Net Parts International Pty Ltd & Ors v Kenoss Pty Ltd & Ors

TEXTS CITED: Carter, Peden and Tolhurst, Contract Law in Australia, 5th ed (2007) Butterworths

Net Parts International Pty Ltd (First Appellant) Jurek Ciok (Second Appellant) Radebi Pty Limited (Third Appellant) Ligon Fifty-Two Pty Limited (Fourth Appellant) Sophisticate Pty Limited as Trusteee of S & M Installation Superfund (Fifth Appellant) PARTIES: Nessfar Pty Limited as Trustee of the Rengaswamy Family Superannuation Fund (Sixth Appellant) Wongalee Nominees Pty Limited as Trustee of the Corney Family Superannuation Fund (Seventh Appellant) Arcorp Holdings Pty Limited as Trustee of Arcorp Superannuation Fund (Eighth Appellant) Brian Barkby (Ninth Appellant) Kenoss Pty Ltd (First Respondent) Santown Pty Limited (Second Respondent) Mark Luchetti and Greg Huxley T/As Huxley and Partners Real Estate (Third Respondent)

J W Dodd (Appellants) COUNSEL: D M Lowenstein (First Respondent) M Evans (Second Respondent)

MCG Lawyers (Appellants) SOLICITORS: Gillespie-Jones & Co (First Respondent) Kells the Lawyers (Second Respondent) Huxley & Partners Real Estate (Third Respondent)

LOWER COURT JURISDICTION: Supreme Court - Common Law Division

LOWER COURT DATE OF DECISION: 27 March 2008

LOWER COURT MEDIUM NEUTRAL CITATION: Net Parts International Pty Ltd v Kenoss Pty Ltd [2008] NSWSC 241

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40188/08 SC 20373/05

BELL JA MACFARLAN JA HANDLEY AJA

Thursday 4 December 2008 NET PARTS INTERNATIONAL PTY LTD & ORS v KENOSS PTY LTD & ORS

Judgment 1 BELL JA: I agree with Macfarlan JA. 2 MACFARLAN JA: These proceedings arise out of the non-completion of an agreement for sale of shares dated 28 May 2004 between the appellants as vendors and the first and second respondents as purchasers. The third respondent held a deposit paid by the second respondent as a stakeholder and has played no active part in the proceedings. 3 The appellants on the one hand and the respondent purchasers on the other hand each contended at first instance that they had validly terminated the agreement. In the judgment from which this appeal is brought, Hulme J held that neither party had validly rescinded and that the contract had been abandoned by the time of the hearing. He accordingly directed a judgment for the respondents and made an order for the return of the deposit which had been paid by the second respondent. 4 Before dealing with the issues which were argued on appeal, it is necessary to refer to the terms of the subject agreement and to the dealings between the parties.

The Agreement for Sale of Shares 5 The agreement dated 28 May 2004 described the nine appellants as "the Vendors" and the first two respondents as "the Purchaser". The subject matter of the agreement comprised shares in a company known as Crownview Developments Pty Limited, the principal asset of which was said to be land situated at 373 Crown Street and 2 Parkinson Street Wollongong. The means of calculating the purchase price which were stated are not presently relevant. The purchase price was to be in excess of $5,000,000. 6 Subject to payment of a 5% deposit, the purchase price was payable on 30 June 2004, with time being expressed to be of the essence. 7 Included in clause 7 of the agreement, was the following provision: (b) If for any reason not solely attributable to the vendors, the balance of the purchase moneys shall not be paid by the purchaser to the vendors by the date specified in this Agreement for completion (the "Date") the purchaser then [sic]:

(iv) the vendors shall be entitled to give notice to the Purchaser to complete the Contract on a time of the essence basis within 14 days." (Blue Appeal Book 161)

The Dealings between the Parties 8 Subsequent to 28 May 2004, the parties agreed to vary the settlement date to 23 July 2004, with time to remain of the essence. Settlement did not occur on that date (or indeed subsequently). There were dealings between the parties in the succeeding three months but they need not be detailed as those occurring prior to 28 October 2004 are not in the main contended to be of present significance. It is sufficient to refer to letters from the solicitor for the appellants (Mr Gallagher of Mills Cameron Gallagher) to the solicitor for the first respondent (Mr Gillespie of Gillespie-Jones and Co) and to the solicitor for the second respondent (Mr Maganini of Kells The Lawyers) both dated 21 October 2004. 9 These letters purported to require completion by 5.00pm on 29 October 2004, failing which the vendors would terminate the contract. The trial judge held that the letters were ineffective to make time of the essence in respect of a settlement on 29 October 2004 and there is no challenge to that finding. 10 The trial judge's findings as to what communications thereafter occurred were as follows: "11 Mr Gallagher deposed that, on or about 28 October he had a telephone conversation with Mr Paul Maganini of Kells Lawyers to the following effect:

Gallagher: "I wrote to you requiring settlement by 29th October. Will you be able to settle the matter by then?

Maganini: "No, my client won't be in a position to settle at all."

12 On 29 October Mr Gallagher also wrote to Kells purporting to confirm advice to the effect that "your clients are not in a position to complete the Share Sale Agreement". Mr Gallagher also wrote to Gillespie Jones saying that he had been advised by Kells Lawyers that "the purchasers pursuant to the Share Sale Agreement are not in a position to proceed with the purchase". (My emphasis). To neither letter was there a response.

13 Thereafter the Plaintiff's solicitor sought instructions from the Plaintiffs and all instructed him to take steps to terminate the agreement. On 14 December 2004 Mr Gallagher wrote to Kenoss and Zantown in terms:

"TAKE NOTICE that Crownview Developments Pty Ltd have elected to terminate the agreement for sale of shares (the "agreement") dated 28 May 2004 made between the company as Vendor and Kenoss Pty Ltd and Zantown Pty Ltd as Purchaser for the sale of the company's shares because of your failure to complete the sale on or before 5pm on 23 July 2004 in accordance with the Agreement as extended by agreement between the parties and in consequence thereof being in breach of an essential term of the agreement."

14 On 1 November 2005 the Plaintiffs filed the Statement of Claim in these proceedings referring to the contract, alleging breach by the First and Second Defendants in failing to complete and asserting that on 14 December 2004 the Plaintiffs terminated the contract due to those Defendants' failure to complete.

15 On 1 March 2006 Gillespie-Jones & Co wrote to Mills Cameron Gallagher as follows:

We refer to the alleged termination of the contract dated 28 May 2004 by Crownview Developments Pty Limited. Our client asserts and maintains that Crownview Developments Pty Limited had no right to terminate the contract dated 28 May 2004. Nonetheless, Kenoss Pty Limited accepts the notice as repudiation of the contract. We note that as a consequence the contract has been brought to an end." (Red Appeal Book pp 80-1)

The Trial Judge's Conclusions 11 The trial judge expressed his conclusions as to these events as follows: "26 The next significant event was the communication from Mr Maganini of 28 October to the effect that Zantown would not be able to settle at all. That, at least so far as Zantown was concerned, was a repudiation of the agreement - Harold Wood Brick Co Ltd v Ferris (1935) 2KB 198 at 205-206; Thorpe v Fasey (1949) 1 Ch 649 at 660.

27 Had Zantown been the only purchaser that would have entitled the vendors to rescind for anticipatory breach. However, Zantown was not the only purchaser and as rescission for anticipatory breach requires the assent of all parties to a contract - see Lion White Lead Ltd v Rogers (1918) 25 CLR 533 at 551 - and I am not persuaded there was any such agreement by Kenoss, the agreement remained on foot. In this connection it is appropriate to refer to the difference in terminology between the terminology attributed to Mr Maganini, "my client" and the plural used in Mr Gallagher's purportedly confirmatory conversations. The difference was not the subject of exploration during the hearing and, although the absence of any response to the letter from Mr Gallagher to Gillespie and Co provides evidence that Kenoss might have been suffering the same inability to complete, I do not believe that I should not prefer the account of the conversation to which Mr Gallagher deposed. Kells did not generally speak for Kenoss and repudiation is not to be lightly inferred.

28 For a number of reasons the notice of 14 December 2004 was inadequate to change this situation. In the first place, the vendors had been unable to complete on 23 July: In that situation, and not being excused by any conduct of the purchaser, the vendors could not rescind for the purchasers' failure to complete on that day - Foran v Wight (1989) 168 CLR 385. Secondly, the vendors in their letter of 21 October had maintained the continuation of the contract, a course inconsistent with maintenance of their right to rescind for an event as long ago as 23 July. Thirdly, the 14 December notice was in its terms one by Crownview Developments Pty Ltd. While that company was the company whose shares were the subject of the agreement of 28 May, the company was not itself a party to the agreement and not a person who had any rights in relation to the agreement. Nor is it possible to regard the notice as one from the Plaintiffs. It was not expressed to be such, nor is there any evidence that Crownview Developments was acting as agent for all or any of the Plaintiffs.

29 The matters following the reference "Thirdly" in the immediately preceding paragraph means (sic) also that the 14 December notice was not a repudiation by the Plaintiffs and was not capable of supporting the purported rescission by Kenoss in its notice of 1 March 2006. That notice also does not reflect any agreement by Zantown in the rescission and, there being no other evidence of Zantown's agreement in the course Kenoss then sought to adopt, there is much to be said, in accordance with Lion White Lead Ltd v Rogers , that there is a further ground for rejecting the notice of 1 March as effective to achieve what it purported to do. (Red Appeal Book pp 84-5)

The Appellants' Contentions 12 The appellants found their challenge to the trial judge's decision upon two propositions. 13 The first is that the statement made by the second respondent's solicitor constituted a repudiation which entitled the appellants to terminate the contract as against both purchasers and that the appellants effected that termination by the notice of 14 December 2004 or alternatively by their filing of the statement of claim in these proceedings. 14 The second proposition is that even if the appellants did not validly terminate the agreement, they were entitled to recover damages from the first and second respondents because those respondents failed to complete the agreement. 15 These two bases of the appellants' challenge are dealt with separately below.

The Alleged Anticipatory Breach: Appellants' First Submission 16 His Honour's conclusion in paragraph 27 of his judgment that Mr Maganini, the solicitor for the second respondent, was speaking only on behalf of the second respondent, and not also on behalf of the first respondent, was not challenged on appeal. 17 The question then arises whether his Honour was correct in regarding the decision in Lion White Lead Ltd v Rogers [1918] HCA 71; (1918) 25 CLR 533 as authority for the proposition that rescission for anticipatory breach, or to put it another way, termination by acceptance of an anticipatory breach requires the assent of all the parties to a contract, at least where the non-assenting party is, as his Honour held in a conclusion which is not challenged, a joint and not merely several contracting party. (As to the terminology of "repudiation" and "renunciation", see Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61; (2007) 233 CLR 115 at [44-5]). 18 The important passage in Lion White appears in the joint judgment of Isaacs and Rich JJ at 551: "The position, however, though somewhat novel, seems clear in principle. If A and B jointly agree with C, and if C announces, before the normal moment of performance arrives, that he renounces the contract, it is competent for A and B jointly to accept that renunciation, and to terminate the contract. But that is a new agreement, and requires the assent of all. A may refuse, and, if so, B and C must abide by the bargain until the time for actual performance arrives. The contract may or may not then be normally performed. But once that time has arrived, if C commits an actual breach going to the root of the bargain, A has a right, by virtue of the contract already made, to say he will not proceed further, and he may refuse notwithstanding B's desire to waive his rights and proceed. The same necessity of a new bargain which in the case first put prevents A from altering the existing position prevents B in the second case from affecting A's accrued rights. It is the second case that arises here. The time for performance having arrived and an actual fundamental breach having occurred, Rogers is entitled to say "I will not proceed further. There is nothing to compel me." Bowen cannot affect Rogers's rights in that regard, and Brown has no right to compel Rogers to agree to what Blackman may desire". 19 The third member of the Court, Barton J, stated that he was in agreement with the conclusions of the other two Justices. The observations he added did not detract from what was said by Isaacs and Rich JJ. 20 In the middle of the passage quoted above there appears, with reference to acceptance of a repudiation (or "renunciation"), the sentence: "But that is a new agreement, and requires the assent of all". Later in the passage their Honours refer to the "same necessity of a new bargain". 21 A postscript to their Honours' judgment refers to the then recent decision of the House of Lords in Bradley v Newsom, later reported at [1919] AC 16. The postscript refers in particular to the speech of Lord Wrenbury in that case. Lord Wrenbury said at the page referred to in Lion White: "Thirdly, if the one party to the contract, by words or by conduct, expresses to the other party an intention not to perform his obligation under the contract when the time arrives for its performance, the latter may say, "I take you at your word; I accept your repudiation of your promise, and will sue you for breach." This is really no addition to, but a particular application of, the principle first above stated. The first party has, in fact, made an offer. This offer is: "I am not going to perform the contract. I offer to end it here and now, and to accept the consequences of ending it, those consequences, as I know, being that you can sue me for damages for my refusal." The other may accept or may decline that offer. If he accepts, then by consensus the contract is determined, but with a right to damages against the party who has refused to perform. In each of these cases it is the consensus of the parties which brings the contract to an end. In the first and third cases it is consensus dehors the contract. In the second, it is the consensus to the implied term contained in the contract." (at 51-2. The first case referred to was termination of a contract by consensus of the parties and the second to termination in accordance with a term of a contract). 22 These references indicate that their Honours in Lion White proceeded upon the basis that an anticipatory breach is an implied offer to terminate the contract and its acceptance gives rise to an implied agreement to do so (see also Jenkins v Smyth [1973] VR 441 at 446-7). 23 In these circumstances, it is understandable that their Honours regarded the assent of all parties to the contract as necessary to render acceptance of an anticipatory breach effective as termination of a contract by agreement necessarily requires the concurrence of all parties to the contract. 24 Application of the principle emerging from Lion White to the present case would confirm the correctness of the trial judge's conclusion that without the assent of the first respondent (which did not repudiate the contract), the 14 December 2004 notice sent by the appellants' solicitor was not effective to put an end to the contract. 25 It needs to be noted however that the factual situation in Lion White was different from the present. First, it was not a case in which only one of two jointly liable parties repudiated. Rather, it was a co-contractor of the "innocent" party who was declining to concur in a course of action proposed by his joint contractor. This distinction is not one which in my view is of significance as the rationale of the principle stated, and the terms in which it was stated, apply equally to both situations. 26 A second distinction is that that was not a case in which there was in fact an anticipatory breach of a contract. Instead, it was a case of an actual breach and the High Court pointed out that the principle is different in that circumstance to that applicable where there is an anticipatory breach. The assent of all contractors is not required in the case of actual breach. (See also Carringville Pty Limited v The Gatto Group Pty Limited [2003] NSWSC (2003) 11 BPR 21,069 at [20] and [45] where it was apparent that there was also an actual breach rather than an anticipatory breach). 27 The implied offer/agreement theory of repudiation underlying the High Court's comments in Lion White is one of a number of theories which have been suggested as bases for the doctrine (see for example Carter, Peden and Tolhurst, Contract Law in Australia, 5th ed (2007) Butterworths at [30-33]). Indeed, in Bradley v Newsom ibid. itself, Viscount Haldane espoused an implied term theory, namely, that it is a breach of an implied term of the contract if a party to a contract renounces or repudiates it (at 33). Acceptance of this theory might well lead to a different view as to whether acceptance of the repudiation of one only of more than one other contracting parties may lead to valid termination. Further, in Lep Air Services v Rolloswin Investments Limited [1973] AC 331 Lord Diplock described the theory that acceptance of a repudiation involved the making of a new agreement as "quite erroneous" (at 349-50). 28 Whilst, for the reason mentioned above, the statement of principle in Lion White is strictly an obiter dictum, the statement is one which this Court is in my view required to apply unless and until the High Court opines further on the question, the statement of principle having stood without contradiction for some 90 years and the statement being a well-considered one (see Farah Constructions Pty Limited v Say-Dee Pty Limited [2007] HCA 22; (2007) 230 CLR 89 at [134]). It follows that it is unnecessary for me to consider further the extent to which the approach adopted in Lion White accords with that adopted in other authorities. 29 It follows that I agree with the trial judge's conclusion that the appellant vendors could not terminate the contract by reason of the second respondent's solicitor's statement. 30 Nevertheless, it is appropriate to consider, as did the trial judge, the appellant's position if this view were erroneous. I now proceed to do that.

The Notice of 14 December 2004 and the Statement of Claim 31 The trial judge gave reasons in paragraph 28 of his judgment for concluding that the notice of 14 December 2004 would have been ineffective to rescind the contract even if there had been an operative anticipatory breach. The first two matters to which he referred are not presently applicable as they deal with a contention (not now pursued by the appellants) that the appellants were entitled to rescind by reason of the purchasers not completing on 23 July 2004. 32 The third matter mentioned by his Honour is however presently relevant and is one which I agree is determinative against the appellant vendors. 33 This is the point that the notice of termination of 14 December 2004 was one expressed to be given on behalf of Crownview Developments Pty Limited (as vendor), rather than the appellant vendors. 34 It may be inferred that there was a mistake in so framing the notice as express reference is made in the notice of 14 December 2004 to the agreement dated 28 May 2004 under which the appellants were the vendors. As indicated earlier, it was shares in Crownview Developments Pty Limited that were the subject matter of the sale. That company was not the vendor, or a vendor. 35 However a conclusion that a mistake was involved does not in my view require a conclusion that the mistake should be notionally corrected and the notice treated as effective (assuming contrary to my view that there was a circumstance that would have entitled the appellants to terminate). Certainly, the appellants' solicitor was the person who professed to give the notice on behalf of the "vendor" Crownview Developments Pty Limited but it does not follow that a reasonable person in the position of the recipient would, as I think would need to be the case, necessarily conclude that the solicitor was authorised to give the notice on behalf of the appellants and intended to do so. 36 A further point taken by the respondents was that there were charges over the shareholdings of two of the appellants and that they did not have in hand as at 14 December 2004, ready to hand over on settlement, registrable forms of discharge (there was a form in respect of one of the companies but it incorrectly described the company in which the shares were held). This is not in my view an additional answer to the appellants' claim to have terminated on 14 December 2004 as (assuming still that there had been an anticipatory breach entitling the appellants to terminate the contract as against both purchasers), this relieved the appellants from the need to obtain the proper forms of discharge which their evidence showed that they were in a position to obtain if necessary. 37 I should add that the appellants submitted that they could rely upon the filing of the statement of claim in these proceedings in the alternative to the notice of 14 December 2004. I do not consider this submission well-founded as the statement of claim did not purport to terminate the contract. Rather it made the assertion that the 14 December 2004 notice had done so.

Termination for Failure of the Purchasers to Complete: The Appellants' Second Submission 38 This second proposition of the appellants (see paragraph 13 above), did not carry with it any suggestion by the appellants that they had sought to make an appointment for settlement in the period to which the submission related (that is, from the beginning of October 2004 to 14 December 2004) or to otherwise proffer performance of their own obligations. 39 This is in my view a fatal flaw in their submission. As Brennan J pointed out in Foran v Wight [1989] HCA 51; (1989) 168 CLR 385, "the obligation of a vendor to deliver a conveyance and the obligation of a purchaser to pay the price on completion are mutually dependent and concurrent obligations in the absence of any contrary stipulation; each obligation is to be performed in exchange for the other …" (at 417). The date for settlement fixed by the contract having long since passed and acts of the parties confirmatory of the continued existence of the contract having occurred, it was in my view incumbent upon the appellants to offer performance of their own obligations before they could complain of a failure of the respondent purchasers to settle. Of course an anticipatory breach by the purchasers may have excused the vendors from proffering performance but the submission of the appellants presently under consideration is an alternative one which assumes the absence of an anticipatory breach by the purchasers. 40 As a result, this second submission of the appellants in my view also fails. Abandonment of the Contract 41 It follows from the above that I agree with the trial judge's conclusion that the appellants did not establish that they had terminated the contract or that they were entitled otherwise to claim damages or other relief from the respondent purchasers. 42 The respondent purchasers did not file any cross claim in the proceedings seeking damages or other relief against the appellants and they have not challenged on appeal the trial judge's conclusion that the contract was abandoned by the time of the trial. Further, the appellants have accepted that unless they are successful on one of the bases of challenge to the trial judge's decision with which I have dealt above, the trial judge's conclusion of abandonment should stand.

Conclusion and Orders 43 For the reasons given above I am of the view that the appeal should be dismissed and that the appellants should be ordered to pay the costs of the respondents of the appeal. 44 HANDLEY JA: I agree with Macfarlan JA.

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