Chandos Developments Pty Ltd v Mulkearns

[2008] NSWCA 62

New South Wales

Court of Appeal

CITATION:	Chandos Developments Pty Ltd v Mulkearns & Anor [2008] NSWCA 62
HEARING DATE(S):	25 February 2008
JUDGMENT DATE:	11 April 2008
JUDGMENT OF:	Beazley JA at 1; Giles JA at 2; McColl JA at 125
DECISION:	Appeal and cross-appeal each dismissed with costs.
CATCHWORDS:	Vendor and purchaser - sale subject to tenancy - vendor obliged under tenancy agreement to maintain roof - vendor obliged under sale agreement to comply with obligation to tenant to the extent to be complied with prior to completion - roof needed replacing - whether within vendor's obligation to tenant - whether vendor could give notice to complete when roof not replaced - whether vendor could terminate for failure by purchaser to complete although rejecting that had to replace roof - construction of obligation under sale agreement - replacement within vendor's obligations - but vendor not in breach and could give notice to complete - vendor's obligation under sale agreement not essential obligation - vendor could terminate - provisions in sale agreement concerning retention of a licence fee in the event of termination - on construction of provisions, only as security for vendor's loss - purchaser could recover most of licence fee.
CATEGORY:	Principal judgment
CASES CITED:	Alexus Pty Ltd v Pont Holdings Ltd (2000) 10 BPR 97848; Bahr v Nicolay (No 2) (1988) 164 CLR 604; Brew Bros Ltd v Snax (Ross) Ltd (1970) 1 QB 612; Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd (1915) AC 79; Foran v Wight (1989) 168 CLR 385; Foster v Anderson (1908) 16 OLE 565; Glasshouse Investments Pty Ltd v MPJ Holdings Pty Ltd [2005] NSWSC 456; Golding v Vella (2001) 10 BPR 97903; Gustin v Taajamba Pty Ltd (1988) 4 BPR 97274; Halkidis v Bugeia (1974) 1 NSWLR 423; Highfern Pty Ltd v Sibbles (1987) 2 QdR 667; Lindsay v Federal Commissioner of Taxation (1961) 106 CLR 377; Lister v Lane (1893) 2 QB 212; Lurcott v Wakeley (1911) 1 KB 905; Maxsujur Pty Ltd v Asimus (1982) NSWLR 96; McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457; McNally v Waitzer (1981) 1 NSWLR 294; Mehmet v Benson (1965) 113 CLR 295; Neeta (Epping) Pty Ltd v Phillips (1974) 131 CLR 286; PC Developments Pty Ltd v Revell (1991) 22 NSWLR 615; Ping v Pearce Paradise Pty Ltd (1982) 2 BPR 97125; Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589; Prosper Homes Ltd v Hambros Bank Executor & Trustee Co Ltd (1979) 39 P & CR 395; Ray v Davies; Dyster v Randall (1926) Ch 932; Roadshow Entertainment Pty Ltd v (ACN 053 006 269) Pty Ltd (1997) 42 NSWLR 463; Torrens v Walker (1906) 2 Ch 166.
PARTIES:	Chandos Developments Pty Ltd - Appellant Anthony Michael Mulkearns - First Respondent High Forest Estate Pty Ltd - Second Respondent
FILE NUMBER(S):	CA 40519/05
COUNSEL:	G Laughton SC & WG Hodgekiss - Appellant and Cross-Respondent No appearance - First Respondent J W West QC & VRW Gray - Second Respondent and Cross-Appellant
SOLICITORS:	Gells Lawyers - Appellant and Cross-Respondent Slayter & Gordon - Second Respondent and Cross-Appellant
LOWER COURT JURISDICTION:	Supreme Court - Equity Division
LOWER COURT FILE NUMBER(S):	SC 40519/05
LOWER COURT JUDICIAL OFFICER:	Young CJ in EQ
LOWER COURT DATE OF DECISION:	30 May 2005, 1 June 2005,
LOWER COURT MEDIUM NEUTRAL CITATION:	Mulkearns v Chandos Developments Pty Ltd [2003] NSWSC 1132; Mulkearns v Chandos Developments Pty Ltd [2004] NSWSC 1147; Mulkearns v Chandos Developments Pty Ltd (No 3) [2005] NSWSC 504; Mulkearns v Chandos Developments Pty Ltd (No 4) [2005] NSWSC 511

CA 40519/05
ED 4016/03

BEAZLEY JA
GILES JA
McCOLL JA

Friday 11 April 2008

CHANDOS DEVELOPMENTS PTY LTD v MULKEARNS & ANOR

Judgment

1 BEAZLEY JA: I agree with Giles JA.

2 GILES JA: By a contract for sale dated 6 November 2002 (“the contract”) the appellant agreed to sell and the second respondent agreed to buy the property 925 Old Northern Road, Dural (“the property”) for the price of $2,500,000. The first respondent guaranteed the second respondent’s performance of its obligations under the contract. I will refer to the appellant and the second respondent as the vendor and the purchaser respectively.

3 The contract provided for payment of a deposit, as is customary, and also for payment of a licence fee for the purchaser’s occupation of a cottage on the property. When the parties fell out over completion of the contract, in proceedings in the Equity Division it was held that -

(a) the vendor had validly terminated the contract following service of a notice to complete;
(b) the vendor was entitled to retain the deposit; and
(c) the purchaser was entitled to have repaid to it the greater part of the licence fee.

4 The appeal and cross-appeal were concerned with the deposit and the licence fee. The first respondent was bankrupt and did not participate; the protagonists were the vendor and the purchaser.

5 The questions in the appeal and cross-appeal will be described more fully, and for the present I do no more than summarise the parties’ positions. The purchaser contended that it was entitled to recover the deposit because the contract had not been validly terminated, either because the vendor had not been entitled to serve the notice to complete when it was itself in breach of the contract or alternatively because the vendor had not been entitled to terminate the contract when it was itself not ready and willing to perform the contract. If this were so, it was common ground that the deposit should be repaid and the purchaser’s entitlement to have repaid to it the greater part of the licence fee should stand. The vendor’s contention, arising only if the purchaser’s contention was not upheld, was that it was entitled to retain the whole of the licence fee because retention did not attract equitable relief from a penalty.

6 As will appear, a number of issues arose within these contentions. For the reasons which follow, in my opinion the vendor validly terminated the contract and was entitled to retain the deposit, but was not entitled to retain the whole of the licence fee. The appeal and the cross-appeal should both be dismissed.

Relevant provisions of the contract

7 The contract adopted in the 2000 edition of the Law Society and Real Estate Institute form, with a number of special conditions.

8 The description against “Property” in the standard form was “The land, the improvements, all fixtures and the inclusions, but not the exclusions”. Thereafter there was the address of the property and its title details. The description against “Property” was part of the printed form, and no exclusions were stated; as to improvements and inclusions, special conditions 51 and 52 provided -

“51. The inclusions within the improvements as shown on DP 618271 comprise all improvements namely fixed floor coverings, light fittings, curtains and blinds and as otherwise inspected by the purchaser.

52. The purchaser acknowledges that the improvements upon Lot 1 DP 618271 namely, the Church, timber chapel and the cottage at the Southern boundary and fronting Old Northern Road, Dural on Lot 21 DP 618271 are subject to a Heritage Development Control Plan and classified as heritage controlled as determined by the Hornsby Shire Council in which respect, the Purchaser shall make no objection, requisition or claim for compensation with respect thereto and the Purchaser acknowledges having made all enquiries and inspections as the Purchaser may deem necessary prior to entering into this contract.”

9 Clause 15 of the standard form provided -

“ 15 Completion date

The parties must complete by the completion date and, if they do not, a party can serve a notice to complete if that party is otherwise entitled to do so.”

10 Special condition 47 provided -

“Completion of this agreement shall take place on or before the expiration of 240 days from the date hereof. In the event completion does not take place within 240 days, either party shall be entitled to serve on the other party or its solicitor a Notice to Complete requiring completion to take place within 21 days from the date of the notice in which respect time shall be of the essence. It is expressly agreed between the parties hereto that the period of 21 days is a reasonable and sufficient period for such notice, notwithstanding any rule of law or equity to the contrary.”

11 Two hundred and forty days from 6 November 2002 was 3 July 2003.

12 The deposit was $250,000. By special condition 31, $100,000 was to be paid as part deposit and released to the vendor forthwith, and the balance was to be paid by a security bond.

13 Clause 9 of the standard form provided -

“ Purchaser’s default

If the purchaser does not comply with this contract (or a notice or [sic] relating to it) in an essential respect, the vendor can terminate by serving a notice. After the termination the vendor can -

9.1 keep or recover the deposit (to a maximum of 10% of the price);

9.2 hold any other money paid by the purchaser under this contract as security for anything recoverable under this clause -


9.2.1 for twelve months after the termination ; or

9.2.2 if the vendor commences proceedings under this clause within twelve months, until those proceedings are concluded; and

9.3 sue the purchaser either -
9.3.1 where the vendor has resold the property under a contract made within 12 months after the termination , to recover -

· The deficiency on resale (with credit for any of the deposit kept or recovered and after allowance for any capital gains tax or goods and service tax payable on anything recovered under this clause); and

· The reasonable costs and expenses arising out of the purchaser’s non-compliance with this contract or the notice and of resale and any attempted resale; or

9.3.2 to recover damages for breach of contract.”

14 The licence fee was payable pursuant to special condition 43, which provided -

“43. As and from the date of this contract the Vendor shall grant possession to the Purchaser of the brick cottage within Lot 2 being the cottage at the southern boundary of Lot 2 and fronting Old Northern Road and the Purchaser shall pay to the Vendor a licence fee to occupy the said cottage and curtilige [sic] in the sum of $300,000.00 until the time provided herein for completion of this agreement. Such sum of $300,000.00 to be paid monthly in the sum of $37,500.00 the first payment to be made on the date of this contract and thereafter on or before the day of each month for the period of 8 months and until completion. PROVIDED that should the Purchaser pay to the Vendor the said licence fee by the said monthly payment and by the due date each month then the Vendor shall accept the said sum without interest. In the event the said monthly instalments are not paid by the due date then the Purchaser shall pay to the Vendor interest upon the said unpaid instalment or instalments at the rate of 12% per annum for each day the instalment is not paid. FURTHER, in the event the Purchaser does not pay the said monthly instalments and the instalments are not paid on two occasions by the due date then notwithstanding anything else in this contract, the Vendor may give to the Purchaser a 21 days Notice to complete this contract in which respect time shall be of the essence of the said notice.”

15 Special conditions 44 and 45 then provided -

“44. The Vendor shall accept on completion such licence fees as paid [sic] referred to in the previous clause (but not interest) in reduction of the sale price.
45. In the event this contract is terminated by the Vendor as authorised by this contract then the whole of the deposit monies together with the licence fees as paid and received by the Vendor shall vest upon the Vendor absolutely and such money the parties agree shall be forfeited to the Vendor as security for the Purchasers [sic] default under the contract.”

16 By special condition 48 the property was sold subject to three tenancies, including a lease (“the lease”) from the vendor to Dural Galleries Pty Ltd (“the tenant”) of a former church on the property (“the church”) for a term of six years commencing on 1 March 2002. A copy of the lease was annexed to the contract.

17 The vendor’s breach of the contract asserted by the purchaser was failure to maintain the roof of the church as required, according to the purchaser’s contention, by cl 24.4.3 of the contract picking up cl 7.1.1 of the lease.

18 Clause 24 of the standard form relevantly provided -

“24.4 If the property is subject to a tenancy on completion -

…

24.4.3 the vendor must comply with any obligation to the tenant under the lease, to the extent it is to be complied with by completion; and

…

24.4.4 the purchaser must comply with any obligation to the tenant under the lease, to the extent that the obligation is disclosed in this contract and is to be complied with after completion.

24.5 Rights under this clause continue after completion, whether or not other rights continue.”

19 Clause 7.1 of the lease provided -

“7.1 The landlord must –

7.1.1 maintain in a state of good condition and serviceable repair the roof, the ceiling, the external walls, and the floors of the property and must fix structural defects;

7.1.2 maintain the property in a structurally sound condition; and

7.1.3 maintain essential services.”

20 Special condition 32.2 of the contract provided -

“32.2 The property and inclusions referred to in the Contract are sold in their present condition and state of repair. The Purchasers warrant that they have inspected the property and satisfied themselves as to the nature, quality and condition of the property and will make no requisition, objection or claim in respect thereof including but not limited to any defects both latent and patent or any contamination (chemical or otherwise), dampness, dryness, infestation or dilapidation.”

The course of the proceedings

21 The proceedings at first instance and on appeal followed a rather complex course, some understanding of which is material to the appeal and cross-appeal.

22 The vendor served a notice to complete on 8 April 2003, prior to the completion date but relying on failure to pay the licence fee (see special condition 43). That notice to complete was withdrawn. On 9 July 2003 the vendor served a second notice to complete.

23 The proceedings at first instance were commenced by the purchaser on 28 July 2003, by filing a summons claiming a declaration that the notice to complete of 9 July 2003 was “not a valid notice to complete” and an order for specific performance of the contract. One basis for the asserted invalidity of the notice to complete was that the vendor had not complied with its obligation to the tenant under the lease because the roof of the church was leaking.

24 Prior to the summons coming on for hearing the notice to complete was withdrawn, when it was realised that it required completion on a Saturday.

25 The vendor gave the purchaser a third notice to complete on 7 August 2003, purporting to make time of the essence for completion on 1 September 2003. The purchaser did not complete, and on 2 September 2003 the vendor gave the purchaser a notice terminating the contract.

26 The summons came on for hearing at the end of November 2003. The summons was not amended; the hearing addressed the validity of the termination and whether specific performance should be ordered by regard to the notice to complete of 7 August 2003 and as matters stood at that time.

27 The trial judge gave judgment on 3 December 2003 (Mulkearns v Chandos Developments Pty Ltd [2003] NSWSC 1132 (“the first judgment”)). His Honour described the proceedings (at [1]) as “a purchaser’s suit for specific performance”. He identified (at [11]) the four reasons on which the purchaser relied “as to why the vendor’s termination was ineffective”. Three grounds went to the vendor’s ability to terminate the contract and one raised relief against forfeiture of the purchaser’s interest in the property. None of the reasons found favour, and his Honour held that the contract had been validly terminated and that specific performance should be refused.

28 It was ordered that the proceedings be dismissed, but with liberty to apply “in case the purchaser had some application which I should consider before becoming functus” (at [77]). It may be inferred that his Honour had in mind an application for repayment of the deposit pursuant to s 55(2A) of the Conveyancing Act 1919 and for repayment of the licence fee, as indeed occurred.

29 Application for repayment of the deposit and the licence fee, and for payment to the purchaser of a sum representing what it had spent in improving the property or the increase in its value by reason of that expenditure, was made by a notice of motion filed on 17 December 2003. On the same date the purchaser filed a notice of appeal without appointment appealing from the trial judge’s decision in the first judgment, and on 16 March 2004 it filed a notice of appeal with appointment stating grounds which effectively challenged the rejection of each of the four reasons with which his Honour had dealt. The notice of appeal sought orders for specific performance and damages.

30 The notice of motion was fleshed out by points of claim filed on 14 July 2004, with responsive points of defence. It was heard in October 2004. Judgment was given on 30 November 2004 (Mulkearns v Chandos Developments Pty Ltd [2004] NSWSC 1147 (“the second judgment”)).

31 When short minutes were brought in on 7 December 2004 it was ascertained that there was a mathematical error which might have affected the return of the deposit, and the trial judge withdrew the reasons. There was further argument in March 2005, which in later reasons the trial judge described as not confined to the matters that had concerned him in December. Judgment was reserved.

32 Before judgment was given the vendor applied by notice of motion for leave to reopen and call further evidence. The application was heard at the end of April 2005, and was dismissed on 30 May 2005 (Mulkearns v Chandos Developments Pty Ltd [2005] NSWSC 504 (“the third judgment”)).

33 On 1 June 2005 the trial judge published his reasons on the notice of motion heard in October 2004 and the subject of further argument in 2005, describing them as a revised and corrected version of the reasons published on 30 November 2004 dealing in addition with the matters argued more fully in March 2005 (Mulkearns v Chandos Developments Pty Ltd [2005] NSWSC 511 (“the fourth judgment”)). In summary, the purchaser failed to recover the deposit, was to be repaid the greater part of the licence fee, and received nothing with respect to its expenditure in improving the property.

34 On 24 June 2005 the vendor filed a notice of appeal without appointment appealing against the decision the subject of the fourth judgment. A notice of appeal with appointment was filed on 9 August 2005, and the amended notice of appeal filed at the commencement of the hearing relied on the grounds -

“1.1 His Honour was in error in deciding that the Respondents were not estopped from seeking relief from penalty.

1.2 Alternatively, his Honour erred in hearing the Respondent’s Notice of Motion filed 17 December 2003, in which they claimed relief against penalty.

2. His Honour erred in determining whether the forfeiture provision was a penalty at the date of breach of the contract by the Respondent, rather than at. [sic].”

3. His Honour ought to have determined whether the provisions of clause 45 of the Contract for Sale dated 6 November 2002 (the Contract) constituted a penalty at the time the Contract was entered.

4. His Honour erred in determining that the forfeiture provision in clause 45 of the Contract constituted a penalty.

5. His Honour ought to have found that the provision contained in clause 45 of the Contract was not a penalty.”

35 The relief sought in the notice of appeal was that “the claim of the Respondents that they have relief against penalty be dismissed”. The appeal was against the decision that the purchaser was to be repaid the greater part of the licence fee.

36 The purchaser did not then appeal from the decision the subject of the fourth judgment. On 7 November 2005 its appeal brought in December 2003 was dismissed by consent for want of prosecution. In July 2007 the purchaser applied for leave to reinstate the appeal. The vendor opposed the application, and on 24 September 2007 the application was dismissed by consent.

37 The vendor’s appeal was fixed for hearing in late February 2008. On 10 December 2007 the purchaser filed a notice of motion applying for leave to file a notice of contention and a cross-appeal. On 4 February 2008 leave was granted.

38 By the notice of contention the purchaser contended that the trial judge’s decision, necessarily the decision that the purchaser was to be repaid the greater part of the licence fee, should be affirmed on the grounds -

“2. His Honour should have found that the Notice to Complete issued by Chandos Developments on 7 August 2003 was not validly issued when, at the time it was issued and at the date specified for completion, Chandos Developments was in breach of its obligations under the contract.

3. His Honour should have found that Chandos Developments had not validly terminated the contract when, at the date of purported termination, Chandos Developments had not issued a valid Notice to Complete making time of the essence.

4. His Honour should have found that High Forest was entitled to have returned to it the excess of the occupation fees over fair market rent in circumstances where Chandos Developments had not validly terminated the contract and had refused to perform its obligations under the contract without lawful justification.”

39 By the cross-appeal the purchaser appealed against the decision that it was not entitled to the return of the deposit, on the grounds -

“5. His Honour erred in deciding the Notice to Complete issued by Chandos Developments on 7 August 2003 was validly issued when, at the time it was issued and at the date specified for completion, Chandos Developments was in breach of its obligations under the contract.

6. His Honour erred in deciding that Chandos Developments had validly terminated the contract when, at the date of purported termination, Chandos Developments had not issued a valid Notice to Complete making time of the essence.

7. His Honour should have found that High Forest was entitled to have the deposit returned to it in circumstances where Chandos Developments had not validly terminated the contract and had refused to perform its obligations under the contract without lawful justification.”

40 The order sought in the notice of cross-appeal was relevantly that the deposit be repaid. The purchaser did not maintain on appeal a claim to repayment of the deposit pursuant to s 55(2A) of the Conveyancing Act. Its claim to recover the deposit was founded on invalidity of the vendor’s termination of the contract.

41 The grounds in the notice of contention and the cross-appeal were in substance challenges to the basis of the first judgment. There was no longer any question of specific performance of the contract. The vendor did not submit that, notwithstanding the leave to file the notice of contention and the cross-appeal, the Court should decline to allow the challenge to be maintained because of the abandonment of the earlier appeal.

42 As the argument developed at the hearing of the appeal and cross-appeal, the vendor was granted leave to file a notice of contention in relation to the validity of the termination of the contract. The notice of contention as filed did not particularly conform to the occasion for the grant of leave, but was -

“1. The provisions of the contract Special Condition 32.2 relating to the acceptance by the purchaser of the condition of the property operated to remove any breach in respect of the property’s condition derived from the lease.

2. The provisions of the contract providing for claims for compensation would have been sufficient for the purchaser’s protection.

3. By clause 9 of the contract Chandos was entitled to retain the deposit to a maximum of ten percent of the price.

4. That if there were a breach and it was not excused by the de minimus [sic] principle the Vendor Chandos was still ready willing and able to complete.”

Payment of the licence fee

43 After the termination of the contract, on 3 September 2003 the purchaser filed in the proceedings a notice of motion claiming interlocutory relief restraining the vendor from taking possession of the property or disturbing the purchaser’s “quiet possession and enjoyment of” the property. In fact the purchaser had possession only of a cottage on the property.

44 According to the trial judge in the first reasons -

“15 These proceedings came on before Windeyer J as duty judge on 15, 17 and 22 September 2003. The plaintiffs sought an interlocutory injunction to preserve the status quo. Upon it becoming apparent to his Honour as is common ground that the contract had not been stamped, that the deposit in excess of $100,000 had never been paid, and that the only parts of the licence fees that had been paid were two monthly instalments plus $10,000, his Honour made it clear that unless this default was made good, he was not interested in granting interlocutory relief. He granted relief on the basis that these matters would be attended to in the near future. The purchaser paid a further $440,000 on 22 September being $150,000, the balance of the deposit, and $290,000, the balance of the occupation fee. On 22 September his Honour then extended the injunction until the hearing.”

45 It is evident, therefore, that at the time of termination the purchaser was in default in payment of instalments of the licence fee. The vendor had been entitled to give a notice to complete in accordance with special condition 43. This does not appear to have meant notice to perform as distinct from a notice to complete, see Gustin v Taajamba Pty Ltd (1988) 4 BPR 97274 at 9376-7 per Mahoney JA. The vendor could accelerate completion of the contract rather than claim payment of the full licence fee.

46 As will be seen, the notice to complete of 7 August 2003 recited non-payment of instalments of the licence fee. But the vendor did not submit on appeal, or so far as appears at first instance, that the default in payment of instalments of the licence fee provided a basis for the notice to complete of 7 August 2003 which could not be vitiated by any breach through failure to maintain the roof of the church.

Completion and the condition of the roof of the church

47 Both prior to and after the service of the notice to complete of 7 August 2003 there was correspondence concerning the condition of the roof of the church.

48 The church was used as an art gallery. On 15 May 2003 the tenant wrote to the vendor saying, amongst other things, that the roof “has been leaking in several places and when it rains we are forced to place several buckets throughout the gallery in order to avoid the carpets on the mezzanine floor from rotting”. The letter said -

“Since I am aware that settlement with Mr Mulkearns is imminent, I thought it would be better to bring these problems to your attention at this stage, giving you the opportunity, to attend to these matters prior to settlement.
Alternatively, if you are too busy and can not attend to these matters, I am quite prepared to undertake these corrections, on the basis of getting a complete refund for any costs incurred by us.
I have pointed these matters out to Mr Mulkearns, as he intimated that he would be the next landlord.”

49 As part of the voluminous correspondence between solicitors, a letter from the vendor’s solicitor to the purchaser’s solicitor dated 29 May 2003 included -

“7. The letter from Dural Galleries Pty Limited. This letter is dated 15 May 2003. Our client is entitled to believe that your client has in essence caused the letter to be written. Dural Galleries Pty Limited repaired the roof and it installed the front doors. Indeed, in those circumstances there is probably no obligation upon our client at all pursuant to the lease to repair. Nevertheless, we are instructed, our client is attending to repair the roof and to rectify the problem with the front doors. Those issues brought to our clients attention on 15 May 2003 did not in any sense entitle your client to delay completion or not comply with the contract.”

50 Despite what was said in the letter, it appears that the vendor did not immediately attend to repair of the roof.

51 I have referred to withdrawal of the notice to complete of 9 July 2003. The letter from the vendor’s solicitor dated 5 August 2003 withdrawing the notice to complete included -

“By your client’s Affidavit in Support of the Summons filed by the Plaintiffs, the Second Plaintiff, it seems asserts by Clause 24.4.3 of the Contract between the parties, our client must comply with any obligations to the tenant (Dural Galleries) under the lease to the extent it is to be complied with by completion.
Our client, does not admit that it has any obligation to the tenant (Dural Galleries) which was at the time of the commencement of your proceedings or at any time during the duration of the Contract was outstanding. We are instructed, there was a request by the tenant for our client to repair the roof to the building, the roof having been damaged, upon our instructions by the tenant when it carried out its renovations to the building. Notwithstanding, our client caused plumbers on Saturday 2nd August to carry out complete and full repairs to the roof and to the satisfaction of the tenant. We enclose copy letter dated 4 August 2003 from Dural Galleries Pty Ltd evidencing satisfaction by the tenant of the repairs.”

52 The tenant’s letter of 4 August 2003 to the vendor said that “all outstanding issues has [sic] been attended to” and, relevantly, “The roof has been fixed to stop leakage when it rains”.

53 According to a letter from the plumbers to the vendor dated 4 August 2003 -

“Sealed minor roof leaks at fastenings on north and south sides of corrugated iron sheeting below roof vents.
Repositioned flashing to north east roof vent and south west roof vent (front) fastenings where leaking evident and sealed adjacent.”

54 On 7 August 2003 the vendor’s solicitor sent a copy of the plumber’s letter to the purchaser’s solicitor, the covering letter stating that the repair of the roof was “without admission to our clients [sic] rights under the contract”.

55 The notice to complete of 7 August 2003 first asserted breach by the purchaser both in failure to pay the licence fee for a number of months and in failure to complete the contract on or before the 240th day after the date of the contract. So far as presently material, it continued -

“ AND WHEREAS the Purchaser alleged by its proceedings that the Vendor must comply with any obligation to the tenant Dural Galleries (and inter alia) alleged that the roof to the old church building occupied by Dural Galleries was leaking and allowing rain to enter the building and further the Purchaser alleged that the Vendor had not paid land tax.
AND WHEREAS the Vendor has denied any liability in relation to Dural Galleries and any obligation to pay land tax prior to completion in accordance with the terms of the contract.
AND WHEREAS without admissions, the Vendor caused the roof to the old church to be repaired to the satisfaction of the tenant and has provided evidence of the repairs and to the tenants [sic] satisfaction.
AND WHEREAS the Vendor has paid all land tax upon the land and other land owned by the Vendor.
AND WHEREAS by Special Condition 47 of the said Contract the Vendor HEREBY REQUIRES the Purchaser to complete the purchase of the said property in accordance with the Contract at the offices of Westpac Banking Corporation, Level 7, 135 King Street, Sydney on or before 4 pm on 1 September 2003 and accordingly the Vendor appoints that time for completion of the said Contract and in this respect time is of the essence of the contract. … “

56 The purchaser’s solicitor wrote in mid-August 2003 requesting that completion be arranged for 26 August 2003. There was no mention of the roof of the church.

57 There was then dispute over provision of settlement figures, and the condition of the roof of the church re-emerged. The purchaser’s solicitor wrote on 28 August 2003 saying that completion could not take place because, amongst other reasons -

“2. The vendor has not rectified the leaks in the roof of the old church building (Art Gallery) and the roof has not been put in a state of good condition and serviceable repair (as evident from the effects of the rain which fell on 23-24 August 2003)”.

58 The vendor’s solicitor relevantly replied, on 29 August 2003 -

“In terms of the allegation regarding the roof of the Old Church, our client denies that the leak at any time, gave rise to any realistic or valid allegation that our client has not complied with the contract.
On our instructions, the Church was constructed in 1801. The building has been substantially renovated and could only be described to be in quite magnificent condition for its age. The art gallery occupying the premises is quite magnificent and there is nothing about the Church which could or would at any time since its magnificent renovation, concern the Hornsby Shire Council in any way whatsoever.
The roof to the Church is an iron roof. The fastenings and screws used in the roof have long since been outdated, such that, when there was some minor water entry, our clients [sic] plumber rectified any necessary repairs professionally and using silicone.
Apparently over the period probably 23-24 August, during what was very heavy rainfalls in Sydney, there was again a very minor leak to the rear of the Church roof, estimated to be about a cup full of water. Our clients [sic] plumber returned and while further repairing the roof, your client, Mr Mulkearns appeared and said words to the effect to the plumber “What are you doing?” When the plumber replied that the fastenings and the screws were very old and there is a minor water entry and he was further repairing the point where the entry occurred, Mr Mulkearns replied “That’s very good” and he walked away.
It is patently obvious, your client for a long time has been in breach of the terms of the contract.”

59 This brought a response from the purchaser’s solicitor on 1 September 2003, the day for completion in accordance with the notice to complete -

“4. Chandos Developments appears unable to appreciate the meaning and significance of clause 24.4.3 of the contract for sale in relation to the church hall roof. To maintain the church hall roof in good condition and serviceable repair (which is Chandos Developments’ obligation up to completion of the contract of sale) is not discharged by inserting silicone into holes in the roof adjoining or in lieu of loose or missing fastenings and screws. That action does not prevent water entry. A roof that does not prevent water entry is not in good condition and serviceable repair. Your letter merely confirms that Chandos Developments is in breach of clause 24.4.3 of the contract. As you know, not only is Chandos Developments liable to damages for breach of the contract but, as a party in default, it cannot give a valid notice to complete.
5. It follows from the above –

a. There is no valid notice to complete.

b. Chandos Developments is legally incapable of terminating the contract for sale.”

60 The vendor was unmoved, and terminated the contract by the notice of 2 September 2003.

Grounds 1.1 and 1.2 in the appeal

61 It is convenient first to consider these grounds.

62 The trial judge noted in the fourth judgment that the vendor had submitted that the purchaser should have made all its claims at once, and not claimed specific performance and if that was unsuccessful claimed recovery of the deposit. Recovery of the licence fee was not specifically mentioned by his Honour, but presumably was regarded as within the vendor’s complaint. His Honour said at [38] that “Mr Sweeney put that although this was not an actual Anshun situation (Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589) it was closely analogous to it.” He concluded at [52] that while it was preferable for claims under s 55(2A) of the Conveyancing Act to be litigated along with the claim for specific performance, it was not imperative for that to occur, and said at [53] that there was no unfairness because an opportunity was given for further facts to be considered. Again, presumably recovery of the licence fee was regarded as being in the same position.

63 The vendor’s submissions on appeal were brief. They were to the effect that the notice of motion raised new claims, that it was unreasonable for the purchaser not to have raised them at the first hearing, and that adherence to the philosophy of s 63 of the Supreme Court Act 1970 (avoidance of multiplicity of proceedings) had required that the trial judge decline to entertain the new claims. In oral submissions the vendor’s counsel accepted that it was a discretionary determination by his Honour.

64 It is sufficient to say that no error in the discretionary determination has been shown.

Entitlement to serve the notice to complete

65 Of the four reasons on which the purchaser relied identified in the first judgment, that presently relevant was -

“11. …

(1) The notice to complete was a notice which the vendor was not in a position to give under the principle discussed in McNally v Waitzer [1981] 1 NSWLR 294. This is because the vendor was under an obligation to the purchaser to perform its obligations under the leases in particular its obligation to maintain the roof of the church building in good repair.”

66 The trial judge accepted the evidence of Mr Dermot Lyons, a roofing contractor, that the roof had to be replaced. Mr Lyons inspected the roof in early September 2003. He said in his report that the roof was “beyond repair”. It suffered from areas of rust, some of which had rusted out completely, and there was evidence of previous repairs using silicone sealant where laps had rusted through. Dormer type roof features were leaking and most of the lead ridge capping had cracked. The cost of replacement would be $25,000 to $30,000. His Honour said that this cost was considered reasonable by Mr Bruce Rutledge, a quantity surveyor.

67 The trial judge did not decide whether or not in those circumstances the vendor was in breach of cl 7.1.1 of the lease. He said -

“33 (1) Mr Gray puts that the condition in the lease 7.1.1 operates so that the vendor had an obligation to bring the roof up to a good state of repair and thereafter maintain it in that condition. He relied on Anstruther-Gough-Calthorpe v McOscar [1924] 1 KB 716, 734; Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349, 356.

34 I am not completely sure whether one needs to read covenant 7.1.1 in this way with respect to an heritage building with a galvanised iron roof, but for the purposes of the argument I will accept it.”

68 His Honour did not refer at all to whether or not the vendor was in breach of cl 24.4.3 of the contract. This was a separate matter from whether the vendor was in breach of cl 7.1.1 of the lease. What was said in [42] of the first judgment set out below appears to assume that the vendor accepted that breach of the contract followed from breach of the lease.

69 The trial judge noted at [35] the vendor’s submission that any breach of cl 7.1.1 did not prevent the vendor from giving a notice to complete because “the authorities demonstrate that it is not breaches of all conditions in a contract which prevent a vendor from giving a notice to complete, but only those which go to the core elements of the contract, usually vacant possession and encumbrances on the title”.

70 His Honour referred to a number of cases. As I understand the reasons, he considered that Prosper Homes Ltd v Hambros Bank Executor & Trustee Co Ltd (1979) 39 P & CR 395, Alexus Pty Ltd v Pont Holdings Ltd (2000) 10 BPR 97848 and Golding v Vella (2001) 10 BPR 97903 supported that breach as to an inessential obligation which could adequately sound in damages did not preclude giving a notice to complete or termination of the contract. He considered that McNally v Waitzer (1981) 1 NSWLR 294 was to be explained as a case turning on readiness and willingness to complete, which (at [41]) “is not to be determined on whether or not there has been a breach of contract, at least unless the breach is substantial: Mehmet v Benson (1965) 113 CLR 295, 307-9”.

71 His Honour then said -

“42 Assuming that there was a breach and a continuing breach of covenant 7.1.1 of the lease, the vendor says that the tenant was quite content with the way things were and that in any event under clause 24.5 the obligation to pay damages remains notwithstanding completion. It of course also says that the roof was not in need of repair and was in good condition but on the facts, as I have said I prefer Mr Lyons' evidence and do not uphold that submission. The plaintiffs say that this was a substantial breach and it might be a very expensive substantial breach because if there were a heavy rainstorm and the roof failed to repel the rain, works of art inside the gallery might be irretrievably damaged. This point is taken, but there was no material to suggest that the rusted roof was in such a condition that there would be substantial ingress of water or that a tenant once he or she saw that water was coming in would leave material where it was to be ruined. In my view the breach, if it be a breach, of the lease, was not a substantial breach nor one which affected the vendor's readiness, willingness and ability to complete the contract. Accordingly it had no effect on the vendor's ability to give a notice to complete.

43 It must also be remembered that this was the third notice to complete, that the purchaser had been in default with even paying the deposit up until after the expiry of the third notice to complete, and did not appear at all concerned about any problem with the roof until after the original completion date had come and gone.

44 The Court must take a commercially realistic view of the completion of contracts for the sale of land particularly contracts with respect to commercial developments. It would be quite opposed to the presumed intention of parties to a contract if settlement could be indefinitely delayed because of some minor problem with respect to the state of the building or other possible breach of an obligation to a third party which the vendor under the contract had promised to look after. It may be that the category of breaches which go to readiness, willingness and ability extend beyond matters of title or vacant possession, but this is certainly the main subject matter of such breaches. It is noteworthy that Mr Mulkearns said that he would have settled had some sum been set aside to cover the replacement of the roof, but he did not appear to be putting forward that view in August.

45 In my view, there was no reason why the vendor could not on 7 August have issued a notice to complete as it did.”

72 The purchaser submitted on appeal that, on the law as stated by the High Court in Neeta (Epping) Pty Ltd v Phillips (1974) 131 CLR 286 and adopted in this Court in McNally v Waitzer, a vendor could not give an effective notice to complete if it was in breach of the contract in any respect. According to the submission, it did not matter whether or not the breach was substantial (so long as it was not de minimis), or whether or not it affected the vendor’s readiness, willingness and ability to complete the contract; nor did it matter that damages for the breach were available.

73 These submissions assumed that the trial judge had found that the vendor was in breach of cl 7.1.1 of the lease and consequently of cl 24.4.3 of the contract. The trial judge had not so found, and breach was put in issue by the vendor’s submissions.

74 The vendor submitted that the trial judge was correct in his view of the cases, but in the alternative that it had not been in breach of the lease in relation to the state of the roof of the church, or if it was that it was nonetheless not in breach of cl 24.4.3 of the contract; it said further that if it was in breach of the contract, the breach was de minimis.

75 In my opinion, there is a short answer to this limb of the purchaser’s contention. It is not necessary to consider the nature of the breach which will disentitle a vendor from giving an effective notice to complete, and I express no view on that subject. The short answer is that the vendor was not in breach of the contract as at 7 August 2003.

76 For the present I will assume that cl 7.1.1 of the lease required that the vendor repair, or even replace, the roof of the church. By cl 24.4.3 of the contract, the vendor was obliged to comply with any obligation to the tenant under the lease “to the extent it is to be complied with by completion”. The reciprocal was found in cl 24.4.4, that the purchaser was obliged to comply with any obligation to the tenant under the lease “to the extent that the obligation … is to be complied with after completion”.

77 Subject to the qualification in cl 24.4.4 concerning disclosure of the obligation in the contract, these provisions apportioned between the vendor and the purchaser compliance with the landlord’s obligations to the tenant. The vendor had to comply with the obligations which had to be complied with prior to completion, so that the purchaser did not have to rectify a breach arising prior to completion. If after completion the tenant claimed against the purchaser in respect of such a breach, the purchaser could call upon the vendor pursuant to cl 24.5. The purchaser had to comply with the obligations which had to be complied with after completion, so that the vendor would not be subject to claims from the tenant (with which it remained in privity of contract) in respect of a breach arising after completion. If the purchaser did not do so and the tenant claimed against the vendor, the vendor could call upon the purchaser pursuant to cl 24.5.

78 It could not be said prior to the completion date that the vendor had failed to fulfil its obligation under cl 24.4.3. Whether or not it was necessary that there be compliance with the obligations to the tenant under the lease as at that date, a matter to which I will return, it was sufficient if as at that date the vendor had complied with its obligations to the tenant. Assuming that the vendor was in breach of cl 7.1.1 of the lease as at 7 August 2003, it was open to the vendor to remedy that breach prior to completion. At least if it could duly have done so, and again whether or not it was necessary that it do so, it was entitled to give the notice to complete: McNally v Waitzer, disapproving dicta in Halkidis v Bugeia (1974) 1 NSWLR 423 and Maxsujur Pty Ltd v Asimus (1982) NSWLR 96. It was not suggested that the evidence established that the three weeks was inadequate for the vendor to have repaired or replaced the roof.

79 In my opinion, the vendor was entitled to give the notice to complete of 7 August 2003.

Entitlement to terminate the contract

80 In the first judgment the trial judge identified as the second of the four reasons -

“11. …
(2) As at the date of completion on 1 September 2003, the roof was not in fact in good condition and the vendor could not have completed.”

81 His Honour dealt with this reason by reference to his decision in relation to the first reason -

“46(2) This point is much the same as the previous point except that one is directed to the time of completion rather than the time of issuing the notice to complete. It seems to me that for the same reason as I have given under (1) that the point fails.”

82 Translating what his Honour had said to an answer to the second reason, it appears that his Honour considered that the vendor was entitled to terminate the contract on 2 September 2003 notwithstanding any breach of cl 7.1.1 of the lease because any consequential breach of cl 24.4.3 of the contract was not a substantial breach; and as well, it seems on the basis that the obligation to pay damages remained notwithstanding completion, because the breach of cl 24.4.3 was not a breach which affected the vendor’s readiness, willingness and ability to complete the contract.

83 The purchaser submitted that in the correspondence prior to 1 September 2003, and in the notice to complete of 7 August 2003 itself, the vendor had taken the stance that it was not obliged to attend to the roof of the church. It said that the vendor was therefore not ready and willing to perform its own obligations under the contract and could not terminate the contract for failure by the purchaser to complete. The vendor’s submissions did not clearly respond to the purchaser’s submissions, save for taking issue with breach of cl 7.1.1 of the lease and cl 24.4.3 of the contract and saying that any breach was de minimis.

84 The first question is whether the vendor was in breach of cl 7.1.1 of the lease. What was required under the vendor’s obligation to the tenant?

85 The words “good condition and serviceable repair” in cl 7.1.1 of the lease, when applied to the roof as one of the identified components of the building (roof, ceiling, external walls and floor), in their ordinary meaning called for a roof which did not permit water entry. A roof is meant to keep the rain out. The obligation was in the nature of a covenant to repair, as shown by the word “maintain”, and what was required to fulfil it had to pay regard to the age and nature of the building and its state of repair at the commencement of the lease. But a covenant to keep in repair covers putting in repair having regard to such matters, see for example, Proudfoot v Hart (1896) 25 QBD 42, and a roof in good condition and serviceable repair was one which would keep the rain out.

86 At the least, the vendor was obliged to carry out repairs of the kind described in the correspondence in August 2003, such as sealing points of water entry with silicone at fastenings and screws and repositioning and sealing flashings. However, on the evidence of Mr Lyons the roof was beyond repair. It had to be replaced. Mr Lyons’ report was proximate to the completion date, and that the roof was beyond repairs of the kind carried out by the vendor’s plumbers gains some support from the fact that, despite the repairs on 4 August 2003, there was water entry on 23-24 August 2003. The water entry may not have been great, but it was attributed to the old fastenings and screws and the integrity of the roof was plainly enough such that more band-aid repairs would be necessary. Did the vendor’s obligation extend to replacement of the roof, in order to maintain it in good condition and serviceable repair?

87 Repair under a covenant to repair can involve renewal; it is a question of degree. In Lister v Lane (1893) 2 QB 212 it was held that a tenant was not obliged completely to underpin a house build on mud without foundations in order to prevent further deterioration. In Torrens v Walker (1906) 2 Ch 166 it was held that a tenant was not obliged to replace walls which the ravages of time were causing to crumble. But in Lurcott v Wakeley (1911) 1 KB 905 the Court firmly rejected that deterioration from age or the elements whereby replacement was necessary was outside a covenant to repair, and regarded these as rather special cases.

88 It was held in Lurcott v Wakeley that replacing an external wall which had been condemned, its condition being caused by old age, was within a tenant’s covenant to repair. Cozens-Hardy MR said (at 914) that the replacement of the wall would not change the character or nature of the building, and -

“It seems to me that we should be narrowing in a most dangerous way the limit and extent of these covenants if we did not hold that the defendants were liable under covenants framed as these are to make good the cost of repairing this wall in the only sense in which it can be repaired, namely, by rebuilding it according to the requirements of the county council.”

89 Buckley LJ said (at 923-4) -

“‘Repair’ and ‘renew’ are not words expressive of a clear contrast. Repair always involves renewal; renewal of a part; of a subordinate part. A skylight leaks; repair is effected by hacking out the putties, putting in a new ones, and renewing the paint. A roof falls out of repair; the necessary work is to replace the decayed timbers by sound wood; to substitute sound tiles or slates for those which are cracked, broken or missing; to make good the flashings, and the like. Part of a garden wall tumbles down; repair is effected by building it up again with new mortar, and, so far as necessary, new bricks or stone. Repair is restoration by renewal or replacement of subsidiary parts of a whole. Renewal, as distinguished from repair, is reconstruction of the entirety, meaning by the entirety not necessarily the whole but substantially the whole subject-matter under discussion . I agree that if repair of the whole subject-matter has become impossible a covenant to repair does not carry an obligation to renew or replace. That has been affirmed by Lister v Lane and Wright v Lawson. But if that which I have said is accurate, it follows that the question of repair is in every case one of degree, and the test is whether the act to be done is one which in substance is the renewal or replacement of defective parts, or the renewal or replacement of substantially the whole.” [emphasis added]

90 In Lindsay v Federal Commissioner of Taxation (1961) 106 CLR 377 these cases were referred to, with particular approval of Lurcott v Wakeley, in distinguishing between repair and renewal for taxation purposes. The Court adopted at 394 the passage from the reasons of Buckley LJ emphasised in the extract last set out.

91 Lurcott v Wakeley was described as the leading case, and applied, in Brew Bros Ltd v Snax (Ross) Ltd (1970) 1 QB 612. It was cited in Glasshouse Investments Pty Ltd v MPJ Holdings Pty Ltd [2005] NSWSC 456 at [71] for repair involving “some sort of renewal”. There are many cases on different forms of words, and they show that a constraint in holding that a tenant’s covenant to repair requires replacement is that the landlord should not gain by improvement at the tenant’s expense. But that restraint does not apply to a landlord’s obligation such as that under cl 7.1.1 of the lease. The plain purpose is that the tenant shall have a roof, ceiling, external walls and floors making up a habitable building, if necessary by replacement of one of those components if it is not in good condition and substantial repair.

92 On the evidence of Mr Lyons, the roof of the church could be repaired only by replacement. It was no doubt a major component of the building, but one which cl 7.1.1 specifically identified as a subject of the landlord’s obligation. The character of the church would not be changed by replacement of the rusted roofing material and provision of new ridge capping and flashing. In my opinion, the vendor’s obligation to the tenant extended to replacement of the roof.

93 The next question is whether the vendor was in breach of cl 24.4.3 of the contract. To repeat the critical words, the vendor had to comply with any obligation to the tenant under the lease “to the extent it is to be complied with prior to completion”. There was apportionment between the vendor and the purchaser of compliance with the landlord’s obligations to the tenant, but was it necessary that the compliance by the vendor with the obligations apportioned to it be prior to completion?

94 The critical words identified the compliance required of the vendor, but did not say that the compliance had to be prior to completion. They were matched by like words in cl 24.4.4, which plainly enough were not prescriptive that the purchaser had to comply after completion: prescription that the purchaser had to comply after completion was pointless, because it had to be so. This suggested that the words in cl 24.4.3 were also not prescriptive that the vendor had to comply prior to completion, which gained some support from the express provision in cl 24.5 that the rights under the clause – under cl 24.4.3 as well as under cl 24.4.4 – continued after completion. It is significant that cl 24.5 refers to “rights under this clause”, not to an entitlement to damages.

95 In my opinion, it was open to the vendor to bring about compliance after completion. Accordingly, although as at the completion date the vendor had not replaced the roof of the church, it was not then in breach of cl 24.4.3 of the contract.

96 Before going further, I should refer to the contention in the vendor’s notice of contention that special condition 32.2 of the contract “operated to remove any breach in respect of the property’s condition derived from the lease”. The submissions did not particularly amplify the contention. I do not think special condition 32.2, or special condition 52 so far as obliging the purchaser to accept the roof of the church in its condition as at 6 November 2002, overrode cl 24.4.3 of the contract. The purchaser took the buildings on the property generally in their then condition and state of repair, but cl 24.4.3 made particular provision for compliance with obligations to the tenants. The provisions had to be read together so far as possible. To the extent that compliance required that the vendor improve the condition or state of repair of a building, the general acceptance of the condition and state of repair was qualified, and the purchaser was entitled to performance of the specific promise in cl 24.4.3. As later indicated, however, cl 32.2 is material to identifying the subject-matter of the contract

97 The vendor had nonetheless made plain enough that it was not going to carry out further repairs to the roof. It was not going to bring about compliance after completion. Although it was not then in breach of cl 24.4.3, for the purposes of the purchaser’s submissions it was not ready and willing to replace the roof in that it rejected any obligation to do more than it had done.

98 Thus I come to the purchaser’s submission that the vendor could not terminate the contract because it was not ready and willing to perform its own obligations under the contract. The purchaser relied on passages in Foran v Wight (1989) 168 CLR 385; it is necessary, however, to go beyond the particular passages.

99 In Foran v Wight at 417 Brennan J said -

“Where the respective obligations of parties to a contract are mutually dependent and concurrent, the primary rule is that neither party who fails to perform his obligation when the time for performance arrives can rescind for the other party's failure at that time to perform his obligation. Each party's obligation is conditional on performance by the other; neither can complain of non-performance by the other when the condition governing the other's obligation goes unfulfilled.”

100 The respective obligations in that case were the obligation of a vendor to deliver a conveyance and the obligation of a purchaser to pay the price on completion. Brennan J had prefaced the general statement with reference to those obligations, and their concurrency and mutual dependency is well established, see Foran v Wight at 396 per Mason CJ, 433 per Deane J, 450-1 per Dawson J and 455 per Gaudron J and cases there cited. The concurrent and mutually dependent obligations there in question are an instance of a wider class of dependent promises, where the performance of its promise by one party is a condition precedent to the performance of its promise by the other party. For example, if the vendor must submit the conveyance but has not done so, it cannot call upon the purchaser to complete: Foster v Anderson (1908) 16 OLR 565. On the other hand, in RoadshowEntertainment Pty Ltd v (ACN 053 006 269) Pty Ltd (1997) 42 NSWLR 463 timely payment for products supplied under a distribution agreement was not a condition precedent to continued supply: at 479. Whether one promise is dependent on another is a matter of construction of the contract.

101 For the purchaser’s reliance on the statement by Brennan J, it was necessary that performance of its promise to complete by payment of the purchase price was dependent on performance of the vendor’s promise in cl 24.4.3 of the contract. I do not think that is so.

102 The vendor was obliged to convey title to the land, which would carry with it the improvements, but special condition 32.2 indicated that improvements in a particular state of repair was not part of the subject-matter of the sale; compare Ping v Pearce Paradise Pty Ltd (1982) 2 BPR 97125 at 9426, where the post-contract dilapidations were such that the property became “substantially different in quality and value from the property the subject of the contract”. Clause 24.4.3 did not change this, its purpose being apportionment of the obligations to the tenants and performance of the obligations so apportioned rather than assurance that the improvements would be in a particular state of repair as at the completion date. The vendor’s failure to comply with obligations to the tenant did not detract from the subject-matter of the sale, and the vendor could convey perfectly good title to the land notwithstanding that it had not complied with those obligations. Further, as I have earlier said, cl 24.4.3 was not prescriptive that the vendor had to comply prior to completion, and cl 24.5 provided that rights under the clause continued after completion: cf Ray v Davies (1909) 9 CLR 160 at 166 per Griffith CJ, holding that an obligation to execute a mortgage after being put in possession could not be mutually dependent with the obligation to put in possession.

103 It is not consistent with cl 24.5 that compliance by the vendor with the obligations to the tenants prior to completion was a condition precedent to performance of the purchaser’s obligation to complete by payment of the purchase price. The vendor’s rejection of any obligation to do more than it had done did not on dependent promise grounds relieve the purchaser from its obligation to complete.

104 In Foran v Wight at 424 Brennan J further said -

“Where a party claims to be entitled to rescind an executory contract on account of the other party's repudiation (whether by way of anticipatory breach or incapacity), the first party must show not only the other's repudiation but his own readiness and willingness up to the time of rescission to perform his essential obligations under the contract: Rawson v Hobbs [(1961) 107 CLR 466 at 480-1]. Readiness or willingness imports capacity to perform as well as disposition to perform: De Medina v Norman [(1842) 9 M & W 829 at 827; 152 ER 1129]. Since a party's right to rescind an executory contract for the other party's repudiation is limited to cases where the first party is ready and willing to perform, neither party is treated as without fault where both would be at fault were the contract to continue until the time for performance arrives.”

105 Brennan J was speaking of readiness and willingness when terminating for repudiation prior to the time for performance, when particular considerations arise, rather than readiness and willingness at the time for performance. Even then, his Honour referred to readiness and willingness to perform essential terms.

106 More directly as to readiness and willingness at the time for the other party’s performance, in RoadshowEntertainment Pty Ltd v (ACN 053 006 269) Pty Ltd at 479-80 this Court said –

“As a general rule, a party in breach of a non-essential term is not prevented from rescinding for a fundamental breach or repudiation by the other party: see J W Carter, Breach of Contract , 2nd ed (1991) at 347 and Halsbury's Laws of Australia , vol 6, “Contract” (1992) par 110-9520, by the same author. The question is whether there is an exception or qualification to this general rule which prevented Roadshow from rescinding. Such an exception or qualification might exist if there were a causal relationship between the breaches of non-essential terms by the party attempting to rescind, and the fundamental breach relied upon: see Nina's Bar Bistro Pty Ltd (formerly Mytcoona Pty Ltd) v MBE Corporation (Sydney) Pty Ltd (at 614, 620-621, 632); and compare Suttor v Gundowda Pty Ltd (1950) 81 CLR 418 at 440-442.”

107 See now Carter on Contract, para 37-190, and Bahr v Nicolay (No 2) (1988) 164 CLR 604 at 619-20 and Highfern Pty Ltd v Sibbles (1987) 2 QdR 667, in which a vendor was held entitled to terminate notwithstanding that it retook possession in breach of the contract on the basis that the breach was not of an essential term.

108 If breach of a non-essential term does not preclude termination, unwillingness and unreadiness to perform a non-essential obligation could not do so. The juridical basis or bases for breach of an essential term, or unwillingness and unreadiness to perform it, bringing inability to terminate may need some exploration. This is not the case for it, and it would be unwise to embark on an exploration in the absence of submissions on the point. It is sufficient that, as shortly explained, the vendor’s obligation under cl 24.4.3 of the contract was not an essential obligation.

109 It should be noted that breach by a vendor may bear upon whether the vendor can obtain specific performance against the purchaser, but despite a vendor’s failure in performance the vendor may be entitled to specific performance with compensation to the purchaser: for example, Ray vDavies; Dyster v Randall (1926) Ch 932. It is not consistent with this that any breach by the vendor entitles the purchaser to decline to complete. So in Mehmet v Benson (1965) 113 CLR 295, in which it was argued that a purchaser should not have specific performance because its breach meant that it was not ready and willing to perform its part of the contract, Barwick CJ said at 307-8 -

“That the plaintiff was in default in payment of the instalments of the price and of the interest on the unpaid balance of it (time not being of the essence) though relevant to that question does not establish that he was not in the relevant sense ready and willing to perform the contract. If it were otherwise a purchaser in substantial default of inessential terms could never be granted specific performance. Indeed, the significance of the distinction between essential and inessential terms is derived from the fact that a person in breach of inessential terms may be granted specific performance. " ... A plaintiff in equity may even have actually broken his contract in the letter and yet succeed, if the substance remains": per Isaacs and Rich JJ. in Fullers' Theatres Ltd. v. Musgrove .

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. Here the substantial thing for which the defendant bargained was the payment of the price: and, unless time be and remain of the essence, he obtains what he bargained for if by the decree he obtains his price with such ancillary orders as recompense him for the delay in its receipt. To order specific performance in this case would not involve the court in dispensing with anything for which the vendor essentially contracted.

Of course, the plaintiff must not by his unreadiness or unwillingness to perform have disowned his obligation to do so, or abandoned his rights to the benefit of the contract. But it is the essential terms of the contract which he must be ready and willing to perform.”

110 Clauses 24.4.3 and 24.4.4 of the contract could be performed after completion, and damages were regarded as between vendor and purchaser as sufficient working out of their rights. The roof was defective, but the water penetration was not extensive and at least for the moment the tenant was content. The replacement cost of $25,000 to $30,000 was a modest sum in the context of the transaction, and was about 1 per cent of the purchase price; the trial judge found at [43] of the first judgment that the purchaser “did not appear at all concerned about any problem with the roof until after the original completion date had come and gone”, and it may be added that it appears not to have been concerned when its solicitor requested that completion be arranged for 26 August 2003. The substance of his Honour’s assessment of the facts in [42]-[44] of the first judgment should be accepted. Hence in my view the vendor’s obligation under cl 24.4.3 was not an essential obligation, and the vendor was not relevantly unready and unwilling to perform its own obligations under the contract.

111 In my opinion, the vendor was entitled to terminate the contract.

Entitlement to retain the licence fee

112 The trial judge relevantly dealt with repayment of the licence fee in the fourth judgment.

113 His Honour first addressed repayment of the licence fee in section 4 of the reasons, in conformity with the parties’ submissions doing so according to equitable principles of relief against penalties. Stating as the essential reason for such relief that the vendor could not have the property and its value too, his Honour said -

“75 Even though the plaintiffs are making a claim in equity, they must comply with the obligation succinctly expressed by Cussen J (according to Mann ACJ in Berry v Mahony [1933] VLR 314, 322) that "he who seeks equity must do common law". This means that they must compensate the vendor for its actual loss.

76 Thus, the question of whether there is a penalty, and, if so, its quantum is to be decided on the basis of what was the vendor’s actual loss.

77 In this case, as the property has appreciated, the vendor’s only substantial loss is the fair occupation fee for the time the purchaser was in possession.

78 The purchaser was in possession from 6 November 2002 until 18 December 2003, a period of 59 weeks. The parties do not dispute that the appropriate damages for mesne profits would be $2,600 per month at the relevant time. 59 weeks at $2,600 per month would mean that a reasonable occupation fee is 14 x $2,600, that is $36,400. If the purchaser is entitled to a refund then it is entitled to a refund of $300,000 less $36,400 that is $263,600 plus interest.”

114 Without further elaboration, the “if” in the last sentence of [78] then became reality. Treating the purchaser as entitled to the refund, his Honour came to an amount for interest and said at [82] that “the plaintiffs are entitled to an order for the payment of $297,209”. The reasoning appears to have been that because the vendor’s loss was $36,400, the remainder of the licence fee was a penalty; but, with respect, I do not find it clear.

115 In section 7 of the reasons the trial judge referred to an alternative submission on behalf of the purchaser -

“”157 Mr Gray also puts the point in an alternative way. He submits that monies paid under special condition 45 are not to be absolutely forfeited to the vendor but only as security for the purchaser's default. As apart from the legal costs of the conveyance thrown away, there is no damage; therefore the monies have to be returned.

158 I have already noted Mr Sweeney’s argument that "security" in special condition 45 means security for the purchaser’s performance of the contract. I accept now that this is the proper construction of the special condition. However, it makes no difference as the vendor did not in fact suffer damage.

159 There is some validity in Mr Gray's alternative submission. The special condition expressly says that the forfeiture is not for any purpose other than to provide security for the purchaser's default. The vendor is entitled to recover damages for the purchaser's breach. However, the evidence shows that the property is now worth far more than it was before so that the only damage apparently suffered was the loss of the conveyancing costs of the aborted sale and perhaps estate agent's commission.

160 One must read special condition 45 as a whole. It is significant to note that in a previous line of special condition 45 there is the inconsistent statement that the monies shall vest in the vendor absolutely.

161 It does not seem to me to be a matter of great concern because the plaintiffs have come here seeking equitable relief and offering to do equity, and accordingly, as the points of claim set out, they are offering to pay a reasonable occupation fee for the period they were in occupation.

162 It follows then that, whet h er one looks at it as a matter of common law under the true construction of special condition 45 or as a matter of equity for relief, one would get the same result as I have reached in section (4) of these reasons.”

116 The vendor submitted that the trial judge was in error in his approach to whether the licence fee was a penalty, particularly in that whether or not it was a penalty should have been determined at the time of the contract was entered into rather than by regard to the loss actually suffered by the vendor: DunlopPneumatic Tyre Co Ltd v New Garage & Motor Co Ltd (1915) AC 79 and PC Developments Pty Ltd v Revell (1991) 22 NSWLR 615 were referred to. It submitted that on the correct approach the forfeiture of the licence fee in special condition 45 of the contract was by way of a pre-estimate of the vendor’s damages, and was not a penalty.

117 The vendor’s submissions in chief addressed only equitable principles of relief against penalties, and did not take account of the alternative basis for the trial judge’s result “as a matter of common law under the true construction of special condition 45” (fourth judgment [162], above).

118 The purchaser did not seek to support the trial judge’s approach to whether the licence fee was a penalty. It submitted that the applicable equitable principles were concerned not with penalties, but with relief against forfeiture as expounded in McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457; that if equitable principles of relief against penalties applied, retention of the licence fee was a penalty; but that in any event the vendor was only entitled to retain the licence fee as security for the purchaser’s default, and the trial judge was correct in the alternative basis for his result.

119 In my opinion, this last submission should be accepted. The vendor’s concentration on relief against penalties was misplaced, and the fate of the licence fee is determined by the proper construction of special condition 45 of the contract.

120 Special condition 45 is poorly worded, both in the obscurity of its relationship with cl 9 of the contract and within itself. While it provides for the deposit and the licence fee to “vest … absolutely” in the vendor and that the money “shall be forfeited to” the vendor, it then qualifies the forfeiture by the words “as security for the Purchasers [sic] default under the contract”. This takes up the language of cl 9.2 of the contract, in its reference to holding money paid by the purchaser under the contract “as security for anything recoverable under this clause”.

121 The vendor submitted that “as security for” in special condition 45 was equivalent to “as compensation for”. However, that is neither its natural meaning nor the meaning of the words in cl 9.2 of the contract. I do not think that “security” in special condition 45 can be distorted from its natural meaning and the meaning it has in cl 9.2, with which last-mentioned clause special condition 45 is allied. In reconciling the two provisions cl 9.1 can superimpose its effect on the deposit, so that the deposit is kept by the vendor, but as to the licence fee the reconciliation appropriately gives “as security for” the same effect in both provisions.

122 The conflict between forfeiture, on the one hand, and security, on the other hand, is in my view to be resolved by dominance of the latter over the former. The absolute vesting and the forfeiture were treated by the special condition as the same thing, and the forfeiture was expressed to be as security, so that standing as security governed both the absolute vesting and the forfeiture.

123 Treating the licence fee as security for loss suffered by the vendor, and so in the events that happened not as consideration for the purchaser’s occupation of the cottage, the vendor suffered loss measured by the reasonable occupation fee of $36,400 as found by the trial judge. The vendor probably lost conveyancing costs and perhaps estate agent’s commission, but we were not referred to any evidence quantifying those amounts and it was not suggested that the licence fee ordered to be repaid should be revisited to take account of other loss. The order made by the trial judge should therefore stand.

Orders

124 I propose orders that the appeal and the cross-appeal each be dismissed with costs.

125 McCOLL JA: I agree with Giles JA.

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