GK and MJ Sommerville Pty Ltd v Winburra Developments Pty Ltd
[2002] QDC 11
•13 February 2002
DISTRICT COURT OF QUEENSLAND
CITATION:
GK & MJ Sommerville Pty Ltd & Ors v Winburra Developments Pty Ltd & Ors [2002] QDC 011
PARTIES:
GK & MJ SOMMERVILLE PTY LTD as Trustee
for the Sommerville Family Trust
First Plaintiff
And
GRAEME KEVIN SOMMERVILLE
Second Plaintiff
And
MAREE JUNE SOMMERVILLE
Third Plaintiff
And
WINBURRA DEVELOPMENTS PTY LTD
(ACN 010 908 773)
And
GREGORY ROBERT BURKE
Second Defendant
And
DAVID CARVOSSO
Third DefendantFILE NO/S:
D2859/01
DIVISION:
Civil
PROCEEDING:
Trial
ORIGINATING COURT:
Supreme Court Brisbane
DELIVERED ON:
13 February 2002
DELIVERED AT:
Brisbane
HEARING DATE:
24 January 2002
JUDGE:
Judge Boulton
ORDER:
Declaration that first plaintiff entitled to terminate contract of 12 April 1999. Order that deposit of $18,000 be refunded. Counterclaim struck out. Order defendants pay the plaintiffs’ costs of and incidental to the action and the counterclaim to be assessed
CATCHWORDS:
Contract – purchase of newsagency business – approval of newsagency council required – time of the essence
COUNSEL:
Mr M M Martin for the plaintiffs;
Mr W Everson for the defendantSOLICITORS:
McAlister Cartmill; Siemons Laywers
REASONS FOR JUDGMENT
The first plaintiff in this action was the purchaser of a newsagency business from the first defendant by a contract dated 12 April 1999. The second and third plaintiffs and second and third defendants were respectively guarantors of the obligations of purchaser and vendor. I shall refer to the parties as the “plaintiffs” and the “defendants”. The defendants have counterclaimed for damages for unlawful termination of the contract.
The business was situated at Noosa Junction on the Sunshine Coast. One of the conditions of the sale was that the approval of the Newsagency Council of Queensland to the transfer be obtained.
Special Condition 4 of the Special Conditions in Annexure A to the contract was as follows:
“Newsagency Council of Queensland
This contract is subject to:-
4.1The sale of the said business being notified to the Newsagency Council of Queensland (“the Council”) in accordance with rules of the Council; and
4.2A decision by the Council not to disapprove of the Purchaser in regard to the transfer of Noosa Junction Newsagency.
4.3Upon execution of the Contract the Vendor and the Purchaser shall notify the Council of the sale of the said business in accordance with the rules of the Council. The Vendor and the Purchaser shall do all such things and such documents as are required by the Council to enable it to make a decision on the transfer of Noosa Junction Newsagency. In the event that the Council disapproves of the Purchaser or the Council does not make a decision within one (1) month of the date hereof the sale and purchase shall be cancelled and all monies paid hereunder by the Purchaser shall forthwith be refunded to the Purchaser in full and neither party shall be under any further liability to the other by reason merely of such cancellation. …”
Special Condition 7 in so far as it is relevant was as follows:
“7. Date of Completion
The date of completion shall be 7 June 1999 or two (2) business days following the consent contemplated by Special Condition 4 hereof or two business days following the completion of the business contract dated 3 March 1999 between the purchasers as vendor and Clombern Holdings Pty Ltd., as purchaser for the purchaser’s business known as Sportco Kawana, whichever is the later. In the event that completion is not effected by that date which is sixty (60) days for (sic) the date hereof either party may terminate this Contract by notice in writing to the other.”
Special Condition 12 of the contract was as follows:-
“12 New Lease/Assignment to Lease
12.1This contract shall be subject to and conditional upon the Purchaser being granted a Lease for the premises from the Lessor, upon terms and conditions satisfactory to the Purchaser which shall include a term of lease for a period not less than three (3) years and with two (2) further options of renewal of three (3) years each.
12.2In the event the Purchaser requires the Lease to be registered, the Lessor must provide to the Purchaser an undertaking in writing to register the Lease, at the cost and expense of the Purchaser as soon as practical after completion.
12.3The Vendor must obtain and provide to the Purchaser at settlement a duly executed and stamped Surrender of Lease, signed by the Vendor and the Lessor relating to the existing Lease.
12.4The Purchaser agrees to provide all such references and do all things reasonably necessary by the Lessor in considering the new Lease.
12.5In the event that a new Lease is not granted to the Purchaser pursuant to this Special Condition, then the Purchaser may by notice in writing to the Vendor, terminate this contract, in which event all deposit and other monies received by the Vendor or Stakeholder on account of the purchase price, shall be refunded to the Purchaser in full.
12.6Standard Condition 27 shall not apply.”
Standard Condition 27 provided for the granting by the Lessor of a new Lease to a Purchaser. It was clearly superseded by the Special Condition.
The application form for submission to the Newsagency Council of Queensland is Exhibit 2. This document provides for certain documentation to accompany the application. These include:-
“….
Confirmation of Non-Conditional loan offer from Finance Organisation.
Proof of Unencumbered Funds.
Landlord’s statement re assignment of Lease.
……”
Part 1 of the application form was to be completed and signed by the vendor. It seems that the second plaintiff had this done by the defendants on or about the 19 April 1999. This portion of the document includes the printed words “new lease to be prepared”.
Mr Burke, the second defendant, gave evidence that at this meeting there was a discussion of a letter of intent from the landlord as opposed to a lease:
“.. I just came out and spoke to Graeme for a few minutes, I guess, and he mentioned that he thought he still had to get a lease and I explained to him that that wasn’t correct, that he had to have a written statement from the landlord.
Right. And was there any discussion about the obtaining of that written statement, who was to obtain it?-- Well, he accepted that he had to get – to get it and he told me that he – he understood the documents had to be sent down to the council within a couple of days and he then told me he would then be calling on the landlord to get the letter of intent.”
It certainly was the evidence from Mrs Demichele who was the then secretary of the Newsagency Council and Mr McNeil who was the then Chairman of the Council handling procedural matters that a mere letter of intent from the landlord was sufficient for their purposes. It seems clear, however, that the preference of the plaintiff was for a lease which was also going to address the requirements of Special Clause 12 of the contract. Mr Cartmill, the plaintiff’s solicitor, was asked in cross-examination:
“Were your instructions from your client to also procure a letter of intent to lease from the landlord?-- Well, my instructions from my client were to receive a lease for consideration. The question of whether we should be asking for a letter of intent or a full lease was a topic that arose several times through the course of events. It had always been my instruction from my client and, in fact, my advice back to him that we should be getting a full lease to look at so that we can see what we’re getting ourselves in for as far as the terms were concerned and that was a specific cause (sic) of the lease – of the contract.
Well, that was clause 12, wasn’t it?-- Yes.”
I reject Mr Burke’s evidence that at or about 19 April the male plaintiff promised to get a letter of intent. I also reject Mr Burke’s evidence that he told the male plaintiff of the existence of a registered lease between the landlord and vendor which was then in its second option period and gave him a copy of that lease. In fact I find that Mr Burke misled the male plaintiff as to the existence of such a lease claiming that the vendor was merely a tenant from month to month. The question in part 1 of Exhibit 2 completed by the vendor was answered as follows:
“(b) What is the unexpired balance of your lease?”
The answer was left blank and the words “new lease to be prepared” were added.
A good deal of interest surrounded a telephone conversation that the male plaintiff had with Mrs Demichele which would seem to have occurred soon after the receipt by the plaintiff of the application form Exhibit 2. The version given by the male plaintiff was as follows:
“… After we filled out the application I rang the News Agency Council and spoke to Joanne and told her I had all the documentation, bar the lease that we needed ‘cause I was on the understanding when I spoke to her that we needed a lease to send with the application.
Right. Now, why did you understand that you needed a lease as opposed to an intent or a letter from the landlord?-- When I spoke to Joanne – and she did mention it, a letter of intent or a lease, then I said which one will be better to send with the application. Would it make it easier if I had a lease of premises because there would be no time to worry about the takeover dates and that, as well, that we’d have a lease in place and it would make it a lot easier.”
Mrs Demichele had no recollection of a specific conversation. She agreed under cross-examination that she would not have told anyone that they need an actual lease to satisfy the Council’s requirements. I accept that. I also accept the male plaintiff’s account that he was told of the option of either a letter of intent or an actual lease and that he was told in response to a question whether the latter would be preferable that it would be. So much is obvious. The effect of this conversation, however, came to be somewhat overstated in a later pleading. Mr Cartmill was asked in cross-examination:
“Was your confusion concerning the requirements of the News Agency Council because of the fact that you didn’t have a copy of their requirements yourself?-- No. I’d – I wasn’t confused because the issue of whether a letter of intent or lease was required was relayed back to my client and, on instruction, he was in contact with the council – News Agency Council and informed me that the advice that he’d received was that he should get a full lease.
Well, in the further and better particulars of the amended Statement of Claim it’s alleged that that advice came from Joanne Demichele on the 19th of April and in the amended Statement of Claim what is pleaded is that, “Subsequent to completing the application the plaintiffs are informed that the application would not be considered unless accompanied by a lease over the premises where the business was to be conducted.” Were those your instructions? That’s what you pleaded?-- Yes, I believe so.”
I accept the male plaintiff’s account of the conversation with Mrs Demichele. The fact that the instruction was later misconstrued somewhat is of no consequence.
The plaintiff’s solicitor pursued the issue of a lease. On 21 April, Mr Cartmill spoke to the lessor’s solicitor about aspects of such a lease. On 6 May 1999 Mr Cartmill had a conversation with Mr Siemon from the defendants’ solicitors. Referring to his note he said:
“The course of that conversation related to the progress of the application to the newsagency council. I informed him that we were still waiting on a lease from the landlord’s solicitors. I informed him that a contract for the Sommerville’s Sportsco business had sold and settled. I discussed that we would need an extension of time for the – for the date for fulfilment of the condition relating to the approval by the newsagency council and I also recall speaking to him about the lease and he said to me that he would speak to his client to follow up the granting of the lease.
What’s the next – I’m sorry, your Honour.
HIS HONOUR: “speak to his client”. As I understand it that’s the defendant-----?-- Yes.
-----in these proceedings?-- Yes.
We’re not talking about the lessor?-- No.”
Mr Cartmill had further conversations with Mr Siemon on 12 May 1999 and on 17 May 1999. In that latter conversation he was given to understand that the landlord or their solicitor would make contact to provide a draft lease.
On the 7 May the defendants’ solicitors had written to the plaintiff’s solicitors concerning the proposed new lease and pointing out:
“We note that Special Condition 4.3 is due to be satisfied by 12 May 1999. Would you please advise of the extension your client requires and we will seek our client’s instructions.”
It is common ground that the time for compliance was extended by agreement ultimately to 15 June 1999 with time to remain of the essence.
At no stage did a draft lease arrive from the lessor’s solicitors. Considering the time that elapsed there appears no satisfactory explanation for such tardiness. One possible reason is that the lessor was playing “hard-to-get”, seeking to manoeuvre the plaintiff into a tight corner. The fairly obvious anxiety on the part of the plaintiffs was warranted. It would have made little sense for them to secure compliance with Special Condition 4 but then see the contract fall over as a result of Special Condition 12. It is common ground that the Sportsco contract had settled. The extension of time for compliance with Special Condition 4 combined with the effect of Special Condition 7 might well have created severe practical difficulties if there had been a last-minute production of a draft lease.
It was at all times open to the defendants to obtain a letter of intent from the lessor. As the current lessees they were obviously in a position to contact the lessor to obtain such a letter. This is what ultimately happened. On or about 22 May 1999 the second defendant in person made contact with the lessor to obtain such a letter. The covering letter of the second defendant, which is part of Exhibit 16, is dated 27 May 1999 which plainly indicates that the letter of intent had been received by that date. Despite this, the second defendant did nothing with the letter of intent, apparently on instructions from the lessor. No copy was sent to the purchasers despite the presence of such a reference in the letter of intent itself, nor were his own solicitors notified. Mr Burke actually phoned the lessor after the lapse of some days to obtain the lessor’s consent to the forwarding of the letter to the Newsagency Council. I find this behaviour quite extraordinary. It lends further weight to the view that the lessor was stalling and that the vendor knew of it. If so they were too clever by half. It was only on 4 June that the letters were received by the Newsagency Council and only on 7 June by mere coincidence was the plaintiff made aware of such fact. On 8 June the plaintiff lodged its application with the Newsagency Council and on the same day requested information as to any further steps that were needed. It was necessary to notify the new proposed settlement date of the contract. The information written on part 3 of the application form, Exhibit 2, by the bank manager was obviously considered inadequate and a letter was required from the bank stating the amount of the loan so that the 60/40 rule would not be infringed. On the 10 June the plaintiffs’ solicitors notified the proposed completion date of 5 July 1999 to the Council. That date was notified by the defendants’ solicitors on 11 June. The bank letter was provided on the 9 June 1999 to the Council.
The Chairman of the Newsagency Council, Mr McNeil, was available on Thursday 10 June. By that date the plaintiffs’ documents were complete. However the notification of the changed takeover date had not been received from the defendant on that date. On Friday 11th June, when all of the documentation had at last been received, the chairman was not available to be contacted. The Queen’s Birthday long weekend followed and it was not until Tuesday 15 June that further attempts could be made to gain the necessary approval. However the chairman was again unavailable. On that day Mr Cartmill spoke to Mrs Demichele telling her that the condition was due to be complied with by that day and pressing to have that done. He was told that the chairman would deal with it on the following day. That meant that the time for compliance with the condition passed.
It was suggested by Counsel for the defendants that the plaintiffs had lost interest in the purchase and that this was exemplified by their attempts to have the defendants provide answers to a questionnaire in May 1999. This submission doesn’t bear examination. After that time the plaintiffs extended the time for compliance with Special Condition 4 even suggesting that it be as late as 30 June 1999. Their swift actions when they became aware of the letter of intent on the 7 June 1999 were hardly those of a party seeking to evade the contract.
There was much commercial sense in the plaintiff attempting to secure compliance with Special Condition 4 and Special Condition 12 by obtaining a lease. The plaintiff pursued this course quite diligently involving, at various stages, the defendant in those attempts. In the end result both parties would have been taken by surprise at the failure of the Newsagency Council to consider the matter until after 15 June. The unavailability of Mr McNeil over the days up to and including 15 June could not have been foreseen by either party. With the benefit of hindsight the eventual problem was caused by the failure on the part of the plaintiff, despite its many efforts, to secure a lease and the failure of the first defendant to obtain and send a letter of intent sooner. The action of the second defendant in holding the letter of intent from on or about 27 May to 4 June for no good reason, was a most significant contributing factor to the eventual non-compliance. Again, with the benefit of hindsight, the defendant’s failure to provide written notice of the changed settlement date until 11 June was also a costly error.
The document referred to in Exhibit 2 is a ‘Landlord’s statement re assignment of Lease’. Paragraph 22 of Exhibit 1A makes it clear that this applies to a written statement by the landlord indicating an intent to assign an existing lease to the purchasers. I have already indicated that the present case did not involve a situation where the vendors’ lease was being assigned. It involved a new lease. However, nothing turns on that distinction as it is common ground that the Newsagency Council would have been content for its purposes with either a lease or a letter of intent to grant a lease.
The question that lies at the heart of the present case is whether the plaintiff purchaser could reasonably be said to have been at fault. The suggestion from the defendants is that the plaintiff did not from an early stage seek a letter of intent from the lessor. However, as I have pointed out, compliance with Special Condition 4 could also be made by obtaining a lease and this course had the added advantage of ensuring that Special Condition 12 would also be addressed in so doing. Special Condition 12 may not have required fulfilment at the same time as Special Condition 4 but it was not unrealistic in the time available to attempt to secure compliance with both. The reasonableness of such a course is further borne out by the readiness on the part of the plaintiff to grant reasonable extensions of time, the original date of 12 May 1999 being ultimately extended to 15 June 1999. The plaintiff’s attempts to secure a lease were all that could reasonably have been expected. The plaintiff’s actions when it became aware of the letter of intent being in possession of the Council on 7 June 1999 were also above criticism.
In Perri and Anor v Coolangatta Investments Pty Ltd [1982] 149 CLR 537 the High Court of Australia considered a contract for the sale of land subject to the purchasers having completed a sale of another property. That condition was not completed within a reasonable time, the contract not providing that time was of the essence. In the course of his judgment at page 544 Gibbs CJ referred to Gange v Sullivan [1966] 116 CLR 418 and the comments of Taylor Menzies and Owen JJ at page 544:
“Whilst the effect of a condition must in every case depend upon the language in which it is expressed and a decision upon the meaning of one condition cannot determine the meaning of a different condition, the authorities cited do show a disposition on the part of the courts to treat non-fulfilment of a condition such as that here under consideration as rendering a contract voidable rather than void in order to forestall a party to a contract from gaining some advantage from his own conduct in securing, or contributing to, the non-fulfilment of a condition bringing the contract to an end. Accordingly … we are prepared to treat non-fulfilment of the condition as rendering the contract voidable rather than void.”
He went on to refer to Suttor v Gundowda Pty Ltd [1950] 81 CLR 418 and Aberfoyle Plantations Ltd v Cheng [1960] AC 115 as also supporting “the view that where a conditional contract fixes the date by which the condition is to be fulfilled the contract may be terminated if the condition has not been fulfilled when that date arrives and that it is unnecessary to give any prior notice to the other party.”
It follows that in my opinion the first plaintiff was entitled to terminate the contract following the 15 June 1999. There should be a declaration to that effect and an order that the deposit of $18,000 paid by the first plaintiff be paid by the first defendant to the first plaintiff. The counterclaim should be struck out and the defendants by principal action and the plaintiffs by counterclaim ordered to pay the plaintiffs’ costs of and incidental to the action and the counterclaim to be assessed.
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