K7 Developments Pty Ltd v Abbotsford Estates Pty Ltd
[2021] VSC 422
•15 July 2021
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
PROPERTY LIST
S ECI 2018 00987
| K7 Developments Pty Ltd (ACN 163 701 00987) | Plaintiff |
| v | |
| Abbotsford Estates Pty Ltd (ACN 614 886 958) | Defendant |
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JUDGE: | Forbes J |
WHERE HELD: | Melbourne |
DATES OF HEARING: | 4-6 May 2021 |
DATE OF JUDGMENT: | 15 July 2021 |
CASE MAY BE CITED AS: | K7 Developments Pty Ltd v Abbotsford Estates Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2021] VSC 422 |
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CONTRACT – Breach of contract of sale of land – Delayed settlement of contract of sale –Specific performance sought by purchaser - Whether each party was ready, willing and able to settle the contract – Agreement to extend settlement date at request of purchaser but settlement then requested on original date – Whether terms of agreement to extend settlement period govern rights and obligations – Counterclaim seeking damages arising from delayed settlement – Construction of contract - Whether purchaser in default or otherwise required to pay interest when settlement delayed – Sale of land where supply made under the contract was Supply of a Going Concern pursuant to A New Tax System (Goods and Services Tax) Act 1999 (Cth) – Special and General conditions of contract – GST liability when vendor did not continue going concern for the whole of the property – Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104 – Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544 – Catley v Watson (1981) V ConvR 54-003 – Foran v Wight (1989) 168 CLR 385 – Carrapetta v Rado [2012] NSWCA 202.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr S. Horgan QC with Mr B. Murphy | White Ellis Lawyers |
| For the Defendant | Mr D. McAloon | B2B Lawyers |
HER HONOUR:
The plaintiff purchased property at 288-298 Johnston St, Abbotsford (the Property) from the defendant at auction on 15 June 2017 and entered into a contract for the sale of land (the Contract) that same day. The settlement date for the transfer of land was to be 15 March 2018. The property was commercially leased at the time and the Contract specified that the sale was of land on which a ‘going concern’ was being carried on. This had GST implications. The Contract specified that the purchase price was plus GST, but that GST was only payable if Special Condition 31 (SC31) applied.
The plaintiff requested an extension of the settlement date anticipating that there may be delay in arrival of funds from overseas. On 15 January 2018, the parties agreed terms for an extension of settlement until 15 May 2018 (extension agreement).
For a variety of reasons, as detailed below, settlement did not occur on 15 March 2018, nor during the period of the extension agreement. Consequently, on 12 June 2018, the defendant issued the plaintiff with a Notice of Default (Default Notice) pursuant to General Condition 27 of the Contract.[1]
[1]Letter from B2B Law to Katsu Lawyers, 12 June 2018, enclosing Notice of Default, found in the joint Court Book which was exhibited in its entirety as Exhibit P-E (‘CB’), 674. Hereafter, references to page numbers are to the pagination prepared by the parties and not the electronic pagination.
The plaintiff disputed being in default and disputed the validity of the Default Notice. It nevertheless made an offer to settle the property on 19 June 2018 which was not accepted by the defendant. The defendant advised it intended to act on the Default Notice, consider the contract terminated or rescinded and to place the Property back on the market. In response, the plaintiff issued this proceeding on 24 August 2018 seeking specific performance of the Contract by the defendant and other relief.
In September 2018, the defendant took steps to put the Property back on the market. However, negotiations between the parties continued and although reaching an “in principle” agreement in October 2018, terms could not be agreed. The defendant again considered the plaintiff to have repudiated the Contract and an agreement to settle in October 2018, and so signed a contract with a third party for the sale of the Property.
On 17 December 2018, the defendant filed its defence and made a counterclaim seeking to recover its loss and damage arising from the delayed settlement and steps to resell the Property.[2] It disputed that the plaintiff was entitled to specific performance of the contract.
[2]Plaintiff, ‘Reply and Defence to Counterclaim’, submission in K7 Developments Pty Ltd (ACN 163 701 148) v Abbotsford Estates Pty Ltd (ACN 614 886 958) S ECI 2018 00987, 14 February 2019.
Ultimately the transfer of title from defendant to plaintiff was settled on 6 May 2019. This was in the context of both a forthcoming trial date in this proceeding and a summons taken out by the defendant seeking removal of the caveat lodged by K7 Developments to protect its interest in the land as purchaser. The parties agreed that outstanding issues of default, delay, costs, interest and damages are to be determined in this proceeding.
Issues in dispute
The remaining issues for determination remaining in the plaintiff’s claim and the defendant’s counterclaim are as follows:
(a) Did the extension agreement bind the parties and require the plaintiff to give 14 days’ notice of settlement if it was able to settle on the original settlement date?
(b) Did the Contract and the extension agreement give the defendant an entitlement to interest at 16% compounding monthly until settlement in May 2019?
(c) What is the correct construction of the Contract, in particular the obligations imposed by the warranty of the Vendor in General Condition 13 (GC13) and the provision of no warranty of the Vendor in SC31 in relation to carrying out a going concern on the property? Did they conflict?
(d) Was the defendant’s Default Notice valid and if so, was the plaintiff in default?
(e) the quantification of any entitlement to damages.
A detailed chronology
(i) Extension Agreement
The extension agreement followed from the plaintiff’s request on 17 November 2017 for a two-month extension as the plaintiff anticipated the possibility of delay in receiving funds from overseas.[3]
[3]Email from Katsu Lawyers to B2B Law, 17 November 2017 at CB 456.
The terms of the extension agreement provided that settlement may occur after 15 March 2018 up until 15 May 2018 upon 14 days’ notice being given to the defendant by the plaintiff and that the plaintiff pay interest at 16% compounding monthly from 15 March 2018 to the actual date of settlement. It also required the provision by the plaintiff and guarantor of further general security agreements, registration of interests on the Personal Property Security Register and the registration of caveats in favour of the vendor. The plaintiff agreed to pay the vendor’s reasonable costs associated with the extension.[4]
[4]Terms in an exchange of emails between 11 and 15 January 2018 at CB 458-460.
In the exchange of emails canvassing the terms of the extension agreement, the vendor’s solicitor stated:
With respect to your condition 1 our client requires at least 14 days’ notice should your client wish to settle before 15 May but after 15 March 2018.
For the avoidance of doubt, should the purchaser wish to settle before the original settlement date of 15 March 2018, we will have to obtain our client’s instructions. The 14 day notice relates to the period from 15 March 2018 to 15 May 2018. [5]
[5]Email B2B Lawyers to Katsu Lawyers, 15 January 2018. Condition 1 was the proposal that settlement could occur earlier than 15 May 2018.
Documentation was prepared and forwarded to the plaintiff before 15 March 2018 and the additional guarantee and indemnities signed but other documentation was not executed nor interests registered.
On 5 March 2018, the plaintiff informed the defendant that it was now in a position to settle on the original settlement date under the Contract, being 15 March 2018.[6] In response, the defendant’s solicitors characterised this as a request for an early settlement noting the extension agreement. They indicated that 14 days’ notice would be required as agreed under the extension agreement.[7] The purchaser disputed that the extension agreement was applicable and said its terms were only activated if settlement was requested to take place after 15 March 2018.
[6]Email from Katsu Lawyers to B2B Law, 5 March 2018 at CB, 552.
[7]Email from B2B Law to Katsu Lawyers, 6 March 2018 at CB, 572.
The Contract provided for nomination and transfer of land documents to be provided prior to settlement.[8] On 5 March, an unsigned nomination form and a prepared (but not signed) Transfer of Land was sent. These documents were sent late, after the time stipulated for provision.
[8]Special Condition 21 provided 14 days in relation to nominating a substitute or additional purchaser and Special Condition 22 required purchaser to deliver the Transfer of Land document at least ten business days before the Settlement Date.
On 15 March 2018, the defendant proposed, and the parties agreed to, a new settlement date of 20 March 2018.[9]
(ii) Vacant tenancies and the potential GST consequences
[9]Email from B2B Law to Katsu Lawyers, 15 March 2018 at CB 598.
At the time of sale, the Property was subject to four tenancy agreements. Pursuant to the Contract, the Property was to be supplied to the plaintiff at settlement as a “Going Concern”. The effect of the “Going Concern” provision was to exempt the sale of the Property from GST. What constitutes a ‘going concern’ is defined by subdivision 38-J of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (GST Act). In this case it was the commercial leasing arrangement being carried on that attracted the sale of the land as one capable of being a “going concern”. The definition includes conditions which must be met for a supply to be a going concern. One condition is that the arrangement is one which the supplier (vendor) carries on, or will carry on, the enterprise until the day of supply.[10]
[10]A New Tax System (Goods and Services Tax) Act 1999 (Cth) s 38-325(2)(b).
On 16 March 2018, in preparation for settlement on 20 March, the conveyancing solicitor for the plaintiff requested plans for the four leases as the section 32 documentation, although referring to attached plans, did not in fact include any plans of the tenancy areas.[11] The provision of plans remained outstanding at the time of settlement in May 2019.
[11]Email from B2B Law to Katsu Lawyers, 16 March 2018 at CB 615.
On 19 March 2018 notification that two of the tenants had vacated the premises was communicated to the plaintiff. On that date it was informed that one tenant, Tippling House Pty Ltd (Tippling House) had vacated in September 2017 and the other on 28 February 2018. No information was provided as to any steps taken by the vendor since September 2017 to re-let the premises so as to maintain the Property as a going concern. Rather, the vendor simply noted that part of the supply was now subject to GST for which the purchaser was liable.
There was some dispute as to the accuracy of the information provided as on 19 March Mr Nguyen had spoken with people operating Tippling House who were in fact still present at the premises.
The defendant suggested entering into a related party lease for the vacant portion. The defendant was not open to a 12-month tenancy, instead proposing a month-to-month tenancy.[12] In correspondence dated 28 March 2018, the plaintiff indicated that it had received advice from its accountant that the proposed related party lease would not comply with Subdivision 38-J of the GST Act. The plaintiff did not want to enter into the proposed related party lease, at its cost, and still bear the consequences if the Property was subsequently deemed taxable supply in part.[13]
[12]Email from B2B Law to Katsu Lawyers, 26 March 2018 at CB 632.
[13]Email from Katsu Lawyers to B2B Law, 28 March 2018 at CB 660.
This highlighted a disagreement between the parties as to who carried the GST obligation if it arose by reason of the sale being, in part, no longer of a going concern. The plaintiff asserted that pursuant to GC13.5(c) of the Contract the vendor warrants that it will carry on the going concern to the date of supply and that the defendant was in breach of that provision.[14] As a consequence, the plaintiff argued it was not liable for GST. The defendant asserted that this General Condition was inconsistent with SC31(g)(ii), which states that the vendor provides no warranty that the supply made will constitute supply of a going concern. Where there is inconsistency, the contract provided that the Special Condition prevails and so the defendant said any GST liability rests with the purchaser.
(iii) Camera on the site
[14]Email from Katsu Lawyers to B2B Law, 28 March 2018 at CB 660.
On 19 March 2018, following the plaintiff’s final inspection of the Property, the plaintiff notified the defendant that it had identified a camera affixed to the top of the Property.[15] The camera had been installed after the date of sale by a construction company, Pace Constructions (Pace), operating at a nearby site.
[15]Email from Katsu Lawyers to B2B Law, 19 March 2018 at CB 618.
The plaintiff requested that the defendant disclose any lease or licence agreement with respect to the camera prior to settlement. The plaintiff did not want any arrangement relating to the camera to restrict its plan for redevelopment.[16] The defendant was not forthcoming with evidence of any licence or other agreement regarding the camera, however indicated that it was arranging for the camera to be removed as soon as practicable.
[16]Email from Katsu Lawyers to B2B Law, 19 March 2018 at CB 618.
On 21 March 2018, the defendant’s director requested that Pace remove the camera as soon as possible.[17] Pace responded by stating that if it could not get written permission from the plaintiff to retain the camera, it would be removed by 6 April 2018.[18] Pace indicated it was content to enter into a licence agreement. The plaintiff was content with this and indicated so on 5 April 2018. Pace sent a proposed licence agreement to the defendant for signature on 9 April 2018.[19] The defendant did not sign the licence agreement.
(iv) April offer to settle
[17]Transcript of proceedings, K7 Developments Pty Ltd (ACN 163 701 148) v Abbotsford Estates Pty Ltd (ACN 614 886 958) (Supreme Court of Victoria, S ECI 2018 00987, Forbes J) (‘T’) 182.
[18]Email from Pace Constructions to Ms Steel, 3 April 2018 at CB 664-665.
[19]Email from Pace Constructions to Ms Steel enclosing proposed deed of agreement, at CB 1126A-1126F.
On 26 March 2018, the defendant inquired as to whether the plaintiff would be in a position to settle by 28 March 2018,[20] and inquired again the following day as to whether the plaintiff would be in a position to settle on 29 March 2018.[21] Neither correspondence was accompanied by any proposal to resolve outstanding issues or provided outstanding documentation from the vendor. In a reply email on 28 March 2018, the plaintiff cited ongoing concerns, namely, the potentially substantial GST liability, the viability of the proposed related party lease, and the presence of the camera. It gave no confirmation in respect of the proposed settlement date.[22]
[20]Email from B2B Law to Katsu Lawyers, 26 March 2018 at CB 632.
[21]Email from B2B Law to Katsu Lawyers, 27 March 2018 at CB 657.
[22]Email from Katsu Lawyers to B2B Law, 28 March 2018 at CB 660.
The defendant replied on 5 April 2018 confirming its position that, in reliance on SC 31(g)(ii), any GST liability lies with the plaintiff. That email said, amongst other things:
In the event a lease is not in existence… for the premises prior to settlement, our client acting reasonably determines that only part of the supply will constitute a Supply of a Going Concern and in our client’s reasonable determination, GST will be payable in respect to the untenanted premises. [23]
[23]Email from B2B Law to Katsu Lawyers, 5 April 2018 at CB 662.
It also provided notice under SC 31(g)(iv) that the defendant “requires an amount equivalent to the GST liability to be paid by the purchaser in addition to the purchase price at settlement”.[24] The email also attached the response from the construction company regarding removal of the camera, which was to occur by 6 April in the event that the purchaser did not agree to it remaining there. I note that by 5 April the purchaser had indicated agreement on this question.
[24]Ibid.
The plaintiff still took issue with the interpretation of the contractual provisions regarding GST liability. On 6 April 2018, the defendant’s conveyancer then advised that their client would be away and uncontactable for three weeks from the following day.
Absent any further communication from the defendant, on 23 April 2018 the plaintiff proposed that it would agree to enter into the related party lease as previously suggested by the defendant, on the basis that GC13.2 and parts of SC31 be deleted and rendered inoperative by the parties (plaintiff’s April offer).[25] The intended effect of such a variation would be that the defendant could not pass on any GST liability that might later be determined payable on that part of the Property not maintained by the vendor as a going concern (i.e. the part subject to the proposed related party lease).[26]
[25]Email from Katsu Lawyers to B2B Law, 23 April 2018 at CB 668; see also Contract of Sale dated 15 June 2017 (‘Contract’), Special Condition (‘SC’) 31 and General Condition (‘GC’) 13.
[26]In accordance with condition (f) of the extension agreement.
Subject to the defendant executing a licence agreement with Pace in respect of the camera, the plaintiff proposed that settlement could take place 10 days after the defendant’s agreement to the April offer. As stated above, a signed licence agreement had already been sent by Pace to the director of the defendant but was never executed.[27]
[27]Email from Pace Constructions to Ms Steel, 9 April 2018 at CB 1126A.
Absent any response from the defendant, the plaintiff then withdrew its April offer on 14 May 2018. That same day, the plaintiff advised that its loan arrangements were due to expire on 30 May 2018 and proposed a meeting to discuss and resolve issues regarding settlement.[28] The defendant acknowledged the withdrawal and confirmed that it would strictly enforce the Contract, particularly in relation to the plaintiff’s obligation to pay GST.[29]
[28]Email from Katsu Lawyers to B2B Law, 14 May 2018 at CB 670.
[29]Letter from B2B Law to Katsu Lawyers, 15 May 2018 at CB 671.
Neither party proposed settlement by 15 May 2018 in accordance with the extension agreement.
Default Notice
On 17 May 2018, the defendant notified the plaintiff that it was in the course of preparing a rescission notice.[30] It sent the Default Notice on 12 June 2018.
[30]Email from B2B Law to Katsu Lawyers, 17 May 2018 at CB 672.
Relevantly the Due Date in the Default Notice was identified as being–
6. Due Date: 15 March 2018 (original settlement date) and 15 May 2018 (extended settlement date pursuant to Purchaser’s request agreed by Vendor subject to conditions as set out in the correspondence exchanged between B2B Lawyers and Katsu Lawyers from 11 January 2018 to 15 January 2018).
The Notice at Item 6 then described “Conditions agreed by the Purchaser relating to the 15 May 2018 extended settlement date” and set out the five conditions of the extension agreement.
The Particulars of Default alleged that the plaintiff and its nominee defaulted in the performance of the plaintiff’s obligations under the Contract as follows:
1.Failed to pay to the Vendor all monies owed to the Vendor by the Due Date including but not limited to the balance of the purchase money, interest and adjusted apportionable outgoings including goods and services tax (GST) payable by the Purchaser and its Nominee:
(a) Balance of purchase price: $6,525,000.00;
(b)GST: $96,912.00 payable on non-tenanted area, front 288-290 Johnston Street, Abbotsford VIC 3067;
(c)Accrued Interested at 16%pa compounding monthly from 16 March 2018 to 12 June 2018 totalling $254,952.81 interest.
i.16 March 2018 to 15 April 2018: $85,808.22 interest calculated on $6,525,000.00;
ii.16 April 2018 to 15 May 2018: $86,936.66 interest calculated on $6,610,808.22; and
iii.16 May 2018 to 12 June 2018: $82,207.93 interest calculated on $6,697,744.87
and continues to accrue at 16%pa daily and compounding monthly; and
(d)Adjusted apportionable outgoings and any legal expenses owed to the Vendor under the Contract.
2.Failed to procure two General Security Agreements to be signed by the Purchaser and its Guarantor Vu Hoang Nguyen as detailed under condition 1 of Item 6;
3.Failed to pay B2B invoice 144569 rendered and provided on 15 March 2018 in the sum of $4,354.12 being legal costs incurred by Vendor in relation to settlement extension sought by the Purchaser including the costs of the contemplated security documents as detailed under condition 5 of Item 6.
The Default Notice was the first time an amount had been specified by the defendant in respect of the GST payable on the non-tenanted area of the Property.
(v) Subsequent Offers to settle
By letter on 19 June 2018, the plaintiff disputed being in default of its obligations under the Contract and disputed the validity of the Default Notice. The plaintiff also stated that the extension agreement, as referred to in the Default Notice, was not required as the plaintiff had been “ready, willing and capable of settlement since 15 March 2018 and in fact requested for settlement to take place on 15 March 2018”.[31] Therefore, the plaintiff argued that the extension agreement was not required and so compliance with its conditions was not necessary. It asserted that the extension conditions ought not be construed as becoming unconditional and binding.[32]
[31]Letter from Katsu Lawyers to B2B Law, 19 June 2018 at CB 679-681.
[32]Letter from Katsu Lawyers to B2B Law, 19 June 2018 at CB 679-681.
Notwithstanding its objection to the defendant’s Default Notice, the letter from the plaintiff made a settlement offer that included payment of: the balance of the purchase price, the claimed GST amount of $96,912.00 (made under protest), penalty interest of $14,301.37 (covering the period from 16 March 2018 to 20 March 2018), legal costs associated with preparing documentation for the extension agreement and the usual adjustments of property outgoings (plaintiff’s June offer). All payments would be made at settlement, proposed for 25 June 2018. If not accepted the correspondence provided notice that the purchaser may seek an order for specific performance of the defendant’s obligations and other relief. On 28 June 2018, a follow up letter from the plaintiff noted an outstanding response from the defendant.
Having remained silent with respect to the offer, the vendor’s solicitors then wrote on 29 June 2018 that the 14-day period of the Default Notice had expired and the defaults had not been remedied.
In a letter dated 8 August 2018, the defendant formally informed the plaintiff, its nominee and the guarantors of its intention to act on its Default Notice due to the plaintiff’s failure to remedy its defaults. It again set out its reasons for the continuing defaults by the plaintiff. It nevertheless proposed settlement on the following conditions: payment of the balance of the purchase price; GST in the sum of $96,912; accrued interest from 16 March 2018 compounding in accordance with the settlement extension agreement (which to the date of the letter was calculated at $428,405.58 and continuing to accrue until the time of settlement); the outstanding invoice for legal fees; further expenses incurred and incurring as a result of settlement delays (said to comprise legal, accounting and financial expenses totalling $87,477.53); and adjusted apportionable outgoings. A subtraction of $50,000 from the total settlement amount was included in the defendant’s offer. Settlement was to occur within 14 days (defendant’s August offer).
The plaintiff did not respond to this offer other than to commence the anticipated proceeding for specific performance. On 5 September 2018, after re-stating its position, the defendant made an offer of settlement in accordance with Calderbank principles.[33] The revised offer was substantially that of the defendant’s August offer save for a revised amount of accrued interest compromised at $350,000,[34] and the timing of settlement being no more than 30 days (defendant’s Calderbank offer).[35] No settlement ensued.
[33]Calderbank v Calderbank [1975] 3 All ER 333.
[34]Rather than $513,723.72, calculated to the date of the offer.
[35]Letter from B2B Law to White Ellis Lawyers, 5 September 2018 at CB 692-700
On 20 September 2018, the defendant advised the plaintiff that it was taking steps to have the Property relisted so that it could be resold to another purchaser without delay.[36] The defendant did so notwithstanding that the plaintiff had issued proceedings for specific performance of the Contract, and that the plaintiff had a caveat over the title of the Property to protect its interest.
[36]Letter from B2B Law to White Ellis Lawyers, 20 September 2018 at CB 747.
On 26 September 2018 the plaintiff proposed resolution (plaintiff’s September offer) as follows:[37]
[37]Letter from White Ellis Lawyers to B2B Law, 26 September 2018 at CB 722A- 723, which was also expressed to be in accordance with Calderbank principles.
a) Settle the Contract within 30 days by paying [the defendant]:
i.the balance of the purchase price in the sum of $6,525,000;
ii. the GST amount properly calculated;
iii.penalty interest from 16 March 2018 to 20 March 2018 in the sum of $14,301.37;
iv. your client’s legal costs in the sum of $4,354.12;
v.usual adjustment of apportionable property outgoings; and
vi. $150,000.
The parties reached agreement in principle.
However, the agreement was not sustained in light of differences over calculating the applicable 30-day period. The defendant purported to accept the offer with settlement to occur 30 days from the date of acceptance (being 2 October 2018) and sought a draft deed of settlement for consideration. The purchaser contended that the 30-day period should begin upon the execution of a formal agreement of the above terms given that the defendant made the agreement conditional upon execution of terms. Draft terms reflecting this were provided on 11 October 2018.
Further, the plaintiff advised the defendant that since making its September offer the operators of Tippling House had advised the plaintiff’s director, Mr Nguyen that they had approached Ms Stella Steel (Ms Steel), director of the defendant, when the other tenant had vacated in September 2017. They informed him that they had requested to take over the lease of the other vacant tenancy for use as storage space. Therefore, the information as to the state of tenancies for the Property, provided by the defendant prior to the original settlement date, was factually incorrect in respect of both vacated tenancies. Consequently, the plaintiff alleged that the defendant misled the plaintiff in respect of any prospective GST liability.[38]
[38]Letter from White Ellis Lawyers to B2B Law, 11 October 2018 at CB 724-725.
A series of correspondence followed with various proposals, none of which were met with universal acceptance due to the parties disagreement over whether the plaintiff would remain liable for any further GST ultimately determined to be payable after settlement.[39]
[39]Email from B2B Law to White Ellis Lawyers, 14 November 2018 at CB 758.
Re-sale of the Property
On 29 January 2019, the defendant entered into a contract of sale with a new purchaser. A caveat was subsequently registered over the Property by that purchaser on 31 January 2019.[40]
[40]Email from White Ellis Lawyers to B2B Law, 7 February 2019 enclosing Certificate of Title Volume 03535 Folio 952 dated 31 January 2019 at CB 762.
On 20 March 2019, the defendant filed an originating motion with this Court seeking an order against the plaintiff for the removal of the plaintiff’s caveat registered over the Property in respect of its interest as purchaser under a contract.[41]
[41]Abbotsford Estates Pty Ltd (ACN 614 886 958) v K7 Developments Pty Ltd (ACN 163 701 148) S ECI 2019 01181.
Final settlement agreement
On 20 March 2019, the plaintiff made an open offer in this proceeding to settle the contract on 20 May 2019 for the original purchase price, with the plaintiff paying GST subject to timely calculations and provision of a tax invoice, and with the proceeding remaining on foot to determine the controversies over liability for and calculation of damages, interest, costs and any GST liability. This was agreed to in principle, though again without agreement as to the date of the settlement. A number of practical difficulties were identified with the date suggested by the defendant and ultimately 6 May 2019 was agreed by all.
On 6 May 2019, the plaintiff settled on the Property.
The sequence of events is largely uncontroversial and the above chronology is drawn from the documentary evidence. What was in controversy was the preparedness of the parties to settle the property. Each contended the other was not prepared to settle.
The oral evidence
(i) Vu Nguyen
The plaintiff called Mr Nguyen, director of the plaintiff and guarantor. His witness statement, which he adopted, set out the above chronology. He also set out the belief he held as at 12 June 2018 that K7 Developments was not in default of its contractual obligations.[42] Essentially, he said it was the defendant who was not ready, willing and able to settle.
[42]Plaintiff Exhibit, P-A, ‘Witness Outline of Vu Hoang Nguyen’, 10 February 2020 (‘Mr Nguyen’s Witness Statement’) [37].
To demonstrate that it was ready, willing and able to settle, Mr Nguyen deposed to the sources of funds for the purchase. This included a loan facility from Balmain Group (Balmain) for 65% of the purchase price. He deposed to the position regarding funding the purchase, had settlement occurred in March, June, September or November 2018. He said had settlement occurred on 15 March 2018 he would not at that time have had to call on the Balmain loan facility, although he had an offer of funding from them as at January 2018. He said that even though he had instructed that he wished to cancel the loan facility in July 2018, it remained in place until the beginning of 2019. In March 2019, he was required to reapply for the loan facility and it was reapproved. His witness statement attached a schedule of losses.
He agreed in cross examination that in January and March 2018 he did not have approved finance in place with Balmain, saying this was because he had alternate finance at that time which was still available in July 2018 when he cancelled the loan facility.[43]
[43]T 135.7.
Mr Nguyen was also asked about the extension agreement. He agreed that the effect of the email trail was that in the extension agreement the plaintiff agreed to the proposed term that it pay interest from 15 March 2018 to the settlement date.[44] He agreed that the nomination form signed by him on behalf of both purchaser and nominee and the Transfer of Land were to have been provided to the defendant prior to 5 March 2018. Correctly signed nominations and transfer documents were not provided in time. Accordingly, he accepted that the plaintiff was in default of a Special Condition of the Contract for settlement to occur on 15 March 2018. He said the defendant accepted any shortened time when agreeing to settlement on 20 March 2018.
[44]T 118.29.
In cross-examination, Mr Nguyen was taken to the email sent by his conveyancing lawyer on 28 March 2018 (referred to above at [25]). He agreed that discussion was continuing about the matters in dispute, as had been identified in that email, but he did not agree that the effect of the correspondence was that the plaintiff had no present intention to settle as at the end of March 2018.[45] In relation to the plaintiff’s April offer it was put to him that the effect of the offer was that the company was not willing to settle unless it or its nominee was absolved from any GST liability. He disagreed with this and said the effect was to mutually release the parties from the interplay between GC 13 and SC 31. He described the offer as “pushing for settlement”.[46]
[45]T 87.22.
[46]T 89.12.
Mr Nguyen agreed that from the time of the Default Notice, which was the first time an amount of GST had been specified by the defendant, it was open to him to pay the GST under protest to ensure a timely settlement. He said this was what he offered in the plaintiff’s June offer.
He was asked about his response to the defendant’s August offer. He agreed that the reason he didn’t accept that offer was that the plaintiff was aggrieved with the requirement to pay the interest amount and agreed he refused to pay that amount accordingly.[47] He disagreed that because he was not willing to accept the GST calculation he was therefore not willing to settle the property. He said he agreed to pay an additional $150,000 in the offer because he wanted the Property and wanted the matter to go away.[48] He agreed that he was also not willing to pay any amount of penalty interest above $14,301 to the period ending 20 March 2018 as he did not consider the plaintiff to be at fault.
[47]T 93.5.
[48]T 95.12.
It was suggested to Mr Nguyen that the reason the plaintiff’s September offer was not formalised, and the 30-day time period disputed, was because at the time the offer was accepted on 2 October 2018 the plaintiff did not have funds to tender payment within 30 days. The plaintiff denied this, saying the loan facility was open but he needed to give evidence that settlement was actually going to take place before Balmain would organise funds.[49] It was put that the purpose of not commencing the 30-day settlement period until terms were agreed and signed was to seek more time to come up with the money. He said that the answer was both no and yes to that proposition. No because 30 days from a formalised agreement was in his opinion the correct interpretation of the settlement negotiation, and yes because at the time he was overseas and needed the time to make the necessary arrangements.[50]
[49]T 97.22.
[50]T 101.14.
He agreed that up until the time the loan was cancelled it never became unconditional and at the time he made the plaintiff’s September offer, although the Balmain facility was on foot, there were outstanding conditions precedent within his control to be provided to Balmain. Mr Nguyen said despite his cancellation, Balmain had confirmed the facility remained open until early 2019.[51]
[51]T 137.
Ultimately, when asked about the impact of the new factual information about the tenancy of Tippling House, he said that this in effect should have made the entire property a going concern and so he was not as at October 2018 prepared to pay $96,912 to account for a GST liability.
Mr Nguyen was asked about the presence of the camera. He said his intention was to satisfy himself that any agreement to place the camera on the roof did not run with the Property. He had only verbal information and wanted confirmation that it was a licence agreement, which would not interfere with the plaintiff’s future use of the Property. He accepted in cross-examination that the camera issue was known by him in November 2017, at which time he had discussions with Pace. He said he did not recall those conversations or the email exchanges that he was taken to. He said that he simply wanted to know what arrangement was in place between the camera owner and the defendant. It was suggested that the camera was not really an impediment to settlement. He agreed he simply wanted to ensure that he had control over its removal by confirming the basis on which it had been erected.[52]
(ii) Amy Leong
[52]T 111.
The plaintiff also tendered a witness statement of Amy Leong, who was not required for cross-examination. Ms Leong works at Balmain, which provided partial funding to the plaintiff for the purchase of the Property. She said that Balmain accepted the initial loan proposal and provided an indicative offer of terms on 25 January 2018. Ms Leong stated that had the indicative offer been promptly accepted, Balmain would have been ready for settlement by 15 March 2018. Required documents and acceptance by Mr Nguyen occurred in late April and loan documents were signed and returned on 7 May 2018. Funds would have then been available five business days after a drawdown request and interest would become payable from that request whether or not settlement occurred. That loan facility remained in place until 17 January 2019.
Ms Leong said that Mr Nguyen advised that he wished to cancel the facility on 17 July 2018. He paid the outstanding loan establishment fee and legal fees on 1 August 2018. Notwithstanding this, the loan facility remained open until 17 January 2019. Mr Nguyen’s evidence was also that the loan facility remained in place despite his instructions, having confirmed with Balmain that he only needed five days to get it resurrected when the settlement offer was made in September 2018.[53] By 2019 he was required to reapply for the loan facility and provided updated information and further fees. Approval of the new loan facility occurred on 29 April 2019 and Balmain advanced funds for settlement on 6 May 2019.
[53]T 98.19.
On the issue of damages, the plaintiff called Mr Christopher Broadbent, a surveyor who took measurements as to the various tenancy areas. I will deal with his evidence later in these reasons on the question of damages.
(iii) Stella Steel
The defendant called Ms Steel, sole director of the defendant. She adopted her witness statement. It revealed that the defendant is trustee of a trust whose sole asset was the Property. The beneficiaries of the Trust are Ms Steel and relatives of hers. It set out the Contract and the subsequent Default Notice, and confirmed that settlement occurred on 6 May 2019. The statement then set out details of costs and expenses incurred by the defendant as a consequence of the delay in settlement and deposed to rent received during that period.
In her evidence in chief, Ms Steel clarified details of documents supporting the loss and expenses incurred by delay and there was cross-examination of this aspect of her evidence.
In cross-examination as to the events that transpired and the intentions of the defendant throughout, Ms Steel said that she proceeded with a sale to a third party because the plaintiff “refused consistently to settle”.[54] On the question of the camera, she thought the purchaser wanted the camera removed and agreed she first raised this with Pace on 21 March 2018 after the settlement date proposed by the defendant. She agreed she eventually understood that what the purchaser wanted was a licence agreement to regulate the presence of the camera.[55] She did not recall seeing a licence agreement that was to be signed by her, and to the best of her recollection, never signed one. The explanation was that she did not give it high priority[56] and said whether or not there was a camera on the building was the least of her problems at that point in time (in early April 2018). She said that, after returning from Perth and by the time the licence document had been formalised, the GST issue ‘had blown up’ so there was no urgency for signing.
[54]T 181.10.
[55]T 186.20.
[56]T 186.23.
Ms Steel did not elaborate on the other problems she was facing at that time. She denied that these “problems” stemmed from litigation commenced by her half-sister, a beneficiary of the trust against the defendant as trustee, in which a summons had been issued seeking to restrain the defendant and its director, Ms Steel from dealing with the funds from the purchase of the Property by the plaintiff. That summons was returnable on 14 March 2018 and Ms Steel had instructed her lawyers to oppose it.[57] She said that this summons was not particularly on her mind immediately prior to settlement as originally scheduled for 15th March 2018.[58]
[57]T 192.
[58]T 190.22
In relation to the tenancy plans requested by the plaintiff on 16 March 2018, Ms Steel said that she had looked for plans but to her knowledge there were not and never had been any plans. Ms Steel said she was aware at the time of their vacation that tenants had vacated. At some point she advised her solicitors of this. She did not know if the purchaser had been informed. She did not give evidence surrounding the continued presence of Tippling House at the premises as raised by the plaintiff’s correspondence.
Ms Steel was then asked how the square meterage on untenanted areas was calculated in the GST invoice dated 16 April 2019. That invoice identified tenanted area of 1024sqm and an untenanted area of 158sqm, leading to a calculation of GST payable of $96,911.98. She said she attended the area with a tape measure and measured the exterior of the untenanted area. She did not keep any record of these measurements and was unable to reliably recall when she did this. In re-examination, by reference to the GST amounts and identification of the untenanted area in Mr Broadbent’s plans,[59] she narrowed the occurrence of her measurements to the first six months of 2018 and agreed that it was at a time she was aware of a dispute about GST.
[59]Exhibit P-C; see also at CB 52A-52E.
She disagreed that she was unprepared for settlement on 15 March 2018. The question was responsive to a proposition that she was unprepared because of the summons returnable in the other litigation regarding restraint of settlement funds. However, it was clear that even aside from this issue, Ms Steel’s solicitors had communicated that she was unable to settle on 15 March 2018 because her financers required 14 days’ notice and because, as at 15 March, her solicitors were still awaiting details from her of the up-to-date rental payments.
Submissions of the parties
Plaintiff
The plaintiff submitted that it was entitled to settle the Contract on the original date without utilising the extension agreement and without giving 14 days’ notice of intent to do so. However, it agreed to settlement as proposed on 20 March 2018 and conceded that its late provision of documents under the Contract had led to a four-day delay. Otherwise, it submitted it was not responsible for any delay. It was the defendant’s failure to provide timely information: specifically, rental adjustment information, tenancy plans, late notification of tenant vacancies (and thereby the GST consequences of those vacancies for the purchaser), and a licence agreement covering the surveillance camera, that precluded settlement.
The plaintiff argued that the defendant was in breach of its contractual obligations, fundamentally its warranty to continue the supply of a going concern by not taking steps to re-lease the vacated premises, and therefore was not entitled to issue the Default Notice. It further submitted that the Default Notice was invalid. In any event, the plaintiff’s June offer was an appropriate response to rectify any defect and sufficient to discharge its obligations under the Contract.
The plaintiff submitted that Contract was not terminated in accordance with the Default Notice and was settled on 16 May 2019, taking precedence over the contract of sale to the subsequent purchaser and in effect giving at that time the substantive relief sought by the plaintiff in this proceeding.
The plaintiff stated that it should not be liable to pay damages to the defendant for delay as beyond 20 March 2018 as it remained ready to settle to contract. It submitted that its conduct after the commencement of proceedings for specific performance is irrelevant.
The plaintiff argued that it is entitled to loss and damage for the defendant’s failure to maintain the property as a going concern in breach of the contractual warranty provided and for delay in settlement occasioned by the defendant. It calculated that loss and damage at $142,128.61 plus interest.
Defendant
The defendant submitted that the plaintiff never intended to settle the Contract itself but by its nominee. It argued that the extension agreement varied the terms of the Contract because the plaintiff was not able to settle on 15 March 2018. The Contract, as varied by the extension agreement, therefore only entitled the plaintiff to settle on giving 14 days’ Notice. The variation took effect from January 2018 when agreement of the terms was reached.
The delay was caused by the plaintiff identifying impediments to settlement. Firstly, the presence of the camera which was submitted to be a trifling issue which did not entitle a plaintiff to delay settlement,[60] but which manifested a disinclination to settle on the terms and timeframe that existed. Secondly, the plaintiff was reluctant to acknowledge its liability for GST, and before June 2018 did not acknowledge any preparedness to pay GST. The defendant submitted that the plaintiff’s construction of the Contract was incorrect, and that GC 13 was in conflict with SC 31.
[60]By operation of GC24.3.
It submitted there was no evidence that the defendant actively sought to delay settlement and had in fact proposed that settlement occur on 28 or 29 March 2018, which the plaintiff did not accept.
The defendant claimed that the Default Notice was valid and designed to ensure that “the prevarication regarding settlement came to an end”.[61] The non-provision of a Tax Invoice (as distinct from the amount) was not an impediment to settlement as the Contract provided only that an invoice be provided “at or before settlement”.[62] The plaintiff’s June offer was not sufficient to discharge the plaintiff’s obligations as some defaults persisted beyond 12 June 2018, including the failure to provide security and pay legal costs as required by the extension agreement. Either or both defaults brought the Contract to an end in accordance with General Condition 28.2. Furthermore, the plaintiff’s June offer would have required the defendant to accept a lesser amount than its contractual entitlement because it did not provide for interest under the extension agreement.
[61]Defendant, ‘Closing Submissions of Defendant/Plaintiff by Counterclaim’, 6 May 2021 [13].
[62]Contract (n 25), SC31(e).
The defendant submitted that the response to the Default Notice evinced an intention to no longer be bound by the Contract as varied and rather than remedying the defaults, the plaintiff contended it was not bound by the extension agreement.
It was for the plaintiff, who sought specific performance, to demonstrate it was ready, willing and able to complete the Contract and the defendant submitted it had not done so. The defendant claimed that the plaintiff was not able to perform the contract until May 2019 and the Court should not accept bald assertions as to capacity to pay.
The delay had caused loss and damage to the defendant and by counterclaim it sought damages. It submitted that damages could either be assessed on the basis that the Contract was terminated upon expiration of the Default Notice, or alternatively that the Contract remained on foot and was finally settled on 6 May 2019. If the Contract remained in force until settlement, the defendant submitted that it was entitled to interest on the unpaid portion of the loan at 16% per annum compounding monthly to the actual settlement, which is calculated at $1,308,390.43 less interest paid in March 2020 ($14,301.37).[63] On the basis that the Contract was terminated, it was entitled to recover interest calculated under the extension agreement until termination and thereafter loss and damage in accordance with the Contract’s loss recovery clauses. This it was submitted gave damages calculated at $2,244,340.61.
[63]Being $14,301.37 paid shortly prior to the first listed trial date in March 2020.
It can be seen from the respective submissions that the impediment to settlement was largely focused on the different interpretations of the Contract as to two issues:
(a)Whether the extension agreement came into force and governed the rights and obligations of the parties from 16 March 2018 in particular as to the payment of interest; and
(b)Who bore any liability for payment of GST on that part of the sale of land upon which there was no going concern.
It is convenient to commence the analysis by the question of contractual construction raised by these two issues.
Construction of the Contract – Principles
The question of construction of a commercial contract is to be approached by asking “what a reasonable businessperson would have understood those terms to mean”.[64] The reasonable business person is one placed in the position of the parties but the terms are construed objectively and not by reference to the parties subjective intent.[65] The text of the document as well as the surrounding circumstances and the purpose of the transaction are all relevant considerations to arriving at a commercially sensible construction of the document as a whole.[66]
The extension agreement
[64]Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104 (French CJ, Nettle and Gordon JJ) 116, [47].
[65]Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544, 551[16] (Kiefel, Bell and Gordon JJ).
[66]U108 Pty Ltd v Sing Fan & Ors [2010] VSC 2010, [14] and the cases there cited.
In my view, the extension agreement is not a stand-alone document but is to be read in conjunction with the Contract. It provided for specific circumstances by which the parties agreed to a flexible alternative settlement date within a two-month window. Its purpose was to anticipate and avoid the vendor acting on a potential default by the purchaser if funds were not to arrive in time for settlement as originally agreed. The extension agreement had the effect of permitting the purchaser to nominate a later date for settlement than provided in the Contract subject a fourteen-day notice period and an agreement to pay interest at a rate different to and higher than otherwise provided for by the default provision under the Contract. By the extension agreement, the purchaser would be protected from the vendor taking steps to rescind the contract for default. The vendor had the benefit of interest in excess of its contractual entitlement for default and additional protections in the event that a later settlement date was nominated but the Contract was not then completed.
There is nothing in the exchange of emails that evidence the terms of the extension agreement which indicates it sought to change any of the existing conditions in the Contract. It referenced neither special conditions nor general conditions. It was not an agreement that settlement would not occur on 15 March 2018. The plaintiff’s position prior to 5 March had been that settlement may not be able to occur on the nominated date. That possibility was addressed by the extension agreement, in place if needed. I do not accept the defendant’s characterisation of the plaintiff’s position at the time it requested the extension (and prior to the email of 5 March 2018) being that settlement was not able to occur on 15 March 2018. The extension agreement addressed the circumstances under which the time for settlement might be extended to 15 May 2018 and the requirements of the vendor for so agreeing.
Therefore, the agreement to pay interest at the rate specified during the extension did not displace or replace the existing contractual provisions dealing with default. It applied only if the purchaser nominated a date after 15 March and on or before 15 May 2018 for settlement. Objectively, it could not be said that a commercially sensible interpretation of the Contract and extension agreement was that the higher negotiated interest payable for an anticipated two-month extension was in fact payable until settlement whenever occurring and irrespective of default. In the event of default outside the period of time governed by the extension agreement then the Contract provided for default interest.
On 5 March 2018, when the plaintiff notified the defendant that it was in a position to settle the Contract on the original settlement date, there was no need to have recourse to the extension agreement. However, because the purchaser was in default of the terms of the original Contract by its late provision of documents, the defendant was entitled (without recourse to the extension agreement) to insist on the 14-day period being complied with by not agreeing to dispense with time.[67] The Special Conditions of the Contract specified 14 days’ notice and as became clear, this was because the defendant’s financer required 14 days’ notice of the settlement date. [68]
[67]Those conditions being SC4.2(o), that the nominee transferee be notified no later than 14 days prior to settlement and SC22.1 which requires the Purchaser to prepare and deliver a Transfer of Land document to the Vendor at least 10 business days before the due date for settlement.
[68]Emails between Katsu Lawyers and B2B Law, 15 January 2018 when a 7 day notice period was proposed at CB 462
Therefore, by communicating it was in a position to settle on 15 March 2018 as it was contractually bound to do, the plaintiff had no reason to call on the extension agreement. The defendant was entitled under the Contract to require the full notice required for the Transfer of Land and the nomination form. The 14-day notice period contemplated by the extension agreement was irrelevant. The parties then agreed, under the Contract and without recourse to the extension agreement, to settle on 20 March 2018. This conclusion means that the extension agreement does not govern the rights and obligations of the parties when settlement did not occur as agreed on 20 March 2018.
Supply of a Going Concern and Liability for GST under the Contract
The second issue of construction is that of the provisions dealing with the supply of a going concern and payment of GST. A fundamental roadblock to settlement stemmed from the defendant’s communication on 19 March 2018 that part of the property was no longer a going concern and that the plaintiff would be required to pay GST. This led to the competing constructions of the Contract, in particular, the effects of GC 13 and SC 31, both of which deal with GST.
GC 13 relevantly provides:
GST
13.1The purchaser does not have to pay the vendor any GST payable by the vendor in respect of a taxable supply made under this contract in addition to the price unless the particulars of sale specify that the price is ‘plus GST’. However the purchaser must pay to the vendor any GST payable by the vendor:
…
(c) if the particulars of sale specify that the supply made under this contract is of a going concern and the supply (or part of it) does not satisfy the requirements of section 38-325 of the GST Act.
13.2The purchaser must pay to the vendor any GST payable by the vendor in respect of a taxable supply made under this contract in addition to the price if the particulars of sale specify that the price is ‘plus GST’.
13.3If the purchaser is liable to pay GST, the purchaser is not required to make payment until provided with a tax invoice, unless the margin scheme applies.
…
13.5If the particulars of sale specify that the supply made under this contract is a ‘going concern’:
(a)the parties agree that this contract is for the supply of a going concern; and
(b)the purchaser warrants that the purchaser is, or prior to settlement will be, registered for GST; and
(c)the vendor warrants that the vendor will carry on the going concern until the date of supply.
…
The Contract did specify ‘plus GST’ and identified the supply of a ‘Going Concern’. Under the General Condition, GST was payable by the purchaser if, in accordance with 13.1(c), the supply made under the contract does not satisfy the requirements of the GST Act. Otherwise, the Contract provided that GST was only payable if SC31 applied.
SC31 relevantly provides:
GST
(a)GST definitions
In this Special Condition 31:
•Consideration means any amount payable for a supply under this Contract;
• GST includes any replacement or subsequent similar tax;
•GST Act means a New Tax System (Goods and Services Tax) Act 1999 (Cth) and all other legislation in relation to the GST;
• GST Rate means the rate of GST imposed under the GST Act;
•New Tax means any form of consumption tax, levy, goods and services tax or other tax or levy of any kind, whether imposed at federal, state or local level imposed after the Day of Sale;
•Supply of a Going Concern has the meaning given to that term in the GST Act;
•Tax Invoice includes any document or record treated by the Commissioner of Taxation as enabling the claiming of an input tax credit for which an entitlement otherwise arises; and
•Taxable Supply has the meaning given to that term in the GST Act;
•Terms defined in the GST Act have the same meaning as in this Special Condition unless provided otherwise.
…
(d) Time for Payment
The recipient must pay the amount referred to in Special Condition 31(c) in addition to and at the same time as payment for the Taxable Supply is required to be made under this Contract of Sale.
(e) Tax Invoice
If a Taxable Supply is made or varied under this Contract in respect to which GST is payable, the supplier must provide the recipient of the supply a valid Tax Invoice as the case may be at or before the time of payment or variation.
…
(g) Going Concern
If the Particulars of Sale specify that the supply made under this contract is Supply of a Going Concern then the following shall apply:
i.The Purchaser has concluded that the supply made under this Contract is a Supply of a Going Concern.
ii.The Vendor provides no warranty that the supply made under this Contract will constitute the Supply of a Going Concern.
iii.The Purchaser warrants that it is, and will be at Settlement, registered for GST within the meaning of the GST Act.
iv.If after the date of this Contract the Vendor, acting reasonably, determines for any reason that only part of the supply constitutes a Supply of a Going Concern and that GST is payable in respect of a Taxable Supply under this Contract, then this Special Condition of this Contract shall apply and the Purchaser must pay to the Vendor an amount equal to the GST and any interest and/or penalties that the Vendor is required to pay to the Australian Taxation Office in respect of the Taxable Supply. In such a case the Vendor must notify the Purchaser in writing that the Vendor is required to pay the Australian Taxation Office specifying the GST and any interest and/or penalties payable in respect of the Taxable Supply and the Purchaser must forthwith pay to the Vendor the amount of any GST and any interest and/or penalties as notified to it within 14 days after receipt of the Vendor’s notice. This Special Condition does not merge on completion of this Contract nor registration of the transfer of land.
The Special Conditions also provided that where there is any inconsistency between General Conditions and Special Conditions, then the Special Conditions prevail and have priority to the extent of any inconsistency.[69] GC13 was not amended or deleted by the Special Conditions.
[69]Contract (n 25), SC4.1.
The defendant submitted that the warranty provided by the vendor, that it would carry on the going concern until the date of supply, was inconsistent with SC 31(g)(ii), which gives no warranty that the supply will constitute a going concern. Therefore, SC31(g)(ii) in clear and unambiguous words negates the warranty contained in GC13.5(c). The defendant submitted that it acted in accordance with SC31(g)(iv) as it acted reasonably to determine that only part of the supply was of a going concern. It advanced the straightforward proposition that the effect of SC31 was that if the vendor determines that GST is payable then the purchaser has to pay it, subject only to the qualification that the vendor must act reasonably in the determination that GST is payable.
The plaintiff submitted that there was no inconsistency and that the defendant, by not taking steps to maintain the whole of the property as a going concern, was in breach of the contractual warranty to do so.
Supply of a ‘Going Concern’ in the Contract finds its definition in the GST Act. Supply of a Going Concern is an exempt supply for the purpose of paying GST if certain requirements set out in s 38.325 of the GST Act are met. Importantly, a going concern is defined in 38.325(2) as a supply under an arrangement in which the vendor (supplier):
(a)The supplier supplies to the recipient all of the things necessary for the continued operation of the enterprise; and
(b)The supplier carries on or will carry on, the enterprise until the day of the supply (whether or not as a part of a larger enterprise carried out by the supplier).[70]
[70]A New Tax System (Goods and Services Tac) Act 1999, s 38-325(2).
The relevant enterprise was the commercial leasing of the Property. I was provided with the GST Ruling 2002/5. That makes clear that the continued operation of the leasing of a property can include previously tenanted areas if a new tenant is actively being sought by the owner.
The General Condition records the agreement of the parties at the time of entering into the Contract that it is one for the supply of a going concern. The vendor’s warranty in GC13.5 then reflects the requirement outlined above imposed on a supplier if that supplier is to be exempt from its liability for payment of GST. The purchaser’s contractual warranty that they are registered for GST also reflects the requirements on a recipient in s 38.325(1) of the GST Act.
SC31 has application where the Particulars of Sale specify supply of a Going Concern (as is the case here) and where by operation of GC13.5(a) the parties have agreed it is supply of a going concern. It should be interpreted in light of the agreement expressed in GC13 in a harmonious way if that is possible. If the intent and purpose was to negate Clause 13 entirely, it would surely have resulted in the deletion of the vendor’s warranty from the General Conditions.
By SC 31(g)(i), the purchaser reaches its own conclusion as to whether the enterprise to be supplied is in fact that of a going concern. The purchaser can only do so at the time of signing the contract. It does not have prospective application. While at the signing of the Contract, the vendor agrees that the enterprise being supplied is a going concern, the vendor by SC 31(g)(ii) gives no warranty that the supply will constitute (in the sense that it will in fact meet the definition of) a supply of a Going Concern for tax exemption purposes at the time the supply is made on settlement.
I do not accept the defendant’s submission which really contends for an interpretation that the vendor does not warrant to continue to operate the enterprise so that it is a going concern, rather than the plain words which are directed at the constitution or description of the supply. That construction would be inconsistent not only with the warranty given in GC13.5 but also with the obligation on the supplier under s38.325(2)(b) of the GST Act. At the time of signing the Contract as a going concern, the vendor (supplier) agreed that the enterprise will be carried out until the date of supply. The warranty to continue the enterprise is a different thing to the description of the enterprise and whether the description meets the definition. The vendor gives no warranty as to whether the nature of the enterprise that it carries out, and will continue to carry out, meets the definition and description. The two warranties are different and not inconsistent with each other.
SC31(g)(iv) relates to events after the date of the Contract. It is directed at a vendor who determines after entering the Contract that the part of the supply that is being provided no longer meets the definition of a going concern. The reason for the changed nature of the supply is not limited other than by the supplier being required to act reasonably in determining the changed nature of the supply. The requirement to act reasonably have some purpose and should be read in light of the supplier’s warranty and intent to continue the enterprise until supply at settlement. The qualification of acting reasonably must be directed not only at the notification of the change in the nature of the arrangement, but also at the actions of the vendor in attempting to maintain the enterprise.
I have therefore concluded that SC31 is directed at maintaining the nature or description of the enterprise as it is undertaken between the contract and settlement. It is not directed at circumstances where a decision taken by the vendor to cease or suspend the enterprise. It is not inconsistent with the defendant’s warranty to carry on the enterprise until settlement.
The vendor led no evidence of any steps to carry on the going concern following vacation by tenants up until 15 March 2018, or indeed at any time thereafter. The submission put was that it had no obligation to do so.[71]
[71]T 226.
This construction means that there is no inconsistency between the General Condition and the Special Condition. The position of both parties to the contract is protected by the warranties exchanged. On this interpretation, SC31(g)(iv) has real work to do to protect a vendor. It protects a vendor, acting reasonably to meet its warranty to carry on the enterprise until the date of supply, who nevertheless determines that part of the enterprise to be supplied can no longer be described as that of a going concern and therefore the exemption from GST is no longer applicable. In such circumstances, the vendor’s liability for GST must be paid by the purchaser to the vendor. The clause should not be read so widely as permitting a vendor to unilaterally decide to cease its operation of the enterprise it has warranted to continue, and then, having so decided, notifying the purchaser of that decision. The requirement to act reasonably incorporates the action of undertaking the enterprise, not solely in notifying the purchaser.
Findings
I find that the plaintiff sought to settle the contract on 15 March 2018 without utilising the extension agreement. However, when it did so on 5 March 2018 it had not given the requisite notice and had not provided documentation regarding nominee forms and a signed Transfer of Land form so as to be entitled to settle on the original date. The vendor had included special conditions regarding notice that were consistent with the position that her financiers needed 14 days’ notice to prepare for settlement. The defendant was entitled to insist on the plaintiff’s compliance with the notice provisions as recorded in the Contract’s Special Conditions and not agree to settlement on 15 March. Both parties agreed that they would be in a position to settle on 20 March 2018. It was not necessary for the plaintiff to have recourse to the extension agreement.
On 16 March 2018, the plaintiff requested copies of the four tenancy plans which were referred to but not attached to the s 32 documents. As at 19 March, the defendant’s solicitors were awaiting instructions on that issue. The lease plans were important. The title that was being transferred was subject to encumbrance by the leases of those areas. They were also relevant to the question of GST that was raised by the defendant on 19 March 2018 when it was said that leases were no longer in place for some parts of the Property. I find that no lease plans were provided, and no instructions conveyed to the plaintiff that the lease plans either could not be found or did not exist.
I find that the plaintiff sought clarification regarding the presence of the camera, which could have been provided by the defendant. I do not accept that the purchaser sought to delay settlement by seeking this clarification or that it requested removal of the camera. I find that the defendant’s director misunderstood the request as being one to remove the camera and then once understanding that the request was to sight a lease or licence, did not at any time provide a signed licence agreement as she had agreed to do.
On 19 March 2018, the plaintiff was informed for the first time that two of the four tenancies had ended. There was no explanation provided for the last minute nature of the notification, considering that one tenant was said to have vacated the Property in September 2017. The information provided on the defendant’s instructions differed from the information available to the plaintiff on its final inspection on 19 March 2018. I accept that in the context of the Contract, which was a contract for a sale that was “Plus GST” and described as a “Going Concern”, this information was important. In the absence of any explanation, I find that there was no effort to communicate information relevant to whether the Contract remained in whole one of a going concern, until 19 March 2018. Under the Contract, calculation of GST was the responsibility of the defendant, as was the provision of a tax invoice “at or before settlement”.[72] Calculation was first provided on 12 June 2018 in the Default Notice. A tax invoice was provided at, and not before, settlement in May 2019.
[72]Contract (n 25), SC31(d), (e) and GC13.3.
I found Ms Steel’s evidence about when she measured the untenanted area unreliable. Noting the discrepancy between the area nominated when the related party lease arrangement was first under discussion (E700sqm)[73] and the non-tenanted area identified in the Tax Invoice (158sqm),[74] I do not accept her evidence in re-examination that by reference to documents she most likely took measurements in the first six months of 2018. There is no reliable evidence upon which I can conclude when such measurements were taken or what those measurements were.
[73]CB 657.
[74]CB 916.
I find that the defendant provided rental adjustment information on 18 September 2018.
I accept that when the plaintiff’s April offer and the plaintiff’s June offer were made, the plaintiff had access to funds so was able to meet its financial obligations under the Contract. Mr Nguyen’s evidence on this was consistent with the unchallenged evidence of Amy Leong. I accept that when the plaintiff made the September offer that Mr Nguyen and his companies retained access to funds from Balmain in order to settle the Contract subject to providing the necessary documentation. I accept his evidence and that of Ms Leong that, notwithstanding the cancellation of the facility in July 2018, it remained on foot until January 2019.
I find no evidence that after the Contract was signed the vendor took any steps to comply with the warranty that it would carry on the going concern until the date of supply. As a result of my conclusion that SC 31 does not conflict with the vendor’s warranty to do so, I conclude that the vendor was in breach of the Contract.
Default Notice
The plaintiff contended that the defendant was not entitled to issue the Default Notice as it was in default under the Contract. A party is only entitled to issue a Notice of Default or breach if it is “ready, willing and able to proceed to completion in accordance with the contract”.[75] In Carapetta v Rado, Barrett JA with whom Beazley and Hoeben JA agreed, discussed the authorities on the giving of a default notice or a notice to complete concluding
Case law thus makes it plain that the party seeking to make time of the essence must be an “innocent” party who is not “in default” or “in breach” and is “ready willing and able” to proceed to completion in accordance with the contract. The underlying concept is that a party who gives a notice to complete and thereby calls on the other party to adhere to the contract must be in a state of both present and prospective adherence to the contract. When it is the vendor who serves the notice, he or she must be seen to be willing and able to perform on the day the notice fixes for completion, the obligations that the vendor is required to perform on completion….If the vendor is in breach of contract when the notice is given, he or she is not in a state of willingness and ability. Likewise, if the vendor has taken and made known an uncompromising stance that he or she will not deliver title on completion except in return for payment of a sum greater than that required by the contract, the vendor will be “in default” (or “in breach”) and not be “innocent” or relevantly “ready willing and able” because the unequivocal stance inconsistent with the contract bespeaks lack of adherence in the nature of anticipatory breach”.[76]
[75]Carrapetta V Rado [2012] NSWCA 202 [18]–[27]; Strickland v Grieve [1996] NSW Conv R 55-762 (Young J).
[76]Carrapetta v Rado [2012] NSWCA 202 [27].
For the reasons above I have concluded that the defendant was in breach of its warranty to maintain the going concern until settlement in the absence of any attempt to relet vacated tenancies. Nor as at 12 June 2018 had it provided the lease information, rental income received or licence information to enable the purchaser to remedy those defects alleged in the Default Notice. The Default Notice was the first occasion on which a GST figure, albeit without the underlying calculation, was provided.
The conclusions reached above on whether the extension agreement governed the interest to be paid to the vendor from 16 March 2018 also mean that in demanding interest at 16% compounding monthly in accordance with the extension agreement, the vendor was unequivocally only prepared to settle on payment of amounts greater than it was entitled to under the Contract.
Had the vendor been entitled to issue the Default Notice, in order for it to be valid it must be unambiguous and clear in its essential features to a reasonable reader in the position of the purchaser with knowledge of the transaction.[77] The applicable objective standard of reasonableness was explained by Brooking J (as he then was) in Catley v Watson,[78] which has since been applied many times. A doubt as to meaning may be entertained but –
… it must be possible to say that, after appropriate consideration, any doubts that may have arisen would be quieted and the purchaser would not be left in any uncertainty as to the meaning of the Notice.[79]
[77]U108 Pty Ltd v Sing Fan & Ors [2010] VSC 12 [43]; Robinson v Becata Pty Ltd [2004] NSWSC 310 [30]-[35], [49].
[78](1981) V ConvR 54-003.
[79]Ibid, 115.
The Default Notice nominated two due dates, being the original settlement date on 15 March 2019 and the extended settlement date of 15 May 2018. The nomination of the first date is curious given the plaintiff’s request to settle on this day and the vendor’s communication that it was not in a position to settle on this date.[80] The Default Notice fails to mention 20 March 2018 being the agreed settlement date. This silence also raises questions as to why the parties did not settle as agreed. On that date, the vendor had outstanding information to be provided to the purchaser, including information about the changed tenancy situation and its GST implications. None of the information from the vendor outstanding on 20 March had been provided by 15 May 2018.
[80]As per an email from Katsu Lawyers, 6 March 2018 that the defendant understood that the settlement date was 15 May 2018 at CB 572.
Further, the Default Notice identified particulars of default only by reference to a default in performance of obligations undifferentiated by each “Due Date”. On one plain reading, it asserted that as at the 15 March 2018 Due Date the plaintiff failed to pay not only the purchase price but GST, interest accruing after that date, and adjusted apportionable outgoings. Doubt might be cast over how the plaintiff was in default on 15 March 2018, having offered to settle the Contract on that day but having been advised that the defendant would not abridge time for provision of documents in order to do so. A purchaser might also entertain some doubt as to whether it was in default of paying GST on 15 March 2018 in circumstances where it had, at that time, still been led to believe that it had a contract that was for supply of a going concern that attracted GST exemption. By the second defined “Due Date” the amount required to be paid to the defendant in satisfaction of GST was still not known to the plaintiff. The absence of any differentiation between the asserted default applicable as at 15 March from the default applicable as at 15 May, and the silence in relation to the agreed 20 March settlement is sufficiently ambiguous in the essential features to determine the Default Notice to be invalid.
The Default Notice required payment of amounts that had not been specified by the defendant by either Due Date, and indeed in the Default Notice itself some amounts such as legal costs remained unspecified. Furthermore, the plaintiff was not in a position to calculate the adjusted apportionable outgoings that it was obliged to pay in satisfaction of the Default Notice.
The consequence of my conclusions as to the Default Notice is that the Contract continued in force until specific performance occurred when settlement was achieved on 6 May 2019.
Delay by the Plaintiff
The defendant’s counterclaim asserts delay by the plaintiff from 15 March 2018 until settlement on 6 May 2019 contending that the plaintiff was not at all times ready, willing and able to settle the Contract. Rather, the plaintiff sought to delay matters and was only able to settle when funds were finally unconditionally approved shortly before actual settlement. The vendor in its counterclaim sought damages and declarations that the contract had come to an end either by it being terminated 14 days after the Default Notice, or by repudiation by the purchaser.
The entitlement to loss and damage was put as an alternative in submissions: either on the basis that the Contract was terminated by the Default Notice, or that the Contract remained on foot until settlement on 6 May 2019. As I have concluded that the Contract remained on foot, any loss or damage for which the defendant has counterclaimed would be on the basis that the Contract remained on foot. Given my conclusion regarding the extension agreement, interest if payable would be pursuant to the Contract provisions that provide for interest in default.
The counterclaim is predicated on a finding of default by the purchaser. The plaintiff contended in the absence of default, a delay in completion does not give rise to an entitlement to interest on the purchase price.[81] Settlement of the contract requires obligations of a vendor to exchange title for payment of the purchase price by a purchaser. These obligations are said to be “mutually dependent and concurrent”.[82] Therefore, the delay only entitles the vendor to interest if that delay is through a default by the purchaser and that as vendor it was ready, willing and able to settle.
[81]Imamovic v Kalamalka Constructions Pty Ltd (1975) 49 ALJR 244.
[82]Foran v Wight (1989) 168 CLR 385.
The defendant submitted that the plaintiff sought delay because prior to 5 March 2018 it did not have funds to complete settlement. I do not accept this submission. Firstly, the initial extension request was a clear communication as to the funding position being potentially compromised by delay in receipt of funds, not delay in approval. It was a potential identified six months before settlement. There is every reason to expect that the delay may or may not eventuate. There is no reason to go behind the email of 5 March 2018. The plaintiff was then financially capable of settlement as originally planned and the contingency for delay that was the subject of the extension agreement had not eventuated.
Mr Nguyen’s evidence was that although his funding arrangements with Balmain were conditional upon him providing outstanding documents, he anticipated no difficulty with providing those documents and then funds would, within five days, become unconditional. It may be that a bald statement of being ready, willing and able should by itself be approached with some caution, assessed in light of all the evidence as to intent. Here, however, the unchallenged evidence of Ms Leong was that Balmain’s indicative loan offer was on foot from 25 January 2018. It was approved and then accepted by 7 May 2018. Had the documents required by Balmain been provided at an earlier date, the loan would have been operative within five days of a drawdown request. That facility remained in place, notwithstanding Mr Nguyen cancelling it, until January 2019. Perhaps more telling evidence as to the likely availability of funds was that in reapplying for the loan facility in March 2019, despite facing a more rigorous approval process, the outcome was that finance was approved. Even more compelling as to intent to settle was that the plaintiff did in fact settle the Contract as it had offered to do at an earlier time.
It asserted that K7 delayed settlement by failing to provide a statement of adjustments, confirm payment of GST or request an invoice for GST prior to 20 March 2018. The import of the letter of 28 March 2018 sent on behalf of K7 identifying issues of concern that remained outstanding (set out above at [25]) was submitted to be a response demonstrating that K7 was still not in a position to settle.
I do not accept that there was delay by the plaintiff on these matters. Information for adjustments had been requested from the vendor on 5 March 2018. GST payment had only been identified, without quantification, on 19 March 2018. It would be unrealistic to expect a party to confirm payment of GST for an amount at large, potentially hundreds of thousands of dollars. When GST was quantified at $96,912 in the Default Notice, the purchaser by its June offer, included an offer to pay GST as calculated but under protest, in the interest of mitigating costs.
Essentially the defendant’s argument that the purchaser was not in a position to or prepared to settle except on the terms they dictated, rests on an acceptance that the terms set out by the purchaser were not in conformity with its contractual obligations. For the reasons above, the purchaser’s June offer did represent an offer to settle to contract by paying all contractual obligations including GST if in fact it was obliged to do so. The purchaser was not obliged to pay the 16% compounding interest payable under the extension agreement as it did not require recourse to the extension agreement. It conceded interest under the contract caused by its late provision of documents which delayed settlement to 20 March 2018.
The statement of adjustments that the plaintiff was required to prepare for settlement required information from the vendor as to rental payments. The solicitors advised on 15 March 2018 that those details had been sought from the vendor. Until they were provided on 18 September 2018, no statement of adjustments could be finalised. The purchaser did not delay settlement by failing to provide a statement of adjustments in circumstances where the necessary information within the knowledge of the vendor had not been communicated.
Insofar as the GST issue led to delay, the purchaser was first informed that the Contract was subject to GST on 19 March 2018, the day prior to the agreed settlement date. No amount was advised and no detail of lease areas upon which to calculate a likely amount was provided. Absent sufficient information provided in a timely way, the plaintiff’s engagement with the vendor’s representatives on this issue was not in my view seeking to delay settlement, but seeking information upon which legal or accounting advice could be sought. The vendor’s representative had recommended as much when it advised the changed position the day prior to the agreed settlement date. To my mind this clearly contemplated that the late GST notification by the vendor alone meant that settlement on 20 March 2018 would be problematic. The obligation to provide a GST Invoice lay on the vendor, and was an obligation to be met at settlement or before. None was provided on 19 March 2019 and no indication was made that one would or could be forthcoming at settlement the next day.
Between 26 March and 6 April both parties corresponded on the outstanding issues of GST and a related party lease arrangement without reaching agreement. After that time, the defendant’s director was away and uncontactable. During that period, the plaintiff made the April offer to which no substantive response was made and the defendant allowed the time for acceptance to pass. The plaintiff then communicated on 14 May 2018 that, as its offer had lapsed, it expects settlement in accordance with the Contract. It requested a meeting to discuss this as the purchaser’s loan arrangement was to expire on 30 May. No meeting was arranged. The defendant, who was relying on the extension agreement as part of the Contract, did not call for settlement on 15 May 2018.
I do not accept that the plaintiff acted to delay settlement by its responses to the GST issue raised by the vendor nor by failing to provide a statement of adjustments.
Damages – the Plaintiff’s claim
The plaintiff’s proceeding as issued sought specific performance of the Contract. The parties achieved this on 6 May 2019. The plaintiff seeks loss and damage suffered by the delay in performance of the contract and the breach of warranty. Those amounts are said to be:
(a)GST paid / Margin Scheme loss $96,911.98
(b)Second arrangement fee paid to its financier $38,878.40
(c)Financier’s legal fees $6,338.23
together with interest on these amounts.
The plaintiff called evidence from Mr Broadbent who was described as a building surveyor. His evidence was principally to meet the argument as to the proper calculation of GST if an amount was properly payable by the purchaser under the Contract. If it was payable, the plaintiff contended that GST on the untenanted area, properly calculated was $40,969.39 and that amounts paid over and above that figure were recoverable as damages.
As I have concluded that the liability for GST that arose stemmed from the vendor’s failure to take steps to maintain part of the property as a commercially leased going concern, any GST liability arising for payment sounds as damages for that breach. The amount actually paid, $96,911.98 becomes the loss recoverable. It is not necessary to determine the correct calculation of the GST that might be payable.
Having reached this conclusion, it is not strictly necessary to say any more about the evidence given by Mr Broadbent, however, given the attention paid to his evidence in submissions, I will record some observations.
The defendant challenged the admissibility of Mr Broadbent’s evidence. The defendant took issue with the admissibility on the basis that he was an expert witness under Order 44 and had not been provided with the expert witness code of conduct nor was a report served in accordance with Order 44. A witness outline provided that Mr Broadbent would give evidence of attending the premises in March 2020 and measuring the lettable areas. He prepared a map of those measurements which was attached to the outline.
In cross-examination, Mr Broadbent said his education in the UK was as an architectural technician. In his work for his employer, Realserve Pty Ltd, he said he was trained to use the appropriate tools to measure buildings for the purpose of producing area plans. He said in Victoria you do not need any formal qualifications to undertake such work. His evidence also revealed that two versions of the plan of lettable areas were prepared. The difference between the two version was the inclusion of a disabled amenity area as part of the lettable space in revised plans which had been excluded in the original measurements. As a result, the revised plans, which were the version attached to the witness outline were not calculated in accordance with the Property Council of Australia’s method of measurement. The inclusion of the disabled amenity area added 7.4sqm to the total lettable area on the ground floor. The lettable area of G.01 was 113.9sqm on the revised plan or 112.9 on the original plan.
By the plans, only the ground floor area described as Suite G.01 was identified as untenanted. The rear of the building Suite G.02 was the area tenanted by Tippling House.
In my view, Mr Broadbent’s evidence was not opinion evidence from a person with specialised knowledge based upon their training, study or experience. He confirmed his job required no formal qualifications. Although he gave evidence that he ordinarily conducted measurements under the Property Council of Australia guidelines (PCA guidelines) as to what is or is not included in measurements of lettable areas, that of itself doesn’t imbue him with any specialised body of knowledge. In my view, his evidence properly understood is simply factual evidence as to measurements taken by him of what he understood to be the lettable area. He did not draw any conclusions from those measurements or seek to give an opinion whether what he had measured were leased areas prior to the transfer of land or accurately reflected the lettable areas.
The lack of expertise on Mr Broadbent’s part can be seen, as being distinct from a lack of professional precision, by contrasting evidence of the defendant who relied on Ms Steel’s own measurements of the lettable area for the purpose of calculating GST. These measurements were taken by Ms Steel of the exterior of the untenanted area using a tape-measure. It was those measurements that were relied on for the defendant’s calculations of GST. Ms Steel had no relevant expertise to conduct such measurements. The evidence of Mr Broadbent was admissible.
Further, the defendant criticised the evidence, as the measurements provided were not in accordance with PCA guidelines. In cross-examination, Mr Broadbent explained that he prepared two surveys of the area. A second one was prepared at the request of Mr Nguyen, who asked that one “amenities area” on the downstairs plan, and the upstairs amenities area both be included in the lettable area, but that the amenities area associated with G.01 remain excluded. That plan also then removed the wording that described the plan as being in accordance with the PCA guidelines. In re-examination, Mr Broadbent said he thought from memory that the disabled amenities area was associated with tenancy area G.02, being the rear tenancy of Tippling House. He understood this to be a tenant fit out, and was therefore included. He said it was common for a client to provide specific instructions as to whether areas were or were not included in lettable areas. He was unsure of the basis for the request to include the upstairs amenity area.
The two versions of the plans did not come to light until after Mr Nguyen’s evidence was completed. He was not recalled to be questioned further about the reasons for the instructions given. In light of Mr Broadbent’s evidence that it was common for clients to give specific instructions as to areas to be included or excluded from measurements, notwithstanding the PCA Guidelines, I do not consider that the two versions discredit Mr Broadbent or the accuracy of his evidence.
Despite advising the purchaser on 19 March 2018 that both the front and rear ground floor tenants in that building had vacated, the related party lease identified only the front downstairs area as being subject to the lease. The estimate of the unlet area as advised by the vendor when preparing a related party lease on 27 March 2018 was for an estimated area of 700sqm.[83] Mr Nguyen, in June 2018, thought that the front downstairs area (G.01) that had been vacated was approximately 70sqm.[84] It was not clear upon what either figure was based. Mr Broadbent measured the front downstairs area at either 112.9 or 113.9sqm. The defendant’s tax invoice identified the untenanted area as 158sqm. There was no reliable evidence as to how the figure of 158sqm had been arrived at or measured, or whether the defendant conceded it was in error identifying the Tippling House lease as having ended in September 2017. I note that at settlement notices of attornment were sent to three tenants, being three of the four entities described in the email notifying the status of the tenancies sent on 19 March 2018.
[83]Draft Related Party Lease at CB 651.
[84]Email from Mr Nguyen to Balmain, 12 June 2018 at CB 935.
The discrepancies may be because of imprecision by Ms Steel or it may be by error in identifying what was vacant and what was tenanted. It is unnecessary to resolve this as the damages to which the plaintiff is entitled is the amount it actually paid by way of GST, that being the sum of $96,911.98.
The documents evidencing the financier amounts were an arrangement fee and the associated legal fees invoiced to the nominee purchaser, 288 Johnston St Abbottsford Pty Ltd in its own right and as trustee for K7@Abbottsford Unit Trust.[85] There was no evidence that they were costs incurred by K7 Developments Pty Ltd, the plaintiff.
[85]Copy of Invoice at CB 1098 together with Legal Fees Tax Invoice at CB 1122.
The Letter of Offer of funds and payment submitted for the arrangement fee dated 1 May 2019[86] identifies the payer as the Nominee Purchaser, 288 Johnston St Abbotsford Pty Ltd.[87] This seems borne out by the letter from Makinson d’Apice Lawyers, acting for the investors providing the loan facility brokered by Balmain, which identified 288 Johnstone St Abbottsford Pty Ltd as the borrower.
[86]Email from Mr Nguyen to Balmain confirming of payment of invoice, by Mr Nguyen CB 91098.
[87]Mr Nguyen’s Witness Statement (n 42), [77]- [81].
As to the additional financing and related costs, Mr Nguyen’s witness statement deposed to receiving an email from Amy Leong on 26 June 2018 advising that the lender will not be in a position to ‘hold’ the loan offer for too much longer. She wrote that she was required to inform the lender of a settlement date and will not be able to drag things out.[88] However Mr Nguyen also said:
I have a long relationship with Balmain and I didn’t want to put them in the position where they had to call funds from investors and the settlement date keeps shifting.
[88]Email from Ms Leong to Mr Nguyen, 26 June 2018 at CB 980.
Mr Nguyen said that in July 2018 he had other funding options still available and he didn’t want to put Balmain in a difficult position. In fact, the evidence is that despite his instruction, the loan facility did remain open at that time and again, following the October agreement, he obtained a drawdown notice.[89] When settlement did not occur he again cancelled the loan facility. On this occasion it was cancelled. When he sought to draw down on the facility in March 2019 was he told he would have to reapply.
[89]Mr Nguyen’s Witness Statement (n 42), [81].
I am not persuaded that the plaintiff is entitled to the additional financial expenses incurred, even if they had been incurred by the plaintiff. The loan cancellation seems more directed at protecting the good relationship with Balmain and was not required by Balmain because of any lapse of time. The eventual cancellation did lead to a more stringent approval process but that was nevertheless completed. Ms Leong’s witness statement makes no reference to any expectation that the loan approval not remain open with the passage of time despite the matters mentioned in her email.
I conclude that the plaintiff is entitled to damages in the sum of $96,911.98 together with interest to be calculated.
Damages – the defendant’s claim
The defendant’s counterclaim sought declarations and damages from K7 Developments, and damages from the nominee purchaser 288 Johnston St Pty Ltd and Mr Nguyen and Mr Pham who had both signed deed of indemnity and guarantee under the contract.
The declarations sought were that the Contract had been terminated by the Service of the Default Notice in accordance with General Condition 28, alternatively, that the plaintiff repudiated the contract by its conduct. A declaration based upon repudiation by the purchaser of the October settlement was not persisted with. In addition the plaintiff by counterclaim sought a declaration that the purchaser had no caveatable interest in the land. Interest and costs were also sought.
The order in respect of the purchaser’s caveat falls away upon specific performance of the contract by settlement on 6 May 2019. If follows from my conclusions above that the plaintiff was not in default of its contractual obligations as at 12 June 2018 when the Default Notice was issued or at any time other than between 15 and 20 March 2018. There is nothing to suggest that, upon receipt of the rental amounts, a timely statement of adjustments would not be forthcoming. To the extent that the purchaser may have been required to pay GST, it did, on being provided with details of the amount said to be owed as GST, by the plaintiff’s June offer, offered to pay that amount and determine after settlement who had the liability to pay. This course was also was communicated to the purchaser’s financiers as being the contemplated course of action at the time the offer had been made.[90] The plaintiff’s June offer was rejected on the basis that it did not provide for interest to date and so was a lesser amount that the vendor’s contractual entitlements. For the reasons above I do not accept this.
[90]Email from Mr Nguyen to Ms Leong, 21 June 2018 at CB 941.
The defendant submits that the purchaser’s pleaded statement of claim sets out the extension variation agreement and this is inconsistent with the submission that it was not bound by that agreement. I see no inconsistency. The purchaser was bound by that agreement if it was not in a position to settle the contract on 15 March and was bound, even if it could so settle, to pay the legal costs associated with preparing the contemplated security documents. It accepted that it was liable to pay the associated legal costs.
The plaintiff by counterclaim has not demonstrated that the purchaser repudiated the Contract or failed to perform its obligations under the Contract and the counterclaim fails other than in respect of interest under the Contract for default for the period 15 to 20 March 2018. An amount of $14,301.37 representing this has been paid by the plaintiff as was the agreed legal costs incurred in preparing the extension agreement.
I will hear the parties on the appropriate orders to be made in conformity with these reasons.
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