Park v Brothers

THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

1 HIS HONOUR: On 25 January 2001, the plaintiffs as purchasers and the defendant as vendor, entered into a contract for sale in the 2000 edition of the Law Society's standard form in respect of a farming property at Hay. The purchase price was $3,350,000. 2 It is necessary to set out some of the conditions in full: "7. Notice to complete If this contract is not completed on or before the completion date the vendors may at any time thereafter by notice in writing signed and served in accordance with condition number 20 call upon the purchaser to complete this contract at the expiration of fourteen (14) days from the date of service of such notice and in that event time shall become the essence of the contract. The parties agree that the said period of fourteen (14) days is agreed for all purposes to be a reasonable period for completion following the service of a notice to complete. 22.4 The parties further agree that on exchange of Contracts the Vendor will pay the deposit as required by Clause 5 of the Memorandum such deposit to be reimbursed by the Purchaser to the Vendor on or before 7th October 2000. If the reimbursement is not paid by the Purchaser to the Vendor then the Vendor may rescind this Contract and the provision of Special Condition 12 will apply to any late reimbursement."

(The cross reference to special condition 12 is clearly wrong. Mr Murr SC, who appeared with Mr Trebeck for the plaintiffs, says that the cross reference must be to special condition 9. This is probably correct. Special condition 9 provides for liquidated damages and a sum equal to 12% on the balance of purchase moneys if the purchase price is not paid by the completion date). 3 The memorandum referred to in special condition 22.4 is a Memorandum of Understanding bearing the date 28 July 2000 between MIA Council of Horticultural Associations Inc (therein called "the Association") and Third Sargasso Pty Ltd. 4 Clause 5 provides: "The Firm shall pay the Association a deposit no later than 31 August each year, an amount equal to $150,000 being $10 per megalitre for each of the 15,000 megalitres available under this agreement that may be sold to the Firm in the next watering season. The deposit will be taken as part payment against the total cost for that year. If the deposit exceeds the total cost for water in any year, the Association will refund any difference to the Firm at the end of the relevant irrigation season. In the event that no water is purchased by the firm following negotiations, the Association will retain $15,000 of the deposit for that year as consideration for the agreement and refund the balance to the Firm. No water shall be released to the Firm until payment has been received by the Association in full for the appropriate volume and price of water for that season." 5 Special condition 24 provides as follows: Early occupation by purchaser to do farming work - no reimbursement to purchaser The purchaser may enter the property and occupy the Manager's Cottage as licensee only at any time after the date of this Contract and payment of the deposit without payment of any occupation fee to work up ground for crops such work to be at his expense and risk and in locations first approved by the vendor. The purchaser agrees in doing such work to adopt the highest farming standards used in the local district and the purchaser's entry shall also be governed by the provisions of special condition 25 hereof. The purchaser acknowledges that 14 days notice given to the vendor will be required prior to occupancy of the cottage, which is presently occupied." 6 Special condition 25 provides: " Purchaser's indemnity upon early entry In addition to the provisions of clause 24 in the event of the purchaser having been allowed into possession or occupation of the property, or any part thereof, or being given access to the property for the purpose of carrying out necessary work thereon then the purchaser hereby indemnifies and holds harmless the vendor in respect of all claims, demands, actions, damages, expenses (including all legal expenses) or loss of any nature suffered or incurred by the vendor arising out of the activities of the purchaser, his servants, agents, workmen or invitees on the property and it is hereby acknowledged that his covenant shall not merge on completion thereof." 7 Printed condition 15.1 provides that "The parties must complete by the completion date and, if they do not, a party can serve a notice to complete if that party is otherwise entitled to do so." The completion date was 7 December 2000. 8 Printed condition 19.2 provides: "19.2 Normally, if a party exercises a right to rescind expressly given by this contract or any legislation - 19.2.1 the deposit and any other money paid by the purchaser under this contract must be refunded; 19.2.2 a party can claim for a reasonable adjustment if the purchaser has been in possession; 19.2.3 a party can claim for damages, costs or expenses arising out of a breach of this contract; and 19.2.4 a party will not otherwise be liable to pay the other party any damages, costs or expenses." 9 Printed condition 21.6 provides: "Normally, the time by which something must be done is fixed but not essential."

"Normally" is defined in clause 1 of the printed conditions as "Subject to any other provision of this contract". 10 It is common ground that the plaintiffs went into physical occupation of the property in September 2000 before contracts were exchanged. Between then and the alleged rescission the plaintiffs planted a rice crop and they also sold some of the sheep on the property. 11 On the first plaintiff's evidence he attended the property every day between 12 and 21 September 2000: on the defendant's evidence it was on two occasions. After taking possession, the plaintiffs engaged a sub-contractor to sow urea, a necessary prerequisite to sowing rice by providing the soil with extra nitrogen. After that fields had to be progressively flooded and banks built up to keep the water in the fields. The first plaintiff says he did this work within four weeks or so of what he calls taking possession. In October a rice crop was sowed by contractors, doing so from the air, on behalf of the plaintiffs. All parties agree that they knew that any rice crop that could be planted in the area had to be planted by early November at the very latest. 12 Mr Park said that he thought that the payment under special condition 22.4 was, based on what he said the estate agent had told him, not due until completion. In late September or early October he realised that the payment had to be made earlier and got quite a surprise. 13 Mr Park says that in late September or early October he had a conversation with Mr Brothers about the manager's cottage on the property. The vendor wanted to retain possession pending completion, despite the contract, and although this was inconvenient to the purchasers, they agreed. Mr Brothers denies this and says that the manager's house was sub-standard and that the first plaintiff stayed with the defendant in the homestead for this reason. 14 Mr Park gave evidence that a few days after this he had another conversation with Mr Brothers. Mr Park says that he said to Mr Brothers, "I noticed in the contract I need to pay you $150,000 in early October for the water. I thought it was payable on settlement because that's what the agent had told me. I would prefer not to have to pay it until settlement. If you want it now, you can have it, but I prefer not." He says that Mr Brothers replied, "That won't be a problem, it can wait until settlement. I've already paid it. You've helped me out with the house, it can wait." Mr Park also says that at the end of November he had a conversation with Mr Brothers who said, "You haven't paid Col Miller (a part-time drover on the property), you haven't paid anybody, you haven't even paid me for the water." After other matters were mentioned Mr Park replied, "What do you mean I haven't paid you for the water, we had an agreement. You said I could pay for the water on settlement. I allowed Wayne to stay in the house." Mr Brothers then said, "I don't know anything about any bloody agreement, you haven't paid anybody." There was then, evidently, a scuffle and Mr Brothers physically ejected Mr Park from the property. 15 Mr Brothers denies most of this. However he agrees that in mid-October Mr Park said to him, "I have to repay to you the money you paid the Horticultural Council on my behalf by 7 October." The defendant acknowledged that this was so. Mr Park then said he was having trouble raising the money to which the defendant said, "Lindsay, just abide by the contract and pay the money due." However, he also says that he may have said, "If you pay in a couple of weeks it will probably be alright." He agrees that there was a scuffle. 16 There were other disputes between the parties from October 2000. The defendant's affidavit made it clear that the plaintiffs were complaining that they were running short of funds and that this was the reason why the $150,000 was not paid. To counter this the plaintiffs told their bank manager to say that there were ample funds available at all material times. However, this does not really go far enough because many people who have lines of credit available to them are still reluctant to pay actual cash and thus start incurring additional interest charges. 17 On 23 November 2000 the vendor's solicitors wrote to the purchasers' solicitors refusing to vary the contract and reminding the purchasers' solicitors that completion was expected on 7 December 2000. 18 On 7 December 2000, the purchasers objected to completion on the grounds that the vendor was not ready to complete, as he did not have all the licences he agreed to transfer along with the real estate. The contract was not completed. 19 On 12 December 2000, the vendor signed a document headed "Notice of Rescission" the terms of which are as follows: " TAKE NOTICE pursuant to Special Condition 22.4 … I hereby exercise my specific right to rescind the said Contract." 20 On 20 December 2000, the vendor's solicitors wrote to the estate agent which had promoted the sale. The letter states that the agent should refund to the purchasers their deposit and all moneys paid under the contract, but pay the vendor the proceeds of all sales of stock and crops. However, the letter also contained the following: "Finally, as we believe that you or your Hay branch may be aware of some or all of Mr and Mrs Park's provable costs associated with: · the crop on 'Jelalabad'. · their management of stock on 'Jelalabad', together with selling costs. · shearing and associated costs. Please provide same to us without delay, so that Mr and Mrs Park may be reimbursed or, alternatively, for those matters on account with you or your Hay Branch, you can be paid."

Mr Rogers, who appeared for the defendant, says that there is no significance in the underlined word, except that the vendor signalled that there had to be more than the purchasers' say so. 21 The plaintiffs claim a declaration that the notice of rescission was ineffective, or alternatively, for relief against forfeiture. By amendment they sought specific performance of the contract. 22 On 13 February 2001 I read affidavits filed on both sides. The first plaintiff was cross examined by Mr Rogers. Mr Murr SC had almost completed his cross examination of the defendant at 1 pm on that day. However, unfortunately, shortly before 2 pm the defendant suffered an angina attack and was taken to hospital. Mr Murr SC decided not to continue with his cross examination. Mr Murr SC addressed. Mr Rogers , because he wished the defendant to hear what he had to say and to participate in his submissions, got leave to address in writing and Mr Murr SC and Mr Trebeck replied in writing. 23 I must say that I found it almost impossible from observing the first plaintiff's and the defendant's demeanour in the witness box, to decide on demeanour who was the more likely to be correct. Fortunately, for reasons that will hopefully appear, it really does not matter. Sometimes who is more likely to be correct can be gleaned from the general circumstances. 24 Having heard the cross examination of Mr Brothers, it seems to me that Mr Brothers probably did say "If you pay in a couple of weeks it will probably be alright". However, if this were said, then it is less likely that the first plaintiff is right when he said that there was some agreement to postpone the payment until completion. 25 It seems to me that the way to approach the matter is either I accept the defendant's version of events, with the extension permission, or else I accept the first plaintiff's version; whichever I do accept will be equally relevant to the question of wavier that will be dealt with in due course. 26 On balance, it seems to me if I had to make a ruling it would be that the defendant's version is more likely to be correct, that is, that there was no agreement to postpone the payment of the $150,000 until settlement, but that the defendant did say that payment in a couple of weeks would be alright. 27 The best approach to this case to my mind is to focus on special condition 22.4 of the contract and construe it to see whether (a) time was of the essence with respect to the purchasers' obligations under the clause; and (b) what the word "rescission" meant in the clause. 28 In a suit for specific performance, equity will order that the real and substantial bargain between the parties be performed and will often construe the contract to the effect that provisions for a person to terminate the contract are included as a security for real and substantial performance and are not meant to be sudden death automatic rights to put an end to the contract, particularly if that would result in the person so acting receiving an unconscionable windfall. 29 Where, on the proper construction of the contract, the substance of the agreement was that a provision that was bracketed with a time clause was not essential to the substantial performance of the contract and proper compensation could be awarded for any damage caused to the other party, then specific performance would still be granted. 30 Accordingly, even though at common law a person could treat a contract as at an end for breach of a condition or fundamental term, equity might still grant specific performance. 31 From time to time various legal bases were suggested for why this was so. One was that equity construed time clauses as setting out target times and was content if the thing was done by the target time or a reasonable time thereafter; see eg Smith v Hamilton [1951] Ch 174, 183. However, the prevailing view (see Raineri v Miles [1981] AC 1050, 1082) is that both at law and in equity the contract is construed in the same way, but equity gives routine relief against breaches of time conditions when they do not go to the true substance of the bargain. 32 Was the time in special condition 22.4 essential? 33 Mr Murr SC says that whilst the obligation to pay the $150,000 was an essential condition, the obligation to pay that sum by 7 October 2000 was not; see Shevill v Builders Licensing Board (1982) 149 CLR 620. 34 Section 13 of the Conveyancing Act 1919 provides that a time condition must now be construed in equity the same way as it was before 1919. This means that the onus is on the person alleging that time is essential to show that this is so; see eg Tilley v Thomas (1867) LR 3 Ch App 61, 67. 35 There are some indications that the parties intended time to be essential, the most obvious being the provision that the vendor could issue a notice of rescission. However, the great bulk of the indications are the other way. First, there is the provision in standard condition 21.6. Then there is the fact that the payment of $150,000 was a very small matter, comparatively speaking, in a contract of over $3 million. Thirdly, there was a provision for interest for a default in special condition 9. Fourthly, the parties obviously intended that the purchasers should go into immediate occupation and sow crops. A provision for automatic termination at the will of the vendor, for the non-payment of about 4% of the total purchase price, is hardly likely to be in their contemplation. 36 Thus in my view, on its proper construction, time was not of the essence in special condition 22.4. 37 It was open, of course, for the vendor to give a quasi notice to complete making time of the essence before doing this particular act. The vendor did not do that. Mr Rogers says that requiring a notice to complete in these circumstances would defeat the whole purpose of special condition 22.4. With respect, I cannot see how this is so. 38 That seems to me to be the end of the case because if the vendor was not entitled to rescind on 12 December 2000, then the contract is still on foot. The purchasers want it specifically performed and it is just a matter of standing the matter over to deal with any other problems and then making the appropriate order for specific performance. 39 Submissions were also made as to repudiation under the general law. Mr Murr SC said that even apart from special condition 22.4 one could not infer any such repudiation. He relied on Shevill's case supra particularly at p 633 where Wilson J, based on what Lord Wright said in Ross T Smyth & Co Ltd v T D Bailey, Son & Co [1940] 3 All ER 60, 71, makes it clear that "Repudiation of a contract is a serious matter and is not to be lightly found or inferred." Mr Rogers did not really argue that there was repudiation under the general law. It is fairly clear on the facts that there was not. 40 I should now deal with two other matters which were argued, namely: (a) the meaning of the term "rescission" in special condition 22.4; and (b) waiver. 41 (a) The parties have used the word "rescission" in special condition 22.4. Both counsel agree in submitting that the word "rescission" has the meaning in printed condition 19 of the contract. They also agree with Professor Butt's comment in his 2nd edition of The Standard Contract for the Sale of Land in NSW (LBC, Sydney, 1998) at p 790 that "It is a hybrid of a kind sometimes found in contracts for the sale of land, lying somewhere between rescission and termination". 42 Mr Rogers says that when one reads printed clause 19 into special condition 22.4 the last sentence should be fleshed out to read: "If the reimbursement is not paid by the Purchaser to the Vendor then the Vendor may, by serving a notice, rescind this contract and the deposit and any other money paid by the Purchaser under this contract must be refunded, either party can claim for a reasonable adjustment if the purchaser has been in possession, a party can claim for damages, costs or expenses arising out of a breach of this contract but not otherwise; any late payment accepted shall carry interest at 12%." 43 Mr Rogers says that it follows that the notice put an end to the contract and set up the liabilities specified in printed condition 19.2. He thus distinguishes the situation that would arise under the general law. 44 Under the general law, a person may only rescind a contract if the parties to the contract can be put back into the exact same position as they were before the contract commenced. If this is the case, a party may approach the Court for a declaration that the contract has been rescinded. On the other hand, if complete restitution is not possible by act of the parties, then there must be a suit in equity for the Court to effect rescission. The Court does this by ordering substantial restitution, that is, by making orders for compensation etc which will put the parties back in nearly the same position, as far as possible, as they were in before the contract: see Alati v Kruger (1955) 94 CLR 216; Abram Steamship Co v Westville Shipping Co [1923] AC 773 and Kramer v McMahon (1969) 89 WN (Pt 1) (NSW) 584. 45 Professor Butt says op cit p 797 [19.20]: "Payments made otherwise than under the contract - for example improving the property with the vendor's consent, but not 'under' a provision in the contract - are not refundable under this clause (except, perhaps, where the purchaser has been in possession…)". 46 It is not completely clear whether or not the purchasers were "in possession" within the meaning of cl 19.2 of the contract. The vendor had occupation of part of the property. However the purchasers had control of the property generally. Special condition 24 refers to a licence to occupy the manager's residence and to occupation, yet special condition 25 refers to possession or occupation. 47 In Froome v Palmer (1988) 4 BPR 9712, 9713, Powell J distinguished entry with the vendor's permission, from entry into possession under the contract. 48 Although the present case is borderline, it seems to me that both parties have by their correspondence and submissions treated the plaintiffs as having been in possession and I should accept that this is the position. 49 Mr Rogers asks that a referee consider the allowance that must be made to the purchasers under cl 19.2. 50 A problem is that it is difficult to see how there can be adequate compensation under the formula in 19.2. The $150,000 referred to in special condition 22.4 and the $127,000 paid or payable for water which, in the event, was not used to the benefit of either party, possibly some of the purchasers' improvements and the accounting for lambs sold or lost will be difficult to determine. 51 Professor Butt says op cit p 797 [19.19]: "The provisions of subclauses 19.2.1 to 19.2.4 are clearly intended to encompass all the likely consequences of rescission. But if an issue should arise which is not covered by the sub-clauses, then presumably it is to be resolved by invoking the consequences at general law of a right of rescission." 52 In my view this is a correct statement of law. However, it is correct because of the operation of the word "normally" in cl 19.2. The complexity of a transaction may mean that "rescission" will have its general law meaning and not the meaning given in the contract. 53 My feeling is that this is the case here. However, as both counsel submit otherwise, I should not pursue that feeling. 54 I should note that Mr Rogers asked that if the rescission was formally bad that his client should amend to seek rescission by order. This application was noted in the event that it may become necessary to decide it. I need not take the matter any further in view of my primary findings. 55 (b) There is then the matter of waiver. The plaintiffs rely on two matters:

(i) the letter written by the vendor's solicitors to the purchasers' solicitors on 23 November 2000; and

(ii) either Mr Park's evidence that the payment had been postponed until completion, or alternatively, Mr Brothers' evidence that payment in a couple of weeks would be acceptable. 56 The letter of 23 November 2000 referred to some proposal that the plaintiffs had made about another aspect of the contract. The letter said that the vendor would not vary the contract. The penultimate paragraph of the letter is "We therefore expect that this matter will settle on 7th December 2000." The letter was written at a time when the vendor knew that the purchasers had not paid the $150,000 on the due date. Furthermore, the evidence is such that the defendant must have known before 23 November 2000 of his right to terminate the contract, if there had been such a right. However, knowing these things he still had his solicitors write, on 23 November, insisting on completion, something that could only be done if the contract was still on foot. As the defendant personally got a copy of this letter, presumably within a couple of days of it having been sent, he was well aware of the situation on 12 December. 57 In Franklin v Manufacturers Mutual Insurance Ltd (1935) 36 SR (NSW) 76, 81, Jordan CJ said that: "If there is a contract, and (1) a fact comes to the knowledge of one of the parties which entitles him to rescind it ab initio … and that party (2) after having had a reasonable time to ascertain his position and to obtain any advice necessary for that purpose … (3) proceeds to do an act of an unequivocal nature … affecting the other party, which he would not be entitled to do if the contract were not subsisting, he is estopped from denying that the contract still subsists; and he is estopped from asserting the fact as a ground for rescinding the contract or treating himself as discharged from its obligations, although he may, as a general rule, assert it for any other purpose, eg to recover damages … . If, in this type of case, the party who has ascertained the fact intimates an intention to go on with the contract, this election is ordinarily of itself an effective waiver of any right of rescission or avoidance by virtue of the fact."

See also Sargent v ASL Developments Ltd (1974) 131 CLR 634. What Jordan CJ said almost precisely covers this case. 58 The second branch of the submission is that there was waiver by what Mr Brothers said (whichever version one accepts) regarding the strict time limit and until reasonable notice was given to reimpose it, breach of the original was not available to rescind out of hand. This submission also must be upheld. 59 Accordingly, whatever view one takes of the case, the purported rescission on 12 December 2000 was ineffective and the contract is still on foot. 60 For completeness I should record that Mr Murr SC and Mr Trebeck also made some very interesting submissions as to the Court's jurisdiction to grant relief against forfeiture to a purchaser in the present set of circumstances. They took me to Legione v Hateley (1983) 152 CLR 406, particularly 448-9. It is unnecessary to deal with these submissions. This judgment is, of course, binding on me. However, there have been recent developments in this aspect of the law, such as those considered by the Privy Council in Union Eagle Ltd v Golden Achievement Ltd [1997] AC 514, by the Queensland Court of Appeal in Re Ronim Pty Ltd [1999] 2 Qd R 172 and by the English Court of Appeal in On Demand Information plc v Michael Gerson (Finance) plc [2001] 1 WLR 155, 163 et seq, which would have to be considered. 61 Thus the contract is still on foot and, unless the parties can resolve the matter themselves, it would seem that a decree for specific performance will need to be made. I will stand the matter over for mention to 9.30 am on Thursday 8 March 2001 to see what further should be done about it and to consider questions of costs. ******************

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