DTC No 1 Pty Ltd v David Norman Matthew - [2009] NSWSC 1485

No judgment structure available for this case.

CITATION: DTC No 1 Pty Ltd & ors v David Norman Matthew & ors [2009] NSWSC 1485

HEARING DATE(S): 12-15 October 2009

JURISDICTION: Equity Division

JUDGMENT OF: Brereton J

EX TEMPORE JUDGMENT DATE: 15 October 2009

DECISION: Specific performance refused. Declare that defendants breached contract. Order inquiry as to damages.

CATCHWORDS: CONTRACT – construction – whether dispute resolution clause operative – no question of principle – CONTRACT – specific performance – contractual dispute resolution clause provides for compulsory sale of land and division of proceeds – whether damages a sufficient remedy – CONTRACT – abandonment – CONTRACT – termination for failure of condition subsequent whether right to terminate once and for all and waived, or continuing

CATEGORY: Principal judgment

CASES CITED: Barooga Projects (Investments) Pty Limited v Duncan [2004] QCA 149
Devpro v Seamark Pty Limited [2007] QCA 241
ETNA v ARIF [1999] 2 VR 353, [1999] VSCA 99
Immer (No. 145) Pty Limited v Uniting Church in Australia Property Trust (NSW) (1993) 182 CLR 26
Kayserian Nominees (No. 1) Pty Limited v JR Garner Pty Limited [2008] NSWSC 803
Lantry v Tomule Pty Limited (2007) 12 BPR 23,727, [2007] NSWSC 81
Lutre Pty Limited & Anor v Ellison (1997) 151 ALR 626
Neate v Parfit [2006] WASC 121
Penola Trading Co Pty Limited v Sunny Springs Pty Limited [2009] VSCA 161
Plumor Pty Limited v Handley (1996) 41 NSWLR 30
Suttor v Gundowda Pty Limited (1950) 81 CLR 418
Waterways Authority of New South Wales v Coal & Allied (Operations) Pty Limited [2007] NSWCA 276.
Williams v Commonwealth Bank of Australia [1999] NSWCA 345

PARTIES: DTC No 1 Pty Ltd (first plaintiff)
Weriton Pty Ltd (second plaintiff)
Graham Keith Werry (third plaintiff)
Weriton Properties Pty Ltd (fourth plaintiff)
David Norman Matthew (first defendant)
Joy Elizabeth Matthew (second defendant)

FILE NUMBER(S): SC 2977/09

COUNSEL: Mr A Henskens w Mr N Furlan (plaintiffs)
Mr J Robson SC w Ms V Thomas (defendants)

SOLICITORS: Leonard Legal (plaintiffs)
Morton & Harris RMB Lawyers (defendants)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
EXPEDITION LIST

BRERETON J

Thursday 15 October 2009

2977/09 DTC No 1 Pty Limited (Administrator Appointed) & ors v David Norman Matthew & ors

JUDGMENT (ex tempore)

1 HIS HONOUR: The defendants Mr and Mrs Matthew are the registered proprietors of a rural property which they operate as a dairy farm, known as Claydon Park at Milton, New South Wales. On 13 July 2005 they (as Owners) and the plaintiffs DTC (as Developer) entered into a Joint Venture Agreement for the development of Claydon Park, under the then SEPP Seniors Living 2004, as a seniors living estate comprising approximately 300 dwellings and an aged-care facility, and providing for DTC to carry out due diligence by 31 July 2005 and thereupon to elect whether or not to proceed with the project, then to apply for development approval (failure to gain which, upon acceptable terms, gave both parties an election to terminate) and then to undertake the development in accordance with any such approval, whereupon the joint venture became obliged to pay Mr and Mrs Matthew $12 million in respect of their contribution of the land to the joint venture with finance to be arranged from an external lender.

2 Claydon Park at the relevant time comprised two lots, Lot 3 in Deposited Plan XXX859, and Lot 111 in Deposited Plan XXX096 (which was later consolidated with other land into a lot which became designated Lot 2). On 8 December 2005, DTC having elected on completion of its due diligence to proceed with the project, an application was lodged with the Shoalhaven City Council for development approval, number 05/4034, for a 78-bed residential care facility and 29 independent living residences on Lot 3. The Joint Venture Agreement provided for the project to proceed in stages and this was, as it became known, the Stage 1 application. Only a few days after the Stage 1 application was lodged, the Minister for Planning announced a moratorium on new self-care retirement developments near country towns and villages, while SEPP Seniors Living was under review. The parties explored alternative means of developing the land. One alternative which emerged was a Manufactured Homes Estate (MHE). On 5 January 2007 there was lodged with the Shoalhaven City Council a Development Application, number 57/1016, signed by Mr and Mrs Matthew as the registered proprietors, for the development of a Manufactured Homes Estate pursuant to SEPP 36, on what had by then become Lot 2.

3 Development approval for the Stage 1 application was eventually granted on 6 September 2007. On 13 December 2007, the moratorium having ceased and a new seniors living policy having been announced, Mr and Mrs Matthew, without informing DTC, withdrew the MHE Development Application. No further development approval has been granted in respect of Stage 2 of the project. The land payment of $12 million referred to in the Joint Venture Agreement has therefore not become due, and has not been made.

4 The Joint Venture Agreement included, in clause 17, a dispute resolution clause, which states:

17. Dispute Resolution

(a) in respect of the interpretation or implementation of this Agreement, or

(b) where in this Agreement specifically refers to Dispute Resolution.

17.02 Either party may at any time notify the other party in writing that there is a dispute or difference concerning any matter in this Agreement. That notice must:

(a) identify the subject matter of the dispute,

(b) identify the relevant provisions of this Agreement,

(c) annex copies of any correspondence, or background material and information relevant to that dispute, and

(d) contain any particulars of quantification of the dispute.

(a) a nominee of the Owners, and

(b) a director of the Developer

within 7 days of the service of the said notice to meet in an attempt to discuss, and to reach a mutually acceptable decision, on the matter of the dispute.

(a) the matter in dispute is not settled within 7 business days of the meeting referred to in Clause 17.03 or such later date as the parties may agree, or

(b) either party refuses to attend a meeting in accordance with Clause 17.03,

then the compulsory sale provisions for the Land, or balance then remaining unsold, shall apply as set out in Clauses 17.05 and 17.06.

17.05 If a matter is not resolved in accordance with Clause 17.01 to 17.04 then the Developer shall within 21 days of the date of expiration of the 7 day period referred to in Clause 17.04 give to the Owners written notice of the price (based on fair market value) at which the Developer would be prepared to sell to the Owners its interest in the Development, including the Land unsold. If the Owners decline to purchase such interest at the price specified by the Developer then the Developer may purchase from the Owners the Owners’ interest in the Development, including the Land then unsold, at the same price.

5 After an exchange of correspondence between the parties in late 2008, DTC gave notice of dispute to the Matthews on 9 February 2009, to which the Matthews responded with a notice of termination of the agreement on 25 February 2009. In purported pursuance of the dispute resolution clause, DTC offered to sell its interest in the development to the Matthews for $1 million. That offer was not accepted.

6 DTC now sues for specific performance of clause 17 of the Joint Venture Agreement – in particular for the compulsory sale by auction of Claydon Park pursuant to clause 17.06 – and for damages in lieu of or in addition to specific performance. The quantum of any damages is to be determined on subsequent inquiry, and the present hearing is concerned with the question of whether specific performance should be granted, and whether there have been breaches of contract such as to entitle the plaintiffs to an inquiry as to damages. The submissions of counsel have helpfully distilled the issues, which I think can now uncontroversially be stated as follows:

7 First, on the claim for specific performance:

(a) Does the compulsory sale provision of the Joint Venture Agreement, properly construed, operate prior to payment of the land payment?

(b) Was the condition precedent to the dispute resolution clause – namely, the existence of a genuine dispute – satisfied?

(c) Have the parties abandoned the contract?

(d) Did the defendants validly terminate the contract by their notice of 25 February 2009?
(e) Should specific performance be declined for other discretionary reasons?

8 Secondly, as to the alleged breaches of contract, did the Matthews breach clauses 4.06, 5.06 and/or 20.08 of the Joint Venture Agreement by:

(a) withdrawing the Manufactured Homes Estate Development Application on or about 17 December 2007,

(b) not informing DTC between 28 August 2008 and 30 June 2009 that a site capability certificate under the new seniors living SEPP had been granted,

(c) failing to respond to DTC’s requests for information made on 27 August, 27 October, 19 December 2008 and 14 January 2009,

(d) failing to communicate generally with DTC in relation to the joint venture between September 2008 and 25 February 2009, and
(e) applying for and serving a lapsing notice in respect of a caveat lodged by DTC claiming an interest in Claydon Park pursuant to the Joint Venture Agreement.

9 As these reasons are given ex tempore at the end of a four-day hearing and late in the day, they will not be as ample as they might otherwise be, and I reserve leave to supplement them in due course. However, I will endeavour to address the main issues that were argued, and at least touch on any subsidiary or alternative ones. I turn first then to the claim for specific performance. As I have said, in that respect the first issue is the construction of clause 17 which I have already set out.

Does clause 17 operate prior to the land payment?

10 For the Matthews, Mr Robson of senior counsel contended that, properly construed, clause 17 could not have been intended to operate except in circumstances that the land payment had been made. Mr Henskens, for DTC, contended that on the face of the agreement the clause operated in all circumstances at all times and during all phases of the joint venture.

11 In the Joint Venture Agreement, recital D provided as follows:

The Owners have proposed to the Developer that the Land is located and zoned such that it is suitable for the development under the State Environment Planning Policy – Seniors Living 2004 to comprise a seniors living estate of approximately 300 dwellings together with an aged care facility.

12 Recital F was as follows:

The parties have agreed to enter into this Joint Venture Agreement to provide for the due diligence period and thereafter, if the Developer elects to proceed with the Project, to seek a development approval to carry out the project from Shoalhaven Council. If development approval is obtained then the parties will undertake the Development pursuant to the Joint Venture Agreement or such varied or other agreement as they may adopt from time to time

13 Clause 1.01 contained a number of definitions. Relevantly, “Application” was defined to mean “the application or applications (for staged development) to the Council for a development approval to carry out the development”, “Development” was defined to mean, “the proposed development of the Land by the establishing thereon of a seniors living estate and related aged-care facility as referred to in recital C”; it was common ground that this was a typographical error, and that the reference to recital C could be construed as a reference to recital D. “Land Payment” was defined to mean “the sum of dollars 12 million to be paid to the owners for the land as provided for in clause 4.01”. “Senior Finance” was defined to mean “the principal loan to the Joint Venture to fund (a) the repayment of the preliminary finance, (b) the acquisition of the Land by making the Land Payment, and (c) the carrying out of the Development”.

14 Clause 2.03 provided as follows:

2.03 The Developer may at any time after payment of the Land Payment to the Developer determine that the Joint Venture should operate through a company established by the parties solely as a vehicle for the Joint Venture. If that occurs the parties will restructure the Joint Venture as reasonably required by the Participants, including the Owners transferring title to the Land to the joint venture company. The joint venture company may, as determined by the Developer, act in its own capacity or as trustee of a unit trust.

15 Clause 3 provided for the Developer to undertake due diligence investigations, complete them no later than 31 July 2005 and give a notice either to proceed with or withdraw from the project. In the events that happened, the Developer elected to proceed with the project. Clause 3.01 provided that the Owners shall provide the land to the joint venture. Clauses 4.02 and 4.03 were as follows:

4.02 The Owners shall be paid the sum of $12,000,000 in respect of their contribution of the Land to the Joint Venture in accordance with 11.08.

16 Clause 4.06 obliged the Owners to use their best endeavours to assist the Developer in the joint venture during the term of the project in various ways, including in the lodgement and prosecution of the Application, and such other assistance as the Developer requests from time to time. Under clause 5, the Developer was responsible for arranging for the preparation of the application for development approval, and the Owners as registered proprietors of the Land were required to consent to the application, sign the appropriate documentation and facilitate lodgement and processing of the application.

17 Certain rights to withdraw from the agreement were provided by clause 5.09 to clause 5.12, which were as follows:

5.09 The parties shall seek an Approval upon terms and conditions acceptable to the Developer within two years from the date of this agreement. If for any reason such an Approval is not obtained by that date then either Participant may by notice in writing to the other Participant elect to terminate the Join Venture.

(a) elect not to appeal against unacceptable conditions of the Approval, or

(b) are not successful in securing modification to conditions of Approval which are acceptable to them

then either Participant may by notice in writing to the other Participant terminate the Joint Venture.

5.11 If the Council fails to grant an Approval within 12 months of the date of lodgement of the Application, then with Participant may, by notice in writing to the other Participant, terminate the Joint Venture.

(a) neither Participant elects to terminate the Joint Venture under Clause 5.09,

(b) the Developer does not notify the Owners within 3 months of the date of the Approval that it does not accept any of the conditions of the Approval,

(c) the Developer does not elect to proceed with an appeal n accordance with Clause 5.08, or

(d) neither Participant elects to terminate the Joint Venture pursuant to Clause 5.11,

then the Participants shall be deemed to have waived their rights under Clauses 5.08 to 5.11.

18 Clause 6 relevantly provides for the Joint Venture to proceed if neither party withdrew, as follows:

6. Development

6.01 If the Approval is obtained and neither Participant exercises any rights to withdraw from the Joint Venture then the Participants shall proceed with the carrying out of Development in accordance with the plans for the Development which are subject of the Approval.

19 Clause 8.01 provided for exit strategies to be developed, as follows:

8. Sale of Development

8.01 The parties agree that in consultation with the Owners the Developer may develop exit strategies from the Project during the term of the Project. These strategies include:

(a) the sale of the Land, including the Development to the extent that it may have been carried out to that time, at any time during the term of the Project,

(b) the completion of the Development and the sale of Lots on freehold title basis,

(c) the introduction of an aged care operator/manager to manage the aged care facility and be manager for the Village,

(d) the leasing or sale of Lots in accordance with one or more of the financial arrangements for leasing of aged care homes (including premium payments and deferred management fees) which are commonly used in New South Wales in the aged care sector, and

(e) such other arrangements as the Developer may propose from time to time.

20 Clause 10.01 obliged the Developer to arrange all funding for the project, but acknowledged that the parties might be required to provide equity contributions. Clause 11 provided for preliminary finance of $5.5 million to be provided by DTC to the Matthews, of which $500,000 was to be used to fund the project and the balance released for the Matthews’ use. The preliminary finance was to be repayable three months after the date on which any approval was issued, or the second anniversary of the Joint Venture Agreement, whichever was the earlier.

21 Clause 11.08 was as follows:

11.08 If:

(a) an Approval is obtained, and

(b) the Developer notifies the Owners in writing that it accepts the conditions of the Approval such that the Project will then proceed,

11.09 Upon the Payment Date the Owners shall repay the Preliminary Finance to the PF Lender simultaneously with the making of the Land Payment (and using those funds) using moneys advanced to the Joint Venture as Senior Finance as provided for in Clause 12.

11.10 If the Developer terminates the Joint Venture pursuant to Clauses 5.09, 5.10 or 5.11, then the Owners shall repay in full on or prior to the second anniversary of the date upon which the Developer gives the relevant notice of termination. Until repayment of that sum in full the Owners shall pay interest at the rate of 8% per annum such that all capitalised interest shall be paid by the Owners upon the date for repayment of the principal sum.

11.11 The Owners terminate the Joint Venture pursuant to Clause 5.09, 5.10 or 5.10 [sic], then the Owners shall repay the Preliminary Finance including interest calculated as per Clause 11.10 by the second anniversary of the date of the notice of termination.

22 Clause 20.08 imposed on each of the Owners and the Developer at all times during the term of the agreement an obligation to “act reasonably and in good faith so as to give effect to the objects and agreements of this provision”.

23 In the events which happened, no approval within clause 5.01 was obtained within two years from the date of the agreement. Prior to 2009, no party had purported to terminate the agreement, nor prior to 2009 had any party purported to elect to terminate under clause 5.09 or 5.11. DTC contends that, in those circumstances, any right of termination arising under 5.09 or 5.11 had been waived pursuant to clause 5.12. It will be necessary to return to that issue in due course.

24 If clause 17.06 were invoked, it requires that the net sale proceeds be dealt with as income; the parties agreed that could only refer to clause 16.01, which provides for application of the proceeds of a sale of the whole of the Land, or of individual lots, as follows:

16.01 The parties shall apply the proceeds of sale of the whole of the Land, or the proceeds of sale of individual Lots as they are received, as follows:

(a) firstly, in payment of any agent’s commission and other marketing expenses which may be incurred in respect of the sale if that Lot,

(b) secondly, in payment of legal costs and disbursements incurred with respect to the sale,

(c) thirdly, in payment of any GST applicable in respect of the sale,

(d) fourthly, in repayment to the SF Lender of the Senior Finance, or reduction of the Senior Finance, as required by the SF lender in connection with the release of the first mortgage over a Lot,

(e) fifthly, in reimbursement of any Project expenses incurred by the Developer which were not funded by either the Senior Finance or equity contributions,

(f) sixthly, in payment of any outstanding project management fees due to the Participants pro rata,

(g) seventhly, in repayment of Mezzanine Finance, including all interest,

(h) eighthly, in repayment to the Owners of their equity contribution to the Project under Clause 13.02 including all interest under 13.06, and

(i) ninthly, by distribution of the balance, if any, equally, between the Owners and the Developer as the profit of the Project.

25 Clause 16.01(d) contemplates repayment, to the Senior Finance Lender, of the Senior Finance, or reduction of it as required by the senior finance lender in connection with the release of the first mortgage over a lot. It therefore contemplates that the Senior Finance will have been advanced. If the Senior Finance had been advanced then also the Land Payment would have been made. Significantly, clause 16.01 does not provide for payment, from the proceeds, of the Land Payment. Arguably, it assumes that the Land Payment has been made. Indeed, that is more than arguable, because the reference to the repayment of the SF Lender of the Senior Finance must assume that the Land Payment has been made.

26 The overall structure of the Joint Venture Agreement involved the Matthews contributing their land, Claydon Park, in return for a payment of $12 million, if development approval acceptable to the Developer were obtained. If development approval was not obtained the provisions of clause 5.09 to clause 5.12, to which I have referred, enabled them to terminate the Joint Venture Agreement and retain their land. If development approval was obtained and the project proceeded, they were to receive a payment of $12 million.

27 The construction of clause 17 contended for by DTC contemplates a situation in which the Matthews would be compelled to part with their land, have it sold and receive ultimately only 50 per cent of the equity in it, in circumstances where they had not been paid for it. Yet although provisions of the agreement to which I have referred, including the definition of Land Payment, the definition of Senior Finance, and the terms of clause 4.02 make abundantly clear that the parties intended that the Matthews would be paid, and would be paid $12 million, by the joint venture for the acquisition from them of the land, albeit with development approval. It is hardly conceivable that the parties intended, against that background, to provide for a means by which the joint venture could effectively acquire the land from the Matthews for nothing in the absence of an acceptable development approval. Such a provision would practically incentivise failure of the Development Application, by providing an opportunity for the joint venture to be able to acquire the land for nothing in that event.

28 It is also a matter of considerable significance that clause 17 is a dispute resolution clause: its purpose was to facilitate the resolution of disputes between the parties, not to change their substantive rights and obligations under the substantive provisions of the agreement. To give clause 17.05 the effect for which DTC contends would provide for significant changes to be worked to the substantive rights of the parties under the guise of a dispute resolution clause.

29 For DTC it was argued that clause 17.05, in particular, reflects a concept of equality between the parties under the agreement. In my view, that submission so far as it goes is correct, in that by providing for the Developer to give notice to the Owners of the price at which the Developer would sell its interest and permitting it to purchase the Owners’ interest at the same price if they decline, it plainly recognises an equality of interest. However, that argument itself demonstrates that clause 17.05 could not have been intended to operate before the Joint Venture had acquired the Land from the Owners: there was no equality until that purchase took place, because until that point the Joint Venture was obliged to pay the owners $12 million upon development approval to acquire the Land, and it was only after that had happened that there was truly a position of equality between the parties under the agreement, where both had equal interests in the land.

30 In referring to sale of the Developer’s interest in the development, “including the land unsold”, and to the sale of the land or the then unsold balance of the land, clauses 17.05 and 17.06 assume that the Joint Venture has acquired the land. But the Joint Venture beneficially acquires the Land only when it pays the Matthews for it, by making the Land Payment.

31 Against that, it is true that clause 4.03 suggests that the Joint Venture might become beneficially entitled to the Land upon giving an election notice after completion of its due diligence, as distinct from upon obtaining a development approval. At first sight, that view is fortified by the provision that the Owners are responsible for rates and taxes up to that time, but that such outgoings are therefore to be met from Preliminary Finance and/or from Senior Finance. But on close consideration, that circumstance does not in fact reinforce the argument; the circumstances that the rates and taxes are to be met initially from Preliminary Finance, in fact, fortifies the argument in the opposite direction. To the extent outgoings are funded from Preliminary Finance, they will ultimately be met by the Matthews, who are obliged to repay the Preliminary Finance, so that although some funds were made available for that purpose by loan from DTC, ultimately the obligation of paying rates and taxes until a Development Approval was gained, Senior Finance obtained and the Land Payment made, was that of the Matthews – favouring the view that they remained beneficially entitled in the meantime.

32 What clause 4.03 was intended to do was to ensure that once an election notice was given, the Owners were obliged, if Development Approval was granted, to provide the Land clear and unencumbered to the Joint Venture.

33 In my view, in the context of this agreement as a whole, it is inconceivable that the parties could have intended that the Land could be the subject of compulsory sale pursuant to the dispute resolution provisions before the Joint Venture had acquired it by paying the Land Payment consequent upon Development Approval being granted.

34 A further consideration that supports that view emerged from discussion as to what might happen if there were a dispute between the parties as to whether one or other of them had effectively elected to terminate the Joint Venture under clause 5.10 – or for that matter under any other of the termination provisions in clause 5. If DTC’s construction were correct, then – notwithstanding that the Owners might validly elect to terminate under one or other of those provisions – if the Developers genuinely disputed the validity of that termination, the dispute resolution provisions would be attracted, and with them the compulsory sale provision, and despite what might ultimately prove to be a valid termination, the dispute resolution provision would instead lead to the Joint Venture effectively acquiring the land, and its compulsory sale. I cannot conceive that this is what the parties intended.

35 In my opinion, therefore, clause 17.05 and clause 17.06 do not have operation prior to payment of the Land Payment. They do not operate in the present circumstances, and DTC’s claim for specific performance must fail on that ground.

Other issues on DTC’s claim

36 Had I not reached that conclusion, it would have been necessary to address the other issues which I shall do, but briefly, in light of the conclusion that I have reached above.

37 Genuine dispute. I am satisfied that there was a dispute in existence prior to DTC giving its Notice of Dispute on 9 February 2009, and that insofar as that was a condition precedent to the operation of the dispute resolution provisions of the agreement, it was satisfied.

38 No abandonment. I reject the argument, advanced by the Matthews, that the contract had been abandoned prior to early 2009. It suffices to refer to Mr Matthew’s acknowledgement in the witness box that, although he regarded the Joint Venture Agreement as “sick”, it was not yet dead, and he was keeping his mind open. In any event, the conduct of the parties is quite inconsistent with their having abandoned the Agreement. Each was seeking to take advantage of the provisions of the Agreement for its own purposes, rather than treating the Agreement as no longer relevant. True it is that DTC was seeking to renegotiate its terms, but it was doing so within the context of an existing and binding agreement, not on the basis that there was no existing agreement between the parties.

Did the Matthews terminate the Agreement?

39 As to whether the Matthews validly terminated the agreement by their notice of 25 February 2009, that requires me to return to the effect of clause 5.12 and clause 6.01. The construction of those clauses, in the context of the agreement as a whole, is not an easy exercise.

40 Clause 5.12 must have been intended to achieve some effect by providing for a deemed waiver, but in my view the better view is that, in the context of clause 6.01, the effect intended was that if a right of termination under any of clauses 5.08 to 5.11 were not exercised, and the approval was obtained as referred to in clause 6.01, then all participants were deemed to have waived their various rights of termination.

41 Essentially, until the approval was obtained, these were continuing rights of rescission, not rights to be exercised once and for all. The distinction was recognised by the High Court of Australia in Immer (No. 145) Pty Limited v Uniting Church in Australia Property Trust (NSW) (1993) 182 CLR 26, 42 [see also Penola Trading Co Pty Limited v Sunny Springs Pty Limited [2009] VSCA 161, especially at [104]; Neate v Parfit [2006] WASC 121, [68]; Lutre Pty Limited & Anor v Ellison (1997) 151 ALR 626, 639; Lantry v Tomule Pty Limited (2007) 12 BPR 23,727, [2007] NSWSC 81, [67]; ETNA v ARIF [1999] 2 VR 353, [1999] VSCA 99, [58]; Devpro v Seamark Pty Limited [2007] QCA 241, [26]; Barooga Projects (Investments) Pty Limited v Duncan [2004] QCA 149 [31-32] and [141] and Williams v Commonwealth Bank of Australia [1999] NSWCA 345, [170]]. The point is that where there is a continuing right to rescind rather than one that is exercisable only once and for all, it is not an affirmation to continue to act in accordance with the contract, or to continue to treat the contract as on foot, because the right to rescind does not evaporate. I think the better view is that the parties intended to provide that after two years, each would have an “out” if it wished. That “out” arose on the expiration of the two-year period, and it continued at least until approval was granted. If either party was concerned during that period that it was in jeopardy of the other terminating at some stage, then it was open to the first party itself to terminate it if it wished, or to negotiate further terms on which the parties would proceed in the meantime.

42 Accordingly, I proceed on the basis – although I must say with a little diffidence – that the right to terminate under clause 5.09 survived, and continues to survive.

43 The condition in clause 5.09 was a condition precedent to performance of the contract, not to formation of the contract. In other words, it was what is often called a condition subsequent. Where such a condition is not satisfied due to the fault of one of the parties to the contract, that party is not entitled to rescind for failure of the condition, and only the innocent party can exercise the right of rescission – even where, as in the present case, the contract expressly gives the right to rescind to both parties [Suttor v Gundowda Pty Limited (1950) 81 CLR 418, 440, 441; Plumor Pty Limited v Handley (1996) 41 NSWLR 30, 34; Kayserian Nominees (No. 1) Pty Limited v JR Garner Pty Limited [2008] NSWSC 803]. A party wishing to rescind cannot take advantage of its own ineffective or own inefficient measures to comply with its contractual obligations, and where one party’s default has deprived the other of a substantial chance that the condition would have been fulfilled, the first cannot exercise the right of recision [see Kayserian Nominees [27] and the cases there referred to].

44 The question then becomes whether the Matthews contributed in a material way in the circumstances that resulted in the approval having not been obtained within two years. The Matthews withdrew the MHE Development Application in December 2007. They submit that was not a breach of the contract, on the basis that a Manufactured Homes Estate was not the development contemplated by the Joint Venture Agreement. They submit that the only “application” contemplated by the Joint Venture Agreement was one for approval of a Development as defined, and that the MHE application was not for such a Development. In my view that submission fails to give sufficient weight to clause 5.02 of the Agreement, which is as follows:

5.02 The Participants shall determine how best to give effect to the general intention of the Joint Venture to establish an estate for seniors living and related aged care facility on the Land. The Developer’s objectives in preparing the design and strategy for the Project and in completing the Application is to:

(a) maximise the prospects of the Application being approved by Council,

(b) maximise the financial return from the Developer, and

(c) maintain flexibility regarding the ongoing development of and exit strategies from the Development.

45 That clause makes clear that the precise method agreed for development contemplated under the then Seniors Living SEPP was but a manifestation of “the general intention of the Joint Venture to establish an estate for seniors living and related aged-care facility on the land”. The Stage 1 application indeed began on the course of establishing an estate for seniors living and related aged-care facility. But when confronted by the moratorium, the participants considered how best to give effect to their general intention in the light of that moratorium.

46 It will be remembered that the definition of “application” was a staged application. On 8 December 2005, the Stage 1 application for the aged-care facility and some independent living units was made in respect of Lot 3, and subsequently approved. At that time, when the moratorium prevented the Stage 2 application being made under the Seniors Living SEPP, it was made in respect of lot 2 as a Manufactured Homes Estate application. The costs associated with making that application were paid out of the joint venture account, funded by tranche 1 of the preliminary finance. It is difficult to see how and why they would be paid out of the joint venture account and funded out of tranche 1, unless it was considered referable to the joint venture.

47 According to Mr Matthew, Mr Werry of DTC explained the intent in the following terms, in September 2006: “I am going to take Claydon Park forward along the lines of a Manufactured Homes Estate, using the principles of a seniors living development,” and, “We can present it as a seniors living project. We can make this into a really nice seniors living project”.

48 Moreover, the Matthews signed the MHE Development Application, as registered proprietors, which was then lodged on their behalf with the council. In my view, it is clear that the participants determined that the best way to give effect to their general intention to establish an estate for seniors living and related aged-care facility, the Stage 1 application having been lodged and the moratorium having been announced, was to proceed by way of the MHE Development Application for Stage 2.

49 The MHE Development Application thus became part of “the application” for the purposes of the Joint Venture Agreement. Its unilateral withdrawal was plainly contrary to clause 4.06 and clause 5.06 of the Joint Venture Agreement. In that way, the Matthews contributed substantially to the circumstance that there was no approval within the two-year period. It follows that, by their default in that respect, they are precluded from invoking the right of termination conferred by clause 5.09.

50 The Matthews contended that they were also entitled to terminate for repudiation by DTC. The parties accepted that, if there was repudiatory conduct, the Matthews were entitled to terminate, notwithstanding that a 60-day notice to remedy under clause 18.02 had not been given, for the reason that there was no intention to exclude concurrent common law rights of termination [see Waterways Authority of New South Wales v Coal & Allied (Operations) Pty Limited [2007] NSWCA 276, [217]-[238]].

51 Three aspects of DTC’s conduct were invoked as repudiatory. The first was the so-called “withdrawal of finance” by DTC, when it insisted on the Preliminary Finance being repaid in accordance with the terms of the loan agreement. In my view, there was nothing repudiatory about that conduct. DTC was insisting on its legal right to have the Preliminary Finance repaid, as the loan deed provided and as the Joint Venture Agreement stipulated that the loan deed would provide, within two years if the approval had not previously been granted.

52 Secondly, I do not consider that the failure to progress the Joint Venture Agreement after approval of the Stage 1 application was repudiatory. Even if DTC was dilatory during this period – and there are explanations as to why it was – that does not manifest an intention not to be bound by or not to perform its obligations under, the agreement. Thirdly, it was contended that DTC’s insistence that the development proceed as a manufactured homes development was repudiatory. However, it follows from my conclusion as to the effect of clause 5.02 that was not.

53 Accordingly, the Matthews did not validly terminate the Joint Venture agreement by their notice of 25 February 2009.

54 The final issue in respect of specific performance is whether relief should be declined for other discretionary reasons.

55 I reject the argument that specific performance would be declined for unclean hands. The conduct alleged against the DTC, even if it were established, does not have that quality of impropriety or depravity necessary to attract the defence of unclean hands.

56 However, I would as a matter of discretion have refused specific performance on two discretionary grounds. First, in my view this is a case in which it can be said that, although the subject matter is real property, damages are an amply adequate remedy. Those damages would be evaluated and assessed simply by identifying the value of the land, deducting the payments that would have to be made out of the proceeds and calculating DTC’s proportion of the proceeds. It was argued that DTC would be deprived of the opportunity of acquiring the land itself at auction. But it had and did not seek to avail itself of that opportunity – assuming clause 17 were operative in the circumstances – for only $1 million, upon having given its notice under clause 17.05. In the context of a dispute resolution clause, it seems to me that in this case damages would be an ample remedy.

57 Moreover and somewhat exceptionally, I would decline relief on the ground of hardship. If my view of the construction of the contract were incorrect, nonetheless, I am of the view that to enforce the dispute resolution clause, in circumstances where the result would be to deprive the Matthews of their land without payment for it, when the agreement otherwise provided for payment to them, would be an extraordinary hardship, such as to justify declining relief on that basis. There would be no hardship to DTC in leaving it to a remedy in damages for breach of the dispute resolution clause.

Breach of contract by Matthews?

58 I turn then to the second series of issues, namely, whether there was a breach by the Matthews of clauses 4.06, 5.06 and 20.08.

59 The major breach for which DTC contended was the withdrawal of the MHE Development Application on 13 December 2007. For reasons I have already given in connection with DTC’s claim for specific performance, I am satisfied that this was in breach of the Matthews’ obligations under the relevant clauses of the Joint Venture agreement.

60 The next alleged breach pertained to the site compatibility certificate, for which application was made by the Matthews but, once it was obtained, not revealed to DTC. The site compatibility certificate was a matter of no little moment. The evidence establishes that a development approval for a seniors living project would very probably be more valuable than a development approval for an MHE. Once the site compatibility certificate was obtained, there was every prospect that a development approval under the new Seniors Living SEPP could be obtained. Even if it was not immediately apparent to the Matthews that DTC was unaware of the granting of the site compatibility certificate, it ought to have been obvious to them by 27 October, when DTC wrote to them observing that it was assumed that the application for a certificate had been unsuccessful. At least from 27 October, there was a failure on the part of the Matthews to provide highly relevant information to a joint venture partner such as to amount to a breach of, at least, clause 20.08.

61 Next, DTC wrote to the Matthews requesting information on 27 August, 27 October and 19 December 2008 and 14 January 2009. The Matthews did not respond in any meaningful way to that correspondence. Mr Matthews says that he thought that Mr Werry was “playing games” in that correspondence, and therefore did not provide proper responses. That is a dangerous assumption to make. The correspondence called for a response. The failure to respond to it was a breach of the Matthews’ obligation to provide such other assistance as the Developer might request under clause 4.08.

62 I do not think that the complaint about failure to communicate with DTC generally in respect of the joint venture adds anything.

63 So far as the application for the service of a lapsing notice of the caveat is concerned, it is not apparent that that was a breach of any term of the Joint Venture Agreement, although it may have been a breach of another agreement entered into between the parties.

Conclusion

64 For the foregoing reasons I conclude that the suit for specific performance should be dismissed. There should be a declaration that in breach of the Joint Venture Agreement, the Matthews withdrew the Manufactured Homes Estate Development Application on 13 December 2007, failed from 28 August 2008 to 30 June 2009 to inform DTC of the grant of the site compatibility certificate, and failed to respond to DTC’s requests for information of 27 August, 27 October, 19 December 2009 and 14 January 2009.

65 It would seem to be a necessary consequence of the conclusions to which I have come that the Joint Venture Agreement presently remains on foot. In those circumstances, whether the breaches of contract which I have found established against the Matthews are actually sound in damages is a moot question. It seems to me that the appropriate course is to direct an inquiry as to damages, at the plaintiffs’ risk as to costs, and make directions for that inquiry to proceed, at least in the first instance before me.

66 My orders are:

1. Declare that in breach of the Joint Venture Agreement, the defendants:

1.1 withdrew the Manufactured Homes Development Application on 13 December 2007;

1.2 failed to inform the plaintiffs between 28 August 2008 and 30 June 2009 that a site compatibility certificate had been granted in respect of Claydon Park, lot 2; and
1.3 failed to respond to the plaintiffs’ requests for information and assistance contained in the plaintiffs’ letters of 27 August, 27 October, 19 December 2008 and 14 January 2009.

2. Order that there be an inquiry as to the damages which the plaintiffs have suffered by reason of the said breaches, such inquiry to be at the plaintiffs’ risk as to costs.

3. Order that until further order the inquiry proceed before me.
4. Adjourn the proceedings to 30 October at 10.00am before me for further directions.

67 There will be no order as to costs, to the intent that each party bear its own costs of the proceedings to date.

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Citations

DTC No 1 Pty Ltd v David Norman Matthew [2009] NSWSC 1485

Cases Citing This Decision

0

Cases Cited

12

Statutory Material Cited

0

Penola Trading Co Pty Ltd v Sunny Springs Pty Ltd [2009] VSCA 161

Neate v Parfit [2006] WASC 121

Lantry v Tomule Pty Ltd [2007] NSWSC 81

CITATION:	DTC No 1 Pty Ltd & ors v David Norman Matthew & ors [2009] NSWSC 1485
HEARING DATE(S):	12-15 October 2009
JURISDICTION:	Equity Division
JUDGMENT OF:	Brereton J
EX TEMPORE JUDGMENT DATE:	15 October 2009
DECISION:	Specific performance refused. Declare that defendants breached contract. Order inquiry as to damages.
CATCHWORDS:	CONTRACT – construction – whether dispute resolution clause operative – no question of principle – CONTRACT – specific performance – contractual dispute resolution clause provides for compulsory sale of land and division of proceeds – whether damages a sufficient remedy – CONTRACT – abandonment – CONTRACT – termination for failure of condition subsequent whether right to terminate once and for all and waived, or continuing
CATEGORY:	Principal judgment
CASES CITED:	Barooga Projects (Investments) Pty Limited v Duncan [2004] QCA 149 Devpro v Seamark Pty Limited [2007] QCA 241 ETNA v ARIF [1999] 2 VR 353, [1999] VSCA 99 Immer (No. 145) Pty Limited v Uniting Church in Australia Property Trust (NSW) (1993) 182 CLR 26 Kayserian Nominees (No. 1) Pty Limited v JR Garner Pty Limited [2008] NSWSC 803 Lantry v Tomule Pty Limited (2007) 12 BPR 23,727, [2007] NSWSC 81 Lutre Pty Limited & Anor v Ellison (1997) 151 ALR 626 Neate v Parfit [2006] WASC 121 Penola Trading Co Pty Limited v Sunny Springs Pty Limited [2009] VSCA 161 Plumor Pty Limited v Handley (1996) 41 NSWLR 30 Suttor v Gundowda Pty Limited (1950) 81 CLR 418 Waterways Authority of New South Wales v Coal & Allied (Operations) Pty Limited [2007] NSWCA 276. Williams v Commonwealth Bank of Australia [1999] NSWCA 345
PARTIES:	DTC No 1 Pty Ltd (first plaintiff) Weriton Pty Ltd (second plaintiff) Graham Keith Werry (third plaintiff) Weriton Properties Pty Ltd (fourth plaintiff) David Norman Matthew (first defendant) Joy Elizabeth Matthew (second defendant)
FILE NUMBER(S):	SC 2977/09
COUNSEL:	Mr A Henskens w Mr N Furlan (plaintiffs) Mr J Robson SC w Ms V Thomas (defendants)
SOLICITORS:	Leonard Legal (plaintiffs) Morton & Harris RMB Lawyers (defendants)