Plaintiff/First Defendant by Counterclaim v Defendant/Plaintiff by Counterclaim

1 The plaintiff's claim is for damages and the return of the deposit following a termination of a contract of sale dated 14 August 2015 ('the Contract') for the sale of land known as 70 Charles Street, Seddon, Victoria and more particularly described in Certificates of Title Volume 7261 Folio 196 and Volume 4762 Folio 347 ('the property').

2 The defendant counterclaims alleging that, pursuant to the terms of the contract, he was entitled to both terminate the contract; and retain the deposit paid of 5% of the purchase price and to payment of a further 5% of the purchase price - namely $175,000.

3 The fundamental issue raised in the proceeding is the right of a purchaser to carry out certain investigations of a property, prior to settlement, for valuation purposes. As is common practice, the Contract contained no term expressly permitting an inspection for the purpose of a valuation.[1] For the reasons set out below, in this case, I have found that the investigations, which were requested by the purchaser (as required by the proposed lender), were not permitted under the Contract.

4 On 14 August 2015, the plaintiff and the defendant entered into the Contract for a purchase price of $3,500,000 payable by a deposit of 5% (being $175,000) and the balance of $3,325,000 payable on the settlement date (being 31 March 2016).

5 The special conditions of the contract included the following:

11. Contamination

11.1 Definitions

In this special condition:

Contaminant means a solid, liquid, gas, odour, temperature, sound, vibration, radiation or substance including all hazardous substances and any pollutant or contaminant defined as such in (or for the purposes of) any Environmental Law which makes or may make the land:

(a) unfit or unsafe for habitation or occupation by humans or animals;

(b) degraded in its capacity to support plant life;

(c) otherwise environmentally degraded; or

(d) not comply with any Environmental Law.

Environmental Law means a law regulating or relating to the environment.

11.2 No warranty

The vendor makes no representation and gives no warranty that there is no contaminant in, on or under the land.

11.3 Purchaser's Inspection

The purchaser:

1.1.1 acknowledges that it has inspected the Land and purchased it in its present condition irrespective of whether there is any contaminant in, on or under the land;

1.1.2 assumes full responsibility for the presence of any contaminant on the land and anything incidental to it, including compliance with all relevant laws including Environmental Laws, all Property Controls and the requirements of any Authority in respect of it.

11.4 Release and Indemnity

The purchaser:

1.1.3 releases the vendor to the extent possible at law in relation to any claim or loss relating to any contaminant in, on or under the Land or which has emanated or is emanating from the land; and

1.1.4 indemnifies the vendor against all claims and loss, resulting in any way from the existence of contamination in, on or under the land or which has emanated or is emanating from the land, including actions based on injury to any person or property.

11.5 No Objections or Compensation

The purchaser must not exercise any purchaser rights in relation to any of the matters referred to in this special condition and agrees that these matters do not affect the vendor's title to the land.

11.6 Use of Land as Service Station

Without limiting anything in this special condition, the purchaser acknowledges and agrees that:

1.1.5 the property has previously been used as a service station involving the sale of petroleum;

1.1.6 the purchaser must make all of its own investigations and enquiries as to any Contamination caused to the Property because of the use referred to in special condition 1.1.5;[2]

1.1.7 underground storage tanks (USTs) may be present underneath the surface of the Land, and the Vendor makes no warrant to the Purchaser as to the condition of, or any other matter concerning, any such USTs; and

1.1.8 the purchaser assumes full responsibility for any Contamination to the Land in connection with the use of the Property as a service station or the presence of USTs underneath the surface of the Property.

6 The general conditions of the contract included the following:

27. DEFAULT NOTICE

27.1 A party is not entitled to exercise any rights arising from the other party's default, other than the right to receive interest and the right to sue for money owing, until the other party is given and fails to comply with a written default notice.

27.2 The default notice must:

(a) specify the particulars of the default; and

(b) state that it is the offended party's intention to exercise the rights arising from the default unless, within 14 days of the notice being given­

(i) the default is remedied; and

(ii) the reasonable costs incurred as a result of the default and any interest payable are paid.

28. DEFAULT NOT REMEDIED

28.1 All unpaid money under the contract becomes immediately payable to the vendor if the default has been made by the purchaser and is not remedied and the costs and interest are not paid.

28.2 The contract immediately ends if:

(a) the default notice also states that unless the default is remedied and the reasonable costs and interest are paid, the contract will be ended in accordance with this general condition; and

(b) the default is not remedied and the reasonable costs and interest are not paid by the end of the period of the default notice.

28.3 If the contract ends by a default notice given by the purchaser:

(a) the purchaser must be repaid any money paid under the contract and be paid any interest and reasonable costs payable under the contract; and

(b) all those amounts are a charge on the land until payment; and

(c) the purchaser may also recover any loss otherwise recoverable.

28.4 If the contract ends by a default notice given by the vendor:

(a) the deposit up to 10% of the price is forfeited to the vendor as the vendor's absolute property, whether the deposit has been paid or not; and

(b) the vendor is entitled to possession of the property; and

(c) in addition to any other remedy, the vendor may within one year of the contract ending either:

(i) retain the property and sue for damages for breach of contract; or

(ii) resell the property in any manner and recover any deficiency in the price on the resale and any resulting expenses by way of liquidated damages; and

(d) the vendor may retain any part of the price paid until the vendor's damages have been determined and may apply that money towards those damages; and

(e) any determination of the vendor's damages must take into account the amount forfeited to the vendor.

28.5 The ending of the contract does not affect the rights of the offended party as a consequence of the default.

7 By 23 December 2015, the plaintiff had not taken steps to raise finance for the settlement of the purchase of the property because:

(a) as the plaintiff contends, the defendant, who was carrying on the business of an automobile repair shop at the property, had requested that the sale be kept confidential from his staff; or

(b) as the defendant contends, the plaintiff, who is a property developer, had been indebted to the Australian Taxation Office in the sum of $329,014.71, which he paid on 23 December 2015.

8 On or about 24 December 2015, the plaintiff approached his broker, Mr Goran Trogrlic of Smart Choice Home Loans, to arrange the necessary finance. The plaintiff obtained a letter from his accountant confirming that his income tax debt, which he had with the Australian Taxation Office, had been paid in full and arranged for a copy of the letter to be sent to Mr Trogrlic.

9 In the first week of January 2016, the defendant told his staff of the proposed sale.

10 For the first two or three weeks of January 2016, the plaintiff was on holidays; but on 12 January 2016 in a text message to the defendant, he stated as follows:

Hi Allan, Keri here.

I'm just on a break at the moment and will be back next week.

Did you speak to your workers regarding staying on?

As I need to start make some decisions for the building. Thank you

11 On 20 January 2016, Mr Trogrlic had a telephone conversation with Mr Stephen Gay of GFS Finance Pty Ltd and requested that it assist in arranging necessary finance for the settlement of the purchase of the property.

12 By email on 21 January 2016 with the subject 'New Commercial loan for Kire' to Mr Trogrlic, Mr Gay requested the following information so they could complete the loan application:

• Copy of signed Contract of Sale,
• Copy of current Lease in relation to the property (if not included in the above Contract). If current lease is expiring soon or has expired please confirm what the borrower intends to do, i.e. release for further term, develop etc.
• Confirmation of borrowing entity and its/their full details,
• Current and up to date Asset and Liability statement for Kire (assuming he will either be borrower or guarantor),
• Details of the recent Tax issue and confirmation/receipt of payment/copy of Tax Portal,
• Confirmation of borrower's equity for this purchase.

13 On 22 January 2016, Royal Corner Pty Ltd, the proposed nominee purchaser, was incorporated. It was nominated by a Sale of Real Estate Nomination Form dated 17 March 2016 which was received by the defendant on 22 March 2016.

14 By asset liability statement dated 23 February 2016, the plaintiff and his wife signed details of their assets and liabilities which relevantly showed that they held $651,000 in cash at the 'CBA' and noted on the statement that 'These funds to be used as equity for purchase of Charles Street in addition to the above'. 'The above' referred to other real property mortgaged to varying extents to other financial institutions. It was not in issue that 'Charles Street' referred to the property.

15 By commercial loan application to the Delphi Bank dated 1 March 2016, the plaintiff and his wife, as the directors and shareholders of Royal Corner Pty Ltd, applied for a loan to finance the purchase of the property.

16 By email on 3 March 2016 to Mr Gay, Mr Trogrlic attached further documents in support of the commercial loan application to the Delphi Bank.

17 On 3 or 4 March 2016, a valuer from an organisation called CBRE attended the property; but a few days later he called the plaintiff and said that CBRE would not do the valuation without a geotechnical report.

18 By letter dated 9 March 2016 to Royal Corner Pty Ltd, Delphi Bank offered a facility of $2,275,000 to 'assist with purchase of commercial property situated at 70 Charles Street, Seddon, Vic 3011' on the terms and conditions set out in the attached letter of offer. The offer included the following conditions precedent:

Subject to a full valuation of the property at 70 Charles Street, Seddon Vic

3011 by a Valuer approved and instructed by the Bank. The valuation is to

confirm a minimum 'Fair Market Value'. The valuation is to be to the

satisfaction of the Bank. The cost of the valuation is to be to the Borrower's care.

19 On 11 March 2016, Mr Giles of WBP Property Group, the valuer appointed by Delphi Bank, inspected the property with the plaintiff and noted that it had previously been used as a petrol station.

20 By valuation dated 18 March 2016, Mr Giles valued the property on a continuation of existing use basis at $3,185,000 and as a development site at $3,540,000. However, the valuations were on the basis that the property was assumed to be free of contamination. Because he noted that there were disused underground petrol tanks on the site, the report recommended that an assessment be undertaken by an expert.

21 By email of 24 March 2016 to the plaintiff, Mr Gay attached a copy of the valuation report and stated:

The Bank has come back to us and advised after reviewing the valuation they cannot proceed with your proposal without an Environmental assessment be [sic] conducted by a suitably qualified expert to advise on the status of the disused petrol tanks under the property and any contamination.

They have provided the details of a recommended Expert in this field ...

This is obviously a major problem please call us asap.

22 On 28 March 2016, the plaintiff and Mr Trogrlic met the defendant at the property and explained the financier's requirement for a soil test. The plaintiff arranged to meet the defendant at the property the next day with his environmental consultant.

23 On 29 March 2016, the plaintiff and Mr Luke Richards of Environmental and Safety Professionals met the defendant at the property. Mr Richards told the defendant that the soil test would involve drilling 3 to 5 holes[3] of 150 mm width in the concrete floor and taking some bore samples; and that the holes would be 'grouted over'. He said that he could have a crew available to undertake the work the next day. The plaintiff deposed that he had the following conversation with the defendant:

Alan did ask me what would happen if contamination was discovered at the site. I assured Alan that if the site was contaminated, I would try to find an alternative source of finance. I reminded Alan that I had assumed the risk of contamination, and was not seeking to change that arrangement. I told Alan that the soil test was a financier's requirement, and that I was fully intending to complete the sale. Alan said he would need to consider the matter further before deciding.

24 By letter dated 29 March 2016 to Mr John X Smith (the solicitor for the defendant) sent by facsimile, Mr Frank Horvat (the solicitor for the plaintiff) stated:

We refer to the above matter and advise that our client's mortgagee is not in a position to settle on Thursday 31 March 2016.

The valuers appointed by our client Bank have now sought an environmental audit report be commissioned due to the existence of the underground tanks.

Our client will now need to obtain the relevant report and seeks an extension of settlement of 14 days without penalties

Please seek your client's urgent instructions.

25 By letter sent by facsimile on the same day, Mr Smith replied to the letter from Mr Horvat stating:

Given that a deposit of only 5% of the purchase price has been paid, that the contract was signed as long ago as 14th August 2015, that your client has had more than six months to arrange his finance and that the matter is scheduled for settlement at 3:00 pm this Thursday it is neither reasonable nor possible for your client to be expecting an extension of the settlement date.

That being the case, this matter must settle as scheduled, that is at this office at 3:00 pm this Thursday 31st March 2016.

Your statement of adjustments has been approved and you have been provided with cheque details.

26 On 30 March 2016, the plaintiff sent a text message to the defendant stating that Mr Richards had told him that he could 'get crew & get soil sample done tomorrow. Can you get John to call Frank as he is leaving at 11:00am for court'.

27 By letter dated 30 March 2016 sent by facsimile to Mr Horvat, Mr Smith stated as follows:

I refer to our telephone discussions of yesterday and advise that I am instructed that my client might be prepared to give consideration to entering into a deed of variation of the contract of sale which would include the following terms.

1. Deposit increased from $175,000 to $375,000.

1. Balance of deposit of $200,000 to be paid by bank cheque delivered to this office by no later than 3:00 pm tomorrow 31st March 2016.

1. Settlement time and date extended to 3:00 pm on Thursday 14th April 2016 at this office.
2. Purchaser to pay penalty interest on the unpaid balance at the rate of 16% per annum from 31st March 2016 until settlement.
3. Purchaser to pay at settlement the vendor's legal costs of and incidental to the anticipated default and proposed agreement on an indemnity basis from 29th March 2016.

28 In a telephone conversation on 30 March 2016, Mr Horvat told Mr Smith that he would send him:

(a) a letter of approval of a loan from Delphi Bank;

(b) a letter from Delphi Bank confirming that funds would be released upon production of a satisfactory soil report; and

(c) a document confirming that a private loan of $1,000,000 was in place.

29 On 31 March 2016, the plaintiff sent a text message to the defendant stating:

Hi Allan, I called you but you didn't answer. I left a message that I have a valuer from another bank meeting me there at 11.00 am tomorrow. Thank you.

The defendant responded to the effect that he would see him at 11:00 am.

30 By letter dated 31 March 2016 sent by facsimile to Mr Smith, Mr Horvat stated as follows:

We enclose herewith copy of letter of offer from Delphi Bank.

The funders of the second mortgage will not provide a letter of offer until a full valuation for a minimum fair market value is prepared which is now being thwarted by your client's refusal to grant access to the property this morning for the purpose of a Geo Technical inspection being undertaken.

Our client is now unable to have the Geo-Tech company returning to the site until late next week.

As stated in our several telephone conversations our client cannot move forward until a satisfactory test is conducted which will satisfy the Banks valuers.

31 By letter dated 31 March 2016 to Mr Horvat, Mr Smith replied as follows:

I refer to your letter of today.

When we discussed this matter at 4:50 pm on Tuesday you advised me, inter alia, that the purchaser, "has a private loan in place for $1m". From what you now say, that does not appear to be correct.

Whilst I am seeking further instructions, you must appreciate that there is no obligation on the vendor to provide your client with access to the property for a geotechnical inspection. If your client is to be given access to the premises for such an inspection it will have to be on terms including your client's concession that what I have just said is correct. In addition to that, the provider of the report would have to provide the vendor with an original report addressed to the vendor and at no expense to the vendor.

32 After the expiration of the settlement date on 31 March 2016, the defendant served a rescission notice on the plaintiff and others alleging that the purchaser and the nominee were in default under the Contract in that the residue of $3,325,000 had not been paid on 31 March 2016. The notice concluded that 'if the default is not so remedied [within 14 days of service of this notice] the contract will be ended in accordance with general condition 28 of the contract'.

33 By letter dated 1 April 2016 sent by email to Mr Smith, Mr Horvat stated as follows:

Further to your letter of 31 March 2016 we are instructed that our client will supply a copy of the Geo-Technical Report to the Vendor or your office upon its receipt.

The remainder of your letter is not understood in terms of what concession you are seeking from our client.

Please confirm whether our client is able to arrange for the inspection to be carried out.

34 By letter dated 1 April 2016 sent by facsimile to Mr Horvat, Mr Smith replied stating '[i]f there is to be an inspection your client will first have to comply with the terms set out in my letters of 30th and 31st March 2016'.

35 In a letter dated 1 April 2016 sent by email to Mr Smith, Mr Horvat acknowledged receipt of the rescission notice and said as follows:

Your clients continue [sic] refusal, despite several requests, to allow a Geo-Technical Inspection to take place has completely prevented our client from being able to finalise his funding requirements in order to settle with your client.

Please note that our client's Caveat will not be withdrawn notwithstanding the Rescission Notice that has been served and any potential future proceedings will focus on your client's unreasonable refusal to allow the Geo-Technical Inspection to take place.

We will also be raising the matter of your client's unreasonable request to seek a further $200,000.00 by way of further deposit which calculates to being more than 10% of the purchase price.

We again request an urgent consent to allow the inspection to take place.

36 By letter dated 5 April 2016 sent by facsimile, Mr Smith replied to Mr Horvat's letter of 1 April 2016 stating as follows:

Before the matter proceeds beyond this point, would you be good enough to draw my attention to the clause in the contract which provided your client with the right to access the property, just two days before settlement, for the purpose of a geotechnical inspection which would involve the sinking of three drill holes through the concrete floor of the workshop.

As for the further deposit, if the sum of $25,000 is all that it takes to resolve this matter then my client is prepared to favourably consider reducing the upfront payment sum to $175,000 which when paid will increase the deposit to 10%. The other terms as set out in the without prejudice correspondence are unchanged and my client will still need to see some credible evidence of the private second mortgage loan of $1m which you originally said was in place but when I sought copies of confirming documents you said was not documented.

37 On 17 April 2016, after the expiration of 14 days from service of the rescission notice, the defendant had discussions with real estate agents who advised that for the purpose of resale, an environmental assessment was necessary.

38 On 22 April 2016, the environmental assessment was undertaken. The Initial Site Soil Assessment dated 12 May 2016 provided by LRM Global Pty Ltd included the following recommendations and summary:

At the development stage of any project it is recommended that the four underground storage tanks located on-site be emptied and removed from site and the surrounding impacted tank sands excavated and disposed off-site. This would also result in the removal of the above mentioned health based exceedances.

Further investigation will also be required if any soils are excavated from the site and require classification for off-site disposal in accordance with the Victorian EPA IWRG Publication 621.

It is recommended a Division 6 Asbestos Audit be carried out prior to any future demolition works.

Summary

LRM Global is of the opinion that the USTs and former bowsers associated with the service station has not led to any significant soil contamination that would preclude any future sensitive land use. Although, if in the future, the site is redeveloped under a more sensitive land use, further investigation, such as groundwater and soil vapour, would most likely be required; potentially under an environmental audit subject to the planning permit conditions.

39 On 13 October 2016, the property was sold at auction for $4,600,000. The settlement of the sale took place on 13 February 2017.

40 The parties agreed that the determination of this proceeding required answers to the following five questions:

1. Does special condition 11.6 of the Contract of Sale dated 14 August 2015 expressly or implicitly[4] confer a right on the purchaser to make investigations ('the investigations') which are properly and reasonably directed to the assessment of the extent of contamination to the property at 70 Charles Street, Seddon?
2. Does the duty to co-operate with the right or obligation of the purchaser under special condition 11.6 of the Contract of Sale dated 14 August 2015 impliedly require the vendor to permit the purchaser to make investigations?
3. If yes, to question 2, in the circumstances, did the vendor breach his duty to co-operate?
4. If yes to question 1 or 3, did the vendor's refusal to permit the investigations prevent the purchaser from settling the Contract by 15 April 2016 (being 14 days after service of the rescission notice)?
5. If the purchaser was not entitled to make the investigations, is the purchaser entitled to an order under s 49(2) of the Property Law Act 1958 that the vendor repay the deposit?

41 Questions 1 and 2 relate to the proper construction of the contract.

42 To determine the meaning of the terms of the commercial contract, the Court will ask the question 'What would a reasonable business person have understood those terms to mean?'[5] For the purpose of answering that question, 'the reasonable businessperson [is] placed in the position of the parties'[6] and the Court applies the following principles:

(a) The terms are construed objectively and the subjective intentions of the parties are irrelevant.[7] A court 'cannot receive evidence from one party as to its intentions and construe the contract by reference to those intentions'.[8]

(b) A court will consider not only the text and the ordinary meaning but also:

(i) the context, being the entire text of the contract including matters referred to in the text of the contract;[9] and

(ii) the commercial purpose and object of the contract. The identification of the commercial purpose and object of a contract 'presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating'.[10] For this purpose, a court may have regard to the surrounding circumstances known to the parties;[11] and is entitled to assume 'that the parties intended to produce a commercial result'.[12]

43 Accordingly, a court may 'have regard to more than internal linguistic considerations',[13] but ordinarily, where there is no ambiguity, the intention can be discerned by reference to the contract alone. As French CJ, Nettle and Gordon JJ observed in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd:

Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning'.[14]

44 The difference between the matters constituting the context and purpose, which may be referred to without ambiguity; and events, circumstances and things external to the contract, which may not, was explained by the plurality in the High Court as follows:

(a) A court may refer to 'events, circumstances and things external to the contract which are known to the parties or which assist in identifying the purpose or object of the transaction, which may include its history, background and context and the market in which the parties were operating'.[15]

(b) However, 'evidence of the parties' statements and actions reflecting their actual intentions and expectations' are inadmissible.[16]

45 On behalf of the plaintiff it was submitted that the Investigations Clause obliged the plaintiff to 'make all of its [sic] own investigations ... as to any Contamination caused to the Property ...'.

46 Alternatively, it was contended that there was an implied term that the vendor would permit the plaintiff to carry out such investigations ('the subterranean investigations') which were reasonable and properly directed to the contamination arising from the prior use of the property as a service station.

47 In my opinion, a reasonable business person would understand the Investigations Clause as an acknowledgement by the purchaser that:

(a) the purchaser was responsible to make such of his own relevant investigations or enquiries, as he may choose; and

(b) the vendor was not responsible to make relevant investigations or enquiries.

I do not consider that the Investigations Clause should be read as imposing any obligation on the purchaser to make any relevant investigations or enquiries.

48 In reaching the above conclusion, I have had regard to the following:

(a) The balance of clause 11 provides, in summary, that:

(i) the vendor makes no representation about contamination;

(ii) the purchaser acknowledges he has inspected the property and assumes full responsibility for contamination including compliance with regulatory obligations;

(iii) the purchaser releases and indemnifies the vendor with respect to contamination;

(iv) the purchaser agrees that contamination does not affect the vendor's title to the land;

(v) the vendor makes no warranties about the underground storage tanks; and

(vi) the purchaser assumes full responsibility for contamination arising from the use of the property as a service station and the presence of underground storage tanks.

In my opinion, in this context, the purpose of clause 11 in general, and the Investigations Clause in particular, is for the protection of the defendant.

(b) Clause 11.6 states that 'the purchaser acknowledges and agrees'. It does not purport to impose any obligation on the defendant.

(c) There is no apparent reason (and none was submitted by the plaintiff) why an investigation contemplated under the Investigations Clause would provide any benefit to the defendant.

(d) Although the Investigations Clause states that 'the purchaser must make all of its own investigations'[17], the clause imposed no obligation on the plaintiff because it only requires the plaintiff to make his 'own investigations'. Accordingly, the plaintiff could choose to make, or not make, investigations or enquiries.

49 It is well established that five criteria must be satisfied before a term will be implied to give business efficacy to a contract. These are:

(a) it must be reasonable and equitable between the parties;

(b) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it;

(c) it must be so obvious that it 'goes without saying';

(e) it must not contradict any express term of the contract.[18]

Each criteria must be satisfied and it is not sufficient that it would be reasonable or equitable to imply the term.[19]

50 The plaintiff submitted that the implied term ought to be expressed as an obligation upon the defendant to permit the undertaking of such subterranean investigations on the property as were reasonable and properly directed to the assessment of contamination.

51 In my opinion, such an implied term does not satisfy the five criteria for the following reasons:

(a) Such a term is not reasonable and equitable as between the parties. Such extensive rights to investigate, including interference with the structure on the property without security for rectification, would be potentially an extreme and unusual right to be given to a purchaser prior to settlement. Such a right interferes with fundamental property rights and would permit what would otherwise constitute a trespass.

(b) Such a term is not necessary to give business efficacy to the contract. The purchaser acknowledges in the contract that he 'has inspected the Land and purchased it in its present condition irrespective of whether there is any contaminant in, on or under the Land'. Sales of property and chattels on an 'as is where is' basis are not uncommon. In such circumstances, there is no necessity for such sale of land contracts to imply a right of subterranean investigations of latent conditions.

(c) Such a term is not so obvious that 'it goes without saying' for the same reasons as the criteria referred to in sub-paragraphs (a) and (b) are not satisfied. A reasonable person would expect that such a right, if it were intended to be granted, would be clearly expressed in the written contract.

(d) Such a term is not capable of clear expression. Counsel for the plaintiff submitted that, if such a term was to be implied, it would have to be limited by implied restrictions including the subterranean investigations would not interfere with the defendant's business and the plaintiff would rectify all damage. Plaintiff's counsel could not explain how the implied term could operate if proper subterranean investigations included removal of the underground tanks and destruction of the entire floor slab. Neither was it explained whether the implied term might be subject to an obligation to provide reasonable security for the cost of rectification.

52 Accordingly, the answer to Question 1 is 'Not to the extent necessary to permit the subterranean investigations'.

53 The plaintiff contended that the Investigations Clause gave rise to an obligation on the plaintiff to perform the subterranean investigations; and the implied duty to co-operate meant that there was a corresponding obligation on the vendor to permit the subterranean investigations.

54 As was said by Griffiths CJ in Butt v M'Donald, a general duty to co-operate is implied into contracts:

It is a general rule applicable to every contract that each party agrees, by implication, to do all such things as are necessary on his part to enable the other party to have the benefit of the contract.[20]

55 However, as stated by the Court of Appeal in Wolfe v Permanent Custodians Ltd:

Although the duty to co-operate is broadly stated in Butt v M'Donald, the scope of the duty is defined by what has been promised under the contract; it is not a general duty to ensure another party obtains an anticipated benefit.[21]

56 Accordingly, a party only has a duty to co-operate by performing acts that are necessary to preserve the benefit of what has been promised in a contract. It does not require a party to co-operate by acting to advance the interests of the other party with respect to the contract.[22] Accordingly, as was observed by the Full Court of the Federal Court in Marmax Investments Pty Ltd v RPR Maintenance Pty Ltd:

There cannot be a duty to co-operate in bringing about something which a contract does not require to happen.[23]

57 Accordingly, as I have found that the contract did not require the plaintiff to carry out the subterranean investigations, the defendant's general duty to co-operate did not extend to requiring him to permit such investigation.

58 Further, the scope of the duty to co-operate is limited to what can be reasonably required in the circumstances. In Secured Income Real Estate (Aust) Ltd v St Martins Investments Pty Ltd,[24] the contract of sale provided that the purchaser was obliged to pay a premium if the rent return on the property reached a certain level by a certain date. The vendor offered to take a lease of all unlet space in the building, which would have meant that the minimum rent requirement was satisfied. The purchaser refused and the vendor alleged that the refusal was in breach of its duty to co-operate.

59 Mason J found that a party had not breached its duty to co-operate by refusing to enter into a lease with the other party despite the fact that the refusal deprived the other party of a benefit which would otherwise accrue to it under the contract. His Honour said:

If the evidence established that the respondent entertained doubts, reasonably based, that the appellant would pay the rent promptly and without difficulty, then it was reasonable to refuse to grant the lease on that ground.[25]

Accordingly, as the vendor, being the party alleging a breach of the duty to co-operate, had not satisfied the onus of showing that the doubts were unreasonable, the High Court found that the purchaser was entitled to refuse to grant it a lease.[26]

60 In my opinion, even if the duty to co-operate did extend to permitting subterranean investigations, I am not satisfied that the plaintiff has established that the defendant acted unreasonably in failing to do so because the request was made without the following:

(a) Detailed specifications of the work to be performed.

(b) Adequate assurances that any consequent damage would be properly rectified.

(c) Adequate evidence of the plaintiff's capacity to raise the finance or settle by the settlement date or within a period of 14 days of the settlement date. In particular, the plaintiff was unable to produce written evidence of the second mortgage lender's agreement to provide finance or of the alternative financing arrangements if the geotechnical report was unsatisfactory to Delphi Bank.

Accordingly, the answer to Question 2 is 'Not the subterranean investigations' and therefore it is not necessary to answer Question 3.

61 The plaintiff submitted that the vendor's refusal to permit the investigation did prevent the purchaser from settling the contract by 15 April 2016. On the plaintiff's behalf it was contended as follows:

(a) The initial delay by the purchaser in obtaining finance was the result of the vendor's request that his staff at the business not be told about the sale.

(b) The defendant did not agree to the request for the drilling and said arrangements should be made through the solicitors.

(c) The defendant's solicitors only agreed with the subterranean investigations on the basis of the payment of an additional deposit of initially $200,000 and then $175,000.

(d) The defendant did not personally tell the plaintiff that he would not permit the subterranean investigations.

(e) The defendant would not permit the plaintiff to undertake the subterranean investigations.

62 The principle, which is of long standing, is that a person cannot take advantage of the existence of a state of things, which he has produced himself.[27] Accordingly, a party to a contract who, by his own act, brings about an event to terminate a contract, 'cannot be permitted ... to insist upon the stipulation ... because to prevent the blameable party to do [so] would be to permit him to take advantage of his own wrong'.[28]

63 With respect to the application of the principle on a right to rescind a contract of sale of land, the Court of Appeal in Joseph Street Pty Ltd v Tan stated the position as:

It is well established that a party wishing to rescind cannot take advantage of its own ineffective or inefficient measures to comply with its contractual obligations, and that where a vendor's default has deprived the purchaser of a 'substantial chance' that the condition would have been fulfilled, the vendor cannot exercise the right of rescission.[29]

64 I am not satisfied that the defendant's refusal to permit the subterranean investigations deprived the plaintiff of a substantial chance to settle the contract by 15 April 2016 for the following reasons:

(a) The first occasion on which the subterranean investigations were proposed to have taken place was on 31 March 2016, the day before the plaintiff was required to settle the contract.

(b) The period between the subterranean investigations by LRM Global Pty Ltd and the date of its Initial Site Soil Assessment report was 20 days. There was no evidence of the extent that such a report could have been expedited by Mr Richards.

(c) There was no evidence from Mr Giles about what would have occurred, if he had received a report to the effect of the Initial Site Soil Assessment of LRM Global Pty Ltd, and particularly:

(i) how long he would have taken to prepare a further valuation; or

(ii) what value he would have given to the property in his further valuation.

(i) how much the Delphi Bank would have been prepared to advance on the basis of the further valuation of Mr Giles; or

(ii) how quickly the Delphi Bank could have made funds available after receipt of Mr Giles' further valuation.

65 Accordingly, I answer Question 4, 'Even if the answer to Question 1 or 3 were 'Yes', Question 4 should be answered, 'No''.

66 As a result of my answers to Questions 1 to 4 in the negative, I am required to consider:

(a) Question 5 and the purchaser's entitlement to an order under s 49(2) of the Property Law Act 1958 that the vendor repay the deposit; and

(b) the defendant's counterclaim for the payment of a further 5% of the purchase price - namely $175,000.

67 However, in his final submissions, counsel for the plaintiff submitted that, as this hearing was limited to liability, the issue of the return of the deposit should await judgment on liability.

68 Accordingly, I propose to deliver these reasons and hear from the parties as to the appropriate orders and what (if any) further directions should be made with respect to the abovementioned remaining issues.

[1] The Contract did include General Condition 22 of the REIV/Law Institute of Victoria form dated September 2014 which provides 'The purchaser and/or another person authorised by the purchaser may inspect the property at any reasonable time during the 7 days preceding and including the settlement day'.

[2] Referred to below as 'the Investigations Clause'.

[3] In the plaintiff's affidavit of 29 July 2016 at [31], he says 3-4 holes of 150mm, but in his oral evidence he said 4-5 holes.

[4] The agreed questions did not include 'implicitly' but, in final submissions, the plaintiff contended, without objection, that a term should be implied.

[5] Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104, 116 [47] (French CJ, Nettle and Gordon JJ).

[6] Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd [2017] HCA 12 [16] (Kiefel, Bell and Gordon JJ).

[8] DTR Nominees Pty Ltd v Mona Homes Pty Ltd [1978] HCA 12; (1978) 138 CLR 423, 429 (Stephen, Mason and Jacobs JJ).

[9] Eureka Operations Pty Ltd v Viva Energy Australia Ltd [2016] VSCA 95 [45]-[47] (Santamaria, Ferguson and McLeish JJA).

[10] Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989, 995-7 (Lord Wilberforce) cited with approval by Mason J in Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337, 350-1 which in turn was cited by Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ in Royal Botanical Gardens and Domain Trust v South Sydney City Council [2002] HCA 5; (2002) 240 CLR 45, 52-3. Also see Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451, 461-2 (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ).

[11] Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, 179 [40] (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ).

[12] Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd [2017] HCA 12 [17] (Kiefel, Bell and Gordon JJ).

[13] Royal Botanical Gardens and Domain Trust v South Sydney City Council [2002] HCA 5; (2002) 240 CLR 45, 52-3 [10] (Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ).

[14] Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104, 116 [48] (French CJ, Nettle and Gordon JJ).

[18] BP Refinery (Westernport) Pty Ltd v Hastings SC (1977) 180 CLR 266, 283 (Lord Simon, Viscount Dilhorne and Lord Keith) adopted in Secured Income Real Estate (Aust) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596, 605-6 (Mason J).

[19] Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337, 346 (Mason J).

[20] (1896) 7 QLJ 68, 70-1. Also see Mackay v Dick (1881) 6 App Cas 251. Cited with approval in Secured Income Real Estate (Aust) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596, 607 (Mason J with whom Barwick CJ, Gibbs, Stephen and Aickin JJ agreed).

[21] [2013] VSCA 331 [28] (Warren CJ, Neave and Whelan JJA).

[22] Australis Media Holdings Pty Ltd v Telstra Corporation Ltd (1998) 43 NSWLR 104, 124-5. Also see N Seddon, R Bigwood, M Ellinghaus, Cheshire and Fifoot's Law of Contract (LexisNexis, 10th ed, 2012) [10.42].

[23] [2015] FCAFC 127; (2015) 237 FCR 534, 560 [134] (Middleton, Foster and Gleeson JJ) (emphasis in original).

[24] [1979] HCA 51; (1979) 144 CLR 596.

[27] New Zealand Shipping Co v Societe des Ateliers et Chantiers de France (1919) AC 1, 6-7 (Lord Finlay); Roberts v Wyatt [1810] EngR 117; (1810) 2 Taunt 268, 276; CSS Investments Pty Ltd v Lopiron (1987) 16 FCR 15, 31-2.

[28] New Zealand Shipping Co v Societe des Ateliers et Chantiers de France (1919) AC 1, 9 (Lord Finlay) cited with approval in Suttor v Gundowda Pty Ltd [1950] HCA 35; (1950) 81 CLR 418, 441 (Latham CJ, Williams and Fullagar JJ).

[29] (2012) 38 VR 241, 257 [47] (Warren CJ, Nettle JA and Cavanough AJA).