Meehan v Jones

High Court of Australia|1979-03-14|Before: Wilson JJ, Dunn J

For the reasons I have given special condition 1(b) is valid.

The attack on the validity of this condition raises considerations similar to those already examined. "Satisfactory" here again means satisfactory to the purchaser or his nominee in relation to the agreement contemplated and as to quantity, provided of course that the purchaser or his nominee acts honestly and reasonably. I reject the argument that in special condition 1(a) satisfactory means "satisfactory to both parties", together with the related submission that the contract was conditional upon the parties arriving at a further consensus as to the supply of oil by Ampol to the purchaser or his nominee.

The vendors were bound by a current processing agreement with Ampol and were indebted to that company in the sum of $200,000 (approximately). Ampol and the purchaser or his nominee, if at liberty to have exclusive regard to their own interests, might arrive at an agreement which left the vendors with liabilities still owing to Ampol. So much may be admitted without acknowledging that it constitutes a case for reading special condition 1(a) as prescribing that the agreement to be entered into should be satisfactory to the vendors as well as to the other persons named.

It is evident from the nature of the contract and the terms of special condition 1(a) that the object of the condition was to protect the purchaser or his nominee. The contract was a contract for the sale of an oil refinery; its value to the purchaser depended on an assured supply of crude oil from Ampol until the approval of a crude oil allocation of not less than 500 barrels per day. There is nothing in the contract to suggest that the parties contemplated that the vendors could legitimately look to the agreement to be made by Ampol and the purchaser or his nominee as a mode of discharging the vendors' indebtedness to Ampol. That special condition 1(a) was inserted for the protection of the purchaser is reinforced by the close association of the clause with special condition 1(b), the object of which was also to protect the purchaser or his nominee.

The second respondent argues that the deletion of cl. 1 and the partial deletion of cl. 2 also results in the contract becoming void for uncertainty because there is nothing in the contract to indicate how completion is to occur. The consequence of the deletion is that there is no specific provision in the contract providing for the manner in which the balance of the purchase price is to be paid. The answer to this submission is that the law implies that in the absence of a specific contractual provision the obligations of each of the parties under the contract are to be performed on or before the completion date, 31 August 1979. The general rule is that settlement and the giving of possession are to coincide. See Travinto Nominees Pty. Ltd. v. Vlattas [3] ; Godfrey Constructions Pty. Ltd. v. Kanangra Park Pty. Ltd. [4] ; Cohen v. Mason [5] .

(1973) 129 C.L.R. 1, at p. 12. 2. (1972) 128 C.L.R. 529, at pp. 536-537. 3. [1961] Qd R. 518, at p. 531.

Failure to Comply with Special Conditions 1 (a) and (b).

The respondents began by submitting that it is necessary for the appellant to show that the purchaser, as distinct from his nominee, made satisfactory arrangements with Ampol and satisfactory arrangements for finance. This argument is based on the proposition that when a contract provides for a sale to the purchaser or his nominee, the purchaser's nominee does not become a contracting party; the vendor and the purchaser continue to be the sole contracting parties, the nominee being the person who takes title by the conveyance or transfer - see Lord v. Trippe [6] ; Tonelli v. Komirra Pty. Ltd. [7] . This does not, however, justify an interpretation which is at variance with the language in which the special condition is expressed. What the condition requires is something that is satisfactory to the purchaser or his nominee. If arrangements satisfactory to the nominee are made then the condition is satisfied.

(1977) 51 A.L.J.R. 574, at p. 582; 14 A.L.R., at pp. 143-144. 2. [1972] V.R. 737.

Special condition 1(a) was satisfied by a letter of intent dated 17 July 1979 made by International, the purchaser's nominee, and Ampol. By this document Ampol agreed to "use its best endeavours to maintain continuity of crude oil and condensate" to the refinery until such time as the refinery received its own allocation of crude oil. Special condition 1(b) was satisfied by reason of International having available to it at 30 June 1979 cash at bank in the sum of $124,703 and a short term deposit of $750,000, both of which could be offered as payment of the purchase price under the contract.

Notice of fulfilment of both conditions was given to the vendors by a telex dated 30 July 1979 and a confirmation letter of the same date. The primary judge found that the telex was sent by Messrs. Tully & Wilson, solicitors for the appellant and International, with the authority of the appellant.

The telex and the letter dated 30 July 1979 also gave notice that the appellant had nominated International for the purposes of the contract as his nominee. The validity of this nomination is attacked on the ground that the appellant had earlier nominated Sunshine.

I put to one side the question whether the contract permitted the appellant to make more than one nomination or to substitute a second nominee for a nominee already appointed under the contract. I incline to the view that the appellant was at liberty to substitute a second nominee for one already appointed provided that substitution did not prejudice the vendors.

But in any event the evidence does not establish that the appellant ever nominated Sunshine as its nominee for the purposes of the contract. The first respondent did not plead that the appellant nominated Sunshine and there was no finding of fact by the primary judge that such a nomination had taken place. The first respondent now relies on the acts which I have earlier recited on the part of Sunshine as amounting to a nomination by the appellant of that company. It will be recalled that Sunshine became the operator of the refinery and that documents were brought into existence providing for the transfer of the vendors' business name to Sunshine. A manufacturer's licence was issued to Sunshine and arrangements were made between it and various authorities. No doubt these steps indicated an intention on the part of the appellant to nominate Sunshine, but I do not consider that they amounted to an actual nomination. Nor does the evidence establish that the vendors were prejudiced by the subsequent nomination of International. No such prejudice was pleaded and no finding to that effect was made by the primary judge. It seems that the vendors were financially unable to continue to operate the refinery at the time when Sunshine commenced to operate it. Although the arrangements made for participation by Sunshine appeared to have conferred an advantage on the vendors, they suffered no detriment when International was nominated. The vendors, following the withdrawal of Sunshine and the nomination of International, incurred no expense in making and carrying out the new arrangements. What is more, it seems that the vendors unilaterally resumed operation of the refinery in July 1979. The arrangements previously made did not provide any serious obstacle to this resumption.

This defence is based on the proposition that the appellant entered into the contract with the intention of using it to persuade potential lenders that the deposit had been paid, whereas in fact it had not been paid. The answer to it is that the primary judge expressly declined to make a finding that when the appellant entered into the contract with the first respondent he had no intention of paying the deposit. His Honour came to this conclusion having had the advantage of assessing the appellant's credibility as a witness. There is no basis on which we can disturb this conclusion of fact.

The second respondent puts an alternative submission that the appellant "by means of" the written contract falsely represented to various persons that the deposit for which the contract provided had been paid. The only evidence that any such representation was made was that given by McGuiness, an officer of the second respondent. The learned judge found that the appellant did make this representation to McGuiness. But in the absence of a finding that the appellant intended or contemplated when he entered into the contract that he would use it for this purpose the case of illegality fails. The mere circumstance that the appellant made a false representation, by means of the contract, to a third party does not provide any ground for concluding that the contract was illegal or unenforceable by the appellant as purchaser against the first respondent as vendor.

In the result I would allow the appeal and make an order for specific performance of the contract.

The Supreme Court of Queensland at first instance and on appeal refused the appellant's claim for a decree of specific performance of a contract for the sale of land, on the ground that the "subject to finance" clause contained in special condition 1(b) of the contract was so vague that the contract was void for uncertainty. The appellant challenges that conclusion.

This Contract is executed by the parties subject to the following: -

(b) The Purchaser or his nominee receiving approval for finance on satisfactory terms and conditions in an amount sufficient to complete the purchase hereunder;

and should either of the above conditions not be satisfied on or before the Thirty-first day of July, 1979 (or such extended time as the parties may agree upon) then this Contract (other than for the provisions of this Clause) shall be null and void and at an end and all monies paid hereunder by the Purchaser shall be refunded in full.

Clauses in contracts of sale which provide that the contract is subject to the purchaser obtaining satisfactory finance, or adaptations such as "subject to satisfactory finance" or "subject to finance", do not render the contracts illusory. The transactions are conditional contracts in the nature of options to purchase. On classical concepts of consideration, the purchaser's consideration is the obligation to pay a deposit or other obligations (even if they are conditional). (See generally Treitel, Law of Contract, 5th ed. (1979), p. 64 et seq.) Such clauses are for the benefit of, and may be waived by, the purchaser. (See Weston v. Collins [8] ; Gilbert J. McCaul (Aust.) Pty. Ltd. v. Pitt Club Ltd. [9] .) If a purchaser erroneously believes that the finance is available, and so informs the vendor, the principles of estoppel apply.

(1865) 34 (N.S.) L.J. Ch. 353, at pp. 354-355. 2. [1959] S.R. (N.S.W.) 122, at p. 125.

Such clauses leave satisfaction with the finance to the purchaser's discretion. Implication of the word "honest" as qualifying the satisfaction adds nothing. Also there is no justification for implying that the purchaser must act reasonably. If the parties wish to limit the discretion, they may do so, for example, by providing that certain terms of finance shall be deemed satisfactory. Unless this is done, the discretion is unlimited. Such clauses may also be subjected to special time limits as was done here, the effect of which is that unless the finance is obtained within a certain time, or the purchaser waives, the condition is not fulfilled and the vendor is relieved from the obligation to transfer. It follows that the contract was not void because of special condition 1(b).

The respondents, in this Court, also contended that special condition 1(a) of the contract was void for uncertainty (or, if valid, had not been fulfilled). I accept the Chief Justice's analysis and conclusions on the application of special condition 1(a).

The purchaser is therefore entitled to specific performance. The appeal should be allowed.

I have had the advantage of reading the reasons prepared by Mason J. I agree with his Honour that each of the issues in the appeal should be resolved in favour of the appellant, with the result that there should be an order for specific performance of the contract. There is nothing of substance that I can usefully add to his Honour's reasons, but I wish to make some brief observations.

The first observation relates to the general question whether a purchaser, in deciding whether finance is on satisfactory terms, is bound to act both honestly and reasonably. It is not necessary to decide the question for the purposes of this case because the finance was obtained. It seems to me that the weight of the authorities discussed by his Honour favours the conclusion that, subject always to the construction of the contract in the particular case, the court will imply no greater obligation on the purchaser than that he is obliged to act honestly in determining whether the available finance is satisfactory. I am inclined to think there is force in this view. The clause is there for the protection of the purchaser. Clearly he must make reasonable efforts to secure finance. But the question whether he is able and willing to assume the burden involved in accepting particular terms may well be answered by reference to subjective considerations which cannot readily be the subject of objective assessment as to their reasonableness. The requirement of an honest judgment may be thought to provide the vendor with the maximum protection which is available under the clause. However, it is sufficient for me, like Mason J., to refrain from expressing a concluded view.

The second observation relates to the question whether Sunshine was ever nominated by the appellant. It seems to me to be clear that the evidence does not sustain the contention of the respondents. Nor would I think that such a nomination was to be expected merely from the fact that Sunshine, pursuant to an arrangement which was entirely collateral to the contract, undertook the operation of the refinery. The involvement of Sunshine as operator was entirely consistent with the nomination by the purchaser of another company as owner.

I make a third observation merely for the sake of completeness. Brief reference was made in the course of argument by the first respondent to special conditions 2 and 3 in support of a submission that the contract was not capable of specific performance. I do not think that these conditions are of any materiality to the resolution of the appeal. Condition 2 is set out in the judgment of Dunn J. It is merely an acknowledgment by the parties of the intention of the purchaser or his nominee to enter into an agreement with Charlie Jones in respect of his personal services and an undertaking by the purchaser to procure such an agreement at or prior to the completion date. Condition 3 is a clause solely for the benefit of the purchaser, and is waived by both the purchaser and his nominee.

I would allow the appeal, and make an order for specific performance.

[The Honourable Mr. Justice Aickin died before judgment was delivered in this case.]

High Court of Australia Gibbs C.J. Mason, Murphy, Aickin and Wilson JJ. Meehan v Jones [1982] HCA 52

At a glance

Court

Decision date

Before

Source

Judgment (32 paragraphs)

Parties

Cases Cited (1)