Boating Industry Association of South Australia Inc v Imeg Pty Ltd No. DCCIV-03-897

BOATING INDUSTRY ASSOCIATION OF SOUTH AUSTRALIA
INCORPORATED v IMEG PTY LTD
[2003] SADC 130
Judge Rice
Civil
Introduction

This is an action for specific performance of a contract for the sale of land by the purchaser, the Boating Industry Association of South Australia Incorporated (“the Boating IA”) against the vendor, Imeg Pty Ltd (“Imeg”). In addition to the Boating IA seeking specific performance of the contract with Imeg, it also applies for the rectification of the contract in two respects. As to the applications for rectification, one seeks to add words to the standard form contract that were not printed upon the downloading of the standard conditions, and the other seeks to add a condition that was part of an accepted Letter of Offer but not incorporated into the formal contract.
The subject property is situated at 300 Morphett Street, Adelaide, being CT Volume 5358 Folio 466, between Gouger and Wright Streets on the eastern side. Improvements on the land consist of double-storey office accommodation and provision of a number of car parking spaces. Subject to certain conditions which are referred to in detail below, the Boating IA agreed to purchase the property and Imeg agreed to sell it for $615,000. The property was subject to a Registered Lease 8939077 in favour of Adelaide Business Software Pty Ltd, the principal of whom was Mr Olly Andruchowycz (referred to, for simplicity sake, during the course of the trial as “Olly”). One of the conditions of the contract for sale and purchase of the property concerned the surrender of this lease to enable the Boating IA to go into immediate occupation of the office space. It was not disputed that this condition was not fulfilled prior to the expiry of the time for its fulfilment stipulated in the contract. Much of the evidence at trial concerned the reasons why this condition was not fulfilled and the consequences that flowed in the light of the particular circumstances.
The events leading up to the signing of the contract need to be referred to in some detail. However, as I intimated to counsel at the conclusion of final submissions, the nature of the remedy sought and the subject matter of the litigation are such that the matter needs to be decided quickly, but not necessarily with the normal detail.
Events leading to the signing of the contract
The Boating IA owned and operated from a property in Young Street, Wayville. In June, 2002 the Board of the Association resolved to sell the Young Street property and purchase property in the CBD. The property was sold at auction in November, 2002 with settlement due on 21st February, 2003. An extension of settlement until 30th May was negotiated. The Board appointed Mr Chris Waterman to act as its agent to locate a suitable property in the CBD.
There is a difference on the evidence as to when the availability of the subject property became known to Mr Waterman and the Boating IA. The plaintiff’s witnesses suggest they learned of and first inspected the property on 11th April, 2003. The defendant’s witnesses said it was late April, the 23rd or 24th, before it was advertised and first inspected by and on behalf of the Boating IA. I do not find it necessary to resolve that difference. There is no doubt that the property came on to the market and was inspected by the Board of the Boating IA on 28th April. After that on-site inspection the Board instructed its President, Mr Andrew Hayes (“Mr Hayes”) to make an offer on the building. Its size and location were ideal for the Association to buy and occupy.
The other people who were involved in these discussions and negotiations were as follows: Mr Glen Jones (“Mr Jones”), General Manager, Boating IA; Mr Richard Mann (“Mr Mann”) of Gordon Franklin Pty Ltd, the vendor’s agent; Mr Gordon Franklin himself (“Mr Franklin”); Mr Zis Ginos (“Mr Ginos”), a director and principal of the vendor, Imeg Pty Ltd.
By a Letter of Offer dated Monday, 28th April, 2003, Mr Waterman, on instructions from Mr Hayes, made an offer of $565,000 for the property (see D27). Settlement was to be on 30th May, 2003 and was subject to vacant possession. There appears to have been some misunderstanding between Mr Hayes and Mr Waterman as to the amount to be offered by way of the first offer. Mr Waterman thought it was to be in accord with his first offer, whereas Mr Hayes thought it was to be in the region of $580,000 to $585,000. At all events the first offer was rejected. I mention at this stage that Mr Ginos was asking about $650,000 for the property.
After rejection of the first offer, a verbal offer of $585,000 was made, but that was also rejected. The Boating IA then put another offer in writing, this time for $600,000. The offer was made on 30th April, 2003 and settlement was still to be on 30th May, 2003. By this stage the Boating IA had come to realise that there may be problems with the surrender of the registered lease. The lessee, Olly Andruchowycz for Adelaide Business Software Pty Ltd, was in arrears of rent to a little less than $20,000. The Letter of Offer (exhibit P1) contained this sentence:-
“We understand that there is a registered lease in place and that the current owner will waive the tenant’s arrears.”
The contract for the sale and purchase of this property, following the acceptance of a revised offer, failed to include any condition to this effect. The second application for rectification seeks to include a condition to this effect. The issue is discussed below.
The Letter of Offer was sent to Mr Ginos who rejected it by crossing out the $600,000 and offering to accept $625,000 and at the same time specifically signing against the sentence referred to above. The document, exhibit P1, as amended, was not transmitted or conveyed to the Boating IA at that stage. Mr Ginos then discussed the amount with his agent and it was suggested to Mr Ginos that a figure of $615,000 would be acceptable (TP380). Mr Ginos then re-altered the letter by crossing out his own $625,000 and inserting an amount of $615,000. He then re-signed it and again signed against the sentence referred to above. The document shows that the counter-offer of $615,000 was made late afternoon on Thursday, 1st May, 2003.
The final figure of $615,000 was worked out over the telephone and Mr Ginos knew that figure would be acceptable to the Boating IA. The Boating IA had increased the amount it was prepared to pay to cover the arrears in rent due to Mr Ginos (Hayes TP78; Waterman TP138-140). From the Boating IA’s viewpoint, securing from Mr Ginos an agreement to waive the arrears of rent was to be used as an incentive by the Association to induce the tenant to surrender the lease and vacate the premises. Because the final price of $615,000 was agreed over the telephone and then signed at that amount by Mr Ginos, it was not re-signed by the purchaser at that same amount. This point was not raised at trial because it is clear that the Boating IA is prepared to pay $615,000 and Mr Ginos was prepared to accept that amount from it. It was always intended that a detailed contract would be prepared once an agreement was secured as to price. As to precisely what was agreed is discussed in detail below because, as mentioned above, the second application for rectification seeks to have incorporated into the eventual contract a condition that Imeg Pty Ltd, as lessor, will waive the rent arrears of Adelaide Business Software Pty Ltd.
Upon the agreement as to price, Mr Mann undertook preparation of the detailed contract (TP295). It is clear that Mr Mann was intending to prepare a contract based upon a standard commercial contract issued by the Real Estate Institute of South Australia. Certain standard conditions that were inapplicable to this sale were crossed out. The Schedule contained the relevant particulars for the purpose of the sale, including chattels that were included and excluded from the sale. Settlement was to be on 30th May, 2003.
The Schedule provided for Special Conditions in an area marked with the word “OTHER”. Mr Mann had typed into that position a condition in the following terms:-
“1.THE CONTRACT IS SUBJECT TO THE AGREED SURRENDER OF THE REGISTERED LEASE 8939077 BY THE LESSEE TO THE LESSOR WHICH IS HELD BY ADELAIDE BUSINESS SOFTWARE PTY LTD OVER THE WHOLE OF THE SUBJECT PREMISES, KNOWN AS 300 MORPHETT STREET ADELAIDE SA ON OR BEFORE 5PM TUESDAY 13TH MAY 2003.”
The contract prepared in that manner was sent to the Boating IA for consideration and signature. Prior to it being signed by Mr Hayes on behalf of the Association, his daughter, Ms Rebecca Hayes, wrote in two further conditions after the typed condition referred to above. Those conditions are as follows:-
“2.The surrender shall be lodged with the Lands Titles Office at settlement being the 30th May 2003, or such sooner date as agreed between the Vendor and Purchaser.
3.Any damage caused to the premises by the removal of the Lessee’s fixtures and fittings shall be made good prior to settlement at the cost in full of the Lessee and/or Vendor and to a level acceptable to the Purchaser, who shall inspect the property on the 29th May 2003.”
Ms Hayes apparently also added to the list of chattels to be included in the sale with these words:-
“including downstairs reception desk.”
With those additions, Mr Hayes signed the contract on behalf of the Boating IA. As mentioned, the contract made no mention of the sentence in exhibit P1, that “....the current owner will waive the tenant’s arrears” (see discussion below). It is clear to me, and I so find, that Mr Hayes did not read the standard conditions in any detailed manner. He noted certain clauses had been deleted. Not surprisingly, he concentrated upon the clauses in the Schedule.
As to Mr Ginos, he did much the same, not concerning himself with the standard form conditions and concentrating on the clauses in the Schedule. Mr Ginos signed the contract without alteration. Both parties signed on 6th May, 2003, settlement to be on 30th May, 2003. The contract became exhibit P2. A deposit of $25,000 was paid upon the signing of the contract and remains in the trust account of the vendor’s agent, Mr Franklin.
Neither party realised that an error had been made in the printing or downloading process for the standard conditions under the heading “6. SPECIAL CONDITIONS”. In its present form and format the contract provides as follows under that heading:-
“6. SPECIAL CONDITIONS
The party required to comply with a Special Condition must make
every
reasonable endeavour to do so. If the Special Condition is not
complied
with before the date specified in the Special Condition (or if no date is
specified within twenty one (21) days of the date of this Agreement)
then
Vendor or unless the Purchaser has waived such condition
and communicated such waiver in writing to the vendor or the
Agent, the Purchaser upon giving seven days’ written notice
to the other party may terminate this Agreement and upon its
termination (unless the condition is complied with in the
meantime) all monies paid under this Agreement must be
re-paid to the Purchaser and all rights and liabilities under this
Agreement will cease; or
6.2 ....” (Not relevant for this purpose.)
(There are other format errors - see clauses 3.1.2, 5.3.2, 5.3.3 and 7.1.2.)
As part of the application to rectify that part of the contract, the plaintiff tendered exhibit P33 to show how the clause would normally read. The relevant part of that exhibit provides as follows:-
“6. SPECIAL CONDITIONS
The party required to comply with a Special Condition must make every reasonable endeavour to do so. If the Special Condition is not complied with before the date specified in the Special Condition (or if no date is specified, within twenty one (21) days of the date of this Agreement) then:
6.1if the failure to comply with the Special Condition is not due to the neglect or default of the Vendor or the Purchaser, the....”
It is clear that clause 6.1 from exhibit P33 has not been printed in exhibit P2.
Rectification - legal principles
Before considering the application for rectification, I give consideration to some of the legal principles involved.
I bear in mind that the remedy of rectification is available to reform documents or instruments but not the parties’ bargain. If granted, it is retrospective in effect so that, in this case, the contract will be read as if originally signed in its rectified form: Issa v Berisha (1981) 1 NSWLR 261 at 265. Further, being an equitable remedy, the Court must exercise its discretion to grant the remedy.
In Australian Consolidated Investments Limited & Anor v England (1995) 183 LSJS 408, Doyle CJ, as trial Judge, dealt with the relevant principles in this way (at 432-3):-
“It is sufficient for rectification if, before the execution of a written agreement, the parties have reached a common intention as to the terms to be included in the written agreement, that intention continues until the time of execution, and by common mistake the written agreement fails to give effect to the whole of the antecedent intention.
In Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336 Mason J stated the law in terms which have been accepted as reflecting the law of Australia. He said (at 350-351):
‘It is now settled that the existence of an antecedent agreement is not essential to the grant of relief by way of rectification. It may be granted in cases in which the instrument sought to be rectified constitutes the only agreement between the parties, but does not reflect their common intention (Shipley Urban District Council v Bradford Corporation; Slee v Warke). But this circumstance does not affect what I have already said. ...
Even so, in order to succeed the appellant must show that the parties intended by the writing to give effect to the whole of the antecedent agreement and that by common mistake it failed to do so.
...
If the plaintiff fails to establish these elements he does not displace the hypothesis arising from execution of the written instrument, namely, that it is the true agreement of the parties.’
I refer also to Commerce Consolidated Pty Ltd v Johnstone [1976] VR 724, where (at 730) in my opinion the Full Court accurately summarised the law as follows (I omit the citations which follow and support the statement of law):
‘Counsel for the appellant accepted that rectification of a written document could be granted by the court where there was either a concluded binding antecedent agreement between the parties or where the parties had reached a common intention before the execution of the written contract and that common intention continued up to the time of the execution of the written document ...’
A cautionary note, which I accept, was sounded in Pukallus v Cameron (1982) 180 CLR 447. There, Wilson J said (at 452):
‘The second principle governing the rectification of a contract ... is that which requires the plaintiff to advance “convincing proof” [Joscelyne v Nissen [1970] 2 QB 86 at 98] that the written contract does not embody the final intention of the parties. The omitted ingredient must be capable of such proof in clear and precise terms [citations omitted]. The court must not assume for itself the task of making the contract for the parties.’ ”
Further, Doyle CJ (at 434):-
“Having expressed its agreement it is taken to have continued to share the common intention on the basis of an objective assessment of its conduct: Westland Savings Bank v Hancock [1987] 2 NZLR 21 at 29-30.”
That case went on appeal and Williams J, on behalf of the Court, summarised the principles in this way (1996) 189 LSJS 146 at 153:-
“In the circumstances the relevant principles are contained in the three quotations set out below.
In Lovell and Christmas v Wall (1911) 104 LT 85 at 93 Buckley LJ said:
‘For rectification it is not enough to set about to find what one or even both of the parties to the contract intended. What you have to find out is what intention was communicated by one side to the other, and with what common intention and common agreement they made their bargain.’
In Craddock v Hunt (1923) 2 Ch 136 at 159 Warrington LJ with reference to the jurisdiction to rectify an instrument where it is based upon an earlier verbal agreement said:
‘The conditions to its exercise are that there must be an antecedent contract and the common intention of embodying or giving effect to the whole of that contract by the writing and there must be clear evidence that the document by common mistake failed to embody such contract and either contained provisions not agreed upon or omitted something that was agreed upon, or otherwise departed from its terms.’
During argument reference was also made to Pukallus v Cameron 180 CLR 447 where at 452 Wilson J said:
‘The case raises no issue as to the principles which govern the rectification of a contract. Those principles are not in dispute. There need not be a concluded antecedent contract, but there must be an intention common to both parties at the time of contract to include in their bargain a term which by mutual mistake is omitted therefrom. So long as there is a continuing common intention of the parties, it may not be necessary to show that the accord found outward expression, notwithstanding the view expressed to the contrary in Joscelyne, and Maralinga. The opposing view is argued by Mr. Bromley Q.C. in an article in the Law Quarterly Review. It is unnecessary to pursue the distinction in the present case because the representation of the respondent and its acceptance by the appellants plainly established such an accord.
The second principle governing the rectification of a contract which is material to this case is that which requires the plaintiff to advance “convincing proof” that the written contract does not embody the final intention of the parties. The omitted ingredient must be capable of such proof in clear and precise terms. The Court must not assume for itself the task of making the contract for the parties.’ ”
Rectification - Clause 6
It is convenient at this stage to deal with the application for rectification as it relates to Clause 6 of exhibit P2. The application is that exhibit P2 be amended to accord with exhibit P33 under the heading “SPECIAL CONDITIONS” as reproduced above (TP395).
In my view there is convincing proof that the common concurrent intention of the parties was that the standard Real Estate Institute Commercial Contract apply to this sale and purchase. Mr Franklin made it clear that it was his intention to print the standard contract from his computer but that there was an error in the printing or downloading process such as appears in P2. It was only during the trial that he became aware of the error and is taking steps to have the fault rectified (TP228-229).
Mr Hayes, who signed the contract on behalf of the Boating IA, believed he was signing a standard RESI contract (TP327). Mr Ginos also thought he was signing a contract with standard form terms and only concerned himself with the Schedule (TP449).
In my view this is a very clear case for rectification of the contract to have portion of Clause 6 accord with the same clause in P33. Upon a natural reading of the clause with its present wording, it fails to make sense because there are words obviously missing. Both parties were labouring under a common mistake that P2 had been correctly printed, and signed the contract on that basis. The error was not known to either of them at the time. They were mutually mistaken. I order that the contract, P2, should be so rectified and is taken to have been signed in its rectified form.
Rectification - inclusion of a further condition in the contract
During the course of the trial, the Boating IA made application to amend the Statement of Claim and Orders Sought by adding paragraph 1A:-
“1A An order that the contract be rectified by inserting in Part S of the Schedule a condition as follows:-
‘The Vendor agrees to waive arrears of rental as at 1st May 2003 in respect of the tenancy referred to in Part C of this Schedule.’ ”

I allowed the amendment during the course of the defence case. To overcome the potential for any unfairness to the defendant, I permitted the defendant to cross‑examine the plaintiff’s witnesses on this topic before proceeding further (TP315‑352). The topic could not have taken the defendant by surprise and any unfairness was, in my view, cured by the procedure adopted.
I have already referred to the sentence in P1 that was not incorporated in the formal contract. For ease of reference I reproduce it again:-
“We understand that there is a registered lease in place and that the current owner will waive the tenant’s arrears.”
To resolve whether it was the common concurrent intention of the parties that a term to this effect was to be included in the formal contract, it is necessary to refer to more of the factual circumstances. On behalf of Imeg it is submitted that it was always the vendor’s intention to waive the arrears of the tenant to facilitate the surrender of the lease by the lessee. That was Mr Ginos’ intention at the time of signing P1 and continued as his intention both before and after the signing of P2. However, Mr Ginos says he was prepared to do that by way of assistance to the Boating IA but that he was not legally bound to do so. In effect, he says that a condition to that effect was not intended by him to be part of the formal contract and legally binding on him.
I have already mentioned that the first written offer was subject to vacant possession (D27). The Boating IA had sold its premises at Wayville and was urgently in need of further accommodation because it needed to settle with the purchaser of its property. It was clear it needed vacant possession of the Morphett Street property for its own purposes.
Even before the making of the offer in D27, Mr Jones and Mr Waterman met with Mr Olly Andruchowycz on an informal basis to discuss his concerns about vacating the premises. At that stage Messrs Jones and Waterman thought there was scope to come to an agreement (TP29-30). Even when Mr Waterman made the initial enquiry with Mr Mann (of the vendor’s agent), the implication was that something might be able to be done to enable the Boating IA to buy it despite the lease (TP132-3, 137).
The offer contained within D27 was rejected because it was not enough. Mr Mann also said that it “....was impossible to give vacant possession” (TP137). Further negotiations then ensued between Mr Waterman and Mr Mann on behalf of their respective clients. The verbal offer of $585,000 was made and rejected. Mr Waterman then spoke to Mr Mann. I accept this evidence from Mr Waterman (TP138):-
“Q.You said there was a further written proposal. Do you recall how much that was for.
A.600,000, with a waiver of the tenant’s arrears and the surrendering of the lease.
Q.Did you speak to Richard Mann about waiving tenant’s arrears before you put that written proposal.
A.Yes.
Q.What did you say to him.
A.I said that I would suggest that his client’s tenant might need some incentive to leave the building, and obviously if he could avoid his arrears, it might be enough to make him go.
Q.What did Mr Mann say about that.
A.Richard thought that we could put something together around - he felt confident his client would waive the arrears, if we could end up with a satisfactory price, and at this stage at 600, it had not been achieved.”
I also accept this evidence from Mr Waterman (TP139-140):-
“HIS HONOUR
Q.Can I just ask you a couple of questions about that sentence ‘We understand that there is a registered lease’ etc.
A.Yes.
Q.At the time this document was prepared and the initial offer went off at 600,000, had you received any indication, via Mr Mann, that the vendor would, in fact, be prepared to waive the tenant’s arrears, or was that just something you were hoping for.
A.No, we had discussed it, and the reason it was put in the offer is because we said if we could agree on a figure, we would go down and approach the tenant and see if we could come to an amicable surrender, or accommodate the situation, was probably a more accurate situation. So in the offer I stated that we recognised there was a registered lease in place and that if the owner of the property would waive it and accept the figure that we finalised on, we would then be prepared to go down and talk to the tenant and see what could be accommodated.
Q.If the vendor agreed to a figure of 600, or 615 as it turned out, the document states that he will waive the tenant’s arrears, and he’s obviously signed that off as well, but you didn’t know in advance that he would waive the arrears.
A.Yes, because there’s no point going down talking to the tenant if we didn’t have that incentive.
Q.That’s what I’m trying to nail down.
A.Yes, absolutely.
Q.You had some verbal communication, presumably from the vendor, that at the time this letter of offer was knocked up and during the phone calls in the further negotiations, that ‘he would waive the arrears’.
A.Yes.”
Concerning the offer in P1, Mr Mann agreed that it was made subject to the lease on the understanding that the vendor would waive the arrears (TP293). Mr Hayes, who signed P1 on behalf of the Boating IA, agreed that the Association moderated its position, to take subject to the lease, on condition that Mr Ginos waive the arrears “....because you wanted to use the waiver of arrears as a carrot for you to negotiate the tenant out of the lease” (TP321). Later in his evidence he makes plain that it was part of his agreement with Mr Ginos that Mr Ginos waive the arrears (TP334). Mr Ginos wanted, for his own reasons, to be able to sell and settle on this property as soon as possible (TP382). He acknowledged that the arrangement was that he would forgo the arrears as part of the means of securing the surrender of the lease. That was going to be to his own advantage to accommodate his own separate requirements (TP384-5).
In my view there seems little doubt that the vendor and purchaser reached agreement that the vendor/lessor would waive the tenant’s arrears. It was understood by both parties that that waiver would be used by the purchaser in negotiations with the current tenant to secure a surrender of the lease, even if those negotiations resulted in the surrender and an accommodation of the lessee for a short period in part of the premises while an alternate tenancy was obtained. I do not think that the condition in P2 relating to a surrender of the lease affected this agreement and understanding about the arrears. To my mind it remained the common intention of the parties at the time of signing P2 that Mr Ginos, on behalf of Imeg, would waive the tenant’s arrears. It was both a moral and legal obligation to which he intended to bind himself.
Moreover, it (exhibit P1) was not intended to be an independent agreement on the subject matter. Securing the surrender of the lease was very much dependent upon the waiver of the arrears by Mr Ginos. Further, the agreement on the price of $615,000 was in the setting of the waiver of those arrears. In other words, I accept that the amount being offered by the purchaser was increased to $615,000 and accepted by Mr Ginos on the basis that the waiver of arrears was to be used by Mr Ginos as a lever to prise the tenant out of a lease that the tenant was unable to service. Mr Ginos knew and accepted that position. In my view, in the circumstances that unfolded, it was the common intention of the parties that that condition was intended to form part of their agreement. To the extent that any witness suggested otherwise, particularly Mr Ginos, Mr Franklin and Mr Mann, I do not accept that evidence.
I conclude that it was a mutual mistake whereby the contract failed to record the agreement to waive arrears of rental. I note that Mr Mann, whose job it was to prepare the formal contract P2, did not even consider the inclusion of such a condition because of a mistaken belief that it did not have to be included in the contract.
I order the rectification in accordance with the amendment paragraph 1A.
Termination by virtue of non-fulfilment of a Special Condition?
Both before and after the signing of the formal contract P2, various endeavours were made by a number of the witnesses to negotiate a surrender of the lease by the tenant. I have already touched upon the informal meeting between Mr Jones and the tenant prior to the signing of P2 (TP46). After acceptance of the Letter of Offer P1, there was a formal meeting between Messrs Jones, Hayes and Waterman, and the tenant, on Saturday, 3rd May, 2003 (TP30-32, 80-82, 100, 140). Those discussions were very encouraging. The tenant seemed prepared to agree to a surrender of the lease provided he could be accommodated for some time in the same premises, with some car-parks and eventually with an offer that no rent would be payable. He was told of the waiver of the arrears. It should be remembered that these discussions took place after the signing of P1 but before the signing of the formal contract P2 on Tuesday, 6th May.
There were suggestions that, on Monday, 5th May, the tenant was not going to agree to go. I accept that the tenant was raising further issues that needed to be resolved, but, in my view, none of them was regarded as insurmountable and an agreement with the tenant was still seen to be able to be achieved.
I note again the three Special Conditions in P2 referred to earlier. In that context the contract refers back to Clause 6 and that the agreement is subject to those three conditions. The first two conditions refer directly to the surrender of the lease and the third implies a surrender or perhaps an abandonment of the lease. In any event, they are all inter-related. The third condition potentially obliged the lessor to pay or contribute towards the “make good” of the premises prior to settlement.
The first condition relating to the agreed surrender of the registered lease needed to be achieved on or before 5.00 p.m. on Tuesday, 13th May, 2003. Having regard to the terms of the Special Condition, it is abundantly plain that that condition (as well as the second and third conditions) was included in the formal contract at the request of, and for the benefit of, the purchaser, the Boating IA. Mr Ginos acknowledged as much (TP392). Mr Ginos also acknowledged that it was necessary for him to get a surrender of the lease. He said this (TP384):-
“A.....My obligation was to get the lease surrendered. That’s the condition of the contract and that is my only obligation.”
He said that in the context of his view that he did not have an obligation to forgo the arrears. (In one sense that is right, but he did have an obligation to this purchaser to forgo the arrears if it was necessary to achieve a surrender of the lease.)
That is not to say, however, that the first Special Condition was without benefit to Mr Ginos. He needed to know by 13th May, 2003 if the lease was agreed to be surrendered. On all the evidence though, that Special Condition was included solely for the benefit of the purchaser because surrender of the lease was paramount, even though the Boating IA may have had to accept a situation of the tenant remaining for a limited time in portion of the building by way of licence.
There was no notification to the plaintiff of the agreed surrender of the lease on or before 5.00 p.m. on Tuesday, 13th May, 2003. Put generally, the tenant was supposedly wanting certain demands met before the lease would be surrendered and Mr Ginos was not prepared to meet those demands. In that situation, what is the status of the contract?
The vendor submits that non-fulfilment of the Special Condition in conjunction with Clause 7.3, that time is of the essence in respect of any obligation under Clause 7 (relating to the Vendor’s Default), results in the contract coming to an end on 13th May, 2003 (see para.5A of the Amended Defence).
I rely upon Willing & Anor v Baker and Anor (1992) 58 SASR 357 and the cases discussed therein. The first Special Condition was included solely for the benefit of the purchaser, the Boating IA. Upon the first Special Condition not being fulfilled, the contract became voidable in the hands of the purchaser. The defendant vendor did not have the right to terminate the contract for that reason. The terms of the contract, as rectified, then come into play (see P2 and P33).
The wording of Clause 6 “Special Conditions” is the same wording as the Clause 15 considered in Willing v Baker (supra). It provides for the right of either party to give Notice of Termination in certain circumstances. The opening words of the clause are as follows:-
“The party required to comply with a Special Condition must make every reasonable endeavour to do so.”
The party required to comply with the first Special Condition by the making of every reasonable endeavour was the vendor. Not only did Mr Ginos acknowledge that in the passage quoted above (TP384), the condition referred to the “agreed” surrender of the lease by a certain date and time, and Imeg, through Mr Ginos, was one of the two parties that needed to agree. For reasons that are considered below, the purchaser contends that Mr Ginos (for Imeg) did not make every reasonable endeavour to comply with the first Special Condition. In that situation the purchaser says the vendor cannot rely upon sub-clause 6.1 and therefore no right to terminate arose under sub-clause 6.2.
Where one party is required to make every reasonable endeavour, the question arises as to how to measure compliance. This question was considered in Tentye v Webb, Judgment No. [1999] SADC 117, by Judge Lunn at para.16:-
“Clause U(3) required the defendants to use their best endeavours to obtain acceptance for the deposit of the plan. The test whether reasonable endeavours have been used is objective and is based on the standards of a reasonable person viewed in the light of the particular circumstances in which the defendants were placed: Parland Pty Ltd v Mariposa Pty Ltd (1995) 5 Tas R 121 at 123; Hawkins v Pender [1990] 1 Qdr 135; Paltara Pty Ltd v Dempster (1991) 6 WAR 85. A useful rule of thumb in testing if best endeavours have been used, which was approved in these decisions, is whether if the positions of the parties were reversed so that the defendants wanted the plan accepted for deposit in time but the plaintiffs did not, what could it be reasonably expected the defendants would then have done in their own interests to achieve that objective.”
Did the vendor make every reasonable endeavour?
I have already touched upon dealings between the Boating IA (Mr Jones) and the tenant before the signing of P1 and after its signing (Messrs Jones, Hayes and Waterman) on 3rd May. There were further dealings between the tenant and Mr Waterman on Monday, 5th May that led to the tenant raising or refining issues that needed resolution. At that stage, and prior to the signing of P2, Mr Waterman spoke with Mr Franklin. I accept Mr Waterman’s evidence to the effect that it was really up to the landlord and tenant to resolve any outstanding issues and that a formal contract should be prepared (TP145-6). I do not accept the evidence of Mr Franklin (TP188-190, 216-218) that Mr Waterman did not hold any prospect of reaching agreement with the tenant because, if that was the case, there was no point in Mr Franklin preparing a formal contract.
There was little else the Boating IA, as purchaser, could do once the formal contract was signed. The obligation fell to the vendor/lessor to secure agreement to the surrender of the lease. Mr Ginos accepted that (TP384), as did his agent, Mr Franklin, who felt this could be achieved (TP191).
On Friday, 9th May, Mr Waterman rang Mr Franklin for a progress report. I find that Mr Franklin indicated that, although not all issues were resolved, he was confident they would be (TP150-1). I also find that Mr Franklin and Mr Mann showed the tenant alternate premises to rent and discussed with him the surrender of the lease, but no agreement was reached. That was also on 9th May.
I also accept that Mr Waterman rang Mr Franklin on Monday, 12th May and again Mr Franklin indicated that he was confident matters could be finalised. Some of the evidence suggests this occurred on Tuesday, 13th May, but the likelihood is that it was on Monday, 12th May. Mr Franklin spoke with the tenant on 12th May but, according to Mr Franklin, supposedly no agreement was reached (TP197-8).
The Special Condition stipulated that the agreement for the surrender of the lease be achieved by 5.00 p.m. on Tuesday, 13th May. Surprisingly, it appears as though there was no contact between the vendor (or its agents) and the purchaser on 13th May.
I find that, on 14th May, Mr Mann spoke with Mr Waterman and said that the tenant had made some impossible demands. The demands were apparently made by email. Mr Mann was of the view that, because the demands could not be met, the deal was not going to happen (TP152). The email eventually became exhibit P3. This is a curious document. It is dated Wednesday, 14th May, the day after the agreement to surrender the lease was supposed to have been made. It refers in the opening paragraph to a conversation with Mr Franklin late that same morning, requesting that the tenant document his ideas from the previous week whereby the tenant would be prepared to surrender the lease. This request seems very late in the piece and, looking at the text, the “concerted help” referred to in para.2 had already been given.
It is almost as if the tenant was purposefully asked for a letter to show how difficult he is being whereas in fact agreement had been largely reached (see later comments concerning D30). In other words, I query whether it was a letter that was designed to give the appearance of complicated unresolved issues, whereas resolution was within reach or had been reached. However, there is not enough material to come to that conclusion. I raise this as it was a suspicion but I disregard it.
Subject to the discussion below concerning the actual agreement to surrender the lease between the vendor and lessee, the conclusion to which I have come is that the vendor did not make “every reasonable endeavour” to comply with the Special Condition. The vendor (Mr Ginos/Imeg) operated through agents to seek agreement to the surrender of the lease. It was not unreasonable to rely upon them to make the required endeavours. However, apart from showing the tenant alternate properties, the agent seems to have done very little else. There was some contact but no real effort to resolve outstanding issues, particularly as the deadline loomed on Tuesday, 13th May. Furthermore and by way of alternative, Mr Franklin’s letter to Mr Ginos of 14th May (exhibit D30, sent by facsimile by Mr Franklin at 5.00 p.m. on 14th May - D35), records that agreement had apparently been reached (see discussion below). Such agreement is contrary to what was said to be the position in the events that followed.
Subsequent events - mutual termination?
On 15th May, Mr Waterman met Mr Jones at the Wayville premises of the Boating IA. A telephone call was made from Mr Jones’ office to Mr Franklin to seek clarification of the position. There are a number of versions of this conversation. I have seen and heard the witnesses give their accounts. I find that the conversations were essentially to the effect as related by Mr Jones and Mr Waterman. I find that Mr Franklin said that the tenant’s conditions could not be satisfied, the sale was not going to go ahead, the property was going to be withdrawn and the deposit, along with an apologetic letter, would be forthcoming. I completely reject the suggestion that Mr Jones or Mr Waterman said that they want “out” or “we’re out” and asked for a return of the deposit. It is very plain from the evidence that the Boating IA were very keen about purchasing this particular property and that it had time constraints of its own. Even if some problem had arisen, the Boating IA would have explored every avenue of resolution before it would have relinquished this building. Mr Jones was a very impressive witness. He was not in a position to repudiate or vary this contract of his own motion. He was duty-bound to report back to his Board and await their instructions (TP36-7). Mr Franklin relied upon notes he claimed were made immediately after the conversation. However, in the context of the events as he claimed them to be, the notes do not make sense (D32 and TP268-270). I regard this evidence as very unsatisfactory. Furthermore, the notes make no reference to a return of the deposit.

The reason for Mr Franklin’s expressed attitude is to be found in other events. The essence of my finding on this point is that the vendor (Mr Ginos/Imeg) came to realise that another potential purchaser was prepared to offer $35,000 more for the property without conditions except that it was sold subject to the registered lease. The defendant/vendor then tried to avoid the contract without legal or factual justification.
Before the telephone call with Mr Franklin on 15th May, he (Mr Franklin) had had indications that the owner of an adjacent property was prepared to pay $650,000 for the building (TP210, 244). I do not accept Mr Franklin’s attempt to resile from this position (TP251-2), but he later confirmed the position that, on 14th May, he knew of a verbal offer at $650,000 (TP260). Mr Franklin knew this as on 14th May he had another contract prepared for possible signature by this potential purchaser, even if the price was left blank. There had been discussions the previous day (13th May) with this potential purchaser (TP273). That there were other potential buyers is supported by the third and fourth paragraphs of D30. Even Mr Ginos said he knew on 12th or 13th May (TP435).
Further, Mr Ginos’ letter (for Imeg) of 14th May to Mr Franklin (D31) states his (Mr Ginos’) view that the contract is voidable (meaning, to him, at an end, TP392) and a desire to obtain $650,000 for the property.
Yet further, even in Mr Franklin’s account of the conversation with Messrs Jones and Waterman on 15th May he said: “....if the price was paid commensurate with what was sought, then there was every chance that it may proceed” (TP248). Clearly, Mr Franklin was trying to push the Boating IA to pay more in accord with the amount he knew the other potential purchaser was prepared to pay. If the Boating IA was prepared to pay close to that amount then the problems he envisaged by his letter of 14th May to Mr Ginos (D30) could be avoided. Mr Franklin denied that he knew Mr Ginos wanted to get out of the contract with the Boating IA because he (Mr Ginos) had a written offer at $650,000 (TP269). I do not accept that denial. I find that, on 13th May, there was a written offer at that price or at least a firm verbal offer at that price.
Agreement between defendant and tenant prior to 5.00 p.m. on 13th May, 2003
More needs to be said about D30 and D31. Both are reproduced below (D30 page 1 only). D31 is in Mr Ginos’ handwriting. Mr Franklin says he faxed D30 to Mr Ginos at approximately 4.00 p.m. on 14th May and received D31 from Mr Ginos at about 4.40 p.m. (see also facsimile time of 16.41). I am not sure if that is correct. D35, the activity report from Mr Franklin’s business, shows a transmission to Mr Ginos at 5.00 p.m. on 14th May of two pages. D30 consists of two pages. It may be that the documents should be understood as D31 first and D30 second. D30 and D31 read as follows:-
Exhibit D30
“Dear Zis
RE: 300 MORPHETT STREET / ADELAIDE BUSINESS SOFTWARE
I refer to the contract dated 6th May 2003 between Imeg Pty Ltd and Adelaide Business Software Pty Ltd and in particular page 11 and Special Condition clause 6 under the heading ‘Other’.
As at 5pm yesterday I had not received the letter of offer of agreement from ABS to the surrender of the lease and this morning in discussion with the principal, Olly Andruchowycz, he confirmed agreement to the proposal we verbally transmitted as discussed with you last week. His email is herewith for your perusal.
Notwithstanding the interest in the property shown by others, we are of the view the contract to ABS is legally enforceable, given you agree to these conditions you sought.
Accordingly, we are not prepared to document the offer requested of us by others believing that if you choose not to accept the surrender of lease, formal termination of the condition and contract needs to be applied before any other agreement or contract for the sale of the property can be entered into by another purchaser.
In discussion with yourself last Thursday, you indicated acceptance of the terms ABS seek. These terms we recorded in order for our transmission to ABS be correctly interpreted. If you require us to undertake any further work in relation to this matter, please communicate.
In the meantime, could you advise acceptance of the conditions in order to finalise the matter with both purchaser and Lessee.
Yours faithfully ”
Exhibit D31
“Further to our discussion we confirm that the conditions of the contract were not fulfilled by 5pm Tuesday 13 May 2003, and therefore we consider that the contract is voidable and we give you notice of termination.
Please proceed to procure a purchaser on our initial terms i e $650,000 subject to the lease to Adelaide Business Software P/L.
We also confirm that we are able to extend settlement to 30th June 2003 on the basis of the above.
Regards
Zis Ginos (signed)
Director (Imeg P/L) ”
A number of aspects are clear from D30. First, agreement in principle had been achieved between the tenant and Mr Ginos as to the terms of the surrender of the lease prior to the 13th May, 2003. Secondly, Mr Franklin was conveying his view to Mr Ginos that the contract with the Boating IA was legally enforceable “....given you agree to these conditions you sought.” Thirdly, he told Mr Ginos that, “if you choose not to accept the surrender of the lease....”, formal termination of the condition and contract needs to be undertaken before entering a contract with another purchaser. Fourthly, Mr Franklin was seeking advice of the acceptance of the conditions (for surrender of the lease) to finalise the matter with both purchaser and lessee.
I find that, despite what Mr Franklin said (TP264), before he wrote D30 he had had verbal discussions with Mr Ginos who had indicated that he (Mr Ginos) did not regard himself as bound by the contract, whereas Mr Franklin took the opposite view. Mr Franklin wrote D30 to confirm and preserve his position. I reject the evidence of Mr Ginos to the contrary (TP437-439).
D31 appears to be a confirmation of verbal discussions. By D31 Mr Ginos was purporting to give note of termination to his own agent. Mr Ginos said he thought “voidable” meant that the contract was “finished” (TP392). He also confirmed he was able to extend settlement to 30th June, 2003, which happens to be the settlement date for the new proposed purchaser (see D36).
I expressly reject the submission that this contract was the subject of mutual termination. I expressly reject the evidence from Mr Franklin (TP206-7) and submission that Mr Jones and/or Mr Waterman acquiesced in the return of the deposit.
I return to the events of 15th May. At about 10.10 a.m. or thereabouts there was the telephone conversation between Messrs Jones and Waterman on the one hand, and Mr Franklin on the other. At the conclusion of that conversation, Mr Franklin, on his account, made notes of the conversation, finishing at about 10.30 a.m. The Belair property facsimile was then sent to Mr Waterman. Then Mr Franklin and Mr Mann went to the office of the new purchaser and another contract was signed, this time for $650,000 and subject to the registered lease. They then went around at Mr Ginos’ office by about 11.15 a.m. and he promptly signed that contract. In my opinion, Mr Ginos was prepared to risk civil action by the Boating IA in order to secure the extra purchase price (see also D43). In addition, for the purposes of the new contract, he was not obliged to waive the arrears of rent.
If it was the view of Mr Ginos that the contract was “finished” because the agreement as to the surrender of the lease was not achieved despite genuine negotiations, that is incorrect. As I have found earlier, the Special Condition was included for the benefit of the purchaser and was voidable by it in accord with the contract.
In my view the vendor is not able to now rely upon the rectified clause 6.1. Either the tenant had agreed prior to 13th May to surrender the lease as per the first Special Condition or the vendor did not make every reasonable endeavour to comply with that Special Condition by having the surrender document executed once the tenant agreed. In the further alternative, even if the view is taken that every reasonable endeavour was made, an agreement as to surrender was reached but that the vendor, by neglect or default, failed to execute the surrender document because it wanted the greater purchase price without waiver of arrears of rent (D30 and TP223-228, 252-255).
Even if I am not correct about the alternative point and the vendor was entitled to terminate pursuant to clause 6.1, it was obliged to give seven days written notice to the purchaser. This it failed to do. Exhibit P5 does not suffice for this purpose. It was wholly inadequate as to the matters that would need to be included in such a notice. The vendor is only entitled to terminate after the giving of the seven days notice. If such a written notice had been given to the purchaser, it would have been entitled to waive the Special Condition and avoid termination of the contract: Willing v Baker (supra), per Legoe J at 372-374 and Cox J at 375.
I mention an additional matter.
At the conclusion of the telephone conversation on 15th May, Mr Franklin told Mr Jones and Mr Waterman of a property for lease on Belair Road, Hawthorn. Mr Jones and Mr Waterman agree that a brochure was sent to them about that property shortly after the conclusion of the conversation. They inspected it that day or the next.
It was suggested to them that their actions indicated that they knew the contract was at an end. Both denied that suggestion, Mr Waterman saying that they had to look at all options (Jones TP60-1, Waterman TP178). It should not be overlooked that they were presented with a fait accompli and it is not surprising that they set about exploring other options that may provide at least a short-term solution. I also note and accept that Mr Waterman spoke with Mr Franklin the following day and said “they intended to proceed” and “we were going to take him on” (TP177).
Events after 15th May, 2003
On 16th May, Ms Rebecca Hayes (daughter of Mr Hayes), for the proposed conveyancer (Conveyancing SA), wrote to Mr Ginos on behalf of the purchaser. She requested details of Mr Ginos’ (Imeg) efforts to secure surrender of the lease. No details were forthcoming, but Mr Ginos replied (P5 - referred to above) saying all communications to the lessee had been through Gordon Franklin Pty Ltd. Also on 16th May, the Boating IA lodged a caveat on the property (P6 and P7).
On 21st May, Mr Franklin attempted to return the deposit of $25,000 (P8), but the cheque was returned by Mr Hayes (P11).
Finally, by an agreement dated 23rd May, the tenant agreed, upon certain conditions, to a surrender of the lease. By letter of the same date, the solicitors for the Boating IA formally notified Imeg Pty Ltd that, amongst other matters, it waived satisfaction of the Special Condition to its agreement to complete the purchase of the property.
Conclusion
In my view the Boating IA has proved its entitlement to an order for specific performance of the contract. I have already noted that this is a discretionary remedy. The question arises as to whether there should be an order as to damages in lieu of an order for specific performance. I have also already noted that this property is ideally suited to the purposes of the Boating IA and it remains committed to completing the contract at the agreed price. The vendor is in breach of this contract by wrongfully terminating or purportedly terminating it. The vendor has refused to execute the necessary documents. In my view damages would not be an adequate remedy in this case.
I make a declaration that, as between the plaintiff and the defendant, the agreement dated 6th May, 2003 for the sale and purchase of land comprised in Certificate of Title Register Book Volume 5358 Folio 466 is enforceable and is to be specifically performed and carried into execution at the purchase price of $676,500 (inclusive of GST).
I will give the plaintiff liberty to apply on the question of damages.
I will hear the parties on the question of costs.

[2003] SADC 130

26 August 2003