Downham v McCallum
[2008] TASSC 81
•15 December 2008
[2008] TASSC 81
CITATION: Downham v McCallum [2008] TASSC 81
PARTIES: DOWNHAM, Fintan
v
McCALLUM, Gordon
McCALLUM, Sharon
TITLE OF COURT: SUPREME COURT OF TASMANIA
JURISDICTION: ORIGINAL
FILE NO/S: M372/2003
DELIVERED ON: 15 December 2008
DELIVERED AT: Hobart
HEARING DATE: 1 – 3 September 2008
JUDGMENT OF: Porter J
CATCHWORDS:
Conveyancing – Relationship of vendor and purchaser – Matters arising between contract and conveyance – Conditions precedent and subsequent – Transactions subject to finance – Where finance available – Provision enabling vendor to terminate where no notice waiver or fulfilment of condition given - Purchaser's refusal to accept available finance – Notice not given in any event – Agreement terminated at vendor's instance.
Aust Dig Conveyancing [8]
Contracts – Discharge, breach and defences to action for breach – Discharge by agreement – Generally – Written agreement – Termination or variation by oral agreement claimed by parties – Whether agreement terminated or varied.
BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266, followed.
Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95, applied.
Aust Dig Contracts [122]
Contracts – Discharge, breach and defences to action for breach – Repudiation and non performance – General principles - Termination – Reliance on ground not asserted at the time.
Shepherd v Felt & Textiles Co of Australia Ltd (1931) 45 CLR 359, applied.
Consolidated Credit Network v Illawarra Retirement Trust (No.2) [2005] NSWLR 1007, cited.
Aust Dig. Contracts [129]
Deeds – Avoidance of deed – Non est factum – Elements of plea – Whether plea made out.
Petelin v Cullen (1975) 132 CLR 355, Bradley West Solicitors Nominee Co Ltd v Keeman [1994] 2 NZLR 111, applied.
Aust Dig Deeds [13]
Equity – Trusts and trustees – Constitution and classification of trusts generally – Classification of trusts in general – Constructive trusts independent of intention – General principles –Relationship between parties– Vendor and purchaser – Purchaser in possession – Landlord and tenant – Claim for beneficial interest on basis of improvements to property – Not joint endeavours or relationships of required kind – No evidence of precise nature and extent of work done or any value added.
Muschinski v Dodds (1985) 160 CLR 583, Baumgartner v Baumgartner (1987) 164 CLR 137, followed.
West v Mead [2003] NSWSC 161, applied.
Aust Dig Equity [102]
REPRESENTATION:
Counsel:
Plaintiff: R E Hudson
First Defendant: In person
Second Defendant: No appearance
Solicitors:
Plaintiff: Butler McIntyre & Butler
First Defendant: In person
Second Defendant:
Judgment Number: [2008] TASSC 81
Number of paragraphs: 110
Serial No 81/2008
File No M372/2003
FINTAN DOWNHAM v GORDON McCALLUM
and SHARON McCALLUM
REASONS FOR JUDGMENT PORTER J
15 December 2008
The issues
The plaintiff is the owner and registered proprietor of property at 299 She Oak Road, Judbury in Tasmania. It is a residential property. Since 1994, the defendants have occupied the property as their principal place of residence. Prior to February 1991, the defendants were tenants by virtue of a verbal agreement and were paying weekly rental of $125.
On 10 February 1997 the plaintiff and the defendants signed an "agreement to rent/purchase"; ("the first agreement"). The plaintiff drafted the agreement himself. The agreement provided that the plaintiff would sell the property to the defendants for the balance of two specified loans which the plaintiff had with a credit union, "… at any point within 2 years." The defendants agreed to "repay" the two loans, which repayments were "to be considered rent", to pay rates and land tax, and to purchase the property within two years from the date of the agreement at a price equal to the balance of the loans at that time.
There is a dispute about what occurred towards the end of the two year period. The purchase had not been completed. The plaintiff says it was agreed that the purchase agreement was brought to an end, and that thereafter the relationship between him and the defendants reverted to that of landlord/tenants, with rental payments being a reduced amount from that payable under the agreement, and with him to bear rates and land tax. The defendants say that there was an agreement for the general extension of the purchase agreement, but with reduced instalment amounts, and with the plaintiff to bear rates and land tax. Unfortunately what was agreed was not reduced to writing in any form. Whether it was an agreement in law and whatever it may have been, in accordance with the term adopted in the trial I will refer to this as the "second agreement".
On 14 April 2003 the plaintiff and the defendants signed a standard form contract for the sale of the property, ("the third agreement"). The purchase price was shown as $75,000 with a deposit of $13,000 shown as having been paid to the vendor as stakeholder. Both figures were fictitious in the sense that no deposit was actually paid, the agreement simply being that $62,000 would change hands on settlement. Apparently, it was the suggestion of the defendants' solicitor that the contract be worded as it was, in order to assist the defendants in obtaining finance.
Settlement was to occur within 30 days of signing and the contract contained a "subject to finance" clause, a condition precedent to settlement being that the ANZ Bank make available to the defendants an unspecified amount within 14 days. The defendants were required to use all reasonable endeavours to fulfil that condition.
Although it appears that the defendants were able to obtain finance, no notice of the fulfilment of the condition precedent was given and the transaction was not settled within the specified 30 day period. By letter of 19 May 2003 from the plaintiff to the defendants' solicitors, notice was given that the contract was required to be finalised by 31 May 2003. Nothing happened. By a further letter dated 5 June 2003 the defendants' solicitors advised that the property was on the market at current market value.
As at June 2003, the defendants were substantially in arrears of payments due to the plaintiff, be that characterised as rental or instalments. The plaintiff has sued the defendants seeking recovery of possession of the property, together with unpaid rent and mesne profits. By way of counterclaim, the defendants seek an order for specific performance or damages, or alternatively a declaration that the plaintiff holds the property on trust for the defendants as tenants in common. The latter claim is based on improvements to the property which the defendants said were done with the knowledge of the plaintiff and in circumstances in which it is unconscionable for him to retain the benefit of those improvements.
The questions for determination therefore are:
·what was the relationship between the parties after 10 February 1999 when the two year period allowed for in the first agreement had expired; that is, whether the first agreement continued to be in force and, if so, on what terms;
·what was the effect of the third agreement on the first agreement, assuming the first agreement continued in force beyond 10 February 1999 by virtue of the second agreement;
·the present relationship between the parties having regard to the terms of the third agreement and subsequent events;
·whether the defendants have acquired any interest in the property, and if so, the nature of that interest; and
·the extent of any indebtedness of the defendants to the plaintiff.
The second defendant, Mrs McCallum, did not appear and took no part at all in the trial. Whilst I could not, in strict terms, allow Mr McCallum to appear for his wife, her interests are completely identical to his. In these reasons, where I make reference to "the defendant" in the singular, it is a reference to Mr McCallum.
The first agreement
The written agreement contained the following terms:
"The Vendor Agrees to
1Arrange a loan for $73355.39
2Sell the property to The Tenant for the balance of the loans L1 & L30 on acct 2576 at CPS Savings & Loans at any point within 2 years.
3Pay Insurance on the property
The Tenant agrees to
1Repay L1 & L30 at CPS Savings & Loans credit union for acct 2576 which is to be considered rent.
2Pay rates to Huon Council from agreement date.
3Pay Land tax from agreement date.
4Comply with the tenancy agreement.
5Purchase the property for the price equal to the balance of the loans at that time.
6Purchase the property within Two Years from the date on this agreement.
If the Tenant/Purchaser fails to make a Payment by the due date or fails to comply with any of the above conditions, this agreement is null and void and all payments are deemed rental on the property.
All outstanding rent by the above named has been included in the purchase price.
The Vendor/Landlord agrees to deliver $2000 worth of timber which is to be used in building work on the property-: Kitchen Cupboards, Front Veranda, Back Veranda, Car port & Shed Floor & Walls"
As is reflected in the second last clause which I have set out, the defendants were in arrears of rental as at February 1997, with a history of haphazardly paying. The plaintiff said that in the period before the first agreement, he was struggling with his financial situation and he wanted to be rid of the property. Notwithstanding the stated agreement for the plaintiff as vendor to arrange a loan of $73,350.39, there were two loans already in existence, one secured over the property and one in respect of a motor vehicle. The figure of $73,350.39 was the total figure then outstanding on the two.
The agreement was that the defendants make the loan payments and at the end of the two year period the outstanding balance of the loans would then be paid off, and the property would be transferred to the defendants. In practice, the plaintiff made the actual loan repayments, with the defendants being required to make the equivalent payments to the plaintiff. The obvious expectation of all parties was that the reduction in the loans would, on that basis, effectively be made by the defendants.
Notwithstanding the terms of this agreement, the defendants had not paid the rates from February 1997, as no notices from the council were sent to them, and they otherwise did nothing about payment. In May 1998, when the local council took recovery action for arrears from the 1994/1995 year, the plaintiffs made arrangements for the defendants to receive the rate notices. Regular payments, including payments in respect of the arrears, were then made by the defendants through Centrelink until (it would seem) December 2001, with two possible cash payments in September 2002. At that time, apparently due to further arrears accumulating, the plaintiff assumed sole and direct responsibility for receiving the notices and paying the rates. In all of this, the defendants paid more than the rates due under the agreement.
As to the delivery of the $2,000 worth of timber provided for in the last clause of the first agreement (which may be relevant to the counterclaim), the plaintiff said that it was duly delivered, and that he had been led to believe that it was used in the construction of a veranda. He said that the work was meant to be done after the purchase and that it was not until the work was done that it became "an issue".
During the period from February 1997 to January 1999 the plaintiff was in regular contact with the defendants because they were continually late with making the payments, and arrears were accumulating. He was told that the defendants needed a bank loan to enable them to complete the purchase. He was told that this was to be organised, but nothing eventuated.
As the time for the expiry of the two year period provided for in the first agreement drew nigh, the parties discussed what was to happen. As I have indicated, there is a dispute about what was agreed.
The second agreement
It is common ground that discussions took place in early to mid-January 1999. The plaintiff's evidence was that he contacted the defendants and that there were a number of discussions and phone calls. The plaintiff said that his own financial situation "wasn't all that attractive at that particular point in time". He had recently purchased a block of ground in anticipation of the property being sold and the inability of the defendants to complete was going to create financial difficulties for him.
The plaintiff's version
The plaintiff's evidence was that "it was agreed that the agreement we had was not going to continue". He said that the defendants said they could not get a loan or organise finance to buy the property. He said "at that particular point in time it was agreed that the McCallums weren't going to buy the property but they still wanted to remain there and at — they would like to buy the property but they couldn't afford the $432 a fortnight on those loan agreements". As they could not afford the $432 a fortnight, and as it was also causing financial difficulty to the plaintiff, he reorganised the two loans by way of extending their terms, so as to reduce the fortnightly payments and to make that the rental. At that stage the defendants were in arrears to the extent of approximately $1,700. The plaintiff said that any capital payments were then treated as rent "because that's what is says in the original agreement".
The plaintiff's credit union statements show that in January 1999 the balances of the two relevant loans were reduced to zero, with two loans further being established in substitution, the combined fortnightly rental payment then being $322. The plaintiff said this figure was about market rental, based on what the defendants and previous tenants had paid. On my calculations, it would have taken about 5.5 years and 10.75 years respectively to pay off the two re-established loans, at the newly applicable monthly payments.
Notwithstanding this agreement, the plaintiff said that after this he continued to discuss with the defendant the possibility of purchasing the property. He said that Mrs McCallum was working really hard, that it was she who wanted the property and , "… they kept on saying, we want it, and as soon as they could get finance, and this finance thing kept on coming up. They just couldn't get it". The plaintiff said that after the discussions in January 1999 he did not regard himself as bound to sell to the defendants, but if he had received an offer, he would have gone back to them "out of decency", and given them a short period of time in which to match the offer.
In cross-examination, the defendants put to the plaintiff that there had been a verbal agreement that the existing arrangement would continue until the defendants were able to arrange finance. It was specifically put that the plaintiff had been asked as to whether it was necessary for the defendants to see a lawyer, to which he had responded that "a word or a verbal agreement was fine". The plaintiff said that he did not recall the defendants wanting to see a lawyer to extend the agreement. He recalled Mr McCallum saying that they could not afford the $432 per fortnight, but that they were still trying to get finance. He said that he did not recall giving any commitment to extend the first agreement, later saying, "I never agreed to extending the original agreement". The plaintiff agreed that he had made the necessary arrangements to reduce the regular commitments on the two loans saying "… I did, but for no other reason that I couldn't afford to have you in my house".
The defendant's version
The defendant said that before the February "deadline" he contacted the plaintiff and told him that they would not be able to obtain finance to complete the purchase and asked whether there was a need to enter into a new agreement or could the existing agreement simply be extended. He said the plaintiff indicated that there was no need to have a lawyer draw up any further paperwork and that:
"… the period could be extended and there was no set date given at that point in time, it was extended until such time as we got access to the – or I was in a position to finalise the finance, as long as the payments were made to cover that and then I requested because of my circumstances if in fact the loans could be extended over a longer period of time and the payment reduced accordingly …".
In cross-examination, the defendant agreed that on the face of it, the arrangement as he had suggested it was, meant the plaintiff had to wait for an indefinite period for the completion of the purchase and that he, the defendant, could have taken as long as he liked. However, he said that was not their intention. He said:
"There was an agreement to extend the original contract and that we would continue making our payments off the mortgage [sic] until such times as we obtained finance and put the property into our own name".
The payment of rates
I have already outlined the basic scenario. In his evidence-in-chief, the plaintiff asserted that as a result of the agreed termination of the first agreement, he took on the responsibility for the payment of rates. He said he did not discuss with the defendants whether or not he would be charging rates. He was asked, "You just didn't ask them to pay?"; he responded, "the agreement had finished".
A number of facts as to the rates were put to him in cross-examination. He said that he could not recall whether the rates were paid up to date as at February 1997. It was suggested to him that in 1998 a bailiff had come to the property "to sell it" for outstanding rates over about five years, and that at that time the plaintiff had asked the defendants to pay the rates, together with the arrears, with future rates notices to be sent to the defendants. It was further suggested that this in fact occurred up until 2003 [sic] when the plaintiff directed the council to no longer send rates notices to the defendants. The plaintiff said there may have been arrears of rates as at February 1997 but he did not recall. He said that this was the first occasion that he heard of the bailiff turning up at the property.
He said that he did not recall the defendants paying rates which were his responsibility and disagreed with the proposition that the defendants were paying rates relating to any period other than for the two year period the subject of the first agreement. As to that, he said he received numerous phone calls from the council to say the rates had not been paid. He said that he recalled organising with the council for rates notices to be sent to the defendants, but he thought that was in early 1997 after the agreement had been signed.
The defendant's evidence was as follows:
"his honour: Had you been paying the rates? [From February 1997 to February 1999]
mr mccallum: No, I hadn't your Honour – from that point in time I hadn't because I thought okay, the rate notice will come through every year. I didn't realise at that stage when or where they were coming – so we hadn't seen any notice and was unaware at that point in time that the rates were in arrears and had been prior to us purchasing the property and at that point in time it was quite a shock to virtually open the door and have the bailiff so – to explain things to us. We did make arrangements with him in fact we went back into council and he was quite content with the arrangements we made which was to pay current year, the bill as was required and we were allowed to pay $25.00 a week off the existing – sorry per fortnight - $25.00 per fortnight – off the existing arrears and did so until such time as we had a lump sum payment which we paid off the balance of the rates with – at that point in time when they contacted us and Mr Downham was contacted about it and it was set up at the time for duplicates of the rates notices to be sent to us as well as to Mr Downham and it was from that point on until 2003 the rates notices came to us and were paid." — (my emphasis)
At the end of the defendants' case, the plaintiff successfully sought leave to re-open to adduce further evidence in respect of the payment of rates. Material from the Huon Valley Council disclosed a warrant to sell the property, which appears to have been issued in May 1998 in respect of arrears of $1,336.94. This amount was shown as relating to the 1994/1995 year but included collection costs. Payment records for the period 22 February 2000 to 20 December 2001 showed regular payments in respect of rates originating from "Centrepay". The Council records show one cash payment of $40 on 3 August 1999 and further cash payments after 20 December 2001, being an amount of $1,000 on 4 September 2002 and a further amount of $250.55 on 13 March 2003. In response to the plaintiff's re-opening, I also received documentary evidence from the defendants. These were Centrelink records which confirmed fortnightly payments on behalf of Mr McCallum with regard to rates from 1 February 2000 to 24 September 2001.
In the re-opened case, the plaintiff said that he believed the $1,000 payment was made by him, although he was unable to find any supporting documentation. He said that he also believed that he made the payment of $250.55. In further cross-examination the defendant specifically put to him that the two payments in September 2003 totalling about $1,250 were made by his wife. The plaintiff replied that he did not have any documentation to support his evidence, going on to say that it was a payment not made in the defendants' normal way of making payments. The defendant declined the opportunity to give further evidence.
In an email dated 20 May 2003 relating to the third agreement, the defendant claimed credit for rates not otherwise payable by him, in the sum of $1,000. When first cross-examined about that, he said that that was not an exact figure; he thought the figure was $996 "or something round that and some odd cents, and there was, I believe it was 6% interest that the council was charging – ".
A change in one of the loans
As previously noted, one of the plaintiff's loans with a credit union was a personal loan taken out in relation to a motor vehicle. In 2001 it was involved in an accident, as a result of which the motor vehicle insurer paid $17,000 to the credit union, and which amount was in turn, on 3 August 2001, credited to the relevant loan account. The result of that was the reduction in the balance outstanding from $19,657.21 to $2,632.02 and hence, under the strict terms of clauses 2 and 5 of the first agreement, a windfall for the defendants. There was no suggestion in the evidence that this led to any reconsideration of what amount might have been properly payable pursuant to any then existing long term purchase contract, nor as to any discussions between the parties about this development.
Letters requested by the defendant
The plaintiff tendered a copy of an unsigned letter from him addressed "To whom it may concern" which has a handwritten date of 5 December 2002 on it. The text is as follows:
"Re: Rental Property at 299 She Oak
Mr and Mrs Gordon McCallum have been renting this property from me for several years and are at present paying $330 per fortnight in rent."
This letter was put to the defendant in cross-examination. It was suggested that its purpose was to enable him to continue receiving rent assistance; (I assume from Centrelink). The defendant said that they had not received rent assistance since he and his partner had been together and he did not know the exact purpose of the letter, saying that he did not recall it. He agreed that it appeared to have been prepared for him but said that he had no memory of asking for it. He conceded that if he was a party to a purchase agreement in respect of the property, he would not be able to receive rent assistance, but when pressed as to the purpose of the letter, said he believed it may have been in relation to an attempt to get a loan from the Commonwealth Bank. He said it would show that they "were able to afford to keep making the repayments".
It was suggested to the defendant that he would want the Commonwealth Bank to know that in fact there had been some capital contribution to the property in terms of having made payments in respect of the purchase price. He agreed, saying that the only purpose for the letter was to show that situation.
A similar copy letter dated 21 January 2003 was also tendered. This one reads:
"To Whom It May Concern
Re: Property – 299 Sheoak [sic] Road, Judbury
In 1995 the rent purchcase [sic] agreement was entered into by myself and Mr and Mrs McCullum [sic] for a purchase price of $72,000. Since that time they have reduced the capital component by $10,000."
As to this letter, the plaintiff said that there was a conversation with the defendant in January 2003 about the purchase of the property. He said that he took the view that he was not "playing the game any more", that the defendants had to buy the property or move out "… it was as simple as that". The defendant replied that he needed to organise finance from the bank and needed a letter to help with those endeavours, essentially saying that he had paid a deposit of $10,000. That figure, the plaintiff said, came from the defendant himself, and that at that point he wanted $62,000 for the property.
Although the plaintiff said that he drafted it, no explanation was given as to why the letter seems to suggest the currency of a "rent purchase agreement". The plaintiff was not cross-examined about this letter and the defendant neither gave any evidence nor was cross-examined about it. It may be, having regard to the defendant's answers as to the December 2002 letter, that he was confusing that letter with this one of January 2003.
Events leading up to the third agreement
The plaintiff said that around mid-2002 there started a series of discussions concerning the defendants' purchase of the property. The conversations went on for months, the defendants were constantly behind in their rent and he was keen to have the whole situation resolved. He calculated a purchase price of $62,000 which, he said, was loosely based on the original agreement of 1997. He told the defendants they could have the property for that sum. Some calculations were provided as to this figure. The methodology appears to have been to take the approximate purchase price of $73,000, to give credit for the sum of about $5,000 attributable to capital repayments, and then add on arrears which were then owing. The resultant figure was then discounted to an amount which the plaintiff thought acceptable. In this process, of course, the defendants received credit for an amount described as capital reduction which, in light of the arrears in the period February 1997 to February 1999, was not due to them if the strict terms of the first agreement were applied.
To return to the narrative, the defendants then instructed a solicitor, Mr Bradfield. From about January 2003 the plaintiff's dealings were mostly with him. As to what eventuated, the plaintiff's evidence was as follows:
"Mr Bradfield had drawn up a contract … for the McCallums to purchase the property. Mr Bradfield advised me that they needed a $13,000 deposit to organise the finance. Again I explained to Graeme [Mr Bradfield] that I didn't care as long as I got the agreed price of $62,000, it's a done deal and then Graeme drew up an agreement selling the property for $75,000 with a $13,000 deposit and I went up to his office and signed it … and I had a signed copy there from the McCallums …".
In cross-examination in relation to the events leading up to the execution of the third agreement, the plaintiff said that:
·he did not recall being asked to show how he arrived at the figure of $62,000 and produce supporting documentation when the price was first established in mid-2002;
·he remembered having conversations with the second defendant and her mother in which he was requested for a "pay out figure", and that he gave a figure of $62,000;
·he was again asked to provide a figure in April 2003 and again he gave the same figure.
The defendant said that in mid-2002 his wife started in a full time job, and it was then that the plaintiff was asked for "a pay out figure". The plaintiff spoke to the second defendant and her mother and gave the figure of $62,000, and said he would like the matter completed as soon as possible. The defendant said that the plaintiff was told that completion would take at least six months depending on the continuation of his wife's employment. He said that he asked the plaintiff how the $62,000 had been arrived at. The plaintiff replied that it was $62,000 "from now – that is what the pay out figure is".
In December 2002 the defendant approached the Commonwealth Bank in Huonville after which he contacted the plaintiff and requested the exact amount in respect of the two loans; that is, how much the defendants owed at that point. I infer from his evidence that the plaintiff, as is consistent with the plaintiff's own evidence, simply stated that the purchase price was $62,000.
In evidence, the defendant said that at that point he could not proceed because he could not give to the bank anything other than the figure of $62,000, and that he did not believe the proper amount was $62,000 by that stage, because payments had not been properly credited.
The third agreement
The evidence does not explain how the parties moved from that stage in December 2003 to the signing of the third agreement, apart from the mention of Mr Bradfield's involvement. In any event, the contract for sale dated 14 April 2003 contains the following provisions:
"4.1 The following are conditions precedent to completion of this Contract:
…
(b) that the ANZ Bank makes available to the Purchaser a loan of ……. ($.....) upon terms currently available in transactions of a similar nature within fourteen days of this date.
…
4.2 The Purchaser must use all reasonable endeavours to fulfil the conditions precedent in clause 4.1(b) … within the time allowed for doing so.
…
4.4 If the Purchaser does not give unconditional notice of fulfilment or waiver of each condition precedent in clause 4.1(b) …
(a) in one of the ways described in clause 13 [written notice personally delivered, posted or faxed, or sent to the receiving party's solicitor]; and
(b) before the time for fulfilment of each condition expires,
then the Vendor may treat this Contract as at an end."
As to the subject to finance clause, the plaintiff said that he had been told by Mr Bradfield that he was arranging the finance with the ANZ Bank. The plaintiff confirmed in evidence that the figures of $75,000 and $13,000 were put forward by Mr Bradfield in order to proceed with the application for finance to the ANZ Bank. The plaintiff said to Mr Bradfield that he did not care what figures appeared in the contract, provided that he ended up with $62,000. He said he told Mr Bradfield that with the figure of $62,000, all arrears of rent "disappeared".
In summary, according to the plaintiff, what happened thereafter was as follows:
·no advice that finance had been obtained was given by or on behalf of the defendants within the 14 day period or at all;
·the contract was not completed on or within the specified 30 day period of signing;
·no indication was given at any stage by the defendants that they were ready or able to complete;
·the plaintiff telephoned Mr Bradfield's office and was told that finance had not been confirmed;
·as a consequence, the plaintiff went to see the defendant and, using "colourful language" told him that he needed to organise his finance; and that he had a couple of more weeks to do it. He said that he would "extend the period of time for a couple more weeks".
Immediately thereafter, the plaintiff sent a letter dated 19 May 2003 to Mr Bradfield. Relevantly, it says:
"At present the property is being sold for $62000. This price is as the result of a rent purchase agreement entered into in February 1995 [sic] which was at that time to last two years and the property was to be purchased by Mr & Mrs McCullum [sic]. Over the past five years I have received numerous promises about the property being taken over by the McCullums. If this present arrangement is not finalised by the 31 May 2003 the rent purchase agreement will be ended.
As per the rent purchase agreement all monies paid will be considered rent. If Mr & Mrs McCullum wish to again enter into the sale of the property, it will be at current market value.
In the interim they continue to rent the property if they wish until the property is sold, to which they will be notified accordingly."
On 21 May 2003, the plaintiff received an email from the defendants. He described it as "a bit of a mystery" to him. The email reads, "can you fill in the blanks? email amended copy to me pls an I'll beg borrow an steal to get u $$$. told bloke want immediate settlement. will see him thurs night 6 pm. call me if any probs … need this urgent … chow GMC [sic]." It is easier to fully set out the attachment to the email than summarise it. It reads as follows:
"20th May 2003:
Original Agreement February 1997 to Purchase from Finton Downham House andproperty situated at 299 She Oak Road, Judbury, Tas. 7109.
Purchase Price For House including Fees $7x,xxx.00
Timber for Kitchen and CarPort $02,000.00
Loan consisted of two parts
1St Mortgage: 14 years @ %xx.xx $ ,000.00/fortnight $4x,xxx.00Personal Loan: 9 years @ %xx.xx $ ,000.00/fortnight $2x,xxx.00
Deposit:
3 x computers and software to the value of $0x,000.00Payment for Outstanding rates $01,000.00
02/97-10/98 Payments 40 x $ 443.00 $17,720.00
Loan Periods Adjusted:
1 St Mortgage: 20 years @%xx.xx $ 000.00 /fortnightPersonal Loan: 14 years @%xx.xx $ 000.00 /fortnight
11/98-05/03 Payments 108 x $ 332.00 $35,856.00
Balance Due: $5x,xxx.00
Sincerely,
Purchaser: Gordon McCallum
Witness:
Vendor: Finton Downham"
The plaintiff's response was to go to Mr Bradfield's office, apparently on 5 June 2003. The plaintiff said that Mr Bradfield appeared unable to understand the email either. The plaintiff's unchallenged evidence was he was told that "basically the thing's finished. They couldn't organise finance. It was done". The plaintiff said he told Mr Bradfield that as the McCallum's could not organise finance , as far as he was concerned "it was finished and I would put it in writing for them, which I did." As a consequence he sent a further letter to Mr Bradfield dated 5 June 2003 in the following terms:
"Reference is made to our discussion today regarding Mr & Mrs McCullum [sic] as per our last letter. It has exceeded the expiry date and therefore the property is now on the market at current market value.
I have contacted a local Real Estate Agent for an appraisal and they are confident that a price between $100,000 and $120,000 would be obtained.
As per the rent purchase agreement all monies paid will be considered rent. If Mr & Mrs McCullum [sic] wish to again enter into the sale of the property, it will be at current market value.
I need a decision from Mr & Mrs McCullum [sic] as to their intentions within the next 7 days regarding the purchase of the property at current market value, in the form of a written contract. If a decision is made not to purchase the property, then I will require them to vacate the premises in order to clean the property."
The defendant's version of events was that in April 2003, apparently before the execution of the contract for sale, Mr Bradfield had arranged with a manager of the ANZ Bank to consider financing the purchase. The defendant said that at that time, he had entered into an agreement to purchase about 100 acres about four kilometres away from the property. He said that he "organised a loan" from the ANZ Bank for a total amount of $75,000 being sufficient to complete the purchase of that land, together with, he said, the completion of the purchase of the property. This appears to have been towards the end of April 2003. He said he told the ANZ manager that be believed the purchase price of the property should have only been approximately $59,500, given what he saw to be necessary adjustments.
The defendant's evidence as to what occurred at about this time is confusing. He abandoned dealings with the ANZ Bank having organised a loan, but then applied to a credit union for the finance. This seems to have been towards the end of May 2003. Why this occurred is unclear. He suggested that the reason he went from the ANZ Bank to the credit union was that the bank wanted him to give them an exact figure of what was required for the payout, and "to try and get things moving along" he nominated the figure of $62,000 which, he said, was "an inaccurate figure". He said that they (the ANZ Bank) did not see any problem with proceeding, but that he could not "quantify the figures".
In this period he met with Julia Frost, a loans manager with a credit union, whom he had known for a number of years. Ms Frost appears to have known all parties and had previous dealings with them. The defendant said he thought it would be quicker and easier to deal with her. In any event, the defendants made application to the credit union for loans to settle the purchase of the other property of about 100 acres, together with the purchase of She Oak Road. The defendant said that this was in early May; "the 7th or the 9th". He insisted however, that the "bloke" referred to in the email was in fact Ms Frost, and that the use of that word was a "figure of speech".
As to the email which was sent after receiving the plaintiff's letter of 19 May 2003, the defendant said that it was asking for a "… break down on these figures. If you at least fill in the blanks and they said that that'll be sufficient to obtain the loans which didn't, there was no point in fact to that, didn't end up obtaining the loans anyway as a subsequent four or five loans through Julia Frost …"[sic]. The strong suggestion from that evidence is that it was the ANZ Bank which was the "they" referred to. This makes no real sense in light of the defendant's other evidence as to the chronology of events.
One particular aspect of the email of 21 May 2003 should be now explained. In the attachment, the value of the three computers and software is claimed as part of the deposit. There was a dispute about the facts of this issue. The plaintiff said that at the end of 1995 the defendant provided him and his then wife with a refurbished computer which broke down, and which was given back to the defendant to repair. The plaintiff described it as a "piece of junk which caused quite a deal of frustration and "grief". The defendant suggested to the plaintiff in cross-examination that three computers were delivered in the Christmas period of 1996, and that it was agreed that their value was to be taken into account in fixing the price for the property, discussions about which were then taking place. This was denied by the plaintiff. It is noted that the stated purchase price is an accurate reflection of the balance of the loans at that time. The defendant's stance at trial on this point may reveal a degree of unreality in his approach to the entire issue.
Returning to the main theme, the defendant said that they received approval in principle for these loans; $25,000 for the 100 acres and apparently an amount for the property of $62,000. However he said "I never drew down and cashed that but paperwork was in place, all that was required was the figures being filled in, the correct figure being filled in and my signatures had been –". He agreed that all he needed to do was to sign the credit union loan documents and he would have had sufficient funds to complete the purchase of the property. When asked why he did not do that, he responded:
"Because the price was wrong, it was still set with sixty two thousand, it was about four or five thousand dollars more than what I should be paying by the calculations that we'd been able to do, rough calculations based on what the interest rates and so forth were in the repayments and what the personal loans would be …".
In cross-examination he was questioned as to why he had signed the third agreement. He said that it was basically to facilitate the finance with ANZ and he signed it "because it was the only figure that I had at that time". He acknowledged though, that his state of mind was that the operation of the first agreement had been extended and it was that agreement by which he was purchasing the property. When asked what he thought was being achieved by signing the third agreement, the April 2003 contract, he replied, "I thought it was part of the normal process for getting a bank loan … it's the first time I'd gone through that process and … I thought it was just part and parcel of normal business. You put in an offer to the bank, you got to bring a contract to them and that was my understanding and I signed where I was told to sign and –".
The defendant asserted that he had told the plaintiff of the position with the credit union finance by virtue of the email dated 21 May 2003, although he described it as a "slight reference". The following exchange occurred in cross-examination:
"You didn't tell Mr Bradfield did you that you had obtained finance?……Through Connect Credit yes, I told them that we were waiting on having the figures finalised.
Mm. So, the position, do did you instruct him to tell Mr Downham about that?……That was the nature of the email, I told him that the email had been sent to Mr Downham to finish off the figures once and for all and be able to get that into the bank to establish the loans and carry on with what I was going to do.
Mm. Well the truth of the matter is, isn't it, that at that stage you hadn't obtained finance?……Well I had not, I had not completed all the forms and had the funds in my hands, no.
You had not obtained -……I had obtained from the loans officer that as soon as I put the appropriate figures in on the forms that we had filled in for submission, that it was approved and the funds would be made readily available to us within the time frame or before the 31st of May.
his honour: What do you mean by appropriate figures on the forms, what figures?
witness: The sixty two I was unhappy with that figure and the fact that –
his honour: That gets back to what I was asking you about earlier.
witness: This is to do with Connect Credit Union.
his honour: They didn't want to know how the sixty two thousand was made up, it was you who wanted to know how the sixty two thousand was made up.
witness: Okay. So that I could give them the correct answer, yes –
his honour: But what answer did they need other than what was apparent from the contract for sale?
witness: I guess they would have been happy with any answer they didn't really mind, it was me that was wanting that sixty two (indistinct word) because I believed that I was paying far too much at that point in time, it should have been less than the sixty two thousand figure, and that the last years worth of payments I had made had not been deducted off that as they should have been … And that figure needed to be, I needed some paper work off them to show me why he still had it at sixty two when it shouldn't be sixty two and I wasn't going to give him sixty two thousand, 'cos I didn't owe him sixty two thousand for the house."
In summary, the defendant said that he did not proceed to settlement because the figure of $62,000 was incorrect and it needed to be adjusted. He said that in the period after they had been given the extra two weeks, he discussed the situation with the plaintiff, telling him that the price could not still be $62,000 and asking for "an exact price". They were waiting for the plaintiff to get back to them with the adjusted figures so that they could "continue on with the loan". As at the time the extended time limit expired, he said that his feeling was that although there was a deadline, the onus would be on the plaintiff to respond within that deadline. He said that his understanding was that the contract was still on foot after 31 May essentially, as I see it, because he said they were waiting on "accurate figures" to be able to complete. He said that to him, the contract was still in place and enforceable even after the letter of 5 June 2003 advising that the property was on the market at current market value. His evidence was that in June 2003 he obtained a loan for $25,000 from the credit union for the purchase of the other property.
Subsequent events
On 9 July 2003, a notice to vacate within the meaning of the Residential Tenancy Act 1997, s42, was served on the defendants. That notice required the defendants to vacate the property on or before 10 August 2003. An application was subsequently made to the magistrates court for delivery of vacant possession. However, as the notice to vacate misspelt the defendant's name as "McCullum", no order was made. A further notice to vacate was served on 3 September 2003 requiring vacation on or before 20 September 2003. The stated reasons for the notice were that the tenant failed to pay agreed rental as provided for in an agreement made on 10 February 1997. The shortfall of rent was said to be $9,816, the last payment having been made on 18 June 2003.
A further notice to vacate was also served on the same day; 3 September 2003. That notice required vacation of the premises on or before 4 October 2003. The stated reasons were that the tenancy was not for a fixed period and the premises were to be sold. A contract for the sale of the property was annexed.
There is no evidence as to what action, if any, was taken pursuant to these notices. As noted at the outset of these reasons, the defendants remain in possession and the evidence establishes that the last payment received by the plaintiff was on 18 June 2003.
The pleadings and the positions of the parties
The questions relating to the various agreements need to be understood and approached in the framework of the pleadings and the principal positions adopted at trial. (Although the defendants were not represented by counsel, their pleadings had been prepared by solicitors, [not being the firm involved in the third agreement].)
The plaintiff pleaded that the first agreement came to an end on or about 16 February 1999 by virtue of the "default clause" in light of the arrears of payments, or alternatively by the expiry of the two year period. Neither point was strongly pressed, the plaintiff's principal case being that the second agreement was one of termination of the first. This is denied by the defendants, with the defence specifically raising the allegation that the second agreement was one by which "the first agreement would continue beyond 16 [sic] February 1999".
In turn, the plaintiff pleaded that any agreement to extend the first agreement was void for uncertainty, or alternatively (as it was urged with greater force) that it was brought to an end by the third agreement, which itself was later terminated by the plaintiff. The pleaded bases for that termination were firstly cl 4.4 of the third agreement (given that the condition precedent to completion as to finance had not been notified as waived or fulfilled within the required time), or that time was made of the essence by a notice to complete (constituted by the letter of 19 May 2003), and that the defendants had repudiated the contract by their failure to comply with the notice.
The defendants have not pleaded as an alternative to the agreement to vary the first agreement, any claim of variation by estoppel or waiver. (In relation to the defendant's position, as the variation was not in writing there may well be difficulties of enforceability, given the Statute of Frauds, but this depends on whether the variation is seen as dealing with the mode of performance rather than substantive obligations; Tallerman & Co Pty Ltd v Nathan's Merchandise (Vict) Ltd (1956) 98 CLR 93. Variation or modification might well be achieved, however, by way of estoppel or waiver, but as noted, these matters were not pleaded, nor were they argued.)
No issue has been raised in the defendants' pleadings as to any factor which would impact on the third agreement to make it void or voidable at the instance of the defendants. No issue of deceit, fraudulent misrepresentation, duress or misleading or deceptive conduct on the part of the plaintiff in relation to the execution of the third agreement, or indeed subsequent events, has been pleaded. It will however be recalled, that the plaintiff's evidence was that he thought the third agreement was a necessary document to enable them to obtain finance. This raises the unpleaded issue of mistake, or more particularly in the circumstances of this case, non est factum.
Additionally, the defendants have not pleaded any issue of estoppel or waiver in relation to the plaintiff's asserted right to terminate the third agreement in reliance on cl 4.4, and no response has been raised to the plaintiff's case as to termination following the service of the notice to complete. By their pleadings, the defendants have simply put these matters in issue.
Next, the defendants have not claimed any equitable interest in the property by virtue of any payments made during any period in which the first agreement is said to have operated; that is, either from 10 February 1997 to mid-January 1999, or in that period and beyond as asserted by them. As I earlier noted, the sole basis claimed for the equitable interest is the unconscionability of the retention of the benefit of the improvements. As to possession, the defendants have pleaded that they are in possession "as purchasers pursuant to the [first] Agreement for Sale paying the amounts required to be paid under [that agreement]". They have also pleaded that they remain ready, willing and able to complete the purchase, but have been unable to do so due to the failure or refusal by the plaintiff to advise as to the amount required to be paid to complete the purchase.
The fate of first agreement
A good deal of trial time was devoted to this issue, but given my views as to the third agreement as will become clear, little of any great consequence ultimately turns on its resolution. The plaintiff claims that an actual agreement to terminate the first agreement was concluded. The defendant's case is that there was an actual agreement to vary the first agreement, by deferring the completion date indefinitely and by reducing the instalment amounts. Both the plaintiff and the defendant simply asserted that an agreement with a particular effect had been concluded between them. Neither gave any detailed evidence as to precisely what was said, and in that sense each was stating a conclusion.
As to whether a contract has been formed in any particular case, it is well established that the inquiry is not concerned with "uncommunicated subjective motives or intentions of parties", but involves "an objective assessment of a state of affairs between the parties"; Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95 at 105 [24] – [25]; Taylor v Johnson (1983) 151 CLR 422 at 428 - 429. A court may imply a contract by concluding that the parties intended to create contractual relations after examining extrinsic evidence, including what the parties said and did. Post-contractual conduct is admissible in relation to this question of whether a contract was formed; Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11, 110 per McHugh JA at 11, 117 – 118; Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 per Heydon JA at 163 – 164; Damevski v Giudice (2003) 133 FCR 438 at 453 [82] – 455 [88].
I see no difference in the approach to be adopted in assessing which of two asserted contracts is made out, from that which is to be adopted where the issue is whether parties have contracted at all. Of course an aspect in the resolution of the debate between the parties is the credibility of the plaintiff and of the defendant. Here again though, the issue of preferring the evidence of one in preference to that of another should be resolved as far as is possible by reference to objective material; see Goodrich Aerospace Pty Ltd v Arsic (2006) 66 NSWLR 186 at 191 – 192.
There are indications which operate for and against each party's position. There are undoubtedly matters which support the defendants' version of events. Those matters include the unreliability of the plaintiff's recollection as to the rates issue, and the apparent references in his various letters, to the currency of the first agreement; see pars35, 47 and 49 above.
However, for the following reasons, I think that the likelihood is that in mid-January 1999, the first agreement was terminated by further agreement between the parties.
· The plaintiff took no steps to pursue the defendants about a completion date in respect of any ongoing purchase arrangements. The evidence is that the discussions in mid-2002 were initiated by the defendants. At the same time, the defendants did nothing to enable them to complete until December 2002, nearly four years after the asserted extension of the first agreement.
· At that time the plaintiff's estimate of what would have been owed in accordance with the first agreement was $62,000. The defendant's estimate as given in his evidence was only some $2,500 less than this.
· The first agreement provided for the reduction of loans, followed by a final payout within a two year period of its commencement. Having regard to the plaintiff's precarious financial circumstances at the relevant time, it is highly unlikely that he would agree to a completely open ended indefinite period for the completion of the purchase. This is particularly so in circumstances where arrears were accumulating. As at 22 December 1997 the arrears were $5 but escalated to $2,576 twelve months later. At the time of the January 1999 discussions, the defendants said they could not afford the $432 per fortnight nor to borrow the money to pay out the loans.
· Although Mr Bradfield was not called to give evidence and the defendant gave no evidence about his discussions with Mr Bradfield, it is to be reasonably expected that a solicitor in Mr Bradfield's position who received instructions in accordance with the defendant's evidence that the first agreement governed the relationship between the parties, would not then prepare the third agreement at all. All that had to happen was for Mr Bradfield to request the plaintiff to provide copies of the credit union and bank statements and other relevant documentation in order for an "independent" assessment of how the loan amounts payable should be adjusted. Completion of the first agreement could then occur.
· In that context, consideration arises of the impact of the reduction in the amount owing on one loan due to the motor vehicle insurance pay out. Although it is possible that the strict operation of the relevant clauses was simply overlooked, or that the point was treated as being so obvious it went without saying, I consider it unlikely that if the plaintiff had agreed to the extension of the first agreement, he would have allowed the defendants the benefit of a later argument for a substantial reduction in the loan, and would not have raised the issue at the time it arose.
· My view of the probabilities is coloured by difficulties I see with the defendant's credibility. First, I found his evidence as to the attempts to obtain finance curious and unconvincing; in particular, his explanation for the change from the ANZ Bank to the credit union and all of the surrounding circumstances. Further, as I will later discuss, I find it difficult to accept that with a solicitor acting for him, the defendant signed what was obviously a contract with a stated sale price of $62,000, in order simply, he says, to obtain a loan for what he asserted should have been a lower amount.
It is clear from the plaintiff's evidence that after January 1999, he was still prepared to sell to the defendants if they could organise the finance at some future time, and that he was prepared to apply the spirit of the first agreement in relation to any such subsequent purchase. I think that at the relevant time there were discussions as to the possible future purchase on that basis. I take the view that the plaintiff and the defendants agreed to terminate the agreement, but that those discussions have been later elevated in status in the defendant's mind.
.A contract terminating or varying an earlier contract is to be treated like any other contract, and so the usual rules of contractual formation apply. An agreement to terminate a contract is subject to the ordinary rules of contractual formation; BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266. Accordingly, consideration is required but where, as in this case, both parties are yet to fully perform their contractual obligations, consideration is provided by each giving up the right to enforce the obligations of the other The first agreement was therefore properly terminated.
The making of the third agreement
As noted above, the defendant said that he signed the contract containing the figures it did, in order to facilitate finance. He said that he agreed to the net figure of $62,000 as it was the only figure that he had at the time. Additionally, the following exchange took place between the defendant and me:
"As I understand your evidence you thought that the 1997 contract had been extended beyond February 1999 so that was still the operative agreement.
witness: In terms of that I believed that the paperwork that I was filling out was in part and parcel of that and that was just a –
his honour: No, no your state of mind as I understand it was that the 1997 agreement had been extended that is it's operation had been extended...
witness: Yes.
his honour: …between the two of you beyond February 1999 and it was that by which you were purchasing the property.
witness: That would be right yes.
his honour: Well that being the case why did you then sign the 2003 contract. What did you think was being achieved by that?
witness: I thought it was part of the normal process for getting the bank loan your Honour. It's the first time I'd gone through that process and it was, I thought it was just part and parcel of normal business. You put in an offer to the bank, you got to bring a contract to them and that was my understanding and I signed where I was told to sign …".
The specific issue of mistake is not pleaded, and the suggestion of its application in this case only arose in cross-examination. As the clear import of the defendant's evidence is that he did not understand the contractual nature of the document he was signing, the issue should be resolved. There was no suggestion that the plaintiff knew or ought to have known of the alleged mistake, nor that he acted unconscionably in relation to the defendants' execution of the document. Accordingly, the issue should be dealt with as a plea of non est factum.
The test was formulated by the High Court in Petelin v Cullen (1975) 132 CLR 355 at 360 as follows:
"To make out the defence a defendant must show that he signed the document in the belief that it was radically different from what it was in fact and that, at least as against innocent persons, his failure to read and understand it was not due to carelessness on his part. Finally, it is accepted that there is a heavy onus on a defendant who seeks to establish the defence."
(See also Saunders v. Anglia Building Society [1971] AC 1004.) In Bradley West Solicitors Nominee Co Ltd v Keeman [1994] 2 NZLR 111 at 121, Tipping J, after reviewing the authorities, identified further essential ingredients of the plea of non est factum, as follows:
"3That proponent's mistaken belief must have resulted from an erroneous explanation or description of the document given to him by someone else.
4The proponent must be able to show that, notwithstanding his error, he acted with all reasonable care in the circumstances.
5If the proponent's mistaken belief arises because, acting in reliance upon a trusted adviser such as a solicitor, he did not take steps to read and understand the document prior to signing it, the plea is not available."
In this case, the defendants had a solicitor acting for them. I heard no evidence from the second defendant. The first defendant said that he thought it was part of the documentation necessary to obtain finance. In light of his evidence generally, I do not regard that statement as credible. In any event, applying the relevant principles and particularly having regard to the fact that the defendants' own solicitor drafted the contract , the heavy onus which lies on them to establish the plea, in my view clearly has not been discharged.
I should note that even had I taken the view that the first agreement had been varied as the defendants suggest, I would have held that it was terminated by the third agreement. That is to say, from an objective point of view, it was plainly the parties' intention to substitute ongoing sets of rights and obligations arising under the first agreement, with those set out in the third agreement. Additionally, I should observe that if the defendants' position as to the extension of the first agreement had been accepted, it would render them liable to a claim made by the plaintiff to interest on amounts outstanding and due pursuant to the first agreement. This was claimed pursuant to the Supreme Court Civil Procedure Act 1932, s34(1)(a). Having accepted the plaintiff's argument as to the termination of the first agreement, he therefore fails in that claim.
The fate of the third agreement
Clause 4.1 provided as a condition precedent to the completion of the contract that the ANZ Bank made available to the defendants an unspecified amount within 14 days of the date of execution of 14 April 2003. Although the form of the contract provided for specification of the particular amount of a loan, the relevant space was left blank. The parties can be taken as having intended that the clause referred to an amount sufficient to fund the purchase up to the maximum amount.
By the very specific terms of cl 4.4, if the defendants did not give unconditional notice of fulfilment or waiver of the condition before 28 April 2003, the plaintiff could treat the contract as at an end. In cl 4.1(b), the stipulation of the ANZ Bank was a matter with which the vendor was not directly concerned and I do not think that if finance from another source had been confirmed, then there would have arisen a right to rely on cl 4.4, but I do not need to concern myself with that.
I find that the defendants had the wherewithal to obtain finance for an amount of up to $62,000, but that they did not complete the necessary final formalities for the provision of the loan. It would seem that approval in principle was given by two financial institutions, but in neither case was final documentation completed. This was the situation by at least the deadline set by the plaintiff in the letter of 19 May 2003. Cl 4.1(b) speaks of finance being "made available", rather than the common expression of the purchaser "obtaining" finance. I think though, that when that clause is put alongside the requirement in cl 4.2 for the purchaser to use all reasonable endeavours to fulfil the condition, it is clear that the parties intended the provision to mean the acceptance of available finance.
"Obtaining" finance in this context has been held to involve something more than the mere acceptance of the terms of a prospective loan; Zieme v Gregory [1963] VR 214 at 222. On whatever view, if the defendants had obtained the finance or had it "made available" to them within the strict meaning of that phrase, or they did not, the plaintiff was still entitled to treat the contract as at an end by virtue of cl 4.4. The plaintiff has pleaded (amongst other grounds) this particular basis of termination of the third agreement; that is, unconditional notice of the fulfilment or waiver of the condition precedent in cl 4.1(b) had not been given within the time permitted. The plaintiff says that the contract was so terminated by the letter of 5 June 2003. The facts need to be examined.
It will be recalled that the plaintiff spoke to the defendant on or about 19 May 2003 telling him that he needed to organise finance and that he would extend the period of time for a "couple more weeks". Although there is no explicit evidence as to this, that is plainly a reference to the 14 day period referred to in cl 4.1(b). The letter of 19 May 2003 which was sent to Mr Bradfield shortly after that conversation contains notice that if the present arrangement was not finalised by 31 May 2003, the rent purchase agreement will be ended. As will be also recalled, the plaintiff was told by Mr Bradfield on about 5 June 2003 that the defendants could not organise finance and that, (paraphrasing) the contract was at an end. For the sake of convenience I will repeat the material part of that letter:
"It has exceeded the expiry date and therefore the property is now on the market current market value."
There is no direct evidence as to what right the plaintiff purported to rely on in the letter of 5 June 2003. However, looking objectively at the preceding events, in particular the discussion with the defendant on about 19 May 2003 and the terms of the letter of that date, I think it is clear that what occurred was that the plaintiff waived his right to terminate the contract after 28 April 2003, extended the time within which the condition precedent could be fulfilled until 31 May 2003, and in the absence of unconditional notice as provided for in cl 4.4, exercised the right given to him by cl 4.4(b).
A party may later justify a termination on the basis of a ground or grounds not taken or relied on at the relevant time, provided a valid ground then existed. This is so even though the ground ultimately relied on was not adverted to at the time.
In Shepherd v Felt and Textiles Co of Australia Ltd (1931) 45 CLR 359, Dixon J at 378 said:
"It is a long established rule of law that a contracting party, who, after he has become entitled to refuse performance of his contractual obligations, gives a wrong reason for his refusal, does not thereby deprive himself of a justification which in fact existed, whether he was aware of it or not."
At 371, Rich J said:
"The question is whether the defendant was entitled to do what it did, not whether the reason why it exercised the rights it in fact had was a good or bad one."
The Shepherd v Felt and Textiles case was a case of wrongful dismissal, but the principle is applicable to termination of contracts generally; Cowan v Milbourn (1867) LR 2 Ex 230, British and Beningtons Ltd v N W Cachart Co [1920] AC 48 at 71. This was recently affirmed in Consolidated Credit Network v Illawarra Retirement Trust (No 2) [2005] NSWSC 1007. At [69] Campbell J said:
"However, if a party terminates a contract for one reason, which is not a good reason, but has available another reason for termination, which is a good reason, it is possible to justify the termination by reference to the good reason."
See also Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245 at 262; Concut Pty Ltd v Worrell (2000) 75 ALJR 312 at [27] – [29].
Accordingly, there is no need to consider the plaintiff's alternative argument that the letter of 19 May 2003 amounted to a notice to complete, and that the plaintiff was entitled to terminate by accepting the defendants' repudiation in failing to complete within the specified time.
For these reasons, I conclude that the third agreement was terminated on or about 5 June 2003. In light of my findings, and subject to the defendants' counterclaim, the defendants ought to have delivered up vacant possession of the property on or before 4 October 2003. That was the date which was adopted by the plaintiff's counsel in closing submissions.
The defendants' counterclaim
It follows that the claims for specific performance or damages in the alternative, must fail. However, the counterclaim also contains the following:
"4Prior to the expiration of two years from the agreement entered into referred to in paragraph 3 of the Defence the Plaintiff agreed with the Defendants that the agreement would be extended for an indefinite period ('the extension of the agreement').
5During the agreement and the extension of the agreement and in reliance on the agreement and the extension of the agreement the Defendants undertook specified improvements to the property being:-
(a) …
…
(o) ….
6The improvements are undertaken as the defendants' cost and/or with the defendants' labour.
7The improvements were done with the knowledge of the plaintiff.
8The improvements have increased the value of the premises.
particulars
To be provided
9 In the premises of the matters pleaded in paragraphs 4 to 8:-
(a) it is unconscionable for the Plaintiff to retain the benefit of the increased value of the premises by reasons of the improvements;
(b) the plaintiff holds the premises pursuant to constructive trust in favour of the Defendants as tenants in common in such proportion as the court deems just."
The evidence
The defendants seem to have started doing various things to the property from at least the commencement of the first agreement. The plaintiff said that no work was meant to have been completed until after the purchase had been completed. He said that between February 1997 and January 1999 he had told the defendants a number of times that no work was to be done until the title had passed. Sometimes when he was on the property he would see "some new alteration" and that he would say "Hold back until it's in your name. Get this thing put into your name". He thought this would have been about two or three times a year.
Seven of the particularised improvements relate to renovations internal to the house, and range from kitchen and bathroom renovations to wood panelling and painting. Eight relate to external improvements and a water tank, the excavation of the driveway and a dam, fencing and general landscape gardening. In his evidence-in-chief, the plaintiff was taken through each of the listed improvements. His evidence was that some of the internal works had been carried out, but in his view had been done very badly. One item was necessary due to damage caused by the defendant. Of the outside improvements he knew nothing at all of six of them, in the sense that he could not say whether the work had been done or not. He was aware of a large tin shed, but said that was built before 1997, and that the defendant was told that it had to go when he did. As to all matters, he said that he only had prior notification of painting of the interior and the replacement of the damaged front door.
In cross-examination it was put to the plaintiff that he had in fact assisted in taking measurements internally and externally for various renovations, that he delivered some materials and that he had full knowledge of, and gave permission for, all of the renovations. It was specifically put that he said, "It's your house, hurry up and get the bloody thing in your name". The plaintiff responded:
"I do recall asking you to transfer the thing into your name yes. And I do have recall having discussions about the things you'd like to do to the place but at no time did I give you permission to do it until it was put in your name and we had heaps of discussions about doing the work you were doing. That I recall. And on numerous occasions."
He said he did not recall taking any measurements for alterations to the verandas but recalled some discussions about building work "… but as to giving … permission to do the work, no". It was not clear as to the particular period in which the defendant was suggesting all of this took place. From the plaintiff's evidence much of the relevant activity seemed to have been taking place in the two year period commencing in February 1997.
In his evidence-in-chief the defendant said that:
· They had "every right" to do the work that had been done to the property as they were buying the property and the plaintiff was quite aware of the extent of the works that had been planned over a period of time.
· The plaintiff provided materials for a portion of the works which had been discussed from 1995 "all the way through".
· The "blackwood kitchen" was actually installed in January or February 2005.
· "The rest was just there and [the plaintiff] was aware of all the work at all times, at no point in time were we restricted".
· The gist of the conversations as to improvements was that the plaintiff said that they should not spend $30,000 or $40,000 building an extension or the like "until you get the bloody thing under your name or out of my name and into yours …".
The remedy sought
There is no claim for restitution based on unjust enrichment in respect of any of the alleged improvements. The sole claim in this respect is for the remedy of constructive trust arising from the completion of the improvements alleged to have been done with the knowledge of the plaintiff and in circumstances in which it is unconscionable for the plaintiff to retain the benefit of increased value of the premises by reason of those improvements. Neither party made any submissions as to this claim.
The defendants face significant conceptual difficulties with this claim in addition to evidentiary ones. The basis for the remedy of a constructive trust is that it would be unconscionable for the legal owner to assert that the property is held free of any beneficial interest of the claimant. Equitable rights based on unconscionability do not arise simply because it is considered fair that the legal owner should hold an interest for the benefit of another; Muschinski v Dodds (1985) 160 CLR 583 per Brennan J at 608, per Deane J at 615 – 616. In that case at 620, Deane J said:
"… the principle operates in a case where the substratum of a joint relationship or endeavour is removed without attributable blame and where the benefit of money or other property contributed by one party on the basis and for the purposes of the relationship or endeavour would otherwise be enjoyed by the other party in circumstances in which it was not specifically intended or specially provided that that other party should so enjoy it. The content of the principle is that, in such a case, equity will not permit that other party to assert or retain the benefit of the relevant property to the extent that it would be unconscionable for him so to do …".
In Baumgartner v Baumgartner (1987) 164 CLR 137 at 148, Mason CJ, Wilson and Deane JJ referred to the result reached by Deane J in Muschinski v Dodds as resulting from the application of "… the general equitable principle which restores to a party contributions which he or she has made to a joint endeavour which fails when the contributions have been made in circumstances in which it was not intended that the other party should enjoy them." As was explained by Campbell J in West v Mead [2003] NSWSC 161 at [59]:
"… a plaintiff needs to establish that there is indeed a joint endeavour between the parties, in which expenditure is shared for the common benefit. It is also necessary to identify what the scope of that joint endeavour is … If, within the scope of a joint endeavour … an asset is acquired, as a result of contributions both parties have made, and for a purpose of the ongoing joint endeavour of the parties, this gives rise to the presumption that the beneficial interest ought be shared equally. That presumption can be displaced if one party is able to show that the contributions, both financial and non-financial, to that asset should be regarded as unequal."
In the present case on the basis of the finding I have made, the plaintiff and defendants were parties to a long-term purchase contract from February 1997 to mid-January 1999, and thereafter in the relationship of landlord and tenant until notice was given to vacate the premises. Established rules of law and equity would apply in the event of termination of those relationships. (As to the application of the common law and equity in relation to contractual joint ventures and the like brought to an early end, I refer to the discussion by Deane J in Muschinski v Dodds at 618-619.)
In my view, the relationships in this case cannot be described as joint endeavours of the relevant type so as to provide the proper framework for the imposition of a constructive trust on the basis asserted. These were not joint ventures or relationships for the purposes of acquisition, development or use, such that the plaintiff's contributions were made for joint purposes. There was no relationship involving co-ownership or literal co-occupation, nor any element of mutual trust and confidence beyond that to which ordinary contractual principles might give rise; see McKay v McKay [2008] NSWSC 177 at [15].
In any event, significant evidentiary problems exist. There is no doubt that improvements to a property carried out by one party to a joint endeavour or relationship can give rise to the imposition of a constructive trust. In Sivritas v Sivritas [2008] VSC 374 at 132, Kyrou J said at [132]:
"Expenditure on repairs and renovations of the property by a person asserting a constructive trust in respect of the property, where the expenditure is accepted by the legal owner of the property in the knowledge that it would improve the home and add to its value, can be considered as a contribution in quantifying the first person's equitable interest under the constructive trust. Hibberson v George (1989) 12 Fam LR 725, 742."
What is required in any particular case by way of the identification and quantification of contributions will of course vary. In the cases of domestic relationships, contributions made in relation to property may be indirect and incapable of precise quantification in monetary terms. A broad brush approach may have to adopted; Hardman v Hobman [2003] QCA 467 per Williams J at [3]. In Baumgartner, Mason CJ, Wilson and Deane JJ noted that in circumstances where the parties have lived together for years and have pooled their resources in their efforts to create a joint home, the principle of equity favouring equality favours the view that they should share the beneficial ownership equally. This however, was subject to adjustment to take into account the parties' actual contributions either financially or in kind.
In some cases, what equity will decree as a proportionate response to the degree of unconscionability involved, will fall short of a trust in respect of an interest in the property. There is flexibility in relation to the remedial measures which can be granted; Giumelli v Giumelli (1999) 196 CLR 101. These measures include a charge over the property in a specific sum; Morris v Morris [1982] 1 NSWLR 61. The need for a claimant to identify and quantify the relevant contributions, as far as possible and in some meaningful way so that the court has a proper sense of proportion, is self evidently a part of the process of establishing the claim. It relates to the essential question of whether it would be unconscionable to deny the claimant a beneficial interest in the property.
In this case there is a dispute about the nature and extent of the improvements and in particular, whether any value at all was added to the property. Even assuming that all of the alleged improvements were carried out with the express or inferred approval of the plaintiff during a relevant period, (about which I have grave doubts), no evidence was given as to the precise nature and extent of the improvements, nor more particularly, was there any evidence as to the value, if any, the improvements or any one of them, added to the property. No evidence was adduced as to the labour and costs involved. The evidence simply does not allow any relevant findings or assessments to be properly made.
It follows that the counterclaim in its entirety should be dismissed.
Disposition of the action
For the reasons which I have set out, the plaintiff should have judgment on the claim. That will include an order that the defendants deliver up vacant possession to the plaintiff. There was no real issue that the defendants were in arrears of rental and there was agreement as to the applicable rate of mesne profits from 2003 to the present time. The plaintiff agrees that the defendants should be given credit for amounts paid for rates beyond their obligations The only real issue arose in relation to whether it was the plaintiff or the defendants who had paid cash amounts relating to the rates of $1,000 in September 2002 and $250.55 in March 2003. I am satisfied that for the following reasons, it was the defendants who paid these cash amounts:
· The plaintiff's recollection as to the entire rates issue proved to be inaccurate and unreliable. He gave no evidence about any lump sum payment in respect of outstanding rates until the Council records were produced and it was at that time that he said that he thought he had paid the $1,250.55.
· It was the defendant who first raised in the trial the fact of the lump sum payment in respect of outstanding rates. The sum of $1,000 had of course been claimed by him in the email of 20 May 2003. Although he said that figure in the email was not an exact figure, he thought the figure was some $996 and odd cents, the essential thrust of his case all along was that there had been some substantial payment made. I do not lose sight of the fact that in the end the defendant adduced no direct evidence as to the payment of the amounts by his wife, as he asserted in cross-examination, but in all of the circumstances I think the assertion is probably correct.
On the basis of calculations which were provided by the plaintiff's counsel, and in accordance with these findings, my reckoning is that the plaintiff is entitled to judgment against the defendants for $55,747.06. That is made up of $9,816 which, on the plaintiff's evidence, was outstanding as at 8 September 2003. There is a further four weeks to 4 October 2003, of $644. Additionally, there are mesne profits from 4 October 2003 to 9 December 2008 of $48,295.00. The defendants are to be given credit for rates paid for which they were not otherwise liable in the sum of $3,007.94; ($2,628.99 as shown in the Centrelink records, plus $1,250.55, less $871.60 for the two years, 1997/1999).
I will hear the parties as to my calculations and the form of all final orders before pronouncing them.
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