Parissis v Etna [1998] VSC 124

(b) Welham Contract. By contract of sale dated 22 January 1994 the defendant agreed to sell to the third named plaintiff Peter John Welham unit 10 and parking unit 31 ("unit 10") of the proposed development for a sum of $245,000.00. A deposit of $24,500 was paid on 22 January 1994 and 28 February 1994. The parking unit was later changed to unit 12.

(c) Letife Arif Contract. By contract of sale dated 3 February 1995, the defendant agreed to sell unit 12 and parking unit 22 ("unit 12") of the proposed development for the sum of $300,000.00 to the second named plaintiff Letife Arif for the sum of $300,000. The deposit of $20,000.00 was paid on 6 December 1994. In relation to that contract, the second named plaintiff nominated the fifth named plaintiff Sami Nominees Pty Ltd as substitute purchaser under the contract and on 11 October 1996 the defendant's solicitors agreed to such nomination subject to the provision of guarantee. The parking unit was changed to unit 19. It was common ground that at all material times Ersoy Arif acted as agent for his mother Latife Arif in relation to this contract.

8. The defendant alleges that the contracts were rescinded on 7 May 1998. Alternatively, he argues that the plaintiffs are not entitled to specific performance.

11. Reference should also be made to a further contract for the sale of unit 3 to a Mr Parissis. Mr Parissis was the first named plaintiff. He, however, had resolved his differences with the defendant by completing the contract of sale with the defendant prior to the hearing of these proceedings.

16. The contracts concern units on a proposed plan of sub-division numbered PS325755G under the Sale of Land Act 1962. The contracts were "prescribed contracts" under that Act. Section 9 AA of that Act required certification by the Council of the relevant municipality and registration of the plan by the Registrar of Titles before any contracts of sale could be completed. In particular, the defendant, as owner and vendor, had the obligation to perform certain acts to enable completion.

(a) As the person seeking to have a plan registered he was obliged to prepare the plan, submit it to the Council for certification, obtain a statement of compliance from the Council and lodge the certified plan at the Office of Titles (S.5 (3) Sub-division Act 1988).

(b) The Council had the right to require payment of a sum representing a percentage of the site value of all the land in the sub-division that was to be used for residential purposes for public open space requirements. The percentage could not exceed 5 per cent (s.18 (1) Sub-Division Act 1988). The defendant was obliged to pay the public open space fee before the Council would issue its statement of compliance unless he and the Council agreed to payment after the issue of the statement of compliance (s.18 (1B) Sub-division Act 1988).

21. Because of the nature of the contracts and the above requirements, special conditions were included in each of the contracts. The first to which I need to refer are those dealing with the problem that the plan of sub-division was yet to be certified by the council and registered at the Titles Office at the time the contracts were executed. The particular clauses of relevance were contained in cl.2. They are as follows:-

"2.1 This Contract is subject to and conditional upon the certification of the Plan of Subdivision (the "Plan") by the Council (the "Council") of the municipality within which the Property is situated and the registration by the Registrar of Titles of the Plan within twenty-four (24) months from the Day of Sale (the "Plan Registration Date").

2.2 The Vendor at its own cost must use its best endeavours to procure the certification and registration of the Plan by the Plan Registration Date.

2.3 Subject to Section 9AC of the Sale of Land Act 1962, the Vendor reserved the right to alter, amend or vary the plan in accordance with any requirement of the Vendor, the Council or the Registrar of Titles.

2.4 If any amendment to the Plan is made which restricts or limits the use of the lot or lots to which this contract relates, then the Purchaser may avoid this contract at any time before the Plan is registered unless the amendment results from any recommendation of a public authority or government department. The provisions of this condition and section 19 (1) of the Sale of Land Act 1962 do not apply in respect of the final location of an easement shown on the Plan.

2.5.1 If the Plan is not certified and registered by the Plan Registration Date then either the Vendor or the Purchaser may at any time after that date but before the Plan is registered rescind this contract by written notice to the other.

2.5.2 If either party rescinds this contract pursuant to this condition, then the Vendor must immediately return to the Purchaser the deposit less the amount of any occupation fees paid by the Purchaser.

2.5.3... The Purchaser shall not be entitled to any compensation from the Vendor in respect of any costs, fees or other expenses paid or incurred by the Purchaser in relation to or arising out of the transaction evidenced by this contract.

2.6 Until the Plan has been registered, the Purchaser must not lodge or cause or permit to be lodged on the Purchaser's behalf any caveat in the Land Titles Office in respect of the Purchaser's interest in the Property. The Purchaser shall indemnify and keep indemnified the Vendor against any loss or damage which the Vendor may incur or suffer as a consequence of any breach by the Purchaser of this condition."

32. The contracts also included special conditions dealing with the vendor's obligation to construct the building. They are contained in cl. 3. It provides as follows:-

"3.1 This sale is subject to and conditional upon the Vendor executing on or before the settlement date all design, building and construction works ("the works") for the development of the property substantially in accordance with the Architectural Plans copies of which are attached hereto. The Purchaser does hereby acknowledge that the Vendor shall at any time be entitled to make (without reference to the Purchaser) any minor alterations or variations that the Vendor may deem necessary to be made to the Architectural plans and / or the works. However, the Vendor agrees to notify the Purchaser in writing of any proposed changes to the Architectural plans or the works which directly, substantially and detrimentally effect the property hereby sold.

3.2 The Vendor agrees that as well as completing the works substantially in accordance with the said Architectural Plans it will complete such works in accordance with the specifications and standards required by the Council including the Standards published by the Standards Association of Australia (S.A.A.) and further in accordance with the Schedule of "Construction Details, Fittings and Finishes a copy of which is attached to this Contract.

3.3 The Vendor shall be deemed to have completed the works and discharged its obligations under Special Conditions 3.1 and 3.2 upon its producing to the Purchaser a Certificate of Occupancy issued by the City of St Kilda for the lot hereby sold.

3.4 The Vendor shall promptly attend to rectification of defects and other faults apparent in any part of the project works and notified in writing by the Purchaser to the Vendor during a period of fifty-two (52) weeks from the date of issue of the Certificate of Occupancy which are due to defective materials or faulty workmanship."

A special condition Cl 4 dealt with the handling of deposit monies. It provided the following:-

"4. The deposit moneys payable by the Purchaser shall be paid to the Vendor's solicitors, Messrs Phillips Fox, to be held on trust for the Purchaser until the registration of the Plan and then to be held as stakeholder pursuant to section 24 of the Sale of Land Act 1962. The deposit or any part of the deposit may be held in an interest bearing trust account established pursuant to section 49 (10 (a) of the Legal Profession Practice Act 1958. Any interest accruing on the deposit shall be paid to the party ultimately entitled to receive the deposit."

Payment of the residue of the purchase money was to be made on the later of

" (a) 10 days after the purchaser is notified of registration of the plan of sub-division pursuant to special condition 2. (b) 10 days after the purchaser is notified of the issue of a certificate of occupancy pursuant to special condition 3".

44. By about October 1994 an application had been made to the Council of the City of Port Philip by Mr Szirom on behalf of the defendant for a permit for a thirteen unit subdivision at 347 Beaconsfield Parade St Kilda. Each unit was to have an associated parking lot. The permit that was granted on 8 December 1995 required a contribution of five per cent of site value towards open space. It also required evidence of Telstra Corporation's satisfaction with the works provided and evidence that City Power had entered into an agreement to supply electricity. By letter dated 19 April 1996 the sub-divisions office in the City of Port Philip advised Mr Szirom of the valuation placed on the property by the City of Port Philip from which the public open space contribution could be determined. That value was $520,000.00 determined as at 19 October 1995. Before the plan of sub-division could be registered at the Titles Office, it was necessary to have certification from the Council. This required compliance with the permit conditions and the verification on site of the boundaries of the units after completion of construction.

47. It appears that the defendant had formed a company ACN 064828520 Pty Ltd ("ACN") to enter into the construction contract. On 17 June 1994 a building contract was entered into by ACN and Hi-Struct Pty Ltd ("Hi-Struct"). On 30 August 1994 ACN and the defendant entered into a finance agreement with Esanda Finance Corporation Limited ("Esanda") under which Esanda agreed to provide financial accommodation in the sum of $2,390,000.00. It was to be secured by, amongst other things, a first ranking registered mortgage over the property and a first ranking registered debenture over ACN.

50. The project ran into difficulties in October 1994 because of excavation work which caused damage to an adjoining building. Work ceased on the project. Experts were engaged in November 1994 to stabilise the excavation. Arbitration was commenced which was ultimately settled by mediation in May 1995. Under the settlement, the building contract was terminated.

53. The defendant and ACN were in arrears as to the interest payments under the facility with Esanda by April 1995. Plans had to be redrawn and new planning and building permits were required. Catani Gardens Investment Pty Ltd ("Catani") was incorporated to undertake the project and entered into a building contract with G & A.M. Donato ("Donato") in September 1995. On 22 December 1995, the defendant entered into a new finance agreement with Esanda pursuant to which Esanda agreed to provide a loan of $3,599,000.00 to Catani. The defendant is a shareholder and the sole director of the company. The loan from Esanda included advances already made of $1,100,000.00. Further problems were experienced and some two and a half years later Donato was still working on the project and the amount owed to Esanda had grown to $4,600,000.00.

58. It will have been noted that a right to rescind arose under cl.2.5.1 of the contracts if the plan of subdivision was not certified and registered by the "Plan Registration Date". In the case of each of the three contracts in dispute in this matter, the Plan Registration Date expired without certification by the council or registration of the plan at the Titles Office. The history in each case was as follows:-

The Plan Registration Date for that contract expired for the first time on 26 November 1995. The defendant served a rescission notice on 1 March 1996. The dispute over that notice of rescission was resolved and the notice withdrawn. The parties agreed on 14 October 1996 to the contract continuing but there was no formal extension made of the Plan Registration Date. By letter dated 27 November, 1996, however, the solicitors for the defendant sought agreement to a new Plan Registration Date of 30 May 1997. Ersoy Arif through his solicitor agreed to that extension by letter dated 9 December 1996. The defendant sought a further extension on 26 May 1997 to 31 August 1997 and Mr Arif agreed to that date. No further extensions of the date were made. There was further communication between the parties but, by fax of 7 May 1998, the defendant's solicitors gave notice of rescission relying upon cl. 2.5.1 of the contract.

The Plan Registration Date for that contract expired on 22 January 1996. In 1995 Mr Welham agreed to an extension of the Plan Registration Date to 30 June 1996. Subsequently he was asked to further extend the time, and agreed to do so, to 30 August 1996, 15 November 1996, 15 February 1997, 30 May 1997, 30 June 1997 and 31 August 1997. In late 1997 there was some correspondence passing between solicitors concerning the Plan Registration Date which did not result in any further extension. The defendant gave notice of rescission in respect of this contract also by letter from his solicitors dated 7 May 1998, again relying on cl. 2.5.1 of the contract.

The Plan Registration Date for this contract was 3 February 1997. On 9 December 1996 the solicitors for the second named plaintiff agreed to the request of the defendant for an extension of the date to 30 May 1997. Further extension was sought by the defendant's solicitors by letter dated 26 May 1997 to 31 August 1997. By letter dated 19 June 1997, the solicitors for the second named plaintiff wrote to the defendant's solicitors agreeing to the extension sought. Thereafter again, the issue of Plan Registration Date was raised but not resolved. By fax of 7 May 1998 the defendant's solicitor gave notice of rescission relying on cl. 2.5.1 of the contract.

67. As to the progress of the required certification and registration, it was common ground that registration of the plan of sub-division at the Titles Office could not be achieved until certification of the plan of sub-division had been given by the City of Port Philip. The situation that had been reached by the middle of July 1997 was, as the defendant was informed by Mr Szirom, that there were three matters outstanding which needed to be attended to before the issue of a statement of compliance and certification by the City of Port Philip. They were;

(a) confirmation of Telstra's consent to the issue of a statement of compliance by the Council;

(b) City Power's consent to the issue of a statement of compliance and

(c) payment of the Council's open space contribution.

By letter dated 24 September 1997 Telstra wrote to the City of Port Philip consenting to the issue of a statement of compliance. On 29 September 1997, City Power advised the defendant that the original statement of compliance had been sent to the wrong Council and that it would forward a copy to the City of Port Philip. On 29 October 1997 the defendant was advised by Mr Carlisle of the City of Port Philip that all requirements had been satisfied in relation to the plan of sub-division save and except for the payment of the Council's open space requirement of $26,000.00. On 6 November 1997, the defendant received from Esanda various cheques including a cheque for $26,000.00 made payable to the City of Port Philip to meet the open space requirement. The defendant instructed his solicitors to place the $26,000.00 cheque into their trust account where it remained until 8 May 1998. The defendant claims in his Affidavit of 1 July 1998 that he was under the belief that the plan of sub-division could not be registered until he had entered into a s. 163 agreement under the Building Act 1993 with the City of Port Philip and that that was not entered into until December 1997. He deposes that it has since been explained to him by Hugh MacCann of Phillips Fox, Solicitors, that that agreement was required for the grant of a certificate of occupancy and not for the registration of the plan of sub-division. I think that account of events is unlikely. But in any event, it would appear that, if absence of such an agreement was seen by the defendant as an obstacle to registration of the plan of sub-division, it had been removed by December 1997. All that then remained to enable certification and registration to take place thereafter was payment of the open space fee of $26,000.00, which sum was being held by his solicitors. On the 8th May 1998, the day after the purported rescission of the above three contracts, a cheque was drawn on the solicitor's trust account and delivered by the defendant to the City of Port Philip.

75. In the latter part of 1997, the defendant was having considerable difficulties in his financial arrangements with Esanda. He attempted to re-finance the facility with the Bank of Western Australia Limited ("Bank West"). An indicative offer was received from them on 14 December 1997 but the terms upon which they were prepared to lend were not acceptable to Esanda. On 2 January 1998, Esanda served demands requiring repayment of its facility. On 14 January 1998 Esanda served a notice to pay in respect of its securities. On 3 February 1998 Esanda attempted to change the locks to take possession. At a meeting with Esanda on 20 February 1998, the defendant was advised that Esanda intended to take possession. Esanda issued proceedings for possession which were served on the defendant on 6 March 1998. Those proceedings were settled. In essence, Catani Gardens and the defendant were required under the terms of settlement to complete the project by 20 May 1998 and to repay Esanda in full by that date. If they failed to do so, Esanda would be at liberty to enter judgment for possession. I note that cl. 3 of the terms of settlement provided as follows:-

"3. In the event that the first defendant rescinds the contract of sale in respect of units 1, 6 or 10, 347 Beaconsfield Parade St. Kilda West prior to 20 May 1998 the plaintiff agrees to consent to the release of the deposit monies paid under the respective contracts to the respective purchasers under those contracts."

79. The defendant continued to attempt to obtain re-finance for the project. On 12 May 1998 an arrangement was reached with Esanda and its solicitors that Esanda would accept payment on 20 May 1998 of $4,325,000.00 as against the balance of $4,625,997.00 with the balance of the facility and interest being secured and payable on 21 May 2001. Under this arrangement the defendant's wife also became a guarantor to the entire facility. It became clear that the 20 May 1998 deadline could not be reached and the defendant negotiated an extension with Esanda by way of deed dated 21 May 1998. It provided for an extension of the due date of 20 May 1998 to 3 June 1998 on the basis that interest was to accrue from 20 May 1998 on the total debt at 17 per cent per annum. The agreement also required conclusive evidence of re-finance to be provided to Esanda by 25 May 1998. One David Nolan was attempting to procure the re-finance at the time. As at 3 June 1998, loan contracts and security documents had been put in place in respect of Bank West and Colonial State Bank, Queensland State Home Loans had provided written approval but not a binding agreement and oral approval had been given by Moore Bank Securities and St George Bank. The only binding agreeement at that stage was with Bank West.

82. On 4 June 1998 the defendant entered into a further agreement with Esanda pursuant to which the due date for payment of the debt was extended to 1 July 1998, interest continued to accrue at 17 per cent per annum and Mario Costa, the defendant's father-in-law was to guarantee the entire facility to Esanda. He was also to provide a bank guarantee for $100,000.00. Re-finance by Bank West using units 8 and 11 as security and the sales of unit 3, 4, 7 and 9 was to be effective by 5p.m. on 19 June 1998, on which day Esanda was to receive cheques totalling at least $2,425,000.00.

85. Sales were effected of units 4 and 9 for the amounts of $303,715.10 and $291,563.08 on 15 June 1998. On 16 June 1998 unit 3 was sold for $244,585.51. Unit 7 was sold on 19 June 1998 at $276,646.50. In each instance, the sale proceeds were dispersed to Esanda.

88. Units 8 and 11 were re-financed with Bank West on 15 June 1998 and the funds dispersed as follows:-

Unit 5 was re-financed with the Bank of Queensland on 26 June 1998. The proceeds of $494,351.00 were paid to Esanda.

95. The proceeds available from the sale of units 3, 4, 7 and 9 and the re-finance of units 8 and 11 did not give sufficient money to pay out Esanda and also debts owed to three sub contractor caveators. Mario Costa the father in law of the defendant advanced $150,000.00 to pay out the caveators in exchange for the withdrawal of the caveats. The defendant asserts that he promised to repay Mario Costa on the final re-finance settlement of the development.

98. Following execution of the deed on 4 June 1998 with Esanda, a meeting took place involving, inter alia, the defendant, his wife and Mario Costa with St George Commercial Bank in Melbourne. St George agreed to provide a facility as and from 1 July 1998 of $1.95M. $1.425 M was to be paid to Esanda to purchase Esanda's mortgage over units 1, 2, 6, 10, 12 and 13 and Esanda's debt. A further amount of $500,000.00 approximately was to be advanced by St George. Those additional funds were to be paid as follows:-

(b) $75,000.00 to the fourth mortgagee the defendant's solicitors Hall and Willcox

(c) $150,000.00 to Mario Costa for his advance to pay the three sub contractor caveators

(d) $45,000 to Phillips Fox the solicitors acting in the conveyancing for the sales for the defendant and

(e) $50,000.00 to Otis Elevators to allow the lifts to continue operating.

The following securities were given to St. George in addition to the Esanda mortgage over the six units:

(a) A first registered mortgage over Mario Costa's family home

(b) A first registered mortgage over Mario Costa's holiday home

(c) A first registered mortgage over two units owned jointly by the defendant's wife and her brother.

(d) A mortgage or transfer of Mario Costa's life insurance policy

(e) A mortgage or transfer of the defendant's wife's life insurance policy

(f) Unlimited guarantees from the defendant, his wife, Mario Costa and a limited guarantee from the defendant's brother-in-law.

113. The further advance of $500,000.00 was secured by a second mortgage over the property which was registered after the lodging of the caveats on 20 May 1998 by the plaintiffs to protect their interest under the contracts of sale.

116. The evidence advanced by the defendant about his financial position and that of his companies reveals that substantial sums of money are owed and it would be of assistance to him if he was able to sell the three units at current market value. If he did so an amount of between $385,000.00 and $470,000.00 could be obtained over and above the contract prices.

121. The plaintiffs challenge the defendants right to rescind as he did. The issue is to be resolved by determining the proper construction of the relevant clauses of the contract and whether the vendor's right to rescind was lost. It is also necessary to consider issues of election and estoppel raised by the plaintiffs.

Rescission - The Construction of Clause 2 Of The Contracts

126. It is common ground that each contract is the sole repository of each agreement. The plaintiffs had pleaded a variation of the agreement but this argument was abandoned. It is also common ground that

*clauses 2.1 and 3.1 should be categorised as contingent conditions.

*up to the contract Plan Registration Date and any agreed extension of it the defendant was obliged to use his best endeavours to procure certification and registration.

*there was no breach of that obligation prior to 31 August 1997, the last agreed date of extension for the Plan Registration Date.

The parties disagree on the question of the rights and obligations of the parties after the expiration of the agreed Plan Registration Date.

133. The plaintiffs submit that special conditions 2.1, 2.2 and 2.5.1 should be read together. They submit that clause 2.2 has two component parts

(a) the defendant promises to use his best endeavours to procure the certification and registration of the plan by the Plan Registration Date;

(b) those best endeavours must be directed to enabling and not preventing the occurrence of certification and registration within two years of the date of the contract or within the time as extended by agreeement.

They submit that, because the three clauses should be read together, the requirement to use best endeavours should be construed as an absolute obligation and not an obligation limited to a particular date. They argue that this is consistent with the proper construction of the contract and reflects what the law would have implied in any event. They rely on passages from Perri v. Coolangatta Investment Pty Ltd [1982] HCA 29; (1982) 149 CLR 537. In Perri, the High Court considered the application of a special condition in a contract for the sale of land. The condition provided that the contract was "subject to purchasers completing the sale of their property at Lilly Pilly". The vendor purported to rescind the contract on 10 August 1978. The purchasers did not complete the sale of the Lilly Pilly property until 13 June 1979. The plaintiffs rely on the following passages from the judgments of Gibbs C.J. and Mason J. In discussing the operation of the special condition, Gibbs C.J.(at 561) said

"The condition in the present case was not a condition precedent to the formation of the binding contract. It is clear that a binding contract came into existence immediately upon signature, and that the parties to it were from that moment subject to certain obligations. For example, the appellants became liable to pay a deposit. Further, there was implied a promise by the appellants that they would do all that was reasonable to find a buyer for the Lilly Pilly property and to complete a sale to him. "

A little later His Honour went on to comment (at 543)

"Special condition 6 did not fix any time within which the sale of the property at Lilly Pilly was to be completed, nor did it fix a date for completion of the sale. In Aberfoyle Plantations Ltd v. Cheng ... it was said that in such a case the condition must be fulfilled within a reasonable time. This statement is clearly correct; it is entirely consistent with the principle that "An implication of a reasonable time when none is expressly limited is, in general, to be made unless there are indications to the contrary".

"The conclusion to be drawn then is that the clause expresses a condition which is precedent to the appellants' duty to perform the contract, non fulfilment of which entitles them to terminate the contract, rather than as a condition precedent to the formation of the contract. Instead of saying that the condition contains a promissory element I shall prefer to say that the promise is the subject of an implied term which is associated with the condition, but perhaps not forming part of it."

"It (the vendor) seems to be sufficiently protected by relying on its rights to insist on completion of the contract within a reasonable time and by taking such action as it may in that event. Even so, the fact that the clause draws no distinction between the parties and is not expressed to condition only the purchasers' obligation to complete, together with their implied obligation to make all reasonable efforts to sell the Lilly Pilly property, provide strong ground for thinking that the respondent as well as the appellants had a right to terminate on the non-fulfilment of the condition."

146. The plaintiffs argue that the obligation to use best endeavours persists as long as the contract is on foot. They argue that properly construed that obligation did not expire at the end of the two year period or any further agreed extension. They submit that to construe the clauses in such a way as to have the effect that the obligation to use best endeavours expired at the expiry of any Plan Registration Date or agreed extension of it would be absurd and a non-commercial construction (Schenker & Co (Aust) Pty Ltd v. Maplas Equipment and Services Pty Ltd [1990] V.R. 34-40). They argue that while the contract remains on foot all its relevant terms remain on foot. The plaintiffs further submit that, after 31 August 1997, the three contracts continued without rescission and without the defendant requesting an extension of time and the plaintiffs agreeing to such an extension. They argue that as a result after 31 August 1997 the contract stayed on foot without a time being specified for completion. They argue, that the time for the fulfilment of the obligations necessary to be performed by the defendant became a reasonable time as it was then for the contingent conditions. They rely on the above passages and the further comment in Perri (at 554) of Mason J.

"As the contract does not fix a time for completion it would accord with the general principle to say the completion must take place within a reasonable time. In this case what is a reasonable time for completion needs to be measured with special condition 6 in mind. The clause does not specify a time within which the Lilly Pilly property is to be sold. Accordingly it contemplates that there should be such a sale within a reasonable time.:

150. The plaintiffs also refer to a passage in the judgment of Brennan, J. in that case (at 567 - 8) where His Honour stated:

"The interests of both parties in resolving their respective contingent obligations under the contract require that a limit be placed upon the time during which the contingencies should occur. As there is no reason why a different implication as to time should be made in respect of a contingent condition from the implication made in respect of a promissory condition, a reasonable time is implied in the absence of implications to the contrary: see Reid v. Moreland Timber Co Pty Ltd [(1946) [1946] HCA 48; 73 CLR 1 at 13]."

154. The plaintiffs submit that the obligation to use best endeavours continued - that is, the first component of clause 2.2. The second component, time, became a reasonable time. In the context of the contracts, it is put that the certification and registration was to be obtained within a reasonable time in the event that the agreed Plan Registration Date had passed and the contract remained on foot. Alternatively, the plaintiffs submit that if the obligation to use best endeavours did not continue as a matter of construction, the law would imply a term that the vendor use his best endeavours or make all reasonable efforts to procure certification and registration of the plan of subdivision after the passing of the agreed Plan Registration Date and so long as the contract remained on foot.

157. The defendant submits that a contingent condition is fundamentally different from a promissory condition (McTier v. Haupt [1992] 1V.R. 653; Perri v. Coolangatta Investments Pty Ltd [1982] HCA 29; (1982) 149 C.L.R. 537 at 546 per Gibbs C.J.). In particular, reliance is placed upon passages from the judgment of Brennan J. (at 566). His Honour commented:

"In the absence of waiver of the stipulation, the obligations to complete remained contingent upon the completion of the sale of the Lilly Pilly property. Of course, the purchaser had the carriage of the sale of their Lilly Pilly property, and the stipulation imported an obligation upon them to do all that was reasonable on their part in order that a sale of that property might be completed...But that was the extent of their promissory obligation under the stipulation. Their obligation was not to complete a sale of their Lilly Pilly property but to do all that was reasonably to be done to that end. "

"In the confusion of the promissory and contingent effects of the stipulation lie the seeds of difficulty in this case. The risk of confusion is great, because completion of the sale is the usual consequence of taking reasonable steps to that end. But there is a real distinction between the completion of a sale and the steps taken to achieve it, and the observance of a distinction goes far towards avoiding the difficulty. This is not a case where the purchasers promise that a condition precedent to the obligation to complete will be fulfilled. Where such a promise is made, whether by the vendor or purchaser, specific performance may be decreed against the promissor without waiting for fulfilment of the condition. But where the occurrence of an event upon which the obligations to complete are contingent is not promised, the mere non-occurrence of the event is no breach of contract, and the court will not decree completion of the contract absolutely. In such a case, a decree must be limited to the performance of any promise affecting the occurrence of the contingency, and further performance decreed only subject to the contingency:..."

The defendant argues that damages do not lie for non-fulfilment of such a condition, such conditions simply terminate obligations or prevent obligations from arising when the events referred to in them do no occur. There being no promissory element, substantial compliance is not a relevant consideration. The condition is either complied with or it is not (Tricontinental Corp Ltd v. H.D.F.I. Limited (1990) 21 N.S.W.L.R.689). There being no promissory element, issues of whether "time is of the essence" and whether time requirements are essential are of no relevance. In particular, he argues that neither party has promised under cl. 2.1 on its own or in combination with any other clause that the plan of sub-division will be registered prior to the Plan Registration Date.

164. The defendant disputes the argument that the obligation to use best or reasonable endeavours continued and continued for a reasonable time once the Plan Registration Date or any agreed extension of it had expired. He argues that the agreed obligation to use best endeavours expired with the expiry of the Plan Registration Date or any agreed extension of it.

167. He argues that the consequences of failure to comply with cl.2.1 are not left in a state of uncertainty and to be determined by the application of common law principles to the contract. He argues that the consequences are dealt with in cl.2.5.1. He attempts to distinguish the passages from Perri (above) relied upon by the plaintiffs in support of the implication of a reasonable time on this basis. In particular, he argues that, in Perri, no time for completion was stipulated in the relevant contract. Here, there was a time stipulated in relation to the obligation to use best endeavours. He argues that the time, unequivocally stipulated, has passed and the consequence dealt with - either may rescind. Under cl.2.5.1, he argues, it is made perfectly clear what the rights of the parties are - they may at any time after the Plan Registration Date, but before the plan is registered, rescind the contract. Further, if the contract were to be rescinded, the parties had agreed that the vendor was obliged to return the deposit and the purchaser was not entitled to compensation.

170. In support of the argument, he makes the point that the contract provided for a two year period in which to secure registration of the plan of sub-division and that this was a generous time in which to do that and then execute the project. He argues that it was understandable that the parties wanted to keep their options open in the event that the project was not completed within that time. He points to the possibilities of unforeseen events (as happened) and the real possibility of price and interest changes and unforseeable events in the lives of the vendor and the purchasers. He argues that, bearing that in mind, it is not surprising that the parties would have wanted a clause such as cl.2.5.1 and would not have wanted a contractual arrangement such as that advanced for the plaintiffs. He argues that it would contradict express terms of the agreement if it was to be construed so as to impose an obligation upon the vendor to use best endeavours after the expiry of the Plan Registration Date in view of the express clause imposing that obligation and linking it to that date. He argues that it was not the intention of the parties that, for example, as from 1 September 1997 the vendor was under a promise to complete the project or to do so within a reasonable time and was to be amenable to an action for damages if he did not. The intention of the parties was that after the Plan Registration Date had passed either might terminate at any time and the vendor was not obliged to pay compensation to the purchaser and the purchaser got his or her deposit back. He submits that this was a fair and sensible arrangement. It is put that after the expiry of the Plan Registration Date, each could terminate the contract or wait and see. Each could ask the other for an extension of commitment but the other was not obliged to agree. The defendant compares the situation with that of an offer capable of acceptance only by tender of performance on a future date. In such a situation the offeror could withdraw the offer at any time before such acceptance and the offeree was not obliged to tender performance if he decided not to do so. He argues that the construction he advances is perfectly understandable because the parties were dealing with an item of future property over the occurrence of which the vendor did not have total control and the project might not be completed within the two years. The defendant relies upon the same considerations to support the argument that the term requiring the use of best endeavours or all reasonable efforts should not be implied because those considerations point to the parties having a contrary intention.

173. The plaintiffs submit that the defendant's construction creates, in effect, an option in favour of the vendor to compel the purchasers to purchase if the vendor so chooses. They argue that it has the effect that payment of the critical public open space money was left to the whim of the vendor and that while the contract remained on foot after the expiration of the Plan Registration Date (or its agreed extension), the vendor was relieved of the obligation to use his best endeavours or reasonable endeavours, to obtain certification and registration. "The sale was in reality no sale at all; only a transaction conditional on his own willingness to perform".(Godfrey Constructions Pty Ltd v. Kanangra Park Pty Ltd [1972] HCA 36; (1972) 128 C.L.R. 529 at 538) They submit that these consequences are absurd and, as a result, their construction should be preferred.

176. The defendant argues that there is nothing unusual or absurd about legal relations subsisting at will and points to instances in the field of landlord and tenant. I note, that his counsel could not give any such examples in contracts for the sale of land. He argues that the contracts are not contracts between business people, but conveyancing contracts drawn by solicitors and should be more carefully construed than commercial contracts. In these contracts, it is said, either party could terminate at his or her whim. He argues that the language is clear and unambiguous and effect must be given to its natural and ordinary meaning. He submits that the fact that the parties addressed the consequences of non-compliance with cl. 2.1 in cl. 2.5.1 leaves no scope for the plaintiffs purported construction.

179. In my view, neither the plaintiffs' primary construction or the defendant's construction is acceptable. The major difficulty facing the plaintiffs' primary construction is the existence of clause 2.5.1. In the absence of such a provision a case such as that put forward would be more easily mounted. The presence of clause 2.5.1, however, indicates that the parties had agreed on what their rights should be in the event that the Plan Registration Date passed without the obtaining of certification and registration for which the vendor had agreed to use his best endeavours. It seems to me that the rights and obligations of the parties depend upon the proper construction and effect of cl. 2.5.1.

182. At the same time, however, the defendant's construction gives the vendor a carte blanche. He can continue to perform the contracts but rescind at any time he chooses should it suit him. The situation cannot be compared to that of the offer capable of acceptance only by tender of performance at a future date. The parties were already in a contractual relationship. The comments of the Full Court in Zieme v. Gregory [1963] VicRp 34; [1963] VR 214 (at 223) are apposite. Commenting on the contract in that case the Full Court stated

"We think it is clear that it was not intended by the parties to this contract that the vendor's right should depend upon the will or whim of the purchaser irrespective of what his conduct might be, ..."

186. On the one hand, the defendant's construction enables the defendant to act arbitrarily. I do not accept that that was the parties intention at the time they entered into the contract. On the other hand, the plaintiff seeks to impose appropriate constraints by arguing that the "best endeavours" obligation continued. I do not think that that argument can be sustained in view of the fact that the parties could have so agreed but agreed to deal with the problem of the failure to obtain certification and registration merely by cl. 2.5.1.

189. Under the defendant's construction the vendor could keep his options open indefinitely. That cannot have been intended. It is true that the purchasers would have the right also to rescind at any time, but if that was the only right and no contractual obligation was imposed upon the vendor, it was a most unsatisfactory situation and they were left entirely at the mercy of the defendant's action or inaction, even though the vendor was still party to a contract with them under which he agreed to complete and sell the units to them. The doctrine of election was unlikely to bring certainty; for merely continuing with the pursuit of registration of the plans and completion of the units would not amount to an election (Immer v. Uniting Church in Australia Property Trust (N.S.W) [1993] HCA 27; (1992-3) 182 CLR 26). The vendor was, in a sense, at the mercy of the purchaser but he could obtain security by ensuring that the plan was registered.

192. Clause 2.5.1 states that the parties may rescind "at any time" prior to registration of the plan of subdivision. All parties accept that the right to rescind could be lost by a party if that party elected to affirm the contract. Thus it was common ground that "at any time" did not confer a right to elect to rescind the contract on a party that had previously elected to affirm the contract during the relevant period. In my view, the phrase "at any time" was used to emphasise the fact that prior to registration of the plan of subdivision either party could rescind but that after registration the right to rescind because of non-registration lapsed. It was not intended, in some indirect way to have the effect that time ceased to matter to the parties or that the vendor could do what he liked.

195. In the absence of cl. 2, and in particular 2.1, 2.2 and 2.5.1, the law would have implied an obligation on the defendant to use all reasonable efforts to procure registration of the plan of subdivision and fixed a reasonable time as the time within which that was to be done. In my view, cl. 2.5.1 does not reveal a contrary intention. It, together with cl. 2.1 and 2.2, deals only partially with the issue of time for performance and the nature of the performance obligation.

198. As I see it, after the expiry of the Plan Registration Date in each contract, the contract remained on foot and the vendor and purchasers were obliged to complete the contracts within a reasonable time so long as the contract remained on foot. If either party elected to affirm the contract, that party lost the right to rescind the contract under cl. 2.5.1. The other, however, had the right to rescind at any time prior to registration of the plan of sub-division or to elect to affirm. In the event that both parties had elected to affirm the contract, they both continued to be obliged to complete the contract within a reasonable time. As a result the vendor had a reasonable time in which to register the plan of sub-division. The defendant, being the party selling the proposed units would, so long as the contracts continued on foot, be obliged to use not "best endeavours", but reasonable endeavours to obtain certification and registration of the plan of subdivision. (Zieme v. Gregory [1963] VicRp 34; [1963] V.R. 214; Secured Income Real Estate (Australia) Ltd v. St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 C.L.R. 596 at 607 & Perri above). While the parties had agreed that each should have the right to rescind the contracts, they had also agreed that the contracts would continue subject to the vendor or purchaser electing to exercise the power to rescind prior to certification and registration of the plan of subdivision. It is consistent with and complementary to such agreement that there be implied the usual terms as to reasonable efforts and reasonable time for completion, terms which would operate up and until a valid exercise of the power to rescind. They are necessary for a continuing contractual relationship. The defendant's construction creates a contractual vacuum. The attempted analogy with an open offer is flawed in that we are concerned with a contract not an offer. Rather the attempted analogy highlights the difficulty facing the defendant that the defendant is a party to a contract to sell units to the plaintiffs. I do not accept that the parties intended that the purchasers' rights would depend on the "will or whim " of the defendant "irrespective of what his conduct might be" (Zieme v. Gregory, above at 223).

203. The plaintiffs submit that, notwithstanding that the right to rescind arose in relation to a contingent non-promissory condition, nonetheless a party to the contract may be prevented from exercising the right of rescission because of default under the contract or because the exercise of the termination is too late in that the condition has been fulfilled or where the condition could have been fulfilled but for his default, (Perri at 544 - 5, and 566 - 7). They accept that the non-fulfilment of the condition rendered the contract voidable rather than void noting that the courts had taken such an approach to "forestall a party to a contract from gaining some advantage from his own conduct in securing, or contributing to, the non-fulfilment of the condition bringing the contract to an end" (Gange v. Sullivan [1966] HCA 55; (1966) 116 C.L.R. 418)

206. In this area of dispute, the plaintiffs' primary argument is that, because the obligation to use best or reasonable endeavours continued, the vendor was in breach at the time of the attempted rescission and was not entitled under the contract to rescind when in breach. The breach consisted of the failure to pay the $26,000.00 when in a position to do so. It is argued that, but for his default, certification and registration of the plan would have occurred within 7 days of payment. If he had used his best or reasonable endeavours the result would have been certification and registration of the plan by mid November 1997. It is put that the defendant was, therefore, clearly in default at the time he rescinded. If he had paid the money shortly after he received it, he would have fulfilled the condition.

209. This argument must be correct whether an obligation to use "best endeavours" or to make a reasonable effort was imposed. Therefore, the defendant by his default created the situation in which he claimed to be entitled to rescind the contracts. He cannot rely upon his right to rescind in those circumstances.

212. The plaintiffs, also, rely upon an argument which draws on statements of law in the matter of Godfrey Constructions Pty Ltd v. Kanangara Park Pty Ltd [1972] HCA 36; (1972) 128 C.L.R. 529. It is put, firstly, that it would be unconscionable for the vendor to exercise the rescission power in the circumstances of the present case or at least not bona fide and unreasonable. Reliance is placed on statements of relevant principles by Barwick C.J. (at 538) and Stephen, J. (at 551)

215. The plaintiffs submit that it should be found on the evidence that the vendor was under a continuing obligation to complete the contract prior to his act of rescission. He had been in a position to pay the Council the open space fee for almost six months prior to his purported rescission of the contracts. The plaintiffs argue that his actions were, therefore, not those of a bona fide vendor. They argue further that his behaviour was not reasonable. In light of my earlier conclusions it is not necessary to consider this line of authority. Assuming the propositions of law to be correctly stated, however, his argument is also made out. The plaintiffs' argument assumes a contract on foot and an obligation on the part of the defendant to complete in a reasonable time using reasonable endeavours. I have held that such a contract was on foot, that the vendor was in default of his obligation. He did not act reasonably or bona fide.

218. The plaintiffs also submit that a party will lose the right to rescind where that party by deliberate act or omission to perform an obligation imposed upon that party by the contract, has created the situation which gives it the opportunity to rescind. Reference was made to the discussion by the Full Court in Charles Lodge Pty Ltd. v. Menahem [1966] VicRp 18; [1966] VR 161 (at 164 - 5). The Full Court there discussed the contractual ramifications of a clause in a contract which stipulates an event on the happening of which the contract may be terminated. The Full Court referred to authorities which support the conclusion that, where it is in the power of one or both parties to cause the event to happen or not to happen, the word "avoid" used in the contract is treated as meaning "avoidable" unless the contract expressly or inferentially excludes such an interpretation. The Full Court commented that:

"the reason for this rule of construction is to be found in a rule of law designed to prevent a party to a contract from availing himself of his own action or inaction to defeat his contract. As a result of this rule two consequences flow. First, if the event occurs through the action or inaction of one party, the contract is voidable at the option of the other; secondly, if the event is brought about by factors beyond the control of either party, then the contract is voidable at the option of either..."

Amongst other authorities, the Full Court relied upon New Zealand Shipping Company v. Société Des Ateliers et Chantiers De France [1919] A.C.1. There the Lord Chancellor stated (at 6)

"It is a principle of law that no one can in such case take advantage of the existence of the state of things which he himself produced. "

The plaintiffs submit that whether one implies an obligation upon the vendor to use either best or reasonable endeavours, when the vendor received the money to pay the open space requirement fee, he was in a position to perform the last step required to obtain certification from the council. By his inaction, he contrived to create a situation in which that did not occur. It is put that in those circumstances the contract was voidable at the option of the purchasers but was not voidable at the option of the vendor. To permit the latter would be to allow the vendor to avail himself of his own inaction to defeat the contract. Accepting the foregoing as an accurate statement of the law, the defendant by his inaction has, in my view, deprived himself of the right to rescind the contract.

225. If the foregoing analysis is not correct, it is necessary to consider whether the vendor had elected to affirm the contract prior to the purported act of rescission or was estopped from rescinding..

230. The plaintiffs submit that the defendant affirmed each contract and thereby lost his right to rescind each contract. They argue that after 31 August 1997 the defendant was faced with two conflicting choices - to go on with each contract or to rescind it. They argue that he was faced with the difficulty that he could not request a definite extended date without his finance for completion being organised and "locked in". They argue that, when he executed the second deed of variation with Esanda on 23 October 1997 (see FE 6), he made his choice to complete the contract because at that time he committed himself to procure registration and certification by 31 December 1997 and received the cheque for $26,000.00 for that purpose.

233. In relation to the Welham contract, counsel for Mr Welham submits that the election of the defendant to complete the contract was communicated (Sargent v. A.S.L. Development Ltd [1974] HCA 40; (1974) 131 CLR 634) by Phillips Fox by letter of 10 November 1997 (Exhibit JGP11). That letter stated

"Thank you for you letter dated 16 October 1997 (received on 21 October 1997)

I have been instructed by my client that he had never requested an extension of the Plan Registration Date to 31 December 1997. Accordingly the Plan Registration Date as agreed between the parties is still 31 August 1997.

With respect to the balcony, I have been instructed that your client was made aware by the selling agent, Greg Norris, that the land value of the balcony would form part of the costs and that your client has been made aware of the approximate costs, reflected in our letter dated 19 August 1997. I have also been instructed to point out that the following costs have not been passed to your client.

* Architectural Fees (including attending site meetings with the agent and your client and meetings with the Town Planning Officers for the City of Port Philip, obtaining the necessary approvals and co-ordinating erection and installation, glazing alterations and other associated building work).

* Surveyors Fees (including necessary alterations to Plan of Sub-division).

My client has advised the $5,000.00 sum for the land value of the balcony offered by your client is grossly disproportionate to its worth.

Mr Etna has instructed he has already proceeded with the construction of the balcony in good faith. In light of the fact that the changes were requested by your client and that we have only recently received a response to our letter of 19 August 1997, my client intends to recover all relevant costs from your client, should your client elect not to continue with the balcony. This includes costs associated with preparing a further Plan of Sub-division, distributing copies to all purchasers and lodging the same at the Land Titles Office.

I am awaiting my client's instructions regarding the size of the main bedroom and the estimated completion date, and will advise you as soon as this is received. "

The letter reveals, it is said, that the defendant was asserting rights relying on the contract and thus the letter also affirmed the contract.

246. As to the Arif contracts, in relation to the sale of unit 2 to Ersoy Arif, on 25 February 1998 the solicitors for Mr Arif wrote seeking written confirmation that the defendant would "proceed to settlement in respect of the sale" irrespective of the Plan Registration Date. The letter went on:

"We are instructed that should we not receive your clients written confirmation within 7 days of the date hereof, our client proposes to bring proceedings in the Supreme Court of Victoria seeking:

1. an injunction to prevent the sale of the property to another person;

2. an order for specific performance of the sale of the property to our client pursuant to Contract of Sale;

3. damages together with interest and costs arising out of the breach by the vendor of his obligations under the contract for sale;

By letter dated 6 March 1998 Phillips Fox replied on behalf of the defendant. After referring to events of 1996, the letter concluded:

"Accordingly all other conditions of the contract of sale remain applicable, including a special condition regarding registration of the plan of sub-division.

My client also instructs that he always has and continues to apply his best endeavours to obtain certification and registration of the sub-division."

By letter dated 25 February 1998 the solicitors for second named plaintiff Letife Arif wrote to the defendant's then solicitors seeking confirmation that he would complete the transaction with her. The letter was in a similar form to that written on behalf of Ersoy Arif referred to above. By letter dated 6 March 1998, the solicitors for the defendant responded as follows:

My client instructs that he always has and continues to apply his best endeavours to obtain certification and registration of the plan of sub-division." (exhibit EA30)

It is put that those letters communicated and in themselves, constituted an election to affirm the contract as opposed to rescinding the contract.

261. In Immer (45) Pty Ltd. v. The Uniting Church in Australia Property Trust (N.S.W.) (1992 - 93) [1993] HCA 27; 182 C.L.R. 26 the Court commented on clauses such as that in the contracts in this case where a continuing right to rescind was given. The Court said (at 42)

"The point is that where the right to rescind is a continuing one, it is not so readily concluded that the party entitled to rescind has abandoned that right completely as opposed to taking no action to exercise the right at the time in question"

"we do not read that passage from his Honour's judgment [Mason, J. in Sargent v. ASL Developments Ltd] as implying that a party to a contract who is aware either of the right to rescind or of facts giving rise to a right to rescind will necessarily be held to have elected to affirm a contract if he or she acts on the basis that the contract remains on foot. Such an implication is at odds with the notion of being confronted with the necessity of making a choice. In the present case it cannot truly be said that Immer was confronted with the necessity of making a choice at the time the letter in question was written even less that it was abandoning for all time its rights under cl. 7 of the deed."

267. The plaintiffs submit that in Immer's case reliance was sought to be placed upon the act of delivering documents for exchange at settlement by a party who erroneously assumed that everything had been done that was needed to be done prior to settlement. In Immer's case Brennan, J. noted (at p 32)

"It was obvious that at no time prior to Immer's notice of rescission on 25 August had it elected to affirm the contract without the Trust's being able to complete the transfer".

"In a context where the Council had not, in fact, approved the transfer and where the stage had not been reached where Immer was required to make an election either to rescind the contract or to abandon the right to rescind, the forwarding of the documents for settlement did not constitute an election to affirm the contract regardless of whether the council had or had not approved".

In the present case, once the funds had been received, there was nothing further in the nature of a contingent event that could occur to prevent completion. The vendor was in complete control of the situation. It is put that in the present case once the monies had been received there was nothing further that needed to be done by any third party over whom the vendor had no control and thus it could not be argued that having been given a continuing right to rescind he was entitled to reserve his position while performing other obligations under the contract because of any uncertainty as to what other non-parties to the contract might do which might prevent the completion of the contract.

274. As I understand it, the plaintiffs argue, in any event, that whatever uncertainties may have existed, the defendant, at the times mentioned above, was confronted by two mutually exclusive courses of action, between which he had to choose in fairness to the other parties. In doing so, he elected to affirm the contracts and therefore lost his right to rescind.

277. The defendant emphasises the need for the party, alleged to have elected, to be shown to have been confronted with a choice and it is argued that that did not occur prior to 7 May 1998. An example is given of a landlord owed outstanding rent. The landlord is not required to terminate the lease immediately or to do so within any reasonable or other particular time. The landlord does not have to elect until the rent is tendered by the tenant. The landlord cannot thereafter maintain the right to forfeit the lease for non-payment of rent and a right to receive a payment. The exercise of one right or remedy is necessarily destructive of the availability of the other. The defendant argues that there is no inconsistency between the continuation of an agreement and the continuation of a right to terminate under it. He argues that cl. 2.5.1 in each of the contracts contemplated that reality. He argues that there was no occasion on 1 September 1997 or any day between then and 8 May 1998 for the defendant to exercise his right of rescission or to exercise some contradictory right or remedy. He argues that all that occurred was the continuation of the project or of the contracts. He also denies any unequivocal communication of such election by the exercise of any inconsistent right or remedy. He argues that at all times the plaintiffs and their solicitors were aware that the defendant retained a right of rescission and asserted its existence. They attempted on occasions to preclude the exercise of this right by procuring his agreement to an extended Plan Registration Date but failed to obtain an agreement

280. As to the particular acts of affirmation relied on by the plaintiffs, the defendant submits that the undertaking by the defendant to Esanda to procure registration and certification by 31 December 1997 was conduct that had nothing to do with the plaintiffs. Further, the failure to pay the open space requirement fee was evidence of a contrary intention. He submits that the conduct of the defendant relied upon by the plaintiffs amounted to doing no more than keeping the contract on foot. Further the conduct was, at worst for the defendant, equivocal.

283. In my view the defendant in executing the agreement with Esanda was confronted with a choice of whether to proceed with the development, but not the contracts. He was, therefore, not confronted with making a relevant choice so far as the contracts were concerned.

286. As to the Welham contract, the letter written by the solicitors for the defendant raised matters of additional work which appear to have been requested by Mr Welham - at least on the defendant's version of events. Assuming, however, that in taking the position that he did, the defendant had to proceed on the basis that the contract was still on foot, it cannot I think be demonstrated that he was confronted with a choice at that time between affirming the contract and rescinding it. Rather, the letter in reply has been cleverly written in such a way as to avoid such a choice and to assert, by reference to the Plan Registration Date issue, a desire to keep the defendant's options open. Rightly or wrongly, I would characterise what occurred in relation to the Welham contract as an equivocal response to the situation that arose rather than an approbation of the contract with an attempt at the same time to reprobate - a situation in which the approbation would prevail (Sargent, above, at 646).

289. In relation to the Arif contracts, the purchasers attempted to confront the defendant with a choice. The letters in response provided a non-responsive answer consistent merely with the defendant indicating that he proposed to continue to perform the contract but was reserving his position. In those circumstances it seems to me that election is not made out.

292. I note that no issue arises in this case as to the nature or extent of the knowledge of the defendant of the circumstances relevant to his right to rescind or affirm (Sargent v. ASL Developments Ltd above).

297. It is submitted for the plaintiffs that the extensions of time repeatedly requested by the defendant prior to 31 August 1997 revealed a clear intent to complete the registration of the plan of sub-division or complete the contract and that the vendor was wanting the assurance of the purchasers that they would not rescind. The plaintiffs argue that the defendant thereby induced the plaintiffs to believe that the contracts would be completed upon registration of the plan of sub-division whenever that occurred. It is put that his later conduct in threatening Welham in the absence of an extended Plan Registration Date confirmed the assumption the purchasers were making that the contracts would be completed by him. It is put that relying upon such representations, the plaintiffs acted to their detriment in allowing the contracts to continue if the defendant is now allowed to resile from those representations. The detriment arises because of the increasing values in the property market for the duration of the period.

300. The defendant submits that what was being put forward here was a promissory estoppel along the lines discussed in Waltons Stores (Interstate) Ltd v. Maher [1988] HCA 7; (1988) 164 C.L.R. 387. The defendant cites a passage from the judgment of Brennan, J, as he then was, (at 428/9) setting out the matters that a party needs to establish to prove an estoppel of that kind, described by his Honour as an equitable estoppel. They were the following:

"(1). The plaintiff assumed that a particular legal relationship then existed between the plaintiff and the defendant or expected that a particular legal relationship would exist between them and, in the latter case, the defendant would not be free to withdraw from the expected legal relationship;

(2). The defendant has induced the plaintiff to adopt an assumption or expectation;

(3). The plaintiff acts or abstains from acting in reliance on the assumption or expectation;

(5) The plaintiff's action or inaction will occasion detriment if the assumption or exception is not fulfilled;

(6) The defendant has failed to act to avoid that detriment whether by fulfilling that assumption or expectation or otherwise."

309. The defendant submits that while there was a manifest intention revealed by him to complete the project and register the plan of sub-division, that was something that might or might not have led to the contracts being completed. It is put that the plaintiffs understood, however, because their solicitors had explained their position to them, that Mr Etna retained a right to rescind which he might use against them. Reference is made to the fact that the solicitors sought an extension to the Plan Registration Date to protect their clients from the risk of rescission. It is put that on the evidence, the plaintiffs did not assume that the defendant had abandoned his right of rescission. It is argued that no witness for the plaintiff has ever said so. It is further put that Mr Etna did not induce any such assumption and that none of the plaintiffs acted on any such assumption in any event. Finally, it is put that Mr Etna did not know or intend that the plaintiffs would assume that he would not exercise his right of rescission.

312. Counsel for the defendant overstates the position to the extent that it might only be properly said, in my view, that the plaintiffs understood that the defendant was seeking to retain a right to rescission, not that he was asserting that he was entitled to a right to rescission. The solicitors for the plaintiffs sought extensions to the Plan Registration Date to protect their clients from the risk of rescission because Mr Etna was plainly trying to keep that option open. Accepting those qualifications, nonetheless, the defendant's propositions appear to me to be correct. In particular, the plaintiffs cannot demonstrate that they themselves proceeded on the basis that the defendant had abandoned his right of rescission and acted on any such assumption. The letters their solicitors wrote indicate an attempt to put pressure on the defendant on this issue and also the desire for certainty. It may fairly be said that they cannot demonstrate that they relied upon any assumption such as they assert. In those circumstances it is not necessary to consider any other issues raised by the defendant relating to detriment and "minimum equity".

317. The plaintiffs alleged waiver in their statement of claim but have not sought to argue waiver as such. I assume that the submissions made in relation to election were intended to deal with any arguments that might have been sought to be raised in relation to waiver.

322. In light of the foregoing I have come to the conclusion that the defendant's right to rescind was lost because he was in default when he purported to exercise it. On that basis the defendant was not entitled to serve notice of rescission in respect of the three contracts on 7 May 1998.

325. It is necessary, therefore, to consider the entitlement of the plaintiffs to specific performance and the issues sought to be raised by the defendant to deny them that remedy.

Issues - Specific performance, ready, willing and able

329. The defendant submitted that the plaintiffs allege that they are ready, willing and able to perform their contracts and it is necessary for them to prove that that is the case. The defendant relied upon Mehmet v. Benson [1965] HCA 18; (1964) 113 C.L.R. 295 at 314, 5; Bishop v. Taylor [1968] HCA 68; (1968) 118 C.L.R. 518 at 525; Green v. Sommerville [1979] HCA 60; (1979) 141 C.L.R. 594 at 610. The defendant submitted that there was no evidence that the plaintiffs were in a position to effect settlement and that the second plaintiff who had nominated the fifth plaintiff as substitute purchaser has not as yet proffered a guarantee as required by the contract of the contractual obligations. He argued that the claim for equitable relief must, therefore, fail.

332. Trial by ambush was, I thought, a thing of the past. On the first day of the hearing I called upon counsel for the defendant to identify the matters that were in issue in the proceeding. This was done to ensure that the proceedings were conducted expeditiously. The defendant's counsel identified what they said were the "major" issues. Nothing was said to suggest that the defendant was proposing to argue that the plaintiffs would be put to their proof on this major issue. This did not surprise me in view of the fact that the plaintiffs had gone to the trouble of bringing the proceedings and were persisting in what had become hard fought and costly proceedings. Further, the evidence relied upon by both parties demonstrated that not only had deposits been paid, thus reducing the money that was required to complete the contracts, but the market value of the properties had increased to the point that it would be unlikely that the purchasers would have difficulty borrowing the balance of the purchase price. In final submissions, however, counsel for the defendant raised the issue and opposed the resulting application by the plaintiffs to reopen their case. Having regard to the view I took that the issue was a major issue and that the plaintiffs had been entitled to rely upon the statement made by counsel at the outset of the proceedings, I gave leave to the plaintiffs to reopen their case. They tendered affidavits sworn by Mr Arif, Mr Welham and Mr Moustafa, the solicitor for the Arifs. The defence did not challenge the evidence in the affidavits and did not pursue the issue.

335. In relation to the guarantee issue, it subsequently emerged that the guarantee was executed on 30 October 1996 and forwarded to the solicitors for the defendant on 31 October 1996. It was in the possession of the solicitors for the defendant at the time the argument was put on behalf of the defendant. In light of that evidence, that issue has also been abandoned by the defendant. What remains are issues of alleged impossibility of performance and issues of alleged hardship.

340. The defendant submits that in the circumstances of this case it is necessary for the plaintiffs to seek quite detailed orders for specific performance. He argues that the orders needed would include orders:

1. That the defendant realise other units at market value, such units to be specified.

2. An order for the application of the net proceeds of sale of the other properties to the debt owed to St George so far as the land sold was not already encumbered in favour of St George or anyone else.

345. He argues that obligations of that character are not to be found within the contract terms themselves but are requirements which the plaintiffs seek to advance to have themselves preferred over the persons for whose benefit the unencumbered value of the other assets might be applied. It is said that the defendant has no contractual obligation to prefer any individual plaintiff in this way and as a result these additional orders cannot be decreed by way of specific performance. It is put that the claims of the plaintiff are in this regard misconceived.

348. It is further argued that the defendant does not have control of the duplicate certificates of title and is unlikely to be able to secure the delivery of title. It is said that they are under the control of St George as mortgagee. The defendant cannot himself deliver them up and provide discharges. They are a matter for the secured creditor. St George is not a party and cannot be compelled to perform the contract. Counsel submits that Mr Gall, a senior officer from St George, confirmed that the bank would act on legal advice and follow prudent practices in the event that an order for specific performance was made they argue further that St George is likely to seek the consent of the guarantors to the release of any securities because there are sound legal reasons for doing so. He refers to the duty to act in good faith towards the guarantor and argues that to release the security for less than market value without the consent of the guarantor would not be to act in good faith towards the guarantors. He argues also that the release of security in those circumstances would pro tanto release the guarantors according to the ordinary equitable rule. He puts that the terms of the guarantee aim to mitigate the rigor of these rules but do not thereby remove the creditors duty to act in good faith. He argues further that it would be very risky for a bank to assume in light of the attitudes of the Costa family, the guarantors, that they would be entirely without recourse should the bank make title available. The bank would be entitled to be concerned about a court of equity regarding such conduct as unconscientious or in breach of the Trade Practices Act and not a proper exercise of its powers.

351. The defendant also argues that there are other persons to whom secured interests were given over the land. Reference is made to the caveats lodged prior to the purchasers' caveats to protect the interest of contractors. These debts were paid out by Mario Costa from funds lent by St George to Catani Garden Investment Pty Ltd. It is said that Catani is subrogated to the security and that, therefore, Catani as well as St George have equitable interests in the land which pre-date the plaintiffs' interests. It is put that Catani is not a party and that the Catani debt and the St George debt have priority.

354. The defendant has also submitted that an order for the settlement of any one of the three contracts at the contract price would leave St George with a partially reduced debt and the other two banks with debts which the defendant and Catani will not be able to service. It is said that this will lead inevitably to a default under the facilities and fundamentally impair the security position of the banks. Reference is made to an argument by the plaintiffs that if the banks or Mr Etna completed the sales and any surplus is directed to St George from the sale of units 5, 8 and 11, then St George and the other banks will suffer no loss. It is said that this assumes that the properties can be sold within an unspecified time frame and in an unspecified order and that the banks would surrender their securities rather than earn interest on them and that St George would, in the meantime, put up with defaults in relation to units 2, 10 and 12. It is said that it also assumes that the unsecured creditors whose goods and labour built the units will stand idly by and not object to the application of the surplus funds to St George's debt.

357. It is put that in light of these matters the attempt to obtain an order for specific performance is based on fantasy. It is said to be futile to make orders which will produce default and which connive at one unsecured creditor receiving preferential treatment over all others. To make an order, it is said, will lead to the commission of civil wrongs - a preferring of some of the plaintiff creditors to other creditors.

360. I am satisfied, firstly, that the orders required do not need to include the orders spelt out by the defendant relating to the sale of other units and the application of the net proceeds to the debt owed to St George. The argument for the defendant assumes that otherwise there will be insufficient funds available to pay out the St George debt, or to secure the St George debt after the proceeds of the three contracts are received. The fact is, however, that taking into account the values of the various securities held by St George, including the three properties the subject of the proceeding valued at the contract price, there is a net surplus of $372,000.00. If the values are discounted as St George did for the purpose of the loan by an appropriate percentage (70 or 80%) the net surplus is $101,500.00. Thus there is ample security to cover the debt if the three properties are valued at their contract price. Further it is clear that St George made its decision to lend the money on the basis that it would value the properties in question at no more than the contract price. In lending the money, St George treated the security provided by those properties as the contracts for the sale of those properties rather than the market value of those properties.

363. It is true that the defendant does not have control of the duplicate certificates of title but on the evidence before me the probabilities are that St George will co-operate with any order for specific performance made against the defendant.

366. Affidavit and oral evidence was given by Mr Gall who is the Executive Manager for Victoria of St George Bank Limited. His affidavit, it emerged, was prepared by the solicitors for the defendant. The defendant relies on the last paragraph of that affidavit. Mr Gall stated:

"If Catani Gardens requested that a discharge be provided in respect of a sale for the price for a particular unit in the referable rescinded contract instead of substantially the market value of the subject unit I would not authorise St George to provide such discharge without the consent of each of the guarantors, in my opinion to do so may expose St George to claims from the guarantor."

It emerged in the course of his cross examination, however, that a number of critical documents had not been referred to by him before expressing this view.

(A) The guarantees

Guarantees were executed by the defendant, his wife Vitina Costa, Mario Costa and Johnny Costa. In the guarantees the following clause appeared:

"5.2.1 the obligations and liabilities of a guarantor and the rights of St George under this agreement continue in respect of all money which is or becomes guaranteed money and are not affected by:

(d) St George taking, varying, wholly or partially discharging or otherwise dealing with or losing or impairing any security for guaranteed money; . . .

(o) Anything else which might at law or in equity have the effect of prejudicing or discharging the guarantors liability under this agreement.

The plaintiffs rely on these provisions:

(B) The deed of cross collaterilisation."

374. The plaintiffs also rely upon the deed of cross-collateralisation that emerged in evidence towards the end of the proceedings.

377. Under the deed of cross collateralisation, executed by St George, the defendant and the various guarantors, the guarantors gave St George their consent to St George effecting settlement of the three sales. The following clauses are relevant.

"5.5 The said Frank Etna appoints the Lender, its directors, secretaries and general manager for the time being of the lender, severally his true and lawful attorney for the purpose of completing contracts with the purchasers of the units known as 2, 10, 12, 14, 17 and 19 at Beaconsfield Parade West St Kilda in the event of default under any Facility or if Frank Etna is ordered by the Supreme Court to settle the sales, and notwithstanding that the units are not offered for sale by the Lender in its capacity as mortgagee. The borrower and the guarantors consent to the power and authority given pursuant to this clause.

5.6 Notwithstanding the generality of Clause 5.6 (sic.) the Lender shall be entitled to, and the borrower and guarantors consent to, the lender effecting settlement of the sales of:

unit 2 of the property to Ersoy Arif pursuant to a contract of sale dated 26 November 1993 for the sum of $205,000.00;

unit 10 of the property to Peter John Welham pursuant to a contract of sale dated 22 January 1994 for the sum of $225,000.00;

unit 12 of the property to Letife Arif pursuant to a contract of sale dated 2 February 1995 for the sum of $300,000.00;

in accordance with the terms of those contracts of sale ("the contract of sales for units 2, 10, and 12") notwithstanding that Frank Etna has served notice of rescission on the respective purchasers in relation to the contracts of sale for units 2, 10 and 12.

386. The deed of cross collateralisation also contained a broad indemnity clause, cl 7, which obliged, inter alia, the guarantors to indemnify

"The lender, its directors, employees and agents from all claims, causes of action, proceedings and any costs and expenses in relation to the decision of the lender to provide, or not to provide, partial discharges of the mortgage in relation to any units at 347 Beaconsfield Parade to any purchasers of the units in that development ("the property") and as against all claims by any mortgagees or chargees of the property as a result of the lender proceeding to effect the sale of units 2, 10 and 12 and associated car park units at the property pursuant to the Contracts of Sale for units 2, 10 and 12 and associated car park units, and the borrower and the guarantors shall keep the lender, its directors, employees and agents indemnified against any such claims or purchases of the units at the Property detailed herein, and claims for damages or otherwise by any mortgagees or chargees of the Property resulting from the Lender proceeding to effect the sale of units 2, 10 and 12 and associated car park units pursuant to the contracts of sale of units 2, 10 and 12."

390. During cross examination, Mr Gall's attention was also drawn to passages in the relevant files held by St George. In particular his attention was drawn to a document entitled "Summation /recommendation/conditions" signed by him and other managers which noted, inter alia,

"These three units [the units in question in these proceedings] are currently valued at $1,135.00 K however contracts entered into "off the plan" only total $750.00K. These properties will be funded in the name of Catani Gardens Investments Pty Ltd against a transfer/assignment of the current mortgage held by Esanda. Deposits for the sale of these three units are held in Trust by Phillips Fox solicitors and should legal action be unsuccessful settlement will proceed and funds of $750.00K will be received. In view of this dispute we have included this amount in our security calculations rather than the higher figure given by the professional valuation."

In another document, headed "General Remarks, Catani Gardens Investments Pty Ltd," containing an analysis and recommendation from the Senior Manager, Andrew Currie, it is stated, (p.4)

"The Costas are aware of the short fall [of the rental stream as against interest and fees]. The medium term objective is to sell all units by the end of 1998. In the interim, servicing will be supplemented by income generated by the Costas core business. The Bank will open an account in the name of Catani Gardens Investments Pty Ltd. The Costas have been made aware of the monthly commitments required to enable servicing of this debt and have undertaken to ensure that sufficient funds are held in an account to enable payment of monthly interest. "

In the course of cross examination, Mr Gall conceded that consent appeared to have already been given by the guarantors to the settlement of the contracts in question and the bank had been directly authorised by them to effect settlement. He also agreed that the bank had obtained indemnities from the guarantors to protect itself in respect of any claims that might arise out of settlement of those contracts. Further, he agreed that it appeared that the potential claims by guarantors referred to in his affidavit had already been covered by the deed because they had the consent of the guarantors. He agreed that in fact the bank cannot be exposed to any such claims by the guarantors. He said that if those documents had been brought to his attention he would not have sworn the above paragraph as it is drawn. He said he was not prepared to adhere to that paragraph. Put to him that, if the court determined that the rescission notices were invalid, the bank, as agent for Frank Etna, would effect settlement of the contracts of sale at contract prices, he replied:

"If that was what my solicitor tells me to do, yes."

I note that there has been no argument advanced on behalf of the defendant to suggest that there would be any basis upon which the lawyers for St George would advise against a discharge of the mortgage.

399. The plaintiffs submit that there is in fact no basis upon which it can be said that St George is at risk in relation to claims of guarantors in light of the above. They also submit that in light of the basis upon which St George entered into the transaction, in particular, relying upon the contracts rather than the market valuation, and thus not expecting to receive more than the contract valuation, it is to be expected that if called upon to do so St George will provide a discharge of the mortgages in respect of the units in question on tender to it of the balance of the contract price.

402. To the extent that the argument advanced for the defendant assumed a lack of any consent from the guarantors, the argument was plainly misconceived. In light of the content of the documents executed by the defendant and the other members of the Costa family, it is difficult to understand how the argument came to be put.

405. In light of the above, it seems to me that the probabilities are that St George will provide discharges of the mortgages in exchange for the balance of the contract prices. In all the circumstances I would expect that St George would be pleased to reduce its exposure.

408. On the question of other secured creditors having priority over the plaintiffs, the evidence before me shows that the secured creditors referred to were sub-contractors who it is alleged were given charges over the properties. There is no evidence before me of the existence of any such charges. Even the defendant did not depose to the existence of any document recording any such charge. The precise nature of the rights of those people is not in evidence before me. Accepting for the purpose of argument that there were such changes, the evidence also reveals that those creditors were paid out by Mario Costa who in turn was paid out by St George. Thus it would appear to me that if any creditor is to be subrogated to any such charges, assuming they actually exist, the creditor is St George. Thus there is no change to the security position that exists independently of the allegation of the defendant about subrogation of other secured rights. As to the position of St George, I note that on the evidence before me it appears likely that the second mortgage security given to St George to secure $500,000.00 of the total loan ranks behind the interest of the plaintiff purchasers because they lodged caveats to protect their interests prior to the St George loan and the registration of the St George mortgages.

411. I am not persuaded that the settlement of the three contracts would have the inevitable result of a default position under the loan facility. As I have indicated, St George holds ample securities to cover the entire debt. It will not be necessary to direct the sale of other properties and the payment of the surplus to St George. As to the demands of other unsecured creditors, which the defendant asserts total $1,667,380.07, several points may be made. Firstly, much of that debt concerns debts owed to members of the defendant's family and family companies. Much of it comprises debts owed by the builder to sub contractors and suppliers. To the extent that Mr Etna personally organised the supply of goods or services, he is in a position where he can assert that the debts are not his but are those of Catani. In view of his prevarication in evidence on this issue, and in view of my conclusion that he lacked credibility as a witness, I am not prepared to make any finding in the absence of evidence from individual creditors that supports his evidence that there is in fact any substantial debt owed by him to such creditors.

414. Finally, the defendant argues that it is relevant to take into account the interest of third parties. He relies on the discussion in Spry, Equitable Remedies, 5th Ed., at 201-3. In that passage Doctor Spry Q.C. refers to a statement by Isaacs J. in Gaul and Others v. Mitchell [1924] HCA 48; (1924) 35 CLR 222. His Honour said (at 230)

"Hardships of persons entirely unconnected with the property are immaterial. But I do not think that rule excludes the case of third persons so connected with the defendant that, by reason of some legal or moral duty which he owes them, it would be "highly unreasonable" for the court actively to prevent the defendant from discharging his duty. The circumstances of such a case might, in my opinion, be properly weighed for the purpose of determining the discretion of the courts."

For the purpose of resolving these questions, it is not necessary to reach a conclusion as to whether it would be proper to consider hardship to third persons in this case. The matter in my view can be resolved on the assumption that such a consideration is relevant.

419. It is said that the effect of the plaintiffs' claims, if successful, will be to reduce the pool of funds available to pay creditors who include a large number of people owed substantial sums for work and services and goods provided by them in building the units. It is put that the plaintiffs should participate with all other creditors on an equal footing as regards any loss suffered by them because they were unable to purchase their units at an under value compared to current day prices.

422. The plaintiffs rely upon statements of the High Court in Suttor v. Gundowda at 438 - 439

"Specific performance is not a remedy which should lightly be refused when the plaintiff has established the existence of a contract capable of specific performance which the defendant has refused to complete. `It is well established that the Court cannot judicially exercise its discretion by refusing a remedy in a case of the appropriate class unless some sound and recognised reason is shown'. . . . It would be necessary for the defendant to prove that a hardship amounting to an injustice would be inflicted on him by holding him to his bargain and that it would not be reasonable to do so."

The plaintiffs also refer to ANZ Executors v. Humes[1990] VicRp 54; [1990] V.R 615 at 635 and following. The plaintiffs submit that, assuming it be relevant to consider hardship, in this case the hardship pointed to by the defendant must be balanced against any hardship which the plaintiff would suffer if specific performance is refused. The evidence adduced for the defendant, it is said, points to the likelihood that the plaintiffs would not receive damages if compelled to pursue that remedy.

427. In my view, comparing the hardship to the plaintiffs with the hardship to the defendant and third parties the balance clearly favours the plaintiffs. Damages is unlikely to afford them an adequate remedy in all the circumstances because of the financial position of the defendant. The defendant's financial position has nothing to do with any act or default on the part of the plaintiffs. On the contrary the plaintiffs by entering into the contracts assisted the defendant to proceed with the project.

430. As to the argument about hardship to those who the defendant asserts provided the goods and services to build the units and who have not been paid, as I have indicated above, I am not satisfied on the evidence advanced in this case that those persons are creditors of the defendant. They are creditors of the builder or Catani. In any event, the plaintiffs have not caused or contributed to those debts.

433. In light of the above, there is no sound discretionary basis upon which to refuse the application for specific performance. Before making any orders, I will hear final submissions about the form of the orders.

I certify that this and the 46 preceding pages are a true copy of the reasons for judgment of Smith J. the Supreme Court of Victoria delivered on 2 November 1998.