Plaintiff v Defendants

1 The plaintiff, U108 Pty Ltd, is a property developer. I will refer to it as 'the vendor'. The first and second defendants, Sing Fan and Yu Zhao ('the purchasers'), agreed to purchase an apartment and car park ('the property') from the vendor.

2 The relevant contract of sale is dated 11 April 2007. Although it appears that it was in fact entered into in June 2007, nothing turns on this. At the time of the contract of sale, the property had not been constructed. The purchasers were buying the property 'off-the-plan'.

3 Following completion of construction, the vendor contended that the purchasers became obliged to complete the contract of sale. There was uncertainty about the due date for completion. Notwithstanding this, a settlement was arranged. Due to a combination of family circumstances and lack of funds, the purchasers were unable to complete on this day. They sought an extension to enable them to put the necessary finance in place. The request for an extension was refused by the vendor, and a notice of rescission ('the first rescission notice') was served on the purchasers, requiring completion of the contract of sale within 14 days. Shortly afterwards, another notice of rescission ('the second rescission notice') was served, requiring completion within 14 days from the date of that notice.

4 The purchasers were unable to complete the contract of sale within the time specified in the second rescission notice. In these circumstances, the vendor treated the contract of sale as at an end and re-sold the property to another purchaser for a higher price than that payable by the purchasers under the contract of sale.

5 The purchasers contend that the notices of rescission were invalid and that the contract of sale remains on foot. To protect their position, they have lodged a caveat over the property. That caveat is preventing the completion of the re-sale of the property to the second purchaser.

6 In these circumstances, the vendor applied to the Court for removal of the caveat and other relief. Without filing any formal application, the purchasers seek an order that the contract of sale be specifically performed.

7 The matter was heard in the Practice Court. Following discussion with counsel, the parties agreed that the essential question for determination was whether the second notice of rescission was valid. If it was, the parties agreed that the purchasers' caveat should be removed and the vendor should be permitted to complete the re-sale of the property to the second purchaser. If it was not valid, the parties agreed that the purchasers should be given an opportunity to complete the contract of sale.

8 In order to resolve the issue concerning the validity of the second rescission notice, it is first necessary to refer to and construe relevant provisions of the contract of sale.

9 The purchase price of the property was $355,000. According to the particulars of sale, a deposit of $28,400 was payable in two instalments. First, $1,000 was payable on the signing of the contract of sale. This was paid. Second, $27,400 was payable on 25 July 2007. The purchasers did not pay the second instalment. Instead, they provided the vendor with an unconditional bank guarantee for that amount. The vendor accepted this in lieu of payment of the second instalment, relying upon the provisions of special condition 24.3.3 of the contract of sale. Relevantly, special condition 24.3.3 provides:

If the Vendor accepts a Bank Guarantee or Deposit Bond from the Purchaser, then:

24.3.3.1 the Vendor's Solicitors will hold the Bank Guarantee or Deposit Bond and will hold any moneys paid pursuant to the Bank Guarantee or Deposit Bond as if those moneys were the original Deposit;

24.3.3.2 on the Settlement Date the Purchaser must pay the full Price to the Vendor and subject to the condition upon the Purchaser doing so the Vendor must return the Bank Guarantee or Deposit Bond to the Purchaser;

24.3.3.3 upon any default by the Purchaser under this Contract of Sale which is not remedied within 14 days after service of a Notice of Default the Vendor may make a demand for payment under the Bank Guarantee or Deposit Bond (subject only to any provision of the Sale of Land Act preventing it from so doing); ...[1]

10 There is no reference in the particulars of sale to the possibility that the obligation of the purchasers to pay the second instalment of the deposit would be satisfied by the provision of a bank guarantee to be dealt with in accordance with special condition 24.3.3. The particulars state simply that the balance of the purchase price is $326,600; the purchase price less the deposit. Accordingly, the particulars of sale contemplate payment of that amount on the due date for completion, and not the full purchase price in accordance with special condition 24.3.3.3.

11 The critical provision of the contract of sale concerns the time at which the balance of the purchase price was payable. The particulars of sale provide as follows:

Upon the later of the expiration of 14 days after the date upon which the Vendor's Solicitors give notice to the Purchaser or its Solicitors of:

(a) the registration of the Plan by the Registrar of Titles under the Subdivision Act 1998; or

12 In order to determine the validity of the second rescission notice, it is necessary to construe this provision. On a literal reading, the due date for payment of the balance of the purchase price was the expiration of 14 days after notice to the purchaser or its solicitors of either registration of the plan of subdivision or the issue of the relevant occupancy permit. That literal interpretation follows from the use of the conjunction 'or' to connect sub-paragraphs (a) and (b) of the provision. The vendor initially took the position that the provision should be construed in this way. It demanded settlement 14 days after notice of the registration of the plan of subdivision, in circumstances where the occupancy permit was yet to be issued. Later, in dealings between the representatives of the parties, the vendor apparently acknowledged that settlement was not due until 14 days after notice had been given of both registration of the plan of subdivision and issue of the relevant occupancy permit.

13 It was submitted on behalf of the purchasers that the provision does not specify any due date by which the purchasers must pay the balance of the purchase price. It was contended that the provision does no more than specify a time before which the balance need not be paid, and that it was for the vendor to request settlement by a particular date after that time and give notice of that date to the purchasers.

14 I reject that submission. The principles of contractual interpretation are not in doubt. The Court must consider what reasonable persons in the position of the parties would have understood the words to mean by reference to the text of the agreement, the surrounding circumstances known to the parties, and the purpose or object of the transaction.[2] It is not necessary to first conclude that the words used are ambiguous before having regard to the surrounding circumstances and the purpose or object of the transaction.[3] In interpreting the words and resolving any ambiguity, the Court should proceed in a common sense and non-technical way and give the agreement a commercially sensible construction.[4] The Court should have regard to all of the words used in the agreement 'so as to render them all harmonious'[5] and to ensure the congruent operation of the various components of the agreement as a whole.[6]

15 In my view, reasonable persons in the positions of the vendor and the purchasers would approach the provision regarding the payment of the balance of the purchase price as one intended to specify the date upon which the balance was due. That is its obvious purpose. If this is so, then there is no difficulty with its interpretation. Reading the provision as a whole, it provides that the balance of the purchase price must be paid 'upon' the later to occur of two specified events: (a) the expiration of 14 days after notice to the purchasers or their solicitors of registration of the plan of subdivision; and (b) the expiration of 14 days after notice to the purchaser or their solicitors of the issue of the occupancy permit. This interpretation requires the conjunction 'or' to be read as 'and'. There is no other sensible way to read the provision. The interpretation put forward on behalf of the purchasers ignores the word 'upon' and substitutes the word 'after' for it.

16 I accept that the use of the word 'after' means that the day of service of the later of the two notices is not to be counted in computing the 14 day period.

17 The contract of sale incorporated certain provisions of Table A of the Seventh Schedule to the Transfer of Land Act 1958 (Vic) ('Table A'), which contains a number of general conditions of sale of land. The contract of sale incorporated general conditions 5 and 6, which relevantly provide:

1. Time shall be of the essence of this contract. However, if either party defaults under this contract the offended party shall not be entitled to exercise any of his rights arising out of the default other than his right to sue for money then owing until he has served the offender with a written notice specifying the default and his intention to exercise his rights unless the default is remedied and the proper legal costs occasioned by the default and any interest demanded are all paid within fourteen days of service of the notice and the offender fails to comply with the notice.
2. (1) Where the default has been made by the purchaser and is not remedied all moneys unpaid under this contract shall become immediately payable and recoverable at the option of the vendor.

(2) If the notice also states that unless the default is remedied the contract will be rescinded pursuant to this condition then if the default is not so remedied the contract shall thereupon be rescinded.[7]

18 I proceed to consider the facts relevant to determination of the date by which the purchasers were required to pay the balance of the purchase price.

19 On 2 October 2009, the vendor's solicitors wrote to the conveyancer acting for the purchasers, Dingley Conveyancing Services. In that letter, the vendor's solicitors notified the purchasers that the plan of subdivision had been lodged and was expected to be registered within seven days. With that in mind, the vendor's solicitors asserted that: 'Settlement of this matter is due within 14 days of registration of the Plan, failing which penalties will apply.' Later in the letter, the vendor's solicitors stated: 'Settlement of this matter will be due within 14 days from the date of notification [of registration of the plan of subdivision].' Both of these assertions were incorrect. First, because of the use of the word 'within' instead of the word 'after'. Second, because the assertions assume that the balance of the purchase price was due 14 days after notice of either notice of registration of the plan of subdivision or issue of the occupancy permit.

20 The plan of subdivision was registered on 6 October 2009. On that day, the vendor's solicitors wrote to the purchasers' conveyancer giving notice of registration of the plan. In the letter, the vendor's solicitors asserted: 'Accordingly, settlement of this matter is due at the expiration of or within 14 days from the date of this letter. Our client requires settlement to be effected by the due date, failing which, penalties will apply.' For the reasons given above, this assertion was erroneous.

21 It appears that the purchasers' conveyancer did not appreciate the second error. She assumed that the balance of the purchase moneys were due on 20 October 2009, being 14 days after the notice on 6 October of registration of the plan of subdivision. The purchasers were unable to pay the balance of the purchase price on or before that day. Accordingly, on 19 October 2009, the purchasers' conveyancer sent a facsimile to the vendor's solicitors asking for an extension of time, until 4 November 2009, to pay the balance of the purchase price.

22 On 20 October 2009, a representative of the purchasers' conveyancer, Shirley Katsourakis, spoke with a representative of the vendor's solicitors, Elpida Kotsiras, on the telephone. During the course of that conversation, it appears that Ms Kotsiras informed Ms Katsourakis that settlement was not due until 14 days after notice that an occupancy permit had been issued. Ms Katsourakis' telephone note reads:

ELPIDA - P/I 20/10

14 days from C/O. Will fax C/O & as soon as it issues. & smt [settlement] date.

23 By this conduct, the vendor, through its solicitors, impliedly acknowledged the correct approach to calculating the time for payment of the balance of the purchase price.

24 On 21 October 2009, an occupancy permit in respect of the property was issued.

25 On 22 October 2009, the vendor's solicitors gave notice of the issue of the occupancy permit to the purchasers' conveyancer. The facsimile was received after 4:00 pm. Coincidentally, a few minutes earlier the purchasers' conveyancer had notified the first defendant that settlement would be due 14 days after issue of the occupancy permit, and that 'this gives you a couple more weeks to get your financing organised'.

26 On 26 October 2009, Ms Wilmot of the purchasers' conveyancer was sufficiently confident about the purchasers obtaining finance that she telephoned Ms Kotsiras of the vendor's solicitors and arranged for settlement to take place on 5 November 2009. On a proper construction of the contract of sale, this was the final day upon which the purchasers were required to pay the balance of the purchase price, being 14 days after notice of the issue of the occupancy permit.

27 It was submitted on behalf of the purchasers that the final date for payment of the balance of the purchase price was 6 November 2009. Reliance was placed upon general condition 13 of Table A, which provides for service of notices 'in any other manner authorized by the Supreme Court Rules for service of documents upon parties or their legal practitioners'. It was submitted that r 3.05,[8] which provides that documents served after 4:00 pm shall be taken to have been served on the next day, had the effect that the notice of the issue of the occupancy permit should be taken to have occurred on 23 October 2009, not 22 October 2009. Accordingly, the first day of the 14 day period was 24 October 2009. I reject this submission. General condition 13 is concerned with the manner of service, not with the calculation of time from which service is taken to have been effected. That is a question of fact to be resolved in each case.

28 Ms Wilmot's confidence in the ability of the purchasers to complete on 5 November 2009 was misplaced. By that day, they had not arranged the necessary finance. Accordingly, on 5 November 2009 the purchasers' conveyancer wrote to the vendor's solicitors and requested an extension until 20 November 2009 for the completion of the contract of sale. This request was refused on the same day. By return facsimile, the vendor's solicitors gave notice of the vendor's refusal and enclosed the first rescission notice by way of service.

29 The first rescission notice was invalid. It specified the purchasers' default as failure to pay the balance of the purchase price on 4 November 2009, and not 5 November 2009.

30 According to a further affidavit sworn on the day of the hearing by Ms Kotsiras, she spoke with Ms Wilmot on Friday 6 November 2009 about the first rescission notice. Her file note records Ms Wilmot as saying to her:

Received our Notice of Rescission however she says it isn't valid because the contract says s/ment due 14 days after issuing of o/permit and therefore s/ment wasn't due until 5 November so N/Rescission not valid b/c it says due date is 4 November when it should be 5 November. Her client is back today from China and she is hoping to settle mid next week (Wednesday).

31 No objection was taken to the filing of the late affidavit by Ms Kotsiras. However, during the course of argument, a complaint was made about its lateness. It was asserted that Ms Wilmot disputed that she told Ms Kotsiras that the correct date for settlement was 5 November, as she then believed settlement was due on 6 November. Despite this assertion, no further affidavit by Ms Wilmot was filed. However, a further affidavit of the first defendant was filed later in the day, exhibiting an e-mail dated 30 October 2009 in which Ms Wilmot asked the purchasers to contact her regarding settlement on 6 November 2009.

32 Taking the evidence as a whole, it is probable that Ms Kotsiras' file note is accurate. In any event, following the conversation on Friday 6 November, Ms Kotsiras prepared the second rescission notice and served it on both the purchasers and their conveyancer by facsimile on Monday 9 November 2009. Although the enclosed second rescission notice specifies (correctly) that the due date for payment of the balance of the purchase price was 5 November 2009, the covering letter asserts that settlement was due to take place by 4 November 2009. Further, although the letter rejects the request for an extension of time to pay the balance of the purchase price until 20 November 2009, the operation of the second rescission notice had the effect, if it replaced the first rescission notice, of giving the purchasers 14 days (or until 22 November 2009) to pay the balance of the purchase price and thus complete the contract. On the other hand, if the vendor was continuing to rely upon the first rescission notice, and that notice was valid, the purchasers had until 18 November to pay the balance of the purchase price and avoid rescission.

33 The 9 November 2009 letters to the purchasers and their conveyancer, and the second rescission notice, are silent as to whether the vendor maintains the validity of the first rescission notice. However, given the assertion in the letter to the purchasers that settlement was due to take place on 4 November 2009, and the refusal of an extension until 20 November 2009 to complete the contract of sale, a reasonable person in the position of the purchasers would, in my view, be left in doubt as to whether the vendor was reserving its rights under the first rescission notice.

34 The purchasers did not, by themselves or their conveyancer, raise any objection to the second rescission notice. Nor did they seek clarification as to whether the vendor continued to rely upon the first rescission notice. They proceeded in their endeavours to obtain finance, with the obvious intention of paying the balance of the purchase price if they could do so before the contract of sale was rescinded.

35 It was not until 23 November 2009, being the day following expiration of 14 day period specified in the second rescission notice, that the purchasers communicated further with the vendor. On that day, their conveyancer asserted in a letter to the vendor's solicitors that the purchasers had obtained finance and, in that circumstance, requested the vendor to 'postpone its rights under the Rescission Notice to permit settlement to occur'. The letter acknowledged that penalty interest applied.

36 The vendor did not agree to any extension of time for completion of the contract of sale.

37 Commencing on 25 November 2009, the solicitors acting for the purchasers commenced alleging in correspondence that the second rescission notice was invalid and that the contract of sale remained on foot.

38 According to Ms Wilmot, she telephoned Ms Kotsiras of the vendor's solicitors on 4 December and sought to arrange settlement for 2:30 pm on 8 December 2009. She said that Ms Kotsiras indicated she could not do 2:30 pm, but could do 12:30 pm and that there was some discussion concerning allowances for blinds at the property. Following this conversation, Ms Wilmot said that she telephoned the bank providing finance to the purchasers and changed the settlement time from 2:30 pm on 8 December to 12:30 pm. She produced her file note of this conversation.

39 Ms Kotsiras provided a different version. In her affidavit, she said that she spoke with Ms Katsourakis and not Ms Wilmot and that:

During the conversation Shirley [Katsourakis] advised that settlement could not occur on the 5 November 2009 as her client was still in China. I said that I will need to obtain instructions from the Plaintiff and I will call her back.

40 There was no cross-examination. However, the version of the conversation put forward by Ms Wilmot appears the more probable. It is supported by the file note, which is in her handwriting and not that of Ms Katsourkis. It is also supported by a letter which she wrote to Ms Kotsiras on that day confirming settlement arrangements for 12:30 pm on 8 December 2009. In contrast, Ms Kotsiras gave a version of events which appears to relate to an earlier point in time, and produced no file note.

41 By Monday 7 December 2009, conduct of the file at the offices of the vendor's solicitors appears to have been transferred from Ms Kotsiras, who is a property paralegal, to Ms Tammy Pruscino, who is a solicitor. On that day, Ms Pruscino signed a letter to the purchasers' conveyancer, cancelling the settlement arranged for 8 December 2009.

42 On 12 December 2009, the vendor, relying upon its view that the second notice of rescission was valid, re-sold the property to a second purchaser. The vendor took this action notwithstanding that it was on notice of allegations by the purchasers, through their solicitors, that the rescission notice was invalid.

43 The relevant legal principles to be applied in determining whether or not a rescission notice is valid are not in doubt. The relevant authorities were reviewed by Campbell J in Robinson v Becata Pty Ltd.[9] I respectfully adopt his Honour's analysis. In summary, a rescission notice served under general conditions 5 and 6(2) of Table A must, in relation to its essential features as required by those conditions, be clear and unambiguous. In determining whether or not a rescission notice is relevantly clear and unambiguous, the Court applies an objective approach. In Catley v Watson,[10] Brooking J (as he then was) expressed the applicable standard of objective reasonableness in the following terms:

A notice is not unequivocal, in the sense in which such notices are required to be unequivocal in relation to their essential contents, if a reasonable person, having considered the notice as a whole, fairly and properly, might entertain a doubt as to its meaning in relation to some essential matter, even though he would form in his mind a preference for one view, rather than the other of what the notice was intended to convey. It must be possible to say that, after the appropriate consideration, any doubts that may have arisen would be quieted and the purchaser would not be left in any uncertainty as to the meaning of the notice.[11]

44 This statement by Brooking J has been applied in a number of Victorian cases, and further consideration has been given to the attributes of the 'reasonable person' for these purposes. In Central Pacific (Campus) Pty Ltd v Staged Developments Australia Pty Ltd,[12] Ormiston JA said that the relevant reasonable person was 'a reasonable reader in the position of the purchaser'.[13] This approach was endorsed by Winneke P (with whom Charles and Eames JJA agreed) in Greydae Pty Ltd v Malilane Pty Ltd.[14] A reasonable reader in the position of the purchaser must be taken as one who knows the terms of the contract of sale, including general conditions 5 and 6 of Table A, and who is aware of the surrounding circumstances relating to the default.[15]

45 In this case, there is not one but two relevant rescission notices. As I have said, the second rescission notice and the facsimile letter accompanying it make no express reference to the first rescission notice. In particular, it is not stated that the first rescission notice is withdrawn. To the contrary, the assertion by the vendor's solicitors in the covering facsimile that the balance of the purchase price was due on 4 November 2009 implies that the vendor may be continuing to rely upon the first rescission notice. In these circumstances, reasonable purchasers in the position of the purchasers in this case might entertain a doubt as to whether, in order to avoid rescission of the contract of sale, they were required to pay the balance of the purchase price within 14 days of the first rescission notice, or within 14 days of the second rescission notice. Further, they might entertain a doubt as to whether the interest, which they were required by the notice to pay in order to avoid rescission, should be calculated from 4 November 2009 or 5 November 2009.

46 In these circumstances, I find that both rescission notices were invalid.

47 The above reasons are sufficient to dispose of the question for determination. However, the following further matters support this conclusion.

48 First, reasonable persons in the position of the purchasers would have known that the vendor had expressed varying views as to the due date for payment of the balance of the purchase price. In circumstances where the vendor and its solicitors were adopting inconsistent positions in their dealings with the purchasers and their conveyancer, it was reasonable for the purchasers to entertain a doubt as to this essential feature of the rescission notices.

49 Second, the rescission notices are replete with typographical errors and resulting cross-referencing anomalies.

50 Third, the rescission notices state that the contract of sale 'will be rescinded pursuant to General Condition 28 of the Contract of Sale'. There is no such general condition. Special condition 28 has nothing to do with the matter. In argument, counsel for the vendor could not point to any condition of the contract of sale which the draftsman obviously intended to refer to.

51 Fourth, although not to the prejudice of the purchasers, the rescission notices specified the wrong balance of the purchase price. The rescission notices claim that the unpaid balance of the purchase price was $326,600. Although this is the balance stated in the particulars of sale, the acceptance by the vendor of a bank guarantee for the second instalment of the deposit meant that the whole of the purchase price, without any credit for the amount of the bank guarantee, was due and payable at settlement.

52 In my opinion, these additional matters reinforce the conclusion that a reasonable reader in the position of the purchasers would entertain the doubts to which I have referred.

53 In these circumstances, it is unnecessary to consider further matters which were argued. In particular, it is unnecessary to consider whether the vendor was in any event in a position to complete the sale on or after 5 November 2009. In that regard, a search of the relevant title discloses that it is encumbered by another caveat and was the subject of a 'notice of action' placed by the Registrar.

54 Finally, these reasons should not end without comment as to the conduct of the vendor's solicitors. This case presents an example of extremely sloppy conveyancing practice. It is not just the drafting of the rescission notices which is the problem; it is the whole conduct of the vendor's solicitors, and the ambiguities arising as a result.

55 I will accordingly declare that the two rescission notices are invalid. The purchasers should be given an opportunity to complete the purchase. Of course, if they are served with a valid rescission notice before they do so, they will need to comply with it in order to avoid rescission of the contract.

56 The purchasers have at no stage made a tender of the balance of the purchase price. In these circumstances, they should pay interest under the terms of the contract from the due date for settlement, 5 November 2009.

57 I will hear the parties as to the precise form of the declaration and orders, and as to costs.

[2] Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451, [22]; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165, [40].

[3] Gardiner v Agricultural and Rural Finance Pty Ltd [2007] NSWCA 235, [11]-[13] (Spigelman CJ).

[4] Hillas & Co Ltd v Arcos Ltd [1932] UKHL 2; [1932] All ER 494, 499, 503-4; Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd [1968] HCA 8; (1968) 118 CLR 429, 437; Di Dio Nominees Pty Ltd, v Brian Mark Real Estate Pty Ltd [1992] VicRp 99; [1992] 2 VR 732, 740; MLW Technology Pty Ltd v May [2005] VSCA 29, [76]-[81]; Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] UKHL 19; [1997] AC 749, 770-1.

[5] ABC v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99, 109.

[6] Wilkie v Gordian Runoff Ltd [2005] HCA 17; (2005) 221 CLR 522, [16].

[8] Supreme Court (General Civil Procedure) Rules 2005.

[9] [2004] NSWSC 310, [30]-[35].

[10] (1981) V ConvR 54-003.

[12] (1998) V ConvR 54-575.

[14] [2003] VSCA 27, [31].