Debus v Hewitt

[2003] NSWSC 176

Reported Decision: (2003) NSW ConvR 56-054

Supreme Court

CITATION:	Debus v Hewitt [2003] NSWSC 176
HEARING DATE(S):	11 March, 2003
JUDGMENT DATE:	11 March 2003
JURISDICTION:	Equity Division
JUDGMENT OF:	Palmer J
DECISION:	Declaration that contract validly rescinded by Plaintiff - Defendant ordered to repay amount paid by Plaintiff under contract together with interest.
CATCHWORDS:	VENDOR AND PURCHASER - INSTALMENT CONTRACT - TIME OF ESSENCE - NOTICE TO COMPLETE - Contract for sale of share in company giving right to occupy land - purchase price payable by instalments over long period - substantial payments made by purchaser - purchaser defaults in payment of some instalments - vendor terminates - whether contract impliedly made time for payment of essence - whether notice making time of essence required - construction of contract - hallmarks of time of essence provision - hallmarks of notice making time of essence. HELD: Contract did not make time of essence by implication - notice of intention to terminate not a notice making time of essence - vendor wrongfully repudiated and purchaser validly rescinded - purchaser entitled to repayment of money paid under contract.
CASES CITED:	- McDonald v Dennys Lascelles Limited (1933) 48 CLR 457 - Neeta (Epping) Pty Ltd v Phillips (1974) 131 CLR 286 - Park v Brothers (2001) 10 BPR 18,649
PARTIES :	Catherine Debus - Plaintiff Melissa Anne Hewitt - Defendant
FILE NUMBER(S):	SC 4862/02
COUNSEL:	M. Ryckmans (Sol) - Plaintiff T.H. Barrett - Defendant
SOLICITORS:	Abbott Tout - Plaintiff Ellis & Baxter - Defendant

Ex tempore

1    By a Deed dated 22 August 2000 between the Plaintiff and the Defendant, the Defendant sold to the Plaintiff a share numbered 3 in the issued capital of South Arm Enterprises Pty Ltd.

2    By Summons filed on 30 September 2002, the Plaintiff (“the Purchaser”) seeks a declaration that that Deed has been validly terminated by her. The Summons seeks a consequential order that the Defendant (“the Vendor”) repay the part payments of the purchase price made by the Purchaser pursuant to the Deed.

3    The facts are not in dispute and may be shortly stated. The share which is the subject of the Deed carries with it the right to occupy a certain portion of land situated at Uki. The relevant clauses of the Deed are as follows:

“1. It is hereby agreed that consideration for the transfer of the said Share shall be Seventy Five Thousand Dollars ($75,000.00) which shall be paid as follows:

(a) the sum of One Thousand Dollars ($1,000.00) on the execution of this Deed, such sum to be held by the Vendor’s Solicitor, as Stakeholder;

(b) the sum of Thirty Nine Thousand Dollars ($39,000.00) within thirty (30) days of the date of execution of this Deed, in which regard time shall be in-essential;

(c) the sum of Ten Thousand Dollars ($10,000.00) within six (6) months of the date of execution of this Deed;

(d) the balance of Twenty Five Thousand Dollars ($25,0000.00) by instalments of Eight Hundred Dollars ($800.00) per month, the first instalment to be paid within sixty (60) days from the date of execution of this Deed.

…

4(a) On and from payment of monies referred to in Clause 1(b) hereof, the Purchaser may occupy the property as a residence solely for the Purchaser’s own use.

…

6(a) In the event that payments due by the Purchaser to the Vendor pursuant to Clause 1 of this Deed are not made within the time prescribed then the Purchaser will thereafter and pending completion pay to the Vendor on completion interest on the balance of the purchase price at the rate of ten (10%) per centum per annum. The obligation to pay interest is an essential term of this Deed and the Vendor is under no obligation to complete unless the interest provided for in this Special Condition has been paid.

(b) If payment is not paid on time, or a cheque for any of the payment is not honoured on presentation, the Vendor can terminate this Agreement. The right to terminate this Agreement is lost as soon as the payment is made in full.”

4    Pursuant to the Deed, the Purchaser made the payments referred to in Clauses 1(a) and 1(b) and part of the instalments referred to in Clause 1(d). The Purchaser did not, however, make the payment of $10,000 referred to in Clause 1(c), nor any payments of instalments under Clause 1 (d) after 20 July 2001. At that time disputes arose between the parties as to whether the Purchaser would be able to build on the land and a considerable degree of hostility was generated ,with threats of violence being made and Apprehended Violence Orders being sought. The Purchaser thereafter ceased occupation of the land.

5    Between 30 October 2001 and April 2002, the Vendor unsuccessfully advertised for sale the share the subject of the Deed. Finally, on 5 June 2002 the Vendor entered into a contract to sell the share to a third party.

6    On 19 June 2002, the Vendor issued to the Purchaser a notice headed “Notice of Intended Termination”. The notice provided relevantly as follows:

“A. The Vendor gives you notice that you have defaulted in the observance of:

1. the obligation in cl 1(c) of the Agreement to pay to the Vendor $10,000 within 6 months of 22 August 2000;

2. the obligation in cl 1(d) of the Agreement to pay to the Vendor:
[the defaults in payment of a number of instalments are listed]

B. Since going into occupation of the property to which the share relates on 22 August 2000 you have defaulted in the observance of:

3. the obligation in cl 4(b) of the Agreement to pay taxes, charges outgoings which have become payable by you;

4. the obligation in cl 4(c) to keep the property insured for its full insurable value;

5. the obligation in cl 4(d) to not, without the Vendor’s consent, part with the possession of the property to which the share relates.

C. The Vendor intends to terminate the Agreement upon the expiry of 7 days after the giving of this notice.

D. Your attention is drawn to cl 6(b) of the Agreement.”

7    On 12 July 2002, the Vendor served on the Purchaser a notice headed “Notice of Termination”.

8    On 18 July, the Purchaser's solicitors wrote to the Vendor's solicitors stating that the time for payment of monies under Clauses 1(c) and 1(d) of the Deed was not of the essence, that notice making time essential was required before termination could be effected, that such notice had not been given, that the Notice of Termination which had been given on 12 July amounted to a wrongful repudiation of the Deed by the Vendor and that the Purchaser accepted that repudiation, terminated the Deed and required repayment of the amount paid thereunder by the Purchaser, namely the sum of $49,000.

9    The central issue in this case is whether the Deed provided that time was of the essence in the performance of the Purchaser’s obligations to pay the amounts required by Clauses 1(c) and (d). If that question is answered ‘no’, so that a notice making time of the essence was required to be given, then it may be necessary to consider whether the Notice of Intention to Terminate was itself a notice making time of the essence.

10    The critical clause upon which the Vendor relies is Clause 6(b). It will be noted that that clause does not, of course, expressly state that time for payment is of the essence. The Vendor says, however, that it clearly enough makes time of the essence by implication.

11    I am of the view that Clause 6(b) does not make time of the essence for the payment of the amounts referred to in Clause 1(c) and (d). My reasons are as follows.

12    A stipulation that time for performance of a contract for the sale of land will be of the essence must be made expressly clear or must be implicit from the nature of the contract in the surrounding circumstances. A contract for sale of land – and the contract in this case is closely analogous to a contract for sale of land – is not regarded in equity as one in which a condition as to time is to be regarded as essential unless there are special circumstances: see e.g. Neeta (Epping) Pty Ltd v Phillips (1974) 131 CLR 286, at 298.

13    There are no special circumstances, in my view, indicating that the Deed generally, and Clause 6(b) in particular, are to be regarded as creating implicitly a requirement that time for performance be of the essence. On the contrary, in my view there are powerful indications otherwise. They are as follows

14    First, the Deed is for sale of a share in a company, which carries with it entitlement to use and occupy land. The Deed requires payment of the purchase price by instalments, those instalments being payable over a period of more than two years. In the meantime, the Purchaser is entitled to enter into occupation of the land.

15    The Deed does not expressly state that time for payment of an instalment under Clause 1(d) is of the essence but, rather, provides by Clause 6(a) that interest on an outstanding instalment is to accrue. A provision for payment of interest on a sum due under a contract was regarded by Young J (as his Honour then was) in Park v Brothers (2001) 10 BPR 18,649 as a strong indication that the time for payment was not to be regarded as of the essence. In that case, his Honour further regarded as an indication contrary to an implication that time was of the essence that the contract provided that the purchaser would go into occupation of the land; it would not reasonably have been regarded as within the contemplation of the parties that default in the payment of a comparatively minor sum due under the contract would bring with it the consequence not only of termination of the contract immediately, but of the immediate requirement for the purchaser to give vacant possession. That factor is significant in the present case because of the provisions of Clause 4(a).

16    Clause 1(c) does not provide a definite time for payment of the amount of $10,000. The payment is to be made at an indeterminate time, namely at any time within six months from the execution of the Deed. Again, default in payment under this clause is visited with imposition of interest under Clause 6(a).

17    However, in my view the most cogent indication contrary to the submission that the Deed makes time for payment under Clause 1(c) and (d) of the essence is the very wording of Clause 6(b) itself. The hallmark of a time of the essence clause is that breach of that clause affords the innocent party an immediate right of termination, and proffered performance by the defaulting party, no matter how shortly after expiry of the essential time, is of no effect and can be ignored subject, of course, to circumstances which might give a ground for equitable relief. The second sentence of Clause 6(b) completely removes this critical hallmark. It provides, in effect, that if the Vendor does not immediately terminate for default, the right to do so can be taken away by the tender of performance by the Purchaser no matter how long after default performance is tendered so long as the Vendor has not terminated by that time.

18    The presence of this sentence in Clause 6(b) is cogent against the construction of that clause as making time of the essence. In my view, all that the first sentence of Clause 6(b) provides is that non-payment of any sum of money under Clause 1 at the time stipulated, whether the amount is large or small, is regarded as of such consequence as to justify termination. It does not, however, provide an immediate right for termination upon failure to pay by the stipulated time by making time of the essence.

19    For these reasons, I conclude that the Vendor was required to give a notice making time of the essence before she was entitled to terminate for the Purchaser's breach of Clauses 1(c) and (d).

20    The question then arises: was the Notice of Intention to Terminate such a notice? In my opinion, it was not. In my view, a notice making time of the essence must require performance by a stated time and it must say that time is of the essence in that regard. The Notice of Termination did not require performance at all, let alone performance by a stated time; it merely stated a present intention on the part of the Vendor to terminate as at a certain date. It may be said that the Notice impliedly required performance within the period of seven days prior to termination but, in my view, a notice making time of the essence in the performance of a contract must not depend upon implications. It must clearly and unequivocally state that performance of the contract is required by the defaulting party, that time for performance is of the essence, and that failure to perform within that time will constitute a breach for which the non-defaulting party may exercise its right of termination. The Notice of Intention to Terminate complied with none of these requirements.

21    In my view, the consequence is that by entering into a contract for the sale of the share on 5 June 2002 and by giving a Notice of Termination dated 12 July 2002 the Vendor herself wrongfully repudiated the Deed.

22    The next question is: was that wrongful repudiation accepted by the Purchaser and was the Deed terminated? The answer to this question is clearly ‘yes’. That was effected by the Purchaser's solicitor’s letter of 18 July 2002. In my view, that letter correctly stated the legal position between the parties at that time, and it clearly gave notice that the Purchaser terminated the Deed for the breach stated. I might add that there was another wrongful repudiation of the Vendor which justified the Purchaser's termination at that time, namely, of course, the fact that the Vendor had already entered into a contract for sale of the subject property to a third party.

23    As the Deed in this case has been terminated by the Purchaser for the wrongful repudiation of the Vendor, the Vendor is not, of course, entitled to damages for the Purchaser's failure to complete, as claimed in the Vendor's Cross Claim. The consequence is that there will be a declaration in terms of paragraph 1 of the Plaintiff's Summons and the Defendant's Cross Claim will be dismissed.

24    There has been no real debate between the parties as to what is to be the consequence if this is the result of the proceedings. The Vendor's claim to retain the whole of the monies paid to her by the Purchaser clearly depends upon a finding that it was the Vendor who rightfully terminated the Deed on the ground of the wrongful repudiation of the Purchaser. The consequence of termination of a contract under which a substantial part of the purchase price has been paid by instalments is set out in McDonald v Dennys Lascelles Limited (1933) 48 CLR 457 in a passage from the judgment of Dixon J at 477:
“When a contract is rescinded because of matters which affect its formation, as in the case of fraud, the parties are to be rehabilitated and restored, so far as may be, to the position they occupied before the contract was made. But when a contract, which is not void or voidable at law, or liable to be set aside in equity, is dissolved at the election of one party because the other has not observed an essential condition or has committed a breach going to its root, the contract is determined so far as it is executory only and the party in default is liable for damages for its breach. … It does not, however, necessarily follow from these principles that when, under an executory contract for the sale of property, the price or part of it is paid or payable in advance, the seller may both retain what he has received, or recover overdue instalments, and at the same time treat himself as relieved from the obligation of transferring the property to the buyer. When contract stipulates for payment of part of the purchase money in advance, the purchaser relying only on the vendor’s promise to give him a conveyance, the vendor is entitled to enforce payment before the time has arrived for conveying the land; yet his title to retain the money has been considered not to be absolute but conditional upon the subsequent completion of the contract. “The very idea of payment falls to the ground when both have treated the bargain as at an end; and from that moment the vendor holds the money advanced to the use of the purchaser” [ Palmer v Temple (1839) 9 Ad & E at 520] . … It is now beyond question that instalments already paid may be recovered by a defaulting purchaser when the vendor elects to discharge the contract.”

The result in this case is that the Defendant is liable to return the amount paid by the Plaintiff by way of instalments of the purchase price under the Deed.


25 Accordingly, I order that the Defendant pay to the Plaintiff the sum of $35,914, which is the agreed net amount of the instalments. I order that the Defendant pay interest on the said sum of $35,914 in accordance with the Supreme Court Rules as from the date of filing of the Summons, which is 30 September 2002.

26    I order that the Defendant pay the Plaintiff's costs of the proceedings.

– oOo –

Last Modified: 03/19/2003