Mealey v Mountains Development Group Pty Ltd

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

3166/03 CHRISTOPHER JOHN MEALEY v MOUNTAINS DEVELOPMENT GROUP PTY LTD JUDGMENT 1 On 13 May 2002, the plaintiff as vendor and the defendant as purchaser entered into interrelated contracts for sale of land. The plaintiff claims a declaration that he validly terminated the contracts and is entitled to forfeit the deposits. The defendant seeks a declaration that the notices of termination were of no force or effect or, alternatively, relief against forfeiture. 2 The properties were purchased for development by the defendant. The plaintiff's major complaint is that it failed to obtain development approval within the required time. The defendant maintains that the required time has not yet passed and if it has, the delay was caused by Penrith City Council beyond its control. 3 The agreements for sale contained special conditions. Clause 33(c) of those conditions provided that the purchaser warranted that he would lodge a development application within three months from the date of exchange and pursue expeditiously and make all reasonable attempts to finalise the development application. 4 The development application was lodged by the defendant on 19 September 2002, over four months from the date of exchange. The plaintiff argued that the contracts were voidable at his election and he made that election and terminated the contracts on 29 May 2003 or, alternatively, on 24 April 2003. No effective notice to complete was given before the plaintiff took these steps. 5 The defendant submitted that cl 33(c) of the special conditions was not essential and its breach did not entitle the plaintiff to terminate the contracts. Clause 33 was in the following terms: "The Contract for Sale of Land is conditional upon the following: a) The purchaser will meet all the costs of lodging a Development Application and obtaining approval. b) Drawings prepared by David Walker in the possession of the Vendor to be provided to the purchaser upon exchange for the purpose of lodging the Development Application. c) The purchaser warrants that he will lodge the Development Application within three months from the date of exchange and pursue expeditiously and make all reasonable attempts to finalise the Development Application." 6 The plaintiff argued that the word "conditional" established the parties' significance for the provision and it overrode the word "warrants" in cl 33(c). The defendant argued that cl 33(c) was an undertaking by the defendant to give a warranty. 7 It was common ground that to determine whether a term is a condition or a warranty the use of those words is not conclusive (Wickman Machine Tool Sales Ltd v L Schuler AG [1972] 1 WLR 840 at 850, L Shuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235 at 250-251, 256, 258, 262, 264 and 271). 8 In Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632 at 641-642, Jordan CJ explained the test of essentiality thus: "The test of essentiality is whether it appears from the general nature of the contract considered as a whole, or from some particular term or terms, that the promise is of such importance to the promisee that he would not have entered into the contract unless he has been assured of a strict or a substantial performance of the promise, as the case may be, and that this ought to have been apparent to the promisor…. If the innocent party would not have entered into the contract unless assured of a strict and literal performance of the promise, he may in general treat himself as discharged upon any breach of the promise, however slight." 9 That passage was adopted by the High Court in Associated Newspapers Ltd v Bancks (1951) 83 CLR 322 at 337 and in DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1977-1978) 138 CLR 423 at 431. In the latter case the court went on to say that the quality of essentiality depends for its existence on a judgment which is made of the general nature of the contract and its particular provisions, a judgment which takes close account of the importance which the parties have attached to the provision as evidenced by the contract itself as applied to the surrounding circumstances. 10 Each contract required a deposit of only 2% of the purchase price. Each contract contained standard terms. Clause 9 provided that if the purchaser did not comply with the contract, or a notice under it, in an essential respect, the vendor could terminate by serving a notice. Clause 21.1 provided that if time for something to be done or to happen was not stated it was a reasonable time. Clause 21.2 provided that if there were conflicting times for something to be done or to happen the latest time applied. Clause 21.6 provided that normally the time by which something must be done was fixed but not essential. The term "normally" was defined as subject to any other provision of the contract. 11 The special conditions contained in cl 29 provision that in the event of completion not taking place on the completion date, either party should be entitled to issue a notice to complete requiring settlement within two weeks of the date of service of the notice it being acknowledged that such notice would be sufficient to make time of the essence of the agreement. 12 The completion date was specified in cl 34 of the special conditions as 31 March 2003 or within 14 days from the date the development application was granted, whichever was the later. 13 Clause 35(a) of the special conditions provided that within 90 days from the date of the contract the purchaser must prepare and lodge with Penrith City Council a development application with respect to the subject land, the purchaser warranting that the application would be for a use or uses permitted under then present planning schemes affecting land and should in all other respects comply with the terms of such planning schemes and with the Local Government Act 1993, Ordinances and Regulations. 14 Clause 35(b) required the purchaser to keep the vendor fully and properly informed of the progress of the development application and provide the vendor with copies of any development approval or refusal received from the Council. 15 Clause 35(c) provided that the purchaser should pursue the development application with all due diligence and should use its best endeavours to have the development application approved by Council. 16 Clause 35(d) provided that if the development application was refused or not approved before 31 March 2003, the purchaser might rescind the contract provided it had duly performed and observed all its obligations thereunder. Clause 35(e) provided that for this purpose an approval subject to conditions unacceptable to the purchaser should be deemed not to be an approval if within 28 days of receipt, the purchaser gave written notice to the vendor specifying the unacceptable conditions and the reasons for unacceptability. 17 Following a number of unanswered requests by the plaintiff's solicitors as to when the development application was lodged, they were informed by the solicitors for the defendant that the date of lodgement was 19 September 2002 in a letter of 23 April 2003. 18 On the next day, the plaintiff's solicitor wrote to the defendant's solicitors alleging that the development application should have been lodged by 13 August 2003, an essential term of the contract had been breached and notice was given that the contracts were rescinded. The enclosed notice purported to terminate the contracts for failure to lodge a development application in accordance with cl 33, alleging it to be an essential term and purported to forfeit the deposits. 19 The defendant's solicitors responded on the same day, challenging the plaintiff's entitlement to terminate the contracts. On 27 May 2003, they wrote again indicating that there had been no response to their letter of 24 April 2003. This drew a response from the solicitors for the plaintiff on 29 May 2003 in the form of a further notice of termination due to an alleged failure to comply with clauses 33, 34 and/or 35 of the special conditions. 20 At the time of trial, the development application had not been approved by Penrith City Council. Under those circumstances, there could be no breach of cl 34 of the special conditions. 21 In my view, the promises of the defendant under cl 33 and cl 35 of the special conditions were not essential and did not entitle the plaintiff to terminate the contracts. The lack of precision in translating a three month requirement in cl 33(c) into a 90 day requirement in cl 35(a) suggests that the lodgement of the development application within a specified time was not of such importance that the plaintiff would not have entered into the contracts unless assured of strict performance of the requirement. 22 There was no requirement that the David Walker drawings be used as the basis of the development application. A failure by the plaintiff to deliver those drawings to the defendant could not be regarded, in my view, as entitling the defendant to terminate the contract. Nor does it seem to me that the payment of all costs of lodging the development application was such a requirement that the plaintiff would not have entered into the contracts unless assured of strict performance of that provision. 23 The inclusion of cl 33(c) of the special conditions in other non-essential promises by both parties tells against essentiality. 24 Essentiality applied to the requirement that a development application be granted. The parties attached paramount significance to that circumstance. So far as that requirement was concerned, no time limit was specified. The parties understood that it might be a long process. At best it was contemplated that approval might be forthcoming by 31 March 2003, over seven months after contemplated lodgement of the development application. But it was expected that the process might take longer. Hence the specification of completion 14 days after the grant of the development application if on a later date. 25 The circumstance that under cl 35(d) of the special conditions the defendant was entitled to rescind if approval was not granted by 31 March 2003 is further indication of the significance in which Council approval of the development application was held. 26 Penrith City Council adopted a pre-lodgement process that involved meetings between a developer and his experts and Council town planners, engineers and other employees to consider details of a proposed development before formal lodgement of a development application. This process can involve a number of meetings over an extended period as modifications required by Council representatives are made to the design of the development. 27 In the context of an expected lengthy procedure to gain the approval of Penrith City Council to a development application and in light of that Council's pre-lodgement process, I do not think that the parties placed such significance on the times specified for the lodgement of the development application that a failure to comply by even a short space of time should lead to the consequence that the plaintiff was entitled to terminate the contracts. 28 It does not seem to me that the word "conditional" in cl 33 of the special conditions was used in the technical legal sense of an essential promise or condition such that the word governed the balance of the clause as was submitted on behalf of the plaintiff. 29 On the other hand, I do not accept the submission made on behalf of the defendant that cl 33(c) of the special conditions was a promise to give a warranty. While the language is less than felicitous, the intent of the clause was to provide a present warranty. I think it is to be read in the sense of the defendant warranting, as it thereby did, that it would lodge the development application within the specified period. But the inclusion of the word "warrants" in the provision and the inclusion of a warranty in the similar provision in cl 35(a) points to the legal distinction between a condition and a warranty and favours the latter. 30 In my view, there is nothing in cl 33 of the special conditions that displaces the meaning of the term "normally". Thus, the fixing of the three months in cl 33(c) and the fixing of the 90 days in cl 35(a) were non-essential in terms of cl 21.6. It follows that there was no failure to comply with the contract in an essential respect and cl 9 was not thereby enlivened. 31 Similar considerations apply to cl 35(a) of the special conditions. It contains a warranty. The inclusion of the promise to lodge the development application within 90 days with the warranty is suggestive of a significance attached to it by the parties of non-essentiality. 32 There is nothing on the face of the contracts that would give the status of essentiality to cl 35(b) or cl 35(c) of the special conditions. In the absence of specification of a time within which either promise was to be performed, a reasonable time was specified by cl 21.1. It was open to the plaintiff to give notice requiring performance within a time said, in the circumstances, to be reasonable. Neither cl 35(b) nor cl 35(c) strikes me as a provision, the absence of which might be expected to have led the plaintiff to refuse to enter the contract. 33 It was submitted on behalf of the defendant that a court ought to be wary of construing a term as a condition the breach of which entitles a party to avoid contractual performance rather than being entitled to damages. It was put that I should tend to prefer a construction ensuring performance rather than one encouraging the avoidance of contractual obligation. Reference was made to Cehave NV v Bremer Handelsgesellschaft mbH [1976] QB 44 at 70-71 and Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1986-1987) 162 CLR 549 at 556-557. 34 For the plaintiff, reference was made to Tricontinental Corporation Ltd v HDFI Ltd (1990) 21 NSWLR 689. In that case, pre-conditions to entitlement to make demand specifying provisions as to the giving of notice of default and notice of demand before liability arose under the agreement were held to require literal compliance to create liability. That is a different context and raises different commercial purposes from those associated with the contractual terms with which I am concerned. 35 In any event, it was unnecessary for me to resort to the proposition that a court should not be over ready to construe a contractual term as a condition to resolve a matter. 36 There were a number of subsidiary submissions that, in light of my determination on the principal issue, it is unnecessary for me to determine. 37 It was submitted on behalf of the plaintiff that cl 33(c) of the special conditions was a condition subsequent of the kind in Suttor v Gundowda Pty Ltd (1950) 81 CLR 418 which made the contract voidable at the election of the innocent party and that election was activated on 24 April 2003. Reference was made to Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 at 545-546 and to Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26. In light of my view that the provisions of the contracts relied upon by the plaintiff lacked the quality of essentiality, these considerations do not arise. 38 The defendant did not use the Walker drawings as the basis for its development application. Instead, it approached Penrith City Council under its pre-lodgement process with drawings by another architect for a larger number of units on the site. It was submitted on behalf of the plaintiff that the defendant had not established that this did not constitute a breach of the obligation in cl 33(c) of the special conditions to pursue expeditiously and make all reasonable attempts to finalise the development application. 39 If there was, contrary to my view, a breach of cl 33(c) of the special conditions in this regard entitling the plaintiff to terminate the contract, I do not understand why the onus of disproving a breach lay on the defendant. In any event, the evidence from the defendant indicated that it entered upon the pre-lodgement process expeditiously and it was the frequent change in the officers of the Council responsible for the file that led to the delay in satisfaction with the pre-lodgement process and, hence, delay in lodging the formal development application. Changes of personnel within the Council after lodgement of the development application have resulted in further delay in approval of the application. 40 It was submitted on behalf of the defendant that if the clauses in question were intermediate terms rather than conditions, substantial performance only was required. Reference was made to Lohar Corporation Pty Ltd v Dibu Pty Ltd (1976) 1 BPR 9177 at 9186 and to Dainford Ltd v Yulora Pty Ltd [1984] 1 NSWLR 546 at 551. The defendants submitted that the provisions had been performed substantially. The plaintiff submitted that the development application was lodged 37 days out of time which hardly constituted substantial compliance, many meetings with the Council were required under the plans for an increased number of units, completion has not been achieved and the defendant has given no estimate of when it might. 41 It is unnecessary for me to determine, in the alternative, whether the provisions, if regarded as intermediate terms, were satisfied by substantial performance. At the time of swearing his affidavit on behalf of the defendant, Michael Badaoui was hopeful that with some minor changes to be submitted to the Council prior to 9 September 2003, the Council would approve the development application. In cross examination he said that while the amended plans had not been lodged, he had been told by senior officers of the Council that they would be accepted. 42 If substantial compliance was the appropriate performance, I would have been minded to find in favour of the defendant in this regard. As I have said, the frequent changes in responsible officers of the Council were the primary cause of the delay in lodging the development application and in its consideration by the Council. 43 With respect to cl 35(b) of the special conditions, the plaintiff put on limited evidence. In his affidavit he swore that at no stage had the defendant kept him "fully and properly informed of the progress of the development application". He did not swear that he was unaware of the progress of matters during the pre-lodgement process. Mr Badaoui gave evidence that he advised Kerry Harriden, the agent for the plaintiff under the contracts on about 20 occasions following exchange of contracts "where we were up to with development approval and the problems and issues we encountered and the hurdles we had to overcome". 44 The plaintiff submitted that the agency of Mr Harriden ceased upon exchange of contracts. That may well be so, but the fact that he continued to receive information from the defendant leads to the inference that that information was received for a purpose and the only logical purpose was for it to be conveyed to the plaintiff. The fact that no direct evidence of lack of information was called from the plaintiff led to the submission that I should draw an inference that any evidence would not have assisted the plaintiff (Jones v Dunkel (1959) 101 CLR 298). In view of the findings I have made it is unnecessary for me to resolve this issue. 45 In my view, therefore, the plaintiff fails on the amended summons and the defendant is entitled to a declaration on its cross claim that the notices dated 29 May 2003 and 24 April 2003 had no force or effect. 46 The defendant in written submissions and the plaintiff in his written reply, addressed the question of relief from forfeiture. Counsel for neither party addressed me orally on this aspect. 47 Both parties recognised that relief from forfeiture of an essential term is only available in exceptional circumstances such as unconscionable conduct, the general underlying notion being that a person should not be permitted to use or insist upon legal rights to take advantage of another's special vulnerability or misadventure for unjust enrichment. Reference was made to Meagher, Gummow and Lehane, Equity Doctrines and Remedies, 4th ed, Butterworths LexisNexis, Australia, 2002 at 18-025, Bysouth v Shire of Blackburn & Mitcham (No 2) [1928] VLR 562, Legione v Hateley (1983) 152 CLR 406, Ciavarella v Balmer (1983) 153 CLR 438, Stern v McArthur (1988) 165 CLR 489 and Pentagold Investments Pty Ltd v Romanos [2002] ANZ ConvR 132. The plaintiff's written reply referred me to Sanctuary Investments Pty Ltd v St Gregory's Armenian School Inc (unreported, SC (NSW), 18 December 1998), Lennox v Cameron (1997) 8 BPR 15,939 and Meagher Gummow and Lehane at 18-020, 18-145 and 18-150. 48 If I be wrong in my view that the clauses in question were non-essential, I would have difficulty in concluding that special circumstances existed to relieve from forfeiture. There does not seem to me to have been any unconscionable conduct on the part of the plaintiff, nor did he seek to take advantage of any special vulnerability or misadventure of the defendant. 49 By his written reply, the plaintiff foreshadowed an application to further amend the summons to include an alternative ground. The matter was listed for further argument and the plaintiff applied to add an alternative claim for a declaration that the contracts were validly rescinded by the notice dated 24 April 2003. 50 In its submissions, the defendant contended that the plaintiff's attempt on 24 April 2003 to terminate rather than rescind the contracts constituted an election to affirm them. Rescission in this sense meant terminate for repudiation. Reading the covering letter and the attached notice together, I do not think there was an affirmation of the contracts. The plaintiff sought the amendment in case this submission was accepted. 51 It was submitted on behalf of the defendant, in opposition to the application, that there was no evidence explaining why the alternative case was not advanced during the hearing, that the alternative claim was inconsistent with the claim to terminate because it required an unequivocal election thereby abandoning or waiving any rights that might previously have existed to rescind (Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) (1992-1993) 182 CLR 26) and that, had a rescission case been brought, the defendant would not have been content to rely on the evidence adduced at the hearing before me. 52 It was submitted that the extent of knowledge of the plaintiff of the pre-lodgement process and the problems raised during it would have been more material to a rescission claim than it was to a termination claim. The question of a change of position of the defendant following knowledge by the plaintiff of a right to rescind and a refraining from exercising that right would need to have been explored. 53 In the termination case, the defendant elected not to cross examine the plaintiff. It was submitted that that would not have been the case if a rescission claim had been raised. Reference was made to Gordon v MacGregor (1909) 8 CLR 316 at 321 where it was said that it was very dangerous, after the close of evidence, to allow an amendment to raise a point founded on some oral statement by a witness which might be perfectly complete so far as it was relevant to the issues that were being tried but which, if it were given with reference to entirely different issues, would be incomplete. It was submitted that similar considerations applied in the instant circumstances. 54 It was submitted on behalf of the plaintiff that the course adopted in response to a breach by the defendant of the contract was to bring it to an end and it mattered not whether, technically, that was by way of termination or rescission. It was submitted that any additional evidence was equally relevant to a termination claim as it was to a claim for rescission. It was further submitted that the purpose of the amendment was to reflect the evidence that was adduced at trial to bring the pleadings into conformity with that evidence. 55 While a late amendment is appropriate where it merely brings formal proceedings into conformity with the evidence (Leotta v Public Transport Commission (NSW) (1976) 50 ALJR 666) I am not convinced that that is the only effect of the amendment in this case. 56 Justice is the paramount consideration in determining an application such as this (Queensland v J L Holdings Pty Ltd (1996-1997) 189 CLR 146 at 155). In my view, different considerations arise with respect to a rescission claim in the sense of termination based on the other party's repudiation than arise on a termination claim. In the latter case, if the term is, as was argued in these proceedings, an essential one, mere breach entitles the innocent party to terminate the contract. On the other hand, in a claim for rescission, the question arises whether the conduct of the other party amounted to a sufficient repudiation of the contract to enable its acceptance. That raises qualitative issues that do not arise in the case of termination.

57 Where, on appeal, a new issue is sought to be raised with respect to which there was a possibility that evidence to meet it might have been called at trial, amendment of the notice of appeal is normally disallowed (Water Board v Moustakas (1988) 180 CLR 491). 58 In Commissioner of Taxation v Brambles Holdings Ltd (1991) 28 FCR 451 at 455, one of the members of the Full Court of the Federal Court said that the fact that counsel, acting responsibly, says that the raising of the ground at the primary hearing might have affected the evidence he would have led, is enough to dispose of the question whether leave should be granted to add a further ground of appeal. 59 It was submitted on behalf of the plaintiff that the mere statement by counsel that other evidence might have been adduced may not be sufficient to reject an application for amendment. I agree with that submission. However, because of the view I hold that different issues arise on a claim to terminate for breach amounting to a repudiation as distinct from a claim to terminate for breach of an essential promise, I am of the opinion that the application to amend in this instance should be refused. 60 The plaintiff submitted that the defendant's failure to comply with directions by the Registrar to put on evidence by a specified time should be visited with a limited order for costs because of the prejudice it caused the plaintiff in preparation for trial. Nonetheless, the plaintiff conducted his case at trial without interruption. No application for an adjournment was made. In those circumstances, I exercise my discretion in favour of costs following the event. 61 I refuse leave to further amend the amended summons. I dismiss the amended summons. I make an order in terms of paragraph 1 of the cross claim as amended. I order the plaintiff to pay the defendant's costs of the hearing on the amended summons, of the cross claim and the hearing on Wednesday 10 September 2003.

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