JD No 6 (Dava) Pty Ltd v P Battlay Holdings Pty Ltd

Case •

[2011] VSC 353

•

10 August 2011
IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

COMMERCIAL COURT

No. 01243 of 2010

JD NO 6 (DAVA) PTY LTD (ACN 124 741 920)

AGED CARE SERVICES 33 (DAVA) PTY LTD (ACN 131 177 725)

First Plaintiff

Second Plaintiff
v

P. BATTLAY HOLDINGS PTY LTD
(ACN 006 653 050)

CAULFIELD DRIVE PTY LTD (ACN 083 971 055)

First Defendant

Second Defendant

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JUDGE:

CROFT J

WHERE HELD:

Melbourne

DATE OF HEARING:

25 July 2011

DATE OF JUDGMENT:

10 August 2011

CASE MAY BE CITED AS:

JD No 6 (Dava) Pty Ltd & Anor v P Battlay Holdings Pty Ltd & Anor

MEDIUM NEUTRAL CITATION:

[2011] VSC 353

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CONTRACT – Option agreement to purchase land – Sale of business agreement – Purchaser exercised option to purchase land – Vendor had obligation to provide contract for sale of land as provided for under the terms of the option agreement – Contract provided by vendor not in conformity with option agreement – Total failure of consideration – Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516 – Right to rely upon s 9AC of the Sale of Land Act 1962 not established.

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APPEARANCES:

 Counsel Solicitors
For the First and Second Plaintiffs Mr P.L. Ehrlich Moores Legal
For the First Defendant Mr G.J. Parncutt Darrer Muir Fleiter
For the Second Defendant Mr P. Riley (as sole director of the Second Defendant)

TABLE OF CONTENTS

Background......................................................................................................................................... 2

The Option Agreement..................................................................................................................... 4

Sale of Business Agreement............................................................................................................. 9

Subsequent events........................................................................................................................... 10

Consequences of subsequent events........................................................................................... 16

Consequences of a total failure of consideration....................................................................... 27

Loss and damage.............................................................................................................................. 31

Summary and conclusions............................................................................................................. 31

HIS HONOUR:

Background

  1. This proceeding arises as a result of parties entering into a Put and Call Option Agreement (“the Option Agreement”) and an Agreement for Sale of Business carried on at the Dava Lodge Aged Care Facility (“the Sale of Business Agreement”).

  1. The Option Agreement was made between P. Battlay Holdings Pty Ltd, the first defendant, and JD No 6 (Dava) Pty Ltd, the first plaintiff, and is dated 19 June 2009.  The terms of this agreement are considered in further detail below but, in general terms, its provisions provided the first plaintiff with an option to purchase the property at 197 Bentons Road, Mornington, the property upon which the Dava Lodge Aged Care Facility is built;  exercisable within a period of 60 days from 1 July 2009.

  1. The Sale of Business Agreement was made between Caulfield Drive Pty Ltd, the second defendant, and Aged Care Services 33 (Dava) Pty Ltd, the second plaintiff.  This agreement was made at or about the same time as the Option Agreement and is, as is considered further below, interdependent with the Contract of Sale Real Estate for the purchase of the property by the first plaintiff if and when that contract was entered into in accordance with the provisions of the Option Agreement.[1]

    [1]See clause 44 of the Sale of Business Agreement.

  1. The Option Agreement provided for the payment by the first plaintiff of the sum of $400,000 which was to be applied towards payment of the deposit due under the Contract of Sale entered into in accordance with the provisions of the Option Agreement.[2]  The first plaintiff seeks to recover the sum of $400,000, described as the “Advance Moneys” in clause 5 of the Option Agreement under the provisions of that clause or on the basis that, in spite of its exercise of the option to purchase the property the subject of the Option Agreement, the first defendant did not perform its obligations under that agreement, was subsequently unable to do so, and there was, in consequence, a total failure of consideration.  In substance, the defence to this claim, raised by the first defendant, was that the first plaintiff had breached the terms of the Option Agreement or, alternatively, had repudiated that agreement and was, consequently, not entitled to recover the Advance Moneys.  The first plaintiff made it clear at trial that there was no claim for rectification, misrepresentation, mistake or other analogous relief.  Its only claim was to recover the Advance Moneys under the provisions of clause 5 of the Option Agreement or, alternatively, on the basis of a total failure of consideration.  In relation to the Sale of Business Agreement, the position of the second plaintiff is that this agreement simply did not proceed and ceased to apply because of the interdependence of the business sale arrangements and a successful purchase by the first plaintiff under the Option Agreement, as provided for in clause 44 of the former agreement.

    [2]See clause 5 of the Option Agreement.

  1. The second defendant did not file an appearance, but was represented at the trial, without objection from any other party, by Mr Riley, its sole director.  No defence was filed by the second defendant and, in all the circumstances, the second plaintiff claimed that it was entitled to judgment.  Mr Riley made some brief submissions on behalf of the second defendant and said that his understanding, and presumably that of the second defendant, was that at the time the Sale of Business Agreement was entered into, it was thought that there existed a “Contract of Sale of Real Estate” for the purchase of the relevant property by the first plaintiff; hence the use of this expression in clause 44 of that agreement, rather than a reference to the Option Agreement.

  1. As a result of further discussions in the course of submissions, it appeared that there might be an outstanding claim or claims by the second defendant with respect to the Sale of Business Agreement, possibly its terms or the basis upon which it was entered into, which it might wish to pursue.  It was also anticipated in these discussions that in the ordinary course, such a claim or claims might be met with an Anshun[3] defence.  These issues were, nevertheless, not pursued on the basis of an undertaking given on behalf of the plaintiffs that no such defence would be raised in the event that the second defendant wished to pursue claims of the general nature outlined.  No defence was, however, raised to the second plaintiff’s claim against the second defendant.

    [3]Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589.

  1. The plaintiffs’ submitted that there was no dispute as to the objective facts, including the pleaded Option Agreement and the Sale of Business Agreement and the relevant letters and communications between the parties and their respective advisers. They are, as submitted, admitted on the pleadings. Consequently, the plaintiffs relied on these documents in support of their case and called no oral evidence. The first defendant took a similar approach, but it, additionally, sought to tender and rely upon, as an expert report, the report of Mr Gavin Michael Bourke dated 18 July 2011 and a supplementary report dated 22 July 2011. The plaintiffs objected on the basis that these reports were not admissible as expert reports as they do not conform to the Expert Witness Code of Conduct under rule 44.01 of the Supreme Court (General Civil Procedure) Rules 2005 or the common law requirements with respect to expert reports.[4]  For the reasons provided in discussions with counsel in the course of the application to admit these reports and on the basis of the oral and written submissions on behalf of the plaintiffs, I ruled the reports inadmissible as evidence.  It is not necessary to repeat the reasons for this ruling for present purposes.

    [4]See the Plaintiffs’ Submissions re the First Defendant’s Proposed Expert Witness Statement (dated 25 July 2011).

The Option Agreement

  1. The critical provisions of the Option Agreement are a number of the definitions contained in sub-clause 1.1, the grant of the call option in clause 3, the provision for the Advance Moneys, in other words, the option fee, provided for in clause 5, and the provisions with respect to the Contract of Sale to be entered into on the exercise of the option, the vendor’s statement in relation to that contract as required by s 32 of the Sale of Land Act 1962 and provisions with respect to the registration of the plan of subdivision contained in clauses 6, 8 and 9, respectively. It is helpful to set these provisions out in full:

“1.      Document Interpretation

1.1      Definitions

…

‘Contract of Sale’ means the contract of sale of real estate in the form attached in the Schedule;

…

‘Option Period’ means the period of 60 days following 1 July 2009;

‘Plan of Subdivision’ means the proposed plan of subdivision PS 341619Y Stage 3 as attached marked ‘A’;  and

‘Property’ means part of the property known as 197 Bentons Road, Mornington, Victoria being Lot 1A on the Plan of Subdivision together with all buildings and improvements thereon, and all fixed floor coverings, light fittings, window furnishings and all fixtures and fittings thereon of a permanent nature which are owned by PBH.

…

3.Call Option

PHB grants JD an irrevocable option to purchase free from all mortgages and encumbrances the Property under the Contract of Sale subject to the terms of this document.

…

5.      Advance Monies

5.1      Provision

Upon execution and exchange of this document JD will pay to PBH or its agent the sum of $400,000 (‘the Advance Monies’), which are to be held by PBH’s solicitors or agent (as applicable) in trust as stakeholder, subject to the following.

5.2      Application

The Advance Monies will be capable of being drawn down and applied towards payment of the deposit due under the Contract of Sale if either Option is validly exercised, and JD has not separately paid that deposit as and when due.  Otherwise the Advance Monies will be returned by PBH’s solicitors or agent (as applicable) to JD either at the time the deposit is separately paid under the Contract of Sale (by way of exchange) or immediately upon the Options lapsing.

6.      Contract of Sale

Upon a Grantee exercising an Option, PBH will prepare duplicate copies of the Contract of Sale, sign both copies, and promptly submit them to JD who will then countersign both copies and forward back to PBH one copy of the Contract of Sale signed by both parties within three (3) Business Days of its receipt by JD.  The Contract of Sale is to be dated the date of exercise of the Option.

…

8.      Vendors Statement

JD acknowledges that it has received a statement in writing under Section 32 of the Sale of Land Act 1962 (Vic), signed by PBH prior to execution of this document, such Vendors Statement being dated 19 June 2009.

9.      Subdivision

9.1      Steps to Register

Following execution and exchange of this document PBH will use its best endeavours to obtain registration of the Plan of Subdivision by 1 September 2009.  This will include applying for a planning permit and seeking any other required statutory approvals.  If the local council determines not to grant a required planning permit, or any other statutory body determines not to grant any required approval, PBH will be compelled to apply for a review of any such determination.

9.2Advise re: Progress

At reasonable intervals PBH will respond to any enquiries from JD advising as to PBH’s progress with obtaining registration of the Plan of Subdivision.”

The general or subsidiary provisions contained in clause 10 of the agreement are also of relevance.  In particular, sub-clause 10.2 and 10.7, which provide as follows:

“10.2   Do all Things

Each party must do or refrain from doing (as the case may be) any act or thing and/or sign any documents necessary or desirable to give full effect to any of the provisions of this document.

…

10.7   Entire Agreement

This document contains the entire agreement between the parties in relation to the subject matter hereof and no variation or amendment shall be effective unless in writing signed by a duly authorised officer of each party.”

  1. Sub-clause 10.8 of the Option Agreement contains a “no merger” provision which, in the present circumstances, is of some importance.  Sub-clause 10.8 provides:

“10.8   No Merger

The execution and exchange, or non-execution and lack of exchange, of the Contract of Sale as required under this document, will not affect any of the terms and conditions of this document (including the Contract of Sale) which either:-

(a)by their terms state or evidence the intention of the parties that those terms and conditions shall continue to apply;  or

(b)must continue to apply to accomplish their stated intent.”

These provisions make clear that the operation of the provisions of the Option Agreement are not affected by the parties entering into a Contract of Sale in accordance with the Option Agreement, or their failure to do so.  Nothing is said in these provisions, at least expressly, in relation to the effect of the exercise of the option conferred by the Option Agreement producing a contract of sale in equity as a result of the application of the doctrine of Walsh v Lonsdale.[5]  Nevertheless, there would appear to be little doubt and, indeed, it would in my view produce an absurd result to interpret the express provisions of sub-clause 10.8 of the Option Agreement as allowing any contract of sale in equity to prejudice the operation of the terms of the Option Agreement in circumstances where the parties agreed that this would not be the result of the execution and exchange of the formal Contract of Sale as required under the Option Agreement.

[5](1882) 21 ChD 9 (CA); and see Chan v Cresdon Pty Ltd (1989) 168 CLR 242.

  1. The plan of subdivision as defined in the Option Agreement is contained in the attachment marked “A” to that agreement, as indicated in subclause 1.1.  The property the subject of the Option Agreement is, again as indicated in the relevant definition contained in subclause 1.1 of that agreement, Lot 1A on the plan of subdivision as defined.  The plan of subdivision as contained in that attachment contains a plan showing Lot 1A as having an area of 7909 square metres and subject only to a drainage and sewerage easement with a width of 2.5 metres running immediately inside the whole of the eastern boundary of that lot together with a drainage and sewerage easement of the same width running for a distance of 16.5 metres running immediately inside a northern boundary of the lot commencing at the intersection of that boundary with the main western boundary of the lot.  Otherwise, no easements or any other reservations are shown as affecting that lot.  The plan of subdivision does, however, contain a note in the following terms:

“This is a Preliminary Plan.  It has not been approved by the Council or the Land Titles Office.  This Plan is subject to alteration.”

No point was made of this note in the course of the trial, and I simply refer to it for the sake of completeness, as it does appear immediately below the plan of Lot 1A as shown in the Plan of Subdivision contained in attachment “A” to the Option Agreement.  In my view, and I infer that this was also the position of the parties, a note of this kind did not have any force or effect in the face of or with respect to the operation of the express terms of the Option Agreement which, as I have indicated, make it clear in sub-clause 10.8 that it is the governing agreement between the relevant parties with respect to the possible purchase of the property.

  1. The Contract of Sale of Real Estate attached to and contained in the schedule to the Option Agreement, that is the “Contract of Sale” as defined in sub-clause 1.1 of that agreement, reflects the provisions of the Option Agreement.  In particular, the Particulars of Sale define the land sold as:

“Lot 1A of the proposed plan of subdivision PS 341619Y Stage No. 3 (copy attached) being part of the land contained in Certificate of Title Volume 10345 Folio 906”.

  1. The Special Conditions to this Contract of Sale contain various definitions, including, relevantly, of the “plan of subdivision” and “this contract”.  These definitions are as follows:

“’plan of subdivision’ means the plan of subdivision in the form attached marked ‘A’ subject to special condition 7;

‘this contract’ means this Contract of Sale of Real Estate, including the general conditions, special conditions, annexures and schedules to this contract;  …”

The annexures and schedules to the contract also include the Vendors Statement to the Purchaser of Real Estate Pursuant to s 32 of the Sale of Land Act 1962. This vendor statement is signed for and on behalf of the first defendant and is dated 19 June 2009.

Of possible relevance to the definition of “Plan of Subdivision” as contained in the Contract in the present circumstances are the provisions of special condition 7.4 (also apparently erroneously numbered 7.5), as follows:

“7.4     Right of amendment

7.5The purchaser acknowledges the right of the vendor to make minor amendments to the plan of subdivision as may be required in connection with securing a planning permit or any other required statutory approvals or otherwise obtaining registration of the plan of subdivision.  The purchaser will accept the property on the plan of subdivision as ultimately registered notwithstanding any minor amendments.  For the purpose of this provision ‘minor amendments’ will include any reduction in the area of the land as depicted on the plan of subdivision by less than 1% in total.  If the property on the plan of subdivision as ultimately registered results in a reduction in the area of the land as depicted on the plan of subdivision by 1% in total or more, then the purchaser shall have the right to reduce the price by an amount which is to be agreed between the parties, acting reasonably and in good faith.”

Sale of Business Agreement

  1. As indicated previously, the Sale of Business Agreement contains a provision, in clause 44, linking it to and making it interdependent with the arrangements for the purchase of a freehold in the property upon which the Dava Lodge Aged Care Facility is built.  The provisions of clause 44 are as follows:

“44.     INTERDEPENDENCE

44.1This Agreement is interdependent with the Contract of Sale of Real Estate.

44.2Neither the Vendor nor the Purchaser is obliged to settle under this Agreement unless the Contract of Sale of Real Estate has been completed in accordance with its terms.

44.3The Vendor and Purchaser agree that it is intended that Completion shall be effected at the same time as completion or settlement of the Contract of Sale of Real Estate.

44.4A right to terminate under this Agreement shall be a right to terminate under the Contract of Sale of Real Estate and if the respective purchaser lawfully terminates this Agreement or the Contract of Sale of Real Estate, the respective purchaser under each of this Agreement and the Contract of Sale of Real Estate shall be entitled to a full refund of the deposit paid under each of this Agreement and the Contract of Sale of Real Estate.

44.5A rescission or ending of this Agreement is a rescission or ending of the Contract of Sale of Real Estate.”

For the reasons already indicated, it is not necessary to examine these provisions in further detail, save to note this linkage between the two agreements.

Subsequent events

  1. It is common ground that the call option to purchase the property the subject of the Option Agreement was exercised by the first plaintiff by letter dated 21 August 2009 from its solicitors to the solicitors for the first defendant.  In addition to giving notice of exercise of the option, the first plaintiff requested that the sum of $400,000, the Advance Moneys, be paid in accordance with the Option Agreement, “which is currently held by your client’s agent in trust to be applied as the deposit payable under the Contract of Sale of Real Estate to be executed between the parties”.  The letter continued, “In this regard, we request that your client prepare duplicate copies of the said Contract of Sale of Real Estate and submit same to our client for execution in accordance with Clause 6 of the said Option Agreement”.

  1. The first plaintiff’s exercise of the option was formally acknowledged in an email dated 26 August 2009 from the first defendant’s solicitors to the first plaintiff’s solicitors.  Insofar as is presently relevant, this email set out the position as follows:

“We acknowledge receipt of your letter dated 21 August, 2009 exercising the option by JD No 6 (Dava) Pty Ltd.

Our client anticipates receiving final approval for Plan of Subdivision PS341619Y from the Mornington Peninsula Shire Council very shortly.  We will then be in a better position to know when settlement will be able to occur.  Once final approval has been received we will be in contact with you to discuss the possibility of varying the settlement date to an earlier date that is agreeable by all parties”.

The 26 August 2009 email from the first defendant’s solicitors was followed by a further email dated 1 September 2009 from those solicitors to the first plaintiff’s solicitors, apparently indicating that discussions with the Municipal Planning Department were proceeding satisfactorily.  This email sets out the situation as follows:

“By way of update our client’s town planners are still liaising with the planning department at the City of Mornington regarding finalising the planning permit in respect of the proposed plan of subdivision.

The only hold up is a storm water drainage issue pertaining to the rear lot 2A.  Our client is hopeful this matter will be resolved within the next 7-10 days.

Should this be the case our client would be aiming to have the plan of subdivision registered before the end of this month.”

A further email from Mr Dean Savage, town planner, F R Perry and Associates to Mr Peter Battlay of the first defendant, together with a handwritten note on the print of that email, appears to indicate that these discussions were continuing and that no issues were being raised in relation to the relevant property, Lot 1A.

  1. The planning situation did, however, apparently develop and change so that by early to mid September 2009, it became clear that the Mornington Peninsula Shire would require a condition to its Planning Permit which would affect the relevant property, Lot 1A.  So much is indicated in an internal memorandum to the Mornington Peninsula Shire dated 9 September 2009 from its development engineer to its statutory planner.  There then followed a Delegate Report prepared by Mr Brendan Ward dated 18 September 2009 which was followed by the grant of the Planning Permit (Permit No:  P09/1037) dated 18 September 2009 which applied various conditions to the Permit, including, relevantly, the first condition, as follows:

“Amended plans required

1.Prior to the certification of a plan of subdivision by the Responsible Authority, an amended plan generally in accordance with the plan submitted, but modified to show:

a.     Appropriate drainage easements, along the eastern boundaries of lot 1A from the south east corner of lot 2A through to Bentons Road, in favour of the Mornington Peninsula Shire.

b.     A 5 metre wide tree reserve along the frontage of lot 1A from the eastern boundary to the back of kerb of the access driveway to the west.

c.     A triangular road reserve from the tree reserve along the balance of the frontage of lot 1A so that the width of the tree reserve and road reserve is 5 metres at the western boundary of lot 1A.”

  1. By email dated 23 September 2009 from the first plaintiff’s solicitors to the first defendant’s solicitors, a request was made for “an update of the progress of your client’s application for registration of the relevant proposed plan of subdivision.  If the permit has been issued, please provide me with a copy”.  Reference was also made in that email to a representative from the first defendant’s office “picking up the Contracts of Sale from my client’s office (signed by my client) however an original counterpart signed by your client has not been returned to my client or to my office”.  The email continued, “Please let me know whether such has been sent to my client or to my office and if not, when I can expect to receive same”.  For reasons which are discussed further below, this is a puzzling comment, as it was accepted by counsel at trial that, as at 13 October 2009, no formal contract for the purchase of the property had come into existence.  In any event, a copy of the planning permit which had then been issued by the municipality was forwarded as requested as an attachment to an email from the first defendant’s solicitors, dated 29 September 2009.  Following the provision of a copy of the planning permit, a further email from the first defendant’s solicitors to Mr John Newman of Cooper Newman Real Estate, dated 8 March 2010 but corrected by hand to 7 October 2009, attached a revised plan of subdivision prepared by the first defendant which depicts the tree reserve/road reserve at the front of the property, additional land added at the rear boundary as a result of straightening of the boundary, resulting in the area of Lot 1A increasing from 7,909 square metres to 8,026 square metres and also showing an additional drainage easement, being a further easement running some distance, from 2.5 metres to 5 metres or more from the eastern boundary of Lot 1A.  These amendments reflect the “amended” plans required under the conditions applying to the Planning Permit, particularly paragraph one.

  1. The correspondence which followed the provision of the Planning Permit to the first plaintiff’s solicitors and to its real estate agent on 29 September 2009 and 7 October 2009, respectively, is of particular importance and, consequently, is set out in full (omitting formal parts).  The first letter is dated 13 October 2009 and in a letter from the first plaintiff’s solicitors to the first defendant’s solicitors:

“As you are aware, we act on behalf of JD No. 6 (Dava) Pty Ltd, the proposed purchaser of the abovementioned property from your client pursuant to an executed Contract of Sale of Real Estate.

We refer to our previous correspondence and discussions with you in this matter and in particular refer to your email to our office dated 29 September 2009 attaching a copy of Planning Permit No. P09/1037 dated 18 September 2009 issued by Mornington Peninsula Shire.

We hereby give you notice on behalf of our client that our client rescinds the said Contract of Sale of Real Estate pursuant to section 9AC(2) of the Sale of Land Act 1962 as the proposed amendments to the proposed Plan of Subdivision materially affects Lot 1A on the proposed Plan of Subdivision, being the lot to which the Contract of Sale of Real Estate relates.

Further and/or in the alternative, we hereby give you notice on behalf of our client that our client rescinds the said Contract of Sale of Real Estate pursuant to section 9AE(2) of the Sale of Land Act 1962 as the proposed Plan of Subdivision has not been registered as soon as practicable.

Accordingly, we request your client immediately return the Deposit paid by our client under the said Contract of Sale of Real Estate in the sum of $400,000.00 by way of cheque made payable to Diakou Faigen Trust Account. Our client is entitled to the return of the Deposit pursuant to section 9AF(1)(b) of the Sale of Land Act 1962.”

  1. The 13 October 2009 letter was followed by a letter dated 14 October 2009, again from the first plaintiff’s solicitors, but on this occasion to the solicitor for the second defendant, as it concerned the sale of business agreement:

“As you are aware, we act on behalf of Aged Care Services 33 (Dava) Pty Ltd, the proposed purchaser of the abovementioned business from your client pursuant to an executed Agreement for Sale of Business.

We refer to out letter to Darrer Muir Fleiter, Lawyers, dated 13 October 2009;  a copy of which was forwarded to you by email yesterday evening.

Accordingly, we hereby give you notice on behalf of our client that our client rescinds the said Agreement for Sale of Business pursuant to Clause 44 of the said Agreement for Sale of Business as the Contract of Sale of Real Estate for the purchase by our client, JD No. 6 (Dava) Pty Ltd from P. Battlay Holdings Pty Ltd of the property from which the business is conducted, has been rescinded.

Accordingly, we request your client immediately return the deposit paid by our client under the said Agreement for Sale of Business in the sum of $135,000.00 by way of cheque made payable to Diakou Faigen Trust Account.  Our client is entitled to the return of the deposit pursuant to Clause 44.4 of the said Agreement for Sale of Business.

All rights are reserved.”

  1. The 13 October 2009 letter to the first defendant’s solicitors produced a responsive letter date 16 October 2009:

“We refer to your letter dated 13 October, 2009 forwarded to our office.

It purports to rescind “… an executed Contract of Sale of Real Estate in relation to Lot 1A at 197 Bentons Road, Mornington”.

The letter is completely ineffectual given that as at 13 October, 2009 no such Contract of Sale of Real Estate was in existence.

We have today sent to you Contract of Sale documents for signing and exchange, consequent upon your client’s exercise of its call option under the Option Agreement with respect to the above property.

Separately our client is proceeding as expeditiously as possible to register the plan of subdivision for Lot 1A.  As soon as registration has been effected we will let you know.”

  1. The 16 October 2009 letter from the first defendant’s solicitors was followed by a further letter from those solicitors to the first plaintiff’s solicitors, again dated 16 October 2009, forwarding two copies of a contract of sale for execution and return:

“We refer to JD No. 6 (Dava) Pty Ltd’s exercise of its call option to purchase the above property pursuant to Clause 3 of the Put and Call Option Agreement between our clients dated 19 June, 2009.

Attached are two copies of the Contract of Sale of Real Estate executed by our client, for countersigning by your client, and return to us.”

  1. Signature and return of the copies of the contract of sale which had been forwarded on 16 October 2009 was not forthcoming and, finally, in a letter dated 22 October 2009 from the first defendant’s solicitors to the first plaintiff’s solicitors, signature and exchange of the contract of sale was insisted upon on the basis of the provisions of the option agreement; on pain of the first defendant accepting the alleged repudiation of the Option Agreement by the first plaintiff.  This letter is in the following terms:

“Last Friday we had delivered to your office two copies of the Contract of Sale of Real Estate executed by our client, for countersigning by your client, and return to us.

Yesterday Arnan Rouse, on behalf of your client advised our client’s selling agent that JD No. 6 (Dava) Pty Ltd will not be proceeding any further with any transaction in relation to the above property.  That amounts to a repudiation of the Put and Call Option Agreement.

If we do not receive written confirmation from your office by 4:00 pm tomorrow that the Contract of Sale of Real Estate is being countersigned by JD No. 6 (Dava) Pty Ltd and then will be delivered to our office, our client will be accepting your client’s repudiation.”

  1. In the course of its submissions, the first defendant placed critical significance on the nature and effect of the letter of 13 October 2009 from the first plaintiff’s solicitors.  The first defendant sought to characterise this letter as a repudiation with the consequence that the first defendant was relieved from further performance of any obligations under the Option Agreement and, consequently, nothing flowed from the allegation by the first plaintiff that the contract of sale delivered by the first defendant on 16 October 2009 might be said not to conform strictly with the requirements with respect to the plan of subdivision as annexed to the Option Agreement.  This was, however, not the position as asserted by the first defendant’s own solicitors in subsequent correspondence.  As indicated in that correspondence, which is set out above, the first defendant’s solicitors said in their letter of 16 October 2009 that the 13 October 2009 letter on behalf of the first plaintiff was “completely ineffectual” because at 13 October 2009 “no such Contract of Sale of Real Estate was in existence”.  There may, as indicated previously, have been an argument that a contract of sale existed in equity under the doctrine of Walsh v Lonsdale[6] as a result of the first plaintiff’s exercise of the option to purchase on 21 August 2009, but this point was not raised in correspondence and the position apparently taken by the parties, both contemporaneously and at trial, was that the only presently relevant contract was a formal contract of sale and that none came into existence.

    [6](1882) 21 CLD 9 (CA).

  1. The other aspect of the 16 October 2009 letter from the first defendant’s solicitors was that it and the subsequent letter of that date enclosing contract parts for execution together with the subsequent letter of 22 October 2009 clearly and strongly reaffirm the existence of the Option Agreement, a position entirely inconsistent with any argument that the effect of the 13 October 2009 letter from the first plaintiff was repudiatory or that, now more significantly, such repudiatory conduct had been accepted.  As I indicated in the course of argument, I am of the view that a fair reading of the 13 October 2009 letter in the context of the correspondence between the parties indicates that whilst it might, in hindsight, have been better phrased, its meaning is clear in substance;  as indicated in the reaction on behalf of the first defendant in subsequent correspondence, namely that the first plaintiff did not accept that the plan of subdivision subject to the further constraints imposed by the planning permit was a plan of subdivision in conformity with the property and its attributes and inhibitions which was the subject of the Option Agreement.

  1. Both the High Court and the House of Lords have emphasised that repudiation is not lightly to be inferred,[7] observations which, in the present circumstances, I regard as particularly apposite and as supporting the view that to the extent that the 13 October 2009 letter might be said to be ambiguous in this respect, it should not be interpreted as repudiatory.  In any event, as indicated, the matter is placed beyond doubt by the reaction of the first defendant as indicated in its solicitor’s subsequent correspondence.

    [7]Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17; Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623; and Woodar Investment Development Ltd v Wimpey Construction UK Ltd [1980] 1 WLR 277 (HL).

  1. In summary, on this basis, the position reached as at 22 October 2009 was that the Option Agreement was clearly on foot and in force, having been affirmed by the first defendant, thus curing any doubt that the first plaintiff had attempted to disavow its operation on 13 October 2009.  Also, as at that date, the first defendant had delivered to the first plaintiff a Contract for the Sale of Real Estate which purported to be a contract of sale in accordance with the Option Agreement.  This contract was, however, not in conformity with the provisions of the Option Agreement, as it described the property sold in different terms from those provided for in the Option Agreement - to the extent that the plan of subdivision was, whether expressed in graphic form or not, subject to the restrictions set out in the Planning Permit with respect to drainage and sewerage, road and tree reserves.

Consequences of subsequent events

  1. As indicated previously, the basis of the claim of the first plaintiff was that there was a total failure of consideration with respect to the Option Agreement because, as a result of the grant of the Planning Permit in the form it was granted by the Shire of Mornington Peninsula, performance of the agreed bargain was, at the time that permit was granted and subsequently, impossible.  This claim depends upon careful consideration and characterisation of the nature and extent of the bargain made between the parties by their Option Agreement.  In the absence of any suggestion by the parties that the construction of the provisions of the Option Agreement require consideration of any “factual matrix”, the process of discerning the nature and extent of this bargain is confined to a construction of the express terms of the Option Agreement.  As indicated previously, none of the parties sought to rely upon any factual evidence apart from correspondence subsequent to the making of the Option Agreement, and then only with respect to the nature and effect of subsequent conduct, rather than as evidence of relevance to the construction of the terms of this agreement.

  1. The first plaintiff submitted, and it was not suggested otherwise, that the critical and fundamental provision in the Option Agreement is, in the present circumstances, the call option provision set out in clause 3.  Highlighting these provisions, which are set out above, the grant is of “an irrevocable option to purchase … the Property under the Contract of Sale subject to the terms of this document”.  “Property” is defined by reference to the plan of subdivision as contained in annexure A to the Option Agreement.  There is no ambiguity in this respect and the relevant property, Lot 1A as described graphically and otherwise in that attached plan, is free from any encumbrances or reservations other than the drainage and sewerage easements referred to previously.  Significantly, it is not subject to any of the further reservations or encumbrances imposed under the conditions of the Planning Permit.  Further, also as indicated previously, the “Contract of Sale” is defined in the Option Agreement as meaning the Contract of Sale of Real Estate in the form attached to the Schedule to that agreement.  Again, there is no ambiguity in this respect.

  1. The first plaintiff made further and more detailed submissions in support of the proposition that the response that the first defendant was bound to make to the exercise of the call option under the Option Agreement was to produce for execution and exchange a contract of sale precisely in the terms of the Contract of Sale provided for in and attached to the Option Agreement. In my view, its submissions in this respect, which are set out in full, are entirely justified and supported by the terms of the Option Agreement and authority. Accordingly, I adopt their reasoning and conclusions as indicating the basis upon which the Option Agreement is properly construed in this respect. Properly construed, it requires the first defendant to provide for execution and exchange a Contract of Sale precisely in the form of that attached to the Option Agreement, together with annexures to the contract as attached to that agreement, including the vendors statement under s 32 of the Sale of Land Act 1962. These submissions of the first plaintiff are as follows:

“It is submitted (observing the objective theory of contract and having regard to the whole text of the agreement) that the following express terms of the Put and Call Option Agreement show that the agreement between the parties required the first defendant to deliver a contract of sale which was in strict accordance with the Contract of Sale as defined in the Put and Call Option Agreement and not some other contract of sale:

(a)the definition of ‘Contract of Sale’ in clause 1.1:  ‘Contract of sale means the contract of sale of real estate in the form attached in the Schedule.’ That attach Contract of Sale in turn included the Vendors Statement dated 19 June 2009 as required by s 32(1)(b) of the Sale of Land Act (1962) (Vic);

(b)the definition of ‘Plan of Subdivision’ in clause 1.1:  ‘Plan of Subdivision means the proposed plan of subdivision PS 341619Y Stage 3 as attached marked “A”’.  This definition expressly extended only to reference to ‘Stage 3’.  It did not go on to say ‘or as subsequently amended’;

(c)the definition of ‘Property’ in clause 1.1:  ‘Property means part of the property known as 197 Bentons Road, Mornington, Victoria being Lot 1A on the Plan of Subdivision …’  Accordingly, it was defined to mean, and only mean, Lot 1A on plan of subdivision PS 341619Y Stage 3 as attached marked “A”;

(d)likewise the definition of ‘Land’ in the Contract of Sale:  ‘Lot 1A on proposed plan of subdivion [sic] PS 341619Y Stage No 3(copy attached) …’;

(e)the express content of the put and call options in clauses 2 and 3.  Clause 3 reads as follows:  ‘PBH grants JD an irrevocable option to purchase free from all mortgages and encumbrances the Property under the Contract of Sale subject to the terms of this document.’

Clause 3 does not say ‘subject to the terms of the Contract of Sale.’  To the contrary, it says ‘under the Contract of Sale subject to the terms of this document’ (underlining added).  This plainly shows that:

(i)amendments to the Plan of Subdivision, and thereby the Property, were not contemplated during the limited option period of 60 days;

(ii)nothing in clause 3 permitted or authorised a unilateral amendment to the definition of the Property or the Contract of Sale;  and

(iii)the terms and conditions of the Put and Call Option Agreement (the document) were hierarchically superior to the terms of the Contract of Sale and were not subject to any provision thereof;

(f)     clause 6 which expressly states, inter alia, that:

(i)‘Upon the Grantee exercising an Option, PBH will prepare duplicate copies of the Contract of Sale’;  and

(ii)‘The Contract of Sale is to be dated the date of the exercise of the Option.’  In this case, that required the insertion of the date 21 August 2009.

It is therefore both illogical and unreasonable to conclude that the parties nevertheless agreed to a regime which mandated the first plaintiff to accept title subject to a different Contract of Sale which included a different and later dated Vendors Statement.  Indeed, contrary to clause 6, the 15 October contract was signed and dated 15 October 2009;

(g)the acknowledgment in clause 8 which shows that the parties were proceeding on the basis of the Vendors Statement dated 19 June 2009 only, such that the first defendant was not at liberty to mandate that the first plaintiff accept title subject to a subsequent Vendors Statement – and certainly not one that had the effect of unilaterally qualifying title and thereby the definition of the Property (i.e. the bargain);

(h)clause 9.1 which provided that ‘Following execution and exchange of this document PBH will use its best endeavours to obtain registration of the Plan of Subdivision by 1 September 2009.  This will include applying for a planning permit and seeking any other required statutory approvals.  If the local council determines not to grant a required planning permit, or any other statutory body determines not to grant any required approval, PBH will be compelled to apply for a review of any such determination.’

Clause 9.1 is therefore inconsistent with an obligation to accept a unilateral amendment of the definition of Property by way of the substitution of a new Vendors Statement in the Contract of Sale;

(i)clause 10.7, which contains an ‘entire agreement’ provision:  ‘This document contains the entire agreement between the parties in relation to the subject matter hereof and no variation or amendment shall be effective unless in writing signed by a duly authorised officer of each party.’  Clause 10.7 negates any admission of evidence (and there is no pleading to that effect in any event) ‘to subtract from, add to, vary or contradict the language of the written document’:  see Johnson Matthey Ltd v AC Rochester Overseas Corp (1990) 23 NSWLR 190 at 196 per McLelland J citing Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 at 347.

36.It is submitted that an objective reading of the entire Put and Call Option Agreement makes plain that the parties were entering into a Put and Call Option Agreement which required strict adherence to the delivery of the defined Contract of Sale and not otherwise.  There is nothing surprising about this given that the option period was only 60 days.”

  1. The first defendant argued that it would always have been contemplated that a planning permit would have issued subsequently to the exercise of the option or the date of the Option Agreement and that it would necessarily follow that an addition would need to be made to the Vendor Statement under the provisions of s 32 of the Sale of Land Act in order to comply with those provisions. I would accept that the parties would not have contemplated placing the vendor in a position of breaching s 32 and thereby inviting arguments as to rights of rescission as a result of an incomplete statement and that, had the planning permit been consistent with the plan of subdivision in the form annexed to the Option Agreement, no objection could sensibly be taken to including a copy of that planning permit in the s 32 Vendors Statement. In any event, if it were omitted, the purchaser, the first plaintiff, having exercised the option to purchase, could hardly seek to rescind, having insisted on the non-inclusion of the planning permit in the s 32 statement and, had it purported to do so, it would be expected that it would suffer the cost of a proceeding by the first defendant under the excusing provisions of s 32, which would, consequently, deny any rescission under those statutory provisions.

  1. In my view, the arguments mounted in this respect by the first defendant are unconvincing and do not go to the substance of the claim and the basis upon which it was put by the first plaintiff.  Additionally, I am not satisfied that the assumption that apparently underlies the submissions of the first defendant in this respect are justified by the terms of the Option Agreement.  It appears to be assumed that contracts would not be exchanged until a planning permit had been granted.  In my view, this does not follow, because there was nothing to stop the first plaintiff exercising the call option immediately. The Option Agreement was made and well before any consideration of the proposed plan of subdivision by the Shire of Mornington Peninsula.  Further, sub-clause 10.8 of the Option Agreement does, as indicated, prevent any merger of the Option Agreement or any compromise of the operation of its provisions as a result of exchange of contracts of sale.

  1. Consequently, I am of the view that the provisions of the agreement indicate that the parties contemplated an exchange of contracts of sale prior to approval of the plan of subdivision both as a result of the anti-merger provisions of sub-clause 10.8 and also because of the provisions of clause 9 which, read together with sub-clause 10.2, require the first defendant, as vendor, to take all necessary or desirable steps to apply for a review of any determination by the municipality at odds with approval of the plan of subdivision in the form annexed to the Option Agreement;  with a requirement to report in this respect to the first plaintiff under the provision of sub-clause 9.2.  If the result of this process and application for review and best endeavours undertaken by the first defendant produced a plan of subdivision in a different form from that annexed to the Option Agreement – and in this respect I mean in substance, whether graphically or by reference to conditions in the planning permit – the remedy of the parties then would lie in special condition 7.4 of the exchanged contract of sale.  However, in the present circumstances, contracts were not exchanged and the correspondence from the solicitor for the first defendant confirms that no contract came into existence.  It follows, in my opinion, that the provisions of sub-clause 7.4 never become relevant or applicable to the rights of the first plaintiff and the first defendant;  under the Option Agreement or otherwise.

  1. On this basis, the standing offer constituted by the Option Agreement (which was capable of acceptance by the first plaintiff according to the mirror principle of contractual acceptance) was accepted when it exercised the option on 21 August 2009 and the first defendant then became bound to provide the first plaintiff with a Contract of Sale precisely in the form provided for under the terms of the Option Agreement.[8]

    [8]See B & S Stillwell & Co Pty Ltd v Budget Rent-a-Car System Pty Ltd [1990] VR 589, 594 (FC) as to the process of acceptance of a standing offer constituted by an option and the inability of the optionee to renegotiate the terms of the offer without thereby producing a fresh contract in the event that the renegotiated terms, property construed as a counter-offer, are accepted. In the present circumstances, the mirror principle of acceptance of the standing offer was applied and occurred on 21 August 2009 and the first defendant, as the grantor of the call option, thereby became bound to comply with the terms of the Option Agreement consequential upon such acceptance.

  1. The first defendant argued that it was relieved from the obligation of strict compliance in terms of providing for execution and exchange a contract of sale precisely in the form of that defined and attached to the Option Agreement as a result of the operation of the provisions of special condition 7.4 of the contract of sale.  There appear to me to be a number of difficulties with this argument.  The first is that the first defendant conceded or asserted that as at 16 October 2009 (an assertion or concession reinforced on 22 October 2009) that there was no contract of sale in existence.  In those circumstances, it is difficult to see how the provisions of special condition 7.4 could have any relevance or operation.  It was also argued by the first plaintiff that the provisions of special condition 7.4 were not enforceable as they constitute no more than an agreement to agree. The plaintiff submitted that the provision is too “uncertain or incomplete to be enforceable, especially bearing in mind that it could conceivable operate in reductions in area from 1% to 99%.” In the absence of an agreement under special condition 7.4 there is no mechanism within the contract to adjust the purchase price.[9] I accept the plaintiff’s submissions that special condition 7.4 is unenforceable. An agreement to agree on an essential term such as the price of land, in the absence of a mechanism to reach that agreement is too uncertain or incomplete. It follows that no issues arise with respect to the effect of special condition 7.4; in terms of damages or otherwise.

    [9]A dispute resolution clause in the contract that can be invoked in the absence of agreement or negotiation may save an agreement to agree. See eg Con Kallergis Pty Ltd t/as Sunlighting Australasia Pty Ltd v Calshonie Pty Ltd (Formerly C W Norris Pty Ltd)  (1998) 14 BCL 201; BC9700880.

  1. Additionally, for reasons indicated previously, it is clear from the provisions of sub-clause 10.8 of the Option Agreement that the provisions of the Option Agreement are superior in the “hierarchy” of agreements and that, in the absence of an exchange of contracts, there is no basis to suppose that the parties intended any implication that the provisions of special condition 7.4 were to be read in, on some basis, into the Option Agreement.  In any event, no argument of this kind was developed by the first defendant and no reference was made to any of the authorities in relation to implied terms, on any basis.  Consequently, there is, in my view, no basis for accepting any such implication.

  1. Also, as I indicated in the course of argument, an implication of this kind would potentially (and one would think contrary to the intention of the parties) create a doubling up of the number of “minor amendments” that could be made to the plan of subdivision.  If the provisions of special condition 7.4 were to be read into the Option Agreement, there could be a minor amendment requirement applied prior to the exchange of contracts and if further amendments were made, a further minor amendment requirement applied under special condition 7.4 as an express term of the exchanged contract.  This reaffirms, in my view, that assuming special condition 7.4 is enforceable,[10] its place and operation is in an exchanged contract and it is a provision inserted which was intended to be read with and subject to the operation of clause 9 of the Option Agreement in the event that contracts were exchanged prior to the resolution of the plan of subdivision approval process.

    [10]But in this respect see paragraph 34, above.

  1. The first plaintiff argued that even if, on some basis, it was found that special condition 7.4 of the Contract of Sale did apply, the “amendments” made to the plan of subdivision as a result of the grant of the Planning Permit in the form that it was granted by the Shire of Mornington Peninsula did not fall within the meaning of “minor amendments” for the purposes of these provisions.  Rather, it was said that the “amendments” were significant and resulted in a reduction in the useable area of the property by between 4.89 and 7.07% as indicated in a table prepared as part of its submissions.  A copy of this table is contained in the Schedule to these reasons.[11]  The emphasis on the percentage change in useable area of the property was for the purpose of addressing the provisions of special condition 7.4, which contain something in the nature of an agreement as to “amendments” which would be treated as “minor amendments” for the purpose of these provisions;  the reference in this respect being to “any reduction in the area of the land as depicted on the plan of subdivision by less than 1% in total”.  It was argued by the first plaintiff that the reference to “area of the land” must, in the context of the contract of sale, the Option Agreement and having regard to the intended use of the land as indicated by the Sale of Business Agreement, indicate that the parties intended “area of the land” to be read as “useable area of the land”.  I did not understand the first defendant to be arguing against this proposition and, in any event, it does, in my view, represent a sensible interpretation of the commercial arrangements between these parties.[12]

    [11]Minor amendments have been made to the table submitted by the plaintiffs due to an arithmetic error in their calculations.

    [12]See, for example, Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429.

  1. Additionally, the subsequent correspondence between the parties would, in my view, support the view that the “amendments” to the plan of subdivision, the result of the Planning Permit, were not, of their nature, “minor amendments” for the purposes of special condition 7.4.  In a letter dated 2 November 2009 from the first defendant’s solicitors to the first plaintiff’s solicitors, it was proposed that the purchase price be reduced by $300,000 to “compensate” for these “amendments”.  The purchase price provided for in the contract of sale annexed to the Option Agreement was $7.75 million.  A reduction in price of $300,000 is a reduction of 3.88%.  It is true that this is not a percentage reduction in area, but it is, in my view, indicative of “amendments” which are significant, rather than minor.

  1. The parties also made reference to and, in various ways, relied upon the provisions of s 9AC of the Sale of Land Act 1962:

“9AC.  Amendments to plan

(1) If after a prescribed contract has been entered into and before the registration of the relevant plan of subdivision an amendment to the plan is required by the Registrar or requested by the vendor, the vendor shall within 14 days after the receipt of the requirement of the Registrar or the making of the request by the vendor (as the case requires) advise the purchaser in writing of the proposed amendment.

(2) The purchaser may rescind a prescribed contract of sale within 14 days after being advised by the vendor under subsection (1) of an amendment to the plan of subdivision which will materially affect the lot to which the contract relates.”

In my opinion, for a variety of reasons, the provisions and possible operation of s 9AC of this Act cannot be relevant in the present circumstances. At the outset, I note that it was implicit in the submissions of the parties in relation to s 9AC that any contract entered into as a result of the operation of the provisions of the Option Agreement would be a “prescribed contract” for the purposes of these provisions in the event that they were otherwise applicable. It is to their applicability that I now turn.

  1. In my view, the provisions of s 9AC of the Sale of Land Act can have no application, directly or indirectly.

  1. First, as has been indicated previously, there was no contract of sale in existence, or at least one that was treated as such by the parties.  The only caveat I would place on this proposition arises from the existence of a contract of sale in equity as a result of the exercise of the call option.[13] Nevertheless, as a result of the pre-eminence of the operation of the provisions of the Option Agreement as a result of the anti-merger provisions of sub-clause 10.8 of that agreement, the parties did not need to consider or rely on the provisions of s 9AC of this Act, at least on the basis of the construction that I have given the provisions of the Option Agreement.

    [13]See above, paragraph 9.

  1. Secondly, even if there were a contract of sale in existence to which s 9AC might apply and operate, it would need to be established that any “amendment” to the plan of subdivision would “materially affect” the lot to which the contract related for the purposes of any rescission right under sub-s 9AC(2). The first defendant mounted an elaborate argument that there was no relevant “amendment” for the purposes of sub-s 9AC(1) because no amendment had been required by the Registrar or requested by the vendor; rather, the amendment had been made or requested by the Shire of Mornington Peninsula. For the reasons indicated in the course of argument, I reject this submission as it would have the effect of creating a significant lacuna in the operation of the suite of provisions in the Sale of Land Act in which s 9AC finds itself; provisions which are clearly designed to protect purchasers of lots on unregistered plans of subdivision which, in the course of their approval, may be subject to significant amendments which would have made the purchase unattractive to a purchaser, hence the right of rescission in sub-s 9AC(2).

  1. In any event, it is entirely artificial to argue that in circumstances such as the present, any “amendments” to the plan of subdivision are not “requested by the vendor” for the purposes of sub-s 9AC(1).  The ordinary subdivision approval process lies in the hands of a vendor seeking to sell lots on an unregistered plan, a position which is made clear in the present circumstances by clause 9 of the Option Agreement.  The role of the municipality, in this case the Shire of Mornington Peninsula, is to approve or require amendments to a proposed plan of subdivision as a condition of approval through the Planning Permit process.  It is then a matter for the vendor whether or not it chooses to accept these amendments.  It could choose not to proceed with the proposed plan of subdivision, seek to review the conditions of a planning permit which would have the effect of amending a plan of subdivision, or accept the amendments as required by the municipality.  In the latter event, amendments of this kind would, in my view, clearly be “requested by the vendor” for the purposes of sub-s 9AC(1) of the Sale of Land Act.

  1. Thirdly, and finally, there was no evidence provided, or in the case of the first defendant admitted, going to the question whether the “amendments” would “materially affect” the property for the purposes of sub-s 9AC(2) of the Act. In my view, the provisions of special condition 7.4 of the contract of sale provide no assistance with respect to the application or otherwise of the provisions of s 9AC, particularly as it is not open to parties to contract out of or to, in effect, amend the substance or operation of the Sale of Land Act provisions.[14] Further, absent any evidence which would establish the application of s 9AC, particularly the operation of sub-s (2), the arguments by the first plaintiff that the first defendant could not compel it to accept a contract which could immediately be rescinded under these provisions is not sustainable and can lead nowhere in relation to the process of construction or operation of the Option Agreement.[15] It is mere speculation, in my view, as to whether or not a right of rescission under s 9AC could arise in the present circumstances.

    [14]See s 14 of the Sale of Land Act 1962; noting that the expression “materially affected” as used in analogous litigation, the Queensland Building Units and Group Titles Act 1980, has been held to raise questions of “fact and degree” in the context of the particular case (see Deming No 456 Pty Ltd v Brisbane Unit Development Corporation Pty Ltd (1983) 155 CLR 129 at 166 (Wilson J); and see Mirvac Queensland Pty Ltd v Wilson [2010] QCA 322).

    [15]The argument being that the provisions ought not be construed to require the first plaintiff to enter into a contract which it could immediately avoid under sub-s 9AC(2) of the Sale of Land Act 1962 on the basis of the “amendments” made to the proposed Plan of Subdivision (relying on the proposition in Lewison, The Interpretation of Contracts (Sweet and Maxwell, 4th ed, 2007), 289, ¶7.15, that:

    “Where two constructions of an instrument are equally plausible, upon one of which the instrument is valid, and upon the other of which it is invalid, the court should lean towards that construction which validates the instrument”.).

Consequences of a total failure of consideration

  1. At the outset, it is desirable to make clear that I have found that the first plaintiff was not, at any relevant time, in breach of its obligations under the Option Agreement.  Rather, I have found that the first defendant failed to perform its obligations which, as a result of subsequent events, became impossible to perform.  Consequently, no issue arises as to whether any rights which the first plaintiff had available to it to recover the Advance Moneys of $400,000 paid under the Option Agreement, under clause 5 of that agreement or on the basis of common law principles on a total failure of consideration, were affected by any default on its part.

  1. The provisions of sub-clause 5.2 of the Option Agreement appear to contemplate, on their express terms, a return of the Advance Moneys to the first plaintiff in the event that the deposit is separately paid under the Contract of Sale on its exchange or immediately upon the options lapsing.[16]  In the present circumstances, the call option was exercised and did not lapse, and so on a strict reading of the express terms of sub-clause 5.2, the Advance Moneys would not be repayable under those provisions.  In my view, there is a strong argument that the clear underlying purpose of sub-clause 5.2 is to provide for the repayment of the Advance Moneys to the first plaintiff in the event that the first plaintiff does not, for whatever reason, enjoy the fruits of the Option Agreement in circumstances where it is not itself in default.  This implied term argument was, however, not pressed and it is not necessary to pursue it further, as I am of the opinion, for the reasons which follow, that the Advance Moneys are repayable to the first defendant on the basis of the general law in relation to a total failure of consideration.

    [16]i.e. the put and call options.

  1. The relevant principle of general law was explained by Viscount Simon LC in Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd:[17]

“… in the law relating to the formation of contract, the promise to do a thing may often be the consideration, but when one is considering the law of failure of consideration and of the quasi-contractual right to recover money on that ground, it is, generally speaking, not the promise which is referred to as the consideration, but the performance of the promise.  The money was paid to secure performance and, if performance fails the inducement which brought about the payment is not fulfilled.

If this were not so, there could never be any recovery of money, for failure of consideration, by the payer of the money in return for a promise of future performance, yet there are endless examples which show that money can be recovered, as for a complete failure of consideration, in cases where the promise was given but could not be fulfilled:  see the notes in Bullen and Leake’s Precedents of Pleading, 9th ed, p 263.”

[17][1943] AC 32 at 48 (as approved of and applied by the High Court in Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516).

  1. In Roxborough v Rothmans of Pall Mall Australia Ltd,[18] Gleeson CJ, Gaudron and Hayne JJ said:

    [18](2001) 208 CLR 516 at 524-5 [14] to [16].

“[14] The appellants based their case, in part, upon the principles underlying the common indebitatus count for money had and received by the defendant to the use of the plaintiff.  The notes to the 1868 edition of Bullen and Leake’s Precedents of Pleadings, giving examples of cases where such a count would lie, said:

‘Money paid by the plaintiff for a consideration that has failed, may be thus recovered …

…

The failure of consideration must be complete in order to entitle the plaintiff to recover the money paid for it …;  but where the consideration is severable, complete failure of part may form a ground for recovering a proportionate part of the money paid for it …;  as where a quantity of goods were ordered at a certain rate of payment, and only a portion was delivered. [emphasis in original]’

[15] Mason and Carter, in Restitution Law in Australia, point out that cases decided in relation to the common indebitatus counts, although they involved an implied contract analysis which is now out of date, ‘form the precedents which make up the legal matrix of restitution law’.  Lord Mansfield, in Moses v Macferlan, referred to money paid ‘upon a consideration which happens to fail’ as an example of money which, ex aequo et bono, a defendant ought to refund and, therefore, money for the recovery of which the count for money had and received lies.

[16] Failure of consideration is not limited to non-performance of a contractual obligation, although it may include that.  The authorities referred to by Deane J, in his discussion of the common law count for money had and received in Muschinski v Dodds, show that the concept embraces payment for a purpose which has failed as, for example, where a condition has not been fulfilled, or a contemplated state of affairs has disappeared.  Deane J, referring to ‘the general equitable notions which find expression in the common law count’, gave as an example ‘a case where the substratum of a joint relationship or endeavour is removed without attributable blame and where the benefit of money or other property contributed by one party on the basis and for the purposes of the relationship or endeavour would otherwise be enjoyed by the other party in circumstances in which it was not specifically intended or specially provided that that other party should so enjoy it’.  In the case of money paid pursuant to a contract, it would involve too narrow a view of those ‘general equitable notions’ to limit failure of consideration to failure of contractual performance.  In the present case, the amount of the net total wholesale cost referable to the tax was, from one point of view, part of the money sum each appellant was obliged to pay to obtain delivery of the tobacco products.  But there was more to it than that.  The tax was a government imposition, in the form of a fee payable under a licensing scheme.  The nature of the scheme was such that the licensed wholesaler, or, if not the wholesaler, then the licensed retailer, would pay the amount referable to particular tobacco products.  The respondent, anticipating liability for the fee, required the appellants, when purchasing products by wholesale, to pay an amount equal to the fee.  The appellants, in turn, had an interest in the respondent paying the fee to the revenue authorities, for they were thereby relieved of a corresponding liability.  There was a purpose involved in the making of the requirement that the appellants pay the amounts described as ‘tobacco licence fee’, and in the compliance with that requirement.  To describe those amounts as nothing more than an agreed part of the price (or, to use the language of the parties, cost) of the goods, is to ignore an important aspect of the facts.”

  1. Further, in this case Gummow J said:[19]

    [19](2001) 208 CLR 516 at 555-6 [101] to [102].

“[101] The term ‘failure of consideration’ is used in the law to mean several things.  The point was made as follows by Stoljar:[20]

[20]“The Doctrine of Failure of Consideration” (1959) 75 Law Quarterly Review 53 at 53.

‘First, a consideration fails because the defendant’s promise is insufficient or illusory or formally void, the failure thus being an initial invalidity preventing a contract from being formed.  Secondly, we say that the consideration fails where a promisor fails to perform; the failure is now simply a breach of contract, though usually a substantial or important breach.  But, thirdly, failure of consideration has also a much older and specialised sense, one that describes a specific remedy when, upon the collapse of a bargain, the promisee seeks to recover money had and received by the promisor.  Thus failure of consideration specifies not only a claim, but also the particular basis for that claim.’  [footnotes omitted]

[102] It is the third meaning with which this litigation is concerned.  But what is meant here by the term ‘consideration’?  It is important to appreciate that, although this often is the case, the ‘bargain’ referred to in describing failure of consideration need not be contractual in nature.  For example, in Martin v Andrews,[21] the Court of Queen’s Bench upheld a declaration for money had and received to recover conduct money tendered with a subpoena ad test where the case was settled before trial.  Lord Campbell CJ said:[22]

‘The consideration has failed.  The money is paid for the purpose of defraying the expences [sic] of the witness’s journey:  if there is no journey there is no expence [sic], and the consideration fails; and then an action lies for money had and received.  There is indeed no express authority:  but the general principles upon which that action is maintained are applicable.’

The references to ‘purpose’ and to ‘general principles’ are significant.”

[21](1856) 7 El & Bl 1; 119 ER 1148.

[22](1856) 7 El & Bl 1 at 4; 119 ER 1148 at 1149.

  1. On this basis, I accept the submissions of the first plaintiff that the Advance Moneys were available to defray “the deposit due under the Contract of Sale” and that in circumstances where performance of that contract was not possible, and in fact never proffered, it was entitled to repayment of the Advance Moneys as moneys had and received by the first defendant (through its agent).  In my view, it is clear that the bargain had collapsed in toto and that this is not a case of a partial failure of consideration.  The first plaintiff was seeking to buy an indivisible and undivided property, not parts or components.  This circumstance distinguishes the present circumstances from those the subject of Rugg v Minett[23] where the plaintiff bought at auction a number of casks of oil.  The contents of each cask were to be made up after the auction by the seller to the prescribed quantity so that the property in a cask did not pass to the plaintiff until this had been done.  The plaintiff paid in advance a sum of money on account of his purchases generally, but a fire occurred after some of the casks had been filled up, while the others had not.  The plaintiff’s action was to recover the money he had paid as money received by the defendants to the use of the plaintiffs.  The Court of King’s Bench ruled that this cause of action succeeded in respect of the casks which at the time of the fire had not been filled up to the prescribed quantity.

    [23](1809) 11 East, 210.

  1. Here, as at 15 October 2009, the first defendant had become unable, as a matter of fact, to sell the property under the Contract of Sale provided for under the Option Agreement. This followed because the plan of subdivision, as defined in the Option Agreement, could not be registered. Consequently, for the reasons indicated, the Advance Moneys paid under the Option Agreement are repayable in full to the first plaintiff. The possibility that these moneys are, strictly, to be treated as deposit moneys for the purpose of Part 1 of the Sale of Land Act 1962, as argued by the first defendant, does not affect this position. In addition to provisions in the Sale of Land Act, I am of the opinion that to the extent there may be a contract of sale in existence upon which a plaintiff or defendant may rely, that contract may be set aside on the basis of the first defendant’s default.[24]  In any event, such a contract will not inhibit the power of the Court to order repayment of the deposit moneys.[25]

    [24]See sub-section 9AF(1)(b) of the Sale of Land Act 1962.

    [25]See sub-section 9AF(2) of the Sale of Land Act 1962.

Loss and damage

  1. Questions of loss and damage only arise in the event that the first defendant’s counterclaim that the first plaintiff was in breach of the Option Agreement by refusing to execute and exchange the contracts of sale delivered to it on 16 October 2009 were established.  For the reasons indicated, I am of the opinion that there was no breach on the part of the first plaintiff in this respect but, rather, these contracts were delivered by the first defendant in breach of the provisions of the Option Agreement and that it was not entitled to insist on their execution and exchange.

Summary and conclusions

  1. For the preceding reasons, I find that the first plaintiff is not in breach of the provisions of the Option Agreement, the consideration for which has wholly failed.  Consequently, the first plaintiff is entitled to repayment to it of the Advance Moneys of $400,000 pursuant to the provisions of that agreement or on the basis of general law principles applicable on a total failure of consideration.  Accordingly, there will be judgement for the first plaintiff in this respect and, consequently, the counterclaim of the first defendant wholly fails.

  1. The sale of business agreement constituted, according to its terms, an interdependent set of obligations which would only bind the parties to that agreement to completion in the event that the Option Agreement proceeded to completion in the sense that the property the subject of that agreement was ultimately purchased by the first plaintiff according to its terms.  As this did not occur, the sale of business agreement does not proceed to completion as a result of the operation of clause 44 of that agreement.[26]

    [26]See clause 44.2 of that agreement;  set out above, paragraph 13.

  1. I reserve the question of costs and will hear the parties further in relation to this issue and also in relation to the form of orders to be made on the basis of these reasons.

SCHEDULE

PLAN OF SUBDIVISION PS3416194

Re: Lot 1A

  1. “Original” proposed plan of subdivision
               Area:  7909m²

  2. “Revised” plan
               (Version 6.10.2009)
               “Revised” plan total area: 8026m²

    Affected area:

Affect

Area

(amended)

% of original area

(amended)

% of “revised” area

(amended)

(a)       Road reserve (R1)

39m²

0.49

0.48

(b)      Tree reserve (No1)

354m²

4.47

4.41

(c)       Drainage Easement (E9) (Length 105.77m not including road reserve)

211.5m²

(167.16m2)

2.67

(2.11)

2.63

(2.08)

Totals

604.5m²

(560.16m2)

7.63%

(7.07%)

7.52%

(6.97%)

  1. “Amended plan

    (Version 26.10.2009)

    “Amended” plan total area: 8026m²

Affect

Area

% of original area

% of “revised” area

(a)       Road reserve (R1)

39m²

0.49

0.48

(b)      Tree reserve (No1)

354m²

4.47

4.41

Totals

393m²

4.96%

4.90%

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Cases Citing This Decision

1

Ausgrand Pty Ltd v Stephanie Michele Freeland-Small [2016] VCC 942
Cases Cited

10

Statutory Material Cited

0

Keet v Ward [2011] WASCA 139
Port of Melbourne Authority v Anshun Pty Ltd [1981] HCA 45
Ogle v Comboyuro Investments Pty Ltd [1976] HCA 21