Source & Resources Pty Ltd v Porada & Anor

As already mentioned, 31 December 2003 became 30 June 2005. Clause 19.1.1 provided that a party might exercise the right to rescind only by serving a notice before completion. Clause 19.2.1 provided that, normally, if a party exercised a right to rescind, the deposit and any other money paid by the purchaser under the contract had to be refunded. The facts relating to the question of waiver 6 The plan of subdivision not having been approved by the local council by 30 June 2005, Source & Resources was entitled to rescind the contract for sale unless it had waived that right. It was not in issue that it had complied with its obligations under cl 28.2. 7 Source & Resources had lodged an appeal in the Land and Environment Court against the local council's refusal to approve the plan of subdivision. The solicitors for Source & Resources on two occasions wrote to the conveyancers for Mr and Mrs Porada seeking an extension of time, Source & Resources being confident it would succeed in the appeal. Mr and Mrs Porada agreed to each extension. 8 30 June 2005 passed without council approval of the subdivisional plan. On 15 September 2005 the conveyancers for Mr and Mrs Porada wrote to the solicitors for Source & Resources saying they had not heard from them in some time and would appreciate advice on the current status of the subdivision. There was no response. 9 Following the development consent issued by the local council on 13 February 2006, Source & Resources discontinued the proceedings in the Land and Environment Court on 18 May 2006. 10 On 1 August 2006 the conveyancers for Mr and Mrs Porada wrote to the solicitors for Source & Resources saying they understood that it did not want to proceed with the sale of lots 15 and 16 to Mr and Mrs Porada and they were of the opinion that it had available two lots approximately of the same size and price and position as lots 15 and 16. The conveyancers sought confirmation of this information. There was no response. But on 20 November 2006 the solicitors for Source & Resources wrote to the conveyancers for Mr and Mrs Porada stating that Source & Resources had not been able to obtain consent to the development application and, as a result, pursuant to special condition 5, Source & Resources purported to rescind the contract, stating they had written to the agent advising of the rescission and instructing the agent to refund Mr and Mrs Porada's deposit. 11 That drew a response from solicitors acting for Mr and Mrs Porada on 1 December 2006 disputing the rescission, notifying the lodgement of a caveat and stating that their clients would take any steps required to ensure that the contract was completed. The facts relating to the question of reasonableness regarding the caveat 12 On 12 December 2006, the solicitors of Source & Resources demanded the withdrawal of the caveat, putting Mr and Mrs Porada on notice that they were in the middle of a refinancing of the property and the lodgement of the caveat would cause considerable damage for which they would be held responsible if the caveat was not withdrawn. 13 On 14 December 2006, Mr and Mrs Porada's solicitors responded seeking the original plan of subdivision, the current plan of subdivision and the orders of the Land and Environment Court upon receipt of which they would immediately take instructions and respond. 14 On 19 January 2007, the solicitors for Source & Resources responded to the request. Also on that day, Mr and Mrs Porada's solicitors were put on notice that Source & Resources was suffering damages in the vicinity of $1,200 per day. 15 On 22 January 2007, the solicitors for Mr and Mrs Porada responded indicating they would take instructions and seeking clarification of the allegation that damages of approximately $1,200 per day were being suffered. 16 On 23 January 2007, Mr and Mrs Porada's solicitors stated that their clients would consent to the simultaneous discharge of the mortgage and the lodgement of a new mortgage to Suncorp-Metway upon condition that the amount of the new mortgage did not exceed the amount secured by the present mortgage. 17 On 24 January 2007, the solicitors for Source & Resources explained that the figure to discharge the existing mortgage was approximately $1,845,000 although the figure was increasing at a daily rate of approximately $1,200 and that refinancing in the amount of $3,757,000 to fund subdivisional works was being sought from Suncorp-Metway Ltd. 18 On 25 January 2007, Source & Resources' solicitors advised that they had been instructed to commence proceedings in this Court seeking the removal of the caveat and damages. 19 Further information was sought on 25 January 2007 by the solicitors for Mr and Mrs Porada. On 29 January 2007, their solicitors stated that they would immediately lodge a form of consent to the registration of the documents necessary to give effect to the refinance of the mortgage by Suncorp-Metway for the full amount stated in the letter of 24 January 2007 if Source & Resources would not seek damages and a period of at least 28 days was allowed for negotiations in which Source & Resources did not commence any proceedings. 20 Source & Resources responded through their solicitors on 2 February 2007 agreeing to the 28-day period in which no proceedings would be instituted. On that day, Mr and Mrs Porada's solicitors wrote confirming a telephone conversation with Elizabeth Willis from the office of the solicitors for Source & Resources in which she conveyed her client's consent to the refinance and release from any claim for damages and accordingly enclosed a signed letter of consent. 21 On 8 February 2007, the solicitors for Mr and Mrs Porada wrote confirming a telephone conversation with the solicitors for Source & Resources that Suncorp-Metway would not agree to a letter of consent and required the caveat to be removed. Mr and Mrs Porada agreed to the withdrawal of the caveat to allow Suncorp-Metway's mortgage to be registered on condition that Source & Resources consented to the lodgement of a new caveat on identical terms immediately after the registration of the mortgage. On the same day, the solicitors for Mr and Mrs Porada wrote confirming a telephone conversation in which those terms had been agreed. The signed withdrawal of caveat and new caveat were forwarded to be held in escrow pending receipt of a written authority to provide the documents on settlement. 22 There was a conflict in the evidence as to the telephone conversation on 8 February 2007. Craig Pryor of the solicitors for Mr and Mrs Porada said that Elizabeth Willis of the solicitors for Source & Resources said: "About your letter earlier today, our client agrees". The version of the conversation given by Ms Willis was: "Regarding the letter you sent through earlier, our client agrees that Suncorp's requirements should be unnecessary but as we cannot proceed without them, we have to produce the withdrawal of caveat. Can you send it tonight". Mr Pryor was cross-examined on this issue but Ms Willis was not. 23 I do it think it necessary to resolve this issue. On the question of reasonableness with respect to the caveat, on either version of the conversation Mr and Mrs Porada were prepared to agree to Suncorp-Metway's requirement that the caveat be withdrawn. 24 Ms Willis spoke to the solicitors for Suncorp-Metway on 8 February 2007 and put Mr Pryor's proposal to them. They refused to agree to the caveat going back on. Ms Willis relayed this information to Mr Pryor who informed her that he had sent the withdrawal of caveat by express post. 25 On 12 February 2007, the solicitors for Source & Resources gave notice that unless they received the agreement of Mr and Mrs Porada to hand over the withdrawal of the caveat upon settlement of their refinance they would commence proceedings. That drew the response on 13 February 2007 that the threat of proceedings was in breach of the agreement between the parties and the refusal of permission to lodge a new caveat after registration of the mortgage to Suncorp-Metway was also in breach of that agreement. 26 These proceedings were commenced on 16 February 2007. On 19 February 2007, Mr and Mrs Porada's solicitors wrote agreeing to the lodgement of the withdrawal of the caveat upon return of the further caveat and an undertaking not to take any steps in relation to the sale of new lots 18 and 19 without providing seven days prior written notice and to keep their solicitors informed as to the timing of the settlement of the refinance. Was there an election to waive the right to rescind? 27 In Craine v Colonial Mutual Fire Insurance Co Ltd (1920) 28 CLR 305 the insurer represented to the insured that it did not intend to rely upon a provision in a policy of fire insurance requiring a claim to be made within a specified time. To the defence that a claim under the policy was out of time, the plaintiff pleaded estoppel and waiver. It was held that the insurer was estopped from relying on the fact that the claim was made late. Another clause in the policy excluded waiver unless the insurer stated in writing that it waived a specific provision in the policy. It was held that the limiting provision did not apply to estoppel. Isaacs J, who delivered the judgment of the court, described waiver thus at 326: " "A waiver must be an intentional act with knowledge"(per Lord Chelmsford L.C. in Earl of Darnley v. Proprietors &c of London, Chatham and Dover Railway ) . First, "some distinct act ought to be done to constitute a waiver" (per Parke B. in Doe d. Nash v. Birch and per Williams J. in Perry v. Davis ); next, it must be "intentional," that is, such as either expressly or by imputation of law indicates intention to treat the matter as if the condition did not exist or as if the forfeiture or breach of condition had not occurred; and, lastly, it must be "with knowledge," an essential supported by many authorities, from Pennant's Case and down to Mathews v. Smallwood . "Waiver" is a doctrine of some arbitrariness introduced by the law to prevent a man in certain circumstances from taking up two inconsistent positions (see per James L.J. in Pilcher v. Rawlins ). It is a conclusion of law when the necessary facts are established. It looks, however, chiefly to the conduct and position of the person who is said to have waived, in order to see whether he has "approbated" so as to prevent him from "reprobating" - in English terms, whether he has elected to get some advantage to which he would not otherwise have been entitled, so as to deny to him a later election to the contrary (see per Lord Shaw in Pitman v. Crum Ewing ). His knowledge is necessary, or he cannot be said to have approbated or elected."

Footnotes have not been reproduced. 28 In United Australia Ld v Barclay's Bank Ld [1941] AC 1 a cheque payable to the appellants was converted and collected for the converter by its bankers, the respondents. The appellants brought an action against the converter for the amount of cheque either as money lent or as money had and received to the use of the appellants. That action was discontinued and a new action brought against the respondent for conversion. It was held that the mere institution of the proceedings against the converter by the appellants did not constitute an election to waive the tort so as to be precluded from bringing the second action. At 30 Lord Atkin described what was required for waiver: "On the other hand, if a man is entitled to one of two inconsistent rights it is fitting that when with full knowledge he has done an unequivocal act showing that he has chosen the one he cannot afterwards pursue the other, which after the first choice is by reason of the inconsistency no longer his to choose." 29 In Sargent v ASL Developments Ltd (1974) 131 CLR 634 a clause in a contract for sale of land provided that, should it be established prior to completion that at the date of the contract the property was affected by any planning scheme other than as stated in a specified schedule, either party should be entitled to rescind the contract by notice in writing to the other. The schedule stated that the property was affected as shown in a copy certificate annexed to the contract. No certificate was annexed. The land was affected by planning schemes. At the date of contract the vendors or their solicitors knew that the land was so affected. After the date of contract the vendors received from the purchasers payments of interest, instalments of principal and increased rates and they joined with the purchasers in taking steps to bring the land under the operation of the Real Property Act 1900. It was held that, where no certificate was annexed, the clause operated to confer a right of rescission, but that by their unequivocal conduct with knowledge of the facts giving rise to the right to rescind, the vendors had elected to treat the contract as subsisting and were precluded from exercising a right to rescind it. Stephen J with whose reasons McTiernan ACJ agreed at 642 cited the above passages as authority for the following proposition: "For the doctrine to operate there must be both an element of knowledge on the part of the elector and words or conduct sufficient to amount to the making of an election as between the two inconsistent rights which he possesses." 30 It was put on behalf of Mr and Mrs Porada that Source & Resources expected to succeed in the Land and Environment Court and urged them not to rescind the contract, that expectation remained after 30 June 2005 and it should be inferred that if Source & Resources had been successful it would have called upon Mr and Mrs Porada to complete the contract. It was submitted that it should be found that Source & Resources had decided that it would not rescind the contract because it was in its interests not to do so. 31 After 30 June 2005 the development consent issued for a subdivision into fewer lots and Source & Resources discontinued its proceedings in the Land and Environment Court. That conduct was not, in my view, inconsistent with the continued rights to rescind the contract. All that was done was in recognition that the expectation of success with respect to the original subdivisional plan was unlikely. What had grounded the two extensions of time with respect to the rights of rescission was the prospect of success in prosecuting the appeal before the Land and Environment Court. To continue to press that appeal after 30 June 2005 did not, in my view, constitute some advantage to which Source & Resources was not otherwise entitled, thereby approbating the contract and denying it the right to reprobate it by exercising one or other of the powers to rescind. 32 Once having arisen, the rights to rescind remained open to Source & Resources unless it waived its entitlement to exercise those powers. In Gilbert v Healey Investment Pty Ltd (1975) 1 NSWLR 650 a contract for sale of land then being re-subdivided contained terms that the vendor would obtain the release from the shire council of a new plan of subdivision and would lodge it for registration with the Registrar-General. The contract contained a term that if the plan was not registered within six months, either party might, at any time thereafter, by notice in writing given to the other party, rescind the contract upon giving 21 days notice of its or their intention to do so. Nine days after the six-month period had expired, the purchasers' solicitors enquired whether the plan had been registered. A response was received over a month later informing the purchasers that the plan had been registered six weeks after the period of six months had expired. The purchasers then gave notice of intention to rescind. It was held that upon the true construction of the contract, the right to rescind did not determine when the plan was registered but, once having come into existence, continued thereafter for the benefit of either party. At 653, Needham J concluded that the purchasers did not do any act that could be deemed to be either an election or a waiver or a treating of the contract as being still on foot after the six-month period had expired. The request for information was not a course of action or an act that could be described as treating the contract as still on foot. The decision was followed by Helsham CJ in Eq in Treloar Nominees Pty Ltd v Buttrey (1977) 1 BPR 97077. 33 It was submitted that inactivity might constitute waiver. In Shield Properties & Investments Ltd v Anglo-Overseas Transport Co Ltd (1985) 273 Estates Gazette 69, the appellants to an arbitration referred the arbitrator to without prejudice negotiations. The respondents applied to set aside the award. One basis for the application was the wrongful reception by the arbitrator of the evidence of the without prejudice discussions. Bingham J took the view that the respondents had a clear option as to how they proceeded. They could have sought a ruling from the arbitrator as to whether the material was covered by privilege or not. They could have sought to halt the proceedings. They could have sought a change of arbitrator. They could have sought a clear understanding on the record that all the evidence would be entirely ignored. His Lordship took the view that the respondents had an election. At 73 he said: "It seems to me that the situation was clearly one in which the tenants had an election. Either they made a bold and unequivocal protest and raised the matter, either seeking determination or seeking to halt the proceedings entirely on the basis that the arbitrator could no longer fairly dispose of the matter or they could allow the matter to continue. It seems to me plain on the information before me that they adopted the latter course…." 34 In Elspan v Eurocopta [1999] NSWSC 555 at 30 [144], Einstein J adopted a similar course. 35 But there was no election presented to Source & Resources with respect to the conduct of the proceedings in the Land and Environment Court. Rights of rescission had been extended on two occasions to allow the proceedings to continue. When the expectation of Source & Resources that its appeal would be successful came to an end, the only logical course was to discontinue those proceedings. There was no other course open to it from a practical point of view and in the absence of some other course, its conduct could not be said to constitute an election between alternative courses. 36 Furthermore, Mr and Mrs Porada suspected in August 2006 that Source & Resources did not want to proceed with the sale of lots to them and was looking for them to rescind. That is not consistent with the keeping of the contract on foot. 37 In my view, Source & Resources validly rescinded the contract for sale on 20 November 2006 and is entitled to a declaration to that effect. Is Source & Resources entitled to damages? 38 The Real Property Act 1900, s 74P(1) provides: "Any person who, without reasonable cause: (a) lodges a caveat with the Registrar-General under a provision of this Part; (b) procures the lapsing of such a caveat; or (c) being the caveator, refuses or fails to withdraw such a caveat after being requested to do so, is liable to pay to any person who sustains pecuniary loss that is attributable to an act, refusal or failure referre3d to in paragraph (a), (b) or (c) compensation with respect to that loss." 39 The, now repealed, s 98 of the Real Property Act 1900 provided that any person lodging any caveat with the Registrar-General without reasonable cause, should be liable to make to any person who might have sustained damage thereby, such compensation as might be just. 40 In Bedford Properties Pty Ltd v Surgo Pty Ltd (1981) 1 NSWLR 106 at 108, Wootten J said that the foundation for reasonable cause must be, not the actual possession of a caveatable interest, but an honest belief, based on reasonable grounds, that the caveator had such an interest. 41 That approach was endorsed by Clarke JA in Beca Developments Pty Ltd v Idameneo (No 92) Pty Ltd (1990) 21 NSWLR 459 at 471. However, the Real Property Act 1900, s 74(P)(1) as it then stood, provided that a person who wrongfully and without reasonable cause lodged, procured the lapsing of, or refused or failed to withdraw a caveat, was liable to pay compensation. At 472-473, Clarke JA concluded that the addition of the word "wrongfully" required proof that the caveat was lodged deliberately by a person knowing that he or she had no interest in the land. At 462, Kirby P agreed that the word "wrongfully" restricted compensation to cases where the court concluded that the caveator had engaged in some deliberate wrongdoing. 42 In Dykstra v Dykstra (1991) 22 NSWLR 556, McLelland J concluded that the word "wrongfully" in the Real Property Act 1900, s 74P necessitated proof of a deliberate infringement of the rights of the registered proprietor or interested person, but proof of intention to cause harm was not required. 43 With effect from 1 February 1997, the Real Property Amendment Act 1996 deleted the word "wrongfully" from s 74P(1). It follows, as Palmer J pointed out in Lee v Ross (No 2) [2003] NSWSC 507, that the current test is the same as that under the former s 98 as stated by Wootten J in Bedford Properties, the approach endorsed by Clarke JA in Beca. 44 Mr and Mrs Porada lodged their caveat on the advice of senior counsel that the contract for sale had not been terminated and they had a caveatable interest in the land. Source & Resources does not press for compensation on the basis that the lodgement of the caveat falls within the Real Property Act 1900, s 74P(1)(a). In my view that is appropriate. I find that Mr and Mrs Porada had, at the time they lodged the caveat, an honest belief, based upon reasonable grounds, that they had a caveatable interest in the land. 45 Source & Resources argues that it is entitled to compensation for the refusal or failure of Mr and Mrs Porada to withdraw the caveat by 19 January 2007 when settlement of the refinancing would have occurred. 46 Compensation is claimed at the daily rate of $1,167.09 less $529.66 per day that would have been chargeable by Suncorp-Metway for the 35 days until 23 February 2007 when settlement was effected, a total of $22,310.12. Additional costs of $577.50 and $1,095.60 were also claimed, leading to a total of $23,983.22. The daily rate was agreed by Mr and Mrs Porada and no challenge was raised with respect to the additional costs. 47 The test propounded by Wootten J in Bedford was with respect to the lodgement of a caveat. It needs to be adjusted to apply to the procurement of the lapsing of a caveat and the refusal or failure to withdraw a caveat. A person has reasonable cause to procure the lapsing of a caveat where he or she has an honest belief, based upon reasonable grounds, that the caveator has no caveatable interest. And if that formulation is appropriate to the Real Property Act 1900, s 74P(1)(c), reasonable cause for the refusal or failure to withdraw a caveat exists where the caveator has an honest belief, based upon reasonable grounds, that the caveator has a caveatable interest. 48 But what is put by Source & Resources is that Mr and Mrs Porada were unreasonable in the negotiations for the removal of the caveat in requiring consent to a new caveat being lodged after registration of the mortgage to Suncorp-Metway, coupled with the fact that the caveat was wrongly lodged. 49 It does not seem to me that the Real Property Act 1900, s 74P(1)(c) extends so far. In my view, there was no legislative intention to award compensation upon an assay of the reasonableness of negotiations between a party with a reasonable belief that a caveatable interest existed and the owner of the land desirous of entering into a commercial transaction with respect to it. 50 True it is that in Dykstra, McLelland J took the view that a refusal or failure to withdraw a caveat after being requested to do so that was designed to delay completion of the sale of property until appropriate orders could be obtained from the Family Court was a deliberate infringement of rights for the purpose of the section. But that was a case in which not only did the defendant have no caveatable interest but the claimed interest, as equitable mortgagee, could not be justified. 51 In this case evidence was adduced from Mr Pryor in cross-examination that Mr and Mrs Porada were never advised that they had no caveatable interest. They were advised to consent to the caveat being withdrawn because, if the mortgagee exercised a power of sale there would be no land with respect to which a claim for specific performance could be made and, since Source & Resources had been in default under the mortgage for some time, an order for damages in lieu of specific performance might not be recoverable from Source & Resources. 52 In my view the evidence clearly leads to the conclusion that Mr and Mrs Porada maintained an honest belief, based upon reasonable grounds, that they had a caveatable interest in the land when they were requested to withdraw the caveat. 53 This is not a case where an initial honest belief, based upon reasonable grounds, that a caveatable interest exists, comes to an end but the caveat is maintained. Whether the Real Property Act 1900, s 74P(1)(c) applies in those circumstances was left open in Gustin v Taajamba Pty Ltd (1994) 6 BPR 97468 at 13,397 by Handley JA, in Commonwealth Bank of Australia v Baranyay [1993] 1 VR 589 at 601 by Hayne J and in Edmonds v Donovan (2005) 12 VR 513 at 551 [98] by Phillips JA. There is no need for me to decide the issue and I refrain from doing so. 54 In my view, the Real Property Act 1900, s 74P(1)(c) does not apply if, at the time of the request to withdraw the caveat, the caveator has an honest belief, based upon reasonable grounds, that the caveator has a caveatable interest. 55 Source & Resources has failed to establish that Mr and Mrs Porada ceased to hold the honest belief, based upon reasonable grounds, that they had a caveatable interest in the land. In my view it has failed to establish an entitlement to compensation under the Real Property Act 1900, s 74P(1)(c). 56 If I am wrong in my view as to the extent of the right to compensation under the statute and it extends to an assessment of the reasonableness of commercial negotiation by a person who maintains an honest belief, based upon reasonable grounds, that the caveator has a caveatable interest in the land, it was on 13 February 2007 that Mr Pryor advised his clients to withdraw the caveat and it was on 19 February 2007 that he advised the solicitors for Source & Resources that the withdrawal of caveat held by them in escrow could be lodged on settlement of the refinance. 57 On that basis I would assess compensation at $637.43 for six days giving $3,824.58 plus costs of $1,673.10, a total of $5,497.68. 58 I will make the declaration in paragraph 1 of the summons. I will hear the parties on costs. I will otherwise dismiss the summons. I direct the parties to bring in short minutes of order reflecting these reasons.

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