Carbon Black Lab Pty Ltd v Launer
[2015] VSCA 126
•29 May 2015
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S APCI 2014 0144
| CARBON BLACK LAB PTY LTD | Applicant |
| (ACN 140 192 730) | |
| v | |
| DARRYL LAUNER | Respondent |
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| JUDGES: | SANTAMARIA, FERGUSON and McLEISH JJA |
| WHERE HELD: | MELBOURNE |
| DATE OF HEARING: | 7 May 2015 |
| DATE OF JUDGMENT: | 29 May 2015 |
| MEDIUM NEUTRAL CITATION: | [2015] VSCA 126 |
| JUDGMENT APPEALED FROM: | Launer v Carbon Black Lab PtyLtd (Unreported, Supreme Court of Victoria, 6 November 2014) (Digby J) |
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REAL PROPERTY – Caveat – Application to remove caveat under Transfer of Land Act 1958, s 90(3) – Caveat protected applicant’s interest as purchaser of land – Applicant said to have breached essential term of contract of sale of land by failing to settle purchase – Where respondent entered into contract to sell property to third party after purporting to rescind contract with applicant – Whether in ordering removal of caveat trial judge correctly applied Transfer of Land Act 1958, s 90(3) – Piroshenko v Grojsman (2010) 27 VR 489, considered – Whether balance of convenience favoured removal of caveat – Leave to appeal granted – Appeal dismissed.
CONTRACT – Contract for sale of land where time provided to be of the essence – Applicant said to have failed to settle on time – Where respondent agreed to indefinite extension of time – Where respondent said to have made time once again of the essence by subsequent service of notice of default and rescission – Whether trial judge erred in finding it likely that contract validly terminated following service of notice – Estate Agents (Contracts) Regulations 2008, Form 2, General Conditions 27, 28, considered – Mehmet v Benson (1965) 113 CLR 295; Neeta (Epping) Pty Ltd v Phillips (1974) 131 CLR 286; Thornton v Bassett [1975] VR 407, applied.
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| APPEARANCES: | Counsel | Solicitors |
| For the Applicant | Mr S R Horgan QC with Mr J Kohn | Noble Lawyers |
| For the Respondent | Mr T North QC with | Fitzpatrick Legal |
| Mr A Herskope |
SANTAMARIA JA
FERGUSON JA
McLEISH JA:
This is an application for leave to appeal, and if leave is granted an appeal, from a decision of a judge of the trial division granting an application under s 90(3) of the Transfer of Land Act 1958 for the removal of a caveat. For the reasons that follow, we would grant leave to appeal, and dismiss the appeal.
By contract of sale dated 17 July 2013, the applicant agreed to purchase from the respondent a property referred to as Crown Allotment 136K, Parish of Illawarra, more particularly described in Certificate of Title Volume 10294 Folio 536 (‘lot 136K’), for the sum of $550,000. The caveat in issue in these proceedings protects the applicant’s interest as purchaser. The respondent contends that, in the events that have happened, the contract is at an end.
On the same day that the applicant agreed to purchase lot 136K, Zackary Pty Ltd, a company with a connection to the respondent, entered into a contract for sale of the neighbouring land, being Crown Allotment 136H (‘lot 136H’), to the applicant.
Lot 136K is located in Stawell in Victoria. On that land there is a stockpile of several million used vehicle tyres. The contract of sale between the applicant and the respondent provided that this stockpile was to be sold to the applicant together with the land. Various provisions of the contract dealt with issues arising as a result of the presence of the stockpile on the land. It is not in dispute that the applicant intended using both blocks of land for the purpose, through an associated company, of conducting a business processing the tyres, which required the construction of a tyre processing plant.
The contract provided for settlement to take place on or before 90 days after the date of the contract. It was subject to the General Conditions in Form 2 prescribed by the Estate Agents (Contracts) Regulations 2008. General Condition 16.1 provided that time was of the essence of the contract. Special conditions dealt with issues arising in respect of the tyres situated on the land, as follows:
4. STATE GOVERNMENT TYRE LEVY
In the event that further time is required to finalise arrangements with the EPA or other government body to settle this purchase, the Purchaser shall provide details and evidence of the Purchaser’s application and negotiation with the EPA and any other relevant government bodies to justify any extension of time for settlement. The Vendor shall act reasonably to allow the additional time to settle.
5. VICTORIAN STATE GOVERNMENT BODIES
a)This Contract of Sale is subject to the Purchaser negotiating and obtaining a satisfactory agreement with Victorian State Government bodies and in particular the EPA (‘the agreement’) in respect to compensation for clearance of tyres presently stored on the land.
b)The Purchaser shall do all things required or necessary in a timely manner to negotiate and obtain such agreement within the term of this Contract of Sale.
c)Should such agreement be finalised prior to the due date under this Contract of Sale, then this Contract of Sale shall thereafter continue unconditionally.
d)Subject to paragraph 5 (ii) [sic] above, should the Purchaser not obtain the agreement within 90 days of the date hereof then the Purchaser shall have the option to terminate this Contract of Sale and obtain a refund of the deposit.
6. NOTICES
Without derogating from the provision of General Condition 21 the Vendor shall be responsible to ensure that there are no notices including Environmental Protection Authority notices affecting the property and it shall be the responsibility of the Vendor to remove any such notices prior to settlement and the Vendor shall be responsible for any and all notices served in relation to the property at any time up to and prior to Settlement and the Purchaser shall be responsible for all notices served after settlement. Should any Notices be served upon the vendor or be made known to the Vendor that they may be issued or served the Vendor will forthwith notify the Purchaser and provide the Purchaser with details. Should the Purchaser in its absolute discretion not wish to proceed with the Contract as a result of any such Notice issued or proposed to be issued then the Purchaser may in its absolute discretion terminate this Contract of Sale and obtain a full refund of any deposit monies or other monies paid and this Contract shall be null and void accordingly save for the Purchaser’s right to recover the deposit or other monies paid.
7. SALE TO INCLUDE TYRES
It is agreed between the parties that all tyres currently on the property are included in the sale price.
The parties to the contract were aware that, on 1 October 2010, the Environment Protection Authority (‘EPA’) had served notice on the respondent in relation to the land under s 62A of the Environment Protection Act 1970. The notice, among other things, required the respondent to remove all used tyres from the premises by 31 March 2012. There was a dispute between the parties before the primary judge as to whether or not this notice remains in force. In any event, the tyres have remained on the land at all relevant times.
The contract for the sale of lot 136H, the neighbouring land, settled on 9 October 2013.
On 15 October 2013, the applicant’s solicitors wrote to the solicitors for the respondent asserting that the EPA notice still affected lot 136K and was ‘required to be removed pursuant to special condition 6 of the Contract prior to the Purchaser being required to settle’. The letter read as follows:
We refer to previous communications and our letter to you dated 7 October 2013 and note that we have not received your response. We also understand that the EPA Notice still affects the above property.
The Notice is required to be removed pursuant to special condition 6 of the Contract prior to the Purchaser being required to settle.
Please note that the Purchaser has not waived any of its rights pursuant to the Contract and in particular special conditions 5 and 6.
Our client is prepared to grant your client an extension of 6 months to complete its obligations pursuant to the Contract.
Our client will be able to settle upon being given 21 days notice that special condition 6 has been complied with and in all other respects, time remains of the essence of the Contract.
We await your reply regarding the above.
On 16 October 2013, Mr Frank Falzon, as attorney of the respondent, met with Mr Craig Dunn on behalf of the applicant. Mr Falzon’s evidence before the primary judge was that he told Mr Dunn that the applicant’s letter had upset him because, he said, Mr Dunn ‘knew perfectly well that there were no outstanding notices from EPA and we both knew that the tyres were sold with the Property and were not to be cleared away’.[1] Mr Falzon said that Mr Dunn told him that he should trust him and that Mr Dunn ‘needed more time to negotiate with the EPA for compensation for removing the tyres from the Property’.
[1]Counsel for the applicant invited us to reject this evidence, but it was not challenged before the primary judge.
Two weeks later, on 29 October 2013, Mr Falzon wrote to Mr Dunn stating, among other things, that he understood that the applicant needed more time to negotiate with the EPA. The letter stated ‘we will wait as long as it takes’. The letter read as follows:
How are you?
In the first instance I can’t tell you how much we appreciate you saving our bacon with the ANZ. It’s like someone pulled a gun away from my head. Thank you.
In relation to 136K, I do understand you need more time to negotiate with EPA. We will wait as long as it takes. Every dollar on 136H went to ANZ. I’m getting a fair bit of static from a couple of quarters and ask if there is a chance GPT could advance some more funds? I’m not trying to be some sort of pig here, just have borrowed 80k to pay Launer out (unsecured) on the strength of 136K contract (before the 6mnth ext).
Still in his name, but have the land T/R and all other rel[e]vant doc’s (incl P/A) signed off to cover myself.
Should GDT not go ahead with purchase and in relation to security for GDT on any advance, I do have an option.
Either way, please give me a call at your convenience.
Mr Falzon’s letter did not refer to the suggestion in the applicant’s letter of 15 October 2013 that Special Condition 6 precluded settlement until the EPA notice was satisfied.
Mr Falzon gave evidence that, between 16 October 2013 and 9 May 2014 he was asking Mr Dunn when the applicant would settle the purchase. When they spoke, Mr Dunn told him he needed more time.
On 9 May 2014, Mr Dunn wrote to Mr Falzon on the letterhead of a company called Green Distillation Technologies Corporation Ltd (‘GDT’), as follows:
You have asked us to update you on the solution for the tyre stockpile at Lot 136K Saleyards Road Stawell.
GDTC intends to build a tyre processing plant at 25 Horsham Road Stawell on land it has secured, and process the tyres located on Lot 136K.
Development approval has been lodged with Council and is approved subject to final EPA approval.
We have as you know been in regular discussion with EPA and Sustainability Victoria regarding the solution for the hazardous tyre stockpile at Stawell. EPA and Sustainability know that financial assistance is required in order to process the tyres, and they are working on that solution.
At our last meeting with Sustainability Victoria we were advised that the Minister for the Environment would be making a significant announcement regarding management of end of life tyres in Victoria. We are awaiting that announcement.
As discussed we met with the Federal Environmen[t] Minister Greg Hunt and his Chief of Staff at our tyre site in Tasmania. Greg Hunt is well aware of the issues surrounding tyre stockpiles in particular Stawell and it has become a priority within his department to work with the States in formulating a solution.
On 1 September 2014, Mr Falzon attended the applicant’s offices and told Mr Dunn that the applicant ‘had to settle on the contract’. Mr Falzon said that Mr Dunn told him that he ‘was pissing him off’ and ‘to get out’.
On 5 September 2014, the respondent’s lawyers executed a notice of default and rescission addressed to the applicant. The notice was served on the applicant’s solicitors on 10 September 2014. The notice stated that the applicant was in default under the contract. The particulars of default were said to be failure by the applicant to pay the balance due under the contract, namely the sum of $548,000, by the ‘Due Date’. The Due Date was specified as 15 October 2013.
The notice continued:
Take further notice that the vendor intends to exercise his contractual and other rights unless:
1. The default is remedied;
2. Interest on the amount due under the contract at the rate specified in item 8 is paid; and
3.Costs specified in item 9 are paid;
Within 14 days of service of this notice upon you.
Take further notice that unless the default is remedied and interest and costs paid in accordance with this notice, the contract will be rescinded pursuant to general condition 28 of the contract of sale.
On 15 September 2014 the applicant’s solicitors wrote to the solicitors for the respondent stating, among other things:
As at the date of this letter, we are instructed that an Environmental Protection Agency notice remains in force over the property and has not been remedied by the vendor, Mr Launer.
Accordingly, until such time as the notice from the Environmental Protection Agency is satisfied by the vendor, the due date for settlement does not arise. In these circumstances, the purported Notice of Default and Rescission dated 5 September 2014 is of no effect and the Contract remains on foot between our client and Mr Launer. We therefore request written confirmation from your office that the purported Notice of Default and Rescission dated 5 September 2014 will be withdrawn forthwith. We confirm that our client shall pay the balance of the purchase price and accept clear title when settlement falls due.
We look forward to receipt of your confirmation that the purported Notice of Default and Rescission is irrevocably withdrawn.
On 1 October 2014 the respondent’s solicitors wrote to the applicant’s solicitors demanding withdrawal of the caveat as follows:
I refer to your letter dated 15 September 2014.
On my instructions, it is disingenuous for you client to assert that the date for settlement had not fallen due because our client had not complied with a notice from the EPA dated 1 October 2010 in respect of removal of tyres from the land.
…
Clause 7 of the contract states:
‘It is agreed between the parties that all tyres currently on the property are included in the sale price.’
Your client was to be responsible to remove the tyres from the property.
Clause 5(a) of the contract provides that the contract was subject to your client negotiating and obtaining a satisfactory agreement with Victorian State Government bodies and in particular the EPA in respect to compensation for clearance of the tyres on the land.
Pursuant to clause 5(b) your client was to do all such things required or necessary in a timely ma[nn]er to negotiate and obtain such agreement within the term of the contract.
The term of the contract was 90 days ending on 15 October 2013.
Time was of the essence pursuant to General Condition 16.1.
Clause 5(d) of the contract gave your client the option to terminate the contract and obtain a refund of the deposit if your client could not obtain agreement with the Victorian State Government bodies and in particular the EPA within 90 days, subject to your client having done all things required and necessary in a timely manner to negotiate and obtain such agreement.
Your client did not exercise that option.
The contract ceased to be conditional.
If you have not provided me with a withdrawal of your client’s caveat dated 29 July, 2013 by 5pm on Wednesday 8 October 2014, I have instructions to apply to the Supreme Court for an order requiring your client to do so and for costs.
The applicant has not paid the balance of the purchase price. Instead, it has asserted that the notice of default and rescission is of no effect and that the contract remains on foot, requiring to be settled only after the requirements of Special Condition 6 have been satisfied. Alternatively, the applicant submits that the contract is on foot because the notice of default and rescission was ineffective to bring the contract to an end.
In the meantime, on 4 September 2014 the respondent entered into a contract to sell the property to a third party. That contract stated that it was subject to the purchaser entering into an unconditional contract to purchase the neighbouring property. The parties subsequently agreed to omit that condition.
The respondent commenced a proceeding in the trial division on 28 October 2014, seeking orders for the removal of the caveat. The matter was heard in the Practice Court on 6 November 2014.
Decision at first instance
The primary judge upheld the respondent’s application and ordered the removal of the caveat. That judgment has been made the subject of a stay pending the hearing and determination of this application and any appeal, which the Court ordered be listed for hearing at the same time.
The judge was satisfied on the evidence that, at all times, the applicant desired and intended that the purchase of the property would include the acquisition of the tyres located on it. He was further satisfied that, prima facie, the evidence established that the applicant purchased lot 136K in order to acquire the stockpile of used tyres on that land because it wanted to process them. Further, the applicant anticipated that, directly or indirectly, it would receive compensation from the Victorian Government for the clearance and processing of the tyres which it had purchased.[2]
[2]Launer v Carbon Black Lab Pty Ltd (Digby J, 6 November 2014), [30]–[31] (‘Reasons’).
The primary judge held that there was no evidence that the applicant took any steps within the 90 days allowed by the contract of sale to enter into an agreement of the type referred to in Special Condition 5(a) with a Victorian Government body or the EPA. Nor was there any evidence that the applicant sought an extension of time under Special Condition 4 within which to settle the contract of sale as a result of problems or delays in relation to a compensation agreement with the Victorian Government or the EPA.[3]
[3]Reasons [34]–[35].
There was also no suggestion that the applicant had sought to terminate the contract under Special Conditions 5(d) or 6.[4]
[4]Reasons [36].
The primary judge considered the respondent’s application by reference to the twin criteria of whether or not there was a prima facie case for supporting the caveat, and whether the balance of convenience supported the retention of the caveat. He noted the interrelated nature of those two questions.[5]
[5]Reasons [41]–[43].
In relation to the question of a prima facie case, the judge held that the arguments of the respondent enjoyed a much higher likelihood of success than the applicant’s contention that the respondent was, by operation of Special Condition 6, not in a position to require settlement until the clean-up notice issued by the EPA had been satisfied. He held that the respondent’s argument that the parties intended that the applicant purchase and be entitled to all the tyres on the property, as reflected in Special Conditions 4, 5 and 7, enjoyed a high likelihood of success notwithstanding that Special Condition 6 might be thought to be contradictory and repugnant to that condition.[6] In this regard, he described Special Condition 6 as anomalous and inconsistent with and repugnant to the scheme of the contract as a whole. He held that the parties were most unlikely to have intended the contract to operate in the manner for which the applicant contended.[7]
[6]Reasons [46], [50].
[7]Reasons [53]–[54].
It followed that the primary judge considered that the respondent’s assertion that he determined the contract of sale by the notice of default dated 5 September 2014 enjoyed a reasonable likelihood of success.[8] He accepted that the respondent appeared to have ‘set time at large under the Contract of Sale by generally extending the time within which settlement was required’ by the applicant.[9] This was a reference to the statement in the 29 October 2013 letter to the effect that the respondent would ‘wait as long as it takes’. The judge considered that, notwithstanding this statement, it was likely that service of the notice of default and rescission re-fixed the due date by which the applicant was required to settle so that it was within 14 days of the service of that notice.[10]
[8]Reasons [56].
[9]Reasons [59].
[10]Reasons [60].
As well as finding that there was not a prima facie case for the retention of the caveat, the judge held that the balance of convenience was ‘weighted heavily’ in favour of the respondent.[11] He placed little weight on the submissions of the applicant to the effect that it was ready, willing and able to settle the contract. He observed that the contract which the applicant sought to complete and enforce was one in respect of which the applicant wrongly asserted that the respondent was required to remove the tyres before settlement.[12] He noted that the respondent would receive a significantly larger sum upon settlement of the contract than under the contract it subsequently negotiated for the sale of the land, but regarded little if anything as turning on this difference.[13]
[11]Reasons [65].
[12]Reasons [67].
[13]Reasons [69]–[70].
The judge noted that the respondent’s ability to settle the second contract and obtain payment for his land was frustrated by the existence of the caveat and that the respondent was thereby prejudiced.[14]
[14]Reasons [73].
Further, the judge held that the applicant would be unlikely to be able to obtain a transfer of the land, given that the respondent had terminated the contract and the applicant was seeking to enforce a contract different, in his opinion, to the bargain upon which the parties had agreed.[15] In the circumstances, and given that the respondent did not intend to remove the tyres from the land, the contract would not be performed as the applicant sought and it was unlikely that a court would order specific performance.[16] It followed that the best that the applicant would be likely to achieve would be to recover damages.
[15]Reasons [75].
[16]Reasons [76].
Finally, the judge relied on the fact that the applicant had paid only $2,000 by way of deposit. He said that it followed that very little of the applicant’s money was secured by the caveat and that the applicant had, unaffected by the removal of the caveat, such rights as it may have to pursue the respondent for damages. It was noted that the respondent had offered in open court to repay the $2,000 deposit on removal of the caveat.[17]
[17]Reasons [80].
In summary, the primary judge considered that there was a higher risk of prejudice and injustice as between the parties if he were to refuse the application to remove the caveat than to allow it, because of the likely prejudice accruing to the respondent by virtue of being unable to deal with his land if the caveat remained in place.[18]
[18]Reasons [82]–[85].
He therefore ordered that the caveat be removed.
Section 90(3)
Section 90(3) of the Transfer of Land Act 1958 permits any person adversely affected by a caveat to ‘bring proceedings in a court against the caveator for the removal of the caveat’ and empowers the court dealing with such an application to ‘make such order as the court sees fit’.
In considering an application under s 90(3), the Court applies a two-stage test, as explained by Warren CJ in Piroshenko v Grojsman[19] as follows:
Caveats under the Torrens system are treated by the courts as analogous to applications for interlocutory injunctive relief. In so far as their registration is an administrative act, it is when application is made for their removal that the onus falls on the caveator to satisfy the two-stage test used by the court when deciding whether to exercise its discretion to grant interlocutory injunctive relief. This approach has been established law in Australia since the decision of Lord Diplock in Eng Mee Yong v Letchumanan was approved by the Full Court of the Queensland Supreme Court of Appeal in Re Jorss’ Caveat. This two-stage approach requires the caveator to establish that there is a serious question to be tried that they have the estate or interest which they claim in the land in question, and having done so, to establish that the balance of convenience favours the maintenance of the caveat on the Register of Titles until trial. This is still the approach taken by the courts in Victoria when deciding applications under s 90(3) of the Act.[20]
[19](2010) 27 VR 489 (‘Piroshenko’).
[20]Piroshenko (2010) 27 VR 489, 491 [7] (citations omitted). See also Re Jorss’ Caveat [1982] Qd R 458, 464–5 (Andrews J, Douglas and Demack JJ agreeing).
Her Honour cautioned that, although the courts had adopted this test, the section was drafted broadly, and enjoins the Court to make such orders as it thinks fit. As she then observed, the two-stage test could only inform whether the Court should exercise the discretion conferred on it in any particular case, and if it chose to do so, what form that exercise should take. The test cannot subsume or restrict the power conferred by the statute.[21]
[21]Piroshenko (2010) 27 VR 489, 491–2 [11].
In CFHW Pty Ltd v Burness,[22] the Chief Justice again stated the above test and noted that, while the prima facie test was ‘often used interchangeably with whether a serious question is to be tried, the prima facie case test is to be preferred’.[23] She further stated that the caveator ‘must show that they have a prima facie case with sufficient likelihood of success to justify the maintenance of the caveat’.[24]
[22][2014] VSC 451.
[23]Ibid [17], citing Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57, 82 (Gummow and Hayne JJ) (‘O’Neill’).
[24][2014] VSC 451, [20], citing Piroshenko (2010) 27 VR 489, 494 and O’Neill (2006) 227 CLR 57, 82.
It is also to be observed that an application for removal of a caveat does not, at least ordinarily, present an occasion for the final determination of disputed factual issues or of the claims which the caveat seeks to protect. In McMahon v McMahon[25] Marks J referred to a number of authorities in which it had been held that it was not necessary or appropriate in an application for removal of a caveat finally to determine disputed questions of facts.[26] Those authorities reflect the reality that a prima facie case may be capable of being sustained by supporting evidence, without the need for the Court to answer the question whether or not that evidence should be accepted. The position may be different, as was the case in Simons v David Benge Motors Pty Ltd,[27] when no substantial issue of fact appears and the Court is able to have the claims in question fully argued and decided on a summons under s 90(3).[28]
[25][1979] VR 239 (‘McMahon’).
[26]Ibid 245–6.
[27][1974] VR 585, 591 (Norris J).
[28]See McMahon [1979] VR 239, 245 (Marks J).
The authorities make it clear that the power of the Court under s 90(3) is discretionary.[29] In these circumstances, the applicant seeks leave to appeal against an exercise of a discretion, and to succeed on the appeal must establish error of the kind identified in House v The King.[30]
[29]McMahon [1979] VR 239, 245 (Marks J); Piroshenko (2010) 27 VR 489, 491–2 [11] (Warren CJ).
[30](1936) 55 CLR 499, 504–5 (Dixon, Evatt and McTiernan JJ).
Arguments on appeal
The applicant seeks to raise four grounds of appeal. These grounds resolve into three issues:
(a) whether the judge erred in finding that the contract was validly terminated following the issuing of the notice of default and rescission;
(b) whether the judge erred in holding that the balance of convenience favoured removal of the caveat; and
(c) whether the judge erred in the approach to be taken to an application under s 90(3).
(1) Approach to s 90(3)
It is convenient to deal with the last of these issues first. As the authorities already referred to indicate, it is usually not appropriate for the court hearing an application for removal of a caveat to determine contested issues of fact. However, we are not persuaded that the judge did so. Contrary to the applicant’s submissions, he was careful to make findings on a ‘prima facie’ basis except where matters were plainly not in dispute.
Nor is there any substance in the contention that the judge erred by describing the proceeding as being at an ‘interlocutory stage’. The applicant’s argument is that this mischaracterised the position in so far as the proceeding finally determined the question of removal of the caveat. In our opinion the judge was doing no more than referring to the limited nature of the proceeding before him, given the obvious possibility that issues relevant to removal of the caveat might arise in later proceedings concerning the status of the contract and the notice of default and rescission. He was plainly aware that the proceeding before him would finally determine whether the caveat should be removed.
(2) Prima facie case
We turn then to the question whether the judge erred in finding that the applicant failed to establish a prima facie basis for the retention of the caveat. The question can be put in those terms because it is clear from the authorities that the onus to do so rested on the applicant.
The applicant submitted in this Court that the notice of default and rescission was invalid for three reasons:
(d) by virtue of Special Condition 6, the date for settlement had not arrived because the clean-up notice issued by the EPA on 1 October 2010 remained in force;
(e) the notice was defective because it alleged that settlement was due on 15 October 2013, whereas an extension of time had been agreed; and
(f) the time for settlement was not, as the judge held, re-fixed to 14 days after service of the notice, because the notice was required to set out a default which could be remedied within 14 days and no such default existed at the time of the notice. Instead, a further notice was required after 14 days had expired without payment.
In our opinion the argument that the existence of the clean-up notice postponed the date of settlement, by virtue of Special Condition 6, is weak. Assuming in the applicant’s favour that the clean-up notice is extant, Special Condition 6 is not expressed as a condition precedent. Although it requires that the vendor have any notices removed ‘prior to settlement’, compliance with that requirement is not said to be a condition precedent to settlement. In contrast, Special Condition 5 uses express words to create a condition precedent. Special Condition 6 appears to provide for a different consequence, by instead giving the purchaser the option, in its absolute discretion, of terminating the contract. It is not disputed that the applicant has not sought to exercise this option. In these circumstances, the primary judge was correct to hold that the argument that Special Condition 6 meant that the date for completion had not arrived was unlikely to succeed.
The argument that the notice of default and rescission was defective because it did not state that an extension of time had been agreed is also very weak. To the extent that this argument depends on the six month extension that the applicant asserts had been agreed, the omission to refer to this in the notice did not alter the fact that the balance of the purchase price had not been paid even after the expiry of that six month period.[31] Any error went only to the length of default, not its existence or nature.
[31]The primary judge held that there was no evidence that the applicant sought an extension under Special Condition 4: Reasons [35]. Nothing presently turns on the basis on which the extension was proffered.
In so far as reliance is placed on the statement in Mr Falzon’s letter of 29 October 2013 that the respondent would ‘wait as long as it takes’, the primary judge decided, in the applicant’s favour, that time had been ‘set at large’ by the letter. It is therefore convenient to proceed on this basis.
The judge held that, even though time had been ‘set at large’, it was likely that service of the notice of default and rescission refixed the due date. In our opinion it was well open to him to reach this conclusion. On any view, the applicant had not established a prima facie case that, by the respondent’s letter of 29 October 2013, he had irrevocably extended time for completion to a date of the applicant’s choosing. Putting the applicant’s case at its highest, insistence on compliance with the time for completion had been relaxed to enable the applicant to progress negotiations with the EPA. At best, in other words, the respondent had granted the applicant an indulgence, such that time was no longer of the essence of the contract.
Where a party to a contract for the sale of land relieves the other party from the obligation to treat time as being of the essence, it remains open to the first party to insist, on giving reasonable notice, that the position be restored so that time is again of the essence.[32] In those circumstances, there was no error in the primary judge treating the notice of default and rescission as being likely to have refixed the time for completion. It was not suggested that 14 days was not a reasonable time for these purposes.
[32]Mehmet v Benson (1965) 113 CLR 295, 303 (Barwick CJ); Balog v Crestani (1975) 132 CLR 289, 296–9 (Gibbs J); Thornton v Bassett [1975] VR 407, 425–9 (Pape J) (‘Thornton’); Foran v Wight (1989) 168 CLR 385, 457–8 (Gaudron J); Burke and Riversdale Road Pty Ltd v Gemini Investments Pty Ltd [2003] VSC 33, [28], [31] (Nettle J). As to reasonableness of notice, see Sindel v Georgiou (1984) 154 CLR 661, 669–70 (Mason, Murphy, Wilson, Brennan and Dawson JJ); Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623, 638–40 (Mason CJ), 646–7 (Brennan J), 651–5 (Deane and Dawson JJ).
The applicant submitted, however, that the judge was in error in treating the notice as likely to give rise to the termination of the contract without the issuing of a fresh notice of default and rescission after the 14 days had expired. General Condition 27 provided as follows:
27 Default notice
27.1A party is not entitled to exercise any rights arising from the other party’s default, other than the right to receive interest and the right to sue for money owing, until the other party is given and fails to comply with a written default notice.
27.2The default notice must:
(a)specify the particulars of the default; and
(b)state that it is the offended party’s intention to exercise the rights arising from the default unless, within 14 days of the notice being given —
(i)the default is remedied; and
(ii)the reasonable costs incurred as a result of the default and any interest payable are paid.
The applicant, however, pointed to General Condition 28.2, to which the notice of default and rescission referred. It stated:
28.2 The contract immediately ends if:
(a)the default notice also states that unless the default is remedied and the reasonable costs and interest are paid, the contract will be ended in accordance with this general condition; and
(b)the default is not remedied and the reasonable costs and interest are not paid by the end of the period of the default notice.
The applicant contends that the notice of default and rescission was ineffective to bring about the termination of the contract because it did not specify a default which existed before the notice was served. This is because, it is said, time was no longer of the essence as a result of the respondent’s letter of 29 October 2013. There could be no default until time was, by force of the notice itself, again made of the essence. Thereafter, a fresh notice of default and rescission would need to be issued if default occurred at the end of the 14 day period specified in the notice.
The applicant acknowledged that the authorities indicate that a notice of default and rescission may both fix a reasonable time for completion and give notice of rescission of the contract in the event that completion does not take place by that time. However, it sought to distinguish those authorities on the basis of the contractual language found in cl 5 of the General Conditions of Sale of Land formerly contained in Table A of Sched 7 to the Transfer of Land Act 1958 (repealed by ss 28 and 71 of the Land Legislation Amendment Act 2009).
In order to appreciate the applicant’s argument as to the operation of General Conditions 27 and 28 it is necessary to begin with the law as to time being of the essence, as explained by Barwick CJ and Jacobs J in Neeta (Epping) Pty Ltd v Phillips:[33]
If a party to a contract repudiates it the effect of that repudiation, both at law and in equity, is that the other party may elect to rescind and on doing so the contract is at an end. A difference which arose between law and equity was in the manner in which each regarded breaches of stipulations as to the time for performance of certain contracts. At law a failure to carry out the contract on the day stipulated, if the failure was not due to any default on the part of the other party in performance of his obligations, was a breach of the contract in one of its essential terms. In other words, time was of the essence of the contract. Also, a mere extension of time where time was originally of the essence of the contract and where a new date for performance is substituted for the contracted date does not result in time ceasing to be of the essence: Mehmet v Benson.[34]
Equity took a different view of the construction and effect of a stipulation as to time. A stipulation as to time for performance of obligations was not in proceedings in equity regarded as an essential term unless the contract expressly or by implication made it so. If the contract so provided equity would follow the law. Essentiality would be implied from the nature of the contract in its surrounding circumstances. But a contract for the sale of land where there were no special circumstances was not regarded in equity as one in which a condition as to time was an essential condition. This was part of or by analogy to the benignity of equitable principle in respect of forfeiture. However, perhaps because of a tender feeling arising from the circumstance that it was differing from the law in its view of what was an essential term of a contract, equity allowed time for performance to obtain the same effect in equity as it had at law when the other party had been guilty of default or unreasonable delay (of which evidence would be a failure by the party's own fault to perform the contract on the named date) and when a notice was given fixing a date a reasonable time ahead for performance and stating expressly or by clear implication that in respect of the named date time was to be regarded as of the essence of the contract.[35]
[33](1974) 131 CLR 286, 297–8.
[34](1965) 113 CLR 295, 305.
[35](1974) 131 CLR 286, 297–8.
It emerges from this exposition that, when it is said that time is ‘of the essence’, this means that the parties are taken to have agreed that, in the event that one of them fails to perform an obligation within the time stipulated, the other party is entitled to terminate the contract. In that sense, time is said to be ‘essential’. The essentiality of time thus addresses the consequences of breach of a contractual obligation.
When time is expressed by the contract to be of the essence, but that essentiality has been waived, the giving of reasonable notice will cause time again to be of the essence. This may be contrasted with a waiver which frees the other party from performance of an obligation altogether. As already noted, that was not the present case. The giving of notice, in effect, creates an obligation different from that contained in the contract because the party in default is obliged, by virtue of the notice, to perform the contract by the end of the notice period. So much was decided by Pape J in Thornton.[36]
[36][1975] VR 407, 429–30; see also Greydae Pty Ltd v Malilane Pty Ltd [2003] VSCA 27, [20] (Winneke P).
In Thornton, Pape J held that the fact that the notice of default created an obligation different from that in the contract meant that failure to comply with the notice was not a default ‘in the observance of any of the terms and conditions of the contract’ within the meaning of cl 6 of Table A as it then stood.[37] As a result, he held that cl 6 had no application to a failure to comply with a notice of default.
[37]Thornton [1975] VR 407, 429.
Clause 6(1) of Table A was in the following terms:
Time shall be of the essence of this Contract in all respects provided however that if the purchaser makes default in the observance of any of the terms or conditions hereof the vendor shall not be entitled to exercise any of his rights or remedies arising out of such default (including his common law rights) other than his right to sue for the recovery of any moneys then owing unless and until he serves on the purchaser a notice in writing specifying the default and stating his intention to exercise his rights and remedies unless the default is remedied within a period of not less than fourteen days from the date of the service of such notice and the purchaser fails within such period to remedy the default.
Pape J noted that cl 6(2) provided for the results that would follow if the notice ‘also states that unless the default is so remedied the contract will be rescinded pursuant to this sub-clause’.[38] However, the notice in Thornton did not contain such a statement.
[38]Ibid 410.
Pape J held not only that cl 6 was not apt to apply to a default in compliance with a notice of default, but that cl 6 itself had no further operation once the provision that time was to be of the essence was waived.[39] It was relevant to his conclusion that the provision requiring notice to be given was expressed as a proviso to the stipulation that time was of the essence.
[39]Ibid 429.
The decision in Thornton was endorsed by the Full Court in Poort v Development Underwriting (Vic) Pty Ltd (No 2)[40] as follows:
We do not think that time for performance fixed by a notice can be equated to a time fixed by the terms of the contract and declared by it to be essential. It is so fixed because the contract does not fix it, or because to the extent that it does the contract has lapsed. Neither is time fixed by notice to be equated to time fixed by variation of the contract. It is not consensual in origin. It results from the unilateral exercise of a legal right which is granted by the common law and not created or conferred by the contract. There is, therefore, no reason why, when the right to rescind for non-compliance with a time so fixed is exercised, its exercise should be subject to the proviso in cl 6, because it is not a right arising out of default in observance of the terms of the contract.[41]
[40][1977] VR 454.
[41]Ibid 462.
In this Court, senior counsel for the applicant contended that the reasoning of Pape J was inapplicable to General Conditions 27 and 28. He pointed out that they are not expressed as a proviso to General Condition 16, which makes time of the essence. Nor, it might be added, are they confined in terms to defaults ‘in the observance of any of the terms and conditions of the contract’. As such, it was submitted that General Condition 27 prevented rescission following a failure to comply with a notice of default and rescission until a further notice had been served in respect of that failure.
This argument does not appear to accommodate the express terms of General Condition 28.2, which provides for rescission upon failure to comply with a notice without the need for a further notice. In the face of that provision, there is considerable difficulty in construing General Condition 27 as extending, unlike cl 6 in Table A, to a default in compliance with a notice of default. Even though the reasoning of Pape J is not directly applicable to General Condition 27 to the extent that it depended on cl 6 of Table A having been waived (including its proviso), the same result seems likely to be reached as a matter of construction in respect of General Conditions 27 and 28.
It will be recalled that Pape J did not need to address cl 6(2) of Table A, the predecessor to General Condition 28. There is no reason to think he would have reached any different conclusion had he done so. To the contrary, the judgment also relied on general considerations of reasonableness:
It would in my view not be reasonable to hold that once having exercised his right to fix a time for completion and thereby to make time again of the essence of the contract in that regard, the vendor should, on default being made, be required to give another notice in similar form before he could rescind the contract.[42]
[42]Thornton [1975] VR 407, 429.
The applicant then contends that, as a matter of logic, there could be no valid default notice in respect of a default that did not arise until non-compliance with the notice itself. Again, this submission is difficult to reconcile with General Condition 28.2. That is because it misconceives the nature of notice making time of the essence. As explained earlier, the notice addresses the essentiality of time. The previous failure to complete by the due date (with or without an extension) remains a breach (or default, within the meaning of General Condition 27). Even though a new obligation to complete is created by the notice, that does not alter the fact of the past breach. The notice provides for the consequences of that past breach if it is not remedied within the stipulated reasonable period.
For these reasons, the primary judge was right to hold that the notice was likely to have been effective to refix the time for completion.
It was therefore well open to the judge to find that the applicant had failed to establish a prima facie case for the retention of the caveat based on deficiencies in the notice of default.
(3) Balance of convenience
In the circumstances, it may not strictly be necessary to consider whether the primary judge erred in his approach to the balance of convenience. However, since the questions of prima facie case and balance of convenience are apt to affect each other, it is preferable to do so.
The applicant’s argument here depends substantially on the weight given by the primary judge to various factors. Questions of weight were for the judge to determine in the exercise of his discretion. Criticisms of this kind do not establish House v The King error. We address below two arguments of a different kind.
Two specific errors were alleged. The first is that the applicant submits that there was evidence that a total deposit of $22,000, rather than $2,000 was paid. The evidence as to the payment of the additional $20,000 was equivocal. This ground amounts to a challenge to a finding of fact, rather than House v The King error. In any event, there is no reason to think that the judge’s discretion would or should have been exercised differently had this finding been made. Even if it is right to regard the caveat as ‘securing’ the deposit, his analysis of the merits indicates a likelihood that it did so on a weak foundation. The difference between $22,000 and $2,000 cannot have been decisive in these circumstances.
Secondly, it is submitted that the judge did not factor in to the balance of convenience the fact that the applicant’s business plans included both lots 136H and 136K and that the applicant had already bought and settled on lot 136H. It is true that he did not mention this matter in the part of his judgment addressing the balance of convenience. However, he did refer to it elsewhere in his judgment. In those circumstances it is far from obvious that the judge did not take this factor into account.
In any event, however, the judge’s treatment of the status of lot 136K itself makes it clear that he would have regarded the applicant’s ownership of lot 136H as having very little weight. He found that the applicant was not prepared to complete the contract according to its terms and that it was likely to have been terminated. As a result, if the land was disposed of to a third party, the applicant’s prejudice was markedly less than that of the respondent, who was otherwise compelled by the caveat not to proceed with the agreed subsequent sale but to hold the land pending final resolution of the applicant’s claims, which were held to be weak, with respect to the contractual position. The plans embarked on by the applicant in acquiring the neighbouring land could not substantially alter the balance of convenience in these circumstances.
For those reasons, the judge’s conclusion that there was a higher risk of prejudice as between the parties, and injustice, if he were to refuse the respondent’s application, was properly open and should not be disturbed.
Conclusion
In our opinion, the applicant has failed to show that the primary judge erred, either in finding that there was not a prima facie case for maintaining the caveat, or in finding that the balance of convenience favoured its removal.
We would grant the application for leave to appeal on the basis that it had a prospect of success that was real in the sense of not being fanciful,[43] but the appeal should be dismissed.
[43]Supreme Court Act 1986, s 14C; Kennedy v Shire of Campaspe [2015] VSCA 47, [13] (Whelan and Ferguson JJA); Note Printing Australia Ltd v Leckenby [2015] VSCA 105, [78]–[82] (Tate JA, Whelan and Ferguson JJA agreeing).
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