Supreme Court of WA|2006-08-16|Before: Templeman J

Shepherd & Anor v Baster [2006] WASC 176 (16 August 2006)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : SHEPHERD & ANOR -v- BASTER [2006] WASC 176

Equity - Specific performance - Sale of land - Verbal offer and acceptance followed by signed standard form agreement - Amendments to written agreement - Repudiation by vendor after amendment by purchaser - Whether contract formed and, if so, whether breaches justify a termination notice - Whether damages for alternative accommodation, additional building costs, loss of opportunity to subdivide - Same principles in law and equity

Bristol & West Building Society v Mothew [1998] Ch 1

Codrington v Codrington (1875) LR 7 HL 854

Grieve & Anor v Enge & Anor [2006] QCA 213

Johnson v Agnew [1980] AC 367

Neate v Parfitt [2006] WASC 121

Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd [1954] HCA 25; (1954) 90 CLR 235

Suttor v Gundowda Pty Ltd [1950] HCA 35; (1950) 81 CLR 418

Adams v Lindsell [1818] EWHC J59; (1818) 2 B & Ald 681; 106 ER 250

Anaconda Nickle Ltd v Tarmoola Australia Pty Ltd [2000] WASCA 27; (2000) 22 WAR 101

Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd [1988] 18 NSWLR 540

Bahr v Nicolay (No 2) [1988] HCA 16; (1988) 164 CLR 604

Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337

Darter Pty Ltd v Malloy [1993] 2 QR 615

Elizabeth City Centre v Corralyn [1994] SASC 5138; (1994) 63 SASR 235

Erley Pty Ltd v Gunzburg Nominees Pty Ltd (1998) Aust Contract R 90-093

Gibson v Manchester City Council [1978] 1 WLR 520

Green v Sommerville [1979] HCA 60; (1979) 141 CLR 594

Hadley v Baxendale [1854] EngR 296; (1854) 9 Ex 341; (1854) 156 ER 145

Jones v Barkley (1781) 99 ER 434

Marist Brothers Community v Harvey Shire Council (1994) 14 WAR 69

Nunin Holdings Pty Ltd v Tullamarine Estates Pty Ltd [1994] VicRp 3; [1994] 1 VR 74

Olympic Holdings Pty Ltd v Lochel [2004] WASC 61

Perri v Coolangatta Investments Pty Ltd (1982) 139 CLR 537

Redden v Wilks [1979] WAR 161

Rogan v Rushton [2003] QSC 9

Sansom Nominees v Meade [2005] WASC 9

Sunbird Plaza Pty Ltd v Maloney [1988] HCA 11; (1988) 166 CLR 245

Tallerman & Co Pty Ltd v Nathan's Merchandise (Victoria) Pty Ltd [1957] HCA 10; (1957) 98 CLR 93

1 TEMPLEMAN J: The plaintiffs, Justin Leslie Shepherd, and his wife Erin Jennifer Shepherd ("the Shepherds"), seek an order for the specific performance of what is claimed to be a written agreement, made on 9 August 2004, for the sale to them by the defendant, Karen Lesley Baster (Ms Baster"), of a residential property at 18 Tain Street, Applecross. The Shepherds claim damages in addition to specific performance.

2 Ms Baster denies that she entered into an agreement with the Shepherds. Alternatively, Ms Baster contends that if there was an agreement, she terminated it for failure of the Shepherds to satisfy the conditions which required them to obtain finance by 23 August 2004, and to notify her that they had done so.

3 The document on which the Shepherds rely is a standard offer and acceptance form produced by the Real Institute of Western Australia ("REIWA") for use by non-members of that organisation.

4 The offer and acceptance form was completed in handwriting. There have been some alterations which have been initialled; and it has been signed. However, the circumstances in which the document came into existence cannot be discerned from its face. It is therefore necessary to establish the sequence of relevant events in order to determine the legal effect of the document.

5 Evidence concerning these matters was given by the Shepherds and by Ms Baster. Evidence was given also by Ms Baster's brother, Paul Baster, who acted as her agent in negotiations with the Shepherds. I am quite satisfied that all the witnesses gave their evidence honestly; that is, to the best of their respective recollections. There are, however, some conflicts in the evidence. I attribute these to faulty recollection, some two years after the events in question.

6 There are issues between the parties as to their respective legal positions during the crucial period between 8 August 2004, when the offer and acceptance form was completed and 23 August 2004, when the termination notice was served.

7 I therefore set out my findings of fact and my conclusions as to the legal relationships between the parties as the matter unfolded.

8 The property at 18 Tain Street ("the property") appears from a valuation report (exhibit 2) to be a substantial brick and tile home, built in the 1960s on a 1072 square metre block.

9 The property came to Ms Baster under the Will of her late mother, who died in 2002. They lived there together for 4 years before her death, while Ms Baster acted as her mother's carer.

10 In July 2004, Ms Baster resolved to sell the property to buy a house in Nedlands. Her brother agreed to act as agent for this purpose. He had performed that role for Ms Baster on one previous occasion, in 2003, although he is a mechanical engineer by profession.

11 Ms Baster moved out of the property mid-July 2004. However, she did not then remove all her personal belongings, or those of her late mother. Neither did she clear a substantial shed at the property, which contained some asbestos sheets and a motor vehicle and other goods and chattels left there by her late mother's former partner, a motor mechanic. There was a second, smaller shed at the rear of the property. This shed was constructed of asbestos sheeting.

12 In preparation for the sale of the property, Ms Baster had a "For Sale" sign made. It gave Mr Baster's mobile telephone number as the contact.

13 In order to facilitate the preparation of a contract, Ms Baster purchased two copies of the standard form offer and acceptance from a newsagent. She gave them to her brother.

14 Further, Ms Baster obtained from Ross Hughes Real Estate Agents in Applecross a copy of the REIWA General Conditions for the sale of land. Ms Baster was aware of the existence of these conditions because she had seen them in 2003 in connection with a previous transaction. However, she did not read the general conditions; nor did she give them to her brother. She inadvertently left them in her car, where she found them some months later.

15 After the "For Sale" sign had been placed at the property, it was seen by the Shepherds. Mr Shepherd telephoned Mr Baster and expressed interest in purchasing the property.

16 At that stage, the Shepherds and their three sons were living at 57A Gairloch Street, Applecross, which they owned jointly.

17 Mr Shepherd is a key accounts manager for the Swan Brewery company. In 2004, he was investigating the possibility of purchasing a property in Applecross which might be subdivided. He knew, from his inquiries of the Melville City Council, that allotments of at least 1100 square metres could be subdivided. However, from 1 January 2005, the minimum area for subdivision would be 1300 square metres.

18 Mr Shepherd's plan was to purchase a property, and then subdivide. He would have a house built on one of the subdivided blocks, and sell the other so as to defray the cost of constructing a house on the retained block.

19 In July 2004, when driving through Applecross, Mr Shepherd noticed the "For Sale" sign at the property. He telephoned Mr Baster to inquire about the price at which it was being offered for sale.

20 Mr Baster told him that the asking price was $769,000; that the property was vacant, and that Mr Shepherd could inspect it if he wished, unaccompanied by Mr Baster.

21 Mr Shepherd inspected the property on the following day. He and Mrs Shepherd then decided to offer $740,000 for the property, subject the sale of their house at Gairloch Street.

22 Within a few days after Mr Shepherd inspected the property, he telephoned Mr Baster and made an offer of $740,000. Ms Baster said that was insufficient. There were then further negotiations which culminated in Mr Shepherd increasing the offer to $756,500. Mr Baster said he agreed to sell at that price, but that he had to seek the agreement of other people involved.

23 Later, Mr Baster telephoned Mr Shepherd. He said he would sell the property to Mr Shepherd for $756,500, conditional upon the sale of the Shepherds' house. Mr Baster said further that the contract was to give Mr Shepherd six weeks to sell his house; and that if he did not do so, the contract would provide for him to be given notice of any further offers made in respect of the property. If notice was given, Mr Shepherd would have 48 hours in which to elect to make the contract unconditional.

24 Mr Shepherd told Mr Baster that those terms were agreeable to him.

25 As I have noted above, Mr Shepherd knew that allotments of at least 1100 square metres in Applecross were potentially subdivisible. Having searched the Melville City Council website, Mr Shepherd discovered that the property was on an allotment of 1072 square metres and, thus, fell short of the minimum requirement.

26 On 23 July 2004, in an attempt to acquire some additional land to make up the shortfall, Mr Shepherd visited the owner of the land at the rear of the property, Mark Lord. Mr Shepherd told Mr Lord that he had agreed to purchase the property and that he would like to purchase 30 square metres of Mr Lord's land, immediately adjacent to the rear boundary of the property.

27 Following some further negotiations with Mr Lord, Mr Shepherd received a letter from him dated 25 July 2004, offering to sell 30 square metres of land at a price of $1000 per square metre, or for a lump sum of $30,000. The offer was conditional; and was subject to the Shepherds completing a "side by side" subdivision.

28 On or about 26 July, having obtained the offer from Mr Lord, Mr Shepherd telephoned Mr Baster and asked when they could meet in order to complete the documentation for the sale of the property. Mr Shepherd did not then, nor at any time before commencing these proceedings, tell Mr Baster about his plans for the property.

29 Mr Baster said it would not be possible to meet for a number of days because he was then working in Ravensthorpe. Mr Shepherd said he would like Mr Baster to confirm in writing that they had agreed the sale of the property conditional on the sale of the Shepherds' property within six weeks, and on 48 hours' notice thereafter. Mr Baster said they had an agreement and that he would not sell to anyone else. However, when pressed further by Mr Shepherd, Mr Baster agreed to send a fax to confirm the agreement.

30 Mr Baster did so on 29 July. The fax was addressed to Mr Shepherd and was in the following terms:

"We confirm acceptance of your offer of $756,500 for purchase of 18 Tain Street Applecross. We will give you exclusive period of 6 weeks and a 48 hour clause thereafter.

Please let me know who you want on the offer ASAP."

The fax was signed by Mr Baster "on behalf of owner".

31 That fax was not, of course, a contractual document. However, it demonstrates that Mr Shepherd and Mr Baster had reached agreement on the most important matters relating to the sale of the property. The formal documentation had to be prepared, but the negotiations had been concluded.

The completion of the offer and acceptance form

32 On or about 7 August, Mr Shepherd and Mr Baster spoke on the telephone. They agreed to meet at the Captain Stirling Hotel in Nedlands on the following day, in order to prepare the contract documents.

33 At about 5 pm on Sunday, 8 August, the Shepherds (who brought their three young sons with them) met Mr Baster at the Captain Stirling Hotel. Mr Baster produced one of the blank offer and acceptance forms he had been given by his sister and a document he had prepared, marked Annexure A, in a form he had obtained from a friend. This document provided that the offer was made subject to the unconditional sale of the Shepherds' property at Gairloch Street within 49 days after the acceptance of the offer. It is not clear why a period of 49 days was specified, there having been agreement previously that the Shepherds would be given six weeks in which to sell their property. However, nothing turns on that.

34 The annexure also contained the so-called 48-hour clause, which could be invoked after 14 September. The effect of that clause was to enable Ms Baster to terminate the contract if she received a further written offer to purchase the property, and if the contract with the Shepherds was not by then unconditional.

35 Mr Shepherd then filled in the form by inserting the terms which had been agreed thus far. He added a term for the payment of a $50,000 deposit within seven working days of acceptance and an additional special condition relating to a survey to be carried out at the Shepherds' expense.

36 The settlement date was expressed to be "30 days after offer becomes unconditional"; and the offer was made subject to finance on the conditions printed on the form. The lender was expressed to be "ANZ", and the latest time for the finance to be obtained was expressed to be "4.00 pm on the date offer becomes unconditional". The amount of the loan required was $300,000.

37 Both Mr and Mrs Shepherd signed the offer. They also signed the Annexure A.

38 Mr Shepherd had expected to have the offer accepted at that meeting. However, Mr Baster told him that the property was owned by his sister and that she would need to sign the document. Mr Baster took the documents to the Supa-Valu Supermarket, which was close to the Captain Stirling Hotel. He there obtained a copy of the documents, which he gave to Mr Shepherd. Mr Baster said he would have his sister sign the offer and would send the completed contract to the Shepherds.

39 On Monday, 9 August, Mr Baster faxed the offer and acceptance and Annexure A to Elaine Coughlin of Ronson MacKinlay Conveyancers, the conveyancers he had nominated in the offer and acceptance form. Later that day, Ms Coughlin telephoned Mr Baster and recommended that the finance clause be amended so as to provide for finance to be obtained by a definite date: she suggested 23 August 2004.

40 At 5.45 pm on 9 August, Mr Baster telephoned Mr Shepherd and told him about the advice he had received from Ms Coughlin. He asked Mr Shepherd whether two weeks would be long enough for him to obtain finance. Mr Shepherd said it would.

41 There is a conflict between the evidence of Mr Shepherd and Mr Baster about the precise words spoken in the conversation. According to Mr Shepherd, in his statement (Ex 5, par 7) Mr Baster said he wanted to alter the form to incorporate the change in the finance clause. In his cross-examination, Mr Shepherd's evidence was that Mr Baster said "he would have the contract changed" (TS 138). However, Mr Baster denied that Mr Shepherd said he was happy to have the contract changed (TS 189).

42 I do not think anything turns on this conflict. That is because there is no doubt that in the course of their conversation, Mr Baster and Mr Shepherd agreed that there would be an amendment to the finance clause. This was before the Shepherds' offer was presented to Ms Baster. At that stage, Mr Baster had not seen her (TS 189). It follows that whether or not there was express agreement that Mr Baster should make the amendment, such agreement must be implied. It was the intention of both Mr Shepherd and Mr Baster that the offer to be presented to Ms Baster would contain the amended finance clause.

The offer and acceptance is signed by Ms Baster

43 Later on 9 August, at about 8 pm, Mr Baster presented the offer to Ms Baster. He told her about the advice he had received from Ms Coughlin and his conversation with Mr Shepherd about the amendment to the finance clause. He deleted the words "offer becomes unconditional" from that clause and inserted "23 August 2004". Ms Baster then initialled the change, signed the form and Annexure A.

44 In my view, Ms Baster thereby accepted the offer.

45 On 10 August, at 8.08 pm, Mr Baster telephoned Mr Shepherd. Mr Baster's evidence was that he told Mr Shepherd that his sister had signed a counter offer with the 23 August date.

46 In cross-examination, Mr Baster said he had used the expression "counter offer" in this context (TS 190). A little later he said he believed he had used that expression. He said he would have done so because it was always his understanding that if a vendor altered an offer, this amounted to a counter offer. That was why he wanted the Shepherds to sign the document; and he asked if he could call on them that evening so that they might do so. According to Mr Baster, he did not visit the Shepherds then because it was inconvenient to them. Mr Shepherd asked him to send the documents by fax.

47 Mr Shepherd's evidence was that he had no recollection of Mr Baster asking to call at his house that evening. Neither did he recall Mr Baster referring to a counter offer.

48 I do not accept Mr Baster's evidence that he referred to a counter offer. I think his recollection is faulty. Had he done so, I think it likely that Mr Shepherd would have remembered. That is because he and Mr Baster had already agreed that the finance clause should specify 23 August 2004 as the latest date for approval. Reference to a counter offer would have been inappropriate: and therefore, memorable.

49 However, in my view, whether or not Mr Baster referred to a counter offer is immaterial. That is because, on the facts as I have found them to be, the amendment of the finance clause did not, in law, amount to a counter offer.

50 Typically, a counter offer will be made when (for example) a vendor who has received an offer at a particular price, crosses out the price on the offer document, inserts a higher price and initials the alteration before returning the document unsigned to the prospective purchaser. Only when offers and counter offers have culminated in an agreement will the vendor sign the form, signifying acceptance.

51 By contrast, in the present case, Ms Baster did not simply initial the alteration to the finance clause and return the document to the Shepherds. She signed the form, as amended, signifying her acceptance of the terms it then contained.

52 Clause 2 of the offer and acceptance form is in the following terms:

"Acceptance of this offer shall be sufficiently communicated to the Buyer if verbal or written notification is given by the Seller or Seller's Agent to the Buyer that the acceptance has been signed by the Seller."

53 I have found that Mr Baster did tell Mr Shepherd, in the course of their telephone conversation on 10 August, that Ms Baster had signed the form. That was a sufficient communication of the acceptance within cl 2. From that point on, therefore, there was a binding contract in existence between Ms Baster and the Shepherds.

54 I accept Mr Baster's evidence that it was not convenient to the Shepherds to have him call on them on the evening of 10 August: and that Mr Shepherd requested Mr Baster to fax the documents to him.

55 At 2.48 pm on 11 August, Mr Baster faxed the documents to Mr Shepherd at his workplace in Canning Vale. He did so under cover of a note in the following terms:

"Please both initial changes and return to:

P R Baster

80 The Avenue

Nedlands 6009

Any queries ring me on 9389 7471 or 0438880062."

56 Mr Shepherd received the fax later that afternoon. He took it home immediately, so that both he and Mrs Shepherd could initial the change to the finance clause. He then returned to his workplace.

57 On his return journey, Mr Shepherd stopped at the property so as to try and visualise the proposed subdivision. In the course of that visit, he noticed that there was, as he put it, "a substantial amount of personal property and refuse left on the premises".

58 On his return to work, Mr Shepherd decided to stipulate that the house and sheds at the property were to be cleared by Ms Baster. He therefore wrote an additional condition on the facsimile copy of the offer and acceptance he had received from Mr Baster. It was:

"House/sheds to have all rubbish and personal belongings removed."

59 In the belief that he would be able to send the document by facsimile to Mr Baster, Mr Shepherd obtained a Swan Brewery facsimile transmission cover sheet and addressed it to "Paul". He then realised that he did not have Mr Baster's fax number. He therefore telephoned Mr Baster. He told Mr Baster that he and his wife had initialled the finance clause and he asked for Mr Baster's fax number. Mr Baster said he did not have a fax. He asked Mr Shepherd to return the documents by post.

60 I make that finding despite Mr Baster's denial that he had a telephone conversation with Mr Shepherd (TS 194): and despite the change in Mr Shepherd's recollection. I accept Mr Shepherd's later recollection as being correct. It is consistent with Ms Baster's evidence, which I accept, that she was telephoned by her brother who told her that the Shepherds had initialled his fax and was sending it back in the post (TS 162). Mr Baster denied that he had that conversation with his sister (TS 194), but I think his recollection is imperfect. He contended that Ms Baster had been confused by counsel when giving the evidence to which I have referred above. However, that was not my impression.

61 Mr Shepherd did as he had been asked. He sent the faxed copy of the offer and acceptance he had received from Mr Baster with the additional clause relating to the removal of the rubbish written on it and initialled by him and Mrs Shepherd.

62 Mr Shepherd posted the documents under cover of the facsimile transmission sheet on which he had written:

"Paul,

Please note condition to be agreed and signed relating to removal of remaining items. Both the sheds and house still have quite a lot of items to be removed.

Can you sign and send back copies thanks."

63 It is not clear when Mr Shepherd posted the documents. However, they were received by Mr Baster on 17 August. He then became aware of the proposed additional condition. Mr Shepherd had not mentioned it in their previous telephone conversations.

64 On the evening of 17 August, Ms Baster visited her brother at his house. He showed her the faxed copy of the offer and acceptance he had received from Mr Shepherd through the post that day.

65 By then, Ms Baster was concerned that (as she perceived it) the Shepherds were delaying. She had driven past their house in Gairloch Street and noticed that there was no "For Sale" sign displayed there: nor was there any advertisement in the newspaper. Further, she had not received the documents signed by the Shepherds, which she thought should have been returned sooner.

66 When Ms Baster saw the additional clause relating to the removal of rubbish and personal belongings from the property, she misread it initially. She thought the Shepherds wanted to have the sheds removed, as well as their contents. At the time, Ms Baster was feeling unwell (she was later diagnosed as diabetic) and was exhausted. Being in a low state, being under that misapprehension and believing that the Shepherds were delaying, Ms Baster felt unable to cope with the situation.

67 She believed, as she put it, that it was her prerogative not to sign the condition proposed by the Shepherds: and that if she did not do so, there would be no contract.

68 Ms Baster therefore refused to sign the condition proposed by the Shepherds and not to deal further with them. She asked her brother to "follow it up and see where we stood" (TS 166).

69 It was submitted by leading counsel for Ms Baster that in requesting her to agree and sign the additional condition relating to the removal of rubbish from the property, Mr Shepherd was manifesting an intention not to be bound at all until such agreement had been reached.

70 I do not accept that submission. Such a finding would be inconsistent with my conclusion that the parties were already bound. And by their conduct prior to 11 August, that was their clear intention. I accept that Mr Shepherd wanted the new condition agreed, but, I infer, as an addition to the existing contract.

71 The contract which, I have found, came into existence on 10 August, incorporated the REIWA General Conditions: cl 3. The Shepherds and Ms Baster had signed that part of the offer and acceptance form which contained an acknowledgement that they had received a copy of the General Conditions. In fact, no copy had been given to the Shepherds. As I have noted above, the copy Ms Baster obtained for that purpose had remained in her car.

72 Condition 6.1(b)(2) of the General Conditions provided that:

"... the Seller must remove from the property, before possession, all vehicles, rubbish and chattels, other than Property Chattels sold to the Buyer under the Contract."

73 This condition was to precisely the same effect as that written on the offer and acceptance form by Mr Shepherd on 11 August. It therefore added nothing to the terms which had already been agreed. Even if that were not so, the proposed condition could not amount to a counter offer, because the contract was already in existence.

74 On 18 August, at 10.05 am, Mr Baster sent a fax to Ms Coughlin from a friend's house. The fax consisted of the offer and acceptance in the form Mr Baster had received it from the Shepherds and a covering letter in the following terms:

"They have countersigned the alteration to the finance latest time you recommended but have added a new clause * 8. We have not countersigned this clause. Does this mean we can walk away from this contract or put in a counter offer? Are we better off waiting for the 23rd Aug and seeing if they come up with the finance approval."

75 It appears that Ms Coughlin did not answer Mr Baster's inquiry, but that she advised him to take legal advice. He did so: from Richard Staynor, then a senior associate at MacKinlays, who are Ms Baster's solicitors.

76 I do not know precisely what instructions were given to Mr Staynor, nor is that relevant to these proceedings. However, there is evidence from Mr Staynor (a witness statement tendered by consent) that he advised Mr Baster that if his sister did not want the sale to proceed, she must inform the Shepherds as soon as possible, in writing, "in order to avoid confusion".

77 In accordance with his instructions, Mr Staynor wrote to the Shepherds on 18 August, on behalf of MacKinlays, in the following terms:

"I have been instructed by Paul Baster on behalf of his sister Karen Lesley Baster in connection with our offer to buy [the property].

I am writing to advise you that your offer is not acceptable and Ms Baster does not wish to enter into a contract with you at this stage."

78 Mr Staynor delivered the letter personally. He placed it in the letterbox of the Shepherds' house in Gairloch Street. Mrs Shepherd saw him do so. At the time, she was preparing the house for a home open that evening. Contrary to Ms Baster's suspicion that the Shepherds had been delaying, they had in fact instructed a real estate agent and placed the house on the market.

79 Later that day, in the course of conversations between Mr Staynor and Mr Shepherd and subsequently, his solicitor, Mr Staynor maintained that there was no contract in place between the Shepherds and Ms Baster.

80 Mr Staynor reiterated that contention in a letter sent by facsimile to the Shepherds' solicitors on 18 August.

81 The finance clause made the contract conditional upon the Shepherds obtaining finance approval before 4 pm on 23 August 2004. Further, the clause provided that if by that time no finance approval had been obtained, the Shepherds were immediately to notify Ms Baster or Mr Baster in writing of such non-receipt: cl 1.3(b). A failure by the Shepherds to provide that notification was a default which entitled Ms Baster to "immediately terminate the Contract by notice in writing": cl 1.5.

82 The Shepherds did make application to the ANZ Bank for finance. It is not clear when they did so. However, on 24 August, the Bank issued a Home Buyer's Certificate to the Shepherds in which they were described as "the applicants". The Certificate was to the effect that the Shepherds would be eligible for an ANZ Home Loan of an amount up to $370,000 upon formal application and subject to a number of conditions. In my view, that was a finance approval, within cl 1.7 of the finance condition: see Neate v Parfitt [2006] WASC 121 at [28] - [29].

83 Shortly after 4 pm on 23 August, Ms Baster's solicitors placed a letter and "Termination Notice" in the Shepherds' letterbox at Gairloch Street. Although, arguably, this form of delivery did not constitute proper service under the REIWA General Conditions, nothing turns on this because by Mr and Mrs Shepherd accepted that they saw the documents shortly after their delivery.

"Although we do not accept that there is in place a contract, you maintain, through your solicitors ... that there is.

If you are right, it is a term of that contract that the Latest Time for fulfilment of the finance condition was 4.00 pm today.

On the basis that you have failed to comply with Special Condition 1.5, we enclose Notice terminating the contract. This notice is served by hand and without prejudice to our client's contention that there is no contract."

The Notice was to the effect referred to in the letter.

85 It is contended on behalf of Ms Baster that if, contrary to her primary contention, she had entered into a contract with the Shepherds, this Notice took effect to terminate it.

86 I have no hesitation in rejecting that submission. As counsel for the Shepherds submitted, and as I accept, a party to a contract cannot approbate and reprobate. The proposition was stated succinctly by Lord Chelmsford in Codrington v Codrington (1875) LR 7 HL 854 at 866:

"... there is an implied condition that he who accepts a benefit under an instrument must adopt the whole of it, conforming to all its provisions and renouncing every right inconsistent with it."

87 In the present case, having elected to deny the existence of a contract, Ms Baster could not then claim to exercise a right available to her only by virtue of the contract.

88 The Shepherds rely also on the well-established proposition that a party to a contract who prevents the other party from performing cannot complain subsequently about non-performance. And, as Dixon CJ said in Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd [1954] HCA 25; (1954) 90 CLR 235 at 247, a party who is told that tender of performance would be pointless, is, in substance, being prevented from performing his obligations: Foran v Wight [1989] HCA 51; (1989) 168 CLR 385 at 417 - 418.

89 In the present case, no clearer intimation could have been given to the Shepherds that it was pointless to perform the contract, than to assert that it did not exist.

90 It is submitted on behalf of Ms Baster that the principle applies only to mutual agreements. That is to say, if a vendor says "I will not settle on the duty date", he cannot complain if the purchaser fails to tender payment on that date.

91 In the present case, the obligation on the Shepherds to obtain finance was unilateral. It was a condition which, if not satisfied, entitled Ms Baster to terminate the contract. However, failure to comply with the finance condition rendered the contract voidable, not void: the contract did not terminate automatically. And as the High Court made clear in Suttor v Gundowda Pty Ltd [1950] HCA 35; (1950) 81 CLR 418 at 441 - 442, a contract which is voidable cannot be avoided by a party who is responsible for the default.

92 In the present case, Ms Baster was responsible for the Shepherds' default because she denied the existence of the contract and thereby, in effect, told the Shepherds it was pointless to attempt to satisfy the finance conditions: see Grieve & Anor v Enge & Anor [2006] QCA 213 at [20] - [25].

93 In my view, all of these considerations are subsumed in Condition 24.15 of the General Conditions in any event. That provision, which applies if the seller repudiates the contract entitles the buyer to:

(1) Specific performance of the Contract; or

(2) damages for default in addition to or instead of specific performance ..."

94 A purchaser cannot maintain a suit for specific performance unless ready, willing and able to perform. It is not possible to seek specific performance "subject to finance". It must follow that a purchaser who has a contractual right to specific performance and who is therefore required to demonstrate a financial ability to settle, cannot be required, in addition, to ensure that the finance condition is satisfied.

95 In the present case, the Shepherds' solicitors gave notice to Ms Baster's solicitors at 12.04 pm on 23 August 2004 that they were instructed to commence proceedings for specific performance. The writ was issued that day, although it is not clear when it was served.

96 As I have noted above, the contract required the Shepherds to pay a deposit of $50,000 within seven working days of acceptance. That is, by 19 August 2004: the day after Ms Baster's solicitors denied the existence of any agreement.

97 The deposit was not paid. However, for the reasons given above, that is not a breach about which Ms Baster can complain. In any event, she could only have terminated for breach of that obligation by giving notice under General Condition 1.4, a course which would have been inconsistent with her denial of the contract.

98 It is not in dispute that the Shepherds are now ready, willing and able to settle by tendering the full purchase price pursuant to an order for specific performance (TS 105). However, Ms Baster does put in issue the Shepherds' ability to settle when they commenced proceedings.

99 The uncontested evidence from Audrey Elizabeth Shepherd, Mr Shepherd's mother (whose witness statement was admitted by consent) is that in August 2004, she had in her bank account, some $1.37 million, derived mainly from the sale of two properties in Applecross in 2002.

100 Mrs Audrey Shepherd's evidence was that she was aware from conversations with her son that he was negotiating to purchase a property in Tain Street, Applecross and that he was intending to sell his property in Gairloch Street in order to facilitate that purchase. She said that had it been necessary for her son to pay for the property before the sale of his house, she would have assisted him by, in effect, providing bridging finance.

101 I am satisfied that Mr Shepherd would have availed himself of this assistance had it been necessary.

102 I accordingly find that at all material times, the Shepherds were ready, willing and able to perform the contract by paying the purchase price when called upon to do so.

103 For all these reasons, I conclude that the Shepherds are entitled to an order for specific performance of the contract.

104 The Shepherds claim damages on two bases: pursuant to s 25(10) of the Supreme Court Act 1935 (WA) and pursuant to Condition 24.15(b)(ii) of the General Conditions.

105 Section 25(10) of the Supreme Court Act enables the Court to award damages in addition to specific performance, such damages being assessed "in such manner as the Court directs". This provision enables the Court to award damages in the same way that a Court of Equity might have done, following the passage of Lord Cairns' Act. It is submitted on behalf of the Shepherds, however, that General Condition 24.15(b)(ii) entitles the Shepherds to common law damages.

106 I do not think it necessary to decide whether that is so: or whether, if it is so, the approach to the award of damages should be any different. That is because, despite the different jurisdictional bases for common law and equitable damages, it is common for the same principles to be applied: Wenham v Ella [1972] HCA 43; (1972) 127 CLR 454, Johnson v Agnew [1980] AC 367 and Bristol & West Building Society v Mothew [1998] Ch 1, where Millett LJ said (at 17):

"There is no reason in principle why the common law rules of causation, remoteness of damage and measure of damages should not be applied by analogy in such a case."

107 That proposition was stated in a different context: a claim for damages for breach of an equitable duty of skill and care. However, in my view, the rationale is of general application: see Spry on Equitable Remedies (6th ed) where it is said (647):

"This is so, however, not because the court is obliged to apply legal criteria but because the amount of compensation which is found to satisfy the loss or damage that has been suffered or is expected to be suffered, and which the court considers is just and equitable to be paid, is ordinarily found to be the same as the amount of legal damages that are appropriate."

108 I note the criticism of this approach in Meagher, Gummow and Lehane, Equity Doctrines and Remedies (4th ed) [23.020] where the distinction is drawn between common law damages and equitable compensation. But in this case, the claim is, in essence, for damages.

109 The Shepherds claim damages under three heads. I deal with each in turn.

The cost of alternative rental accommodation

110 The Shepherds sold their house in Gairloch Street and moved into rental accommodation from 8 March 2005. From then until 5 March 2006, they paid rent at the rate of $480 per week, a total of $24,960. They paid rent at an increased rate of $505 per week from 4 March 2006. By 3 September 2006, they will have paid $13,130.

111 Against that, while the Shepherds have been paying rent, they have not been paying any mortgage interest. Mr Shepherd's evidence was that he and his wife intended to borrow $370,000 (that was the amount suggested by the ANZ Bank and which appears on the Home Buyer's Certificate). Mr Shepherd expected to pay interest at 6.4 per cent per annum. No doubt, there would have been rate increases since Mr Shepherd was given that indication.

112 Further, the Shepherds have not been required to pay any outgoings in respect of the property such as rates or water rates.

113 In these circumstances, I consider that the Shepherds are not out of pocket as a result of paying rent, which, broadly, equates to the costs of servicing the proposed mortgage and other expenses associated with ownership of the property.

114 It is submitted on behalf of the Shepherds that the delay in settlement on the property has not saved interest but merely deferred it. I accept that to be so.

115 However, if damages were to be awarded, it would be necessary to prove, on the balance of probabilities, that because of the delay in settlement, the Shepherds would require the mortgage for 18 months longer than if they had settled in March 2005. That, I think, is an unrealistic proposition. Since the requirement for a mortgage is usually co-existent with ownership of the mortgaged property, for practical purposes it would involve proof that because of the delay in settlement, they will live in the property for an additional 18 months. But in all probability, the Shepherds will move on when they are ready to do so.

116 I have referred above to Mr Shepherd's plan to subdivide the property, sell one of the subdivided blocks and build the house on the other.

117 I accept Mr Shepherd's evidence that he intended to pay some $450,000 to build a house on the retained block, that being the price in August 2004.

118 There is uncontested evidence from Ian Dunlop, a quantity surveyor employed by Turner & Townsend Rawlinsons Pty Ltd, a construction and management consultancy, that between August 2004 and August 2006, the cost of building a house on a block of land in Applecross increased between 35 per cent and 45 per cent.

119 The Shepherds claim 45 per cent of $450,000, being $202,500, to compensate them for this additional cost.

120 It is well settled that in order to justify an award of common law damages, it would be necessary to prove either that the loss was of a kind which flowed naturally from the breach of contract as the usual course of things, or that it was a consequence which the parties could reasonably be supposed to have contemplated when they entered into the contract. For the reasons given above, I consider that to be the appropriate approach in equity in the circumstances of this case.

121 In my view, the claim cannot be sustained on either basis. First, I do not think it was reasonably foreseeable to Ms Baster, when she entered into the contract with the Shepherds, that they would wish to rebuild. They were buying a substantial house and might reasonably have been expected to live in it with their family. That intention could well be inferred from the fact that the Shepherds wanted the sale to include "all light fittings, window treatments, air conditioners and all fittings as inspected". They also wanted to have the property surveyed. These are requirements which appear to be inconsistent with an intention to demolish.

122 It might be thought reasonably foreseeable that the purchaser of a 1960's house in Applecross might want to re-build, as so many owners have done. However, many do not: and on the evidence referred to above, I regard the probability, viewed objectively, as no more than equal.

123 Secondly, there is no evidence that either Mr or Mrs Shepherd told Mr Baster about their plans to subdivide and rebuild when they entered into the contract. Indeed, as I have noted above, Mr Shepherd's evidence was that he did not tell Mr Baster. This is hardly surprising: it would have been foolish for Mr Shepherd, as a potential purchaser, to alert Mr Baster to the possibility that the property had subdivision potential which might enhance its value.

124 I therefore consider that the claim for increased building costs is too remote to be allowed.

125 The Shepherds rely on the uncontested evidence of Tony Gorman of Glendinning & Associates, a licensed valuer, to the effect that, as at 9 June 2006, the property was worth $1,150,000; whereas with subdivision approval it would have been worth $1,350,000. The Shepherds claim the difference, $200,000 as the value of the lost opportunity to subdivide.

126 In my view, for the reasons given in relation to the previous head of damages, this is not a loss which flowed naturally from the breach of contract.

127 Nor could it be said to be within the contemplation of the parties when they entered into the contract that the Shepherds might subdivide. That is because it was Ms Baster's belief that the property could not be subdivided. She had attempted to obtain approval for subdivision before placing the property on the market. However, approval had not been granted because the size of the allotment was below the minimum required for subdivision.

128 Mr Baster's evidence, which I accept, was that when considering subdivision, he did not contemplate the acquisition of land from Mr Lord, the adjacent owner to the rear of the property.

129 Ms Baster learned of the Shepherds' intentions only in November 2004 when she was told about the amendment to the Statement of Claim which introduced that head of damage. She then sought to preserve the position by making an application for subdivision, based on agreement from Mr Lord of the kind he had made with the Shepherds.

130 Ms Baster did obtain subdivision approval, conditional upon the acquisition of a small area of land from Mr Lord. However, it appears that Mr Lord has since declined to proceed (Ex 1/76).

131 Whether or not his attitude is irrevocable is impossible to determine. However, even if I considered that, in principle, the Shepherds' claim under this head was open, I would hesitate to award damages without clear evidence that this was so. Otherwise, there would be a risk of the Shepherds obtaining a windfall.

132 For all these reasons, I conclude that it would be inappropriate to award damages to the Shepherds.

133 I will invite counsel to bring in a minute of order relating to the specific performance of the contract.

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : SHEPHERD & ANOR -v- BASTER [2006] WASC 176 (S)

Costs - Plaintiffs awarded specific performance but not damages - Whether offsetting appropriate - Calderbank offers by plaintiffs before amending statement of claim - Plaintiffs' case set out in correspondence - Plaintiffs claim unreasonable conduct by defendant during proceedings - Whether plaintiffs entitled to indemnity costs - Counterclaim at instigation of defendant's brother - Counterclaim abandoned - Defendant suffering chronic medical condition - Defendant's proceedings conducted generally by agency of her brother - Whether nonparty costs order against defendant's brother

Defendant pay plaintiffs' costs of the action (except expert evidence) to be taxed if not agreed

Plaintiffs pay defendant's costs of this application to be taxed if not agreed

Castro v Hillery & Ors [2002] QCA 359; [2003] 1 Qd R 651

Den Hoedt & Anor v Barwick [2006] WASCA 196

Dobb v Hacket (1993) 10 WAR 532

HPM Pty Ltd v Fear [2002] WASCA 249

Koh v Tay [1999] WASC 228

NMFM Property Pty Ltd v Citibank Ltd (No 11) [2001] FCA 480; (2001) 109 FCR 77

Permanent Building Society v Wheeler (No 2) (1993) 10 WAR 569

Shepherd & Anor v Baster [2005] WASC 23

Shepherd & Anor v Baster [2006] WASC 176

Shepherd & Anor v Baster [2006] WASC 176

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (295 paragraphs)

Shepherd & Anor v Baster [2006] WASC 176 (16 August 2006)

Parties

Legislation Cited (1)

Cases Cited (19)