Petelin v Deger Investments Pty Ltd

We are told that in the Supreme Court, Holland J. felt that he was bound by the decision of the New South Wales Court of Appeal in Cullen v. Petelin [6] , and accordingly granted the relief sought by the respondent. Cullen v. Petelin was the subject of appeal to this Court recently where the decision of the Court of Appeal on the non est factum issue was reversed (see Petelin v. Cullen [7] ). However, as will appear shortly, the issue which now arises differs from that previously decided.

1. [1973] 2 N.S.W.L.R. 485. 2. (1975) 132 C.L.R. 355.

The present dispute resolves principally around cl. 3 of the option agreement which provides as follows:

3. Immediately upon the exercise of this option the Grantor and the Grantee or its nominee will execute a contract on the terms referred to above and containing the conditions of sale as approved by the Real Estate Institute of New South Wales and the Law Society of New South Wales together with such conditions (if any) as appear in the Third Schedule hereto.

The crucial provision, in this case, of the "conditions of sale as approved by the Real Estate Institute of New South Wales and the Law Society of New South Wales" is that contained in cl. 16 of the Law Society and Real Estate Institute's standard form contract of sale which provides as follows:

10. Should it be established prior to completion that at the date of this Agreement the property was affected by any town and country planning scheme or interim development prepared or prescribed under the provisions of the State Planning Authority Act or Pt XIIA of the Local Government Act 1919 as amended otherwise than as stated in the fourth schedule hereto or was affected by any Residential District Proclamation under s. 309 of the Local Government Act 1919, or by any existing proposals for re-alignment widening or siting of a road by any competent authority otherwise than as disclosed in the said Fourth Schedule, either party shall be entitled to rescind this Agreement by notice in writing to the other.

The fourth schedule referred to in cl. 16 contains the printed words: "The property is affected as shown in the copy certificate under s. 342AS of the Local Government Act 1919 annexed hereto." However, in the margin beside these words is the advisory phrase, "Delete if not applicable".

No copy of the standard form contract was annexed to the option agreement; nor was there a s. 342AS certificate attached. The crux of the appellant's submission is that whatever interpretation of cl. 3 of the option agreement be adopted none the less the only contract for sale of the land that he could be required to execute is one with a blank fourth schedule because no s. 342AS certificate was annexed to the agreement and so cl. 16 must be regarded as expressing a condition of sale (in the words of cl. 3 of the option) that there were no planning or zoning restrictions governing the subject property (see Wolczyk v. Barr [8] ; Sargent v. A.S.L. Developments Ltd. [9] ). It follows, according to this submission, that since indisputably the land was subject to a planning scheme then there was an automatic breach of the condition and thus cl. 16 of the conditions of sale gave the appellant, notwithstanding that he is the vendor, a right to rescind the agreement.

1. (1970) 92 W.N. (N.S.W.) 518. 2. (1974) 131 C.L.R. 634.

The decision of this Court in Sargent v. A.S.L. Developments Ltd. establishes that the omission of a s. 342AS certificate or of particulars in lieu of a certificate from the fourth schedule in the standard form of contract does not make the contract void for uncertainty. The absence of information of the kind contemplated by the standard form of contract is tantamount to a statement that the land is not relevantly affected by town planning restrictions or proposals. The issue here is whether a similar approach is to be taken when the standard form of contract is incorporated in an option agreement so as to set out the terms of the contract which will arise on the exercise of the option and when the fourth schedule contains neither a s. 342AS certificate nor particulars in lieu of a certificate.

In Sargent v. A.S.L. Developments Ltd. [10] , Stephen J. said that the function of cl. 16 is "to set out in the contract the planning status of the land so that the contracting parties may agree upon its sale and purchase on the footing of the status thus revealed; there is to be an agreed, disclosed statement of any affecting of the land by planning provisions, anything not so stated giving rise to a right of rescission. Fundamental to this concept is that the parties should have before them, when executing the contract, an agreed statement of planning status, which of course may indicate the total absence of all planning".

Although an option agreement antedates the making of a binding contract created by an exercise of the option, the observations of Stephen J. in Sargent's Case in my view apply with equal force to cl. 16 when it has been incorporated as part of the standard form in the terms of an option agreement for the purpose of setting out the provisions of the contract which will come into existence in the event that the option is exercised.

The only distinction between the two cases lies in the circumstance that here the statement of planning status is made on the making of the option agreement, whereas it is made on the making of the contract when a binding contract is entered into not preceded by an option agreement. This distinction is in my view of little moment. It is natural that the parties should wish to protect themselves against the unforeseen consequences of disconformity between actual and understood planning status - this is achieved by recording, or by making provision for representing, in the option agreement, the planning status of the land as the parties then agree it to be.

The respondent's argument imputes to the parties an intention that the certificate or particulars for which the fourth schedule makes provision should be inserted on or after the exercise of the option. This argument proceeds upon the footing that the option agreement requires the execution of a formal contract after the option has been exercised and that this formal contract will contain material not necessarily known to or agreed upon by the parties, as for example a s. 342AS certificate as may be issued by the responsible authority on application made to it. A contrary view, and one which to my mind accords more closely with the usual character of an option agreement, is that such an agreement sets out all the terms and material on which there will come into existence, upon exercise of the option, the contract thereby constituted without the necessity for the parties executing a subsequent formal or substituted contract.

The respondent's argument also attributes to cl. 16 in the context of an option agreement a function which is, to say the least of it, curious. It would enable the party to rescind the contract constituted by the exercise of the option, not for disconformity between the actual planning status at the date of the agreement and the planning status of the land as agreed and recorded by the parties, but for disconformity between the actual planning status of the land at that date and the planning status of the land as the council declares it to be, a status which may have been unknown to the parties at the time they entered into the option agreement.

The respondent sought to draw some comfort from that part of cl. 16 which makes it clear that it is disconformity at the date of a contract which grounds the right of rescission. I do not perceive any lack of harmony between this provision and the notion that what is critical is a disconformity existing at the date of the contract between the actual planning status of the land and the planning status as it has been expressed at an earlier time, that is at the date of the grant of the option.

Finally it was said that the form of the fourth schedule provided some support for the respondent because it contemplated that a certificate would be annexed. Assuming, as appears to be the case, that it is contemplated that the usual means of providing the information to be inserted in the fourth schedule will be by means of annexing a certificate, it does not follow that the certificate must coincide in date with the making of the contract. It may antedate the contract; all that is required is that it fulfils the function of disclosing the planning status of the land as the parties agree it to be.

For these reasons I would allow the appeal and dismiss the suit for specific performance on the ground that it would be futile to grant relief to the appellant when the respondent has a right to rescind the contract which he intends to exercise.