Opera Properties Pty Ltd v The Uniting Church in Australia Property Trust [2021] NSWSC 1436 | Case summary

Determination

The plaintiff contends that cl 4.6(6) of the 2014 LEP gave rise to such a fundamental commercial difference between contemplated and actual performance, and a fundamentally different situation, that the principles of frustration operate to bring the Deed to an end.
The relevant enquiry calls for a consideration of the nature and terms of the Deed, read in the light of the circumstances existing at the time it was made, and the event or events which are said to bring about the frustration of the contract (see Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (supra) at 358-9).
It should be noted at the outset that the relevant contract is the contract embodied in the Deed itself. In circumstances where neither the Call Option nor the Put Option has been exercised, no contract has come into existence on the terms of the Contract that is annexed to the Deed. Accordingly, no question of frustration of such a contract arises. However, the terms of the contract annexed to the Deed are relevant to the question whether the Deed has been frustrated as contended by the plaintiff. Those terms identify what the parties intended their legal relationship to become in the event an option under the Deed was exercised.
The Deed was entered into in circumstances where the plaintiff wished to develop its land, the Development Land, for residential purposes, and needed to arrange suitable road access for such development. A new road, extending from Boundary Street to Jubilee Road (or Avenue) across a portion of the defendant's land, the Church Land, was a potential option for achieving suitable road access. These background circumstances are broadly reflected in Recital B to the Deed in the following terms: The Grantee seeks to rezone the Development Land to allow for the Project to proceed and requires the Property to serve as part of a road for public access to and from the Development Land.
The granting of the options the subject of the Deed can be seen as acts in furtherance of that broad objective. Both the Call Option (granted pursuant to cl 2.1) and the Put Option (granted pursuant to cl 2.2) refer to a purchase of the Property "for the Price and otherwise on the terms and conditions contained in the Contract". Price is the amount calculated in accordance with cl 9 of the Deed. The Contract is a contract in the form of that which is annexed to the Deed. It is a standard form of contract for the sale of land supplemented by a number of Additional Clauses.
Exercise of the options is dealt with in cll 5 (Call Option) and 6 (Put Option). I do not accept the defendant's submission that the Call Option could have been exercised at any time after the Deed was signed. In my opinion, cl 5.1 identifies a period within which the Call Option may be exercised, namely, at any time during the Call Option Period. That is the natural reading of the language of cl 5.1. Were it read otherwise, as contended for by the defendant, the definition of Call Option Period would have little or no work to do, and neither would the provisions of cl 4 which give a right to extend the Call Option Period in certain circumstances. Further, and as also pointed out by the plaintiff in submissions, there would be difficulties in calculating the Price under cl 9 if the option could be exercised before the Rezone Date. Accordingly, the Call Option is only able to be exercised by the plaintiff during the Call Option Period which commences on the Rezone Date and ends on the first to occur of the dates specified in the definition (or the amended definition if, as later occurred, the Call Option Period is extended pursuant to cl 4). Similarly, cl 6.1 identifies a period within which the Put Option may be exercised, namely, the Put Option Period. That period cannot commence unless either a Rezone Date or a Project DA Date occurs.
Clause 3.1 of the Deed sets out the obligations of the parties in respect of the preparation and lodgement of the Rezone Application. That is an application to change the development controls applying in respect of the Development Land to permit it to be developed for the Project. If the application succeeds so that the Development Land is rezoned, there will be a Rezone Date for the purposes of the Deed.
Clause 3.2 of the Deed sets out the obligations of the parties in respect of the preparation and lodgement of the Project DA and the obtaining of the Project Consent. It is envisaged that the Project DA will incorporate certain Buffer & Road Works, and it is stipulated that the Road (as defined) must be constructed prior to commencement of construction on the Development Land pursuant to the Project Consent.
If either option is exercised, the Contract (as defined) becomes binding upon the parties from the time of exercise (see cll 5.2 and 6.2). In that event, the Price for the purposes of the Contract is determined in accordance with cl 9 of the Deed. In essence, the Price is $800,000 plus the Price Adjustment Sum (if any), minus the Call Option Fee and any Call Option Extension Fee. By cl 9.1(a), $10.00 is stated to be the amount of the deposit. This should be regarded as forming part of the Price (see cl 9.1(b)). By Additional Clause 35 of the Contract, the Price is to be paid 14 days after the date of the contract, although in certain circumstances a Price Adjustment Sum is to be paid at a later date. The Price and any Price Adjustment Sum is not refundable to the plaintiff (see Additional Clause 35(h)).
Additional Clause 36 of the Contract is concerned with the carrying out of various works, including the Buffer & Road Works the subject of the Project Consent.
Additional Clause 37 of the Contract is concerned with the obligations of the parties in respect of the registration of the subdivision of the Church Land (in a manner consistent with the Mepstead & Associates drawing dated 11 September 2007) so as to create the Property. If the Subdivision Documents are registered, notification of that fact operates to set the Completion Date for the Contract (see Additional Clause 38). However, Additional Clause 39 contemplates a situation where the Subdivision Documents are not registered by the date three years after the date of the Contract. (Where no contract date is dated on the front page, the contract date is the date the contract is made - i.e. the date when the relevant option is exercised.) Additional Clause 39 provides that if for any reason whatsoever the Subdivision Documents are not registered three years after the date of the Contract, the defendant must provide the duly executed Road Easement to the plaintiff so as to allow it to be registered. Once the defendant complies with its obligations in that respect it is taken to have discharged all of its obligations under the Contract. In particular, the defendant is under no further obligation to transfer title to the Property, and no further obligation to proceed with the registration of the Subdivision Documents. Moreover, it is provided that in those circumstances neither party has any obligation to the other except in relation to antecedent breaches and the terms of the Road Easement.
The asserted frustrating event is the commencement on 27 June 2014 of the 2014 LEP, and in particular cl 4.6(6) of the 2014 LEP. The asserted frustrating event is not said to prevent the performance of any obligations under the Deed, or the exercise of any option under the Deed. Rather, it is said to undermine the fundamental purpose of the Deed, being the purchase of the Property.
Clause 4.6(6) of the 2014 LEP undoubtedly precludes a subdivision of the Church Land such as would be necessary in order to create the Property. As explained by Mr Doyle, a consultant town planner called by the defendant, recourse to the provisions of SEPP1 was not available in relation to the 2014 LEP as it is a "standard instrument LEP". Mr Boston, a consultant town planner called by the plaintiff, agreed with Mr Doyle on that point. The position thus differed from that which pertained when the 1993 LEP applied (see [9] above).
As the Property is the subject of the Contract that would come into existence upon the exercise of one of the options, cl 4.6(6) of the 2014 LEP stood in the way of the conveyance that is contemplated to occur following an exercise of an option. To that extent, the purpose of the Deed can be seen to have been defeated. However, even if that purpose is regarded as of central or primary importance in the transaction embodied in the Deed, the terms of the Deed and the Contract referred to above show that conveyance of the Property is not the only purpose of the transaction. It is apparent from Additional Clause 39 that the parties contemplated that in some circumstances the conveyance of the Property would not occur, and the Road Easement would be granted instead. That is to say, the parties contemplated circumstances in which an option was exercised (so that they became bound by the Contract) and the Contract would be completed not by the transfer of title to the Property but by the transfer of the Road Easement. The parties contemplated that the Contract would be so performed in the event that, for any reason whatsoever, the Subdivision Documents were not registered by the date three years after the date of the Contract.
At the time the Deed was entered into the parties evidently turned their minds to the possibility that registration of the Subdivision Documents may not be achieved even three years after the exercise of an option (which itself might not occur for several years). The potential cause or causes of such a failure to achieve registration are various, and obviously include changes in applicable planning laws. The parties stipulated that there would be a transfer of the Road Easement if such a failure to achieve registration occurred "for any reason whatsoever". It is not correct that the Deed and the Contract were predicated on the assumption that consent to the subdivision of the Church Land has either been obtained or will be obtained.
In these circumstances I do not think it can be concluded that the parties entered into the Deed on a common assumption that there would be no change to applicable planning laws that would preclude a subdivision of the Church Land so as to create the Property. Or, put another way, that there was a common assumption that it would continue to be the case that consent could be given to such a subdivision.
Neither can the continuation of that state of affairs be regarded as essential to the performance of the Deed (or any contract that arises upon the exercise of an option under the Deed). A departure from that state of affairs would not preclude the performance of any obligations under the Deed, including the obligations in relation to the Project DA and the Project Consent. If the Project DA was refused in whole or in part because consent could not be given to the subdivision of the Church Land, the Deed continues to operate (see cl 3.2(m)). If, following the exercise of an option, the registration of the Subdivision Documents was not achieved by the date three years after the date of the Contract, the provisions of Additional Clause 39 would operate so as to require the grant of the Road Easement instead of the conveyance of the Property.
It may be accepted that the preclusion of a subdivision of the Church Land brought about a significant change. It was henceforth highly unlikely, if not impossible, that the Property could be created and conveyed to the plaintiff. The situation would plainly affect the commercial calculations of the parties, in particular in relation to the possible exercise of the options. In that regard, it should be noted that as the Rezone Date occurred at or about the same time, it was open to the plaintiff to exercise the Call Option, and the Put Option Period would commence no later than 12 months thereafter. The preclusion of a subdivision of the Church Land may well have made an exercise of the Call Option unattractive to the plaintiff. However, the provisions of the Deed show that the options might be exercised in a variety of situations. It is expressly envisaged, for example, that either option might be exercised at a time when there is no consent to the Project DA (see cl 9.1(h)). The Project DA involves seeking consent for a development that includes the subdivision of the Church Land. The parties should thus be taken to have contemplated that either option might be exercised before any subdivision is approved. Moreover, the terms of Additional Clause 39 indicate an appreciation that, for whatever reason, the subdivision might not be achieved within three years after the exercise of an option.
It seems to me that the preclusion of a subdivision of the Church Land, brought about by the commencement of the 2014 LEP, did not give rise to such a fundamentally different situation that the Deed should be held to be frustrated. I do not think that the continued performance of the obligations under the Deed was rendered a thing radically different from that undertaken under the Deed. The parties evidently appreciated that advancement of the Project depended upon various consents being given. The parties made provision against the possibility that one or more of the consents might not be forthcoming. For example, if a rezoning of the Development Land is not achieved there is no Rezone Date; and if the Project DA is refused the Deed continues to operate. Here, upon the happening of the Rezone Date, it was open to the plaintiff to exercise the Call Option, and within 12 months it would be open to the defendant to exercise the Put Option (unless the Call Option was exercised first). That is so regardless of the status of the Project DA. In either case, upon the exercise of the option, a contract would come into existence which would oblige the defendant to grant the Road Easement if for whatever reason the subdivision was not registered within three years. Again, the parties envisaged that, for whatever reason, registration of the subdivision might not be achieved. I do not accept the plaintiff's submission to the effect that the benefit of the Road Easement that would be granted in those circumstances is illusory or of only minor significance. It is a tangible property right, and in the context of a proposed residential development comprising 71 residential lots that lacked suitable road access, an easement of that character may be of considerable value. The Road Easement can be seen as an alternative means of achieving the broad objective that is referred to in Recital B to the Deed.
The present case is unlike Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (supra). In that case, the parties entered into a construction contract acting on erroneous advice that the work could not be the subject of an injunction to restrain noise or other nuisance. The parties thus proceeded on the basis that the work would be completed within 130 weeks, by a method involving three 8 hour shifts a day. The contract was held to be frustrated due to the issue of injunctions that precluded work between 10:00pm and 6:00am. The injunctions made it impossible for the work to be lawfully completed in accordance with the contract. Performance of the contract in the new situation became fundamentally different from performance in the situation contemplated by the contract. Here, for the reasons set out above, the preclusion of a subdivision of the Church Land did not cause performance of the Deed to become fundamentally different from performance in the situation contemplated by the Deed at the time it was made. Of course, questions of degree arise in applying the principles of frustration to the particular facts of the case at hand (see Brisbane City Council v Group Projects Pty Ltd (supra) at 162-3 per Stephen J). To my mind, the impact of the allegedly frustrating event in the present case is insufficient to warrant a conclusion that the Deed was frustrated.
The Deed was not discharged by frustration upon the commencement of the 2014 LEP. The plaintiff is not entitled to recover either the Call Option Fee of $80,000 or the Call Option Extension Fee of $80,000 on that basis. Neither is the plaintiff entitled to recover those sums pursuant to s 55(2A) of the Conveyancing Act. Whilst this claim was not formally abandoned, Senior Counsel for the plaintiff fairly conceded that there were difficulties in the way of treating the option fees as deposits within the meaning of the section. In my view, s 55(2A) applies only to deposits paid under contracts for the sale of land. The Deed is not such a contract, although the exercise of an option under the Deed would give rise to one. That did not occur. The option fees paid by the plaintiff would not in any event be regarded as deposits paid under the contract. Clause 9.1(a) of the Deed stipulates that the Contract Deposit is $10.00.
The above conclusions are sufficient to dispose of the plaintiff's case. It is not necessary to consider certain other arguments advanced by the defendant in opposition to the frustration case. However, I will state that insofar as the contentions of the defendant rested on the proposition that the plaintiff breached the provisions of the Deed (notably cl 3.2(h)) I would not have accepted them. It was not pleaded that the plaintiff was in breach of the Deed. Neither was it pleaded that any breach of the Deed prevented the plaintiff from relying upon the commencement of the 2014 LEP as an event of frustration.
The Statement of Claim will be dismissed. The Court will also order that the plaintiff pay the defendant's costs of the proceedings.

Opera Properties Pty Ltd v The Uniting Church in Australia Property Trust

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Cases Cited (8)