Brixmond Pty Ltd v Shaftesbury Nominees Pty Ltd (in liq)
[1994] QCA 557
•21/12/1994
| IN THE COURT OF APPEAL | [1994] QCA 557 |
| SUPREME COURT OF QUEENSLAND | Appeal No. 60 of 1994 |
| Brisbane | |
| Before | Fitzgerald P. Pincus J.A. Williams J. |
[Brixmond Pty Limited v. Shaftesbury Nominees Pty Ltd (R. &
M. Apptd.) (In Liq.)]
BETWEEN:
BRIXMOND PTY LIMITED
(First Defendant and Plaintiff
by Counterclaim) Appellant
AND:
SHAFTESBURY NOMINEES PTY LIMITED (RECEIVERS
AND MANAGERS APPOINTED) (IN LIQUIDATION)
(Plaintiff) First Respondent
AND:
NEIL EDWIN SUMMERSON and
ROSS ANDREW DUUS
(Second Defendants by Counter-
claim) Second Respndents
AND:
NZI SECURITIES AUSTRALIA LIMITED
(Third Defendant by Counter-
claim) Third Respondent
REASONS FOR JUDGMENT - FITZGERALD P.
Judgment delivered 21/12/1994
This is an appeal from a judgment delivered in the Trial Division on 2 March 1994, awarding the first respondent, the plaintiff in the action, the sum of $927,842.64 against the appellant/first defendant. The appellant seeks to have that judgment set aside, the dismissal of the first respondent's action and judgment on the appellant's counterclaim for $200,000.00, together with orders for costs.
The action arose out of a contract of sale between the first respondent as vendor and the appellant as purchaser dated 22 January 1990. Prior to that time, receivers and managers (who are also respondents) had been appointed to the first respondent, which, later, was also placed in liquidation. The property sold can be compendiously described as the Barkly Hotel/Motel at Mt. Isa, including the real property and improvements, the liquor license and other licenses and contracts associated with the business, stock in trade and fixtures, fittings, equipment, machinery and motor vehicles, etc.. The parties are agreed that the contract was an "instalment contract" within the meaning of the Property Law Act 1974.
The contract was signed in the first respondent's name by its receivers and managers, who had been appointed by NZI Securities Australia Limited (which is also a respondent) under a mortgage debenture and a memorandum of mortgage given it by the first respondent. There was also a subsequent registered charge over the property sold from the first respondent in favour of another secured creditor, Morlend Finance (Vic.) Pty Ltd.
The appellant paid a deposit of $200,000.00 upon execution of the contract, which fixed 24 June 1990 as the "Date of Settlement", when the balance purchase price of $1,800,000.00 was payable, with time agreed to be of the essence.
In accordance with the contract, the appellant received possession of the property sold on the day the contract was signed, and subsequently outlaid further substantial amounts in connection with the operation of the business and compliance with Licensing Commission requirements.
A number of short extensions of time for completion were agreed, and finally, by a letter from the first respondent's solicitors to the appellant's solicitors dated 26 June 1990, the parties agreed to "extend the time for settlement to 10.00 a.m. on Wednesday, 27 June 1990 at the Wardens Office, Mt. Isa with time to remain of the essence of the contract in all respects...".
The appellant was unable to borrow the money which it needed to pay the balance purchase price and did not attend at the time and place fixed for completion.
Before proceeding to discuss what then occurred, the position in relation to the liquor licence and the Morlend charge at 27 June 1990 should be noted.
Clause 11.08 permitted the appellant to carry on business pursuant to the first respondent's liquor licence pending completion of the sale, and cl. 11.01 provided for the transfer of the licence to the appellant on the date of completion. That clause also required each party to "do all acts, matters and things necessary to obtain a transfer of the Licence ... on or before" that day, and some of the appellant's obligations in that respect were elaborated upon in cl. 11.02. Further, cl. 11.05 provided:
"If the application for transfer of the Licence is not approved on or before the Date of Settlement, either party may rescind this Agreement by notice in writing to the other and provided the Vendor is not in default under the terms hereof in circumstances where the Purchaser is not also in default the Vendor shall not be obliged or required to refund the deposit or any part thereof or to pay compensation to the Purchaser."
On 27 June 1990, the appellant was in breach of cl. 11.01 and, in consequence, the liquor licence could not be transferred. Because the appellant had been unable to borrow the money which it needed, it was unable to satisfy certain of the Licensing Commission's requirements for the transfer of the liquor licence; namely:
"...
6. Advice as to finance being obtained together with terms and security of same.
7. Confirmation from any mortgagee as to approval of finance.
8. A feasibility study to be carried out by an accountant to include a projected Profit and Loss Account for the next 12 months' trading."
Two other Licensing Commission requirements also had not been satisfied, but the trial judge treated them as insignificant. They were machinery matters which could, and his Honour found would, have been readily satisfied if the appellant had been able to obtain finance and proceed to completion.
By cl. 2.03 of the contract the property was sold "free of any ... charge, ... or other encumbrance whatsoever", and, by cl. 6.04, the first respondent was required, at completion, to deliver all necessary documentation to the appellant in exchange for the balance purchase price. See also cll. 6.05 and 21. On 22 June 1990, the directors of Morlend had resolved that its charge from the first respondent be released, and, that day, a director of Morlend signed a Memorandum of Release of Property ... from Charge" in Form 52, for registration pursuant to sub-s. 207(1) of the Companies Code (cf. sub-s. 269(1) of the Corporations Law). The Memorandum of Release identified the Morlend charge and stated that Morlend "gives notice that the property described in the Schedule was released from the charge". The schedule referred to "All the property described as the Barkly Hotel, Mt. Isa". There was no evidence that Morlend executed any other document releasing the charge.
On 25 June 1990, Morlend wrote to the first respondent's solicitors enclosing the Memorandum of Release but, at 27 June 1990, only a facsimile copy had been received, and that was all that was available to be handed over by the first respondent to the appellant on completion.
On 27 June 1990, the first respondent wrote to the appellant in the following terms:
"We refer to our solicitor's previous
correspondence with you. Consequent upon:-1. The [appellant's] failure to pay the balance of the purchase price on the Date of Settlement; and
2. The [appellant] having otherwise failed to comply with the terms of the Contract dated 22 January 1990 including (inter alia) the provisions of clause 11.01 and 11.02 thereof,
we hereby notify you that (in the addition to any other rights which may be conferred upon the [first respondent] under said Contract or at law or in equity), we hereby terminate the Contract and elect in terms of clause 24(c)(ii) of the Contract to declare the deposit forfeited and to resell the property.
Additionally, and in terms of clause 24(d) of the contract your client is required to immediately yield up possession of the property. ... ."
There is some doubt as to when the appellant received that letter, but it was after it failed to attend at the time and place fixed for completion, and the better view seems to be that it was during business hours later that afternoon.
On the same day, the first respondent re-entered and retook possession of the property which it subsequently sold at auction, after extensive advertising, for $1,350,000.00 by a contract dated 1 October 1990. No attempt was made by the appellant to proceed with the contract in the intervening period, and it did not bid at the auction.
Sub-clauses 24(c) and (d) of the contract provided:
"24. DEFAULT OF PURCHASERIf the [appellant] fails to pay the deposit or any balance of the purchase price or otherwise fails to comply with any of the terms of this Agreement, then the [first respondent] may in addition to any other rights which may be conferred upon it hereunder or at law or in equity -
...
(c) terminate the contract and -
(i) elect to declare the deposit forfeited and/or sue the [appellant] for damages for breach; or (ii) elect to declare the deposit forfeited and/or resell the Property without any notice to the [appellant] by such manner as the [first respondent] shall deem fit and provided that the resale is completed within 12 months from the date of termination, any deficiency arising from such resale and any expense arising from such sale shall be recoverable by the [first respondent] from the [appellant] as liquidated damages.
(d) ... if the [appellant] shall make default under the terms of this contract of sale then the [appellant] shall immediately and without the need for any prior notice from the [first respondent] or otherwise) yield up possession of the property."
In its statement of claim, the first respondent alleged that it had terminated the contract for the appellant's repudiation on 27 June 1990, and claimed "damages for breach of contract plus interest pursuant to the provision of the said agreement". Both parties proceeded on the basis that the first respondent was also entitled to rely upon termination under sub-cl. 24(c) of the contract if that was justified, and the "damages" which the first respondent proved corresponded with sub-cl. 24(c)(ii). In his judgment, the trial judge said:
"Damages
Clause 24 of the contract provides for the
calculation of the damages as 'any deficiency
arising from such resale and any expenses arising
from such sale.' ... The amount is $476,707.72.
The interest assessed in accordance with the
provisions of the contract, and the amount of that
interest to date of judgment is $451,134.92,
making a total of $927,842.64."
In its written outline, the appellant questioned a ruling on evidence by the trial judge which it sought to connect to the amount which he calculated was payable by the appellant if the first respondent succeeded, but there was no oral argument on the point and I am satisfied that it is without merit.
In substance, the appellant's counterclaim was for the return of the deposit of $200,000.00, plus interest.
Authority
The appellant's most fundamental point is that the contract "was void" and "had no force or effect", because "the Receivers and Managers of the First Respondent had no authority to enter into" it after the liquidators had been appointed to the first respondent; "the agency of the Receivers and Managers was terminated" by the appointment of the liquidators.
The applicable principles are not in doubt. A receiver appointed under securities such as those held by NZI Securities from the first respondent is the agent of the company in receivership; his agency is not determined by the winding up of the company and the appointment of liquidators, although that agency does not enable the receiver to incur liabilities which can be proved in the winding-up of the company. The receiver can, as agent of the company, dispose of property to which the security relates. See, e.g., Re Obie Pty Ltd [No. 2] (1983) 8 A.C.L.R. 574; Forest Pty Ltd (Receivers and Managers Appointed) v. Keen Bay Pty Ltd (1991) 4 A.S.C.R. 107; Atkins v. Mercantile Credits Ltd (1985) 10 A.C.L.R. 153; Re Yates;
National Mutual Life Association v. Catco Developments Pty
Ltd (1989) 88 A.L.R. 583; and cases cited: cf. Companies
(Queensland) Code, sub-ss. 324A (1) and (2)(b).
At most, it is arguable that the first respondent's receivers and managers might not have had authority to make it liable on some of the terms of its contract with the appellant; of those nominated by the appellant, only cl. 13.03, which required the first respondent to "pay to each Employee the amount of wages, holiday pay and long service leave as at the [date of the contract]", might conceivably have caused any difficulty; all the other provisions specified by the appellant simply required adjustment of the balance payable on completion.
If cl. 13.03 was impermissible, the only possible consequence was to make the first respondent's receivers and managers personally liable, or to entitle the appellant to deduct an appropriate amount from the balance payable on completion. There is no substance in the appellant's argument that there was no valid and enforceable contract of sale.
Anticipatory breach
The next of the appellant's arguments was based on the premise that, by agreement, the time for completion had been extended to 27 June 1990. It was submitted that the appellant therefore had until at least the close of business on that day to satisfy its outstanding obligations under the contract, and, accordingly, it was not in breach of those obligations when the first respondent acted to terminate the contract. However, even if the basic premise be assumed in favour of the appellant, the consequence which it asserts does not follow.
Anticipatory repudiation of a contract, entitling the other party to terminate the contract forthwith, may occur in a number of circumstances, including a refusal or inability to perform an essential obligation. In Rawson v. Hobbs (1961) 107 CLR 466, Dixon CJ said at p. 481 that "... it is absurd to treat one party as tied to the performance of an executory contract although the other has neither the means nor intention of performing his part when his time comes, simply because his incapacity to do so is not necessarily final or logically complete." At p.491, Windeyer J. said:
"What happened was that it became apparent that the vendors did not have, and had no prospect of being able, within the agreed time, to get, a title to the land they had contracted to sell. The purchasers were therefore entitled to be discharged under the principle of Forrer v. Nash ((1865) 35 Beav. 167 [55ER 858; 147 RR 92]). It is not necessary to consider the debated question as to the nature of the right involved .... ."
Not every inability to perform a provision in a contract constitutes an anticipatory repudiation. As is apparent from what was said in that passage by Windeyer J., the innocent party's entitlement to terminate the contract in that case arose because the obligation which the other party was unable to perform was fundamental. See also Foran v. Wight (1989) 168 C.L.R. 385. But anticipatory repudiation will also arise if the refusal or inability to perform otherwise goes to the root of the contract: Laurinda Pty. Ltd. v. Capalaba Park Shopping Centre Pty Ltd (1989) 166 C.L.R. 823, 641-644, per Brennan J.; Foran at p. 441 per Dawson J.; Sibbles v. Highfern Pty Ltd (1987) 164 C.L.R. 214.
In Foran, Brennan J. at p. 423 left open the question whether an inability to perform a term of a contract is a breach of contract, but that such an inability is a breach was accepted in Sunbird Plaza Pty Ltd v. Maloney (1988) 166 C.L.R. 245 at pp. 263-264, per Mason C.J., with whom Deane, Dawson and Toohey JJ. agreed.
On the hypothesis advanced by the appellant and assumed to be correct for present purposes, at the time when the first respondent gave the appellant notice of the termination of the contract on 27 June 1990, there were two specific anticipatory breaches of the contract by the appellant. As was apparent when it failed to attend at the time and place agreed for settlement that morning, it remained unable to pay the balance purchase price or satisfy the Licensing Commission requirements throughout that day, and time was of the essence.
Non-payment of the balance purchase price
The first respondent could not terminate the contract on 27 June 1990 for the appellant's non-payment of the balance purchase price because of sub-s. 72(1) of the Property Law Act which, as far as presently material, provides:
"72(1)
An instalment contract shall not be ... determined because of default on the part of the purchaser in payment of any ... sum of money ... due and payable under the contract until the expiration of a period of 30 days after service upon the purchaser of a notice in Form 2 of Schedule 2."
See Sibbles; Braidotti v. Queensland City Properties Pty Ltd
(1991) 172 C.L.R. 293.
Breach of cl. 11.01; anticipatory repudiation
The appellant's other specific breach was a breach of cl. 11.01. It will later be necessary to consider the operation of sub-cl. 24(c)(ii) in connection with that breach. However, first there are questions associated with repudiation to be considered. If there was an anticipatory repudiation, the appellant contends that the first respondent was not entitled to accept the repudiation and terminate the contract because, by reason of the position in relation to the Morlend charge, the first respondent was not itself ready and willing to perform its contractual obligations.
In the context in which it occurred, the appellant's
breach of cl. 11.01 was of limited practical significance.
The transfer of the liquor licence was not to occur until
completion, and the first respondent had no significant
interest in the appellant's performance of cl. 11.01 prior
to such earlier date as would enable the licence to be
transferred on completion. The appellant's inability to
perform its obligations under cl. 11.01 were directly
related to its lack of the balance purchase price, and it is
a reasonable inference that the non-compliance with cl.
11.01 would have been remedied if the appellant had borrowed
the balance purchase price.
However, it does not follow that cl. 11.01 was not an essential term, breach of which by the appellant entitled the first respondent to terminate the contract and sue for damages occasioned by the loss of the sale. There is "a preference for a construction that will encourage performance rather than avoidance of contractual obligations": Ankar Pty Ltd v. National Westminster Finance (Australia) Ltd (1987) 162 C.L.R. 549. However, there is no doubt of the importance of the appellant's performance of cl. 11.01 to the first respondent; while the appellant, as intended transferee, was interested in acquiring all the property which it had contracted to buy, the first respondent was interested in disposing of the liquor licence which exposed it to continuing statutory obligations (unless it surrendered the licence).
In DTR Nominees Pty Ltd v. Mona Homes Pty Ltd (1978) 138 C.L.R. 423, Stephen, Mason and Jacobs JJ. said at p. 430:
"Whether a term of a contract is essential or not is a question of construction which is to be answered with due regard to the general nature of the contract considered as a whole and to its particular terms."
Their Honours then went on to quote with approval a passage from the judgment of Jordan C.J. in Tramways Advertising Pty Ltd v. Luna Park (N.S.W.) Ltd (1938) 38 S.R.(N.S.W.) 632, 641-642, which included the following sentence:
"If the innocent party would not have entered into the contract unless assured of a strict and literal performance of the provision, he may in general treat himself as discharged upon any breach of the promise, however slight."
See also Ankar at 556. (It is unnecessary to consider in this case the alternative possibility where substantial, as distinct from strict, performance may be sufficient.)
In construing the contract in this instance to determine whether or not breach of cl. 11.01 by the appellant entitled the first respondent to terminate the contract, it is necessary to keep in mind the contract's express provisions with respect to termination. In my opinion, there is no warrant for concluding that the first respondent was entitled to terminate the contract for the appellant's breach of cl. 11.01 except as provided by the contract itself: see cll. 11.05 and 24(c). Whether the first respondent was entitled to use the latter provision is discussed below.
Before doing so, it is convenient to consider the other possible basis for a conclusion that the appellant repudiated the contract. Sub-section 72(1) of the Property Law Act does not preclude a finding that, by its conduct, the appellant repudiated the contract by evincing an intention not to be bound by, and perform, the contract according to its terms: Sibbles; Braidotti. I have concluded that that is the proper interpretation to be placed on the appellant's conduct up to and on 27 June 1990, particularly its failure even to attend at the time and place for completion.
Although the position in relation to the Morlend charge obviously had nothing to do with the non-completion of the contract, the appellant contended that it prevented the first respondent from terminating the contract on the basis of the appellant's repudiation. The appellant relied on the principle that a party cannot terminate a contract for the other party's repudiation if the party seeking to terminate is itself in breach of a concurrent and mutually dependent obligation, unless the party seeking to terminate is excused or absolved from its obligation by the party in breach or its conduct: see, e.g., Foran.
However, the appellant's attempt to resort to this principle faces a number of obstacles, even if it be assumed that, because of the position in relation to the Morlend charge, the first respondent was not in a position to complete at the time and place fixed for completion or when it gave notice of termination on the afternoon of 27 June 1990.
For example, while the appellant's pleading (Further Further Amended Defence, para. 5A(a)(i) C.I. and II.) was sufficient to raise an issue as to whether the Memorandum of Release was legally effective to release the Morlend charge, including the question whether the description of the property in the schedule to the Memorandum of Release was deficient, it is doubtful whether any other point with respect to the sufficiency of the documentation which the first respondent had available on 27 June 1990 was pleaded: Property Law Act, sub-s. 61(2)(b); Neeta (Epping) Pty Ltd v. Phillips (1974) 131 C.L.R. 286; Rands Development Pty Ltd v. Davis (1975) 133 C.L.R. 26. Not surprisingly, perhaps, there were disputes both as to evidence which the first respondent asserted could have been called and findings in favour of the first respondent which the appellant asserted the trial judge should not have made.
Because of sub-cl. 25(b) of the contract, I do not consider it necessary to examine these matters, or the appellant's argument that the first respondent was required to demonstrate that any shortcoming in what it had available at the time and place fixed for completion was attributable to reliance on the appellant's prior intimation that it would not then complete: see, e.g., Austral Standard Cables Pty Ltd v. Walker Nominees Pty Ltd (1992) 26 N.S.W.L.R. 524, 539, 540.
Sub-clause 25(b) of the contract provided:
" 25. Receiver Sale
...
The purchaser agrees that if the vendor is restricted or prohibited by any means whatsoever in giving title and/or vacant possession and/or in effecting settlement in accordance with the terms hereof, then the vendor may at its option by notice in writing to the purchaser at any time up to and including the Date of Settlement:-
...(b) Extend the time for completion of this contract for such period of time as the vendor may reasonably require in all the circumstances not exceeding ninety (90) days to give title and/or vacant possession and/or in effecting settlement to the purchaser, ..."
Even if the first respondent was not ready and willing to complete at the time fixed for completion, it was not in breach of any obligation if sub-cl. 25(b) applied. And, in accordance with the principle that an anticipatory repudiation absolves the other party from further performance, once the appellant failed to attend for completion there was no obligation on the first respondent to take any additional step, whether to obtain a further release of the Morlend charge or to extend the time for completion or otherwise. It became entitled to accept the appellant's repudiation and terminate the contract, and it did so.
However, questions have been raised concerning the applicability of sub-cl. 25(b). It is necessary to refer to two matters.
For present purposes, it is assumed in favour of the appellant that the first respondent could not complete on 27 June 1990 because, having regard to the position which then existed in relation to the Morlend charge, either it could not provide clear title or it could not produce satisfactory evidence of clear title. If that were so, in my opinion the respondent was "restricted or prohibited ... in giving title ... and/or in effecting settlement in accordance with the terms ..." of the contract; the Morlend charge prevented it from doing so. I cannot identify any satisfactory reason for attributing an artificially narrow construction to a clause in a commercial contract which has as its purpose ensuring that the sale by a company in receivership is not lost because of some temporary difficulty with title.
The second point is that, although the parties altered the date for (or of) completion (or settlement) from 24 to 27 June 1990, sub-cl. 25(b) was not available to the first respondent after 24 June because it operated only until "the Date of Settlement", which the contract defined ("unless the context otherwise requires") as 24 June 1990. Support for the view that the sub-clause operated only until 24 June 1990, even though, after the contract, the parties had agreed on a later date for completion, was found in a reference elsewhere in the sub-clause to "the time for completion"; the change of language was said to be significant.
That change in language and the circumstance that the contract defined the "Date of Settlement" as a specified day seem to me an insufficient basis for ignoring the manifest purpose for which "a Date of Settlement" was originally agreed, namely, to fix a date for completion, and the parties' subsequent consensual adoption of a later date for that purpose.
If, despite the parties' variation of the date for completion, references in the contract to the "Date of Settlement" are to be taken as references to 24 June 1990, that would have the following consequences:
(a) book debts owing to the first respondent and excluded from the sale by cl. 2.02 would be the book debts at 24 June 1990, not those at the date of completion;
(b) the appellant was required to pay the balance purchase price to the first respondent under sub-cl. 4(c) on or before 24 June 1990, not the date of completion;
(c) the appellant's entitlement to remain in possession, rent free, from the date of the contract under cl. 6.01 expired on 24 June 1990, not the date of completion;
(d) the appellant was required by cl. 6.03(b) to pay all employees' wages (including holiday pay and overtime) and all payments to trade and other creditors in respect of the business and in relation to all stock, goods and other items delivered or ordered from and after the date of possession only up to 24 June 1990, not the date of completion;
(e) cl. 6.04 required completion on 24 June 1990, not the date subsequently fixed by the parties for completion (see also cl. 6.05);
(f) the benefit of the contracts referred to in cl. 7.03 remained with the first respondent only up until 24 June 1990, not the date of completion, and after 24 June 1990, not the date of completion, the appellant took over and assumed the benefits and liabilities and obligations of the first respondent under such contracts. Further, the first respondent was required to deliver the documentation specified in cl. 7.03 by 24 June 1990, not the date of completion;
(g) the Minister's approval to the transfer of the Miner's Homestead Lease included in the sale was required by cl. 10.02 on or before 24 June 1990, not the date of completion;
(h) the parties' obligations with respect to the transfer of the liquor licence under cl. 11.01 were required to be performed on or before 24 June 1990, not the date of completion, and the transfer of the licence was proposed from 24 June 1990, not the date of completion;
(i) the right of rescission provided for in cl. 11.05 could only be exercised on or before 24 June 1990, not the date of completion;
(j) the right of termination given by cl. 12 was related to an absence of requisite consents by 24 June 1990, not the date of completion;
(k) the costs which the appellant was required to pay to the respondent by cl. 14.01 were required to be paid on or before 24 June 1990, not the date of completion;
(l) the notice of termination which the appellant was entitled to give under cl. 15 was required to be given three days prior to 24 June 1990, not the date of completion.
In my opinion, there are compelling reasons for treating the "Date of Settlement"in each of the clauses to which reference has been made, including sub-cl. 25(b), as the varied date for completion agreed on by the parties. That was the purpose and effect of their agreement to settle on a later date.
Construction of sub-cl. 24(c)(ii)
The basis on which the first respondent succeeded at trial was that sub-cl. 24(c) entitled it to terminate the contract for the appellant's anticipatory breach of cl. 11.01. However, the appellant argued that, although expressly related to any breach, the sub-clause could not be used for what the trial judge described as a "comparatively trivial" breach. (Although not expressly submitted, it was perhaps implicit in the appellant's contention that the sub- clause also could not be used if the first respondent was itself in breach. However, the correctness of that proposition is doubtful, and, in any event, the sub-clause cannot easily be limited to apply only in circumstances in which the first respondent, although not in breach, was ready and willing to complete.
The only direct support for the appellant's submission that a "comparatively trivial" breach of the contract would not trigger sub-cl. 24(c) is a statement, unsupported by authority, in the 3rd edition of The Standard Land Contract in Queensland (Duncan and Weld) p. 330. However, reliance was also placed on statements supporting "... semantic and syntactical analysis yielding to business commonsense in the construction of commercial documents": Antaios Compania Naviera S.A. v. Salen Rederierna A.B. (1985) 1 A.C. 191, 205.
On the other hand, in Sibbles, it was accepted that a clause not materially different from sub-cl. 24(c) permitted termination for any breach: see p. 225.
In Shevill v. The Builders Licensing Board (1982) 149 C.L.R. 620, a lessor terminated a lease because rent was in arrears pursuant to a power which entitled it to do so. Gibbs C.J., with whom Murphy and Brennan JJ. agreed, accepted at p. 627 that parties might validly agree that a lease could be terminated for "any breach ... however trifling". However, it was held that the power of re-entry there under consideration did not, as a matter of construction, entitle the lessor "to recover damages as compensation for the loss it will sustain as a result of the failure of the lessee to pay the rent and observe the covenants for the rest of the term" (pp. 627-629). Although the point did not there arise for decision, it was assumed in that case that such a result could have been achieved by "very clear words" (p. 628; cf. p. 629), in circumstances in which the result "would be quite unjust" (p. 628) or "inequitable" (p. 629). Neither the possibility that a contractual power of termination for any breach, however insignificant, coupled with an entitlement to recover loss consequential on the termination of the contract but not otherwise caused by the breach, might be a penalty, nor the possibility of relief from forfeiture, was mentioned.
Further, recent cases dealing with whether or not clauses providing for termination and associated consequences are penalties, some of which are referred to below, do not suggest that the operation of a clause which, read literally, permits termination for any breach, however insignificant, is to be limited to avoid the possibility that an insignificant breach could otherwise lead to loss of the contract and associated consequences. See also Amann Aviation Pty Ltd v. Commonwealth of Australia (1990) 22 F.C.R. 527, 554. Additionally, it must be kept in mind that whatever decision is reached in relation to the nature of the breaches with which cl. 24 is concerned affects the ambit of not only sub-cl. 24(c)(ii) but also sub-cl. 24(c)(i) and sub-cll. 24(a) and (b), which enabled the first respondent to affirm the contract and sue for specific performance and/or damages.
Whatever be its precise ambit, I feel little doubt that sub-cl. 24(c)(ii) was available for the use of the first respondent to terminate the contract for the appellant's breach of cl. 11.01.Although in the circumstances which existed on 27 June 1990, the appellant's breach of cl. 11.01 was of little additional significance because of its inability to pay the balance purchase price, cl. 11.01 was an important clause, with a breach having important potential consequences. In my opinion, a breach of cl. 11.01 was a sufficient breach to attract the operation of sub-cl. 24(c)(ii). Subject to the arguments discussed below, it was not disputed that it followed that sub-cl. 24(c)(ii) thereupon entitled the first respondent to forfeit the deposit, resell the property, and recover any loss consequential on its exercise of its powers, although otherwise not caused by the appellant's breach of cl. 11.01.
Penalty
However, the appellant submitted that, that being its operation, sub-cl. 24(c)(ii) is void as "a penalty or in the nature of a penalty".
As is demonstrated by Beneficial Finance Corporation Limited v. Sharker (1991) 32 N.S.W.L.R. 161, 170-171, there is some uncertainty as to the modern test, or tests, for determining whether a clause is a penalty. See also Re Jigrose Pty Ltd (1984) 1 Qd.R. 382, 387-388, and the articles in the Western Australian Law Review, (1992) Vol. 22, 338 and (1992-1993) Vol. 23, 49 and 279.
The more traditional approach requires that the operation of the clause attacked as a penalty be considered at the time of the formation of the contract, and that it be determined whether the clause would entitle the party seeking to enforce it to recover more than has been lost.
It is not entirely clear whether, according to current
theory, that determination must be made by reference to -
(i) the actual breach which occasioned the use of the
clause or any breach which would have brought the clause
into operation;
(ii) the actual loss or any loss which might have been
sustained;
(iii)the actual circumstances or any possible circumstances
which might have been encountered.
Part of the reason for the uncertainty which seems to
exist is that the question whether a clause is a penalty
sometimes becomes interwoven with discretionary issues.
There is a discretion to grant or refuse relief against the
operation of a clause which is "in the nature of a penalty"
(Legione v. Hately (1983) 152 C.L.R. 466; Stern v. McArthur
(1988) 165 C.L.R. 489, 524), and a discretion to grant or
refuse relief against the use of a contractual right of
termination (and its consequences), although not a penalty
or in the nature of a penalty, where the use of the clause
is unconscionable, or "unconscientious", to use the word
preferred by Deane and Dawson JJ. in Stern at p. 526.
While the latter discretion does not exist in relation to
all contracts and all circumstances, it does apply in
connection with sales of land, where relief may be granted
against the purchaser's loss of the interest in the land
which has arisen under the contract: Stern at p. 524 per
Deane and Dawson JJ. In such cases, relief may be granted,
in exceptional circumstances, even from termination for
breach of an essential condition: Legione; Stern; Sunbird
Plaza Pty Ltd at p. 263.
It was not submitted by the appellant that the deposit under the contract was excessive, or that sub-cl. 24(c)(ii) provided for the respondent to recover more than its loss; i.e., the deficiency on resale and associated expenses. The significant aspects of the sub-clause for the purpose of deciding whether it was a penalty (or in the nature of a penalty) are that -
(i) the recoverable loss for which it provides is not restricted to the loss flowing immediately and merely from the breach but includes the loss of the benefit of the contract resulting from the election to terminate for breach, and
(ii) it could be used for any breach, however insignificant. Sub-clause 24(c)(ii) does no more than secure to the first respondent the sale price under its contract with the first appellant, and that is insufficient to make it a penalty: Esanda Finance Corporation Limited v. Plessing (1989) 166 C.L.R. 131.
Nor is such a provision in the nature of a penalty and, even if it were, there is nothing in this case which would entitle the appellant to relief except the asserted unconscionability of the first respondent's conduct, which is discussed next.
Unconscionability
The appellant submitted that the first respondent's use of sub-cl. 24(c)(ii) "violated the dictates of fair dealing, and amounted to unconscionable or inequitable conduct" in the circumstances: Sunbird Plaza Pty Ltd, at p. 263.
Certainly, the appellant's breach of cl. 11.01 directly caused little or no loss to the first respondent, whereas the use of the clause resulted in a very large liability from the appellant to the first respondent. Other matters to be noted are that the appellant had been in possession of the property sold for a period, and had paid substantial outgoings (although no doubt also in receipt of income), the position in relation to the Morlend charge, and the haste with which the first respondent acted to terminate the contract. On the other hand, while there was no suggestion that an alternate buyer was available or that resale was otherwise urgent, and a resale, at a substantially lower figure, did not take place until a little over three months after the appellant's contract was terminated, the appellant remained in possession of the property when it was terminated and plainly was unable to fund the purchase.
In Stern, Mason C.J., who, with Brennan J., dissented, said at p. 503 that the doctrine of unconscionability "is a limited one that operates only where the vendor has, by his conduct, caused or contributed to a situation in which it would be unconscionable on the vendor's part to insist on the forfeiture of the purchaser's interest. ... the jurisdiction to grant relief against forfeiture does not authorise a court to restate contractual relations into a form the court thinks more reasonable or fair when subsequent events have rendered one side's situation more favourable".
The second proposition is well-established: see, e.g., Stern at p. 526 per Deane and Dawson JJ. Perhaps more importantly for present purposes, if the first proposition is correct, the appellant cannot establish unconscionability in this case: the first respondent's conduct did not cause or contribute to the appellant's breach of the contract on 27 June. However, the other judgments in Stern indicate a less restricted view. In their joint judgment, Deane and Dawson JJ. said at pp. 526-527:
"... The general underlying notion is that which has long been identified as underlying much of equity's traditional jurisdiction to grant relief against unconscientious conduct, namely, that a person should not be permitted to use or insist upon his legal rights to take advantage of another's special vulnerability or misadventure for the unjust enrichment of himself: ..".
Nonetheless, it is necessary to be clear as to the nature and purpose of the jurisdiction to grant relief against a vendor's forfeiture of a purchaser's interest under a contract of sale of land. An entitlement to such relief is connected with an entitlement to specific performance in the wider sense discussed in Stern by Deane and Dawson JJ. at pp. 521 ff, and an order for relief is made "as a preliminary to an order for specific performance ...": p. 525. In the present case, performance by the appellant would have involved its payment of the balance purchase price, which would have been required of it by an order for specific performance. Thus, if the first respondent's use of sub-cl. 24(c)(ii) to terminate the contract had been unconscientious, the appellant might appropriately have sought relief against forfeiture in conjunction with an order for specific performance on the basis that it would pay the money and complete the contract.
As Deane and Dawson JJ. point out in Stern at p. 527:
"One situation in which equity has traditionally granted relief is where provision for forfeiture has been made to secure the payment of money and the party in default seeks relief upon the basis of payment of the amount owing together with the appropriate compensation.
In that situation, the object of the provision is achieved, and it would be unconscientious for the other party to seek to take advantage of the forfeiture."
Here there was no proposal for payment by the appellant, which did nothing until after the contract was terminated and it was later sued by the first respondent. Indeed, the appellant does not now dispute that the contract was terminated at some point - the property has been resold; its claim for relief against forfeiture is advanced by way of answer to the first respondent's use of sub-cl. 24(c)(ii) to retain the deposit and recover its loss in connection with the resale.
Assuming that such relief might be granted in an appropriate case against the use of the contractual entitlement to loss, there are now two obstacles for the appellant to overcome. It must establish not only that the first respondent's material conduct was unconscientious,so that there is jurisdiction to grant relief to the appellant, but that the jurisdiction should be exercised in its favour: Stern, p. 527, per Deane and Dawson JJ. For the latter purpose, it is appropriate to consider not only the events of 27 June 1990, but also subsequent events up to the resale of the property on 1 October that year.
It is unnecessary in this case to consider those questions separately. In my opinion, the appellant should not be granted relief. Factors of particular importance are that the respondent was unable to complete at the original contract date, any of the dates fixed by the short extensions, 27 June 1990 or, it ought be inferred, at any time up to the resale of the property by the first respondent three months later. While the first respondent was prevented by the Property Law Act from terminating the contract on the basis of the appellant's inability to pay the balance purchase price - because the first respondent did not give a statutory notice - that does not deprive the appellant's inability of all significance. It was both a continuing breach of contract (until it was terminated) and an ongoing indication by the appellant to the first respondent that resale was the only appropriate course.
Further, the amount recovered by the first respondent does not provide it with a windfall but merely resulted in its receipt of the price which the appellant bound itself to pay.
Unconscionability was also advanced by the appellant as
an alternative basis for claiming recovery of the deposit.
The appellant asserted that, by its retention of the deposit
in the circumstances, the first respondent had been unjustly
enriched. Reference was made by the appellant to David
Securities Pty Ltd v. Commonwealth Bank of Australia (1992)
175 C.L.R. 353, but nothing said in that case suggests that
the appellant might have some special or additional basis
for recovery of the deposit related to unconscionability if
it was not entitled to relief against forfeiture on the
basis that the first respondent's termination of the
contract and subsequent resale, etc., were unconscionable.
A further claim by the appellant to recover the deposit was made under cll. 5.03 and/or 25(a) of the contract, but the latter has no relevant operation and the former might have been relevant only if the appellant was not in breach of the contract on 27 June 1990; as stated earlier, I am satisfied that the appellant was then in breach.
In summary, none of the appellant's many points seems to me to entitle it to succeed. The appeal should be dismissed with costs.
IN THE COURT OF APPEAL
SUPREME COURT OF QUEENSLAND
Appeal No. 60 of 1994.
Brisbane
Before Fitzgerald P.
Pincus J.A. Williams J.
[Brixmond P/L v. Shaftesbury Nominees]
BETWEEN:
BRIXMOND PTY LIMITED
(First Defendant and Plaintiff by Counterclaim) Appellant
AND:
SHAFTESBURY NOMINEES PTY LIMITED
(RECEIVERS AND MANAGERS APPOINTED)
(IN LIQUIDATION)
(Plaintiff) First Respondent
AND:
NEIL EDWIN SUMMERSON and
ROSS ANDREW DUUS
(Second Defendants by Counterclaim) Second Respondents
AND:
NZI SECURITIES AUSTRALIA LIMITED
(Third Defendant by Counterclaim) Third Respondent REASONS FOR JUDGMENT - PINCUS J.A.
Judgment delivered 21/12/1994
I have read the reasons for judgment of the President and those of Williams J. The principal
point taken by counsel for the appellant (the purchaser) was that the first respondent (the vendor)
should not have received an award of damages for breach of contract, because it was not in a
position to settle the transaction at the time it purported to rescind. It was argued that the vendor
was not able to give a clear title because of the charge in favour of Morlend Finance Corporation (Vic) Pty Ltd, which charge is discussed in the reasons of Williams J. His Honour's discussion of
the question of the ability of the vendor to give title as at 27 June 1990 relieves me of the necessity
of setting out my own views on that subject fully; I am in general agreement with his Honour's views
on it, except that, whereas Williams J says that the vendor was probably unable to give title, I have
come to the conclusion that it was in fact unable to do so.
Further, it appears to me that this question of proof of release of the charge was an issue
which fell for decision by the primary judge, although not clearly raised by the pleading. The
purchaser's particulars of defence allege that the property remained the subject of the charge on 27
June 1990. The point argued in this Court was rather different; it involved an assertion that the
vendor could not, on 27 June, demonstrate that it had a good title by showing that the property was
free from the charge. In my respectful opinion that point was raised below. Mr P J Kennedy, the
solicitor for the vendor, was cross-examined about the release of the charge in a way which went
beyond the issue raised by the pleading, and the primary judge asked Mr Kennedy questions of the
same character; the subjects raised included the question of what documents were available on 27
June 1990 to establish that the charge had been released. Then in the course of the evidence of Mr
W T Purcell, called for the purchaser, an objection was raised to evidence about the same topic on
the very ground which was persisted in before us, but the judge overruled it, his Honour's remarks
making it clear that he understood it to be in issue "what documents should be presented and what
should not". In these circumstances it seems to me that we should not give effect to the objection
based on the pleading point; I would in any event be reluctant to do so since, although the
purchaser's pleading was slightly deficient in form, it must have been clear enough what was, in
substance, intended to be raised.
One criticism which was made of what was available to the vendor on 27 June 1990 to
show a clear title was that the form which was produced was not itself a release, but rather a notice
that the property described in the schedule had been released. But as Williams J points out in his
reasons, no particular form is necessary to release an equitable charge. In commercial practice it
appears that a simple receipt may be sufficient to do so: see Butterworths Encyclopaedia of Forms
and Precedents, 2nd Ed. Vol. 10 p. 774, Australia Encyclopaedia of Forms and Precedents, 3rd
Ed. Vol. 1 form 5.280. No doubt a formal deed of release may be used, but it does not appear
that one is necessary; the production of the form 52 asserting that the charge had been released was
in my view enough evidence of that fact. Mr Purcell, an experienced solicitor, gave evidence that
commonly conveyancing solicitors acting for purchasers simply ask for a form 52 or its current
equivalent.
But a point not so easily overcome is the identification of the property whose release from
the charge was necessary. The contract of sale contemplated that there would be an assignment of
the lease of the land on which the hotel stood, the liquor licence and also certain chattels consisting in
the stock in trade and (to summarise) all chattels, plant and equipment used in the conduct of the
business; such chattels were set out in a long schedule and all were subject to the Morlend charge.
It was the vendor's task to produce satisfactory evidence that all those chattels were free from the
Morlend charge.
Counsel for the vendor contended that the description in the form 52, "all that property
described as the Barkley Hotel Mt Isa," would ordinarily be taken to refer not only to the building,
but to the chattels used in connection with the hotel business. Whether or not that generous
construction, rather than a more literal one, is preferable, in my opinion the purchaser would not
have been obliged to accept, as evidence of the release of the property the subject of the contract, a
document containing such an unsatisfactory description. In some contexts, no doubt, the description used would be taken to include chattels used in connection with the hotel business, but that is by no
means clear.
One answer to the contention made on behalf of the purchaser, that the property the subject
of the release was not adequately described, was that the purchaser would have been obliged to
complete, having a right to obtain compensation in respect of any deficiency in the property
conveyed. This is a contention which has been accepted by Williams J, but I respectfully differ from
his Honour on the point. For the principle to be applied in the present case it would have been
necessary for the vendor to produce evidence that, even if none of the chattels were caught by the
words "all that property described as the Barkley Hotel Mt. Isa," still what was offered was
substantially what was promised. There was no such evidence. Further, I have found no authority
in favour of the view that the rule that a claim for damages based on a rescission is untenable if the
plaintiff was in breach at the relevant time is subject to such an exception as is put forward. If the
doctrine of Flight v. Booth (1834) 1 Bing.(N.C.) 370 applied, it would not make the vendor
innocent of a breach of contract, nor mean that the purchaser was obliged on 27 June 1990 to pay
the agreed price for a property which was not free of encumbrance; it would have enabled the
vendor, although in default itself, to obtain a degree of specific performance.
It was also argued for the vendor that if objection had on 27 June 1990 been taken to the
adequacy of the form 52 as evidence of the release of the property, there was time to remedy the
deficiency on the date fixed for settlement. The argument assumes that the vendor is entitled to rely
not merely on documents it had immediately available at the time it had fixed - 10 a.m. - but also on
those which it could reasonably have expected to obtain later that day. One of the difficulties about
the assumption is that it could not possibly operate in favour of the vendor after the time when the
vendor rescinded; that time is not clearly proved, but it seems a reasonable inference, as the President points out, that the vendor's letter of rescission was received during business hours on the
afternoon of 27 June 1990.
A more serious difficulty is that of authority to execute a new release. The form 52 which
was executed on behalf of Morlend was, it appears, executed pursuant to a resolution of the board
of the company passed on 22 June 1990. Mr J C Rubina, an officer of Morlend who gave evidence
about the board resolution, said that he was instructed not to send the document to the vendor until
further information was received; that occurred on 25 June. There is no evidence that the Morlend
board, having authorised "the execution of the release" on 22 June, could have been assembled
forthwith to authorise the execution of a further document. But one must recognise the possibility
that the original resolution was in such terms as to enable a further form 52 to be executed without
going back to the board. These matters were not explored in depth at the trial. The evidence of the
solicitor, Mr Kennedy, was to the effect that he had some difficulty in getting a suitable document
from Morlend; he had asked for a form 52 some 13 days before the date ultimately fixed for
settlement. There is in my respectful opinion no sound basis for a finding that a form 52, properly
expressed, could have been obtained on the afternoon of 27 June if the inadequacy of the
description of the property released had been noticed earlier on that day.
The conclusion which follows, then, is that the vendor was unable, on 27 June 1990, to
produce evidence of the release of the charge in respect of the chattel property the subject of the
contract. The course taken to repudiate the contract and sue for damages for loss of the bargain,
was therefore prima facie not one it was entitled to take; that was because it was not shown that the
vendor was at the time of rescission itself ready and willing to perform its part of the contract:
Carter, Breach of Contract 2nd Ed. pp. 228, 229.
It is necessary to deal with a further question, and that is the effect of cl. 25 of the contract,
referred to in the reasons of the President. I do not set it out again, but mention that it allows the
vendor if "restricted or prohibited by any means whatsoever in giving title...or in effecting settlement
in accordance with the terms hereof" to extend the time for completion of the contract for up to 90
days. The question is whether the clause enables the vendor a means of escape from the prima facie
conclusion I have expressed.
In my opinion the clause does not apply. There may be difficulty in concluding that the
expression "restricted or prohibited" applies to the present circumstances, but I have found it
unnecessary to reach a conclusion on that point. Clause 25 operates unilaterally, granting to one
party a privilege which is denied to the other; it does not appear to me that its meaning should be
stretched to assist the favoured party. The notice in writing which achieves an advantage for the
vendor under cl. 25 may be given only "at any time up to and including the Date of Settlement", an
expression which is defined to mean the date set out in Schedule 1; that is 24 June 1990, three days
before the date of rescission. No doubt the definition applies subject to context. If the vendor is
able to take advantage of the clause in the present situation, that must be on the basis that the
parties' fixation of a later date for completion - i.e. a date after 24 June 1990 - altered the "Date of
Settlement" for the purposes of cl. 25.
But that does not appear to be so, on the face of the clause; it uses the expression "Date of
Settlement" in limiting the vendor's right to extend time and uses the different expression "the time for
completion" as referring to the time on which the vendor's notice operates. Perhaps the reason for
this choice of language is that the drafter wished to avoid the result that would follow if in this clause
"Date of Settlement" included any altered date; then the vendor's powers to defer settlement could
be exercised repeatedly.
The alternative view is that if the time for completion is changed - presumably, however
many times it is changed - then the vendor may, on the altered date or on any one of the altered
dates, treat the current date as the "Date of Settlement" for the purposes of cl. 25 and unilaterally
extend the time for completion for up to 90 days. It does not appear to me that the language is
sufficiently clear to achieve that result; indeed, it suggests the contrary.
The result is that the vendor's action should have failed, in my opinion. The result appears to
me a technical one, but it is the kind of outcome which tends to flow from a form of contract of the
present kind, which makes time of the essence and contains no provision requiring that a party
dissatisfied with the documents presented on settlement make objection, giving particulars, so as to
give time to remedy any deficiency. The vendor took the risk of rescinding even before the end of
the date fixed for completion, at a time when it could not itself show title.
By supplementary submissions, delivered in writing, the parties dealt with the question of the
relief which should be granted if the appeal were to succeed. The issues raised in those submissions
go well beyond what is pleaded and it is unclear to me whether they have been litigated. Assuming
they have not, then it appears that the proper course is to remit the question of the counter-claim to
the Trial Division for further consideration; I would, however, invite the parties to make further
submissions, in writing, as to the proper course to take with respect to the counter-claim.
I would allow the appeal, set aside the judgment against the appellant (first defendant) and in
lieu order that the action of the plaintiff (first respondent) against the first defendant be dismissed
with costs.
IN THE COURT OF APPEAL
SUPREME COURT OF QUEENSLAND
Appeal No. 60 of 1994
Brisbane
[Brixmond P/L v. Shaftesbury Nominees P/L & Ors]
| BETWEEN: | BRIXMOND PTY LTD (First Defendant and Plaintiff by Counterclaim) |
(Appellant)
| AND: | SHAFTESBURY NOMINEES PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) (Plaintiff) |
(First Respondent)
| AND: | NEIL EDWIN SUMMERSON and ROSS ANDREW DUUS (Second Defendants by Counterclaim) |
(Second Respondent)
| AND: | NZI SECURITIES AUSTRALIA LTD (Third Defendant by Counterclaim) |
(Third Respondent)
The President
Pincus JA Williams J
Judgment delivered 21/12/94
Separate reasons for judgment of each member of the Court. Fitzgerald P. and Williams J. concurring as to the orders to be made, Pincus JA. dissenting
APPEAL DISMISSED WITH COSTS
CATCHWORDS: | CONTRACT - sale of hotel business - free of encumbrances - equitable mortgage - release - no formal deed necessary - letter sufficient - vendor able to give title to substantial subject matter of contract - purchaser not entitled to rescind. |
| COUNSEL: | J.D. Muir Q.C. with G.N. Thompson for the appellant |
| Mr. P.D. McMurdo with him Mr A.P.S. Ryan for respondents | |
| SOLICITORS: | Gadens Ridgeway for appellant Middletons Moore & Bevins for respondents |
| HEARING DATE: | 12/7/94 |
IN THE COURT OF APPEAL
SUPREME COURT OF QUEENSLAND
Appeal No. 60 of 1994
Brisbane
Before The President
Pincus JA
Williams J
[Brixmond Pl v. Shaftesbury Nominees Pl & Ors]
| BETWEEN: | BRIXMOND PTY LTD (First Defendant and Plaintiff by Counterclaim) |
(Appellant)
| AND: | SHAFTESBURY NOMINEES PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) (Plaintiff) |
(First Respondent)
| AND: | NEIL EDWIN SUMMERSON and ROSS ANDREW DUUS (Second Defendants by Counterclaim) |
(Second Respondent)
| AND: | NZI SECURITIES AUSTRALIA LTD (Third Defendant by Counterclaim) |
(Third Respondent)
JUDGMENT - G N WILLIAMS J
Judgment delivered 21/12/1994
I have had the opportunity of reading the reasons for judgment prepared by the President. Subject to what I hereinafter say on the issue of whether the first respondent was, at the material time, ready and able to complete the contract, I agree, for the reasons he has given, that the appeal should be dismissed.
One of the arguments advanced by the appellant, both before the learned trial Judge and this Court, was that the first respondent, Shaftesbury, was not ready and able to complete the contract on 27 June 1990, because it was not then in a position to establish its title to the subject property clear of a charge granted to Morlend Finance Corporation (Vic) Pty Ltd ("Morlend").
The facts relevant to this issue are as follows. By a Deed inter partes dated 7 December 1988 Shaftesbury charged in favour of Morlend "all its undertakings, property and assets wheresoever situated both present and future . . . ".
The charge was stated to be fixed with respect to certain specified property and a "first floating charge" in relation to the remainder. But at all times it ranked third behind charges held by NZI Securities Australia Ltd and NZI Capital Corporation Ltd ("NZI"). The charge had been duly registered with the National Companies and Securities Commission, and numbered BC891137. In the circumstances at all material times the charge remained equitable only.
By cl. 2.03 of the contract of sale, Shaftesbury, the vendor, agreed "to sell the Property free of any mortgage, charge, lien, bill of sale, lease agreement, hire purchase agreement, option or any other encumbrance whatsoever, (other than as referred to in Schedule 2 hereto or elsewhere in this contract)". The charge in favour of Morlend was not specifically referred to in that contract, and in consequence the vendor agreed to sell the property in question free from that encumbrance. The property, the subject of the contract of sale, was detailed in cl. 2.01 which incorporated Schedule 1, Schedule 2, and Annexure "A".
The business referred to therein is that of "hotel/motel proprietor" carried on "from premises situated at Barkly Highway, Mt. Isa". The frontispiece of the contract refers to "Barkly Hotel/Motel", and it is clear from the Schedules and Annexure that in substance the property being sold includes property associated with the carrying on of the business of the Barkly Hotel. But nowhere is it simply stated that the subject matter of the sale is the "property described as the Barkly Hotel, Mt. Isa". It should be noted that Annexure "A" includes property, such as one Ford utility, registration no. 964-OEP, which might not, if not so specifically described, be regarded as included in the property the subject of the sale.
Receivers and managers were appointed by NZI and though the contract was negotiated by those receivers and managers the sale was by the company itself. The company had also gone into liquidation on 2 October 1989, some months prior to 22 January 1990, the date of the contract of sale. There was in this case no question of the discharge of the security held by Morlend by payment or satisfaction of the debt thereby secured. It was clear that the proceeds of sale of all the assets of Shaftesbury would not discharge the indebtedness to NZI. The charge in favour of Morlend was in those circumstances valueless and it was on that basis that Morlend was asked to release the charge so that clear title could be given on settlement of the contract of sale.
Holmans, solicitors of Brisbane, were acting for the receivers and managers of Shaftesbury and they appointed Conroy and Conroy, solicitors of Mt. Isa, to act as their agent and to attend at settlement in Mt. Isa. Conroy and Conroy were given possession of various documents under cover of a letter dated 22 June 1990, with a view to tendering them at settlement. Those documents included a Form 52 Memorandum of Release of Charge with respect to the registered charges in favour of NZI. That letter of 22 June 1990 also contained the following statement:
"There is one additional Charge registered over the assets and undertaking of the Vendor Company and that is in favour of Morlend Finance (Vic) Pty Ltd. We have asked Morlend to courier a Form 52 Release to you and to fax a copy to us."
It would appear that on 22 June 1990 a director of Morlend executed a Form 52. According to the evidence of P J Kennedy, a solicitor and at the material time a member of the firm of Holmans, Morlend refrained from forwarding the Form 52 as requested until such time as it had received confirmation from NZI that the payout figure on settlement would leave no surplus to which it would be entitled. J C Rubina, an account administration manager with Morlend, gave evidence that the Form 52 was executed on 22 June 1990, and he confirmed that a director of Morlend, Michael Landy, instructed that it was "not to be released until confirmation of the debt to NZI was confirmed in writing".
NZI faxed written confirmation of those particular to Morlend on 25 June 1990; that is established by the evidence of Rubina.
In consequence of that, Morlend faxed a letter with an enclosure to Holmans on 25 June 1990. The letter was signed by Rubina, and was in the following terms:
"We refer to the above and hereby confirm that Morlend Finance Corporation (Vic) Pty Ltd will release the Barkly Hotel, Mt. Isa from Registered Charge No. BC891137.
Accordingly, we enclose herewith the required Company's Form 52 Release of Charge, duly executed by our Director, Mr Michael Landy.
Should you have any further queries with respect
to this matter, kindly contact the writer."
The accompanying Form 52 was in form prescribed by the National Companies and Securities Commission for registration pursuant to s. 207(1) of the Companies Code (cf. s. 269(1) of the Corporations Law). It was entitled: "Memorandum of Release of Property or Part of Property from Charge". It referred to registered mortgage debenture no. BC891137 created by Shaftesbury in favour of Morlend. By its terms, it stated that Morlend "gives notice that the property described in the Schedule was released from the charge". Then in the Schedule that property was defined as follows: "All that property described as the Barkly Hotel, Mt. Isa". The document is signed by Michael T Landy.
On 25 June 1990, Conroy and Conroy were provided with facsimile copies of the letter from Morlend 25 June 1990, and the Form 52 executed by Landy on 22 June 1990; those documents were available for tender on 27 June It was the contention of the appellant that in those circumstances the respondent was not able on that date to make clear title to the property, the subject of the contract of sale. To that end, evidence was called from W T Purcell, an experienced solicitor. Relevantly he made three points in the course of his evidence:
i) Form 52 is not in fact a release or discharge; it is no more than a notice of certain things. It does not acknowledge receipt of the mortgage moneys, nor does it evidence any other consideration or waiver.
ii) As the vendor was only in a position to produce a copy, the possibility could not excluded that the original was being "held as an escrow".
iii) There is a doubt "as to whether all the property sold
could comfortably fall within the description of the
property in the Schedule" to the Form 52.
The following extracts from the reasons of the learned
trial Judge demonstrate how he dealt with this issue:
"No demand for better evidence was ever made by Brixmond or refused expressly or impliedly by Shaftesbury. If it had been raised at settlement the point was easily resoluble by a quick telephonic arrangement for Morlend to be represented at the settlement by another solicitor who could provide his own written confirmation of the authenticity of the facsimile documents.
There was ample time to do this. Morlend had already been co-operative and , although it had also been so-what tardy in providing the written material, it had taken some positive steps to remedy that and there is no reason to belief that it would not have provided the further assistance necessary, particularly if Shaftesbury had agreed to meet its costs. The release of the security has already been resolved by its board and there is nothing to support Brixmond's argument that there may have been some impediment or inhibition to its full co-operation.
. . .
Because the only question is Shaftesbury's readiness and ability to act in this way, it should be enough that this obvious path to performance was open to it and there is no reason why it would not have adopted it. The hypothetical question arises because Brixmond failed to attend on the settlement.
It was not necessary for Mr Kennedy to take that act in advance because of the clear indication from Brixmond that it would not attend on the settlement. In such circumstances the law would not accept the proposition of a party who, having failed to attend as threatened, then springs from ambush, seeking to profit from a claim as to what might have been which has no substantive value and which could easily have been cured if the party had appeared and taken the point. It cannot be said then that Shaftesbury was able to show clear title because of this difficulty.
Shaftesbury's own argument, that the security had in fact been released and that is enough, is not a good one. The purchaser is entitled to require that the vendor not only have clear and unencumbered title but also that it should show it. . . .
It follows from the foregoing discussion that in the circumstances existing at the time of settlement Shaftesbury was ready willing and able to meet all its obligations and it must succeed on this point."
Counsel for the respondent drew this Court's attention to the fact that the issue raised by Brixmond in its defence (para. 5A(a)(C)(ii)) was that Shaftesbury was not ready or able to settle as the property was not "free of any . . . charge"; a distinction is to be drawn between that pleading and an allegation that Shaftesbury was unable to show on settlement that such charge had been released. The former issue was addressed by Shaftesbury at the trial, and Rubina was called to prove the release. Counsel for the respondent challenged the conclusion of the learned trial Judge that it was not sufficient for Shaftesbury to prove that the security had in fact been released.
No particular form is required for the creation of a charge (Gough, Company Charges at 217). In Cradock v. Scottish Provident Institution (1893) 69 L.T. 380 at 382 Romer J said that neither deed nor writing was necessary to constitute a charge in equity; any general words of charge could be used, but it is sufficient if the Court can gather from the instrument an intention by the parties that the property referred to should constitute a security. (That was approved by the Court of Appeal at (1894) 70 L.T. 718).
More often than not a charge is created by the parties entering into a written agreement creating and defining it, but such is not necessary. In particular circumstances the charge could be created by the unilateral act of the mortgagor (cf. Sykes, The Law of Securities (2nd ed.) 155).
Similar principles must apply to the question of the release of a charge. No particular form of instrument is necessary in order to discharge or release an equitable charge. As is said in Cootes' Law of Mortgage (9th ed.) Vol. 1 at 493, such a charge may be released "either expressly or by implication arising from a course of conduct". The following statement from Halsbury (4th ed.) at Vol. 32 para. 985 (including footnote) sums up the position under the general law:
"An equitable mortgage does not create any legal estate or interest in favour of the mortgagee and no formal deed of release is required. A release of the whole of the security may be effected by the cancellation of the mortgage or a simple receipt. The release of part of equitably mortgaged property is generally effected by a written statement or letter from the mortgagee that he has no charge on the particular property. . . . For property subject to a floating charge
a letter of non-crystallisation from some officer
of the company or its solicitor suffices."
The letter of 25 June 1990, and the Form 52 must be considered in the light of that.
In my view, those documents together (and may be even each considered alone) were sufficient to release the property referred therein from the charge. In equity, the fact that the Form 52 on one reading of it merely gives notice, is of no significance; the documents read together clearly operate as a release of the property specified therein from the charge.
Further, there is no substance in the contention of Purcell that documents may have been subject to an escrow. Read together the documents, particularly the letter, are not consistent with such a proposition.
But in my view, there is some substance in the final point raised by Purcell. The letter and the Form 52 merely release from the security "all that property described as the Barkly Hotel, Mt. Isa". The whole of the charge is not released and it remains in place with respect to property of Shaftesbury other than that so described. As pointed out above, there is no necessary identity between the property, the subject of the contract of sale, and the property described in the Schedule to the Form 52. It may well be, as submitted by counsel for the respondent, that Morlend was generally aware of the subject matter of the contract of sale, but that is irrelevant, except in so far as it indicates Morlend would be prepared to provide a release in an amended form. The Form 52 could easily have referred to the release operating with respect to the property, the subject of the contract of sale, but it did not do so.
By the terms of the contract of sale, Shaftesbury was to transfer the subject property free of any charge, and in the light of the terms of the Deed of 7 December 1988 and the release evidenced by the letter of 25 June 1990 and the Form 52 of 22 June 1990, it was arguably not in a position to transfer all that property free of that charge as at 27 June 1990.
Though reference was made in argument to the Ford utility, the appellant did not specifically prove at trial that any item of property forming part of the subject matter of the contact of sale was still encumbered as at the time fixed for settlement. In consequence one can only speak of the possibility of some items being so encumbered given the terms of the release. But it is clear that "all that property described as the Barkly Hotel, Mt. Isa" encompasses the substantial, and certainly most valuable, part of what was to be sold.
I should also mention that during argument some reference was made to the fact that the facsimile Form 52 was not in a form which could be lodged for registration with the National Companies and Securities Commission. That may well be so, but it was not necessary for the vendor to produce a release in registrable form. The system of registration of company's charges differs markedly from the Torrens land registration system. The latter provides for title by registration, whereas registration under the relevant company legislation merely affects priorities and the right to enforce an unregistered charge in certain circumstances.
The question which must now be addressed is whether or not the possible inability of the vendor as at 27 June 1990 to give, in a strict sense, title to the subject property free of all encumbrances, meant that as at that date (which was also the date on which it purported to rescind the contract) it was not ready, willing and able to perform.
Speaking of a party in that position, Barwick CJ said in
Mehmet v. Benson (1965) 113 C.L.R. 295 at 307:
"The question as to whether or not the plaintiff has been and is ready and willing to perform the contract is one of substance not to be resolved in any technical or narrow sense. It is important to bear in mind what is the substantial thing for which the parties contract and what on the part of the plaintiff in a suit for specific performance are his essential obligations."
Throughout the law relating to vendor and purchaser, one frequently finds the proposition that material and substantial compliance will generally be sufficient; though the law requires compliance with the contractual obligations, that is to be determined, more often than not, in a broad commercial sense. Frequently cases such as Flight v. Booth (1834) 1 Bing.(N.C.) 370; 131 E.R. 1100 are referred to in that context.
Here, the objection to the title tendered is very technical. Clearly the property, the subject matter of the contract of sale, could be referred to as "all that property described as the Barkly Hotel, Mt. Isa", though as pointed out above such a description may not strictly cover all the property detailed in the contract. In my view, the vendor was able to give substantial title and the purchaser could not have lawfully refused to settle merely because of the description of the property in the release. If the purchaser had refused to settle on that ground, the vendor would have been entitled to a decree for specific performance with (at worst) compensation (cf. Imamovic v. Kalamalka Constructions Pty Ltd (1975) 49 A.L.J.R. 244). As the first respondent was able to transfer to the appellant substantially what the latter contracted to acquire, the appellant was not entitled to rescind because of the technical breach (cf. Halkett v. Earl of Dudley (1907) 1 Ch. 590 at 596 and Tramways Advertising Pty Ltd v. Luna Park (N.S.W.) Ltd (1938) 38 S.R. (N.S.W) 632 at 641-2).
In any event, the evidence from Rubina on behalf of Morlend was such that there is no doubt that within a short period of time additional documentation could have been obtained clarifying the point. As the learned trial Judge pointed out in his reasons, if Brixmond had attended at settlement and taken some point with respect to the release, it would have been possible for Shaftesbury to have obtained from Morlend within a very short period of time clarifying material. I agree with his Honour's approach to that issue.
In the circumstances, it has not been established that
Shaftesbury was not ready and able to complete on the
extended date of settlement, namely 27 June 1990.
Given my reasoning it is not necessary for me to consider
the possible relevance of clause 25, which is the subject of
discussion in the other judgments.
The appeal should be dismissed with costs.
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