Portbury Development Co Pty Ltd v Ottedin Investments Pty Ltd & Ors [2014] VSC 57

Supreme Court of Victoria|2014-02-28|Before: GARDE J

REAL PROPERTY - Issue estoppel - Anshun estoppel - Privies - Whether nominee and guarantors are privies - Effect of rescission notices - Sale of Land Act 1962 (Vic) ss 29A(1) and 29O(2) - General conditions 25, 26 and 28.4(c)(ii) - Mitigation of damages - Implied term to resell property in a reasonable manner - Effect of Global Financial Crisis on market for englobo land - Valuation - Vendor acted in a reasonable manner on resale - Loss due to deficiency in price on resale - Award of damages.

1 In December 2008, Portbury Development Co Pty Ltd ('Portbury') entered into a contract of sale ('the sale contract') of 8.15 hectares of broadacre land at 20 Lecky Road, Officer ('the property') to Ottedin Investments Pty Ltd ('Ottedin') for $6.5 million. Ottedin paid a deposit of $325,000. Subsequently, Ottedin nominated Goldcare Developments Pty Ltd ('Goldcare') to take the transfer of the property from Portbury. In December 2009, Portbury, Ottedin and Goldcare varied the contract to provide for the deposit to be $1.325 million with the balance of deposit of $1 million to be paid no later than 31 January 2010, a further interim payment of $3.675 million payable 150 days after rezoning of the property or settlement (whichever was the earlier), and the remaining $1.5 million at settlement on 18 December 2010 ('the varied sale contract'). Peter Alan Ottewell ('Mr Ottewell') and George Kosta ('Mr Kosta') each gave a guarantee and indemnity in respect of the varied sale contract. The $1 million balance of the deposit was paid to Portbury, but Ottedin and Goldcare did not complete the varied sale contract.

2 On 17 January 2011, Ottedin and Goldcare sought to avoid the varied sale contract pursuant to s 29O(2) of the Sale of Land Act 1962 (Vic) ('the Sale of Land Act'). The purported avoidance of the varied sale contract was rejected by Portbury. On 18 January 2011, Portbury served a notice of default and rescission ('the first rescission notice') on Ottedin and Goldcare, and on Mr Ottewell and Mr Kosta. A second notice of default and rescission ('the second rescission notice') was served on the same parties on 31 March 2011.

3 On 15 April 2011, Ottedin issued a writ against Portbury and another party seeking to establish that it had avoided the varied sale contract under s 29O(2) of the Sale of Land Act ('the earlier proceedings'). Portbury was successful. The proceedings were summarily dismissed, and a caveat lodged by Ottedin over the title to the property was removed.[1]

4 Following the failure of Ottedin and Goldcare to complete the varied sale contract, Portbury came under increasing pressure from the National Australia Bank ('the Bank') to reduce its debt to the Bank. It appointed Knight Frank Australia Pty Ltd ('Knight Frank') to resell the property. Over April and May 2011, the property was offered for sale by tender together with four adjoining lots of land totalling approximately 49.2 hectares. Despite extensive marketing and advertising, including print- and web-based advertisements, brochures, and the erection of signage on each lot, the tender for the sale closed without any offers.

5 In June 2011, Portbury put the property back onto the market for auction as a separate block. Knight Frank undertook further marketing, including print- and web-based advertisements, sign boards and brochures.

6 The property was passed in at the auction on 29 June 2011. Only one non-vendor bid in the amount of $2 million was made at the auction. The bid was made by Mr Andrew Facey ('Mr Facey'), on behalf of Parklea (Estates) Pty Ltd ('Parklea'). Subsequently, the property was sold by Portbury to Parklea for $2.1 million ('the Parklea sale').

7 From 8 July 2011, negotiations took place between Mr Facey, Mr Khay Taing ('Mr Taing') and Ms Helen Li ('Ms Li'). On or about 31 October 2011, the property was on-sold ('the Biltex sale') by Parklea to Biltex Group Pty Ltd ('Biltex') for $6 million including an allowance for civil works of $500,000. By this time, three other investors had been introduced to Biltex and become shareholders in that company.

8 On 14 September 2012, Parklea and Biltex extended the settlement date for the property to 1 November 2012, and removed a condition as to obtaining a planning permit. On 20 December 2012, Parklea and Biltex extended the settlement date to 2 April 2014. $3.6 million remains to be paid on settlement. Biltex took possession of the property on 10 January 2013. Biltex is seeking a permit for the property from Cardinia Shire Council ('Cardinia') for a private hospital, hotel and assisted-living use.

9 In these proceedings, Portbury claims against Ottedin, Goldcare, Mr Ottewell and Mr Kosta for loss on the resale of the property of $4.4 million, less the deposit paid of $1,325,000, being a net loss of $3,075,000. It claims agent's commission on the resale (0.825% of the sale price) of $17,325. It also claims marketing expenses of $11,057.97, being approximately one-fifth of the marketing and advertising expenses incurred in the unsuccessful attempt to sell the property together with four other properties by tender closing 13 May 2011. It claims the further sum of $14,531.52 for marketing and advertising expenses incurred in the auction and sale of the property on 30 June 2011. It also makes alternative claims for interest on the unpaid settlement amount under general condition 26 of the varied sale contract of $26,584, or $154,186.64 depending on whether it was the first or the second rescission notice that was effective to bring the varied sale contract to an end. Finally, it claims interest on its losses under the Penalty Interest Rates Act 1983 (Vic), as amended.

10 Ottedin relies on its avoidance of the varied sale contract, and disputes the rescission of the varied sale contract by Portbury. It resists Portbury's claims of issue and Anshun estoppel, and advances its own claim of estoppel. It contends that the property should not have been sold at auction, and complains of various deficiencies in the tender process and the sale by auction. It says that Portbury sold the property to Parklea at too low a price. It says that Portbury acted in breach of its legal obligations to Ottedin, Goldcare, and the guarantors Mr Ottewell and Mr Kosta when it sold the property to Parklea. It alleges that Portbury acted unreasonably and in wilful or reckless disregard of the interests of the defendants by selling the property to satisfy the demands of the Bank.

11 Ottedin and Goldcare claim the refund of all monies paid by them or on their behalf. They claim the difference between what they say is the value of the property on or about 30 June 2011 and the resale price achieved by Portbury of $2.1 million plus GST. They say that any amount of damages recovered by Portbury should be reduced by the difference between the value of the property, and the resale price achieved by Portbury. They and the other defendants claim declarations that Goldcare avoided the varied sale contract, that the first and second rescission notices are invalid, and that Portbury improperly resold the property.

12 Kaduna Park is a 344-hectare property owned by Parklea. It adjoins the property. It is one of a number of properties in the Pakenham Corridor owned by companies associated with Mr Facey. Parklea and Mr Facey are large land developers. Mr Facey's companies own about 1,012 hectares and control about 1,416 hectares of land in the Pakenham area, having a value which he estimated at probably $300 million. He has recently completed an 1,100 lot subdivision at Heritage Springs in Pakenham, whilst others are underway. Mr Facey is also an experienced real estate agent with a commercial and industrial real estate office in Dandenong.

13 According to Mr James Michael O'Donahue ('Mr O'Donahue'), a senior project manager and civil engineer of SMEC Australia Pty Ltd, the Kaduna Park residential estate is to be serviced by a road to be constructed approximately 150m south of Lecky Road and to the west of Cardinia Road. This road is to be known as the Western Arterial Road. When constructed, the road will contain the services to be extended to the property.

14 The Kaduna Park residential estate is an 18-stage subdivision (Stages 1-16, 5A and 6A), and includes streets, local parks and the Western Arterial Road. A total of almost 770 lots are planned over an area of 54.15 hectares. The Kaduna Park residential estate will adjoin a future activity centre and community facility to be constructed on Cardinia Road.

15 The provision of infrastructure is expensive. Mr O'Donahue estimated the cost of infrastructure, services and charges to develop the 770 lots of the Kaduna Park residential estate at almost $64.85 million, or an average cost of around $84,228 per lot excluding GST. Part of the cost of construction of external water mains and sewers is recoverable from authorities. Likely development contributions are expected to amount to $200,000 per hectare.

16 The proposed Kaduna Park Town Centre is a 12.5-hectare site adjoining the Kaduna Park residential estate. An engineering report prepared by WBCM Pty Ltd concluded that there were no apparent significant constraints to the supply of utility services to the proposed town centre should the Kaduna Park residential estate be constructed prior to commencement of the town centre. In the event that this did not occur, major trunk service works would be necessary to ensure that water, sewerage and recycled water were available. They would include large water mains, large gravity sewer mains, a pump station and kilometres of rising mains to the Officer South Pump station. Telecommunications, and electricity substations would be necessary. Gas supply would be provided from Officer South Road, or south along Cardinia Road.

17 On the basis that the Western Arterial Road is constructed approximately 150 metres south of Lecky Road and to the west of Cardinia Road, and that the arterial road contained the services to be extended to the property on the south side of Lecky Road, Mr O'Donahue estimated that the cost of providing services to the property was between $520,000 and $700,000 (excluding GST).

18 From a time perspective, the development of the property is closely linked to the development of the Kaduna Park residential estate. It is the Kaduna Park residential estate that will bring infrastructure and services to the property, but at a very considerable cost. The Kaduna Park residential estate is owned by Parklea, and controlled by Mr Facey.

19 The property is located at 20 Lecky Road, Officer. It is described in Certificate of Title Volume 9646 Folio 711. The property is located south of the Princes Freeway (Pakenham Bypass), having frontage to Lecky Road and adjoining the road reserve of the Princes Freeway (Pakenham Bypass), Officer. It is vacant, apart from a residence and sheds.

20 The property is included within the Urban Growth Zone 2, and the Special Use Zone 4. It is subject to a Development Contribution Plan Overlay ('DPCO') - Schedule 3. As at 29 April 2011, a growth areas infrastructure contribution ('infrastructure contribution') of $502,784.30 was payable in relation to the property.

21 The property is within the area of the Cardinia Road Employment Precinct Structure Plan ('the structure plan') gazetted on 4 November 2010. The structure plan is incorporated into the Cardinia Planning Scheme as Amendment C130. The plan relates to approximately 590 hectares, and includes the land generally bounded by the Princes Freeway (Pakenham Bypass) to the north, Toomuc Creek to the east, the regional electricity transmission line easement to the south, and Gum Scrub Creek to the west.

22 Under the structure plan, the area will comprise the future uses of Service Business, Industrial, Commercial and Residential including high-density, medium-density and conventional residential. The majority of the industrial land will be located east of Cardinia Road, with the residential land concentrated west of the property in the north western portion of the precinct. Under 8% of the Precinct will comprise commercial land, with industrial use being the dominant use in the precinct.

23 The property fronts Lecky Road to the south. Under the structure plan, Cardinia Road is to be upgraded and duplicated. At the front of the property, Cardinia Road is planned to be a major arterial comprising six lanes. The majority of the property is designated as commercial with a small proportion along part of the western boundary earmarked for high-density residential. The western boundary of the property is impacted by an existing drainage line, and is incapable of development. It will remain as public open space.

24 Of a site area of 8.15 hectares, 4.7 hectares (or 58%) of the property is capable of use as commercial, and 1.48 hectares (or 18%) as high-density residential under the structure plan. The balance of the property is encumbered open space (1.95 hectares or 24%) or to be taken for road widening (0.02 hectares).

25 The property is located approximately five kilometres from the Pakenham City Centre, and 51 kilometres east of the Melbourne Central Business District ('CBD'). The property has excellent road networks, with the Princes Freeway (Pakenham Bypass) adjoining the property to the north. An egress and ingress both east- and west-bound is provided by Cardinia Road. The freeway provides direct access to the CBD. The property is located approximately one kilometre from the Cardinia Road train station.

26 Portbury acquired the property in October 2007 for $4.2 million plus GST. The acquisition was financed by a $5,199,879 bank bill facility from the Bank which included purchase costs and two years of capitalised interest. The facility was subject to a covenant in favour of the Bank that Portbury would maintain a maximum property finance loan to value ratio ('LVR') of 68% for all group entities ('Portbury Group').

27 In late 2008, Mr Ottewell approached Mr Portbury seeking to purchase the property. He offered $6.5 million with $325,000 payable on the day of sale, and the balance in 12 months, which was in December 2009. The sale contract was executed on 18 December 2008. A guarantee and indemnity was provided by Mr Ottewell. Thereafter, Portbury expected to receive the balance of $6.175 million due on settlement in December 2009.

28 On 27 March 2009, Ottedin nominated Goldcare as the substitute purchaser to take the transfer of the property. Under general condition 18 of the sale contract, Ottedin remained liable for the due performance of all of the purchaser's obligations under the sale contract despite the nomination. Mr Ottewell introduced the property to Mr Kosta, an experienced developer, and potential partner.

29 Late in 2009, Mr Ottewell and Mr Kosta went to see Mr Portbury. They told Mr Portbury that Ottedin was unable to settle on the due date under the sale contract in December 2009.

30 Following correspondence between legal advisers, the varied sale contract was agreed between Portbury, Ottedin and Goldcare on 23 December 2009. It provided for a total deposit of $1.325 million consisting of the $325,000 paid on the day of the sale, and the balance of $1 million to be paid no later than 31 January 2010. A payment of $3.675 million, described as an interim payment, was payable on the earlier of 150 days after rezoning (defined as the gazettal of the structure plan) or settlement. The settlement date was now to be 18 December 2010, when the balance of $1.5 million was to be paid. Two new special conditions were agreed. Special condition 1 provided for the infrastructure contribution to be payable by the purchaser. Special condition 2 contained an acknowledgement that the interim payment of $3.675 million would be paid to the Bank in reduction of the mortgage debt secured on the property. The balance of the deposit of $1 million was paid on 2 February 2010.

31 Ottedin and Goldcare did not complete the varied sale contract on 18 December 2010. They never did. On 17 November 2010, Goldcare's solicitors wrote to Portbury's solicitors seeking an extension of the due date for settlement for a further period of three months. On 25 November 2010, Portbury's solicitors declined to provide the extension of time, stating that the purchaser had had an additional 12 months from the original settlement date to secure funding. Portbury's solicitors advised that Portbury had to comply with its own banking covenants, and that the Bank "will not approve any extension beyond 18th December".[2]

32 In a letter dated 14 December 2010, Portbury's solicitors appointed 20 December 2010 for settlement of the varied sale contract, and provided a statement of adjustments.

33 By letter dated 15 December 2010, Goldcare's solicitors requested an extension of the date for settlement to 21 January 2011 on the ostensible basis that a certificate from the State Revenue Office showed that there was an infrastructure contribution of $652,000 payable in relation to the property and that "[t]his has obviously created major complications with our client's finance". The request for an extension of time was declined by Portbury's solicitors. They required settlement by 20 December 2010.

34 On 16 December 2010, Portbury's solicitors confirmed that settlement was to be at 2:00pm on Monday 20 December 2010 at the Bank, at Level 1, 120 Spencer Street, Melbourne. The settlement amount of $5,175,290.19 was to be payable to the Bank.

35 On the day nominated for settlement, Goldcare's solicitors advised Portbury's solicitors that Goldcare was not in a position to effect settlement. An extension until 17 January 2011 was requested to enable the purchasers to finalise their financial arrangements.

36 On 20 December 2010, Goldcare's solicitors referred to a notice under s 201UB of the Planning and Environment Act 1987 (Vic), which was registered on the relevant certificate of title on 1 July 2010. They asserted that Portbury was not in a position to provide clear title. Portbury's solicitors responded that the purchaser was responsible for any notice imposing liability on the property that was issued or made on or after the date of sale.[3] The sale contract was dated 19 December 2008, and the notice had been registered after the date of sale.

37 The correspondence from Goldcare was a charade. Goldcare could not complete the varied sale contract. In his evidence, Mr Kosta was entirely frank about the position. He said that a man had been employed to go round to banks in search of funding, and that none of them would lend on development land because of the financial crisis. Approaches had been made to all the major banks, as well as smaller banks including the Bendigo Bank and the Bank of Queensland. Not only were the banks not lending money, but they wanted to be paid back money that had previously been lent.

38 Goldcare's solicitors were able to arrange finance from Viking Capital Group Pty Ltd ('Viking'). On 2 December 2010, Viking made a proposal to lend Mr Ottewell and Mr and Mrs Kosta $5.8 million for a period of 12 months at an interest rate of 11.95% per annum, capitalised quarterly in advance, with an establishment fee of $95,700 (inclusive of GST), which equated to 1.65% of the gross loan amount. There was also an application consulting fee of $4,400 (inclusive of GST), payable on execution of the loan agreement. On 15 December 2010, Viking made a second proposal to Mr Ottewell and Mr and Mrs Kosta in the amount of $6 million, on similar terms and conditions.

39 On 17 December 2010, Goldcare's solicitor, in an email to Mr Ottewell, advised that Viking could still get the money by 5 January 2011, but that "every hour is now critical otherwise they will run out of time".

40 Mr Kosta graphically described the dilemma he was facing. The finance proposal came from "sharks from Sydney ... after the one years [sic], it's finished, you're in their hands and they skin you alive." He could not accept this situation. He did not like the finance terms and said that "[Mr Ottewell] who hasn't got anything accepted it, possibly." Mr Kosta acknowledged that Mr Ottewell may possibly blame him for the fact that they did not get finance. However, if they had got finance, they would have gone broke. If they went and borrowed money from the sharks, they would be in their hands on a one-year term. They couldn't settle the contract.

41 In his evidence, Mr Ottewell stated that Mr Kosta had a 60% interest in Goldcare, and that he had a 40% interest. Mr Kosta was the senior partner in terms of voting power. Mr Kosta was concerned about the size of the establishment fee and the short-term nature of the loan, and believed that he might not be in a position to meet the interest payable at the end of the 12-month period given his other commitments. He wanted to get out. Mr Ottewell wanted to continue. Mr Ottewell was confused as to Mr Kosta's position. Mr Kosta had been happy to pay the $1 million deposit, and the structure plan had been gazetted. All approaches by Mr Kosta and Mr Ottewell to find partners, or alternative purchasers, were unsuccessful.

42 On 22 December 2010, Mr Kosta retained Knight Frank through Mr Leigh Morris ('Mr Morris') of that firm to on-sell the property for $6.5 million to $6.8 million. Knight Frank spoke to a number of potential purchasers. None was interested.

43 In December 2010 or January 2011, Mr Ottewell had a discussion with Mr Taing about selling the property to him and his partner Ms Li for $6.5 million. Mr Taing had recently committed to a nearby development site, and was active in buying and selling broadacre land for development.

44 On 12 January 2011 at 10:28am, Portbury's solicitor advised Goldcare's solicitor that Portbury agreed to settle on Monday 17 January 2011, provided that Goldcare agreed to pay interest under general condition 26 and paid Portbury's costs for re-arranging settlement.[4] Settlement was scheduled for 3:30pm on Monday 17 January 2011 at the Bank at Level 1, 120 Spencer Street, Melbourne.

45 On the same day, at 12.13pm, Portbury's solicitor emailed Goldcare's solicitor seeking confirmation whether Goldcare agreed to Portbury's offer to extend the settlement date of 17 January 2011, adding that unless Portbury's offer was accepted by 3:00pm, a notice of rescission for the failure of the purchaser to settle on 20 December 2010 would be served.

46 Goldcare's solicitors responded noting the extension granted to 17 January 2011 and agreeing to pay interest pursuant to general condition 26 and reasonable costs for re-arranging settlement. They requested advice as to the amount of the vendor's costs. They advised of the preparation of vendor statements, a settlement statement and a statement of adjustments.

47 Goldcare and Ottedin were again unable to settle. Portbury's solicitors duly attended the Bank for settlement at 3:30pm. No-one attended on behalf of Goldcare and Ottedin. They could not settle.

48 At 4:51pm on 17 January 2011, Goldcare's solicitor emailed and sent by facsimile a letter to Portbury's solicitors which purported to avoid the varied sale contract on the basis that it was a terms contract for the purposes of the Sale of Land Act. The letter asserted that Goldcare was entitled to avoid the varied sale contract under s 29O(2) of the Sale of Land Act, and did so. All money paid by Goldcare under the varied sale contract was to be repaid within the next seven days. From this time on, Goldcare has maintained the position that the varied sale contract was rescinded on 17 January 2011, and that Goldcare and Ottedin are entitled to repayment of all monies paid under the sale contract, and the varied sale contract.

49 Later that day, Portbury's solicitor responded to the effect that the issue of a terms contract was addressed at the time of the variation, and that the varied sale contract was not a terms contract. He complained about Goldcare's solicitors' failure to take calls or to confirm settlement arrangements. He asserted that Goldcare's request for an extension of time was a ruse to buy time.

50 On 18 January 2011, Portbury's solicitor served the first rescission notice. It was addressed to Ottedin and Goldcare, and to the guarantors, Mr Ottewell and Mr Kosta. It referred to the due date of 17 January 2011, and stated that, unless the balance due under the varied sale contract was paid, together with interest and costs, within 14 days of the service of the notice, the contract would be rescinded pursuant to general condition 28. Service of the first rescission notice on all of the defendants is not disputed.

51 In his evidence, Mr Portbury recalled having a telephone conversation with Mr Ottewell around 18 January 2011 in which Mr Ottewell asked for more time to settle. Mr Portbury said that when Mr Ottewell rang he did not know how to respond. He said that he would talk to his lawyer. Subsequent communications were to be through Portbury's solicitors. The 14-day period of the first rescission notice expired without further response from the defendants.

52 During the period of the first rescission notice, Mr Portbury was contacted by Mr Morris of Knight Frank. Initially, Mr Portbury told him that he could not talk to him as the contract was still on foot. After the varied sale contract was rescinded, Mr Portbury was in contact with Mr Morris again and asked Knight Frank to present to Portbury on the best way to resell the property.

53 According to Mr Ottewell, in or about early March 2011, Mr Portbury rang him. He said that Mr Portbury told him that "the bank was pushing him hard", and that Mr Ottewell "better come up with the money and settle this." Mr Ottewell responded "I am still interested in the property if I can buy it. I am looking for someone to come in with me to take George [Kosta] out. I am working on that with some people that I know are interested in the property". According to Mr Ottewell, Mr Portbury replied, "If you've got someone interested, get on with it, because if you can come up with the balance of the purchase price, you can still have the property." Mr Ottewell responded: "I'm working on it, I just need some time to get it over the line." Mr Portbury replied, "Okay, but get back to me as soon as you can."

54 Mr Portbury's recollection of this telephone conversation with Mr Ottewell in March 2011 was different in a number of respects. He agreed that he told Mr Ottewell that the Bank was pushing him hard, and that he told Mr Ottewell that the property was going for auction, that it was going to be sold, and that "[i]f there is a shortfall, we will be looking to you for the difference." Mr Portbury accepted that Mr Ottewell said, "Why should there be a shortfall? We have an $8.1 million valuation as at December [2010]." Mr Portbury says he responded "where did the valuation come from?" Mr Ottewell said that he was looking for someone to come in with him. He suggested that Mr Portbury should be his new partner. Mr Portbury dismissed this suggestion.

55 Late in March 2011, Portbury's solicitor expressed doubt as to whether the first rescission notice had been properly served (although in fact it had been). Out of an abundance of caution, Mr Portbury gave instructions to serve a second rescission notice.

56 On 31 March 2011, the second rescission notice was served on each of the defendants. It was in an identical form to the first rescission notice. The 14-day period of the second rescission notice also expired without any response from the defendants.

Claim by Ottedin against Portbury for return of the deposit

57 The earlier proceeding was issued on 18 April 2011. Ottedin claimed that the varied sale contract was a terms contract as defined in s 29A(1) of the Sale of Land Act and was required to comply with s 29O(1) of that Act. The mortgage to the Bank had not been discharged within 90 days of the making of the contract. As the purchaser was not in default under the varied sale contract, it was alleged that Ottedin was entitled to avoid the varied sale contract and recover the deposit. In fact, the property had been encumbered by a mortgage to the Bank over the period from 23 December 2009, when the property was sold, until 17 January 2011, when Ottedin purported to rescind.

58 The parties to the earlier proceeding included Ottedin and Portbury. Goldcare, Mr Ottewell and Mr Kosta were not parties to the earlier proceeding. The earlier proceeding was initiated by Ottedin alone. Goldcare could have been named as a co-plaintiff.

59 By summons dated 6 May 2011, Portbury sought summary dismissal of the earlier proceeding, and the removal of a caveat lodged by Ottedin over the title to the property ('the caveat').

60 The summons was heard by Dixon J sitting in the Practice Court on 13 May 2011. Judgment was handed down on 27 May 2011.[5] The affidavits filed in support of the summons referred to the second rescission notice, but did not make mention of the first rescission notice. At no stage was his Honour informed that there was a first rescission notice.

61 In his judgment, his Honour recorded the agreement of the parties for different reasons that the varied sale contract was now at an end. Portbury alleged that it had validly terminated the contract, while Ottedin contended that it had avoided the contract under s 29O(2) of the Sale of Land Act.[6]

62 Dixon J noted that when the summons was called on pleadings were not closed, and the defendants had not filed defences. There was no relevant factual dispute.[7]

63 His Honour held that there was no need for a trial to resolve the proceeding. Ottedin was in default as particularised in the second rescission notice. The validity of the second rescission notice was not challenged and the default described in it was not remedied.[8]

64 Dixon J held that the varied sale contract was not a terms contract as defined by s 29A of the Sale of Land Act. There was no ambiguity or uncertainty in the definitions of 'deposit' and 'final payment' adopted in that section. There was no relevant unsatisfactory consequence.[9]

65 His Honour held that the second payment of $1 million made in February 2010 was a deposit. It was plain that the deed of variation created a deposit for the transaction that was to be effected by two payments. The purchaser initially defaulted on a very substantial transaction, having removed the vendor's property from the market for a year. A re-negotiating vendor was entitled to increase the deposit, as Portbury did, as assurance of the purchaser's willingness to commit a second time to that transaction. As the contract made clear in its terms, the parties characterised the second payment of $1 million in February 2010 as a deposit. Being a payment made to the vendor before the purchaser became entitled to possession, it was a deposit within the plain language of s 29A. On this basis, Dixon J stated that it was fanciful to contend that the second payment was not deposit.[10]

66 His Honour considered that there was an air of unreality about the third payment, which was not made and fell into the residue - the final payment. The contingent obligation to make the interim payment was either an obligation to make a payment which was a deposit, or if the contingency failed, it was part of the final payment. The characterisation of these payments by the contract was clear and unambiguous. His Honour held that, even if the payment was a payment obligation prior to settlement, there was only one such payment, which did not satisfy the definition of a terms contract under s 29A of the Sale of Land Act.[11]

67 Ottedin's contention that the varied sale contract was a terms contract was fanciful. His Honour concluded:[12]

In Project Blue Sky Inc v Australian Broadcasting Authority the High Court explained that the duty of the court is to give the words of a statutory provision the meaning that the legislature is taken to have intended them to have which, ordinarily, will correspond with the grammatical meaning of the provision. Here, there is no difficulty in undertaking that assessment. In my view, the just, efficient, timely and cost effective resolution of the issues in this proceeding, bearing in mind the consideration specified in s 9 of the Civil Procedure Act 2010, is to order that the proceeding be summarily dismissed. The plaintiff's contention that the contract was a terms contract is fanciful. I would go further. Had Part 4.4 of the Civil Procedure Act 2010 not been enacted, I would, applying the old law, find the contention that the contract was a terms contract to be hopeless, hopelessly untenable and bound to fail. I would add that as a major commercial transaction conducted between apparently experienced parties with the assistance of professional advisors, it is hardly surprising the evidence reveals that the parties had alluded to the risk of creating a terms contract. I reject the suggestion that the definition of deposit, which is unambiguously clear and workable in establishing that this contract is not a terms contract, should be rendered uncertain in the manner proposed by the plaintiff.

68 There was a second reason why Ottedin could not avoid the varied sale contract under s 29O(2) of the Sale of Land Act. It was in default when it purported to avoid the varied sale contract on 17 January 2011, having failed to attend settlement and complete at 3:30pm that day.[13]

69 On 27 May 2011, Dixon J gave judgment for Portbury against Ottedin with costs, and ordered that the caveat lodged on the title to the property be removed.

70 The judgment of Dixon J resolved the issues in the earlier proceeding by holding that:

(a) the varied sale contract is not a terms contract as defined in s 29A of the Sale of Land Act;

(b) on and from 3:30pm on 17 January 2011, Ottedin was in default under the varied sale contract for having failed to attend and complete that contract at settlement;

(c) Ottedin's avoidance of the varied sale contract took place after it had failed to attend settlement of the varied sale contract;

(d) the default established by Portbury was the failure by the defendants to pay to Portbury the balance due under the varied sale contract by the due date (17 January 2011);

(e) Portbury validly rescinded the varied sale contract;

(f) there was no serious issue to be tried that Ottedin had a caveatable interest; and

Each of these issues is legally indispensable to the judgment and orders of his Honour.

71 In reconsidering these issues, I am bound by the principles of stare decisis and am obliged to follow a previous decision of a single judge of the Supreme Court unless I am persuaded that the earlier decision of the Court is clearly wrong.[14] The decision of Dixon J in the earlier proceeding is such a previous decision of the Court. As will appear, I do not consider his Honour's decision to be clearly wrong. To the contrary, I consider the decision of Dixon J to be correct on the issues decided by his Honour that were sought to be re-argued before me.

72 Section 29A of the Sale of Land Act provides:

(1) For the purposes of this Act a contract is a terms contract if it is an executory contract for the sale and purchase of any land under which the purchaser is―

(a) obliged to make 2 or more payments (other than a deposit or final payment) to the vendor after the execution of the contract and before the purchaser is entitled to a conveyance or transfer of the land; or

(b) entitled to possession or occupation of the land before the purchaser becomes entitled to a conveyance or transfer of the land.

deposit means a payment made to the vendor or to a person on behalf of the vendor before the purchaser becomes entitled to possession or to the receipt of rents and profits under the contract;

final payment means a payment on the making of which the purchaser becomes entitled to a conveyance or transfer of the land.

73 Mr Bick QC renewed the arguments that the varied sale contract was a terms contract as defined in s 29A, now on behalf of all defendants. He reiterated many of the arguments that were put to Dixon J:

(a) the second and third payments (viz the further payment of $1 million due by 31 January 2010 and described in the varied sale contract as part of the deposit, and the interim payment of $3.675 million) constituted two payments (other than a deposit or final payment) made to the vendor after execution of the contract before the purchaser is entitled to a transfer of the land;

(b) the characterisation of the further payment of $1 million under the deed of variation as part of the deposit, or as an increase in the deposit must fail;

(c) the logic employed by Dixon J would mean that provided the purchaser did not become entitled to possession or receipt of the rents and profits until final settlement, there could be any number of payments made after the payment made on the signing of the contract and prior to settlement, and if they were described as deposit, or increased deposit, the contract could not become, and would not be a terms contract; and

(d) the third payment, if paid at settlement, would not entitle the purchaser to a transfer or possession of the property. Only payment of the final payment at settlement would do so. Under general condition 10.1(b)(ii) of the varied sale contract, the purchaser would not be entitled to either a transfer or vacant possession of the property until settlement by payment of the final payment.

74 I reject the renewed arguments for the contention that the varied sale contract was a terms contract. The second payment of $1 million was intended by the parties to be part of the deposit, and was so described in the varied sale contract. There were not two or more payments other than a deposit or final payment before the purchaser became entitled to a transfer of the property. The purchaser was not entitled to possession or occupation of the property before it became entitled to a transfer of the property.

75 I agree with the analysis and conclusions arrived at by Dixon J in the earlier proceeding.

76 Historically, a deposit paid under a contract of sale serves two purposes. If the sale is completed, it counts as part-payment of the purchase money; but primarily it is a security for the performance of the contract. Unless the contract taken as a whole shows an intention to exclude forfeiture, the vendor is entitled, by virtue of the purpose of the deposit, to retain it as forfeited if the contract goes off due to the purchaser's default.[15]

77 In the Appendix, the history of the Sale of Land Act as it relates to the protection of deposits is briefly summarised. The legislative expansion of the concept of a deposit beyond that found in the common law is intended to give greater protection to purchasers in relation to moneys paid prior to the completion of a contract. I reject Mr Bick QC's argument that some adverse consequence may follow if the two payments are permitted to form part of the deposit as the parties agreed in the varied sale contract. The payments that constitute the deposit are protected by the provisions contained in Divisions 3 and 4 of Part 1 of the Sale of Land Act, and the important legislative scheme that this legislation embodies.

Were Ottedin and Goldcare in default when the varied sale contract was avoided under s 29O(2)(b) of the Sale of Land Act?

78 In the email sent by Portbury's solicitors on 12 January 2011 at 10:28am, Portbury agreed to settle on Monday 17 January 2011, provided that the purchaser paid interest pursuant to general condition 26 and paid the costs of the vendor for rearranging settlement. By an email sent at 11:08am on the same day, Portbury's solicitor rescheduled settlement for Monday 17 January 2011 at 3:30pm at the Bank, Level 1, 120 Spencer Street, Melbourne. Following a further email sent at 12:13pm by Portbury's solicitor, Goldcare's solicitor noted the extension granted to 17 January 2011 and agreed to the conditions proposed by Portbury's solicitor. Goldcare's solicitor requested advice as to the reasonable costs of rearranging settlement and advised of the preparation of vendor statements, a settlement statement and a statement of adjustments.

79 General condition 10.3 of the varied sale contract provides:

Settlement must be conducted between the hours of 10:00 a.m. and 4:00 p.m. unless the parties agree otherwise.

80 Mr Bick QC argued that settlement could have occurred any time up to midnight on 17 January 2011, and that therefore Ottedin and Goldcare were not in default until midnight.

81 I reject this argument. The parties were not at large as to when settlement was to occur on 17 January 2011. General condition 10.3 required settlement to occur between 10:00am and 4:00pm unless there was agreement between them as to another time.[16] There was no request, let alone agreement, to conduct settlement after 4:00pm on the settlement day. As a result, settlement had to be conducted by 4:00pm. There is no ambiguity or uncertainty as to the construction of general condition 10.3 - a standard condition in contracts for the sale of land.

82 As a result of the arrangements made by the solicitors for the parties, settlement was appointed for 3:30pm on 17 January 2011. Ottedin and Goldcare defaulted under general condition 10.1, which required the purchaser to pay the balance of purchase price at settlement. The default consisted of the failure of the purchaser to attend settlement and pay the balance of purchase the price.

83 Mr Bick QC also argued that the offer made by Portbury's solicitor at 10:28am on 12 January 2011 was in terms that the vendor agreed to settle provided that the purchaser paid interest pursuant to general condition 26, and the costs of the vendor for rearranging settlement. He argued that it was conditional and not sufficient to reinstate time as being of the essence. He submitted that the response at 2:31pm on 12 January 2011, by which Goldcare "notes the extension granted to 17 January 2011" and "agrees to pay interest pursuant to general condition 26 and to your reasonable costs for rearranging settlement", was insufficient to reinstate time as being of the essence. As a result, the agreement to settle on 17 January 2011 was not an agreement that required anything other than settlement on that day. It did not have to be at any particular time on that day, and it did not make time of the essence.

84 I reject Mr Bick QC's argument that the offer made by Portbury's solicitor by email at 10:28am on 12 January 2011 to extend time to 17 January 2011, as accepted by Goldcare's solicitor in the email sent at 2:31pm on 12 January 2011, was in any way ineffectual because time had ceased to be of the essence. Time was of the essence, and continued to be of the essence. The fact that a vendor does not immediately serve a rescission notice on every occasion on which the contract is not settled does not mean that the vendor has waived the right to rescind for non-payment of the purchase money. There was no waiver by Portbury, and time remained of the essence.[17]

85 In a contract where the parties have stipulated that time is of the essence, a mere extension of time where a new date is substituted for the agreed date does not result in time ceasing to be of the essence, either for performance of the obligation in respect of which the extension is granted or in respect of the performance of other obligations.[18]

86 Here, there was an agreed extension of time between the solicitors for the parties fixing 17 January 2011 as the date for settlement. By further email at 2:54pm on 12 January 2011, Portbury's solicitors acted on the agreed extension by inviting submission of the amended statements so that they could be checked.

87 Subsequently, the defendants did not dispute the accuracy of the default described in the second rescission notice. This is the same default as is described in the first rescission notice. They did not contend that there had been no extension of the settlement date to 17 January 2011 or that by that stage time had ceased to be of the essence. There was no argument to this effect advanced by counsel to Dixon J sitting in the Practice Court on 13 May 2011 or at any time in the earlier proceeding.

88 For these reasons, the purported avoidance by the purchaser of the varied sale contract under s 29O(2)(a) of the Sale of Land Act was void and of no effect. The varied sale contract is not a terms contract, and the purchaser was in default when the varied sale contract was purportedly avoided.

89 The first rescission notice is admitted to have been served on all of the defendants. The default described in the first rescission notice is proven on the evidence before me. The defendants failed to settle the varied sale contract on 17 January 2011. They failed to comply with the first rescission notice. Therefore, the first rescission notice was effective to rescind the varied sale contract.

90 The second rescission notice was served because there was doubt at the time as to whether the first rescission notice had been properly served on all defendants. The second rescission notice was served out of an abundance of caution.

91 Between the expiration of the first rescission notice and the service of the second rescission notice, no party acted in any respect in pursuance of the varied sale contract. Ottedin and Goldcare acted on the basis that they had avoided the varied sale contract. Portbury acted on the basis that it had rescinded the varied sale contract and that it was no longer on foot.

92 There was no waiver of the condition of the varied sale contract that time was of the essence over the short period that constituted the Christmas break when solicitors' offices were closed. The fact that the time for settlement was extended by agreement between the parties to a later date does not amount to a waiver of a condition that time is of the essence.[19]

93 The first rescission notice expired without any attempt by the defendants to address the default described in it. Their position was that the contract had already been avoided by them on 17 January 2011, so that they had no need to take any step to comply with the first rescission notice.

94 As a result, the varied sale contract was rescinded after the expiration of the 14-day period allowed by the first rescission notice. The effect of the expiration of the period was that the first rescission notice took effect "automatically", and the varied sale contract came to an end.[20]

95 The second rescission notice followed the discussion between Mr Portbury and Mr Ottewell in March 2011.[21] In this conversation, at the highest, Mr Portbury said to Mr Ottewell that if he could come up with the balance of the purchase money, he could still have the property. This was no more than an invitation by Mr Portbury for Mr Ottewell to put a proposal for the property. It was not suggested, and did not mean that either party treated the varied sale contract as being on foot. In fact, neither party did for different reasons.

96 Nothing came of the telephone conversation in March 2011 between Mr Portbury and Mr Ottewell. No proposal was ever put by Mr Ottewell. Within a month, Ottedin commenced proceedings seeking to recover the deposit monies.

97 In Rona v Shimden,[22] a vendor under a contract of sale, claiming to have terminated the contract, gave notice to complete which was expressed to be without prejudice to its contention that the contract was terminated. White J elegantly summarised the legal consequences of what had been done:[23]

However, the second notice to complete was given without prejudice to the earlier termination on 13 February, 2004. As counsel for the vendor submitted, it is possible for a party who has terminated a contract to give a notice to complete without prejudice to its rights to treat the contract as at an end pursuant to its earlier termination. Lohar Corporation Pty Ltd v Dibu Pty Ltd (1976) 1 BPR 9177 was such a case. The giving of a notice to complete may give rise to an estoppel which precludes the party giving the notice from asserting that the contract has been terminated. Here, the purchaser did not do anything consequent upon the service of the notice which could create such an estoppel. Estoppel aside, the service of a notice to complete without prejudice to a prior notice of termination takes effect as an offer to revive the agreement, capable of being accepted by performance in accordance with the terms of the notice to complete: Lohar Corporation Pty Ltd v Dibu Pty Ltd (1976) 1 BPR 9177 at 9184, 9187.

98 In Naval and Military Club v Southraw,[24] Byrne J accepted this analysis in the context of the facts before him.

99 In the present case, as in Rona v Shimden, the purchaser did not do anything consequent upon the service of the second rescission notice that could create an estoppel. There was no material change of position or reliance by either Ottedin or Goldcare. Neither Ottedin nor Goldcare sought to remedy the default set out in the second rescission notice. There was no attempt to complete or perform the varied sale contract. The period allowed in the second rescission notice simply expired without any action or response by the purchaser.

(a) Goldcare continued to rely on the termination letter of 17 January 2011 under s 29O(2) of the Sale of Land Act, treating the varied sale contract as at an end;

(b) Ottedin withdrew the previous purchaser's caveat, and on 7 March 2011 lodged a new caveat to secure the return of the deposit on the basis that the contract had been avoided;[25] and

(c) Ottedin brought proceedings on 18 April 2011 to seek to recover the deposit monies on the basis that the varied sale contract had been avoided.

101 In the earlier proceedings, Portbury relied on the second rescission notice. It was produced as exhibit RMP-6 to the affidavit of Mr Portbury sworn 6 May 2011, and is referred to in paragraph 17 of that affidavit. It is also referred to in paragraph 52 of the affidavit of Francis James Lynch sworn 10 May 2011, filed by Portbury. Neither rescission notice is referred to in the affidavit of Peter Gigliotti sworn 12 May 2011, and filed by Ottedin.

102 The first rescission notice was not in evidence before Dixon J. There is no reference to it in the transcript or in the judgment of the court.

103 The issue whether it was the first rescission notice or the second rescission notice that terminated the varied sale contract was not argued or decided in the earlier proceedings, which were concerned with Ottedin's avoidance of the varied sale contract under s 29O(2) of the Sale of Land Act, and with the removal of Ottedin's caveat. It was commercially expedient for both parties that the status of the varied sale contract and of the property be resolved as expeditiously as possible, and a decision made as to the total deposit paid of $1.325 million.

104 The following is a summary of the key conclusions that I have reached concerning the termination of the varied sale contract:

(a) the notice of avoidance given by the purchaser on 17 January 2011 was ineffective to avoid the varied sale contract, as that contract was not a terms contract under the Sale of Land Act and the purchaser was in default under that contract at the time when the notice of avoidance was served;

(b) the varied sale contract was terminated by the first rescission notice, on the expiration of the time allowed in that notice;

(c) the conversation in March 2011 between Mr Portbury and Mr Ottewell did not affect the termination of the varied sale contract by the first rescission notice, as the purchaser did not attempt to complete or perform the varied sale contract or engage in any conduct responsive to the March 2011 conversation;

(d) the service of the second rescission notice did not affect the termination of the varied sale contract by the first rescission notice, as the purchaser did not attempt to remedy the default described in it, materially change its position or engage in any conduct responsive to that notice; and

(e) the varied sale contract was terminated on or about 1 February 2011 and never subsequently revived.

105 Both the purported avoidance by the purchaser under s 29O(2)(b) and the failure of the purchaser to complete on 17 January 2011 were repudiations capable of forming the basis for rescission of the varied sale contract as well as a claim for general damages. However, Portbury chose not to rescind on the basis of the repudiations on 17 January 2011. It chose to affirm and require Ottedin and Goldcare to complete the varied sale contract. This was because it wanted the varied sale contract completed in order to reduce its bank debt. Portbury remained willing to accept completion of the varied sale contract even as late as March 2011. It served the first and second rescission notices pursuant to general condition 27 of the general conditions of the varied sale contract. It now seeks to recover the deficiency in the price on resale of the property, as well as expenses by way of liquidated damages under general condition 28.4(c)(ii) of the general conditions. Portbury does not seek to recover any liquidated damages falling outside the scope of general condition 28.4(c)(ii) of the general conditions. It has no need to claim general damages, not having sustained any class of loss other than a deficiency in the purchase price, expenses and interest.[26]

What is the position of the parties following the judgment of Dixon J in the earlier proceeding?

(a) in the earlier proceedings, Ottedin and Portbury were the only relevant parties. Goldcare was not a party, nor were the guarantors, Mr Ottewell and Mr Kosta;

(b) Portbury sought summary dismissal, and removal of the caveat which precluded the sale of the property;

(d) Portbury could have elected to bring a counterclaim in the earlier proceeding against the guarantors, Mr Ottewell and Mr Kosta, so as to bind them by the outcome; and

(e) the guarantors are entitled to raise an Anshun estoppel against Portbury, even though not parties to the earlier proceeding.

107 In the earlier proceeding, Ottedin and Portbury were the only relevant parties. Goldcare, Mr Ottewell and Mr Kosta were not parties.

108 Mr Bick QC submitted that Portbury should now be considered estopped in any proceedings against Goldcare, Mr Ottewell or Mr Kosta on the basis of the principle set out in Port of Melbourne Authority v Anshun Pty Ltd.[27]

109 The Anshun principle arises where a given matter is the subject of litigation and adjudication by a court of competent jurisdiction. The court requires the parties to that litigation to bring forward their whole case, and will not permit the same parties to open the same subject of litigation in respect of a matter which might have been brought forward as part of the subject matter in contest, but which was not brought forward only because they have from negligence, inadvertence, or accident, omitted part of their case.[28]

110 The principle is subject to limitations. There is no Anshun estoppel unless it appears that the matter relied on as a defence in the second action was so relevant to the subject matter of the first action that it would have been unreasonable not to rely on it. Generally speaking, it would be unreasonable not to plead a defence if, having regard to the nature of the plaintiff's claim and the subject matter it would be expected that the defendant would raise the defence and thereby enable the relevant issues to be determined in the one proceeding. There may be a variety of reasons why a party may justifiably refrain from litigating an issue in one proceeding yet wish to litigate the issue in a later proceeding for example expense, importance of the particular issue, and motives extraneous to the actual litigation.[29]

111 The Anshun principle extends to cases where the party asserting the Anshun estoppel was not a party to the first proceeding.[30] In Solak v Registrar of Titles,[31] the Court of Appeal held that it was not necessary in that case to decide whether special principles or a different test apply where the person asserting Anshun estoppel was not a party to the first proceeding. It was clear that the test is at least as strict as the test applicable in a case where the parties are the same.

112 The defendants claim an Anshun estoppel against Portbury arising out of the earlier proceeding. The earlier proceeding was commenced by Ottedin. It could have joined Goldcare as a plaintiff or defendant to that proceeding. It chose not to do so. It could have joined the guarantors Mr Ottewell and Mr Kosta as plaintiffs or defendants to that proceeding. Again it chose not to do so. Presumably Ottedin, as the purchaser under the varied sale contract, considered that it was sufficient if the proceeding was initiated in its name alone, and that there was no need to add the other parties. Given Ottedin's decision as to how the proceedings were to be commenced and conducted, it is hard to see why Portbury should be criticised for failing to do what Ottedin itself did not do.

113 Moreover, Portbury was a defendant in the earlier proceeding. It promptly sought summary dismissal, and issued an interlocutory application to that end. It wished to resell the property and needed the removal of the caveat lodged by Ottedin relating to the property. It was successful in its summary application obtaining both summary dismissal and removal of the caveat.

114 The earlier proceeding was issued on 18 April 2011. On 6 May 2011, Portbury issued a summons seeking summary dismissal and removal of the caveat. The summons was heard in the Practice Court on 13 May 2011. Dixon J reserved his decision and gave judgment on 27 May 2011. Final orders were made on the same day.

115 The earlier proceeding did not proceed to trial. No interlocutory steps were taken beyond Portbury's application for summary dismissal and removal of the caveat. Pleadings were never closed. Portbury took the shortest, most direct and least expensive route to obtain summary judgment and the dismissal of the earlier proceeding. It had no need to join additional parties or seek relief against them to achieve its purpose. The earlier proceeding was over in less than six weeks.

116 Goldcare had been nominated by Ottedin to take the transfer of the property. Under the doctrine of privity of contract, it was not a party to the varied sale contract. Until the property was sold, it was not known whether any recourse would be necessary to the guarantee executed by Mr Ottewell and Mr Kosta. While Mr Ottewell and Mr Kosta were the guarantors of the varied sale contract, it was not known in May 2011 that it would be necessary to call on the guarantees, or proceed against them. This was dependent on the sale price ultimately achieved for the property. It would have been premature and inappropriate to join them as parties in May 2011.

117 Nor can Portbury be estopped under the Anshun doctrine, or any other form of estoppel from relying on the first rescission notice. As at 13 May 2011, there was doubt on the part of Portbury's legal advisers as to whether the first rescission notice had been served on all of the defendants. In fact, it had, as is now conceded by the defendants, but this was not known to Portbury or its legal advisers at the time. As I have said, there were not yet pleadings, and the failure by either party to mention the first rescission notice in an interlocutory application before Dixon J does not operate as an estoppel from even relying on the first rescission notice. Given the doubt as to service of the first rescission notice, and the fact that the issue whether the first or second rescission notice rescinded the varied sale contract was not germane to the principal disputes before Dixon J, Portbury's conduct was reasonable and appropriate, and does not give rise to any estoppel or abuse of process.

118 No Anshun estoppel arises against Portbury on any basis. Portbury's conduct was reasonable and appropriate. There was no benefit in joining additional parties as defendants to its application for summary dismissal shortly after it was served by Ottedin with a writ. Joinder of additional parties would have been a needless distraction and was unnecessary having regard to the relief which Portbury sought, and the time frame which prevails in an interlocutory application for summary dismissal in the Practice Court prior to filing a defence.

119 There were good reasons why Portbury conducted the earlier proceeding in the manner in which it did. It was not established in May 2011 that it would incur a loss on resale. It was yet to call on the guarantees of Mr Ottewell and Mr Kosta for any loss on resale. It did not know as at May 2011 that it would need to take proceedings against all or any of the defendants seeking to recover the substantial losses ultimately suffered by it on the resale of the property. It would be premature to do so.

120 There is no abuse of process by Portbury in issuing and pursuing the current proceedings.[32] Portbury's object was to obtain summary dismissal of the earlier proceeding, remove the caveat and so free the property for resale. The earlier proceeding and the caveat were obstacles which Portbury needed to overcome to exercise its right of resale. As Mr Kirby put it, it was reasonable for Portbury to take a minimalist approach. It was not required at this early time to throw a net over everyone who was involved. Two proceedings were needed - the first to clear the way forward so that a resale could occur, and the second to recover any losses that might be incurred on resale.

Issue estoppel and res judicata - position of Goldcare

121 There can be no doubt that Ottedin is bound by the doctrines of res judicata and issue estoppel having regard to the judgment of Dixon J in the earlier proceeding.[33] It was the unsuccessful plaintiff in the earlier proceeding against Portbury. It is not open to Ottedin to dispute in the current proceeding the issues decided by Dixon J in the earlier proceeding.[34] They are conclusively decided against it.

122 The doctrines of res judicata and issue estoppel extend not only to the party actually involved in the prior proceedings but also to privies of that party.[35] The general rule is that a judgment does not bind a person who is not a party to the proceedings in which it is granted unless he is directed to be bound by it or is a privy of one of the parties.[36] Mr Kirby contended that Goldcare, as a substituted or nominee purchaser in place of Ottedin, was a privy of Ottedin. He also contended that Mr Ottewell and Mr Kosta, as the sole directors, shareholders, controlling minds and guarantors of Ottedin, were privies of Ottedin. Alternatively, he contended that Goldcare, Mr Ottewell and Mr Kosta had stood by during the earlier proceeding and were bound by a species of estoppel.[37]

123 The concept of privy is of considerable antiquity. There are three classes of privies.[38] Privies by blood include ancestor and heir; privies in law, which includes testator and executor, intestate and administrator, bankrupt and trustee in bankruptcy; and privies in estate or interest, the most common category. Privies in estate or interest include testator and devisee, vendor and purchaser, landlord and tenant, assignor and assignee of a bond.[39]

124 In order to establish the relationship of party and privy, it is not enough that the two persons have a similar interest in the property to which the estoppel relates, the privy must derive title from the party.[40] Likewise, in order that a judgment may be conclusive as against a person as privy in estate to a party in litigation, it is necessary to show that the privy derived title to the property subsequent to the judgment, or at least to the beginning of the proceeding, and that the judgment affected the property to which title was derived.[41]

125 In Ramsay v Pigram,[42] Barwick CJ held that the basic requirement of a privy in interest is that the privy must claim under or through the person of whom he is said to be a privy. In that case, the Government of New South Wales or the Police Department could not be said to be the privy of a police officer who carelessly drove a vehicle in the course of his employment as a constable in the Police Department of New South Wales.

126 On 27 March 2009, Goldcare was nominated by Ottedin as the substitute purchaser to take a transfer of the property in lieu of Ottedin. Under the nomination form as executed and under general condition 18 of the varied sale contract, both Ottedin and Goldcare were jointly and severally liable for the due performance of the obligations of Ottedin under the varied sale contract.

127 Goldcare was nominated by Ottedin to take the transfer of the property on 27 March 2009. This followed the purchase of the property by Ottedin on 18 December 2008. Goldcare's solicitors renegotiated the sale contract in December 2009 resulting in the execution of the varied sale contract on 23 December 2009. Goldcare's solicitors corresponded with Portbury's solicitors prior to 20 December 2010[43] when settlement of the varied sale contract was due to take place, and prior to, and on, 17 January 2011[44] when the postponed settlement was due to occur. The rescission notices were served on Goldcare on 18 January 2011. The earlier proceeding was issued and conducted on behalf of Ottedin by the same solicitors who were acting for Goldcare. Goldcare through its solicitors was closely involved in the sale contract, the varied sale contract and the earlier proceeding. While not a party to the earlier proceeding, Goldcare's solicitors acted for Ottedin throughout and arranged on its behalf for an ANZ bank cheque for $1 million to be provided to Portbury's solicitors. These funds were provided by Goldcare Eco Villages Pty Ltd, a company controlled by Mr Kosta as to 60% and Mr Ottewell as to 40%. Goldcare's directors were fully informed as to the circumstances of the proceedings. During argument before Dixon J on 13 May 2011, Senior Counsel for Portbury referred to Goldcare's position commenting that "it would be a simple matter to make Goldcare the plaintiff".[45] Neither party sought to do this, predominantly because it seemed to make little difference to the substantive issues to be determined by Dixon J whether Ottedin or Goldcare was the plaintiff.

128 The legal relationship between a substitute purchaser by nomination and the other parties to contracts for the sale of land or shares has been considered previously. In Salter v Gilbertson,[46] Phillips JA held on the construction of a contract for the sale of shares that the nominee clause "had in contemplation only the ordinary course of nomination, and not the rather special situation in which nomination results in the substitution of the purchaser."

129 Likewise, in 428 Little Bourke Street Pty Ltd v Lonsdale Street Cafe Pty Ltd,[47] Judd J held in the case of a nomination form identical to that in the present case that there was no change in the identity of the parties to the contract or their respective obligations. It was the intention of the parties to the instrument of nomination that the nominee's role was only to take a transfer in lieu of the purchaser.

130 In Commissioner of State Revenue v Politis,[48] Nettle J as his Honour then was stated that under most nomination clauses, the nominee would not acquire any rights as against the vendor, let alone the rights of a purchaser, for most nomination clauses constitute no more than a power of the purchaser to require a vendor to complete the transaction by transfer of the land to the purchaser's nominee. The nominee does not acquire any rights as against the vendor, because the nominee is not privy to the contract. For the same reasons, the nominee has no standing in equity to obtain an order for specific performance of the contract, but must sue in the name of the purchaser or join the purchaser as a defendant.

131 Nettle J described any interest, that the nominee may have in the land, as "one which derives from the purchaser, and relevantly the most that can be said is that the nominee may acquire an interest in the land equivalent to that which the purchaser had or would have had under the contract of sale."[49]

132 In my opinion, Goldcare has a privity of interest with Ottedin. To adopt the words of Nettle J, Goldcare can only acquire an interest in the land equivalent to that which Ottedin had or would have had under the varied sale contract. It follows as a necessary inference that Goldcare derives any interest it may acquire in the property under or through the interest of Ottedin as purchaser of the property. The circumstances therefore satisfy the test laid down in Ramsay v Pigram[50] and later authority to establish that Goldcare is a privy of Ottedin. It follows that, just as Ottedin is bound by issue estoppel as to the legally indispensible issues determined by Dixon J in reaching his conclusions set out in his judgment, so is Goldcare as the privy in interest to Ottedin. I have listed these issues above.[51]

Issue estoppel and res judicata - position of Mr Ottewell and Mr Kosta

133 Mr Kirby contended that Mr Ottewell and Mr Kosta were privies to Ottedin and bound by the judgment of Dixon J. His submissions as to their involvement may be summarised:

(a) Mr Ottewell is and at all relevant times was the sole director and shareholder of Ottedin, the purchaser of the property;

(b) Mr Ottewell and Mr Kosta are and were at all relevant times the only directors and shareholders of the nominee, Goldcare;

(c) Mr Ottewell and Mr Kosta were the controllers and directing minds of the two companies, and came together in a joint venture to try to settle and develop the property;

(d) according to an undated letter from Goldcare's solicitor to Mr Facey, Goldcare held the property on trust for Mr Ottewell and Mr Facey - Mr Ottewell stated that there was a trust deed or instrument and that Goldcare held the property "for two sub-companies";

(e) Goldcare assumed ownership of the purchaser's interest in the property and tried to sell the property through Knight Frank in December 2010;

(f) the finance offer in December 2010 from Viking was directed to Mr Ottewell and to Mr and Mrs Kosta, who were obliged to give guarantees under it;

(g) the $1 million deposit payment was funded by Mr Kosta through Goldcare Eco Villages Pty Ltd, a company controlled as to 40% by Mr Ottewell, and 60% by Mr Kosta;

(h) Mr Ottewell signed a guarantee and indemnity as part of the sale contract;

(i) Mr Ottewell and Mr Kosta each signed the nomination form on 27 March 2009 as directors of Goldcare; while Mr Ottewell signed for and on behalf of Ottedin also;

(j) Mr Ottewell and Mr Kosta each acted as guarantor for Ottedin and Goldcare of their obligations under the varied sale contract;

(k) Mr Ottewell and Mr Kosta were both served with copies of the rescission notices;

(l) the defendants failed to pay Portbury's claim; and

(m) Mr Kosta was intimately involved in the earlier proceeding as well as Mr Ottewell.

134 Mr Kirby submitted that while there were some authorities such as Sandtara Pty Ltd v Abigroup Ltd[52] that suggest that generally a guarantor is not bound by a judgment against the principal debtor, there was an exception to the general position in the case of parties such as Mr Ottewell and Mr Kosta who execute an indemnity and are on notice as to the dispute but "stand by and watch" and elect not to intervene. He relied on Jeans v Bruce,[53] House of Spring Gardens v Waite,[54] Thomas v Balanced Securities Ltd[55] and contended that Mr Ottewell and Mr Kosta were bound by a species of estoppel in these circumstances. Alternatively, he contended that to the extent that the guarantors sought to outflank the judgment of Dixon J in the earlier proceeding they were either bound by the result or alternatively were engaging in an abuse of process in trying to re-litigate the same case.[56]

135 Mr Bick QC contended that the guarantors were not the privies of either Ottedin or Goldcare. They had separate and distinct interests, legal rights and remedies.

136 A surety has not in the past been regarded as a privy of the principal debtor.[57] In Begley v Attorney-General (NSW),[58] Griffith CJ stated:

The law on the subject was explicitly laid down by the Court of Appeal in the case of Ex parte Young; In re Kitchin. The headnote to that case, which correctly states the effect of the judgments, is as follows:- "In the absence of special agreement a judgment or an award against a principal debtor is not binding on the surety, and is not evidence against him in an action against him by the creditor, but the surety is entitled to have the liability proved as against him in the same way as the principal debtor."

To like effect were the opinions of the other members of the Court.[59]

137 The decision in Begley was considered in Gracechurch Holdings Pty Ltd v Breeze.[60] As a result of earlier litigation, there were two judgments against the principal debtor and a guarantor. The question was whether either of the judgments was admissible in a separate proceeding against the second guarantor. The court held that the judgments were not binding or admissible in the separate proceeding, Pidgeon J referring expressly to the Begley decision.

138 In Ann Street Mezzanine Pty Ltd (in liq) v Beck,[61] Finkelstein J discussed the different rules and principles developed in the United States of America where close economic or financial connections are considered sufficient to establish privity, recognising however that this was not the law of Australia.[62]

139 These authorities have been followed in a number of cases including the Western Australian case of Clambake Pty Ltd v Tipperary Projects Pty Ltd (No 5)[63] where Heenan J helpfully summarises the current state of the law and in Jeans v Bruce,[64] a decision of Einstein J of the Supreme Court of New South Wales.

140 In Australian Associated Motor Insurers Ltd v NRMA Insurance Ltd,[65] Conti J held that a surety is not the privy of the principal debtor referring to Lloyds Bank Plc v Independent Insurance Co Ltd.[66] The same view was expressed by Stewart Maiden in his article "Recent Steps in the evolution of res judicata, cause of action estoppel and the Anshun doctrine in Australia".[67]

141 In Thomas v Balanced Securities Ltd,[68] the Queensland Court of Appeal concluded that the liability of a guarantor was not identical to that of a principal debtor with the result that a guarantor is not a privy, and is not bound by issue estoppel on an identical issue which affects him unless the guarantor is so closely associated with the subject matter of the proceedings and takes no steps to defend (or advance) his own interest (where he is in a position to do so).

142 Finally, in Sandtara Pty Ltd v Abigroup Ltd,[69] the New South Wales Court of Appeal consisting of Gleeson CJ, Meagher and Handley JJA held that a principal debtor does not claim through or under a guarantor and is not a privy of the guarantor.

143 Since the conclusion of the trial, the decision of Davies J of the Supreme Court of New South Wales in Commonwealth Bank of Australia v Ekes[70] has become available, although now the subject of a Notice of Intention to Appeal. Given the conclusions reached in this case, I invited counsel to make further written submissions concerning this decision.

144 Davies J referred to Champerslife Pty Ltd v Manojlovski[71] where Handley AJA said:[72]

I see no reason in principle why an issue estoppel binding on a company should not bind its controlling shareholder/director and vice versa where, as will generally be the case, the shareholder has a real financial "interest" in proceedings brought by the company. Nor do I see any reason why the converse should not also apply, although ordinarily a company will have no equivalent interest in proceedings by or against its controlling shareholder/director.

An alternative ground for reaching that result may be the principle that identity of parties is a matter of substance, not form. In Carl Zeiss (above) at 911 Lord Reid said:

"There does, however, seem to me to be a possible extension of the doctrine of privity as commonly understood. A party against whom a previous decision was pronounced may employ a servant or engage a third party to do something which infringes the right established in the earlier litigation and so raise the whole matter again in his interest. Then if the other party to the earlier litigation brings an action against a servant or agent, the real defendant could be said to be the employer, who alone has the real interest, and it might well be thought unjust if he could vex his opponent by relitigating the original question by means of the device of putting forward his servant."

On the other hand, in the same decision, Giles JA said:[73]

That Mr Lawrence was sole director and shareholder of Champerslife did not give rise to privity of interest in the sense considered in Ramsay v Pigram.

145 Davies J disagreed with the decision in Australian Associated Motor Insurers Ltd v NRMA Insurance Ltd,[74] where Conti J expressed the view that a surety was not a privy of either the principal creditor or the principal debtor referring to Lloyds Bank Plc v Independent Insurance Co Ltd[75] where the respective interests do not sufficiently coincide. His Honour saw nothing in Lloyds Bank Plc v Independent Insurance Co Ltd which justified the conclusion that was reached by Conti J. His Honour also disagreed with the views expressed in the article of Stewart Maiden.[76]

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