Ciavarella v Balmer

[1983] HCA 26

HIGH COURT OF AUSTRALIA

Gibbs C.J., Mason, Wilson, Deane and Dawson JJ.

CIAVARELLA v. BALMER

(1983) 153 CLR 438

25 August 1983

Vendor and Purchaser

Vendor and Purchaser—Contract of sale—Election—Vendor's right to recover balance of price—Right to make time of essence—Whether inconsistent rights—Continuation of action for recovery of balance of price—Whether affirmation of contract—Forfeiture—Relief—Exceptional circumstances.

Decision

August 25.
THE COURT delivered the following written judgment: -
The appellant appeals against an order of the New South Wales Court of Appeal dismissing an appeal from declarations and orders made by Rath J. in an action in the Supreme Court. His Honour found that the respondent had validly terminated a contract for sale between the parties and give judgment for the respondent for possession of the land the subject of the contract. (at p442)

2. The contract was dated 14 January 1978. By the contract, the appellant agreed to buy and the respondent agreed to sell a rice farm in New South Wales known as Yamba Station for $160,000. Of this sum $2,000 was payable by way of deposit. As to the balance, $14,000 was to be paid on or before 3 March 1978, a further $34,000 was to be paid on or before 30 March 1978 and the remaining $110,000 was to be paid by repayment of the principal amount on or before 3 March 1983, with instalments of $3,300 to be paid quarterly from 3 June 1978 by way of interest calculated at the rate of 12 per cent per annum. Title was to pass to the purchaser upon payment of the whole of the principal. (at p442)

3. In the events which happened cl. 19(a) of the contract became of critical importance. It provided:
" . . . if default by the Purchaser in payment of any instalment of the purchase price or interest hereunder shall continue for four weeks (in this respect time being of the essence) the balance of the purchase price then owing with accrued interest shall immediately without notice to the Purchaser become due and payable irrespective of the transfer of title." (at p443)

4. At all material times the respondent claimed that the appellant had defaulted in the payment of the instalment of interest due on 3 June 1979 and that this default continued for four weeks. By letter dated 20 July 1979 the respondent's solicitor informed the appellant's solicitors that the appellant was in breach of cl. 19(a) by failing to pay the instalment on or before 1 July 1979 and called up the balance of principal and interest. By statement of claim filed in the Supreme Court on 17 October 1979 the respondent sought to recover the balance of the purchase price and interest, and by an amendment made in November 1979 he claimed also moneys owing under a contract between the parties for the sale and purchase of plant. On 13 December 1979 the appellant filed a defence and cross-claim. Although these proceedings were not further pursued, they were kept on foot. (at p443)

5. A few months later the respondent's solicitor sent to the appellant's solicitors a notice to complete addressed to the appellant and dated 28 March 1980. The notice required payment forthwith of the balance of the purchase price then claimed to be owing under cl. 19(a) together with accrued interest and stated that in the event of non-compliance within one calendar month the deposit, except so much as exceeded 10 per cent, would be forfeited to the vendor who would terminate the agreement and sue for breach or resell. (at p443)

6. As payment was not made in accordance with the notice the respondent's solicitor sent to the appellant a letter dated 28 April 1980 terminating the contract. (at p443)

7. On 8 May 1980 by summons the respondent instituted the action giving rise to this appeal claiming a declaration that the contract had been validly terminated and claiming judgment for possession of the land and damages for breach of contract. Alternatively the respondent sought an order that the appellant pay the balance of the purchase price and interest. The appellant cross-claimed seeking specific performance or, alternatively, relief against forfeiture of moneys paid and the repayment of such moneys. (at p443)

8. Rath J. declared that the appellant defaulted in payment of the instalment of interest due on 3 June 1979, that this default continued for four weeks within cl. 19(a), that the balance of the purchase price and interest then became due and payable and that the contract was validly and effectively terminated by the respondent for the appellant's failure to comply with the notice to pay the balance of the purchase price. Consequently his Honour ordered that judgment be entered in favour of the respondent against the appellant for possession of Yamba Station. On the cross-claim Rath J. ordered that the respondent repay to the appellant the sum of $48,000 by way of instalments of purchase money which had been paid, subject to the respondent's right under cl. 16 to retain purchase moneys as security for any deficiency arising on resale or for damages or compensation for the appellant's default. The cross-claim was otherwise dismissed. (at p444)

9. The appellant's case in this Court is that the contract was not validly rescinded on 28 April 1980. In addition, the appellant seeks leave to amend his notice of appeal so as to seek relief against forfeiture of his equitable estate as purchaser, a claim not asserted or presented in the courts below. (at p444)

10. In order to decide whether the contract was validly terminated it is necessary to resolve two issues. First, was the respondent's conduct in instituting proceedings against the appellant on 17 October 1979 such as to amount to a prior election to affirm the contract or to an estoppel? Secondly, was the respondent precluded from giving to the appellant the notice to complete by reason of some default on his own part?

Election. (at p444)

11. The appellant submits that the letter dated 20 July 1979 and the institution of the proceedings on 17 October 1979 for the recovery of the balance of the purchase price and interest constituted an election to affirm the contract which precluded the respondent from later terminating the contract as he purported to do on 28 April 1980. (at p444)

12. One question which arises is whether the respondent acquired a right to terminate the contract under cl. 19(a) on the appellant's failure to pay, on or before 1 July 1979, the instalment of interest due on 3 June 1979. If so, the commencement of the first action on 17 October 1979 to recover the purchase price and interest was an election to affirm the contract, notwithstanding the existence of a right to terminate. The answer to this question turns on the interpretation of cl. 19(a). What the words in parentheses making time of the essence were intended to achieve is by no means apparent. Without them the balance of the purchase price and interest would still become payable immediately on default in payment of an instalment for four weeks. But in the absence of the parenthetical clause default in payment of the stipulated instalment would certainly not create a right in the vendor to terminate the contract. Does the additional clause have this effect? That the consequence of breach for which cl. 19(a) provides is that the balance of the purchase price and interest immediately becomes payable indicates that it was not within the contemplation of the parties that the vendor should have the option of terminating the contract for non-payment of the instalment or of requiring payment of the balance. The clause is not expressed to confer such an option. Instead it treats the contract as remaining on foot, subject to an acceleration of the purchaser's obligation to pay. On this view - and it is the view which we favour - the words in parentheses unnecessarily reinforce the immediacy of the consequence which enures upon default in payment for four weeks. (at p445)

13. This conclusion disposes of another argument advanced by the appellant, namely, that, if time is of the essence in relation to payment of the instalment, by implication it is also of the essence in relation to payment of the balance. In this context the appellant says that each limb of the clause is an essential condition entitling the vendor to terminate for breach. The appellant endeavours to derive some support from the presence of the words "shall immediately without notice . . . become due and payable", but their function is to give emphatic force to the immediacy of the liability to pay on the footing that the contract is still on foot, thereby negating the suggestion that default in payment of the instalment for four weeks is in itself a ground for termination. (at p445)

14. The problem for the appellant is that the parenthetical clause governs the first, but not the second, limb. Had the clause been expressed to apply to the second limb the clause would have had a function to perform. But this is not enough to justify acceptance of the appellant's argument. It is mere speculation to say that the time provision was intended to apply to payment of the balance of the purchase price and interest. And its explicit application to default in payment of an instalment undermines the case for a like implication in relation to the payment of the balance of the purchase price and interest, an implication which, if made, would have harsh consequences for the purchaser. (at p445)

15. It follows that the respondent did not acquire a right to terminate the contract under cl. 19(a) without giving a notice making time of the essence. Nevertheless the appellant then submits that the letter dated 20 July 1979 and the commencement of the action for recovery, on 17 October 1979, constituted an election to affirm the contract. This, so the argument runs, is because non-payment of the balance on or before 1 July 1979 entitled the respondent to take a necessary step towards termination of the contract by giving a notice making time of the essence. Instead, the respondent affirmed the contract by demanding payment. The comments of Barwick C.J. in Green v. Sommerville (1979) 141 CLR 594, at p 599 , upon which the appellant relies, do not support the proposition that a party who has a right to make time of the essence will lose his right to rescind if he treats the contract as remaining on foot. Barwick C.J. said:
"The first question to my mind is as to the availability of cl. 16 to support the notice given by the appellants on 13th May. The law is, as I apprehend it, that a vendor, who has a right to take steps unilaterally to rescind the contract for the default of the purchaser, loses the right to rescind out of hand if, notwithstanding such default, he treats the contract as continuing on foot."
His Honour was speaking with reference to a notice which effected a rescission because the contract in that case provided for its automatic rescission on non-compliance by the purchaser within the time specified by a notice making time of the essence. (at p446)

16. We agree with the view expressed by Glass J.A. in the Court of Appeal that the effect of a valid notice to complete, once the purchaser fails to comply, is to establish the existence of an essential breach, the breach which preceded the giving of the notice being non-essential. The function of the notice is to fix a reasonable time for completion so that non-compliance with its requirements evidences a fundamental breach or renunciation (see Louinder v. Leis (1982) 149 CLR 509, at pp 519-520, 523-524, 532-537 ). The effect of the notice is not to convert a non-essential term into an essential term. In this respect what is important for present purposes is that the notice requires completion of the contract, notwithstanding that the object of the party issuing the notice is to place himself in a position in which he can terminate the contract in the event of non-compliance with the requirements of the notice, should he choose so to do. Obviously the issue of the notice to complete cannot amount to an election to affirm the contract precluding rescission for subsequent non-compliance with the notice. If it were otherwise the party not in breach would be unable to make time of the essence, even though it be an essential prerequisite to later rescission. The point is that it is the failure of the party in breach to complete in accordance with the innocent party's insistence on completion as expressed in his valid notice to complete that brings into existence the innocent party's right to terminate the contract. And to call upon a party who has committed a non-essential breach to complete the contract cannot constitute an election to affirm the contract which precludes subsequent rescission for a fundamental breach arising after the party in breach is called upon to complete - see the discussion by Fullagar J. in Carr v. J. A. Berriman Pty. Ltd. (1953) 89 CLR 327, at pp 348-350 - or precludes the giving of a notice to complete. (at p447)

17. The appellant's argument is answered by Ogle v. Comboyuro Investments Pty. Ltd. (1976) 136 CLR 444 , where this Court decided that a vendor who is entitled to rescind a contract for the sale of land by reason of the purchaser's failure to complete on time but who elects to sue for specific performance is not thereby precluded from later rescinding the contract and claiming damages for the continued refusal by the purchaser to complete if the purchaser's conduct evinces an intention no longer to be bound by the contract. Gibbs, Mason and Jacobs JJ. (1976) 136 CLR, at pp 458-459 , after quoting the statement of Fullagar J. in Carr (1953) 89 CLR, at p 349 that "a right to rescind might arise which is not based on breach of the particular promise as such", went on to say:
"When this principle is particularly applied to contracts for the sale or purchase of land and where the breach is a failure to complete on the due date, a party who has waived a right to treat that failure to complete on the due date as the breach of an essential term may nevertheless thereafter call on the other party to complete and a failure on the part of the latter to complete on or by a further named day fixed reasonably ahead or even a continued long failure to complete will amount to a refusal to be bound by the contract (Holland v. Wiltshire, per Kitto J. (1954) 90 CLR 409, at p 420 ) and a repudiation thereof entitling the other party to rescind and to claim damages for loss of the bargain. In this particular context there is no difference in consequence between regarding the conduct subsequent to the actual breach as a further breach of the contract and regarding it as a refusal to be bound by the contract and consequently a repudiation thereof. Or it may perhaps better be said that the first breach is a failure to complete on the due date and the later breach is a failure to complete at all.

If after a purchaser fails to complete at the time fixed for completion, when that time is an essential term of the contract, a vendor elects to treat the contract as on foot, there will not usually be a basis for regarding the contract as repudiated by a purchaser until a further time has been fixed in a way that shows an intention on the part of the vendor to make that further time of the essence of the contract." (at p447)

18. The final point to be made in connexion with this aspect of the case is that a party is not called upon to elect unless and until he is confronted with a choice between two inconsistent rights. It is sufficient to recall the remarks of Stephen J. in Sargent v. A.S.L. Developments Ltd. (1974) 131 CLR 634, at p 641 :

"The doctrine of election as between two inconsistent legal rights is well established but certain of its features are not without their obscurities. The doctrine only applies if the rights are inconsistent the one with the other and it is this concurrent existence of inconsistent sets of rights which explains the doctrine; because they are inconsistent neither one may be enjoyed without the extinction of the other and that extinction confers upon the elector the benefit of enjoying the other, a benefit denied to him so long as both remained in existence."

At the time when the letter of 20 July was sent and the action for recovery was instituted nothing had occurred which required the respondent to elect between affirmation and rescission. He then had no ground for rescinding for the appellant was at all times maintaining his willingness to complete the contract. (at p448)

19. It is surprising that, after the respondent took steps to rescind the contract, he maintained his claim in the first action for recovery of the purchase price. In ordinary circumstances one might have expected him to withdraw the claim or discontinue the action. But it seems that the first action was kept on foot because it also included a claim for moneys owing under a contemporaneous contract between the parties for the sale and purchase of plant. Moreover, it appears that the respondent was claiming that, if he was not entitled to rescind, by reason of his having elected to affirm the contract or on some other ground, he was entitled to recover the balance of the purchase price and interest. In the later Supreme Court action in which he sought a declaration that the contract had been validly terminated, he sought in the alternative an order for payment of the purchase moneys and interest. No doubt the maintenance of an action, previously instituted, to recover the purchase price, payable under a contract, after a right to rescind arises may in some circumstances amount to an election to affirm the contract. Here, however, the first action was defended, and the respondent took no further steps in the action after giving notice to complete and terminating the contract. It seems that the action was overtaken by these later developments, in particular by the prompt exercise of the right of termination once it arose and by the commencement of the second action within ten days of termination. In those circumstances the maintenance of the first action was not an election to affirm the contract. (at p448)

20. There is a passage in the judgment of Hutley J.A. in the Court of Appeal which may be susceptible to misconstruction. After referring to the well-known passage in the speech of Lord Atkin in United Australia, Ltd. v. Barclays Bank, Ltd. (20), where his Lordship pointed out that no question of election between alternative remedies arises until one or other claim is pursued to judgment,his Honour said:

"Though the alleged inconsistency here is between commencing proceedings and rescinding for essential breach, I am unable to see why in (such a) case the mere commencement of proceedings should have greater effect."

Hutley J.A. made this comment in the course of considering the alternative argument that the giving of the notice making time of the essence was inconsistent with the right to sue, an argument which he correctly rejected. If the comment which we have quoted is to be taken as a statement that the commencement of an action to recover the purchase price payable under a contract cannot constitute an election to affirm the contract after a breach of an essential term has occurred entitling the plaintiff to terminate the contract, we do not agree with it. Election between inconsistent rights differs from election between inconsistent remedies. The distinction and its consequences are fundamental as Lord Atkin was at pains to demonstrate in United Australia. (1941) AC 1, at p 30 Indeed, the doctrine of election is directed to the making of a choice between alternative and inconsistent rights (see Sargent (1974) 131 CLR, at p 655 ). A party is not called upon to elect between inconsistent remedies in litigation until a point is reached when the remedies are pursued to judgment. Then the plaintiff must elect because the judgment to be pronounced will give effect to one right rather than the other.

Estoppel. (at p449)

21. It was suggested that the appellant's case could also be sustained as a case of estoppel. However, no independent argument was presented in support of this submission. To dispose of the point it is sufficient to say that no findings have been made which would establish an estoppel. And the evidence does not indicate that the appellant acted to his detriment in reliance upon any representation that the contract would not be terminated. The appellant points to the liability which he incurred for interest for three quarters during the period when the contract was kept on foot before it was terminated. No doubt this liability was incurred because the contract was still on foot in circumstances in which the respondent claimed that the appellant was bound to pay the purchase price and interest. But there is no evidence that the respondent ever represented to the appellant by words or conduct that the contract would not be terminated for failure to comply with a notice to complete subsequently given. (at p450)

22. Accordingly, neither election nor estoppel invalidates the respondent's notice of termination on 28 April 1980.

Entitlement of the Respondent to Give the Notice to Complete. (at p450)

23. In Neeta (Epping) Pty. Ltd. v. Phillips (1974) 131 CLR 286, at p 229 , Barwick C.J. and Jacobs J. stated that one of the pre-conditions to the service by the vendor of a notice to complete making time of the essence of the contract is that the vendor himself is not "in default by breach of any term of the contract or guilty of any antecedent relevant delay". As will appear, it is unnecessary for the purposes of the present case to consider whether any limitation should be placed upon their Honours' references to "any" term of the contract and "any" antecedent relevant delay. (at p450)

24. The appellant submits that the respondent was in breach of the contract and was thereby disentitled from issuing the notice dated 28 March 1980 and consequently had no right to rescind on 28 April 1980. The alleged antecedent breaches of contract related (a) to non-payment of agistment fees and (b) to non-payment of water charges. (at p450)

25. The claim that agistment fees were not paid is based on special condition 3(f) of the contract. It provides:

"The Vendor shall have the right to depasture such of the said property as is nominated by the purchaser with a maximum of 275 head of dairy cattle with progeny from 3rd day of March 1978 to 31st May 1978 or completion of stripping of the rice crop whichever be the earlier upon payment to the Purchaser of agistment in respect of such depasturing calculated at the rate of 50c. per head per day."

It is common ground that the reference to "per day" was a mistake and should read "per week". There were dairy cattle on Yamba Station in the relevant period. The respondent did not pay the agistment fee referred to in special condition 3(f). The respondent says, and it is now common ground, that the cattle were the property of Murfitt &Sons. The appellant's case is that the respondent remained liable for the agistment fee because the cattle were on the land with the respondent's authority. (at p450)

26. Rath J. made certain findings on this aspect of the case. The respondent had had cattle on the property but had sold them to Murfitt &Sons no later than 16 January 1978 (which is two days after the date of the contract for the sale of land). The appellant knew no later than March 1978 that the respondent claimed that the cattle belonged to Mr Murfitt and that he was not himself liable to pay for agistment. The appellant also knew in March or April that Murfitt acknowledged that the cattle were his. In fact, in May 1978 the appellant even entered into what he understood to be a verbal agreement to purchase from Murfitt 150 head of cattle to pay for agistment. The agreement fell through, but the 150 head of cattle were the cattle that were the subject of the appellant's claim that the respondent was liable to him for the agistment fee. These cattle were seized and sold by the respondent and the proceeds were appropriated by him in partial discharge of Murfitt's indebtedness to him, either for rent or the price of the cattle or both. As the appellant conceded in cross-examination, no claim for agistment fee was made on the respondent prior to 13 June 1979. Rath J. concluded that ". . . the preponderance of the evidence is that the cattle belonged to Murfitt &Sons for the whole of the period covered by the agistment claim, and that the (appellant) was aware of this from about the time when agistment would be payable under the contract (that is, 3rd March, 1978)" and that the respondent was therefore not liable to pay the agistment fee claimed. (at p451)

27. In the Court of Appeal Hutley J.A. (with whom Reynolds and Glass JJ.A. agreed on this point) also rejected the argument that the cattle were on the land with the respondent's authority, saying:
"A right as between himself and the Murfitts to seize and sell cattle in satisfaction of a debt provides no basis for the inference that the cattle were on the property by the respondent's authority. Indeed, it is clear that the appellant dealt with the Murfitts on the basis that they had to pay the agistment fees and only made a claim against the respondent when the Murfitts did not pay. . . . In my opinion, the evidence was irresistible that the cattle were not running on the property pursuant to the powers given to the respondent under the contract of sale, but under a separate contract between the appellant and the Murfitts." (at p451)

28. We agree with Rath J. and with the Court of Appeal. There is a concurrent finding of fact that the cattle were owned by Murfitt &Sons during the relevant period and that throughout that period the appellant knew this fact. During the period the appellant negotiated with Murfitt for the payment of the agistment fee. He did not approach the respondent about the matter until 13 June 1979, over twelve months after the period covered by special condition 3(f) had expired and, significantly, after the breach by the appellant of the term requiring payment of the instalment of interest on 3 June 1979. There is no evidence whatsoever that the cattle were on the land with the respondent's authority during the relevant period. The only evidence is that he sold the cattle to Murfitt &Sons before the period covered by special condition 3(f) commenced and seized them after that period had expired so as to resell them and apply the proceeds in satisfaction or partial satisfaction of a debt. (at p452)

29. The appellant's case with respect to non-payment of water rates was rejected by the primary judge and the Court of Appeal. Indeed, it is not raised as a ground in the appellant's notice of appeal to this Court. However, as the question was debated in argument we shall deal with it shortly. Special condition 5 provides that the vendor shall be responsible for the cost of all water used on the property up to 31 May 1978 or the completion of the stripping of the rice crop. (at p452)

30. As Hutley J.A. pointed out the parties appear to have proceeded upon two assumptions: (1) that the existence of a right of set-off or counter-claim provided a means of paying an instalment of interest; and (2) that the provision that the respondent should be responsible for the cost of all water used on the property up to 31 May 1978 meant that the respondent had the responsibility of actually paying for such water, at least in time to ensure that the appellant would get his water for rice growing when he needed it for sowing the 1978-1979 crop. At the trial the respondent's counsel conceded". . . that out of the interest payable under the land contract and the plant agreement the original amount of the water bill should be deducted as well as an amount equivalent to the interest which would be payable to the Water Resources Commission if each instalment of interest deducted had been forthwith paid to the Commission in discharge of the plaintiff's liability". It seems that on the basis of this concession both parties prepared accounts for the court. Although they differed, according to both accounts the instalment of interest due on 3 June 1979 was not paid. (at p452)

31. There is, we think, much to be said for the view that special condition 5 provides for a liability to be adjusted on settlement, as Hutley J.A. thought, and that it does not impose an obligation on the respondent of a kind that could create a breach disentitling him from giving a notice to complete. Be this as it may the understanding of the parties was that the appellant could set off against his liability to pay instalments of interest his claim against the respondent for recoupment of water rates. The amount due and payable in respect of interest exceeded the amount payable by way of water rates, even allowing for other deductions that the appellant was entitled to set off, but not including agistment. The consequence is either that there was no breach of special condition 5 by the respondent or, if there was such a breach, it was a breach which was remedied by the arrangement made for setting off the water rates against the liability for interest. (at p453)

32. It follows that the respondent was not in breach of a term of the contract disentitling him from issuing a notice to complete. It is not, then, necessary to discuss the suggestion of Glass J.A. that breach of a contractual provision which is merely collateral does not disentitle a party from making time of the essence of the contract.

Relief Against Forfeiture. (at p453)

33. The appellant seeks leave to amend his notice of appeal so as to claim relief against forfeiture, invoking in support of his application the very recent decision of this Court in Legione v. Hateley (1983) 152 CLR 406 . As we have seen, no such claim to relief has been made at any stage of the proceedings, either at first instance or in the Court of Appeal. The appellant seeks to answer this objection by saying that until delivery of judgment in Legione v. Hateley the principles as settled by earlier decisions, particularly those of the Privy Council, would have precluded the Supreme Court from granting relief on this basis. The appellant then says that, just as this Court allowed the claim to be raised on appeal in Legione v. Hateley, so it should now permit the claim to be raised by the appellant in this case. (at p453)

34. The present case is plainly distinguishable from Legione v. Hateley. In Legione v. Hateley, the respondent to the appeal was permitted to claim relief against forfeiture in defence of the decision in her favour in the Full Court of the Supreme Court of Victoria. In the present case, the appellant to the appeal seeks to raise the new ground to attack the decisions against him at first instance and in the Court of Appeal. Moreover, in Legione v. Hateley the material in evidence strongly indicated unconscionable conduct on the part of the vendor in seeking to insist on the rescission of the contract in circumstances where the statement of the vendor's solicitors had helped lull the purchaser into a belief that the vendor would accept completion provided it took place within a few days and where the consequence of rescission was that the vendor would reap the benefit of the very valuable improvements which the purchaser had effected to the property. Here there is a different situation. Far from acting precipitately the vendor refrained from making time of the essence for a period of nine months approximately. In that period the purchaser might at any time have completed the contract. True it is that the controversy as to the amount actually payable on 3 June 1979, after other matters were taken into account, was still alive between the parties. But this circumstance, of itself, constitutes no ground for saying that the vendor was guilty of unconscionable conduct in giving the notice of termination of 28 April 1980. The material in evidence indicates that the case stands outside the area of exceptional circumstances in which, in accordance with Legione v. Hateley, relief against forfeiture of the purchaser's estate will be granted after a rescission, which in all other respects is valid, of a contract for sale. In any event, the circumstances of the present case are not of the extraordinary character which would justify permitting the appellant to raise the question of relief against forfeiture for the first time at this stage in circumstances where, if the point had been raised at first instance, the evidence might have been relevantly different or more complete. (at p454)

35. In the result we would dismiss the appeal. (at p454)

Orders

Appeal dismissed with costs.