Hong v Gui

[2022] NSWCA 245

Court of Appeal

Supreme Court

New South Wales

Medium Neutral Citation:

Hong v Gui [2022] NSWCA 245

Hearing dates:

21 October 2022

Date of orders:

1 December 2022

Decision date:

01 December 2022

Before:

Macfarlan JA at [1];
Simpson AJA at [2];
Basten AJA at [3].

Decision:

(1)   Dismiss the appeal from the judgment of the Equity Division given on 12 April 2022 and orders 1-3 entered on 22 April 2022.

(2)   Dismiss the appeal from the judgment given on 16 May 2022 and the order entered on 7 July 2022.

(3)   Order that the appellant pay the respondent’s costs in this Court.

Catchwords:

CONTRACTS – contract for sale of land – termination – wrongful termination –– whether repudiation – vendor giving notice to complete had not provided land tax certificate – whether reasonable recipient of notice would understand vendor’s conduct as refusal to perform – vendor’s conduct to be understood in context – vendor communicated about settlement and extended settlement date – purchaser failed to reply or take steps to prepare for settlement – vendor purportedly relied on contractual right of rescission – mistaken failure to provide land tax certificate

Legislation Cited:

Land Tax Management Act 1956 (NSW), s 47

Cases Cited:

Amaya v Estate Property Holdings Pty Ltd [2010] NSWSC 32

Amaya v Everest Property Holdings Pty Ltd [2010] NSWCA 315; 15 BPR 28,695

Carter v Mehmet [2021] NSWCA 286; 20 BPR 41,709

Deigan (as executrix for the estate of the late JB Lockrey) v Fussell [2019] NSWCA 299; 19 BPR 39,853

Galafassi v Kelly (2014) 87 NSWLR 119; [2014] NSWCA 190

Woodar Investment Development Ltd v Wimpey Construction UK Ltd [1980] 1 WLR 277

Category:

Principal judgment

Parties:

Lihong Hong (Appellant)
Ke Gui (Respondent)

Representation:

Counsel:
Mr N Hutley SC / Mr H Altan (Appellant)
Mr A Harding SC / Mr H Fielder (Respondent)

Solicitors:
CKSD Lawyers (Appellant)
Lawside Lawyers (Respondent)

File Number(s):

2022/00112467

 Decision under appeal 

Court or tribunal:

Supreme Court of New South Wales

Jurisdiction:

Equity – Real Property List

Citation:

[2022] NSWSC 431; [2022] NSWSC 598

Date of Decision:

12 April 2022; 16 May 2022

Before:

Black J

File Number(s):

2020/310749

HEADNOTE

[This headnote is not to be read as part of the judgment]

On 26 September 2019, the appellant, Ms Lihong Hong, entered into a contract to purchase two strata properties from the respondent, Mr Ke Gui. The contract provided for a deposit of 10% of which 5% was paid upon signing. The contract stipulated a settlement date of 26 May 2020. Settlement was to be effected electronically through a PEXA Workspace.

In January 2020, the vendor’s solicitors agreed to the request of the purchaser’s solicitors to postpone completion until 27 July 2020. From 11 June 2020, the vendor’s solicitors repeatedly contacted the purchaser’s solicitors to prepare for settlement, without obtaining receiving a response. The purchaser did not settle on 27 July. Later that day, the vendor’s solicitors sent an email to the purchaser’s solicitors which noted the purchaser’s failure to proceed with settlement and extended the completion date to 31 July 2020.

On 3 August 2020, the vendor’s solicitors emailed the purchaser’s solicitors, noting that the purchaser had not proceeded with settlement. The email included a notice to complete “on or before 4pm on 21 August 2020” and advised that failure to complete would entitle the vendor to terminate the contract. In an email of 20 August, the vendor’s solicitors stated that they were instructed to serve a notice to terminate should settlement not take place. The email also attached a draft copy of the notice.

On 24 August 2020, the vendor’s solicitors served a signed notice to terminate following the purchaser’s failure to complete. The notice stated that the vendor accepted the purchaser’s repudiation and terminated the contract immediately. On 26 August 2020, the purchaser’s solicitors responded with their own notice of termination. The notice stated that the vendor had not been “ready, willing or able to complete” because he had not served a land tax certificate in accordance with the contract. The notice stated that, accordingly, the vendor was neither entitled to serve the notice to complete nor terminate the contract. The purported termination was said to be a repudiation of the contract which was accepted by the purchaser. The purchaser demanded repayment of the deposit.

On 17 September 2020, the vendor’s new solicitors sent a copy of the land tax certificate to the purchaser and asked the purchaser to complete within a further 21 days. On 15 October, the vendor’s solicitors sent the purchaser a notice to complete by 3 November 2020. In late October, the purchaser commenced proceedings in the Supreme Court seeking the return of the 5% deposit. On 5 November, the vendor’s solicitors served a second notice of termination.

The primary judge held that the vendor was not entitled to terminate on 24 August 2020, as he was not ready and able to complete, not having served the land tax certificate at least 14 days earlier. Further, the purchaser’s silence and inactivity did not amount to anticipatory repudiation because it did not evince an intention on her part to refuse to carry out the contract when the obligation to complete should arise. The primary judge found, however, that the purchaser was unable to complete at any time because she lacked the funds. The primary judge, held that the vendor’s purported termination did not amount to repudiation because his conduct was consistent with an intention to complete, not abandon, the contract. The primary judge held that the vendor had validly terminated the contract on 5 November 2020 for the purchaser’s repudiation. The vendor was entitled to the unpaid balance of the deposit, in accordance with the contract, and interest on that amount.

On appeal, the primary issue was whether the primary judge erred in finding that the vendor’s notice of termination of 24 August 2020 did not constitute repudiation.

The Court (Basten AJA, Macfarlan JA and Simpson AJA agreeing) held, dismissing the appeal:

(1) The vendor’s failure to provide the land tax certificate prior to 24 August 2020 was an oversight and could not reasonably have been inferred from the circumstances to constitute a denial of his obligation under the contract. There would have been a case of repudiation had the purchaser notified the vendor of his error and the vendor remained intransigent and refused to have the issue resolved by a court. However, in this case, the purchaser had not communicated the error to the vendor: [32]-[37]. The notice of termination of 24 August 2020 could not be viewed in isolation from the surrounding circumstances as known to recipient of the notice. A reasonable purchaser would have understood the notice as the final step in a process which was evidenced by the receipt of prior communications from the vendor’s solicitors, to which there had been no response: [43], [49].

Amaya v Estate Property Holdings Pty Ltd [2010] NSWSC 32; Amaya Everest Property Holdings Pty Ltd [2010] NSWCA 315; 15 BPR 28,695; Deigan (as executrix for the estate of the late JB Lockrey) v Fussell [2019] NSWCA 299; 19 BPR 39,853, considered. Carter v Mehmet [2021] NSWCA 286; 20 BPR 41,709, distinguished. Woodar Investment Development Ltd v Wimpey Construction UK Ltd [1980] 1 WLR 277, followed.

(2) The communication of 3 August 2020 was not a repudiation of the contract because it contained advice that the vendor believed he would be entitled to terminate if the purchase failed to complete. Clause 9 of the contract provided the vendor with a right to rescind where the purchaser, without any explanation, had failed to prepare for and attend settlement. The provision of a draft notice to terminate on 20 August 2020 was a continuation of that intended effect. Upon receiving the notice of 24 August 2020, a reasonable person in the purchaser’s position would not have assumed that the failure to serve the land tax certificate was deliberate rather than inadvertent, but would have understood that the vendor, having made numerous communications about settlement and extending the date for completion, was seeking to complete: [50]-[52], [54]-[55], [58].

JUDGMENT

1. MACFARLAN JA: I agree with Basten AJA.

2. SIMPSON AJA: I agree with Basten AJA.

3. BASTEN AJA: On 26 September 2019 the appellant, Ms Lihong Hong, entered into a contract to purchase two strata properties in Wentworth Avenue, Point Piper for $12.75 million. The vendor was the respondent, Mr Ke Gui. The sale was not completed on the date fixed for settlement. The vendor issued a notice to complete which was not complied with. He then purported to terminate the contract. In response, Ms Hong claimed that the vendor had repudiated the contract and accepted the repudiation.

4. Ms Hong commenced proceedings in the Equity Division seeking return of a 5% deposit which had been paid on exchange. The vendor sought payment of the balance of the unpaid 10% deposit, together with interest. The trial judge, Black J, found for the vendor and made orders in April 2022 that the purchaser pay the vendor the unpaid balance of the deposit together with interest, being an amount of $675,161.20. ^[1] On 7 July 2022 further orders were entered in respect of the costs of the trial, requiring the purchaser to pay the vendor’s costs to be assessed on the ordinary basis up to and including 19 March 2021 and thereafter on an indemnity basis. ^[2] Ms Hong’s notice of appeal challenged each of these orders.

   1. Hong v Gui [2022] NSWSC 431 (Hong No 1).

   2. Hong v Gui [2022] NSWSC 598 (Hong No 2).

5. Ms Hong’s case was that, (i) at no stage prior to the dates fixed for settlement did the respondent serve a land tax certificate on her, being an essential condition of the contract, and, therefore, was not ready and able to complete on the dates fixed for settlement; (ii) the service of an unequivocal notice of termination was “wrongful”, and (iii) wrongful termination of a contract constitutes a repudiation where, by words or conduct, the terminating party has evinced an intention not to perform in some essential respect. She further contended that various attempts by Mr Gui to fix a time for completion may have demonstrated that, at those times, he was anxious to complete, but that did not derogate from the unequivocal terms of the notice of termination, at the time it was served.

6. While Ms Hong’s case focused almost entirely upon the steps taken, or not taken, by the vendor, his case was put on two bases. The first was that his own conduct, viewed objectively, did not indicate an intention to repudiate the contract. The second was that Ms Hong’s silence in the face of repeated requests from the vendor for a response, demonstrated an anticipatory breach of contract which constituted repudiation on her part before the final failure to comply with a notice to complete. The first basis was accepted by the trial judge; the latter basis was rejected by the judge and was the subject of a notice of contention on the appeal. The trial judge held that the vendor did not repudiate the contract of sale, but rather attempted to have the purchaser complete the sale. He declined to infer that the vendor’s failure to serve a land tax certificate in a timely fashion indicated either an inability or unwillingness to complete the contract.

7. For the reasons explained below the trial judge’s conclusion in this respect was correct and the appeal must be dismissed with costs.

Issues on appeal

8. The notice of appeal identified eight grounds but senior counsel for the appellant accepted in opening that the principal issue was identified in grounds 1 and 2 which read as follows:

“1   The primary judge erred in failing to find that the respondent’s notice of termination on 24 August 2020 constituted a repudiation of the contract which the appellant was entitled to accept and terminate the contract.

2   The primary judge erred in finding that the appellant was not entitled to terminate the contract on 26 August 2020.”   

9. The vendor filed a notice of contention which sought to uphold the judge’s finding that the vendor’s termination of the contract on 24 August 2020 was not a repudiation of the contract, on the basis of anticipatory breach by the purchaser. Because the judge’s finding as to non-repudiation by the vendor on 24 August 2020 should be upheld, it is not necessary to address the notice of contention in its terms. However, the issues raised in the notice of contention are relevant to the finding that the vendor’s termination notice, understood in its context, was non-repudiatory, though the notice was ineffective. It is convenient to set out the terms of the contention, which were as follows:

“1   Having found that:

a.   intimation of non-performance on the part of a purchaser may be inferred from a purchaser’s silence, neglect, continued inactivity and failure to respond to requests from the vendor’s solicitors, or from failure to attend to normal conveyancing practices (at [25], [26]), and

b.   the appellant purchaser’s silence and inactivity from 17 January 2020 was “plainly established” (at [27]),

the primary judge erred in concluding (at [28]) that the appellant’s silence and inactivity did not amount to an anticipatory breach and repudiation of the contract because no land tax certificate had been served by the respondent, such that the occasion for performance of the contract by the appellant had not arisen.

2   The primary judge ought to have found that the appellant’s silence and inactivity from 17 January 2020 evinced a continuing intention on her part not to perform the contract and amounted to an anticipatory breach and a repudiation of the contract.

3   The primary judge ought to have found that the respondent’s termination of the contract on 24 August 2020 was valid.”

10. As the vendor noted, the appellant did not challenge the factual findings on which the contention was based.

11. It is not necessary to set out grounds 3-6 of the notice of appeal (grounds 3 and 4 being substantially conceded and grounds 5 and 6 not pressed), nor ground 7, which alleged that the vendor had breached clause 8.2 of the contract which entitled the appellant to terminate the contract and recover her deposit. Ground 7 turned on a finding that the vendor had not validly terminated the contract. On the basis that the first notice of termination was invalid, but not repudiatory, reliance on it as a repudiation of the contract by the appellant was ineffective. Immediately thereafter, the vendor took the step of serving the land tax certificate and a further notice to complete, which was not complied with. If the contract was then still on foot, the second notice to terminate was valid and effective. Accordingly, ground 7 only arose if the appellant were to be successful with respect to grounds 1 and 2.

12. On the contingency that the appeal from the first judgment on liability might fail, the appellant raised, by way of ground 8, a challenge to the indemnity costs order. That matter will be addressed after considering the substantive claims.

Factual background

13. The contract, entered on 26 September 2019, originally provided for a settlement date of 26 May 2020. The extended settlement period was provided, at least in part, so that the purchaser could obtain Foreign Investment Review Board (FIRB) approval, application for which was due to be made within 60 days of signing the contract. The application was not made by then and both the application date and the date for obtaining approval were extended with the vendor’s agreement; the latter was eventually extended to 24 January 2020.

14. On 17 January 2020, five months before the May date for completion, the purchaser’s solicitor wrote requesting that the completion date be postponed until 27 July 2020, without incurring liability for interest for late completion. The vendor agreed to that extension.

15. Thereafter, the evidence revealed no communications between the respective solicitors until the vendor’s solicitor wrote on 11 June 2020 referring to the forthcoming settlement date and requesting that the purchaser provide information. There was no response. On 22 June, the vendor’s solicitor wrote again to the purchaser’s solicitor requesting that the information be supplied. There was a follow up letter on 2 July 2020, again without eliciting a response. On 20 July 2020, the vendor’s solicitor wrote again noting that settlement was scheduled for 3pm on Monday, 27 July 2020, again seeking details already requested, and, as settlement was to occur electronically, “acceptance of the PEXA workspace”. The email also noted attempts to contact the purchaser’s solicitor “on numerous occasions via telephone and email” without obtaining a response. A further email was sent on Friday, 24 July 2020. None of these communications elicited a response from the purchaser’s solicitor.

16. On the morning of 27 July, the vendor’s solicitor supplied a certificate of compliance for the swimming pool located on the property, but no land tax certificate. On 27 July 2020, at 4.48pm, the vendor’s solicitors emailed again in the following terms:

“We refer to our previous correspondence, and confirm that Settlement of the matter was scheduled for 3pm on today’s date, being 27 July 2020.

We note that the Purchaser has not proceeded to Settlement.

In an act of good faith, we have been instructed by our Client to extend the date for Settlement to 3pm on Friday 31 July 2020. Please note that this has been updated accordingly on the PEXA Workspace.

Could you kindly please advise as to whether your Client will be in a position to settle by the above date.”

Both the grant of an unsolicited extension and the last sentence implied that the vendor understood that settlement had not occurred because the purchaser was unable to pay the purchase price. There was no response; the inference apparently drawn by the vendor was therefore not disavowed.

17. On 3 August 2020, the vendor’s solicitor emailed the purchaser’s solicitor, noting that the purchaser had again failed to proceed to settlement and attached by way of service a notice to complete dated 3 August 2020. The notice to complete stated that the vendor was “ready, willing and able to transfer the land to you free from any mortgage, charge, or other encumbrance” and was “ready and willing to complete the Contract”. The notice required the purchaser to complete “on or before 4pm on 21 August 2020” and stated that “in this respect time is of the essence of the Contract”. The email recorded the appointment of a PEXA workspace for 3pm on 21 August 2020. The notice advised that failure to complete as required would entitle the vendor to terminate the contract. It was self-evidently not a repudiation of the contract but rather an assertion of the vendor’s intention and capacity to complete. None of this obtained a response from the solicitor for the purchaser and therefore no disagreement was expressed as to the vendor’s current capacity to complete.

18. On 12 August 2020, the vendor’s solicitor wrote again noting that completion was required by payment of the balance of the purchase money on or before 4pm on 21 August and advising that he had instructions to terminate the contract if completion did not occur. That communication was consistent with the notification of 3 August and cannot therefore have been a repudiation of the contract rather than a bona fide attempt to complete.

19. On 20 August 2020, the vendor’s solicitor wrote again attaching a draft notice to terminate which they said they were instructed to serve should settlement not take place. That notice stated that failure to complete the purchase in accordance with the terms of the earlier notice to complete “amounts to a repudiation of the Contract”. The draft notice stated that the vendor accepted the repudiation and terminated the contract immediately. As had been anticipated, the purchaser did not complete on 21 August and, on the following Monday, 24 August 2020, the vendor’s solicitors served a signed “Notice to Terminate” in the terms of the draft.

17. Two days later, on Wednesday 26 August 2020, the purchaser’s solicitors responded with their own “Notice of Termination”, setting out the history of the issue of a notice to complete and then a notice to terminate and continuing:

“7. At no time have you served a ‘current Land Tax Certificate’ relating to the Property as defined in, and as required by the term of the Contract implied by, cl 6(1) of the Conveyancing (Sale of Land) Regulation 2017.

8.   The Notice to Complete was therefore invalid.

9.   Additionally or alternatively, you were not entitled to give the notice to complete.

10.   Additionally or alternatively, you were not, when giving the Notice to Complete, ready, willing or able to complete the Contract.

…

12.   In those circumstances you were not entitled to terminate the Contract on 24 August 2020, and by doing so you repudiated the Contract.

Now take notice that in these circumstances the [sic] Lihong Hong accept your repudiation of the Contract, and hereby terminates it.

Further, Lihong Hong hereby demands the repayment of the deposit.”

21. Upon receiving that document, Mr Gui instructed new solicitors. On 17 September 2020, Lawside Lawyers, on behalf of the vendor, sent a copy of the land tax certificate issued under s 47 of the Land Tax Management Act 1956 (NSW). Although the letter stated “that we have found it in the file”, as the certificate was issued on 26 August 2020, it may be inferred that it was not obtained until after the exchange of notices to terminate. The vendor’s new solicitors offered a further 21 days for the purchaser to complete by paying the balance of the purchase price. In late October, Ms Hong commenced proceedings seeking the return of the 5% deposit.

22. On 15 October 2020, the vendor’s solicitors sent Ms Hong a notice to complete by 4pm on 3 November 2020. She did not comply. On 5 November 2020, the vendor’s solicitors served a second “Notice of Termination”.

Findings of trial judge

23. The trial judge first addressed the question as to whether the vendor was entitled to terminate on 24 August 2020. The judge accepted that, not having served the land tax certificate at least 14 days prior to 24 August 2020, he was not entitled to terminate on that date. ^[3]

    3. Hong (No 1) at [19]-[20].

24. Secondly, the judge considered the respondent’s claim that he was entitled to terminate for anticipatory breach by the appellant. The trial judge accepted that “a repudiation can occur where the conduct of the relevant party, viewed objectively, has been such as to convey to a reasonable person, in the situation of the other party, repudiation or disavowal either of the contract as a whole or of a fundamental obligation under it”. ^[4] The judge also accepted that “in a conveyancing context, an intimation of non-performance on the part of the purchaser may be inferred where the purchaser has failed to attend to normal conveyancing practices, including by arranging a time for settlement, agreeing upon adjustments and ascertaining how cheques are to be made out”. ^[5] Nevertheless, the judge rejected the application of those principles in the present case in the following passage:

“28   It seems to me that the principles identified by Mr Harding [counsel for Mr Gui] do not assist Mr Gui here, because procrastination or non-performance by Ms Hong cannot be established as a matter of fact, where the occasion for her performance would not arise until after the land tax certificate was served, which had not yet occurred as at 24 August 2020. Although her silence and inactivity is plainly established, I do not accept that it could evidence a continuing intention not to perform the Contract, where Ms Hong was not obliged to perform the Contract until after the land tax certificate was served. While I accept that Ms Hong’s silence would likely have left Mr Gui in real doubt as to her intentions, and was plainly discourteous and unhelpful, it seems to me that that silence did not permit a conclusion that she refused or would refuse to carry out her part of the Contract, when an obligation to complete the Contract later arose. As I have noted above, that did not occur prior to Mr Gui’s termination of the Contract where a land tax certificate was not served on her in that period.”

4. Hong (No 1) at [25].

5. Hong (No 1) at [26].

25. The trial judge then turned to the question whether the purported termination of the contract by the vendor was a repudiation of it, permitting the appellant to elect to accept the termination as a repudiation as she did pursuant to the notice of termination she issued on 26 August 2020. ^[6] The trial judge commenced by addressing the reasoning of the House of Lords in Woodar Investment Development Ltd v Wimpey Construction UK Ltd,^[7] a case which will be discussed shortly. The judge held that the vendor’s conduct did not in the circumstances constitute a repudiation of the contract. The critical conclusion that there was no such repudiation was expressed in the following passage in the reasons:

“37   It seems to me that, here, Mr Gui’s conduct prior to his purported termination of the Contract, including the repeated correspondence to seek to arrange a settlement, the extension of time for settlement when Ms Hong did not attend for settlement on 27 July 2020, and the provision of a draft notice of termination and a further opportunity to settle, prior to proceeding to the notice of termination on 24 August 2020, indicates that Mr Gui was at all times intending to comply with the Contract, although he was then proceeding on an erroneous understanding that Ms Hong was obliged to complete at that time, without recognising that the current land tax certificate had not been served. That proposition can be tested by asking what would have occurred if Ms Hong had then pointed out that the time for completion had not arrived, because a land tax certificate had not been served. The totality of the evidence indicates that, had that occurred, Mr Gui would then have served the land tax certificate, allowed Ms Hong at least a further 14 days in which to complete, and only then proceeded to terminate the Contract if she then failed to do so. That, of course, is what he later did after each party had served their respective notices to terminate the Contract. This conclusion does not depend on any finding that Ms Hong was obliged to correct Mr Gui’s or his solicitor’s error under any implied duty of cooperation. The fact that she did not do so is simply a relevant matter supporting my finding that Mr Gui’s termination did not indicate any unwillingness to comply with the Contract on his part, on the true facts, where he (and his solicitor) plainly did not then realise and Ms Hong (and her solicitor) did not then point out that the land tax certificate(s) had not yet been served. For these reasons, I find that Ms Hong was not entitled to treat Mr Gui’s notice of termination on 24 August 2020 as a repudiation of the Contract, and her doing so was itself arguably a repudiation of the Contract. In any event, Mr Gui then elected (consistent with the findings that I have reached above as to his seeking to comply with the Contract) to affirm the Contract rather than to terminate it by subsequently serving land tax certificates and a further notice to complete, which Ms Hong again did not comply with.”

6. Hong (No 1) at [30].

7. [1980] 1 WLR 277.

26. On the basis that the vendor did not repudiate the contract, it was unnecessary to determine whether the purchaser could terminate for breach by the vendor in circumstances where she was not ready, willing and able to perform her part. However, the judge was satisfied that she did not have the funds available to complete the contract, had that been a necessary condition of her power to terminate. ^[8]

    8. Hong (No 1) at [38]-[41].

27. Finally, the judge accepted that the vendor had validly terminated the contract on 5 November 2020 on the basis of a repudiatory breach by the appellant. He concluded that the vendor was entitled to the unpaid balance of the deposit in accordance with cl 9 of the contract, and interest on that amount. ^[9]

    9. Hong (No 1) at [42].

Legal principles

28. Before addressing the challenge to the reasoning of the trial judge it is convenient to note the relevant legal principles. It is not necessary in the present case to analyse the older authorities to establish the relevant legal principle: those principles are adequately stated in binding authority of this Court. Also, although the principles may not have changed, their application in circumstances predating electronic settlement procedures is not always illuminating.

29. In Galafassi v Kelly ^[10] Gleeson JA stated (Bathurst CJ and Ward JA agreeing):

“62   For the conduct of a party to constitute a renunciation of its contractual obligations it must be shown that the party is either unwilling or unable to perform its contractual obligations, that is, it has evinced an intention to no longer be bound by the contract or stated that it intends to fulfil the contract only in a manner substantially inconsistent with its obligations and in no other way … . Where inability to perform is declared the conduct amounts to a refusal to perform and the innocent party need not prove that the other party was actually unable to perform as a matter of fact … .

…

64   So far as factual inability to perform is concerned what needs to be shown is that the party in question has become wholly and finally disabled from performing the essential terms of the contract altogether … . It is well accepted that factual inability must be proved ‘in fact and not in supposition’ … .” (citations omitted)

10. (2014) 87 NSWLR 119; [2014] NSWCA 190.

30. There was a finding of factual inability in the present case. While the vendor may have supposed that the appellant was unable to complete, following a failure to respond to any attempt to make arrangements for settlement, coupled with failure to attend on settlement, without explanation, the primary judge expressly found, a finding not challenged on appeal, that the appellant was unable at all relevant times to complete. ^[11]

    11. Hong (No 1) at [38].

31. As to the proposition that the vendor repudiated the contract by insisting on termination when he had not been in a position to settle on the date fixed for completion, the relevant principles were discussed by this Court in Carter v Mehmet. ^[12] After the purchasers in that case had failed to complete on the date nominated by the vendors’ solicitor, the vendors issued a notice to complete requiring payment of default interest from the original date for completion. The purchasers alleged they were not in default as at that date and that the claim to default interest was without legal justification. They further submitted that the vendors had repudiated the contract by failing to withdraw their claim for default interest. ^[13] The parties exchanged communications as to the entitlement to interest, but without reference to a special condition which was engaged, and on the assumption that the contract itself had identified the settlement date, which it had not. In dealing with the submission that the vendors had repudiated by adopting an erroneous view of their entitlement, the Court reasoned:

    12. [2021] NSWCA 286; 20 BPR 41,709 (Meagher, Gleeson and Payne JJA).

    13. Carter at [150].

“156   In DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 at 432; [1978] HCA 12, Stephen, Mason and Jacobs JJ said:

‘No doubt there are cases in which a party, by insisting on an incorrect interpretation of a contract, evinces an intention that he will not perform the contract according to its terms. But there are other cases in which a party, though asserting a wrong view of a contract because he believes it to be correct, is willing to perform the contract according to its tenor. He may be willing to recognize his heresy once the true doctrine is enunciated or he may be willing to accept an authoritative exposition of the correct interpretation. In either event, an intention to repudiate the contract could not be attributed to him. …’

157   In an oft-cited caution against too readily finding that a party has evinced an intention no longer to be bound by a contract, Wilson J said in Shevill v Builders Licensing Board (1982) 149 CLR 620 at 633; [1982] HCA 47:

‘Repudiation of a contract is a serious matter and is not to be lightly found or inferred.’

…

161   In acting in the way they did, and insisting on payment of default interest calculated from 5 August 2015, the vendors proceeded on a mistaken view as to the date for completion. That view was shared by the purchasers, who never identified or confronted the vendors with that error. Nor did the purchasers suggest that the completion date had not arrived, merely asserting that they were not in default.

162   … The purchasers did not suggest that the parties seek an authoritative ruling about the correct interpretation of the contract in relation to the payment of default interest.

163   In these circumstances, the vendors’ insistence on the payment of default interest calculated from 5 August 2015 did not amount to repudiation of the contract. They did not insist on settlement with an incorrect view of the contract in the face of a clear explanation of the true position. At the same time, they had a reasonable basis for maintaining that completion had not proceeded on 5 August without their default.”

32. This case differs from Carter in that there is no reason to infer that the vendor formed a legally erroneous view of his obligations under the contract; he had in fact indicated in a response to requisition in November 2019 that he would provide a land tax certificate. The failure to supply the certificate prior to the purchaser identifying the omission, is better understood as a factual error. In circumstances where the purchaser took no steps to identify the omission in communication with the vendor an inference consistent with repudiation by the vendor was not reasonably available.

33. A case of repudiation may readily be inferred if the purchaser had confronted the vendor with his error and the vendor had remained insistent upon his position. That conclusion may be confirmed if the vendor had also rejected any suggestion that the issue be resolved by a court. However, in the present case, the appellant took neither of these steps prior to seeking herself to terminate the contract. Her uncommunicated views as to the vendor’s position were irrelevant.

34. The failure of a purchaser to communicate with the vendor may be significant in drawing an inference as to repudiation by the vendor. In Amaya v Estate Property Holdings Pty Ltd ^[14] White J considered whether a vendor was required to demonstrate ability and willingness to settle on the date fixed for completion in circumstances where the conduct of the purchasers indicated that tender of performance by the vendor would be futile. White J stated:

“63   But the question is whether the purchasers impliedly intimated that it would be useless for the vendor to tender performance. In Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd (1954) 90 CLR 235, Dixon CJ said (at 246-247):

‘... it was always the law that, if a contracting party prevented the fulfilment by the opposite party to the contract of a condition precedent therein expressed or implied, it was equal to performance thereof. But a plaintiff may be dispensed from performing a condition by the defendant expressly or impliedly intimating that it is useless for him to perform it and requesting him not to do so. If the plaintiff acts upon the intimation it is just as effectual as actual prevention.’ …

64   The intimation need not be express. It may be conveyed by conduct. The intimation is most clear in the case of Mr Firmstone’s contract. His solicitor told the vendor’s solicitor that they would be contacted to arrange a settlement date as soon as the purchaser’s solicitor was in a position to do that. But no such contact to arrange a settlement date was made. Instead he asked for more time. The clear inference was that Mr Firmstone was not in a position to settle.

65   There was also such an intimation by the silence of Mr Sarkar and Mr Islam and of the solicitor for Mr and Mrs Amaya. Usual conveyancing procedures and the implied duty of … co-operation to bring about completion of the contract require a purchaser to contact the vendor to make arrangements for settlement. A purchaser should seek out the vendor and tender the purchase money … .”

14. [2010] NSWSC 32.

35. Although this Court disagreed with White J as to the proper inference to be drawn in circumstances where the purchasers were unrepresented by solicitors, the statement of principle was upheld, Young JA (Beazley and Campbell JJA agreeing) stated:^[15]

    15. Amaya v Everest Property Holdings Pty Ltd [2010] NSWCA 315; 15 BPR 28,695.

“133   The primary judge held that the clear inference was that Mr Firmstone was not in a position to settle at that time and was entitled so to find.

134   The primary judge correctly stated at [65] that usual conveyancing procedures and the implied duty of co-operation to bring about completion of the contract required a purchaser to contact the vendor to make arrangements for settlement: further, a purchaser should seek out the vendor and tender the purchase money (Wilson v Kingsgate Mining Industries Pty Ltd [1973] 2 NSWLR 713 at 726).

135   It is true that in the Firmstone case, the vendor might have inferred that the purchaser was unable to settle. However, the question is whether it actually did so. Indeed, the only hard facts from which such a finding could be made are the facts that there is a conveyancing custom that purchasers’ solicitors make contact with the vendor’s solicitors concerning settlement and an omission to do so generally means that there is not to be any settlement, that the vendor represented by solicitors did not get itself ready for settlement and purported to rescind immediately after the expiry of the notice to complete.

136   There is little doubt that the primary judge appreciated the present point. The Black Book shows the following dialogue with counsel then appearing for the purchasers:

‘HIS HONOUR: The question I was trying to get you to come to grips with was why would they not have done that [ie complete preparations for settlement] had it not been for the fact that they believed… that there was no point in doing so, arising from the failure of the purchasers to take any step to tell them that they would be going to settlement or to respond to their earlier queries?

COUNSEL: As to why they didn’t do it, I can’t answer…..’

137   The transcript reads that the primary judge was endeavouring to see if counsel had any viable alternative to what was in the judge’s mind, and was entitled, when counsel could not do so, to firm up his view that there was no other reasonable reason for the vendor’s behaviour.

138   In the light of the above discussion, it seems to me that, in the absence of other material, this was enough to allow for the finding that the vendor’s inaction in and about attending the settlement was a result of reliance on the purchaser’s intimation that he would not settle.”

36. The statement of principles in Amaya was applied in Deigan (as executrix for the estate of the late JB Lockrey) v Fussell,^[16] White JA stating (with the agreement of Bathurst CJ and Macfarlan JA):

“190   … Completion was required on 10 May 2017. However neither party took steps to complete the contract on that date. The primary judge observed … that the obligation to complete required co-operation from both parties to organise settlement. He said that where Mr Fussell [the purchaser] made no attempt to fix the date and proceed to completion it would be unreal to see Mr Lockrey [the vendor] as being in breach of the contract by taking no action in the face of Mr Fussell’s inaction … .

191   This conclusion was clearly correct. Usual conveyancing procedures and the implied duty of co-operation to bring about completion of a contract for the sale of land require the purchaser to contact the vendor to make arrangements for settlement (Amaya v Everest Property Holdings Pty Ltd … at [134]).”

16. [2019] NSWCA 299; 19 BPR 39,853.

37. As noted above, the trial judge relied on the reasoning of the House of Lords in Woodar. However, the appellant having submitted, correctly, that the circumstances in Woodar differed from those in the present case, it is necessary to understand the basic factual premise upon which the reasoning in the House of Lords turned and its relevance in the present context.

38. Wimpey entered into a contract to purchase from Woodar a parcel of land of which one part was known to the parties prior to entering into the contract to be of interest to an acquiring authority. That interest crystallised some months after the date of the contract, and before its completion, by the issue of a compulsory purchase order. The contract contained a term providing the purchaser with a power to rescind if, prior to the date of completion, an authority having a statutory power of compulsory acquisition “shall have commenced to negotiate for the acquisition by agreement or shall have commenced the procedure required by law for the compulsory acquisition of the property or any part thereof”. Following the issue of the order, Wimpey sought to rescind. Woodar rejected the rescission on the basis that the right could not be invoked with respect to a procedure for compulsory purchase which had in fact started before the date of the contract and was thus not covered by the words “shall have commenced” in the contractual provision.

39. Lord Wilberforce noted that “in considering whether there has been a repudiation by one party, it is necessary to look at his conduct as a whole. Does this indicate an intention to abandon and to refuse performance of the contract?” ^[17] . He continued: ^[18]

“In the present case, without taking [Wimpey’s] conduct generally into account, [Woodar’s] contention, that [Wimpey] had repudiated, would be a difficult one. So far from repudiating the contract, [Wimpey] were relying on it and invoking one of its provisions, to which both parties had given their consent. And unless the invocation of that provision were totally abusive, or lacking in good faith, (neither of which is contended for), the fact that it has proved to be wrong in law cannot turn it into a repudiation. At the lowest, the notice of rescission was a neutral document consistent either with an intention to preserve or with an intention to abandon the contract, and I will deal with it on this basis – more favourable to [Woodar].”

17. Woodar at 280G.

18. Woodar at 280H.

40. The conduct upon which Lord Wilberforce relied included a discussion between Woodar’s agent and Wimpey’s advisors. A record of the conversation included a statement by Woodar’s agent that “if we attempted to rescind the contract, then he would take us to court and let the judge decide whether the contract could be rescinded on the point we were making”. ^[19] Lord Wilberforce declined to accept that the notice of rescission, issued in those circumstances, involved a repudiation of the contract. He added, in a passage relied upon by the trial judge: ^[20]

“In my opinion therefore [Wimpey] are entitled to succeed on the repudiation issue, and I would only add that it would be a regrettable development of the law of contract to hold that a party who bona fide relies upon an express stipulation in a contract in order to rescind or terminate a contract should, by that fact alone, be treated as having repudiated his contractual obligations if he turns out to be mistaken as to his rights. Repudiation is a drastic conclusion which should only be held to arise in clear cases of a refusal, in a matter going to the root of the contract, to perform contractual obligations.”

19. Woodar at 281G.

20. Woodar at 283D.

41. Lord Keith of Kinkel reasoned to similar effect. He identified the question in these terms: ^[21]

“So in the present case the question comes to be whether, having regard to all the circumstances, the conduct of [Wimpey] in relation to their invocation of [the] special condition … of the contract was such that a reasonable person in the position of [Woodar] would properly infer an intention ‘in any event,’… to refuse to perform the contract when the time came for performance.”

21. Woodar at 296A.

42. The third member of the majority, Lord Scarman, also reasoned to similar effect in the following passage: ^[22]

“In this case the contract provided for the possibility of rescission by [Wimpey]. But the notice of rescission which [Wimpey] gave, was not, in the circumstances which existed when it was given, one which [Wimpey] had any contractual right to give. But they honestly believe the contract did give them the right. When one examines the totality of their conduct … it is plain … that [Wimpey], though claiming mistakenly to exercise a power given them by the contract to bring it to an end, were not evincing an intention not to be bound by the contract. On the contrary, they believed they were acting pursuant to the contract.”

22. Woodar at 299E-F.

43. It is undoubtedly true that the circumstances of the present case differed from those in Woodar, but not necessarily in a way which is favourable to the appellant. The circumstances relied upon by the purchaser in Woodar did not involve any action or inaction on the part of the vendor; rather, they involved action by a third party which might or might not have been covered by the right of rescission granted under the contract. In the present case, the vendor relied upon the apparent inaction on the part of the purchaser to respond to no fewer than three attempts to fix a date for completion. In any event, the critical point of principle was that the notice of rescission could not be viewed in isolation from the surrounding circumstances as known to the recipient of the notice.

Did the vendor repudiate the contract?

44. The central issue on the appellant’s case was that the judge erred in failing to find that the respondent repudiated the contract by serving the notice of termination dated 24 August 2020. In the appellant’s submission, the notice was unequivocal in its terms. However, it was given in circumstances where it could not constitute a valid exercise of a right of rescission because, until the land tax certificate had been served and a period of 14 days had elapsed, he was not in a position to complete.

45. As a matter of fact, the vendor was able and willing to complete, although not ready to do so until he had obtained and served the certificate to which he was entitled. However, the appellant says she did not know this and was not obliged to find out. That raised a question as to whether the characterisation of the vendor’s conduct as repudiatory depended on (i) the objectively established facts at the time the notice was served, (ii) the understanding of the vendor’s conduct which would be entertained by a reasonable person in the purchaser’s shoes, or (iii) the understanding of the reasonable person, after making appropriate inquiries. (The subjective belief of the appellant was, correctly, not relied upon.)

46. So far as (i) is concerned, it appears to have underpinned the trial judge’s assessment of the vendor’s conduct. There is little doubt that subsequent conduct may be relied on as retrospectant evidence of his intention in serving the notice of termination. The appellant’s challenge to reliance on that evidence assumed the adoption of (ii), or even (iii). This may be accepted for present purposes; the judge’s finding may be upheld without reference to subsequent conduct of the vendor.

47. The appellant’s case then turned on two propositions. The first, addressing (ii), was that acting reasonably the appellant was not obliged to assume that the failure to serve a land tax certificate was a simple mistake, as opposed to a deliberate avoidance of the vendor’s obligation under the contract. Accordingly, she was entitled to take the failure to serve the certificate, which invalidated the notice of termination, as a repudiation of the contract by the vendor. The second proposition, addressing (iii), was that she was under no duty to inform the vendor as to an essential step which needed to be taken by him, and had not been taken, before he was entitled to rely upon the notice to complete. Nor was she obliged to inquire why the land tax certificate had not been served. The rejection of (iii) may also be accepted, so that the remaining issue involves the application of (ii).

48. The central element in the appellant’s case was thus whether an objective observer in the purchaser’s shoes would think that the vendor was intending to renounce the contract as a whole or refusing to comply with a fundamental obligation under it (namely the service of a land tax certificate), by requiring an answer based solely on a perusal of the notice of termination.

49. However, such an approach was inconsistent with authority (including Woodar) and is unrealistic in a practical sense. The reasonable purchaser would not treat the notice of termination as an inexplicable bolt from the blue. Rather, she would know that it constituted the final step in a process which was evidenced by the receipt of prior communications from the vendor’s solicitor. As noted above, the email of 27 July 2020 revealed the vendor’s understanding that settlement had not occurred because the purchaser was unable to pay the price. Not only did the purchaser know that, but she knew she had not attempted to contradict that understanding.

50. The communication of 3 August 2020 (see [17] above), was self-evidently not a repudiation of the contract. It contained advice that the vendor believed he would be entitled to terminate if the purchaser failed to complete by the appointed time. At the time the notice was given, the vendor could still have served the land tax certificate and allowed 14 days prior to the time fixed for settlement. However, the basis upon which the recipient of the notice could reasonably infer that, if the certificate were not served by 14 days before the settlement date, the vendor’s intention must thereafter be repudiatory was not explained.

51. If the notice given on 3 August was not repudiatory in tone or effect, the further communication on 12 August, which merely confirmed aspects of the earlier notice, could not be a repudiation. Similarly, the provision of a draft notice to terminate on 20 August was also, on its face, a continuation of the intended effect of the notification of 3 August. How, then, did the actual service of a notice of termination, again in the context of carrying out that which had been foreshadowed in the communication of 3 August, demonstrate a repudiatory intention at that time? The question is only rhetorical in the sense that the appellant provided no answer to it in her submissions. Rather her case was to isolate the notice to terminate and insist upon it being construed without regard to the preceding events and circumstances. As the trial judge correctly concluded, once the notice is read and understood in the context in which it was given, it could not reasonably be seen as a repudiation of the contract.

52. The proper inference to be drawn from the attempts by the respondent to fix a date for completion and hold the purchaser to her obligations under the contract did not cease to operate on 24 August 2020. Senior counsel for the appellant accepted, as was incontrovertible, that up until 27 July 2020 the vendor was patently seeking to complete. However, nothing occurred after that date which would suggest that he had changed his position, other than the purchaser’s obdurate refusal to respond to communications and failure on three occasions to attend at the electronic settlement. There was no reason for the objective person in the shoes of the purchaser to assume that the failure to serve the land tax certificate was deliberate rather than inadvertent. The objective assessment supports the conclusion of the trial judge that the vendor’s conduct did not constitute a repudiation of the contract.

Factors identified in the notice of contention

53. The notice of contention sought a finding that the silence of the appellant for weeks, if not months, in response to enquiries from the vendor’s solicitors formed a sufficient basis to infer an anticipatory breach amounting to repudiation by her. The primary judge, as noted, rejected that submission on the basis that the appellant was not obliged to take any steps until served with a land tax certificate. One step in reaching that conclusion appears to have been that the obligation to cooperate with the vendor in fixing a time and place for settlement did not arise until the vendor had taken every step required on his part to prepare for settlement. However, as the vendor submitted, such a qualification of the obligation implies that it only arises in circumstances where, at all times, the vendor is ready, able and willing to complete. That approach would be inconsistent with authority which denies the obligation of the vendor to take such steps in circumstances where the purchaser has intimated that she will not be able to proceed at the date for settlement.

54. In considering whether the vendor, in failing to take a necessary step to ready himself for completion, was repudiating the contract, the judge in fact relied on the determined refusal of the appellant to communication with the vendor as to the steps being taken to prepare for settlement, together with a failure to attend the settlement, without providing any explanation or justification for that conduct. ^[23] Such conduct removed any reasonable inference that the vendor’s notice of termination constituted a repudiation of the contract.

    23. Hong (No 1) at [37] set out at [25*] above.

55. Pursuant to cl 9, the vendor had a right to rescind in such circumstances. The purchaser can have been in no doubt that such a right existed, on the assumption that the vendor was in a position to complete in accordance with the contract. To give a notice to complete to the purchaser in circumstances where the vendor knew that it was not able to carry out its obligations under the contract would have involved a lack of good faith in attempting to enforce the contract. The lack of an intention to repudiate or walk away from the contract would, on its face, be inconsistent with the obvious interest of the vendor in retaining the deposit. To seek to retain the deposit whilst deliberately not complying with a pre-condition to its entitlement to demand completion would, again, verge on a lack of good faith, which was not alleged.

56. Accordingly, there was no basis for the purchaser to infer that the vendor was other than mistaken as to his compliance with the terms of the contract. There was nothing in the vendor’s conduct (other than the notice of termination, which was neutral in this respect) which suggested that he sought to walk away from the contract rather than rely upon it.

57. The trial judge, in drawing the inference that he was not repudiating, relied upon the fact that, immediately the omission was drawn to his attention, the vendor sought to remedy the situation by serving a copy of the land tax certificate. The appellant complains that post-termination conduct should not be relied upon to demonstrate the state of affairs which existed at the time of termination. Accepting that to be so, such reliance is not necessary in order to accept the correctness of the judge’s conclusion.

Conclusion on repudiation by vendor

58. The vendor submitted that the fundamental flaw in the appellant’s case was to seek to rely on the unequivocal effect of the first notice of termination served by the vendor. Because the contract provided for such a course in the event of breach by the purchaser, the notice was not unequivocal as to an intention to repudiate. Further, the judge was correct not to characterise the notice in isolation from its context, which included the prior conduct of the parties in relation to each other.

59. These submissions should be accepted. So far as liability was concerned, the finding of the trial judge was correct. The appeal on the question of repudiation by the vendor must be dismissed.

Challenge to costs order

60. On 16 May 2022, the court made an order requiring that Ms Hong pay Mr Gui’s costs of the proceedings. On the basis that Ms Hong failed to overturn the substantive order in the proceedings, there can be and is no challenge to that aspect of the costs order. However, the judge further ordered that, as from 19 March 2021, the costs be assessed on an indemnity basis.

61. There is no doubt that a settlement offer made by the respondent on 19 March 2021 and repeated on 29 July 2021 was a genuine compromise and beneficial to the appellant. The offer included repayment to Ms Hong of half the 5% deposit and abandonment of the vendor’s claim to the other 5%. It was not accepted. The judge found that it was unreasonable for the appellant to have rejected the offer.

62. The appellant contended that the rejection was not unreasonable in circumstances where the respondent failed on the case pleaded, and only succeeded on the ground that the notice of termination did not constitute a repudiation, a matter which was first raised during the course of the hearing.

63. The respondent took issue with that submission. He pointed out that the appellant had pleaded that the termination of the contract on 24 August 2020 constituted a repudiation of the contract by the respondent. ^[24] The respondent expressly denied that proposition in his amended defence, filed 25 February 2021, at par 16. Accordingly, the issue was raised and in play prior to the service of the offer of compromise. The respondent was correct. The challenge to the costs order must be dismissed.

    24. Amended statement of claim, 5 February 2021, par 16.

Orders

64. The Court should make the following orders:

1. Dismiss the appeal from the judgment of the Equity Division given on 12 April 2022 and orders 1-3 entered on 22 April 2022.

2. Dismiss the appeal from the judgment given on 16 May 2022 and the order entered on 7 July 2022.

3. Order that the appellant pay the respondent’s costs in this Court.

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Endnotes

Decision last updated: 01 December 2022