's notice seeking in fact to exercise its rights under the contract, albeit by taking advantage of a right to rescind but only if the relevant condition were not satisfied. There was no such rescission because of the vendor's failure to comply with conditions 5 and 6, but that merely had the consequence that, being ineffective, the vendor retained its rights howsoever it chose thereafter to exercise them. It would have had different consequences only if, in turn, an intention no longer to be bound by the contract had been evinced by some act on the part of the vendor so that it would be treated as having repudiated the contract. At all times the vendor here wished the contract to be performed, and it would be strange that in these circumstances it did not retain the right to rely upon the acts of the purchasers which could at any relevant time be viewed as a whole as constituting repudiatory conduct. If the behaviour of the purchasers after the expiration of the defective notice could still be characterised as repudiatory, the vendor was still entitled to accept that repudiation so as to bring the contract to an end, unless in the meantime it had acted inconsistently so as, for example, to encourage the purchasers to act upon a belief that the vendor no longer relied upon those acts. In no way could that be said to have occurred so far as these parties were concerned in the months and weeks leading up to the vendor's acceptance of repudiation and the issue of the writ. If the whole of the purchasers' conduct could be then characterised as repudiatory, as I have concluded earlier in this judgment, there could be no bar to the vendor acting to accept that repudiation.