K & K Real Estate Pty Ltd v Adellos Pty Ltd (In Liquidation) & Anor

[2010] HCATrans 309

[2010] HCATrans 309

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S258 of 2010

B e t w e e n -

K & K REAL ESTATE PTY LTD ACN 002 532 078

Applicant

and

ADELLOS PTY LTD (IN LIQUIDATION) ACN 002 869 874

First Respondent

LA CONCRETE PTY LTD ACN 002 780 038

Second Respondent

Application for special leave to appeal

FRENCH CJ
GUMMOW J
HEYDON J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 12 NOVEMBER 2010, AT 2.31 PM  

Copyright in the High Court of Australia

MR R.S. ANGYAL, SC:   May it please the Court, I appear for the applicants.  (instructed by Colin Biggers & Paisley)

MR C.R.C. NEWLINDS, SC:  If the Court pleases, I appear for the respondents.  (instructed by ERA Legal)

FRENCH CJ:   Yes, Mr Angyal.

MR ANGYAL:   Your Honours, there are two special leave points.  The first is this.  The Court of Appeal’s decision yesterday has made a change to the law of election and waiver that is significant, undesirable and not in accord with authority.  The effect of the Court of Appeal’s decision, your Honours, is that a party to a contract for the sale of land can give the other party a document that constitutes an election to affirm the contract and that constitutes a waiver of the essentiality of time but that party can still maintain that the document has no effect because it was marked “without prejudice” or because it was part of an informal channel of communication, whatever that means.  Your Honours, if the Court of Appeal decision is allowed to stand it will produce significant uncertainty in conveyancing transactions, in particular, and in the law of contracts in general.

The second special leave point is this.  The result of the Court of Appeal’s decision is both unmeritorious and paradoxical and let me explain why.  Your Honours, the respondents, as vendors, served a notice to complete that made time of the essence.  They then agreed to negotiate with the applicant’s purchaser towards an extension of the time to complete but the respondents were lackadaisical about the running of time.  That is not my word, your Honours, that is the word his Honour Justice Young used to characterise the vendor’s approach to time.

They were so lackadaisical about the running of time that they did not make their proposal to extend the time for completion until the time when the notice to complete had run out.  They then proposed a six‑months extension, possibly extendable to nine months of the time for completion.  They then negotiated with the purchaser for nearly five months.  At that point, your Honours, they found a purchaser willing to pay a higher price. They peremptorily purported to terminate the contract and entered into a contract for sale with the new purchaser.

Your Honours, the lack of merit and the paradox flowing from the Court of Appeal’s decision is this.  The respondents made time of the essence.  They allowed it to run out because they were dilatory and they have been rewarded for their own dilatoriness. 

Your Honours, this case turns on the effect in law of a very small number of documents.  The appeal could be heard in half a day.  There is no issue as to the applicant’s readiness, willingness and ability to complete.  My learned friend told Justice Heydon on Monday that they accept that the applicant is ready, willing and able to complete the contract.

Could I take your Honours very briefly to the critical documents in the application book starting at page 123.  Your Honours, at 123 we have an email from Ms Marrone, who was the conveyancing paralegal acting for the vendors, to Mr Rumore, who was the solicitor for the applicant as purchaser.  It is on 19 January.  It is not in dispute that the 25 January was the date of completion in the contract, time not being of the essence.  Ms Marrone says:

Chris,

We note that this matter is due to settle on 25 January 2010 and we are yet to receive the Transfer and / or a Settlement Adjustment Statement.  We look forward to receiving same as a matter of urgency -

et cetera.  The next document, your Honour, on the next page, 124, again an email from Ms Marrone to Mr Rumore is on 20 January.  This is a critical document which the Court of Appeal found to be an intimation of a non‑completion by my client, the purchaser.  It says:

Chris,

We refer to our telephone conversation of earlier today wherein you indicated that your client will not be in a position to complete on Monday 25 January 2010.

We look forward to receiving confirmation as to when your client may expect to be in a position to complete.

There never was any indication given my client when it would be in a position to complete.  Your Honours next at page 130, 27 January - 25 January, the time for completion has now passed and the vendors, the respondents, served a notice to complete.  The notice to complete is on page 131.  It made time of the essence and appointed 12 February at 3.00 pm as the time for completion.  The next document is at 133.  Again, this is a critical – this is 28 January at 133, your Honours.  This is the first in a chain of documents all of which are marked, but one, “without prejudice”, in most cases inappropriately, or probably all of them inappropriately.  This is the usual conveyancing solicitor’s letter when he gets a notice to complete.  He rejects it:

as being defective as to content and as to form, not in accordance with the requirements of the common law and having been issued when the vendors are not in a position to issue a Notice to Complete ‑ ‑ ‑

FRENCH CJ:   It is a template, is it?

MR ANGYAL:   I think that may be the case.  It notes:

We are writing to you separately with regards to settlement.

The next document is at page 135, also 28 January, also from Mr Rumore to Mr Russell who is acting for the vendors.  This is the second document which the Court of Appeal has held to be an intimation ‑ ‑ ‑

GUMMOW J:   Why should we grant special leave to construe these documents arising out of a conveyancing transaction?

MR ANGYAL:   Because, your Honours, the Court of Appeal has held that the relevant document to which I will take your Honours in a moment would have been an election to affirm the contract and would have been a waiver of time, of the essentiality of time, but for the fact that either it was marked “without prejudice” inappropriately, or it was part of a “informal channel of communication” that was taking place together with some other channel.

FRENCH CJ:   This is just a characterisation of the position of the vendor as reserving their rights, was it not?  That is what the Court of Appeal said, they are reserving their rights, they are talking but they are not – I mean, whether it right to label things “without prejudice” or not, in the end this is a matter, surely, of factual characterisation of the position being adopted and communicated by the vendors to the purchaser?

MR ANGYAL:   Not at all, with respect, your Honour.  It is an important question in law as to whether something which otherwise could be an election, which the Court of Appeal held would be an election, and a waiver of the essentiality of time is robbed of that character by the words “without prejudice” being stuck on it, in other words, whether the respondents could approbate and reprobate and there is plenty of authority on that issue which is referred to in the outline of argument. 

Your Honours, the next critical document is at page 135.  This is the second document which the Court of Appeal has held to be an intimation of a non‑completion which released the vendors from their obligation to be ready, willing and able to complete on the 12th.  It is again marked “Without prejudice” at about line 20 and it is an offer to extend the time, or request to extend the time for completion to nine months on terms set out in the letter, one of the terms being on page 136 at line 10 that:

The Notice to Complete . . . is to be withdrawn.

Your Honours, the next document is at 137.  This is the only document in the chain that is not marked “without prejudice” or refers to or applies to a without prejudice document.  It is a letter from the vendor’s solicitor asking why the notice to complete is said to be defective, but ironically, although it is not marked “without prejudice” it probably was without prejudice because your Honours will see at about line 24 or line 25 the words:

However, in order to avoid a potential dispute, and so that our clients can properly consider your client’s contentions in the aforesaid letter, would you kindly advise as a matter of urgency –

et cetera.  There is a specific reservation of rights, your Honours, at line 40 which the Court of Appeal thought was of significance.  The next document is at 139, 29 January, again “Without Prejudice”, from the purchaser’s solicitor to the vendor’s solicitor and that is a response to the document I have just taken your Honours to:

Dear Thomas,

Thank you for your email of Thursday afternoon.

At this stage, our client believes that it is in the best interest of both parties to negotiate and deal with the issue of the request for an extension of time for settlement as set out in our letter to you of 28 January 2010.  If this matter is able to be resolved commercially, then any issues with the notice to complete will disappear, as the notice will be withdrawn by your client.

…

Please come back to us with your client’s formal response with regards to the matters raised in our letter to you.

Next at 140, your Honours, 3 February, not without prejudice but referring to the “without prejudice” letter of 28 January at line 10:

We refer to our previous correspondence and await your further instructions in relation to the issues raised in our without prejudice letter of 28 January 2010.

That brings me, your Honours, to the critical document in the proceedings at page 141, an email from the vendor’s solicitor to the purchaser’s solicitor.  This is sent on Wednesday the 3rd.  The time for completion ran out on the Friday of the following week, Friday, the 12th.  The email says;

Chris,

I refer to your email, below.  This email is sent on a “without prejudice” basis.

At this stage the Vendors neither accept nor reject the proposal made by your client.  The Vendors met in conference this afternoon, together with other interested parties, in order to discuss the matter generally.  As a result of these discussions it was decided to submit a counter‑proposal for consideration by your client.  This is currently under preparation.

Any counter‑proposal will require that your client satisfy the Vendors as to its likely ability to complete.  I mention this matter now so that your client can commence collation of the material necessary to achieve this, for instance a statement of assets and liabilities –

et cetera.

GUMMOW J:   This is a communication in a period when the essentiality is running, is it?

MR ANGYAL:   It is, your Honour.  Time ran out on the 12th, the Friday of the following week.

GUMMOW J:   Why is it an intimation they were not going to complete on the 12th?

MR ANGYAL:   This is a letter from the vendors to the purchaser, my clients.  This is the letter which the Court of Appeal has held to be an election to affirm the contract subject to the words “without prejudice” on it and a waiver of the essentiality of time but for the fact that it is sent in some informal channel or communication, whatever that means.

Your Honours, the next critical document is at 143.  Your Honours will note that the document at 141 was sent at 4.13 pm on Wednesday, 3rd.  The next document was sent seven minutes later at 4.20 pm on 3 February.  Your Honours can see that at line 10 on 143.  It is from my client’s solicitor:

Thomas

Thank you for this response.

I will get onto my client tomorrow with respect to the financial information you mention.

Thank you for your assistance.

In other words, we take on board your statement that any counterproposal will require us to satisfy you that we have the ability to complete and we are going to get together the financial information necessary to satisfy you starting tomorrow.  There is only one more document in the chain and it is at 146.  It is 9 February, again “Without prejudice”, at about line 25:

We refer to our previous correspondence and in particular to our letter of 28 January 2010.

That was the one asking for nine months to complete –

We note that from your response to us of 3 February 2010 that a counterproposal will follow “shortly” but by the end of last week.

Now, 9 February is the Tuesday, the time to complete runs out on Friday, 12th:

We note that we are waiting for this counterproposal.

We note that there are rumours in the market place that our client has stated that it has overpaid for the property and is seeking to get out of the contract and not proceed.  Nothing could be further from the truth.  Our client wishes to put on record (in case your client is hearing similar rumours . . . that our client intends to complete subject to the issues raised in our letter of 28 January 2010.

We await receipt of the counterproposal of your vendors in this matter.

If there is one thing that is clear from this letter it is that the purchaser wants to settle, he wants to settle beyond 12 February and is waiting for the vendor’s proposal to that effect.  What then happened, your Honours, was 12 February came and went without any further written communication between the parties.  Neither party prepared for settlement.  Neither party attended at settlement on 12 February, which was the Friday of that week.  On the Monday of the following week at 1.48, your Honours – 1.48 – the vendor’s counterproposal finally arrives.  This is after the time has run out in the notice to complete.

GUMMOW J:   But is it your submission that in view of the events that had happened shortly before 12 February, by 12 February that had ceased to be an essential date for completion?

MR ANGYAL:   Yes, that is one of our submissions, your Honour.

GUMMOW J:   Why?

MR ANGYAL:   The vendors had waived the essentiality of time by their email of 3 February and their subsequent silence up to the time running out on 12 February at 3.00 pm.  The Court of Appeal accepted that but for the fact that the document was marked “without prejudice”.  That is the whole point of our case.  It is also put that that document was an affirmation of the contract which had been repudiated by my client’s anticipatory breach, Foran v Wight, and that having affirmed the contract the vendors were not in a position on 8 July to terminate, which they purported to do.

Let me quickly finish the chain of documents.  The 15 February document at 148, your Honour, was an offer to extend time for six months or nine months at the vendor’s discretion.  If your Honours look at page 149 at line 30, your Honours will see that it recognised that a fresh notice to complete would need to be served and provided for a seven‑day notice to complete, under the circumstances, but it recognised that a fresh notice would have to be served.

There is one other document I need to take your Honours to.  It is at 151 and it discloses what the vendors were doing on the afternoon of the day appointed for settlement, 12 February.  This is an email sent that day by the solicitor acting for the vendors to the solicitor for a mortgagee.  The mortgage would have had to be discharged to permit settlement.  At about line 28 your Honours see number 3.  Mr Russell sent the mortgagee’s solicitor:

A draft response –

that is a draft response to my client’s proposal –

which is currently with four interested parties for review and comment, in the expectation that it will likely be sent this afternoon.

At 10.42 am on the day appointed for settlement the vendors were still hoping, ultimately as it turned out, wrongly, that they would be able to send a proposal for extension of the time for settlement.  In the event, it did not come until the Monday.  Significantly, your Honours, at line 35 the vendor’s solicitor said:

You may also be interested to know that we have received several further communications from Colin Biggers & Paisley emphasising that their client is serious about purchasing the property, and explaining the other costs and expenses they have incurred and continue to incur on the assumption that the purchase will ultimately complete.  The prevailing view at present is that the Purchaser is genuine and that, subject to satisfaction as to the Purchaser’s financial wherewithal, the sale should be permitted to proceed.  The draft response attached has been prepared to reflect that state of affairs.

In other words, the vendor’s state of mind was that they were prepared to extend the time.  They were preparing a proposal to extend the time and they did so because they thought it was in their financial interest because they wanted to keep my client, the purchaser, on the hook because they thought my client was good for the purchase money.

GUMMOW J:   On the question of people keeping one another on the hook, what do you say about paragraph 126 of Justice Young’s reasons?

MR ANGYAL:   Excuse me a moment, your Honour.

GUMMOW J:   You are an applicant for specific performance, are you not?

MR ANGYAL:   That is dealt with in the written submissions.  Let me take your Honour immediately to that point.  In the supplementary summary of argument can I take your Honour to paragraph 32 where paragraph 126 of his Honour’s judgment is squarely addressed.  I referred to paragraph 126 and in paragraph 33 I set out the merits of the case in much the same way as I did in opening, in 33, 34, 35 and point out in 36 that the applicants – we accept that at any time during the five months of negotiations that ensued before the respondents finally terminated on 8 July, the respondents could have served a fresh notice to complete and had we not complied with it they could have terminated the contract but they did not do that.

It is said they peremptorily terminated the contract relying on our alleged failure to turn up with the money on 12 February.  Their behaviour, it is submitted, is entirely unmeritorious.  Can I also direct your Honours’ attention to paragraph 38 of the outline?

FRENCH CJ:   When you say they recognise that there was a need for a further notice to complete that is in reliance upon the proposal that the purchaser agreed to a particular form of notice to complete, is that right, the one that appears at page 149 in paragraph 5?

MR ANGYAL:   Your Honour, yes to that, but also generally my client accepts that at any time during the five months negotiations the respondents could have served fresh notice to complete and we would have been at risk had we not completed but they did not so.  They purport to rely on the original notice to complete.

FRENCH CJ:   Yes, I appreciate that.  It is just that you were relying upon that paragraph, the proposition that there was an acknowledgement by the vendors that they required a notice to complete.  Is that right – a new notice to complete?

MR ANGYAL:   It is an acknowledgement.  If their proposal were accepted that would be one of the consequences.  I cannot put it any higher than that. 

FRENCH CJ:   Yes.

MR ANGYAL:   Can I take your Honour back to paragraph 38 of the outline of argument.  There are several references in the Court of Appeal’s judgment to the applicants not having been ready, willing and able until 5 August and I give your Honours the references.  That was a concession made in the course of preparation of these proceedings at trial.  The respondents wanted discovery of all the applicant’s documents back to the dawn of time.

GUMMOW J:   So what?

MR ANGYAL:   The point is simply that this was not something known to the respondents at the time the relevant events took place.  It formed no part of anybody’s thinking.  It is therefore completely irrelevant to any issue in the proceedings.  That is the point, your Honour.  It should not have figured, with respect, in the Court of Appeal’s judgment for that reason.  Can I take your Honours to the outline of submissions?

GUMMOW J:   Is it now said that the contrary is the case?

MR ANGYAL:   No, not at all, your Honour, but it is not part of any reasoning available to the trial court or the Court of Appeal.  It could not form the basis of any reasoning available to them.  It was not a matter known to the respondents at the time.  It was a concession made in the course of the preparation for hearing. 

Could I take your Honour to the outline of submissions starting at paragraph 7.  We set out there that the Court of Appeal has found as a matter of fact that my client intimated to the respondents that it would not complete the contract on 12 February 2010 so that there was no point attending for completion.

FRENCH CJ:   I am sorry to interrupt you, just going to your identification of the special leave question, I know you are running a sort of visitation point.

MR ANGYAL:   I am sorry, what point, your Honour?

FRENCH CJ:   A visitation point in the sense that there is an administration of justice point.

MR ANGYAL:   Yes.

FRENCH CJ:   But, so far as the sort of point of principle is concerned that you raise, that is really encapsulated in paragraph 39 of your supplementary submissions, is it not?

MR ANGYAL:   Yes, your Honour.

FRENCH CJ:   That kind of judgment is contextual and was contextual here, was it not?  It really comes back to the point I put to you before as to whether this is really an argument about characterisation of certain factual events that had occurred and what significance one attaches to the words “without prejudice” in the particular context as a matter of inference and how the parties were in fact dealing with each other.  It is that that underpins the two lines of communication approach that the Court of Appeal took, is it not?

MR ANGYAL:   I am sorry.

FRENCH CJ:   It is that which underpins the two channels of communication approach which was taken in the Court of Appeal?

MR ANGYAL:   That is not entirely clear but that may be right, your Honour.

FRENCH CJ:   Yes.  It all hooks on to this “without prejudice”, that they were reserving their rights.  I am trying to characterise the approach taken by the Court of Appeal, they were reserving their rights and at the same time going along this track of, “Maybe we can sort this out some other way?”

MR ANGYAL:   That raises a profound question of law which is whether one party can serve a document which apart from the words “without prejudice” would constitute an election and a waiver and rob it of that effect by putting the words “without prejudice” on it.  The documents are before your Honour.  The whole case turns on the construction of the documents.  It is a simple question of law based on the proper characterisation in law of the documents. 

Of course, there is a lot of authority referred to in our submissions that one cannot have one’s cake and eat it without prejudice to not having one’s cake and that is exactly the point here.  The respondent served a document which the Court of Appeal has said would be an election and would be a waiver but for the fact that they put the words “without prejudice” on it and admittedly, improperly in the sense that it could not have prevented it getting into evidence and both sides, in fact, put documents into evidence.

FRENCH CJ:   I think we have your points, now, Mr Angyal, thank you.

MR ANGYAL:   Yes, your Honour.

FRENCH CJ:   Thank you.  We will not need to trouble you.

The applicant seeks special leave to appeal from the decision of the New South Wales Court of Appeal dismissing its appeal against a refusal by Justice Hamilton of its application as purchaser for specific performance of its contract with the respondent for the purchase of a parcel of vacant land for the price of $5,600,000.  The applicant contends that the Court of Appeal erred in its application of various aspects of the law of vendor and purchaser, in particular with respect to issues of contractual affirmation, waiver of essentiality of time and dealings conducted without prejudice.

We are not satisfied that any issue of principle arises.  To the contrary, the outcome at trial and in the Court of Appeal turned upon the particular facts and conduct of the parties in the period after the passing of the initial contractual date for completion of 25 January 2010 and up to the notice of termination given on 8 July 2010.

Special leave will be refused with costs.

MR NEWLINDS:   If your Honour pleases.  I wonder if I could ask for liberty to apply, your Honour? There is an injunction which will expire by effluxion of time sometime soon with an undertaking as to damages attached.  I am not sure of the appropriate procedure, but can I just have liberty to apply in the event we want to take up the undertaking as to damages?

FRENCH CJ:   Yes, all right.  Liberty to apply.

MR NEWLINDS:   Thank you, your Honour.

FRENCH CJ:   The Court adjourns until 10.15 am on Tuesday, 30 November 2010 in Canberra.

AT 2.57 PM THE MATTER WAS CONCLUDED